DIRECTV 2004 Annual Report Download - page 50

THE DIRECTV GROUP, INC.
The increase in our total operating costs and expenses was primarily due to the $984.9 million 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 segment, which was primarily due to the $135.0 million non-recurring cost of the 2002 FIFA World
Cup rights and lower programming costs due to the rejection and/or renegotiation of certain programming contracts as a result
of the 2003 bankruptcy proceedings.
Interest Income and Expense. Interest income increased to $28.4 million in 2003 compared to $17.5 million in 2003. Interest
expense decreased to $156.3 million in 2003 from $188.6 million in 2003. The decrease in interest expense resulted from the
$74.0 million of interest recorded in connection with the settlement of the GECC dispute in 2002, partially offset by higher
average outstanding borrowings and a higher weighted average interest rate in 2003. Interest expense is net of capitalized
interest of $120.0 million and $87.7 million in 2003 and 2002, respectively.
Reorganization Expense. Reorganization expense was $212.3 million in 2003, which 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 decreased by $425.5 million during 2003. The significant components of “Other, net” were as follows:
2003
2002
Change
(Dollars in Millions)
EchoStar Merger termination payment
$
—
$
600.0
$
(600.0
)
Net gain on exit of DIRECTV Japan business
—
41.1
(41.1
)
Net gain from sale of investments
7.5
84.1
(76.6
)
Equity losses from unconsolidated affiliates
(81.5
)
(70.1
)
(11.4
)
Net unrealized gain (loss) on investments
79.4
(180.6
)
260.0
Other
(5.4
)
(49.0
)
43.6
Total
$
—
$
425.5
$
(425.5
)
In December 2002, we recognized a $600.0 million gain related to a termination agreement entered into by us, GM and
EchoStar. As a part of this agreement, the parties agreed to terminate the merger agreement and certain related agreements due
to the proposed merger’s failure to obtain regulatory approval. Under the terms of the termination agreement, EchoStar paid us
$600 million in cash.
For the years ended December 31, 2003 and 2002, equity losses from unconsolidated affiliates are primarily comprised of losses
at the DTVLA LOCs. Also included in 2003 are equity 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. Net unrealized loss on investments for 2002 is primarily comprised of
other-than-temporary declines in fair value of our investment in XM Satellite Radio and Crown Media Holdings.
Income Tax Benefit. We recognized an income tax benefit of $104.3 million in 2003 compared to an income tax benefit of
$42.2 million in 2002. The increase in income tax benefit is primarily attributable to the
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