DIRECTV 2007 Annual Report Download - page 77

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
under our movers program (for subscribers relocating to a new residence), multiple set-top receiver
offers, digital video recorder, or DVR, high-definition, or HD, local channel upgrade programs and
other similar initiatives, and third party commissions we incur for the sale of additional set-top
receivers to existing subscribers. We expense these costs as incurred, except for the cost of set-top
receivers leased to existing subscribers which we capitalize in ‘‘Property and equipment, net’’ in the
Consolidated Balance Sheets. DIRECTV U.S. implemented a lease program on March 1, 2006, after
which most set-top receivers provided to existing subscribers under upgrade and retention programs are
capitalized. We include the amount of our set-top receivers capitalized each period for upgrade and
retention activities in the Consolidated Statement of Cash Flows under the caption ‘‘Cash paid for
property and equipment.’’ See Note 4 below for additional information.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments we purchase with original maturities
of three months or less.
Inventories
We state inventories at the lower of average cost or market. Inventories consist of finished goods
for DIRECTV System equipment and DIRECTV System conditional access cards.
Property and Equipment, Satellites and Depreciation
We carry property and equipment, and satellites at cost, net of accumulated depreciation. The
amounts we capitalize for satellites currently being constructed and those that have been successfully
launched include the costs of construction, launch, launch insurance, incentive obligations and related
capitalized interest. We generally compute depreciation using the straight-line method over the
estimated useful lives of the assets. We amortize leasehold improvements over the lesser of the life of
the asset or term of the lease.
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 5 to 20 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 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
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 estimated future cash flows associated with the
asset under review, discounted at a rate commensurate with the risk involved, or other valuation
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