DIRECTV 2006 Annual Report Download - page 55

THE DIRECTV GROUP, INC.
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. For 2004,
average DIRECTV U.S. subscribers include the subscribers in the former NRTC and Pegasus
territories using a daily weighted average from the dates DIRECTV U.S. acquired the subscribers
through December 31, 2004.
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. Average
monthly churn includes the results from the former NRTC and Pegasus subscribers subsequent to the
purchase of those subscribers in 2004.
Subscriber Count. The total number of subscribers represents the total number of subscribers
actively subscribing to our service, including seasonal subscribers and subscribers who are in the process
of relocating.
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. DIRECTV U.S. excludes the 1.4 million
subscribers purchased as part of the NRTC and Pegasus transactions during 2004, as well as gross new
subscribers added in the former NRTC and Pegasus territories prior to the completion of the
transactions, from gross new subscribers used in the calculation of SAC for 2004.
EXECUTIVE OVERVIEW AND OUTLOOK
The following discussion of revenues and operating results relates to DIRECTV U.S., which
generates over 90% of our revenues and has been the source of most of our revenue growth.
Revenues. In 2006, DIRECTV U.S. revenue increased by 12.5% due to a larger subscriber base
and a 5.9% increase in ARPU. In 2007, we anticipate revenues will increase by 10% or more due to an
increase in total subscribers and ARPU growth of 5.0% or more due to price increases and higher
penetration of advanced products. After accounting for churn, our net new subscriber additions in 2006
were 820,000 which increased our total subscriber base by 5.4% to 15.95 million customers. In 2007, we
expect net new subscriber additions to remain relatively consistent with 2006. We expect average
monthly subscriber churn to improve in 2007 to closer to 1.50% as compared to average monthly
subscriber churn of 1.60% for 2006. We expect churn to improve due to our continuing efforts to limit
44