DIRECTV 2007 Annual Report Download - page 79

THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
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.
With the adoption of the Financial Accounting Standards Board, or FASB, Interpretation No. 48,
‘‘Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,’’ or
FIN 48, on January 1, 2007, we now recognize a benefit in ‘‘Income tax expense’’ in the Consolidated
Statements of Operations for uncertain tax positions that are more-likely-than-not to be sustained upon
examination, measured at the largest amount that has a greater than 50% likelihood of being realized
upon settlement. Unrecognized tax benefits represent tax benefits taken or expected to be taken in
income tax returns, for which the benefit has not yet been recognized in ‘‘Income tax expense’’ in the
Consolidated Statements of Operations due to the uncertainty of whether such benefits will be
ultimately realized. We recognize interest and penalties accrued related to unrecognized tax benefits in
‘‘Income tax expense’’ in the Consolidated Statements of Operations. Unrecognized tax benefits are
recorded in ‘‘Income tax expense’’ in the Consolidated Statement of Operations at such time that the
benefit is effectively settled.
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 $261 million in 2007, $233 million in 2006,
and $199 million in 2005.
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.
Accounting Changes
Uncertain Tax Positions. On January 1, 2007, we adopted FIN 48. The cumulative effect of
adopting FIN 48 resulted in a $5 million increase to the January 1, 2007 balance of ‘‘Accumulated
deficit’’ in the Consolidated Balance Sheets. As of the date of adoption, our unrecognized tax benefits
totaled $204 million, including $166 million of tax positions the recognition of which would affect the
annual effective income tax rate. As of the date of adoption, we have accrued $45 million in interest
and penalties as part of our liability for unrecognized tax benefits. See Note 9 below for additional
information regarding unrecognized tax benefits.
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