Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR) announced
consolidated financial and operating results for the three and nine
months ended May 31, 2013. Consolidated revenue for the three and
nine month periods of $1.33 billion and $3.90 billion,
respectively, was up 4% and 3%, respectively, over the comparable
periods last year. Total operating income before amortization(1) of
$585 million improved 3% over the comparable quarterly period and
the year-to-date amount of $1.72 billion was up 6%.
Free cash flow(1) for the three and nine month periods was $138
million and $543 million, respectively, compared to $203 million
and $379 million for the comparable periods last year. Increased
operating income before amortization and lower capital investment
were the main drivers of the improvement for the year-to-date
period.
Chief Executive Officer Brad Shaw said, "Our third quarter
results were solid as our executive team and our 14,000 employees
continue to deliver value for all our stakeholders through a focus
on disciplined growth and execution of our operating strategies.
The quarter was highlighted with the closing of a number of the
strategic transactions announced earlier in the year, including the
acquisitions of ENMAX Envision and Food Network Canada, and the
disposition of the Hamilton cable system and our interest in ABC
Spark."
"During the quarter we continued to invest in our core business
including the acceleration of certain strategic capital initiatives
that reinforce our infrastructure advantage. The Anik G1 satellite
also successfully launched in April and in late May Shaw Direct
added over 140 channels to its offerings, primarily in HD. The
investment in Anik G1 brings our customers enhanced choice in
programming, including more local Canadian channels."
Net income of $250 million or $0.52 per share for the quarter
ended May 31, 2013 compared to $248 million or $0.53 per share for
the same period last year. Net income for the first nine months of
the year was $667 million or $1.40 per share compared to $628
million or $1.34 per share. The net income improvement in both
current periods was due to increased operating income and a gain on
the sale of the Hamilton cable system partially offset by increased
income taxes.
Revenue in the Cable division of $825 million and $2.45 billion
for the current three and nine month periods increased 4% and 2%,
respectively, over the comparable periods. Operating income before
amortization for the quarter of $397 million was up 5% compared to
the same quarter last year and the year-to-date period improved 7%
to $1.19 billion.
Satellite revenue of $218 million and $641 million for the three
and nine month periods, respectively, compared to $211 million and
$631 million in the same periods last year. Operating income before
amortization for the current quarter was $72 million compared to
$76 million last year and the year-to-date amount was up 1% from
$216 million to $219 million.
Revenue and operating income before amortization in the Media
division for the quarter of $307 million and $116 million,
respectively, increased 4% and 2% over the same period last year.
On a year-to-date basis Media revenue and operating income before
amortization each improved 5%.
Severe floods in late June impacted Shaw services in various
locations across Southern Alberta. Technical, maintenance and
customer care teams took immediate action to repair services for
affected customers and proactive steps to maintain service and
prevent any significant damage to Shaw infrastructure. The strength
of the network redundancy and the tactical responsiveness ensured
service interruptions were kept to a minimal period of time. Global
News excelled in its extended special coverage of the crisis,
establishing itself as the authority of information for the
community.
Brad Shaw continued "As we enter the final quarter of 2013 we
are seeing continued positive momentum across our divisions with
ongoing revenue growth and overall management of promotional
activity and costs. As a result, we are increasing our fiscal year
2013 guidance and expect free cash flow to range from $590 to $600
million. Our investments in brand, innovation and technology, and
service enhancements are driving sustainable growth and customer
retention. Given the improvement in free cash flow and continued
favorable market conditions, our Board plans to target dividend
increases of 5% to 10% over each of the next two years."
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 19 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
MAY 31, 2013
June 27, 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 and 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
THIRD QUARTER ENDING MAY 31, 2013
Selected Financial Highlights
Three months ended May 31, Nine months ended May 31,
--------------------------- --------------------------
($ millions Cdn except
per share amounts) 2013 2012 Change % 2013 2012 Change %
----------------------------------------------------------------------------
Operations:
Revenue 1,326 1,278 3.8 3,896 3,788 2.9
Operating income
before amortization
(1) 585 567 3.2 1,724 1,626 6.0
Operating margin (1)
(2) 44.1% 44.4% (0.3) 44.3% 42.9% 1.4
Funds flow from
operations (3) 438 424 3.3 951 944 0.7
Net income 250 248 0.8 667 628 6.2
Per share data:
Earnings per share
Basic 0.52 0.53 1.40 1.34
Diluted 0.52 0.53 1.39 1.33
Weighted average
participating
shares outstanding
during period
(millions) 449 441 447 440
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See definitions and discussion under Key Performance Drivers in MD&A.
(2) Operating margin for the nine months ended May 31, 2013 includes the
impact of an adjustment to align certain broadcast license fees with
the CRTC billing period of approximately $14 million. Excluding the
adjustment, operating margin would be 43.9%.
(3) 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, 2)
Growth
-----------------------------------------
Three months ended Nine months ended
Total May 31, May 31,
------------- -------------------- --------------------
May 31, 2013 2013 2012 2013 2012
---------------------------------- -----------------------------------------
Subscriber
statistics:
Video customers 2,069,769 (26,578) (21,277) (79,980) (53,819)
Internet customers 1,879,942 4,157 2,230 17,469 31,790
Digital phone lines 1,355,238 17,719 38,597 47,694 106,211
DTH customers 904,400 (2,930) (1,820) (5,623) (15)
----------------------------------------------------------------------------
(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.
(2) Subscriber numbers have been restated for comparative purposes to remove
approximately 41,000 Video customers, 34,000 Internet customers and
38,000 Digital phone lines as a result of the sale of Mountain
Cablevision Limited.
Consolidated Overview
Consolidated revenue of $1.33 billion and $3.90 billion for the
three and nine month periods, respectively, improved 3.8% and 2.9%
over the same periods last year. Consolidated operating income
before amortization for the three month period of $585 million was
up 3.2% and on a year-to-date basis increased 6.0% to $1.72
billion. 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 employee related
amounts and higher programming costs. Within all segments, the
current year-to-date amount also benefited from a one-time
adjustment to align certain broadcast license fees with the CRTC
billing period totaling approximately $14 million.
The Company's strategy is to balance financial results with
maintenance of overall revenue generating units ("RGUs"). The Cable
and Satellite divisions have over 6.2 million RGUs - which
represents the number of products sold to customers. During the
quarter, overall RGUs declined by 7,600. The Company continues to
focus on refraining from overly promotional pricing and instead on
providing equipment to customers. In the fourth quarter the Company
plans to offer contracts, with equipment offers, as an alternative
for customers.
Net income was $250 million and $667 million for the three and
nine months ended May 31, 2013, respectively, compared to $248
million and $628 million for the same periods last year.
Non-operating items affected net income in both periods. Outlined
on the following page are further details on these and other
operating and non-operating components of net income for each
period.
Nine Nine
months months
($millions Cdn) ended ended
--------- ---------
May 31, Non- May 31, Non-
2013 Operating operating 2012 Operating operating
----------------------------------------------------------------------------
Operating income 1,093 1,093 - 1,027 1,027 -
Amortization of
financing costs
- long-term debt (3) (3) - (3) (3) -
Interest expense (234) (234) - (247) (247) -
Gain on sale of
cablesystem 50 - 50 - - -
Acquisition and
divestment costs (8) - (8) - - -
Gain on sale of
associate 9 - 9 - - -
Gain on
remeasurement of
interests in
equity
investments - - - 6 - 6
CRTC benefit
obligation - - - (2) - (2)
Gain on
derivative
instruments - - - 1 - 1
Accretion of
long-term
liabilities and
provisions (7) - (7) (11) - (11)
Equity income
from associates - - - 1 - 1
Other losses (9) - (9) (2) - (2)
----------------------------------------------------------------------------
Income (loss)
before income
taxes 891 856 35 770 777 (7)
Current income
tax expense
(recovery) 147 240 (93) 197 218 (21)
Deferred income
tax expense
(recovery) 77 (17) 94 (55) (48) (7)
----------------------------------------------------------------------------
Net income 667 633 34 628 607 21
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Three
months months
($millions Cdn) ended ended
--------- ---------
May 31, Non- May 31, Non-
2013 Operating operating 2012 Operating operating
----------------------------------------------------------------------------
Operating income 373 373 - 369 369 -
Amortization of
financing costs
- long-term debt (1) (1) - (1) (1) -
Interest expense (75) (75) - (82) (82) -
Gain on sale of
cablesystem 50 - 50 - - -
Acquisition and
divestment costs (8) - (8) - - -
Gain on sale of
associate 9 - 9 - - -
Gain on
remeasurement of
interests in
equity
investments - - - 6 - 6
CRTC benefit
obligation - - - (2) - (2)
Accretion of
long-term
liabilities and
provisions (2) - (2) (4) - (4)
Other gains
(losses) (3) - (3) 3 - 3
----------------------------------------------------------------------------
Income before
income taxes 343 297 46 289 286 3
Current income
tax expense
(recovery) 62 85 (23) 51 70 (19)
Deferred income
tax expense
(recovery) 31 (8) 39 (10) (3) (7)
----------------------------------------------------------------------------
Net income 250 220 30 248 219 29
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The changes in net income are outlined in the table below.
