UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported)
April 3, 2001
HUGHES ELECTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
Commission file number 0-26035
STATE OF DELAWARE 52-1106564
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 North Sepulveda Boulevard
El Segundo, California 90245
(Address of principal executive offices)
(310) 662-9688
(Registrant's telephone number, including area code)
HUGHES ELECTRONICS CORPORATION
Item 2. Acquisition or Disposition of Assets.
On April 3, 2001, Hughes Electronics Corporation ("Hughes"), a wholly owned
subsidiary of General Motors Corporation, acquired nationwide residential
Digital Subscriber Line ("DSL") service provider Telocity Delaware, Inc.
("Telocity") through the completion of a tender offer and merger. These
transactions were pursuant to the Agreement and Plan of Merger dated December
21, 2000 between Hughes, Telocity, and DIRECTV Broadband, Inc., a wholly owned
subsidiary of Hughes. DIRECTV Broadband, Inc. paid $2.15 in cash for each of the
approximately 77.8 million tendered shares. The remaining approximately 4.9
million issued and outstanding shares of Telocity were converted into the right
to receive $2.15 per share in cash as a result of the merger (subject to certain
shareholders' appraisal rights under Delaware law).
The purchase price consisted of approximately $177.8 million in cash, and an
additional $20 million of interim financing provided by Hughes. The parties
determined the purchase price through arms-length negotiations. There was no
material relationship between Telocity or the Telocity shareholders, on one
hand, and Hughes or any of its directors, officers, or affiliates (or any of the
affiliates or associates of any of Hughes directors or officers), on the other
hand.
DIRECTV Broadband, Inc. will operate the Telocity DSL service, and plans to
integrate it with Hughes' DIRECTV digital multi-channel entertainment service to
create a "whole house" entertainment and information solution to complement
Hughes' existing DIRECTV/DirecPC satellite based broadband offering.
See Item 7 for the pro forma effect of this acquisition on Hughes'
consolidated financial statements. This Report may contain certain statements
that Hughes believes are, or may be considered to be, "forward-looking
statements," within the meaning of various provisions of the Securities Act of
1933, as amended and of the Securities Exchange Act of 1934, as amended. These
forward-looking statements are based largely on Hughes' current expectations and
are subject to a number of risks and uncertainties, many of which are beyond
Hughes' control. Actual results could differ materially from those anticipated
by these forward-looking statements as a result of factors described in Hughes'
reports filed with the Securities and Exchange Commission ("SEC"), including its
Annual Report on Form 10-K for the year ended December 31, 2000 filed on March
6, 2001, its Current Reports on Form 8-K filed through the date of this report
and as a result of other factors.
HUGHES ELECTRONICS CORPORATION
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
Telocity's audited consolidated financial statements for the year ended
December 31, 2000 are incorporated herein by reference to Telocity's Annual
Report on Form 10-K for the year ended December 31, 2000, filed with the SEC on
April 2, 2001.
(b) Pro Forma Financial Information.
Unaudited Pro Forma Condensed Combined Financial Statements:
Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 2000
Unaudited Pro Forma Condensed Combined Statement of Continuing Operations
for the Year Ended December 31, 2000
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
HUGHES ELECTRONICS CORPORATION
Unaudited Pro Forma Condensed
Combined Financial Statements
The following unaudited pro forma condensed combined financial statements
have been derived from the audited historical consolidated financial statements
of each of Hughes and Telocity to give effect to Hughes' acquisition of
Telocity.
The unaudited pro forma condensed combined statement of continuing operations
reflects adjustments as if the acquisition had taken place on January 1, 2000.
The unaudited pro forma condensed combined balance sheet reflects adjustments as
if the acquisition had occurred on December 31, 2000. The pro forma adjustments
described in the accompanying notes are based on various assumptions that Hughes
management believes are reasonable in the circumstances. The adjustments do not
reflect an allocation of purchase price to the relative fair value of net assets
acquired. Such allocation will be completed during the next few months pending
the results of an independent appraisal and management analysis of the Telocity
net assets acquired. The purchase price presented here does not include expenses
associated with the transaction.
The unaudited pro forma condensed combined statement of continuing operations
does not give effect to any cost savings that may be realized from the
acquisition, which savings relate primarily to the reduction of duplicative
operating, general and administrative expenses.
The unaudited pro forma condensed combined financial statements, including
the notes thereto, should be read in conjunction with the audited consolidated
financial statements of Hughes included in its Annual Report on Form 10-K for
the year ended December 31, 2000 and the audited consolidated financial
statements of Telocity included in its Annual Report on Form 10-K for the year
ended December 31, 2000, filed with the SEC on March 6, 2001 and April 2, 2001,
respectively.
