DIRECTV 2008 Annual Report Download

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Table of contents

  • Page 1
    LE A D I N G THE WAY DIRECT V 2008 A N N UAL R E PO R T

  • Page 2
    L EA DI N G T H E WAY ON YOUR SCREEN... DIR E CT VC ONC ERT SER IES DIR ECT V ON DEM AND DV R SCH EDU LER MA STE RS MIX

  • Page 3
    FRI D AY NIG HT LIG HTS

  • Page 4
    ...TO YOUR FUTURE Sc OR U EG IDE â„¢ ST R cO ING m EA NT EN T DIR E V cT â„¢ mE S DIA HA RE

  • Page 5
    DIR E V cT 2P c â„¢ R DI Ec TV AP PS

  • Page 6
    ...EXPANDING OUR REAcH DIREcTV LATIN AmERIcA RSH VR LEADE HD AND D IP SUPERIOR PROGRAmmING AND INTERAcTIVE SE RVIcES EXc LUS IVE cON TEN T

  • Page 7
    ... merely to offer a VOD service that is competitive with cable, but to make it significantly better and considerably more customer-friendly. DIREcTV on DEmAND offers both instant access to some of the most popular movies and shows that are pushed to customers' DVR hard drives, and broadband access to...

  • Page 8
    ... SUNDAY TIcKETâ„¢ via broadband beginning no later than 2012. In a year in which all of the major cable companies and DISH Network lost subscribers, DIRECTV U.S. added 861,000 net new subscribers in 2008 as gross additions increased to over 3.9 million subscribers and the average monthly churn rate...

  • Page 9
    ...their first 30 days on the DIREcTV platform with a new customer communications strategy. We also launched a "Thank You" program to reward our most loyal and tenured customers with anniversary gifts such as three free months of premium programming or a free receiver upgrade. To give us better insight...

  • Page 10
    ... expand these offerings over the next couple of years. Our sights are set on pursuing the many new opportunities that this digital world presents. Just as we transformed the media landscape 15 years ago with digital broadcasts from a satellite and then again in 2007 with HD programming, we're...

  • Page 11
    ... mobile devices. These companies form a powerful alliance because DIREcTV's video leadership is combined with the Telcos' leadership in wireless technologies. Initially, our focus will be on developing unique DIREcTV applications for cell phone users. We recently launched the iPhone DVR Scheduler...

  • Page 12
    ...operations, net of taxes Basic earnings per common share Basic weighted average number of common shares outstanding (in millions) Cash paid for property, equipment and satellites Years Ended December 31, Cash and cash equivalents Total current assets Total assets Total current liabilities Long-term...

  • Page 13
    ... EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2008 OR អ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-31945 THE DIRECTV GROUP , INC. (Exact name of registrant as specified in its...

  • Page 14
    ... Condition and Results of Operations ...Item 7A. Quantitative 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, 2008...

  • Page 15
    ... DIRECTV GROUP , INC. CAUTIONARY STATEMENT FOR PURPOSE OF THE ''SAFE HARBOR'' PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Annual Report ...in this Annual Report are made only as of the date of this Annual Report and we undertake no obligation to publicly update these forward...

  • Page 16
    ... 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 17
    ... provide related HD, interactive and mobile services. To subscribe to the DIRECTV↧ service, subscribers acquire receiving equipment from either us, our national retailers, independent satellite television retailers or dealers, or regional telephone companies, which we refer to as telcos. Most set...

  • Page 18
    ...DIRECTV GROUP , INC. • High-Quality Digital Picture and Sound, Including HD Programming. Our video and audio programming is 100% digitally delivered, providing subscribers with digital-quality video and CD-quality sound. We believe this compares favorably with cable providers that frequently offer...

  • Page 19
    ... subscribers that have the new DIRECTV Plus↧ DVR or DIRECTV Plus↧ HD-DVR. As of year end 2008, DIRECTV on Demand offered about 4,500 titles providing thousands of hours of top programming from the major broadcast and cable networks, as well as popular movies. Most of the titles are offered free...

  • Page 20
    ... video, photos and music, seamlessly from any connected television in a home. We also intend to make DIRECTV programming more ubiquitous by offering it on portable and mobile devices, including cell phones. • Enhance Sales and Marketing; Focus on High Quality Subscribers; Improve Customer Service...

