DIRECTV 2005 Annual Report Download - page 49

THE DIRECTV GROUP, INC.
SIGNIFICANT EVENTS AFFECTING THE COMPARABILITY OF THE RESULTS OF OPERATIONS
Strategic Developments
In February 2004, we announced our intent to restructure our company to focus on the DTH
satellite businesses. We have announced or completed the following actions in support of this strategy
during 2004 and 2005:
Acquisitions
• On October 8, 2004, we entered into the Sky Transactions, which include the pending merger of
Sky Brasil with DIRECTV Brasil, the sale of our DIRECTV Mexico subscriber list in exchange
for an equity interest in Sky Mexico, and the acquisition of other Sky entities in the rest of the
Latin America region, which we refer to as PanAmericana. As part of the transactions, we have
or will acquire both News Corporation’s and Liberty’s equity interests in each Sky Latin America
entity.
The transactions in Brazil are subject to local regulatory approval, which we expect to receive in
mid 2006. Upon completion of the DIRECTV Brasil transactions we expect to pay $17 million,
the remaining portion of the total purchase price of $385 million, and we will own in excess of
70% of the merged platform. We prepaid $368 million of the total purchase price on October 8,
2004.
During 2005, we recognized a gain of approximately $70.4 million in ‘‘(Gain) loss from asset
sales and impairment charges, net’’ in our Consolidated Statements of Operations related to the
successful migration of DIRECTV Mexico’s subscribers to Sky Mexico in exchange for a note
receivable. On February 16, 2006, we completed the acquisition of a 47% interest in Sky Mexico,
which resulted from the exchange of the note receivable for a 12% equity interest and the
acquisition of News Corporation’s and Liberty’s Sky Mexico interests for $373 million in cash.
The exchange of the note receivable for the higher value 12% equity interest will result in us
reporting a first quarter 2006 gain of approximately $58 million. During 2004 we wrote-down
certain of DIRECTV Mexico’s long-lived assets to their fair values in connection with the
planned shut-down of its operations resulting in a pre-tax charge of $36.5 million that we
included in ‘‘(Gain) loss from asset sales and impairment charges, net’’ in the Consolidated
Statements of Operations. DIRECTV Mexico ceased operations in 2005 upon completion of the
migration of its subscribers to Sky Mexico.
We have acquired a 100% ownership interest in the Sky PanAmericana entities for $30 million,
which was paid on October 8, 2004. As part of this transaction, News Corporation has agreed to
reimburse us $127 million for the assumption of the Sky PanAmericana entities net liabilities,
which we expect to receive upon completion of the Sky Brasil transaction. We began
consolidating the results of the Sky PanAmericana entities in the fourth quarter of 2004.
See Notes 3 and 22 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of
this Annual Report for further information.
• During the third quarter of 2004, DIRECTV U.S. completed the acquisition of all Pegasus and
NRTC subscribers, as described in Note 3 of the Notes to the Consolidated Financial Statements
in Item 8, Part II of this Annual Report, which resulted in DIRECTV U.S. recording a
subscriber related intangible asset of $951.3 million from the Pegasus transaction that DIRECTV
U.S. is amortizing over the estimated average subscriber lives of five years, and a subscriber
related intangible asset of $385.5 million that resulted from the NRTC transaction that
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