DIRECTV (NASDAQ:DTV) today announced an increase in second
quarter 2013 revenues of 7% to $7.70 billion, operating profit
before depreciation and amortization1 (OPBDA) of 4% to $2.08
billion, a decline in operating profit of 4% to $1.35 billion, and
higher earnings per share of 8% to $1.18 compared to last year's
second quarter.
“Our second quarter consolidated results highlight the benefits
of our diversified portfolio of businesses as DIRECTV, the world's
largest pay-TV company, grew its subscriber base to nearly 37
million customers,” said Mike White, president and CEO of DIRECTV.
“While macro-economic and operational challenges in Latin America
impacted our results, particularly in Brazil, contributions from
successfully executing on DIRECTV U.S.' long term strategic
imperatives combined with our share repurchase program drove solid
revenue, earnings per share and free cash flow in the quarter.”
DIRECTV'S Operational Review
DIRECTV Consolidated Three
Months EndedJune 30, Six Months EndedJune 30,
Dollars in Millions except Earnings per Common Share
2013 2012
2013 2012 Revenues
$ 7,700 $ 7,224 $
15,280 $ 14,270 Reported
Operating Profit Before Depreciation and Amortization(1) 2,081
2,009 4,001 3,912
Reported OPBDA Margin(1) 27.0 %
27.8 % 26.2 % 27.4
% Reported Operating Profit 1,350 1,411 2,592 2,719 Reported
Operating Profit Margin 17.5 %
19.5 % 17.0 % 19.1
% Reported Net Income Attributable to DIRECTV
660 711
1,350 1,442 Reported Diluted
Earnings Per Common Share 1.18
1.09 2.37
2.16
Capital Expenditures and Cash Flow
Cash paid for
property and equipment 193
215 345
368 Cash paid for subscriber leased equipment
- subscriber acquisitions 403
290 772
702 Cash paid for subscriber leased equipment
- upgrade and retention 236
159 463
347 Cash paid for satellites
116 126
194 184 Cash Flow Before
Interest and Taxes(2) 1,179
1,028 2,286
2,336 Free Cash Flow(3)
526 471
1,236 1,423
Adjusted
Financial Results
Adjusted Operating Profit Before Depreciation and
Amortization(1)
4,167 3,912 Adjusted OPBDA Margin(1)
27.3 % 27.4 % Adjusted Operating
Profit
2,758 2,719 Adjusted Operating Profit Margin
18.0 % 19.1 % Adjusted Net
Income Attributable to DIRECTV
1,486 1,442
Adjusted Diluted Earnings Per Common Share
2.61 2.16
"Adjusted" financial results in the table above and year-to-date
discussion below 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 2013.
Second Quarter Review
DIRECTV's second quarter revenues of $7.70 billion increased 7%
principally due to higher ARPU at DIRECTV U.S., as well as
subscriber growth at DIRECTV Latin America (DTVLA) and DIRECTV U.S.
over the last twelve months. These increases were partially offset
by lower ARPU at DTVLA primarily due to unfavorable exchange rates.
Also in the quarter, OPBDA increased 4% to $2.08 billion while
operating profit fell to $1.35 billion. OPBDA and operating profit
margin declined to 27.0% and 17.5%, respectively, primarily due to
higher programming costs at both DIRECTV U.S. and DTVLA, as well as
increased upgrade and retention spending at DIRECTV U.S., partially
offset by lower subscriber acquisition costs at DIRECTV U.S.
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, as
well as additional depreciation associated with capitalized
installation costs and subscriber equipment related to the higher
subscriber churn at Sky Brasil(5).
Net income attributable to DIRECTV declined to $660 million
mainly due to the lower operating profit. Also impacting the
comparison was a $59 million non-cash pre-tax charge in 2013 due to
the deconsolidation of DIRECTV Sports Network (DSN) Northwest
resulting from the renegotiation with the Seattle Mariners
regarding DIRECTV's ownership in the venture, as well as a $64
million charge in 2012 for the loss on the early retirement of
debt. Both of these charges were recorded on the "Other, net" line
of the Consolidated Statements of Operations. Diluted earnings per
share grew 8% to $1.18 in the quarter as the lower net income was
offset by share repurchases made over the last twelve months.
Cash flow before interest and taxes2 increased 15% to $1.18
billion and free cash flow3 increased 12% to $526 million compared
to the second quarter of 2012 primarily due to the higher OPBDA and
higher cash generated from working capital mostly due to the timing
of receivables and a reduction in inventory levels at DIRECTV U.S.
These increases were partially offset by higher capital
expenditures at both DIRECTV U.S. and DTVLA, mostly related to
increased cash paid for leased equipment at DIRECTV U.S. associated
with higher penetration of advanced boxes to both new and existing
customers. Free cash flow was also impacted by lower net interest
payments due to timing as well as an increase in income tax
payments related to the reversal of prior bonus depreciation
deductions and timing of tax payments.
