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| DTV > SEC Filings for DTV > Form 10-K on 21-Feb-2013 | All Recent SEC Filings |
21-Feb-2013
Annual Report
CAUTIONARY STATEMENT FOR PURPOSE OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
This Annual Report on Form 10-K 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 2013 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 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:
º •
º Summary Results of Operations and Financial Condition
º •
º Significant Events Affecting the Comparability of the Results of
Operations
º •
º Key Terminology
º •
º Executive Overview and Outlook
º •
º Results of Operations
º •
º Liquidity and Capital Resources
º •
º Contractual Obligations
º •
º Off-Balance Sheet Arrangements
º •
º Contingencies
º •
º Certain Relationships and Related-Party Transactions
º •
º Critical Accounting Estimates
º •
º Accounting Changes
DIRECTV
SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Years Ended December 31,
2012 2011 2010
(Dollars in Millions, Except Per
Share Amounts)
Consolidated Statements of Operations Data:
Revenues $ 29,740 $ 27,226 $ 24,102
Total operating costs and expenses 24,655 22,597 20,206
Operating profit 5,085 4,629 3,896
Interest income 59 34 39
Interest expense (842 ) (763 ) (557 )
Liberty transaction and related gain - - 67
Other, net 140 84 69
Income before income taxes 4,442 3,984 3,514
Income tax expense (1,465 ) (1,348 ) (1,202 )
Net income 2,977 2,636 2,312
Less: Net income attributable to
noncontrolling interest (28 ) (27 ) (114 )
Net income attributable to DIRECTV $ 2,949 $ 2,609 $ 2,198
Net income attributable to DIRECTV common
stockholders $ 2,949 $ 2,609 $ 2,014
Net income attributable to DIRECTV Class B
common stockholders, for the period of
January 1, 2010 through June 16, 2010,
including $160 million exchange inducement
value for the Malone Transaction - - 184
Net income attributable to DIRECTV $ 2,949 $ 2,609 $ 2,198
Basic earnings attributable to DIRECTV common
stockholders per common share $ 4.62 $ 3.49 $ 2.31
Diluted earnings attributable to DIRECTV
common stockholders per common share $ 4.58 $ 3.47 $ 2.30
Basic and diluted earnings attributable to
DIRECTV Class B common stockholders per common
share, for the period of January 1, 2010
through June 16, 2010, including $160 million
exchange inducement value for the Malone
Transaction $ - $ - $ 8.44
Weighted average number of common shares
outstanding (in millions):
Basic 638 747 870
Diluted 644 752 876
Weighted average number of Class B common
shares outstanding, for the period of
January 1, 2010 through June 16, 2010 (in
millions) :
Basic - - 22
Diluted - - 22
Weighted average number of total common shares
outstanding (in millions):
Basic 638 747 880
Diluted 644 752 886
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DIRECTV
SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(continued)
December 31,
2012 2011
(Dollars in Millions)
Consolidated Balance Sheets Data:
Cash and cash equivalents $ 1,902 $ 873
Total current assets 5,554 4,241
Total assets 20,555 18,423
Total current liabilities 5,541 4,743
Long-term debt 17,170 13,464
Redeemable noncontrolling interest 400 265
Total stockholders' deficit (5,431 ) (3,107 )
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Reference should be made to the notes to the Consolidated Financial Statements.
Years Ended December 31,
2012 2011 2010
(Dollars in Millions)
Other Data:
Operating profit before depreciation and
amortization (1)
Operating profit $ 5,085 $ 4,629 $ 3,896
Add: Depreciation and amortization expense 2,437 2,349 2,482
Operating profit before depreciation and amortization $ 7,522 $ 6,978 $ 6,378
Operating profit before depreciation and amortization
margin 25.3 % 25.6 % 26.5 %
Cash flow information
Net cash provided by operating activities $ 5,634 $ 5,185 $ 5,206
Net cash used in investing activities (3,363 ) (3,022 ) (3,099 )
Net cash used in financing activities (1,242 ) (2,792 ) (3,210 )
Free cash flow (2)
Net cash provided by operating activities $ 5,634 $ 5,185 $ 5,206
Less: Cash paid for property and equipment (2,960 ) (2,924 ) (2,303 )
Less: Cash paid for satellites (389 ) (246 ) (113 )
Free cash flow $ 2,285 $ 2,015 $ 2,790
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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 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.
