DIRECTV 2005 Annual Report Download - page 116

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(continued)
Note 18. DLA LLC Reorganization
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, or Bankruptcy
Court. On February 13, 2004, the Bankruptcy Court confirmed DLA LLC’s Plan of Reorganization, or
the Reorganization Plan, 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
86%. Darlene, which also contributed its equity and other interests in various LOCs, holds the
remaining approximately 14% 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. The net result of these transactions was an increase in minority
interests of $47.3 million.
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 that resulted
from 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, legal and consulting costs, costs of
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 claims allowed in
the Chapter 11 proceeding.
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, 2005 and 2004, we had
no significant foreign currency or interest related derivative financial instruments outstanding.
Note 20: Segment Reporting
Our two continuing business segments, DIRECTV U.S. and DIRECTV Latin America, which are
differentiated by their geographic location, are engaged in acquiring, promoting, selling and/or
distributing digital entertainment programming via satellite to residential and commercial subscribers.
Through April 22, 2005, we also operated the Network Systems segment, a provider of satellite-based
private business networks and broadband Internet access. As a result of the SkyTerra transactions
described in Note 3, after April 22, 2005, we no longer consolidate HNS, which formerly comprised the
Network Systems segment. Eliminations and other includes the corporate office and other entities.
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