DIRECTV 2011 Annual Report Download - page 76

DIRECTV
We assess the recoverability of deferred tax assets at each reporting date and management’s judgment of the risk of technological obsolescence. Changes in the
where applicable, record a valuation allowance to reduce the total deferred tax asset estimated useful lives of set-top receivers capitalized could result in significant
to an amount that will, more-likely-than-not, be realized in the future. Our changes to the amounts recorded as depreciation expense. If we extended the
assessment includes an analysis of whether deferred tax assets will be realized in the depreciable life of the set-top receivers at DIRECTV U.S. by one year, it would
ordinary course of operations based on the available positive and negative evidence, result in an approximately $300 million reduction in annual depreciation expense.
including the scheduling of deferred tax liabilities and forecasted income from Valuation of Long-Lived Assets. We evaluate the carrying value of long-lived
operating activities. The underlying assumptions we use in forecasting future taxable assets to be held and used, other than goodwill and intangible assets with indefinite
income require significant judgment. In the event that actual income from lives, when events and circumstances warrant such a review. We consider the
operating activities differs from forecasted amounts, or if we change our estimates carrying value of a long-lived asset impaired when the anticipated undiscounted
of forecasted income from operating activities, we could record additional charges future cash flow from such asset is separately identifiable and is less than its
or reduce allowances in order to adjust the carrying value of deferred tax assets to carrying value. In that event, we recognize a loss based on the amount by which
their realizable amount. Such adjustments could be material to our consolidated the carrying value exceeds the fair value of the long-lived asset. We determine fair
financial statements. value primarily using the estimated future cash flows associated with the asset under
In addition, the recognition of a tax benefit for tax positions involves dealing review, discounted at a rate commensurate with the risk involved, and other
with uncertainties in the application of complex tax regulations. Judgment is valuation techniques. We determine losses on long-lived assets to be disposed of in
required in assessing the future tax consequences of events that have been a similar manner, except that we reduce the fair value for the cost of disposal.
recognized in our financial statements or tax returns. We provide for taxes for Changes in estimates of future cash flows could result in a write-down of the asset
uncertain tax positions where assessments have not been received. We believe such in a future period.
tax reserves are adequate in relation to the potential for additional assessments.
Valuation of Goodwill and Intangible Assets with Indefinite Lives. We evaluate
Once established, we adjust these amounts only when more information is available
the carrying value of goodwill and intangible assets with indefinite lives annually in
or when an event occurs necessitating a change to the reserves. Future events such
the fourth quarter or more frequently when events and circumstances change that
as changes in the facts or law, judicial decisions regarding the application of existing
would more likely than not result in an impairment loss. We completed our annual
law or a favorable audit outcome will result in changes to the amounts provided.
impairment testing during the fourth quarter of 2011, and determined that there
Contingent Matters. Determining when, or if, an accrual should be recorded was no impairment of goodwill or intangible assets with indefinite lives. As of
for a contingent matter, including but not limited to legal and tax issues, and the December 31, 2011, the fair value of each reporting unit and our intangible assets
amount of such accrual, if any, requires a significant amount of management with indefinite lives significantly exceed their carrying values. See Note 7 of the
judgment and estimation. We develop our judgments and estimates in consultation Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual
with outside counsel based on an analysis of potential outcomes. Due to the Report, which we incorporate herein by reference.
uncertainty of determining the likelihood of a future event occurring and the The goodwill evaluation requires the estimation of the fair value of reporting
potential financial statement impact of such an event, it is possible that upon units where we record goodwill. We determine fair values primarily using estimated
further development or resolution of a contingent matter, we could record a charge cash flows discounted at a rate commensurate with the risk involved, when
in a future period that would be material to our consolidated financial statements. appropriate. Estimation of future cash flows requires significant judgment about
Depreciable Lives of Leased Set-Top Receivers. We currently lease most set-top future operating results, and can vary significantly from one evaluation to the next.
receivers provided to new and existing subscribers and therefore capitalize the cost Risk adjusted discount rates are not fixed and are subject to change over time. As a
of those set-top receivers. We depreciate set-top receivers at DIRECTV U.S. over a result, changes in estimated future cash flows and/or changes in discount rates
three to four year estimated useful life, which is based on, among other things,
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