Shaw Communications Inc. (TSX:SJR.B) (NYSE:SJR) announced
consolidated financial and operating results for the three months
ended November 30, 2012 and 2011. Consolidated revenue for the
three month period of $1.32 billion was up 3% compared to the same
period last year. Total operating income before amortization(1) of
$601 million improved 6% over the comparable period.
Free cash flow(1) for the quarter was $244 million compared to
$119 million for the same period last year. Increased operating
income before amortization and reduced capital investment were the
main drivers of the quarterly improvement.
Chief Executive Officer Brad Shaw said, "The business performed
well in the quarter building on the positive momentum from the
second half of last year. We continue to leverage our portfolio of
assets to deliver innovative new offerings and enhanced services,
providing choice and value to our customers."
Net income of $235 million or $0.50 per share for the quarter
ended November 30, 2012 compared to $202 million or $0.43 per share
for the same period last year. Increased operating income before
amortization accounted for the improvement.
Revenue in the Cable division of $809 million for the current
three month period increased 2% over the comparable period.
Operating income before amortization for the quarter of $396
million was up 5% over last year. Cable operating margin was almost
49% reflecting the continued balance of subscriber growth and
profitability.
Satellite revenue of $214 million for the three month period
improved 2% compared to the same period last year and operating
income before amortization for the current quarter was up 7% to $74
million.
Revenue in the Media division for the quarter of $319 million
increased almost 7% over the same period last year and operating
income before amortization of $131 million was up 9%. Improved
advertising and subscriber revenues were partially offset by higher
programming costs.
Mr. Shaw concluded, "We will remain focused on disciplined and
sustainable pricing strategies, customer retention, and long term
growth. We are off to a solid start for the year and will continue
to drive ongoing performance and value."
Shaw Communications Inc. is a diversified communications and
media company, providing consumers with broadband cable television,
High-Speed Internet, Home Phone, telecommunications services
(through Shaw Business), satellite direct-to-home services (through
Shaw Direct) and engaging programming content (through Shaw Media).
Shaw serves 3.3 million customers, through a reliable and extensive
fibre network. Shaw Media operates one of the largest conventional
television networks in Canada, Global Television, and 18 specialty
networks including HGTV Canada, Food Network Canada, History and
Showcase. Shaw is traded on the Toronto and New York stock
exchanges and is included in the S&P/TSX 60 Index (Symbol: TSX
- SJR.B, NYSE - SJR).
The accompanying Management's Discussion and Analysis forms part
of this news release and the "Caution Concerning Forward Looking
Statements" applies to all forward-looking statements made in this
news release.
(1) See definitions and discussion under Key Performance Drivers
in MD&A.
MANAGEMENT'S DISCUSSION AND ANALYSIS
NOVEMBER 30, 2012
January 8, 2013
Certain statements in this report may constitute forward-looking
statements. Included herein is a "Caution Concerning
Forward-Looking Statements" section which should be read in
conjunction with this report.
The following Management's Discussion and Analysis ("MD&A")
should also be read in conjunction with the unaudited interim
Consolidated Financial Statements and Notes thereto of the current
quarter, the 2012 Annual MD&A included in the Company's August
31, 2012 Annual Report including the Consolidated Financial
Statements and the Notes thereto.
The financial information presented herein has been prepared on
the basis of International Financial Reporting Standards ("IFRS")
for interim financial statements and is expressed in Canadian
dollars.
CONSOLIDATED RESULTS OF OPERATIONS
FIRST QUARTER ENDING NOVEMBER 30, 2012
Selected Financial Highlights
Three months ended
November 30,
---------------------------
Change
2012 2011 %
----------------------------------------------------------------------------
($ millions Cdn except per share amounts)
Operations:
Revenue 1,319 1,279 3.1
Operating income before amortization (1) 601 566 6.2
Operating margin (1) 45.6% 44.2% 1.4
Funds flow from operations (2) 127 356 (64.3)
Net income 235 202 16.3
Per share data:
Earnings per share
Basic 0.50 0.43
Diluted 0.49 0.43
Weighted average participating shares
outstanding during period (millions) 444 438
----------------------------------------------------------------------------
(1) See definitions and discussion under Key Performance Drivers
in MD&A.
(2) Funds flow from operations is before changes in non-cash
working capital balances related to operations as presented in the
unaudited interim Consolidated Statements of Cash Flows.
Subscriber Highlights(1)
Growth
----------------------
Three months ended
Total November 30,
----------
November
30, 2012 2012 2011
----------------------------------------------------------------------------
Subscriber statistics:
Video customers 2,166,536 (23,912) (22,768)
Internet customers 1,902,385 5,956 9,043
Digital phone lines 1,362,617 17,345 18,597
DTH customers 906,002 (4,021) 531
----------------------------------------------------------------------------
(1) Subscriber numbers for the comparative period have been
restated to remove pending installs and have also been adjusted to
reflect the results of a pre-migration subscriber audit recently
undertaken prior to the planned migration of customers to Shaw's
new billing system. The audit adjustments relate primarily to
periods prior to 2009 and reflect a reduction of approximately
28,600 and 1,800 Video and Internet customers, respectively, and an
increase of 900 Digital phone lines. Also, given the growth in
Digital cable penetration, the Company has now combined the
reporting of Basic cable and Digital cable as a Video customer.
Consolidated Overview
Consolidated revenue of $1.32 billion for the current quarter
increased 3.1% over the same period last year. Consolidated
operating income before amortization for the three month period of
$601 million was up 6.2%. The revenue growth in the Cable and
Satellite divisions, primarily driven by rate increases, was
partially reduced by various expense increases including employee
related amounts and higher programming. Media was up due to
improved advertising and subscriber revenues partially reduced by
increased programming costs.
Net income was $235 million for the three months ended November
30, 2012 compared to $202 million for the same period last year.
Non-operating items affected net income in both periods. Outlined
below are further details on these and other operating and
non-operating components of net income for each period.
Three months
($millions Cdn) ended
-------------
November 30, Non-
2012 Operating operating
----------------------------------------------------------------------------
Operating income 393 393 -
Amortization of financing costs -
long-term debt (1) (1) -
Interest expense (82) (82) -
Accretion of long-term liabilities
and provisions (3) - (3)
Other losses (4) - (4)
----------------------------------------------------------------------------
Income (loss) before income taxes 303 310 (7)
Current income tax expense
(recovery) 38 80 (42)
Deferred income tax expense
(recovery) 30 1 29
----------------------------------------------------------------------------
Net income (loss) 235 229 6
----------------------------------------------------------------------------
Three months
($millions Cdn) ended
-------------
November 30, Non-
2011 Operating operating
----------------------------------------------------------------------------
Operating income 372 372 -
Amortization of financing costs -
long-term debt (1) (1) -
Interest expense (82) (82) -
Accretion of long-term liabilities
and provisions (4) - (4)
Other losses (6) - (6)
----------------------------------------------------------------------------
Income (loss) before income taxes 279 289 (10)
Current income tax expense
(recovery) 84 84 -
Deferred income tax expense
(recovery) (7) (5) (2)
----------------------------------------------------------------------------
Net income (loss) 202 210 (8)
----------------------------------------------------------------------------
The changes in net income are outlined in the table below.
November 30, 2012 net
income compared to:
--------------------------
Three months ended
-------------------------
August 31, November 30,
2012 2011
----------------------------------------------------------------------------
($millions Cdn)
Increased operating income before amortization 100 35
Decreased (increased) amortization 2 (14)
Decreased interest expense 1 -
Change in net other costs and revenue (1) (5) 3
Decreased income taxes 4 9
----------------------------------------------------------------------------
102 33
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Net other costs and revenue includes accretion of long-term
liabilities and provisions, equity income (loss) from associates
and other losses as detailed in the unaudited interim Consolidated
Statements of Income.
