DIRECTV 2002 Annual Report Download - page 61

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HUGHES ELECTRONICS CORPORATION
Hughes Tele.com (India) Limited. On December 6, 2002, HNS completed a series of
transactions to exchange its equity interest in HTIL of $58.8 million, long-term receivables from HTIL of
$75.0 million, and a net receivable of $25.4 million from HTIL’s Indian sponsor, Ispat, in exchange for
investments in Tata Teleservices Limited (“TTSL”). The transactions were accounted for as a sale of
the assets surrendered at their fair values and the purchase of the instruments in TTSL on the date of
the transactions. HNS allocated the fair value of the assets surrendered of $135.1 million to the assets
received, which include redeemable preference shares ($110.1 million), a 15 year zero coupon note
($9.7 million) and 50 million common stock purchase warrants ($15.3 million), based on their relative
fair values. The preference shares are redeemable at the end of 51 or 75 months at the option of HNS
and are also convertible to common equity at the end of 75 months at the option of HNS. The
redemption is guaranteed in the form of a put to TTSL’s parent company, Tata Sons. The preference
shares are carried at fair value as an available-for-sale debt security, with unrealized gains and losses
reported, net of tax, as a component of OCI.
Based on the fair value of the assets surrendered on December 6, 2002, HNS recognized an
after-tax loss of approximately $14.1 million, which is comprised of a pre-tax loss recognized in
“Other, net” of $52.1 million, based on the difference between fair value and carrying value of the
assets surrendered and the requirement to recognize cumulative translation adjustments of
$28.0 million associated with the HTIL investment, which were offset by an approximate $38.0 million
tax benefit which includes the tax benefit from equity method losses that were not previously
recognized for tax purposes.
Also during 2002, HNS recorded the receivable from Ispat described above when it honored a
$54.4 million loan guarantee. The receivable was immediately reduced to its estimated net realizable
value of $25.4 million through a charge to “Other, net” of $29.0 million.
During September 2000, HTIL sold new common shares in a public offering in India. As a result of
this transaction, Hughes’ equity interest was reduced from 44.7% to 29.1% and Hughes recorded a
$23.3 million increase to “Capital stock and additional paid-in capital.”
Galaxy Entertainment Argentina. On May 1, 2001, DLA acquired from Grupo Clarín S.A.
(“Clarin”) a 51% ownership interest in GEA, a local operating company in Argentina that provides
direct-to-home broadcast services, and other assets, consisting primarily of programming and
advertising rights. The purchase price, valued at $169 million, consisted of a 3.98% ownership interest
in DLA and a put option that under certain circumstances will allow Clarin to sell its 3.98% interest back
to DLA in November 2003 for $195 million (see “Commitments and Contingencies” below for further
discussion). As a result of the transaction, Hughes’ interest in DLA decreased from 77.8% to 74.7%
and Hughes’ ownership in GEA increased from 20% to 58.1%. Hughes’ portion of the purchase price,
which amounted to about $130 million, was recorded as an increase to “Capital stock and additional
paid-in capital.”
The financial information included herein reflects the acquisition discussed above from its date of
acquisition. The acquisition was accounted for by the purchase method of accounting and, accordingly,
the purchase price has been allocated to the assets acquired and the liabilities assumed based on their
estimated fair values at the date of acquisition.
Satellite Systems Manufacturing Businesses. On October 6, 2000, Hughes completed the sale of
its satellite systems manufacturing businesses for $3.75 billion in cash. The transaction resulted in the
recognition of a pre-tax gain of $2,036.0 million, or $1,132.3 million after-tax. Included in this gain is a
net after-tax curtailment loss of $42.0 million related to pension and other post retirement benefit plan
assets and liabilities associated with the Satellite Businesses. The purchase price is subject to
adjustment based upon the final closing date financial statements as discussed in “Commitments and
Contingencies” below.
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