ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
(Dollars in Millions,
Except Per Share Amounts)
|
|
Revenues
|
|
$
|
7,880
|
|
$
|
7,416
|
|
$
|
23,160
|
|
$
|
21,686
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues, exclusive of depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast programming and other
|
|
|
3,441
|
|
|
3,288
|
|
|
9,912
|
|
|
9,249
|
|
Subscriber service expenses
|
|
|
583
|
|
|
566
|
|
|
1,674
|
|
|
1,592
|
|
Broadcast operations expenses
|
|
|
98
|
|
|
103
|
|
|
305
|
|
|
310
|
|
Selling, general and administrative expenses, exclusive of depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriber acquisition costs
|
|
|
941
|
|
|
944
|
|
|
2,564
|
|
|
2,549
|
|
Upgrade and retention costs
|
|
|
411
|
|
|
382
|
|
|
1,153
|
|
|
1,056
|
|
General and administrative expenses
|
|
|
473
|
|
|
447
|
|
|
1,452
|
|
|
1,332
|
|
Venezuelan currency devaluation charge
|
|
|
|
|
|
|
|
|
166
|
|
|
|
|
Depreciation and amortization expense
|
|
|
708
|
|
|
618
|
|
|
2,117
|
|
|
1,811
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
6,655
|
|
|
6,348
|
|
|
19,343
|
|
|
17,899
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
1,225
|
|
|
1,068
|
|
|
3,817
|
|
|
3,787
|
|
Interest income
|
|
|
15
|
|
|
17
|
|
|
56
|
|
|
40
|
|
Interest expense
|
|
|
(182
|
)
|
|
(204
|
)
|
|
(618
|
)
|
|
(622
|
)
|
Other, net
|
|
|
43
|
|
|
39
|
|
|
6
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,101
|
|
|
920
|
|
|
3,261
|
|
|
3,218
|
|
Income tax expense
|
|
|
(391
|
)
|
|
(348
|
)
|
|
(1,192
|
)
|
|
(1,189
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
710
|
|
|
572
|
|
|
2,069
|
|
|
2,029
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
(11
|
)
|
|
(7
|
)
|
|
(20
|
)
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to DIRECTV
|
|
$
|
699
|
|
$
|
565
|
|
$
|
2,049
|
|
$
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings attributable to DIRECTV per common share
|
|
$
|
1.29
|
|
$
|
0.91
|
|
$
|
3.68
|
|
$
|
3.08
|
|
Diluted earnings attributable to DIRECTV per common share
|
|
$
|
1.28
|
|
$
|
0.90
|
|
$
|
3.65
|
|
$
|
3.06
|
|
Weighted average number of common shares outstanding (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
541
|
|
|
624
|
|
|
557
|
|
|
651
|
|
Diluted
|
|
|
545
|
|
|
629
|
|
|
562
|
|
|
655
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
2
Table of Contents
DIRECTV
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
(Dollars in Millions)
|
|
Net income
|
|
$
|
710
|
|
$
|
572
|
|
$
|
2,069
|
|
$
|
2,029
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss related to changes in plan experience and actuarial assumptions arising during the period
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Amortization of amounts resulting from changes in plan experience and actuarial assumptions recognized as periodic benefit cost
|
|
|
12
|
|
|
9
|
|
|
12
|
|
|
9
|
|
Amortization of amounts resulting from changes in plan provisions recognized as periodic benefit cost
|
|
|
1
|
|
|
|
|
|
1
|
|
|
|
|
Cash flows hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
|
|
78
|
|
|
(31
|
)
|
|
51
|
|
|
(31
|
)
|
Reclassification adjustments included in net income
|
|
|
(61
|
)
|
|
(3
|
)
|
|
(13
|
)
|
|
(3
|
)
|
Foreign currency translation adjustments
|
|
|
(3
|
)
|
|
(2
|
)
|
|
(51
|
)
|
|
(32
|
)
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses on securities
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Reclassification adjustment for net losses recognized during the period
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
26
|
|
|
(28
|
)
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
736
|
|
|
544
|
|
|
2,069
|
|
|
1,967
|
|
Less: Comprehensive income attributable to noncontrolling interest
|
|
|
(11
|
)
|
|
(6
|
)
|
|
(6
|
)
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to DIRECTV
|
|
$
|
725
|
|
$
|
538
|
|
$
|
2,063
|
|
$
|
1,960
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
3
Table of Contents
DIRECTV
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 30,
2013
|
|
December 31,
2012
|
|
|
|
(Dollars in Millions,
Except Share Data)
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,622
|
|
$
|
1,902
|
|
Accounts receivable, net of allowances of $118 and $81
|
|
|
2,527
|
|
|
2,696
|
|
Inventories
|
|
|
350
|
|
|
412
|
|
Deferred income taxes
|
|
|
73
|
|
|
73
|
|
Prepaid expenses and other
|
|
|
457
|
|
|
471
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,029
|
|
|
5,554
|
|
Satellites, net
|
|
|
2,443
|
|
|
2,357
|
|
Property and equipment, net
|
|
|
6,462
|
|
|
6,038
|
|
Goodwill
|
|
|
3,985
|
|
|
4,063
|
|
Intangible assets, net
|
|
|
930
|
|
|
832
|
|
Investments and other assets
|
|
|
1,739
|
|
|
1,711
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
20,588
|
|
$
|
20,555
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
4,017
|
|
$
|
4,618
|
|
Unearned subscriber revenues and deferred credits
|
|
|
715
|
|
|
565
|
|
Current debt
|
|
|
597
|
|
|
358
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
5,329
|
|
|
5,541
|
|
Long-term debt
|
|
|
18,635
|
|
|
17,170
|
|
Deferred income taxes
|
|
|
1,542
|
|
|
1,672
|
|
Other liabilities and deferred credits
|
|
|
1,290
|
|
|
1,203
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest
|
|
|
400
|
|
|
400
|
|
Stockholders' deficit
|
|
|
|
|
|
|
|
Common stock and additional paid-in capital$0.01 par value, 3,950,000,000 shares authorized, 530,852,885 and 586,839,817 shares issued and
outstanding of common stock at September 30, 2013 and December 31, 2012, respectively
|
|
|
3,671
|
|
|
4,021
|
|
Accumulated deficit
|
|
|
(10,037
|
)
|
|
(9,210
|
)
|
Accumulated other comprehensive loss
|
|
|
(242
|
)
|
|
(242
|
)
|
|
|
|
|
|
|
Total stockholders' deficit
|
|
|
(6,608
|
)
|
|
(5,431
|
)
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit
|
|
$
|
20,588
|
|
$
|
20,555
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
4
Table of Contents
DIRECTV
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2013
|
|
2012
|
|
|
|
(Dollars in Millions)
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,069
|
|
$
|
2,029
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
2,117
|
|
|
1,811
|
|
Venezuelan currency devaluation charge
|
|
|
166
|
|
|
|
|
DSN Northwest deconsolidation charge
|
|
|
59
|
|
|
|
|
Amortization of deferred revenues and deferred credits
|
|
|
(40
|
)
|
|
(54
|
)
|
Share-based compensation expense
|
|
|
79
|
|
|
77
|
|
Equity in earnings from unconsolidated affiliates
|
|
|
(86
|
)
|
|
(107
|
)
|
Net foreign currency transaction loss
|
|
|
42
|
|
|
32
|
|
Dividends received
|
|
|
38
|
|
|
28
|
|
Net gains from sale of investments
|
|
|
(8
|
)
|
|
(11
|
)
|
Deferred income taxes
|
|
|
(19
|
)
|
|
41
|
|
Excess tax benefit from share-based compensation
|
|
|
(24
|
)
|
|
(30
|
)
|
Other
|
|
|
(91
|
)
|
|
76
|
|
Change in other operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
200
|
|
|
15
|
|
Inventories
|
|
|
53
|
|
|
(97
|
)
|
Prepaid expenses and other
|
|
|
9
|
|
|
146
|
|
Accounts payable and accrued liabilities
|
|
|
(477
|
)
|
|
(143
|
)
|
Unearned subscriber revenue and deferred credits
|
|
|
152
|
|
|
139
|
|
Other, net
|
|
|
116
|
|
|
181
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
4,355
|
|
|
4,133
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
Cash paid for property and equipment
|
|
|
(2,471
|
)
|
|
(2,160
|
)
|
Cash paid for satellites
|
|
|
(276
|
)
|
|
(231
|
)
|
Investment in companies, net of cash acquired
|
|
|
(47
|
)
|
|
(4
|
)
|
Proceeds from sale of investments
|
|
|
140
|
|
|
24
|
|
Other, net
|
|
|
(158
|
)
|
|
25
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,812
|
)
|
|
(2,346
|
)
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
Issuance of commercial paper (maturity 90 days or less), net
|
|
|
90
|
|
|
|
|
Proceeds from short-term borrowings
|
|
|
441
|
|
|
|
|
Repayment of short-term borrowings
|
|
|
(327
|
)
|
|
|
|
Proceeds from borrowings under revolving credit facility
|
|
|
10
|
|
|
400
|
|
Repayment of borrowings under revolving credit facility
|
|
|
(10
|
)
|
|
(400
|
)
|
Proceeds from long-term debt
|
|
|
1,484
|
|
|
5,190
|
|
Debt issuance costs
|
|
|
(8
|
)
|
|
(35
|
)
|
Repayment of long-term debt
|
|
|
(9
|
)
|
|
(1,500
|
)
|
Repayment of other long-term obligations
|
|
|
(48
|
)
|
|
(40
|
)
|
Common shares repurchased and retired
|
|
|
(3,228
|
)
|
|
(3,828
|
)
|
Stock options exercised
|
|
|
|
|
|
2
|
|
Taxes paid in lieu of shares issued for share-based compensation
|
|
|
(61
|
)
|
|
(58
|
)
|
Excess tax benefit from share-based compensation
|
|
|
24
|
|
|
30
|
|
Other, net
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(1,636
|
)
|
|
(239
|
)
|
|
|
|
|
|
|
Effect of exchange rate changes on Venezuelan cash and cash equivalents
|
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(280
|
)
|
|
1,548
|
|
Cash and cash equivalents at beginning of the period
|
|
|
1,902
|
|
|
873
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
$
|
1,622
|
|
$
|
2,421
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
784
|
|
$
|
710
|
|
Cash paid for income taxes
|
|
|
1,035
|
|
|
881
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
5
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Description of Business and Basis of Presentation
DIRECTV, which we sometimes refer to as the company, we, or us, is a leading provider of digital television entertainment in the United
States and Latin America. We operate two direct-to-home, or DTH, business units: DIRECTV U.S. and DIRECTV Latin America, which are differentiated by their geographic locations and are engaged in
acquiring, promoting, selling and distributing digital entertainment programming primarily via satellite to residential and commercial subscribers. In addition, we own and operate regional sports
networks and own a 42% interest in Game Show Network, LLC, or GSN, a television network dedicated to game-related programming and Internet interactive game playing. We account for our
investment in GSN using the equity method of accounting.
-
-
DIRECTV
U.S.
DIRECTV Holdings LLC and its subsidiaries, which we refer to as DIRECTV U.S., is the largest provider of DTH digital
television services and the second largest provider in the multi-channel video programming distribution industry in the United States.
-
-
DIRECTV Latin
America.
DIRECTV Latin America Holdings, Inc. and its subsidiaries, or DIRECTV Latin America, is a leading provider of DTH
digital television services throughout Latin America. DIRECTV Latin America is comprised of: PanAmericana, which provides services in Argentina, Chile, Colombia, Ecuador, Puerto Rico, Venezuela and
certain other countries in the region, and Sky Brasil Servicos Ltda., or Sky Brasil, which is a 93% owned subsidiary. DIRECTV Latin America also includes our 41% equity method investment in
Innova, S. de R.L. de C.V., or Sky Mexico, which we include in the PanAmericana segment.
-
-
DIRECTV Sports
Networks.
DIRECTV Sports Networks LLC and its subsidiaries, or DSN, is comprised primarily of two wholly owned regional sports
networks based in Denver, Colorado and Pittsburgh, Pennsylvania, and a regional sports network based in Seattle, Washington in which DSN retains a noncontrolling interest, each of which operates under
the brand name ROOT Sports. As further discussed in Note 2 below, on April 16, 2013, DSN transferred 100% of its interest in a regional sports network based in Seattle, Washington, or
DSN Northwest, to NW Sports Net LLC. The Seattle Mariners have a majority interest in NW Sports Net LLC and DSN retains a noncontrolling interest, which we account for using the equity
method of accounting. The operating results of DSN are reported as part of the "Sports Networks, Eliminations and Other" reporting segment.
We
have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP, for
interim financial reporting. In the opinion of management, all adjustments (consisting only of normal recurring items) that are necessary for a fair presentation have been included. The results for
interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. For further information, refer to the consolidated financial
statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on February 21, 2013, our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2013 filed with the SEC on May 8, 2013, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed with
the SEC on August 2, 2013, and all of our other filings, including Current Reports on Form 8-K, filed with the SEC after such date and through the date of this report.
We
prepare our consolidated financial statements in conformity with GAAP, which requires us to make estimates and assumptions that affect amounts reported herein. We base our estimates
and
6
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
assumptions
on historical experience and on various other factors that we believe to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, our actual
results reported in future periods may be affected by changes in those estimates.
Note 2: Divestiture
DSN Northwest Transaction
On April 16, 2013, DSN transferred 100% of its interest in DSN Northwest to NW Sports Net LLC. Upon completion of the
transaction, the Seattle Mariners have a majority interest in NW Sports Net LLC and DSN retains a noncontrolling interest, which we account for using the equity method of accounting.
Additionally, DSN provides management oversight and programming services to NW Sports Net LLC as part of management service agreements entered into as part of this transaction. As a result of
this transaction, we deconsolidated DSN Northwest and recorded a non-cash, pre-tax charge of approximately $59 million ($56 million after tax) in "Other, net" in the Consolidated
Statements of Operations.
Note 3: Goodwill
The following table sets forth changes in the carrying amounts of "Goodwill" in the Consolidated Balance Sheets by reportable segment
for the nine months ended September 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV Latin
America
|
|
|
|
|
|
|
|
|
|
Sports
Networks,
Eliminations
and Other
|
|
|
|
|
|
DIRECTV
U.S.
|
|
Sky
Brasil
|
|
PanAmericana
|
|
Total
|
|
|
|
(Dollars in Millions)
|
|
Balance as of January 1, 2013
|
|
$
|
3,177
|
|
$
|
380
|
|
$
|
211
|
|
$
|
295
|
|
$
|
4,063
|
|
Sky Brasil foreign currency translation adjustment
|
|
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
(31
|
)
|
DSN Northwest Transaction
|
|
|
|
|
|
|
|
|
|
|
|
(73
|
)
|
|
(73
|
)
|
Acquisitions
|
|
|
11
|
|
|
15
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2013
|
|
$
|
3,188
|
|
$
|
364
|
|
$
|
211
|
|
$
|
222
|
|
$
|
3,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4: Debt
The following table sets forth our outstanding debt as of:
|
|
|
|
|
|
|
|
|
|
September 30,
2013
|
|
December 31,
2012
|
|
|
|
(Dollars in Millions)
|
|
Current debt
|
|
|
|
|
|
|
|
Current portion of borrowings under BNDES financing facility
|
|
$
|
35
|
|
$
|
|
|
Commercial paper
|
|
|
562
|
|
|
358
|
|
Long-term debt
|
|
|
|
|
|
|
|
Borrowings under BNDES financing facility
|
|
|
50
|
|
|
|
|
Senior notes
|
|
|
18,585
|
|
|
17,170
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
19,232
|
|
$
|
17,528
|
|
|
|
|
|
|
|
7
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
The
amount of interest accrued related to our outstanding debt was $114 million at September 30, 2013 and $246 million at December 31, 2012.
Senior Notes
Nine Months Ended September 30, 2013 Financing Transactions
On January 10, 2013, DIRECTV U.S. issued, pursuant to a registration statement, $750 million in aggregate principal of
1.750% senior notes due in 2018 with proceeds, net of an original issue discount, of $743 million. We incurred $4 million of debt issuance costs in connection with this transaction.
On
May 13, 2013, DIRECTV U.S. issued, pursuant to a U.S. registration statement, €500 million ($650 million) in aggregate principal of 2.750% senior
notes due in 2023 resulting in proceeds, net of an original issue discount, of €497 million ($646 million). The U.S. dollar amounts reflect the conversion of the
€500 million aggregate principal and the €497 million proceeds, net of discount, to U.S. dollars based on the exchange rate of €1.00/
$1.30 at May 13, 2013. In connection with the issuance of these senior notes, DIRECTV U.S. entered into cross-currency swaps to effectively convert its fixed-rate euro denominated debt,
including annual interest payments and the payment of principal at maturity, to fixed-rate U.S. dollar denominated debt, as further discussed in Note 5. We incurred $4 million of debt
issuance costs in connection with this transaction.
Nine Months Ended September 30, 2012 Financing Transactions
On March 8, 2012, DIRECTV U.S. issued the following senior notes in private placement transactions:
|
|
|
|
|
|
|
|
|
|
Principal
|
|
Proceeds, net
of discount
|
|
|
|
(Dollars in Millions)
|
|
2.400% senior notes due in 2017
|
|
$
|
1,250
|
|
$
|
1,249
|
|
3.800% senior notes due in 2022
|
|
|
1,500
|
|
|
1,499
|
|
5.150% senior notes due in 2042
|
|
|
1,250
|
|
|
1,248
|
|
|
|
|
|
|
|
|
|
$
|
4,000
|
|
$
|
3,996
|
|
|
|
|
|
|
|
We
incurred $25 million of debt issuance costs in connection with these transactions.
On
May 15, 2012, DIRECTV U.S. redeemed, pursuant to the terms of its indenture, all of its then outstanding $1,500 million of 7.625% senior notes due in 2016, at a price of
103.813%, plus accrued and unpaid interest, for a total of $1,614 million. We recorded a pre-tax charge of $64 million ($40 million after tax) during the second quarter of 2012,
of which $57 million resulted from the premium paid for the redemption and $7 million resulted from the write-off of deferred debt issuance and other transaction costs. The charge was
recorded in "Other, net" in our Consolidated Statements of Operations.
On
September 11, 2012, DIRECTV U.S. issued, pursuant to a registration statement, £750 million ($1,208 million) in aggregate principal of 4.375% senior
notes due in 2029 with proceeds, net of an original issue discount, of £742 million ($1,194 million). The U.S. dollar amounts reflect the conversion of the
£750 million aggregate principal and the £742 million proceeds, net of discount, to U.S. dollars based on the exchange rate of £1.00/ $1.61 at
September 11, 2012. In connection with the issuance of
8
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
these
senior notes, DIRECTV U.S. entered into cross-currency swaps to effectively convert its fixed-rate British pound sterling denominated debt, including annual interest payments and the payment of
principal at maturity, to fixed-rate U.S. dollar denominated debt, as further discussed in Note 5. We incurred $9 million of debt issuance costs in connection with this transaction.
