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DIRECTV
A Video Symphony
A N N U A L
R E P O R T
2 0 0 9

Table of contents

  • Page 1
    DIRECTV A Video Symphony ANNUAL REPORT 2009

  • Page 2
    DIRECTV orchestrates a rich medley of services for its more than 18.5 million customers in the U.S. On Demand Mobility

  • Page 3
    Connectivity Exclusive /Unique Programming ANNUAL REPORT 1

  • Page 4
    And in Latin America, over 6.5 million customers enjoy a perfect harmony of services. Exclusive Sports Compelling Entertainment 2 DIRECTV

  • Page 5
    HD & DVR Leadership ANNUAL REPORT 3

  • Page 6
    ... States of America, or GAAP, is calculated for DIRECTV U.S. by adding amounts under the captions "Subscriber acquisition costs" and "Depreciation and amortization expense" to "Operating Profit" from DIRECTV U.S.' segment operating results and subtracting "subscriber leased equipment - upgrade and...

  • Page 7
    ... service rating in the ASCI - the American Customer Satisfaction Index - beating all major cable companies for the 9th consecutive year. In Latin America, our performance was even more impressive, as we established new records for most key metrics including net additions, revenues and operating...

  • Page 8
    ... compared to most of our competitors. And in Latin America, we continue to see tremendous growth opportunities for years to come. With that in mind, my goal is to build on DIRECTV's successful track record and take us to even higher levels of market share, revenue, profits, and cash ï¬,ow. To do...

  • Page 9
    ...whether our subscribers are at home or on-the-go. In addition to expanding access to the DIRECTV experience, we will launch the industry's first 3D channel lineup, offering the latest 3D movie releases and sporting events like the Major League Baseball All-Star game to help drive the development of...

  • Page 10
    ... a cash economy. We've adjusted to that, developing a portfolio of pre-paid service packages as well as lower-priced post-paid plans to allow DTVLA to provide pay TV in ways that work for Latin America's emerging markets. Michael D. White President and Chief Executive Officer 8 DIRECTV

  • Page 11
    ... period from to Commission file number 1-34554 FORM 10-K (Exact name of registrant as specified in its charter) DIRECTV DELAWARE (State or other jurisdiction of incorporation or organization) 2230 East Imperial Highway, El Segundo, California (Address of Principal Executive Offices) 26-4772533...

  • Page 12
    (This page has been left blank intentionally.)

  • Page 13
    ... ...Item 9A. Controls and Procedures ...Item 9B. Other Information ...Part III Item 10. Directors, Executive Officers and Corporate Governance ...Item 11. Executive Compensation ...Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Item...

  • Page 14
    ... or implied by the relevant forward-looking statement. The forward-looking statements included 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-looking statements to reflect subsequent events or circumstances. 2

  • Page 15
    ... sports networks, or RSNs, and own a 65% interest in Game Show Network, LLC, or GSN, a basic television network dedicated to game-related programming and Internet interactive game playing. We account for our investment in GSN using the equity method of accounting. • DIRECTV U.S. DIRECTV Holdings...

  • Page 16
    ...1,500 local channels-over 500 in high-definition-a subscriber generally receives only the local channels in the subscriber's home market. In addition, we offer an on demand service named DIRECTV on DEMAND which, as of the end of 2009, provided a selection of about 6,000 movie and television programs...

  • Page 17
    ... attracting 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...

  • Page 18
    ... complete during 2010. Business Strategy Our vision is to provide customers with the best video experience in the United States both inside and outside of the home by offering subscribers unique, differentiated and compelling programming through leadership in content, technology and customer service...

  • Page 19
    ...↧ HD DVR set-top receivers. As of year end 2009, DIRECTV on DEMAND offered about 6,000 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 of charge and are downloaded from the Internet...

  • Page 20
    ...have scheduled over 12 million recordings remotely to DIRECTV DVRs through 2009. We also introduced ScoreGuideTM in 2009 which, at the press of a button, enables customers to easily track scores and start times of major sporting events, see a list of channels carrying each event and tune directly to...

  • Page 21
    ...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 22
    ...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 23
    ... As of year end 2009, Verizon had nearly 3 million video subscribers and AT&T had approximately 2 million video subscribers. Similar to the cable companies, the telcos expect to offer their customers multiple services at a discount on one bill. • Other Direct Broadcast Satellite and Direct-To-Home...

