<PAGE>
As filed with the Securities and Exchange Commission on February 22, 2000
Registration No. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
General Motors Corporation
(Exact name of registrant as specified in its charter)
Delaware 7374 38-0572515
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
300 Renaissance Center
Detroit, Michigan 48265-
3000
(313) 556-5000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
Peter R. Bible
Chief Accounting Officer
General Motors Corporation
300 Renaissance Center
Detroit, Michigan 48265-3000
(313) 556-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
Warren G. Andersen Marcy J.K. Tiffany
General Motors Corporation Hughes Electronics Corporation
3031 West Grand Boulevard 200 North Sepulveda Boulevard
Detroit, Michigan 48232 El Segundo, California 90245
(313) 974-1528 (310) 662-9688
<TABLE>
<S> <C> <C> <C>
Joseph P. Gromacki Frederick S. Green Francis J. Morison Victor I. Lewkow
Kirkland & Ellis Michael E. Lubowitz Sarah Beshar Cleary, Gottlieb, Steen & Hamilton
200 East Randolph Drive Weil, Gotshal & Manges LLP Davis Polk & Wardwell One Liberty Plaza
Chicago, Illinois 60601 767 Fifth Avenue 450 Lexington Avenue New York, New York 10006
(312) 861-2000 New York, New York, 10153 New York, New York 10017 (212) 225-2000
(212) 310-8000 (212) 450-4000
</TABLE>
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Approximate date of commencement of proposed sale to public: As soon as
practicable after this registration statement becomes effective and the other
conditions to the commencement of the Exchange Offer described herein have
been satisfied or waived.
If any of the securities being registered on this Form are to be offered in
connection with formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
--------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
maximum maximum
Title of each class of offering aggregate Amount of
securities to be Amount to be price per offering registration
registered registered (1) share (1) price (1) fee
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<S> <C> <C> <C> <C>
Class H Common Stock,
par value $0.10 per
share................. Up to 77,108,434 shares $92.6339 $7,142,854,964 $1,885,713.71
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Total.................. Up to 77,108,434 shares $92.6339 $7,142,854,964 $1,885,713.71
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effectiveness until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this document is not complete and may be +
+changed. We may not exchange these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This document is not an offer to sell these securities and is not a +
+solicitation of an offer to buy these securities in any state where the offer +
+or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
OFFERING CIRCULAR-PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED FEBRUARY 22, 2000
General Motors Corporation
Offer to Exchange
Shares of Class H Common Stock
for each share of
$1 2/3 Par Value Common Stock
-----------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON , 2000, UNLESS THE EXCHANGE OFFER IS EXTENDED.
-----------
General Motors will issue shares of Class H common stock for each share
of $1 2/3 par value common stock that is validly tendered and accepted by GM in
the exchange offer. [The number of shares of Class H common stock to be issued
for each share of $1 2/3 par value common stock that is validly tendered and
accepted by GM in the exchange offer, which we sometimes refer to in this
document as the "exchange ratio," will be determined by GM immediately prior to
the commencement of the exchange offer. It is currently expected that such
number of shares of Class H common stock will have a market value about 12 to
23 percent greater than the market value of the $1 2/3 par value common stock
tendered, as measured by the relative trading prices of the Class H common
stock and the $1 2/3 par value common stock at the time that GM determines the
exchange ratio.] GM will accept up to shares of $1 2/3 par value common
stock in the aggregate and will issue up to a total of shares of Class H
common stock in the exchange offer. If more than shares of $1 2/3 par
value common stock are validly tendered, GM will accept shares for exchange on
a pro rata basis as described in this document.
-----------
The terms and conditions of the exchange offer are described in this document,
which you should read carefully. None of GM, Hughes, the dealer manager or the
marketing manager or any of their officers or directors makes any
recommendation as to whether or not you should tender your shares of $1 2/3 par
value common stock in the exchange offer. You must make your own decision after
reading this document and consulting with your advisors based on your own
financial position and requirements.
-----------
This is an offering of Class H common stock in exchange for $1 2/3 par value
common stock. Class H common stock is a "tracking stock" of GM designed to
provide holders with financial returns based on the financial performance of
Hughes, which is a wholly-owned subsidiary of GM. GM's Class H common stock is
listed on the New York Stock Exchange under the symbol "GMH."
All persons holding $1 2/3 par value common stock are eligible to participate
in the exchange offer if they tender their shares in a jurisdiction where the
exchange offer is permitted under local law.
-----------
Investing in the Class H common stock involves risks. See "Risk Factors"
beginning on page 17.
-----------
Salomon Smith Barney is the Marketing Manager for Hughes Electronics
Corporation in the exchange offer.
-----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this document is truthful or complete. Any representation to the contrary is a
criminal offense.
-----------
GM has retained the services of Morrow & Co., Inc. as information agent to
assist you in connection with the exchange offer. You may call Morrow to
request additional documents and to ask any questions at (800) 206-5881 (toll
free) in the United States or at (212) 754-8000 (collect) elsewhere.
-----------
The Dealer Manager for the exchange offer is:
MORGAN STANLEY DEAN WITTER
Offering Circular-Prospectus dated , 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Questions and Answers About the
Exchange Offer..................... 1
Summary............................. 6
Risk Factors........................ 17
The Transactions.................... 26
The Exchange Offer.................. 31
Price Range and Dividends for $1 2/3
Par Value Common Stock............. 43
Price Range for Class H Common
Stock.............................. 44
Capitalization of GM................ 45
Selected Historical Financial Data
of Hughes.......................... 46
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of Hughes............ 48
Unaudited Pro Forma
Combined Condensed Financial
Information of Hughes.............. 65
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Notes to Unaudited Pro Forma
Combined Condensed Financial
Information of Hughes............. 68
Business of GM..................... 72
Business of Hughes................. 73
Management of Hughes............... 98
Shares Eligible for Future Sale.... 99
Overview of GM Capital Stock....... 101
Description of Class H Common
Stock............................. 108
Comparison of Rights of $1 2/3 Par
Value Stockholders and Class H
Stockholders...................... 115
Income Tax Consequences............ 120
Legal Matters...................... 124
Experts............................ 124
Disclosure Regarding Forward-
Looking Statements................ 125
Where You Can Find More
Information....................... 126
</TABLE>
----------------
You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information different from that
contained in this document. We are offering to sell, and seeking offers to
buy, the securities offered by this document only in jurisdictions where
offers and sales are permitted under the laws of those jurisdictions. The
information contained in this document is accurate only as of the date of this
document regardless of the time of delivery or of any sale of the securities
offered by this document.
----------------
AIReach(R), DirecDuo(TM), DirecPC(R), DIRECTV(R), DIRECTV Para Todos(TM),
DirecWay(TM), Galaxy(R), PRIMESTAR(R), Spaceway(TM), SPOTbytes(R), and U.S.
Satellite Broadcasting(R) are trademarks of Hughes Electronics Corporation or
its subsidiaries. All other trademarks are properties of their respective
owners.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER
Q1. Why did GM choose to conduct the exchange offer?
A1. The exchange offer of up to about $8 billion of Class H common stock is an
important element of our overall plan to restructure GM's economic
interest in our Hughes subsidiary in order to realize some of the economic
value arising from GM's ownership of Hughes. The other element consists of
our anticipated contributions of about $7 billion of Class H common stock
to certain of our employee benefit plans, which we explain further below
in the response to Question 3. Assuming that the exchange offer is fully
subscribed and that the contributions to the employee benefit plans are
made as anticipated, we will issue a total of about new shares
of Class H common stock, with an aggregate value of about $15 billion,
based on the closing trading price of Class H common stock on ,
2000.
We expect that our plan will result in the following benefits to GM and
its stockholders:
. We will use the exchange offer to repurchase a substantial amount of $1
2/3 par value common stock, which we expect will significantly increase
the earnings per share attributable to $1 2/3 par value common stock in
the future.
. The contributions to the employee benefit plans will reduce our annual
pension expense and other post-retirement employee benefit expense and
will strengthen GM's overall financial position.
. The issuance of additional shares of Class H common stock in connection
with these transactions will substantially increase the liquidity of
that stock in the market, which we believe will benefit Class H
stockholders over time.
Q2. Is the exchange offer being utilized to separate Hughes from GM?
A2. No. This exchange offer is not a split-off of Hughes from GM. Upon
completion of the exchange offer, Hughes will remain a wholly-owned
subsidiary of GM. The exchange offer will not affect the business
operations of Hughes, and GM's automotive operations will continue to have
direct access to the opportunities for strategic synergies with Hughes'
rapidly growing communications services businesses. GM currently has no
plans or intention to separate Hughes or any of its businesses from GM,
whether by means of a spin-off, split-off or any other transaction.
However, GM will continue to evaluate what Hughes ownership structure
would be optimal for the two companies and GM's stockholders. As a result,
GM may determine to pursue any number of future transactions involving
Hughes, or no transaction at all.
Q3. What are the contributions to the employee benefit plans?
A3. We currently plan to contribute a total of about $7 billion of Class H
common stock to:
. our pension plan for the benefit of our hourly-rate employees; and
. a dedicated account within our voluntary employees' beneficiary
association trust, which was established to fund certain hourly retiree
health care and life insurance benefits under some of our welfare plans,
and which we sometimes refer to in this document as the "VEBA."
Our contribution of Class H common stock to the pension plan will reduce
our annual pension expense. In addition, our contribution of Class H
common stock to the VEBA will reduce our expense relating to other post-
retirement employee benefits for our employees. Although we reserve the
right to modify the amount or timing of each contribution, or not to make
either contribution at all, in the event that our board of directors
determines that such a change would be in the best interests of GM and its
stockholders, we currently expect to complete these contributions during
the second quarter of 2000.
1
<PAGE>
Q4. Will the issuance of Class H common stock in the exchange offer and the
contributions to the employee benefit plans dilute the earnings per share
attributable to the Class H common stock currently outstanding?
A4. No. These transactions will not dilute the earnings per share attributable
to the Class H common stock. GM's Class H common stock is a "tracking
stock" to which we allocate a portion of the earnings of our Hughes
subsidiary in order to determine earnings per share. The portion of
Hughes' earnings allocated to the Class H common stock for this purpose
increases proportionately upon the issuance of additional shares of Class
H common stock in transactions such as the exchange offer and the proposed
contributions to the employee benefit plans. Because the number of shares
of Class H common stock and the earnings allocated to such stock will
increase proportionately, there will be no dilution to the earnings per
share of Class H common stock.
Q5. How will these transactions affect the allocation of Hughes' earnings
between the $1 2/3 par value common stock and the Class H common stock?
A5. Our certificate of incorporation allocates Hughes' earnings between our
two classes of common stock based on a fraction that we sometimes refer to
in this document as the "Class H fraction." For more information about the
Class H fraction and how we allocate Hughes' earnings in order to
determine earnings per share, see "Summary--Class H Common Stock" on page
.
In order to illustrate the effect of the exchange offer and the
contributions to the employee benefit plans on the Class H fraction, we
have calculated the Class H fraction based on the number of shares of
Class H common stock outstanding as of December 31, 1999 based on certain
assumptions as of that date which give effect to the exercise of all
outstanding options and the shares of Class H common stock issuable upon
conversion of GM's Series H preference stock. Based on the Class H
fraction as so calculated, about 37% of Hughes' earnings would have been
allocable to the Class H common stock for purposes of determining earnings
per share and amounts available for the payment of dividends. The
remaining portion of Hughes' earnings, about 63%, would have been
allocable to the $1 2/3 par value common stock.
Giving effect to a fully-subscribed exchange offer, the Class H fraction
calculated as of December 31, 1999 as described above would result in the
allocation of about % of Hughes' earnings to the Class H common stock
and the balance of about % to the $1 2/3 par value common stock. In
addition, assuming that the exchange offer is fully subscribed and that GM
completes the contributions to the employee benefit plans as anticipated,
the Class H fraction as described above would allocate about % of
Hughes' earnings to the Class H common stock and the balance of about %
to the $1 2/3 par value common stock.
Q6. How will the exchange offer affect me?
A6. The exchange offer will provide you with an opportunity to increase your
interest in the financial performance of Hughes by exchanging your shares
of $1 2/3 par value common stock for shares of Class H common stock. This
exchange will generally be free of any U.S. federal income tax. We explain
the tax consequences further below in the response to Question 20.
Pursuant to the exchange offer, you may tender some, all or none of your
shares of $1 2/3 par value common stock in exchange for shares of Class H
common stock. However, you will be affected by the exchange offer whether
or not you tender any of your shares of $1 2/3 par value common stock. For
more information, see "Risk Factors--Risk Factors Relating to the Exchange
Offer--You Will Be Affected by the Exchange Offer Whether or Not You
Tender Your Shares of $1 2/3 Par Value Common Stock" on page .
Q7. May I participate in the exchange offer?
A7. You may participate in the exchange offer if you hold shares of $1 2/3 par
value common stock and you validly tender your shares during the exchange
offer period in a jurisdiction where this exchange offer is permitted
under the laws of that jurisdiction.
2
<PAGE>
Q8. How many shares of Class H common stock will I receive for each share of
$1 2/3 par value common stock that I tender?
A8. You will receive shares of Class H common stock for each share of $1
2/3 par value common stock that you validly tender in the exchange offer
that is accepted by GM. We sometimes refer to this number in this document
as the "exchange ratio." No fractional shares of Class H common stock will
be distributed in the exchange offer. Instead, you will be paid cash in
exchange for any fractional share.
Q9. When does the exchange offer expire?
A9. The exchange offer period and withdrawal rights will expire at 12:00
midnight, New York City time, on , 2000, unless GM extends the
exchange offer. We sometimes refer to this date and time in this document
as the "expiration date." You must tender your shares of $1 2/3 par value
common stock so that they are received by the exchange agent prior to the
expiration date if you wish to participate in the exchange offer.
Q10. How do I tender my shares in the exchange offer?
A10. The procedures you must follow in order to tender your shares of $1 2/3
par value common stock in the exchange offer will depend upon whether you
hold your shares of $1 2/3 par value common stock in certificated form,
in book-entry form, through a bank or broker or through an employee
benefit plan. In addition, you may need to follow certain special
procedures if you tender your shares in a jurisdiction other than the
United States. For instructions about how to participate in the exchange
offer, see "Summary--Terms of the Exchange Offer--Procedures for
Tendering" on page , "The Exchange Offer--Procedures for Tendering
Shares of $1 2/3 Par Value Common Stock" on page and "The Exchange
Offer--Special Procedures for Certain Jurisdictions Outside the United
States" on page .
Q11. Can I tender only a portion of my shares of $1 2/3 par value common stock
in the exchange offer?
A11. Yes. This is a voluntary exchange offer, which means that you may tender
some, all or none of your shares of $1 2/3 par value common stock in the
exchange offer. If you have a stock certificate that represents more
than the number of shares of $1 2/3 par value common stock you wish to
tender, you may specify on the letter of transmittal how many of your
shares of $1 2/3 par value common stock are to be tendered and how many
are to be returned to you. Any shares that you are not tendering but that
are represented by stock certificates sent in to the exchange agent will
be returned to you in book-entry form. For information about book-entry
registration, please see our response to Question 21 below. If you own
fewer than 100 shares of $1 2/3 par value common stock and wish to take
advantage of the preferential treatment of odd-lot shares in the event
that the exchange offer is oversubscribed, you must tender all of your
shares in the exchange offer. For information on odd-lot shares, see "The
Exchange Offer--Proration; Tenders for Exchange by Holders of Fewer than
100 Shares of $1 2/3 Par Value Common Stock" on page .
Q12. What should I do if I want to retain my shares of $1 2/3 par value common
stock?
A12. Nothing, if you are not tendering any of your shares of $1 2/3 par value
common stock in the exchange offer. However, if you are tendering some,
but not all, of your shares of $1 2/3 par value common stock in the
exchange offer, and the shares you wish to tender are represented by the
same stock certificate as shares you wish to retain, you will need to
give certain instructions to the exchange agent as provided for in the
instructions to the letter of transmittal.
Q13. Can I change my mind after I tender my shares of $1 2/3 par value common
stock?
A13. Yes. You may change your mind and withdraw tenders of your shares any
time before the exchange offer expires. If you change your mind again,
you can retender your shares of $1 2/3 par value common stock by
3
<PAGE>
following the tender procedures again prior to the time the exchange offer
expires. For information about the procedures for tendering and
withdrawing tenders of your shares of $1 2/3 par value common stock, see
"The Exchange Offer--Procedures for Tendering Shares of $1 2/3 Par Value
Common Stock" on page and "--Withdrawal Rights" on page .
Q14. Does the exchange offer involve a premium?
A14. Based on the closing trading prices for shares of $1 2/3 par value common
stock and Class H common stock on , 2000, the exchange ratio would
result in a tendering $1 2/3 par value stockholder receiving shares of
Class H common stock with a market value greater than the market value of
the shares of $1 2/3 par value common stock tendered. However, the
relative trading prices for Class H common stock and $1 2/3 par value
common stock will fluctuate over the course of the exchange offer and any
premium that you might receive as a tendering $1 2/3 par value
stockholder will depend on the prices of shares of $1 2/3 par value
common stock and Class H common stock at the time of the closing of the
exchange offer. As a result, we cannot predict what the amount of the
premium, if any, will be at the closing of the exchange offer or the
prices at which shares of Class H common stock or $1 2/3 par value common
stock will trade over time.
You can calculate an indicated premium, expressed as a percentage, based
on market values using the following formula:
( (Exchange Ratio) X (Price of one share of )
( Class H common stock) )
( --------------------------------------------- )
( - 1 ) X 100
( Price of one share of $1 2/3 par value )
( common stock )
For example: Assume a price of $ for a share of $1 2/3 par value
common stock and a price of $ for a share of Class H common stock,
which were the closing trading prices on the NYSE for shares of $1 2/3 par
value common stock and Class H common stock on , 2000. At an
exchange ratio of shares of Class H common stock for one share of
$1 2/3 par value common stock, the indicated premium would be about
percent of the $1 2/3 par value common stock share price.
Q15. Are there any conditions to GM's obligation to complete the exchange
offer?
A15. Yes. We do not have to complete the exchange offer unless all of the
conditions outlined on pages to are satisfied. In particular,
there is a condition that at least shares of the $1 2/3 par value
common stock must be tendered in the exchange offer. This means that we
will not be obligated to complete the exchange offer unless at least
shares of $1 2/3 par value common stock are tendered so that at
least percent of the shares of Class H common stock offered pursuant
to the exchange offer can be exchanged. We sometimes refer to this
condition in this document as the "minimum condition." GM may at any time
waive any or all of the conditions to the exchange offer.
Q16. What happens if the minimum condition is not satisfied?
A16. If fewer than shares of $1 2/3 par value common stock are
tendered in the exchange offer, the minimum condition will not be
satisfied and we may choose not to complete the exchange offer. If we
choose not to complete the exchange offer, we will promptly return any
shares of $1 2/3 par value common stock that may have been tendered to
us. In addition, if we choose not to complete the exchange offer, we will
reevaluate our current plan with respect to realizing some of the
economic value arising from our ownership of Hughes.
Q17. What happens if the minimum condition is satisfied, but less than
shares of $1 2/3 par value common stock are tendered?
A17. If the minimum condition is satisified and all of the other conditions to
the exchange offer have been satisfied or waived, GM would be obligated
to complete the exchange offer as described in this document.
4
<PAGE>
Under these circumstances, the exchange offer would not be fully
subscribed and, as a result, we would issue fewer shares of Class H common
stock than we would have if more shares of $1 2/3 par value common stock
had been validly tendered.
Q18. What happens if more than shares of $1 2/3 par value common stock
are tendered?
A18. If more than shares of $1 2/3 par value common stock are tendered
in the exchange offer, all shares of $1 2/3 par value common stock that
are validly tendered will be accepted for exchange on a pro rata basis.
However, tenders by persons who own fewer than 100 shares of $1 2/3 par
value common stock, which are sometimes referred to as "odd-lots," who
tender all of the shares they own will not be subject to proration and
will be accepted in full. Shares you own in a GM or GM affiliated savings
plan are not eligible for the preferential treatment that odd-lot holders
will receive. Proration will be based on the number of shares of $1 2/3
par value common stock that each $1 2/3 par value stockholder has
tendered in the exchange offer, and not on that stockholder's aggregate
ownership of $1 2/3 par value common stock. Any shares not accepted for
exchange as a result of proration will be returned to tendering $1 2/3
par value stockholders in book-entry form.
Q19. What happens if GM declares a quarterly dividend on $1 2/3 par value
common stock during the exchange period and I have previously tendered my
shares?
A19. If a dividend is declared with a record date before the completion of the
exchange offer, you will be entitled to that dividend even if you have
previously tendered your shares. Tendering your shares of $1 2/3 par
value common stock in the exchange offer is not a sale or transfer of the
shares until they are accepted by GM for exchange upon completion of the
exchange offer.
Q20. Will I be taxed on the shares of Class H common stock that I receive in
the exchange offer?
A20. We currently anticipate receiving a tax opinion from Kirkland & Ellis to
the effect that, for U.S. federal income tax purposes, the exchange of
Class H common stock for $1 2/3 par value common stock pursuant to the
exchange offer will be tax-free to GM and, except in connection with cash
received instead of fractional shares, to $1 2/3 par value stockholders
who participate in the exchange offer. We have conditioned our obligation
to complete the exchange offer on our receipt of this opinion. The tax
opinion will not address state, local or foreign tax consequences that
may be applicable to $1 2/3 par value stockholders who participate in the
exchange offer. We describe certain material tax considerations at
"Income Tax Consequences--Material U.S. Federal Income Tax Consequences"
on page . You should consult your tax advisor as to the particular
tax consequences to you of your participation in the exchange offer.
Q21. How does book-entry registration work?
A21. Both Class H common stock and $1 2/3 par value common stock are
registered in book-entry form through the direct registration system
administered by GM's stock transfer agent and registrar, BankBoston, N.A.
Under this system, unless a stockholder requests a stock certificate
representing his or her shares, ownership of Class H common stock and $1
2/3 par value common stock is represented by account statements
periodically distributed to stockholders by BankBoston, who holds the
book-entry shares on behalf of stockholders. For more information about
book-entry registration, see "The Exchange Offer--Book-Entry Accounts" on
page .
Q22. Who should I call if I have questions or want copies of additional
documents?
A22. You may call the information agent, Morrow, to ask any questions or to
request additional documents at (800) 206-5881 (toll free) in the United
States or at (212) 754-8000 (collect) elsewhere. You may also obtain free
copies of other documents publicly filed by GM at the SEC's website at
www.sec.gov or at General Motors' website at www.gm.com. See "Where You
Can Find More Information" on page .
5
<PAGE>
SUMMARY
In this summary, we highlight information which we describe in greater
detail elsewhere in this document. This summary may not contain all of the
information that you should consider before deciding whether to participate in
the exchange offer. We urge you to read this entire document carefully,
including the "Risk Factors" section and the consolidated financial statements
and the notes to those statements. As used in this document, unless the context
requires otherwise,
. "General Motors," "GM" or "we" means General Motors Corporation and its
consolidated subsidiaries, including Hughes; and
. "Hughes" means Hughes Electronics Corporation, its consolidated
subsidiaries and its ownership interest in equity affiliates.
Overview
We will issue shares of our Class H common stock for each share of
our $1 2/3 par value common stock that is validly tendered and accepted by us
in the exchange offer, up to an aggregate of shares of Class H common
stock. In addition, we currently plan to contribute about $7 billion of Class H
common stock to certain of our employee benefit plans during the second quarter
of 2000. We are using these transactions to implement our overall plan to
restructure our economic interest in our Hughes subsidiary in order to realize
some of the economic value arising from our ownership of Hughes. We expect that
these transactions, if completed, will significantly increase the earnings per
share attributable to $1 2/3 par value common stock in the future.
General Motors
General Motors is primarily engaged in the automotive and, through its
wholly-owned Hughes subsidiary, the communications services industries. GM is
the world's largest manufacturer of automotive vehicles. GM also has financing
and insurance operations and, to a lesser extent, engages in other industries.
Our principal executive offices are located at 300 Renaissance Center, Detroit,
Michigan 48265-3000 and our telephone number is (313) 556-5000.
Hughes
Hughes is a leading global provider of digital entertainment, information
and communications services and satellite-based private business networks.
Let us tell you more about our Hughes subsidiary:
. Hughes has been a pioneer in many aspects of the satellite and wireless
communications industry, and its technologies have driven the creation of
new services and markets and have established Hughes as a leader in each
of the markets it serves. Hughes believes that its ability to identify,
define and develop new markets early has provided it with a significant
competitive advantage in building sustainable market leadership
positions.
. Hughes is focused on providing advanced communications services on a
global basis and has developed a wide range of entertainment, information
and communications services for both the home and business markets,
including video, data, voice, multimedia and Internet services. Over the
past two years, these services have comprised an increasingly significant
portion of Hughes' revenues. Hughes believes that these services provide
the potential for higher value through higher margins and higher growth
than Hughes' traditional manufacturing businesses.
6
<PAGE>
. Earlier this year, Hughes announced a strategy designed to focus its
resources on its high-growth services businesses. As part of this
strategy, Hughes is:
. selling its satellite systems manufacturing businesses;
. discontinuing several product lines in its wireless business to focus
on its leading broadband wireless network business; and
. realigning its marketing efforts to focus on its consumer and business
enterprise customers.
. Hughes' business includes:
. DIRECTV. Hughes, through DIRECTV, is the world's leading digital
multi-channel entertainment provider, based on the number of
subscribers, with over 9 million subscribers worldwide as of December
31, 1999.
. PanAmSat. The PanAmSat subsidiary of Hughes has the largest commercial
satellite fleet in the world, with 21 satellites capable of
transmitting signals to geographic areas covering 99% of the world's
population.
. Broadband Services and Products. Hughes is a leading provider of
satellite and wireless communications ground equipment and business
communications services, with a greater than 50% share of the global
market for satellite-based private business networks.
Hughes' business currently also includes Hughes Space and Communications,
a leading satellite manufacturer. However, Hughes has recently agreed to
sell its satellite systems manufacturing businesses to The Boeing Company.
This sale of the most significant portion of its traditional manufacturing
businesses is part of Hughes' strategy to focus its business on integrated
entertainment, information and communications services.
. Hughes' business objective is to enhance its position as a premier
provider of integrated information, entertainment and communications
services by leveraging its satellite and wireless communications systems
expertise and by capitalizing on its competitive advantages. Hughes' core
strategies for achieving this objective are to:
. Lead the multi-channel entertainment market. Hughes intends to
capitalize on favorable demand trends for multi-channel entertainment
in the United States and select international markets, including by
maintaining DIRECTV's leadership position in the United States through
its premier brand of distinctive programming, leveraging its
experience in the U.S. multi-channel entertainment market and brand
name in international markets where Hughes believes significant growth
opportunities exist and increasing average revenue per subscriber.
. Capitalize on growth opportunities in the markets for Internet
services and digital data. Hughes intends to capitalize on the growth
of the Internet and the increased presence of digital data in the
communications services industry by integrating a range of Internet-
based and interactive technologies into DIRECTV programming and by
developing an array of digital data, intranet and Internet services
for the consumer and business enterprise markets.
. Achieve sustainable market leadership positions. Hughes strives to
achieve and sustain market leadership positions by identifying,
defining and developing new markets and introducing innovative
products and services to serve these markets.
Hughes' principal executive offices are located at 200 North Sepulveda
Boulevard, El Segundo, California 90245 and its telephone number is (310) 662-
9688.
7
<PAGE>
Class H Common Stock
General Motors has two classes of common stock:
.$1 2/3 par value common stock; and
.Class H common stock.
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, Class H
stockholders would have no direct claim against the assets of Hughes. Rather,
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 Class H common stock by a fraction which reflects
the portion of Hughes' earnings that is allocated to the 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 at the end of each
quarter, as follows:
. The numerator of the Class H fraction is the weighted average number of
shares of Class H common stock outstanding during the applicable period.
. The denominator of the Class H fraction is the notional number of shares
of Class H common stock which, if outstanding, would represent 100% of
the tracking stock interest in the earnings of Hughes.
We sometimes refer to the denominator of the Class H fraction as the "Class H
dividend base." The Class H dividend base can be adjusted by the GM board of
directors in specified circumstances, including to reflect contributions by GM
to Hughes.
The issuance of shares of Class H common stock in the exchange offer and the
contributions to the employee benefit plans will increase the numerator of the
Class H fraction without changing the denominator. Accordingly, such issuances
will increase the portion of Hughes' earnings that is allocable to the Class H
common stock and will reduce the portion that is allocable to the $1 2/3 par
value common stock for purposes of determining earnings per share and amounts
available for the payment of dividends. Assuming that the exchange offer is
fully subscribed and that the contributions to the employee benefit plans are
made as anticipated, the combined effect of these transactions would be to
increase the tracking stock interest in Hughes' earnings represented by Class H
common stock from about 37% to %, with a corresponding reduction of the
portion of Hughes' earnings attributable to $1 2/3 par value common stock from
about 63% to %. These percentages are provided for illustrative purposes
only and are based on certain assumptions which we describe elsewhere in this
document. For more information, see "Description of Class H Common Stock--
Detailed Calculation of Amount Available for Dividends on Class H Common
Stock--Illustrative Calculation of Class H Fraction Following the Exchange
Offer and the Contributions to the Employee Benefit Plans." Because the
earnings of Hughes allocable to Class H common stock will increase
proportionately with the increase in the number of shares of Class H common
stock outstanding, these issuances will not dilute the earnings per share
attributable to the Class H common stock.
The payment of dividends on Class H common stock is determined by GM's board
of directors. Since the completion in 1997 of a series of transactions that
involved a restructuring of the predecessor of Hughes, which we sometimes refer
to in this document as the "Hughes restructuring transactions," no dividends
have been paid on the Class H common stock. We do not currently expect to pay
dividends on the Class H common stock in the foreseeable future.
8
<PAGE>
Terms of the Exchange Offer
<TABLE>
<S> <C>
Terms of the exchange offer
(see page )................. We are offering to exchange shares of Class H common
stock for each share of $1 2/3 par value common stock
validly tendered in the exchange offer, up to a maximum of
shares of $1 2/3 par value common stock. This is a
voluntary exchange offer, which means that you may tender
all, some or none of your shares of $1 2/3 par value
common stock in the exchange offer.
All shares of $1 2/3 par value common stock validly
tendered and not withdrawn and accepted by GM will be
exchanged at the exchange ratio, on the terms and subject
to the conditions of the exchange offer, including the
proration provisions. We will promptly return in book-
entry form any shares of $1 2/3 par value common stock not
accepted by GM for exchange following the expiration of
the exchange offer and determination of the final
proration factor.
Expiration date; extension;
termination (see pages
and )...................... The exchange offer and withdrawal rights will expire at
12:00 midnight, New York City time, on , 2000, unless
GM extends the exchange offer. You must validly tender
your shares of $1 2/3 par value common stock so that they
are received by the exchange agent prior to this date if
you wish to participate in the exchange offer. We may also
terminate the exchange offer in the circumstances
described on page .
Proration; odd-lots (see
page ).................... If more than shares of $1 2/3 par value common stock
are tendered, we will accept all shares validly tendered
on a pro rata basis. We will announce the preliminary
proration factor by press release promptly after the
exchange offer expires. We expect to announce any final
proration factor within about seven business days after
the expiration date.
If you hold fewer than 100 shares of $1 2/3 par value
common stock, and tender all of these shares for exchange,
all of your shares will be accepted for exchange without
proration if the exchange offer is completed. Shares you
own through a GM or GM affiliated savings plan are not
eligible for this preferential treatment.
Withdrawal rights
(see page )................. You may withdraw tenders of your shares of $1 2/3 par
value common stock at any time before the exchange offer
expires and at other times under certain circumstances. If
you change your mind prior to the expiration of the
exchange offer, you may retender your shares of $1 2/3 par
value common stock by following the exchange offer
procedures again and retendering prior to the expiration
date.
Conditions for completion of
the exchange offer (see
page ).................... The exchange offer is subject to various conditions,
including the condition that at least shares of $1
2/3 par value common stock are validly tendered, which
must be satisfied in order for us to be obligated to
complete the exchange offer.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
No fractional shares (see page
)........................... No fractional shares of Class H common stock will be
distributed in the exchange offer. If you would otherwise
be entitled to receive a fractional share of Class H
common stock, you will be paid cash for the fractional
share.
Procedures for tendering shares
of
$1 2/3 par value common stock
(see pages to )........... If you hold certificates representing your shares of $1
2/3 par value common stock, you must complete and sign the
letter of transmittal designating the number of shares of
$1 2/3 par value common stock you wish to tender. Send the
letter of transmittal, together with your $1 2/3 par value
common stock certificates and any other documents required
by the letter of transmittal, by registered mail, return
receipt requested, so that it is received by the exchange
agent at one of the addresses listed on the back cover of
this document before the expiration of the exchange offer.
If you hold shares of $1 2/3 par value common stock
through a broker, you should receive instructions from
your broker on how to participate. You will not need to
complete the letter of transmittal. Please contact your
broker directly if you have not yet received instructions.
Some financial institutions may also effect tenders by
book-entry transfer through The Depository Trust Company.
If you hold certificates for shares of $1 2/3 par value
common stock or if you hold shares of $1 2/3 par value
common stock through a broker, you may also comply with
the procedures for guaranteed delivery.
If you hold shares of $1 2/3 par value common stock in
book-entry form through the direct registration system,
you should send the executed letter of transmittal
indicating the number of shares to be tendered to the
exchange agent by registered mail, return receipt
requested, so that it is received by the exchange agent at
one of the addresses listed on the back cover of this
document before the expiration of the exchange offer.
If you participate in a GM or a GM affiliated company
savings plan listed on page , you will receive separate
instructions from the plan trustees or administrator of
the plan regarding how to tender these shares. You should
follow those instructions, and you should not use the
letter of transmittal to tender your shares held under any
of these plans.
Delivery of shares of Class H
common stock (see page ).... We will deliver shares of Class H common stock issued in
the exchange offer by book-entry transfer and cash instead
of fractional shares as soon as practicable after the
expiration of the exchange offer, acceptance of shares of
$1 2/3 par value common stock for exchange and
determination of the proration factor.
Comparative per share market
price information (see pages
and )...................... Shares of $1 2/3 par value common stock and Class H common
stock are currently listed and traded on the NYSE. GM's $1
2/3 par value common
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
stock is traded under the symbol "GM," and GM's Class H
common stock is traded under the symbol "GMH."
On February 18, 2000, the last trading day before the
initial filing of the registration statement relating to
the exchange offer, the closing trading price of $1 2/3
par value common stock on the NYSE was $73.75, and the
closing trading price of Class H common stock was $102.44.
On , 2000 the second to last trading day before
the start of the exchange offer, the closing trading price
of $1 2/3 par value common stock on the NYSE was $ ,
and the closing trading price of Class H common stock on
the NYSE was $ .
U.S. federal income tax
consequences (see page )..... We currently anticipate receiving a tax opinion from
Kirkland & Ellis to the effect that, for U.S. federal
income tax purposes, the exchange of Class H common stock
for $1 2/3 par value common stock pursuant to the exchange
offer will be tax-free to GM and, except in connection
with cash received instead of fractional shares, to $1 2/3
par value stockholders who participate in the exchange
offer. Each $1 2/3 par value stockholder should consult
his or her tax advisor as to the particular tax
consequences of the exchange offer to him or her.
IRS regulations require that, if you participate in the
exchange offer, you include certain information in your
U.S. federal income tax return for the year in which the
exchange offer occurs. GM will provide this information to
you after the exchange offer is completed.
No appraisal rights............ No appraisal rights are available to stockholders of GM in
connection with the exchange offer.
Exchange agent................. BankBoston, N.A.
Information agent.............. Morrow & Co., Inc.
Dealer manager................. Morgan Stanley Dean Witter
Marketing manager for Hughes... Salomon Smith Barney
Risk factors (see pages
to )....................... You should read and consider carefully the matters
described under the caption "Risk Factors," as well as the
other information set forth in this document, before
deciding whether to participate in the exchange offer.
Determining whether to
participate in the exchange
offer......................... None of General Motors, Hughes, the dealer
manager, the marketing manager or any of their
respective officers or directors makes any
recommendation as to whether you should tender
your shares of $1 2/3 par value common stock in
the exchange offer. You must make your own
decision regarding whether to tender and, if so,
how many shares to tender after reading this
document and consulting with your advisors based
on your own financial position and requirements
and any other relevant considerations.
We urge you to read this document very carefully.
</TABLE>
11
<PAGE>
Comparative Per Share Data
We summarize in the tables below the historical and pro forma per share
information for each of the two classes of GM common stock. We calculated book
value per share based on the liquidation rights of each class, which are
described at "Description of Class H Common Stock--Liquidation Rights." All
earnings (loss) per share amounts set forth in this document are reported as
diluted, unless otherwise noted.
Historical Per Share Data
<TABLE>
<CAPTION>
As of and for the
As of and for nine months ended
the year ended September 30,
December 31, -----------------------------
1998 1998 1999
-------------- -------------- --------------
$1 2/3 Class H $1 2/3 Class H $1 2/3 Class H
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Book value per share.............. $20.00 $12.00 $19.54 $11.72 $20.59 $12.36
Cash dividends per share.......... 2.00 -- 1.50 -- 1.50 --
Earnings (loss) per share from
continuing operations
attributable to common stock..... 4.32 0.68 1.87 0.38 6.67 (0.17)
</TABLE>
Pro Forma Per Share Data
This pro forma per share information gives effect to a fully-subscribed
exchange offer. As a result of the exchange offer, the earnings (loss) per
share calculation of the $1 2/3 par value common stock will reflect the lower
number of outstanding shares of $1 2/3 par value common stock and the $1 2/3
par value stockholders' decreased interest in the available separate
consolidated net income (loss) of Hughes. While there will be no change to the
earnings per share of Class H common stock, the earnings per share calculation
of the Class H common stock will reflect the Class H stockholders' increased
interest in the available separate consolidated net income (loss) of Hughes and
the proportionate increase in the number of shares of Class H common stock
outstanding.
<TABLE>
<CAPTION>
As of and for the
As of and for nine months ended
the year ended September 30,
December 31, -----------------------------
1998 1998 1999
-------------- -------------- --------------
$1 2/3 Class H $1 2/3 Class H $1 2/3 Class H
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Book value per share.............. $ $ $ $ $ $
Cash dividends per share..........
Earnings (loss) per share from
continuing operations
attributable to common stock.....
</TABLE>
12
<PAGE>
Summary Historical Consolidated Financial Data of GM
On May 28, 1999, GM completed the separation of Delphi Automotive Systems
Corporation from GM. Prior to 1999, Delphi was a business segment of GM. The
following statement of operations data for each of the three years in the
period ended December 31, 1998 and the balance sheet data as of December 31,
1998 and 1997 have been derived from GM's consolidated financial statements,
reflecting Delphi Automotive Systems Corporation as discontinued operations,
which have been audited by Deloitte & Touche LLP, independent auditors. The
statement of operations data for the nine months ended September 30, 1999 and
1998, and for each of the two years in the period ended December 31, 1995 and
the balance sheet data as of September 30, 1999 and 1998 and December 31, 1996,
1995 and 1994 have been derived from the unaudited consolidated financial
statements of GM, reflecting Delphi Automotive Systems Corporation as
discontinued operations and, in the opinion of management, include all
adjustments, consisting only of normal recurring items, necessary to present
fairly such data. The following summary consolidated financial data also
reflects Electronic Data Systems Corporation as discontinued operations for the
periods presented prior to its June 7, 1996 split-off from GM.
You should read the data below in conjunction with GM's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999 and GM's Current Reports on
Form 8-K dated April 12, 1999 and filed on April 15, 1999 and April 21, 1999,
which restated GM's consolidated financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations to
reflect Delphi Automotive Systems Corporation as discontinued operations.
Results for the period ended September 30, 1999 are not necessarily indicative
of results that may be expected for the entire year. Certain amounts for 1998
and prior years have been reclassified to conform with the 1999
classifications.
<TABLE>
<CAPTION>
As of and for the As of and for the
year ended nine months ended
December 31, September 30,
---------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total net sales and
revenues............... $143,740 $154,954 $158,281 $172,580 $155,445 $110,821 $130,296
Income from continuing
operations before
cumulative effect of
accounting changes...... 3,633 4,726 4,100 6,483 3,049 1,365 4,431
Income (loss) from
discontinued
operations............. 2,026 2,207 863 215 (93) (181) 426
Cumulative effect of
accounting changes..... (758) (52) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income............. $ 4,901 $ 6,881 $ 4,963 $ 6,698 $ 2,956 $ 1,184 $ 4,857
======== ======== ======== ======== ======== ======== ========
Earnings Per Share:
1 2/3 par value common
stock
Basic earnings per
share (EPS) from
continuing
operations............ $ 3.59 $ 5.57 $ 5.08 $ 8.52 $ 4.40 $ 1.92 $ 6.79
Basic earnings (loss)
per share from
discontinued
operations............ 1.63 1.71 0.98 0.18 (0.14) (0.27) 0.66
Diluted EPS from
continuing
operations............ 3.54 5.52 5.04 8.45 4.32 1.87 6.67
Diluted earnings
(loss) per share from
discontinued
operations............ 1.61 1.69 0.98 0.17 (0.14) (0.27) 0.65
Cash dividends
declared per share.... 0.80 1.10 1.60 2.00 2.00 1.50 1.50
Class H common stock
subsequent to the
Hughes restructuring
transactions
Basic EPS from
continuing
operations.......... -- -- -- 0.02 0.68 0.38 (0.17)
Diluted EPS from
continuing
operations.......... -- -- -- 0.02 0.68 0.38 (0.17)
Class H common stock
prior to the Hughes
restructuring
transactions
Basic EPS from
continuing
operations.......... 1.46 1.39 1.83 2.30 -- -- --
Basic EPS from
discontinued
operations.......... 1.16 1.38 1.05 0.87 -- -- --
Diluted EPS from
continuing
operations.......... 1.46 1.39 1.83 2.30 -- -- --
Diluted EPS from
discontinued
operations.......... 1.16 1.38 1.05 0.87 -- -- --
Cash dividends
declared per share.. 0.80 0.92 0.96 1.00 -- -- --
Class E common stock
Basic EPS from
discontinued
operations.......... 1.71 1.96 0.04 -- -- -- --
Diluted EPS from
discontinued
operations.......... 1.71 1.96 0.04 -- -- -- --
Cash dividends
declared per share.. 0.48 0.52 0.30 -- -- -- --
Balance Sheet Data:
Total assets............ $186,141 $209,520 $216,965 $221,767 $246,688 $229,624 $261,942
Long-term debt.......... 5,047 4,100 5,352 5,669 7,118 6,817 7,880
GM-obligated mandatorily
redeemable preferred
securities of
subsidiary trusts...... -- -- -- 222 220 221 219
Stockholders' equity.... 12,814 23,310 23,413 17,584 15,052 14,717 16,575
</TABLE>
13
<PAGE>
The amounts for Class H common stock subsequent to its recapitalization, as
part of the Hughes restructuring transactions, present the earnings
attributable to Class H common stock subsequent to its recapitalization on
December 17, 1997 related to Hughes, consisting principally of its digital
entertainment services, satellite communications services and satellite-based
private business networks businesses.
The amounts for Class H common stock prior to its recapitalization, as part
of the Hughes restructuring transactions, present the earnings attributable to
Class H common stock prior to its recapitalization on December 17, 1997 related
to Hughes, consisting principally of its defense electronics, automotive
electronics and telecommunications and space business.
Long-term debt totals are calculated from GM's automotive, communications
services and other operations only.
14
<PAGE>
Summary Historical Financial Data of Hughes
The following summary historical financial data have been derived from, and
should be read in conjunction with Hughes' financial statements, as well as the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Hughes," and the "Unaudited Pro Forma Combined Condensed
Financial Information of Hughes," and the "Notes to Unaudited Pro Forma
Combined Condensed Financial Information of Hughes" sections of this document.
In the opinion of management, the unaudited interim financial statements for
the nine months ended September 30, 1999 and 1998 reflect all adjustments,
consisting only of normal recurring items, that are necessary for the fair
presentation of the financial position and results of operations for such
periods. Results for the period ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the entire year.
On December 17, 1997, Hughes' predecessor and GM completed the Hughes
restructuring transactions, a series of transactions which restructured Hughes'
predecessor and which were designed to address strategic challenges facing
Hughes' three principal businesses. These transactions included:
. the tax-free spin-off of Hughes' defense electronics business to holders
of GM's $1 2/3 par value common stock and old Class H common stock;
. the transfer of Delco Electronics Corporation, Hughes' automotive
electronics business, to GM's Delphi Automotive Systems business sector,
which is now a separate corporation; and
. the recapitalization of the old Class H common stock into the Class H
common stock that is currently outstanding.
These transactions were followed immediately by the merger of the defense
electronics business with Raytheon Company.
In connection with the Hughes restructuring transactions, the
telecommunications and space business of Hughes' predecessor, consisting
principally of its digital direct-to-home broadcast, satellite services,
network systems and satellite systems businesses, were contributed to the
recapitalized Hughes. These telecommunications and space businesses, both
before and after the recapitalization, are referred to as Hughes. The financial
information presented for Hughes, unless otherwise noted, represents the
financial information of the recapitalized Hughes.
On January 13, 2000, Hughes announced that it had reached an agreement to
sell its satellite systems manufacturing businesses to Boeing. As a result, the
financial results for those businesses are treated as discontinued operations
for all periods presented herein, with the exception of 1994. Consequently,
revenues, operating costs and expenses, and other non-operating results for the
satellite systems manufacturing businesses are excluded from Hughes' results
from continuing operations.
Earnings per share attributable to the Class H common stock are determined
based on the relative amounts of Hughes net income available for the payment of
dividends to holders of Class H common stock and to holders of $1 2/3 par value
common stock. The manner in which this allocation is made is described at
"Description of Class H Common Stock--GM Restated Certificate of Incorporation
Provisions Regarding Dividends."