The
following table sets forth our outstanding senior notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal amount
|
|
Carrying value, net of
unamortized original
issue discounts
|
|
|
|
September 30,
2013
|
|
September 30,
2013
|
|
December 31,
2012
|
|
|
|
(Dollars in Millions)
|
|
4.750% senior notes due in 2014
|
|
$
|
1,000
|
|
$
|
999
|
|
$
|
999
|
|
3.550% senior notes due in 2015
|
|
|
1,200
|
|
|
1,200
|
|
|
1,200
|
|
3.125% senior notes due in 2016
|
|
|
750
|
|
|
750
|
|
|
750
|
|
3.500% senior notes due in 2016
|
|
|
1,500
|
|
|
1,499
|
|
|
1,498
|
|
2.400% senior notes due in 2017
|
|
|
1,250
|
|
|
1,249
|
|
|
1,249
|
|
1.750% senior notes due in 2018
|
|
|
750
|
|
|
744
|
|
|
|
|
5.875% senior notes due in 2019
|
|
|
1,000
|
|
|
995
|
|
|
995
|
|
5.200% senior notes due in 2020
|
|
|
1,300
|
|
|
1,299
|
|
|
1,298
|
|
4.600% senior notes due in 2021
|
|
|
1,000
|
|
|
999
|
|
|
999
|
|
5.000% senior notes due in 2021
|
|
|
1,500
|
|
|
1,495
|
|
|
1,495
|
|
3.800% senior notes due in 2022
|
|
|
1,500
|
|
|
1,499
|
|
|
1,499
|
|
2.750% senior noted due in 2023(1)
|
|
|
676
|
|
|
673
|
|
|
|
|
4.375% senior notes due in 2029(1)
|
|
|
1,214
|
|
|
1,201
|
|
|
1,206
|
|
6.350% senior notes due in 2040
|
|
|
500
|
|
|
500
|
|
|
500
|
|
6.000% senior notes due in 2040
|
|
|
1,250
|
|
|
1,235
|
|
|
1,234
|
|
6.375% senior notes due in 2041
|
|
|
1,000
|
|
|
1,000
|
|
|
1,000
|
|
5.150% senior notes due in 2042
|
|
|
1,250
|
|
|
1,248
|
|
|
1,248
|
|
|
|
|
|
|
|
|
|
Total senior notes
|
|
$
|
18,640
|
|
$
|
18,585
|
|
$
|
17,170
|
|
|
|
|
|
|
|
|
|
-
(1)
-
These
amounts reflect the remeasurement of the aggregate principal and carrying value of our foreign currency denominated senior notes to U.S. dollars based
on the exchange rates in effect at each of the dates presented.
The
fair value of our senior notes was approximately $18,501 million at September 30, 2013 and $18,598 million at December 31, 2012. We calculated the fair
values based on quoted market prices of our senior notes, which is a Level 1 input under accounting guidance for fair value measurements of assets and liabilities.
All
of our senior notes were issued by DIRECTV Holdings LLC and DIRECTV Financing Co., Inc., or the Co-Issuers, and have been registered under the Securities Act of 1933,
as amended.
Our
senior notes mature as follows: $1,000 million in 2014, $1,200 million in 2015, $2,250 million in 2016, $1,250 million in 2017 and $12,940 million
in 2018 and thereafter.
9
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Commercial Paper
On November 27, 2012, DIRECTV U.S. established a commercial paper program backed by its revolving credit facilities, which
provides for the issuance of short-term commercial paper in the United States up to a maximum aggregate principal of $2.5 billion. As of September 30, 2013, we had $562 million of
short-term commercial paper outstanding, with a weighted average remaining maturity of 53 days, at a weighted average yield of 0.39%, which may be refinanced on a periodic basis as borrowings
mature. As of December 31, 2012, we had $358 million of short-term commercial paper outstanding, with a weighted average remaining maturity of 63 days, at a weighted average yield
of 0.54%. Aggregate amounts outstanding under the revolving credit facilities described below and the commercial paper program are limited to $2.5 billion.
Revolving Credit Facilities
On September 28, 2012, DIRECTV U.S.' five year, $2.0 billion, revolving credit facility dated February 7, 2011,
was terminated and replaced with a three and one-half year, $1.0 billion, revolving credit facility and a five year, $1.5 billion, revolving credit facility. We pay a commitment fee of
0.15% per year for the unused commitment under the revolving credit facilities. Borrowings currently bear interest at a rate equal to the London Interbank Offer Rate (LIBOR) plus 1.25%. Both the
commitment fee and the annual interest rate may increase or decrease under certain conditions due to changes in DIRECTV U.S.' long-term, unsecured debt ratings. Under certain conditions, DIRECTV U.S.
may increase the borrowing capacity of the revolving credit facilities by an aggregate amount of up to $500 million. Aggregate amounts outstanding under the revolving credit facilities and the
commercial paper program are limited to $2.5 billion. As of September 30, 2013, there were no borrowings outstanding under the revolving credit facilities.
Borrowings
under the revolving credit facilities are unsecured senior obligations of DIRECTV U.S. and will rank equally in right of payment with all of DIRECTV U.S.' existing and future
senior debt and will rank senior in right of payment to all of DIRECTV U.S.' future subordinated debt, if any.
Covenants and Restrictions
The revolving credit facilities require DIRECTV U.S. to maintain at the end of each fiscal quarter a specified ratio of indebtedness to
earnings before interest, taxes and depreciation and amortization. The revolving credit facilities also include covenants that limit DIRECTV U.S.' ability to, among other things, (i) incur
additional subsidiary indebtedness, (ii) incur liens, (iii) enter into certain transactions with affiliates, (iv) merge or consolidate with another entity, (v) sell,
assign, lease or otherwise dispose of all or substantially all of its assets, and (vi) change its lines of business. Additionally, the senior notes contain covenants that are similar. If
DIRECTV U.S. fails to comply with these covenants, all or a portion of its borrowings under the senior notes could become immediately payable and its revolving credit facilities could be terminated.
At September 30, 2013, management believes DIRECTV U.S. was in compliance with all such covenants. The senior notes and revolving credit facilities also provide that the borrowings may be
required to be prepaid if certain change-in-control events, coupled with a ratings decline, occur.
DIRECTV Guarantors.
DIRECTV entered into a series of Supplemental Indentures whereby DIRECTV agreed to fully guarantee all of the senior
notes
outstanding, jointly and severally with most of DIRECTV Holdings LLC's domestic subsidiaries. The Supplemental Indentures provide that DIRECTV unconditionally guarantees that the principal and
interest on the respective senior notes will
10
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
be
paid in full when due and that the obligations of the Co-Issuers to the holders of the outstanding senior notes will be performed. The revolving credit facilities and the commercial paper program
are also similarly fully guaranteed by DIRECTV.
As
a result of the guarantees, holders of the senior notes, the revolving credit debt and the commercial paper have the benefit of DIRECTV's interests in the assets and related earnings
of our operations that are not held through DIRECTV Holdings LLC and its subsidiaries. Those operations are primarily our DTH digital television services throughout Latin America which are held
by DIRECTV Latin America and our regional sports networks which are held by DSN. However, the subsidiaries that own
and operate the DIRECTV Latin America business and the regional sports networks have not guaranteed the senior notes, the revolving credit facilities and the commercial paper program.
The
guarantees are unsecured senior obligations of DIRECTV and rank equally in right of payment with all of DIRECTV's existing and future senior debt and rank senior in right of payment
to all of DIRECTV's future subordinated debt, if any. The guarantees are effectively subordinated to all existing and future secured obligations, if any, of DIRECTV to the extent of the value of the
assets securing the obligations. DIRECTV will not be subject to the covenants contained in each indenture of the senior notes and our guarantees will terminate and be released on the terms set forth
in each of the indentures.
BNDES Financing Facility
In March 2013, Sky Brasil entered into a financing facility with Banco Nacional de Desenvolvimento Econômico e Social,
or BNDES, a government owned bank in Brazil, under which Sky Brasil may borrow funds for the purchase of set-top receivers. Our Board of Directors has approved borrowings of up to R$500 million
(or approximately $250 million at the then current exchange rate) under the facility. As of September 30, 2013, Sky Brasil had borrowings of $85 million outstanding under the
BNDES facility bearing interest at a weighted-average rate of 2.73% per year. Borrowings under the facility are required to be repaid in 30 monthly installments. The U.S. dollar amounts reflect
the conversion of the Brazilian real denominated amounts into U.S. dollars based on the exchange rate of R$2.23 / $1.00 at September 30, 2013.
Borrowings
under the BNDES facility mature as follows: $7 million in 2013, $37 million in 2014, $34 million in 2015 and $7 million in 2016. The financing
facility is collateralized by the financed set-top receivers with an original purchase price of approximately $104 million based on the exchange rate at the time of purchase.
Restricted Cash
Restricted cash of $7 million as of September 30, 2013 and $6 million as of December 31, 2012 was included
as part of "Prepaid expenses and other" in our Consolidated Balance Sheets. These amounts secure certain of our letter of credit obligations and restrictions on the cash will be removed as the letters
of credit expire.
Note 5: Derivative Financial Instruments
We use derivative financial instruments primarily to manage the risks associated with fluctuations in foreign currency exchange rates
and interest rates. We record derivative financial instruments in the
11
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Consolidated
Balance Sheets as either assets or liabilities at fair value. For derivative financial instruments designated as cash flow hedges, the effective portion of the unrealized gains or losses
on the derivative financial instruments are initially reported in "Accumulated other comprehensive loss" in the Consolidated Balance Sheets, and subsequently reclassified to earnings in the same
periods during which the hedged item affects earnings. The ineffective portion of the unrealized gains and losses on these derivative financial instruments, if any, is recorded immediately in
earnings. We evaluate the effectiveness of our derivative financial instruments at inception and on a quarterly basis. We measured no ineffectiveness for the three and nine months ended
September 30, 2013 and September 30, 2012.
The
following table sets forth the fair values of assets and liabilities associated with the derivative financial instruments as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Liabilities
|
|
|
|
September 30,
2013
|
|
December 31,
2012
|
|
September 30,
2013
|
|
December 31,
2012
|
|
|
|
(Dollars in millions)
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swap contracts
|
|
$
|
74
|
|
$
|
|
|
$
|
|
|
$
|
17
|
|
Interest rate contracts
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of derivative financial instruments
|
|
$
|
74
|
|
$
|
|
|
$
|
7
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
The
fair values of the assets associated with derivative financial instruments are recorded in "Investments and other assets" in the Consolidated Balance Sheets and the fair value of the
liabilities associated with derivative financial instruments are recorded in "Other liabilities and deferred credits" in the Consolidated Balance Sheets.
The
following table sets forth the notional amounts of outstanding derivative financial instruments as of:
|
|
|
|
|
|
|
|
|
|
September 30,
2013
|
|
December 31,
2012
|
|
|
|
(Dollars in millions)
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
Cross-currency swap contracts
|
|
$
|
1,858
|
|
$
|
1,208
|
|
Interest rate contracts
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
Total notional amount of derivative financial instruments
|
|
$
|
2,358
|
|
$
|
1,208
|
|
|
|
|
|
|
|
Collateral Arrangements.
We have agreements with our derivative instrument counterparties that include collateral provisions which
require a party
with an unrealized loss position in excess of certain thresholds to post cash collateral for the amount in excess of the threshold. The threshold levels in our collateral agreements are based on each
party's credit ratings. We held cash collateral from counterparties of $6 million as of September 30, 2013 and we did not hold any cash collateral from counterparties as of
December 31, 2012. We did not have any cash collateral posted with counterparties as of September 30, 2013 and December 31, 2012. We do not offset the fair value of collateral,
whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable), against the fair value of the derivative instruments.
12
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Cross-Currency Swap Contracts
On September 11, 2012, DIRECTV U.S. issued, pursuant to a U.S. registration statement, £750 million in
aggregate principal of 4.375% senior notes due in 2029. On May 13, 2013, DIRECTV U.S. issued, pursuant to a U.S. registration statement, €500 million in aggregate
principal of 2.750% senior notes due in 2023. In connection with the issuance of these senior notes, DIRECTV U.S. entered into cross-currency swap contracts to manage the related foreign exchange risk
by effectively converting all of the fixed-rate British pound sterling and fixed-rate Euro denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate
U.S. dollar denominated debt. These cross-currency swaps are designated and qualify as cash flow hedges. The terms of the cross-currency swap contracts correspond to the related hedged senior notes
and have maturities ranging from May 2023 to September 2029.
We
calculate the fair value of the cross-currency swap contracts using an income-approach model (discounted cash flow analysis), the use of which is considered a Level 2 valuation
technique, using observable inputs, such as foreign currency exchange rates, swap rates, cross-currency basis swap spreads and incorporating counterparty credit risk.
During
the nine months ended September 30, 2013, DIRECTV U.S. recorded net remeasurement losses of $22 million in "Other, net" in the Consolidated Statements of Operations
related to the remeasurement of the hedged senior notes. To offset these remeasurement losses, we reclassified $22 million ($13 million after tax) from "Accumulated other comprehensive
loss" in the Consolidated Balance Sheets to "Other, net" in the Consolidated Statements of Operations. During the nine months ended September 30, 2012, DIRECTV U.S. recorded net remeasurement
losses of $5 million in "Other, net" in the Consolidated Statements of Operations related to the remeasurement of the hedged senior notes. To offset these remeasurement losses, we reclassified
$5 million ($3 million after tax) from "Accumulated other comprehensive loss" in the Consolidated Balance Sheets to "Other, net" in the Consolidated Statements of Operations. These
reclassifications eliminate the impact of the remeasurement of the hedged senior notes from our results of operations.
Interest Rate Contracts
DIRECTV U.S. uses various interest rate derivatives, including forward-starting interest rate swaps, to protect against unfavorable
interest rate changes related to forecasted issuances of debt. The objective of these arrangements is to hedge our exposure to the variability of future cash flows associated with the interest rate on
future debt issuances. These interest rate swaps are designated and qualify as cash flow hedges.
We
calculate the fair value of the interest rate swap contracts using an income-approach model (discounted cash flow analysis), the use of which is considered a Level 2 valuation
technique, using observable inputs, such as swap rates and incorporating counterparty credit risk.
Note 6: Contingencies
Redeemable Noncontrolling Interest
In connection with our acquisition of Sky Brasil in 2006, our partner who holds the remaining 7% interest, Globo
Comunicações e Participações S.A., or Globo, was granted the right, until January 2014, to require us to purchase all, but not less
than all, of its shares in Sky Brasil. Upon exercising this right, the fair value of Sky Brasil shares will be determined by mutual agreement or by an outside valuation
13
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DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
expert,
and we have the option to elect to pay for the Sky Brasil shares in cash, shares of our common stock or a combination of both. As of September 30, 2013 and December 31, 2012, we
estimated that Globo's remaining 7% equity interest in Sky Brasil had a fair value of approximately $400 million. Adjustments to the carrying amount of the redeemable noncontrolling interest
are recorded to additional paid-in-capital. We determined the fair values using significant unobservable inputs, which are Level 3 inputs under accounting guidance for measuring fair value.
Venezuela Devaluation and Foreign Currency Exchange Controls
In February 2013, the Venezuelan government announced a devaluation of the bolivar from the official exchange rate of 4.3 bolivars per
U.S. dollar to an official rate of 6.3 bolivars per U.S. dollar. As a result of the devaluation, we recorded a pre-tax charge in "Venezuelan currency devaluation charge" in the Consolidated Statements
of Operations of $166 million ($136 million after tax) in the first quarter of 2013, related to the remeasurement of the bolivar denominated net monetary assets of our Venezuelan
subsidiary as of the date of the devaluation. There also are ongoing impacts to our results of operations subsequent to the devaluation, primarily related to the translation of local currency
financial statements at the new official exchange rate. In the event of a future devaluation of the bolivar, we will recognize a charge to earnings based on the amount of bolivar denominated net
monetary assets held at the time of such devaluation. Any future devaluation would also result in ongoing impacts to our results of operations.
Companies
operating in Venezuela are required to obtain Venezuelan government approval to exchange Venezuelan bolivars into U.S. dollars at the official exchange rate. Our ability to pay
U.S. dollar denominated obligations and repatriate cash generated in Venezuela in excess of local operating requirements is limited, resulting in an increase in the cash balance at our Venezuelan
subsidiary. At such time that exchange controls are eased, accumulated cash balances may ultimately be repatriated at
less than their currently reported value. As of September 30, 2013, our Venezuelan subsidiary had Venezuelan bolivar denominated net monetary assets of $521 million, including cash of
$579 million, based on the official exchange rate of 6.3 bolivars per U.S. dollar at that time.
Litigation
Litigation is subject to uncertainties and the outcome of individual litigated matters is not predictable with assurance. Various legal
actions, claims and proceedings are pending against us arising in the ordinary course of business. We have established loss provisions for matters in which losses are probable and can be reasonably
estimated. Some of the matters may involve compensatory, punitive, or treble damage claims, or demands that, if granted, could require us to pay damages or make other expenditures in amounts that
could not be estimated at September 30, 2013. After discussion with counsel representing us in those actions, it is the opinion of management that such litigation is not expected to have a
material effect on our consolidated financial statements. We expense legal costs as incurred.
Intellectual Property Litigation.
We are a defendant in several unrelated lawsuits claiming infringement of various patents relating to
various
aspects of our businesses. In certain of these cases other industry participants are also defendants, and also in certain of these cases we expect that at least some potential liability would be the
responsibility of our equipment vendors pursuant to applicable contractual indemnification provisions. To the extent that the allegations in these lawsuits can be analyzed by us at this stage of their
proceedings, we believe the claims are without merit and intend to
14
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
defend
the actions vigorously. We have determined that the likelihood of a material liability in such matters is remote or have made appropriate accruals. The final disposition of these claims is not
expected to have a material effect on our consolidated financial position or results of operations. However, if an adverse ruling is made in a lawsuit involving key intellectual property, such ruling
could result in a loss that would be material to our consolidated results of operations of any one period. No assurance can be given that any adverse outcome would not be material to our consolidated
financial position.
Early Cancellation Fees.
In 2008, a number of plaintiffs filed putative class action lawsuits in state and
federal courts challenging the early cancellation fees we assess our customers when they do not fulfill their programming commitments. Several of these lawsuits are pending, some in California state
court purporting to represent statewide classes, and some in federal courts purporting to represent nationwide classes. The lawsuits seek both monetary and injunctive relief. While the theories of
liability vary, the lawsuits generally challenge these fees under state consumer protection laws as both unfair and inadequately disclosed to customers. Our motions to compel arbitration have been
granted in all of the federal cases, except as to claims seeking injunctive relief under California statutes. The denial of our motion as to those claims is currently on appeal. We believe that our
early cancellation fees are adequately disclosed, and represent reasonable estimates of the costs we incur when customers cancel service before fulfilling their programming commitments.
State and Federal Inquiries.
From time to time, we receive investigative inquiries or subpoenas from state and federal authorities with
respect to
alleged violations of state and federal statutes. These inquiries may lead to legal proceedings in some cases. As reported previously, DIRECTV U.S. received a request for information from the Federal
Trade Commission, or FTC, on issues similar to those resolved in 2011 with a multistate group of state attorneys general. We have been cooperating with the FTC by providing information about our sales
and marketing practices and customer complaints and have engaged in ongoing negotiations with FTC staff concerning these issues. The FTC staff has advised that they will refer this matter to the
Commissioners to obtain authority to file suit if we are unable to agree upon a resolution of these issues.
ECAD.
