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The DIRECTV Group Announces Second Quarter 2009 Results
Posted by: gurufocus (IP Logged)
Date: August 6, 2009 06:33AM

Press Release: The DIRECTV Group Announces Second Quarter 2009 Results

EL SEGUNDO, Calif.--(BUSINESS WIRE)--The DIRECTV Group, Inc. (NASDAQ:DTV) today reported that second quarter 2009 revenues increased 9% to $5.22 billion, operating profit before depreciation and amortization1 (OPBDA) increased 2% to $1.38 billion while operating profit decreased 12% to $702 million compared to last year’s second quarter. Second quarter net income attributable to The DIRECTV Group declined 11% to $407 million while earnings per share were unchanged at $0.40 compared with the same period last year.

“In a quarter in which DIRECTV celebrated its 15th anniversary and became the world’s largest pay-tv provider with over 24.2 million customers in the U.S., Latin America and Mexico, our momentum continued as DIRECTV U.S. net subscriber additions grew 74% to 224,000,” said Larry Hunter, interim chief executive officer of The DIRECTV Group, Inc. “DIRECTV’s strong brand and unrivaled video experience, along with the first full quarter of marketing our bundled service with AT&T, contributed to a 17% increase in gross additions to 1,048,000 and a monthly churn rate of 1.51%.”

Hunter continued, “With these strong subscriber results, a sharpened focus on cost management and lower tax payments, The DIRECTV Group’s free cash flow increased 47% in the quarter to $550 million. A highlight in the quarter was cash SAC of $694 at DIRECTV U.S., reflecting the lowest level in six quarters despite significantly greater sales of HD and DVR services to new customers. I was also pleased that we maintained DIRECTV U.S.’ pre-SAC margin at 39% as strong cost controls offset the impact from the slower monthly ARPU growth of 1.7% in the quarter.”

Hunter finished, “DIRECTV Latin America also had solid subscriber and financial results despite ongoing economic and currency challenges in the region. Revenues increased 11% to $680 million mostly due to continued strong subscriber growth, including 128,000 net additions in the second quarter, which more than offset the unfavorable impact from a 13% decline in Sky Brazil’s ARPU primarily due to a weaker currency compared with the second quarter 2008. In addition, including a $61 million dividend from Sky Mexico, free cash flow grew 44% while topping $100 million for the first time in DTVLA’s history.”

                                   

THE DIRECTV GROUP’S OPERATIONAL REVIEW

 
The DIRECTV Group Three Months Six Months
Dollars in Millions except Earnings Ended June 30,           Ended June 30,
per Common Share           2009       2008           2009       2008
Revenues           $ 5,218       $ 4,807           $ 10,119       $ 9,398
Operating Profit Before Depreciation and Amortization(1)             1,381         1,358             2,471         2,539
Operating Profit             702         801             1,126         1,458
Net Income Attributable to The DIRECTV Group             407         455             608         826
Basic and Diluted Earnings Per Common Share ($)             0.40         0.40             0.60         0.72
Capital Expenditures and Cash Flow                                        
Cash Paid for DIRECTV U.S. Subscriber Leased Equipment - Acquisitions, Upgrade and Retention             220         209             535         526
Cash Paid for Property, Equipment and Satellites             274         261             498         510
Cash Flow Before Interest and Taxes(2)             785         718             1,348         1,335
Free Cash Flow(3)             550         373             1,007         917
     

Second Quarter Review

The DIRECTV Group’s second quarter revenues of $5.22 billion increased 9% over the same period last year principally due to strong subscriber growth at DIRECTV U.S. and DIRECTV Latin America. Operating profit before depreciation and amortization increased 2% to $1.38 billion primarily due to the gross profit associated with the higher revenues partially offset by higher acquisition costs related to the increase in gross subscriber additions, higher subscriber services costs associated with service quality improvement initiatives, and increased upgrade and retention costs at DIRECTV U.S. Also impacting the comparison was higher general and administrative expenses primarily due to $48 million in currency-related transaction charges in Venezuela at DIRECTV Latin America, as well as a $14 million charge in 2008 for costs associated with the transition of services from a DIRECTV U.S. home service provider that ceased operations. The DIRECTV Group’s operating profit declined 12% to $702 million as the higher OPBDA was more than offset by an increase in depreciation and amortization principally due to capitalization of customer equipment under the DIRECTV U.S. and DIRECTV Latin America lease programs.

