Filed by General Motors Corporation
Pursuant to Rule 425 under the Securities Act of 1933 and
Deemed Filed Pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Companies: General Motors Corporation
Commission File No. 001-00143
Hughes Electronics Corporation
Commission File No. 000-26035
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During this past year, HUGHES certainly had its fair share of ups and downs;
how-ever, given the challenging economic environment that persists in virtually
all markets in which we do business, we're extremely proud of the substantial
progress we made as a company. While there is still much work ahead,
[Image of Jack A. Shaw, President [Image of Harry J. Pearce,
and Chief Executive Officer] Chairman of the Board]
HUGHES is a much stronger company today as we set our sights on the future.
In reviewing our businesses' key accom-plishments in 2002, a common theme
emerges. Every major strategy we pur-sued - and business decision we made - was
predicated on achieving profitable growth and maximizing cash flow. We offer
HUGHES' 2002 consolidated results as good evidence that this strategy is
working. Total revenues grew to $8.9 billion, earnings before interest, taxes,
depreciation and amortization (EBITDA) increased by 71% to $668 million and
total cash requirements were about one-fourth of the cash needs in 2001.
Tempering the achievements in 2002 was the challenge of our proposed merger with
EchoStar Communications Corporation (EchoStar) by certain regu-latory agencies.
In light of the govern-ment's failure to approve the merger, HUGHES, General
Motors Corporation (GM) and EchoStar agreed to terminate the merger agreement by
a mutual settlement entered into on December 9, 2002. The settlement included a
$600 million payment to HUGHES from EchoStar, with HUGHES retaining its 81%
ownership of PanAmSat. Although we firmly believe that this merger would have
resulted in a compelling suite of services to compete more effectively on a
national basis with the incumbent cable companies, given the circumstances, our
decision to make a clean-break from EchoStar - and quickly move forward
unencumbered - made the most sense for HUGHES.
Before discussing our operating priorities in more detail, it's important to
note that during these trying times, the men and women of HUGHES and its
operating companies have been steadfast in their pursuit of excellence. We are
grateful for their brilliant performance in the midst of all the adversity and
are once again reminded of the world-class status of our employees.
PROFITBALE GROWTH
AND MAXIMIZING CASH FLOW
Across all of HUGHES, 2002 was a year in which we rolled up our sleeves and took
a back-to-basics approach to managing our company. As a result, each business
was sharply focused on its core operations while reducing expenses and improving
profitability.
DIRECTV U.S. At DIRECTV in the United States, we changed our strategy to focus
on generating higher subscriber returns as opposed to our previous strategy that
placed a much greater emphasis on aggressively growing our customer base. We
will continue to grow our customer base through the acquisition of high quality
subscribers; however, we believe that we can create the most value by focusing
on improving DIRECTV's key operating metrics, namely lowering the rate of
customer turnover - or churn - increasing the average monthly revenue per
subscriber and reducing costs.
LOWERING THE CUSTOMER CHURN RATE. Given the size of DIRECTV's customer base -
which was more than 11 million at year-end 2002 - and the substantial investment
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we make in adding new subscribers, our ability to keep customers satisfied is
absolutely critical to the long-term profitability of the company. In 2002, we
continued our efforts to improve every aspect of the DIRECTV(R) customer
experience, and for the year, we met or exceeded our internal targets for every
key customer service and installation metric. These efforts are clearly
beginning to pay off. In 2002, DIRECTV ranked "#1 in Customer Satisfaction Among
Satellite and Cable TV Subscribers" by J.D. Power and Associates(1). We also
received a number one ranking for customer satisfaction in the communications
industry by the American Customer Satisfaction Index.
In addition to providing excellent customer service, we continued our policy
requiring new customers to commit to one year of service in order to take
advantage of a DIRECTV-funded promotional offer, and now approximately 95% of
new DIRECTV customers are making an annual service commitment. This is
critically important to us because subscriber churn drops considerably once a
customer has been with DIRECTV for one year. We also enhanced our credit
screening practices to intensify our efforts to attract customers with
higher-quality credit characteristics. As a result of all these initiatives,
customer churn of 1.6% per month in 2002 was the lowest it has been in three
years, and significantly better than the churn of 1.8% per month in 2001.
