DIRECTV (NASDAQ:DTV) today reported increases in fourth quarter
2012 revenues of 8% to $8.05 billion, operating profit before
depreciation and amortization1 (OPBDA) of 8% to $1.92 billion and
operating profit of 7% to $1.30 billion compared to last year's
fourth quarter. DIRECTV reported an increase in fourth quarter net
income of 31% to $942 million and diluted earnings per share of
52.0% to $1.55 compared with the same period last year.
“Our solid fourth quarter consolidated results capped off
another year of impressive revenue, earnings and cash flow growth,”
said Mike White, Chairman, President and CEO of DIRECTV. “Strong
consumer demand for DIRECTV's diversified portfolio of businesses
across the Americas fueled the largest annual net subscriber gain
in our history with nearly 3.8 million net customers added
including Sky Mexico. As a result, we furthered our lead as the
world's largest and most popular provider of Pay TV video services
with over 35 million subscribers and growing rapidly. This
tremendous subscriber performance along with solid ARPU and margin
performance fueled a 9% top-line increase bringing DIRECTV to
nearly $30 billion in revenues, a 32% increase in diluted EPS to
$4.58 and a 13% increase in free cash flow to $2.3 billion in
2012.”
White concluded, “We exit 2012 with good momentum as we continue
to successfully execute on our long-term strategy to drive
sustainable profitable growth across the Americas while also
significantly advancing DIRECTV's service oriented culture by
winning our customers' loyalty for life. We believe that these
strategies along with our share repurchase plan - highlighted by
the approval of a new $4 billion buyback authorization - will
continue to create significant shareholder value for years to
come.”
DIRECTV'S Operational Review
Fourth Quarter Review
DIRECTV's fourth quarter revenues of $8.05 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 8% to $1.92 billion and operating profit increased 7% to
$1.30 billion in the quarter compared with the same period last
year. OPBDA and operating profit margin were relatively unchanged
compared to the same period in 2011.
DIRECTV ConsolidatedDollars in
Millions except Earnings perCommon Share
Three Months EndedDecember 31,
Twelve Months EndedDecember 31,
2012 2011 2012
2011 Revenues $ 8,054
$ 7,463 $ 29,740
$ 27,226 Operating Profit Before
Depreciation and Amortization(1) 1,924
1,782 7,522
6,978 OPBDA Margin(1)
23.9 % 23.9 % 25.3
% 25.6 % Operating Profit
1,298 1,214
5,085 4,629 Operating Profit
Margin 16.1 % 16.3
% 17.1 % 17.0 % Net Income
Attributable to DIRECTV 942
718 2,949
2,609 Diluted Earnings Per Common Share
1.55 1.02
4.58 3.47
Capital Expenditures and Cash Flow
Cash paid for property and equipment
211 201
757 665
Cash paid for subscriber leased equipment - subscriber acquisitions
412 392
1,493 1,547
Cash paid for subscriber leased equipment - upgrade and retention
177 171
710 712
Cash paid for satellites 158
90 389
246 Cash Flow Before Interest and Taxes(2)
1,120 1,025
4,413 3,710
Free Cash Flow(3) 543
720 2,285
2,015
Net income attributable to DIRECTV increased 31% to $942 million
and diluted earnings per share improved 52.0% to $1.55 compared
with the fourth quarter of last year primarily due to the higher
operating profit, a $111 million pre-tax gain related to the sale
of an 18% ownership in the Game Show Network and a lower effective
tax rate in 2012 related to the resolution of prior year income tax
audits. These changes were partially offset by higher interest
expense in 2012 driven by higher average debt balances. 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 9% to $1,120
million compared to the fourth quarter of 2011 primarily due to the
higher OPBDA as well as cash generated from working capital mostly
due to the timing of customer and vendor receivables at DIRECTV
U.S., partially offset by an increase in capital expenditures
principally due to higher satellite payments at both DIRECTV U.S.
and DTVLA. Also in the quarter, free cash flow3 decreased 25% to
$543 million as the improved cash flow before interest and taxes
and lower net interest payments were more than offset by higher tax
payments. Both the lower net interest payments and higher tax
payments were primarily a result of the timing of payments. Also
during the quarter but not included in free cash flow was cash paid
for share repurchases of $1.35 billion. In addition, DIRECTV
U.S. launched a $2.5 billion commercial paper program in the
quarter. As of December 31, 2012 there was $358 million outstanding
under the program.
