The DirecTV Group (DTV)

Divestitures

        During the second quarter of 2007, we recorded a $17 million reduction to our unrecognized tax benefits in "Income from discontinued operations, net of taxes" in our Consolidated Statements of Operations as a result of a settlement of a foreign withholding dispute from a previously divested business.

Divestitures

        During the second quarter of 2007, we recorded a $17 million reduction to our unrecognized tax benefits in "Income from continued operations, net of taxes" in our Consolidated Statements of Operations as a result of a settlement of a foreign withholding dispute from a previously divested business.

17

THE DIRECTV GROUP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(continued)

(Unaudited)

Divestitures

        HNS—SkyTerra.    On April 22, 2005, we completed the sale of a 50% interest in Hughes Network Systems LLC, or HNS LLC, which owned substantially all of the net assets formerly held by HNS, to SkyTerra Communications, Inc. We received total proceeds of $257.4 million, including cash of $246.0 million, and 300,000 shares of SkyTerra common stock with a fair value of $11.4 million. As a result of this transaction, we recorded pre-tax impairment charges of $25.3 million during the year ended December 31, 2005 and $190.6 million during the year ended December 31, 2004 to "(Gain) loss from disposition of businesses and impairment charges, net" in our Consolidated Statements of Operations to reduce the carrying value of HNS' assets to fair value. In January 2006, we completed the sale of our remaining 50% interest in HNS LLC to SkyTerra. In exchange for our remaining 50% interest and resolution of a final closing adjustment from the April 22, 2005 transaction, we received cash proceeds of $110.0 million. During the year ended December 31, 2006 we recorded a net gain of $13.5 million related to the sale to "Other, net" in the Consolidated Statements of Operations.

        SPACEWAY.    In the third quarter of 2004, we decided to utilize the SPACEWAY 1 and 2 satellites, and certain related assets, for DIRECTV U.S. HD programming. Our decision to no longer use these assets for HNS' SPACEWAY broadband service triggered an impairment test of our investment in the SPACEWAY assets. As a result of this test, we determined that the book value of the SPACEWAY satellites and ground segment equipment for their alternative use exceeded their fair value by $1.47 billion. Accordingly, we recorded an impairment charge in "(Gain) loss from disposition of businesses and impairment charges, net" in our Consolidated Statements of Operations during the year ended December 31, 2004.

        PanAmSat.    On August 20, 2004, we completed the sale of our approximate 80.4% interest in PanAmSat for about $2.64 billion in cash. As a result of this transaction, we recorded a loss of $723.7 million, net of taxes, in "Income (loss) from discontinued operations, net of taxes" in our Consolidated Statements of Operations during 2004.

        HNS—HSS.    In 2004, HNS completed the sale of its approximate 55% ownership interest in Hughes Software Systems Limited, or HSS, for $226.5 million in cash, which we received in June 2004. As a result of this transaction, we recognized a gain of $90.7 million, net of taxes, during 2004 in "Income (loss) from discontinued operations, net of taxes" in our Consolidated Statements of Operations.

41

        HNS—Set-Top Receiver Manufacturing Operations.    On June 22, 2004, we completed the sale of HNS' set-top receiver manufacturing operations to Thomson for $250.0 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. In addition, DIRECTV U.S. can earn additional rebates from Thomson based on aggregate purchases of set-top receivers.

        Other Investments.    During the year ended December 31, 2005, we sold an equity investment for $113.1 million in cash, which resulted in us recognizing a net pre-tax loss of $0.6 million in "Other, net" in our Consolidated Statements of Operations in 2005. During the year ended December 31, 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.

        We present the financial results for PanAmSat, which formerly comprised our Satellite Services segment, and HSS, which was formerly a component of our Network Systems segment, 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 until the sale of the remaining interest in January 2006.

        For additional information regarding the actions described above, see Note 3 and Note 4 of the Notes to the Consolidated Financial Statements in Part II, Item 8, of this Annual Report.

Divestitures

•

On April 22, 2005, we completed the sale of a 50% interest in a new entity, HNS LLC, that owns substantially all of the remaining net assets of HNS to SkyTerra, which we refer to as the SkyTerra transaction. We received total proceeds of $257.4 million, including cash of $246.0 million, and 300,000 shares of SkyTerra common stock with a fair value of $11.4 million. As a result of this transaction, we recorded pre-tax impairment charges of $25.3 million during the year ended December 31, 2005 and $190.6 million during the year ended December 31, 2004 to "(Gain) loss from asset sales and impairment charges, net" in our Consolidated Statements of Operations to reduce the carrying value of HNS' assets to fair value. In January 2006, we completed the sale of our remaining 50% interest in HNS LLC to SkyTerra. In exchange for our remaining 50% interest and resolution of a final closing adjustment from the April 22, 2005 transaction, we received cash proceeds of $110 million. As a result of the transaction, in the first quarter of 2006, we expect to record a net gain and equity earnings of $24.8 million to "Other, net" in the Consolidated Statements of Operations.

