DIRECTV 2008 Annual Report Download - page 118

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THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
operations: DIRECTV Puerto Rico and Liberty Cablevision of Puerto Rico Ltd. We refer to the FCC’s
requirements as the ‘‘Puerto Rico Condition’’. Because neither News Corporation nor Liberty Media
could satisfy the Puerto Rico Condition, in connection with the close of the transaction a Special
Committee of independent directors of our Board of Directors approved an agreement with News
Corporation and Liberty Media in which we assumed responsibility for the satisfaction, modification or
waiver of the Puerto Rico Condition within the one year period specified by the FCC. As part of this
agreement, during the first quarter of 2008, we received a $160 million cash capital contribution, which
we recorded as ‘‘Additional paid-in-capital’’ in the Consolidated Balance Sheets.
In order to comply with terms of the FCC order, effective February 25, 2009, we placed the shares
of DIRECTV Puerto Rico into a trust and appointed an independent trustee who will oversee the
management and operation of DIRECTV Puerto Rico, and will have the authority, subject to certain
conditions, to divest ownership of DIRECTV Puerto Rico. We will continue to consolidate the results
of DIRECTV Puerto Rico following this transaction.
Redeemable Minority Interest
In connection with our acquisition of Sky Brazil in 2006, our partner who holds the remaining
25.9% interest, Globo was granted the right, until January 2014, to require us to purchase all or a
portion (but not less than half) of its shares in Sky Brazil. Upon exercising this right, the fair value of
Sky Brazil shares will be determined, by mutual agreement or by an outside valuation expert, and we
have the option to elect to pay for the Sky Brazil shares in cash, shares of our common stock or a
combination of both. As of December 31, 2008, we estimate that Globo’s 25.9% equity interest in Sky
Brazil has a fair value of approximately $325 million to $450 million. We determined the range of fair
values using significant unobservable inputs, which are Level 3 inputs under SFAS No. 157.
Litigation
Litigation is subject to uncertainties and the outcome of individual litigated matters is not
predictable with assurance. Various legal actions, claims and proceedings are pending against us arising
in the ordinary course of business. We have established loss provisions for matters in which losses are
probable and can be reasonably estimated. Some of the matters may involve compensatory, punitive, or
treble damage claims, or demands that, if granted, could require us to pay damages or make other
expenditures in amounts that could not be estimated at December 31, 2008. After discussion with
counsel representing us in those actions, it is the opinion of management that such litigation is not
expected to have a material adverse effect on our consolidated financial statements.
Finisar Corporation. As previously reported, we were successful in 2008 getting the jury verdict in
the Finisar case vacated on appeal. The original verdict found the patent to be valid and willfully
infringed, and the jury awarded approximately $79 million in damages. The trial court increased the
damages award by $25 million because of the jury finding of willful infringement and awarded
pre-judgment interest of $13 million. DIRECTV was also ordered to pay into escrow $1.60 per new
set-top receiver manufactured for use with the DIRECTV system beginning June 17, 2006 and
continuing until the patent expires in 2012 or was otherwise found to be invalid. On April 18, 2008, the
Court of Appeals reversed the verdict of the district court in part, vacated the findings of infringement,
and remanded for further proceedings on the remaining issues finding that the district court had
applied erroneous interpretations of certain terms of the claims. The Court found a principal
independent claim to be anticipated and therefore invalid, and remanded for further proceedings
regarding validity of other asserted claims in view of this finding. The Court reversed the verdict of
105