Add
DTV to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| DTV > SEC Filings for DTV > Form 10-Q on 7-Aug-2009 | All Recent SEC Filings |
7-Aug-2009
Quarterly Report
The following management's discussion and analysis should be read in conjunction with our management's discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC on February 27, 2009, our Quarterly Report on Form 10-Q for the quarter ending March 31, 2009 filed with the SEC on May 8, 2009 and all of our other filings, including Current Reports on Form 8-K, filed with the SEC after such date and through the date of this report.
This Quarterly Report on Form 10-Q 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 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 our actual results to differ materially from historical results or from those expressed or implied by the relevant forward- looking statement. We discuss these risks and uncertainties in detail in Part I, Item 1A of our 2008 Form 10-K.
THE DIRECTV GROUP, INC.
SUMMARY DATA
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2009 2008 2009 2008
(Dollars in Millions,
Except Per Share Amounts)
Consolidated Statements of
Operations Data:
Revenues $ 5,218 $ 4,807 $ 10,119 $ 9,398
Total operating costs and expenses 4,516 4,006 8,993 7,940
Operating profit 702 801 1,126 1,458
Interest income 6 21 16 37
Interest expense (102 ) (82 ) (203 ) (145 )
Other, net 54 15 57 18
Income before income taxes 660 755 996 1,368
Income tax expense (242 ) (287 ) (366 ) (517 )
Net income 418 468 630 851
Less: Net income attributable to
noncontrolling interest (11 ) (13 ) (22 ) (25 )
Net income attributable to The
DIRECTV Group, Inc. $ 407 $ 455 $ 608 $ 826
Basic and diluted earnings per
common share $ 0.40 $ 0.40 $ 0.60 $ 0.72
Weighted average number of common
shares outstanding (in millions)
Basic 1,006 1,140 1,012 1,144
Diluted 1,009 1,146 1,015 1,149
June 30, December 31,
2009 2008
(Dollars in Millions)
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 2,272 $ 2,005
Total current assets 4,282 4,044
Total assets 16,411 16,539
Total current liabilities 3,669 3,585
Long-term debt 5,604 5,725
Redeemable noncontrolling interest 325 325
Total stockholders' equity 4,569 4,631
|
THE DIRECTV GROUP, INC.
SUMMARY DATA-(continued)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2009 2008 2009 2008
(Dollars in Millions,
Except Per Share Amounts)
Other Data:
Operating profit before
depreciation and amortization(1)
Operating profit $ 702 $ 801 $ 1,126 $ 1,458
Add: Depreciation and
amortization expense 679 557 1,345 1,081
Operating profit before
depreciation and amortization $ 1,381 $ 1,358 $ 2,471 $ 2,539
Operating profit before
depreciation and amortization
margin(1) 26.5 % 28.3 % 24.4 % 27.0 %
Cash flow information
Net cash provided by operating
activities $ 1,044 $ 843 $ 2,040 $ 1,953
Net cash used in investing
activities (493 ) (539 ) (1,035 ) (1,104 )
Net cash (used in) provided by
financing activities (384 ) 1,907 (738 ) 1,905
Free cash flow(2)
Net cash provided by operating
activities $ 1,044 $ 843 $ 2,040 $ 1,953
Less: Cash paid for property and
equipment (480 ) (439 ) (1,002 ) (959 )
Less: Cash paid for satellites (14 ) (31 ) (31 ) (77 )
Free cash flow $ 550 $ 373 $ 1,007 $ 917
|
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.
Operating profit before depreciation and amortization margin is calculated by dividing operating profit before depreciation and amortization by revenues.
º (2)
º 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, for
share repurchase programs 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
companies. 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.
THE DIRECTV GROUP, INC.
SUMMARY DATA-(continued)
(Unaudited)
Selected Segment Data
Corporate
DIRECTV DIRECTV and
U.S. Latin America Other Total
(Dollars in Millions)
Three Months Ended:
June 30, 2009
Revenues $ 4,539 $ 680 $ (1 ) $ 5,218
% of total revenue 87.0 % 13.0 % - 100.0 %
Operating profit (loss) $ 652 $ 73 $ (23 ) $ 702
Add: Depreciation and
amortization expense 593 87 (1 ) 679
Operating profit (loss) before
depreciation and amortization $ 1,245 $ 160 $ (24 ) $ 1,381
Operating profit before
depreciation and amortization
margin 27.4 % 23.5 % N/A 26.5 %
Capital expenditures $ 350 $ 144 $ - $ 494
June 30, 2008
Revenues $ 4,196 $ 611 $ - $ 4,807
% of total revenue 87.3 % 12.7 % - 100.0 %
Operating profit (loss) $ 717 $ 102 $ (18 ) $ 801
Add: Depreciation and
amortization expense 501 59 (3 ) 557
Operating profit (loss) before
depreciation and amortization $ 1,218 $ 161 $ (21 ) $ 1,358
Operating profit before
depreciation and amortization
margin 29.0 % 26.4 % N/A 28.3 %
Capital expenditures $ 353 $ 115 $ 2 $ 470
|
THE DIRECTV GROUP, INC.
