DIRECTV Surpasses 39 Million Total Subscribers in the
Quarter.
- Sky Brasil and PanAmericana achieve
record-breaking gross subscriber additions resulting in strong
DTVLA second quarter net new customer additions of 543,000.
DIRECTV Revenues Grow 5% to $8.1 Billion.
- Revenue driven by DIRECTV U.S. ARPU
growth of 4.6% along with strong DIRECTV Latin America subscriber
growth over the last year.
DIRECTV's Reported Diluted EPS Increases 35% to
$1.59.
DIRECTV Free Cash Flow Increases 24% to Nearly $1.5 Billion
Year To Date.
DIRECTV (NASDAQ:DTV) today reported that second quarter 2014
revenues increased 5% to $8.11 billion, reported operating profit
before depreciation and amortization1 (OPBDA) increased 3% to $2.15
billion, reported operating profit increased 5% to $1.42 billion
and reported diluted earnings per share increased 35% to $1.59
compared to last year's second quarter.
“Building on our first quarter momentum, DIRECTV delivered yet
another excellent quarter of operating and financial results,” said
Mike White, President and CEO of DIRECTV. “We continue to extend
our position as the world’s largest pay TV service with industry
leading growth by leveraging the strength of our premier brands and
distinctive products and service offerings throughout the
Americas.” White added, “DIRECTV Latin America’s second quarter
results highlight the tremendous success of our unparalleled FIFA
World Cup coverage, while DIRECTV U.S. continues to successfully
execute on our overarching goal to balance top line sales with
bottom line profitability. Overall, DIRECTV continues to deliver on
our strategic imperatives as we prepare for the exciting
opportunities that our merger with AT&T will bring to our
customers, employees and key stakeholders."
DIRECTV'S Operational Review
DIRECTV Consolidated Three Months EndedJune 30, Six
Months EndedJune 30,
Dollars in Millions except Earnings per
Common Share 2014 2013 2014 2013
Reported Financial Results
Revenues $
8,109 $ 7,700 $ 15,964 $ 15,280
Reported Operating Profit Before Depreciation and
Amortization(1) 2,153 2,081 4,094 4,001 Reported
OPBDA Margin(1) 26.6 % 27.0 % 25.6
%
26.2
%
Reported Operating Profit 1,424 1,350 2,651 2,592 Reported
Operating Profit Margin 17.6 % 17.5 % 16.6 %
17.0 % Reported Net Income Attributable to DIRECTV 806
660 1,367 1,350 Reported
Diluted Earnings Per Common Share $ 1.59 $
1.18 $ 2.67 $ 2.37
Capital
Expenditures and Cash Flow
Cash Paid for Property
and Equipment 255 193 454
345 Cash Paid for Subscriber Leased Equipment - Subscriber
Acquisitions 300 403 545
772 Cash Paid for Subscriber Leased Equipment - Upgrade and
Retention 212 236 418 463
Cash Paid for Satellites 55 116
109 194 Cash Flow Before Interest and Taxes(2)
1,408 1,179 2,693 2,286
Free Cash Flow(3) 652 526 1,538
1,236
Venezuela Currency Charge Impact
On(4):
Operating Profit Before
Depreciation and Amortization (3 ) — (284 )
(166 ) Operating Profit (3 ) — (284 )
(166 ) Net Income Attributable to DIRECTV (3 )
— (284 ) (136 ) Diluted Earnings Per Common Share
$ — $ — $ (0.55 ) $ (0.24 )
Adjusted Financial Results
Adjusted Operating
Profit Before Depreciation and Amortization(1) 2,156 2,081 4,378
4,167 Adjusted OPBDA Margin(1) 26.6 % 27.0 % 27.4 %
27.3 % Adjusted Operating Profit 1,427 1,350 2,935 2,758
Adjusted Operating Profit Margin 17.6 % 17.5 % 18.4 %
18.0 % Adjusted Net Income Attributable to DIRECTV
809 660 1,651 1,486
Adjusted Diluted Earnings Per Common Share $ 1.59
$ 1.18 $ 3.22 $ 2.61
"Adjusted" financial results exclude the impact of the gains and
charges outlined above associated with the remeasurement of the net
monetary assets of the company's subsidiary in Venezuela. See
footnote 4 for additional information.
Second Quarter Review
DIRECTV's second quarter revenues increased 5% to $8.11 billion
principally due to strong ARPU growth at DIRECTV U.S. as well as
subscriber growth at DIRECTV Latin America (DTVLA) and DIRECTV U.S.
over the last twelve months. These increases were partially
offset by lower ARPU at DTVLA due to unfavorable changes in
exchange rates. Reported OPBDA increased 3% to $2.15 billion, while
reported OPBDA margin decreased to 26.6% in the quarter. The
decline in margin was primarily due to higher programming and
subscriber acquisition costs at both DIRECTV U.S. and DTVLA.
Reported operating profit increased 5% to $1.42 billion, while
reported operating profit margin remained flat at 17.6%. The
operating profit margin was unchanged as the lower OPBDA margin was
offset by the impact of lower depreciation expense at DTVLA
compared to the prior year period.
Second quarter reported net income attributable to DIRECTV
increased 22% to $806 million due to the higher reported operating
profit, as well as favorable changes on the "Other, net" line of
the Consolidated Statements of Operations. "Other, net" was
impacted by a $44 million improvement in foreign currency
translation at Sky Brasil and a $59 million non-cash pre-tax charge
in the second quarter of 2013 due to the deconsolidation of DSN
Northwest. Reported diluted earnings per share grew 35% to $1.59 in
the quarter due to the higher adjusted net income attributable to
DIRECTV and the impact of share repurchases.
Cash flow before interest and taxes2 increased 19% to $1.41
billion compared to the second quarter of 2013, primarily due to
the higher OPBDA along with a reduction in cash paid for leased
equipment at DIRECTV U.S. and DTVLA related to declining set-top
box costs and the timing of purchases at DTVLA. Free cash flow3
grew 24% to $652 million compared to the second quarter of 2013, as
the higher cash flow before interest and taxes was partially offset
by an increase in income tax payments related to higher earnings
before taxes, as well as higher interest payments associated with
an increase in average debt balances.
