DIRECTV Fourth Quarter Revenue Growth of 7% Drives Full Year
Revenues to $31.75 billion.
- DIRECTV Latin America full year
revenues increase 10% to $6.84 billion principally related to the
addition of 1.2 million net new subscribers during the year.
- Full year DIRECTV U.S. revenue growth
of 6% to $24.68 billion driven primarily by ARPU growth of
5.4%.
DIRECTV 2013 Adjusted Diluted Earnings Per Share Increase 18%
to $5.42.
- Full year EPS driven by 8% increase in
consolidated adjusted operating profit before depreciation and
amortization as well as $4.0 billion of share repurchases in
2013.
DIRECTV Full Year Free Cash Flow Increases 14% to $2.61
billion.
DIRECTV Authorizes New $3.5 billion Stock Repurchase
Program.
DIRECTV (NASDAQ:DTV) today reported that fourth quarter 2013
revenues increased 7% to $8.59 billion, operating profit before
depreciation and amortization1 (OPBDA) increased 6% to $2.04
billion and operating profit increased 3% to $1.33 billion compared
to last year's fourth quarter. DIRECTV reported that fourth quarter
net income declined to $810 million and diluted earnings per share
decreased to $1.53 compared with the same period last year.
“Our fourth quarter results capped off another solid year for
DIRECTV, as we finished the year with nearly 38 million customers
across the Americas, maintaining our standing as the world’s
largest and most popular video service,” said Mike White, president
and CEO of DIRECTV. “Full year consolidated revenue grew 7% to
nearly $32 billion, with adjusted operating profit before
depreciation and amortization increasing 8% to $8.1 billion. In
addition, we generated $2.6 billion in free cash flow, a 14%
increase over 2012, demonstrating our commitment to profitably grow
our businesses while keeping a sharp eye on cost management and
productivity improvements.”
White continued, “We exit 2013 with good momentum and look to
build on that in 2014 with a strong, comprehensive strategy
dedicated to building lifelong customer relationships, while
driving revenue and profit growth over the long term. In the U.S.,
we are well positioned to continue strengthening DIRECTV’s
competitiveness in the marketplace as the premier provider of video
services by advancing our customer franchise, while delivering
mid-single digit top and bottom line growth in 2014.”
White added, “In Latin America, our long term outlook remains
strong, as the DIRECTV and SKY brands are poised to deliver the
absolute best television experience through leadership in content,
technology and customer service. However, as we articulated at our
December 2013 Investor Day, our 2014 financial results will be
pressured by macroeconomic conditions, foreign currency headwinds,
higher programming expenses and production costs related to
unparalleled coverage of the FIFA World Cup and difficult
comparisons related to one-time benefits in 2013.”
White concluded, “That said, we remain confident in our ability
to continue creating significant shareholder value. As such, we are
pleased to announce a share repurchase program of $3.5 billion.
This repurchase program reflects our strong balance sheet and
confidence in continued strong DIRECTV revenue, earnings and free
cash flow growth, as well as our belief that our stock is far below
our intrinsic value.”
DIRECTV'S Operational Review
DIRECTV Consolidated Dollars in
Millions except Earnings per Common Share
Three Months EndedDecember 31, Twelve Months
EndedDecember 31, 2013 2012 2013
2012 Revenues $ 8,594 $ 8,054 $
31,754 $ 29,740 Reported Operating Profit
Before Depreciation and Amortization(1) 2,044 1,924 7,978
7,522 Reported OPBDA Margin(1) 23.8 % 23.9 %
25.1 % 25.3 % Reported Operating Profit 1,333 1,298
5,150 5,085 Reported Operating Profit Margin 15.5 %
16.1 % 16.2 % 17.1 % Reported Net Income Attributable
to DIRECTV 810 942 2,859
2,949 Reported Diluted Earnings Per Common Share
$ 1.53 $ 1.55 $ 5.17
$ 4.58
Capital Expenditures and Cash Flow
Cash
paid for property and equipment 310 211
873 757 Cash paid for subscriber leased
equipment - subscriber acquisitions 399 412
1,589 1,493 Cash paid for
subscriber leased equipment - upgrade and retention 229
177 947 710 Cash
paid for satellites 101 158 377
389 Cash Flow Before Interest and Taxes(2)
1,484 1,120 4,855
4,413 Free Cash Flow(3) 1,000
543 2,608 2,285
Adjusted Financial Results*
Adjusted Operating Profit Before
Depreciation and Amortization(1) 8,144 7,522 Adjusted OPBDA
Margin(1) 25.6 % 25.3 % Adjusted Operating Profit
5,316 5,085 Adjusted Operating Profit Margin 16.7 %
17.1 % Adjusted Net Income Attributable to DIRECTV 2,995
2,949 Adjusted Diluted Earnings Per Common
Share $ 5.42
$ 4.58
*Adjusted financial results in the table above and year-to-date
discussion below exclude a $166 million pre-tax charge ($136
million after-tax) associated with the revaluation of the net
monetary assets of the company's subsidiaries in Venezuela at the
time of the Bolivar's devaluation in February 2013.
Fourth Quarter Review
DIRECTV's fourth quarter revenues of $8.59 billion increased 7%
principally due to subscriber growth over the last twelve months at
DIRECTV Latin America (DTVLA) and DIRECTV U.S., as well as higher
ARPU at DIRECTV U.S. OPBDA and operating profit increased 6% to
$2.04 billion and 3% to $1.33 billion, respectively, while OPBDA
and operating profit margin declined to 23.8% and 15.5%,
respectively. The decreases in margin were primarily due to
relatively higher programming expenses at DIRECTV U.S. and
relatively higher general and administrative expenses principally
related to a pension settlement charge at DIRECTV U.S. and DIRECTV
corporate (recorded in the Sports Networks, Eliminations and Other
segment). Operating profit margin was also impacted by higher
depreciation expense mostly at DTVLA due to increased leased
equipment and infrastructure capital expenditures, as well as
higher churn in Brazil.
Fourth quarter net income attributable to DIRECTV decreased to
$810 million, as the higher operating profit was more than offset
by a $111 million pre-tax gain in the prior year period related to
the Game Show Network transaction, as well as a lower effective tax
rate in the fourth quarter of 2012 related to the resolution of
prior year income tax audits. Also impacting the comparison was a
$78 million increase in equity earnings from Sky Mexico primarily
related to Sky Mexico's recognition of certain one-time tax
benefits in 2013. Diluted earnings per share declined to $1.53 as
the reduction in net income attributable to DIRECTV was partially
offset by the favorable impact of share repurchases made over the
last twelve months.
Cash flow before interest and taxes2 increased 33% to $1.48
billion compared to the fourth quarter of 2012 primarily due to the
higher OPBDA and higher cash generated from working capital at
DIRECTV U.S., mostly due to the timing of vendor payables, as well
as a reduction in inventory mainly related to lower new set-top box
purchases. These improvements were partially offset by higher
infrastructure capital expenditures at both DIRECTV U.S. and DTVLA
as well as increased cash paid for leased equipment at DIRECTV U.S.
associated with higher penetration of advanced boxes to existing
customers.
