DIRECTV 2003 Annual Report Download - page 64

THE DIRECTV GROUP, INC.
PanAmSat
On April 9, 2003, Moody’s affirmed its stable outlook and Ba2 senior implied rating of PanAmSat. The
ratings action followed the announcement of the News Corporation transactions.
On April 25, 2003, S&P affirmed its credit ratings for PanAmSat of B+ for long-term corporate credit
rating, BB- for senior secured debt, and B- for senior unsecured notes. At the same time, S&P revised its Credit
Watch implications on PanAmSat from developing to positive. The rating action stemmed from the
announcement of the News Corporation transactions.
On November 25, 2003, S&P raised its ratings on PanAmSat. The corporate credit rating was raised from
B+ to BB, the senior secured rating was raised from BB- to BB and the senior unsecured notes rating was raised
from B- to B+. All ratings remain on CreditWatch with positive implications. The increase in ratings were based
on improving operating and financial performance. The above ratings and outlook were affirmed on December
22, 2003 when the News Corporation transactions were completed. The positive CreditWatch remains, pending
an assessment of PanAmSat’s business plan.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion and the estimated amounts generated from the sensitivity analyses referred to
below include forward-looking statements of market risk which assume for analytical purposes that certain
adverse market conditions may occur. Actual future market conditions may differ materially from such
assumptions because the amounts noted below are the result of analyses used for the purpose of assessing
possible risks and the mitigation thereof. Accordingly, the forward-looking statements should not be considered
projections by us of future events or losses.
General
Our cash flows and earnings are subject to fluctuations resulting from changes in foreign currency exchange
rates, interest rates and changes in the market value of our equity investments. We manage our exposure to these
market risks through internally established policies and procedures and, when deemed appropriate, through the
use of derivative financial instruments. We enter into derivative instruments only to the extent considered
necessary to meet our risk management objectives, and do not enter into derivative contracts for speculative
purposes.
Foreign Currency Risk
We generally conduct our business in U.S. dollars with some business conducted in a variety of foreign
currencies and therefore are exposed to fluctuations in foreign currency exchange rates. Our objective in
managing our exposure to foreign currency changes is to reduce earnings and cash flow volatility associated with
foreign exchange rate fluctuations. Accordingly, we enter into foreign exchange contracts to mitigate risks
associated with foreign currency denominated assets, liabilities, commitments and anticipated foreign currency
transactions. By policy, we maintain coverage between minimum and maximum percentages of our anticipated
foreign exchange exposures. The gains and losses on derivative foreign exchange contracts offset changes in
value of the related exposures. The impact of a hypothetical 10% adverse change in exchange rates on the fair
values of foreign exchange contracts and foreign currency denominated assets and liabilities would be a charge
of $12.7 million, net of taxes, at December 31, 2003.
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