Rogers 2007 Annual Report Download - page 67

ROGERS COMMUNICATIONS INC. 2007 ANNUAL REPORT 63
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 esti-
mates discussed below are critical to our business operations and
an understanding of our results of operations or may involve addi-
tional management judgment due to the sensitivity of the methods
and assumptions necessary in determining the related asset, liabil-
ity, revenue and expense amounts.
Purchase Price Allocations
The allocations of the purchase prices for our acquisitions involves
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 determination of
these fair values involved the use of discounted cash flow analyses,
estimated future margins, estimated future subscribers, 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 2007 Audited
Consolidated Financial Statements for acquisitions made during
2007. 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 revi-
sions 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
period of certain assets. On an annual basis, we re-assess our exist-
ing estimates of useful lives to ensure they match the anticipated
life of the technology from a revenue-producing perspective. If
technological change happens more quickly or in a different way
than anticipated, we might have to reduce the estimated life of
PP&E, which could result in a higher depreciation expense in future
periods or an impairment charge to write down the value of PP&E.
Capitalization of Direct Labour and Overhead
Certain direct labour and indirect costs associated with the acqui-
sition, construction, development or betterment of our networks
are capitalized to PP&E. The capitalized amounts are calculated
based on estimated costs of projects that are capital in nature, and
are generally based on a rate per hour. Although interest costs are
permitted to be capitalized during construction under Canadian
GAAP, it is our policy not to capitalize interest.
Accrued Liabilities
The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts
of accrued liabilities at the date of the financial statements and the
reported amounts expensed during the year. Actual results could
differ from those estimates.
Amortization of Intangible Assets
We amortize the cost of finite-lived intangible assets over their
estimated useful lives. These estimates of useful lives involve con-
siderable judgment. During 2004 and 2005, the acquisitions of Fido,
Call-Net, the minority interests in Wireless and Sportsnet together
with the consolidation of the Blue Jays, as well as the acquisitions
of Futureway and Citytv in 2007, resulted in significant increases to
our intangible asset balances. Judgement is also involved in deter-
mining that spectrum and broadcast licences have indefinite lives,
and are therefore not amortized.
The determination of the estimated useful lives of brand names
involves historical experience, marketing considerations and the
nature of the industries in which we operate. The useful lives of
subscriber bases are based on the historical churn rates of the
underlying subscribers and judgments as to the applicability of
these rates going forward. The useful lives of roaming agreements
are based on estimates of the useful lives of the related network
equipment. The useful lives of wholesale agreements and dealer
networks are based on the underlying contractual lives. The use-
ful life of the marketing agreement is based on historical customer
lives. The determination of the estimated useful lives of intangible
assets impacts amortization expense in the current period as well
as future periods. The impact on net income on a full-year basis
of changing the useful lives of the finite-lived assets by one year is
shown in the chart below.
Impact of Changes in Estimated Useful Lives
Amortization Increase in Net Income Decrease in Net Income
(In millions of dollars) Period if Life Increased by 1 year if Life Decreased by 1 year
Brand names
Rogers 20.0 years $ 1 $ (1)
Fido 5.0 years $ 3 $ (5)
Subscriber base
Rogers 4.6 years $ 30 $ (54)
Fido 2.3 years $ 23 $ (61)
Cable 3.0 years $ 1 $ (1)
Roaming agreements 12.0 years $ 3 $ (4)
Dealer network
Rogers 4.0 years $ 1 $ (2)
Fido 4.0 years $ 1 $ (1)
Wholesale agreements 3.2 years $ 1 $ (2)
Marketing agreement 5.0 years $ 1 $ (1)