DIRECTV 2004 Annual Report Download

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2004 ANNUAL REPORT
rethink tv

Table of contents

  • Page 1
    rethink tv 2004 ANNUAL REPORT

  • Page 2
    ... first company to deliver television from high-powered satellites and has established itself as a leader in the pay television industry with over 14 million subscribers. DIRECTV intends to extend this leadership position by introducing compelling new programming, products and services. DIRECTV has...

  • Page 3
    ... new features such as interactive statistics, Highlights-On-Demand, an NFL SUNDAY TICKETâ„¢ Game Mix plus a new Red Zone Channel. The DIRECTV Home Media Center will set the standard for the future of home entertainment by providing networked entertainment, DVR and HD service throughout the house...

  • Page 4
    ... operations, net of taxes (0.42) Cumulative effect of accounting changes, net of taxes (0.22) Loss per common share $(1.41) Weighted average number of common shares outstanding (in millions) Capital expenditures As of December 31, Cash and cash equivalents Total current assets Total assets Total...

  • Page 5
    ... on satellite television. As part of this process, we changed the company's name from Hughes Electronics to The DIRECTV Group, and we generated more than $3 billion in cash by selling non-core businesses and investments, such as PanAmSat Corporation and the set-top box manufacturing operations of...

  • Page 6
    ... 23 million homes that can now receive local channels. We also significantly improved our international programming lineup. We achieved record customer growth for DIRECTV PARA TODOS®, our Spanish-language platform, by offering new and exclusive channels as well as better packaging options. We also...

  • Page 7
    ...be accessible from every networked TV in the house. Through a broadband connection, the DIRECTV Home Media Center will support personal computer connectivity, scheduling of DVR recordings from the Internet, photos from wireless phones, video-on-demand and many other features. Transcending this great...

  • Page 8
    ... changed the way people access entertainment and information. The future we envision presents a great challenge to touch the lives of our customers in a way that no other pay television service can rival. Rupert Murdoch Chairman of the Board The DIRECTV Group, Inc. Chase Carey President...

  • Page 9
    ... in Exchange Act Rule 12b-2). Yes  Noï,¨ As of June 30, 2004, the aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates was $15,639,586,966. This amount excludes Fox Entertainment Group, Inc.'s 34% ownership interest in our outstanding common stock...

  • Page 10
    ... cable-affiliated programming and changes impacting that access could materially adversely affect us; regulatory carriage requirements may negatively affect DIRECTV U.S.' ability to deliver local broadcast stations, as well as other aspects of its business; loss of Federal Communications Commission...

  • Page 11
    ...risks described from time to time in periodic reports filed by us with the Securities and Exchange Commission, or SEC. We urge you to consider these factors carefully in evaluating forward-looking statements. The forward-looking statements included in this Annual Report are made only as of the date...

  • Page 12
    ..., Fox Entertainment Group, Inc., or Fox. As a result of these transactions, we became a publicly-traded company. In February 2004, we announced our intent to restructure our company to focus on the direct-to-home, or DTH, satellite businesses. On March 16, 2004, we changed our corporate name from...

  • Page 13
    ... local operating companies, or LOCs, selling the DIRECTV service to subscribers in Latin America. On October 8, 2004, we entered into a series of transactions with News Corporation, Grupo Televisa, S.A., or Televisa, Globo Comunicacoes e Participacoes S.A., or Globo, and Liberty Media International...

  • Page 14
    ... satellite dish antenna, a digital set-top receiver and a remote control, which is referred to as a DIRECTV® System. After acquiring and installing a DIRECTV System, customers activate DIRECTV U.S.' service by calling DIRECTV U.S. and subscribing to one of DIRECTV U.S.' programming packages...

  • Page 15
    ... will offer services such as local weather information, financial market summaries and other interactive services. DIRECTV U.S. also plans to add Mix Channels and interactive services to the NFL SUNDAY TICKET package and it is developing services that will use the digital video recorder, or DVR, to...

  • Page 16
    ... or enhanced features and functionality to market more quickly. • Enhance Digital Video Recorders. A cornerstone of DIRECTV U.S.' strategy is to use set-top receivers that incorporate DVR technology. These products digitally record television programs without videotape and allow customers to...

  • Page 17
    ... to seek out and prosecute signal thieves with its own internal efforts and with the support of local, state and federal law enforcement agencies. • Enhanced Sales and Marketing, Customer Service and Distribution. DIRECTV U.S. also intends to drive subscriber growth by continuing to expand...

  • Page 18
    ... provide DIRECTV U.S. with increased capability for local and national highdefinition channels, as well as capacity for new interactive and enhanced services and standard-definition programming. Once launched, these satellites will operate from our Ka-band orbital locations. In addition, DIRECTV 12S...

