DIRECTV 2012 Annual Report Download - page 77

DIRECTV
potential financial statement impact of such an event, it is possible that upon The goodwill evaluation requires the estimation of the fair value of reporting
further development or resolution of a contingent matter, we could record a charge units where we record goodwill. We determine fair values primarily using estimated
in a future period that would be material to our consolidated financial statements. cash flows discounted at a rate commensurate with the risk involved, when
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, could result in a write-down of goodwill or intangible assets with indefinite lives in
management’s judgment of the risk of technological obsolescence. Changes in the a future period which could be material to our consolidated financial statements.
estimated useful lives of set-top receivers capitalized could result in significant
changes to the amounts recorded as depreciation expense. If we extended the ACCOUNTING CHANGES
depreciable life of the set-top receivers at DIRECTV U.S. by one year, it would
For a discussion of accounting changes see Note 3 of the Notes to the
result in an approximately $240 million reduction in annual depreciation expense.
Consolidated Financial Statements in Part II, Item 8 of this Annual Report.
Valuation of Long-Lived Assets. We evaluate the carrying value of long-lived
assets to be held and used, other than goodwill and intangible assets with indefinite ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
lives, when events and circumstances warrant such a review. We consider the MARKET RISK
carrying value of a long-lived asset impaired when the anticipated undiscounted The following discussion and the estimated amounts generated from the
future cash flow from such asset is separately identifiable and is less than its sensitivity analyses referred to below include forward-looking statements of market
carrying value. In that event, we recognize a loss based on the amount by which risk which assume for analytical purposes that certain adverse market conditions
the carrying value exceeds the fair value of the long-lived asset. We determine fair may occur. Actual future market conditions may differ materially from such
value primarily using the estimated future cash flows associated with the asset under assumptions and the amounts noted below are the result of analyses used for the
review, discounted at a rate commensurate with the risk involved, and other purpose of assessing possible risks and the mitigation thereof. Accordingly, you
valuation techniques. We determine losses on long-lived assets to be disposed of in should not consider the forward-looking statements as our projections of future
a similar manner, except that we reduce the fair value for the cost of disposal. events or losses.
Changes in estimates of future cash flows could result in a write-down of the asset
in a future period. General
Valuation of Goodwill and Intangible Assets with Indefinite Lives. We evaluate Our cash flows and earnings are subject to fluctuations resulting from changes
the carrying value of goodwill and intangible assets with indefinite lives annually in in foreign currency exchange rates, interest rates and changes in the market value of
the fourth quarter or more frequently when events and circumstances change that our equity investments. We manage our exposure to these market risks through
would more likely than not result in an impairment loss. We completed our annual internally established policies and procedures and, when deemed appropriate,
impairment testing during the fourth quarter of 2012, and determined that there through the use of derivative financial instruments. We enter into derivative
was no impairment of goodwill or intangible assets with indefinite lives. As of instruments only to the extent considered necessary to meet our risk management
December 31, 2012, the fair value of each reporting unit and our intangible assets objectives, and do not enter into derivative contracts for speculative purposes.
with indefinite lives significantly exceed their carrying values. See Note 7 of the
Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual
Report.
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