Fourth quarter free cash flow3 increased 84% to $1.00 billion
due to the higher cash flow before interest and taxes, along with
lower tax payments due to the timing of payments in 2012. Also
during the quarter, but not included in free cash flow, was cash
paid for share repurchases of $772 million, a November 2013
issuance by DIRECTV U.S. of £350 million (or approximately $560
million) principal amount of 5.200% senior notes due 2033 and cash
received of $117 million for the final installment of the Game Show
Network transaction.
Full Year Review
DIRECTV's full year 2013 revenues increased 7% to $31.75 billion
principally due to subscriber growth over the last year at DTVLA
and DIRECTV U.S., as well as higher ARPU at DIRECTV U.S.
In September 2013, DTVLA settled a fee dispute and paid $92
million to Escritório Central de Arrecadação e Distribuição, or
ECAD, the organization responsible for collecting performance
rights fees under Brazilian law. The settlement resulted in a
pre-tax gain for the reversal of amounts previously expensed of
$128 million. The gain is comprised of a reduction in "Broadcast
Programming and Other" of $70 million, a reduction in "Interest
Expense" of $37 million and $21 million in "Other, net" in the
Consolidated Statements of Operations.
DIRECTV's adjusted OPBDA increased 8% to $8.14 billion and
adjusted OPBDA margin increased from 25.3% to 25.6% compared to
2012 mostly due to the incremental margin generated by the higher
revenues along with relatively unchanged subscriber acquisition
costs mostly related to the reduction in gross subscriber additions
at both DIRECTV U.S. and DTVLA, as well as the ECAD settlement.
This margin improvement was partially offset by relatively higher
programming expenses at DIRECTV U.S. Adjusted operating profit
increased 5% to $5.32 billion while adjusted operating profit
margin declined to 16.7% compared to prior year. Adjusted operating
profit margin was negatively impacted by higher depreciation
expense mainly at DTVLA resulting from increased leased equipment
and infrastructure capital expenditures, as well as higher churn in
Brazil. In 2013, reported OPBDA increased 6% to $7.98 billion,
reported OPBDA margin declined to 25.1%, reported operating profit
increased 1% to $5.15 billion, and reported operating profit margin
declined to 16.2%.
Adjusted net income attributable to DIRECTV increased 2% to
$3.00 billion in 2013 due to higher operating profit, as well as a
$64 million pre-tax charge in 2012 for the loss on the early
retirement of debt, the 2013 DTVLA ECAD settlement and a $72
million increase in equity earnings from Sky Mexico primarily
related to Sky Mexico's recognition of certain one-time tax
benefits in 2013. Also impacting the comparison was a lower
effective tax rate in 2012 related to the resolution of prior year
income tax audits, a $111 million pre-tax gain related to the Game
Show Network transaction in 2012 and a $59 million non-cash pre-tax
charge in 2013 due to the deconsolidation of the DSN Northwest
regional sports network. Adjusted diluted earnings per share
increased 18.3% to $5.42 due to the higher adjusted net income and
the favorable impact of share repurchases made over the last twelve
months. Reported net income attributable to DIRECTV decreased 3% to
$2.86 billion while reported diluted earnings per share improved
13% to $5.17 compared to the prior year.
In 2013, cash flow before interest and taxes increased 10% to
$4.86 billion and free cash flow increased 14% to $2.61 billion
primarily due to the higher OPBDA, an increase in cash generated
from working capital mostly at DIRECTV U.S. related to the timing
of vendor payables, as well as a reduction in inventory principally
due to lower new set-top box purchases. This increase was partially
offset by greater capital expenditures principally driven by
increased cash paid for subscriber leased equipment for upgrades to
advanced products and infrastructure expenditures at DIRECTV U.S.,
as well as higher cash paid for subscriber leased equipment to new
customers at DTVLA mainly due to the timing of set-top box
purchases. In addition, free cash flow was impacted by higher cash
tax payments primarily related to a prior year settlement, as well
as increased net interest payments principally related to the
higher average debt balances.
Also during 2013, but not included in free cash flow, was cash
paid for share repurchases of $4.00 billion, $159 million in
payments for spectrum at DTVLA and new patent licenses at DIRECTV
U.S., cash received of $257 million for the sale of investments
primarily associated with the Game Show Network transaction, as
well as three debt issuances by DIRECTV U.S. -- the first in
January 2013 of $750 million principal amount of 1.750% senior
notes due in 2018, the second in May 2013 of €500 million (or about
$650 million) aggregate principal amount of 2.750% senior notes due
in 2023 and the third in November 2013 of £350 million (or about
$560 million) principal amount of 5.200% senior notes due 2033.
SEGMENT FINANCIAL REVIEW DIRECTV
U.S. Segment DIRECTV U.S. Three Months
EndedDecember 31, Twelve Months EndedDecember 31,
Dollars
in Millions except ARPU 2013 2012 2013
2012 Revenues $ 6,773 $ 6,320
$ 24,676 $ 23,235 Average Monthly
Revenue per Subscriber (ARPU) ($) 111.74
105.15 102.18 96.98 Operating
Profit Before Depreciation and Amortization(1) 1,516 1,408
6,084 5,654 OPBDA Margin(1) 22.4 % 22.3 %
24.7 % 24.3 % Operating Profit 1,101 1,023 4,444
4,153 Operating Profit Margin 16.3 % 16.2 %
18.0 % 17.9 %
Capital Expenditures and Cash Flow
Cash paid
for property and equipment 228 164
648 541 Cash paid for subscriber leased
equipment - subscriber acquisitions 151 194
666 656 Cash paid for subscriber
leased equipment - upgrade and retention 146
82 538 291 Cash paid for
satellites 44 114 198
253 Cash Flow Before Interest and Taxes(2)
1,292 1,023 4,471 4,041
Subscriber Data (in 000's except Churn)
Gross Subscriber
Additions 949 963 3,790
3,874 Average Monthly Subscriber Churn 1.41 %
1.43 % 1.50 % 1.53 % Net Subscriber Additions
93 103 169 199
Cumulative Subscribers 20,253 20,084
20,253 20,084
Fourth Quarter Review
In the fourth quarter, DIRECTV U.S. revenues increased 7% to
$6.77 billion compared with the fourth quarter of 2012 primarily
due to strong ARPU growth along with a larger subscriber base.
