Hughes Electronics
Corporation, a world-leading provider of digital television entertainment,
broadband services, satellite-based private business networks, and global
video and data broadcasting, today reported second quarter 2002 revenues
increased 11.3% to $2,209.7 million, compared with $1,985.1 million in the
second quarter of 2001. EBITDA(1) for the quarter increased 50.1% to
$123.1 million compared with $82.0 million in the second quarter of last year.
EBITDA margin(1) was 5.6% in the quarter compared with an EBITDA margin of
4.1% last year. The operating loss for the quarter was $138.5 million
compared with an operating loss of $223.0 million in the second quarter of
2001.
“The improving financial performance at DIRECTV U.S. continues to fuel
HUGHES’ growth,” said Jack A. Shaw, HUGHES’ president and chief executive
officer. “DIRECTV U.S. had quarterly revenues of $1,549 million, which were
15% higher than last year, primarily due to subscriber growth during the last
12 months.”
Shaw added, “DIRECTV U.S. was also the driving force behind our EBITDA
growth. As a result of the strong revenue growth and lower subscriber
acquisition costs, the DIRECTV U.S. EBITDA of $148 million was nearly double
last year’s second quarter result. In addition, excluding the losses from the
World Cup soccer tournament at DIRECTV Latin America, each of our business
units showed improvement in EBITDA compared to last year.
“Although DIRECTV U.S. net subscriber additions of 202,000 fell short of
our target of 225,000 to 250,000 for the second quarter, we gained 53% more
subscribers than in last year’s second quarter. Furthermore, because the
operating performance of the business continues to improve, we are increasing
DIRECTV U.S.’ full year estimates for revenue and EBITDA, while maintaining
our year-end subscriber guidance.”
In the second quarter of 2002, HUGHES reported an operating loss of $138.5
million compared with an operating loss of $223.0 million in 2001. This lower
operating loss was due to higher EBITDA and the elimination of approximately
$72 million of goodwill amortization expense in 2002 as a result of adopting
the new Statement of Financial Accounting Standards Number 142 (SFAS 142)
accounting rules for goodwill and intangible assets. These changes were
partially offset by higher depreciation expense in each of HUGHES’ operating
segments, mostly at DIRECTV U.S. due to the launch of two new satellites as
well as additional infrastructure expenditures made during the last year.
HUGHES had a second quarter 2002 net loss of $155.1 million compared to a
net loss of $156.5 million in the same period of 2001. The lower operating
loss and a $37 million gain resulting from the favorable resolution of
remaining contingencies associated with the exit from the DIRECTV Japan
business (recorded in Other, net), were mostly offset by increased net
interest expense including an interest charge of $47 million for losses
associated with the final settlement of a contractual dispute with General
Electric Capital Corporation (GECC), and the discontinuation of the minority
interest adjustment related to DIRECTV Latin America.
Six-Month Financial Review
For the first half of 2002, revenues increased 9.5 % to $4,247.9 million,
compared to $3,878.1 million in the first half of 2001. This increase was due
to continued subscriber growth at DIRECTV in the United States and revenues
associated with the 2002 World Cup at DIRECTV Latin America, partially offset
by lower sales in the Carrier businesses of Hughes Network Systems (HNS).
EBITDA for the first six months of 2002 was $257.3 million and EBITDA
margin was 6.1%, compared to EBITDA of $195.2 million and EBITDA margin of
5.0% in the first half of 2001. The 31.8% increase in EBITDA and the increase
in EBITDA margin were primarily attributable to DIRECTV U.S.’ additional gross
profit gained from its revenue growth and lower subscriber acquisition costs,
a $95 million one-time gain based on the favorable resolution of litigation
related to the National Aeronautics and Space Administration’s (NASA) breach
of contract to launch ten HUGHES satellites, and improved operational
efficiencies at PanAmSat. These improvements were partially offset by the
devaluation of several foreign currencies and the costs associated with the
2002 World Cup in the DIRECTV Latin America business, a one-time EBITDA charge
of $48 million related to the GECC settlement, as well as the inclusion of
DIRECTV Broadband for two full quarters in 2002. DIRECTV Broadband, formerly
known as Telocity, was purchased April 1, 2001.