Also during the quarter, but not included in free cash flow,
were an April 2014 debt redemption by DIRECTV U.S. of $1,000
million principal amount of 4.750% senior notes due in 2014 and
cash paid for share repurchases of $491 million. DIRECTV halted
share buybacks following the announcement of the proposed
transaction with AT&T on May 18, 2014.
Year to Date Review
DIRECTV's revenues for the first six months of 2014 of $15.96
billion increased 4% principally due to higher ARPU at DIRECTV U.S.
as well as subscriber growth over the last year at DTVLA and
DIRECTV U.S. These increases were partially offset by lower ARPU at
DTVLA primarily due to unfavorable changes in exchange rates.
Adjusted OPBDA increased 5% to $4.38 billion and adjusted operating
profit increased 6% to $2.94 billion compared with the same period
of 2013. Adjusted OPBDA margin remained relatively unchanged in the
period, while adjusted operating profit margin expanded from 18.0%
to 18.4% due to the impact of relatively unchanged depreciation
expense at DTVLA compared to the prior year period. Reported OPBDA
and reported operating profit both increased 2% to $4.09 billion
and $2.65 billion, respectively, in the first half of the year.
Adjusted net income attributable to DIRECTV increased 11% to
$1.65 billion compared with the first six months of 2013 primarily
due to higher adjusted operating profit and favorable comparisons
on the "Other, net" line of the Consolidated Statements of
Operations. "Other, net" was impacted by a $44 million
improvement in foreign currency translation at Sky Brasil and a $59
million non-cash pre-tax charge in the second quarter of 2013 due
to the deconsolidation of DSN Northwest. These increases were
partially offset by an increase in income tax expense related to
higher earnings before taxes, as well as higher interest expense
associated with an increase in average debt balances. Adjusted
diluted earnings per share improved 23% to $3.22 due to the higher
net income, as well as the impact of share repurchases. Reported
net income attributable to DIRECTV increased slightly to $1.37
billion while reported diluted earnings per share improved 13% to
$2.67.
Cash flow before interest and taxes increased 18% to $2.69
billion compared to the first six months of 2013 primarily due to
the higher OPBDA, along with a reduction in cash paid for leased
equipment at DIRECTV U.S. and DTVLA related to declining set-top
box costs and the timing of purchases at DTVLA. Free cash flow grew
24% to $1.54 billion compared to the first six months of 2013, as
the higher cash flow before interest and taxes was partially offset
by an increase in income tax payments related to higher earnings
before taxes, as well as higher interest payments associated with
an increase in average debt balances.
Also during the first half of 2014, but not included in free
cash flow, were a March 2014 debt issuance by DIRECTV
U.S. of $1,250 million principal amount of 4.45% senior
notes due in 2024, an April 2014 debt redemption by DIRECTV U.S. of
$1,000 million principal amount of 4.750% senior notes due in 2014,
cash paid for share repurchases of $1.39 billion, as well as
a $316 million reduction in DIRECTV’s cash balance
resulting from the devaluation of the Venezuelan bolivar
denominated cash balance in March 2014.
SEGMENT FINANCIAL REVIEW
DIRECTV U.S. Segment
DIRECTV U.S. Three Months EndedJune 30, Six Months
EndedJune 30,
Dollars in Millions except ARPU 2014
2013 2014 2013
Reported Financial Results
Revenues $ 6,272 $ 5,943
$ 12,359 $ 11,733 Average Monthly Revenue per
Subscriber (ARPU) ($) 103.26 98.73
101.72 97.43 Operating Profit Before
Depreciation and Amortization(1) 1,748 1,651 3,417
3,172 OPBDA Margin(1) 27.9 % 27.8 % 27.6 %
27.0 % Operating Profit 1,319 1,241 2,562 2,356 Operating Profit
Margin 21.0 % 20.9 % 20.7 % 20.1 %
Capital
Expenditures and Cash Flow
Cash Paid for Property
and Equipment 183 154 327
265 Cash Paid for Subscriber Leased Equipment - Subscriber
Acquisitions 115 151 232
325 Cash Paid for Subscriber Leased Equipment - Upgrade and
Retention 104 119 214 230
Cash Paid for Satellites 22 55
33 108 Cash Flow Before Interest and Taxes(2)
1,236 1,127 2,303 2,119
Subscriber Data (in 000's except Churn)
Gross Subscriber Additions 908 839
1,799 1,732 Average Monthly Subscriber Churn
1.55 % 1.53 % 1.50 % 1.49 % Net Subscriber
Disconnections (34 ) (84 ) (22 ) (63 )
Cumulative Subscribers 20,231 20,021
20,231 20,021
Second Quarter Review
In the quarter, DIRECTV U.S. revenues increased 6% to $6.27
billion compared with the second quarter of 2013 primarily due to
strong ARPU growth along with a larger subscriber base. The ARPU
increase of 4.6% to $103.26 was driven by price increases on
programming packages, higher advanced receiver service fees, higher
fees for the new enhanced warranty program, as well as increased
commercial business and ad sales revenues. These improvements were
partially offset by increased promotional offers to new and
existing customers.
DIRECTV U.S. net subscriber losses of approximately (34)
thousand improved compared to the prior year period primarily due
to an 8% increase in gross additions to approximately 908 thousand,
partially offset by a slightly higher average monthly churn rate of
1.55% principally resulting from a more competitive environment.
The improvement in gross additions was primarily driven by
streamlined promotional offers and investments in retail
distributors. DIRECTV U.S. ended the quarter with 20.23 million
subscribers.
Second quarter OPBDA increased 6% to $1.75 billion and OPBDA
margin improved slightly from 27.8% to 27.9% principally due to
higher revenues combined with lower upgrade and retention expenses
mostly related to reduced equipment costs, as well as relatively
unchanged general and administrative expenses. These improvements
were mostly offset by higher subscriber acquisition costs
associated with the increase in gross additions and higher
programming costs primarily related to programming supplier rate
increases. Operating profit increased 6% to $1.32 billion and
operating profit margin was up slightly from 20.9% to 21.0% in the
second quarter mainly due to the higher OPBDA and OPBDA margin.
