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HUGHES Communications, Inc. Innovation Is Why We Lead

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HUGHES Communications, Inc. Innovation Is Why We Lead 2008 ANNUAL REPORT HUGHES Communications, Inc. Innovation is why we lead. Hughes creates new technologies that and services for all market Enterprise Government An ever-expanding range of broadband solutions and From emergency preparedness, to highly secure private managed services unlocks a wealth of benefi ts to networks, to telework and distance learning, Hughes delivers companies of all sizes, from worldwide blue chips to the most advanced technologies and highest standard of medium and small businesses with global potential. communications solutions to support the many missions enterprise.hughes.com of government. government.hughes.com Consumer Read more about the highest speed satellite Internet access plans available in North America—up to 5 Mbps. Always-on, affordable, convenient—HughesNet® at home means you can download fi les in seconds, check e-mail instantly and surf faster than you ever imagined. go.gethughesnet.com HUGHES COMMUNICATIONS, INC. Diversity is what keeps us strong. enable breakthrough broadband products sectors around the globe. Small Business Defense and Intelligence HughesNet business class services are tailored to the needs Whether the requirement is tactical or strategic—in the air, of small businesses, from high-performance Internet access, on the sea, or on the ground—your communications network to private networks and broadband backup, whether for a can’t be less than the best. When it comes to Defense and few sites or many. Intelligence Systems, count on Hughes to deliver broadband business.hughesnet.com solutions which meet the grade, utilizing the best in satellite and terrestrial technologies. defense.hughes.com AWARDS WE RECEIVED Congratulations to Pradman Kaul Hughes is named the fastest growing on being named 2008 Satellite technology company by Deloitte and Executive of the Year by Via Satellite Touche LLP, one of 11 awards won by magazine. the company in 2008. viasatellite.hughes.com Check out more awards at awards.hughes.com 2008 ANNUAL REPORT 1 LETTER TO SHAREHOLDERS Dear Fellow Shareholder, 2008 was a year of signifi cant change, with the global fi nancial to 432,800. Notable enterprise wins included Wyndham meltdown negatively impacting many companies. At Hughes, Worldwide; ConocoPhillips; Barrett/Xplore in Canada, our fi rst our business model has fortunately withstood the turmoil, and SPACEWAY service provider outside the U.S.; GTECH, which we continued to deliver on our promises with four more quarters entrusted Hughes to manage its nationwide lottery network of results which met or exceeded all fi nancial metrics. The of over 70,000 sites; and our successful build-out of over Total Revenue and Adjusted EBITDA charts on the right tell the 28,000 sites for Camelot Lotteries (U.K.). These wins have story: we have now achieved positive results for 10 successive raised our total managed service sites globally to over 200,000. quarters since going public in 2006, and we have shown positive Considering our high renewal rate for enterprise customers, this growth and earnings for the past four years. This validates our substantial base ensures a healthy and predictable recurring successful strategy—namely, to expand our broadband service revenue fl ow. business worldwide by leveraging our technology and product innovations. Recurring service revenue from an ever-growing In the emerging government segment, our selection on the base of repeat customers in North America, Europe, India and U.S. General Services Administration’s SATCOM-II and Networx Brazil now exceeds our technology and product revenues. It is contract vehicles unleashed the possibility for government growing at a faster rate, giving us the diversity that sets us apart agencies to realize the many benefi ts of broadband satellite from our competition and keeps us strong. solutions, now signifi cantly enhanced with the capabilities of SPACEWAY 3. For example, the Government Education and At Hughes, our mission has always been to innovate and create Training Network (GETN) selected Hughes to provide Federal positive change. Nothing could demonstrate that better than agencies with an interoperable network which enables them to launching commercial service on SPACEWAY® 3 in April 2008, share distance learning programs. Another example is at the which turned Hughes overnight into a fully integrated satellite Social Security Administration (SSA), which selected Hughes for service provider. At 10 Gbps throughput, SPACEWAY 3 is the its Interactive Video Tele-training Network. IVT will reach out to world’s fi rst commercial satellite system with on board switching more than 1,650 SSA offi ces and be fully managed by Hughes, and routing. Combined with numerous other advances, it including delivery of video and video-related applications. represents a dramatic change in satellite technology. These advances have already been translated into HughesNet service Internationally, Hughes is helping to close the “digital divide” offerings across all of our market sectors in North