DIRECTV (NASDAQ:DTV) today announced an increase in first
quarter 2013 revenues of 8% to $7.58 billion, adjusted operating
profit before depreciation and amortization1 (OPBDA) of 10% to
$2.09 billion, adjusted operating profit of 8% to $1.4 billion, and
adjusted earnings per share of 34% to $1.43 compared to last year's
first quarter. Adjusted financial results exclude a $166 million
pre-tax charge ($136 million after-tax) associated with the
revaluation of the net monetary assets of the company's subsidiary
in Venezuela at the time of the Bolivar's devaluation in February.
Reported OPBDA increased 1% to $1.92 billion, reported operating
profit decreased 5% to $1.24 billion, and reported diluted earnings
per share increased 12% to $1.20 compared with the same period last
year.
“Building on the momentum of one of the largest transitional
years in our history, DIRECTV delivered another strong quarter of
operating and financial results,” said Mike White, president and
CEO of DIRECTV. “Our industry leading revenue growth of 8%
continues to be driven by the strength of our premier brands and
popularity of our differentiated product and service offerings
across the Americas, as well as our ability to profitably grow ARPU
in a challenging U.S. operating environment." White added, "At the
same time, our adjusted OPBDA margin grew as we remain focused on
achieving operational excellence through disciplined expense
management and productivity initiatives, while we continue to
return cash to shareholders through stock repurchases at an
industry leading clip."
DIRECTV's Operational Review
First Quarter Review
DIRECTV's first quarter revenues of $7.58 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. In
the quarter, DTVLA recorded a $166 million pre-tax charge ($136
million after-tax) associated with the revaluation of the net
monetary assets of the company's subsidiary in Venezuela at the
time of the Bolivar's devaluation in February. Adjusted OPBDA
increased 10% and adjusted operating profit increased 8% in the
quarter while adjusted OPBDA margin increased to 27.5% and adjusted
operating profit margin was unchanged at 18.6%. Adjusted OPBDA
margin improved primarily due to lower subscriber acquisition costs
at DIRECTV U.S. and Sky Brasil, as well as the absence of an NFL
Sunday Ticket game in the first quarter of 2013. Adjusted operating
profit margin was also impacted by higher depreciation and
amortization at both DTVLA and DIRECTV U.S. resulting from higher
leased equipment and infrastructure capital expenditures. Reported
OPBDA increased 1% to $1.9 billion and reported operating profit
declined 5% to $1.2 billion in the quarter.
DIRECTV Consolidated
Three Months Ended
March 31,
Dollars in Millions except Earnings per Common Share
2013
2012 Revenues $ 7,580
$
7,046 Adjusted Operating Profit Before Depreciation and
Amortization(1) 2,086
1,903 Adjusted OPBDA Margin(1)
27.5 %
27.0 % Adjusted Operating Profit 1,408 1,308 Adjusted
Operating Profit Margin 18.6 %
18.6 % Adjusted
Net Income Attributable to DIRECTV 826
731
Adjusted Diluted Earnings Per Common Share
1.43
1.07
Capital Expenditures and Cash Flow
Cash paid for property and
equipment 152
153 Cash paid for
subscriber leased equipment - subscriber acquisitions
369
412 Cash paid for subscriber leased equipment
- upgrade and retention 227
188
Cash paid for satellites 78
58
Cash Flow Before Interest and Taxes(2) 1,107
1,308 Free Cash Flow(3) 710
952
Reported
Operating Profit Before Depreciation and Amortization(1) 1,920
1,903 Reported OPBDA Margin(1) 25.3 %
27.0 %
Reported Operating Profit 1,242 1,308 Reported Operating Profit
Margin 16.4 %
18.6 % Reported Net Income
Attributable to DIRECTV 690
731
Reported Diluted Earnings Per Common Share
1.20
1.07
Adjusted net income attributable to DIRECTV increased 13% to
$826 million and adjusted diluted earnings per share grew 34% to
$1.43 primarily due to the higher adjusted operating profit.
Adjusted diluted earnings per share were also impacted by share
repurchases made over the last twelve months. Reported net income
attributable to DIRECTV declined 6% to $690 million while reported
diluted earnings per share grew 12% to $1.20 compared with the
first quarter of last year.
