DIRECTV 2011 Annual Report Download

Download and view the complete annual report

Please find the complete 2011 DIRECTV annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 152

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152

DIRECTV ANNUAL REPORT 2011
Don’t just
watch TV.
DIRECT V.

Table of contents

  • Page 1
    Don't just watch TV. DIRECTV. DIRECTV ANNUAL REPORT 2011

  • Page 2
    We see where television is going. And we can't wait to take you there. Don't just watch TV. DIRECTV.

  • Page 3

  • Page 4

  • Page 5
    Teleport your television. First, DIRECTV set the bar with Emmy®-winning picture and sound. Then we raised it with innovative, industry-leading technology. ConsolIDaTED CumulaTIVE subsCRIbERs* millions of subs 13% CagR 31.8M 28.1M 25.1M 23.3M 2008 2009 2010 2011 *InCluDIng sky mExICo

  • Page 6
    See the big picture. Immerse yourself in content wherever you are-on your cell phone, laptop or tablet. Seeing the bigger picture means bringing TV to every screen. REVEnuE 12% CagR $ opbDa 15% CagR $28B $26B $24B $22B $20B $ 27.2B $ 24.1B 21.6B 2010 2011 $ 5.3b 2009 $ 6.4b 2010 $ 7....

  • Page 7

  • Page 8

  • Page 9
    A champion for all seasons. Every team. Every game. Every sport. All in one place. Fans know that DIRECTV brings home the most sports in HD. That's why people who really love sports get DIRECTV. DIRECTV u.s. ToTal subsCRIbERs millions of subs 19.9M 19.2M 18.6M 2009 2010 2011

  • Page 10

  • Page 11
    ... space and time. With our industry-leading DVR, now you only need one DVR for your whole home. Our customers don't want more technology. They want more of what technology can do. DIRECTV u.s. REVEnuE DIRECTV u.s. opbDa $ $22 B $20 B $18 B $16 B $ 21.9B $ 20.3B 18.7B $ 2009 2010 2011 4.7b...

  • Page 12
    .... Ten million households in Latin America is a great milestone, but it's just the beginning. We're not just America's #1 satellite TV provider. We're the world's #1 pay-TV provider. DIRECTV laTIn amERICa ToTal subsCRIbERs* millions of subs 11.9M 8.9M 6.5M 2009 2010 *InCluDIng sky mExICo 2011

  • Page 13

  • Page 14

  • Page 15
    ... Latin America paves the way for more than just future growth. By bringing wireless broadband to the home, we're connecting on a whole new level. DIRECTV laTIn amERICa ConsolIDaTED REVEnuE $ DIRECTV laTIn amERICa ConsolIDaTED opbDa 5.1b $5.0b $4.5b $4.0b $3.5b $ $ 3.6b $3.0b 2.9b $ 2010 2011...

  • Page 16
    In 2011, we made progress. And history. We are the future of television. Don't just watch TV. DIRECTV. DIluTED Eps 91% CagR $ 20.0 $18.0 $16.0 $14.0 $12.0 $10.0 $ 8.0 $ 6.0 CumulaTIVE shaRE REpuRChasEs CumulaTIVE REpuRChasEs ($b) yEaR-EnD ouTsTanDIng shaREs (b) $ 20.5 2.0 1.8 $15.0 1.6 1.4 1.2...

  • Page 17
    ...of new Internet-based entertainment services. We continued to break records last year with the largest annual net customer gain in our history, acquiring nearly 3.7 million customers in the U.S. and Latin America and furthering our position as the world's largest pay-TV provider. We capped 2011 with...

  • Page 18
    ... of high single-digit content cost increases, we need to rethink the balance between what we spend on acquiring those new customers and what we need to do to keep our current customers passionate about their DIRECTV. That's not to say acquisition will take a back seat. We're still planning to...

  • Page 19
    ... for recommended viewing. Our Nomad product allows customers to transfer DVR-recorded content to any portable device. We also will be expanding our TV Everywhere service as a major priority this year, providing online and mobile access to an array of pay-per-view and premium network content on...

  • Page 20
    ... the full year, driven primarily by subscriber growth, price increases, growing demand for our advanced services and favorable exchange rates, primarily in Brazil. Post-paid churn remained low throughout the year, while our operating profits rose by 47 percent to $916 million. In Mexico, despite the...

