DIRECTV 2007 Annual Report Download

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raising the bar
DIRECTV
Annual Report
2007

Table of contents

  • Page 1
    raising the bar DIRECTV Annual Report 2007

  • Page 2
    we're jumping hurdles to bring you the best television experience

  • Page 3

  • Page 4
    ... of operating profit before depreciation and amortization, see Summary Data in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in The DIRECTV Group, Inc.'s Form 10-K for the year ended December 31, 2007, included in this Annual Report. 2 DIRECTV

  • Page 5
    ... pay television market and our customers. We added a record 2 million HD and/or DVR customers in 2007, bringing our total penetration of advanced services to over 40% of our subscriber base. Importantly, the pace has been accelerating, as over 50% of our new subscribers purchased advanced services...

  • Page 6
    ... Augusta National Golf Club. In addition, an array of statistics, scores and on-demand video clips will be accessible with a DIRECTV remote control. We've also added new features to some of our more popular packages. Fans of our NFL SUNDAY TICKET™ SuperFan® package enjoyed a new service - giving...

  • Page 7
    ...on DEMAND customers can access thousands of titles and download them via the Internet. We also recently launched our DVR Scheduler service, which allows customers to remotely record shows to their DVR through directv.com or DIRECTV LATIN AMERICA - Exceeding Expectations 2007 was the first full year...

  • Page 8
    ... in their homes. An important first step toward meeting this goal is our new DIRECTV™ MediaShare service, which enables customers t view pictures, music and video content to fr rom m their their PC on their TV. MediaShare will from al lso o allow all llow ll o customers to watch recorded ow also...

  • Page 9
    ... is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes អ No ፤ As of June 30, 2007, the aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates was $16,870,584,993. This amount excludes Fox Entertainment Group, Inc.'s approximately...

  • Page 10
    ... and Qualitative Disclosures About Market Risk ...Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm ...Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005 ...Consolidated Balance Sheets as of December...

  • Page 11
    ... our objectives, plans or goals also are forward-looking statements. All of these forward-looking statements are subject to certain risks and uncertainties including, without limitation, risk factors discussed in more detail in Item 1A of this Annual Report, which could cause our actual results to...

  • Page 12
    ... direct-to-home, or DTH, digital television services and the second largest provider in the multi-channel video programming distribution, or MVPD, industry in the United States. As of December 31, 2007, DIRECTV U.S. had over 16.8 million subscribers. • DIRECTV Latin America. DIRECTV Latin America...

  • Page 13
    ... to the DIRECTV↦ service, subscribers acquire receiving equipment from either us, our national retailers, independent satellite television retailers or dealers, or regional Bell operating companies, or RBOCs. Most set-top receivers provided to new and existing subscribers are leased subsequent to...

  • Page 14
    ... new subscribers. • Valuable Orbital Slots and Satellite-Based Technology. We believe our regulatory authorization to use desirable orbital slots and broadcast spectrum helps sustain our position as one of the leading companies in the MVPD industry. The Federal Communications Commission, or FCC...

  • Page 15
    ... new DIRECTV Plus↦ DVR or DIRECTV Plus↦ HD-DVR. The service, named DIRECTV On-Demand, will have thousands of hours of top programming from the major broadcast and cable networks, as well as movies that can be accessed from a subscriber's receiver, and programming that will be downloaded through...

  • Page 16
    ... Plus HD-DVR to access applications such as pictures, music and home video from their personal computer. Also in 2007, we introduced a portable DIRECTV service called DIRECTV↦ Sat-Go that enables remote viewing of DIRECTV's programming. In 2008, we plan to add the ability to watch HD television...

  • Page 17
    ..., located in Castle Rock, Colorado and Los Angeles, California. These facilities provide the majority of our national and local standarddefinition and HD programming. We have also built five uplink facilities which are used to provide HD local channels. Our broadcast centers receive programming from...

  • Page 18
    ... digital cable, HD local channels, broadband Internet access and telephony services. Cable companies bundle these services, offering discounts and providing one bill to the consumer. • Other Direct Broadcast Satellite and Direct-To-Home Satellite System Operators. We also compete with Dish Network...

  • Page 19
    ... video programming and delivers it in digital format using the Internet protocol to a RBOC's headend by satellite, for delivery over the RBOC's digital subscriber lines. SES also offers headend equipment and consumer set-top boxes. This service officially launched in September 2007. Intelsat...