--------------------------------------------------
(1) J.D Power and Associates 2002 Syndicated
Residential Cable/Satellite TV Customer
Satisfaction StudySM. Study based on 3,995
satellite/cable TV subscriber responses.
www.jdpower.com
INCREASING AVERAGE MONTHLY REVENUE PER SUBSCRIBER. We're constantly looking for
ways to generate increased revenue from our service - a particularly important
priority since content providers continue to raise rates on an annual basis. Our
focus on attaining high-quality customers provides DIRECTV with a solid
foundation to achieve this goal since these customers are more likely to
purchase and pay for additional programming services. During 2002, we were able
to increase average monthly revenue per subscriber by introducing new
programming packages that included several additional channels at slightly
higher prices. By improving the value proposition, many of our customers
upgraded their programming packages. In addition, we were more aggressive in
promoting consumer offers that cater to customers with more than one television
in their home.
Customers receiving the DIRECTV service on multiple televisions are important
because we collect approximately $10 to $15 more revenue per month and these
customers churn at roughly half the rate compared to customers with only one
set-top box.
As competition with cable operators remains fierce, the importance of providing
local channel service to our customers is paramount. During 2002, DIRECTV
expanded its local channel coverage by 10 additional markets, and as of
year-end, local channels were available from DIRECTV in 51 top markets across
the country covering about two-thirds of the nation's homes. Local channel
service not only affords DIRECTV the ability to compete on a more equal footing
with cable, but also generates an added source of high-profit-margin revenue. In
2003, we expect to continue to expand our channel capacity with the launch of
DIRECTV 7S, a new high-power spot-beam satellite that is expected to extend
local channel service to approximately 100 markets, covering approximately 90
million homes, or 84% of the nation's television households.
As a result of all of these initiatives, we were able to increase DIRECTV's
average monthly revenue per subscriber by more than $1 during the year, and
ended 2002 with an industry leading average video revenue of nearly $60 per
month.
REDUCING OPERATING COSTS. Cutting costs and improving operating efficiencies
have taken on a new level of importance at DIRECTV and during 2002, we dedicated
a lot of energy toward assessing, analyzing and benchmarking the DIRECTV cost
structure. These efforts have given us tremendous insight into both our
strengths and weaknesses, and while we've made great strides during the last two
years, we know what we have to do to further improve the business. During 2002,
for example, we realized approximately $50 million in savings from the workforce
reduction implemented in mid-year 2001 as well as from on-going efforts to
streamline DIRECTV's operating budget. Looking forward, we have identified
billing, customer service and programming costs as major opportunities for
improvement. With respect to billing costs, we recently completed negotiations
with our service provider that will yield annual cost savings of approximately
$50 million per year beginning in 2004. We also envision significant savings
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opportunities in the customer service area as we renegotiate our existing
agreements, without sacrificing the service quality that customers have come to
know and expect from our DIRECTV service. And importantly, we are determined to
leverage our large and growing subscriber base in upcoming negotiations with
programming providers to garner the most favorable terms possible.
As a result of these efforts to increase revenue, lower customer churn and
reduce operating costs, DIRECTV achieved EBITDA of $564 million in 2002, more
than triple 2001's EBITDA. Despite the heightened focus on profitability,
DIRECTV still added more than 1 million net new subscribers during 2002. In only
eight years after its national launch, DIRECTV is now the entertainment service
of choice for nearly one in every nine television households in the United
States.
Hughes Network Systems (HNS). At HNS, we're also sharply focused on pursuing
strategies that we believe will help the company achieve profitable growth. HNS'
core business is its DIRECWAY(R) satellite-based service for enterprise
customers. In this market, HNS is the world leader, with more than 400,000 very
small aperture terminals (VSATs) shipped or ordered by customers in 85 countries
throughout the world. Although quite profitable today, we believe that as our
enterprise customers' bandwidth requirements expand going forward, the current
technology will not completely satisfy our customers' needs. Our answer for the
evolving marketplace - and to protect and expand our business - is our
next-generation SPACEWAY(R) satellite platform.
