DIRECTV Announces Third Quarter 2012 Results

BY Business Wire | 11/06/12 - 07:30 AM EST

Stock quotes in this article: DTV

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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 nearly 20 million customers in the United States and over 14.5 million customers in Latin America. DIRECTV sports and entertainment properties include three regional sports networks (Northwest, Rocky Mountain and Pittsburgh) as well as a 60 percent ownership interest in 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 September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues	$	7,416		$	6,844		$	21,686		$	19,763

Operating costs and expenses
Costs of revenues, exclusive of depreciation and amortization expense
Broadcast programming and other	3,288			2,926			9,249			8,212
Subscriber service expenses	566			500			1,592			1,415
Broadcast operations expenses	103			99			310			289
Selling, general and administrative expenses, exclusive of depreciation and amortization expense
Subscriber acquisition costs	944			962			2,549			2,524
Upgrade and retention costs	382			365			1,056			973
General and administrative expenses	447			408			1,332			1,154
Depreciation and amortization expense	618			554			1,811			1,781
Total operating costs and expenses	6,348			5,814			17,899			16,348
Operating profit	1,068			1,030			3,787			3,415
Interest income	17			9			40			25
Interest expense	(204		)	(194		)	(622		)	(569		)
Other, net	39			(38		)	13			74
Income before income taxes	920			807			3,218			2,945
Income tax expense	(348		)	(286		)	(1,189		)	(1,032		)
Net income	572			521			2,029			1,913
Less: Net income attributable to noncontrolling interest	(7		)	(5		)	(22		)	(22		)
Net income attributable to DIRECTV	$	565		$	516		$	2,007		$	1,891

Basic earnings attributable to DIRECTV per common share	$	0.91		$	0.70		$	3.08		$	2.48

Diluted earnings attributable to DIRECTV per common share	$	0.90		$	0.70		$	3.06		$	2.47

Weighted average number of common shares outstanding (in millions):
Basic	624			732			651			762
Diluted	629			737			655			767


DIRECTV
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)

ASSETS	September 30, 2012			December 31, 2011
Current assets
Cash and cash equivalents	$	2,421		$	873
Accounts receivable, net of allowances of $91 and $79	2,583			2,474
Inventories	377			280
Deferred income taxes	66			62
Prepaid expenses and other	383			552
Total current assets	5,830			4,241
Satellites, net	2,288			2,215
Property and equipment, net	5,706			5,223
Goodwill	4,066			4,097
Intangible assets, net	821			909
Investments and other assets	1,642			1,738
Total assets	$	20,353		$	18,423

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities	$	4,203		$	4,210
Unearned subscriber revenues and deferred credits	674			533
Total current liabilities	4,877			4,743
Long-term debt	17,162			13,464
Deferred income taxes	1,672			1,771
Other liabilities and deferred credits	1,377			1,287
Commitments and contingencies
Redeemable noncontrolling interest	265			265
Stockholders' deficit	(5,000		)	(3,107		)
Total liabilities and stockholders' deficit	$	20,353		$	18,423


DIRECTV
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)

	Nine Months Ended September 30,
	2012			2011
Cash Flows From Operating Activities
Net income	$	2,029		$	1,913
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	1,811			1,781
Amortization of deferred revenues and deferred credits	(54		)	(27		)
Share-based compensation expense	77			76
Equity in earnings from unconsolidated affiliates	(107		)	(83		)
Net foreign currency transaction (gain) loss	32			46
Dividends received	28			97
Gain on sale of investments	(11		)	(63		)
Deferred income taxes	41			179
Excess tax benefit from share-based compensation	(30		)	(25		)
Other	76			32
Change in other operating assets and liabilities:
Accounts receivable	15			(104		)
Inventories	(97		)	(66		)
Prepaid expenses and other	146			(140		)
Accounts payable and accrued liabilities	(143		)	(126		)
Unearned subscriber revenue and deferred credits	139			74
Other, net	181			47
Net cash provided by operating activities	4,133			3,611
Cash Flows From Investing Activities
Cash paid for property and equipment	(2,160		)	(2,160		)
Cash paid for satellites	(231		)	(156		)
Investment in companies, net of cash acquired	(4		)	(11		)
Proceeds from sale of investments	24			116
Other, net	25			41
Net cash used in investing activities	(2,346		)	(2,170		)
Cash Flows From Financing Activities
Cash proceeds from debt issuance	5,190			3,990
Debt issuance costs	(35		)	(30		)
Repayment of long-term debt	(1,500		)	(1,000		)
Proceeds from borrowings under revolving credit facility	400			—
Repayment of borrowings under revolving credit facility	(400		)	—
Repayment of short-term borrowings	—			(39		)
Repayment of other long-term obligations	(40		)	(171		)
Common shares repurchased and retired	(3,828		)	(4,366		)
Stock options exercised	2			—
Taxes paid in lieu of shares issued for share-based compensation	(58		)	(55		)
Excess tax benefit from share-based compensation	30			25
Net cash used in financing activities	(239		)	(1,646		)
Net increase in cash and cash equivalents	1,548			(205		)
Cash and cash equivalents at beginning of the period	873			1,502
Cash and cash equivalents at end of the period	$	2,421		$	1,297
Supplemental Cash Flow Information
Cash paid for interest	$	710		$	562
Cash paid for income taxes	881			853


