News Column

DIRECTV Announces Second Quarter 2014 Results

July 31, 2014

DIRECTV Surpasses 39 Million Total Subscribers in the Quarter.

  • Sky Brasil and PanAmericana achieve record-breaking gross subscriber additions resulting in strong DTVLA second quarter net new customer additions of 543,000.

    DIRECTV Revenues Grow 5% to $8.1 Billion.

  • Revenue driven by DIRECTV U.S. ARPU growth of 4.6% along with strong DIRECTV Latin America subscriber growth over the last year.

    DIRECTV's Reported Diluted EPS Increases 35% to $1.59.

    DIRECTV Free Cash Flow Increases 24% to Nearly $1.5 Billion Year To Date.

    EL SEGUNDO, Calif.--(BUSINESS WIRE)-- DIRECTV (NASDAQ:DTV) today reported that second quarter 2014 revenues increased 5% to $8.11 billion, reported operating profit before depreciation and amortization1 (OPBDA) increased 3% to $2.15 billion, reported operating profit increased 5% to $1.42 billion and reported diluted earnings per share increased 35% to $1.59 compared to last year's second quarter.

    “Building on our first quarter momentum, DIRECTV delivered yet another excellent quarter of operating and financial results,” said Mike White, President and CEO of DIRECTV. “We continue to extend our position as the world’s largest pay TV service with industry leading growth by leveraging the strength of our premier brands and distinctive products and service offerings throughout the Americas.” White added, “DIRECTV Latin America’s second quarter results highlight the tremendous success of our unparalleled FIFA World Cup coverage, while DIRECTV U.S. continues to successfully execute on our overarching goal to balance top line sales with bottom line profitability. Overall, DIRECTV continues to deliver on our strategic imperatives as we prepare for the exciting opportunities that our merger with AT&T will bring to our customers, employees and key stakeholders."

     

    DIRECTV'S Operational Review

     
    DIRECTV Consolidated Three Months Ended

    June 30,
    Six Months Ended

    June 30,
    Dollars in Millions except Earnings per Common Share   2014   2013 2014   2013
    Reported Financial Results                      
    Revenues   $ 8,109     $ 7,700   $ 15,964     $ 15,280  
    Reported Operating Profit Before Depreciation and Amortization(1) 2,153   2,081 4,094   4,001
    Reported OPBDA Margin(1)   26.6 %   27.0 % 25.6

    %

      26.2

    %

    Reported Operating Profit 1,424 1,350 2,651 2,592
    Reported Operating Profit Margin   17.6 %   17.5 % 16.6 %   17.0 %
    Reported Net Income Attributable to DIRECTV   806     660   1,367     1,350  
    Reported Diluted Earnings Per Common Share   $ 1.59     $ 1.18   $ 2.67     $ 2.37  
    Capital Expenditures and Cash Flow                      
    Cash Paid for Property and Equipment   255     193   454     345  
    Cash Paid for Subscriber Leased Equipment - Subscriber Acquisitions   300     403   545     772  
    Cash Paid for Subscriber Leased Equipment - Upgrade and Retention   212     236   418     463  
    Cash Paid for Satellites   55     116   109     194  
    Cash Flow Before Interest and Taxes(2)   1,408     1,179   2,693     2,286  
    Free Cash Flow(3)   652     526   1,538     1,236  
    Venezuela Currency Charge Impact On(4):                      
    Operating Profit Before Depreciation and Amortization   (3 )     (284 )   (166 )
    Operating Profit   (3 )     (284 )   (166 )
    Net Income Attributable to DIRECTV   (3 )     (284 )   (136 )
    Diluted Earnings Per Common Share   $     $   $ (0.55 )   $ (0.24 )
    Adjusted Financial Results                      
    Adjusted Operating Profit Before Depreciation and Amortization(1) 2,156 2,081 4,378 4,167
    Adjusted OPBDA Margin(1)   26.6 %   27.0 % 27.4 %   27.3 %
    Adjusted Operating Profit 1,427 1,350 2,935 2,758
    Adjusted Operating Profit Margin   17.6 %   17.5 % 18.4 %   18.0 %
    Adjusted Net Income Attributable to DIRECTV   809     660   1,651     1,486  
    Adjusted Diluted Earnings Per Common Share   $ 1.59     $ 1.18   $ 3.22     $ 2.61  


    "Adjusted" financial results exclude the impact of the gains and charges outlined above associated with the remeasurement of the net monetary assets of the company's subsidiary in Venezuela. See footnote 4 for additional information.

    Second Quarter Review

    DIRECTV's second quarter revenues increased 5% to $8.11 billion principally due to strong ARPU growth at DIRECTV U.S. as well as subscriber growth at DIRECTV Latin America (DTVLA) and DIRECTV U.S. over the last twelve months. These increases were partially offset by lower ARPU at DTVLA due to unfavorable changes in exchange rates. Reported OPBDA increased 3% to $2.15 billion, while reported OPBDA margin decreased to 26.6% in the quarter. The decline in margin was primarily due to higher programming and subscriber acquisition costs at both DIRECTV U.S. and DTVLA. Reported operating profit increased 5% to $1.42 billion, while reported operating profit margin remained flat at 17.6%. The operating profit margin was unchanged as the lower OPBDA margin was offset by the impact of lower depreciation expense at DTVLA compared to the prior year period.

    Second quarter reported net income attributable to DIRECTV increased 22% to $806 million due to the higher reported operating profit, as well as favorable changes on the "Other, net" line of the Consolidated Statements of Operations. "Other, net" was impacted by a $44 million improvement in foreign currency translation at Sky Brasil and a $59 million non-cash pre-tax charge in the second quarter of 2013 due to the deconsolidation of DSN Northwest. Reported diluted earnings per share grew 35% to $1.59 in the quarter due to the higher adjusted net income attributable to DIRECTV and the impact of share repurchases.

    Cash flow before interest and taxes2 increased 19% to $1.41 billion compared to the second quarter of 2013, primarily due to the higher OPBDA along with a reduction in cash paid for leased equipment at DIRECTV U.S. and DTVLA related to declining set-top box costs and the timing of purchases at DTVLA. Free cash flow3 grew 24% to $652 million compared to the second quarter of 2013, as the higher cash flow before interest and taxes was partially offset by an increase in income tax payments related to higher earnings before taxes, as well as higher interest payments associated with an increase in average debt balances.

    Also during the quarter, but not included in free cash flow, were an April 2014 debt redemption by DIRECTV U.S. of $1,000 million principal amount of 4.750% senior notes due in 2014 and cash paid for share repurchases of $491 million. DIRECTV halted share buybacks following the announcement of the proposed transaction with AT&T on May 18, 2014.

