DIRECTV 2002 Annual Report Download - page 63

HUGHES ELECTRONICS CORPORATION
At December 31, 2002, $3.4 million in accumulated unrealized pre-tax losses were recorded as
part of OCI. At December 31, 2001, $323.1 million of accumulated unrealized pre-tax gains were
recorded as part of OCI. During 2002 and 2001, Hughes recorded a write-down for other-than-
temporary declines in certain marketable equity investments of $148.9 million and $226.1 million,
respectively.
On August 21, 2002, Hughes sold about 8.8 million shares of Thomson common stock for
approximately $211.0 million in cash, resulting in a pre-tax gain of about $158.6 million.
On November 19, 2001, Hughes repaid $74.9 million of debt pursuant to the terms of a debt
guarantee provided by Hughes for the benefit of Motient. In connection with the payment, Hughes
received from Motient 7.1 million common shares of XM Satellite Radio Holdings Inc. stock, with a
market value as of November 2001 of $67.9 million and $3.6 million in cash. The repayment of
Motient’s debt released Hughes of any further obligations related to Motient’s indebtedness and
therefore Hughes reversed a related reserve of $39.5 million. The net effect of these actions resulted in
a credit of $36.1 million to “Other, net” in the Consolidated Statement of Operations and Available
Separate Consolidated Net Income (Loss).
On July 31, 2001, Hughes sold about 4.1 million shares of Thomson common stock for
approximately $132.7 million in cash, resulting in a pre-tax gain of approximately $108.3 million.
Pension Plans. Hughes recorded pension expense of $24.2 million in 2002, $10.2 million in
2001, and $10.9 million in 2000 related to its funded and unfunded defined benefit retirement plans.
Hughes contributed $7.9 million in 2002, $6.4 million in 2001 and $8.0 million in 2000 to its unfunded
plans for benefit payments. The pension benefit obligation of Hughes’ defined benefit retirement plans
exceeded the fair value of plan assets by about $135.5 million at December 31, 2002 and $39.9 million
at December 31, 2001. The increase in the unfunded benefit obligation is largely the result of
unfavorable equity market performance, a lower discount rate and benefit payments made during
2002.
Hughes uses December 1 as the measurement date to determine the Projected Benefit Obligation
(“PBO”) reported for year end and for the pension expense to be recorded in the subsequent year. The
discount rate assumption is determined based on the yield of high quality fixed-income debt
instruments. For purposes of determining Hughes’ PBO as of December 31, 2002 and pension
expense in 2003, Hughes used a discount rate of 7.00% as of December 1, 2002, a ¼% reduction from
the 7.25% discount rate used in the prior year. A further ¼% decrease in the discount rate would
increase the PBO by approximately $11.5 million and reduce equity, net of taxes, by approximately
$6.0 million, while a ¼% increase in the discount rate would decrease the PBO by approximately $11.2
million and increase equity, net of taxes, by approximately $5.5 million. These assumed changes in
discount rates would also result in a change to pension expense of less than $1 million.
Hughes’ expected return on plan assets assumption is derived from a review of Hughes’ long-term
actual return on plan assets, annual survey data, and periodic detailed studies conducted by Hughes’
actuary. While the review gives appropriate consideration to recent fund performance and historical
returns, the assumption is primarily a long-term, prospective rate. Based on the most recent review,
Hughes is revising its expected long-term return on plan assets assumption for 2003 to 9.00%, a
reduction from its previous level of 9.50%. Although in 2002 and 2001, asset returns have been below
Hughes’ long-term return on plan asset assumption, Hughes has achieved a compounded annual
return on plan assets of about 12% over the 20 year period ended December 1, 2002. An additional
¼% reduction in the expected return on plan assets would increase the 2003 expense by
approximately $1 million. Hughes’ funding requirements would not be impacted by changes in the
discount rate or the expected return on plan asset assumption.
53