DIRECTV 2002 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... 7S satellite in the fourth quarter of 2003 • Largest digital multi-channel service provider in Latin America with approximately 1.6 million customers in 28 markets as of year-end 2002 • Average monthly revenue per customer of about $35, with approximately $27 generated from monthly programming...

  • Page 3
    ... effect of accounting changes Income from discontinued operations, net of taxes Gain on sale of discontinued operations, net of taxes Cumulative effect of accounting changes, net of taxes Net income (loss) Average Class H dividend base (in millions)(denominator) Capital expenditures 2002 2001...

  • Page 4
    ... A. Shaw President and Chief Executive Officer Harry J. Pearce Chairman of the Board HUGHES is a much stronger company today as we set our sights on the future. In reviewing our businesses' key accomplishments in 2002, a common theme emerges. Every major strategy we pursued - and business decision...

  • Page 5
    ... and pay for additional programming services. During 2002, we were able to increase average monthly revenue per subscriber by introducing new programming packages that included several additional channels at slightly higher prices. By improving the value proposition, many of our customers upgraded...

  • Page 6
    ...DIRECTV U.S. receiving equipment. Through yearend 2002, HNS had manufactured over 10 million units since entering this business in 1996. In late-2002, HNS began shipping a new low-cost DIRECTV receiver incorporating digital video recording (DVR) technology. Increasing the number of DIRECTV customers...

  • Page 7
    ...-to-basics approach to managing our company. As a result, each business was sharply focused on its core operations while reducing expenses and improving profitability but will not seek to aggressively expand its customer base, which totaled 158,000 at year-end 2002. This "limited growth" strategy is...

  • Page 8
    ... 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 combinations and related transactions, and...

  • Page 9
    ..., direct broadcast satellite, other satellite system operators, and other providers of subscription television services; (6) the introduction of new technologies and competitors into the subscription television business; (7) changes in labor, programming, equipment and capital costs; (8) future...

  • Page 10
    This Page Intentionally Left Blank

  • Page 11
    ... El Segundo, California 90245 (310) 662-9688 (Address, including zip code, and telephone number, including area code, of registrants' principal executive office) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock...

  • Page 12
    ... in which DIRECTV Latin America, LLC operates, foreign currency exchange rates, ability to obtain export licenses, competition, the outcome of legal proceedings, ability to achieve cost reductions, ability to timely perform material contracts, ability to renew programming contracts under favorable...

  • Page 13
    ... profitability and value. Hughes' businesses include: • DIRECTV, the world's leading digital multi-channel entertainment service, based on the number of subscribers. DIRECTV includes businesses in the United States and Latin America, which constitute Hughes' Direct-To-Home Broadcast segment. As of...

  • Page 14
    ... platform that is expected to provide customers with high-speed, two-way data communications on a more cost-efficient basis than systems that are currently available. SPACEWAY is expected to begin commercial service in North America in 2004. • PanAmSat, the owner and operator of one of the world...

  • Page 15
    ... ability to attract new customers. In addition, Hughes believes the DIRECTV brand name enhances its ability to secure strategic alliances with programmers, distributors and other technology and service providers. • Substantial Channel Capacity and Programming Content. DIRECTV currently distributes...

  • Page 16
    ... in 10 locations. DIRECTV's customer service representatives are available by telephone 24 hours a day, 7 days a week to handle account payments, subscriptions for new services or programming, activation, technical troubleshooting, billing questions and other customer requests. • Market Leadership...

  • Page 17
    ... 1994. DIRECTV provides customers with access to hundreds of channels of digital video and audio programming that is broadcast directly to customers' homes or businesses via high-power geosynchronous satellites. To subscribe to the DIRECTV service, customers purchase or lease the receiving equipment...

  • Page 18
    ... programming from Home Box Office (HBO East channel), Showtime (Showtime's East Coast SHOWTIME HDTV channel), HDNET (the only all-HDTV national network) and a pay-per-view channel featuring movies from New Line Cinema, Dreamworks and MGM. In addition, DIRECTV expects to offer high-definition...

  • Page 19
    ... digital satellite receivers. Under this agreement, DIRECTV developed the advanced DIRECTV DVR Receiver with TiVo, which was launched during the 2002 holiday season. The new receiver enables DIRECTV to provide customers a suite of DVR-based services and capabilities at lower equipment costs...

  • Page 20
    ... currently provides the DIRECTV service in 28 markets in Latin America and the Caribbean basin. Introduced in mid-1996, DLA was the first digital direct-to-home broadcast satellite television service available in Latin America and currently has the capacity to provide over 355 digital video channels...