  • Page 19
    ... 101 WL to customers located primarily in rural areas of the United States. The NRTC separately contracted with its members and affiliates, including Pegasus Satellite Television, Inc., or Pegasus, to provide them with rights to market and sell these services. The NRTC paid DIRECTV U.S. a fee on the...

  • Page 20
    ... such as digital cable, high-definition local channels, broadband Internet access and telephony services. Cable companies bundle these services with their basic services, offering discounts and providing one bill to the consumer. • Other DBS and Direct-To-Home Satellite System Operators. DIRECTV...

  • Page 21
    ...wireless cable systems, private cable or satellite master antenna television systems, and video services currently offer or could offer in the future MVPD and program distribution technologies in competition with DIRECTV U.S. • VHF/UHF Broadcasters. Most areas of the U.S. can receive traditional...

  • Page 22
    THE DIRECTV GROUP, INC. upfront installation and connection fees than DTH satellite pay television providers. Subscribers to satellite pay television services, such as DTVLA's, also generally pay higher monthly programming fees due to a greater number of channels, higher quality video and audio ...

  • Page 23
    ... carrier networks, as well as the portion of the SPACEWAY satellite platform that is under development and that will not be used for DIRECTV U.S.' DTH business. In June 2004, we completed the sale of HNS' set-top receiver manufacturing operations to Thomson for $250.0 million in cash. In connection...

  • Page 24
    ...a variety of Communications Act requirements, FCC regulations and copyright laws that could materially affect our business. They include the following: • Local-into-Local Service and Limitation on Retransmission of Distant Broadcast Television Signals. The Satellite Home Viewer Improvement Act, or...

  • Page 25
    ... be used for new or additional national programming services. • Public Interest Requirement. Under a requirement of the Communications Act, the FCC has imposed certain public interest obligations on DBS operators, including a requirement that such providers set aside four percent of channel...

  • Page 26
    .... The FCC has adopted rules to allow non-geostationary orbit fixed satellite services to operate on a coprimary basis in the same frequency band as the one used by direct broadcast satellite and Ku-band-based fixed satellite services. In the same proceeding, the FCC concluded that MVDDS can share...

  • Page 27
    ...such as Federal Trade Commission and FCC telemarketing rules and subscriber privacy rules similar to those governing other MVPDs. In addition, although Congress has granted the FCC exclusive jurisdiction over the provision of DTH satellite services, aspects of DBS/DTH service remain regulated at the...

  • Page 28
    ... are good. None of our employees are represented by labor unions. ACCESS TO COMPANY REPORTS Our website address is www.directv.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished, if any, pursuant...

  • Page 29
    ... doing business as Direct Satellite TV, an independent retailer of DIRECTV System equipment, instituted arbitration proceedings against DIRECTV U.S. in Los Angeles, California regarding commissions and certain chargeback disputes. On October 4, 2001, Mr. Garcia filed a class action complaint against...

  • Page 30
    ... DCMA on the Boeing transaction. On September 3, 2004, we filed a complaint in the U.S. Court of Federal Claims, The DIRECTV Group, Inc. v. United States, Case No. 04-1414C, seeking a determination that we have no liability for any segment claims adjustment in connection with the Raytheon and Boeing...

  • Page 31
    ... years, and the Sky Transactions were negotiated in a manner and yielded a result that was unfair to DLA LLC and its members. Darlene further alleges that we entered into an oral put agreement which would have required DLA LLC to acquire Darlene's interest in DLA LLC based on a specific pricing...

  • Page 32
    THE DIRECTV GROUP, INC. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is publicly traded on the NYSE under the symbol "DTV." The following table sets forth for the quarters indicated the high and low sales prices for our common stock, ...

  • Page 33
    ... to Common Stockholders Consolidated Balance Sheet Data: Total assets Long-term debt Preferred stock Total stockholders' equity Basic and Diluted Loss Per Common Share: Loss from continuing operations before cumulative effect of accounting changes Weighted average number of common shares outstanding...

  • Page 34
    ... sale Subscriber service expenses Subscriber acquisition costs: Third party customer acquisitions Direct customer acquisitions Upgrade and retention costs Broadcast operations expenses General and administrative expenses Asset impairment charges Depreciation and amortization expense Total Operating...

  • Page 35
    ... performance to other communications, entertainment and media service providers. We believe that investors use current and projected Operating Profit (Loss) Before Depreciation and Amortization and similar measures to estimate our current or prospective enterprise value and make investment decisions...

