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ANNUAL REPORT 2010
Don’t just watch TV. d i r e c t v.

Table of contents

  • Page 1
    Don't just watch TV . directv . ANNUAL REPORT 2010

  • Page 2
    ... just watch tv. Watch with the industry's best picture and sound. Before the world saw in high-definition, DIRECTV saw opportunity. Taking high-definition ever higher, but never losing customer focus. cumulative subscribers* 9.9% cagr 23.3 M 2008 * 25.1 M 2009 including sky mexico 28.1 M 2010

  • Page 3
    Iron Man 2, the Movie: © 2010 MVL Film Finance LLC. Iron Man, the Character: ™ & © 2010 Marvel Entertainment, LLC and subs. All Rights Reserved.

  • Page 4
    ... watch tv. Watch the undisputed, undefeated leader in sports. Keeping our eye on the ball, but seeing where it's going. Leadership is our legacy. revenue 10.6% cagr opbda 12.8% cagr $ 19.7B 2008 $ 21.6 B 2009 $ 24.1B 2010 $ 5.0B 2008 $ 5.3 B 2009 $ 6.4 B 2010 consolidated directv

  • Page 5
    Winslow Townson/AP Photo

  • Page 6
    ... Watch the leader in home theater take cinema straight from the big screen to the flat screen. Order the latest releases while they are still in theaters, with most new titles a month before Netflix and Redbox. And now, over 6,000 shows and movies at no extra charge. directv u.s. total subscribers...

  • Page 7
    Inception: © 2010 Warner Bros. Entertainment Inc. and Legendary Pictures. All Rights Reserved.

  • Page 8
    ...any other room. industry-leading hd dvr Offers consumer-friendly Whole-Home DVR 100 hours of storage, best search engine and discovery tools u.s. advanced product penetration % of Gross Additions 58% 65% % of Residential Subscribers 74% 51% Supports high-definition 3D 60% 2009 66% 2010 2008

  • Page 9
    Toy Story 3: © Disney/Pixar. All Rights Reserved.

  • Page 10
    ... just watch tv. Watch along with 8.9 million households in Latin America, and the 28 million households worldwide. Our potential for growth has no limits or borders. We're the world's largest because we're the world's best. But we're not satisfied. directv latin america total subscribers Millions...

  • Page 11
    Jamie McDonald/Getty Images

  • Page 12
    ... of television. In 2011, DIRECTV will let you take TV everywhere. Watch your favorite programming on your cell phone, laptop or iPad. consolidated free cash flow 28.8% cagr 16.0 $ 14.0 $ 12.0 $ 10.0 $ 8.0 $ 6.0 $ 4.0 $ 2.0 $ 0.0 $ cumulative share repurchases Cumulative Repurchases $B Year End...

  • Page 13
    Tron Legacy: © Disney Enterprises, Inc. All Rights Reserved.

  • Page 14
    don't just watch tv. directv. We understand the world's passion for television. And like no other company , we capitalize on it. Growth and return on shareholder investment this robust could only come from a company this ambitious. value of $ 100 Invested on Jan. 1, 2007; USD 160 138 82 63 128 102...

  • Page 15
    chairman's letter 2010 annual report A Message to Shareholders When I came on board as DIRECTV CEO at the beginning of last year, I set out three priorities that I believed would be critical to our success in 2010 and beyond: deliver on our 2010 operating plan; rework our strategies to win in the ...

  • Page 16
    ...their TV experience is, and we are going to make that viewing experience even richer in 2011. We took a big step forward last year with the launch of our Whole-Home DVR service. It has been getting fabulous reviews from our customers who love being able to watch recordings of their favorite shows in...

  • Page 17
    ...and VOD. We did a fantastic job of that in 2010, growing pay per view movie revenue by 20 percent. We are going to do an even better job in 2011 with a sharper focus on marketing our VOD offerings that includes the addition earlier this year of NBC on Demand, a significant addition to our VOD lineup...

  • Page 18
    ... call centers will see a marked improvement in productivity and service with a new knowledge management system. Underlying all of this, we will continue the DIRECTV tradition of tough-minded, financial discipline in managing all of our costs. We increased our subscriber base over 25 percent in 2010...

  • Page 19
    ... bottom line. While we share many of the products and services that make DIRECTV the best video experience in the world, we are also constantly learning from each other, like sharing segmentation marketing strategies or best practices. For example, by leveraging set-top box technology developed for...