  • Page 21
    ... nascent stage in Latin America, leaving us plenty of opportunity to compete. We believe that with a reliable product, at the right price, we can develop a profitable business selling wireless broadband to the home primarily as part of a bundle for customers who take our video package. The wireless...

  • Page 22
    ... continue to make DIRECTV the best video provider in the world. If we can "wow" them every time they pick up the remote, call our service agents or have a technician visit their home, we will have passionately loyal customers for life. a pIVoTal yEaR foR ouR EnTERpRIsE We have set ambitious goals...

  • Page 23
    ... had outstanding 676,266,593 shares of Class A common stock. Documents incorporated by reference are as follows: Document DIRECTV Notice of Annual Meeting of Stockholders and Proxy Statement for Annual Meeting of Stockholders to be held on May 3, 2012 Part and Item Number of Form 10-K into which...

  • Page 24
    ...31, 2011, 2010 and 2009 ...Notes to the Consolidated Financial Statements ...Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure ...Item 9A. Controls and Procedures ...Item 9B. Other Information ...Part III Item 10. Directors, Executive Officers and Corporate...

  • Page 25
    ... to, statements we make related to our business strategy and regarding our outlook for 2012 financial results, liquidity and capital resources. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because...

  • Page 26
    ...via high-powered geosynchronous satellites. We also provide video-on-demand, or VOD, by ''pushing'' top-rated movies onto customers' digital video recorders, or DVRs, for instant viewing, as well as via broadband to our subscribers who have connected their set-top receiver to their broadband service...

  • Page 27
    ... for our receivers, as well as developing new services. For example in 2011, we introduced the ''Home Media Center,'' a premium high definition whole home DVR service with a terabyte hard drive that allows consumers to record five simultaneous programs while viewing and controlling content from...

  • Page 28
    ...then-outstanding shares, as of December 31, 2011, and have announced a new $6 billion share repurchase program in February 2012. 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...

  • Page 29
    ...their TV viewing, particularly in terms of place and time shifting. For this reason, in 2011 we introduced the ''Home Media Center,'' a premium high definition whole home digital video recorder service with a terabyte hard drive that allows consumers to record five simultaneous programs. In 2012, we...

  • Page 30
    ... of authorized cable and broadcast network content to our customers. • Provide Portable Access to DVR Content. We believe many of our customers increasingly desire the ability to take content with them, due in part to the growing popularity of smart phones and tablets. For this reason, in 2011, we...

  • Page 31
    ... programming is then digitized, encoded and transmitted to our satellites. We designed each broadcast center and uplink facility with redundant systems to minimize service interruptions. Installation Network. The DIRECTV Home Service Provider, or HSP, network performs customer installation, upgrade...

  • Page 32
    ...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, offering discounts...

  • Page 33
    ... Mobile application providing iPhone customers the ability to download and watch authorized content from their DVRs on the go. Verizon Wireless offers V Cast௣ which allows subscribers to watch many of the top TV shows including college football and basketball on their mobile phone for a modest fee...

  • Page 34
    ... cable providers in Latin America, which typically continue to broadcast to a large percentage of their subscribers in analog format. • Sales and Marketing. We sell DIRECTV and SKY through a number of distribution channels, including direct sales, online, regional sales providers and local sales...

  • Page 35
    ... channels and limit the number of set-top receivers customers may have in their homes. We plan on continuing to serve the value-focused customers through targeted marketing and distribution strategies, as well as leveraging our relationship with DIRECTV U.S. to obtain lower cost set-top receivers...

  • Page 36
    ... broadband video and data markets in Latin America are highly competitive. In each of our markets, we compete primarily with other providers of pay television, which distribute their programming by satellite, cable, terrestrial microwave systems, traditional over-the-air broadcasting or the Internet...

  • Page 37
    ... lower-cost, limited services packages in support of their telephony and broadband offerings, which can increase our churn and put pressure on our margins. Also, the existence of multiple DTH operators in a single market dilutes our ability to market our DTH service as an alternative to cable...

  • Page 38
    ... 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 rules, or may be required to use capacity that could otherwise...