  • Page 21
    ... high quality programming, will be attractive to existing and prospective subscribers. DLA is developing these enhanced technologies in cooperation with leading technology developers and content providers. Sales, Marketing & Distribution. LOC's manage on-going sales, marketing and customer service...

  • Page 22
    ... its local marketing teams to apply their local expertise to develop targeted campaigns that effectively address target subscribers in each country. Satellites. DLA provides the DIRECTV service to its customers via the Galaxy IIIC satellite that was launched in June 2002 and was placed in service in...

  • Page 23
    ...including high-definition television set-top boxes, digital video recorders, multi-satellite receiving equipment for local channels in certain DIRECTV markets and Wink-enabled set-top boxes. Carrier Services and Products. HNS believes that its advanced technology and extensive experience position it...

  • Page 24
    ...of entertainment and information to cable television systems, television broadcast affiliates, direct-to-home television services, ISPs, telecommunications companies and other corporations and governments. PanAmSat's customers consist of some of the world's leading media and communications companies...

  • Page 25
    ... services for over 300 content providers worldwide. The video services are comprised of four categories: • video distribution services-the full-time transmission of television programming to cable systems, network affiliates and other redistribution systems; • direct-to-home television services...

  • Page 26
    ...'s network services comprise four categories: • private business networks-secure, high speed corporate data networks used in a variety of business functions; • Internet services-offered to content providers and Internet service providers for improved high data rate Internet connections and point...

  • Page 27
    ... in additional sales, marketing, development and promotion efforts in support of certain specified products and services. Under the terms of the agreement, HNS will continue to provide services to current bundled AOL broadband subscribers using the HNS high-speed Internet satellite services as...

  • Page 28
    ... provision of international satellite service. Research and Intellectual Property The ability to continue to generate technological innovations is important to Hughes' long-term business strategy. The continued development of new technologies may provide new and improved products that will continue...

  • Page 29
    ... filing of this report are summarized below: In connection with the 2000 sale by Hughes of its satellite systems manufacturing businesses to The Boeing Company ("Boeing"), the stock purchase agreement provides for potential adjustment to the purchase price based upon the final closing date financial...

  • Page 30
    ... Advanced Services because, among other things, the services are not services transmitted by DIRECTV over the 27 frequencies as to which the NRTC has contractual rights. Pegasus Satellite Television, Inc. ("Pegasus") and Golden Sky Systems, Inc. ("Golden Sky"), the two largest NRTC affiliates, filed...

  • Page 31
    ... Defendants owe DIRECTV under the parties' Seamless Marketing Agreement, which provides for reimbursement to DIRECTV of certain subscriber acquisition costs incurred by DIRECTV on account of new subscriber activations in Defendants' territory. Defendants had ceased making payments altogether, and...

  • Page 32
    ... Garcia, doing business as Direct Satellite TV, an independent retailer of DIRECTV® system equipment, instituted arbitration proceedings against DIRECTV, Inc. with the American Arbitration Association in Los Angeles, California regarding his commissions and certain chargeback disputes. The parties...

  • Page 33
    ... costs to defendants was entered on July 25, 2002. Notices of appeal to the Court of Appeals for the Federal Circuit have been filed, and a hearing will be held in 2003. *** On December 5, 2000, Personalized Media Communications, LLC ("PMC") and Pegasus Development Corporation ("Pegasus Development...

  • Page 34
    ...DIRECTV Operations, LLC, referred to together below as "DIRECTV Parties," filed a lawsuit against NDS Limited and related entities ("NDS"), the provider of DIRECTV's conditional access system. The lawsuit, which was filed under seal in United States District Court in Los Angeles on September 6, 2002...

  • Page 35
    ...settlement of administrative concerns related to past export activities with China. On December 26, 2002, the State Department issued a formal charging letter to Hughes and Boeing Satellite Systems, Inc. ("BSS"). As part of the sale of the satellite systems manufacturing businesses to Boeing, Hughes...

  • Page 36
    ... to "Selling, general and administrative expenses" in the first quarter of 2002. *** With respect to the previously reported dispute between General Electric Capital Corporation ("GECC") and DIRECTV arising out of a contract entered into between the parties on July 31, 1995, the parties executed an...

  • Page 37
    ...Hughes") common stock and convertible preferred stock are owned by General Motors Corporation ("GM"). Accordingly, there is no public trading market for Hughes' common or convertible preferred equity. Dividends on the common stock will be paid when and if declared by Hughes' Board of Directors. The...

  • Page 38
    ... AND RESULTS OF OPERATIONS SUMMARY DATA Years Ended December 31, 2002 2001 2000 (Dollars in Millions) Consolidated Statements of Operations Data: Total revenues ...Total operating costs and expenses ...Operating loss ...Other income (expenses), net ...Income tax benefit ...Minority interests in...