Net income attributable to The DIRECTV Group declined 11% compared with the second quarter of last year primarily due to the lower operating profit and increased net interest expense due to higher average net debt balances, partially offset by a decline in tax expense principally resulting from lower earnings before tax, as well as a $38 million gain associated with the revaluation of U.S. dollar denominated monetary net-liabilities held by Sky Brazil. This revaluation is a result of the second quarter change in the functional currency of Sky Brazil and is reported in “Other, net” on the Consolidated Statements of Operations. Earnings per share were unchanged at $0.40 as the lower net income was offset by a 12% reduction in average shares outstanding resulting from share repurchases made over the last year.

Cash flow before interest and taxes2 grew 9% to $785 million and free cash flow3 increased 47% to $550 million compared to the second quarter 2008 primarily due to the higher OPBDA, $69 million in dividend payments received, primarily from Sky Mexico, and lower working capital requirements. Free cash flow was also favorably impacted by lower income taxes paid, primarily due to the timing of lower pre-tax earnings, partially offset by higher net interest payments due to an increase in average net debt balances. The quarter also included cash paid for share repurchases of $324 million.

Year-to-Date Review

The DIRECTV Group’s first half revenues of $10.12 billion increased 8% over the first six months of 2008 principally due to strong subscriber growth at DIRECTV U.S. and DIRECTV Latin America. Operating profit before depreciation and amortization declined 3% to $2.47 billion primarily due to higher acquisition costs related to the increase in gross subscriber additions, higher subscriber services costs associated with service quality improvement initiatives, and increased upgrade and retention costs at DIRECTV U.S. Also impacting the comparison was higher general and administrative expenses at DIRECTV Latin America primarily due to $120 million in currency-related transaction charges in Venezuela. Operating profit declined 23% to $1.13 billion due to the lower OPBDA as well as higher depreciation and amortization principally due to capitalization of customer equipment under the DIRECTV U.S. and DIRECTV Latin American lease programs.

Net income attributable to The DIRECTV Group and earnings per share declined 26% and 17%, respectively, compared with the first half of 2008 primarily due to the lower operating profit and increased net interest expense due to higher average net debt balances, partially offset by a decline in tax expense principally resulting from lower earnings before tax, as well as a $38 million gain associated with the revaluation of U.S. dollar denominated monetary net-liabilities held by Sky Brazil. Earnings per share were also impacted by a 12% decline in the average shares outstanding resulting from share repurchases made over the last year.

Cash flow before interest and taxes increased 1% to $1.35 billion and free cash flow increased 10% to $1.01 billion compared to the first six months of 2008 as the decline in OPBDA was more than offset by $69 million in dividend payments received, primarily from Sky Mexico, and lower working capital requirements. Free cash flow was also favorably impacted by lower income taxes paid, primarily due to the timing of lower pre-tax earnings, partially offset by higher net interest paid due to higher average net debt balances. The six-month period for 2009 also included cash paid for share repurchases of $670 million.

SEGMENT FINANCIAL REVIEW

DIRECTV U.S. Segment

Second Quarter Review

                                   
Three Months Six Months
DIRECTV U.S. Ended June 30,           Ended June 30,
Dollars in Millions except ARPU           2009       2008           2009       2008
Revenue           $ 4,539         $ 4,196             $ 8,842         $ 8,245  
Average Monthly Revenue per Subscriber (ARPU) ($)             83.16           81.80               81.86           80.79  
Operating Profit Before Depreciation and Amortization(1)             1,245           1,218               2,231           2,275  
Operating Profit             652           717               1,049           1,310  
Cash Flow Before Interest and Taxes(2)             681           618               1,240           1,221  
Free Cash Flow(3)             459           224               959           729  
Subscriber Data (in 000’s except Churn)                                        
Gross Subscriber Additions             1,048           894               2,223           1,858  
Average Monthly Subscriber Churn             1.51 %         1.49 %             1.42 %         1.42 %
Net Subscriber Additions             224           129               684           404  
Cumulative Subscribers             18,305           17,164               18,305           17,164  
     

Net subscriber additions of 224,000 increased 74% from last year’s second quarter due to a 17% increase in gross subscriber additions to 1,048,000 and an average monthly churn rate of 1.51%. The increase in gross a



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