DIRECTV Announces Fourth Quarter and Full Year 2012 Results

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DIRECTV Announces Fourth Quarter and Full Year 2012 Results

DIRECTV Adds 761,000 Net Additions in the Quarter Driven by DIRECTV Latin America's All-Time Record of 658,000.

  • For the year, DIRECTV Latin America sets record with 4.4 million gross additions and 2.4 million net additions while Sky Mexico adds 1.1 million net new subscribers.
  • DIRECTV U.S. adds 199,000 net new customers in 2012.

DIRECTV Fourth Quarter Revenue and Operating Profit before Depreciation and Amortization (OPBDA) Growth of 8% Drive Full Year Revenue to Nearly $30 billion and OPBDA to over $7.5 billion.

  • DIRECTV Latin America increases 2012 revenues by 23% to $6 billion and achieves 29.8% OPBDA margin.
  • DIRECTV U.S. grows revenues 6% to $23 billion and improves OPBDA margin to 24.3% in 2012.

DIRECTV Full Year Diluted Earnings per Share Rise 32% to $4.58 fueled in part by $5.2 billion of Repurchases in 2012; Free Cash Flow Increases 13% to $2.3 billion in the Year.

DIRECTV Authorizes New $4 billion Stock Repurchase Program.

EL SEGUNDO, Calif.--(BUSINESS WIRE)-- DIRECTV (NAS: DTV) today reported increases in fourth quarter 2012 revenues of 8% to $8.05 billion, operating profit before depreciation and amortization1 (OPBDA) of 8% to $1.92 billion and operating profit of 7% to $1.30 billion compared to last year's fourth quarter. DIRECTV reported an increase in fourth quarter net income of 31% to $942 million and diluted earnings per share of 52.0% to $1.55 compared with the same period last year.

"Our solid fourth quarter consolidated results capped off another year of impressive revenue, earnings and cash flow growth," said Mike White, Chairman, President and CEO of DIRECTV. "Strong consumer demand for DIRECTV's diversified portfolio of businesses across the Americas fueled the largest annual net subscriber gain in our history with nearly 3.8 million net customers added including Sky Mexico. As a result, we furthered our lead as the world's largest and most popular provider of Pay TV video services with over 35 million subscribers and growing rapidly. This tremendous subscriber performance along with solid ARPU and margin performance fueled a 9% top-line increase bringing DIRECTV to nearly $30 billion in revenues, a 32% increase in diluted EPS to $4.58 and a 13% increase in free cash flow to $2.3 billion in 2012."

White concluded, "We exit 2012 with good momentum as we continue to successfully execute on our long-term strategy to drive sustainable profitable growth across the Americas while also significantly advancing DIRECTV's service oriented culture by winning our customers' loyalty for life. We believe that these strategies along with our share repurchase plan - highlighted by the approval of a new $4 billion buyback authorization - will continue to create significant shareholder value for years to come."

DIRECTV'S Operational Review

Fourth Quarter Review

DIRECTV's fourth quarter revenues of $8.05 billion increased 8% principally due to subscriber growth at DIRECTV Latin America (DTVLA) and DIRECTV U.S., as well as higher ARPU at DIRECTV U.S. Operating profit before depreciation and amortization (OPBDA) increased 8% to $1.92 billion and operating profit increased 7% to $1.30 billion in the quarter compared with the same period last year. OPBDA and operating profit margin were relatively unchanged compared to the same period in 2011.

DIRECTV Consolidated
Dollars in Millions except Earnings per
Common Share

    Three Months Ended
December 31,
  Twelve Months Ended
December 31,
    2012   2011  2012   2011
Revenues    $8,054    $7,463   $29,740    $27,226 
Operating Profit Before Depreciation and Amortization(1)    1,924    1,782   7,522    6,978 
OPBDA Margin(1)    23.9%   23.9%  25.3%   25.6%
Operating Profit    1,298    1,214   5,085    4,629 
Operating Profit Margin    16.1%   16.3%  17.1%   17.0%
Net Income Attributable to DIRECTV    942    718   2,949    2,609 
Diluted Earnings Per Common Share    1.55    1.02   4.58    3.47 
Capital Expenditures and Cash Flow                
Cash paid for property and equipment    211    201   757    665 
Cash paid for subscriber leased equipment - subscriber acquisitions    412    392   1,493    1,547 
Cash paid for subscriber leased equipment - upgrade and retention    177    171   710    712 
Cash paid for satellites    158    90   389    246 
Cash Flow Before Interest and Taxes(2)    1,120    1,025   4,413    3,710 
Free Cash Flow(3)    543    720   2,285    2,015 
      

Net income attributable to DIRECTV increased 31% to $942 million and diluted earnings per share improved 52.0% to $1.55 compared with the fourth quarter of last year primarily due to the higher operating profit, a $111 million pre-tax gain related to the sale of an 18% ownership in the Game Show Network and a lower effective tax rate in 2012 related to the resolution of prior year income tax audits. These changes were partially offset by higher interest expense in 2012 driven by higher average debt balances. In addition, diluted earnings per share were favorably impacted by share repurchases made over the last twelve months.

Cash flow before interest and taxes2 increased 9% to $1,120 million compared to the fourth quarter of 2011 primarily due to the higher OPBDA as well as cash generated from working capital mostly due to the timing of customer and vendor receivables at DIRECTV U.S., partially offset by an increase in capital expenditures principally due to higher satellite payments at both DIRECTV U.S. and DTVLA. Also in the quarter, free cash flow3 decreased 25% to $543 million as the improved cash flow before interest and taxes and lower net interest payments were more than offset by higher tax payments. Both the lower net interest payments and higher tax payments were primarily a result of the timing of payments. Also during the quarter but not included in free cash flow was cash paid for share repurchases of $1.35 billion. In addition, DIRECTV U.S. launched a $2.5 billion commercial paper program in the quarter. As of December 31, 2012 there was $358 million outstanding under the program.