    Year to Date Review

    DIRECTV's revenues for the first six months of 2014 of $15.96 billion increased 4% principally due to higher ARPU at DIRECTV U.S. as well as subscriber growth over the last year at DTVLA and DIRECTV U.S. These increases were partially offset by lower ARPU at DTVLA primarily due to unfavorable changes in exchange rates. Adjusted OPBDA increased 5% to $4.38 billion and adjusted operating profit increased 6% to $2.94 billion compared with the same period of 2013. Adjusted OPBDA margin remained relatively unchanged in the period, while adjusted operating profit margin expanded from 18.0% to 18.4% due to the impact of relatively unchanged depreciation expense at DTVLA compared to the prior year period. Reported OPBDA and reported operating profit both increased 2% to $4.09 billion and $2.65 billion, respectively, in the first half of the year.

    Adjusted net income attributable to DIRECTV increased 11% to $1.65 billion compared with the first six months of 2013 primarily due to higher adjusted operating profit and favorable comparisons on the "Other, net" line of the Consolidated Statements of Operations. "Other, net" was impacted by a $44 million improvement in foreign currency translation at Sky Brasil and a $59 million non-cash pre-tax charge in the second quarter of 2013 due to the deconsolidation of DSN Northwest. These increases were partially offset by an increase in income tax expense related to higher earnings before taxes, as well as higher interest expense associated with an increase in average debt balances. Adjusted diluted earnings per share improved 23% to $3.22 due to the higher net income, as well as the impact of share repurchases. Reported net income attributable to DIRECTV increased slightly to $1.37 billion while reported diluted earnings per share improved 13% to $2.67.

    Cash flow before interest and taxes increased 18% to $2.69 billion compared to the first six months of 2013 primarily due to the higher OPBDA, along with a reduction in cash paid for leased equipment at DIRECTV U.S. and DTVLA related to declining set-top box costs and the timing of purchases at DTVLA. Free cash flow grew 24% to $1.54 billion compared to the first six months of 2013, as the higher cash flow before interest and taxes was partially offset by an increase in income tax payments related to higher earnings before taxes, as well as higher interest payments associated with an increase in average debt balances.

    Also during the first half of 2014, but not included in free cash flow, were a March 2014 debt issuance by DIRECTV U.S. of $1,250 million principal amount of 4.45% senior notes due in 2024, an April 2014 debt redemption by DIRECTV U.S. of $1,000 million principal amount of 4.750% senior notes due in 2014, cash paid for share repurchases of $1.39 billion, as well as a $316 million reduction in DIRECTV’s cash balance resulting from the devaluation of the Venezuelan bolivar denominated cash balance in March 2014.

     

    SEGMENT FINANCIAL REVIEW

    DIRECTV U.S. Segment

     
    DIRECTV U.S. Three Months Ended

    June 30,
    Six Months Ended

    June 30,
    Dollars in Millions except ARPU   2014   2013 2014   2013
    Reported Financial Results                      
    Revenues   $ 6,272     $ 5,943   $ 12,359     $ 11,733  
    Average Monthly Revenue per Subscriber (ARPU) ($)   103.26     98.73   101.72     97.43  
    Operating Profit Before Depreciation and Amortization(1) 1,748   1,651 3,417   3,172
    OPBDA Margin(1)   27.9 %   27.8 % 27.6 %   27.0 %
    Operating Profit 1,319 1,241 2,562 2,356
    Operating Profit Margin   21.0 %   20.9 % 20.7 %   20.1 %
    Capital Expenditures and Cash Flow                      
    Cash Paid for Property and Equipment   183     154   327     265  
    Cash Paid for Subscriber Leased Equipment - Subscriber Acquisitions   115     151   232     325  
    Cash Paid for Subscriber Leased Equipment - Upgrade and Retention   104     119   214     230  
    Cash Paid for Satellites   22     55   33     108  
    Cash Flow Before Interest and Taxes(2)   1,236     1,127   2,303     2,119  
    Subscriber Data (in 000's except Churn)                      
    Gross Subscriber Additions   908     839   1,799     1,732  
    Average Monthly Subscriber Churn   1.55 %   1.53 % 1.50 %   1.49 %
    Net Subscriber Disconnections   (34 )   (84 ) (22 )   (63 )
    Cumulative Subscribers   20,231     20,021   20,231     20,021  
     


    Second Quarter Review

    In the quarter, DIRECTV U.S. revenues increased 6% to $6.27 billion compared with the second quarter of 2013 primarily due to strong ARPU growth along with a larger subscriber base. The ARPU increase of 4.6% to $103.26 was driven by price increases on programming packages, higher advanced receiver service fees, higher fees for the new enhanced warranty program, as well as increased commercial business and ad sales revenues. These improvements were partially offset by increased promotional offers to new and existing customers.

    DIRECTV U.S. net subscriber losses of approximately (34) thousand improved compared to the prior year period primarily due to an 8% increase in gross additions to approximately 908 thousand, partially offset by a slightly higher average monthly churn rate of 1.55% principally resulting from a more competitive environment. The improvement in gross additions was primarily driven by streamlined promotional offers and investments in retail distributors. DIRECTV U.S. ended the quarter with 20.23 million subscribers.

    Second quarter OPBDA increased 6% to $1.75 billion and OPBDA margin improved slightly from 27.8% to 27.9% principally due to higher revenues combined with lower upgrade and retention expenses mostly related to reduced equipment costs, as well as relatively unchanged general and administrative expenses. These improvements were mostly offset by higher subscriber acquisition costs associated with the increase in gross additions and higher programming costs primarily related to programming supplier rate increases. Operating profit increased 6% to $1.32 billion and operating profit margin was up slightly from 20.9% to 21.0% in the second quarter mainly due to the higher OPBDA and OPBDA margin.

     

    DIRECTV Latin America

     
    DIRECTV Latin America Three Months Ended

    June 30,
    Six Months Ended

    June 30,
    Dollars in Millions except ARPU   2014   2013 2014   2013
    Reported Financial Results                      
    Revenues   $ 1,789     $ 1,686   $ 3,510     $ 3,414  
    Average Monthly Revenue per Subscriber (ARPU) ($)   48.88     51.13   48.79     52.82  
    Reported Operating Profit Before Depreciation and Amortization(1) 438   455 697   835
    Reported OPBDA Margin(1)   24.5 %   27.0 % 19.9 %   24.5 %
    Reported Operating Profit 142 139 116 256
    Reported Operating Profit Margin   7.9 %   8.2 % 3.3 %   7.5 %
    Capital Expenditures and Cash Flow                      
    Cash Paid for Property and Equipment   70     39   126     80  
    Cash Paid for Subscriber Leased Equipment - Subscriber Acquisitions   185     252   313     447  
    Cash Paid for Subscriber Leased Equipment - Upgrade and Retention   108     117   204     233  
    Cash Paid for Satellites   27     58   65     80  
    Cash Flow Before Interest and Taxes(2)   150     7   354     109  
    Subscriber Data(in 000's except Churn)                      
    Gross Subscriber Additions(6)   1,311     1,189   2,422     2,370  
    Average Monthly Total Subscriber Churn(5)   2.10 %   3.10 % 2.11 %   2.51 %
    Average Monthly Post-paid Subscriber Churn(5)   1.90 %   2.86 % 1.88 %   2.31 %
    Net Subscriber Additions(5)(6)   543     165   904     748  
    Cumulative Subscribers (5) (6)   12,472     11,077   12,472     11,077  
    Venezuela Currency Charge Impact On(4):                      
    Operating Profit Before Depreciation and Amortization   (3 )     (284 )   (166 )
    Operating Profit   (3 )     (284 )   (166 )
    Adjusted Financial Results                      
    Adjusted Operating Profit Before Depreciation and Amortization(1) 441 455 981 1,001
    Adjusted OPBDA Margin(1)   24.7 %   27.0 % 27.9 %   29.3 %
    Adjusted Operating Profit 145 139 400 422
    Adjusted Operating Profit Margin   8.1 %   8.2 % 11.4 %   12.4 %
     


    "Adjusted" financial results exclude the impact of the gains and charges outlined above associated with the remeasurement of the net monetary assets of the company's subsidiary in Venezuela. See footnote 4 for additional information.

