DIRECTV 2010 Annual Report Download - page 121

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DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
be analyzed by us at this stage of their proceedings, we believe the claims are many business improvements made in the last few years and to further improve
without merit and intend to defend the actions vigorously. The final disposition of other practices. DIRECTV U.S. paid a total of $14.25 million to the states as costs
these claims is not expected to have a material adverse effect on our consolidated of investigation and attorneys fees, and has agreed to implement a restitution
financial position, but could possibly be material to our consolidated results of program for consumers who send eligible complaints.
operations of any one period. No assurance can be given that any adverse outcome
Income Tax Matters
would not be material to our consolidated financial position.
We have received tax assessments from certain foreign jurisdictions and have
Early Cancellation Fees. In 2008, a number of plaintiffs filed putative class agreed to indemnify previously divested businesses for certain tax assessments
action lawsuits in state and federal courts challenging the early cancellation fees we relating to periods prior to their respective divestitures. These assessments are in
assess our customers when they do not fulfill their programming commitments. various stages of the administrative process or litigation, and we believe we have
Several of these lawsuits are pending—some in California state court purporting to adequately provided for any related liability.
represent statewide classes, and some in federal courts purporting to represent
nationwide classes. The lawsuits seek both monetary and injunctive relief. While the While the outcome of these assessments and other tax issues cannot be
theories of liability vary, the lawsuits generally challenge these fees under state predicted with certainty, we believe that the ultimate outcome will not have a
consumer protection laws as both unfair and inadequately disclosed to customers. material effect on our consolidated financial statements.
Each of the lawsuits is at an early stage. Where possible, we are moving to compel During the third quarter of 2010 we entered into an agreement with a former
these cases to arbitration in accordance with our Customer Agreement, but in states owner to settle certain uncertain tax positions. As a result of this settlement we
such as California where the enforceability of the arbitration provision is limited, reversed an accrual for the uncertain tax position and recorded a net benefit of
we intend to defend against these allegations in court. We believe that our early $39 million in ‘‘Income tax expense’’ in the Consolidated Statements of Operations
cancellation fees are adequately disclosed, and represent reasonable estimates of the during the year ended December 31, 2010.
costs we incur when customers cancel service before fulfilling their programming
commitments. Satellites
From time to time, we receive investigative inquiries or subpoenas from state We may purchase in-orbit and launch insurance to mitigate the potential
and federal authorities with respect to alleged violations of state and federal statutes. financial impact of satellite launch and in-orbit failures if the premium costs are
These inquiries may lead to legal proceedings in some cases. DIRECTV U.S. has considered economic relative to the risk of satellite failure. The insurance generally
received a request for information from the Federal Trade Commission, or FTC, on covers the unamortized book value of covered satellites. We do not insure against
issues similar to those resolved with the multistate group of state attorneys general lost revenues in the event of a total or partial loss of the capacity of a satellite. We
discussed below. We are cooperating with the FTC by providing information about generally rely on in-orbit spare satellites and excess transponder capacity at key
our sales and marketing practices and customer complaints. orbital slots to mitigate the impact a satellite failure could have on our ability to
provide service. At December 31, 2010, the net book value of in-orbit satellites was
In December 2010, DIRECTV U.S. entered into a settlement agreement with
$2,165 million, all of which was uninsured.
a multistate group of state attorneys general to resolve concerns regarding alleged
violations of their respective state consumer protection statutes. The state of Other
Washington, originally a part of the multistate group, filed an action in Washington
state court in December 2009, and that litigation was settled on the same We are contingently liable under standby letters of credit and bonds in the
substantive terms as reached with the multistate group. DIRECTV U.S. did not aggregate amount of $85 million at December 31, 2010.
admit any wrongdoing in entering into the settlement. We agreed to formalize
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