  • Page 20
    ...the strength of our offer in the marketplace with innovative marketing, superior products and services like the industry's most advanced HD DVRs, our Whole-Home DVR service, more movie choices on DIRECTV CINEMA, NFL SUNDAY TICKET games our customers can watch anywhere, and the best HD and 3D choices...

  • Page 21
    ... in Rule 12b-2 of the Exchange Act). Yes â...ª No à š As of June 30, 2010, the aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates was $29,809,534,476. As of February 18, 2011, the registrant had outstanding 790,782,019 shares of Class A common stock...

  • Page 22
    ... 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, 2010...

  • Page 23
    ..., national or global political, market and regulatory conditions and other risks, each of which is described in more detail in Item 1A-Risk Factors of this Annual Report. Any forward looking statement made by us in this Annual Report on Form 10-K speaks only as of the date on which it is made...

  • Page 24
    ... high-definition, or HD, television channels and four dedicated 3D channels. In addition, we offer VOD service, named DIRECTV CINEMATM, which provides a selection of over 6,000 movie and television programs to our broadband-connected subscribers. As of December 31, 2010, we provided local channel...

  • Page 25
    ... to as a DIRECTV௡ System. After acquiring and installing a DIRECTV System, subscribers activate the DIRECTV service by contacting us and subscribing to one of our programming packages. Key Strengths • Large Subscriber Base. We are the largest provider of DTH digital television services and the...

  • Page 26
    ...We will use segmentation analysis to better target new customers based on demographic, geographic and customer information to more profitably and effectively provide our customers with the products and services they desire. • Strengthen Our Bundled Offers and Capabilities. Bundled video, telephone...

  • Page 27
    ...-time information such as favorite sports teams, local traffic or weather reports. In the future, broadband-connected receivers will also facilitate access of DIRECTV௣ programming services on mobile devices and the ability to search for web-based video such as YouTube௡ on a customer's television...

  • Page 28
    ... and conditions. • More closely align a channel's ratings with the costs we pay. 6 • Obtain rights for new value-added video services such as rights to offer our customers 3D, mobile and streaming services. • Repackage channels to better align the programming that our customers want to watch...

  • Page 29
    ...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 30
    ... operators with a limited coverage area and provide local, network and syndicated programming typically free of charge. There are over 2,000 TV broadcast stations in the U.S. split among 210 TV markets. DIRECTV LATIN AMERICA Through DTVLA, we provide DTH digital television services in Latin America...

  • Page 31
    ... 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 32
    ... other providers of pay television, which distribute their programming by satellite, cable, terrestrial microwave systems, traditional over-the-air broadcasting or the Internet. In addition, in certain markets we face significant competition from illegal and informal sector pay television operations...

  • Page 33
    ... equity investments in companies with which we can jointly provide services to our subscribers. For a further discussion of our mergers and acquisitions, see Part II, Item 8, Note 3 of the Notes to the Consolidated Financial Statements of this Annual Report. GOVERNMENT REGULATION We are subject...

  • Page 34
    ... 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 markets served by 2013. We may not be able to comply with these must carry rules, or compliance may mean...

  • Page 35
    ... on applications for authority to provide DBS service in the United States using new frequencies or new orbital locations not assigned to the United States in the ITU Region 2 Broadcasting Satellite Service, or BSS, Plan. On August 18, 2006, the FCC began a proceeding to identify a new system for...

  • Page 36
    ... we cannot arrive at terms for carriage of our regional sports network programming with an MVPD. We cannot predict what effect our compliance with or the FCC's enforcement of these conditions will have on our business. • Potential Regulation of Set-Top Boxes. Cable operators are subject to a wide...

  • Page 37
    ... to the channels we carry; and regulations governing telemarketing and customer service. Regulatory regimes in Latin America are generally less developed than in the United States, and the application of existing laws and regulations to DBS providers is at times uncertain. In addition, there are...

  • Page 38
    ...Latin America had approximately 7,000 full-time and 1,600 part-time employees and Sports Networks and Other had approximately 200 full-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...

  • Page 39
    ... operator with an established subscriber base in the territories in which we compete; • bundling their video service 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 40
    ...Turnover of subscribers in the form of subscriber service cancellations, or churn, has a significant financial impact on the results of operations of any subscription television provider, including us, as does the cost of upgrading and retaining subscribers. Any increase in our upgrade and retention...

