DIRECTV 2004 Annual Report Download - 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 expenses, and higher general and administrative expenses discussed more fully below and the $1.693 billion
in asset impairment charges primarily related to SPACEWAY and the SkyTerra transaction at the Network Systems segment
discussed more fully above in “Strategic Developments.”
Interest Income and Expense. Interest income increased to $50.6 million in 2004 compared to $28.4 million in 2003. Interest
expense decreased to $131.9 million in 2004 from $156.3 million in 2003. The increase in interest income is due to an increase
in average cash balances and the $11.2 million in interest income received as part of the judgment against Pegasus. The
decrease in interest expense resulted primarily from lower interest on DIRECTV U.S.’ credit facilities resulting from a reduced
interest rate and lower outstanding borrowings. Interest expense is net of capitalized interest of $101.2 million and $120.0
million in 2004 and 2003, respectively.
Reorganization Expense. Reorganization income was $43.0 million in 2004 compared to reorganization expense of $212.3
million in 2003. The reorganization income in 2004 includes a $62.6 million gain as a result of the settlement of certain
obligations in connection with the confirmation of the Reorganization Plan, partially offset by costs incurred to file the
bankruptcy petition, legal and consulting costs and other charges related to the DLA LLC reorganization. Reorganization
expense of $212.3 million in 2003 includes the costs incurred to file the bankruptcy petition, ongoing related legal and
consulting costs, costs related to settlement agreements reached with creditors, the write-off of intangible assets and other
charges related to the reorganization. Also included in reorganization expense are accruals for any claims allowed in the
Chapter 11 proceeding for amounts not previously recognized as liabilities subject to compromise. See Note 18 to the
Consolidated Financial Statements in Item 8, Part II for further information.
Other, Net. Other, net increased by $397.6 million during 2004. The significant components of “Other, net” were as follows:
2004
2003
Change
(Dollars in Millions)
Net gain from sale of investments
$
396.5
$
7.5
$
389.0
Equity losses from unconsolidated affiliates
(0.2
)
(81.5
)
81.3
Net unrealized gain on investments
—
79.4
(79.4
)
Other
1.3
(5.4
)
6.7
Total
$
397.6
$
—
$
397.6
On January 28, 2004, we sold 10,000,000 shares of XM Satellite Radio common stock for $254.4 million. On March 25, 2004,
we sold our remaining 9,014,843 shares of XM Satellite Radio common stock for $223.1 million. As a result of these
transactions, we recorded a pre-tax gain of $387.1 million in the first quarter of 2004 in “Other, net” in the Consolidated
Statements of Operations.
For 2003, equity losses from unconsolidated affiliates is primarily comprised of losses at the DTVLA LOCs and losses from the
XM Satellite Radio investment.
Net unrealized gain on investments for 2003 includes a $79.6 million gain resulting from an increase in the fair market value of
an investment in an XM Satellite Radio convertible note.
Income Tax Benefit. We recognized an income tax benefit of $690.6 million in 2004 compared to an income tax benefit of
$104.3 million in 2003. The higher income tax benefit for 2004 was primarily due to higher pre-tax losses in the current year,
utilization of prior year foreign tax losses for which no tax benefit has previously been recognized and a decrease in foreign
withholding taxes.
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