DIRECTV (NASDAQ:DTV) today reported an increase in fourth
quarter 2010 revenues of 11% to $6.62 billion, operating profit
before depreciation and amortization(1) (OPBDA) of 13% to $1.68
billion and operating profit of 23% to $1.06 billion compared with
last year’s fourth quarter. DIRECTV reported fourth quarter net
income of $618 million and diluted earnings per share of $0.74
compared with a net loss of $32 million and a loss per share of
$0.03 in the fourth quarter of 2009.
“Our fourth quarter results capped off one of DIRECTV’s
strongest years ever as we further extended our position as the
world’s largest provider of pay television services with over 28
million subscribers in the U.S. and Latin America,” said Mike
White, president and CEO of DIRECTV. “Fueled by the best quarter in
a decade with 667,000 consolidated net additions, DIRECTV added 1.9
million new subscribers in 2010 representing the second best year
in our history. In many ways our financial results were even
stronger as we again generated industry-leading growth in revenue
and operating profit before depreciation and amortization in 2010
of 12% and 20%, respectively. These strong results combined with
our share repurchase program fueled a 72% increase in adjusted EPS
to $2.48 and an 18% increase in free cash flow to a record $2.8
billion.”
White continued, “We exit 2010 with good momentum and look to
build on that in 2011 with a strategy designed to maintain our
industry-leading revenue and earnings growth. In the U.S., our
strategy focuses on delivering the best television experience both
inside and outside of the home, generating incremental revenue
streams in key areas such as DIRECTV Cinema, commercial and
local/addressable advertising, as well as capturing productivity
improvements throughout our company. In Latin America, our priority
will be to continue leading the market in HD and DVR services while
introducing exciting new products and services that target the
rapidly growing middle market segments.” White added, “With the
successful execution of these strategies along with our plan for
returning excess cash to shareholders, we remain confident in our
ability to continue creating significant shareholder value as we
strive to achieve our EPS target of $5 per share in 2013.”
DIRECTV'S OPERATIONAL REVIEW
DIRECTV Consolidated Three Months Twelve Months
Dollars in Millions except
Earnings
Ended December 31, Ended December 31,
per Class A Common Share
2010 2009 2010 2009 Revenues $6,621 $5,981 $24,102
$21,565 Operating Profit Before Depreciation and Amortization(1)
1,684 1,494 6,378 5,313 Operating Profit 1,062 862
3,896 2,673 Net Income (Loss) Attributable to DIRECTV 618 (32)
2,198 942 Diluted Earnings (Loss) Per Class A Share 0.74
(0.03) 2.30 0.95 Adjusted Diluted Earnings Per Share(2) 0.74
0.48 2.48 1.44
Capital Expenditures and Cash Flow
Cash Paid for DIRECTV U.S.
Subscriber Leased Equipment - Acquisitions, Upgrade and Retention
298 217 967 983 Cash Paid for Property, Equipment and
Satellites 372 306 1,449 1,088 Cash Flow Before Interest and
Taxes(3) 964 1,005 3,916 3,215 Free Cash Flow(4) 711 710
2,790 2,360
Fourth Quarter Review
DIRECTV’s fourth quarter revenues of $6.62 billion increased 11%
over the same period last year principally due to strong growth
from DIRECTV U.S. and DIRECTV Latin America (DTVLA). Fourth quarter
revenues at DIRECTV U.S. grew 8% primarily due to solid subscriber
and average monthly revenue per subscriber (ARPU) growth while
DTVLA grew 23% mainly due to strong subscriber growth. In addition,
the quarter also benefitted from $59 million of net revenue
generated by DIRECTV Sports Networks, which was acquired as part of
the transaction with Liberty Media Corporation (Liberty
Transaction) in November 2009.
Operating profit before depreciation and amortization (OPBDA)
increased 13% to $1.68 billion primarily due to higher OPBDA at
both DTVLA and DIRECTV U.S. Fourth quarter DTVLA OPBDA increased
56% driven by gross profit associated with higher revenues and
lower general and administrative (G&A) expenses primarily due
to a reduction in currency-related transaction charges in
Venezuela. DIRECTV U.S. OPBDA grew 4% mostly due to gross profit
associated with higher revenues partially offset by an increase in
subscriber acquisition costs. Also in the quarter, DIRECTV
operating profit increased 23% to $1.06 billion primarily due to
the increase in OPBDA and lower depreciation and amortization
expense.
Fourth quarter 2010 net income attributable to DIRECTV was $618
million and earnings per share were $0.74 compared to a net loss of
$32 million and a loss per share of $0.03 in the fourth quarter of
2009. Excluding a fourth quarter 2009 pre-tax charge of $491
million ($486 million after tax) related to the Liberty Transaction
completed in November 2009, fourth quarter 2010 net income
attributable to DIRECTV and diluted earnings per share increased
36% and 54%, respectively. The improvements were due to the higher
operating profit, a lower effective tax rate resulting from foreign
tax credits previously not recognized and a lower effective state
tax rate, as well as a $41 million fourth quarter 2009 charge
related to an asset impairment resulting from the decline in fair
value of an equity method investment in Argentina (recorded in
“Other, net” on the Consolidated Statements of Operations). These
changes were partially offset by higher interest expense resulting
from greater average debt balances. In addition, earnings per share
were favorably impacted by a 12% decline in weighted average common
shares outstanding due to stock repurchases and the Liberty
Transaction.
Cash flow before interest and taxes(3) declined 4% to $964
million compared to fourth quarter 2009 as higher OPBDA was more
than offset by increased capital expenditures mostly due to higher
gross additions and demand for advanced equipment at both DIRECTV
U.S. and DTVLA, as well as higher investment in working capital.