  • Page 41
    ...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 offer more costly advanced equipment or services, including connecting our...

  • Page 42
    ... property at any price, which could materially adversely affect our competitive position. We may not be aware of all intellectual property rights that our services or the products used to transmit or receive our services may potentially infringe. In addition, patent applications in the United...

  • Page 43
    ..., financial condition and 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...

  • Page 44
    ... cable system operators, including key regional sports networks, or RSNs. Currently, under certain provisions of the Communications Act governing access to programming, cable-affiliated programmers generally must sell and deliver their programming services to all MVPDs on non-discriminatory terms...

  • Page 45
    ... in 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...

  • Page 46
    ... in developing the technology we need to effectively restrict or eliminate signal theft. If our current access cards are compromised, our revenue and our ability to contract for video and audio services provided by programmers could be materially adversely affected. In addition, our operating costs...

  • Page 47
    ...the amount of programming and other services available to our subscribers. The materiality of such a loss of authorization would vary based upon, among other things, the orbital location at which the frequencies may be used. Moreover, some of our authorizations and future applications may be subject...

  • Page 48
    ... customers, including degradation of service, service disruption, excessive call volume to call centers and damage to our broadcast centers, other properties, equipment and data. Such an event also could result in large expenditures necessary to repair or replace such networks or information systems...

  • Page 49
    ... 31, 2010, we had approximately 250 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 50
    ... many business improvements made in the last few years and to further improve other practices. DIRECTV U.S. paid a total of $14.25 million to the states as costs of investigation and attorneys fees, and has agreed to implement a restitution program for consumers who send eligible complaints. ITEM...

  • Page 51
    ... 2010 is as follows: Maximum Total Number of 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, Except Per Share Amounts) Common Stock...

  • Page 52
    DIRECTV ITEM 6. SELECTED FINANCIAL DATA Years Ended and As of December 31, 2010 2009 2008 2007 2006 (Dollars in Millions, Except Per Share Amounts) Consolidated Statements of Operations Data: Revenues ...Total operating costs and expenses ...Operating profit ...Income from continuing operations ...

  • Page 53
    ...We undertake no obligation to publicly update any forwardlooking statement, whether as a result of new information, future developments or otherwise, except as required by law. CONTENTS The following is a discussion of our results of operations and financial condition. This discussion should be read...

  • Page 54
    DIRECTV SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION Years Ended December 31, 2010 2009 2008 (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 55
    ... amortization expense'' to ''Operating profit.'' This measure should be used in conjunction with GAAP financial measures and is not presented as an alternative measure of operating results, as determined in accordance with GAAP. Our management and our Board of Directors use operating profit before...

  • Page 56
    ... 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 57
    ... RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(concluded) Selected Segment Data Years Ended December 31, 2010 2009 2008 (Dollars in Millions) DIRECTV U.S. Revenues ...% of total revenues ...Operating profit ...Add: Depreciation and amortization expense ...Operating profit before depreciation...

  • Page 58
    ... per DIRECTV Class A common share by $0.18 for the year ended December 31, 2010. See Note 13 of the Notes to the Consolidated Financial Statements in Item 8, Part II of this Annual Report for additional information. Acquisitions Globo Transaction. In connection with our acquisition of Sky Brazil...

  • Page 59
    ... and 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. Financing...

  • Page 60
    ... subscriber equipment upgrade programs for DVR, HD and HD DVR receivers and local channels, our multiple set-top receiver offer and similar initiatives. Retention costs also include the costs of installing and providing 38 Total cost of repurchased and retired shares ...Average price per share...

  • Page 61
    ... 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 62
    ...: Operating profit (loss) by segment: 2010 Change 2009 $ % (Dollars in Millions) The increase in our total revenues was due to subscriber growth and higher ARPU at DIRECTV U.S., subscriber growth at DIRECTV Latin America, as well as the revenue generated by DIRECTV Sports Networks which we acquired...

  • Page 63
    ...held by Sky Brazil and fair-value adjustment loss on non-employee stock options in connection with the Liberty Transaction completed in 2009. The increases in basic and diluted earnings per share for Class A common stock were due to higher net income attributable to DIRECTV, the charge recorded for...

