Directv 10-Q 7 Aug 09 2009 Q2 Quarterly report Financial data

Consolidated Statements of Oper

Consolidated Statements of Operations (USD $)
In Millions	3 Months Ended Jun. 30, 2009	3 Months Ended Jun. 30, 2008	6 Months Ended Jun. 30, 2009	6 Months Ended Jun. 30, 2008
Revenues	$4,539	$4,196	$8,842	$8,245
Costs of revenues, exclusive of depreciation and amortization expense
Broadcast programming and other	1,862	1,692	3,670	3,375
Subscriber service expenses	307	269	608	543
Broadcast operations expenses	67	65	136	126
Selling, general and administrative expenses, exclusive of depreciation and amortization expense
Subscriber acquisition costs	597	507	1,250	1,037
Upgrade and retention costs	245	209	519	464
General and administrative expenses	216	236	428	425
Depreciation and amortization	593	501	1,182	965
Total operating costs and expenses	3,887	3,479	7,793	6,935
Operating profit	652	717	1,049	1,310
Interest income	1	13	3	22
Interest expense	(85)	(73)	(169)	(128)
Other, net	7	1	6	1
Income before income taxes	575	658	889	1,205
Income tax expense	(225)	(256)	(342)	(471)
Net income	$350	$402	$547	$734

Consolidated Balance Sheets

Consolidated Balance Sheets (USD $)
In Millions	Jun. 30, 2009	Dec. 31, 2008
Current assets
Cash and cash equivalents	$1,016	$1,149
Accounts receivable, net of allowances of $52 and $32	1,238	1,308
Inventories	212	182
Deferred income taxes	65	46
Prepaid expenses and other	192	261
Total current assets	2,723	2,946
Satellites, net	1,924	1,980
Property and equipment, net	3,203	3,348
Goodwill	3,168	3,189
Intangible assets, net	695	871
Other assets	193	212
Total assets	11,906	12,546
Current liabilities
Accounts payable and accrued liabilities	2,439	2,582
Unearned subscriber revenues and deferred credits	333	316
Current portion of long-term debt	183	108
Total current liabilities	2,955	3,006
Long-term debt	5,604	5,725
Deferred income taxes	410	405
Other liabilities and deferred credits	720	763
Owner's equity
Capital stock and additional paid-in capital	2,237	2,403
Retained earnings (Accumulated deficit)	(20)	244
Total owner's equity	2,217	2,647
Total liabilities and owner's equity	$11,906	$12,546

Consolidated Balance Sheets (Pa

Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions	Jun. 30, 2009	Dec. 31, 2008
Balance Sheet Parenthetical
Allowance for doubtful accounts	$52	$32

Consolidated Statements of Cash

Consolidated Statements of Cash Flows (USD $)
In Millions	6 Months Ended Jun. 30, 2009	6 Months Ended Jun. 30, 2008
Cash Flows from Operating Activities
Net income	$547	$734
Adjustments of reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,182	965
Amortization of deferred revenues and deferred credits	(28)	(50)
Share-based compensation expense	20	20
Deferred income taxes	40	74
Other	3	8
Change in other operating assets and liabilities
Accounts receivable, net	104	196
Inventories	(24)	(10)
Prepaid expenses and other	69	(45)
Accounts payable and accrued liabilities	(180)	(419)
Unearned subscriber revenue and deferred credits	13	22
Other, net	(2)	56
Net cash provided by operating activities	1,744	1,551
Cash Flows from Investing Activities
Cash paid for property and equipment	(219)	(219)
Cash paid for subscriber leased equipment - subscriber acquisitions	(309)	(281)
Cash paid for subscriber leased equipment - upgrade and retention	(226)	(245)
Cash paid for satellites	(31)	(77)
Investment in companies	(4)	0
Other, net	0	4
Net cash used in investing activities	(789)	(818)
Cash Flows from Financing Activities
Cash proceeds from debt issuance	0	2,490
Debt issuance costs	0	(19)
Repayment of long-term debt	(48)	(18)
Repayment of other long-term obligations	(44)	(58)
Cash dividends to Parent	(1,000)	(2,600)
Excess tax benefit from share-based compensation	4	7
Net cash used in financing activities	(1,088)	(198)
Net (decrease) increase in cash and cash equivalents	(133)	535
Cash and cash equivalents at beginning of the period	1,149	802
Cash and cash equivalents at end of the period	1,016	1,337
Supplemental cash flow information
Cash paid for interest	167	107
Cash paid for income taxes	$117	$407