Development efforts for the SPACEWAY service are progressing and the business
remains on-track to commence commercial operations in 2004 throughout North
America. With SPACEWAY, we'll be able to provide faster, more cost-effective
bandwidth on demand, delivering rich multi-media content to our customers. The
SPACEWAY business model differs from today's enterprise VSAT business in two key
respects. First, because of SPACEWAY's significantly improved cost and
functionality, HNS will tap into a market ten times the size of its current
addressable market. Second, primarily because HNS will own - rather than lease -
the satellite capacity, steady-state EBITDA margins are expected to increase by
a factor of four compared to today's North American enterprise VSAT margins. So
by investing in this platform, we believe HNS is well positioned to achieve
profitable growth going forward.
HNS is also very important to HUGHES as a leading manufacturer of DIRECTV U.S.
receiving equipment. Through yearend 2002, HNS had manufactured over 10 million
units since entering this business in 1996. In late-2002, HNS began shipping a
new low-cost DIRECTV receiver incorporating digital video recording (DVR)
technology. Increasing the number of DIRECTV customers with DVRequipped
receivers is a key strategic thrust in 2003 because the combination of DIRECTV
programming and the DVR service creates a compelling viewing experience and has
proven to increase customer satisfaction, reduce churn and increase revenue. And
HNS, as a low-cost, highquality supplier of these receivers, will be a key
partner in this strategy.
PanAmSat. In 2002, PanAmSat, which is 81% owned by HUGHES and trades on the
NASDAQ under the ticker symbol "SPOT", continued the course it began in 2001 to
strengthen its operating, marketing and financial performance. These efforts
resulted in a nearly three-fold increase in earnings per share compared to the
prior year, despite a difficult market for fixed satellite service operators.
Among PanAmSat's accomplishments was the completion of a 30-month, $2 billion
satellite fleet modernization program giving PanAmSat one of the youngest, most
modern fleets in the industry. PanAmSat's focus on its core video customers
resulted in a 2002 year-end backlog of $5.55 billion, with more than 87% of 2003
projected revenue under contract. PanAmSat also reduced 2002 operating costs
before depreciation and amortization by almost $70 million, or 24% compared to
2001, while increasing EBITDA to $592 million, or 73% of revenue.
In addition, during 2002 PanAmSat refinanced its debt and significantly improved
its liquidity position. Going into 2003, PanAmSat had access to cash, short term
investments and available credit facilities in excess of $1.1 billion, well
positioning the company to take advantage of anticipated valueadded service
expansion, industry consolidation and other growth opportunities. With the bulk
of its capital expenditures behind it for the foreseeable future, PanAmSat is
poised to generate significant cash flow in the years to come.
Restructuring Operations and Conserving Cash
During 2002, it became clear that investments HUGHES was making to develop
several of our businesses were not commensurate with the market opportunity and
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were not consistent with our goals of strengthening the profitability,
efficiency and competitiveness of our entire enterprise. Immediately after
terminating the merger with EchoStar, we took decisive action to address these
operations.
While we continue to believe that DIRECTV U.S. needs a compelling consumer
broadband service to compete more effectively with the bundled video and
broadband services offered by cable operators, our terrestrial and satellite
consumer broadband offerings were costing us too much to operate while
generating too few customers. In December 2002, it was evident that DIRECTV
Broadband, a subsidiary that employed terrestrial digital subscriber line (DSL)
technology, would not be able to operate profitably in the foreseeable future.
Accordingly, we made the decision to close the business and help transition the
existing customers to alternative service providers, which was completed on
February 28, 2003.
With respect to our satellite-based consumer broadband service, HUGHES will
continue to operate the DIRECWAY consumer service, but will not seek to
aggressively expand its customer base, which totaled 158,000 at year-end 2002.
This "limited growth" strategy is predicated on minimizing cash requirements
while reaching the important cash flow break-even milestone later this year. In
the meantime, we will continue to explore next-generation technologies and
strategic relationships that would allow DIRECTV U.S. to offer profitable
consumer broadband services via both terrestrial and satellite platforms in the
future.