May 31, 2013 net income
compared to:
--------------------------------------------------
Three months ended Nine months ended
------------------------------- ------------------
($millions Cdn) February 28, 2013 May 31, 2012 May 31, 2012
----------------------------------------------------------------------------
Increased operating income
before amortization (1) 47 18 98
Increased amortization (1) (14) (32)
Decreased interest expense 2 7 13
Change in net other costs
and revenue (2) 50 43 42
Increased income taxes (30) (52) (82)
----------------------------------------------------------------------------
68 2 39
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See definitions and discussion under Key Performance Drivers in MD&A.
(2) Net other costs and revenue includes gain on sale of cablesystem,
acquisition and divestment costs, gain on sale of associate, gain on
remeasurement on interests in equity investments, CRTC benefit
obligation, gain on derivative instruments, accretion of long-term
liabilities and provisions, equity income from associates and other
gains (losses) as detailed in the unaudited interim Consolidated
Statements of Income.
Basic earnings per share were $0.52 and $1.40 for the current
quarter and year-to-date period, respectively, compared to $0.53
and $1.34 in the same periods last year. In the current quarter,
increased operating income before amortization of $18 million,
lower interest expense of $7 million, and improved net other costs
and revenue of $43 million were partially offset by higher
amortization of $14 million and income taxes of $52 million as the
prior period benefited from a tax recovery related to the
resolution of certain tax matters. The improved net other costs and
revenue included the gain on the sale of Mountain Cablevision
Limited ("Mountain Cable"). The year-to-date increase was primarily
due to higher operating income before amortization of $98 million
and improved net other costs and revenue of $42 million, partially
reduced by increased amortization of $32 million and higher income
taxes of $82 million.
Net income in the current quarter was up $68 million compared to
the second quarter of fiscal 2013 driven by increased operating
income before amortization of $47 million, primarily due to
seasonality in the Media business, along with improved net other
costs and revenue of $50 million the total of which was partially
reduced by higher income taxes of $30 million.
Free cash flow for the quarter and year-to-date periods of $138
million and $543 million, respectively, compared to $203 million
and $379 million in the same periods last year. The current quarter
decline was primarily due to increased capital investment. The
year-to-date improvement was primarily due to improved operating
income before amortization and lower capital investment partially
reduced by higher cash taxes.
During the second quarter, the Company entered into agreements
with Rogers Communications Inc. ("Rogers") to sell to Rogers its
shares in Mountain Cable; and grant to Rogers an option to acquire
its wireless spectrum licenses; and, to purchase from Rogers its
33.3% interest in TVtropolis General Partnership ("TVtropolis").
Regulatory approval was received for Mountain Cable and it closed
at the end of April, and regulatory approval was recently received
for the TVtropolis transaction and it is expected to close at the
end of June. The potential option exercise for the sale of the
wireless spectrum licenses is expected to occur in fiscal 2015.
Overall, Shaw expects to receive net proceeds of approximately $700
million from these transactions.
Shaw also announced it had entered into a number of transactions
with Corus Entertainment Inc. ("Corus"), a related party subject to
common voting control. In a series of agreements to optimize its
portfolio of specialty channels, Shaw agreed to sell to Corus its
49% interest in ABC Spark and 50% interest in its two
French-language channels, Historia and Series+. In addition, Corus
agreed to sell to Shaw its 20% interest in Food Network Canada.
Shaw expects to receive net proceeds of approximately $95 million
from these transactions. The ABC Spark and Food Network Canada
transactions closed at the end of April while Historia and Series+
are expected to close in the fall of 2013.
These transactions with Rogers and Corus are strategic in nature
allowing the Company to use up to $500 million of the total
expected net proceeds of approximately $800 million to accelerate
certain capital investments to improve and strengthen its network
advantage. Key investments include the completion of the Calgary
data centre, further digitization of the network and additional
bandwidth upgrades, development of IP delivery of video, expansion
of the WiFi network, and additional innovative product offerings
related to Shaw Go and other applications to provide an enhanced
customer experience.
The Company established an accelerated capital fund of up to
$500 million and is tracking the accelerated spending against this
as the investments are made. Shaw plans to invest up to $500
million in fiscal 2013, 2014 and 2015 spending approximately $100
million, $250 million and $150 million in each of the respective
years. After this period of accelerated spending the Company
expects that the baseline capital intensity for the Cable business
will decline.
On April 8, 2013 Shaw announced it had entered into a
transaction to acquire ENMAX Envision Inc. ("Envision"), a company
providing leading telecommunication services to Calgary and
surrounding area business customers, for approximately $225
million. The acquisition closed at the end of April.
Key Performance Drivers
The Company's continuous disclosure documents may provide
discussion and analysis of non-IFRS financial measures. These
financial measures do not have standard definitions prescribed by
IFRS and therefore may not be comparable to similar measures
disclosed by other companies. The Company's continuous disclosure
documents may also provide discussion and analysis of additional
GAAP measures. Additional GAAP measures include line items,
headings, and sub-totals included in the financial statements.
The Company utilizes these measures in making operating
decisions and assessing its performance. Certain investors,
analysts and others, utilize these measures in assessing the
Company's operational and financial performance and as an indicator
of its ability to service debt and return cash to shareholders. The
non-IFRS financial measures and additional GAAP measures have not
been presented as an alternative to net income or any other measure
of performance required by IFRS.
The following contains a listing of non-IFRS financial measures
and additional GAAP measures used by the Company and provides a
reconciliation to the nearest IFRS measure or provides a reference
to such reconciliation.
Operating income before amortization and operating margin
Operating income before amortization is calculated as revenue
less operating, general and administrative expenses. It is intended
to indicate the Company's ability to service and/or incur debt, and
therefore it is calculated before amortization (a non-cash expense)
and interest. Operating income before amortization is also one of
the measures used by the investing community to value the business.
Operating margin is calculated by dividing operating income before
amortization by revenue.
Three months ended Nine months ended
May 31, May 31,
-------------------- --------------------
($ millions Cdn) 2013 2012 2013 2012
----------------------------------------------------------------------------
Operating income 373 369 1,093 1,027
Add back amortization:
Deferred equipment revenue (31) (29) (91) (85)
Deferred equipment costs 65 59 192 169
Property, plant and equipment,
intangibles and other 178 168 530 515
----------------------------------------------------------------------------
Operating income before
amortization 585 567 1,724 1,626
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 adjusted to exclude amounts funded through the
accelerated capital fund) 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.
Accelerated capital fund
The Company established a notional fund, the accelerated capital
fund, of up to $500 million with proceeds received, and to be
received, from several strategic transactions with each of Rogers
and Corus. The accelerated capital initiatives will be funded
through this fund and not cash generated from operations. Key
investments include the completion of the Calgary data centre,
further digitization of the network and additional bandwidth
upgrades, development of IP delivery of video, expansion of the
WiFi network, and additional innovative product offerings related
to Shaw Go and other applications to provide an enhanced customer
experience. It is expected up to $500 million will be used in
fiscal 2013, 2014 and 2015 spending approximately $100 million,
$250 million and $150 million in each of the respective years.
