DIRECTV 2005 Annual Report Download - page 67

THE DIRECTV GROUP, INC.
The increase in operating loss before depreciation and amortization and operating loss in 2004
compared with 2003 is primarily due to the $1,466.1 million and the $190.6 million in asset impairment
charges related to SPACEWAY and the SkyTerra transaction, respectively, as well as the $25.6 million
in severance charges associated with the sale of the set-top box receiver manufacturing operations and
substantially all of the remaining assets of HNS, discussed above in ‘‘Strategic Developments.’’
Eliminations and Other
The elimination of revenues decreased to $178.2 million in 2004 from $192.1 million in 2003. The
decrease was primarily due to the sale of the set-top receiver manufacturing operations in June 2004.
Operating loss from Eliminations and Other increased to $220.8 million in 2004 from
$208.3 million in 2003. The increase resulted from a $27.3 million increase in stock-based compensation
in 2004 and $113.0 million of retention, severance and related costs under our pension benefit plans in
2004, partially offset by the one-time charge of approximately $132 million in 2003 related to the
completion of the News Corporation transactions.
LIQUIDITY AND CAPITAL RESOURCES
In 2005, our cash and cash equivalents balance increased $1,393.9 million to $3,701.3 million and
our short-term investments balance increased $160.6 million to $683.2 million. These increases resulted
primarily from $997.8 million of net proceeds from the refinancing transactions during the second
quarter of 2005, $1,171.9 million of cash flows from operating activities, $246.0 million in cash proceeds
from the SkyTerra transaction, and $113.1 million of proceeds from the sale of investments, partially
offset by cash paid for satellites, property and equipment of $888.7 million.
As a measure of liquidity, the current ratio (ratio of current assets to current liabilities) was 2.16 at
December 31, 2005 and 1.77 at December 31, 2004. Working capital increased by $1,191.7 million to
$3,268.3 million at December 31, 2005 from working capital of $2,076.6 million at December 31, 2004.
The change was principally due to the increase in cash and short-term investments discussed above and
increases in accounts receivable and inventories, partially offset by an increase in accounts payable and
accrued liabilities.
As of December 31, 2005, DIRECTV U.S. has the ability to borrow up to $500 million under its
existing credit facility. The DIRECTV U.S. credit facility is available until 2011. DIRECTV U.S. is
subject to restrictive covenants under its credit facility. These covenants limit the ability of DIRECTV
U.S. and its respective subsidiaries to, among other things, make restricted payments, including
dividends, loans or advances to us.
In 2005, we generated $448.6 million of positive cash flow (defined as net cash provided by
operating activities less net cash used in investing activities). During 2006, including an expected net
cash requirement of $204.0 million related to the Sky Transactions, we expect an increase in cash flow
from 2005 due to an increase in operating profit, partially offset by higher sports programming contract
payments and slightly higher capital expenditures at DIRECTV U.S. for satellites and broadcast
equipment to support the launch of new local and HD channels, and to replace and backup existing
satellites.
On February 7, 2006, our Board of Directors authorized a share repurchase program. Under the
repurchase program, we are authorized to spend up to $3.0 billion to repurchase outstanding shares of
our common stock. We implemented the repurchase program on February 10, 2006. There is no fixed
termination date for the repurchase program and purchases may be made in the open market, through
block trades and other negotiated transactions. This program may be suspended, discontinued or
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