Fourth quarter 2010 free cash flow(4) was up slightly to $711
million as the decline in cash flow before interest and taxes was
offset by lower tax payments attributable to a U.S. federal tax
incentive enacted in the fourth quarter of 2010. Also during the
fourth quarter but not included in free cash flow, DIRECTV
repurchased approximately 37 million shares of Class A common stock
for $1.55 billion and purchased 19% of Sky Brazil from Globo
Comunicações e Participações S.A. (Globo) for $605
million.
Full Year Review
DIRECTV’s revenues in 2010 increased 12% over 2009 principally
due to solid growth from DIRECTV U.S. and DTVLA. Revenues at
DIRECTV U.S. increased 9% in 2010 driven by a 4.9% increase in ARPU
and continued subscriber growth while revenues at DTVLA grew 25%
due to strong subscriber growth and a 1.5% increase in ARPU. In
addition, DIRECTV Sports Networks generated $237 million of net
revenue in 2010 compared with $16 million in 2009.
Operating profit before depreciation and amortization increased
20% to $6.38 billion in 2010 due to strong OPBDA growth from both
DIRECTV U.S. and DTVLA. DIRECTV U.S. OPBDA increased 11% primarily
driven by gross profit associated with higher revenues partially
offset by higher subscriber acquisition and G&A expenses.
DTVLA’s 2010 OPBDA growth of 67% was driven by gross profit
associated with higher revenues as well as lower G&A expenses
principally due to a reduction in currency-related transaction
charges in Venezuela. The 46% increase in DIRECTV’s 2010 operating
profit to $3.90 billion was primarily due to the higher OPBDA as
well as lower DIRECTV U.S. depreciation and amortization
expense.
In 2010, net income attributable to DIRECTV more than doubled to
$2.20 billion driven by the higher operating profit as well as a
$67 million gain from the final settlement of the equity collars
assumed in the Liberty Transaction. These gains were partially
offset by higher tax expense principally resulting from the
increase in pre-tax earnings, and greater interest expense due to
higher average debt balances. Also impacting the comparison was a
$491 million pre-tax charge ($486 million after tax) in 2009
related to the Liberty Transaction completed in November 2009, a
$41 million impairment charge in 2009 related to the decline in
fair value of an equity method investment in Argentina, as well as
$62 million in 2009 gains associated with the revaluation of U.S.
dollar denominated monetary net-liabilities in Brazil compared with
$11 million in gains in 2010.
Diluted earnings per share attributable to Class A stockholders
in 2010 was $2.30, more than double the prior year’s diluted
earnings per share of $0.95. Excluding the impact of the Malone
Exchange(5) and the 2009 after tax charge of $486 million related
to the Liberty Transaction, 2010 diluted earnings per share of
$2.48 increased 72% compared with $1.44 in 2009. The improvement
was driven by the higher net income as well as an 11% decline in
the average share count resulting from stock repurchases and a
reduction in share count resulting from the Liberty Transaction in
2009.
Cash flow before interest and taxes increased 22% to $3.92
billion and free cash flow increased 18% to $2.79 billion compared
to 2009 primarily due to the higher OPBDA partially offset by
increased capital expenditures mostly associated with higher gross
additions and sales of advanced equipment at DTVLA. In addition,
free cash flow was negatively impacted by higher tax payments in
2010 mostly associated with an increase in pre-tax income. Also in
2010 but not included in free cash flow, DIRECTV paid $5.11 billion
in cash for the repurchase of approximately 136 million shares of
Class A common stock representing about 14.5% of outstanding shares
and purchased 19% of Sky Brazil from Globo for $605 million.
Also in 2010, DIRECTV U.S. completed $6.0 billion of senior notes
financings which are summarized in the table below, repaid the
remaining outstanding amounts of its senior secured credit
facilities totaling $2.32 billion and made payments of $1.54
billion to repay the debt and associated equity collars assumed in
the Liberty Transaction.
March 2010 Financing August 2010
Financing Amount % Coupon Due Date
Amount % Coupon Due Date $1.2B 3.55%
2015 $750M 3.125% 2016
$1.3B 5.20% 2020 $1.0B
4.60% 2021 $500M 6.35% 2040
$1.25B 6.00% 2040
SEGMENT FINANCIAL REVIEW
DIRECTV U.S. Segment
Three Months Twelve Months
DIRECTV
U.S. Ended December 31, Ended December 31,
Dollars in Millions except ARPU 2010
2009 2010 2009 Revenue
$5,531 $5,126 $20,268
$18,671 Average Monthly Revenue per Subscriber (ARPU) ($)
96.64 92.36 89.71
85.48 Operating Profit Before Depreciation and
Amortization(1) 1,324 1,275
5,216 4,685 Operating Profit 863
750 3,290 2,410 Cash Flow
Before Interest and Taxes(3) 847 989
3,510 3,072 Free Cash Flow(4)
646 718 2,348
2,206
Subscriber Data (in 000’s except Churn)
Gross Subscriber Additions 1,116
964 4,124 4,273 Average Monthly
Subscriber Churn 1.44% 1.52%
1.53% 1.53% Net Subscriber Additions
289 119 663 939
Cumulative Subscribers 19,223 18,560
19,223 18,560
Fourth Quarter Review
In the quarter, DIRECTV U.S. revenues increased 8% to $5.53
billion compared to fourth quarter 2009 primarily due to strong
ARPU growth and the larger subscriber base. ARPU of $96.64
increased 4.6% largely due to price increases and higher revenues
from advanced products, pay-per-view and premium movies as well as
advertising sales. Net additions of 289,000 were more than double a
year ago as gross additions increased 16% to 1.12 million and churn
declined to 1.44% primarily due to improved customer offers and
segmentation amid a relatively stable economic environment. DIRECTV
U.S. ended the quarter with 19.22 million subscribers compared with
18.56 million subscribers as of December 31, 2009.