As previously reported, Escritorio Central de Arrecadacao, or ECAD, the organization responsible for collecting performance
rights fees under
Brazilian law, had outstanding claims against Sky Brasil, along with other video distributors in Brazil. In the third quarter, Sky Brasil entered into an agreement with ECAD whereby Sky Brasil agreed
to settle all claims for the period from 2004 through December 31, 2013 for a cash payment of $92 million in September 2013. As a result of this settlement, Sky Brasil recognized a
$128 million pre-tax gain from the reversal of amounts previously accrued during such period, of which $70 million was recorded as a reduction in "Broadcast programming and other",
$37 million was recorded as a reduction in "Interest expense" and $21 million was recorded in "Other, net" in the Consolidated Statements of Operations. Sky Brasil had provided letters
of credit related to this dispute in the amount of approximately $104 million, which have now been released. The settlement does not include any agreement as to royalties that will apply after
December 31, 2013.
Waste Disposal Inquiry.
On August 20, 2012, DIRECTV U.S. received from the State of California subpoenas and interrogatories
related to our
generation, handling, recordkeeping, transportation and disposal of hazardous waste, including universal waste, in the State of California, and the training of employees regarding the same. The
investigation is jointly conducted by the Office of the Attorney General and the District Attorney for Alameda County and appears to be part of a broader effort to
15
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DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
investigate
waste handling and disposal processes of a number of industries. We are diligently reviewing our policies and procedures applicable to all facilities and cooperating with the
investigation.
Income Tax Matters
We have received tax assessments from certain foreign jurisdictions and have agreed to indemnify previously divested businesses for
certain tax assessments relating to periods prior to their respective divestitures. These assessments are in various stages of the administrative process or litigation. While the outcome of these
assessments and other tax issues cannot be predicted with certainty, we believe that the ultimate outcome will not have a material effect on our consolidated financial position or results of
operations.
Satellites
We may purchase in-orbit and launch insurance to mitigate the potential financial impact of satellite launch and in-orbit failures if
the premium costs are considered economic relative to the risk of satellite failure. The insurance generally covers the unamortized book value of covered satellites. We do not insure against lost
revenues in the event of a total or partial loss of the capacity of a satellite. We generally rely on in-orbit spare satellites and excess transponder capacity at key orbital slots to mitigate the
impact a satellite failure could have on our ability to provide service. At September 30, 2013, the net book value of in-orbit satellites was $1,467 million, all of which was uninsured.
Other
We are contingently liable under standby letters of credit and bonds in the aggregate amount of $171 million at
September 30, 2013, excluding the letters of credit related to the ECAD dispute which have now been released.
Note 7: Related Party Transactions
In the ordinary course of our operations, we enter into transactions with related parties as discussed below. Related parties include
Globo, which provides programming and advertising to Sky Brasil, and companies in which we hold equity method investments, including Sky Mexico, GSN and NW Sports Net LLC.
The
majority of payments under contractual arrangements with related parties are pursuant to multi-year programming contracts. Payments under these contracts are typically subject to
annual rate increases and are based on the number of subscribers receiving the related programming.
The
following table summarizes revenues and expenses with related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
(Dollars in Millions)
|
|
Revenues
|
|
$
|
2
|
|
$
|
1
|
|
$
|
5
|
|
$
|
3
|
|
Expenses
|
|
|
235
|
|
|
225
|
|
|
717
|
|
|
696
|
|
16
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
The
following table sets forth the amount of accounts receivable from and accounts payable to related parties as of:
|
|
|
|
|
|
|
|
|
|
September 30,
2013
|
|
December 31,
2012
|
|
|
|
(Dollars in Millions)
|
|
Accounts receivable
|
|
$
|
31
|
|
$
|
26
|
|
Accounts payable
|
|
|
98
|
|
|
90
|
|
Note 8: Stockholders' Deficit and Redeemable Noncontrolling Interest
Capital Stock and Additional Paid-In Capital
Our certificate of incorporation authorizes the following capital stock: 3,950,000,000 shares of common stock, par value $0.01 per
share, and 50,000,000 shares of preferred stock, par value $0.01 per share. As of September 30, 2013 and December 31, 2012, there were no outstanding shares of preferred stock.
Share Repurchase Program
Since 2006 our Board of Directors has approved multiple authorizations for the repurchase of our common stock. In February 2013 our
Board of Directors terminated the remaining balance available under the previous authorization and approved a new authorization for up to $4 billion for repurchases of our common stock. As of
September 30, 2013, we had approximately $1,589 million remaining under this authorization. The authorization allows us to repurchase our common stock from time to time through open
market purchases and negotiated transactions, or otherwise. The timing, nature and amount of such transactions will depend on a variety of factors, including market conditions, and the program may be
suspended, discontinued or accelerated at any time. The sources of funds for the purchases under the remaining authorizations are our existing cash on hand, cash from operations and potential
additional borrowings. Purchases are made in the open market, through block trades and other negotiated transactions. Repurchased shares are retired, but remain authorized for registration and
issuance in the future.
The
following table sets forth information regarding shares repurchased and retired during the periods presented:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2013
|
|
2012
|
|
|
|
(Amounts in Millions,
Except Per Share Amounts)
|
|
Total cost of repurchased shares
|
|
$
|
3,273
|
|
$
|
3,897
|
|
Average price per share
|
|
$
|
56.46
|
|
$
|
47.67
|
|
Number of shares repurchased and retired
|
|
|
58
|
|
|
82
|
|
Of
the $3,273 million in repurchases during the nine months ended September 30, 2013, $45 million were paid for in October 2013. Of the $3,897 million in
repurchases during the nine months ended September 30, 2012, $96 million were paid for in October 2012. Amounts repurchased but settled subsequent to the end of such periods are
considered non-cash financing activities and excluded from the Consolidated Statements of Cash Flows.
17
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
The
following tables set forth a reconciliation of stockholders' deficit and redeemable noncontrolling interest for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
Common
Shares
|
|
Common
Stock and
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total
Stockholders'
Deficit
|
|
Redeemable
Noncontrolling
Interest
|
|
Net
Income
|
|
|
|
(Amounts in Millions, Except Share Data)
|
|
Balance as of January 1, 2013
|
|
|
586,839,817
|
|
$
|
4,021
|
|
$
|
(9,210
|
)
|
$
|
(242
|
)
|
$
|
(5,431
|
)
|
$
|
400
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
2,049
|
|
|
|
|
|
2,049
|
|
|
20
|
|
$
|
2,069
|
|
Stock repurchased and retired
|
|
|
(57,961,428
|
)
|
|
(397
|
)
|
|
(2,876
|
)
|
|
|
|
|
(3,273
|
)
|
|
|
|
|
|
|
Stock options exercised and restricted stock units vested and distributed
|
|
|
1,974,496
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
Tax benefit from share-based compensation
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
Adjustment to the fair value of redeemable noncontrolling interest
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
6
|
|
|
(6
|
)
|
|
|
|
Other
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2013
|
|
|
530,852,885
|
|
$
|
3,671
|
|
$
|
(10,037
|
)
|
$
|
(242
|
)
|
$
|
(6,608
|
)
|
$
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
Common
Shares
|
|
Common
Stock and
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total
Stockholders'
Deficit
|
|
Redeemable
Noncontrolling
Interest
|
|
Net
Income
|
|
|
|
(Amounts in Millions, Except Share Data)
|
|
Balance as of January 1, 2012
|
|
|
691,306,695
|
|
$
|
4,799
|
|
$
|
(7,750
|
)
|
$
|
(156
|
)
|
$
|
(3,107
|
)
|
$
|
265
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
2,007
|
|
|
|
|
|
2,007
|
|
|
22
|
|
$
|
2,029
|
|
Stock repurchased and retired
|
|
|
(81,713,828
|
)
|
|
(567
|
)
|
|
(3,330
|
)
|
|
|
|
|
(3,897
|
)
|
|
|
|
|
|
|
Stock options exercised and restricted stock units vested and distributed
|
|
|
2,162,030
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
Tax benefit from share-based compensation
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
Adjustment to the fair value of redeemable noncontrolling interest
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
7
|
|
|
(7
|
)
|
|
|
|
Other
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
(62
|
)
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2012
|
|
|
611,754,897
|
|
$
|
4,291
|
|
$
|
(9,073
|
)
|
$
|
(218
|
)
|
$
|
(5,000
|
)
|
$
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Other Comprehensive Income (Loss)
The following represents the components of other comprehensive income (loss) for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2013
|
|
2012
|
|
|
|
Pre-Tax
|
|
Tax
Benefit
(Expense)
|
|
Net of
Tax
|
|
Pre-Tax
|
|
Tax
Benefit
(Expense)
|
|
Net of
Tax
|
|
|
|
(Dollars in Millions)
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss related to changes in plan experience and actuarial assumptions arising during the period
|
|
$
|
(2
|
)
|
$
|
1
|
|
$
|
(1
|
)
|
$
|
(2
|
)
|
$
|
1
|
|
$
|
(1
|
)
|
Amortization of amounts resulting from changes in plan experience and actuarial assumptions recognized as periodic benefit cost
|
|
|
19
|
|
|
(7
|
)
|
|
12
|
|
|
15
|
|
|
(6
|
)
|
|
9
|
|
Amortization of amounts resulting from changes in plan provisions recognized as periodic benefit cost
|
|
|
2
|
|
|
(1
|
)
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Cash flows hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
|
|
125
|
|
|
(47
|
)
|
|
78
|
|
|
(51
|
)
|
|
20
|
|
|
(31
|
)
|
Reclassification adjustments included in net income
|
|
|
(99
|
)
|
|
38
|
|
|
(61
|
)
|
|
(5
|
)
|
|
2
|
|
|
(3
|
)
|
Foreign currency translation adjustments
|
|
|
(5
|
)
|
|
2
|
|
|
(3
|
)
|
|
(3
|
)
|
|
1
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
40
|
|
$
|
(14
|
)
|
$
|
26
|
|
$
|
(46
|
)
|
$
|
18
|
|
$
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2013
|
|
2012
|
|
|
|
Pre-Tax
|
|
Tax
Benefit
(Expense)
|
|
Net of
Tax
|
|
Pre-Tax
|
|
Tax
Benefit
(Expense)
|
|
Net of
Tax
|
|
|
|
(Dollars in Millions)
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss related to changes in plan experience and actuarial assumptions arising during the period
|
|
$
|
(2
|
)
|
$
|
1
|
|
$
|
(1
|
)
|
$
|
(2
|
)
|
$
|
1
|
|
$
|
(1
|
)
|
Amortization of amounts resulting from changes in plan experience and actuarial assumptions recognized as periodic benefit cost
|
|
|
19
|
|
|
(7
|
)
|
|
12
|
|
|
15
|
|
|
(6
|
)
|
|
9
|
|
Amortization of amounts resulting from changes in plan provisions recognized as periodic benefit cost
|
|
|
2
|
|
|
(1
|
)
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Cash flows hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
|
|
83
|
|
|
(32
|
)
|
|
51
|
|
|
(51
|
)
|
|
20
|
|
|
(31
|
)
|
Reclassification adjustments included in net income
|
|
|
(22
|
)
|
|
9
|
|
|
(13
|
)
|
|
(5
|
)
|
|
2
|
|
|
(3
|
)
|
Foreign currency translation adjustments
|
|
|
(81
|
)
|
|
30
|
|
|
(51
|
)
|
|
(52
|
)
|
|
20
|
|
|
(32
|
)
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses on securities
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
3
|
|
|
(4
|
)
|
Reclassification adjustment for net losses recognized during the period
|
|
|
2
|
|
|
(1
|
)
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
1
|
|
$
|
(1
|
)
|
$
|
|
|
$
|
(102
|
)
|
$
|
40
|
|
$
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
The following represents the changes in the components of accumulated other comprehensive loss for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
Benefit
Plan Items
|
|
Gains (Losses)
on Cash
Flow Hedges
|
|
Foreign
Currency
Items
|
|
Unrealized
Gains
(Losses) on
Available for
Sale Securities
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
|
(Dollars in Millions)
|
|
Balance as of January 1, 2013
|
|
$
|
(184
|
)
|
$
|
(17
|
)
|
$
|
(40
|
)
|
$
|
(1
|
)
|
$
|
(242
|
)
|
Other comprehensive income (loss)
|
|
|
12
|
|
|
38
|
|
|
(51
|
)
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2013
|
|
$
|
(172
|
)
|
$
|
21
|
|
$
|
(91
|
)
|
$
|
|
|
$
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
Benefit
Plan Items
|
|
Losses on
Cash Flow
Hedges
|
|
Foreign
Currency
Items
|
|
Unrealized
Gains
(Losses) on
Available for
Sale Securities
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
|
(Dollars in Millions)
|
|
Balance as of January 1, 2012
|
|
$
|
(151
|
)
|
$
|
|
|
$
|
(8
|
)
|
$
|
3
|
|
$
|
(156
|
)
|
Other comprehensive income (loss)
|
|
|
8
|
|
|
(34
|
)
|
|
(32
|
)
|
|
(4
|
)
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2012
|
|
$
|
(143
|
)
|
$
|
(34
|
)
|
$
|
(40
|
)
|
$
|
(1
|
)
|
$
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9: Earnings Per Common Share
We compute basic earnings per common share, or EPS, by dividing net income attributable to DIRECTV by the weighted average number of
common shares outstanding for the period.
Diluted
EPS considers the effect of common equivalent shares, which consist entirely of common stock options and restricted stock units issued to employees. During the nine months ended
September 30, 2013, we excluded 0.9 million common stock awards from the computation of diluted EPS because the inclusion of the potential common shares would have had an antidilutive
effect. We did not exclude any common stock awards from the computation of diluted EPS during the three months ended September 30, 2013 and the three and nine months ended September 30,
2012.
The
reconciliation of the amounts used in the basic and diluted EPS computation is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
Shares
|
|
Per Share
Amounts
|
|
|
|
(Dollars and Shares
in Millions,
Except Per Share Amounts)
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to DIRECTV
|
|
$
|
699
|
|
|
541
|
|
$
|
1.29
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options and restricted stock units
|
|
|
|
|
|
4
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income attributable to DIRECTV
|
|
$
|
699
|
|
|
545
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to DIRECTV
|
|
$
|
565
|
|
|
624
|
|
$
|
0.91
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options and restricted stock units
|
|
|
|
|
|
5
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income attributable to DIRECTV
|
|
$
|
565
|
|
|
629
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
21
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
Shares
|
|
Per Share
Amounts
|
|
|
|
(Dollars and Shares
in Millions,
Except Per Share Amounts)
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to DIRECTV
|
|
$
|
2,049
|
|
|
557
|
|
$
|
3.68
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options and restricted stock units
|
|
|
|
|
|
5
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income attributable to DIRECTV
|
|
$
|
2,049
|
|
|
562
|
|
$
|
3.65
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to DIRECTV
|
|
$
|
2,007
|
|
|
651
|
|
$
|
3.08
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options and restricted stock units
|
|
|
|
|
|
4
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income attributable to DIRECTV
|
|
$
|
2,007
|
|
|
655
|
|
$
|
3.06
|
|
|
|
|
|
|
|
|
|
Note 10: Segment Reporting
Our reportable segments, which are differentiated by their products and services as well as geographic location, are DIRECTV U.S., Sky
Brasil and PanAmericana, which are engaged in acquiring, promoting, selling and distributing digital entertainment programming primarily via satellite to residential and commercial subscribers, and
the Sports Networks, Eliminations and Other segment, which includes our regional sports networks that provide programming devoted to local professional sports teams and college sporting events and
locally produce their own programming. Sports Networks, Eliminations and Other also includes the corporate office, eliminations and other entities.
22
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Selected
information for our operating segments is reported as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
Revenues
|
|
Intersegment
Revenues
|
|
Total
Revenues
|
|
Operating
Profit
(Loss)
|
|
Depreciation
and
Amortization
Expense
|
|
Operating
Profit
(Loss) Before
Depreciation
and
Amortization(1)
|
|
|
|
(Dollars in Millions)
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV U.S.
|
|
$
|
6,168
|
|
$
|
2
|
|
$
|
6,170
|
|
$
|
987
|
|
$
|
409
|
|
$
|
1,396
|
|
Sky Brasil
|
|
|
883
|
|
|
|
|
|
883
|
|
|
169
|
|
|
184
|
|
|
353
|
|
PanAmericana
|
|
|
779
|
|
|
|
|
|
779
|
|
|
93
|
|
|
112
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV Latin America
|
|
|
1,662
|
|
|
|
|
|
1,662
|
|
|
262
|
|
|
296
|
|
|
558
|
|
Sports Networks, Eliminations and Other
|
|
|
50
|
|
|
(2
|
)
|
|
48
|
|
|
(24
|
)
|
|
3
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,880
|
|
$
|
|
|
$
|
7,880
|
|
$
|
1,225
|
|
$
|
708
|
|
$
|
1,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV U.S.
|
|
$
|
5,767
|
|
$
|
2
|
|
$
|
5,769
|
|
$
|
876
|
|
$
|
375
|
|
$
|
1,251
|
|
Sky Brasil
|
|
|
868
|
|
|
|
|
|
868
|
|
|
122
|
|
|
133
|
|
|
255
|
|
PanAmericana
|
|
|
709
|
|
|
|
|
|
709
|
|
|
99
|
|
|
101
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV Latin America
|
|
|
1,577
|
|
|
|
|
|
1,577
|
|
|
221
|
|
|
234
|
|
|
455
|
|
Sports Networks, Eliminations and Other
|
|
|
72
|
|
|
(2
|
)
|
|
70
|
|
|
(29
|
)
|
|
9
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,416
|
|
$
|
|
|
$
|
7,416
|
|
$
|
1,068
|
|
$
|
618
|
|
$
|
1,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
Revenues
|
|
Intersegment
Revenues
|
|
Total
Revenues
|
|
Operating
Profit
(Loss)
|
|
Depreciation
and
Amortization
Expense
|
|
Operating
Profit
(Loss) Before
Depreciation
and
Amortization(1)
|
|
|
|
(Dollars in Millions)
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV U.S.
|
|
$
|
17,897
|
|
$
|
6
|
|
$
|
17,903
|
|
$
|
3,343
|
|
$
|
1,225
|
|
$
|
4,568
|
|
Sky Brasil
|
|
|
2,790
|
|
|
|
|
|
2,790
|
|
|
379
|
|
|
547
|
|
|
926
|
|
PanAmericana
|
|
|
2,286
|
|
|
|
|
|
2,286
|
|
|
139
|
|
|
328
|
|
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV Latin America
|
|
|
5,076
|
|
|
|
|
|
5,076
|
|
|
518
|
|
|
875
|
|
|
1,393
|
|
Sports Networks, Eliminations and Other
|
|
|
187
|
|
|
(6
|
)
|
|
181
|
|
|
(44
|
)
|
|
17
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,160
|
|
$
|
|
|
$
|
23,160
|
|
$
|
3,817
|
|
$
|
2,117
|
|
$
|
5,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV U.S.
|
|
$
|
16,909
|
|
$
|
6
|
|
$
|
16,915
|
|
$
|
3,130
|
|
$
|
1,116
|
|
$
|
4,246
|
|
Sky Brasil
|
|
|
2,587
|
|
|
|
|
|
2,587
|
|
|
399
|
|
|
403
|
|
|
802
|
|
PanAmericana
|
|
|
1,983
|
|
|
|
|
|
1,983
|
|
|
295
|
|
|
271
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV Latin America
|
|
|
4,570
|
|
|
|
|
|
4,570
|
|
|
694
|
|
|
674
|
|
|
1,368
|
|
Sports Networks, Eliminations and Other
|
|
|
207
|
|
|
(6
|
)
|
|
201
|
|
|
(37
|
)
|
|
21
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,686
|
|
$
|
|
|
$
|
21,686
|
|
$
|
3,787
|
|
$
|
1,811
|
|
$
|
5,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Operating
profit before depreciation and amortization, which is a financial measure that is not determined in accordance with GAAP can be calculated by
adding amounts under the caption "Depreciation and amortization expense" to "Operating profit." This 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. Our management and Board of Directors use operating profit before depreciation and amortization to evaluate the
operating performance of our company and our business segments and to allocate resources and capital to business segments. This metric is also used as a measure of performance for incentive
compensation purposes and to measure income generated from operations that could be used to fund capital expenditures, service debt or pay taxes. Depreciation and amortization expense primarily
represents an allocation to current expense of the cost of historical capital expenditures and for intangible assets resulting from prior business acquisitions. To compensate for the exclusion of
depreciation and amortization expense from operating profit, our management and Board of Directors separately measure and budget for capital expenditures and business acquisitions.
