DIRECTV 2005 Annual Report Download - page 82

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(continued)
Revised Presentation of Cash Flows from Discontinued Operations
We have revised our 2004 and 2003 consolidated statements of cash flows to separately disclose the
operating, investing and financing portions of cash flows attributable to our discontinued operations.
We had previously reported these amounts on a combined basis in a single line item.
Revenue Recognition
We recognize revenue as services are rendered or products are shipped. We recognize DTH
subscription and pay-per-view revenues when programming is broadcast to subscribers. We recognize
subscriber fees for multiple set-top receivers, our published programming guide, warranty services and
equipment rental as revenue, as earned. We recognize advertising revenues when the related services
are performed. We defer programming payments received from subscribers in advance of the broadcast
as ‘‘Unearned subscriber revenue and deferred credits’’ in the Consolidated Balance Sheets until
earned.
Broadcast Programming and Other Costs of Sale
We recognize the costs of television programming distribution rights when we distribute the related
programming. We recognize the costs of television programming rights to distribute live sporting events
for a season or tournament using the straight-line method over the course of the season or tournament.
However, we recognize the costs for live sporting events with multi-year contracts and minimum
guarantee payments based on the ratio of each period’s revenues to the estimated total contract
revenues to be earned over the contract period. We evaluate estimated total contract revenues at least
annually.
We defer advance payments in the form of cash and equity instruments from programming content
providers for carriage of their signal and recognize them as a reduction of ‘‘Broadcast programming
and other costs of sale’’ in the Consolidated Statements of Operations on a straight-line basis over the
related contract term. We record equity instruments at fair value based on quoted market prices or
values determined by management, which may include independent third-party valuations. We also
record the amortization of a provision for above-market programming contracts that we recorded in
connection with the 1999 acquisition of certain premium subscription programming contracts from
United States Satellite Broadcasting Company, Inc. as a reduction of programming costs. We
determined the provision based upon an independent third-party appraisal and recorded the provision
at its net present value, with interest expense recognized over the remaining term of the contract. We
record the current and long-term portions of these deferred credits in the Consolidated Balance Sheets
in ‘‘Unearned subscriber revenues and deferred credits’’ and ‘‘Other Liabilities and Deferred Credits’’
and amortize these deferred credits using the interest method over the related contract terms.
Subscriber Acquisition Costs
Subscriber acquisition costs, or SAC, in the Consolidated Statements of Operations consist of costs
we incur to acquire new DIRECTV subscribers through third parties and our direct customer
acquisition program.
Effective January 1, 2004, we changed our method of accounting for subscriber acquisition costs to
expense subscriber acquisition costs as incurred as subscribers activate the DIRECTV service.
Previously, we deferred a portion of subscriber acquisition costs, equal to the amount of profit to be
earned from the subscriber, typically over the 12 month subscriber contract, and amortized these costs
to expense over the contract period. We continue to capitalize costs under our subscriber lease
programs. See ‘‘Accounting Changes’’ below for further discussion of the change in accounting method.
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