DIRECTV (NASDAQ:DTV) today reported an increase in third quarter
2012 revenues of 8% to $7.42 billion, operating profit before
depreciation and amortization1 (OPBDA) of 6% to $1.69 billion and
operating profit of 4% to $1.07 billion compared to last year's
third quarter. DIRECTV reported an increase in third quarter net
income of 9% to $565 million and diluted earnings per share of 29%
to $0.90 compared with the same period last year.
“DIRECTV delivered another strong quarter highlighted by solid
revenue, earnings and cash flow growth,” said Mike White, president
and CEO of DIRECTV. “We continue to extend our position as the
world's largest pay TV service with industry leading growth by
leveraging the strength of our premier brands and distinctive
products and services throughout the Americas." White added,
"DIRECTV U.S.' third quarter results reflect successful execution
of our long-term strategy to strike a more optimal balance between
our top and bottom lines while DIRECTV Latin America continues to
profitably increase market share in the rapidly growing Latin
America pay-TV market by offering best-in-class service to both the
advanced and middle market segments.”
DIRECTV's Operational Review
Third Quarter Review
DIRECTV's third quarter revenues of $7.42 billion increased 8%
principally due to subscriber growth at DIRECTV Latin America
(DTVLA) and DIRECTV U.S., as well as higher ARPU at DIRECTV U.S.
Operating profit before depreciation and amortization (OPBDA)
increased 6% to $1.69 billion and operating profit increased 4% to
$1.07 billion in the quarter compared with the same period last
year. OPBDA and operating profit margin declined slightly in the
quarter primarily due to higher customer service and general and
administrative expenses at DTVLA. Also in the quarter, DIRECTV U.S.
OPBDA and operating profit margins were higher as lower subscriber
acquisition and general and administrative expenses, as well as
relatively unchanged upgrade and retention costs were partially
offset by increased programming costs including an extra week of
NFL Sunday Ticket expense.
DIRECTV Consolidated Dollars
in Millions except Earnings per Common Share
Three Months Ended
September 30,
Nine Months Ended
September 30,
2012 2011
2012 2011 Revenues
$ 7,416 $ 6,844
$ 21,686 $ 19,763
Operating Profit Before Depreciation and Amortization(1) 1,686
1,584 5,598 5,196 OPBDA Margin(1)
22.7 % 23.1 %
25.8 % 26.3 % Operating Profit 1,068
1,030 3,787 3,415 Operating Profit Margin 14.4
% 15.0 % 17.5 %
17.3 % Net Income Attributable to DIRECTV
565 516
2,007 1,891
Diluted Earnings Per Common Share 0.90
0.70 3.06
2.47
Capital Expenditures and Cash
Flow
Cash paid for property and equipment
178 188
546 464 Cash paid for
subscriber leased equipment - subscriber acquisitions
379 470
1,081 1,155 Cash paid for
subscriber leased equipment - upgrade and retention
186 206
533 541 Cash paid for
satellites 47 108
231 156
Cash Flow Before Interest and Taxes(2)
957 788
3,293 2,685 Free Cash Flow(3)
319 235
1,742 1,295
Net income attributable to DIRECTV increased 9% to $565 million
and diluted earnings per share improved 29% to $0.90 compared with
the third quarter of last year primarily due to the higher
operating profit as well as a $72 million pre-tax non-cash loss in
the third quarter of 2011 associated with the revaluation of U.S.
dollar denominated net liabilities in Brazil. These changes were
partially offset by higher income taxes in 2012 driven by higher
pre-tax income and a lower effective tax rate in 2011 resulting
from foreign tax credits not previously recognized. In addition,
diluted earnings per share were favorably impacted by share
repurchases made over the last twelve months.
Cash flow before interest and taxes2 increased 21% to $957
million and free cash flow3 increased 36% to $319 million compared
to the third quarter of 2011 primarily due to lower capital
expenditures and the higher OPBDA, partially offset by lower cash
generated from working capital mostly due to the timing of
receivables at DIRECTV U.S. Capital expenditures decreased
principally due to a reduction in leased equipment and satellite
payments at DIRECTV U.S. and DTVLA. Free cash flow was also
impacted by higher net interest payments primarily due to an
increase in average net debt balances. Also during the quarter but
not included in free cash flow was cash paid for share repurchases
of $1.22 billion. In September 2012, DIRECTV U.S. issued
£750 million (~$1.2 billion) principal amount of 4.375% Senior
Notes due 2029 and also entered into two senior unsecured revolving
credit agreements - a $1.0 billion 3.5 year credit facility and a
$1.5 billion 5 year credit facility - to replace a $2.0 billion
credit agreement that was terminated during the month. Both were
undrawn as of the end of the quarter.
