DIRECTV 2011 Annual Report Download - page 49

DIRECTV
• the denial by the FCC of an application to replace an existing satellite with jurisdictions will not be unduly burdensome. The failure to obtain and maintain
a new satellite, or to operate a satellite beyond the term of its current the authorizations necessary to operate satellites or provide satellite service
authorization, or to operate an earth station to communicate with such internationally could have a material adverse effect on our ability to generate
satellite; and revenue and our overall competitive position.
• the authorization by the United States or foreign governments of the use of We have an indemnity obligation to Liberty Media, which is not limited in
frequencies by third party satellite or terrestrial facilities that have the amount or subject to any cap, that could be triggered if parts of the Liberty
potential to interfere with communication to or from our satellites, which Transaction or Liberty’s 2008 Transaction with News Corporation are treated as
could interfere with our contractual obligations or services to subscribers or a taxable transaction.
other business operations. Despite obtaining a private letter ruling from the Internal Revenue Service and
All of our FCC satellite authorizations are subject to conditions imposed by an opinion of legal counsel to the effect that parts of the Liberty Transaction
the FCC in addition to the FCC’s general authority to modify, cancel or revoke qualified as a tax-free distribution for U.S. federal income tax purposes, the
those authorizations. Use of FCC licenses and other authorizations are often subject continuing validity of such ruling and opinion is subject to the accuracy of factual
to conditions, including technical requirements and implementation deadlines. representations and certain assumptions. Any inaccuracy in such representations
Failure to comply with such requirements, or comply in a timely manner, could could invalidate the ruling, and failure to comply with any undertakings made in
lead to the loss of authorizations and could have a material adverse effect on our connection with such tax opinion could alter the conclusions reached in such
ability to generate revenue. For example, loss of an authorization could potentially opinion. Even if parts of the Liberty Transaction otherwise qualify for tax-free
reduce the amount of programming and other services available to our subscribers. treatment, it would result in a significant U.S. federal income tax liability to
The materiality of such a loss of authorization would vary based upon, among Liberty Media if one or more persons acquire a 50% or greater interest in the
other things, the orbital location at which the frequencies may be used. DIRECTV common stock as part of a plan or series of related transactions that
Moreover, some of our authorizations and future applications may be subject includes the Liberty Transaction. The process for determining whether an
to petitions and oppositions, and there can be no assurance that our authorizations acquisition is part of a plan under these rules is complex, inherently factual and
will not be canceled, revoked or modified or that our applications will not be subject to interpretation of the facts and circumstances of a particular case. Liberty
denied. The outcomes of any legislative or regulatory proceedings or their effect on Media or DIRECTV might inadvertently cause or permit a prohibited change in
our business cannot be predicted. You should review ‘‘Item 1. Business— the ownership of DIRECTV to occur, thereby triggering a tax liability to Liberty
Government Regulation—FCC Regulation Under the Communications Act and Media.
Related Acts,’’ which is incorporated here by reference. In addition, Liberty Media entered into a tax matters agreement with News
Corporation in connection with its 2008 transaction with News Corporation,
DIRECTV U.S. has significant debt. pursuant to which Liberty Media agreed, among other things, to indemnify News
DIRECTV U.S. has debt totaling $13,464 million as of December 31, 2011, Corporation and certain related persons for taxes resulting from actions taken by
which is guaranteed by DIRECTV. If we do not have sufficient income or other Liberty Media or its affiliates that cause such transaction (or related restructuring
sources of cash, it could affect our ability to service debt and pay other obligations. transactions) not to qualify as tax-free transactions. Liberty Media’s indemnification
obligations to News Corporation and certain related persons are not limited in
We may not be able to obtain or retain certain foreign regulatory approvals. amount or subject to any cap.
There can be no assurance that any current regulatory approvals held by us Under a Tax Sharing Agreement between Liberty Media and DIRECTV, in
are, or will remain, sufficient in the view of foreign regulatory authorities, or that certain circumstances DIRECTV is obligated to indemnify Liberty Media and
any additional necessary approvals will be granted on a timely basis or at all, in all certain related persons for any losses and taxes resulting from the failure of the
jurisdictions in which we operate, or that applicable restrictions in those
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