DIRECTV Latin America
DIRECTV Latin America Three Months EndedJune 30, Six
Months EndedJune 30,
Dollars in Millions except ARPU
2014 2013 2014 2013
Reported Financial Results
Revenues $ 1,789 $ 1,686
$ 3,510 $ 3,414 Average Monthly Revenue per
Subscriber (ARPU) ($) 48.88 51.13 48.79
52.82 Reported Operating Profit Before
Depreciation and Amortization(1) 438 455 697 835
Reported OPBDA Margin(1) 24.5 % 27.0 % 19.9 %
24.5 % Reported Operating Profit 142 139 116 256 Reported Operating
Profit Margin 7.9 % 8.2 % 3.3 % 7.5 %
Capital Expenditures and Cash Flow
Cash Paid
for Property and Equipment 70 39 126
80 Cash Paid for Subscriber Leased Equipment -
Subscriber Acquisitions 185 252 313
447 Cash Paid for Subscriber Leased Equipment
- Upgrade and Retention 108 117 204
233 Cash Paid for Satellites 27
58 65 80 Cash Flow Before
Interest and Taxes(2) 150 7 354
109
Subscriber Data (in 000's except
Churn)
Gross Subscriber Additions(6) 1,311
1,189 2,422 2,370 Average
Monthly Total Subscriber Churn(5) 2.10 % 3.10 % 2.11
% 2.51 % Average Monthly Post-paid Subscriber Churn(5)
1.90 % 2.86 % 1.88 % 2.31 % Net Subscriber
Additions(5)(6) 543 165 904
748 Cumulative Subscribers (5) (6) 12,472
11,077 12,472 11,077
Venezuela Currency Charge Impact On(4):
Operating Profit Before Depreciation and Amortization
(3 ) — (284 ) (166 ) Operating Profit
(3 ) — (284 ) (166 )
Adjusted Financial
Results
Adjusted Operating Profit Before Depreciation
and Amortization(1) 441 455 981 1,001 Adjusted OPBDA Margin(1)
24.7 % 27.0 % 27.9 % 29.3 % Adjusted Operating
Profit 145 139 400 422 Adjusted Operating Profit Margin 8.1
% 8.2 % 11.4 % 12.4 %
"Adjusted" financial results exclude the impact of the gains and
charges outlined above associated with the remeasurement of the net
monetary assets of the company's subsidiary in Venezuela. See
footnote 4 for additional information.
DIRECTV Latin America owns approximately 93% of Sky Brasil, 41%
of Sky Mexico and 100% of PanAmericana, which covers most of the
remaining countries in the region. Sky Mexico, whose results are
accounted for as an equity method investment and therefore are not
consolidated by DTVLA, had approximately 6.36 million subscribers
as of June 30, 2014, bringing the total subscribers in the
region to 18.83 million.
Sky Brasil Segment
Sky Brasil Three Months EndedJune 30, Six Months
EndedJune 30,
Dollars in Millions except ARPU 2014
2013 2014 2013
Reported Financial Results
Revenues $ 1,011 $ 942 $
1,950 $ 1,907 Average Monthly Revenue per
Subscriber (ARPU) ($) 60.77 60.32 59.21
61.72 Operating Profit Before Depreciation and
Amortization(1) 289 262 600 573 OPBDA Margin(1)
28.6 % 27.8 % 30.8 % 30.0 % Operating Profit
114 56 262 210 Operating Profit Margin 11.3 % 5.9 %
13.4 % 11.0 %
Other Data
Total Capital
Expenditures 229 263 390
470 Net Subscriber Additions (Disconnections)(5)(6) (in
000's) 137 (80 ) 246 128
Cumulative Subscribers(5)(6) (in 000's) 5,617
5,167 5,617 5,167
Second Quarter Review
Excluding changes in foreign exchange rates, Sky Brasil's second
quarter revenues grew 15% versus the prior year period driven by a
7% increase in the average number of subscribers and an 8% increase
in local currency ARPU. The increase in local currency ARPU was
principally due to reduced promotional offers, as well as growth in
advanced services. When factoring in unfavorable changes in foreign
exchange rates, Sky Brasil's revenues increased 7% to $1.01 billion
and ARPU improved 0.7% to $60.77 compared to the second quarter of
2013.
Second quarter net subscriber additions of approximately 137
thousand were higher than the prior year period due to record gross
additions, as well as a lower average monthly churn rate. The
increase in gross additions was primarily driven by demand related
to the FIFA World Cup. Churn in the quarter was lower than the
prior year period due to the termination of subscribers related to
the improper crediting of certain customer accounts in the second
quarter of 2013(5).
Also in the second quarter, Sky Brasil OPBDA increased 10% to
$289 million and OPBDA margin expanded from 27.8% to 28.6%
primarily due to the increase in local currency ARPU, partially
offset by higher expenses associated with the broadband network
buildout. Operating profit more than doubled to $114 million and
operating profit margin increased from 5.9% to 11.3% due to the
improvements in OPBDA and OPBDA margin, as well as lower
depreciation expense compared to the prior year period. The second
quarter of 2013 was unfavorably impacted by additional
depreciation associated with capitalized installation costs and
subscriber equipment related to the higher subscriber churn(5).
PanAmericana and Other Segment
PanAmericana and Other Three Months EndedJune 30, Six
Months EndedJune 30,
Dollars in Millions except ARPU
2014 2013 2014 2013
Reported Financial Results
Revenues $ 778 $ 744 $
1,560 $ 1,507 Average Monthly Revenue per
Subscriber (ARPU) ($) 38.96 42.96 39.99
44.79 Reported Operating Profit Before
Depreciation and Amortization(1) 149 193 97 262
Reported OPBDA Margin(1) 19.2 % 25.9 % 6.2 %
17.4 % Reported Operating Profit (Loss) 28 83 (146 ) 46 Reported
Operating Profit Margin 3.6 % 11.2 % *NM 3.1 %
Other Data
Total Capital Expenditures 161
203 318 370 Net
Subscriber Additions (in 000's) 406 245
658 620 Cumulative Subscribers (in 000's)
6,855 5,910 6,855 5,910
Venezuela Currency Charge Impact On(4):
Operating Profit Before Depreciation and Amortization
(3 ) — (284 ) (166 ) Operating Profit
(3 ) — (284 ) (166 )
Adjusted
Financial Results
Adjusted Operating Profit Before
Depreciation and Amortization(1) 152 193 381 428 Adjusted OPBDA
Margin(1) 19.5 % 25.9 % 24.4 % 28.4 % Adjusted
Operating Profit 31 83 138 212 Adjusted Operating Profit Margin
4.0 % 11.2 % 8.8 % 14.1 %
* Percentage not meaningful
"Adjusted" financial results exclude the impact of the gains and
charges outlined above associated with the remeasurement of the net
monetary assets of the company's subsidiary in Venezuela. See
footnote 4 for additional information.