Fourth quarter OPBDA increased 4% to $1.32 billion and operating
profit increased 15% to $863 million due to gross profit associated
with higher revenues partially offset by an increase in subscriber
acquisition costs related to higher gross additions, as well as
increased demand for advanced equipment by both new and existing
subscribers. Operating profit was also favorably impacted by the
completion of amortization for subscriber-related intangible assets
and an orbital slot lease, as well as lower depreciation expense
associated with a reduction in set-top box capital expenditures
over the last several years.
Full Year Review
DIRECTV U.S. full year 2010 revenues increased 9% to $20.27
billion primarily due to strong ARPU growth and a larger subscriber
base. ARPU of $89.71 increased 4.9% largely due to price increases
and higher revenues from advanced products, pay-per-view and
premium movies as well as advertising sales. Compared to 2009,
gross additions declined 3% to 4.12 million and average monthly
churn was unchanged at 1.53% resulting in net additions of
663,000.
OPBDA in 2010 increased 11% to $5.22 billion and operating
profit increased 37% to $3.29 billion due to gross profit
associated with higher revenues partially offset by an increase in
subscriber acquisition costs related to higher gross additions, as
well as increased demand for advanced equipment by both new and
existing subscribers. In addition, G&A expense increased
primarily due to higher bad debt expense and increased incentive
compensation expense relating to the strong operating and financial
performance in 2010. Operating profit was also favorably impacted
by the completion of amortization for subscriber-related intangible
assets and an orbital slot lease, as well as lower depreciation
expense associated with a reduction in set-top box capital
expenditures over the last several years.
DIRECTV Latin America Segment
DIRECTV owns 93% of Sky Brazil, 41% of Sky Mexico and 100% of
PanAmericana, which covers most of the remaining countries in the
region. Sky Mexico, whose results are accounted for as an equity
method investment and therefore are not consolidated by DTVLA, had
approximately 3.04 million subscribers as of December 31, 2010
bringing the total subscribers in the region to 8.85 million.
Three Months Twelve Months
DIRECTV Latin
America Ended December 31, Ended December 31,
Dollars in
Millions except ARPU 2010 2009 2010
2009 Revenue $1,031 $839 $3,597 $2,878
Average Monthly Revenue per Subscriber (ARPU) ($) 61.12
62.67 57.95 57.12 Operating Profit Before
Depreciation and Amortization(1) 342 219 1,164
697 Operating Profit 185 114 623
331 Cash Flow Before Interest and Taxes(3) 111 15
397 259 Free Cash Flow(4) 59 (13)
218 105
Subscriber Data(6) (in
000’s except Churn) Gross Subscriber Additions 639
460 2,318 1,575 Average Monthly Subscriber Churn
1.55% 1.54% 1.77% 1.75% Net Subscriber
Additions 378 254 1,220 692 Cumulative
Subscribers 5,808 4,588 5,808 4,588
Fourth Quarter Review
Fourth quarter revenues for DIRECTV Latin America increased 23%
to $1.03 billion due to continued strong subscriber growth
including a 49% increase in fourth quarter net additions to
378,000. Gross additions in the quarter increased 39% largely due
to targeted customer promotions aimed at the middle-market segment
in Brazil as well as continued strong demand for HD, DVR and
pre-paid services in the region. Also in the quarter, average
monthly churn was relatively unchanged at 1.55% while post-paid
churn declined 8 basis points to 1.37% reflecting declines in
Brazil and Venezuela. ARPU declined 2.5% in the quarter primarily
due to currency devaluations, particularly in Venezuela. However
excluding exchange rate fluctuations, ARPU increased over 5%
principally due to price increases and higher sales of advanced
products throughout the region.
DIRECTV Latin America’s fourth quarter 2010 OPBDA of $342
million improved 56% and operating profit of $185 million increased
62% over last year’s fourth quarter. The increases were primarily
due to gross profit associated with higher revenue, as well as a
$44 million decrease in charges related to the exchange of
Venezuelan currency to U.S. dollars. This growth was partially
offset by increased subscriber acquisition costs associated with
the higher gross additions, as well as an increase in upgrade and
retention costs related to higher demand for advanced equipment.
Also impacting operating profit was higher depreciation expense
mostly due to the increase in set-top boxes deployed related to the
higher gross subscriber additions as well as increased demand for
advanced equipment compared to last year.
Full Year Review
Full year revenues for DIRECTV Latin America increased 25% to
$3.60 billion primarily due to a 76% increase in 2010 net
subscriber additions as well as a 1.5% increase in ARPU. The
increase in 2010 net subscriber additions to 1.22 million was
driven by a 47% increase in gross additions to 2.32 million and a
relatively unchanged average monthly churn rate of 1.77%. The
higher gross additions were largely due to continued strong demand
for HD, DVR and pre-paid services, benefits from the FIFA World Cup
soccer tournament and targeted customer promotions aimed at the
middle-market segments which drove strong growth across the region,
particularly in Brazil, Argentina, Colombia, Ecuador and Chile.
Post-paid churn in 2010 declined 8 basis points to 1.47% reflecting
declines in Brazil and Argentina. The modest ARPU increase to
$57.95 in 2010 was principally due to price increases, higher sales
of advanced products throughout the region and favorable exchange
rates in Brazil, mostly offset by currency devaluations,
particularly in Venezuela.