  • Page 24
    ... provider of pay television services in Latin America. We believe that this scale provides us with the opportunity to obtain programming on favorable terms, and contributes to economies of scale in other areas, such as customer service, equipment and technology purchasing and broadcast operations...

  • Page 25
    ... to offer high quality HD services will provide another opportunity for us to differentiate the quality of our services from those of our competitors. As of year end 2009, Sky Brazil offered its customers 30 HD channels and PanAmericana offered on average 8 HD channels. • Enhance Programming...

  • Page 26
    ... to cable, traditionally our principal competition. 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...

  • Page 27
    ... 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 28
    ...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 29
    ... complaint proceedings, as well as judicial decisions interpreting must carry requirements. For example, the FCC issued an order requiring mandatory carriage of high-definition digital signals in an increasing number of markets each year, requiring so-called ''HD carry-one, carry-all'' in all local...

  • Page 30
    ... basis in the same frequency band 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...

  • Page 31
    ... acquisition of News Corporation's equity investment in us, the FCC imposed a number of regulatory conditions on us and Liberty, some of which directly or indirectly affected our business. In granting authority for the merger of Liberty Entertainment, Inc. and DIRECTV in 2009, the FCC conditioned...

  • Page 32
    ..., in the transaction between News Corporation and Liberty, the Commission required us to sever all ''attributable'' links between DTVLA's subsidiary, DIRECTV Puerto Rico Ltd. (''DTVPR''), and a Puerto Rico cable operator owned by an affiliate of Liberty. In order to comply with this condition...

  • Page 33
    ... II of this Annual Report, which we incorporate herein by reference. EMPLOYEES As of December 31, 2009, DIRECTV U.S. had approximately 15,900 full-time and 300 part-time employees, DIRECTV Latin America had approximately 5,700 full-time and 1,200 part-time employees and Sports Networks and Other had...

  • Page 34
    ... 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 35
    ... service providers have deployed fiber optic lines directly to customers' homes or neighborhoods to deliver video services, which compete with the DIRECTV service. It is uncertain whether we will be able to increase our satellite capacity, offer a significant level of new services in existing...

  • Page 36
    ... 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 37
    ... means to obtain video entertainment, they may choose to purchase fewer services from us. Due to the economic and competitive environment, we may need to spend more to acquire and retain customers who in turn spend less on our services. If our average monthly revenue per subscriber, or ARPU...

  • Page 38
    ...New technologies could also create new competitors for us. Entities such as telcos are 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...

  • Page 39
    ... results of operations. Construction or launch delays on satellites could materially adversely affect our revenues and earnings. A 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...

  • Page 40
    ...and not the business interruption or other associated direct and indirect costs. For example, we purchased launch insurance covering a portion of our DIRECTV 12 satellite, which we launched at the end of 2009, and launch vehicle costs in the event of a total loss of the satellite prior to separation...

  • Page 41
    ... not compensate for business interruption or loss of future revenues or subscribers, we rely on in-orbit spare satellites and excess transponder capacity at key orbital slots to mitigate the impact that a satellite failure may have on our ability to provide service. The price, terms and availability...

  • Page 42
    ...certain programmers affiliated with us. The FCC imposed a number of conditions on its approval of Liberty Media's acquisition of News Corporation's interest in DIRECTV in 2007. Among other things, those conditions require DIRECTV to offer national and regional programming services it controls to all...

  • Page 43
    ...be used for new or additional local or national programming services. In addition, the FCC has issued an increasing obligation for carriage of local digital broadcast transmissions in HD format. We may be unable to comply with this requirement in markets where we currently carry such signals without...

  • Page 44
    ... require a satellite system operator to reduce power, avoid operating on certain frequencies, relocate its satellite to another orbital location and/or otherwise modify planned or existing operations. For example, the FCC has conditionally granted Spectrum Five authority to provide DBS service using...

  • Page 45
    ...business cannot be predicted. 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 installation service providers to handle customer service...

  • Page 46
    ...transactions otherwise qualify for tax-free treatment, it would result in a significant U.S. federal income tax liability to Liberty Media if one or more persons acquire a 50% or greater interest in the DIRECTV common stock as part of a plan or series of related transactions that includes the merger...

  • Page 47
    ... to make an offer to acquire our company. The success of our regional sports networks, or RSNs, depends on audience acceptance of their programs and programming services which is difficult to predict. Entertainment content production is an inherently risky business because the revenue derived from...

