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DIRECTV - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[November 07, 2014]

DIRECTV - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


(Edgar Glimpses Via Acquire Media NewsEdge) 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/A for the year ended December 31, 2013 filed with the SEC on June 30, 2014, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 filed with the SEC on May 12, 2014, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 filed with the SEC on August 1, 2014, and all of our other filings, including Current Reports on Form 8-K, filed with the SEC after August 1, 2014 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 the use of statements that include phrases such as we "believe", "expect", "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 regarding our outlook for 2014 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 the following, each of which is described in more detail in our Annual Report on Form 10-K/A for the year ended December 31, 2013: º • º Levels of competition are increasing.

º • º We depend on others to produce programming and programming costs are increasing.

º • º Increased subscriber churn or subscriber upgrade and retention costs could materially adversely affect our financial performance.

º • º Our subscriber acquisition costs could materially increase.

º • º DIRECTV Latin America is subject to various additional risks associated with doing business internationally, which include political and economic instability and foreign currency exchange rate volatility and controls.

º • º Our ability to keep pace with technological developments is uncertain.

º • º Our business relies on intellectual property, some of which is owned by third parties, and we may inadvertently infringe patents and proprietary rights of others.

º • º Construction or launch delays on satellites could materially adversely affect our revenues and earnings.

º • º Our satellites are subject to significant launch and operational risks.

º • º The loss of one or more satellites, none of which is currently insured, could materially adversely affect our business and earnings.

48-------------------------------------------------------------------------------- Table of Contents DIRECTV º • º Satellite programming signals have been stolen and may be stolen in the future, which could result in lost revenues and would cause us to incur incremental operating costs that do not result in subscriber acquisition.

º • º The ability to maintain FCC licenses and other regulatory approvals is critical to our business.

º • º We may have an indemnity obligation to Liberty Media, which is not limited in amount or subject to any cap, that could be triggered if parts of the 2009 transaction between us and Liberty Media or Liberty Media's 2008 transaction with News Corporation are treated as a taxable transaction.

º • º We rely on network and information systems and other technology and a disruption or failure of such networks, systems or technology as a result of misappropriation of data or other malfeasance, as well as outages, natural disasters, accidental releases of information or similar events, may disrupt our business.

º • º We face risks arising from the outcome of various legal proceedings.

º • º Our strategic initiatives may not be successfully implemented, may not elicit the expected customer response in the market and may result in competitive reactions.

º • º Those and the other factors that are described in more detail in our Annual Report on Form 10-K/A for the year ended December 31, 2013.

In addition, below are risk factors relating to the proposed AT&T merger transaction: º • º The value of the stock portion of the merger consideration is subject to changes based on fluctuations in the value of AT&T common stock, and DIRECTV stockholders may receive stock consideration with a value that, at the time received, is less than $66.50 per share of DIRECTV common stock.

º • º AT&T and DIRECTV may have difficulty attracting, motivating and retaining executives and other key employees in light of the merger.

º • º Completion of the merger is subject to conditions and if these conditions are not satisfied or waived, the merger will not be completed.

º • º In order to complete the merger, AT&T and DIRECTV must make certain governmental filings and obtain certain governmental authorizations, and if such filings and authorizations are not made or granted or are granted with conditions, completion of the merger may be jeopardized or the anticipated benefits of the merger could be reduced.

º • º AT&T's and DIRECTV's business relationships may be subject to disruption due to uncertainty associated with the merger.

º • º The Merger Agreement limits DIRECTV's ability to pursue alternatives to the merger and may discourage other companies from trying to acquire DIRECTV for greater consideration than what AT&T has agreed to pay.

º • º Failure to complete the merger could negatively impact the stock price and the future business and financial results of AT&T and DIRECTV.

º • º The shares of AT&T common stock to be received by DIRECTV stockholders as a result of the merger will have rights different from the shares of DIRECTV common stock.

49 -------------------------------------------------------------------------------- Table of Contents DIRECTV º • º After the merger, DIRECTV stockholders will have a significantly lower ownership and voting interest in AT&T than they currently have in DIRECTV and will exercise less influence over management.

Any forward-looking statement made by us in this Quarterly Report on Form 10-Q 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 development 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 Quarterly Report. Information in this section is organized as follows: º • º Summary Data º • º Business Overview º • º Significant Events Affecting the Comparability of the Results of Operations º • º Key Terminology º • º Executive Outlook º • º Results of Operations º • º Liquidity and Capital Resources º • º Contractual Obligations º • º Contingencies º • º Certain Relationships and Related-Party Transactions º • º Critical Accounting Estimates 50 -------------------------------------------------------------------------------- Table of Contents DIRECTV SUMMARY DATA (Unaudited) Three Months Nine Months Ended Ended September 30, September 30, 2014 2013 2014 2013 (Dollars in Millions, Except Per Share Amounts) Consolidated Statements of Operations Data: Revenues $ 8,374 $ 7,880 $ 24,338 $ 23,160 Total operating costs and expenses 7,152 6,655 20,465 19,343 Operating profit 1,222 1,225 3,873 3,817 Interest income 18 15 43 56 Interest expense (215 ) (182 ) (677 ) (618 ) Other, net 1 43 93 6 Income before income taxes 1,026 1,101 3,332 3,261 Income tax expense (411 ) (391 ) (1,338 ) (1,192 ) Net income 615 710 1,994 2,069 Less: Net income attributable to noncontrolling interest (4 ) (11 ) (16 ) (20 ) Net income attributable to DIRECTV $ 611 $ 699 $ 1,978 $ 2,049 Basic earnings attributable to DIRECTV per common share $ 1.22 $ 1.29 $ 3.92 $ 3.68 Diluted earnings attributable to DIRECTV per common share $ 1.21 $ 1.28 $ 3.88 $ 3.65 Weighted average number of total common shares outstanding (in millions): Basic 502 541 505 557 Diluted 507 545 510 562 September 30, December 31, 2014 2013 (Dollars in Millions) Consolidated Balance Sheets Data: Cash and cash equivalents $ 2,898 $ 2,180 Total current assets 6,515 5,953 Total assets 22,594 21,905 Total current liabilities 6,472 6,530 Long-term debt 18,311 18,284 Redeemable noncontrolling interest - 375 Total stockholders' deficit (5,557 ) (6,544 ) -------------------------------------------------------------------------------- º Reference º should be made to the Notes to the Consolidated Financial Statements.

51 -------------------------------------------------------------------------------- Table of Contents DIRECTV SUMMARY DATA-(continued) (Unaudited) Three Months Nine Months Ended Ended September 30, September 30, 2014 2013 2014 2013 (Dollars in Millions) Other Data: Operating profit before depreciation and amortization(1) Operating profit $ 1,222 $ 1,225 $ 3,873 $ 3,817 Add: Depreciation and amortization expense 755 708 2,198 2,117 Operating profit before depreciation and amortization $ 1,977 $ 1,933 $ 6,071 $ 5,934 Operating profit before depreciation and amortization margin 23.6 % 24.5 % 24.9 % 25.6 % Cash flow information Net cash provided by operating activities $ 1,662 $ 1,345 $ 4,726 $ 4,355 Net cash used in investing activities (875 ) (1,133 ) (2,384 ) (2,812 ) Net cash used in financing activities (112 ) (955 ) (1,241 ) (1,636 ) Free cash flow(2) Net cash provided by operating activities 1,662 1,345 4,726 4,355 Less: Cash paid for property and equipment (790 ) (891 ) (2,207 ) (2,471 ) Less: Cash paid for satellites (80 ) (82 ) (189 ) (276 ) Free cash flow $ 792 $ 372 $ 2,330 $ 1,608 52 -------------------------------------------------------------------------------- Table of Contents DIRECTV SUMMARY DATA-(continued) (Unaudited) Selected Segment Data Operating Profit Depreciation and (Loss) Before Percentage of Operating Amortization Depreciation and Revenues Total Revenues Profit (Loss) Expense Amortization(1) (Dollars in Millions) Three Months Ended September 30, 2014 DIRECTV U.S. $ 6,506 77.7 % $ 1,113 $ 435 $ 1,548 Sky Brasil 1,014 12.1 % 118 189 307 PanAmericana and Other 806 9.6 % 19 127 146 DIRECTV Latin America 1,820 21.7 % 137 316 453 Sports Networks, Eliminations and Other 48 0.6 % (28 ) 4 (24 ) Total $ 8,374 100.0 % $ 1,222 $ 755 $ 1,977 September 30, 2013 DIRECTV U.S. $ 6,170 78.3 % $ 987 $ 409 $ 1,396 Sky Brasil 883 11.2 % 169 184 353 PanAmericana and Other 779 9.9 % 93 112 205 DIRECTV Latin America 1,662 21.1 % 262 296 558 Sports Networks, Eliminations and Other 48 0.6 % (24 ) 3 (21 ) Total $ 7,880 100.0 % $ 1,225 $ 708 $ 1,933 53 -------------------------------------------------------------------------------- Table of Contents DIRECTV SUMMARY DATA-(continued) (Unaudited) Operating Profit Depreciation and (Loss) Before Percentage of Operating Amortization Depreciation and Revenues Total Revenues Profit (Loss) Expense Amortization(1) (Dollars in Millions) Nine Months Ended September 30, 2014 DIRECTV U.S. $ 18,865 77.5 % $ 3,675 $ 1,290 $ 4,965 Sky Brasil 2,964 12.2 % 380 527 907 PanAmericana and Other 2,366 9.7 % (127 ) 370 243 DIRECTV Latin America 5,330 21.9 % 253 897 1,150 Sports Networks, Eliminations and Other 143 0.6 % (55 ) 11 (44 ) Total $ 24,338 100.0 % $ 3,873 $ 2,198 $ 6,071 September 30, 2013 DIRECTV U.S. $ 17,903 77.3 % $ 3,343 $ 1,225 $ 4,568 Sky Brasil 2,790 12.0 % 379 547 926 PanAmericana and Other 2,286 9.9 % 139 328 467 DIRECTV Latin America 5,076 21.9 % 518 875 1,393 Sports Networks, Eliminations and Other 181 0.8 % (44 ) 17 (27 ) Total $ 23,160 100.0 % $ 3,817 $ 2,117 $ 5,934 -------------------------------------------------------------------------------- º (1) º Operating profit (loss) 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, can be calculated by adding amounts under the caption "Depreciation and amortization expense" to "Operating profit (loss)." This 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. Our management and our Board of Directors use operating profit before depreciation and amortization to evaluate the operating performance of our company and our business segments and to allocate resources and capital to business segments. This metric is also used as a measure of performance for incentive compensation purposes and to measure income generated from operations that could be used to fund capital expenditures, service debt or pay taxes. Depreciation and amortization expense primarily represents an allocation to current expense of the cost of historical capital expenditures and for acquired intangible assets resulting from prior business acquisitions. To compensate for the exclusion of depreciation and amortization expense from operating profit, our management and our Board of Directors separately measure and budget for capital expenditures and business acquisitions.

