DIRECTV 2005 Annual Report Download - page 120

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(continued)
expected to have a material adverse effect on our consolidated results of operations or financial
position.
On August 27, 2004, the U.S. Bankruptcy Court, District of Maine, entered an order approving
among other things, the acquisition transaction with Pegasus described above in Note 3, as well as a
Global Settlement Agreement pursuant to which all pending litigation between DIRECTV U.S., us, the
NRTC and Pegasus was settled and mutual releases of claims were affected. Pegasus had filed a
voluntary petition for Chapter 11 bankruptcy in such court following entry of judgment on May 24,
2004 in favor of DIRECTV U.S. for approximately $63 million in a case arising out of Pegasus’ breach
of the parties’ Seamless Marketing Agreement. This judgment was stayed under applicable bankruptcy
law, and Pegasus also had filed various claims in the bankruptcy proceeding against DIRECTV U.S.
and the NRTC. As part of the purchase price paid by DIRECTV U.S. in the transactions with Pegasus,
DIRECTV U.S. received credit for the $63 million judgment. As a result of the settlement and release,
all previously pending litigation discussed above between DIRECTV U.S., us and Pegasus has been
dismissed with prejudice.
On October 18, 2004, Darlene filed suit in the circuit court for Miami-Dade County, Florida,
against us and certain of our subsidiaries (including DLA LLC), News Corporation, and others, or
collectively the Defendants. The suit alleges fraud and violation of fiduciary, contractual and other
duties owed Darlene and to DLA LLC by one or more of the Defendants. Among other things,
Darlene alleges that the Sky Transactions were unfair to DLA LLC and its members, including
Darlene. Darlene further alleges that we entered into an oral put agreement that would have required
DLA LLC to acquire Darlene’s interest in DLA LLC based on a pricing formula and that Darlene was
fraudulently induced to release its rights under that put and other rights. Darlene seeks injunctive relief
to preclude DLA LLC from consummating the Sky Transactions, $1 billion in damages and other relief.
As part of the Sky Transactions, we have agreed to indemnify News Corporation against claims by
Darlene against News Corporation. We believe Darlene’s claims are without merit and we are
defending against these claims.
We and certain other defendants filed in state court motions to compel arbitration of certain
claims and to dismiss others for improper venue, and on November 3, 2005, the judge entered an order
essentially staying the proceedings pending the arbitration between Darlene, DIRECTV and DLA,
LLC. We and Darlene have filed demands for arbitration under the terms of the dispute resolution
provision of the DLA LLC limited liability company agreement. The parties have agreed upon a
potential arbitration panel, and we anticipate that these demands for arbitration will be consolidated
for hearing.
Finally, in June 2005, we filed suit against Darlene in the United States District Court for the
Southern District of New York seeking specific performance and declaratory relief with respect to the
release agreement and covenant not to sue executed by Darlene in February 2004 in connection with
the DLA LLC reorganization and related transactions. Darlene has filed an answer and counterclaim.
Income Tax Matters
In the second quarter of 2005, a settlement was reached in connection with adjustments proposed
by the IRS for the tax years 1991 through 1994 in regards to the determination and allocation of the
purchase price with respect to a prior business acquisition. As a result of the favorable settlement, we
recognized an income tax benefit of approximately $31.3 million which was reported in ‘‘Income (loss)
from discontinued operations, net of taxes’’ in our Consolidated Statements of Operations.
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