The DIRECTV Group Announces Second Quarter 2007 Results

Business Wire, August 9, 2007

Cash flow before interest and taxes2 and free cash flow3 declined to $305 million and $201 million, respectively, primarily due to an increase in capital expenditures. The higher capital expenditures were primarily at DIRECTV U.S. related to an increase in the number of new and existing customers leasing HD and DVR equipment, as well as higher infrastructure costs associated with the implementation and rollout of additional HD programming. Also contributing to the increase in capital expenditures was the consolidation of the Sky Brazil business. In addition, free cash flow was impacted by tax payments made in the second quarter of 2007 compared to tax refunds in the prior period. The quarter also included share repurchases of $596 million.

Year-to-Date Review

In the first six months of 2007, The DIRECTV Group's revenues of $8.04 billion increased 16% over the same period in the prior year principally due to strong ARPU growth and a larger subscriber base at DIRECTV U.S., as well as the consolidation of Sky Brazil's financial results.

Operating profit before depreciation and amortization in the first half of 2007 of $2.06 billion increased 30% compared with the first half of 2006 due to the higher gross profit associated with the higher revenues and the capitalization of customer equipment under the lease program implemented in March 2006 at DIRECTV U.S., as well as the consolidation of Sky Brazil's results. Also impacting the comparison was a $57 million gain recorded in the first quarter of 2006 for the completion of DIRECTV Latin America's Sky Mexico transactions. Operating profit of $1.30 billion through June 2007 increased 15% compared with the same period in 2006 as the higher operating profit before depreciation and amortization was partially offset by higher depreciation and amortization resulting primarily from the increased capitalization of customer equipment under the DIRECTV U.S. lease program, as well as the consolidation of Sky Brazil.

Net income increased 13% to $784 million in the first six months of 2007 primarily due to the changes in operating profit discussed above partially offset by higher income tax expense in the most recent period associated with the higher pre-tax income.

Cash flow before interest and taxes increased to $653 million in the first half of 2007 mostly due to the higher operating profit before depreciation and amortization partially offset by increased capital expenditures. Capital expenditures were higher primarily at DIRECTV U.S. due to the implementation of the equipment lease program in March 2006, higher costs for the increased number of new and existing customers adding HD and DVR services, and greater infrastructure costs associated with the rollout of additional HD programming. In addition, free cash flow declined to $510 million primarily due to tax payments made in the first half of 2007 compared to tax refunds in the prior period. Other uses of cash in the first half of 2007 were for share repurchases of $697 million, the purchase of Darlene's interest in DIRECTV Latin America for $325 million and the repayment of $210 million of outstanding debt at Sky Brazil.