    DIRECTV Latin America owns approximately 93% of Sky Brasil, 41% of Sky Mexico and 100% of PanAmericana, which covers most of the remaining countries in the region. Sky Mexico, whose results are accounted for as an equity method investment and therefore are not consolidated by DTVLA, had approximately 6.36 million subscribers as of June 30, 2014, bringing the total subscribers in the region to 18.83 million.

     

    Sky Brasil Segment

     
    Sky Brasil Three Months Ended

    June 30,
    Six Months Ended

    June 30,
    Dollars in Millions except ARPU   2014   2013 2014   2013
    Reported Financial Results                      
    Revenues   $ 1,011     $ 942   $ 1,950     $ 1,907  
    Average Monthly Revenue per Subscriber (ARPU) ($)   60.77     60.32   59.21     61.72  
    Operating Profit Before Depreciation and Amortization(1) 289   262 600   573
    OPBDA Margin(1)   28.6 %   27.8 % 30.8 %   30.0 %
    Operating Profit 114 56 262 210
    Operating Profit Margin   11.3 %   5.9 % 13.4 %   11.0 %
    Other Data                      
    Total Capital Expenditures   229     263   390     470  
    Net Subscriber Additions (Disconnections)(5)(6) (in 000's)   137     (80 ) 246     128  
    Cumulative Subscribers(5)(6) (in 000's)   5,617     5,167   5,617     5,167  
     


    Second Quarter Review

    Excluding changes in foreign exchange rates, Sky Brasil's second quarter revenues grew 15% versus the prior year period driven by a 7% increase in the average number of subscribers and an 8% increase in local currency ARPU. The increase in local currency ARPU was principally due to reduced promotional offers, as well as growth in advanced services. When factoring in unfavorable changes in foreign exchange rates, Sky Brasil's revenues increased 7% to $1.01 billion and ARPU improved 0.7% to $60.77 compared to the second quarter of 2013.

    Second quarter net subscriber additions of approximately 137 thousand were higher than the prior year period due to record gross additions, as well as a lower average monthly churn rate. The increase in gross additions was primarily driven by demand related to the FIFA World Cup. Churn in the quarter was lower than the prior year period due to the termination of subscribers related to the improper crediting of certain customer accounts in the second quarter of 2013(5).

    Also in the second quarter, Sky Brasil OPBDA increased 10% to $289 million and OPBDA margin expanded from 27.8% to 28.6% primarily due to the increase in local currency ARPU, partially offset by higher expenses associated with the broadband network buildout. Operating profit more than doubled to $114 million and operating profit margin increased from 5.9% to 11.3% due to the improvements in OPBDA and OPBDA margin, as well as lower depreciation expense compared to the prior year period. The second quarter of 2013 was unfavorably impacted by additional depreciation associated with capitalized installation costs and subscriber equipment related to the higher subscriber churn(5).

     

    PanAmericana and Other Segment

     
    PanAmericana and Other Three Months Ended

    June 30,
    Six Months Ended

    June 30,
    Dollars in Millions except ARPU   2014   2013 2014   2013
    Reported Financial Results                      
    Revenues   $ 778     $ 744   $ 1,560     $ 1,507  
    Average Monthly Revenue per Subscriber (ARPU) ($)   38.96     42.96   39.99     44.79  
    Reported Operating Profit Before Depreciation and Amortization(1) 149   193 97   262
    Reported OPBDA Margin(1)   19.2 %   25.9 % 6.2 %   17.4 %
    Reported Operating Profit (Loss) 28 83 (146 ) 46
    Reported Operating Profit Margin   3.6 %   11.2 % *NM   3.1 %
    Other Data                      
    Total Capital Expenditures   161     203   318     370  
    Net Subscriber Additions (in 000's)   406     245   658     620  
    Cumulative Subscribers (in 000's)   6,855     5,910   6,855     5,910  
    Venezuela Currency Charge Impact On(4):                      
    Operating Profit Before Depreciation and Amortization   (3 )     (284 )   (166 )
    Operating Profit   (3 )     (284 )   (166 )
    Adjusted Financial Results                      
    Adjusted Operating Profit Before Depreciation and Amortization(1) 152 193 381 428
    Adjusted OPBDA Margin(1)   19.5 %   25.9 % 24.4 %   28.4 %
    Adjusted Operating Profit 31 83 138 212
    Adjusted Operating Profit Margin   4.0 %   11.2 % 8.8 %   14.1 %
     


    * Percentage not meaningful

    "Adjusted" financial results exclude the impact of the gains and charges outlined above associated with the remeasurement of the net monetary assets of the company's subsidiary in Venezuela. See footnote 4 for additional information.

    Second Quarter Review

    Excluding changes in foreign exchange rates, second quarter revenues in the PanAmericana and Other segment grew 42% versus the prior year period driven by a 15% increase in the average number of subscribers and a 23% increase in local currency ARPU. The increase in local currency ARPU was principally due to price increases and growth in advanced services, partially offset by the higher penetration of lower ARPU mass market subscribers. When factoring in unfavorable changes in foreign exchange rates, most notably in Argentina and Venezuela, revenues increased 5% to $778 million compared to the second quarter of 2013, while ARPU decreased 9.3% to $38.96.

    Second quarter subscriber net additions of approximately 406 thousand were higher than the prior year period due to record gross additions and lower average monthly subscriber churn primarily driven by demand related to the FIFA World Cup, including higher pre-paid subscriber reconnection rates.

    Also in the second quarter, reported OPBDA and reported OPBDA margin in the PanAmericana and Other segment decreased to $149 million and 19.2%, respectively. The declines were primarily due to higher programming costs associated with special events including the FIFA World Cup and increased subscriber acquisition costs related to the higher gross additions. OPBDA margin was also negatively impacted by inflation and the timing of price increases in Venezuela. In addition, reported operating profit decreased to $28 million and reported operating profit margin declined to 3.6% due to the lower OPBDA and OPBDA margin, as well as the impact of higher depreciation and amortization resulting from increased leased equipment and infrastructure capital expenditures.

