NON-GAAP FINANCIAL RECONCILIATION SCHEDULE(a)

 

----------------------------------------------------------------------

Dollars in Millions                Three Months        Nine Months

                               Ended September 30, Ended September 30,

----------------------------------------------------------------------

                                   2004     2003      2004       2003

----------------------------------------------------------------------

The DIRECTV Group

 Operating profit (loss)         $(1,550)     $8    $(1,674)      $40

 Plus: depreciation &

  amortization (D&A)                 200     194        557       566

                                     ---     ---        ---       ---

 Operating profit (loss) before

  D&A                            $(1,350)   $202    $(1,117)     $606

                                 --------   ----    --------     ----

----------------------------------------------------------------------

 

(a) For a reconciliation of non-GAAP financial measures for each of

    our segments, please see the Notes to the Consolidated Financial

    Statements included in The DIRECTV Group's quarterly report on

    Form 10-Q for the quarter ended September 30, 2004 to be filed

    with SEC in November 2004. Additional DIRECTV U.S. non-GAAP

    financial reconciliation is included with the DIRECTV Holdings

    LLC's stand-alone financial statements included in this earnings

    release. Numbers may not add due to rounding.

 

 

 

 

 

                        THE DIRECTV GROUP, INC.

                   CONSOLIDATED STATEMENTS OF INCOME

            (Dollars in Millions, Except Per Share Amounts)

                              (Unaudited)

 

                                 Three Months          Nine Months

                             Ended September 30,  Ended September 30,

                             -------------------- --------------------

                                 2004      2003       2004      2003

                             -------------------- --------------------

 

Revenues                      $2,861.9  $2,378.7   $7,997.9  $6,617.9

----------------------------------------------------------------------

 

Operating Costs and Expenses,

 Exclusive of Depreciation and

 Amortization Expense Shown

 Separately Below

 

 Broadcast programming

  and other costs of sale      1,218.8   1,109.4    3,464.1   3,108.2

 Subscriber service

  expenses                       213.7     169.7      548.9     487.7

 Subscriber acquisition

  costs:

      Third party

       customer

       acquisitions              540.0     380.2    1,450.5   1,019.9

      Direct customer

       acquisitions              183.9     111.9      499.7     249.2

 Upgrade and retention

  costs                          261.3     125.5      668.2     258.1

 Broadcast operations

  expenses                        48.1      43.2      143.9     146.0

 General and

  administrative

  expenses                       279.9     236.5      873.8     742.7

 Asset impairment

  charge                       1,466.1         -    1,466.1         -

Depreciation and

 amortization expense            199.6     194.3      556.7     566.4

------------------------------------------------------------ ---------

Total Operating Costs

 and Expenses                  4,411.4   2,370.7    9,671.9   6,578.2

------------------------------------------------------------ ---------

 

Operating Profit (Loss)       (1,549.5)      8.0   (1,674.0)     39.7

 

Interest income                   22.6       8.0       33.0      20.5

Interest expense                 (26.4)    (35.1)     (70.3)   (123.8)

Reorganization (expense)

 income                           (0.5)     (8.2)      42.9     (19.2)

Other, net                         0.7       0.6      397.6     (38.0)

----------------------------------------------------------------------

 

Loss From Continuing

 Operations Before Income

 Taxes, Minority Interests

 and Cumulative Effect of

 Accounting Changes           (1,553.1)    (26.7)  (1,270.8)   (120.8)

 

Income tax benefit               624.3      25.7      497.3      54.0

Minority interests in net

 (earnings) losses of

 subsidiaries                      3.2      (0.6)       5.5      (1.2)

----------------------------------------------------------------------

 

Loss from continuing

 operations before cumulative

 effect of accounting changes   (925.6)     (1.6)    (768.0)    (68.0)

Income (loss) from

 discontinued operations,

 net of taxes                    (83.0)     43.2     (582.2)     80.3

----------------------------------------------------------------------

 

Income (loss) before

 cumulative effect of

 accounting changes           (1,008.6)     41.6   (1,350.2)     12.3

Cumulative effect of

 accounting changes, net

 of taxes                            -     (64.6)    (310.5)    (64.6)

