Shaw 2011 Annual Report Download - page 28

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Shaw Communications Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
August 31, 2011
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
The Company also receives installation revenues in its Shaw Business operation on contracts
with commercial customers which are deferred and recognized as 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.
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.
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 IRU revenue, which the Company also
segregates 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.
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