DIRECTV 2012 Annual Report Download

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ANNUAL REPORT 2012

Table of contents

  • Page 1
    ANNUAL REPORT 2012

  • Page 2
    DON'T JUST WATCH TV. DIRECTV.

  • Page 3
    .... Set your TV to stun. DIRECTV is redefining high definition with the most full-time HD channels and movies, plus a lightning fast on-screen guide-just a few reasons DIRECTV is the world's most popular TV provider. CONSOLIDATED CUMULATIVE SUBSCRIBERS* MILLIONS OF SUBS 12% CAGR 2009 2010 2011 2012...

  • Page 4
    ...If you like DIRECTV at home, you'll love DIRECTV Everywhere. From your big screen to your phone to your tablet, if it's got a screen, it's got DIRECTV. REVENUE OPBDA 11 % CAGR 8% CAGR $ $ $ $ 7.5B 7.0B 29.7B 27.2B $ 6.4B $ 24.1B 2010 2011 2012 2010 2011 2012 CONSOLIDATED DIRECTV

  • Page 5
    ... the best TV experience to well over » 100 million « people. A dominating presence. Unrivalled sports coverage puts us in a league of our own. DIRECTV has built a sports dynasty that makes us the team that every fan loves. DIRECTV U.S. TOTAL SUBSCRIBERS MILLIONS OF SUBS 2010 2011 2012 19...

  • Page 6
    ...to DIRECTV. Your wish is Genie's command. Genieâ„¢ summons the future of television. With one HD DVR that powers your entire home, this Genie grants infinite TV wishes. DIRECTV U.S. REVENUE DIRECTV U.S. OPBDA $ 5.7B $ $ $ 23.2B $ $ 21.9B 5.2B 5.3B 20.3B 2010 2011 2012 2010 2011 2012

  • Page 7
    ... than cable. Our customers are satisfied. That's because we never are. Customers are our focus. We have industry-leading insight into the overall customer experience that builds satisfaction for life. DIRECTV U.S. AVERAGE REVENUE PER USER 4% CAGR $ $ $ 97.00 93.30 89.70 2010 2011 2012

  • Page 8
    ...-capping off another record-setting year with 3.6 million new subscribers. Our five-year vision to profitably double our subscriber base and revenues in 2016 remains right on track. DIRECTV LATIN AMERICA TOTAL SUBSCRIBERS* MILLIONS OF SUBS 2010 2011 2012 *INCLUDING SKY MEXICO 8.9M 11.9M...

  • Page 9
    Every » 5 seconds « someone in Latin America chooses DIRECTV/SKY. Kicking into high gear. We met expectations, and then exceeded them. Revenue grew to $6.2 billion in 2012-up from $3.6 billion in 2010. And operating profit before depreciation and amortization grew to $1.9 billion. If you're ...

  • Page 10
    ... you watch. DILUTED EARNINGS PER SHARE CUMULATIVE SHARE REPURCHASES CUMULATIVE REPURCHASES ($B) YEAR-END OUTSTANDING SHARES (B) $ $ 41 % 25.7 CAGR 20.5 $ $ $ 4.58 $ 1.15 $ $ 15.0 0.81 0.69 0.59 1.02 8.2 $ 9.9 .093 3.47 2.30 5.0 2010 2011 2012 2007 2008 2009 2010 2011 2012

  • Page 11
    ...the world's largest and most popular provider of pay-TV video services. We capped 2012 with more than 35 million customers in the U.S. and Latin America, bringing DIRECTV to nearly $30 billion in annual revenues. Our commitment to profitably grow our businesses while keeping a sharp eye on achieving...

  • Page 12
    ... long-term strategy of striking a more optimal balance between growth and profitability. In many ways, DIRECTV Latin America had one of its best years ever in 2012. Our competitive advantages and operating strengths continued to drive subscriber growth to all-time highs as we expanded our share of...

  • Page 13
    ...' TV viewing and time shifting capabilities to a new level with the DIRECTV Genie, our industryleading, high-definition whole-home DVR service. The DIRECTV Genie has up to three times more high-definition recording capacity than cable and allows our customers to record five different high-definition...

  • Page 14
    ... momentum in top-line sales to deliver strong profit margins. That means positioning ourselves to grow our average revenue per user through smart pricing and being disciplined in the way we manage discounts and promotions. We must also continue to drive top-line growth through ancillary and...