15
<PAGE>
<TABLE>
<CAPTION>
As of and for the As of and for the
years ended nine months ended
December 31, September 30,
----------------------------------------- ------------------
1994(1) 1995 1996 1997 1998 1998 1999
------- ------ ------ ------- ------- -------- --------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues.......... $2,697 $1,554 $2,058 $ 2,838 $ 3,481 $ 2,375 $ 3,862
Total operating costs
and expenses........... 2,483 1,574 2,109 2,794 3,527 2,379 3,925
------ ------ ------ ------- ------- -------- --------
Operating profit (loss). $ 214 $ (20) $ (51) $ 44 $ (46) $ (4) $ (63)
====== ====== ====== ======= ======= ======== ========
Income (loss) from
continuing operations
before extraordinary
item and cumulative
effect of accounting
change................. $ 97 $ (30) $ 13 $ 237 $ 64 $ (8) $ (107)
Income (loss) from
discontinued
operations, net of
taxes.................. (54) 36 150 171 196 145 47
Gain on sale of
discontinued
operations, net of
taxes.................. -- -- -- 63 -- -- --
Extraordinary item, net
of taxes............... -- -- -- (21) -- -- --
Cumulative effect of
accounting changes..... (2) -- -- -- (9) (9) --
------ ------ ------ ------- ------- -------- --------
Net income (loss) ...... 41 6 163 450 251 128 (60)
Adjustments to exclude
the effect of GM
purchase accounting
adjustments............ 21 21 21 21 21 16 16
Preferred stock
dividend............... -- -- -- -- -- -- (26)
------ ------ ------ ------- ------- -------- --------
Earnings (loss) used for
computation of
available separate
consolidated net income
(loss)................. $ 62 $ 27 $ 184 $ 471 $ 272 $ 144 $ (70)
====== ====== ====== ======= ======= ======== ========
Earnings (loss) per
share attributable to
Class H common stock:
Basic and diluted
earnings (loss) per
share from continuing
operations before
extraordinary item and
cumulative effect of
accounting change..... $ 0.30 $(0.07) $ 0.04 $ 0.60 $ 0.17 $ (0.01) $ (0.32)
Discontinued
operations............ (0.14) 0.14 0.42 0.63 0.53 0.39 0.15
Extraordinary item..... -- -- -- (0.05) -- -- --
Cumulative effect of
accounting change..... -- -- -- -- (0.02) (0.02) --
------ ------ ------ ------- ------- -------- --------
Basic and diluted
earnings (loss) per
share................. $ 0.16 $ 0.07 $ 0.46 $ 1.18 $ 0.68 $ 0.36 $ (0.17)
====== ====== ====== ======= ======= ======== ========
Cash dividends declared
per share.............. -- -- -- -- -- -- --
Balance Sheet Data:
Total assets............ $3,609 $3,513 $3,861 $12,142 $12,617 $ 12,333 $ 18,155
Long-term debt.......... -- -- -- 638 779 779 1,929
Owner's equity.......... 2,301 2,609 2,492 8,340 8,412 8,287 11,529
Other Data:
EBITDA.................. $ 375 $ 130 $ 113 $ 304 $ 342 $ 273 $ 397
Capital expenditures.... 399 389 362 713 1,329 876 1,145
</TABLE>
- --------
(1) The 1994 amounts have not been restated to reflect the satellite systems
manufacturing businesses as discontinued operations.
"EBITDA" is defined as operating profit (loss), plus depreciation and
amortization. EBITDA is not presented as an alternative measure of operating
results or cash flow from operations, as determined in accordance with
generally accepted accounting principles. Hughes management believes it is a
meaningful measure of performance and is commonly used by other large
communications, entertainment and media service providers. EBITDA does not give
effect to cash used for debt service requirements and thus does not reflect
funds available for investment in the business of Hughes, dividends or other
discretionary uses.
In addition, EBITDA as presented herein may not be comparable to similarly
titled measures reported by other companies.
Earnings per share for the years prior to 1998 do not reflect the earnings
attributable to the Class H common stock on a historical basis; rather, they
present the financial results that would have been achieved relative to the
Class H common stock had they been calculated on the performance of the
telecommunications and space businesses of Hughes' predecessor.
16
<PAGE>
RISK FACTORS
You should carefully consider each of the following risks and uncertainties
and all of the other information set forth in this document before deciding
whether to participate in the exchange offer. The following risks and
uncertainties relate principally to:
. The exchange offer;
. The business of Hughes; and
. GM's dual-class common stock capital structure.
The risks and uncertainties described below are not the only ones facing
GM, Hughes and your investment in Class H common stock. You should carefully
review the information set forth elsewhere in this document and in the other
documents which are incorporated by reference into this document. Additional
risks and uncertainties not presently known to us or that we currently believe
to be immaterial may also adversely affect GM, Hughes and your investment in
Class H common stock.
If any of the following risks and uncertainties develop into actual events,
Hughes' business, financial condition or results of operations could be
materially adversely affected. In such case, the trading price of the Class H
common stock could decline, and you may lose all or part of your investment.
This document contains forward-looking statements that involve risks and
uncertainties. Hughes' actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including the risks and uncertainties faced by Hughes described below
and elsewhere in this document.
Risk Factors Relating to the Exchange Offer
You Will Be Affected by the Exchange Offer Whether or Not You Tender Your
Shares of $1 2/3 Par Value Common Stock
Your investment in GM will be subject to different risks as a result of the
exchange offer. As a holder of shares of $1 2/3 par value common stock, you
will be affected by the exchange offer regardless of whether you tender all,
some or none of your shares of $1 2/3 par value common stock in the exchange
offer:
. If you exchange all of your shares of $1 2/3 par value common stock for
shares of Class H common stock in the exchange offer, you will have an
increased interest in the financial performance of Hughes. However, you
will no longer participate in any change in the value of the $1 2/3 par
value common stock because you will no longer own any shares of $1 2/3
par value common stock.
. If you exchange some, but not all, of your shares of $1 2/3 par value
common stock in the exchange offer, you will generally have an increased
interest in the financial performance of Hughes, and a diminished
interest in the financial performance of GM's businesses other than
Hughes, assuming that you exchange a greater percentage of your shares of
$1 2/3 par value common stock than the percentage of all outstanding
shares of $1 2/3 par value common stock that are exchanged in the
exchange offer.
. If you do not exchange any of your shares of $1 2/3 par value common
stock in the exchange offer, you will continue to participate in any
change in the value of $1 2/3 par value common stock. However, because
the numerator of the Class H fraction will be increased by the number of
shares of Class H common stock issued in the exchange offer, you will
have a diminished interest in the financial performance of Hughes.
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You May Not Receive Any Premium on the Issuance of Class H Common Stock in
Exchange for $1 2/3 Par Value Common Stock
We cannot predict whether or to what extent there will be a premium at the
end of the exchange offer. As a result, if you tender your shares of $1 2/3
par value common stock in the exchange offer, you may not receive any premium.
Any premium that you would receive through your participation in the exchange
offer will depend on the market prices of shares of $1 2/3 par value common
stock and Class H common stock at the time of the closing of the exchange
offer, which we cannot predict at this time.
The Issuance of Class H Common Stock in the Exchange Offer and the
Contributions to the Employee Benefit Plans May Adversely Affect the Market
Price of Class H Common Stock
The exchange offer will increase substantially the number of publicly held
shares of Class H common stock and the number of Class H common stockholders.
The shares of Class H common stock to be issued to the $1 2/3 par value
stockholders in the exchange will generally be eligible for immediate resale
in the open market. If a significant number of $1 2/3 par value stockholders
who receive shares of Class H common stock in the exchange offer attempt to
sell such shares of Class H common stock on the open market after the exchange
offer, the market price of Class H common stock could be adversely affected.
Similarly, the contributions will result in the issuance of a substantial
number of shares of Class H common stock to the employee benefit plans. If the
trustees of the employee benefit plans receiving shares of Class H common
stock in the contributions were to sell a significant number of these shares
after the contributions, the market price of Class H common stock could be
adversely affected. The ability of the employee benefit plans to transfer
their shares will, however, be subject to a registration rights agreement with
GM, which will provide for certain restrictions on transfer. We cannot assure
you that the Class H common stock trading prices will not fluctuate
significantly after either or both of the exchange offer and the contributions
to the employee benefit plans.
GM's Failure to Complete the Contributions to the Employee Benefit Plans as
Planned Could Affect the Market Price of $1 2/3 Par Value Common Stock
If GM does not complete the contributions to the employee benefit plans
substantially on the terms and within the time anticipated, the market price
of $1 2/3 par value common stock could be adversely affected as a result of
GM's failure to reduce its annual pension expense and its other post-
retirement employee benefit expense and to strengthen GM's overall financial
position. This exchange offer and GM's anticipated contributions are
independent transactions. This means that GM could determine to complete the
exchange offer, but not the contributions. Although we currently intend to
make the contributions to the employee benefit plans, we are not obligated to
do so and we cannot assure you as to whether, when or the terms on which such
contributions will occur.
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Risk Factors Relating to the Business of Hughes
Hughes Will Be Adversely Affected if It Fails to Maintain Leading
Technological Capabilities
The rapid technological changes and innovation that characterize the
entertainment, information and communications services industry could cause
the services and products offered by Hughes to become obsolete. If the new
technologies on which Hughes is currently focusing its research and
development investments fail to achieve acceptance in the marketplace, Hughes
would suffer a material adverse effect on its future competitive position and
results of operations. For example, competitors of Hughes could be the first
to obtain proprietary technologies that are perceived by the market as being
superior. In addition, after substantial research and development
expenditures, one or more of the technologies under development by Hughes or
any of its strategic partners could become obsolete prior to its introduction.
Hughes' operating results will depend to a significant extent on its
ability to continue to introduce new products and services on a timely basis
and to reduce costs of its existing products and services. We cannot assure
you that Hughes will successfully identify new product or service
opportunities or develop and market these opportunities in a timely or cost-
effective manner. The success of new product development depends on many
factors, including proper identification of customer needs, cost, timely
completion and introduction, differentiation from offerings of competitors and
market acceptance.
Technological innovation is important to Hughes' success and depends, to a
significant degree, on the work of technically skilled employees. Competition
for the services of these types of employees is vigorous. We cannot assure you
that Hughes will be able to attract and retain these employees. If Hughes were
unable to attract and maintain technically skilled employees, its competitive
position could be adversely affected.
Hughes Could Have Inadequate Access to Capital for Growth
Hughes may not be able to raise adequate capital to complete some or all of
its business strategies or to react rapidly to changes in technology,
products, services or the competitive landscape. Hughes believes that key
success factors in the entertainment, information and communications services
industry include superior access to capital and financial flexibility.
Industry participants often face high capital requirements in order to take
advantage of new market opportunities, respond to rigorous competitive
pressures and react quickly to changes in technology. For example, as a result
of the competitive environment in the multi-channel entertainment industry,
DIRECTV may have to incur increased subscriber acquisition costs by making
competitive offers in the future to maintain its market leadership.
Hughes expects the global entertainment, information and communications
services market to continue to grow due to the high demand for communications
infrastructure and the opportunities created by industry deregulation. Many of
Hughes' competitors are committing substantial capital and, in many instances,
are forming alliances to acquire or maintain market leadership. Hughes'
strategy is to be a leader in providing entertainment, information and
communications products and services by building on its experience in
satellite technology and by making acquisitions and establishing, maintaining
and restructuring strategic alliances as appropriate. This strategy will
require substantial investments of capital over the next several years. We
cannot assure you that Hughes will be able to satisfy its capital requirements
in the future, whether through lack of competitive access to capital markets,
GM's overall financial condition, restrictions imposed by GM or otherwise.
GM's ability to issue Class H common stock as a means of funding Hughes'
capital requirements may be limited in the event of the enactment of changes
in the tax law which would result in the imposition of a tax on certain
issuances of stock such as Class H common stock. Neither GM nor Hughes can
predict whether or when any such changes would occur.
Hughes' Future Growth Depends Upon its Ability to Implement its Business
Strategy
Hughes' business strategy is focused on becoming a premier provider of
integrated entertainment, information and communications services. As part of
this strategy, Hughes recently implemented several new
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initiatives and entered into a strategic alliance with America Online, Inc.
One of these new initatives is the sale by Hughes of its satellite systems
manufacturing businesses to Boeing. This sale is subject to customary closing
conditions as well as conditions relating to Hughes' export activities in
China. For more information on conditions relating to Hughes' export
activities in China, see "--Grand Jury Investigation/State Department Review
Could Result in Sanctions" below. Another new initiative is Hughes'
development of the Spaceway system, which is designed to capitalize on the
emerging broadband communications services market. Spaceway is still under
development and is subject to a number of risks and uncertainties. We cannot
assure you that the introduction of the Spaceway system will not be delayed,
or that the Spaceway system will ever be implemented, or, if implemented, will
allow Hughes to successfully capitalize on the emerging broadband
communications services market. We cannot assure you that Hughes will be
successful in implementing these new initiatives, or any other new
initiatives, or that Hughes will realize the anticipated benefits of its
alliance with AOL.
Hughes Is Vulnerable to Satellite Failure
DIRECTV, PanAmSat and other Hughes businesses own or utilize satellites in
their businesses. Orbiting satellites are subject to the risk of failing
prematurely due to, among other things, mechanical failure, a 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, as described further at "Management's Discussion and Analysis
of Financial Condition and Results of Operations of Hughes--General." We
cannot assure you that Hughes will not experience further satellite anomalies
in the future. 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.
Hughes May Be Unable to Manage Effectively the Growth of its DIRECTV
Businesses
Hughes' ability to continue the planned expansion of its DIRECTV businesses
and to increase its customer base while maintaining its price structure,
reducing its churn rate and managing costs will depend upon, among other
things, its ability to manage its growth effectively. To accomplish this,
Hughes must continue to develop its internal and external sales force,
installation capability and customer service representatives, maintain its
relationships with third party vendors and implement procedures to mitigate
subscriber credit risk. Hughes will also need to continue to grow, train and
manage its employee base. If Hughes is unable to manage its growth
effectively, it could experience an increase in subscriber churn and, as a
result, its business could be adversely affected. In addition, subscriber
acquisition costs may increase if DIRECTV offers additional incentives in
order to respond to competition, to expand its businesses or for other
reasons. If subscriber acquisition costs increase significantly, it could have
a material adverse effect on Hughes' business.
Hughes' Main Satellite Supplier Will No Longer Be an Affiliate of Hughes
After the Sale of Hughes Space and Communications to Boeing
Historically, Hughes has been able to fulfill most of its satellite needs
from Hughes Space and Communications, one of its wholly-owned subsidiaries.
Following the completion of the sale of Hughes Space and Communications to
Boeing, Hughes will no longer manufacture satellites. Although DIRECTV and
PanAmSat currently have contracts with Hughes Space and Communications
designed to satisfy Hughes' satellite needs over the near term, Hughes will
need to obtain new contracts with Hughes Space and Communications or with
alternative suppliers for its future satellite needs. In addition, although
Hughes believes that its current contracts with Hughes Space and
Communications are on substantially arms' length terms, we cannot assure you
that Hughes will be able to obtain contracts for the manufacture of new
satellites from Hughes Space and Communications or from alternative suppliers
on similar terms.
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Hughes Is Subject to Risks Related to its International Operations
About 21% of Hughes' revenues, excluding revenues from Hughes Space and
Communications, in 1999 were generated outside the United States. Hughes is
currently evaluating expansion opportunities in select international markets.
These international operations subject Hughes to many risks inherent in
international business activities, including:
. limitations and disruptions resulting from the imposition of government
controls;
. difficulty meeting export license requirements;
. economic or political instability;
. trade restrictions;
. changes in tariffs;
. currency fluctuations;
. greater difficulty in safeguarding intellectual property; and
. difficulties in managing overseas subsidiaries and international
operations.
These risks could have a material adverse affect on Hughes' business.
Hughes Could Be Adversely Affected by its Customers' Inability to Obtain
Financing
Customers of Hughes are dependent from time to time upon third party equity
or debt financing in order to pay for products and services purchased from
Hughes. Collection of amounts due to Hughes from these customers may be
adversely affected by their inability to obtain this third party financing. If
these customers are unable to obtain, or are delayed in obtaining, third party
financing, and are therefore unable to pay amounts due to Hughes in the
future, Hughes may incur substantial losses related to costs it has incurred
in excess of amounts collected to date from those customers. This could also
have a negative effect on Hughes' future cash flows.
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, which would result in a
large pre-tax charge to Hughes' earnings. For more information about this
matter, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Hughes."
Hughes Is Subject to Domestic and Foreign Regulations Which Could Adversely
Affect the Nature and Extent of the Services It Offers
Hughes' businesses are subject to various regulations. DIRECTV is subject
to substantial regulation by the U.S. Federal Communications Commission. FCC
rules and regulations are subject to change in response to industry
developments, new technology and political considerations. In addition, the
satellite industry is highly regulated both in the United States and
internationally. Hughes is subject to the regulatory authority of the U.S.
Government and the national communications authorities of the countries in
which it operates. These agencies regulate the construction, launch and
operation of Hughes' satellites and the orbital slots planned for these
satellites. Hughes is currently subject to an investigation regarding certain
of its export compliance activities. Hughes, its customers or companies with
which Hughes does business must have authority from each country in which
Hughes provides services or provides its customers' use of its satellites.
Although Hughes believes that its customers and/or companies with which Hughes
does business presently hold the requisite licenses and approvals for the
countries in which it currently provides services, regulations in each country
are different and, as a result, there may be instances of noncompliance of
which Hughes is not aware.
Hughes' businesses could be adversely affected by the adoption of new laws,
policies and regulations. We cannot assure you that Hughes will succeed in
obtaining all requisite regulatory approvals for its operations without the
imposition of restrictions on, or adverse consequences to, its businesses. We
also cannot assure you that material adverse changes in regulations affecting
the industries in which Hughes operates its businesses will not occur in the
future.
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Grand Jury Investigation/State Department Review Could Result in Sanctions
There is a pending grand jury investigation into whether Hughes should be
indicted for 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 U.S. State
Department to impose sanctions for non-criminal violations of the Arms Export
Control Act. The possible criminal and/or civil sanctions could include fines
as well as debarment from various export privileges and participation in
government contracts. Hughes does not expect the grand jury investigation or
State Department review to result in a material adverse effect upon its
business. However, there can be no assurance as to those conclusions.
As part of the sale of Hughes Space and Communications to Boeing, Hughes
has agreed to indemnify Boeing for the full amount of any monetary fines and
penalties, payable either prior to or after the closing of the transaction,
resulting from Hughes' export control activities in China that were previously
disclosed by Hughes and any other compliance matters related to exports by
Hughes to China that may arise prior to the closing of the transaction. If
Hughes were to enter into a settlement of this matter prior to the closing of
the Boeing transaction that involves a debarment, as regards 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. We cannot
assure you that the results of these investigations or any settlement entered
into in connection with these investigations will not adversely impact Hughes'
business and results of operations.
In addition, a congressional committee chaired by Representative Cox
released a report in May 1999 containing negative commentary about the
compliance of U.S. satellite manufacturers, including Hughes Space and
Communications, with U.S. export control laws. We are uncertain of the impact
that this report will have on the satellite manufacturing and launching
industries. Many of Hughes' satellite launches, including those of PanAmSat,
are scheduled for non-U.S. launch providers. We cannot assure you that future
satellite launches by non-U.S. launch providers will not be adversely affected
by this investigation and report, including the possibility of significant
launch delays.
Compromise of Satellite Programming Signals Could Adversely Affect Hughes'
Business
The delivery of direct broadcast television programming requires the use of
encryption technology to assure that only authorized subscribers can receive
the programming. It is illegal to create, sell or otherwise distribute or use
mechanisms or devices to circumvent that encryption. Theft of cable and
satellite programming does occur and attempts have been made to circumvent
Hughes' signal encryption. Hughes has implemented measures intended to reduce
signal theft of its programming. If Hughes were unable to respond to any
widespread compromise of its encryption technology, its business could be
materially adversely affected.
Disputes with Raytheon Regarding Former Defense Operations Could Result in a
Material Payment from Hughes to Raytheon
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, the terms of the merger and
related agreements between Hughes and Raytheon provided processes for
resolving disputes that might arise in connection with post-closing financial
adjustments that were also called for by the terms of the merger agreement.
These financial adjustments might require a cash payment from Raytheon to
Hughes or vice versa. A dispute currently exists regarding the post-closing
adjustments that 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 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.
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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 process, opposing
the adjustments proposed by Raytheon and seeking the payment from Raytheon
that it has proposed.
Risk Factors Relating to GM's Dual-Class Common Stock Capital Structure
Class H Stockholders Do Not Have Any Claims on the Assets of Hughes
Class H stockholders are common stockholders of General Motors and, as a
result, have rights in the equity and assets of GM rather than of Hughes.
Although the net income of Hughes is allocated for accounting purposes to
calculate the amounts which may be used to pay dividends on each class of GM
common stock, this allocation does not result in a physical segregation of the
assets of GM or Hughes, or the establishment of separate accounts or dividend
or liquidation preferences. If a liquidation, insolvency or similar event
occurred with respect to Hughes, creditors of Hughes, as well as GM as the
sole stockholder of Hughes, would receive payment from the assets of Hughes.
The holders of Class H common stock would not be entitled to any payment from
the assets of Hughes.
We Cannot Assure You That Cash Dividends Will Ever Be Paid on the Class H
Common Stock
We cannot assure you that cash dividends will ever be paid on the Class H
common stock. If you wish to receive a dividend, Class H common stock may not
be an appropriate investment for you. Unlike the $1 2/3 par value common
stock, cash dividends are not currently paid on the Class H common stock.
Since the completion of the Hughes restructuring transactions in late 1997,
the GM board has not paid cash dividends on the Class H common stock. Further,
the GM board does not currently intend to pay dividends on the Class H common
stock in the foreseeable future. Similarly, since that time, Hughes has not
paid dividends to GM on its common stock held by GM and does not intend to do
so in the foreseeable future. Future earnings of Hughes are expected to be
retained for the development of the business of Hughes. The GM board reserves
the right to reconsider from time to time its policies and practices regarding
dividends on the Class H common stock and to pay or not to pay, or increase or
decrease the dividends paid on the Class H common stock, if any, on the basis
of GM's consolidated financial position, including liquidity and other
factors, such as the earnings and consolidated results of operations and
financial condition of Hughes.
The Interests of GM's $1 2/3 Par Value Stockholders May Conflict with the
Interests of Class H Stockholders
The holders of Class H common stock may have different interests than the
holders of $1 2/3 par value common stock with respect to various intercompany
transactions and other matters, and we cannot assure you as to how any
conflicts between these interests will be resolved. Under Delaware law, the GM
board owes fiduciary duties to all holders of GM common stock, regardless of
class, and must act with due care and on an informed basis in the best
interests of GM and all of its common stockholders. In carrying out their
fiduciary duties to all of GM's stockholders, the officers and directors of GM
may make decisions and pursue policies or transactions that are different from
those that they would make or pursue if the Class H common stock were the only
class of common stock of GM. The GM board, in the discharge of its fiduciary
duties, oversees, principally through its capital stock committee, the
policies, programs and practices of GM which may give rise to conflicts of
interest between GM's two classes of common stock.
Class H Stockholders Will Be Common Stockholders of GM and Will Be Subject to
the Risks of an Investment in GM
We cannot assure you that the market value of the Class H common stock will
reflect the performance of Hughes as we intend. Class H stockholders will
continue to be common stockholders of GM and, as such, will be subject to all
risks of an investment in GM and all of its businesses, assets and
liabilities.
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The Trading Price of Class H Common Stock Could Be Adversely Affected by GM's
Results
If GM were to experience a significant financial or other setback, this
could have an adverse effect on the trading price of the Class H common stock
as well as the $1 2/3 par value common stock. The trading prices of the Class
H common stock and the $1 2/3 par value common stock are generally affected by
different events. A transaction which is beneficial to the holders of $1 2/3
par value common stock may not positively affect the trading price of the
Class H common stock, which historically has, in general, been affected more
by the results of Hughes rather than those of GM.
GM Board Policies and Practices Relating to Class H Common Stock Can Be
Adopted, Changed or Rescinded Without Stockholder Approval
The GM board may adopt, change or rescind policies, practices or policy
statements which could have a significant impact on the Class H common stock,
in each case without the approval of GM's common stockholders, including the
Class H stockholders. The GM board has adopted a policy statement governing
certain matters relating to its dual-class common stock capital structure.
This policy statement is subject to change at any time without stockholder
approval. The policy statement sets forth certain principles to guide the
board's actions relating to, among other things, transactions between GM and
Hughes and the relationship between dividends, if any, to be paid by Hughes to
GM and by GM to the Class H stockholders.
Your Class H Common Stock May Be Converted into $1 2/3 Par Value Common Stock
Without Your Consent
All outstanding shares of Class H common stock are potentially subject to
mandatory recapitalization into shares of $1 2/3 par value common stock under
certain circumstances. Any recapitalization would significantly change both
the form and nature of your investment in Class H common stock, without your
consent. Any recapitalization can be effected at a 120% exchange ratio at any
time after December 31, 2002 in the sole discretion of the GM board, or
automatically, if GM disposes of 80% or more of the business of Hughes to a
person, entity or group of which GM is not the majority owner. If we effect a
recapitalization at a time when the Class H common stock is considered to be
undervalued relative to the $1 2/3 par value common stock, any such
recapitalization may be disadvantageous to Class H common stockholders.
Additionally, any recapitalization would preclude Class H common stockholders
from retaining their investment in a security that is intended to reflect
separately the financial performance of Hughes. We cannot predict the impact
on the market price of the $1 2/3 par value common stock that any exercise by
GM of its recapitalization right would have. Consistent with GM's certificate
of incorporation, applicable corporate law and the GM board policy statement
referred to above, the GM board may submit from time to time to the GM common
stockholders for their consideration and approval one or more alternative
transactions on terms different from those provided for by these provisions
concerning recapitalization of Class H common stock at a 120% exchange ratio.
The Market Price of Class H Common Stock Will Fluctuate and Could Fluctuate
Significantly
We cannot predict the extent to which the market price of the Class H
common stock will fluctuate following the exchange offer. The stock market has
experienced extreme price and volume fluctuations. In the past, companies that
have experienced volatility have sometimes been the object of securities class
action litigation. Securities class action litigation may result in
substantial costs and a diversion of management's attention and resources.
In addition, GM has granted registration rights to certain persons in
connection with the issuance of shares of Class H common stock and securities
convertible into Class H common stock and intends to grant registration rights
to the trustees of the employee benefit plans in connection with the
anticipated contributions to these plans. For more information about these
share issuances and the related registration rights, see "Shares Eligible for
Future Sale." If these parties elect to sell their shares in the open market,
it could adversely affect the market price of Class H common stock.
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Proposed Changes in the Tax Law Could Affect GM's Future Ability to Issue
Shares of Class H Common Stock
A proposal made by the Clinton administration in February 2000 would tax
stockholders upon the receipt of tracking stock similar to Class H common
stock, if the tracking stock was distributed by a corporation with respect to,
or in exchange for, its own stock for a reason other than to effectuate a
stock split or similar transaction relating to the tracking stock. The
proposal would also grant the Secretary of the Treasury authority to treat
tracking stock as an instrument other than stock or as stock of another entity
for U.S. federal income tax purposes. As proposed, this provision would apply
to tracking stock issued on or after the date of the proposal's enactment by
the U.S. Congress.
If enacted at any time, the Clinton administration proposal or any similar
proposal could limit our future ability to issue shares of Class H common
stock to our stockholders in a manner free of U.S. federal income tax to those
stockholders. Moreover, while the Clinton administration proposal does not
appear to affect GM's ability to issue Class H common stock in exchange for
cash or property other than stock of GM, including the ability to issue Class
H common stock in capital-raising public offerings or in acquisitions of
target companies, we cannot assure you that future legislative or regulatory
action with respect to this or any similar proposal will not limit GM's
ability to issue Class H common stock in such circumstances.
We cannot predict whether the Clinton administration proposal will be
enacted by the U.S. Congress, and, if enacted, whether it will be in the form
proposed or whether it will apply to any future issuances of Class H common
stock.
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THE TRANSACTIONS
Background and Purpose
The exchange offer of up to $8 billion of Class H common stock is an
important element of our overall plan to restructure GM's economic interest in
its Hughes subsidiary in order to realize some of the economic value arising
from GM's ownership of Hughes. The other element consists of our anticipated
contributions of a total of about $7 billion of Class H common stock to
certain of our employee benefit plans. Assuming that the exchange offer is
fully subscribed and that the contributions to the employee benefit plans are
made as anticipated, we will issue a total of about new shares of
Class H common stock, with an aggregate value of about $15 billion, based on
the closing trading price of Class H common stock on , 2000.
We will use the exchange offer to repurchase a substantial amount of $1 2/3
par value common stock, which we expect will significantly increase the
earnings per share attributable to $1 2/3 par value common stock in the
future. In addition, the employee benefit plan contributions will reduce our
annual pension expense and our expense relating to other post-retirement
employee benefits and will strengthen GM's overall financial position. These
transactions will not dilute the earnings per share attributable to the
outstanding Class H common stock. As described further below at "--Effects of
the Transactions," upon completion of a fully-subscribed exchange offer and
the contributions, GM will retain about a %, or $ billion, economic
interest in Hughes, based on the closing market price of Class H common stock
on , 2000. The issuance of additional shares of Class H common
stock in connection with these transactions will substantially increase the
liquidity of that stock in the market, which we believe will benefit Class H
stockholders over time.
In recent years, stock repurchase programs relating to our $1 2/3 par value
common stock have constituted an important part of our overall capital plan.
Since 1997, we have used about $9 billion in cash in connection with these
programs. These repurchases have reduced the number of shares of $1 2/3 par
value common stock outstanding by about 18%, which has increased the earnings
per share attributable to $1 2/3 par value common stock. The exchange offer
will enable us to utilize a portion of GM's economic interest in Hughes to
effect a substantial additional repurchase of $1 2/3 par value common stock
without diluting the tracking stock interest in the earnings of Hughes that is
currently held by existing holders of Class H common stock.
We have also made substantial progress in recent years in addressing the
underfunded status of our U.S. pension plans. During the last six years, we
have contributed over $22 billion to our U.S. pension plans, including over $6
billion of GM Class E common stock, which was subsequently exchanged for EDS
common stock. Additionally, since 1997, we have contributed over $6 billion to
our VEBA trust. Based on the number of shares determined by the closing
trading price of Class H common stock on , 2000, we would
contribute a total of about shares of Class H common stock to the
pension plan for the benefit of our hourly employees and to the VEBA. The
contribution of a significant amount of Class H common stock to our pension
plan would represent a further reduction in our pension plan funding
obligations and would help to ensure that the pension plan continues to be
fully funded, as determined in accordance with applicable accounting
standards. The contribution of Class H common stock to our VEBA would reduce
our expense relating to other post-retirement employee benefits. For more
information, see "--Contributions to the Employee Benefit Plans" below.
Upon completion of the exchange offer and the contributions to the employee
benefit plans, Hughes will remain a wholly-owned subsidiary of GM. These
transactions will not affect the business operations of Hughes, and GM's
automotive operations will continue to have direct access to the opportunities
for strategic synergies with Hughes' rapidly growing communications services
businesses. GM currently has no plans or intention to separate Hughes or any
of its businesses from GM, whether by means of a spin-off, split-off or any
other transaction. However, GM will continue to evaluate what Hughes ownership
structure would be optimal for the two companies and GM's stockholders. As a
result, GM may determine to pursue any number of future transactions involving
Hughes, or no transaction at all. After the exchange offer and the
contributions, GM will continue to have the flexibility to use its remaining
economic interest in Hughes in a variety of ways, including
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as a currency for additional repurchases of $1 2/3 par value common stock, for
use in connection with acquisitions, for contributions to our employee benefit
plans, to raise capital in a tax-efficient manner or for use in implementing
further corporate restructurings. See "Risk Factors--Risk Factors Relating to
GM's Dual-Class Common Stock Capital Structure--Proposed Changes in the Tax
Law Could Affect GM's Future Ability to Issue Shares of Class H Common Stock."
Contributions to the Employee Benefit Plans
We currently plan to contribute a total of about $7 billion of Class H
common stock to our pension plan for the benefit of our hourly-rate employees
and to our VEBA. Based on the number of shares determined by the closing
trading price of Class H common stock on , 2000, these anticipated
contributions would consist of about shares of Class H common stock.
The contribution of a significant amount of that Class H common stock to the
pension plan will help to ensure that the hourly pension plan will continue to
be fully funded for the foreseeable future, as determined in accordance with
the standards set forth in Statement of Financial Accounting Standards No. 87
issued by the Financial Accounting Standards Board. The contribution of a
portion of that Class H common stock to the VEBA will reduce our liability for
other post-retirement employee benefits. The expected return on the assets
contributed to these two employee benefit plans will reduce our annual
expenses associated with pension and other post-retirement employee benefits.
Although we reserve the right to modify the amount or timing of each
contribution, or not to make the contributions at all, in the event that our
board of directors determines that such a change would be in the best
interests of GM and its stockholders, we currently expect to complete the
contributions to the pension plan and the VEBA, which may take the form of one
or more separate contributions, during the second quarter of 2000.
GM believes that its anticipated contributions of Class H common stock,
having a market value of about $7 billion, to certain of its employee benefit
plans during the second quarter of 2000 will have a significant favorable
impact on GM's pre-tax income in the future. The specific amount of the impact
of the contributions on GM's pre-tax income is not known at this time and will
be based on, among other things, the size, timing and terms of the
contributions as well as the value assigned by the trustees of the employee
benefit plans to the Class H common stock that is contributed. In addition,
the favorable effect of the contributions on GM's pre-tax income will be
offset by several factors, including the terms of the 1999 labor contract,
changes in health-care trend rates and higher levels of profit-sharing.
Although GM currently expects to make the contributions substantially on the
terms described in this document, GM is not obligated to do so. We cannot
assure you as to whether, when or the terms on which such contributions will
occur, or the actual amount of the impact on its pre-tax income. See "Risk
Factors--Risk Factors Relating to the Exchange Offer--GM's Failure to Complete
the Contributions to the Employee Benefit Plans as Planned Could Affect the
Market Price of $1 2/3 Par Value Common Stock."
Registration Rights and Transfer Restrictions
The shares of Class H common stock to be contributed to the employee
benefit plans will be subject to an agreement that will provide the plans with
registration rights with respect to the shares of Class H common stock they
will own as a result of the contributions. That agreement will also regulate
the manner in which such shares may be transferred. Following is a summary of
the material terms currently expected to be included in that agreement:
. The employee benefit plans will be permitted to transfer their shares of
Class H common stock only in certain specified types of transactions and
under certain circumstances, including public offerings and negotiated
transactions, whether registered with the SEC or not, and certain
transfers to other employee benefit plans maintained by GM and its
subsidiaries.
. The employee benefit plans will together have the right to require GM to
register offerings of their shares of Class H common stock no more than
two times in any twelve-month period. Subject to certain limitations, GM
will have the right to postpone the filing or effectiveness of any such
registration or the
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making of certain transfers at any time that GM determines that such
action would interfere with any proposal or plan by GM to engage in any
material transaction or would require GM to make a public disclosure of
material information which was previously non-public.
. The employee benefit plans will be prohibited from making a negotiated
transfer of Class H common stock to certain persons who are or who as a
result of the transfer would become holders of more than 5% of the then
outstanding Class H common stock or in blocks of more than 2% of the then
outstanding Class H common stock. Additionally, the underwriters in any
registered offerings of the employee benefit plans' shares will agree to
use their reasonable best efforts to make a broad public distribution of
those shares and not to sell those shares in blocks of more than 2% of
the then outstanding Class H common stock.
. Prior to GM registering any offering of shares of Class H common stock
with the SEC, GM will be required to notify the employee benefit plans of
its intent to do so and, subject to certain exceptions and volume
limitations, add to that offering as many shares of Class H common stock
held by the employee benefit plans as they request.
. In the context of a third-party tender offer, the employee benefit plans
will be restricted from selling their shares of Class H common stock
under certain circumstances, and they will have the right to cause GM to
purchase their shares of Class H common stock under certain
circumstances.
The agreement is also expected to provide that in the event that Class H
common stock would be converted into or exchanged for securities of an issuer
other than GM, that new issuer would succeed to all of the rights and
obligations of GM under the agreement, except for certain indemnification
provisions relating to prior offerings of Class H common stock under the
agreement. Under such circumstances, all of the provisions of the agreement
applicable to the Class H common stock held by the employee benefit plans
would apply to the securities into which the Class H common stock is
converted. An example of such a transaction would be the separation of Hughes
from GM by means of a spin-off or split-off transaction. GM has no current
plans or intention to separate Hughes or any of its businesses from GM,
whether by means of a spin-off, split-off or any other transaction.
It is also expected that, for a period that generally terminates on the
second anniversary of certain possible corporate transactions involving
Hughes, the employee benefit plans will each agree that they will vote against
any transactions that would potentially limit a tax-free spin-off of Hughes.
In addition, the employee benefit plans would be subject to certain transfer
restrictions intended to preserve the tax-free status of certain possible
corporate transactions involving Hughes.
Effects of the Transactions
Assuming that the exchange offer is fully subscribed and the contributions
to the employee benefit plans are made as anticipated, and based on the number
of shares of Class H common stock that would be subject to the contributions
as determined by the closing trading price of Class H common stock on
, 2000, the combined effect of the exchange offer and the
contributions will be to increase the tracking stock interest in Hughes'
earnings represented by Class H common stock from about 37% to %, with a
corresponding reduction of the portion of Hughes' earnings attributable to $1
2/3 par value common stock from about 63% to %. These percentages are
provided for illustrative purposes only and are based on certain assumptions
which give effect to the exercise of all outstanding stock options and the
shares of Class H common stock issuable upon conversion of the Series H
preference shares, as described further below at "Description of Class H
Common Stock--Detailed Calculation of Amount Available for Dividends on Class
H Common Stock--Illustrative Calculation of Class H Fraction Following the
Exchange Offer and the Contributions to the Employee Benefit Plans." The
actual percentages will not be known until the actual number of shares of
Class H common stock issued in the exchange offer and the contributions to the
employee benefit plans have been determined.
Although GM will have reduced its economic interest in Hughes as a result
of these transactions, GM will continue to own 100% of the common stock of
Hughes. Accordingly, we will continue to be able to realize the strategic
benefits of owning and controlling Hughes and the financial benefits of
consolidating Hughes' financial position and results in our financial
statements and of consolidating Hughes for U.S. federal income tax purposes.
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Exchange Offer
The issuance of shares of Class H common stock in this exchange offer will
increase the numerator of the Class H fraction by the number of shares issued
in the exchange offer and will thereby reduce the interest of $1 2/3 par value
stockholders in the financial performance of Hughes for earnings per share and
dividend purposes.
The exchange offer will provide $1 2/3 par value stockholders with an
opportunity to increase, in a manner generally free of U.S. federal income
tax, their interest in the financial performance of Hughes by exchanging
shares of $1 2/3 par value common stock for shares of Class H common stock.
Every $1 2/3 par value stockholder will be affected by these transactions,
regardless of whether he or she participates in the exchange offer, as
described below:
. Tender of All of Your Shares of $1 2/3 Par Value Common Stock. If you
tender all of your shares of $1 2/3 par value common stock for shares of
Class H common stock in the exchange offer, provided all such shares are
accepted for exchange, you will continue to have an ownership interest in
General Motors, but you will have increased your interest in the
financial performance of Hughes by virtue of your ownership of Class H
common stock. However, you will no longer participate in any change in
value of the $1 2/3 par value common stock because you will no longer own
any shares of $1 2/3 par value common stock.
. Tender of Some, But Not All, of Your Shares of $1 2/3 Par Value Common
Stock. If you exchange some, but not all, of your shares of $1 2/3 par
value common stock in the exchange offer, you will generally have an
increased interest in the financial performance of Hughes, and a
diminished interest in the financial performance of GM's businesses other
than Hughes, assuming that you exchange a greater percentage of your
shares of $1 2/3 par value common stock than the percentage of all
outstanding shares of $1 2/3 par value common stock that are exchanged in
the exchange offer.
. Tender of None of Your Shares of $1 2/3 Par Value Common Stock. If you do
not tender any of your shares of $1 2/3 par value common stock in the
exchange offer, you will continue to own the same number of shares of $1
2/3 par value common stock and will thus continue to have an ownership
interest in General Motors. You will continue to participate in any
change in the value of the $1 2/3 par value common stock. However, as a
result of the increase in the numerator of the Class H fraction described
above, you will have a diminished interest in the financial performance
of Hughes.
All shares of $1 2/3 par value common stock acquired by General Motors in
the exchange offer will become authorized and unissued shares of $1 2/3 par
value common stock. This means that these shares will generally be available
for issuance by GM without further stockholder action, except as may be
required by applicable law or the rules of the NYSE, for general or other
corporate purposes, including stock splits and dividends, acquisitions, the
raising of additional capital for use in GM's businesses and pursuant to
employee benefit plans.
Contributions to the Employee Benefit Plans
The issuance of shares of Class H common stock in the contributions to the
employee benefit plans, assuming they are made as anticipated, will also
increase the numerator of the Class H fraction by the number of shares issued
in the contributions and will thereby reduce the interest of $1 2/3 par value
stockholders in the financial performance of Hughes for earnings per share and
dividend purposes.
The contribution to the pension plan will reduce our annual pension expense
and will help to ensure that the pension plan will continue to be fully
funded, as determined in accordance with applicable accounting standards.
Additionally, the contribution to the VEBA will reduce our expense relating to
other post-retirement benefits for our employees. However, we cannot
accurately predict the amount or timing of our pension funding obligations in
the future or the related impact on our financial results and financial
condition. These amounts may be affected by general economic conditions,
including anticipated interest rates, the actual investment return on plan
assets, including the value of the shares of Class H common stock contributed
to the pension plan, the retirement rate of our employees, the attrition rate
of our employees and other factors. In particular, following the contribution
to the pension plan, so long as the pension plan holds any Class H common
stock, any appreciation or depreciation in the value of Class H common stock
will affect the level of GM's pension expense and unfunded pension liability,
which are actuarially determined and computed in accordance with generally
accepted accounting principles.
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Following the contributions, subject to certain restrictions, the trustees
of the employee benefit plans will have the authority and discretion to cause
the employee benefit plans to hold the shares of Class H common stock
contributed by GM or to sell all or any portion thereof from time to time as
they deem appropriate. Significant sales of Class H common stock by the
employee benefit plans could adversely affect the market price of Class H
common stock. The employee benefit plans will be subject to agreements that
will provide them with registration rights with respect to the shares of Class
H common stock they receive pursuant to the contributions, but will also
regulate the manner in which such shares may be sold. For more information,
see "--Contributions to the Employee Benefit Plans--Registration Rights and
Transfer Restrictions."
No Appraisal Rights
Appraisal is a statutory remedy available to corporate minority
stockholders who object to extraordinary actions taken by their corporation.
This remedy allows dissenting stockholders to require the corporation to
repurchase their stock at a price equivalent to its value immediately prior to
the extraordinary corporate action. No appraisal rights are available to $1
2/3 par value stockholders or Class H stockholders in connection with the
exchange offer.
Regulatory Approvals
In order to complete the exchange offer, we must make certain filings and
notifications and receive certain authorizations or exemptions from
governmental agencies regulating securities law issues in foreign
jurisdictions. We believe that no material foreign regulatory requirements
remain to be complied with, and no further material approvals must be
obtained.
No filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, are required in connection with the exchange offer generally. If a
$1 2/3 par value stockholder decides to participate in the exchange offer and
consequently acquires enough shares of Class H common stock to exceed any
threshold stated in the regulations under this act, and if an exemption under
those regulations does not apply, such $1 2/3 par value stockholder and GM
could be required to make filings under this act, and the waiting period under
the act would have to expire or be terminated before any exchanges of shares
with such stockholder could be effected. A filing requirement could delay
exchanges with that stockholder for several months or more.
Accounting Treatment
The shares of $1 2/3 par value common stock which we receive pursuant to
the exchange offer will be recorded as a decrease in GM's stockholders' equity
in an amount equal to the market value as of the expiration date of the Class
H common stock issued in the exchange offer. This issuance of Class H common
stock will be recorded as an equal and offsetting increase in GM's
stockholders' equity. Accordingly, except for the direct costs of the
transaction, the exchange offer will not affect the financial position or
results of operations of GM. As a result of the exchange offer, basic and
diluted earnings per share calculations for the $1 2/3 par value common stock
subsequent to the expiration date will reflect the lower number of outstanding
shares of $1 2/3 par value common stock and the $1 2/3 par value stockholders'
decreased interest in the available separate consolidated net income of
Hughes. While the earnings per share for Class H common stock will not change,
basic and diluted earnings per share calculations for the Class H common stock
subsequent to the expiration date will reflect the Class H stockholders'
increased interest in the available separate consolidated net income of Hughes
and the proportionate increase in the number of shares of Class H common stock
outstanding.
The contributions of Class H common stock to the employee benefit plans
will be recorded at the value assigned to such Class H common stock by the
trustees of the plans at the time of the contributions, with these respective
amounts increasing GM's prepaid pension asset and reducing GM's liability for
other post-retirement employee benefits. The expected return on these assets
will reduce our annual pension expense and our annual expense associated with
other post-retirement employee benefits.
GM's issuance of shares of Class H common stock in the exchange offer or
the contributions to the employee benefit plans will not, in and of itself,
affect the financial position or results of operations of Hughes.
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THE EXCHANGE OFFER
Terms of the Exchange Offer
General Motors is offering to exchange shares of Class H common stock
for each share of $1 2/3 par value common stock held that is validly tendered
on the terms and subject to the conditions described below by 12:00 midnight,
New York City time, on , 2000. GM may extend this deadline for any
reason, including under certain circumstances specified below. The last day on
which tenders will be accepted, whether on , 2000 or any later date to
which the exchange offer may be extended, is sometimes referred to in this
document as the "expiration date." This is a voluntary exchange offer, which
means that $1 2/3 par value stockholders may tender all, some or none of their
shares in the exchange offer. All persons holding $1 2/3 par value common
stock are eligible to participate in the exchange offer if they validly tender
their shares during the exchange offer period in a jurisdiction where the
exchange offer is permitted under the laws of that jurisdiction.
GM will accept up to shares of $1 2/3 par value common stock for
exchange and will issue up to shares of Class H common stock in the
exchange offer. If more than shares of $1 2/3 par value common stock
are validly tendered, the tendered shares will be subject to proration when
the exchange offer expires. GM's obligation to complete the exchange offer is
subject to important conditions that are described at "--Conditions for
Completion of the Exchange Offer."
In determining the exchange ratio, GM considered, among other things:
. recent market prices on the NYSE for shares of $1 2/3 par value common
stock and Class H common stock; and
. advice from the dealer manager as to what exchange ratio might attract
enough $1 2/3 par value stockholders to participate in the exchange
offer.
We are sending this document and related documents to all persons who held
shares of $1 2/3 par value common stock on or about , 2000. As of
December 31, 1999, there were about 617,437,531 shares of $1 2/3 par value
common stock outstanding, which were held of record by about 499,809
stockholders.
GM will furnish this document and related documents to brokers, banks and
similar persons whose names or the names of whose nominees appear on GM's $1
2/3 par value stockholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of shares of $1 2/3 par value common stock.
Proration; Tenders for Exchange by Holders of Fewer than 100 Shares of $1 2/3
Par Value Common Stock
If, upon the expiration date, $1 2/3 par value stockholders have validly
tendered more than shares of $1 2/3 par value common stock so that
more than shares of Class H common stock would be exchanged, we will
accept on a pro rata basis all shares of $1 2/3 par value common stock validly
tendered and not withdrawn, with appropriate adjustments to avoid the issuance
of fractional shares of $1 2/3 par value common stock, except as described
below.
Except as otherwise provided in this paragraph, holders of an aggregate of
less than 100 shares of $1 2/3 par value common stock who validly tender all
of their shares will not be subject to proration if the exchange offer is
oversubscribed. Shares of $1 2/3 par value common stock held in a GM or GM
affiliated company savings plan are not eligible for this preferential
treatment. Beneficial holders of 100 or more shares of $1 2/3 par value common
stock are not eligible for this preferential treatment, even if such holders
have separate stock certificates or accounts representing fewer than 100
shares of $1 2/3 par value common stock. If you own fewer than 100 shares of
$1 2/3 par value common stock and wish to take advantage of the preferential
treatment of odd-lot shares in the event of proration, you must tender all of
your shares in the exchange offer.
