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EL SEGUNDO, Calif., Feb 13, 2008 (BUSINESS WIRE) -- The DIRECTV Group, Inc. (NASDAQ:DTV):
DIRECTV Group Revenues Increase 17% to Nearly $4.9 Billion
-- DIRECTV U.S. Revenues Increase 14% to $4.4 Billion
-- Average Monthly Revenue Per Subscriber (ARPU) Grew 8.3% to
$87.40
-- DIRECTV Latin America Revenues Up 41% to $499 Million
-- ARPU Increases 18.1% to $52.22
DIRECTV Group Operating Profit Before Depreciation and Amortization Increases 21% to $1.1 Billion
-- DIRECTV U.S. Up 14% to $1.0 Billion
-- DIRECTV Latin America More than Doubles to $114 Million
DIRECTV Group Net Subscriber Additions Increase 35% to 474,000
-- DIRECTV U.S. Net Subscriber Additions of 275,000 Driven by Strong Gross Additions and the Lowest Monthly Churn Rate in 8 Years of 1.42%
-- DIRECTV Latin America Net Subscriber Additions More than Double to 199,000 Due to Higher Gross Additions and Low Monthly Churn of 1.35%
The DIRECTV Group, Inc. (NASDAQ:DTV) today reported that fourth quarter 2007 revenues increased 17% to $4.88 billion, operating profit before depreciation and amortization(1) (OPBDA) increased 21% to $1.10 billion and operating profit increased 4% to $617 million compared to last year's fourth quarter. The DIRECTV Group reported that fourth quarter net income of $348 million declined 2% and earnings per share increased one cent to $0.30 compared with the same period last year.
"DIRECTV's content and service leadership continue to drive superior results in a tougher marketplace that reflects increasing competition and a slowing economy. Advanced services--including the launch of the industry's best HD programming--played an increasingly important role in DIRECTV U.S.'s top-line and bottom-line results," said Chase Carey, president and CEO of The DIRECTV Group, Inc. "Strong net subscriber additions of 275,000 were punctuated by the lowest monthly churn rate in eight years. This 15 basis point reduction in monthly churn to 1.42% was largely due to the significant growth in customers with HD and DVR services--increasing from about 30% of our subscriber base last year to over 40% this year--as well as tighter credit policies. The continued strong subscriber growth coupled with an 8.3% increase in ARPU drove revenues up 14% to $4.38 billion. As with churn, the strong ARPU growth reflects the improving quality of our customers who are purchasing an array of new services."
Carey continued, "DIRECTV U.S. OPBDA increased 14% to $1.00 billion primarily due to the gross profit generated from the strong revenue growth. OPBDA margin of 23% in the quarter was unchanged from the prior year as operating efficiencies gained in subscriber services and G&A were offset by higher acquisition and upgrade costs associated with the significant increase in new and existing customers purchasing advanced services."
Carey added, "DIRECTV's operating momentum continued in Latin America as these businesses also had very strong fourth quarter results. An 82% increase in gross subscriber additions plus continued low monthly churn of 1.35% drove a more than doubling of net additions to 199,000 in the fourth quarter. In addition, DIRECTV Latin America's revenues increased 41% to $499 million and OPBDA more than doubled to $114 million mostly due to the continued strong subscriber and ARPU growth, as well as favorable exchange rates, primarily in Brazil."
Carey concluded, "We exit 2007 with tremendous operating and financial momentum. We believe we are delivering on our goal to provide the best television experience, including the most extensive HD programming in America. With the launch of our next satellite in a couple of months, we will extend DIRECTV's leadership by introducing even more local and national HD channels. With full awareness of an industry that will be characterized by increasing competition and a slowing economy, we're continuing to target extremely strong results in 2008 highlighted by a material increase in free cash flow driven by DIRECTV's brand and content leadership, along with improved operating scale and efficiencies."
THE DIRECTV GROUP'S OPERATIONAL REVIEW
The DIRECTV Group Three Months Twelve Months
Dollars in Millions except Earnings Ended Ended
per Common Share December 31, December 31,
--------------------------------
2007 2006 2007 2006
----------------------------------------------------------------------
Revenues $4,876 $4,183 $17,246 $14,755
----------------------------------------------------------------------
Operating Profit Before Depreciation
and Amortization(1) 1,103 915 4,170 3,391
----------------------------------------------------------------------
Operating Profit 617 595 2,486 2,357
----------------------------------------------------------------------
Net Income 348 356 1,451 1,420
----------------------------------------------------------------------
Diluted Earnings Per Common Share ($) 0.30 0.29 1.21 1.13
----------------------------------------------------------------------
Capital Expenditures and Cash Flow
----------------------------------------------------------------------
Cash Paid for DIRECTV U.S. Subscriber
Leased Equipment - Acquisitions,
Upgrade and Retention 377 408 1,536 1,072
----------------------------------------------------------------------
Cash Paid for Property, Equipment and
Satellites 263 279 1,156 904
----------------------------------------------------------------------
Cash Flow Before Interest and Taxes(2) 512 335 1,480 1,313
----------------------------------------------------------------------
Free Cash Flow(3) 361 300 953 1,186
----------------------------------------------------------------------
Fourth Quarter Review
In the fourth quarter of 2007, The DIRECTV Group's revenues of $4.88 billion increased 17% over the same period last year principally due to strong ARPU and subscriber growth at DIRECTV U.S. and DIRECTV Latin America.
