DIRECTV 2003 Annual Report Download - page 101

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Prior to the split-off of the Company from GM on December 22, 2003, GM held all of the outstanding
capital stock of the Company. GM Class H common stock was a publicly-traded security of GM and was a
“tracking stock” designed to provide holders with financial returns based on the financial performance of the
Company.
On June 24, 1999, as part of a strategic alliance with the Company, America Online, Inc. (“AOL”) invested
$1.5 billion in shares of GM Series H preference stock. The preferred stock accrued quarterly dividends at a rate
of 6.25% per year. GM immediately invested the $1.5 billion received from AOL in shares of the Company’s
Series A Preferred Stock designed to correspond to the financial terms of the GM Series H preference stock.
Dividends on the Series A Preferred Stock were payable to GM quarterly at an annual rate of 6.25%. The
underwriting discount on the Series A Preferred Stock was amortized over three years.
On June 24, 2002, the GM Series H preference stock, pursuant to its terms, was mandatorily converted to about
80.1 million shares of GM Class H common stock. Also on June 24, 2002, in connection with the automatic
conversion of the GM Series H preference stock held by AOL, GM contributed the $1.5 billion of the Company’s
Series A Preferred Stock back to the Company, which the Company cancelled and recorded as a contribution to
“Common stock and additional paid-in capital” in the Consolidated Balance Sheets. In exchange for the Series A
Preferred Stock, the Company issued $914.1 million of Series B Convertible Preferred Stock to GM, which was
recorded as a reduction to “Common stock and additional paid-in capital.” The Series B Convertible Preferred Stock
did not accrue dividends and was convertible into the Company’s Class B common stock.
On March 12, 2003, GM contributed 149.2 million shares of GM Class H common stock to certain of its
U.S. employee benefit plans, increasing the number of shares of GM Class H common stock outstanding. The
contribution increased the amount of GM Class H common stock held by GM’s employee benefit plans to
approximately 331 million shares, and reduced GM’s interest in the Company to approximately 19.9% from
30.7%.
During April 2003, the Company’s Board of Directors approved the reclassification of the outstanding
Series B convertible preferred stock into Class B common stock of equivalent value, and a subsequent stock split
of the Company’s common stock and the Company’s Class B common stock through dividends of additional
shares. GM, in its capacity as the holder of all outstanding capital stock of the Company, approved the
reclassification. Shortly thereafter, GM converted some of its common stock of the Company into an equivalent
number of shares of the Company’s Class B common stock. As a result of these transactions, the Company had
issued and outstanding 1,207,518,237 shares of common stock and 274,373,316 shares of Class B common stock,
all of which were owned by GM.
Immediately prior to the News Corporation transactions, the number of shares of common and Class B
common stock were adjusted to assure that the stock outstanding and the stock representing GM’s interest
accurately reflected the interests to be sold directly by GM to News Corporation and the interests to be
distributed to holders of GM Class H common stock. After the adjustment, there were 1,109,270,842 GM
Class H common shares then outstanding. The number of shares of Class B common stock was adjusted to equal
274,319,607 shares, representing GM’s 19.8% interest in the Company.
On December 22, 2003, GM split-off the Company by distributing the Company’s common stock to the
holders of GM Class H common stock in exchange for the 1,109,270,842 shares then outstanding on a one-for-
one basis. Simultaneously, GM sold its 19.8% interest in the Company (represented by 274,319,607 shares of
Class B common stock) to News Corporation in exchange for cash and News Corporation Preferred ADSs. The
shares of Class B common stock were then converted to shares of common stock on a one-for-one basis.
94