DIRECTV 2004 Annual Report Download - 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 output and greater variety of programming and premium programming packages.
On March 18, 2003, DLA LLC filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in
the U.S. Bankruptcy Court for the District of Delaware. On February 13, 2004, the Bankruptcy Court confirmed DLA LLC’s
Plan of Reorganization, which became effective on February 24, 2004. 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 85.9%. Darlene Investments LLC, or Darlene, one of DLA LLC’s founders, which also contributed its equity
and other interests in various LOCs, holds the remaining approximately 14.1% equity interest in the restructured DLA LLC.
The restructuring in bankruptcy and the contributions by us and Darlene provided DLA LLC with direct control of the most
significant LOCs and assets.
On October 8, 2004, we entered into a series of transactions with News Corporation, Televisa, Globo and Liberty that provide
for the Sky Transactions. The Sky Transactions are designed to strengthen the operating and financial performance of DTVLA
by consolidating the DTH platforms of DTVLA and Sky Latin America into a single platform in each of the major territories
served in the region. Total cash consideration for the equity interests in the Sky Latin America platforms is approximately $580
million, of which we paid $398 million in October 2004. The remainder is subject to adjustment and will be paid at the
completion of the transactions.
In Brazil, DIRECTV Brasil and Sky Brasil have agreed to merge, with DIRECTV Brasil’s customers migrating to the Sky
Brasil platform. In addition, we intend to acquire the interests of News Corporation and Liberty in Sky Brasil upon completion,
acquiring in excess of 70% of the merged platform. The transactions in Brazil are subject to local regulatory approval which has
been requested but not yet granted. We intend to consolidate the operations of Sky Brasil only upon receipt of approval from the
appropriate regulatory bodies. If we do not obtain required regulatory approvals, we may consider selling or shutting down
DIRECTV Brasil with the expectation that following such an alternative transaction, we would be able to obtain regulatory
approval to purchase the interests of News Corporation and Liberty in Sky Brasil.
In Mexico, DTVLA’s local affiliate, DIRECTV Mexico, is in the process of closing its 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, which is expected to occur in late 2005. The amount of equity we expect to receive is impacted by the successful migration
and retention of DIRECTV Mexico’s subscribers to Sky Mexico and is subject to final verification. Upon consummation of
these transactions, we anticipate having an equity interest of approximately 43% in Sky Mexico, which will not be a controlling
interest.
In the rest of the region, we have acquired the interests of News Corporation and Liberty and have agreed to acquire the
interests of Globo and Televisa in Sky Multi-Country Partners and certain related businesses, which own DTH platforms in
Colombia and Chile. DTVLA intends to migrate the Sky Colombia and Sky Chile subscribers to the DTVLA platform in 2005.
However, the transaction in Colombia is subject to local regulatory approval.
Darlene has filed suit alleging fraud, self-dealing and violation of fiduciary, contractual and other duties against us and certain
of our subsidiaries (including DLA LLC), News Corporation and others seeking, among other things, injunctive relief to
preclude DLA LLC from consummating the Sky Transactions. See Item 3, Legal Proceedings for more information regarding
this case.
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