Shaw 2009 Annual Report Download - page 25

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Customer premise equipment revenue
Customer premise equipment available for sale, which generally includes DCT and DTH equipment,
has no stand alone value to the customer separate and independent of the Company providing
additional subscription services. Therefore the equipment revenue must be deferred and
recognized systematically over the periods that the subscription services are earned. As the
equipment sales and the related subscription revenue are considered one transaction, recognition
of the equipment revenue commences once the subscriber service is activated. There is no
specified term for which the customer will receive the related subscription service, therefore
the Company has considered various factors including customer churn, competition from new
entrants, and technology changes to determine the deferral period of two years.
In conjunction with equipment revenue, the Company also incurs incremental direct costs which
include equipment and related installation costs. These direct costs cannot be separated from the
undelivered subscription service included in the multiple deliverable arrangement. Under CICA
Handbook Section 3031 “Inventories”, these costs represent inventoriable costs and are deferred
and amortized over the period of two years, consistent with the recognition of the related equipment
revenue. The equipment and installation costs generally exceed the amounts received from
customers on the sale of equipment (the equipment is sold to the customer at a subsidized price).
The Company defers the entire cost of the equipment, including the subsidy portion, as it has
determined that this excess cost will be recovered from future subscription revenues and that the
investment by the customer in the equipment creates value through increased retention. Under US
GAAP, the Company is required to expense this excess immediately.
Shaw Tracking equipment revenue
Shaw Tracking equipment revenue is recognized over the period of the related service contract for
airtime, which is generally five years.
In conjunction with Shaw Tracking equipment revenue, the Company incurs incremental direct
costs which include equipment and related installation costs. These direct costs cannot be
separated from the undelivered tracking service included in the multiple deliverable arrangement.
Under CICA Handbook Section 3031 “Inventories”, these costs represent inventoriable costs and
are deferred and amortized over the period of five years, consistent with the recognition of the
related tracking equipment revenue.
Shaw Business Solutions
The Company also receives installation revenues in its Shaw Business Solutions operation on
contracts with commercial customers which are deferred and recognized as service revenue on a
straight-line basis over the related service contract, generally spanning two to ten years. Direct and
incremental costs associated with the service contract, in an amount not exceeding the upfront
installation revenue, are deferred and recognized as an operating expense on a straight-line basis
over the same period.
Income statement classification
The Company distinguishes amortization of deferred equipment revenue and deferred equipment
costs from the revenue and expenses recognized from ongoing service activities on its income
statement. Equipment revenue and costs are deferred and recognized over the anticipated term of the
related future revenue (i.e., the monthly service revenue) with the period of recognition spanning two
to five years. As a result, the amortization of deferred equipment revenue and deferred equipment
costs are non-cash items on the income statement, similar to the Company’s amortization of deferred
21
Shaw Communications Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
August 31, 2009