DIRECTV 2007 Annual Report Download - page 53

THE DIRECTV GROUP, INC.
EXECUTIVE OVERVIEW AND OUTLOOK
The following discussion of revenues and operating results relates to DIRECTV U.S., which
generates 90% of our revenues.
Revenues. In 2007, DIRECTV U.S. revenues increased by 13.0% due to a larger subscriber base
and a 7.2% increase in ARPU. In 2008, we anticipate revenues will increase by over 10.0% due to an
increase in total subscribers and ARPU growth of 5.0% or more. ARPU increases are primarily
expected to be driven by price increases and higher penetration of advanced products. After accounting
for churn, our net new subscriber additions in 2007 were 878,000 which increased our total subscriber
base by 5.5% to 16.8 million customers. In 2008, we expect net new subscriber additions to decrease
due to the anticipated reduction in the number of subscribers added through our RBOC distributors as
well as churn on the larger cumulative subscriber base.
Operating Results. In 2007, DIRECTV U.S. operating profit before depreciation and amortization
increased 19.5% to $3,850 million and operating profit before depreciation and amortization margin
improved from 23.4% in 2006 to 24.8% in 2007, primarily due to the gross profit generated from the
higher revenues and an increase in the amount of set-top receivers capitalized in 2007 under the lease
program introduced on March 1, 2006, partially offset by higher subscriber acquisition, upgrade and
retention costs due to the increased number of new and existing subscribers adding HD and DVR
services.
In 2008, we expect both operating profit before depreciation and amortization and operating profit
before depreciation and amortization margin to increase. These improvements are anticipated to be
due to the expected increase in revenues and improvements in most of our significant cost categories
due to greater cost controls, scale and efficiencies.
In 2007, operating profit increased 2.3% to $2,402 million primarily due to higher operating profit
before depreciation and amortization, partially offset by an increase in depreciation of leased set-top
receivers capitalized under the new lease program and higher depreciation resulting from an increase in
equipment purchased to support our broadcast operations. Operating profit in 2008 is expected to
increase as the anticipated higher operating profit before depreciation and amortization is expected to
be only partially offset by higher depreciation and amortization expense resulting from the set-top
receiver lease program.
Free Cash Flow. In 2007, The DIRECTV Group generated $953 million of free cash flow, defined
as net cash provided by operating activities less cash paid for property and satellites. During 2008, we
expect significant free cash flow growth as a result of the anticipated increase in operating profit before
depreciation and amortization and a decrease in capital expenditures for leased set top receivers,
satellite construction and broadcast equipment to support our HD ground infrastructure. We anticipate
these increases to be partially offset by a significant increase in cash paid for income taxes due mostly
to the utilization of our net operating loss carryforwards in 2007.
44