  • Page 36
    ... DIRECTV Latin America Revenues % of Total Revenues Operating Loss Add: Depreciation and Amortization Operating Profit (Loss) Before Depreciation and Amortization Operating Profit Before Depreciation and Amortization Margin Segment Assets Capital Expenditures Network Systems Revenues % of Total...

  • Page 37
    ...31, 2004, the Sky Latin America businesses had approximately 1.9 million total subscribers. Divestitures • During the first quarter of 2004, we sold our investment in XM Satellite Radio common stock for $477.5 million in cash. • On June 22, 2004, we completed the sale of HNS' set-top receiver...

  • Page 38
    ... and has sold its subscriber list to Sky Mexico. As a result, we recorded a pre-tax charge of $36.5 million in "Asset impairment charges" in the Consolidated Statements of Operations in the fourth quarter of 2004 to write-down certain of DIRECTV Mexico's long-lived assets to their fair values. As...

  • Page 39
    ... January 1, 2004, DIRECTV U.S. changed its method of accounting for subscriber acquisition, upgrade and retention costs. Previously, DIRECTV U.S. deferred a portion of these costs, equal to the amount of profit to be earned from the subscriber, typically over the 12 month subscriber contract, and...

  • Page 40
    .... For us, the News Corporation transactions represented an exchange of equity interests by investors. As such, we continued to account for our assets and liabilities at historical cost and did not apply purchase accounting. We recorded the $275.0 million special cash dividend payment to GM as...

  • Page 41
    ... efforts for existing subscribers that we believe will result in higher ARPU and lower churn. Our upgrade efforts include our DVR, high-definition (HD) and local channel upgrade programs, our multiple set-top receiver offer and similar initiatives. Retention costs include the costs of installing and...

  • Page 42
    ... four satellites will provide DIRECTV U.S. with increased capability for local and national high-definition channels, as well as capacity for new interactive and enhanced services and standard-definition programming. Once launched, these satellites will operate from our Ka-band orbital locations. In...

  • Page 43
    ...satellites and broadcast equipment to support the launch of new local and HDTV channels, to replace existing satellites and to provide backup for existing satellites. 2004 Compared To 2003 Consolidated Results of Operations Revenues. The following table presents our revenues by segment: Change 2004...

  • Page 44
    THE DIRECTV GROUP, INC. The increase in our total operating costs and expenses was primarily due to the $2,505.2 million increase at the DIRECTV U.S. segment primarily related to higher costs for subscriber acquisitions, customer upgrade and retention initiatives, programming, subscriber service ...

  • Page 45
    ... weighted average from the dates DIRECTV U.S. acquired the subscribers through December 31, 2004. Average Monthly Subscriber Churn. Average monthly subscriber churn represents the number of DIRECTV subscribers whose service is disconnected, expressed as a percentage of the average total number of...

  • Page 46
    ... a higher number of subscribers acquired in local channel markets, more attractive consumer promotions, and an improved and more diverse distribution network. After accounting for churn, DIRECTV U.S. added 1.8 million net new owned and operated subscribers, or 1.7 million total subscribers including...

  • Page 47
    ...to new subscribers, which rose from an average of about 2.1 set-top receivers per new subscriber during 2003 to about 2.5 during 2004, an increase in the number of subscribers purchasing DVRs and the change in DIRECTV U.S.' method of accounting for subscriber acquisition, upgrade and retention costs...

  • Page 48
    ... of key subscriber data for the DIRECTV Latin America segment: Change 2004 2003 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues Operating Profit (Loss) Before Depreciation & Amortization Operating Loss Total number of subscribers (000's) Net subscriber additions (losses) (000...

  • Page 49
    ... the $131.0 million increase at the Network Systems segment primarily from the higher sales in its set-top receiver and DIRECWAY satellite broadband businesses. These increases in revenues were partially offset by the $81.9 million decrease in revenues at the DIRECTV Latin America segment, which was...

  • Page 50
    ... increase at the DIRECTV U.S. segment resulting from higher programming costs associated with the increase in subscribers, annual program supplier rate increases, the launch of additional local channels during 2003, partially offset by the decrease of $212.4 million at the DIRECTV Latin America...

  • Page 51
    ... The $92.8 million loss on sale of discontinued operations, net of taxes, in 2002 is related to a charge recorded for the shutdown of DIRECTV Broadband. Cumulative Effect of Accounting Changes. As a result of our adoption of FIN 46, we began consolidating the Venezuelan and Puerto Rican LOCs on July...

  • Page 52
    ... to its continued strong customer service, the increased number of markets with local channels resulting in a higher number of subscribers purchasing local channel programming, as well as an increase in the number of DIRECTV subscribers with multiple set-top receivers and DVRs. Revenues. The $1,251...