  • Page 15
    ... our competitive advantages and operating strengths will continue to drive market share gains throughout the region. The DIRECTV and SKY brands are positioned as the leader in video entertainment, offering the best quality content, picture, sound, technology, and customer service available. We will...

  • Page 16
    ... subscriber base. We're working to provide our frontline employees more segmentation information so they can better assess each customer for upgrade offers-just as we do in the U.S. And, we're investing in new satellites and related broadcast infrastructure to increase our capacity for HD channels...

  • Page 17
    ...in Latin America through our "Piedra Papel Tijera" (Rock Paper Scissors) volunteer program. CAPITAL ALLOCATION PHILOSOPHY Content, technology and service are the pillars around which we've built our best-in-class video service that we deliver to our customers; and increasing the value of DIRECTV is...

  • Page 18
    ... the U.S. and Latin America. We've worked hard as a team to think about the future in a strategic and sustainable way. We've developed a strong, comprehensive strategy and set goals to build a DIRECTV dedicated to winning the hearts of our customers-driving excellence in the DIRECTV experience, one...

  • Page 19
    ...Highway, El Segundo, California (Address of Principal Executive Offices) Registrant's telephone number, including area code: (310) 964-5000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common Stock, $0.01 par value Securities registered pursuant to Section 12(g) of...

  • Page 20
    ...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, 2012, 2011 and 2010 ...Consolidated Statements of...

  • Page 21
    ... to, statements we make related to our business strategy and regarding our outlook for 2013 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 22
    ... sustainable, profitable growth through brand leadership, innovative excellence, world-class customer service, increased productivity and disciplined expense management, while also returning excess cash to shareholders. DIRECTV's common stock trades on the NASDAQ௡ Global Select Market, or...

  • Page 23
    ... high-definition, or HD, television channels and five dedicated 3D channels. In addition, we offer VOD service, named DIRECTV CINEMA௡, which provides a selection of over 10,000 movie and television programs to our broadband-connected subscribers. As of December 31, 2012, we provided local channel...

  • Page 24
    DIRECTV a premium high-definition whole-home DVR service with a terabyte hard drive that allows consumers to record five different high-definition programs simultaneously while viewing and controlling content from one DVR to four different locations in the house at the same time with the appropriate...

  • Page 25
    ... of place and time shifting. For this reason, in 2012 we introduced the DIRECTV Genie, a premium HD whole-home DVR service with a terabyte hard drive that allows consumers to record five different high-definition programs simultaneously without any conflicts. This advanced set-top receiver includes...

  • Page 26
    ... services on mobile devices. For example, a connected receiver provides our customers with the ability to (1) access over 10,000 additional movies and shows including the ability to search and watch web-based videos on YouTube௡, (2) stream live authorized DIRECTV programming on their iPad...

  • Page 27
    ... that we remain disciplined in the management of subscriber credits and promotions. For example, in 2012 we introduced an Advanced Receiver Service fee on our customers' bills eliminating ''Free HD for Life'' as well as a lower cost programming ''Entertainment'' package to better fit the needs of...

  • Page 28
    ...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, and service call work for us. From 2008...

  • Page 29
    ...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 30
    ... Networks, Sony Pictures and Warner Bros. This content can be accessed on demand through its website and those of its partners: AOL, IMDb, MSN, Yahoo! and TV Guide. Hulu also provides a monthly streaming subscription service to more than 3 million paying Hulu Plus subscribers that offers current...

  • Page 31
    ...of pay television households in Mexico. To subscribe to the DIRECTV or SKY service, customers sign up for our video service directly through us or our regional retailers, or independent satellite television retailers or dealers. We tailor our offers and products to profitably and effectively provide...

  • Page 32
    ... sell DIRECTV and SKY through a number of distribution channels, including direct sales, online, regional sales providers and local sales providers. We believe this variety of distribution alternatives coupled with segmented marketing programs, have enabled us to continue to grow our subscriber base...

  • Page 33
    ... improvements in our call centers and other areas, such as upgrading our billing systems and informational technology systems. During 2012, we began investing in new customer relationship management systems and plan to continue centralizing our network management structure in 2013 to ensure superior...

  • Page 34
    ... access to broadband is limited. We currently provide fixed wireless service in Mendoza, Argentina and Brasilia, Brazil. The fixed wireless service offered benefits to our core business through increased pay-TV sales, improved customer satisfaction from bundled subscribers as well as lowered monthly...

