DIRECTV 2007 Annual Report Download - page 61

THE DIRECTV GROUP, INC.
revenues, the capitalization of $1,072 million of set-top receivers under the lease program implemented
on March 1, 2006, and fewer gross subscriber additions.
Broadcast programming and other costs increased primarily from the increased number of
subscribers and annual program supplier rate increases. Subscriber service expenses increased mostly
from the larger subscriber base and an increase in service calls and costs incurred at our call centers to
support the increase in the number of subscribers with advanced products. Broadcast operations
expenses increased as a result of the costs to support new HD local channel markets and launch of new
advanced products.
The decrease in subscriber acquisition costs was primarily due to the capitalization of $599 million
of set-top receivers under our new lease program and lower gross subscriber additions in 2006.
Including the cost of set-top receivers capitalized under our retention and upgrade programs,
upgrade and retention costs incurred increased by $218 million in 2006 due mostly to increased volume
under our HD and HD-DVR upgrade programs. This increase in upgrade and retention costs incurred
was offset by the capitalization of $473 million of leased set-top receivers in 2006, resulting in a net
decrease of $255 million compared to the prior year period.
The decrease in general and administrative expenses resulted mainly from $123 million of lower
bad debt expense, legal costs and severance costs in 2006, partially offset by an increase in inventory
management costs, property taxes mostly associated with leased set-top receivers, and labor, and
employee benefit costs.
Operating profit. The increase in operating profit was 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.
DIRECTV Latin America Segment
The following table provides operating results and a summary of key subscriber data for the
DIRECTV Latin America segment:
Change
2006 2005 $ %
(Dollars in Millions, Except Per
Subscriber Amounts)
Revenues ........................................... $1,013 $ 742 $ 271 36.5%
Operating Profit Before Depreciation & Amortization ........... 244 141 103 73.0%
Operating Profit (Loss) ................................. 79 (19) 98 NM*
Other Data:
Total number of subscribers (000’s) ......................... 2,711 1,593 1,118 70.2%
Net subscriber additions (losses) (000’s) ..................... 1,118 (53) 1,171 NM
Net subscriber additions (excluding the Sky Brazil acquisition and
DIRECTV Mexico shut-down) (000’s) ..................... 249 149 100 67.1%
ARPU ............................................. $41.71 $39.20 $ 2.51 6.4%
* Percentage not meaningful
The increase in net subscriber additions excluding the acquisition of Sky Brazil subscribers and the
2005 shut-down of DIRECTV Mexico and migration of subscribers to the Sky Mexico platform, was
due to strong growth throughout PanAmericana in 2006.
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