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 54-------------------------------------------------------------------------------- Table of Contents DIRECTV SUMMARY DATA-(continued) (Unaudited) 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.

55-------------------------------------------------------------------------------- Table of Contents DIRECTV BUSINESS OVERVIEW DIRECTV, which we also refer to as the Company, we, or us, is a leading provider of digital television entertainment in the United States and Latin America. We operate two direct-to-home, or DTH, business units: DIRECTV U.S. and DIRECTV Latin America, which are differentiated by their geographic location and are engaged in acquiring, promoting, selling and distributing digital entertainment programming primarily via satellite to residential and commercial subscribers. In addition, we own and operate two regional sports networks, or RSNs, hold a minority ownership interest in ROOT SPORTS™ Northwest and own a 42% interest in Game Show Network LLC, or GSN, a television network dedicated to game-related programming and Internet interactive game playing. We account for our investments in ROOT SPORTS Northwest and GSN using the equity method of accounting.

º • º DIRECTV U.S. DIRECTV Holdings LLC and its subsidiaries, which we refer to as DIRECTV U.S., is the largest provider of DTH digital television services and the second largest provider in the multi-channel video programming distribution, or MVPD, industry in the United States. As of September 30, 2014, DIRECTV U.S. had approximately 20.2 million subscribers.

º • º DIRECTV Latin America. DIRECTV Latin America Holdings, Inc. and its subsidiaries, or DIRECTV Latin America, is a leading provider of DTH digital television services throughout Latin America. DIRECTV Latin America is comprised of: PanAmericana, which provides services in Argentina, Chile, Colombia, Ecuador, Peru, Puerto Rico, Venezuela and certain other countries in the region, and Sky Brasil Servicos Ltda., or Sky Brasil, which is a 93% owned subsidiary. DIRECTV Latin America also includes our 41% equity method investment in Innova, S. de R.L.

de C.V., or Sky Mexico, which we include in the PanAmericana segment.

As of September 30, 2014, PanAmericana had approximately 6.7 million subscribers, Sky Brasil had approximately 5.6 million subscribers and Sky Mexico had approximately 6.5 million subscribers.

º • º DIRECTV Sports Networks. DIRECTV Sports Networks LLC and its subsidiaries, or DSN, is comprised primarily of two wholly owned regional sports networks based in Denver, Colorado and Pittsburgh, Pennsylvania, and a regional sports network based in Seattle, Washington in which DSN retains a noncontrolling interest, each of which operates under the brand name ROOT SPORTS. On April 16, 2013, DSN transferred 100% of its interest in a regional sports network based in Seattle, Washington, or DSN Northwest, to NW Sports Net LLC. The Seattle Mariners have a majority interest in NW Sports Net LLC and DSN retains a noncontrolling interest, which we account for using the equity method of accounting. The operating results of DSN are reported as part of the "Sports Networks, Eliminations and Other" reporting segment.

Proposed AT&T Merger Transaction On May 18, 2014, DIRECTV and AT&T Inc., or AT&T, announced that they entered into a definitive agreement under which DIRECTV will combine with AT&T in a stock and cash transaction. The Agreement and Plan of Merger, which was included as Exhibit 2.1 to the Form 8-K filed with the SEC on May 19, 2014, or the Merger Agreement, was approved unanimously by the Board of Directors of each company and was approved by our stockholders at a special meeting held on September 25, 2014.

Subject to the conditions in the Merger Agreement, at the effective time of the merger, our shareholders will receive $95.00 per share, subject to adjustments as described below under the terms of the merger, comprised of $28.50 per share in cash and $66.50 per share in AT&T stock. The stock portion will be subject to a collar such that our shareholders will receive 1.905 AT&T shares if AT&T stock price is below $34.90 at closing and 1.724 AT&T shares if AT&T stock price is above $38.58 at 56-------------------------------------------------------------------------------- Table of Contents DIRECTV closing. If AT&T stock price at closing is between $34.90 and $38.58, our shareholders will receive a number of shares between 1.724 and 1.905, equal to $66.50 in value based on a volume-weighted average as provided in the Merger Agreement. The value of the shares may differ on the date of exchange. The transaction is subject to review by the U.S. Department of Justice and the Federal Communications Commission. The transaction has been reviewed and approved by Brazil telecommunications and antitrust authorities and is under review by Mexican antitrust authorities. The transaction is expected to close in the first half of 2015.

In connection with the proposed combination, we have made certain representations, warranties and covenants in the Merger Agreement, including, among other things, covenants by DIRECTV to conduct its business in the ordinary course during the interim period between the execution of the Merger Agreement and consummation of the merger and not to take certain actions prior to the closing of the merger without the prior approval of AT&T.

Also, during the third quarter of 2014, we entered into an agreement with the National Football League, or NFL, to renew and extend our rights to exclusively distribute the NFL Sunday Ticket service, or the NFL Agreement.

Pursuant to the Merger Agreement, AT&T had the right to terminate the Merger Agreement or not consummate the merger if we failed to enter into a contract with the NFL providing for exclusive distribution rights for "NFL Sunday Ticket" service. AT&T has confirmed to us that the NFL Agreement satisfies the requirements of the Merger Agreement.

In connection with the proposed combination, we recognized costs of $19 million for the three months ended September 30, 2014 and $39 million for the nine months ended September 30, 2014 in "General and administrative expenses" in the Consolidated Statements of Operations, primarily related to professional services fees.

SIGNIFICANT EVENTS AFFECTING THE COMPARABILITY OF THE RESULTS OF OPERATIONS Venezuela Devaluation and Foreign Currency Exchange Controls Companies operating in Venezuela are required to obtain Venezuelan government approval to exchange Venezuelan bolivars into U.S. dollars and such approval has not consistently been granted for several years. Consequently, our ability to pay U.S. dollar denominated obligations and repatriate cash generated in Venezuela in excess of local operating requirements is limited, which has resulted in increases in the cash balance at our Venezuelan subsidiary. In February 2013, the Venezuelan government announced a devaluation of the Venezuelan bolivar from the official exchange rate of 4.3 Venezuelan bolivars per U.S. dollar to an official rate of 6.3 Venezuelan bolivars per U.S. dollar.

As a result of the devaluation, we recorded a pre-tax charge in "Venezuelan currency devaluation charge" in the Consolidated Statements of Operations 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.

In the first quarter of 2013, the Venezuelan government announced a new currency exchange system, the Sistema Complementario de Administración de Divisas, or SICAD 1, which is intended to function as an auction system for participants to exchange Venezuelan bolivars for U.S. dollars. The volume of amounts exchanged through such SICAD 1 system and the resulting exchange rate are published by the Venezuelan Central Bank. Effective January 24, 2014, the Venezuelan government announced that dividends and royalties would be subject to the SICAD 1 program. The SICAD 1 exchange rate, which was 12 Venezuelan bolivars per U.S. dollar as of September 30, 2014, is determined by periodic auctions.