Basis of Presentation

Basis of Presentation
	6 Months Ended Jun. 30, 2009
Basis of Presentation
Basis of Presentation	Note1: Basis of Presentation DIRECTV HoldingsLLC is a whollyowned subsidiary of The DIRECTV Group,Inc. and consists of DIRECTV Enterprises,LLC and its whollyowned subsidiaries and DIRECTV FinancingCo.,Inc. We sometimes refer to DIRECTV HoldingsLLC as DIRECTV Holdings, DIRECTV, we or us and sometimes refer to The DIRECTV Group,Inc. as The DIRECTV Group or Parent. On February27, 2008, Liberty Media Corporation, or Liberty Media, and News Corporation completed a transaction in which Liberty Media acquired News Corporations approximately 41% interest in our Parent. Currently, Liberty Media owns approximately 56% of our Parents outstanding common stock, however Liberty Media has agreed generally to limit its voting rights to approximately 47.9%. We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial reporting. In the opinion of management, all adjustments (consisting only of normal recurring items) that are necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form10-K for the year ended December31, 2008 filed with the SEC on February27, 2009, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 filed with the SEC on May 8, 2009 and all of our other filings, including Current Reports on Form8-K, filed with the SEC after such date and through the date of this report.

Liberty Entertainment Inc. Merg

Liberty Entertainment Inc. Merger Transaction
	6 Months Ended Jun. 30, 2009
Liberty Entertainment Inc. Merger Transaction
Planned Business Combination	Note 2: Liberty Entertainment Inc. Merger Transaction On May3, 2009, The DIRECTV Group, Liberty Media, Liberty Entertainment, Inc., or LEI and certain subsidiaries of The DIRECTV Group entered into an agreement and plan of merger, which we refer to as the merger agreement, which, if consummated, will result in the creation of a new public holding company named DIRECTV which we refer to as Holdings, that will own The DIRECTV Group and LEI. Holdings will be owned by the holders of The DIRECTV Group common stock and the holders of LEI common stock immediately prior to the mergers contemplated by the merger agreement. As a necessary step to the mergers contemplated by the merger agreement, Liberty Media is planning to execute a split-off transaction that would result in the redemption of 90% of the outstanding shares of both series of its Liberty Entertainment common stock in exchange for all of the outstanding shares of two series of common stock of LEI. LEI will hold Liberty Medias entire interest in The DIRECTV Group (currently approximately 56%), 100% of Liberty Sports Holdings LLC, 65% of Game Show Network, LLC and approximately $30 million in cash and cash equivalents, together with approximately $2 billion of indebtedness and a related equity collar. The split-off transaction is conditioned on the approval of the holders of Libertys Liberty Entertainment common stock. The merger agreement provides for two mergers that would result in The DIRECTV Group and LEI becoming wholly owned subsidiaries of Holdings. In the DIRECTV merger, The DIRECTV Group common stockholders (other than direct or indirect subsidiaries of LEI) will receive one share of Holdings Class A common stock for each share of common stock of The DIRECTV Group that they own. In the LEI merger, holders of outstanding shares of LEI Series A common stock and LEI Series B common stock (other than LEI or Holdings) will receive a number of shares of Holdings Class A common stock equal to the LEI exchange ratio for each share of LEI common stock that they own. The LEI exchange ratio is a fixed exchange ratio equal to 1.11111 shares of Holdings common stock for each share of LEI common stock, subject to certain adjustments as provided in the merger agreement. After completion of the split-off, John C. Malone (the Chairman of The DIRECTV Group and Liberty Media), his wife and certain trusts for the benefit of their children, collectively the Malones, will own approximately 92% of the LEI Series B common stock. Immediately prior to the mergers, the Malones, pursuant to a voting and right of first refusal agreement, will exchange each of their shares of LEI Series B common stock for a number of shares of Holdings Class B common stock equal to the number of shares of LEI Series B common stock multiplied by the LEI exchange ratio. Holdings Class B common stock will have fifteen votes per share and certain limited consent rights and will not be publicly traded, and Holdings Class A common stock will have one vote per share and is expected to be listed on the NASDAQ National Market System. Upon completion of the mergers, the Malones will be the only holders of H