  • Page 48
    ... 31, 2009, we had approximately 230 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 49
    ... of consumer offers, including subscriber commitments and early cancellation fees. We are cooperating with the multistate group by providing information about our sales and marketing practices and customer complaints. We are defending the Washington lawsuit. Liberty Media Corporation Litigation. We...

  • Page 50
    .... As previously reported, multiple purported class action complaints were filed against The DIRECTV Group, Inc., Liberty Media and The DIRECTV Group Board of Directors in the Delaware Court of Chancery and California State Court on behalf of the public stockholders of DIRECTV Group. Four stockholder...

  • Page 51
    ... Item No. 2 The approval of the Voting and Right of First Refusal Agreement by The DIRECTV Group, Inc., Liberty Entertainment, Inc., DIRECTV, John C. Malone, Leslie Malone, The Tracy L. Neal Trust A and the Evan D. Malone Trust A. The final voting results were: For ...Against ...Abstain ...Majority...

  • Page 52
    ... our Board of Directors for more than five years. We have no current plans to pay any dividends on either class of our common stock. We currently expect to use our future earnings, if any, for the development of our businesses or other corporate purposes, including share repurchases. DIRECTV U.S. is...

  • Page 53
    ... for the three months ended December 31, 2009 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 54
    ... DATA Years Ended and As of December 31, 2009 2008 2007 2006 2005 (Dollars in Millions, Except Per Share Amounts) Consolidated Statements of Operations Data: Revenues ...Total operating costs and expenses ...Operating profit ...Income from continuing operations attributable to DIRECTV ...Income...

  • Page 55
    ...should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report. Information in this section is organized as follows: • Summary Results of Operations and Financial Condition • Significant Transactions Affecting the Comparability...

  • Page 56
    DIRECTV SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION Years Ended December 31, 2009 2008 2007 (Dollars in Millions, Except Per Share Amounts) Consolidated Statements of Operations Data: Revenues ...Total operating costs and expenses ...Operating profit ...Interest income ...Interest expense ...

  • Page 57
    ...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 discretionary...

  • Page 58
    ... Segment Data Years Ended December 31, 2009 2008 2007 (Dollars in Millions) DIRECTV U.S. Revenues ...% of total revenues ...Operating profit ...Add: Depreciation and amortization expense ...Operating profit before depreciation and amortization ...Operating profit margin ...Operating profit before...

  • Page 59
    ... Statements of Operations for the year ended December 31, 2009, which is comprised of: a $337 million charge related to a premium paid to LEI shareholders to complete the merger in the form of an equity interest that exceeded the fair value of net assets acquired by DIRECTV; $43 million of costs...

  • Page 60
    ... 2006, DIRECTV U.S. introduced a new set-top receiver lease program. Prior to March 1, 2006, we expensed most set-top receivers provided to new and existing DIRECTV U.S. subscribers upon activation as a subscriber acquisition or upgrade and retention cost in the Consolidated Statements of Operations...

  • Page 61
    ... rates result in gain or losses, which we record in ''Other, net'' in the Consolidated Statements of Operations related to the revaluation of U.S. dollar denominated monetary assets and liabilities, such as cash deposits, notes payable and capital lease obligations held by Sky Brazil. During 2009...

  • Page 62
    ... programming, pay-per-view programming, live sports and other events. Other costs include expenses associated with the publication and distribution of our programming guide, continuing service fees paid to third parties for active subscribers, warranty service costs and production costs for on-air...

  • Page 63
    ... costs for legal, administrative services, finance, marketing and information technology. These costs also include expenses for bad debt and other operating expenses, such as legal settlements, and gains or losses from the sale or disposal of fixed assets. Average Monthly Revenue Per Subscriber...

  • Page 64
    ... capital expenditures in Latin America to exceed 2009 capital expenditures due to anticipated higher gross subscriber additions and increased sales of advanced products. DIRECTV. At the consolidated DIRECTV level, we anticipate free cash flow, or cash provided by operating activities less capital...

  • Page 65
    ...the increase in revenues, partially offset by higher subscriber acquisition, upgrade and retention and general and administrative costs at both DIRECTV U.S. and DIRECTV Latin America. Operating profit. The following table presents our operating profit (loss) by segment: 2009 Change 2008 $ % (Dollars...