  • Page 20
    ...% equity interest in Sky Mexico in exchange for the sale of DIRECTV Mexico subscribers to Sky Mexico, as well as our acquisition of News Corporation's and Liberty Media International's interests in Sky Mexico. • On August 23, 2006, we completed the merger of our Brazil business, Galaxy Brasil Ltda...

  • Page 21
    ... our cable competitors and access new segments of the markets in which we operate. We began to actively market pre-paid services in Venezuela in early 2007, and plan to launch this service in other countries in 2008. No other MVPD operator in Latin America currently offers pre-paid services. Unlike...

  • Page 22
    ... from cable services, Telefonica, the Spanish telephone company, launched DTH services in Peru, Chile and Brazil in 2006, and Colombia in 2007. To date it has offered DTH programming services only to users of voice telephony and broadband services provided by Telefonica's affiliates in Latin America...

  • Page 23
    ... the MVPD industry or our business. FCC Regulation Under the Communications Act and Related Acts. The Communications Act and other related acts give the FCC broad authority to regulate the operations of our company. The ownership and operation of our DBS/DTH system is regulated by the FCC primarily...

  • Page 24
    ...operator we are subject to a variety of Communications Act requirements, FCC regulations and copyright laws that could materially affect our business. They include the following: • Local-into-Local Service and Limitation on Retransmission of Distant Broadcast Television Signals. The Satellite Home...

  • Page 25
    ... FCC recently determined that cable operators must engage in ''dual carriage'' of local broadcast signals as these broadcasters upgrade their signals to digital transmission, and must make signals available to all viewers with analog televisions after the transition to digital television is complete...

  • Page 26
    ...as the one used by direct broadcast satellite and Ku-Band-based fixed satellite services. In the same proceeding, the FCC concluded that multi-channel video and data distribution services, or MVDDS, can share spectrum with DBS operators on a non-interference basis, and adopted rules and a method for...

  • Page 27
    ... non-discriminatory access to much of the programming carried on the DIRECTV service. We cannot predict what effect our compliance with or the FCC's enforcement of the remaining conditions will have on our business. In addition, in applying for authority to acquire News Corporation's interest in...

  • Page 28
    ... also apply to the FCC for a waiver of FCC rules if there are other local concerns of a special or unusual nature. In addition, a number of state and local governments have attempted to impose consumer protection, customer service and other types of regulation on DBS operators. Also, while Congress...

  • Page 29
    ... our employee relations are good. None of our employees is represented by labor unions in the United States. In some countries in Latin America there are labor unions with which we have a good working relationship. ACCESS TO COMPANY REPORTS Our website address is www.directv.com. Our Annual Reports...

  • Page 30
    ...key component of our business strategy is our ability to expand our offering of new programming and services, including increased local and HD programming. In order to accomplish this goal, we need to construct and launch new satellites. The construction and launch of satellites are often subject to...

  • Page 31
    ...business purposes. Any single anomaly or series of anomalies could materially adversely affect our operations and revenues and our relationships with our subscribers, as well as our ability to attract new subscribers for our services. Anomalies may also reduce the expected useful life of a satellite...

  • Page 32
    ... high-speed Internet access or telephone service on upgraded cable systems; and • having the ability to provide certain local and other programming, including HD programming, in a larger number of geographic areas. In addition, cable television operators have grown their subscriber bases through...

  • Page 33
    ... system operators. Currently, under certain provisions of the Communications Act governing access to programming, cable-affiliated programmers generally must sell and deliver their programming services to all MVPDs on non-discriminatory terms and conditions. The Communications Act and the FCC rules...

  • Page 34
    ...capacity that could otherwise be used for new or additional local or national programming services. In addition, the FCC has begun to consider an obligation for carriage of local digital broadcast transmissions after the digital television transition currently scheduled for February 17, 2009. If the...

  • Page 35
    ... of the subscriber's purchase or lease of a DIRECTV System. In addition, we pay commissions to retailers for their efforts in offering a DIRECTV System at a lower cost to consumers. Our subscriber acquisition costs may materially increase to the extent we continue or expand current sales promotion...

  • Page 36
    ... with new entrants in the market for video services. Satellite programming signals have been stolen and may be stolen in the future, which could result in lost revenues and would cause us to incur incremental operating costs that do not result in subscriber acquisition. The delivery of subscription...

