HUGH » Topics » Results of Operations for the Nine months Ended September 30, 2006 Compared to the Nine months Ended September 30, 2005

This excerpt taken from the HUGH 10-Q filed Nov 14, 2006.

Results of Operations for the Nine months Ended September 30, 2006 Compared to the Nine months Ended September 30, 2005

Services Revenues

Services revenues for the nine months ended September 30, 2006 increased to $325.3 million from $0.4 million for the nine months ended September 30, 2005, an increase of $324.9 million. This increase was due to the consolidation of HNS into our operations in

 

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connection with the January 2006 Acquisition. HNS’ revenues for the nine months ended September 30, 2006 were $324.9 million. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” included in the Form 10-Q filed by HNS with the SEC related to the period ended September 30, 2006, which Form 10-Q is included as Exhibit 99.1 herein, for a comparison of HNS’ results for the nine months ended September 30, 2006 with the nine months ended September 30, 2005.

Hardware Sales

Hardware sales for the three months ended September 30, 2006 were $290.0 million. There were no hardware sales in the three months ended September 30, 2005, as we did not sell hardware products prior to our acquisition of HNS. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” included in the Form 10-Q filed by HNS with the SEC related to the period ended September 30, 2006, which Form 10-Q is included as Exhibit 99.1 herein, for a comparison of HNS’ results for the nine months ended September 30, 2006 with the nine months ended September 30, 2005.

Cost of Services

Our cost of services relates to costs associated with the provision of network services, and consists primarily of satellite capacity leases, hub infrastructure, customer care, depreciation expense related to network infrastructure and the salaries and related employment costs for those employees who manage our network operations and other project areas. Cost of services for the nine months ended September 30, 2006 increased to $227.4 million from $0.3 million for the nine months ended September 30, 2005, an increase of $227.1 million. This increase was due to the consolidation of HNS into our operations in connection with the January 2006 Acquisition. HNS’ cost of services for the nine months ended September 30, 2006 was $227.3 million. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” included in Form 10-Q filed by HNS with the SEC related to the period ended September 30, 2006, which Form 10-Q is included as Exhibit 99.1 herein, for a comparison of HNS’ results for the nine months ended September 30, 2006 with the nine months ended September 30, 2005.

Cost of Hardware Products Sold

Our cost of hardware products sold relates primarily to the cost of direct materials and subsystems (electronic components, antennas, etc.), salaries and related employment costs for those employees who are directly associated with the procurement and manufacture of our products, and other items of indirect overhead incurred in the procurement and production process. Cost of hardware products sold for the nine months ended September 30, 2006 was $237.2 million. We had no cost of hardware products sold in the nine months ended September 30, 2005, as we did not sell hardware products prior to our acquisition of HNS. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” included in the Form 10-Q filed by HNS with the SEC related to the period ended September 30, 2006, which Form 10-Q is included as Exhibit 99.1 herein, for a comparison of HNS’ results for the nine months ended September 30, 2006 with the nine months ended September 30, 2005.

Research and Development

Research and development expenses relate to costs associated with engineering support for existing platforms and development efforts to build new products and software applications relating to our business. Research and development costs consist primarily of the salaries of certain members of our engineering staff burdened with an applied overhead charge as well as subcontractors, material purchases and other direct costs in support of product developments. Research and development expense for the nine months ended September 30, 2006 was $18.0 million. We had no research and development expense prior to the January 1, 2006 acquisition of HNS. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” included in the Form 10-Q filed by HNS with the SEC related to the period ended September 30, 2006, which is included as Exhibit 99.1 herein, for a comparison of HNS’ results for the nine months ended September 30, 2006 with the nine months ended September 30, 2005.

Sales and Marketing

Sales and marketing expense consists primarily of the salaries, commissions and related benefit costs of our direct sales force and marketing staff, advertising, travel, allocation of facilities and other directly related overhead costs for our domestic and international businesses, as well as other subscriber acquisition costs related to our Consumer/SMB business. Sales and marketing expense for the nine months ended September 30, 2006 was $58.2 million. We had no sales and marketing expense prior to the January 1, 2006 acquisition of HNS. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” included in the Form 10-Q filed by HNS with the SEC related to the period ended September 30, 2006, which Form 10-Q is included as Exhibit 99.1 herein, for a comparison of HNS’ results for the nine months ended September 30, 2006 with the nine months ended September 30, 2005.