Operating profit before depreciation and amortization increased 21% to $1.10 billion and operating profit increased 4% to $617 million primarily due to the gross profit associated with the higher revenues discussed above, partially offset by higher acquisition and upgrade costs at DIRECTV U.S. mostly due to the increased number of new and existing customers adding HD and DVR services. Operating profit was also impacted by higher depreciation and amortization principally due to increased capitalization of customer equipment under the DIRECTV U.S. lease program implemented in March 2006. Net income fell 2% to $348 million compared with the fourth quarter of last year as the higher operating profit was more than offset by higher net interest expense.
Cash flow before interest and taxes(2) of $512 million increased 53% compared to the fourth quarter 2006 primarily due to the higher operating profit before depreciation and amortization and lower capital expenditures, partially offset by lower cash provided by working capital. In addition, free cash flow was impacted by higher tax payments and higher net interest expense in the fourth quarter of 2007. The quarter also included share repurchases of $479 million.
Full Year Review
In 2007, The DIRECTV Group's revenues of $17.25 billion increased 17% compared to the prior year due to strong ARPU and subscriber growth at DIRECTV U.S. and DIRECTV Latin America, as well as the consolidation of Sky Brazil's financial results subsequent to the merger with DIRECTV Brazil in August 2006.
Operating profit before depreciation and amortization in 2007 increased 23% to $4.17 billion due to the higher gross profit associated with the higher revenues and the capitalization of customer equipment under the lease program implemented in March 2006 at DIRECTV U.S., as well as the consolidation of Sky Brazil's results. These improvements were partially offset by higher acquisition and upgrade costs at DIRECTV U.S. related to the increased number of new and existing customers adding HD and DVR services. Also impacting the comparison were two non-cash pre-tax gains totaling $118 million recorded in 2006 for the completion of DIRECTV Latin America's Sky Mexico transaction and the DIRECTV Brazil and Sky Brazil merger.
Operating profit of $2.49 billion in 2007 increased 5% compared with 2006 as the higher operating profit before depreciation and amortization was partially offset by higher depreciation and amortization resulting primarily from the increased capitalization of customer equipment under the DIRECTV U.S. lease program, as well as the merger with Sky Brazil.
Net income increased 2% to $1.45 billion in 2007 primarily due to the changes in operating profit discussed above partially offset by higher net interest expense related to lower average cash balances and higher income tax expense resulting from greater pre-tax earnings and a slightly higher tax rate. Diluted earnings per share increased 9 cents to $1.21 due to the higher net income and a lower average share count related to recent stock repurchase programs.
Cash flow before interest and taxes increased 13% to $1.48 billion in 2007 as higher operating profit before depreciation and amortization was partially offset by increased capital expenditures. Capital expenditures were higher primarily at DIRECTV U.S. due to the implementation of the equipment lease program in March 2006, higher costs for the increased number of new and existing customers adding HD and DVR services, and greater infrastructure costs associated with the rollout of additional HD channels. Free cash flow declined to $953 million primarily because the increase in cash flow before interest and taxes was more than offset by higher tax payments made in 2007. Other uses of cash in 2007 were for share repurchases of $2.03 billion, the purchase of Darlene's interest in DIRECTV Latin America for $325 million and the repayment of $210 million of outstanding debt at Sky Brazil.
SEGMENT FINANCIAL REVIEW
DIRECTV U.S. Segment
Fourth Quarter Review
Gross subscriber additions were 986,000 and average monthly churn declined to 1.42% primarily due to increased sales of HD and DVR services, as well as more stringent credit policies. As a result, net subscriber additions of 275,000 were unchanged from last year's fourth quarter bringing the total number of DIRECTV U.S. subscribers as of December 31, 2007 to 16.83 million, an increase of 6% over the 15.95 million subscribers reported on December 31, 2006.