DIRECTV Latin America’s 2010 OPBDA of $1.16 billion improved 67%
and operating profit of $623 million increased 88% over last year.
The increases were primarily due to gross profit associated with
higher revenue, as well as a $191 million decrease in charges
related to the exchange of Venezuelan currency to U.S. dollars. The
growth was partially offset by increased subscriber acquisition
costs related to the higher gross additions. Also impacting
operating profit was higher depreciation expense mostly due to the
increase in set-top boxes deployed related to the higher gross
subscriber additions as well as increased demand for advanced
equipment compared to last year.
CONFERENCE CALL INFORMATION
A live webcast of DIRECTV’s fourth quarter 2010 earnings call
will be available on the company’s website at
www.directv.com/investor. The webcast will begin at 9:00 a.m. ET,
today February 23, 2011. Access to the earnings call is also
available in the United States by dialing (888) 213-3710 and
internationally by dialing (913) 312-0391. The conference ID number
is 8587454. A replay of the call can be accessed by dialing
888-203-1112 in the U.S. and 719-457-0820 internationally. The
replay pass code is 8587454. The replay will be available from
10:30 a.m. PT Wednesday, February 23, 2011 through 9:59 p.m. PT
Wednesday, March 2 and will also be archived on our website at
www.directv.com/investor.
FOOTNOTES
(1) Operating profit before depreciation and amortization, which
is a financial measure that is not determined in accordance with
accounting principles generally accepted in the United States of
America, or GAAP, should be used in conjunction with other GAAP
financial measures and is not presented as an alternative measure
of operating results, as determined in accordance with GAAP. Please
see each of DIRECTV’s and DIRECTV Holdings LLC’s Annual Reports on
Form 10-K for the year ended December 31, 2010 expected to be filed
with the SEC before March 1, 2010 for further discussion of
operating profit before depreciation and amortization. Operating
profit before depreciation and amortization margin is calculated by
dividing operating profit before depreciation and amortization by
total revenues.
(2) See reconciliation of adjusted diluted earnings per share to
diluted earnings per share at the end of this release.
(3) Cash flow before interest and taxes, which is a financial
measure that is not determined in accordance with GAAP, is
calculated by deducting amounts under the captions “Cash paid for
property and equipment”, “Cash paid for satellites”, “Cash paid for
subscriber leased equipment – subscriber acquisitions” and “Cash
paid for subscriber leased equipment – upgrade and retention” from
“Net cash provided by operating activities” from the Consolidated
Statements of Cash Flows and adding back net interest paid and
“Cash paid for income taxes”. This financial measure should be used
in conjunction with other GAAP financial measures and is not
presented as an alternative measure of cash flows from operating
activities, as determined in accordance with GAAP. DIRECTV and
DIRECTV U.S. management use cash flow before interest and taxes to
evaluate the cash generated by our current subscriber base, net of
capital expenditures, and excluding the impact of interest and
taxes, for the purpose of allocating resources to activities such
as adding new subscribers, retaining and upgrading existing
subscribers, for additional capital expenditures and as a measure
of performance for incentive compensation purposes. DIRECTV and
DIRECTV U.S. believe this measure is useful to investors, along
with other GAAP measures (such as cash flows from operating and
investing activities), to compare our operating performance to
other communications, entertainment and media companies. We believe
that investors also use current and projected cash flow before
interest and taxes to determine the ability of our current and
projected subscriber base to fund required and discretionary
spending and to help determine the financial value of the
company.
(4) Free cash flow, which is a financial measure that is not
determined in accordance with GAAP, is calculated by deducting
amounts under the captions “Cash paid for property and equipment”,
“Cash paid for satellites”, “Cash paid for subscriber leased
equipment – subscriber acquisitions”, and “Cash paid for subscriber
leased equipment – upgrade and retention” from “Net cash provided
by operating activities” from the Consolidated Statements of Cash
Flows. This financial measure should be used in conjunction with
other GAAP financial measures and is not presented as an
alternative measure of cash flows from operating activities, as
determined in accordance with GAAP. DIRECTV and DIRECTV U.S.
management 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 capital expenditures and as a measure of performance for
incentive compensation purposes. DIRECTV and DIRECTV U.S. believe
this measure is useful to investors, along with other GAAP measures
(such as cash flows from operating and investing activities), to
compare our operating performance to other communications,
entertainment and media companies. We believe that investors also
use current and projected free cash flow to determine the ability
of our current and projected subscriber base to fund required and
discretionary spending and to help determine the financial value of
the company.
(5) In the second quarter of 2010, DIRECTV resolved an FCC issue
regarding our Puerto Rico operations by consummating a transaction
with Dr. John C. Malone and members of his family. Under the terms
of the agreement, the Malones exchanged 21.8 million shares of
Class B common stock of the Company, which was all of the
outstanding Class B shares, for 26.5 million shares of Class A
common stock. The additional 4.7 million Class A common shares were
valued at approximately $160 million.
