Hughes Announces Third Quarter Revenues
12 October 1998
Hughes Announces Third Quarter Revenues
EL SEGUNDO, Calif., Oct. 12 -- Hughes Electronics Corporation
(Hughes) today reported that third quarter 1998 revenues increased 20.3% to
$1,513.3 million compared with $1,258.3 million in the third quarter of 1997.
Operating profit(1) in the quarter was $67.5 million compared with
$124.2 million in the third quarter of 1997. Third quarter operating profit
margin on the same basis was 4.5% in 1998 versus 9.9% in 1997.
Third quarter earnings(1) were $42.9 million compared with last year's
$52.4 million. Earnings per share on the same basis was $0.11 per share
versus pro forma earnings per share(2) of $0.13 in 1997.
Michael T. Smith, Hughes chairman and chief executive officer, said that
"each of Hughes' four primary business segments contributed to the strong
revenue growth. DIRECTV(R) accounted for most of the increase primarily due
to continued record subscriber growth in the United States." In addition, he
stated that increased sales of commercial satellites by Hughes Space and
Communications and higher DIRECTV receiver equipment sales by Hughes Network
Systems also contributed to the revenue growth.
Mr. Smith attributed the decline in operating profit and net income
primarily to the expected increase in DIRECTV operating losses resulting from
higher sales and marketing expenditures to support the record subscriber
growth. Also contributing to the earnings decline were DIRECTV Japan(TM)
start-up losses and other increased expenses, including pension expense. The
reduction in earnings was partially offset by lower interest expense and
higher interest income.
Nine-Month Financial Review
For the first nine months of 1998, revenues increased 21.5% to
$4,173.3 million compared with $3,433.7 million in 1997. This growth was
primarily the result of record DIRECTV subscriber growth, the May 1997
PanAmSat merger and higher commercial satellite sales.
Driven by the revenue growth, operating profit(1) for the first nine
months of 1998 increased 6.8% to $229.3 million versus $214.6 million in 1997.
Operating profit margin on the same basis was 5.5% compared with 6.2% in the
first nine months of 1997. The decline in operating profit margin was
principally due to a provision for estimated losses related to the bankruptcy
filing by a Hughes Network Systems customer, goodwill amortization associated
with the 1997 PanAmSat merger and subsequent additional investment by Hughes
in 1998, and other increased expenses, including pension expense.
Earnings(1) and earnings per share in the first nine months of 1998 were
$152.7 million and $0.38, respectively. Excluding the one-time gain
associated with the PanAmSat merger in May 1997, earnings and pro forma
earnings per share(2) in the first nine months of 1997 were $82.4 million and
$0.20 per share, respectively. The increases in earnings and earnings per
share were principally a result of the aforementioned operating profit growth,
increased interest income and lower interest expense, which more than offset
the losses related to the start of service for DIRECTV Japan, a 32%
Hughes-owned affiliate.
SEGMENT FINANCIAL REVIEW: THIRD QUARTER 1998
Direct-To-Home Broadcast
For the quarter, revenues increased 33.6% to $459.1 million from
$343.7 million in the third quarter of 1997. The increase resulted from
continued strong subscriber growth and average monthly revenue per subscriber,
as well as low subscriber churn rates. Domestic DIRECTV propelled this growth
with quarterly revenues of $408 million, a 37% increase over last year's third
quarter revenues of $298 million. With 303,000 net new subscribers in the
third quarter, total DIRECTV subscribers grew to 4,058,000 in the United
States as of September 30, 1998. The Company's Latin American DIRECTV
subsidiary, Galaxy Latin America (GLA), had third quarter revenues of
$37 million compared with $22 million in 1997. With the addition of 36,000
net new subscribers in the third quarter, total DIRECTV subscribers in Latin
America were 423,000 as of September 30, 1998. In addition, DIRECTV Japan had
a total of 181,900 subscribers by the end of the third quarter.
The segment operating loss in the quarter was $61.8 million compared with
an operating loss of $43.3 million in the third quarter of 1997. The larger
operating loss in 1998 was principally due to higher sales and marketing
expenditures that more than offset increased subscriber revenues. The third
quarter 1998 operating loss for the domestic DIRECTV business was $31 million
compared with $15 million last year, and GLA's third quarter operating loss
was $30 million compared with $26 million last year.
Satellite Services
PanAmSat's third quarter 1998 revenues were up 9.5% to $186.5 million
compared with $170.3 million in the prior year. Overall revenue from video
services increased by 4 percent to $135.8 million, primarily due to the
commencement of service agreements for full-time, as well as short-term,
special events video distribution. Telecommunications services revenue
increased by 16 percent to $40.7 million in the third quarter, in large part
due to the growth in data and Internet-related service agreements.
