DIRECTV Announces Third Quarter 2014 Results

DIRECTV Revenues Grow 6% to $8.4 Billion.

  • Revenue driven by DIRECTV U.S. ARPU growth of 4.8% along with DIRECTV Latin America subscriber growth over the last year.

DIRECTV Adjusted OPBDA Increases 5% to $2.0 Billion; Reported OPBDA Grows 2% to $2.0 Billion.

  • DIRECTV U.S. improves OPBDA margin 120 basis points driving a 11% increase in OPBDA.

DIRECTV Free Cash Flow Increases 45% to Over $2.3 Billion Year To Date.

EL SEGUNDO, Calif.--()--DIRECTV (NASDAQ:DTV) today announced that third quarter 2014 revenues increased 6% to $8.37 billion, adjusted operating profit before depreciation and amortization1 (OPBDA) and adjusted operating profit both increased 5% to $2.04 billion and $1.28 billion, respectively, and adjusted diluted earnings per share increased 4% to $1.33 compared to last year's third quarter. Adjusted financial results exclude a pre-tax charge of $62 million in the third quarter of 2014 resulting from the revaluation of the net monetary assets of the company's subsidiary in Venezuela. Reported OPBDA increased 2% to $1.98 billion, reported operating profit was relatively unchanged at $1.22 billion and reported diluted earnings per share declined to $1.21 compared to last year's third quarter.

“Our third quarter financial results continue to demonstrate the strong execution of our operations,” said Mike White, President and CEO of DIRECTV. “In the U.S., although competition for subscribers continues to be intense, revenue growth was very solid while operating profit before depreciation and amortization margin expanded year-over-year for the fifth consecutive quarter, highlighting our commitment to profitably grow our businesses through disciplined subscriber acquisitions and expense management, as well as smart pricing.” White added, “In Latin America, due to challenging macroeconomic and foreign exchange headwinds, we continue to focus on local currency performance which has allowed us to profitably grow our businesses, as well as begin generating positive cash flow in the region - one of our primary goals for the year.”

           

DIRECTV'S Operational Review

 
DIRECTV Consolidated Three Months Ended
September 30,
      Nine Months Ended
September 30,
Dollars in Millions except Earnings per Common Share       2014         2013       2014         2013
Reported Financial Results                                            
Revenues       $ 8,374           $ 7,880         $ 24,338           $ 23,160  
Reported Operating Profit Before Depreciation and Amortization(1) 1,977         1,933 6,071         5,934
Reported OPBDA Margin(1)       23.6 %         24.5 %       24.9 %         25.6 %
Reported Operating Profit 1,222 1,225 3,873 3,817
Reported Operating Profit Margin       14.6 %         15.5 %       15.9 %         16.5 %
Reported Net Income Attributable to DIRECTV       611           699         1,978           2,049  
Reported Diluted Earnings Per Common Share       $ 1.21           $ 1.28         $ 3.88           $ 3.65  
Capital Expenditures and Cash Flow                                            
Cash Paid for Property and Equipment       256           218         710           563  
Cash Paid for Subscriber Leased Equipment - Subscriber Acquisitions       327           418         872           1,190  
Cash Paid for Subscriber Leased Equipment - Upgrade and Retention       207           255         625           718  
Cash Paid for Satellites       80           82         189           276  
Cash Flow Before Interest and Taxes(2)       1,514           1,085         4,207           3,371  
Free Cash Flow(3)       792           372         2,330           1,608  
Venezuela Currency Charge Impact On(4):                                            
Operating Profit Before Depreciation and Amortization       (62 )                 (346 )         (166 )
Operating Profit       (62 )                 (346 )         (166 )
Net Income Attributable to DIRECTV       (62 )                 (346 )         (136 )
Diluted Earnings Per Common Share       $ (0.12 )         $         $ (0.68 )         $ (0.24 )
Adjusted Financial Results                                            
Adjusted Operating Profit Before Depreciation and Amortization(1) 2,039 1,933 6,417 6,100
Adjusted OPBDA Margin(1)       24.3 %         24.5 %       26.4 %         26.3 %
Adjusted Operating Profit 1,284 1,225 4,219 3,983
Adjusted Operating Profit Margin       15.3 %         15.5 %       17.3 %         17.2 %
Adjusted Net Income Attributable to DIRECTV       673           699         2,324           2,185  
Adjusted Diluted Earnings Per Common Share       $ 1.33           $ 1.28         $ 4.56           $ 3.89  
 

"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.

Third Quarter Review

DIRECTV's third quarter revenues increased 6% to $8.37 billion principally due to strong ARPU growth at DIRECTV U.S. as well as subscriber growth at DIRECTV Latin America (DTVLA) over the last twelve months. These increases were partially offset by lower ARPU at DTVLA due to unfavorable changes in exchange rates.

Adjusted OPBDA and adjusted operating profit both increased 5% to $2.04 billion and $1.28 billion, respectively, compared to the third quarter of 2013. Adjusted OPBDA margin and adjusted operating profit margin both declined slightly to 24.3% and 15.3%, respectively, as higher margin at DIRECTV U.S. was more than offset by a decline in margin at DTVLA primarily due to the favorable ECAD settlement in the prior year period discussed below, as well as $19 million of transaction related costs in the current quarter. Reported OPBDA increased 2% to $1.98 billion and reported operating profit was relatively unchanged at $1.22 billion in the third quarter.

In the third quarter of 2013, DTVLA settled a fee dispute and paid $92 million to Escritório Central de Arrecadação e Distribuição, or ECAD, the organization in Brazil responsible for collecting performance rights fees under Brazilian law. The settlement resulted in a $128 million pre-tax gain for the reversal of amounts previously expensed. The gain was comprised of a reduction in "Broadcast Programming and Other" of $70 million, a reduction in "Interest Expense" of $37 million and $21 million in "Other, net" in the Consolidated Statements of Operations.

Third quarter adjusted net income attributable to DIRECTV declined to $673 million, as the higher adjusted operating profit was more than offset by the impact of the favorable ECAD settlement in the prior year period. Adjusted diluted earnings per share grew 4% to $1.33 in the quarter due to the impact of share repurchases made prior to the announcement of the pending transaction with AT&T. Reported net income attributable to DIRECTV decreased to $611 million and reported diluted earnings per share declined to $1.21.