Basic earnings per share were $0.50 for the current quarter
compared to $0.43 in the same period last year. In the current
quarter, improved operating income before amortization of $35
million and lower income taxes of $9 million combined, were
partially offset by increased amortization of $14 million. The
lower taxes in the current period benefitted from a recovery
related to the resolution of certain tax matters.
Net income in the current quarter increased $102 million
compared to the fourth quarter of fiscal 2012 driven by higher
operating income before amortization of $100 million primarily due
to seasonality in the Media business.
Free cash flow for the quarter of $244 million compared to $119
million in the same period last year. The improvement in the
current quarter was primarily due to reduced capital investment of
$85 million and improved operating income before amortization of
$35 million.
During the quarter the Company introduced a new brand platform,
inviting customers to experience an animated world inside its
advanced network. The platform also includes a new logo and
corporate identity.
Key Performance Drivers
The Company's continuous disclosure documents may provide
discussion and analysis of non-IFRS financial measures. These
financial measures do not have standard definitions prescribed by
IFRS and therefore may not be comparable to similar measures
disclosed by other companies. The Company's continuous disclosure
documents may also provide discussion and analysis of additional
GAAP measures. Additional GAAP measures include line items,
headings, and sub-totals included in the financial statements. The
Company utilizes these measures in making operating decisions and
assessing its performance. Certain investors, analysts and others,
utilize these measures in assessing the Company's operational and
financial performance and as an indicator of its ability to service
debt and return cash to shareholders. The non-IFRS financial
measures and additional GAAP measures have not been presented as an
alternative to net income or any other measure of performance
required by IFRS.
The following contains a listing of non-IFRS financial measures
and additional GAAP measures used by the Company and provides a
reconciliation to the nearest IFRS measure or provides a reference
to such reconciliation.
Operating income before amortization and operating margin
Operating income before amortization is calculated as revenue
less operating, general and administrative expenses and is
presented as a sub-total line item in the Company's unaudited
interim Consolidated Statements of Income. It is intended to
indicate the Company's ability to service and/or incur debt, and
therefore it is calculated before amortization (a non-cash expense)
and interest. Operating income before amortization is also one of
the measures used by the investing community to value the business.
Operating margin is calculated by dividing operating income before
amortization by revenue.
Free cash flow
The Company utilizes this measure to assess the Company's
ability to repay debt and return cash to shareholders.
Free cash flow is calculated as operating income before
amortization, less interest, cash taxes paid or payable, capital
expenditures (on an accrual basis and net of proceeds on capital
dispositions) and equipment costs (net), adjusted to exclude
share-based compensation expense, less cash amounts associated with
funding the new and assumed CRTC benefit obligations related to the
acquisition of Shaw Media as well as excluding non-controlling
interest amounts that are consolidated in the operating income
before amortization, capital expenditure and cash tax amounts. Free
cash flow also includes changes in receivable related balances with
respect to customer equipment financing transactions as a cash
item, and is adjusted for recurring cash funding of pension amounts
net of pension expense. Dividends paid on the Company's Cumulative
Redeemable Rate Reset Preferred Shares are also deducted.
Free cash flow has not been reported on a segmented basis.
Certain components of free cash flow including operating income
before amortization, capital expenditures (on an accrual basis net
of proceeds on capital dispositions) and equipment costs (net),
CRTC benefit obligation funding, and non-controlling interest
amounts continue to be reported on a segmented basis. Other items,
including interest and cash taxes, are not generally directly
attributable to a segment, and are reported on a consolidated
basis.
For free cash flow purposes the Company considers the
discretionary pension funding to be a financing transaction and has
not included the amount funded or the related cash tax recovery in
the free cash flow calculation.
Free cash flow is calculated as follows:
Three months ended
November 30,
---------------------------
Change
2012 2011 %
---------------------------
($millions Cdn)
Revenue
Cable 809 792 2.1
Satellite 214 209 2.4
Media 319 299 6.7
----------------------------------------------------------------------------
1,342 1,300 3.2
Intersegment eliminations (23) (21) 9.5
----------------------------------------------------------------------------
1,319 1,279 3.1
----------------------------------------------------------------------------
Operating income before amortization (1)
Cable 396 377 5.0
Satellite 74 69 7.2
Media 131 120 9.2
----------------------------------------------------------------------------
601 566 6.2
----------------------------------------------------------------------------
Capital expenditures and equipment costs (net):
Cable 140 223 (37.2)
Satellite 25 25 -
Media 4 6 (33.3)
----------------------------------------------------------------------------
Total as per Note 3 to the unaudited interim
Consolidated Financial Statements 169 254 (33.5)
----------------------------------------------------------------------------
Free cash flow before the following 432 312 38.5
Less:
Interest (82) (82) -
Cash taxes (80) (84) (4.8)
Other adjustments:
Non-cash share-based compensation 1 2 (50.0)
CRTC benefit obligation funding (9) (10) (10.0)
Non-controlling interests (12) (11) 9.1
Pension adjustment 2 4 (50.0)
Customer equipment financing (5) (8) (37.5)
Preferred share dividends (3) (4) (25.0)
----------------------------------------------------------------------------
greater
than
Free cash flow (1) 244 119 100.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating margin (1)
Cable 48.9% 47.6% 1.3
Satellite 34.6% 33.0% 1.6
Media 41.1% 40.1% 1.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See definitions and discussion under Key Performance Drivers
in MD&A.
CABLE
Financial Highlights
Three months ended
November 30,
---------------------------
Change
2012 2011 %
---------------------------
($millions Cdn)
Revenue 809 792 2.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating income before amortization (1) 396 377 5.0
Capital expenditures and equipment costs (net):
New housing development 28 22 27.3
Success based 35 90 (61.1)
Upgrades and enhancement 60 87 (31.0)
Replacement 9 11 (18.2)
Buildings and other 8 13 (38.5)
----------------------------------------------------------------------------
Total as per Note 3 to the unaudited interim
Consolidated Financial Statements 140 223 (37.2)
----------------------------------------------------------------------------
Operating margin (1) 48.9% 47.6% 1.3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See definitions and discussion under Key Performance Drivers
in MD&A.
Operating Highlights
-- Digital Phone lines increased 17,345 during the three month period to
1,362,617 and Internet customers were up 5,956 totaling 1,902,385 as at
November 30, 2012. During the quarter Video subscribers decreased
23,912.
Cable revenue for the three months of $809 million improved 2%
over the comparable period. Rate increases and customer growth in
Internet and Digital Phone, including Business growth, partially
offset by lower Video subscribers, accounted for the
improvement.
Operating income before amortization of $396 million for the
quarter was up $19 million or 5% over the same period last year.
Revenue related improvements, lower marketing and sales expenses,
and reduced regulatory costs resulting from the CRTC mandated
reduction in the Local Programming Improvement Fund ("LPIF")
contribution from 1.5% to 1% were partially offset by higher
employee related amounts, mainly related to employee growth to
enhance customer service activities and annual merit increases, and
increased programming amounts, related to new services and
increased rates as contracts were renewed. Margin improved from
47.6% to 48.9% compared to the same three month period last
year.
Revenue was up 1% compared to the fourth quarter of fiscal 2012
primarily due to rate increases. Operating income before
amortization was comparable over the periods. Revenue related
growth and lower LPIF and other expenses were offset by higher
employee related costs and increased marketing spend related to new
brand initiatives.
