DIRECTV 2002 Annual Report Download - page 86

HUGHES ELECTRONICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued)
be disposed of are determined in a similar manner, except that fair values are reduced for the cost of
disposal. Changes in estimates of future cash flows could result in a write-down of the asset in a future
period.
Foreign Currency
Some of Hughes’ foreign operations have determined the local currency to be their functional
currency. Accordingly, these foreign entities translate assets and liabilities from their local currencies to
U.S. dollars using year-end exchange rates while income and expense accounts are translated at the
average rates in effect during the year. The resulting translation adjustment is recorded as part of
accumulated other comprehensive income (loss) (“OCI”), a separate component of stockholder’s
equity. Translation adjustments for foreign currency denominated equity investments are also recorded
as part of OCI.
Hughes also has foreign operations where the U.S. dollar has been determined as the functional
currency. Gains and losses resulting from remeasurement of the foreign currency denominated assets,
liabilities and transactions into the U.S. dollar are recognized currently in the consolidated statements
of operations.
Financial Instruments and Investments
Hughes maintains investments in equity securities of unaffiliated companies. Non-marketable
equity securities are carried at cost. 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 OCI. 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.
Investments in which Hughes owns at least 20% of the voting securities or has significant
influence are accounted for under the equity method of accounting. Equity method investments are
recorded at cost and adjusted for the appropriate share of the net earnings or losses of the investee.
Investee losses are recorded up to the amount of the investment plus advances and loans made to the
investee, and financial guarantees made on behalf of the investee. In certain instances, this can result
in Hughes recognizing investee earnings or losses in excess of its ownership percentage.
The carrying value of cash and cash equivalents, accounts and notes receivable, investments and
other assets, accounts payable, and amounts included in “Accrued liabilities and other” meeting the
definition of a financial instrument and debt approximated fair value at December 31, 2002 and
December 31, 2001.
Hughes carries all derivative financial instruments on the Consolidated Balance Sheets at fair
value based on quoted market prices. Hughes uses derivative contracts to minimize the financial
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