Cash flow before interest and taxes2 increased 40% to $1.51 billion compared to the third 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 primarily related to declining set-top box costs and the timing of purchases at DTVLA. The cash flow before interest and taxes comparison was also favorably impacted by the $92 million payment to settle the ECAD dispute in the third quarter of 2013. Free cash flow3 more than doubled to $792 million compared to the third quarter of 2013, as the higher cash flow before interest and taxes was slightly offset by an increase in income tax payments mainly due to the timing of payments.

Year to Date Review

DIRECTV's revenues for the first nine months of 2014 of $24.34 billion increased 5% principally due to higher ARPU at DIRECTV U.S. as well as subscriber growth over the last year at DTVLA. These increases were partially offset by lower ARPU at DTVLA primarily due to unfavorable changes in exchange rates.

Adjusted OPBDA increased 5% to $6.42 billion and adjusted operating profit increased 6% to $4.22 billion compared with the same period of 2013. Adjusted OPBDA margin expanded slightly from 26.3% to 26.4% and adjusted operating profit margin increased slightly from 17.2% to 17.3% in the period as the higher margin at DIRECTV U.S. was mostly offset by a decline in margin at DTVLA primarily due to the favorable ECAD settlement in the prior year period and costs associated with the FIFA World Cup in 2014. Also impacting the comparison was $39 million of transaction related costs in 2014. Reported OPBDA increased 2% to $6.07 billion and reported operating profit increased 1% to $3.87 billion in the first nine months of 2014.

Adjusted net income attributable to DIRECTV increased 6% to $2.32 billion compared with the first nine 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 $34 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. Also impacting the comparison was the favorable ECAD settlement in the prior year period and an increase in income tax expense mostly related to higher earnings before taxes. Adjusted diluted earnings per share improved 17% to $4.56 due to the higher adjusted net income, as well as the impact of share repurchases made prior to the announcement of the proposed transaction with AT&T. Reported net income attributable to DIRECTV decreased to $1.98 billion while reported diluted earnings per share improved 6% to $3.88.

Cash flow before interest and taxes increased 25% to $4.21 billion compared to the first nine months of 2013 primarily due to the higher OPBDA along with a reduction in cash paid for leased equipment related to declining equipment costs at DIRECTV U.S. and DTVLA, higher usage of refurbished set-top boxes at DIRECTV U.S. and lower post-paid gross additions at DTVLA. The cash flow before interest and taxes comparison was also favorably impacted by lower satellite payments at DIRECTV U.S. and the $92 million payment to settle the ECAD dispute in the third quarter of 2013. Free cash flow grew 45% to $2.33 billion compared to the first nine months of 2013, as the higher cash flow before interest and taxes was partially offset by an increase in income tax payments primarily related to higher earnings before taxes.

Also during the first nine months 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 $383 million reduction in DIRECTV’s cash balance resulting from the devaluation of the Venezuelan bolivar denominated cash balances in 2014.

           

SEGMENT FINANCIAL REVIEW

 

DIRECTV U.S. Segment

 
DIRECTV U.S. Three Months Ended
September 30,
      Nine Months Ended
September 30,
Dollars in Millions except ARPU       2014         2013       2014         2013
Reported Financial Results                                            
Revenues       $ 6,506           $ 6,170         $ 18,865           $ 17,903  
Average Monthly Revenue per Subscriber (ARPU) ($)       107.27           102.37         103.57           99.00  
Operating Profit Before Depreciation and Amortization(1) 1,548         1,396 4,965         4,568
OPBDA Margin(1)       23.8 %         22.6 %       26.3 %         25.5 %
Operating Profit 1,113 987 3,675 3,343
Operating Profit Margin       17.1 %         16.0 %       19.5 %         18.7 %
Capital Expenditures and Cash Flow                                            
Cash Paid for Property and Equipment       187           155         514           420  
Cash Paid for Subscriber Leased Equipment - Subscriber Acquisitions       143           190         375           515  
Cash Paid for Subscriber Leased Equipment - Upgrade and Retention       134           162         348           392  
Cash Paid for Satellites       19           46         52           154  
Cash Flow Before Interest and Taxes(2)       1,302           1,060         3,605           3,179  
Subscriber Data (in 000's except Churn)                                            
Gross Subscriber Additions       1,023           1,109         2,822           2,841  
Average Monthly Subscriber Churn       1.73 %         1.61 %       1.58 %         1.53 %
Net Subscriber Additions (Disconnections)       (28 )         139         (50 )         76  
Cumulative Subscribers       20,203           20,160         20,203           20,160  
 

Third Quarter Review

In the third quarter, DIRECTV U.S. revenues increased 5% to $6.51 billion compared with the third quarter of 2013 primarily due to strong ARPU growth of 4.8%. The improvement in ARPU to $107.27 was driven by price increases on programming packages, higher advanced receiver service fees, increased ad sales, higher fees for the enhanced warranty program and increased commercial business revenues. These improvements were partially offset by increased promotional offers to existing customers and lower revenue from pay-per-view events.

DIRECTV U.S. subscriber net losses were approximately 28,000 in the third quarter of 2014 compared to subscriber net additions of 139,000 in the prior year period. The change was primarily due to a decrease in gross additions resulting mainly from stricter credit policies, as well as a higher average monthly churn rate of 1.73% principally resulting from a more competitive environment and subscribers rolling off larger average promotional offers. DIRECTV U.S. ended the quarter with 20.20 million subscribers.

Third quarter OPBDA increased 11% to $1.55 billion and OPBDA margin improved from 22.6% to 23.8% principally due to higher revenues combined with lower upgrade and retention expenses mostly related to reduced equipment costs, as well as relatively unchanged subscriber service expense. Also contributing to the margin improvement was slower relative growth in subscriber acquisition costs mainly associated with the decrease in gross additions. Operating profit increased 13% to $1.11 billion and operating profit margin improved from 16.0% to 17.1% in the third quarter mainly due to the higher OPBDA and OPBDA margin.