Also during the quarter but not included in free cash flow was
cash paid for share repurchases of $590 million, as well as a May
2013 issuance by DIRECTV U.S. of €500 million (or about $650
million) aggregate principal amount of 2.750% Senior Notes due in
2023. In addition, there was $275 million of commercial paper
outstanding along with $52 million on Sky Brasil's BNDES facility
as of June 30, 2013.
Year to Date Review
DIRECTV's revenues for the first six months of 2013 of $15.28
billion increased 7% principally due to higher ARPU at DIRECTV U.S.
as well as subscriber growth over the last year at DTVLA and
DIRECTV U.S. These increases were partially offset by lower ARPU at
DTVLA primarily due to unfavorable exchange rates. Year to date
adjusted OPBDA increased 7% to $4.17 billion and adjusted operating
profit increased 1% to $2.76 billion compared with the same period
of 2012. Adjusted OPBDA margin was relatively unchanged in the
period as increased programming and upgrade and retention costs at
DIRECTV U.S., combined with higher general and administrative
expenses at DTVLA were mostly offset by lower subscriber
acquisition costs at DIRECTV U.S. Adjusted operating profit margin
was also negatively 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 2% to $4.00 billion and reported operating profit
declined to $2.59 billion in the first half of the year.
Adjusted net income attributable to DIRECTV increased 3% to
$1.49 billion compared with the first six months of 2012 primarily
due to the higher adjusted operating profit. Also impacting the
comparison was the $59 million non-cash pre-tax charge in 2013 due
to the deconsolidation of DSN Northwest, as well as the $64 million
charge in 2012 for the loss on the early retirement of debt. In
addition, adjusted diluted earnings per share improved 21% to $2.61
due to the higher adjusted net income, as well as share repurchases
made over the last twelve months. Reported net income attributable
to DIRECTV declined to $1.35 billion while reported diluted
earnings per share improved 10% to $2.37.
Cash flow before interest and taxes declined slightly to $2.29
billion and free cash flow declined to $1.24 billion compared to
the first six months of 2012 as the higher OPBDA was more than
offset by greater capital expenditures primarily at DIRECTV U.S.
driven by increased cash paid for leased equipment related to
higher penetration of advanced boxes to both new and existing
customers. In addition, free cash flow was impacted by higher tax
payments mostly related to the reversal of prior bonus depreciation
deductions and timing of tax payments.
Also during the first half of 2013 but not included in free cash
flow was $140 million received for the sale of investments
primarily for the partial sale of the Game Show Network equity
investment, cash paid for share repurchases of $1.97 billion, as
well as two debt issuances by DIRECTV U.S. -- the first in January
2013 of $750 million principal amount of 1.750% senior notes due in
2018, and the second in May 2013 of €500 million (or about $650
million) aggregate principal amount of 2.750% Senior Notes due in
2023.
SEGMENT FINANCIAL REVIEW DIRECTV U.S. Segment
DIRECTV
U.S. Three Months EndedJune 30, Six Months EndedJune 30,
Dollars in Millions except ARPU
2013 2012 2013
2012 Revenues $ 5,943
$ 5,647 $ 11,733
$ 11,146 Average Monthly Revenue per
Subscriber (ARPU) ($) 98.73
94.40 97.43
93.25 Operating Profit Before Depreciation and
Amortization(1) 1,651 1,585 3,172
2,995 OPBDA Margin(1)
27.8 % 28.1 % 27.0 %
26.9 % Operating Profit 1,241 1,216 2,356 2,254
Operating Profit Margin 20.9 %
21.5 % 20.1 % 20.2
%
Capital Expenditures and Cash Flow
Cash paid for property and equipment
154 131
265 240
Cash paid for subscriber leased equipment - subscriber acquisitions
151 118
325 278
Cash paid for subscriber leased equipment - upgrade and retention
119 45
230 130
Cash paid for satellites 55
82 108
116 Cash Flow Before Interest and Taxes(2)
1,127 946
2,119 2,157
Free Cash Flow(3) 576
527 1,258
1,498
Subscriber Data (in 000's except Churn)
Gross Subscriber
Additions 839
863 1,732
1,804 Average Monthly Subscriber Churn
1.53 % 1.53 % 1.49 %
1.48 % Net Subscriber Additions
(Disconnections) (84 )
(52 ) (63 ) 29
Cumulative Subscribers 20,021
19,914 20,021
19,914
Second Quarter Review
In the quarter, DIRECTV U.S. revenues increased 5% to $5.94
billion compared with the second quarter of 2012 primarily due to
strong ARPU growth along with a larger subscriber base. DIRECTV
U.S. net subscribers declined more in the quarter principally due
to lower gross subscriber additions associated with a continued
focus on higher quality subscribers, as well as a more challenging
competitive environment and mature industry. The average monthly
churn rate in the quarter was unchanged at 1.53%. ARPU increased
4.6% to $98.73 mostly due to higher advanced receiver service fees,
price increases on programming packages, higher fees for a new
enhanced warranty program, and increased commercial revenues
partially offset by increased promotional offers to new and
existing customers as well as lower pay-per-view revenues mainly
due to the timing of events. DIRECTV U.S. ended the quarter with
20.02 million subscribers compared with 19.91 million subscribers
reported for the quarter ended June 30, 2012.