  • Page 35
    ... currently permitted to provide its own video services in Mexico. These competitors have significant resources and have proven their ability to grow their businesses rapidly. They typically focus on offering lower-cost, limited services packages in support of their telephony and broadband offerings...

  • Page 36
    ... set aside four percent of channel capacity exclusively for noncommercial programming of an educational or informational nature, for which we must charge programmers below-market rates and may not impose additional charges on subscribers. FCC rules also require DIRECTV U.S. to comply with a number...

  • Page 37
    ... 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 priority have recently brought into use conflicting ITU network filings at...

  • Page 38
    ... to redesign its set-top receivers and, conceivably, replace existing receivers. The D.C. Circuit recently vacated FCC rules that limited cable and satellite operators' ability to encode programming to restrict copying and to use selectable output control, which could give DIRECTV U.S. additional...

  • Page 39
    ...geographic area data for 2012, 2011 and 2010 are summarized in Note 20 of the Notes to the Consolidated Financial Statements in Item 8, Part II of this Annual Report. EMPLOYEES As of December 31, 2012, DIRECTV U.S. had approximately 15,000 full-time and 500 part-time employees, DIRECTV Latin America...

  • Page 40
    ...; • access or telephone service on upgraded cable systems; • having legacy arrangements for exclusivity in certain multiple dwelling units and planned communities. In addition, certain cable companies and telcos in the U.S. and Latin America are capable of offering bundled video, broadband and...

  • Page 41
    ...aggressively working to become alternative providers of video services. Such services and the growing availability of online content, coupled with an expanding market for connected devices and Internet-connected televisions, as well as wireless and other emerging mobile technologies that provide for...

  • Page 42
    ... installation, advertising, marketing and customer call center expenses associated with the acquisition of new subscribers. Our subscriber acquisition costs may materially increase if we offer more costly advanced equipment or services, including connecting our receivers to the customers' broadband...

  • Page 43
    ... instability in consumer demand for its programming and increases in subscriber credit problems. DIRECTV Latin America's inability to adjust its business and operations to address these issues could materially adversely affect its revenues and ability to sustain profitable operations. Our ability to...

  • Page 44
    ... 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 45
    ... 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 on a separate satellite. Backup satellite capacity is available to serve Sky Brasil and Sky Mexico...

  • Page 46
    ... 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 limit access to programming to only those who are authorized to view it. The...

  • Page 47
    ... our current access cards are compromised, our revenue and our ability to contract for programming could be materially adversely affected. In addition, our operating costs could increase if we attempt to implement additional measures to combat signal theft. In addition, particularly in Latin America...

  • Page 48
    ... Latin America businesses, and LEI, which held Liberty's 57% interest in DIRECTV Group, a 100% interest in three regional sports television networks and a 65% interest in GSN, became wholly owned subsidiaries of DIRECTV. Despite obtaining a private letter ruling from the Internal Revenue Service...

  • Page 49
    ...effect on our ability to retain and attract customers and may increase our costs and reduce our revenues. Similarly, competitive reaction to our initiatives or advancements in technology or competitive products or services could impair our ability to execute or could limit the effectiveness of those...

  • Page 50
    ... 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 51
    ... $103 million. Sky Brasil's dispute with ECAD is currently pending in the Superior Justice Tribunal, and there are other claims by the Brazilian pay television association, known as ABTA, against ECAD before the Brazilian antitrust board, or CADE, which may affect ECAD or the rights fees it is...

  • Page 52
    ... stock is publicly traded on the NASDAQ Global Select Market under the symbol ''DTV.'' The following table sets forth for the quarters indicated the high and low sales prices for our common stock, as reported on the NASDAQ Global Select Market. 2012 High Low Information regarding compensation plans...

  • Page 53
    DIRECTV ITEM 6. SELECTED FINANCIAL DATA Years Ended December 31, 2012 2011 2010 2009 2008 (Dollars in Millions, Except Per Share Amounts) Consolidated Statements of Operations Data: Revenues ...Total operating costs and expenses ...Operating profit ...Net income attributable to DIRECTV ...Basic ...

  • Page 54
    ... included elsewhere in this Annual Report. Information in this section is organized as follows: • Summary Results of Operations and Financial Condition • Significant Events Affecting the Comparability of the Results of Operations • Key Terminology • Executive Overview and Outlook • Results...

