Cogeco 2010 Annual Report Download - page 57

56 COGECO CABLE INC. 2010 Consolidated Financial Statements
6. Reduction of withholding and stamp tax contingent liabilities
At the date of acquisition, 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 that date, 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
2010 2009
(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 Portugal 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 applicable 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 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 of fiscal 2009. 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 flows to be generated by the asset or group of assets. The impairment loss
is measured as the amount by which the asset or group of assets’ 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
exceeded its fair value. As a result, an impairment loss of $60.4 million was recorded in the second quarter of fiscal 2009.
At August 31, 2010 and 2009, the Corporation tested the value of goodwill for impairment and concluded that no impairment existed.
8. Income taxes
2010 2009
(in thousands of dollars) $ $
(restated)
Current (40,859) 53,913
Future 69,877 2,887
29,018 56,800