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DIRECTV - 10-K/A - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

June 30, 2014

CAUTIONARY STATEMENT FOR PURPOSE OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE

SECURITIES LITIGATION REFORM ACT OF 1995 This Annual Report on Form 10-K/A may contain 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 of the Securities Exchange Act of 1934. These forward-looking statements generally can be identified by use of statements that include phrases such as we "believe," "expect," "estimate," "anticipate," "intend," "plan," "foresee," "project" or other similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements we make related to our business strategy and regarding our outlook for 2014 financial results, liquidity and capital resources. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include economic, business, competitive, national or global political, market and regulatory conditions and other risks, each of which is described in more detail in Item 1A-Risk Factors of this Annual Report. Any forward looking statement made by us in this Annual Report on Form 10-K/A speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may occur and it is not possible for us to predict them all. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.



CONTENTS

The following is a discussion of our results of operations and financial condition. This discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report. Information in this section is organized as follows: Summary Results of Operations and Financial Condition Significant Events Affecting the Comparability of the Results of Operations Key Terminology Executive Overview and Outlook Results of Operations Liquidity and Capital Resources Contractual Obligations Off-Balance Sheet Arrangements Contingencies Certain Relationships and Related-Party Transactions Critical Accounting Estimates Accounting Changes 35



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Table of Contents DIRECTV SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION Years Ended December 31, 2013 2012 2011 (Dollars in Millions, Except Per Share Amounts) Consolidated Statements of Operations Data: Revenues $ 31,754$ 29,740$ 27,226 Total operating costs and expenses 26,604 24,655 22,597 Operating profit 5,150 5,085 4,629 Interest income 72 59 34 Interest expense (840 ) (842 ) (763 ) Other, net 106 140 84 Income before income taxes 4,488 4,442 3,984 Income tax expense (1,603 ) (1,465 ) (1,348 ) Net income 2,885 2,977 2,636 Less: Net income attributable to noncontrolling interest (26 ) (28 )



(27 )

Net income attributable to DIRECTV$ 2,859$ 2,949$ 2,609

Basic earnings attributable to DIRECTV per common share $ 5.22$ 4.62$ 3.49 Diluted earnings attributable to DIRECTV per common share $ 5.17$ 4.58$ 3.47 Weighted average number of total common shares outstanding (in millions): Basic 548 638 747 Diluted 553 644 752 December 31, 2013 2012 (Dollars in Millions) Consolidated Balance Sheets Data: Cash and cash equivalents $ 2,180$ 1,902 Total current assets 5,953 5,554 Total assets 21,905 20,555 Total current liabilities 6,530 5,541 Long-term debt 18,284 17,170 Redeemable noncontrolling interest 375 400 Total stockholders' deficit (6,544 ) (5,431 )



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Reference should be made to the notes to the Consolidated Financial Statements.

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Table of Contents DIRECTV SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(continued) Years Ended December 31, 2013 2012 2011 (Dollars in Millions) Other Data: Operating profit before depreciation and amortization (1) Operating profit $ 5,150$ 5,085$ 4,629 Add: Depreciation and amortization expense 2,828



2,437 2,349

Operating profit before depreciation and amortization $ 7,978$ 7,522$ 6,978

Operating profit before depreciation and amortization margin

25.1 % 25.3 % 25.6 % Cash flow information Net cash provided by operating activities $ 6,394$ 5,634$ 5,185 Net cash used in investing activities (3,753 ) (3,363 ) (3,022 ) Net cash used in financing activities (2,176 ) (1,242 ) (2,792 ) Free cash flow (2) Net cash provided by operating activities $ 6,394$ 5,634$ 5,185 Less: Cash paid for property and equipment (3,409 ) (2,960 ) (2,924 ) Less: Cash paid for satellites (377 ) (389 ) (246 ) Free cash flow $ 2,608$ 2,285$ 2,015



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(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, can be

calculated by adding amounts under the caption "Depreciation and

amortization expense" to "Operating profit." This 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. Our management and our Board of Directors use operating profit before

depreciation and amortization to evaluate the operating performance of our

company and our business segments and to allocate resources and capital to

business segments. This metric is also used as a measure of performance for

incentive compensation purposes and to measure income generated from

operations that could be used to fund capital expenditures, service debt or

pay taxes. Depreciation and amortization expense primarily represents an

allocation to current expense of the cost of historical capital

expenditures and for acquired intangible assets resulting from prior

business acquisitions. To compensate for the exclusion of depreciation and

amortization expense from operating profit, our management and our Board of

Directors separately measure and budget for capital expenditures and

business acquisitions.

We believe this measure is useful to investors, along with GAAP measures

(such as revenues, operating profit and net income), to compare our

operating performance to other communications, entertainment and media

service providers. We believe that investors use current and projected

operating profit before depreciation and amortization and similar measures

to estimate our current or prospective enterprise value and make investment

decisions. This metric provides investors with a means to compare operating

results exclusive of depreciation and amortization expense. Our management

believes this is useful given the significant variation in depreciation and

amortization expense that can result from the timing of capital

expenditures, the capitalization of intangible assets, potential variations

in expected useful lives when compared to other companies and periodic changes to estimated useful lives. 37



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Table of Contents DIRECTV SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(continued) Operating profit before depreciation and amortization margin is calculated by dividing Operating profit before depreciation and amortization by Revenues. (2) Free cash flow, which is a financial measure that is not determined in accordance with GAAP, can be calculated by deducting amounts under the captions "Cash paid for property and equipment" and "Cash paid for satellites" 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. Our management and our Board of

Directors use 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

other capital investments or transactions 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 service providers. We

believe that investors also use current and projected free cash flow to

determine the ability of revenues from our current and projected subscriber

base to fund required and discretionary spending and to help determine our financial value. 38



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Table of Contents DIRECTV SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(continued) Selected Segment Data Operating Operating Profit (Loss) Profit Before Depreciation Before Depreciation Percent of and Depreciation Operating and Total Operating Amortization and Profit Amortization Revenues Revenues Profit (Loss) Expense Amortization Margin Margin (Dollars in Millions) December 31, 2013 DIRECTV U.S. $ 24,676 77.7 % $ 4,444$ 1,640$ 6,084 18.0 % 24.7 % Sky Brasil 3,753 11.8 % 529 723 1,252 14.1 % 33.4 %



PanAmericana

and Other 3,091 9.8 % 247 444 691 8.0 % 22.4 % DIRECTV Latin America 6,844 21.6 % 776 1,167 1,943 11.3 % 28.4 % Sports Networks, Eliminations and Other 234 0.7 % (70 ) 21 (49 ) NM * NM * Total $ 31,754 100.0 % $ 5,150$ 2,828$ 7,978 16.2 % 25.1 % December 31, 2012 DIRECTV U.S. $ 23,235 78.1 % $ 4,153$ 1,501$ 5,654 17.9 % 24.3 % Sky Brasil 3,501 11.8 % 555 533 1,088 15.9 % 31.1 %



PanAmericana

and Other 2,743 9.2 % 400 374 774 14.6 % 28.2 % DIRECTV Latin America 6,244 21.0 % 955 907 1,862 15.3 % 29.8 % Sports Networks, Eliminations and Other 261 0.9 % (23 ) 29 6 NM * NM * Total $ 29,740 100.0 % $ 5,085$ 2,437$ 7,522 17.1 % 25.3 % December 31, 2011 DIRECTV U.S. $ 21,872 80.3 % $ 3,702$ 1,587$ 5,289 16.9 % 24.2 % Sky Brasil 3,020 11.1 % 542 449 991 17.9 % 32.8 %



PanAmericana

and Other 2,076 7.6 % 374 298 672 18.0 % 32.4 % DIRECTV Latin America 5,096 18.7 % 916 747 1,663 18.0 % 32.6 % Sports Networks, Eliminations and Other 258 1.0 % 11 15 26 NM * NM * Total $ 27,226 100.0 % $ 4,629$ 2,349

$ 6,978 17.0 % 25.6 %



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* Percentage not meaningful. 39



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Table of Contents DIRECTV SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(continued)



The following represents additional selected information for our operating segments as of and for the year ended:

Segment Assets Capital Expenditures (Dollars in Millions) December 31, 2013 DIRECTV U.S. $ 13,446 $ 2,050 Sky Brasil 2,854 961 PanAmericana and Other 4,004 759 DIRECTV Latin America 6,858 1,720 Sports Networks, Eliminations and Other 1,601 16 Total $ 21,905 $ 3,786 December 31, 2012 DIRECTV U.S. $ 12,490 $ 1,741 Sky Brasil 2,951 812 PanAmericana and Other 3,335 786 DIRECTV Latin America 6,286 1,598 Sports Networks, Eliminations and Other 1,779 10 Total $ 20,555 $ 3,349 December 31, 2011 DIRECTV U.S. $ 11,796 $ 1,736 Sky Brasil 2,663 902 PanAmericana and Other 2,601 526 DIRECTV Latin America 5,264 1,428 Sports Networks, Eliminations and Other 1,363 6 Total $ 18,423 $ 3,170 40