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,
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 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 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 0.9 % 11 15 26 NM * NM *
Total $ 27,226 100.0 % $ 4,629 $ 2,349 $ 6,978 17.0 % 25.6 %
December 31,
2010
DIRECTV
U.S. $ 20,268 84.1 % $ 3,290 $ 1,926 $ 5,216 16.2 % 25.7 %
Sky Brasil 2,013 8.4 % 383 298 681 19.0 % 33.8 %
PanAmericana 1,584 6.6 % 240 243 483 15.2 % 30.5 %
DIRECTV
Latin
America 3,597 14.9 % 623 541 1,164 17.3 % 32.4 %
Sports
Networks,
Eliminations
and Other 237 1.0 % (17 ) 15 (2 ) NM * NM *
Total $ 24,102 100.0 % $ 3,896 $ 2,482 $ 6,378 16.2 % 26.5 %
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DIRECTV
SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(concluded)
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, 2012
DIRECTV U.S. $ 12,490 $ 1,741
Sky Brasil 2,951 812
PanAmericana 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 2,601 526
DIRECTV Latin America 5,264 1,428
Sports Networks, Eliminations and Other 1,363 6
Total $ 18,423 $ 3,170
December 31, 2010
DIRECTV U.S. $ 11,400 $ 1,557
Sky Brasil 2,566 468
PanAmericana 2,130 389
DIRECTV Latin America 4,696 857
Sports Networks, Eliminations and Other 1,813 2
Total $ 17,909 $ 2,416
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SIGNIFICANT EVENTS AFFECTING THE COMPARABILITY OF THE RESULTS OF OPERATIONS
Change in Accounting Estimate
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, we determined that the estimated useful life of HD set-top receivers used in our DIRECTV U.S. business has increased to four years, from three years, as previously estimated. We will continue to depreciate standard-definition set-top receivers at DIRECTV U.S. over a three-year estimated useful life. We are accounting for this change in the useful life of the HD set-top receivers at DIRECTV U.S. as a change in an accounting estimate beginning July 1, 2011.
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,
2012 2011
(Dollars in Millions, Except Per Share Amounts)
Depreciation and amortization
expense $ (176 ) $ (141 )
Net income attributable to
DIRECTV 109 86
Basic earnings attributable to
DIRECTV common stockholders per
common share $ 0.17 $ 0.12
Diluted earnings attributable to
DIRECTV common stockholders per
common share $ 0.17 $ 0.11
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Divestitures
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. For additional information regarding the GSN sale, refer to Note 8 of the Notes to the Consolidated Financial Statements in Item 8, Part II of this Annual Report.
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.
Malone Transaction
In April 2010, we entered into an agreement with Dr. John C. Malone and his family, or the Malones, under which they exchanged 21.8 million shares of high-vote DIRECTV Class B common stock, which were all of the outstanding DIRECTV Class B shares, for 26.5 million shares of DIRECTV Class A common stock, resulting in the reduction of the Malone's voting interest in DIRECTV from approximately 24% to approximately 3% on June 16, 2010. We refer to this transaction as the Malone Transaction.
We accounted for the exchange of DIRECTV Class B common stock into DIRECTV Class A common stock pursuant to accounting standards for induced conversions, whereby the $160 million in incremental DIRECTV Class A common stock issued to the former DIRECTV Class B stockholders has been deducted from earnings attributable to DIRECTV Class A stockholders for purposes of calculating earnings per share in the Consolidated Statements of Operations. As a result of the Malone Transaction, diluted earnings per DIRECTV Class A common stock in the Consolidated Statements of Operations was reduced by $0.18 for the year ended December 31, 2010. For additional information, refer to Note 16 of the Notes to the Consolidated Financial Statements in Item 8, Part II of this Annual Report.
Acquisition
In connection with our acquisition of Sky Brasil in 2006, Globo was granted the right, until January 2014, to require us to purchase all or a portion (but not less than half) of its 25.9% interest in Sky Brasil. Upon the exercise of this right in the fourth quarter of 2010, we paid $605 million in cash, which was the fair value of the 19% interest purchased, and recorded a reduction to "Redeemable noncontrolling interest" in the Consolidated Balance Sheets. We and our subsidiaries now own approximately 93% of Sky Brasil and Globo retains the right to sell its remaining 7% interest to us at fair value until January 2014 as discussed in Note 21 of the Notes to the Consolidated Financial Statements in Item 8, Part II of this Annual Report.
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.
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.
In 2010, DIRECTV U.S. issued $6.0 billion of senior notes resulting in $5,978 million of proceeds, net of discount. Also in 2010, DIRECTV U.S. repaid the $2,205 million of remaining principal on the Term Loans of its senior secured credit facility, resulting in a pre-tax charge of $16 million ($10 million after tax) 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.
Collar Loan. As part of the Liberty Transaction in November 2009, we assumed a credit facility and related equity collars, which we refer to as the Collar Loan. During the first quarter of 2010, we paid $1,537 million to repay the remaining principal balance and accrued interest on the credit facility, and to settle the equity collars. As a result, we recorded a gain of $67 million in "Liberty transaction and related gain" in the Consolidated Statements of . . .
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