DIRECTV U.S. net subscriber additions of 93,000 decreased from
103,000 in the prior year period principally due to lower gross
subscriber additions partially offset by a lower average monthly
churn rate. The decline in gross additions was associated with a
continued focus on higher quality subscribers, as well as a more
challenging competitive environment and mature industry. The
decrease in the monthly churn rate from 1.43% to 1.41% in the
fourth quarter was mainly driven by a greater percentage of
subscribers on commitments and auto-bill pay, as well as stricter
credit policies on new customers. ARPU increased 6.3% to $111.74
mostly due to higher advanced receiver service fees, price
increases on programming packages, higher fees for a new enhanced
warranty program, as well as increased commercial business and ad
revenues. These improvements were partially offset by increased
promotional offers to new and existing customers. DIRECTV U.S.
ended the year with 20.25 million subscribers, an increase of 1%
compared with 20.08 million subscribers reported for the year ended
December 31, 2012.
Fourth quarter OPBDA increased 8% to $1.52 billion and OPBDA
margin improved slightly to 22.4% principally due to incremental
margin generated by the higher revenues combined with relatively
unchanged subscriber acquisition costs resulting from the lower
gross additions and relatively unchanged subscriber service
expenses driven by productivity improvements and disciplined cost
management. These gains were mostly offset by relatively higher
programming costs mostly related to programming supplier rate
increases and relatively higher general and administrative expenses
principally related to a pension settlement charge. Operating
profit also increased 8% to $1.10 billion and operating profit
margin increased from 16.2% to 16.3% in the fourth quarter mainly
due to the OPBDA and OPBDA margin improvements.
Full Year Review
In 2013, DIRECTV U.S. revenues increased 6% to $24.68 billion
compared to 2012 due to strong ARPU growth along with a larger
subscriber base. DIRECTV U.S. net subscriber additions of 169,000
decreased from 199,000 in the prior year principally due to lower
gross subscriber additions partially offset by a lower average
monthly churn rate. The decline in gross additions was associated
with a continued focus on higher quality subscribers, as well as a
more challenging competitive environment and mature industry. The
change in the monthly churn rate from 1.53% to 1.50% in 2013 was
mainly driven by a 2012 contract dispute with a large programmer
that resulted in the removal of several channels for nine days, as
well as a greater percentage of subscribers on commitments and
auto-bill pay and the stricter credit policies on new customers in
2013. ARPU increased 5.4% to $102.18 mostly due to higher advanced
receiver service fees, price increases on programming packages,
higher fees for a new enhanced warranty program, as well as
increased commercial business and ad revenues. These improvements
were partially offset by increased promotional offers to new and
existing customers.
In 2013, OPBDA increased 8% to $6.08 billion and OPBDA margin
improved from 24.3% to 24.7% principally due to incremental margin
generated by the higher revenues combined with lower subscriber
acquisition costs, mostly related to the reduction in gross
subscriber additions, and relatively unchanged subscriber service
expenses mainly due to productivity improvements and disciplined
cost management. These margin improvements were partially offset by
relatively higher programming costs principally associated with
programming supplier rate increases. Operating profit increased 7%
to $4.44 billion in 2013 and operating profit margin increased
slightly to 18.0% primarily due to the OPBDA and OPBDA margin
improvements mostly offset by increased depreciation and
amortization associated with additional subscriber leased equipment
from upgrades to advanced products.
DIRECTV Latin America
DIRECTV Latin America owns approximately 93% of Sky Brasil, 41%
of Sky Mexico and 100% of PanAmericana, which covers most of the
remaining countries in the region. Sky Brasil and PanAmericana
ended the year with 5.4 million and 6.2 million subscribers,
respectively. Sky Mexico, whose results are accounted for as an
equity method investment and therefore are not consolidated by
DTVLA, had approximately 6 million subscribers as of
December 31, 2013, bringing the total subscribers in the
region to 17.6 million.
DIRECTV Latin America Three Months EndedDecember 31,
Twelve Months EndedDecember 31,
Dollars in
Millions except ARPU 2013 2012
2013 2012 Revenues $ 1,768
$ 1,674 $ 6,844 $ 6,244
Average Monthly Revenue per Subscriber (ARPU) ($)
51.47 55.84 51.64 57.25
Reported Operating Profit Before Depreciation and
Amortization(1) 550 494 1,943 1,862
Reported OPBDA Margin(1) 31.1 % 29.5 % 28.4 %
29.8 % Reported Operating Profit 258 261 776 955 Reported
Operating Profit Margin 14.6
%
15.6 % 11.3 % 15.3 %
Capital Expenditures
and Cash Flow
Cash paid for property and
equipment 82 47 224
214 Cash paid for subscriber leased equipment -
subscriber acquisitions 248 218
923 837 Cash paid for subscriber leased
equipment - upgrade and retention 83 95
409 419 Cash paid for satellites
52 42 164 128 Cash
Flow Before Interest and Taxes(2) 164 82
326 320
Subscriber
Data(4) (in 000's except Churn)
Gross Subscriber Additions 989 1,183
4,382 4,417 Average Monthly
Total Subscriber Churn(5) 2.21 % 1.75 % 2.37 %
1.81 % Average Monthly Post-paid Subscriber Churn(5)
1.85 % 1.48 % 2.10 % 1.50 % Net Subscriber
Additions(5) 231 658 1,239
2,439 Cumulative Subscribers(5) 11,568
10,328 11,568 10,328
Adjusted Financial Results*
Adjusted Operating Profit Before Depreciation and Amortization(1)
2,109 1,862 Adjusted OPBDA Margin(1) 30.8 % 29.8 %
Adjusted Operating Profit 942 955 Adjusted Operating Profit Margin
13.8 % 15.3
%
*Adjusted financial results in the table above and year-to-date
discussion below exclude a $166 million pre-tax charge ($136
million after-tax) associated with the revaluation of the net
monetary assets of the company's subsidiaries in Venezuela at the
time of the Bolivar's devaluation in February 2013.
Fourth Quarter Review
Excluding changes in foreign exchange rates, DTVLA fourth
quarter revenues grew 24% driven by a 15% increase in the average
number of subscribers and an 8% increase in local currency ARPU's.
The increases in local currency ARPU's were principally due to
price increases, reduced promotional offers and continued upgrades
including advanced services, partially offset by the higher
penetration of lower ARPU mass market subscribers. When factoring
in unfavorable changes in foreign currency, most notably in
Venezuela, Argentina and Brazil, DTVLA ARPU declined 7.8% to $51.47
and revenues increased 6% to $1.77 billion compared to the fourth
quarter of 2012.
Net subscriber additions of 231,000 in the quarter decreased
from 658,000 in the prior year period due to a decline in gross
subscriber additions, along with a higher average monthly churn
rate. Fourth quarter gross subscriber additions declined to 989,000
principally due to lower imports of set-top boxes for new customers
in Venezuela, as well as lower subscriber additions in Argentina,
Colombia and Chile associated with more challenging economic and
competitive conditions. Average monthly post-paid churn increased
to 1.85% and total average monthly churn increased to 2.21% mostly
due to higher churn in Brazil related to the effect of a higher mix
of mass market subscribers along with more challenging economic and
competitive conditions. DTVLA ended the year with 11.57 million
subscribers, an increase of 12% compared with 10.33 million
subscribers reported for the year ended December 31, 2012.