Additionally, in February 2014, the Venezuelan government announced SICAD 2, which is an exchange mechanism that became available on March 24, 2014. The exchange rate for SICAD 2 was 49.99 Venezuelan bolivars per U.S. dollar as of September 30, 2014.

57 -------------------------------------------------------------------------------- Table of Contents DIRECTV We currently believe the SICAD 1 rate is the most representative rate to use for remeasurement, as the official rate of 6.3 Venezuelan 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 September 30, 2014, we are continuing to remeasure our Venezuelan subsidiary's financial statements in U.S. dollars using the exchange rate determined by periodic auctions under SICAD 1, which was 12.0 Venezuelan bolivars per U.S.

dollar. Prior to March 31, 2014, we used the official exchange rate of 6.3 Venezuelan bolivars per U.S. dollar. As a result of the devaluation, we recorded a pre-tax charge in "Venezuelan currency devaluation charge" in the Consolidated Statements of Operations of $281 million in the first quarter of 2014, related to the remeasurement of the bolivar denominated net monetary assets of our Venezuelan subsidiary on March 31, 2014.

As of September 30, 2014, our Venezuelan subsidiary had Venezuelan bolivar denominated net monetary assets of $494 million, including cash of $547 million, based on the SICAD 1 exchange rate of 12.0 Venezuelan bolivars per U.S. dollar.

The exchange rate used to report net monetary assets and operating results of our Venezuelan subsidiary is currently based on the results of periodic SICAD 1 auctions, which is expected to result in fluctuations in reported amounts that could be material to the results of operations in Venezuela in future periods and could materially affect the comparability of results for our Venezuelan subsidiary between periods. The comparability of our results of operations and financial position in Venezuela will also be affected in the event of additional changes to the exchange rate system and further devaluations of the Venezuelan bolivar.

ECAD As previously reported, Escritorio Central de Arrecadacao, or ECAD, the organization responsible for collecting performance rights fees under Brazilian law, had outstanding claims against Sky Brasil, along with other video distributors in Brazil. In the third quarter of 2013, Sky Brasil entered into an agreement with ECAD whereby Sky Brasil agreed to settle all claims for the period from 2004 through December 31, 2013 for a cash payment of $92 million in September 2013. As a result of this settlement, Sky Brasil recognized a $128 million pre-tax gain from the reversal of amounts previously accrued during such period, of which $70 million was recorded as a reduction in "Broadcast programming and other", $37 million was recorded as a reduction in "Interest expense" and $21 million was recorded in "Other, net" in the Consolidated Statements of Operations.

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, advanced receiver service fees (which include HD, DVR and multi-room viewing), pay-per-view programming, and seasonal live sporting events. We also earn revenues from monthly fees we charge subscribers for multiple set-top receivers, hardware revenues from subscribers who lease or purchase set-top receivers from us, 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, seasonal live sporting and other events. Other costs include continuing service fees paid to third parties for active subscribers and warranty service costs.

58-------------------------------------------------------------------------------- Table of Contents DIRECTV Subscriber Service Expenses. Subscriber service expenses include the costs of customer call centers, billing, remittance processing and service calls.

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 and telcos, 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 useful lives. In certain countries in Latin America, where our customer agreements provide for the lease of the entire DIRECTV or SKY System, we also capitalize the costs of the other customer premises equipment and related installation costs. 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. 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 advanced receivers 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 equipment" in the Consolidated Statements of Cash Flows.

General and Administrative Expenses. General and administrative expenses include departmental costs for legal, administrative services, finance, marketing and information technology. These costs also include expenses for bad debt and other operating expenses, such as legal settlements, and gains or losses from the sale or disposal of fixed assets.

Average Monthly Revenue Per Subscriber. We calculate ARPU by dividing average monthly revenues for the period (total revenues during the period divided by the number of months in the period) by average subscribers for the period. We calculate average subscribers for the period by adding the number of subscribers as of the beginning of the period and for each quarter end in the current year or period and dividing by the sum of the number of quarters in the period plus one.

Average Monthly Subscriber Churn. Average monthly subscriber churn represents the number of subscribers whose service is disconnected, expressed as a percentage of the average total number of subscribers. We calculate average monthly subscriber churn by dividing the average monthly number of disconnected subscribers for the period (total subscribers disconnected, net of reconnects, during the period divided by the number of months in the period) by average subscribers for the period.

Subscriber Count. The total number of subscribers represents the total number of subscribers actively subscribing to our service, including subscribers who have suspended their account for a particular season of the year because they are temporarily away from their primary residence, subscribers who are in the process of relocating and commercial equivalent viewing units.

59-------------------------------------------------------------------------------- Table of Contents DIRECTV SAC. We calculate SAC, which represents total subscriber acquisition costs stated on a per subscriber basis, by dividing total subscriber acquisition costs for the period by the number of gross new subscribers acquired during the period. We calculate total subscriber acquisition costs for the period by adding together "Subscriber acquisition costs" expensed during the period and the amount of cash paid for equipment leased to new subscribers during the period.

EXECUTIVE OUTLOOK DIRECTV Consolidated. We previously reported in our Annual Report on Form 10-K/A for the year ended December 31, 2013 that we anticipated earnings per share to increase in the mid-teen percentage range from the $5.22 earnings per share reported in 2013. We now expect earnings per share to increase in the low single digit percentage range as a result of lower than expected net income driven by unfavorable foreign currency exchange rates and AT&T merger transaction costs, as well as higher weighted average shares outstanding than previously anticipated due to the suspension of our share repurchase program.

These estimates are highly volatile depending on changes in foreign currency exchange rates, as well as changes in the macroeconomic and political environment in Latin America.

We previously reported in our Annual Report on Form 10-K/A for the year ended December 31, 2013 that we expected free cash flow, or cash provided by operating activities less capital expenditures, to increase approximately 10%.

We now expect free cash flow to increase nearly 20% driven by an increase in operating profit before depreciation and amortization as well as a reduction in cash paid for income taxes.

60 -------------------------------------------------------------------------------- Table of Contents DIRECTV RESULTS OF OPERATIONS Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013 DIRECTV U.S. Results of Operations The following table provides operating results and a summary of key subscriber data for the DIRECTV U.S. segment: Three Months Ended and As of September 30, Change 2014 2013 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 6,506 $ 6,170 $ 336 5.4 % Operating costs and expenses Costs of revenues, exclusive of depreciation and amortization expense Broadcast programming and other 3,057 2,904 153 5.3 % Subscriber service expenses 397 391 6 1.5 % Broadcast operations expenses 74 68 6 8.8 % Selling, general and administrative expenses, exclusive of depreciation and amortization expense Subscriber acquisition costs 776 756 20 2.6 % Upgrade and retention costs 347 359 (12 ) (3.3 )% General and administrative expenses 307 296 11 3.7 % Depreciation and amortization expense 435 409 26 6.4 % Total operating costs and expenses 5,393 5,183 210 4.1 % Operating profit $ 1,113 $ 987 $ 126 12.8 % Operating profit margin 17.1 % 16.0 % - - Other data: Operating profit before depreciation and amortization $ 1,548 $ 1,396 $ 152 10.9 % Operating profit before depreciation and amortization margin 23.8 % 22.6 % - - Total number of subscribers (in thousands) 20,203 20,160 43 0.2 % ARPU $ 107.27 $ 102.37 $ 4.90 4.8 % Average monthly subscriber churn % 1.73 % 1.61 % - 7.5 % Gross subscriber additions (in thousands) 1,023 1,109 (86 ) (7.8 )% Subscriber disconnections (in thousands) 1,051 970 81 8.4 % Net subscriber (disconnections) additions (in thousands) (28 ) 139 (167 ) (120.1 )% Average subscriber acquisition costs-per subscriber (SAC) $ 898 $ 853 $ 45 5.3 % Capital expenditures: Property and equipment $ 187 $ 155 $ 32 20.6 % Subscriber leased equipment-subscriber acquisitions 143 190 (47 ) (24.7 )% Subscriber leased equipment-upgrade and retention 134 162 (28 ) (17.3 )% Satellites 19 46 (27 ) (58.7 )% Total capital expenditures $ 483 $ 553 $ (70 ) (12.7 )% Subscribers. In the third quarter of 2014, DIRECTV U.S. had net subscriber disconnections of 28,000 as compared to net subscriber additions of 139,000 in the third quarter of 2013. This decrease 61-------------------------------------------------------------------------------- Table of Contents DIRECTV was due to both lower gross subscriber additions and a higher number of subscriber disconnections. Gross subscriber additions decreased mainly as a result of stricter credit policies. Average monthly subscriber churn was higher in the third quarter of 2014 as compared to the third quarter of 2013 primarily due to a more competitive environment and subscribers with larger average promotional offers that have ended.