Total capital investment of $140 million in the current quarter
decreased $83 million over the same period last year. Success-based
capital declined $55 million compared to the prior year quarter
primarily due to lower video equipment rentals and reduced
subsidies from decreased volume and higher pricing for video
equipment sales. The current quarter also benefitted from lower
internet modem purchases.
Investment in Upgrades and enhancement and Replacement
categories combined decreased $29 million compared to the same
quarter last year. The decline was due to lower spend on the
digital network upgrade, reduced activity on capacity improvements
and less investment in residential telephony infrastructure and
licensing.
Investment in Buildings and other declined $5 million over the
comparable three month period. The current quarter decrease was
primarily due to lower spend on back office infrastructure
replacement projects.
Spending in New housing development increased $6 million over
the comparable three month period mainly due to higher bulk plant
material purchases.
During the quarter Shaw continued to introduce new features to
its Video offerings with the introduction of a new HD Guide for its
digital boxes which includes, in addition to many new features,
access to over 10,000 On Demand video titles making choice and
movie viewing even easier. Adding to this experience is the most
recent introduction of the Shaw On Demand Search & Discovery
App, available for all iOS and Android mobile devices (mobile
phones & tablets). The app provides a new way to browse and
order from a list of over 10,000 titles in the Shaw On Demand
library and send orders directly to the viewer's digital box.
The Company's focus on building out its business products
continued and Shaw recently received Metro Ethernet Forum (MEF)
Carrier Ethernet 1.0 Certification for its fibre-based business
ethernet services. MEF certification is the global standard for
carrier ethernet services, designed to accelerate the deployment of
carrier ethernet services worldwide. Shaw's ethernet product
catalogue has undergone extensive testing by Iometrix, MEF's
official laboratory, to prove conformity, performance and
dependability. The certification provides customers assurance that
Shaw's fibre-based ethernet services meet or exceed standards and
align to their networking needs.
Shaw recently undertook a pre-migration subscriber audit prior
to the planned migration of customers to the new billing system.
The audit adjustments relate primarily to periods prior to 2009 and
reflect a reduction of approximately 28,600 and 1,800 Video and
Internet customers, respectively, and an increase of 900 Digital
phone lines. The adjustments have no impact on revenues.
Subscriber Statistics
Three months ended
November 30, 2012
--------------------------
November 30, August 31, Change
2012 2012(1) Growth %
----------------------------------------------------------------------------
VIDEO:
Connected 2,166,536 2,190,448 (23,912) (1.1)
Penetration as % of
homes passed 54.1% 55.2%
----------------------------------------------------------------------------
INTERNET:
Connected 1,902,385 1,896,429 5,956 0.3
Penetration as % of
video 87.8% 86.6%
Standalone Internet not
included in video 269,899 255,549 14,350 5.6
DIGITAL PHONE:
Number of lines (2) 1,362,617 1,345,272 17,345 1.3
----------------------------------------------------------------------------
(1) Internet and Digital Phone subscriber statistics have been
restated to exclude scheduled and pending installations at August
31, 2012 and all categories have been adjusted to reflect the
results of a pre-migration subscriber audit recently undertaken
prior to the migration of customers to Shaw's new billing
system.
(2) Represents primary and secondary lines on billing
SATELLITE
Financial Highlights(1)
Three months ended
November 30,
---------------------------
Change
2012 2011 %
---------------------------
($millions Cdn)
Revenue 214 209 2.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating income before amortization (2) 74 69 7.2
Capital expenditures and equipment costs (net):
Success based (3) 22 23 (4.3)
Buildings and other 3 2 50.0
----------------------------------------------------------------------------
Total as per Note 3 to the unaudited interim
Consolidated Financial Statements 25 25 -
----------------------------------------------------------------------------
Operating margin(2) 34.6% 33.0% 1.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The Satellite segment was previously reported as DTH and
Satellite Services. These segments have been combined into a single
operating segment.
(2) See definitions and discussion under Key Performance Drivers
in MD&A.
(3) Net of the profit on the sale of satellite equipment as it
is viewed as a recovery of expenditures on customer premise
equipment.
Operating Highlights
-- During the quarter Shaw Direct subscribers decreased by 4,021 and as at
November 30, 2012 DTH customers total 906,002.
Revenue of $214 million for the three month period was up 2.4%
over the comparable period last year. This improvement was
primarily due to rate increases. Operating income before
amortization of $74 million for the quarter improved 7.2% over the
same period last year. Revenue related increases partially offset
by higher general and administration and programming costs
accounted for the improvement.
Revenue was consistent with the fourth quarter of fiscal 2012.
Operating income before amortization declined $3 million over the
same period primarily due to higher employee related costs and
marketing expenses.
Total capital investment of $25 million for the three month
period was comparable to the same period last year.
The launch of Anik G1, which will add over 100 HD channels to
Shaw Direct's line-up, has been delayed as a result of issues
experienced on unrelated satellite launches and is now expected to
be in-service in the latter half of fiscal 2013.
During the quarter, Shaw Direct added several HD channels
including FX HD, and now carries 95 HD channels. Shaw Direct's
Video-On-Demand service, which uses adaptive streaming through the
satellite receiver, now has over 5,000 TV and movie viewing
choices, and continues to add IP connected subscribers.
Subscriber Statistics
Three months ended
November 30, 2012
--------------------------
November 30, August 31, Change
2012 2012 Growth %
--------------------------------------------------
DTH customers (1) 906,002 910,023 (4,021) (0.4)
----------------------------------------------------------------------------
(1) Including seasonal customers who temporarily suspend their
service.
MEDIA
Financial Highlights
Three months ended
November 30,
Change
2012 2011 %
---------------------------
($millions Cdn)
Revenue 319 299 6.7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating income before amortization (1) 131 120 9.2
Capital expenditures:
Broadcast and transmission 1 3 (66.7)
Buildings and other 3 3 -
----------------------------------------------------------------------------
Total as per Note 3 to the unaudited interim
Consolidated Financial Statements 4 6 (33.3)
----------------------------------------------------------------------------
Other adjustments:
CRTC benefit obligation funding (9) (10) (10.0)
Non-controlling interests (12) (11) 9.1
Operating margin(1) 41.1% 40.1% 1.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See definitions and discussion under Key Performance Drivers
in MD&A.
Operating Highlights
Revenue and operating income before amortization for the quarter
were $319 million and $131 million, respectively, compared to $299
million and $120 million last year. Revenue for the quarter was up
6.7% due to higher conventional and specialty advertising revenues
combined with increased subscriber revenues. Operating income
improved 9.2% over the comparable period due to revenue growth
partially reduced by higher programming and other expenses.
Compared to the fourth quarter of fiscal 2012, revenue and
operating income before amortization increased $102 million and
$103 million, respectively. The increase was primarily due to the
cyclical nature of the Media business, with higher advertising
revenues in the first and third quarters driven by the launch of
season premieres in the first quarter and season finales and mid
season launches in the third quarter. The fourth quarter is
typically the lowest quarter of the fiscal year as it spans the
summer months when viewership is generally lower.
During the quarter, Global delivered solid audience results
relating to the fall schedule, with 6 of the Top 10 and 7 of the
Top 20 shows for Adults 18-49. Key shows underlying this
performance are returning favourites, such as Survivor, NCIS, NCIS
LA, Hawaii 5-0, Bones and Glee and new acquisitions, particularly
Elementary, Vegas and Chicago Fire. The Media specialty portfolio
demonstrated strength in the channel rankings in the adult 25-54
category, with 6 of the Top 20 analog services, including History
as the top entertainment network in Canada, and 5 of the Top 10
digital services, including 4 of the Top 4 services, with National
Geographic as the leading digital channel. Recently re-branded
channels, Lifetime and H2 have increased audiences over the prior
year.