  • Page 55
    DIRECTV SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION Years Ended December 31, 2012 2011 2010 (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 56
    ... margin Cash flow information Net cash provided by operating activities ...Net cash used in investing activities ...Net cash used in financing activities ...Free cash flow (2) Net cash provided by operating activities ...Less: Cash paid for property and equipment ...Less: Cash paid for satellites...

  • Page 57
    ... 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 58
    ... Operating and Total Operating Amortization and profit Amortization Revenues Revenues Profit (Loss) Expense Amortization margin Margin (Dollars in Millions) December 31, 2012 DIRECTV U.S...$23,235 Sky Brasil ...3,501 PanAmericana ...2,743 DIRECTV Latin America ...Sports Networks, Eliminations...

  • Page 59
    ... information for our operating segments as of and for the year ended: Segment Assets Capital Expenditures (Dollars in Millions) December 31, 2012 DIRECTV U.S...Sky Brasil ...PanAmericana ...DIRECTV Latin America ...Sports Networks, Eliminations and Other ...Total ...December 31, 2011 DIRECTV...

  • Page 60
    ... 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 61
    ... other transaction costs. The charge was recorded in ''Other, net'' in our Consolidated Statements of Operations. 2011 Financing Transactions In 2011, DIRECTV U.S. issued $4.0 billion of senior notes resulting in $3,990 million of proceeds, net of discount. Also in 2011, DIRECTV U.S. purchased and...

  • Page 62
    ... basic and premium channel programming, advanced receiver fees (which include HD, DVR and multi-room viewing), pay-per-view programming, and seasonal live sporting events. We also earn revenues from monthly fees we charge subscribers for multiple leased set-top receivers, monthly fees that we charge...

  • Page 63
    ... which is expected to be generated mainly by price increases, higher penetration of advanced services, less discounting and continued revenue growth in DIRECTV Cinema, commercial and advertising sales. In 2013, we expect operating profit before depreciation and amortization to grow in the mid-single...

  • Page 64
    DIRECTV HD and DVR products. In addition, we plan to further penetrate the rapidly growing middle market by continuing to offer attractive lower priced post-paid packages and pre-paid services. In 2013, we expect net subscriber additions of approximately two million. Prior to the Venezuelan currency...

  • Page 65
    ... subscriber base. The increase in ARPU resulted primarily from price increases on programming packages and set-top receiver lease fees, as well as higher advanced receiver service fees and higher commercial revenues, partially offset by increased promotional offers to new and existing subscribers...

  • Page 66
    ... the higher number of gross subscriber additions and upgrade and retention costs increased due to costs associated with the replacement of first generation set-top receivers. Operating profit before depreciation and amortization margin decreased in 2012 as compared to 2011, as the revenue growth was...

  • Page 67
    ... depreciation and amortization expense resulting from an increase in basic and advanced product receivers capitalized due to the higher gross subscriber additions attained in 2012. Operating profit margin decreased in 2012 as compared to 2011 due to the lower operating profit before depreciation and...

  • Page 68
    ... 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 69
    ... margin. DIRECTV Latin America Results of Operations The following table provides operating results and a summary of key subscriber data for the consolidated DIRECTV Latin America operations: Change 2011 2010 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues ...Operating profit...

  • Page 70
    ...2010. Revenues. Revenues increased due to strong subscriber and ARPU growth across the region, particularly in Brazil. ARPU increased primarily due to price increases and higher penetration of advanced products across the region, as well as favorable exchange rates in Brazil. Operating profit before...

  • Page 71
    ...by operating activities increased in 2012 as compared to 2011 due to higher operating profit before depreciation and amortization and an increases in cash generated from working capital related to the timing of customer and vendor receipts at DIRECTV U.S., partially offset by increased cash paid for...

  • Page 72
    ...began construction on our new El Segundo campus. Capital expenditures for subscriber leased set-top receivers at DIRECTV Latin America increased during 2010, 2011 and 2012. Part of our business strategy in Latin America is to increase advanced product and multi-receiver installations; therefore, our...

  • Page 73
    ... from an increase in subscriber leased equipment, satellite and other infrastructure primarily at DIRECTV Latin America. Debt At December 31, 2012, we had $17,528 million in total outstanding borrowings, which consisted of senior notes and commercial paper issued by DIRECTV U.S. Our outstanding...

  • Page 74
    ...revolving credit debt and the commercial paper have the benefit of DIRECTV's interests in the assets and related earnings of our operations that are not held through DIRECTV Holdings LLC and its subsidiaries. Those operations are primarily our DTH digital television services throughout Latin America...

