DIRECTV 2005 Annual Report Download - page 84

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(continued)
Goodwill and Intangible Assets
Goodwill and intangible assets with indefinite lives are carried at historical cost and are subject to
write-down, as needed, based upon an impairment analysis that we must perform at least annually, or
sooner if an event occurs or circumstances change that would more likely than not result in an
impairment loss. We perform our annual impairment analysis in the fourth quarter of each year. If an
impairment loss results from the annual impairment test, we would record the loss as a pre-tax charge
to operating income.
We amortize other intangible assets using the straight-line method over their estimated useful lives,
which range from 4 to 15 years.
Valuation 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 or 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 would
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, or other valuation
techniques. We determine losses on long-lived assets to be disposed of in a similar manner, except that
we reduce the fair values for the cost of disposal.
Foreign Currency
The local currency of some of our foreign operations is their functional currency. Accordingly,
these foreign entities translate assets and liabilities from their local currencies to U.S. dollars using
year-end exchange rates while income and expense accounts are translated at the average rates in effect
during the year. We record the resulting translation adjustment as part of accumulated other
comprehensive income (loss), which we refer to as OCI, a separate component of stockholders’ equity.
We also have foreign operations where the U.S. dollar is the functional currency. We recognize
gains and losses resulting from remeasurement of the foreign currency denominated assets, liabilities
and transactions into the U.S. dollar currently in the Consolidated Statements of Operations.
Investments and Financial Instruments
We maintain investments in equity securities of unaffiliated companies. We carry non-marketable
equity securities at cost. We consider marketable equity securities available-for-sale and they are carried
at current fair value based on quoted market prices with unrealized gains or losses (excluding
other-than-temporary losses), net of taxes, reported as part of OCI. 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 we
judge the decline in fair value to be other-than-temporary, we write-down the cost basis of the security
to fair value and recognize the amount in the Consolidated Statements of Operations as part of
‘‘Other, net’’ and record it as a reclassification adjustment from OCI.
Short-term investments include investments in auction rate securities, which are considered
available-for-sale and carried at fair value.
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