  • Page 21
    ... detection system to reduce the number of people attempting to sign up for our service with fraudulent names, social security numbers or home addresses. We believe another important factor in reducing churn is to continue increasing the penetration levels of customers purchasing HD and DVR services...

  • Page 22
    ...which are used to provide HD local channels. Our broadcast centers receive programming from content providers via satellite, fiber optic cable and/or special tape. Most satellite-delivered programming is then digitized, encoded and transmitted to our satellites. We designed each broadcast center and...

  • Page 23
    ...of MVPD subscribers receive their programming from a cable operator. In addition, most cable providers have completed network upgrades that allow for enhanced service offerings such as digital cable, HD channels, broadband Internet access and telephony services. Cable companies bundle these services...

  • Page 24
    .... Also in March 2008, Hulu launched its online video service website to the public. Hulu provides free movies and TV shows from over 130 content providers including Fox, NBC Universal, MGM, Sony Pictures and Warner Brothers. This content can be accessed on demand through its website and those of its...

  • Page 25
    ... and services at a lower cost and move more rapidly than its competitors in Latin America. We expect that Sky Brazil and Sky Mexico will align their box technology with DIRECTV U.S. later this year. DTVLA also distributes some of DIRECTV U.S.' most popular programming, such as the NFL Sunday Ticket...

  • Page 26
    ...in limited numbers. We offer both standard definition DVR and HD-DVR in these markets. • Establish Leadership Position in High-Definition. In 2008, PanAmericana launched HD services and Sky Brazil is expected to launch HD services in mid-2009. Although we believe that the HD content offerings will...

  • Page 27
    ... with media company MVS Comunicaciones to offer a satellite television service in Mexico. The new offering will use an existing MVS service, which at the time of the announcement had more than 570,000 customers. EchoStar sells set-top boxes and provides satellite television services to Dish Network...

  • Page 28
    ... GROUP , INC. In a number of markets, existing wireline telephony operators have announced their intention to upgrade their infrastructure in order to provide new and enhanced services, including video programming. These and other companies have announced plans to build wireless broadband networks...

  • Page 29
    ...the rules, or subject us to fines, monetary damages or injunctions. Also, the FCC's sports blackout requirements, which apply to all distant network signals, may require costly upgrades to our system. Further, an FCC order interpreting the requirement that satellite carriers retransmit local digital...

  • Page 30
    ... digital television is complete. This requirement has not been extended to DBS/DTH systems, but could be in the future. In addition, the FCC issued an order requiring mandatory carriage of high-definition (or HD) digital signals in an increasing number of markets each year, requiring so-called ''HD...

  • Page 31
    ...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 32
    ... uplink and downlink frequency bands as us, from orbital positions located in between those now assigned to the DBS service. This rulemaking follows applications by SES and Spectrum Five LLC to operate tweener satellites. Under rules that the FCC is considering, a provider could, by complying with...

  • Page 33
    ...the 2003 acquisition by News Corporation of an equity investment in us, the FCC imposed a number of regulatory conditions on us and News Corporation, some of which directly or indirectly affect our business. In applying for authority to acquire News Corporation's interest in DIRECTV in 2008, Liberty...

  • Page 34
    ... the channels we carry; regulations governing telemarketing and customer service, etc. Regulatory regimes in Latin America are generally less developed than in the United States, as a result of which the application of existing laws and regulations to DBS providers is at times uncertain. In addition...

  • Page 35
    ...incorporate herein by reference. EMPLOYEES As of December 31, 2008, we had approximately 18,300 full-time and 1,300 part-time employees. ACCESS TO COMPANY REPORTS Our website address is www.directv.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and...

  • Page 36
    ... bundling their analog video service with expanded digital video services delivered terrestrially or via satellite, or with efficient two-way high-speed Internet access or telephone service on upgraded cable systems; • having the ability to provide certain local and other programming, including HD...

  • Page 37
    ... 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 38
    ... effect on our earnings and financial performance. Results are impacted by the effect of, and changes in, United States and Latin America economic conditions and weakening economic conditions may reduce subscriber spending and our rate of growth of subscriber additions and may increase subscriber...

