DIRECTV 2005 Annual Report Download - page 50

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THE DIRECTV GROUP, INC.
DIRECTV U.S. is amortizing over the estimated average subscriber lives of six years. Had the
estimated average subscriber lives for these intangible assets been decreased by one year, future
annual amortization expense would have increased by approximately $60 million.
• Effective June 1, 2004, DIRECTV U.S. and the NRTC agreed to end the NRTC’s exclusive
DIRECTV service distribution agreement and all related agreements. As consideration,
DIRECTV U.S. agreed to pay the NRTC approximately $4.4 million per month through
June 2011. As a result of this agreement, DIRECTV U.S. has the right to sell the DIRECTV
service in all territories across the United States. DIRECTV U.S. is amortizing the distribution
rights intangible asset of $334.1 million that was recorded as part of the transaction, which
includes the present value of the cash payments and fees associated with the transaction, to
expense over the remaining life of the terminated DIRECTV service distribution agreement of
seven years.
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.
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