DIRECTV 2010 Annual Report Download - page 47

DIRECTV
potential to interfere with communication to or from our satellites, which authorizations necessary to operate satellites or provide satellite service
could interfere with our contractual obligations or services to subscribers or internationally could have a material adverse effect on our ability to generate
other business operations. revenue and our overall competitive position.
All of our FCC satellite authorizations are subject to conditions imposed by We may have a significant indemnity obligation to Liberty Media, which is not
the FCC in addition to the FCC’s general authority to modify, cancel or revoke limited in amount or subject to any cap, if parts of the Liberty Transaction or
those authorizations. Use of FCC licenses and other authorizations are often subject Liberty’s 2008 Transaction with News Corporation are treated as a taxable
to conditions, including technical requirements and implementation deadlines. transaction.
Failure to comply with such requirements, or comply in a timely manner, could
lead to the loss of authorizations and could have a material adverse effect on our Despite obtaining a private letter ruling from the Internal Revenue Service (the
ability to generate revenue. For example, loss of an authorization could potentially ‘‘IRS’’) and an opinion of legal counsel to the effect that parts of the Liberty
reduce the amount of programming and other services available to our subscribers. Transaction qualified as a tax-free distribution for U.S. federal income tax purposes,
The materiality of such a loss of authorization would vary based upon, among the continuing validity of such ruling and opinion is subject to the accuracy of
other things, the orbital location at which the frequencies may be used. factual representations and certain assumptions. Any inaccuracy in such
representations could invalidate the ruling, and failure to comply with any
Moreover, some of our authorizations and future applications may be subject undertakings made in connection with such tax opinion could alter the conclusions
to petitions and oppositions, and there can be no assurance that our authorizations reached in such opinion. Even if parts of the Liberty Transaction otherwise qualify
will not be canceled, revoked or modified or that our applications will not be for tax-free treatment, it would result in a significant U.S. federal income tax
denied. Moreover, the FCC has adopted new rules for licensing satellites that may liability to Liberty Media if one or more persons acquire a 50% or greater interest
limit our ability to file applications and secure licenses in the future. in the DIRECTV common stock as part of a plan or series of related transactions
Congress has continued to shape the scope of the FCC’s regulatory authority that includes the Liberty Transaction. The process for determining whether an
and enact legislation that affects our business. In addition, FCC proceedings to acquisition is part of a plan under these rules is complex, inherently factual and
implement legislation and enact additional regulations are ongoing. The outcomes subject to interpretation of the facts and circumstances of a particular case. Liberty
of these legislative or regulatory proceedings or their effect on our business cannot Media or DIRECTV might inadvertently cause or permit a prohibited change in
be predicted. the ownership of DIRECTV to occur, thereby triggering a tax liability to Liberty
Media.
We have significant debt. In addition, Liberty Media entered into a tax matters agreement with News
We have debt totaling $10,510 million as of December 31, 2010. If we do Corporation in connection with its 2008 transaction with News Corporation,
not have sufficient income or other sources of cash, it could affect our ability to pursuant to which Liberty Media agreed, among other things, to indemnify News
service debt and pay other obligations. Corporation and certain related persons for taxes resulting from actions taken by
Liberty Media or its affiliates that cause such transaction (or related restructuring
We may not be able to obtain or retain certain foreign regulatory approvals. transactions) not to qualify as tax-free transactions. Liberty Media’s indemnification
obligations to News Corporation and certain related persons are not limited in
There can be no assurance that any current regulatory approvals held by us amount or subject to any cap.
are, or will remain, sufficient in the view of foreign regulatory authorities, or that
any additional necessary approvals will be granted on a timely basis or at all, in all Under a Tax Sharing Agreement between Liberty Media and DIRECTV, in
jurisdictions in which we operate, or that applicable restrictions in those certain circumstances DIRECTV is obligated to indemnify Liberty Media and
jurisdictions will not be unduly burdensome. The failure to obtain the certain related persons for any losses and taxes resulting from the failure of the
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