    CONFERENCE CALL INFORMATION

    A live webcast of DIRECTV's second quarter 2014 earnings call will be available on the company's website at investor.directv.com. The webcast will begin at 2:00 p.m. ET, today July 31, 2014. Access to the earnings call is also available in the United States by dialing (888) 300-2342 and internationally by dialing (719) 325-2333. The conference ID number is 9916031. A replay will also be archived on our website at investor.directv.com beginning August 1, 2014.

    FOOTNOTES

    (1) Operating profit before depreciation and amortization, which is a financial measure that is not determined in accordance with accounting principles generally accepted in the United States of America, or GAAP, should be used in conjunction with other GAAP financial measures and is not presented as an alternative measure of operating results, as determined in accordance with GAAP. Please see DIRECTV's Annual Report on Form 10-K for the year ended December 31, 2013 for further discussion of operating profit before depreciation and amortization. Operating profit before depreciation and amortization margin is calculated by dividing operating profit before depreciation and amortization by total revenues.

    (2) Cash flow before interest and taxes, which is a financial measure that is not determined in accordance with GAAP, is calculated by deducting amounts under the captions “Cash paid for property and equipment”, “Cash paid for satellites”, “Cash paid for subscriber leased equipment - subscriber acquisitions” and “Cash paid for subscriber leased equipment - upgrade and retention” from “Net cash provided by operating activities” from the Consolidated Statements of Cash Flows and adding back net interest paid and “Cash paid for income taxes”. This financial measure should be used in conjunction with other GAAP financial measures and is not presented as an alternative measure of cash flows from operating activities, as determined in accordance with GAAP. DIRECTV management uses cash flow before interest and taxes to evaluate the cash generated by our current subscriber base, net of capital expenditures, and excluding the impact of interest and taxes, for the purpose of allocating resources to activities such as adding new subscribers, retaining and upgrading existing subscribers, for additional capital expenditures and as a measure of performance for incentive compensation purposes. We believe this measure is useful to investors, along with other GAAP measures (such as cash flows from operating and investing activities), to compare our operating performance to other communications, entertainment and media companies. We believe that investors also use current and projected cash flow before interest and taxes to determine the ability of our current and projected subscriber base to fund required and discretionary spending and to help determine the financial value of the company.

    (3) Free cash flow, which is a financial measure that is not determined in accordance with GAAP, is calculated by deducting amounts under the captions “Cash paid for property and equipment”, “Cash paid for satellites”, “Cash paid for subscriber leased equipment - subscriber acquisitions”, and “Cash paid for subscriber leased equipment - upgrade and retention” from “Net cash provided by operating activities” from the Consolidated Statements of Cash Flows. This financial measure should be used in conjunction with other GAAP financial measures and is not presented as an alternative measure of cash flows from operating activities, as determined in accordance with GAAP. DIRECTV management uses free cash flow to evaluate the cash generated by our current subscriber base, net of capital expenditures, for the purpose of allocating resources to activities such as adding new subscribers, retaining and upgrading existing subscribers, for additional capital expenditures and as a measure of performance for incentive compensation purposes. We believe this measure is useful to investors, along with other GAAP measures (such as cash flows from operating and investing activities), to compare our operating performance to other communications, entertainment and media companies. We believe that investors also use current and projected free cash flow to determine the ability of our current and projected subscriber base to fund required and discretionary spending and to help determine the financial value of the company.

    (4) In February 2013, the Venezuelan government announced a devaluation of the bolivar from the official exchange rate of 4.3 bolivars per U.S. dollar to an official rate of 6.3 bolivars per U.S. dollar. As a result of the devaluation, we recorded a pre-tax charge of $166 million ($136 million after tax) in the first quarter of 2013 related to the remeasurement of the bolivar denominated net monetary assets of our Venezuelan subsidiary as of the date of the devaluation. This charge is listed as "Venezuelan currency devaluation charge" in the Consolidated Statements of Operations.

    In the first quarter of 2013, the Venezuelan government announced an additional currency exchange system, the Sistema Complementario de AdministraciÓn de Divisas, or SICAD 1, intended to function as an auction system for participants to exchange bolivars for U.S. dollars. Effective January 24, 2014, the Venezuelan government announced that dividends and royalties would be subject to the SICAD 1 program. We believe the SICAD 1 rate is the most representative rate to use for remeasurement, as the official rate of 6.3 bolivars per U.S. dollar will likely be reserved only for the settlement of U.S. dollar denominated obligations related to purchases of “essential goods and services,” and the equity of our Venezuelan subsidiary would be realized, if at all, through permitted dividends paid at the SICAD 1 rate. Therefore, as of March 31, 2014, we are remeasuring our Venezuelan subsidiary’s financial statements in U.S. dollars using the exchange rate determined by periodic auctions under SICAD 1, which was 10.7 bolivars per U.S. dollar. Until that date, we used the official exchange rate of 6.3 bolivars per U.S. dollar. As a result of the remeasurement, we recorded a pre-tax (and after-tax) charge of $281 million in the first quarter of 2014 related to the remeasurement of the bolivar denominated net monetary assets of our Venezuelan subsidiary. This charge is listed as "Venezuelan currency devaluation charge" in the Consolidated Statements of Operations. Beginning in the second quarter of 2014, we are remeasuring the results of the Venezuelan subsidiary at the weighted-average rate of SICAD 1 auctions during the reporting period, and remeasuring the net monetary asset balance at the period-end rate based on the latest auction.

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

    (6) DIRECTV Latin America subscriber data exclude subscribers of the Sky Mexico service. In addition, DTVLA gross and net additions exclude 1,000 video subscribers acquired in transactions in Brazil during the six months ended June 30, 2013. DTVLA cumulative subscriber counts include these acquired customers.

    CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

    NOTE: This presentation may include or incorporate by reference certain statements that we believe are, or may be considered to be, “forward-looking statements” within the meaning of various provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements generally can be identified by use of statements that include phrases such as “believe,” “expect,” “estimate,” “anticipate,” “intend,” “plan,” “project” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. All of these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or from those expressed or implied by the relevant forward-looking statement. Such risks and uncertainties include, but are not limited to: increased competition; increasing programming costs and our ability to renew programming contracts under favorable terms; increased subscriber churn or subscriber upgrade and retention costs; potential material increase in subscriber acquisition costs; general economic conditions; risks associated with doing business internationally, which for DIRECTV Latin America include political and economic instability and foreign currency exchange rate volatility and controls; pace of technological development; potential intellectual property infringement; loss of key personnel; satellite construction or launch delays; satellite launch and operational risks; loss of a satellite; theft of satellite programming signals; U.S. and foreign governmental and regulatory action; ability to maintain licenses and regulatory approvals; significant debt; indemnification obligations; reliance on network and information systems; and the outcome of legal proceedings. We may face other risks described from time to time in periodic reports filed by us with the U.S. Securities and Exchange Commission.

