DIRECTV 2008 Annual Report Download - page 61

THE DIRECTV GROUP, INC.
The increase in total operating profit before depreciation and amortization was due to higher gross
profit from the increase in revenues, partially offset by higher subscriber acquisition, upgrade and
retention and general and administrative costs at both DIRECTV U.S. and DIRECTV Latin America.
We discuss the changes for each of our segments in more detail below.
Operating profit. The following table presents our operating profit (loss) by segment:
Change
Operating profit (loss) by segment: 2008 2007 $ %
(Dollars in Millions)
DIRECTV U.S. ....................................... $2,330 $2,402 $(72) (3.0)%
DIRECTV Latin America ................................ 426 159 267 167.9%
Corporate and Other ................................... (61) (75) 14 (18.7)%
Total operating profit ................................... $2,695 $2,486 $209 8.4%
The increase in our operating profit was primarily due to increased operating profit before
depreciation and amortization, partially offset by the increase in depreciation and amortization expense
due to the DIRECTV U.S. lease program. We discuss these changes for each of our segments in more
detail below.
Interest income. The decrease in interest income to $81 million in 2008 from $111 million in 2007
was due to lower interest rates and lower average cash balances due mostly to the use of cash to fund
our share repurchase program.
Interest expense. The increase in interest expense from $235 million in 2007 to $360 million in
2008 was due to an increase in the average debt balance compared to 2007 and lower capitalization of
interest cost in 2008. We capitalized $18 million of interest costs in 2008 and $51 million in 2007. The
reduction in the capitalization of interest costs was due to the successful completion and launch of two
satellites.
Other, net. The significant components of ‘‘Other, net’’ were as follows:
2008 2007 Change
(Dollars in Millions)
Equity in earnings of unconsolidated subsidiaries ........................ $55 $35 $20
Net gain (loss) from sale of investments ............................... 1 (6) 7
Other ........................................................ (1) (3) 2
Total ....................................................... $55 $26 $29
Income Tax Expense. We recognized income tax expense of $864 million in 2008 compared to
$943 million in 2007. The lower income tax expense in 2008 is primarily attributable to foreign earnings
taxed at less than our domestic statutory rates, a partial reversal of a valuation allowance on deferred
tax assets of foreign subsidiaries as a result of recent profitability and recognition of tax credits due to
state tax legislation.
Minority interests in net earnings of subsidiaries. We recognized minority interest in net earnings of
subsidiaries of $92 million in 2008 and $11 million in 2007 primarily from Sky Brazil. Minority interest
in 2008 increased due to higher net income and $23 million from the partial reversal of a valuation
allowance on deferred tax assets at Sky Brazil attributable to the minority interest holder.
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