DIRECTV 2002 Annual Report Download - page 53

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HUGHES ELECTRONICS CORPORATION
since December 31, 2000 and the added revenues from the consolidation of GEA beginning in May
2001. The increased revenues from the Direct-To-Home Broadcast segment were partially offset by a
decrease in revenues of $153.5 million at the Satellite Services segment and $84.0 million at the
Network Systems segment. The decrease in revenues from the Satellite Services segment was
principally due to a lower volume of new outright sales and sales-type lease transactions executed
during 2001 compared to 2000. The decrease in revenues from the Network Systems segment was
principally due to decreased shipments of DIRECTV™receiving equipment that resulted from
DIRECTV completing the conversion of the PRIMESTAR By DIRECTV customers to the DIRECTV
service in the third quarter of 2000.
Operating Costs and Expenses. Operating costs and expenses increased to $9,021.8 million in
2001 from $7,641.7 million in 2000. Broadcast programming and other costs increased by
$517.8 million during 2001 due to higher costs at the Direct-To-Home Broadcast segment, resulting
from higher programming costs associated with the increase in subscribers and added costs from
DIRECTV Broadband. This increase was partially offset by decreased costs at the Satellite Services
segment associated with the lower new outright sales and sales-type lease transaction activity in 2001.
Costs of products sold increased by $85.1 million in 2001 from 2000 mainly due to higher costs
associated with a mobile telephony contract and increased costs associated with the DIRECWAY
service at the Network Systems segment. Selling, general and administrative expenses increased by
$577.6 million in 2001 from 2000 due primarily to higher subscriber acquisition and marketing costs at
the Direct-To-Home Broadcast segment in both the United States and Latin America, added costs from
DIRECTV Broadband, and the $87.5 million charge related to the 2001 company-wide employee
reductions. Depreciation and amortization increased by $199.6 million in 2001 over 2000 due primarily
to the addition of property and satellites since December 31, 2000, a reduction in the useful life of the
Galaxy VIII-i satellite due to the failure of its primary propulsion system during the third quarter of 2000,
and added goodwill amortization and depreciation that resulted from the DIRECTV Broadband and
GEA transactions.
EBITDA. EBITDA for 2001 was $389.9 million and EBITDA margin was 4.7%, compared to
EBITDA of $594.0 million and EBITDA margin of 8.2% for 2000. The change in EBITDA and EBITDA
margin resulted from lower EBITDA at the Satellite Services segment principally due to decreased new
outright sales and sales-type lease transactions executed during 2001 compared to 2000 and higher
direct operating and selling, general and administrative expenses; lower EBITDA at the Network
Systems segment primarily due to increased costs associated with the rollout of new DIRECWAY®
services and decreased shipments of DIRECTV receiving equipment; and lower EBITDA at the Direct-
To-Home Broadcast segment due to negative EBITDA from DIRECTV Broadband and the company-
wide $87.5 million charge primarily related to severance.
Operating Loss. Hughes’ operating loss was $757.8 million in 2001, compared to $354.1 million
in 2000. The increased operating loss resulted from the decrease in EBITDA and the higher
depreciation and amortization expense discussed above.
Interest Income and Expense. Interest income increased to $56.7 million in 2001 compared to
$49.3 million in 2000 due to an increase in cash and cash equivalents that resulted from the sale of the
Satellite Businesses in October of 2000. Interest expense decreased to $195.9 million in 2001 from
$218.2 million in 2000. The lower interest expense resulted primarily from lower average outstanding
borrowings. Interest expense is net of capitalized interest of $76.3 million and $82.4 million in 2001 and
2000, respectively. Changes in cash and cash equivalents and debt are discussed in more detail below
under “Liquidity and Capital Resources.”
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