UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE COMMISSION ACT OF 1934
Date of Report
(Date of earliest event reported) October 13, 1999
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HUGHES ELECTRONICS CORPORATION
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(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 0-26035 52-1106564
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(State or other jurisdiction of (Commision (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
200 North Sepulveda Boulevard
El Segundo, California 90245
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(310) 662-9985
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(Address, including zip code, and telephone number,
including area code, of registrants' principal executive office)
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ITEM 5. OTHER EVENTS
On October 13, 1999, a news release was issued on the subject of third
quarter consolidated earnings for Hughes Electonics Corporation (Hughes). The
news release did not include certain financial statements, related footnotes and
certain other financial information that will be filed with the Securities and
Exchange Commission as part of Hughes' Quarterly Report on Form 10-Q. The
following is the third quarter earnings release for Hughes dated October 13,
1999.
Hughes Reports 32% Revenue Growth and
Solid EBITDA Growth In Third Quarter
Results Driven by Record Sales of DIRECTV(R) Service
El Segundo, Calif., October 13, 1999 -- Hughes Electronics Corporation
(Hughes), the world's leading provider of digital television entertainment, and
satellite and wireless systems and services, today reported third quarter 1999
revenues increased 31.5% to $1,990.5 million, compared with $1,513.3 million in
the third quarter of 1998. EBITDA(1) for the quarter increased 18.3% to $211.6
million and EBITDA margin(1) was 10.6%, compared to EBITDA of $178.8 million and
EBITDA margin of 11.8% in the third quarter of 1998.
"The primary driver of our revenue growth continues to be our DIRECTV
businesses," explained Michael T. Smith, Hughes chairman and chief executive
officer. "We had our best third quarter ever for new DIRECTV subscriber
additions in the United States, Hughes Network Systems (HNS) achieved its best
quarter ever for sales of DIRECTV receiving equipment, and Galaxy Latin America
nearly doubled its net new subscriber additions compared to the third quarter of
1998. In fact, total revenues from our services operations more than doubled
compared to the third quarter of last year.
"Our U.S. DIRECTV business also drove our EBITDA growth in the quarter,"
Smith continued. "We have reached the point where the EBITDA generated by our
large subscriber base is outpacing the marketing costs associated with our
record subscriber growth. We expect our U.S. DIRECTV business to continue to
deliver positive EBITDA that accelerates yearly on a going-forward basis."
Hughes had a third quarter 1999 loss(2) of $29.6 million, compared to
earnings(2) of $42.9 million in the same period for 1998. The change in earnings
was primarily attributable to higher depreciation and amortization expenses
related principally to the United States Satellite Broadcasting Company, Inc.
(USSB) and PRIMESTAR transactions and increased PanAmSat satellite expenditures,
and an increase in net interest expense. These variances more than offset the
increase in EBITDA. This resulted in a loss per share, including the effect of
preferred stock dividends, of $0.13 in the third quarter of 1999 compared to
earnings per share (EPS) of $0.11 in the third quarter of 1998.
NINE-MONTH FINANCIAL REVIEW
For the first nine months of 1999, revenues increased 25.0% to $5,218.3
million compared with $4,173.3 million in 1998. This growth was primarily the
result of record subscriber growth in the Company's U.S. DIRECTV business, as
well as additional revenues resulting from the USSB and PRIMESTAR transactions.
HNS also contributed to the revenue growth, primarily through its record sales
of DIRECTV receiving equipment.
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EBITDA for the first nine months of 1999 was $361.0 million and EBITDA
margin was 6.9%, compared to EBITDA of $538.5 million and EBITDA margin of 12.9%
in the same period of 1998. The declines were principally due to two one-time
charges: a second quarter 1999 pre-tax charge of $125.0 million related to
increased development costs and schedule delays related to several new product
lines at Hughes Space and Communications Company (HSC), and a first quarter 1999
pre-tax charge of $92.0 million resulting from the termination of the contract
for the Asia-Pacific Mobile Telecommunications (APMT) satellite system due to
export licenses not being issued. These declines were partially offset by
increased EBITDA at the Company's U.S. DIRECTV business, HNS and PanAmSat.