Free cash flow is calculated as follows:
Three months ended May
31, Nine months ended May 31,
------------------------ -------------------------
Change Change
($millions Cdn) 2013 2012 % 2013 2012 %
----------------------------------------------------------------------------
Revenue
Cable 825 794 3.9 2,448 2,390 2.4
Satellite 218 211 3.3 641 631 1.6
Media 307 295 4.1 875 836 4.7
----------------------------------------------------------------------------
1,350 1,300 3.8 3,964 3,857 2.8
Intersegment
eliminations (24) (22) 9.1 (68) (69) (1.4)
----------------------------------------------------------------------------
1,326 1,278 3.8 3,896 3,788 2.9
----------------------------------------------------------------------------
Operating income before
amortization (1)
Cable 397 377 5.3 1,186 1,106 7.2
Satellite 72 76 (5.3) 219 216 1.4
Media 116 114 1.8 319 304 4.9
----------------------------------------------------------------------------
585 567 3.2 1,724 1,626 6.0
----------------------------------------------------------------------------
Capital expenditures and
equipment costs (net):
(2)
Cable 255 169 50.9 571 626 (8.8)
Accelerated capital fund greater greater
investment (1) (40) - than 100.0 (50) - than 100.0
----------------------------------------------------------------------------
Adjusted Cable 215 169 27.2 521 626 (16.8)
----------------------------------------------------------------------------
greater
Satellite 46 17 than 100.0 92 67 37.3
Media 6 5 20.0 16 18 (11.1)
----------------------------------------------------------------------------
267 191 39.8 629 711 (11.5)
----------------------------------------------------------------------------
Free cash flow before the
following 318 376 (15.4) 1,095 915 19.7
Less:
Interest (75) (82) (8.5) (233) (246) (5.3)
Cash taxes (85) (70) 21.4 (240) (218) 10.1
Other adjustments:
Non-cash share-based
compensation 1 2 (50.0) 4 5 (20.0)
CRTC benefit obligation
funding (13) (10) 30.0 (37) (31) 19.4
Non-controlling
interests (11) (10) 10.0 (33) (30) 10.0
Pension adjustment 3 3 - 8 11 (27.3)
Customer equipment greater
financing 3 (3) than 100.0 (11) (16) (31.2)
Preferred share
dividends (3) (3) - (10) (11) (9.1)
----------------------------------------------------------------------------
Free cash flow (1) 138 203 (32.0) 543 379 43.3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating margin (1)
Cable 48.1% 47.5% 0.6 48.4% 46.3% 2.1
Satellite 33.0% 36.0% (3.0) 34.2% 34.2% -
Media 37.8% 38.6% (0.8) 36.5% 36.4% 0.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See definitions and discussion under Key Performance Drivers in MD&A.
(2) Per Note 3 to the unaudited interim Consolidated Financial Statements.
Details on the accelerated capital fund and investment to date
are as follows:
----------------------------------------------------------------------------
Estimated year of spend 2013 2014 2015 Total
----------------------------------------------------------------------------
($millions Cdn)
----------------------------------------------------------------------------
Fund Opening Balance 100 250 150 500
Accelerated capital investment (50) - - (50)
----------------------------------------------------------------------------
Fund Closing Balance, May 31, 2013 50 250 150 450
----------------------------------------------------------------------------
CABLE
Financial Highlights
Three months ended May Nine months ended May
31, 31,
------------------------ ------------------------
Change Change
($millions Cdn) 2013 2012 % 2013 2012 %
----------------------------------------------------------------------------
Revenue 825 794 3.9 2,448 2,390 2.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating income before
amortization (1) 397 377 5.3 1,186 1,106 7.2
Capital expenditures and
equipment costs (net):
New housing development 26 26 - 71 75 (5.3)
Success based 60 43 39.5 139 208 (33.2)
Upgrades and enhancement 110 65 69.2 247 243 1.6
Replacement 13 11 18.2 33 32 3.1
Buildings and other 46 24 91.7 81 68 19.1
----------------------------------------------------------------------------
Total as per Note 3 to the
unaudited interim
Consolidated Financial
Statements (2) 255 169 50.9 571 626 (8.8)
----------------------------------------------------------------------------
Operating margin (1) 48.1% 47.5% 0.6 48.4% 46.3% 2.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See definitions and discussion under Key Performance Drivers in MD&A.
(2) The three and nine months ended May 31, 2013 include $40 million and
$50 million respectively, related to certain capital investments that
are being funded from the accelerated capital fund.
Operating Highlights
-- Digital Phone lines increased 17,719 during the three month period to
1,355,238 and Internet customers were up 4,157 totaling 1,879,942 as at
May 31, 2013. During the quarter Video subscribers decreased 26,578.
-- During the quarter the Company closed the acquisition of Envision and
the disposition of Mountain Cable.
Cable revenue for the three and nine month periods of $825
million and $2.45 billion improved 3.9% and 2.4%, respectively,
over the comparable periods last year. Rate increases, lower
promotions and customer growth in Internet and Digital Phone,
including Business growth and the recent Envision acquisition that
closed at the end of April, were partially offset by lower Video
subscribers and the divestiture of Mountain Cable, also closing at
the end of April. On Demand improved in the current quarter
compared to the same period last year due to more PPV events, but
was lower on a year-to-date basis compared to the prior year mainly
due to the shortened NHL hockey schedule.
Operating income before amortization of $397 million for the
quarter was up 5.3% over the same period last year. Revenue related
improvements 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
increased programming amounts related to new services and increased
rates as contracts were renewed, higher marketing and various other
costs, and the net impact of divestment and acquisition
activity.
Operating income before amortization for the year-to-date period
improved 7.2% over last year to $1.19 billion. Revenue related
growth, reduced marketing and sales expenses, lower LPIF, and the
second quarter broadcast license fee adjustment, were partially
offset by higher employee related amounts due to employee growth
and annual merit increases, and higher programming costs due to new
services and annual rate increases.
Revenue was up $11 million or 1.4% compared to the second
quarter of fiscal 2013. Operating income before amortization
improved 1%. Revenue related growth and lower marketing and
employee related costs, were partially offset by the prior quarter
benefit related to the broadcast license fee adjustment and higher
various other expenses.
Total capital investment of $255 million in the current quarter
increased $86 million over the same period last year. Capital
investment for the nine month period of $571 million decreased from
$626 million last year. Capital investment in the current three and
nine month periods included $40 million and $50 million,
respectively, funded through the accelerated capital fund
established with net proceeds from the strategic transactions with
each of Rogers and Corus. The accelerated capital fund initiatives
included next generation video delivery systems, expediting WiFi
infrastructure build, continued investment in the new data centre,
and increasing network capacity.
Success-based capital was up $17 million over the comparable
three month period due to higher HD/HDPVR equipment rentals. For
the comparable nine month period Success based spend was $69
million lower due to reduced video equipment rentals, lower
subsidies from higher pricing for video equipment sales, decreased
internet modem purchases, and lower installation activity.
Investment in Upgrades and enhancement and Replacement
categories combined increased $47 million in the current quarter
compared to the same period last year. The higher spend was due to
core network equipment and softswitch upgrades, and increased
deployment of business customer electronics. The year-to-date
period investment was comparable to last year.
Investment in Buildings and other was up $22 million and $13
million, respectively, over the comparable three and nine month
periods last year. The increase was primarily due to higher spend
on other corporate assets, back office infrastructure replacement
projects, and continued investment in the new data centre.
Spending in New housing development was comparable to the three
and nine month periods last year.
Total capital investment of $255 million in the current quarter
increased $79 million over the second quarter and included $40
million of spend on various accelerated capital fund initiatives.
In addition to the various accelerated capital invested,
Success-based spend was up due to higher HD/HDPVR rental activity
and Buildings and other increased due to spend on other corporate
assets. Upgrades and enhancements was higher due to current quarter
digital network upgrade ("DNU") activity and engineering lab
replacement. The prior quarter also benefitted from a SR&ED tax
credit. New housing development was also up due to higher seasonal
construction activity.