  • Page 39
    ... would occur in spectrum currently used for uplinking programming to traditional DBS satellites), could provide a new source of additional DTH capacity. DIRECTV currently holds authorizations for satellites in this band at two orbital locations. However, foreign operators who may have international...

  • Page 40
    ... access to programming affiliated with DIRECTV. In particular, we may be required to submit to ''baseball style'' arbitration if we cannot arrive at terms for carriage of our regional sports network programming with an MVPD. • Potential Regulation of Set-Top Receivers. Cable operators...

  • Page 41
    ... and DIRECTV products and services. In particular, DIRECTV U.S. holds trademark registrations relating to its business, including registrations of the primary ''DIRECTV'' and the DIRECTV Cyclone Design trademarks. In many instances, these trademarks are licensed royalty-free to third parties for use...

  • Page 42
    ... subscriber base in the territories in which DIRECTV U.S. competes; • 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 programming...

  • Page 43
    ...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 markets...

  • Page 44
    ... as part of the subscriber's purchase or lease of a DIRECTV System. Our subscriber acquisition costs may materially increase if we offer more costly advanced equipment or services, including connecting our receivers to the customers' broadband service, continue or expand current sales promotion...

  • Page 45
    ... population in our markets, including the middle-markets which we are targeting, and materially adversely affect our business. Because DIRECTV Latin America offers premium pay television programming, its business may be particularly vulnerable to economic downturns. DIRECTV Latin America has in the...

  • Page 46
    ... business, 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 HD programming...

  • Page 47
    ...of our in-orbit satellites fails. However, programming continuity cannot be assured in the event of multiple satellite losses. DIRECTV Latin America provides its services in PanAmericana and Brazil using leased transponders on two satellites. Sky Mexico provides its services from leased transponders...

  • Page 48
    ...24 Satellite programming signals have been stolen and may be stolen, which could result in lost revenues and would cause us to incur incremental operating costs that do not result in subscriber acquisition. The delivery of subscription programming requires the use of conditional access technology to...

  • Page 49
    ...existing satellite with a new satellite, or to operate a satellite beyond the term of its current authorization, or to operate an earth station to communicate with such satellite; and • the authorization by the United States or foreign governments of the use of frequencies by third party satellite...

  • Page 50
    ... risks is increasing, particularly for businesses like ours that handle a large amount of personal customer data. The occurrence of any such network or information systems related events or security breaches could have a material adverse effect on our business and results of operations. We face...

  • Page 51
    ... the expected customer response in the market and may result in competitive reactions. The Company has identified a number of strategic initiatives that it intends to pursue which are discussed in more detail in the ''Business Strategy'' section beginning in Part I, Item 1 of this Annual Report. The...

  • Page 52
    ... those claims is currently on appeal. We believe that our early cancellation fees are adequately disclosed, and represent reasonable estimates of the costs we incur when customers cancel service before fulfilling their programming commitments. From time to time, we receive investigative inquiries or...

  • Page 53
    ... 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 Price Our Class A common stock is publicly traded on the NASDAQ...

  • Page 54
    ... DATA Years Ended and As of December 31, 2011 2010 2009 2008 2007 (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 ...Basic...

  • Page 55
    ...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 56
    DIRECTV SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION Years Ended December 31, 2011 2010 2009 (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
    ... to current expense of the cost of historical capital expenditures and for acquired intangible assets resulting from prior business acquisitions. To compensate for the exclusion of depreciation and amortization expense from operating profit, our management and our Board of Directors separately...

  • Page 58
    ... 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 spending and to help determine our financial value...

  • Page 59
    ... Segment Data Years Ended December 31, 2011 2010 2009 (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 60
    ... earnings per DIRECTV Class A common stock in the Consolidated Statements of Operations was reduced by $0.18 for the year ended December 31, 2010. See Note 14 of the Notes to the Consolidated Financial Statements in Item 8, Part II of this Annual Report for additional information. Acquisitions Globo...

  • Page 61
    ... is net of cash acquired at LEI and the regional sports networks. We also recorded a $491 million charge to ''Liberty transaction and related gains (charges)'' in the Consolidated Statements of Operations for the year ended December 31, 2009 related to a premium paid to LEI stockholders to complete...

