SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of earliest event reported) January 19, 2000
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HUGHES ELECTRONICS CORPORATIONON
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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 (Commission (I.R.S. Employer
of 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 January 19, 2000, a news release was issued on the subject of fourth
quarter consolidated earnings by Hughes Electronics 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' Annual Report on Form 10-K. The release
is as follows:
New Services-Focused Hughes Reports
54-Percent Revenue Growth In Fourth Quarter 1999
Record Subscriber Growth Attained in Both
U.S. and Latin American DIRECTV(R) Services
El Segundo, Calif., January 19, 2000 -- Hughes Electronics Corporation,
reflecting last week's announcement of major changes in its corporate focus,
today reported that fourth quarter 1999 revenues increased 53.6% to $1,698.0
million compared with $1,105.2 million in the fourth quarter of 1998. These are
the company's first financial results following the announcement that it would
sell its satellite manufacturing businesses to The Boeing Company in an all-cash
transaction valued at $3.75 billion, refocus its wireless businesses, and
realign Hughes into two market-driven sectors.
"We've begun the new century as a company that is sharply focused on our
high-value, high-growth entertainment and business communications services,"
said Michael T. Smith, Hughes chairman and chief executive officer. "This
quarter's results reflect the bright future of our new company."
As required by applicable accounting standards, the financial results of
Hughes' satellite manufacturing businesses are treated as discontinued
operations to reflect the impact of the announced transaction with Boeing.
Consequently, revenues, EBITDA(1) and other operating results for Hughes'
satellite manufacturing businesses are excluded from Hughes' operating results
for all periods presented(2).
"Once again, revenue growth in the quarter was driven by our DIRECTV(R)
businesses," explained Smith. "The momentum in the United States just keeps
building. DIRECTV U.S. had yet another quarter of record subscriber growth while
more than doubling its revenues. And as we expand the availability of local
programming and introduce new interactive services, we expect 2000 to be our
best year ever."
Smith added that the DIRECTV business in Latin America also achieved its
best quarter ever, gaining more than twice as many net new subscribers as were
added during its previous best quarter. "With the completion of our recent
strategic initiatives in Latin America, we feel that DIRECTV is now in a
position to reach its full potential in that region," Smith said.
EBITDA for the fourth quarter of 1999 was negative $174.4 million compared
to EBITDA of $69.2 million in the same period of 1998. The decline was primarily
due to a previously announced fourth quarter 1999 pre-tax charge of $272 million
related to the discontinuation of certain wireless businesses at Hughes Network
Systems (HNS).
Excluding the charge, EBITDA increased 41.0% to $97.6 million, primarily
due to improved EBITDA at DIRECTV U.S. related to the United States Satellite
Broadcasting Company, Inc. (USSB) and PRIMESTAR transactions, and the larger
subscriber base. PanAmSat also contributed a solid EBITDA performance,
principally due to its lower leaseback expense resulting from the exercise of
certain early buy-out options under satellite sale-leaseback agreements.
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In the fourth quarter of 1999, Hughes incurred a loss(3) of $226.7 million
and a loss per share, including the effect of preferred stock dividends, of
$0.58, compared to earnings(3) of $128.2 million and earnings per share (EPS) of
$0.32 for the same period in 1998. The declines were primarily due to the
wireless charge, higher depreciation and amortization expenses related
principally to the USSB and PRIMESTAR transactions and increased PanAmSat
satellite expenditures, an increase in net interest expense, and a $115 million
fourth quarter 1998 favorable adjustment to the income tax provision resulting
from a tax settlement with the Internal Revenue Service (IRS).
FULL-YEAR 1999 FINANCIAL REVIEW
Year-end 1999 revenues increased 59.8% to $5,560.3 million, compared with
$3,480.6 million in 1998. This was primarily due to record subscriber growth in
the Company's U.S. and Latin American DIRECTV businesses, 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.