Subsequent to the end of the quarter, the Venezuelan government
devalued its currency resulting in the official exchange rate
moving from 4.30 bolivars per U.S. dollar to 6.30 bolivars per U.S.
dollar. This devaluation does not have any impact on DIRECTV’s 2012
results of operations, financial position or cash flows. In the
first quarter of 2013, DIRECTV Latin America expects to incur a
one-time pre-tax charge of approximately $160 million related to
the re-measurement of bolivar denominated net monetary assets at
the date of the devaluation on February 9, 2013. There will also be
an ongoing unfavorable financial impact in 2013 to DIRECTV Latin
America’s revenues, earnings and cash flow growth related to the
translation of the local currency financial statements to the new
official exchange rate.
Full Year Review
DIRECTV's full year 2012 revenues increased 9% to $29.74 billion
over last year 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 OPBDA increased 8% to $7.52 billion and operating
profit increased 10% to $5.09 billion in 2012. OPBDA margin
slightly declined in the period primarily due to increased DTVLA
costs in customer service, general and administrative, and upgrade
and retention. In addition, operating profit margin was 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 13% to $2.95
billion and diluted earnings per share improved 32% to $4.58 for
the period primarily due to the higher operating profit and a $59
million increase in earnings from the sale of equity investments.
These were partially offset by higher income tax expense
principally related to the increased earnings before tax, as well
as higher interest expense resulting from higher average debt
balances. In addition, diluted earnings per share were favorably
impacted by share repurchases made over the last twelve months.
In 2012, cash flow before interest and taxes increased 19% to
$4.41 billion and free cash flow increased 13% to $2.29 billion
primarily due to the higher OPBDA as well as an increase in cash
generated from working capital mostly related to the timing of
customer and vendor 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. In addition,
free cash flow was impacted by higher cash tax payments mostly
related to the higher pre-tax earnings and a change in bonus
depreciation deductions in 2012, as well as increased net interest
payments related to the higher average long-term debt balances.
Also during 2012 but not included in free cash flow, was cash paid
for share repurchases of $5.18 billion and a decrease of $92
million related to cash received for the sale of
investments. Below is a table summarizing 2012's Senior Note
issuances.
Senior Note Debt Financings in 2012 Issue Month
Amount
Coupon Due Date March 2012
$1.25B 2.400%
2017 March 2012 $1.5B
3.800% 2022 March 2012
$1.25B 5.150%
2042 September 2012 £750M (~$1.2B)
4.375% 2029
In addition, in May 2012, DIRECTV redeemed $1.5 billion of its
outstanding 7.625% Senior Notes due in 2016. In September 2012,
DIRECTV U.S. entered into two senior unsecured revolving credit
agreements totaling $2.5 billion to replace a $2.0 billion credit
agreement that was terminated. Both revolving credit agreements
were undrawn as of the end of 2012. Also in the fourth quarter,
DIRECTV U.S. launched a $2.5 billion commercial paper program
backed by the revolving credit agreements and as of December 31,
2012, there was $358 million outstanding under the program.
Subsequent to the end of the year in January 2013, DIRECTV U.S.
issued $750 million principal amount of 1.75% Senior Notes due in
2018.