SUMMARY DATA-(concluded)
(Unaudited)
DIRECTV Corporate
DIRECTV Latin and
U.S. America Other Total
(Dollars in Millions)
Six Months Ended:
June 30, 2009
Revenues $ 8,842 $ 1,278 $ (1 ) $ 10,119
% of total revenue 87.4 % 12.6 % - 100.0 %
Operating profit (loss) $ 1,049 $ 114 $ (37 ) $ 1,126
Add: Depreciation and
amortization expense 1,182 165 (2 ) 1,345
Operating profit (loss) before
depreciation and amortization $ 2,231 $ 279 $ (39 ) $ 2,471
Operating profit before
depreciation and amortization
margin 25.2 % 21.8 % N/A 24.4 %
Capital expenditures $ 785 $ 247 $ 1 $ 1,033
June 30, 2008
Revenues $ 8,245 $ 1,153 $ - $ 9,398
% of total revenue 87.7 % 12.3 % - 100.0 %
Operating profit (loss) $ 1,310 $ 180 $ (32 ) $ 1,458
Add: Depreciation and
amortization expense 965 119 (3 ) 1,081
Operating profit (loss) before
depreciation and amortization $ 2,275 $ 299 $ (35 ) $ 2,539
Operating profit before
depreciation and amortization
margin 27.6 % 25.9 % N/A 27.0 %
Capital expenditures $ 822 $ 212 $ 2 $ 1,036
|
BUSINESS OVERVIEW
The DIRECTV Group, Inc. is a leading provider of digital television entertainment in the United States and Latin America. Our two business segments, DIRECTV U.S. and DIRECTV Latin America, which are differentiated by their geographic location, acquire, promote, sell and distribute digital entertainment programming via satellite to residential and commercial subscribers.
DIRECTV U.S. DIRECTV Holdings LLC and its subsidiaries, or DIRECTV U.S., is the largest provider of direct-to-home, or DTH, digital television services and the second largest provider in the multi-channel video programming distribution industry in the United States. As of June 30, 2009, DIRECTV U.S. had approximately 18.3 million subscribers.
DIRECTV U.S. currently broadcasts from a fleet of eleven geosynchronous satellites, including ten owned satellites and one leased satellite. DIRECTV 12 is under construction and is expected to be ready for launch in the second half of 2009.
DIRECTV Latin America. DIRECTV Latin America is a leading provider of DTH digital television services throughout Latin America. DTVLA is comprised of PanAmericana, which provides services in Venezuela, Argentina, Chile, Colombia, Puerto Rico and certain other countries in the region through our wholly-owned subsidiary, DIRECTV Latin America, LLC, or DLA LLC, our 74% owned subsidiary Sky Brasil Servicos Ltda., which we refer to as Sky Brazil, and our 41% equity method investment in Innova, S. de R.L. de C.V., or Sky Mexico. As of June 30, 2009, PanAmericana had approximately 2.4 million subscribers, Sky Brazil had approximately 1.7 million subscribers and Sky Mexico had approximately 1.8 million subscribers.
SIGNIFICANT TRANSACTIONS
Venezuela Exchange Controls
We are required to obtain Venezuelan government approval to exchange Venezuelan bolivars into U.S. dollars at the official rate of 2.15 Venezuelan bolivars per U.S. dollar. Alternatively, a legal parallel exchange process exists, however the rates implied by transactions in the parallel market are significantly higher than the official rate (recently 5 to 7 bolivars per U.S. dollar). The official approval process has been delayed in recent periods and our Venezuelan subsidiary has relied on the parallel exchange process to settle U.S. dollar obligations and to repatriate accumulated cash balances during 2009. As a result, we recognized a $48 million charge for the three months ended June 30, 2009 and a $120 million charge for the six months ended June 30, 2009 to "General and administrative expense" in the Consolidated Statements of Operations in connection with the exchange of accumulated Venezuelan cash balances to U.S. dollars in the parallel exchange process. See "Liquidity and Capital Resources" below for additional information.
Sky Brazil Functional Currency
Based on cumulatively significant changes in economic facts and circumstances, we have determined that the local Brazilian currency should be the functional currency of Sky Brazil for purposes of financial statement translation beginning in the second quarter of 2009. As a result of this change in functional currency, changes in exchange rates will result in gains or losses, which will be recorded in "Other, net" in the Consolidated Statements of Operations related to the revaluation of U.S. dollar denominated monetary assets and liabilities, such as cash deposits, notes payable and capital lease obligations held by Sky Brazil. During the second quarter of 2009, we recorded a net foreign currency transaction gain of $38 million in "Other, net" in the Consolidated Statements of Operations related to U.S. dollar denominated monetary assets and liabilities held by Sky Brazil.