In the first nine months of 1999, Hughes incurred a loss of $43.6 million
and a loss per share, including the effect of preferred stock dividends, of
$0.17, compared to earnings of $143.5 million and EPS of $0.36 for the same
period in 1998. The decline was mostly due to the reduced EBITDA, higher
depreciation and amortization expenses related principally to the USSB and
PRIMESTAR transactions and increased PanAmSat satellite expenditures, and an
increase in net interest expense. These declines were partially offset by an
after-tax gain of $94.3 million ($154.6 million pre-tax) related to the
settlement of the Williams patent infringement case(3).
SEGMENT FINANCIAL REVIEW: THIRD QUARTER 1999
Direct-To-Home Broadcast
Third quarter revenues for the segment more than doubled to $1,144.6
million from $459.1 million in the third quarter of 1998. The segment had EBITDA
of $47.7 million and EBITDA margin of 4.2% compared with negative EBITDA of
$30.6 million in the third quarter of 1998.
United States: DIRECTV reported quarterly revenues of $1,052 million, more
than twice last year's third quarter revenues of $408 million. The increase was
due to strong subscriber growth, as well as additional revenues resulting from
the USSB and PRIMESTAR transactions.
DIRECTV added a record 423,000 net new subscribers to its high-power
DIRECTV service in the quarter, a 40% increase over the 303,000 net new
subscribers added in the third quarter of 1998. In addition, 204,000 customers
were transitioned from the PRIMESTAR By DIRECTV medium-power service to the
high-power service in the quarter. As of September 30, 1999, DIRECTV had more
than 7.7 million subscribers, which includes approximately 1.8 million customers
subscribing to PRIMESTAR By DIRECTV.
EBITDA for the third quarter of 1999 was $86 million compared to negative
EBITDA of $5 million in the preceding year's third quarter. This increase was
principally due to EBITDA contributions from the USSB and PRIMESTAR
transactions, as well as improved EBITDA resulting from the larger high-power
subscriber base.
Latin America and Japan: The DIRECTV business in Latin America generated
$76 million in revenues for the quarter compared with $37 million in the third
quarter of 1998. This increase was due to continued subscriber growth and
additional revenues resulting from the consolidation of Galaxy Brazil, Ltda.
(GLB)(4), Grupo Galaxy Mexicana , S.A. de C.V (GGM)(4), and SurFin, Ltd.(4)
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The DIRECTV service in Latin America added 67,000 net new subscribers in
the third quarter of 1999, an 86% increase over the 36,000 acquired in the same
period last year. The total number of DIRECTV subscribers in Latin America as of
September 30, 1999 was 668,000.
Galaxy Latin America had negative EBITDA of $30 million compared to
negative EBITDA of $24 million for the same period in 1998. The change was
primarily due to the impact of the consolidation of GLB and higher marketing
expenses in the region.
In addition, DIRECTV Japan, of which Hughes currently owns 42 percent,
reported a total of 313,900 subscribers at the end of the third quarter of 1999.
Hughes' minority share of DIRECTV Japan's losses was $20 million for the
quarter, compared with $17 million in the third quarter of 1998. These losses
are reported in "Other, net" in the Statement of Income (Loss) and Available
Separate Consolidated Net Income (Loss).
Satellite Services
PanAmSat, which is 81% owned by Hughes, reported third quarter 1999
revenues of $210.7 million compared with $186.5 million in the prior year's
period. The 13.0% increase includes a one-time customer payment associated with
the termination of a direct-to-home video services agreement in India and the
commencement of new service agreements on additional satellites placed in
service. During the third quarter of 1999, total video services revenues
increased 3% to $139.8 million while telecommunications services revenues
increased 13% to $46.1 million, compared to the prior year's third quarter.
EBITDA for the quarter was $169.0 million, a 24.5% increase over third
quarter 1998 EBITDA of $135.7 million. EBITDA margin in the third quarter of
1999 was 80.2%, compared to 72.8% in the same period of 1998. The increases in
EBITDA and EBITDA margin were principally due to the one-time termination
payment described above, lower leaseback expense resulting from the exercise of
certain early buy-out options under sale-leaseback agreements, and increased
operating lease revenues.
Satellite Systems
Third quarter 1999 revenues for the segment declined to $510.8 million
from $688.9 million for the same period in 1998. EBITDA for the third quarter of
1999 was $56.3 million compared to EBITDA of $76.7 million in the third quarter
of 1998. These variances were principally due to reduced activity associated
with the ICO Global Communications program. EBITDA margin in the quarter was
11.0%, compared to 11.1% in the third quarter of 1998.
