DIRECTV 2003 Annual Report Download - page 61

THE DIRECTV GROUP, INC.
with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except
that fair values are reduced for the cost of disposal. Changes in estimates of future cash flows could result in a
write-down of the asset in a future period.
In addition, as a result of satellite anomalies or other changes in circumstances, we may determine that the
useful life of our satellites or property has been reduced. In this case, depreciation expense could increase over
the remaining shortened useful life of the related asset.
Valuation of Goodwill and Intangible Assets with Indefinite Lives. We evaluate the carrying value of
goodwill and intangible assets with indefinite lives annually or more frequently when events and circumstances
change that would more likely than not result in an impairment loss. We completed our annual impairment
testing during the fourth quarter of 2003, and determined that there was no impairment of goodwill or intangible
assets with indefinite lives.
The goodwill evaluation requires the estimation of the fair value of reporting units where goodwill is
recorded. Fair values are determined primarily using estimated cash flows discounted at a rate commensurate
with the risk involved. Estimation of future cash flows requires significant judgement about future operating
results, and can vary significantly from one evaluation to the next. Risk adjusted discount rates are not fixed and
are subject to change over time. As a result, changes in estimated future cash flows and/or changes in discount
rates could result in a write-down of goodwill or intangible assets with indefinite lives in a future period which
could be material to our consolidated results of operations and financial position.
Multi-Year Programming Contracts for Live Sporting Events. We charge the cost of multi-year
programming contracts for live sporting events with minimum guarantee payments to expense based on the ratio
of each period’s revenues to the estimated total contract revenues to be earned over the contract period.
Estimated total contract revenues are evaluated by management at least annually. If the minimum guarantee
payments on an individual contract exceed the estimated total contract revenues, a loss equal to the amount of
such difference is recognized immediately.
Financial Instruments and Investments. We maintain investments in equity securities of unaffiliated
companies. We continually review our investments to determine whether a decline in fair value below the cost
basis is “other-than-temporary.” We consider, among other factors: the magnitude and duration of the decline;
the financial health and business outlook of the investee, including industry and sector performance, changes in
technology, and operational and financing cash flow factors; and our intent and ability to hold the investment. If
the decline in fair value is judged to be other-than-temporary, the cost basis of the security is written-down to fair
value and the amount is recognized in the Consolidated Statements of Income as part of “Other, net.” Future
adverse changes in market conditions or poor operating results of underlying investments could result in losses or
an inability to recover an investment’s carrying value, thereby possibly requiring a charge in a future period.
Reserves for Doubtful Accounts. Management estimates the amount of required reserves for the potential
non-collectibility of accounts and notes receivable based upon past experience of collection and consideration of
other relevant factors. However, past experience may not be indicative of future collections and therefore
additional charges could be incurred in the future to reflect differences between estimated and actual collections.
Contingent Matters. A significant amount of management estimate is required in determining when, or if,
an accrual should be recorded for a contingent matter, including but not limited to legal and tax issues, and the
amount of such accrual, if any. Estimates are developed in consultation with outside counsel and are based on an
analysis of potential outcomes. Due to the uncertainty of determining the likelihood of a future event occurring
and the potential financial statement impact of such an event, it is possible that upon further development or
resolution of a contingent matter, a charge could be recorded in a future period that would be material to our
consolidated results of operations and financial position.
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