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Table of Contents DIRECTV



SIGNIFICANT EVENTS AFFECTING THE COMPARABILITY OF THE RESULTS OF OPERATIONS

Venezuela Devaluation and Foreign Currency Exchange Controls

Companies operating in Venezuela are required to obtain Venezuelan government approval to exchange Venezuelan bolivars into U.S. dollars at the official exchange rate. Our ability to pay U.S. dollar denominated obligations and repatriate cash generated in Venezuela in excess of local operating requirements is limited, resulting in an increase in the cash balance at our Venezuelan subsidiary. If exchange controls are eased in the future, accumulated cash balances may ultimately be repatriated at less than their reported value, as the official exchange rate has not changed despite continuing high inflation in Venezuela. See "Liquidity and Capital Resources" below for additional information regarding the Venezuelan devaluation and foreign currency exchange controls. 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 in "Venezuelan currency devaluation charge" in the Consolidated Statements of Operations 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. There also are ongoing impacts to our results of operations subsequent to the devaluation, primarily related to the translation of local currency financial statements at the new official exchange rate. In the event of a future devaluation of the bolivar, we will recognize a charge to earnings based on the amount of bolivar denominated net monetary assets held at the time of such devaluation. Any future devaluation would also result in ongoing impacts to our results of operations. In 2013, our Venezuelan subsidiary generated revenues of approximately $900 million and operating profit before depreciation and amortization of approximately $500 million, excluding the impact of the $166 million Venezuelan devaluation charge recorded in February 2013. Also in February 2013, the Venezuelan government announced a new currency exchange system, the Sistema Complementario de AdministraciÓn de Divisas, or SICAD, which is intended to function as a public bidding system for private entities that import goods. Effective January 24, 2014, the Venezuelan government required that dividends and royalties will be subject to the SICAD program. The most recent transactions executed through SICAD auctions have been at an exchange rate of 11.4 bolivars per U.S. dollar. Depending on the transparency and liquidity of the SICAD market, it is possible that in the future we may remeasure our net monetary assets at the SICAD rate. To the extent that the SICAD rate is higher than the official exchange rate at that time, this could result in an additional devaluation charge. We have not executed any transactions through the SICAD program.



Foreign Currency Exchange Rates

The comparability of our results of operations is impacted by fluctuations in foreign currency exchange rates and the volatility of those foreign currencies has an ongoing impact to our operating results. See "Foreign Currency Risk" in Item 7A "Quantitative and Qualitative Disclosures About Market Risk" for further information. ECAD As previously reported, EscritÓrio Central de ArrecadaÇÃo e DistribuiÇÃo, or ECAD, the organization responsible for collecting performance rights fees under Brazilian law, had outstanding claims against Sky Brasil, along with other video distributors in Brazil. In September 2013 Sky Brasil entered into an agreement with ECAD whereby Sky Brasil agreed to settle all claims for the period from 2004 through December 31, 2013 for a cash payment of $92 million in September 2013. As a result of this settlement, Sky Brasil recognized a $128 million pre-tax gain from the reversal of amounts previously accrued during such period, of which $70 million was recorded as a reduction in "Broadcast programming and other," $37 million was recorded as a reduction in "Interest expense" and $21 million was recorded in "Other, net" in the Consolidated Statements of Operations. Sky Brasil had provided letters of credit related to this dispute in the amount of approximately $104 million, which have now been released. The settlement does not include any agreement as to royalties that will apply after December 31, 2013. Financing Transactions



2013 Financing Transactions

In 2013, DIRECTV U.S. issued $1,960 million of senior notes resulting in $1,947 million of proceeds, net of discount.

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Table of Contents DIRECTV In the first quarter of 2013, Sky Brasil entered into a financing facility with Banco Nacional de Desenvolvimento EconÔmico e Social, or BNDES, a government owned bank in Brazil, under which Sky Brasil may borrow funds for the purchase of set-top receivers. As of December 31, 2013, Sky Brasil had borrowings of $137 million outstanding under the BNDES facility.



2012 Financing Transactions

In the first quarter of 2012, DIRECTV U.S. borrowed and repaid $400 million under its $2.0 billion revolving credit facility, which was terminated on September 28, 2012, and replaced with a three and one-half year, $1.0 billion revolving credit facility and a five year, $1.5 billion revolving credit facility. In November 2012, DIRECTV U.S. established a commercial paper program backed by its revolving credit facilities, which provides for the issuance of short-term commercial paper in the United States up to a maximum aggregate principal of $2.5 billion. For the year ended December 31, 2012, borrowings under the commercial paper program, net of repayments, were $358 million. In 2012, DIRECTV U.S. issued $5.2 billion of senior notes resulting in $5,190 million of proceeds, net of discount. Also in 2012, DIRECTV U.S. redeemed its then outstanding $1,500 million of 7.625% senior notes, resulting in a pre-tax charge of $64 million ($40 million after tax) for the premiums paid and for the write-off of deferred debt issuance and other transaction costs. The charge was recorded in "Other, net" in our Consolidated Statements of Operations.



2011 Financing Transactions

In 2011, DIRECTV U.S. issued $4.0 billion of senior notes resulting in $3,990 million of proceeds, net of discount. Also in 2011, DIRECTV U.S. purchased and redeemed its then outstanding $1,002 million of 6.375% senior notes, resulting in a pre-tax charge of $25 million ($16 million after tax) primarily for the premiums paid. The charge was recorded in "Other, net" in our Consolidated Statements of Operations.

Divestitures

On April 16, 2013, DSN transferred 100% of its interest in DSN Northwest to NW Sports Net LLC. Upon completion of the transaction, the Seattle Mariners have a majority interest in NW Sports LLC and DSN retains a noncontrolling interest, which we account for using the equity method of accounting. Additionally, DSN provides management oversight and programming services to NW Sports Net LLC as part of management service agreements entered into as part of this transaction. As a result of this transaction, we deconsolidated DSN Northwest and recorded a non-cash, pre-tax charge of approximately $59 million ($56 million after tax) in "Other, net" in the Consolidated Statements of Operations. In December 2012, we sold an 18% interest in GSN to our equity partner for $234 million, reducing our ownership interest from 60% to 42%. We recognized a pre-tax gain of $111 million ($68 million after tax) on the sale in "Other, net" in the Consolidated Statements of Operations. In April 2011, we sold an equity method investment for $55 million in cash. We recognized a pre-tax gain of $37 million ($23 million after tax) on the sale in "Other, net" in the Consolidated Statements of Operations. In March 2011, we sold a 5% ownership interest in GSN to our equity partner for $60 million in cash, reducing our ownership interest to 60%. We recognized a pre-tax gain of $25 million ($16 million after tax) on the sale in "Other, net" in the Consolidated Statements of Operations.



For additional information regarding the sale of investments, refer to Note 8 of the Notes to the Consolidated Financial Statements in Item 8, Part II of this Annual Report.

Change in Accounting Estimate



Depreciable Lives of Leased Set-Top Receivers

We currently lease most set-top receivers provided to new and existing subscribers and therefore capitalize the cost of those set-top receivers. We depreciate capitalized set-top receivers over the estimated useful life of the equipment. As a result of the completion of an extensive evaluation of the estimated useful life of the set-top receivers, including consideration of historical write-offs, improved efficiencies in our refurbishment program, improved set-top receiver failure rates over time and management's judgment of the risk of technological obsolescence, in 2011 we determined that the estimated useful life of certain HD set-top receivers used in our DIRECTV U.S. business has increased to four years, from three years, as previously estimated. We continue to depreciate standard-definition set-top receivers at DIRECTV U.S. over a three-year estimated useful life. We accounted for this change in the useful life of certain HD set-top receivers at DIRECTV U.S. as a change in an accounting estimate beginning July 1, 2011. 42



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Table of Contents DIRECTV This change had the effect of reducing depreciation and amortization expense and increasing both net income attributable to DIRECTV and earnings per share in our consolidated results of operations as follows: Years Ended December 31, 2013 2012 2011 (Dollars in Millions, Except Per Share Amounts) Depreciation and amortization expense $ (59 )$ (176 )$ (141 ) Net income attributable to DIRECTV 37 109 86 Basic earnings attributable to DIRECTV per common share $ 0.07$ 0.17$ 0.12 Diluted earnings attributable to DIRECTV per common share $ 0.07$ 0.17$ 0.11 Share Repurchase Program Since 2006 our Board of Directors has approved multiple authorizations for the repurchase of our common stock. As of December 31, 2013, we had approximately $862 million remaining under the authorization given by the Board of Directors in 2013. In February 2014 our Board of Directors approved a new authorization for up to $3.5 billion for repurchases of our common stock. The following table sets forth information regarding shares repurchased and retired for the years ended December 31: 2013 2012 2011 (Amounts in Millions, Except Per Share Amounts)

Total cost of repurchased and retired shares $ 4,000$ 5,148$ 5,455 Average price per share $ 57.54$ 48.24$ 45.78 Number of shares repurchased and retired 70 107 119 KEY TERMINOLOGY Revenues. We earn revenues mostly from monthly fees we charge subscribers for subscriptions to basic and premium channel programming, advanced receiver fees (which include HD, DVR and multi-room viewing), pay-per-view programming, and seasonal live sporting events. We also earn revenues from monthly fees we charge subscribers for multiple set-top receivers, hardware revenues from subscribers who lease or purchase set-top receivers from us, warranty service fees and advertising services. Revenues are reported net of customer credits and discounted promotions. Broadcast Programming and Other. These costs primarily include license fees for subscription service programming, pay-per-view programming, live sports and other events. Other costs include continuing service fees paid to third parties for active subscribers and warranty service costs.



Subscriber Service Expenses. Subscriber service expenses include the costs of customer call centers, billing, remittance processing and service calls.