Second Quarter Review
Excluding changes in foreign exchange rates, second quarter
revenues in the PanAmericana and Other segment grew 42% versus the
prior year period driven by a 15% increase in the average number of
subscribers and a 23% increase in local currency ARPU. The increase
in local currency ARPU was principally due to price increases and
growth in advanced services, partially offset by the higher
penetration of lower ARPU mass market subscribers. When factoring
in unfavorable changes in foreign exchange rates, most notably in
Argentina and Venezuela, revenues increased 5% to $778 million
compared to the second quarter of 2013, while ARPU decreased 9.3%
to $38.96.
Second quarter subscriber net additions of approximately 406
thousand were higher than the prior year period due to record gross
additions and lower average monthly subscriber churn primarily
driven by demand related to the FIFA World Cup, including higher
pre-paid subscriber reconnection rates.
Also in the second quarter, reported OPBDA and reported OPBDA
margin in the PanAmericana and Other segment decreased to $149
million and 19.2%, respectively. The declines were primarily due to
higher programming costs associated with special events including
the FIFA World Cup and increased subscriber acquisition costs
related to the higher gross additions. OPBDA margin was also
negatively impacted by inflation and the timing of price increases
in Venezuela. In addition, reported operating profit decreased to
$28 million and reported operating profit margin declined to 3.6%
due to the lower OPBDA and OPBDA margin, as well as the impact of
higher depreciation and amortization resulting from increased
leased equipment and infrastructure capital expenditures.
CONFERENCE CALL INFORMATION
A live webcast of DIRECTV's second quarter 2014 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 July 31, 2014.
Access to the earnings call is also available in the United States
by dialing (888) 300-2342 and internationally by dialing (719)
325-2333. The conference ID number is 9916031. A replay will also
be archived on our website at investor.directv.com beginning August
1, 2014.
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 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) 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 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. This charge is listed as "Venezuelan
currency devaluation charge" in the Consolidated Statements of
Operations.
In the first quarter of 2013, the Venezuelan government
announced an additional currency exchange system, the Sistema
Complementario de Administración de Divisas, or SICAD 1, intended
to function as an auction system for participants to exchange
bolivars for U.S. dollars. Effective January 24, 2014, the
Venezuelan government announced that dividends and royalties would
be subject to the SICAD 1 program. We believe the SICAD 1 rate is
the most representative rate to use for remeasurement, as the
official rate of 6.3 bolivars per U.S. dollar will likely be
reserved only for the settlement of U.S. dollar denominated
obligations related to purchases of “essential goods and services,”
and the equity of our Venezuelan subsidiary would be realized, if
at all, through permitted dividends paid at the SICAD 1 rate.
Therefore, as of March 31, 2014, we are remeasuring our Venezuelan
subsidiary’s financial statements in U.S. dollars using the
exchange rate determined by periodic auctions under SICAD 1, which
was 10.7 bolivars per U.S. dollar. Until that date, we used the
official exchange rate of 6.3 bolivars per U.S. dollar. As a result
of the remeasurement, we recorded a pre-tax (and after-tax) charge
of $281 million in the first quarter of 2014 related to the
remeasurement of the bolivar denominated net monetary assets of our
Venezuelan subsidiary. This charge is listed as "Venezuelan
currency devaluation charge" in the Consolidated Statements of
Operations. Beginning in the second quarter of 2014, we are
remeasuring the results of the Venezuelan subsidiary at the
weighted-average rate of SICAD 1 auctions during the reporting
period, and remeasuring the net monetary asset balance at the
period-end rate based on the latest auction.
(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.
(6) DIRECTV Latin America subscriber data exclude subscribers of
the Sky Mexico service. In addition, DTVLA gross and net additions
exclude 1,000 video subscribers acquired in transactions in Brazil
during the six months ended June 30, 2013. DTVLA cumulative
subscriber counts include these acquired customers.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
NOTE: This presentation may include or incorporate by reference
certain statements that we believe are, or may be considered to be,
“forward-looking statements” within the meaning of various
provisions of the Securities Act of 1933 and the Securities
Exchange Act of 1934. These forward-looking statements generally
can be identified by use of statements that include phrases such as
“believe,” “expect,” “estimate,” “anticipate,” “intend,” “plan,”
“project” or other similar words or phrases. Similarly, statements
that describe our objectives, plans or goals also are
forward-looking statements. All of these forward-looking statements
are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical results or from
those expressed or implied by the relevant forward-looking
statement. Such risks and uncertainties include, but are not
limited to: increased competition; increasing programming costs and
our ability to renew programming contracts under favorable terms;
increased subscriber churn or subscriber upgrade and retention
costs; potential material increase in subscriber acquisition costs;
general economic conditions; risks associated with doing business
internationally, which for DIRECTV Latin America include political
and economic instability and foreign currency exchange rate
volatility and controls; pace of technological development;
potential intellectual property infringement; loss of key
personnel; satellite construction or launch delays; satellite
launch and operational risks; loss of a satellite; theft of
satellite programming signals; U.S. and foreign governmental and
regulatory action; ability to maintain licenses and regulatory
approvals; significant debt; indemnification obligations; reliance
on network and information systems; and the outcome of legal
proceedings. We may face other risks described from time to time in
periodic reports filed by us with the U.S. Securities and Exchange
Commission.