We
believe this measure is useful to investors, along with GAAP measures (such as revenues, operating profit and net income), to compare our operating performance to other communications,
entertainment and media service providers. We believe that investors use current and projected operating profit before depreciation and
amortization and similar measures to estimate our current or prospective enterprise value and make investment decisions. This metric provides investors with a means to compare operating results
exclusive of depreciation and amortization. Our management believes this is useful given the significant variation in depreciation and amortization expense that can result from the timing of capital
expenditures, the capitalization of intangible assets, potential variations in expected useful lives when compared to other companies and periodic changes to estimated useful lives.
24
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
The following represents a reconciliation of operating profit before depreciation and amortization to reported net income on the Consolidated
Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
(Dollars in Millions)
|
|
Operating profit before depreciation and amortization
|
|
$
|
1,933
|
|
$
|
1,686
|
|
$
|
5,934
|
|
$
|
5,598
|
|
Depreciation and amortization
|
|
|
(708
|
)
|
|
(618
|
)
|
|
(2,117
|
)
|
|
(1,811
|
)
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
1,225
|
|
|
1,068
|
|
|
3,817
|
|
|
3,787
|
|
Interest income
|
|
|
15
|
|
|
17
|
|
|
56
|
|
|
40
|
|
Interest expense
|
|
|
(182
|
)
|
|
(204
|
)
|
|
(618
|
)
|
|
(622
|
)
|
Other, net
|
|
|
43
|
|
|
39
|
|
|
6
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,101
|
|
|
920
|
|
|
3,261
|
|
|
3,218
|
|
Income tax expense
|
|
|
(391
|
)
|
|
(348
|
)
|
|
(1,192
|
)
|
|
(1,189
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
710
|
|
|
572
|
|
|
2,069
|
|
|
2,029
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
(11
|
)
|
|
(7
|
)
|
|
(20
|
)
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to DIRECTV
|
|
$
|
699
|
|
$
|
565
|
|
$
|
2,049
|
|
$
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
Note 11: Condensed Consolidating Financial Statements
As discussed above in Note 4, DIRECTV has provided a guarantee of all the outstanding senior notes of DIRECTV
Holdings LLC and DIRECTV Financing Co., Inc., or the Co-issuers.
The
following condensed consolidating financial statements of DIRECTV and subsidiaries have been prepared pursuant to rules regarding the preparation of consolidating financial
statements of Regulation S-X.
These
condensed consolidating financial statements present the condensed consolidating statements of operations and condensed consolidating statements of comprehensive income for the
three and nine months ended September 30, 2013 and 2012, the condensed consolidating statements of cash flows for the nine months ended September 30, 2013 and 2012, and the condensed
consolidating balance sheets as of September 30, 2013 and December 31, 2012.
The
condensed consolidating financial statements are comprised of DIRECTV, or the Parent Guarantor, its indirect 100% owned subsidiaries, DIRECTV Holdings, DIRECTV Financing and each of
DIRECTV Holdings' material subsidiaries (other than DIRECTV Financing), or the Guarantor Subsidiaries, as well as other subsidiaries who are not guarantors of the senior notes, or the Non-Guarantor
Subsidiaries, and the eliminations necessary to present DIRECTV's financial statements on a consolidated basis. The Non-Guarantor Subsidiaries consist primarily of DIRECTV's DTH digital television
services throughout Latin America which are held by DIRECTV Latin America Holdings, Inc. and its subsidiaries, and our regional sports networks which are held by DIRECTV Sports
Networks LLC and its subsidiaries.
The
accompanying condensed consolidating financial statements are presented based on the equity method of accounting for all periods presented. Under this method, investments in
subsidiaries are recorded at cost and adjusted for the subsidiaries' cumulative results of operations, capital contributions and distributions, and other changes in equity. Elimination entries include
consolidating and eliminating entries for investments in subsidiaries, intercompany activity and balances, and income taxes.
25
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Condensed Consolidating Statement of Operations
For the Three Months Ended September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
Co-Issuers
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
DIRECTV
Consolidated
|
|
|
|
(Dollars in Millions)
|
|
Revenues
|
|
$
|
|
|
$
|
|
|
$
|
6,170
|
|
$
|
1,723
|
|
$
|
(13
|
)
|
$
|
7,880
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues, exclusive of depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast programming and other
|
|
|
|
|
|
|
|
|
2,904
|
|
|
548
|
|
|
(11
|
)
|
|
3,441
|
|
Subscriber service expenses
|
|
|
|
|
|
|
|
|
391
|
|
|
192
|
|
|
|
|
|
583
|
|
Broadcast operations expenses
|
|
|
|
|
|
|
|
|
68
|
|
|
32
|
|
|
(2
|
)
|
|
98
|
|
Selling, general and administrative expenses, exclusive of depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriber acquisition costs
|
|
|
|
|
|
|
|
|
756
|
|
|
185
|
|
|
|
|
|
941
|
|
Upgrade and retention costs
|
|
|
|
|
|
|
|
|
359
|
|
|
52
|
|
|
|
|
|
411
|
|
General and administrative expenses
|
|
|
12
|
|
|
|
|
|
296
|
|
|
165
|
|
|
|
|
|
473
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
409
|
|
|
299
|
|
|
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
12
|
|
|
|
|
|
5,183
|
|
|
1,473
|
|
|
(13
|
)
|
|
6,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(12
|
)
|
|
|
|
|
987
|
|
|
250
|
|
|
|
|
|
1,225
|
|
Equity in income of consolidated subsidiaries
|
|
|
706
|
|
|
820
|
|
|
|
|
|
|
|
|
(1,526
|
)
|
|
|
|
Interest income
|
|
|
3
|
|
|
|
|
|
1
|
|
|
13
|
|
|
(2
|
)
|
|
15
|
|
Interest expense
|
|
|
|
|
|
(206
|
)
|
|
(1
|
)
|
|
23
|
|
|
2
|
|
|
(182
|
)
|
Other, net
|
|
|
|
|
|
|
|
|
6
|
|
|
37
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
697
|
|
|
614
|
|
|
993
|
|
|
323
|
|
|
(1,526
|
)
|
|
1,101
|
|
Income tax benefit (expense)
|
|
|
2
|
|
|
38
|
|
|
(173
|
)
|
|
(258
|
)
|
|
|
|
|
(391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
699
|
|
|
652
|
|
|
820
|
|
|
65
|
|
|
(1,526
|
)
|
|
710
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to DIRECTV
|
|
$
|
699
|
|
$
|
652
|
|
$
|
820
|
|
$
|
54
|
|
$
|
(1,526
|
)
|
$
|
699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Condensed Consolidating Statement of Operations
For the Three Months Ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
Co-Issuers
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
DIRECTV
Consolidated
|
|
|
|
(Dollars in Millions)
|
|
Revenues
|
|
$
|
|
|
$
|
|
|
$
|
5,769
|
|
$
|
1,667
|
|
$
|
(20
|
)
|
$
|
7,416
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues, exclusive of depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast programming and other
|
|
|
|
|
|
|
|
|
2,685
|
|
|
621
|
|
|
(18
|
)
|
|
3,288
|
|
Subscriber service expenses
|
|
|
|
|
|
|
|
|
390
|
|
|
176
|
|
|
|
|
|
566
|
|
Broadcast operations expenses
|
|
|
|
|
|
|
|
|
74
|
|
|
31
|
|
|
(2
|
)
|
|
103
|
|
Selling, general and administrative expenses, exclusive of depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriber acquisition costs
|
|
|
|
|
|
|
|
|
757
|
|
|
187
|
|
|
|
|
|
944
|
|
Upgrade and retention costs
|
|
|
|
|
|
|
|
|
340
|
|
|
42
|
|
|
|
|
|
382
|
|
General and administrative expenses
|
|
|
17
|
|
|
|
|
|
272
|
|
|
158
|
|
|
|
|
|
447
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
375
|
|
|
243
|
|
|
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
17
|
|
|
|
|
|
4,893
|
|
|
1,458
|
|
|
(20
|
)
|
|
6,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(17
|
)
|
|
|
|
|
876
|
|
|
209
|
|
|
|
|
|
1,068
|
|
Equity in income of consolidated subsidiaries
|
|
|
576
|
|
|
553
|
|
|
|
|
|
|
|
|
(1,129
|
)
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
1
|
|
|
19
|
|
|
(3
|
)
|
|
17
|
|
Interest expense
|
|
|
|
|
|
(188
|
)
|
|
(1
|
)
|
|
(18
|
)
|
|
3
|
|
|
(204
|
)
|
Other, net
|
|
|
(2
|
)
|
|
|
|
|
17
|
|
|
24
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
557
|
|
|
365
|
|
|
893
|
|
|
234
|
|
|
(1,129
|
)
|
|
920
|
|
Income tax benefit (expense)
|
|
|
8
|
|
|
71
|
|
|
(340
|
)
|
|
(87
|
)
|
|
|
|
|
(348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
565
|
|
|
436
|
|
|
553
|
|
|
147
|
|
|
(1,129
|
)
|
|
572
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to DIRECTV
|
|
$
|
565
|
|
$
|
436
|
|
$
|
553
|
|
$
|
140
|
|
$
|
(1,129
|
)
|
$
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Condensed Consolidating Statement of Operations
For the Nine Months Ended September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
Co-Issuers
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
DIRECTV
Consolidated
|
|
|
|
(Dollars in Millions)
|
|
Revenues
|
|
$
|
|
|
$
|
|
|
$
|
17,903
|
|
$
|
5,306
|
|
$
|
(49
|
)
|
$
|
23,160
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues, exclusive of depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast programming and other
|
|
|
|
|
|
|
|
|
8,147
|
|
|
1,808
|
|
|
(43
|
)
|
|
9,912
|
|
Subscriber service expenses
|
|
|
|
|
|
|
|
|
1,102
|
|
|
572
|
|
|
|
|
|
1,674
|
|
Broadcast operations expenses
|
|
|
|
|
|
|
|
|
220
|
|
|
91
|
|
|
(6
|
)
|
|
305
|
|
Selling, general and administrative expenses, exclusive of depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriber acquisition costs
|
|
|
|
|
|
|
|
|
1,979
|
|
|
585
|
|
|
|
|
|
2,564
|
|
Upgrade and retention costs
|
|
|
|
|
|
|
|
|
1,002
|
|
|
151
|
|
|
|
|
|
1,153
|
|
General and administrative expenses
|
|
|
53
|
|
|
|
|
|
885
|
|
|
514
|
|
|
|
|
|
1,452
|
|
Venezuelan currency devaluation
|
|
|
|
|
|
|
|
|
|
|
|
166
|
|
|
|
|
|
166
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
1,225
|
|
|
892
|
|
|
|
|
|
2,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
53
|
|
|
|
|
|
14,560
|
|
|
4,779
|
|
|
(49
|
)
|
|
19,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(53
|
)
|
|
|
|
|
3,343
|
|
|
527
|
|
|
|
|
|
3,817
|
|
Equity in income of consolidated subsidiaries
|
|
|
2,082
|
|
|
2,530
|
|
|
|
|
|
|
|
|
(4,612
|
)
|
|
|
|
Interest income
|
|
|
13
|
|
|
|
|
|
2
|
|
|
49
|
|
|
(8
|
)
|
|
56
|
|
Interest expense
|
|
|
(1
|
)
|
|
(613
|
)
|
|
(2
|
)
|
|
(10
|
)
|
|
8
|
|
|
(618
|
)
|
Other, net
|
|
|
(4
|
)
|
|
|
|
|
22
|
|
|
(12
|
)
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,037
|
|
|
1,917
|
|
|
3,365
|
|
|
554
|
|
|
(4,612
|
)
|
|
3,261
|
|
Income tax benefit (expense)
|
|
|
12
|
|
|
152
|
|
|
(835
|
)
|
|
(521
|
)
|
|
|
|
|
(1,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
2,049
|
|
|
2,069
|
|
|
2,530
|
|
|
33
|
|
|
(4,612
|
)
|
|
2,069
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to DIRECTV
|
|
$
|
2,049
|
|
$
|
2,069
|
|
$
|
2,530
|
|
$
|
13
|
|
$
|
(4,612
|
)
|
$
|
2,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Condensed Consolidating Statement of Operations
For the Nine Months Ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
Co-Issuers
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
DIRECTV
Consolidated
|
|
|
|
(Dollars in Millions)
|
|
Revenues
|
|
$
|
|
|
$
|
59
|
|
$
|
16,915
|
|
$
|
4,831
|
|
$
|
(119
|
)
|
$
|
21,686
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues, exclusive of depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast programming and other
|
|
|
|
|
|
|
|
|
7,549
|
|
|
1,754
|
|
|
(54
|
)
|
|
9,249
|
|
Subscriber service expenses
|
|
|
|
|
|
|
|
|
1,096
|
|
|
496
|
|
|
|
|
|
1,592
|
|
Broadcast operations expenses
|
|
|
|
|
|
|
|
|
229
|
|
|
87
|
|
|
(6
|
)
|
|
310
|
|
Selling, general and administrative expenses, exclusive of depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriber acquisition costs
|
|
|
|
|
|
|
|
|
2,017
|
|
|
532
|
|
|
|
|
|
2,549
|
|
Upgrade and retention costs
|
|
|
|
|
|
|
|
|
930
|
|
|
126
|
|
|
|
|
|
1,056
|
|
General and administrative expenses
|
|
|
33
|
|
|
|
|
|
907
|
|
|
451
|
|
|
(59
|
)
|
|
1,332
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
1,116
|
|
|
695
|
|
|
|
|
|
1,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
33
|
|
|
|
|
|
13,844
|
|
|
4,141
|
|
|
(119
|
)
|
|
17,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(33
|
)
|
|
59
|
|
|
3,071
|
|
|
690
|
|
|
|
|
|
3,787
|
|
Equity in income of consolidated subsidiaries
|
|
|
2,032
|
|
|
1,926
|
|
|
|
|
|
|
|
|
(3,958
|
)
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
1
|
|
|
48
|
|
|
(9
|
)
|
|
40
|
|
Interest expense
|
|
|
(1
|
)
|
|
(575
|
)
|
|
(2
|
)
|
|
(53
|
)
|
|
9
|
|
|
(622
|
)
|
Other, net
|
|
|
(6
|
)
|
|
(65
|
)
|
|
26
|
|
|
58
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,992
|
|
|
1,345
|
|
|
3,096
|
|
|
743
|
|
|
(3,958
|
)
|
|
3,218
|
|
Income tax benefit (expense)
|
|
|
15
|
|
|
219
|
|
|
(1,170
|
)
|
|
(253
|
)
|
|
|
|
|
(1,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
2,007
|
|
|
1,564
|
|
|
1,926
|
|
|
490
|
|
|
(3,958
|
)
|
|
2,029
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to DIRECTV
|
|
$
|
2,007
|
|
$
|
1,564
|
|
$
|
1,926
|
|
$
|
468
|
|
$
|
(3,958
|
)
|
$
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the Three Months Ended September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
Co-Issuers
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
DIRECTV
Consolidated
|
|
|
|
(Dollars in Millions)
|
|
Net income
|
|
$
|
699
|
|
$
|
652
|
|
$
|
820
|
|
$
|
65
|
|
$
|
(1,526
|
)
|
$
|
710
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss related to changes in plan experience and actuarial assumptions arising during the period
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Amortization of amounts resulting from changes in plan experience and actuarial assumptions recognized as periodic benefit cost
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Amortization of amounts resulting from changes in plan provisions recognized as periodic benefit cost
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Cash flows hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains arising during the period
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
Reclassification adjustments included in net income
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
12
|
|
|
17
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
711
|
|
|
669
|
|
|
820
|
|
|
62
|
|
|
(1,526
|
)
|
|
736
|
|
Less: Comprehensive income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to DIRECTV
|
|
$
|
711
|
|
$
|
669
|
|
$
|
820
|
|
$
|
51
|
|
$
|
(1,526
|
)
|
$
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the Three Months Ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
Co-Issuers
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
DIRECTV
Consolidated
|
|
|
|
(Dollars in Millions)
|
|
Net income
|
|
$
|
565
|
|
$
|
436
|
|
$
|
553
|
|
$
|
147
|
|
$
|
(1,129
|
)
|
$
|
572
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss related to changes in plan experience and actuarial assumptions arising during the period
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Amortization of amounts resulting from changes in plan experience and actuarial assumptions recognized as periodic benefit cost
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Cash flows hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses arising during the period
|
|
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
Reclassification adjustments included in net income
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
8
|
|
|
(34
|
)
|
|
|
|
|
(2
|
)
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
573
|
|
|
402
|
|
|
553
|
|
|
145
|
|
|
(1,129
|
)
|
|
544
|
|
Less: Comprehensive income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to DIRECTV
|
|
$
|
573
|
|
$
|
402
|
|
$
|
553
|
|
$
|
139
|
|
$
|
(1,129
|
)
|
$
|
538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the Nine Months Ended September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
Co-Issuers
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
DIRECTV
Consolidated
|
|
|
|
(Dollars in Millions)
|
|
Net income
|
|
$
|
2,049
|
|
$
|
2,069
|
|
$
|
2,530
|
|
$
|
33
|
|
$
|
(4,612
|
)
|
$
|
2,069
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss related to changes in plan experience and actuarial assumptions arising during the period
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Amortization of amounts resulting from changes in plan experience and actuarial assumptions recognized as periodic benefit cost
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Amortization of amounts resulting from changes in plan provisions recognized as periodic benefit cost
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Cash flows hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains arising during the period
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
Reclassification adjustments included in net income
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
(51
|
)
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net losses recognized during the period
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
12
|
|
|
38
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
2,061
|
|
|
2,107
|
|
|
2,530
|
|
|
(17
|
)
|
|
(4,612
|
)
|
|
2,069
|
|
Less: Comprehensive income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to DIRECTV
|
|
$
|
2,061
|
|
$
|
2,107
|
|
$
|
2,530
|
|
$
|
(23
|
)
|
$
|
(4,612
|
)
|
$
|
2,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Condensed Consolidating Statement of Comprehensive Income