Broadcast Operations Expenses. These expenses include broadcast center operating costs, signal transmission expenses (including costs of collecting signals for our local channel offerings), and costs of monitoring, maintaining and insuring our satellites. Also included are engineering expenses associated with deterring theft of our signal. Subscriber Acquisition Costs. These costs include the cost of set-top receivers and other equipment, commissions we pay to national retailers, independent satellite television retailers, dealers and telcos, and the cost of installation, advertising, marketing and customer call center expenses associated with the acquisition of new subscribers. Set-top receivers leased to new subscribers are capitalized in "Property and equipment, net" in the Consolidated Balance Sheets and depreciated over their useful lives. In certain countries in Latin America, where our customer agreements provide for the lease of the entire DIRECTV or SKY System, we also capitalize the costs of the other customer premises equipment and related installation costs. The amount of set-top receivers capitalized each period for subscriber acquisitions is included in "Cash paid for property and equipment" in the Consolidated Statements of Cash Flows. Upgrade and Retention Costs. Upgrade and retention costs are associated with upgrade efforts for existing subscribers that we believe will result in higher average monthly revenue per subscriber, or ARPU, and lower churn. Our upgrade efforts include subscriber equipment upgrade programs for advanced receivers and similar initiatives. Retention costs also include the costs of installing and providing hardware under our movers program for subscribers relocating to a new residence. Set-top receivers leased to existing subscribers under upgrade and retention programs are capitalized in "Property and equipment, net" in the Consolidated Balance Sheets and depreciated over their estimated useful lives. The amount of 43



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Table of Contents DIRECTV



set-top receivers capitalized each period for upgrade and retention programs is included in "Cash paid for property and equipment" in the Consolidated Statements of Cash Flows.

General and Administrative Expenses. General and administrative expenses include departmental costs for legal, administrative services, finance, marketing and information technology. These costs also include expenses for bad debt and other operating expenses, such as legal settlements, and gains or losses from the sale or disposal of fixed assets. Average Monthly Revenue Per Subscriber. We calculate ARPU by dividing average monthly revenues for the period (total revenues during the period divided by the number of months in the period) by average subscribers for the period. We calculate average subscribers for the period by adding the number of subscribers as of the beginning of the period and for each quarter end in the current year or period and dividing by the sum of the number of quarters in the period plus one. Average Monthly Subscriber Churn. Average monthly subscriber churn represents the number of subscribers whose service is disconnected, expressed as a percentage of the average total number of subscribers. We calculate average monthly subscriber churn by dividing the average monthly number of disconnected subscribers for the period (total subscribers disconnected, net of reconnects, during the period divided by the number of months in the period) by average subscribers for the period. Subscriber Count. The total number of subscribers represents the total number of subscribers actively subscribing to our service, including subscribers who have suspended their account for a particular season of the year because they are temporarily away from their primary residence and subscribers who are in the process of relocating and commercial equivalent viewing units. SAC. We calculate SAC, which represents total subscriber acquisition costs stated on a per subscriber basis, by dividing total subscriber acquisition costs for the period by the number of gross new subscribers acquired during the period. We calculate total subscriber acquisition costs for the period by adding together "Subscriber acquisition costs" expensed during the period and the amount of cash paid for equipment leased to new subscribers during the period.



EXECUTIVE OVERVIEW AND OUTLOOK

Please refer to "Risk Factors" in Item 1A for a discussion of risks that may affect forecasted results of our business generally.

DIRECTV U.S. DIRECTV U.S. faces challenges related to the rapid advance of technology that provides consumers with more options both in and out of the home and an industry that is increasingly competitive. In addition, programming content providers are continuing to seek increased rates for their content. Revenue growth at DIRECTV U.S. has been generated by an increase in ARPU and growth of our subscriber base. In 2014, we expect revenue to increase in the mid-single digit percentage range driven primarily by ARPU growth. We also expect positive net subscriber additions in 2014. In 2014, we expect operating profit before depreciation and amortization to grow in the mid-single digit percentage range. We expect to continue to be challenged by rising broadcast programming costs; however we intend to manage the impact to our margins by continuing to capture productivity improvements, which are expected to reduce costs and improve call center performance, field operations and customer satisfaction.



We expect total capital expenditures in 2014 to decrease approximately $300 million at DIRECTV U.S to approximately $1.75 billion, primarily due to a reduction in set-top receiver costs, as well as lower upgrades relative to initial demand volumes for the DIRECTV Genie in 2013 and a higher use of refurbished set-top receivers for new subscribers.

DIRECTV Latin America. Some Latin American countries in which we operate are continuing to undergo a period of economic uncertainty. We remain committed to our strategy to profitably grow our business across the region by strengthening our penetration of advanced services for premium subscribers and leveraging our scale to further penetrate and profitably serve the rapidly growing mass market while focusing on cost management, productivity improvements and capital investments. In 2014, we expect gross subscriber additions of over four million and net subscriber additions of about one million at DIRECTV Latin America, with net subscriber additions higher in Sky Brasil and lower in PanAmericana as compared to 2013. 44



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Table of Contents DIRECTV Excluding the impact of the Venezuelan devaluation charge and the ECAD settlement gain in 2013, as well as any future devaluation of the Venezuelan bolivar, we expect revenues and operating profit before depreciation and amortization to grow in the mid-single digit percentage range in 2014. These estimates are highly volatile depending on changes in foreign currency exchange rates, particularly in Argentina, Brazil and Venezuela, as well as changes in the macroeconomic environment. We expect capital expenditures in Latin America to be in the $1.6 billion to $1.7 billion range, which includes capital expenditures related to subscriber growth, investments in upgrading DIRECTV Latin America's infrastructure, including satellites and related broadcast facilities, as well as strategic initiatives such as wireless broadband. DIRECTV Consolidated. We anticipate earnings per common share to increase in the mid teen percentage range from the $5.22 earnings per share reported in 2013 resulting from higher operating profit coupled with a continued anticipated decline in weighted average common shares outstanding resulting from our share repurchase program, partially offset by increased interest and income tax expenses. As discussed above, these estimates are highly volatile depending on changes in foreign currency exchange rates, as well as changes in the macroeconomic and political environment in Latin America.



We also anticipate free cash flow, or cash provided by operating activities less capital expenditures, to increase approximately 10%.

RESULTS OF OPERATIONS

Year Ended December 31, 2013 Compared with the Year Ended December 31, 2012

DIRECTV U.S. Results of Operations

The following table provides operating results and a summary of key subscriber data for the DIRECTV U.S. segment:

Change 2013 2012 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 24,676$ 23,235$ 1,441 6.2 % Operating costs and expenses Costs of revenues, exclusive of depreciation and amortization expense Broadcast programming and other 11,616 10,743 873 8.1 % Subscriber service expenses 1,474 1,464 10 0.7 % Broadcast operations expenses 293 306 (13 ) (4.2 )% Selling, general and administrative expenses, exclusive of depreciation and amortization expense Subscriber acquisition costs 2,642 2,673 (31 ) (1.2 )% Upgrade and retention costs 1,350 1,253 97 7.7 % General and administrative expenses 1,217 1,142 75 6.6 % Depreciation and amortization expense 1,640 1,501



139 9.3 %

Total operating costs and expenses 20,232 19,082 1,150 6.0 % Operating profit $ 4,444$ 4,153$ 291 7.0 % Operating profit margin 18.0 % 17.9 % - - Other data: Operating profit before depreciation and amortization $ 6,084$ 5,654$ 430 7.6 % Operating profit before depreciation and amortization margin 24.7 % 24.3 % - - Total number of subscribers (in thousands) 20,253 20,084 169 0.8 % ARPU $ 102.18$ 96.98$ 5.20 5.4 % Average monthly subscriber churn % 1.50 % 1.53 % - (2.0 )% Gross subscriber additions (in thousands) 3,790 3,874 (84 ) (2.2 )% Subscriber disconnections (in thousands) 3,621 3,675 (54 ) (1.5 )% Net subscriber additions (in thousands) 169 199 (30 ) (15.1 )% Average subscriber acquisition costs-per subscriber (SAC) $ 873$ 859$ 14 1.6 % Capital expenditures: Property and equipment $ 648$ 541$ 107 19.8 % Subscriber leased equipment-subscriber acquisitions 666 656 10 1.5 % Subscriber leased equipment-upgrade and retention 538 291 247 84.9 % Satellites 198 253 (55 ) (21.7 )% Total capital expenditures $ 2,050$ 1,741$ 309 17.7 % Depreciation expense-subscriber leased equipment $ 922$ 815$ 107 13.1 % Subscribers. In 2013, net subscriber additions decreased due to lower gross subscriber additions associated with a continued focus on attaining higher quality subscribers, as well as a more challenging competitive environment and a decline in aggregate subscribers across the MVPD industry. This decrease was partially offset 45



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Table of Contents DIRECTV by lower average monthly subscriber churn in 2013. In 2012, average monthly churn was unfavorably impacted by a contract dispute with a large programmer that resulted in the removal of several channels from our service for nine days. The lower average monthly churn was also due to a greater number of subscribers on contract commitments and auto-bill pay, as well as stricter credit policies in 2013. Revenues. DIRECTV U.S. revenues increased in 2013 as a result of higher ARPU and the larger subscriber base. The increase in ARPU resulted primarily from higher advanced receiver service fees, price increases on programming packages, higher fees for our new enhanced warranty program, as well as higher commercial and ad sales revenues, partially offset by increased promotional offers to new and existing subscribers. Operating profit before depreciation and amortization. Operating profit before depreciation and amortization increased in 2013 as compared to 2012 primarily due to higher revenues and lower subscriber acquisition costs, partially offset by higher broadcast programming and other costs, higher upgrade and retention costs and higher general and administrative costs. Subscriber acquisition costs decreased primarily due to the decrease in gross subscriber additions. SAC per subscriber, which includes the cost of capitalized set-top receivers, increased primarily due to an increase in subscriber demand for advanced products and higher marketing costs per subscriber added. Broadcast programming and other costs increased primarily due to annual program supplier rate increases, a larger subscriber base and increased costs associated with providing the expanded warranty program. Upgrade and retention costs increased in 2013 as compared to 2012 primarily due to a larger number of subscriber upgrades to advanced products related to customer loyalty initiatives. General and administrative costs increased primarily as a result of higher labor costs. Operating profit before depreciation and amortization margin increased in 2013 as compared to 2012 driven by the incremental margin generated by higher revenues combined with lower subscriber acquisition costs and mostly unchanged subscriber service expenses. Subscriber service expenses remained relatively unchanged due to continued improvement and efficiency initiatives. These margin improvements were partially offset by relatively higher broadcast programming costs mostly related to annual supplier rate increases. Operating profit. Operating profit and operating profit margin increased in 2013 compared to 2012 due to an increase in operating profit before depreciation and amortization and operating profit before depreciation and amortization margin, partially offset by an increase in depreciation and amortization expense due to higher total capitalized subscriber leased equipment.



