Question

1. Intangible Assets

Use the note below from DirecTV’s 2012 annual report to answer the questions.

1. Why does DirecTV not amortize its orbital slots?
2. Did DirectTV record any impairment of their intangibles for the period ending 12/31/2012 and 12/31/2011? If yes, how much was the impairment and what types of the intangibles were impaired? If no, why not?
3. Assume that DirectTV recognized $20 million impairment charge for its intangibles for the period ending 12/31/2012 (Ignore the actual footnote for this question). How does the impairment charge affect DirectTV’s operating cash flows for the period?
4. Based on the value of Trade names and other, did DirecTV acquire another company during 2012? Justify your answer.
   A. Intangible Assets Use the note below from DirecTV's 2012 annual report to answer the questions. The following table sets forth the components for "Intangible assets, net” in the Consolidated Balance Sheets as of: December 31, 2012 December 31, 2011 Estimated Useful Lives years) $ Gross Accumulated Net Gross Accumulated Net Amount Amortization Amount Amount Amortization Amount (Dollars in Millions $ 432 $- 5432 $ 432 $432 19 82 110 12 383 371 130 117 - Indefinite 15 -10 15 101 98 Orbital slots ...... Satellite rights .... Subscriber related ... Dealer network....... Trade name and other ... Distribution agreements.. Total intangible assets ... 402 353 108 208 $1,428 $1,441 5532 Amortization expense of intangible assets was $95 million in 2012, $136 million in 2011 and $190 million in 2010. Estimated amortization expense for intangible assets in each of the next five years and thereafter is as follows: $58 million in 2013, $50 million in 2014, $45 million in 2015, $24 million in 2016, $24 million in 2017 and $199 million thereafter. We performed our annual impairment tests for goodwill and orbital slots in the fourth quarters of 2012, 2011 and 2010. The estimated fair values for each reporting unit and the orbital slots exceeded our carrying values, and accordingly, no impairment losses were recorded during 2012, 2011 or 2010. Additionally, there are no accumulated impairment losses as of December 31, 2012 and 2011. a. Why does DirecTV not amortize its orbital slots? b. Did DirectTV record any impairment of their intangibles for the period ending 12/31/2012 and 12/31/2011? If yes, how much was the impairment and what types of the intangibles were impaired? If no, why not? Assume that DirectTV recognized $20 million impairment charge for its intangibles for the period ending 12/31/2012 (Ignore the actual footnote for this question). How does the impairment charge affect DirectTV's operating cash flows for the period? Based on the value of Trade names and other, did DirecTV acquire another company during 2012? Justify your answer.
   

Answer 1

a. Why does DirectTv not amotrise its orbital slots ?

IAS28 provides guidance that intangible asset with a indefinite useful life shall not be amortized.

In line of above guidance Direct TV does not amortize its orbits cost since it has infinite life.

b) Did Direct TV record any impairment of their intangibles for the period ending 31/12/2012 & 31/12/2011 ? If yes how much was the impairment and what types of intangibles were impaired. If no why not ?

The Gross value of Asset in 2012 as compared to 2011 shows decline in respect of satellite rights for $9M and subscriber right for $19M which indicate that there is impairment with assumption that there is no sales & revaluation impact. In respect of other intangible the gross block in 2012 is either constant and increased hence no impairment would have been carried out for them

c) Impairment impact on operating cash flow :

Operating cash flow would not have impact of impairment since impairment is non cash expenses

d) Based on the value of Trade names and other, did Direct TV acquire another company during 2012 ?

The gross block of trade name increases by $15M which indicates that there is acquisition of asset with a assumption that the increase in value is not due to revaluation.