Cash flow before interest and taxes2 decreased to $1.11 billion
and free cash flow3 decreased to $710 million compared to the first
quarter of 2012 primarily due to lower cash generated from working
capital mostly due to the timing of receivables and higher capital
expenditures at DIRECTV U.S. 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 $1.38
billion, as well as a January 2013 issuance by DIRECTV U.S. of $750
million principal amount of 1.75% senior notes due 2018 and a $121
million net increase in commercial paper, resulting in $480 million
outstanding as of March 31, 2013. In addition, Sky Brasil entered
into a financing facility with BNDES, a government owned Brazilian
bank, from which Sky Brasil may borrow funds for the purchase of
set-top receivers. Our Board of Directors has approved borrowings
of up to 500 million Brazilian Reals (approximately $250 million at
the then current exchange rate) under this facility. As of March
31, 2013, there was approximately $49 million outstanding on the
BNDES facility bearing interest at an annual rate of 2.5%.
SEGMENT FINANCIAL REVIEW
DIRECTV U.S. Segment
First Quarter Review
DIRECTV U.S.
Three Months Ended
March 31,
Dollars in Millions except ARPU 2013
2012
Revenues $ 5,790
$ 5,499 Average
Monthly Revenue per Subscriber (ARPU) ($)
96.05
91.99 Operating Profit Before Depreciation and
Amortization(1) 1,521
1,410 OPBDA Margin(1)
26.3 %
25.6 % Operating Profit 1,115 1,038 Operating Profit Margin
19.3 %
18.9 %
Capital Expenditures and Cash
Flow
Cash paid for property
and equipment 111
109 Cash paid for
subscriber leased equipment - subscriber acquisitions
174
160 Cash paid for subscriber leased equipment
- upgrade and retention 111
85
Cash paid for satellites 53
34
Cash Flow Before Interest and Taxes(2) 992
1,211 Free Cash Flow(3) 682
971
Subscriber Data (in 000's except Churn)
Gross Subscriber Additions
893
941 Average Monthly Subscriber
Churn 1.45 %
1.44 % Net Subscriber Additions
21
81 Cumulative Subscribers
20,105
19,966
In the quarter, DIRECTV U.S. revenues increased 5% to $5.79
billion compared with the first quarter of 2012 primarily due to
strong ARPU growth along with a larger subscriber base. DIRECTV
U.S. added 21,000 net new subscribers in the quarter, a decrease
from the prior year period principally due to lower gross
subscriber additions. Gross additions declined mainly due to a
greater focus on higher quality subscribers, stricter credit
policies and the competitive environment. The average monthly churn
rate in the quarter was relatively unchanged at 1.45%. ARPU
increased 4.4% to $96.05 mostly due to higher advanced service
fees, price increases on programming packages, and increased movie
and event buys, partially offset by the absence of one NFL Sunday
Ticket game in the quarter and increased promotional offers to new
and existing customers. DIRECTV U.S. ended the quarter with 20.11
million subscribers compared with 19.97 million subscribers
reported for the quarter ended March 31, 2012.
First quarter OPBDA increased 8% to $1.52 billion and OPBDA
margin improved to 26.3% principally due to lower subscriber
acquisition costs related to the reduction in gross additions,
relatively unchanged subscriber services costs, and the absence of
NFL Sunday Ticket costs in the quarter. These improvements were
partially offset by higher programming costs mostly related to
programming supplier rate increases. Operating profit increased 7%
to $1.12 billion and operating profit margin increased to 19.3% in
the first quarter mainly due to the OPBDA and OPBDA margin
improvements, partially offset by higher depreciation and
amortization resulting from increased leased equipment and
infrastructure capital expenditures.
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 5.41 million subscribers
as of March 31, 2013, bringing the total subscribers in the
region to 16.32 million.