           

DIRECTV Latin America

 
DIRECTV Latin America Three Months Ended
September 30,
      Nine Months Ended
September 30,
Dollars in Millions except ARPU       2014         2013       2014         2013
Reported Financial Results                                            
Revenues       $ 1,820           $ 1,662         $ 5,330           $ 5,076  
Average Monthly Revenue per Subscriber (ARPU) ($)       48.88           49.42         49.02           51.68  
Reported Operating Profit Before Depreciation and Amortization(1) 453         558 1,150         1,393
Reported OPBDA Margin(1)       24.9 %         33.6 %       21.6 %         27.4 %
Reported Operating Profit 137 262 253 518
Reported Operating Profit Margin       7.5 %         15.8 %       4.7 %         10.2 %
Capital Expenditures and Cash Flow                                            
Cash Paid for Property and Equipment       69           62         195           142  
Cash Paid for Subscriber Leased Equipment - Subscriber Acquisitions       184           228         497           675  
Cash Paid for Subscriber Leased Equipment - Upgrade and Retention       73           93         277           326  
Cash Paid for Satellites       55           32         120           112  
Cash Flow Before Interest and Taxes(2)       250           53         604           162  
Subscriber Data (in 000's except Churn)                                            
Gross Subscriber Additions(6)       993           1,023         3,415           3,393  
Average Monthly Total Subscriber Churn(5)       2.99 %         2.27 %       2.42 %         2.43 %
Average Monthly Post-paid Subscriber Churn(5)       2.06 %         1.93 %       1.94 %         2.18 %
Net Subscriber Additions (Disconnections)(5)(6)       (119 )         260         785           1,008  
Cumulative Subscribers (5) (6)       12,353           11,337         12,353           11,337  
Venezuela Currency Charge Impact On(4):                                            
Operating Profit Before Depreciation and Amortization       (62 )                 (346 )         (166 )
Operating Profit       (62 )                 (346 )         (166 )
Adjusted Financial Results                                            
Adjusted Operating Profit Before Depreciation and Amortization(1) 515 558 1,496 1,559
Adjusted OPBDA Margin(1)       28.3 %         33.6 %       28.1 %         30.7 %
Adjusted Operating Profit 199 262 599 684
Adjusted Operating Profit Margin       10.9 %         15.8 %       11.2 %         13.5 %
 

"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 6.52 million subscribers as of September 30, 2014, bringing the total subscribers in the region to 18.87 million.

           

Sky Brasil Segment

 
Sky Brasil Three Months Ended
September 30,
      Nine Months Ended
September 30,
Dollars in Millions except ARPU       2014         2013       2014         2013
Reported Financial Results                                            
Revenues       $ 1,014           $ 883         $ 2,964           $ 2,790  
Average Monthly Revenue per Subscriber (ARPU) ($)       60.00           56.50         59.57           59.90  
Operating Profit Before Depreciation and Amortization(1) 307         353 907         926
OPBDA Margin(1)       30.3 %         40.0 %       30.6 %         33.2 %
Operating Profit 118 169 380 379
Operating Profit Margin       11.6 %         19.1 %       12.8 %         13.6 %
Other Data                                            
Total Capital Expenditures       254           222         644           692  
Net Subscriber Additions(5)(6) (in 000's)       27           88         273           216  
Cumulative Subscribers(5)(6) (in 000's)       5,644           5,255         5,644           5,255  
 

Third Quarter Review

Excluding changes in foreign exchange rates, Sky Brasil's third quarter revenues grew 14% versus the prior year period driven by an 8% increase in the average number of subscribers and a 5% increase in local currency ARPU. The increase in local currency ARPU was principally due to a reduction in credits to existing subscribers. When factoring in changes in foreign exchange rates, Sky Brasil's revenues increased 15% to $1.01 billion and ARPU improved 6% to $60.00 compared to the third quarter of 2013.

Third quarter net subscriber additions of approximately 27,000 declined compared to the prior year period, as improved gross additions were more than offset by the impact of increased churn associated with a reduction in credits to existing customers and the introduction of a prepaid service in the fourth quarter of 2013.

Excluding the impact of the favorable ECAD settlement in the third quarter of 2013, Sky Brasil OPBDA increased 8% to $307 million, while OPBDA margin declined from 32.0% to 30.3%. The decline in OPBDA margin was principally due to increased expenses related to customer service and systems initiatives. Also excluding the impact of the favorable ECAD settlement, operating profit increased 19% to $118 million and operating profit margin increased from 11.2% to 11.6%. Operating profit margin improved as the decline in OPBDA margin was more than offset by the impact of relatively unchanged depreciation expense.

           

 

PanAmericana and Other Segment

 
PanAmericana and Other Three Months Ended
September 30,
      Nine Months Ended
September 30,
Dollars in Millions except ARPU       2014         2013       2014         2013
Reported Financial Results                                            
Revenues       $ 806           $ 779         $ 2,366           $ 2,286  
Average Monthly Revenue per Subscriber (ARPU) ($)       39.64           43.07         40.12           44.27  
Reported Operating Profit Before Depreciation and Amortization(1) 146         205 243         467
Reported OPBDA Margin(1)       18.1 %         26.3 %       10.3 %         20.4 %
Reported Operating Profit (Loss) 19 93 (127 ) 139
Reported Operating Profit Margin       2.4 %         11.9 %       NM*         6.1 %
Other Data                                            
Total Capital Expenditures       127           193         445           563  
Net Subscriber Additions (Disconnections) (in 000's)       (146 )         172         512           792  
Cumulative Subscribers (in 000's)       6,709           6,082         6,709           6,082  
Venezuela Currency Charge Impact On(4):                                            
Operating Profit Before Depreciation and Amortization       (62 )                 (346 )         (166 )
Operating Profit       (62 )                 (346 )         (166 )
Adjusted Financial Results                                            
Adjusted Operating Profit Before Depreciation and Amortization(1) 208 205 589 633
Adjusted OPBDA Margin(1)       25.8 %         26.3 %       24.9 %         27.7 %
Adjusted Operating Profit 81 93 219 305
Adjusted Operating Profit Margin       10.0 %         11.9 %       9.3 %         13.3 %
 

* 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.

