DIRECTV 2006 Annual Report Download - page 51

THE DIRECTV GROUP, INC.
SIGNIFICANT EVENTS AFFECTING THE COMPARABILITY OF THE RESULTS OF OPERATIONS
Acquisitions
Sky Transactions. During 2006, we completed the last in a series of transactions that were agreed
in October 2004 with News Corporation, Televisa, Globo and Liberty, which we refer to as the Sky
Transactions. The Sky Transactions were designed to strengthen the operating and financial
performance of DTVLA by consolidating the DTH platforms of DIRECTV and SKY in Latin America
into a single platform in each of the major territories served in the region. These transactions were
completed as follows:
• On August 23, 2006, we completed the merger of our Brazil business, Galaxy Brasil Ltda., or
GLB, with Sky Brazil and completed the purchase of News Corporation’s and Liberty’s interests
in Sky Brazil. We hold a 74% interest in the combined business. The purchase consideration for
the transaction amounted to $670.0 million, represented by $396.4 million in cash paid, of which
we paid $362.0 million to News Corporation and Liberty in 2004, the $63.6 million fair value of
the reduction of our interest in GLB resulting from the merger and the assumption of Sky
Brazil’s $210.0 million bank loan.
We accounted for the Sky Brazil acquisition using the purchase method of accounting, and
began consolidating Sky Brazil’s results from the date of acquisition. We also accounted for the
reduction of our interest in GLB resulting from the merger as a partial sale, which resulted in
our recording of a one-time pre-tax gain during the year ended December 31, 2006 of
approximately $60.7 million in ‘‘(Gain) loss from disposition of businesses and impairment
charges, net’’ in the Consolidated Statements of Operations.
• On February 16, 2006, we completed the acquisition of our equity interest in Sky Mexico, which
included the acquisition of an equity interest in Sky Mexico in exchange for the sale of our
DIRECTV Mexico subscribers to Sky Mexico and the acquisition of News Corporation’s and
Liberty’s interests in Sky Mexico for $373.0 million in cash. As a result of this transaction, we
recorded gains of $57.0 million during the year ended December 31, 2006 and $70.4 million
during the year ended December 31, 2005 to ‘‘(Gain) loss from disposition of businesses and
impairment charges, net’’ in the Consolidated Statements of Operations. During 2004, we
recorded an impairment charge of $36.5 million related to the shut-down of DIRECTV Mexico
that we also included in ‘‘(Gain) loss from disposition of businesses and impairment charges,
net’’ in the Consolidated Statements of Operations. DIRECTV Mexico ceased operations in
2005 upon completion of the migration of its subscribers to Sky Mexico. We account for our
41% interest in Sky Mexico under the equity method of accounting from the date of acquisition.
• On October 8, 2004, we acquired a 100% interest in Sky Multi-Country Partners and certain
related entities from News Corporation, Liberty, Globo and Televisa for $30.0 million in cash,
which we paid in 2004. As part of this transaction, News Corporation agreed to reimburse us
$127.0 million for the assumption of the Sky Multi-Country Partners entities’ net liabilities. We
received the $127.0 million reimbursement from News Corporation in August 2006. We began
consolidating the financial results of these entities in October 2004.
See Note 3 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual
Report for further information regarding the Sky Transactions.
Pegasus and NRTC Transactions. During the third quarter of 2004, DIRECTV U.S. completed the
acquisition of all Pegasus and NRTC subscribers, as described in Note 3 of the Notes to the
Consolidated Financial Statements in Item 8, Part II of this Annual Report, which resulted in our
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