Rogers 2009 Annual Report Download - page 64

68 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capitalization of Direct Labour and Overhead
Certain direct labour and indirect costs associated with the
acquisition, 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
considerable 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 balances. Judgment is also involved in determining 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 useful
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 intangible assets by one
year is shown in the chart below.
Impact of Changes in Estimated Useful Lives
(In millions of dollars)
Amorization
Period
Increase in Net Income
if Life Increased by 1 year
Decrease in Net Income
if Life Decreased by 1 year
Brand names
Rogers 20.0 years $ 1 $ (1)
Fido 5.0 years $ 3 $ (5)
Citytv 5.0 years $ 0 $ (1)
Subscriber base
Rogers 4.7 years $ 30 $ (46)
Cable 3.0 years $ 2 $ (3)
Roaming agreements 12.0 years $ 3 $ (4)
Marketing agreement 5.0 years $ 2 $ (3)
Impairment of Goodwill, Indefinite-Lived Intangible Assets
and Long-Lived Assets
Indefinite-lived intangible assets, including goodwill and spectrum/
broadcast licences, as well as long-lived assets, including PP&E and
other intangible assets, are assessed for impairment on at least
an annual basis or more often if events or circumstances warrant.
These impairment tests involve the use of both undiscounted
and discounted net cash flow analyses to assess the recoverability
of the carrying value of these assets and the fair value of both
indefinite-lived and long-lived assets, if applicable. These analyses
involve estimates of future cash flows, estimated periods of use and
applicable discount rates. During 2009, we recorded an impairment
charge of $18 million related to certain of our broadcast assets, and
during 2008, we recorded an impairment charge of $294 million
relating to our conventional television business. These impairments
resulted from challenging economic conditions and weakening
industry expectations in the conventional television business and a
decline in advertising revenues.
Income Tax Estimates
We use judgment in the estimation of income taxes and future
income tax assets and liabilities. In the preparation of our
Consolidated Financial Statements, we are required to estimate
income taxes in each of the jurisdictions in which we operate.
This involves estimating actual current tax expense, together
with assessing temporary differences that result from differing
treatments in items for accounting purposes versus tax purposes,
and in estimating the recoverability of the benefits arising from tax
loss carryforwards. We are required to assess whether it is more
likely than not that future income tax assets will be realized prior
to the expiration of the related tax loss carryforwards. Judgment
is required to determine if a valuation allowance is needed against
either all or a portion of our future income tax assets. Various
considerations are reflected in this judgment, including future
profitability of related companies, tax planning strategies that
are being implemented or could be implemented to recognize the
benefits of these tax assets, as well as the expiration of the tax loss
carryforwards. Judgments and estimates made to assess the tax