Shaw 2009 Annual Report Download - page 26

IRU revenue, which the Company has always segregated from ongoing revenue. Further, within the
lifecycle of a customer relationship, the customer generally purchases customer premise equipment
at the commencement of the customer relationship, whereas the subscription revenue represents a
continuous revenue stream throughout that customer relationship. Therefore, the segregated
presentation provides a clearer distinction within the income statement between cash and non-cash
activities and between up-front and continuous revenue streams, which assists financial statement
readers to predict future cash flows from operations.
Subscriber connection and installation costs
The costs of physically connecting a new home are capitalized as part of the Company’s distribution
system as the service potential of the distribution system is enhanced by the ability to generate
future subscriber revenue. Costs of disconnections are expensed as incurred as the activity does not
generate future revenue.
ii) Allowance for doubtful accounts
The majority of the Company’s revenues are earned from selling on credit to individual subscribers.
Because there are some customers who do not pay their debts, selling on credit necessarily involves
credit losses. The Company is required to make an estimate of an appropriate allowance for doubtful
accounts on its receivables. In determining its estimate, the Company considers factors such as the
number of days the subscriber account is past due, whether or not the customer continues to receive
service, the Company’s past collection history and changes in business circumstances. The
estimated allowance required is a matter of judgement and the actual loss eventually sustained
may be more or less than the estimate, depending on events which have yet to occur and which
cannot be foretold, such as future business, personal and economic conditions. Conditions causing
deterioration or improvement in the aging of subscriber accounts and collections will increase or
decrease bad debt expense.
iii) Property, plant and equipment – capitalization of direct labour and overhead
As outlined in the CICA Handbook, the cost of property, plant and equipment includes direct
construction or development costs (such as materials and labour) and overhead costs directly
attributable to the construction or development activity. The Company capitalizes direct labour and
direct overhead incurred to construct new assets, upgrade existing assets and connect new
subscribers. These costs are capitalized as they include the construction costs directly attributable
to the acquisition, construction, development or betterment of plant through either increased
service capacity or lowered associated operating costs. Repairs and maintenance expenditures are
charged to operating expenses as incurred.
Direct labour and overhead costs are capitalized in three principal areas:
1. Corporate departments such as engineering and information technology (“IT”): Engineering is
primarily involved in overall planning and development of the cable/Internet/Digital Phone
infrastructure. Labour and overhead costs directly related to this activity are capitalized as the
activities directly relate to the planning and design of the construction of the distribution
system. Over the past several years the IT department has devoted considerable efforts towards
the development of systems to support Digital Phone and projects related to new customer
management, billing and operating support systems. Labour costs directly related to these and
other projects are capitalized.
2. Cable regional construction departments, which are principally involved in constructing,
rebuilding and upgrading the cable/Internet/Digital Phone infrastructure: Labour and overhead
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Shaw Communications Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
August 31, 2009