Year to Date Review
DIRECTV's revenues for the first nine months of 2012 of $21.69
billion increased 10% principally due to subscriber growth over the
last year at DTVLA and DIRECTV U.S., as well as higher ARPU at
DIRECTV U.S. DIRECTV's year to date OPBDA increased 8% to $5.60
billion and operating profit increased 11% to $3.79 billion
compared with the same period of 2011. OPBDA margin declined in the
period primarily due to increased customer service, upgrade and
retention and subscriber acquisition costs at DTVLA. Also in the
period, DIRECTV U.S. OPBDA and operating profit margins were
slightly higher as lower subscriber acquisition costs and
relatively unchanged customer service spending was mostly offset by
higher programming costs. Operating profit margin was also
favorably impacted by lower depreciation expense at DIRECTV U.S.
primarily driven by an increase in the estimated depreciable life
of HD set-top boxes from three years to four years implemented in
July 2011.
Net income attributable to DIRECTV increased 6% to $2.01 billion
and diluted earnings per share improved 24% to $3.06 compared with
the first nine months of 2011 primarily due to the higher operating
profit and a $24 million increase in equity earnings, mostly from
Sky Mexico. These were partially offset by higher income tax
expense principally related to the increased earnings before tax
and a lower effective tax rate in 2011 resulting from foreign tax
credits not previously recognized, as well as higher interest
expense resulting from higher average debt balances. Also
negatively impacting the 2012 comparison was a $52 million
reduction in pre-tax gains resulting from the sale of investments
and a $39 million increase in charges associated with the early
retirement of debt. In addition, diluted earnings per share were
favorably impacted by share repurchases made over the last twelve
months.
Cash flow before interest and taxes increased 23% to $3.29
billion and free cash flow increased 35% to $1.74 billion compared
to the first nine months of 2011 primarily due to the higher OPBDA
as well as an increase in cash generated from working capital
mostly related to the timing of customer receipts at DIRECTV U.S.
These increases were partially offset by greater capital
expenditures principally driven by increased satellite payments at
both DIRECTV U.S. and DTVLA, and higher infrastructure investment
at DTVLA (including $51 million towards the purchase of a building
in Venezuela) partially offset by lower capital expenditures on
leased equipment at DIRECTV U.S. primarily resulting from the lower
gross additions. The year over year comparison also reflects
decreases of $92 million and $69 million for the sale of
investments and dividend receipts, respectively. In addition, free
cash flow was impacted by higher interest payments related to an
increase in long-term debt. Also during the first nine months of
2012 but not included in free cash flow, was cash paid for share
repurchases of $3.83 billion. In addition, in March 2012
DIRECTV U.S. issued $4.0 billion of debt consisting of $1.25
billion in 2.40% Senior Notes due 2017, $1.5 billion in 3.80%
Senior Notes due 2022 and $1.25 billion in 5.15% Senior Notes due
2042. In May 2012, DIRECTV redeemed $1.5 billion of its outstanding
7.625% Senior Notes due 2016. In September 2012, DIRECTV U.S.
issued £750 million (~$1.2 billion) principal amount of 4.375%
Senior Notes due 2029 and also entered into two senior unsecured
revolving credit agreements totaling $2.5 billion to replace a $2.0
billion credit agreement that was terminated during the month. Both
revolving credit agreements were undrawn as of the end of the
period.