In News, Global continues to maintain its number one position in
all three major western markets while Global National increased
audience 3% over the prior year.
In the winter/spring season Global has returning favourites such
as Celebrity Apprentice, Touch and Bomb Girls, as well as new shows
Deception and Zero Hour. The Specialty winter/spring line-up
includes Big Brother Canada, the second season of Real Housewives
of Vancouver, Top Chef Canada and Lost Girl season 3.
Capital investment continued on various projects and included
upgrading production equipment, infrastructure and facility
investments.
OTHER INCOME AND EXPENSE ITEMS
Amortization
Three months ended
November 30,
--------------------------
Change
2012 2011 %
----------------------------------------------------------------------------
($millions Cdn)
Amortization revenue (expense) -
Deferred equipment revenue 30 28 7.1
Deferred equipment costs (63) (53) 18.9
Property, plant and equipment, intangibles and
other (175) (169) 3.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Amortization of deferred equipment revenue and deferred
equipment costs increased over the comparative period due to the
sales mix of equipment and changes in customer pricing on certain
equipment.
Amortization of property, plant and equipment, intangibles and
other increased over the comparable period as the amortization of
new expenditures exceeded the impact of assets that became fully
depreciated.
Amortization of financing costs and Interest expense
Three months ended
November 30,
------------------------
Change
2012 2011 %
----------------------------------------------------------------------------
($millions Cdn)
Amortization of financing costs - long-term debt 1 1 -
Interest expense 82 82 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accretion of long-term liabilities and provisions
The Company records accretion expense in respect of the
discounting of certain long-term liabilities and provisions which
are accreted to their estimated value over their respective terms.
The expense is primarily in respect of CRTC benefit
obligations.
Other losses
This category generally includes realized and unrealized foreign
exchange gains and losses on US dollar denominated current assets
and liabilities, gains and losses on disposal of property, plant
and equipment and minor investments, and the Company's share of the
operations of Burrard Landing Lot 2 Holdings Partnership. The
category also includes amounts in respect of the electrical fire
and resulting water damage to Shaw Court that occurred during the
fourth quarter of fiscal 2012. During the current quarter, the
Company received insurance advances of $5 million related to its
claim for costs that were incurred in the previous quarter and
incurred additional costs of $6 million in respect of ongoing
restoration and recovery activities.
Income taxes
Income taxes were lower in the current quarter benefitting from
a recovery related to the resolution of certain tax matters..
RISKS AND UNCERTAINTIES
The significant risks and uncertainties affecting the Company
and its business are discussed in the Company's August 31, 2012
Annual Report under the Introduction to the Business - Known
Events, Trends, Risks and Uncertainties in Management's Discussion
and Analysis.
FINANCIAL POSITION
Total assets at November 30, 2012 were $12.4 billion compared to
$12.7 billion at August 31, 2012. Following is a discussion of
significant changes in the consolidated statement of financial
position since August 31, 2012.
Current assets declined $330 million primarily due to decreases
in cash of $427 million and other current assets of $17 million
partially offset by an increase in accounts receivable of $117
million. Cash decreased as the cash outlay for investing and
financing activities exceeded the funds provided by operations.
Other current assets declined primarily due to a reduction in a tax
indemnity upon resolution of the related income tax liabilities.
Accounts receivable increased primarily due to an increase in
advertising revenue during the first quarter and higher equipment
shipments to retailers.
Property, plant and equipment decreased $45 million as
amortization exceeded current period capital investment.
Other long-term assets were up $6 million due to an increase in
customer equipment financing receivables.
Intangibles increased $45 million due to higher program rights
and advances. Additional investment in acquired rights and advances
exceeded the amortization for the current quarter.
Current liabilities declined $110 million due to decreases in
accounts payable and accruals of $11 million, income taxes payable
of $43 million and current portion of long-term debt of $101
million partially offset by increases in bank indebtedness of $30
million and unearned revenue of $15 million. Accounts payable and
accrued liabilities decreased due to fluctuations in various
accruals and other liabilities while income taxes payable declined
due to tax installment payments and resolution of certain income
tax liabilities which were partially offset by the current quarter
provision. The current portion of long-term debt decreased due to
the repayment of the 6.1% $450 million senior notes which were due
in November 2012 partially offset by the reclassification of the
7.5% $350 million senior notes which are due in November 2013.
Unearned revenue increased mainly due to reclassification of
advance bill payments from accounts receivable.
Long-term debt decreased $98 million due to the aforementioned
reclassification of the $350 million senior notes partially offset
by $250 million of borrowings under the credit facility.
Other long-term liabilities decreased $302 million as the
Company contributed $300 million to a Retirement Compensation
Arrangement Trust ("RCA") in order to partially fund its
non-contributory defined benefit pension plan.
Deferred income tax liabilities, net of deferred income tax
assets, increased $30 million due to the current period
expense.
Shareholders' equity increased $156 million primarily due to
increases in share capital of $36 million, retained earnings of
$112 million and non-controlling interests of $7 million. Share
capital increased due to the issuance of 1,771,512 Class B
Non-Voting Shares under the Company's option plan and Dividend
Reinvestment Plan ("DRIP"). As of December 31, 2012, share capital
is as reported at November 30, 2012 with the exception of the
issuance of a total of 691,821 Class B Non-Voting Shares under the
DRIP and upon exercise of options under the Company's option plan
subsequent to the quarter end. Retained earnings increased due to
current year earnings of $224 million partially offset by dividends
of $112 million while non-controlling interests increased as their
share of earnings exceeded the distributions declared during the
quarter.
LIQUIDITY AND CAPITAL RESOURCES
In the current year, the Company generated $244 million of free
cash flow. Shaw used its free cash flow along with cash and
borrowings under its credit facility of $707 million, proceeds on
issuance of Class B Non-Voting Shares of $7 million and other net
items of $55 million to repay the 6.1% $450 million senior notes,
fund $300 million in discretionary contributions to an RCA in
respect of its non-contributory defined benefit pension plan, fund
the net change in working capital of $133 million, pay common share
dividends of $80 million and invest an additional net $50 million
in program rights.
On December 5, 2012 Shaw received the approval of the TSX to
renew its normal course issuer bid to purchase its Class B
Non-Voting Shares for a further one year period. The Company is
authorized to acquire up to 20,000,000 Class B Non-Voting Shares
during the period December 7, 2012 to December 6, 2013. No shares
were repurchased under the previous normal course issuer bid which
expired on November 30, 2012.
The Company issues Class B Non-Voting Shares from treasury under
its DRIP which resulted in cash savings and incremental Class B
Non-Voting Shares of $28 million during the three months ending
November 30, 2012.
Based on available credit facilities and forecasted free cash
flow, the Company expects to have sufficient liquidity to fund
operations and obligations during the current fiscal year. On a
longer-term basis, Shaw expects to generate free cash flow and have
borrowing capacity sufficient to finance foreseeable future
business plans and refinance maturing debt.
CASH FLOW
Operating Activities
Three months ended
November 30,
---------------------------
Change
2012 2011 %
----------------------------------------------------------------------------
($millions Cdn)
Funds flow from operations 127 356 (64.3)
greater
Net increase in non-cash working capital balances than
related to operations (98) (47) 100.0
----------------------------------------------------------------------------
29 309 (90.6)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funds flow from operations decreased over the comparative three
month period as higher operating income before amortization and
lower current income taxes in the current year were more than
offset by the $300 million in discretionary contributions to an RCA
and higher program rights purchases. The net change in non-cash
working capital balances related to operations fluctuated over the
comparative period due to changes in other current assets and the
timing of payment of current income taxes payable and accounts
payable and accrued liabilities.
