DIRECTV 2002 Annual Report Download - page 109

HUGHES ELECTRONICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued)
As more fully described in the Amended and Restated Certificate of Incorporation of Hughes, the
number of shares of Hughes Class B common stock that will be issued upon Optional Conversion will
be equal to the number of shares of Hughes Series B Convertible Preferred Stock converted, multiplied
by a fraction, the numerator of which is the stated value of the Hughes Series B Convertible Preferred
Stock ($1,000.00 per share) and the denominator of which is the Fair Market Value of a share of
Hughes Class B common stock (as determined in accordance with the Amended and Restated
Certificate of Incorporation of Hughes). Issuance of Hughes Class B common stock will have no impact
on the number of GM Class H common stock outstanding and no impact on the GM Class H dividend
base.
Note 18: Acquisitions and Divestitures
DIRECTV Broadband
On April 3, 2001, Hughes acquired Telocity, a company that provides land-based DSL services,
through the completion of a tender offer and merger. 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. The following selected unaudited pro forma information is being
provided to present a summary of the combined results of Hughes and Telocity for 2001 and 2000 as if
the acquisition had occurred as of the beginning of the periods, giving effect to purchase accounting
adjustments. The pro forma data is presented for informational purposes only and may not necessarily
reflect the consolidated results of operations of Hughes had Telocity operated as part of Hughes for the
periods presented, nor are they necessarily indicative of the results of future operations. The pro forma
information excludes the effect of non-recurring charges.
2001 2000
(Dollars in Millions)
Total revenues ....................................................... $8,272.1 $7,297.0
Income (loss) before cumulative effect of accounting change ................. (657.8) 670.0
Net income (loss) .................................................... (665.2) 670.0
Pro forma earnings (loss) used for computation of available separate
consolidated net income (loss) ........................................ (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. As a result, in December 2002, Hughes notified approximately half of DIRECTV
Broadband’s 400 employees of a layoff, with a minimum of 60 days notice during which time they were
paid, followed by receipt of a severance package. The remaining employees worked with customers
during the transition and assisted with the closure of the business, which occurred on February 28,
2003. As a result, Hughes recorded a fourth quarter 2002 charge of $92.8 million related to accruals for
employee severance benefits, contract termination payments and write-off of customer premise
equipment. This charge was recorded in “Selling, general and administrative expenses” in the
Consolidated Statements of Operations and Available Separate Consolidated Net Income (Loss).
Included in the $92.8 million charge were accruals for employee severance benefits of $21.3 million
and contract termination payments of $18.6 million. No amounts were paid as of December 31, 2002.
The financial information included herein reflects the acquisition discussed above from its date of
acquisition. The acquisition was accounted for by the purchase method of accounting and, accordingly,
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