DIRECTV 2002 Annual Report Download - page 49

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HUGHES ELECTRONICS CORPORATION
Operating Loss. Hughes’ operating loss was $399.1 million in 2002, compared to $757.8 million
in 2001. The decreased operating loss resulted from the additional profit resulting from the DIRECTV
U.S. revenue growth, lower subscriber acquisition costs, lower amortization expense resulting from the
discontinuation of amortization for goodwill and intangible assets with indefinite lives in accordance
with SFAS No. 142, the $95 million net gain for the NASA claim, the $87.5 million charge primarily
related to severance recorded in 2001 and the $40.1 million net gain related to the PAS-7 insurance
claim. These increases were partially offset by higher depreciation expense due to capital expenditures
since December 31, 2001, the $92.8 million charge related to the shutdown of DIRECTV Broadband,
the $80 million loss from the 2002 World Cup, the $56 million loss recorded for the settlement of the
GECC dispute settlement and the $23 million loss recorded in connection with the termination of the
AOL alliance.
Over the past several years, Hughes has incurred operating losses, principally due to the costs of
acquiring new subscribers in its Direct-To-Home Broadcast businesses. Hughes expects operating
results to improve and, barring significant changes in circumstances, to generate operating profit in the
future as DIRECTV U.S.’s large subscriber base begins generating additional operating profit due to
continued revenue growth and improved operating leverage. In addition, Hughes does not currently
intend to increase the subscriber base aggressively for DLA and the DIRECWAY consumer business
in the near term to avoid cash requirements for subscriber acquisition costs.
Interest Income and Expense. Interest income decreased to $24.5 million in 2002 compared to
$56.7 million in 2001 due to a decrease in average cash balances. Interest expense increased to
$336.2 million in 2002 from $195.9 million in 2001 primarily from the $74 million of interest recorded in
connection with the settlement of the GECC dispute and interest expense associated with higher
average outstanding borrowings in 2002. Interest expense is net of capitalized interest of
$116.8 million and $76.3 million in 2002 and 2001, respectively. Changes in cash and cash equivalents
and debt are discussed in more detail below under “Liquidity and Capital Resources.”
Other, Net. Other, net increased to income of $425.5 million in 2002 compared to a loss of
$92.7 million in 2001. Other, net for 2002 resulted primarily from the $600.0 million gain for the
settlement on the terminated merger agreement with EchoStar, $136.2 million of net gains from the
sale of certain marketable equity securities, including a $158.6 million gain related to the sale of the
investment in Thomson multimedia S.A. (“Thomson”) and a $24.5 million loss recorded from the sale of
the Sky Perfect Communications, Inc. (“Sky Perfect”) investment, and the reversal of $41.1 million of
accrued exit costs related to the DIRECTV Japan business upon the resolution of all remaining claims.
These gains were partially offset by $148.9 million of losses recognized for the other-than-temporary
decline in the fair value of marketable equity securities, $52.1 million of charges recorded for the
Hughes Tele.com (India) Limited (“HTIL”) transactions, and $70.1 million of equity method investee
losses. Other, net for 2001 resulted primarily from $226.1 million of losses recognized for the other-
than-temporary decline in the fair value of certain marketable equity securities, which included a
$212.0 million write-down related to the Sky Perfect investment, and equity method investee losses of
$61.3 million, partially offset by $130.6 million of net gains from the sale of certain marketable equity
securities, primarily Thomson, and the reversal of $32.0 million of accrued exit costs related to the
DIRECTV Japan business. See “Liquidity and Capital Resources—Acquisitions and Divestitures” and
“Liquidity and Capital Resources—Investment in Marketable Securities” below for additional
information regarding the transactions discussed above.
Income Taxes. Hughes recognized an income tax benefit of $94.4 million in 2002 compared to
$325.6 million in 2001. The lower tax benefit in 2002 was primarily due to lower pre-tax losses and a
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