Second quarter OPBDA increased 4% to $1.65 billion and operating
profit increased 2% to $1.24 billion. OPBDA and operating profit
margin declined slightly to 27.8% and 20.9%, respectively, in the
second quarter principally due to higher programming costs mostly
related to programming supplier rate increases and higher upgrade
and retention costs primarily associated with new customer loyalty
initiatives. These increases were partially offset by lower
subscriber acquisition costs related to the reduction in gross
additions, as well as relatively unchanged general and
administrative, subscriber services, and broadcast operations
expenses in the quarter. Operating profit margin was also impacted
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 Brasil and PanAmericana
ended the second quarter with 5.17 million and 5.91 million
subscribers, respectively. Sky Mexico, whose results are accounted
for as an equity method investment and therefore are not
consolidated by DTVLA, had approximately 5.65 million subscribers
as of June 30, 2013, bringing the total subscribers in the
region to 16.72 million.
DIRECTV Latin America Three
Months EndedJune 30, Six Months EndedJune 30,
Dollars in Millions except ARPU
2013 2012 2013
2012 Revenues $ 1,686
$ 1,508 $ 3,414
$ 2,993 Average Monthly Revenue per
Subscriber(5) (ARPU) ($) 51.13
57.20 52.82
58.80 Operating Profit Before Depreciation and
Amortization(1) 455 445 835
913 OPBDA Margin(1) 27.0 %
29.5 % 24.5 %
30.5 % Operating Profit 139 224 256 473 Operating Profit
Margin 8.2 % 14.9
% 7.5 % 15.8 %
Capital
Expenditures and Cash Flow
Cash paid for property and equipment
39 83
80 127 Cash paid for
subscriber leased equipment - subscriber acquisitions
252 172
447 424 Cash paid for
subscriber leased equipment - upgrade and retention
117 114
233 217 Cash paid for
satellites 58
42 80 64
Cash Flow Before Interest and Taxes(2)
7 89 109
157 Free Cash Flow(3)
(59 ) 14
(49 ) (20 )
Subscriber
Data(4) (in 000's except Churn)
Gross Subscriber Additions
1,189 1,119
2,370 2,153
Average Monthly Total Subscriber Churn(5)
3.10 % 1.80 % 2.51 %
1.80 % Average Monthly Post-paid Subscriber
Churn(5) 2.86 %
1.51 % 2.31 % 1.49 % Net
Subscriber Additions(5) 165
645 748
1,238 Cumulative Subscribers(5)
11,077 9,116
11,077 9,116
Second Quarter Review
In the second quarter, DTVLA revenues increased 12% to $1.69
billion compared to the same period last year principally due to
strong subscriber growth over the last year partially offset by a
10.6% decline in ARPU. Net additions of 165,000 were lower than the
year ago period as the increase in gross additions was offset by
higher churn. Gross additions increased 6% to an all-time record of
1.19 million principally due to greater middle market demand, most
notably in Argentina, Brazil and Colombia. Total average monthly
churn increased to 3.10% and average monthly post-paid churn
increased to 2.86% mainly due to higher churn in Brazil primarily
related to subscribers that were terminated due to the improper
crediting of certain customer accounts, including approximately
200,000 subscribers previously reported in the Sky Brasil
subscriber base on March 31, 2013(5). Also impacting churn in
Brazil were more challenging economic and competitive conditions,
as well as the effect of a higher mix of middle market
subscribers.
The decline in ARPU to $51.13 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 0.8% in the quarter principally due to price increases
and more upgrades including advanced services, mostly offset by the
higher penetration of lower ARPU middle market subscribers.
Also in the second quarter, OPBDA increased 2% to $455 million
while OPBDA margin declined to 27.0%. The decline in OPBDA margin
was primarily driven by higher subscriber acquisition costs mostly
related to the record gross additions and a higher mix of pre-paid
subscribers, increased general and administrative costs in part due
to higher system and infrastructure costs to support the larger
platform, as well as higher programming costs in Brazil mainly due
to programming supplier rate increases. Second quarter operating
profit declined to $139 million and operating profit margin
declined to 8.2% reflecting the lower OPBDA margin and higher
depreciation and amortization resulting from increased leased
equipment and infrastructure capital expenditures, as well as
additional depreciation associated with capitalized installation
costs and subscriber equipment related to the higher subscriber
churn at Sky Brasil(5).
