Shaw 2015 Annual Report Download - page 29

Shaw Communications Inc.
Management’s Discussion and Analysis
August 31, 2015
Amounts of direct labour and direct overhead capitalized fluctuate from year to year depending on the level of customer growth
and plant upgrades for new services. In addition, the level of capitalization fluctuates depending on the proportion of internal
labour versus external contractors used in construction projects.
The percentage of direct labour capitalized in many cases is determined by the nature of employment in a specific department.
For example, a significant portion of labour and direct overhead of the cable regional construction departments is capitalized as
a result of the nature of the activity performed by those departments. Capitalization is also based on piece rate work performed
by unit-based employees which is tracked directly. In some cases, the amount of capitalization depends on the level of
maintenance versus capital activity that a department performs. In these cases, an analysis of work activity is applied to
determine this percentage split.
Amortization policies and useful lives
The Company amortizes the cost of property, plant and equipment and other intangibles over the estimated useful service lives
of the items. These estimates of useful lives involve considerable judgment. In determining these estimates, the Company takes
into account industry trends and company-specific factors, including changing technologies and expectations for the in-service
period of these assets. On an annual basis, the Company reassesses its existing estimates of useful lives to ensure they match
the anticipated life of the technology from a revenue-producing perspective. If technological change happens more quickly or in
a different way than the Company has anticipated, the Company may have to shorten the estimated life of certain property,
plant and equipment or other intangibles which could result in higher amortization expense in future periods or an impairment
charge to write down the value of property, plant and equipment or other intangibles.
Intangibles
The excess of the cost of acquiring cable and satellite and media businesses over the fair value of related net identifiable
tangible and intangible assets acquired is allocated to goodwill. Net identifiable intangible assets acquired consist primarily of
amounts allocated to broadcast rights and licenses which represent identifiable assets with indefinite useful lives.
Broadcast rights and licenses in the cable and satellite businesses are comprised of broadcast authorities including licenses
and exemptions from licensing that allow access to homes and subscribers in a specific area that are identified on a business
combination with respect to the acquisition of shares or assets of a BDU.
Broadcast licenses in the media business are licenses to operate conventional and specialty services that are identified on a
business combination with respect to the acquisition of shares or assets of a broadcasting undertaking.
The Company has concluded that the broadcast rights and licenses have indefinite useful lives since there are no legal,
regulatory, contractual, economic or other factors that would prevent the Company’s license renewals or limit the period over
which these assets will contribute to the Company’s cash flows. Goodwill and broadcast rights and licenses are not amortized
but are assessed for impairment on an annual basis in accordance with IAS 36 “Impairment”.
Program rights represent licensed rights acquired to broadcast television programs on the Company’s conventional and specialty
television channels and program advances are in respect of payments for programming prior to the window license start date.
For licensed rights, the Company records a liability for program rights and corresponding asset when the license period has
commenced and all of the following conditions have been met: (i) the cost of the program is known or reasonably determinable,
(ii) the program material has been accepted by the Company in accordance with the license agreement and (iii) the material is
available to the Company for telecast. Program rights are expensed on a systematic basis generally over the estimated exhibition
period as the programs are aired and are included in operating, general and administrative expenses.
Other intangibles include software that is not an integral part of the related hardware, customer relationships as well as a
trademark and brands. Software is amortized on a straight-line basis over their estimated useful lives ranging from three to ten
years. Customer relationships represent the value of customer contracts and relationships acquired in a business combination
and are amortized on a straight-line basis over the estimated useful life of 15 years.
Asset impairment
The Company tests goodwill and indefinite-life intangibles for impairment annually (as at March 1) and when events or changes
in circumstances indicate that the carrying value may be impaired. The recoverable amount of each cash-generating unit
2015 Annual Report Shaw Communications Inc. 27