DIRECTV 2003 Annual Report Download - page 47

THE DIRECTV GROUP, INC.
Operating Costs and Expenses. The following table presents our operating costs and expenses for the
years ended December 31:
Change
Operating Costs and Expenses: 2002 2001 $ %
(Dollars in Millions)
Broadcast programming and other costs .......................... $4,087.9 $3,270.0 $ 817.9 25.0%
Costofproductssold ......................................... 818.6 900.2 (81.6) (9.1)%
Selling, general and administrative expenses ....................... 3,088.1 3,570.9 (482.8) (13.5)%
Depreciation and amortization .................................. 1,020.2 1,110.6 (90.4) (8.1)%
Total Operating Costs and Expenses ......................... $9,014.8 $8,851.7 $ 163.1 1.8%
Broadcast programming and other costs increased by $817.9 million due to higher costs at the Direct-To-
Home Broadcast segment resulting from higher programming costs at DIRECTV U.S. associated with the
increase in subscribers and annual program supplier rate increases, and the $135 million cost of the 2002 FIFA
World Cup at DLA. These increases were partially offset by decreased costs at the Satellite Services segment
associated with a sales-type lease transaction executed during 2001 for which there was no comparable
transaction in 2002.
Cost of products sold decreased by $81.6 million due to the decreased equipment sales at the Network
Systems segment discussed above, partially offset by increased shipments of DIRECTV receiving equipment.
Selling, general and administrative expenses decreased by $482.8 million due primarily to the following
2002 items: a $95.0 million net gain recorded for the NASA claim, a $40.1 million net gain related to the PAS-7
insurance claim, lower expenses resulting from cost savings initiatives, and lower third-party customer
acquisition costs at DIRECTV U.S.; and also due to a 2001 $87.5 million charge primarily for severance. These
decreases were partially offset by a $48.0 million loss recorded for the GECC settlement and a $23.0 million loss
recorded in connection with the termination of the AOL alliance in 2002.
Depreciation and amortization decreased by $90.4 million due to the discontinuation of amortization
expense related to goodwill and intangible assets with indefinite lives in accordance with SFAS No. 142, which
amounted to $238.0 million for 2001, partially offset by added depreciation expense related to property and
satellites placed into service during 2001 and 2002 and additional depreciation resulting from the consolidation
of GEA in May 2001.
Interest Income and Expense. Interest income decreased to $24.5 million in 2002 compared to $56.5
million in 2001 due to a decrease in average cash balances. Interest expense increased to $334.5 million in 2002
from $195.3 million in 2001 primarily from the $74 million of interest recorded in connection with the settlement
of the GECC dispute and interest expense associated with higher average outstanding borrowings in 2002.
Interest expense is net of capitalized interest of $116.8 million and $76.3 million in 2002 and 2001, respectively.
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