(6) DIRECTV Latin America subscriber data exclude subscribers of
the Sky Mexico service. Gross and net subscriber additions as well
as churn exclude the impact of the migration of approximately 3,000
subscribers to DIRECTV Latin America in the fourth quarter of 2009
and net 13,000 subscribers to DIRECTV Latin America during the full
year of 2009. Cumulative subscriber totals include the impact of
the migrated and acquired subscribers.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
NOTE: This release may include or incorporate by reference
certain statements that we believe are, or may be considered to be,
“forward-looking statements” within the meaning of various
provisions of the Securities Act of 1933 and of the Securities
Exchange Act of 1934. These forward-looking statements generally
can be identified by use of statements that include phrases such as
“believe,” “expect,” “estimate,” “anticipate,” “intend,” “plan,”
“project” or other similar words or phrases. Similarly, statements
that describe our objectives, plans or goals also are
forward-looking statements. All of these forward-looking statements
are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical results or from
those expressed or implied by the relevant forward-looking
statement. Such risks and uncertainties include, but are not
limited to: economic conditions; product demand and market
acceptance; ability to simplify aspects of our business model,
improve customer service, create new and desirable programming
content and interactive features, and achieve anticipated economies
of scale; government and regulatory action; local political or
economic developments in or affecting countries where we have
operations, including political, economic and social uncertainties
in many Latin American countries in which DTVLA operates; foreign
currency exchange rates; currency exchange controls; ability to
obtain export licenses; competition; the outcome of legal
proceedings; reliance on key executives and the loss thereof;
indemnification obligations; ability to achieve cost reductions;
increasing subscriber acquisition costs and subscriber churn;
ability of third parties to timely perform material contracts; an
NFL strike or lockout; ability to renew programming contracts under
favorable terms; technological risk; potential intellectual
property infringement; limitations on access to distribution
channels; natural disasters; the success and timeliness of
satellite launches; in-orbit performance of satellites, including
technical anomalies; loss of uninsured satellites; theft of
satellite programming signals; significant debt; and our ability to
access capital to maintain our financial flexibility. These factors
are also described in Item 1A of DIRECTV’s Form 10-K, quarterly
reports filed on Form 10-Q and other SEC filings. We urge you to
consider these factors carefully in evaluating the forward-looking
statements.
DIRECTV (NASDAQ:DTV) is the world’s leading provider of digital
television entertainment services. Through its subsidiaries and
affiliated companies in the United States, Brazil, Mexico and other
countries in Latin America, DIRECTV provides digital television
service to more than 19.2 million customers in the United States
and nearly 8.9 million customers in Latin America. DIRECTV sports
and entertainment properties include three regional sports networks
(Northwest, Rocky Mountain and Pittsburgh) as well as a 65 percent
ownership interest in Game Show Network. For more information on
DIRECTV, visit directv.com.
DIRECTV CONSOLIDATED STATEMENTS OF
OPERATIONS (Dollars in Millions, Except Per Share
Amounts) (Unaudited) Three Months Ended Twelve Months
Ended December 31, December 31, 2010
2009 2010 2009
Revenues $ 6,621 $
5,981 $ 24,102
$ 21,565 Operating costs and
expenses Costs of revenues, exclusive of depreciation and
amortization expense Broadcast programming and other 2,895 2,660
10,074 9,064 Subscriber service expenses 440 399 1,681 1,525
Broadcast operations expenses 91 87 350 341
Selling, general and administrative
expenses, exclusive of depreciation and amortization expense
Subscriber acquisition costs 812 697 3,005 2,773 Upgrade and
retention costs 316 273 1,169 1,092 General and administrative
expenses 383 371 1,445 1,457 Depreciation and amortization expense
622 632
2,482 2,640
Total operating costs
and expenses 5,559
5,119 20,206
18,892 Operating profit
1,062 862 3,896 2,673 Interest
income 11 16 39 41 Interest expense (161 ) (119 ) (557 ) (423 )
Liberty transaction and related gains (charges) - (491 ) 67 (491 )
Other, net 24 (33 )
69 34
Income before
income taxes 936 235 3,514 1,834
Income tax expense (253 ) (242 )
(1,202 ) (827 ) Net income 683
(7 ) 2,312 1,007 Less: Net income attributable to
noncontrolling interest (65 ) (25 ) (114 ) (65 )
Net income
(loss) attributable to DIRECTV $ 618
($32 ) $
2,198 $ 942
Net income (loss) attributable to DIRECTV
Class A common stockholders (DIRECTV Group common stockholders for
the period January 1, 2009 through November 19, 2009)
$ 618 ($32 ) $ 2,014 $ 942
Net income attributable to DIRECTV Class B
common stockholders, including $160 million exchange inducement
value for the Malone Transaction
- - 184
-
Net income (loss) attributable to
DIRECTV $ 618
($32 ) $ 2,198
$ 942
Basic earnings (loss) attributable to