America. and bring broadband to rural communities on every continent. We have introduced the highest speed satellite Internet access For example, a public-private partnership in India is bringing plans available for consumers and small businesses, up to distance learning and a range of e-governance applications 5 Mbps; bandwidth-on-demand services; and the deployment to thousands of rural locations. In Brazil, PRODAM—the data of any combination of star or mesh private network topologies. processing company of the State of Amazonas—is utilizing This unique capability is ideal for enterprise and government our HughesNet service to deliver broadband to government Continuity of Operations (COOP) and emergency preparedness agencies and the public at large throughout the State, which applications. covers a huge area of 1.5 million square kilometers (930,000 square miles), about 30 percent larger than Alaska. The We have now shipped more than 1.9 million VSATs to consumer, unique Hughes solution combining WiMAX base stations with small business, enterprise and government customers in more broadband satellite backhaul will soon solve the enormous than 100 countries, solidifying our market leadership. Last year challenge of connecting this resource-rich region to the world. alone, we shipped over 300,000 units and grew our successful broadband satellite service revenues by 13% over 2007. Our Closer to home, Florida-based America’s Emergency Network consumer business continued to show strength, despite the (AEN) has been successfully streaming real-time news economic downturn, with gross subscriber adds growing by a briefi ngs from numerous state and local operations centers record 170,000, or 14% over 2007; average revenue per unit since the onset of the 2008 hurricane season, powered by increased by 5% to $65; and total subscriber count climbed our HughesNet service operating over SPACEWAY 3. AEN also 2 HUGHESHUGHES COMMUNICATIONS, COMMUNICATIONS, INC. INC. provides convenient, free public access to video streams from major Florida newspapers. The unique AEN solution clearly demonstrates how satellite communications is the key path to diversity for all COOP applications, offering a true alternate path when terrestrial networks are out of service. In closing, the world of Hughes is all about broadband—from technologies, to products and services, the benefi ts of which are only beginning to be realized in virtually all market sectors globally. We have a proven business strategy, and as our results have demonstrated in both good times and bad, continued success is rooted in executing that strategy. I have the highest confi dence that we will succeed because of the best group of shareholders, employees, and customers in the industry. I would like to thank them all for their confi dence and support. Back row: T. Paul Gaske, Adrian Morris Sincerely, Front row: Bahram Pourmand, Pradman P. Kaul, Grant A. Barber Pradman P. Kaul President and CEO, Hughes Communications, Inc. Hughes Networks Systems, LLC* Total Revenue ($M) Adjusted EBITDA ($M) $155 $1,200 $1,060 $160 $140 $970 $140 $126 $1,000 $858 $807 $120 $115 $800 $100 $600 $80 $60 $400 $40 $200 $20 $0 2005 2006 2007 2008 $0 2005 2006 2007 2008 53% 51% 55% 58% Service Revenue % *Hughes Network Systems, LLC is the Company’s primary operating subsidiary. See reconciliation of non-GAAP fi nancial measures on the following page. 20082008 ANNUAL ANNUAL REPORT REPORT 3 FINANCIAL HIGHLIGHTS Hughes Communications, Inc. operates its business primarily through Hughes Network Systems, LLC, its wholly owned subsidiary. The following table presents fi nancial highlights for Hughes Network Systems, LLC. (Dollars in thousands) Hughes Network Systems, LLC Year Ended December 31, Revenue by Segments 2008 2007 2006 2005 North America VSAT $ 667,665 $615,716 $573,867 $535,385 International VSAT 237,188 214,833 193,370 202,935 Telecom Systems 155,038 139,526 90,988 68,589 Total Revenues $1,059,891 $970,075 $858,225 $806,909 Reconciliation of Non-GAAP to GAAP Financial Measures Hughes Network Systems, LLC Year Ended December 31, 2008 2007 2006 2005 Net Income $ 12,096 $ 49,801 $ 19,102 $ 24,048 Add: Equity incentive plan 5,221 3,020 312 115 Interest expense 51,327 43,772 46,041 24,375 Income tax expense 7,588 5,316 3,276 873 Depreciation and amortization 68,937 45,860 48,459 40,943 Long-term incentive/retention cash plan 13,219 Restructuring charge 1,211 3,068 Inventory provision for shift to Broadband focus 11,879 HughesNet branding costs 1,454 Facilities costs 2,363 Transaction costs for the April 2005 Acquisition 1,468 Elimination of payroll and benefi ts refl ective of headcount reductions 5,418 Assumed net reduction of SPACEWAY operating costs 4,542 Benefi ts/insurance programs sponsored by DIRECTV 2,385 7,597 Legal expenses related to non-acquired businesses 2,178 Legal settlement and related fees pre-2005 Acquisition 586 Management fee to Hughes Communications Inc. 1,000 690 Less: Interest income (2,978) (8,972) (8,875) (2,915) Adjusted EBITDA $ 155,410 $140,008 $125,619 $114,763 HUGHES, HughesNet, SPACEWAY, Connect to the future and Broadband Unbound are trademarks of Hughes Network Systems, LLC.
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