Three Months Twelve Months
DIRECTV U.S. Ended Ended
December 31, December 31,
---------------------------------
Dollars in Millions except ARPU 2007 2006 2007 2006
----------------------------------------------------------------------
Revenue $4,377 $3,829 $15,527 $13,744
----------------------------------------------------------------------
Average Monthly Revenue per
Subscriber (ARPU) ($) 87.40 80.70 79.05 73.74
----------------------------------------------------------------------
Operating Profit Before Depreciation
and Amortization(1) 1,003 876 3,850 3,221
----------------------------------------------------------------------
Operating Profit 576 614 2,402 2,348
----------------------------------------------------------------------
Cash Flow Before Interest and
Taxes(2) 481 341 1,455 1,418
----------------------------------------------------------------------
Free Cash Flow(3) 335 151 583 544
----------------------------------------------------------------------
Subscriber Data (in 000's except
Churn)
----------------------------------------------------------------------
Gross Subscriber Additions 986 1,021 3,847 3,809
----------------------------------------------------------------------
Average Monthly Subscriber Churn 1.42% 1.57% 1.51% 1.60%
----------------------------------------------------------------------
Net Subscriber Additions 275 275 878 820
----------------------------------------------------------------------
Cumulative Subscribers 16,831 15,953 16,831 15,953
----------------------------------------------------------------------
In the quarter, DIRECTV U.S. revenues increased 14% to $4.38 billion due to strong ARPU growth and the larger subscriber base. ARPU of $87.40 increased 8.3% principally due to programming package price increases, higher HD and DVR equipment and service fees, and higher lease fees due to an increase in the average number of receivers per home.
The fourth quarter 2007 operating profit before depreciation and amortization increased 14% to $1.00 billion primarily due to the gross profit on the higher revenues. This growth was partially offset by higher costs for the increased number of new and existing customers adding HD and DVR services, as well as converting to the newer MPEG-4 HD equipment. Operating profit in the quarter declined 6% to $576 million compared to the same period last year mostly due to increased depreciation expense associated with the capitalization of set-top boxes under the lease program which began in March of 2006.
Full Year Review
In 2007, gross subscriber additions were up slightly to 3,847,000 as higher demand for HD and DVR services was mostly offset by tighter credit policies. Average monthly churn for the year declined to 1.51% primarily due to increased sales of HD and DVR services, as well as more stringent credit policies. As a result, net subscriber additions of 878,000 increased 7% compared with 2006.
In 2007, DIRECTV U.S. revenues increased 13% to $15.53 billion due to strong ARPU growth and the larger subscriber base. ARPU of $79.05 increased 7.2% principally due to programming package price increases, higher HD and DVR equipment and service fees and increased lease fees due to an increase in the average number of receivers per home.
Operating profit before depreciation and amortization in 2007 increased 20% to $3.85 billion primarily due to the gross profit on the higher revenues as well as the capitalization of customer equipment under the lease program. This growth was partially offset by higher costs for the increased number of new and existing customers adding HD and DVR services, as well as converting to the newer MPEG-4 HD equipment. Operating profit in the year increased 2% to $2.40 billion compared to full year 2006 as the operating profit before depreciation and amortization increase was mostly offset by increased depreciation expense associated with the capitalization of set-top boxes.
DIRECTV Latin America Segment
The DIRECTV Group owns approximately 74% of Sky Brazil, 41% of Sky Mexico and 100% of PanAmericana, which covers most of the remaining countries in the region. Sky Mexico, whose results are accounted for as an equity method investment and therefore are not consolidated by DIRECTV Latin America, had approximately 1.59 million subscribers as of December 31, 2007.
Fourth Quarter Review
In the fourth quarter of 2007, DIRECTV Latin America net subscriber additions of 199,000 more than doubled compared to the same period last year primarily due to subscriber growth in Brazil, Venezuela and Argentina. The total number of DIRECTV subscribers in Latin America as of December 31, 2007 increased 21% to 3.28 million compared to 2.71 million as of December 31, 2006.
Three Months Twelve Months
DIRECTV Latin America Ended Ended
December 31, December 31,
-----------------------------
Dollars in Millions except ARPU 2007 2006 2007 2006
----------------------------------------------------------------------
Revenue $499 $354 $1,719 $1,013
----------------------------------------------------------------------
Average Monthly Revenue per Subscriber
(ARPU) ($) 52.22 44.21 48.33 41.71
----------------------------------------------------------------------
Operating Profit Before Depreciation and
Amortization(1) 114 56 394 244
----------------------------------------------------------------------
Operating Profit (Loss) 56 (3) 159 79
----------------------------------------------------------------------
Cash Flow Before Interest and Taxes(2) 35 26 140 0
----------------------------------------------------------------------
Free Cash Flow(3) 6 21 80 (10)
----------------------------------------------------------------------
Subscriber Data (in 000's except Churn)
----------------------------------------------------------------------
Gross Subscriber Additions 328 180 1,080 602
----------------------------------------------------------------------
Average Monthly Subscriber Churn 1.35% 1.29% 1.38% 1.46%
----------------------------------------------------------------------
Net Subscriber Additions(4) 199 77 588 249
----------------------------------------------------------------------
Cumulative Subscribers(4) 3,279 2,711 3,279 2,711
----------------------------------------------------------------------
Revenues for DIRECTV Latin America increased 41% to $499 million in the quarter principally due to strong subscriber and ARPU growth. ARPU increased 18.1% to $52.22 principally due to favorable exchange rates - primarily in Brazil, the benefits of the merger with Sky Brazil and strong ARPU growth in PanAmericana - mainly in Venezuela, Argentina and Puerto Rico. DIRECTV Latin America's fourth quarter 2007 operating profit before depreciation and amortization of $114 million was more than double last year's results and operating profit improved to $56 million primarily due to the gross profit generated from the higher revenues. These improvements were partially offset by increased acquisition costs primarily related to the higher gross additions.
