DIRECTV 2008 Annual Report Download - page 74

THE DIRECTV GROUP, INC.
CONTINGENCIES
For a discussion of ‘‘Contingencies’’, see Note 19 of the Notes to the Consolidated Financial
Statements in Part II, Item 8 of this Annual Report, which we incorporate herein by reference.
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
For a discussion of ‘‘Certain Relationships and Related-Party Transactions,’’ see Note 16 of the
Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report, which we
incorporate herein by reference.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates, judgments and
assumptions that affect amounts reported. Management bases its estimates, judgments and assumptions
on historical experience and on various other factors that are believed to be reasonable under the
circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported for
future periods may be affected by changes in those estimates. The following represents what we believe
are the critical accounting policies that may involve a higher degree of estimation, judgment and
complexity. For a summary of our significant accounting policies, including those discussed below, see
Note 2 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.
Multi-Year Programming Contracts for Live Sporting Events. We charge the cost of multi-year
programming contracts for live sporting events with minimum guarantee payments, such as DIRECTV
U.S.’ agreement with the NFL, to expense based on the ratio of each period’s contract revenues to the
estimated total contract revenues to be earned over the contract period. Management evaluates
estimated total contract revenues at least annually. Estimates of forecasted revenues rely on
assumptions regarding the number of subscribers to a given sporting events package and the estimated
package price throughout the contract. While we base our estimates on past experience and other
relevant factors, actual results could differ from our estimates. If actual results were to significantly vary
from forecasted amounts, the profit recorded on such contracts in a future period could vary from
current rates and the resulting change in profits recorded could be material to our consolidated results
of operations.
Income Taxes. We must make certain estimates and judgments in determining provisions for
income taxes. These estimates and judgments occur in the calculation of tax credits, tax benefits and
deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in
the timing of recognition of revenue and expense for tax and financial statement purposes.
We assess the recoverability of deferred tax assets at each reporting date and where applicable,
record a valuation allowance to reduce the total deferred tax asset to an amount that will,
more-likely-than-not, be realized in the future. Our assessment includes an analysis of whether deferred
tax assets will be realized in the ordinary course of operations based on the available positive and
negative evidence, including the scheduling of deferred tax liabilities and forecasted income from
operating activities. The underlying assumptions we use in forecasting future taxable income require
significant judgment. In the event that actual income from operating activities differs from forecasted
amounts, or if we change our estimates of forecasted income from operating activities, we could record
additional charges in order to adjust the carrying value of deferred tax assets to their realizable
amount. Such charges could be material to our consolidated financial statements.
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