DIRECTV 2005 Annual Report Download - page 90

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THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(continued)
NRTC Contract Rights and Member Subscribers
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, or
$322.1 million on present value basis, calculated using an estimated incremental annual borrowing rate
of 4.3%. As a result of this agreement, DIRECTV U.S. has the right to sell its services in all territories
across the United States. DIRECTV U.S. recorded the present value of the cash payments to be made
to the NRTC plus fees paid associated with the transaction, the total of which amounted to
$334.1 million, in ‘‘Accounts payable and accrued liabilities’’ and ‘‘Other Liabilities and Deferred
Credits,’’ with a corresponding amount recorded as distribution rights in ‘‘Intangible Assets, net’’ in our
Consolidated Balance Sheets. DIRECTV U.S. is amortizing the distribution rights intangible asset to
expense over seven years, which represented the remaining life of the terminated DIRECTV service
distribution agreement.
In connection with the NRTC transaction described above, during the second and third quarters of
2004, all NRTC members, representing approximately 357,000 subscribers, excluding Pegasus Satellite
Television, Inc., or Pegasus, elected to sell their subscribers to DIRECTV U.S. We paid $187.2 million
in the third quarter of 2004 for members electing a lump-sum payout plus additional fees associated
with the transaction and recorded $198.3 million in ‘‘Accrued liabilities and other’’ and ‘‘Other
Liabilities and Deferred Credits’’ for those members electing the long-term payment option of seven
years plus interest. As a result, DIRECTV U.S. recorded a subscriber related intangible asset in
‘‘Intangible Assets, net’’ in our Consolidated Balance Sheets amounting to $385.5 million, which is
being amortized over the estimated subscriber lives of approximately six years.
As of December 31, 2005, DIRECTV U.S. owes the NRTC and its members who elected the
long-term payment option $424.0 million, which is payable approximately as follows: $66.9 million in
2006, $71.0 million in 2007, $75.3 million in 2008, $79.9 million in 2009, $83.3 million in 2010, and
$47.6 million thereafter. These amounts are recorded in ‘‘Accrued liabilities and other’’ and ‘‘Other
Liabilities and Deferred Credits’’ in our Consolidated Balance Sheets.
Pegasus Subscribers
On August 27, 2004, DIRECTV U.S. acquired the subscribers and certain assets, consisting
primarily of accounts receivable, of Pegasus for a total purchase price of $987.9 million. The total net
cash consideration DIRECTV U.S. paid to Pegasus amounted to $773.0 million, which is the total
purchase price net of amounts owed by Pegasus for programming and other services, and a May 2004
$63 million judgment in favor of DIRECTV U.S. As a result of the transaction, DIRECTV U.S.
recorded a subscriber related intangible asset in ‘‘Intangible Assets, net’’ in our Consolidated Balance
Sheets amounting to $951.3 million, which DIRECTV U.S. is amortizing over the estimated subscriber
lives of approximately five years.
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