Hughes Communications, Inc. Announces First Quarter 2008 Results
First Quarter 2008 Revenues Increase 6% over First Quarter 2007 to a Record $237 million;
Adjusted EBITDA Increases 15% to $29 million;
New Order Bookings Increase to $286 million
Germantown, Md., May 7, 2008—Hughes Communications, Inc. (NASDAQ: HUGH) (“Hughes”), the global leader in broadband satellite network solutions and services, today announced financial results for the quarter ended March 31, 2008. Hughes' consolidated operations are classified into four reportable segments: North America VSAT; International VSAT; Telecom Systems; and Corporate and Other. The North America VSAT, International VSAT and Telecom Systems segments represent all the operations of Hughes Network Systems, LLC (“HNS”), Hughes’ principal operating subsidiary.
“We accomplished a major milestone on April 3, 2008, namely, the initiation of commercial service on SPACEWAY™ 3, our new state-of-the-art satellite,” said Pradman Kaul, president and chief executive officer of Hughes. “We launched SPACEWAY 3 in August last year and thereafter, went through in-orbit testing as well as rigorous alpha and beta testing with customers. I am delighted that SPACEWAY 3 is now in service with revenue bearing traffic.”
Kaul continued, “Hughes had a strong first quarter in 2008, setting new records for first quarter revenue, Adjusted EBITDA* and new orders. Revenues increased by 6% over the first quarter of 2007 to $237.2 million and once again, the major contributors to revenue growth were our consumer and mobile satellite businesses. Over 46,700 new consumers were activated in the first quarter of 2008, resulting in the subscriber base growing to 401,000 at March 31, 2008 for a growth of 16% over the subscriber base at March 31, 2007. Consumer ARPU increased to $65 in the first quarter of 2008 over $60 in the first quarter of 2007. Revenue in the Telecom Systems segment grew by 29% over the first quarter 2007 to $36 million, driven primarily by our mobile satellite business. Our North America and International enterprise businesses continued their steady revenue contribution with revenues of $110 million in the first quarter of 2008.”
Kaul continued, “We booked new orders of $286 million in the first quarter of 2008. Our North America enterprise business received significant orders from GTECH, Row 44, Galaxy Broadband, Edward Jones, Lowes, and Marathon. In our International enterprise business, we received significant orders from Visa International, BP, Telefonica, Bentley Walker, and Tesco. In our Telecom Systems segment, we obtained significant orders from Mobile Satellite Ventures and Hughes Telematics.”
Net income for the first quarter of 2008 was $0.7 million, and reflects an $8.5 million accrual related to the estimated payout in April 2009 for a one-time employee retention plan established in connection with the 2005 purchase of HNS from The DIRECTV Group, Inc. The liability is based on management’s current assessment of the probability of achieving a profitability goal, and continued employment by the participants through April 22, 2009 after giving effect to the vesting period. Management will continue to assess this liability and will accrue the balance as appropriate through the vesting period. Management currently estimates that the payout will be $11.4 million compared to the maximum payout of $14.2 million. Adjusted Net Income* in the first quarter of 2008, after adding back the $8.5 million accrual and the $1.1 million in equity incentive plan compensation, was $10.2 million, an increase of $6.3 million over the first quarter of 2007. Adjusted EBITDA for Hughes increased in the first quarter of 2008 by 15% to $29.4 million over the first quarter of 2007; Adjusted EBITDA for HNS increased to $30.2 million which is an increase of 14% over the first quarter of 2007.
* Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain adjustments. EBITDA is defined as earnings (losses) before interest, income taxes, depreciation, amortization, and equity incentive compensation. Adjusted Net Income is defined as net income adjusted to exclude equity incentive plan compensation and long-term cash incentive (retention) plan expense. See “Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures.”