Accounting Changes

Accounting Changes
	6 Months Ended Jun. 30, 2009
Accounting Changes
Accounting Changes	Note3: Accounting Changes On January1, 2009 we adopted Statement of Financial Accounting Standards, or SFAS, No.160 Noncontrolling Interests in Consolidated Financial Statementsan amendment to ARB No.51, which established standards of accounting and reporting of noncontrolling interests in subsidiaries, also known as minority interests, in consolidated financial statements, provides guidance on accounting for changes in the parents ownership interest in a subsidiary and establishes standards of accounting for the deconsolidation of a subsidiary due to the loss of control. SFAS No.160 requires an entity to present certain noncontrolling interests as a component of equity and to present net income and consolidated comprehensive income attributable to the parent and the noncontrolling interest separately in the consolidated financial statements. Our adoption of SFAS No.160 did not have any effect on our consolidated financial statements. On January1, 2009 we adopted SFAS No.141R. SFAS No. 141R requires the acquiring entity to record 100% of all assets and liabilities acquired, including goodwill and any non-controlling interest, generally at their fair values for all business combinations, whether partial, full or step acquisitions. Under SFAS No.141R certain contingent assets and liabilities, as well as contingent consideration, are also required to be recognized at fair value on the date of acquisition and acquisition related transaction and restructuring costs will be expensed. Additionally, SFAS No.141R requires disclosures about the nature and financial effect of the business combination and also changes the accounting for certain income tax assets recorded in purchase accounting. The adoption of SFAS No.141R as required, on January1, 2009, changed the way we account for adjustments to deferred tax asset valuation allowances recorded in purchase accounting for prior business combinations so that adjustments to these deferred tax asset valuation allowances will no longer be recorded to goodwill but rather adjustments will be recorded in Income tax expense in the Consolidated Statements of Operations. Additionally, the adoption of SFAS No.141R will change the accounting for all business combinations we consummate after January1, 2009.

Goodwill and Intangible Assets

Goodwill and Intangible Assets
	6 Months Ended Jun. 30, 2009
Goodwill and Intangible Assets
Goodwill and Intangible Assets	Note4: Goodwill and Intangible Assets The changes in the carrying amounts of goodwill for the six months ended June 30, 2009 were as follows: (Dollars in Millions) Balance as of December31, 2008.................................................................................. $3,189 Purchase or acquisition accounting adjustments: New acquisitions................................................................................................................. 4 Adjustments to prior acquisitions.................................................................................... (25) Balance as of June 30, 2009............................................................................................ $3,168 The following table sets forth the amounts recorded for intangible assets as of the periods presented: Estimated Useful June 30, 2009 December31, 2008 Lives (years) Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount (Dollars in Millions) Orbital slots.................................................................. Indefinite $432 $432 $432 $432 72.5 WL Orbital license............................................ 5 219 $200 19 219 $180 39 Subscriber related........................................................ 5-10 1,348 1,244 104 1,348 1,116 232 Dealer network............................................................ 15 130 84 46 130 79 51 Distribution rights........................................................ 7 334 240 94 334 217 117 Total intangible assets........................................... $2,463 $1,768 $695 $2,463 $1,592 $871 The following table sets forth amortization expense for intangible assets for each of the periods presented: ThreeMonthsEnded June30, SixMonthsEnded June30, 2009 2008 2009 2008 (Dollars in Millions) Amortization expense....................................................... $88 $88 $176 $176 Estimated amortization expense for intangible assets in each of the next five years and thereafter is as follows: $113million for the remainder of 2009, $90million in 2010, $34million in 2011, $10million in 2012, $10million in 2013 and $6million thereafter.