DIRECTV Latin America Results of Operations

The following table provides operating results and a summary of key subscriber data for the consolidated DIRECTV Latin America operations, which does not include Sky Mexico: Change 2013 2012 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 6,844$ 6,244$ 600 9.6 % Operating profit before depreciation and amortization (1) 1,943 1,862 81 4.4 % Operating profit before depreciation and amortization margin (1) 28.4 % 29.8 % - - Operating profit (1) $ 776$ 955$ (179 ) (18.7 )% Operating profit margin (1) 11.3 % 15.3 % - - Other data: ARPU (2) $ 51.64$ 57.25$ (5.61 ) (9.8 )% Average monthly total subscriber churn % (2) 2.37 % 1.81 % - 30.9 % Average monthly post paid subscriber churn % (2) 2.10 % 1.50 % - 40.0 % Total number of subscribers (in thousands) (2) (3) 11,568 10,328 1,240 12.0 % Gross subscriber additions (in thousands) (3) (4) 4,382 4,417 (35 ) (0.8 )% Net subscriber additions (in thousands) (2) (3) (4) 1,239 2,439 (1,200 ) (49.2 )% Capital expenditures: Property and equipment $ 224$ 214$ 10 4.7 % Subscriber leased equipment-subscriber acquisitions 923 837 86 10.3 % Subscriber leased equipment-upgrade and retention 409 419 (10 ) (2.4 )% Satellites 164 128 36 28.1 % Total capital expenditures $ 1,720$ 1,598$ 122 7.6 %



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(1)

These amounts include the impact of the $166 million Venezuelan devaluation

charge and the ongoing impact of foreign currency exchange rate fluctuations. (2)



Based on the results of an internal investigation, we have determined that,

beginning in 2012, certain employees of Sky Brasil directed activities

which are 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 2013. As a result, subscribers who would have

previously ceased receiving Sky Brasil service have been terminated as

subscribers pursuant to Sky Brasil's authorized policies. We estimate that

as of March 31, 2013, our subscriber count would have been approximately

200,000 lower than the number of subscribers previously reported if the identified improper actions had not been taken. See the 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.

(3)

DIRECTV Latin America subscriber data exclude the subscribers of the Sky

Mexico platform.

(4)

Gross and net subscriber additions exclude 1,000 subscribers acquired in transactions in Brazil during 2013 and 18,000 subscribers acquired in transactions in Brazil during 2012. 46



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Table of Contents DIRECTV Sky Brasil Results of Operations The following table provides operating results and a summary of key subscriber data for the consolidated Sky Brasil operations: Change 2013 2012 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 3,753$ 3,501$ 252 7.2 % Operating profit before depreciation and amortization 1,252 1,088 164 15.1 % Operating profit before depreciation and amortization margin 33.4 % 31.1 % - - Operating profit $ 529$ 555$ (26 ) (4.7 )% Operating profit margin 14.1 % 15.9 % - - Other data: ARPU $ 59.97$ 65.68$ (5.71 ) (8.7 )% Total number of subscribers (in thousands) (1) 5,371 5,038 333 6.6 % Total capital expenditures $ 961$ 812$ 149 18.3 %



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(1) See Note (2) on the table showing consolidated DIRECTV Latin America results of operations above. Subscribers. In 2013, net subscriber additions decreased due to higher average monthly subscriber churn in 2013. Average monthly total subscriber churn increased related to the improper crediting of certain subscriber accounts and associated corrective actions described above, as well as challenging economic and competitive conditions. The higher average monthly subscriber churn was also impacted by the effect of a higher mix of mass market subscribers in 2013. Revenues. Revenues increased in 2013 as compared to 2012 due to subscriber growth partially offset by a decrease in ARPU. The decrease in ARPU was primarily due to unfavorable exchange rates and the effect of increased penetration of lower ARPU mass market subscribers, partially offset by price increases and a higher number of upgrades, including advanced services. Operating profit before depreciation and amortization. Operating profit before depreciation and amortization increased in 2013 as compared to 2012, primarily due to higher revenues and the settlement of the ECAD dispute, partially offset by higher broadcast programming costs related to the larger subscriber base. Also impacting operating profit before depreciation and amortization were higher subscriber service expenses related to the larger subscriber base. Operating profit before depreciation and amortization margin increased in 2013 as compared to 2012, driven by the incremental margin generated by higher revenues and lower relative broadcast programming and other costs, primarily related to the settlement of the ECAD dispute. Operating profit. Operating profit and operating profit margin decreased in 2013 as compared to 2012, as the increase in operating profit before depreciation and amortization was offset by an increase in depreciation and amortization expense due to higher total capitalized subscriber leased equipment and installation and higher depreciation expense associated with the higher monthly average total subscriber churn discussed above.



PanAmericana and Other Results of Operations

The following table provides operating results and a summary of key subscriber data for the consolidated DIRECTV PanAmericana and Other operations: Change 2013 2012 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 3,091$ 2,743$ 348 12.7 % Operating profit before depreciation and amortization (1) 691 774 (83 ) (10.7 )% Operating profit before depreciation and amortization margin (1) 22.4 % 28.2 % - - Operating profit (1) $ 247$ 400$ (153 ) (38.3 )% Operating profit margin (1) 8.0 % 14.6 % - - Other data: ARPU $ 44.19$ 49.24$ (5.05 ) (10.3 )% Total number of subscribers (in thousands) 6,197 5,291 906 17.1 % Total capital expenditures $ 759$ 786$ (27 ) (3.4 )%



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(1)

These amounts include the impact of the $166 million Venezuelan devaluation

charge. 47



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Table of Contents DIRECTV Subscribers. In 2013, net subscriber additions decreased primarily due to lower gross subscriber additions combined with higher average monthly subscriber churn in 2013. The decrease in gross subscriber additions was due to certain limitations on importing set-top receivers for new subscribers in Venezuela, as well as lower gross subscriber additions in Argentina associated with a more challenging economic environment. This decrease in gross subscriber additions was partially offset by increased gross subscriber additions in Chile, Colombia and Ecuador primarily due to greater mass market demand. Average monthly total subscriber churn decreased as a result of higher pre-paid reconnection rates, coupled with lower post paid churn in 2013. Revenues. Revenues increased in 2013 as compared to 2012 due to subscriber growth, partially offset by a decrease in ARPU. The decrease in ARPU was primarily due to the devaluation of the Venezuelan bolivar in February 2013 and currency depreciation in Argentina, partially offset by price increases. Operating profit before depreciation and amortization. Operating profit before depreciation and amortization decreased in 2013 as compared to 2012, primarily in Venezuela as a result of the charge resulting from the devaluation of the bolivar fuerte in February 2013. The decrease in operating profit before depreciation and amortization in Venezuela was partially offset by an increase in operating profit before depreciation and amortization in Colombia and Argentina, primarily due to higher revenues, partially offset by higher broadcast programming costs and subscriber service expenses related to the larger subscriber base, as well as higher general and administrative expenses related to higher infrastructure costs. Operating profit before depreciation and amortization margin decreased in 2013 as compared to 2012, primarily in Venezuela, as the higher revenues were more than offset by the impact of the $166 million charge related to the devaluation of the bolivar fuerte in February 2013. Operating profit. Operating profit and operating profit margin decreased in 2013 as compared to 2012, primarily due to the decrease in operating profit before depreciation and amortization and an increase in depreciation and amortization expense due to higher total capitalized subscriber leased equipment and higher depreciation expense due to higher total capitalized subscriber leased equipment and installation costs.



DIRECTV Consolidated Other Income, Income Taxes and Net Income Attributable to Noncontrolling Interest

Interest income. Interest income was $72 million in 2013 and $59 million in 2012.

Interest expense. The decrease in interest expense to $840 million in 2013 from $842 million in 2012 was primarily a result of the settlement of the ECAD dispute, partially offset by the impact of a higher average debt balance. We capitalized interest costs of $41 million in 2013 and $24 million in 2012. Other, net. The significant components of "Other, net" were as follows: 2013 2012 Change (Dollars in Millions)



Equity in earnings from unconsolidated affiliates (1) $ 198$ 131$ 67

DSN Northwest deconsolidation charge (59 )



- (59 )

Net foreign currency transaction loss (52 )



(34 ) (18 )

ECAD settlement gain 21



- 21

Net gains from sale of investments 8



122 (114 )

Fair-value loss on non-employee stock options (7 )



(4 ) (3 )

Other (3 )



(11 ) 8

Loss on early extinguishment of debt - (64 ) 64 Total $ 106$ 140$ (34 )



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(1)

Includes an increase in equity earnings from Sky Mexico of approximately

$60 million related to the recognition of certain one-time tax benefits in

2013.

