DIRECTV 2003 Annual Report Download - page 17

THE DIRECTV GROUP, INC.
DLA LLC owned, directly or indirectly and along with certain affiliates, sixteen subsidiaries, including the LOCs
in the largest Latin American countries. DLA provides a wide selection of high-quality local and international
programming under the DIRECTV brand to approximately 1.5 million subscribers in 28 countries through the
LOCs located in the various countries. Approximately 91% of the Latin American DIRECTV subscribers are in
Brazil, Mexico, Venezuela, Argentina and Puerto Rico, and receive their service from consolidated LOCs. The
DIRECTV service is provided to DLA’s customers via the Galaxy 3C satellite that was placed into service in
September 2002. DLA LLC leases the satellite transponder capacity on Galaxy 3C from PanAmSat (see
“PanAmSat” below).
Latin America has faced very difficult economic and political conditions over the last several years. Major
markets, such as Argentina, Brazil and Venezuela, have been experiencing significant currency devaluations,
high unemployment rates and/or civil unrest due to economic and political uncertainty. These factors have
resulted in fewer new subscribers than DLA had originally projected. In addition, a large portion of DLA LLC’s
expenses were denominated in U.S. dollars. As currencies devalued across the region, DLA LLC found it
increasingly difficult to satisfy U.S. dollar denominated expenses with local currency earned revenues.
As a result of the conditions noted above and DLA LLC’s high fixed costs and substantial debt levels, on
March 18, 2003, DLA LLC filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy
Code in the U.S. Bankruptcy Court for the District of Delaware, or the Bankruptcy Court. On December 11,
2003, DLA LLC filed a proposed Plan of Reorganization, or the Reorganization Plan, that reflected an agreement
reached between DLA LLC, its owners and unsecured creditors. The Reorganization Plan was confirmed by the
Bankruptcy Court on February 13, 2004 and became effective on February 24, 2004. Holders of allowed general
unsecured claims received, or will receive, cash distributions equal to 20% of their allowed claims. These
distributions were funded from DLA LLC’s operating cash flow and a senior secured debtor-in-possession
financing facility provided by us.
DLA LLC, after emerging from bankruptcy, is 85.9% owned by us and 14.1% owned by Darlene
Investments LLC, or Darlene, one of DLA LLC’s founders. The equity that we received upon DLA LLC’s
emergence from Chapter 11 was in consideration of our allowed claim for the senior secured debtor-in-
possession financing facility, the assets we had contributed to the restructured DLA LLC and certain other
claims. Darlene received a minority share of the equity in consideration of assets it contributed to the restructured
DLA LLC. The Company and Darlene also contributed their respective ownership interests in certain LOCs and
related entities and certain debts owed by such entities. This “roll-up,” which occurred when DLA LLC emerged
from Chapter 11 on February 24, 2004, consolidated DLA LLC’s ownership of the largest LOCs and simplified
its corporate structure.
News Corporation owns a minority interest in several entities (together “SKY Latin America”) that are
engaged in the direct-to-home satellite television market in competition with DLA. News Corporation, the
Company, and the respective partners in DLA and SKY Latin America are exploring the benefits of
consolidation in the pay-television market in Latin America. There has been no agreement reached to date on any
consolidating transaction and it is uncertain whether any consolidation will take place.
In each of its markets, DLA competes primarily with other providers of pay television, who distribute their
programming via cable or satellite. DLA competes on the basis of programming, price, quality, customer support,
10