Network Systems
HNS grew third quarter 1999 revenues 59.2% to $426.2 million, versus
$267.7 million in the third quarter of 1998. This growth was due primarily to
higher sales of DIRECTV receiving systems, satellite-based mobile telephone
systems, and U.S. private business network systems. HNS shipped 730,000 DIRECTV
receiving systems in the third quarter of 1999, compared to 232,000 in the same
year-ago period.
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HNS increased EBITDA 56.5% to $44.3 million in the quarter, compared to
$28.3 million in the third quarter of 1998. The increase in EBITDA is primarily
attributable to the increased revenues resulting from higher sales of DIRECTV
receiving equipment, satellite-based mobile telephone systems, and U.S. private
business network systems. EBITDA margin in the third quarter of 1999 was 10.4%,
compared to 10.6% in the same year-ago period.
BALANCE SHEET
From December 31, 1998 to September 30, 1999, the Company's consolidated
cash balance declined $1,183.8 million to $158.3 million and long-term debt
increased $1,150.5 million to $1,929.2 million. The principal cash requirements
for the first nine months were related to the acquisitions of United States
Satellite Broadcasting Company and PRIMESTAR's medium-power satellite business,
purchase of the Tempo high-power satellite assets, early buy-out of certain
PanAmSat satellite sale-leaseback agreements, increased investment in the
DIRECTV businesses in Latin America and Japan, capital expenditures and general
working capital requirements.
These requirements were partially offset by a $1.5 billion investment by
America Online, Inc. (AOL) and proceeds from the settlement of the Williams
patent infringement case.(3)
Hughes Electronics Corporation is a unit of General Motors Corporation.
The earnings of Hughes Electronics are used to calculate the earnings per share
attributable to General Motors (NYSE:GMH) Class H common stock.
NOTE: Hughes Electronics Corporation believes that certain statements in
this press release may constitute forward-looking statements within the meaning
of The Private Securities Litigation Reform Act of 1995. When used in this press
release, the words "estimate," "plan," "project," "anticipate," "expect,"
"intend," "outlook," "believe," and other similar expressions are intended to
identify forward-looking statements and information. Actual results of Hughes
may differ materially from anticipated results as a result of certain risks and
uncertainties, which include but are not limited to those associated with:
economic conditions; demand for products and services, and market acceptance;
government action; local political or economic developments in or affecting
countries where we have international operations; our ability to obtain export
licenses; competition; our ability to achieve cost reductions; technological
risks; our ability to address the year 2000 issue; interruptions to production
attributable to causes outside our control; limitations on access to
distribution channels; the success and timelines of satellite launches; the
in-orbit performance of satellites; the ability of our customers to obtain
financing; and our ability to access capital to maintain our financial
flexibility. Hughes cautions that these important factors are not exclusive.
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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.
2 Excludes the effects of purchase accounting adjustments related to General
Motors' acquisition of Hughes in 1985.
3 Hughes was awarded a final judgement arising from its long-running Williams
patent infringement case, which was originally filed by Hughes in 1973. The
award resulted from the repeated infringement by the U.S. Government over a span
of two decades of a patent that revolutionized communications satellite attitude
control and made the geosynchronous satellite practical. A payment of $154.6
million was received in the first quarter of 1999 and was recorded in "Other,
net."
4 Galaxy Brazil, Ltda. (GLB) is the local operating company providing DIRECTV
service in Brazil. Grupo Galaxy Mexicana, S.A. de C.V. (GGM) is the local
operating company providing DIRECTV service in Mexico. SurFin Ltd., provides
financing for DIRECTV receiving equipment in Latin America. As a result of
transactions that were completed in July 1999 (GLB), February 1999 (GGM) and
November 1998 (SurFin), Hughes owns a majority position in each company.