Investing Activities
Three months ended
November 30,
--------------------------
2012 2011 Decrease
----------------------------------------------------------------------------
($millions Cdn)
Cash flow used in investing activities (206) (305) 99
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The cash used in investing activities decreased over the
comparable quarter due to lower cash outlays for capital
expenditures and fluctuations in inventory levels.
Financing Activities
The changes in financing activities during the comparative
periods were as follows:
Three months ended
November 30,
--------------------------
2012 2011
----------------------------------------------------------------------------
($millions Cdn)
Bank loans and bank indebtedness - net borrowings 280 -
Repay 6.1% senior unsecured notes (450) -
Dividends (83) (80)
Issuance of Class B Non-Voting Shares 7 7
Distributions paid to non-controlling interests (4) (10)
----------------------------------------------------------------------------
(250) (83)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION
Operating Net income
income before attributable to Basic Diluted
amortization equity Net earnings earnings
Revenue (1) shareholders(2) income(3) per share per share
----------------------------------------------------------------------------
($million
s Cdn
except
per
share
amounts)
2013
First 1,319 601 224 235 0.50 0.49
2012
Fourth 1,210 501 129 133 0.28 0.28
Third 1,278 567 238 248 0.53 0.53
Second 1,231 493 169 178 0.38 0.38
First 1,279 566 192 202 0.43 0.43
2011
Fourth 1,181 481 81 84 0.18 0.18
Third 1,285 586 195 201 0.45 0.45
Second 1,196 505 163 169 0.37 0.37
----------------------------------------------------------------------------
(1) See definition and discussion under Key Performance Drivers
in MD&A.
(2) In fiscal 2011, the Company discontinued construction of a
traditional wireless network and results of operations were
reported as discontinued operations. Net income from continuing
operations attributable to equity shareholders is substantially the
same as net income attributable to equity shareholders except in
the fourth quarter where it is $164 or $83 higher due to the net of
tax writedown of assets.
(3) Net income attributable to both equity shareholders and
non-controlling interests.
Generally, revenue and operating income before amortization have
grown quarter-over-quarter mainly due to customer growth and rate
increases with the exception of the fourth quarters of 2012 and
2011 and second quarter of 2012. In the second quarter of 2012,
revenue and operating income before amortization decreased by $48
million and $73 million, respectively due to the seasonality of the
Media business with higher revenues in the first quarter driven by
the fall launch of season premieres and high demand as well as
lower operating income before amortization in the Cable division.
Operating expenses increased in the second quarter which included
employee related costs, mainly related to bringing the new customer
service centres on line, as well as higher marketing, sales and
programming costs. The fourth quarters of 2011 and 2012 were both
impacted by the cyclical nature of the Media business with lower
advertising revenues in the summer months. Accordingly, in the
fourth quarter of 2011, revenue and operating income before
amortization declined $104 million and $105 million, respectively,
while in the fourth quarter of 2012, revenue and operating income
before amortization declined $68 million and $66 million,
respectively. The impact of the Media business in the fourth
quarter of 2012 was partially offset by improved operating income
before amortization in the Cable division.
Net income has fluctuated quarter-over-quarter primarily as a
result of the growth in operating income before amortization
described above and the impact of the net change in non-operating
items. In the first quarter of 2013, net income increased $102
million primarily due to higher operating income before
amortization of $100 million. In the fourth quarter of 2012, net
income decreased $115 million, primarily due to lower operating
income before amortization of $66 million and increased income tax
expense of $31 million. The fourth quarter also included a loss of
$26 million in respect of the electrical fire at the Company's head
office offset by a pension curtailment gain of $25 million. In the
third quarter of 2012, net income increased $70 million due to
higher operating income before amortization of $74 million and
lower amortization of $9 million partially offset by increased
income tax expense of $17 million. In the second quarter of 2012,
net income decreased $24 million due to a decline in operating
income before amortization of $73 million partially offset by lower
income tax expense of $53 million. Net income increased $118
million in the first quarter of 2012 due to the combined impact of
higher operating income before amortization of $85 million and
income tax expense of $18 million in the first quarter and the loss
from discontinued operations of $84 million and gain on redemption
of debt of $23 million recorded in the preceding quarter. During
the third quarter of 2011 net income increased $32 million due to
higher operating income before amortization and a lower loss on
derivative instruments partially offset by increased income taxes,
a lower foreign exchange gain on unhedged long-term debt and the
impact of the restructuring activities undertaken by the Company.
In the fourth quarter of 2011 net income declined $117 million due
to lower operating income before amortization of $105 million and
the loss of $83 million in respect of the wireless discontinued
operations partially offset by the gain on redemption of debt and
the aforementioned restructuring activities in the previous
quarter. As a result of the aforementioned changes in net income,
basic and diluted earnings per share have trended accordingly.
ACCOUNTING STANDARDS
Update to critical accounting policies and estimates
The MD&A included in the Company's August 31, 2012 Annual
Report outlined critical accounting policies including key
estimates and assumptions that management has made under these
policies and how they affect the amounts reported in the
Consolidated Financial Statements. The MD&A also describes
significant accounting policies where alternatives exist. The
condensed interim consolidated financial statements follow the same
accounting policies and methods of application as the most recent
annual consolidated financial statements other than as set out
below.
Adoption of recent accounting pronouncements
The Company adopted the following standards and amendments
effective September 1, 2012:
i. Employee Benefits
IAS 19, Employee Benefits (amended 2011), eliminates the
existing option to defer actuarial gains and losses and requires
changes from the remeasurement of defined benefit plan assets and
liabilities to be presented in the statement of other comprehensive
income. The significant amendments to IAS 19 which impact the
Company are as follows:
-- Expected return on plan assets is replaced with interest income and
calculated based on the discount rate used to measure the pension
obligation; the difference between interest income and actual return on
plan assets is recognized in other comprehensive income
-- Immediate recognition of past service costs when plan amendments occur
regardless of whether or not they are vested
-- Plan administration costs, other than costs associated with managing
plan assets, are required to be expensed
-- Expanded disclosures including plan characteristics and risks arising
from defined benefit plans
The Company early adopted the amended standard with
retrospective restatement effective September 1, 2012 and the
impact of adoption is outlined in Note 2 of the consolidated
financial statements.
ii. Presentation of Financial Statements
IAS 1, Presentation of Financial Statements, was amended to
require presentation of items of other comprehensive income based
on whether they may be reclassified to the statement of income and
has been applied retrospectively.
iii.Income Taxes
IAS 12, Income Taxes (amended 2011), introduces an exception to
the general measurement requirements of IAS 12 in respect of
investment properties measured at fair value. The amendment had no
impact on the Company's consolidated financial statements.
2013 GUIDANCE
The Company's preliminary view with respect to 2013 guidance was
provided coincident with the release of its fourth quarter results
on October 25, 2012. The Company anticipates modest growth in
consolidated revenue and operating income before amortization.
During fiscal 2013 the Company plans to continue to enhance its
network, provide innovative product offerings, and launch the Anik
G1 satellite and expects consolidated capital investment to decline
marginally from 2012 levels. Combined with increased cash tax
amounts, the Company expects to deliver consolidated free cash flow
comparable to 2012.