DIRECTV Latin America
Three Months Ended
March 31,
Dollars in Millions except ARPU 2013
2012
Revenues $ 1,728
$ 1,485 Average
Monthly Revenue per Subscriber (ARPU) ($)
54.23
60.59 Adjusted Operating Profit Before
Depreciation and Amortization(1) 546
468 Adjusted OPBDA Margin(1)
31.6 %
31.5 % Adjusted Operating Profit 283
249 Adjusted Operating Profit Margin 16.4 %
16.8
%
Capital Expenditures and Cash Flow
Cash paid for property and equipment
41
44 Cash paid for subscriber leased equipment -
subscriber acquisitions 195
252
Cash paid for subscriber leased equipment - upgrade and retention
116
103 Cash paid for satellites
22
22 Cash Flow Before Interest and
Taxes(2) 102
68 Free Cash
Flow(3) 10
(34 )
Subscriber
Data(4) (in 000's except Churn)
Gross Subscriber Additions
1,181
1,034 Average Monthly Total Subscriber
Churn 1.88 %
1.80 % Average Monthly Post-paid
Subscriber Churn 1.74 %
1.47 % Net Subscriber
Additions 583
593 Cumulative
Subscribers 10,912
8,464
Reported Operating Profit Before
Depreciation and Amortization(1) 380 468 Reported OPBDA Margin(1)
22.0 %
31.5 % Reported Operating Profit 117
249 Reported Operating Profit Margin 6.8 %
16.8
%
First Quarter Review
In the first quarter, DTVLA revenues increased 16% to $1.73
billion compared to the same period last year principally due to
strong subscriber growth partially offset by a 10.5% decline in
ARPU. Net additions of 583,000 were slightly lower than the year
ago period as the increase in gross additions was offset by higher
churn. Gross additions increased 14% to a first quarter record of
1.18 million principally due to greater middle market demand across
the region, most notably in Argentina, Brazil and Colombia. Total
average monthly churn increased to 1.88% and average monthly
post-paid churn increased to 1.74% mainly due to higher churn in
Brazil related to middle market subscribers and increased
competition. The decline in ARPU to $54.23 was mainly due to the
devaluation in Venezuela and unfavorable foreign exchange
comparisons in Brazil and Argentina. Excluding the impact of
exchange rates, ARPU increased 1.5% 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, particularly in Brazil.
In the quarter, DTVLA recorded a $166 million charge associated
with the revaluation of the net monetary assets of the company's
subsidiary in Venezuela at the time of the Bolivar's devaluation in
February. Excluding this charge, adjusted OPBDA increased 17% and
adjusted OPBDA margin was relatively unchanged at 31.6% as higher
subscriber service expenses in Brazil were offset by lower
subscriber acquisition costs in Brazil and lower general and
administrative expenses in PanAmericana. First quarter adjusted
operating profit increased 14% while adjusted operating profit
margin declined to 16.4% reflecting higher depreciation and
amortization resulting from increased leased equipment and
infrastructure capital expenditures. Reported OPBDA declined 19% to
$380 million while reported operating profit declined 53% to $117
million.
CONFERENCE CALL INFORMATION
A live webcast of DIRECTV's first quarter 2013 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, May 7, 2013. Access to the earnings call is also
available in the United States by dialing (888) 263-2905 and
internationally by dialing (913) 312-1500. The conference ID number
is 4240084. 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 4240084. The replay will be available from 3:00 p.m.
PT, Tuesday, May 7, through 3:00 p.m. PT, Tuesday, May 14, 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 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 1,000 video subscribers acquired in the first quarter,
2013. 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 over 20.1 million customers in the United
States and over 16.3 million customers in Latin America. DIRECTV
sports and entertainment properties include two regional sports
networks (Rocky Mountain and Pittsburgh) and minority ownership
interests in Root Sports Northwest and 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
March 31,
2013
2012 Revenues $ 7,580
$ 7,046
Operating costs and expenses Costs of
revenues, exclusive of depreciation and amortization expense
Broadcast programming and other 3,196 2,964 Subscriber service
expenses 537 499 Broadcast operations expenses 110 104 Selling,
general and administrative expenses, exclusive of depreciation and
