DIRECTV 2003 Annual Report Download - page 108

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THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued)
providers. As a result, in December 2002, the Company notified approximately half of DIRECTV Broadband’s
400 employees of a layoff, with a minimum of 60 days notice during which time they were paid, followed by
receipt of a severance package. The remaining employees worked with customers during the transition and
assisted with the closure of the business. On February 28, 2003, DIRECTV Broadband completed the transition
of its customers to alternative service providers and shut down its high-speed Internet service business. In the
fourth quarter of 2002, the Company recorded a charge of $92.8 million related to accruals for employee
severance benefits, contract termination payments and the write-off of customer premise equipment. Included in
the $92.8 million charge were accruals for employee severance benefits of $21.3 million and contract termination
payments of $18.6 million. During 2003, the accrual was reduced due to the favorable settlement of certain
contractual commitments by recording a gain of $1.6 million, net of taxes, to discontinued operations. As of
December 31, 2003, $1.0 million of accruals were remaining.
Revenues, operating costs and expenses, and other non-operating results for the discontinued operations of
DIRECTV Broadband have been excluded from the Company’s results from continuing operations for all periods
presented herein. The financial results for DIRECTV Broadband are presented in the Consolidated Statements of
Income in a single line item entitled “Loss 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.”
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
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 security, with unrealized gains and losses reported net of tax, as a component of OCI.
In connection with this exchange, HNS recognized an after-tax loss of approximately $14.1 million, which
is comprised of a pre-tax loss recognized in “Other, net” in the Consolidated Statements of Income 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.
Earlier in 2002, HNS recognized a loss on the receivable from Ispat described above when it was required to
honor 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” in the Consolidated Statements of Income of $29.0
million.
Galaxy Entertainment Argentina
On May 1, 2001, DLA LLC acquired from Clarin a 51% ownership interest in Galaxy Entertainment
Argentina S.A. (“GEA”), a LOC 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,
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