HUGHES ELECTRONICS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF CONTINUING OPERATIONS
For the Year Ended December 31, 2000
Historical Historical Pro Forma Pro Forma
Hughes Telocity Adjustments Combined
------ -------- ----------- --------
(Dollars in Millions)
Revenues
Direct broadcast, leasing and
other services $6,262.2 $9.4 $6,271.6
Product sales 1,025.4 1,025.4
------------------------------------------------
Total Revenues 7,287.6 9.4 7,297.0
------------------------------------------------
Operating Costs and Expenses
Broadcast programming and other
costs 2,812.8 2,812.8
Cost of products sold 815.1 29.1 $18.1 (a) 862.3
Selling, general and
administrative expenses 3,065.7 140.9 (18.1) (a) 3,188.5
Depreciation and amortization 948.1 15.6 17.8 (b) 981.5
------------------------------------------------
Total Operating Costs and
Expenses 7,641.7 185.6 17.8 7,845.1
------------------------------------------------
Operating Loss (354.1) (176.2) (17.8) (548.1)
Interest income 49.3 5.7 (3.1) (c) 51.9
Interest expense (218.2) (2.9) (11.9) (d) (233.0)
Other, net (292.6) (292.6)
------------------------------------------------
Loss From Continuing Operations
Before Income Taxes and
Minority Interests (815.6) (173.4) (32.8) (1,021.8)
Income tax benefit (406.1) (69.5) (e) (475.6)
Minority interests in net losses of
subsidiaries 54.1 54.1
------------------------------------------------
Loss from continuing operations $(355.4) $(173.4) $36.7 $(492.1)
================================================
The accompanying notes are an integral part of the unaudited pro forma
condensed combined financial statements.
HUGHES ELECTRONICS CORPORATION
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
As of December 31, 2000
Historical Historical Pro Forma Pro Forma
Hughes Telocity Adjustments Combined
------ -------- ----------- --------
ASSETS (Dollars in Millions)
Current Assets
Cash and cash equivalents $1,508.1 $38.4 $(197.8) (f) $1,348.7
Accounts and notes receivable 1,253.0 0.5 1,253.5
Contracts in process 186.0 186.0
Inventories 338.0 338.0
Deferred income taxes 89.9 89.9
Prepaid expenses and other 778.7 11.8 790.5
-------------------------------------------------
Total Current Assets 4,153.7 50.7 (197.8) 4,006.6
Satellites, net 4,230.0 4,230.0
Property, net 1,707.8 45.3 1,753.1
Net Investment in Sales-type Leases 221.1 221.1
Intangible Assets, net 7,151.3 0.3 7,151.6
Excess of purchase price over book
value of net assets acquired 124.8 (f) 124.8
Investments and Other Assets 1,815.4 36.0 1,851.4
-------------------------------------------------
Total Assets $19,279.3 $132.3 $(73.0) $19,338.6
=================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $1,224.2 $23.8 $1,248.0
Deferred revenues 137.6 1.0 138.6
Short-term borrowings and current
portion of long-term Debt 24.6 24.6
Accrued liabilities and other 1,304.5 27.4 1,331.9
-------------------------------------------------
Total Current Liabilities 2,690.9 52.2 2,743.1
Long-Term Debt 1,292.0 7.1 1,299.1
Other Liabilities and Deferred Credits 1,647.3 1,647.3
Deferred Income Taxes 769.3 769.3
Minority Interests 553.7 553.7
Stockholder's Equity 12,326.1 73.0 (73.0) (f) 12,326.1
-------------------------------------------------
Total Liabilities and Stockholder's
Equity $19,279.3 $132.3 $(73.0) $19,338.6
=================================================
The accompanying notes are an integral part of the unaudited pro forma
condensed combined financial statements.
HUGHES ELECTRONICS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited pro forma condensed combined financial statements
have been derived from the historical consolidated financial statements of each
of Hughes and Telocity to give effect to Hughes' acquisition of Telocity.
The unaudited pro forma condensed combined statement of continuing operations
reflects adjustments as if the acquisition had taken place on January 1, 2000.
The unaudited pro forma condensed combined balance sheet reflects adjustments as
if the acquisition had occurred on December 31, 2000. The pro forma adjustments
described in the accompanying notes are based on preliminary estimates and
various assumptions that Hughes management believes are reasonable in the
circumstances.
The pro forma adjustments reflected in the unaudited condensed combined
financial statements were prepared using the purchase method of accounting. The
allocation of purchase price to net assets acquired will be made pending the
completion of an independent appraisal currently in process. Also, management is
currently performing an analysis to determine whether or not to make an election
under Internal Revenue Code Section 338(g) to treat this as an asset acquisition
for income tax purposes. The unaudited pro forma condensed combined financial
statements assume that management will make this election. In the event this
election is not made, Hughes will record a deferred tax asset related to
Telocity's historical net operating losses, and goodwill amortization will not
be deductible for income tax purposes. The purchase price allocation will be
completed pending the appraisal and analysis that are expected to be completed
by December 31, 2001.