Third Quarter Review

Excluding changes in foreign exchange rates, third quarter revenues in the PanAmericana and Other segment grew 45% versus the prior year period driven by a 13% increase in the average number of subscribers and a 28% 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 3% to $806 million compared to the third quarter of 2013, while ARPU decreased 8.0% to $39.64.

Subscriber net losses were approximately 146,000 in the third quarter of 2014 compared to subscriber net additions of 172,000 in the prior year period. The change was primarily due to lower prepaid reconnection rates following the completion of the FIFA World Cup tournament.

Also in the third quarter, adjusted OPBDA in the PanAmericana and Other segment increased slightly to $208 million while adjusted OPBDA margin declined to 25.8%. The decline in adjusted OPBDA margin was primarily driven by higher programming costs in Venezuela and increased subscriber acquisition costs mostly due to inflationary pressure on labor costs. In addition, adjusted operating profit decreased to $81 million and adjusted operating profit margin declined to 10.0% mainly due to the impact of higher depreciation and amortization resulting from leased equipment and infrastructure capital expenditures made over the last year. Reported OPBDA and reported operating profit decreased to $146 million and $19 million, respectively.

CONFERENCE CALL INFORMATION

A live webcast of DIRECTV's third 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, November 6, 2014. Access to the earnings call is also available in the United States by dialing (888) 715-1393 and internationally by dialing (913) 312-1466. The conference ID number is 5606519. A replay will also be archived on our website at investor.directv.com beginning November 7, 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 at that date. 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. As of June 30, 2014 and September 30, 2014, the period-end rates based on the latest auctions were 10.6 and 12.0 bolivars per U.S. dollar, respectively.

(5) Based on the results of an internal investigation, DTVLA determined that, beginning in 2012, certain employees of Sky Brasil directed activities which were inconsistent with Sky Brasil's authorized policies for subscriber retention and churn management. These activities had the effect of artificially reducing churn and increasing the Sky Brasil subscriber base during portions of 2012 and the first quarter of 2013. See DIRECTV's Current Report on Form 8-K filed with the SEC on June 27, 2013 for further details. Prior year results for subscribers, churn and ARPU have not been adjusted for the findings of this investigation.

(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 nine months ended September 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 nearly 19 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
September 30,
Nine Months Ended
September 30,
2014         2013 2014         2013
Revenues       $ 8,374           $ 7,880           $ 24,338           $ 23,160  
Operating costs and expenses
Costs of revenues, exclusive of depreciation and amortization expense
Broadcast programming and other 3,732 3,441 10,613 9,912
Subscriber service expenses 608 583 1,733 1,674
Broadcast operations expenses 108 98 312 305
Selling, general and administrative expenses, exclusive of depreciation and amortization expense
Subscriber acquisition costs 980 941 2,705 2,564
Upgrade and retention costs 398 411 1,081 1,153
General and administrative expenses 571 473 1,542 1,452
Venezuelan currency devaluation charge 281 166
Depreciation and amortization expense       755           708           2,198           2,117  
Total operating costs and expenses       7,152           6,655           20,465           19,343  
Operating profit 1,222 1,225 3,873 3,817
Interest income 18 15 43 56
Interest expense (215 ) (182 ) (677 ) (618 )
Other, net       1           43           93           6  
Income before income taxes 1,026 1,101 3,332 3,261
Income tax expense       (411 )         (391 )         (1,338 )         (1,192 )
Net income 615 710 1,994 2,069
Less: Net income attributable to noncontrolling interest       (4 )         (11 )         (16 )         (20 )
Net income attributable to DIRECTV       $ 611           $ 699           $ 1,978           $ 2,049  
Basic earnings attributable to DIRECTV per common share $ 1.22 $ 1.29 $ 3.92 $ 3.68
Diluted earnings attributable to DIRECTV per common share $ 1.21 $ 1.28 $ 3.88 $ 3.65
Weighted average number of common shares outstanding (in millions):
Basic 502 541 505 557
Diluted 507 545 510 562
 
 

                 
DIRECTV
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)
 
ASSETS       September 30, 2014             December 31, 2013
Current assets
Cash and cash equivalents $ 2,898 $ 2,180
Accounts receivable, net of allowances of $118 and $95 2,485 2,547
Inventories 269 283
Deferred income taxes 115 140
Prepaid expenses and other       748               803  
Total current assets 6,515 5,953
Satellites, net 2,485 2,467
Property and equipment, net 6,785 6,650
Goodwill 3,955 3,970
Intangible assets, net 883 920
Investments and other assets       1,971               1,945  
Total assets       $ 22,594               $ 21,905  
 
LIABILITIES AND STOCKHOLDERS' DEFICIT                          
Current liabilities
Accounts payable and accrued liabilities $ 4,268 $ 4,685
Unearned subscriber revenues and deferred credits 765 589
Current debt       1,439               1,256  
Total current liabilities 6,472 6,530
Long-term debt 18,311 18,284
Deferred income taxes 1,759 1,804
Other liabilities and deferred credits 1,609 1,456
Commitments and contingencies
Redeemable noncontrolling interest 375
Total stockholders' deficit       (5,557 )             (6,544 )
Total liabilities and stockholders' deficit       $ 22,594               $ 21,905  
 
 

                     
DIRECTV
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Nine Months Ended
September 30,
        2014                 2013
Cash Flows From Operating Activities
Net income $ 1,994 $ 2,069
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 2,198 2,117
Venezuelan currency devaluation charge 281 166
DSN Northwest deconsolidation charge 59
Amortization of deferred revenues and deferred credits (37 ) (40 )
Share-based compensation expense 70 79
Equity in earnings from unconsolidated affiliates (99 ) (86 )
Net foreign currency exchange and transaction losses 73 42
Dividends received 2 38
Net gains from sale of investments (18 ) (8 )
Deferred income taxes 116 (19 )
Excess tax benefit from share-based compensation (23 ) (24 )
Other 56 (91 )
Change in other operating assets and liabilities:
Accounts receivable 129 200
Inventories 14 53
Prepaid expenses and other 40 9
Accounts payable and accrued liabilities (399 ) (477 )
Unearned subscriber revenue and deferred credits 176 152
Other, net       153                   116  
Net cash provided by operating activities       4,726                   4,355  
Cash Flows From Investing Activities
Cash paid for property and equipment (2,207 ) (2,471 )
Cash paid for satellites (189 ) (276 )
Investment in companies, net of cash acquired (14 ) (47 )
Proceeds from sale of investments 30 140
Other, net       (4 )                 (158 )
Net cash used in investing activities       (2,384 )                 (2,812 )
 