  • Page 66
    ... held by Sky Brazil. Income tax expense. The increase in the effective tax rate to 45% in 2009 from 35% in 2008 is primarily attributable to the non-recoverability of Liberty Transaction related charges. Income from discontinued operations, net of taxes. During 2008, we recorded a net $6 million...

  • Page 67
    ... subscriber churn. Subscribers. In 2009, gross subscriber additions increased primarily due to more aggressive promotions, marketing of the AT&T/DIRECTV bundle which began in February 2009, higher demand for advanced services and the impact of the transition to digital programming by broadcasters...

  • Page 68
    ... in ARPU resulted primarily from price increases on programming packages, higher HD and DVR product penetration, partially offset by more competitive customer promotions, the elimination of satellite lease revenue and lower premium movie package buy rates. Operating profit before depreciation and...

  • Page 69
    ..., Brazil and Puerto Rico, increased demand for DVR, HD and pre-paid services, as well as targeted customer promotions. The decrease in average monthly subscriber churn was primarily due to two downward subscriber adjustments in 2008 totaling 78,000 subscribers. Excluding these subscriber adjustments...

  • Page 70
    ... by higher depreciation and amortization expense primarily due to an increase in basic and advance product receivers leased over the last year. Sports Networks, Eliminations and Other Operating loss from Sports Networks, Elimination and Other increased to $68 million in 2009 from $61 million in 2008...

  • Page 71
    ... expense due to the DIRECTV U.S. lease program. Interest income. The decrease in interest income to $81 million in 2008 from $111 million in 2007 was due to lower interest rates and lower average cash balances due mostly to the use of cash to fund our share repurchase program. Interest expense...

  • Page 72
    ... 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 73
    ... annual program supplier rate increases and the larger number of subscribers in 2008. Subscriber service expenses remained essentially flat with a larger subscriber base in 2008 due to the cost savings from a decline in customer call volume and a lower call handle time. Broadcast operations expense...

  • Page 74
    ... 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 75
    ... mainly from decreased income from continuing operations and prior year tax credits. Cash Flows Used In Investing Activities During both 2008 and 2009, we experienced a reduction in set-top receiver costs and benefited from the use of refurbished set-top receivers from the DIRECTV U.S. lease program...

  • Page 76
    ... set-top receivers provided to subscribers under lease programs. Part of our business strategy in Latin America is to increase advanced product and multi-box penetrations; therefore, our capital expenditures in Latin America are expected to increase. Additionally, we paid $37 million in 2009, $204...

  • Page 77
    ... Annual Report, Globo has the right to exchange Sky Brazil shares for cash or our common shares. If Globo exercises this right, we have the option to elect to pay the consideration in cash, shares of our common stock, or a combination of both. Venezuela Exchange Controls. Through December 31, 2009...

  • Page 78
    ... additions than planned, increased 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...

  • Page 79
    ... team rights agreements, service contract commitments and satellite launch contracts. Broadcast programming commitments include guaranteed minimum contractual commitments that are typically based on a flat fee or a minimum number of required subscribers subscribing to the related programming. Actual...

  • Page 80
    ... package revenues to be earned over the contract period. Management evaluates estimated total programming package revenues at least annually. Estimates of forecasted revenues rely on assumptions regarding the number of subscribers to a given sporting events package and the estimated package price...

  • Page 81
    ... statements. Depreciable 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...

  • Page 82
    ... 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, DIRECTV has the following security rating: Corporate Outlook Standard & Poor's ...Currently, DIRECTV...

  • Page 83
    ...the forward-looking statements as our projections of future events or losses. General Our cash flows and earnings are subject to fluctuations resulting from changes in foreign currency exchange rates, interest rates and changes in the market value of our equity investments. We manage our exposure to...

  • Page 84
    ... To the Board of Directors and Stockholders of DIRECTV El Segundo, California We have audited the accompanying consolidated balance sheets of DIRECTV (formerly, The DIRECTV Group, Inc.) (the ''Company'') as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes...

  • Page 85
    DIRECTV CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2009 2008 2007 (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 ...

  • Page 86
    ... of DIRECTV Class B common stock at December 31, 2009 and $0.01 par value, 3,000,000,000 shares authorized, 1,024,182,043 shares issued and outstanding of The DIRECTV Group, Inc. common stock at December 31, 2008 ...Accumulated deficit ...Accumulated other comprehensive loss ...Total stockholders...