  • Page 39
    ... indicator of income generated to service debt and fund capital expenditures. In addition, multiples of current or projected EBITDA are used to estimate current or prospective enterprise value. Hughes management believes that EBITDA is a common measure used to compare Hughes' operating performance...

  • Page 40
    ... Data Years Ended December 31, 2001 2000 (Dollars in Millions) 2002 Direct-To-Home Broadcast Total Revenues ...% of Total Revenues ...Operating Loss ...EBITDA ...EBITDA Margin ...Depreciation and Amortization ...Segment Assets ...Capital Expenditures ...Satellite Services Total Revenues ...% of...

  • Page 41
    ... time at which such a transaction or offering might be completed. On February 28, 2003, GM announced plans to contribute approximately 150 million shares of GM Class H common stock to certain of its United States ("U.S.") employee benefit plans. GM expects to make the contribution during the month...

  • Page 42
    ... of the following segments: Direct-To-Home Broadcast, Satellite Services and Network Systems. The satellite systems manufacturing businesses ("Satellite Businesses"), which Hughes sold to The Boeing Company ("Boeing") on October 6, 2000, are reported as discontinued operations for 2000. This...

  • Page 43
    ..."), a company that provides financing of subscriber receiver equipment to certain DLA LOC's. The non-operating results of the Latin America DIRECTV businesses include Hughes' share of the results of unconsolidated LOC's that are the exclusive distributors of DIRECTV in Venezuela and Puerto Rico and...

  • Page 44
    ... Hughes' financial information since April 4, 2001, the date of its acquisition. On December 13, 2002, Hughes announced that DIRECTV Broadband would close its high-speed Internet service business in the first quarter of 2003 and transition its existing customers to alternative service providers. As...

  • Page 45
    ... of entertainment and information to cable television systems, television broadcast affiliates, direct-to-home television operators, ISP's, telecommunications companies and other corporations and governments. PanAmSat provides satellite services to its customers primarily through long-term operating...

  • Page 46
    ... costs primarily related to a remaining lease obligation associated with excess office space and employee equipment. The remaining accrual amounted to $14.1 million at December 31, 2002 and related to long-term employee severance benefits. In addition to the significant operating gains and losses...

  • Page 47
    ... in revenues from the Network Systems segment resulted from the substantial completion in late 2001 of two significant customer contracts for the sale of phones and systems for mobile satellite programs. The decrease in revenues from the Satellite Services segment was primarily due to a sales-type...

  • Page 48
    ...decreased costs at the Satellite Services segment associated with a sales-type lease transaction executed during 2001 for which there was no comparable transaction in 2002. Costs of products sold decreased by $81.6 million in 2002 from 2001 due to the decreased equipment sales at the Network Systems...

  • Page 49
    ...investee losses of $61.3 million, partially offset by $130.6 million of net gains from the sale of certain marketable equity securities, primarily Thomson, and the reversal of $32.0 million of accrued exit costs related to the DIRECTV Japan business. See "Liquidity and Capital Resources-Acquisitions...

  • Page 50
    ... increased number of subscribers with multiple set-top boxes, partially offset by lower subscriber pay-per-view purchases. EBITDA was $564 million in 2002 compared to $160 million in 2001. The operating profit in 2002 for the DIRECTV U.S. businesses was $158 million compared to an operating loss of...

  • Page 51
    ... offset by lower operating expenses resulting from cost saving initiatives including a reduction in advertising and promotion costs, and renegotiated programming contracts. The Latin America DIRECTV businesses incurred an operating loss of $415 million in 2002 compared to an operating loss of $331...

  • Page 52
    ... customer contracts for the sale of phones and systems for mobile satellite programs, partially offset by increased sales of DIRECTV receiving equipment, which totaled about 2.6 million units in 2002 compared to about 2.0 million units in 2001. The Network Systems segment reported negative...

  • Page 53
    ... the lower new outright sales and sales-type lease transaction activity in 2001. Costs of products sold increased by $85.1 million in 2001 from 2000 mainly due to higher costs associated with a mobile telephony contract and increased costs associated with the DIRECWAY service at the Network Systems...

  • Page 54
    ... 31, 2000 and higher revenues from local channel offerings, pay-per-view movies, sporting events and other subscriber revenues, such as revenues from an increased number of subscribers with multiple set-top boxes. The DIRECTV U.S. businesses added 1.2 million net new subscribers in 2001, compared...