 

                     
DIRECTV
CONSOLIDATED STATEMENTS OF CASH FLOWS-(continued)
(Dollars in Millions)
(Unaudited)
 
Nine Months Ended
September 30,
        2014                 2013
Cash Flows From Financing Activities
Issuance of commercial paper (maturity 90 days or less), net 90
Proceeds from short-term borrowings 300 441
Repayment of short-term borrowings (371 ) (327 )
Proceeds from borrowings under revolving credit facility 10
Repayment of borrowings under revolving credit facility (10 )
Proceeds from long-term debt 1,406 1,484
Debt issuance costs (7 ) (8 )
Repayment of long-term debt (1,044 ) (9 )
Repayment of other long-term obligations (50 ) (48 )
Common shares repurchased and retired (1,386 ) (3,228 )
Stock options exercised 10
Taxes paid in lieu of shares issued for share-based compensation (58 ) (61 )
Excess tax benefit from share-based compensation 23 24
Other, net       (64 )                 6  
Net cash used in financing activities       (1,241 )                 (1,636 )
Effect of exchange rate changes on Venezuelan cash and cash equivalents       (383 )                 (187 )
Net increase (decrease) in cash and cash equivalents 718 (280 )
Cash and cash equivalents at beginning of the period       2,180                   1,902  
Cash and cash equivalents at end of the period       $ 2,898                   $ 1,622  
Supplemental Cash Flow Information
Cash paid for interest $ 786 $ 784
Cash paid for income taxes 1,134 1,035
 
 

                             
DIRECTV
SELECTED SEGMENT DATA
(Dollars in Millions)
(Unaudited)
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
        2014         2013         2014         2013
DIRECTV U.S.
Revenues $ 6,506 $ 6,170 $ 18,865 $ 17,903
Operating profit before depreciation and amortization(1) 1,548 1,396 4,965 4,568
Operating profit before depreciation and amortization margin(1) 23.8 % 22.6 % 26.3 % 25.5 %
Operating profit $ 1,113 $ 987 $ 3,675 $ 3,343
Operating profit margin 17.1 % 16.0 % 19.5 % 18.7 %
Depreciation and amortization       $ 435           $ 409           $ 1,290           $ 1,225  
 
SKY BRASIL
Revenues $ 1,014 $ 883 $ 2,964 $ 2,790
Operating profit before depreciation and amortization(1) 307 353 907 926
Operating profit before depreciation and amortization margin(1) 30.3 % 40.0 % 30.6 % 33.2 %
Operating profit $ 118 $ 169 $ 380 $ 379
Operating profit margin 11.6 % 19.1 % 12.8 % 13.6 %
Depreciation and amortization       $ 189           $ 184           $ 527           $ 547  
 
PANAMERICANA AND OTHER
Revenues $ 806 $ 779 $ 2,366 $ 2,286
Operating profit before depreciation and amortization (1) 146 205 243 467
Operating profit before depreciation and amortization margin(1) 18.1 % 26.3 % 10.3 % 20.4 %
Operating profit (loss) $ 19 $ 93 $ (127 ) $ 139
Operating profit margin 2.4 % 11.9 % *NM 6.1 %
Depreciation and amortization       $ 127           $ 112           $ 370           $ 328  
 
SPORTS NETWORKS, ELIMINATIONS AND OTHER
Revenues $ 48 $ 48 $ 143 $ 181
Operating loss before depreciation and amortization(1) (24 ) (21 ) (44 ) (27 )
Operating loss (28 ) (24 ) (55 ) (44 )
Depreciation and amortization       4           3           11           17  
 
TOTAL
Revenues $ 8,374 $ 7,880 $ 24,338 $ 23,160
Operating profit before depreciation and amortization(1) 1,977 1,933 6,071 5,934
Operating profit before depreciation and amortization margin(1) 23.6 % 24.5 % 24.9 % 25.6 %
Operating profit $ 1,222 $ 1,225 $ 3,873 $ 3,817
Operating profit margin 14.6 % 15.5 % 15.9 % 16.5 %
Depreciation and amortization       $ 755           $ 708           $ 2,198           $ 2,117  
* Percentage not meaningful
 
 

               
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions)
(Unaudited)
             
Three Months Ended
September 30,
Nine Months Ended
September 30,
2014         2013 2014         2013
Revenues       $ 6,506           $ 6,170           $ 18,865           $ 17,903  
Operating costs and expenses
Costs of revenues, exclusive of depreciation and amortization expense
Broadcast programming and other 3,057 2,904 8,625 8,147
Subscriber service expenses 397 391 1,130 1,102
Broadcast operations expenses 74 68 221 220
Selling, general and administrative expenses, exclusive of depreciation and amortization expense
Subscriber acquisition costs 776 756 2,085 1,979
Upgrade and retention costs 347 359 942 1,002
General and administrative expenses 307 296 897 885
Depreciation and amortization expense       435           409           1,290           1,225  
Total operating costs and expenses       5,393           5,183           15,190           14,560  
Operating profit 1,113 987 3,675 3,343
Interest income 1 1 2 2
Interest expense (204 ) (207 ) (650 ) (615 )
Other, net       5           6           5           22  
Income before income taxes 915 787 3,032 2,752
Income tax expense       (336 )         (302 )         (1,124 )         (1,031 )
Net income       $ 579           $ 485           $ 1,908           $ 1,721  
 
 

                 
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)
 
ASSETS       September 30, 2014             December 31, 2013
Current assets
Cash and cash equivalents $ 1,365 $ 797
Accounts receivable, net of allowances of $77 and $59 2,045 2,103
Inventories 242 249
Prepaid expenses and other       448               494  
Total current assets 4,100 3,643
Satellites, net 1,747 1,810
Property and equipment, net 3,833 3,724
Goodwill 3,191 3,191
Intangible assets, net 514 527
Other assets       498               551  
Total assets       $ 13,883               $ 13,446  
 