######
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STATEMENT OF INCOME (LOSS) AND
AVAILABLE SEPARATE CONSOLIDATED NET INCOME (LOSS)
(Dollars in Millions Except Per Share Amounts)
Nine Months Ended
Third Quarter September 30,
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1999 1998 1999 1998
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Revenues
Direct broadcast, leasing and
other services $1,294.4 $640.5 $3,095.2 $1,845.8
Product sales 696.1 872.8 2,123.1 2,327.5
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Total Revenues 1,990.5 1,513.3 5,218.3 4,173.3
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Operating Costs and Expenses
Cost of products sold 606.7 659.5 1,961.6 1,782.4
Broadcast programming and other
costs 573.9 284.6 1,344.1 800.2
Selling, general and
administrative expenses 598.3 390.4 1,551.6 1,052.2
Depreciation and amortization 216.5 111.3 499.3 309.2
Amortization of GM purchase
accounting adjustments (1) 5.3 5.3 15.9 15.9
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Total Operating Costs
and Expenses 2,000.7 1,451.1 5,372.5 3,959.9
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Operating Profit (Loss) (10.2) 62.2 (154.2) 213.4
Interest income 2.4 20.5 20.9 88.6
Interest expense (51.7) (3.6) (71.0) (9.5)
Other, net (22.4) (33.4) 77.8 (102.8)
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Income (Loss) Before Income Taxes,
Minority Interests and Cumulative
Effect of Accounting Change (81.9) 45.7 (126.5) 189.7
Income tax provision (benefit) (38.2) 17.4 (44.9) 72.1
Minority interests in net losses
of subsidiaries 8.8 9.3 22.1 19.2
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Income (Loss) before cumulative
effect of accounting change (34.9) 37.6 (59.5) 136.8
Cumulative effect of accounting
change, net of taxes - - - (9.2)
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Net Income (Loss) (34.9) 37.6 (59.5) 127.6
Adjustments to exclude the effect
of GM purchase accounting
adjustments (1) 5.3 5.3 15.9 15.9
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Earnings (Loss) excluding GM purchase
Accounting adjustments (29.6) 42.9 (43.6) 143.5
Preferred stock dividends (24.7) - (26.3) -
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Earnings (Loss) Used for Computation of
Available Separate Consolidated
Net Income (Loss) $(54.3) $42.9 $(69.9) $143.5
============================================================================
Available Separate Consolidated Net
Income (Loss)
Average number of shares of
General Motors Class H
Common Stock outstanding
(in millions) (Numerator) 135.1 105.7 120.8 105.0
Average Class H dividend base
(in millions) (Denominator) 428.9 399.9 414.7 399.9
Available Separate Consolidated Net
Income (Loss) $(17.1) $11.4 $(20.4) $37.6
============================================================================
Earnings (Loss) Attributable to
General Motors Class H Common
Stock on a Per Share
Basis - Basic and Diluted $(0.13) $0.11 $(0.17) $0.36
============================================================================
(1)Relates to General Motors' purchase of Hughes in 1985.
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BALANCE SHEET
(Dollars in Millions)
September 30,
1999 December 31,
ASSETS (Unaudited) 1998
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Current Assets
Cash and cash equivalents $158.3 $1,342.1
Accounts and notes receivable 1,289.8 922.4
Contracts in process 846.1 783.5
Inventories 639.1 471.5
Prepaid expenses, deferred income taxes and other 705.9 326.9
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Total Current Assets 3,639.2 3,846.4
Satellites - Net 3,690.6 3,197.5
Property - Net 1,303.0 1,059.2
Net Investment in Sales-type Leases 155.9 173.4
Intangible Assets, net 7,781.5 3,552.2
Investments and Other Assets 2,236.1 1,606.3
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Total Assets $18,806.3 $13,435.0
============================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
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Current Liabilities
Accounts payable $1,005.7 $764.1
Advances on contracts 164.5 291.8
Deferred revenues 194.9 43.8
Current portion of long-term debt 298.1 156.1
Accrued liabilities 933.1 753.7
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Total Current Liabilities 2,596.3 2,009.5
Long-Term Debt 1,929.2 778.7
Postretirement Benefits Other Than Pensions 155.5 150.7
Other Liabilities and Deferred Credits 1,686.1 988.6
Deferred Income Taxes 425.0 643.9
Commitments and Contingencies
Minority Interests 530.0 481.7
Stockholder's Equity 11,484.2 8,381.9
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Total Liabilities and Stockholder's Equity $18,806.3 $13,435.0
============================================================================
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).