HUGHES’ operating loss for the first six months of 2002 was $266.3 million
compared with an operating loss of $375.5 million in the first half of 2001.
The lower loss was due to the higher EBITDA and the elimination of
approximately $134 million of goodwill amortization expense in 2002 as a
result of adopting SFAS 142. These changes were partially offset by higher
depreciation expenses, particularly at DIRECTV U.S. due to the recent launch
of two new satellites and additional infrastructure expenditures made during
the last year.
For the first six months of 2002, net losses totaled $311.5 million
compared to net losses of $261.8 million in the same period of 2001. The
increased net loss was principally due to an increase in net interest expense
including a charge of $74 million ($27 million of which was recorded in the
first quarter of 2002) related to the GECC settlement, and the discontinuation
of the minority interest adjustment related to DIRECTV Latin America. These
declines more than offset the benefits from the lower operating loss, and an
improved effective tax rate due to the favorable resolution of certain tax
contingencies.
Segment Financial Review: second Quarter 2002
Direct-To-Home Broadcast
Second quarter 2002 revenues for the segment increased 17.4% to
$1,793.7 million from $1,527.7 million in the second quarter of 2001. The
segment had EBITDA of $20.6 million compared with negative EBITDA of
$1.3 million in the second quarter of 2001. Operating loss was $136.4 million
in the second quarter of 2002 compared with an operating loss of
$182.9 million in the same period last year.
United States: Excluding those markets in the National Rural
Telecommunications Cooperative (NRTC) territories, DIRECTV’s owned and
operated gross subscriber additions in the quarter were 654,000 and after
accounting for churn, DIRECTV added 202,000 net subscribers. DIRECTV owned and
operated subscribers totaled 8.99 million as of June 30, 2002, 15% more than
the 7.80 million cumulative subscribers attained as of June 30, 2001. For the
second quarter of 2002, the total number of subscribers in NRTC territories
was unchanged, leaving the total number of NRTC subscribers as of June 30,
2002, at 1.75 million. As a result, the DIRECTV platform ended the quarter
with 10.74 million total subscribers.
DIRECTV reported quarterly revenues of $1,549 million, an increase of 15%
from last year’s second quarter revenues of $1,345 million. The increase was
primarily due to continued subscriber growth.
EBITDA for the second quarter of 2002 was $148 million, nearly double last
year’s EBITDA of $75 million. This increase was primarily due to the
additional gross profit gained from DIRECTV’s increased revenue and lower
subscriber acquisition costs, partially offset by an increase in retention
marketing costs associated with higher levels of set-top box sales to existing
subscribers. Operating profit in the current quarter was $53 million compared
with an operating loss of $39 million in 2001. The improved EBITDA and
reduced amortization from the adoption of SFAS 142 was partially offset by
increased depreciation, mostly related to the launches of the DIRECTV 4S
satellite in December 2001 and DIRECTV 5 in May 2002, as well as additional
infrastructure expenditures made during the last year.
Please refer to the “Selected DIRECTV U.S. Financial Highlights”
attachment for additional information on DIRECTV’s subscribers and other
important financial metrics.
DIRECTV DSL: In the second quarter of 2002, the DIRECTV DSL service added
approximately 20,000 net customers. As of June 30, 2002, DIRECTV DSL had
about 133,000 residential broadband customers in the United States compared
with about 68,000 customers as of June 30, 2001, representing an increase of
approximately 96%.
The DIRECTV DSL service had second quarter 2002 revenues of $18 million
compared with $7 million reported in the second quarter of 2001. The increase
was driven by the larger subscriber base and an increase in average revenue
per subscriber.
