Shaw 2010 Annual Report Download - page 30

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 and other intangibles – capitalization of direct labour and overhead
As outlined in the CICA Handbook, the cost of property, plant and equipment and other intangibles
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 are directly attributable to the
acquisition, construction, development or betterment of the networks or other intangibles. 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 and
Wireless infrastructure. Labour and overhead costs directly related to these activities 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. Most recently the IT
department also commenced activities related to the Wireless infrastructure build. 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
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.
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Shaw Communications Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
August 31, 2010