DIRECTV (NASDAQ:DTV) is one of the world's leading providers of
digital television entertainment services. Through its subsidiaries
and affiliated companies in the United States, Brazil, Mexico and
other countries in Latin America, DIRECTV provides digital
television service to over 20 million customers in the United
States and over 18 million customers in Latin America. DIRECTV
sports and entertainment properties include two regional sports
networks (Rocky Mountain and Pittsburgh) and minority ownership
interests in Root Sports Northwest and Game Show Network. For more
information on DIRECTV, visit directv.com.
DIRECTV CONSOLIDATED
STATEMENTS OF OPERATIONS (Dollars in Millions, Except Per
Share Amounts) (Unaudited) Three Months
EndedJune 30, Six Months EndedJune 30,
2014 2013 2014 2013
Revenues $ 8,109 $ 7,700
$ 15,964 $ 15,280
Operating costs and
expenses Costs of revenues, exclusive of depreciation and
amortization expense Broadcast programming and other 3,498 3,275
6,881 6,471 Subscriber service expenses 574 554 1,125 1,091
Broadcast operations expenses 107 97 204 207 Selling, general and
administrative expenses, exclusive of depreciation and amortization
expense Subscriber acquisition costs 898 809 1,725 1,623 Upgrade
and retention costs 362 374 683 742 General and administrative
expenses 517 510 971 979 Venezuelan currency devaluation charge — —
281 166 Depreciation and amortization expense 729
731 1,443 1,409
Total
operating costs and expenses 6,685 6,350
13,313 12,688
Operating
profit 1,424 1,350 2,651 2,592 Interest income 12 19 25 41
Interest expense (230 ) (219 ) (462 ) (436 ) Other, net 35
(75 ) 92 (37 )
Income before
income taxes 1,241 1,075 2,306 2,160 Income tax expense
(431 ) (414 ) (927 ) (801 ) Net income 810 661
1,379 1,359 Less: Net income attributable to noncontrolling
interest (4 ) (1 ) (12 ) (9 )
Net
income attributable to DIRECTV $ 806 $ 660
$ 1,367 $ 1,350
Basic
earnings attributable to DIRECTV per common share $ 1.60 $ 1.19
$ 2.70 $ 2.39
Diluted earnings attributable to DIRECTV per
common share $ 1.59 $ 1.18 $ 2.67 $ 2.37 Weighted average
number of common shares outstanding (in millions): Basic 504 556
507 565 Diluted 508 561 512 569
DIRECTV
CONSOLIDATED BALANCE SHEETS (Dollars in Millions)
(Unaudited) ASSETS June 30, 2014
December 31, 2013 Current assets Cash
and cash equivalents $ 2,290 $ 2,180 Accounts receivable, net of
allowances of $127 and $95 2,489 2,547 Inventories 312 283 Deferred
income taxes 110 140 Prepaid expenses and other 668
803
Total current assets 5,869 5,953
Satellites, net 2,464 2,467
Property and equipment,
net 6,874 6,650
Goodwill 3,992 3,970
Intangible
assets, net 903 920
Investments and other assets
2,024 1,945
Total assets $
22,126 $ 21,905
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Current liabilities Accounts payable and accrued liabilities
$ 4,314 $ 4,685 Unearned subscriber revenues and deferred credits
637 589 Current debt 1,542 1,256
Total current liabilities 6,493 6,530
Long-term debt
18,439 18,284
Deferred income taxes 1,798 1,804
Other
liabilities and deferred credits 1,523 1,456
Commitments and
contingencies Redeemable noncontrolling interest — 375
Total stockholders' deficit (6,127 ) (6,544 )
Total liabilities and stockholders' deficit $ 22,126
$ 21,905
DIRECTV
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in
Millions) (Unaudited) Six Months EndedJune
30, 2014 2013 Cash
Flows From Operating Activities Net income $ 1,379 $ 1,359
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization expense 1,443
1,409 Venezuelan currency devaluation charge 281 166 DSN Northwest
deconsolidation charge — 59 Amortization of deferred revenues and
deferred credits (24 ) (26 ) Share-based compensation expense 45 59
Equity in earnings from unconsolidated affiliates (78 ) (56 ) Net
foreign currency transaction (gain) loss (11 ) 33 Dividends
received — 35 Net gains from sale of investments (17 ) (8 )
Deferred income taxes 115 (39 ) Excess tax benefit from share-based
compensation (22 ) (24 ) Other 45 29 Change in other operating
assets and liabilities: Accounts receivable 133 140 Inventories (29
) — Prepaid expenses and other 122 22 Accounts payable and accrued
liabilities (342 ) (322 ) Unearned subscriber revenue and deferred
credits 48 43 Other, net (24 ) 131 Net cash
provided by operating activities 3,064 3,010
Cash Flows From Investing Activities Cash paid for
property and equipment (1,417 ) (1,580 ) Cash paid for satellites
(109 ) (194 ) Investment in companies, net of cash acquired (8 )
(27 ) Proceeds from sale of investments 29 140 Other, net (4
) (18 ) Net cash used in investing activities (1,509
) (1,679 )
DIRECTV
CONSOLIDATED STATEMENTS OF CASH FLOWS-(continued)
(Dollars in Millions) (Unaudited) Six Months
EndedJune 30, 2014
2013 Cash Flows From Financing Activities Issuance
(repayment) of commercial paper (maturity 90 days or less), net 25
(105 ) Proceeds from short-term borrowings 270 284 Repayment of
short-term borrowings (235 ) (262 ) Proceeds from borrowings under
revolving credit facility — 10 Repayment of borrowings under
revolving credit facility — (10 ) Proceeds from long-term debt
1,329 1,445 Debt issuance costs (7 ) (7 ) Repayment of long-term
debt (1,026 ) (3 ) Repayment of other long-term obligations (34 )