SEGMENT FINANCIAL REVIEW
DIRECTV U.S. Segment
Fourth Quarter Review
DIRECTV U.S. Three Months
EndedDecember 31, Twelve Months EndedDecember 31,
Dollars in Millions except ARPU
2012 2011 2012
2011 Revenues $
6,320 $ 6,029 $
23,235 $ 21,872 Average Monthly
Revenue per Subscriber (ARPU) ($)
105.15 101.38
96.98 93.27 Operating Profit
Before Depreciation and Amortization(1)
1,408 1,327 5,654
5,289 OPBDA Margin(1)
22.3 % 22.0 %
24.3 % 24.2 % Operating Profit
1,023 965
4,153 3,702
Operating Profit Margin 16.2 %
16.0 % 17.9 % 16.9
%
Capital Expenditures and Cash Flow
Cash paid for property and
equipment 164
163 541 567
Cash paid for subscriber leased equipment - subscriber
acquisitions 194
167 656 713
Cash paid for subscriber leased equipment - upgrade and
retention 82
79 291 315
Cash paid for satellites 114
58 253
141 Cash Flow Before Interest and
Taxes(2) 1,023
910 4,041
3,267
Subscriber Data (in 000's except Churn)
Gross Subscriber
Additions 963
1,030 3,874
4,316 Average Monthly Subscriber Churn
1.43 % 1.52 % 1.53 %
1.56 % Net Subscriber Additions
103 125
199 662 Cumulative
Subscribers 20,084
19,885 20,084
19,885
In the quarter, DIRECTV U.S. revenues increased 5% to $6.32
billion primarily due to strong ARPU growth and a larger subscriber
base. Net subscriber growth in the quarter of 103,000 decreased
from the prior year period principally due to lower gross
subscriber additions partially offset by a lower average monthly
churn rate. Gross additions declined mainly due to a greater focus
on higher quality subscribers and stricter credit policies. The
lower churn rate was mainly driven by a greater percentage of
subscribers on commitments, auto-bill pay and with advanced
equipment, as well as the stricter credit policies on new
customers. ARPU increased 4% to $105.15 mostly due to price
increases on programming packages, higher advanced service,
commercial and ad sales, partially offset by increased promotional
offers to new and existing customers. DIRECTV U.S. ended the
quarter with 20.08 million subscribers, an increase of 1% compared
with 19.89 million subscribers reported for the year ended
December 31, 2011.
Fourth quarter OPBDA increased 6% to $1.41 billion and OPBDA
margin improved to 22.3% principally due to lower subscriber
acquisition costs related to the reduction in gross additions and
relatively unchanged retention and upgrade costs, partially offset
by higher programming costs mostly related to programming supplier
rate increases. Operating profit also increased 6% to $1.02 billion
and operating profit margin increased to 16.2% in the fourth
quarter mainly due to the OPBDA and OPBDA margin improvements.
Full Year Review
In 2012, DIRECTV U.S. revenues increased 6% to $23.24 billion
due to strong ARPU growth and a larger subscriber base. Net
subscriber growth in the year of 199,000 decreased from the prior
year principally due to lower gross subscriber additions mainly due
to a greater focus on higher quality subscribers and stricter
credit policies, as well as lower gross additions from the Telco
sales channel. The lower churn rate of 1.53% was mainly driven by a
greater percentage of subscribers on commitments, auto-bill pay and
with advanced equipment, as well as the stricter credit policies on
new customers. ARPU increased 4% to $96.98 mostly due to price
increases on programming packages, more advanced service and lease
fees, as well as higher commercial, premium movie channel,
pay-per-view movie and ad sales, partially offset by increased
promotional offers to new and existing customers.
In 2012 OPBDA increased 7% to $5.65 billion and operating profit
increased 12% to $4.15 billion. OPBDA margin increased slightly to
24.3% during the year primarily driven by lower subscriber
acquisition costs related to the reduction in gross additions and
improved productivity in subscriber services driven in part by
investments in customer care. These gains were mostly offset by
higher programming costs principally related to programming
supplier rate increases. Operating profit margin rose to 17.9%
primarily due to an increase in the estimated depreciable life of
HD set-top boxes from three years to four years implemented in July
2011, the completion of amortization for a subscriber-related
intangible asset, as well as the improved OPBDA margin.
DIRECTV Latin America
DIRECTV Latin America Three
Months EndedDecember 31, Twelve Months EndedDecember
31,
Dollars in Millions except ARPU
2012 2011
2012 2011 Revenues
$ 1,674 $ 1,372
$ 6,244 $ 5,096
Average Monthly Revenue per Subscriber (ARPU) ($)
55.84 60.41
57.25 62.64 Operating
Profit Before Depreciation and Amortization(1)
494 422
1,862 1,663 OPBDA Margin(1)
29.5 % 30.8 %
29.8 % 32.6 % Operating Profit
261 220
955 916
Operating Profit Margin 15.6 %
16.0 % 15.3 % 18.0
%
Capital Expenditures and Cash Flow
Cash paid
for property and equipment 47
39 214
93 Cash paid for subscriber leased equipment -
subscriber acquisitions 218
225 837
834 Cash paid for subscriber leased equipment
- upgrade and retention 95
92 419
397 Cash paid for satellites
42 30
128 104 Cash Flow Before
Interest and Taxes(2) 82
101 320
430
Subscriber Data(4) (in 000's
except Churn)
Gross Subscriber Additions
1,183 965
4,417 3,510
Average Monthly Total Subscriber Churn
1.75 % 1.65 % 1.81 %
1.78 % Average Monthly Post-paid Subscriber Churn
1.48 % 1.42 %
1.50 % 1.42 % Net Subscriber
Additions 658
590 2,439
2,063 Cumulative Subscribers
10,328 7,871
10,328 7,871
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 5.15 million subscribers
as of December 31, 2012, bringing the total subscribers in the
region to 15.48 million.