CONFERENCE CALL INFORMATION
A live webcast of DIRECTV's second 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 August 1, 2013. Access to the earnings call is also
available in the United States by dialing (888) 710-4011 and
internationally by dialing (913) 312-1500. The conference ID number
is 2130521. 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 2130521. The replay will be available from 3:00 p.m.
PT Thursday, August 1 through 3:00 p.m. PT Thursday, August 8 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 7,000 video subscribers acquired during the three months
ended June 30, 2012 as well as 1,000 and 7,000 video
subscribers acquired during the six months ended June 30, 2013
and June 30, 2012, respectively. DTVLA cumulative subscriber
counts include these acquired customers.
(5) Based on the results of an internal investigation, DTVLA has
determined that, beginning in 2012, certain employees of Sky Brasil
directed activities which are inconsistent with Sky Brasil's
authorized policies for subscriber retention and churn management.
These activities had the effect of artificially reducing churn and
increasing the Sky Brasil subscriber base during portions of 2012
and 2013. As a result, subscribers who would have previously ceased
receiving Sky Brasil service are being terminated as subscribers
pursuant to Sky Brasil's authorized policies. See DIRECTV's Current
Report on Form 8K filed June 27, 2013 for further details. Prior
year results for subscribers, churn and ARPU have not been adjusted
for the findings of this investigation.
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 million customers in the United
States and over 16.7 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
EndedJune 30, Six Months EndedJune 30,
2013 2012 2013 2012
Revenues $ 7,700 $ 7,224
$ 15,280 $ 14,270
Operating costs and
expenses Costs of revenues, exclusive of depreciation and
amortization expense Broadcast programming and other 3,275 2,997
6,471 5,961 Subscriber service expenses 554 527 1,091 1,026
Broadcast operations expenses 97 103 207 207 Selling, general and
administrative expenses, exclusive of depreciation and amortization
expense Subscriber acquisition costs 809 789 1,623 1,605 Upgrade
and retention costs 374 331 742 674 General and administrative
expenses 510 468 979 885 Venezuelan currency devaluation charge — —
166 — Depreciation and amortization expense 731
598 1,409 1,193
Total
operating costs and expenses 6,350 5,813
12,688 11,551
Operating
profit 1,350 1,411 2,592 2,719 Interest income 19 11 41 23
Interest expense (219 ) (214 ) (436 ) (418 ) Other, net (75
) (67 ) (37 ) (26 )
Income before income
taxes 1,075 1,141 2,160 2,298 Income tax expense (414 )
(425 ) (801 ) (841 ) Net income 661 716 1,359
1,457 Less: Net income attributable to noncontrolling interest
(1 ) (5 ) (9 ) (15 )
Net income
attributable to DIRECTV $ 660 $ 711
$ 1,350 $ 1,442
Basic earnings
attributable to DIRECTV per common share $ 1.19 $ 1.09 $ 2.39 $
2.17
Diluted earnings attributable to DIRECTV per common
share $ 1.18 $ 1.09 $ 2.37 $ 2.16 Weighted average number of
common shares outstanding (in millions): Basic 556 651 565 664
Diluted 561 655 569 668
DIRECTV
CONSOLIDATED BALANCE SHEETS (Dollars in Millions)
(Unaudited) ASSETS June 30, 2013
December 31, 2012 Current assets Cash and cash
equivalents $ 2,365 $ 1,902 Accounts receivable, net of allowances
of $125 and $81 2,597 2,696 Inventories 403 412 Deferred income
taxes 66 73 Prepaid expenses and other 449 471
Total current assets 5,880 5,554
Satellites,
net 2,424 2,357
Property and equipment, net 6,236 6,038
Goodwill 3,987 4,063
Intangible assets, net 786 832
Investments and other assets 1,608
1,711
Total assets $ 20,921 $
20,555
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities Accounts payable
and accrued liabilities $ 4,355 $ 4,618 Unearned subscriber
revenues and deferred credits 606 565 Current debt 297
358
Total current liabilities 5,258
5,541
Long-term debt 18,516 17,170
Deferred income
taxes 1,510 1,672
Other liabilities and deferred credits
1,325 1,203
Commitments and contingencies Redeemable
noncontrolling interest 400 400