  • Page 87
    ... options exercised and restricted stock units vested and distributed ...7,951,720 Share-based compensation expense ...Tax benefit from stock option exercises ...Other ...Purchase of Darlene Investments LLC's interest in DIRECTV Latin America ...Adjustment to initially record cumulative effect of...

  • Page 88
    DIRECTV CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2009 2008 2007 (Dollars in Millions) Net income ...Other comprehensive income (loss): Amortization of amounts resulting from changes in defined benefit plan experience and actuarial assumptions, net of tax ...Foreign ...

  • Page 89
    ...Cash paid for property and equipment ...Cash paid for satellites ...Cash paid for Liberty transaction, net of cash acquired Investment in companies, net of cash acquired ...Purchase of short-term investments ...Sale of short-term investments ...Other, net ...net cash provided by operating ...$ 1,007...

  • Page 90
    ...digital entertainment programming via satellite to residential and commercial subscribers. Beginning November 19, 2009 we also operate three regional sports networks and own a 65% interest in Game Show Network LLC, or GSN, a basic television network dedicated to game-related programming and Internet...

  • Page 91
    ... television programming rights to distribute live sporting events for a season or tournament to expense using the straight-line method over the course of the season or tournament. However, we charge the cost of multi-year programming contracts for live sporting events with minimum guarantee payments...

  • Page 92
    ... 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 93
    ... 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 during the year. We record the resulting translation adjustment as part of accumulated other...

  • Page 94
    .... Share-Based Payment We grant restricted stock units and common stock options to our employees and directors. We record compensation expense equal to the fair value of stock-based awards at the date approved on a straight-line basis over the requisite service period of up to three years, reduced...

  • Page 95
    DIRECTV NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(continued) 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...

  • Page 96
    ... stock and additional paid in capital ...Total stockholders' equity ... $ - 9,836 6,681 $ 270 9,566 6,473 $ 270 (270) (208) Business Combinations. On January 1, 2009 we adopted a new business combination accounting standard that requires the acquiring entity in a business combination to record...

  • Page 97
    ... financial statements. Payments to Manufacturers and Resellers. On January 1, 2008 we adopted new accounting standards which provide guidance to service providers regarding the proper reporting of consideration given to manufacturers or resellers of equipment necessary for an end-customer to receive...

  • Page 98
    ... America businesses, and LEI, which held Liberty's 57% interest in DIRECTV Group, a 100% interest in three regional sports networks, a 65% interest in Game Show Network, LLC, approximately $120 million in cash and cash equivalents and approximately $2.1 billion of indebtedness and a related series...

  • Page 99
    ... to complete the transaction, including legal, accounting, financial printing, investment banking and other costs, totaled $43 million and have been included as an expense in ''Liberty transaction and related charges'' in the Consolidated Statements of Operations for the year ended December 31, 2009...

  • Page 100
    ...values of the stock based awards and the equity collars are recorded in ''Liberty transaction and related charges'' in the Consolidated Statements of Operations. See Note 9 for additional information regarding the indebtedness and equity collars. For the year ended December 31, 2009, amounts charged...

  • Page 101
    ... provide us with control over a significant portion of DIRECTV U.S.' home service provider network. We paid $91 million in cash, net of the $7 million we received from UniTek USA, for the acquisition, including the equity purchase price, repayment of assumed debt and related transaction costs...

  • Page 102
    ...table sets forth the amounts recorded for ''Satellites, net'' and ''Property and equipment, net'' in our Consolidated Balance Sheets at December 31: Estimated Useful Lives (years) 2009 2008 (Dollars in Millions) Satellites ...Satellites under construction . . Total ...Less: Accumulated depreciation...

  • Page 103
    ... Balance Sheets by segment for the years ended December 31, 2009 and 2008: Sports Networks, Eliminations and Other DIRECTV U.S. DIRECTV Latin America Total Balance as of January 1, 2008 ...Acquisition related to home service provider business ...Sky Brazil deferred income tax valuation allowance...

  • Page 104
    ... December 31, 2008 Estimated Useful Lives Gross Accumulated Net Gross Accumulated Net (years) Amount Amortization Amount Amount Amortization Amount (Dollars in Millions) Orbital slots ...72.5⍭ WL Orbital license Subscriber related ...Dealer network ...Trade name and other . . Distribution rights...