 

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General and Administrative

General and administrative expense includes facilities costs, finance, legal and other corporate costs, as well as the salaries and related employee benefits for those employees that support such functions. General and administrative expense for the nine months ended September 30, 2006 increased to $41.7 million from $5.8 million for the nine months ended September 30, 2005, an increase of $35.9 million. This increase relates primarily to the consolidation of HNS into our operations in connection with the January 2006 Acquisition. HNS’ general and administrative expenses for the nine months ended September 30, 2006 were $38.1 million. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” included in the Form 10-Q filed by HNS with the SEC related to the period ended September 30, 2006, which Form 10-Q is included as Exhibit 99.1 herein, for a comparison of HNS’ results for the nine months ended September 30, 2006 with the nine months ended September 30, 2005.

Amortization of Intangibles

As a result of the January 2006 Acquisition, we have recorded a preliminary estimate of intangible assets as of January 1, 2006 relating to customer relationships, technology patents, trademarks and backlog in accordance with SFAS No. 141, and amortization of intangible assets was $3.4 million for the nine months ended September 30, 2006. We had no intangible assets prior to the January 1, 2006 acquisition of HNS.

Interest Expense

Interest expense was $32.6 million for the nine months ended September 30, 2006. We had no interest expense in the prior year. Interest expense during the nine months ended September 30, 2006 primarily consists of $30.9 million of interest on debt incurred by HNS and $1.7 million of interest paid to Apollo in connection with the $100.0 million loan from Apollo to finance the January 2006 Acquisition. Interest expense at HNS primarily relates to the Senior Notes and the impact of increased interest of $2.0 million related to VSAT hardware financing and $1.5 million associated with the payment of the $325 million term indebtedness in the second quarter. Approximately $3.0 million of interest costs were capitalized in connection with the SPACEWAY program.

Equity in Earnings of Hughes Network Systems, LLC

For the nine months ended September 30, 2005, we recorded income of $12.9 million relating to our 50% ownership of HNS for the period from April 22, 2005 through September 30, 2005. We recorded no income or loss under the equity method of accounting during the nine months ended September 30, 2006 as we consolidate HNS’ results subsequent to the January 2006 Acquisition.

Equity in Loss of Mobile Satellite Ventures LP

For the nine months ended September 30, 2006 and 2005, we recorded expense of $1.5 million and $7.5 million, respectively, relating to our proportionate share of the MSV Joint Venture’s net loss. Our share of the loss in the nine months ended September 30, 2006 is our proportionate share through the date of the Distribution, as we distributed our interest in the MSV Joint Venture to SkyTerra on that date.

Other Income, Net

For the nine months ended September 30, 2006 and 2005, we recorded other income, net of $8.8 million and $2.2 million, respectively, an improvement of $6.6 million. The improvement is primarily attributable to an increase of $6.9 million in interest income earned on the cash acquired in the January 1, 2006 acquisition of HNS which is partially offset by a loss of $0.3 million in equity earnings of its affiliates.

Income Tax Expense

For the nine months ended September 30, 2006, we recorded income tax expense of $52.9 million. For the nine months ended September 30, 2005, no income tax benefit was recorded on our net loss before income taxes for that period as we were maintaining a full valuation allowance on our deferred tax assets at that time. During the year ended December 31, 2005, we recognized a $50.3 million income tax benefit, and associated deferred tax asset, related to the reversal of the valuation allowance for the net operating and capital loss carryforwards which are expected to be utilized to offset the Federal taxable income on the Distribution, which did not qualify as a tax-free spin-off. The $52.9 million of income tax expense recorded in the nine months ended September 30, 2006 consisted of a $50.3 million reversal of the previously established deferred tax asset, $0.6 million in estimated state taxes payable, and $2.0 million in estimated foreign taxes payable by our international subsidiaries.

 

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Loss from Discontinued Operations

For the nine months ended September 30, 2006, we recognized a loss from operations of AfriHUB for the period prior to the sale of approximately $42,000. For the nine months ended September 30, 2005, we recognized a loss from operations of AfriHUB of $0.3 million.

Gain on Sale of Discontinued Operations

During the nine months ended September 30, 2006, we recognized a gain of $0.2 million on the February 20, 2006 sale of AfriHUB.