Total stockholders'
deficit (6,088 ) (5,431 )
Total liabilities
and stockholders' deficit $ 20,921 $
20,555
DIRECTV CONSOLIDATED STATEMENTS OF
CASH FLOWS (Dollars in Millions) (Unaudited)
Six Months EndedJune 30, 2013
2012 Cash Flows From Operating Activities Net
income $ 1,359 $ 1,457 Adjustments to reconcile net income to net
cash provided by operating activities: Depreciation and
amortization 1,409 1,193 Venezuelan currency devaluation charge 166
— DSN Northwest deconsolidation charge 59 — Amortization of
deferred revenues and deferred credits (26 ) (40 ) Share-based
compensation expense 59 58 Equity in earnings from unconsolidated
affiliates (56 ) (74 ) Net foreign currency transaction loss 33 30
Dividends received 35 26 Net gains from sale of investments (8 ) —
Deferred income taxes (39 ) 18 Excess tax benefit from share-based
compensation (24 ) (28 ) Other 29 57 Change in other operating
assets and liabilities: Accounts receivable 140 208 Inventories —
(51 ) Prepaid expenses and other 22 147 Accounts payable and
accrued liabilities (322 ) (154 ) Unearned subscriber revenue and
deferred credits 43 44 Other, net 131 133
Net cash provided by operating activities 3,010
3,024
Cash Flows From Investing
Activities Cash paid for property and equipment (1,580 ) (1,417
) Cash paid for satellites (194 ) (184 ) Investment in companies,
net of cash acquired (27 ) — Proceeds from sale of investments 140
— Other, net (18 ) 26 Net cash used in
investing activities (1,679 ) (1,575 )
DIRECTV CONSOLIDATED STATEMENTS OF CASH
FLOWS-(continued) (Dollars in Millions)
(Unaudited) Six Months
EndedJune 30, 2013
2012 Cash Flows From Financing Activities Repayment
of commercial paper (maturity 90 days or less), net (105 ) —
Proceeds from short-term borrowings 284 — Repayment of short-term
borrowings (262 ) — Proceeds from borrowings under revolving credit
facility 10 400 Repayment of borrowings under revolving credit
facility (10 ) (400 ) Proceeds from long-term debt 1,445 3,996 Debt
issuance costs (7 ) (25 ) Repayment of long-term debt (3 ) (1,500 )
Repayment of other long-term obligations (32 ) (25 ) Common shares
repurchased and retired (1,968 ) (2,612 ) Taxes paid in lieu of
shares issued for share-based compensation (61 ) (52 ) Excess tax
benefit from share-based compensation 24 28 Other, net 4
— Net cash used in financing activities
(681 ) (190 ) Effect of exchange rate changes on Venezuelan
cash and cash equivalents (187 ) — Net
increase in cash and cash equivalents 463 1,259 Cash and cash
equivalents at beginning of the period 1,902
873 Cash and cash equivalents at end of the period $
2,365 $ 2,132
Supplemental Cash Flow
Information Cash paid for interest $ 389 $ 377 Cash paid for
income taxes 702 559
DIRECTV
SELECTED SEGMENT DATA (Dollars in Millions)
(Unaudited) Three Months EndedJune 30, Six
Months EndedJune 30, 2013
2012 2013 2012 DIRECTV
U.S. Revenues $ 5,943 $ 5,647 $ 11,733 $ 11,146 Operating
profit before depreciation and amortization (1) 1,651 1,585 3,172
2,995 Operating profit before depreciation and amortization margin
(1) 27.8 % 28.1 % 27.0 % 26.9 % Operating profit $ 1,241 $ 1,216 $
2,356 $ 2,254 Operating profit margin 20.9 % 21.5 % 20.1 % 20.2 %
Depreciation and amortization $ 410 $ 369
$ 816 $ 741
SKY
BRASIL Revenues $ 942 $ 838 $ 1,907 $ 1,719 Operating profit
before depreciation and amortization (1) 262 260 573 547 Operating
profit before depreciation and amortization margin (1) 27.8 % 31.0
% 30.0 % 31.8 % Operating profit $ 56 $ 126 $ 210 $ 277 Operating
profit margin 5.9 % 15.0 % 11.0 % 16.1 % Depreciation and
amortization $ 206 $ 134 $ 363
$ 270
PANAMERICANA Revenues $
744 $ 670 $ 1,507 $ 1,274 Operating profit before depreciation and
amortization (1) 193 185 262 366 Operating profit before
depreciation and amortization margin (1) 25.9 % 27.6 % 17.4 % 28.7
% Operating profit $ 83 $ 98 $ 46 $ 196 Operating profit margin
11.2 % 14.6 % 3.1 % 15.4 % Depreciation and amortization $
110 $ 87 $ 216 $ 170
SPORTS NETWORKS, ELIMINATIONS and OTHER
Revenues $ 71 $ 69 $ 133 $ 131 Operating profit (loss) before
depreciation and amortization (1) (25 ) (21 ) (6 ) 4 Operating loss