  • Page 105
    ..., DIRECTV and Sony Pictures Entertainment, or Sony, a division of Sony Corporation of America, which is a subsidiary of Sony Corporation, own 65% and 35% of GSN, respectively as of December 31, 2009. GSN owns and operates a basic cable network dedicated to game-related programming and Internet...

  • Page 106
    ... bond premium ... ...million as of ... ... $ 4,490 2,316 1,202 2 8,010 (1,510) $ 6,500 $3,410 2,421 - 2 5,833 (108) $5,725 Total debt ...Less: Current portion of long-term debt ...Long-term debt ... All of the senior notes and the senior secured credit facility were issued by DIRECTV U.S. The...

  • Page 107
    ... are recorded in ''Liberty transaction and related charges'' in the Consolidated Statements of Operations. Our use of the Black-Scholes Model to value the collar is considered a Level 2 valuation technique, which uses observable inputs such as exchange-traded equity prices, risk-free interest rates...

  • Page 108
    ... and other transaction costs. The charge was recorded in ''Other, net'' in our Consolidated Statements of Operations. 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...

  • Page 109
    ... secured credit facility currently bear interest at a rate equal to the LIBOR plus 0.75%, 1.50% and 2.25%, respectively. The weighted average interest for the senior secured credit facilities at December 31, 2009 was 3.143%. In addition, we pay a commitment fee of 0.175% per year for the unused...

  • Page 110
    ...notes and senior secured credit facility also provide that the borrowings may be required to be prepaid if certain change-in-control events occur. In September 2008, Liberty Media became the majority owner of DIRECTV Group's outstanding common stock. There was no ratings decline for the senior notes...

  • Page 111
    ... the reasons set forth in the following table for the years ended December 31: 2009 2008 2007 (Dollars in Millions) Expected expense at U.S. federal statutory income tax rate ...U.S. state and local income tax expense, net of federal benefit Liberty Transaction charges not recoverable ...Change in...

  • Page 112
    .... As of December 31, 2009, we have $35 million of federal net operating loss carryforward which expires between 2027 and 2028. The utilization of the federal net operating loss carryforward is subject to an annual limitation under Section 382 of the Internal Revenue Code, however we believe that...

  • Page 113
    ...to the total unrecognized tax benefits in the next twelve months which will have a significant effect on our results of operations or financial position. Note 11: Capital Lease Obligations Satellite Leases During the first quarter of 2008, Sky Brazil began broadcasting its service on a new satellite...

  • Page 114
    ... funded non-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...

  • Page 115
    ...years ended December 31: Other Pension Postretirement Benefits Benefits 2009 2008 2009 2008 (Dollars in Millions) Change in Net Benefit Obligation Net benefit obligation at beginning Service cost ...Interest cost ...Plan participants' contributions ...Actuarial loss ...Benefits paid ... of ... year...

  • Page 116
    ... $456 374 $415 283 Information for pension plans with a projected benefit obligation in excess of plan assets at December 31: 2009 2008 (Dollars in Millions) Projected benefit obligation ...Fair value of plan assets ...Components of net periodic benefit cost for the years ended December 31: $498...

  • Page 117
    ...theory. The following table provides assumed health care costs trend rates: 2009 2008 Health care cost trend rate assumed for next year ...Rate to which the cost trend rate is assumed to decline (ultimate trend rate) ...Year that trend rate reaches the ultimate trend rate ...Plan Assets 8.00% 8.00...

  • Page 118
    ... capital funds. There were no shares of our common stock included in plan assets as of December 31, 2009 and 2008. The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed during 2009 due to the following: Partnerships and Joint Venture Interests (Dollars...

  • Page 119
    ...$0.01 per share, 50,000,000 shares authorized. As of December 31, 2009, there were no shares outstanding of the Class C common stock or preferred stock. Class A and Class B common stock have similar dividend distribution rights. Share Repurchase Program Since 2006 our Board of Directors has approved...

  • Page 120
    ...and retired shares ...Average price per share ...Number of shares repurchased and retired ... $1,696 23.79 71 $3,174 24.12 131 $2,025 23.48 86 For the year ended December 31, 2009, we recorded the $1,696 million in repurchases as a decrease of $591 million to ''Common stock and additional paid in...