Fourth quarter OPBDA increased 11% to $550 million and OPBDA
margin improved from 29.5% to 31.1% versus last year's fourth
quarter mostly related to a reduction in performance rights expense
associated with the ECAD settlement in the third quarter, as well
as lower subscriber acquisition costs related to the reduction in
gross subscriber additions in PanAmericana and lower general and
administrative expenses in Brazil associated with cost control
initiatives.
Operating profit decreased 1% to $258 million and operating
profit margin declined to 14.6% in the fourth quarter as the higher
OPBDA and OPBDA margin were more than offset by the impact of
higher depreciation and amortization resulting from increased
subscriber leased equipment, as well as the higher churn in
Brazil.
Full Year Review
Excluding changes in foreign exchange rates, DTVLA full year
2013 revenues grew 26% driven by a 22% increase in the average
number of subscribers and a 4% increase in local currency ARPU's.
The increases in local currency ARPU's were primarily due to price
increases and continued upgrades including advanced services,
partially offset by the higher penetration of lower ARPU mass
market subscribers. When factoring in unfavorable changes in
foreign currency, most notably in Venezuela, Argentina and Brazil,
DTVLA ARPU declined 9.8% to $51.64 and revenues increased 10% to
$6.84 billion compared to 2012.
Net subscriber additions of 1.24 million decreased from 2.44
million in the prior year due to a decline in gross subscriber
additions as well as a higher average monthly churn rate. Gross
additions decreased 1% to 4.38 million principally due to lower
imports of set-top boxes for new customers in Venezuela, as well as
lower subscriber additions in Argentina associated with more
challenging economic and competitive conditions. This decline was
partially offset by increased gross subscriber additions in Chile,
Colombia and Ecuador mostly due to greater mass market demand.
Average monthly post-paid churn increased to 2.10% and total
average monthly churn increased to 2.37% in 2013 mostly due to
higher churn in Brazil related to subscribers that were terminated
due to the improper crediting of certain customer accounts(5)
mainly in the second quarter of 2013, more challenging economic and
competitive conditions, as well as the effect of a higher mix of
mass market subscribers. The higher churn in Brazil was partially
offset by post-paid churn improvements and higher prepaid
reconnection rates in PanAmericana.
In 2013, adjusted OPBDA increased 13% to $2.11 billion and
adjusted OPBDA margin increased from 29.8% to 30.8% principally due
to the higher revenue combined with lower programming costs in
Brazil related to the favorable $70 million ECAD settlement.
Adjusted operating profit declined to $942 million and adjusted
operating profit margin decreased to 13.8% in 2013 as the higher
OPBDA and OPBDA margin were more than offset by the impact of
higher depreciation and amortization resulting from increased
subscriber leased equipment, as well as the higher churn in Brazil.
In 2013, reported OPBDA increased 4% to $1.94 billion, reported
OPBDA margin declined to 28.4%, reported operating profit declined
19% to $776 million and reported operating profit margin declined
to 11.3% in 2013.
CONTACT INFORMATION
Media Contact: Darris Gringeri (212) 205-0882
Investor Relations: (310) 964-0808
CONFERENCE CALL INFORMATION
A live webcast of DIRECTV's fourth quarter 2013 earnings call
will be available on the company's website at investor.directv.com.
The webcast will begin at 2:00 p.m. ET, today February 20, 2014.
Access to the earnings call is also available in the United States
by dialing (877) 440-5791 and internationally by dialing (719)
325-2333. The conference ID number is 1683906. A replay of the call
can be accessed by dialing (888) 203-1112 in the U.S. and (719)
457-0820 internationally. The replay pass code is 1683906. The
replay will be available from 3:00 p.m. PT Thursday, February 20
through 3:00 p.m. PT Thursday February 27 and will also be archived
on our website at investor.directv.com.
FOOTNOTES
(1) Operating profit before depreciation and amortization, which
is a financial measure that is not determined in accordance with
accounting principles generally accepted in the United States of
America, or GAAP, should be used in conjunction with other GAAP
financial measures and is not presented as an alternative measure
of operating results, as determined in accordance with GAAP. Please
see DIRECTV's Annual Report on Form 10-K for the year ended
December 31, 2013, which is expected to be filed in February
2014, for further discussion of operating profit before
depreciation and amortization. Operating profit before depreciation
and amortization margin is calculated by dividing operating profit
before depreciation and amortization by total revenues.
(2) Cash flow before interest and taxes, which is a financial
measure that is not determined in accordance with GAAP, is
calculated by deducting amounts under the captions “Cash paid for
property and equipment”, “Cash paid for satellites”, “Cash paid for
subscriber leased equipment - subscriber acquisitions” and “Cash
paid for subscriber leased equipment - upgrade and retention” from
“Net cash provided by operating activities” from the Consolidated
Statements of Cash Flows and adding back net interest paid and
“Cash paid for income taxes”. This financial measure should be used
in conjunction with other GAAP financial measures and is not
presented as an alternative measure of cash flows from operating
activities, as determined in accordance with GAAP. DIRECTV
management uses cash flow before interest and taxes to evaluate the
cash generated by our current subscriber base, net of capital
expenditures, and excluding the impact of interest and taxes, for
the purpose of allocating resources to activities such as adding
new subscribers, retaining and upgrading existing subscribers, for
additional capital expenditures and as a measure of performance for
incentive compensation purposes. We believe this measure is useful
to investors, along with other GAAP measures (such as cash flows
from operating and investing activities), to compare our operating
performance to other communications, entertainment and media
companies. We believe that investors also use current and projected
cash flow before interest and taxes to determine the ability of our
current and projected subscriber base to fund required and
discretionary spending and to help determine the financial value of
the company.
(3) Free cash flow, which is a financial measure that is not
determined in accordance with GAAP, is calculated by deducting
amounts under the captions “Cash paid for property and equipment”,
“Cash paid for satellites”, “Cash paid for subscriber leased
equipment - subscriber acquisitions”, and “Cash paid for subscriber
leased equipment - upgrade and retention” from “Net cash provided
by operating activities” from the Consolidated Statements of Cash
Flows. This financial measure should be used in conjunction with
other GAAP financial measures and is not presented as an
alternative measure of cash flows from operating activities, as
determined in accordance with GAAP. DIRECTV management uses free
cash flow to evaluate the cash generated by our current subscriber
base, net of capital expenditures, for the purpose of allocating
resources to activities such as adding new subscribers, retaining
and upgrading existing subscribers, for additional capital
expenditures and as a measure of performance for incentive
compensation purposes. We believe this measure is useful to
investors, along with other GAAP measures (such as cash flows from
operating and investing activities), to compare our operating
performance to other communications, entertainment and media
companies. We believe that investors also use current and projected
free cash flow to determine the ability of our current and
projected subscriber base to fund required and discretionary
spending and to help determine the financial value of the
company.
