DIRECTV 2006 Annual Report Download - page 84

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(continued)
and other meeting the definition of a financial instrument approximated their fair values at
December 31, 2006 and 2005.
Debt Issuance Costs
We defer costs we incur to issue debt and amortize these costs to interest expense using the
straight-line method over the term of the respective obligation.
Share-Based Payment
We grant restricted stock units and common stock options to our employees. We recognize
compensation expense equal to the fair value of the stock-based award at grant over the course of its
requisite service period following Statement of Financial Accounting Standards, or SFAS, No. 123
(revised 2004), ‘‘Share-Based Payment,’’ or SFAS No. 123R, which replaced SFAS No. 123, ‘‘Accounting
for Stock-Based Compensation,’’ as amended.
We record compensation expense for restricted stock units and stock options on a straight-line
basis over the service period of up to four years based upon the value of the award on the date
approved, reduced for estimated forfeitures and adjusted for anticipated payout percentages related to
the achievement of performance targets.
Income Taxes
We determine deferred tax assets and liabilities based on the difference between the financial
statement and tax basis of assets and liabilities, using enacted tax rates in effect for the year in which
we expect the differences to reverse. We must make certain estimates and judgments in determining
income tax provisions, assessing the likelihood of recovering our deferred tax assets, and evaluating tax
positions.
In addition, the calculation of our tax liabilities involves evaluations and judgments of uncertainties
in interpretations of complex tax regulations by various taxing authorities. We provide for the
appropriate amount when it is probable and estimable that an income tax liability will be due. As
additional information becomes available, or we resolve these uncertainties with the taxing authorities,
revisions to those liabilities may be required resulting in additional provision or benefit from income
taxes in our Consolidated Statements of Operations. While it is often difficult to predict the final
outcome or the timing of resolution, we believe that our accruals reflect the most probable outcome of
known tax contingencies.
Advertising Costs
We expense advertising costs primarily in ‘‘Subscriber acquisition costs’’ in the Consolidated
Statements of Operations as incurred. Advertising expenses, net of payments received from
programming content providers for marketing support, were $232.7 million in 2006, $199.0 million in
2005 and $170.1 million in 2004.
Market Concentrations and Credit Risk
We sell programming services and extend credit, in amounts generally not exceeding $100 each, to
a large number of individual residential subscribers throughout the United States and most of Latin
America. As applicable, we maintain allowances for anticipated losses.
73