We will announce preliminary results of the exchange offer by press release
promptly after the expiration date. Because of the difficulty in determining
the number of shares of $1 2/3 par value common stock validly tendered for
exchange, GM expects that the final results, including proration, if any, will
not be determined until about seven business days after the expiration date.
We will announce the final results of the exchange offer by press release
promptly after such results have been determined.
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No Fractional Shares
No fractional shares of Class H common stock will be distributed in the
exchange offer. The exchange agent, acting as agent for holders of $1 2/3 par
value common stock otherwise entitled to receive fractional shares of Class H
common stock as a result of the exchange offer, will aggregate all fractional
shares and sell them for the accounts of those stockholders. The proceeds from
these sales will be distributed, net of commissions, to those stockholders on
a pro rata basis. These cash payments will be made instead of issuing
fractional shares whether shares are tendered to the exchange agent or through
the book-entry transfer facility. These cash payments will be taxable to you.
See "Income Tax Consequences."
None of General Motors, Hughes, BankBoston, Morrow, Morgan Stanley Dean
Witter, Salomon Smith Barney or any soliciting dealer will guarantee any
minimum proceeds from the sale of fractional shares of Class H common stock,
and no interest will be paid on any of the proceeds.
Exchange of Shares of $1 2/3 Value Common Stock
If all of the conditions of the exchange offer are satisfied or waived, GM
will exchange shares of Class H common stock for each validly tendered
share of $1 2/3 par value common stock that was not properly withdrawn prior
to the expiration date, except as described at "--Proration; Tenders for
Exchange by Holders of Fewer Than 100 Shares of $1 2/3 Par Value Common Stock"
and "--Extension of Tender Period; Termination; Amendment." GM may, subject to
the rules under the Securities Exchange Act, delay accepting or exchanging any
shares of $1 2/3 par value common stock in order to comply in whole or in part
with any applicable law. For a description of GM's right to delay, terminate
or amend the exchange offer, see "--Extension of Tender Period; Termination;
Amendment."
If GM notifies the exchange agent either orally or in writing that it has
accepted the tenders of shares of $1 2/3 par value common stock for exchange,
the exchange of these shares will be complete. Promptly following the
announcement by GM of any final proration factor, the exchange agent will
deliver the tendered shares of $1 2/3 par value common stock to GM.
Simultaneously, the exchange agent, as agent for the tendering stockholders,
will receive from GM, the shares of Class H common stock that correspond to
the number of shares of $1 2/3 par value common stock tendered. The exchange
agent will then credit such shares to book-entry accounts maintained by the
transfer agent for the benefit of the holders.
If any tendered shares of $1 2/3 par value common stock are not exchanged
for any reason, or if fewer shares are exchanged due to proration, these
unexchanged or untendered shares of $1 2/3 par value common stock will be
credited to book-entry accounts for the shares maintained by the transfer
agent for the benefit of the holders.
Holders who tender their shares of $1 2/3 par value common stock for
exchange will generally not be obligated to pay any stock transfer tax in
connection with the exchange offer, except in the circumstances described at
"Stock Transfer Taxes" in the instructions to the letter of transmittal. GM
will not pay interest under the exchange offer, regardless of any delay in
making the exchange or crediting or delivering shares.
Procedures for Tendering Shares of $1 2/3 Par Value Common Stock
To tender your shares of $1 2/3 par value common stock, you must complete
the following procedures before the expiration date:
If you have stock certificates representing your shares of $1 2/3 par value
common stock, you should send the following documents to the exchange agent by
registered mail, return receipt requested, sufficiently in advance of the
expiration date for them to be received by the exchange agent before the
expiration date:
. a properly completed and executed letter of transmittal indicating the
number of shares of $1 2/3 par value common stock to be tendered and any
other documents required by the instructions to the letter of
transmittal; and
. the actual stock certificates representing the shares of $1 2/3 par value
common stock to be tendered.
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In addition, you must endorse your stock certificate or enclose an appropriate
stock power if:
. a stock certificate representing shares of $1 2/3 par value common stock
is registered in the name of a person other than the signer of a letter
of transmittal;
. delivery of shares of Class H common stock is to be made to the exchange
agent on behalf of a person other than the registered owner of the shares
of $1 2/3 par value common stock being tendered; or
. shares of $1 2/3 par value common stock not accepted for exchange are to
be delivered to GM's transfer agent on behalf of a person other than the
registered owner.
The signature on the letter of transmittal must be guaranteed by an
eligible institution unless the shares of $1 2/3 par value common stock
tendered under the letter of transmittal are tendered in one of the following
ways:
. by the registered holder of the shares of $1 2/3 par value common stock
tendered if such holder has not requested special issuance as described
in "Special Issuance Instructions" of the instructions to the letter of
transmittal; or
. for the account of an eligible institution.
An eligible institution is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or a correspondent in
the United States. Most banks and financial institutions are eligible
institutions.
The exchange agent's addresses are set forth on the back cover of this
document.
If you hold your shares of $1 2/3 par value common stock through a broker,
you should follow the instructions sent to you separately by your broker. You
should not use the letter of transmittal to direct the tender of your shares
of $1 2/3 par value common stock. Your broker must notify The Depository Trust
Company and cause it to transfer the shares into the exchange agent's account
in accordance with The Depository Trust Company's procedures. The broker must
also ensure that the exchange agent receives an agent's message from The
Depository Trust Company confirming the book-entry transfer of your shares of
$1 2/3 par value common stock. An agent's message is a message, transmitted by
The Depository Trust Company and received by the exchange agent, that forms a
part of a book-entry confirmation, which states that The Depository Trust
Company has received an express acknowledgment from the participant in The
Depository Trust Company tendering the shares that such participant has
received and agrees to be bound by the terms of the letter of transmittal.
If you are an institution which is a participant in The Depository Trust
Company's book-entry transfer facility, you should follow the same procedures
that are applicable to persons holding shares through a broker as described
above.
If you hold your shares of $1 2/3 par value common stock as a participant
in GM's Dividend Reinvestment Plan or in book-entry form with the GM transfer
agent through the direct registration system, you should send a properly
completed and executed letter of transmittal indicating the number of shares
to be tendered and any other documents required by the instructions to the
letter of transmittal to the exchange agent by registered mail, return receipt
requested, sufficiently in advance of the expiration date for them to be
received by the exchange agent before the expiration date.
If you hold your shares of $1 2/3 par value common stock as a participant
in a GM or a GM affiliated company savings plan, you should follow the
instructions sent to you separately by the plan trustees or administrator of
the plan. You should not use the letter of transmittal to direct the tender of
your shares of $1 2/3 par value common stock held in such a plan.
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The GM or GM affiliated company savings plans eligible to participate in
the exchange offer are:
. The General Motors Savings-Stock Purchase Program for Salaried Employees
in the United States;
. The Personal Savings Plan for Hourly-Rate Employees in the United
States;
. The Saturn Individual Savings Plan for Represented Members;
. The General Motors Canadian Savings-Stock Purchase Program; and
. The GMAC Mortgage Group Savings Incentive Plan.
Also, employees of GM and its affiliates who hold shares of $1 2/3 par
value common stock following the exercise of stock options are eligible to
participate in the exchange offer. Holders of shares of $1 2/3 par value
common stock that were acquired upon the exercise of an incentive stock option
generally will not be taxed for U.S. federal income tax purposes at the time
of tender of such shares, but rather generally will be taxed at the time of
the disposition of the shares of Class H common stock that were acquired in
exchange for such shares of $1 2/3 par value common stock. Each holder of $1
2/3 par value common stock subject to stock options should consult his or her
tax advisor as to the particular tax consequences to that holder.
Trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity who
sign the letter of transmittal, notice of guaranteed delivery or any
certificates or stock powers must indicate the capacity in which they are
signing, and must submit evidence of their power to act in that capacity
unless waived by GM.
If you validly tender your shares of $1 2/3 par value common stock and such
shares are accepted by GM, there will be a binding agreement between you and
GM on the terms and subject to the conditions set forth in this document and
in the accompanying instructions to the letter of transmittal. A person who
tenders shares of $1 2/3 par value common stock for his or her own account
violates federal securities law unless the person owns:
. such shares of $1 2/3 par value common stock;
. other securities convertible into or exchangeable for such shares of $1
2/3 par value common stock and intends to acquire shares of $1 2/3 par
value common stock for tender by conversion or exchange of such
securities; or
. an option, warrant or right to purchase such shares of $1 2/3 par value
common stock and intends to acquire shares of $1 2/3 par value common
stock for tender by exercise of such option, warrant or right.
Federal securities law provides a similar restriction applicable to the tender
or guarantee of a tender on behalf of another person.
Do not send letters of transmittal or certificates for shares of $1 2/3 par
value common stock to General Motors, Hughes, Morrow, Morgan Stanley Dean
Witter, Salomon Smith Barney or any soliciting dealer. These materials must be
submitted to the exchange agent at one of the addresses set forth on the back
cover of this document as described above in order for you to participate in
the exchange offer.
It is up to you to decide how to deliver your shares of $1 2/3 par value
common stock and all other required documents to the exchange agent. It is
your responsibility to ensure that all necessary materials are received by the
exchange agent prior to the expiration date. If the exchange agent does not
receive all of the materials required by this section at one of the addresses
set forth on the back cover of this document before the expiration date, your
shares will not be validly tendered.
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<PAGE>
Special Procedures for Certain Jurisdictions Outside the United States
If you wish to tender your shares of $1 2/3 par value common stock in a
jurisdiction other than the United States, certain special procedures may need
to be followed, depending on the laws of the particular jurisdiction in which
you tender your shares. For example, the laws of some jurisdictions require
that a local bank or similar institution be engaged as a local exchange agent
for that jurisdiction. In each case where special procedures are applicable to
a jurisdiction outside the United States, we have included special
instructions regarding such procedures with this document.
If you have questions concerning these special procedures, or if you plan
to tender your shares from a jurisdiction other than the one indicated by your
mailing address, please contact our information agent, Morrow, at (800) 206-
5881 (toll free) in the United States or at (212) 754-8000 (collect)
elsewhere.
GM's Interpretations Are Binding
GM will determine in its sole discretion all questions as to the form of
documents, including notices of withdrawal, and the validity, form,
eligibility, including time of receipt, and acceptance for exchange of any
tender of shares of $1 2/3 par value common stock in the exchange offer. This
determination will be final and binding on all tendering stockholders.
GM reserves the absolute right to:
. determine whether a tendering stockholder is eligible;
. reject any and all tenders of any shares of $1 2/3 par value common stock
not validly tendered or the acceptance of which, in the opinion of GM's
counsel, may be unlawful;
. waive any defects or irregularities in the tender of shares of $1 2/3 par
value common stock or any conditions of the exchange offer either before
or after the expiration date; and
. request any additional information from any record or beneficial owner of
shares of $1 2/3 par value common stock that GM deems necessary.
None of GM, Hughes, BankBoston, Morrow, Morgan Stanley Dean Witter, Salomon
Smith Barney, the soliciting dealers and any other person will be under any
duty to notify tendering $1 2/3 par value stockholders of any defect or
irregularity in tenders or notices of withdrawal. It is your responsibility to
ensure that your shares of $1 2/3 par value common stock are validly tendered
in accordance with the procedures described in this document and the related
documents prior to the expiration date.
Lost, Stolen or Destroyed Certificates
If your certificate representing shares of $1 2/3 par value common stock
has been mutilated, destroyed, lost or stolen and you wish to tender your
shares, please complete the affidavit found in Box A of the accompanying
letter of transmittal. You will need to enclose a check payable to the surety
company in the amount needed to pay for a surety bond for your lost, stolen or
destroyed shares and any other applicable procedures. Upon receipt of the
completed affidavit and surety bond payment and the completed letter of
transmittal, your shares will be included in the exchange offer.
Guaranteed Delivery Procedures
If you wish to tender your shares of $1 2/3 par value common stock but the
shares are not immediately available, or time will not permit the shares or
other required documentation to reach the exchange agent before the expiration
date, you may still tender your shares of $1 2/3 par value common stock if:
. the tender is made through an eligible institution;
. the exchange agent receives from the eligible institution before the
expiration date, a properly completed and duly executed notice of
guaranteed delivery, substantially in the form provided by GM; and
. the exchange agent receives the certificates for all physically tendered
shares of $1 2/3 par value common stock, in proper form for transfer and
a properly completed letter of transmittal, or a facsimile of a letter
35
<PAGE>
of transmittal and all other documents required by the letter of
transmittal, within three NYSE trading days after the date of execution of
the notice of guaranteed delivery.
You may deliver the notice of guaranteed delivery by hand, facsimile
transmission or mail to the exchange agent and you must include a guarantee by
an eligible institution in the form set forth in the notice of guaranteed
delivery.
Withdrawal Rights
You may withdraw tenders of shares of $1 2/3 par value common stock at any
time prior to the expiration date and, unless GM has accepted your tender as
provided in this document, after the expiration of 40 business days from the
commencement of the exchange offer. If GM:
. delays its acceptance of shares of $1 2/3 par value common stock for
exchange;
. extends the exchange offer; or
. is unable to accept shares of $1 2/3 par value common stock for exchange
under the exchange offer for any reason,
then, without prejudice to GM's rights under the exchange offer, the exchange
agent may, on behalf of GM, retain shares of $1 2/3 par value common stock
tendered, and such shares of $1 2/3 par value common stock may not be
withdrawn except as otherwise provided in this document, subject to provisions
under the Securities Exchange Act that provide that an issuer making an
exchange offer shall either pay the consideration offered or return tendered
securities promptly after the termination or withdrawal of the exchange offer.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of its addresses set forth on the back
cover of this document. The notice of withdrawal must:
. specify the name of the person having tendered the shares of $1 2/3 par
value common stock to be withdrawn;
. identify the number of shares of $1 2/3 par value common stock to be
withdrawn; and
. specify the name in which physical $1 2/3 par value common stock
certificates are registered, if different from that of the withdrawing
holder.
If certificates representing the shares of $1 2/3 par value common stock
have been delivered or otherwise identified to the exchange agent, then,
before the release of such certificates, the withdrawing holder must also
submit the serial numbers of the particular certificates to be withdrawn, and
a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless such holder is an eligible institution.
If the shares of $1 2/3 par value common stock have been tendered pursuant
to the procedure for book-entry transfer, any notice of withdrawal must
specify the name and number of the account at The Depository Trust Company to
be credited with the withdrawn shares and otherwise comply with the procedures
of such facility.
Any shares of $1 2/3 par value common stock withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the exchange offer.
Properly withdrawn shares may be retendered by following one of the procedures
described at "--Procedures for Tendering Shares of $1 2/3 Par Value Common
Stock" at any time on or before the expiration date.
Except as otherwise provided above, any tender of shares of $1 2/3 par
value common stock made under the exchange offer is irrevocable.
Book-Entry Accounts
Physical stock certificates representing shares of Class H common stock or
$1 2/3 par value common stock will not be issued as a result of the exchange
offer. Rather than issuing physical stock certificates representing
36
<PAGE>
either shares of $1 2/3 par value common stock returned due to proration or
shares of Class H common stock issued in the exchange offer, the exchange
agent will credit such shares to book-entry accounts maintained by the GM
transfer agent for the benefit of the respective holders. This method of
holding stock eliminates the need for actual stock certificates to be issued
and eliminates the requirements for physical movement of stock certificates at
the time of sale. Promptly following the crediting of shares to your
respective book-entry accounts, you will receive an account statement from the
exchange agent evidencing your holdings, as well as general information on the
book-entry form of ownership through GM's direct registration system. For more
information about the book-entry form of ownership under GM's direct
registration system, see "Description of Class H Common Stock--Direct
Registration System."
You are not required to maintain a book-entry account and you may at any
time obtain a stock certificate for all or a portion of your shares of Class H
common stock received as part of the exchange offer at no cost to you.
Instructions describing how you can obtain stock certificates will be included
with the account statement mailed to you.
Extension of Tender Period; Termination; Amendment
GM expressly reserves the right, in its sole discretion, for any reason,
including the non-satisfaction of any of the conditions for completion set
forth below, to extend the period of time during which the exchange offer is
open or to amend the exchange offer in any respect, including changing the
exchange ratio. GM also expressly reserves the right to extend the period of
time during which the exchange offer is open in the event the exchange offer
is undersubscribed--that is, fewer than shares of $1 2/3 par value
common stock are tendered. In any of these cases, GM will make a public
announcement of the extension or amendment.
If GM materially changes the terms of or information concerning the
exchange offer, GM will extend the exchange offer. Depending on the substance
and nature of such change, we will extend the offer for at least five to ten
business days following the announcement if the exchange offer would have
otherwise expired within such five to ten business days.
If any condition for completion of the exchange offer described below is
not satisfied, GM reserves the right to choose to delay acceptance for
exchange of any shares of $1 2/3 par value common stock or to terminate the
exchange offer and not accept for exchange any shares of $1 2/3 par value
common stock. For more information, see "Conditions for Completion of the
Exchange Offer--Consequences of Unsatisfied Conditions."
If GM extends the exchange offer, is delayed in accepting any shares of $1
2/3 par value common stock or is unable to accept for exchange any shares of
$1 2/3 par value common stock under the exchange offer for any reason, then,
without affecting GM's rights under the exchange offer, the exchange agent
may, on behalf of GM, retain all shares of $1 2/3 par value common stock
tendered. These shares of $1 2/3 par value common stock may not be withdrawn
except as provided at "--Withdrawal Rights" above. GM's reservation of the
right to delay acceptance of any shares of $1 2/3 par value common stock is
subject to applicable law, which requires that GM pay the consideration
offered or return the shares of $1 2/3 par value common stock deposited
promptly after the termination or withdrawal of the exchange offer.
GM will issue a press release or other public announcement no later than
9:00 a.m., New York City time, on the next business day following any
extension, amendment, non-acceptance or termination of the previously
scheduled expiration date.
Conditions for Completion of the Exchange Offer
Minimum Condition
GM will not be obligated to complete the exchange offer unless at least
shares of $1 2/3 par value common stock are validly tendered and not
withdrawn and all of the other conditions to the exchange offer described
below have been satisfied. This condition, which we sometimes refer to in this
document as the
37
<PAGE>
"minimum condition," is designed to ensure that at least shares of
Class H common stock are issued under the exchange offer and represents about
% of the outstanding shares of $1 2/3 par value common stock as of
, 2000.
Tax Opinions Condition
GM's obligation to complete the exchange offer is also conditioned on GM's
receipt of an opinion from its outside tax counsel, Kirkland & Ellis, to the
effect that, for U.S. federal income tax purposes, the exchange of Class H
common stock for $1 2/3 par value common stock pursuant to the exchange offer
will not result in the recognition of gain or loss either by $1 2/3 par value
stockholders who participate in the exchange offer, except in connection with
any cash received instead of fractional shares, or by GM. The exchange offer
will have these U.S. federal income tax consequences to $1 2/3 par value
stockholders and GM only if Class H common stock is treated as stock of GM for
U.S. federal income tax purposes. GM anticipates that it will also receive an
opinion from Kirkland & Ellis to this effect, the receipt of which is also a
condition to the exchange offer. For more information, see "Risk Factors--Risk
Factors Relating to GM's Dual-Class Common Stock Capital Structure--Proposed
Changes in the Tax Law Could Affect GM's Future Ability to Issue Shares of
Class H Common Stock" and "Income Tax Consequences--Material U.S. Federal
Income Tax Consequences."
Other Conditions
In addition, even if the minimum condition is satisfied and GM receives the
tax opinions, GM may also choose not to accept shares for exchange and not to
complete the exchange offer if:
. any action, proceeding or litigation seeking to enjoin, make illegal or
delay completion of the exchange offer or otherwise relating in any
manner to the exchange offer is instituted or threatened;
. any order, stay, judgment or decree is issued by any court, government,
governmental authority or other regulatory or administrative authority
and is in effect, or any statute, rule, regulation, governmental order or
injunction shall have been proposed, enacted, enforced or deemed
applicable to the exchange offer, any of which would or might restrain,
prohibit or delay completion of the exchange offer or impair the
contemplated benefits of the exchange offer to GM or Hughes;
. any of the following occurs and the adverse effect of such occurrence
shall, in the reasonable judgment of GM, be continuing:
. any general suspension of trading in, or limitation on prices for,
securities on any national securities exchange or in the over-the-
counter market in the United States;
. any extraordinary or material adverse change in U.S. financial
markets generally, including, without limitation, a decline of at
least twenty percent in either the Dow Jones Average of Industrial
stocks or the Standard & Poor's 500 Index from , 2000;
. a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States;
. any limitation, whether or not mandatory, by any governmental entity
on, or any other event that would reasonably be expected to
materially adversely affect, the extension of credit by banks or
other lending institutions;
. a commencement of a war or other national or international calamity
directly or indirectly involving the United States, which would
reasonably be expected to affect materially and adversely, or to
delay materially, the completion of the exchange offer; or
. if any of the situations described above exists at the time of
commencement of the exchange offer, GM determines that the situation
deteriorates materially subsequent to the time of commencement;
. any tender or exchange offer, other than this exchange offer by GM, with
respect to some or all of the outstanding Class H common stock or $1 2/3
par value common stock or any merger, acquisition or other business
combination proposal involving GM or Hughes, shall have been proposed,
announced or made by any person or entity;
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<PAGE>
. any event or events occur that have resulted or may result, in GM's
judgment, in an actual or threatened change in the business condition,
income, operations, stock ownership or prospects of GM and its
subsidiaries, taken as a whole, or of Hughes and its subsidiaries, taken
as a whole; or
. as the terms "group" and "beneficial owner" are used in Section 13(d) of
the Securities Exchange Act and SEC rules thereunder,
. any person, entity or group shall have become directly or indirectly
the beneficial owner of more than five percent of the outstanding
shares of $1 2/3 par value common stock or Class H common stock, other
than a person, entity or group which had publicly disclosed such
beneficial ownership by an appropriate filing with the SEC prior to
, 2000; or
. any such person, entity or group which had publicly disclosed such
beneficial ownership prior to such date shall have become directly or
indirectly the beneficial owner of additional $1 2/3 par value common
stock and Class H common stock, the ownership of which was not publicly
disclosed in such filing, constituting more than two percent of the
outstanding shares of $1 2/3 par value common stock and Class H common
stock; or
. any new group shall have been formed that beneficially owns more than
five percent of the outstanding shares of $1 2/3 par value common stock
or Class H common stock; or
. any one or more of the foregoing events relating to beneficial
ownership would occur as a result of the issuance of Class H common
stock in exchange for any shares of $1 2/3 par value common stock that
have been tendered in the exchange offer;
the occurrence of which event, in the judgment of GM in any such case and
regardless of the circumstances, makes it inadvisable to proceed with the
exchange offer or with the acceptance of shares of $1 2/3 par value common
stock for exchange.
Consequences of Unsatisfied Conditions
If any condition to the exchange offer is not satisfied, GM may, in its
sole discretion:
. terminate the exchange offer and as promptly as reasonably practicable
return in book entry form all tendered shares of $1 2/3 par value common
stock to tendering stockholders;
. delay acceptance for exchange of any shares of $1 2/3 par value common
stock, extend the exchange offer and, subject to the withdrawal rights
described at "--Withdrawal Rights," retain all tendered shares of $1 2/3
par value common stock until the extended exchange offer expires;
. amend the terms and conditions of the exchange offer; or
. waive the unsatisfied condition and, subject to any requirement to extend
the period of time during which the exchange offer is open, complete the
exchange offer.
These conditions are for the sole and exclusive benefit of GM. GM may
assert these conditions with respect to all or any portion of the exchange
offer regardless of the circumstances giving rise to them. GM may waive any
condition in whole or in part at any time in its sole discretion. GM's failure
to exercise its rights under any of the conditions described above does not
represent a waiver of these rights. Each right is an ongoing right which may
be asserted at any time. Any determination by GM concerning the conditions
described above will be final and binding upon all parties.
If a stop order issued by the SEC is in effect at any time after the
commencement of this exchange offer with respect to the registration statement
of which this document is a part, GM will not accept any shares of $1 2/3 par
value common stock tendered and will not exchange shares of Class H common
stock for any shares of $1 2/3 par value common stock.
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<PAGE>
Fees and Expenses
Dealer Manager
Morgan Stanley & Co. Incorporated is acting as the dealer manager in
connection with the exchange offer. Morgan Stanley will receive a fee of $
million for its services as dealer manager, in addition to being reimbursed by
GM for its reasonable out-of-pocket expenses, including attorneys' fees, in
connection with the exchange offer. The foregoing fees will be payable if and
when the exchange offer is completed. Morgan Stanley has in the past provided
and is currently providing investment banking services to GM and Hughes, for
which it has received and will receive customary compensation.
GM has agreed to indemnify Morgan Stanley Dean Witter against specified
liabilities related to this transaction, including civil liabilities under the
federal securities laws, and to contribute to payments which Morgan Stanley
Dean Witter may be required to make in respect thereof. However, it is the
opinion of the SEC that indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. Morgan Stanley Dean
Witter may from time to time hold shares of $1 2/3 par value common stock in
its proprietary accounts, and to the extent it owns shares in these accounts
at the time of the exchange offer, it may tender these shares in the exchange
offer.
Marketing Manager for Hughes
Salomon Smith Barney Inc. is acting as marketing manager for Hughes in
connection with the exchange offer. In its role as marketing manager for
Hughes, Salomon Smith Barney will participate in the marketing efforts related
to the transaction. Salomon Smith Barney will receive a fee of $ million
for its services as marketing manager, in addition to being reimbursed by
Hughes for its reasonable out-of-pocket expenses, including attorneys' fees,
in connection with the exchange offer. The foregoing fees will be payable when
and if the exchange offer is completed. Salomon Smith Barney has in the past
provided and is currently providing investment banking services to GM and
Hughes, for which it has received and will receive customary compensation.
Hughes has agreed to indemnify Salomon Smith Barney against specified
liabilities related to this transaction, including civil liabilities under the
federal securities laws, and to contribute to payments which Salomon Smith
Barney may be required to make in respect thereof. However, it is the opinion
of the SEC that indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. Salomon Smith Barney may from
time to time hold shares of $1 2/3 par value common stock in its proprietary
accounts, and to the extent it owns shares in these accounts at the time of
the exchange offer, it may tender these shares in the exchange offer.
Soliciting Dealers
GM will pay each soliciting dealer a solicitation fee of $0.75 per share,
for up to 1,000 shares per tendering $1 2/3 par value stockholder, for each
share of $1 2/3 par value common stock tendered and accepted for exchange
under the exchange offer if that soliciting dealer has affirmatively solicited
and obtained the tender. GM will not pay a solicitation fee in connection with
a tender of $1 2/3 par value common stock by a $1 2/3 par value stockholder
who tenders:
. more than 10,000 shares of $1 2/3 par value common stock; or
. from a country outside the United States.
"Soliciting dealer" includes the following organizations:
. any broker or dealer in securities that is a member of any national
securities exchange in the United States or of the National Association
of Securities Dealers, Inc.; or
. any bank or trust company located in the United States.
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<PAGE>
In order for a soliciting dealer to receive a solicitation fee with respect
to the tender of shares of $1 2/3 par value common stock, the exchange agent
must have received, by three NYSE trading days after the expiration date, a
properly completed and duly executed "Notice of Solicited Tenders." If a
"Notice of Solicited Tenders" is not received by the exchange agent within
three NYSE trading days after the expiration date, no solicitation fee will be
paid to such soliciting dealer.
Under no circumstances shall a fee be paid to a soliciting dealer more than
once with respect to any shares of $1 2/3 par value common stock. No
soliciting dealer is required to make a recommendation to holders of shares of
$1 2/3 par value common stock as to whether to tender or refrain from
tendering in the exchange offer.
Soliciting dealers should take care to ensure proper record-keeping to
document their entitlement to any solicitation fee. GM and the exchange agent
reserve the right to require additional information, as deemed warranted in
their sole discretion.
All questions as to the validity, form, and eligibility, including time of
receipt of notices of solicited tenders will be determined by the exchange
agent and GM, in their sole discretion, which determination will be final and
binding. Neither GM, the exchange agent nor any other person will be under any
duty to give notification of any defects or irregularities in a notice of
solicited tender or incur any liability for failure to give such notification.
GM will not pay a solicitation fee to a soliciting dealer who for any
reason must transfer the fee to a tendering stockholder. Soliciting dealers
are not entitled to a solicitation fee with respect to shares of $1 2/3 par
value common stock beneficially owned by them or with respect to any shares
that are registered in the name of a soliciting dealer unless the shares are
held by such soliciting dealer as nominee and are tendered for the benefit of
beneficial holders. No broker, dealer, bank, trust company or fiduciary shall
be deemed to be the agent of GM, Hughes, BankBoston, Morrow, Morgan Stanley
Dean Witter or Salomon Smith Barney for purposes of the exchange offer.
GM will not pay any fees or commissions to any broker or dealer or any
other person, other than Morgan Stanley Dean Witter, Salomon Smith Barney and
the soliciting dealers, for soliciting tenders of shares of $1 2/3 par value
common stock under the exchange offer. Brokers, dealers, commercial banks and
trust companies will, upon request made within a reasonable period of time, be
reimbursed by GM for reasonable and necessary costs and expenses incurred by
them in forwarding materials to their customers.
Information Agent and Exchange Agent
GM has retained Morrow & Co., Inc. to act as the information agent and
BankBoston, N.A. to act as the exchange agent in connection with the exchange
offer. The information agent may contact holders of shares of $1 2/3 par value
common stock by mail, telephone, facsimile transmission and personal
interviews and may request brokers, dealers and other nominee stockholders to
forward materials relating to the exchange offer to beneficial owners. The
information agent and the exchange agent each will receive reasonable
compensation for their respective services, will be reimbursed for reasonable
out-of-pocket expenses and will be indemnified against liabilities in
connection with their services.
Neither the information agent nor the exchange agent has been retained to
make solicitations or recommendations. The fees they receive will not be based
on the number of shares of $1 2/3 par value common stock tendered under the
exchange offer; however, the exchange agent will be compensated in part on the
basis of the number of letters of transmittal received and the number of
account statements distributed.
GM has retained certain other persons to serve as local exchange agents in
connection with the exchange offer in jurisdictions outside the United States.
These local exchange agents will receive reasonable compensation and other
rights in connection with their services.
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Legal Limitation
This document is not an offer to sell and it is not soliciting any offer to
buy any Class H common stock in any jurisdiction in which the offer or sale is
not permitted. General Motors is not aware of any jurisdiction where the making
of the exchange offer or its acceptance would not be legal. If GM learns of any
jurisdiction where making the exchange offer or its acceptance would not be
permitted, GM currently intends to make a good faith effort to comply with the
relevant law. If, after a good faith effort, GM cannot comply with such law, GM
will determine whether the exchange offer will be made to, and whether tenders
will be accepted from or on behalf of, persons who are holders of shares of $1
2/3 par value common stock residing in the jurisdiction.
In any jurisdiction where the securities or blue sky laws require the
exchange offer to be made by a licensed broker or dealer, the exchange offer
may be made on GM's behalf by one or more registered brokers or dealers
licensed under the laws of such jurisdiction.
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PRICE RANGE AND DIVIDENDS FOR $1 2/3 PAR VALUE COMMON STOCK
GM's $1 2/3 par value common stock is listed and traded on the NYSE under
the symbol "GM." The following table contains, for the periods indicated, the
high and low sale price per share of $1 2/3 par value common stock, not
adjusted to account for the spin-off of Delphi which occurred during the
second quarter of 1999, as reported on the NYSE composite tape, and the cash
dividends paid per share of $1 2/3 par value common stock:
<TABLE>
<CAPTION>
Cash Dividend
Calendar Year High Low Per Share
------------- ------ ------ -------------
<S> <C> <C> <C>
1998
First Quarter............................... $74.25 $55.06 $0.50
Second Quarter.............................. 76.69 66.13 0.50
Third Quarter............................... 74.75 54.44 0.50
Fourth Quarter.............................. 74.94 47.06 0.50
1999
First Quarter............................... $93.88 $69.19 $0.50
Second Quarter.............................. 94.88 61.06 0.50
Third Quarter............................... 72.44 59.75 0.50
Fourth Quarter.............................. 79.06 60.69 0.50
2000
First Quarter (through February 18, 2000)... $87.13 $70.75 $
</TABLE>
There were 499,809 holders of record of $1 2/3 par value common stock as of
December 31, 1999.
On February 18, 2000, the last full day of trading prior to the initial
filing of the registration statement relating to the exchange offer, the
closing trading price per share of $1 2/3 par value common stock as reported
on the NYSE composite tape was $73.75. On , 2000, the second to
last full day of trading prior to commencement of the exchange offer, the
closing trading price of a share of $1 2/3 par value common stock as reported
on the NYSE was $ . You should obtain current market quotations for the
shares of $1 2/3 par value common stock before deciding whether to tender your
shares of $1 2/3 par value common stock. We can give no assurance concerning
the market price of $1 2/3 par value common stock in the future.
If the GM board of directors declares a quarterly dividend on the $1 2/3
par value common stock after commencement of the exchange offer but prior to
the expiration of the exchange offer period, it is possible that the record
date for determining holders of $1 2/3 par value common stock entitled to
receive the dividend would be a date before the expiration of the exchange
offer period. Tendering your shares of $1 2/3 par value common stock in the
exchange offer will not change your status as a record holder of $1 2/3 par
value common stock, except with respect to those of your shares that are
accepted for exchange upon completion of the exchange offer. This means that
if you tender shares of $1 2/3 par value common stock before the record date
for a dividend, you will continue to be the record holder of those shares on
the record date and you will be entitled to receive payment of the dividend if
the record date is a date prior to the expiration of the exchange offer
period. In such event, the quarterly dividend would be paid to you in the
normal manner and would be separate from any shares of Class H common stock,
and cash instead of fractional shares, issued to you in the exchange offer.
$1 2/3 par value stockholders who exchange shares of $1 2/3 par value
common stock pursuant to this exchange offer will not be entitled to any
dividends on those shares of $1 2/3 par value common stock with a record date
after the date on which GM accepts such tendered shares. $1 2/3 par value
stockholders will continue to receive the regular quarterly dividend with
respect to any shares of $1 2/3 par value common stock that are not exchanged
pursuant to the exchange offer.
The GM board of directors may declare dividends on $1 2/3 par value common
stock after considering many factors, including GM's competitive position,
available cash, financial conditions, earnings and capital requirements. GM
may choose not to pay dividends in the future. See "Comparison of Rights of $1
2/3 Par Value Stockholders and Class H Stockholders--Common Stock Dividends."
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PRICE RANGE FOR CLASS H COMMON STOCK
The Class H common stock is listed on the NYSE under the symbol "GMH." The
following table contains, for the periods indicated, the high and low sale
prices per share of Class H common stock, as reported on the NYSE composite
tape.
<TABLE>
<CAPTION>
Calendar Year High Low
------------- ------- ------
<S> <C> <C>
1998
First Quarter........................................... $ 48.00 $31.50
Second Quarter.......................................... 57.88 42.75
Third Quarter........................................... 50.81 35.00
Fourth Quarter.......................................... 42.38 30.38
1999
First Quarter........................................... $ 53.00 $38.50
Second Quarter.......................................... 63.88 48.94
Third Quarter........................................... 62.44 48.75
Fourth Quarter.......................................... 97.63 55.94
2000
First Quarter (through February 18, 2000)............... $127.00 $91.50
</TABLE>
There were 192,866 holders of record of Class H common stock as of December
31, 1999.
On February 18, 2000, the last full day of trading prior to the initial
filing of the registration statement relating to the exchange offer, the
closing trading price per share of Class H common stock as reported on the
NYSE composite tape was $102.44. On , 2000, the second to last
full day of trading prior to commencement of the exchange offer, the closing
trading price per share of Class H common stock as reported on the NYSE was
$ . You should obtain current market quotations for the shares of Class
H common stock before deciding whether to tender your shares of $1 2/3 par
value common stock. We can give no assurance concerning the market price of
Class H common stock in the future.
Since the completion of the Hughes restructuring transactions in late 1997,
GM has not paid dividends on the Class H common stock. The GM board does not
currently expect to pay dividends on the Class H common stock in the
foreseeable future. Future earnings of Hughes are expected to be retained for
the development of the business of Hughes. For more information, see
"Description of Class H Common Stock--Dividend Policy."
44
<PAGE>
CAPITALIZATION OF GM
The following table sets forth the capitalization of General Motors and its
consolidated subsidiaries at September 30, 1999, and as adjusted to reflect
consummation of a fully-subscribed exchange offer. The following table should
be read in conjunction with GM's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999 and GM's Current Reports on Form 8-K dated April 12,
1999 and filed on April 15, 1999 and April 21, 1999 which restated GM's
consolidated financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations to reflect Delphi Automotive
Systems Corporation as discontinued operations, which is incorporated into
this document by reference.
The pro forma information gives effect to a fully-subscribed exchange
offer. As a result of the exchange offer, the earnings per share calculation
of the $1 2/3 par value common stock will reflect the lower number of
outstanding shares of $1 2/3 par value common stock and the $1 2/3 par value
stockholders' decreased interest in the available separate consolidated net
income of Hughes. While there will be no change to the earnings per share of
Class H common stock, the earnings per share calculation of the Class H common
stock will reflect the Class H stockholders' increased interest in the
available separate consolidated net income of Hughes and the proportionate
increase in the number of shares of Class H common stock outstanding.
<TABLE>
<CAPTION>
As of
September 30, 1999
----------------------------------
Actual Adjustments Pro Forma
---------- ------------- ---------
(in millions)
<S> <C> <C> <C>
Total debt (1)............................. $123,904 $ $
Minority interests......................... 635
General Motors--obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely junior
subordinated debentures of General Motors
--Series D............................... 79
--Series G............................... 140
Stockholders' Equity
Preference stocks........................ $ -- $ $
GM common stock
$1 2/3 par value common stock.......... 1,071
Class H common stock................... 14
Capital surplus (principally additional
paid-in capital)........................ 15,282
Retained earnings........................ 5,573
-------- -------- --------
Subtotal............................... 21,940
Accumulated foreign currency translation
adjustments............................. (1,969)
Net unrealized gains on securities....... 631
Minimum pension liability adjustment..... (4,027)
-------- -------- --------
Total stockholders' equity............. 16,575
-------- -------- --------
Total capitalization................... $141,333 $ $
======== ======== ========
<CAPTION>
Historical Adjustments Pro Forma
---------- ------------- ---------
(in millions)
<S> <C> <C> <C>
Amount Available for the Payment of
Dividends
$1 2/3 par value common stock............ $ 13,914 $ $
Class H common stock..................... 5,263
-------- -------- --------
Total.................................. $ 19,177 $ $
======== ======== ========
</TABLE>
- --------
(1) Calculated as the sum of Loans payable and Long-term debt for Automotive,
Communications Services and Other Operations plus Debt for Financing and
Insurance Operations.
45
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF HUGHES
The following selected historical financial data have been derived from,
and should be read in conjunction with Hughes' financial statements, as well
as the "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Hughes", and the "Unaudited Pro Forma Combined
Condensed Financial Information of Hughes" and the "Notes to Unaudited Pro
Forma Combined Condensed Financial Information of Hughes" sections of this
document. In the opinion of management, the unaudited interim financial
statements for the nine months ended September 30, 1999 and 1998 reflect all
adjustments, consisting only of normal recurring items, that are necessary for
the fair presentation of the financial position and results of operations for
such periods. Results for the period ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the entire
year.
<TABLE>
<CAPTION>
As of and for the As of and for the
years ended nine months ended
December 31, September 30,
----------------------------------------- ------------------
1994(1) 1995 1996 1997 1998 1998 1999
------- ------ ------ ------- ------- -------- --------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues.......... $2,697 $1,554 $2,058 $ 2,838 $ 3,481 $ 2,375 $ 3,862
Total operating costs
and expenses........... 2,483 1,574 2,109 2,794 3,527 2,379 3,925
------ ------ ------ ------- ------- -------- --------
Operating profit (loss). 214 (20) (51) 44 (46) (4) (63)
Other income (expense),
net.................... (61) (38) 33 330 (56) (22) (126)
Income tax provision
(benefit).............. 56 (23) 22 162 (142) 1 (60)
Minority interests in
losses of subsidiaries. -- 5 53 25 24 19 22
------ ------ ------ ------- ------- -------- --------
Income (loss) from
continuing operations
before extraordinary
item and cumulative
effect of accounting
change................. 97 (30) 13 237 64 (8) (107)
Income (loss) from
discontinued
operations, net of
taxes.................. (54) 36 150 171 196 145 47
Gain on sale of
discontinued
operations, net of
taxes.................. -- -- -- 63 -- -- --
Extraordinary item, net
of taxes............... -- -- -- (21) -- -- --
Cumulative effect of
accounting changes..... (2) -- -- -- (9) (9) --
------ ------ ------ ------- ------- -------- --------
Net income (loss)....... 41 6 163 450 251 128 (60)
Adjustments to exclude
the effect of GM
purchase accounting
adjustments............ 21 21 21 21 21 16 16
Preferred stock
dividend............... -- -- -- -- -- -- (26)
------ ------ ------ ------- ------- -------- --------
Earnings (loss) used for
computation of
available separate
consolidated net income
(loss)................. $ 62 $ 27 $ 184 $ 471 $ 272 $ 144 $ (70)
====== ====== ====== ======= ======= ======== ========
Earnings (loss) per
share attributable to
Class H common stock:
Basic and diluted
earnings (loss) per
share from continuing
operations before
extraordinary item and
cumulative effect of
accounting change..... $ 0.30 $(0.07) $ 0.04 $ 0.60 $ 0.17 $ (0.01) $ (0.32)
Discontinued
operations............ (0.14) 0.14 0.42 0.63 0.53 0.39 0.15
Extraordinary item..... -- -- -- (0.05) -- -- --
Cumulative effect of
accounting change..... -- -- -- -- (0.02) (0.02) --
------ ------ ------ ------- ------- -------- --------
Basic and diluted
earnings (loss) per
share................. $ 0.16 $ 0.07 $ 0.46 $ 1.18 $ 0.68 $ 0.36 $ (0.17)
====== ====== ====== ======= ======= ======== ========
Cash dividends declared
per share..............
Balance Sheet Data:
Cash and cash
equivalents............ $ 6 $ 7 $ 6 $ 2,784 $ 1,342 $ 1,510 $ 158
Current assets.......... 1,155 1,620 1,658 5,179 4,075 4,611 4,014
Total assets............ 3,609 3,513 3,861 12,142 12,617 12,333 18,155
Current liabilities..... 881 478 692 1,008 1,346 1,343 2,096
Minority interests...... -- -- 12 608 482 469 530
Long-term debt.......... -- -- -- 638 779 779 1,929
Owner's equity.......... 2,301 2,609 2,492 8,340 8,412 8,287 11,529
Other Data:
EBITDA.................. $ 375 $ 130 $ 113 $ 304 $ 342 $ 273 $ 397
Depreciation and
amortization........... 161 150 164 260 388 277 460
Capital expenditures.... 399 389 362 713 1,329 876 1,145
</TABLE>
- --------
(1) The 1994 amounts have not been restated to reflect the satellite systems
manufacturing businesses as discontinued operations.
46
<PAGE>
"EBITDA" is defined as operating profit (loss), plus depreciation and
amortization. EBITDA is not presented as an alternative measure of operating
results or cash flow from operations, as determined in accordance with
generally accepted accounting principles. Hughes management believes it is a
meaningful measure of performance and is commonly used by other large
communications, entertainment and media service providers. EBITDA does not
give effect to cash used for debt service requirements and thus does not
reflect funds available for investment in the business of Hughes, dividends or
other discretionary uses.
In addition, EBITDA as presented herein may not be comparable to similarly
titled measures reported by other companies.
Earnings per share for the years prior to 1998 do not reflect the earnings
attributable to the Class H common stock on a historical basis; rather, they
present the financial results that would have been achieved relative to the
Class H common stock had they been calculated on the performance of the
telecommunications and space businesses of Hughes' predecessor.
47
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF HUGHES
You should review this section in conjunction with Hughes' financial
statements and the notes thereto for the period ended September 30, 1999,
which are sometimes referred to in this section as the "third quarter 1999
financial statements," and as of December 31, 1998 and December 31, 1997 and
for the three-year period ended December 31, 1998, which are sometimes
referred to in this section as the "1998 financial statements." These
financial statements are incorporated by reference into this registration
statement.
General
In the following discussion, we outline recent material events that have
affected Hughes.
On December 17, 1997, Hughes' predecessor, which was also known as Hughes
Electronics Corporation, in conjunction with General Motors completed a series
of transactions designed to address strategic challenges facing Hughes' three
principal businesses at the time and unlock stockholder value in General
Motors. These transactions included:
. the tax-free spin-off of Hughes' defense electronics business to holders
of General Motors $1 2/3 common stock and Class H common stock;
. the transfer of Delco Electronics Corporation, Hughes' automotive
electronics business, to GM's Delphi Automotive Systems unit, which is
now a separate corporation; and
. the recapitalization of GM's old Class H common stock into a new tracking
stock of the same name, that is linked to Hughes' telecommunications and
space businesses.
These transactions were followed immediately by the merger of the defense
electronics business with Raytheon Company. In connection with this
recapitalization, the telecommunications and space business, consisting
principally of the digital direct-to-home broadcast, satellite services,
network systems and satellite systems businesses, were contributed to the
recapitalized Hughes by its predecessor. The following discussion and
accompanying financial statements pertain only to Hughes as it now exists, and
do not include balances of the defense electronics business or Delco. For
additional information on the basis of presentation, see Note 1 to the 1998
financial statements.
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. For
further information regarding this merger, see note 14 to the 1998 financial
statements.
During 1998, four satellites built by Hughes Space and Communications
experienced the failure of a primary spacecraft control processor. Three of
these satellites were owned and operated by PanAmSat and the fourth, DBS-1,
was owned by DIRECTV. With the exception of the Galaxy IV satellite operated
by PanAmSat, control of the satellites was automatically switched to the spare
spacecraft control processor and the spacecraft are operating normally. The
spare spacecraft control processor on the Galaxy IV satellite was inoperable
due to a previous undetected failure. As a result, upon the failure of the
primary spacecraft control processor, the satellite was lost. PanAmSat was
insured for substantially all of the book value of the Galaxy IV satellite.
An extensive investigation revealed that electrical shorts involving tin-
plated relay switches are the most likely cause of the primary spacecraft
control processor failures. The failure of the second spacecraft control
processor on Galaxy IV appears to be unrelated and is being treated as an
isolated anomaly. Although there exists the possibility of failure of other
currently operating spacecraft control processors, Hughes believes the
48
<PAGE>
probability of a primary and spare spacecraft control processor failing in any
one in-orbit satellite is low. Hughes believes that the phenomenon will not be
repeated on satellites currently being built, those launched subsequent to
1998 and those ready for launch, although we cannot assure you in this regard.
As of September 30, 1999, in-orbit satellites manufactured by Hughes Space
and Communications include 14 satellites owned by PanAmSat and three
satellites owned by DIRECTV. Of these, five PanAmSat satellites and the three
DIRECTV satellites, which include the satellites described above, are the same
model spacecraft as the affected satellites and have tin-plated relay switches
similar to the switches on the failed spacecraft control processors. We cannot
assure you that additional spacecraft control processor failures will not
occur on these satellites.