  • Page 53
    ... service programming due to an increased number of subscribers, annual program supplier rate increases, the launch of additional local and other channels during 2003 and increased costs associated with DIRECTV U.S.' new NFL SUNDAY TICKET contract. Higher subscriber additions and an increase...

  • Page 54
    ...News Corporation transactions and a $95.0 million net gain recorded in 2002 for the NASA claim, partially offset by the $23.0 million loss recorded in connection with the termination of the AOL alliance in 2002. LIQUIDITY AND CAPITAL RESOURCES In 2004, our cash and cash equivalents balance increased...

  • Page 55
    ... DIRECTV GROUP, INC. XM Satellite Radio shares; $250.0 million for the execution of the supply and development contract and sale of HNS' set-top receiver manufacturing operations to Thomson and $226.5 million for the sale of HSS. These sources of cash were partially offset by: $1.02 billion of cash...

  • Page 56
    THE DIRECTV GROUP, INC. We are a publicly-traded company with our common stock listed as "DTV" on the NYSE. As part of the News Corporation transactions completed on December 22, 2003, our certificate of incorporation was amended to provide for the following capital stock: common stock, par value ...

  • Page 57
    ...cost of multi-year programming contracts for live sporting events with minimum guarantee payments, such as DIRECTV U.S.' agreement with the NFL, to expense based on the ratio of each period's contract revenues to the estimated total contract revenues to be earned over the contract period. Management...

  • Page 58
    ... value. In that event, we recognize a loss based on the amount by which the carrying value exceeds the fair value of the long-lived asset. We determine fair value primarily using the estimated future cash flows associated with the asset under review, discounted at a rate commensurate with the risk...

  • Page 59
    ... purchase requirement. DIRECTV U.S. bases its probability assessment for meeting the minimum purchase requirement on its current and future business projections, including its belief that existing and new subscribers will likely acquire new set-top receivers due to certain technological advances...

  • Page 60
    ... this new method: 2004 2003 2002 (Dollars in Millions, Except Per Share and Per Subscriber Amounts) Pro Forma: Total operating costs and expenses Operating loss Net loss attributable to common stockholders Basic and diluted net loss per common share Other Data: Operating loss Add: Depreciation...

  • Page 61
    ... operating performance under new management and increased focus on the core satellite paytelevision business. Moody's did note concern in its ratings action that further ratings improvement may be constrained by the competitive environment. On August 9, 2004, S&P affirmed its ratings on DIRECTV...

  • Page 62
    ... investments in publicly-traded common stock of unaffiliated companies and are therefore subject to equity price risk. These investments are classified as available-for-sale and, consequently, are reflected in our Consolidated Balance Sheets at fair value with unrealized gains or losses, net of...

  • Page 63
    ... 1, 2004, The DIRECTV Group, Inc. changed its method of accounting for subscriber acquisition, upgrade and retention costs. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control...

  • Page 64
    ... costs of sale Subscriber service expenses Subscriber acquisition costs: Third party customer acquisitions Direct customer acquisitions Upgrade and retention costs Broadcast operations expenses General and administrative expenses Asset impairment charges Depreciation and amortization Total Operating...

  • Page 65
    ... DIRECTV GROUP, INC. CONSOLIDATED BALANCE SHEETS December 31, 2004 2003 (Dollars in Millions, Except Share Data) ASSETS Current Assets Cash and cash equivalents Accounts and notes receivable, net of allowances of $121.7 and $112.7 Inventories, net Prepaid expenses and other Assets of businesses...

  • Page 66
    ... during the period Comprehensive loss Balance at December 31, 2002 Net Loss Conversion of Series B Convertible Preferred Stock into Class B common stock and common stock split Adjustment to GM stock holdings in connection with the News Corporation transactions Special cash dividend paid to General...

  • Page 67
    ... gain from sale of investments Net unrealized (gain) loss on investments Stock-based compensation expense Net gain on exit of DIRECTV Japan business Loss on disposal of assets Deferred income taxes and other Accounts receivable credited against Pegasus purchase price Change in other operating assets...

  • Page 68
    ...Business We are a leading provider of digital television entertainment in the United States and Latin America. On March 16, 2004, we changed our corporate name from Hughes Electronics Corporation to The DIRECTV Group, Inc. Effective on March 17, 2004, our ticker symbol on the New York Stock Exchange...

  • Page 69
    ..., Fox Entertainment Group, Inc. For us, the transactions represented an exchange of equity interests by investors. As such, we continue to account for our assets and liabilities at historical cost and did not apply purchase accounting. We recorded the $275 million special cash dividend payment to GM...