DIRECTV Class A stockholders per common share (DIRECTV Group common
shares for the period January 1, 2009 through November 19,
2009)
$ 0.75 $ (0.03 ) $ 2.31 $ 0.96
Diluted earnings (loss) attributable to
DIRECTV Class A stockholders per common share (DIRECTV Group common
shares for the period January 1, 2009 through November 19,
2009)
0.74 (0.03 ) 2.30 0.95
Basic and diluted earnings (loss)
attributable to DIRECTV Class B stockholders per common share,
including $160 million exchange inducement value for the Malone
Transaction
- (0.02 ) 8.44 (0.02 ) Weighted average number of Class A
common shares outstanding (in millions) Basic 827 935 870 982
Diluted 833 935 876 989
Weighted average number of Class B common
shares outstanding, for the period of November 19, 2009 through
June 16, 2010 (in millions)
Basic - 22 22 22 Diluted - 22 22 22 Weighted average number
of total common shares outstanding (in millions) Basic 827 945 880
985 Diluted 833 945 886 992
DIRECTV
CONSOLIDATED BALANCE SHEETS (Dollars in
Millions) (Unaudited) December 31, December 31,
ASSETS 2010 2009
Current assets Cash and cash equivalents $ 1,502 $ 2,605
Accounts receivable, net of allowances of
$76 and $56
2,001 1,625 Inventories 247 212 Deferred income taxes 53 217
Prepaid expenses and other 450
396
Total current assets 4,253 5,055
Satellites,
net 2,235 2,338
Property and equipment, net 4,444 4,138
Goodwill 4,148 4,164
Intangible assets, net 1,074
1,131
Investments and other assets 1,755
1,434
Total assets
$ 17,909 $ 18,260
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities Accounts payable and accrued liabilities
$ 3,926 $ 3,757 Unearned subscriber revenues and deferred credits
486 434 Current portion of long-term debt 38
1,510
Total current liabilities 4,450
5,701
Long-term debt 10,472 6,500
Deferred income
taxes 1,670 1,070
Other liabilities and deferred credits
1,287 1,678
Commitments and contingencies Redeemable
noncontrolling interest 224 400
Stockholders' equity
(deficit) (194 ) 2,911
Total liabilities and stockholders' equity (deficit)
$ 17,909 $ 18,260
DIRECTV
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in
Millions) (Unaudited) Years Ended
December 31,
2010 2009
Cash Flows
From Operating Activities Net income $ 2,312 $ 1,007
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 2,482 2,640
Amortization of deferred revenues and deferred credits (36 ) (48 )
Net loss from impairment of investments - 45 Share-based
compensation expense 82 55 Equity in earnings from unconsolidated
affiliates (90 ) (51 ) Dividends received 78 94 Net foreign
currency transaction gains (11 ) (62 ) Liberty transaction and
related (gains) charges (67 ) 491 Deferred income taxes 375 441
Other 60 48 Change in other operating assets and liabilities:
Accounts receivable (391 ) (141 ) Inventories (35 ) (12 ) Prepaid
expenses and other (4 ) (5 ) Accounts payable and accrued
liabilities 437 (215 ) Unearned subscriber revenue and deferred
credits 52 55 Other, net (38 ) 89 Net
cash provided by operating activities 5,206
4,431
Cash Flows From Investing Activities
Cash paid for property and equipment (2,303 ) (2,012 ) Cash paid
for satellites (113 ) (59 ) Cash paid for Liberty transaction, net
of cash acquired - (97 ) Investment in companies, net of cash
acquired (617 ) (37 ) Other, net (66 ) 11
Net cash used in investing activities (3,099 )
(2,194 )
Cash Flows From Financing Activities Cash
proceeds from debt issuance 5,978 1,990 Debt issuance costs (44 )
(14 ) Repayment of long-term debt (2,323 ) (1,018 ) Proceeds from
short-term borrowings 38 - Repayment of collar loan and equity
collars (1,537 ) (751 ) Repayment of other long-term obligations
(127 ) (116 ) Common shares repurchased and retired (5,111 ) (1,696
) Stock options exercised 38 35 Taxes paid in lieu of shares issued
for share-based compensation (118 ) (72 ) Excess tax benefit from
share-based compensation 11 5 Dividends paid to redeemable
noncontrolling interest (15 ) - Net
cash used in financing activities (3,210 )
(1,637 ) Net increase (decrease) in cash and cash equivalents
(1,103 ) 600 Cash and cash equivalents at beginning of the period
2,605 2,005 Cash and cash
equivalents at the end of the period $ 1,502 $ 2,605
Supplemental Cash Flow Information Cash paid
for interest $ 460 $ 412 Cash paid for income taxes 705 484
DIRECTV SELECTED
SEGMENT DATA (Dollars in Millions) (Unaudited)
Three Months Ended Twelve Months Ended December 31, December 31,
2010 2009
2010 2009
DIRECTV U.S.
Revenues $ 5,531 $ 5,126 $ 20,268 $ 18,671 Operating profit before
depreciation and amortization (1) 1,324 1,275 5,216 4,685 Operating
profit before depreciation and amortization margin (1) 23.9 % 24.9
% 25.7 % 25.1 % Operating profit $ 863 $ 750 $ 3,290 $ 2,410
Operating profit margin 15.6 % 14.6 % 16.2 % 12.9 % Depreciation
and amortization $ 461 $ 525 $ 1,926 $ 2,275 Capital expenditures
440 343 1,557 1,485
DIRECTV LATIN
AMERICA Revenues $ 1,031 $ 839 $ 3,597 $ 2,878 Operating profit
before depreciation and amortization (1) 342 219 1,164 697
Operating profit before depreciation and amortization margin (1)
33.2 % 26.1 % 32.4 % 24.2 % Operating profit $ 185 $ 114 $ 623 $
331 Operating profit margin 17.9 % 13.6 % 17.3 % 11.5 %
Depreciation and amortization $ 157 $ 105 $ 541 $ 366 Capital
expenditures 230 179 857 584
SPORTS
NETWORKS, ELIMINATIONS and OTHER Revenues $ 59 $ 16 $ 237 $ 16