Revenues. DIRECTV U.S. revenues increased in the third quarter of 2014 as a result of higher ARPU. The increase in ARPU resulted primarily from price increases on programming packages, higher advanced receiver service fees, higher fees for our enhanced warranty program, as well as higher ad sales and commercial revenues, partially offset by increased promotional offers to existing customers and lower revenue from pay-per-view events.

Operating profit before depreciation and amortization. Operating profit before depreciation and amortization increased in the third quarter of 2014 as compared to the third quarter of 2013 primarily due to higher revenues coupled with lower upgrade and retention costs, partially offset by higher broadcast programming and other costs, as well as higher subscriber acquisition costs.

Upgrade and retention costs decreased primarily due to lower equipment costs.

Broadcast programming and other costs increased primarily due to annual program supplier rate increases. Subscriber acquisition costs increased primarily due to an increase in promotional offers targeted at higher quality subscribers and higher marketing costs, partially offset by lower gross subscriber additions.

SAC on a per subscriber basis, which includes the cost of capitalized set-top receivers, increased due to the increase in subscriber acquisition costs, partially offset by lower equipment costs.

Operating profit before depreciation and amortization margin improved primarily due to the higher revenues combined with lower upgrade and retention costs, relatively unchanged subscriber service expenses, as well as slower relative growth in subscriber acquisition costs.

Operating profit. Operating profit and operating profit margin increased in the third quarter of 2014 as compared to the third quarter of 2013 due to an increase in operating profit before depreciation and amortization and operating profit before depreciation and amortization margin, partially offset by an increase in depreciation and amortization expense due to higher total capitalized subscriber leased equipment.

62-------------------------------------------------------------------------------- Table of Contents DIRECTV DIRECTV Latin America Results of Operations The following table provides operating results and a summary of key subscriber data for the consolidated DIRECTV Latin America operations, which does not include Sky Mexico: Three Months Ended and As of September 30, Change 2014 2013 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 1,820 $ 1,662 $ 158 9.5 % Operating profit before depreciation and amortization 453 558 (105 ) (18.8 )% Operating profit before depreciation and amortization margin 24.9 % 33.6 % - - Operating profit $ 137 $ 262 $ (125 ) (47.7 )% Operating profit margin 7.5 % 15.8 % - - Other data: ARPU $ 48.88 $ 49.42 $ (0.54 ) (1.1 )% Average monthly total subscriber churn % 2.99 % 2.27 % - 31.7 % Average monthly post-paid subscriber churn % 2.06 % 1.93 % - % 6.7 % Total number of subscribers (in thousands)(1) 12,353 11,337 1,016 9.0 % Gross subscriber additions (in thousands)(1) 993 1,023 (30 ) (2.9 )% Net subscriber (disconnections) additions (in thousands)(1) (119 ) 260 (379 ) (145.8 )% Capital expenditures: Property and equipment $ 69 $ 62 $ 7 11.3 % Subscriber leased equipment-subscriber acquisitions 184 228 (44 ) (19.3 )% Subscriber leased equipment-upgrade and retention 73 93 (20 ) (21.5 )% Satellites 55 32 23 71.9 % Total capital expenditures $ 381 $ 415 $ (34 ) (8.2 )% -------------------------------------------------------------------------------- º (1) º DIRECTV Latin America subscriber data excludes subscribers on the Sky Mexico platform.

Sky Brasil Results of Operations The following table provides operating results and a summary of key subscriber data for the consolidated Sky Brasil operations: Three Months Ended and As of September 30, Change 2014 2013 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 1,014 $ 883 $ 131 14.8 % Operating profit before depreciation and amortization 307 353 (46 ) (13.0 )% Operating profit before depreciation and amortization margin 30.3 % 40.0 % - - Operating profit $ 118 $ 169 $ (51 ) (30.2 )% Operating profit margin 11.6 % 19.1 % - - Other Data: ARPU $ 60.00 $ 56.50 $ 3.50 6.2 % Total number of subscribers (in thousands) 5,644 5,255 389 7.4 % Total capital expenditures $ 254 $ 222 $ 32 14.4 % 63 -------------------------------------------------------------------------------- Table of Contents DIRECTV Subscribers. In the third quarter of 2014 net subscriber additions decreased as compared to the third quarter of 2013 due to higher average monthly churn, partially offset by higher gross subscriber additions. Total average monthly churn increased primarily due to a reduction in credits to existing subscribers, and the introduction of our prepaid service in the fourth quarter of 2013.

Revenues. Revenues increased in the third quarter of 2014 as compared to the third quarter of 2013 primarily due to subscriber growth and an increase in ARPU. The increase in ARPU was driven by reduced promotional offers to subscribers and an increase in advanced services.

Operating profit before depreciation and amortization. Operating profit before depreciation and amortization and operating profit before depreciation and amortization margin decreased in the third quarter of 2014 primarily due to the settlement of the ECAD dispute in the third quarter of 2013. The decrease was also attributable to increased subscriber service and general and administrative expenses related to customer service and systems initiatives.

Operating profit. Operating profit and operating profit margin decreased in the third quarter of 2014 as compared to the third quarter of 2013. This decrease was due to the decrease in operating profit before depreciation and amortization and operating profit before depreciation and amortization margin.

PanAmericana and Other Results of Operations The following table provides operating results and a summary of key subscriber data for the consolidated PanAmericana and Other operations: Three Months Ended and As of September 30, Change 2014 2013 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 806 $ 779 $ 27 3.5 % Operating profit before depreciation and amortization 146 205 (59 ) (28.8 )% Operating profit before depreciation and amortization margin 18.1 % 26.3 % - - Operating profit $ 19 $ 93 $ (74 ) (79.6 )% Operating profit margin 2.4 % 11.9 % - - Other Data: ARPU $ 39.64 $ 43.07 $ (3.43 ) (8.0 )% Total number of subscribers (in thousands) 6,709 6,082 627 10.3 % Total capital expenditures $ 127 $ 193 $ (66 ) (34.2 )% Subscribers. In the third quarter of 2014 we had net subscriber disconnections as compared to net subscriber additions in the third quarter of 2013. The change is primarily due to lower gross subscriber additions and higher average monthly total subscriber churn resulting from higher subscriber disconnections and lower prepaid subscriber reconnections following the end of the FIFA World Cup.

Revenues. Revenues increased in the third quarter of 2014 primarily due to subscriber growth, partially offset by a decrease in ARPU. The decrease in ARPU was primarily driven by currency depreciation in Venezuela and Argentina and a higher penetration of lower ARPU mass market subscribers, partially offset by price increases and an increase in the number of subscribers with advanced services.

Operating profit before depreciation and amortization. Operating profit before depreciation and amortization and operating profit before depreciation and amortization margin decreased in the third 64-------------------------------------------------------------------------------- Table of Contents DIRECTV quarter of 2014 as compared to the third quarter of 2013 primarily due to a $62 million charge in "General and administrative expenses" in the Consolidated Statements of Operations related to the remeasurement of the Venezuelan bolivar denominated net monetary assets during the third quarter of 2014 and higher broadcast programming costs in Venezuela, as well as higher subscriber acquisition costs primarily resulting from labor cost inflation.

Operating profit. Operating profit and operating profit margin decreased in the third quarter of 2014 as compared to the third quarter of 2013 due to a decrease in operating profit before depreciation and amortization and operating profit before depreciation and amortization margin, as well as an increase in depreciation and amortization expense due to subscriber leased equipment and infrastructure costs capitalized over the last year.

DIRECTV Other Income and Income Taxes Interest income. Interest income was $18 million in the third quarter of 2014 and $15 million in the third quarter of 2013.

Interest expense. The increase in interest expense to $215 million in the third quarter of 2014 from $182 million in the third quarter of 2013 was primarily due to a higher average debt balance.

Other, net. The significant components of "Other, net" were as follows: Three Months Ended September 30, Change 2014 2013 $ (Dollars in Millions) Equity in earnings from unconsolidated affiliates $ 21 $ 30 $ (9 ) Net gains from sale of investments 1 - 1 Net foreign currency transaction loss (19 ) (9 ) (10 ) Fair-value gain on non-employee stock options - 2 (2 ) ECAD settlement gain - 21 (21 ) Other (2 ) (1 ) (1 ) Total $ 1 $ 43 $ (42 ) Income Tax Expense. We recognized income tax expense of $411 million for the third quarter of 2014 compared to $391 million for the third quarter of 2013. The effective tax rate for the third quarter of 2014 was 40.1% compared to 35.5% for the third quarter of 2013, primarily due to the unfavorable tax impact of the Venezuela exchange rate in 2014, and the recognition of uncertain tax benefits as a result of the expiration of the statute of limitations in 2013.