(32 ) Common shares repurchased and retired (1,386 ) (1,968 ) Stock
options exercised 10 — Taxes paid in lieu of shares issued for
share-based compensation (57 ) (61 ) Excess tax benefit from
share-based compensation 22 24 Other, net (40 ) 4
Net cash used in financing activities (1,129 )
(681 ) Effect of exchange rate changes on Venezuelan cash and cash
equivalents (316 ) (187 ) Net increase in cash and
cash equivalents 110 463 Cash and cash equivalents at beginning of
the period 2,180 1,902 Cash and cash
equivalents at end of the period $ 2,290 $
2,365
Supplemental Cash Flow Information Cash paid
for interest $ 413 $ 389 Cash paid for income taxes 767 702
DIRECTV SELECTED SEGMENT
DATA (Dollars in Millions) (Unaudited) Three
Months EndedJune 30, Six Months EndedJune
30, 2014 2013
2014 2013 DIRECTV U.S. Revenues $ 6,272
$ 5,943 $ 12,359 $ 11,733 Operating profit before depreciation and
amortization(1) 1,748 1,651 3,417 3,172 Operating profit before
depreciation and amortization margin(1) 27.9 % 27.8 % 27.6 % 27.0 %
Operating profit $ 1,319 $ 1,241 $ 2,562 $ 2,356 Operating profit
margin 21.0 % 20.9 % 20.7 % 20.1 % Depreciation and amortization
$ 429 $ 410 $ 855
$ 816
SKY BRASIL Revenues $ 1,011 $ 942 $
1,950 $ 1,907 Operating profit before depreciation and
amortization(1) 289 262 600 573 Operating profit before
depreciation and amortization margin(1) 28.6 % 27.8 % 30.8 % 30.0 %
Operating profit $ 114 $ 56 $ 262 $ 210 Operating profit margin
11.3 % 5.9 % 13.4 % 11.0 % Depreciation and amortization $
175 $ 206 $ 338 $ 363
PANAMERICANA AND OTHER Revenues $ 778 $ 744 $
1,560 $ 1,507 Operating profit before depreciation and amortization
(1) 149 193 97 262 Operating profit before depreciation and
amortization margin(1) 19.2 % 25.9 % 6.2 % 17.4 % Operating profit
(loss) $ 28 $ 83 $ (146 ) $ 46 Operating profit margin 3.6 % 11.2 %
*NM 3.1 % Depreciation and amortization $ 121
$ 110 $ 243 $ 216
SPORTS NETWORKS, ELIMINATIONS AND OTHER Revenues $ 48 $ 71 $
95 $ 133 Operating loss before depreciation and amortization(1) (33
) (25 ) (20 ) (6 ) Operating loss (37 ) (30 ) (27 ) (20 )
Depreciation and amortization 4 5
7 14
TOTAL Revenues $
8,109 $ 7,700 $ 15,964 $ 15,280 Operating profit before
depreciation and amortization(1) 2,153 2,081 4,094 4,001 Operating
profit before depreciation and amortization margin(1) 26.6 % 27.0 %
25.6 % 26.2 % Operating profit $ 1,424 $ 1,350 $ 2,651 $ 2,592
Operating profit margin 17.6 % 17.5 % 16.6 % 17.0 % Depreciation
and amortization $ 729 $ 731 $
1,443 $ 1,409 * Percentage not meaningful
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in
Millions) (Unaudited) Three
Months EndedJune 30, Six Months EndedJune
30, 2014 2013 2014
2013 Revenues $ 6,272 $ 5,943
$ 12,359 $ 11,733
Operating
costs and expenses Costs of revenues, exclusive of depreciation
and amortization expense Broadcast programming and other 2,800
2,642 5,568 5,243 Subscriber service expenses 374 360 733 711
Broadcast operations expenses 75 71 147 152 Selling, general and
administrative expenses, exclusive of depreciation and amortization
expense Subscriber acquisition costs 661 594 1,309 1,223 Upgrade
and retention costs 314 324 595 643 General and administrative
expenses 300 301 590 589 Depreciation and amortization expense
429 410 855 816
Total operating costs and expenses 4,953
4,702 9,797 9,377
Operating profit 1,319 1,241 2,562 2,356 Interest income — 1
1 1 Interest expense (223 ) (206 ) (446 ) (408 ) Other, net
(5 ) 4 — 16
Income
before income taxes 1,091 1,040 2,117 1,965 Income tax expense
(407 ) (394 ) (788 ) (729 )
Net
income $ 684 $ 646 $ 1,329
$ 1,236
DIRECTV HOLDINGS LLC (DIRECTV
U.S.) CONSOLIDATED BALANCE SHEETS
(Dollars in Millions) (Unaudited)
ASSETS June 30, 2014 December 31,
2013 Current assets Cash and cash equivalents $ 865 $
797 Accounts receivable, net of allowances of $82 and $59 2,019
2,103 Inventories 283 249 Prepaid expenses and other 411
494
Total current assets 3,578 3,643
Satellites, net 1,760 1,810
Property and equipment,
net 3,754 3,724
Goodwill 3,191 3,191
Intangible
assets, net 517 527
Other assets 540
551
Total assets $ 13,340
$ 13,446
LIABILITIES AND OWNER'S DEFICIT
Current liabilities
Accounts payable and accrued liabilities $ 3,277 $ 3,695 Unearned
subscriber revenues and deferred credits 426 380 Current debt
1,460 1,200
Total current
liabilities 5,163 5,275
Long-term debt 18,327 18,203
Deferred income taxes 1,606 1,641
Other liabilities and
deferred credits 665 595
Commitments and contingencies
Owner's deficit (12,421 ) (12,268 )
Total
liabilities and owner's deficit $ 13,340 $
13,446
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions) (Unaudited) Six Months
EndedJune 30, 2014
2013 Cash Flows From Operating Activities Net income
$ 1,329 $ 1,236 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization
expense 855 816 Amortization of deferred revenues and deferred
credits (24 ) (26 ) Share-based compensation expense 35 45 Deferred
income taxes 48 75 Excess tax benefit from share-based compensation
(18 ) (20 ) Other (5 ) 3 Change in other operating assets and
liabilities: Accounts receivable 170 141 Inventories (34 ) 13
Prepaid expenses and other 81 102 Accounts payable and accrued
liabilities (422 ) (284 ) Unearned subscriber revenue and deferred
credits 46 49 Other, net 23 36 Net cash