Certain important assumptions for 2013 guidance purposes
include: continued overall customer growth; stable pricing
environment for Shaw's products relative to current rates; no
significant market disruption or other significant changes in
economic conditions, competition or regulation that would have a
material impact; stable advertising demand and rates; and a stable
regulatory environment.
See the following section entitled "Caution Concerning
Forward-Looking Statements".
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
Statements included in this MD&A that are not historic
constitute "forward-looking statements" within the meaning of
applicable securities laws. Such statements include, but are not
limited to, statements about future capital expenditures, financial
guidance for future performance, business strategies and measures
to implement strategies, competitive strengths, expansion and
growth of Shaw's business and operations and other goals and plans.
They can generally be identified by words such as "anticipate",
"believe", "expect", "plan", "intend", "target", "goal" and similar
expressions (although not all forward-looking statements contain
such words). All of the forward-looking statements made in this
report are qualified by these cautionary statements.
Forward-looking statements are based on assumptions and analyses
made by Shaw in light of its experience and its perception of
historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate
in the circumstances as of the current date. These assumptions
include, but are not limited to, general economic conditions,
interest and exchange rates, technology deployment, content and
equipment costs, industry structure, conditions and stability,
government regulation and the integration of recent acquisitions.
Many of these assumptions are confidential.
You should not place undue reliance on any forward-looking
statements. Many factors, including those not within Shaw's
control, may cause Shaw's actual results to be materially different
from the views expressed or implied by such forward-looking
statements, including, but not limited to, general economic, market
and business conditions; changes in the competitive environment in
the markets in which Shaw operates and from the development of new
markets for emerging technologies; industry trends and other
changing conditions in the entertainment, information and
communications industries; Shaw's ability to execute its strategic
plans; opportunities that may be presented to and pursued by Shaw;
changes in laws, regulations and decisions by regulators that
affect Shaw or the markets in which it operates; Shaw's status as a
holding company with separate operating subsidiaries; and other
factors referenced in this report under the heading "Risks and
uncertainties". The foregoing is not an exhaustive list of all
possible factors. Should one or more of these risks materialize, or
should assumptions underlying the forward-looking statements prove
incorrect, actual results may vary materially from those described
herein.
The Company provides certain financial guidance for future
performance as the Company believes that certain investors,
analysts and others utilize this and other forward-looking
information in order to assess the Company's expected operational
and financial performance and as an indicator of its ability to
service debt and return cash to shareholders. The Company's
financial guidance may not be appropriate for this or other
purposes.
Any forward-looking statement speaks only as of the date on
which it was originally made and, except as required by law, Shaw
expressly disclaims any obligation or undertaking to disseminate
any updates or revisions to any forward-looking statement to
reflect any change in related assumptions, events, conditions or
circumstances.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited)
November 30, August 31,
(millions of Canadian dollars) 2012 2012
----------------------------------------------------------------------------
ASSETS
Current
Cash - 427
Accounts receivable 550 433
Inventories 99 102
Other current assets 72 89
----------------------------------------------------------------------------
721 1,051
Investments and other assets 13 13
Property, plant and equipment 3,197 3,242
Other long-term assets 337 331
Assets held for sale - 1
Deferred income tax assets 9 14
Intangibles 7,400 7,355
Goodwill 715 715
----------------------------------------------------------------------------
12,392 12,722
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 30 -
Accounts payable and accrued liabilities 800 811
Provisions 20 19
Income taxes payable 113 156
Unearned revenue 172 157
Current portion of long-term debt (note 5) 350 451
Derivative instruments - 1
----------------------------------------------------------------------------
1,485 1,595
Long-term debt (note 5) 4,714 4,812
Other long-term liabilities (notes 2 and 10) 251 553
Provisions 8 8
Deferred credits 634 635
Deferred income tax liabilities 1,110 1,085
----------------------------------------------------------------------------
8,202 8,688
Shareholders' equity (notes 2, 6 and 8)
Common and preferred shareholders 3,902 3,753
Non-controlling interests in subsidiaries 288 281
----------------------------------------------------------------------------
4,190 4,034
----------------------------------------------------------------------------
12,392 12,722
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended
November 30,
(millions of Canadian dollars except per share
amounts) 2012 2011
----------------------------------------------------------------------------
Revenue (note 3) 1,319 1,279
Operating, general and administrative expenses
(note 4) 718 713
----------------------------------------------------------------------------
Operating income before amortization (note 3) 601 566
Amortization:
Deferred equipment revenue 30 28
Deferred equipment costs (63) (53)
Property, plant and equipment, intangibles and
other (175) (169)
----------------------------------------------------------------------------
Operating income 393 372
Amortization of financing costs - long-term debt (1) (1)
Interest expense (82) (82)
Accretion of long-term liabilities and
provisions (3) (4)
Other losses (note 11) (4) (6)
----------------------------------------------------------------------------
Income before income taxes 303 279
Current income tax expense (note 3) 38 84
Deferred income tax expense (recovery) 30 (7)
----------------------------------------------------------------------------
Net income 235 202
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income attributable to:
Equity shareholders 224 192
Non-controlling interests in subsidiaries 11 10
----------------------------------------------------------------------------
235 202
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share (note 7)
Basic 0.50 0.43
Diluted 0.49 0.43
----------------------------------------------------------------------------
See accompanying notes
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
Three months ended
November 30,
(millions of Canadian dollars) 2012 2011
----------------------------------------------------------------------------
Net income 235 202
Other comprehensive income (note 8)
Items that may subsequently be reclassified to
income:
Change in unrealized fair value of derivatives
designated as cash flow hedges 1 2
Adjustment for hedged items recognized in the
period - (1)
----------------------------------------------------------------------------
1 1
----------------------------------------------------------------------------
Comprehensive income 236 203
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Comprehensive income attributable to:
Equity shareholders 225 193
Non-controlling interests in subsidiaries 11 10
----------------------------------------------------------------------------
236 203
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
Three months ended November 30, 2012
Attributable to equity shareholders
----------------------------------------------------
Accumulated
other
(millions of Canadian Share Contributed Retained comprehensive
dollars) capital surplus earnings loss Total
----------------------------------------------------------------------------
Balance as at September
1, 2012 2,750 77 1,019 (93) 3,753
Net income - - 224 - 224
Other comprehensive
income - - - 1 1
----------------------------------------------------------------------------
Comprehensive income - - 224 1 225
Dividends - - (84) - (84)
Dividend reinvestment
plan 28 - (28) - -
Shares issued under
stock option plan 8 (1) - - 7
Share-based compensation - 1 - - 1
Distributions declared
by subsidiaries to non-
controlling interests - - - - -
----------------------------------------------------------------------------
Balance as at November
30, 2012 2,786 77 1,131 (92) 3,902
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended November 30, 2012
Equity
attributable
to non-
(millions of Canadian controlling Total
dollars) interests equity
----------------------------------------------
Balance as at September
1, 2012 281 4,034
Net income 11 235
Other comprehensive
income - 1
----------------------------------------------
Comprehensive income 11 236
Dividends - (84)
Dividend reinvestment
plan - -
Shares issued under
stock option plan - 7
Share-based compensation - 1
Distributions declared
by subsidiaries to non-
controlling interests (4) (4)
----------------------------------------------
Balance as at November
30, 2012 288 4,190
----------------------------------------------
----------------------------------------------