During 1998, battery anomalies occurred on two other PanAmSat satellites
that were built by Hughes Space and Communications. In both cases, battery
cells failed, resulting in the need to shut off a number of transponders for a
brief time during twice-yearly eclipse periods. To date, the impact on
customers has been minimal. We cannot assure you, however, that service to all
full-time customers will not be interrupted for brief periods during future
eclipse periods or that additional battery cell failures will not occur in the
future. Such future service interruptions, depending on the extent, could
result in a claim by affected customers for termination of their transponder
agreements, cancellation of other service contracts or the loss of other
customers. PanAmSat has developed solutions for its customers that include
transition of the affected services to other PanAmSat satellites and the
planned launch of replacement satellites as part of the satellite expansion
and restoration plan discussed below.
In August 1998, Galaxy X, a PanAmSat satellite, was destroyed as a result
of the launch failure of a Boeing Delta III rocket. PanAmSat was fully insured
for all capital costs associated with the Galaxy X satellite.
In 1998, PanAmSat adopted a comprehensive satellite expansion and
restoration plan pursuant to which PanAmSat would expand its fleet of
satellites. The additional satellites are intended to meet the expected demand
for additional satellite capacity, replace capacity affected by satellite
anomalies, and provide added backup to existing capacity. In connection with
the plan, two satellites were successfully launched, one in December 1999 and
one in January 2000. In addition, five satellites are now under construction
by Hughes Space and Communications. PanAmSat expects to launch four of these
satellites in 2000 and one in 2001.
DIRECTV successfully launched an additional satellite, DTV-1R, in the
fourth quarter of 1999. DTV-1R was placed into service at DIRECTV's
101(degrees) west longitude orbital slot and DBS-1 was moved to DIRECTV's
110(degrees) west longitude orbital slot. The DTV-1R satellite adds additional
capacity for DIRECTV's basic programming and local network channels.
Following the launch of a PanAmSat satellite during 1998 that was not built
by Hughes Space and Communications, an error by the satellite's manufacturer
was discovered that affected the geographical coverage or flexibility of a
number of the transponders on the satellite. PanAmSat has evaluated the impact
of the error and currently believes that while a portion of those transponders
will not be marketable for their intended purpose, the affected transponders
may be capable of generating revenue at a reduced rate.
In May 1998, Hughes purchased an additional 9.5% interest in PanAmSat,
increasing Hughes' ownership interest in PanAmSat from 71.5% to 81.0%.
In February 1999, Hughes acquired an additional ownership interest in Grupo
Galaxy Mexicana, S.R.L. de C.V., a Galaxy Latin America local operating
company located in Mexico, from Grupo MVS, S.R.L. de C.V. After the
transaction, Hughes' equity ownership of Grupo Galaxy Mexicana represented
49.0% of its voting equity and all of its non-voting equity. As part of the
Grupo Galaxy Mexicana transaction, in October 1998,
49
<PAGE>
Hughes acquired from Grupo MVS an additional 10.0% interest in Galaxy Latin
America, increasing Hughes' ownership interest in Galaxy Latin America to
70.0%, as well as an additional 19.8% interest in SurFin, a company that
provides financing of subscriber receiver equipment for certain Galaxy Latin
America local operating companies located in Latin America and Mexico,
increasing Hughes' ownership percentage from 39.3% to 59.1%.
On February 24, 1999, the Department of Commerce notified Hughes that it
intended to deny a U.S. government export license Hughes was required to
obtain in connection with a contract with Asia-Pacific Mobile
Telecommunications Satellite Pte. Ltd. for the provision of a satellite-based
mobile telecommunications system. As a result, Asia-Pacific Mobile
Telecommunications Satellite and Hughes terminated the contract on April 9,
1999, resulting in a pre-tax charge to Hughes' earnings of $92 million in the
first quarter of 1999. Of the $92 million charge, $11 million was attributable
to the Network Systems segment and the remainder to discontinued operations.
This charge represents the write-off of receivables and inventory, with no
alternative use, related to the contract.
On March 17, 1999, Hughes announced its intention to make an initial
investment of $1.4 billion in the Spaceway(TM) satellite system. The Spaceway
system, when completed, will provide for high-speed, two-way communications of
video, voice and data directly to companies and individual consumers. Hughes
expects that the 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.
In April 1999, Hughes acquired the direct broadcast satellite medium-power
business of PRIMESTAR and the related high-power satellite assets of Tempo
Satellite, Inc., a wholly-owned subsidiary of TCI Satellite Entertainment,
Inc., in related transactions. PRIMESTAR operated a 160-channel medium-power
direct broadcast service using leased satellite capacity at 85(degrees) west
longitude. As of March 31, 1999, PRIMESTAR had 2.3 million subscribers in the
United States. DIRECTV intends to continue to operate the medium-power
PRIMESTAR business, PRIMESTAR by DIRECTV, through the end of 2000, during
which time PRIMESTAR subscribers will continue to be offered the opportunity
to transition to the high-power DIRECTV service. Since the acquisition, the
PRIMESTAR distribution network has continued to service PRIMESTAR by DIRECTV
subscribers and now offers the high-power DIRECTV service to new subscribers.
The PRIMESTAR acquisition provided DIRECTV with an immediate increase in
revenues from the existing PRIMESTAR subscribers and ongoing revenues from
those subscribers that transition to the DIRECTV service. The acquisition of
the Tempo in-orbit satellite and related frequencies provides DIRECTV with 11
high-power DBS frequencies at 119(degrees) west longitude, from which it can
begin delivering programming to the contiguous United States at any time.
In May 1999, Hughes acquired by merger all of the outstanding capital stock
of U.S. Satellite Broadcasting Company. U.S. Satellite Broadcasting Company
provided premium subscription television programming to households throughout
the continental United States via the digital satellite broadcasting system
that it shared with DIRECTV. This acquisition has provided DIRECTV with 25
channels of video programming, including premium networks such as HBO(R),
Showtime(R), Cinemax(R) and The Movie Channel(R) which it is now offering to
its subscribers resulting in an increase in average revenue per subscriber.
In May 1999, Hughes announced that it would collaborate with AOL on a new
service that would combine digital satellite television programming from
DIRECTV with AOL's new interactive television Internet service. Hughes Network
Systems 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
50
<PAGE>
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 about $1.5 billion relating to its DirecPC/AOL-Plus, DIRECTV,
DIRECTV/AOL TV and DirecDuo products and services.
As part of the alliance described above, AOL invested $1.5 billion in
shares of GM's Series H 6.25% automatically convertible preference stock.
General Motors immediately invested the $1.5 billion received from AOL in
shares of Hughes Series A preferred stock, which is designed to correspond to
the financial terms of the GM Series H preference shares. Dividends on the
Hughes Series A preferred stock are payable to General Motors quarterly at an
annual rate of 6.25%. See further discussion in notes 4 and 5 to the third
quarter 1999 financial statements.
On July 28, 1999, Galaxy Latin America acquired Galaxy Brasil, Ltda., the
exclusive distributor of DIRECTV services in Brazil, from Tevecap S.A. In
connection with the transaction, Tevecap also sold its 10% equity interest in
Galaxy Latin America to Hughes and The Cisneros Group of Companies, the
remaining partners in Galaxy Latin America. As a result, Hughes' ownership of
Galaxy Latin America increased to 77.8%. As part of the transaction, Hughes
also increased its ownership in SurFin from 59.1% to 75%.
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 about 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 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. We cannot assure you 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 about $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. See "Business of Hughes--Hughes Space and
Communications."
On January 13, 2000, Hughes announced that it had reached an agreement to
sell its satellite systems manufacturing businesses to Boeing. As a result,
the financial results for the satellite systems manufacturing businesses are
treated as discontinued operations for all periods presented herein.
Consequently, revenues, operating costs and expenses, and other non-operating
results for these businesses are excluded from Hughes' results from continuing
operations. The financial results of these businesses are presented in Hughes'
Statements of Income (Loss) and Available Separate Consolidated Net Income
(Loss) in a single line item entitled "income
51
<PAGE>
from discontinued operations, net of taxes" and the related assets and
liabilities are presented in the balance sheets on a single line item entitled
"net assets of discontinued operations." See further discussion in note 10 to
the third quarter 1999 financial statements. Either Boeing or Hughes can
terminate the agreement if the sale has not been completed by October 2000. In
addition, if Hughes were to enter into a settlement of the China investigation
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.
For further information concerning material closing conditions to the Boeing
transaction, see "Business of Hughes--Hughes Space and Communications" and for
further information concerning the China investigation, see "Risk Factors--
Risk Factors Relating to the Business of Hughes--Grand Jury
Investigation/State Department Review Could Result in Sanctions."
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.
The financial information presented reflect the effects of the PanAmSat,
Grupo Galaxy Mexicana, SurFin, PRIMESTAR, Tempo Satellite, U.S. Satellite
Broadcasting Company and Galaxy Brasil transactions from their respective
dates of acquisition. The acquisitions have been accounted for using the
purchase method of accounting. The third quarter 1999 financial statements for
the PRIMESTAR, Tempo Satellite and U.S. Satellite Broadcasting Company
transactions reflect a preliminary allocation of the purchase price for the
transactions based upon information currently available. Adjustments relating
to the tangible assets, including satellites and equipment located on customer
premises; intangible assets, including licenses granted by the Federal
Communications Commission, 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 U.S. Satellite Broadcasting Company 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. For further information
regarding these transactions, see note 14 to the 1998 financial statements and
note 7 to the third quarter 1999 financial statements. As a result of the
acquisitions of Grupo Galaxy Mexicana, SurFin and Galaxy Brasil, foreign
currency risk, as more fully described in "--Market Risk Disclosure," has
increased for Hughes and may increase in the future.
Hughes is subject to various legal proceedings and claims that could be
material individually or in the aggregate to Hughes' continuing operations or
financial position. See note 18 to the 1998 financial statements, note 9 to
the third quarter 1999 financial statements and "Business of Hughes--Legal
Proceedings."
Results of Operations
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Revenues. For the first nine months of 1999, revenues increased 62.6% to
$3,862.3 million compared to $2,375.4 million for the first nine months of
1998. The Direct-To-Home Broadcast, Satellite Services and Network Systems
segments all contributed to the significant growth in revenues.
The Direct-To-Home Broadcast segment's revenues for the first nine months
of 1999 increased 106.0% to $2,571.4 million from $1,248.5 million for the
same period of 1998. The increase resulted from continued record subscriber
growth, as well as additional revenues from the PRIMESTAR by DIRECTV and U.S.
Satellite Broadcasting Company businesses.
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<PAGE>
For the first nine months of 1999, the Satellite Services segment's
revenues increased to $604.6 million compared with $570.6 million for the
comparable period in the prior year, a 6.0% increase. The increase in revenues
resulted primarily from the commencement of new service agreements on
additional satellites placed into service and a one-time customer payment
associated with the termination of a direct-to-home video services agreement
in India.
The Network Systems segment's revenues for the first nine months of 1999
were $998.2 million compared with $674.1 million for the same period last
year, an increase of 48.1%. This increase in revenues was primarily due to
higher sales of DIRECTV receiving equipment, satellite-based mobile telephone
systems and U.S. private business network systems.
Costs and Expenses. Selling, general and administrative expenses increased
to $1,459.2 million for the first nine months of 1999 from $946.7 million for
the same period of 1998. The increase resulted primarily from increased
subscriber acquisition costs, added costs for the PRIMESTAR by DIRECTV and
U.S. Satellite Broadcasting Company businesses, and the consolidation of Grupo
Galaxy Mexicana, SurFin and Galaxy Brasil. The increase in depreciation and
amortization expense to $460.4 million for the first nine months of 1999 from
$276.6 million for the same period of 1998 resulted primarily from higher
depreciation due to increased capital expenditures for property and equipment,
additions to PanAmSat's satellite fleet, added depreciation expense related to
leased medium-power receiving equipment for the PRIMESTAR by DIRECTV business,
increased goodwill amortization related to the May 1998 purchase of an
additional 9.5% interest in PanAmSat and added depreciation expense and
goodwill and intangible amortization that resulted from the PRIMESTAR, U.S.
Satellite Broadcasting Company, Grupo Galaxy Mexicana and Galaxy Brasil
acquisitions.
Operating Profit (Loss). Hughes incurred an operating loss of $63.3 million
for the first nine months of 1999 compared with an operating loss of $4.1
million for the first nine months of 1998. The operating loss for the first
nine months of 1999 resulted from the higher depreciation and amortization
expense and increased subscriber acquisition costs discussed above.
The operating loss in the Direct-To-Home Broadcast segment for the first
nine months of 1999 was $159.4 million compared with an operating loss of
$133.6 million for the first nine months of 1998. The increase in operating
loss for the first nine months of 1999 was due primarily to increased losses
at the DIRECTV Latin America businesses that resulted from the consolidation
of Galaxy Brasil and Grupo Galaxy Mexicana and higher marketing expenses.
These losses were partially offset by a decrease in operating losses at the
domestic DIRECTV businesses.
The Satellite Services segment's operating profit for the first nine months
of 1999 was $258.9 million compared to $236.7 million for the same period of
1998. The increase in operating profit was primarily due to the increase in
revenues discussed above offset by higher depreciation expense due to
additions to the satellite fleet. Also affecting the comparison was a second
quarter 1998 provision for losses related to the May 1998 failure of
PanAmSat's Galaxy IV satellite.
The Network Systems segment's operating profit for the first nine months of
1999 was $25.7 million compared with an operating loss of $20.2 million for
the first nine months of 1998. The increase for the first nine months of 1999
compared to 1998 was primarily due to the higher sales noted above partially
offset by a one-time pre-tax charge of $11.0 million in the first quarter of
1999 resulting from the termination of the Asia-Pacific Mobile
Telecommunications Satellite contract due to export licenses not being issued.
Also affecting the comparison was a 1998 provision of $26.0 million associated
with the bankruptcy filing by a customer.
EBITDA. Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") is defined as operating profit (loss), plus depreciation and
amortization. EBITDA is not presented as an alternative measure of operating
results or cash flow from operations, as determined in accordance with
generally accepted accounting principles. However, Hughes believes EBITDA is a
meaningful measure of the company's performance and that of its business
units. EBITDA is a performance measurement commonly used by other
communications,
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entertainment and media service providers and therefore can be used to analyze
and compare Hughes' financial performance to that of its competitors. EBITDA
is also a measurement used for certain of Hughes' debt covenants and is used
by rating agencies in determining credit ratings. EBITDA does not give effect
to cash used for debt service requirements and thus does not reflect funds
available for investment in the business of Hughes, dividends or other
discretionary uses. EBITDA margin is calculated by dividing EBITDA by total
revenues.
For the first nine months of 1999, EBITDA was $397.1 million versus $272.5
million for the same period in 1998. EBITDA margin on the same basis was 10.3%
for the first nine months of 1999 compared to 11.5% for the first nine months
of 1998. The increase in EBITDA was driven by the EBITDA growth at the Direct-
To-Home Broadcast segment. The slight decrease in EBITDA margin resulted from
the increased corporate costs and increased costs at the DIRECTV Latin America
businesses and higher subscriber acquisition costs noted above.
The Direct-To-Home Broadcast segment had EBITDA for the first nine months
of 1999 of $44.8 million compared with negative EBITDA of $56.4 million for
the first nine months of 1998. This improvement in EBITDA for the first nine
months of 1999 was primarily due to continued strong subscriber growth in the
domestic DIRECTV business, the contributions from PRIMESTAR by DIRECTV and
U.S. Satellite Broadcasting Company businesses from their dates of acquisition
and the consolidation of SurFin.
The Satellite Services segment's EBITDA for the first nine months of 1999
was $465.9 million compared with $409.0 million for the same period of last
year. EBITDA margin increased to 77.1% versus 71.7% for last year's first nine
months. The increases in EBITDA and EBITDA margin were principally due to the
higher revenues discussed above, and lower satellite leaseback expenses
resulting from the 1999 early buy-out of certain satellites under sale-
leaseback agreements. Also affecting the comparison was a second quarter 1998
provision for losses related to the May 1998 failure of PanAmSat's Galaxy IV
satellite.
The Network Systems segment's EBITDA increased to $63.4 million for the
first nine months of 1999, compared to EBITDA of $9.6 million for the first
nine months of 1998. EBITDA margin for the first nine months of 1999 was 6.4%
compared to EBITDA margin of 1.4% for the first nine months of 1998. The
increase in EBITDA and EBITDA margin for the first nine months of 1999 was
primarily due to the higher sales discussed above, partially offset by the
first quarter 1999 pre-tax charge of $11.0 million related to the termination
of the Asia-Pacific Mobile Telecommunications Satellite contract. Also, the
second quarter of 1998 included a $26.0 million provision associated with the
bankruptcy filing by a customer.
Interest Income and Expense. Interest income decreased to $20.8 million for
the first nine months of 1999 compared with $88.6 million for the first nine
months of 1998 due to lower cash balances for the first nine months of 1999
compared to 1998. Interest expense increased $61.5 million for the first nine
months of 1999 from the same period in 1998 due to increased borrowings and
interest expense associated with certain liabilities that arose from the
PRIMESTAR and U.S. Satellite Broadcasting Company acquisitions.
Other, net. Other, net for the first nine months of 1999 reflects the
losses from unconsolidated subsidiaries of $96.3 million attributable
principally to equity investments in DIRECTV Japan and American Mobile
Satellite Corporation. The first nine months of 1998 includes losses from
unconsolidated subsidiaries of $79.0 million, primarily related to DIRECTV
Japan and American Mobile Satellite Corporation and $17.5 million of losses
associated with bankruptcy filings by two unaffiliated customers.
Income Taxes. For the first nine months of 1999, Hughes recorded an income
tax benefit of $59.7 million, while Hughes recorded an income tax provision of
$0.7 million for the first nine months of 1998. Income taxes for the first
nine months of 1999 reflect the recognition of tax benefits for the higher
pre-tax losses incurred in the period and higher expected tax benefits from
the expected favorable resolution of certain tax contingencies, compared to
the first nine months of 1998. The tax provision for 1998 reflects the effect
of permanent differences on the lower 1998 pre-tax losses.
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Income (Loss) from continuing operations. The loss from continuing
operations was $107.4 million for the first nine months of 1999 compared with
a loss of $7.7 million for the same period of 1998. The loss per share from
continuing operations was $0.32 in 1999 compared to $0.01 in 1998. The loss
per share from continuing operations for 1999 includes the effect of preferred
stock dividends of $26.3 million. Earnings (loss) per share exclude the
effects of GM purchase accounting which resulted from GM's acquisition of
Hughes Aircraft Company in 1985. See further discussion in note 4 to the third
quarter 1999 financial statements.
Backlog. Hughes' backlog relates to the Satellite Services and Network
Systems segments. The September 1999 backlog of $5,999.7 million decreased
from the $6,125.5 million at September 1998 primarily due to a decrease in the
Network Systems segment.
Discontinued operations. Revenues for the first nine months of 1999 for the
satellite systems manufacturing businesses decreased to $1,694.9 million from
revenues of $1,988.0 million for the same period in 1998. Revenues, excluding
intercompany transactions, were $1,356.0 million for 1999 and $1,797.9 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 a contract with ICO Global Communications.
The satellite systems manufacturing businesses reported an operating loss
for the first nine months of 1999 of $106.1 million compared to operating
profit of $178.9 million for the first nine months of 1998. The reported
operating loss, excluding intercompany transactions, amounted to $90.9 million
for 1999 compared to operating profit of $217.5 million in 1998. The operating
loss for the first nine months of 1999 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 Asia-Pacific Mobile Telecommunications
Satellite contract and decreased activity associated with a contract with ICO
Global Communications.
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, which we sometimes refer to in this document as 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.
1998 compared to 1997
Revenues. 1998 revenues 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, including 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.
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. The large increase in revenues
resulted from record U.S. subscriber growth, increased average monthly revenue
per subscriber and low subscriber churn rates. DIRECTV U.S. was the biggest
contributor to this growth, with revenues of $1,604.1 million for 1998, a
45.4% increase over prior year's revenues of $1,103.3 million. Hughes' DIRECTV
subsidiary in Latin America, Galaxy Latin America, LLC, had revenues of $141.3
million compared with $70.0 million in 1997. Total DIRECTV subscribers as of
December 31, 1998 were 4,458,000 in the United States and 484,000 in Latin
America. In addition, Hughes' unconsolidated affiliate, DIRECTV Japan, which
initiated its service in December 1997, had a total of 231,000 subscribers as
of December 31, 1998.
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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.
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 the increased sales of
private business networks and satellite-based mobile telephony equipment
offset by lower international sales of wireless telephone systems and private
business networks, primarily in the Asia-Pacific region.
Operating Profit (Loss). Hughes incurred an operating loss of $46.2 million
in 1998 compared with operating profit of $43.5 million in 1997. The 1998
operating loss resulted principally from the Network Systems segment due 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. Also contributing
to the decline was goodwill amortization associated with the May 1997 PanAmSat
merger and the additional May 1998 investment in PanAmSat.
The operating loss in the Direct-to-Home Broadcast segment in 1998 was
$228.1 million compared with an operating loss of $254.6 million in 1997. The
full-year 1998 operating loss for DIRECTV U.S. was $100.0 million compared
with $137.0 million in 1997. Galaxy Latin America's operating loss was $125.8
million in 1998 versus $116.0 million in 1997. The lower operating loss for
DIRECTV U.S. in 1998 was principally due to increased subscriber revenues
which more than offset increased sales and marketing expenditures.
As a result of the increased revenues described above, the Satellite
Services segment's operating profit increased 8.6% to $321.6 million in 1998,
compared with the prior year's operating profit of $296.2 million. Operating
profit margin in 1998 declined to 41.9% from 47.0% 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.
The Network Systems segment's operating profit in 1998 was $10.9 million
versus $74.1 million in 1997 and operating profit margin declined to 1.0% from
7.3% last year. The decrease in operating profit and operating profit margin
was primarily due to a $26 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
telephone systems and private business networks, primarily in the Asia-Pacific
region.
Costs and Expenses. Selling, general and administrative expenses increased
to $1,320.9 million in 1998 from $1,083.8 million in 1997. The increase in
these expenses resulted primarily from 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 to $387.9 million in 1998
from $260.3 million in 1997 resulted from increased goodwill amortization
related to the May 1997 PanAmSat merger, the purchase of an additional 9.5%
interest in PanAmSat in May 1998, and increased capital expenditures in the
Direct-to-Home Broadcast and Satellite Services segments.
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 at the end of 1997 of debt arising from the PanAmSat
merger.
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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. The amount for 1997 includes the $489.7 million pre-
tax gain recognized in connection with the May 1997 PanAmSat merger offset by
losses from unconsolidated subsidiaries of $72.2 million.
Income Taxes. Hughes recorded a tax benefit of $142.3 million in 1998
compared to a tax provision of $162.0 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 From Continuing Operations. Income from continuing operations in
1998 was $63.5 million, or $0.17 per share of Class H common stock, compared
with 1997 earnings of $236.9 million, $0.60 per share of Class H common stock
on a pro forma basis. Earnings per share for 1997 are presented on a pro forma
basis assuming the recapitalized Class H common stock was outstanding for all
of 1997. For further discussion see Note 13 to the 1998 financial statements.
Earnings (loss) per share exclude the effects of GM purchase accounting which
resulted from GM's acquisition of Hughes Aircraft Company in 1985. See further
discussion in Note 13 to the 1998 financial statements.
Backlog. Hughes' backlog relates to the Satellite Services and Network
Systems segments. The 1998 year-end backlog of $6,137.4 million decreased from
the $6,390.3 million reported at the end of 1997, primarily due to a decrease
in the Satellite Services segment.
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 6 to the
1998 financial statements.
Also included in discontinued operations are the results of the satellite
systems manufacturing businesses. Revenues for the satellite systems
manufacturing businesses increased 13.6% in 1998 to $2,831.1 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 $246.3 million, an
increase of 8.8% over $226.3 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, or $0.02 per share of
Class H common stock.
1997 compared to 1996
Revenues. 1997 revenues increased 37.9% to $2,838.3 million compared with
$2,058.3 million in 1996. The increase reflects strong subscriber growth in
the Direct-to-Home Broadcast segment and increased revenues in the Satellite
Services segment resulting primarily from the PanAmSat merger.
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The Direct-to-Home Broadcast segment's revenues more than doubled to
$1,276.9 million from $621.0 million in 1996. This increase resulted from
strong subscriber growth and continued low subscriber churn rates. DIRECTV
U.S. fueled this growth with revenues of $1,103.3 million, a 78.5% increase
over 1996 revenues of $618.2 million. Galaxy Latin America, had revenues of
$70.0 million compared with $2.7 million in 1996. Total DIRECTV subscribers as
of December 31, 1997 were 3,301,000 in the United States and 300,000 in Latin
America. DIRECTV Japan initiated its service in December 1997.
Revenues for the Satellite Services segment in 1997 increased 30.5% to
$629.9 million from $482.8 million in 1996. The increased revenues were due to
the PanAmSat merger and increased operating lease revenues for both video
distribution and business communications services. PanAmSat's services were
expanded in 1997 with the successful launch of two dedicated direct-to-home
satellites and a new cable television distribution satellite in Latin America,
leading to an increase in total transmission capability since the merger.
Revenues in 1997 for the Network Systems segment were $1,011.3 million
compared with $1,070.0 million in 1996. The decline was primarily due to lower
domestic mobile cellular telephone equipment sales, which were partially
offset by higher satellite-based mobile telephony equipment sales.
Operating Profit. Hughes reported operating profit of $43.5 million in 1997
compared to an operating loss of $50.9 million in 1996. This change reflects
reduced losses in the Direct-to-Home Broadcast segment and the completion of
the PanAmSat merger.
The operating loss in the Direct-to-Home Broadcast segment in 1997 was
$254.6 million compared with an operating loss of $319.8 million in 1996. The
full-year 1997 operating loss for DIRECTV U.S. was $137.0 million compared
with $192.0 million in 1996. Galaxy Latin America's operating loss was $116.0
million in 1997 versus $131.0 million in 1996. The lower operating losses in
1997 were principally due to increased subscriber revenues which more than
offset higher marketing and subscriber related expenditures.
The Satellite Services segment's operating profit was $296.2 million in
1997, an increase of 22.2% over the prior year's operating profit of $242.4
million. The increase resulted primarily from the PanAmSat merger and
increased operating lease revenues for both video distribution and business
communications services. Operating profit margin in 1997 declined to 47.0%
from 50.2% in 1996, principally due to goodwill amortization associated with
the PanAmSat merger.
The Network Systems segment's operating profit in 1997 was $74.1 million
versus $107.7 million in 1996 and operating profit margin declined to 7.3%
from 10.1% in 1996. These decreases were primarily the result of lower
domestic mobile cellular telephone equipment sales, increased research and
development expenditures and higher marketing expenditures associated with the
launch of the DirecPC(R)/DirecDuo(TM) products.
Costs and Expenses. Selling, general and administrative expenses increased
to $1,083.8 million in 1997 from $754.9 million in 1996. The increase resulted
principally from the PanAmSat merger, increased programming and subscriber
acquisition costs in the Direct-to-Home Broadcast segment and increased
research and development and marketing expenditures in the Network Systems
segment. The increase in depreciation and amortization expense to $260.3
million in 1997 from $163.5 million in 1996 resulted from increased goodwill
amortization related to the PanAmSat merger and additional satellite
depreciation.
Interest Income and Expense. Interest income increased $26.2 million in
1997 compared to 1996 due primarily to higher cash balances resulting from the
PanAmSat merger as well as increased cash resulting from the recapitalization
of Hughes. Interest expense increased $48.1 million in 1997 compared to 1996
due to the increased borrowings resulting from the PanAmSat merger.
Other, net. The 1997 amount included a $489.7 million pre-tax gain related
to the PanAmSat merger, partially offset by losses from unconsolidated
subsidiaries of $72.2 million attributable principally to equity investments
in American Mobile Satellite Corporation, DIRECTV Japan and SurFin Ltd. The
1996 amount
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included a $120.3 million pre-tax gain recognized from the sale of 2.5% of
DIRECTV to AT&T, partially offset by losses from unconsolidated subsidiaries
of $42.2 million, primarily related to American Mobile Satellite Corporation.
Income Taxes. Hughes recorded a tax provision of $162.0 million in 1997
compared to a tax provision of $21.8 million in 1996. The 1996 provision
reflects the lower income from continuing operations in 1996 and the effect of
permanent differences.
Income From Continuing Operations. Income from continuing operations for
1997 was $236.9 million, or $0.60 per share of Class H common stock on a pro
forma basis, compared with $13.1 for 1996, or $0.04 per share of Class H
common stock on a pro forma basis. Earnings per share are presented on a pro
forma basis assuming the recapitalized Class H common stock was outstanding
during all periods presented. For further discussion see Note 13 to the 1998
financial statements. Earnings (loss) per share exclude the effects of GM
purchase accounting which resulted from GM's acquisition of Hughes Aircraft
Company in 1985. See further discussion in note 13 to the 1998 financial
statements.
Backlog. Hughes' backlog relates to the Satellite Services and Network
Systems segments. The 1997 year-end backlog of $6,390.3 million increased from
the $543.6 million reported at the end of 1996, primarily due to the PanAmSat
merger.
Discontinued Operations and Extraordinary Item. On December 15, 1997,
Hughes Avicom 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 premiums paid for the refinancing of
PanAmSat's debt. For additional information see Note 6 to the 1998 financial
statements.
Also included in discontinued operations are the results of the satellite
systems manufacturing businesses. Revenues for the satellite systems
manufacturing businesses increased 21.2% in 1997 to $2,491.9 million from
$2,056.4 million in 1996. Excluding intercompany transactions, revenues were
$2,290.0 million in 1997 compared to $1,950.4 million in 1996. The increase
was primarily due to higher commercial satellite sales within the high-powered
product line of satellites and on the ICO Global Communications satellite
contracts. Operating profit for the satellite systems manufacturing businesses
in 1997 was $226.3 million, an increase of 23.5% over $183.3 million in 1996.
Operating profit, excluding intercompany transactions, was $241.9 million in
1997 compared to $240.0 million in 1996. The increase was primarily due to the
higher commercial program sales noted above. The operating profit margin for
the year was 9.1% compared with 8.9% in the prior year.
Liquidity and Capital Resources
Cash and Cash Equivalents. Cash and cash equivalents were $158.2 million at
September 30, 1999 compared to $1,342.0 million at December 31, 1998. The
$1,183.8 million decrease was due to increased investments in companies, which
included the acquisitions of PRIMESTAR, U.S. Satellite Broadcasting Company,
the Tempo Satellite assets and Galaxy Brasil, additional equity investments in
DIRECTV Japan, the early buy-out of satellite sale-leasebacks by PanAmSat,
additional capital expenditures for satellites and property and equipment and
general working capital requirements. These uses of cash were partially funded
by GM's $1.5 billion investment in Hughes as part of the alliance with AOL and
the $154.6 million received in connection with the settlement of the Williams
patent infringement case.
Cash used in operating activities for the first nine months of 1999 was
$66.5 million, compared to cash provided by operating activities of $332.8
million in the same period of 1998. The decrease was due primarily to
increased losses for the first nine months of 1999 and an increase in prepaid
dealer commissions and prepaid marketing expenses at the DIRECTV businesses.
Net cash used in investing activities was $3,597.6 million for the nine
months ended September 30, 1999 and $1,524.6 million for the same period in
1998. The substantial increase in 1999 compared to 1998 resulted
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from increased investments in companies, which included the acquisitions of
PRIMESTAR, U.S. Satellite Broadcasting Company, Tempo Satellite assets, Galaxy
Brasil and additional investments in DIRECTV Japan, and an increase in capital
expenditures for satellite and property and equipment, partially offset by a
decrease in proceeds from insurance claims related to the loss of satellites
in the prior year.
Net cash provided by financing activities for the first nine months of 1999
was $2,658.1 million, compared to cash used in financing activities of $3.6
million for the same period in 1998. The substantial increase was primarily
due to an increase in net borrowings compared to 1998 and proceeds received in
1999 from the issuance of Hughes Series A preferred stock to GM in connection
with the AOL transaction.
Net cash used in discontinued operations for the first nine months of 1999
was $177.8 million, compared to $78.7 million for the same period in 1998. The
change was due primarily to the decrease in income from discontinued
operations, net of taxes, and an increase in working capital requirements.
Liquidity Measurement. As a measure of liquidity, the current ratio (ratio
of current assets to current liabilities) at September 30, 1999 and December
31, 1998 was 1.92 and 3.03, respectively. Working capital decreased by $810.9
million to $1,918.3 million at September 30, 1999 from $2,729.2 million at
December 31, 1998.
Common Stock Dividend Policy and Use of Cash. Since the completion of the
recapitalization of Hughes in late 1997, the GM Board has not paid, and does
not currently intend to pay in the foreseeable future, cash dividends on its
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 property and equipment
as well as expenditures for new satellites. In addition, Hughes expects to
increase its investment in affiliated companies, primarily related to its
international DIRECTV businesses. Also, although 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 a cash payment to or from Raytheon, if any, is not
determinable at this time. See "Risk Factors--Risk Factors Relating to the
Business of Hughes--Disputes with Raytheon Regarding Former Defense Operations
Could Result in a Material Payment from Hughes to Raytheon." 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. At September 30, 1999, Hughes' 75% owned
subsidiary, SurFin, had a total of $197.6 million outstanding under a $400.0
million unsecured revolving credit facility expiring in June 2002.
At September 30, 1999, Galaxy Latin America's 100% owned subsidiary, Galaxy
Brasil, had a total of $26.7 million outstanding under a variable rate note.
In January 1998, PanAmSat issued five, seven, ten and thirty-year notes
totaling $750.0 million. The proceeds received were used by PanAmSat to repay
$600.0 million of outstanding borrowings.
PanAmSat maintains a $500.0 million multi-year revolving credit facility
and a $500.0 million commercial paper program. The multi-year revolving credit
facility provides for a commitment through December 24, 2002. Borrowings under
the credit facility and commercial paper program are limited to $500.0 million
in the aggregate and are expected to be used to fund PanAmSat's satellite
expansion program. No amounts were outstanding under the credit facility at
September 30, 1999. $185.0 million was outstanding under the commercial paper
program at September 30, 1999.
In July 1999, in connection with the early buy-out of satellite sale-
leasebacks, PanAmSat assumed variable rate notes. The notes bear interest at
London Interbank Offered Rate plus 0.25%, and mature on various dates through
January 2, 2002. At September 30, 1999, $124.1 million was outstanding.
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 million bridge facility. The multi-year credit
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facility provides for a commitment of $750.0 million through December 5, 2002,
the 364-day credit facility provides for a commitment of $350.0 million
through November 22, 2000 and the bridge facility provides for a $500 million
commitment 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.
$665.0 million was outstanding under the multi-year facility at September 30,
1999. No amount was outstanding under the 364-day credit facility or bridge
facility at September 30, 1999. The multi-year and 364-day credit facilities
provide backup capacity for Hughes' $1.0 billion commercial paper program.
$196.6 million was outstanding under the commercial paper program at September
30, 1999.
At September 30, 1999, other short-term and long-term debt of $82.3 million
was outstanding.
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. Currently, no amounts have been issued under
that registration statement.
In October 1999, Hughes issued $500.0 million of floating rate notes in a
private placement with a group of institutional investors. The notes mature on
October 23, 2000.
Acquisitions, Investments and Divestitures. 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
mid-2000. The financial results for the satellite systems manufacturing
businesses are treated as discontinued operations for all periods presented
herein.
On September 24, 1999, DIRECTV Japan, Hughes' 42.2% owned affiliate, raised
about $275 million through the issuance of bonds, convertible into common
stock, to five of its major shareholders, including $238.1 million issued to
Hughes. If Hughes elects to convert these bonds, Hughes would have a
controlling interest in DIRECTV Japan which would require consolidation of the
entity which could, in turn, result in increased operating losses for Hughes.
On July 28, 1999, Galaxy Latin America acquired Galaxy Brasil, Ltda., the
exclusive distributor of DIRECTV services in Brazil, from Tevecap S.A. for
about $114.0 million plus the assumption of debt. In connection with the
transaction, Tevecap also sold its 10% equity interest in Galaxy Latin America
to Hughes and The Cisneros Group of Companies, the remaining partners in
Galaxy Latin America, which increased Hughes' ownership interest in Galaxy
Latin America 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 about $101.1 million.
On May 20, 1999, Hughes acquired by merger all of the outstanding capital
stock of U.S. Satellite Broadcasting Company, 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. The U.S. Satellite Broadcasting Company acquisition was
accounted for using the purchase method of accounting.
In February 1999, Hughes acquired an additional ownership interest in Grupo
Galaxy Mexicana, S.R.L. de C.V., 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 Grupo Galaxy Mexicana. The Grupo Galaxy
Mexicana transaction was accounted for using the purchase method of
accounting. The increased ownership resulted in Grupo Galaxy Mexicana's
consolidation since the date of acquisition. In October 1998, Hughes acquired
from Grupo MVS an additional 10.0% interest in Galaxy Latin America,
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 Galaxy Latin America and SurFin transactions were accounted for
using the purchase
61
<PAGE>
method of accounting. The increased ownership in SurFin resulted in its
consolidation since the date of acquisition. The aggregate purchase price for
these transactions was $197.0 million in cash.
On January 22, 1999, Hughes agreed to acquire PRIMESTAR's 2.3 million
subscriber medium-power direct-to-home satellite business and the high-power
satellite assets and related orbital frequencies of Tempo Satellite, a wholly-
owned subsidiary of TCI Satellite Entertainment. On April 28, 1999, the
acquisition of PRIMESTAR's direct-to-home business was completed. The purchase
price consisted of $1.1 billion in cash and 4.9 million shares of Class H
common stock, for a total purchase price of $1.3 billion, based on the average
market price of $47.87 per share of Class H common stock at the time the
acquisition agreement was signed. The purchase price will be adjusted based
upon the final adjusted net working capital of PRIMESTAR at the date of
closing. The purchase price for the Tempo Satellite assets consisted of $500
million in cash. Of this purchase price, $150 million was paid on March 10,
1999 for a satellite that has not yet been launched and the remaining $350
million was paid on June 4, 1999 for an in-orbit satellite and 11 related
satellite orbital frequencies.
In May 1998, Hughes purchased an additional 9.5% interest in PanAmSat for
$851.4 million in cash, increasing its ownership interest in PanAmSat from
71.5% to 81.0%.
In May 1997, 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(R) 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.
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.
In March 1996, Hughes Electronics sold a 2.5% equity interest in DIRECTV to
AT&T for $137.5 million, with options to increase their ownership interest
under certain conditions. The sale resulted in a $120.3 million pre-tax gain,
which was included in other income. In December 1997, Hughes repurchased from
AT&T the 2.5% equity interest in DIRECTV for $161.8 million, ending AT&T's
marketing agreement to distribute the DIRECTV(R) direct broadcast satellite
television service and DIRECTV receiver equipment.
New Accounting Standards. In September 1999, the Financial Accounting
Standards Board issued Emerging Issues Task Force Issue 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 may 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 impact of adopting
EITF 99-10 was not material to the third quarter 1999 results.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 133 requires all derivatives to be recorded
as either assets or liabilities and the instruments to be measured at fair
value. Gains or losses resulting from changes in the values of those
derivatives are to be recognized immediately or deferred depending on the use
of the derivative and whether or not it qualifies as a hedge. Hughes plans to
adopt SFAS No. 133 by January 1, 2001, as required. Hughes' management is
currently assessing the impact of this statement on Hughes' results of
operations and financial position.
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<PAGE>
Year 2000
As of the date of this filing, 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, we cannot assure you that problems will not
arise.
Hughes continues to monitor the status of its operations, suppliers and
distribution channels to ensure no significant business interruptions.
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 about $9 million during the first nine months of 1999, about $4
million during 1998 and about $1 million through 1997, related to the
assessment of, and ongoing efforts in connection with, its Year 2000 program.
Another $1 million was spent in the fourth quarter of 1999. Future spending
for remaining system remediation and testing is currently estimated to be from
$0.6 million to $1 million.
In addition to the above, the satellite systems manufacturing businesses
incurred expenditures related to the Year 2000 conversion of about $6 million
during the first nine months of 1999, about $5 million during 1998 and about
$5 million in the fourth quarter of 1999. Future spending for the satellite
systems manufacturing businesses is estimated at about $1 million. As of the
date of the filing, the satellite systems manufacturing businesses have
experienced no significant problems related to the Year 2000 conversions,
however, we cannot assure you that problems will not arise.
Each Hughes operating company is funding its respective Year 2000 efforts
with current and future operating cash flows.
Security Ratings
On January 14, 2000, subsequent to the announced sale of Hughes' satellite
systems manufacturing businesses to Boeing, Standard & Poor's Rating Services
and Moody's Investors Service each affirmed its respective debt ratings for
Hughes. Standard and Poor's maintained its BBB- credit rating, which indicates
the issuer has adequate capacity to pay interest and repay principal. Standard
& Poor's maintained the short-term corporate credit and commercial paper
ratings at A-3. Standard & Poor's 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.
63
<PAGE>
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 does not allow speculation in derivative instruments for profit
or execution of 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 to
allow management to focus its attention on its core business issues and
challenges. Accordingly, Hughes primarily enters into foreign exchange-forward
contracts to protect the value of its existing assets, liabilities and 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,
1998, 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 sheet at fair value with unrealized gains or losses,
net of taxes, recorded as part of accumulated other comprehensive income
(loss), a separate component of owner's equity. At December 31, 1998, the fair
value of the investments in such common stock was $8.0 million. The
investments were valued at the market closing price at December 31, 1998. No
actions have been taken by Hughes to hedge this market risk exposure. A 20%
decline in the market price of these investments would cause the fair value of
the investments in common stock to decrease by $1.6 million.
Interest Rate Risk
Hughes is subject to interest rate risk related to its $934.8 million of
debt outstanding at December 31, 1998. Debt consisted of PanAmSat's fixed-rate
borrowings of $750.0 million, SurFin's variable rate borrowings of $155.9
million and Hughes' fixed-rate borrowings of $28.9 million. 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 affect the market value of Hughes' fixed-
rate borrowings. At December 31, 1998, outstanding borrowings bore interest at
rates ranging from 5.55% to 11.11%. The potential fair value loss resulting
from a hypothetical 10% decrease in interest rates related to Hughes'
outstanding debt would be about $32.5 million.
In connection with debt refinancing activities by PanAmSat in 1997,
PanAmSat entered into certain U.S. Treasury rate lock contracts to reduce its
exposure to fluctuations in interest rates. The aggregate notional value of
these contracts was $375.0 million and these contracts were accounted for as
hedges. The cost to settle these instruments in 1998 was $9.1 million and is
being amortized to interest expense over the term of the related debt
securities.
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.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION OF HUGHES
The following unaudited pro forma combined condensed financial statements
have been derived from the historical financial statements of Hughes, U.S.
Satellite Broadcasting Company, PRIMESTAR and TCI Satellite Entertainment, the
parent company of Tempo Satellite, to give effect to:
. the merger of Hughes with U.S. Satellite Broadcasting Company that was
completed as of May 20, 1999;
. Hughes' acquisition of PRIMESTAR's direct broadcast satellite medium-
power business and related high-power satellite assets of Tempo Satellite
that was completed as of April 28, 1999; and
. the proceeds from the issuance of Hughes Series A preferred stock that
was completed as of June 24, 1999.
The unaudited pro forma combined condensed statements of income (loss) from
continuing operations reflect adjustments as if the transactions described
above had each taken place at the beginning of the periods presented. The
historical Hughes amounts reflect the satellite systems manufacturing
businesses as discontinued operations. Accordingly, the results of those
businesses have been excluded from the historical Hughes amounts included in
the Unaudited Pro Forma Combined Condensed Financial Information presented
herein. The historical U.S. Satellite Broadcasting Company amounts included in
the unaudited pro forma combined condensed statement of income (loss) from
continuing operations for the nine-month period ending September 30, 1999 are
for the period January 1, 1999 through May 20, 1999, prior to the date of the
merger. The historical PRIMESTAR/Tempo Satellite amounts included in the
unaudited pro forma combined condensed statement of income (loss) from
continuing operations for the nine-month period ending September 30, 1999 are
for the period January 1, 1999 through April 28, 1999, prior to the date of
the acquisition. Certain of the pro forma adjustments described in the
accompanying notes are based on preliminary estimates and various assumptions
that Hughes believes are reasonable under the circumstances.
The unaudited pro forma combined condensed statements of income (loss) from
continuing operations do not give effect to any cost savings that may be
realized from the merger with U.S. Satellite Broadcasting Company and the
PRIMESTAR/Tempo Satellite acquisition, which savings relate primarily to the
reduction of duplicative operating, general and administrative expenses.
Hughes' merger with U.S. Satellite Broadcasting Company and the acquisition
of PRIMESTAR/Tempo Satellite have been accounted for as purchases. Under the
purchase method of accounting, the purchase price is allocated to assets
acquired and liabilities assumed based on their estimated fair values. Certain
of the adjustments included in the unaudited pro forma combined condensed
financial statements reflect a preliminary allocation of the purchase price
for those transactions based upon information currently available. Adjustments
relating to tangible assets, including satellites and 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 U.S. Satellite Broadcasting
Company represents a preliminary estimate pending further review and analysis
by Hughes management. These appraisals, valuations and studies are expected to
be completed by March 31, 2000. Accordingly, the final purchase price
allocations may be different from the amounts reflected herein.
The unaudited pro forma combined condensed financial statements should be
read in conjunction with the financial statements of Hughes, U.S. Satellite
Broadcasting Company, PRIMESTAR, which, following our acquisition of its
direct broadcast satellite medium-power business, changed its name to
Phoenixstar, Inc., and TCI Satellite Entertainment, including the respective
notes thereto, each as of and for the period ended December 31, 1998 and each
of which is incorporated by reference into this document.
65
<PAGE>
HUGHES UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF INCOME (LOSS) FROM CONTINUING OPERATIONS
For the Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
U.S.
