DIRECTV 2007 Annual Report Download - page 107

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
as determined in accordance with GAAP. Our management and Board of Directors use operating
profit (loss) 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 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 (loss) 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.
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.
(2) Capital expenditures include cash paid and amounts accrued during the period for property,
equipment and satellites.
The following represents a reconciliation of operating profit before depreciation and amortization
to reported net loss on the Consolidated Statements of Operations:
Years Ended December 31,
2007 2006 2005
(Dollars in Millions)
Operating profit before depreciation and amortization ............... $4,170 $ 3,391 $1,486
Depreciation and amortization expense .......................... (1,684) (1,034) (853)
Operating profit ........................................... 2,486 2,357 633
Interest income ........................................... 111 146 150
Interest expense ........................................... (235) (246) (238)
Other, net ............................................... 26 42 (65)
Income from continuing operations before income taxes and minority
interests ............................................... 2,388 2,299 480
Income tax expense ........................................ (943) (866) (172)
Minority interests in net earnings of subsidiaries .................... (11) (13) (3)
Income from continuing operations ............................. 1,434 1,420 305
Income from discontinued operations, net of taxes .................. 17 — 31
Net income .............................................. $1,451 $ 1,420 $ 336
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