Cogeco 2009 Annual Report Download - page 63

62 COGECO CABLE INC. 2009 Consolidated financial statements
5. FINANCIAL EXPENSE
2009 2008
(in thousands of dollars) $ $
INTEREST ON LONG-TERM DEBT 67,842 68,304
FOREIGN EXCHANGE LOSSES 497 28
AMORTIZATION OF DEFERRED TRANSACTION COSTS 1,629 1,629
OTHER (259) (822)
69,709 69,139
6. REDUCTION OF WITHHOLDING AND STAMP TAX CONTINGENT LIABILITIES
The Corporation’s Portuguese subsidiary, Cabovisão – Televisão por Cabo, S.A. (“Cabovisão”), recorded contingent liabilities for
withholding and stamp taxes relating to fiscal years prior to its acquisition by the Corporation. At the date of acquisition, the amount
accrued represented management’s best estimate based on the information available at that time. Management reviews its
estimates periodically to take into consideration payments made relating to these contingencies as well as newly available
information which would allow the Corporation to improve its previous estimate. During fiscal 2009, Cabovisão received reports from
the Portuguese tax authorities with respect to some of the items included in the contingent liabilities. Accordingly, management has
revised its estimate of the contingent liabilities to reflect the new information available in these reports, and has determined that a
reduction of €10.3 million, equivalent to $16.1 million, of the amounts previously accrued was required in order to reflect
management’s best estimate.
7. IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS
2009 2008
(in thousands of dollars) $ $
IMPAIRMENT OF GOODWILL
339,206
–
IMPAIRMENT OF INTANGIBLE ASSETS
60,442
–
399,648
–
During the second quarter of fiscal 2009, the competitive position of Cabovisão in the Iberian Peninsula further deteriorated due to
the continuing difficult competitive environment and recurring intense promotions and advertising initiatives from competitors in the
Portuguese market. In accordance with current accounting standards, management considered that the continued customer, local
currency revenue and operating income before amortization decline were more severe and persistent than expected, resulting in a
decrease in the value of the Corporation’s investment in the Portuguese subsidiary. As a result, the Corporation tested goodwill and
all long-lived assets for impairment at February 28, 2009.
Goodwill is tested for impairment using a two step approach. The first step consists of determining whether the fair value of the
reporting unit to which goodwill is assigned exceeds the net carrying amount of that reporting unit, including goodwill. In the event
that the net carrying amount exceeds the fair value, a second step is performed in order to determine the amount of the impairment
loss. The impairment loss is measured as the amount by which the carrying amount of the reporting unit’s goodwill exceeds its fair
value. The Corporation completed its impairment tests on goodwill and concluded that goodwill was impaired at February 28, 2009.
As a result, an impairment loss of $339.2 million was recorded in the second quarter. Fair value of the reporting unit was determined
using the discounted cash flow method. Future cash flows were based on internal forecasts and consequently, considerable
management judgement was necessary to estimate future cash flows. Significant future changes in circumstances could result in
further impairments of goodwill.
Intangible assets with finite useful lives, such as customer relationships, must be tested for impairment by comparing the carrying
amount of the asset or group of assets to the expected future undiscounted cash flow to be generated by the asset or group of
assets. The impairment loss is measured as the amount by which the asset’s carrying amount exceeds its fair value. Accordingly,
the Corporation completed its impairment test on customer relationships at February 28, 2009, and determined that the carrying
value of customer relationships exceeds its fair value. As a result, an impairment loss of $60.4 million was recorded in the second
quarter.
At August 31, 2009, the Corporation tested the value of goodwill for impairment and concluded that no impairment existed.