DIRECTV 2008 Annual Report Download - page 54

THE DIRECTV GROUP, INC.
SUMMARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(continued)
Years Ended December 31,
2008 2007 2006
(Dollars in Millions)
Other Data:
Operating profit before depreciation and amortization (1)
Operating profit .................................................... $2,695 $ 2,486 $ 2,357
Add: Depreciation and amortization expense .................................. 2,320 1,684 1,034
Operating profit before depreciation and amortization ............................ $5,015 $ 4,170 $ 3,391
Operating profit before depreciation and amortization margin ....................... 25.5% 24.2% 23.0%
Cash flow information
Net cash provided by operating activities ..................................... $3,910 $ 3,645 $ 3,162
Net cash used in investing activities ........................................ (2,388) (2,822) (1,536)
Net cash used in financing activities ........................................ (600) (2,239) (2,828)
Free cash flow (2)
Net cash provided by operating activities ..................................... $3,910 $ 3,645 $ 3,162
Less: Cash paid for property and equipment .................................. (2,101) (2,523) (1,754)
Less: Cash paid for satellites ............................................ (128) (169) (222)
Free cash flow ..................................................... $1,681 $ 953 $ 1,186
(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, can be calculated by adding
amounts under the caption ‘‘Depreciation and amortization expense’’ to ‘‘Operating profit.’’ 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 before
depreciation and amortization to evaluate the operating performance of our company and our business segments and to
allocate resources and capital to business segments. This metric is also used as a measure of performance for incentive
compensation purposes and 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 resulting from prior business acquisitions. 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 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) 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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