Earnings Per Share Earnings per share and weighted average shares outstanding were as follows: Three Months Ended September 30, 2014 2013 (Shares in Millions)Basic earnings attributable to DIRECTV per common share $ 1.22 $ 1.29 Diluted earnings attributable to DIRECTV per common share $ 1.21 $ 1.28 Weighted average number of common shares outstanding: Basic 502 541 Diluted 507 545 65 -------------------------------------------------------------------------------- Table of Contents DIRECTV The decreases in basic and diluted earnings per share were due to lower net income attributable to DIRECTV, partially offset by a reduction in weighted average shares outstanding resulting from our share repurchase program.

Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013 DIRECTV U.S. Results of Operations The following table provides operating results and a summary of key subscriber data for the DIRECTV U.S. segment: Nine Months Ended and As of September 30, Change 2014 2013 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 18,865 $ 17,903 $ 962 5.4 % Operating costs and expenses Costs of revenues, exclusive of depreciation and amortization expense Broadcast programming and other 8,625 8,147 478 5.9 % Subscriber service expenses 1,130 1,102 28 2.5 % Broadcast operations expenses 221 220 1 0.5 % Selling, general and administrative expenses, exclusive of depreciation and amortization expense Subscriber acquisition costs 2,085 1,979 106 5.4 % Upgrade and retention costs 942 1,002 (60 ) (6.0 )% General and administrative expenses 897 885 12 1.4 % Depreciation and amortization expense 1,290 1,225 65 5.3 % Total operating costs and expenses 15,190 14,560 630 4.3 % Operating profit $ 3,675 $ 3,343 $ 332 9.9 % Operating profit margin 19.5 % 18.7 % - - Other data: Operating profit before depreciation and amortization $ 4,965 $ 4,568 $ 397 8.7 % Operating profit before depreciation and amortization margin 26.3 % 25.5 % - - Total number of subscribers (in thousands) 20,203 20,160 43 0.2 % ARPU $ 103.57 $ 99.00 $ 4.57 4.6 % Average monthly subscriber churn % 1.58 % 1.53 % - 3.3 % Gross subscriber additions (in thousands) 2,822 2,841 (19 ) (0.7 )% Subscriber disconnections (in thousands) 2,872 2,765 107 3.9 % Net subscriber (disconnections) additions (in thousands) (50 ) 76 (126 ) (165.8 )% Average subscriber acquisition costs-per subscriber (SAC) $ 872 $ 878 $ (6 ) (0.7 )% Capital expenditures: Property and equipment $ 514 $ 420 $ 94 22.4 % Subscriber leased equipment-subscriber acquisitions 375 515 (140 ) (27.2 )% Subscriber leased equipment-upgrade and retention 348 392 (44 ) (11.2 )% Satellites 52 154 (102 ) (66.2 )% Total capital expenditures $ 1,289 $ 1,481 $ (192 ) (13.0 )% Subscribers. In the nine months ended September 30, 2014, DIRECTV U.S. had net subscriber disconnections of 50,000 as compared to net subscriber additions of 76,000 in the nine months ended September 30, 2013. The decrease was due to lower gross subscriber additions and a higher number of 66-------------------------------------------------------------------------------- Table of Contents DIRECTV subscriber disconnections. Gross subscriber additions decreased mainly as a result of stricter credit policies. Average monthly subscriber churn was higher for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 primarily due to a more competitive environment and subscribers with larger average promotional offers that have ended.

Revenues. DIRECTV U.S. revenues increased in the nine months ended September 30, 2014 as a result of higher ARPU. The increase in ARPU resulted primarily from higher advanced receiver service fees, price increases on programming packages, higher fees for our enhanced warranty program, as well as higher ad sales and commercial revenues, partially offset by increased promotional offers for new and existing customers.

Operating profit before depreciation and amortization. Operating profit before depreciation and amortization increased in the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 primarily due to higher revenues coupled with lower upgrade and retention costs, partially offset by higher broadcast programming and other costs and higher subscriber acquisition costs. Upgrade and retention costs decreased primarily due to lower equipment costs. Broadcast programming and other costs increased primarily due to annual program supplier rate increases. Subscriber acquisition costs increased primarily due to an increase in promotional offers targeted at higher quality subscribers.

Operating profit before depreciation and amortization margin increased in the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 primarily due to the higher revenues coupled with lower upgrade and retention costs, as well as slower relative growth in subscriber service expenses and general and administrative expenses, partially offset by higher broadcast programming and other costs.

Operating profit. Operating profit and operating profit margin increased in the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 due to an increase in operating profit before depreciation and amortization and operating profit before depreciation and amortization margin, partially offset by an increase in depreciation and amortization expense due to higher total capitalized subscriber leased equipment.

67-------------------------------------------------------------------------------- Table of Contents DIRECTV DIRECTV Latin America Results of Operations The following table provides operating results and a summary of key subscriber data for the consolidated DIRECTV Latin America operations: Nine Months Ended and As of September 30, Change 2014 2013 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 5,330 $ 5,076 $ 254 5.0 % Operating profit before depreciation and amortization(1) 1,150 1,393 (243 ) (17.4 )% Operating profit before depreciation and amortization margin(1) 21.6 % 27.4 % - - Operating profit(1) $ 253 $ 518 $ (265 ) (51.2 )% Operating profit margin(1) 4.7 % 10.2 % - - Other data: ARPU(2) $ 49.02 $ 51.68 $ (2.66 ) (5.1 )% Average monthly total subscriber churn %(2) 2.42 % 2.43 % - (0.4 )% Average monthly post-paid subscriber churn %(2) 1.94 % 2.18 % - (11.0 )% Total number of subscribers (in thousands)(2)(3) 12,353 11,337 1,016 9.0 % Gross subscriber additions (in thousands)(3)(4) 3,415 3,393 22 0.6 % Net subscriber additions (in thousands)(2)(3)(4) 785 1,008 (223 ) (22.1 )% Capital expenditures: Property and equipment $ 195 $ 142 $ 53 37.3 % Subscriber leased equipment-subscriber acquisitions 497 675 (178 ) (26.4 )% Subscriber leased equipment-upgrade and retention 277 326 (49 ) (15.0 )% Satellites 120 112 8 7.1 % Total capital expenditures $ 1,089 $ 1,255 $ (166 ) (13.2 )% -------------------------------------------------------------------------------- º (1) º Amounts include the impact of the Venezuelan devaluation charge of $281 million recorded in the first quarter of 2014 and $166 million recorded in the first quarter of 2013, as well as the ongoing impact of foreign currency exchange fluctuations.

º (2) º Based on the results of an internal investigation, we 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 2013. As a result, subscribers who would have previously ceased receiving Sky Brasil service were terminated as subscribers pursuant to Sky Brasil's authorized policies. We estimate that as of March 31, 2013, our subscriber count would have been approximately 200,000 lower than the number of subscribers previously reported if the identified improper actions had not been taken. See the Current Report on Form 8-K filed with the SEC on June 27, 2013 for further details.

º (3) º DIRECTV Latin America subscriber data excludes subscribers on the Sky Mexico platform.

º (4) º Gross and net subscriber additions exclude 1,000 subscribers acquired in transactions in Brazil during during the first quarter of 2013.

68 -------------------------------------------------------------------------------- Table of Contents DIRECTV Sky Brasil Results of Operations The following table provides operating results and a summary of key subscriber data for the consolidated Sky Brasil operations: Nine Months Ended and As of September 30, Change 2014 2013 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 2,964 $ 2,790 $ 174 6.2 % Operating profit before depreciation and amortization 907 926 (19 ) (2.1 )% Operating profit before depreciation and amortization margin 30.6 % 33.2 % - - Operating profit $ 380 $ 379 $ 1 0.3 % Operating profit margin 12.8 % 13.6 % - - Other Data: ARPU $ 59.57 $ 59.90 $ (0.33 ) (0.6 )% Total number of subscribers (in thousands)(1) 5,644 5,255 389 7.4 % Total capital expenditures $ 644 $ 692 $ (48 ) (6.9 )% -------------------------------------------------------------------------------- º (1) º See Note (2) on the table showing consolidated DIRECTV Latin America results of operations above.

Subscribers. In the nine months ended September 30, 2014, net subscriber additions increased primarily due to higher gross subscriber additions as well as lower total average monthly churn. The increase in gross subscriber additions was driven by higher demand for FIFA World Cup and advanced products. Total average monthly churn decreased primarily due to the improper crediting of certain subscriber accounts and associated corrective actions in 2013 described above.

Revenues. Revenues increased in the nine months ended September 30, 2014, primarily due to subscriber growth, partially offset by a decrease in ARPU. The decrease in ARPU was primarily due to unfavorable exchange rates, partially offset by higher ARPU in local currency terms, which resulted from a reduction in promotional offers to subscribers and an increase in subscribers with advanced services.