  • Page 39
    ... and supporting digital video delivery over existing telephone lines and building out fiber optic lines to enhance their capabilities to deliver programming services. Satellite operators such as SES have begun offering turn-key packages of digital programming on a wholesale basis for distribution...

  • Page 40
    ... 31, 2008, Liberty Media Corporation, or Liberty Media, held approximately 54% of the issued and outstanding shares of our common stock. John Malone, Chairman and Chief Executive of Liberty Media, is the Chairman of our Board of Directors. Additionally, two other current Liberty Media executives are...

  • Page 41
    THE DIRECTV GROUP , INC. above market price for their shares that may be offered in connection with any attempt to acquire control of us. We rely on key personnel. We believe that our future success will depend to a significant extent upon the performance of certain of our key executives. The loss ...

  • Page 42
    THE DIRECTV GROUP , INC. 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, thereby creating additional expenses due to the need to provide replacement or backup ...

  • Page 43
    ...the Communications Act or the FCC's rules that would permit programmers that are affiliated with cable system operators to refuse to provide such programming or to impose discriminatory terms or conditions could materially adversely affect our ability to acquire programming on a cost-effective basis...

  • Page 44
    ... from launching additional markets currently planned for later this year. 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...

  • Page 45
    ...existing satellite with a new satellite or to operate a satellite beyond the term of its current authorization; • the loss of authorizations to operate satellites on certain frequencies at certain locations if we do not construct, launch and operate satellites into those locations by certain dates...

  • Page 46
    ... be material to our consolidated financial position. We control a substantial portion of interaction with our customers and we may not be as efficient or effective as our outsourced providers resulting in higher costs. We have a number of insourced call centers and recently insourced a substantial...

  • Page 47
    ... 31, 2008, we had approximately 150 owned and leased locations operating in the United States and Latin America. The major locations of the DIRECTV U.S. segment include eight administrative offices, two broadcast centers and six call centers. The major locations of the DIRECTV Latin America segment...

  • Page 48
    ... Operations, LLC, and The DIRECTV Group, Inc., Thomson Inc., and EchoStar Communications Corporation, EchoStar Satellite Corporation and EchoStar Technologies Corporation. The action alleged infringement of three U.S. patents and sought unspecified damages and injunctive relief. Gemstar Development...

  • Page 49
    ... have been declared by our Board of Directors for more than five years. We have no current plans to pay any dividends on our common stock. We currently expect to use our future earnings, if any, for the development of our businesses or other corporate purposes. DIRECTV U.S. is subject to restrictive...

  • Page 50
    ... for the three months ended December 31, 2008 is as follows: Total Number of Maximum Dollar Shares Purchased Value that May Total Number as Part of Publicly Yet Be Purchased of Shares Average Price Announced Plans Under the Plans Purchased Paid Per Share or Programs or Programs (Amounts in Millions...

  • Page 51
    ... DIRECTV GROUP , INC. ITEM 6. SELECTED FINANCIAL DATA Years Ended and As of December 31, 2008 2007 2006 2005 2004 (Dollars in Millions, Except Per Share Amounts) Consolidated Statements of Operations Data: Revenues ...Total operating costs and expenses ...Operating profit (loss) ...Income (loss...

  • Page 52
    ... of Operations • Liquidity and Capital Resources • Contractual Obligations • Off-Balance Sheet Arrangements • Contingencies • Certain Relationships and Related-Party Transactions • Critical Accounting Estimates • Accounting Changes and New Accounting Pronouncements • Security Ratings...

  • Page 53
    THE DIRECTV GROUP , INC. SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION Years Ended December 31, 2008 2007 2006 (Dollars in Millions, Except Per Share Amounts) Consolidated Statements of Operations Data: Revenues ...Total operating costs and expenses ...Operating profit Interest income ...

  • Page 54
    ... Our management and our Board of Directors use free cash flow to evaluate the cash generated by our current subscriber base, net of capital expenditures, for the purpose of allocating resources to activities such as adding new subscribers, retaining and upgrading existing subscribers, for additional...

  • Page 55
    THE DIRECTV GROUP , INC. SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(concluded) Selected Segment Data Years Ended December 31, 2008 2007 2006 (Dollars in Millions) DIRECTV U.S. Revenues ...% of total revenues ...Operating profit ...Add: Depreciation and amortization expense ...Operating ...