Full Year Review
In the full year of 2007, DIRECTV Latin America net subscriber additions of 588,000 more than doubled compared to 2006 primarily due to subscriber growth in Brazil, Argentina, Venezuela and Colombia. Also contributing to the net subscriber increase was a decline in aggregate churn to 1.38% mostly due to improved performance in Venezuela and Brazil.
Revenues for DIRECTV Latin America in 2007 increased 70% to $1.72 billion principally due to the Sky Brazil merger and the impact of continued subscriber and ARPU growth in Brazil and PanAmericana. DIRECTV Latin America's 2007 operating profit before depreciation and amortization of $394 million increased 61% compared to last year's results primarily due to the gross profit generated from the higher revenues throughout the region as well as benefits from the Sky Brazil merger. Also impacting the comparison were two non-cash pre-tax gains totaling $118 million recorded in 2006 for the completion of DIRECTV Latin America's Sky Mexico transaction and the DIRECTV Brazil and Sky Brazil merger. DIRECTV Latin America's operating profit doubled to $159 million as the higher operating profit before depreciation and amortization was partially offset by higher depreciation and amortization expense primarily related to the tangible and intangible assets recorded as part of the Sky Brazil and Darlene transactions.
CONFERENCE CALL INFORMATION
A live webcast of The DIRECTV Group's fourth quarter 2007 earnings call will be available on the company's website at www.directv.com/investor. The webcast will begin at 2:00 p.m. ET, today February 13, 2008 and will be archived on our website at www.directv.com/investor. Access to the earnings call is also available in the United States by dialing (866) 409-1555 and internationally by dialing (913) 312-0400. The confirmation code is 2606347.
FOOTNOTES
(1) Operating profit 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, 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. Please see each of The DIRECTV Group's and DIRECTV Holdings LLC's Annual Reports on Form 10-K for the year ended December 31, 2006 for further discussion of operating profit before depreciation and amortization. Operating profit before depreciation and amortization margin is calculated by dividing operating profit before depreciation and amortization by total revenues.
(2) Cash flow before interest and taxes, which is a financial measure that is not determined in accordance with GAAP, is calculated by deducting amounts under the captions "Cash paid for property and equipment", "Cash paid for satellites", "Cash paid for subscriber leased equipment - subscriber acquisitions" and "Cash paid for subscriber leased equipment - upgrade and retention" from "Net cash provided by operating activities" from the Consolidated Statements of Cash Flows and adding back net interest paid and "Cash paid for income taxes". 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. The DIRECTV Group and DIRECTV U.S. management use cash flow before interest and taxes to evaluate the cash generated by our current subscriber base, net of capital expenditures, and excluding the impact of interest and taxes, for the purpose of allocating resources to activities such as adding new subscribers, retaining and upgrading existing subscribers, for additional capital expenditures and as a measure of performance for incentive compensation purposes. The DIRECTV Group and DIRECTV U.S. 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 cash flow before interest and taxes to determine the ability of our current and projected subscriber base to fund required and discretionary spending and to help determine the financial value of the company.
(3) Free cash flow, which is a financial measure that is not determined in accordance with GAAP, is calculated by deducting amounts under the captions "Cash paid for property and equipment", "Cash paid for satellites", "Cash paid for subscriber leased equipment - subscriber acquisitions", and "Cash paid for subscriber leased equipment - upgrade and retention" 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. The DIRECTV Group and DIRECTV U.S. management 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 as a measure of performance for incentive compensation purposes. The DIRECTV Group and DIRECTV U.S. 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 our current and projected subscriber base to fund required and discretionary spending and to help determine the financial value of the company.
(4) DIRECTV Latin America net and cumulative subscribers exclude subscribers of the Sky Mexico service. Cumulative subscriber totals include the impact of 869,000 subscribers acquired through the merger with Sky Brazil in the third quarter of 2006 and the sale of 20,000 subscribers in Central America to Sky Mexico in the second half of 2007 (12,000 in Q4 2007).
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
NOTE: This release may include or incorporate by reference certain statements that we believe are, or may be considered to be, "forward-looking statements" within the meaning of various provisions of the Securities Act of 1933 and of the Securities Exchange Act of 1934. These forward-looking statements generally can be identified by use of statements that include phrases such as "believe," "expect," "estimate," "anticipate," "intend," "plan," "foresee," "project" or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. All of these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or from those expressed or implied by the relevant forward-looking statement. Such risks and uncertainties include, but are not limited to: economic conditions; product demand and market acceptance; ability to simplify aspects of our business model, improve customer service, create new and desirable programming content and interactive features, and achieve anticipated economies of scale; government action; local political or economic developments in or affecting countries where we have operations, including political, economic and social uncertainties in many Latin American countries in which DTVLA operates; foreign currency exchange rates; currency exchange controls; ability to obtain export licenses; competition; the outcome of legal proceedings; ability to achieve cost reductions; ability of third parties to timely perform material contracts; ability to renew programming contracts under favorable terms; technological risk; limitations on access to distribution channels; the success and timeliness of satellite launches; in-orbit performance of satellites, including technical anomalies; loss of uninsured satellites; theft of satellite programming signals; and our ability to access capital to maintain our financial flexibility. We urge you to consider these factors carefully in evaluating the forward-looking statements.