Three months ended November 30, 2011
Attributable to equity shareholders
----------------------------------------------------
Accumulated
other
(millions of Canadian Share Contributed Retained comprehensive
dollars) capital surplus earnings loss Total
----------------------------------------------------------------------------
Balance as at September
1, 2011 2,633 73 728 (29) 3,405
Net income - - 192 - 192
Other comprehensive
income - - - 1 1
----------------------------------------------------------------------------
Comprehensive income - - 192 1 193
Dividends - - (80) - (80)
Dividend reinvestment
plan 25 - (25) - -
Shares issued under
stock option plan 8 (1) - - 7
Share-based compensation - 2 - - 2
Distributions declared
by subsidiaries to non-
controlling interests - - - - -
----------------------------------------------------------------------------
Balance as at November
30, 2011 2,666 74 815 (28) 3,527
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended November 30, 2011
Equity
attributable
to non-
(millions of Canadian controlling Total
dollars) interests equity
----------------------------------------------
Balance as at September
1, 2011 272 3,677
Net income 10 202
Other comprehensive
income - 1
----------------------------------------------
Comprehensive income 10 203
Dividends - (80)
Dividend reinvestment
plan - -
Shares issued under
stock option plan - 7
Share-based compensation - 2
Distributions declared
by subsidiaries to non-
controlling interests (8) (8)
----------------------------------------------
Balance as at November
30, 2011 274 3,801
----------------------------------------------
----------------------------------------------
See accompanying notes
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended
November 30,
(millions of Canadian dollars) 2012 2011
----------------------------------------------------------------------------
OPERATING ACTIVITIES
Funds flow from operations (note 9) 127 356
Net increase in non-cash working capital balances
related to operations (98) (47)
----------------------------------------------------------------------------
29 309
----------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (note
3) (151) (213)
Additions to equipment costs (net) (note 3) (40) (58)
Additions to other intangibles (note 3) (21) (19)
Net reduction (addition) to inventories 3 (23)
Proceeds on disposal of property, plant and
equipment (note 3) 3 8
----------------------------------------------------------------------------
(206) (305)
----------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in bank indebtedness 30 -
Increase in long-term debt 500 -
Debt repayments (700) -
Issue of Class B Non-Voting Shares (note 6) 7 7
Dividends paid on Class A Shares and Class B
Non-Voting Shares (80) (76)
Dividends paid on Preferred Shares (3) (4)
Distributions paid to non-controlling interests
in subsidiaries (4) (10)
----------------------------------------------------------------------------
(250) (83)
----------------------------------------------------------------------------
Decrease in cash before discontinued operations (427) (79)
Decrease in cash from discontinued operations - (1)
----------------------------------------------------------------------------
Decrease in cash (427) (80)
Cash, beginning of the period 427 443
----------------------------------------------------------------------------
Cash, ending of the period - 363
----------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
November 30, 2012 and 2011
(all amounts in millions of Canadian dollars, except share and
per share amounts)
1. CORPORATE INFORMATION
Shaw Communications Inc. (the "Company") is a diversified
Canadian communications company whose core operating business is
providing broadband cable television services, Internet, Digital
Phone, and telecommunications services ("Cable"); Direct-to-home
satellite services and satellite distribution services
("Satellite"); and programming content (through Shaw Media). The
Company's shares are listed on the Toronto and New York Stock
Exchanges.
2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Statement of compliance
These condensed interim consolidated financial statements of the
Company have been prepared in accordance with International
Financial Reporting Standards ("IFRS") and in compliance with
International Accounting Standard ("IAS") 34 Interim Financial
Reporting as issued by the International Accounting Standards Board
("IASB").
The condensed interim consolidated financial statements of the
Company for the three months ended November 30, 2012 were
authorized for issue in accordance with a resolution of the Audit
Committee on January 8, 2013.
Basis of presentation
These condensed interim consolidated financial statements have
been prepared primarily under the historical cost convention except
as detailed in the significant accounting policies disclosed in the
Company's consolidated financial statements for the year ended
August 31, 2012 and are expressed in millions of Canadian dollars.
The condensed interim consolidated statements of income are
presented using the nature classification for expenses.
The notes presented in these condensed interim consolidated
financial statements include only significant events and
transactions occurring since the Company's last fiscal year end and
are not fully inclusive of all matters required to be disclosed by
IFRS in the Company's annual consolidated financial statements. As
a result, these condensed interim consolidated financial statements
should be read in conjunction with the Company's consolidated
financial statements for the year ended August 31, 2012.
The condensed interim consolidated financial statements follow
the same accounting policies and methods of application as the most
recent annual consolidated financial statements except as noted
below.
Adoption of recent accounting pronouncements
The Company adopted the following standards and amendments
effective September 1, 2012.
(i) Employee Benefits
IAS 19, Employee Benefits (amended 2011), eliminates the
existing option to defer actuarial gains and losses and requires
changes from the remeasurement of defined benefit plan assets and
liabilities to be presented in the statement of other comprehensive
income. The significant amendments to IAS 19 which impact the
Company are as follows:
-- Expected return on plan assets is replaced with interest income and
calculated based on the discount rate used to measure the pension
obligation; the difference between interest income and actual return on
plan assets is recognized in other comprehensive income
-- Immediate recognition of past service costs when plan amendments occur
regardless of whether or not they are vested
-- Plan administration costs, other than costs associated with managing
plan assets, are required to be expensed
-- Expanded disclosures including plan characteristics and risks arising
from defined benefit plans
The Company early adopted the amended standard with
retrospective restatement which resulted in an increase in other
long-term liabilities and decrease in retained earnings by $1 at
August 31, 2012. There was no impact on the Company's consolidated
statements of income, comprehensive income or cash flows for
2012.
(ii) Presentation of Financial Statements
IAS 1, Presentation of Financial Statements, was amended to
require presentation of items of other comprehensive income based
on whether they may be reclassified to the statement of income and
has been applied retrospectively.
(iii) Income Taxes
IAS 12, Income Taxes (amended 2011), introduces an exception to
the general measurement requirements of IAS 12 in respect of
investment properties measured at fair value. The amendment had no
impact on the Company's consolidated financial statements.
3. BUSINESS SEGMENT INFORMATION
The Company's operating segments are Cable, Satellite and Media,
all of which are substantially located in Canada. Shaw Media's
operating results are affected by seasonality and fluctuate
throughout the year due to a number of factors including seasonal
advertising and viewing patterns. As such, operating results for an
interim period should not be considered indicative of full fiscal
year performance. In general, advertising revenues are higher
during the first quarter and lower during the fourth quarter and
expenses are incurred more evenly throughout the year. Information
on operations by segment is as follows:
Operating information
Three months ended November 30,
--------------------------------
2012 2011
$ $
----------------------------------------------------------------------------
Revenue
Cable 809 792
Satellite (1) 214 209
Media 319 299
----------------------------------------------------------------------------
1,342 1,300
Intersegment eliminations (23) (21)
----------------------------------------------------------------------------
1,319 1,279
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating income before amortization
Cable 396 377
Satellite (1) 74 69
Media 131 120
----------------------------------------------------------------------------
601 566
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Current taxes
Operating 80 84
Other/non-operating (42) -
----------------------------------------------------------------------------
38 84
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The Satellite segment was previously reported as DTH and Satellite
Services. These segments have been combined into a single operating
segment for reporting purposes which is consistent with the operating
segment reporting that is provided to the chief operating decision
makers.