  • Page 37
    ... making payments, these increased costs of doing business could materially adversely affect our operating results. We are currently being sued in patent infringement actions related to use of technologies in our DTH business. There can be no assurance that the courts will conclude that our services...

  • Page 38
    ... the amount of programming and other services available to our subscribers. The materiality of such a loss of authorization would vary based upon, among other things, the orbital location at which the frequencies may be used. In addition, many of our authorizations and pending applications will be...

  • Page 39
    ...interests may differ from ours. As of December 31, 2007, News Corporation held approximately 41% of the issued and outstanding shares of our common stock. K. Rupert Murdoch, Chairman and Chief Executive of News Corporation, is the Chairman of our Board of Directors, and Chase Carey, who was formerly...

  • Page 40
    ... effect of discouraging offers to acquire control of us and may preclude holders of our common stock from receiving any premium above market price for their shares that may be offered in connection with any attempt to acquire control of us. On December 22, 2006, News Corporation agreed to exchange...

  • Page 41
    ... Operations, LLC, and The DIRECTV Group, Inc.; Thomson Inc.; and EchoStar Communications Corporation, EchoStar Satellite Corporation and EchoStar Technologies Corporation. The action alleges infringement of three U.S. patents and seeks unspecified damages and injunctive relief. Gemstar Development...

  • Page 42
    ...Under this grant, we would be obligated to pay Finisar $1.60 per new set-top box manufactured for use with the DIRECTV system beginning June 17, 2006 and continuing until the patent expires in 2012 or is otherwise found to be invalid. The Court also increased the damages award by $25 million because...

  • Page 43
    THE DIRECTV GROUP , INC. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock Price Effective December 3, 2007, our common stock is publicly traded on The NASDAQ Global Select Market under the symbol ''DTV.'' ...

  • Page 44
    THE DIRECTV GROUP , INC. Share Repurchase Program During 2006 and 2007 our Board of Directors approved multiple authorizations for the repurchase of a total of $5 billion of our common stock, the most recent of which was a $1 billion authorization in August 2007 that was completed in December 2007. ...

  • Page 45
    THE DIRECTV GROUP , INC. ITEM 6. SELECTED FINANCIAL DATA Years Ended and As of December 31, 2007 2006 2005 2004 2003 (Dollars in Millions, Except Per Share Amounts) Consolidated Statements of Operations Data: Revenues ...Total operating costs and expenses ...Operating profit (loss) ...Income (loss)...

  • Page 46
    ...included elsewhere in this Annual Report. Information in this section is organized as follows: • Summary Results of Operations and Financial Condition • Significant Events Affecting the Comparability of the Results of Operations • Key Terminology Used in Management's Discussion and Analysis of...

  • Page 47
    ... operations, net of taxes ...Net income ...Weighted average number of common shares outstanding (in millions) Basic ...Diluted ... December 31, 2007 2006 (Dollars in Millions) Consolidated Balance Sheet Data: Cash and cash equivalents ...Total current assets ...Total assets ...Total current...

  • Page 48
    ...and investing activities), to compare our operating performance to other communications, entertainment and media companies. We believe that investors also use current and projected free cash flow to determine the ability of revenues from our current and projected subscriber base to fund required and...

  • Page 49
    ...19) 160 141 Operating profit margin ...Operating profit before depreciation and amortization margin Segment assets ...Capital expenditures (1) ...DIRECTV Latin America Revenues ...% of total revenues ...Operating profit (loss) ...Add: Depreciation and amortization expense ...Operating profit before...

  • Page 50
    ... Sky Mexico in exchange for the sale of our DIRECTV Mexico subscribers to Sky Mexico and the acquisition of News Corporation's and Liberty Media International's equity interests in Sky Mexico for $373 million in cash. As a result of this transaction, we recorded gains of $57 million during the year...

  • Page 51
    ... leased equipment-upgrade and retention ...Total subscriber leased equipment capitalized ...Depreciation expense-subscriber leased equipment ... $ 762 774 $1,536 $ 645 $ 599 473 $1,072 $ 147 Share Repurchase Program. During 2006 and 2007 our Board of Directors approved multiple authorizations...

  • Page 52
    ...commissions we pay to national retailers, independent satellite television retailers, dealers, regional Bell operating companies, and the cost of installation, advertising, marketing and customer call center expenses associated with the acquisition of new subscribers. Set-top receivers leased to new...