EBITDA for the year was $222.7 million and EBITDA margin was 4.0%,
compared to EBITDA of $341.7 million and EBITDA margin of 9.8% in 1998. The
declines were principally due to the fourth quarter 1999 charge related to the
discontinuation of certain HNS wireless businesses, which more than offset
EBITDA gains at DIRECTV U.S. and PanAmSat. Excluding the charge, 1999 EBITDA
increased 44.8% to $494.7 million due to EBITDA gains at DIRECTV, PanAmSat and
HNS.
In 1999, Hughes incurred a loss of $270.3 million and a loss per share,
including the effect of preferred stock dividends, of $0.77, compared to
earnings of $271.7 million and EPS of $0.68 in 1998. The declines were primarily
attributable to the reduced EBITDA, a second quarter 1999 pre-tax charge of
$125.0 million related to increased development costs and schedule delays
associated with several new product lines at Hughes Space and Communications, 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, higher
depreciation and amortization expenses related principally to the USSB and
PRIMESTAR transactions and increased PanAmSat satellite expenditures, an
increase in net interest expense, and the 1998 favorable adjustment to the tax
provision. These declines were partially offset by a first quarter 1999
after-tax gain of $94.3 million ($154.6 million pre-tax) related to the
settlement of the Williams patent infringement case(4).
SEGMENT FINANCIAL REVIEW
FOURTH QUARTER 1999
Direct-To-Home Broadcast
Fourth quarter revenues for the segment more than doubled to $1,213.6
million from $567.6 million in the fourth quarter of 1998. The segment had
negative EBITDA of $24.9 million compared with negative EBITDA of $69.4 million
in the fourth quarter of 1998.
United States: DIRECTV reported quarterly revenues of $1,100 million, more
than twice last year's fourth quarter revenues of $476 million. The increase was
due to strong subscriber growth, as well as additional revenues resulting from
the USSB and PRIMESTAR transactions.
In December 1999, DIRECTV became the first U.S. direct broadcast satellite
service to add more than 200,000 net new subscribers in a single month,
contributing to its all-time high quarter of 515,000 new subscribers. This
represented a 29% increase over the 400,000 new subscribers added in the fourth
quarter of 1998. In addition, 241,000 customers were transitioned from the
PRIMESTAR By DIRECTV medium-power service to the high-power service in the
quarter.
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For the full-year 1999, DIRECTV added 1,606,000 net new high-power
subscribers, a 39% increase over the 1,157,000 new subscribers added in 1998. In
addition, DIRECTV converted 470,000 customers from PRIMESTAR By DIRECTV in 1999.
As of December 31, 1999, DIRECTV served more than 8 million U.S. customers,
including approximately 1.4 million customers subscribing to PRIMESTAR By
DIRECTV.
EBITDA for the fourth quarter of 1999 was $27 million compared to negative
EBITDA of $32 million in the preceding year's fourth quarter. This improvement
was principally due to 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
$102 million in revenues for the quarter compared with $73 million in the fourth
quarter of 1998. This increase was due to the record subscriber growth and
additional revenues resulting from the consolidation of Galaxy Brasil, Ltda.
(GLB)(5), Grupo Galaxy Mexicana , S.A. de C.V.
(GGM)(5), and SurFin, Ltd.(5).
In the fourth quarter, the DIRECTV service in Latin America had three
consecutive months of record subscriber growth, adding 136,000 net new
subscribers, which is more than twice as many as the 61,000 acquired in the same
period last year. The total number of DIRECTV subscribers in Latin America as of
December 31, 1999 was 804,000.
The DIRECTV business in Latin America had negative EBITDA of $42 million
compared to negative EBITDA of $30 million for the same period in 1998. The
change was primarily due to the impact of the consolidation of GLB and GGM, and
higher marketing expenses in the region.