Operating profit before depreciation and amortization. Operating profit before depreciation and amortization and operating profit before depreciation and amortization margin decreased in the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 as the higher revenues were more that offset by higher broadcast programming and other costs mainly due to the settlement of the ECAD dispute in the third quarter of 2013.

Operating profit. Operating profit increased slightly in the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 as the decrease in operating profit before depreciation and amortization was more than offset by a decrease in depreciation and amortization expense.

Operating profit margin decreased in the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 due to the decrease in operating profit before depreciation and amortization margin, partially offset by a decrease in depreciation and amortization expense in the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013, as discussed above.

69-------------------------------------------------------------------------------- Table of Contents DIRECTV PanAmericana and Other Results of Operations The following table provides operating results and a summary of key subscriber data for the consolidated PanAmericana and Other operations: Nine Months Ended and As of September 30, Change 2014 2013 $ % (Dollars in Millions, Except Per Subscriber Amounts) Revenues $ 2,366 $ 2,286 $ 80 3.5 % Operating profit before depreciation and amortization(1) 243 467 (224 ) (48.0 )% Operating profit before depreciation and amortization margin(1) 10.3 % 20.4 % - - Operating profit (loss)(1) $ (127 ) $ 139 $ (266 ) (191.4 )% Operating profit margin(1) NM * 6.1 % - - Other Data: ARPU $ 40.12 $ 44.27 $ (4.15 ) (9.4 )% Total number of subscribers (in thousands) 6,709 6,082 627 10.3 % Total capital expenditures $ 445 $ 563 $ (118 ) (21.0 )% -------------------------------------------------------------------------------- º * º Not meaningful º (1) º Amounts include the impact of the Venezuelan devaluation charge of $281 million recorded in the first quarter of 2014 and $166 million recorded in the first quarter of 2013, as well as the ongoing impact of foreign currency exchange fluctuations.

Subscribers. In the nine months ended September 30, 2014, net subscriber additions decreased due to higher total average monthly subscriber churn and lower gross subscriber additions. Gross subscriber additions decreased primarily from certain limitations on importing set-top receivers for new subscribers in Venezuela. Total average monthly churn increased primarily due to lower prepaid subscriber reconnections following the end of the FIFA World Cup.

Revenues. Revenues increased in the nine months ended September 30, 2014 primarily due to subscriber growth partially offset by a decrease in ARPU. The decrease in ARPU was primarily due to unfavorable exchange rates, primarily in Venezuela and Argentina, partially offset by price increases and an increase in subscribers with advanced services.

Operating profit before depreciation and amortization. Operating profit before depreciation and amortization and operating profit before depreciation and amortization margin decreased in the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 primarily in Venezuela as a result of the $346 million devaluation charge, of which $281 million was recorded in "Venezuelan currency devaluation charge" and $65 million was recorded in "General and administrative expenses" in the Consolidated Statements of Operations related to the remeasurement of Venezuelan bolivar denominated net monetary assets during the nine months ended September 30, 2014 as compared to the $166 million charge recorded in "Venezuelan devaluation charge" in the Consolidated Statements of Operations during the nine months ended September 30, 2013. Also contributing to the decrease were unfavorable exchange rates in Argentina, as well as higher broadcast programming costs associated with special events, including the FIFA World Cup.

70-------------------------------------------------------------------------------- Table of Contents DIRECTV Operating profit. Operating profit and operating profit margin decreased in the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 due to the decrease in operating profit before depreciation and amortization and operating profit before depreciation and amortization margin, as well as an increase in depreciation and amortization expense due to subscriber leased equipment and infrastructure costs capitalized over the last year.

DIRECTV Other Income and Income Taxes Interest income. Interest income was $43 million in the nine months ended September 30, 2014 and $56 million in the nine months ended September 30, 2013.

Interest expense. The increase in interest expense to $677 million in the nine months ended September 30, 2014 from $618 million in the nine months ended September 30, 2013 was primarily a result of a higher average debt balance.

Other, net. The significant components of "Other, net" were as follows: Nine Months Ended September 30, Change 2014 2013 $ (Dollars in Millions)Equity in earnings from unconsolidated affiliates $ 99 $ 86 $ 13 Net gains from sale of investments 25 8 17 Loss on early extinguishment of debt (19 ) - (19 ) Net foreign currency transaction loss (8 ) (42 ) 34 Fair-value gain (loss) on non-employee stock options 3 (2 ) 5 DSN Northwest deconsolidation charge - (59 ) 59 ECAD settlement gain - 21 (21 ) Other (7 ) (6 ) (1 ) Total $ 93 $ 6 $ 87 Income Tax Expense. We recognized income tax expense of $1,338 million for the nine months ended September 30, 2014 compared to $1,192 million for the nine months ended September 30, 2013. The effective tax rate for the nine months ended September 30, 2014 was 40.2% compared to 36.6% for the nine months ended September 30, 2013, primarily due to the unfavorable tax impact of the larger Venezuelan currency devaluation in 2014, and the benefits recorded for the settlement with state taxing authorities and the expiration of the statute of limitations in 2013.

Earnings Per Share Earnings per share and weighted average shares outstanding were as follows: Nine Months Ended September 30, 2014 2013 (Shares in Millions)Basic earnings attributable to DIRECTV per common share $ 3.92 $ 3.68 Diluted earnings attributable to DIRECTV per common share $ 3.88 $ 3.65 Weighted average number of common shares outstanding: Basic 505 557 Diluted 510 562 71 -------------------------------------------------------------------------------- Table of Contents DIRECTV The increases in basic and diluted earnings per share were due to a reduction in weighted average shares outstanding resulting from our share repurchase program, partially offset by lower net income attributable to DIRECTV.

LIQUIDITY AND CAPITAL RESOURCES Our principal sources of liquidity are our cash, cash equivalents and the cash flow that we generate from our operations. We expect that net cash provided by operating activities will grow and believe that our existing cash balances and cash provided by operations will be sufficient to fund our existing business plan. DIRECTV U.S. has the ability to borrow up to $2.5 billion under its revolving credit facilities. As of September 30, 2014, there were no borrowings outstanding under the revolving credit facilities. DIRECTV U.S. also has a commercial paper program backed by its revolving credit facilities. As of September 30, 2014, we had $129 million of short-term commercial paper outstanding. Aggregate amounts outstanding under the revolving credit facilities and the commercial paper program are limited to $2.5 billion.

In March 2013, Sky Brasil entered into a Brazilian Real denominated financing facility with Banco Nacional de Desenvolvimento Econômico e Social, or BNDES, a government owned bank in Brazil, under which Sky Brasil may borrow funds for the purchase of set-top receivers. As of September 30, 2014, Sky Brasil had borrowings of R$573 million ($234 million) outstanding under the BNDES facility.

In the second quarter of 2014, Sky Brasil entered into a Brazilian Real denominated financing facility with Desenvolve SP, an agency created by Sao Paulo State Government for economic development, under which Sky Brasil may borrow funds for the construction of a satellite and broadcast facility. As of September 30, 2014, Sky Brasil had borrowings of R$48 million ($20 million) under the facility.

As of September 30, 2014, our cash and cash equivalents totaled $2,898 million compared to $2,180 million at December 31, 2013. As a measure of liquidity, the current ratio (ratio of current assets to current liabilities) was 1.01 at September 30, 2014 and 0.91 at December 31, 2013.

Cash Flows Provided by Operating Activities Net cash flows provided by operating activities increased to $4,726 million for the nine months ended September 30, 2014 from $4,355 million for the nine months ended September 30, 2013. The increase is primarily a result of an increase in operating profit before depreciation and amortization expense and changes in working capital.

Cash Flows Used in Investing Activities Net cash flows used in investing activities decreased to $2,384 million for the nine months ended September 30, 2014 from $2,812 million for the nine months ended September 30, 2013. The decrease resulted primarily from lower capital expenditures for subscriber leased set-top receivers at DIRECTV U.S. and DIRECTV Latin America and a decrease in capital expenditures for satellites, as well as a decrease in the acquisition of spectrum licenses at DIRECTV Latin America and patent licenses at DIRECTV U.S. In addition, proceeds from the sale of investments decreased due to the partial sale of our equity method investment in GSN, for which we received proceeds in April 2013.

Cash Flows Used in Financing Activities Net cash flows used in financing activities decreased to $1,241 million for the nine months ended September 30, 2014 from $1,636 million for the nine months ended September 30, 2013. The decrease is primarily due to a reduction in common shares repurchased and retired, partially offset by the repayment of our 4.750% senior notes due in 2014.