The DIRECTV Group (NASDAQ:DTV) is a world-leading provider of digital television entertainment services. Through its subsidiaries and affiliated companies in the United States, Brazil, Mexico and other countries in Latin America, the DIRECTV Group provides digital television service to more than 16.8 million customers in the United States and over 4.8 million customers in Latin America.
THE DIRECTV GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions, Except Per Share Amounts)
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
--------------- -----------------
2007 2006 2007 2006
--------------- -----------------
Revenues $4,876 $4,183 $17,246 $14,755
----------------------------------------------------------------------
Operating costs and expenses
Costs of revenues, exclusive of
depreciation and amortization
expense
Broadcast programming and other 2,222 1,896 7,346 6,201
Subscriber service expenses 315 294 1,240 1,111
Broadcast operations expenses 84 78 323 286
Selling, general and administrative
expenses, exclusive of depreciation
and amortization expense
Subscriber acquisition costs 582 481 2,096 1,945
Upgrade and retention costs 273 219 976 870
General and administrative expenses 297 300 1,095 1,069
Gain from disposition of businesses - - - (118)
Depreciation and amortization
expense 486 320 1,684 1,034
----------------------------------------------------------------------
Total operating costs and expenses 4,259 3,588 14,760 12,398
----------------------------------------------------------------------
Operating profit 617 595 2,486 2,357
Interest income 15 38 111 146
Interest expense (59) (67) (235) (246)
Other, net (1) 10 26 42
----------------------------------------------------------------------
Income from continuing operations
before income taxes and minority
interest 572 576 2,388 2,299
Income tax expense (220) (220) (943) (866)
Minority interests in net earnings
of subsidiaries (4) - (11) (13)
----------------------------------------------------------------------
Income from continuing operations 348 356 1,434 1,420
Income from discontinued operations,
net of taxes - - 17 -
----------------------------------------------------------------------
Net income $348 $356 $1,451 $1,420
======================================================================
Basic earnings per common share:
Income from continuing operations $0.30 $0.29 $1.20 $1.13
Income from discontinued operations,
net of taxes - - 0.01 -
----------------------------------------------------------------------
Earnings per common share $0.30 $0.29 $1.21 $1.13
======================================================================
Diluted earnings per common share:
Income from continuing operations $0.30 $0.29 $1.20 $1.12
Income from discontinued operations,
net of taxes - - 0.01 -
----------------------------------------------------------------------
Diluted earnings per common share $0.30 $0.29 $1.21 $1.12
======================================================================
Weighted average number of common
shares outstanding (in millions)
Basic 1,155 1,223 1,195 1,262
Diluted 1,163 1,232 1,202 1,270
THE DIRECTV GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)
December 31, December 31,
ASSETS 2007 2006
----------------------------------------------------------------------
Current assets
Cash and cash equivalents $1,083 $2,499
Short-term investments 10 170
Accounts receivable, net of allowances of
$56 and $46 1,535 1,345
Inventories 193 148
Deferred income taxes 90 166
Prepaid expenses and other 235 228
----------------------------------------------------------------------
Total current assets 3,146 4,556
Satellites, net 2,026 2,008
Property and equipment, net 3,807 2,445
Goodwill 3,669 3,515
Intangible assets, net 1,577 1,811
Investments and other assets 838 806
----------------------------------------------------------------------
Total assets $15,063 $15,141
======================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
Current liabilities
Accounts payable and accrued liabilities $3,032 $2,816
Unearned subscriber revenue and deferred
credits 354 286
Short-term borrowings and current portion of
long-term debt 48 220
----------------------------------------------------------------------
Total current liabilities 3,434 3,322
Long-term debt 3,347 3,395
Deferred income taxes 567 315
Other liabilities and deferred credits 1,402 1,366
Commitments and contingencies
Minority interests 11 62
Stockholders' equity 6,302 6,681
----------------------------------------------------------------------
Total liabilities and stockholders' equity $15,063 $15,141
======================================================================
THE DIRECTV GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Years Ended
December 31,
---------------
2007 2006
----------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $1,451 $1,420