----------------------------------------------------------------------

 

 

Net Loss                     $(1,008.6)   $(23.0) $(1,660.7)   $(52.3)

----------------------------------------------------------------------

 

Basic and Diluted Earnings

 (Loss) Per Common Share:

 

Loss from continuing

 operations before cumulative

 effect of accounting changes   $(0.67)       $-     $(0.56)   $(0.05)

Income (loss) from

 discontinued operations,

 net of taxes                    (0.06)     0.03      (0.42)     0.06

Cumulative effect of

 accounting changes, net

 of taxes                            -     (0.05)     (0.22)    (0.05)

----------------------------------------------------------------------

Net Loss                        $(0.73)   $(0.02)    $(1.20)   $(0.04)

----------------------------------------------------------------------

 

Weighted average number of

 common shares outstanding

 (in millions) - Basic and

 Diluted                       1,385.1   1,382.8    1,384.6   1,382.2

----------------------------------------------------------------------

 

 

 

                        THE DIRECTV GROUP, INC.

                      CONSOLIDATED BALANCE SHEETS

                         (Dollars in Millions)

                              (Unaudited)

 

                                            September 30, December 31,

ASSETS                                            2004         2003

----------------------------------------------------------------------

Current Assets

 

Cash and cash equivalents                       $3,308.7     $1,720.1

Accounts and notes receivable, net of

 allowances of $126.5 and $112.7                   948.1        896.3

Contracts in process                                60.5         69.7

Inventories                                        255.2        270.3

Prepaid expenses and other                         458.2      1,018.2

Assets of businesses held for sale                     -      6,381.6

----------------------------------------------------------------------

 

Total Current Assets                             5,030.7     10,356.2

Satellites, net                                  1,553.3      2,408.2

Property, net                                    1,335.2      1,791.6

Goodwill, net                                    3,034.1      3,034.1

Intangible Assets, net                           2,326.6        568.5

Investments and Other Assets                     1,047.8        819.4

----------------------------------------------------------------------

 

Total Assets                                   $14,327.7    $18,978.0

----------------------------------------------------------------------

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

----------------------------------------------------------------------

Current Liabilities

 

Accounts payable                                $1,069.5     $1,366.3

Unearned subscriber revenue and deferred

 credits                                           340.5        170.3

Short-term borrowings and current portion

 of long-term debt                                  24.2        226.2

Accrued liabilities and other                    1,112.6        937.5

Liabilities of businesses held for sale                -      3,139.6

----------------------------------------------------------------------

 

Total Current Liabilities                        2,546.8      5,839.9

Long-Term Debt                                   2,408.5      2,434.8

Other Liabilities and Deferred Credits           1,539.1      1,049.4

Commitments and Contingencies

Minority Interests                                  64.7         22.8

Stockholders' Equity                             7,768.6      9,631.1

----------------------------------------------------------------------

 

Total Liabilities and Stockholders' Equity     $14,327.7    $18,978.0

----------------------------------------------------------------------

 

 

 

                        THE DIRECTV GROUP, INC.

                 CONSOLIDATED STATEMENTS OF CASH FLOWS

                         (Dollars in Millions)

                              (Unaudited)

 

                                                  Nine Months Ended

                                                     September 30,

                                                ----------------------

                                                     2004        2003

----------------------------------------------------------------------

Cash Flows from Operating Activities

 

Loss from continuing operations before

 cumulative effect of accounting changes          $(768.0)     $(68.0)

Adjustments to reconcile loss from continuing

 operations before cumulative effect of

 accounting changes to net cash provided

 by operating activities

     Depreciation and amortization                  556.7       566.4

     Equity losses from unconsolidated

      affiliates                                        -        78.5

     Asset impairment charge                      1,466.1           -

     Net gain from sale of investments             (396.5)       (6.4)

     Net unrealized gain on investments                 -       (38.5)

     Loss on disposal of assets                       9.2        14.7

     Stock-based compensation expense                52.2         6.5

     Deferred income taxes and other               (459.9)      (82.1)