  • Page 75
    ... 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 under its revolving credit facility is contingent upon DIRECTV...

  • Page 76
    ...currently under construction for DIRECTV Latin America, which we expect to account for as a capital lease at the time the satellites are placed into service. For further discussion, please refer to Note 21 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report...

  • Page 77
    .... 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 other things, management...

  • Page 78
    ... is recorded in ''Other liabilities and deferred credits'' in our Consolidated Balance Sheets. For additional information, refer to Note 11 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report. Counterparty Credit Risk We manage the credit risks associated...

  • Page 79
    ... 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, 2012, based on the criteria established in...

  • Page 80
    ...OF OPERATIONS Years Ended December 31, 2012 2011 2010 (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 expenses ...Broadcast operations...

  • Page 81
    ... CONSOLIDATED STATEMENTS OF OPERATIONS -(continued) Years Ended December 31, 2012 2011 2010 (Dollars in Millions, Except Per Share Amounts) Net income attributable to DIRECTV common stockholders ...Net income attributable to DIRECTV Class B common stockholders, for the period of January 1, 2010...

  • Page 82
    ... CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2012 2011 2010 (Dollars in Millions) Net income ...Other comprehensive income (loss), net of taxes: Defined benefit plans: Losses related to changes in plan experience and actuarial assumptions arising during the period...

  • Page 83
    DIRECTV CONSOLIDATED BALANCE SHEETS December 31, 2012 2011 (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 84
    ... INTEREST Accumulated DIRECTV Common Stock Other Total Redeemable DIRECTV Class B and Additional Accumulated Comprehensive Stockholders' Noncontrolling Net Common Shares Common Shares Paid-In Capital Deficit Loss Equity (Deficit) Interest Income (Dollars in Millions, Except Share Data) 911...

  • Page 85
    ... tax benefit from share-based compensation ...Other ...Change in operating assets and liabilities: Accounts receivable ...Inventories ...Prepaid expenses and other ...Accounts payable and accrued liabilities ...Unearned subscriber revenues and deferred credits ...Other, net ...Net cash provided by...

  • Page 86
    ...) Years Ended December 31, 2012 2011 2010 (Dollars in Millions) Cash Flows From Financing Activities Issuance of commercial paper (maturity 90 days or less), net ...Proceeds from short-term borrowings ...Repayment of short-term borrowings ...Proceeds from borrowings under revolving credit facility...

  • Page 87
    ... using our standard programming rates. The DIRECTV receiving equipment, services and programming are each considered separate units of accounting. We recognize subscription and pay-per-view revenues when programming is broadcast to subscribers. We recognize subscriber fees for multiple set...

  • Page 88
    ... the costs of subscriber equipment upgrade programs for digital video recorder, or DVR, high-definition, or HD, and HD DVR receivers and local channels, our multiple set-top receiver offers and other similar initiatives. Retention costs also include the costs of installing and providing hardware...

  • Page 89
    ... discounted at a rate commensurate with the risk involved, when appropriate. If an impairment loss results from the annual impairment test, we would record the loss as a pre-tax charge to operating income. We amortize other intangible assets using the straight-line method over their estimated useful...

  • Page 90
    ... expense using the straight-line method over the term of the respective obligation. Share-Based Payment We grant restricted stock units and common stock options to certain employees and shares of stock to our directors as part of their annual compensation for Board services. We record compensation...

  • Page 91
    ...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 92
    ...31: 2012 2011 (Dollars in Millions) Note 6: Satellites, Net 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 as of December 31: Estimated Useful Lives (years) 2012 2011...

  • Page 93
    ...SD set-top receivers at DIRECTV U.S. over a three-year useful life. At DIRECTV Latin America, we depreciate capitalized subscriber leased equipment, which includes the cost of the set-top receiver, installation and the dish. HD set-top-receivers have a three-year estimated useful life and SD set-top...

  • Page 94
    ... of amortization on definite lived intangibles in equity earnings of Sky Mexico related to these assets. Game Show Network. Due to certain governance arrangements which limit DIRECTV's ability to control GSN, we account for GSN as an equity method investment. In March 2011, we sold a 5% ownership...

  • Page 95
    ... as of December 31: 2012 2011 (Dollars in Millions) Sky Mexico ...GSN ...Other equity method investments ...Total investments accounted for under the equity method of accounting ... $510 291 149 $950 $ 490 420 131 $1,041 Programming costs ...Accounts payable ...Payroll and employee benefits Other...

