DIRECTV 2002 Annual Report Download - page 110

HUGHES ELECTRONICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued)
the purchase price has been allocated to the assets acquired and the liabilities assumed based on their
estimated fair values at the date of acquisition.
Hughes Tele.com (India) Limited
On December 6, 2002, HNS completed a series of transactions to exchange its equity interest in
HTIL of $58.8 million, long-term receivables from HTIL of $75.0 million, and a net receivable of
$25.4 million from HTIL’s Indian sponsor, Ispat, in exchange for investments in Tata Teleservices
Limited (“TTSL”). The transactions were accounted for as a sale of the assets surrendered at their fair
values and the purchase of the instruments in TTSL on the date of the transactions. HNS allocated the
fair value of the assets surrendered of $135.1 million to the assets received, which include redeemable
preference shares ($110.1 million), a 15 year zero coupon note ($9.7 million) and 50 million common
stock purchase warrants ($15.3 million), based on their relative fair values. The preference shares are
redeemable at the end of 51 or 75 months at the option of HNS and convertible to common equity at
the end of 75 months at the option of HNS. The redemption is guaranteed in the form of a put to
TTSL’s parent company, Tata Sons. The preference shares are carried at fair value as an available-
for-sale security, with unrealized gains and losses reported net of tax, as a component of OCI.
Based on the fair value of the assets surrendered on December 6, 2002, HNS recognized an after-
tax loss of approximately $14.1 million, which is comprised of a pre-tax loss recognized in “Other, net”
of $52.1 million, based on the difference between fair value and carrying value of the assets
surrendered and the requirement to recognize cumulative translation adjustments of $28.0 million
associated with the HTIL investment, which were offset by an approximate $38.0 million tax benefit
which includes the tax benefit from equity method losses that were not previously recognized for tax
purposes.
Also during 2002, HNS recorded the receivable from Ispat described above when it honored a
$54.4 million loan guarantee. The receivable was immediately reduced to its estimated net realizable
value of $25.4 million through a charge to “Other, net” of $29.0 million.
During September 2000, HTIL sold new common shares in a public offering in India. As a result of
this transaction, Hughes’ equity interest was reduced from 44.7% to 29.1% and Hughes recorded a
$23.3 million increase 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 broadcast services, and other assets, consisting primarily of programming and
advertising rights. The purchase price, valued at $169 million, consisted of a 3.98% ownership interest
in DLA and a put option that under certain circumstances will allow Clarin to sell its 3.98% interest back
to DLA in November 2003 for $195 million (see further discussion of this item in Note 21). As a result of
the transaction, Hughes’ interest in DLA decreased from 77.8% to 74.7% and Hughes’ ownership in
GEA increased from 20% to 58.1%. Hughes’ portion of the purchase price, which amounted to about
$130 million, was recorded as an increase to “Capital stock and additional paid-in capital.”
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,
the purchase price has been allocated to the assets acquired and the liabilities assumed based on their
estimated fair values at the date of acquisition.
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