(4) DIRECTV Latin America subscriber data exclude subscribers of
the Sky Mexico service. In addition, DTVLA gross and net additions
exclude 1,000 video subscribers acquired during the full year 2013
as well as 4,000 and 18,000 video subscribers acquired in the
fourth quarter and full year of 2012, respectively.
(5) Based on the results of an internal investigation, DTVLA
determined that, beginning in 2012, certain employees of Sky Brasil
directed activities which were 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 the first quarter of 2013. See DIRECTV's 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.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
NOTE: This presentation may include or incorporate by reference
certain statements that we believe are, or may be considered to be,
“forward-looking statements” within the meaning of various
provisions of the Securities Act of 1933 and the Securities
Exchange Act of 1934. These forward-looking statements generally
can be identified by use of statements that include phrases such as
“believe,” “expect,” “estimate,” “anticipate,” “intend,” “plan,”
“project,” "strive" or other similar words or phrases. Similarly,
statements that describe our objectives, plans or goals also are
forward-looking statements. All of these forward-looking statements
are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical results or from
those expressed or implied by the relevant forward-looking
statement. Such risks and uncertainties include, but are not
limited to: increased competition; increasing programming costs and
our ability to renew programming contracts under favorable terms;
increased subscriber churn or subscriber upgrade and retention
costs; potential material increase in subscriber acquisition costs;
general economic conditions; risks associated with doing business
internationally, which for DIRECTV Latin America include political
and economic instability and foreign currency exchange rate
volatility and controls; pace of technological development;
potential intellectual property infringement; loss of key
personnel; satellite construction or launch delays; satellite
launch and operational risks; loss of a satellite; theft of
satellite programming signals; U.S. and foreign governmental and
regulatory action; ability to maintain licenses and regulatory
approvals; significant debt; indemnification obligations; reliance
on network and information systems; and the outcome of legal
proceedings. We may face other risks described from time to time in
periodic reports filed by us with the U.S. Securities and Exchange
Commission.
DIRECTV (NASDAQ:DTV) is one of the world's leading providers of
digital television entertainment services. Through its subsidiaries
and affiliated companies in the United States, Brazil, Mexico and
other countries in Latin America, DIRECTV provides digital
television service to 20.25 million customers in the United States
and 17.59 million customers in Latin America. DIRECTV sports and
entertainment properties include two regional sports networks
(Rocky Mountain and Pittsburgh) and minority ownership interests in
Root Sports Northwest and Game Show Network. For more information
on DIRECTV, visit directv.com.
DIRECTV CONSOLIDATED
STATEMENTS OF OPERATIONS (Dollars in Millions, Except Per
Share Amounts) (Unaudited) Three Months
EndedDecember 31, Years EndedDecember 31,
2013 2012 2013 2012
Revenues $ 8,594 $ 8,054
$ 31,754 $ 29,740
Operating costs and
expenses Costs of revenues, exclusive of depreciation and
amortization expense Broadcast programming and other 4,079 3,779
13,991 13,028 Subscriber service expenses 568 545 2,242 2,137
Broadcast operations expenses 104 104 409 414 Selling, general and
administrative expenses, exclusive of depreciation and amortization
expense Subscriber acquisition costs 855 848 3,419 3,397 Upgrade
and retention costs 394 371 1,547 1,427 General and administrative
expenses 550 483 2,002 1,815 Venezuelan currency devaluation charge
— — 166 — Depreciation and amortization expense 711
626 2,828 2,437
Total
operating costs and expenses 7,261 6,756
26,604 24,655
Operating
profit 1,333 1,298 5,150 5,085 Interest income 16 19 72 59
Interest expense (222 ) (220 ) (840 ) (842 ) Other, net 100
127 106 140
Income before income taxes 1,227 1,224 4,488 4,442 Income
tax expense (411 ) (276 ) (1,603 )
(1,465 ) Net income 816 948 2,885 2,977 Less: Net income
attributable to noncontrolling interest (6 ) (6 )
(26 ) (28 ) Net income attributable to DIRECTV
$ 810 $ 942 $ 2,859 $
2,949
Basic earnings attributable to DIRECTV per common
share $ 1.55 $ 1.57 $ 5.22 $ 4.62
Diluted earnings
attributable to DIRECTV per common share $ 1.53 $ 1.55 $ 5.17 $
4.58 Weighted average number of common shares outstanding (in
millions): Basic 523 601 548 638 Diluted 528 607 553 644
DIRECTV CONSOLIDATED BALANCE SHEETS
(Dollars in Millions) (Unaudited)
ASSETS December 31, 2013 December
31, 2012 Current assets Cash and cash equivalents $
2,180 $ 1,902 Accounts receivable, net of allowances of $95 and $81
2,547 2,696 Inventories 283 412 Deferred income taxes 140 73
Prepaid expenses and other 803 471
Total current assets 5,953 5,554
Satellites, net
2,467 2,357
Property and equipment, net 6,650 6,038
Goodwill 3,970 4,063
Intangible assets, net 920 832
Investments and other assets 1,945
1,711
Total assets $ 21,905 $
20,555
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities Accounts
payable and accrued liabilities $ 4,685 $ 4,618 Unearned subscriber
revenues and deferred credits 589 565 Current debt 1,256
358
Total current liabilities 6,530
5,541
Long-term debt 18,284 17,170
Deferred income
taxes 1,804 1,672
Other liabilities and deferred credits
1,456 1,203
Commitments and contingencies Redeemable
noncontrolling interest 375 400
Stockholders' deficit
(6,544 ) (5,431 )
Total liabilities and
stockholders' deficit $ 21,905 $ 20,555
DIRECTV CONSOLIDATED STATEMENTS OF
CASH FLOWS (Dollars in Millions) (Unaudited)
Years Ended December 31, 2013
2012 Cash Flows From Operating Activities Net income
$ 2,885 $ 2,977 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization
expense 2,828 2,437 Venezuelan currency devaluation charge 166 —