Fourth Quarter Review
In the fourth quarter, DTVLA revenues increased 22% to $1.67
billion compared to 2011 principally due to strong subscriber
growth partially offset by an 8% decline in ARPU. Net additions
increased to a record 658,000 driven by higher gross additions
partially offset by higher average monthly churn on the larger
subscriber base. Gross additions increased 23% to a record of 1.18
million principally due to greater middle market demand across the
region, most notably in Brazil, Argentina, Colombia and Venezuela.
Also in the quarter, average monthly post-paid churn increased to
1.48% and total average monthly churn increased to 1.75% primarily
due to higher churn from middle market subscribers in Brazil. The
decline in ARPU to $55.84 was mostly due to unfavorable exchange
rates in Brazil and Argentina. Excluding the impact of exchange
rates, ARPU increased 1.4% in the quarter principally due to price
increases and more subscribers with advanced services, partially
offset by the higher penetration of lower ARPU middle market
subscribers. DTVLA ended the quarter with 10.33 million
subscribers, an increase of 31% compared with 7.87 million
subscribers reported for the year ended December 31, 2011.
DIRECTV Latin America's fourth quarter 2012 OPBDA increased 17%
to $494 million and operating profit increased 19% to $261 million
compared with the same period last year. OPBDA and operating profit
margin declined in the quarter to 29.5% and 15.6%, respectively,
primarily due to $18 million in charges related to certain
litigation in Brazil and Argentina.
Full Year Review
In 2012, DTVLA revenues increased 23% to $6.24 billion compared
to the same period last year principally due to strong subscriber
growth partially offset by an 8.6% decline in ARPU. Net additions
increased to a record 2.44 million driven by more gross additions
partially offset by higher average monthly churn on the larger
subscriber base. Gross additions increased 26% to a full year
record of 4.42 million principally due to greater middle market
demand across the region, most notably in Brazil, Argentina,
Colombia and Venezuela. Also in 2012, average monthly post-paid
churn increased to 1.50% and total average monthly churn increased
to 1.81% primarily driven by higher churn from middle market
subscribers in Brazil. The decline in ARPU to $57.25 was
principally due to unfavorable exchange rates mainly in Brazil and
Argentina. Excluding the impact of exchange rates, ARPU increased
1.7% in 2012 principally due to price increases and more
subscribers with advanced services and upgrades, partially offset
by the higher penetration of lower ARPU middle market
subscribers.
DIRECTV Latin America's 2012 OPBDA increased 12% to $1.86
billion and operating profit increased 4% to $955 million compared
to the year ago period. OPBDA and operating profit margins declined
to 29.8% and 15.3%, respectively, due in part to higher
PanAmericana general and administrative and subscriber services
costs mostly resulting from inflationary pressure on labor
expenses. Also impacting PanAmericana margins were increased
programming costs principally associated with the Olympics and
certain soccer events, higher subscriber acquisition costs driven
by record prepaid gross additions, as well as increased upgrade
costs mainly associated with the replacement of first generation
set-top boxes. In addition, Sky Brasil's customer service expenses
increased primarily reflecting higher costs related to serving a
growing penetration of middle market customers.
CONFERENCE CALL INFORMATION
A live webcast of DIRECTV's fourth 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 February 14, 2013. Access to the earnings call is also
available in the United States by dialing (888) 271-8583 and
internationally by dialing (913) 312-0711. The conference ID number
is 9265354. 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 9265354. The replay will be available from 3:00 p.m.