  • Page 55
    ... costs and operating costs and a $48 million charge related to 2001 employee reductions. The higher operating loss was principally due to increased depreciation primarily associated with customer leased DIRECTV receiving equipment. Latin America. Revenues for the Latin America DIRECTV businesses...

  • Page 56
    ... purchases of DIRECTV receiving equipment and lower manufacturing subsidies paid by DIRECTV to HNS. Intercompany transactions include sales of receiving equipment from HNS to DIRECTV, and PanAmSat transponder leases to HNS and DLA. Operating losses from "Eliminations and Other" improved to a loss...

  • Page 57
    ... and investments in affiliated companies, including the Latin America DIRECTV businesses. The above cash requirements do not include non-operational cash requirements such as costs related to the shutdown of the DIRECTV Broadband business and a potential purchase price adjustment payment to Boeing...

  • Page 58
    ... of $233.0 million in 2002 compared to 2001 was primarily due to a decrease in the purchase of DIRECTV receiving equipment in Latin America due to the economic environment and reduction in subscribers as well as decreased capital expenditures for property at PanAmSat. Satellites, net of accumulated...

  • Page 59
    ... operating assets of PanAmSat that were pledged in connection with the secured bank facility. Credit Facilities. In February 2002, Hughes amended and increased its existing $750.0 million multi-year credit facility (the "Amended Credit Agreement"). The Amended Credit Agreement provided availability...

  • Page 60
    .... Telocity was operated as DIRECTV Broadband and is included as part of the Direct-To-Home Broadcast segment. The purchase price was $197.8 million and was paid in cash. On December 13, 2002, Hughes announced that DIRECTV Broadband would close its high-speed Internet service business in the first...

  • Page 61
    ...recorded a $23.3 million increase to "Capital stock and additional paid-in capital." Galaxy Entertainment Argentina. On May 1, 2001, DLA acquired from Grupo Clarín S.A. ("Clarin") a 51% ownership interest in GEA, a local operating company in Argentina that provides direct-to-home broadcast services...

  • Page 62
    ...October 2002, Hughes sold all of its interest in Sky Perfect for approximately $105 million in cash, resulting in a pre-tax loss of about $24.5 million. Investments in Marketable Securities. Investments in marketable equity securities stated at current fair value and classified as available-for-sale...

  • Page 63
    ... equity market performance, a lower discount rate and benefit payments made during 2002. Hughes uses December 1 as the measurement date to determine the Projected Benefit Obligation ("PBO") reported for year end and for the pension expense to be recorded in the subsequent year. The discount rate...

  • Page 64
    ... ELECTRONICS CORPORATION Commitments and Contingencies Litigation In connection with the 2000 sale by Hughes of its satellite systems manufacturing businesses to Boeing, the stock purchase agreement provides for potential adjustment to the purchase price based upon the final closing date financial...

  • Page 65
    ... by the insurers. PanAmSat is working with the satellite manufacturer to determine the long-term implications to the satellites and will continue to assess the operational impact these losses may have. At this time, based upon all information currently available to PanAmSat, as well as planned...

  • Page 66
    ...billion in additional sales, marketing, development and promotion efforts in support of certain specified products and services. Under the terms of the agreement, HNS will continue to provide services to current bundled AOL broadband subscribers using the HNS high-speed Internet satellite service as...

  • Page 67
    ... with Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations." The dealer network intangible asset originally valued as part of Hughes' acquisition of PRIMESTAR was based on established distribution, customer service and marketing capability that had been put in place by...

  • Page 68
    ... loss results from the annual impairment test, the loss will be recorded as a pre-tax charge to operating income. In the fourth quarter of 2002, with the assistance of an independent valuation firm, Hughes completed its first annual impairment test for DIRECTV U.S. and the Satellite Services...

  • Page 69
    .... Hughes has identified the partially-owned local operating companies providing DLA programming services in Venezuela and Puerto Rico, of which Hughes owns 19.5% and 40.0%, respectively, as potential variable interest entities. Hughes currently accounts for these investments under the equity method...

  • Page 70
    .... In general, lower ratings result in higher borrowing costs. A security rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization. Hughes On December 11, 2002, Moody's Investor Services ("Moody...

  • Page 71
    ...that Hughes received a $600 million cash settlement payment related to the terminated merger agreement with EchoStar. On December 11, 2002, Standard & Poor's Ratings Services ("S&P") affirmed its long-term corporate credit rating on Hughes of B+ and its rating of BB- on Hughes' senior secured credit...

  • Page 72
    ...Statements of Operations and Available Separate Consolidated Net Income (Loss). The fair values of the investments in such common stock were $98.2 million and $725.4 million at December 31, 2002 and December 31, 2001, respectively, based on closing market prices. A 10% decline in the market price of...