•

During the year ended December 31, 2005, we sold an equity investment for $113.1 million in cash, which resulted in us recognizing a net pre-tax loss of $0.6 million in "Other, net" in our Consolidated Statements of Operations in 2005.

•

In the third quarter of 2004, we decided to utilize certain SPACEWAY assets for DIRECTV U.S. HD programming. This decision to no longer use these assets for HNS' SPACEWAY broadband service triggered an impairment test of our investment in the SPACEWAY assets. As a result of this test, we determined that the book value of the SPACEWAY satellites and ground segment equipment for their alternative use exceeded their fair value by $1.466 billion. Accordingly, we recorded a charge in "(Gain) loss from asset sales and impairment charges, net" in our Consolidated Statements of Operations in the third quarter of 2004.

•

On August 20, 2004, we completed the sale of our approximate 80.4% interest in PanAmSat to an affiliate of KKR for about $2.64 billion in cash. As a result of this transaction, we recorded a loss of $723.7 million, net of taxes, in "Income (loss) from discontinued operations, net of taxes" in our Consolidated Statements of Operations during 2004.

•

In 2004, HNS completed the sale of its approximate 55% ownership interest in Hughes Software Systems Limited, or HSS, for $226.5 million in cash, which we received in June 2004. As a result of this transaction, we recognized an after-tax gain of approximately $90.7 million ($176.1 million pre-tax) during 2004 in "Income (loss) from discontinued operations, net of taxes" in our Consolidated Statements of Operations.

37

•

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.

Divestitures

•

On April 22, 2005, we completed the sale of a 50% interest in a new entity, HNS LLC, that owns substantially all of the remaining net assets of HNS to SkyTerra, which we refer to as the SkyTerra transaction. We received total proceeds of $257.4 million, including cash of $246.0 million, which is net of closing adjustments, and 300,000 shares of SkyTerra common stock with a fair value of $11.4 million. As a result of this transaction, we recorded pre-tax charges of $25.3 million during the nine month period ended September 30, 2005 to "(Gain) loss from asset sales and impairment charges, net" in our Consolidated Statements of Operations.

•

During the nine months ended September 30, 2005, we sold all of our investment in redeemable preference shares of TTSL for $113.1 million in cash, which resulted in us recognizing a net pre-tax loss of $0.6 million in "Other, net" in our Consolidated Statements of Operations during the nine months ended September 30, 2005.

•

On August 20, 2004, we completed the sale of our approximate 80.4% interest in PanAmSat to an affiliate of KKR for about $2.64 billion in cash. As a result of this transaction, we recorded losses of $203.7 million and $723.7 million, net of taxes, in "Income (loss) from discontinued operations, net of taxes" in our Consolidated Statements of Operations during the three and nine month periods ended September 30, 2004, respectively.

•

In 2004, HNS completed the sale of its approximate 55% ownership interest in HSS for $226.5 million in cash, which we received in June 2004. As a result of this transaction, we recognized an after-tax gain of approximately $90.7 million ($176.1 million pre-tax) in the third quarter of 2004 upon completion of all substantive requirements and transfer of control in "Income (loss) from discontinued operations, net of taxes" in our Consolidated Statements of Operations.

34

•

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 the first quarter of 2004, we sold our investment in XM Satellite Radio common stock for $477.5 million in cash, which resulted in us recognizing a pre-tax gain of $387.1 million in the first quarter of 2004 in "Other, net" in our Consolidated Statements of Operations.

Divestitures

•

On April 22, 2005, we completed the sale of a 50% interest in a new entity, HNS LLC, that owns substantially all of the remaining net assets of HNS, including the assets of the SPACEWAY business, to SkyTerra, which we refer to as the SkyTerra transaction. The assets of the SPACEWAY business exclude rights to the first two satellites designed for the SPACEWAY program, SPACEWAY 1 and SPACEWAY 2, which will be used to support DIRECTV U.S.' DTH satellite broadcasting business. The SPACEWAY assets include the rights related to the third SPACEWAY satellite that is currently under construction, as well as rights to a contemplated fourth SPACEWAY satellite and certain ground equipment and related intellectual property. In exchange for our 50% interest in HNS LLC, we received total proceeds of $257.4 million, including cash of $246.0 million, which is net of closing adjustments, and 300,000 shares of SkyTerra common stock with a fair value of $11.4 million. As a result of this transaction, we recorded pre-tax charges of $4.4 million and $25.3 million during the three month and six month periods ended June 30, 2005, respectively, to "(Gain) loss from asset sales and impairment charges, net" in our Consolidated Statements of Operations.

33

•

During the six months ended June 30 2005, we sold all of our investment in redeemable preference shares of TTSL for $113.1 million in cash. As a result, we recognized a net pre-tax loss of $0.6 million in "Other, net" in our Consolidated Statements of Operations during the six months ended June 30, 2005.