Satellite Primestar/
Historical Broadcasting Tempo
U.S. Merger Pro Historical Acquisition Pro Series A Pro
Historical Satellite Pro Forma Forma Primestar/ Pro Forma Forma Preferred Forma
Hughes Broadcasting Adjustments Combined Tempo Adjustments Combined Stock Combined
---------- ------------ ------------ -------- ---------- ----------- -------- --------- --------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Direct broadcast,
leasing and other
services............ $3,095 $252 $ (7) (a) $3,340 $ 545 -- $3,885 -- $3,885
Product sales........ 767 -- -- 767 -- -- 767 -- 767
------ ---- ----- ------ ----- ----- ------ ---- ------
Total Revenues..... 3,862 252 (7) 4,107 545 -- 4,652 -- 4,652
------ ---- ----- ------ ----- ----- ------ ---- ------
Operating Costs and
Expenses
Cost of products
sold................ 662 -- -- 662 -- -- 662 -- 662
Broadcast
programming and
other costs......... 1,344 149 37 (b) 1,485 267 $ 31 (l) 1,771 -- 1,771
(45) (d) (12) (o)
Selling, general,
and administrative
expenses............ 1,459 134 (7) (a) 1,532 258 (31) (l) 1,668 -- 1,668
(37) (b) (91) (m)
(17) (e)
Depreciation and
amortization........ 460 9 24 (g) 492 198 (5) (p) 532 -- 532
(1) (h) 1 (q)
(154) (r)
------ ---- ----- ------ ----- ----- ------ ---- ------
Total operating
costs and
expenses.......... 3,925 292 (46) 4,171 723 (261) 4,633 -- 4,633
------ ---- ----- ------ ----- ----- ------ ---- ------
Operating Profit
(Loss)............... (63) (40) 39 (64) (178) 261 19 -- 19
Interest income
(expense), net....... (50) 1 (40) (d) (96) (57) (1) (o) (126) $ 28 (z) (98)
(7) (i) (19) (s)
57 (t)
(10) (u)
Other, net............ (76) -- -- (76) 114 (114) (v) (76) -- (76)
------ ---- ----- ------ ----- ----- ------ ---- ------
Income (Loss) from
Continuing Operations
Before Income Taxes
and Minority
Interests............ (189) (39) (8) (236) (121) 174 (183) 28 (155)
Income tax benefit
(expense)............ 60 10 (j) 70 75 (75) (w) 48 (11) (aa) 37
(22) (x)
Minority interests in
net losses of
subsidiaries......... 22 -- -- 22 -- -- 22 -- 22
------ ---- ----- ------ ----- ----- ------ ---- ------
Income (Loss) from
Continuing
Operations........... (107) (39) 2 (144) (46) 77 (113) 17 (96)
Adjustments to exclude
the effect of GM
purchase accounting
related to Hughes
Aircraft Company..... 2 -- -- 2 -- -- 2 -- 2
Preferred Dividends... (26) -- -- (26) -- -- (26) (48) (bb) (74)
------ ---- ----- ------ ----- ----- ------ ---- ------
Earnings (Loss) Used
for Computation of
Available Separate
Consolidated Income
(Loss) from
Continuing
Operations........... $ (131) $(39) $ 2 $ (168) $ (46) $ 77 $ (137) $(31) $ (168)
====== ==== ===== ====== ===== ===== ====== ==== ======
Available Separate
Consolidated Income
(Loss) from
Continuing Operations
Average number of
shares of Class H
common stock
outstanding (in
millions)
(numerator)......... 120.8 11.4 (k) 132.2 2.1 (y) 134.3 134.3
Class H dividend
base (in millions)
(denominator)(1).... 414.7 11.4 (k) 426.1 2.1 (y) 428.2 428.2
Available Separate
Consolidated Income
(Loss) from
Continuing
Operations.......... $ (38) $ (52) $ (43) $ (53)
------ ------ ------ ------
Basic and Diluted
Earnings (Loss) Per
Share from Continuing
Operations........... $(0.32) $(0.39) $(0.32) $(0.39)
====== ====== ====== ======
</TABLE>
- -------
(1) See discussion of Class H dividend base in the Notes to the Hughes
financial statements incorporated by reference into this document.
The accompanying notes are an integral part of the unaudited pro forma combined
condensed financial statements.
66
<PAGE>
HUGHES UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF INCOME (LOSS) FROM CONTINUING OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
U.S.
Satellite Primestar/
Historical Broadcasting Tempo
U.S. Merger Pro Historical Acquisition Pro Series A Pro
Historical Satellite Pro Forma Forma Primestar/ Pro Forma Forma Preferred Forma
Hughes Broadcasting Adjustments Combined Tempo Adjustments Combined Stock Combined
---------- ------------ ------------ -------- ---------- ----------- -------- --------- --------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Direct broadcast,
leasing and other
services............ $2,604 $551 $ (3) (a) $3,152 $ 1,290 -- $4,442 -- $4,442
Product sales........ 877 -- -- 877 -- -- 877 -- 877
------ ---- ---- ------ ------- ------ ------ ---- ------
Total Revenues..... 3,481 551 (3) 4,029 1,290 -- 5,319 -- 5,319
------ ---- ---- ------ ------- ------ ------ ---- ------
Operating Costs and
Expenses
Cost of products
sold................ 643 -- -- 643 -- -- 643 -- 643
Broadcast
programming and
other costs......... 1,175 328 75 (b) 1,494 655 $ 85 (l) 2,198 -- 2,198
(84) (d) (36) (o)
Selling, general,
and administrative
expenses............ 1,321 267 (3) (a) 1,487 486 (85) (l) 1,888 -- 1,888
(75) (b)
(1) (c)
(22) (f)
Impairment of long-
lived assets........ -- -- -- -- 950 (950) (n) -- --
Depreciation and
amortization........ 388 17 58 (g) 460 543 (13) (p) 580 -- 580
(3) (h) 3 (q)
(413) (r)
------ ---- ---- ------ ------- ------ ------ ---- ------
Total operating
costs and
expenses.......... 3,527 612 (55) 4,084 2,634 (1,409) 5,309 -- 5,309
------ ---- ---- ------ ------- ------ ------ ---- ------
Operating Profit
(Loss)............... (46) (61) 52 (55) (1,344) 1,409 10 -- 10
Interest income
(expense), net....... 95 4 (75) (d) 7 (146) (4) (o) (84) $ 57 (z) (27)
(17) (i) (57) (s)
146 (t)
(30) (u)
Other, net............ (152) -- -- (152) (8) -- (160) -- (160)
------ ---- ---- ------ ------- ------ ------ ---- ------
Income (Loss) from
Continuing Operations
Before Income Taxes
and Minority
Interests............ (103) (57) (40) (200) (1,498) 1,464 (234) 57 (177)
Income tax benefit
(expense)............ 142 -- 16 (j) 158 148 (148) (w) 171 (23) (aa) 148
13 (x)
Minority interests in
net losses of
subsidiaries......... 25 -- -- 25 -- -- 25 -- 25
------ ---- ---- ------ ------- ------ ------ ---- ------
Income (Loss) from
Continuing Operations
Before Cumulative
Effect of Accounting
Change............... 64 (57) (24) (17) (1,350) 1,329 (38) 34 (4)
Adjustments to exclude
the effect of GM
purchase accounting
related to Hughes
Aircraft Company..... 3 -- -- 3 -- -- 3 -- 3
Preferred Dividends... -- -- -- -- -- -- -- (99) (bb) (99)
------ ---- ---- ------ ------- ------ ------ ---- ------
Earnings (Loss) Used
for Computation of
Available Separate
Consolidated Income
(Loss) from
Continuing Operations
Before Cumulative
Effect of Accounting
Change............... $ 67 $(57) $(24) $ (14) $(1,350) $1,329 $ (35) $(65) $ (100)
====== ==== ==== ====== ======= ====== ====== ==== ======
Available Separate
Consolidated Income
(Loss) from
Continuing Operations
Before Cumulative
Effect of Accounting
Change:
Average number of
shares of Class H
common stock
outstanding (in
millions)
(numerator)......... 105.3 22.6 (k) 127.9 4.9 (y) 132.8 132.8
Average Class H
dividend base (in
millions)
(denominator)(1).... 399.9 22.6 (k) 422.5 4.9 (y) 427.4 427.4
Available Separate
Consolidated Income
(Loss) from
Continuing
Operations Before
Cumulative Effect of
Accounting Change... $ 18 $ (4) $ (11) $ (31)
------ ------ ------ ------
Basic and Diluted
Earnings (Loss) Per
Share from
Continuing
Operations Before
Cumulative Effect of
Accounting Change... $ 0.17 $(0.03) $(0.08) $(0.23)
====== ====== ====== ======
</TABLE>
- -------
(1) See discussion of Class H dividend base in the Notes to the Hughes
financial statements incorporated by reference into this document.
The accompanying notes are an integral part of the unaudited pro forma combined
condensed financial statements.
67
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION OF HUGHES
Basis of Presentation
The accompanying unaudited pro forma combined condensed financial
statements have been derived from the historical financial statements of
Hughes, U.S. Satellite Broadcasting Company, PRIMESTAR and TCI Satellite
Entertainment, the parent of Tempo Satellite, to give effect to:
. the merger of Hughes with U.S. Satellite Broadcasting Company that was
completed as of May 20, 1999;
. Hughes' acquisition of PRIMESTAR's direct broadcast satellite medium-
power business and related high-power satellite assets of Tempo
Satellite that was completed as of April 28, 1999; and
. the proceeds from the issuance of Hughes Series A preferred stock that
was completed as of June 24, 1999.
The unaudited pro forma combined condensed statements of income (loss) from
continuing operations reflect adjustments as if the transactions described
above had each occurred at the beginning of the periods presented. The
historical Hughes amounts reflect the satellite systems manufacturing
businesses as discontinued operations. Accordingly, the results of those
businesses have been excluded from the historical Hughes amounts included in
the Unaudited Pro Forma Combined Condensed Financial Information presented
herein. The historical U.S. Satellite Broadcasting Company amounts included in
the unaudited pro forma combined condensed statement of income (loss) from
continuing operations for the nine-month period ending September 30, 1999 are
for the period January 1, 1999 through May 20, 1999, prior to the date of the
merger. The historical PRIMESTAR/Tempo Satellite amounts included in the
unaudited pro forma combined condensed statement of income (loss) from
continuing operations for the nine-month period ending September 30, 1999 are
for the period January 1, 1999 through April 28, 1999, prior to the date of
acquisition. The pro forma adjustments reflected in the accompanying unaudited
pro forma combined condensed financial statements were prepared using the
purchase method of accounting.
The unaudited pro forma combined condensed financial statements do not
purport to present the financial position or results of operations of Hughes
had the transactions and events assumed therein occurred on the dates
specified, nor are they necessarily indicative of the results of operations
that may be achieved in the future. The unaudited pro forma combined condensed
statements of income (loss) from continuing operations do not give effect to
any cost savings that may be realized from the merger with U.S. Satellite
Broadcasting Company and the PRIMESTAR/Tempo Satellite acquisition, which
savings relate primarily to the reduction of duplicative operating, general
and administrative expenses.
The U.S. Satellite Broadcasting Company merger and the PRIMESTAR/Tempo
acquisition have been accounted for as purchases. Under the purchase method of
accounting, the purchase price is allocated to assets acquired and liabilities
assumed based on their estimated fair values. Certain of the adjustments
included in the unaudited pro forma combined condensed financial statements
reflect a preliminary allocation of the purchase price for those transactions
based upon information currently available. Adjustments relating to tangible
assets, including satellites and 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 U.S. Satellite Broadcasting Company represents
a preliminary estimate pending further review and analysis by Hughes
management. These appraisals, valuations and studies are expected to be
completed by March 31, 2000. Accordingly, the final purchase price allocations
may be different from the amounts reflected herein.
The unaudited pro forma combined condensed financial statements should be
read in conjunction with the financial statements of Hughes, U.S. Satellite
Broadcasting Company, PRIMESTAR and TCI Satellite Entertainment, including the
respective notes thereto, each as of and for the period ended December 31,
1998 which are incorporated by reference into this document.
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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF
HUGHES--Continued
Various reclassifications have been made to the historical financial
statements of U.S. Satellite Broadcasting Company, PRIMESTAR and TCI Satellite
Entertainment to conform to the unaudited pro forma combined condensed
financial statement presentation. As more fully described in Note 3 to
PRIMESTAR's 1998 consolidated financial statements, the historical operating
results of PRIMESTAR reflect the operations of its predecessor, TCI Satellite
Entertainment, prior to the restructuring transaction on April 1, 1998.
U.S. Satellite Broadcasting Company Merger Pro Forma Adjustments
The following adjustments, which are set forth in millions of dollars,
except per share amounts, give pro forma effect to the U.S. Satellite
Broadcasting Company merger.
(a) To eliminate intercompany transactions between Hughes and U.S.
Satellite Broadcasting Company.
(b) To reclassify certain amounts in the historical financial statements of
U.S. Satellite Broadcasting Company to conform to Hughes' presentation.
(c) To eliminate non-recurring expenses related to the merger.
(d) To reflect the amortization of the accrued liability for programming
contracts with above-market rates. The effective interest method was
used to amortize the liability and to impute interest expense thereon.
(e) To eliminate non-recurring fees recorded by U.S. Satellite Broadcasting
Company during 1999 in connection with the merger.
(f) To eliminate a non-recurring loss recorded by U.S. Satellite
Broadcasting Company during 1998 and to provide for the termination of
various contracts as specified in the U.S. Satellite Broadcasting
Company merger agreement.
(g) To reflect amortization of the intangible assets consisting of customer
lists, licenses granted by the Federal Communications Commission and
enterprise level goodwill. Amortization of the customer lists was
calculated based on a five-year useful life, and the amortization of
licenses granted by the Federal Communications Commission and
enterprise level goodwill were calculated based on useful lives of 40
years.
(h) To reflect reduced depreciation expense resulting from the write-down
of fixed assets to fair values.
(i) To reduce interest income on cash required for the U.S. Satellite
Broadcasting Company merger.
(j) Income taxes associated with the pro forma adjustments discussed above
have been calculated at an assumed combined federal and state rate of
40%, excluding amortization of estimated goodwill which is not
deductible for tax purposes.
The unaudited pro forma combined condensed statements of income (loss)
from continuing operations have also been adjusted to recognize a tax
benefit, at an assumed combined federal and state rate of 40%, for U.S.
Satellite Broadcasting Company's historical losses from continuing
operations for the periods ended September 30, 1999 and December 31,
1998. This adjustment recognizes that, if the U.S. Satellite
Broadcasting Company merger had taken place at the beginning of the
periods presented, the tax benefit of U.S. Satellite Broadcasting
Company's losses would have been realized in the consolidated federal
tax return of General Motors.
(k) In connection with the U.S. Satellite Broadcasting Company merger,
General Motors contributed cash to the capital of Hughes, sufficient to
enable Hughes to purchase from General Motors, for fair value as
determined by the GM board, the 22.6 million shares of Class H common
stock delivered to U.S. Satellite Broadcasting Company shareholders in
the merger. In connection therewith, the GM board also increased the
Class H dividend base by 22.6 million. For purposes of pro forma
presentation, the historical GM Class H numerator and denominator have
been adjusted to reflect the weighted-average number of shares of Class
H common stock that would have resulted if the U.S. Satellite
Broadcasting Company merger had taken place at the beginning of each
period presented.
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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF
HUGHES--Continued
PRIMESTAR/Tempo Satellite Acquisition Pro Forma Adjustments
The following adjustments, which are set forth in millions of dollars,
except per share amounts, give pro forma effect to the PRIMESTAR/Tempo
Satellite acquisition:
(l) To reclassify certain amounts in the historical financial statements of
PRIMESTAR to conform to Hughes' presentation.
(m) To eliminate non-recurring expenses related to the acquisition.
(n) To eliminate a non-recurring impairment loss and related income tax
benefit recorded by PRIMESTAR during 1998 to reduce the carrying amount
of certain assets to their net realizable values.
(o) To reflect the amortization of the accrued liability for programming
contracts and leases with above-market rates. The effective interest
method was used to amortize the liability and to calculate the
accretion of interest expense.
(p) To reflect amortization of the intangible assets consisting of customer
lists, licenses granted by the Federal Communications Commission,
dealer/install network, and enterprise level goodwill. Amortization of
the customer lists was calculated based on a five-year useful life, and
the amortization of the dealer/install network was calculated based
upon a 15-year useful life. Amortization of licenses granted by the
Federal Communications Commission and enterprise level goodwill was
calculated based on useful lives of 40 years.
(q) To record depreciation on the in-orbit satellite acquired by us in
connection with the PRIMESTAR/Tempo Satellite acquisition over the
estimated remaining useful life of 12 years.
(r) To reflect reduced depreciation expense resulting from the write-down
of fixed assets to fair values.
(s) To reflect interest expense associated with the incremental debt
incurred by Hughes to finance the PRIMESTAR/Tempo Satellite
acquisition.
(t) To reduce interest expense associated with PRIMESTAR debt not assumed
by Hughes.
(u) To reduce interest income on cash required for the PRIMESTAR
acquisition assuming Hughes' historical interest income rate.
(v) To eliminate a non-recurring net gain recorded by PRIMESTAR during 1999
in connection with the sale of certain assets and the retirement of
debt as a result of the PRIMESTAR/Tempo Satellite acquisition.
(w) To eliminate PRIMESTAR's historical income tax benefit recorded in
connection with PRIMESTAR's restructuring consummated during 1998.
(x) Income taxes associated with the pro forma adjustments discussed above
have been calculated at an assumed combined federal and state rate of
40%. Because the PRIMESTAR/Tempo Satellite acquisition is a taxable
transaction, amortization of goodwill is expected to be deductible over
15 years for income tax purposes.
The unaudited pro forma combined condensed statements of income (loss)
from continuing operations have also been adjusted to recognize a tax
benefit, at an assumed combined federal and state rate of 40%, for
PRIMESTAR's historical losses from continuing operations for the
periods ended September 30, 1999 and December 31, 1998. This adjustment
recognizes that, if the PRIMESTAR/Tempo Satellite acquisition had taken
place at the beginning of the periods presented, the tax benefit of
PRIMESTAR's and Tempo Satellite's losses would have been realized in
the consolidated federal tax return of General Motors.
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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF
HUGHES--Continued
(y) Based on the PRIMESTAR asset purchase agreement, 4.9 million shares of
Class H common stock were issued to effect the PRIMESTAR acquisition.
Hughes acquired these shares from General Motors for a cash payment,
which was funded with a cash capital contribution from General Motors.
In connection therewith, the General Motors board also increased the
Class H dividend base by about 4.9 million. For purposes of pro forma
presentation, the historical GM Class H numerator and denominator have
been adjusted to reflect the weighted-average number of shares of Class
H common stock that would have resulted if the PRIMESTAR acquisition
had taken place at the beginning of each period presented.
Preferred Stock Issuance Adjustments
The following adjustments, which are set forth in millions of dollars, give
pro forma effect to the issuance of Hughes Series A preferred stock.
(z) To reduce interest expense for the result of the pay down of short-term
debt.
(aa) To reflect the income tax effects of a reduction in interest expense
that resulted from the pay down of short-term debt at an assumed
combined federal and state tax rate of 40%.
(bb) To record dividends and amortization of fees on the Hughes Series A
preferred stock.
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BUSINESS OF GM
General Motors is primarily engaged in the automotive and, through its
wholly-owned Hughes subsidiary, the communications services industries. GM is
the world's largest manufacturer of automotive vehicles. GM also has financing
and insurance operations and, to a lesser extent, engages in other industries.
GM's automotive segment is comprised of four regions:
. GM North America;
. GM Europe;
. GM Asia/Pacific; and
. GM Latin America/Africa/Mid-East.
GM North America designs, manufacturers and markets vehicles primarily in
North America under the following nameplates:
.Chevrolet .GMC .Buick .Saturn
.Pontiac .Oldsmobile .Cadillac
GM's international operations meet the demands of customers outside North
America with vehicles designed, manufactured and marketed under the following
nameplates:
.Opel .Holden .Saab .GMC .Buick
.Vauxhall .Isuzu .Chevrolet .Cadillac
GM participates in the communications services industry through its Hughes
subsidiary, which is a leading global provider of digital entertainment
services, satellite communications services and satellite-based private
business networks. For more information about Hughes, see "Business of
Hughes."
GM's financing and insurance operations primarily relate to General Motors
Acceptance Corporation, which provides a broad range of financing services,
including consumer vehicle financing, full service leasing, mortgage services
and vehicle and homeowner's insurance. GM's other industrial operations
include the design, manufacturing and marketing of locomotives and heavy duty
transmissions.
Substantially all of GM's 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 about 8,100 GM vehicle dealers in the United States, 840
in Canada and 155 in Mexico. Additionally, there were a total of about 11,340
outlets overseas which include dealers and authorized sales, service and parts
outlets on the same date.
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BUSINESS OF HUGHES
Overview
Hughes is a leading global provider of digital entertainment, information
and communications services and satellite-based private business networks.
Hughes has been a pioneer in many aspects of the satellite and wireless
communications industry, and its technologies have driven the creation of new
services and markets and have established Hughes as a leader in each of the
markets it serves. Hughes believes that its ability to identify, define and
develop new markets early has provided it with a significant competitive
advantage in building sustainable market leadership positions.
In January 2000, Hughes announced a strategy designed to accelerate the
growth of its services businesses. In connection with this new focus on its
services businesses, Hughes recently entered into an agreement to sell its
satellite systems manufacturing businesses to Boeing for $3.75 billion in
cash. In addition, Hughes has realigned its marketing efforts to focus on its
two major customer groups: consumers and business enterprises. Hughes believes
this marketing realignment will enable it to obtain the full benefit of the
synergies between its various business units and more effectively reach its
customers.
Hughes provides advanced communications services on a global basis. Hughes
has developed a range of entertainment, information and communications
services for the home and business markets, including video, data, voice,
multimedia and Internet services. Hughes believes that these services provide
the potential for higher value through higher margins and higher growth than
Hughes' traditional manufacturing businesses. For the years ended December 31,
1998 and 1999, multi-channel entertainment services, satellite transponder
leasing and other services revenues represented about $2.6 billion, or 74.8%,
of Hughes' total revenues and about $4.5 billion, or 80.7%, of Hughes' total
revenues, respectively. This represents a 73% year-over-year growth in service
revenues. These figures exclude revenues attributable to Hughes' satellite
systems manufacturing businesses.
Hughes' businesses include:
. DIRECTV, the world's leading digital multi-channel entertainment service,
based on the number of subscribers. DIRECTV includes businesses in the
United States, Latin America and Japan, and constitutes Hughes' Direct-
to-Home Broadcast segment. In 1999, DIRECTV gained a record 1.6 million
net new subscribers in the United States, representing a 39% growth rate
over 1998. As of December 31, 1999, average revenue per residential U.S.
DIRECTV subscriber of $58 was the highest in the U.S. multi-channel
entertainment industry.
. PanAmSat, the owner and operator of the largest commercial satellite
fleet in the world. PanAmSat, a publicly-held company of which Hughes
owns 81%, constitutes Hughes' Satellite Services segment. PanAmSat owns
and operates 21 satellites that are capable of transmitting signals to
geographic areas covering 99% of the world's population. PanAmSat
provides satellite capacity for the transmission of cable and broadcast
television programming from the content source to the consumer
distribution point (direct broadcast satellite or cable operator),
eventually having the capability to reach over 125 million cable
households worldwide, and telecommunications services that provide
satellite capacity to telecommunications carriers in 35 countries and
Internet service providers in nearly 50 countries.
. Broadband Services and Products, which includes Hughes Network Systems, a
leading provider of satellite and wireless communications ground
equipment and business communications services. Hughes Network Systems
has more than a 50% share of the global market for very small aperture
terminals or "VSAT" private business networks and constitutes Hughes'
Network Systems segment. Hughes Network Systems is also leading the
development of Spaceway, a satellite-based broadband communications
platform that is expected to provide customers with high-speed, two-way
data communication on a more cost-efficient basis than systems that are
currently available. Spaceway is expected to launch service in North
America in 2003 and currently is not a separately reported business
segment.
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In addition, Hughes' business currently includes its satellite systems
manufacturing businesses. Hughes Space and Communications, the largest
component of Hughes' satellite systems manufacturing businesses, is the
principal component of the discontinued operations captions in Hughes'
financial statements because Hughes has agreed to sell Hughes Space and
Communications and its related satellite systems manufacturing assets to
Boeing as more fully described below at "--Hughes Space and Communications."
Recent Developments
There have been several recent developments affecting Hughes' businesses
that Hughes believes will accelerate its growth as a premier provider of
integrated entertainment, information and communications services:
. New Corporate Focus. Hughes has undertaken several new initiatives
designed to focus its resources and management attention on its high-
growth entertainment, information and communications services businesses.
Hughes has entered into an agreement with Boeing for the sale of Hughes'
satellite systems manufacturing businesses. This sale of the most
significant portion of Hughes' traditional manufacturing businesses is
intended to accelerate Hughes' transformation into an entertainment,
information and communications services business. Hughes also believes
that Boeing, with its strong systems integration capabilities, will
continue to provide Hughes with a reliable source of satellites in the
future. For additional information on this transaction, see "--Hughes
Space and Communications" below.
In addition, Hughes' wireless communication equipment business, conducted
through Hughes Network Systems, will focus solely on its leading broadband
wireless access (point-to-multipoint) product line and will discontinue
its mobile cellular and narrowband fixed wireless product lines. Hughes
does not believe that it has the critical mass required to be competitive
in the mobile cellular or narrowband markets. However, Hughes believes
that it has superior technology and valuable experience in the broadband
wireless access market and intends to use that expertise to increase its
penetration in a market that is expected to experience rapid growth over
the next several years. Finally, Hughes has realigned its marketing
efforts to focus on its two major customer groups, as more fully described
below.
. New Marketing Initiative. As part of its new corporate focus, Hughes has
created two new executive positions, each of which will have the primary
responsibility for Hughes' two main customer groups: consumers and
business enterprises. Hughes believes that its marketing realignment will
enable it to obtain the full benefit of the synergies between its various
business segments and to more effectively serve its customers. Hughes
also believes that this new marketing initiative will allow it to better
identify and capitalize on rapidly changing trends in these two markets.
For more information on Hughes' marketing realignment, see "--Sales and
Marketing" below.
. Local Programming. Following the enactment of new legislation regarding
the delivery of local programming in the United States, DIRECTV recently
expanded its program offerings to include the major local broadcast
networks and a national Public Broadcasting System feed in 21 U.S.
markets. This legislation allows DIRECTV to compete more effectively with
cable television providers who previously had the advantage because they
could offer subscribers local channels. Now, DIRECTV can provide local
channels to subscribers with digital-quality picture and sound. Many of
DIRECTV's existing customers are able to receive this local programming
using their existing receiver equipment. In addition, DIRECTV plans to
deliver local programming in new markets in which customers will receive
the local channels through a new dual-feed satellite dish. DIRECTV
intends initially to introduce local programming in up to 25 markets,
capable of reaching about 50 million U.S. television households. In the
future, DIRECTV may expand its local programming markets to additional
cities based on market demand. Hughes expects that DIRECTV's ability to
deliver local programming will result in higher revenue per subscriber as
well as new DIRECTV subscribers in the markets where DIRECTV offers local
channels.
. Strategic Alliance with America Online. 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 and
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eventually new broadband services to be delivered via Spaceway. As part of
this alliance, Hughes and AOL plan to introduce two new enhanced TV and
Internet-based interactive services later this year. The first is a
combination television receiver that will allow the consumer to not only
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 DirectPC" that will be delivered using Hughes
Network Systems' DirecPC satellite network. DirecPC is a satellite-based
Internet service which uses a small receiver dish to provide access speeds
up to 400 kilobits-per-second, which is substantially faster than
traditional computer modems that use analog phone lines. Hughes and AOL
also plan to jointly develop new services and content for DIRECTV. For
more information about this alliance, see "--Broadband Services and
Products" below.
Industry Background
Hughes' businesses provide equipment and services for the following
industries:
. digital entertainment and information;
. satellite- and terrestrial-based communications; and
. private business networking.
These diverse businesses share a common focus on delivering media and
multimedia content, data and voice traffic to a broad universe of consumer and
business enterprise customers almost instantaneously and in a cost-effective
manner.
Consumer Entertainment and Information Services
Traditionally, the consumer has received entertainment and information
services from several different and unrelated industries. The consumer
received phone service from a telephone company and television service from a
broadcast or cable company, and more recently Internet service from an
Internet service provider or "ISP", typically using traditional telephone
lines as a means of access.
Today's improved digital technologies can deliver all of these services
faster and more efficiently, and these three industries are now competing with
each other as well as forming alliances to meet the growing demands of
consumers. Government deregulation and technological advances and innovations
have contributed to this industry realignment. These factors have expanded
industry capacity to provide an increasing variety of video, information and
data at prices affordable to the consumer. They have also enabled new
technologies such as satellites to compete for the same business. For example,
DIRECTV's satellite fleet, is capable of distributing hundreds of digital
entertainment channels to every television household in the contiguous United
States.
The rapid development of the Internet and the consumer's growing demand for
entertainment and information has led to demand for rapid delivery of vast
amounts of information through broadband communications systems as opposed to
traditional narrowband systems. These new broadband systems, including
terrestrial-based fiber-optic and wireless systems and, when operational,
satellite-based systems, such as Spaceway, enable entertainment and
information providers to offer new services and products to satisfy customer
demands.
With the development of broadband delivery systems, such as Hughes'
DirecDuo and DirecPC systems, the consumer can receive data and information
from the Internet at speeds significantly faster than traditional methods. In
addition, the capability of broadband platforms to deliver large amounts of
data provides the incentive for companies to develop new and innovative
services and offerings for the consumer. The ability to combine the delivery
of a number of services, which is sometimes referred to as a "bundled
offering," is the goal of many companies in the industry.
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Generally, a consumer purchases television and Internet services
separately. Today, a single provider can offer more television programming
than a traditional television service provider with higher quality picture and
sound as well as higher speed Internet access than some ISPs at competitive
prices. Additionally, the traditional television service is increasingly
offering more interactivity and information to the television viewer. At the
same time, entertainment services such as video streaming and music
downloading are being delivered through the consumer's computer. Hughes'
recent strategic alliance with AOL is just an example of the rapid convergence
of the television and personal computer platforms.
Hughes is an active participant in these important and rapidly growing
industries through its DIRECTV, DirecPC and DirecDuo services. Hughes
continues to be an industry leader through its integration and development of
new technologies and products and its alliances with industry leaders such as
AOL, TiVo, Inc. and Wink Communications.
Enterprise Communications and Information Services
Communications and information services for business enterprises have
evolved rapidly over the last several years as the same technological advances
fueling consumer media, communication and data demand have impacted business
enterprises. Today, enterprises are demanding more reliable, faster two-way
and one-way data and voice delivery to their various sites as well as to their
customers. Corporations are setting up private networks, including voice
communications, local and wide area data networks and intranets, as well as
using public networks such as the Internet.
With the rapid development of the Internet, business enterprises are
focusing increasingly on their capabilities to deliver innovative products and
services, such as e-commerce and broadband data communications. Due to the
ubiquity of the Internet and its increasingly high level of security as a
means of transmitting corporate data, business enterprises are dramatically
increasing their use of private and public corporate networks on a regional
and global basis.
The infrastructure required to support this traffic is rapidly developing.
Broadband networks using terrestrial-, wireless- and satellite-based
technologies are replacing narrowband networks such as traditional public and
private telephone networks. Additionally, consumer demand for entertainment
and information is driving business enterprises' requirements for wholesale
delivery of data, which can be repackaged and reformatted for consumers as
well as enterprise customers.
A wide variety of operators, including fiber-optic cable, terrestrial-based
wireless and satellite operators provide wholesale transmission of data.
PanAmSat currently is the largest commercial satellite services provider for
the distribution of wholesale entertainment, data and information.
Hughes Network Systems is a leader in providing private business networks
via VSATs. Private business networks are high-speed, satellite-based
enterprise communications networks. For example, individual gas stations use
VSATs to send customer credit card data to central processing locations and
receive back payment approvals. These private networks often utilize satellite
transponder capacity leased from PanAmSat. Hughes is also a leader in the
development of terrestrial-based wireless systems known as broadband wireless
access systems. This technology allows business enterprises to cost
effectively transmit data at very high data-rates in areas where fiber-optic
systems and satellite-based systems are not as cost effective. Hughes believes
that the market for private business networks using VSATs will continue its
strong growth trends and that the broadband wireless access market will grow
significantly over the next several years.
Hughes believes that the rapid expansion of enterprise communications
networks and the bandwidth those networks require will increase exponentially
over the next several years. Hughes believes that new broadband platforms with
two-way traffic capabilities will lead the next generation of communications
technology. Hughes has planned the Spaceway platform to provide its next
generation of satellite-based broadband products and services beginning in
2003. The Spaceway satellite-based platform is expected to allow business
enterprises to
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introduce a wide range of two-way, high data-rate services, such as distance
learning, across a business enterprise's global locations simultaneously, by
utilizing full motion streaming video. Hughes believes that the market for
these services will also grow significantly in the future.
Technology Overview
Hughes has been a pioneer in the development of satellite-based technology,
which currently serves as the basis for many of its products and services.
Satellite technology includes two major components: the ground network and
equipment and the satellite.
Geosynchronous satellites orbit the earth from locations about 22,300 miles
above the equator. At this altitude, the satellite remains in a fixed position
above a specific location on the earth at all times. This allows business
enterprises and consumers the ability to point their ground equipment at one
spot in the sky and remain in constant contact with the satellite. This
altitude also allows one satellite to provide service to a large portion of
the world.
Satellites are assigned orbital positions or "slots." These slots are
designated by their location East or West of the zero meridian, measured in
degrees of longitude, and comprise both a physical location and an assignment
of broadcast spectrum. Broadcast spectrum is divided into "bands" or frequency
ranges measured in hertz. Because these slots only exist along the equator,
there are a finite number of available slots and frequencies. Through a
Federal Communications Commission application process, Hughes obtains licenses
for orbital slots which, following successful international coordination, are
registered with the International Telecommunication Union.
Typical geosynchronous satellite frequency bands include:
. C-band--used as the traditional network and cable television programming
distribution band;
. Ku-band--used for many telecommunications services, including Internet
access, and direct-to-home broadcast satellite television services; and
. Ka-band--a high frequency band that can be used for new broadband, high-
speed data and Internet service offerings.
Typically, an individual satellite divides its assigned frequency bands
into smaller channels that are often referred to as "transponders." Satellites
are often described as having a certain number of transponders. By knowing the
number of transponders and the amount of hertz allocated to each transponder,
total satellite capacity can be calculated in terms of hertz. This capability
can further be assessed in terms of its usage, such as digital TV channels or
raw data throughput. For example, direct broadcast satellites over the United
States currently provide up to 32 transponders from each of several orbital
slots. Each transponder is allocated 24 megahertz of spectrum. Through digital
compression algorithms and advanced ground equipment, satellites can currently
place anywhere from six to 12 television video channels on each transponder
and still maintain excellent picture quality from the consumer's perspective.
Geosynchronous satellites act as relay stations receiving information and
data, amplifying it and then relaying it back to the ground. Future satellite
systems, like Spaceway, will have powerful on-board processors to more
efficiently direct the information to the appropriate end-user.
The ground network consists of software and equipment to send or "uplink"
data to the satellite as well as receive or "downlink" data from the
satellite. Certain services, such as most VSATs, allow for the same equipment
to be used to both send and receive data. These are also known as two-way or
interactive systems. Other applications like digital direct-to-home broadcast
satellite and DirecPC are currently one-way by satellite to the end user. In
other words, the equipment only receives information. In this case, any
outbound requests, such as requests to visit web sites, do not go out over the
satellite but typically via the phone line. Hughes expects that as technology
improves and the cost of equipment drops, two-way satellite systems affordable
to the consumer will be available near the end of this year.
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Depending on the application, the frequency band, and the overall power of
the satellite, different sized receive and send equipment is used. Typically,
C-band ground equipment uses five-meter or larger dishes to send and receive,
while Ku-band receive equipment used for digital direct-to-home broadcast
satellite is only 18 inches in diameter. In addition to the dish, there is
also indoor equipment used to translate the data that is received. In the case
of a digital direct-to-home broadcast satellite system, the indoor unit takes
the form of a set-top box which converts the digital signal into one used by
standard televisions, by high definition televisions or "HDTV", or by
computers.
Strategy
Hughes' business objective is to enhance its position as a premier provider
of integrated information, entertainment and communications services by
leveraging its satellite and wireless communications systems expertise and by
capitalizing on its competitive advantages discussed below. Hughes' core
strategies for achieving this objective are to:
. Focus on high-value, high-growth entertainment and business
communications services. Hughes' recent decisions to sell its satellite
systems manufacturing businesses, to refocus its wireless network
business and to realign its marketing efforts to focus on its consumer
and business enterprise customers, were all designed to accelerate the
growth of its services businesses. Each of these actions is intended to
increase Hughes' focus on the needs of its customers and to devote
significant resources to the integration of new broadband and interactive
services with Hughes' existing multi-channel video programming. Hughes
believes that these efforts will enable it to better identify and
capitalize on rapidly changing trends in its industry to position Hughes
as the leading provider of these products and services.
. Lead the multi-channel entertainment market. Hughes intends to capitalize
on favorable demand trends for multi-channel entertainment in the United
States and select international markets. Hughes intends to maintain
DIRECTV's leadership in the United States by providing a premier service
with distinctive programming. This programming will include exclusive
entertainment programming, HDTV programming and unique interactive,
personal choice and Internet-based services, such as the TiVo Personal
TV(TM) service which allows subscribers to create their own television
program selection based upon personal preferences.
Hughes is also leveraging its experience in the multi-channel
entertainment market in the United States and brand name in select
international markets where Hughes believes significant growth
opportunities exist. In addition, Hughes' strategy in the multi-channel
entertainment market includes initiatives to increase average revenue per
subscriber. DIRECTV's average monthly revenue per residential U.S. DIRECTV
subscriber was about $58 as of December 31, 1999, the highest in the U.S.
multi-channel entertainment industry. With the recent introduction of
local channels as well as new interactive services to be introduced in
2000, DIRECTV expects average revenue per subscriber to increase.
. Capitalize on growth opportunities in the markets for Internet services
and digital data. Hughes believes that the growth of the Internet and the
increased presence of digital data will have a major impact on the
entertainment, information and communications services industry. Hughes
has several initiatives in this area, including the following:
. DIRECTV expects to integrate a range of Internet-based and interactive
technologies into its service in the United States and Latin America
later this year, such as AOL TV, which will allow a DIRECTV subscriber
to access the Internet via the television. See "--Recent
Developments--Strategic Alliance with America Online."
. Hughes Network Systems has developed an array of digital data,
intranet and Internet services for the consumer, such as DirecPC, and
enterprise markets, such as DirecWay(TM), which it intends to
aggressively market to its own customers and to customers of AOL.
. PanAmSat has developed a range of Internet-related services, including
SPOTbytes(R), a bundled Internet service that offers links from
international locations to the United States Internet backbone via
PanAmSat teleports, and a new service that provides the direct
broadcast of Internet content to local computer servers in the United
States and internationally.
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. Beginning with the anticipated North American service launch in 2003,
Hughes believes Spaceway will offer customers a wide range of high-
speed, two-way, data communication services for which demand has been
forecast to increase dramatically in the future.
. Achieve sustainable market leadership positions. Hughes has achieved
market leadership positions by identifying, defining and developing new
markets and introducing innovative products and services to serve these
markets. For example, PanAmSat's early development of a business model
that involved the leasing of satellite transponder space has enabled
Hughes and PanAmSat to capture a significant share of the world's limited
supply of both satellite orbital slots and broadcast spectrum. Early
entry into the digital direct-to-home broadcast satellite industry has
provided Hughes with direct relationships with a large subscriber base to
whom an expanded array of services can be offered and has created strong
relationships with the programmers that provide content for its DIRECTV
service. In addition, early entry into the market for accessing the
Internet via satellites and DIRECTV's customer base of more than 9
million subscribers worldwide has positioned Hughes with key strategic
partners such as AOL. Hughes believes that its leadership in technology
and its consumer and business enterprise customer base will provide
Hughes with a competitive advantage for the introduction of the Spaceway
platform.
Hughes has also pursued and will continue to pursue acquisitions and
strategic alliances, such as its acquisitions of PRIMESTAR, Inc. and
United States Satellite Broadcasting Company, Inc. and its alliance with
AOL, to extend its leadership in core markets. In those markets where
leadership cannot be attained, Hughes intends to divest or reposition its
businesses, such as its recent decision to discontinue its mobile
cellular and narrowband fixed wireless manufacturing product lines. For
more information, see "--Acquisitions, Strategic Alliances and
Divestitures.
. Incentivize Management. Employee compensation programs are designed to
help Hughes achieve its business objective and maximize long-term
shareholder value. As part of this focus, a portion of compensation for
all of the full-time employees of Hughes and its wholly-owned
subsidiaries is paid in options to purchase Class H common stock. In
particular, more than half of the compensation of Hughes' top executives
is composed of stock options, stock grants and other stock performance-
based incentive compensation.
Competitive Advantages
Hughes believes that it has several important competitive advantages in the
industries in which it competes. Hughes believes these competitive advantages
should enable it to achieve sustainable market leadership positions and
accelerate revenue and EBITDA growth. These competitive advantages include:
. DIRECTV Brand and Franchise. In the United States, DIRECTV has a
leadership position in the U.S. multi-channel entertainment market,
including:
. One of the largest multi-channel entertainment providers. As of
December 31, 1999, DIRECTV had over 8 million subscribers, making
DIRECTV the third largest multi-channel entertainment provider in the
United States. This market position provides DIRECTV with greater
opportunity to obtain programming on favorable terms, secure unique
and exclusive programming and introduce new services.
. Substantial channel capacity. Currently, DIRECTV has capacity to
deliver about 400 entertainment channels, including local channels,
in 21 markets. DIRECTV expects its capacity to increase to about 500
channels by the end of 2000 and plans to offer local channels in
additional markets.
. A well-developed, robust distribution network. DIRECTV has a robust
distribution network, based on retail points of sale, including
national retailers such as Circuit City, Radio Shack and Best Buy,
and several regional Bell telephone companies which provide
installation, customer service and billing and the PRIMESTAR dealer
network in small urban and rural markets.
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Hughes believes these factors, together with DIRECTV's strong brand name,
provide it with significant competitive advantages over other U.S. multi-
channel entertainment providers. Hughes also believes that DIRECTV's
high-quality digital picture and sound, its increased variety of
programming and its high quality customer service provide competitive
advantages over traditional cable television. Hughes is also utilizing
the DIRECTV brand name and U.S. leadership position to accelerate growth
in select international markets.
. Direct Digital Interactive and Broadband Links to Homes and Businesses.
Hughes believes that its established relationships with both its consumer
and business enterprise customers will become increasingly valuable as
key markets in which to offer expanded services. Consumers and business
enterprises are increasingly demanding the flow of greater amounts of
data at higher speeds than can be provided by traditional computer modems
using traditional phone lines. In many cases, satellite-based systems are
well suited to address this need on a cost-effective basis. In meeting
this demand, Hughes intends to capitalize on its existing customer
relationships as well as new customer relationships created through
strategic alliances. Hughes also intends to upgrade many of its existing
corporate data network clients and satellite Internet customers, many of
whom are Fortune 500 companies, and DirecPC subscribers to Spaceway.
. Satellite Technology Advantages. Satellite-based service offerings have
inherent competitive advantages over ground-based services for many
applications. These include:
. the ability to broadcast hundreds of channels economically to
millions of recipients over very wide geographic areas with little
incremental cost per end user;
. the potential for low cost two-way communications to areas of low
population density;
. the ability to roll-out new infrastructure to a large number of
customers quickly; and
. the ability to deliver large amounts of information at high
transmission speeds.
Hughes believes that its ability to develop leading satellite
technologies has helped Hughes become a leader in each of its businesses,
and it intends to continue to develop new technologies to maintain these
leadership positions. For example, Hughes developed, together with
Thomson Consumer Electronics, the technology for the first set-top box
receiver used by DIRECTV. Hughes continues to integrate and develop new
technologies to maintain its multi-channel leadership, including set-top
boxes that will provide interactive services. In addition, Hughes
believes that the technology utilized in VSAT equipment and signal
compression technologies have enabled Hughes Network Systems and PanAmSat
to maintain industry leadership positions.
. Global Market Leader. Hughes believes that its global leadership
positions in its target markets--digital multi-channel entertainment and
information, satellite transponder leasing and private business
networks--enable it to achieve economies of scale. The entertainment,
information and communications services businesses generally are
characterized by high fixed costs with relatively lower variable costs. A
market leadership position enables some of the costs of developing
expanded services, such as infrastructure, to be spread across a larger
customer base. In addition, Hughes Network Systems has benefited from
economies of scale resulting from its global leadership position in
VSATs.
. Comprehensive Portfolio of Global Satellite Services. Hughes believes
that its presence in several major segments of the entertainment,
information and communications services industry affords significant
synergies and provides Hughes with the ability to respond to the latest
industry growth trends. Historically, Hughes has leveraged its systems
expertise to develop new service businesses such as DIRECTV, satellite
transponder leasing and Spaceway. For example, Hughes Network Systems'
ability to increase production of DIRECTV set-top boxes on short notice
enabled DIRECTV to meet new subscriber demand and achieve record
subscriber growth in 1999. In addition, Hughes' systems expertise was an
important element in the formation of the strategic alliance with AOL and
has enabled Hughes to respond quickly to the growth needs of its services
businesses. Hughes believes that the breadth of its services and products
positions it to capitalize on the convergence of entertainment,
information and the Internet for both individual consumers and business
enterprises.
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. Global Spectrum and Orbital Slots. Operation of an international
satellite fleet requires significant international and U.S. regulatory
approvals and Hughes considers its regulatory authorization to use
desirable broadcast spectrum and its orbital slots to be a significant
competitive advantage. For example, Hughes believes that PanAmSat's
global transmission capability, especially its ability to transmit
signals among many of the world's major regions, provides it with a
significant advantage over commercial competitors who operate fleets
limited to regional coverage. PanAmSat currently operates the largest
commercial network of geosynchronous communications satellites and has
the ability to transmit signals to a geographic area that includes 99% of
the world's population. PanAmSat is the only commercial entity that
offers geosynchronous satellite services on a global, one-stop shopping
basis.
DIRECTV
Introduced in June 1994, DIRECTV was one of the first digital multi-channel
entertainment providers in North America. Currently, DIRECTV programming is
available in the 48 contiguous United States, 27 countries in Latin America
and the Caribbean Basin via Galaxy Latin America and in Japan via DIRECTV
Japan.
Hughes believes it can leverage the DIRECTV brand name and market
leadership position in the United States and in select international markets.
As a result, Hughes evaluates, on an ongoing basis, opportunities to expand
DIRECTV to serve other international markets. There is often intense
competition in the international markets in which Hughes expects to offer
DIRECTV. In order to increase its customer base in these markets, DIRECTV may
consider offering dealer and customer incentives which may result in increased
subscriber acquisition costs.
DIRECTV U.S.
Highlights
. More than 8 million DIRECTV U.S. subscribers as of December 31, 1999,
which includes 1.4 million PRIMESTAR by DIRECTV subscribers
. A record 1.6 million net new subscribers to its high-power service in
1999, compared to 1.2 million net new subscribers in 1998, representing a
39% growth rate
. Monthly revenue per residential U.S. DIRECTV subscriber of about $58 as
of December 31, 1999, the highest in the United States multi-channel
entertainment industry
. Local channels available in 21 markets capable of reaching nearly 40
million households
. Current capacity to provide about 400 entertainment channels, including
local channels, in the United States, which is expected to increase to
about 500 entertainment channels by the end of 2000
. A robust U.S. distribution network, with extensive retail points of sale
Strategic Goals
. Increase average revenue per subscriber
. Minimize subscriber churn
. Reduce subscriber acquisition cost in most distribution channels
. Add new and innovative programming, including new interactive and
Internet-based services and expand market availability of local
programming
. Further broaden and strengthen distribution channels
In 1999, Hughes acquired the U.S. digital direct-to-home broadcast
satellite medium-power business of PRIMESTAR and the related high-power
satellite assets of Tempo Satellite and U.S. Satellite Broadcasting Company, a
provider of premium movie services to households throughout the continental
United States.