Capital expenditures
Three months ended November 30,
--------------------------------
2012 2011
$ $
----------------------------------------------------------------------------
Capital expenditures accrual basis
Cable (including corporate) 126 195
Satellite (net of equipment profit) 3 2
Media 4 6
----------------------------------------------------------------------------
133 203
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Equipment costs (net of revenue)
Cable 14 28
Satellite 22 23
----------------------------------------------------------------------------
36 51
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures and equipment costs (net)
Cable 140 223
Satellite 25 25
Media 4 6
----------------------------------------------------------------------------
169 254
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation to Consolidated Statements of
Cash Flows
Additions to property, plant and equipment 151 213
Additions to equipment costs (net) 40 58
Additions to other intangibles 21 19
----------------------------------------------------------------------------
Total of capital expenditures and
equipment costs (net) per
Consolidated Statements of Cash Flows 212 290
Decrease in working capital related to
capital expenditures (35) (20)
Increase in customer equipment financing
receivables (4) (7)
Less: Proceeds on disposal of property,
plant and equipment (3) (8)
Less: Satellite equipment profit (1) (1) (1)
----------------------------------------------------------------------------
Total capital expenditures and equipment
costs (net) reported by segments 169 254
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The profit from the sale of satellite equipment is subtracted from the
calculation of segmented capital expenditures and equipment costs (net)
as the Company views the profit on sale as a recovery of expenditures on
customer premise equipment.
4.OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
Three months ended November 30,
--------------------------------
2012 2011
$ $
----------------------------------------------------------------------------
Employee salaries and benefits 216 199
Purchases of goods and services 502 514
----------------------------------------------------------------------------
718 713
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5.LONG-TERM DEBT
November 30, 2012 August 31, 2012
--------------------------------------------------------------
Long-term Long-term
Long-term Adjustment debt Long-term Adjustment debt
debt at for repayable debt at for repayable
amortized finance at amortized finance at
cost costs maturity cost costs maturity
$ $ $ $ $ $
----------------------------------------------------------------------------
Corporate
Bank loans 250 - 250 - - -
Cdn Senior
notes-
6.10% due
November 16,
2012 - - - 450 - 450
7.50% due
November 20,
2013 349 1 350 349 1 350
6.50% due
June 2, 2014 598 2 600 598 2 600
6.15% due May
9, 2016 295 5 300 295 5 300
5.70% due
March 2,
2017 397 3 400 397 3 400
5.65% due
October 1,
2019 1,243 7 1,250 1,242 8 1,250
5.50% due
December 7,
2020 496 4 500 496 4 500
6.75% due
November 9,
2039 1,416 34 1,450 1,416 34 1,450
----------------------------------------------------------------------------
5,044 56 5,100 5,243 57 5,300
----------------------------------------------------------------------------
Other
Burrard
Landing Lot 2
Holdings
Partnership 20 - 20 20 - 20
----------------------------------------------------------------------------
Total
consolidated
debt 5,064 56 5,120 5,263 57 5,320
Less current
portion (1) 350 1 351 451 - 451
----------------------------------------------------------------------------
4,714 55 4,769 4,812 57 4,869
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Current portion of long-term debt at November 30, 2012 includes the
7.50% senior notes due November 20, 2013 and the amount due within one
year on the Partnership's mortgage bonds.
6. SHARE CAPITAL
Changes in share capital during the three months ended November
30, 2012 are as follows:
Class B Non-Voting
Class A Shares Shares Preferred Shares
------------------------------------------------------
Number $ Number $ Number $
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August 31, 2012 22,520,064 2 421,188,697 2,455 12,000,000 293
Issued upon stock
option plan exercises - - 398,988 8 - -
Issued pursuant to
dividend reinvestment
plan - - 1,372,524 28 - -
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November 30, 2012 22,520,064 2 422,960,209 2,491 12,000,000 293
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7. EARNINGS PER SHARE
Earnings per share calculations are as follows:
Three months ended
November 30,
----------------------
2012 2011
----------------------------------------------------------------------------
Numerator for basic and diluted earnings per share ($)
Net income 235 202
Deduct: net income attributable to non-controlling
interests (11) (10)
Deduct: dividends on Preferred Shares (4) (4)
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Net income attributable to common shareholders 220 188
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Denominator (millions of shares)
Weighted average number of Class A Shares and Class B
Non-Voting Shares for basic earnings per share 444 438
Effect of dilutive securities (1) 1 1
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Weighted average number of Class A Shares and Class B
Non-Voting Shares for diluted earnings per share 445 439
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Earnings per share ($)
Basic 0.50 0.43
Diluted 0.49 0.43
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(1) The earnings per share calculation does not take into consideration the
potential dilutive effect of certain stock options since their impact is
anti-dilutive. For the three months ended November 30, 2012, 11,842,643
(2011 - 11,598,354) options were excluded from the diluted earnings per
share calculation, respectively.
8. OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER
COMPREHENSIVE LOSS
Components of other comprehensive income and the related income
tax effects for the three months ended November 30, 2012 are as
follows:
Income
Amount taxes Net
$ $ $
----------------------------------------------------------------------------
Items that may subsequently be reclassified to
income
Change in unrealized fair value of
derivatives designated as cash flow hedges 1 - 1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Components of other comprehensive income and the related income
tax effects for the three months ended November 30, 2011 are as
follows:
Income
Amount taxes Net
----------------------------------------------------------------------------
Items that may subsequently be reclassified to
income $ $ $
Change in unrealized fair value of
derivatives designated as cash flow hedges 2 - 2
Adjustment for hedged items recognized in
the period (1) - (1)
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1 - 1
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Accumulated other comprehensive loss is comprised of the
following:
November 30, August 31,
2012 2012
$ $
----------------------------------------------------------------------------
Items that may subsequently be reclassified to
income
Fair value of derivatives - (1)
Items that will not be subsequently
reclassified to income
Actuarial losses on employee benefit plans (92) (92)
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(92) (93)
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9. STATEMENTS OF CASH FLOWS
Disclosures with respect to the Consolidated Statements of Cash
Flows are as follows:
(i) Funds flow from operations
Three months ended November 30,
-------------------------------
2012 2011
$ $
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Net income 235 202
Adjustments to reconcile net income to funds
flow from operations:
Amortization 209 195
Program rights (50) (37)
Deferred income tax expense (recovery) 30 (7)
CRTC benefit obligation funding (9) (10)
Share-based compensation 1 2
Defined benefit pension plans (298) 4
Accretion of long-term liabilities and
provisions 3 4
Other 6 3
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Funds flow from operations 127 356
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(ii) Interest and income taxes paid and classified as operating
activities are as follows:
Three months ended November 30,
--------------------------------
2012 2011
$ $
----------------------------------------------------------------------------
Interest 131 131
Income taxes 66 59
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(iii) Non-cash transaction:
The Consolidated Statements of Cash Flows exclude the following
non-cash transaction:
Three months ended November 30,
--------------------------------
2012 2011
$ $
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Issuance of Class B Non-Voting Shares:
Dividend reinvestment plan 28 25
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10. OTHER LONG-TERM LIABILITIES
During the three months ended November 30, 2012, the Company's
non-contributory defined pension plan became partially funded as
the Company made discretionary contributions of $300 to a
Retirement Compensation Arrangement Trust.
11. OTHER LOSSES
Other losses generally includes realized and unrealized foreign
exchange gains and losses on US dollar denominated current assets
and liabilities, gains and losses on disposal of property, plant
and equipment and minor investments, and the Company's share of the
operations of Burrard Landing Lot 2 Holdings Partnership. The
category also includes amounts in respect of the electrical fire
and resulting water damage to Shaw Court that occurred during the
fourth quarter of fiscal 2012. During the current quarter, the
Company received insurance advances of $5 related to its claim for
costs that were incurred in the previous quarter and incurred
additional costs of $6 in respect of ongoing restoration and
recovery activities.
Contacts: Shaw Communications Inc. Investor
RelationsInvestor.relations@sjrb.ca www.shaw.ca
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