(30 ) (29 ) (20 ) (8 ) Depreciation and amortization 5
8 14 12
TOTAL Revenues $ 7,700 $ 7,224 $ 15,280 $ 14,270 Operating
profit before depreciation and amortization (1) 2,081 2,009 4,001
3,912 Operating profit before depreciation and amortization margin
(1) 27.0 % 27.8 % 26.2 % 27.4 % Operating profit $ 1,350 $ 1,411 $
2,592 $ 2,719 Operating profit margin 17.5 % 19.5 % 17.0 % 19.1 %
Depreciation and amortization $ 731 $ 598
$ 1,409 $ 1,193 (1) See
footnote 1 above
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in
Millions) (Unaudited)
Three Months EndedJune 30, Six Months
EndedJune 30, 2013 2012 2013
2012 Revenues $ 5,943 $
5,647 $ 11,733 $ 11,146
Operating costs and expenses Costs of revenues, exclusive of
depreciation and amortization expense Broadcast programming and
other 2,642 2,423 5,243 4,864 Subscriber service expenses 360 357
711 706 Broadcast operations expenses 71 77 152 155 Selling,
general and administrative expenses, exclusive of depreciation and
amortization expense Subscriber acquisition costs 594 614 1,223
1,260 Upgrade and retention costs 324 285 643 590 General and
administrative expenses 301 306 589 576 Depreciation and
amortization expense 410 369 816
741
Total operating costs and expenses
4,702 4,431 9,377
8,892
Operating profit 1,241 1,216 2,356 2,254
Interest income 1 — 1 — Interest expense (206 ) (200 ) (408 ) (388
) Other, net 4 (57 ) 16
(56 )
Income before income taxes 1,040 959 1,965 1,810
Income tax expense (394 ) (355 ) (729 )
(670 )
Net income $ 646 $ 604
$ 1,236 $ 1,140
DIRECTV
HOLDINGS LLC (DIRECTV U.S.) CONSOLIDATED
BALANCE SHEETS (Dollars in Millions) (Unaudited)
ASSETS June 30, 2013 December
31, 2012 Current assets Cash and cash equivalents $
1,352 $ 739 Accounts receivable, net of allowances of $76 and $42
2,005 2,096 Inventories 360 372 Prepaid expenses and other
151 247
Total current assets 3,868
3,454
Satellites, net 1,821 1,795
Property and equipment,
net 3,411 3,290
Goodwill 3,188 3,177
Intangible
assets, net 460 453
Other assets 279
321
Total assets $ 13,027
$ 12,490
LIABILITIES AND OWNER'S DEFICIT
Current liabilities Accounts payable
and accrued liabilities $ 3,168 $ 3,391 Unearned subscriber
revenues and deferred credits 414 367 Current debt 275
358
Total current liabilities 3,857
4,116
Long-term debt 18,486 17,170
Deferred income
taxes 1,406 1,386
Other liabilities and deferred credits
413 326
Commitments and contingencies Owner's deficit
(11,135 ) (10,508 )
Total liabilities and owner's
deficit $ 13,027 $ 12,490
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in
Millions) (Unaudited) Six Months EndedJune
30, 2013 2012 Cash Flows
From Operating Activities Net income $ 1,236 $ 1,140
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 816 741
Amortization of deferred revenues and deferred credits (26 ) (40 )
Share-based compensation expense 45 46 Deferred income taxes 75 66
Excess tax benefit from share-based compensation (20 ) (23 ) Other
3 33 Change in other operating assets and liabilities: Accounts
receivable 141 258 Inventories 13 (49 ) Prepaid expenses and other
102 241 Accounts payable and accrued liabilities (284 ) (227 )
Unearned subscriber revenue and deferred credits 49 23 Other, net
36 53 Net cash provided by operating
activities 2,186 2,262
Cash Flows
From Investing Activities Cash paid for property and equipment
(265 ) (240 ) Cash paid for subscriber leased equipment -
subscriber acquisitions (325 ) (278 ) Cash paid for subscriber
leased equipment - upgrade and retention (230 ) (130 ) Cash paid
for satellites (108 ) (116 ) Investment in companies, net of cash
acquired (21 ) — Proceeds from sale of investments 12 — Other, net
2 — Net cash used in investing
activities (935 ) (764 )
Cash Flows From Financing
Activities Repayment of commercial paper (maturity 90 days or
less), net (105 ) — Proceeds from short-term borrowings 284 —
Repayment of short-term borrowings (262 ) — Proceeds from
borrowings under revolving credit facility 10 400 Repayment of
borrowings under revolving credit facility (10 ) (400 ) Proceeds
from issuance of long-term debt 1,390 3,996 Debt issuance costs (7
