Hughes Communications, Inc. Announces Record Second Quarter 2008 Results

2008-08-06 15:17:00

Hughes Communications, Inc. Announces Record Second Quarter 2008 Results

       Revenues Increase 13% over Second Quarter 2007 to $266 million

                Adjusted EBITDA Increases 22% to $38 million

               Consumer Gross Adds Increase 21%, Net Adds 32%

              New Order Bookings Increase 51% to $333 million



    GERMANTOWN, Md., Aug. 6 /EMWNews/ -- Hughes

Communications, Inc. (Nasdaq: HUGH) ("Hughes"), the global leader in

broadband satellite network solutions and services, today announced

financial results for the quarter ended June 30, 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.



    "Hughes had an outstanding quarter, setting new records for second

quarter revenue, adjusted EBITDA, and new orders," said Pradman Kaul,

president and chief executive officer of Hughes. "Revenues increased by 13%

over the second quarter of 2007 to $266 million. The key contributors to

revenue growth were our Consumer business and the International VSAT

segment. New consumer activations increased by a strong 21% and net

consumer adds by an even stronger 32% in the second quarter of 2008 over

the second quarter of 2007. Churn in the second quarter was 2.3%, the same

as in the second quarter of 2007. ARPU increased to $66 in the second

quarter of 2008 from $62 in the second quarter of 2007. The overall effect

of these was that consumer services revenue increased to $80 million in the

second quarter of 2008, a strong 23% growth over the second quarter of

2007."



    "Revenue in the International VSAT segment grew by a strong 43% over

the second quarter of 2007 to $65 million, driven primarily by our European

service subsidiary and international equipment exports from the U.S. For

the second quarter of 2008, adjusted EBITDA* was an impressive $38 million

for a growth of 22% over the second quarter of 2007."



    Kaul continued, "We also set a second quarter record for new orders by

booking new orders of $333 million in the second quarter of 2008, including

significant orders from BP, Blockbuster, Social Security Administration,

and American General Finance in our North America enterprise business. Our

International enterprise business received significant orders from the

African Development Bank, Micro Tech, PT Abhimata, UNIP, Telemar Brazil,

the Spanish lottery service provider STL, Telefonica, and Afsat. Our mobile

satellite business was awarded a significant order for over $100 million by

Globalstar."



    For the six month period ended June 30, 2008, revenues increased to

$503 million for a growth of 10% and adjusted EBITDA increased to $67

million for a growth of 19% over the six months ended June 30, 2007. We

booked new orders of $619 million during the six month period ended June

30, 2008, an increase of 25% over the six month period ended June 30, 2007.

This has resulted in an all-time high, non-consumer order backlog of $869

million as of June 30, 2008, a 35% growth over the backlog at June 30,

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. See "Reconciliation of Non-GAAP Financial Measures to GAAP

Financial Measures."



    Set forth below are tables highlighting certain of our results for the

three and six months ended June 30, 2008 and June 30, 2007:




Hughes Communications, Inc. Three Months Six Months Ended June 30, Ended June 30, (Dollars in thousands) 2008 2007 2008 2007 Revenue North America VSAT $161,241 $150,775 $318,031 $302,340 International VSAT 65,469 45,921 110,065 89,417 Telecom Systems 38,780 37,413 74,414 65,083 Corporate and Other 152 249 292 400 Total $265,642 $234,358 $502,802 $457,240 Operating income North America VSAT $3,271 $10,619 $8,293 $19,120 International VSAT 7,267 4,780 7,700 5,738 Telecom Systems 6,611 4,844 11,200 8,385 Corporate and Other (1,086) (1,210) (1,824) (2,654) Total $16,063 $19,033 $25,369 $30,589 Net income $1,827 $9,632 $2,483 $12,572 Adjusted net income* $3,927 $10,637 $14,174 $14,594 EBITDA* $36,852 $30,766 $57,774 $55,146 Adjusted EBITDA* $37,562 $30,826 $67,004 $56,383 New Orders $332,541 $219,523 $618,946 $496,882 Hughes Network Systems, LLC Three Months Six Months Ended June 30, Ended June 30, (Dollars in thousands) 2008 2007 2008 2007 Revenue North America VSAT $161,241 $150,775 $318,031 $302,340 International VSAT 65,469 45,921 110,065 89,417 Telecom Systems 38,780 37,413 74,414 65,083 Total $265,490 $234,109 $502,510 $456,840 Operating income North America VSAT $3,271 $10,619 $8,293 $19,120 International VSAT 7,267 4,780 7,700 5,738 Telecom Systems 6,611 4,844 11,200 8,385 Total $17,149 $20,243 $27,193 $33,243 Net income $2,634 $11,178 $4,092 $15,486 EBITDA* $37,818 $31,921 $59,492 $57,335 Adjusted EBITDA* $38,528 $31,981 $68,722 $58,572 New Orders $332,389 $219,274 $618,654 $496,483 * 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 announced on May 21, 2008 that the public offering of 2,239,600 shares of its common stock priced at $50 per share. In the offering, Hughes sold 2,000,000 shares and certain selling stockholders, including members of its senior management, sold a total of 239,600 shares. Hughes intends to use the net proceeds from the sale of its shares for the acquisition of a satellite or general corporate purposes. -- HNS announced that it has increased the speeds of three of its popular HughesNet(R) consumer service plans -- Home, Pro, and ProPlus, giving new subscribers an even faster broadband connection at the same low prices. The Home plan now features download speeds of up to 1 Mbps. The Pro and ProPlus plans feature download speeds of up to 1.2 and 1.6 Mbps, respectively. -- HNS announced the availability of the fastest consumer broadband satellite Internet access plans ever offered. The new service plans, Elite, ElitePlus, and ElitePremium, give rural Americans access to speeds more comparable with terrestrial broadband services utilizing affordable consumer equipment. The Elite plan features download speeds of up to 2Mbps, ElitePlus features download speeds of up to 3Mbps and ElitePremium features download speeds of up to 5Mbps. -- HNS signed an agreement with Globalstar, Inc. (Nasdaq: GSAT) under which Hughes will design, manufacture and implement the next-generation Radio Access Network (RAN) comprising gateway equipment initially at Globalstar's locations worldwide with an option to expand to 30 locations, and will design, manufacture, and deliver satellite air interface chips to be a part of the User Terminal Subsystem (UTS). The initial contract is valued at $100.8 million. -- HNS announced that Sistemas Tecnicos de Loterias del Estado (STL) has awarded Hughes Networks Systems Ltd., a wholly owned subsidiary of HNS located in the UK, a contract to provide a geographically redundant HN System Network Operations Center (NOC), 2800 HN7700S broadband satellite routers, and support/maintenance services for five years. STL provides information technology and telecommunications services to the Entidad Publico Empresarial Loterias y Apuestas del Estado Espanol (LAE), the Spanish state lottery authority. -- HNS was selected as prime contractor by the Social Security Administration (SSA) to provide operational support services for its interactive video training network and has received an initial task order for $4 million. The SSA has the option to extend the work for four additional years. If the SSA exercises this option and the option to procure the necessary equipment, this contract could be worth over $40 million in the next five years. -- Hughes Communications India, Ltd. (HCIL), a subsidiary of Hughes, signed an agreement with SAHAJ SREI e-Village Limited to supply 17,000 VSATs to be installed at rural kiosks across multiple states in India. HCIL will provide the VSAT equipment enabling G2C (government to consumer) services and other services such as Internet access and interactive and online education. SREI Sahaja e-Village LTD, a subsidiary of SREI Infrastructure Finance Limited, is focused on bridging the digital divide between rural and urban India, under the National E-Governance Plan of the Government of India. With this order, the number of kiosks installed and orders in backlog is approximately 30,000. -- America's Emergency Network, Inc. (AEN), a wholly owned subsidiary of Brampton Crest International, Inc. (OTC Bulletin Board: BRCI), announced that it has entered into an agreement with HNS under which HNS