DIRECTV 2004 Annual Report Download - page 106

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued)
independent third party appraisal of DLA LLC indicated a valuation in excess of approximately $1.6 billion, then we could be
obligated to cooperate with attempts by Darlene to sell all of DLA LLC, conduct an initial public offering of the equity of DLA
LLC or exercise our call rights, which would cost approximately $400 million. These rights are subject to many conditions and
requirements, which are described in more detail in the DLA LLC Agreement. In a lawsuit filed in October 2004 by Darlene
against us and others, Darlene asserts, among other claims, that it was fraudulently induced to enter into the DLA LLC
Agreement and that the Sky Deal is prohibited by the DLA LLC Agreement. For further information, see Note 21.
Note 19: Derivative Financial Instruments and Risk Management
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. As of December 31, 2004, we had no significant foreign currency or
interest related derivative financial instruments outstanding.
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 may
enter into foreign exchange contracts to mitigate risks associated with foreign currency denominated assets, liabilities,
commitments and anticipated foreign currency transactions. The gains and losses on derivative foreign exchange contracts
offset changes in value of the related exposures.
We are exposed to interest rate changes from our outstanding fixed rate and floating rate borrowings. We manage our fixed to
floating rate debt mix to mitigate the impact of adverse changes in interest rates on earnings and cash flows and on the market
value of our borrowings. In accordance with policy, from time to time we may enter into interest rate hedging contracts which
effectively convert floating rate borrowings to fixed rate borrowings, or fixed rate borrowings to floating rate borrowings.
We are exposed to credit risk in the event of non-performance by the counterparties to our derivative financial instrument
contracts. While we believe this risk is remote, credit risk is managed through the periodic monitoring and approval of
financially sound counterparties.
Note 20: Segment Reporting
Our three business segments, which are differentiated by their products and services as well as geographic location, are
DIRECTV U.S. and DIRECTV Latin America, which are engaged in acquiring, promoting, selling and/or distributing digital
entertainment programming via satellite to residential and commercial customers, and the Network Systems segment, which is a
provider of 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 businesses. We now report the DIRECTV U.S. and DIRECTV Latin America
businesses as separate segments as provided by SFAS No. 131, “Disclosures about Segments of an Enterprise and Related
Information.”
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