DIRECTV Announces Third Quarter 2012 Results

Net income attributable to DIRECTV increased 6% to $2.01 billion and diluted earnings per share improved 24% to $3.06 compared with the first nine months of 2011 primarily due to the higher operating profit and a $24 million increase in equity earnings, mostly from Sky Mexico. These were partially offset by higher income tax expense principally related to the increased earnings before tax and a lower effective tax rate in 2011 resulting from foreign tax credits not previously recognized, as well as higher interest expense resulting from higher average debt balances. Also negatively impacting the 2012 comparison was a $52 million reduction in pre-tax gains resulting from the sale of investments and a $39 million increase in charges associated with the early retirement of debt. In addition, diluted earnings per share were favorably impacted by share repurchases made over the last twelve months.

Cash flow before interest and taxes increased 23% to $3.29 billion and free cash flow increased 35% to $1.74 billion compared to the first nine months of 2011 primarily due to the higher OPBDA as well as an increase in cash generated from working capital mostly related to the timing of customer receipts at DIRECTV U.S. These increases were partially offset by greater capital expenditures principally driven by increased satellite payments at both DIRECTV U.S. and DTVLA, and higher infrastructure investment at DTVLA (including $51 million towards the purchase of a building in Venezuela) partially offset by lower capital expenditures on leased equipment at DIRECTV U.S. primarily resulting from the lower gross additions. The year over year comparison also reflects decreases of $92 million and $69 million for the sale of investments and dividend receipts, respectively. In addition, free cash flow was impacted by higher interest payments related to an increase in long-term debt. Also during the first nine months of 2012 but not included in free cash flow, was cash paid for share repurchases of $3.83 billion . In addition, in March 2012 DIRECTV U.S. issued $4.0 billion of debt consisting of $1.25 billion in 2.40% Senior Notes due 2017, $1.5 billion in 3.80% Senior Notes due 2022 and $1.25 billion in 5.15% Senior Notes due 2042. In May 2012, DIRECTV redeemed $1.5 billion of its outstanding 7.625% Senior Notes due 2016. In September 2012, DIRECTV U.S. issued £750 million (~$1.2 billion) principal amount of 4.375% Senior Notes due 2029 and also entered into two senior unsecured revolving credit agreements totaling $2.5 billion to replace a $2.0 billion credit agreement that was terminated during the month. Both revolving credit agreements were undrawn as of the end of the period.

SEGMENT FINANCIAL REVIEW

DIRECTV U.S. Segment

Third Quarter Review

In the quarter, DIRECTV U.S. revenues increased 6% to $5.77 billion compared with the third quarter of 2011 primarily due to strong ARPU growth and a larger subscriber base. Net subscriber growth of 67,000 decreased from the prior year period principally due to lower gross subscriber additions as well as an increase in the average monthly churn rate. Gross additions declined mainly due to a greater focus on higher quality subscribers and stricter credit policies, as well as lower contributions from the Telco sales channel. The higher churn rate in the quarter was principally driven by a contract dispute with a large programmer that resulted in the removal of several channels for nine days in the third quarter. ARPU increased 4.6% to $96.41 mostly due to price increases on programming packages, higher advanced service fees and an additional week of NFL Sunday Ticket revenues in the quarter, partially offset by increased promotional offers to new and existing customers. DIRECTV U.S. ended the quarter with 19.98 million subscribers compared with 19.76 million subscribers reported for the quarter ended September 30, 2011.

					DIRECTV U.S.				Three Months Ended September 30,												Nine Months Ended September 30,
					Dollars in Millions except ARPU				2012						2011						2012						2011
					Revenues				$	5,769					$	5,421					$	16,915					$	15,843
					Average Monthly Revenue per Subscriber (ARPU) ($)				96.41						92.21						94.27						90.48
					Operating Profit Before Depreciation and Amortization (1)				1,251						1,153						4,246						3,962
					OPBDA Margin (1)				21.7		%				21.3		%				25.1		%				25.0		%
					Operating Profit				876						800						3,130						2,737
					Operating Profit Margin				15.2		%				14.8		%				18.5		%				17.3		%
					Capital Expenditures and Cash Flow
					Cash paid for property and equipment				137						159						377						404
					Cash paid for subscriber leased equipment - subscriber acquisitions				184						222						462						546
					Cash paid for subscriber leased equipment - upgrade and retention				79						91						209						236
					Cash paid for satellites				23						35						139						83
					Cash Flow Before Interest and Taxes (2)				861						744						3,018						2,357
					Free Cash Flow (3)				275						267						1,773						1,155
					Subscriber Data (in 000's except Churn)
					Gross Subscriber Additions				1,107						1,280						2,911						3,286
					Average Monthly Subscriber Churn				1.74		%				1.62		%				1.57		%				1.57		%
					Net Subscriber Additions				67						327						96						537
					Cumulative Subscribers				19,981						19,760						19,981						19,760

Third quarter OPBDA increased 8% to $1.25 billion and OPBDA margin improved to 21.7% principally due to lower subscriber acquisition costs related to the reduction in gross additions, reduced general and administrative expenses primarily due to lower bad debt expense and relatively unchanged retention and upgrade costs. These improvements were partially offset by higher programming costs mostly related to programming supplier rate increases, as well as an extra week of NFL Sunday Ticket expense in the quarter. Operating profit increased 10% to $876 million and operating profit margin increased to 15.2% in the third quarter mainly due to the OPBDA and OPBDA margin improvements.

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