PT Thursday, February 14 through 3:00 p.m. PT Thursday February 21
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, 2012, which is expected to be filed in February, 2013,
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 4,000 video subscribers acquired in the fourth quarter,
2012 and 18,000 video subscribers acquired during the full year
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,” "strive" 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 over 20 million customers in the United
States and over 15.5 million customers in Latin America. DIRECTV
sports and entertainment properties include three regional sports
networks (Northwest, Rocky Mountain and Pittsburgh) as well as a 42
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 EndedDecember 31, Years
EndedDecember 31, 2012 2011
2012 2011 Revenues
$ 8,054 $ 7,463 $ 29,740
$ 27,226
Operating costs and expenses
Costs of revenues, exclusive of depreciation and amortization
expense Broadcast programming and other 3,779 3,443 13,028 11,655
Subscriber service expenses 545 496 2,137 1,911 Broadcast
operations expenses 104 100 414 389 Selling, general and
administrative expenses, exclusive of depreciation and amortization
expense Subscriber acquisition costs 848 866 3,397 3,390 Upgrade
and retention costs 371 354 1,427 1,327 General and administrative
expenses 483 422 1,815 1,576 Depreciation and amortization expense
626 568
2,437 2,349
Total operating costs and
expenses 6,756 6,249
24,655 22,597
Operating
profit 1,298 1,214 5,085 4,629 Interest income 19 9 59 34
Interest expense (220 ) (194 ) (842 ) (763 ) Other, net
127 10 140
84
Income before income tax 1,224 1,039 4,442
3,984 Income tax expense (276 )
(316 ) (1,465 ) (1,348 ) Net Income 948 723 2,977
2,636 Less: Net income attributable to noncontrolling interest
(6 ) (5 ) (28 )
(27 ) Net income attributable to DIRECTV
$ 942 $ 718 $ 2,949
$ 2,609
Basic earnings attributable to DIRECTV per
common share $ 1.57 $ 1.02 $ 4.62 $ 3.49
Diluted earnings
attributable to DIRECTV per common share $ 1.55 $ 1.02 $ 4.58 $
3.47 Weighted average number of total common shares outstanding (in
millions): Basic 601 702 638 747 Diluted 607 707 644 752
DIRECTV
CONSOLIDATED BALANCE SHEETS (Dollars in Millions)
(Unaudited) ASSETS
December 31, 2012 December 31,
2011 Current assets Cash and cash equivalents $ 1,902 $
873 Accounts receivable, net of allowances of $81 and $79 2,696
2,474 Inventories 412 280 Deferred income taxes 73 62 Prepaid
expenses and other 471
552
Total current assets 5,554 4,241
Satellites, net 2,357 2,215
Property and equipment,
net 6,038 5,223
Goodwill 4,063 4,097
Intangible
assets, net 832 909
Investments and other assets
1,711 1,738
Total assets $ 20,555
$ 18,423
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Current liabilities Accounts payable
and accrued liabilities $ 4,618 $ 4,210 Unearned subscriber
revenues and deferred credits 565 533 Short-term borrowings
358 —
Total current liabilities 5,541 4,743
Long-term debt
17,170 13,464
Deferred income taxes 1,672 1,771
Other
liabilities and deferred credits 1,203 1,287
Commitments and
contingencies Redeemable noncontrolling interest 400 265
Stockholders' deficit (5,431 )
(3,107 )
Total liabilities and
stockholders' deficit $ 20,555
$ 18,423
DIRECTV
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in
Millions) (Unaudited) Years Ended December 31,
2012
2011 Cash Flows From Operating Activities Net
income $ 2,977 $ 2,636 Adjustments to reconcile net income to net
cash provided by operating activities: Depreciation and
amortization expense 2,437 2,349 Amortization of deferred revenues
and deferred credits (75 ) (39 ) Share-based compensation expense
109 103 Equity in earnings from unconsolidated affiliates (131 )
(109 ) Net foreign currency transaction loss 34 50 Dividends
received 79 104 Gain on sale of investments (122 ) (63 ) Deferred
income taxes (102 ) 353 Excess tax benefit from share-based
compensation (30 ) (25 ) Other 85 53 Change in other operating
assets and liabilities: Accounts receivable (50 ) (524 )
Inventories (206 ) (33 ) Prepaid expenses and other 58 (139 )
Accounts payable and accrued liabilities 370 391 Unearned
subscriber revenue and deferred credits 28 47 Other, net
173 31
Net cash provided by operating activities
5,634 5,185
Cash Flows From Investing Activities Cash paid for property