  • Page 56
    ... 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 ended December 31, 2006 in total operating costs and expenses. DIRECTV...

  • Page 57
    ... of DIRECTV U.S. set-top receivers we capitalized, and depreciation expense we recorded, under the lease program for the years ended December 31: Capitalized subscriber leased equipment: 2008 2007 2006 (Dollars in Millions) Subscriber leased equipment-subscriber acquisitions ...Subscriber leased...

  • Page 58
    THE DIRECTV GROUP , INC. digital video recorder, or DVR, service, hardware revenues from subscribers who lease or purchase set-top receivers from us, our published programming guide, warranty service fees and advertising services. Broadcast Programming and Other. These costs primarily include ...

  • Page 59
    ...by higher subscriber acquisition and upgrade and retention costs for the increased number of new and existing customers adding HD and DVR services, as well as increased general and administrative costs. In 2009 for DIRECTV U.S. we expect a modest increase in both operating profit before depreciation...

  • Page 60
    ... our operating profit (loss) before depreciation and amortization by segment: Operating profit (loss) before depreciation and amortization by segment: 2008 Change 2007 $ % (Dollars in Millions) DIRECTV U.S...DIRECTV Latin America ...Corporate and Other ...Total operating profit before depreciation...

  • Page 61
    ... in more detail below. Operating profit. The following table presents our operating profit (loss) by segment: 2008 Change 2007 $ % (Dollars in Millions) Operating profit (loss) by segment: DIRECTV U.S...DIRECTV Latin America ...Corporate and Other ...Total operating profit ... $2,330 $2,402 $ (72...

  • Page 62
    ... or average monthly subscriber churn. Subscribers. In 2008, gross subscriber additions increased primarily due to growth in the direct sales and retail distribution channels due in large part to more attractive promotions and higher demand for HD and DVR services, partially offset by the loss of...

  • Page 63
    ... by higher subscriber acquisition, upgrade and retention costs for the increased number of new and existing customers adding HD and DVR services, as well as increased general and administrative costs. Broadcast programming and other costs increased due to annual program supplier rate increases and...

  • Page 64
    ... of key subscriber data for the DIRECTV Latin America segment: Change 2008 2007 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues ...Operating profit before depreciation and amortization . Operating profit ...Other data: ARPU ...Average monthly subscriber churn % ...Total number of...

  • Page 65
    ... 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 66
    THE DIRECTV GROUP , INC. Operating profit. The following table presents our operating profit (loss) by segment: 2007 Change 2006 $ % (Dollars in Millions) Operating profit (loss) by segment: DIRECTV U.S...DIRECTV Latin America ...Corporate and Other ...Total operating profit ... $2,402 $2,348 $ 54...

  • Page 67
    ... 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 amortization. The improvement of...

  • Page 68
    ... annual program supplier rate increases and the larger number of subscribers 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...

  • Page 69
    ..., partially offset by gains totaling $118 million for the completion of the Sky Mexico and Sky Brazil transactions in 2006 and the increase in costs from the addition of Sky Brazil. The higher operating profit was primarily due to the increase in operating profit before depreciation and amortization...

  • Page 70
    ...Cash Flows Used In Investing Activities Beginning March 2006, DIRECTV U.S. introduced a set-top receiver lease program under which most set-top receivers provided to new and existing subscribers are capitalized. Prior to this lease program we expensed the cost of these set-top receivers. As a result...

  • Page 71
    ... from lower set-top receiver costs for set-top receivers capitalized under the DIRECTV U.S. lease program and lower capital expenditures for satellite and broadcast facilities and equipment to support HD programming partially offset by increased capital expenditures in Latin America. Free cash flow...

  • Page 72
    ...subscriber churn or upgrade and retention costs, higher than planned capital expenditures for satellites and broadcast equipment, satellite anomalies or signal theft or if we are required to make a prepayment on our term loans under DIRECTV U.S.' senior secured credit facility. Additionally, DIRECTV...

  • Page 73
    ...number of subscribers subscribing to the related programming exceeds the minimum amounts. Service contract commitments include minimum commitments for the purchase of services that have been outsourced to third parties, such as billing services, telemetry, tracking and control services and broadcast...