72 -------------------------------------------------------------------------------- Table of Contents DIRECTV Share Repurchase Program Since 2006 our Board of Directors has approved multiple authorizations for the repurchase of our common stock. In February 2014 our Board of Directors approved a new authorization for up to $3.5 billion for repurchases of our common stock. On May 18, 2014, DIRECTV and AT&T entered into a definitive agreement under which AT&T will combine with DIRECTV in a stock-and-cash transaction. As a result, we have suspended the share repurchase program and agreed to not purchase, repurchase, redeem or otherwise acquire any shares of our capital stock during the pendency of the proposed transaction with and without AT&T's consent. During the nine months ended September 30, 2014, we repurchased and retired 19 million common shares for $1,386 million, at an average price of $73.82.

Debt At September 30, 2014, we had $19,750 million in total outstanding borrowings, which consisted of senior notes and commercial paper issued by DIRECTV U.S. and borrowings under the BNDES and Desenvolve SP financing facilities at Sky Brasil. Our outstanding borrowings are more fully described in Note 5 of the Notes to the Consolidated Financial Statements in Item 1, Part I of this Quarterly Report and in Note 10 of the Notes to the Consolidated Financial Statements in Item 8, Part II of our 2013 Form 10-K/A.

We anticipate additional borrowings in the future in order to maintain a ratio of outstanding long-term debt equal to approximately 2.5 times operating profit before depreciation and amortization of DIRECTV on a consolidated basis.

We will continue to evaluate our optimal leverage on an ongoing basis. We may purchase our outstanding senior notes in the future from time to time in open market transactions or otherwise as part of liability management initiatives.

Senior Notes. On March 20, 2014, DIRECTV U.S. exercised its early redemption right under the indenture of the 4.750% senior notes due in 2014, or the 2014 Notes, effective April 24, 2014. The redemption price was based on the remaining scheduled payments of principal and interest using a discount rate equal to the Treasury Rate (as defined in the indenture governing the 2014 Notes) plus 40 basis points, together with accrued and unpaid interest as of April 24, 2014. The aggregate principal amount of the 2014 Notes outstanding on March 20, 2014 was $1,000 million and we made a cash payment of $1,022 million to redeem such Notes.

During the second quarter of 2014, DIRECTV U.S. entered into interest rate swap contracts with a total notional amount of $3,000 million, converting a portion of the total aggregate principal amounts of the 5.000% senior notes due in 2021, the 3.800% senior notes due in 2022 and the 4.450% senior notes due in 2024 from a fixed to floating interest rate in order to manage our interest rate exposure by adjusting our mix of fixed rate and floating rate debt.

During the third quarter of 2014, DIRECTV U.S. terminated $1,000 million notional amount of fixed-to-floating interest rate swap contracts for each of the fixed-to-floating interest rate swap contracts for the 5.000% senior notes due in 2021 and the 3.800% senior notes due in 2022 and received cash proceeds in the aggregate of $20 million, which included $7 million of interest receivable from the swap counterparties. As of the date of termination, there was an increase in the carrying value of the 5.000% senior notes due in 2021 and the 3.800% senior notes due in 2022 of $14 million, which will be amortized to "Interest expense" in the Consolidated Statements of Operations over the remaining term of the senior notes. In connection with the termination of the fixed-to-floating interest rate swap contracts, we recognized a $3 million loss in "Other, net" in the Consolidated Statements of Operations. The cash proceeds received upon termination of the fixed-to-floating interest rate swap contracts are included in "Net cash provided by operations" in the Consolidated Statements of Cash 73 -------------------------------------------------------------------------------- Table of Contents DIRECTV Flows. Subsequently, DIRECTV U.S. entered into new fixed-to-floating interest rate swap contracts for $1,000 million notional for each of the 5.00% senior notes due in 2021 and the 3.800% senior notes due in 2022. The total notional amount of these interest rate swaps was $3,000 million as of September 30, 2014.

These interest rate swaps are designated and qualify as fair value hedges. The terms of the interest rate swap contracts correspond to the related hedged senior notes and have maturities ranging from March 2021 to April 2024.

At September 30, 2014, DIRECTV U.S.' senior notes had a carrying value of $19,367 million and a weighted-average coupon of 4.49%. The principal amount of our senior notes mature as follows: $1,200 million in 2015, $2,250 million in 2016, $1,250 million in 2017, $750 million in 2018 and $13,965 million in 2019 and thereafter.

Included in the amounts above are DIRECTV U.S.' €500 million in aggregate principal of 2.750% senior notes due in 2023, £750 million in aggregate principal of 4.375% senior notes due in 2029, and £350 million in aggregate principal of 5.200% senior notes due in 2033. In connection with the issuance of these senior notes, DIRECTV U.S. entered into cross-currency swap agreements to manage the related foreign exchange risk by effectively converting all of the fixed-rate British pound sterling and fixed-rate euro denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate U.S. dollar denominated debt. These cross-currency swaps are designated and qualify as cash flow hedges. The terms of the cross-currency swap agreements correspond to the related hedged senior notes and have maturities ranging from May 2023 to November 2033.

All of our senior notes were issued by DIRECTV Holdings LLC and DIRECTV Financing Co., Inc., or the Co-Issuers, and have been registered under the Securities Act of 1933, as amended.

Commercial Paper. On November 27, 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. As of September 30, 2014, we had $129 million of short-term commercial paper outstanding, with a weighted average maturity of 43 days, at a weighted average yield of 0.42%, which may be refinanced on a periodic basis as borrowings mature.

Revolving Credit Facilities DIRECTV U.S. has a $1.0 billion revolving credit facility, which expires in February 2016, and a $1.5 billion revolving credit facility, which expires in September 2017. We pay a commitment fee of 0.15% per year for the unused commitment under the revolving credit facilities. Borrowings currently bear interest at a rate equal to the London Interbank Offer Rate (LIBOR) plus 1.25%.

Both the commitment fee and the annual interest rate may increase or decrease under certain conditions due to changes in DIRECTV U.S.' long-term, unsecured debt ratings. Under certain conditions, DIRECTV U.S. may increase the borrowing capacity of the revolving credit facilities by an aggregate amount of up to $500 million. Aggregate amounts outstanding under the revolving credit facilities and the commercial paper program are limited to $2.5 billion. As of September 30, 2014, there were no borrowings outstanding under the revolving credit facilities.

Borrowings under the revolving credit facilities are unsecured senior obligations of DIRECTV U.S. and will rank equally in right of payment with all of DIRECTV U.S.' existing and future senior debt and will rank senior in right of payment to all of DIRECTV U.S.' future subordinated debt, if any.

74-------------------------------------------------------------------------------- Table of Contents DIRECTV Covenants and Restrictions The revolving credit facilities require DIRECTV U.S. to maintain at the end of each fiscal quarter a specified ratio of indebtedness to earnings before interest, taxes and depreciation and amortization. The revolving credit facilities also include covenants that limit DIRECTV U.S.' ability to, among other things, (i) incur additional subsidiary indebtedness, (ii) incur liens, (iii) enter into certain transactions with affiliates, (iv) merge or consolidate with another entity, (v) sell, assign, lease or otherwise dispose of all or substantially all of its assets, and (vi) change its lines of business.

Additionally, the senior notes contain restrictive covenants that are similar.

If DIRECTV U.S. fails to comply with these covenants, all or a portion of its borrowings under the senior notes could become immediately payable and its revolving credit facilities could be terminated. At September 30, 2014, management believes DIRECTV U.S. was in compliance with all such covenants. The senior notes provide that the borrowings may be required to be prepaid if certain change-in-control events, coupled with a ratings decline, occur. The revolving credit facilities provide that the borrowings may be required to be prepaid if certain change-in-control events occur.

DIRECTV Guarantors. DIRECTV guarantees all of the senior notes then outstanding, jointly and severally with DIRECTV Holdings LLC's material domestic subsidiaries. DIRECTV unconditionally guarantees that the principal and interest on the respective senior notes will be paid in full when due and that the obligations of the Co-Issuers to the holders of the outstanding senior notes will be performed. The revolving credit facilities and the commercial paper program are also similarly fully guaranteed by DIRECTV.

As a result of the guarantees, holders of the senior notes, the revolving credit debt and the commercial paper have the benefit of DIRECTV's interests in the assets and related earnings of our operations that are not held through DIRECTV Holdings LLC and its subsidiaries. Those operations are primarily our DTH digital television services throughout Latin America which are held by DIRECTV Latin America and our regional sports networks which are held by DSN.

However, the subsidiaries that own and operate the DIRECTV Latin America business and the regional sports networks have not guaranteed the senior notes, the revolving credit facilities and the commercial paper program.

The guarantees are unsecured senior obligations of DIRECTV and rank equally in right of payment with all of DIRECTV's existing and future senior debt and rank senior in right of payment to all of DIRECTV's future subordinated debt, if any. The guarantees are effectively subordinated to all existing and future secured obligations, if any, of DIRECTV to the extent of the value of the assets securing the obligations. DIRECTV is not subject to the covenants contained in each indenture of the senior notes and our guarantees will terminate and be released on the terms set forth in each of the indentures.

