Shaw 2014 Annual Report Download - page 30

Shaw Communications Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
August 31, 2014
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 three years.
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.
Customer premise equipment revenue and costs
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 is 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 three 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 IAS 2 “Inventories”, these costs represent inventoriable costs and are deferred and
amortized over the period of three 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 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.
Shaw Tracking equipment revenue and costs
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 including equipment costs. These direct costs cannot be separated from the undelivered
tracking service included in the multiple deliverable arrangement. Under IAS 2 “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 installation revenue and expenses
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.
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