Virgin Media 2006 Annual Report Download - page 55

financial statement item to which these policies relate, or because these policies require more judgment and estimation than other
matters owing to the uncertainty related to measuring, at a specific point in time, transactions that are continuous in nature.
These policies may need to be revised in the future in the event that changes to our business occur.
Business Combinations
We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities
assumed based on their fair values. We engage third party appraisal firms to assist us in determining the fair values of assets acquired
and liabilities assumed. Such a valuation requires management to make significant estimates and assumptions, especially with respect
to intangible assets.
Critical estimates in valuing certain of the intangible assets include but are not limited to: future expected cash flows from
customer contracts and customer lists; the trademark’s brand awareness and market position, as well as assumptions about the period
of time the brand will continue to be used in the combined company’s product portfolio; and discount rates. Management’s
assumptions about fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and
unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur, which may
affect management’s estimates.
Other estimates associated with the accounting for these acquisitions may change as additional information becomes available
regarding the assets acquired and liabilities assumed. In particular, liabilities in relation to tax exposures or liabilities to restructure the
pre−acquisition businesses of NTL, Telewest and Virgin Mobile, including the exit of properties and termination of employees, are
subject to change as management completes its assessment of pre−merger operations and begins to execute the approved plan for the
integration of the three companies.
Impairment of Long−Lived Assets and Indefinite−Lived Assets
Long−lived assets and certain identifiable intangibles (intangible assets that do not have indefinite lives) to be held and used by
an entity are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Indications of impairment are determined by reviewing undiscounted projected future cash flows. If impairment is
indicated, the amount of the impairment is the amount by which the carrying value exceeds the fair value of the assets.
Goodwill arising from business combinations, reorganization value in excess of amounts allocable to identifiable assets and
intangible assets with indefinite lives are subject to annual review for impairment (or more frequently should indications of
impairment arise). Impairment of goodwill and reorganization value in excess of amounts allocable to identifiable assets is determined
using a two−step approach, initially based on a comparison of the reporting unit’s fair value to its carrying value; if the fair value is
lower than the carrying value, then the second step compares the asset’s fair value (implied fair value for goodwill and reorganization
value in excess of amounts allocable to identifiable assets) with its carrying value to measure the amount of the impairment.
Impairment of intangible assets with indefinite lives is determined based on a comparison of fair value to carrying value. Any excess
of carrying value over fair value is recognized as an impairment loss. We evaluate our cable reporting unit for impairment on an
annual basis as at December 31, while all other reporting units are evaluated as at June 30. In the future, we may incur impairment
charges under SFAS No. 142 if market values decline and we do not achieve expected cash flow growth rates.
Estimated fair market value is generally measured by discounting estimated future cash flows. Considerable management
judgment is necessary to estimate discounted future cash flows and those
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Source: VIRGIN MEDIA INVESTM, 10−K, March 01, 2007