DIRECTV 2002 Annual Report Download - page 65

HUGHES ELECTRONICS CORPORATION
Hughes is not insured for certain other satellites. The book value of satellites that were insured with
coverage exclusions amounted to $563.5 million and the book value of the satellites that were not
insured was $1,049.7 million at December 31, 2002.
On February 19, 2003, PanAmSat filed proofs of loss under the insurance policies for Galaxy XI
and PAS-1R for constructive total losses based on degradation of the solar panels. Service to existing
customers has not been affected, and PanAmSat expects that both of these satellites will continue to
serve these existing customers. The insurance policies for these satellites total approximately $289
million and $345 million, respectively, and both include a salvage provision for PanAmSat to share
10% of future revenues from these satellites with their respective insurers if the proof of loss is
accepted. The availability and use of the proceeds from these insurance claims are restricted by the
agreements governing PanAmSat’s debt obligations. No assurances can be made that the proof of
loss with respect to these two satellites will be accepted by the insurers. PanAmSat is working with the
satellite manufacturer to determine the long-term implications to the satellites and will continue to
assess the operational impact these losses may have. At this time, based upon all information currently
available to PanAmSat, as well as planned modifications to the operation of the satellites in order to
maximize revenue generation, PanAmSat currently expects to operate these satellites through their
expected economic ends of life, although a portion of the transponder capacity on these satellites will
not be useable during such time. Hughes currently believes that the net book values of these satellites
are fully recoverable and does not expect a material impact on 2003 revenues as a result of the
difficulties on these two satellites.
PanAmSat and the manufacturer of the Galaxy VIII-iR satellite have agreed in principle to
terminate the Galaxy VIII-iR satellite construction contract. The agreement is subject to the execution
of mutually acceptable documentation, but there can be no assurance that this will occur. In connection
with the termination of the contract, as of December 31, 2002, PanAmSat had a receivable due from
the satellite manufacturer of $72.0 million, which represents amounts previously paid to the
manufacturer (of approximately $58.8 million), liquidated damages and interest owed under the
construction agreement. PanAmSat expects that it will collect substantially all of this receivable and
does not anticipate recording a charge to earnings related to this receivable. In addition, PanAmSat
has agreed with the Galaxy VIII-iR launch vehicle provider to defer use of the launch to a future
satellite. PanAmSat had intended to locate the Galaxy VIII-iR satellite at 95 degrees west longitude.
However, with the successful launch and commencement of service on the Galaxy IIIC satellite at this
same orbital location in September 2002, PanAmSat believes it has sufficient capacity to meet
customer demand for services at this location.
Hughes is contingently liable under standby letters of credit and bonds in the aggregate amount of
$65.1 million which were undrawn at December 31, 2002 and DLA has guaranteed $3.0 million of bank
debt related to non-consolidated DLA local operating companies, which is due in varying amounts
through 2005. Additionally, as described in “Liquidity and Capital Resources—Acquisitions and
Divestitures” above, DLA may be required to repurchase Clarin’s 3.98% interest in DLA for $195 million
in November 2003. In the first quarter of 2003, Clarin notified DLA that it believes that DLA’s decision
to initiate discussions with Clarin and certain other programmers, suppliers and business associates to
address DLA’s financial and operational challenges has caused DLA to be responsible immediately to
purchase Clarin’s equity interest in DLA. DLA does not believe that the purchase obligation has been
accelerated. See Note 22 of the Notes to the Consolidated Financial Statements in Item 8 for further
discussion of this matter.
The Hughes Board of Directors has approved several benefit plans designed to provide benefits
for the retention of about 205 key employees and also provide benefits in the event of employee lay-
offs. Generally, these benefits are only available if a qualified change-in-control of Hughes occurs.
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