DIRECTV 2005 Annual Report Download - page 91

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THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(continued)
72.5 WL Orbital License
As part of an arrangement with Telesat Canada, or Telesat, a Canadian telecommunications and
broadcast services company, DIRECTV U.S. agreed to provide Telesat the use of the DIRECTV 3
satellite, which was previously used as an in-orbit spare, through the end of its useful life and in return,
Telesat agreed to allow DIRECTV U.S. to use its 72.5 degrees west longitude, or WL, orbital location
through 2008. As additional consideration for DIRECTV U.S.’ use of 72.5 WL, DIRECTV U.S. also
agreed to allow Telesat to use DIRECTV 5 or a similar satellite for a five year period, subject to
certain conditions, beginning at the end of 2008. Upon receipt of final approval from the Federal
Communications Commission, or FCC, in the third quarter of 2004, DIRECTV U.S. transferred
DIRECTV 3 to Telesat and relocated one of its satellites to 72.5 WL to provide additional local
channels and other programming in the United States. We recorded these transactions as an exchange
of similar productive assets based on the net book values of the assets exchanged. As a result, we
recorded a $162.6 million 72.5 WL orbital license intangible asset, which is equal to the $71.5 million
net book value of the DIRECTV 3 satellite transferred from satellites, net, and an accrual for deferred
lease revenues of $91.1 million, representing the value of the transferred satellite over the five year
lease period. We are amortizing the 72.5 WL orbital license intangible asset over the four year contract
period and will recognize the deferred lease revenues as an offset to depreciation expense during the
five year lease period beginning at the end of 2008.
Divestitures
Hughes Network Systems—SkyTerra Transaction
On December 6, 2004, we announced an agreement, which we refer to as the SkyTerra transaction,
to sell a 50% interest in HNS LLC to SkyTerra. On April 22, 2005, upon receipt of regulatory approval
and completion of the required financing transactions, we completed the contribution of the HNS net
assets to HNS LLC and the sale of the 50% interest in HNS LLC to SkyTerra. In exchange for our
contribution of the HNS assets to HNS LLC we received cash proceeds of $196.0 million, and for the
sale of the 50% interest in HNS LLC, we received proceeds of $61.4 million, including cash of
$50.0 million, and 300,000 shares of SkyTerra common stock with a fair value of $11.4 million.
We recorded pre-tax impairment charges of $25.3 million during 2005 to ‘‘(Gain) loss from asset
sales and impairment charges, net’’ in our Consolidated Statements of Operations primarily related to
an increase in the book value of the assets contributed in excess of the fair value indicated by the sale
price. Including the $25.3 million of charges in 2005 and the $190.6 million charge we recorded upon
announcement of this transaction in the fourth quarter of 2004, the total impairment charge related to
this transaction was $215.9 million.
In January 2006, we completed the sale of our remaining 50% interest in HNS LLC to SkyTerra.
‘‘Assets of business held for sale’’ and ‘‘Liabilities of business held for sale’’ in the Consolidated
Balance Sheets as of December 31, 2004 include substantially all of the remaining assets and liabilities
of HNS. The carrying amounts of major classes of HNS’ assets and liabilities that were included in
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