) (25 ) Repayment of long-term debt — (1,500 ) Repayment of other
long-term obligations (12 ) (9 ) Cash dividends paid to Parent
(1,950 ) (3,450 ) Excess tax benefit from share-based compensation
20 23 Other, net 4 — Net cash used in
financing activities (638 ) (965 ) Net increase in
cash and cash equivalents 613 533 Cash and cash equivalents at
beginning of the period 739 232 Cash
and cash equivalents at end of the period $ 1,352
$ 765
Supplemental Cash Flow Information Cash
paid for interest $ 360 $ 348 Cash paid for income taxes 502 311
DIRECTV Consolidated Non-GAAP Financial Measure
Reconciliation Schedules (Dollars in Millions, Except Per
Share Amounts) (Unaudited) DIRECTV
Reconciliation of Cash Flow Before Interest and
Taxes2 and Free Cash Flow3 to
Net Cash Provided by Operating
Activities
Three Months EndedJune 30, Six
Months EndedJune 30, 2013 2012
2013 2012 Cash Flow Before Interest and Taxes
$ 1,179 $ 1,028 $ 2,286 $ 2,336 Adjustments: Cash paid for interest
(64 ) (122 ) (389 ) (377 ) Interest income 19 11 41 23 Income taxes
paid (608 ) (446 ) (702 ) (559 ) Subtotal -
Free Cash Flow 526 471 1,236 1,423 Add Cash Paid For: Property and
equipment 832 664 1,580 1,417 Satellites 116 126
194 184 Net Cash Provided by Operating
Activities $ 1,474 $ 1,261 $ 3,010
$ 3,024 (2) and (3) - See footnotes above
Reconciliation
of Reported Operating Profit Before Depreciation and Amortization
to Operating Profit* Three Months EndedJune 30,
Six Months EndedJune 30, 2013 2012
2013 2012 Operating profit before depreciation and
amortization $ 2,081 $ 2,009 $ 4,001 $ 3,912 Subtract: Depreciation
and amortization 731 598 1,409
1,193 Operating profit $ 1,350 $ 1,411
$ 2,592 $ 2,719 * 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 June 30, 2013, which is expected to be filed with the
SEC in August 2013.
DIRECTV Consolidated Non-GAAP
Financial Measure Reconciliation Schedules (Dollars in
Millions, Except Per Share Amounts) (Unaudited)
DIRECTV
Reconciliation of Adjusted Operating
Profit Before Depreciation and Amortization(excluding the
Venezuelan currency devaluation charge) to Operating Profit
Three Months EndedJune 30, Six Months
EndedJune 30, 2013 2012 2013
2012 Revenues $ 7,700 $ 7,224 $ 15,280 $ 14,270
Operating profit before depreciation and amortization excluding the
Venezuelan currency devaluation charge $ 2,081 $ 2,009 $ 4,167 $
3,912 OPBDA growth excluding Venezuelan currency devaluation charge
3.6 % 6.5 % Subtract: Venezuelan currency devaluation charge —
— 166 — Operating profit
before depreciation and amortization 2,081 2,009 4,001 3,912
Subtract: Depreciation and amortization 731 598
1,409 1,193 Operating profit $ 1,350
$ 1,411 $ 2,592 $ 2,719
Operating profit before depreciation and amortization margin
excluding the Venezuelan currency devaluation charge 27.0 %
27.8 % 27.3 % 27.4 %
Reconciliation of Adjusted Operating
Profit (excluding the Venezuelan currency devaluation
charge)to Operating Profit
Three Months EndedJune 30, Six Months
EndedJune 30, 2013 2012 2013
2012 Revenues $ 7,700 $ 7,224 $ 15,280 $ 14,270
Operating profit excluding the Venezuelan currency devaluation
charge $ 1,350 $ 1,411 $ 2,758 $ 2,719 Operating Profit growth
excluding Venezuelan currency devaluation charge (4.3 )% 1.4 %
Subtract: Venezuelan currency devaluation charge — —
166 — Operating profit $ 1,350
$ 1,411 $ 2,592 $ 2,719
Operating profit margin excluding the Venezuelan currency
devaluation charge 17.5 % 19.5 % 18.0 %
19.1
%
Reconciliation of Adjusted Net Income
(excluding the Venezuelan currency devaluation charge)to Net
Income
Three Months EndedJune 30, Six Months
EndedJune 30, 2013 2012 2013
2012 Net income attributable to DIRECTV excluding the
Venezuelan currency devaluation charge $ 660 $ 711 $ 1,486 $ 1,442
Subtract: Venezuelan after-tax currency devaluation charge —
— 136 — Net income attributable to
DIRECTV $ 660 $ 711 $ 1,350 $
1,442 Net Income growth excluding Venezuelan currency devaluation
charge (7.2 )% 3.1 % Diluted Weighted Average Shares 561 655 569
668 Adjusted Diluted Earnings Per Common Share $ 1.18 $ 1.09 $ 2.61
$ 2.16 Adjusted Diluted Earnings Per Common Share growth excluding
