DIRECTV 2002 Annual Report Download - page 111

HUGHES ELECTRONICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Satellite Systems Manufacturing Businesses
On October 6, 2000, Hughes completed the sale of its satellite systems manufacturing businesses
for $3.75 billion in cash. The transaction resulted in the recognition of a pre-tax gain of $2,036.0 million,
or $1,132.3 million after-tax. Included in this gain 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.
Summarized financial information for the discontinued operations follows:
2000
(Dollars in Millions)
Revenues (excluding intercompany transactions) ............................. $1,260.1
Income tax provision .................................................... 23.2
Net income ............................................................ 36.1
In a separate, but related transaction, Hughes also sold to Boeing its 50% interest in HRL
Laboratories LLC (“HRL”) for $38.5 million, which represented the net book value of Hughes’ interest in
HRL at October 6, 2000.
DIRECTV Japan
On March 1, 2000, Hughes announced that the operations of DIRECTV Japan would be
discontinued. Pursuant to an agreement with Japan Digital Broadcasting Services Inc. (now named
Sky Perfect), qualified subscribers to the DIRECTV Japan service were offered the opportunity to
migrate to the Sky Perfect service. DIRECTV Japan was paid a commission for each subscriber who
actually migrated. Hughes also acquired a 6.6% interest in Sky Perfect. As a result, Hughes wrote-off
its net investment in DIRECTV Japan of $164.6 million and accrued exit costs of $403.7 million and
involuntary termination benefits of $14.5 million. Accrued exit costs consist of claims arising out of
contracts with dealers, manufacturers, programmers and others, satellite transponder and facility and
equipment leases, subscriber migration and termination costs, and professional service fees and other.
The write-off and accrual were partially offset by the difference between the cost of the Sky Perfect
shares acquired and the estimated fair value of the shares ($428.8 million), as determined by an
independent appraisal, and by $40.2 million for anticipated contributions from other DIRECTV Japan
shareholders. The net effect of the transaction was a charge to “Other, net” in the Consolidated
Statements of Operations and Available Separate Consolidated Net Income (Loss) of $170.6 million at
March 31, 2000.
DIRECTV Japan employed approximately 290 personnel as of March 31, 2000, of which 244 were
terminated during 2000. All remaining personnel were terminated in the first quarter of 2001.
During 2002, $41.1 million of accrued liabilities related to the exit costs were reversed upon the
resolution of the remaining claims, resulting in a credit adjustment to “Other, net.” In the third quarter of
2001, $32.0 million of accrued exit costs were reversed as a credit adjustment to “Other, net.” In the
fourth quarter of 2000, $106.6 million of accrued exit costs were reversed and $0.6 million of
involuntary termination benefits were added, resulting in a net credit adjustment to “Other, net” of
$106.0 million. The third quarter of 2001 and fourth quarter of 2000 adjustments made to the exit cost
accrual were primarily attributable to earlier than anticipated cessation of the DIRECTV Japan
101