  • Page 53
    ... receivers capitalized in 2007 under the lease program introduced on March 1, 2006, partially offset by higher subscriber acquisition, upgrade and retention costs due to the increased number of new and existing subscribers adding HD and DVR services. In 2008, we expect both operating profit before...

  • Page 54
    ... 2006, partially offset by higher subscriber acquisition and upgrade and retention costs at DIRECTV U.S. due to an increased number of new and existing subscribers adding HD and DVR services and gains totaling $118 million for the completion of the Sky Mexico and Sky Brazil transactions in 2006. We...

  • Page 55
    THE DIRECTV GROUP , INC. the DIRECTV U.S.' lease program and the acquisition of Sky Brazil. We discuss these changes for each of our segments in more detail below. Interest income. The decrease in interest income from $146 million in 2006 to $111 million in 2007 was due to lower average cash and ...

  • Page 56
    ... ARPU and the larger subscriber base. The increase in ARPU resulted primarily from price increases on programming packages, higher HD and DVR equipment and service fees, and an increase in lease fees due to higher average number of receivers per subscriber. Operating profit before depreciation and...

  • Page 57
    ... in 2007. Subscriber service expenses increased due to the larger subscriber base in 2007. Broadcast operations expense increased in 2007 due primarily to costs to support new HD local channel markets. Subscriber acquisition costs increased due to higher advertising and direct sales marketing costs...

  • Page 58
    ...the acquisition of Sky Brazil and subscriber growth at DIRECTV Latin America, partially offset by the decrease in revenues from the Network Systems segment that resulted from the divestiture of the HNS business. We discuss these changes for each of our segments in more detail below. Operating profit...

  • Page 59
    THE DIRECTV GROUP , INC. Operating profit. The following table presents our operating profit (loss) by segment: 2006 Change 2005 $ % (Dollars in Millions) Operating profit (loss) by segment: DIRECTV U.S...DIRECTV Latin America Network Systems ...Corporate and Other ... ... ... ... ... ... ... ... ...

  • Page 60
    ... and the larger subscriber base. The increase in ARPU resulted primarily from price increases on programming packages and an increase in the number of subscribers paying mirroring, lease, DVR and HD programming fees, and equipment upgrade fees. Operating profit before depreciation and amortization...

  • Page 61
    ... subscriber base and an increase in service calls and costs incurred at our call centers to support the increase in the number of subscribers with advanced products. Broadcast operations expenses increased as a result of the costs to support new HD local channel markets and launch of new advanced...

  • Page 62
    ... operating profit was primarily due to gains totaling $118 million for the completion of the Sky Mexico and Sky Brazil transactions in 2006, and an increase in gross profit resulting from the increase in revenues, partially offset by the $70 million gain recorded during 2005, also related to the Sky...

  • Page 63
    ...common stock. For the year ended December 31, 2007, we repurchased 86 million shares for $2 billion, at an average price of $23.48 per share under our share repurchase program. We expect to fund our cash requirements and our existing business plan using our available cash balances, and cash provided...

  • Page 64
    ... billing services, telemetry, tracking and control services and broadcast center services. In most cases, actual payments, which are typically based on volume, usually exceed these minimum amounts. (c) Certain of the operating leases contain escalation clauses and renewal or purchase options, which...

  • Page 65
    ... Sporting Events. We charge the cost of multi-year programming contracts for live sporting events with minimum guarantee payments, such as DIRECTV U.S.' agreement with the NFL, to expense based on the ratio of each period's contract revenues to the estimated total contract revenues to be earned over...

  • Page 66
    ... Lives of Leased Set-Top Receivers. We currently lease most set-top receivers provided to new and existing subscribers and therefore capitalize the cost of those set-top receivers. We depreciate capitalized set-top receivers at DIRECTV U.S. over a three year estimated useful life, which is based on...

  • Page 67
    ... the Contract Term. DIRECTV U.S. bases its probability assessment for meeting the minimum purchase requirement on its current and future business projections, including its belief that existing and new subscribers will likely acquire new set-top receivers due to certain technological advances. Any...

  • Page 68
    THE DIRECTV GROUP , INC. Currently, The DIRECTV Group has the following security rating: Long-term Corporate Rating Outlook Standard & Poor's ...Currently, DIRECTV U.S. has the following security ratings: Senior Secured BB Stable Senior Unsecured Corporate Outlook Standard & Poor's ...Moody's...

