DirecTV Profits in Q1

EL SEGUNDO, Calif. -- The DIRECTV Group, Inc. (NYSE:DTV) today reported that first quarter revenues increased 8% to $3.39 billion and operating profit before depreciation and amortization(1) more than tripled to $605 million compared to last year's first quarter. The DIRECTV Group reported first quarter 2006 operating profit of $392 million and net income of $235 million, or $0.17 per share, compared with an operating loss of $54 million and a net loss of $41 million, or $0.03 loss per share, in the same period last year.

"DIRECTV U.S. had a strong first quarter highlighted by revenue growth of 14% to $3.19 billion, operating profit before depreciation and amortization more than doubling to $545 million and cash flow before interest and taxes of $211 million," said Chase Carey, president and CEO of The DIRECTV Group, Inc. "Similar to recent quarters, this solid growth was driven by our large and growing subscriber base, strong ARPU growth and higher operating margins due mostly to the significant scale and operating leverage of our business."

Carey continued, "In addition to the strong financial performance, first quarter results also reflect the benefits gained from our strategy to attain higher quality subscribers. DIRECTV's stricter credit policies and revised dealer incentives implemented over the past several quarters have impacted both our gross and net subscriber growth. DIRECTV U.S. gross additions of 919,000 were down 19% compared to last year but more importantly, the number of high-quality subscribers added in the period actually increased more than 13% over the prior year. The continued improvement in the quality of our subscriber base contributed to the first year-over-year improvement in churn in nearly two years as average monthly churn fell to 1.45% in the quarter. The lower gross additions combined with the improved churn rate resulted in net additions of 255,000 subscribers in the quarter."

Carey concluded, "Looking ahead, the introduction of new high definition programming will play an increasingly important role in DIRECTV's competitive strength and future growth. Just two weeks ago, we launched local HD channels in 8 new cities bringing our total coverage to 20 markets representing about 40% of U.S. TV households. We will continue launching new markets over the coming months and by the end of the year, we expect to have HD local channels available to approximately three-quarters of all households. And after the launch of our two remaining HD satellites next year, we expect to have the most comprehensive and compelling offering of HD programming for nearly every home in America."

Operational Review. In the first quarter of 2006, The DIRECTV Group's revenues of $3.39 billion increased 8% over the prior year principally due to strong DIRECTV U.S. subscriber and average revenue per subscriber (ARPU) growth. These changes were partially offset by the exclusion of Hughes Network Systems (HNS) results in 2006 due to its sale.

The higher operating profit before depreciation and amortization of $605 million and operating profit of $392 million were mostly related to DIRECTV U.S. operations due to the increase in gross profit generated from the higher revenues, reduced subscriber acquisition costs resulting from lower gross subscriber additions, and the capitalization of customer equipment under the lease program for both new and existing subscribers beginning on March 1, 2006. These improvements were partially offset by higher DIRECTV U.S. upgrade and retention costs. Also impacting the comparison was a $57 million gain recorded in the first quarter of 2006 reflecting the completion of DIRECTV Latin America 's Sky Mexico transactions and a loss in the first quarter of 2005 at HNS primarily related to charges associated with its sale.

Net income improved to $235 million in the first quarter of 2006 primarily due to the changes in operating profit discussed above, higher interest income resulting from higher average cash and short term investment balances, and $25 million recorded in "Other, net" in the Consolidated Statements of Operations for the gain on the sale of the remaining interest in HNS in January 2006 plus 50% of HNS' net income up to the time of this sale under the equity method of accounting. These changes were partially offset by higher income tax expense resulting from the pre-tax income in 2006 compared to a loss and associated tax benefit in 2005.

DirecTV Group Inc. (NYSE: DTV)