Operating profit (loss) before depreciation and amortization (1) 18
- (2 ) (69 ) Operating profit (loss) 14 (2 ) (17 ) (68 )
Depreciation and amortization 4 2 15 (1 ) Capital expenditures - 1
2 2
TOTAL Revenues $ 6,621 $ 5,981 $
24,102 $ 21,565 Operating profit before depreciation and
amortization (1) 1,684 1,494 6,378 5,313 Operating profit before
depreciation and amortization margin (1) 25.4 % 25.0 % 26.5 % 24.6
% Operating profit $ 1,062 $ 862 $ 3,896 $ 2,673 Operating profit
margin 16.0 % 14.4 % 16.2 % 12.4 % Depreciation and amortization $
622 $ 632 $ 2,482 $ 2,640 Capital expenditures 670 523 2,416 2,071
(1) See footnote 1
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions) (Unaudited) Three Months
Ended Twelve Months Ended December 31, December 31, 2010
2009 2010
2009
Revenues $ 5,531
$ 5,126 $
20,268 $ 18,671
Operating costs and expenses Costs of revenues, exclusive of
depreciation and amortization expense Broadcast programming and
other 2,541 2,359 8,699 8,027 Subscriber service expenses 341 322
1,340 1,268 Broadcast operations expenses 70 68 273 274 Selling,
general and administrative expenses, exclusive of depreciation and
amortization expense Subscriber acquisition costs 702 607 2,631
2,478 Upgrade and retention costs 291 260 1,106 1,045 General and
administrative expenses 262 235 1,003 894 Depreciation and
amortization expense 461 525
1,926 2,275
Total operating costs and expenses
4,668 4,376
16,978 16,261
Operating profit 863 750 3,290
2,410 Interest income 1 - 5 4 Interest expense (144 )
(94 ) (488 ) (348 ) Other, net 4
(4 ) (5 ) (17 )
Income before
income taxes 724 652 2,802 2,049
Income tax expense (240 ) (255 )
(1,051 ) (794 )
Net
income $ 484 $
397 $ 1,751
$ 1,255 DIRECTV HOLDINGS LLC
(DIRECTV U.S.) CONSOLIDATED BALANCE SHEETS
(Dollars in Millions) (Unaudited) December 31,
December 31,
ASSETS 2010
2009
Current assets Cash and cash equivalents $ 687 $
1,716
Accounts receivable, net of allowances of
$46 and $29
1,735 1,421 Inventories 227 200 Deferred income taxes - 60 Prepaid
expenses and other 187 163
Total current assets 2,836 3,560
Satellites,
net 1,794 1,870
Property and equipment, net 2,832 2,998
Goodwill 3,176 3,167
Intangible assets, net 495 582
Other assets 267
231
Total assets $ 11,400
$ 12,408
LIABILITIES AND OWNER’S EQUITY (DEFICIT)
Current liabilities Accounts
payable and accrued liabilities $ 2,977 $ 2,727 Unearned subscriber
revenues and deferred credits 378 353 Current portion of long-term
debt - 308
Total
current liabilities 3,355 3,388
Long-term debt 10,472
6,500
Deferred income taxes 906 559
Other liabilities and
deferred credits 288 510
Commitments and contingencies
Owner’s equity (deficit) (3,621 )
1,451
Total liabilities and owner’s equity
(deficit) $ 11,400 $ 12,408
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in
Millions) (Unaudited) Years Ended
December 31,
2010 2009
Cash
Flows From Operating Activities Net income $ 1,751 $ 1,255
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization expense 1,926
2,275 Amortization of deferred revenues and deferred credits (36 )
(48 ) Share-based compensation expense 67 44 Deferred income taxes
278 229 Other 20 20 Change in other operating assets and
liabilities: Accounts receivable (329 ) (121 ) Inventories (27 )
(10 ) Prepaid expenses and other (26 ) 98 Accounts payable and
accrued liabilities 245 (76 ) Unearned subscriber revenue and
deferred credits 25 33 Other, net 11
(8 ) Net cash provided by operating activities
3,905 3,691
Cash Flows From
Investing Activities Cash paid for property and equipment (477
) (443 ) Cash paid for subscriber leased equipment - subscriber
acquisitions (651 ) (564 ) Cash paid for subscriber leased
equipment - upgrade and retention (316 ) (419 ) Cash paid for
satellites (113 ) (59 ) Investment in companies, net of cash
acquired (1 ) (11 ) Other 3 -
Net cash used in investing activities (1,555 )
(1,496 )
Cash Flows From Financing Activities
Cash proceeds from debt issuance 5,978 1,990 Debt issuance costs
(44 ) (14 ) Repayment of long-term debt (2,323 ) (1,018 ) Repayment
of other long-term obligations (99 ) (90 ) Cash dividends to Parent
(6,900 ) (2,500 ) Excess tax benefit from share-based compensation
9 4 Net cash used in
financing activities (3,379 ) (1,628 )
Net increase (decrease) in cash and cash equivalents (1,029 ) 567
Cash and cash equivalents at beginning of the period
1,716 1,149 Cash and cash equivalents
at end of the period $ 687 $ 1,716
Supplemental Cash Flow Information Cash paid for
interest $ 392 $ 341 Cash paid for income taxes 775 529
Non-GAAP Financial Measure Reconciliation Schedules
(Unaudited)
DIRECTV Reconciliation of
Operating Profit Before Depreciation and Amortization to Operating
Profit* Three Months Ended Twelve Months Ended
December 31, December 31, 2010
2009 2010
2009 (Dollars in Millions) Operating Profit
Before Depreciation and Amortization $ 1,684 $ 1,494 $ 6,378 $
5,313 Subtract: Depreciation and amortization expense 622
632 2,482
2,640 Operating Profit $ 1,062 $ 862 $
3,896 $ 2,673
*For a reconciliation of this
non-GAAP financial measure for each of our segments, please see the
Notes to the Consolidated Financial Statements which will be
included in DIRECTV's Annual Report on Form 10-K for the year ended
December 31, 2010, which is expected to be filed with the SEC
before March 1, 2011.