Cumulative Dividends and Accretion of Convertible Preferred Stock to Liquidation Value

For the nine months ended September 30, 2006 and 2005, we recorded dividends and accretion of $1.5 million and $7.5 million, respectively, related to amounts payable quarterly on SkyTerra’s Series A Preferred Stock and to accretion of the carrying amount of the Series A Preferred Stock to its $100 per share face value redemption amount over 13 years. The amount recorded in the nine months ended September 30, 2006 represents the amount recognized through the date of the Distribution.

These excerpts taken from the HUGH 10-Q filed Aug 11, 2006.

Results of Operations for the Six Months Ended June 30, 2006 Compared to the Six Months Ended June 30, 2005

Revenues

Revenues for the six months ended June 30, 2006 increased to $405.5 million from $0.2 million for the six months ended June 30, 2005, an increase of $405.3 million. This increase was due to the consolidation of HNS into our operations in connection with the January 2006 Acquisition. HNS’ revenues for the six months ended June 30, 2006 were $405.3 million. See the Management’s Discussion and Analysis of Financial Conditions and Results of Operations for HNS included in Exhibit 99.1, which is incorporated by reference herein, for a comparison of HNS’ results for the six months ended June 30, 2006 with the six months ended June 30, 2005.

Cost of Services

Our cost of services relates to costs associated with the provision of network services, and consists primarily of satellite capacity leases, hub infrastructure, customer care, depreciation expense related to network infrastructure and the salaries and related employment costs for those employees who manage our network operations and other project areas. Cost of services for the six months ended June 30, 2006 increased to $147.4 million from $0.2 million for the six months ended June 30, 2005, an increase of $147.2 million. This increase was due to the consolidation of HNS into our operations in connection with the January 2006 Acquisition. HNS’ cost of services for the six months ended June 30, 2006 was $147.3 million. See the Management’s Discussion and Analysis of Financial Conditions and Results of Operations for HNS included in Exhibit 99.1, which is incorporated by reference herein, for a comparison of HNS’ results for the six months ended June 30, 2006 with the six months ended June 30, 2005.

Cost of Hardware Products Sold

Our cost of hardware products sold relates primarily to the cost of direct materials and subsystems (electronic components, antennas, etc.), salaries and related employment costs for those employees who are directly associated with the procurement and manufacture of our products, and other items of indirect overhead incurred in the procurement and production process. Cost of hardware products sold for the six months ended June 30, 2006 was $163.0 million. We had no cost of hardware products sold in the six months ended June 30, 2005, as we did not sell hardware products prior to our acquisition of HNS. See the Management’s Discussion and Analysis of Financial Conditions and Results of Operations for HNS included in Exhibit 99.1, which is incorporated by reference herein, for a comparison of HNS’ results for the six months ended June 30, 2006 with the six months ended June 30, 2005.

Research and Development

Research and development expenses relate to costs associated with engineering support for existing platforms and development efforts to build new products and software applications relating to our business. Research and development costs consist primarily of the salaries of certain members of our engineering staff burdened with an

 

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applied overhead charge as well as subcontractors, material purchases and other direct costs in support of product developments. Research and development expense for the six months ended June 30, 2006 was $14.2 million. We had no research and development expense prior to the January 1, 2006 acquisition of HNS. See the Management’s Discussion and Analysis of Financial Conditions and Results of Operations for HNS included in Exhibit 99.1, which is incorporated by reference herein, for a comparison of HNS’ results for the six months ended June 30, 2006 with the six months ended June 30, 2005.

Sales and Marketing

Sales and marketing expense consists primarily of the salaries, commissions and related benefit costs of our direct sales force and marketing staff, advertising, travel, allocation of facilities and other directly related overhead costs for our domestic and international businesses, as well as other subscriber acquisition costs related to our Consumer/SMB business. Sales and marketing expense for the six months ended June 30, 2006 was $39.8 million. We had no sales and marketing expense prior to the January 1, 2006 acquisition of HNS. See the Management’s Discussion and Analysis of Financial Conditions and Results of Operations for HNS included in Exhibit 99.1, which is incorporated by reference herein, for a comparison of HNS’ results for the six months ended June 30, 2006 with the six months ended June 30, 2005.

General and Administrative

General and administrative expense includes facilities costs, finance, legal and other corporate costs, as well as the salaries and related employee benefits for those employees that support such functions. General and administrative expense for the six months ended June 30, 2006 increased to $28.7 million from $4.1 million for the six months ended June 30, 2005, an increase of $24.6 million. This increase relates primarily to the consolidation of HNS into our operations in connection with the January 2006 Acquisition. HNS’ general and administrative expenses for the six months ended June 30, 2006 were $25.9 million. See the Management’s Discussion and Analysis of Financial Conditions and Results of Operations for HNS included in Exhibit 99.1 which is incorporated by reference herein for a comparison of HNS’ results for the six months ended June 30, 2006 with the six months ended June 30, 2005.

