DIRECTV 2004 Annual Report Download - page 37

THE DIRECTV GROUP, INC.
SIGNIFICANT EVENTS AFFECTING THE COMPARABILITY OF THE RESULTS OF OPERATIONS
Strategic Developments
In February 2004, we announced our intent to focus on the DTH satellite businesses. During 2004, we have announced or
completed the following actions in support of this strategy:
Acquisitions
•
Effective June 1, 2004, DIRECTV U.S. and the NRTC agreed to end the NRTC’s exclusive DIRECTV service
distribution agreement to certain rural territories in the United States and all related agreements. As consideration,
DIRECTV U.S. agreed to pay the NRTC approximately $4.4 million per month through June 2011, or $322.1 million
on a present value basis. As a result of this agreement, DIRECTV U.S. now has the rights to sell its services in all
territories across the United States.
•
During the third quarter of 2004, DIRECTV U.S. completed the acquisition of 357,000 NRTC subscribers from NRTC
members other than Pegasus for cash payments, including transaction fees, of $385.5 million, plus interest. Of these
cash payments, $187.2 million was paid in the third quarter of 2004 and the remainder will be made in monthly
payments through 2011.
•
On August 27, 2004, DIRECTV U.S. acquired certain assets of Pegasus, including approximately 1.1 million
DIRECTV subscribers activated through Pegasus. DIRECTV U.S. paid $773.0 million in cash, which is the $987.9
million total purchase price net of amounts owed by Pegasus for programming and other services, and the $63 million
attributable to a May 2004 judgment in favor of DIRECTV U.S.
•
On October 8, 2004, we entered into 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. In Brazil, DIRECTV Brasil and
Sky Brasil have agreed to merge, with DIRECTV Brasil’s customers migrating to the Sky Brasil platform. In addition,
we intend to acquire the interests of News Corporation and Liberty in Sky Brasil upon completion, acquiring in excess
of 70% of the merged platform. The transactions in Brazil are subject to local regulatory approval, which has been
requested but not yet granted. In Mexico, DTVLA’s local affiliate, DIRECTV Mexico, is in the process of closing its
operations and has sold its subscriber list to Sky Mexico. In addition, we will acquire the interest of News Corporation
and, jointly with Televisa, the interest of Liberty in Sky Mexico, which will not be a controlling interest. Upon
consummation of these transactions in Mexico, we anticipate having an equity interest of approximately 43% in Sky
Mexico, which will not be a controlling interest. In the rest of the region, or PanAmericana, we have acquired the
interest of News Corporation and Liberty and have agreed to acquire the interest of Globo and Televisa in Sky Multi-
Country Partners and certain related businesses, which own DTH platforms in Colombia and Chile. DTVLA began
consolidating the results of these entities in the fourth quarter of 2004. Total cash consideration for the equity interests
in the Sky Latin America platforms is approximately $580 million, of which we paid $398 million in October 2004.
The remainder is subject to adjustment and will be paid at the completion of the transactions. As of December 31,
2004, the Sky Latin America businesses had approximately 1.9 million total subscribers.
Divestitures
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During the first quarter of 2004, we sold our investment in XM Satellite Radio common stock for $477.5
million in cash.
•
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
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