Income tax expense. We recognized income tax expense of $1,603 million in 2013 and $1,465 million in 2012. The effective tax rate for 2013 was 35.7% compared to 33.0% for 2012. The higher effective tax rate in 2013 was primarily attributable to the unfavorable tax impacts of the Venezuela currency devaluation and the DSN Northwest Transaction in 2013 and a benefit recorded for the recognition of uncertain tax benefits due to the expiration of the statute of limitations in federal and foreign tax jurisdictions in 2012.



Net income attributable to noncontrolling interest. Net income attributable to noncontrolling interest was $26 million in 2013 and $28 million in 2012.

48



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Table of Contents DIRECTV Earnings Per Share Earnings per share and weighted shares outstanding were as follows for the years ended December 31: 2013 2012 Basic earnings attributable to DIRECTV per common share $ 5.22$ 4.62 Diluted earnings attributable to DIRECTV per common share $ 5.17$ 4.58 Weighted average number of common shares outstanding (in millions): Basic 548 638 Diluted 553 644



The increases in basic and diluted earnings per share were due to a reduction in weighted average shares outstanding resulting from our share repurchase program, partially offset by lower net income attributable to DIRECTV.

Year Ended December 31, 2012 Compared with the Year Ended December 31, 2011

DIRECTV U.S. Results of Operations

The following table provides operating results and a summary of key subscriber data for the DIRECTV U.S. segment:

Change 2012 2011 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 23,235$ 21,872$ 1,363 6.2 % Operating costs and expenses Costs of revenues, exclusive of depreciation and amortization expense Broadcast programming and other 10,743 9,799 944 9.6 % Subscriber service expenses 1,464 1,435 29 2.0 % Broadcast operations expenses 306 300 6 2.0 % Selling, general and administrative expenses, exclusive of depreciation and amortization expense Subscriber acquisition costs 2,673 2,794 (121 ) (4.3 )% Upgrade and retention costs 1,253 1,209 44 3.6 % General and administrative expenses 1,142 1,046 96 9.2 % Depreciation and amortization expense 1,501 1,587 (86 ) (5.4 )% Total operating costs and expenses 19,082 18,170 912 5.0 % Operating profit $ 4,153$ 3,702$ 451 12.2 % Operating profit margin 17.9 % 16.9 % - - Other data: Operating profit before depreciation and amortization $ 5,654$ 5,289$ 365 6.9 % Operating profit before depreciation and amortization margin 24.3 % 24.2 % - - Total number of subscribers (in thousands) 20,084 19,885 199 1.0 % ARPU $ 96.98$ 93.27$ 3.71 4.0 % Average monthly subscriber churn % 1.53 % 1.56 % - (1.9 )% Gross subscriber additions (in thousands) 3,874 4,316 (442 ) (10.2 )% Subscriber disconnections (in thousands) 3,675 3,654 21 0.6 % Net subscriber additions (in thousands) 199 662 (463 ) (69.9 )% Average subscriber acquisition costs-per subscriber (SAC) $ 859 $ 813 $ 46 5.7 % Capital expenditures: Property and equipment $ 541 $ 567 $ (26 ) (4.6 )% Subscriber leased equipment-subscriber acquisitions 656 713 (57 ) (8.0 )% Subscriber leased equipment-upgrade and retention 291 315 (24 ) (7.6 )% Satellites 253 141 112 79.4 % Total capital expenditures $ 1,741$ 1,736 $ 5 0.3 % Depreciation expense-subscriber leased equipment $ 815 $ 903 $ (88 ) (9.7 )% Subscribers. In 2012, net subscriber additions decreased due to lower gross subscriber additions primarily resulting from an increased focus on attaining higher-quality subscribers and stricter credit policies, as well as lower gross additions from our telco sales channel. Average monthly subscriber churn decreased in 2012 49



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primarily due to a greater number of subscribers on contract commitments and auto-bill pay.

Revenues. Our revenues increased as a result of higher ARPU and the larger subscriber base. The increase in ARPU resulted primarily from price increases on programming packages and set-top receiver lease fees, as well as higher advanced receiver service fees and higher commercial revenues, partially offset by increased promotional offers to new and existing subscribers. Operating profit before depreciation and amortization. Operating profit before depreciation and amortization was higher in 2012 as compared to 2011 as higher revenues and lower subscriber acquisition costs were partially offset by higher broadcasting programming costs, increased general and administrative costs and higher upgrade and retention costs. Operating profit before depreciation and amortization margin increased in 2012 as compared to 2011 as the revenue growth, lower subscriber acquisition costs and efficiencies in subscriber service costs were partially offset by higher relative growth in broadcast programming and other costs.



Broadcast programming and other costs increased primarily due to annual program supplier rate increases and the larger number of subscribers.

Subscriber acquisition costs decreased primarily due to lower gross subscriber additions. SAC per subscriber, which includes the cost of capitalized set top receivers, increased primarily due to an increase in subscriber demand for advanced products and higher marketing costs per subscriber added.



Upgrade and retention costs increased in 2012 due to our increased focus on upgrading and retaining high-quality subscribers.

General and administrative expenses increased in 2012 primarily due to a benefit from a property tax adjustment recorded in 2011, as well as equipment impairment charges recorded in 2012, primarily related to equipment financing provided to a dealer that has entered into bankruptcy proceedings, as well as higher rent and labor expenses in 2012. Operating profit. Operating profit and operating profit margin increased in 2012 as compared to 2011. The increase in operating profit was primarily due to the increase in operating profit before depreciation and amortization expense and lower depreciation and amortization expense in 2012 resulting from the change in HD set-top receiver estimated depreciable life from three to four years, as well as the completion of the amortization of a contract rights intangible asset. The increase in operating profit margin was primarily due to the decrease in depreciation and amortization expense.



DIRECTV Latin America Results of Operations

The following table provides operating results and a summary of key subscriber data for the consolidated DIRECTV Latin America operations:

Change 2012 2011 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 6,244$ 5,096$ 1,148 22.5 % Operating profit before depreciation and amortization 1,862 1,663 199 12.0 % Operating profit before depreciation and amortization margin 29.8 % 32.6 % - - Operating profit $ 955$ 916 $ 39 4.3 % Operating profit margin 15.3 % 18.0 % - - Other data: ARPU $ 57.25$ 62.64$ (5.39 ) (8.6 )% Average monthly total subscriber churn % 1.81 % 1.78 % - 1.7 % Average monthly post-paid subscriber churn % 1.50 % 1.42 % - 5.6 % Total number of subscribers (in thousands) (1) (2) 10,328 7,871 2,457 31.2 % Gross subscriber additions (in thousands) (1) (2) 4,417 3,510 907 25.8 % Net subscriber additions (in thousands) (1) (2) 2,439 2,063 376 18.2 % Capital expenditures: Property and equipment $ 214 $ 93 $ 121 130.1 % Subscriber leased equipment-subscriber acquisitions 837 834 3 0.4 % Subscriber leased equipment-upgrade and retention 419 397 22 5.5 % Satellites 128 104 24 23.1 % Total capital expenditures $ 1,598$ 1,428$ 170 11.9 %



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(1)

DIRECTV Latin America subscriber data exclude subscribers of the Sky Mexico

platform. (2) Excludes 18,000 subscribers acquired in a 2012 transaction in Brazil. 50



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Sky Brasil Results of Operations

The following table provides operating results and a summary of key subscriber data for the consolidated Sky Brasil operations:

Change 2012 2011 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 3,501$ 3,020$ 481 15.9 % Operating profit before depreciation and amortization 1,088 991 97 9.8 % Operating profit before depreciation and amortization margin 31.1 % 32.8 % - - Operating profit $ 555$ 542$ 13 2.4 % Operating profit margin 15.9 % 17.9 % - - Other data: ARPU $ 65.68$ 80.94$ (15.26 ) (18.9 )% Total number of subscribers (in thousands) 5,038 3,793 1,245 32.8 % Total capital expenditures $ 812$ 902$ (90 ) (10.0 )% Subscribers. The increase in gross subscriber additions was primarily due to higher demand for our middle market products. Net subscriber additions decreased in 2012 due to higher average monthly total subscriber churn partially offset by the increase in gross subscriber additions in the middle market. Revenues. Revenues increased in 2012 as compared to 2011 due to strong subscriber growth in the middle market partially offset by a decrease in ARPU. The decrease in ARPU was primarily due to unfavorable exchange rates, as well as the as the effect of increased penetration of lower ARPU middle market subscribers, partially offset by higher upgrades.



Operating profit before depreciation and amortization. Operating profit before depreciation and amortization increased in 2012 as compared to 2011, primarily due to higher revenues, partially offset by higher broadcast programming costs related to the larger subscriber base and higher customer service expenses primarily due to higher costs related to serving a growing penetration of middle market subscribers.

Operating profit before depreciation and amortization margin decreased in 2012 as compared to 2011, as the revenue growth was more than offset by higher relative growth in subscriber service expenses associated with serving the middle market discussed above. Operating profit. Operating profit increased in 2012 as compared to 2011 primarily due to higher operating profit before depreciation and amortization discussed above, partially offset by higher depreciation expense resulting from an increase in basic and advanced product receivers capitalized due to the higher gross subscriber additions in 2012. Operating profit margin decreased in 2012 as compared to 2011 due to the lower operating profit before depreciation and amortization margin and higher depreciation and amortization expense.



PanAmericana and Other Results of Operations

The following table provides operating results and a summary of key subscriber data for the consolidated DIRECTV PanAmericana and Other operations: Change 2012 2011 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 2,743$ 2,076$ 667 32.1 % Operating profit before depreciation and amortization 774 672 102 15.2 % Operating profit before depreciation and amortization margin 28.2 % 32.4 % - - Operating profit $ 400$ 374 $ 26 7.0 % Operating profit margin 14.6 % 18.0 % - - Other data: ARPU $ 49.24$ 47.18$ 2.06 4.4 % Total number of subscribers (in thousands) 5,291 4,078 1,213 29.7 % Total capital expenditures $ 786$ 527$ 259 49.1 %



Subscribers. The increase in gross subscriber additions was primarily due to higher demand for our middle market products, primarily in Argentina, Colombia

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and Venezuela. Net subscriber additions increased in 2012 due to the higher gross subscriber additions as well as lower average monthly subscriber churn.