provided by operating activities 2,084 2,186
Cash Flows From Investing Activities Cash paid for
property and equipment (327 ) (265 ) Cash paid for subscriber
leased equipment - subscriber acquisitions (232 ) (325 ) Cash paid
for subscriber leased equipment - upgrade and retention (214 ) (230
) Cash paid for satellites (33 ) (108 ) Investment in companies,
net of cash acquired (1 ) (21 ) Proceeds from sale of investments
16 12 Other, net — 2 Net cash used in
investing activities (791 ) (935 )
Cash Flows From
Financing Activities Issuance (repayment) of commercial paper
(maturity 90 days or less), net 25 (105 ) Proceeds from short-term
borrowings 270 284 Repayment of short-term borrowings (235 ) (262 )
Proceeds from borrowings under revolving credit facility — 10
Repayment of borrowings under revolving credit facility — (10 )
Proceeds from issuance of long-term debt 1,245 1,390 Debt issuance
costs (7 ) (7 ) Repayment of long-term debt (1,000 ) — Repayment of
other long-term obligations (15 ) (12 ) Cash dividends paid to
Parent (1,500 ) (1,950 ) Excess tax benefit from share-based
compensation 18 20 Other, net (26 ) 4 Net cash
used in financing activities (1,225 ) (638 ) Net
increase in cash and cash equivalents 68 613 Cash and cash
equivalents at beginning of the period 797 739
Cash and cash equivalents at end of the period $ 865
$ 1,352
Supplemental Cash Flow
Information Cash paid for interest $ 397 $ 360 Cash paid for
income taxes 629 502
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 EndedJune 30, Six Months
EndedJune 30, 2014 2013 2014
2013 Cash Flow Before Interest and Taxes $ 1,408 $ 1,179 $
2,693 $ 2,286 Adjustments: Cash paid for interest (85 ) (64 ) (413
) (389 ) Interest income 12 19 25 41 Income taxes paid (683
) (608 ) (767 ) (702 ) Subtotal - Free Cash Flow 652
526 1,538 1,236 Add Cash Paid For: Property and equipment 767 832
1,417 1,580 Satellites 55 116 109
194 Net Cash Provided by Operating Activities $ 1,474
$ 1,474 $ 3,064 $ 3,010
(2) and (3) - See footnotes above
Reconciliation of Reported Operating Profit Before Depreciation
and Amortization to Operating Profit* Three Months
EndedJune 30, Six Months EndedJune 30,
2014 2013 2014 2013 Operating profit
before depreciation and amortization $ 2,153 $ 2,081 $ 4,094 $
4,001 Subtract: Depreciation and amortization 729 731
1,443 1,409 Operating profit $ 1,424
$ 1,350 $ 2,651 $ 2,592 * For a
reconciliation of this non-GAAP financial measure for each of our
segments, please see the Notes to the Consolidated Financial
Statements which will be included in DIRECTV's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2014, which is expected to
be filed with the SEC in July 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 EndedJune 30, Six
Months EndedJune 30, 2014 2013
2014 2013 Revenues $ 8,109 $ 7,700 $ 15,964 $
15,280 Operating profit before depreciation and amortization
excluding the Venezuelan currency devaluation charge $ 2,156 $
2,081 $ 4,378 $ 4,167 OPBDA growth excluding Venezuelan currency
devaluation charge 3.6 % 5.1 % Subtract: Venezuelan currency
devaluation charge 3 — 284 166
Operating profit before depreciation and amortization 2,153
2,081 4,094 4,001 Subtract: Depreciation and amortization 729
731 1,443 1,409 Operating
profit $ 1,424 $ 1,350 $ 2,651 $
2,592 Operating profit before depreciation and amortization
margin excluding the Venezuelan currency devaluation charge
26.6 % 27.0 % 27.4 % 27.3 %
Reconciliation of Adjusted Operating Profit (excluding the
Venezuelan currency devaluation charge) to Operating Profit
Three Months EndedJune 30, Six Months
EndedJune 30, 2014 2013 2014
2013 Revenues $ 8,109 $ 7,700 $ 15,964 $ 15,280
Operating profit excluding the Venezuelan currency devaluation
charge $ 1,427 $ 1,350 $ 2,935 $ 2,758 Operating profit growth
excluding Venezuelan currency devaluation charge 5.7 % 6.4 %
Subtract: Venezuelan currency devaluation charge 3 —
284 166 Operating profit $ 1,424
$ 1,350 $ 2,651 $ 2,592
Operating profit margin excluding the Venezuelan currency
devaluation charge 17.6 % 17.5 % 18.4 %
18.0 %
Reconciliation of Adjusted Net Income (excluding
the Venezuelan currency devaluation charge) to Net Income
Three Months EndedJune 30, Six Months
EndedJune 30, 2014 2013 2014
2013 Net income attributable to DIRECTV excluding the
Venezuelan currency devaluation charge $ 809 $ 660 $ 1,651 $ 1,486
Subtract: Venezuelan after-tax currency devaluation charge 3
— 284 136 Net income attributable to
DIRECTV $ 806 $ 660 $ 1,367 $
1,350 Net income growth excluding Venezuelan currency devaluation
charge 22.6 % 11.1 % Diluted weighted average shares 508 561 512
569 Adjusted diluted earnings per common share $ 1.59 $ 1.18 $ 3.22
$ 2.61 Adjusted diluted earnings per common share growth excluding
Venezuelan currency devaluation charge 34.7 %
23.4 %
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 EndedJune 30, Six
Months EndedJune 30, 2014 2013
2014 2013 Cash Flow Before Interest and Taxes
$ 150 $ 7 $ 354 $ 109 Adjustments: Cash paid for interest (12 ) (13
) (25 ) (30 ) Interest income 10 16 23 31 Income taxes paid
(53 ) (69 ) (142 ) (159 ) Add Cash Paid For: Property
and equipment 70 39 126 80 Subscriber leased equipment - subscriber
acquisitions 185 252 313 447 Subscriber leased equipment - upgrade
