DIRECTV 2006 Annual Report Download - page 80

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Description of Business
The DIRECTV Group, Inc., which we sometimes refer to as the company, we, or us, was
incorporated in Delaware in 1977. We are a leading provider of digital television entertainment in the
United States and Latin America. Our two 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.
•DIRECTV U.S. DIRECTV Holdings LLC and its subsidiaries, which we refer to as DIRECTV
U.S., is the largest provider of direct-to-home, or DTH, digital television services and the second
largest provider in the multi-channel video programming distribution, or MVPD, industry in the
United States.
•DIRECTV Latin America. DIRECTV Latin America, or DTVLA, is a leading provider of DTH
digital television services throughout Latin America. DTVLA is comprised of: PanAmericana, a
group of companies that includes our 86% owned subsidiary, DIRECTV Latin America, LLC, or
DLA LLC, and its wholly-owned subsidiaries that provide services in countries other than Brazil
and Mexico; Sky Brasil Servicos Ltda., which we refer to as Sky Brazil, of which we own 74%;
and Innova, S. de R.L. de C.V., or Sky Mexico, of which we own 41%, and is carried as an
equity method investment. See Note 3 for additional information regarding the acquisition of
our interests in Sky Brazil and Sky Mexico during 2006 and Note 20 regarding the January 2007
acquisition of the 14% minority interest in DLA LLC for $325.0 million in cash.
Through April 22, 2005 we also operated the Network Systems segment, which was a provider of
satellite-based private business networks and consumer broadband Internet access. Subsequent to the
April 22, 2005 sale of a 50% interest in our former Hughes Network Systems business to SkyTerra
Communications, Inc., we accounted for our investment in HNS under the equity method of accounting
until the sale of the remaining 50% interest in January 2006. During 2004, we completed the sale of
our 80.4% interest in PanAmSat Corporation and a 55% interest in Hughes Software Systems, or HSS.
Revenues, operating costs and expenses, and other non-operating results for the discontinued
operations of PanAmSat, and HSS, have been excluded from our results from continuing operations for
all periods presented herein. Consequently, the financial results of PanAmSat and HSS are presented in
our Consolidated Statements of Operations in a single line item entitled ‘‘Income (loss) from
discontinued operations, net of taxes.’’ See Note 3 for additional information regarding the HNS,
PanAmSat and HSS divestitures.
Note 2: Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation
We present our accompanying financial statements on a consolidated basis and include our
accounts and those of our domestic and foreign subsidiaries that we control through equity ownership
or for which we are deemed to be the primary beneficiary, after elimination of intercompany accounts
and transactions. We allocate earnings and losses to minority interests only to the extent of a minority
investor’s investment in a subsidiary.
Use of Estimates in the Preparation of the Consolidated Financial Statements
We prepare our consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America, which requires us to make estimates and
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