amortization expense Subscriber acquisition costs 814 816 Upgrade
and retention costs 368 343 General and administrative expenses 469
417 Venezuelan currency devaluation charge 166 — Depreciation and
amortization expense 678
595
Total operating costs and expenses
6,338
5,738
Operating profit 1,242 1,308
Interest income 22 12 Interest expense (217 ) (204 ) Other, net
38
41
Income before income
taxes 1,085 1,157 Income tax expense (387
)
(416 ) Net income 698 741 Less: Net income attributable to
noncontrolling interest (8 )
(10 )
Net
income attributable to DIRECTV $ 690
$ 731
Basic earnings attributable to DIRECTV per
common share $ 1.21 $ 1.08
Diluted earnings attributable to
DIRECTV per common share $ 1.20 $ 1.07 Weighted average number
of common shares outstanding (in millions): Basic 572 678 Diluted
577 681
DIRECTV
CONSOLIDATED BALANCE SHEETS (Dollars in Millions)
(Unaudited) ASSETS
March 31, 2013
December 31, 2012 Current assets
Cash and cash equivalents $ 1,679 $ 1,902 Accounts receivable, net
of allowances of $94 and $81 2,649 2,696 Inventories 418 412
Deferred income taxes 63 73 Prepaid expenses and other 622 471
Assets held for sale 185
—
Total
current assets 5,616 5,554
Satellites, net 2,375 2,357
Property and equipment, net 6,212 6,038
Goodwill
3,997 4,063
Intangible assets, net 767 832
Investments
and other assets 1,683
1,711
Total assets $ 20,650
$
20,555
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities $ 4,422 $ 4,618 Unearned
subscriber revenues and deferred credits 604 565 Current debt 499
358 Liabilities held for sale 22
—
Total current liabilities 5,547 5,541
Long-term debt
17,866 17,170
Deferred income taxes 1,679 1,672
Other
liabilities and deferred credits 1,306 1,203
Commitments and
contingencies Redeemable noncontrolling interest 400 400
Total stockholders' deficit (6,148 )
(5,431 )
Total liabilities and stockholders' deficit
$ 20,650
$ 20,555
DIRECTV CONSOLIDATED STATEMENTS OF CASH
FLOWS (Dollars in Millions) (Unaudited)
Three Months Ended
March 31,
2013
2012 Cash Flows From
Operating Activities Net income $ 698 $ 741 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation and amortization 678 595 Venezuelan currency
devaluation charge 166 — Amortization of deferred revenues and
deferred credits (13 ) (12 ) Share-based compensation expense 34 27
Equity in earnings from unconsolidated affiliates (32 ) (33 ) Net
foreign currency transaction gain (6 ) (13 ) Net gains from sale of
investments (7 ) — Deferred income taxes 95 58 Excess tax benefit
from share-based compensation (24 ) (28 ) Other 5 22 Change in
other operating assets and liabilities: Accounts receivable 51 312
Inventories (10 ) (5 ) Prepaid expenses and other 43 161 Accounts
payable and accrued liabilities (167 ) (77 ) Unearned subscriber
revenue and deferred credits 41 16 Other, net
(16 )
(1 ) Net cash provided by operating activities
1,536
1,763
Cash Flows From Investing
Activities Cash paid for property and equipment (748 ) (753 )
Cash paid for satellites (78 ) (58 ) Investment in companies, net
of cash acquired (3 ) — Proceeds from sale of investments 16 —
Other, net (5 )
25 Net cash used in
investing activities (818 )
(786 )
Cash
Flows From Financing Activities Issuance of commercial paper
(maturity 90 days or less), net 190 — Proceeds from short-term
borrowings 84 — Repayment of short-term borrowings (153 ) —
Proceeds from borrowings under revolving credit facility — 400
Repayment of borrowings under revolving credit facility — (400 )
Proceeds from long-term debt 792 3,996 Debt issuance costs (4 ) (23
) Repayment of other long-term obligations (18 ) (13 ) Common
shares repurchased and retired (1,378 ) (1,260 ) Prepayment of
accelerated share repurchase (230 ) — Taxes paid in lieu of shares
issued for share-based compensation (61 ) (52 ) Excess tax benefit
from share-based compensation 24
28
Net cash provided by (used in) financing activities
(754 )
2,676 Effect of exchange rate changes on
Venezuelan cash and cash equivalents (187 )
—
Net increase (decrease) in cash and cash equivalents (223 )
3,653 Cash and cash equivalents at beginning of the period
1,902
873 Cash and cash equivalents at
end of the period $ 1,679
$ 4,526
Supplemental Cash Flow Information Cash paid for interest $
325 $ 255 Cash paid for income taxes 94 113
DIRECTV SELECTED SEGMENT DATA
(Dollars in Millions) (Unaudited)