  • Page 73
    ... of internal controls, and the quality of financial reporting. /s/ HARRY J. PEARCE Harry J. Pearce Chairman of the Board of Directors /s/ JACK A. SHAW Jack A. Shaw Director, President and Chief Executive Officer 63 /s/ MICHAEL J. GAINES Michael J. Gaines Vice President and Chief Financial Officer

  • Page 74
    ...'s review of the representation of management and the report of the independent auditors to the Committee, the Committee recommended that the Board of Directors include the audited consolidated financial statements in Hughes' Annual Report on Form 10-K for the year ended December 31, 2002 filed with...

  • Page 75
    ... of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedules, when considered in relation to the basic...

  • Page 76
    ... stock dividends ...Earnings (Loss) Used for Computation of Available Separate Consolidated Net Income (Loss) ...Available Separate Consolidated Net Income (Loss) Average number of shares of General Motors Class H Common Stock outstanding (in millions) (Numerator) ...Average Class H dividend base...

  • Page 77
    ...Total Current Liabilities ...Long-Term Debt ...Other Liabilities and Deferred Credits ...Deferred Income Taxes ...Commitments and Contingencies Minority Interests ...Stockholder's Equity Capital stock and additional paid-in capital ...Preferred stock, Series A ...Convertible preferred stock, Series...

  • Page 78
    ... holding losses on securities . . Comprehensive income ...Balance at December 31, 2000 ...Net Loss ...Preferred stock ...Preferred stock dividends ...Stock options exercised ...Tax benefit from exercise of GM Class H common stock options ...Adjustment related to Raytheon purchase price settlement...

  • Page 79
    ... of long-term debt ...Debt issuance costs ...Stock options exercised ...Preferred stock dividends paid to General Motors ...Payment of Raytheon settlement ...Net Cash Provided by (Used in) Financing Activities . Net cash provided by (used in) continuing operations ...Net cash used in discontinued...

  • Page 80
    ... networks, digital cellular communications and direct-to-home satellite broadcast distribution of television programming. Hughes announced, in December of 2002, that DIRECTV Broadband would close its high-speed Internet service business in the first quarter of 2003 and transition existing customers...

  • Page 81
    ... hardware subsidies for subscribers added through DIRECTV's direct sales program are now included as part of "Broadcast programming and other costs" in the Consolidated Statements of Operations and Available Separate Consolidated Net Income (Loss) rather than in "Selling, general and administrative...

  • Page 82
    ...) lease contracts, and sales of DIRECTV® receiving equipment, communications equipment and communications services. Sales are generally recognized as products are shipped or services are rendered. Direct-To-Home subscription and pay-per-view revenues are recognized when programming is broadcast...

  • Page 83
    ...added through the direct customer acquisition program which are included in the consolidated statements of operations in "Broadcast programming and other costs." Additional components of subscriber acquisition costs include subsidies paid to manufacturers of receiving equipment, if any, and the cost...

  • Page 84
    ... refunds received for prior year income taxes of $354.5 million, $310.7 million and $290.5 million in 2002, 2001 and 2000, respectively. Contracts in Process Contracts in process are stated at costs incurred plus estimated profit, less amounts billed to customers and advances and progress payments...

  • Page 85
    ... of operations. Advance payments in the form of cash and equity instruments from programming content providers for carriage of their signal are deferred and recognized as a reduction of programming costs on a straight-line basis over the related contract term. Equity instruments are recorded at...

  • Page 86
    ... securities are carried at cost. Marketable equity securities are considered available-for-sale and carried at current fair value based on quoted market prices with unrealized gains or losses (excluding other-than-temporary losses), net of taxes, reported as part of OCI. Hughes continually reviews...

  • Page 87
    ...million in 2000. Market Concentrations and Credit Risk Hughes provides services and extends credit to a number of wireless communications equipment customers and to a large number of consumers, both in the United States and Latin America. DIRECTV has significant accounts receivable from the National...

  • Page 88
    ... the exclusive right to distribute certain programming in certain areas. In addition, DLA provides services and extends credit to unconsolidated local operating companies ("LOC's) providing the DIRECTV service, particularly in Venezuela and Puerto Rico. Management monitors its exposure to credit...

  • Page 89
    ... loss results from the annual impairment test, the loss will be recorded as a pre-tax charge to operating income. In the fourth quarter of 2002, with the assistance of an independent valuation firm, Hughes completed its first annual impairment test for DIRECTV U.S. and the Satellite Services...