As a result of this revenue growth, PanAmSat's operating profit in the
quarter rose 10.3% to $79.1 million from $71.7 million in 1997. Operating
profit margin in the third quarter increased slightly to 42.4% compared with
42.1% one year ago.
Satellite Systems
For the third quarter of 1998, revenues increased 14.0% to $688.9 million
from revenues of $604.3 million for the same period in 1997. The increase
was principally due to higher commercial satellite sales to customers such as
Thuraya Satellite Telecommunications Company, ICO Global Communications and
American Mobile Radio Corporation.
Driven primarily by the revenue growth, operating profit in the quarter
increased 20.2% to $63.8 million from $53.1 million in the prior year.
Operating profit margin in the quarter increased to 9.3% versus 8.8% last
year.
Network Systems
Third quarter revenues for Hughes Network Systems (HNS) increased 23.9% to
$267.7 million compared with $216.0 million in the same period last year. The
growth was primarily due to increased sales of DIRECTV receiver equipment,
which more than offset lower international sales of private business networks.
HNS operating profit in the quarter was $16.9 million compared with $22.4
million in the third quarter of 1997. Third quarter operating profit margin
declined to 6.3% compared with 10.4% last year. The decline in operating
profit and margin was principally a result of lower international sales of
international private business networks.
BALANCE SHEET
The cash balance of $1,509.7 million at September 30, 1998 declined
$1,274.1 million from December 31, 1997 primarily due to the $851.4 million
additional investment in PanAmSat to increase Hughes' ownership from 71.5% to
81.0% and a $204.7 million cash payment to GM in connection with the
finalization of the purchase price adjustment amount related to the transfer
of Delco Electronics to GM in December 1997 as part of the Hughes
Transactions. The Hughes Transactions also included the spin-off and
subsequent merger of Hughes Defense with Raytheon Company.
(1) Excludes the effects of purchase accounting adjustments related to
General Motors' (GM) acquisition of Hughes in 1985.
(2) 1997 earnings per share are presented on a pro forma basis.
Historically, such earnings per share amounts were calculated based on the
financial performance of former Hughes, which consisted of the defense
electronics, automotive electronics, and telecommunications and space
businesses. Since these financial statements relate only to the
telecommunications and space businesses of former Hughes, the pro forma
presentation is used to present the earnings per share that would have been
achieved relative to the GM Class H common stock had it been calculated based
upon only such telecommunications and space businesses.
STATEMENT OF INCOME AND
AVAILABLE SEPARATE CONSOLIDATED NET INCOME
(Dollars in Millions Except Per Share Amounts)
Nine Months
Third Quarter Ended September 30,
1998 1997 1998 1997
Revenues
Product sales $872.8 $703.3 $2,327.5 $2,125.9
Direct broadcast, leasing
and other services 640.5 555.0 1,845.8 1,307.8
Total Revenues 1,513.3 1,258.3 4,173.3 3,433.7
Operating Costs and Expenses
Cost of products sold 659.5 550.3 1,782.4 1,711.4
Broadcast programming
and other costs 284.6 243.9 800.2 598.4
Selling, general and
administrative expenses 390.4 261.9 1,052.2 714.0
Depreciation and amortization 111.3 78.0 309.2 195.3
Amortization of GM purchase
accounting adjustments (a) 5.3 5.3 15.9 15.9
Total Operating Costs
and Expenses 1,451.1 1,139.4 3,959.9 3,235.0
Operating Profit 62.2 118.9 213.4 198.7
Interest income 20.5 10.4 88.6 18.1
Interest expense (3.6) (24.4) (9.5) (58.1)
Other, net (33.4) (17.8) (102.8) 452.6
Income from Continuing
Operations Before Income
Taxes and Minority
Interests 45.7 87.1 189.7 611.3
Income taxes 17.4 34.8 72.1 244.5
Minority interests in net
losses (income) of
subsidiaries 9.3 (5.1) 19.2 16.8
Income from continuing
operations 37.6 47.2 136.8 383.6
(Loss) income from discontinued
operations, net of taxes -- (0.1) -- 1.2
Net Income 37.6 47.1 136.8 384.8
Adjustments to exclude the
effect of GM purchase
accounting adjustments (a) 5.3 5.3 15.9 15.9
Net Earnings Used for
Computation of Available
Separate Consolidated
Net Income $42.9 $52.4 $152.7 $400.7
Available Separate
Consolidated Net Income (b) $11.4 $13.4 $40.1 $101.4
Net Earnings Attributable to
General Motors Class H
Common Stock on a Per
Share Basis (b) $0.11 $0.13 $0.38 $1.00
(a) Relates to General Motors' purchase of Hughes in 1985.