During the quarter Shaw continued with its WiFi build out. Most
recently the Company and the City of Edmonton announced that
Edmonton City Council has approved a proposed agreement that will
see the Shaw Go WiFi network expand to public areas across the
city. The planned WiFi network will grant wireless Internet access
to Shaw customers, Edmontonians and visitors throughout Edmonton
areas popular for foot traffic and gathering, as well as LRT
stations, facilities and libraries. The build will take place over
the next two years.
The Company also continued with its focus on expanding its reach
into the business market with the completion at the end of April of
the acquisition of Envision from ENMAX Corporation. This
transaction expands Shaw's Business initiatives in Calgary and
significantly enhances the profile of Shaw Business in the
competitive Calgary marketplace.
Subscriber Statistics
May 31, 2013
------------------------------------
Three months ended Nine months ended
------------------ -----------------
May 31, August 31, Change Change
2013 2012(1)(2) Growth % Growth %
----------------------------------------------------------------------------
VIDEO:
Connected 2,069,769 2,149,749 (26,578) (1.3) (79,980) (3.7)
Penetration as %
of homes passed 51.9% 55.0%
----------------------------------------------------------------------------
INTERNET:
Connected and
scheduled 1,879,942 1,862,473 4,157 0.2 17,469 0.9
Penetration as %
of basic 90.8% 86.6%
Standalone
Internet not
included in basic
cable 299,972 252,437 16,690 5.9 47,535 18.8
DIGITAL PHONE:
Number of lines
(3) 1,355,238 1,307,544 17,719 1.3 47,694 3.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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 undertaken prior to the migration of customers to
Shaw's new billing system.
(2) Subscriber numbers have been restated for comparative purposes to
remove approximately 41,000 Video customers, 34,000 Internet customers
and 38,000 Digital phone lines as a result of the sale of Mountain
Cable.
(3) Represents primary and secondary lines on billing.
SATELLITE
Financial Highlights(1)
Three months ended May Nine months ended May
31, 31,
----------------------- -----------------------
Change Change
($millions Cdn) 2013 2012 % 2013 2012 %
----------------------------------------------------------------------------
Revenue 218 211 3.3 641 631 1.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating income before
amortization (2) 72 76 (5.3) 219 216 1.4
Capital expenditures and
equipment costs (net):
Success based (3) 21 16 31.2 61 61 -
greater greater
than than
Transponders 23 - 100.0 23 - 100.0
Buildings and other 2 1 100.0 8 6 33.3
----------------------------------------------------------------------------
Total as per Note 3 to the
unaudited interim greater
Consolidated Financial than
Statements 46 17 100.0 92 67 37.3
----------------------------------------------------------------------------
Operating margin (2) 33.0% 36.0% (3.0) 34.2% 34.2% -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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 2,930 and as at May
31, 2013 DTH customers totaled 904,400.
-- With the successful launch of Anik G1, Shaw Direct recently added over
140 channels to its offerings, primarily in HD, and now delivers over
210 HD signals to customers.
Revenue of $218 million and $641 million for the three and nine
month periods, respectively, was up 3.3% and 1.6% over the same
periods last year primarily due to rate increases partially offset
by increased promotional activity and lower subscribers.
Operating income before amortization of $72 million for the
three month period decreased 5.3% over the same period last year as
the revenue related growth was reduced by higher employee related
amounts, programming fees, as well as increased marketing expenses
and operating costs related to the new Anik G1 transponders.
Operating income before amortization for the nine month period of
$219 million increased modestly by 1.4% over the same period last
year.
Revenue increased over the second quarter primarily due to a
rate increase effective April 1, 2013. Operating income before
amortization declined modestly as the impact of customer rate
increases was more than offset by increased employee related costs,
Anik G1 related expenses and the one-time broadcast license fee
adjustment recorded in the prior quarter.
Total capital investment of $46 million and $92 million for the
three and nine month periods compared to $17 million and $67
million, respectively, in the same periods last year. The increase
in the current quarter was mainly due to the final payment to
purchase the Anik G1 transponders.
The Anik G1 satellite launched successfully in mid April with 16
extended Ku transponders leased to Shaw Direct. The satellite has
power levels above initial expectations resulting in an effective
capacity increase of up to 30%. In late May, Shaw Direct lit up the
satellite for its customers with the single largest launch of HD
channels in Canadian history adding over 120 new HD channels. In
total Shaw Direct now offers over 650 channels including more than
210 HD channels.
Subscriber Statistics
May 31, 2013
---------------------------------------
Three months ended Nine months ended
-------------------- ------------------
August 31, Change Change
May 31, 2013 2012 Growth % Growth %
----------------------------------------------------------------------------
DTH customers
(1) 904,400 910,023 (2,930) (0.3) (5,623) (0.6)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Including seasonal customers who temporarily suspend their service.
MEDIA
Financial Highlights
Three months ended May Nine months ended May
31, 31,
------------------------ ------------------------
Change Change
($millions Cdn) 2013 2012 % 2013 2012 %
----------------------------------------------------------------------------
Revenue 307 295 4.1 875 836 4.7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating income before
amortization (1) 116 114 1.8 319 304 4.9
Capital expenditures:
Broadcast and
transmission 2 1 100.0 5 7 (28.6)
Buildings and other 4 4 - 11 11 -
----------------------------------------------------------------------------
Total as per Note 3 to the
unaudited interim
Consolidated Financial
Statements 6 5 20.0 16 18 (11.1)
----------------------------------------------------------------------------
Other adjustments:
CRTC benefit obligation
funding (13) (10) 30.0 (37) (31) 19.4
Non-controlling interests (11) (10) 10.0 (33) (30) 10.0
Operating margin (1) 37.8% 38.6% (0.8) 36.5% 36.4% 0.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) See definitions and discussion under Key Performance Drivers in MD&A.
Operating Highlights
Revenue and operating income before amortization for the quarter
was $307 million and $116 million, respectively, compared to $295
million and $114 million last year. Revenue for the quarter was up
4.1% due to higher advertising and subscriber revenues. Operating
income before amortization improved 1.8% over the comparable period
due to revenue growth partially reduced by higher programming costs
and increased expenses including employee related and various
other.
For the nine months ending May 31, 2013 revenue of $875 million
and operating income before amortization of $319 million compared
to $836 million and $304 million, respectively, for the same period
last year. Improved advertising and subscriber revenues were
partially reduced by higher programming costs, and increased
expenses including employee related amounts due to growth and merit
increases, and various other. The current period also benefited
from an expense adjustment of $3 million to align certain broadcast
license fees with the CRTC billing period.
Compared to the second quarter of fiscal 2013, revenue and
operating income before amortization increased $58 million and $44
million, respectively. The increases were primarily due to the
seasonality of the Media business, with higher advertising revenues
in the first and third quarters driven by the launches of season
premieres in the first quarter and mid season launches along with
season finales in the third quarter resulting in higher advertiser
demand.
During the quarter, Global continued to deliver solid
programming results, increasing the number of Top 20 positions
nationally with key shows such as Survivor, NCIS, Bones and Hawaii
5-0. These shows also delivered strong audiences on their season
finales. In the upcoming summer schedule, Global will see the
return of Big Brother US and Rookie Blue combined with new programs
such as Stephen King's Under the Dome.
Media's specialty portfolio continues to lead in the channel
rankings in the Adult 25-54 category with 4 of the Top 10 analog
channels, including History as the top entertainment channel in
Canada, and 5 of the Top 10 digital channels. National Geographic,
Action and MovieTime hold the top 3 positions and also rank in the
Top 20 analog channels. We recently announced the launch of a new
lifestyle channel DTOUR, which will add to an already strong
portfolio of specialty channels.
Global News continues to maintain the number one position in the
Vancouver, Calgary and Edmonton markets and launched a BC All News
Channel, Global News:BC1 in March. Further, Global News was
announced as the 2013 winner of the prestigious Edward R Murrow
Award for overall News excellence in network television, the first
Canadian network to earn that recognition in the award's 42 year
history.
The Company leveraged its relationships with the US Studios at
the recent LA screenings to acquire additional programming that
will deliver a strong Fall Schedule. A total of 18 new programs
have been secured, including 11 dramas, 6 comedies and 1 unscripted
series resulting in 15.5 simulcast hours, up 1.5 from last
year.
