DIRECTV 2002 Annual Report Download - page 43

HUGHES ELECTRONICS CORPORATION
Direct-To-Home Broadcast Segment
The Direct-To-Home Broadcast segment consists primarily of the DIRECTV digital multi-channel
entertainment businesses located in the United States and Latin America and DIRECTV Broadband,
Inc. (“DIRECTV Broadband”), formerly known as Telocity Delaware, Inc. (“Telocity”), which was
acquired in April 2001. 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 its existing
customers to alternative service providers. See further discussion of this item in “Liquidity and Capital
Resources—Acquisitions and Divestitures,” below.
In December 2002, DIRECTV announced a five-year agreement with The National Football
League (“NFL”) for the exclusive Direct Broadcast Satellite television rights to the NFL SUNDAY
TICKET through 2007 and the exclusive multi-channel television rights through 2005. The agreement
with the NFL will allow DIRECTV to distribute expanded programming to its NFL SUNDAY TICKET
subscribers, including the NFL CHANNEL on DIRECTV.
On June 4, 2002, DIRECTV and General Electric Capital Corporation (“GECC”) executed an
agreement to settle, for $180 million, a claim arising from a contractual arrangement whereby GECC
managed a credit program for consumers who purchased DIRECTV®programming and related
hardware. As a result, in 2002 DIRECTV increased its provision for loss related to this matter by
$130 million, of which $56 million was recorded as a charge to “Selling, general and administrative
expenses” and $74 million ($27 million in the first quarter of 2002 and $47 million in the second quarter
of 2002) was recorded as a charge to “Interest expense.” See Item 3. Legal Proceedings under Part I
for further information.
The Direct-To-Home Broadcast segment also includes the operating results of the Latin America
DIRECTV businesses, which include DIRECTV Latin America, LLC (“DLA”), Hughes’ 74.7% owned
subsidiary that provides DIRECTV programming to local operating companies (“LOC’s”) located in
Latin America and the Caribbean basin; the exclusive distributors of DIRECTV located in Mexico,
Brazil, Argentina, Colombia, Trinidad and Tobago and Uruguay; and SurFin Ltd. (“SurFin”), 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 are included in “Other, net.” During 2001, Hughes began recording 100.0% of the net losses
incurred by DLA and certain other consolidated LOC’s due to the accumulation of net losses in excess
of the minority investors’ investment and Hughes’ continued funding of those businesses.
In May 2001, due to the acquisition of a majority interest of Galaxy Entertainment Argentina S.A.
(“GEA”), DLA began to consolidate the results of GEA. Previously, DLA’s interest in GEA was
accounted for under the equity method. See “Liquidity and Capital Resources—Acquisitions and
Divestitures,” below, for further discussion of this transaction.
Also in 2001, DLA secured a contract for the exclusive rights to broadcast and re-sell the
FIFA World Cup soccer tournaments, occurring in 2002 and 2006, in Argentina, Chile, Colombia,
Mexico, Uruguay and Venezuela. The costs of the live sporting events are recorded in the period the
events are broadcast. As a result, the cost of the June 2002 competitions of $135 million was charged
to operations in 2002. Because of weak economic conditions in several of its largest markets, DLA was
unable to recover the entire cost of the programming, resulting in an $80 million loss on the contract in
2002.
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