Rogers 2008 Annual Report Download - page 73

ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 69
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 finan-
cial markets and estimates as to costs to close duplicate facilities
and buy out certain contracts. Refer to Note 4 of the 2008 Audited
Consolidated Financial Statements for acquisitions made during
2008. 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-ser-
vice period of certain assets. On an annual basis, we re-assess our
existing estimates of useful lives to ensure they match the antici-
pated 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, and Aurora Cable and channel m
in 2008, resulted in significant increases to our intangible asset bal-
ances. Judgement is also involved in determining that spectrum
and broadcast licences have indefinite lives, and are therefore not
amortized.
applied to them. We recognize revenue once persuasive evidence of
an arrangement exists, delivery has occurred or services have been
rendered, fees are fixed and determinable and collectibility is rea-
sonably assured.
Unearned revenue includes subscriber deposits, installation fees
and amounts received from subscribers related to services and sub-
scriptions 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 exist-
ing subscribers. 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 equipment, 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 sub-
scriber. In addition, subscriber acquisition and retention costs on a
per subscriber acquired basis fluctuate based on the success of pro-
motional activity and the seasonality of the business. Accordingly,
if we experience 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 2008 Audited
Consolidated Financial Statements and Notes thereto, which have
been prepared in accordance with Canadian GAAP. The prepara-
tion of these financial statements requires management to make
estimates 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
management’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 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.