Rogers 2011 Annual Report Download - page 70

MANAGEMENT’S DISCUSSION AND ANALYSIS
• Awards granted to customers through customer loyalty programs
are considered a separately identifiable component of the sale
transactions and, as a result, are deferred until recognized as
operating revenue when the awards are redeemed by the
customer.
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
determined. 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
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 reasonably assured.
Unearned revenue includes subscriber deposits, installation fees and
amounts received from subscribers related to services and
subscriptions 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
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 subscriber. In
addition, subscriber acquisition and retention costs on a
per-subscriber-acquired basis fluctuate based on the success of
promotional 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, Overhead, and Interest
During construction of new assets, direct costs plus a portion of
applicable overhead and interest 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 2011 Audited
Consolidated Financial Statements and Notes thereto, which have
been prepared in accordance with IFRS. The preparation 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 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.
Determining the Fair Values of Assets Acquired and Liabilities
Assumed
The determination of the fair values of the tangible and intangible
assets acquired and the liabilities assumed in an acquisition involves
considerable judgment. Among other things, the determination of
these fair values involves the use of discounted cash flow analyses,
estimated future margins, estimated future subscribers, estimated
future royalty rates and the use of information available in the
financial markets. Refer to Note 7 of the 2011 Audited Consolidated
Financial Statements for acquisitions made during 2011. 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 period of certain
assets. On an annual basis, we re-assess our existing 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, Overhead, and Interest
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. In addition, interest costs are
capitalized during construction and development of certain PP&E.
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.
Onerous Contracts
A provision for onerous contracts is recognized when the unavoidable
costs of meeting the obligation under the contract exceed the
expected benefits to be derived by the Company. The provision is
measured at the present value of the lower of the expected cost of
terminating the contract and the expected net cost of continuing
with the contract. Before a provision is established, we recognize any
impairment loss on the assets associated with the contract.
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, Aurora Cable and
channel m in 2008, K-Rock and Outdoor Life Network in 2009, Blink,
Cityfone, Kincardine and BV! Media in 2010, and Atria, Compton,
BOUNCE-FM and BOB-FM in 2011 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.
66 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT