DIRECTV 2009 Annual Report Download - page 92

DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
revenues to be earned over the contract period. We evaluate estimated total contract revenues at least
annually.
We defer advance payments in the form of cash and equity instruments from programming content
providers for carriage of their signal and recognize them as a reduction of ‘‘Broadcast programming
and other’’ in the Consolidated Statements of Operations on a straight-line basis over the related
contract term. We record equity instruments at fair value based on quoted market prices or values
determined by management.
Subscriber Acquisition Costs
Subscriber acquisition costs consist of costs we incur to acquire new subscribers. We include the
cost of set-top receivers and other equipment, commissions we pay to national retailers, independent
satellite television retailers, dealers, telephone communication companies and the cost of installation,
advertising, marketing and customer call center expenses associated with the acquisition of new
subscribers in subscriber acquisition costs. We expense these costs as incurred, or when subscribers
activate the DIRECTV↧ service, as appropriate, except for the cost of set-top receivers leased to new
subscribers which we capitalize in ‘‘Property and equipment, net’’ in the Consolidated Balance Sheets.
Although paid in advance, the retailer or dealer earns substantially all commissions paid for customer
acquisitions over 12 months from the date of subscriber activation. Should the subscriber cancel our
service during the 12 month service period, we are reimbursed for the unearned portion of the
commission by the retailer or dealer and record a decrease to subscriber acquisition costs. We include
the amount of our set-top receivers capitalized each period for subscriber acquisition activities in the
Consolidated Statements of Cash Flows under the caption ‘‘Cash paid for property and equipment.’’
See Note 5 for additional information.
Upgrade and Retention Costs
Upgrade and retention costs consist primarily of costs we incur for loyalty programs offered to
existing subscribers. The costs for loyalty programs include the costs of installing or providing hardware
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. We include the amount of our set-top receivers capitalized each period
for upgrade and retention activities in the Consolidated Statements of Cash Flows under the caption
‘‘Cash paid for property and equipment.’’ See Note 5 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 access cards.
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