  • Page 90
    ... (loss) and reported income (loss) before cumulative effect of accounting changes on a comparable basis excluding the after-tax effect of amortization expense associated with goodwill and intangible assets with indefinite lives: 2002 2001 2000 (Dollars in Millions) Reported net income (loss) ...Add...

  • Page 91
    .... Hughes has identified the partially-owned local operating companies providing DLA programming services in Venezuela and Puerto Rico, of which Hughes owns 19.5% and 40.0%, respectively, as potential variable interest entities. Hughes currently accounts for these investments under the equity method...

  • Page 92
    ... results of operations or financial position. Note 4: Property and Satellites, Net Estimated Useful Lives (years) 2002 2001 (Dollars in Millions) Land and improvements ...Buildings and leasehold improvements ...Machinery and equipment ...Customer leased set-top boxes ...Furniture, fixtures...

  • Page 93
    ... of goodwill by reporting unit for the year ended December 31, 2002 were as follows: Direct-ToHome Broadcast Satellite Network Services Systems (Dollars in Millions) Total Balance as of December 31, 2001 ...Impairment loss ...Other ...Balance as of December 31, 2002 ... $3,734.0 $2,743.7 (739...

  • Page 94
    ... pursuant to the terms of a debt guarantee provided by Hughes for the benefit of Motient Corporation ("Motient"). In connection with the payment, Hughes received from Motient 7.1 million common shares of XM Satellite Radio Holdings Inc. stock, with a market value as of November 2001 of $67.9 million...

  • Page 95
    ... and employee equipment. The remaining accrual amounted to $14.1 million at December 31, 2002 and related to long-term employee severance benefits. See Note 18 for additional information on the exit costs and other liabilities related to discontinued businesses, including the shutdown of the DIRECTV...

  • Page 96
    ... and mature in 2012. In January 2002, PanAmSat repaid in full the $46.5 million outstanding balance of variable rate notes assumed in 1999 in connection with the early buy-out of a satellite sale-leaseback. PanAmSat issued five, seven, ten and thirty-year fixed rate notes totaling $750.0 million in...

  • Page 97
    ...: incur or guarantee additional indebtedness; make restricted payments, including dividends; create or permit to exist certain liens; enter into business combinations and asset sale transactions; make investments; enter into transactions with affiliates; and enter into new business. The terms of...

  • Page 98
    ... in filing a consolidated U.S. federal income tax return. The portion of the consolidated income tax liability or receivable recorded by Hughes is generally equivalent to the amount that would have been recorded on a separate return basis. The income tax benefit consisted of the following: 2002 2001...

  • Page 99
    ... rate for the reasons set forth in the following table: 2002 2001 2000 (Dollars in Millions) Expected refund at U.S. federal statutory income tax rate ...Research and experimentation tax benefits and resolution of tax contingencies ...Extraterritorial income exclusion and foreign sales corporation...

  • Page 100
    ... non-contributory defined benefit retirement plans. Benefits are based on years of service and compensation earned during a specified period of time before retirement. Additionally, an unfunded, nonqualified pension plan covers certain employees. Hughes also maintains a program for eligible retirees...

  • Page 101
    ... Balance Sheets, are shown below: Other Postretirement Pension Benefits Benefits 2002 2001 2002 2001 (Dollars in Millions) Change in Benefit Obligation Net benefit obligation at beginning of year ...Service cost ...Interest cost ...Plan participants' contributions ...Actuarial (gain) loss...

  • Page 102
    ... rate. Based on the most recent review, Hughes is revising its expected return on plan assets assumption for 2003 to 9.0%. Hughes has achieved a compounded annual return on plan assets of about 12% over the 20 year period ended December 1, 2002. Other Postretirement Pension Benefits Benefits 2002...

  • Page 103
    ... and the use of these terms, Hughes does not admit or otherwise acknowledge that such amounts or existing postretirement benefit plans of Hughes (other than pensions) represent legally enforceable liabilities of Hughes. Note 12: Stockholder's Equity GM holds all of the outstanding common stock of...

  • Page 104
    ... Committee approval. The GM Executive Compensation Committee may grant options and other rights to acquire shares of GM Class H common stock under the provisions of the Plan. The option price is equal to 100% of the fair market value of GM Class H common stock on the date the options are granted...

  • Page 105
    ... grant date, as required by SFAS No. 123, "Accounting for Stock Based Compensation": 2002 2001 2000 (Dollars in Millions) Earnings (loss) used for computation of available separate consolidated net income (loss), as reported ...Assumed stock compensation costs ...Pro forma earnings (loss) used for...