  • Page 62
    ... 2012 our Board of Directors authorized up to an additional $6 billion for repurchases of our common stock. The following table sets forth information regarding shares repurchased and retired for the years ended December 31: 2011 2010 2009 (Amounts in Millions, Except Per Share Amounts) Total cost...

  • Page 63
    ... expenditures for DIRECTV U.S.' satellites, D14 and D15. DIRECTV Latin America. In Latin America, pay TV penetration and relatively favorable macroeconomic and demographic trends continue to provide a substantial opportunity for growth. In 2012, we intend to profitably increase market share in the...

  • Page 64
    ... at our DIRECTV Latin America business. Operating profit before depreciation and amortization margin decreased in 2011 as compared to 2010 primarily due to higher programming costs at our DIRECTV U.S. business. Operating profit. segment: The following table presents our operating profit (loss) by...

  • Page 65
    ... in 2010. Earnings Per Share. Class A common stock earnings per share and weighted shares outstanding were as follows for the years ended December 31: 2011 2010 (Shares in Millions) DIRECTV U.S. Segment The following table provides operating results and a summary of key subscriber data for the...

  • Page 66
    ... from price increases on programming packages, higher set-top receiver lease fees, higher advanced service fees, higher premium channel buy rates and an increase in NFL SUNDAY TICKET revenues, partially offset by higher promotional offers to new and existing subscribers. Operating profit before...

  • Page 67
    ... by higher subscriber acquisition costs due to the higher number of gross subscriber additions, higher general and administrative costs as well as higher upgrade and retention costs resulting from the increased demand for advanced products. Operating profit. Operating profit increased in 2011 as...

  • Page 68
    ..., net. The significant components of ''Other, net'' were as follows: 2010 2009 Change (Dollars in Millions) DIRECTV U.S...DIRECTV Latin America ...Sports Networks, Eliminations and Other ...Total operating profit ...Operating profit margin ... $3,290 $2,410 $ 880 623 331 292 (17) (68) 51 $3,896 16...

  • Page 69
    ......Total operating costs and expenses ...Operating profit ...Operating profit margin ...Other data: Operating profit before depreciation and amortization . Operating profit before depreciation and amortization margin ...Total number of subscribers (in thousands) ...ARPU ...Average monthly subscriber...

  • Page 70
    .... Average monthly subscriber churn remained unchanged from 1.53% in 2009. Revenues. Our revenues increased as a result of higher ARPU and the larger subscriber base. The increase in ARPU resulted primarily from price increases on programming packages, higher HD and DVR service fees. Operating profit...

  • Page 71
    ... in accounts receivable and an increase in prepaid expenses. Summary Cash Flow Information Years Ended December 31, 2011 2010 2009 (Dollars in Millions) Net cash provided by operating activities . . Net cash used in investing activities ...Net cash used in financing activities ...Free cash flow...

  • Page 72
    ... place the other two satellites in service in the 2014. Capital expenditures in Latin America for set-top receivers provided to subscribers increased during 2009, 2010 and 2011. Part of our business strategy in Latin America is to increase advanced product and multi-box installations; therefore, our...

  • Page 73
    ...that are not held through DIRECTV Holdings LLC and its subsidiaries. Those operations are primarily our direct-to-home digital television services throughout Latin America which are held by DIRECTV Latin America Holdings, Inc. and its subsidiaries and DIRECTV Sports Networks LLC and its subsidiaries...

  • Page 74
    ... 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 75
    ... team rights agreements, service contract commitments and satellite construction and 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 76
    ... 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 set-top receivers at DIRECTV U.S. over a three to four year estimated useful life, which is based on, among...

  • Page 77
    ... set-top receivers from us, warranty service fees and advertising services. Revenues are reported net of customer credits and discounted promotions. Broadcast Programming and Other. These costs primarily include license fees for subscription service programming, pay-per-view programming, live sports...

  • Page 78
    ...total subscriber acquisition costs for the period by the number of gross new subscribers acquired during the period. We calculate total subscriber acquisition costs for the period by adding together ''Subscriber acquisition costs'' expensed during the period and the amount of cash paid for equipment...

