DIRECTV 2006 Annual Report Download - page 49

THE DIRECTV GROUP, INC.
SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(continued)
Years Ended December 31,
2006 2005 2004
(Dollars in Millions)
Other Data:
Operating Profit (Loss) ............................................ $2,356.8 $ 632.6 $(2,119.4)
Add: Depreciation and amortization expense ............................... 1,034.4 853.2 838.0
Operating Profit (Loss) Before Depreciation and Amortization (1) ................. $3,391.2 $ 1,485.8 $(1,281.4)
Operating Profit Before Depreciation and Amortization-Margin (1) ................ 23.0% 11.3% N/A
Capital expenditures (2) ............................................ $1,987.3 $ 923.7 $ 1,023.1
Net Cash Provided by Operating Activities ................................ 3,162.0 1,171.9 228.6
Net Cash (Used in) Provided by Investing Activities .......................... (1,536.2) (723.3) 886.8
Net Cash Provided by (Used in) Financing Activities .......................... (2,828.1) 945.3 (242.7)
Net Cash Provided by Operating Activities ................................ $3,162.0 $ 1,171.9 $ 228.6
Less: Cash paid for property and equipment ............................... (1,753.8) (489.2) (476.4)
Less: Cash paid for satellites ......................................... (222.3) (399.5) (546.7)
Free cash flow (3) ................................................ $1,185.9 $ 283.2 $ (794.5)
(1) 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 (Loss)
Before Depreciation and Amortization to evaluate our operating performance and to allocate resources and capital to
business segments. This metric is also used 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. To compensate for the exclusion of
depreciation and amortization expense from operating profit, our management and 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 (Loss) Before Depreciation and Amortization and similar
measures to estimate our current or prospective enterprise value and make investment decisions. This metric provides
investors with a means to compare operating results exclusive of depreciation and amortization expense. Our management
believes this is useful given the significant variation in depreciation and amortization expense that can result from the timing
of capital expenditures, the capitalization of intangible assets, potential variations in expected useful lives when compared to
other companies and periodic changes to estimated useful lives.
Operating Profit Before Depreciation and Amortization-Margin is calculated by dividing Operating Profit Before
Depreciation and Amortization by Revenues.
(2) Capital expenditures include cash paid and amounts accrued during the period for property, equipment and satellites.
Beginning March 1, 2006, capital expenditures include the cost of set-top boxes receivers capitalized under DIRECTV U.S.’
lease program.
(3) 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.
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