     Change in other operating assets and

      liabilities

           Accounts and notes receivable            (83.1)      109.2

           Inventories                                1.6       (60.4)

           Prepaid expenses and other              (106.9)       12.0

           Accounts payable                        (347.2)       (8.9)

           Accrued liabilities                      (65.5)      122.9

           Other                                    233.4       (71.3)

----------------------------------------------------------------------

Net Cash Provided by Operating Activities            92.1       574.6

----------------------------------------------------------------------

Cash Flows from Investing Activities

 

Investment in companies                              (0.4)      (11.4)

Purchase (sale) of short-term investments             1.7       (91.1)

Expenditures for property                          (323.3)     (264.6)

Expenditures for satellites                        (440.4)     (123.6)

Proceeds from sale of investments                   510.5        22.8

Proceeds from sale of businesses                  2,918.4           -

Cash paid for acquired assets                      (976.5)          -

Other                                                 5.1        32.2

----------------------------------------------------------------------

Net Cash Provided by (Used in) Investing

 Activities                                       1,695.1      (435.7)

----------------------------------------------------------------------

Cash Flows from Financing Activities

 

Net increase (decrease) in short-term borrowings      0.8      (478.0)

Long-term debt borrowings                             0.8     2,626.5

Repayment of long-term debt                        (214.1)      (18.4)

Debt issuance costs                                  (2.4)      (68.4)

Stock options exercised                              16.3        11.0

----------------------------------------------------------------------

Net Cash Provided by (Used in) Financing

 Activities                                        (198.6)    2,072.7

----------------------------------------------------------------------

Net Cash Provided by Continuing Operations        1,588.6     2,211.6

Net Cash Used in Discontinued Operations                -      (428.1)

----------------------------------------------------------------------

Net increase in cash and cash equivalents         1,588.6     1,783.5

Cash and cash equivalents at beginning of the

 period                                           1,720.1       324.4

----------------------------------------------------------------------

Cash and cash equivalents at the end of the

 period                                          $3,308.7    $2,107.9

----------------------------------------------------------------------

 

Supplemental Cash Flow Information

 

Interest paid                                      $103.3      $165.0

Income taxes paid (received)                         33.5       (32.6)

 

 

 

                        THE DIRECTV GROUP, INC.

                         SELECTED SEGMENT DATA

                         (Dollars in Millions)

                              (Unaudited)

 

                                 Three Months          Nine Months

                              Ended September 30,  Ended September 30,

                              -------------------  -------------------

                                2004      2003       2004      2003

----------------------------------------------------------------------

DIRECTV U.S.

 

Total Revenues               $ 2,506.5  $1,932.2  $ 6,804.2  $5,440.5

Operating Profit Before

 Depreciation and

 Amortization (1)                145.0     234.8      465.2     790.0

Operating Profit Before

 Depreciation and

 Amortization Margin (1)           5.8%     12.2%       6.8%     14.5%

Operating Profit             $     2.5  $  112.2  $    87.2  $  418.9

Operating Profit Margin            0.1%      5.8%       1.3%      7.7%

Depreciation and

 Amortization                $   142.5  $  122.6  $   378.0  $  371.1

Capital Expenditures             229.4      65.9      508.6     176.0

 

----------------------------------------------------------------------

DIRECTV LATIN AMERICA

 

Total Revenues               $   163.4  $  155.4  $   493.2  $  438.7

Operating Profit (Loss)

 Before Depreciation and

 Amortization (1)                 25.5     (16.6)      71.1     (67.8)

Operating Profit Before

 Depreciation and

 Amortization Margin (1)          15.6%      N/A       14.4%      N/A

Operating Loss               $   (18.6) $  (73.7) $   (65.6) $ (218.9)

Depreciation and

 Amortization                     44.1      57.1      136.7     151.1

Capital Expenditures              22.8      13.7       60.0      42.4

 

----------------------------------------------------------------------

NETWORK SYSTEMS

 

Total Revenues               $   194.8  $  338.8  $   875.8  $  864.8

Operating Loss Before

 Depreciation and

 Amortization (1)             (1,480.9)     (0.1)  (1,498.8)    (47.1)

