DIRECTV 2002 Annual Report Download - page 42

HUGHES ELECTRONICS CORPORATION
Valuation of Goodwill and Intangible Assets with Indefinite Lives. Hughes evaluates the carrying
value of goodwill and intangible assets with indefinite lives on an annual basis, and when events and
circumstances warrant such a review in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” which is described in “Accounting
Changes,” below. SFAS No. 142 requires the use of fair value in determining the amount of
impairment, if any, for recorded goodwill and intangible assets with indefinite lives. Fair value is
determined primarily using the estimated future cash flows associated with the asset under review,
discounted at a rate commensurate with the risk involved. Changes in estimates of future cash flows
could result in a write-down of the asset in a future period.
Financial Instruments and Investments. Hughes maintains investments in equity securities of
unaffiliated companies. Marketable equity securities are considered available-for-sale and carried at
current fair value based on quoted market prices with unrealized gains or losses (excluding other-than-
temporary losses), net of taxes, reported as part of accumulated other comprehensive income (loss)
(“OCI”), a separate component of stockholder’s equity. Hughes continually reviews its investments to
determine whether a decline in fair value below the cost basis is “other-than-temporary.” Hughes
considers, among other factors: the magnitude and duration of the decline; the financial health and
business outlook of the investee, including industry and sector performance, changes in technology,
and operational and financing cash flow factors; and Hughes’ intent and ability to hold the investment.
If the decline in fair value is judged to be other-than-temporary, the cost basis of the security is written-
down to fair value and the amount is recognized in the consolidated statements of operations as part of
“Other, net” and recorded as a reclassification adjustment from OCI. Future adverse changes in market
conditions or poor operating results of underlying investments could result in losses or an inability to
recover an investment’s carrying value, thereby possibly requiring a charge in a future period.
Reserves for Doubtful Accounts. A significant amount of management estimate is required in
determining the amount of reserves required for the potential non-collectibility of accounts receivable.
Management estimates the amount of required reserves based upon past experience of collection and
consideration of other relevant factors; however, past experience may not be indicative of future
collections and therefore additional charges could be incurred in the future to reflect differences
between estimated and actual collections.
Contingent Matters. A significant amount of management estimate is required in determining
when, or if, an accrual should be recorded for a contingent matter and the amount of such accrual, if
any. Due to the uncertainty of determining the likelihood of a future event occurring and the potential
financial statement impact of such an event, it is possible that upon further development or resolution
of a contingent matter, a charge could be recorded in a future period that would be material to Hughes’
consolidated results of operations and financial position.
Business Overview
The continuing operations of Hughes are comprised of the following segments: Direct-To-Home
Broadcast, Satellite Services and Network Systems. The satellite systems manufacturing businesses
(“Satellite Businesses”), which Hughes sold to The Boeing Company (“Boeing”) on October 6, 2000,
are reported as discontinued operations for 2000. This transaction is discussed more fully in “Liquidity
and Capital Resources—Acquisitions and Divestitures,” below. Hughes’ business segments are
described in more detail below, including a discussion of significant transactions affecting the
comparability of operating results for each of the three years ended December 31, 2002, 2001 and
2000.
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