  • Page 96
    ..., to fixed-rate U.S. dollar denominated debt, as further discussed in Note 11. We incurred $9 million of debt issuance costs in connection with this transaction. On November 27, 2012, DIRECTV U.S. established a $2.5 billion commercial paper program backed by its revolving credit facilities, as...

  • Page 97
    .... The charge was recorded in ''Other, net'' in our Consolidated Statements of Operations. We incurred $17 million of debt issuance costs in connection with these transactions. On March 16, 2010, DIRECTV U.S. repaid the $985 million of remaining principal on Term Loan C of its senior secured credit...

  • Page 98
    ... premiums 2012 2012 2011 (Dollars in Millions) fair values based on quoted market prices of our senior notes, which is a Level 1 input under the accounting guidance for fair value measurements of assets and liabilities. All of our senior notes were issued by DIRECTV Holdings LLC and DIRECTV...

  • Page 99
    ...revolving credit debt and the commercial paper have the benefit of DIRECTV's interests in the assets and related earnings of our operations that are not held through DIRECTV Holdings LLC and its subsidiaries. Those operations are primarily our DTH digital television services throughout Latin America...

  • Page 100
    ...31, 2012, we recorded the fair value of unrealized losses on crosscurrency swaps in the amount of $17 million in ''Other liabilities and deferred credits'' in the Consolidated Balance Sheets. We calculated the fair value of the cross-currency swap contracts using an income-approach model (discounted...

  • Page 101
    ... 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: 2012 2011 2010 (Dollars in Millions) Current tax expense: U.S. federal ...Foreign ...State and local ...Total ...Deferred tax expense (benefit): U.S. federal...

  • Page 102
    .... Accruals and advances ...Prepaid expenses ...State taxes ...Depreciation, amortization and asset impairment charges ...Net operating loss and tax credit carryforwards ...Programming contract liabilities ...Unrealized foreign exchange gains or losses ...Tax basis differences in investments and...

  • Page 103
    ... follows: Gross Unrecognized Tax Benefits (Dollars in Millions) We recorded interest and penalties accrued related to unrecognized tax benefits of $12 million in 2012, $16 million in 2011 and $21 million in 2010 in ''Income tax expense'' in the Consolidated Statements of Operations. We have accrued...

  • Page 104
    ...2012, $51 million in 2011 and $55 million in 2010. Note 14: Pension and Other Postretirement Benefit Plans Most of our employees are eligible to participate in our funded non-contributory defined benefit pension plan, which provides defined benefits based on either years of service and final average...

  • Page 105
    ... benefit cost during the year ending December 31, 2013: Pension Benefits (Dollars in Millions) Change in Net Benefit Obligation Net benefit obligation at beginning of year . Service cost ...Interest cost ...Plan participants' contributions ...Actuarial (gain) loss ...Benefits paid ...Settlements...

  • Page 106
    ... assumptions used in the review and modeling and are based on the forward looking expectations for asset class returns, historical data and economic/financial market theory. The following table provides assumed health care costs trend rates: 2012 2011 2010 Net periodic benefit cost ...Assumptions...

  • Page 107
    ... 31, Total (Level 1) (Level 2) (Level 3) 2012 (Dollars in millions) The fair value measurements of the plan assets as of December 31, 2011 were as follows: Fair Value Measurements as of December 31, 2011 Quoted Prices in Active Percentage of Markets for Significant Significant Plan Assets Identical...

  • Page 108
    ...future service, as appropriate, to be paid by the plans during the years ending December 31: Estimated Future Benefit Payments Other Pension Postretirement Benefits Benefits (Dollars in Millions) Total Balance as of January Realized losses ...Unrealized gains . . Purchases and sales . 1, ... 2011...

  • Page 109
    ... number of Class A shares with a fair value of $160 million based on the then current market price of the Class A common stock at the time of the agreement on April 6, 2010. See Note 16 for additional information regarding the Malone Transaction. Share Repurchase Program Since 2006 our Board...

  • Page 110
    ... of Comprehensive Income for the years ended December 31: 2012 Tax (Benefit) Expense 2011 Tax Pre-tax (Benefit) Net Amount Expense Amount (Dollars in Millions) 2010 Tax (Benefit) Expense Pre-tax Amount Net Amount Pre-tax Amount Net Amount Defined benefit plans: Losses related to changes in...