Income from discontinued operations, net of taxes (17) -
---------------
Income from continuing operations 1,434 1,420
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization 1,684 1,034
Amortization of deferred revenues and deferred
credits (98) (41)
Gain on disposition of businesses - (118)
Net loss (gain) from sale or impairment of
investments 9 (14)
Share-based compensation expense 49 39
Equity in earnings from unconsolidated affiliates (35) (27)
Loss on disposal of fixed assets 8 20
Deferred income taxes and other 453 770
Change in operating assets and liabilities
Accounts receivable, net (166) (283)
Inventories (45) 139
Prepaid expenses and other 46 (12)
Accounts payable and accrued liabilities 255 158
Unearned subscriber revenue and deferred credits 72 2
Other, net (21) 75
----------------------------------------------------------------------
Net cash provided by operating activities 3,645 3,162
----------------------------------------------------------------------
Cash Flows From Investing Activities
Purchase of short-term investments (588) (2,517)
Sale of short-term investments 748 3,029
Cash paid for property and equipment (2,523) (1,754)
Cash paid for satellites (169) (222)
Investment in companies, net of cash acquired (348) (389)
Proceeds from sale of investments - 182
Proceeds from collection of notes receivable - 142
Proceeds from sale of property 33 13
Other, net 25 (20)
----------------------------------------------------------------------
Net cash used in investing activities (2,822) (1,536)
----------------------------------------------------------------------
Cash Flows From Financing Activities
Common shares repurchased and retired (2,025) (2,977)
Repayment of debt (220) (8)
Net increase (decrease) in short-term borrowings 2 (2)
Repayment of other long-term obligations (121) (100)
Stock options exercised 118 257
Excess tax benefit from share-based compensation 7 2
----------------------------------------------------------------------
Net cash used in financing activities (2,239) (2,828)
----------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,416) (1,202)
Cash and cash equivalents at beginning of the period 2,499 3,701
----------------------------------------------------------------------
Cash and cash equivalents at the end of the period $1,083 $2,499
----------------------------------------------------------------------
Supplemental Cash Flow Information
Cash paid for interest $230 $243
Cash paid for income taxes 408 30
THE DIRECTV GROUP, INC.
SELECTED SEGMENT DATA
(Dollars in Millions)
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
-------------- ----------------
2007 2006 2007 2006
----------------------------------------------------------------------
DIRECTV U.S.
Revenues $4,377 $3,829 $15,527 $13,744
Operating profit before depreciation
and amortization (1) 1,003 876 3,850 3,221
Operating profit before depreciation
and amortization margin (1) 22.9% 22.9% 24.8% 23.4%
Operating profit $ 576 $ 614 $ 2,402 $ 2,348
Operating profit margin 13.2% 16.0% 15.5% 17.1%
Depreciation and amortization $ 427 $ 262 $ 1,448 $ 873
Capital expenditures (2) 554 653 2,330 1,809
----------------------------------------------------------------------
DIRECTV LATIN AMERICA
Revenues $ 499 $ 354 $ 1,719 $ 1,013
Operating profit before depreciation
and amortization (1) (3) 114 56 394 244
Operating profit before depreciation
and amortization margin (1) (3) 22.8% 15.8% 22.9% 24.1%
Operating profit (3) $ 56 $ (3) $ 159 $ 79
Operating profit margin (3) 11.2% - 9.2% 7.8%
Depreciation and amortization $ 58 $ 59 $ 235 $ 165
Capital expenditures (2) 99 55 336 178
----------------------------------------------------------------------
CORPORATE and OTHER
Revenues $ - $ - $ - $ (2)
Operating loss before depreciation
and amortization (1) (14) (17) (74) (74)
Operating loss (15) (16) (75) (70)
Depreciation and amortization 1 (1) 1 (4)
Capital expenditures (2) - - 30 -
----------------------------------------------------------------------
TOTAL
Revenues $4,876 $4,183 $17,246 $14,755
Operating profit before depreciation
and amortization (1) (3) 1,103 915 4,170 3,391
Operating profit before depreciation
and amortization margin (1) (3) 22.6% 21.9% 24.2% 23.0%
Operating profit (3) $ 617 $ 595 $ 2,486 $ 2,357
Operating profit margin (3) 12.7% 14.2% 14.4% 16.0%
Depreciation and amortization $ 486 $ 320 $ 1,684 $ 1,034
Capital expenditures (2) 653 708 2,696 1,987
======================================================================
(1) See footnote 1 above.
(2) Capital expenditures include cash paid and amounts accrued during
the period for property, equipment and satellites.
(3) Includes $118 million of gains recorded during the year ended
December 31, 2006, including the $57 million gain for the Sky Mexico
transaction and the $61 million gain for the Sky Brazil transaction.