  • Page 70
    ... sales as services are rendered or products are shipped. We recognize DTH subscription and pay-perview revenues when programming is broadcast to subscribers. We recognize subscriber fees for multiple set-top receivers, DIRECTV- The Guide, warranty services and equipment rental as revenue, monthly...

  • Page 71
    ...the change in accounting method. Third party customer acquisition costs represent direct costs we incur to acquire new DIRECTV subscribers through third parties, which include our national retailers as well as independent satellite television retailers, dealers, regional Bell operating companies and...

  • Page 72
    ... multiple set-top receiver offers, DVR (digital video recorder) and local channel upgrade programs and other similar initiatives, and third party commissions we incur for the sale of additional set-top receivers to existing subscribers. Effective January 1, 2004, we changed our method of accounting...

  • Page 73
    ... year, using the present value of expected future cash flows and other techniques for determining fair value. Changes in estimates of future cash flows or changes in market values could result in a write-down of the asset in a future period. If an impairment loss results from the annual impairment...

  • Page 74
    ... market prices. We use derivative contracts to minimize the financial impact of changes in the fair value of recognized assets, liabilities and unrecognized firm commitments, or the variability of cash flows associated with forecasted transactions in accordance with internal risk management policies...

  • Page 75
    ... value based method had been applied to all outstanding and unvested stock options and restricted stock units for the years ended December 31: 2004 2003 2002 (Dollars in Millions, Except Per Share Amounts) Reported loss from continuing operations before cumulative effect of accounting changes Add...

  • Page 76
    ... Effective January 1, 2004, we changed our method of accounting for subscriber acquisition, upgrade and retention costs. Previously, we deferred a portion of these costs, equal to the amount of profit to be earned from the subscriber, typically over the 12 month subscriber contract, and amortized to...

  • Page 77
    ...accounting for subscriber acquisition, upgrade and retention costs had been applied retroactively: 2004 2003 2002 (Dollars in Millions, Except Per Share Amounts) Reported loss from continuing operations before cumulative effect of accounting changes Reported basic and diluted loss per common share...

  • Page 78
    ...we recorded a charge to "Cumulative effect of accounting changes, net of taxes," of $681.3 million ($755.7 million pre-tax) as of January 1, 2002 in the Consolidated Statements of Operations. New Accounting Standards In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment...

  • Page 79
    ... operations and has sold its subscriber list to Sky Mexico. In addition, we will acquire the interest of News Corporation and, jointly with Televisa, the interest of Liberty in Sky Mexico. We will receive up to a 15% equity interest in Sky Mexico as consideration for DIRECTV Mexico's subscriber list...

  • Page 80
    ... of subscriber accounts receivable, of Pegasus for a total purchase price of $987.9 million. The total cash consideration DIRECTV U.S. paid to Pegasus amounted to $773.0 million, which is the total purchase price net of amounts owed by Pegasus for programming and other services, and a May 2004 $63...

  • Page 81
    ...retain a 50% interest in the new company and receive $251 million in cash, which is subject to closing adjustments, and 300,000 shares of SkyTerra common stock. Under the terms of this transaction, SkyTerra will be responsible for the day-to-day management of the new company. We recognized a pre-tax...

  • Page 82
    ... credits Minority interests Total liabilities $ 938.4 2,362.5 2,748.6 6,291.1 155.8 1,696.5 273.3 540.6 3,092.1 Hughes Software Systems During 2004, HNS completed the sale of its approximately 55% ownership interest in HSS to Flextronics for $226.5 million in cash, which we received on June 11...

  • Page 83
    ..., DIRECTV Broadband reported a $88.9 million loss from discontinued operations, net of taxes. Satellite Systems Manufacturing Businesses Pursuant to a settlement agreement executed on July 15, 2003 related to the purchase price adjustment dispute arising from the 2000 sale of our satellite systems...

  • Page 84
    ... As part of our sale of HNS' set-top receiver manufacturing operations to Thomson for $250 million in cash in June 2004, DIRECTV U.S. entered into a long-term purchase agreement, or the Agreement, with Thomson for the supply of set-top receivers. The proceeds in excess of the book value of the HNS...

  • Page 85
    ...of 75 months at the option of HNS. The redemption is guaranteed in the form of a put to TTSL's parent company, Tata Sons. The preference shares are carried at fair value as an available-for-sale security, with unrealized gains and losses reported net of tax, as a component of OCI. In connection with...

  • Page 86
    ... of 2004 to write-down HNS' long-lived assets to their fair values based on the agreed upon sales price. DIRECTV Mexico As part of the Sky Transactions discussed above, DIRECTV Mexico is in the process of closing its operations and has sold its subscriber list to Sky Mexico. As a result, we recorded...