Liberty Entertainment Inc. Merger Transaction
On May 3, 2009, The DIRECTV Group, Liberty Media Corporation, or Liberty Media, Liberty Entertainment, Inc., or LEI and certain subsidiaries of The DIRECTV Group entered into an agreement and plan of merger, which we refer to as the "merger agreement", which, if consummated, will result in the creation of a new public holding company named "DIRECTV" which we refer to as "Holdings", that will own The DIRECTV Group and LEI. Holdings will be owned by the holders of The DIRECTV Group common stock and the holders of LEI common stock immediately prior to the mergers contemplated by the merger agreement.
As a necessary step to the mergers contemplated by the merger agreement, Liberty Media is planning to execute a split-off transaction that would result in the redemption of 90% of the outstanding shares of both series of its Liberty Entertainment common stock in exchange for all of the outstanding shares of two series of common stock of LEI. LEI will hold Liberty Media's entire interest in The DIRECTV Group (currently approximately 56%), 100% of Liberty Sports Holdings LLC, 65% of Game Show Network, LLC and approximately $30 million in cash and cash equivalents, together with approximately $2 billion of indebtedness and a related equity collar. The split-off transaction is conditioned on the approval of the holders of Liberty's Liberty Entertainment common stock.
Costs incurred to complete the transaction, including legal, accounting, financial printing and investment banking fees, will be expensed as incurred pursuant to Statement of Financial Accounting Standards, or SFAS, No. 141 (revised 2007), "Business Combinations", or SFAS No. 141R. The exchange rate of LEI common stock to The DIRECTV Group common stock was determined in a manner such that LEI stockholders as a group will receive a premium in the form of a larger economic interest in DIRECTV than would have been otherwise determined based on the relative fair values of The DIRECTV Group and LEI. This premium, calculated as the fair value of the economic interest to be distributed to LEI stockholders in excess of the fair value of the assets and liabilities of LEI, will be expensed as a disproportionate distribution upon completion of the mergers. In addition, as part of the mergers, Holdings will grant common stock options and stock appreciation rights to replace the stock based awards of LEI. Pursuant to SFAS No. 141R, any incremental fair value of the replacement awards over the fair value of the replaced LEI awards must also be expensed. Had the merger been completed on June 30, 2009, we estimate that Holdings would have recorded an expense of approximately $275 million on that date for the costs of the transaction, the premium to LEI stockholders, and the incremental fair value of the stock based awards. However, we anticipate the actual amounts to be recorded will change as they will be determined based on acquisition date fair values.
For additional information regarding the proposed merger transactions, see Note 2 of the Notes to the Consolidated Financial Statements above and refer to Amendment No. 1 to Holdings' Registration Statement on Form S-4 filed with the SEC on July 30, 2009, which has not been declared effective.
THE DIRECTV GROUP, INC.
Lease Program
The following table sets forth the amount of DIRECTV U.S. set-top receivers
we capitalized, and depreciation expense we recorded, under the lease program
implemented in March 2006 for each of the periods presented:
Three Months Six Months
Ended Ended
June 30, June 30,
Capitalized subscriber leased equipment: 2009 2008 2009 2008
(Dollars in Millions)
Subscriber leased equipment-subscriber acquisitions $ 130 $ 125 $ 309 $ 281
Subscriber leased equipment-upgrade and retention 90 84 226 245
Total subscriber leased equipment capitalized $ 220 $ 209 $ 535 $ 526
Depreciation expense-subscriber leased equipment $ 340 $ 261 $ 677 $ 502
|
KEY TERMINOLOGY
The following key terminology is used in management's discussion and analysis of financial condition and results of operations:
Revenues. We earn revenues mostly from monthly fees we charge subscribers for subscriptions to basic and premium channel programming, HD programming and access fees, pay-per-view programming, and seasonal and live sporting events. We also earn revenues from monthly fees that we charge subscribers with multiple non-leased set-top receivers (which we refer to as mirroring fees), monthly fees we charge subscribers for leased set-top receivers, monthly fees we charge subscribers for digital video recorder, or DVR, service, hardware revenues from subscribers who lease or purchase set-top receivers from us, our published programming guide, 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 expenses associated with the publication and distribution of our programming guide, continuing service fees paid to third parties for active subscribers, warranty service costs and production costs for on-air advertisements we sell to third parties.
Subscriber service expenses. Subscriber service expenses include the costs of customer call centers, billing, remittance processing and certain home services expenses, such as in-home repair costs.
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, regional Bell operating companies, 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 estimated useful lives. 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. The majority of 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 DVR, HD and HD DVR receivers and local channels, our multiple set-top receiver offer 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 set-top receivers capitalized each period for upgrade and retention programs is included in "Cash paid for property and . . .
|
|