In addition, DIRECTV Japan, of which Hughes currently owns 42%, reported a
total of 386,000 subscribers at the end of the fourth quarter of 1999. Hughes'
share of DIRECTV Japan's losses was $74 million for the quarter, compared with
$36 million in the fourth quarter of 1998. The higher loss was primarily due to
increased marketing expenses in the region, as well as the recording of a higher
portion of equity losses resulting from an increase in Hughes' investment in
DIRECTV Japan. 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, generated revenues of $206.0
million in the fourth quarter of 1999, compared with $196.7 million in the prior
year's period. The increase was primarily due to new service agreements on
satellites placed in service in 1999 as well as continued growth in special
events service revenues. During the fourth quarter of 1999, telecommunications
services revenues increased 19% to $49 million while total video services
revenues increased 2% to $146 million compared to the prior year's fourth
quarter.
EBITDA for the quarter was $152.9 million compared to fourth quarter 1998
EBITDA of $144.3 million. EBITDA margin in the fourth quarter of 1999 was 74.2%,
compared to 73.4% in the same period of 1998. The increases in EBITDA and EBITDA
margin resulted primarily from lower leaseback expense due to the exercise of
certain early buy-out options under satellite sale-leaseback agreements, and
increased operating lease revenues.
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Network Systems
HNS revenues in the fourth quarter of 1999 were $386.5 million, compared
to $402.6 million in the fourth quarter of 1998. This decline was principally
due to reduced sales of its wireless telecommunications systems and
international private business network systems. These declines more than offset
higher sales of DIRECTV receiving equipment. HNS shipped 715,000 DIRECTV
receiving systems in the fourth quarter of 1999 compared to 300,000 in the same
year-ago period.
HNS recorded negative EBITDA of $241.5 million in the quarter compared to
EBITDA of $43.0 million in the fourth quarter of 1998. This reduction was
primarily due to the previously announced pre-tax charge of $272 million related
to the discontinuation of certain wireless businesses, and reduced sales of
international private business network systems. HNS' wireless business will now
focus on its leading broadband wireless access (point-to-multipoint) product
line and will discontinue its mobile cellular and narrowband local loop product
lines. HNS will fulfill its outstanding contractual obligations for these
discontinued product lines.
BALANCE SHEET
From December 31, 1998 to December 31, 1999, the Company's cash balance
declined $1,103.8 million to $238.2 million and total debt increased $1,206.6
million to $2,141.4 million. The principal cash requirements for the year were
the USSB and PRIMESTAR transactions, 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).
Hughes is the world's leading provider of digital television
entertainment, satellite services, and satellite-based private business
networks. The earnings of Hughes, a unit of General Motors Corporation, are used
to calculate the earnings per share attributable to the General Motors Class H
common stock (NYSE:GMH).
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) For all periods presented, net income generated by the satellite
manufacturing businesses (previously referred to as the "Satellite Systems"
segment) is reported as "Income from discontinued operations, net of taxes"
on the Statement of Income (Loss) and Available Separate Consolidated Net
Income (Loss). Similarly, all assets and liabilities of those businesses
are reported as "Net assets of discontinued operations" on the Balance
Sheet.
3) Excludes the effects of purchase accounting adjustments related to General
Motors' acquisition of Hughes in 1985.
4) 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
is recorded in "Income from discontinued operations, net of taxes."