    DIRECTV (NASDAQ:DTV) is one of the world's leading providers of digital television entertainment services. Through its subsidiaries and affiliated companies in the United States, Brazil, Mexico and other countries in Latin America, DIRECTV provides digital television service to over 20 million customers in the United States and over 18 million customers in Latin America. DIRECTV sports and entertainment properties include two regional sports networks (Rocky Mountain and Pittsburgh) and minority ownership interests in Root Sports Northwest and Game Show Network. For more information on DIRECTV, visit directv.com.

           
    DIRECTV
    CONSOLIDATED STATEMENTS OF OPERATIONS
    (Dollars in Millions, Except Per Share Amounts)
    (Unaudited)
     
    Three Months Ended

    June 30,
    Six Months Ended

    June 30,
    2014   20132014   2013
    Revenues   $ 8,109     $ 7,700     $ 15,964     $ 15,280  
    Operating costs and expenses
    Costs of revenues, exclusive of depreciation and amortization expense
    Broadcast programming and other 3,498 3,275 6,881 6,471
    Subscriber service expenses 574 554 1,125 1,091
    Broadcast operations expenses 107 97 204 207
    Selling, general and administrative expenses, exclusive of depreciation and amortization expense
    Subscriber acquisition costs 898 809 1,725 1,623
    Upgrade and retention costs 362 374 683 742
    General and administrative expenses 517 510 971 979
    Venezuelan currency devaluation charge 281 166
    Depreciation and amortization expense   729     731     1,443     1,409  
    Total operating costs and expenses   6,685     6,350     13,313     12,688  
    Operating profit 1,424 1,350 2,651 2,592
    Interest income 12 19 25 41
    Interest expense (230 ) (219 ) (462 ) (436 )
    Other, net   35     (75 )   92     (37 )
    Income before income taxes 1,241 1,075 2,306 2,160
    Income tax expense   (431 )   (414 )   (927 )   (801 )
    Net income 810 661 1,379 1,359
    Less: Net income attributable to noncontrolling interest   (4 )   (1 )   (12 )   (9 )
    Net income attributable to DIRECTV   $ 806     $ 660     $ 1,367     $ 1,350  
    Basic earnings attributable to DIRECTV per common share $ 1.60 $ 1.19 $ 2.70 $ 2.39
    Diluted earnings attributable to DIRECTV per common share $ 1.59 $ 1.18 $ 2.67 $ 2.37
    Weighted average number of common shares outstanding (in millions):
    Basic 504 556 507 565
    Diluted 508 561 512 569
     


    DIRECTV    
    CONSOLIDATED BALANCE SHEETS
    (Dollars in Millions)
    (Unaudited)
     
    ASSETS   June 30, 2014     December 31, 2013
    Current assets
    Cash and cash equivalents $ 2,290 $ 2,180
    Accounts receivable, net of allowances of $127 and $95 2,489 2,547
    Inventories 312 283
    Deferred income taxes 110 140
    Prepaid expenses and other   668     803  
    Total current assets 5,869 5,953
    Satellites, net 2,464 2,467
    Property and equipment, net 6,874 6,650
    Goodwill 3,992 3,970
    Intangible assets, net 903 920
    Investments and other assets   2,024     1,945  
    Total assets   $ 22,126     $ 21,905  
    LIABILITIES AND STOCKHOLDERS' DEFICIT            
    Current liabilities
    Accounts payable and accrued liabilities $ 4,314 $ 4,685
    Unearned subscriber revenues and deferred credits 637 589
    Current debt   1,542     1,256  
    Total current liabilities 6,493 6,530
    Long-term debt 18,439 18,284
    Deferred income taxes 1,798 1,804
    Other liabilities and deferred credits 1,523 1,456
    Commitments and contingencies
    Redeemable noncontrolling interest 375
    Total stockholders' deficit   (6,127 )   (6,544 )
    Total liabilities and stockholders' deficit   $ 22,126     $ 21,905  
     


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

    June 30,
        2014     2013
    Cash Flows From Operating Activities
    Net income $ 1,379 $ 1,359
    Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization expense 1,443 1,409
    Venezuelan currency devaluation charge 281 166
    DSN Northwest deconsolidation charge 59
    Amortization of deferred revenues and deferred credits (24 ) (26 )
    Share-based compensation expense 45 59
    Equity in earnings from unconsolidated affiliates (78 ) (56 )
    Net foreign currency transaction (gain) loss (11 ) 33
    Dividends received 35
    Net gains from sale of investments (17 ) (8 )
    Deferred income taxes 115 (39 )
    Excess tax benefit from share-based compensation (22 ) (24 )
    Other 45 29
    Change in other operating assets and liabilities:
    Accounts receivable 133 140
    Inventories (29 )
    Prepaid expenses and other 122 22
    Accounts payable and accrued liabilities (342 ) (322 )
    Unearned subscriber revenue and deferred credits 48 43
    Other, net   (24 )   131  
    Net cash provided by operating activities   3,064     3,010  
    Cash Flows From Investing Activities
    Cash paid for property and equipment (1,417 ) (1,580 )
    Cash paid for satellites (109 ) (194 )
    Investment in companies, net of cash acquired (8 ) (27 )
    Proceeds from sale of investments 29 140
    Other, net   (4 )   (18 )
    Net cash used in investing activities   (1,509 )   (1,679 )
     


    DIRECTV    
    CONSOLIDATED STATEMENTS OF CASH FLOWS-(continued)
    (Dollars in Millions)
    (Unaudited)
    Six Months Ended

    June 30,
        2014   2013
    Cash Flows From Financing Activities
    Issuance (repayment) of commercial paper (maturity 90 days or less), net 25 (105 )
    Proceeds from short-term borrowings 270 284
    Repayment of short-term borrowings (235 ) (262 )
    Proceeds from borrowings under revolving credit facility 10
    Repayment of borrowings under revolving credit facility (10 )
    Proceeds from long-term debt 1,329 1,445
    Debt issuance costs (7 ) (7 )
    Repayment of long-term debt (1,026 ) (3 )
    Repayment of other long-term obligations (34 ) (32 )
    Common shares repurchased and retired (1,386 ) (1,968 )
    Stock options exercised 10
    Taxes paid in lieu of shares issued for share-based compensation (57 ) (61 )
    Excess tax benefit from share-based compensation 22 24
    Other, net   (40 )   4  
    Net cash used in financing activities   (1,129 )   (681 )
    Effect of exchange rate changes on Venezuelan cash and cash equivalents   (316 )   (187 )
    Net increase in cash and cash equivalents 110 463
    Cash and cash equivalents at beginning of the period   2,180     1,902  
    Cash and cash equivalents at end of the period   $ 2,290     $ 2,365  
    Supplemental Cash Flow Information
    Cash paid for interest $ 413 $ 389
    Cash paid for income taxes 767 702
     