SEGMENT FINANCIAL REVIEW
DIRECTV U.S. Segment
Third Quarter Review
In the quarter, DIRECTV U.S. revenues increased 6% to $5.77
billion compared with the third quarter of 2011 primarily due to
strong ARPU growth and a larger subscriber base. Net subscriber
growth of 67,000 decreased from the prior year period principally
due to lower gross subscriber additions as well as an increase in
the average monthly churn rate. Gross additions declined mainly due
to a greater focus on higher quality subscribers and stricter
credit policies, as well as lower contributions from the Telco
sales channel. The higher churn rate in the quarter was principally
driven by a contract dispute with a large programmer that resulted
in the removal of several channels for nine days in the third
quarter. ARPU increased 4.6% to $96.41 mostly due to price
increases on programming packages, higher advanced service fees and
an additional week of NFL Sunday Ticket revenues in the quarter,
partially offset by increased promotional offers to new and
existing customers. DIRECTV U.S. ended the quarter with 19.98
million subscribers compared with 19.76 million subscribers
reported for the quarter ended September 30, 2011.
DIRECTV U.S.
Three Months Ended
September 30,
Nine Months Ended
September 30,
Dollars in Millions except ARPU 2012
2011 2012
2011 Revenues $ 5,769
$ 5,421 $ 16,915
$ 15,843 Average Monthly Revenue per
Subscriber (ARPU) ($) 96.41
92.21 94.27
90.48 Operating Profit Before Depreciation and
Amortization(1) 1,251 1,153 4,246
3,962 OPBDA Margin(1) 21.7 %
21.3 % 25.1 %
25.0 % Operating Profit 876 800 3,130 2,737 Operating
Profit Margin 15.2 % 14.8
% 18.5 % 17.3 %
Capital Expenditures and Cash Flow
Cash paid for property and equipment
137 159
377 404
Cash paid for subscriber leased equipment - subscriber acquisitions
184 222
462 546
Cash paid for subscriber leased equipment - upgrade and retention
79 91
209 236
Cash paid for satellites 23
35 139
83 Cash Flow Before Interest and Taxes(2)
861 744
3,018 2,357
Free Cash Flow(3) 275
267 1,773
1,155
Subscriber Data (in 000's except Churn)
Gross Subscriber
Additions 1,107
1,280 2,911
3,286 Average Monthly Subscriber Churn
1.74 % 1.62 % 1.57 %
1.57 % Net Subscriber Additions
67 327
96 537 Cumulative
Subscribers 19,981
19,760 19,981
19,760
Third quarter OPBDA increased 8% to $1.25 billion and OPBDA
margin improved to 21.7% principally due to lower subscriber
acquisition costs related to the reduction in gross additions,
reduced general and administrative expenses primarily due to lower
bad debt expense and relatively unchanged retention and upgrade
costs. These improvements were partially offset by higher
programming costs mostly related to programming supplier rate
increases, as well as an extra week of NFL Sunday Ticket expense in
the quarter. Operating profit increased 10% to $876 million and
operating profit margin increased to 15.2% in the third quarter
mainly due to the OPBDA and OPBDA margin improvements.
DIRECTV Latin America
DIRECTV Latin America owns approximately 93% of Sky Brasil, 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 4.88 million subscribers
as of September 30, 2012, bringing the total subscribers in
the region to 14.55 million.
DIRECTV Latin America
Three Months Ended
September 30,
Nine Months Ended
September 30,
Dollars in Millions except ARPU 2012
2011 2012
2011 Revenues $ 1,577
$ 1,356 $ 4,570
$ 3,724 Average Monthly Revenue per
Subscriber (ARPU) ($) 55.97
64.63 57.83
63.58 Operating Profit Before Depreciation and
Amortization(1) 455 434 1,368
1,241 OPBDA Margin(1) 28.9 %
32.0 % 29.9 %
33.3 % Operating Profit 221 236 694 696 Operating Profit
Margin 14.0 % 17.4 %
15.2 % 18.7 %
Capital
Expenditures and Cash Flow
Cash paid for property and equipment
40 28
167 54 Cash paid for
subscriber leased equipment - subscriber acquisitions
195 248
619 609 Cash paid for
subscriber leased equipment - upgrade and retention
107 115
324 305 Cash paid for
satellites 22 74
86 74
Cash Flow Before Interest and Taxes(2)
81 32 238
329 Free Cash Flow(3)
15 (23 )
(5 ) 124
Subscriber
Data(4) (in 000's except Churn)
Gross Subscriber Additions
1,081 957
3,234 2,545
Average Monthly Total Subscriber Churn 1.91 %
1.83 % 1.84 %
1.83 % Average Monthly Post-paid Subscriber Churn
1.54 % 1.39 %
1.51 % 1.42 % Net Subscriber
Additions 543 574
1,781 1,473
Cumulative Subscribers 9,666
7,281 9,666
7,281
Third Quarter Review
In the third quarter, DTVLA revenues increased 16% to $1.58
billion compared to the same period last year principally due to
strong subscriber growth partially offset by a 13.4% decline in
ARPU. Net additions of 543,000 were modestly lower than the year
ago period as increased gross additions were more than offset by
higher average monthly churn on the larger subscriber base. Gross
additions increased 13% to a third quarter record of 1.08 million
principally due to greater middle market demand across the region,
most notably in Argentina, Colombia and Brazil. Also in the
quarter, average monthly post-paid churn increased to 1.54% and
total average monthly churn increased to 1.91% primarily driven by
higher churn in Brazil mostly related to the increased penetration
of middle market subscribers. The decline in ARPU to $55.97 was due
to unfavorable exchange rates, mainly in Brazil and Argentina.