  • Page 74
    ...the Consolidated Financial Statements in Part II, Item 8 of this Annual Report. Multi-Year Programming Contracts for Live 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...

  • Page 75
    .... 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, among other things, management...

  • Page 76
    ... borrowing costs. A security rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization. Currently, The DIRECTV Group has the following security rating: Long-term Corporate Rating Outlook Standard...

  • Page 77
    ... the unamortized bond premium, which consisted of DIRECTV U.S.' fixed rate borrowings of $3,410 million and variable rate borrowings of $2,421 million. As of December 31, 2008, a hypothetical one percentage point increase in interest rates related to our outstanding variable rate debt would have...

  • Page 78
    ... To the Board of Directors and Stockholders of The DIRECTV Group, Inc. El Segundo, California We have audited the accompanying consolidated balance sheets of The DIRECTV Group, Inc. (the ''Company'') as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in...

  • Page 79
    ...OF OPERATIONS Years Ended December 31, 2008 2007 2006 (Dollars in Millions, Except Per Share Amounts) Revenues ...Operating costs and expenses Costs of revenues, exclusive of depreciation and amortization expense Broadcast programming and other ...Subscriber service expenses ...Broadcast operations...

  • Page 80
    THE DIRECTV GROUP , INC. CONSOLIDATED BALANCE SHEETS December 31, 2008 2007 (Dollars in Millions, Except Share Data) ASSETS Current assets Cash and cash equivalents . . Accounts receivable, net ...Inventories ...Deferred income taxes ...Prepaid expenses and other . Total current assets Satellites, ...

  • Page 81
    ... COMPREHENSIVE INCOME Common Accumulated Stock and Other Additional Comprehensive Total Comprehensive Paid-In Accumulated Loss, Stockholders' Income, Capital Deficit net of taxes Equity net of taxes Common Shares (Dollars in Millions, Except Share Data) Balance at January 1, 2006 ...1,391,031,989...

  • Page 82
    ...paid for property and equipment ...Cash paid for satellites ...Investment in companies, net of cash acquired . Purchase of short-term investments ...Sale of short-term investments ...Proceeds from sale of investments ...Proceeds from collection of notes receivable . . Other, net ...net cash provided...

  • Page 83
    ... 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 84
    ... programs offered to existing subscribers. The costs for loyalty programs include the costs of installing or providing hardware under our movers program (for subscribers relocating to a new residence), multiple set-top receiver offers, digital video recorder, or DVR, high-definition, or HD, local...

  • Page 85
    ...foreign operations where the local currency is their functional currency. Accordingly, these foreign entities translate assets and liabilities from their local currencies to U.S. dollars using year end exchange rates while income and expense accounts are translated at the average rates in effect 72

  • Page 86
    ... equity securities at cost. We consider marketable equity securities available-for-sale and they are carried at current fair value based on quoted market prices with unrealized gains or losses (excluding other-than-temporary losses), net of taxes, reported as part of OCI. We continually review our...

  • Page 87
    ...at such time that the benefit is effectively settled. Advertising Costs We expense advertising costs primarily in ''Subscriber acquisition costs'' in the Consolidated Statements of Operations as incurred. Advertising expenses, net of payments received from programming content providers for marketing...

  • Page 88
    ... DIRECTV GROUP , INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(continued) for an End-Customer to Receive Service from the Service Provider.'' EITF No. 06-1 provides guidance to service providers regarding the proper reporting of consideration given to manufacturers or resellers of equipment...

  • Page 89
    ... the date of acquisition and acquisition related transaction and restructuring costs will be expensed. Additionally, SFAS No. 141R requires disclosures about the nature and financial effect of the business combination and also changes the accounting for certain income tax assets recorded in purchase...

  • Page 90
    ... DIRECTV U.S. set-top receivers we capitalized, and depreciation expense we recorded, under the lease program for each of the periods presented: Capitalized subscriber leased equipment: Years ended December 31, 2008 2007 2006 (Dollars in Millions) Subscriber leased equipment-subscriber acquisitions...

  • Page 91
    ... of ''Goodwill'' in the Consolidated Balance Sheets by segment for the years ended December 31, 2008 and 2007: DIRECTV DIRECTV U.S. Latin America (Dollars in Millions) Total Balance as of January 1, 2007 ...Acquisition of Darlene interest in DLA LLC Sky Brazil purchase price allocation ...Other...