BNDES Financing Facility In March 2013, Sky Brasil entered into a Brazilian Real denominated financing facility with BNDES, a government owned bank in Brazil, under which Sky Brasil may borrow funds for the purchase of set-top receivers. As of September 30, 2014, Sky Brasil had borrowings of R$573 million ($234 million) outstanding under the BNDES facility bearing interest at a weighted-average rate of 4.75% per year. Borrowings under the facility are required to be repaid in 30 monthly installments. The U.S. dollar amounts reflect the conversion of the Brazilian Real denominated amounts into U.S. dollars based on the exchange rate of R$2.45 / $1.00 at September 30, 2014.

Borrowings under the BNDES facility mature as follows: R$56 million ($23 million) in 2014, R$277 million ($113 million) in 2015, R$196 million ($80 million) in 2016 and R$44 million ($18 million) in 2017. The financing facility is collateralized by the financed set-top receivers with an 75-------------------------------------------------------------------------------- Table of Contents DIRECTV original purchase price of approximately R$800 million ($326 million) based on the exchange rate of R$2.45 / $1.00 as of September 30, 2014.

Desenvolve SP Financing Facility In the second quarter of 2014, Sky Brasil entered into a Brazilian Real denominated financing facility with Desenvolve SP, an agency created by the Sao Paulo State Government for economic development, under which Sky Brasil may borrow funds for the construction of a satellite and broadcast facility. Each borrowing under the facility, including accrued interest, will be repaid in a single installment five years from the date of such borrowing. The financing facility is secured by a third party bank guarantee. As of September 30, 2014, Sky Brasil had borrowings of R$48 million ($20 million) under the facility bearing interest of 2.5% per year, with a maturity of 2019. The U.S. dollar amounts reflect the conversion of the Brazilian Real denominated amounts into U.S. dollars based on the exchange rate of R$2.45 / $1.00 at September 30, 2014.

Contingencies Venezuela Devaluation and Foreign Currency Exchange Controls. Companies operating in Venezuela are required to obtain Venezuelan government approval to exchange Venezuelan bolivars into U.S. dollars and such approval has not consistently been granted for several years. Consequently, our ability to pay U.S. dollar denominated obligations and repatriate cash generated in Venezuela in excess of local operating requirements is limited, which has resulted in increases in the cash balance at our Venezuelan subsidiary. In February 2013, the Venezuelan government announced a devaluation of the Venezuelan bolivar from the official exchange rate of 4.3 Venezuelan bolivars per U.S. dollar to an official rate of 6.3 Venezuelan bolivars per U.S. dollar. As a result of the devaluation, we recorded a pre-tax charge in "Venezuelan currency devaluation charge" in the Consolidated Statements of Operations 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.

In the first quarter of 2013, the Venezuelan government announced a new currency exchange system, the Sistema Complementario de Administración de Divisas, or SICAD 1, which is intended to function as an auction system for participants to exchange Venezuelan bolivars for U.S. dollars. The volume of amounts exchanged through such SICAD 1 system and the resulting exchange rate are published by the Venezuelan Central Bank. Effective January 24, 2014, the Venezuelan government announced that dividends and royalties would be subject to the SICAD 1 program. The SICAD 1 exchange rate, which was 12 Venezuelan bolivars per U.S. dollar as of September 30, 2014, is determined by periodic auctions.

Additionally, in February 2014, the Venezuelan government announced SICAD 2, which is an exchange mechanism that became available on March 24, 2014. The exchange rate for SICAD 2 was 49.99 Venezuelan bolivars per U.S. dollar as of September 30, 2014.

We currently believe the SICAD 1 rate is the most representative rate to use for remeasurement, as the official rate of 6.3 Venezuelan 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 September 30, 2014, we are continuing to remeasure our Venezuelan subsidiary's financial statements in U.S. dollars using the exchange rate determined by periodic auctions under SICAD 1, which was 12.0 Venezuelan bolivars per U.S.

dollar. Prior to March 31, 2014, we used the official exchange rate of 6.3 Venezuelan bolivars per U.S. dollar. As a result of the devaluation, we recorded a pre-tax charge in "Venezuelan currency devaluation charge" in the Consolidated Statements of Operations of $281 million in the first quarter of 2014, 76-------------------------------------------------------------------------------- Table of Contents DIRECTV related to the remeasurement of the bolivar denominated net monetary assets of our Venezuelan subsidiary on March 31, 2014.

As of September 30, 2014, our Venezuelan subsidiary had Venezuelan bolivar denominated net monetary assets of $494 million, including cash of $547 million, based on the SICAD 1 exchange rate of 12.0 Venezuelan bolivars per U.S. dollar.

The exchange rate used to report net monetary assets and operating results of our Venezuelan subsidiary is currently based on the results of periodic SICAD 1 auctions, which is expected to result in fluctuations in reported amounts that could be material to the results of operations in Venezuela in future periods and could materially affect the comparability of results for our Venezuelan subsidiary between periods. The comparability of our results of operations and financial position in Venezuela will also be affected in the event of additional changes to the exchange rate system and further devaluations of the Venezuelan bolivar.

Other. Several factors may affect our ability to fund our operations and commitments that we discuss in "Contractual Obligations" and "Contingencies" below. In addition, our future cash flows may be reduced if we experience, among other things, significantly higher subscriber additions than planned, increased subscriber churn or upgrade and retention costs, higher than planned capital expenditures for satellites and broadcast equipment, satellite anomalies or signal theft. Additionally, DIRECTV U.S.' ability to borrow under the revolving credit facilities is contingent upon DIRECTV U.S. meeting financial and other covenants associated with its facilities as more fully described above.

Dividend Policy The Merger Agreement executed in connection with the proposed transaction with AT&T precludes the Company from paying a dividend so long as the Merger Agreement is in effect.

CONTRACTUAL OBLIGATIONS The following table sets forth our contractual obligations as of September 30, 2014, including the future periods in which payments are expected.

Additional details regarding these obligations are provided in the Notes to the Consolidated Financial Statements in Part I, Item 1 referenced in the table below and the Notes to the Consolidated Financial Statements in Part II, Item 8 in our Form 10-K/A for the year ended December 31, 2013. The contractual obligations below do not include payments that could be made related to our net unrecognized tax benefits liability, which amounted to $487 million as of September 30, 2014. The timing and amount of any future payments is not reasonably estimable, as such payments are dependent on the completion and resolution of examinations with tax authorities. We do not expect a significant payment related to these obligations within the next twelve months.

Payments Due By Period 2019 and Contractual Obligations Total 2014 2015-2016 2017-2018 thereafter (Dollars in Millions) Long-term debt obligations (Note 5)(a) $ 30,377 $ 119 $ 5,300 $ 3,475 $ 21,483 Purchase obligations(b) 16,666 582 4,113 3,491 8,480 Operating lease obligations(c) 1,017 27 212 201 577 Capital lease obligations(d) 1,355 25 289 267 774 Total $ 49,415 $ 753 $ 9,914 $ 7,434 $ 31,314 -------------------------------------------------------------------------------- º (a) º The cash payments due for long-term debt obligations include interest payments based on the outstanding principal amounts and the applicable fixed interest rates as of September 30, 2014. The obligations do not reflect potential prepayments required under indentures.

77 -------------------------------------------------------------------------------- Table of Contents DIRECTV º (b) º Purchase obligations consist primarily of broadcast programming commitments, regional professional team rights agreements, service contract commitments and satellite construction and launch contracts. Broadcast programming commitments include guaranteed minimum contractual commitments that are typically based on a flat fee or a minimum number of required subscribers subscribing to the related programming. Actual payments may exceed the minimum payment requirements if the actual number of subscribers subscribing to the related programming exceeds the minimum amounts. Service contract commitments include minimum commitments for the purchase of services that have been outsourced to third parties, such as billing services, telemetry, tracking and control services and broadcast center services. In most cases, actual payments, which are typically based on volume, usually exceed these minimum amounts.

º (c) º Certain of the operating leases contain variable escalation clauses and renewal or purchase options, which we do not consider in the amounts disclosed.

º (d) º Capital lease obligations include prepayments related to a satellite lease contract which we expect to account for as a capital lease upon commencement.

CONTINGENCIES For a discussion of "Contingencies," see Part I, Item 1, and Note 7 of the Notes to the Consolidated Financial Statements of this Quarterly Report, which we incorporate herein by reference.

CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS For a discussion of "Certain Relationships and Related-Party Transactions," see Part I, Item 1, Note 8 of the Notes to the Consolidated Financial Statements of this Quarterly Report, which we incorporate herein by reference.

CRITICAL ACCOUNTING ESTIMATES For a discussion of our "Critical Accounting Estimates," see Item 7.

Critical Accounting Estimates in Part II of our Annual Report on Form 10-K/A for the year ended December 31, 2013.

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