Shaw 2013 Annual Report Download - page 30

S
haw
C
ommunications Inc
.
MANA
G
EMENT’
S
DI
SCUSS
I
O
N AND ANALY
S
I
S
August
31
,
2013
S
haw Bus
i
ness
i
nstallat
i
on revenue and ex
p
ense
s
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-lin
e
bas
i
s over the related serv
i
ce contract,
g
enerall
y
s
p
ann
i
n
g
two to ten
y
ears. D
i
rect an
d
incremental costs associated with the service contract, in an amount not exceeding the upfron
t
installation revenue, are deferred and reco
g
nized as an o
p
eratin
g
ex
p
ense on a strai
g
ht-lin
e
bas
i
s over the same
p
er
i
od.
I
ncome statement classificatio
n
The
C
om
p
an
y
d
i
st
i
n
g
u
i
shes amort
i
zat
i
on o
f
de
f
erred e
q
u
ip
ment revenue and de
f
erred
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
ant
i
c
ip
ated term o
f
the related
f
uture revenue
(i
.e., the monthl
y
serv
i
ce revenue
)
w
i
th th
e
per
i
od o
f
recogn
i
t
i
on spann
i
ng two to
fi
ve years. As a result, the amort
i
zat
i
on o
f
de
f
erred
equipment revenue and deferred equipment costs are non-cash items on the income statement
,
s
i
m
i
lar to the
C
om
p
an
y
’s amort
i
zat
i
on o
f
de
f
erred IRU revenue, wh
i
ch the
C
om
p
an
y
als
o
segregates
f
rom ongo
i
ng revenue. Further, w
i
th
i
n the l
if
ecycle o
f
a customer relat
i
onsh
i
p, the
customer generally purchases customer premise equipment at the commencement of the
customer relat
i
onsh
ip
, whereas the subscr
ip
t
i
on revenue re
p
resents a cont
i
nuous revenue
stream throughout that customer relat
i
onsh
i
p. There
f
ore, the segregated presentat
i
on prov
i
des a
clearer distinction within the income statement between cash and non-cash activities and
between u
p
-
f
ront and cont
i
nuous revenue streams, wh
i
ch ass
i
sts
fi
nanc
i
al statement readers t
o
pred
i
ct
f
uture cash
f
lows
f
rom operat
i
ons
.
ii)
Allowance
f
or doubt
f
ul account
s
The ma
j
or
i
ty o
f
the
C
ompany’s revenues are earned
f
rom sell
i
ng on cred
i
tto
i
nd
i
v
i
dua
l
subscribers. Because there are some customers who do not pay their debts, selling on credi
t
n
ecessar
i
l
yi
nvolves cred
i
t losses. The
C
om
p
an
yi
sre
q
u
i
red to make an est
i
mate o
f
an
appropr
i
ate allowance
f
or doubt
f
ul accounts on
i
ts rece
i
vables. In determ
i
n
i
ng
i
ts est
i
mate, th
e
Company considers factors such as the number of days the account is past due, whether or no
t
t
he customer cont
i
nues to rece
i
ve serv
i
ce, the
C
om
p
an
y
’s
p
ast collect
i
on h
i
stor
y
and chan
g
es
i
n
bus
i
ness c
i
rcumstances. The est
i
mated allowance requ
i
red
i
s a matter o
fj
udgement and the
actual loss eventually sustained may be more or less than the estimate, depending on event
s
wh
i
ch have
y
et to occur and wh
i
ch cannot be
f
oretold, such as
f
uture bus
i
ness,
p
ersonal an
d
economic conditions. Conditions causing deterioration or improvement in the aging of account
s
receivable and collections will increase or decrease bad debt expense.
iii) Pro
p
ert
y
,
p
lant and e
q
ui
p
ment and other intan
g
ibles – ca
p
italization of direct labour and
o
verhea
d
The cost o
fp
ro
p
ert
y
,
p
lant and e
q
u
ip
ment and other
i
ntan
gi
bles
i
ncludes d
i
rect construct
i
on o
r
d
evelopment costs (such as materials and labour) and overhead costs directly attributable t
o
t
he construction or development activity. The Company capitalizes direct labour and direc
t
o
verhead
i
ncurred to construct new assets, u
pg
rade ex
i
st
i
n
g
assets and connect ne
w
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
m
a
i
ntenance ex
p
end
i
tures are char
g
ed to o
p
erat
i
n
g
ex
p
enses as
i
ncurred.
26