DIRECTV 2002 Annual Report Download - page 29

HUGHES ELECTRONICS CORPORATION
ITEM 2. PROPERTIES
As of December 31, 2002, Hughes Electronics Corporation (“Hughes”) had approximately
67 locations operating in 17 states and 43 cities in the United States and approximately 60 additional
locations in 43 cities in approximately 19 countries outside the United States. At such date, Hughes
owned approximately 1.4 million square feet of space and leased an additional 2.6 million square feet
of space.
ITEM 3. LEGAL PROCEEDINGS
(a) Material pending legal proceedings, other than ordinary routine litigation incidental to the
business, to which Hughes Electronics Corporation (“Hughes”) became, or was, a party during the year
ended December 31, 2002 or subsequent thereto, but before the 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 statements of the satellite systems
manufacturing businesses. The stock purchase agreement also provides for a dispute resolution
process to resolve any disputes that arise in determining the purchase price adjustment. Based upon
the final closing date financial statements of the satellite systems manufacturing businesses that were
prepared by Hughes, Boeing is owed a purchase price adjustment of $164 million plus interest at a rate
of 9.5% from the date of sale, the total amount of which has been provided for in Hughes’ consolidated
financial statements. However, Boeing has submitted additional proposed adjustments, which are
being resolved through the dispute resolution process. As of December 31, 2002, approximately
$670 million of proposed adjustments remain unresolved. Hughes is contesting the matter in the
arbitration process, which will result in a binding decision unless the matter is otherwise settled.
Although Hughes believes it has adequately provided for the disposition of this matter, the impact of its
disposition cannot be determined at this time. It is possible that the final resolution of this matter could
result in Hughes making a cash payment to Boeing that would be material to Hughes’ consolidated
results of operations and financial position.
***
On June 3, 1999, the National Rural Telecommunications Cooperative (“NRTC”) filed a lawsuit
against DIRECTV, Inc. and Hughes Communications Galaxy, Inc., which Hughes refers to together in
this description as “DIRECTV,” in the United States District Court for the Central District of California,
alleging that DIRECTV, Inc. breached its DBS Distribution Agreement with the NRTC. Hughes
Communications Galaxy, Inc. was the original party to the DBS Distribution Agreement with the NRTC
and assigned its rights and obligations to and under the DBS Distributions Agreement to DIRECTV,
Inc. The DBS Distribution Agreement provides the NRTC with certain distribution rights, in certain
specified portions of the United States, for a specified period of time, with respect to DIRECTV®
programming delivered over 27 of the 32 frequencies at the 101 degrees west longitude orbital
location. The NRTC claims that DIRECTV has wrongfully deprived it of the exclusive right to distribute
programming formerly provided by United States Satellite Broadcasting Company, Inc. (“USSB”), over
the other five frequencies at 101 degrees west longitude, and seeks recovery of related revenues from
the date USSB was acquired by Hughes. DIRECTV denies that the NRTC is entitled to exclusive
distribution rights to the former USSB®programming because, among other things, the NRTC’s
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