DIRECTV 2002 Annual Report Download - page 8

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a commitment to adding new sub-
scribers on a profitable basis and further
enhancing its product offerings for the
benefit of its customers.
Looking at 2003: Significant
Revenue, EBITDA and Cash
Flow Growth
Clearly, 2002 was a challenging year for
HUGHES due to increased competi-
tion, a sluggish global economy and
uncertainty surrounding the company’s
ownership. Despite these challenges,
our achievements were noteworthy –
and our discipline in adhering to our
strategy of profitable growth and maxi-
mizing cash has the businesses of
HUGHES well positioned to reach
even greater heights going forward.
As we embark on 2003, our top prior-
ity is to maintain focus on operational
excellence while meeting or exceeding
all of our financial commitments. We
believe our 2003 performance will pro-
vide an excellent glimpse of what the
financial future holds for HUGHES. At
the top line, we anticipate solid revenue
growth due primarily to DIRECTV’s
growing subscriber base and increasing
average revenue per subscriber. But
more importantly, we believe we’re
poised to deliver EBITDA growth of
more than 60% in 2003, reaching a
total of approximately $1.1 billion.
This higher EBITDA will be driven by
the operating improvements and lever-
age generated by DIRECTV’s growing
subscriber base along with a significantly
lower cost structure resulting from the
DLA restructuring and closure of
DIRECTV Broadband. In addition, as a
result of a heightened focus on its core
business, HNS will contribute to the
stronger expected results by reaching
EBITDA break-even for the full-year, an
expected improvement of more than
$80 million compared to 2002.
Combining HUGHES’ anticipated
EBITDA growth with a projected capital
expenditure reduction of nearly 25%,
we expect to reach a key milestone as a
company in the second-half of 2003:
positive operating cash flow. This is an
affirmation of the operating strategies
we’re pursuing and tangible evidence of
the powerful cash generating capabilities
of our businesses.
Another top priority is to resolve
HUGHES’ future ownership structure.
On April 9, 2003, GM, HUGHES
and News Corporation Limited
announced definitive agreements
whereby GM plans to split-off
HUGHES and sell its 19.9% interest in
HUGHES to News Corp. In addi-
tion, News Corp. will acquire an addi-
tional 14.1% stake in HUGHES from
GM Class H stockholders bringing
News Corp.’s total ownership in
HUGHES to 34%. The transactions,
which we hope to complete by year-
end 2003, are subject to several condi-
tions including approval by GM $1-2/3
and Class H stockholders, as well as
clearance by several government and
regulatory agencies.
As Class H stockholders, we can all be
very excited about these transactions for
many reasons. First, the split-off will
enable holders of GM Class H com-
mon stock to exchange their shares for
HUGHES common stock and thus elim-
inate the tracking stock discount that we
believe the market has ascribed to Class
H common stock over the years. We
believe that this alone puts HUGHES in
a much better position to realize its full
potential in the future by having direct
access to the equity markets, providing
opportunities for direct business combi-
nations and related transactions, and
providing stockholders with the opportu-
nity to have a direct vote in the election
of HUGHES directors and other mat-
ters of significance to the corporation.
Second, based on the GMH stock
price when the deal was announced,
the transactions offer Class H stockhold-
ers a premium of more than 20% on
17.5% of their shares. In addition,
HUGHES will no longer need to con-
sider possible constraints from GM
related to HUGHES’ access to the cap-
ital it may need for future growth. And
finally, with News Corp., HUGHES
will be aligned with a leading global
media and content company that has
unrivaled experience in developing and
managing successful pay-television plat-
forms around the world. By bringing an
expanded vision to HUGHES and a
passion for our business, we believe that
News Corp. will enable HUGHES to
be stronger and grow faster than it could
have as a stand-alone company or under
GM’s continued ownership.
We are very confident that we have cre-
ated the foundation for HUGHES to
excel in the years ahead – a foundation
based on our commitment to a disci-
plined operating strategy of profitable
growth and maximizing cash flow. And
upon the completion of the transaction
with News Corp., we believe we have
an unprecedented opportunity to elevate
HUGHES to the next level of growth
and profitability. With these attributes,
we believe our businesses are poised to
further expand their market leading posi-
tions while delivering even better finan-
cial results, and in doing so, unlock
tremendous value for shareholders.
Jack A. Shaw
President and Chief Executive Officer
As we embark on 2003, our
top priority is to maintain focus
on operational excellence while
meeting or exceeding all of
our financial commitments.
A MESSAGE TO SHAREHOLDERS
Harry J. Pearce
Chairman of the Board