  • Page 64
    ... and upgrade and retention costs and higher general and administrative expenses. Broadcast programming and other costs increased due to the larger number of subscribers in 2010 and annual program supplier rate increases. Subscriber service expenses increased primarily due to a larger subscriber base...

  • Page 65
    ... 3,000 subscribers to Sky Mexico and the migration of approximately 16,000 subscribers from a local pay television service provider to Sky Brazil in 2009. Gross subscriber additions increased in 2010 principally due to continued strong demand for advanced products and prepaid services, the...

  • Page 66
    ... 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. segment: The following table presents our operating profit (loss) by Change 2008 $ % (Dollars in...

  • Page 67
    ... of revenues, exclusive of depreciation and amortization expense Broadcast programming and other ...Subscriber service expenses ...Broadcast operations expenses ...Selling, general and administrative expenses, exclusive of depreciation and amortization expense Subscriber acquisition costs ...Upgrade...

  • Page 68
    ... operating profit, cash flows, net subscriber additions or average monthly 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...

  • Page 69
    ... to the increase in operating profit before depreciation and amortization, offset 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...

  • Page 70
    ... the third satellite in service in the second half of 2013. Capital expenditures in Latin America for set-top receivers provided to subscribers increased during 2008, 2009 and 2010. Part of our business strategy in Latin America is to increase advanced product and multi-box installations; therefore...

  • Page 71
    ... new 5 year, $2.0 billion revolving credit facility. We pay a commitment fee of .30% per year for the unused commitment under the revolving credit facility, and borrowings will bear interest at an annual rate of (i) the London interbank offer rate (LIBOR) (or for Euro advances the EURIBOR rate) plus...

  • Page 72
    ... other things, significantly higher subscriber additions than planned, increased subscriber churn or upgrade and retention costs, higher than planned capital expenditures for satellites and broadcast equipment, or satellite anomalies or signal theft. Additionally, DIRECTV U.S.' ability to borrow...

  • Page 73
    ... professional 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...

  • Page 74
    .... We currently lease most set-top receivers provided to new and existing subscribers and therefore capitalize the cost 52 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 75
    ... to our consolidated financial statements. ACCOUNTING CHANGES AND NEW ACCOUNTING PRONOUNCEMENTS For a discussion of accounting changes and new accounting pronouncements see Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report, which we incorporate...

  • Page 76
    ... Risk From time to time, we may be subject to fluctuating interest rates for variable rate borrowings, which may adversely impact our consolidated results of operations and cash flows. We had outstanding debt of $10,510 million at December 31, 2010, which mostly consisted of DIRECTV U.S.' fixed rate...

  • Page 77
    ...a whole, present fairly, in all material respects, the information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2010, based on the...

  • Page 78
    DIRECTV CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2010 2009 2008 (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 79
    ... exchange inducement value for the Malone Transaction in 2010: Income (loss) from continuing operations ...Weighted average number of Class A common shares outstanding (in millions) Basic ...Diluted ...Weighted average number of Class B common shares outstanding, for the period of November 19, 2009...

  • Page 80
    ..., 30,000,000 shares authorized, none and 21,809,863 shares issued and outstanding of DIRECTV Class B common stock at December 31, 2010 and December 31, 2009, respectively ...Accumulated deficit ...Accumulated other comprehensive loss ...Total stockholders' equity (deficit) ...Total liabilities and...

  • Page 81
    ... (DEFICIT) Common The DIRECTV DIRECTV DIRECTV Stock Group, Inc. Class A Class B and Additional Accumulated Common Shares Common Shares Common Shares Paid-In Capital Deficit Accumulated Other Comprehensive Loss, net of taxes Total Redeemable Stockholders' Non-controlling Net Equity (Deficit) Interest...

  • Page 82
    DIRECTV CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2010 2009 2008 (Dollars in Millions) Net income ...Other comprehensive income (loss): Amortization of amounts resulting from changes in defined benefit plan experience and actuarial assumptions, net Foreign currency ...

  • Page 83
    ... income from continuing operations to net cash provided Depreciation and amortization ...Amortization of deferred revenues and deferred credits ...Share-based compensation expense ...Equity in earnings from unconsolidated affiliates ...Dividends received ...Net loss from impairment of investments...

  • Page 84
    DIRECTV CONSOLIDATED STATEMENTS OF CASH FLOWS -(continued) Years Ended December 31, 2010 2009 2008 (Dollars in Millions) Cash Flows From Financing Activities Cash proceeds from debt issuance ...Debt issuance costs ...Repayment of long-term debt ...Proceeds from short-term borrowings ...Repayment of...