LIABILITIES AND OWNER'S DEFICIT                          
Current liabilities
Accounts payable and accrued liabilities $ 3,236 $ 3,695
Unearned subscriber revenues and deferred credits 558 380
Current debt       1,329               1,200  
Total current liabilities 5,123 5,275
Long-term debt 18,167 18,203
Deferred income taxes 1,597 1,641
Other liabilities and deferred credits 773 595
Commitments and contingencies
Owner's deficit       (11,777 )             (12,268 )
Total liabilities and owner's deficit       $ 13,883               $ 13,446  
 
 

                     
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
 
Nine Months Ended
September 30,
        2014                 2013
Cash Flows From Operating Activities
Net income $ 1,908 $ 1,721
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 1,290 1,225
Amortization of deferred revenues and deferred credits (37 ) (40 )
Share-based compensation expense 55 60
Deferred income taxes 95 128
Excess tax benefit from share-based compensation (18 ) (20 )
Other (3 ) 4
Change in other operating assets and liabilities:
Accounts receivable 136 127
Inventories 7 66
Prepaid expenses and other 42 67
Accounts payable and accrued liabilities (499 ) (385 )
Unearned subscriber revenue and deferred credits 178 153
Other, net       50                   37  
Net cash provided by operating activities       3,204                   3,143  
Cash Flows From Investing Activities
Cash paid for property and equipment (514 ) (420 )
Cash paid for subscriber leased equipment - subscriber acquisitions (375 ) (515 )
Cash paid for subscriber leased equipment - upgrade and retention (348 ) (392 )
Cash paid for satellites (52 ) (154 )
Investment in companies, net of cash acquired (1 ) (38 )
Proceeds from sale of investments 16 12
Other, net                         (67 )
Net cash used in investing activities       (1,274 )                 (1,574 )
Cash Flows From Financing Activities
Issuance of commercial paper (maturity 90 days or less), net 90
Proceeds from short-term borrowings 300 441
Repayment of short-term borrowings (371 ) (327 )
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 ) (8 )
Repayment of long-term debt (1,000 )
Repayment of other long-term obligations (21 ) (18 )
Cash dividends paid to Parent (1,500 ) (3,200 )
Excess tax benefit from share-based compensation 18 20
Other, net       (26 )                 6  
Net cash used in financing activities       (1,362 )                 (1,606 )
Net increase (decrease) in cash and cash equivalents 568 (37 )
Cash and cash equivalents at beginning of the period       797                   739  
Cash and cash equivalents at end of the period       $ 1,365                   $ 702  
Supplemental Cash Flow Information
Cash paid for interest $ 765 $ 733
Cash paid for income taxes 927 786
 
 

 
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
September 30,
      Nine Months Ended
September 30,
2014       2013 2014       2013
Cash Flow Before Interest and Taxes $ 1,514       $ 1,085 $ 4,207       $ 3,371
Adjustments:
Cash paid for interest (373 ) (395 ) (786 ) (784 )
Interest income 18 15 43 56
Income taxes paid       (367 )       (333 )       (1,134 )       (1,035 )
Subtotal - Free Cash Flow 792 372 2,330 1,608
Add Cash Paid For:
Property and equipment 790 891 2,207 2,471
Satellites 80         82   189         276  
Net Cash Provided by Operating Activities $ 1,662         $ 1,345   $ 4,726         $ 4,355  
(2) and (3) - See footnotes above
 
 
Reconciliation of Reported Operating Profit Before Depreciation and Amortization to Operating Profit*
      Three Months Ended
September 30,
      Nine Months Ended
September 30,
2014       2013 2014       2013
Operating profit before depreciation and amortization $ 1,977       $ 1,933 $ 6,071       $ 5,934
Subtract: Depreciation and amortization 755         708   2,198         2,117
Operating profit $ 1,222         $ 1,225   $ 3,873         $ 3,817
                                       
* 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, 2014, which is expected to be filed with the SEC in November 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
September 30,
      Nine Months Ended
September 30,
2014       2013 2014       2013
Revenues $ 8,374       $ 7,880 $ 24,338       $ 23,160
 
Operating profit before depreciation and amortization excluding the Venezuelan currency devaluation charge $ 2,039 $ 1,933 $ 6,417 $ 6,100
OPBDA growth excluding Venezuelan currency devaluation charge 5.5 % 5.2 %
Subtract: Venezuelan currency devaluation charge 62           346         166  
Operating profit before depreciation and amortization 1,977 1,933 6,071 5,934
Subtract: Depreciation and amortization 755         708   2,198         2,117  
Operating profit $ 1,222         $ 1,225   $ 3,873         $ 3,817  
Operating profit before depreciation and amortization margin excluding the Venezuelan currency devaluation charge       24.3 %       24.5 %       26.4 %       26.3 %
 
Reconciliation of Adjusted Operating Profit (excluding the Venezuelan currency devaluation charge) to Operating Profit
      Three Months Ended
September 30,
      Nine Months Ended
September 30,
2014       2013 2014       2013
Revenues $ 8,374       $ 7,880 $ 24,338       $ 23,160
 
Operating profit excluding the Venezuelan currency devaluation charge $ 1,284 $ 1,225 $ 4,219 $ 3,983
Operating profit growth excluding Venezuelan currency devaluation charge 4.8 % 5.9 %
Subtract: Venezuelan currency devaluation charge 62           346         166  
Operating profit $ 1,222         $ 1,225   $ 3,873         $ 3,817  
Operating profit margin excluding the Venezuelan currency devaluation charge       15.3 %       15.5 %       17.3 %       17.2 %
 