DIRECTV Reconciliation of Cash Flow Before
Interest and Taxes3 and Free Cash Flow4
to Net Cash Provided by Operating Activities Three
Months Ended Twelve Months Ended December 31,
December 31, 2010 2009
2010 2009
(Dollars in Millions) Cash Flow Before Interest and Taxes $
964 $ 1,005 $ 3,916 $ 3,215 Adjustments: Cash paid for interest
(160 ) (138 ) (460 ) (412 ) Interest income 11 16 39 41 Income
taxes paid (104 ) (173 ) (705 )
(484 ) Subtotal - Free Cash Flow 711 710 2,790 2,360 Add
Cash Paid For: Property and equipment 656 504 2,303 2,012
Satellites 14 19 113
59 Net Cash Provided by Operating
Activities $ 1,381 $ 1,233 $ 5,206
$ 4,431
DIRECTV Reconciliation of Consolidated DIRECTV
Adjusted Diluted EPS to Diluted EPS Three Months Ended
Twelve Months Ended December 31, December 31,
2010 2009
2010 2009 Adjusted
Diluted EPS $ 0.74 $ 0.48 $ 2.48 $ 1.44 Impact of Liberty
Transaction and related charges in 2009 - (0.51 ) - (0.49 ) Impact
of Malone Transaction in 20105 - -
(0.18 ) - Diluted EPS $ 0.74
($0.03 ) $ 2.30 $ 0.95
DIRECTV Latin
America Reconciliation of Cash Flow Before Interest and
Taxes3 and Free Cash Flow4 to
Net Cash Provided by Operating Activities Three Months
Ended Twelve Months Ended December 31,
December 31, 2010 2009
2010 2009
(Dollars in Millions) Cash Flow Before Interest and Taxes $
111 $ 15 $ 397 $ 259 Adjustments: Cash paid for interest (14 ) (15
) (58 ) (63 ) Interest income 10 16 33 35 Income taxes paid
(48 ) (29 ) (154 ) (126 )
Subtotal - Free Cash Flow 59 (13 ) 218 105 Add Cash Paid For:
Property and equipment 230 179
857 584 Net Cash Provided by
Operating Activities $ 289 $ 166 $ 1,075
$ 689
(3), (4) and (5) - See footnotes
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
Non-GAAP Financial Measure Reconciliation and SAC
Calculation (Unaudited)
Reconciliation of Pre-SAC
Margin* to Operating Profit Three Months Ended Twelve
Months Ended December 31, December 31,
2010 2009 2010
2009 (Dollars in Millions)
Operating Profit $ 863 $ 750 $ 3,290 $ 2,410 Adjustments:
Subscriber acquisition costs (expensed) 702 607 2,631 2,478
Depreciation and amortization expense 461 525 1,926 2,275 Cash paid
for subscriber leased equipment - upgrade and retention (84
) (98 ) (316 ) (419 )
Pre-SAC margin* $ 1,942 $ 1,784 $ 7,531
$ 6,744 Pre-SAC margin as a percentage of
revenue* 35.1 % 34.8 % 37.2 % 36.1 %
Reconciliation of Cash Flow Before Interest
and Taxes3 and Free Cash Flow4 to
Net Cash Provided by Operating Activities Three Months
Ended Twelve Months Ended December 31,
December 31, 2010 2009
2010 2009
(Dollars in Millions) Cash Flow Before Interest and Taxes $
847 $ 989 $ 3,510 $ 3,072 Adjustments: Cash paid for interest (144
) (117 ) (392 ) (341 ) Interest income 1 - 5 4 Income taxes paid
(58 ) (154 )
(775 ) (529 ) Subtotal -
Free Cash Flow 646 718 2,348 2,206 Add Cash Paid For: Property and
equipment 128 107 477 443 Subscriber leased equipment - subscriber
acquisitions 214 119 651 564 Subscriber leased equipment - upgrade
and retention 84 98 316 419 Satellites 14
19 113 59 Net Cash
Provided by Operating Activities $ 1,086 $ 1,061
$ 3,905 $ 3,691
(3) and (4) - See footnotes
* Pre-SAC Margin, which is a financial
measure that is not determined in accordance with accounting
principles generally accepted in the United States of America, or
GAAP, is calculated for DIRECTV U.S. by adding amounts under the
captions “Subscriber acquisition costs” and “Depreciation and
amortization expense” to “Operating Profit” from the Consolidated
Statements of Operations and subtracting "Cash paid for subscriber
leased equipment - upgrade and retention" from the Consolidated
Statements of Cash Flows. This financial measure should be used in
conjunction with GAAP financial measures and is not presented as an
alternative measure of operating results, as determined in
accordance with GAAP. DIRECTV and DIRECTV U.S. management use
Pre-SAC Margin to evaluate the profitability of DIRECTV U.S.’
current subscriber base for the purpose of allocating resources to
discretionary activities such as adding new subscribers, upgrading
and retaining existing subscribers and for capital expenditures. To
compensate for the exclusion of “Subscriber acquisition costs,”
management also uses operating profit and operating profit before
depreciation and amortization expense to measure profitability.
DIRECTV and DIRECTV U.S. believe this measure is useful to
investors, along with GAAP measures (such as revenues, operating
profit and net income), to compare DIRECTV U.S.’ operating
performance to other communications, entertainment and media
companies. DIRECTV and DIRECTV U.S. believe that investors also use
current and projected Pre-SAC Margin to determine the ability of
DIRECTV U.S.’ current and projected subscriber base to fund
discretionary spending and to determine the financial returns for
subscriber additions.
SAC Calculation Three Months Ended Twelve
Months Ended December 31, December 31,
2010 2009 2010
2009 (Dollars in Millions, Except
SAC Amounts) Subscriber acquisition costs (expensed) $
702 $ 607 $ 2,631 $ 2,478 Cash paid for subscriber leased equipment
- subscriber acquisitions 214
119 651
564 Total acquisition costs $ 916
$ 726 $
3,282 $ 3,042 Gross subscriber
additions (000's) 1,116 964 4,124 4,273 Average subscriber
acquisition costs-per subscriber (SAC) $ 821 $ 753 $ 796 $ 712
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