Set forth below is a table highlighting certain of our results for the three months ended March 31, 2008 and March 31, 2007:
| Hughes Communications, Inc. | | Hughes Network Systems, LLC | |
| | | Three Months | | | | Three Months | |
| | | Ended March 31, | | | | Ended March 31, | |
| (Dollars in thousands) | | 2008 | | | 2007 | | (Dollars in thousands) | | 2008 | | | 2007 | |
| Revenue | | | | | | | Revenue | | | | | | |
| North America VSAT | | $ | 156,790 | | | $ | 151,565 | | North America VSAT | | $ | 156,790 | | | $ | 151,565 | |
| International VSAT | | | 44,596 | | | | 43,496 | | International VSAT | | | 44,596 | | | | 43,496 | |
| Telecom Systems | | | 35,634 | | | | 27,670 | | Telecom Systems | | | 35,634 | | | | 27,670 | |
| Corporate and Other | | | 140 | | | | 151 | | Total | | $ | 237,020 | | | $ | 222,731 | |
| Total | | $ | 237,160 | | | $ | 222,882 | | | | | | | | | | |
| Operating income (loss) | | | | | | | | | Operating income | | | | | | | | |
| North America VSAT | | $ | 5,022 | | | $ | 8,501 | | North America VSAT | | $ | 5,022 | | | $ | 8,501 | |
| International VSAT | | | 433 | | | | 958 | | International VSAT | | | 433 | | | | 958 | |
| Telecom Systems | | | 4,589 | | | | 3,541 | | Telecom Systems | | | 4,589 | | | | 3,541 | |
| Corporate and Other | | | (738 | ) | | | (1,444 | ) | Total | | $ | 10,044 | | | $ | 13,000 | |
| Total | | $ | 9,306 | | | $ | 11,556 | | | | | | | | | | |
| Net income | | $ | 656 | | | $ | 2,940 | | Net income | | $ | 1,458 | | | $ | 4,308 | |
| Adjusted net income* | | $ | 10,247 | | | $ | 3,957 | | | | | | | | | | |
| EBITDA* | | $ | 20,922 | | | $ | 24,380 | | EBITDA* | | $ | 21,674 | | | $ | 25,415 | |
| Adjusted EBITDA* | | $ | 29,442 | | | $ | 25,557 | | Adjusted EBITDA* | | $ | 30,194 | | | $ | 26,592 | |
| New Orders | | $ | 286,405 | | | $ | 277,360 | | New Orders | | $ | 286,265 | | | $ | 277,209 | |
| | * | For the definitions of Adjusted Net Income, EBITDA and Adjusted EBITDA, see “Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures” below. |
Selected Highlights
| · | Hughes successfully activated the first HughesNet® consumer subscriber for broadband Internet service utilizing its SPACEWAY 3 satellite on April 3, 2008. With this significant milestone, the SPACEWAY 3 satellite has officially commenced carrying revenue-bearing traffic, making Hughes a fully integrated service provider. Launched by Arianespace in August, 2007, SPACEWAY 3 was subsequently placed into geostationary orbit by Boeing in December, 2007, at which time Hughes assumed operational control. Extensive pre-commercial testing has been completed since then and Hughes has now achieved its goal of commencing commercial service in early 2008. |
| Hughes was awarded a 7-year contract by long-time customer, GTECH Corporation, the world’s leading provider of lottery, gaming and transaction processing solutions, to take over management and operations of their private satellite networks, comprising 65,000 remote satellite terminals. The migration of operation services to Hughes facilities in North Las Vegas, NV and Germantown, MD is currently underway and is expected to be completed in the third quarter of 2008. |
| · | Hughes signed MicroCorp, Inc. to be a certified reseller of HughesNet broadband satellite business services in the US. Now business customers purchasing telecom solutions from MicroCorp's network of more than 1,500 agents, system integrators, and value-added remarketers will have access to high-speed data services throughout the US, as well as back-up services, using HughesNet broadband satellite services. |
| · | Hughes was issued $2.6 million in task orders by the Defense Information Systems Agency and other participating government agencies to provide Digital Compressed Satellite Services (DCSS) for the Government Education and Training Network (GETN). This effort is through the US General Services Administration's SATCOM-II vehicle and is anticipated to be a multi-million dollar effort. |
| · | Orion Satellite Systems of Australia purchased and commissioned a state-of-the-art DVB-S2/IPoS with ACM satellite system from Hughes to provide broadband Internet access service to remote areas in Australia. Orion Satellite Systems is one of the registered providers of broadband satellite services under the Australian Broadband Guarantee (ABG) program. |