The unaudited condensed combined financial statements do not purport to
present the financial position or results of operations of Hughes had the
transaction 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 condensed combined statement of continuing
operations does not give effect to any cost savings that may be realized from
the acquisition, which savings relate primarily to the reduction of duplicative
operating, general and administrative expenses.
The unaudited pro forma condensed combined financial statements, including
the notes thereto, should be read in conjunction with the audited consolidated
financial statements of Hughes included in its Annual Report on Form 10-K for
the year ended December 31, 2000 and the audited consolidated financial
statements of Telocity included in its Annual Report on Form 10-K for the year
ended December 31, 2000, filed with the SEC on March 6, 2001 and April 2, 2001,
respectively, and Current Reports on Form 8-K filed by Hughes and Telocity
through the date of this report.
Certain historical Telocity amounts have been combined to conform to the
Hughes presentation.
Pro Forma Adjustments
The following adjustments, which are set forth in millions, give pro forma
effect to the Telocity acquisition:
a. To reclassify certain amounts in the historical financial statements of
Telocity to conform to the Hughes presentation.
b. Hughes has not as yet completed an analysis of the relative fair market
value of the net assets acquired from Telocity in order to determine a
preliminary allocation of the purchase price. Accordingly, the excess
of the purchase price over the book value of net assets acquired has
been presented as a single caption in the accompanying unaudited pro
forma condensed combined balance sheet. For purposes of the accompanying
unaudited condensed combined statement of continuing operations, such
excess is being amortized using an estimated weighted-average composite
life of seven years.
c. To reduce interest income on cash required for the Telocity acquisition
assuming Hughes' historical interest income rate of 6.7% for the period
beginning October 7, 2000 and ending December 31, 2000, during which time
Hughes had available cash balances.
d. To increase interest expense on borrowings required for the Telocity
acquisition assuming Hughes' historical interest expense rate of 7.84% for
the period beginning January 1, 2000 and ending October 6, 2000, during
which time Hughes would have required additional borrowings.
e. Income taxes associated with the pro forma adjustments discussed above
have been calculated at an assumed combined federal and state rate of 40%.
This assumes that Hughes will make an election which will allow Hughes to
deduct goodwill for income tax purposes, however an analysis is currently
in process to determine whether to make this election.
The unaudited pro forma condensed combined statement of continuing
operations have also been adjusted to recognize a tax benefit for federal
and state income taxes of $56.4 million for Telocity's historical losses
from continuing operations for the year ended December 31, 2000. This
adjustment recognizes that, if the Telocity acquisition had taken place on
January 1, 2000, the tax benefit of Telocity's losses would have been
realized in the consolidated federal tax return of General Motors
Corporation.
f. To record the consideration paid for the acquisition. These unaudited pro
forma condensed combined financial statements reflect the actual
consideration paid to holders of Telocity common stock of $2.15 per share,
as well as a $20 million interim financing loan provided to Telocity
pursuant to the Agreement and Plan of Merger dated December 21, 2000.
For purposes of these unaudited pro forma condensed combined financial
statements, the excess of purchase price over the book value of net assets
acquired has been estimated as follows (in millions, except per share
amounts):
Outstanding Shares of Telocity Common Stock 82.7
Cash paid per share $2.15
---------
Cash consideration to shareholders 177.8
Interim financing provided to Telocity 20.0
---------
Purchase price 197.8
Less: Telocity net book value at
December 31, 2000 73.0
---------
Excess of purchase price over book value of
net assets acquired $124.8
=========
******
HUGHES ELECTRONICS CORPORATION
(c) Exhibits.
Exhibit Page
Number Description Number
------ ----------- ------
2.1* Agreement and Plan of Merger among Hughes Electronics
Corporation, DIRECTV Broadband, Inc. and Telocity
Delaware, Inc., dated as of December 21, 2000
(incorporated by reference to Exhibit 99 (d) (1) to
the Tender Offer on Schedule TO of Hughes Electronics
Corporation, filed February 1, 2001).
23.1** Consent of Independent Accountants. 11
99.1** Press Release dated April 3, 2001. 12
99.2* Telocity Delaware, Inc. Consolidated Financial Statements
(incorporated by reference to Telocity's Annual Report
on Form 10-K for the year ended December 31, 2000,
filed with the SEC on April 2, 2001).
-----------
* Incorporated by reference.
** Filed herewith.
HUGHES ELECTRONICS CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HUGHES ELECTRONICS CORPORATION
------------------------------
(Registrant)
By
Date April 18, 2001 /s/Roxanne S. Austin
------------------- ------------------------------
(Roxanne S. Austin,
Chief Financial Officer)