Subscribers. As of December 31, 1999, DIRECTV, under the DIRECTV and
PRIMESTAR by DIRECTV brands, had about 8 million subscribers, making it the
third largest multi-channel entertainment provider in the United States. This
includes about 1.5 million subscribers located primarily in rural areas of the
continental
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United States who receive DIRECTV services under an arrangement with the
National Rural Telecommunications Cooperative. DIRECTV expects to achieve a
total of between 9.5 million and 10 million subscribers by the end of 2000.
Through Hughes' acquisition of U.S. Satellite Broadcasting Company, DIRECTV
gained a base of over two million customers subscribing to premium movie
services, over 90% of which were already receiving DIRECTV programming. The
integration of this business is complete. Through the PRIMESTAR acquisition,
DIRECTV obtained a base of just under 2.3 million subscribers. As of December
31, 1999, about 470,000 of these subscribers had been converted to the DIRECTV
service. DIRECTV expects to convert 70% of the acquired PRIMESTAR subscriber
base to DIRECTV by the end of 2000.
DIRECTV's 1999 net subscriber churn rate was about 1.5% per month, compared
to an average monthly churn rate of about 2.5% for the cable television
industry. DIRECTV has implemented aggressive churn management programs
designed to reduce subscriber turnover. DIRECTV's net subscriber churn for a
given period is calculated by dividing the number of subscribers canceling
service during the period by the total number of subscribers at the end of the
period. See "Risk Factors--Risk Factors Relating to the Business of Hughes--
Hughes May Be Unable to Manage Effectively the Growth of its DIRECTV
Business."
DIRECTV's cost of acquiring new subscribers, including incentives paid to
retailers, subsidies for receiver equipment and consumer promotions, is
currently about $500 per subscriber. As part of Hughes' strategic alliance
with AOL, DIRECTV expects to offer additional incentives to retailers to
reduce the cost to the consumer of the receiver equipment necessary to receive
the new interactive services and intends to offer additional consumer
promotions designed to attract more subscribers. For a description of this new
service, see "--Programming--AOL TV" below. In the future, subscriber
acquisition costs will continue to be largely determined by the competitive
environment.
Programming. Currently, DIRECTV has the capacity to offer about 400 digital
channels of television shows, premium movies, sports and pay-per-view events,
including 36 digital music channels, and local channels. DIRECTV currently
expects capacity to increase to about 500 channels by the end of 2000. DIRECTV
also provides premium sports and other premium programming such as THE NFL
SUNDAY TICKET(R), which allows subscribers, subject to local restrictions, to
view every National Football League game played each Sunday during the regular
season. DIRECTV is the exclusive small dish provider of THE NFL SUNDAY TICKET
through 2002. Hughes believes that DIRECTV's increased channel offerings,
channel capacity and large subscriber base provides DIRECTV with a competitive
advantage in acquiring subscribers, obtaining programming from leading content
providers on favorable terms and, in the future, generating advertising
revenue.
With the recent passage of the Satellite Home Viewer Improvement Act of
1999, DIRECTV is now permitted to provide local television programming to its
customers. DIRECTV currently provides the major local broadcast networks plus
a national PBS feed to 21 markets. Initial plans call for the delivery of
local channels to up to 25 markets, capable of reaching about 50 million U.S.
television households. In most of these markets, DIRECTV subscribers can
receive local programming with their existing receiver equipment. This
legislation allows DIRECTV to compete more effectively with cable television
providers who previously held an advantage over DIRECTV because they could
offer subscribers local channels. DIRECTV believes that it has a competitive
advantage in this area over cable television providers because of its ability
to provide subscribers with local channels with digital-quality picture and
sound.
DIRECTV U.S. also provides foreign language programming through its new
DIRECTV Para Todos(TM) service. This service has been launched in seven U.S.
cities, capable of reaching 8.4 million Spanish-speaking households. DIRECTV
Para Todos(TM) currently provides programming packages that provide up to 21
Spanish and 43 English language channels, including CNN en Espanol, UniVision,
GalaVision, TV Chile and other special interest channels. In addition, DIRECTV
has a dedicated Spanish-speaking customer call center for subscribers of this
service. DIRECTV intends to expand DIRECTV Para Todos nationwide in the first
half of 2000. DIRECTV U.S. also plans to provide ethnic programming in
Russian, Arabic, Hindi and Chinese during the first and second quarters of
2000.
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DIRECTV intends to introduce new enhanced TV and interactive service
offerings later this year. These offerings will include:
. AOL TV. In addition to its own programming, DIRECTV will offer
subscribers access to a wealth of information through connected
interactivity with certain AOL features, such as Internet access, instant
messaging and buddy lists, and AOL members will be offered the ability to
connect to a new AOL interactive service designed to enhance the
television viewing experience.
. DIRECTV/TiVo Combination Box. Through integration with the TiVo Personal
TV(TM) service, DIRECTV subscribers that use a new combination
DIRECTV/TiVo satellite digital receiver will be able to control the
programming they watch by being able to pause live television and create
their own television programming lineup based on their personal
preferences. This service will provide DIRECTV customers with access to a
wide variety of programming seamlessly integrated with the control,
convenience and personalization that TiVo provides. DIRECTV owns about 9%
of the equity of TiVo, Inc., the owner of the TiVo Personal TV(TM)
service.
. DIRECTV Interactive. These services will include data-enhanced
programming, e-commerce and interactive advertising. Later this year,
DIRECTV will introduce the Wink(R) service, which will enable DIRECTV
subscribers to access data enhanced programming and perform e-commerce
transactions via their television and remote control. This service will
be free of charge to DIRECTV subscribers. DIRECTV owns about 4% of the
equity of Wink Communications, the owner of the Wink(R) technology.
Distribution Channels. The DIRECTV service is distributed to consumers
through various channels. Both DIRECTV service and equipment are distributed
through consumer electronics stores such as Circuit City, Radio Shack and Best
Buy and satellite television dealers. In addition, Hughes has agreements with
several regional Bell telephone companies to distribute DIRECTV programming
and service by bundling it with local phone services. These arrangements
typically provide that the telephone companies will provide installation,
customer service and billing services. DIRECTV also distributes its services
to rural and small urban areas through the newly-acquired PRIMESTAR dealer
network, which has enhanced its presence in those markets. Finally, as part of
Hughes' strategic alliance with AOL, AOL will market DIRECTV to its on-line
subscriber base, which as of January 31, 2000 totaled over 23 million
subscribers.
Satellite Fleet and Equipment. DIRECTV currently has a fleet of five
satellites, three of which are located at 101(degrees) west longitude, one of
which is located at 110(degrees) west longitude, and one of which is located
at 119(degrees) west longitude. In the third quarter of 2000, DIRECTV expects
to launch its sixth satellite, DIRECTV 5, which will replace DIRECTV 4 at
119(degrees) west longitude. DIRECTV 4 will then serve primarily as an in-
orbit spare in the event of any problems on Hughes' other satellites. See
"Risk Factors--Risk Factors Relating to the Business of Hughes--Hughes Is
Vulnerable to Satellite Failure." DIRECTV has also contracted to build a
seventh satellite, DIRECTV 4S, a high-powered spot-beam satellite to provide
additional capacity for its new local channel service or other new services
beginning in 2002. DIRECTV's signals originate from its broadcast facilities
in Castle Rock, Colorado and in Los Angeles, California.
Hughes believes that the frequencies DIRECTV is authorized to use for
delivering digital television signals in the United States are significant
assets. There are currently only three licensed United States orbital slots
that provide the capability to deliver high-power digital television signals
throughout the contiguous United States. These orbital slots have a total of
96 available frequencies and DIRECTV controls 46 of these frequencies.
DIRECTV receiving equipment is manufactured by Hughes Network Systems and a
number of name brand consumer electronics companies, including RCA/Thomson
Consumer Electronics and Sony. Equipment prices paid by consumers have fallen
steadily from the initial $699-$899 range in June 1994 to about $99-$249
today. The technology for the DIRECTV service is based, in part, on Hughes'
satellite and satellite-based services experience and, in part, on the
expertise of the consumer electronics manufacturers which produce the
equipment. DIRECTV has outsourced many of the significant facets of consumer
marketing, the operation of the related infrastructure and support services to
vendors experienced in the respective fields.
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Galaxy Latin America
Highlights
. More than 800,000 subscribers in 27 countries throughout Latin America
and the Caribbean Basin, capable of reaching 97% of the potential market
. Monthly revenue per subscriber of about $36 as of December 31, 1999
. Capacity to provide over 355 digital video and audio channels
. New exclusive programming arrangements with affiliates of HBO and Disney
. New subscriber acquisitions in the quarter ended December 31, 1999 nearly
double that of any previous quarter
Strategic Goals
. Accelerate subscriber growth through aggressive marketing of the DIRECTV
service
. Broaden and strengthen distribution channels in Latin America and the
Caribbean Basin
. Expand and continue to improve customer service
. Minimize subscriber churn
. Add new and exclusive programming, including new interactive and web-
based services and expanding market availability of local programming
Hughes currently provides DIRECTV service in 27 countries in Latin America
and the Caribbean Basin via Galaxy Latin America under the brand name
"DIRECTV". Introduced in mid-1996, Galaxy Latin America was the first digital
direct-to-home broadcast satellite television service available in Latin
America and currently has the capacity to provide over 320 digital video and
35 digital audio channels. Hughes owns about 78% of Galaxy Latin America, with
The Cisneros Group of Companies of Venezuela holding the remaining ownership
share.
Subscribers. As of December 31, 1999, DIRECTV had about 804,000 subscribers
throughout Latin America, representing subscriber growth of about 74% compared
to 1998. Galaxy Latin America added 136,000 net new subscribers in the fourth
quarter of 1999, which nearly doubled the previous record set in the first
quarter of 1999. These gains were primarily due to Galaxy Latin America's
acquisition of operating control in Brazil and Mexico as well as a strong
performance in Argentina. The average revenue per subscriber in the Latin
American region is currently about $36 per month. Galaxy Latin America
believes that about one-half of television households in Latin America, or
about 50 million households, earn an income sufficient to afford multi-channel
pay television services, but only a small fraction currently subscribes to
such services. Hughes believes that this market has significant growth
potential.
To further accelerate subscriber growth, Galaxy Latin America and its local
operating companies will continue to promote the service aggressively, will
concentrate on superior customer service, will continue its strategy of adding
new distribution and mitigating subscriber churn. In addition, in most
instances, subscriber acquisition costs in Latin America generally have been
much lower than in the United States.
Distribution. Local operating companies in each country provide marketing,
sales, distribution, customer service and other infrastructure services.
Hughes believes that having an equity stake, and in some situations a
controlling interest, in the local operating companies will help it to pursue
a coordinated marketing and operating strategy throughout Latin America. In
furtherance of this strategy, Hughes has recently increased its ownership of
the local operating company in Mexico and now manages its day-to-day
operations. Also, in July 1999, Galaxy Latin America acquired Galaxy Brasil,
Ltda., the exclusive distributor of DIRECTV services in Brazil. Additionally,
Hughes has purchased an interest in several local operating companies in other
large Latin American markets, including Venezuela, Colombia, Argentina and
Puerto Rico. These six markets represent about 94% of the current Latin
American target pay television market.
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Programming. Galaxy Latin America provides a selection of international
programming tailored to each of its particular markets. Galaxy Latin America's
programming packages include multi-lingual programming, local programming and
several sports and special events packages. Galaxy Latin America plans to
supplement its current programming line-up with new popular local programming
as well as introducing interactive service offerings.
Galaxy Latin America recently announced new exclusive programming
arrangements with HBO Latin America and Buena Vista International (Walt
Disney). The two five-year arrangements with HBO Latin America provide Galaxy
Latin America with the exclusive direct-to-home broadcast satellite television
rights to HBO's three premium channels in Brazil and five premium channels in
Argentina. The arrangement with Walt Disney provides Galaxy Latin America with
exclusive direct-to-home broadcast satellite television rights to the Disney
Channel in all Spanish-speaking Latin America, except for Puerto Rico. The
Disney Channel is expected to launch in the second half of 2000.
Galaxy Latin America plans to launch its initial offering of interactive
services in the second half of 2000. Galaxy Latin America's initial offering
of services is expected to include information services, interactive
electronic program guides and transaction-based services. The main objective
of these services are to enhance Galaxy Latin America's core programming
service in order to attract new subscribers to these services, maintain a high
level of loyalty among current subscribers and increase average revenue per
subscriber. Galaxy Latin America plans to continue to improve the interactive
services with enhanced programming content, synchronized advertising and e-
commerce applications.
DIRECTV Japan
Hughes estimates that there are more than 40 million television households
in Japan, with very low cable penetration due to regulatory restrictions.
Hughes believes that DIRECTV Japan's competitive strengths include its
programming line-up, which contains a number of unique local Japanese programs
and major U.S. programming channels, and its interactive services. The DIRECTV
Japan service commenced commercial operations in December 1997 with a partial
offering of channels. Full service began in April 1998 with 88 channels and
capacity was expanded to 190 channels in December 1998. As of the end of 1999,
DIRECTV Japan had about 386,000 subscribers and average monthly revenue per
subscriber of about $45. DIRECTV Japan is currently pursuing new strategies
and partners to further enhance the company's capabilities.
PanAmSat
Highlights
. A leading commercial provider of global satellite communications services
with:
. Unique resources both in space and on the ground; and
. ""Blue-chip" global customers
. Global network of 21 satellites supported by seven teleport operations
facilities in the United States
. A unique one-stop provider of global satellite services through its
global network of satellites capable of transmitting signals to a
geographic area that includes 99% of the world's population
. About $6.1 billion in backlog at December 31, 1999
Strategic Goals
. Expand satellite fleet
. Continue to offer customers unique one-stop shopping for their national,
regional or global satellite transmission needs on its own fleet of
satellites
. Obtain market leadership positions by identifying, defining and
developing new markets early and expanding innovative value-added
services and applications such as Internet distribution and transmission
of high definition television or "HDTV"
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PanAmSat currently operates the world's largest commercial network of
geosynchronous communications satellites. PanAmSat is the only commercial
entity that has a fleet of satellites that is capable of offering
geosynchronous satellite services on a global, one-stop-shopping basis.
PanAmSat has regulatory approval to operate its satellite fleet in the C-
band, the traditional network and cable television distribution band and the
Ku-band, the band used for many telecommunications services and direct-to-home
television services. In addition, PanAmSat has obtained Federal Communications
Commission authorization for licenses in the Ka-band, a high-powered frequency
that can be used for broadband, high-speed data and Internet service
offerings.
PanAmSat seeks to obtain market leadership positions by identifying,
defining and developing new markets early. In 1983, PanAmSat revolutionized
the television industry by launching Galaxy I, the first satellite to be
dedicated solely to cable television programming for the United States.
PanAmSat pioneered the "cable neighborhood" concept in the satellite services
industry by securing key cable programming for Galaxy I, which prompted a core
group of cable operators to focus their ground antennas on Galaxy I's orbital
position. Once a core group of cable operators had aligned their dishes with
the satellite, subsequent transmission capacity on the satellite was sold at a
premium. This "cable neighborhood" strategy continues to be a major business
strategy for PanAmSat, and PanAmSat has created cable neighborhoods on its
other U.S. and international satellites.
Additionally, in 1988, PanAmSat launched the PAS-1 Atlantic Ocean Region
satellite, becoming the first private-sector international satellite service
provider. In 1995, with the launch of the PAS-4 Indian Ocean satellite,
PanAmSat became the world's first private-sector company to provide global
satellite services.
Services and Customers. Through its 81% interest in PanAmSat Corporation,
Hughes offers comprehensive end-to-end satellite services. The entity
currently known as PanAmSat, a publicly-held corporation traded on the Nasdaq
National Market System under the symbol "SPOT," was created through the merger
of Hughes' Galaxy satellite services operations and PanAmSat's satellite
services operations in May 1997. Today, the PanAmSat network:
. Distributes cable and broadcast television programming that reaches more
than 125 million households each day for a wide variety of clients,
including CNN, NBC, HBO, Disney, Fox, Sony, TCI, Viacom, Turner
Broadcasting, ESPN, the British Broadcasting Corporation, NHK (Japan),
CBS, Cisneros Group (Venezuela) and the Australian Broadcasting
Corporation
. Operates platforms for direct-to-home satellite broadcast services to
Latin America, South Africa and Taiwan that together will broadcast more
than 500 channels
. Provides live transmission services for news, sports and special events
coverage, and transmits news coverage for virtually every major news
gathering organization in the world
. Provides satellite services to more than 35 telecommunications carriers
worldwide, including MCI WorldCom, Sprint, ImpSat, Microspace and Telstra
(Australia)
. Provides access to the U.S. Internet backbone to Internet Service
Providers or "ISPs" and other telecommunications providers in nearly 50
countries
. Relays digital data via more than 125,000 VSATs predominantly through the
private networks of clients of Hughes Network Systems and other customers
of PanAmSat, including AG Edwards, the Associated Press, BP Amoco,
Chevron, IBM, Kmart, Reuters, Toys "R" Us, the University of Southern
California and Wal-Mart
PanAmSat provides satellite services to its customers primarily through
long-term operating lease contracts for the full or partial use of transponder
capacity. PanAmSat also offers services to its customers through sales and
sales-type lease contracts. PanAmSat currently provides service to hundreds of
video distribution and telecommunications customers worldwide. As of December
31, 1999, PanAmSat had long-term arrangements for satellite services
representing future payments of about $6.1 billion, including amounts due from
affiliated companies, as well as about $250 million relating to arrangements
on satellites that were under construction on December 31, 1999 and are
expected to be in service by the end of 2000.
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Satellite Fleet. In December 1999, PanAmSat launched its 20th satellite,
Galaxy-XI, which is an HS-702 model spacecraft built by Hughes Space and
Communications. Galaxy-XI contains 40 Ku-band and 24 C-band transponders and
is the largest commercial communications satellite ever launched. Galaxy-XI
will become an integral component of the Galaxy cable neighborhood after
reaching its orbital location at 91(degrees) west longitude and is expected to
be operational in the first half of 2000.
In January 2000, PanAmSat launched its 21st satellite, Galaxy-XR, which is
a HS-601 HP model satellite built by Hughes Space and Communications. Galaxy-
XR contains 24 Ku-band and 24 C-band transponders and will enable the creation
of the fifth orbital location in the Galaxy cable neighborhood, which Hughes
believes is the premier platform for the distribution of cable programming
throughout the United States. Galaxy-XR is expected to be operational in the
first half of 2000.
To maintain its competitive advantages, PanAmSat plans to expand its fleet
from 21 satellites to 25 by mid-2001. This expansion will involve the launch
of five additional satellites and the retirement of one existing satellite.
These additional satellites are intended to meet the expected demand for
additional transponder capacity, replace capacity affected by satellite
anomalies and provide additional back-up to existing capacity. See "Risk
Factors--Risk Factors Relating to the Business of Hughes--Hughes is Vulnerable
to Satellite Failure." There can be no assurance that the schedule for
PanAmSat's future satellite launches will be met. Delays in the production or
timely and successful launch of these satellites could materially affect the
ability of PanAmSat to deliver services and benefit from the opportunities it
is currently pursuing. In addition, revenues attributable to satellites
affected by anomalies could be at reduced levels.
Broadband Services and Products
Highlights
. Hughes Network Systems is the world's leading supplier of satellite-based
private business networks, based on an estimated worldwide market share
of over 50% of the revenues of satellite-based private business networks
products and services
. Hughes Network Systems has shipped over 300,000 one-way and two-way VSATs
to customers in 85 countries
. Hughes Network Systems is one of the two largest manufacturers of DIRECTV
subscriber equipment
. Hughes Network Systems provides satellite-based high-speed access to the
Internet through its DirecPC service at speeds of up to 400 kilobits-per-
second, which is substantially faster than traditional computer modems
. Hughes has committed about $1.4 billion for investment in Spaceway, a
satellite-based broadband communications network for North America
Strategic Goals
. Maintain leadership in the private business networks market and establish
a leading position in the broadband wireless access equipment market
. Significantly expand production of DIRECTV subscriber equipment
. Leverage products and technologies into service business opportunities
. Aggressively market high-speed Internet access via DirecPC to consumers,
including over 23 million AOL customers, and to ISPs
. Lead the development of the emerging market for broadband communications
services through the Spaceway broadband satellite platform:
. Become the first satellite-based broadband service in North America
serving large businesses, telecommuters, small office/home office
users and consumers upon service launch expected in 2003
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. Upgrade a portion of Hughes Network Systems' existing extensive blue-
chip business and DirecPC customer base to Spaceway and sell
broadband services to DIRECTV subscribers
. Work with global strategic partners to roll out additional
geosynchronous systems in other regions as the markets develop
Hughes Network Systems is a leading supplier of communications services and
products. Hughes Network Systems designs, manufactures and installs advanced
networking solutions for businesses and governments worldwide. As part of
Hughes' overall strategy of focusing on its high-growth businesses, Hughes
Network Systems' wireless equipment business resources will be focused solely
in the broadband wireless access (point-to-multipoint) market and its mobile
cellular and fixed wireless businesses will be discontinued. Hughes Network
Systems is transforming itself into a premier broadband products and services
company with particular emphasis on providing broadband access. As part of
this transformation, Hughes Network Systems has developed a new marketing
initiative in which it will align its services and products in four marketing
groups: enterprise services and products, consumer services and products,
carrier services and products and Spaceway.
Enterprise Services and Products. Hughes Network Systems is the leading
supplier, based on market share, of VSATs used in satellite-based private
business networks. Hughes Network Systems has delivered or received orders for
more than 300,000 of these terminals for use in the private networks of
companies, government agencies, universities and research institutions. These
include more than 9,000 terminals installed in the GM Pulsar network,
currently the world's largest private business network. Since 1987, Hughes
Network Systems has sold private business networks to a variety of customers
worldwide, including DaimlerChrysler, Ford, Toyota, Chevron, Texaco, Mobil,
Amoco, Wal-Mart, Toys "R" Us, Jusco (Japan) and France Telecom. Hughes is also
a market leader in providing VSAT corporate data networking services and
expects to be a leading provider of satellite broadband Internet services to
businesses, many of which are Fortune 500 companies.
Consumer Services and Products. Hughes Network Systems' consumer products
and services business include the manufacture of set-top boxes for the
DIRECTV, DirecPC and DirecDuo services and providing new applications and
services to the customers of these services.
Hughes Network Systems began manufacturing subscriber equipment for DIRECTV
in 1996 and is now one of the two leading suppliers of this equipment in terms
of volume. Hughes Network Systems was able, on short notice, to increase its
production of DIRECTV receivers in 1999 to more than 2.1 million units,
enabling DIRECTV to achieve record subscriber growth. Hughes Network Systems
intends to continue its production of DIRECTV units, including the new dual-
feed, dual-receive equipment for receiving local channels described above at
"--DIRECTV," and expects its production to grow to between 3.0 and 3.5 million
units in 2000. In addition, Hughes Network Systems will design and build the
initial dual purpose set-top receivers for the DIRECTV/AOL interactive
television and Internet service described above at "--DIRECTV." Other
manufacturers may eventually build these receivers as well.
Hughes Network Systems developed DirecPC, an information delivery service
that uses a small antenna and high-speed digital transmission from a satellite
to make Internet access, software, documents, desk-top video, games, news and
other information accessible through personal computers. DirecPC allows
consumers to download data and video at speeds of up to 400 kilobits-per-
second while using their telephone lines to transmit information from their
computers. For example, as part of Hughes' strategic alliance with AOL, Hughes
Network Systems will make AOL service available nationwide through the DirecPC
network. This service will provide consumers with high-speed access to AOL
content and enable Hughes Network Systems to introduce new applications and
services to the consumer. AOL has also acquired the right to purchase capacity
on the new Spaceway platform to enable consumers to benefit from satellite
broadband Internet access. By migrating these existing and planned DirecPC
customers to the Spaceway platform, Hughes expects to provide expanded
capabilities to these customers while keeping end-user costs low enough to
provide competitive advantages over ground-based and other satellite-based
offerings.
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DirecDuo is a satellite receiving system that provides both DIRECTV service
and the ability to obtain Internet access through DirecPC. This one satellite
dish allows customers to receive both DIRECTV television entertainment and AOL
and other internet services for the computer.
Carrier Services and Products. Hughes believes that significant
communications opportunities exist in utilizing digital ground-based
technologies to provide broadband fiber-quality wireless access to businesses
worldwide. For example, Hughes Network Systems has entered into agreements to
provide competitive local exchange carriers Winstar Communications, Inc. and
Teligent, Inc. with its AIReach(R) Broadband system. The AIReach Broadband
system uses wireless technology to provide high-quality, high-speed
communications access to buildings not reached by fiber optic cables.
Hughes Network Systems believes that its technologies and extensive
experience position it to become a leading provider of satellite-based mobile
communications equipment and services. Hughes has been awarded several programs
in recent years to provide satellite ground telecommunications networking
equipment which has established Hughes Network Systems' presence in this
sector.
Spaceway. As part of its broadband strategy, Hughes intends to make an
initial investment of $1.4 billion in Spaceway in North America. Spaceway will
provide "bandwidth-on-demand" which will offer customers the ability to
transmit and receive via satellite, referred to as "two-way communication," any
combination of data, video, audio, and multimedia while paying only for the
amount of bandwidth they need for their specific application. Utilizing its
expertise in private business networks, the AOL alliance and advanced ground-
based communications infrastructure, Hughes Network Systems plans to focus on
offering new broadband services via the Spaceway platform to a wide range of
customers, including its existing "blue-chip" customer base and its existing
and planned DIRECTV and DirecPC customer base. Because of its early investments
in broadband technology and its networking expertise, Hughes Network Systems
believes it will be a leader in offering innovative broadband services to
businesses, government agencies and individuals. In addition, Spaceway is
expected to provide an overlay to current ground-based networks, providing
network operators with a wireless extension of their existing capabilities.
Hughes' advanced technologies and networking services expertise will be very
important to Spaceway. The system will start with the construction and launch
of three HS 702 spacecraft expected to be built by Hughes Space and
Communications, and will utilize ground stations and very small satellite
dishes designed by Hughes Network Systems. PanAmSat will provide expertise in
satellite and network operations, and is expected to resell capacity in certain
markets. DIRECTV plans to cross-sell the services to its extensive customer
base. Hughes Network Systems and Hughes Space and Communications have
negotiated a non-compete agreement in the Spaceway contract designed to protect
Hughes' first-to-market advantage for the Spaceway broadband system.
Hughes anticipates working with strategic global partners to roll out
Spaceway systems in other regions, including Europe, Latin America, Africa and
Asia. As these markets and the technology evolve, Hughes' strategy contemplates
making additional investments to add a fleet of spacecraft in lower earth
orbits that will support additional interactive broadband services, including
services without a transmission delay, in high-traffic markets. See "Risk
Factors--Risk Factors Relating to the Business of Hughes--Hughes' Future Growth
Depends Upon its Ability to Implement its Business Strategy" for a discussion
of risks and uncertainties in connection with Spaceway.
Hughes Space and Communications
As a result of the agreement to sell Hughes' satellite systems manufacturing
businesses to Boeing, Hughes Space and Communications is the principal
component of the discontinued operations captions in Hughes' financial
statements. Hughes Space and Communications designs and builds satellite
systems for commercial customers worldwide and for the U.S. Department of
Defense, NASA and other government agencies. About 75% of Hughes Space and
Communications revenues in 1999 were from commercial customers. Boeing has
agreed to purchase the satellite systems manufacturing businesses for $3.75
billion in cash. The purchase price payable by Boeing is subject to adjustment
if the estimated closing net assets are greater than or less than a specified
target number. In addition, Hughes will be required to deposit into escrow 40%
of the estimated net asset value of all of Hughes' contracts with ICO unless
prior to the closing of the transaction:
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. substantial consummation of a plan or reorganization has occurred in
connection with which all ICO contracts are either assumed or replaced
with new ICO contracts; or
. all ICO contracts have been assumed or replaced with new contracts, and
a bankruptcy or similar court has approved (1) such new assumption or
replacement and (2) funding commitments from investors or lenders to ICO
that provide for full payment of all amounts under those ICO contracts.
The release of these funds from escrow depends on the type of post-closing
resolution of the ICO bankruptcy. If within two years of the closing, no
resolution of the ICO bankruptcy has occurred, the entire escrow amount will
be paid to Boeing, subject to reduction by any amounts previously paid to
Boeing that are attributable to the ICO contracts. The agreement with Boeing
also provides that for a period of three years from the closing date of the
transaction, Boeing will not develop, own or make any financial investments in
any system that would be in direct competition with PanAmSat and/or the
Spaceway systems, subject to limited exceptions. Hughes has also agreed to
indemnify and hold Boeing harmless for the full amount of any monetary fines
and penalties, payable before or after the close of the transaction, resulting
from Hughes' export control activities in China that were previously disclosed
by Hughes and any other compliance matters related to exports by Hughes to
China that may arise prior to the close of the transaction. See "--Legal
Proceedings--Grand Jury Investigation."
The Boeing transaction is subject to regulatory approvals and other
customary closing conditions. Either Hughes or Boeing can terminate the
agreement if the sale has not been completed by October 31, 2000. In addition,
Boeing will not be required to close the transaction if a "material adverse
change" occurs. Under the terms of the agreement with Boeing, a material
adverse change includes, among other things, a settlement by Hughes of the
China investigation prior to closing that results in a debarment from sales to
the U.S. government or a material suspension of Hughes' export licenses or
other material limitation on the projected business activities of the
satellite systems manufacturing businesses. If, however, any such settlement
only involves a suspension of licenses or other limitation on business
activities restricting sales to China or to any other customer or country for
which material sales are not anticipated, Hughes would not be deemed to have
suffered a material adverse change. Hughes expects this transaction to close
in mid-2000.
As of December 31, 1999, Hughes Space and Communications had outstanding
orders to construct 36 communications satellites for companies and government
agencies in several countries, representing over $4.8 billion in backlog. In
1999, seven satellites built by Hughes Space and Communications were launched
and Hughes Space and Communications expects to exceed that number in 2000.
Launch schedules are subject to a number of factors, some of which are beyond
the control of Hughes Space and Communications, including weather,
availability of launch vehicles, launch vehicle problems and governmental and
political pressures. Launch difficulties and delays, as well as construction
delays, can result in increased costs to Hughes Space and Communications.
Since the launch of Hughes Space and Communications' first satellite in
1963, its satellites have accumulated over 1,000 years of in-orbit experience,
with channel availability of about 98% on HS 376, HS 601 and other in-orbit
commercial satellites. About 95% of Hughes Space and Communications'
satellites have remained in service past their originally scheduled retirement
dates.
Hughes Space and Communications' technological capabilities have enhanced
the power and capacity of its satellites and improved their cost
effectiveness. These improvements strengthen the leadership position of Hughes
Space and Communications and expand the market for satellites as a whole. For
example, Hughes Space and Communications has developed a family of satellite
structures, electronics, propulsion and power systems which can be replicated
at relatively low cost in a variety of commercial and government
configurations. In addition, Hughes Space and Communications has applied
signal compression and other methods to enhance the efficiency of
transponders. The newest product in this family is the HS 702 satellite, which
offer substantially higher power levels than those previously achieved in the
industry. Advances in digital electronics, high-power amplifiers, antenna
implementations and propulsion systems offer improved performance capabilities
of satellites built by Hughes Space and Communications.
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Hughes has historically acted as a prime contractor or major subcontractor
with respect to various U.S. government programs. Principally, this business
is performed by Hughes Space and Communications. After the sale of the
satellite systems manufacturing businesses to Boeing, Hughes' programs with
the U.S. government will be substantially reduced and any future programs
would only likely involve acting as a subcontractor. Any subcontracting work
would be principally performed by Hughes Network Systems. As a result, after
the closing of the Boeing transaction, a much smaller portion of Hughes'
revenues will be derived from U.S. government programs. Net sales to the U.S.
government in 1999 were about $561 million, substantially all of which is
attributable to Hughes Space and Communications.
Sales and Marketing
As part of its new corporate focus, Hughes has realigned its sales and
marketing efforts. Hughes has created two new executive positions each of
which will have the primary responsibility for Hughes' two main customer
groups:
. consumers; and
. business enterprises.
Hughes believes that this marketing realignment will enable it to obtain the
full benefit of the synergies between its various business segments and will
focus management's attention on its high-growth entertainment, information and
communications services businesses. Hughes believes that this approach will
allow Hughes to better focus on its customers' needs and to better identify
and capitalize on rapidly changing trends in their respective markets.
The operations of DIRECTV U.S., Galaxy Latin America and DIRECTV Japan, the
consumer applications of products and services developed by Hughes Network
Systems and Spaceway, and all AOL-related endeavors will be overseen by Mr.
Eddy Hartenstein, the Corporate Senior Executive Vice President, Hughes
Consumer Sector. The operations of PanAmSat, Hughes Network Systems, the
enterprise applications of products and services developed by Hughes Network
Systems and Spaceway, including the systems development for those products and
related enterprise broadband products and services will be overseen by Mr.
Jack Shaw, Corporate Senior Executive Vice President, Hughes Enterprise
Sector.
Other
Hughes owns equity interests in other businesses in addition to those
described above. These businesses are reported as part of the "Eliminations
and Other" segment in Hughes' financial statements and the revenues of these
businesses are not, in the aggregate, material to Hughes. Spaceway is
currently reported as part of this segment in Hughes' financial statements.
Competition
Although Hughes has certain strengths which it believes help it compete in
each of the markets in which it competes, each of these markets is highly
competitive. Hughes faces competition from numerous other companies offering
video, audio and data products and services. These include a broad range of
companies engaged in communications and entertainment, including other digital
multi-channel entertainment providers, cable television operators, wireless
cable television operators, television networks and local broadcasters, home
video products companies and global and regional satellite and ground-based
communications service companies, as well as companies developing new
technologies.
Some of Hughes' competitors in these markets have similar or better
financial, technological and personnel resources than Hughes. Hughes believes
technological capabilities and innovation and the ability to invest in new and
developing businesses are critical to obtaining and maintaining leadership in
the markets in which it participates and the communications industry in
general. Hughes cannot assure you as to the effect that
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competition may have on its financial condition or results of operations. See
"Risk Factors--Risk Factors Relating to the Business of Hughes--Hughes Will Be
Adversely Affected if It Fails to Maintain Leading Technological
Capabilities."
DIRECTV. DIRECTV faces competition from local cable television operators as
well as direct-to-home satellite system operators in each of its regional
markets. DIRECTV believes that it can compete effectively with traditional
cable television because DIRECTV combines higher quality digital picture and
sound and greater programming variety with higher quality customer service. In
addition, the enactment of new legislation regarding local programming will
enable DIRECTV to compete directly with cable television providers in this
market. DIRECTV expects to face increasing competition from digital cable
television in the future because digital cable is capable of delivering high
quality picture and sound and a broader range of programming than traditional
cable television.
Hughes believes that DIRECTV can compete effectively with direct-to-home
satellite system operators through a combination of its broad range of
programming, including exclusive programming, and well-developed distribution
channels. Echostar Communications Corporation is the only other digital direct
broadcast satellite service company in the multi-channel industry currently in
operation in the United States. In 1999, Echostar acquired the satellites and
orbital slots owned by The News Corporation Limited and MCI WorldCom, Inc.
DIRECTV faces competition from other direct broadcast satellite service
providers in major regions of Latin America and in Japan. The DIRECTV service
also competes with telephone companies, broadcast television and other
entertainment services, including video rentals.
As a result of this competitive environment, DIRECTV in the United States
and internationally may consider increasing the subsidy on DIRECTV receiver
equipment and increasing consumer marketing and promotions in order to compete
effectively, which may result in increased subscriber acquisition costs.
PanAmSat. PanAmSat primarily competes with companies and organizations that
own or utilize satellite or ground-based transmission facilities. Satellite
operators include:
. global competitors such as Intelsat,
. regional operators expanding globally, such as Loral Space and
Communications, Ltd., GE Americom, Societe Europeenne des Satellites, New
Skies Satellite N.V. and
. numerous other regional operators and governments.
Broadband Services and Products. Hughes Network Systems faces global
competition in the VSAT market from Gilat Satellite Networks Ltd. and in its
wireless broadband access markets from firms such as Lucent Technologies Inc.,
Telefonaktiebolaget LM Ericsson, as well as other large telecommunications
companies and the various regional Bell telephone companies. Hughes Network
Systems faces competition from RCA/Thomson Consumer Electronics and Sony
Corporation in the manufacturing of DIRECTV subscriber equipment.
The Spaceway platform will face competition from companies that offer both
ground-based and satellite-based broadband services. Companies offering
ground-based broadband services include AT&T Corp., MCI WorldCom, Qwest
Communications International, Inc., Time Warner Inc. and Bell Atlantic
Corporation. Companies who may offer satellite-based broadband services
include Teledesic LLC, Skybridge LP and Loral Space & Communications Ltd.'s
Cyberstar.
Acquisitions, Strategic Alliances and Divestitures
Due to rapid growth in the telecommunications and space industry,
particularly internationally, and increasing competitive pressures, Hughes
reviews its competitive position on an ongoing basis and from time to time
considers various acquisitions, strategic alliances and divestitures in order
to continue to compete effectively, improve its financial results, grow its
business and allocate its resources efficiently. It is also important for
Hughes to form strategic partnerships with other firms to bring together the
necessary expertise,
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such as distribution, market knowledge and technology, to address competitive
pressures and meet new market demands. Hughes has accomplished this in its
DIRECTV businesses, such as the PRIMESTAR and U.S. Satellite Broadcasting
Company acquisitions, its network systems businesses and through its recent
alliance with AOL. See "Shares Eligible for Future Sale." Hughes also
considers periodically making equity investments in companies with which
Hughes can jointly provide services to its customers. Such investments by
Hughes include equity investments in TiVo, Inc., Wink Communications, XM Radio
and Thomson Multimedia. The aggregate market value of these investments as of
February 15, 1999 was about $1 billion, the majority of which was related to
Thomson Multimedia.
Although there is a proposal by the Clinton administration that, if
enacted, would result in a tax on stockholders upon their receipt of tracking
stock similar to Class H common stock under certain circumstances, this
proposal does not appear to affect GM's ability, including on behalf of
Hughes, to issue Class H common stock in exchange for cash or property other
than GM stock, including the ability to issue Class H common stock in capital-
raising public offerings or in acquisitions of target companies. However,
proposed draft legislation for the Clinton administration's proposal has not
been released, and it is possible that such draft legislation, or future
legislative or regulatory action, if enacted, could restrict GM's ability to
issue Class H common stock more than as described above. See "Risk Factors--
Risk Factors Relating to GM's Dual-Class Common Stock Capital Structure--
Proposed Changes in the Tax Law Could Affect GM's Future Ability to Issue
Shares of Class H Common Stock."
Regulation
Various aspects of Hughes' businesses are subject to federal and state
regulation. Noncompliance with these regulations could result in the
suspension or revocation of Hughes' licenses or registrations at issue, the
termination or loss of contracts at issue or the imposition of contractual
damages, civil fines or criminal penalties.
DIRECTV's business is subject to regulation by the U.S. Federal
Communications Commission. These regulations govern, among other things, the
authorization to license the use of orbital slots for the delivery of digital
television signals.
The satellite industry is highly regulated both in the United States and
internationally. Hughes is generally subject to the regulatory authority of
the U.S. government and the regulatory authority of other countries in which
PanAmSat operates. The ownership and operation of PanAmSat's satellite system
is regulated by the U.S. Federal Communications Commission primarily for:
. the licensing of satellites and earth stations;
. avoidance of interference with other radio stations; and
. compliance with FCC rules governing U.S.-licensed satellite systems.
The FCC grants authorizations to satellite operators that meet its legal,
technical and financial qualification requirements. Under the FCC's financial
qualification rules, an applicant must demonstrate that it has sufficient
funds to construct, launch, and operate each requested satellite for one year.
Under the FCC's rules, unless an applicant has received an authorization to
launch and operate a satellite, it must notify the FCC in writing prior to
commencing satellite construction, and any construction engaged in is at the
applicant's own risk. Under the FCC's rules, an entity such as PanAmSat that
provides international telecommunications services on a common carrier basis
must first receive authorization to provide such services.
Foreign laws and regulatory practices governing the provision of satellite
services to licensed entities and directly to end users vary substantially.
Most countries in which PanAmSat operates are signatories of Intelsat and, as
a result, may require PanAmSat to confirm that it has successfully completed
technical consultation with Intelsat before providing services on a given
satellite. In addition, Hughes may be subject to national communications
and/or broadcasting laws with respect to its provision of international
satellite service.
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Research and Intellectual Property
The ability to continue to generate technological innovations is important
to Hughes' long-term business strategy. See "Risk Factors--Risk Factors
Relating to the Business of Hughes--Hughes Will Be Adversely Affected if It
Fails to Maintain Leading Technological Capabilities." The continued
development of new technologies may provide new and improved products which
will continue to fuel business opportunities and product improvements which,
among other things, will enable the extension of profitable production
programs. Research and development is carried on in each of Hughes' business
units in connection with ongoing product improvement efforts.
In addition, HRL Laboratories LLC, a company of which Hughes owns 50%,
conducts long-range applied research in the specialized fields of physics,
chemistry, electronics and information sciences, primarily for the benefit of
Hughes Space and Communications. As part of the Boeing transaction, Boeing
expressed interest in obtaining Hughes' 50% interest in HRL, which requires
the consent of Raytheon Company, which is the other member of HRL.
Hughes utilizes a large number of patents and trademarks which are held by
Hughes or its affiliates. Hughes believes that, in the aggregate, the rights
existing under such patents, trademarks and licenses are important. Hughes
believes that its competitive position is dependent on research, engineering
and production capabilities. Hughes actively pursues patent and trademark
protections of its technological and engineering innovations, and actively
pursues enforcement of its intellectual property rights.
Legal Proceedings
Raytheon Purchase Price Adjustment Dispute. 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.
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.
National Rural Telecommunications Cooperative. On June 3, 1999, the
National Rural Telecommunications Cooperative filed a lawsuit against DIRECTV,
Inc. and Hughes Communications Galaxy, Inc., which we refer 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 U.S. Satellite Broadcasting
Company over the other five frequencies at 101(degrees). DIRECTV denies that
the NRTC is entitled to exclusive distribution rights to the former U.S.
Satellite Broadcasting Company 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 U.S. Satellite Broadcasting
Company
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programming on a non-exclusive basis. DIRECTV maintains that the NRTC's right
under the DBS Distribution Agreement is to market and sell the former U.S.
Satellite Broadcasting Company programming as its agent. DIRECTV intends to
vigorously defend the NRTC claims. DIRECTV has also filed a counterclaim
against the NRTC seeking a declaration of the parties' rights under the
Agreement.
On August 29, 1999, the NRTC filed a second lawsuit against DIRECTV
alleging that DIRECTV has breached the DBS Agreement. In this lawsuit, the
NRTC is asking the court to require DIRECTV to pay the NRTC a proportionate
share of unspecified financial benefits that DIRECTV derives from programming
providers and other third parties. DIRECTV 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.
Echostar. 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 of monopolization and
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.
Financing Contract Dispute. General Electric Capital Corporation and
DIRECTV, Inc. entered into a contract on July 31, 1995, in which General
Electric Capital Corporation agreed to establish and manage a private label
consumer credit program for consumer purchases of hardware and related DIRECTV
programming. Under the contract, General Electric Capital Corporation 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 General Electric Capital Corporation's performance and DIRECTV's
obligation to act as a surety. General Electric Capital Corporation claims
damages from DIRECTV in excess of $140 million. DIRECTV is seeking damages
from General Electric Capital Corporation in excess of $45 million. Hughes
intends to vigorously contest General Electric Capital Corporation'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.
Grand Jury Investigation. 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
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material limitation on future 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.
Personalized Media Patent Dispute. In November 1996, Personalized Media
Communications, Inc. brought an International Trade Commission proceeding
against DIRECTV, U.S. Satellite Broadcasting Company, 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. Personalized Media appealed these adverse rulings to the Court of
Appeals for the Federal Circuit. During 1998, the Court of Appeals affirmed
the lower holdings as to three of the claims, and remanded to the
International Trade Commission for further deliberation on a remaining claim.
Personalized Media then moved for dismissal of the proceeding, which was
granted, terminating the action. Also in 1996, Personalized Media 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 Personalized Media 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.
Employment Cases. In October 1994, a California jury awarded a total of
$89.5 million in damages against Hughes, which include $9.5 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. On January 6, 1997, the Court of Appeals reversed the
trial court's decision to set aside the verdicts and reinstated the jury
verdicts, but reduced the two $40 million punitive damage awards to $5 million
and $2.83 million, resulting in an aggregate judgment of $17.33 million.
Hughes' petition for review by the California Supreme Court was granted in
November 1997. Hughes filed its opening brief in January 1998. This matter is
now fully briefed, including amicus briefs on behalf of Hughes. Oral argument
was heard on December 12, 1999, and Hughes anticipates the Supreme Court's
ruling within 90 days from the date of oral argument. After the closing of the
Hughes Space and Communications transaction, Boeing has agreed that Boeing
will indemnify and hold Hughes harmless for any damages resulting from this
action.
Environmental. Hughes is subject to the requirements of federal, state,
local and foreign environmental and occupational safety and health laws and
regulations. These include laws regulating air emissions, water discharge and
waste management. Hughes has an environmental management structure designed to
facilitate and support its compliance with these requirements. We cannot
assure you, however, that Hughes is at all times in complete compliance with
all such requirements. Although Hughes has made and will continue to make
capital and other expenditures to comply with environmental requirements, we
do not expect capital or other expenditures for environmental compliance to be
material in 2000 and 2001. Environmental requirements are complex, change
frequently and have become more stringent over time. Accordingly, we cannot
assure you that these requirements will not change or become more stringent in
the future in a manner that could have a material adverse effect on Hughes'
business.
Hughes is also subject to environmental laws requiring the investigation
and cleanup of environmental contamination at facilities it formerly owned or
operated or currently owns or operates or to which it sent hazardous wastes
for treatment or disposal. Hughes is aware of contamination at certain of its
sites. In addition, Hughes has been named as a potentially responsible party
at several Superfund sites. Although Hughes believes its reserve is adequate
to cover environmental investigation and cleanup, we cannot assure you that
Hughes' environmental cleanup costs and liabilities will not exceed the
current amount of its reserve.
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Properties
As of December 31, 1999, Hughes had about 117 locations operating in 21
states and 55 cities in the United States and about 33 additional locations in
16 cities in about 13 countries outside the United States. At such date,
Hughes owned about 3.2 million square feet of space and leased an additional
3.4 million square feet of space.
If the sale of its satellite manufacturing business to Boeing is completed,
Hughes will have about 54 locations operating in 17 states and 43 cities in
the United States and about 29 additional locations in 12 cities in about 11
countries outside the United States. Hughes will own about 1.3 million square
feet of space and lease an additional 1.4 million square feet of space.
Employees
As of December 31, 1999, Hughes employed about 17,300 persons. If the sale
of its satellite manufacturing business to Boeing is completed, Hughes' work
force will be reduced by about 8,600 persons.
As of September 30, 1999, about 10% of Hughes' work force in the United
States was represented by unions. A substantial portion of the 10% of Hughes'
work force represented by unions consists of Hughes Space and Communications
employees. Hughes has not experienced any significant labor problems in the
past five years, and management considers its employee relations to be good.