Operating Loss                (1,495.3)    (17.6)  (1,546.8)   (100.4)

Depreciation and

 Amortization                     14.4      17.5       48.0      53.3

Capital Expenditures              19.7     (19.5)      82.6      87.6

 

----------------------------------------------------------------------

ELIMINATIONS and OTHER

 

Total Revenues               $    (2.8) $  (47.7) $  (175.3) $ (126.1)

Operating Loss Before

 Depreciation and

 Amortization (1)                (39.5)    (15.8)    (154.8)    (69.0)

Operating Loss                   (38.1)    (12.9)    (148.8)    (59.9)

Depreciation and

 Amortization                     (1.4)     (2.9)      (6.0)     (9.1)

Capital Expenditures              54.4      25.8      112.5      82.2

 

----------------------------------------------------------------------

TOTAL

 

Total Revenues               $ 2,861.9  $2,378.7  $ 7,997.9  $6,617.9

Operating Profit (Loss)

 Before Depreciation and

 Amortization (1)             (1,349.9)    202.3   (1,117.3)    606.1

Operating Profit Before

 Depreciation and

 Amortization Margin (1)           N/A       8.5%       N/A       9.2%

Operating Profit (Loss)      $(1,549.5) $    8.0  $(1,674.0) $   39.7

Operating Profit Margin            N/A       0.3%       N/A       0.6%

Depreciation and

 Amortization                $   199.6  $  194.3  $   556.7  $  566.4

Capital Expenditures             326.3      85.9      763.7     388.2

 

----------------------------------------------------------------------

 

(1) See footnote 1 on page 6.

 

----------------------------------------------------------------------

 

 

 

 

 

  The Following Pages Reflect DIRECTV U.S.' Financial Statements and

 

                  Other Data as a Stand Alone Entity

 

 

 

 

 

----------------------------------------------------------------------

 

                         DIRECTV HOLDINGS LLC

                 CONSOLIDATED STATEMENTS OF OPERATIONS

                         (Dollars in Millions)

                              (Unaudited)

 

                               Three Months Ended  Nine Months Ended

                                   September 30,     September 30,

                               ------------------- -------------------

                                   2004      2003      2004      2003

                               --------- --------- --------- ---------

 

Revenues                       $2,506.5  $1,932.2  $6,804.2  $5,440.5

Operating Costs and Expenses,

 exclusive of depreciation and

 amortization expense shown

 separately below

    Programming and other costs   985.6     773.3   2,690.2   2,178.0

    Subscriber service expenses   208.0     159.3     520.0     466.5

    Subscriber acquisition

     costs:

        Third party customer

         acquisitions             529.5     366.4   1,411.4     985.6

        Direct customer

         acquisitions             182.1     111.9     495.5     249.1

    Upgrade and retention costs   260.2     123.2     661.2     253.3

    Broadcast operations

     expenses                      33.2      26.8      98.4      98.9

    General and administrative

     expenses                     162.9     136.5     462.3     419.1

Depreciation and amortization

 expense                          142.5     122.6     378.0     371.1

                               --------- --------- --------- ---------

        Total Operating Costs

         and Expenses           2,504.0   1,820.0   6,717.0   5,021.6

                               --------- --------- --------- ---------

Operating Profit                    2.5     112.2      87.2     418.9

Interest expense, net             (43.1)    (54.6)   (136.5)   (141.1)

Other expense                        --        --        --      (4.0)

                               --------- --------- --------- ---------

Income (Loss) Before Income

 Taxes and Cumulative Effect

 of Accounting Change             (40.6)     57.6     (49.3)    273.8

Income tax benefit (expense)       14.5     (21.6)     17.9    (102.7)

                               --------- --------- --------- ---------

Income (Loss) Before Cumulative

 Effect of Accounting Change      (26.1)     36.0     (31.4)    171.1

Cumulative effect of accounting

 change, net of taxes                --        --    (311.5)       --

                               --------- --------- --------- ---------

Net Income (Loss)                $(26.1)    $36.0   $(342.9)   $171.1

                               --------- --------- --------- ---------

 

 

 