  • Page 121
    ... loss ...Note 14: Earnings Per Common Share $(127) (3) 8 66 $ (56) $(125) (3) 1 (1) $(128) Earnings per share has been computed using the number of outstanding shares of DIRECTV Group through November 19, 2009, and based on the outstanding shares of DIRECTV Class A and Class B common stock...

  • Page 122
    ...: Income Shares Per Share Amounts (Dollars and Shares in Millions, Except Per Share Amounts) Year Ended December 31, 2009: Basic EPS Income from continuing operations attributable to DIRECTV ...Effect of Dilutive Securities Dilutive effect of stock options and restricted stock units ...Diluted...

  • Page 123
    ... stock units under our stock plans to certain of our employees and executives. Annual awards are mostly performance-based, with final payments in shares of our Class A common stock. Final payment can be reduced from the target award amounts based on our company's performance over a three year...

  • Page 124
    ... 31, 2009, $54 million during the year ended December 31, 2008 and $33 million during the year ended December 31, 2007. Stock Options The Compensation Committee has also granted stock options to acquire our Class A common stock under our stock plans to certain of our employees and executives. The...

  • Page 125
    ... weighted average fair value for stock options granted under the DIRECTV Plan using the Black-Scholes valuation model along with the assumptions used in the fair value calculations. Expected stock volatility is based primarily on the historical volatility of our common stock. The risk-free rate for...

  • Page 126
    ... shares. In addition, the company is required to pay the employee withholding taxes to taxing authorities, the cash payments for which are reported in ''Taxes paid in lieu of shares issued for share-based compensation'' in the Consolidated Statements of Cash Flows. Note 16: Other Income and Expenses...

  • Page 127
    ...-year programming 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...

  • Page 128
    ... differentiated by their products and services as well as geographic location, are DIRECTV U.S. and DIRECTV Latin America, which acquire, promote, sell and distribute digital entertainment programming via satellite to residential and commercial subscribers, and the Sports Networks, Eliminations and...

  • Page 129
    ... FINANCIAL STATEMENTS -(continued) Selected information for our operating segments is reported as follows: Sports DIRECTV Networks, Latin Eliminations America and Other (Dollars in millions) DIRECTV U. S. Total 2009 External revenues ...Intersegment revenues ...Revenues ...Operating profit (loss...

  • Page 130
    ... 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 projected operating profit (loss) before depreciation and amortization and...

  • Page 131
    ... the Federal Communications Commission, or FCC, of the sale of News Corporation's interest in DIRECTV Group to Liberty Media in 2008, the FCC imposed certain conditions related to attributable interests in two pay television operations: DIRECTV Puerto Rico and Liberty Cablevision of Puerto Rico Ltd...

  • Page 132
    ... 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 oversees the management and operation of...

  • Page 133
    ...lost revenues in the event of a total or partial loss of the capacity of a satellite. We generally rely on in-orbit spare satellites and excess transponder capacity at key orbital slots to mitigate the impact a satellite failure could have on our ability to provide service. At December 31, 2009, the...

  • Page 134
    ...Except Per Share Amounts) 2009 Quarters Revenues ...Operating profit ...Income (loss) from continuing operations attributable to DIRECTV ...Income from discontinued operations, net of taxes, attributable to DIRECTV ...Net income attributable to DIRECTV ...Basic earnings (loss) per common share from...

  • Page 135
    ... 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 15d...

  • Page 136
    ...below. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of DIRECTV El Segundo, California We have audited the internal control over financial reporting of DIRECTV (formerly, The DIRECTV Group, Inc.) (the ''Company'') as of December 31, 2009, based on...

  • Page 137
    ... statement schedules as of and for the year ended December 31, 2009 of the Company and our report dated February 25, 2010 expressed an unqualified opinion on those financial statements and financial statement schedules and included an explanatory paragraph regarding the Company's adoption of new...

  • Page 138
    ... 8-K of DIRECTV filed November 20, 2009 (SEC File No. 1-34554)) Specimen form of certificate representing Class A Common Stock of DIRECTV Indenture, dated as of June 15, 2005, by and among DIRECTV Holdings LLC, DIRECTV Financing Co, Inc., the Guarantors signatory thereto and The Bank of New York, as...

  • Page 139
    DIRECTV Exhibit Number Exhibit Name *4.4 Supplemental Indenture dated as of April 28, 2006 by and among LABC Productions, LLC, DIRECTV Holdings LLC, DIRECTV Financing Co, Inc., the Guarantors signatory thereto and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.8 to the ...