Amortization of Intangibles

As a result of the January 2006 Acquisition, we have recorded a preliminary estimate of intangible assets as of January 1, 2006 relating to customer relationships, technology patents, trademarks and backlog in accordance with SFAS No. 141. Amortization of intangible assets was $2.3 million for the six months ended June 30, 2006. We had no intangible assets prior to the January 1, 2006 acquisition of HNS.

Interest Expense

Interest expense was $21.5 million for the six months ended June 30, 2006. We had no interest expense in the prior year. Interest expense during the six months ended June 30, 2006 consists of $19.8 million of interest on debt incurred by HNS and $1.7 million of interest paid to Apollo in connection with the $100.0 million loan from Apollo to finance the January 2006 Acquisition.

Equity in Earnings of Hughes Network Systems, LLC

For the six months ended June 30, 2005 we recorded income of $6.5 million relating to our 50% ownership of HNS for the period from April 22, 2005 through June 30, 2005. We recorded no income or loss under the equity method of accounting during the six months ended June 30, 2006 as we consolidate HNS’ results subsequent to the January 2006 Acquisition.

Equity in Loss of Mobile Satellite Ventures LP

For the six months ended June 30, 2006 and 2005, we recorded expense of $1.5 million and $6.0 million, respectively, relating to our proportionate share of the MSV Joint Venture’s net loss. Our share of the loss in the six months ended June 30, 2006 is our proportionate share through the date of the Distribution, as we distributed our interest in the MSV Joint Venture to SkyTerra on that date.

Other Income, Net

For the six months ended June 30, 2006 and 2005, we recorded other income, net of $4.6 million and $0.9 million, respectively, an improvement of $3.7 million. The improvement is primarily attributable to an increase of $3.3 million in interest income earned on the cash acquired in the January 1, 2006 acquisition of HNS.

 

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Income Tax Expense

For the six months ended June 30, 2006, we recorded income tax expense of $51.8 million. For the six months ended June 30, 2005, no income tax benefit was recorded on our net loss before income taxes for that period as we were maintaining a full valuation allowance on our deferred tax assets at that time. During the year ended December 31, 2005, we recognized a $50.3 million income tax benefit, and associated deferred tax asset, related to the reversal of the valuation allowance for the net operating and capital loss carryforwards which are expected to be utilized to offset the Federal taxable income on the Distribution, which did not qualify as a tax-free spin-off. The $51.8 million of income tax expense recorded in the six months ended June 30, 2006 consisted of a $50.3 million reversal of the previously established deferred tax asset, $0.6 million in estimated state taxes payable, and $0.9 million in estimated foreign taxes payable by our international subsidiaries.

Loss from Discontinued Operations

For the six months ended June 30, 2006, we recognized a loss from operations of AfriHUB for the period prior to the sale of approximately $42,000. For the six months ended June 30, 2005, we recognized a loss from operations of AfriHUB of $1.2 million.

Gain on Sale of Discontinued Operations

During the six months ended June 30, 2006, we recognized a gain of $0.2 million on the February 20, 2006 sale of AfriHUB.

Cumulative Dividends and Accretion of Convertible Preferred Stock to Liquidation Value

For the six months ended June 30, 2006 and 2005, we recorded dividends and accretion of $1.5 million and $5.0 million, respectively, related to amounts payable quarterly on SkyTerra’s Series A Preferred Stock and to accretion of the carrying amount of the Series A Preferred Stock to its $100 per share face value redemption amount over 13 years. The amount recorded in the six months ended June 30, 2006 represents the amount recognized through the date of the Distribution.

Results of Operations for the Six Months Ended June 30, 2006 Compared to the Six Months Ended June 30, 2005

Reflected below is a summary comparison of operating costs and expenses as a percentage of total revenues:

This excerpt taken from the HUGH 10-Q filed May 15, 2006.

Results of Operations for the Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005

Reflected below is a summary comparison of operating costs and expenses as a percentage of total revenues:

"Results of Operations for the Nine months Ended September 30, 2006 Compared to the Nine months Ended September 30, 2005" elsewhere:

PARTNER COMMUNICATIONS CO LTD (PTNR)
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