DIRECTV 2002 Annual Report Download - page 66

HUGHES ELECTRONICS CORPORATION
Upon a change-in-control, the retention benefits will be accrued and expensed when earned and the
severance benefits will be accrued and expensed if an employee is identified for termination. A total of
up to about $105 million for retention benefits will be paid, with approximately 50% paid at the time of a
change-in-control and 50% paid up to 12 months following the date of a change-in-control. The amount
of severance benefits to be paid will be based upon decisions that will be made relating to employee
layoffs, if any, following the date of a change-in-control. In addition, as of December 31, 2002,
approximately 30.5 million employee stock options to purchase shares of GM Class H common stock
will vest upon a qualifying change-in-control and up to an additional 8.4 million employee stock options
could vest if employees are laid off within one year of a change-in-control.
At December 31, 2002, minimum future commitments under noncancelable operating leases
having lease terms in excess of one year were primarily for real property and aggregated
$769.4 million, payable as follows: $252.5 million in 2003, $210.6 million in 2004, $107.6 million in
2005, $52.3 million in 2006, $46.1 million in 2007, and $100.3 million thereafter. Certain of these
leases contain escalation clauses and renewal or purchase options. Rental expenses under operating
leases, net of sublease rental income, were $68.0 million in 2002, $59.7 million in 2001 and
$55.9 million in 2000.
Hughes has minimum commitments under noncancelable satellite construction and launch
contracts and programming agreements. Minimum payments over the terms of applicable contracts are
anticipated to be approximately $3,461.5 million, payable as follows: $825.1 million in 2003,
$596.8 million in 2004, $437.5 million in 2005, $693.0 million in 2006, $762.1 million in 2007, and
$147.0 million thereafter.
During the first quarter of 2003, Hughes and AOL agreed to terminate their strategic alliance,
which the companies had entered into in June 1999. In connection with the termination of the alliance,
Hughes recorded a pre-tax charge of $23 million in the fourth quarter of 2002 to “Selling, general and
administrative expenses” and was released from its commitment to spend up to approximately
$1 billion in additional sales, marketing, development and promotion efforts in support of certain
specified products and services. Under the terms of the agreement, HNS will continue to provide
services to current bundled AOL broadband subscribers using the HNS high-speed Internet satellite
service as the companies develop a transition plan to an unbundled service.
Certain Relationships and Related Party Transactions
Satellite Procurement Agreements. Currently, Hughes is a party to agreements with Boeing
Satellite Systems, Inc., formerly Hughes Space and Communications Company (“HSC”), for the
construction of four satellites with a total contract value of $1,434.6 million that were entered into prior
to the sale of HSC to Boeing on October 6, 2000. Although Hughes believes the agreements are on
commercially reasonable terms, there can be no assurance that Hughes will be able to procure
satellites on similar terms in the future. At December 31, 2002, Hughes’ remaining obligation under
these contracts was $178.3 million.
Income Taxes. Hughes and its domestic subsidiaries join with GM in filing a consolidated U.S.
federal income tax return. The terms of the current tax allocation agreement with GM generally require
that Hughes provide for income taxes as if it filed on a separate return basis. At December 31, 2002,
the Consolidated Balance Sheets reflect deferred tax assets attributable to the future benefits from the
utilization of certain foreign tax credits, alternative minimum tax credits, general business credits and
net operating losses of acquired subsidiaries available to be carried forward in the amounts of
$61.5 million, $46.3 million, $14 million and $98.3 million, respectively.
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