•

As part of the sale of our approximately 80.4% interest in PanAmSat for $2.64 billion in cash, which was completed in August 2004, we recorded losses of $41.4 million and $520.0 million, net of taxes, during the three and six month periods ended June 30, 2004, respectively.



•

In 2004, HNS completed the sale of its approximately 55% ownership interest in HSS for $226.5 million in cash, which we received in June 2004. As a result of this transaction, we recognized an after-tax gain of approximately $90.7 million ($176.1 million pre-tax) in the third quarter of 2004 in "Income (loss) from discontinued operations, net of taxes" in our Consolidated Statements of Operations.



•

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. As part of the purchase agreement, DIRECTV U.S. is also recording a $50 million rebate from Thomson as earned as set-top receivers are activated. As a result, during the first half of 2005, DIRECTV U.S. recognized a total of $22.4 million of the $200 million deferral and the $50 million rebate in the Consolidated Statements of Operations.



•

During the first quarter of 2004, we sold our investment in XM Satellite Radio common stock for $477.5 million in cash. As a result of the sale, we recorded a pre-tax gain of $387.1 million in the first quarter of 2004 in "Other, net" in the Consolidated Statements of Operations.

        The financial results for PanAmSat, which formerly comprised our Satellite Services segment, and HSS, which formerly was a component of our Network Systems segment, are presented in our Consolidated Statements of Operations as discontinued operations.

        For additional information regarding the actions described above, see Part I, Item 1, Note 3 of the Notes to the Consolidated Financial Statements of this Quarterly Report.

Divestitures

•

During the first quarter of 2005, we sold approximately 71% of our investment in redeemable preference shares of TTSL for $79.2 million in cash. As a result, we recognized a net pre-tax loss of $1.6 million in "Other, net" in the Consolidated Statements of Operations in the first quarter of 2005.

•

As part of the sale of our approximately 80.4% interest in PanAmSat, which was completed in August 2004, we recorded a $478.6 million loss, net of taxes, in the first quarter of 2004.

•

In 2004, HNS completed the sale of its approximately 55% ownership interest in HSS for $226.5 million in cash, which we received in June 2004. As a result of this transaction, we recognized an after-tax gain of approximately $90.7 million ($176.1 million pre-tax) in the third quarter of 2004.

30

•

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 as of December 31, 2004 and recognized as set-top receivers purchased from Thomson under the contract are activated. As part of the purchase agreement, DIRECTV U.S. can also earn a $50 million rebate from Thomson. As a result, during the first quarter of 2005, DIRECTV U.S. recognized a total of $12.3 million of the $200 million deferral and the $50 million rebate in the Consolidated Statements of Operations.



•

During the first quarter of 2004, we sold our investment in XM Satellite Radio common stock for $477.5 million in cash. As a result of the sale, we recorded a pre-tax gain of $387.1 million in the first quarter of 2004 in "Other, net" in the Consolidated Statements of Operations.



•

On April 22, 2005, we completed the sale of a 50% interest in a new entity, HNS LLC, that owns substantially all of the remaining net assets of HNS, including the assets of the SPACEWAY business, to SkyTerra. The assets of the SPACEWAY business exclude rights to the first two satellites designed for the SPACEWAY program, SPACEWAY 1 and SPACEWAY 2, which will be used to support DIRECTV U.S.' DTH satellite broadcasting business. The SPACEWAY assets include the rights related to the third SPACEWAY satellite that is currently under construction, as well as rights to a contemplated fourth SPACEWAY satellite and certain ground equipment and related intellectual property. We retained a 50% interest in HNS LLC and received total proceeds of $257.4 million, including cash of $246.0 million, which is net of closing adjustments, and the fair value of 300,000 shares of SkyTerra common stock received of $11.4 million. We recorded a pre-tax charge of $20.9 million to "Asset impairment charges" in the Consolidated Statements of Operations in the first quarter of 2005, which includes a charge for leased facilities that were vacated during the quarter. After April 22, 2005, we will no longer consolidate HNS and will account for our investment in HNS LLC under the equity method of accounting. The proceeds remain subject to adjustment based on a working capital calculation required by the agreement. Under certain circumstances, we may be required to contribute a portion of the cash proceeds back to HNS LLC, which could also result in an additional impairment charge that is not reasonably determinable at this time.

        The financial results for PanAmSat, which formerly comprised our Satellite Services segment, and HSS, which formerly was a component of our Network Systems segment, are presented in the Consolidated Statements of Operations as discontinued operations.

        For additional information regarding the actions described above, see Note 3: Acquisitions, Divestitures and Other Transactions of the Notes to the Consolidated Financial Statements in Item 1, Part I of this Quarterly Report, which we incorporate herein by reference.

Divestitures

28

THE DIRECTV GROUP, INC.

The financial results for PanAmSat, which formerly comprised our Satellite Services segment, HSS, which formerly was a component of the Network Systems segment, and DIRECTV Broadband, our high-speed Internet services business that we shut down in February 2003, are presented in the Consolidated Statements of Operations as discontinued operations.