                         DIRECTV HOLDINGS LLC

                      CONSOLIDATED BALANCE SHEETS

                         (Dollars in Millions)

                              (Unaudited)

 

                                            September 30, December 31,

                                               2004            2003

                                            ------------  ------------

                  ASSETS

 

Current Assets

    Cash and cash equivalents                     $78.1        $415.7

    Accounts receivable, net of allowances

     of $77.1 and $51.1                           704.9         679.7

    Inventories, net                              136.4         100.0

    Prepaid expenses and other                    288.5         555.6

                                            ------------  ------------

        Total Current Assets                    1,207.9       1,751.0

Satellites, net                                 1,263.5       1,081.5

Property, net                                     667.0         732.3

Goodwill, net                                   2,891.1       2,891.1

Intangible Assets, net                          2,317.7         549.7

Other Assets                                      107.4         109.5

                                            ------------  ------------

        Total Assets                           $8,454.6      $7,115.1

                                            ------------  ------------

 

      LIABILITIES AND OWNER'S EQUITY

 

Current Liabilities

    Accounts payable and accrued liabilities   $1,617.7      $1,495.2

    Unearned subscriber revenue and deferred

     credits                                      334.8         164.1

    Current portion of long-term debt              10.2         213.1

                                            ------------  ------------

        Total Current Liabilities               1,962.7       1,872.4

Long-Term Debt                                  3,276.6       2,411.9

Other Liabilities and Deferred Credits          1,029.9         417.1

Deferred Income Taxes                             166.8         274.2

Commitments and Contingencies

Owner's Equity

    Capital stock and additional paid-in

     capital                                    3,020.9       2,798.9

    Accumulated deficit                        (1,002.3)       (659.4)

                                            ------------  ------------

  Total Owner's Equity                          2,018.6       2,139.5

                                            ------------  ------------

        Total Liabilities and Owner's Equity    $8,454.6      $7,115.1

                                            ------------  ------------

 

 

 

                         DIRECTV HOLDINGS LLC

                 CONSOLIDATED STATEMENTS OF CASH FLOWS

                         (Dollars in Millions)

                              (Unaudited)

 

                                                   Nine Months Ended

                                                      September 30,

                                                   -------------------

                                                       2004      2003

                                                   --------- ---------

Cash Flows from Operating Activities

 

Income (Loss) Before Cumulative Effect of

 Accounting Change                                   $(31.4)   $171.1

Adjustments to reconcile income (loss) before

 cumulative effect of accounting change to net cash

 provided by operating activities, net of assets

 acquired

    Depreciation and amortization expense             378.0     371.1

    Loss on sale or disposal of property                8.4       1.8

    Cost of employee benefits                          22.0      14.7

    Amortization of debt issuance costs                 6.7       4.9

    Deferred income taxes and other                   (25.1)    102.7

    Change in other operating assets and

     liabilities

        Accounts receivable, net                     (157.4)     55.8

        Inventories                                   (36.4)    (66.4)

        Prepaid expenses and other                   (125.9)    (20.9)

        Other assets                                  (34.3)    (21.0)

        Accounts payable and accrued liabilities       58.6      11.2

        Unearned subscriber revenue and deferred

         credits                                      142.5      58.3

        Other liabilities and deferred credits         78.7    (123.3)

                                                   --------- ---------

            Net Cash Provided by Operating

             Activities                               284.4     560.0

                                                   --------- ---------

 

Cash Flows from Investing Activities

 

Expenditures for property and equipment              (173.1)   (137.7)

Expenditures for satellites                          (335.5)    (38.3)

Cash paid for acquired assets                        (976.5)       --

Proceeds from sale of property                          3.7        --

                                                   --------- ---------

            Net Cash Used in Investing Activities  (1,481.4)   (176.0)

                                                   --------- ---------

 

Cash Flows from Financing Activities

 

Repayment of debt                                    (213.2)       --

Net cash contribution from Parent                     200.0       4.9

Borrowing from Parent                                 875.0        --

Cash proceeds from financing transactions                --   2,625.0

Distribution to Parent                                   --  (2,558.5)

Debt issuance costs                                    (2.4)    (68.4)

