Shaw 2012 Annual Report Download - page 29

Shaw Communications Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
August 31, 2012
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.
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 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 accounts
receivable 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 IAS 16 “Property, plant and equipment”, 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 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. The IT department devotes considerable efforts
towards the development of systems to support Digital Phone, WiFi, 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 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 the 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, including the DNU project, and the
WiFi build.
3. Subscriber-related activities such as installation of new drops and Internet and Digital
Phone services: The labour and overhead directly related to the installation of new
services are capitalized as the activity involves the installation of capital assets
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