will provide the broadband satellite backbone of AEN's pioneering satellite-video-Internet emergency communications network using HughesNet service, powered by our SPACEWAY(TM) 3 satellite system. -- Automotive Broadcasting Network(TM) (ABN), a private auto retailing television network, selected the HughesNet Managed Digital Media Service to distribute video content to automotive dealerships across the US. The Automotive Broadcasting Network is a subscription-based service providing high-quality, family-friendly entertainment programming from CBS not normally available during business hours, as well as clips and segments from CBS news and talk programs, to each dealer site. -- HNS announced that it will provide advanced SPACEWAY 3 broadband satellite equipment and services to broadband provider Barrett Xplore Inc. of New Brunswick, Canada. The contract includes satellite capacity on SPACEWAY 3, a gateway earth station, and remote terminals. Barrett Xplore will offer the broadband satellite services to the Canadian market under its Xplornet brand. -- HNS announced the introduction of enhanced capabilities for its innovative HX System that facilitate Ku-band satellite delivery of mobile broadband services on vehicles, ships, trains, and planes. The new capabilities leverage the innovative and compact HX broadband satellite system to satisfy key mobility-specific requirements. To summarize, Kaul said, "We are very pleased with our financial performance in the second quarter of 2008. Our consumer business continues to show strong growth, and the robust orders in previous quarters in the international business have started to yield strong revenue growth. Consumers are being added to SPACEWAY 3 as planned and we expect to see the margin expansion in the coming months. I am especially pleased with our new orders performance in the second quarter and the resulting strong backlog, which has strengthened our position for the periods ahead. We also raised $94 million of net proceeds from our equity offering in May 2008 and appreciate very much the faith and confidence that our new and existing shareholders have placed on us." Commenting on Hughes' financial performance, Grant Barber, executive vice president and chief financial officer, said, "Our Adjusted EBITDA and EBITDA showed strong growth in the second quarter of 2008 over the second quarter of 2007. Hughes' GAAP net income in the quarter was $1.8 million or $0.09 per share compared with $9.6 million or $0.50 per share on a fully diluted basis in the second quarter of 2007. The variance is primarily due to SPACEWAY 3 satellite and network construction costs being depreciated starting in the second quarter of 2008 with the launch of commercial service on SPACEWAY 3 in April 2008. This is in line with our expectations. The successful equity offering has strengthened our balance sheet and our consolidated cash and marketable securities improved to $191.1 million at June 30, 2008." 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 Six Months Ended June 30, Ended June 30, (Dollars in thousands) 2008 2007 2008 2007 Net income $1,827 $9,632 $2,483 $12,572 Add: Equity incentive plan compensation 1,390 1,005 2,461 2,022 Long-term cash incentive retention program 710 - 9,230 - Adjusted net income $3,927 $10,637 $14,174 $14,594 Net income $1,827 $9,632 $2,483 $12,572 Add: Equity incentive plan compensation 1,390 1,005 2,461 2,022 Interest expense 13,902 11,872 23,210 23,310 Income tax expense 1,195 164 1,835 684 Depreciation and amortization 19,405 10,981 30,115 22,524 Less: Interest income (867) (2,888) (2,330) (5,966) EBITDA $36,852 $30,766 $57,774 $55,146 Add: Long-term cash incentive retention program 710 - 9,230 - Restructuring charge - 60 - 1,237 Adjusted EBITDA $37,562 $30,826 $67,004 $56,383 The following table reconciles the differences between HNS' net income as determined under GAAP, EBITDA, and Adjusted EBITDA:
Hughes Network Systems, LLC Three Months Six Months Ended June 30, Ended June 30, (Dollars in thousands) 2008 2007 2008 2007 Net income $2,634 $11,178 $4,092 $15,486 Add: Equity incentive plan compensation 1,240 767 2,165 1,294 Interest expense 13,902 11,870 23,210 23,308 Income tax expense (benefit) 1,184 (131) 1,813 389 Depreciation and amortization 19,405 10,981 30,115 22,524 Less: Interest income (547) (2,744) (1,903) (5,666) EBITDA $37,818 $31,921 $59,492 $57,335 Add: Long-term cash incentive retention program 710 - 9,230 - Restructuring charge - 60 - 1,237 Adjusted EBITDA $38,528 $31,981 $68,722 $58,572 The financial statements of Hughes and HNS for the three and six months ended June 30, 2008 and June 30, 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 program, 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 program. 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' 91/2% 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, debt service requirements (including VSAT operating lease hardware) and payments under the long-term cash incentive retention program. 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 http://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.