Excluding the impact of exchange rates, ARPU increased slightly in
the quarter principally due to price increases and more upgrades
including advanced services, partially offset by the higher
penetration of lower ARPU middle market subscribers.
DIRECTV Latin America's third quarter 2012 OPBDA increased 5% to
$455 million compared to the year ago period. OPBDA margin declined
due in part to higher customer service expenses reflecting the
larger subscriber base in both Brazil and PanAmericana, as well as
higher costs related to serving middle market customers in Brazil.
Also impacting the comparison in PanAmericana was higher general
and administrative and subscriber services costs mostly resulting
from inflationary pressure on labor costs, increased programming
costs principally associated with the Olympics, as well as higher
subscriber acquisition costs driven by record prepaid gross
additions. Third quarter operating profit declined 6% to $221
million and operating profit margin declined primarily due to the
lower OPBDA margin.
CONFERENCE CALL INFORMATION
A live webcast of DIRECTV's third quarter 2012 earnings call
will be available on the company's website at
www.directv.com/investor. The webcast will begin at 2:00 p.m. ET,
today November 6, 2012. Access to the earnings call is also
available in the United States by dialing (888) 219-1420 and
internationally by dialing (913) 312-0420. The conference ID number
is 4983786. 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 4983786. The replay will be available from 3:00 p.m.
PT, Tuesday, November 6 through 9:59 p.m. PT, Tuesday, November 13,
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 DIRECTV's Annual Report on Form 10-K for the year ended
December 31, 2011 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) 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
management uses 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. We 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.
(3) 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 management uses 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. We 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.
(4) DIRECTV Latin America subscriber data exclude subscribers of
the Sky Mexico service. In addition, DTVLA gross and net additions
exclude 7,000 video subscribers acquired in the third quarter, 2012
and 14,000 video subscribers acquired in the first nine months of
2012 in recent transactions. DTVLA cumulative subscriber counts
include these acquired customers.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
NOTE: This presentation 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 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: increased competition; increasing programming costs and
our ability to renew programming contracts under favorable terms;
increased subscriber churn or subscriber upgrade and retention
costs; potential material increase in subscriber acquisition costs;
general economic conditions; risks associated with doing business
internationally, which for DIRECTV Latin America include political
and economic instability and foreign currency exchange rate
volatility and controls; pace of technological development;
potential intellectual property infringement; loss of key
personnel; satellite construction or launch delays; satellite
launch and operational risks; loss of a satellite; theft of
satellite programming signals; U.S. and foreign governmental and
regulatory action; ability to maintain licenses and regulatory
approvals; significant debt; indemnification obligations; reliance
on network and information systems; and the outcome of legal
proceedings. We may face other risks described from time to time in
periodic reports filed by us with the U.S. Securities and Exchange
Commission.