  • Page 85
    ... in acquiring, promoting, selling and/or distributing digital entertainment programming via satellite to residential and commercial subscribers. Since 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...

  • Page 86
    ... 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 87
    ... and highly liquid investments we purchase with original maturities of three months or less. Inventories We state inventories at the lower of average cost or market. Inventories consist of finished goods for DIRECTV System equipment and DIRECTV System access cards. Property and Equipment, Satellites...

  • Page 88
    ...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 support, were $342 million in...

  • Page 89
    ... financial statements. The new standards also provide guidance on accounting for changes in the parent's ownership interest in a subsidiary and establishes standards of accounting for the deconsolidation of a subsidiary due to the loss of control. Reporting entities must now present certain...

  • Page 90
    ... for multiple deliverables. We do not expect the adoption of the revised standard to have an effect on our consolidated results of operations and financial position, when adopted, as required, on January 1, 2011. Note 3: Acquisitions Globo Transaction In connection with our acquisition of Sky Brazil...

  • Page 91
    ...transfer control of DIRECTV without DIRECTV public stockholders participating in any control premium. The holders of outstanding shares of DIRECTV Group common stock (other than direct or indirect subsidiaries of LEI) received one share of DIRECTV Class A common stock for each share of DIRECTV Group...

  • Page 92
    ... common stock and exchangeable shares. Simultaneously, in a separate transaction, UniTek USA, LLC acquired 100% of 180 Connect's cable service operating unit and operations in certain of our installation services markets in exchange for satellite installation operations in certain markets and...

  • Page 93
    ... with ownership and 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. We...

  • Page 94
    ... DIRECTV U.S. set-top receivers capitalized, and depreciation expense recorded, under its lease program for each of the periods presented: Capitalized subscriber leased equipment: Years ended December 31, 2010 2009 2008 (Dollars in Millions) 2010 2009 (Dollars in Millions) Satellites ...Satellites...

  • Page 95
    ... impairment losses as of December 31, 2010 and 2009. Satellite Rights Sky Brazil has entered into an agreement for the right to use a replacement satellite in the event its existing leased satellite suffers a significant failure. The satellite was launched in March 2010 and we recorded the total...

  • Page 96
    ... 2009, 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. GSN owns and operates a basic cable network dedicated to game-related programming and Internet interactive game playing...

  • Page 97
    ...the price of DIRECTV Group stock. As the derivative financial instruments were in respect of 75 Total other liabilities and deferred credits ... As of December 31, 2010, there were $30 million of amounts payable to vendors for property and equipment and $17 million of amounts payable for satellites...

  • Page 98
    ...-term operational and stock price goals and was therefore an uneconomic and burdensome obligation to DIRECTV. Accordingly, in connection with the assumption of the Collar Loan, we agreed with the lending bank to promptly repay the Collar Loan and settle the equity collars. From the acquisition date...

  • Page 99
    ... million of debt issuance costs in connection with these transactions. On September 22, 2009, DIRECTV U.S. purchased, pursuant to a tender offer, $583 million of its then outstanding $910 million 8.375% senior notes at a price of 103.125% plus accrued and unpaid interest, for a total of $603 million...

  • Page 100
    ... a new five year, $2.0 billion revolving credit facility. We pay a commitment fee of .30% per year for the unused commitment under the revolving credit facility, and borrowings will bear interest at an annual rate of (i) the London interbank offer rate (LIBOR) (or for Euro advances the EURIBOR rate...

  • Page 101
    ... recognized for financial reporting purposes and such amounts recognized for tax purposes, as measured by applying currently enacted tax laws. Our income tax expense consisted of the following for the years ended December 31: 2010 2009 2008 (Dollars in Millions) Current tax expense: U.S. federal...

  • Page 102
    DIRECTV NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -(continued) Our income tax expense was different 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: 2010 2009 2008 (Dollars in Millions) ...

  • Page 103
    ... for the current year ...Gross unrecognized tax benefits at December 31, 2010 ... As of December 31, 2010, our unrecognized tax benefits totaled $362 million, including $303 million of tax positions the recognition of which would affect the annual effective income tax rate. We recorded $21 million...

  • Page 104
    ...-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 105
    ...Pension Postretirement Benefits Benefits 2010 2009 2010 2009 (Dollars in Millions) Change in Net Benefit Obligation Net benefit obligation at beginning of Service cost ...Interest cost ...Plan participants' contributions ...Actuarial loss ...Benefits paid ...Change in plan ...year ...$498 $ 452 $ 21...

  • Page 106
    ... class are the most important of the assumptions used in the review and modeling and are based on comprehensive reviews of historical data and economic/financial market theory. The following table provides assumed health care costs trend rates: 2010 2009 Discount rate-Qualified Plans ...Discount...

  • Page 107
    ... at all times with applicable government regulations. The fair value measurements of the plan assets as of December 31, 2010 were as follows: Fair Value Measurements as of December 31, 2010 Quoted Prices in Active Percentage of Markets for Significant Significant Plan Assets Identical Observable...

  • Page 108
    ... system. Malone Transaction In connection with approval by 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...

  • Page 109
    ... DIRECTV Class A common share by $0.18 for the year ended December 31, 2010. Share Repurchase Program Since 2006 our Board of Directors has approved multiple authorizations for the repurchase of our common stock, the most recent of which was announced in the first quarter of 2011, authorizing share...

  • Page 110
    ...8 66 $ (56) Total accumulated other comprehensive loss ...Note 14: Earnings Per Common Share Earnings per share has been computed using the number of outstanding shares of DIRECTV Group common stock through November 19, 2009, and based on the outstanding shares of DIRECTV Class A common stock from...

  • Page 111
    ...: one share of DIRECTV Class A common stock for each share of DIRECTV Class B common stock held, plus an additional number of DIRECTV Class A shares with a fair value of $160 million based on the market price of the DIRECTV Class A common stock at the time of the agreement on April 6, 2010. We...

  • Page 112
    ... stock plans to certain of our employees and executives. Annual awards are mostly performance-based, vest over three years and provide for final payments in shares of our Class A common stock. Final payment can be reduced or increased from the target award amounts based on our company's performance...

  • Page 113
    ... year ended December 31, 2008, based on the intrinsic value of individual awards on the date of exercise. The following table presents the estimated weighted average fair value as of November 19, 2009 of the 16.7 million stock options and stock appreciation rights assumed under the LEI Plan as part...

  • Page 114
    ... of share-based compensation expense ...Proceeds received from stock options exercised ... $82 31 60 38 $55 21 42 35 $ 51 19 43 105 The following table presents the estimated weighted average fair value for stock options granted during the year ended December 31, 2010 under the DIRECTV Plan using...

  • Page 115
    ..., including Sky Mexico and GSN. The majority of payments under contractual arrangements with related parties are pursuant to multi-year programming contracts. Payments under these contracts are typically subject to annual rate increases and are based on the number of subscribers receiving the...

  • Page 116
    ... the corporate office, eliminations and other entities. Selected information for our operating segments is reported as follows: Sports DIRECTV Networks, DIRECTV Latin Eliminations U.S. America and Other (Dollars in millions) Sales: Liberty Media and affiliates ...Discovery Communications, Liberty...

  • Page 117
    ...) Sports DIRECTV Networks, DIRECTV Latin Eliminations U.S. America and Other (Dollars in millions) Total 2009 External revenues ...$18,664 Intersegment revenues ...7 Revenues ...$18,671 Operating profit (loss) ...$ 2,410 Add: Depreciation and amortization expense ...2,275 Operating profit (loss...

  • Page 118
    ... from subscribers located in different geographic areas. Property is grouped by its physical location. Years Ended and As of December 31, 2010 2009 2008 Net Property Net Property Net Property Revenues & Satellites Revenues & Satellites Revenues & Satellites (Dollars in Millions) Operating profit...

  • Page 119
    ..., an optional advance payment that may be requested by the NFL and the loss of subscriber revenue as well as possibly resulting in reduced subscriber additions and higher churn. Redeemable Noncontrolling Interest In connection with our acquisition of Sky Brazil in 2006, our partner who holds the...

  • Page 120
    .... The trial court increased the damages award by $25 million because of the jury finding of willful infringement and awarded pre-judgment interest of $13 million. DIRECTV was also ordered to pay into escrow $1.60 per new set-top receiver manufactured for use with the DIRECTV system beginning June 17...