DIRECTV DSL had negative EBITDA of $29 million in the quarter, an
improvement over the negative $41 million in the same period last year. This
improvement was driven by the additional gross profit gained from the revenue
growth as well as improved operational efficiencies. DIRECTV DSL’s operating
loss in the second quarter of 2002 decreased to $41 million compared with an
operating loss of $58 million in 2001. The change was due to the improved
EBITDA and reduced amortization from the adoption of SFAS 142.
Latin America: The DIRECTV service in Latin America added 27,000 net
subscribers in the second quarter of 2002, bringing the total number of
subscribers in Latin America as of the end of the quarter to approximately
1,669,000 compared with about 1,431,000 as of June 30, 2001, representing an
increase of approximately 17%.
Revenues for DIRECTV Latin America increased to $227 million for the
quarter compared with $175 million in the second quarter of 2001. This
increase was due to revenue generated from the 2002 World Cup soccer
tournament and the larger subscriber base, partially offset by the devaluation
of several foreign currencies, primarily in Argentina.
DIRECTV Latin America had negative EBITDA of $99 million in the quarter
compared to negative EBITDA of $35 million in the same period of 2001. Also
in the quarter, DIRECTV Latin America’s operating loss increased to $148
million from an operating loss of $87 million in the same period of 2001. The
increased negative EBITDA and operating loss were primarily due to a
$75 million loss associated with the World Cup, as well as the devaluation of
several foreign currencies, partially offset by the effects of ongoing cost
reductions.
Satellite Services
PanAmSat, which is 81%-owned by HUGHES, generated second quarter 2002
revenues of $209.3 million compared with $208.3 million in the same period of
the prior year. The slight increase was primarily due to higher occasional
service revenues related to the global broadcast distribution of the World
Cup, partially offset by reduced program distribution and direct-to-home video
revenues.
EBITDA for the quarter was $150.7 million and EBITDA margin was 72.0%,
compared with second quarter 2001 EBITDA of $134.5 million and EBITDA margin
of 64.6%. The increase in EBITDA and EBITDA margin was principally due to the
company’s continued focus on reducing its operating costs. Operating profit
for the quarter was $61.0 million compared with operating profit of
$32.8 million in the second quarter of 2001. The improvement was primarily
due to the increase in EBITDA and the reduced amortization from the adoption
of SFAS 142.
As of June 30, 2002, PanAmSat had contracts for satellite services
representing future payments (backlog) of over $5.55 billion compared to
approximately $5.72 billion at the end of the first quarter of 2002.
Network Systems
Hughes Network Systems (HNS) generated second quarter 2002 revenues of
$254.4 million compared with $302.2 million in the second quarter of 2001.
The decline was due to lower sales in the Carrier businesses primarily related
to the substantial completion of the XM Satellite Radio and Thuraya Satellite
Telecommunications Company contracts. HNS shipped 512,000 DIRECTV receiver
systems in the second quarter of 2002 compared to 413,000 units in the same
period last year.
Additionally, HNS added approximately 12,000 net DIRECWAY residential and
small office/home office (SOHO) broadband customers in the quarter. As of
June 30, 2002, DIRECWAY had over 123,000 residential and SOHO subscribers in
North America compared to 74,000 one year ago, a 66% increase.
HNS reported negative EBITDA of $29.5 million in the quarter compared to
negative EBITDA of $36.8 million in the second quarter of 2001. HNS’
operating loss in the second quarter of 2002 was $46.1 million compared with
an operating loss of $56.5 million in the same period last year. The change
in EBITDA and operating loss was primarily attributable to improved operating
margins on the increased DIRECTV receiver shipments.
BALANCE SHEET
From December 31, 2001 to June 30, 2002, the company’s consolidated cash
balance increased $136.0 million to $836.1 million and total debt increased
$832.7 million to $3,480.0 million. The major uses of cash were $728 million
for satellite and capital expenditures, the payment of $180 million to GECC
and the final purchase price adjustment payment to the Raytheon Company of
$134 million. Additionally in the first half of 2002, PanAmSat received
approximately $215 million from an insurance claim on the PAS-7 satellite and
HUGHES received $95 million from the resolution of the breach of contract
lawsuit with NASA.