Revenues. Revenues increased in 2012 as compared to 2011 due to strong subscriber growth and higher ARPU primarily in Venezuela. The increase in ARPU was primarily due to price increases on programming packages, higher penetration of advanced products, partially offset by the effect of increased penetration in the middle market. Operating profit before depreciation and amortization. Operating profit before depreciation and amortization increased in 2012 as compared to 2011, primarily in Venezuela and Argentina due to higher revenues, partially offset by higher broadcast programming costs associated with certain soccer events and the Olympics. In addition, subscriber service and general and administrative expenses increased as a result of inflationary pressure on labor, subscriber acquisition costs increased due to the higher number of gross subscriber additions, and upgrade and retention costs increased as a result of the replacement of first generation set-top receivers across the region.



Operating profit before depreciation and amortization margin decreased in 2012 as compared to 2011, as the revenue growth was more than offset by the higher incremental costs as discussed above.

Operating profit. Operating profit increased in 2012 as compared to 2011 primarily due to higher operating profit before depreciation and amortization discussed above, partially offset by higher depreciation and amortization expense related to an increase in basic and advanced product receivers capitalized due to the higher gross subscriber additions in 2012 in Venezuela and Argentina, as well as higher depreciation expense related to the reduction of the useful life of a backup satellite. Operating profit margin decreased in 2012 as compared to 2011 due to the lower operating profit before depreciation and amortization margin and higher relative depreciation and amortization expense.



DIRECTV Consolidated Other Income, Income Taxes and Net Income Attributable to Noncontrolling Interest

Interest income. Interest income was $59 million in 2012 and $34 million in 2011.

Interest expense. The increase in interest expense to $842 million in 2012 from $763 million in 2011 was due to an increase in the average debt balances compared to 2011, partially offset by a decrease in weighted average interest rates. We capitalized interest costs of $24 million in 2012 and $13 million in 2011. Other, net. The significant components of "Other, net" were as follows: 2012 2011 Change (Dollars in Millions)

Equity in earnings from unconsolidated affiliates $ 131$ 109$ 22 Net foreign currency transaction loss (34 ) (50 ) 16 Net gains from sale of investments 122 63 59 Fair-value loss on non-employee stock options (4 ) (4 ) - Other (11 ) (9 ) (2 ) Loss on early extinguishment of debt (64 ) (25 ) (39 ) Total $ 140$ 84$ 56 Income tax expense. We recognized income tax expense of $1,465 million in 2012 and $1,348 million in 2011. The effective tax rate for 2012 was 33.0% compared to 33.8% for 2011. The lower effective tax rate was primarily attributable to a benefit recorded for the recognition of uncertain tax benefits due to the expiration of the statute of limitations in federal and foreign tax jurisdictions.



Net income attributable to noncontrolling interest. Net income attributable to noncontrolling interest was $28 million in 2012 and $27 million in 2011.

Earnings Per Share

Common stock earnings per share and weighted shares outstanding were as follows for the years ended December 31:

2012



2011

Basic earnings attributable to DIRECTTV per common share $ 4.62$ 3.49 Diluted earnings attributable to DIRECTTV per common share $ 4.58$ 3.47 Weighted average number of common shares outstanding (in millions): Basic 638 747 Diluted 644 752 52



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The increases in basic and diluted earnings per share were due a reduction in weighted average shares outstanding resulting from our share repurchase program and higher net income attributable to DIRECTV.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are our cash, cash equivalents and the cash flow that we generate from our operations. We expect that net cash provided by operating activities will grow and believe that our existing cash balances and cash provided by operations will be sufficient to fund our existing business plan. DIRECTV U.S. has the ability to borrow up to $2.5 billion under its revolving credit facilities. As of December 31, 2013, there were no borrowings outstanding under the revolving credit facilities. On November 27, 2012, DIRECTV U.S. established a commercial paper program backed by its revolving credit facilities, which provides for the issuance of short-term commercial paper in the United States up to a maximum aggregate principal of $2.5 billion. At December 31, 2013, we had $200 million of short-term commercial paper outstanding compared with $358 million outstanding at December 31, 2012. Aggregate amounts outstanding under the revolving credit facilities and the commercial paper program are limited to $2.5 billion. In March 2013, Sky Brasil entered into a financing facility with BNDES, a government owned bank in Brazil, under which Sky Brasil may borrow funds for the purchase of set-top receivers. As of December 31, 2013, Sky Brasil had borrowings of $137 million outstanding under the BNDES facility.



At December 31, 2013, our cash and cash equivalents totaled $2,180 million compared with $1,902 million at December 31, 2012.

As a measure of liquidity, the current ratio (ratio of current assets to current liabilities) was 0.91 at December 31, 2013 and 1.00 at December 31, 2012. Working capital decreased by $590 million to a deficit of $577 million at December 31, 2013 from $13 million at December 31, 2012. The decrease during the year was primarily due to an increase in our current debt balance due to a long-term senior note becoming current and payable in 2014.



Summary Cash Flow Information

Years Ended December 31, 2013 2012 2011 (Dollars in Millions) Net cash provided by operating activities $ 6,394$ 5,634$ 5,185 Net cash used in investing activities (3,753 ) (3,363 ) (3,022 ) Net cash used in financing activities (2,176 ) (1,242 ) (2,792 ) Free cash flow: Net cash provided by operating activities $ 6,394$ 5,634$ 5,185 Less: Cash paid for property, equipment and satellites (3,786 ) (3,349 ) (3,170 ) Free cash flow $ 2,608$ 2,285$ 2,015



Cash Flows Provided By Operating Activities

Net cash provided by operating activities increased in 2013 as compared to 2012 mainly due to higher operating profit before depreciation and amortization and an increase in cash generated from working capital mostly at DIRECTV U.S. related to timing of vendor payables and a decrease in inventory principally due to increased usage of refurbished set-top boxes, partially offset by increased prepaid expenses and cash paid for interest and taxes. Net cash provided by operating activities increased in 2012 as compared to 2011 due to higher operating profit before depreciation and amortization and an increase in cash generated from working capital related to the timing of customer and vendor receipts at DIRECTV U.S., partially offset by increased cash paid for interest and taxes. Cash paid for income taxes was $1,479 million in 2013, $1,406 million in 2012 and $1,042 million in 2011. The increase in cash paid for income taxes in 2013 resulted primarily from a tax payment for the settlement of prior year taxes. The increase in cash paid for income taxes in 2012 resulted mainly from increased income before income taxes and a decrease in the bonus depreciation rate from 100% in 2011 to 50% in 2012. Cash paid for interest was $840 million in 2013, $781 million in 2012 and $687 million in 2011. The increase in cash paid for interest from 2011 to 2013 is due to the increase in our average debt outstanding. 53



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Cash Flows Used In Investing Activities

Capital expenditures for subscriber leased set-top receivers at DIRECTV U.S. remained relatively flat from 2011 to 2012, as the decrease in gross subscriber additions has been offset by an increase in set-top receivers provided to subscribers under upgrade and retention initiatives. Capital expenditures for subscriber leased set-top receivers at DIRECTV U.S. increased from 2012 to 2013 due to higher penetration of advanced set-top receivers to existing customers under upgrade and retention initiatives.



In Latin America, part of our business strategy is to increase advanced product penetration. As a result, capital expenditures for subscriber leased set-top receivers at DIRECTV Latin America increased during 2011, 2012 and 2013.

During 2011, 2012 and 2013, DIRECTV U.S. was in the process of constructing two satellites, D14, which we expect to launch in the fourth quarter of 2014 and D15, which we expect to launch in the first half of 2015. Additionally, capital expenditures increased in 2012 and 2013 as a result of the construction of our new El Segundo campus. During 2011, DIRECTV Latin America contracted to lease two satellites for PanAmericana, ISDLA 1 and ISDLA 2, which are expected to be launched in 2014 and 2015. As a part of the lease agreement, we are required to make prepayments prior to the launch and commencement of the lease term. Payments related to the lease agreement totaled $105 million for 2013, $128 million for 2012 and $104 million for 2011 and are included as satellite capital expenditures. In 2013, DIRECTV Latin America contracted for the construction and launch of a new satellite for Sky Brasil, SKY-Brasil 1, which we expect to launch in the second quarter of 2016. In 2013 we paid $59 million for the construction of SKY-Brasil 1. We paid $66 million in 2013, $16 million in 2012 and $11 million in 2011 for investments, net of cash acquired, in various companies. Our cash spending on investment in companies is discretionary and we may fund strategic investment opportunities should they arise in the future. We received cash of $257 million in 2013, primarily related to the 2012 sale of an 18% interest in Game Show Network, $24 million in 2012 related to the sale of various investments and $116 million in 2011, primarily related to the sale of a 5% ownership interest in Game Show Network and the sale of another equity method investment, as further discussed in Note 8 of the Notes to the Consolidated Financial Statements. In addition, we paid cash of $159 million for spectrum at DIRECTV Latin America and new patent licenses in DIRECTV U.S. in 2013.