    DIRECTV        
    SELECTED SEGMENT DATA
    (Dollars in Millions)
    (Unaudited)
    Three Months Ended

    June 30,
    Six Months Ended

    June 30,
        2014   2013   2014   2013
    DIRECTV U.S.
    Revenues $ 6,272 $ 5,943 $ 12,359 $ 11,733
    Operating profit before depreciation and amortization(1) 1,748 1,651 3,417 3,172
    Operating profit before depreciation and amortization margin(1) 27.9 % 27.8 % 27.6 % 27.0 %
    Operating profit $ 1,319 $ 1,241 $ 2,562 $ 2,356
    Operating profit margin 21.0 % 20.9 % 20.7 % 20.1 %
    Depreciation and amortization   $ 429     $ 410     $ 855     $ 816  
     
    SKY BRASIL
    Revenues $ 1,011 $ 942 $ 1,950 $ 1,907
    Operating profit before depreciation and amortization(1) 289 262 600 573
    Operating profit before depreciation and amortization margin(1) 28.6 % 27.8 % 30.8 % 30.0 %
    Operating profit $ 114 $ 56 $ 262 $ 210
    Operating profit margin 11.3 % 5.9 % 13.4 % 11.0 %
    Depreciation and amortization   $ 175     $ 206     $ 338     $ 363  
     
    PANAMERICANA AND OTHER
    Revenues $ 778 $ 744 $ 1,560 $ 1,507
    Operating profit before depreciation and amortization (1) 149 193 97 262
    Operating profit before depreciation and amortization margin(1) 19.2 % 25.9 % 6.2 % 17.4 %
    Operating profit (loss) $ 28 $ 83 $ (146 ) $ 46
    Operating profit margin 3.6 % 11.2 % *NM 3.1 %
    Depreciation and amortization   $ 121     $ 110     $ 243     $ 216  
     
    SPORTS NETWORKS, ELIMINATIONS AND OTHER
    Revenues $ 48 $ 71 $ 95 $ 133
    Operating loss before depreciation and amortization(1) (33 ) (25 ) (20 ) (6 )
    Operating loss (37 ) (30 ) (27 ) (20 )
    Depreciation and amortization   4     5     7     14  
     
    TOTAL
    Revenues $ 8,109 $ 7,700 $ 15,964 $ 15,280
    Operating profit before depreciation and amortization(1) 2,153 2,081 4,094 4,001
    Operating profit before depreciation and amortization margin(1) 26.6 % 27.0 % 25.6 % 26.2 %
    Operating profit $ 1,424 $ 1,350 $ 2,651 $ 2,592
    Operating profit margin 17.6 % 17.5 % 16.6 % 17.0 %
    Depreciation and amortization   $ 729     $ 731     $ 1,443     $ 1,409  
    * Percentage not meaningful
     


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

    June 30,
    Six Months Ended

    June 30,
    2014   20132014   2013
    Revenues   $ 6,272     $ 5,943     $ 12,359     $ 11,733  
    Operating costs and expenses
    Costs of revenues, exclusive of depreciation and amortization expense
    Broadcast programming and other 2,800 2,642 5,568 5,243
    Subscriber service expenses 374 360 733 711
    Broadcast operations expenses 75 71 147 152
    Selling, general and administrative expenses, exclusive of depreciation and amortization expense
    Subscriber acquisition costs 661 594 1,309 1,223
    Upgrade and retention costs 314 324 595 643
    General and administrative expenses 300 301 590 589
    Depreciation and amortization expense   429     410     855     816  
    Total operating costs and expenses   4,953     4,702     9,797     9,377  
    Operating profit 1,319 1,241 2,562 2,356
    Interest income 1 1 1
    Interest expense (223 ) (206 ) (446 ) (408 )
    Other, net   (5 )   4         16  
    Income before income taxes 1,091 1,040 2,117 1,965
    Income tax expense   (407 )   (394 )   (788 )   (729 )
    Net income   $ 684     $ 646     $ 1,329     $ 1,236  


    DIRECTV HOLDINGS LLC (DIRECTV U.S.)    
    CONSOLIDATED BALANCE SHEETS
    (Dollars in Millions)
    (Unaudited)
     
    ASSETS   June 30, 2014   December 31, 2013
    Current assets
    Cash and cash equivalents $ 865 $ 797
    Accounts receivable, net of allowances of $82 and $59 2,019 2,103
    Inventories 283 249
    Prepaid expenses and other   411     494  
    Total current assets 3,578 3,643
    Satellites, net 1,760 1,810
    Property and equipment, net 3,754 3,724
    Goodwill 3,191 3,191
    Intangible assets, net 517 527
    Other assets   540     551  
    Total assets   $ 13,340     $ 13,446  
    LIABILITIES AND OWNER'S DEFICIT            
    Current liabilities
    Accounts payable and accrued liabilities $ 3,277 $ 3,695
    Unearned subscriber revenues and deferred credits 426 380
    Current debt   1,460     1,200  
    Total current liabilities 5,163 5,275
    Long-term debt 18,327 18,203
    Deferred income taxes 1,606 1,641
    Other liabilities and deferred credits 665 595
    Commitments and contingencies
    Owner's deficit   (12,421 )   (12,268 )
    Total liabilities and owner's deficit   $ 13,340     $ 13,446  
     


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

    June 30,
        2014   2013
    Cash Flows From Operating Activities
    Net income $ 1,329 $ 1,236
    Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization expense 855 816
    Amortization of deferred revenues and deferred credits (24 ) (26 )
    Share-based compensation expense 35 45
    Deferred income taxes 48 75
    Excess tax benefit from share-based compensation (18 ) (20 )
    Other (5 ) 3
    Change in other operating assets and liabilities:
    Accounts receivable 170 141
    Inventories (34 ) 13
    Prepaid expenses and other 81 102
    Accounts payable and accrued liabilities (422 ) (284 )
    Unearned subscriber revenue and deferred credits 46 49
    Other, net   23     36  
    Net cash provided by operating activities   2,084     2,186  
    Cash Flows From Investing Activities
    Cash paid for property and equipment (327 ) (265 )
    Cash paid for subscriber leased equipment - subscriber acquisitions (232 ) (325 )
    Cash paid for subscriber leased equipment - upgrade and retention (214 ) (230 )
    Cash paid for satellites (33 ) (108 )
    Investment in companies, net of cash acquired (1 ) (21 )
    Proceeds from sale of investments 16 12
    Other, net       2  
    Net cash used in investing activities   (791 )   (935 )
    Cash Flows From Financing Activities
    Issuance (repayment) of commercial paper (maturity 90 days or less), net 25 (105 )
    Proceeds from short-term borrowings 270 284
    Repayment of short-term borrowings (235 ) (262 )
    Proceeds from borrowings under revolving credit facility 10
    Repayment of borrowings under revolving credit facility (10 )
    Proceeds from issuance of long-term debt 1,245 1,390
    Debt issuance costs (7 ) (7 )
    Repayment of long-term debt (1,000 )
    Repayment of other long-term obligations (15 ) (12 )
    Cash dividends paid to Parent (1,500 ) (1,950 )
    Excess tax benefit from share-based compensation 18 20
    Other, net   (26 )   4  
    Net cash used in financing activities   (1,225 )   (638 )
    Net increase in cash and cash equivalents 68 613
    Cash and cash equivalents at beginning of the period   797     739  
    Cash and cash equivalents at end of the period   $ 865     $ 1,352  
    Supplemental Cash Flow Information
    Cash paid for interest $ 397 $ 360
    Cash paid for income taxes 629 502
     


