Shaw 2015 Annual Report Download - page 28

Shaw Communications Inc.
Management’s Discussion and Analysis
August 31, 2015
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 three 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.
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.
Property, plant and equipment and other intangibles – capitalization of direct labour and overhead
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 Technology and Network Operations (“TNO”): TNO is 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. In addition, TNO devote 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 (i.e., wiring, software, etc.) which enhance the service potential of the distribution system through the
ability to earn future revenues. Costs associated with service calls, collections, disconnects and reconnects that do not
involve the installation of a capital asset are expensed.
26 Shaw Communications Inc. 2015 Annual Report