Reconciliation of Adjusted Net Income (excluding the Venezuelan currency devaluation charge) to Net Income
      Three Months Ended
September 30,
      Nine Months Ended
September 30,
2014       2013 2014       2013
Net income attributable to DIRECTV excluding the Venezuelan currency devaluation charge $ 673       $ 699 $ 2,324       $ 2,185
Subtract: Venezuelan after-tax currency devaluation charge 62           346         136
Net income attributable to DIRECTV $ 611         $ 699   $ 1,978         $ 2,049
Net income growth excluding Venezuelan currency devaluation charge (3.7 )% 6.4 %
Diluted weighted average shares 507 545 510 562
Adjusted diluted earnings per common share $ 1.33 $ 1.28 $ 4.56 $ 3.89
Adjusted diluted earnings per common share growth excluding Venezuelan currency devaluation charge       3.9 %                 17.2 %        
 

Reconciliation of Adjusted Net Income (excluding the Venezuelan currency devaluation charge and the ECAD settlement gain) to Net Income
      Three Months Ended
September 30,
      Nine Months Ended
September 30,
2014       2013 2014       2013
Net income attributable to DIRECTV excluding the Venezuelan currency devaluation charge and the ECAD settlement gain $ 673       $ 629 $ 2,324       $ 2,115
Subtract: Venezuelan after-tax currency devaluation charge 62 346 136
Subtract: ECAD settlement gain         (70 )         (70 )
Net income attributable to DIRECTV $ 611         $ 699   $ 1,978         $ 2,049  
Net income growth excluding the Venezuelan currency devaluation charge and the ECAD settlement gain 7.0 % 9.9 %
Diluted weighted average shares 507 545 510 562
Adjusted diluted earnings per common share $ 1.33 $ 1.15 $ 4.56 $ 3.76

Adjusted diluted earnings per common share growth excluding the Venezuelan currency devaluation charge and the ECAD settlement gain

      15.7 %                 21.3 %          
 
 

 
DIRECTV Latin America Non-GAAP Financial Measure Reconciliation Schedules
(Dollars in Millions)
(Unaudited)
   
DIRECTV Latin America
Reconciliation of Cash Flow Before Interest and Taxes2 to

Net Cash Provided by Operating Activities

      Three Months Ended
September 30,
      Nine Months Ended
September 30,
2014       2013 2014       2013
Cash Flow Before Interest and Taxes $ 250       $ 53 $ 604       $ 162
Adjustments:
Cash paid for interest (11 ) (39 ) (36 ) (69 )
Interest income 17 10 40 41
Income taxes paid       (58 )       (64 ) (200 )       (223 )
Add Cash Paid For:
Property and equipment 69 62 195 142
Subscriber leased equipment - subscriber acquisitions 184 228 497 675
Subscriber leased equipment - upgrade and retention 73 93 277 326
Satellites 55         32   120         112  
Net Cash Provided by Operating Activities $ 579         $ 375   $ 1,497         $ 1,166  
(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
September 30,
Nine Months Ended
September 30,
2014       2013 2014       2013
Revenues $ 1,820 $ 1,662 $ 5,330 $ 5,076
 
Operating profit before depreciation and amortization excluding the Venezuelan currency devaluation charge $ 515 $ 558 $ 1,496 $ 1,559
OPBDA growth excluding Venezuelan currency devaluation charge (7.7 )% (4.0 )%
Subtract: Venezuelan currency devaluation charge 62           346         166  
Operating profit before depreciation and amortization 453 558 1,150 1,393
Subtract: Depreciation and amortization 316         296   897         875  
Operating profit $ 137         $ 262   $ 253         $ 518  
Operating profit before depreciation and amortization margin excluding the Venezuelan currency devaluation charge       28.3 %       33.6 %       28.1 %       30.7 %
 
Reconciliation of Adjusted Operating Profit (excluding the Venezuelan currency devaluation charge) to Operating Profit
Three Months Ended
September 30,
Nine Months Ended
September 30,
2014       2013 2014       2013
Revenues $ 1,820 $ 1,662 $ 5,330 $ 5,076
 
Operating profit excluding the Venezuelan currency devaluation charge $ 199 $ 262 $ 599 $ 684
Operating Profit growth excluding Venezuelan currency devaluation charge (24.0 )% (12.4 )%
Subtract: Venezuelan currency devaluation charge 62           346         166  
Operating profit $ 137         $ 262   $ 253         $ 518  
Operating profit margin excluding the Venezuelan currency devaluation charge       10.9 %       15.8 %       11.2 %       13.5 %
 
 

 
DIRECTV Latin America Non-GAAP Financial Measure Reconciliation Schedules
(Dollars in Millions)
(Unaudited)
         
Reconciliation of Adjusted Operating Profit Before Depreciation and Amortization (excluding the Venezuelan currency devaluation charge and the ECAD settlement gain) to Operating Profit
      Three Months Ended
September 30,
      Nine Months Ended
September 30,
2014       2013 2014       2013
Revenues $ 1,820       $ 1,662 $ 5,330       $ 5,076
 
Operating profit before depreciation and amortization excluding the Venezuelan currency devaluation charge and the ECAD settlement gain $ 515 $ 488 $ 1,496 $ 1,489

OPBDA growth excluding Venezuelan currency devaluation charge and the ECAD settlement gain

5.5 % 0.5 %
Subtract: Venezuelan currency devaluation charge 62 346 166
Subtract: ECAD settlement gain         (70 )         (70 )
Operating profit before depreciation and amortization 453 558 1,150 1,393
Subtract: Depreciation and amortization 316         296   897         875  
Operating profit $ 137         $ 262   $ 253         $ 518  
Operating profit before depreciation and amortization margin excluding the Venezuelan currency devaluation charge and the ECAD settlement gain       28.3 %       29.4 %       28.1 %       29.3 %
 
Reconciliation of Adjusted Operating Profit (excluding the Venezuelan currency devaluation charge and the ECAD settlement gain) to Operating Profit
Three Months Ended
September 30,
Nine Months Ended
September 30,
2014       2013 2014       2013
Revenues $ 1,820 $ 1,662 $ 5,330 $ 5,076
 
Operating profit excluding the Venezuelan currency devaluation charge and the ECAD settlement gain $ 199 $ 192 $ 599 $ 614
Operating Profit growth excluding Venezuelan currency devaluation charge and the ECAD settlement gain 3.6 % (2.4 )%
Subtract: Venezuelan currency devaluation charge 62 346 166
Subtract: ECAD settlement gain         (70 )         (70 )
Operating profit $ 137         $ 262   $ 253         $ 518  
Operating profit margin excluding the Venezuelan currency devaluation charge and the ECAD settlement gain       10.9 %       11.6 %       11.2 %       12.1 %
 