Three Months Ended
March 31,
2013
2012 DIRECTV U.S.
Revenues $ 5,790 $ 5,499
Operating profit before depreciation and
amortization(1)
1,521 1,410
Operating profit before depreciation and
amortization margin(1)
26.3 % 25.6 % Operating profit $ 1,115 $ 1,038 Operating profit
margin 19.3 % 18.9 % Depreciation and amortization
$ 406
$ 372
SKY BRASIL Revenues
$ 965 $ 881
Operating profit before depreciation and
amortization(1)
311 287
Operating profit before depreciation and
amortization margin(1)
32.2 % 32.6 % Operating profit $ 154 $ 151 Operating profit margin
16.0 % 17.1 % Depreciation and amortization $
157
$ 136
PANAMERICANA Revenues $ 763 $ 604
Operating profit before depreciation and
amortization(1)
69 181
Operating profit before depreciation and
amortization margin(1)
9.0 % 30.0 % Operating profit (loss) $ (37 ) $ 98 Operating profit
margin (4.8 )% 16.2 % Depreciation and amortization
$ 106
$ 83
SPORTS NETWORKS,
ELIMINATIONS and OTHER Revenues $ 62 $ 62
Operating profit (loss) before
depreciation and amortization(1)
19 25 Operating profit 10 21 Depreciation and amortization
9
4
TOTAL Revenues $ 7,580
$ 7,046
Operating profit before depreciation and
amortization(1)
1,920 1,903
Operating profit before depreciation and
amortization margin(1)
25.3 % 27.0 % Operating profit $ 1,242 $ 1,308 Operating profit
margin 16.4 % 18.6 % Depreciation and amortization
$ 678
$ 595 (1) See footnote 1 above
DIRECTV HOLDINGS LLC (DIRECTV
U.S.) CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars
in Millions) (Unaudited)
Three Months Ended
March 31,
2013
2012 Revenues $ 5,790
$ 5,499
Operating costs and expenses Costs of
revenues, exclusive of depreciation and amortization expense
Broadcast programming and other 2,601 2,441 Subscriber service
expenses 351 349 Broadcast operations expenses 81 78 Selling,
general and administrative expenses, exclusive of depreciation and
amortization expense Subscriber acquisition costs 629 646 Upgrade
and retention costs 319 305 General and administrative expenses 288
270 Depreciation and amortization expense 406
372
Total operating costs and expenses
4,675
4,461
Operating profit
1,115 1,038 Interest expense (202 ) (188 ) Other, net
12
1
Income before income taxes 925 851
Income tax expense (335 )
(315 )
Net income
$ 590
$ 536
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED BALANCE SHEETS (Dollars in Millions)
(Unaudited) ASSETS
March 31, 2013
December 31, 2012 Current assets
Cash and cash equivalents $ 359 $ 739 Accounts receivable, net of
allowances of $52 and $42 2,019 2,096 Inventories 371 372 Prepaid
expenses and other 177
247
Total current assets 2,926 3,454
Satellites, net
1,804 1,795
Property and equipment, net 3,337 3,290
Goodwill 3,177 3,177
Intangible assets, net 450 453
Other assets 291
321
Total assets $ 11,985
$ 12,490
LIABILITIES AND OWNER'S DEFICIT
Current liabilities Accounts payable
and accrued liabilities $ 3,273 $ 3,391 Unearned subscriber
revenues and deferred credits 408 367 Current debt
480
358
Total current liabilities 4,161
4,116
Long-term debt 17,836 17,170
Deferred income
taxes 1,399 1,386
Other liabilities and deferred credits
399 326
Commitments and contingencies Owner's deficit
(11,810 )
(10,508 )
Total liabilities and
owner's deficit $ 11,985
$ 12,490
DIRECTV HOLDINGS LLC
(DIRECTV U.S.) CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions) (Unaudited)
Three Months Ended
March 31,
2013
2012 Cash Flows From
Operating Activities Net income $ 590 $ 536 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation and amortization 406 372 Amortization of deferred
revenues and deferred credits (13 ) (12 ) Share-based compensation
expense 25 21 Deferred income taxes 45 35 Excess tax benefit from
share-based compensation (20 ) (23 ) Other (8 ) 2 Change in other
operating assets and liabilities: Accounts receivable 103 344
Inventories 1 (7 ) Prepaid expenses and other 71 224 Accounts
payable and accrued liabilities (134 ) (167 ) Unearned subscriber