DIRECTV
SELECTED SEGMENT DATA
(Dollars in Millions)
(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
DIRECTV U.S.
Revenues	$	5,769		$	5,421		$	16,915		$	15,843
Operating profit before depreciation and amortization ⁽¹⁾	1,251			1,153			4,246			3,962
Operating profit before depreciation and amortization 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		%
Depreciation and amortization	$	375		$	353		$	1,116		$	1,225

SKY BRASIL
Revenues	$	868		$	813		$	2,587		$	2,212
Operating profit before depreciation and amortization ⁽¹⁾	255			258			802			731
Operating profit before depreciation and amortization margin ⁽¹⁾	29.4		%	31.7		%	31.0		%	33.0		%
Operating profit	$	122		$	136		$	399		$	403
Operating profit margin	14.1		%	16.7		%	15.4		%	18.2		%
Depreciation and amortization	$	133		$	122		$	403		$	328

PANAMERICANA
Revenues	$	709		$	543		$	1,983		$	1,512
Operating profit before depreciation and amortization ⁽¹⁾	200			176			566			510
Operating profit before depreciation and amortization margin ⁽¹⁾	28.2		%	32.4		%	28.5		%	33.7		%
Operating profit	$	99		$	100		$	295		$	293
Operating profit margin	14.0		%	18.4		%	14.9		%	19.4		%
Depreciation and amortization	$	101		$	76		$	271		$	217

SPORTS NETWORKS, ELIMINATIONS and OTHER
Revenues	$	70		$	67		$	201		$	196
Operating profit (loss) before depreciation and amortization ⁽¹⁾	(20		)	(3		)	(16		)	(7		)
Operating profit (loss)	(29		)	(6		)	(37		)	(18		)
Depreciation and amortization	9			3			21			11

TOTAL
Revenues	$	7,416		$	6,844		$	21,686		$	19,763
Operating profit before depreciation and amortization ⁽¹⁾	1,686			1,584			5,598			5,196
Operating profit before depreciation and amortization margin ⁽¹⁾	22.7		%	23.1		%	25.8		%	26.3		%
Operating profit	$	1,068		$	1,030		$	3,787		$	3,415
Operating profit margin	14.4		%	15.0		%	17.5		%	17.3		%
Depreciation and amortization	$	618		$	554		$	1,811		$	1,781

⁽¹⁾ See footnote 1 above


DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions)
(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues	$	5,769		$	5,421		$	16,915		$	15,843

Operating costs and expenses
Costs of revenues, exclusive of depreciation and amortization expense
Broadcast programming and other	2,685			2,411			7,549			6,818
Subscriber service expenses	390			375			1,096			1,081
Broadcast operations expenses	74			75			229			224
Selling, general and administrative expenses, exclusive of depreciation and amortization expense
Subscriber acquisition costs	757			793			2,017			2,101
Upgrade and retention costs	340			332			930			889
General and administrative expenses	272			282			848			768
Depreciation and amortization expense	375			353			1,116			1,225
Total operating costs and expenses	4,893			4,621			13,785			13,106
Operating profit	876			800			3,130			2,737
Interest income	1			—			1			1
Interest expense	(189		)	(177		)	(577		)	(519		)
Other, net	17			6			(39		)	29
Income before income taxes	705			629			2,515			2,248
Income tax expense	(266		)	(237		)	(936		)	(848		)
Net income	$	439		$	392		$	1,579		$	1,400


DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)

ASSETS	September 30, 2012			December 31, 2011
Current assets
Cash and cash equivalents	$	692		$	232
Accounts receivable, net of allowances of $56 and $51	2,111			2,126
Inventories	341			253
Prepaid expenses and other	178			419
Total current assets	3,322			3,030
Satellites, net	1,752			1,724
Property and equipment, net	3,185			3,084
Goodwill	3,177			3,177
Intangible assets, net	456			461
Other assets	266			320
Total assets	$	12,158		$	11,796

LIABILITIES AND OWNER's DEFICIT
Current liabilities
Accounts payable and accrued liabilities	$	3,028		$	3,226
Unearned subscriber revenues and deferred credits	490			377
Total current liabilities	3,518			3,603
Long-term debt	17,162			13,464
Deferred income taxes	1,338			1,321
Other liabilities and deferred credits	336			239
Commitments and contingencies
Owner's deficit	(10,196		)	(6,831		)
Total liabilities and owner's deficit	$	12,158		$	11,796


DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)

	Nine Months Ended September 30,
	2012			2011
Cash Flows From Operating Activities
Net income	$	1,579		$	1,400
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	1,116			1,225
Amortization of deferred revenues and deferred credits	(54		)	(27		)
Share-based compensation expense	61			62
Deferred income taxes	86			281
Excess tax benefit from share-based compensation	(25		)	(21		)
Other	21			(34		)
Change in other operating assets and liabilities:
Accounts receivable	92			(42		)
Inventories	(88		)	(59		)
Prepaid expenses and other	242			(177		)
Accounts payable and accrued liabilities	(251		)	(220		)
Unearned subscriber revenue and deferred credits	111			46
Other, net	70			(10		)
Net cash provided by operating activities	2,960			2,424
Cash Flows From Investing Activities
Cash paid for property and equipment	(377		)	(404		)
Cash paid for subscriber leased equipment - subscriber acquisitions	(462		)	(546		)
Cash paid for subscriber leased equipment - upgrade and retention	(209		)	(236		)
Cash paid for satellites	(139		)	(83		)
Investment in companies, net of cash acquired	(1		)	(11		)
Proceeds from sale of investments	24			55
Other, net	(1		)	1
Net cash used in investing activities	(1,165		)	(1,224		)
Cash Flows From Financing Activities
Cash proceeds from debt issuance	5,190			3,990
Debt issuance costs	(35		)	(30		)
Repayment of long-term debt	(1,500		)	(1,000		)
Proceeds from borrowings under revolving credit facility	400			—
Repayment of borrowings under revolving credit facility	(400		)	—
Repayment of other long-term obligations	(15		)	(61		)
Cash dividend to Parent	(5,000		)	(4,000		)
Excess tax benefit from share-based compensation	25			21
Net cash used in financing activities	(1,335		)	(1,080		)
Net increase in cash and cash equivalents	460			120
Cash and cash equivalents at beginning of the period	232			687
Cash and cash equivalents at end of the period	$	692		$	807
Supplemental Cash Flow Information
Cash paid for interest	$	665		$	512
Cash paid for income taxes	581			691

Non-GAAP Financial Measure Reconciliation Schedules

(Unaudited)


DIRECTV
Reconciliation of Operating Profit Before Depreciation and Amortization to Operating Profit*
	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Operating profit before depreciation and amortization	$	1,686	$	1,584	$	5,598	$	5,196
Subtract: Depreciation and amortization	618		554		1,811		1,781
Operating profit	$	1,068	$	1,030	$	3,787	$	3,415

* 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 September 30, 2012, which is expected to be filed with the SEC in November 2012.


DIRECTV
Reconciliation of Cash Flow Before Interest and Taxes ² and Free Cash Flow ³ to Net Cash Provided by Operating Activities
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Cash Flow Before Interest and Taxes	$	957		$	788		$	3,293		$	2,685
Adjustments:
Cash paid for interest	(333		)	(252		)	(710		)	(562		)
Interest income	17			9			40			25
Income taxes paid	(322		)	(310		)	(881		)	(853		)
Subtotal - Free Cash Flow	319			235			1,742			1,295
Add Cash Paid For:
Property and equipment	743			864			2,160			2,160
Satellites	47			108			231			156
Net Cash Provided by Operating Activities	$	1,109		$	1,207		$	4,133		$	3,611


