Shaw 2011 Annual Report Download - page 27

Shaw Communications Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
August 31, 2011
i) Revenue and expense recognition
Revenue is considered earned as services are performed, provided that at the time of
performance, ultimate collection is reasonably assured. Such performance is regarded as having
been achieved when reasonable assurance exists regarding the measurement of the
consideration that will be derived from rendering the service. Revenue from cable, Internet,
Digital Phone and DTH customers includes subscriber service revenue when earned. The
revenue is considered earned as the period of service relating to the customer billing elapses.
The Company has multiple deliverable arrangements comprised of upfront fees (subscriber
connection fee revenue and/or customer premise equipment revenue) and related subscription
revenue. The Company determined that the upfront fees charged to customers do not constitute
separate units of accounting; therefore, these revenue streams are assessed as an integrated
package.
With Shaw Media, subscriber revenue is recognized monthly based on subscriber levels.
Advertising revenues are recognized in the period in which the advertisements are aired or
displayed on the Companys’ digital properties and recorded net of agency commissions as these
amounts are paid directly to the agency or advertiser. When a sales arrangement includes
multiple advertising spots, the proceeds are allocated to individual advertising spots under the
arrangement based on relative fair values.
Subscriber connection fee revenue
Connection fees have no stand alone value to the customer separate and independent of the
Company providing additional subscription services, therefore the connection fee revenue must
be deferred and recognized systematically over the periods that the subscription services are
earned. There is no specified term for which the customer will receive the related subscription
service, therefore the Company has considered its customer churn rate and other factors, such
as competition from new entrants, to determine the deferral period of two years. Under
US GAAP, connection revenues are recognized immediately to the extent of related costs, with
any excess deferred and amortized.
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
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