DIRECTV (NASDAQ:DTV) is one of the world's leading providers 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 nearly 20 million customers in the United
States and over 14.5 million customers in Latin America. DIRECTV
sports and entertainment properties include three regional sports
networks (Northwest, Rocky Mountain and Pittsburgh) as well as a 60
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
EndedSeptember 30, Nine Months EndedSeptember
30, 2012 2011 2012
2011 Revenues
$ 7,416 $ 6,844
$ 21,686 $
19,763
Operating costs and expenses Costs of
revenues, exclusive of depreciation and amortization expense
Broadcast programming and other 3,288 2,926 9,249 8,212 Subscriber
service expenses 566 500 1,592 1,415 Broadcast operations expenses
103 99 310 289 Selling, general and administrative expenses,
exclusive of depreciation and amortization expense Subscriber
acquisition costs 944 962 2,549 2,524 Upgrade and retention costs
382 365 1,056 973 General and administrative expenses 447 408 1,332
1,154 Depreciation and amortization expense
618 554
1,811 1,781
Total operating costs and expenses
6,348 5,814
17,899 16,348
Operating profit 1,068 1,030 3,787 3,415 Interest income 17
9 40 25 Interest expense (204 ) (194 ) (622 ) (569 ) Other, net
39 (38 )
13 74
Income before income taxes 920 807 3,218 2,945 Income
tax expense (348 ) (286 )
(1,189 )
(1,032 ) Net income 572 521 2,029 1,913 Less: Net income
attributable to noncontrolling interest (7 )
(5 ) (22 )
(22 )
Net income attributable to
DIRECTV $ 565
$ 516 $ 2,007
$ 1,891
Basic earnings
attributable to DIRECTV per common share $ 0.91 $ 0.70 $ 3.08 $
2.48
Diluted earnings attributable to DIRECTV per common
share $ 0.90 $ 0.70 $ 3.06 $ 2.47 Weighted average
number of common shares outstanding (in millions): Basic 624 732
651 762 Diluted 629 737 655 767
DIRECTV CONSOLIDATED BALANCE SHEETS (Dollars in
Millions) (Unaudited) ASSETS
September 30, 2012
December 31, 2011 Current
assets Cash and cash equivalents $ 2,421 $ 873 Accounts
receivable, net of allowances of $91 and $79 2,583 2,474
Inventories 377 280 Deferred income taxes 66 62 Prepaid expenses
and other 383
552
Total
current assets 5,830 4,241
Satellites, net 2,288 2,215
Property and equipment, net 5,706 5,223
Goodwill
4,066 4,097
Intangible assets, net 821 909
Investments
and other assets 1,642
1,738
Total assets $ 20,353
$
18,423
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities $ 4,203 $ 4,210 Unearned
subscriber revenues and deferred credits 674
533
Total current liabilities 4,877 4,743
Long-term debt 17,162 13,464
Deferred income taxes
1,672 1,771
Other liabilities and deferred credits 1,377
1,287
Commitments and contingencies Redeemable
noncontrolling interest 265 265
Stockholders' deficit
(5,000 )
(3,107 )
Total liabilities and
stockholders' deficit $ 20,353
$
18,423
DIRECTV
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in
Millions) (Unaudited) Nine Months
EndedSeptember 30,
2012
2011 Cash Flows From Operating Activities Net income
$ 2,029 $ 1,913 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization
expense 1,811 1,781 Amortization of deferred revenues and deferred
credits (54 ) (27 ) Share-based compensation expense 77 76 Equity
in earnings from unconsolidated affiliates (107 ) (83 ) Net foreign
currency transaction (gain) loss 32 46 Dividends received 28 97
Gain on sale of investments (11 ) (63 ) Deferred income taxes 41
179 Excess tax benefit from share-based compensation (30 ) (25 )
Other 76 32 Change in other operating assets and liabilities:
Accounts receivable 15 (104 ) Inventories (97 ) (66 ) Prepaid
expenses and other 146 (140 ) Accounts payable and accrued
liabilities (143 ) (126 ) Unearned subscriber revenue and deferred
credits 139 74 Other, net 181
47 Net cash
provided by operating activities 4,133
3,611
Cash Flows From Investing Activities Cash paid for
