DIRECTV 2006 Annual Report Download - page 90

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THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(continued)
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
$63.0 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.
72.5WL Orbital License
As part of an arrangement with Telesat Canada, a Canadian telecommunications and broadcast
services company, DIRECTV U.S. agreed to provide Telesat the use of a DIRECTV 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 72.5west longitude, or WL, orbital location through 2008. As
additional consideration for DIRECTV U.S.’ use of 72.5WL, DIRECTV U.S. also agreed to allow
Telesat to use an additional DIRECTV 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 in the third quarter of 2004, DIRECTV U.S. transferred the first satellite to Telesat and
relocated one of its satellites to 72.5WL to provide additional local channels and other programming
in the United States. We recorded these transactions based on the net book values of the assets
exchanged. As a result, we recorded a $162.6 million 72.5WL orbital license intangible asset, which is
equal to the $71.5 million net book value of the first satellite provided to Telesat which was transferred
from satellites, net, and an accrual for deferred lease revenues of $91.1 million, representing the value
of the additional satellite over the five year lease period beginning at the end of 2008. We are
amortizing the 72.5WL orbital license intangible asset over the 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
On April 22, 2005, we completed the contribution of substantially all of HNS’ net assets to a new
entity, HNS LLC, in exchange for cash proceeds of $196.0 million and sold a 50% interest in HNS
LLC to SkyTerra in exchange for cash proceeds 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 and $190.6 million during
2004 to ‘‘(Gain) loss from disposition of businesses and impairment charges, net’’ in our Consolidated
Statements of Operations related to this transaction.
In January 2006, we completed the sale of our remaining 50% interest in HNS LLC to SkyTerra,
and resolved a working capital adjustment from the prior transaction, in exchange for $110.0 million in
cash, which resulted in our recording in the first quarter of 2006 a gain of $13.5 million related to the
sale in ‘‘Other, net’’ in the Consolidated Statements of Operations.
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
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