For the Nine Months Ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
Co-Issuers
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
DIRECTV
Consolidated
|
|
|
|
(Dollars in Millions)
|
|
Net income
|
|
$
|
2,007
|
|
$
|
1,564
|
|
$
|
1,926
|
|
$
|
490
|
|
$
|
(3,958
|
)
|
$
|
2,029
|
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss related to changes in plan experience and actuarial assumptions arising during the period
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Amortization of amounts resulting from changes in plan experience and actuarial assumptions recognized as periodic benefit cost
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Cash flows hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses arising during the period
|
|
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
Reclassification adjustments included in net income
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
(32
|
)
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses on securities
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
8
|
|
|
(34
|
)
|
|
|
|
|
(36
|
)
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
2,015
|
|
|
1,530
|
|
|
1,926
|
|
|
454
|
|
|
(3,958
|
)
|
|
1,967
|
|
Less: Comprehensive income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to DIRECTV
|
|
$
|
2,015
|
|
$
|
1,530
|
|
$
|
1,926
|
|
$
|
447
|
|
$
|
(3,958
|
)
|
$
|
1,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
Co-Issuers
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
DIRECTV
Consolidated
|
|
|
|
|
(Dollars in Millions)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
872
|
|
$
|
713
|
|
$
|
2,906
|
|
$
|
2,206
|
|
$
|
(1,668
|
)
|
$
|
5,029
|
|
|
Satellites, net
|
|
|
|
|
|
|
|
|
1,820
|
|
|
623
|
|
|
|
|
|
2,443
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
3,556
|
|
|
2,906
|
|
|
|
|
|
6,462
|
|
|
Goodwill
|
|
|
|
|
|
1,828
|
|
|
1,360
|
|
|
797
|
|
|
|
|
|
3,985
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
525
|
|
|
405
|
|
|
|
|
|
930
|
|
|
Intercompany receivables
|
|
|
4,597
|
|
|
7,579
|
|
|
19,655
|
|
|
4,120
|
|
|
(35,951
|
)
|
|
|
|
|
Investment in subsidiaries
|
|
|
(9,868
|
)
|
|
17,412
|
|
|
|
|
|
(11,286
|
)
|
|
3,742
|
|
|
|
|
|
Investments and other assets
|
|
|
105
|
|
|
151
|
|
|
259
|
|
|
1,423
|
|
|
(199
|
)
|
|
1,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
(4,294
|
)
|
$
|
27,683
|
|
$
|
30,081
|
|
$
|
1,194
|
|
$
|
(34,076
|
)
|
$
|
20,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
$
|
540
|
|
$
|
742
|
|
$
|
3,424
|
|
$
|
2,291
|
|
$
|
(1,668
|
)
|
$
|
5,329
|
|
|
Long-term debt
|
|
|
|
|
|
18,585
|
|
|
|
|
|
50
|
|
|
|
|
|
18,635
|
|
|
Deferred income taxes
|
|
|
|
|
|
34
|
|
|
1,429
|
|
|
270
|
|
|
(191
|
)
|
|
1,542
|
|
|
Intercompany liabilities
|
|
|
1,356
|
|
|
19,655
|
|
|
7,579
|
|
|
7,361
|
|
|
(35,951
|
)
|
|
|
|
|
Other liabilities and deferred credits
|
|
|
418
|
|
|
186
|
|
|
237
|
|
|
457
|
|
|
(8
|
)
|
|
1,290
|
|
|
Redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
|
|
400
|
|
|
Stockholders' equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock and additional paid-in capital
|
|
|
3,671
|
|
|
14
|
|
|
4,883
|
|
|
(9,009
|
)
|
|
4,112
|
|
|
3,671
|
|
|
Retained earnings (accumulated deficit)
|
|
|
(10,037
|
)
|
|
(11,555
|
)
|
|
12,529
|
|
|
(497
|
)
|
|
(477
|
)
|
|
(10,037
|
)
|
|
Accumulated other comprehensive income (loss)
|
|
|
(242
|
)
|
|
22
|
|
|
|
|
|
(129
|
)
|
|
107
|
|
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity (deficit)
|
|
|
(6,608
|
)
|
|
(11,519
|
)
|
|
17,412
|
|
|
(9,635
|
)
|
|
3,742
|
|
|
(6,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity (deficit)
|
|
$
|
(4,294
|
)
|
$
|
27,683
|
|
$
|
30,081
|
|
$
|
1,194
|
|
$
|
(34,076
|
)
|
$
|
20,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Condensed Consolidating Balance Sheet
As of December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
Co-Issuers
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
DIRECTV
Consolidated
|
|
|
|
|
(Dollars in Millions)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
883
|
|
$
|
884
|
|
$
|
2,788
|
|
$
|
2,039
|
|
$
|
(1,040
|
)
|
$
|
5,554
|
|
|
Satellites, net
|
|
|
|
|
|
|
|
|
1,795
|
|
|
562
|
|
|
|
|
|
2,357
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
3,290
|
|
|
2,748
|
|
|
|
|
|
6,038
|
|
|
Goodwill
|
|
|
|
|
|
1,828
|
|
|
1,349
|
|
|
886
|
|
|
|
|
|
4,063
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
453
|
|
|
379
|
|
|
|
|
|
832
|
|
|
Intercompany receivables
|
|
|
4,382
|
|
|
6,152
|
|
|
16,355
|
|
|
3,703
|
|
|
(30,592
|
)
|
|
|
|
|
Investment in subsidiaries
|
|
|
(8,687
|
)
|
|
15,001
|
|
|
|
|
|
(10,915
|
)
|
|
4,601
|
|
|
|
|
|
Investments and other assets
|
|
|
180
|
|
|
91
|
|
|
241
|
|
|
1,294
|
|
|
(95
|
)
|
|
1,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
(3,242
|
)
|
$
|
23,956
|
|
$
|
26,271
|
|
$
|
696
|
|
$
|
(27,126
|
)
|
$
|
20,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
$
|
384
|
|
$
|
646
|
|
$
|
3,526
|
|
$
|
2,025
|
|
$
|
(1,040
|
)
|
$
|
5,541
|
|
|
Long-term debt
|
|
|
|
|
|
17,170
|
|
|
|
|
|
|
|
|
|
|
|
17,170
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
1,397
|
|
|
361
|
|
|
(86
|
)
|
|
1,672
|
|
|
Intercompany liabilities
|
|
|
1,401
|
|
|
16,355
|
|
|
6,152
|
|
|
6,684
|
|
|
(30,592
|
)
|
|
|
|
|
Other liabilities and deferred credits
|
|
|
404
|
|
|
131
|
|
|
195
|
|
|
482
|
|
|
(9
|
)
|
|
1,203
|
|
|
Redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
|
|
400
|
|
|
Stockholders' equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock and additional paid-in capital
|
|
|
4,021
|
|
|
12
|
|
|
4,802
|
|
|
(6,632
|
)
|
|
1,818
|
|
|
4,021
|
|
|
Retained earnings (accumulated deficit)
|
|
|
(9,210
|
)
|
|
(10,341
|
)
|
|
10,199
|
|
|
(2,560
|
)
|
|
2,702
|
|
|
(9,210
|
)
|
|
Accumulated other comprehensive loss
|
|
|
(242
|
)
|
|
(17
|
)
|
|
|
|
|
(64
|
)
|
|
81
|
|
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity (deficit)
|
|
|
(5,431
|
)
|
|
(10,346
|
)
|
|
15,001
|
|
|
(9,256
|
)
|
|
4,601
|
|
|
(5,431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity (deficit)
|
|
$
|
(3,242
|
)
|
$
|
23,956
|
|
$
|
26,271
|
|
$
|
696
|
|
$
|
(27,126
|
)
|
$
|
20,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
Co-Issuers
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
DIRECTV
Consolidated
|
|
|
|
(Dollars in Millions)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
1,096
|
|
$
|
1,568
|
|
$
|
1,623
|
|
$
|
1,701
|
|
$
|
(1,633
|
)
|
$
|
4,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for property and equipment
|
|
|
|
|
|
|
|
|
(1,327
|
)
|
|
(1,144
|
)
|
|
|
|
|
(2,471
|
)
|
Cash paid for satellites
|
|
|
|
|
|
|
|
|
(154
|
)
|
|
(122
|
)
|
|
|
|
|
(276
|
)
|
Investment in companies, net of cash acquired
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
(9
|
)
|
|
|
|
|
(47
|
)
|
Proceeds from sale of investments
|
|
|
117
|
|
|
|
|
|
12
|
|
|
11
|
|
|
|
|
|
140
|
|
Return of capital from subsidiary
|
|
|
1,567
|
|
|
|
|
|
|
|
|
|
|
|
(1,567
|
)
|
|
|
|
Other, net
|
|
|
|
|
|
|
|
|
(67
|
)
|
|
(91
|
)
|
|
|
|
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
1,684
|
|
|
|
|
|
(1,574
|
)
|
|
(1,355
|
)
|
|
(1,567
|
)
|
|
(2,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of commercial paper (maturity 90 days or less), net
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
Proceeds from short-term borrowings
|
|
|
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
|
441
|
|
Repayment of short-term borrowings
|
|
|
|
|
|
(327
|
)
|
|
|
|
|
|
|
|
|
|
|
(327
|
)
|
Proceeds from borrowings under revolving credit facility
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Repayment of borrowings under revolving credit facility
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
Proceeds from long-term debt
|
|
|
|
|
|
1,390
|
|
|
|
|
|
94
|
|
|
|
|
|
1,484
|
|
Debt issuance costs
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
Repayment of long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
(9
|
)
|
Repayment of other long-term obligations
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
(30
|
)
|
|
|
|
|
(48
|
)
|
Common shares repurchased and retired
|
|
|
(3,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,228
|
)
|
Taxes paid in lieu of shares issued for share-based compensation
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
(10
|
)
|
|
|
|
|
(61
|
)
|
Excess tax benefit from share-based compensation
|
|
|
|
|
|
|
|
|
20
|
|
|
4
|
|
|
|
|
|
24
|
|
Other, net
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Intercompany payments (funding)
|
|
|
265
|
|
|
|
|
|
3
|
|
|
(268
|
)
|
|
|
|
|
|
|
Cash dividend to Parent
|
|
|
|
|
|
(3,200
|
)
|
|
|
|
|
|
|
|
3,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(2,963
|
)
|
|
(1,608
|
)
|
|
(46
|
)
|
|
(219
|
)
|
|
3,200
|
|
|
(1,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on Venezuelan cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
(187
|
)
|
|
|
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(183
|
)
|
|
(40
|
)
|
|
3
|
|
|
(60
|
)
|
|
|
|
|
(280
|
)
|
Cash and cash equivalents at beginning of the period
|
|
|
408
|
|
|
728
|
|
|
11
|
|
|
755
|
|
|
|
|
|
1,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
225
|
|
$
|
688
|
|
$
|
14
|
|
$
|
695
|
|
$
|
|
|
$
|
1,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Table of Contents
DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
Co-Issuers
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
DIRECTV
Consolidated
|
|
|
|
(Dollars in Millions)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
1,186
|
|
$
|
1,822
|
|
$
|
1,173
|
|
$
|
1,616
|
|
$
|
(1,664
|
)
|
$
|
4,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for property and equipment
|
|
|
|
|
|
|
|
|
(1,048
|
)
|
|
(1,112
|
)
|
|
|
|
|
(2,160
|
)
|
Cash paid for satellites
|
|
|
(6
|
)
|
|
|
|
|
(139
|
)
|
|
(86
|
)
|
|
|
|
|
(231
|
)
|
Investment in companies, net of cash acquired
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
(3
|
)
|
|
|
|
|
(4
|
)
|
Proceeds from sale of investments
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
24
|
|
Return of capital from subsidiary
|
|
|
3,336
|
|
|
|
|
|
|
|
|
|
|
|
(3,336
|
)
|
|
|
|
Other, net
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
26
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
3,330
|
|
|
|
|
|
(1,165
|
)
|
|
(1,175
|
)
|
|
(3,336
|
)
|
|
(2,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under revolving credit facility
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
Repayment of borrowings under revolving credit facility
|
|
|
|
|
|
(400
|
)
|
|
|
|
|
|
|
|
|
|
|
(400
|
)
|
Proceeds from long-term debt
|
|
|
|
|
|
5,190
|
|
|
|
|
|
|
|
|
|
|
|
5,190
|
|
Debt issuance costs
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
Repayment of long-term debt
|
|
|
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,500
|
)
|
Repayment of other long-term obligations
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
(25
|
)
|
|
|
|
|
(40
|
)
|
Common shares repurchased and retired
|
|
|
(3,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,828
|
)
|
Stock options exercised
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Taxes paid in lieu of shares issued for share-based compensation
|
|
|
|
|
|
|
|
|
(49
|
)
|
|
(9
|
)
|
|
|
|
|
(58
|
)
|
Excess tax benefit from share-based compensation
|
|
|
|
|
|
|
|
|
25
|
|
|
5
|
|
|
|
|
|
30
|
|
Intercompany payments (funding)
|
|
|
154
|
|
|
|
|
|
14
|
|
|
(168
|
)
|
|
|
|
|
|
|
Cash dividend to Parent
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(3,672
|
)
|
|
(1,345
|
)
|
|
(25
|
)
|
|
(197
|
)
|
|
5,000
|
|
|
(239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
844
|
|
|
477
|
|
|
(17
|
)
|
|
244
|
|
|
|
|
|
1,548
|
|
Cash and cash equivalents at beginning of the period
|
|
|
129
|
|
|
228
|
|
|
4
|
|
|
512
|
|
|
|
|
|
873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
973
|
|
$
|
705
|
|
$
|
(13
|
)
|
$
|
756
|
|
$
|
|
|
$
|
2,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Table of Contents
DIRECTV
DIRECTV
SUMMARY DATA(continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 30,
2013
|
|
December 31,
2012
|
|
|
|
(Dollars in Millions)
|
|
Consolidated Balance Sheets Data:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,622
|
|
$
|
1,902
|
|
Total current assets
|
|
|
5,029
|
|
|
5,554
|
|
Total assets
|
|
|
20,588
|
|
|
20,555
|
|
Total current liabilities
|
|
|
5,329
|
|
|
5,541
|
|
Long-term debt
|
|
|
18,635
|
|
|
17,170
|
|
Redeemable noncontrolling interest
|
|
|
400
|
|
|
400
|
|
Total stockholders' deficit
|
|
|
(6,608
|
)
|
|
(5,431
|
)
|
Reference
should be made to the Notes to the Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
(Dollars in Millions)
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit before depreciation and amortization(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
1,225
|
|
$
|
1,068
|
|
$
|
3,817
|
|
$
|
3,787
|
|
Add: Depreciation and amortization expense
|
|
|
708
|
|
|
618
|
|
|
2,117
|
|
|
1,811
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit before depreciation and amortization
|
|
$
|
1,933
|
|
$
|
1,686
|
|
$
|
5,934
|
|
$
|
5,598
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit before depreciation and amortization margin
|
|
|
24.5
|
%
|
|
22.7
|
%
|
|
25.6
|
%
|
|
25.8
|
%
|
Cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
1,345
|
|
$
|
1,109
|
|
$
|
4,355
|
|
$
|
4,133
|
|
Net cash used in investing activities
|
|
|
(1,133
|
)
|
|
(771
|
)
|
|
(2,812
|
)
|
|
(2,346
|
)
|
Net cash used in financing activities
|
|
|
(955
|
)
|
|
(49
|
)
|
|
(1,636
|
)
|
|
(239
|
)
|
Free cash flow(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,345
|
|
|
1,109
|
|
|
4,355
|
|
|
4,133
|
|
Less: Cash paid for property and equipment
|
|
|
(891
|
)
|
|
(743
|
)
|
|
(2,471
|
)
|
|
(2,160
|
)
|
Less: Cash paid for satellites
|
|
|
(82
|
)
|
|
(47
|
)
|
|
(276
|
)
|
|
(231
|
)
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
372
|
|
$
|
319
|
|
$
|
1,608
|
|
$
|
1,742
|
|
|
|
|
|
|
|
|
|
|
|
41
Table of Contents
DIRECTV
SUMMARY DATA(continued)
(Unaudited)
Selected Segment Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
Percentage of
Total Revenues
|
|
Operating
Profit (Loss)
|
|
Depreciation and
Amortization
Expense
|
|
Operating Profit
(Loss) Before
Depreciation and
Amortization(1)
|
|
|
|
(Dollars in Millions)
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV U.S.
|
|
$
|
6,170
|
|
|
78.3
|
%
|
$
|
987
|
|
$
|
409
|
|
$
|
1,396
|
|
Sky Brasil
|
|
|
883
|
|
|
11.2
|
%
|
|
169
|
|
|
184
|
|
|
353
|
|
PanAmericana
|
|
|
779
|
|
|
9.9
|
%
|
|
93
|
|
|
112
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV Latin America
|
|
|
1,662
|
|
|
21.1
|
%
|
|
262
|
|
|
296
|
|
|
558
|
|
Sports Networks, Eliminations and Other
|
|
|
48
|
|
|
0.6
|
%
|
|
(24
|
)
|
|
3
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,880
|
|
|
100.0
|
%
|
$
|
1,225
|
|
$
|
708
|
|
$
|
1,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV U.S.
|
|
$
|
5,769
|
|
|
77.8
|
%
|
$
|
876
|
|
$
|
375
|
|
$
|
1,251
|
|
Sky Brasil
|
|
|
868
|
|
|
11.7
|
%
|
|
122
|
|
|
133
|
|
|
255
|
|
PanAmericana
|
|
|
709
|
|
|
9.6
|
%
|
|
99
|
|
|
101
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV Latin America
|
|
|
1,577
|
|
|
21.3
|
%
|
|
221
|
|
|
234
|
|
|
455
|
|
Sports Networks, Eliminations and Other
|
|
|
70
|
|
|
0.9
|
%
|
|
(29
|
)
|
|
9
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,416
|
|
|
100.0
|
%
|
$
|
1,068
|
|
$
|
618
|
|
$
|
1,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
Table of Contents
DIRECTV
SUMMARY DATA(continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
Percentage of
Total Revenues
|
|
Operating
Profit (Loss)
|
|
Depreciation and
Amortization
Expense
|
|
Operating Profit
(Loss) Before
Depreciation and
Amortization(1)
|
|
|
|
(Dollars in Millions)
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV U.S.
|
|
$
|
17,903
|
|
|
77.3
|
%
|
$
|
3,343
|
|
$
|
1,225
|
|
$
|
4,568
|
|
Sky Brasil
|
|
|
2,790
|
|
|
12.0
|
%
|
|
379
|
|
|
547
|
|
|
926
|
|
PanAmericana
|
|
|
2,286
|
|
|
9.9
|
%
|
|
139
|
|
|
328
|
|
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV Latin America
|
|
|
5,076
|
|
|
21.9
|
%
|
|
518
|
|
|
875
|
|
|
1,393
|
|
Sports Networks, Eliminations and Other
|
|
|
181
|
|
|
0.8
|
%
|
|
(44
|
)
|
|
17
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,160
|
|
|
100.0
|
%
|
$
|
3,817
|
|
$
|
2,117
|
|
$
|
5,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV U.S.
|
|
$
|
16,915
|
|
|
78.0
|
%
|
$
|
3,130
|
|
$
|
1,116
|
|
$
|
4,246
|
|
Sky Brasil
|
|
|
2,587
|
|
|
11.9
|
%
|
|
399
|
|
|
403
|
|
|
802
|
|
PanAmericana
|
|
|
1,983
|
|
|
9.2
|
%
|
|
295
|
|
|
271
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTV Latin America
|
|
|
4,570
|
|
|
21.1
|
%
|
|
694
|
|
|
674
|
|
|
1,368
|
|
Sports Networks, Eliminations and Other
|
|
|
201
|
|
|
0.9
|
%
|
|
(37
|
)
|
|
21
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,686
|
|
|
100.0
|
%
|
$
|
3,787
|
|
$
|
1,811
|
|
$
|
5,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(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, can be calculated by adding amounts under the caption "Depreciation and amortization expense" to "Operating profit." This 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. Our management and our Board of Directors
use operating profit before depreciation and amortization to evaluate the operating performance of our company and our business segments and to allocate resources and capital to business segments.
