Telus 2011 Annual Report Download - page 151

TELUS 2011 ANNUAL REPORT . 147
FINANCIAL STATEMENTS & NOTES: 16
(b) Intangible assets subject to amortization
Estimated aggregate amortization expense for intangible assets subject
to amortization, calculated for such assets held as at December 31, 2011,
for each of the next five fiscal years is as follows:
Years ending December 31 (millions)
2012 $ß406
2013 248
2014 104
2015 44
2016 32
(c) Intangible assets with indefinite lives –
spectrum licences
The Company’s intangible assets with indefinite lives include spectrum
licences granted by Industry Canada. Industry Canada’s spectrum
licence policy terms indicate that the spectrum licences will likely be
renewed. The Company’s spectrum licences are expected to be renewed
every 20 years (December 31, 2010 – every 5 years or every 10 years;
January 1, 2010 – every 5 years or every 10 years) following a review by
Industry Canada of the Company’s compliance with licence terms.
In addition to current usage, the Company’s licensed spectrum can be
used for planned and new technologies. As a result of the combination
of these significant factors, the Company’s spectrum licences are
currently considered to have indefinite lives.
(d) Impairment testing of intangible assets with indefinite lives and goodwill
As referred to in Note 1(j), the carrying values of intangible assets with indefinite lives and goodwill are periodically tested for impairment and this test
represents a significant estimate for the Company.
The carrying amounts of intangible assets with indefinite lives and goodwill allocated to each cash-generating unit are as set out in the following table.
Intangible assets with indefinite lives Goodwill Total
Dec. 31, Dec. 31, Jan. 1, Dec. 31, Dec. 31, Jan. 1, Dec. 31, Dec. 31, Jan. 1,
As at (millions) 2 0 11 2010 2010 2 0 11 2010 2010 2 0 11 2010 2010
(adjusted – (Note 25(d))
Note 25(d))
Wireless $ß4,874 $ß4,874 $ß4,874 $ß2,644 $ß2,606 $ß2,606 $ß7,518 $ß7,480 $ß7,480
Wireline – – – 1,017 966 966 1,017 966 966
$ß4,874 $ß4,874 $ß4,874 $ß3,661 $ß3,572 $ß3,572 $ß8,535 $ß8,446 $ß8,446
The recoverable amounts of the cash-generating units’ assets have
been determined based on a value in use calculation. There is a material
degree of uncertainty with respect to the estimates of the recoverable
amounts of the cash-generating units’ assets given the necessity of
making key economic assumptions about the future. The value in use
calculation uses discounted cash flow projections which employ the
following key assumptions: future cash flows and growth projections,
including economic risk assumptions and estimates of achieving key
operating metrics and drivers; the future weighted average cost of capital;
and earnings multiples. The Company considers a range of reasonably
possible amounts to use for key assumptions and decides upon amounts
that represent management’s best estimates. In the normal course,
changes are made to key assumptions to reflect current (at time of test)
economic conditions, updating of historical information used to develop
the key assumptions and changes in the Company’s debt ratings.
The cash flow projection key assumptions are based upon the
Company’s approved financial forecasts which span a period of three
years and are discounted, for December 2011 annual test purposes,
at a consolidated pre-tax notional rate of 9.39% (December 2010 – 9.49%;
January 1, 2010 – 8.89%). For impairment testing valuation purposes,
the cash flows subsequent to the three-year projection period are
extrapolated, for December 2011 annual test purposes, using perpetual
growth rates of 1.75% (December 2010 – 1.75%; January 1, 2010 – 1.75%)
for the wireless cash-generating unit and zero (December 2010 – zero;
January 1, 2010 – zero) for the wireline cash-generating unit; these
growth rates do not exceed the observed long-term average growth
rates for the markets in which the Company operates.
The Company validates its value in use results through the use
of the market-comparable approach and analytical review of industry
and Company-specific facts. The market-comparable approach uses
current (at the time of test) market consensus estimates and equity
trading prices for U.S. and Canadian firms in the same industry. In
addition, the Company ensures that the combination of the valuations
of the cash-generating units is reasonable based on current market
values of the Company.
The Company believes that any reasonably possible change in the
key assumptions on which its cash-generating units recoverable amounts
are based would not cause the cash-generating units’ carrying amounts
(including the intangible assets with indefinite lives and the goodwill
allocated to the cash-generating unit) to exceed their recoverable
amounts. If the future were to adversely differ from management’s best
estimate of key assumptions and associated cash flows were to be
materially adversely affected, the Company could potentially experience
future material impairment charges in respect of its intangible assets
with indefinite lives and goodwill.
Sensitivity testing was conducted as a part of the December 2011
annual test. A component of the sensitivity testing was a break-even
analysis. Stress testing included moderate declines in annual cash
flows with all other assumptions being held constant; this too resulted
in the Company continuing to be able to recover the carrying value
of its intan gible assets with indefinite lives and goodwill for the fore-
seeable future.