| · | Hughes’ Brazilian subsidiary Hughes Telecommunicacoes do Brasil, Ltda signed an agreement with Intelsat, the leading provider of commercial satellite services, to deliver a new managed cellular backhaul solution in Brazil, enabling cellular service providers to cost-effectively extend cell networks to rural areas and sparsely populated regions. |
| Intelsat selected Hughes’ HX broadband satellite platform for a new regional Ku-band broadband maritime service. Intelsat will deliver its new service via a limited number of distributor partners in the Caribbean and Gulf of Mexico regions starting in mid-2008. The Hughes HX System is fully compliant with the world's leading satellite industry standard, IPoS/DVB-S2 with Adaptive Coding and Modulation (ACM). The Hughes implementation of ACM on the downlink, together with Adaptive Inbound Selection (AIS) and signal spreading capability on the uplink, enables the use of small shipboard antennas to deliver high-speed Ku-band maritime services. |
| Hughes signed All Systems Satellite Distributors to be a distributor of HughesNet satellite broadband Internet service in the Northeast and mid-Atlantic region, where large numbers of consumers are beyond the reach of cable and DSL. Under the terms of the agreement, All Systems will market primarily to retailers in Delaware, Maryland, New England, New Jersey, New York, Pennsylvania, Virginia, and West Virginia. This will create a new income opportunity for the retailers, who will sell and install the HughesNet satellite broadband service. |
| · | The Society of Satellite Professionals International (SSPI) presented Hughes with its 2008 Industry Innovators Award for Systems Development and Applications. Hughes was recognized for its technology leadership in developing SPACEWAY 3, the world's first commercial satellite system to employ on-board switching and routing, at the SSPI gala held on February 26, 2008 during the Satellite 2008 industry forum in Washington DC. |
| · | Hughes’ Crypto Kernel, the cryptographic component of its HN and HX Systems, has earned a Federal Information Processing Standard (FIPS) 140-2 level 1 certificate (Certs. #919 and #915) from the National Institute of Standards and Technology (NIST). FIPS 140-2 validation is a requirement for any cryptographic product, which will be used in a US government agency network. |
To summarize, Kaul said, “We are very pleased with our financial growth in first quarter of 2008 over what was already a very strong first quarter in 2007. I am also pleased with our new orders performance in the first quarter which has resulted in a strong non-consumer backlog of over $800 million. Our most significant accomplishment is that we initiated commercial service on our SPACEWAY 3 satellite and we expect to see significant cost benefits and new revenue opportunities going forward. We believe we have continued our tradition of delivering on our commitments to our shareholders, and are pleased at how we are positioned for the rest of this year and beyond.”
Commenting on Hughes’ financial performance, Grant Barber, executive vice president and chief financial officer, said, “Our profitability showed strong growth in the first quarter of 2008 with Adjusted EBITDA growing 15% over the first quarter of 2007. Hughes’ GAAP net income in the quarter was $0.7 million or $0.03 per share compared with $2.9 million or $0.15 per share on a fully diluted basis in the first quarter of 2007. Non-GAAP Adjusted Net Income was $10.2 million, or $0.54 per share compared to $4.0 million or $0.21 per share on a fully diluted basis in the first quarter of 2007. Hughes ended the first quarter of 2008 with consolidated cash and marketable securities of $128.8 million.”
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
The following table reconciles the differences between Hughes’ net income as determined under United States of America generally accepted accounting principles (GAAP), Adjusted Net Income, EBITDA and Adjusted EBITDA.
