DIRECTV 2002 Annual Report Download - page 50

HUGHES ELECTRONICS CORPORATION
lower benefit associated with the shutdown of the DIRECTV Broadband business. These decreases
were partially offset by the favorable resolution of certain tax contingencies and the discontinuation of
amortization of non-deductible goodwill in 2002.
Loss Before Cumulative Effect of Accounting Changes. Hughes reported a loss from continuing
operations before cumulative effect of accounting changes of $212.5 million in 2002, compared to
$614.2 million in 2001.
Cumulative Effect of Accounting Changes. Hughes adopted SFAS No. 142, “Goodwill and Other
Intangible Assets,” on January 1, 2002. The adoption of this standard resulted in the discontinuation of
amortization of goodwill and intangible assets with indefinite lives. In accordance with the transition
provisions of SFAS No. 142, Hughes recorded a one-time after-tax charge of $681.3 million related to
the initial impairment test on January 1, 2002 as a cumulative effect of accounting change. See
“Accounting Changes” below for additional information.
Hughes adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,”
on January 1, 2001. SFAS No. 133 required Hughes to carry all derivative financial instruments on the
balance sheet at fair value. In accordance with the transition provisions of SFAS No. 133, Hughes
recorded a one-time after-tax charge of $7.4 million on January 1, 2001 as a cumulative effect of
accounting change and an after-tax unrealized gain of $0.4 million in “Accumulated other
comprehensive income (loss).”
Direct-To-Home Broadcast Segment
Direct-To-Home Broadcast segment revenues increased 14.1% to $7,193.3 million in 2002 from
$6,306.4 million in 2001. The Direct-To-Home Broadcast segment had positive EBITDA of
$160.8 million in 2002 compared with negative EBITDA of $74.8 million in 2001. The operating loss for
the segment decreased to $505.2 million in 2002 from $749.9 million in 2001.
United States. Revenues for DIRECTV U.S. grew to $6,445 million in 2002, a 16% increase over
2001 revenues of $5,552 million. The increase in revenues resulted primarily from an increased
number of DIRECTV subscribers and an increase in ARPU. As of December 31, 2002, DIRECTV had
approximately 11.2 million subscribers compared to about 10.3 million subscribers as of December 31,
2001. Excluding subscribers in the National Rural Telecommunications Cooperative (“NRTC”)
territories, DIRECTV owned and operated subscribers totaled 9.5 million and 8.4 million at December
31, 2002 and 2001, respectively. DIRECTV added 1.1 million net new owned and operated subscribers
in 2002, compared to 1.2 million net new owned and operated subscribers in 2001. ARPU was $59.80
and $58.70 for the years ended December 31, 2002 and 2001, respectively. The increased ARPU was
driven primarily from broader local channel offerings, higher revenues from seasonal and live sporting
events and other subscriber revenues, such as revenues from an increased number of subscribers
with multiple set-top boxes, partially offset by lower subscriber pay-per-view purchases.
EBITDA was $564 million in 2002 compared to $160 million in 2001. The operating profit in 2002
for the DIRECTV U.S. businesses was $158 million compared to an operating loss of $279 million in
2001. The change in EBITDA was primarily attributable to the additional profit resulting from the higher
revenues discussed above, lower total subscriber acquisition costs and a $48 million charge primarily
related to severance costs recorded in 2001. These improvements were partially offset by higher
subscriber service expenses and the $56 million expense associated with the settlement with GECC.
The change in operating loss was due to the increased EBITDA and lower amortization expense of
$124 million that resulted from the adoption of SFAS No. 142, which was partially offset by a $91
million increase in depreciation expense related to the addition of property and satellites.
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