Capital investment continued on various projects in the quarter
and included upgrading production equipment, infrastructure and
facility investments.
OTHER INCOME AND EXPENSE ITEMS
Amortization
Three months ended May Nine months ended May
31, 31,
------------------------ ------------------------
Change Change
($millions Cdn) 2013 2012 % 2013 2012 %
----------------------------------------------------------------------------
Amortization revenue
(expense) -
Deferred equipment
revenue 31 29 6.9 91 85 7.1
Deferred equipment costs (65) (59) 10.2 (192) (169) 13.6
Property, plant and
equipment, intangibles
and other (178) (168) 6.0 (530) (515) 2.9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Amortization of deferred equipment revenue and deferred
equipment costs increased over the comparable periods 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 comparative periods 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 May Nine months ended May
31, 31,
------------------------ ------------------------
Change Change
($millions Cdn) 2013 2012 % 2013 2012 %
----------------------------------------------------------------------------
Amortization of financing
costs - long-term debt 1 1 - 3 3 -
Interest expense 75 82 (8.5) 234 247 (5.3)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest expense decreased over the comparable periods due to
lower average debt levels.
Gain on sale of cablesystem
During the current quarter, the Company closed the sale of
Mountain Cable in Hamilton, Ontario to Rogers. The Company received
proceeds, after working capital adjustments, of $398 million and
recorded a gain of $50 million.
Acquisition and divestment costs
The Company incurred $8 million of costs in respect of the
acquisition of Envision and the transactions with Rogers related to
the sale of Mountain Cable, grant of an option to acquire the
wireless spectrum licenses and purchase from Rogers of its interest
in TVtropolis.
Gain on sale of associate
During the current quarter, the Company recorded a gain of $9
million on the sale of its interest in ABC Spark to Corus.
Gain on remeasurement of interests in equity investments and
CRTC benefit obligation
During the comparative quarter, the company acquired the
remaining interests in two specialty channels. In connection with
the acquisition the Company recorded a gain of $6 million in
respect of remeasurement to fair value of the Company's interests
which were held prior to the acquisition. As part of the CRTC
decision approving the acquisition, the Company is required to
contribute approximately $2 million in new benefits to the Canadian
broadcasting system over the following seven years.
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 gains (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 first quarter, the
Company received insurance advances of $5 million related to its
claim for costs that were incurred in the fourth quarter of fiscal
2012 and incurred additional costs of $12 million in respect of
ongoing recovery activities during the current year.
Income taxes
Income taxes were higher in each of the current periods mainly
due to a recovery in the prior periods 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 were $12.7 billion at both May 31, 2013 and August
31, 2012. Following is a discussion of significant changes in the
consolidated statement of financial position since August 31,
2012.
Current assets increased $61 million primarily due to the
reclassification of the assets of Historia and Series+ as held for
sale of $107 million, increases in accounts receivable of $90
million and inventories of $8 million partially offset by decreases
in cash of $137 million and other current assets of $10 million.
Assets held for sale is primarily composed of intangibles. Accounts
receivable increased due to higher advertising revenue during the
third quarter of the current year compared to the fourth quarter of
the prior year and reclassification of advance bill payments to
unearned revenue while inventories were higher due to timing of
equipment purchases. Other current assets declined primarily due to
a reduction in a tax indemnity upon resolution of the related
income tax liabilities. Cash decreased as the cash outlay for
investing and financing activities exceeded the funds provided by
operations.
Investments and other assets increased $56 million due to the
$59 million deposit paid relating to the acquisition of the
non-controlling interest in the TVtropolis specialty channel and
$10 million in respect of the purchase of minor investments
partially offset by the sale of ABC Spark.
Property, plant and equipment increased $50 million as current
year capital investment and the acquisition of Envision exceeded
amortization and the impact of the sale of Mountain Cable.
Other long-term assets decreased $11 million primarily due to a
decline in deferred equipment costs.
Intangibles decreased $189 million due to the sale of Mountain
Cable of $245 million and reclassification of $93 million in
respect of Historia and Series+ to assets held for sale partially
offset by higher program rights and advances of $60 million and the
recognition of $87 million in customer relationships on the
acquisition of Envision. Additional investment in acquired rights
and advances exceeded the amortization for the current year.
Goodwill decreased $17 million primarily due to the sale of
Mountain Cable of $81 million partially offset by $68 million on
the acquisition of Envision.
Current liabilities declined $46 million due to decreases in
accounts payable and accruals of $11 million, income taxes payable
of $16 million and current portion of long-term debt of $101
million partially offset by an increase in unearned revenue of $18
million, a promissory note of $45 million arising on the closing of
the transactions with Corus and reclassification of $15 million in
respect of liabilities associated with the Historia and Series+
assets held for sale. Accounts payable and accruals were lower due
to fluctuations in various accruals and other liabilities. Income
taxes payable declined due to tax installment payments and
resolution of certain income tax liabilities which were partially
offset by the current period 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
due to reclassification of advance bill payments from accounts
receivable, timing of advance bill payments and rate increases. The
liabilities associated with assets held for sale is primarily
composed of deferred income taxes.
Long-term debt decreased $346 million due to the aforementioned
reclassification of the 7.5% $350 million senior notes.
Other long-term liabilities decreased $320 million primarily due
to the $300 million contribution to a retirement compensation
arrangement trust ("the RCA") in order to partially fund its
non-contributory defined benefit pension plan and a decrease in
CRTC benefit obligations partially offset by current year pension
expense.
Deferred credits increased $247 million due to the $250 million
received from Rogers in respect of the option to acquire the
wireless spectrum licenses.
Deferred income tax liabilities, net of deferred income tax
assets, increased $26 million primarily due to current year expense
partially offset by the sale of Mountain Cable and the
aforementioned reclassification of amounts in respect of Historia
and Series+.
Shareholders' equity increased $387 million primarily due to
increases in share capital of $147 million and retained earnings of
$268 million partially offset by a decrease in non-controlling
interests of $27 million. Share capital increased due to the
issuance of 6,592,827 Class B Non-Voting Shares under the Company's
option plan and Dividend Reinvestment Plan ("DRIP"). As of June 15,
2013, share capital is as reported at May 31, 2013 with the
exception of the issuance of a total of 14,920 Class B Non-Voting
Shares upon exercise of options under the Company's option plan
subsequent to the quarter end. Retained earnings increased due to
current year earnings of $635 million partially offset by dividends
of $347 million and a charge of $20 million representing the
difference between the consideration paid and the carrying value of
the additional 20% interest acquired in Food Network Canada.
Non-controlling interests decreased as their share of earnings was
exceeded by the distributions declared during the period and the
impact of the aforementioned change in ownership of Food Network
Canada.
LIQUIDITY AND CAPITAL RESOURCES
In the current year, the Company generated $543 million of free
cash flow. Shaw used its free cash flow along with cash of $137
million, the net proceeds of $589 million from the transactions
with Rogers, proceeds on issuance of Class B Non-Voting Shares of
$48 million and other net items of $7 million to repay the 6.1%
$450 million senior notes, fund $300 million in discretionary
contributions to the RCA in respect of its non-contributory defined
benefit pension plan, pay common share dividends of $239 million,
purchase Envision for $222 million, invest an additional net $63
million in program rights and fund $50 million of accelerated
capital spend. Due to timing, the net proceeds from the Rogers
transactions have been temporarily used in ongoing operations to
the extent the cash was not required to fund accelerated capital
investments.
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
have been repurchased during the current year.
To allow for timely access to capital markets, the Company filed
a short form base shelf prospectus with securities regulators in
Canada and the U.S. on May 13, 2013. The shelf prospectus allows
for the issue up to an aggregate $4 billion of debt and equity
securities over a 25 month period.
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 $91 million during the nine months ending May
31, 2013.
Based on available credit facilities and forecasted free cash
flow, the Company expects to have sufficient liquidity to fund
operations and obligations during the current fiscal year. On a
longer-term basis, Shaw expects to generate free cash flow and have
borrowing capacity sufficient to finance foreseeable future
business plans and refinance maturing debt.