  • Page 111
    ...) on Comprehensive Benefit Plans Swaps Items Securities Loss (Dollars in Millions) employees. During the year ended December 31, 2012, we excluded 1.0 million common stock options from the computation of diluted EPS because the inclusion of the potential common shares would have had an antidilutive...

  • Page 112
    ... stock units under our stock plan to certain of our employees and executives. Annual awards are mostly performance based, generally vest over three years and provide for final payments in shares of our common stock. Final payment can be increased or decreased from the target award amounts based...

  • Page 113
    ... 31, 2012 and December 31, 2010 under the DIRECTV Plan using the Black-Scholes valuation model along with the weighted-average 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...

  • Page 114
    ... did not receive any cash for the settlement of stock options during the year ended December 31, 2011. In addition, the company is required to pay the employee withholding taxes to taxing authorities, the cash payments for which are reported in ''Taxes paid in lieu of shares issued for share-based...

  • Page 115
    ... for the years ended December 31: 2012 2011 2010 (Dollars in Millions) Equity in earnings from unconsolidated affiliates ...Net foreign currency transaction gain (loss) ...Fair value adjustment loss on non-employee stock awards Loss on early extinguishment of debt ...Gain on sale of investments...

  • Page 116
    ... Profit and (Loss) Before External Intersegment Total Operating Amortization Depreciation and Revenues Revenues Revenues Profit (Loss) Expense Amortization (1) (Dollars in Millions) Year Ended December 31, 2012: DIRECTV U.S...Sky Brasil ...PanAmericana ...DIRECTV Latin America . Accounts receivable...

  • Page 117
    ...compare our operating performance to other communications, entertainment and media service providers. We believe that investors use current and projected operating profit (loss) before depreciation and amortization and similar measures to estimate our current or prospective enterprise value and make...

  • Page 118
    ...year ended December 31, 2012 and $104 million for the year ended December 31, 2011, and are included as ''Cash paid for satellites'' in the Consolidated Statements of Cash Flows. 98 DIRECTV U.S...Sky Brasil ...PanAmericana ...DIRECTV Latin America ...Sports Networks, Eliminations and Other ...Total...

  • Page 119
    ...a material effect on our consolidated financial statements. We expense legal costs as incurred. Pegasus Development Corporation and Personalized Media Communications L.L.C. In December, 2000, Pegasus Development Corporation and Personalized Media Communications L.L.C. filed suit in the United States...

  • Page 120
    ... 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 121
    ... not have a material effect on our consolidated financial position and result of operations. Satellites We may purchase in-orbit and launch insurance to mitigate the potential financial impact of satellite launch and in-orbit failures if the premium costs are considered economic relative to the risk...

  • Page 122
    ... 4th (Dollars in Millions, Except Per Share Amounts) 2012 Quarters Revenues ...Operating profit ...Net income attributable to DIRECTV ...Basic earnings attributable to DIRECTV common stockholders per common share . . Diluted earnings attributable to DIRECTV common stockholders per common share 2011...

  • Page 123
    ... DIRECTV's financial statements on a consolidated basis. 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, Inc. and its subsidiaries and DIRECTV Sports Networks LLC...

  • Page 124
    ... (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 125
    ... (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 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
    ... Income For the Year Ended December 31, 2012 Parent Guarantor Co-Issuers Guarantor Non-Guarantor Subsidiaries Subsidiaries (Dollars in Millions) Eliminations DIRECTV Consolidated Net income ...Other comprehensive income (loss), net of taxes: Defined benefit plans: Loss related to changes...

  • Page 128
    ... Income For the Year Ended December 31, 2011 Parent Guarantor Co-Issuers Guarantor Non-Guarantor Subsidiaries Subsidiaries (Dollars in Millions) Eliminations DIRECTV Consolidated Net income ...Other comprehensive income (loss), net of taxes: Defined benefit plans: Loss related to changes...

  • Page 129
    ... Subsidiaries (Dollars in Millions) Eliminations DIRECTV Consolidated Net income ...Other comprehensive income (loss), net of taxes: Defined benefit plans: Amortization of amounts resulting from changes in plan experience and actuarial assumptions recognized as periodic benefit cost ...Foreign...

  • Page 130
    ... 31, 2012 Parent Guarantor Co-Issuers Guarantor Non-Guarantor Subsidiaries Subsidiaries (Dollars in Millions) Eliminations DIRECTV Consolidated Total current assets ...Satellites, net ...Property and equipment, net . Goodwill ...Intangible assets, net ...Intercompany receivables ...Investment...

