DIRECTV 2012 Annual Report Download - page 48

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DIRECTV
We have an indemnity obligation to Liberty Media, which is not limited in Liberty Media or its affiliates that cause such transaction (or related restructuring
amount, that could be triggered if parts of the Liberty Transaction or Liberty’s transactions) not to qualify as tax-free transactions. Liberty Media’s indemnification
2008 Transaction with News Corporation are treated as a taxable transaction. obligations to News Corporation and certain related persons are not limited in
amount.
On November 19, 2009, The DIRECTV Group, Inc., or DIRECTV Group,
and Liberty Media Corporation, which we refer to as Liberty Media, obtained Under a Tax Sharing Agreement between Liberty Media and DIRECTV, in
stockholder approval of and closed a series of related transactions which we refer to certain circumstances DIRECTV is obligated to indemnify Liberty Media and
collectively as the Liberty Transaction. The Liberty Transaction included the certain related persons for any losses and taxes resulting from the failure of the
split-off of certain of the assets of the Liberty Entertainment group into Liberty Liberty Transaction to be tax-free transactions and from any losses resulting from
Entertainment, Inc., or LEI, which was then split-off from Liberty. Following the Liberty Media’s indemnity obligations to News Corporation under the tax matters
split-off, DIRECTV Group and LEI merged with subsidiaries of DIRECTV. As a agreement between News Corporation and Liberty Media. If DIRECTV is required
result of the Liberty Transaction, DIRECTV Group, which is comprised of the to indemnify Liberty Media or certain related persons under the circumstances set
DIRECTV U.S. and DIRECTV Latin America businesses, and LEI, which held forth in the Tax Sharing Agreement, we may be subject to substantial liabilities not
Liberty’s 57% interest in DIRECTV Group, a 100% interest in three regional limited in amount. In such a circumstance, we may be required to make payments
sports television networks and a 65% interest in GSN, became wholly owned or dividends to satisfy such liabilities that could either breach covenants in our
subsidiaries of DIRECTV. credit facilities and bond indentures or require additional or accelerated payments,
which could materially adversely affect our financial position and short term
Despite obtaining a private letter ruling from the Internal Revenue Service and operating results.
an opinion of legal counsel to the effect that parts of the Liberty Transaction
qualified as a tax-free distribution for U.S. federal income tax purposes, the We may be required to forgo certain transactions in order to avoid the risk of
continuing validity of such ruling and opinion is subject to the accuracy of factual incurring significant tax-related liabilities.
representations and certain assumptions. Any inaccuracy in such representations
could invalidate the ruling, and failure to comply with any undertakings made in We might be required to forgo certain transactions that might have otherwise
connection with such tax opinion could alter the conclusions reached in such been advantageous in order to preserve the tax-free treatment of the Liberty
opinion. Even if parts of the Liberty Transaction otherwise qualify for tax-free Transaction. In particular, we might be required to forgo certain transactions,
treatment, it would result in a significant U.S. federal income tax liability to including asset dispositions or other strategic transactions for some period of time
Liberty Media if one or more persons acquire a 50% or greater interest in the following the Liberty Transaction so as not to trigger any liability under the tax
DIRECTV common stock as part of a plan or series of related transactions that indemnification obligations.
includes the Liberty Transaction. The process for determining whether an
acquisition is part of a plan under these rules is complex, inherently factual and We rely on network and information systems and other technology, and a
subject to interpretation of the facts and circumstances of a particular case. Liberty disruption or failure of such networks, systems or technology as a result of,
Media or DIRECTV might inadvertently cause or permit a prohibited change in misappropriation of data or other malfeasance, as well as outages, natural
the ownership of DIRECTV to occur, thereby triggering a tax liability to Liberty disasters, accidental releases of information or similar events, may disrupt our
Media. business.
In addition, Liberty Media entered into a tax matters agreement with News Because network and information systems and other technologies are critical to
Corporation in connection with its 2008 transaction with News Corporation, our operating activities, network or information system shutdowns caused by events
pursuant to which Liberty Media agreed, among other things, to indemnify News such as computer hacking on our network or our DIRECTV.com website,
Corporation and certain related persons for taxes resulting from actions taken by dissemination of computer viruses, worms and other destructive or disruptive
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