CASH FLOW
Operating Activities
Three months ended May Nine months ended May
31, 31,
------------------------ ------------------------
Change Change
($millions Cdn) 2013 2012 % 2013 2012 %
----------------------------------------------------------------------------
Funds flow from operations 438 424 3.3 951 944 0.7
Net increase in non-cash
working capital balances
related to operations (27) (74) (63.5) (77) (81) (4.9)
----------------------------------------------------------------------------
411 350 17.4 874 863 1.3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funds flow from operations increased over the comparative three
month period due to higher operating income before amortization
adjusted for non-cash program rights expense and lower interest
expense partially offset by higher current income taxes in the
current period. Funds flow from operations increased over the
comparative nine month period due to higher operating income before
amortization adjusted for non-cash program rights expense, lower
interest and current income tax expense and the settlement of the
amended cross-currency interest agreements in the prior year, all
of which were partially offset by the $300 million in discretionary
contributions to the RCA and higher program rights purchases. The
net change in non-cash working capital balances related to
operations fluctuated over the comparative periods due to changes
in other current assets and the timing of payment of current income
taxes payable and accounts payable and accrued liabilities as well
as fluctuations in accounts receivable.
Investing Activities
Three months ended May Nine months ended May
31, 31,
------------------------ ------------------------
($millions Cdn) 2013 2012 Decrease 2013 2012 Decrease
----------------------------------------------------------------------------
Cash flow used in investing
activities (164) (167) 3 (347) (792) 445
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The cash used in investing activities in the current quarter was
comparable to the prior year as the amount received in the current
quarter with respect of the transactions with Rogers of $348
million was offset by the acquisition of Envision for $222 million
and higher cash outlays for capital expenditures and inventory. The
cash used in investing activities decreased over the comparable
nine month period due to the net receipt of $589 million in respect
of the transactions with Rogers and lower cash outlays for capital
expenditures partially offset by the cash outlay for the
acquisition of Envision.
Financing Activities
The changes in financing activities during the comparative
periods were as follows:
Three months ended Nine months ended
May 31, May 31,
------------------ ------------------
($millions Cdn) 2013 2012 2013 2012
----------------------------------------------------------------------------
Bank credit facility arrangement costs - - - (4)
Repay 6.1% senior unsecured notes - - (450) -
Dividends (83) (86) (249) (249)
Issuance of Class B Non-Voting Shares 16 4 48 14
Distributions paid to non-controlling
interests (5) (5) (12) (19)
Repayment of Partnership debt (1) (1) (1) (1)
----------------------------------------------------------------------------
(73) (88) (664) (259)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION
Operating Net income
income attributable
before to equity Basic Diluted
amort- share- Net earnings earnings
Quarter Revenue ization (1) holders(2) income(3) per share per share
----------------------------------------------------------------------------
($millions Cdn except per
share amounts)
2013
Third 1,326 585 239 250 0.52 0.52
Second 1,251 538 172 182 0.38 0.38
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
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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 for the fourth quarter of 2011 is
$164 or $83 higher than net income attributable to equity shareholders
due to the net of tax writedown of assets.
(3) Net income attributable to both equity shareholders and non-controlling
interests.
Quarterly revenue and operating income before amortization are
primarily impacted by the seasonality of the Media division and
fluctuate throughout the year due to a number of factors including
seasonal advertising and viewing patterns. Typically, the Media
business has higher revenue in the first quarter driven by the fall
launch of season premieres and high demand while the third quarter
is impacted by season finales and mid season launches. Advertising
revenue typically declines in the summer months of the fourth
quarter when viewership is generally lower. Operating income before
amortization in fiscal 2012 was also impacted by higher operating
costs in the Cable division in the first and second quarters which
included higher employee related costs, mainly related to bringing
the new customer service centres on line, as well as higher
marketing, sales and programming costs. The third and fourth
quarters of 2012 benefited from improved operating income before
amortization in the Cable business.
Net income has fluctuated quarter-over-quarter primarily as a
result of the changes in operating income before amortization
described above and the impact of the net change in non-operating
items. In the third quarter of 2013, net income increased by $68
million due to increased operating income before amortization of
$47 million, the gain on sale of the cablesystem in Hamilton,
Ontario of $50 million and the gain on sale of the specialty
channel ABC Spark of $9 million partially offset by higher income
taxes of $30 million and acquisition and divestment costs of $8
million in respect of the transactions with Rogers and the
acquisition of Envision. In the second quarter of 2013, net income
decreased by $53 million primarily due to lower operating income
before amortization of $63 million partially offset by lower income
taxes of $5 million. 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 the wireless discontinued operations of $84 million and gain
on redemption of debt of $23 million recorded in the preceding
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 and subsequently updated with the release of
its second quarter results on April 12, 2013. With continued
positive momentum across all divisions and overall management of
promotional activity and costs the Company is now further updating
its guidance. 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, excluding the capital
funded through the accelerated capital fund, to decline marginally
from 2012 levels. The Company expects consolidated free cash flow
to range from $590 to $600 million.
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, asset
dispositions, 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)
(millions of Canadian dollars) May 31, 2013 August 31, 2012
----------------------------------------------------------------------------
ASSETS
Current
Cash 290 427
Accounts receivable 523 433
Inventories 110 102
Other current assets 79 89
Derivative instruments 3 -
Assets held for sale (note 4) 107 -
----------------------------------------------------------------------------
1,112 1,051
Investments and other assets (note 4) 69 13
Property, plant and equipment 3,292 3,242
Other long-term assets 320 331
Assets held for sale - 1
Deferred income tax assets 1 14
Intangibles 7,166 7,355
Goodwill 698 715
----------------------------------------------------------------------------
12,658 12,722
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 800 811
Provisions 24 19
Income taxes payable 140 156
Unearned revenue 175 157
Promissory note (note 4) 45 -
Current portion of long-term debt (note 6) 350 451
Derivative instruments - 1
Liabilities associated with assets held for
sale (note 4) 15 -
----------------------------------------------------------------------------
1,549 1,595
Long-term debt (note 6) 4,466 4,812
Other long-term liabilities (notes 2 and 11) 233 553
Provisions 9 8
Deferred credits (note 4) 882 635
Deferred income tax liabilities 1,098 1,085
----------------------------------------------------------------------------
8,237 8,688
Shareholders' equity (notes 2, 7 and 9)
Common and preferred shareholders 4,167 3,753
Non-controlling interests in subsidiaries 254 281
----------------------------------------------------------------------------
4,421 4,034
----------------------------------------------------------------------------
12,658 12,722
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended Nine months ended
May 31, May 31,
------------------- -------------------
(millions of Canadian dollars except
per share amounts) 2013 2012 2013 2012
----------------------------------------------------------------------------
Revenue (note 3) 1,326 1,278 3,896 3,788
Operating, general and administrative
expenses (note 5) (741) (711) (2,172) (2,162)
Amortization:
Deferred equipment revenue 31 29 91 85
Deferred equipment costs (65) (59) (192) (169)
Property, plant and equipment,
intangibles and other (178) (168) (530) (515)
----------------------------------------------------------------------------
Operating income 373 369 1,093 1,027
Amortization of financing costs -
long-term debt (1) (1) (3) (3)
Interest expense (75) (82) (234) (247)
Gain on sale of cablesystem (note
4) 50 - 50 -
Acquisition and divestment costs
(note 4) (8) - (8) -
Gain on sale of associate (note
4) 9 - 9 -
Gain on remeasurement of
interests in equity investments - 6 - 6
CRTC benefit obligation - (2) - (2)