And in Latin America, due to the social, political and economic upheaval that
has impacted the region, along with an unacceptable financial situation, DIRECTV
Latin America, LLC (DLA), which is 75% owned by HUGHES, announced in early
January 2003 that it had initiated discussions with certain programmers,
suppliers and business associates to address DLA's financial and operational
challenges. These actions were required despite a substantial effort in 2002 by
the DLA team to cut its expenses and conserve cash. For example, DLA reduced
general and administrative expenses during the year by $50 million, or 18% from
2001 levels, negotiated programming cost reductions of $95 million and
eliminated all non-critical capital expenditures that resulted in an additional
$145 million savings compared to 2001.
On March 18, 2003, after concluding that the negotiations were not going to
result in an acceptable out-of-court restructuring, DLA filed a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The
filing applied only to DLA, a U.S. company, and did not include any of DLA's
local operating companies in Latin America and the Caribbean, which are
continuing regular operations for the approximately 1.5 million customers in 28
markets throughout the region.
DLA will use the Chapter 11 process to significantly reduce its fixed costs by
reducing its long-term debt and restructuring or rejecting contracts that are
not in line with the current economic realities of the marketplace in Latin
America. DLA expects to emerge from Chapter 11 as a stronger company with a
commitment to adding new subscribers on a profitable basis and further enhancing
its product offerings for the benefit of its customers.
Looking at 2003: Significant Revenue, EBITDA and Cash Flow Growth
Clearly, 2002 was a challenging year for HUGHES due to increased competition, a
sluggish global economy and uncertainty surrounding the company's ownership.
Despite these challenges, our achievements were noteworthy - and our discipline
in adhering to our strategy of profitable growth and maximizing cash has the
businesses of HUGHES well positioned to reach even greater heights going
forward.
As we embark on 2003, our top priority is to maintain focus on operational
excellence while meeting or exceeding all of our financial commitments. We
believe our 2003 performance will provide an excellent glimpse of what the
financial future holds for HUGHES. At the top line, we anticipate solid revenue
growth due primarily to DIRECTV's growing subscriber base and increasing average
revenue per subscriber. But more importantly, we believe we're poised to deliver
EBITDA growth of more than 60% in 2003, reaching a total of approximately $1.1
billion.
This higher EBITDA will be driven by the operating improvements and leverage
generated by DIRECTV's growing subscriber base along with a significantly lower
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cost structure resulting from the DLA restructuring and closure of DIRECTV
Broadband. In addition, as a result of a heightened focus on its core business,
HNS will contribute to the stronger expected results by reaching EBITDA
break-even for the full-year, an expected improvement of more than $80 million
compared to 2002. Combining HUGHES' anticipated EBITDA growth with a projected
capital expenditure reduction of nearly 25%, we expect to reach a key milestone
as a company in the second-half of 2003: positive operating cash flow. This is
an affirmation of the operating strategies we're pursuing and tangible evidence
of the powerful cash generating capabilities of our businesses.
Another top priority is to resolve HUGHES' future ownership structure. On April
9, 2003, GM, HUGHES and News Corporation Limited announced definitive agreements
whereby GM plans to split-off HUGHES and sell its 19.9% interest in HUGHES to
News Corp. In addition, News Corp. will acquire an additional 14.1% stake in
HUGHES from GM Class H stockholders bringing News Corp.'s total ownership in
HUGHES to 34%. The transactions, which we hope to complete by yearend 2003, are
subject to several conditions including approval by GM $1-2/3 and Class H
stockholders, as well as clearance by several government and regulatory
agencies.
As Class H stockholders, we can all be very excited about these transactions for
many reasons. First, the split-off will enable holders of GM Class H common
stock to exchange their shares for HUGHES common stock and thus eliminate the
tracking stock discount that we believe the market has ascribed to Class H
common stock over the years. We believe that this alone puts HUGHES in a much
better position to realize its full potential in the future by having direct
access to the equity markets, providing opportunities for direct business
combinations and related transactions, and providing stockholders with the
opportunity to have a direct vote in the election of HUGHES directors and other
matters of significance to the corporation. Second, based on the GMH stock price
when the deal was announced, the transactions offer Class H stockholders a
premium of more than 20% on 17.5% of their shares. In addition, HUGHES will no
longer need to consider possible constraints from GM related to HUGHES' access
to the capital it may need for future growth. And finally, with News Corp.,
HUGHES will be aligned with a leading global media and content company that has
unrivaled experience in developing and managing successful pay-television
platforms around the world. By bringing an expanded vision to HUGHES and a
passion for our business, we believe that News Corp. will enable HUGHES to be
stronger and grow faster than it could have as a stand-alone company or under
GM's continued ownership.