DSN Northwest deconsolidation charge 59 — Amortization of deferred
revenues and deferred credits (53 ) (75 ) Share-based compensation
expense 100 109 Equity in earnings from unconsolidated affiliates
(198 ) (131 ) Net foreign currency transaction loss 52 34 Dividends
received 41 79 Net gains from sale of investments (8 ) (122 )
Deferred income taxes 323 (102 ) Excess tax benefit from
share-based compensation (24 ) (30 ) Other (7 ) 85 Change in
operating assets and liabilities: Accounts receivable — (50 )
Inventories 118 (206 ) Prepaid expenses and other (334 ) 58
Accounts payable and accrued liabilities 272 370 Unearned
subscriber revenues and deferred credits 26 28 Other, net
148 173 Net cash provided by operating
activities 6,394 5,634
Cash Flows
From Investing Activities Cash paid for property and equipment
(3,409 ) (2,960 ) Cash paid for satellites (377 ) (389 ) Investment
in companies, net of cash acquired (66 ) (16 ) Proceeds from sale
of investments 257 24 Other, net (158 ) (22 ) Net
cash used in investing activities (3,753 ) (3,363 )
DIRECTV CONSOLIDATED STATEMENTS OF CASH
FLOWS-(continued) (Dollars in Millions)
(Unaudited) Years Ended December
31, 2013 2012 Cash Flows
From Financing Activities Issuance (repayment) of commercial
paper (maturity 90 days or less), net (155 ) 156 Proceeds from
short-term borrowings 556 202 Repayment of short-term borrowings
(559 ) — Proceeds from borrowings under revolving credit facility
10 400 Repayment of borrowings under revolving credit facility (10
) (400 ) Proceeds from long-term debt 2,099 5,190 Debt issuance
costs (12 ) (36 ) Repayment of long-term debt (15 ) (1,500 )
Repayment of other long-term obligations (63 ) (51 ) Common shares
repurchased and retired (4,000 ) (5,175 ) Stock options exercised —
3 Taxes paid in lieu of shares issued for share-based compensation
(61 ) (61 ) Excess tax benefit from share-based compensation 24 30
Other, net 10 — Net cash used in
financing activities (2,176 ) (1,242 ) Effect of
exchange rate changes on Venezuelan cash and cash equivalents
(187 ) — Net increase in cash and cash
equivalents 278 1,029 Cash and cash equivalents at beginning of the
year 1,902 873 Cash and cash
equivalents at end of the year $ 2,180 $ 1,902
Supplemental Cash Flow Information Cash paid for
interest $ 840 $ 781 Cash paid for income taxes 1,479 1,406
DIRECTV SELECTED SEGMENT DATA
(Dollars in Millions) (Unaudited) Three Months
EndedDecember 31, Years EndedDecember 31,
2013 2012 2013
2012 DIRECTV U.S. Revenues $ 6,773 $ 6,320 $
24,676 $ 23,235 Operating profit before depreciation and
amortization (1) 1,516 1,408 6,084 5,654 Operating profit before
depreciation and amortization margin (1) 22.4 % 22.3 % 24.7 % 24.3
% Operating profit $ 1,101 $ 1,023 $ 4,444 $ 4,153 Operating profit
margin 16.3 % 16.2 % 18.0 % 17.9 % Depreciation and amortization
$ 415 $ 385 $ 1,640
$ 1,501
SKY BRASIL Revenues $ 963 $ 914
$ 3,753 $ 3,501 Operating profit before depreciation and
amortization (1) 326 286 1,252 1,088 Operating profit before
depreciation and amortization margin (1) 33.9 % 31.3 % 33.4 % 31.1
% Operating profit $ 150 $ 156 $ 529 $ 555 Operating profit margin
15.6 % 17.1 % 14.1 % 15.9 % Depreciation and amortization $
176 $ 130 $ 723 $ 533
PANAMERICANA and OTHER Revenues $ 805 $ 760 $
3,091 $ 2,743 Operating profit before depreciation and amortization
(1) 224 208 691 774 Operating profit before depreciation and
amortization margin (1) 27.8 % 27.4 % 22.4 % 28.2 % Operating
profit $ 108 $ 105 $ 247 $ 400 Operating profit margin 13.4 % 13.8
% 8.0 % 14.6 % Depreciation and amortization $ 116
$ 103 $ 444 $ 374
SPORTS NETWORKS, ELIMINATIONS and OTHER Revenues $ 53 $ 60 $
234 $ 261 Operating profit (loss) before depreciation and
amortization (1) (22 ) 22 (49 ) 6 Operating profit (loss) (26 ) 14
(70 ) (23 ) Depreciation and amortization 4 8
21 29
TOTAL
Revenues $ 8,594 $ 8,054 $ 31,754 $ 29,740 Operating profit before
depreciation and amortization (1) 2,044 1,924 7,978 7,522 Operating
profit before depreciation and amortization margin (1) 23.8 % 23.9
% 25.1 % 25.3 % Operating profit $ 1,333 $ 1,298 $ 5,150 $ 5,085
Operating profit margin 15.5 % 16.1 % 16.2 % 17.1 % Depreciation
and amortization $ 711 $ 626 $
2,828 $ 2,437 (1) See footnote 1 above
DIRECTV HOLDINGS LLC (DIRECTV U.S.) CONSOLIDATED
STATEMENTS OF OPERATIONS (Dollars in Millions)
(Unaudited) Three Months
EndedDecember 31, Years EndedDecember 31,
2013 2012 2013 2012
Revenues $ 6,773 $ 6,320
$ 24,676 $ 23,235
Operating costs
and expenses Costs of revenues, exclusive of depreciation and
amortization expense Broadcast programming and other 3,469 3,194
11,616 10,743 Subscriber service expenses 372 368 1,474 1,464
Broadcast operations expenses 73 77 293 306 Selling, general and
administrative expenses, exclusive of depreciation and amortization
expense Subscriber acquisition costs 663 656 2,642 2,673 Upgrade
and retention costs 348 323 1,350 1,253 General and administrative
expenses 332 294 1,217 1,142 Depreciation and amortization expense
415 385 1,640
1,501
Total operating costs and expenses 5,672
5,297 20,232 19,082
Operating profit 1,101 1,023 4,444 4,153 Interest
income — — 2 1 Interest expense (212 ) (199 ) (827 ) (776 ) Other,
net 7 7 29 (32 )
Income before income taxes 896 831 3,648 3,346 Income tax
expense (322 ) (285 ) (1,353 ) (1,221 )
Net income $ 574 $ 546 $
2,295 $ 2,125
DIRECTV
HOLDINGS LLC (DIRECTV U.S.) CONSOLIDATED BALANCE SHEETS
(Dollars in Millions) (Unaudited)
ASSETS December 31, 2013 December
31, 2012 Current assets Cash and cash equivalents $ 797
$ 739 Accounts receivable, net of allowances of $59 and $42 2,103
2,096 Inventories 249 372 Prepaid expenses and other 494
247
Total current assets 3,643 3,454
Satellites, net 1,810 1,795
Property and equipment,
net 3,724 3,290
Goodwill 3,191 3,177
Intangible
assets, net 527 453
Other assets 551
321
Total assets $ 13,446
$ 12,490
LIABILITIES AND OWNER'S DEFICIT
Current liabilities Accounts
payable and accrued liabilities $ 3,695 $ 3,391 Unearned subscriber
revenues and deferred credits 380 367 Current debt 1,200
358
Total current liabilities 5,275
4,116
Long-term debt 18,203 17,170