  • Page 131
    ...December 31, 2011 Parent Guarantor Co-Issuers Guarantor Non-Guarantor Subsidiaries Subsidiaries (Dollars in Millions) Eliminations DIRECTV Consolidated Total current assets ...Satellites, net ...Property and equipment, net Goodwill ...Intangible assets, net ...Intercompany receivables ...Investment...

  • Page 132
    ... Subsidiaries Subsidiaries (Dollars in Millions) Eliminations 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...

  • Page 133
    ... Subsidiaries Subsidiaries (Dollars in Millions) Eliminations 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...

  • Page 134
    ... 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 ...Investment in companies, net...

  • Page 135
    ... of the end of the year covered by this Annual Report on Form 10-K under the supervision and with the participation of management, including our principal executive officers and financial officers, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d...

  • Page 136
    ... 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 137
    ... 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 22, 2013. PART IV ITEM 15. Exhibits and Financial Statement Schedules Page Number...

  • Page 138
    ... March 10, 2011, 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 4.1 of the Form 8-K of DIRECTV Holdings LLC filed on March 10, 2011(SEC File No. 333...

  • Page 139
    DIRECTV Exhibit Number Exhibit Name *4.22 Indenture dated as of September 14, 2012 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 4.1 to the Form ...

  • Page 140
    ...14, 2011 (SEC file No. 1-34554)) The Liberty Entertainment, Inc. Transitional Stock Adjustment Plan (incorporated by reference to Exhibit 99(a) of the Form S-8 of DIRECTV filed on November 19, 2009 (SEC File No. 1-34554)) The DIRECTV Group, Inc. Amended and Restated Executive Officer Cash Bonus Plan...

  • Page 141
    ...-K of DIRECTV filed on February 28, 2011 (SEC File No. 1-34554)) Subsidiaries of the Registrant as of December 31, 2012 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 142
    ... 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 143
    ...at beginning of year Additions charged Additions charged to costs and expenses to other accounts (a) (Dollars in Millions) Deductions (b) Balance at end of year Year Ended December 31, 2012: Allowance for doubtful accounts deducted from accounts receivable ...Year Ended December 31, 2011: Allowance...

  • Page 144
    ... 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. DIRECTV (Registrant) Date: February 20, 2013 By: /s/ PATRICK T. DOYLE Patrick T. Doyle (Executive Vice President and Chief Financial Officer) Pursuant to the requirements of the...

  • Page 145
    ... DIRECTV Deferred Compensation Plan for Non-Employee Directors Subsidiaries of the Registrant as of December 31, 2012 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 146
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  • Page 147
    ... 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 20, 2013 /s/ MICHAEL D. WHITE Michael D. White President and Chief Executive Officer

  • Page 148
    ...; 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 20, 2013 /s/ PATRICK T. DOYLE Patrick T. Doyle Executive Vice President and Chief Financial Officer

  • Page 149
    ...OF 2002 In connection with the Annual Report of DIRECTV (the ''Corporation'') on Form 10-K for the fiscal year ended December 31, 2012 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 150
    ... 2002 In connection with the Annual Report of DIRECTV (the ''Corporation'') on Form 10-K for the fiscal year ended December 31, 2012 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 151
    ... of DIRECTV's executive compensation: Cablevision Systems Corporation, CBS Corporation, CenturyLink, Charter Communications, Comcast Corporation, Discovery Communications, Inc., DISH Network Corp., Gannett Company, Liberty Global, Inc., News Corporation, Sprint Nextel Corp., Time Warner Cable, Inc...

  • Page 152
    ...-GAAP Financial Measure Reconciliation Schedules (Unaudited) Years Ended December 31, 2010 2011 2012 (Dollars in Millions) DIRECTV Consolidated Operating profit before depreciation and amortization Subtract: Depreciation and amortization expense ...Operating profit ...DIRECTV U.S. Operating profit...

  • Page 153
    ... and COMPANY INFORMATION Media Relations (212) 205-0882 Investor Relations (310) 964-0808 directv.com NASDAQ ticker symbol: DTV PETER LUND RALPH BOYD, JR. Strategic Consultant and Interim President and Chief Executive Officer Center City PCS, Inc. Chairman, Audit Committee Nominating and Corporate...

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