DIRECTV 2005 Annual Report Download - page 25

THE DIRECTV GROUP, INC.
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, and converted certain debt into equity, which increased our equity
interest in the restructured DLA LLC from 74.7% to approximately 86%. 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% 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, which we refer to as 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. These transactions are discussed in more detail as follows.
DTVLA’s local operating company in Brazil, DIRECTV Brasil, and Sky Brasil have agreed to
merge, with our DIRECTV Brasil subscribers migrating to the Sky Brasil platform. In addition, we
have agreed to acquire the interests of News Corporation and Liberty in Sky Brasil. Upon completion
of these transactions, we expect to acquire in excess of 70% of the equity of the merged platform. The
transactions in Brazil are subject to local regulatory approval, which we expect to receive mid-year
2006.
DTVLA’s local operating company in Mexico, DIRECTV Mexico, has sold its subscriber list to Sky
Mexico and, as a result of completing the transfer of its subscribers to Sky Mexico, ceased providing
services during 2005. In exchange for the subscriber list, we received a note receivable from Sky Mexico
that was exchanged for a 12% equity interest in Sky Mexico on February 16, 2006. On that date, we
also completed the acquisition of News Corporation and Liberty’s equity interests in Sky Mexico,
bringing our total equity interest to 47%. Televisa has the option of acquiring a portion of our
ownership interest from us and if that occurs, our equity interest in Sky Mexico would be reduced to
41%.
In the rest of the region, which we refer to as PanAmericana, we have acquired a 100% interest in
Sky Multi-Country Partners and certain related entities from News Corporation, Liberty, Globo and
Televisa. We began consolidating the financial results of the PanAmericana entities on October 8, 2004.
ACQUISITIONS, STRATEGIC ALLIANCES AND DIVESTITURES
We review our competitive position on an ongoing basis and, from time to time, consider various
acquisitions, strategic alliances and divestitures in order to continue to compete effectively, improve our
financial results, grow our business and allocate our resources efficiently. We also consider periodically
making equity investments in companies with which we can jointly provide services to our subscribers.
GOVERNMENT REGULATION
We are subject to U.S. government regulation, primarily by the FCC and, to a certain extent, by
Congress, other federal agencies, state and local authorities and the International Telecommunications
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