DIRECTV 2005 Annual Report Download - page 51

THE DIRECTV GROUP, INC.
• On June 22, 2004, we completed the sale of HNS’ set-top receiver manufacturing operations to
Thomson for $250 million in cash. In connection with the sale, DIRECTV U.S. entered into a
long-term purchase agreement with Thomson for the supply of set-top receivers. The proceeds in
excess of the book value of the HNS assets sold of approximately $200 million were deferred
and are being recognized as set-top receivers purchased from Thomson under the contract are
activated.
• During 2004, we sold various equity investments for $510.5 million in cash and recorded a
pre-tax gain of $396.5 million in ‘‘Other, net’’ in our Consolidated Statements of Operations.
The financial results for PanAmSat, which formerly comprised our Satellite Services segment, and
HSS, which was formerly a component of our Network Systems segment, are presented in our
Consolidated Statements of Operations as discontinued operations. As a result of the SkyTerra
transaction, subsequent to April 22, 2005, we accounted for our investment in HNS under the equity
method of accounting, and accordingly, recorded our interest in HNS’ net income in ‘‘Other, net’’ in
our Consolidated Statements of Operations.
For additional information regarding the actions described above, see Note 3 and Note 5 of the
Notes to the Consolidated Financial Statements in Part II, Item 8, of this Annual Report.
Other Developments
In addition to the items described above, the following events had a significant effect on the
comparability of our operating results for the years ended December 31, 2005, 2004 and 2003:
DIRECTV U.S.
Hurricanes Katrina, Wilma, and Rita. During the second half of 2005, a series of hurricanes
devastated certain portions of the Gulf Coast region of the United States. As a result, we recorded
approximately $24 million in charges mostly related to a higher level of service calls resulting from the
hurricanes, a reduction in revenues for subscriber service credits and an increase in bad debt expense.
Approximately 10,000 subscribers were disconnected in 2005 resulting from the hurricanes.
Financing Transactions. During the second quarter of 2005, DIRECTV U.S. completed a series of
refinancing transactions that resulted in a pre-tax charge to ‘‘Other, net’’ in our Consolidated
Statements of Operations of $64.9 million ($40.0 million after tax), of which $41.0 million was
associated with the premium that we paid for the redemption of a portion of our 8.375% senior notes
and $23.9 million with our write-off of a portion of our deferred debt issuance costs and other
transaction costs. As a result of the refinancing transactions, our long-term debt increased by
$1,011.7 million during 2005 and cash, net of the premium paid and transaction costs, increased
$966.0 million. See Note 9 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of
this Annual Report for further discussion of these refinancing transactions.
During 2003, DIRECTV U.S. raised approximately $2,625.0 million of cash through the issuance of
$1,400.0 million of 8.375% senior notes and $1,225.0 million of borrowings under a credit facility. We
used a portion of these proceeds to repay the $506.3 million outstanding principal balance plus accrued
interest under a prior credit facility agreement, which then terminated.
Accounting Change. Effective January 1, 2004, DIRECTV U.S. changed its method of accounting
for subscriber acquisition, upgrade and retention costs. Previously, DIRECTV U.S. deferred a portion
of these costs, equal to the amount of profit to be earned from the subscriber, typically over the
12 month subscriber contract, and amortized the deferred amounts to expense over the contract period.
DIRECTV U.S. now expenses subscriber acquisition, upgrade and retention costs as incurred as
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