• Earnings Releases
  • Releases
  • 2002 Results
  • 2001 Results
  • 2000 Results
  • 1999 Results
  • 1998 Results

FOR IMMEDIATE RELEASE

EL SEGUNDO,  CA - July 13, 1998 -  Hughes Electronics Corporation (Hughes) today reported that second quarter 1998 revenues increased 18.9% to $1,369.0 million compared with $1,151.4 million in the second quarter of 1997.

Operating profit(1) in the quarter increased 36.5% to $78.2 million compared with $57.3 million in the second quarter of 1997. Second quarter operating profit margin on the same basis increased to 5.7% in 1998 from 5.0% in 1997.

Second quarter earnings(1) increased to $56.1 million compared with last year's $6.1 million, which excludes the $318.3 million after-tax gain ($0.80 per share) recognized in connection with the May 1997 PanAmSat merger. Earnings per share on the same basis increased to $0.14 per share versus pro forma earnings per share(2) of $0.01 in 1997. Including the gain associated with the PanAmSat merger, second quarter 1997 earnings and pro forma earnings per share were $324.4 million and $0.81 per share, respectively.

"The solid financial performance reported in the second quarter is consistent with Hughes' growth expectations as a satellite and wireless communications company," said Michael T. Smith, Hughes chairman and chief executive officer. "The increases in revenues and operating profit were driven by record DIRECTV subscriber growth through June, continued strong performance in our satellite services segment resulting from the PanAmSat merger, and higher commercial satellite sales."

Six-Month Financial Review

For the first six months of 1998, revenues increased 22.3% to $2,660.0 million compared with $2,175.4 million in the first half of 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 six months rose sharply to $161.8 million versus $90.4 million in 1997. Operating profit margin on the same basis increased to 6.1% compared with 4.2% in the first half of 1997.

Earnings(1) and earnings per share in the first half of 1998 were $109.8 million and $0.27, respectively. Excluding the gain associated with the PanAmSat merger, earnings and pro forma earnings per share(2) in the first six months of 1997 were $30.0 million and $0.07 per share, respectively. The increases in earnings and earnings per share were principally a result of the aforementioned revenue and operating profit growth.

SEGMENT FINANCIAL REVIEW: SECOND QUARTER 1998

Direct-To-Home Broadcast

For the quarter, revenues increased 42.5% to $401.5 million from $281.7 million in the second 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 $368 million, a 49% increase over last year's second quarter revenues of $247 million. With 227,000 net new subscribers in the second quarter, total DIRECTV subscribers grew to 3,755,000 in the United States as of June 30, 1998. The Company's Latin American DIRECTV subsidiary, Galaxy Latin America (GLA), had second quarter revenues of $32 million compared with $13 million in 1997. With the addition of 49,000 net new subscribers in the second quarter, total DIRECTV subscribers in Latin America were 387,000 as of June 30, 1998. In addition, DIRECTV Japan™, a 32% owned equity affiliate, had a total of 140,000 subscribers by the end of the second quarter.

The segment operating loss in the quarter was $40.2 million compared with an operating loss of $47.9 million in the second quarter of 1997. The lower operating loss in 1998 was principally due to increased subscriber revenues that more than offset higher sales and marketing expenditures. The second quarter 1998 operating loss for the domestic DIRECTV business was $7 million compared with $21 million last year, and GLA's second quarter operating loss was $32 million compared with $33 million last year.

Satellite Services

Second quarter 1998 revenues were up 42.5% to $191.1 million compared with $134.1 million in the prior year. The increase was primarily due to the May 1997 PanAmSat merger and increased operating lease revenues for video, data and Internet-related services.

As a result of this revenue growth, operating profit in the quarter rose 18.3% to $74.4 million from $62.9 million in 1997. Operating profit margin in the period declined to 38.9% from 46.9% in the same period last year primarily from goodwill amortization associated with the PanAmSat merger and a provision for the loss relating to the May 1998 failure of PanAmSat's Galaxy IV satellite.

Satellite Manufacturing

For the second quarter of 1998, revenues increased 15.4% to $674.8 million from revenues of $584.5 million for the same period in 1997. Operating profit in the quarter increased 11.5% to $60.0 million from $53.8 million in the prior year. The increases in revenue and operating profit were principally due to higher commercial satellite sales to customers such as Thuraya Satellite Telecommunications Company, ICO Global Communications and PanAmSat Corporation. Operating profit margin in the quarter declined slightly to 8.9% versus 9.2% last year.

Network Systems

Second quarter revenues for Hughes Network Systems (HNS) were $221.7 million compared with $210.9 million in the same period last year. Increased sales of satellite-based mobile telephony equipment were mostly offset by lower sales of international wireless local loop telephone systems.

The operating loss in the quarter was $25.2 million compared with an operating loss of $1.0 million in the second quarter of 1997. The increased operating loss in the second quarter of 1998 was primarily due to a $26 million provision for estimated losses associated with the bankruptcy filing by a customer.

BALANCE SHEET

The cash balance of $1,592.8 million at June 30, 1998 declined $1,191.0 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 merger of Hughes Defense with Raytheon Company.

(1) Excludes the effects of purchase accounting adjustments related to General Motors' (GM) acquisition of Hughes Aircraft Company 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.