  • Page 92
    ...in earnings of our 41% interest in Sky Mexico for the periods presented: Years Ended December 31, 2008 2007 2006 (Dollars in Millions) Equity in earnings of Sky Mexico ... $63 $41 $18 We received cash dividends of $35 million in 2008 from companies that we account for under the equity method. In...

  • Page 93
    ...395 (48) $3,347 Total debt ...Less: Current portion of long-term debt ...Long-term debt ...2008 Financing Transactions In May 2008, DIRECTV U.S. completed financing transactions that included the issuance of senior notes and an amendment to its existing senior secured credit facility as discussed...

  • Page 94
    ...years ended December 31, 2008, 2007, or 2006. The amount of interest accrued related to our outstanding debt was $45 million at December 31, 2008 and $26 million at December 31, 2007. Sky Brazil Bank Loan. As a result of our acquisition of Sky Brazil, we assumed Sky Brazil's $210 million U.S. dollar...

  • Page 95
    ... of the following for the years ended December 31: 2008 2007 2006 (Dollars in Millions) Current tax expense: U.S. federal ...Foreign ...State and local ...Total ...Deferred tax (expense) benefit: U.S. federal ...Foreign ...State and local ...Total ...Total income tax expense ... $(543) $(450...

  • Page 96
    ...than the amount computed using the U.S. federal statutory income tax rate for the reasons set forth in the following table for the years ended December 31: 2008 2007 2006 (Dollars in Millions) Expected expense at U.S. federal statutory income tax rate ...U.S. state and local income tax expense, net...

  • Page 97
    ... we use in forecasting future taxable income require significant judgment and take into account our recent performance. As of December 31, 2008, we have approximately $1.7 billion of foreign net operating losses that are primarily attributable to operations in Brazil with varying expiration dates...

  • Page 98
    ... the first quarter of 2008, Sky Brazil began broadcasting its service on a new satellite, IS 11, pursuant to a satellite transponder capacity agreement, which we are accounting for as a capital lease. The present value of the lease payments at the inception of the 15 year lease term was $247 million...

  • Page 99
    ...-contributory defined benefit pension plan, which provides defined benefits based on either years of service and final average salary, or eligible compensation while employed by the company. Additionally, we maintain a funded contributory defined benefit plan for employees who elected to participate...

  • Page 100
    ... years ended December 31: Other Pension Postretirement Benefits Benefits 2008 2007 2008 2007 (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) ...Benefits paid...

  • Page 101
    ...283 $49 - Information for pension plans with a projected benefit obligation in excess of plan assets at December 31: 2008 2007 (Dollars in Millions) Projected benefit obligation ...Fair value of plan assets ...Components of net periodic benefit cost for the years ended December 31: $452 283 $64...

  • Page 102
    ... Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31: Pension Benefits 2008 2007 2006 Other Postretirement Benefits 2008 2007 2006 Discount rate-Qualified Plan ...Discount rate-Non-Qualified Plans ...Expected long-term return on plan assets Rate...

  • Page 103
    ... DIRECTV GROUP , INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(continued) Plan Assets Our target asset allocation for 2008 and actual pension plan weighted average asset allocations at December 31, 2008 and 2007, by asset categories, are as follows: Target Allocation 2009 Percentage of Plan...

  • Page 104
    ...authorization in May 2008 that was completed in December 2008. Subsequent to December 31, 2008, our Board of Directors authorized the repurchase of an additional $2 billion of our common stock. The authorizations allow us to repurchase our common stock from time to time through open market purchases...

  • Page 105
    ... in Millions, Except Per Share Amounts) Total cost of repurchased and retired shares ...Average price per share ...Number of shares repurchased and retired ... $3,174 24.12 131 $2,025 23.48 86 $2,977 16.16 184 For the year ended December 31, 2008, we recorded the $3,174 million in repurchases...

  • Page 106
    ... equivalent shares from the computation in loss periods as their effect would be antidilutive and we exclude common stock options from the computation of diluted EPS when their exercise price is greater than the average market price of our common stock. The following table sets forth the number of...