and equipment (2,960 ) (2,924 ) Cash paid for satellites (389 )
(246 ) Investment in companies, net of cash acquired (16 ) (11 )
Proceeds from sale of investments 24 116 Other, net
(22 ) 43 Net cash
used in investing activities (3,363 )
(3,022 )
Cash Flows From Financing
Activities Issuance of commercial paper (maturity 90 days or
less), net 156 — Proceeds from short-term borrowings 202 —
Repayment of short-term borrowings — (39 ) Proceeds from borrowings
under revolving credit facility 400 — Repayment of borrowings under
revolving credit facility (400 ) — Proceeds from issuance of
long-term debt 5,190 3,990 Debt issuance costs (36 ) (30 )
Repayments of long-term debt (1,500 ) (1,000 ) Repayment of other
long-term obligations (51 ) (184 ) Common shares repurchased and
retired (5,175 ) (5,496 ) Stock options exercised 3 — Taxes paid in
lieu of shares issued for share-based compensation (61 ) (58 )
Excess tax benefit from share-based compensation
30 25 Net
cash used in financing activities
(1,242 ) (2,792 ) Net increase in cash
and cash equivalents 1,029 (629 ) Cash and cash equivalents at
beginning of the period 873
1,502 Cash and cash equivalents
at end of the period $ 1,902
$ 873
Supplemental Cash Flow
Information Cash paid for interest $ 781 $ 687 Cash paid for
income taxes 1,406 1,042
DIRECTV
SELECTED SEGMENT DATA (Dollars in Millions)
(Unaudited) Three Months EndedDecember 31,
Years EndedDecember 31,
2012 2011
2012 2011 DIRECTV U.S.
Revenues $ 6,320 $ 6,029 $ 23,235 $ 21,872 Operating profit before
depreciation and amortization (1) 1,408 1,327 5,654 5,289 Operating
profit before depreciation and amortization margin (1) 22.3 % 22.0
% 24.3 % 24.2 % Operating profit $ 1,023 $ 965 $ 4,153 $ 3,702
Operating profit margin 16.2 % 16.0 % 17.9 % 16.9 % Depreciation
and amortization $ 385
$ 362 $ 1,501
$ 1,587
SKY BRASIL Revenues $
914 $ 808 $ 3,501 $ 3,020 Operating profit before depreciation and
amortization (1) 286 260 1,088 991 Operating profit before
depreciation and amortization margin (1) 31.3 % 32.2 % 31.1 % 32.8
% Operating profit $ 156 $ 139 $ 555 $ 542 Operating profit margin
17.1 % 17.2 % 15.9 % 17.9 % Depreciation and amortization
$ 130 $ 121
$ 533 $ 449
PANAMERICANA Revenues $ 760 $ 564 $ 2,743 $ 2,076 Operating
profit before depreciation and amortization (1) 208 162 774 672
Operating profit before depreciation and amortization margin (1)
27.4 % 28.7 % 28.2 % 32.4 % Operating profit $ 105 $ 81 $ 400 $ 374
Operating profit margin 13.8 % 14.4 % 14.6 % 18.0 % Depreciation
and amortization $ 103
$ 81 $ 374
$ 298
SPORTS NETWORKS, ELIMINATIONS and
OTHER Revenues $ 60 $ 62 $ 261 $ 258 Operating profit (loss)
before depreciation and amortization (1) 22 33 6 26 Operating
profit (loss) 14 29 (23 ) 11 Depreciation and amortization
8 4
29 15
TOTAL
Revenues $ 8,054 $ 7,463 $ 29,740 $ 27,226 Operating profit before
depreciation and amortization (1) 1,924 1,782 7,522 6,978 Operating
profit before depreciation and amortization margin (1) 23.9 % 23.9
% 25.3 % 25.6 % Operating profit $ 1,298 $ 1,214 $ 5,085 $ 4,629
Operating profit margin 16.1 % 16.3 % 17.1 % 17.0 % Depreciation
and amortization $ 626
$ 568 $ 2,437
$ 2,349 (1) See footnote 1 above
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in
Millions) (Unaudited) Three Months
EndedDecember 31, Years EndedDecember 31,
2012 2011
2012 2011 Revenues
$ 6,320 $ 6,029
$ 23,235 $
21,872
Operating costs and expenses Costs of
revenues, exclusive of depreciation and amortization expense
Broadcast programming and other 3,194 2,981 10,743 9,799 Subscriber
service expenses 368 354 1,464 1,435 Broadcast operations expenses
77 76 306 300 Selling, general and administrative expenses,
exclusive of depreciation and amortization expense Subscriber
acquisition costs 656 693 2,673 2,794 Upgrade and retention costs
323 320 1,253 1,209 General and administrative expenses 294 278
1,142 1,046 Depreciation and amortization expense
385 362
1,501 1,587
Total operating costs and expenses
5,297 5,064
19,082 18,170
Operating profit 1,023 965 4,153 3,702 Interest income — — 1
1 Interest expense (199 ) (177 ) (776 ) (696 ) Other, net
7 6
(32 ) 35
Income before
income taxes 831 794 3,346 3,042 Income tax expense
(285 ) (259 )
(1,221 ) (1,107 )
Net
income $ 546
$ 535 $ 2,125
$ 1,935
DIRECTV HOLDINGS LLC
(DIRECTV U.S.)