Hughes Electronics Corporation is a unit of General Motors Corporation.
The earnings of Hughes Electronics are used to calculate the earnings
attributable to the General Motors Class H common stock (NYSE: GMH – News).
A live webcast of HUGHES’ second quarter 2002 earnings call will be
available on the company’s website at www.hughes.com . The call will begin at
2:00 p.m. ET, today. The dial in number for the call is (913) 981-5523. The
webcast will be archived on the Investor Relations portion of the HUGHES
website and a replay will be available (dial in number: 888-203-1112,
code: 292489) beginning at 2:00 p.m. ET on Wednesday, July 17.
Hughes Financial Guidance
Third Quarter Prior Full Revised Full
2002 Year 2002 Year 2002
HUGHES
Revenues $2.2 - 2.25B $9.0 - 9.2B No Change
EBITDA $175 - 225M $750 - 850M No Change
Cash Requirements N/A $1.5 - 1.7B $1.2 - 1.4B
DIRECTV U.S.
Revenues ~$1.6B ~$6.2B ~$6.3B
EBITDA ~$150M ~$525M# $525 - 545M#
Net Subscriber Adds 250 - 300K ~1.2M## No Change
DIRECTV DSL
Revenues N/A ~$75M No Change
EBITDA $(25) - (30)M ~$(100)M $(110) - (120)M
Net Subscriber Adds 15 - 20K ~100K 70 - 85K
DIRECTV Latin America
Revenues 170 -180M $800 - 850M $745-765M
EBITDA (15) - (25)M ~$(100)M $(135) - (155)M
Net Subscriber Adds 15 - 20K 150 - 200K 120 - 140K
Hughes Network Systems
Revenues $275 - 325M $1.3 - 1.4B ~$1.3B
EBITDA $(20) -(35)M $(50) - (75)M No Change
DIRECWAY Net Sub Adds N/A 100 - 200K ~100K
PanAmSat
Revenues $190 - 200M $790 - 825M No Change
New Outright Sales
and Sales-Type
Leases None None No Change
EBITDA Margin 70% or higher 70% or higher No Change
EBITDA $135 - 150M $570 - 590M No Change
# Excludes $56 million EBITDA charge for loss related to GECC lawsuit
## Excludes subscribers in NRTC territories
NOTE: Hughes Electronics Corporation believes that some of the foregoing
statements may constitute forward-looking statements. When used in this
report, the words “estimate,” “plan,” “project,” “anticipate,” “expect,”
“intend,” “outlook,” “believe,” and other similar expressions are intended to
identify such forward-looking statements and information. Important factors
that may cause actual results of HUGHES to differ materially from the
forward-looking statements in this report are set forth in the Form 10-Ks
filed with the SEC by General Motors and HUGHES.
(1) EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) is the sum of operating profit (loss) and depreciation
and amortization. EBITDA margin is calculated by dividing EBITDA by
total revenues.