  • Page 69
    ... primarily of DIRECTV U.S.' fixed rate borrowings of $1,910 million and variable rate borrowings of $1,483 million. As of December 31, 2007, a hypothetical one percentage point increase in interest rates related to our outstanding variable rate debt would have increased our annual interest expense...

  • Page 70
    ...and effective December 31, 2006 the Company adopted the other provisions of SFAS No. 158. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2007, based on...

  • Page 71
    ...Subscriber service expenses ...Broadcast operations expenses ...Selling, general and administrative expenses, exclusive of depreciation and amortization expense Subscriber acquisitions costs ...Upgrade and retention costs ...General and administrative expenses ...Gain from disposition of businesses...

  • Page 72
    THE DIRECTV GROUP , INC. CONSOLIDATED BALANCE SHEETS December 31, 2007 2006 (Dollars in Millions, Except Share Data) ASSETS Current assets Cash and cash equivalents ...Short-term investments ...Accounts and notes receivable, net of allowances of $56 Inventories ...Deferred income taxes ...Prepaid ...

  • Page 73
    ... ...Balance at December 31, 2006 ...Net Income ...Stock repurchased and retired ...Stock options exercised and restricted stock units vested and distributed ...Share-based compensation expense ...Tax benefit from stock option exercises . Other ...Adjustment to initially record cumulative effect of...

  • Page 74
    ... costs ...Stock options exercised ...Excess tax benefit from share-based compensation ... Net cash (used in) provided by financing activities ...Net (decrease) increase in cash and cash equivalents ...Cash and cash equivalents at beginning of the year ...Cash and cash equivalents at end of the year...

  • Page 75
    ... satellite to residential and commercial subscribers. • DIRECTV U.S. DIRECTV Holdings LLC and its subsidiaries, which we refer to as DIRECTV U.S., is the largest provider of direct-to-home, or DTH, digital television services and the second largest provider in the multi-channel video programming...

  • Page 76
    ... receivers and other equipment, commissions we pay to national retailers, independent satellite television retailers, dealers, regional Bell operating companies and the cost of installation, advertising, marketing and customer call center expenses associated with the acquisition of new subscribers...

  • Page 77
    ... a new residence), multiple set-top receiver offers, digital video recorder, or DVR, high-definition, or HD, local channel upgrade programs and other similar initiatives, and third party commissions we incur for the sale of additional set-top receivers to existing subscribers. We expense these costs...

  • Page 78
    ... we incur to issue debt and amortize these costs to interest expense using the straight-line method over the term of the respective obligation. Share-Based Payment We grant restricted stock units and common stock options to our employees. We recognize compensation expense equal to the fair value of...

  • Page 79
    ... and most of Latin America. As applicable, we maintain allowances for anticipated losses. Accounting Changes Uncertain Tax Positions. On January 1, 2007, we adopted FIN 48. The cumulative effect of adopting FIN 48 resulted in a $5 million increase to the January 1, 2007 balance of ''Accumulated...

  • Page 80
    ... assets recorded in purchase accounting. We are currently assessing the effect SFAS No. 141R will have on our consolidated results of operations and financial position when adopted, as required, on January 1, 2009. In February 2007, the FASB issued SFAS No. 159, ''The Fair Value Option for Financial...

  • Page 81
    ... Consolidated Balance Sheets include a subscriber related intangible asset to be amortized over six years and a trade name intangible asset to be amortized over 20 years from the Darlene Transaction. Sky Transactions During 2006 we completed the last in a series of transactions with News Corporation...

  • Page 82
    ... in Latin America into a single platform in each of the major territories in the region. Brazil. On August 23, 2006, we completed the merger of our Brazil business, Galaxy Brasil Ltda., or GLB, with and into Sky Brazil, and completed the purchase of News Corporation's and Liberty Media International...

  • Page 83
    ...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 Media International's equity interests in Sky Mexico for $373 million in cash...

  • Page 84
    ... assets to a new entity, Hughes Network Systems LLC, or HNS LLC, in exchange for cash proceeds of $196 million and sold a 50% interest in HNS LLC to SkyTerra in exchange for cash proceeds of $50 million and 300,000 shares of SkyTerra common stock with a fair value of $11 million. We recorded pre-tax...

  • Page 85
    ...On March 1, 2006, DIRECTV U.S. introduced a new set-top receiver lease program. Prior to March 1, 2006, most set-top receivers provided to new and existing DIRECTV U.S. subscribers were immediately expensed upon activation as a subscriber acquisition or upgrade and retention cost in the Consolidated...