and retention 108 117 204 233 Satellites 27 58
65 80 Net Cash Provided by Operating
Activities $ 485 $ 407 $ 918 $
791 (2) See footnotes above
Reconciliation of Adjusted Operating Profit Before Depreciation
and Amortization (excluding the Venezuelan currency devaluation
charge) to Operating Profit Three Months EndedJune
30, Six Months EndedJune 30, 2014
2013 2014 2013 Revenues $ 1,789 $ 1,686 $
3,510 $ 3,414 Operating profit before depreciation and
amortization excluding the Venezuelan currency devaluation charge $
441 $ 455 $ 981 $ 1,001 OPBDA growth excluding Venezuelan currency
devaluation charge (3.1 )% (2.0 )% Subtract: Venezuelan currency
devaluation charge 3 — 284 166
Operating profit before depreciation and amortization 438
455 697 835 Subtract: Depreciation and amortization 296
316 581 579 Operating profit $
142 $ 139 $ 116 $ 256
Operating profit before depreciation and amortization margin
excluding the Venezuelan currency devaluation charge 24.7 %
27.0 % 27.9 % 29.3 %
Reconciliation
of Adjusted Operating Profit (excluding the Venezuelan currency
devaluation charge) to Operating Profit Three Months
EndedJune 30, Six Months EndedJune 30,
2014 2013 2014 2013 Revenues $ 1,789 $
1,686 $ 3,510 $ 3,414 Operating profit excluding the
Venezuelan currency devaluation charge $ 145 $ 139 $ 400 $ 422
Operating Profit growth excluding Venezuelan currency devaluation
charge 4.3 % (5.2 )% Subtract: Venezuelan currency devaluation
charge 3 — 284 166
Operating profit $ 142 $ 139 $ 116
$ 256 Operating profit margin excluding the
Venezuelan currency devaluation charge 8.1 % 8.2 %
11.4 % 12.4 %
PanAmericana and Other
Segment Non-GAAP Financial Measure Reconciliation Schedules
(Dollars in Millions)
(Unaudited) PanAmericana and Other Reconciliation
of Adjusted Operating Profit Before Depreciation and Amortization
(excluding the Venezuelan currency devaluation charge) to Operating
Profit Three Months EndedJune 30,
Six Months EndedJune 30, 2014
2013 2014 2013 Revenues $ 778 $ 744 $
1,560 $ 1,507 Operating profit before depreciation and
amortization excluding the Venezuelan currency devaluation charge $
152 $ 193 $ 381 $ 428 OPBDA growth excluding Venezuelan currency
devaluation charge (21.2 )% (11.0 )% Subtract: Venezuelan currency
devaluation charge 3 — 284 166
Operating profit before depreciation and amortization 149
193 97 262 Subtract: Depreciation and amortization 121
110 243 216 Operating profit
(loss) $ 28 $ 83 $ (146 ) $ 46
Operating profit before depreciation and amortization margin
excluding the Venezuelan currency devaluation charge 19.5 %
25.9 % 24.4 % 28.4 %
Reconciliation
of Adjusted Operating Profit (excluding the Venezuelan currency
devaluation charge) to Operating Profit Three Months
EndedJune 30, Six Months EndedJune 30,
2014 2013 2014 2013 Revenues $ 778 $
744 $ 1,560 $ 1,507 Operating profit excluding the
Venezuelan currency devaluation charge $ 31 $ 83 $ 138 $ 212
Operating profit growth excluding Venezuelan currency devaluation
charge (62.7 )% (34.9 )% Subtract: Venezuelan currency devaluation
charge 3 — 284 166
Operating profit (loss) $ 28 $ 83 $ (146 )
$ 46 Operating profit margin excluding the Venezuelan
currency devaluation charge 4.0 % 11.2 % 8.8 %
14.1 %
DIRECTV U.S. Non-GAAP Financial Measure
Reconciliation Schedules (Dollars in
Millions) (Unaudited) DIRECTV
HOLDINGS LLC (DIRECTV U.S.) Reconciliation of Pre-SAC
Margin* to Operating Profit Three Months EndedJune
30, Six Months EndedJune 30, 2014
2013 2014 2013 Operating profit $ 1,319 $
1,241 $ 2,562 $ 2,356 Adjustments: Subscriber acquisition costs
(expensed) 661 594 1,309 1,223 Depreciation and amortization 429
410 855 816 Cash paid for subscriber leased equipment - upgrade and
retention (104 ) (119 ) (214 ) (230 ) Pre-SAC Margin
$ 2,305 $ 2,126 $ 4,512 $ 4,165
Pre-SAC Margin as a percentage of revenue 36.8 %
35.8 % 36.5 % 35.5 %
Reconciliation
of Cash Flow Before Interest and Taxes2 to
Net Cash Provided by Operating
Activities
Three Months EndedJune 30, Six Months
EndedJune 30, 2014 2013 2014
2013 Cash Flow Before Interest and Taxes $ 1,236 $ 1,127 $
2,303 $ 2,119 Adjustments: Cash paid for interest (77 ) (50 ) (397
) (360 ) Interest income — 1 1 1 Income taxes paid (628 )
(502 ) (629 ) (502 ) Add Cash Paid For: Property and
equipment 183 154 327 265 Subscriber leased equipment - subscriber
acquisitions 115 151 232 325 Subscriber leased equipment - upgrade
and retention 104 119 214 230 Satellites 22 55
33 108 Net Cash Provided by Operating
Activities $ 955 $ 1,055 $ 2,084
$ 2,186 (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.
DIRECTV U.S. Non-GAAP Financial Measure
SAC Calculations(Dollars in Millions, Except Per Subscriber
Amounts)(Unaudited)
DIRECTV HOLDINGS LLC (DIRECTV U.S.) SAC
Calculation Three Months EndedJune 30,
Six Months EndedJune 30, 2014
2013 2014 2013 Subscriber acquisition
costs (expensed) $ 661 $ 594 $ 1,309 $ 1,223 Cash paid for
subscriber leased equipment - subscriber acquisitions 115
151 232 325 Total acquisition costs $
776 $ 745 $ 1,541 $ 1,548 Gross
subscriber additions (000's) 908 839 1,799 1,732 Average subscriber
acquisition costs - per subscriber (SAC) $ 855
$ 888 $ 857 $ 894
DIRECTVDarris Gringeri, (212) 205-0882Investor Relations: (310)
964-0808
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