  • Page 79
    ... foreign currency exchange rates, interest rates and changes in the market value of our equity investments. We manage our exposure to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of derivative financial instruments. We enter...

  • Page 80
    ... 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, 2011, based on the criteria established in...

  • Page 81
    DIRECTV CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2011 2010 2009 (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 82
    DIRECTV CONSOLIDATED STATEMENTS OF OPERATIONS -(continued) Years Ended December 31, 2011 2010 2009 (Dollars in Millions, Except Per Share Amounts) Net income attributable to common stockholders: Net income attributable to DIRECTV Class A common stockholders (DIRECTV Group common stockholders for ...

  • Page 83
    DIRECTV CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2011 2010 2009 (Dollars in Millions) Net income ...Other comprehensive income (loss): Amortization of amounts resulting from changes in defined benefit plan experience and actuarial assumptions, net Amortization of ...

  • Page 84
    DIRECTV CONSOLIDATED BALANCE SHEETS December 31, 2011 2010 (Dollars in Millions, Except Share Data) ASSETS Current assets Cash and cash equivalents Accounts receivable, net . . Inventories ...Deferred income taxes ...Prepaid expenses and other Total current assets . Satellites, net ...Property and ...

  • Page 85
    ... NONCONTROLLING INTEREST Accumulated The DIRECTV DIRECTV DIRECTV Common Stock Other Total Redeemable Group, Inc. Class A Class B and Additional Accumulated Comprehensive Stockholders' Noncontrolling Net Common Shares Common Shares Common Shares Paid-In Capital Deficit Loss, net of taxes Equity...

  • Page 86
    ... Years Ended December 31, 2011 2010 2009 (Dollars in Millions) Cash Flows From Operating Activities Net income ...Adjustments to reconcile net income to net cash provided by operating Depreciation and amortization ...Amortization of deferred revenues and deferred credits ...Share-based compensation...

  • Page 87
    DIRECTV CONSOLIDATED STATEMENTS OF CASH FLOWS -(continued) Years Ended December 31, 2011 2010 2009 (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 88
    ... acquiring, promoting, selling and distributing digital entertainment programming via satellite to residential and commercial subscribers. Since November 19, 2009, we also own and operate three regional sports networks and own a 60% interest in Game Show Network LLC, or GSN, a basic cable television...

  • Page 89
    ... programs offered to existing subscribers. We include the costs of installing or providing hardware under our movers program (for subscribers relocating to a new residence), multiple set-top receiver offers, digital video recorder, or DVR, high-definition, or HD, and local channel upgrade programs...

  • Page 90
    ... 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 91
    ...securities at cost. We consider marketable equity securities available-for-sale and they are carried at current fair value based on quoted market prices with unrealized gains or losses (excluding other-than-temporary losses), net of taxes, reported as part of OCI. We regularly review our investments...

  • Page 92
    ...acquisition costs'' in the Consolidated Statements of Operations. Market Concentrations and Credit Risk We sell programming services and extend credit, in amounts generally not exceeding $200 each, to a large number of individual residential subscribers throughout the United States and most of Latin...

  • Page 93
    ...in our refurbishment program, improved set-top receiver failure rates over time and management's judgment of the risk of technological obsolescence, we determined that the estimated useful life of HD set-top receivers used in our DIRECTV U.S. business has increased to four years, from three years as...

  • Page 94
    ... 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 common stock held. The holders of outstanding shares of LEI Series A common stock...

  • Page 95
    ... premium, $111 million of net losses recorded for the partial settlement and fair value adjustment of the equity collars and non-employee stock based awards from the acquisition date to December 31, 2009 and the $43 million of acquisition related costs. Cash paid, net of cash acquired in connection...

  • Page 96
    ... and Property and Equipment, Net The following 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) Subscriber ...Telco ...Trade and other ...Total ...Less: Allowance for...

  • Page 97
    ...At DIRECTV Latin America, we depreciate capitalized subscriber leased equipment, which includes the cost of the set-top receiver, installation and dish, over a three-year estimated useful life for HD set-top receivers and a seven-year useful life for standard-definition set-top receivers. The useful...