Cash Flows Used in Financing Activities

Under stock repurchase plans approved by our Board of Directors, we completed the repurchase of our common stock as follows: $4,000 million in 2013, $5,175 million in 2012, $5,496 million during 2011. In the first quarter of 2014, we announced a new repurchase program authorization of an additional $3.5 billion. We may make purchases under this program in the open market, through negotiated transactions or otherwise. The timing, nature and amount of such transactions will depend on a variety of factors, including market conditions, and the program may be suspended, discontinued or accelerated at any time. The sources of funds for the share repurchases are our existing cash on hand, cash from operations and potential additional borrowings. During 2011, we had $3,990 million of net cash proceeds from the issuance of senior notes. We also repaid $1,000 million of our long-term debt during 2011. During 2012, we had $5,190 million of net cash proceeds from the issuance of senior notes and $358 million of net cash proceeds from the issuance of short-term commercial paper. We also repaid $1,500 million of our long-term debt and borrowed and repaid $400 million under our revolving credit facility. During 2013, we had $1,947 million of net cash proceeds from the issuance of senior notes, $152 million of cash proceeds from BNDES and $158 million of net cash repayments of short-term commercial paper. We also repaid $15 million of the BNDES financing facility and borrowed and repaid $10 million under our revolving credit facility in 2013. We anticipate additional borrowings in the future in order to achieve a ratio of outstanding long-term debt equal to approximately 2.5 times operating profit before depreciation and amortization of DIRECTV on a consolidated basis. We will continue to evaluate our optimal leverage on an ongoing basis. We may purchase our outstanding senior notes in the future from time to time in open market transactions or otherwise as part of liability management initiatives.



Debt

At December 31, 2013, we had $19,540 million in total outstanding borrowings, which consisted of senior notes and commercial paper issued by DIRECTV U.S. and borrowings under the BNDES financing facility at Sky Brasil.

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Our outstanding borrowings are more fully described in Note 10 of the Notes to the Consolidated Financial Statements in Item 8, Part II of this Annual Report.

We anticipate additional borrowings in the future in order to maintain a ratio of outstanding long-term debt equal to approximately 2.5 times operating profit before depreciation and amortization of DIRECTV on a consolidated basis. We will continue to evaluate our optimal leverage on an ongoing basis. We may purchase our outstanding senior notes in the future from time to time in open market transactions or otherwise as part of liability management initiatives. Senior Notes. At December 31, 2013, DIRECTV U.S.' senior notes had a carrying value of $19,203 million and a weighted-average coupon rate of 4.5%. The principal amount of our senior notes mature as follows: $1,000 million in 2014, $1,200 million in 2015, $2,250 million in 2016, $1,250 million in 2017, $750 million in 2018 and $12,808 million thereafter. Included in the amounts above are DIRECTV U.S.' 500 million in aggregate principal of 2.750% senior notes due in 2023, 750 million in aggregate principal of 4.375% senior notes due in 2029, and 350 million in aggregate principal of 5.200% senior notes due in 2033. In connection with the issuance of these senior notes, DIRECTV U.S. entered into cross-currency swap agreements to manage the related foreign exchange risk by effectively converting all of the fixed-rate British pound sterling and fixed-rate Euro denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate U.S. dollar denominated debt. These cross-currency swaps are designated and qualify as cash flow hedges. The terms of the cross-currency swap agreements correspond to the related hedged senior notes and have maturities ranging from May 2023 to November 2033. Commercial Paper. On November 27, 2012, DIRECTV U.S. established a commercial paper program backed by its revolving credit facilities, which provides for the issuance of short-term commercial paper in the United States up to a maximum aggregate principal of $2.5 billion. As of December 31, 2013, we had $200 million of short-term commercial paper outstanding, with a weighted average maturity of 133 days, at a weighted average yield of 0.41%, which may be refinanced on a periodic basis as borrowings mature. As of December 31, 2012, we had $358 million of short-term commercial paper outstanding, with a weighted average maturity of 90 days, at a weighted average yield of 0.54%.



Revolving Credit Facilities

On September 28, 2012, DIRECTV U.S.' five year, $2.0 billion revolving credit facility dated February 7, 2011 was terminated and replaced with a three and one-half year, $1.0 billion revolving credit facility and a five year, $1.5 billion revolving credit facility. We pay a commitment fee of 0.15% per year for the unused commitment under the revolving credit facilities. Borrowings currently bear interest at a rate equal to the London Interbank Offer Rate (LIBOR) plus 1.25%. Both the commitment fee and the annual interest rate may increase or decrease under certain conditions due to changes in DIRECTV U.S.' long-term, unsecured debt ratings. Under certain conditions, DIRECTV U.S. may increase the borrowing capacity of the revolving credit facilities by an aggregate amount of up to $500 million. Aggregate amounts outstanding under the revolving credit facilities and the commercial paper program are limited to $2.5 billion. As of December 31, 2013, there were no borrowings outstanding under the revolving credit facilities. Borrowings under the revolving credit facilities are unsecured senior obligations of DIRECTV U.S. and will rank equally in right of payment with all of DIRECTV U.S.' existing and future senior debt and will rank senior in right of payment to all of DIRECTV U.S.' future subordinated debt, if any.



Covenants and Restrictions

The revolving credit facilities require DIRECTV U.S. to maintain at the end of each fiscal quarter a specified ratio of indebtedness to earnings before interest, taxes and depreciation and amortization. The revolving credit facilities also include covenants that limit DIRECTV U.S.' ability to, among other things, (i) incur additional subsidiary indebtedness, (ii) incur liens, (iii) enter into certain transactions with affiliates, (iv) merge or consolidate with another entity, (v) sell, assign, lease or otherwise dispose of all or substantially all of its assets, and (vi) change its lines of business. Additionally, the senior notes contain restrictive covenants that are similar. If DIRECTV U.S. fails to comply with these covenants, all or a portion of its borrowings under the senior notes could become immediately payable and its revolving credit facilities could be terminated. At December 31, 2013, management believes DIRECTV U.S. was in compliance with all such covenants. The senior notes and revolving credit facilities also provide that the borrowings may be required to be prepaid if certain change-in-control events, coupled with a ratings decline, occur. 55



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Table of Contents DIRECTV DIRECTV Guarantors. DIRECTV entered into a series of Supplemental Indentures whereby DIRECTV agreed to fully guarantee all of the senior notes then outstanding, jointly and severally with most of DIRECTV Holdings LLC's domestic subsidiaries. The Supplemental Indentures provide that DIRECTV unconditionally guarantees that the principal and interest on the respective senior notes will be paid in full when due and that the obligations of the Co-Issuers to the holders of the outstanding senior notes will be performed. The revolving credit facilities and the commercial paper program are also similarly fully guaranteed by DIRECTV. As a result of the guarantees, holders of the senior notes, the revolving credit debt and the commercial paper have the benefit of DIRECTV's interests in the assets and related earnings of our operations that are not held through DIRECTV Holdings LLC and its subsidiaries. Those operations are primarily our DTH digital television services throughout Latin America which are held by DIRECTV Latin America and our regional sports networks which are held by DSN. However, the subsidiaries that own and operate the DIRECTV Latin America business and the regional sports networks have not guaranteed the senior notes, the revolving credit facilities and the commercial paper program. The guarantees are unsecured senior obligations of DIRECTV and rank equally in right of payment with all of DIRECTV's existing and future senior debt and rank senior in right of payment to all of DIRECTV's future subordinated debt, if any. The guarantees are effectively subordinated to all existing and future secured obligations, if any, of DIRECTV to the extent of the value of the assets securing the obligations. DIRECTV is not subject to the covenants contained in each indenture of the senior notes and our guarantees will terminate and be released on the terms set forth in each of the indentures.



BNDES Financing Facility

In March 2013, Sky Brasil entered into a financing facility with BNDES, a government owned bank in Brazil, under which Sky Brasil may borrow funds for the purchase of set-top receivers. As of December 31, 2013, Sky Brasil had borrowings of $137 million outstanding under the BNDES facility bearing interest at a weighted-average rate of 3.07% per year. Borrowings under the facility are required to be repaid in 30 monthly installments. The U.S. dollar amounts reflect the conversion of the Brazilian real denominated amounts into U.S. dollars based on the exchange rate of R$2.34 / $1.00 at December 31, 2013. Borrowings under the BNDES facility mature as follows: $56 million in 2014, $58 million in 2015 and $23 million in 2016 . The financing facility is collateralized by the financed set-top receivers with an original purchase price of approximately $168 million based on the exchange rate at the time of purchase.



Contingencies

Venezuela Devaluation and Foreign Currency Exchange Controls. Companies operating in Venezuela are required to obtain Venezuelan government approval to exchange Venezuelan bolivars into U.S. dollars at the official exchange rate. Our ability to pay U.S. dollar denominated obligations and repatriate cash generated in Venezuela in excess of local operating requirements is limited, resulting in an increase in the cash balance at our Venezuelan subsidiary. If exchange controls are eased in the future, accumulated cash balances may ultimately be repatriated at less than their reported value, as the official exchange rate has not changed despite continuing high inflation in Venezuela. As of December 31, 2013, our Venezuelan subsidiary had Venezuelan bolivar denominated net monetary assets of $607 million, including cash of $658 million, based on the 6.3 bolivars per U.S. dollar official exchange rate at that time. In 2013, our Venezuelan subsidiary generated revenues of approximately $900 million and operating profit before depreciation and amortization of approximately $500 million excluding the impact of the $166 million Venezuelan devaluation charge recorded in February 2013. 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 in "Venezuelan currency devaluation charge" in the Consolidated Statements of Operations 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. There also are ongoing impacts to our results of operations subsequent to the devaluation, primarily related to the translation of local currency financial statements at the new official exchange rate. In the event of a future devaluation of the bolivar, we will recognize a charge to earnings based on the amount of bolivar denominated net monetary assets held at the time of such devaluation. Any future devaluation would also result in ongoing impacts to our results of operations.