  • Page 87
    ... Statements of Operations in the third quarter of 2004. Note 6: Goodwill and Intangible Assets The changes in the carrying amounts of goodwill by reporting unit for the years ended December 31, 2004 and 2003 were as follows: DIRECTV Lati n America DIRECTV U.S. Network Systems Total (Dollars in...

  • Page 88
    ... stated at current fair value and classified as available-for-sale were as follows: December 31, 2004 2003 (Dollars in Millions) Marketable equity securities Marketable debt securities Total $ 60.2 112.9 $ 173.1 $ 486.9 108.6 $ 595.5 At December 31, 2004 and 2003, we recorded $22.0 million...

  • Page 89
    ... of the PanAmericana entities and a provision for long-term programming contracts with above-market rates of $86.1 million, established as part of the USSB and PRIMESTAR acquisitions in 1999, which totaled $859.0 million at December 31, 2004. Included in "Other Liabilities and Deferred Credits" at...

  • Page 90
    ..., 2003 based on quoted market prices on those dates. Credit Facilities. DIRECTV U.S.' senior secured credit facilities consist of a Term Loan and a $250.0 million revolving credit facility, which was undrawn at December 31, 2004. DIRECTV U.S. is required to pay a commitment fee of 0.50% per year on...

  • Page 91
    ...' obligations are satisfied or terminated. Note 10: Income Taxes We base the income tax benefit on the reported "Loss From Continuing Operations Before Income Taxes, Minority Interests and Cumulative Effect of Accounting Changes." Deferred income tax assets and liabilities reflect the impact of...

  • Page 92
    THE DIRECTV GROUP, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued) The income tax benefit was different than the amount computed using the U.S. federal statutory income tax rate for the reasons set forth in the following table: 2004 2003 2002 (Dollars in Millions) Expected ...

  • Page 93
    ... as the common parent of a separate affiliated group of corporations filing a consolidated return. GM will compensate us for any tax benefits, such as net operating loss and tax credit carryforwards that have not been used to offset our separate income tax liability through the date of our split...

  • Page 94
    ... tax returns have been examined and we have concluded our administrative appeals process with the Internal Revenue Service, or IRS, for all tax years through 1997. The IRS is currently examining our U.S. federal tax returns for years 1998 through 2000. We are also being examined by or expect to be...

  • Page 95
    ... in the Consolidated Balance Sheets, are shown below for the years ended December 31: Pension Benefits Other Postretirement Benefits 2004 2004 2003 2003 (Dollars in Millions) Change in Benefit Obligation Net benefit obligation at beginning of year Service cost Interest cost Plan participants...

  • Page 96
    ... 31: Pension Benefits Other Postretirement Benefits 2004 2003 2004 2003 Discount rate Rate of compensation increase 6.00% 4.00% 6.14% 4.50% 5.75% 4.00% 5.89 % 4.50 % Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31: Pension Benefits...

  • Page 97
    ... used in the review and modeling and are based on comprehensive reviews of historical data and economic/financial market theory. The following table provides assumed health care costs trend rates: 2004 2003 Health care cost trend rate assumed for next year Rate to which the cost trend rate...

  • Page 98
    ...a publicly-traded company with our common stock listed as "DTV" on the New York Stock Exchange. As part of the News Corporation transactions completed on December 22, 2003, we amended our certificate of incorporation to provide for the following capital stock: common stock, par value $0.01 per share...

  • Page 99
    ...employee benefit plans to approximately 331 million shares, and reduced GM's interest in us to approximately 19.9% from 30.7%. During April 2003, our Board of Directors approved the reclassification of the outstanding Series B convertible preferred stock into Class B common stock of equivalent value...

  • Page 100
    ... (Loss) Per Common Share, or EPS, by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Income (loss) from continuing operations before cumulative effect of accounting changes attributable to common stockholders...

  • Page 101
    ... of the stock of the Company). The following table sets forth comparative information regarding common shares outstanding based on the number of our common shares outstanding beginning on December 23, 2003 and the number of shares in the GM Class H Dividend Base prior to December 23, 2003: 2004 2003...

  • Page 102
    ... valuation model along with the assumptions used in the fair value calculations: 2004 2003 2002 Estimated fair value per option granted Average exercise price per option granted Expected stock volatility Risk-free interest rate Expected option life (in years) $ 5.82 18.80 30.0% 3.7% 5.6 $ 8.80 16...

  • Page 103
    ... from sale of investments Net gain on exit of DIRECTV Japan business (Note 3) Other Total Other, net $ (0.2 ) - - 396.5 - 1.3 $ 397.6 $ (81.5) - 79.4 7.5 - (5.4) $ - $ (70.1) 600.0 (180.6) 84.1 41.1 (49.0) $ 425.5 On January 28, 2004, we sold 10,000,000 shares of XM Satellite Radio common stock...