property and equipment (2,160 ) (2,160 ) Cash paid for satellites
(231 ) (156 ) Investment in companies, net of cash acquired (4 )
(11 ) Proceeds from sale of investments 24 116 Other, net
25
41 Net cash used in investing activities
(2,346 )
(2,170 )
Cash Flows From Financing
Activities Cash proceeds from debt issuance 5,190 3,990 Debt
issuance costs (35 ) (30 ) Repayment of long-term debt (1,500 )
(1,000 ) Proceeds from borrowings under revolving credit facility
400 — Repayment of borrowings under revolving credit facility (400
) — Repayment of short-term borrowings — (39 ) Repayment of other
long-term obligations (40 ) (171 ) Common shares repurchased and
retired (3,828 ) (4,366 ) Stock options exercised 2 — Taxes paid in
lieu of shares issued for share-based compensation (58 ) (55 )
Excess tax benefit from share-based compensation
30
25 Net cash used in financing activities
(239 )
(1,646 ) Net increase in cash and cash equivalents
1,548 (205 ) Cash and cash equivalents at beginning of the period
873
1,502 Cash and cash equivalents at end
of the period $ 2,421
$ 1,297
Supplemental Cash Flow Information Cash paid for interest $
710 $ 562 Cash paid for income taxes 881 853
DIRECTV SELECTED SEGMENT
DATA (Dollars in Millions) (Unaudited)
Three Months EndedSeptember 30, Nine Months
EndedSeptember 30,
2012 2011
2012 2011
DIRECTV U.S. Revenues $ 5,769 $ 5,421 $ 16,915 $ 15,843
Operating profit before depreciation and
amortization(1)
1,251 1,153 4,246 3,962
Operating profit before depreciation and
amortization margin(1)
21.7 % 21.3 % 25.1 % 25.0 % Operating profit $ 876 $ 800 $ 3,130 $
2,737 Operating profit margin 15.2 % 14.8 % 18.5 % 17.3 %
Depreciation and amortization $ 375
$ 353
$ 1,116 $ 1,225
SKY BRASIL Revenues $ 868 $ 813 $ 2,587 $ 2,212
Operating profit before depreciation and
amortization(1)
255 258 802 731
Operating profit before depreciation and
amortization margin(1)
29.4 % 31.7 % 31.0 % 33.0 % Operating profit $ 122 $ 136 $ 399 $
403 Operating profit margin 14.1 % 16.7 % 15.4 % 18.2 %
Depreciation and amortization $ 133
$ 122
$ 403 $ 328
PANAMERICANA Revenues $ 709 $ 543 $ 1,983 $ 1,512
Operating profit before depreciation and
amortization(1)
200 176 566 510
Operating profit before depreciation and
amortization margin(1)
28.2 % 32.4 % 28.5 % 33.7 % Operating profit $ 99 $ 100 $ 295 $ 293
Operating profit margin 14.0 % 18.4 % 14.9 % 19.4 % Depreciation
and amortization $ 101
$ 76 $ 271
$ 217
SPORTS NETWORKS,
ELIMINATIONS and OTHER Revenues $ 70 $ 67 $ 201 $ 196
Operating profit (loss) before
depreciation and amortization(1)
(20 ) (3 ) (16 ) (7 ) Operating profit (loss) (29 ) (6 ) (37 ) (18
) Depreciation and amortization 9
3 21
11
TOTAL Revenues
$ 7,416 $ 6,844 $ 21,686 $ 19,763
Operating profit before depreciation and
amortization(1)
1,686 1,584 5,598 5,196
Operating profit before depreciation and
amortization margin(1)
22.7 % 23.1 % 25.8 % 26.3 % Operating profit $ 1,068 $ 1,030 $
3,787 $ 3,415 Operating profit margin 14.4 % 15.0 % 17.5 % 17.3 %
Depreciation and amortization $ 618
$ 554
$ 1,811 $ 1,781
(1) See footnote 1 above
DIRECTV
HOLDINGS LLC (DIRECTV U.S.) CONSOLIDATED STATEMENTS OF
OPERATIONS (Dollars in Millions) (Unaudited)
Three Months EndedSeptember 30, Nine Months
EndedSeptember 30, 2012
2011 2012 2011
Revenues $ 5,769
$ 5,421 $ 16,915
$ 15,843
Operating
costs and expenses Costs of revenues, exclusive of depreciation
and amortization expense Broadcast programming and other 2,685
2,411 7,549 6,818 Subscriber service expenses 390 375 1,096 1,081
Broadcast operations expenses 74 75 229 224 Selling, general and
administrative expenses, exclusive of depreciation and amortization
expense Subscriber acquisition costs 757 793 2,017 2,101 Upgrade
and retention costs 340 332 930 889 General and administrative
expenses 272 282 848 768 Depreciation and amortization expense
375 353
1,116
1,225
Total operating costs and expenses
4,893 4,621
13,785