Also in February 2013, the Venezuelan government announced a new currency exchange system, the Sistema Complementario de AdministraciÓn de Divisas, or

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Table of Contents DIRECTV SICAD, which is intended to function as a public bidding system for private entities that import goods. Effective January 24, 2014, the Venezuelan government required that dividends and royalties will be subject to the SICAD program. The most recent transactions executed through SICAD auctions have been at an exchange rate of 11.4 bolivars per U.S. dollar. Depending on the transparency and liquidity of the SICAD market, it is possible that in the future we may remeasure our net monetary assets at the SICAD rate. To the extent that the SICAD rate is higher than the official exchange rate at that time, this could result in an additional devaluation charge. We have not executed any transactions through the SICAD program. Income taxes. During 2013, we reached settlement with federal and state tax jurisdictions resulting in the recognition of uncertain tax benefits. As a result we recorded a benefit of $76 million in "Income tax expense" in the Consolidated Statements of Operations during the year ended December 31, 2013. During 2012, the statute of limitations expired in federal and foreign tax jurisdictions resulting in the recognition of uncertain tax benefits. As a result we recorded a benefit of $168 million in "Income tax expense" in the Consolidated Statements of Operations during the year ended December 31, 2012. We engage in continuous discussions and negotiations with federal, state, and foreign taxing authorities and reevaluate our uncertain tax positions, and, while it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter or tax position, we believe that it is reasonably possible that our unrecognized tax benefits will not change materially during the next twelve months. Redeemable Noncontrolling Interest. As discussed in Note 21 of the Notes to the Consolidated Financial Statements in Item 8, Part II of this Annual Report, Globo had the right to exchange Sky Brasil shares for cash or our common shares. Globo did not exercise their right, which expired. Other. Several factors may affect our ability to fund our operations and commitments that we discuss in "Contractual Obligations," "Off-Balance Sheet Arrangements" and "Contingencies" below. In addition, our future cash flows may be reduced if we experience, among other things, significantly higher subscriber additions than planned, increased subscriber churn or upgrade and retention costs, higher than planned capital expenditures for satellites and broadcast equipment, satellite anomalies or signal theft. Additionally, DIRECTV U.S.' ability to borrow under the revolving credit facilities is contingent upon DIRECTV U.S. meeting financial and other covenants associated with its facilities as more fully described above.



CONTRACTUAL OBLIGATIONS

The following table sets forth our contractual obligations as of December 31, 2013, including the future periods in which payments are expected. Additional details regarding these obligations are provided in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report, as referenced in the table. The contractual obligations below do not include payments that could be made related to our net unrecognized tax benefits liability, which amounted to $406 million as of December 31, 2013. The timing and amount of any future payments is not reasonably estimable, as such payments are dependent on the completion and resolution of examinations with tax authorities. Payments Due By Period Less than More than Contractual Obligations Total 1 year 1-3 years 3-5 years 5 years (Dollars in Millions) Long-term debt obligations (Note 10) (a) $ 30,246$ 1,925$ 5,068$ 3,344$ 19,909 Purchase obligations (Note 21) (b) 4,793 2,122 1,624 476 571 Operating lease obligations (Note 21) (c) 996 99 193 184 520 Capital lease obligations (Notes 13 and 21) (d) 1,421 102 283 263 773 Total $ 37,456$ 4,248$ 7,168$ 4,267$ 21,773



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(a)

Long-term debt obligations include interest calculated based on the rates

in effect at December 31, 2013, however, the obligations do not reflect

potential prepayments required under indentures. (b) Purchase obligations consist primarily of broadcast programming



commitments, regional professional team rights agreements, service contract

commitments and satellite construction and launch contracts. Broadcast

programming commitments include guaranteed minimum contractual commitments

that are typically based on a flat fee or a minimum number of required

subscribers subscribing to the related programming. Actual payments may

exceed the minimum payment requirements if the actual number of subscribers

subscribing to the related programming exceeds the minimum amounts. Service

contract commitments include minimum commitments for the purchase of services that have been outsourced to third parties, such as billing services, telemetry, 57



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tracking and control services and broadcast center services. In most cases,

actual payments, which are typically based on volume, usually exceed these

minimum amounts.

(c)

Certain of the operating leases contain variable escalation clauses and

renewal or purchase options, which we do not consider in the amounts disclosed. (d)



Capital lease obligations includes obligations under the contract for the

lease of the ISDLA-1 and ISDLA-2 satellites currently under construction

for DIRECTV Latin America, which we expect to account for as capital leases

at the time the satellites are placed into service. For further discussion,

please refer to Note 21 of the Notes to the Consolidated Financial

Statements in Part II, Item 8 of this Annual Report.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2013, we were contingently liable under standby letters of credit and bonds in the aggregate amount of $236 million primarily related to judicial deposit and payment guarantees in Latin America and insurance deductibles.



CONTINGENCIES

For a discussion of "Contingencies", see Note 21 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.

CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS

For a discussion of "Certain Relationships and Related-Party Transactions," see Note 19 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report. CRITICAL ACCOUNTING ESTIMATES The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates, judgments and assumptions that affect amounts reported. Management bases its estimates, judgments and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported for future periods may be affected by changes in those estimates. The following represents what we believe are the critical accounting policies that may involve a higher degree of estimation, judgment and complexity. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed our disclosures relating to them, which are presented below. For a summary of our significant accounting policies, including those discussed below, see Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report. Income Taxes. We must make certain estimates and judgments in determining provisions for income taxes. These estimates and judgments occur in the calculation of tax credits, tax benefits and deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. We assess the recoverability of deferred tax assets at each reporting date and where applicable, record a valuation allowance to reduce the total deferred tax asset to an amount that will, more-likely-than-not, be realized in the future. Our assessment includes an analysis of whether deferred tax assets will be realized in the ordinary course of operations based on the available positive and negative evidence, including the scheduling of deferred tax liabilities and forecasted income from operating activities. The underlying assumptions we use in forecasting future taxable income require significant judgment. In the event that actual income from operating activities differs from forecasted amounts, or if we change our estimates of forecasted income from operating activities, we could record additional charges or reduce allowances in order to adjust the carrying value of deferred tax assets to their realizable amount. Such adjustments could be material to our consolidated financial statements. In addition, the recognition of a tax benefit for tax positions involves dealing with uncertainties in the application of complex tax regulations. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. We provide for taxes for uncertain tax positions where assessments have not been received. We believe such tax reserves are adequate in relation to the potential for additional assessments. Once established, we adjust these amounts only when more information is available or when an event occurs necessitating a change to the reserves. Future events such as changes in the facts or law, judicial decisions regarding the application of existing law or a favorable audit outcome will result in changes to the amounts provided. Contingent Matters. Determining when, or if, an accrual should be recorded for a contingent matter, including but not limited to legal and tax issues, and the 58



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Table of Contents DIRECTV amount of such accrual, if any, requires a significant amount of management judgment and estimation. We develop our judgments and estimates in consultation with outside counsel based on an analysis of potential outcomes. Due to the uncertainty of determining the likelihood of a future event occurring and the potential financial statement impact of such an event, it is possible that upon further development or resolution of a contingent matter, we could record a charge in a future period that would be material to our consolidated financial statements. Depreciable Lives of Leased Set-Top Receivers. We currently lease most set-top receivers provided to new and existing subscribers and therefore capitalize the cost of those set-top receivers. We depreciate set-top receivers at DIRECTV U.S. over a three to five year estimated useful life, which is based on, among other things, management's judgment of the risk of technological obsolescence. Changes in the estimated useful lives of set-top receivers capitalized could result in significant changes to the amounts recorded as depreciation expense. If we extended the depreciable life of the set-top receivers at DIRECTV U.S. by one year, it would result in an approximately $284 million reduction in annual depreciation expense. Valuation of Long-Lived Assets. We evaluate the carrying value of long-lived assets to be held and used, other than goodwill and intangible assets with indefinite lives, when events and circumstances warrant such a review. We consider the carrying value of a long-lived asset impaired when the anticipated undiscounted future cash flow from such asset is separately identifiable and is less than its carrying value. In that event, we recognize a loss based on the amount by which the carrying value exceeds the fair value of the long-lived asset. We determine fair value primarily using the estimated future cash flows associated with the asset under review, discounted at a rate commensurate with the risk involved, and other valuation techniques. We determine losses on long-lived assets to be disposed of in a similar manner, except that we reduce the fair value for the cost of disposal. Changes in estimates of future cash flows could result in a write-down of the asset in a future period. Valuation of Goodwill and Intangible Assets with Indefinite Lives. We evaluate the carrying value of goodwill and intangible assets with indefinite lives annually in the fourth quarter or more frequently when events and circumstances change that would more likely than not result in an impairment loss. We completed our annual impairment testing during the fourth quarter of 2013, and determined that there was no impairment of goodwill or intangible assets with indefinite lives. As of December 31, 2013, the fair value of each reporting unit and our intangible assets with indefinite lives significantly exceed their carrying values. See Note 7 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report. The goodwill evaluation requires the estimation of the fair value of reporting units where we record goodwill. We determine fair values primarily using estimated cash flows discounted at a rate commensurate with the risk involved, when appropriate. Estimation of future cash flows requires significant judgment about future operating results, and can vary significantly from one evaluation to the next. Risk adjusted discount rates are not fixed and are subject to change over time. As a result, changes in estimated future cash flows and/or changes in discount rates could result in a write-down of goodwill or intangible assets with indefinite lives in a future period which could be material to our consolidated financial statements.



ACCOUNTING CHANGES

For a discussion of accounting changes see Note 3 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.


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Source: Edgar Glimpses