DIRECTV 2005 Annual Report Download - page 92

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(continued)
‘‘Assets of business held for sale’’ and ‘‘Liabilities of business held for sale’’ in our Consolidated
Balance Sheets were as follows:
December 31,
2004
(Dollars in Millions)
Total current assets .................................. $314.3
Total assets ........................................ 521.1
Total current liabilities ................................ 204.9
Total liabilities ...................................... 240.6
Hughes Network Systems—Set-Top Receiver Manufacturing Operations
As part of our sale of HNS’ set-top receiver manufacturing operations to Thomson for
$250.0 million in cash in June 2004, DIRECTV U.S. entered into a long-term purchase agreement, or
the Agreement, with Thomson for the supply of set-top receivers. The proceeds in excess of the book
value of the HNS assets sold of approximately $200 million have been deferred and will be recognized
over the term of the Agreement, as described below. As part of the Agreement, as amended,
DIRECTV U.S. can earn a $57.0 million rebate from Thomson if Thomson’s aggregate sales of
DIRECTV U.S.’ set-top receivers equal at least $4.0 billion over the initial five year contract term plus
an optional one year extension period, or the Contract Term. Also as part of the Agreement, as
amended, DIRECTV U.S. can earn, on a pro rata basis, an additional $63.0 million rebate from
Thomson if Thomson’s aggregate sales of DIRECTV U.S.’ set-top receivers are in excess of $4.0 billion
and up to $5.7 billion during the Contract Term. The approximate $200 million of deferred proceeds
have been recorded in ‘‘Accrued liabilities and other’’ and ‘‘Other Liabilities and Deferred Credits’’ in
our Consolidated Balance Sheets and is recognized as an offset to ‘‘Subscriber acquisition costs’’ and
‘‘Upgrade and retention costs’’ in our Consolidated Statements of Operations, as appropriate, on a pro
rata basis as the set-top receivers purchased from Thomson are activated. DIRECTV U.S. has
determined that, based upon projected set-top receiver requirements, it is probable and reasonably
estimable that the minimum purchase requirement will be met for the $57.0 million rebate during the
initial contract period. DIRECTV U.S. records a proportionate amount of the $57.0 million rebate as a
credit to ‘‘Subscriber acquisition costs’’ and ‘‘Upgrade and retention costs’’ in our Consolidated
Statements of Operations upon set-top receiver activation over the initial contract period with a
corresponding entry to ‘‘Accounts and notes receivable, net’’ in our Consolidated Balance Sheets. As a
result, in 2005 DIRECTV U.S. recognized $46.3 million of the deferral and the initial rebate in our
Consolidated Statements of Operations. DIRECTV U.S. recognized $21.4 million of the deferral and
rebate in 2004.
We included the approximately $200 million in cash received from Thomson in cash flows from
operating activities in the Consolidated Statements of Cash Flows for the year ended December 31,
2004.
As we expect to have significant continuing transactions with the set-top receiver manufacturing
operations resulting from the Agreement, the financial results of the set-top receiver manufacturing
operations prior to June 2004 are reported in continuing operations, and not as a discontinued
operation.
HNS’ operating results are included in continuing operations in our Consolidated Statements of
Operations through April 22, 2005. The following table sets forth our pro forma revenues and
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