Gain on derivative instruments - - - 1
Accretion of long-term
liabilities and provisions (2) (4) (7) (11)
Equity income from associates - - - 1
Other gains (losses) (note 12) (3) 3 (9) (2)
----------------------------------------------------------------------------
Income before income taxes 343 289 891 770
Current income tax expense (note
3) 62 51 147 197
Deferred income tax expense
(recovery) 31 (10) 77 (55)
----------------------------------------------------------------------------
Net income 250 248 667 628
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income attributable to:
Equity shareholders 239 238 635 599
Non-controlling interests in
subsidiaries 11 10 32 29
----------------------------------------------------------------------------
250 248 667 628
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share (note 8)
Basic 0.52 0.53 1.40 1.34
Diluted 0.52 0.53 1.39 1.33
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
Three months ended Nine months ended
May 31, May 31,
------------------- -------------------
(millions of Canadian dollars) 2013 2012 2013 2012
----------------------------------------------------------------------------
Net income 250 248 667 628
Other comprehensive income (loss)
(note 9)
Items that may subsequently be
reclassified to income:
Change in unrealized fair value of
derivatives designated as cash
flow hedges 1 1 3 1
Adjustment for hedged items
recognized in the period - - - (1)
Unrealized gain on available-for-
sale investment - 3 - 3
Reclassification of realized gain
on available-for-sale investment - (3) - (3)
----------------------------------------------------------------------------
1 1 3 -
----------------------------------------------------------------------------
Items that will not be subsequently
reclassified to income:
Actuarial losses on employee
benefit plans - (57) - (57)
----------------------------------------------------------------------------
1 (56) 3 (57)
----------------------------------------------------------------------------
Comprehensive income 251 192 670 571
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Comprehensive income attributable to:
Equity shareholders 240 182 638 542
Non-controlling interests in
subsidiaries 11 10 32 29
----------------------------------------------------------------------------
251 192 670 571
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
Nine months ended May 31, 2013
Attributable to equity
shareholders
----------------------------------------
Accum-
ulated Equity attri-
Retain- other butable to
(millions of Contri- ed compre- non-
Canadian Share buted earn- hensive controlling Total
dollars) capital surplus ings loss Total interests equity
----------------------------------------------------------------------------
Balance as at
September 1,
2012 2,750 77 1,019 (93) 3,753 281 4,034
Net income - - 635 - 635 32 667
Other
comprehensive
income - - - 3 3 - 3
----------------------------------------------------------------------------
Comprehensive
income - - 635 3 638 32 670
Dividends - - (256) - (256) - (256)
Dividend
reinvestment
plan 91 - (91) - - - -
Shares issued
under stock
option plan 56 (8) - - 48 - 48
Share-based
compensation - 4 - - 4 - 4
Distributions
declared by
subsidiaries
to non-
controlling
interests - - - - - (12) (12)
Acquisition of
non-
controlling
interest - - (20) - (20) (47) (67)
----------------------------------------------------------------------------
Balance as at
May 31, 2013 2,897 73 1,287 (90) 4,167 254 4,421
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine months ended May 31, 2012
Attributable to equity
shareholders
----------------------------------------
Accum- Equity
ulated attri-
other butable to
(millions of Contri- Retain- compre- non-
Canadian Share buted ed hensive controlling Total
dollars) capital surplus earnings loss Total interests equity
----------------------------------------------------------------------------
Balance as at
September 1,
2011 2,633 73 728 (29) 3,405 272 3,677
Net income - - 599 - 599 29 628
Other
comprehensive
loss - - - (57) (57) - (57)
----------------------------------------------------------------------------
Comprehensive
income - - 599 (57) 542 29 571
Dividends - - (255) - (255) - (255)
Dividend
reinvestment
plan 71 - (71) - - - -
Shares issued
under stock
option plan 15 (1) - - 14 - 14
Share-based
compensation - 5 - - 5 - 5
Distributions
declared by
subsidiaries
to non-
controlling
interests - - - - - (17) (17)
----------------------------------------------------------------------------
Balance as at
May 31, 2012 2,719 77 1,001 (86) 3,711 284 3,995
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months Nine months ended
ended May 31, May 31,
----------------- ------------------
(millions of Canadian dollars) 2013 2012 2013 2012
----------------------------------------------------------------------------
OPERATING ACTIVITIES
Funds flow from operations (note 10) 438 424 951 944
Net increase in non-cash working
capital balances related to operations (27) (74) (77) (81)
----------------------------------------------------------------------------
411 350 874 863
----------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and
equipment (note 3) (235) (155) (545) (595)
Additions to equipment costs (net)
(note 3) (26) (32) (102) (137)
Additions to other intangibles (note
3) (19) (14) (47) (50)
Net addition to inventories (2) 19 (8) (24)
Proceeds on sale of cablesystem (note
4) 148 - 398 -
Divestment costs (note 4) (5) - (5) -
Business acquisitions, net of cash
acquired (note 4) (222) 3 (222) 3
Proceeds on wireless spectrum license
option (note 4) - - 50 -
Refundable deposit on wireless
spectrum license (note 4) 200 - 200 -
Proceeds on disposal of property,
plant and equipment (note 3) - - 3 8
Proceeds from (additions to)
investments and other assets (note
4) (3) 12 (69) 3
----------------------------------------------------------------------------
(164) (167) (347) (792)
----------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in long-term debt - - 590 -
Debt repayments (1) (1) (1,041) (1)
Bank credit facility arrangement
costs - - - (4)
Issue of Class B Non-Voting Shares
(note 7) 16 4 48 14
Dividends paid on Class A Shares and
Class B Non-Voting Shares (80) (83) (239) (238)
Dividends paid on Preferred Shares (3) (3) (10) (11)
Distributions paid to non-controlling
interests in subsidiaries (5) (5) (12) (19)
----------------------------------------------------------------------------
(73) (88) (664) (259)
----------------------------------------------------------------------------
Increase (decrease) in cash before
discontinued operations 174 95 (137) (188)
Decrease in cash from discontinued
operations - - - (3)
----------------------------------------------------------------------------
Increase (decrease) in cash 174 95 (137) (191)
Cash, beginning of the period 116 157 427 443
----------------------------------------------------------------------------
Cash, end of the period 290 252 290 252
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
May 31, 2013 and 2012
(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 and nine months ended May 31, 2013 were
authorized for issue by the Board of Directors on June 27,
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 chief operating decision makers are the CEO and
CFO and they review the operating performance of the Company by
segments which comprise Cable, Satellite and Media. The chief
operating decision makers utilize operating income before
amortization for each segment as a key measure in making operating
decisions and assessing performance. 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. All of the Company's reportable
segments are substantially located in Canada. Information on
operations by segment is as follows:
Operating information
Three months ended Nine months ended
May 31, May 31,
-------------------- --------------------
2013 2012 2013 2012
$ $ $ $
----------------------------------------------------------------------------
Revenue
Cable 825 794 2,448 2,390
Satellite (1) 218 211 641 631
Media 307 295 875 836
----------------------------------------------------------------------------
1,350 1,300 3,964 3,857
Intersegment eliminations (24) (22) (68) (69)
----------------------------------------------------------------------------
1,326 1,278 3,896 3,788
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating income before
amortization (2)
Cable 397 377 1,186 1,106
Satellite (1) 72 76 219 216
Media 116 114 319 304
----------------------------------------------------------------------------
585 567 1,724 1,626
Amortization (212) (198) (631) (599)
----------------------------------------------------------------------------
Operating income 373 369 1,093 1,027
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest
Operating 75 82 233 246
Burrard Landing Lot 2 Holdings
Partnership - - 1 1
----------------------------------------------------------------------------
75 82 234 247
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Current taxes
Operating 85 70 240 218
Other/non-operating (23) (19) (93) (21)
----------------------------------------------------------------------------
62 51 147 197
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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.
(2) The nine month period includes the impact of an adjustment to align
certain broadcast license fees with the CRTC billing period. The
adjustment amounted to $7, $4 and $3 for Cable, Satellite and Media,
respectively.