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions)
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
--------------- -----------------
2007 2006 2007 2006
--------------- -----------------
Revenues $4,377 $3,829 $15,527 $13,744
----------------------------------------------------------------------
Operating costs and expenses
Costs of revenues, exclusive of
depreciation and amortization
expense
Broadcast programming and other 2,028 1,767 6,681 5,830
Subscriber service expenses 285 279 1,137 1,057
Broadcast operations expenses 55 47 216 179
Selling, general and administrative
expenses, exclusive of depreciation
and amortization expense
Subscriber acquisition costs 524 443 1,901 1,844
Upgrade and retention costs 267 207 958 852
General and administrative
expenses 215 210 784 761
Depreciation and amortization
expense 427 262 1,448 873
----------------------------------------------------------------------
Total operating costs and expenses 3,801 3,215 13,125 11,396
----------------------------------------------------------------------
Operating profit 576 614 2,402 2,348
Interest income 9 20 69 69
Interest expense (54) (55) (216) (218)
Other, net (5) (2) (5) (4)
----------------------------------------------------------------------
Income before income taxes 526 577 2,250 2,195
Income tax expense (209) (221) (891) (839)
----------------------------------------------------------------------
Net income $317 $356 $1,359 $1,356
======================================================================
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)
December 31, December 31,
ASSETS 2007 2006
----------------------------------------------------------------------
Current assets
Cash and cash equivalents $802 $1,356
Accounts receivable, net of allowances of
$39 and $39 1,387 1,267
Inventories 187 140
Prepaid expenses and other 171 146
----------------------------------------------------------------------
Total current assets 2,547 2,909
Satellites, net 2,030 2,000
Property and equipment, net 3,230 2,026
Goodwill 3,032 3,032
Intangible assets, net 1,223 1,546
Other assets 235 174
----------------------------------------------------------------------
Total assets $12,297 $11,687
======================================================================
LIABILITIES AND OWNER'S EQUITY
----------------------------------------------------------------------
Current liabilities
Accounts payable and accrued liabilities $2,548 $2,402
Unearned subscriber revenue and deferred
credits 320 259
Current portion of long-term debt 48 10
----------------------------------------------------------------------
Total current liabilities 2,916 2,671
Long-term debt 3,347 3,395
Deferred income taxes 336 240
Other liabilities and deferred credits 958 993
Commitments and contingencies
Owner's equity 4,740 4,388
----------------------------------------------------------------------
Total liabilities and owner's equity $12,297 $11,687
======================================================================
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Years Ended
December 31,
---------------
2007 2006
----------------------------------------------------------------------
Cash Flows From Operating Activities
Net Income $1,359 $1,356
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 1,448 873
Amortization of deferred revenues and deferred
credits (98) (41)
Share-based compensation expense 41 34
Equity in losses from unconsolidated affiliates - 3
Loss from sale of investment 6 -
Amortization of debt issuance costs 5 5
Deferred income taxes and other 162 178
Change in other operating assets and liabilities
Accounts receivable, net (120) (271)
Inventories (47) 141
Prepaid expenses and other 3 (35)
Accounts payable and accrued liabilities 138 19
Unearned subscriber revenue and deferred credits 60 -
Other, net (48) 80
----------------------------------------------------------------------
Net cash provided by operating activities 2,909 2,342
----------------------------------------------------------------------
Cash Flows From Investing Activities
Cash paid for property and equipment (621) (504)
Cash paid for subscriber leased equipment - subscriber
acquisitions (762) (599)
Cash paid for subscriber leased equipment - upgrade
and retention (774) (473)
Cash paid for satellites (169) (222)
Proceeds from sale of property - 12
Other (9) 7
----------------------------------------------------------------------
Net cash used in investing activities (2,335) (1,779)
----------------------------------------------------------------------
Cash Flows From Financing Activities
Repayment of long-term debt (10) (8)
Repayment of other long-term obligations (72) (67)
Cash dividends to Parent (1,050) (300)
Excess tax benefit from share-based compensation 4 3
----------------------------------------------------------------------
Net cash used in financing activities (1,128) (372)
----------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (554) 191
Cash and cash equivalents at beginning of the period 1,356 1,165
----------------------------------------------------------------------
Cash and cash equivalents at end of the period $802 $1,356
======================================================================
Supplemental Cash Flow Information
Cash paid for interest $211 $215
Cash paid for income taxes 730 728
Non-GAAP Financial Measure Reconciliation Schedules
(Unaudited)
----------------------------------------------------------------------
The DIRECTV Group
----------------------------------------------------------------------
Reconciliation of Operating Profit Before Depreciation and
Amortization to Operating Profit(a)
----------------------------------------------------------------------
Three Months Twelve Months
Ended Ended
December 31, December 31,
------------- ---------------
2007 2006 2007 2006
------- ----- ------- -------
(Dollars in Millions)
Operating Profit Before Depreciation and
Amortization $1,103 $915 $4,170 $3,391
Subtract: Depreciation and amortization
expense 486 320 1,684 1,034
------------- ---------------
Operating Profit $617 $595 $2,486 $2,357
============= ===============
----------------------------------------------------------------------
(a) For a reconciliation of this non-GAAP financial measure for each
of our segments, please see the Notes to the Consolidated Financial
Statements which will be included in The DIRECTV Group's Annual
Report on Form 10-K for the year ended December 31, 2007. This Form
10-K is expected to be filed with the SEC in February 2008.