Borrowings

Borrowings
	6 Months Ended Jun. 30, 2009
Borrowings
Borrowings	Note5: Borrowings The following table sets forth our outstanding borrowings: Interest Rates at June 30, 2009 June 30, 2009 December31, 2008 (Dollars in Millions) 8.375% senior notes due in 2013........................................... 8.375% $910 $910 6.375% senior notes due in 2015........................................... 6.375% 1,000 1,000 7.625% senior notes due in 2016........................................... 7.625% 1,500 1,500 Senior secured credit facility, net of unamortized discount of $8million as of June 30, 2009 and $9million as of December31, 2008.............................................................. 3.106% 2,375 2,421 Unamortized bond premium................................................... 2 2 Total debt............................................................................... 5,787 5,833 Less: Current portion of long-term debt................................ (183) (108) Long-term debt...................................................................... $5,604 $5,725 The senior secured credit facility is secured by substantially all of our assets. All of the senior notes have been registered under the Securities Act of 1933, as amended, are unsecured and have been fully and unconditionally guaranteed, jointly and severally, by substantially all of our subsidiaries. Principal on the senior notes is payable upon maturity, while interest is payable semi-annually. The fair value of our 8.375% senior notes was approximately $915million at June 30, 2009 and approximately $904million at December31, 2008. The fair value of our 6.375% senior notes was approximately $924million at June 30, 2009 and approximately $911million at December31, 2008. The fair value of our 7.625% senior notes was approximately $1,466million at June 30, 2009 and approximately $1,451million at December31, 2008. We calculated the fair values based on quoted market prices of our senior notes, which is a Level1 input under SFAS No.157 Fair Value Measurements or SFAS No.157, on those dates. Our notes payable and senior secured credit facility mature as follows: $61million in the remainder of 2009, $308million in 2010, $108million in 2011, $20million in 2012, $2,796million in 2013 and $2,500million thereafter. These amounts do not reflect potential prepayments that may be required under our senior secured credit facility, which could result from a computation that we are required to make at each year end under the credit agreement. We were not required to make a prepayment for the year ended December31, 2008. The amount of interest accrued related to our outstanding debt was $44million at June 30, 2009 and $45million at December31, 2008. Covenants and Restrictions. The senior secured credit facility requires us to comply with certain financial covenants. The senior notes and the senior secured credit facility also include covenants that restrict our ability to, among other things, (i)incur additional

Commitments and Contingencies

Commitments and Contingencies
	6 Months Ended Jun. 30, 2009
Commitments and Contingencies
Commitments and Contingencies	Note6: Commitments and Contingencies Commitments At June 30, 2009, our minimum payments under agreements to purchase broadcast programming, and the purchase of services that we have outsourced to third parties, such as billing services, and satellite telemetry, tracking and control, satellite construction and launch contracts and broadcast center services aggregated $8,999million, payable as follows: $901million in the remainder of 2009, $1,593million in 2010, $1,613million in 2011, $1,746million in 2012, $1,403million in 2013 and $1,743million thereafter. Contingencies Litigation Litigation is subject to uncertainties and the outcome of individual litigated matters is not predictable with assurance. Various legal actions, claims and proceedings are pending against us arising in the ordinary course of business. We have established loss provisions for matters in which losses are probable and can be reasonably estimated. Some of the matters may involve compensatory, punitive, or treble damage claims, or demands that, if granted, could require us to pay damages or make other expenditures in amounts that could not be estimated at June 30, 2009. After discussion with counsel representing us in those actions, it is the opinion of management that such litigation is not expected to have a material adverse effect on our consolidated results of operations or financial position. Finisar Corporation. As previously reported, we filed a notice of appeal to the Court of Appeals for the Federal Circuit on October5, 2006 from a jury determination that The DIRECTV Group,Inc. and certain of its subsidiaries willfully infringed a patent owned by Finisar Corporation and awards of approximately $117million in damages and pre-judgment interest. DIRECTV was also ordered to pay into escrow $1.60 per new set-top receiver manufactured for use with the DIRECTV system beginning June17, 2006 and continuing until the patent expires in 2012 or was otherwise found to be invalid. On April18, 2008, the Court of Appeals vacated (set aside) the verdict of infringement, and sent the case back to the district court for further proceedings and possible retrial on a limited number of claims. On remand, we sought and obtained summary judgment on invalidity of all remaining claims, and the case against DIRECTV was dismissed on May 19, 2009. Finisar has filed a Notice of Appeal, and a briefing schedule for the new appeal has been set. 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 of satellite failure. The insurance generally covers the unamortized book value of covered satellites. We do not insure against lost revenues in the event of a total or partial loss of the capacity of a satellite. We generally rely on in-orbit spare satellites and excess transponder capacity at key orbital slots to mitigate the impact a satellite failure could have on our ability to provide service. At June 30, 2009, the net book value of in-orbit satellites was $1,601million, all of which was uninsured. Subse

