DIRECTV 2003 Annual Report Download - page 57

THE DIRECTV GROUP, INC.
Off-Balance Sheet Arrangements
We are contingently liable under standby letters of credit and bonds in the aggregate amount of $66.6
million which were undrawn at December 31, 2003.
Contingencies
Litigation. Litigation is subject to uncertainties and the outcome of individual litigated matters is not
predictable with assurance. Various legal actions, claims and proceedings are pending against the Company
arising in the ordinary course of business. We have established loss provisions for matters in which losses are
probable and can be reasonably estimated. Some of the matters may involve compensatory, punitive, or treble
damage claims, or sanctions, that if granted, could require us to pay damages or make other expenditures in
amounts that could not be estimated at December 31, 2003. After discussion with counsel representing the
Company in those actions, it is the opinion of management that such liability is not expected to have a material
adverse effect on our consolidated results of operations and financial position.
Other Contingencies. The in-orbit satellites of the Company and our subsidiaries are subject to the risk of
failing prematurely due to, among other things, mechanical failure, collision with objects in space or an inability
to maintain proper orbit. Satellites are subject to the risk of launch delay and failure, destruction and damage
while on the ground or during launch and failure to become fully operational once launched. Delays in the
production or launch of a satellite or the complete or partial loss of a satellite, in-orbit or during launch, could
have a material adverse impact on the operation of our businesses. We have, in the past, experienced technical
anomalies on some of our satellites. Service interruptions caused by anomalies, depending on their severity,
could result in claims by affected customers for termination of their transponder agreements, cancellation of
other service contracts or the loss of customers.
We use in-orbit and launch insurance to mitigate the potential financial impact of satellite fleet in-orbit and
launch failures unless the premium costs are considered uneconomic relative to the risk of satellite failure. The
insurance generally covers the unamortized book value of covered satellites and does not compensate for
business interruption or loss of future revenues or customers. We rely on in-orbit spare satellites and excess
satellite transponder capacity at key orbital slots to mitigate the effects of satellite failure on our ability to
provide service. Where insurance costs related to satellite components or systems that have suffered anomalies in
the past are prohibitive, our insurance policies contain coverage exclusions and we are not insured for certain
other satellites. The book value of satellites that were insured with coverage exclusions amounted to $726.0
million and the book value of the satellites that were not insured was $1,182.5 million at December 31, 2003. The
uninsured amount includes the value of five PanAmSat satellites for which policies were not renewed in May
2003.
As part of an arrangement with Telesat, a Canadian telecommunications and broadcast services company,
DIRECTV U.S. agreed to provide Telesat, subject to FCC approval, the use of the DIRECTV 3 satellite, which is
currently used as an in-orbit spare, through the end of its useful life and in return Telesat agreed to allow
DIRECTV U.S. the use of its 72.5 WL Canadian orbital location. This arrangement is contingent upon FCC
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