    DIRECTV Consolidated Non-GAAP Financial Measure Reconciliation Schedules
    (Dollars in Millions)        
    (Unaudited)
    DIRECTV
    Reconciliation of Cash Flow Before Interest and Taxes2 and Free Cash Flow3 to

    Net Cash Provided by Operating Activities

    Three Months Ended

    June 30,
    Six Months Ended

    June 30,
    2014201320142013
    Cash Flow Before Interest and Taxes $ 1,408 $ 1,179 $ 2,693 $ 2,286
    Adjustments:
    Cash paid for interest (85 ) (64 ) (413 ) (389 )
    Interest income 12 19 25 41
    Income taxes paid   (683 )   (608 ) (767 )   (702 )
    Subtotal - Free Cash Flow 652 526 1,538 1,236
    Add Cash Paid For:
    Property and equipment 767 832 1,417 1,580
    Satellites 55     116   109     194  
    Net Cash Provided by Operating Activities $ 1,474     $ 1,474   $ 3,064     $ 3,010  
    (2) and (3) - See footnotes above                        
     
    Reconciliation of Reported Operating Profit Before Depreciation and Amortization to Operating Profit*
    Three Months Ended

    June 30,
    Six Months Ended

    June 30,
    2014201320142013
    Operating profit before depreciation and amortization $ 2,153 $ 2,081 $ 4,094 $ 4,001
    Subtract: Depreciation and amortization 729     731   1,443     1,409
    Operating profit $ 1,424     $ 1,350   $ 2,651     $ 2,592
     
    * For a reconciliation of this non-GAAP financial measure for each of our segments, please see the Notes to the Consolidated Financial Statements which will be included in DIRECTV's Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, which is expected to be filed with the SEC in July 2014.
     


    DIRECTV Consolidated Non-GAAP Financial Measure Reconciliation Schedules
    (Dollars in Millions, Except Per Share Amounts)      
    (Unaudited)
    DIRECTV
    Reconciliation of Adjusted Operating Profit Before Depreciation and Amortization (excluding the Venezuelan currency devaluation charge) to Operating Profit
      Three Months Ended

    June 30,
      Six Months Ended

    June 30,
    2014   20132014   2013
    Revenues $ 8,109 $ 7,700 $ 15,964 $ 15,280
     
    Operating profit before depreciation and amortization excluding the Venezuelan currency devaluation charge $ 2,156 $ 2,081 $ 4,378 $ 4,167
    OPBDA growth excluding Venezuelan currency devaluation charge3.6%5.1%
    Subtract: Venezuelan currency devaluation charge 3       284     166  
    Operating profit before depreciation and amortization 2,153 2,081 4,094 4,001
    Subtract: Depreciation and amortization 729     731   1,443     1,409  
    Operating profit $ 1,424     $ 1,350   $ 2,651     $ 2,592  
    Operating profit before depreciation and amortization margin excluding the Venezuelan currency devaluation charge   26.6 %   27.0 %   27.4 %   27.3 %
     
    Reconciliation of Adjusted Operating Profit (excluding the Venezuelan currency devaluation charge) to Operating Profit
    Three Months Ended

    June 30,
    Six Months Ended

    June 30,
    2014201320142013
    Revenues $ 8,109 $ 7,700 $ 15,964 $ 15,280
     
    Operating profit excluding the Venezuelan currency devaluation charge $ 1,427 $ 1,350 $ 2,935 $ 2,758
    Operating profit growth excluding Venezuelan currency devaluation charge5.7%6.4%
    Subtract: Venezuelan currency devaluation charge 3       284     166  
    Operating profit $ 1,424     $ 1,350   $ 2,651     $ 2,592  
    Operating profit margin excluding the Venezuelan currency devaluation charge   17.6 %   17.5 %   18.4 %   18.0 %
     
    Reconciliation of Adjusted Net Income (excluding the Venezuelan currency devaluation charge) to Net Income
    Three Months Ended

    June 30,
    Six Months Ended

    June 30,
    2014201320142013
    Net income attributable to DIRECTV excluding the Venezuelan currency devaluation charge $ 809 $ 660 $ 1,651 $ 1,486
    Subtract: Venezuelan after-tax currency devaluation charge 3       284     136
    Net income attributable to DIRECTV $ 806     $ 660   $ 1,367     $ 1,350
    Net income growth excluding Venezuelan currency devaluation charge22.6%11.1%
    Diluted weighted average shares 508 561 512 569
    Adjusted diluted earnings per common share $ 1.59 $ 1.18 $ 3.22 $ 2.61
    Adjusted diluted earnings per common share growth excluding Venezuelan currency devaluation charge   34.7%         23.4%    
     


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

    Net Cash Provided by Operating Activities

      Three Months Ended

    June 30,
      Six Months Ended

    June 30,
    2014   20132014   2013
    Cash Flow Before Interest and Taxes $ 150 $ 7 $ 354 $ 109
    Adjustments:
    Cash paid for interest (12 ) (13 ) (25 ) (30 )
    Interest income 10 16 23 31
    Income taxes paid   (53 )   (69 ) (142 )   (159 )
    Add Cash Paid For:
    Property and equipment 70 39 126 80
    Subscriber leased equipment - subscriber acquisitions 185 252 313 447
    Subscriber leased equipment - upgrade and retention 108 117 204 233
    Satellites 27     58   65     80  
    Net Cash Provided by Operating Activities $ 485     $ 407   $ 918     $ 791  
    (2) See footnotes above                        
     
    Reconciliation of Adjusted Operating Profit Before Depreciation and Amortization (excluding the Venezuelan currency devaluation charge) to Operating Profit
    Three Months Ended

    June 30,
    Six Months Ended

    June 30,
    2014201320142013
    Revenues $ 1,789 $ 1,686 $ 3,510 $ 3,414
     
    Operating profit before depreciation and amortization excluding the Venezuelan currency devaluation charge $ 441 $ 455 $ 981 $ 1,001
    OPBDA growth excluding Venezuelan currency devaluation charge(3.1)%(2.0)%
    Subtract: Venezuelan currency devaluation charge 3       284     166  
    Operating profit before depreciation and amortization 438 455 697 835
    Subtract: Depreciation and amortization 296     316   581     579  
    Operating profit $ 142     $ 139   $ 116     $ 256  
    Operating profit before depreciation and amortization margin excluding the Venezuelan currency devaluation charge   24.7 %   27.0 %   27.9 %   29.3 %
     