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MANAGEMENT OF HUGHES
The principal executive officers and executives having primary
responsibility for business units of Hughes include the following:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<C> <C> <S>
Michael T. Smith.... 56 Chairman of the Board and Chief Executive Officer
Jack A. Shaw........ 61 Corporate Senior Executive Vice President, Enterprise
Sector
Eddy W. Hartenstein. 49 Corporate Senior Executive Vice President, Consumer
Sector
Roxanne S. Austin... 39 Corporate Senior Vice President and Chief Financial
Officer
Pradman P. Kaul..... 53 Corporate Senior Vice President and Chairman and
Chief Executive Officer, Hughes Network Systems
Tig H. Krekel....... 46 Corporate Senior Vice President and President and
Chief Executive Officer, Hughes Space and
Communications Company
Larry D. Hunter..... 50 Corporate Vice President and Chairman, DIRECTV Japan
Management Inc.
Kevin N. McGrath.... 47 Chairman, Galaxy Latin America LLC
R. Douglas Kahn..... 47 President and Chief Executive Officer, PamAmSat
Corporation
Marcy J. K. Tiffany. 50 Corporate Vice President and General Counsel
</TABLE>
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SHARES ELIGIBLE FOR FUTURE SALE
Exchange Offer
Shares of Class H common stock issued to $1 2/3 par value stockholders
pursuant to the exchange offer will be freely transferable, except for shares
received by persons who may be deemed to be "affiliates" of GM under the
Securities Act. Affiliates generally include individuals or entities that
control, are controlled by, or are under common control with, GM. The
directors and principal executive officers of GM, as well as significant
stockholders of GM, will be affiliates. Affiliates of GM may sell their shares
of Class H common stock only pursuant to an effective registration statement
under the Securities Act or an exemption from the registration requirements of
the Securities Act.
Contributions to the Employee Benefit Plans
Following the contributions to the employee benefit plans, subject to
certain restrictions, the trustees of the plans will have the authority and
discretion to cause the plans to hold the shares of Class H common stock
contributed by GM or to sell all or any portion thereof from time to time as
they deem appropriate. Significant sales of Class H common stock by the
employee benefit plans could adversely affect the market price of Class H
common stock. The employee benefit plans will be subject to agreements that
will provide them with registration rights with respect to the shares of Class
H common stock they receive pursuant to the contributions, but will also
regulate the manner in which such shares may be sold or transferred. For more
information about these agreements and other aspects of the contributions, see
"The Transactions--Contributions to the Employee Benefit Plans."
America Online
In connection with Hughes' strategic alliance with AOL in June 1999, AOL
invested $1.5 billion in restricted shares of a new series of GM preference
stock, the Series H preference shares, which would automatically convert,
depending on the average closing trading price of Class H common stock during
the 20 trading days prior to the mandatory conversion date, into between
21,529,255 and 26,696,330 shares of Class H common stock on the mandatory
conversion date for the Series H preference shares, which is June 24, 2002.
AOL also currently has the right to convert these shares into 21,529,255
shares of Class H common stock, subject to adjustment. General Motors invested
the proceeds received from AOL in shares of a new Hughes preferred equity
security, the Hughes Series A preferred stock, which is designed to correspond
to the financial terms of the Series H preference shares. For more
information, see "Overview of GM Capital Stock--Preference Stock."
The Series H preference shares and the underlying Class H common stock are
subject to transfer restrictions. AOL has agreed that, prior to June 21, 2002,
it will not transfer or otherwise dispose of any of the Series H preference
shares or the underlying Class H common stock, except for transfers to certain
of its affiliates or as part of a merger or similar transaction involving AOL.
This transfer restriction would lapse upon a sale of DIRECTV or the
termination of certain of the transaction documents executed in connection
with the AOL strategic alliance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Hughes--General" for a
further discussion of this investment.
GM has agreed to provide AOL certain registration rights with respect to
the shares of Class H common stock issuable upon conversion of the GM Series H
preference shares. These rights become exercisable upon the earlier to occur
of a sale of DIRECTV or the termination of certain of the transaction
documents executed in connection with the strategic alliance. Once the rights
are exercisable, AOL may demand on four occasions registration of their shares
of Class H common stock under the Securities Act. However, GM is not required
to register any shares that can be sold publicly without registration. General
Motors has the right to delay any required registration for up to 90 days in
any 12-month period if that registration could interfere with its business
activities or plans or if it would require disclosure of certain confidential
information. In addition, GM is not
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required to register any shares for 30 days prior to the anticipated
consummation of a public offering by General Motors of its securities and 90
days after the completion of the public offering where, in the good faith
judgment of the managing underwriter(s), the registration would have an
adverse effect on the offering or if registration would be prohibited by law.
PRIMESTAR
In connection with Hughes' acquisition of PRIMESTAR in April 1999, GM
issued 4,871,448 shares of restricted Class H common stock to PRIMESTAR. These
shares were not registered under the Securities Act and may not be transferred
prior to April 28, 2000, except for limited transfers from PRIMESTAR to its
stockholders and certain related parties. Under an agreement with GM,
PRIMESTAR and these other holders, at any time after February 28, 2000, may
demand on two occasions registration of these shares under the Securities Act.
However, General Motors is not required to register any shares that can be
sold publicly without registration. We have the right to delay any required
registration for up to 90 days in any 12-month period if that registration
could materially interfere with our business activities or plans. In addition,
GM is not required to register any shares for 30 days prior to the anticipated
consummation of a public offering by General Motors of its securities and 90
days after the completion of the public offering where, in the good faith
judgment of the managing underwriter(s), the registration would have an
adverse effect on the offering or if registration is prohibited by law.
U.S. Satellite Broadcasting Company
In connection with Hughes acquisition of U.S. Satellite Broadcasting
Company, GM issued 22,632,878 shares of restricted Class H common stock to the
stockholders of U.S. Satellite Broadcasting Company. Of these shares, prior to
May 20, 2000, a substantial portion may only be transferred in accordance with
Rule 145 under the Securities Act, which generally imposes a limitation on the
amount of these shares that may be sold in any three-month period. In
addition, the holders of these restricted shares have agreed that, in
connection with any underwritten offerings of Class H common stock prior to
May 20, 2001, they will sign lock-up agreements with provisions, including as
to the lock-up period, similar to those entered into by General Motors and/or
other stockholders of General Motors.
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OVERVIEW OF GM CAPITAL STOCK
General
General Motors is authorized to issue 2,706,000,000 shares of capital
stock, consisting of:
. 6,000,000 shares of preferred stock, without par value;
. 100,000,000 shares of preference stock, $0.10 par value, 3,925,000 shares
of which are designated as Series D 7.92% preference stock, 5,750,000
shares of which are designated as Series G 9.12% preference stock and
2,669,633 shares of which are designated as Series H 6.25% automatically
convertible preference stock; and
. 2,600,000,000 shares of GM common stock comprising two classes, which
currently include 2,000,000,000 shares of $1 2/3 par value common stock
and 600,000,000 shares of Class H common stock.
As of December 31, 1999, the following shares of capital stock of GM were
outstanding:
. 753,663 shares of Series D 7.92% preference stock, represented by about
3,014,654 depositary shares;
. 1,253,852 shares of Series G 9.12% preference stock, represented by about
5,015,410 depositary shares;
. 2,669,633 shares of Series H 6.25% automatically convertible preference
stock;
. 617,437,531 shares of $1 2/3 par value common stock; and
. 137,072,711 shares of Class H common stock.
There are currently no outstanding shares of preferred stock.
GM Preferred Stock
GM's certificate of incorporation authorizes the GM board of directors to
issue shares of preferred stock from time to time in distinctly designated
series, with each series ranking equally and identical in all respects except
as to the dividend rate and redemption price. There are currently no
outstanding shares of preferred stock and GM's board of directors has no
current intent to issue any preferred stock.
If any preferred stock were issued, it would rank senior to preference
stock and common stock with respect to payments of dividends and distributions
in liquidation. Further, no cash dividends could be paid on any class of
common stock or any series of preference stock if current assets of GM in
excess of its current liabilities were less than $75 per share of any
outstanding preferred stock.
If any shares of preferred stock were issued, holders of such shares would
not be entitled to vote except that:
. they would vote together with the holders of common stock on the
disposition of GM's assets as an entirety;
. if GM has defaulted in paying dividends on preferred stock for six
months, the holders of preferred stock, voting as a class, would be
entitled to elect one-quarter of the directors; and
. certain mortgaging or pledging of, or the placing of certain liens upon,
GM's property would require the approval of the holders of three-fourths
of any outstanding preferred stock.
Preference Stock
GM's certificate of incorporation authorizes the GM board to issue shares
of preference stock from time to time in distinctly designated series, with
the terms of each series fixed by GM's board in the resolutions providing for
the issuance of such series. GM's preference stock ranks senior to its common
stock and junior to its preferred stock, if any, with respect to payments of
dividends and distributions in liquidation.
GM currently has three series of preference stock outstanding:
. Series D 7.92% preference stock;
. Series G 9.12% preference stock; and
. Series H 6.25% automatically convertible preference stock.
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The Series D and Series G preference shares are represented by Series D and
Series G depositary shares, respectively, which are listed on the NYSE.
Shares of GM's Series H 6.25% automatically convertible preference stock
were issued to AOL in June 1999 in connection with AOL's $1.5 billion
investment in and its strategic alliance with Hughes. AOL currently holds all
of the outstanding Series H preference shares. The Series H preference shares
will automatically convert into shares of Class H common stock on June 24,
2002, unless previously converted, as described further below at "--
Conversion." In connection with its issuance of the Series H preference shares
to AOL, Hughes has issued to GM shares of its Series A preferred stock, which
is designed to correspond to the financial terms of the Series H preference
shares. For more information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Hughes--General."
Dividends
Subject to the rights of the holders of preferred stock, if any were
outstanding, dividends will be paid on the outstanding Series D, Series G and
Series H preference shares when, as and if declared by GM's board out of GM's
assets legally available for the payment of dividends. Dividends may be
subject to restrictions contained in any future debt agreements of General
Motors and to limitations contained in future series or classes of preferred
stock or preference stock.
Holders of preference shares are entitled to dividends as follows:
. holders of Series D preference shares are entitled to receive cumulative
cash dividends, at the annual rate of 7.92% of the per share stated
value, which is equivalent to $7.92 per annum per Series D preference
share;
. holders of Series G preference shares are entitled to receive cumulative
cash dividends, at the annual rate of 9.12% of the per share stated
value, which is equivalent to $9.12 per annum per Series G preference
share; and
. holders of Series H preference shares are entitled to receive cumulative
cash dividends, at an annual rate of 6.25% of the per share stated value,
which is equivalent to $35.1172 per annum per Series H preference share.
Dividends on the Series D, Series G and Series H preference shares are
payable quarterly for each of the quarters ending March, June, September and
December of each year, payable in arrears on the first day that is not a legal
holiday of each succeeding May, August, November and February, respectively.
Each such dividend will be paid to holders of record on each record date,
which is a day not less than 10 nor more than 50 days preceding the payment
date fixed by GM's board. Dividends on the Series D, Series G and Series H
preference shares, whether or not declared, are cumulative from the respective
dates of original issue of the Series D, Series G and Series H preference
shares. The amount of dividends payable for any period shorter than a full
quarterly dividend period will be determined on the basis of a 360-day year
consisting of twelve 30-day months. Accrued but unpaid dividends do not bear
interest.
Preferential dividends accrue whether or not General Motors has earnings,
whether or not there are funds legally available for the payment of such
dividends and whether or not such dividends are declared. Dividends accumulate
to the extent they are not paid on the dividend payment date following the
calendar quarter for which they accrue. Accumulated preferential dividends do
not bear interest. Unless the full preferred dividends accumulated on all
outstanding Series D, Series G and Series H preference shares have been paid,
GM may not:
. pay dividends on any class of its common stock or other stock ranking
junior to the Series D, Series G and Series H preference shares, other
than a dividend payable in shares of any class of common stock; or
. redeem, repurchase or otherwise acquire any shares of its common stock or
other stock ranking junior to the Series D, Series G and Series H
preference shares, other than a redemption or purchase of shares of
common stock made in connection with employee incentive or benefit plans
of General Motors or its subsidiaries.
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Dividends will not be declared on any series of preference stock for any
prior dividend payment period unless there shall have been declared on all
outstanding shares of preference stock ranking on a parity with such series,
in respect of all dividend payment periods of such parity stock terminating
with or before such prior dividend payment period, like proportionate
dividends determined ratably in proportion to the respective preferential
dividends accumulated to date on such series and the dividends accumulated on
all such outstanding parity preference stock.
Conversion
The Series D and Series G preference shares are not convertible into shares
of any other class of capital stock of General Motors.
The Series H preference shares are convertible into shares of Class H
common stock. The Series H preference shares will automatically convert into
shares of Class H common stock on June 24, 2002, the mandatory conversion
date, based on a variable conversion factor linked to the Class H common stock
price at the time of conversion, unless they have been converted earlier.
Depending on the average closing trading price of Class H common stock during
the 20 trading days prior to the mandatory conversion date, the Series H
preference shares would convert into between 21,529,255 and 26,696,330 shares
of Class H common stock on the mandatory conversion date. The Series H
preference shares are also currently convertible at the option of the holder
into 21,529,255 million shares of Class H common stock.
We currently expect that, upon either mandatory or optional conversion of
the Series H preference shares, the Class H dividend base will be adjusted so
that it will be increased by the number of shares of Class H common stock
issued to the holder of the Series H preference shares pursuant to the
conversion. For more information, see "Description of Class H Common Stock--GM
Certificate of Incorporation Provisions Regarding Dividends--Class H Dividend
Base Adjustments." The Series H preference shares and the underlying Class H
common stock are subject to transfer restrictions. See "Shares Eligible for
Future Sale."
Redemption
General Motors may, at its option, on not less than 35 nor more than 60
days notice, redeem the Series D preference shares, as a whole or in part, at
any time or from time to time, for cash in an amount equal to $100 per Series
D preference share, as applicable, plus an amount equal to all dividends
accrued and unpaid thereon to the date fixed for redemption. If less than all
of the outstanding shares of the Series D preference shares are to be
redeemed, shares to be redeemed will be selected by General Motors by lot or
pro rata or by any other method determined by General Motors in its sole
discretion to be equitable. Holders of Series D preference shares have no
right to require redemption of such shares.
On or after January 1, 2001, the Series G preference shares may be redeemed
on the same basis as applicable to the Series D preference shares as described
above.
The Series H preference shares are redeemable by GM or Hughes in certain
limited circumstances generally involving changes in the U.S. law relating to
income taxation. Depending on the circumstances giving rise to the redemption,
the redemption price may be paid in cash, shares of Class H common stock,
shares of Hughes common stock or by exchange of each Series H preference share
for a share of automatically convertible preference stock of Hughes
convertible into Hughes common stock.
Liquidation Preference
In the event of the liquidation, dissolution or winding up of the business
of General Motors, whether voluntary or involuntary, the holders of Series D,
Series G and Series H preference shares would be entitled to the liquidation
preference described below, after the holders of preferred stock, if any were
outstanding, received the full preferential amounts to which they are entitled
and before any distribution to holders of common stock.
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The liquidation preferences of the preference shares are as follows:
. the holders of the Series D and Series G preference shares would be
entitled to receive for each share $100, plus an amount equal to all
dividends accrued and unpaid thereon to the date of final distribution to
such holders; and
. the holders of Series H preference shares would be entitled to receive
for each share $561.875, plus an amount equal to all dividends accrued
and unpaid thereon to the date of final distribution to such holders,
subject to the right of the holders of record of any Series D, Series G or
Series H preference share on a record date for payment of dividends thereon to
receive a dividend payable on the date of final distribution, but such holders
shall not be entitled to any further payment.
If there are insufficient assets to permit full payment to holders of the
Series D, Series G and Series H preference shares and the holders of all other
series of preference stock on parity with the Series D, Series G and Series H
preference shares as to liquidation rights, then the holders of the Series D,
Series G and Series H preference shares and such other shares shall be paid
ratably in proportion to the full distributable amounts to which holders of
all such parity shares are respectively entitled upon such dissolution,
liquidation or winding up.
Voting
The Series D, Series G and Series H preference shares do not entitle
holders thereof to voting rights, except:
. with respect to any amendment or alteration of any provision of the GM
certificate of incorporation which would adversely affect the powers,
preference or special rights of the Series D, Series G or Series H
preference shares, which requires the prior approval of the holders of at
least two-thirds of the outstanding Series D, Series G or Series H
preference shares, as the case may be;
. in the event General Motors fails to pay accumulated preferential
dividends on the Series D, Series G or Series H preference shares in full
for any six quarterly dividend payment periods, whether or not
consecutive, and all such dividends remain unpaid; and
. as required by law.
In the event of a preferential dividend default as described above, the
number of directors of General Motors will be increased by two and the holders
of the outstanding Series D, Series G or Series H preference shares, as the
case may be, voting together as a class with all other series of preference
stock ranking junior to or on a parity with such preference shares and then
entitled to vote on the election of such directors, will be entitled to elect
such two additional directors until the full dividends accumulated on all
outstanding Series D, Series G or Series H preference shares, as the case may
be, have been paid.
GM's Dual-Class Common Stock Capital Structure
GM has two classes of common stock:
. $1 2/3 par value common stock; and
. Class H common stock.
GM's certificate of incorporation restricts the power of the GM board to
declare and pay dividends on either class of common stock. The amounts which
may be declared and paid by the GM board as dividends on common stock are
allocated to each separate class of common stock and are subject to the amount
legally available for the payment of dividends by GM. For dividend purposes,
this allocation serves to preserve for each class of GM common stockholders an
interest in retained earnings that is not shared by the other class. This
restriction does not require a physical segregation of the assets of GM on the
one hand and of Hughes on the other hand. Nor does it require separate
accounts or separate dividend or liquidation preferences of GM and Hughes
assets for the benefit of the holders of either of the separate classes of GM
common stock. The holders of Class H common stock, like the holders of $1 2/3
par value common stock, have liquidation rights in the equity and assets of
GM. For more information about GM's two classes of common stock, see
"Description of Class H Common Stock" and "Comparison of Rights of $1 2/3 Par
Value Stockholders and Class H Stockholders."
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The existence of two classes of common stock with separate dividend rights
can give rise to potential divergences among the interests of the holders of
the two classes of GM common stock concerning various intercompany
transactions and other matters. The laws of Delaware govern the duties of the
GM board with respect to these divergences. Under Delaware law, the GM board
owes fiduciary duties to all holders of GM common stock, regardless of class,
and must act with due care and on an informed basis in the best interests of
GM and all its common stockholders, regardless of class. In this regard, the
GM board, in the discharge of its fiduciary duties, principally through its
capital stock committee, oversees the policies, programs and practices of GM
which may impact the potentially divergent interests of the two classes of GM
common stock. The capital stock committee is comprised entirely of independent
directors of GM.
The GM by-laws currently provide that the capital stock committee of the GM
board is responsible for reviewing the policies and practices of GM with
respect to matters in which the two classes of stockholders may have divergent
interests, particularly as they relate to:
. the business and financial relationships between GM and any of its units
and Hughes;
. dividends in respect of, disclosures to stockholders and the public
concerning, and transactions by GM or any of its subsidiaries in, shares
of Class H common stock; and
. any matters arising concerning these items;
all to the extent the capital stock committee may deem appropriate. The
capital stock committee may also recommend changes in policies, programs and
practices as it may deem appropriate.
The capital stock committee's principal role is not to make decisions
concerning matters referred to its attention, but rather to oversee the
process by which decisions concerning these matters are made. The capital
stock committee conducts its oversight with a view toward, among other things,
assuring a process of fair dealing between GM and Hughes as well as fair
consideration of the interests of all of GM's common stockholders in the
resolution of these matters.
GM Board Policy Statement
In connection with its determination of the terms of the Class H common
stock at the time of the Hughes restructuring transactions in December 1997,
the GM board adopted a policy statement concerning GM's dual-class common
stock structure.
This policy statement may be modified or rescinded at any time and from
time to time by the GM board. Also, notwithstanding the policy statement or
the provisions concerning recapitalization of the Class H common stock into $1
2/3 par value common stock at a 120% exchange ratio as provided under certain
circumstances in GM's certificate of incorporation, the GM board may propose
to GM's common stockholders for their approval one or more transactions on
terms different from those provided for by such provisions or by this policy
statement. GM's board has no present intention to modify or rescind this
policy statement or to propose a recapitalization of the Class H common stock.
See "Risk Factors--Risk Factors Relating to GM's Dual-Class Common Stock
Capital Structure--GM Board Policies and Practices Relating to Class H Common
Stock Can Be Adopted, Changed or Rescinded Without Stockholder Approval."
The policy statement is set forth below in its entirety. Terms which are
defined in the GM board policy statement do not apply to the rest of this
document.
GM Board Policy Statement Regarding Certain Capital Stock Matters
(A) General Policy. It is the policy of the Board of Directors of General
Motors Corporation (the "GM Board"):
(1) that all material matters as to which the holders of the two classes
of GM common stock may have potentially divergent interests shall be
resolved in a manner which the GM Board determines to be in the best
interests of General Motors Corporation and all of its common stockholders
after giving fair consideration to the potentially divergent interests and
all other relevant interests of the holders of the separate classes of GM
common stock; and
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(2) that a process of fair dealing shall govern the relationship between
GM and HEC and the means by which the terms of any material transaction
between them shall be determined.
(B) Additional Matters. In relation to the foregoing policy, it is the
further policy of the GM Board that:
(1) Quarterly Dividends.
(a) In contemplation of the GM Board's duty periodically to consider
an appropriate dividend policy and practice in relation to Class H
Common Stock and its expectation that the Board of Directors of HEC (the
"HEC Board") shall, at least annually, consider and determine a
quarterly dividend policy with respect to the common stock of HEC (100%
of which is held by GM), the GM Board shall, at least annually,
determine a quarterly dividend policy with respect to the Class H Common
Stock.
(b) The quarterly dividend policy of the GM Board with respect to the
Class H Common Stock shall be to declare and pay quarterly dividends on
the Class H Common Stock in an amount equal to the product of (i) the
aggregate amount of each quarterly dividend received by GM as a
stockholder of HEC, if any, multiplied by (ii) the fraction used to
determine the Available Separate Consolidated Net Income of Hughes (as
such term is used in GM's Restated Certificate of Incorporation, as
amended) at the time such dividend was declared by HEC.
(c) GM's payment of a quarterly dividend on the Class H Common Stock
shall be made as soon as practicable after receipt of the corresponding
dividend payment from HEC.
(2) Principles Governing Dividends and Distributions Other Than
Quarterly Dividends.
(a) Except as provided in paragraph (B)(2)(b) below, in the event
that HEC directly or indirectly makes any transfer of material assets to
GM or to GM's stockholders:
(i) Transfers of HEC Assets to GM. If such transfer of assets by
HEC is to GM, the GM Board shall as soon thereafter as practicable
declare and pay a dividend or make other provision with respect to a
distribution on the Class H Common Stock so that there shall be
distributed to the holders of Class H Common Stock a portion of such
assets transferred to GM that is not less than the fraction used to
determine the Available Separate Consolidated Net Income of Hughes
at the time of such transfer to GM; provided that, if the GM Board
determines that it is not reasonably practicable or not in the best
interests of the holders of Class H Common Stock for GM to
distribute any such assets to the holders of Class H Common Stock,
GM shall distribute to such holders cash or other noncash assets
having an equivalent fair value; and
(ii) Transfers of HEC Assets to GM's Stockholders. If such
transfer of assets by HEC is to GM's stockholders, the portion of
such assets transferred to the holders of Class H Common Stock shall
be not less than the fraction used to determine the Available
Separate Consolidated Net Income of Hughes at the time of such
transfer.
(b) Exceptions to Foregoing Principles. The provisions of paragraph
(B)(2)(a) above shall not apply to any of the following asset transfers:
(i) any transfer that results in the recapitalization of Class H
Common Stock into $1 2/3 Par Value Common Stock pursuant to the
provisions of paragraph (c) of Division I of Article Fourth of GM's
Restated Certificate of Incorporation, as amended;
(ii) any transfer that is made pursuant to the quarterly dividend
policy described in paragraph (B)(1) above;
(iii) any transfer that is made in the ordinary course of HEC's
business;
(iv) any transfer for which HEC shall have received fair
compensation as determined pursuant to this policy as described in
paragraph (A) above, provided that, where required by paragraph
(B)(3) below, stockholder consent to such transfer shall have been
received; and
(v) any transfer which shall have received the consent of the
holders of a majority of the outstanding shares of Class H Common
Stock, voting as a separate class, and $1 2/3 Par Value Common
Stock, voting as a separate class.
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(3) Separate Class Votes of GM's Stockholders as a Condition to GM's
Acquisition of a Significant Portion of HEC Assets. GM shall not acquire in
one transaction or a series of related transactions a significant portion
of the business of HEC for compensation without receiving the consent of
the holders of a majority of the outstanding shares of Class H common
stock, voting as a separate class, and $1 2/3 Par Value Common Stock,
voting as a separate class. For purposes of this paragraph, "significant
portion of the business of HEC" shall mean more than 33% of the business of
HEC, based on the fair market value of the assets, both tangible and
intangible, of HEC as of the time that the proposed transaction is approved
by the GM Board.
(4) Basis for Commercial Transactions Between GM and HEC. GM and HEC
shall operate on the principle that all material commercial transactions
between them shall be based on commercially reasonable terms.
(C) Meaning of "GM" and "HEC" Within This Policy. For purposes of this
policy, "GM" shall mean General Motors Corporation and its affiliates (other
than HEC), and "HEC" shall mean Hughes Electronics Corporation, including any
person controlled by Hughes Electronics Corporation.
(D) Role of Capital Stock Committee Relating to This Policy. The Capital
Stock Committee of the GM Board shall oversee the implementation of, and shall
have authority to interpret, this policy.
(E) Delegation. In administering this policy, the GM Board may, at its
option, delegate its authority, including to the Capital Stock Committee, and
may delegate to members of management the authority to implement any matter
pursuant to this policy.
(F) Fiduciary Obligations. In making any and all determinations in
connection with this policy, either directly or by appropriate delegation of
authority, the GM Board shall act in its fiduciary capacity and pursuant to
legal guidance concerning its obligations under applicable law.
(G) GM Board May Make Future Proposals to Stockholders for Recapitalization
Transactions Which Would Be on Terms Different from Those in GM's Current
Restated Certificate of Incorporation, as Amended. Consistent with the terms
of both GM's Restated Certificate of Incorporation, as amended, and Delaware
General Corporation Law, the GM Board may, in the future, propose
recapitalization transactions to GM stockholders on terms different from those
provided for under GM's Restated Certificate of Incorporation, as amended.
(Such alternative proposals were utilized by GM's Board of Directors in
connection with the split-off of Electronic Data Systems Corporation in 1996
and the spin-off of the defense electronics business of HEC in 1997.)
(H) Interpretation, Amendments and Modifications of This Policy. This
policy may at any time and from time to time be modified, rescinded and
interpreted by the GM Board, and the GM Board may adopt additional or other
policies or make exceptions with respect to the application of this policy in
connection with particular facts and circumstances, all as the GM Board may
determine, consistent with its fiduciary duties to General Motors Corporation
and all of its common stockholders, to be in the best interests of General
Motors Corporation and all of its common stockholders, and any such action may
be taken with or without the approval of the stockholders of General Motors
Corporation.
* * * * *
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DESCRIPTION OF CLASS H COMMON STOCK
Introduction to the Class H Common Stock
We describe generally below the material terms of the Class H common stock.
In addition to this description, we urge you to refer to Article Fourth of
GM's Restated Certificate of Incorporation, as amended, which we sometimes
refer to in this document as our "certificate of incorporation," which sets
forth in full the terms of the Class H common stock. For information regarding
how you can find a copy of the full terms of the Class H common stock, see
"Where You Can Find More Information." For more information about our Class H
common stock and how it differs from our $1 2/3 par value common stock, see
"Comparison of Rights of $1 2/3 Par Value Stockholders and Class H
Stockholders."
Class H common stock is a "tracking stock" designed to provide holders with
financial returns based on the financial performance of Hughes. To further
this objective:
. GM's certificate of incorporation allocates earnings of GM attributable
to Hughes between amounts available for the payment of dividends on Class
H common stock and amounts available for the payment of dividends on the
$1 2/3 par value common stock, which also permits a corresponding
calculation of the earnings per share of GM attributable to the Class H
common stock and the $1 2/3 par value common stock; and
. the GM board adopts dividend policies and practices concerning the Class
H common stock consistent with this design objective as more fully
described below and at "Overview of GM Capital Stock."
GM is the issuer of the Class H common stock. The GM board is free at any time
to change its dividend policies and practices concerning the Class H common
stock or the $1 2/3 par value common stock. See "Risk Factors--Risk Factors
Relating to GM's Dual-Class Common Stock Capital Structure--GM Board Policies
and Practices Relating to Class H Common Stock Can Be Adopted, Changed or
Rescinded Without Stockholder Approval."
GM Certificate of Incorporation Provisions Regarding Dividends
Calculation of Amount Available for Dividends on Class H Common Stock
The financial performance of Hughes determines the earnings per share of
Class H common stock and the portion of GM's earnings out of which dividends
on the Class H common stock may be paid. In order to determine what amount is
available to pay dividends on the Class H common stock, the following steps
are taken:
. the net income of Hughes is determined for each quarterly accounting
period;
. the net income of Hughes determined for each quarter is divided into
amounts allocated to the Class H common stock and the $1 2/3 par value
common stock; and
. the amount allocated to the Class H common stock, which we sometimes
refer to in this document as the "available separate consolidated net
income of Hughes," is accumulated from quarter to quarter, together with
any surplus attributable to shares of Class H common stock issued from
time to time, and is reduced by the amount of any dividends actually paid
on the Class H common stock.
GM Board's Discretion Regarding Payment of Dividends on Class H Common Stock
After the amount available to pay dividends on the Class H common stock is
determined as provided above, the GM board may decide to pay or not pay
dividends on the Class H common stock in its sole discretion. This discretion
is subject to the following restrictions:
. The holders of GM preferred stock, if any, and GM preference stock,
including the Series D, Series G and Series H preference shares, may have
a higher priority claim on amounts that would otherwise be available to
pay dividends on the Class H common stock, to the extent that dividends
have been accumulated but not paid on GM's preferred or preference stock.
. Under Delaware law, GM can only pay dividends to the extent that it has
surplus--the extent to which the fair market value of GM's net assets
exceeds the amount of GM's capital--or the extent of GM's net profits for
the then current and/or the preceding fiscal year.
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Due to these restrictions, it is possible that, even though the net income of
Hughes is sufficient to permit the payment of a dividend on the Class H common
stock, payment of a dividend on the Class H common stock would not be
permitted because of the requirements for the payment of dividends on GM
preferred or preference stock or the Delaware law surplus restriction
described above.
Any dividends declared or paid on each class of GM common stock from time
to time will reduce the amount available for future payments of dividends on
that class. The amount available for dividends on each class will also depend
on any adjustments to GM's capital or surplus due to repurchases or issuances
of shares of that class. In addition, as provided by Delaware law, the GM
board may adjust for any reason it deems appropriate the amount of surplus,
and therefore the amount available for dividends on each class. Delaware law
also permits the board of directors to adjust in the exercise of its business
judgment the total amount legally available for the payment of dividends to
reflect a re-valuation of the corporation's assets and liabilities.
Within the constraints mentioned above, the GM board can determine, in its
sole discretion, the timing of declarations and payments, and the amounts, of
dividends on each class of GM common stock. The GM board may, in its sole
discretion, declare dividends payable exclusively to the holders of $1 2/3 par
value common stock, exclusively to the holders of Class H common stock, or to
the holders of both classes in equal or unequal amounts. The GM board may make
its decision notwithstanding the respective amounts of surplus available for
dividends to each class, the voting and liquidation rights of each class, the
amount of prior dividends declared on each class or any other factor. However,
the maximum amount declared as dividends on either class of GM common stock
cannot exceed the amount available for dividends on each class of common stock
under the GM certificate of incorporation. See "--Dividend Policy."
As of December 31, 1999, based on the stockholders' equity of GM reflected
in its consolidated balance sheet and subject to the GM board's authority to
make adjustments, the cumulative amount available for payment of dividends on
GM common stock was about $18.5 billion. Of this total amount, about $13.1
billion was available for dividends on the $1 2/3 par value common stock and
about $5.4 billion was available for dividends on the Class H common stock.
You should note that, since the completion of the Hughes restructuring
transactions in late 1997, although payment of dividends on the Class H common
stock has been permitted, the GM board has not paid cash dividends on Class H
common stock. Further, the GM board does not intend to pay dividends on Class
H common stock in the foreseeable future.
Class H Dividend Base Adjustments
Under the GM certificate of incorporation, the GM board may adjust the
denominator of the Class H fraction that determines the net income of Hughes
attributable to the Class H common stock--that is, the Class H dividend base,
from time to time as the GM board deems appropriate to reflect the following:
. subdivisions and combinations of the Class H common stock and stock
dividends payable in shares of Class H common stock to holders of Class H
common stock;
. the fair market value of contributions of cash or property by GM to
Hughes, or of cash or property of GM to or for the benefit of employees
of Hughes for employee benefit plans or arrangements of GM, Hughes or
other GM subsidiaries;
. the contribution of shares of capital stock of GM to or for the benefit
of employees of Hughes or its subsidiaries for benefit plans or
arrangements of GM, Hughes or other GM subsidiaries;
. payments made by Hughes to GM of amounts applied to the repurchase by GM
of shares of Class H common stock, so long as the GM board has approved
the repurchase and GM applied the payment to the repurchase; and
. the repurchase by Hughes of shares of Class H common stock that are no
longer outstanding, so long as the GM board approved the repurchase.
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Detailed Calculation of Amount Available for Dividends on Class H Common Stock
General
In order to help you to understand GM's Class H common stock, we provide
below a more detailed description of the method used to determine the amount
of Hughes' earnings available for the payment of dividends on the Class H
common stock--that is, the available separate consolidated net income of
Hughes. The "available separate consolidated net income of Hughes" is the net
income of Hughes, its subsidiaries and successors after December 17, 1997 on a
consolidated basis, determined in accordance with generally accepted
accounting principles, without giving effect to any adjustment which would
result from accounting for the 1985 acquisition by GM of Hughes Aircraft
Company, a predecessor of Hughes, using the purchase method of accounting,
calculated for each quarterly accounting period and multiplied by a fraction,
which we sometimes refer to in this document as the "Class H fraction."
The Class H fraction reflects the derivative or "tracking stock" interests
of each of GM's classes of common stock in the earnings of Hughes for dividend
purposes. We determine the Class H fraction in the following manner:
. The numerator of the Class H fraction is the weighted average number of
shares of Class H common stock outstanding during any applicable
accounting period.
. The denominator of the Class H fraction is the weighted average number of
shares of Class H common stock during any applicable accounting period
which, if issued and outstanding, would represent 100% of the tracking
stock interest in the earnings of Hughes. Thus, this "notional" number
represents the full tracking stock interest in Hughes. The denominator is
also referred to in the GM certificate of incorporation as the "Class H
dividend base."
. The Class H dividend base was initially established by the GM board
in connection with the 1985 acquisition of Hughes Aircraft Company
and the initial issuance of Class H common stock. The Class H
dividend base was determined by negotiation between GM and the seller
of Hughes Aircraft Company based on the value of Hughes immediately
after the acquisition and the amount of Class H common stock the
seller was to receive in the transaction.
. The Class H dividend base has since been adjusted by the GM board in
accordance with the GM certificate of incorporation to reflect
various events, including a stock split in 1988, contributions by GM
of Class H common stock to Hughes from time to time for use in
connection with employee benefit plans and Hughes' acquisitions of
PRIMESTAR/Tempo Satellite and U.S. Satellite Broadcasting Company as
described elsewhere in this document.
. The Class H dividend base is subject to future adjustment, as
described below, including upon the conversion of the Series H
preference stock into shares of Class H common stock. See "Overview
of GM Capital Stock--Preference Stock--Conversion." The Class H
dividend base will not be adjusted in connection with either the
exchange offer or the contributions to the employee benefit plans.
See "--Illustrative Calculation of the Class H Fraction Following the
Exchange Offer and the Contributions to the Employee Benefit Plans."
. All determinations of the available separate consolidated net income of
Hughes are in the discretion of the GM board and are final and binding on
all GM stockholders.
The currently outstanding shares of Class H common stock do not represent a
100% tracking stock interest in the earnings of Hughes because GM has not yet
issued the full number of shares of Class H common stock which can be issued
under GM's certificate of incorporation, as determined by the Class H dividend
base.
For illustrative purposes, we have calculated the Class H fraction based on
the number of shares of Class H common stock outstanding as of December 31,
1999. For this purpose, we have assumed the exercise of all options on Class H
common stock that were outstanding on such date and the conversion, based on
the closing trading price of Class H common stock on such date, of GM's Series
H preference stock into Class H common stock on its mandatory conversion date
in 2002. Based on the fraction as so calculated, about 37% of Hughes' earnings
would have been allocable to the Class H common stock for purposes of
determining earnings per share
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and amounts available for the payment of dividends. The remaining portion of
Hughes' earnings, about 63%, would have been allocable to the $1 2/3 par value
common stock.
To the extent that GM issues more Class H common stock, including pursuant
to the exchange offer and the contributions, the percentage of the earnings of
Hughes allocated to the Class H common stock would increase and the remaining
tracking stock interest in the earnings of Hughes that would be allocated to
the $1 2/3 par value common stock would proportionately decrease. This
percentage will also be affected by any related adjustments to the Class H
dividend base. At such time, if any, as GM has issued a number of shares of
Class H common stock which causes the fraction to be equal to one, the holders
of Class H common stock would have a 100% tracking stock interest in the
earnings of Hughes and the holders of $1 2/3 par value common stock would have
no tracking stock interest in Hughes' earnings.
You may calculate the approximate earnings per share attributable to Class
H common stock by dividing the quarterly earnings allocated to Class H common
stock--that is, the available separate consolidated net income of Hughes, by
the weighted average number of these shares outstanding during the quarter.
The weighted average number of shares of Class H common stock outstanding is
also the numerator of the fraction used to determine the available separate
consolidated net income of Hughes. You may also calculate about the same
amount by dividing the quarterly earnings--that is, net income, of Hughes used
in computing the available separate consolidated net income of Hughes, by the
Class H dividend base.
Illustrative Calculation of Class H Fraction Following the Exchange Offer and
the Contributions to the Employee Benefit Plans
For illustrative purposes, based on the number of shares of Class H common
stock outstanding as of December 31, 1999, the portion of Hughes' earnings
allocable to the Class H common stock would have been about 37%, calculated as
follows:
Number of shares of
Class H common stock outstanding 174,546,279
-------------------------------- ----------- = 37%
Class H dividend base 468,312,855
For this purpose, we have assumed the exercise of all options on Class H
common stock that were outstanding on such date and the conversion, based on
the closing trading price of Class H common stock on such date, of GM's Series
H preference stock into Class H common stock on its mandatory conversion date
in 2002.
This exchange offer and the anticipated contributions to the employee
benefit plans each will affect the Class H fraction, as described below:
. The exchange offer will affect the Class H fraction as follows: the
numerator will be increased by about , the number of shares
issued in the exchange offer, assuming that the exchange offer is fully
subscribed.
. The contributions to the employee benefit plans will affect the fraction
as follows: the numerator will be increased by , the number of
shares to be contributed to the employee benefit plans as determined
based on the closing trading price of Class H common stock on ,
2000, assuming that GM completes the contributions as anticipated.
However, in both cases, the Class H dividend base will remain the same number.
Exchange Offer. Assuming that the exchange offer is fully subscribed, the
Class H fraction calculated as of December 31, 1999 as described above would
change as illustrated below:
Number of shares of
Class H common stock outstanding 174,546,279 +
-------------------------------- ------------------------- = %
Class H dividend base 468,312,855
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Thus, based on these assumptions and other assumptions described in this
document, after this exchange offer, about % of Hughes' earnings would be
allocated to the Class H common stock for earnings per share and dividend
purposes. The balance, about %, would be allocated to the $1 2/3 par value
common stock.
Exchange Offer and the Contributions to the Employee Benefit Plans.
Assuming that the exchange offer is fully subscribed and that GM completes the
contributions to the employee benefit plans as anticipated, based on an
estimate of the number of shares that would be contributed as determined by
the closing trading price of Class H common stock on , 2000, the
Class H fraction calculated as of December 31, 1999 as described above would
change as illustrated below:
Number of shares of
Class H common stock outstanding 174,546,279 + + = %
-------------------------------- -----------------------------
Class H dividend base 468,312,855
Thus, based on these and other assumptions described in this document,
after this exchange offer and the anticipated contributions to the employee
benefit plans by GM, about % of Hughes' earnings would be allocated to the
Class H common stock for earnings per share and dividend purposes. The
balance, about %, would be allocated to the $1 2/3 par value common stock.
These percentages are provided for illustrative purposes only. The actual
percentages will not be known until the actual number of shares of Class H
common stock issued in the exchange offer and the contributions have been
determined. You should note that to the extent that the exchange offer is not
fully subscribed or the contributions are not made as anticipated, the Class H
fraction and other calculations described in this section will change.
Dividend Policy
GM's board of directors has adopted a policy statement which, among other
things, provides that the GM board's quarterly dividend policy regarding the
Class H common stock is to declare and pay quarterly dividends on the Class H
common stock in an amount that will equal the product of the aggregate amount
of each quarterly dividend GM receives as a stockholder of Hughes, if any,
multiplied by the fraction used to determine the available separate
consolidated net income of Hughes at the time the dividend is declared by
Hughes. The policy statement expressly provides that GM will pay the quarterly
dividend on the Class H common stock as soon as practicable after receipt of
the corresponding dividend payment from Hughes. For the text of the GM board
policy statement, see "Overview of GM Capital Stock--GM Board Policy
Statement."
Delaware law and the GM certificate of incorporation do not require the GM
board to declare dividends on any class of GM common stock. The declaration of
any dividend on either class is a matter to be acted upon by the GM board upon
the recommendation of GM management. If and to the extent the GM board chooses
to declare dividends on either or both of the classes of GM common stock,
neither Delaware law nor the GM certificate of incorporation requires any
proportionate or other fixed relationship between the amount of the dividends
declared on the different classes of common stock. The GM board reserves the
right to reconsider from time to time its policies and practices regarding
dividends on GM common stock and to increase or decrease the dividends paid on
GM common stock. The GM board may reconsider such matters on the basis of GM's
consolidated financial position, which includes liquidity and other factors,
and, with regard to Class H common stock, the earnings and consolidated
financial position of Hughes. You may find information regarding GM and its
consolidated financial performance, including management's discussion and
analysis of financial condition and results of operations, in the documents
incorporated into this document by reference.
Since the completion of the Hughes restructuring transactions in late 1997,
GM has not paid dividends on the Class H common stock. Further, the GM board
does not currently expect to pay dividends on the Class H common stock in the
foreseeable future. Similarly, since that time, Hughes has not paid dividends
to GM and does not intend to do so in the foreseeable future. We currently
expect that the future earnings of Hughes will be retained for the development
of the business of Hughes.
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Voting Rights
GM's certificate of incorporation entitles holders of Class H common stock
and $1 2/3 par value common stock to a fixed number of votes per share on all
matters submitted to GM's common stockholders for a vote. Except as described
below, holders of Class H common stock vote together as a single class with
the holders of $1 2/3 par value common stock based on their respective voting
rights described in the GM certificate of incorporation. The GM certificate of
incorporation entitles each share of Class H common stock to 0.60 vote per
share and each share of $1 2/3 par value common stock to one vote per share.
The number of votes for each share of Class H common stock and $1 2/3 par
value common stock is subject to adjustment as described below at "--
Subdivision or Combination."
Class H common stock votes separately as a class only on any amendment to
the GM certificate of incorporation which adversely affects the rights, powers
or privileges of the Class H common stock or increases in the number of
authorized shares of Class H common stock. Neither holders of Class H common
stock nor holders of $1 2/3 par value common stock vote, either as a separate
class or together, on any adjustment of the Class H dividend base or any other
determination made in the calculation of the available separate consolidated
net income of Hughes.
Liquidation Rights
In the event of the liquidation, dissolution or winding up of the business
of GM, whether voluntary or involuntary, GM's certificate of incorporation
provides that, after the holders of GM preferred stock and GM preference stock
receive their full preferential amounts, holders of Class H common stock and
holders of $1 2/3 par value common stock will receive the assets remaining for
distribution to GM's stockholders on a per share basis in proportion to their
respective per share liquidation units. Subject to adjustment as described
below at "--Subdivision or Combination," each share of Class H common stock
has liquidation units equal to its number of votes, that is, 0.60 liquidation
unit, as described above at "--Voting Rights." Similarly, each share of $1 2/3
par value common stock has one liquidation unit. Holders of the 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 include 100% of the stock of
Hughes.
Subdivision or Combination
If General Motors subdivides or combines the outstanding shares of the $1
2/3 par value common stock or the Class H common stock, GM will appropriately
adjust the voting and liquidation rights of shares of Class H common stock
relative to $1 2/3 par value common stock. In the event that GM issues shares
of Class H common stock as a dividend on shares of $1 2/3 par value common
stock, GM will adjust the liquidation rights of the applicable class of common
stock so that the relative aggregate liquidation rights of each stockholder
would not change as a result of the dividend.
Recapitalization and Certain Other Transactions
Under GM's certificate of incorporation, the GM board may recapitalize all
outstanding shares of Class H common stock as shares of $1 2/3 par value
common stock at any time after December 31, 2002 in the sole discretion of the
GM board or automatically, if at any time GM, in one transaction or a series
of related transactions, disposes of substantially all of the business of
Hughes to a person, entity or group of which GM is not a majority owner. For
purposes of the recapitalization provisions of GM's certificate of
incorporation, substantially all of the business of Hughes means at least 80%
of the business of Hughes, based on the fair market value of the assets, both
tangible and intangible, of Hughes as of the time of the proposed transaction.
No automatic recapitalization will occur on a disposition in connection with
the dissolution, liquidation and winding up of GM and the distribution of the
net assets of GM to GM's common stockholders.
In the event of any recapitalization, each holder of Class H common stock
would be entitled to receive shares of $1 2/3 par value common stock having a
market value as of the date provided in GM's certificate
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of incorporation equal to 120% of the market value of the holder's Class H
common stock. Notwithstanding this provision of GM's certificate of
incorporation or the policy statement adopted by GM's board, the GM board may
propose to GM's common stockholders for their approval one or more
transactions on terms different than those provided by this provision or by
the GM board policy statement. See "Risk Factors--Risk Factors Relating to
GM's Dual-Class Common Stock Capital Structure--GM Board Policies and
Practices Relating to Class H Common Stock Can Be Adopted, Changed or
Rescinded Without Stockholder Approval" and "Overview of GM Capital Stock--GM
Board Policy Statement."
GM would not issue any fractional shares of $1 2/3 par value common stock
in the recapitalization. Instead of fractional shares, a holder of Class H
common stock would receive cash equal to the product of the fraction of a
share of $1 2/3 par value common stock which the holder would otherwise
receive multiplied by the average market price per share of the $1 2/3 par
value common stock on the valuation date, determined as provided in GM's
certificate of incorporation.