5) Galaxy Brasil, 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
(Dollars in Millions Except Per Share Amounts)
Year Ended
Fourth Quarter December 31,
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1999 1998 1999 1998
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Revenues
Direct broadcast, leasing and
other services $1,394.1 $757.8 $4,489.3 $2,603.6
Product sales 303.9 347.4 1,071.0 877.0
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Total Revenues 1,698.0 1,105.2 5,560.3 3,480.6
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Operating Costs and Expenses
Cost of products sold 366.1 286.6 1,028.3 643.0
Broadcast programming and
other costs 657.6 375.2 2,001.4 1,175.0
Selling, general, and
administrative expenses 848.7 374.2 2,307.9 1,320.9
Depreciation and amortization 189.5 110.5 647.4 384.6
Amortization of GM purchase
accounting adjustments (1) 0.8 0.8 3.3 3.3
- ----------------------------------------------------------------------------
Total Operating Costs
and Expenses 2,062.7 1,147.3 5,988.3 3,526.8
- ----------------------------------------------------------------------------
Operating Loss (364.7) (42.1) (428.0) (46.2)
Interest income 6.2 23.7 27.0 112.3
Interest expense (51.7) (8.0) (122.7) (17.5)
Other, net (60.6) (50.6) (136.3) (151.8)
- ----------------------------------------------------------------------------
Loss From Continuing Operations
Before Income Taxes, Minority
Interests and Cumulative
Effect of Accounting Change (470.8) (77.0) (660.0) (103.2)
Income tax benefit (177.2) (143.0) (236.9) (142.3)
Minority interests in net
losses of subsidiaries 9.9 5.2 32.0 24.4
- ----------------------------------------------------------------------------
Income (Loss) from continuing
operations before cumulative
effect of accounting change (283.7) 71.2 (391.1) 63.5
Income from discontinued
operations, net of taxes 51.9 51.9 99.8 196.4
- ----------------------------------------------------------------------------
Income (Loss) before cumulative
effect of accounting change (231.8) 123.1 (291.3) 259.9
Cumulative effect of accounting
change, net of taxes - - - (9.2)
- ----------------------------------------------------------------------------
Net Income (Loss) (231.8) 123.1 (291.3) 250.7
Adjustments to exclude
the effect of GM purchase
accounting adjustments (1) 5.1 5.1 21.0 21.0
- ----------------------------------------------------------------------------
Earnings (Loss) Excluding the
Effect of GM Purchase
Accounting Adjustments (226.7) 128.2 (270.3) 271.7
Preferred stock dividends (24.6) - (50.9) -
- ----------------------------------------------------------------------------
Earnings (Loss) Used for
Computation of Available
Separate Consolidated
Net Income (Loss) $(251.3) $128.2 $(321.2) $271.7
============================================================================
Available Separate Consolidated
Net Income (Loss)
Average number of shares of
General Motors Class H
Common Stock outstanding
(in millions) (Numerator) 136.3 105.9 124.7 105.3
Average Class H dividend base
(in millions)(Denominator) 430.1 399.9 418.5 399.9
Available Separate Consolidated
Net Income (Loss) $(79.6) $33.9 $(95.7) $71.5
============================================================================
Earnings (Loss) Attributable to
General Motors Class H Common
Stock on a Per Share Basis
Income (Loss) from continuing
operations before cumulative
effect of accounting change $(0.71) $0.18 $(1.05) $0.17
Income from discontinued
operations, net of taxes $0.13 $0.14 $0.28 $0.53
Cumulative effect of
accounting change,
net of taxes - - - $(0.02)
- ----------------------------------------------------------------------------
Earnings (Loss) Attributable
to General Motors Class H
Common Stock on a Per Share
Basis - Basic and Diluted $(0.58) $0.32 $(0.77) $0.68
============================================================================
(1)Relates to General Motors' purchase of Hughes in 1985.