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PRO FORMA SELECTED SEGMENT DATA*
(Dollars in Millions)
Nine Months Ended
Third Quarter September 30,
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1999 1998 1999 1998
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DIRECT-TO-HOME BROADCAST
Total Revenues $1,144.6 $459.1 $2,571.4 $1,248.5
EBITDA (1) $47.7 $(30.6) $44.8 $(56.4)
EBITDA Margin (1) 4.2% N/A 1.7% N/A
Operating Loss $(67.6) $(61.8) $(159.4) $(133.6)
Depreciation and Amortization $115.3 $31.2 $204.2 $77.2
Capital Expenditures (2) $97.6 $82.0 $253.4 $130.1
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SATELLITE SERVICES
Total Revenues $210.7 $186.5 $604.6 $570.6
EBITDA (1) $169.0 $135.7 $465.9 $409.0
EBITDA Margin (1) 80.2% 72.8% 77.1% 71.7%
Operating Profit $99.1 $79.1 $261.4 $239.2
Operating Profit Margin 47.0% 42.4% 43.2% 41.9%
Depreciation and Amortization $69.9 $56.6 $204.5 $169.8
Capital Expenditures (3) $382.7 $190.7 $857.9 $605.0
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SATELLITE SYSTEMS
Total Revenues $510.8 $688.9 $1,694.9 $1,988.0
EBITDA (1)(4) $56.3 $76.7 $(64.7) $214.0
EBITDA Margin (1) 11.0% 11.1% N/A 10.8%
Operating Profit (Loss) (4) $41.3 $63.8 $(106.1) $178.9
Operating Profit Margin 8.1% 9.3% N/A 9.0%
Depreciation and Amortization $15.0 $12.9 $41.4 $35.1
Capital Expenditures $17.0 $18.2 $52.1 $50.5
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NETWORK SYSTEMS
Total Revenues $426.2 $267.7 $998.2 $674.1
EBITDA (1)(4) $44.3 $28.3 $63.4 $9.6
EBITDA Margin (1) 10.4% 10.6% 6.4% 1.4%
Operating Profit (Loss) (4) $32.2 $16.9 $25.7 $(20.2)
Operating Profit Margin 7.6% 6.3% 2.6% N/A
Depreciation and Amortization $12.1 $11.4 $37.7 $29.8
Capital Expenditures $5.4 $10.7 $23.1 $26.4
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ELIMINATIONS and OTHER
Total Revenues $(301.8) $(88.9) $(650.8) $(307.9)
EBITDA (1) $(105.7) $(31.3) $(148.4) $(37.7)
Operating Loss $(109.9) $(30.5) $(159.9) $(35.0)
Depreciation and Amortization $4.2 $(0.8) $11.5 $(2.7)
Capital Expenditures $41.4 $(21.4) $45.9 $114.5
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TOTAL
Total Revenues $1,990.5 $1,513.3 $5,218.3 $4,173.3
EBITDA (1)(4) $211.6 $178.8 $361.0 $538.5
EBITDA Margin (1) 10.6% 11.8% 6.9% 12.9%
Operating Profit (Loss) (4) $(4.9) $67.5 $(138.3) $229.3
Operating Profit Margin N/A 4.5% N/A 5.5%
Depreciation and Amortization $216.5 $111.3 $499.3 $309.2
Capital Expenditures $544.1 $280.2 $1,232.4 $926.5
==========================================================================
* 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.
(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.
(2)Includes satellite expenditures amounting to $13.6 million, $38.0 million,
$89.1 million and $38.0 million, respectively.
(3)Includes satellite expenditures amounting to $93.2 million, $182.2 million,
$408.8 million and $422.2 million, respectively. Also included are
expenditures related to the early buy-out of satellite sale-leasebacks
totaling $263.2 million for the third quarter of 1999 and $404.5 million and
$155.5 million for the first nine months of 1999 and 1998, respectively.
(4)Amounts for the nine months ended September 30, 1999 include charges of
$81.0 million and $11.0 million for the Satellite Systems and Network Systems
segments, respectively, relating to the termination of the Asia-Pacific
Mobile Telecommunications satellite systems contract due to export licenses
not being issued.
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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
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(Registrant)
By
Date October 14, 1999 /s/Roxanne S. Austin
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(Roxanne S. Austin,
Chief Financial Officer)
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