DIRECTV Latin America
Reconciliation of Cash Flow Before Interest and Taxes ² and Free Cash Flow ³ to Net Cash Provided by Operating Activities
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Cash Flow Before Interest and Taxes	$	81		$	32		$	238		$	329
Adjustments:
Cash paid for interest	(13		)	(14		)	(40		)	(42		)
Interest income	16			10			39			24
Income taxes paid	(69		)	(51		)	(242		)	(187		)
Subtotal - Free Cash Flow	15			(23		)	(5		)	124
Add Cash Paid For:
Property and equipment	40			28			167			54
Subscriber leased equipment - subscriber acquisitions	195			248			619			609
Subscriber leased equipment - upgrade and retention	107			115			324			305
Satellites	22			74			86			74
Net Cash Provided by Operating Activities	$	379		$	442		$	1,191		$	1,166

(2) and (3) - See footnotes above


DIRECTV HOLDINGS LLC (DIRECTV U.S.)
Non-GAAP Financial Measure Reconciliation and SAC Calculations
(Unaudited)
Reconciliation of Pre-SAC Margin ^* to Operating Profit
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Operating profit	$	876		$	800		$	3,130		$	2,737
Adjustments:
Subscriber acquisition costs (expensed)	757			793			2,017			2,101
Depreciation and amortization	375			353			1,116			1,225
Cash paid for subscriber leased equipment - upgrade and retention	(79		)	(91		)	(209		)	(236		)
Pre-SAC Margin	$	1,929		$	1,855		$	6,054		$	5,827
Pre-SAC Margin as a percentage of revenue	33.4		%	34.2		%	35.8		%	36.8		%

Reconciliation of Cash Flow Before Interest and Taxes ² and Free Cash Flow ³ to Net Cash Provided by Operating Activities
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Cash Flow Before Interest and Taxes	$	861		$	744		$	3,018		$	2,357
Adjustments:
Cash paid for interest	(317		)	(235		)	(665		)	(512		)
Interest income	1			—			1			1
Income taxes paid	(270		)	(242		)	(581		)	(691		)
Subtotal - Free Cash Flow	275			267			1,773			1,155
Add Cash Paid For:
Property and equipment	137			159			377			404
Subscriber leased equipment - subscriber acquisitions	184			222			462			546
Subscriber leased equipment - upgrade and retention	79			91			209			236
Satellites	23			35			139			83
Net Cash Provided by Operating Activities	$	698		$	774		$	2,960		$	2,424

(2) and (3) - See footnotes above
* Pre-SAC Margin, which is a financial measure that is not determined in accordance with accounting principles generally accepted in the United States of America, or GAAP, is calculated for DIRECTV U.S. by adding amounts under the captions “Subscriber acquisition costs” and “Depreciation and amortization expense” to “Operating Profit” from the Consolidated Statements of Operations and subtracting "Cash paid for subscriber leased equipment - upgrade and retention" from the Consolidated Statements of Cash Flows. This financial measure should be used in conjunction with GAAP financial measures and is not presented as an alternative measure of operating results, as determined in accordance with GAAP. DIRECTV management use Pre-SAC Margin to evaluate the profitability of DIRECTV U.S.' current subscriber base for the purpose of allocating resources to discretionary activities such as adding new subscribers, upgrading and retaining existing subscribers and for capital expenditures. To compensate for the exclusion of “Subscriber acquisition costs,” management also uses operating profit and operating profit before depreciation and amortization expense to measure profitability.

DIRECTV believes this measure is useful to investors, along with GAAP measures (such as revenues, operating profit and net income), to compare DIRECTV U.S.’ operating performance to other communications, entertainment and media companies. DIRECTV believes that investors also use current and projected Pre-SAC Margin to determine the ability of DIRECTV U.S.’ current and projected subscriber base to fund discretionary spending and to determine the financial returns for subscriber additions.

SAC Calculation
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Subscriber acquisition costs (expensed)	$	757		$	793		$	2,017		$	2,101
Cash paid for subscriber leased equipment - subscriber acquisitions	184			222			462			546
Total acquisition costs	$	941		$	1,015		$	2,479		$	2,647
Gross subscriber additions (000's)	1,107			1,280			2,911			3,286
Average subscriber acquisition costs - per subscriber (SAC)	$	850		$	793		$	852		$	806

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