  • Page 98
    ... tax, on the sale in ''Other, net'' in the Consolidated Statements of Operations, which represents the difference between the selling price and the carrying amount of the equity method investment sold. Orbital slots ...Satellite rights ...Subscriber related ...Dealer network ...Trade name and other...

  • Page 99
    ...following table sets forth equity in earnings and losses of our investments accounted for under the equity method of accounting for the periods presented: Years Ended December 31, 2011 2010 2009 (Dollars in Millions) Marketable equity securities in a gain position . $ 5 Marketable equity securities...

  • Page 100
    ...that are not held through DIRECTV Holdings LLC and its subsidiaries. Those operations are primarily our direct-to-home digital television services throughout Latin America which are held by DIRECTV Latin America Holdings, Inc. and its subsidiaries and DIRECTV Sports Networks LLC and its subsidiaries...

  • Page 101
    ...Principal of discount (Dollars in Millions) We incurred $24 million of debt issuance costs in connection with this transaction. On March 17, 2011, DIRECTV U.S. purchased, pursuant to a tender offer, $341 million of its then outstanding $1,002 million of 6.375% senior notes due in 2015 at a price of...

  • Page 102
    ... costs. The charge was recorded in ''Other, net'' in our Consolidated Statements of Operations. 2009 Financing Transactions On September 22, 2009, DIRECTV U.S. issued the following senior notes: Proceeds, net Principal of discount (Dollars in Millions) Senior Notes. The following table sets...

  • Page 103
    ... advances the EURIBOR rate) plus 1.50% or at our option (ii) the higher of the prime rate plus 0.50% or the Fed Funds Rate plus 1.00%. The commitment fee and the annual interest rate may be increased or decreased under certain conditions, which include changes in DIRECTV U.S.' long-term, unsecured...

  • Page 104
    ...) 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: 2011 2010 2009 (Dollars in Millions) Current tax expense: U.S. federal ...Foreign ...State and local...

  • Page 105
    ... (Dollars in Millions) The valuation allowance balances of $466 million at December 31, 2011 and $504 million at December 31, 2010, are primarily attributable to unused foreign operating losses and unused capital losses, both of which are available for carry forward. For the year ended December...

  • Page 106
    ... reported the increases and decreases in tax positions for prior years on a net basis. As of December 31, 2011, our unrecognized tax benefits totaled $390 million, including $327 million of tax positions the recognition of which would affect the annual effective income tax rate. We recorded...

  • Page 107
    ... year . Actual return on plan assets ...Employer contributions ...Benefits paid ...Fair value of plan assets at end of year ...Funded status at end of year ... Excluded from the table above are future payments for ISDLA-1 and ISDLA-2, satellites currently under construction for DIRECTV Latin America...

  • Page 108
    ...14 $ 30 8 $ 23 - $ 2 - $1 - $ 1 Net periodic benefit cost ...Assumptions Information for pension plans with a projected benefit obligation in excess of plan assets at December 31: 2011 2010 (Dollars in Millions) Weighted-average assumptions used to determine benefit obligations at December 31...

  • Page 109
    ...Expectations of returns for each asset 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: 2011 2010 Health...

  • Page 110
    ...(Level 3) 2011 (Dollars in millions) There were no shares of our common stock included in plan assets as of December 31, 2011 and 2010. The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed during 2010 and 2011 due to the following: Partnerships and Joint...

  • Page 111
    ..., to be paid by the plans during the years ending December 31: Estimated Future Benefit Payments Other Pension Postretirement Benefits Benefits (Dollars in Millions) 50,000,000 shares authorized. As of December 31, 2011, there were no shares outstanding of the Class B common stock or preferred...

  • Page 112
    ... The following table sets forth information regarding shares repurchased and retired for the years ended December 31: 2011 2010 2009 (Amounts in Millions, Except Per Share Amounts) Total cost of repurchased and retired shares ...Average price per share ...Number of shares repurchased and retired...

  • Page 113
    ... 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 included the $160 million in income attributable to DIRECTV Class B common stockholders. For the years ended...

  • Page 114
    ... CONSOLIDATED FINANCIAL STATEMENTS -(continued) The reconciliation of the amounts used in the basic and diluted EPS computation was as follows: Per Share Income Shares Amounts (Dollars and Shares in Millions, Except Per Share Amounts) Year Ended December 31, 2011: DIRECTV Class A Common Stock: Basic...