 

 
Sky Brasil Segment Non-GAAP Financial Measure Reconciliation Schedules
(Dollars in Millions)
(Unaudited)
Sky Brasil
Reconciliation of Operating Profit Before Depreciation and Amortization (excluding the ECAD settlement gain) to Operating Profit
      Three Months Ended
September 30,
      Nine Months Ended
September 30,
2014       2013 2014       2013
Revenues $ 1,014       $ 883 $ 2,964       $ 2,790
 
Operating profit before depreciation and amortization excluding the ECAD settlement gain $ 307 $ 283 $ 907 $ 856
OPBDA growth excluding ECAD settlement gain 8.5 % 6.0 %
Subtract: ECAD settlement gain         (70 )         (70 )
Operating profit before depreciation and amortization 307 353 907 926
Subtract: Depreciation and amortization 189         184   527         547  
Operating profit $ 118         $ 169   $ 380         $ 379  
Operating profit before depreciation and amortization margin excluding the ECAD settlement gain       30.3 %       32.0 %       30.6 %       30.7 %
 
Reconciliation of Operating Profit (excluding the ECAD settlement gain) to Operating Profit
      Three Months Ended
September 30,
      Nine Months Ended
September 30,
2014       2013 2014       2013
Revenues $ 1,014       $ 883 $ 2,964       $ 2,790
 
Operating profit excluding the ECAD settlement gain $ 118 $ 99 $ 380 $ 309
Operating profit growth excluding ECAD settlement gain 19.2 % 23.0 %
Subtract: ECAD settlement gain         (70 )         (70 )
Operating profit $ 118         $ 169   $ 380         $ 379  
Operating profit margin excluding the ECAD settlement gain       11.6 %       11.2 %       12.8 %       11.1 %
 
 

 
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
September 30,
      Nine Months Ended
September 30,
2014       2013 2014       2013
Revenues $ 806       $ 779 $ 2,366       $ 2,286
 
Operating profit before depreciation and amortization excluding the Venezuelan currency devaluation charge $ 208 $ 205 $ 589 $ 633
OPBDA growth excluding Venezuelan currency devaluation charge 1.5 % (7.0 )%
Subtract: Venezuelan currency devaluation charge 62           346         166  
Operating profit before depreciation and amortization 146 205 243 467
Subtract: Depreciation and amortization 127         112   370         328  
Operating profit (loss) $ 19         $ 93   $ (127 )       $ 139  
Operating profit before depreciation and amortization margin excluding the Venezuelan currency devaluation charge       25.8 %       26.3 %       24.9 %       27.7 %
 
Reconciliation of Adjusted Operating Profit (excluding the Venezuelan currency devaluation charge) to Operating Profit
      Three Months Ended
September 30,
      Nine Months Ended
September 30,
2014       2013 2014       2013
Revenues $ 806       $ 779 $ 2,366       $ 2,286
 
Operating profit excluding the Venezuelan currency devaluation charge $ 81 $ 93 $ 219 $ 305
Operating profit growth excluding Venezuelan currency devaluation charge (12.9 )% (28.2 )%
Subtract: Venezuelan currency devaluation charge 62           346         166  
Operating profit (loss) $ 19         $ 93   $ (127 )       $ 139  
Operating profit margin excluding the Venezuelan currency devaluation charge       10.0 %       11.9 %       9.3 %       13.3 %
 
 

           
DIRECTV U.S. Non-GAAP Financial Measure Reconciliation Schedules
(Dollars in Millions)
(Unaudited)
           
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
Reconciliation of Pre-SAC Margin* to Operating Profit
Three Months Ended
September 30,
Nine Months Ended
September 30,
2014       2013 2014       2013
Operating profit $ 1,113 $ 987 $ 3,675 $ 3,343
Adjustments:
Subscriber acquisition costs (expensed) 776 756 2,085 1,979
Depreciation and amortization 435 409 1,290 1,225
Cash paid for subscriber leased equipment - upgrade and retention (134 )       (162 ) (348 )       (392 )
Pre-SAC Margin $ 2,190         $ 1,990   $ 6,702         $ 6,155  
Pre-SAC Margin as a percentage of revenue       33.7 %       32.3 %       35.5 %       34.4 %
 
Reconciliation of Cash Flow Before Interest and Taxes2 to

Net Cash Provided by Operating Activities

Three Months Ended
September 30,
Nine Months Ended
September 30,
2014       2013 2014       2013
Cash Flow Before Interest and Taxes $ 1,302 $ 1,060 $ 3,605 $ 3,179
Adjustments:
Cash paid for interest (368 ) (373 ) (765 ) (733 )

Interest income

1 1 2 2
Income taxes paid       (298 )       (284 )       (927 )       (786 )
Add Cash Paid For:
Property and equipment 187 155 514 420
Subscriber leased equipment - subscriber acquisitions 143 190 375 515
Subscriber leased equipment - upgrade and retention 134 162 348 392
Satellites 19         46   52         154  
Net Cash Provided by Operating Activities $ 1,120         $ 957   $ 3,204         $ 3,143  
 
(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 Ended
September 30,
      Nine Months Ended
September 30,
2014       2013 2014       2013
Subscriber acquisition costs (expensed) $ 776       $ 756 $ 2,085       $ 1,979
Cash paid for subscriber leased equipment - subscriber acquisitions 143         190   375         515
Total acquisition costs $ 919         $ 946   $ 2,460         $ 2,494
Gross subscriber additions (000's) 1,023 1,109 2,822 2,841
Average subscriber acquisition costs - per subscriber (SAC)       $ 898         $ 853         $ 872         $ 878
 

Contacts

DIRECTV
Media Contact:
Darris Gringeri, (212) 205-0882
or
Investor Relations:
(310) 964-0808

Release Summary

DIRECTV Announces Third Quarter 2014 Results

Contacts

DIRECTV
Media Contact:
Darris Gringeri, (212) 205-0882
or
Investor Relations:
(310) 964-0808