  • Page 104
    ... agreed to purchase News Corporation's interests in the Sky Latin America businesses for cash payments totaling $500.5 million, of which we paid $342.5 million during the fourth quarter of 2004. During 2004, we have also recorded stock-based compensation cost associated with former employees of News...

  • Page 105
    ... Also, effective February 24, 2004, we made a contribution of certain claims, loans, equity and other interests in LOCs selling the DIRECTV service in Latin America, and converted certain debt into equity, which increased our equity interest in the restructured DLA LLC from 74.7% to approximately 85...

  • Page 106
    ... satellite-based private business networks and broadband Internet access. Eliminations and other includes the corporate office and other entities. Beginning in the third quarter of 2004, we disaggregated the Direct-To-Home Broadcast segment, which included the DIRECTV U.S. and DIRECTV Latin America...

  • Page 107
    ... to the current period presentation. Selected information for our operating segments is reported as follows: Network Systems Eliminations and Other DIRECTV U. S. DIRECTV Latin America Total (Dollars in Millions) 2004 External Revenues Intersegment Revenues Revenues Operating Profit (Loss) Add...

  • Page 108
    ... performance to other communications, entertainment and media service providers. We believe that investors use current and projected Operating Profit (Loss) Before Depreciation and Amortization and similar measures to estimate our current or prospective enterprise value and make investment decisions...

  • Page 109
    ... areas. Property is grouped by its physical location. Years Ended and As of December 31, 2004 2003 2002 Revenues Net Property & Satellites Revenues Net Property & Satellites Revenues Net Property & Satellites (Dollars in Millions) North America United States Canada and Mexico Total...

  • Page 110
    ... Marketing Agreement. This judgment was stayed under applicable bankruptcy law, and Pegasus also had filed various claims in the bankruptcy proceeding against DIRECTV U.S., us and the NRTC. As part of the purchase price paid by DIRECTV U.S. in the transactions with Pegasus, DIRECTV U.S. received...

  • Page 111
    ... under noncancelable satellite construction and launch contracts, programming agreements, manufacturer subsidies agreements, TT&C services agreements, billing system agreements, customer call center maintenance agreements and other vendor obligations. As of December 31, 2004, minimum payments over...

  • Page 112
    ... "Income (loss) from continuing operations before income taxes, minority interests and cumulative effect of accounting change" are the following: for the first quarter of 2004 is a $387.1 million gain related to the sale of approximately 19 million shares of XM Satellite Radio common stock; for the...

  • Page 113
    ...the Exchange Act). Based on the evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2004. There has been no change in our internal control over financial reporting (as defined in Rules...

  • Page 114
    ... DIRECTV Group, Inc. ("the Company") maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management...

  • Page 115
    THE DIRECTV GROUP, INC. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2004 of the Company and our report dated ...

  • Page 116
    ... as filed by The DIRECTV Group, Inc. with the Securities and Exchange Commission on April 22, 2004) Stock Purchase Agreement between The Boeing Company, Hughes Electronics Corporation and Hughes Telecommunications and Space Company for the purchase and sale of the outstanding capital stock of...

  • Page 117
    ...the Annual Report on Form 10-K of The DIRECTV Group, Inc. for the year ended December 31, 2003 (the "2003 Form 10-K")) Indenture, dated as of February 28, 2003, by and among DIRECTV Holdings LLC and DIRECTV Financing Co., Inc., as Issuers, DIRECTV, Inc., USSB II, Inc., DIRECTV Customer Services, Inc...

  • Page 118
    Form 10-Q) 108

  • Page 119
    ...Group, Inc., as filed with the Securities and Exchange Commission on September 30, 2004) Second Amended and Restated Limited Liability Company Agreement of DIRECTV Latin America, LLC (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Hughes Electronics Corporation...

  • Page 120
    ... 10.1 to the Current Report on Form 8-K of The DIRECTV Group, Inc., as filed with the Securities and Exchange Commission on June 3, 2004) Asset Purchase Agreement, dated as of July 30, 2004, by and among Pegasus Satellite Television, Inc., Golden Sky Systems, Inc., and each other entity listed as...

  • Page 121
    ...es S.A., The News Corporation Limited, The DIRECTV Group, Inc., DIRECTV Latin America, LLC and GLA Brasil Ltda. (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8K of The DIRECTV Group, Inc., as filed with the Securities and Exchange Commission on October 15, 2004 (the...

  • Page 122
    ... Network Systems, Inc., SkyTerra Communications, Inc. and Hughes Network Systems, LLC (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of The DIRECTV Group, Inc., dated December 3, 2004) Terms and Conditions of restricted stock unit awards to independent directors...