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BALANCE SHEET
(Dollars in Millions)
December 31, December 31,
ASSETS 1999 1998
- ----------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $238.2 $1,342.0
Accounts and notes receivable 960.9 764.6
Contracts in process 155.8 179.0
Inventories 236.1 286.6
Net assets of discontinued operations 1,159.5 972.4
Prepaid expenses, deferred income taxes and other 788.2 321.1
- ----------------------------------------------------------------------------
Total Current Assets 3,538.7 3,865.7
Satellites - net 3,907.3 3,197.5
Property - net 1,223.0 683.0
Net Investment in Sales-type Leases 146.1 173.4
Intangible Assets, net 7,406.0 3,185.9
Investments and Other Assets 2,039.9 1,302.4
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Total Assets $18,261.0 $12,407.9
============================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
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Current Liabilities
Accounts payable $1,062.2 $691.8
Advances on contracts 23.0 20.1
Deferred revenues 130.5 43.8
Current portion of long-term debt 555.4 156.1
Accrued liabilities 618.8 257.0
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Total Current Liabilities 2,389.9 1,168.8
Long-Term Debt 1,586.0 778.7
Postretirement Benefits Other Than Pensions 19.7 20.4
Other Liabilities and Deferred Credits 1,433.3 935.3
Deferred Income Taxes 672.5 641.1
Commitments and Contingencies
Minority Interests 544.3 481.7
Stockholder's Equity 11,615.3 8,381.9
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Total Liabilities and Stockholder's Equity $18,261.0 $12,407.9
============================================================================
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)
Year Ended
Fourth Quarter December 31,
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1999 1998 1999 1998
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DIRECT-TO-HOME BROADCAST
Total Revenues $1,213.6 $567.6 $3,785.0 $1,816.1
EBITDA (1) $(24.9) $(69.4) $19.9 $(125.8)
EBITDA Margin (1) N/A N/A 0.5% N/A
Operating Loss $(132.7) $(94.5) $(292.1) $(228.1)
Depreciation and Amortization $107.8 $25.1 $312.0 $102.3
Capital Expenditures (2) $263.5 $100.7 $516.9 $230.8
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SATELLITE SERVICES
Total Revenues $206.0 $196.7 $810.6 $767.3
EBITDA (1) $152.9 $144.3 $618.8 $553.3
EBITDA Margin (1) 74.2% 73.4% 76.3% 72.1%
Operating Profit $80.2 $82.4 $341.6 $321.6
Operating Profit Margin 38.9% 41.9% 42.1% 41.9%
Depreciation and Amortization $72.7 $61.9 $277.2 $231.7
Capital Expenditures (3) $133.4 $316.7 $956.4 $921.7
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NETWORK SYSTEMS
Total Revenues $386.5 $402.6 $1,384.7 $1,076.7
EBITDA (1) $(241.5) $43.0 $(178.1) $52.6
EBITDA Margin (1) N/A 10.7% N/A 4.9%
Operating Profit (Loss) $(253.0) $31.1 $(227.3) $10.9
Operating Profit Margin N/A 7.7% N/A 1.0%
Depreciation and Amortization $11.5 $11.9 $49.2 $41.7
Capital Expenditures $11.9 $13.6 $35.0 $40.0
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ELIMINATIONS and OTHER
Total Revenues $(108.1) $(61.7) $(420.0) $(179.5)
EBITDA (1) $(60.9) $(48.7) $(237.9) $(138.4)
Operating Loss $(58.4) $(60.3) $(246.9) $(147.3)
Depreciation and Amortization $(2.5) $11.6 $9.0 $8.9
Capital Expenditures $111.1 $21.8 $157.0 $136.3
- --------------------------------------------------------------------------
TOTAL
Total Revenues $1,698.0 $1,105.2 $5,560.3 $3,480.6
EBITDA (1) $(174.4) $69.2 $222.7 $341.7
EBITDA Margin (1) N/A 6.3% 4.0% 9.8%
Operating Loss $(363.9) $(41.3) $(424.7) $(42.9)
Depreciation and Amortization $189.5 $110.5 $647.4 $384.6
Capital Expenditures $519.9 $452.8 $1,665.3 $1,328.8
* 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 exclude 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 $46.9 million, $32.2 million,
$136.0 million and $70.2 million, respectively.
(3)Includes satellite expenditures amounting to $124.0 million, $304.1 million,
$532.8 million and $726.3 million, respectively. Also included are
expenditures related to the early buy-out of satellite sale-leasebacks
totaling $369.5 million and $155.5 million for the years ended December 31,
1999 and 1998, respectively.
* * * * * *
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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
------------------------------
(Registrant)
By
Date January 19, 2000 /s/Roxanne S. Austin
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(Roxanne S. Austin,
Chief Financial Officer)
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