Selected DIRECTV U.S. Financial Highlights
Quarters Ended
06/30/2001 09/30/2001 12/31/2001
DIRECTV U.S. Key Performance Metrics
Average Revenue per User (ARPU), $(1) $58.00 $57.30 $61.35
Subscriber Acquisition Cost (SAC), $(2) $575 $555 $560
Churn, %(3) 2.0% 1.9% 1.7%
Pre-Marketing Cash Flow (PMCF), % 41% 40% 38%
Subscriber Detail, (in millions)
DIRECTV - Owned & Operated
Residential 7.35 7.55 7.88
Commercial 0.30 0.31 0.33
Suspended 0.15 0.19 0.23
Total DIRECTV - Owned & Operated(4) 7.80 8.05 8.44
NRTC, Total(5) 1.84 1.87 1.89
Grand Total 9.64 9.92 10.33
Quarters Ended
03/31/2002 06/30/2002
DIRECTV U.S. Key Performance Metrics
Average Revenue per User (ARPU), $(1) $56.70 $58.10
Subscriber Acquisition Cost (SAC), $(2) $520 $530
Churn, %(3) 1.6% 1.7%
Pre-Marketing Cash Flow (PMCF), % 39% 40%
Subscriber Detail, M
DIRECTV - Owned & Operated
Residential 8.27 8.46
Commercial 0.34 0.37
Suspended 0.18 0.16
Total DIRECTV - Owned & Operated(4) 8.79 8.99
NRTC, Total(5) 1.75 1.75
Grand Total 10.54 10.74
(1) Total revenue divided by average period-end total DIRECTV
Owned & Operated customers
(2) Sales and marketing acquisition costs divided by DIRECTV
Owned & Operated customer gross adds in the period; excludes
advanced and leased set-top boxes
(3) Net customer disconnects divided by average period-end DIRECTV
Owned and Operated customers
(4) Excludes pending customers to reflect policy change effective 1/1/02
(5) Reflects Pegasus Communications Corp. policy change in Q1 2002
reported in Pegasus' Form 10K; An additional adjustment was made in
Q1 2002, based upon Pegasus' first quarter Form 10-Q filing
CONSOLIDATED STATEMENTS OF OPERATIONS AND
AVAILABLE SEPARATE CONSOLIDATED NET INCOME (LOSS)
(Dollars in Millions)
(Unaudited) Six Months
Second Quarter Ended June 30,
2002 2001 2002 2001
Revenues
Direct broadcast, leasing
and other services $2,004.0 $1,738.6 $3,862.0 $3,436.8
Product sales 205.7 246.5 385.9 441.3
Total Revenues 2,209.7 1,985.1 4,247.9 3,878.1
Operating Costs and Expenses,
Exclusive of Depreciation
and Amortization Expense
Shown Below
Broadcast programming and
other costs 1,078.9 786.6 1,982.1 1,525.3
Cost of products sold 184.7 189.2 357.7 343.7
Selling, general and
administrative expenses 823.0 927.3 1,650.8 1,813.9
Depreciation and amortization 261.6 305.0 523.6 570.7
Total Operating Costs
and Expenses 2,348.2 2,208.1 4,514.2 4,253.6
Operating Loss (138.5) (223.0) (266.3) (375.5)
Interest income 7.4 19.0 11.7 42.8
Interest expense (122.3) (42.8) (198.7) (93.4)
Other, net 8.9 (10.9) (32.7) (3.7)
Loss Before Income Taxes,
Minority Interests and
Cumulative Effect of
Accounting Change (244.5) (257.7) (486.0) (429.8)
Income tax benefit 92.9 74.8 184.7 124.7
Minority interests in net
(earnings) losses of
subsidiaries (3.5) 26.4 (10.2) 50.7
Loss before cumulative effect
of accounting change (155.1) (156.5) (311.5) (254.4)
Cumulative effect of
accounting change,
net of taxes -- -- -- (7.4)
Net Loss (155.1) (156.5) (311.5) (261.8)
Adjustment to exclude the
effect of GM purchase
accounting -- 0.8 -- 1.6
Loss excluding the effect of
GM purchase accounting (155.1) (155.7) (311.5) (260.2)
Preferred stock dividends (22.8) (24.1) (46.9) (48.2)
Loss Used for Computation
of Available Separate
Consolidated
Net Income (Loss) $(177.9) $(179.8) $(358.4) $(308.4)
Available Separate
Consolidated Net Income
(Loss)
Average number of shares of