This metric is also used as a measure of performance for incentive compensation purposes and to measure income generated from operations that could be used to fund capital expenditures, service debt
or pay taxes. Depreciation and amortization expense primarily represents an allocation to current expense of the cost of historical capital expenditures and for acquired intangible assets resulting
from prior business acquisitions. To compensate for the exclusion of depreciation and amortization expense from operating profit, our management and our Board of Directors separately measure and
budget for capital expenditures and business acquisitions.
We
believe this measure is useful to investors, along with GAAP measures (such as revenues, operating profit and net income), to compare our operating performance to other communications,
entertainment and media service providers. We believe that investors use current and projected operating profit before depreciation and amortization and similar measures to estimate our current or
prospective enterprise value and make investment decisions. This metric provides investors with
43
Table of Contents
DIRECTV
SUMMARY DATA(continued)
(Unaudited)
a
means to compare operating results exclusive of depreciation and amortization expense. Our management believes this is useful given the significant variation in depreciation and amortization expense
that can result from the timing of capital expenditures, the capitalization of intangible assets, potential variations in expected useful lives when compared to other companies and periodic changes to
estimated useful lives.
Operating
profit before depreciation and amortization margin is calculated by dividing Operating profit before depreciation and amortization by Revenues.
-
(2)
-
Free
cash flow, which is a financial measure that is not determined in accordance with GAAP, can be calculated by deducting amounts under the captions "Cash
paid for property and equipment" and "Cash paid for satellites" 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. Our management and our
Board of Directors use free cash flow to evaluate the cash generated by our current subscriber base, net of capital expenditures, for the purpose of allocating resources to activities such as adding
new subscribers, retaining and upgrading existing subscribers, for additional capital expenditures and other capital investments or transactions 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 revenues from our current and projected
subscriber base to fund required and discretionary spending and to help determine our financial value.
44
Table of Contents
DIRECTV
BUSINESS OVERVIEW
DIRECTV, which we sometimes refer to as the company, we, or us, is a leading provider of digital television entertainment in the United
States and Latin America. We operate two direct-to-home, or DTH, business units: DIRECTV U.S. and DIRECTV Latin America, which are differentiated by their geographic location and are engaged in
acquiring, promoting, selling and distributing digital entertainment programming primarily via satellite to residential and commercial subscribers. In addition, we own and operate regional sports
networks and own a 42% interest in Game Show Network, LLC, or GSN, a television network dedicated to game-related programming and Internet interactive game playing. We account for our
investment in GSN using the equity method of accounting.
-
-
DIRECTV
U.S.
DIRECTV Holdings LLC and its subsidiaries, which we refer to as DIRECTV U.S., is the largest provider of DTH digital
television services and the second largest provider in the multi-channel video programming distribution industry in the United States. As of September 30, 2013, DIRECTV U.S. had approximately
20.2 million subscribers.
-
-
DIRECTV Latin
America.
DIRECTV Latin America Holdings, Inc. and its subsidiaries, or DIRECTV Latin America, is a leading provider of DTH
digital television services throughout Latin America. DIRECTV Latin America is comprised of: PanAmericana, which provides services in Argentina, Chile, Colombia, Ecuador, Puerto Rico, Venezuela and
certain other countries in the region, and Sky Brasil Servicos Ltda., or Sky Brasil, which is a 93% owned subsidiary. DIRECTV Latin America also includes our 41% equity method investment in
Innova, S. de R.L. de C.V., or Sky Mexico, which we include in the PanAmericana segment. As of September 30, 2013, PanAmericana had approximately 6.1 million subscribers, Sky Brasil had
approximately 5.3 million subscribers and Sky Mexico had approximately 5.9 million subscribers.
-
-
DIRECTV Sports
Networks.
DIRECTV Sports Networks LLC and its subsidiaries, or DSN, is comprised primarily of two wholly owned regional sports
networks based in Denver, Colorado and Pittsburgh, Pennsylvania, and a regional sports network based in Seattle, Washington in which DSN retains a noncontrolling interest, each of which operates under
the brand name ROOT Sports. As discussed in further detail below, on April 16, 2013, DSN transferred 100% of its interest in a regional sports network based in Seattle, Washington, or DSN
Northwest, to NW Sports Net LLC. The Seattle Mariners have a majority interest in NW Sports Net LLC and DSN retains a noncontrolling interest, which we account for using the equity
method of accounting. The operating results of DSN are reported as part of the "Sports Networks, Eliminations and Other" reporting segment.
SIGNIFICANT EVENTS AFFECTING THE COMPARABILITY OF THE RESULTS OF OPERATIONS
Divestiture
DSN Northwest Transaction
On April 16, 2013, DSN transferred 100% of its interest in DSN Northwest to NW Sports Net LLC. Upon completion of the
transaction, the Seattle Mariners have a majority interest in NW Sports LLC and DSN retains a noncontrolling interest, which we account for using the equity method of accounting. Additionally,
DSN provides management oversight and programming services to NW Sports Net LLC as part of management service agreements entered into as part of this transaction. As a result of this
transaction, we deconsolidated DSN Northwest and recorded a non-cash, pre-tax charge of approximately $59 million ($56 million after tax) in "Other, net" in the Consolidated Statements
of Operations.
45
Table of Contents
DIRECTV
Senior Notes
Nine Months Ended September 30, 2013 Financing Transactions
In January 2013, DIRECTV U.S. issued $750 million of senior notes resulting in $743 million proceeds, net of an original
issue discount.
In
May 2013, DIRECTV U.S. issued €500 million ($650 million) of senior notes resulting in €497 million ($646 million) of
proceeds, net of an original issue discount. In connection with the issuance of these senior notes, DIRECTV U.S. entered into cross-currency swaps to effectively convert its fixed-rate euro
denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate U.S. dollar denominated debt. These cross-currency swaps are designated and qualify as cash
flow hedges. The terms of the cross-currency swap contracts correspond to the related senior notes and the cross-currency swaps have maturities extending through May 2023.
Nine Months Ended September 30, 2012 Financing Transactions
In March 2012, DIRECTV U.S. issued $4 billion of senior notes resulting in $3,996 million of proceeds, net of an original
issue discount.
In
May 2012, DIRECTV U.S. redeemed, pursuant to the terms of its indenture, all of its then outstanding $1,500 million of 7.625% senior notes due in 2016. We recorded a pre-tax
charge of $64 million ($40 million after tax) during the second quarter of 2012, of which $57 million resulted from the premium paid for the redemption and $7 million
resulted from the write-off of deferred debt issuance and other transaction costs. The charge was recorded in "Other, net" in our Consolidated Statements of Operations.
In
September 2012, DIRECTV U.S. issued £750 million ($1,208 million) of senior notes resulting in £742 million ($1,194 million) of
proceeds, net of an original issue discount. In connection with the issuance of these senior notes, DIRECTV U.S. entered into cross-currency swaps to effectively convert its fixed-rate British pound
sterling denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate U.S. dollar denominated debt. These cross-currency swaps are designated and
qualify as cash flow hedges. The terms of the cross-currency swap contracts correspond to the related hedged senior notes and the cross-currency swaps have maturities extending through September 2029.
Venezuela Devaluation and Foreign Currency Exchange Controls
In February 2013, the Venezuelan government announced a devaluation of the bolivar from the official exchange rate of 4.3 bolivars per
U.S. dollar to an official rate of 6.3 bolivars per U.S. dollar. As a result of the devaluation, we recorded a pre-tax charge in "Venezuelan currency devaluation charge" in the Consolidated Statements
of Operations of $166 million ($136 million after tax) in the first quarter of 2013, related to the remeasurement of the bolivar denominated net monetary assets of our Venezuelan
subsidiary as of the date of the devaluation. There also are ongoing impacts to our results of operations subsequent to the devaluation, primarily related to the translation of local currency
financial statements at the new official exchange rate. In the event of a future devaluation of the bolivar, we will recognize a charge to earnings based on the amount of bolivar denominated net
monetary assets held at the time of such devaluation. Any future devaluation would also result in ongoing impacts to our results of operations.
46
Table of Contents
DIRECTV
ECAD
As previously reported, Escritorio Central de Arrecadacao, or ECAD, the organization responsible for collecting performance rights fees
under Brazilian law, had outstanding claims against Sky Brasil, along with other video distributors in Brazil. In the third quarter, Sky Brasil entered into an agreement with ECAD whereby Sky Brasil
agreed to settle all claims for the period from 2004 through December 31, 2013 for a cash payment of $92 million in September 2013. As a result of this settlement, Sky Brasil recognized
a $128 million pre-tax gain from the reversal of amounts previously accrued during such period, of which $70 million was recorded as a reduction in "Broadcast programming and other",
$37 million was recorded as a reduction in "Interest expense" and $21 million was recorded in "Other, net" in the Consolidated Statements of Operations. Sky Brasil had provided letters
of credit related to this dispute in the amount of approximately $104 million, which have now been released. The settlement does not include any agreement as to royalties that will apply after
December 31, 2013.
KEY TERMINOLOGY
The following key terminology is used in management's discussion and analysis of financial condition and results of operations:
Revenues.
We earn revenues mostly from monthly fees we charge subscribers for subscriptions to basic and premium channel programming,
advanced
receiver fees (which include HD, DVR and multi-room viewing), pay-per-view programming, and seasonal live sporting events. We also earn revenues from monthly fees we charge subscribers for
multiple leased set-top receivers, monthly fees that we charge subscribers with multiple non-leased set-top receivers (which we refer to as mirroring fees), hardware revenues from subscribers who
lease or purchase set-top receivers from us, warranty service fees and advertising services. Revenues are reported net of customer credits and discounted promotions.
Broadcast Programming and Other.
These costs primarily include license fees for subscription service programming, pay-per-view
programming, live
sports and other events. Other costs include continuing service fees paid to third parties for active subscribers and warranty service costs.
Subscriber Service Expenses.
Subscriber service expenses include the costs of customer call centers, billing, remittance processing and
service
calls.
Broadcast Operations Expenses.
These expenses include broadcast center operating costs, signal transmission expenses (including costs
of collecting
signals for our local channel offerings), and costs of monitoring, maintaining and insuring our satellites. Also included are engineering expenses associated with deterring theft of our signal.
Subscriber Acquisition Costs.
These costs include the cost of set-top receivers and other equipment, commissions we pay to national
retailers,
independent satellite television retailers, dealers and telcos, and the cost of installation, advertising, marketing and customer call center expenses associated with the acquisition of new
subscribers. Set-top receivers leased to new subscribers are capitalized in
"Property and equipment, net" in the Consolidated Balance Sheets and depreciated over their useful lives. In certain countries in Latin America, where our customer agreements provide for the lease of
the entire DIRECTV or SKY System, we also capitalize the costs of the other customer premises equipment and related installation costs. The amount of set-top receivers capitalized each period for
subscriber acquisitions is included in "Cash paid for property and equipment" in the Consolidated Statements of Cash Flows.
47
Table of Contents
DIRECTV
Upgrade and Retention Costs.
Upgrade and retention costs are associated with upgrade efforts for existing subscribers that we believe
will result in
higher average monthly revenue per subscriber, or ARPU, and lower churn. Our upgrade efforts include subscriber equipment upgrade programs for advanced receivers and similar initiatives. Retention
costs also include the costs of installing and providing hardware under our movers program for subscribers relocating to a new residence. Set-top receivers leased to existing subscribers under upgrade
and retention programs are capitalized in "Property and equipment, net" in the Consolidated Balance Sheets and depreciated over their estimated useful lives. The amount of set-top receivers
capitalized each period for upgrade and retention programs is included in "Cash paid for property and equipment" in the Consolidated Statements of Cash Flows.
General and Administrative Expenses.
General and administrative expenses include departmental costs for legal, administrative services,
finance,
marketing and information technology. These costs also include expenses for bad debt and other operating expenses, such as legal settlements, and gains or losses from the sale or disposal of fixed
assets.
Average Monthly Revenue Per Subscriber.
We calculate ARPU by dividing average monthly revenues for the period (total revenues during
the period
divided by the number of months in the period) by average subscribers for the period. We calculate average subscribers for the period by adding the number of subscribers as of the beginning of the
period and for each quarter end in the current year or period and dividing by the sum of the number of quarters in the period plus one.
Average Monthly Subscriber Churn.
Average monthly subscriber churn represents the number of subscribers whose service is disconnected,
expressed as a
percentage of the average total number of
subscribers. We calculate average monthly subscriber churn by dividing the average monthly number of disconnected subscribers for the period (total subscribers disconnected, net of reconnects, during
the period divided by the number of months in the period) by average subscribers for the period.
Subscriber Count.
The total number of subscribers represents the total number of subscribers actively subscribing to our service,
including
subscribers who have suspended their account for a particular season of the year because they are temporarily away from their primary residence and subscribers who are in the process of relocating and
commercial equivalent viewing units.
SAC.
We calculate SAC, which represents total subscriber acquisition costs stated on a per subscriber basis, by dividing total
subscriber acquisition
costs for the period by the number of gross new subscribers acquired during the period. We calculate total subscriber acquisition costs for the period by adding together "Subscriber acquisition costs"
expensed during the period and the amount of cash paid for equipment leased to new subscribers during the period.
EXECUTIVE OUTLOOK
DIRECTV Latin America.
We previously reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 that at
DIRECTV
Latin America we expected net subscriber additions to be in the range of 1.5 million to 1.75 million. We now expect net subscriber additions to be below 1.5 million primarily as a
result of higher than expected churn in Brazil, as well as lower gross additions related to certain limitations on importing set-top receivers for new customers in Venezuela and lower subscriber
additions in Argentina and Brazil associated with stricter credit and sales filters.
48
Table of Contents
DIRECTV
RESULTS OF OPERATIONS
Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012
DIRECTV U.S. Results of Operations
The following table provides operating results and a summary of key subscriber data for the DIRECTV U.S. segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
and As of
September 30,
|
|
Change
|
|
|
|
2013
|
|
2012
|
|
$
|
|
%
|
|
|
|
(Dollars in Millions, Except
Per Subscriber Amounts)
|
|
Revenues
|
|
$
|
6,170
|
|
$
|
5,769
|
|
$
|
401
|
|
|
7.0
|
%
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues, exclusive of depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast programming and other
|
|
|
2,904
|
|
|
2,685
|
|
|
219
|
|
|
8.2
|
%
|
Subscriber service expenses
|
|
|
391
|
|
|
390
|
|
|
1
|
|
|
0.3
|
%
|
Broadcast operations expenses
|
|
|
68
|
|
|
74
|
|
|
(6
|
)
|
|
(8.1
|
)%
|
Selling, general and administrative expenses, exclusive of depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriber acquisition costs
|
|
|
756
|
|
|
757
|
|
|
(1
|
)
|
|
(0.1
|
)%
|
Upgrade and retention costs
|
|
|
359
|
|
|
340
|
|
|
19
|
|
|
5.6
|
%
|
General and administrative expenses
|
|
|
296
|
|
|
272
|
|
|
24
|
|
|
8.8
|
%
|
Depreciation and amortization expense
|
|
|
409
|
|
|
375
|
|
|
34
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
5,183
|
|
|
4,893
|
|
|
290
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
987
|
|
$
|
876
|
|
$
|
111
|
|
|
12.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit margin
|
|
|
16.0
|
%
|
|
15.2
|
%
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit before depreciation and amortization
|
|
$
|
1,396
|
|
$
|
1,251
|
|
$
|
145
|
|
|
11.6
|
%
|
Operating profit before depreciation and amortization margin
|
|
|
22.6
|
%
|
|
21.7
|
%
|
|
|
|
|
|
|
Total number of subscribers (in thousands)
|
|
|
20,160
|
|
|
19,981
|
|
|
179
|
|
|
0.9
|
%
|
ARPU
|
|
$
|
102.37
|
|
$
|
96.41
|
|
$
|
5.96
|
|
|
6.2
|
%
|
Average monthly subscriber churn %
|
|
|
1.61
|
%
|
|
1.74
|
%
|
|
|
|
|
(7.5
|
)%
|
Gross subscriber additions (in thousands)
|
|
|
1,109
|
|
|
1,107
|
|
|
2
|
|
|
0.2
|
%
|
Subscriber disconnections (in thousands)
|
|
|
970
|
|
|
1,040
|
|
|
(70
|
)
|
|
(6.7
|
)%
|
Net subscriber additions (in thousands)
|
|
|
139
|
|
|
67
|
|
|
72
|
|
|
NM
|
*
|
Average subscriber acquisition costsper subscriber (SAC)
|
|
$
|
853
|
|
$
|
850
|
|
$
|
3
|
|
|
0.4
|
%
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
155
|
|
$
|
137
|
|
$
|
18
|
|
|
13.1
|
%
|
Subscriber leased equipmentsubscriber acquisitions
|
|
|
190
|
|
|
184
|
|
|
6
|
|
|
3.3
|
%
|
Subscriber leased equipmentupgrade and retention
|
|
|
162
|
|
|
79
|
|
|
83
|
|
|
NM
|
*
|
Satellites
|
|
|
46
|
|
|
23
|
|
|
23
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
553
|
|
$
|
423
|
|
$
|
130
|
|
|
30.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Percentage
not meaningful.
49
Table of Contents
DIRECTV
Subscribers.
In the third quarter of 2013, net subscriber additions increased primarily due to lower churn as compared to the third
quarter of 2012.
In the third quarter of 2012, churn was unfavorably impacted by a contract dispute with a large programmer that resulted in the removal of several channels from our service for nine days. Gross
subscriber additions remained relatively flat due to a continued focus on attaining higher quality subscribers, as well as a more challenging competitive environment and mature industry.
Revenues.
DIRECTV U.S. revenues increased in the third quarter of 2013 as a result of higher ARPU and a larger subscriber base. The
increase in ARPU
resulted primarily from higher advanced receiver service fees, price increases on programming packages, higher fees for a new enhanced warranty program, higher warranty program subscribers and higher
pay per view revenues due to the timing of events. This increase was partially offset by increased promotional offers for new and existing customers.
Operating profit before depreciation and amortization.
Operating profit before depreciation and amortization increased in the third
quarter of 2013
as compared to the third quarter of 2012 primarily due to higher revenues, partially offset by higher broadcast programming and other costs. Broadcast
programming and other costs increased primarily due to annual program supplier rate increases and a larger subscriber base.
Operating
profit before depreciation and amortization margin increased in the third quarter of 2013 as compared to the third quarter of 2012 driven primarily by the incremental margin
generated by higher revenues combined with mostly unchanged subscriber acquisition costs due to the flat gross subscriber additions. The margin improvement was also driven by relatively unchanged
subscriber services expenses and broadcast operations expenses mainly due to productivity improvements and disciplined cost management. These margin improvements were partially offset by relatively
higher broadcast programming costs mostly related to annual program supplier rate increases.
Operating profit.
Operating profit and operating profit margin increased in the third quarter of 2013 as compared to the third quarter
of 2012 due to
an increase in operating profit before depreciation and amortization and operating profit before depreciation and amortization margin, partially offset by an increase in depreciation and amortization
expense due to higher capitalized subscriber leased equipment.
