Rogers 2006 Annual Report Download - page 66

62 ROG ERS CO MMU N ICAT ION S IN C . 20 0 6 ANN UA L RE PORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
subsidies related to new and existing subscribers are recorded as a
reduction of equipment revenues;
• Installation fees and activation fees charged to subscribers do not
meet the criteria as a separate unit of accounting. As a result, in
Wireless, these fees are recorded as part of equipment revenue
or, in the case of Cable and Telecom, are deferred and amortized
over the related service period. The related service period for
Cable and Telecom ranges from 26 to 48 months, based on sub-
scriber disconnects, transfers of service and moves. Incremental
direct installation costs related to re-connects are deferred to the
extent of deferred installation fees and amortized over the same
period as these related installation fees. New connect installation
costs are capitalized to PP&E and amortized over the useful life of
the related assets;
• Advertising revenue is recorded in the period the advertising airs
on the Company’s radio or television stations and the period in
which advertising is featured in the Company’s media publications;
• Monthly subscription revenues received by television stations for
subscriptions from cable and satellite providers are recorded in
the month in which they are earned;
• Blue Jays’ revenue from home game admission and concessions is
recognized as the related games are played during the baseball
regular season. Revenue from radio and television agreements is
recorded at the time the related games are aired. The Blue Jays
also receive revenue from the Major League Baseball Revenue
Sharing Agreement which distributes funds to and from member
clubs, based on each club’s revenues. This revenue is recognized
in the season in which it is earned, when the amount is estimable
and collectibility is reasonably assured; and
• Multi-product discounts incurred as Wireless, Cable and Telecom
and Media products and services provided are charged directly to
the revenue for the products and services to which they relate.
We offer certain products and services as part of multiple deliverable
arrangements. We divide multiple deliverable arrangements into
separate units of accounting. Components of multiple deliverable
arrangements are separately accounted for provided the delivered
elements have stand-alone value to the customers and the fair value
of any undelivered elements can be objectively and reliably deter-
mined. Consideration for these units is measured and allocated
amongst the accounting units based upon their fair values and our
relevant revenue recognition policies are applied to them. We rec-
ognize revenue once persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, fees are fixed
and determinable and collectibility is reasonably assured.
Unearned revenue includes subscriber deposits, installation fees and
amounts received from subscribers related to services and subscrip-
tions to be provided in future periods.
Subscriber Acquisition and Retention Costs
We operate within a highly-competitive industry and generally incur
significant costs to attract new subscribers and retain existing sub-
scribers. All sales and marketing expenditures related to subscriber
acquisitions, retention and contract renewals, such as commissions,
and the cost associated with the sale of customer premises equip-
ment, are expensed as incurred.
A large percentage of the subscriber acquisition and retention costs,
such as equipment subsidies and commissions, are variable in nature
and directly related to the acquisition or renewal of a subscriber.
In addition, subscriber acquisition and retention costs on a per sub-
scriber acquired basis fluctuate based on the success of promotional
activity and the seasonality of the business. Accordingly, if we expe-
rience significant growth in subscriber activations or renewals during
a period, expenses for that period will increase.
Capitalization of Direct Labour and Overhead
During construction of new assets, direct costs plus a portion of
applicable overhead costs are capitalized. Repairs and maintenance
expenditures are charged to operating expenses as incurred.
CRITICAL ACCOUNTING ESTIMATES
This MD&A has been prepared with reference to our 2006 Audited
Consolidated Financial Statements and Notes thereto, which have
been prepared in accordance with Canadian GAAP. The preparation
of these financial statements requires management to make esti-
mates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and the related disclosure of
contingent assets and liabilities. These estimates are based on man-
agement’s historical experience and various other assumptions that
are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the reported
amounts of assets, liabilities, revenue and expenses that are not
readily apparent from other sources. Actual results could differ from
those estimates. We believe that the accounting estimates discussed
below are critical to our business operations and an understanding
of our results of operations or may involve additional management
judgment due to the sensitivity of the methods and assumptions
necessary in determining the related asset, liability, revenue and
expense amounts.
Purchase Price Allocations
During 2005, we acquired Call-Net Enterprises Inc. and the Rogers
Centre. The allocations of the purchase prices for these transac-
tions involved considerable judgment in determining the fair values
assigned to the tangible and intangible assets acquired and the
liabilities assumed on acquisition. Among other things, the deter-
mination of these fair values involved the use of discounted cash
flow analyses, estimated future margins, estimated future subscrib-
ers, estimated future royalty rates, the use of information available
in the financial markets and estimates as to costs to close duplicate
facilities and buy out certain contracts. Refer to Note 4 of the 2006
Audited Consolidated Financial Statements for certain updates made
during 2006 to the purchase price allocations. Should actual rates,
cash flows, costs and other items differ from our estimates, this may
necessitate revisions to the carrying value of the related assets and
liabilities acquired, including revisions that may impact net income
in future periods.
Useful Lives of PP&E
We depreciate the cost of PP&E over their respective estimated
useful lives. These estimates of useful lives involve considerable
judgment. In determining the estimates of these useful lives, we
take into account industry trends and company-specific factors,
including changing technologies and expectations for the in-service