Venezuelan currency devaluation charge 8.3 %
20.8 %
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
toNet Cash Provided by Operating Activities
Three Months EndedJune 30, Six Months
EndedJune 30, 2013 2012 2013
2012 Cash Flow Before Interest and Taxes $ 7 $ 89 $ 109 $
157 Adjustments: Cash paid for interest (13 ) (13 ) (30 ) (27 )
Interest income 16 11 31 23 Income taxes paid (69 )
(73 ) (159 ) (173 ) Subtotal - Free Cash Flow (59 ) 14 (49 )
(20 ) Add Cash Paid For: Property and equipment 39 83 80 127
Subscriber leased equipment - subscriber acquisitions 252 172 447
424 Subscriber leased equipment - upgrade and retention 117 114 233
217 Satellites 58 42 80 64
Net Cash Provided by Operating Activities $ 407
$ 425 $ 791 $ 812 (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 EndedJune 30, Six Months
EndedJune 30, 2013 2012 2013
2012 Revenues $ 1,686 $ 1,508 $ 3,414 $ 2,993
Operating profit before depreciation and amortization excluding the
Venezuelan currency devaluation charge $ 455 $ 445 $ 1,001 $ 913
OPBDA growth excluding Venezuelan currency devaluation charge 2.2 %
9.6 % Subtract: Venezuelan currency devaluation charge —
— 166 — Operating profit before
depreciation and amortization 455 445 835 913 Subtract:
Depreciation and amortization 316 221 579
440 Operating profit $ 139 $ 224
$ 256 $ 473 Operating profit before
depreciation and amortization margin excluding the Venezuelan
currency devaluation charge 27.0 % 29.5 % 29.3
% 30.5 %
Reconciliation of Adjusted Operating
Profit (excluding the Venezuelan currency devaluation
charge)to Operating Profit
Three Months EndedJune 30, Six Months
EndedJune 30, 2013 2012 2013
2012 Revenues $ 1,686 $ 1,508 $ 3,414 $ 2,993
Operating profit excluding the Venezuelan currency devaluation
charge $ 139 $ 224 $ 422 $ 473 Operating Profit growth excluding
Venezuelan currency devaluation charge (37.9 )% (10.8 )% Subtract:
Venezuelan currency devaluation charge — — 166
— Operating profit $ 139 $ 224
$ 256 $ 473 Operating profit margin
excluding the Venezuelan currency devaluation charge 8.2 %
14.9 % 12.4 % 15.8 %
DIRECTV U.S.
Non-GAAP Financial Measure Reconciliation Schedules (Dollars
in Millions) (Unaudited)
DIRECTV HOLDINGS LLC (DIRECTV U.S.) Reconciliation
of Pre-SAC Margin* to Operating Profit Three
Months EndedJune 30, Six Months EndedJune
30, 2013 2012 2013 2012 Operating
profit $ 1,241 $ 1,216 $ 2,356 $ 2,254 Adjustments: Subscriber
acquisition costs (expensed) 594 614 1,223 1,260 Depreciation and
amortization 410 369 816 741 Cash paid for subscriber leased
equipment - upgrade and retention (119 ) (45 ) (230 )
(130 ) Pre-SAC Margin $ 2,126 $ 2,154 $ 4,165
$ 4,125 Pre-SAC Margin as a percentage of
revenue 35.8 % 38.1 % 35.5 % 37.0 %
Reconciliation of Cash Flow Before
Interest and Taxes2 and Free Cash Flow3
toNet Cash Provided by Operating Activities
Three Months EndedJune 30, Six Months
EndedJune 30, 2013 2012 2013
2012 Cash Flow Before Interest and Taxes $ 1,127 $ 946 $
2,119 $ 2,157 Adjustments: Cash paid for interest (50 ) (109 ) (360
) (348 ) Interest income 1 — 1 — Income taxes paid (502 )
(310 ) (502 ) (311 ) Subtotal - Free Cash Flow 576
527 1,258 1,498 Add Cash Paid For: Property and equipment 154 131
265 240 Subscriber leased equipment - subscriber acquisitions 151
118 325 278 Subscriber leased equipment - upgrade and retention 119
45 230 130 Satellites 55 82 108
116 Net Cash Provided by Operating Activities $ 1,055
$ 903 $ 2,186 $ 2,262 (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.
DIRECTV U.S.
Non-GAAP Financial Measure SAC Calculations (Dollars in
Millions, Except Per Subscriber Amounts)
(Unaudited) DIRECTV HOLDINGS LLC (DIRECTV
U.S.) SAC Calculation Three Months EndedJune
30, Six Months EndedJune 30, 2013
2012 2013 2012 Subscriber acquisition costs
(expensed) $ 594 $ 614 $ 1,223 $ 1,260 Cash paid for subscriber
leased equipment - subscriber acquisitions 151 118
325 278 Total acquisition costs $ 745
$ 732 $ 1,548 $ 1,538 Gross subscriber
additions (000's) 839 863 1,732 1,804 Average subscriber
acquisition costs - per subscriber (SAC) $ 888
$ 848 $ 894 $ 853
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