DIRECTV 2010 Annual Report Download - page 74

DIRECTV
assets and liabilities, which arise from differences in the timing of recognition of of those set-top receivers. We depreciate capitalized set-top receivers at DIRECTV
revenue and expense for tax and financial statement purposes. U.S. over a three year estimated useful life, which is based on, among other things,
management’s judgment of the risk of technological obsolescence. Changes in the
We assess the recoverability of deferred tax assets at each reporting date and estimated useful lives of set-top receivers capitalized could result in significant
where applicable, record a valuation allowance to reduce the total deferred tax asset changes to the amounts recorded as depreciation expense. We regularly evaluate the
to an amount that will, more-likely-than-not, be realized in the future. Our estimated useful life of our set-top receivers and it is possible that we may change
assessment includes an analysis of whether deferred tax assets will be realized in the the useful life of set-top receivers at DIRECTV U.S. in the near term. If we had
ordinary course of operations based on the available positive and negative evidence, changed the depreciable life of DIRECTV U.S.’ set-top receivers as of January 1,
including the scheduling of deferred tax liabilities and forecasted income from 2010 to four years, annual depreciation for 2010 would have decreased by over
operating activities. The underlying assumptions we use in forecasting future taxable $300 million.
income require significant judgment. In the event that actual income from
operating activities differs from forecasted amounts, or if we change our estimates Valuation of Long-Lived Assets. We evaluate the carrying value of long-lived
of forecasted income from operating activities, we could record additional charges assets to be held and used, other than goodwill and intangible assets with indefinite
or reduce allowances in order to adjust the carrying value of deferred tax assets to lives, when events and circumstances warrant such a review. We consider the
their realizable amount. Such adjustments could be material to our consolidated carrying value of a long-lived asset impaired when the anticipated undiscounted
financial statements. future cash flow from such asset is separately identifiable and is less than its
carrying value. In that event, we recognize a loss based on the amount by which
In addition, the recognition of a tax benefit for tax positions involves dealing the carrying value exceeds the fair value of the long-lived asset. We determine fair
with uncertainties in the application of complex tax regulations. Judgment is value primarily using the estimated future cash flows associated with the asset under
required in assessing the future tax consequences of events that have been review, discounted at a rate commensurate with the risk involved, and other
recognized in our financial statements or tax returns. We provide for taxes for valuation techniques. We determine losses on long-lived assets to be disposed of in
uncertain tax positions where assessments have not been received. We believe such a similar manner, except that we reduce the fair value for the cost of disposal.
tax reserves are adequate in relation to the potential for additional assessments. Changes in estimates of future cash flows could result in a write-down of the asset
Once established, we adjust these amounts only when more information is available in a future period.
or when an event occurs necessitating a change to the reserves. Future events such
as changes in the facts or law, judicial decisions regarding the application of existing Valuation of Goodwill and Intangible Assets with Indefinite Lives. We evaluate
law or a favorable audit outcome will result in changes to the amounts provided. the carrying value of goodwill and intangible assets with indefinite lives annually in
the fourth quarter or more frequently when events and circumstances change that
Contingent Matters. Determining when, or if, an accrual should be recorded would more likely than not result in an impairment loss. We completed our annual
for a contingent matter, including but not limited to legal and tax issues, and the impairment testing during the fourth quarter of 2010, and determined that there
amount of such accrual, if any, requires a significant amount of management was no impairment of goodwill or intangible assets with indefinite lives. As of
judgment and estimation. We develop our judgments and estimates in consultation December 31, 2010, the fair value of each reporting unit and our intangible assets
with outside counsel based on an analysis of potential outcomes. Due to the with indefinite lives significantly exceed their carrying values. See Note 6 of the
uncertainty of determining the likelihood of a future event occurring and the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual
potential financial statement impact of such an event, it is possible that upon Report, which we incorporate herein by reference.
further development or resolution of a contingent matter, we could record a charge
in a future period that would be material to our consolidated financial statements. The goodwill evaluation requires the estimation of the fair value of reporting
units where we record goodwill. We determine fair values primarily using estimated
Depreciable Lives of Leased Set-Top Receivers. We currently lease most set-top cash flows discounted at a rate commensurate with the risk involved, when
receivers provided to new and existing subscribers and therefore capitalize the cost
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