DIRECTV 2005 Annual Report Download - page 89

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(continued)
In Brazil, DIRECTV Brasil and Sky Brasil have agreed to merge, with our DIRECTV Brasil
subscribers 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 we expect to receive
mid-year 2006. If we do not obtain required regulatory approvals, we may consider selling or shutting
down DIRECTV Brasil with the expectation that following such an alternative transaction, we would be
able to obtain regulatory approval to purchase the interests of News Corporation and Liberty in Sky
Brasil. We expect to pay $385 million, as adjusted, for the acquisition of the News Corporation and
Liberty interest in Sky Brasil, of which $368 million was prepaid on October 8, 2004. The prepayment,
which is included in ‘‘Investments and Other Assets’’ in our Consolidated Balance Sheets as of
December 31, 2005, must be refunded should the transactions be terminated due to the inability to
obtain local regulatory approval. The remaining consideration will be paid at the close of the
transaction. We will consolidate the operations of Sky Brasil and have agreed to guarantee all of Sky
Brasil’s approximately $210 million of outstanding bank debt as well as all of their long-term
transponder obligations upon receipt of local regulatory approval.
DTVLA’s local operating company in Mexico, DIRECTV Mexico, has sold its subscriber list to Sky
Mexico in exchange for a note receivable and, after completing the transfer of its subscribers to Sky
Mexico ceased providing services during 2005. As a result of the completion of the migration of the
DIRECTV Mexico subscribers to Sky Mexico, we recognized a gain based on the earned value of the
note received from Sky Mexico of approximately $70.4 million in ‘‘(Gain) loss from asset sales and
impairment charges, net’’ in our Consolidated Statements of Operations during 2005. During 2004, we
recorded a pre-tax charge of $36.5 million in ‘‘(Gain) loss from asset sales and impairment charges,
net’’ in our Consolidated Statements of Operations to write-down certain of DIRECTV Mexico’s
long-lived assets to their fair values in connection with the shut-down of its operations. We have the
right to exchange the note receivable for a 12% equity interest in Sky Mexico and plan to acquire the
interests of News Corporation and Liberty in Sky Mexico for $373 million in cash, which would result
in DTVLA owning 47% of the equity of Sky Mexico. Televisa has the right to acquire a portion of the
equity interest in Sky Mexico from us for $58.7 million in cash upon receipt of certain regulatory
approvals, which will reduce DTVLA’s equity interest to approximately 41%. We will account for our
investment in Sky Mexico under the equity method of accounting and upon completion of the
transaction, we have agreed to guarantee our attributable share of its long-term transponder
obligations. See Note 22 for further discussion regarding the completion of this transaction in 2006.
In the rest of the region, we have acquired a 100% interest in Sky Multi-Country Partners and
certain related entities, or PanAmericana, from News Corporation, Liberty, Globo and Televisa, for
$30 million, which was paid on October 8, 2004. We began consolidating Sky’s PanAmericana entities
on October 8, 2004 and have recorded approximately $13.6 million of goodwill based on our allocation
of the purchase price. As part of this transaction, News Corporation has agreed to reimburse us
$127 million for Sky’s PanAmericana entities’ net liabilities we assumed. The present value of News
Corporation’s $127 million future reimbursement to us is included in ‘‘Investments and Other Assets’’
in our Consolidated Balance Sheets as of December 31, 2005. The $127 million reimbursement from
News Corporation will be received at the completion of the Sky Brasil transaction.
In Darlene Investments LLC, or Darlene, has filed suit alleging fraud, self-dealing and violation of
fiduciary, contractual and other duties against us and certain of our subsidiaries (including DLA LLC),
News Corporation and others seeking, among other things, injunctive relief to preclude the
consummation of the Sky Transactions. See Note 21 for more information regarding this case.
76