Related Party Transactions

Related Party Transactions
	6 Months Ended Jun. 30, 2009
Related Party Transactions
Related Party Transactions	Note7: Related Party Transactions As discussed in more detail above in Note 2 of the Notes to the Consolidated Financial Statements, in May 2009, The DIRECTV Group, Liberty Media, LEI and certain subsidiaries of The DIRECTV Group entered into an agreement and plan of merger, as amended in July 2009. In addition, in the ordinary course of our operations, we enter into transactions with related parties as discussed below. The DIRECTV Group and affiliates We determine our income taxes based upon our tax sharing agreement with The DIRECTV Group, which generally provides that the current income tax liability or receivable be computed as if we were a separate taxpayer. Payments made to our Parent under this tax sharing arrangement were $101million for the six months ended June30, 2009 and $395million for the six months ended June30, 2008. We also receive an allocation of employee benefit expenses from The DIRECTV Group. We believe that our consolidated financial statements reflect our cost of doing business in accordance with SEC Staff Accounting Bulletin No.55, Allocation of Expenses and Related Disclosures in Financial Statements of Subsidiaries, Divisions or Lesser Business Components of Another Entity. We paid cash dividends to our Parent in the amounts of $1,000 million during the six months ended June 30, 2009 and $2,600 million during the six months ended June 30, 2008. LibertyMedia, Liberty Global and Discovery Communications As a result of Liberty Medias acquisition of an ownership interest in The DIRECTV Group, beginning February27, 2008, transactions with Liberty Media and its affiliates, including its equity method investees may be considered to be related party transactions as Liberty Media currently owns approximately 56% of our Parents outstanding common stock. Our transactions with Liberty Media and its affiliates consist primarily of the purchase of programming. In addition, John Malone, Chairman of the Board of Directors of our Parent and of Liberty Media, has an approximate 31.3% voting interest in Discovery CommunicationsInc., or Discovery Communications, and an approximate 38.8% voting interest in Liberty GlobalInc., or Liberty Global, and serves as Chairman of Liberty Global, and certain of Liberty Medias management and directors also serve as directors of Discovery Communications or Liberty Global. As a result of this common ownership and management, transactions with Discovery Communications and Liberty Global, and their subsidiaries or equity method investees may be considered to be related party transactions. Our transactions with Discovery Communications and Liberty Global consist primarily of purchases of programming created, owned or distributed by Discovery Communications and its subsidiaries and investees. News Corporation and affiliates News Corporation and its affiliates were considered related parties until February27, 2008, when News Corporation transferred its 41% interest in our Parents common stock to Liberty Media. Accordingly, the following contractual arrangements with News Corporation and its affiliates were considered related party transactions and reported through F