    Reconciliation of Adjusted Operating Profit (excluding the Venezuelan currency devaluation charge) to Operating Profit
    Three Months Ended

    June 30,
    Six Months Ended

    June 30,
    2014201320142013
    Revenues $ 1,789 $ 1,686 $ 3,510 $ 3,414
     
    Operating profit excluding the Venezuelan currency devaluation charge $ 145 $ 139 $ 400 $ 422
    Operating Profit growth excluding Venezuelan currency devaluation charge4.3%(5.2)%
    Subtract: Venezuelan currency devaluation charge 3       284     166  
    Operating profit $ 142     $ 139   $ 116     $ 256  
    Operating profit margin excluding the Venezuelan currency devaluation charge   8.1 %   8.2 %   11.4 %   12.4 %
     


    PanAmericana and Other Segment Non-GAAP Financial Measure Reconciliation Schedules
    (Dollars in Millions)        
    (Unaudited)
    PanAmericana and Other
    Reconciliation of Adjusted Operating Profit Before Depreciation and Amortization (excluding the Venezuelan currency devaluation charge) to Operating Profit
      Three Months Ended

    June 30,
      Six Months Ended

    June 30,
    2014   20132014   2013
    Revenues $ 778 $ 744 $ 1,560 $ 1,507
     
    Operating profit before depreciation and amortization excluding the Venezuelan currency devaluation charge $ 152 $ 193 $ 381 $ 428
    OPBDA growth excluding Venezuelan currency devaluation charge(21.2)%(11.0)%
    Subtract: Venezuelan currency devaluation charge 3       284     166  
    Operating profit before depreciation and amortization 149 193 97 262
    Subtract: Depreciation and amortization 121     110   243     216  
    Operating profit (loss) $ 28     $ 83   $ (146 )   $ 46  
    Operating profit before depreciation and amortization margin excluding the Venezuelan currency devaluation charge   19.5 %   25.9 %   24.4 %   28.4 %
     
    Reconciliation of Adjusted Operating Profit (excluding the Venezuelan currency devaluation charge) to Operating Profit
    Three Months Ended

    June 30,
    Six Months Ended

    June 30,
    2014201320142013
    Revenues $ 778 $ 744 $ 1,560 $ 1,507
     
    Operating profit excluding the Venezuelan currency devaluation charge $ 31 $ 83 $ 138 $ 212
    Operating profit growth excluding Venezuelan currency devaluation charge(62.7)%(34.9)%
    Subtract: Venezuelan currency devaluation charge 3       284     166  
    Operating profit (loss) $ 28     $ 83   $ (146 )   $ 46  
    Operating profit margin excluding the Venezuelan currency devaluation charge   4.0 %   11.2 %   8.8 %   14.1 %
     


    DIRECTV U.S. Non-GAAP Financial Measure Reconciliation Schedules    
    (Dollars in Millions)    
    (Unaudited)
     
    DIRECTV HOLDINGS LLC (DIRECTV U.S.)
    Reconciliation of Pre-SAC Margin* to Operating Profit
    Three Months Ended

    June 30,
    Six Months Ended

    June 30,
    2014201320142013
    Operating profit $ 1,319 $ 1,241 $ 2,562 $ 2,356
    Adjustments:
    Subscriber acquisition costs (expensed) 661 594 1,309 1,223
    Depreciation and amortization 429 410 855 816
    Cash paid for subscriber leased equipment - upgrade and retention (104 )   (119 ) (214 )   (230 )
    Pre-SAC Margin $ 2,305     $ 2,126   $ 4,512     $ 4,165  
    Pre-SAC Margin as a percentage of revenue   36.8 %   35.8 %   36.5 %   35.5 %
     
    Reconciliation of Cash Flow Before Interest and Taxes2 to

    Net Cash Provided by Operating Activities

    Three Months Ended

    June 30,
    Six Months Ended

    June 30,
    2014201320142013
    Cash Flow Before Interest and Taxes $ 1,236 $ 1,127 $ 2,303 $ 2,119
    Adjustments:
    Cash paid for interest (77 ) (50 ) (397 ) (360 )
    Interest income 1 1 1
    Income taxes paid   (628 )   (502 ) (629 )   (502 )
    Add Cash Paid For:
    Property and equipment 183 154 327 265
    Subscriber leased equipment - subscriber acquisitions 115 151 232 325
    Subscriber leased equipment - upgrade and retention 104 119 214 230
    Satellites 22     55   33     108  
    Net Cash Provided by Operating Activities $ 955     $ 1,055   $ 2,084     $ 2,186  
     
    (2) See footnotes above                        
    * Pre-SAC Margin, which is a financial measure that is not determined in accordance with accounting principles generally accepted in the United States of America, or GAAP, is calculated for DIRECTV U.S. by adding amounts under the captions “Subscriber acquisition costs” and “Depreciation and amortization expense” to “Operating Profit” from the Consolidated Statements of Operations and subtracting "Cash paid for subscriber leased equipment - upgrade and retention" from the Consolidated Statements of Cash Flows. This financial measure should be used in conjunction with GAAP financial measures and is not presented as an alternative measure of operating results, as determined in accordance with GAAP. DIRECTV management use Pre-SAC Margin to evaluate the profitability of DIRECTV U.S.' current subscriber base for the purpose of allocating resources to discretionary activities such as adding new subscribers, upgrading and retaining existing subscribers and for capital expenditures. To compensate for the exclusion of “Subscriber acquisition costs,” management also uses operating profit and operating profit before depreciation and amortization expense to measure profitability.
     
    DIRECTV believes this measure is useful to investors, along with GAAP measures (such as revenues, operating profit and net income), to compare DIRECTV U.S.’ operating performance to other communications, entertainment and media companies. DIRECTV believes that investors also use current and projected Pre-SAC Margin to determine the ability of DIRECTV U.S.’ current and projected subscriber base to fund discretionary spending and to determine the financial returns for subscriber additions.
     


    DIRECTV U.S. Non-GAAP Financial Measure SAC Calculations

    (Dollars in Millions, Except Per Subscriber Amounts)

    (Unaudited)

     
    DIRECTV HOLDINGS LLC (DIRECTV U.S.)
    SAC Calculation
      Three Months Ended

    June 30,
      Six Months Ended

    June 30,
    2014   20132014   2013
    Subscriber acquisition costs (expensed) $ 661 $ 594 $ 1,309 $ 1,223
    Cash paid for subscriber leased equipment - subscriber acquisitions 115     151   232     325
    Total acquisition costs $ 776     $ 745   $ 1,541     $ 1,548
    Gross subscriber additions (000's) 908 839 1,799 1,732
    Average subscriber acquisition costs - per subscriber (SAC)   $ 855     $ 888     $ 857     $ 894





    DIRECTV

    Darris Gringeri, (212) 205-0882

    Investor Relations: (310) 964-0808

    Source: DIRECTV


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    Source: Business Wire


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