DIRECTV 2002 Annual Report Download - page 45

HUGHES ELECTRONICS CORPORATION
Also included as part of the non-operating results of the Direct-To-Home Broadcast segment is
DIRECTV Japan Management, Inc., DIRECTV Japan, Inc., certain related companies (collectively
“DIRECTV Japan”) and Hughes affiliates that provided DIRECTV services in Japan. DIRECTV Japan’s
operations were discontinued and ceased broadcasting on September 30, 2000. See “Liquidity and
Capital Resources—Acquisitions and Divestitures,” below, for further discussion.
Satellite Services Segment
The Satellite Services segment represents the results of PanAmSat, Hughes’ approximately 81%
owned subsidiary. PanAmSat is a leading provider of video, broadcasting and network services via
satellite. PanAmSat leases transponder capacity on its satellites, and is the distribution platform for the
delivery of entertainment and information to cable television systems, television broadcast affiliates,
direct-to-home television operators, ISP’s, telecommunications companies and other corporations and
governments. PanAmSat provides satellite services to its customers primarily through long-term
operating lease contracts for the full or partial use of satellite transponder capacity. From time to time,
and in response to customer demand, PanAmSat sells transponders to customers through outright
sales and sales-type lease transactions.
In October 2001, PanAmSat filed a proof of loss under an insurance policy on PAS-7 related to
circuit failures, which occurred in September 2001 and resulted in a reduction of 28.9% of the satellite’s
total power available for communications. During 2002, PanAmSat’s insurers settled the claim by
payment to PanAmSat of $215.0 million. PanAmSat recorded a net gain of approximately $40.1 million
related to this insurance claim in the first quarter of 2002.
Network Systems Segment
The Network Systems segment represents the results of Hughes Network Systems, Inc. (“HNS”),
which is a leading supplier of broadband satellite services and products to both enterprises and
consumers through its DIRECWAY®services. HNS designs, manufactures and installs advanced
networking solutions for businesses worldwide using very small aperture terminals. HNS is a premier
broadband products and services company with particular emphasis on providing broadband access.
HNS is also a leading supplier of DIRECTV®receiving equipment (set-top boxes and antennas).
Other
During the first quarter of 2003, Hughes and America Online, Inc. (“AOL”) agreed to terminate their
strategic alliance, which the companies had entered into in June 1999. In connection with the
termination of the alliance, Hughes recorded a pre-tax charge of $23 million in the fourth quarter of
2002 to “Selling, general and administrative expenses” and was released from its commitment to
spend up to approximately $1 billion in additional sales, marketing, development and promotion efforts
in support of certain specified products and services. Under the terms of the agreement, HNS will
continue to provide services to current bundled AOL broadband subscribers using the HNS high-speed
Internet satellite services as the companies develop a transition plan to an unbundled service.
During the first quarter of 2002, Hughes recorded a $95 million gain, net of legal costs, as an
offset to “Selling, general and administrative expenses” as a result of the favorable resolution of a
lawsuit filed against the United States Government on March 22, 1991. The lawsuit was based upon
the National Aeronautics and Space Administration’s (“NASA”) breach of contract to launch ten
satellites on the Space Shuttle. See Item 3. Legal Proceedings under Part I for further information.
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