  • Page 106
    ... ...Long-term accounts receivable from related parties ... $317.4 - $237.7 75.8 The December 31, 2002 accounts receivable balance is primarily from DLA LOC's. Note 16: Available Separate Consolidated Net Income (Loss) GM Class H common stock is a "tracking stock" of GM designed to provide holders...

  • Page 107
    ...-average number of shares of GM Class H common stock which, if issued and outstanding, would represent 100% of the tracking stock interest in the earnings of Hughes (Average Class H dividend base). In addition, the denominator used in determining the ASCNI of Hughes may be adjusted from time to time...

  • Page 108
    ...GM exchange offer ...Shares issued related to employee benefit plans ...Shares issued for stock options exercised and other ...Shares at December 31 ...Weighted average number of shares of GM Class H common stock outstanding (Numerator) ...GM Class H Dividend Base GM Class H dividend base at January...

  • Page 109
    ... net income (loss) ... $8,272.1 $7,297.0 (657.8) 670.0 (665.2) 670.0 (758.3) 589.9 On December 13, 2002, Hughes announced that DIRECTV Broadband would close its high-speed Internet service business in the first quarter of 2003 and transition its existing customers to alternative service providers...

  • Page 110
    ... to "Capital stock and additional paid-in capital." Galaxy Entertainment Argentina On May 1, 2001, DLA, which operates the Latin America DIRECTV business, acquired from Grupo Clarín S.A. ("Clarin") a 51% ownership interest in GEA, a local operating company in Argentina that provides direct-to-home...

  • Page 111
    ... is a net after-tax curtailment loss of $42.0 million related to pension and other postretirement benefit plan assets and liabilities associated with the Satellite Businesses. The purchase price is subject to adjustment based upon the final closing date financial statements as discussed in Note 21...

  • Page 112
    ... Direct-ToHome Broadcast, Satellite Services, and Network Systems. Direct-To-Home Broadcast is engaged in acquiring, promoting, selling and/or distributing digital entertainment programming via satellite to residential and commercial customers and provided land-based DSL services. Satellite Services...

  • Page 113
    ... for cable television systems, news companies, Internet service providers and private business networks. The Network Systems segment is a provider of satellite-based private business networks and broadband Internet access, and a supplier of DIRECTV receiving equipment (set-top boxes and dishes...

  • Page 114
    HUGHES ELECTRONICS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued) Selected information for Hughes' operating segments are reported as follows: Direct-To-Home Broadcast Satellite Services Network Systems Other (Dollars in Millions) Eliminations Total 2002 External Revenues ...

  • Page 115
    ... years ended December 31, 2002, 2001 and 2000, respectively. As a result, EBITDA does not reflect funds available for investment in the business of Hughes, dividends or other discretionary uses. EBITDA as presented herein may not be comparable to similarly titled measures reported by other companies...

  • Page 116
    ... In connection with the 2000 sale by Hughes of its satellite systems manufacturing businesses to Boeing, the stock purchase agreement provides for potential adjustment to the purchase price based upon the final closing date financial statements of the satellite systems manufacturing businesses. The...

  • Page 117
    ... results of operations and financial position. As previously reported, Hughes Communications Galaxy, Inc. ("HCGI") filed a lawsuit on March 22, 1991 against the United States Government based upon the National Aeronautics and Space Administration's breach of contract to launch ten satellites on the...

  • Page 118
    ... of severance benefits to be paid will be based upon decisions that will be made relating to employee layoffs, if any, following the date of a change-in-control. In addition, as of December 31, 2002, approximately 30.5 million employee stock options to purchase shares of GM Class H common stock will...

  • Page 119
    ...billion in additional sales, marketing, development and promotion efforts in support of certain specified products and services. Under the terms of the agreement, HNS will continue to provide services to current bundled AOL broadband subscribers using the HNS high-speed Internet satellite service as...

  • Page 120
    ... by the insurers. PanAmSat is working with the satellite manufacturer to determine the long-term implications to the satellites and will continue to assess the operational impact these losses may have. At this time, based upon all information currently available to PanAmSat, as well as planned...

  • Page 121
    ... financial statements as of December 31, 2002, a commitment by Hughes to spend $2 million over 5 years on internal export compliance, and various improvements in Hughes' export program. The State Department has agreed that there will be no suspension or debarment for either company as part...

  • Page 122
    ... ...Average Class H dividend base (in millions) (Denominator) Available separate consolidated net income (loss) ...Stock price range of General Motors Class H common stock High ...Low ...2001 Quarters Revenues ...Loss before income taxes, minority interests and cumulative effect of accounting change...

  • Page 123
    ... in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III ITEM 10. Directors and Executive Officers of the Registrant Omitted. ITEM 11. Executive Compensation Omitted. ITEM 12. Security Ownership of Certain Beneficial Owners and Management Omitted. ITEM 13...