CONSOLIDATED BALANCE SHEETS (Dollars in Millions)
(Unaudited) ASSETS
December 31, 2012 December 31,
2011 Current assets Cash and cash equivalents $ 739 $
232 Accounts receivable, net of allowances of $42 and $51 2,096
2,126 Inventories 372 253 Prepaid expenses and other
247 419
Total
current assets 3,454 3,030
Satellites, net 1,795 1,724
Property and equipment, net 3,290 3,084
Goodwill
3,177 3,177
Intangible assets, net 453 461
Other
assets 321
320
Total assets $
12,490 $ 11,796
LIABILITIES AND OWNER'S DEFICIT
Current liabilities
Accounts payable and accrued liabilities $ 3,391 $ 3,226 Unearned
subscriber revenues and deferred credits 367 377 Short-term
borrowings 358
—
Total current liabilities 4,116 3,603
Long-term debt 17,170 13,464
Deferred income taxes
1,386 1,321
Other liabilities and deferred credits 326 239
Commitments and contingencies Owner's deficit
(10,508 ) (6,831 )
Total liabilities and owner's deficit
$ 12,490 $ 11,796
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED STATEMENTS OF CASH
FLOWS (Dollars in Millions) (Unaudited) Years
Ended December 31,
2012 2011 Cash Flows From
Operating Activities Net income $ 2,125 $ 1,935 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 1,501 1,587 Amortization of
deferred revenues and deferred credits (75 ) (39 ) Share-based
compensation expense 86 84 Deferred income taxes 116 524 Excess tax
benefit from share-based compensation (25 ) (21 ) Other 18 (33 )
Change in other operating assets and liabilities: Accounts
receivable 62 (442 ) Inventories (119 ) (26 ) Prepaid expenses and
other 173 (230 ) Accounts payable and accrued liabilities 176 230
Unearned subscriber revenue and deferred credits (14 ) (1 ) Other,
net 91 3
Net cash provided by operating activities
4,115 3,571
Cash Flows From Investing Activities Cash paid for property
and equipment (541 ) (567 ) Cash paid for subscriber leased
equipment - subscriber acquisitions (656 ) (713 ) Cash paid for
subscriber leased equipment - upgrade and retention (291 ) (315 )
Cash paid for satellites (253 ) (141 ) Investment in companies, net
of cash acquired (7 ) (11 ) Proceeds from sale of investments 24 55
Other, net —
1 Net cash used in investing activities
(1,724 ) (1,691 )
Cash Flows
From Financing Activities Issuance of commercial paper
(maturity 90 days or less, net) 156 — Proceeds from short-term
borrowings 202 — Proceeds from borrowings under revolving credit
facility 400 — Repayment of borrowings under revolving credit
facility (400 ) — Cash proceeds from debt issuance 5,190 3,990 Debt
issuance costs (36 ) (30 ) Repayment of long-term debt (1,500 )
(1,000 ) Repayment of other long-term obligations (21 ) (66 ) Cash
dividend to Parent (5,900 ) (5,250 ) Excess tax benefit from
share-based compensation 25
21 Net cash used in financing
activities (1,884 )
(2,335 ) Net increase in cash and cash equivalents 507 (455
) Cash and cash equivalents at beginning of the period
232 687
Cash and cash equivalents at end of the period
$ 739 $ 232
Supplemental Cash Flow Information Cash paid for interest $
715 $ 619 Cash paid for income taxes 953 814
Non-GAAP
Financial Measure Reconciliation Schedules
(Unaudited) DIRECTV
Reconciliation of Operating Profit Before Depreciation and
Amortization to Operating Profit* Three Months
EndedDecember 31, Years EndedDecember 31,
2012 2011 2012
2011 Operating profit before depreciation and
amortization $ 1,924 $ 1,782 $ 7,522 $ 6,978 Subtract: Depreciation
and amortization 626 568 2,437
2,349 Operating profit $ 1,298
$ 1,214 $ 5,085 $ 4,629
* 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, 2012, which is
expected to be filed with the SEC in February 2013.