  • Page 86
    ... of DIRECTV U.S. set-top receivers we capitalized, and depreciation expense we recorded, under the lease program for each of the periods presented: Years Ended December 31, 2007 2006 (Dollars in Millions) Capitalized subscriber leased equipment: Subscriber leased equipment-subscriber acquisitions...

  • Page 87
    ...of Sky Mexico ... $41 $18 In January 2006, we completed the sale of our 50% interest in HNS LLC to SkyTerra Communications, Inc. and resolved a working capital adjustment from a prior transaction in exchange for $110 million in cash, which resulted in our recording a gain of $14 million related to...

  • Page 88
    ... $1,366 Total other liabilities and deferred credits ...Note 8: Debt The following table sets forth our outstanding debt: Interest Rates at December 31, 2007 December 31, 2007 2006 (Dollars in Millions) 8.375% senior notes due in 6.375% senior notes due in Credit facility ...Sky Brazil bank loan...

  • Page 89
    ..., 2006 as part of the Sky Brazil transaction described in Note 3 above. In January 2007, we paid $210 million to the lending banks, who in turn assigned the loan to a wholly-owned subsidiary of The DIRECTV Group. As a result, this loan is no longer outstanding on a consolidated basis. Covenants and...

  • Page 90
    ... balance of $1,002 million and to pay related financing costs and accrued interest. Borrowings under the prior credit facility bore interest at a rate equal to LIBOR plus 1.75%. On May 19, 2005, we redeemed $490 million of our then outstanding $1,400 million 8.375% senior notes at a redemption price...

  • Page 91
    THE DIRECTV GROUP , INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(continued) Our income tax expense consisted of the following for the years ended December 31: 2007 2006 2005 (Dollars in Millions) Current tax (expense) benefit: U.S. federal ...Foreign ...State and local ...Total ...Deferred...

  • Page 92
    ..., 2007, the change in the valuation allowance was primarily attributable to a $497 million increase for the tax effect of foreign net operating losses acquired in the purchase of News Corporation's and Liberty Media International's interest in Sky Brazil for which a valuation allowance was recorded...

  • Page 93
    ... and ending balances of the total amounts of gross unrecognized tax benefits, excluding accrued interest, is as follows (in millions): Gross unrecognized tax benefits at January 1, 2007 . Increases in tax positions for prior years ...Increases in tax positions for current year ...Settlements ...$159...

  • Page 94
    ... 31: Other Pension Postretirement Benefits Benefits 2007 2006 2007 2006 (Dollars in Millions) Change in Net Benefit Obligation Net benefit obligation at beginning of year Service cost ...Interest cost ...Plan participants' contributions ...Actuarial loss (gain) ...Plan amendments ...Benefits paid...

  • Page 95
    ...DIRECTV GROUP , INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(continued) We estimate that the following amounts will be amortized from accumulated other comprehensive income into net periodic benefit cost during the year...31, 2007 and $430 million as of December 31, 2006. Information for ...

  • Page 96
    ... information Increase in minimum liability included in other comprehensive income (loss), net of taxes ...$ - $ 24 $ 7 $- $- $- Net periodic pension benefit costs for 2007 includes one month of expense, that was recorded as an adjustment to ''Accumulated deficit'' in the Consolidated Balance...

  • Page 97
    ...00% 2011 2011 A one-percentage-point change in assumed health care cost trend rates would have the following effects: 1-Percentage 1-Percentage Point Increase Point Decrease (Dollars in Millions) Effect on total of service and interest cost components ...Effect on postretirement benefit obligation...

  • Page 98
    ... reviewed by us and a designated third-party fiduciary for investment matters. We establish and administer the policy in a manner so as to comply at all times with applicable government regulations. There were no shares of our common stock included in plan assets at December 31, 2007 and 2006. Cash...

  • Page 99
    ...per share, 9,000,000 shares authorized. As of December 31, 2007 and 2006, there were no shares outstanding of the Class B common stock, excess stock or preferred stock. Share Repurchase Program During 2006 and 2007 our Board of Directors approved multiple authorizations for the repurchase of a total...

  • Page 100
    ...) The following table sets forth information regarding shares repurchased and retired for the years presented: December 31, 2007 2006 (Amounts in Millions, Except Per Share Amounts) Total cost of repurchased and retired shares ...Average price per share ...Number of shares repurchased and retired...

