Shaw 2010 Annual Report Download - page 32

rights to ensure testing is performed at the appropriate level. The Company has identified two
reporting units that have remained unchanged for a period exceeding 5 years:
kCable systems
kDTH and satellite services
During 2010 the Company commenced wireless activities and identified this as a separate
reporting unit. AWS licenses are required to operate a wireless system in Canada. The AWS
licenses have indefinite lives and are subject to an annual review for impairment by comparing
the estimated fair value to the carrying amount.
Other intangibles mainly include software that is not an integral part of the related hardware. Other
intangibles are amortized on a straight line basis over their estimated useful lives ranging from four
to ten years.
vii) Asset impairment
Goodwill impairment is determined using a two-step process. The first step involves a comparison of
the estimated fair value of the reporting unit to its carrying amount, including goodwill. If the fair
value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not
impaired, thus the second step of the impairment test is unnecessary. If the carrying amount of the
reporting unit exceeds its fair value, the second step of the impairment test is performed to measure
the amount of the impairment loss.
The impairment test for other intangible assets not subject to amortization involves a comparison of
the estimated fair value of the intangible asset with its carrying value. The Company estimates the
fair value of intangible assets not subject to amortization using a discounted cash flow (“DCF”)
analysis. Significant judgements are inherent in this analysis including estimating the amount and
timing of the cash flows attributable to the broadcast rights and the AWS licenses, the selection of
an appropriate discount rate, and the identification of appropriate terminal growth rate
assumptions. In this analysis the Company estimates the discrete future cash flows associated
with the intangible asset for 5 years and determines a terminal value. The future cash flows are
based on the Company’s estimates of future operating results, economic conditions and the
competitive environment. The terminal value is estimated using both a perpetuity growth
assumption and a multiple of service operating income before amortization. The discount rates
used in the analysis are based on the Company’s weighted average cost of capital and an
assessment of the risk inherent in the projected cash flows. In analyzing the fair value determined
by the DCF analysis the Company also considers a market approach determining a fair value for each
unit and total entity value determined using a market capitalization approach.
The Company tests goodwill and indefinite-lived intangible assets for impairment annually during
the third quarter, or more frequently if events or changes in circumstances warrant. The Company
performed an interim impairment test in December 2008 due to continued changes in economic
conditions and prompted by impairments of goodwill and intangible assets in the global
telecommunications industry, in addition to the annual impairment test as at March 1, 2009.
The prior year impairment tests indicated that the estimated fair value of the Cable systems
reporting unit and DTH and Satellite services unit exceeded their carrying value by a significant
amount and no impairment had occurred. The annual impairment test for the current year was
conducted as at March 1, 2010 and the fair value of the reporting units continued to exceed their
carrying value by a significant amount. The Company also conducted an impairment test on its
wireless assets utilizing the Greenfield Approach as at March 1, 2010. The fair value of the wireless
assets exceeded their carrying amount. A hypothetical decline of 10% and 20% in the fair value of
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Shaw Communications Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
August 31, 2010