| | Hughes Communications, Inc. | |
| | | | Three Months | |
| | | | Ended March 31, | |
| | (Dollars in thousands) | | 2008 | | | 2007 | |
| | | | | | | | |
| | Net income | | $ | 656 | | | $ | 2,940 | |
| | Add: | | | | | | | | |
| | Equity incentive plan compensation | | | 1,071 | | | | 1,017 | |
| | Long-term cash incentive (retention) plan | | | 8,520 | | | | - | |
| | Adjusted net income | | $ | 10,247 | | | $ | 3,957 | |
| | | | |
| | | | | | | | | | |
| | Net income | | $ | 656 | | | $ | 2,940 | |
| | Add: | | | | | | | | |
| | | | | | | | | | |
| | Interest expense | | | 9,308 | | | | 11,438 | |
| | Income tax expense | | | 640 | | | | 520 | |
| | Depreciation and amortization | | | 10,710 | | | | 11,543 | |
| | Equity incentive plan compensation | | | 1,071 | | | | 1,017 | |
| | Less: | | | | | | | | |
| | Interest income | | | (1,463 | ) | | | (3,078 | ) |
| | EBITDA | | $ | 20,922 | | | $ | 24,380 | |
| | Add: | | | | | | | | |
| | Long-term cash incentive (retention) plan | | | 8,520 | | | | - | |
| | Restructuring charge | | | - | | | | 1,177 | |
| | Adjusted EBITDA | | $ | 29,442 | | | $ | 25,557 | |
| | | | | | | | | | |
The following table reconciles the differences between HNS’ net income as determined under GAAP, EBITDA and Adjusted EBITDA:
| | Hughes Network Systems, LLC | |
| | | | | Three Months | |
| | | | | Ended March 31, | |
| | (Dollars in thousands) | | | 2008 | | | | 2007 | |
| | | | | | | | | | |
| | Net income | | $ | 1,458 | | | $ | 4,308 | |
| | Add: | | | | | | | | |
| | Interest expense | | | 9,308 | | | | 11,438 | |
| | Income tax expense | | | 629 | | | | 520 | |
| | Depreciation and amortization | | | 10,710 | | | | 11,543 | |
| | Equity incentive plan compensation | | | 925 | | | | 528 | |
| | Less: | | | | | | | | |
| | Interest income | | | (1,356) | | | | (2,922) | |
| | EBITDA | | $ | 21,674 | | | $ | 25,415 | |
| | | | | | | | | | |
| | Add: | | | | | | | | |
| | Long-term cash incentive (retention) plan | | | 8,520 | | | | - | |
| | Restructuring charge | | | - | | | | 1,177 | |
| | Adjusted EBITDA | | $ | 30,194 | | | $ | 26,592 | |
| | | | | | | | | | |
The financial statements of Hughes and HNS for the three months ended March 31, 2008 and March 31, 2007 are attached to this press release.
Note on Use of Non-GAAP Financial Measures
Hughes provides non-GAAP financial data in addition to providing financial results in accordance with GAAP. This press release includes the following supplemental non-GAAP financial measures: Adjusted Net Income, EBITDA and Adjusted EBITDA. Adjusted Net Income excludes from GAAP net income the effects of equity incentive plan compensation and the accrual of long term cash incentive (retention) plan, which was adopted in April 2005 in connection with the acquisition of HNS. EBITDA is defined as earnings (loss) before interest, income taxes, depreciation, amortization and equity incentive plan compensation. Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain adjustments. We believe these non-GAAP financial measures provide useful information to both management and investors by excluding specific expenses that we believe are not indicative of our core operating results. Internally, we use these non-GAAP measures in our review of the performance of management and in the performance of our business and operations. Management also uses Adjusted EBITDA of HNS for purposes of determining the payments to be made in connection with the long term cash incentive (retention) plan. Externally, we believe that investors may find this non-GAAP financial information useful in their assessment of our operating performance. In addition, we believe that these non-GAAP financial measures provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. Adjusted EBITDA of HNS is also used in calculating covenant compliance under HNS' credit agreements and the indenture governing HNS’ 9½% Senior Notes due 2014.
Adjusted Net Income, EBITDA and Adjusted EBITDA are not recognized terms under GAAP. These non-GAAP measures do not represent net income or cash flows from operations, as these terms are defined under GAAP, and should not be considered as alternatives to net income as an indicator of operating performance or to cash flows as a measure of liquidity. Additionally, these non-GAAP measures are not intended to be measures of cash flow available to management for discretionary use, as such measures do not consider certain cash requirements such as capital expenditures (including expenditures on VSAT operating lease hardware and capitalized software development costs), tax payments, and debt service requirements (including VSAT operating lease hardware). Adjusted Net Income, EBITDA and Adjusted EBITDA as presented herein are not necessarily comparable to similarly titled measures reported by other companies. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP.
About Hughes Communications, Inc.
Hughes Communications, Inc. (NASDAQ: HUGH) is the 100 percent owner of Hughes Network Systems, LLC. Hughes is the global leader in providing broadband satellite networks and services for enterprises, governments, small businesses, and consumers. HughesNet encompasses all broadband solutions and managed services from Hughes, bridging the best of satellite and terrestrial technologies. Its broadband satellite products are based on global standards approved by the TIA, ETSI, and ITU standards organizations, including IPoS/DVB-S2, RSM-A, and GMR-1. To date, Hughes has shipped more than 1.5 million systems to customers in over 100 countries.
Headquartered outside Washington, DC, in Germantown, Maryland, USA, Hughes maintains sales and support offices worldwide. For more information, please visit www.hughes.com.
Safe Harbor Statement under the U.S. Private Securities Litigation Reform Act of 1995
This press release may contain statements that are forward looking, as that term is defined by the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, discussions regarding industry outlook and Hughes’ expectations regarding the performance of its business, its future liquidity and capital resource needs, its strategic plans and objectives. These forward-looking statements are based on management's beliefs, as well as assumptions made by, and information currently available to, management. When used in this release, the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “project,” “plans” and similar expressions and the use of future dates are intended to identify forward-looking statements. Although management believes that the expectations reflected in these forward-looking
statements are reasonable, it can give no assurance that these expectations will prove to have been correct. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements are subject to certain risks, uncertainties and assumptions, including, but not limited to, the following: risks related to Hughes’ substantial leverage and restrictions contained in its debt agreements, technological developments, its reliance on providers of satellite transponder capacity, changes in demand for Hughes’ services and products, competition, industry trends, regulatory changes, foreign currency exchange rate fluctuations and other risks identified and discussed under the caption “Risk Factors” in Hughes’ Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission on March 10, 2008 and in the other documents Hughes files with the Securities and Exchange Commission from time to time.
###
©Hughes Communications, Inc. All rights reserved. Hughes, HughesNet, IPoS, and SPACEWAY are trademarks of Hughes Network Systems, LLC. DIRECTV and DIRECWAY are registered trademarks of The DIRECTV Group, Inc.
| Contact Information | | Attachments |
Investor Relations Contact: Deepak V. Dutt, Vice President, Treasurer and Investor Relations Officer Email: ddutt@hns.com Phone: 301-428-7010 Media Contact: Judy Blake, Director, Marketing Communications Email: jblake@hns.com Phone: 301-601-7330 | | Hughes Communications, Inc. Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Cash Flows Hughes Network Systems, LLC Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Cash Flows |
HUGHES COMMUNICATIONS, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
| | | March 31, 2008 | | | December 31, 2007 | |
| ASSETS | | | | | | |
| Current assets: | | | | | |
| Cash and cash equivalents | | $ | 110,136 | | | $ | 134,092 | |
| Marketable securities | | | 18,650 | | | | 17,307 | |
| Receivables, net | | | 187,490 | | | | 209,943 | |
| Inventories | | | 76,099 | | | | 65,754 | |
| Prepaid expenses and other | | | 36,215 | | | | 43,720 | |
| Total current assets | | | 428,590 | | | | 470,816 | |
| Property, net | | | 489,949 | | | | 479,976 | |
| Capitalized software costs, net | | | 49,185 | | | | 47,582 | |
| Intangible assets, net | | | 29,543 | | | | 22,513 | |
| Goodwill | | | 1,362 | | | | - | |
| Other assets | | | 115,393 | | | | 108,950 | |
| Total assets | | $ | 1,114,022 | | | $ | 1,129,837 | |
| LIABILITIES AND STOCKHOLDER'S EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 73,166 | | | $ | 72,440 | |
| Short-term debt | | | 12,730 | | | | 14,795 | |
| Accrued liabilities | | | 165,258 | | | | 177,932 | |
| Due to affiliates | | | 1,077 | | | | 12,621 | |
| Total current liabilities | | | 252,231 | | | | 277,788 | |
| Long-term debt | | | 577,431 | | | | 577,761 | |
| Other liabilities | | | 20,692 | | | | 6,526 | |
| Total liabilities | | | 850,354 | | | | 862,075 | |
| Commitments and contingencies | | | | | | | | |
| Minority interests | | | 5,446 | | | | 5,401 | |
| Stockholders' Equity: | | | | | | | | |
| Preferred stock, $0.001 par value; 1,000,000 shares authorized and no | | | | | | | | |
| shares issued and outstanding at March 31, 2008 and December 31, 2007 | | | - | | | | - | |
| Common stock, $0.001 par value; 64,000,000 shares authorized; | | | | | | | | |
| 19,185,794 shares and 19,195,972 shares issued and outstanding | | | | | | | | |
| as of March 31, 2008 and December 31, 2007, respectively | | | 19 | | | | 19 | |
| Additional paid in capital | | | 631,456 | | | | 631,300 | |
| Accumulated deficit | | | (366,212 | ) | | | (366,868 | ) |
| Accumulated other comprehensive loss: | | | | | | | | |
| Foreign currency translation adjustments | | | 3,492 | | | | 3,305 | |
| Unrealized loss on interest rate swap | | | (10,699 | ) | | | (5,482 | ) |
| Unrealized gains on securities | | | 166 | | | | 87 | |
| Total stockholders' equity | | | 258,222 | | | | 262,361 | |
| Total liabilities and stockholders' equity | | $ | 1,114,022 | | | $ | 1,129,837 | |
| | | | | | | | | |
HUGHES COMMUNICATIONS, INC.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
| | | Three Months Ended March 31, | |
| | | 2008 | | | 2007 | |
| Revenues: | | | | | | |
| Services | | $ | 148,897 | | | $ | 119,774 | |
| Hardware sales | | | 88,263 | | | | 103,108 | |
| Total revenues | | | 237,160 | | | | 222,882 | |
| Operating costs and expenses: | | | | | | | | |
| Cost of services | | | 94,217 | | | | 80,234 | |
| Cost of hardware products sold | | | 76,798 | | | | 87,166 | |
| Selling, general and administrative | | | 49,155 | | | | 38,266 | |
| Research and development | | | 6,076 | | | | 4,124 | |
| Amortization of intangibles | | | 1,608 | | | | 1,536 | |
| Total operating costs and expenses | | | 227,854 | | | | 211,326 | |
| Operating income | | | 9,306 | | | | 11,556 | |
| Other income (expense): | | | | | | | | |
| Interest expense | | | (9,308 | ) | | | (11,438 | ) |
| Interest income | | | 1,463 | | | | 3,078 | |
| Other income, net | | | 31 | | | | 101 | |
| Income before income tax expense; minority interests in net | | | | | | | | |
| losses of subsidiaries; and equity in losses of unconsolidated | | | | | | | | |
| affiliates | | | 1,492 | | | | 3,297 | |
| Income tax expense | | | (640 | ) | | | (520 | ) |
| Minority interests in net losses of subsidiaries | | | (45 | ) | | | 283 | |
| Equity in losses of unconsolidated affiliates | | | (151 | ) | | | (120 | ) |
| Net income | | $ | 656 | | | $ | 2,940 | |
| Earnings per share: | | | | | | | | |
| Basic | | $ | 0.03 | | | $ | 0.16 | |
| Diluted | | $ | 0.03 | | | $ | 0.15 | |
| Shares used in computation of per share data: | | | | | | | | |
| Basic | | | 18,867,630 | | | | 18,843,122 | |
| Diluted | | | 19,275,233 | | | | 19,212,462 | |
HUGHES COMMUNICATIONS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| | | Three Months Ended | |
| | | March 31, | |
| | | 2008 | | | 2007 | |
| Cash flows from operating activities: | | | | | | |
| Net income | | $ | 656 | | | $ | 2,940 | |
| Adjustments to reconcile net income to cash flows from operating activities: | | | | | | | | |
| Depreciation and amortization | | | 11,053 | | | | 11,467 | |
| Equity plan compensation expense | | | 1,071 | | | | 1,017 | |
| Minority interests | | | 45 | | | | (283 | ) |
| Equity in losses from unconsolidated affiliates | | | 151 | | | | 120 | |
| Other | | | (3 | ) | | | (250 | ) |
| Change in other operating assets and liabilities, net of acquisitions: | | | | | | | | |
| Receivables, net | | | 23,857 | | | | (2,469 | ) |
| Inventories | | | (10,194 | ) | | | (1,996 | ) |
| Prepaid expenses and other | | | (3,927 | ) | | | (641 | ) |
| Accounts payable | | | 905 | | | | (4,470 | ) |
| Accrued liabilities and other | | | (6,197 | ) | | | (3,051 | ) |
| Net cash provided by operating activities | | | 17,417 | | | | 2,384 | |
| Cash flows from investing activities: | | | | | | | | |
| Change in restricted cash | | | 7 | | | | 508 | |
| Purchases of marketable securities | | | (2,071 | ) | | | (1,742 | ) |
| Proceeds from sales of marketable securities | | | 1,005 | | | | 15,000 | |
| Expenditures for property | | | (22,948 | ) | | | (62,245 | ) |
| Expenditures for capitalized software | | | (3,382 | ) | | | (3,288 | ) |
| Proceeds from sale of property | | | 25 | | | | 313 | |
| Additional investment in Hughes Systique Corporation | | | (1,500 | ) | | | - | |
| Acquisition of Helius | | | (10,812 | ) | | | - | |
| Long-term loan to Hughes Systique Corporation | | | (500 | ) | | | - | |
| Net cash used in investing activities | | | (40,176 | ) | | | (51,454 | ) |
| Cash flows from financing activities: | | | | | | | | |
| Net increase in notes and loans payable | | | 689 | | | | 303 | |
| Long-term debt borrowings | | | 1,654 | | | | 115,296 | |
| Repayment of long-term debt | | | (4,620 | ) | | | (6,902 | ) |
| Debt issuance costs | | | - | | | | (1,987 | ) |
| Net cash (used in) provided by financing activities | | | (2,277 | ) | | | 106,710 | |
| Effect of exchange rate changes on cash and cash equivalents | | | 1,080 | | | | (384 | ) |
| Net(decrease) increase in cash and cash equivalents | | | (23,956 | ) | | | 57,256 | |
| Cash and cash equivalents at beginning of the period | | | 134,092 | | | | 106,933 | |
| Cash and cash equivalents at end of the period | | $ | 110,136 | | | $ | 164,189 | |
| Supplemental cash flow information: | | | | | | | | |
| Cash paid for interest | | $ | 2,832 | | | $ | 1,168 | |
| Cash paid for income taxes | | $ | 952 | | | $ | 1,565 | |
HUGHES NETWORK SYSTEMS
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
| | | March 31, 2008 | | | | |
| ASSETS | | (Unaudited) | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 109,755 | | | $ | 129,227 | |
| Marketable securities | | | 11,400 | | | | 11,224 | |
| Receivables, net | | | 187,374 | | | | 209,731 | |
| Inventories | | | 76,099 | | | | 65,754 | |
| Prepaid expenses and other | | | 35,028 | | | | 42,131 | |
| Total current assets | | | 419,656 | | | | 458,067 | |
| Property, net | | | 489,949 | | | | 479,976 | |
| Capitalized software costs, net | | | 49,185 | | | | 47,582 | |
| Intangible assets, net | | | 29,543 | | | | 22,513 | |
| Goodwill | | | 1,362 | | | | - | |
| Other assets | | | 108,465 | | | | 103,870 | |
| Total assets | | $ | 1,098,160 | | | $ | 1,112,008 | |
| LIABILITIES AND EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 71,762 | | | $ | 69,497 | |
| Short-term debt | | | 12,730 | | | | 14,795 | |
| Accrued liabilities | | | 164,647 | | | | 177,136 | |
| Due to affiliates | | | 1,499 | | | | 13,473 | |
| Total current liabilities | | | 250,638 | | | | 274,901 | |
| Long-term debt | | | 577,431 | | | | 577,761 | |
| Other long-term liabilities | | | 20,692 | | | | 6,526 | |
| Total liabilities | | | 848,761 | | | | 859,188 | |
| Commitments and contingencies | | | | | | | | |
| Minority interests | | | 5,386 | | | | 5,350 | |
| Equity: | | | | | | | | |
| Class A membership interests | | | 180,731 | | | | 180,655 | |
| Class B membership interests | | | - | | | | - | |
| Retained earnings | | | 70,361 | | | | 68,903 | |
| Accumulated other comprehensive loss: | | | | | | | | |
| Foreign currency translation adjustments | | | 3,492 | | | | 3,305 | |
| Unrealized loss on interest rate swap | | | (10,699 | ) | | | (5,482 | ) |
| Unrealized gains on securities | | | 128 | | | | 89 | |
| Total equity | | | 244,013 | | | | 247,470 | |
| Total liabilities and equity | | $ | 1,098,160 | | | $ | 1,112,008 | |
| | | | | | | | | |