  • Page 107
    ... DIRECTV GROUP , INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(continued) The reconciliation of the amounts used in the basic and diluted EPS computation was as follows: Income Shares Per Share Amounts (Dollars and Shares in Millions, Except Per Share Amounts) Year Ended December 31, 2008...

  • Page 108
    ... 2008, $33 million during the year ended December 31, 2007 and $21 million during the year ended December 31, 2006. 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 109
    ... of ''Other, net'' in our Consolidated Statements of Operations for the years ended December 31: 2008 2007 2006 (Dollars in Millions) Equity in earnings from unconsolidated affiliates ...Net gain (loss) from sale of investments ...Other ...Total other, net ... $55 $35 $27 1 (6) 14 (1) (3) 1 $55 $26...

  • Page 110
    ... contracts. Payments under these contracts are typically subject to annual rate increases and are based on the number of subscribers receiving the related programming. Other Other related parties include Globo, which provides programming and advertising to Sky Brazil, and companies in which we hold...

  • Page 111
    ..., 2008 are primarily related to affiliates of Liberty Media and the accounts receivable and accounts payable balances as of December 31, 2007 are primarily related to affiliates of News Corporation. In addition to the transactions described above, in connection with our purchase of News Corporation...

  • Page 112
    ... ...Basic and diluted earnings per common share ... $19,693 1,479 1.33 $17,246 1,416 1.18 Other. In August 2008, we paid $11 million in cash to purchase certain assets and we assumed certain liabilities of another home service provider for DIRECTV U.S. We accounted for the acquisition using the...

  • Page 113
    ...unaudited pro forma information is being provided to present a summary of the combined results of The DIRECTV Group and Sky Brazil for the year ended December 31, 2006 as if the acquisition had occurred as of the beginning of 2006, giving effect to purchase accounting adjustments. The pro forma data...

  • Page 114
    ... our investment in Sky Mexico using the equity method of accounting. See Note 6 for additional information regarding this investment. Other. In 2004, we acquired Sky Multi-Country Partners and related entities for $30 million in cash. As part of this transaction, News Corporation agreed to reimburse...

  • Page 115
    THE DIRECTV GROUP , INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(continued) Selected information for our operating segments is reported as follows: DIRECTV U. S. DIRECTV Latin Corporate America and Other (Dollars in millions) Total 2008 Revenues ...Operating profit (loss) ...Add: ...

  • Page 116
    ... 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 projected operating profit (loss) before depreciation and amortization and similar...

  • Page 117
    ...55 365 $4,453 Total South America and the Caribbean ...Total ... Note 19: Commitments and Contingencies Commitments At December 31, 2008, minimum future commitments under noncancelable operating leases having lease terms in excess of one year were primarily for satellite transponder leases and real...

  • Page 118
    ... 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...

  • Page 119
    ... over the contract term. We continue to be obligated to grant Thomson a portion of all set-top receiver purchases. As of December 31, 2008, included in ''Accounts receivable, net'' and ''Investments and other assets'' in the Consolidated Balance Sheets is a receivable for $21 million related to this...

  • Page 120
    ... data for 2008 and 2007: 1st 2nd 3rd 4th (Dollars in Millions, Except Per Share Amounts) 2008 Quarters Revenues ...Operating profit ...Income from continuing operations ...Income from discontinued operations, net of taxes ...Net income ...Basic and diluted earnings per common share from continuing...

  • Page 121
    ... as of the end of the year covered by this Annual Report on Form 10-K under the supervision and with the participation of management, including our principal executive officers and financial officers, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and...

  • Page 122
    ... over financial reporting, which appears below. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of The DIRECTV Group, Inc. El Segundo, California We have audited the internal control over financial reporting of The DIRECTV Group, Inc. (the ''Company...

  • Page 123
    ... 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, 2008 of the Company and our report dated February...

  • Page 124
    ...and 14) of this Annual Report from The DIRECTV Group, Inc.'s definitive Proxy Statement for its 2009 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 125
    ..., dated as of February 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...

  • Page 126
    THE DIRECTV GROUP , INC. Exhibit Number Exhibit Name *10.2 DTH Agreement, dated as of October 8, 2004, by and among Grupo Televisa, S.A., The News Corporation Limited, Innova, S. de R.L. de C.V., The DIRECTV Group, Inc. and DIRECTV Latin America, LLC (incorporated by reference to Exhibit 10.8 to ...

