DIRECTV 2006 Annual Report Download - page 89

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(continued)
requirements, we earned a variable note receivable from Sky Mexico and we recorded a corresponding
gain of $70.4 million during the year ended December 31, 2005 in ‘‘(Gain) loss from disposition of
businesses and impairment charges, net’’ in our Consolidated Statements of Operations. At completion
of the transaction in February 2006, we recorded an additional gain of $57.0 million in ‘‘(Gain) loss
from disposition of businesses and impairment charges, net’’ in our Consolidated Statements of
Operations when DLA LLC received an equity interest in Sky Mexico resulting from the sale of
DIRECTV Mexico’s subscriber list and transfer of subscribers to Sky Mexico and cancellation of the
note receivable. Also in February 2006, we acquired News Corporation’s and Liberty’s equity interests
in Sky Mexico for $373.0 million in cash. On April 27, 2006, Televisa acquired a portion of our equity
interest in Sky Mexico at book value for $58.7 million in cash. As a result of these transactions, we
hold a 41% interest in Sky Mexico. We account for our investment in Sky Mexico using the equity
method of accounting. See Note 7 for additional information regarding this investment.
Other. In 2004, we acquired Sky Multi-Country Partners and related entities for $30.0 million in
cash. As part of this transaction, News Corporation agreed to reimburse us $127.0 million for the Sky
entities’ net liabilities we assumed, which we received from News Corporation in August 2006.
NRTC Contract Rights and Member Subscribers
Effective June 1, 2004, DIRECTV U.S. and the National Rural Telecommunications Cooperative,
or 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 a 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. is
amortizing the distribution rights intangible asset of $334.1 million that was recorded as part of the
transaction, which includes the present value of the cash payments and fees associated with the
transactions 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 2004, all NRTC members,
representing approximately 357,000 subscribers, excluding Pegasus Satellite Television, Inc., elected to
sell their subscribers to DIRECTV U.S. During 2004 we paid $187.2 million to members electing a
lump-sum payout plus additional fees associated with the transaction and recorded $198.3 million in
‘‘Accounts payable and accrued liabilities’’ 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, 2006, DIRECTV U.S. owes the NRTC and its members who elected the
long-term payment option $357.1 million, which is payable as follows: $71.0 million in 2007,
$75.3 million in 2008, $79.9 million in 2009, $83.3 million in 2010, and $47.6 million in 2011. These
amounts are recorded in ‘‘Accounts payable and accrued liabilities’’ 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
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