The GM board policy statement provides, among other things, that, subject
to various exceptions, in the event that Hughes transfers any material assets
to GM, the GM board shall declare and pay a dividend or make a distribution to
holders of Class H common stock. In this event, these holders would receive a
portion of the assets or cash or other assets having an equivalent fair value
that is not less at the time of the transfer than the fraction used to
determine the available separate consolidated net income of Hughes. The policy
statement also provides that, subject to various exceptions, in the event that
Hughes transfers any material assets to GM's stockholders, the portion of the
assets transferred to the holders of Class H common stock will not be less at
the time of the transfer than the fraction used to determine the available
separate consolidated net income of Hughes.
The exceptions to the provisions above include an exception for any
transfer for which Hughes receives fair compensation. However, the policy
statement provides that GM will not acquire in one transaction or a series of
transactions a significant portion--that is, more than 33%, of the business of
Hughes for compensation without receiving the consent of the holders of a
majority of the outstanding shares of Class H common stock, voting as a
separate class, and $1 2/3 par value common stock, voting as a separate class.
See "Overview of GM Capital Stock--GM Board Policy Statement."
Stock Exchange Listing
Class H common stock is listed on the NYSE under the symbol "GMH."
Application has been made to list on the NYSE the shares of Class H common
stock offered pursuant to the exchange offer.
Transfer Agent and Registrar
BankBoston, N.A. serves as the transfer agent and registrar for the Class H
common stock.
Direct Registration System
Class H common stock is registered in book-entry form through the direct
registration system. Under this system, unless a Class H stockholder requests
a stock certificate, ownership of Class H common stock is reflected in account
statements periodically distributed to Class H stockholders by BankBoston, the
transfer agent and registrar, who holds the book-entry shares on behalf of
Class H stockholders.
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COMPARISON OF RIGHTS OF
$1 2/3 PAR VALUE STOCKHOLDERS AND CLASS H STOCKHOLDERS
If you exchange your shares of $1 2/3 par value common stock for shares of
Class H common stock, you will remain a common stockholder of General Motors,
but you will have different rights as a result of GM's dual-class common stock
structure. For more information about our dual-class common stock structure
and how it has the potential to affect each class of GM common stockholders
differently, see "Overview of GM Capital Stock--GM's Dual-Class Common Stock
Structure." The rights of holders of $1 2/3 par value common stock and holders
of Class H common stock are defined and governed by the GM certificate of
incorporation, the GM by-laws and the Delaware General Corporation Law, which
we sometimes refer to in this document as the "DGCL".
We summarize below the material differences between the rights of holders
of $1 2/3 par value common stock and holders of Class H common stock. We do
not intend for this summary to be a complete statement of the rights of
holders of shares of Class H common stock or a comprehensive comparison with
the rights of the holders of shares of $1 2/3 par value common stock, or a
complete description of the specific provisions referred to in this summary.
We do not intend that this identification of specific differences is to
indicate that other equally or more significant differences do not exist. This
summary is qualified in its entirety by reference to the DGCL, the GM
certificate of incorporation and GM by-laws, to which holders of shares of $1
2/3 par value common stock are referred. Copies of the governing corporate
instruments of GM have been filed with the SEC. For information about how to
obtain copies, see "Where You Can Find More Information."
Common Stock Dividends
Under the GM certificate of incorporation, dividends may be paid on $1 2/3
par value common stock to the extent of the assets of GM legally available for
the payment of dividends reduced by the sum of:
. an amount determined by the GM board to be the paid-in surplus
attributable to Class H common stock; plus
. the portion of the net earnings of GM attributed to the Class H common
stock in accordance with the GM certificate of incorporation.
Because Class H common stock is a "tracking stock" designed to provide
holders with financial returns based on the financial performance of Hughes,
the GM certificate of incorporation allocates earnings of GM attributable to
Hughes between amounts available for the payment of dividends on Class H
common stock and amounts available for the payment of dividends on $1 2/3 par
value common stock, in each case in accordance with their respective
derivative interests in the financial performance of Hughes. For a description
of the available dividend pool for Class H common stock, see "Description of
Class H Common Stock--GM Certificate of Incorporation Provisions Regarding
Dividends." For illustrative purposes, we have calculated the Class H fraction
based on the number of shares of Class H common stock outstanding as of
December 31, 1999. For this purpose, we have assumed the exercise of all
options on Class H common stock that were outstanding on such date and the
conversion, based on the closing trading price of Class H common stock on such
date, of GM's Series H preference stock into Class H common stock on its
mandatory conversion date in 2002. Based on the fraction as so calculated,
about 37% of Hughes' earnings would have been allocable to the Class H common
stock for purposes of determining earnings per share and amounts available for
the payment of dividends. The remaining portion of Hughes' earnings, about
63%, would have been allocable to the $1 2/3 par value common stock.
If dividends have been declared but not paid on shares of GM preferred
stock or GM preference stock, dividends may not be paid on the Class H common
stock or the $1 2/3 par value common stock until all declared but unpaid
dividends on the GM preferred and preference stock have been paid. The DGCL
and the GM certificate of incorporation do not require the GM board to declare
dividends on either class of GM common stock. See "Description of Class H
Common Stock--Dividend Policy" for a further explanation of the dividend
policies of the GM board.
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Unlike the $1 2/3 par value common stock, cash dividends are not currently
paid on the Class H common stock. Since the completion of the Hughes
restructuring transactions in late 1997, the GM board has not paid, cash
dividends on the Class H common stock. Further, the GM board does not
currently intend to pay dividends on the Class H common stock in the
foreseeable future. For more information, see "Risk Factors--Risk Factors
Relating to GM's Dual-Class Common Stock Capital Structure--We Cannot Assure
You That Cash Dividends Will Ever Be Paid on the Class H Common Stock."
Voting Rights
Each holder of $1 2/3 par value common stock is entitled to one vote per
share. Each holder of Class H common stock is entitled to 0.60 vote per share.
The holders of $1 2/3 par value common stock vote together with the holders
of Class H common stock, based on their respective voting powers, on all
matters, except that:
. holders of $1 2/3 par value common stock voting separately as a class are
entitled to approve by majority vote of the shares outstanding any
amendment to the GM certificate of incorporation which adversely affects
the rights, powers or privileges of the $1 2/3 par value common stock;
. holders of Class H common stock voting separately as a class are entitled
to approve by majority vote of the shares outstanding any amendment to
the GM certificate of incorporation which adversely affects the rights,
powers or privileges of the Class H common stock; and
. any increase in the number of authorized shares of Class H common stock
must be approved by a majority vote of the holders of both classes of
GM's common stock outstanding voting together, based on their respective
voting powers, and by a majority vote of the holders of Class H common
stock outstanding voting separately as a class.
Liquidation
Holders of $1 2/3 par value common stock and Class H common stock have
liquidation rights in the assets and equity of GM. Upon a dissolution of GM,
holders of GM preferred stock and GM preference stock have the right to
receive all amounts paid to them before holders of $1 2/3 par value common
stock and Class H common stock are entitled to receive anything. Thereafter,
holders of $1 2/3 par value common stock have a liquidation right of one unit
per share and holders of Class H common stock have a liquidation right of 0.60
unit per share in any remaining assets of GM.
Amendments to the GM Certificate of Incorporation
Under the DGCL, the affirmative vote of a majority of the outstanding
shares entitled to vote is required to amend a corporation's certificate of
incorporation. Under the DGCL, the holders of the outstanding shares of a
class shall be entitled to vote as a class upon a proposed amendment, whether
or not entitled to vote thereon by the certificate of incorporation, if the
amendment would:
. increase or decrease the aggregate number of authorized shares of such
class;
. increase or decrease the par value of the shares of such class; or
. alter or change the powers, preferences, or special rights of the shares
of such class so as to affect them adversely.
If any proposed amendment would alter or change the powers, preferences, or
special rights of one or more series of any class so as to affect them
adversely, but shall not so affect the entire class, then only the shares of
the series so affected by the amendment shall be considered a separate class
for the purposes of the provision. As described above at "--Voting Rights,"
the GM certificate of incorporation expressly provides that $1 2/3 par value
stockholders and Class H stockholders each are entitled to vote separately as
a class with respect to certain amendments to the GM certificate of
incorporation.
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Under the GM certificate of incorporation, GM reserves the right to amend,
alter, change or repeal any provision of its certificate of incorporation in
the manner prescribed by statute, and all rights conferred on stockholders in
its certificate of incorporation are granted subject to this reservation.
Subject to differences in their respective voting rights as described above at
"--Voting Rights," the rights of $1 2/3 par value stockholders and Class H
stockholders are equivalent in this regard.
Amendments to the GM By-Laws
Under the DGCL, a corporation's by-laws may be amended by the action of the
stockholders and, if the certificate of incorporation provides, the directors
may amend the by-laws as well.
GM's by-laws provide that GM's board of directors has the power to adopt,
amend or repeal the by-laws at any regular or special meeting of the
directors. The stockholders also have the power to adopt, amend or repeal the
by-laws at any annual or special meeting if they comply with the notice
provisions contained in the by-laws for stockholder business. Subject to
differences in their respective voting rights as described above at "--Voting
Rights," the rights of $1 2/3 par value stockholders and Class H stockholders
are equivalent in this regard.
Number of Directors
The DGCL provides that a corporation's board of directors shall consist of
at least one member and that the authorized number of directors may be fixed
in the corporation's certificate of incorporation or by-laws.
GM's by-laws provide that the number of directors shall be determined by
resolution of the board of directors. The total number of directors shall not
be less than twelve or more than twenty. There are currently sixteen members
of the GM board of directors. The rights of $1 2/3 par value stockholders and
Class H stockholders are equivalent in this regard.
Classified Board of Directors
Under the DGCL, the board of directors may be divided into one, two or
three classes if the certificate of incorporation, initial bylaw or bylaw
adopted by the vote of the stockholders so allows.
The GM board is unclassified. The rights of $1 2/3 par value stockholders
and Class H stockholders are equivalent in this regard.
Removal of Directors
Under the DGCL, the affirmative vote of a majority of the shares entitled
to vote for the election of directors is required to remove directors, with or
without cause. Furthermore, in the case of a classified board of directors,
stockholders may effect such removal only for cause, unless the certificate of
incorporation provides otherwise.
Subject to differences in their respective voting rights as described above
at "--Voting Rights," the rights of $1 2/3 par value stockholders and Class H
stockholders are equivalent in this regard.
Vacancies in the Board of Directors
The DGCL generally provides that all vacancies on the board of directors,
including vacancies caused by an increase in the number of authorized
directors, may be filled by a majority of the remaining directors even if they
constitute less than a quorum, unless otherwise provided in the certificate of
incorporation or by-laws.
GM's by-laws provide that any vacancy occurring in the board of directors
for any cause may be filled by a majority of the remaining members of the
board of directors, although such majority is less than a quorum. Subject to
differences in their respective voting rights as described above at "--Voting
Rights," the rights of $1 2/3 par value stockholders and Class H stockholders
are equivalent in this regard.
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Special Meetings of Stockholders
Under the DGCL, a special meeting of the stockholders may be called by the
board of directors or such other person as may be authorized in the
certificate of incorporation or by-laws.
Under GM's by-laws, special meetings of stockholders may be called by the
board of directors or the chairman of the board of directors at such place,
date and time and for such purpose or purposes as shall be set forth in the
notice of such meeting. The rights of $1 2/3 par value stockholders and Class
H stockholders are equivalent in this regard.
Requirements for Notice of Stockholder Director Nominations and Stockholder
Business
If a GM common stockholder wishes to bring any business before an annual or
special meeting or nominate a person for election to the board of directors,
the GM by-laws contain certain procedures that must be followed in terms of
the advance timing required for delivery of stockholder notice of such
business and the information that such notice must contain. The information
required in a stockholder notice includes general information regarding the
stockholder, a description of the proposed business, and with respect to
nominations for the board of directors, certain specified information
regarding the nominee(s).
In addition to the information required in a stockholder notice described
above, the GM by-laws require a representation that the stockholder is a
holder of GM's voting stock and intends to appear in person or by proxy at the
meeting to make the nomination or bring up the matter specified in the notice.
In terms of the timing of the stockholder notice, the GM by-laws require that
the notice must be received by the secretary of GM:
. in the case of an annual meeting, not more than 180 days and not less
than 120 days in advance of the annual meeting; and
. in the case of a special meeting, not later than fifteenth day following
the day on which notice of the meeting is first mailed to stockholders.
The rights of $1 2/3 par value stockholders and Class H stockholders are
equivalent in this regard.
Cumulative Voting in Certain Circumstances
Under the DGCL, cumulative voting of stock applies only when the
certificate of incorporation provides for cumulative voting.
The GM certificate of incorporation does not provide for cumulative voting.
The rights of $1 2/3 par value stockholders and Class H stockholders are
equivalent in this regard.
Indemnification and Limitation of Liability
Under Section 145 of the DGCL, GM is empowered to indemnify its directors
and officers in the circumstances provided under Section 145.
As authorized by Section 102(b)(7) of the DGCL, GM's certificate of
incorporation provides that a director of each company will not be personally
liable to the company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability imposed by law, as in
effect from time to time:
. for any breach of the director's duty of loyalty to the company or its
stockholders;
. for any act or omission not in good faith or which involved intentional
misconduct or a knowing violation of law;
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL; or
. for any transaction from which the director derived an improper personal
benefit.
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Under Article V of its by-laws, GM, subject to certain limitations, shall
indemnify and advance expenses to every director and officer in the manner and
to the full extent permitted by applicable law against any and all amounts
reasonably incurred by or on behalf of such person in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, in which such director or officer
was or is made or is threatened to be made a party or is otherwise involved by
reason of the fact that such person is or was a director or officer of the
company, or is or was serving at the request of the company as a director,
officer, employee, fiduciary or member of any other corporation, partnership,
joint venture, trust, organization or other enterprise.
GM is insured against liabilities which it may incur by reason of Article V
of its by-laws. In addition, directors and officers are insured, at GM's
expense, against some liabilities which might arise out of their employment
and not be subject to indemnification under Article V of GM's by-laws.
The rights of $1 2/3 par value stockholders and Class H stockholders are
equivalent in this regard.
Business Combinations
Generally, Section 203 of the DGCL prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the time such stockholder
became an interested stockholder unless certain conditions are satisfied. GM
is subject to Section 203 of the DGCL. Subject to differences in their
respective voting rights as described above at "--Voting Rights," the rights
of $1 2/3 par value stockholders and Class H stockholders are equivalent in
this regard.
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INCOME TAX CONSEQUENCES
All $1 2/3 par value stockholders should consult their own tax advisors
concerning the tax consequences of the exchange offer in light of their
particular circumstances in the countries in which they are subject to
taxation. This summary is of a general nature only and is not intended to be,
nor should it be construed to be, legal or tax advice to any particular
investor.
Material U.S. Federal Income Tax Consequences
We summarize below the material U.S. federal income tax consequences
relating to the exchange offer. The summary is based on the Code, the Treasury
regulations promulgated thereunder and interpretations of the Code and
Treasury regulations by the courts and the IRS, all as they exist as of the
date of this document and all of which are subject to change at any time,
possibly with retroactive effect. Any such change could alter the tax
consequences to GM or the $1 2/3 par value stockholders as described below.
See "Risk Factors--Risk Factors Relating to GM's Dual-Class Common Stock
Capital Structure--Proposed Changes in the Tax Law Could Affect GM's Future
Ability to Issue Shares of Class H Common Stock."
This summary does not discuss all tax considerations that may be relevant
to $1 2/3 par value stockholders in light of their particular circumstances,
nor does it address the consequences to $1 2/3 par value stockholders subject
to special treatment under the U.S. federal income tax laws, such as tax-
exempt entities, non-resident alien individuals, foreign entities, foreign
trusts and estates and beneficiaries thereof, persons who acquire such $1 2/3
par value common stock pursuant to the exercise of employee stock options or
otherwise as compensation, insurance companies, and dealers in securities. In
addition, this summary does not address the U.S. federal income tax
consequences to $1 2/3 par value stockholders who do not hold their $1 2/3 par
value common stock as a capital asset. This summary does not address any
state, local or foreign tax consequences.
Tax Opinions and U.S. Federal Income Tax Consequences
We have conditioned our obligation to complete the exchange offer on our
receipt of an opinion of GM's outside tax counsel, Kirkland & Ellis, to the
effect that, for U.S. federal income tax purposes, the exchange of Class H
common stock for $1 2/3 par value common stock pursuant to the exchange offer
will not result in the recognition of gain or loss either by $1 2/3 par value
stockholders who participate in the exchange, except in connection with cash
received instead of fractional shares, or by GM. The exchange will have these
U.S. federal income tax consequences to $1 2/3 par value stockholders and GM
only if Class H common stock is treated as stock of GM for U.S. federal income
tax purposes. GM currently anticipates that it will also receive an opinion
from Kirkland & Ellis to this effect, the receipt of which is also a condition
to the exchange offer. GM will not be able to rely on the tax opinions if any
factual representations made to counsel are incorrect or untrue in any
material respect or any undertakings made to counsel are not complied with.
Neither GM nor Hughes is aware of any facts or circumstances that would cause
any such representations to be incorrect or untrue in any material respect or
any such undertakings not to be complied with. An opinion of counsel is not
binding on the IRS or the courts. If the exchange of Class H common stock for
$1 2/3 par value common stock were held to be taxable, both GM and the $1 2/3
par value stockholders exchanging $1 2/3 par value common stock in the
exchange offer potentially would incur material tax liabilities.
Based on the foregoing opinions of counsel, subject to the discussion below
relating to the receipt of cash instead of fractional shares, for U.S. federal
income tax purposes:
. no gain or loss will be recognized by, and no amount will be included in
the income of, $1 2/3 par value stockholders upon their receipt of shares
of Class H common stock in the exchange offer;
. for those $1 2/3 par value stockholders that surrender all of their
shares of $1 2/3 par value common stock in the exchange offer, the
aggregate tax basis of the shares of Class H common stock received by the
$1 2/3 par value stockholders pursuant to the exchange offer will be the
same as the aggregate tax basis of the shares of $1 2/3 par value common
stock exchanged in the exchange offer;
. for those $1 2/3 par value stockholders that surrender some, but not all,
of their $1 2/3 par value common stock in the exchange offer, the
aggregate tax basis of the shares of $1 2/3 par value common stock
retained
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by such stockholders in the exchange offer will remain unchanged, and the
aggregate tax basis of the shares of Class H common stock received by such
stockholders in the exchange offer will be the same as the aggregate tax
basis of the shares of $1 2/3 par value common stock exchanged in the
exchange offer.
. the holding period of the shares of Class H common stock received by the
GM stockholders in the exchange offer will include the holding period of
the shares of $1 2/3 par value common stock with respect to which the
shares of Class H common stock were received; and
. no gain or loss will be recognized by, and no amount will be included in
the income of, GM upon issuance of the shares of Class H common stock in
exchange for shares of $1 2/3 par value common stock in the exchange
offer.
The opinions will not specifically address tax basis issues with respect to
holders of $1 2/3 par value common stock who have blocks of $1 2/3 par value
common stock with different per share tax bases. Such holders are urged to
consult their tax advisors regarding the possible tax basis consequences to
them of the exchange offer.
Receipt of Cash Instead of Fractional Shares
Fractional shares of Class H common stock will not be distributed to $1 2/3
par value stockholders who participate in the exchange offer. All fractional
shares of Class H common stock resulting from the exchange offer will be
aggregated and sold by the exchange agent and the proceeds will be distributed
to the owners of such fractional shares. See "The Exchange Offer--No
Fractional Shares."
Cash received by a participating $1 2/3 par value stockholder instead of a
fractional share interest will be treated as having been received in exchange
for such fractional share interest, and gain or loss will be recognized for
U.S. federal income tax purposes. This gain or loss will be measured by the
difference between the amount of cash received and the portion of such $1 2/3
par value stockholder's tax basis allocable to such fractional share interest.
Such gain or loss will be treated as capital gain or loss. For taxpayers who
are individuals, if their fractional share interest has a holding period for
U.S. federal income tax purposes of more than one year, any gain will
generally be subject to a stated maximum rate of 20%. In general, a person's
holding period for a fractional share interest will include the period during
which such person held the $1 2/3 par value common stock with respect to which
such fractional share interest was received.
Under the Code, as a holder of fractional share interests in Class H common
stock you may be subject, under certain circumstances, to backup withholding
at a 31% rate with respect to your fractional share interests unless you
provide proof of an applicable exemption or a correct taxpayer identification
number, and otherwise comply with applicable requirements of the backup
withholding rules. The letter of transmittal provides instructions on how to
provide us with information to prevent backup withholding. Any amounts
withheld under the backup withholding rules are not an additional tax and may
be refunded or credited against your U.S. federal income tax liability,
provided you furnish the required information to the IRS.
U.S. Federal Income Tax Consequences for Non-U.S. Persons
Any capital gain realized by a non-U.S. person on the sale of the
fractional shares of Class H common stock will be exempt from U.S. federal
income and withholding tax, provided that:
. the gain is not effectively connected with the conduct of a trade or
business in the United States by the non-U.S. person; and
. in the case of an individual, the non-U.S. person is not present in the
United States for 183 days or more in the taxable year.
U.S. information reporting requirements and backup withholding tax generally
will not apply to a payment of cash instead of a fractional share interest
effected outside the United States by a foreign office of a foreign broker.
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Canadian Federal Income Tax Consequences
We summarize below the Canadian federal income tax consequences relating to
$1 2/3 par value stockholders residing in Canada who tender their shares of $1
2/3 par value common stock and who hold their shares of $1 2/3 par value
common stock as capital property for the purposes of the Income Tax Act
(Canada), which we sometimes refer to in this document as the "Canadian Code."
This summary is based upon the current provisions of the Canadian Code and
the regulations issued thereunder, all specific proposals to amend the
Canadian Code and the regulations publicly announced by the Canadian
government prior to the date hereof and our understanding of the current
administrative and assessing policies of the Canada Customs and Revenue
Agency. This summary is not exhaustive of all possible Canadian federal income
tax considerations and does not take into account any changes in law or
administrative and assessing policies, whether by legislative, governmental or
judicial decision or action, nor does it take into account or consider any
other federal tax considerations or provincial, territorial or foreign tax
considerations.
For Canadian income tax purposes:
. a $1 2/3 par value stockholder who is a resident of Canada and who
exchanges pursuant to the exchange offer shares of $1 2/3 par value
common stock which were held by the $1 2/3 par value stockholder as
capital property immediately before the exchange for shares of Class H
common stock to be held as capital property will not, solely by virtue of
the exchange, realize a capital gain or loss in respect of the shares
being exchanged for the purposes of the Canadian Code.
. a $1 2/3 par value stockholder will be deemed to have acquired the shares
of Class H common stock received as consideration for the shares being
exchanged for a cost equal to the aggregate adjusted cost base of the
shares being exchanged to the $1 2/3 par value stockholder immediately
before the exchange. Under the published administrative practice of the
Canada Customs and Revenue Agency, a holder who receives less than Cdn
$200 cash instead of fractional shares on the exchange will have the
option of either:
. treating the cash received as the proceeds of disposition of the
fractional shares for capital gains tax purposes; or
. treating the cash as a reduction in the cost to the holder of the
Class H common stock received as consideration for the shares being
exchanged.
A holder who receives more than Cdn $200 cash instead of fractional shares
must treat the cash as proceeds of disposition of the fractional shares for
capital gains tax purposes.
Income Tax Consequences in Certain Other Jurisdictions
We briefly summarize below the tax treatment of the exchange offer for
individual $1 2/3 par value stockholders residing in:
. Australia;
. Belgium;
. Germany;
. The Netherlands;
. Switzerland; and
. The United Kingdom.
We do not intend this summary to be a comprehensive account of the rules
applicable to individual $1 2/3 par value stockholders in any jurisdiction. In
particular, we do not discuss the tax consequences for $1 2/3 par
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value stockholders who are subject to special tax rules. Moreover, this
summary does not address the tax considerations relevant to the ownership and
disposition of shares of Class H common stock, which are not expected to
differ significantly from the considerations associated with holding shares of
$1 2/3 par value common stock. As indicated below, the exchange will not be
treated as a taxable event in a number of jurisdictions. In other
jurisdictions, however, the exchange will be treated either as a taxable
disposition of $1 2/3 par value common stock or as a dividend. Additional
disclosure may be provided in supplemental materials as required by the law or
practice of the relevant jurisdiction.
Australia. The receipt of the Class H common stock and cash in exchange for
the $1 2/3 par value common stock will be treated in part as a dividend for
individual investors in Australia and the remainder will be treated as
consideration received in respect of a taxable event, that is, the disposal of
the $1 2/3 par value common stock. This taxable event may generate an
assessable gain or a loss.
Belgium. The characterization of the exchange offer for Belgian tax
purposes raises difficult issues, and it is possible that the exchange would
be treated as a taxable dividend distribution. Further disclosure regarding
the considerations relevant to Belgian holders of $1 2/3 par value common
stock will be provided in the supplemental materials directed to those
stockholders along with this document. The delivery of shares of Class H
common stock in exchange for shares of $1 2/3 par value common stock may under
certain circumstances be subject to stamp or similar taxes in Belgium for
which each $1 2/3 par value stockholder tendering shares in the exchange offer
in Belgium may be responsible.
Germany. The exchange of $1 2/3 par value common stock for Class H common
stock and cash should not be a taxable event for individual $1 2/3 par value
stockholders in Germany who have held the $1 2/3 par value common stock as a
private asset for more than one year. Otherwise, the exchange will be treated
as a taxable disposition and $1 2/3 par value stockholders will recognize gain
measured by the difference between their cost of acquisition for, or adjusted
tax basis in, the $1 2/3 par value common stock and the value of the Class H
common stock and cash received in exchange therefor. Individual $1 2/3 par
value stockholders who have held $1 2/3 par value common stock as a private
asset for not more than one year will only be subject to taxation if the
aggregate amount of short-term capital gain realized during the calendar year
is 1,000 German marks or more.
The Netherlands. The receipt of Class H common stock and cash in exchange
for $1 2/3 par value common stock will be treated as a dividend for individual
$1 2/3 par value stockholders in the Netherlands, to the extent the fair
market value of the Class H common stock exceeds the paid-in capital on the $1
2/3 par value common stock.
Switzerland. The exchange of $1 2/3 par value common stock and cash for
Class H common stock and cash will not be a taxable event for individual $1
2/3 par value stockholders in Switzerland for Swiss federal, Zurich cantonal
and municipal income tax purposes, except to the extent cash is received
instead of fractional share interests in Class H common stock. Other cantons
are expected to apply a similar tax treatment. Individual Swiss resident $1
2/3 par value stockholders who hold the $1 2/3 par value common stock as part
of their private property will also not be subject to taxation with respect to
the cash they receive. The delivery of shares of Class H common stock in
exchange for shares of $1 2/3 par value common stock may under certain
circumstances be subject to a stamp duty in Switzerland for which each $1 2/3
par value stockholder tendering shares in the exchange offer in Switzerland
may be responsible.
United Kingdom. The exchange of $1 2/3 par value common stock for Class H
common stock and cash will not be a taxable event for individual $1 2/3 par
value stockholders in the United Kingdom, except that, under certain
circumstances, U.K. resident $1 2/3 par value stockholders will be subject to
taxation to the extent cash is received instead of fractional share interests
in Class H common stock.
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LEGAL MATTERS
Warren G. Andersen, Attorney, Legal Staff of General Motors Corporation,
will pass upon the validity of Class H common stock being offered pursuant to
the exchange offer. Mr. Andersen beneficially owns shares of each class of GM
common stock, including shares subject to options.
Certain legal matters with respect to the transaction will be passed upon
for GM by Kirkland & Ellis. Davis Polk & Wardwell will represent the dealer
manager. Cleary, Gottlieb, Steen & Hamilton will represent the marketing
manager for Hughes. Kirkland & Ellis has in the past represented GM and Hughes
and continues to represent GM and Hughes in connection with various matters.
Davis Polk & Wardwell acts as counsel to the Executive Compensation Committee
of the GM board of directors and has acted as counsel for GM and its
subsidiaries in various matters.
EXPERTS
The consolidated financial statements and the related financial statement
schedule of General Motors Corporation as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998, included in
the Current Report on Form 8-K of General Motors Corporation dated April 12,
1999 and filed April 15, 1999 and incorporated by reference in this document,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements and the related financial statement schedule of
Hughes Electronics Corporation as of December 31, 1998 and 1997 and for each
of the three years in the period ended December 31, 1998, included in the
Registration Statement on Form 10 of Hughes Electronics Corporation dated and
filed with the Securities and Exchange Commission on August 13, 1999 and
incorporated by reference in this document, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of U.S. Satellite Broadcasting
Company as of December 31, 1998 and 1997, and for each of the three years in
the period ended December 31, 1998, included in the Registration Statement on
Form 10 of Hughes Electronics Corporation dated and filed with the Securities
and Exchange Commission on August 13, 1999 and incorporated by reference
herein have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated by reference herein in reliance on the authority of Arthur
Andersen LLP as experts in giving their report.
The consolidated financial statements and schedules of PRIMESTAR, Inc. and
subsidiaries as of December 31, 1998 and December 31, 1997, and for each of
the years in the three-year period ended December 31, 1998, included in the
Registration Statement on Form 10 of Hughes Electronics Corporation dated and
filed with the Securities and Exchange Commission on August 13, 1999, have
been incorporated by reference in this document in reliance upon the report of
KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements and schedule of TCI Satellite and
subsidiaries as of December 31, 1998 and December 31, 1997, and for each of
the years in the three-year period ended December 31, 1998, included in the
Registration Statement on Form 10 of Hughes Electronics Corporation dated and
filed with the Securities and Exchange Commission on August 13, 1999, have
been incorporated by reference in this document in reliance upon the report of
KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This document includes forward-looking statements which may constitute
"forward-looking statements" within the meaning of various provisions of the
Securities Act of 1933 and the Securities Exchange Act of 1934. All
statements, other than statements of historical facts, included in this
document that address activities, events or developments that we expect or
anticipate will or may occur in the future, references to future success and
other matters are forward-looking statements including statements preceded by,
followed by or that include the words "believes," "expects," "intends" or
"anticipates," or similar expressions, including, but not limited to, the
subscriber projections discussed at "Business of Hughes" and other forward-
looking information at "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Hughes."
These statements are based on certain assumptions and analyses made in
light of our experience and perception of historical trends, current
conditions and expected future developments as well as other factors we
believe are appropriate in the circumstances. However, whether actual future
results and developments will conform with our expectations and predictions is
subject to a number of risks and uncertainties, including the risks and
uncertainties discussed in this document under the caption "Risk Factors" and
elsewhere; general economic, market or business conditions; the opportunities
that may be presented to and pursued by us and our respective subsidiaries;
competitive actions in the industry; changes in laws or regulations; and other
factors, many of which are beyond our and our subsidiaries' control.
Consequently, all of the forward-looking statements made in this document are
qualified by these cautionary statements and there can be no assurance that
the actual results or developments we anticipate will be realized or, even if
realized, that they will have the expected consequences to or effects on us
and our respective subsidiaries or their business or operations. The
cautionary statements contained or referred to in this section should be
considered in connection with any subsequent written or oral forward-looking
statements that we or persons acting on our behalf may issue.
125
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
GM files annual, quarterly and current reports, proxy statements and other
information with the SEC. GM's filings include information relating to Hughes.
Beginning in 1999, Hughes began filing its own annual, quarterly and current
reports with the SEC. You may read and copy any reports, statements or other
information that the companies file at the SEC's public reference rooms in
Washington, D.C., New York, New York, and Chicago, Illinois. Please call the
SEC at (800) SEC-0330 for further information on the public reference rooms.
GM public filings are also available to the public from commercial document
retrieval services and at the Internet World Wide Web site maintained by the
SEC at "http://www.sec.gov." Reports, proxy statements and other information
filed by GM are also available for inspection at the offices of the New York
Stock Exchange, Inc., 120 Broad Street, New York, New York 10005.
GM has filed a registration statement on Form S-4 to register with the SEC
the Class H common stock offered pursuant to this exchange offer. This
document constitutes a prospectus which is part of this registration
statement. As allowed by the SEC rules, however, this prospectus does not
contain all of the information you can find in the registration statement or
the exhibits to the registration statement.
The SEC allows GM to incorporate by reference information into this
prospectus, which means that GM can disclose information to you by referring
you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information contained directly in the prospectus
or in later filed documents incorporated by reference in the prospectus. This
prospectus incorporates by reference the documents set forth below that GM and
Hughes have previously filed with the SEC. These documents contain important
information about GM and Hughes and their respective financial condition.
<TABLE>
<CAPTION>
GM Filings (File No. 1-143) Period
--------------------------- ------
<C> <S>
Annual Report on Form 10-K....... Year ended December 31, 1998, updated by GM's
Current Reports on Form 8-K dated April 12, 1999
Quarterly Reports on Form 10-Q... Quarters ended March 31, 1999, June 30, 1999 and
September 30, 1999, updated by GM's Current Reports
on Form 8-K dated January 13, 2000
Current Reports on Form 8-K...... Date of report: January 14, 1999, January 20, 1999,
January 22, 1999 (2), January 27, 1999, April 5,
1999, April 9, 1999, April 12, 1999 (3), April 14,
1999, April 28, 1999, May 12, 1999, May 25, 1999,
May 28, 1999, June 21, 1999, June 24, 1999, July 9,
1999, July 19, 1999, August 2, 1999, October 4,
1999, October 13, 1999, December 10, 1999, January
13, 2000(2), January 20, 2000 and February 1, 2000
Proxy Statement.................. Date filed: April 20, 1999
Description of the Class H common
stock set forth in Article Fourth
of GM's Restated Certificate of
Incorporation, as amended, filed
as Exhibit 3(i) to the Current
Report on Form 8-K dated June 8,
1998
<CAPTION>
Hughes Filings (File No. 0-26035) Period
--------------------------------- ------
<C> <S>
Quarterly Report on Form 10-Q Quarter ended September 30, 1999, except for Items 1
and 2, which are updated by Hughes' Current Report
on Form 8-K dated January 13, 2000
Current Reports on Form 8-K Date of report: October 13, 1999, January 13,
2000(2) and January 19, 2000
Form 10 Date filed: August 13, 1999
</TABLE>
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<PAGE>
GM hereby incorporates by reference into this prospectus additional
documents that it and Hughes may file with the SEC between the date of this
prospectus and the termination of the exchange offer. These include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K, as well as proxy statements.
You may have received some of the documents incorporated by reference, but
you can obtain any of them through GM or the SEC or the SEC's Internet site
described above. Documents incorporated by reference are available from GM
without charge, excluding all exhibits unless specifically incorporated by
reference as exhibits in this prospectus. You may obtain some of the documents
incorporated by reference in this prospectus at GM's Internet World Wide Web
site, "http://www.gm.com" and selecting "The Company" and then selecting
"Investor Information." Written and telephone requests for any of these
documents should be directed to:
Written requests for documents:
GM Fulfillment Center
MC 480-000-FC1
30200 Stephenson Hwy.
Madison Heights, MI 48071
Telephone: (313) 667-1500
Telephone requests for documents:
(313) 667-1500
Select Menu Option #2
If you request any incorporated documents from us, we will mail them to you
by first class mail, or other equally prompt means, within one business day of
receipt of your request.
127
<PAGE>
Manually signed facsimile copies of the letter of transmittal will be
accepted. The letter of transmittal, certificates for shares of $1 2/3 par
value common stock and any other required documents should be sent or
delivered by each holder of $1 2/3 par value common stock or his or her
broker, dealer, commercial bank, trust company or other nominee to the
exchange agent prior to the expiration date as set forth below.
The Exchange Agent for the Exchange Offer is:
BankBoston, N.A.
If delivered by Mail, If delivered by Hand, If delivered by Overnight
to: to: Courier, to:
BankBoston, N.A. Securities Transfer & BankBoston, N.A.
Attn: Corporate Actions Reporting Services, Inc. Attn: Corporate Actions
P.O. Box 9573 c/o BankBoston/EquiServe 40 Campanelli Drive
Boston, MA 02205-9573 100 William Street Braintree, MA 02184
Galleria
New York, NY 10038
Attn: Delivery Window
If by facsimile transmission:
(For eligible institutions only)
(781) 575-4826
Facsimile confirmation number
(781) 575-4816
You may direct any questions and requests for assistance to the information
agent or the dealer manager at their respective addresses and telephone
numbers and locations listed below. You can obtain additional copies of this
Offering Circular-Prospectus, the letter of transmittal and other exchange
offer material from the information agent or the dealer manager listed below.
You may also contact your broker, dealer, commercial bank or trust company for
assistance concerning the exchange offer.
The Information Agent for the Exchange Offer is:
Morrow & Co., Inc.
445 Park Avenue
5th Floor
New York, New York 10022
(800) 206-5881 (Toll-Free) for calls in the United States
(212) 754-8000 (Collect) for calls outside the United States
The Dealer Manager for the Exchange Offer is:
MORGAN STANLEY DEAN WITTER
Call (212) -
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers of General Motors
Delaware General Corporation Law
Under Section 145 of the Delaware General Corporation Law, General Motors
is empowered to indemnify its directors and officers in the circumstances
therein provided. Certain portions of Section 145 are summarized below:
Section 145(a) of the Delaware General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
Section 145(b) of the Delaware General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason
of the fact that such person is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
Section 145(c) of the Delaware General Corporation Law provides that to the
extent that a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 145(a) and (b), or in defense of any claim,
issue or matter therein, such person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection therewith.
Section 145(d) of the Delaware General Corporation Law provides that any
indemnification under Section 145(a) and (b) (unless ordered by a court) shall
be made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because such person has met the applicable
standard of conduct set forth in Section 145(a) and (b). Such determination
shall be made (1) by a majority vote of the directors who were not parties to
such action, suit or proceeding, even though less than a quorum, or (2) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (3) by the stockholders.
Section 145(e) of the Delaware General Corporation Law provides that
expenses (including attorneys' fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action,
II-1
<PAGE>
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the corporation as authorized in Section 145. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the board of directors deems
appropriate.
Section 145(f) of the Delaware General Corporation Law provides that the
indemnification and advancement of expenses provided by, or granted pursuant
to, Section 145 shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise.
Section 145(g) of the Delaware General Corporation Law provides that a
corporation shall have the power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of such person's capacity as such, whether or not the corporation
would have the power to indemnify such person against such liability under
Section 145.
Restated Certificate of Incorporation, As Amended
The GM Restated Certificate of Incorporation, as amended, provides that no
director of General Motors shall be personally liable to General Motors or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
General Motors or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174, or any successor provision thereto, of the Delaware
General Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
By-Laws
Under Article V of the GM By-Laws, General Motors shall indemnify and
advance expenses to every director and officer (and to such person's heirs,
executors, administrators or other legal representatives) in the manner and to
the full extent permitted by applicable law as it presently exists, or may
hereafter be amended, against any and all amounts (including judgments, fines,
payments in settlement, attorneys' fees and other expenses) reasonably
incurred by or on behalf of such person in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, in which such director or officer was or is
made or is threatened to be made a party or is otherwise involved by reason of
the fact that such person is or was a director, officer, employee, fiduciary
or member of any other corporation, partnership, joint venture, trust,
organization or other enterprise. General Motors shall not be required to
indemnify a person in connection with such action, suit or proceeding
initiated by such person if it was not authorized by the GM Board of
Directors. General Motors shall pay the expenses of directors and officers
incurred in defending any actions or proceeding in advance of its final
disposition; provided, however, that the payment of expenses incurred by a
director or officer in advance of the final disposition of the proceeding
shall be made only upon receipt of an undertaking by the director or officer
to repay all amounts advanced if it should be ultimately determined that the
director or officer is not entitled to be indemnified under Article V of the
GM By-Laws or otherwise. If a claim for indemnification or advancement of
expenses by an officer or director under Article V of the GM By-Laws is not
paid in full within ninety days after a written claim therefor has been
received by General Motors, the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action General
Motors shall have the burden of proving that the claimant was not entitled to
the requested indemnification or advancement of expenses under applicable law.
The rights conferred on any person by Article V of the GM By-Laws shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the GM Restated Certificate of Incorporation,
as amended, or the GM By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise.
II-2
<PAGE>
Insurance
General Motors is insured against liabilities which it may incur by reason
of Article V of the GM By-Laws. In addition, directors and officers are
insured, at GM's expense, against liabilities which might arise out of their
employment and not be subject to indemnification under Article V of the GM By-
Laws.
Pursuant to a resolution adopted by the GM board on December 1, 1975,
General Motors to the fullest extent permissible under law will indemnify, and
has purchased insurance on behalf of, directors or officers of General Motors,
or any of them, who incur or are threatened with personal liability, including
expense, under ERISA or any amendatory or comparable legislation or regulation
thereunder.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Dealer Manager Agreement*
1.2 Form of Marketing Manager Agreement*
3.1 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 8, 1998, 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 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; and 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, 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 3(i) to
the Current Report on Form 8-K of General Motors Corporation
dated June 24, 1999.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.2 By-Laws of General Motors Corporation, as amended, incorporated
by reference to Exhibit 3(ii) to the Current Report on Form 8-K
of General Motors Corporation dated March 2, 1998.
4 Specimen certificate for shares of Class H common stock.*
5 Opinion of Warren G. Andersen, Esq.*
8 Opinion of Kirkland & Ellis.*
10 Stock Purchase Agreement between The Boeing Company, Hughes
Electronics Corporation and Hughes Telecommunications and Space
Company for the purchase and sale of the outstanding capital
stock of Hughes Space and Communications Company and certain
additional outstanding capital stock, dated as of January 13,
2000.*
21.1 Subsidiaries of GM, incorporated by reference to Exhibit 21 to
the General Motors Corporation Form 10-K for the fiscal year
ended December 31, 1998.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG LLP.
23.3 Consent of KPMG LLP.
23.4 Consent of Arthur Andersen LLP.
23.5 Consent of Warren G. Andersen (included in Exhibit 5).
23.6 Consent of Kirkland & Ellis (included in Exhibit 8).
24 Power of Attorney (included in signature page).
99.1 Letter of Transmittal.*
99.2 Notice of Guaranteed Delivery.*
99.3 Letter from the Dealer Manager to Brokers, Dealers, Commercial
Banks, Trust Companies and other Nominees.*
99.4 Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and other Nominees.*
99.5 Guidelines for Certification of Taxpayer Identification Number of
Substitute Form W-9.*
99.6 Letter from General Motors Corporation to holders of its $1 2/3
par value common stock.*
99.7 Form of Information Agent Agreement.*
99.8 Form of Exchange Agent Agreement.*
</TABLE>
- --------
*To be filed by amendment.
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements
or notes thereto.
Item 22. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 20, or otherwise, the
Registrant has been advised that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit
II-4
<PAGE>
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form S-4, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request. The undersigned Registrant hereby
further undertakes to supply by means of a post-effective amendment all
information concerning a transaction and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide thereof.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Detroit, State of
Michigan, on February 22, 2000.
General Motors Corporation
/s/ John F. Smith, Jr.
By: _________________________________
John F. Smith, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on February
22, 2000 in the capacities indicated.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Warren G. Andersen, Kelly K. Francis,
William R. Kager and Karen A. Merkle, or any of them, each acting alone, his
true and lawful attorney-in-fact and agent, with full stead, in any and all
capacities, in connection with the Registrant's Registration Statement on Form
S-4 under the Securities Act of 1933, as amended, including, without limiting
the generality of the foregoing, to sign the Registration Statement in the
name and on behalf of the Registrant or on behalf of the undersigned as a
director or officer of the Registrant, and any and all amendments or
supplements to the Registration Statement, including any and all stickers and
post-effective amendments to the Registration Statement, and to sign any and
all additional registration statements relating to the same offering of
securities as the Registration Statement that are filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission and any applicable securities exchange
or securities self-regulatory body, granting unto said attorney-in-fact and
agents, each acting along, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
/s/ John F. Smith, Jr. Chairman of the Board of
____________________________________ Directors and Chief
John F. Smith, Jr. Executive Officer
</TABLE>
<TABLE>
<S> <C> <C>
/s/ Harry J. Pearce Vice Chairman of the Board
____________________________________ of Directors
Harry J. Pearce
/s/ G. Richard Wagoner, Jr. President, Chief Operating
____________________________________ Officer and Director
G. Richard Wagoner, Jr.
</TABLE>
<TABLE>
<S> <C> <C>
/s/ J. Michael Losh Executive Vice President and )
____________________________________ Chief Financial Officer )
J. Michael Losh )
) Principal
) Financial
) Officers
/s/ Eric A. Feldstein Vice President and Treasurer )
____________________________________ )
Eric A. Feldstein )
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C> <C>
Comptroller )
____________________________________ )
Wallace W. Creek ) Principal
) Accounting
/s/ Peter R. Bible Assistant Comptroller and ) Officers
____________________________________ Chief Accounting Officer )
Peter R. Bible
</TABLE>
<TABLE>
<S> <C> <C>
Director
____________________________________
Percy N. 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 L. Katen - Director
____________________________________
Karen L. Katen
/s/ J. Willard Marriott, Jr. Director
____________________________________
J. Willard Marriott, Jr.
Director
____________________________________
Ann D. McLaughlin
/s/ Eckhard Pfeiffer 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
</TABLE>
II-7
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
GENERAL MOTORS CORPORATION:
We consent to the incorporation by reference in this Registration Statement on
Form S-4 of General Motors Corporation of:
. our report dated April 12, 1999 appearing in the Current Report on Form 8-K
of General Motors Corporation dated April 12, 1999 and filed with the
Securities and Exchange Commission on April 15, 1999; and
. our report dated January 20, 1999 (March 1, 1999 as to Note 19) appearing
in the Registration Statement on Form 10 of Hughes Electronics Corporation
dated and filed with the Securities and Exchange Commission on August 13,
1999.
We also consent to the references to us under the heading "Experts" in this
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Detroit, Michigan
February 22, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Phoenixstar, Inc. (formerly Primestar, Inc.):
We consent to the incorporation by reference in the Registration Statement on
Form S-4 of General Motors Corporation of our report, dated April 15, 1999,
relating to the consolidated balance sheets of Primestar, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, equity (deficit) and cash flows for each of the
years in the three-year period ended December 31, 1998 and the related
consolidated financial statement schedule, included in Hughes Electronics
Corporation's Form 10 filed August 13, 1999, and to the reference to our firm
under the heading "Experts" in the Registration Statement.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
February 18, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
TCI Satellite Entertainment Inc.:
We consent to the incorporation by reference in the Registration Statement on
Form S-4 of General Motors Corporation of our report, dated April 15, 1999,
relating to the consolidated balance sheets of TCI Satellite Entertainment
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, equity (deficit) and cash flows for
each of the years in the three-year period ended December 31, 1998 and the
related consolidated financial statement schedule, included in Hughes
Electronics Corporation's Form 10 filed August 13, 1999, and to the reference
to our firm under the heading "Experts" in the Registration Statement.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
February 18, 2000
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated January 22, 1999
on the financial statements of United States Satellite Broadcasting Company,
Inc. as of December 31, 1998 and 1997 and for each of the three years in the
period ended December 31, 1998 included in Hughes Electronics Corporation's
Form 10 filed August 13, 1999 and to all references to our Firm included in
this registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 18, 2000