Deferred income
taxes 1,641 1,386
Other liabilities and deferred credits
595 326
Commitments and contingencies Owner's deficit
(12,268 ) (10,508 )
Total liabilities and owner's
deficit $ 13,446 $ 12,490
DIRECTV HOLDINGS LLC (DIRECTV U.S.) CONSOLIDATED
STATEMENTS OF CASH FLOWS (Dollars in Millions)
(Unaudited) Years Ended December 31,
2013 2012 Cash Flows From Operating
Activities Net income $ 2,295 $ 2,125 Adjustments to reconcile
net income to net cash provided by operating activities:
Depreciation and amortization expense 1,640 1,501 Amortization of
deferred revenues and deferred credits (53 ) (75 ) Share-based
compensation expense 78 86 Deferred income taxes 450 116 Excess tax
benefit from share-based compensation (20 ) (25 ) Other 18 18
Change in other operating assets and liabilities: Accounts
receivable (23 ) 62 Inventories 124 (119 ) Prepaid expenses and
other (242 ) 173 Accounts payable and accrued liabilities 312 176
Unearned subscriber revenue and deferred credits 15 (14 ) Other,
net 39 91 Net cash provided by
operating activities 4,633 4,115
Cash Flows From Investing Activities Cash paid for property
and equipment (648 ) (541 ) Cash paid for subscriber leased
equipment - subscriber acquisitions (666 ) (656 ) Cash paid for
subscriber leased equipment - upgrade and retention (538 ) (291 )
Cash paid for satellites (198 ) (253 ) Investment in companies, net
of cash acquired (53 ) (7 ) Proceeds from sale of investments 12 24
Other, net (67 ) — Net cash used in investing
activities (2,158 ) (1,724 )
DIRECTV
HOLDINGS LLC (DIRECTV U.S.) CONSOLIDATED STATEMENTS OF CASH
FLOWS - (continued) (Dollars in Millions)
(Unaudited) Years Ended December 31,
2013 2012 Cash Flows From Financing Activities
Issuance (repayment) of commercial paper (maturity 90 days or
less), net (155 ) 156 Proceeds from short-term borrowings 556 202
Repayment of short-term borrowings (559 ) — Proceeds from
borrowings under revolving credit facility 10 400 Repayment of
borrowings under revolving credit facility (10 ) (400 ) Cash
proceeds from debt issuance 1,947 5,190 Debt issuance costs (12 )
(36 ) Repayment of long-term debt — (1,500 ) Repayment of other
long-term obligations (24 ) (21 ) Cash dividends to Parent (4,200 )
(5,900 ) Excess tax benefit from share-based compensation 20 25
Other, net 10 — Net cash used in
financing activities (2,417 ) (1,884 ) Net increase
in cash and cash equivalents 58 507 Cash and cash equivalents at
beginning of the period 739 232 Cash
and cash equivalents at end of the period $ 797
$ 739
Supplemental Cash Flow Information Cash
paid for interest $ 782 $ 715 Cash paid for income taxes 1,108 953
DIRECTV Consolidated Non-GAAP Financial Measure
Reconciliation Schedules (Dollars in Millions)
(Unaudited) DIRECTV
Reconciliation of Cash Flow Before Interest and
Taxes2 and Free Cash Flow3 to
Net Cash Provided by Operating
Activities
Three Months EndedDecember 31, Years
EndedDecember 31, 2013 2012 2013
2012 Cash Flow Before Interest and Taxes $ 1,484 $ 1,120 $
4,855 $ 4,413 Adjustments: Cash paid for interest (56 ) (71 ) (840
) (781 )
Interest income
16 19 72 59 Income taxes paid (444 ) (525 ) (1,479 )
(1,406 ) Subtotal - Free Cash Flow 1,000 543 2,608 2,285 Add
Cash Paid For: Property and equipment 938 800 3,409 2,960
Satellites 101 158 377 389
Net Cash Provided by Operating Activities $ 2,039
$ 1,501 $ 6,394 $ 5,634 (2) and
(3) - See footnotes above
Reconciliation of Reported Operating
Profit Before Depreciation and Amortization to Operating
Profit* Three Months EndedDecember 31, Years
EndedDecember 31, 2013 2012 2013
2012 Operating profit before depreciation and amortization $
2,044 $ 1,924 $ 7,978 $ 7,522 Subtract: Depreciation and
amortization 711 626 2,828 2,437
Operating profit $ 1,333 $ 1,298 $
5,150 $ 5,085 * For a reconciliation of
this non-GAAP financial measure for each of our segments, please
see the Notes to the Consolidated Financial Statements which will
be included in DIRECTV's Annual Report on Form 10-K for the year
ended December 31, 2013, which is expected to be filed with the SEC
in February 2014.
DIRECTV Consolidated Non-GAAP Financial
Measure Reconciliation Schedules (Dollars in Millions,
Except Per Share Amounts) (Unaudited)
DIRECTV Reconciliation of Adjusted Operating
Profit Before Depreciation and Amortization (excluding the
Venezuelan currency devaluation charge) to Operating Profit
Three Months EndedDecember 31, Years
EndedDecember 31, 2013 2012
2013 2012 Revenues $ 8,594 $ 8,054 $ 31,754 $ 29,740
Operating profit before depreciation and amortization
excluding the Venezuelan currency devaluation charge $ 2,044 $
1,924 $ 8,144 $ 7,522 OPBDA growth excluding Venezuelan currency
devaluation charge 6.2 % 8.3 % Subtract: Venezuelan currency
devaluation charge — — 166 —
Operating profit before depreciation and amortization 2,044
1,924 7,978 7,522 Subtract: Depreciation and amortization 711
626 2,828 2,437 Operating
profit $ 1,333 $ 1,298 $ 5,150 $
5,085 Operating profit before depreciation and amortization
margin excluding the Venezuelan currency devaluation charge
23.8 % 23.9 % 25.6 % 25.3 %
Reconciliation of Adjusted Operating Profit (excluding the
Venezuelan currency
devaluation charge) to Operating
Profit
Three Months EndedDecember 31, Years
EndedDecember 31, 2013 2012 2013
2012 Revenues $ 8,594 $ 8,054 $ 31,754 $ 29,740
Operating profit excluding the Venezuelan currency devaluation
charge $ 1,333 $ 1,298 $ 5,316 $ 5,085 Operating Profit growth
excluding Venezuelan currency devaluation charge 2.7 % 4.5 %
Subtract: Venezuelan currency devaluation charge — —
166 — Operating profit $ 1,333
$ 1,298 $ 5,150 $ 5,085
Operating profit margin excluding the Venezuelan currency
devaluation charge 15.5 % 16.1 % 16.7 %
17.1 %
Reconciliation of Adjusted Net Income (excluding
the Venezuelan currency devaluation charge) to Net Income
Three Months EndedDecember 31, Years
EndedDecember 31, 2013 2012 2013
2012 Net income attributable to DIRECTV excluding the
Venezuelan currency devaluation charge $ 810 $ 942 $ 2,995 $ 2,949
Subtract: Venezuelan after-tax currency devaluation charge —
— 136 — Net income attributable to
DIRECTV $ 810 $ 942 $ 2,859 $
