EL SEGUNDO, Calif.--(BUSINESS WIRE)--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."
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DIRECTV'S Operational Review |
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| DIRECTV Consolidated |
Three Months Ended June 30, |
Six Months Ended June 30, |
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| 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 |
% |
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| 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.
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SEGMENT FINANCIAL REVIEW DIRECTV U.S. Segment |
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| DIRECTV U.S. |
Three Months Ended June 30, |
Six Months Ended June 30, |
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| 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.
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DIRECTV Latin America |
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| DIRECTV Latin America |
Three Months Ended June 30, |
Six Months Ended June 30, |
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| 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.
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Sky Brasil Segment |
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| Sky Brasil |
Three Months Ended June 30, |
Six Months Ended June 30, |
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| 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).
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PanAmericana and Other Segment |
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| PanAmericana and Other |
Three Months Ended June 30, |
Six Months Ended June 30, |
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| 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 Ended June 30, |
Six Months Ended June 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 Ended June 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 Ended June 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 Ended June 30, |
Six Months Ended June 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 Ended June 30, |
Six Months Ended June 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 Ended June 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 Ended June 30, |
Six Months Ended June 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 Ended June 30, |
Six Months Ended June 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 Ended June 30, |
Six Months Ended June 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 Ended June 30, |
Six Months Ended June 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 Ended June 30, |
Six Months Ended June 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 Ended June 30, |
Six Months Ended June 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 Ended June 30, |
Six Months Ended June 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 Ended June 30, |
Six Months Ended June 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 Ended June 30, |
Six Months Ended June 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 Ended June 30, |
Six Months Ended June 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 Ended June 30, |
Six Months Ended June 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 Ended June 30, |
Six Months Ended June 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 |
|||||||||||||||
| DIRECTV HOLDINGS LLC (DIRECTV U.S.) | |||||||||||||||
| SAC Calculation | |||||||||||||||
|
Three Months Ended June 30, |
Six Months Ended June 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 | |||||||
