DIRECTV 2004 Annual Report Download - page 58

THE DIRECTV GROUP, INC.
We assess the recoverability of deferred tax assets at each reporting date and where applicable, record a valuation allowance to
reduce the total deferred tax asset to an amount that will, more likely than not, be realized in the future. Our assessment includes
an analysis of whether deferred tax assets will be realized in the ordinary course of operations based on the available positive
and negative evidence, including the scheduling of deferred tax liabilities and forecasted income from operating activities. The
underlying assumptions we use in forecasting future taxable income require significant judgment. In the event that actual
income from operating activities differs from forecasted amounts, or if we change our estimates of forecasted income from
operating activities, we could record additional charges in order to adjust the carrying value of deferred tax assets to their
realizable amount. Such charges could be material to our consolidated results of operations and financial position.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax
regulations. We recognize liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our
estimate of whether, and the extent to which, additional tax payments are probable. If we ultimately determine that payment of
these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that
the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we
determine that the recorded tax liability is less than we expect the ultimate assessment to be. For a discussion of current tax
matters, see Note 10: Income Taxes and Note 21: Commitments and Contingencies of the Notes to the Consolidated Financial
Statements in Item 8, Part II of this Form 10-K, which we incorporate herein by reference.
Contingent Matters. 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, requires a significant amount of management estimation.
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, we could record a charge in a future
period that would be material to our consolidated results of operations and financial position.
Valuation and Depreciation of Long-Lived Assets. We evaluate the carrying value of long-lived assets to be held and used,
other than goodwill and intangible assets with indefinite lives, when events and circumstances warrant such a review. We
consider the carrying value of a long-lived asset impaired when the anticipated undiscounted future cash flow from such asset is
separately identifiable and is less than its carrying value. In that event, we recognize a loss based on the amount by which the
carrying value exceeds the fair value of the long-lived asset. We determine fair value primarily using the estimated future cash
flows associated with the asset under review, discounted at a rate commensurate with the risk involved, and other valuation
techniques. We determine losses on long-lived assets to be disposed of in a similar manner, except that we reduce the fair value
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.
Valuation of Goodwill and Intangible Assets with Indefinite Lives. We evaluate the carrying value of goodwill and intangible
assets with indefinite lives annually in the fourth quarter 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
2004, and determined that there was no impairment of goodwill or intangible assets with indefinite lives.
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