                                                   --------- ---------

            Net Cash Provided by Financing

             Activities                               859.4       3.0

                                                   --------- ---------

Net increase (decrease) in cash and cash

 equivalents                                         (337.6)    387.0

Cash and cash equivalents at beginning of the

 period                                               415.7      14.8

                                                   --------- ---------

Cash and cash equivalents at end of the period        $78.1    $401.8

                                                   --------- ---------

 

Supplemental Cash Flow Information

 

Interest paid                                        $181.8    $131.3

Income taxes paid                                       0.5      63.0

 

 

 

                         DIRECTV HOLDINGS LLC

           Non-GAAP Financial Reconciliation and Other Data

                              (Unaudited)

 

----------------------------------------------------------------------

                                Three Months Ended  Nine Months Ended

                                  September 30,       September 30,

                                ------------------ -------------------

                                     2004    2003      2004      2003

                                ---------- ------- --------- ---------

                                         (Dollars in Millions)

 

Operating Profit                     $2.5  $112.2     $87.2    $418.9

Add back: Subscriber acquisition

 costs:

     Third party customer

      acquisitions                  529.5   366.4   1,411.4     985.6

     Direct customer

      acquisitions                  182.1   111.9     495.5     249.1

  Depreciation and amortization

   expense                          142.5   122.6     378.0     371.1

                                ---------- ------- --------- ---------

Subtotal                            854.1   600.9   2,284.9   1,605.8

                                ---------- ------- --------- ---------

 

Pre-SAC margin (1)                 $856.6  $713.1  $2,372.1  $2,024.7

                                ---------- ------- --------- ---------

Pre-SAC margin as a percentage

 of revenue (1)                      34.2%   36.9%     34.9%     37.2%

----------------------------------------------------------------------

 

 

----------------------------------------------------------------------

                              Other Data

----------------------------------------------------------------------

                                Three Months Ended  Nine Months Ended

                                  September 30,       September 30,

                                ------------------ -------------------

                                   2004    2003      2004      2003

                                ---------- ------- --------- ---------

Average monthly revenue per

 subscriber (ARPU) (2)             $66.46  $63.69    $65.02    $61.24

Average monthly churn % (2)          1.67%   1.60%     1.50%     1.54%

Average subscriber acquisition

 costs-per subscriber (SAC) (3)      $617    $590      $634      $575

Total number of subscribers-

 platform (000's)                  13,496  11,852    13,496    11,852

Total owned and operated

 subscribers (000's) (4)           12,079  10,275    12,079    10,275

Capital expenditures (millions)    $229.4   $65.9    $508.6    $176.0

----------------------------------------------------------------------

 

----------------------------------------------------------------------

(1) 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

    by adding amounts under the captions "Subscriber acquisition

    costs" and "Depreciation and amortization expense" to "Operating

    Profit." This financial measure 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. The DIRECTV Group and DIRECTV U.S.

    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, retaining and upgrading 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.

 

    The DIRECTV Group and DIRECTV U.S. believe this measure is useful

    to investors, along with other GAAP measures (such as revenues,

    operating profit and net income), to compare DIRECTV U.S.'

    operating performance to other communications, entertainment and

    media companies. The DIRECTV Group and DIRECTV U.S. believe 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.

 

(2) Average subscribers used in calculating ARPU include total owned

    and operated subscribers, plus the subscribers in NRTC/Pegasus

    territories acquired by DIRECTV in the third quarter of 2004

    calculated on a daily weighted average basis. Churn is computed on

    a consistent basis with prior periods and therefore excludes

    subscribers in NRTC/Pegasus territories.

 

(3) Gross subscriber additions used in computing SAC for the three and

    nine months of 2004 is equal to the gross owned and operated

    subscriber additions during the period plus the 76,000 subscribers

    that DIRECTV acquired in NRTC/Pegasus territories during the third

    quarter of 2004.

 

(4) Total owned and operated subscribers excludes subscribers acquired

    in the third quarter of 2004 by DIRECTV from the NRTC and Pegasus,

    and also excludes subscribers acquired in NRTC/Pegasus territories

    by DIRECTV during the third quarter of 2004.

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