  • Page 101
    ...than the average market price of our common stock during the years presented: December 31, 2007 2006 2005 (Shares in Millions) Common stock options excluded ... 34 48 66 The following table sets forth comparative information regarding common shares outstanding: 2007 2006 2005 (Shares in Millions...

  • Page 102
    ... our Board of Directors. We issue new shares of our common stock when restricted stock units are earned and when stock options are exercised. Restricted Stock Units The Compensation Committee has granted restricted stock units under our stock plans to certain of our employees and executives. Annual...

  • Page 103
    ... 2007, $21 million during the year ended December 31, 2006 and $26 million during the year ended December 31, 2005. Stock Options The Compensation Committee has also granted stock options to acquire our common stock under our stock plans to certain of our employees and executives. The exercise price...

  • Page 104
    ... curve in effect at the time of grant. The expected option life is based on historical exercise behavior and other factors. 2007 Estimated fair value per option granted . . Average exercise price per option granted Expected stock volatility ...Risk-free interest rate ...Expected option life (in...

  • Page 105
    ...space; purchase of employee services; and use of facilities. The majority of payments under contractual arrangements with News Corporation entities relate to multi-year programming contracts. Payments under these contracts are typically subject to annual rate increases and are based on the number of...

  • Page 106
    ...DIRECTV Latin America, acquire, promote, sell and distribute digital entertainment programming via satellite to residential and commercial subscribers. Through April 22, 2005, we also operated the Network Systems segment, a provider of satellite-based private business networks and broadband Internet...

  • Page 107
    ... and business acquisitions. We believe this measure is useful to investors, along with GAAP measures (such as revenues, operating profit and net income), to compare our operating performance to other communications, entertainment and media service providers. We believe that investors use current and...

  • Page 108
    ...31, 2007, our minimum payments under agreements to purchase broadcast programming, and the purchase of services that we have outsourced to third parties, such as billing services, and satellite telemetry, tracking and control, satellite construction and launch contracts and broadcast center services...

  • Page 109
    ...payments under this estimated 15 year agreement, based on the life of the satellite, is approximately $247 million. We expect to account for this agreement as a capital lease. As part of an amended arrangement with Telesat Canada, a Canadian telecommunications and broadcast services company, DIRECTV...

  • Page 110
    ... will not have a material effect on our consolidated results of operations or financial position. Satellites We may purchase in-orbit and launch insurance to mitigate the potential financial impact of satellite launch and in-orbit failures if the premium costs are considered economic relative to...

  • Page 111
    ... 2014, to exchange shares in Sky Brazil for cash or common shares of the company. Upon exercising the exchange rights, the value of Sky Brazil shares will be determined by an outside valuation expert and we have the option to elect the consideration to be paid in cash, shares of our common stock or...

  • Page 112
    ... ''Income from continuing operations before income taxes and minority interests'' are the following: for the first quarter of 2006 is a $57 million gain related to the sale of DIRECTV Mexico's subscriber list and transfers of subscribers to Sky Mexico and cancellation of note receivable and for the...

  • Page 113
    ... or the Exchange Act). Based on the evaluation, our principal executive officers and our financial officers concluded that our disclosure controls and procedures were effective as of December 31, 2007. There has been no change in our internal control over financial reporting (as defined in Rules 13a...

  • Page 114
    THE DIRECTV GROUP , INC. Treadway Commission (COSO). Based on their assessment and those criteria, management believes that, as of December 31, 2007, our internal control over financial reporting is effective. Our independent registered public accounting firm has issued an audit report on internal ...

  • Page 115
    ...the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2007 of the Company and our report dated...

  • Page 116
    ...and 14) of this Annual Report from The DIRECTV Group, Inc.'s definitive Proxy Statement for its 2008 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission, pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year. *** PART IV ITEM...

  • Page 117
    ... 28, 2003, by and among DIRECTV Holdings LLC and DIRECTV Financing Co., Inc., as Issuers, DIRECTV, Inc., USSB II, Inc., DIRECTV Customer Services, Inc., DIRECTV Merchandising, Inc., DIRECTV Enterprises, LLC, DIRECTV Operations, LLC, as Guarantors, and The Bank of New York as Trustee (incorporated by...