  • Page 115
    ... stock units under our 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...

  • Page 116
    ...granted during the year ended December 31, 2010 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 periods...

  • Page 117
    ... 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 related programming. Liberty Media, Liberty Global and Discovery Communications As discussed...

  • Page 118
    ... by their products and services as well as geographic location, are DIRECTV U.S. and DIRECTV Latin America, which acquire, promote, sell and/or distribute digital entertainment programming via satellite to residential and commercial subscribers, and the Sports Networks, Eliminations and...

  • Page 119
    ... and business acquisitions. We believe this measure is useful to investors, 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...

  • Page 120
    ... agreements to purchase broadcast programming, regional professional team rights and the purchase of services that we have outsourced to third parties, such as billing services, and satellite telemetry, tracking and control, satellite launch contracts and broadcast center services aggregated $8,258...

  • Page 121
    ... recorded a $6 million charge to net income in the year ended December 31, 2010 related to the adjustment of net bolivars fuerte denominated monetary assets to the new official exchange rate. We began reporting the operating results of our Venezuelan subsidiary in the first quarter of 2010 using the...

  • Page 122
    ... 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...

  • Page 123
    ... lose some of our HD pay-per-view channels if this satellite has to be de-orbited before additional capacity becomes available. We do not believe the loss of such channels would materially affect our results of operations or financial position. Other As of December 31, 2011, we were contingently...

  • Page 124
    ...1st 2nd 3rd 4th (Dollars in Millions, Except Per Share Amounts) 2011 Quarters Revenues ...Operating profit ...Net income attributable to DIRECTV ...Basic earnings attributable to DIRECTV Class A stockholders per common share . Diluted earnings attributable to DIRECTV Class A stockholders per common...

  • Page 125
    ... consolidating financial statements for periods prior to that date as if the guarantee had been in place at that time. The Non-Guarantor Subsidiaries consist primarily of DIRECTV's direct-to-home digital television services throughout Latin America which are held by DIRECTV Latin America Holdings...

  • Page 126
    ... (Dollars in Millions) DIRECTV Consolidated Co-Issuers Eliminations Revenues ...Operating costs and expenses Costs of revenues, exclusive of depreciation and amortization expense Broadcast programming and other ...Subscriber service expenses ...Broadcast operations expenses ...Selling, general...

  • Page 127
    ... (Dollars in Millions) DIRECTV Consolidated Co-Issuers Eliminations Revenues ...Operating costs and expenses Costs of revenues, exclusive of depreciation and amortization expense Broadcast programming and other ...Subscriber service expenses ...Broadcast operations expenses ...Selling, general...

  • Page 128
    ... (Dollars in Millions) DIRECTV Consolidated Co-Issuers Eliminations Revenues ...Operating costs and expenses Costs of revenues, exclusive of depreciation and amortization expense Broadcast programming and other ...Subscriber service expenses ...Broadcast operations expenses ...Selling, general...

  • Page 129
    ... FINANCIAL STATEMENTS -(continued) Condensed Consolidating Balance Sheet As of December 31, 2011 Parent Guarantor Guarantor Non-Guarantor Subsidiaries Subsidiaries (Dollars in Millions) DIRECTV Consolidated Co-Issuers Eliminations Total current assets ...Satellites, net ...Property and equipment...

  • Page 130
    ... FINANCIAL STATEMENTS -(continued) Condensed Consolidating Balance Sheet As of December 31, 2010 Parent Guarantor Co-Issuers Guarantor Non-Guarantor Subsidiaries Subsidiaries (Dollars in Millions) Eliminations DIRECTV Consolidated Total current assets ...Satellites, net ...Property and equipment...

  • Page 131
    ...DIRECTV Consolidated Cash flows from operating activities Net cash provided by operating activities ...Cash flows from investing activities Cash paid for property and equipment ...Cash paid for satellites ...Investment in companies, net of cash acquired . Proceeds from sale of investments ...Return...

  • Page 132
    ... (Dollars in Millions) Eliminations DIRECTV Consolidated Cash flows from operating activities Net cash provided by (used in) operating activities ...Cash flows from investing activities Cash paid for property and equipment ...Cash paid for satellites ...Investment in companies, net of cash acquired...