Subsequent to the end of the quarter, the Venezuelan government devalued its currency resulting in the official exchange rate moving from 4.30 bolivars per U.S. dollar to 6.30 bolivars per U.S. dollar. This devaluation does not have any impact on DIRECTV's 2012 results of operations, financial position or cash flows. In the first quarter of 2013, DIRECTV Latin America expects to incur a one-time pre-tax charge of approximately $160 million related to the re-measurement of bolivar denominated net monetary assets at the date of the devaluation on February 9, 2013. There will also be an ongoing unfavorable financial impact in 2013 to DIRECTV Latin America's revenues, earnings and cash flow growth related to the translation of the local currency financial statements to the new official exchange rate.

Full Year Review

DIRECTV's full year 2012 revenues increased 9% to $29.74 billion over last year principally due to subscriber growth over the last year at DTVLA and DIRECTV U.S., as well as higher ARPU at DIRECTV U.S. DIRECTV's OPBDA increased 8% to $7.52 billion and operating profit increased 10% to $5.09 billion in 2012. OPBDA margin slightly declined in the period primarily due to increased DTVLA costs in customer service, general and administrative, and upgrade and retention. In addition, operating profit margin was favorably impacted by lower depreciation expense at DIRECTV U.S. primarily driven by an increase in the estimated depreciable life of HD set-top boxes from three years to four years implemented in July 2011.

Net income attributable to DIRECTV increased 13% to $2.95 billion and diluted earnings per share improved 32% to $4.58 for the period primarily due to the higher operating profit and a $59 million increase in earnings from the sale of equity investments. These were partially offset by higher income tax expense principally related to the increased earnings before tax, as well as higher interest expense resulting from higher average debt balances. In addition, diluted earnings per share were favorably impacted by share repurchases made over the last twelve months.

In 2012, cash flow before interest and taxes increased 19% to $4.41 billion and free cash flow increased 13% to $2.29 billion primarily due to the higher OPBDA as well as an increase in cash generated from working capital mostly related to the timing of customer and vendor receipts at DIRECTV U.S. These increases were partially offset by greater capital expenditures principally driven by increased satellite payments at both DIRECTV U.S. and DTVLA, and higher infrastructure investment at DTVLA (including $51 million towards the purchase of a building in Venezuela) partially offset by lower capital expenditures on leased equipment at DIRECTV U.S. primarily resulting from the lower gross additions. In addition, free cash flow was impacted by higher cash tax payments mostly related to the higher pre-tax earnings and a change in bonus depreciation deductions in 2012, as well as increased net interest payments related to the higher average long-term debt balances. Also during 2012 but not included in free cash flow, was cash paid for share repurchases of $5.18 billionand a decrease of $92 million related to cash received for the sale of investments. Below is a table summarizing 2012's Senior Note issuances.

Senior Note Debt Financings in 2012
Issue Month   Amount   Coupon   Due Date
March 2012   $1.25B   2.400%   2017
March 2012   $1.5B   3.800%   2022
March 2012   $1.25B   5.150%   2042
September 2012   £750M (~$1.2B)   4.375%   2029
         

In addition, in May 2012, DIRECTV redeemed $1.5 billion of its outstanding 7.625% Senior Notes due in 2016. In September 2012, DIRECTV U.S. entered into two senior unsecured revolving credit agreements totaling $2.5 billion to replace a $2.0 billion credit agreement that was terminated. Both revolving credit agreements were undrawn as of the end of 2012. Also in the fourth quarter, DIRECTV U.S. launched a $2.5 billion commercial paper program backed by the revolving credit agreements and as of December 31, 2012, there was $358 million outstanding under the program. Subsequent to the end of the year in January 2013, DIRECTV U.S. issued $750 million principal amount of 1.75% Senior Notes due in 2018.

SEGMENT FINANCIAL REVIEW

DIRECTV U.S. Segment

Fourth Quarter Review

DIRECTV U.S.    Three Months Ended
December 31,
  Twelve Months Ended
December 31,
 
Dollars in Millions except ARPU    2012   2011  2012   2011 
Revenues    $6,320    $6,029   $23,235    $21,872 
Average Monthly Revenue per Subscriber (ARPU) ($)    105.15    101.38   96.98    93.27 
Operating Profit Before Depreciation and Amortization(1)    1,408    1,327   5,654    5,289 
OPBDA Margin(1)    22.3%   22.0%  24.3%   24.2%
Operating Profit    1,023    965   4,153    3,702 
Operating Profit Margin    16.2%   16.0%  17.9%   16.9%
Capital Expenditures and Cash Flow                 
Cash paid for property and equipment    164    163   541    567 
Cash paid for subscriber leased equipment - subscriber acquisitions    194    167   656    713 
Cash paid for subscriber leased equipment - upgrade and retention    82    79   291    315 
Cash paid for satellites    114    58   253    141 
Cash Flow Before Interest and Taxes(2)    1,023    910   4,041    3,267 
Subscriber Data (in 000's except Churn)                 
Gross Subscriber Additions    963    1,030   3,874    4,316 
Average Monthly Subscriber Churn    1.43%   1.52%  1.53%   1.56%
Net Subscriber Additions    103    125   199    662 
Cumulative Subscribers    20,084    19,885   20,084     Read Full Story

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