DIRECTV
Reconciliation of Cash Flow Before Interest and
Taxes2 and Free Cash Flow3 to
Net Cash Provided by Operating
Activities
Three Months EndedDecember 31, Years
EndedDecember 31, 2012
2011 2012 2011 Cash Flow Before
Interest and Taxes $ 1,120 $ 1,025 $ 4,413 $ 3,710 Adjustments:
Cash paid for interest (71 ) (125 ) (781 ) (687 ) Interest income
19 9 59 34 Income taxes paid (525 ) (189 )
(1,406 ) (1,042 ) Subtotal - Free Cash Flow 543 720 2,285
2,015 Add Cash Paid For: Property and equipment 800 764 2,960 2,924
Satellites 158 90 389
246 Net Cash Provided by Operating Activities
$ 1,501 $ 1,574 $ 5,634 $
5,185
DIRECTV Latin America Reconciliation of
Cash Flow Before Interest and Taxes2 and Free Cash
Flow3 to
Net Cash Provided by Operating
Activities
Three Months EndedDecember 31, Years
EndedDecember 31, 2012
2011 2012 2011 Cash Flow Before
Interest and Taxes $ 82 $ 101 $ 320 $ 430 Adjustments: Cash paid
for interest (9 ) (13 ) (49 ) (55 ) Interest income 17 8 56 32
Income taxes paid (73 ) (47 ) (315 ) (234 ) Add Cash Paid For:
Property and equipment 47 39 214 93 Subscriber leased equipment -
subscriber acquisitions 218 225 837 834 Subscriber leased equipment
- upgrade and retention 95 92 419 397 Satellites 42
30 128 104 Net Cash
Provided by Operating Activities $ 419 $ 435
$ 1,610 $ 1,601
(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 EndedDecember 31, Years EndedDecember
31, 2012 2011
2012 2011 Operating profit $ 1,023 $ 965 $
4,153 $ 3,702 Adjustments: Subscriber acquisition costs (expensed)
656 693 2,673 2,794 Depreciation and amortization 385 362 1,501
1,587 Cash paid for subscriber leased equipment - upgrade and
retention (82 ) (79 ) (291 ) (315 )
Pre-SAC Margin $ 1,982 $ 1,941 $
8,036 $ 7,768 Pre-SAC Margin as a percentage
of revenue 31.4 % 32.2 % 34.6 % 35.5 %
Reconciliation of Cash Flow
Before Interest and Taxes2 and Free Cash
Flow3 to
Net Cash Provided by Operating
Activities
Three Months EndedDecember 31, Years
EndedDecember 31, 2012
2011 2012 2011 Cash Flow Before
Interest and Taxes $ 1,023 $ 910 $ 4,041 $ 3,267 Adjustments: Cash
paid for interest (50 ) (107 ) (715 ) (619 ) Interest income — — 1
1 Income taxes paid (372 ) (123 ) (953 ) (814 ) Add Cash Paid For:
Property and equipment 164 163 541 567 Subscriber leased equipment
- subscriber acquisitions 194 167 656 713 Subscriber leased
equipment - upgrade and retention 82 79 291 315 Satellites
114 58 253 141 Net
Cash Provided by Operating Activities $ 1,155
$ 1,147 $ 4,115 $ 3,571
(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 EndedDecember 31, Years
EndedDecember 31, 2012
2011 2012 2011 Subscriber
acquisition costs (expensed) $ 656 $ 693 $ 2,673 $ 2,794 Cash paid
for subscriber leased equipment - subscriber acquisitions
194 167 656 713
Total acquisition costs $ 850 $ 860
$ 3,329 $ 3,507 Gross subscriber
additions (000's) 963 1,030 3,874 4,316 Average subscriber
acquisition costs - per subscriber (SAC) $ 883
$ 835 $ 859 $ 813
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