  • Page 133
    ... Subsidiaries (Dollars in Millions) Eliminations DIRECTV Consolidated Cash flows from operating activities Net cash provided by (used in) operating activities ...Cash flows from investing activities Cash paid for property and equipment ...Cash paid for satellites ...Cash paid for Liberty...

  • Page 134
    ... 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 of...

  • Page 135
    ... 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 136
    ... Annual Report from DIRECTV's definitive Proxy Statement for its 2012 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission, pursuant to Regulation 14A, not later than March 23, 2012. PART IV ITEM 15. Exhibits and Financial Statement Schedules Page Number...

  • Page 137
    DIRECTV Exhibit Number Exhibit Name *4.7 Indenture dated as of March 11, 2010 by and among DIRECTV Holdings LLC, DIRECTV Financing Co., Inc., the Guarantors signatory thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 10.1 of the Form 8-K ...

  • Page 138
    ... 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-2011 Restricted Stock Unit Grants to applicable executive officers (incorporated...

  • Page 139
    DIRECTV Exhibit Number Exhibit Name ††*10.15 ††*10.16 ††*10.17 ††*10.18 ††*10.19 ††*10.20 ††*10.21 ††*10.22 ††*10.23 *10.24 DIRECTV Executive Severance Plan Document and Summary Plan Description (incorporated by reference to Exhibit 10.1 of the Form 8-K...

  • Page 140
    ...-K of DIRECTV filed on February 28, 2011 (SEC File No. 1-34554)) Subsidiaries of the Registrant as of December 31, 2011 Consent of Deloitte & Touche LLP Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of the Chief Financial Officer...

  • Page 141
    ... to costs and expenses to other accounts (Dollars in Millions) Deductions Balance at end of year For the Year Ended December 31, 2011 Allowances Deducted from Assets Accounts receivable ...For the Year Ended December 31, 2010 Allowances Deducted from Assets Accounts receivable ...For the Year Ended...

  • Page 142
    ... 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. DIRECTV (Registrant) Date: February 23, 2012 By: /s/ PATRICK T. DOYLE Patrick T. Doyle (Executive Vice President and Chief Financial Officer) Pursuant to the requirements of the...

  • Page 143
    ... Restated DIRECTV Executive Deferred Compensation Plan Subsidiaries of the Registrant as of December 31, 2011 Consent of Deloitte & Touche LLP Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of the Chief Financial Officer Pursuant...

  • Page 144
    (This page has been left blank intentionally.)

  • Page 145
    ...; 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 23, 2012 /s/ MICHAEL D. WHITE Michael D. White Director, President and Chief Executive Officer

  • Page 146
    ...; 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 23, 2012 /s/ PATRICK T. DOYLE Patrick T. Doyle Executive Vice President and Chief Financial Officer

  • Page 147
    ...OF 2002 In connection with the Annual Report of DIRECTV (the ''Corporation'') on Form 10-K for the fiscal year ended December 31, 2011 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...

  • Page 148
    ... 2002 In connection with the Annual Report of DIRECTV (the ''Corporation'') on Form 10-K for the fiscal year ended December 31, 2011 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...

  • Page 149
    ... companies based on those that we have identified for evaluation of executive compensation by our Compensation Committee: British Sky Broadcasting, Cablevision Systems Corporation, CBS Corporation, CenturyLink, Comcast Corporation, Discovery Communications, Inc., DISH Network Corp., Gannett Company...

  • Page 150
    ...LLC's Annual Reports on Form 10-K for the year ended December 31, 2011 for further discussion of operating profit before depreciation and amortization. Operating profit before depreciation & amortization . Subtract: Depreciation and amortization expenses ...Operating profit ...DIRECTV Latin America...

  • Page 151
    ...Nominating and Corporate Governance Committee BRUCE B. CHURCHILL Executive Vice President and President of DIRECTV Latin America, LLC and New Ventures 310.964.0808 directv.com NASDAQ ticker symbol: DTV DAVID B. DILLON Chairman and Chief Executive Officer The Kroger Co. Audit Committee Nominating...

  • Page 152