50
Table of Contents
DIRECTV
DIRECTV Latin America Results of Operations
The following table provides operating results and a summary of key subscriber data for consolidated DIRECTV Latin America operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended and As of
September 30,
|
|
Change
|
|
|
|
2013
|
|
2012
|
|
$
|
|
%
|
|
|
|
(Dollars in Millions, Except
Per Subscriber Amounts)
|
|
Revenues
|
|
$
|
1,662
|
|
$
|
1,577
|
|
$
|
85
|
|
|
5.4
|
%
|
Operating profit before depreciation and amortization
|
|
|
558
|
|
|
455
|
|
|
103
|
|
|
22.6
|
%
|
Operating profit before depreciation and amortization margin
|
|
|
33.6
|
%
|
|
28.9
|
%
|
|
|
|
|
|
|
Operating profit
|
|
$
|
262
|
|
$
|
221
|
|
$
|
41
|
|
|
18.6
|
%
|
Operating profit margin
|
|
|
15.8
|
%
|
|
14.0
|
%
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARPU
|
|
$
|
49.42
|
|
$
|
55.97
|
|
$
|
(6.55
|
)
|
|
(11.7
|
)%
|
Average monthly total subscriber churn %
|
|
|
2.27
|
%
|
|
1.91
|
%
|
|
|
|
|
18.8
|
%
|
Average monthly post-paid subscriber churn %
|
|
|
1.93
|
%
|
|
1.54
|
%
|
|
|
|
|
25.3
|
%
|
Total number of subscribers (in thousands)(1)
|
|
|
11,337
|
|
|
9,666
|
|
|
1,671
|
|
|
17.3
|
%
|
Gross subscriber additions (in thousands)(1)(2)
|
|
|
1,023
|
|
|
1,081
|
|
|
(58
|
)
|
|
(5.4
|
)%
|
Net subscriber additions (in thousands)(1)(2)
|
|
|
260
|
|
|
543
|
|
|
(283
|
)
|
|
(52.1
|
)%
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
62
|
|
$
|
40
|
|
$
|
22
|
|
|
55.0
|
%
|
Subscriber leased equipmentsubscriber acquisitions
|
|
|
228
|
|
|
195
|
|
|
33
|
|
|
16.9
|
%
|
Subscriber leased equipmentupgrade and retention
|
|
|
93
|
|
|
107
|
|
|
(14
|
)
|
|
(13.1
|
)%
|
Satellites
|
|
|
32
|
|
|
22
|
|
|
10
|
|
|
45.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
415
|
|
$
|
364
|
|
$
|
51
|
|
|
14.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
DIRECTV
Latin America subscriber data excludes subscribers on the Sky Mexico platform.
-
(2)
-
Gross
and net subscriber additions exclude 7,000 subscribers acquired in transactions in Brazil during the third quarter of 2012.
Subscribers.
In the third quarter of 2013 net subscriber additions decreased due to lower gross subscriber additions and higher average
monthly churn
primarily in Brazil. The decrease in gross subscriber additions was primarily a result of a certain limitations on importing set-top receivers for new customers in Venezuela, as well as lower
post-paid subscriber additions in Argentina and Brazil mostly associated with challenging economic conditions and stricter credit and sales filters. The decrease was partially offset by improved gross
additions in Chile and Colombia due to greater middle market demand. Total average monthly churn increased mainly as a result of higher churn in Brazil primarily related to the effect of a higher mix
of middle market subscribers, along with more challenging economic and competitive conditions.
Revenues.
Revenues increased in the third quarter of 2013 primarily due to subscriber growth, partially offset by a decrease in ARPU.
The decrease in
ARPU was primarily due to the devaluation of the bolivar in February 2013 and unfavorable exchange rates in Argentina and Brazil. Excluding the impact of foreign currency exchange rates, ARPU
increased 3.7% in the third quarter of 2013 primarily due to price increases and increased upgrades including advanced receiver services, partially offset by the effect of increased penetration of
lower ARPU middle market subscribers.
51
Table of Contents
DIRECTV
Operating profit before depreciation and amortization.
Operating profit before depreciation and amortization increased in the third
quarter of 2013
as compared to the third quarter of 2012 primarily due to higher revenues and lower broadcast programming and other costs, partially offset by higher subscriber service expenses, primarily in
PanAmericana related to the larger subscriber base. The lower broadcast programming and other costs are primarily related to the settlement of the ECAD dispute in Brazil, partially offset by higher
programming costs related to inflationary pressure in Venezuela and costs related to special events.
Operating
profit before depreciation and amortization margin increased in the third quarter of 2013 as compared to the third quarter of 2012 driven primarily by the incremental margin
generated by higher revenues combined with relatively lower broadcast programming and other expenses due to the ECAD settlement, as well as unchanged subscriber acquisition costs, in part due to lower
gross subscriber additions. These margin improvements were partially offset by relatively higher upgrade and retention costs and subscriber service expenses primarily in PanAmericana.
Operating profit.
Operating profit and operating profit margin increased in the third quarter of 2013 as compared to the third quarter
of 2012 due to
an increase in operating profit before depreciation and amortization and operating profit before depreciation and amortization margin, partially offset by an increase in depreciation and amortization
expense due to higher total capitalized subscriber leased equipment and higher subscriber churn in Brazil.
DIRECTV Other Income and Income Taxes
Interest income.
Interest income was $15 million in the third quarter of 2013 and $17 million in the third quarter of 2012.
Interest expense.
The decrease in interest expense to $182 million in the third quarter of 2013 from $204 million in the third
quarter
of 2012 was primarily a result of the settlement of the ECAD dispute, partially offset by the impact of a higher average debt balance.
Other, net.
The significant components of "Other, net" were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Change
|
|
|
|
2013
|
|
2012
|
|
$
|
|
|
|
(Dollars in Millions)
|
|
Equity in earnings from unconsolidated affiliates
|
|
$
|
30
|
|
$
|
33
|
|
$
|
(3
|
)
|
Net foreign currency transaction loss
|
|
|
(9
|
)
|
|
(2
|
)
|
|
(7
|
)
|
Net gains from sale of investments
|
|
|
|
|
|
11
|
|
|
(11
|
)
|
Fair-value gain (loss) on non-employee stock options
|
|
|
2
|
|
|
(2
|
)
|
|
4
|
|
ECAD settlement gain
|
|
|
21
|
|
|
|
|
|
21
|
|
Other
|
|
|
(1
|
)
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43
|
|
$
|
39
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
Income Tax Expense.
We recognized income tax expense of $391 million for the third quarter of 2013 compared to $348 million
for the
third quarter of 2012. The effective tax rate for the third quarter of 2013 was 35.5% compared to 37.8% for the third quarter of 2012, primarily due to the recognition of uncertain tax benefits as a
result of the expiration of the statute of limitations.
52
Table of Contents
DIRECTV
Earnings Per Share
Earnings per share and weighted average shares outstanding were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2013
|
|
2012
|
|
|
|
(Shares in Millions)
|
|
Basic earnings attributable to DIRECTV per common share
|
|
$
|
1.29
|
|
$
|
0.91
|
|
Diluted earnings attributable to DIRECTV per common share
|
|
$
|
1.28
|
|
$
|
0.90
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
|
541
|
|
|
624
|
|
Diluted
|
|
|
545
|
|
|
629
|
|
The
increases in basic and diluted earnings per share were due to a reduction in weighted average shares outstanding resulting from our share repurchase program and higher net income
attributable to DIRECTV.
53
Table of Contents
DIRECTV
Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012
DIRECTV U.S. Results of Operations
The following table provides operating results and a summary of key subscriber data for the DIRECTV U.S. segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
and As of September 30,
|
|
Change
|
|
|
|
2013
|
|
2012
|
|
$
|
|
%
|
|
|
|
(Dollars in Millions, Except
Per Subscriber
Amounts)
|
|
|
|
Revenues
|
|
$
|
17,903
|
|
$
|
16,915
|
|
$
|
988
|
|
|
5.8
|
%
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues, exclusive of depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast programming and other
|
|
|
8,147
|
|
|
7,549
|
|
|
598
|
|
|
7.9
|
%
|
Subscriber service expenses
|
|
|
1,102
|
|
|
1,096
|
|
|
6
|
|
|
0.5
|
%
|
Broadcast operations expenses
|
|
|
220
|
|
|
229
|
|
|
(9
|
)
|
|
(3.9
|
)%
|
Selling, general and administrative expenses, exclusive of depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriber acquisition costs
|
|
|
1,979
|
|
|
2,017
|
|
|
(38
|
)
|
|
(1.9
|
)%
|
Upgrade and retention costs
|
|
|
1,002
|
|
|
930
|
|
|
72
|
|
|
7.7
|
%
|
General and administrative expenses
|
|
|
885
|
|
|
848
|
|
|
37
|
|
|
4.4
|
%
|
Depreciation and amortization expense
|
|
|
1,225
|
|
|
1,116
|
|
|
109
|
|
|
9.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
14,560
|
|
|
13,785
|
|
|
775
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
3,343
|
|
$
|
3,130
|
|
$
|
213
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit margin
|
|
|
18.7
|
%
|
|
18.5
|
%
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit before depreciation and amortization
|
|
$
|
4,568
|
|
$
|
4,246
|
|
$
|
322
|
|
|
7.6
|
%
|
Operating profit before depreciation and amortization margin
|
|
|
25.5
|
%
|
|
25.1
|
%
|
|
|
|
|
|
|
Total number of subscribers (in thousands)
|
|
|
20,160
|
|
|
19,981
|
|
|
179
|
|
|
0.9
|
%
|
ARPU
|
|
$
|
99.00
|
|
$
|
94.27
|
|
$
|
4.73
|
|
|
5.0
|
%
|
Average monthly subscriber churn %
|
|
|
1.53
|
%
|
|
1.57
|
%
|
|
|
|
|
(2.5
|
)%
|
Gross subscriber additions (in thousands)
|
|
|
2,841
|
|
|
2,911
|
|
|
(70
|
)
|
|
(2.4
|
)%
|
Subscriber disconnections (in thousands)
|
|
|
2,765
|
|
|
2,815
|
|
|
(50
|
)
|
|
(1.8
|
)%
|
Net subscriber additions (in thousands)
|
|
|
76
|
|
|
96
|
|
|
(20
|
)
|
|
(20.8
|
)%
|
Average subscriber acquisition costsper subscriber (SAC)
|
|
$
|
878
|
|
$
|
852
|
|
$
|
26
|
|
|
3.1
|
%
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
420
|
|
$
|
377
|
|
$
|
43
|
|
|
11.4
|
%
|
Subscriber leased equipmentsubscriber acquisitions
|
|
|
515
|
|
|
462
|
|
|
53
|
|
|
11.5
|
%
|
Subscriber leased equipmentupgrade and retention
|
|
|
392
|
|
|
209
|
|
|
183
|
|
|
87.6
|
%
|
Satellites
|
|
|
154
|
|
|
139
|
|
|
15
|
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
1,481
|
|
$
|
1,187
|
|
$
|
294
|
|
|
24.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
54
Table of Contents
DIRECTV
Subscribers.
In the nine months ended September 30, 2013, net subscriber additions decreased due to lower gross subscriber
additions
associated with a continued focus on attaining higher quality subscribers, as well as a more challenging competitive environment and mature industry. This decrease was partially offset by lower
average monthly subscriber churn as compared to the nine months ended September 30, 2012. In the third quarter of 2012, churn was unfavorably impacted by a contract dispute with a large
programmer that resulted in the removal of several channels from our service for nine days. The lower average monthly subscriber churn is also due to continued investments in subscriber loyalty
programs and customer service improvement initiatives.
Revenues.
DIRECTV U.S. revenues increased in the nine months ended September 30, 2013 as a result of higher ARPU and a larger
subscriber base.
The increase in ARPU resulted primarily from higher advanced receiver service fees, price increases on programming packages, higher fees for a new enhanced warranty program, higher warranty program
subscribers and increased commercial revenues. This increase was partially offset by one less week of NFL SUNDAY TICKET
TM
revenues and increased promotional offers to new and existing
subscribers.
Operating profit before depreciation and amortization.
Operating profit before depreciation and amortization increased in the nine
months ended
September 30, 2013 as compared to the nine months ended September 30, 2012 primarily due to higher revenues, partially offset by higher broadcast programming and other costs and higher
upgrade and retention costs. Broadcast programming and other costs increased primarily due to annual program supplier rate increases, a larger subscriber base and increased costs associated with
providing the expanded warranty program, partially offset by one less week of NFL SUNDAY TICKET programming costs. Upgrade and retention costs increased in the nine months ended September 30,
2013 primarily due to a larger number of subscriber upgrades to advanced products related to customer loyalty initiatives.
Operating
profit before depreciation and amortization margin increased in the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012
driven by the
incremental margin generated by higher revenues combined with lower subscriber acquisition costs and mostly unchanged subscriber service expenses. Subscriber acquisition costs decreased primarily due
to lower gross subscriber additions. SAC per subscriber, which includes the cost of capitalized set-top receivers, increased primarily due to an increase in subscriber demand for advanced products and
higher marketing costs per subscriber added. Subscriber service expenses remained relatively unchanged due to continued improvement and efficiency initiatives. These margin improvements were partially
offset by relatively higher broadcast programming costs mostly related to annual supplier rate increases.
Operating profit.
Operating profit and operating profit margin increased in the nine months ended September 30, 2013 compared to
the nine
months ended September 30, 2012 due to an increase in operating profit before depreciation and amortization and operating profit before depreciation and amortization margin, partially offset by
an increase in depreciation and amortization expense due to higher total capitalized subscriber leased equipment.
55
Table of Contents
DIRECTV
DIRECTV Latin America Results of Operations
The following table provides operating results and a summary of key subscriber data for consolidated DIRECTV Latin America operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
and As of September 30,
|
|
Change
|
|
|
|
2013
|
|
2012
|
|
$
|
|
%
|
|
|
|
(Dollars in Millions, Except Per
Subscriber Amounts)
|
|
Revenues
|
|
$
|
5,076
|
|
$
|
4,570
|
|
$
|
506
|
|
|
11.1
|
%
|
Operating profit before depreciation and amortization(1)
|
|
|
1,393
|
|
|
1,368
|
|
|
25
|
|
|
1.8
|
%
|
Operating profit before depreciation and amortization margin(1)
|
|
|
27.4
|
%
|
|
29.9
|
%
|
|
|
|
|
|
|
Operating profit(1)
|
|
$
|
518
|
|
$
|
694
|
|
$
|
(176
|
)
|
|
(25.4
|
)%
|
Operating profit margin(1)
|
|
|
10.2
|
%
|
|
15.2
|
%
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARPU(2)
|
|
$
|
51.68
|
|
$
|
57.83
|
|
$
|
(6.15
|
)
|
|
(10.6
|
)%
|
Average monthly total subscriber churn %(2)
|
|
|
2.43
|
%
|
|
1.84
|
%
|
|
|
|
|
32.1
|
%
|
Average monthly post-paid subscriber churn %(2)
|
|
|
2.18
|
%
|
|
1.51
|
%
|
|
|
|
|
44.4
|
%
|
Total number of subscribers (in thousands)(2)(3)
|
|
|
11,337
|
|
|
9,666
|
|
|
1,671
|
|
|
17.3
|
%
|
Gross subscriber additions (in thousands)(3)(4)
|
|
|
3,393
|
|
|
3,234
|
|
|
159
|
|
|
4.9
|
%
|
Net subscriber additions (in thousands)(2)(3)(4)
|
|
|
1,008
|
|
|
1,781
|
|
|
(773
|
)
|
|
(43.4
|
)%
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
142
|
|
$
|
167
|
|
$
|
(25
|
)
|
|
(15.0
|
)%
|
Subscriber leased equipmentsubscriber acquisitions
|
|
|
675
|
|
|
619
|
|
|
56
|
|
|
9.0
|
%
|
Subscriber leased equipmentupgrade and retention
|
|
|
326
|
|
|
324
|
|
|
2
|
|
|
0.6
|
%
|
Satellites
|
|
|
112
|
|
|
86
|
|
|
26
|
|
|
30.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
1,255
|
|
$
|
1,196
|
|
$
|
59
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
These
amounts include the impact of the $166 million Venezuelan currency devaluation charge.
-
(2)
-
Based
on the results of an internal investigation, we have 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 have been terminated as subscribers pursuant to Sky Brasil's
authorized policies. We estimate that as of March 31, 2013, our subscriber count would have been approximately 200,000 lower than the number of subscribers previously reported if the identified
improper actions had not been taken. See the Current Report on Form 8-K filed with the SEC on June 27, 2013 for further details. Prior year results for subscribers, churn and ARPU have
not been adjusted for the findings of this investigation.
-
(3)
-
DIRECTV
Latin America subscriber data excludes subscribers on the Sky Mexico platform.
-
(4)
-
Gross
and net subscriber additions exclude 1,000 subscribers acquired in transactions in Brazil during 2013 and 14,000 subscribers acquired in transactions
in Brazil during 2012.
Subscribers.
In the nine months ended September 30, 2013 net subscriber additions decreased as the higher gross subscriber
additions were more
than offset by higher average churn primarily in Brazil.
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The
increase in gross subscriber additions was primarily due to improved gross additions in Chile and Colombia due to greater middle market demand. Total average monthly churn increased primarily as a
result of higher churn in Brazil related to the improper crediting of certain subscriber accounts and associated corrective actions described above, as well as challenging economic and competitive
conditions. The higher average monthly churn in Brazil was also impacted by the effect of a higher mix of middle market subscribers.
Revenues.
Revenues increased in the nine months ended September 30, 2013, primarily due to subscriber growth partially offset by a
decrease in
ARPU. The decrease in ARPU was primarily due to the devaluation of the bolivar in February 2013 and unfavorable exchange rates in Argentina and Brazil. Excluding the impact of foreign currency
exchange rates, ARPU increased 2.4% in the nine months ended September 30, 2013 primarily due to price increases and increased upgrades including advanced receiver services, partially offset by
the effect of increased penetration of lower ARPU middle market subscribers.
Operating profit before depreciation and amortization.
Operating profit before depreciation and amortization increased in the nine
months ended
September 30, 2013 as compared to the nine months ended September 30, 2012, primarily due to higher revenues, partially offset by the $166 million charge related to the
devaluation of the bolivar in February 2013, higher broadcast programming costs and higher subscriber service expenses related to the larger subscriber base, and increased general and administrative
expenses related to higher infrastructure costs associated with the larger subscriber base. The impact of the higher broadcast programming costs was partially offset by the settlement of the ECAD
dispute in Brazil in the third quarter of 2013.
Operating
profit before depreciation and amortization margin decreased in the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012
as higher revenues were more than offset by the impact of the $166 million charge related to the devaluation of the bolivar in February 2013, as well as by relatively higher subscriber service
expenses and general and administrative expenses primarily in PanAmericana. These decreases in the margin were partially offset by relatively lower broadcast programming and other expenses primarily
related to the settlement of the ECAD dispute in Brazil in the third quarter of 2013.
Operating profit.
Operating profit and operating profit margin decreased in the nine months ended September 30, 2013 as compared to
the nine
months ended September 30, 2012. These decreases were primarily due to a decrease in operating profit before depreciation and amortization and operating profit before depreciation and
amortization margin, as well as an increase in depreciation and amortization expense due to higher total capitalized subscriber leased equipment and higher depreciation associated with capitalized
installation costs and subscriber leased equipment related to the higher subscriber churn in Brazil discussed above.
