Shaw 2009 Annual Report Download - page 27

costs directly related to the construction activity are capitalized as the activities directly relate
to the construction or upgrade of the distribution system. Capital projects include, but are not
limited to, projects such as new subdivision builds, increasing network capacity for Internet,
Digital Phone and VOD by reducing the number of homes fed from each node, and upgrades of
plant capacity.
3. Subscriber-related activities such as installation of new drops and Internet services. The labour
and overhead directly related to the installation of new services are capitalized as the activity
involves the installation of capital assets (i.e., wiring, filters, software, etc.) which enhance the
service potential of the distribution system through the ability to earn future service revenues.
Costs associated with service calls, collections, disconnects and reconnects that do not involve
the installation of a capital asset are expensed.
Amounts of direct labour and direct overhead capitalized fluctuate from year to year depending on
the level of customer growth and plant upgrades for new services. In addition, the level of
capitalization fluctuates depending on the proportion of internal labour versus external contractors
used in construction projects.
The percentage of direct labour capitalized in many cases is determined by the nature of
employment in a specific department. For example, almost all labour and direct overhead of
the cable regional construction departments is capitalized as a result of the nature of the activity
performed by those departments. Capitalization is also based on piece rate work performed by unit-
based employees which is tracked directly. In some cases, the amount of capitalization depends on
the level of maintenance versus capital activity that a department performs. In these cases, an
analysis of work activity is applied to determine this percentage split; however, such analysis is
subject to overall reasonability checks on the percentage capitalization based on known capital
projects and customer growth.
iv) Property, plant and equipment – capitalization of interest
As permitted by Canadian GAAP, the cost of an item of property, plant and equipment that is
acquired, constructed, or developed over time may include carrying costs, such as interest, which is
directly attributable to such activity. Shaw does not capitalize interest on the construction of its own
assets. Under US GAAP, interest costs are required to be capitalized as part of the cost of certain
qualifying assets during the period of construction.
v) Depreciation policies and useful lives
The Company depreciates the cost of property, plant and equipment over the estimated useful
service lives of the items. These estimates of useful lives involve considerable judgment. In
determining these estimates, the Company takes into account industry trends and company-
specific factors, including changing technologies and expectations for the in-service period of these
assets. On an annual basis, the Company reassesses its existing estimates of useful lives to ensure
they match the anticipated life of the technology from a revenue-producing perspective. If
technological change happens more quickly or in a different way than the Company has anticipated,
the Company might have to shorten the estimated life of certain property, plant and equipment
which could result in higher depreciation expense in future periods or an impairment charge to write
down the value of property, plant and equipment.
vi) Intangibles
The excess of the cost of acquiring cable and satellite businesses over the fair value of related net
identifiable tangible and intangible assets acquired is allocated to goodwill. Net identifiable
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Shaw Communications Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
August 31, 2009