(b) 1997 amounts are presented on a pro forma basis. Historically, such
amounts were calculated based on the financial performance of former Hughes,
which consisted of the defense electronics, automotive electronics and
telecommunications and space businesses. Since these financial statements
relate only to the telecommunications and space businesses of former Hughes,
the pro forma presentation is used to present the results that would have been
achieved relative to the GM Class H common stock had the results been
calculated based only upon such telecommunications and space businesses.
BALANCE SHEET
(Dollars in Millions)
September 30, December 31,
1998 1997
ASSETS
Current Assets
Cash and cash equivalents $1,509.7 $2,783.8
Accounts and notes receivable 1,067.2 662.8
Contracts in process 611.8 575.6
Inventories 570.7 486.4
Prepaid expenses, deferred
income taxes and other 399.1 297.3
Total Current Assets 4,158.5 4,805.9
Satellites - Net 2,843.1 2,643.4
Property - Net 965.9 889.7
Net Investment in
Sales-type Leases 181.9 337.6
Intangible Assets - Net 3,587.8 2,954.8
Investments and Other Assets 1,155.9 1,132.4
Total Assets $12,893.1 $12,763.8
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $720.0 $472.8
Advances on contracts 245.6 209.8
Deferred revenues 150.3 110.6
Notes payable 60.2 --
Accrued liabilities 564.1 689.4
Total Current Liabilities 1,740.2 1,482.6
Long-Term Debt 778.7 637.6
Deferred Gains on Sales
and Leasebacks 130.1 191.9
Accrued Operating Leaseback
Expense 38.8 100.2
Postretirement Benefits
Other Than Pensions 156.2 154.8
Other Liabilities and
Deferred Credits 702.8 706.4
Deferred Income Taxes 618.7 570.8
Minority Interests 469.0 607.8
Stockholder's Equity 8,258.6 8,311.7
Total Liabilities and
Stockholder's Equity $12,893.1 $12,763.8
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).
PRO FORMA SELECTED SEGMENT DATA*
(Dollars in Millions)
Nine Months
Third Quarter Ended September 30,
1998 1997 1998 1997
DIRECT-TO-HOME BROADCAST
Total Revenues $459.1 $343.7 $1,248.5 $861.0
Operating Loss $(61.8) $(43.3) $(133.6) $(158.7)
Depreciation and
Amortization $31.2 $21.2 $77.2 $62.5
Capital Expenditures (a) $82.0 $24.0 $130.1 $54.2
SATELLITE SERVICES
Total Revenues $186.5 $170.3 $570.6 $432.0
Operating Profit $79.1 $71.7 $239.2 $202.9
Operating Profit Margin 42.4% 42.1% 41.9% 47.0%
Depreciation and
Amortization $56.6 $48.0 $169.8 $91.9
Capital Expenditures (b)$190.7 $191.0 $605.0 $543.7
SATELLITE SYSTEMS
Total Revenues $688.9 $604.3 $1,988.0 $1,748.1
Operating Profit $63.8 $53.1 $178.9 $159.7
Operating Profit Margin 9.3% 8.8% 9.0% 9.1%
Depreciation and
Amortization $12.9 $9.9 $35.1 $27.7
Capital Expenditures $18.2 $28.1 $50.5 $68.2
NETWORK SYSTEMS
Total Revenues $267.7 $216.0 $674.1 $609.4
Operating Profit (Loss) $16.9 $22.4 $(20.2) $6.1
Operating Profit Margin 6.3% 10.4% - 1.0%
Depreciation and
Amortization $11.4 $5.6 $29.8 $21.7
Capital Expenditures $10.7 $15.3 $26.4 $33.0
ELIMINATIONS and OTHER
Total Revenues $(88.9) $(76.0) $(307.9) $(216.8)
Operating Profit (Loss)$(30.5) $20.3 $(35.0) $4.6
Depreciation and
Amortization $(0.8) $(6.7) $(2.7) $(8.5)
Capital Expenditures $(21.4) $74.1 $114.5 $(147.6)
* The Financial Statements reflect the application of purchase accounting
adjustments related to GM's acquisition of Hughes. However, as provided in
the General Motors' Restated Certificate of Incorporation, the earnings
attributable to GM Class H common stock for purposes of determining the amount
available for the payment of dividends on GM Class H common stock specifically
excludes such adjustments. In order to provide additional analytical data,
the above unaudited pro forma selected segment data, which exclude the
purchase accounting adjustments related to GM's acquisition of Hughes, are
presented.
(a) Includes expenditures related to satellites amounting to $38.0
million in the third quarter and nine-month periods of 1998.
(b) Includes expenditures related to satellites amounting to $182.2
million, $180.2 million, $422.2 million and $527.3 million, respectively.
Also included in the 1998 nine-month period is $155.5 million related to the
early buy-out of satellite sale-leasebacks.