  • Page 140
    ... 10.19 to the Form 10-K of The DIRECTV Group, Inc. filed February 27, 2009 (SEC File No. 1-31945)) The DIRECTV Group, Inc. Amended and Restated 2004 Stock Plan (incorporated by reference to Annex B to the The DIRECTV Group, Inc.'s Definitive Proxy Statement dated April 27, 2007 and filed on April...

  • Page 141
    ...Exhibit Number Exhibit Name ††*10.15 The Liberty Entertainment, Inc. Transitional Stock Adjustment Plan (incorporated by reference to Exhibit 99(a) of the Form S-8 of DIRECTV filed on November 19, 2009 (SEC File No. 1-34554)) The DIRECTV Group, Inc. Amended and Restated Executive Officer Cash...

  • Page 142
    ... Purchasers named therein (incorporated by reference to Exhibit 10.2 of the Form 8-K of DIRECTV Holdings LLC filed on September 25, 2009 (SEC File No. 333-106529)) Voting, Standstill, Non-Competition and Non-Solicitation Agreement, dated as of May 3, 2009, by and among Liberty Media Corporation...

  • Page 143
    ... Management contract or compensatory plan or arrangement. A copy of any of the exhibits included in this Annual Report on Form 10-K, other than those as to which confidential treatment has been granted by the Securities and Exchange Commission, upon payment of a fee to cover the reasonable expenses...

  • Page 144
    DIRECTV SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT CONDENSED STATEMENTS OF OPERATIONS (Parent Company Only) Years Ended December 31, 2009 2008 2007 (Dollars in Millions) Operating costs and expenses General and administrative expenses ...Operating loss ...Interest income ......

  • Page 145
    DIRECTV SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS (Parent Company Only) Years Ended December 31, 2009 2008 2007 (Dollars in Millions) Cash Flows from Operating Activities Net cash used in operating activities ...Cash Flows from Investing ...

  • Page 146
    ... 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, which total approximately...

  • Page 147
    DIRECTV 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, 2009 Allowances Deducted from Assets ...

  • Page 148
    ... the Board of Directors Director, President and Chief Executive Officer Executive Vice President and Chief Financial Officer Senior Vice President and Controller Director Director Director Director Director Director } } } Principal Executive Officer Principal Financial Officer Principal Accounting...

  • Page 149
    DIRECTV Signature Title /s/ CHARLES R. LEE (Charles R. Lee) /s/ PETER A. LUND (Peter A. Lund) /s/ HAIM SABAN (Haim Saban) Director Director Director *** 137

  • Page 150
    ...101.CAL 101.DEF 101.LAB 101.PRE Specimen form of certificate representing Class A Common Stock of DIRECTV Tax Sharing Agreement by and between Liberty Media Corporation and Liberty Entertainment, Inc. dated November 19, 2009 Standstill Agreement by and among John C. Malone, Leslie Malone, The Tracy...

  • Page 151
    ...; 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, 2010 3. 4. /s/ MICHAEL D. WHITE Michael D. White Director, President and Chief Executive Officer

  • Page 152
    ... control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons...

  • Page 153
    ... with the Annual Report of DIRECTV (the ''Corporation'') on Form 10-K for the fiscal year ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Michael D. White, Director, President and Chief Executive Officer of the Corporation, certify...

  • Page 154
    ... the Annual Report of DIRECTV (the ''Corporation'') on Form 10-K for the fiscal year ended December 31, 2009 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 Corporation, certify...

  • Page 155
    ... executive compensation by the Compensation Committee of our Board of Directors: British Sky Broadcasting Group, Cablevision Systems Corporation, CBS Corporation, Comcast Corporation, Dish Network Corp, Walt Disney Company, Gannett Company, Liberty Global, Inc, News Corporation, Qwest Communications...

  • Page 156
    ... of America, or GAAP, is calculated for DIRECTV U.S. by adding amounts under the captions ''Subscriber acquisition costs'' and ''Depreciation and amortization expense'' to ''Operating Profit'' from DIRECTV U.S.' segment operating results and subtracting ''subscriber leased equipment-upgrade and...

  • Page 157

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    ... Corporate Information 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 symbol: DTV Transfer Agent and Registrar Computershare P.O Box 43078 Providence...

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