    (C)2008 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.




HUGHES COMMUNICATIONS, INC. Condensed Consolidated Balance Sheets (In thousands) (Unaudited) June 30, December 31, 2008 2007 ASSETS Current assets: Cash and cash equivalents $179,107 $134,092 Marketable securities 11,991 17,307 Receivables, net 197,569 209,943 Inventories 79,790 65,754 Prepaid expenses and other 35,260 43,720 Total current assets 503,717 470,816 Property, net 500,812 479,976 Capitalized software costs, net 49,995 47,582 Intangible assets, net 25,952 22,513 Goodwill 2,658 - Other assets 120,015 108,950 Total assets $1,203,149 $1,129,837 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 75,185 $ 72,440 Short-term debt 11,713 14,795 Accrued liabilities 163,748 177,932 Due to affiliates 1,258 12,621 Total current liabilities 251,904 277,788 Long-term debt 579,861 577,761 Other long-term liabilities 6,011 6,526 Total liabilities 837,776 862,075 Commitments and contingencies Minority interests 5,489 5,401 Stockholders' Equity: Preferred stock, $0.001 par value; 1,000,000 shares authorized and no shares issued and outstanding at June 30, 2008 and December 31, 2007 - - Common stock, $0.001 par value; 64,000,000 shares authorized; 21,356,409 shares and 19,195,972 shares issued and outstanding as of June 30, 2008 and December 31, 2007, respectively 21 19 Additional paid in capital 725,938 631,300 Accumulated deficit (364,385) (366,868) Accumulated other comprehensive gain (loss): Foreign currency translation adjustments 3,233 3,305 Unrealized loss on hedging instruments (5,052) (5,482) Unrealized gain on securities 129 87 Total stockholders' equity 359,884 262,361 Total liabilities and stockholders' equity $1,203,149 $1,129,837 HUGHES COMMUNICATIONS, INC. Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Revenues: Services $149,276 $129,373 $298,173 $249,147 Hardware sales 116,366 104,985 204,629 208,093 Total revenues 265,642 234,358 502,802 457,240 Operating costs and expenses: Cost of services 101,694 86,940 195,911 167,174 Cost of hardware products sold 97,541 85,352 174,339 172,518 Selling, general and administrative 41,501 37,280 90,656 75,546 Research and development 7,176 4,218 13,252 8,342 Amortization of intangibles 1,667 1,535 3,275 3,071 Total operating costs and expenses 249,579 215,325 477,433 426,651 Operating income 16,063 19,033 25,369 30,589 Other income (expense): Interest expense (13,902) (11,872) (23,210) (23,310) Interest income 867 2,888 2,330 5,966 Other income, net 58 39 89 140 Income before income taxes expense; minority interests in net (earnings) losses of subsidiaries and equity in losses of unconsolidated affiliates 3,086 10,088 4,578 13,385 Income tax expense (1,195) (164) (1,835) (684) Minority interests in net (earnings) losses of subsidiaries (43) (125) (88) 158 Equity in losses of unconsolidated affiliates (21) (167) (172) (287) Net income $1,827 $9,632 $2,483 $12,572 Earnings per share: Basic $0.09 $0.51 $0.13 $0.67 Diluted $0.09 $0.50 $0.13 $0.65 Shares used in computation of per share data: Basic 19,676,925 18,862,337 19,272,277 18,852,783 Diluted 20,071,971 19,209,312 19,673,602 19,212,199 HUGHES COMMUNICATIONS, INC. Condensed Consolidated Statements Of Cash Flows (In thousands) (Unaudited) Six Months Ended June 30, 2008 2007 Cash flows from operating activities: Net income $2,483 $12,572 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 30,810 22,767 Equity plan compensation expense 2,461 2,022 Minority interests 88 (158) Equity in losses from unconsolidated affiliates 172 287 Gain on disposal of assets - (285) Deferred income taxes - (705) Other 9 - Change in other operating assets and liabilities, net of acquisitions: Receivables, net 12,341 1,988 Inventories (13,884) 817 Prepaid expenses and other (7,620) (4,273) Accounts payable 4,577 9,148 Accrued liabilities and other (17,672) (11,606) Net cash provided by operating activities 13,765 32,574 Cash flows from investing activities: Change in restricted cash (597) 406 Purchase of marketable securities (2,070) (5,679) Proceed from sale of marketable securities 7,390 68,193 Expenditures for property (43,842) (119,383) Proceeds from sale of property 63 716 Expenditures for capitalized software (7,079) (6,949) Acquisitions of Helius, net (10,540) - Additional equity investment in Hughes Systique Corporation (1,500) - Long-term loan to Hughes Systique Corporation (500) - Net cash used in investing activities (58,675) (62,696) Cash flows from financing activities: Net increase in notes and loans payable 661 358 Proceeds from equity offering 93,019 - Proceeds from exercise of stock options 75 113 Long-term debt borrowings 2,099 115,662 Repayment of long-term debt (8,895) (13,226) Debt issuance costs - (2,044) Net cash provided by financing activities 86,959 100,863 Effect of exchange rate changes on cash and cash equivalents 2,966 (1,702) Net increase in cash and cash equivalents 45,015 69,039 Cash and cash equivalents at beginning of the period 134,092 106,933 Cash and cash equivalents at end of the period $179,107 $175,972 Supplemental cash flow information: Cash paid for interest $26,989 $26,005 Cash paid for income taxes $1,733 $2,173 HUGHES NETWORK SYSTEMS Condensed Consolidated Balance Sheets (In thousands) (Unaudited) June 30, December 31, 2008 2007 ASSETS Current assets: Cash and cash equivalents $80,843 $129,227 Marketable securities 8,204 11,224 Receivables, net 197,445 209,731 Inventories 79,790 65,754 Prepaid expenses and other 34,238 42,131 Total current assets 400,520 458,067 Property, net 500,812 479,976 Capitalized software costs, net 49,995 47,582 Intangible assets, net 25,952 22,513 Goodwill 2,658 - Other assets 113,224 103,870 Total assets $1,093,161 $1,112,008 LIABILITIES AND EQUITY Current liabilities: Accounts payable $73,355 $69,497 Short-term debt 11,713 14,795 Accrued liabilities 163,112 177,136 Due to affiliates 1,591 13,473 Total current liabilities 249,771 274,901 Long-term debt 579,861 577,761 Other long-term liabilities 6,011 6,526 Total liabilities 835,643 859,188 Commitments and contingencies Minority interests 5,420 5,350 Equity: Class A membership interests 180,808 180,655 Class B membership interests - - Retained earnings 72,995 68,903 Accumulated other comprehensive gain (loss): Foreign currency translation adjustments 3,233 3,305 Unrealized loss on hedging instruments (5,052) (5,482) Unrealized gains on securities 114 89 Total equity 252,098 247,470 Total liabilities and equity $1,093,161 $1,112,008 HUGHES NETWORK SYSTEMS Condensed Consolidated Statements Of Operations (In thousands) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Revenues: Services $149,124 $129,124 $297,881 $248,747 Hardware sales 116,366 104,985 204,629 208,093 Total revenues 265,490 234,109 502,510 456,840 Operating costs and expenses: Cost of services 101,684 86,926 195,887 167,132 Cost of hardware products sold 97,541 85,352 174,339 172,518 Selling, general and administrative 40,273 35,835 88,564 72,534 Research and development 7,176 4,218 13,252 8,342 Amortization of intangibles 1,667 1,535 3,275 3,071 Total operating costs and expenses 248,341 213,866 475,317 423,597 Operating income 17,149 20,243 27,193 33,243 Other income (expense): Interest expense (13,902) (11,870) (23,210) (23,308) Interest income 547 2,744 1,903 5,666 Other income, net 58 39 89 91 Income before income tax (expense) benefit and minority interests in net (earnings) losses of subsidiaries 3,852 11,156 5,975 15,692 Income tax (expense) benefit (1,184) 131 (1,813) (389) Minority interests in net (earnings) losses of subsidiaries (34) (109) (70) 183 Net income $2,634 $11,178 $4,092 $15,486 HUGHES NETWORK SYSTEMS Condensed Consolidated Statements Of Cash Flows (In thousands) (Unaudited) Six Months Ended June 30, 2008 2007 Cash flows from operating activities: Net income $4,092 $15,486 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 30,810 22,767 Equity plan compensation expense 153 160 Minority interests 70 (183) Gain on disposal of assets - (285) Other 5 - Change in other operating assets and liabilities, net of acquisition: Receivables, net 12,253 2,004 Inventories (13,884) 817 Prepaid expenses and other (8,293) (5,526) Accounts payable 5,690 9,579 Accrued liabilities and other (17,116) (11,883) Net cash provided by operating activities 13,780 32,936 Cash flows from investing activities: Change in restricted cash (597) 406 Proceed from sale of marketable investments 3,000 65,649 Expenditures for property (43,842) (119,383) Expenditures for capitalized software (7,079) (6,949) Proceeds from sale of property 63 716 Acquisition of Helius, Inc. (10,540) - Net cash used in investing activities (58,995) (59,561) Cash flows from financing activities: Net increase in notes and loans payable 661 358 Long-term debt borrowings 2,099 115,662 Repayment of long-term debt (8,895) (13,226) Debt issuance costs - (2,044) Net cash (used in) provided by financing activities (6,135) 100,750 Effect of exchange rate changes on cash and cash equivalents 2,966 (1,702) Net (decrease) increase in cash and cash equivalents (48,384) 72,423 Cash and cash equivalents at beginning of the period 129,227 99,098 Cash and cash equivalents at end of the period $80,843 $171,521 Supplemental cash flow information: Cash paid for interest $26,989 $26,003 Cash paid for income taxes $1,711 $2,172

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