revenue and deferred credits 43 2 Other, net
22
32 Net cash provided by operating activities
1,131
1,359
Cash Flows From
Investing Activities Cash paid for property and equipment (111
) (109 ) Cash paid for subscriber leased equipment - subscriber
acquisitions (174 ) (160 ) Cash paid for subscriber leased
equipment - upgrade and retention (111 ) (85 ) Cash paid for
satellites (53 ) (34 ) Proceeds from sale of investments 12 —
Other, net 2
— Net cash used in
investing activities (435 )
(388 )
Cash
Flows From Financing Activities Issuance of commercial paper
(maturity 90 days or less), net 190 — Proceeds from short-term
borrowings 84 — Repayment of short-term borrowings (153 ) —
Proceeds from borrowings under revolving credit facility — 400
Repayment of borrowings under revolving credit facility — (400 )
Proceeds from issuance of long-term debt 743 3,996 Debt issuance
costs (4 ) (23 ) Repayment of other long-term obligations (6 ) (5 )
Cash dividends paid to Parent (1,950 ) (2,450 ) Excess tax benefit
from share-based compensation 20
23
Net cash provided by (used in) financing activities
(1,076 )
1,541 Net increase (decrease) in cash and cash
equivalents (380 ) 2,512 Cash and cash equivalents at beginning of
the period 739
232 Cash and cash
equivalents at end of the period $ 359
$
2,744
Supplemental Cash Flow Information Cash paid
for interest $ 310 $ 239 Cash paid for income taxes — 1
DIRECTV Consolidated Non-GAAP Financial Measure
Reconciliation Schedules (Dollars in Millions)
(Unaudited)
DIRECTV
Reconciliation of Cash Flow Before
Interest and Taxes2 and Free Cash Flow3
to
Net Cash Provided by Operating
Activities
Three Months Ended
March 31,
2013
2012 Cash Flow Before Interest and Taxes $ 1,107 $
1,308 Adjustments: Cash paid for interest (325 ) (255 ) Interest
income 22 12 Income taxes paid (94 )
(113 )
Subtotal - Free Cash Flow 710 952 Add Cash Paid For: Property and
equipment 748 753 Satellites 78
58 Net Cash Provided by
Operating Activities $ 1,536
$ 1,763 (2) and (3) - See
footnotes above
Reconciliation of Reported Operating Profit Before Depreciation
and Amortization to Operating Profit*
Three Months Ended
March 31,
2013
2012 Operating profit before depreciation and
amortization $ 1,920 $ 1,903 Subtract: Depreciation and
amortization 678
595 Operating profit $ 1,242
$
1,308 * 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 March
31, 2013, which is expected to be filed with the SEC in May 2013.
DIRECTV Consolidated Non-GAAP Financial
Measure Reconciliation Schedules (Dollars in Millions)
(Unaudited) DIRECTV Reconciliation of
Adjusted Operating Profit Before Depreciation and Amortization
(excluding the Venezuelan currency devaluation charge) to Operating
Profit
Three Months Ended
March 31,
2013
2012 Revenues $ 7,580
$ 7,046 Operating profit
before depreciation and amortization excluding the Venezuelan
currency devaluation charge $ 2,086 $ 1,903
OPBDA growth excluding Venezuelan currency
devaluation charge
9.6
%
Subtract: Venezuelan currency devaluation charge 166
—
Operating profit before depreciation and amortization 1,920 1,903
Subtract: Depreciation and amortization 678
595
Operating profit $ 1,242
$ 1,308 Operating profit before
depreciation and amortization margin excluding the Venezuelan
currency devaluation charge 27.5 %
27.0 %
Reconciliation of Adjusted Operating Profit (excluding
the Venezuelan currency devaluation charge) to Operating Profit
Three Months Ended
March 31,
2013
2012 Revenues $ 7,580 $ 7,046 Operating profit
excluding the Venezuelan currency devaluation charge $ 1,408 $
1,308 Operating Profit growth excluding Venezuelan currency
devaluation charge 7.6 % Subtract: Venezuelan currency devaluation
charge 166
— Operating profit $ 1,242
$ 1,308
Operating profit margin excluding the Venezuelan currency
devaluation charge 18.6 %
18.6 %
Reconciliation of Adjusted Net Income (excluding the Venezuelan
currency devaluation charge) to Net Income
Three Months Ended
March 31,
2013
2012 Net income attributable to DIRECTV excluding the
