DIRECTV 2002 Annual Report Download - page 81

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HUGHES ELECTRONICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Hughes and EchoStar agreed to terminate the merger agreement and certain related agreements.
Under the terms of the termination agreement, EchoStar paid Hughes $600 million in cash and Hughes
retained its 81% ownership position in PanAmSat.
GM has announced that it is currently evaluating a variety of strategic options for Hughes,
including a reduction or elimination of its retained economic interest in Hughes, transactions that would
involve strategic investors and public offerings of GM Class H common stock or related securities for
cash or in exchange for outstanding GM debt obligations. Any such transaction might involve the
separation of Hughes from GM. GM and Hughes have engaged in preliminary discussions with some
parties. No other decisions have been made regarding which options or combinations of options, if any,
GM will pursue. Due to the numerous uncertainties involved in these matters, there can be no
assurance that any transaction or offering will be announced or completed or as to the time at which
such a transaction or offering might be completed.
Note 2: Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying financial statements are presented on a consolidated basis and include the
accounts of Hughes and its domestic and foreign subsidiaries that are more than 50% owned or
controlled by Hughes after elimination of intercompany accounts and transactions. Hughes allocates
earnings and losses to minority interests only to the extent of a minority investor’s investment in a
subsidiary.
Use of Estimates in the Preparation of the Consolidated Financial Statements
The preparation of the consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect amounts reported therein. Management bases its estimates and assumptions
on historical experience and on various other factors that are believed to be reasonable under the
circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in
future periods may be affected by changes in those estimates.
Reclassifications
During 2002, Hughes changed the classification of certain subscriber acquisition costs. As a
result, the costs of free programming and the costs of installation and hardware subsidies for
subscribers added through DIRECTV’s direct sales program are now included as part of “Broadcast
programming and other costs” in the Consolidated Statements of Operations and Available Separate
Consolidated Net Income (Loss) rather than in “Selling, general and administrative expenses” where
they had previously been reported. Prior period amounts have been reclassified to conform to the 2002
presentation.
Revenue Recognition
Revenues are generated from sales of direct-to-home broadcast subscriptions, the sale of
transponder capacity and related services through outright sales, sales-type leases and operating
71