DIRECTV Other Income and Income Taxes
Interest income.
Interest income was $56 million in the nine months ended September 30, 2013 and $40 million in the nine
months
ended September 30, 2012.
Interest expense.
The decrease in interest expense to $618 million in the nine months ended September 30, 2013 from
$622 million
in the nine months ended September 30, 2012 was primarily a result of the settlement of the ECAD dispute, partially offset by the impact of a higher average debt balance.
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Other, net.
The significant components of "Other, net" were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
Change
|
|
|
|
2013
|
|
2012
|
|
$
|
|
|
|
(Dollars in Millions)
|
|
DSN Northwest deconsolidation charge
|
|
$
|
(59
|
)
|
$
|
|
|
$
|
(59
|
)
|
Equity in earnings from unconsolidated affiliates
|
|
|
86
|
|
|
107
|
|
|
(21
|
)
|
Net foreign currency transaction loss
|
|
|
(42
|
)
|
|
(32
|
)
|
|
(10
|
)
|
Net gains from sale of investments
|
|
|
8
|
|
|
11
|
|
|
(3
|
)
|
Fair-value loss on non-employee stock options
|
|
|
(2
|
)
|
|
(5
|
)
|
|
3
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
(64
|
)
|
|
64
|
|
ECAD settlement gain
|
|
|
21
|
|
|
|
|
|
21
|
|
Other
|
|
|
(6
|
)
|
|
(4
|
)
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6
|
|
$
|
13
|
|
$
|
(7
|
)
|
|
|
|
|
|
|
|
|
Income Tax Expense.
We recognized income tax expense of $1,192 million for the nine months ended September 30, 2013 compared
to
$1,189 million for the nine months ended September 30, 2012. The effective tax rate for the nine months ended September 30, 2013 was 36.6% compared to 36.9% for the nine months
ended September 30, 2012, primarily due to benefits recorded for settlement with state taxing authorities and the expiration of the statute of limitations, partially offset by the unfavorable
tax impacts of the Venezuela currency devaluation and the DSN Northwest Transaction.
Earnings Per Share
Earnings per share and weighted average shares outstanding were as follows:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2013
|
|
2012
|
|
|
|
(Shares in Millions)
|
|
Basic earnings attributable to DIRECTV per common share
|
|
$
|
3.68
|
|
$
|
3.08
|
|
Diluted earnings attributable to DIRECTV per common share
|
|
$
|
3.65
|
|
$
|
3.06
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
|
|
557
|
|
|
651
|
|
Diluted
|
|
|
562
|
|
|
655
|
|
The
increases in basic and diluted earnings per share were due to a reduction in weighted average shares outstanding resulting from our share repurchase program and higher net income
attributable to DIRECTV.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are our cash, cash equivalents and the cash flow that we generate from our operations. We expect
that net cash provided by operating activities will grow and believe that our existing cash balances and cash provided by operations will be sufficient to fund our existing business plan. DIRECTV U.S.
has the ability to borrow up to $2.5 billion
under its revolving credit facilities. As of September 30, 2013, there were no borrowings outstanding under the revolving credit facilities. On November 27, 2012, DIRECTV U.S.
established a commercial paper program backed by its revolving credit facilities, which provides for the issuance of short-term commercial paper in the United States up to a maximum aggregate
principal of $2.5 billion. As of September 30, 2013, we had
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DIRECTV
$562 million
of short-term commercial paper outstanding. Aggregate amounts outstanding under the revolving credit facilities described below and the commercial paper program are limited to
$2.5 billion. In March 2013, Sky Brasil entered into a financing facility with Banco Nacional de Desenvolvimento Econômico e Social, or BNDES, a government owned bank in Brazil,
under which Sky Brasil may borrow funds for the purchase of set-top receivers. Our Board of Directors has approved borrowings of up to R$500 million (approximately $250 million at the
then current exchange rate) under the facility.
As
of September 30, 2013, our cash and cash equivalents totaled $1,622 million compared to $1,902 million at December 31, 2012. As a measure of liquidity, the
current ratio (ratio of current assets to current liabilities) was 0.94 at September 30, 2013 and 1.00 at December 31, 2012.
Cash Flows Provided by Operating Activities
Net cash provided by operating activities increased to $4,355 million for the nine months ended September 30, 2013 from
$4,133 million for the nine months ended September 30, 2012. The increase is primarily a result of an increase in net income.
Cash Flows Used in Investing Activities
Net cash used in investing activities increased to $2,812 million for the nine months ended September 30, 2013 from
$2,346 million for the nine months ended September 30, 2012. The increase resulted primarily from higher capital expenditures for subscriber leased set-top receivers due to increased
demand for advanced products at DIRECTV U.S. and the growing subscriber base at DIRECTV Latin America, as well as increased infrastructure expenditures at DIRECTV U.S. The increase was also as result
of the acquisition of spectrum licenses at DIRECTV Latin America and new patent licenses at DIRECTV U.S. The increase was partially offset by proceeds
received in April 2013 from the partial sale of our equity method investment in GSN that occurred in December 2012.
Cash Flow Used in Financing Activities
Net cash used in financing activities increased to $1,636 million for the nine months ended September 30, 2013 from
$239 million for the nine months ended September 30, 2012. The increase is primarily due to a decrease in the net proceeds from long-term debt, partially offset by a reduction in common
shares repurchased and retired and an increase in net proceeds from short-term borrowings.
Share Repurchase Program
Since 2006 our Board of Directors has approved multiple authorizations for the repurchase of our common stock. In February 2013 our
Board of Directors terminated the remaining balance available under the previous authorization and approved a new authorization for up to $4 billion for repurchases of our common stock. During
the nine months ended September 30, 2013, we repurchased and retired 58 million common shares for $3,273 million, at an average price of $56.46. As of September 30, 2013,
we had approximately $1,589 million remaining under this authorization. The authorization allows us to repurchase our common stock from time to time through open market purchases and negotiated
transactions, or otherwise. The timing, nature and amount of such transactions will depend on a variety of factors, including market conditions, and the program may be suspended, discontinued or
accelerated at any time. The sources of funds for the purchases under the remaining authorizations are our existing cash on hand, cash from operations and potential additional borrowings.
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Debt
At September 30, 2013, we had $19,232 million in total outstanding borrowings, which consisted of senior notes and
commercial paper issued by DIRECTV U.S., and borrowings under the BNDES financing facility at Sky Brasil. Our outstanding borrowings are more fully described in Note 4 of the Notes to the
Consolidated Financial Statements in Item 1, Part I of this Quarterly Report and in Note 10 to the Notes to the Consolidated Financial Statements in Item 8, Part II
of our 2012 Form 10-K.
We
anticipate additional borrowings in the future in order to maintain a ratio of outstanding long-term debt equal to approximately 2.5 times operating profit before depreciation and
amortization of DIRECTV on a consolidated basis. We will continue to evaluate our optimal leverage on an ongoing basis. We may purchase our outstanding senior notes in the future from time to time in
open market transactions or otherwise as part of liability management initiatives.
Senior Notes.
At September 30, 2013, DIRECTV U.S.' senior notes had a carrying value of $18,585 million and a
weighted-average interest
rate of 4.46%. Our senior notes mature as follows: $1,000 million in 2014, $1,200 million in 2015, $2,250 million in 2016, $1,250 million in 2017 and $12,940 million
in 2018 and thereafter.
Included
in the amounts above are DIRECTV U.S.' £750 million in aggregate principal of 4.375% senior notes due in 2029 and €500 million in
aggregate principal of 2.750% senior notes due in 2023. In connection with the issuance of these senior notes, DIRECTV U.S. entered into cross-currency swap agreements to manage the related foreign
exchange risk by effectively converting all of the fixed-rate British pound sterling and fixed-rate Euro denominated debt, including annual interest payments and the payment of principal at maturity,
to fixed-rate U.S. dollar denominated debt. These cross-currency swaps are designated and qualify as cash flow hedges. The terms of the cross-currency swap agreements correspond to the related hedged
senior notes and have maturities ranging from May 2023 to September 2029.
All
of our senior notes were issued by DIRECTV Holdings LLC and DIRECTV Financing Co., Inc., or the Co-Issuers, and have been registered under the Securities Act of
1933, as amended.
Commercial Paper.
On November 27, 2012, DIRECTV U.S. established a commercial paper program backed by its revolving credit
facilities, which
provides for the issuance of short-term commercial paper in the United States up to a maximum aggregate principal of $2.5 billion. As of September 30, 2013, we
had $562 million of short-term commercial paper outstanding, with a weighted average remaining maturity of 53 days, at a weighted average yield of 0.39%, which may be refinanced on a
periodic basis as borrowings mature.
Revolving Credit Facilities
On September 28, 2012, DIRECTV U.S.' five year, $2.0 billion, revolving credit facility dated February 7, 2011 was
terminated and replaced with a three and one-half year, $1.0 billion, revolving credit facility and a five year, $1.5 billion, revolving credit facility. We pay a commitment fee of 0.15%
per year for the unused commitment under the revolving credit facilities. Borrowings currently bear interest at a rate equal to the London Interbank Offer Rate (LIBOR) plus 1.25%. Both the commitment
fee and the annual interest rate may increase or decrease under certain conditions due to changes in DIRECTV U.S.' long-term, unsecured debt ratings. Under certain conditions, DIRECTV U.S. may
increase the borrowing capacity of the revolving credit facilities by an aggregate amount of up to $500 million. Aggregate amounts outstanding under the revolving credit facilities and the
commercial
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DIRECTV
paper
program are limited to $2.5 billion. As of September 30, 2013, there were no borrowings outstanding under the new revolving credit facilities.
Borrowings
under the revolving credit facilities are unsecured senior obligations of DIRECTV U.S. and will rank equally in right of payment with all of DIRECTV U.S.' existing and future
senior debt and will rank senior in right of payment to all of DIRECTV U.S.' future subordinated debt, if any.
Covenants and Restrictions
The revolving credit facilities require DIRECTV U.S. to maintain at the end of each fiscal quarter a specified ratio of indebtedness to
earnings before interest, taxes and depreciation and amortization. The revolving credit facilities also include covenants that limit DIRECTV U.S.' ability to, among other things, (i) incur
additional subsidiary indebtedness, (ii) incur liens, (iii) enter into certain transactions with affiliates, (iv) merge or consolidate with another entity, (v) sell,
assign, lease or otherwise dispose of all or substantially all of its assets, and (vi) change its lines
of business. Additionally, the senior notes contain covenants that are similar. If DIRECTV U.S. fails to comply with these covenants, all or a portion of its borrowings under the senior notes could
become immediately payable and its revolving credit facilities could be terminated. At September 30, 2013, management believes DIRECTV U.S. was in compliance with all such covenants. The senior
notes and revolving credit facilities also provide that the borrowings may be required to be prepaid if certain change-in-control events, coupled with a ratings decline, occur.
DIRECTV Guarantors.
DIRECTV entered into a series of Supplemental Indentures whereby DIRECTV agreed to fully guarantee all of the
senior notes
outstanding, jointly and severally with most of DIRECTV Holdings LLC's domestic subsidiaries. The Supplemental Indentures provide that DIRECTV unconditionally guarantees that the principal and
interest on the respective senior notes will be paid in full when due and that the obligations of the Co-Issuers to the holders of the outstanding senior notes will be performed. The revolving credit
facilities and the commercial paper program are also similarly fully guaranteed by DIRECTV.
As
a result of the guarantees, holders of the senior notes, the revolving credit debt and the commercial paper have the benefit of DIRECTV's interests in the assets and related earnings
of our operations that are not held through DIRECTV Holdings LLC and its subsidiaries. Those operations are primarily our DTH digital television services throughout Latin America which are held
by DIRECTV Latin America and our regional sports networks which are held by DSN. However, the subsidiaries that own and operate the DIRECTV Latin America business and the regional sports networks have
not guaranteed the senior notes, the revolving credit facilities and the commercial paper program.
The
guarantees are unsecured senior obligations of DIRECTV and rank equally in right of payment with all of DIRECTV's existing and future senior debt and rank senior in right of payment
to all of DIRECTV's future subordinated debt, if any. The guarantees are effectively subordinated to all existing and future secured obligations, if any, of DIRECTV to the extent of the value of the
assets securing the obligations. DIRECTV will not be subject to the covenants contained in each indenture of the senior notes and our guarantees will terminate and be released on the terms set forth
in each of the indentures.
BNDES Financing Facility
In March 2013, Sky Brasil entered into a financing facility with BNDES, a government owned bank in Brazil, under which Sky Brasil may
borrow funds for the purchase of set-top receivers. Our Board of Directors has approved borrowings of up to R$500 million (or approximately $250 million at the then
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DIRECTV
current
exchange rate) under the facility. As of September 30, 2013, Sky Brasil had borrowings of $85 million outstanding under the BNDES facility bearing interest at a weighted-average
rate of 2.73% per year. Borrowings under the facility are required to be repaid in 30 monthly installments. The U.S. dollar amounts reflect the conversion of the Brazilian real denominated
amounts into U.S. dollars based on the exchange rate of R$2.23 / $1.00 at September 30, 2013.
Borrowing
under the BNDES facility mature as follows: $7 million in 2013, $37 million in 2014 and $34 million in 2015 and $7 million in 2016. The financing
facility is collateralized by the financed set-top receivers with an original purchase price of approximately $104 million based on the exchange rate at the time of purchase.
Contingencies
Redeemable Noncontrolling Interest.
As discussed in Note 6 of the Notes to the Consolidated Financial Statements in Part 1,
Item 1 of this Quarterly Report, Globo has the right to exchange Sky Brasil shares for cash or our common shares. If Globo exercises this right, we have the option to elect to pay the
consideration in cash, shares of our common stock, or a combination of both.
Venezuela Devaluation and Foreign Currency Exchange Controls.
In February 2013, the Venezuelan government announced a devaluation of
the bolivar from
the official exchange rate of 4.3 bolivars per U.S. dollar to an official rate of 6.3 bolivars per U.S. dollar. As a result of the devaluation, we recorded a pre-tax charge in "Venezuelan currency
devaluation charge" in the Consolidated Statements of Operations of $166 million ($136 million after tax) in the first quarter of 2013, related to the remeasurement of the bolivar
denominated net monetary assets of our Venezuelan subsidiary as of the date of the devaluation. There also are ongoing impacts to our results of operations subsequent to the devaluation, primarily
related to the translation of local currency financial statements at the new official exchange rate. In the event of a future devaluation of the bolivar, we will recognize a charge to earnings based
on the amount of bolivar denominated net monetary assets held at the time of such devaluation. Any future devaluation would also result in ongoing impacts to our results of operations.
Companies
operating in Venezuela are required to obtain Venezuelan government approval to exchange Venezuelan bolivars into U.S. dollars at the official exchange rate. Our ability to pay
U.S. dollar denominated obligations and repatriate cash generated in Venezuela in excess of local operating requirements is limited, resulting in an increase in the cash balance at our Venezuelan
subsidiary. At such time that exchange controls are eased, accumulated cash balances may ultimately be repatriated at less than their currently reported value. As of September 30, 2013, our
Venezuelan subsidiary had Venezuelan bolivar denominated net monetary assets of $521 million, including cash of $579 million, based on the official exchange rate of 6.3 bolivars per U.S.
dollar at that time.
Other.
Several factors may affect our ability to fund our operations and commitments that we discuss in "Contractual Obligations" and
"Contingencies"
below. In addition, our future cash flows may be reduced if we experience, among other things, significantly higher subscriber additions than planned, increased subscriber churn or upgrade and
retention costs, higher than planned capital expenditures for satellites and broadcast equipment, satellite anomalies or signal theft. Additionally, DIRECTV U.S.' ability to borrow under the revolving
credit facilities is contingent upon DIRECTV U.S. meeting financial and other covenants associated with its facilities as more fully described above.
Dividend Policy
Dividends may be paid on our common stock only when, as, and if declared by our Board of Directors in its sole discretion. We have no
current plans to pay any dividends on our common stock.
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We
currently expect to use our future earnings for the development of our businesses or other corporate purposes, which may include share repurchases.
CONTRACTUAL OBLIGATIONS
The following table sets forth our contractual obligations as of September 30, 2013, including the future periods in which
payments are expected. Additional details
regarding these obligations are provided in the Notes to the Consolidated Financial Statements in Part I, Item 1 referenced in the table below and the Notes to the Consolidated Financial
Statements in Part II, Item 8 in our Form 10-K for the year ended December 31, 2012. The contractual obligations below do not include payments that could be made related to
our net unrecognized tax benefits liability, which amounted to $305 million as of September 30, 2013. The timing and amount of any future payments is not reasonably estimable, as such
payments are dependent on the completion and resolution of examinations with tax authorities. We do not expect a significant payment related to these obligations within the next twelve months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
|
Contractual Obligations
|
|
Total
|
|
2013
|
|
2014-2015
|
|
2016-2017
|
|
2018 and
thereafter
|
|
|
|
(Dollars in Millions)
|
|
Long-term debt obligations (Note 3)(a)
|
|
$
|
29,014
|
|
$
|
61
|
|
$
|
3,868
|
|
$
|
4,861
|
|
$
|
20,224
|
|
Purchase obligations(b)
|
|
|
5,289
|
|
|
593
|
|
|
3,270
|
|
|
712
|
|
|
714
|
|
Operating lease obligations(c)
|
|
|
943
|
|
|
27
|
|
|
187
|
|
|
175
|
|
|
554
|
|
Capital lease obligations(d)
|
|
|
1,440
|
|
|
27
|
|
|
241
|
|
|
274
|
|
|
898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,686
|
|
$
|
708
|
|
$
|
7,566
|
|
$
|
6,022
|
|
$
|
22,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Long-term
debt obligations include interest calculated based on the rates in effect at September 30, 2013, however, the obligations do not reflect
potential prepayments required under indentures.
-
(b)
-
Purchase
obligations consist primarily of broadcast programming commitments, regional professional team rights agreements, service contract commitments and
satellite construction and launch contracts. Broadcast programming commitments include guaranteed minimum contractual commitments that are typically based on a flat fee or a minimum number of required
subscribers subscribing to the related programming. Actual payments may exceed the minimum payment requirements if the actual number of subscribers subscribing to the related programming exceeds the
minimum amounts. Service contract commitments include minimum commitments for the purchase of services that have been outsourced to third parties, such as billing services, telemetry, tracking and
control services and broadcast center services. In most cases, actual payments, which are typically based on volume, usually exceed these minimum amounts.
-
(c)
-
Certain
of the operating leases contain variable escalation clauses and renewal or purchase options, which we do not consider in the amounts disclosed.
-
(d)
-
Capital
lease obligations include prepayments related to a satellite lease contract which we expect to account for as a capital lease upon commencement.
CONTINGENCIES
For a discussion of "Contingencies," see Part I, Item 1, and Note 6 of the Notes to the Consolidated Financial
Statements of this Quarterly Report, which we incorporate herein by reference.
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CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
For a discussion of "Certain Relationships and Related-Party Transactions," see Part I, Item 1, Note 7 of the
Notes to the Consolidated Financial Statements of this Quarterly Report, which we incorporate herein by reference.
CRITICAL ACCOUNTING ESTIMATES
For a discussion of our "Critical Accounting Estimates," see Item 7. Critical Accounting Estimates in Part II of our
Annual Report on Form 10-K for the year ended December 31, 2012.
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