Venezuelan currency devaluation charge $ 826 $ 731 Subtract:
Venezuelan after-tax currency devaluation charge 136
— Net
income attributable to DIRECTV $ 690
$ 731 Net Income growth
excluding Venezuelan currency devaluation charge 13.0 % Diluted
Weighted Average Shares 577 681 Adjusted Diluted Earnings Per
Common Share $ 1.43 $ 1.07 Adjusted Diluted Earnings Per Common
Share growth excluding Venezuelan currency devaluation charge
33.6 %
DIRECTV
Latin America Non-GAAP Financial Measure Reconciliation
Schedules (Dollars in Millions)
(Unaudited)
DIRECTV Latin America Reconciliation
of Cash Flow Before Interest and Taxes2 and Free Cash
Flow3 to
Net Cash Provided by Operating
Activities
Three Months Ended
March 31,
2013
2012 Cash Flow Before Interest and Taxes $ 102 $ 68
Adjustments: Cash paid for interest (17 ) (14 ) Interest income 15
12 Income taxes paid (90 )
(100 ) Subtotal -
Free Cash Flow 10 (34 ) Add Cash Paid For: Property and equipment
41 44 Subscriber leased equipment - subscriber acquisitions 195 252
Subscriber leased equipment - upgrade and retention 116 103
Satellites 22
22 Net Cash Provided by Operating
Activities $ 384
$ 387 (2) and (3) - See footnotes above
Reconciliation of
Adjusted Operating Profit Before Depreciation and Amortization
(excluding the Venezuelan currency devaluation charge) to Operating
Profit
Three Months Ended
March 31,
2013
2012 Revenues $ 1,728 $ 1,485 Operating profit
before depreciation and amortization excluding the Venezuelan
currency devaluation charge $ 546 $ 468 OPBDA growth excluding
Venezuelan currency devaluation charge 16.7 % Subtract: Venezuelan
currency devaluation charge 166
— Operating profit before
depreciation and amortization 380 468 Subtract: Depreciation and
amortization 263
219 Operating profit $ 117
$
249 Operating profit before depreciation and amortization
margin excluding the Venezuelan currency devaluation charge
31.6 %
31.5 %
Reconciliation of Adjusted
Operating Profit (excluding the Venezuelan currency devaluation
charge) to Operating Profit
Three Months Ended
March 31,
2013
2012 Revenues $ 1,728 $ 1,485 Operating profit
excluding the Venezuelan currency devaluation charge $ 283 $ 249
Operating Profit growth excluding Venezuelan currency devaluation
charge 13.7 % Subtract: Venezuelan currency devaluation charge 166
— Operating profit $ 117
$ 249 Operating
profit margin excluding the Venezuelan currency devaluation charge
16.4 %
16.8 %
DIRECTV
U.S. Non-GAAP Financial Measure Reconciliation Schedules and SAC
Calculations (Dollars in Millions) (Unaudited)
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
Reconciliation of Pre-SAC Margin* to Operating
Profit
Three Months Ended
March 31,
2013
2012 Operating profit $ 1,115 $ 1,038 Adjustments:
Subscriber acquisition costs (expensed) 629 646 Depreciation and
amortization 406 372 Cash paid for subscriber leased equipment -
upgrade and retention (111 )
(85 ) Pre-SAC Margin $ 2,039
$
1,971 Pre-SAC Margin as a percentage of revenue
35.2 %
35.8 %
Reconciliation of Cash Flow
Before Interest and Taxes2 and Free Cash
Flow3 to
Net Cash Provided by Operating
Activities
Three Months Ended
March 31,
2013
2012 Cash Flow Before Interest and Taxes $ 992 $
1,211 Adjustments: Cash paid for interest (310 ) (239 ) Income
taxes paid —
(1 ) Subtotal - Free Cash
Flow 682 971 Add Cash Paid For: Property and equipment 111 109
Subscriber leased equipment - subscriber acquisitions 174 160
Subscriber leased equipment - upgrade and retention 111 85
Satellites 53
34 Net Cash Provided by Operating
Activities $ 1,131
$ 1,359 (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 Ended
March 31,
2013
2012 Subscriber acquisition costs (expensed) $ 629 $
646 Cash paid for subscriber leased equipment - subscriber
acquisitions 174
160 Total acquisition costs $ 803
$ 806 Gross subscriber additions (000's) 893 941
Average subscriber acquisition costs - per subscriber (SAC)
$ 899
$ 857
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