  • Page 124
    ... Space Company for the purchase and sale of the outstanding capital stock of Hughes Space and Communications Company and certain additional outstanding capital stock, dated as of January 13, 2000 (incorporated by reference to Exhibit 2.5 to the Annual Report on Form 10-K for the year ended December...

  • Page 125
    ... Corp., PanAmSat International Sales, Inc., PanAmSat International Systems, LLC, PanAmSat International Systems Marketing, LLC, Service and Equipment Corporation, Southern Satellite Corp. and Southern Satellite Licensee Corporation, as Guarantors, and the Bank of New York as Trustee governing...

  • Page 126
    ...20 to the Annual Report on Form 10-K for the year ended December 31, 2001 of Hughes Electronics Corporation (the "2001 10-K")) Loan Set-off and Security Agreement, dated as of October 1, 2001, between Hughes Electronics Corporation and General Motors Acceptance Corporation (incorporated by reference...

  • Page 127
    ...International Sales, Inc., PanAmSat International Systems, Inc., PanAmSat International Systems, LLC, PanAmSat International Systems Marketing, LLC, PanAmSat Licensee Corp., PanAmSat Marketing Corporation, PAS International Employment, Inc., Service and Equipment Corporation, Southern Satellite Corp...

  • Page 128
    ...2002. One report on Form 8-K dated December 23, 2002, reporting matters under Item 2, Acquisition or Disposition of Assets and Item 7, Financial Statements and Exhibits, was filed during the quarter ended December 31, 2002. One report on Form 8-K dated October 8, 2002 was submitted to the Securities...

  • Page 129
    HUGHES ELECTRONICS CORPORATION SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT CONDENSED STATEMENTS OF OPERATIONS (Parent Company Only) Years Ended December 31, 2002 2001 2000 (Dollars in Millions) Operating Costs and Expenses Selling, general and administrative expenses ......

  • Page 130
    ... ELECTRONICS CORPORATION SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT - (continued) CONDENSED STATEMENTS OF CASH FLOWS (Parent Company Only) Years Ended December 31, 2002 2001 2000 (Dollars in Millions) Cash Flows from Operating Activities Net Cash Provided by (Used in) Operating...

  • Page 131
    ... to its wholly-owned subsidiary, DIRECTV Holdings LLC ("DIRECTV"), certain programming contracts that it acquired from United States Satellite Broadcasting Company, Inc. in May 1999. On January 1, 2002, Hughes contributed the net assets of its Hughes Network Systems division to its wholly-owned...

  • Page 132
    ... Additions Additions charged to charged costs and to other expenses accounts Deductions (Dollars in Millions) Balance at end of year Description For the Year Ended December 31, 2002 Allowances Deducted from Assets Accounts and notes receivable (for doubtful receivables) ...Net investment in sales...

  • Page 133
    ...report has been signed below on this 10th day of March 2003 by the following persons on behalf of the Registrant and in the capacities indicated. Signature Title /s/ HARRY J. PEARCE (Harry J. Pearce) Chairman of the Board of Directors Director, President and Chief Executive Officer Vice President...

  • Page 134
    HUGHES ELECTRONICS CORPORATION CERTIFICATIONS I, Jack A. Shaw, Director, President and Chief Executive Officer, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Hughes Electronics Corporation; Based on my knowledge, this annual report does not contain any untrue statement of a ...

  • Page 135
    ..., Vice President and Chief Financial Officer, certify that: 1. 2. I have reviewed this annual report on Form 10-K of Hughes Electronics Corporation; Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make...

  • Page 136
    ... Electronics Corporation made in its method of accounting for goodwill and other intangible assets, appearing in this Annual Report on Form 10-K of Hughes Electronics Corporation for the year ended December 31, 2002. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Los Angeles, California March...

  • Page 137
    ...In connection with the Annual Report of Hughes Electronics Corporation (the "Corporation") on Form 10-K for the fiscal year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jack A. Shaw, Director, President and Chief Executive Officer...

  • Page 138
    ...OF 2002 In connection with the Annual Report of Hughes Electronics Corporation (the "Corporation") on Form 10-K for the fiscal year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael J. Gaines, Vice President and Chief Financial...

  • Page 139
    ...Chief Executive Officer, Hughes Network Systems Alfred C. Sikes Chairman, Reading Excellence and Discovery Foundation Chairman, Nominating/Director Affairs Committee Audit Committee Media Relations Department Hughes Electronics Corporation P.O. Box 956 200 N. Sepulveda Blvd. El Segundo, California...

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