13,106
Operating profit 876 800 3,130 2,737
Interest income 1 — 1 1 Interest expense (189 ) (177 ) (577 ) (519
) Other, net 17 6
(39 )
29
Income before income taxes 705 629 2,515
2,248 Income tax expense (266 )
(237 ) (936 )
(848 )
Net income
$ 439 $ 392
$ 1,579
$ 1,400
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED BALANCE SHEETS (Dollars in Millions)
(Unaudited) ASSETS
September 30, 2012
December 31, 2011 Current assets Cash
and cash equivalents $ 692 $ 232 Accounts receivable, net of
allowances of $56 and $51 2,111 2,126 Inventories 341 253 Prepaid
expenses and other 178
419
Total
current assets 3,322 3,030
Satellites, net 1,752 1,724
Property and equipment, net 3,185 3,084
Goodwill
3,177 3,177
Intangible assets, net 456 461
Other
assets 266
320
Total assets
$ 12,158
$ 11,796
LIABILITIES
AND OWNER's DEFICIT
Current
liabilities Accounts payable and accrued liabilities $ 3,028 $
3,226 Unearned subscriber revenues and deferred credits
490
377
Total current liabilities 3,518
3,603
Long-term debt 17,162 13,464
Deferred income
taxes 1,338 1,321
Other liabilities and deferred credits
336 239
Commitments and contingencies Owner's deficit
(10,196 )
(6,831 )
Total liabilities and owner's
deficit $ 12,158
$ 11,796
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in
Millions) (Unaudited) Nine Months
EndedSeptember 30,
2012
2011 Cash Flows From Operating Activities Net income
$ 1,579 $ 1,400 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization
expense 1,116 1,225 Amortization of deferred revenues and deferred
credits (54 ) (27 ) Share-based compensation expense 61 62 Deferred
income taxes 86 281 Excess tax benefit from share-based
compensation (25 ) (21 ) Other 21 (34 ) Change in other operating
assets and liabilities: Accounts receivable 92 (42 ) Inventories
(88 ) (59 ) Prepaid expenses and other 242 (177 ) Accounts payable
and accrued liabilities (251 ) (220 ) Unearned subscriber revenue
and deferred credits 111 46 Other, net 70
(10
) Net cash provided by operating activities
2,960
2,424
Cash Flows From Investing Activities
Cash paid for property and equipment (377 ) (404 ) Cash paid for
subscriber leased equipment - subscriber acquisitions (462 ) (546 )
Cash paid for subscriber leased equipment - upgrade and retention
(209 ) (236 ) Cash paid for satellites (139 ) (83 ) Investment in
companies, net of cash acquired (1 ) (11 ) Proceeds from sale of
investments 24 55 Other, net (1 )
1 Net cash
used in investing activities (1,165 )
(1,224 )
Cash
Flows From Financing Activities Cash proceeds from debt
issuance 5,190 3,990 Debt issuance costs (35 ) (30 ) Repayment of
long-term debt (1,500 ) (1,000 ) Proceeds from borrowings under
revolving credit facility 400 — Repayment of borrowings under
revolving credit facility (400 ) — Repayment of other long-term
obligations (15 ) (61 ) Cash dividend to Parent (5,000 ) (4,000 )
Excess tax benefit from share-based compensation
25
21 Net cash used in financing activities
(1,335 )
(1,080 ) Net increase in cash and cash equivalents
460 120 Cash and cash equivalents at beginning of the period
232
687 Cash and cash equivalents at end of the
period $ 692
$ 807
Supplemental
Cash Flow Information Cash paid for interest $ 665 $ 512 Cash
paid for income taxes 581 691
Non-GAAP
Financial Measure Reconciliation Schedules (Unaudited)
DIRECTV Reconciliation of Operating Profit Before
Depreciation and Amortization to Operating Profit*
Three Months EndedSeptember 30,
Nine Months EndedSeptember
30, 2012 2011 2012
2011 Operating profit before
depreciation and amortization $ 1,686 $ 1,584 $ 5,598 $ 5,196
Subtract: Depreciation and amortization 618 554 1,811
1,781 Operating profit $ 1,068 $ 1,030 $ 3,787
$ 3,415 * 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 Quarterly Report on Form 10-Q for the quarter ended
September 30, 2012, which is expected to be filed with the SEC in
November 2012.
