- 1. Operations
- 2. Description of the Significant Accounting Policies
- 3. Transition to IFRS
- 4. Business combinations
- 5. Net Sales
- 6. Cost of services rendered
- 7. Finance results
- 8. Expenses by nature
- 9. Cash and cash equivalents
- 10. Trade accounts receivable
- 11. Inventories
- 12. Judicial deposits
- 13. Income taxes and social contribution
- 14. Deferred and recoverable taxes
- 15. Property and Equipment
- 16. Intangible assets
- 17. Trade Accounts Payable
- 18. Accounts Payable – Programming Suppliers
- 19. Financial liabilities
- 20. Copyright Payable – ECAD
- 21. Related parties
- 22. Commitments and provisions
- 23. Shareholders’ equity
- 24. Guarantees
- 25. Earnings per Share
- 26. Financial Instruments
- 27. Measurement and fair value hierarchy
- 28. Insurance
| Cost | Indefinite useful life  |
Finite useful life |
||||
|---|---|---|---|---|---|---|
| Goodwill | Licenses | Software | Customer Portfolio |
Other | Total | |
| Balances on January 1st, 2008 | 1,626,708 | 313,193 | 282,252 | 273,000 | 8,107 | 2,503,260 |
| Additions | 276,855 | 94,602 | 80,100 | 16,223 | - | 467,780 |
| Additions – acquisitions of companies | - | - | 65 | - | - | 65 |
| Write-offs | - | - | (201) | - | - | (201) |
| Balances on December 31, 2008 | 1,903,563 | 407,795 | 362,216 | 289,223 | 8,107 | 2,970,904 |
| Additions | 25,053 | 30,931 | 69,760 | 15,144 | - | 140,888 |
| Additions – acquisitions of companies | - | - | 64 | - | - | 64 |
| Transfers | - | - | (1,165) | - | - | (1,165) |
| Balances on December 31, 2009 | 1,928,616 | 438,726 | 430,875 | 304,367 | 8,107 | 3,110,691 |
| Accrued amortization | ||||||
| Amortization rate per annum (%) | 20 | 16,67 | ||||
| Balances on January 1st, 2008 | (178,742) | (1,806) | (194,325) | (44,095) | (3,661) | (422,629) |
| Additions | - | - | (31,614) | (45,500) | (1,549) | (78,663) |
| Write-offs | - | - | 145 | - | - | 145 |
| Balances on December 31, 2008 | (178,742) | (1,806) | (225,794) | (89,595) | (5,210) | (501,147) |
| Additions | - | - | (35,183) | (49,466) | (1,634) | (86,283) |
| Transfers | - | - | (93) | - | - | (93) |
| Balances on December 31, 2009 | (178,742) | (1,806) | (261,070) | (139,061) | (6,844) | (587,523) |
| Net book value at January 1st, 2008 | 1,447,966 | 311,387 | 87,927 | 228,905 | 4,446 | 2,080,631 |
| Net book value at December 31, 2008 | 1,724,821 | 405,989 | 136,422 | 199,628 | 2,897 | 2,469,757 |
| Net book value at December 31, 2009 | 1,749,874 | 436,920 | 169,805 | 165,306 | 1,263 | 2,523,168 |
The Company records goodwill arising from the excess of the acquisition price over the fair value of net assets acquired, determined on the acquisition date.
The licenses to operate the subscription Pay-TV services in specified areas are granted by Anatel. These licenses are granted for a finite period of time and are renewable provided the agreed level of services is performed and the Company complies with the applicable rules. As the Company intends to renew these licenses, they are considered as having an indefinite useful life.
The Company tests its goodwill for impairment annually on the basis of its value in use using the discounted cash flow model on the lowest appropriate cash generating unit. The Company operates in a single segment and has a single cash generating unit since it uses a single cable system to provide all of its services to its customers and all decisions are taken are based on consolidated financial and operating data.
The process of evaluating the value in use includes the use of assumptions, opinions and estimates of future cash flows, growth and discount rates. Assumptions of cash flow and growth rate projections are based on the Company’s annual budget and long-term business plan approved by the Administrative Board, as well as on comparable market data, which represent management’s best estimate of economic conditions of the cash generating unit.
Key assumptions for the value in use estimate, to which asset recovery is more sensitive, are described below:
| • | Revenue – Revenues were projected on the basis of the Company’s budget of the next fiscal year and business plan covering the period of 2010–2014, taking into account the growth of the connected households base, the mix of multiservice offered to Pay-TV subscribers, broadband Internet and telephone; |
| • | Costs and operating expenses – The costs and expenses were projected on the basis of the Company’s historical performance, and expense growth was projected in line with the growth of the connected homes base taking into account the expected volume of new sales and installations; and |
| • | Capital investments – Investments in property and equipment were estimated on the basis of the infrastructure required to support the growth of the connected homes base, investments for renewal and maintenance of cable network and technological changes needed to enable the continuous offer of value-added multiservice to the base of connected households. |
Key assumptions were made on the basis of the Company’s historical performance and reasonable macroeconomic assumptions consistent with external information sources based on financial market projections documented and approved by the management and the board of directors.
Consistent with standard valuation techniques, evaluation of value in use was made for a five year period and thereafter takes into account the potential for the Company to operate for an indeterminate period. Income growth rates applied are consistent with long-term macroeconomic expectations and significant demographic data available, which are reviewed on a yearly basis, based on the historical performance and perspectives of the sector where the Company operates. The nominal growth rate used to extrapolate the projections beyond the five year period was 4% per year.
Estimated future cash flows were discounted at a single discount rate of 15% in this period. As a result of the impairment testing, management has concluded there has been no impairment of the values of the Company’s intangible assets.