Acquisitions

Acquisitions
	6 Months Ended Jun. 30, 2009
Acquisitions
Acquisitions	Note8: Acquisitions Home Services Providers 180 Connect. On July8, 2008, we acquired 100% of 180 ConnectInc.s outstanding common stock and exchangeable shares. Simultaneously, in a separate transaction, UniTek USA,LLC acquired 100% of 180 Connects cable service operating unit and operations in certain of our installation services markets in exchange for satellite installation operations in certain markets and $7million in cash. These transactions provide us with control over a significant portion of DIRECTV U.S. home service provider network. We paid $91million in cash, net of the $7million we received from UniTek USA, for the acquisition, including the equity purchase price, repayment of assumed debt and related transaction costs. We accounted for the 180 Connect acquisition using the purchase method of accounting, and began consolidating the results from the date of acquisition. The June 30, 2009 consolidated financial statements reflect the preliminary allocation of the $91million net purchase price to assets acquired and the liabilities assumed based on their estimated fair values at the date of acquisition using information currently available. The assets acquired included approximately $5million in cash. The excess of the purchase price over the estimated fair values of the net assets has been recorded as goodwill. We are currently determining how much of the recorded goodwill will be deductible for tax purposes. The following table sets forth the preliminary allocation of the purchase price to the 180 Connect net assets acquired on July8, 2008 (dollars in millions): Total current assets.................................................................................................................................. $19 Property and equipment.......................................................................................................................... 16 Goodwill..................................................................................................................................................... 118 Investments and other assets................................................................................................................. 30 Total assets acquired............................................................................................................................... $183 Total current liabilities............................................................................................................................. $84 Other liabilities........................................................................................................................................... 8 Total liabilities assumed.......................................................................................................................... $92 Net assets acquired.............................................................................................................................. $91 The following selected unaudited pro forma information is being pr

Condensed Consolidating Financi

Condensed Consolidating Financial Statements
	6 Months Ended Jun. 30, 2009
Condensed Consolidating Financial Statements
Condensed Consolidating Financial Statements	Note9: Condensed Consolidating Financial Statements The following presents the condensed consolidating statements of operations for the three and six months ended June 30, 2009 and June 30, 2008, the condensed consolidating balance sheets as of June 30, 2009 and December31, 2008, and the condensed consolidating statements of cash flows for the six months ended June 30, 2009 and 2008 of DIRECTV Holdings together with DIRECTV FinancingCo.,Inc., or the Co-Issuers, and each of DIRECTV Holdings material subsidiaries (other than DIRECTV Financing), or the Guarantor Subsidiaries, and the eliminations necessary to present DIRECTV Holdings financial statements on a consolidated basis. These condensed consolidating financial statements should be read in conjunction with the accompanying consolidated financial statements of DIRECTV Holdings. Condensed Consolidating Statement of Operations For the Three Months Ended June 30, 2009 Co-Issuers Guarantor Subsidiaries Eliminations DIRECTV Holdings Consolidated (Dollars in Millions) Revenues.......................................................................................................... $81 $4,539 $(81) $4,539 Operating costs and expenses Costs of revenues, exclusive of depreciation and amortization expense Broadcast programming and other.................................................... 1,862 1,862 Subscriber service expenses................................................................. 307 307 Broadcast operations expenses........................................................... 67 67 Selling, general and administrative expenses, exclusive of depreciation and amortization expense Subscriber acquisition costs................................................................. 597 597 Upgrade and retention costs................................................................ 245 245 General and administrative expenses................................................ 297 (81) 216 Depreciation and amortization expense................................................ 593 593 Total operating costs and expenses.................................................... 3,968 (81) 3,887 Operating profit............................................................................................... 81 571 652 Equity in income of consolidated subsidiaries.......................................... 350 (350) Interest income................................................................................................ 1 1 Interest expense.............................................................................................. (81) (4) (85) Other, net.......................................................................................................... 7 7 Income before income taxes................

Document Information

Document Information
	6 Months Ended Jun. 30, 2009
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2009-06-30

Entity Information

Entity Information (USD $)
In Millions	6 Months Ended Jun. 30, 2009
Entity Information [Line Items]
Entity Registrant Name	Directv Holdings LLC
Entity Central Index Key	0001234308
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Public Float	$0
Entity Common Stock, Shares Outstanding	0