  • Page 123
    ... Corporation Retention Bonus Plan, effective July 1, 2001 (incorporated by reference to Exhibit 10.32 to the June 5, 2003 Form S-4) Hypothecation Agreement, Exhibit H to the Credit Agreement, dated as of March 6, 2003, among DIRECTV Holdings LLC, various lenders, Deutsche Bank Trust Company Americas...

  • Page 124
    ...10.5 to the Form 10-Q of DIRECTV Holdings LLC for the quarter ended September 30, 2003). Hughes Electronics Corporation Code of Ethics and Business Conduct, adopted January 28, 2004 (incorporated herein by reference to Exhibit 14 to the Annual Report on Form 10-K for the year ended December 31, 2003...

  • Page 125
    THE DIRECTV GROUP, INC Confidential treatment received for certain portions of this exhibit pursuant to Rule 406 promulgated under the Securities Act. Management contract or compensatory plan or arrangement. A copy of any of the exhibits included in this Annual Report on Form 10-K, other than ...

  • Page 126
    THE DIRECTV GROUP, INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT CONDENSED STATEMENTS OF OPERATIONS (Parent Company Only) Years Ended December 31, 2004 2003 2002 (Dollars in Millions) Operating Costs and Expenses General and administrative expenses Total operating costs ...

  • Page 127
    THE DIRECTV GROUP, INC. SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT - (continued) CONDENSED STATEMENTS OF CASH FLOWS (Parent Company Only) Years Ended December 31, 2004 2003 2002 (Dollars in Millions) Cash Flows from Operating Activities Net Cash Provided by (Used in) Operating...

  • Page 128
    ... or advances. In the parent company only financial statements, we state our investment in subsidiaries at cost, net of equity in earnings (losses) of subsidiaries, since the date of formation/acquisition. As a result, we include our interest in the net assets of DIRECTV Holdings LLC, which total...

  • Page 129
    ... to costs and expenses Additions charged to other accounts Deductions Balance at end of year For the Year Ended December 31, 2004 Allowances Deducted from Assets Accounts and notes receivable (for doubtful receivables) Inventories (principally for obsolescence of service parts) Total Allowances...

  • Page 130
    ... duly authorized. THE DIRECTV GROUP, INC. (Registrant) Date: February 28, 2005 By: /S/ BRUCE B. CHURCHILL Bruce B. Churchill (Executive Vice President and Chief Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 28th day...

  • Page 131
    ...the Annual Report on Form 10-K of The DIRECTV Group, Inc. for the year ended December 31, 2003 (the "2003 Form 10-K")) Indenture, dated as of February 28, 2003, by and among DIRECTV Holdings LLC and DIRECTV Financing Co., Inc., as Issuers, DIRECTV, Inc., USSB II, Inc., DIRECTV Customer Services, Inc...

  • Page 132
    ...Group, Inc., as filed with the Securities and Exchange Commission on September 30, 2004) Second Amended and Restated Limited Liability Company Agreement of DIRECTV Latin America, LLC (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Hughes Electronics Corporation...

  • Page 133
    ... S.A., The News Corporation Limited, The DIRECTV Group, Inc., DIRECTV Latin America, LLC and GLA Brasil Ltda. (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of The DIRECTV Group, Inc., as filed with the Securities and Exchange Commission on October 15, 2004 (the...

  • Page 134
    ... Network Systems, Inc., SkyTerra Communications, Inc. and Hughes Network Systems, LLC (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of The DIRECTV Group, Inc., dated December 3, 2004) Terms and Conditions of restricted stock unit awards to independent directors...

  • Page 135
    ...10.5 to the Form 10-Q of DIRECTV Holdings LLC for the quarter ended September 30, 2003). Hughes Electronics Corporation Code of Ethics and Business Conduct, adopted January 28, 2004 (incorporated herein by reference to Exhibit 14 to the Annual Report on Form 10-K for the year ended December 31, 2003...

  • Page 136
    Company Information Board of Directors Neil R. Austrian Interim Chairman and Chief Executive Officer, Office Depot, Inc. Private Investor Chairman, Nominating and Corporate Governance Committee Ralph F. Boyd, Jr. Executive Vice President and General Counsel, Federal Home Loan Mortgage Corporation ...

  • Page 137
    ©2005 DIRECTV, Inc. DIRECTV and the Cyclone Design logo, WorldDirect, DIRECTV PARA TODOS and DIRECTV Active are trademarks of DIRECTV, Inc. All other trademarks and service marks are the property of their respective owners. 04/05 22536CFIR SKU#4006-AR-05