2,949 Net Income growth excluding Venezuelan currency devaluation
charge (14.0 )% 1.6 % Diluted weighted average shares 528 607 553
644 Adjusted diluted earnings per common share $ 1.53 $ 1.55 $ 5.42
$ 4.58 Adjusted diluted earnings per common share growth excluding
Venezuelan currency devaluation charge (1.3 )%
18.3 %
DIRECTV Latin America
Non-GAAP Financial Measure Reconciliation Schedules (Dollars
in Millions) (Unaudited) DIRECTV
Latin America Reconciliation of Cash Flow Before Interest
and Taxes2 to
Net Cash Provided by Operating
Activities
Three Months EndedDecember 31, Years
EndedDecember 31, 2013 2012 2013
2012 Cash Flow Before Interest and Taxes $ 164 $ 82 $ 326 $
320 Adjustments: Cash paid for interest (11 ) (9 ) (80 ) (49 )
Interest income 13 17 54 56 Income taxes paid (82 )
(73 ) (305 ) (315 ) Add Cash Paid For: Property and
equipment 82 47 224 214 Subscriber leased equipment - subscriber
acquisitions 248 218 923 837 Subscriber leased equipment - upgrade
and retention 83 95 409 419 Satellites 52 42
164 128 Net Cash Provided by Operating
Activities $ 549 $ 419 $ 1,715 $
1,610 (2) - See footnotes above
Reconciliation of
Adjusted Operating Profit Before Depreciation and Amortization
(excluding the Venezuelan currency devaluation charge) to Operating
Profit Three Months EndedDecember 31, Years
EndedDecember 31, 2013 2012 2013
2012 Revenues $ 1,768 $ 1,674 $ 6,844 $ 6,244
Operating profit before depreciation and amortization excluding the
Venezuelan currency devaluation charge $ 550 $ 494 $ 2,109 $ 1,862
OPBDA growth excluding Venezuelan currency devaluation charge 11.3
% 13.3 % Subtract: Venezuelan currency devaluation charge —
— 166 — Operating profit before
depreciation and amortization 550 494 1,943 1,862 Subtract:
Depreciation and amortization 292 233 1,167
907 Operating profit $ 258 $ 261
$ 776 $ 955 Operating profit before
depreciation and amortization margin excluding the Venezuelan
currency devaluation charge 31.1 % 29.5 % 30.8
% 29.8 %
Reconciliation of Adjusted Operating
Profit (excluding the Venezuelan currency devaluation charge) to
Operating Profit Three Months EndedDecember
31, Years EndedDecember 31, 2013
2012 2013 2012 Revenues $ 1,768
$ 1,674 $ 6,844 $ 6,244 Operating profit excluding the
Venezuelan currency devaluation charge $ 258 $ 261 $ 942 $ 955
Operating Profit growth excluding
Venezuelan currency devaluation charge
(1.1 )% (1.4 )% Subtract: Venezuelan currency devaluation charge —
— 166 — Operating profit
$ 258 $ 261 $ 776 $ 955
Operating profit margin excluding the Venezuelan currency
devaluation charge 14.6 % 15.6 % 13.8 %
15.3 %
DIRECTV U.S. Non-GAAP Financial Measure
Reconciliation Schedules (Dollars in Millions)
(Unaudited) DIRECTV HOLDINGS
LLC (DIRECTV U.S.) Reconciliation of Pre-SAC
Margin* to Operating Profit Three Months
EndedDecember 31, Years EndedDecember 31,
2013 2012 2013 2012 Operating profit $
1,101 $ 1,023 $ 4,444 $ 4,153 Adjustments: Subscriber acquisition
costs (expensed) 663 656 2,642 2,673 Depreciation and amortization
415 385 1,640 1,501 Cash paid for subscriber leased equipment -
upgrade and retention (146 ) (82 ) (538 ) (291 )
Pre-SAC Margin $ 2,033 $ 1,982 $ 8,188
$ 8,036 Pre-SAC Margin as a percentage of revenue
30.0 % 31.4 % 33.2 % 34.6 %
Reconciliation of Cash Flow Before Interest and
Taxes2 to Net Cash Provided by Operating
Activities Three Months EndedDecember 31,
Years EndedDecember 31, 2013 2012
2013 2012 Cash Flow Before Interest and Taxes $ 1,292
$ 1,023 $ 4,471 $ 4,041 Adjustments: Cash paid for interest (49 )
(50 ) (782 ) (715 ) Interest income — — 2 1 Income taxes paid
(322 ) (372 ) (1,108 ) (953 ) Add Cash Paid
For: Property and equipment 228 164 648 541 Subscriber leased
equipment - subscriber acquisitions 151 194 666 656 Subscriber
leased equipment - upgrade and retention 146 82 538 291 Satellites
44 114 198 253 Net Cash
Provided by Operating Activities $ 1,490 $ 1,155
$ 4,633 $ 4,115 (2) - See
footnotes above
* Pre-SAC Margin, which is a financial
measure that is not determined in accordance with accounting
principles generally accepted in the United States of America, or
GAAP, is calculated for DIRECTV U.S. by adding amounts under the
captions “Subscriber acquisition costs” and “Depreciation and
amortization expense” to “Operating Profit” from the Consolidated
Statements of Operations and subtracting "Cash paid for subscriber
leased equipment - upgrade and retention" from the Consolidated
Statements of Cash Flows. This financial measure should be used in
conjunction with GAAP financial measures and is not presented as an
alternative measure of operating results, as determined in
accordance with GAAP. DIRECTV management use Pre-SAC Margin to
evaluate the profitability of DIRECTV U.S.' current subscriber base
for the purpose of allocating resources to discretionary activities
such as adding new subscribers, upgrading and retaining existing
subscribers and for capital expenditures. To compensate for the
exclusion of “Subscriber acquisition costs,” management also uses
operating profit and operating profit before depreciation and
amortization expense to measure profitability.
DIRECTV believes this measure is useful to investors, along
with GAAP measures (such as revenues, operating profit and net
income), to compare DIRECTV U.S.’ operating performance to other
communications, entertainment and media companies. DIRECTV believes
that investors also use current and projected Pre-SAC Margin to
determine the ability of DIRECTV U.S.’ current and projected
subscriber base to fund discretionary spending and to determine the
financial returns for subscriber additions.
SAC Calculation
Three Months EndedDecember 31, Years
EndedDecember 31, 2013 2012 2013
2012 Subscriber acquisition costs (expensed) $ 663 $ 656 $
2,642 $ 2,673 Cash paid for subscriber leased equipment -
subscriber acquisitions 151 194 666
656 Total acquisition costs $ 814 $ 850
$ 3,308 $ 3,329 Gross subscriber additions (000's)
949 963 3,790 3,874 Average subscriber acquisition costs - per
subscriber (SAC) $ 858 $ 883 $
873 $ 859
DIRECTVMedia Contact:Darris Gringeri, (212) 205-0882Investor
Relations: (310) 964-0808
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