DIRECTV 2003 Annual Report Download - page 76

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THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Revenue Recognition
Sales are generally recognized as products are shipped or services are rendered. Direct-To-Home
subscription and pay-per-view revenues are recognized when programming is broadcast to subscribers.
Subscriber fees for multiple set-top receivers, DIRECTV-The Guide, warranty services and equipment rental are
recognized as revenue, monthly as earned. Advertising revenue is recognized when the related services are
performed. Programming payments received from subscribers in advance of the broadcast are recorded as
deferred revenues until earned.
Pursuant to an outright sale contract, all rights and title to a satellite transponder are purchased. In
connection with an outright sale, the Company recognizes the sale amount as revenue and the cost basis of the
satellite transponder is charged to “Broadcast programming and other costs” in the Consolidated Statements of
Income.
Satellite transponder lease contracts qualifying for capital lease treatment (typically based, among other
factors, on the term of the lease) are accounted for as sales-type leases, with revenues recognized at inception of
the lease equal to the net present value of the future minimum lease payments. Upon inception of a sales-type
lease, the cost basis of the satellite transponder is charged to “Broadcast programming and other costs” in the
Consolidated Statements of Income. The portion of each periodic lease payment deemed to be attributable to
interest income is recognized in each respective period.
Sales-type lease agreements and contracts for the sale of satellite transponders typically include a telemetry,
tracking and control (“TT&C”) service agreement with the customer, which require the customer to pay monthly
service fees and are recognized and billable as the services are performed. For a significant portion of the
customer lease agreements, TT&C services are performed for the customer and the fees for such services are
included in the customer’s monthly lease payment.
Satellite transponder and other lease contracts that do not qualify as sales-type leases are accounted for as
operating leases. Operating lease revenues are generally recognized on a straight-line basis over the respective
lease term. Differences between operating lease payments received and revenues recognized are deferred and
included in “Accounts and notes receivable” and “Investments and Other Assets” in the Consolidated Balance
Sheets.
A small percentage of revenues are derived from long-term contracts for the sale of wireless
communications systems. Sales under long-term contracts are recognized primarily using the percentage-of-
completion (cost-to-cost) method of accounting. Under this method, sales are recorded equivalent to costs
incurred plus a portion of the profit expected to be realized, determined based on the ratio of costs incurred to
estimated total costs at completion. Profits expected to be realized on long-term contracts are based on estimates
of total sales value and costs at completion. These estimates are reviewed and revised periodically throughout the
lives of the contracts, and adjustments to profits resulting from such revisions are recorded in the accounting
period in which the revisions are made. Estimated losses on contracts are recorded in the period in which they are
identified.
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