General Motors Class H
Common Stock outstanding
(in millions) (Numerator) 884.0 875.9 880.8 875.7
Average Class H dividend base
(in millions) (Denominator) 1,307.6 1,299.6 1,304.4 1,299.4
Available Separate
Consolidated Net Income
(Loss) $(120.3) $(121.2) $(242.0) $(207.8)
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions) June 30, December 31,
2002 2001
ASSETS (Unaudited)
Current Assets
Cash and cash equivalents $836.1 $700.1
Accounts and notes receivable 1,137.7 1,090.5
Contracts in process 122.6 153.1
Inventories 333.9 360.1
Deferred income taxes 134.4 118.9
Prepaid expenses and other 1,042.4 918.4
Total Current Assets 3,607.1 3,341.1
Satellites, net 4,852.7 4,806.6
Property, net 2,183.6 2,197.8
Goodwill, net 6,715.3 6,500.3
Intangible Assets, net 447.9 656.5
Net Investment in Sales-type Leases 175.9 227.0
Investments and Other Assets 1,266.8 1,480.8
Total Assets $19,249.3 $19,210.1
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $1,104.1 $1,227.5
Deferred revenues 157.7 178.5
Short-term borrowings and
current portion of long-term debt 1,081.6 1,658.5
Accrued liabilities and other 1,303.3 1,342.0
Total Current Liabilities 3,646.7 4,406.5
Long-Term Debt 2,398.4 988.8
Other Liabilities and Deferred Credits 1,301.8 1,465.1
Deferred Income Taxes 757.7 746.5
Commitments and Contingencies
Minority Interests 542.9 531.3
Stockholder's Equity 10,601.8 11,071.9
Total Liabilities and Stockholder's Equity $19,249.3 $19,210.1
Holders of GM Class H common stock have no direct rights in the equity or
assets of Hughes, but rather have rights in the equity and assets of
General Motors (which includes 100% of the stock of Hughes).
SELECTED SEGMENT DATA
(Dollars in Millions)
(Unaudited) Six Months
Second Quarter Ended June 30,
2002 2001 2002 2001
DIRECT-TO-HOME BROADCAST
Total Revenues $1,793.7 $1,527.7 $3,437.5 $3,017.6
EBITDA (1) $20.6 $(1.3) $(42.0) $4.7
Operating Loss $(136.4) $(182.9) $(351.9) $(328.4)
Depreciation and Amortization $157.0 $181.6 $309.9 $333.1
Capital Expenditures $157.2 $226.3 $296.7 $353.9
SATELLITE SERVICES
Total Revenues $209.3 $208.3 $416.4 $413.5
EBITDA (1) $150.7 $134.5 $301.8 $274.5
EBITDA Margin (1) 72.0% 64.6% 72.5% 66.4%
Operating Profit $61.0 $32.8 $118.1 $73.9
Operating Profit Margin 29.1% 15.7% 28.4% 17.9%
Depreciation and Amortization $89.7 $101.7 $183.7 $200.6
Capital Expenditures $109.5 $94.2 $183.5 $161.4
NETWORK SYSTEMS
Total Revenues $254.4 $302.2 $497.2 $550.4
EBITDA (1) $(29.5) $(36.8) $(62.6) $(75.1)
Operating Loss $(46.1) $(56.5) $(97.2) $(109.1)
Depreciation and Amortization $16.6 $19.7 $34.6 $34.0
Capital Expenditures $87.8 $167.1 $216.1 $345.3
ELIMINATIONS and OTHER
Total Revenues $(47.7) $(53.1) $(103.2) $(103.4)
EBITDA (1) $(18.7) $(14.4) $60.1 $(8.9)
Operating Profit (Loss) $(17.0) $(16.4) $64.7 $(11.9)
Depreciation and Amortization $(1.7) $2.0 $(4.6) $3.0
Capital Expenditures $13.1 $22.6 $32.1 $0.8
TOTAL
Total Revenues $2,209.7 $1,985.1 $4,247.9 $3,878.1
EBITDA (1) $123.1 $82.0 $257.3 $195.2
EBITDA Margin (1) 5.6% 4.1% 6.1% 5.0%
Operating Loss $(138.5) $(223.0) $(266.3) $(375.5)
Depreciation and Amortization $261.6 $305.0 $523.6 $570.7
Capital Expenditures $367.6 $510.2 $728.4 $861.4
(1) EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) is the sum of operating profit (loss) and depreciation
and amortization. EBITDA margin is calculated by dividing EBITDA by
total revenues.
