DIRECTV 2002 Annual Report Download - page 80

HUGHES ELECTRONICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation and Description of Business
Hughes Electronics Corporation (“Hughes”) is a wholly-owned subsidiary of General Motors
Corporation (“GM”). The GM Class H common stock tracks the financial performance of Hughes.
Hughes is a leading provider of digital entertainment, information and communication services and
satellite-based private business networks. Hughes is the world’s leading digital multi-channel
entertainment service provider, based on the number of subscribers, with its programming distribution
service known as DIRECTV®, which was introduced in the United States (“U.S.”) in 1994 and was the
first high-powered, all digital, direct-to-home television distribution service in North America. DIRECTV
Broadband, Inc. (“DIRECTV Broadband”), formerly known as Telocity Delaware, Inc. (“Telocity”), which
was acquired by Hughes in April 2001, provided digital subscriber line (“DSL”) services purchased from
wholesale providers. DIRECTV Latin America, LLC, (“DLA”), which is 74.7% owned by Hughes, is the
leading direct-to-home satellite television service in Latin America and the Caribbean that began
service in 1996. Hughes is the owner and operator of one of the largest commercial satellite fleets in
the world through its approximately 81% owned subsidiary, PanAmSat Corporation (“PanAmSat”).
Hughes is also a leading provider of broadband services and products, including satellite wireless
communications ground equipment and business communications services. Hughes’ equipment and
services are applied in, among other things, data, video and audio transmission, cable and network
television distribution, private business networks, digital cellular communications and direct-to-home
satellite broadcast distribution of television programming.
Hughes announced, in December of 2002, that DIRECTV Broadband would close its high-speed
Internet service business in the first quarter of 2003 and transition existing customers to alternative
service providers. See further discussion of this item in Note 18.
Revenues, operating costs and expenses, and other non-operating results for the discontinued
operations of the satellite systems manufacturing businesses (“Satellite Businesses”), which were sold
to The Boeing Company (“Boeing”) on October 6, 2000, are excluded from Hughes’ results from
continuing operations for 2000. Alternatively, the financial results are presented in Hughes’
Consolidated Statements of Operations and Available Separate Consolidated Net Income (Loss) in a
single line item entitled “Income from discontinued operations, net of taxes” and the net cash flows are
presented in the Consolidated Statements of Cash Flows as “Net cash used in discontinued
operations.” See further discussion in Note 18.
The accompanying consolidated financial statements include the applicable portion of intangible
assets, including goodwill, and related amortization resulting from purchase accounting adjustments
associated with GM’s purchase of Hughes in 1985, with certain amounts allocated to the Satellite
Businesses. With Hughes’ adoption of Statement of Financial Accounting Standards (“SFAS”) No. 142,
“Goodwill and Other Intangible Assets,” Hughes ceased amortization of goodwill and intangible assets
with indefinite lives on January 1, 2002. See further discussion in Note 3.
On October 28, 2001, Hughes and GM, together with EchoStar Communications Corporation
(“EchoStar”), announced the signing of definitive agreements that provided for the split-off of Hughes
from GM and the subsequent merger of the Hughes business with EchoStar (the “Merger”). Hughes,
GM and EchoStar entered into a termination agreement on December 9, 2002, pursuant to which GM,
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