DIRECTV Reconciliation of
Cash Flow Before Interest and Taxes2 and Free Cash
Flow3 to
Net Cash Provided by Operating
Activities
Three Months EndedSeptember 30,
Nine Months
EndedSeptember 30, 2012
2011 2012 2011 Cash Flow
Before Interest and Taxes $ 957 $ 788 $ 3,293 $ 2,685 Adjustments:
Cash paid for interest (333 ) (252 ) (710 ) (562 ) Interest income
17 9 40 25 Income taxes paid (322 )
(310 ) (881 )
(853 ) Subtotal - Free Cash Flow 319 235 1,742
1,295 Add Cash Paid For: Property and equipment 743 864 2,160 2,160
Satellites 47 108 231 156 Net Cash
Provided by Operating Activities $ 1,109 $ 1,207 $
4,133 $ 3,611
DIRECTV Latin
America Reconciliation of Cash Flow Before Interest and
Taxes2 and Free Cash Flow3 to
Net Cash Provided by Operating
Activities
Three Months EndedSeptember 30,
Nine Months
EndedSeptember 30, 2012
2011 2012 2011 Cash Flow
Before Interest and Taxes $ 81 $ 32 $ 238 $ 329 Adjustments: Cash
paid for interest (13 ) (14 ) (40 ) (42 ) Interest income 16 10 39
24 Income taxes paid (69 )
(51 ) (242 )
(187 ) Subtotal - Free Cash Flow 15 (23 ) (5 ) 124
Add Cash Paid For: Property and equipment 40 28 167 54 Subscriber
leased equipment - subscriber acquisitions 195 248 619 609
Subscriber leased equipment - upgrade and retention 107 115 324 305
Satellites 22 74 86 74 Net Cash
Provided by Operating Activities $ 379 $ 442 $ 1,191
$ 1,166
(2) and (3) - See footnotes above
DIRECTV
HOLDINGS LLC (DIRECTV U.S.) Non-GAAP Financial Measure
Reconciliation and SAC Calculations
(Unaudited)
Reconciliation of Pre-SAC Margin* to Operating
Profit
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30, 2012
2011 2012 2011 Operating profit
$ 876 $ 800 $ 3,130 $ 2,737 Adjustments: Subscriber acquisition
costs (expensed) 757 793 2,017 2,101 Depreciation and amortization
375 353 1,116 1,225 Cash paid for subscriber leased equipment -
upgrade and retention (79 ) (91 ) (209 ) (236 ) Pre-SAC Margin $
1,929 $ 1,855 $ 6,054 $ 5,827 Pre-SAC
Margin as a percentage of revenue 33.4 % 34.2 % 35.8 % 36.8 %
Reconciliation of Cash Flow Before Interest and
Taxes2 and Free Cash Flow3 to
Net Cash Provided by Operating
Activities
Three Months EndedSeptember 30, Nine Months
EndedSeptember 30, 2012 2011 2012
2011 Cash Flow Before Interest and Taxes $ 861 $ 744 $ 3,018
$ 2,357 Adjustments: Cash paid for interest (317 ) (235 ) (665 )
(512 ) Interest income 1 — 1 1 Income taxes paid
(270 ) (242 )
(581 ) (691 ) Subtotal - Free
Cash Flow 275 267 1,773 1,155 Add Cash Paid For: Property and
equipment 137 159 377 404 Subscriber leased equipment - subscriber
acquisitions 184 222 462 546 Subscriber leased equipment - upgrade
and retention 79 91 209 236 Satellites 23 35 139
83 Net Cash Provided by Operating Activities $ 698
$ 774 $ 2,960 $ 2,424 (2) and
(3) - See footnotes above * 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 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
believes 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 believes
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 EndedSeptember 30,
Nine Months EndedSeptember 30, 2012
2011 2012 2011 Subscriber acquisition costs
(expensed) $ 757 $ 793 $ 2,017 $ 2,101 Cash paid for subscriber
leased equipment - subscriber acquisitions 184 222
462 546 Total acquisition costs $ 941 $ 1,015
$ 2,479 $ 2,647 Gross subscriber additions
(000's) 1,107 1,280 2,911 3,286 Average subscriber acquisition
costs - per subscriber (SAC) $ 850
$ 793
$ 852 $ 806
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