----------------------------------------------------------------------
----------------------------------------------------------------------
The DIRECTV Group
----------------------------------------------------------------------
Reconciliation of Cash Flow Before Interest and Taxes(2) and Free Cash
Flow(3) to Net Cash Provided by Operating Activities
----------------------------------------------------------------------
Three Months Twelve Months
Ended Ended
December 31, December 31,
------------- ---------------
2007 2006 2007 2006
------- ----- ------- -------
(Dollars in Millions)
Cash Flow Before Interest and Taxes $512 $335 $1,480 $1,313
Adjustments:
Cash paid for interest (54) (63) (230) (243)
Interest income 15 38 111 146
Income taxes paid (112) (10) (408) (30)
------------------------------------------------------ ---------------
Subtotal - Free Cash Flow 361 300 953 1,186
Add Cash Paid For:
Property and equipment 620 638 2,523 1,754
Satellites 20 49 169 222
------------- ---------------
Net Cash Provided by Operating
Activities $1,001 $987 $3,645 $3,162
============= ===============
----------------------------------------------------------------------
DIRECTV Latin America
----------------------------------------------------------------------
Reconciliation of Cash Flow Before Interest and Taxes(2) and Free Cash
Flow(3) to Net Cash Provided by Operating Activities
----------------------------------------------------------------------
Three Months Twelve Months
Ended Ended
December 31, December 31,
------------- ---------------
2007 2006 2007 2006
------- ----- ------- -------
(Dollars in Millions)
Cash Flow Before Interest and Taxes $35 $26 $140 $0
Adjustments:
Cash paid for interest (6) (8) (27) (12)
Interest income 4 5 18 16
Income taxes paid (27) (2) (51) (14)
------------------------------------------------------ ---------------
Subtotal - Free Cash Flow 6 21 80 (10)
Add Cash Paid For:
Property and equipment 99 52 336 175
------------- ---------------
Net Cash Provided by Operating
Activities $105 $73 $416 $165
============= ===============
(2) and (3) - See footnotes above in this earnings release.
DIRECTV HOLDINGS LLC (DIRECTV U.S.)
Non-GAAP Financial Measure Reconciliation and SAC Calculation
(Unaudited)
----------------------------------------------------------------------
Reconciliation of Pre-SAC Margin(a) to Operating Profit
----------------------------------------------------------------------
Three Months Twelve Months
Ended Ended
December 31, December 31,
--------------- ---------------
2007 2006 2007 2006
------- ------- ------- -------
(Dollars in Millions)
Operating Profit $576 $614 $2,402 $2,348
Adjustments:
Subscriber acquisition costs
(expensed) 524 443 1,901 1,844
Depreciation and amortization
expense 427 262 1,448 873
Cash paid for subscriber
leased equipment - upgrade
and retention (195) (212) (774) (473)
-------------------------------
Pre-SAC margin(a) $1,332 $1,107 $4,977 $4,592
===============================
Pre-SAC margin as a percentage of
revenue(a) 30.4% 28.9% 32.1% 33.4%
----------------------------------------------------------------------
Reconciliation of Cash Flow Before Interest and Taxes(2) and Free Cash
Flow(3) to Net Cash Provided by Operating Activities
----------------------------------------------------------------------
Three Months Twelve Months
Ended Ended
December 31, December 31,
--------------- ---------------
2007 2006 2007 2006
------- ------- ------- -------
(Dollars in Millions)
Cash Flow Before Interest and Taxes $481 $341 $1,455 $1,418
Adjustments:
Cash paid for interest (49) (50) (211) (215)
Interest income 9 20 69 69
Income taxes paid (106) (160) (730) (728)
------------------------------------------------------ ---------------
Subtotal - Free Cash Flow 335 151 583 544
Add Cash Paid For:
Property and equipment 145 174 621 504
Subscriber leased equipment -
subscriber acquisitions 182 196 762 599
Subscriber leased equipment -
upgrade and retention 195 212 774 473
Satellites 20 49 169 222
--------------- ---------------
Net Cash Provided by Operating
Activities $877 $782 $2,909 $2,342
=============== ===============
(2) and (3) - See footnotes above in this earnings release.
(a) 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 for
DIRECTV U.S. by adding amounts under the captions "Subscriber
acquisition costs" and "Depreciation and amortization expense" to
"Operating Profit" from the Consolidated Statements of Operations and
subtracting "Cash paid for subscriber leased equipment - upgrade and
retention" from the Consolidated Statements of Cash Flows. This
financial 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. 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, upgrading and retaining 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 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.
----------------------------------------------------------------------
SAC Calculation
----------------------------------------------------------------------
Three Months Twelve Months
Ended Ended
December 31, December 31,
--------------- ---------------
2007 2006 2007 2006
------- ------- ------- -------
(Dollars in Millions, Except
SAC Amounts)
Subscriber acquisition costs
(expensed) $524 $443 $1,901 $1,844
Cash paid for subscriber leased
equipment - subscriber acquisitions 182 196 762 599
-------------------------------
Total acquisition costs $706 $639 $2,663 $2,443
===============================
Gross subscriber additions (000's) 986 1,021 3,847 3,809
Average subscriber acquisition costs-
per subscriber (SAC) $716 $626 $692 $641
SOURCE: The DIRECTV Group, Inc.
The DIRECTV Group, Inc. Media Contact: Darris Gringeri, 212-462-5136 or Investor Relations, 212-462-5200
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