  • Page 118
    ... Definitive Proxy Statement on Schedule 14A of The DIRECTV Group, Inc. filed April 16, 2004) Brazil Business Combination Agreement, dated as October 8, 2004, by and among Globo ˜es e Participa¸ ˜es S.A., The News Corporation Limited, The DIRECTV Comunica¸ co co Group, Inc., DIRECTV Latin America...

  • Page 119
    ... DIRECTV Group, Inc., Hughes Network Systems, Inc., SkyTerra Communications, Inc. and Hughes Network Systems, LLC (incorporated by reference to Exhibit 10.1 to the Form 8-K of The DIRECTV Group, Inc. filed December 9, 2004) Terms and Conditions of restricted stock unit awards to applicable executive...

  • Page 120
    ... Plan dated as of December 31, 2006 First Amendment to Services Agreement by and between News Corporation and The DIRECTV Group, Inc. dated December 22, 2006 Terms and conditions of restricted stock unit grants to applicable executive officers (incorporated by reference to Exhibit 10.1 to the Form...

  • Page 121
    ... August 14, 2007 8-K) The DIRECTV Group, Inc. Amended and Restated 2004 Stock Plan (incorporated by reference to Annex B to the Company's Definitive Proxy Statement dated April 27, 2007 and filed on April 27, 2007) The DIRECTV Group, Inc. Amended and Restated Executive Cash Bonus Plan (incorporated...

  • Page 122
    THE DIRECTV GROUP , INC. SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT CONDENSED STATEMENTS OF OPERATIONS (Parent Company Only) Years Ended December 31, 2007 2006 2005 (Dollars in Millions) Operating costs and expenses General and administrative expenses ...Total operating costs and ...

  • Page 123
    THE DIRECTV GROUP , INC. SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS (Parent Company Only) Years Ended December 31, 2007 2006 2005 (Dollars in Millions) Cash Flows from Operating Activities Net cash used in operating activities ...Cash Flows from ...

  • Page 124
    ... of cash dividends, loans or advances. In the parent company only financial statements, we state our investments in subsidiaries at cost, net of equity in earnings of subsidiaries, since the date of formation/acquisition. As a result, we include our interest in the net assets of DIRECTV Holdings LLC...

  • Page 125
    ... to costs and other expenses accounts Deductions (Dollars in Millions) Description Balance at beginning of year Balance at end of year For the Year Ended December 31, 2007 Allowances Deducted from Assets Accounts and notes receivable (for doubtful receivables) ...For the Year Ended December...

  • Page 126
    ... duly authorized. THE DIRECTV GROUP, INC. (Registrant) Date: February 25, 2008 By: /s/ PATRICK T. DOYLE Patrick T. Doyle (Senior Vice President and Chief Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 25th day of...

  • Page 127
    THE DIRECTV GROUP , INC. Signature Title /s/ CHARLES R. LEE (Charles R. Lee) /s/ PETER A. LUND (Peter A. Lund) /s/ HAIM SABAN (Haim Saban) Director Director Director *** 118

  • Page 128
    THE DIRECTV GROUP , INC. EXHIBIT INDEX Exhibit Number Exhibit Name **21 **23 **31.1 **31.2 **32.1 **32.2 Subsidiaries of the Registrant as of December 31, 2007 Consent of Deloitte & Touche LLP Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ...

  • Page 129
    ...information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 25, 2008 3. 4. /s/ CHASE CAREY Chase Carey Director, President and Chief Executive Officer

  • Page 130
    ... design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have...

  • Page 131
    ...connection with the Annual Report of The DIRECTV Group, Inc. (the ''Corporation'') on Form 10-K for the fiscal year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Chase Carey, Director, President and Chief Executive Officer of the...

  • Page 132
    ... with the Annual Report of The DIRECTV Group, Inc. (the ''Corporation'') on Form 10-K for the fiscal year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Patrick T. Doyle, Senior Vice President and Chief Financial Officer of the...

  • Page 133
    ... The following graph compares our five-year cumulative return to stockholders against the Standard and Poor's 500 Composite Stock Price Index (the S&P 500 Index) and the Standard and Poor's 500 GICS Broadcasting & Cable TV Sub-Industry Index (the S&P 500 Broadcasting and Cable TV Index). Our...

  • Page 134
    ... SABAN Chairman and Chief Executive Officer, Saban Capital Group, Inc. Compensation Committee * Effective February 27, 2008 Elected Officers CHASE CAREY President and Chief Executive Officer BRUCE B. CHURCHILL Executive Vice President, President of DIRECTV Latin America, LLC and President - New...

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