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DTV » Topics » Note 4: (Gain) Loss on Disposition of Businesses and Impairment Charges

This excerpt taken from the DTV 10-K filed Mar 1, 2007.

Note 4: (Gain) Loss on Disposition of Businesses and Impairment Charges

        We recorded the following transactions in "(Gain) loss from disposition of businesses and impairment charges, net" in our Consolidated Statement of Operations during the years ended December 31:

 
   2006
   2005
   2004
 
   (Dollars in Millions)
Sky Brazil gain on sale of partial sale of GLB interest   $ (60.7 ) $ —   $ —
DIRECTV Mexico gain on sale of subscriber list     (57.0 )   (70.4 )   —
DIRECTV Mexico impairment charge     —     —     36.5
HNS—SkyTerra transaction impairment charge     —     25.3     190.6
SPACEWAY impairment charge     —     —     1,466.1
   
 
 
  Total   $ (117.7 ) $ (45.1 ) $ 1,693.2
   
 
 

        See Note 3 for further discussion of the Sky Brazil, DIRECTV Mexico and HNS-SkyTerra transactions.

    SPACEWAY Impairment Charge

        In the third quarter of 2004, we decided to utilize certain of our SPACEWAY assets for DIRECTV U.S. HD programming, which included two satellites, SPACEWAY 1 and SPACEWAY 2, that were nearing completion, and related ground segment equipment and systems. Our decision to no longer use these assets for the SPACEWAY broadband service triggered an impairment test of our investment in the SPACEWAY assets. The SPACEWAY system was designed as a next-generation satellite-based broadband data platform intended to upgrade and expand HNS' broadband data businesses. Since the book value of the SPACEWAY system had been supported by the expected cash flows from the SPACEWAY broadband business plan that management no longer intended to pursue, the assets were considered impaired. Further, a majority of the capitalized value of the SPACEWAY assets related to functionality that will not be utilized for the DTH business. The impairment charge was determined by comparing the fair value of the SPACEWAY assets to their book value as of September 30, 2004. The fair value of the two satellites and certain related ground segment assets was determined based on the fair value of those assets as configured to DIRECTV U.S.' DTH business.

        Based on the results of this analysis, we reduced the capitalized value of the SPACEWAY assets in "Satellites, net" by $1.099 billion to $305.0 million, and the capitalized value in "Property and Equipment, net" by about $367 million to $30 million. These reductions were recorded as a $1.466 billion pre-tax loss in "(Gain) loss from disposition of businesses and impairment charges, net"

82


($903.0 million after-tax) in our Consolidated Statements of Operations during the third quarter of 2004.

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