We are very confident that we have created the foundation for HUGHES to excel in
the years ahead - a foundation based on our commitment to a disciplined
operating strategy of profitable growth and maximizing cash flow. And upon the
completion of the transaction with News Corp., we believe we have an
unprecedented opportunity to elevate HUGHES to the next level of growth and
profitability. With these attributes, we believe our businesses are poised to
further expand their market leading positions while delivering even better
financial results, and in doing so, unlock tremendous value for shareholders.
/s/ JACK A. SHAW
JACK A. SHAW
President and Chief Executive Officer
/s/ HARRY J. PEARCE
HARRY J. PEARCE
Chairman of the Board
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NOTE: THE FOLLOWING NOTICE IS INCLUDED TO MEET CERTAIN LEGAL REQUIREMENTS.
In connection with the proposed transactions, General Motors Corporation ("GM"),
Hughes Electronics Corporation ("Hughes") and The News Corporation Limited
("News") intend to file relevant materials with the Securities and Exchange
Commission ("SEC"), including one or more registration statement(s) that contain
a prospectus and proxy/consent solicitation statement. Because those documents
will contain important information, holders of GM $1-2/3 common stock and GM
Class H common stock are urged to read them, if and when they become available.
When filed with the SEC, they will be available for free (along with any other
documents and reports filed by GM, Hughes or News with the SEC) at the SEC's
website, www.sec.gov, and GM stockholders will receive information at an
appropriate time on how to obtain transaction-related documents for free from
GM. Such documents are not currently available.
GM and its directors and executive officers and Hughes and certain of its
executive officers may be deemed to be participants in the solicitation of
proxies or consents from the holders of GM $1-2/3 common stock and GM Class H
common stock in connection with the proposed transactions. Information regarding
the participants and their interest in the solicitation was filed pursuant to
Rule 425 with the SEC by each of GM and Hughes on April 10, 2003. Investors may
obtain additional information regarding the interests of such participants by
reading the prospectus and proxy/consent solicitation statement if and when it
becomes available.
This communication shall not constitute an offer to sell or the solicitation of
an offer to buy any securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such
jurisdiction. No offering of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the Securities Act of 1933,
as amended.
Materials included in this document contain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that could cause actual results to be materially different from
historical results or from any future results expressed or implied by such
forward-looking statements. The factors that could cause actual results of GM,
Hughes and News to differ materially, many of which are beyond the control of
GM, Hughes or News include, but are not limited to, the following: (1) operating
costs, customer loss and business disruption, including, without limitation,
difficulties in maintaining relationships with employees, customers, clients or
suppliers, may be greater than expected following the transaction; (2) the
regulatory approvals required for the transaction may not be obtained on the
terms expected or on the anticipated schedule; (3) the effects of legislative
and regulatory changes; (4) an inability to retain necessary authorizations from
the FCC; (5) an increase in competition from cable as a result of digital cable
or otherwise, direct broadcast satellite, other satellite system operators, and
other providers of subscription television services; (6) the introduction of new
technologies and competitors into the subscription television business; (7)
changes in labor, programming, equipment and capital costs; (8) future
acquisitions, strategic partnerships and divestitures; (9) general business and
economic conditions; and (10) other risks described from time to time in
periodic reports filed by GM, Hughes or News with the SEC. You are urged to
consider statements that include the words "may," "will," "would," "could,"
"should," "believes," "estimates," "projects," "potential," "expects," "plans,"
"anticipates," "intends," "continues," "forecast," "designed," "goal," or the
negative of those words or other comparable words to be uncertain and
forward-looking. This cautionary statement applies to all forward-looking
statements included in this document.