HUGHES NETWORK SYSTEMS
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)
| | | Three Months Ended March 31, | |
| | | 2008 | | | 2007 | |
| Revenues: | | | | | | |
| Services | | $ | 148,757 | | | $ | 119,623 | |
| Hardware sales | | | 88,263 | | | | 103,108 | |
| Total revenues | | | 237,020 | | | | 222,731 | |
| Operating costs and expenses: | | | | | | | | |
| Cost of services | | | 94,203 | | | | 80,206 | |
| Cost of hardware products sold | | | 76,798 | | | | 87,166 | |
| Selling, general and administrative | | | 48,291 | | | | 36,699 | |
| Research and development | | | 6,076 | | | | 4,124 | |
| Amortization of intangibles | | | 1,608 | | | | 1,536 | |
| Total operating costs and expenses | | | 226,976 | | | | 209,731 | |
| Operating income | | | 10,044 | | | | 13,000 | |
| Other income (expense): | | | | | | | | |
| Interest expense | | | (9,308 | ) | | | (11,438 | ) |
| Interest income | | | 1,356 | | | | 2,922 | |
| Other income, net | | | 31 | | | | 52 | |
| Income before income tax expense, minority | | | | | | | | |
| interests in net (earnings) losses of subsidiaries | | | 2,123 | | | | 4,536 | |
| Income tax expense | | | (629 | ) | | | (520 | ) |
| Minority interests in net (earnings) losses of subsidiaries | | | (36 | ) | | | 292 | |
| Net income | | $ | 1,458 | | | $ | 4,308 | |
| | | | | | | | | |
HUGHES NETWORK SYSTEMS
Condensed Consolidated Statements Of Cash Flows
(In thousands)
(Unaudited)
| | | Three Months Ended | |
| | | March 31, | |
| | | 2008 | | | 2007 | |
| Cash flows from operating activities: | | | | | | |
| Net income | | $ | 1,458 | | | $ | 4,308 | |
| Adjustments to reconcile net income to cash flows from | | | | | | | | |
| operating activities: | | | | | | | | |
| Depreciation and amortization | | | 11,053 | | | | 11,467 | |
| Equity plan compensation expense | | | 76 | | | | 80 | |
| Minority interests | | | 36 | | | | (292 | ) |
| Other | | | (4 | ) | | | (191 | ) |
| Change in other operating assets and liabilities, net of acquisition: | | | | | | | | |
| Receivables, net | | | 23,761 | | | | (2,447 | ) |
| Inventories | | | (10,194 | ) | | | (1,996 | ) |
| Prepaid expenses and other | | | (4,268 | ) | | | (1,617 | ) |
| Accounts payable | | | 2,444 | | | | (4,148 | ) |
| Accrued liabilities and other | | | (5,527 | ) | | | (2,746 | ) |
| Net cash provided by operating activities | | $ | 18,835 | | | $ | 2,418 | |
| Cash flows from investing activities: | | | | | | | | |
| Change in restricted cash | | | 7 | | | | (281 | ) |
| Proceeds from sales of marketable securities | | | - | | | | 14,795 | |
| Expenditures for property | | | (22,948 | ) | | | (62,245 | ) |
| Expenditures for capitalized software | | | (3,382 | ) | | | (3,288 | ) |
| Proceeds from sale of property | | | 25 | | | | 313 | |
| Acquisition of Helius | | | (10,812 | ) | | | - | |
| Net cash used in investing activities | | | (37,110 | ) | | | (50,706 | ) |
| Cash flows from financing activities: | | | | | | | | |
| Net increase in notes and loans payable | | | 689 | | | | 303 | |
| Long-term debt borrowings | | | 1,654 | | | | 115,296 | |
| Repayment of long-term debt | | | (4,620 | ) | | | (6,902 | ) |
| Debt issuance costs | | | - | | | | (1,987 | ) |
| Net cash provided by (used in) financing activities | | | (2,277 | ) | | | 106,710 | |
| Effect of exchange rate changes on cash and cash equivalents | | | 1,080 | | | | (384 | ) |
| Net increase (decrease) in cash and cash equivalents | | | (19,472 | ) | | | 58,038 | |
| Cash and cash equivalents at beginning of the period | | | 129,227 | | | | 99,098 | |
| Cash and cash equivalents at end of the period | | $ | 109,755 | | | $ | 157,136 | |
| Supplemental cash flow information: | | | | | | | | |
| Cash paid for interest | | $ | 2,832 | | | $ | 1,168 | |
| Cash paid for income taxes | | $ | 930 | | | $ | 1,564 | |
| | | | | | | | | |