  • Page 127
    ... DIRECTV Group, Inc. Amended and Restated Executive Officer Cash Bonus Plan (incorporated by reference to Annex C to the The DIRECTV Group, Inc.'s Definitive Proxy Statement dated April 27, 2007 and filed on April 27, 2007) Terms and Conditions of 2007 Equity program to applicable executive officers...

  • Page 128
    ... of The DIRECTV Group, Inc. filed on February 12, 2007) Subsidiaries of the Registrant as of December 31, 2008 Consent of Deloitte & Touche LLP Certification of the Chief Executive Officer Pursuant to Section 302 of the SarbanesOxley Act of 2002 Certification of the Chief Financial Officer Pursuant...

  • Page 129
    THE DIRECTV GROUP , INC. SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT CONDENSED STATEMENTS OF OPERATIONS (Parent Company Only) Years Ended December 31, 2008 2007 2006 (Dollars in Millions) Operating costs and expenses General and administrative expenses ...Operating loss ...Interest...

  • Page 130
    THE DIRECTV GROUP , INC. SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS (Parent Company Only) Years Ended December 31, 2008 2007 2006 (Dollars in Millions) Cash Flows from Operating Activities Net cash used in operating activities ...Cash Flows from ...

  • Page 131
    ... of DIRECTV Holdings LLC, which total approximately $2.7 billion at December 31, 2008 and $4.7 billion at December 31, 2007 in ''Investments in subsidiaries'' in the accompanying Condensed Balance Sheets of the parent company. The parent company only financial statements and related notes should...

  • Page 132
    THE DIRECTV GROUP , INC. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS Additions Additions charged to charged 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, 2008 Allowances ...

  • Page 133
    ... Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. THE DIRECTV GROUP, INC. (Registrant) Date: February 26, 2009 By: /s/ PATRICK T. DOYLE Patrick T. Doyle (Executive Vice President and Chief Financial Officer) Pursuant to the requirements...

  • Page 134
    THE DIRECTV GROUP , INC. Signature Title /s/ PETER A. LUND (Peter A. Lund) /s/ HAIM SABAN (Haim Saban) Director Director *** 121

  • Page 135
    ... Senior Notes due 2016 The DIRECTV Group, Inc. Executive Deferred Compensation Plan, amended and restated effective as of January 1, 2005 Subsidiaries of the Registrant as of December 31, 2008 Consent of Deloitte & Touche LLP Certification of the Chief Executive Officer Pursuant to Section 302 of...

  • Page 136
    ...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 26, 2009 3. 4. /s/ CHASE CAREY Chase Carey Director, President and Chief Executive Officer

  • Page 137
    ... (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 26, 2009 3. 4. /s/ PATRICK T. DOYLE Patrick T. Doyle Executive Vice President and Chief Financial Officer

  • Page 138
    ... In connection with the Annual Report of The DIRECTV Group, Inc. (the ''Corporation'') on Form 10-K for the fiscal year ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Chase Carey, Director, President and Chief Executive Officer of...

  • Page 139
    ... with the Annual Report of The DIRECTV Group, Inc. (the ''Corporation'') on Form 10-K for the fiscal year ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Patrick T. Doyle, Executive Vice President and Chief Financial Officer of the...

  • Page 140
    ... S&P 500 Broadcasting and Cable TV Index and the industry peer group. Comparison of Cumulative Five Year Total Return 200 150 DOLLARS 100 50 0 2003 DIRECTV 2004 2005 S&P 500 Index 2006 Peer Group 2007 2008 S&P Broadcasting & Cable Index 27MAR200919350632 2006 2007 2008 Company Name / Index...

  • Page 141
    ... Senior Vice President, Controller and Chief Accounting Officer C O R P O R AT E I N fO R M AT I O N CORPORATE OFFICE 2230 East Imperial Highway El Segundo, CA 90245-0956 (310) 964-5000 COMPANY INFORMATION Media Relations (212) 205-0882 Investor Relations (310) 964-0808 directv.com NASDAQ ticker...

  • Page 142
    EVERY 8 SECONDS, SOMEBODY SWITCHES TO DIRECTV Based on gross subscriber additions for 2008 002CS18534