  • Page 121
    ... to our consolidated financial position. Early Cancellation Fees. In 2008, a number of plaintiffs filed putative class action lawsuits in state and federal courts challenging the early cancellation fees we assess our customers when they do not fulfill their programming commitments. Several of these...

  • Page 122
    ...2010, from continuing operations ...2009 Quarters Revenues ...Operating profit ...Income (loss) from continuing operations attributable to DIRECTV ...Net income attributable to DIRECTV ...Basic earnings attributable to DIRECTV Class A stockholders per common share from continuing operations (DIRECTV...

  • Page 123
    ... in accordance with authorizations of management and directors of the company; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because...

  • Page 124
    ... internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide...

  • Page 125
    ... Report from DIRECTV's definitive Proxy Statement for its 2011 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission, pursuant to Regulation 14A, not later than March 28, 2011. *** PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES Page Number...

  • Page 126
    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 127
    ... Financing Co., Inc. filed May 16, 2008 (SEC File No. 333-106529)) Tranche C Term Loan Joinder Agreement, dated as of May 14, 2008, by and among DIRECTV Holdings LLC and Bank of America, N.A., as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.4 of the Form 8-K of...

  • Page 128
    ... 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 (SEC File No. 1-31945)) Summary Terms-2010 Restricted Stock Unit Grants to applicable executive officers (incorporated...

  • Page 129
    ... to Exhibit 10.3 of the Form 8-K of DIRECTV filed on January 7, 2010 (SEC File No. 1-34554)) Voting, Standstill, Non-Competition and Non-Solicitation Agreement, dated as of May 3, 2009, by and among Liberty Media Corporation, DIRECTV, The DIRECTV Group, Inc., Liberty Entertainment, Inc., Greenlady...

  • Page 130
    ... 8-K of The DIRECTV Group, Inc. filed on February 12, 2007 (SEC File No. 1-31945)) DIRECTV Code of Ethics and Business Conduct, adopted November 19, 2009 Subsidiaries of the Registrant as of December 31, 2010 Consent of Deloitte & Touche LLP Certification of the Chief Executive Officer Pursuant to...

  • Page 131
    ... 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 132
    DIRECTV SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS Description Balance at beginning of year Additions charged Additions charged to costs and expenses to other accounts (Dollars in Millions) Deductions Balance at end of year For the Year Ended December 31, 2010 Allowances Deducted from Assets ...

  • Page 133
    ... 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. DIRECTV (Registrant) Date: February 25, 2011 By: /s/ PATRICK T. DOYLE Patrick T. Doyle (Executive Vice President and Chief Financial Officer) Pursuant to the requirements of the...

  • Page 134
    DIRECTV EXHIBIT INDEX Exhibit Number Exhibit Name 21 23 31.1 31.2 32.1 32.2 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE Subsidiaries of the Registrant as of December 31, 2010 Consent of Deloitte & Touche LLP Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-...

  • Page 135
    ...report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 25, 2011 /s/ MICHAEL D. WHITE Michael D. White Director, President and Chief...

  • Page 136
    ...; 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, 2011 /s/ PATRICK T. DOYLE Patrick T. Doyle Executive Vice President and Chief Financial Officer

  • Page 137
    ... Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. /s/ MICHAEL D. WHITE Michael D. White Director, President and Chief Executive Officer Date: February 25...

  • Page 138
    ... Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. /s/ PATRICK T. DOYLE Patrick T. Doyle Executive Vice President and Chief Financial Officer Date: February 25...

  • Page 139
    ... Sky Broadcasting Group, Cablevision Systems Corporation, CBS Corporation, Comcast Corporation, Discovery Communications, Inc., DISH Network Corp., Gannett Company, Liberty Global, Inc, News Corporation, Qwest Communications International, Sprint Nextel Corp., Time Warner Cable, Inc., Time Warner...

  • Page 140
    ... acquisitions'', and ''Cash paid for subscriber leased equipment-upgrade and retention'' from ''Net cash provided by operating activities'' from the Consolidated Statements of Cash Flows. This financial measure should be used in conjunction with other GAAP financial measures and is not presented...

  • Page 141
    ... Officer company information Media Relations (212) 205-0882 bruce b. churchill Executive Vice President and President of DIRECTV Latin America, LLC and New Enterprises Investor Relations (310) 964-0808 directv.com NASDAQ ticker symbol: DTV ralph f. boyd, jr. Executive Vice President / Community...

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