Capital expenditures
Three months ended Nine months ended
May 31, May 31,
------------------ ------------------
2013 2012 2013 2012
$ $ $ $
----------------------------------------------------------------------------
Capital expenditures accrual basis
Cable (including corporate) (1) 245 155 536 565
Satellite (net of equipment profit) 28 - 35 4
Media 6 5 16 18
----------------------------------------------------------------------------
279 160 587 587
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Equipment costs (net of revenue)
Cable 10 14 35 61
Satellite 18 17 57 63
----------------------------------------------------------------------------
28 31 92 124
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures and equipment
costs (net)
Cable 255 169 571 626
Satellite 46 17 92 67
Media 6 5 16 18
----------------------------------------------------------------------------
307 191 679 711
----------------------------------------------------------------------------
Reconciliation to Consolidated
Statements of Cash Flows
Additions to property, plant and
equipment 235 155 545 595
Additions to equipment costs (net) 26 32 102 137
Additions to other intangibles 19 14 47 50
----------------------------------------------------------------------------
Total of capital expenditures and
equipment costs (net) per
Consolidated Statements of Cash
Flows 280 201 694 782
Increase (decrease) in working
capital related to capital
expenditures 26 (7) - (47)
Increase in customer equipment
financing receivables 2 (2) (10) (14)
Less: Proceeds on disposal of
property, plant and equipment - - (3) (8)
Less: Satellite equipment profit (2) (1) (1) (2) (2)
----------------------------------------------------------------------------
Total capital expenditures and
equipment costs (net) reported by
segments 307 191 679 711
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The three and nine months ended May 31, 2013 includes $40 and $50,
respectively, related to certain capital investments that are being
funded from the accelerated capital fund.
(2) 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. PURCHASE AND SALE OF ASSETS
Transactions with Rogers Communications Inc. ("Rogers")
During the second quarter, the Company entered into agreements
with Rogers to sell to Rogers its shares in Mountain Cablevision
Limited ("Mountain Cable") and grant to Rogers an option to acquire
its wireless spectrum licenses as well as to purchase from Rogers
its 33.3% interest in TVtropolis General Partnership
("TVtropolis"). The sale of Mountain Cable closed on April 30,
2013. The acquisition of the additional interest in TVtropolis is
expected to close in the fourth quarter while the exercise of the
option and the sale of the wireless spectrum licenses is still
subject to regulatory approval and is expected to occur in fiscal
2015. The transactions are strategic in nature allowing the Company
to use a portion of the net proceeds to accelerate various capital
investments to improve and strengthen its network advantage.
The Company incurred costs of $5 in respect of the transactions
with Rogers. These costs have been expensed and are included in
acquisition and divestment costs in the statement of income.
Mountain Cable
Mountain Cable has approximately 40,000 video customers in its
operations based in Hamilton, Ontario. It represented a disposal
group within the cable operating segment and accordingly, is not
presented as discontinued operations in the statement of
income.
The Company received proceeds of $398 in cash on the sale of the
Mountain Cable and recorded a gain of $50. The consideration may be
impacted by settlement of final closing adjustments. The assets and
liabilities disposed of were as follows:
$
----------------------------------------------------------------------------
Accounts receivable 2
Property, plant and equipment 65
Other long-term assets 3
Intangibles 245
Goodwill 81
----------------------------------------------------------------------------
396
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts payable and accrued liabilities 1
Income tax payable 1
Unearned revenue 2
Deferred credits 2
Deferred income taxes 42
----------------------------------------------------------------------------
48
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Wireless spectrum licenses
The wireless spectrum licenses are not classified as assets held
for sale due to regulatory restrictions preventing the exercise of
the option and subsequent transfer of the licenses until fiscal
2015. During the second quarter, the Company received $50 in
respect of the purchase price of the option to acquire the wireless
spectrum licenses. The amount is recorded in deferred credits and
will be included as part of the proceeds received on exercise of
the option and sale of the wireless spectrum licenses, or
alternatively as a gain if the option is not exercised and expires.
In the current quarter, the Company received a $200 refundable
deposit in respect of the option exercise price. The deposit has
been recorded in deferred credits and will be included as part of
the proceeds received on exercise of the option and sale of the
wireless spectrum licenses or refunded to Rogers if the option is
not exercised and expires.
TVtropolis
The $59 deposit paid to acquire the non-controlling interest in
TVtropolis is included in investments and other assets.
ENMAX Envision Inc. ("Envision")
On April 30, 2013, the Company acquired Envision, a wholly-owned
subsidiary of ENMAX Corporation, for $222 in cash. Envision
provides telecommunication services to business customers in
Calgary and the surrounding area. The purpose of the transaction is
to expand on the Company's business initiatives and enhance the
profile of its telecommunications services in the competitive
Calgary business marketplace.
Envision has contributed approximately $3 of revenue and $1 of
net income for the one month period. If the acquisition had
occurred on September 1, 2012, revenue and net income would have
been approximately $25 and $8, respectively. Acquisition related
costs of $3 to effect the transaction have been incurred and are
included in acquisition and divestment costs in the statement of
income.
The purchase price allocation is preliminary pending
finalization of valuation of net assets acquired and settlement of
final closing adjustments. A summary of net assets and preliminary
allocation of consideration is as follows:
$
----------------------------------------------------------------------------
Accounts receivable 3
Other current assets 1
Property, plant and equipment 73
Intangibles (1) 87
Goodwill (2) 68
----------------------------------------------------------------------------
232
Accounts payable and accrued liabilities 1
Unearned revenue 2
Deferred credits 5
Deferred income tax liability 2
----------------------------------------------------------------------------
222
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Intangibles is comprised of customer relationships and are being
amortized over 15 years.
(2) Goodwill represents the combined value of growth expectations, an
assembled workforce and expected synergies and efficiencies from
integrating the operations with the Company's existing business.
Goodwill of $66 is deductible for income tax purposes.
Transactions with Corus Entertainment Inc. ("Corus")
During the current quarter, the Company entered into a series of
agreements with Corus, a related party subject to common voting
control, to optimize its portfolio of specialty channels. Effective
April 30, 2013, the Company sold to Corus its 49% interest in ABC
Spark and acquired from Corus its 20% interest in Food Network
Canada. In addition, the Company has agreed to sell to Corus its
50% interest in its two French-language channels, Historia and
Series+. The sale of Historia and Series+ is expected to occur in
the fall of 2013.
Food Network Canada and ABC Spark
The acquisition of an additional 20% interest in Food Network
Canada increased the Company's ownership to 71%. The difference
between the consideration of $67 and carrying value of the interest
acquired of $47 has been charged to retained earnings.
The Company recorded proceeds, including working capital
adjustments, of $22 and gain on sale of associate of $9 on the
disposition of its 49% interest in ABC Spark.
The Company issued a non-interest bearing promissory note in an
initial principal amount of $45 to satisfy the net consideration in
respect of these transactions. The consideration may be impacted by
settlement of final closing adjustments. The promissory note is due
and payable on the earlier of the closing date of the Company's
sale of Historia and Series+ to Corus and September 30, 2013.
Historia and Series+
The assets and liabilities associated with Historia and Series+
and classified as held for sale in the statement of financial
position at May 31, 2013 are as follows:
$
----------------------------------------------------------------------------
Accounts receivable 6
Other current assets 4
Intangibles 93
Goodwill 4
----------------------------------------------------------------------------
107
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts payable and accrued liabilities 3
Deferred income tax liability 12
----------------------------------------------------------------------------
15
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
Three months ended Nine months ended
May 31, May 31,
------------------ ------------------
2013 2012 2013 2012
$ $ $ $
----------------------------------------------------------------------------
Employee salaries and benefits 224 219 665 630
Purchases of goods and services 517 492 1,507 1,532
----------------------------------------------------------------------------
741 711 2,172 2,162
----------------------------------------------------------------------------
----------------------------------------------------------------------------
6. LONG-TERM DEBT
May 31, 2013 August 31, 2012
-------------------------- --------------------------
Long-
Long- term Long- Long-
term Adjust- debt term term
debt at ment repay- debt at Adjust- debt
amort- for able at amort- ment for repay-
ized finance matur- ized finance able at
cost costs ity cost costs maturity
$ $ $ $ $ $
----------------------------------------------------------------------------
Corporate
Cdn Senior notes-
6.10% due November 16,
2012 - - - 450 - 450
7.50% due November 20,
2013 350 - 350 349 1 350
6.50% due June 2, 2014 598 2 600 598 2 600
6.15% due May 9, 2016 296 4 300 295 5 300
5.70% due March 2,
2017 398 2 400 397 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 1416 34 1,450 1,416 34 1,450
----------------------------------------------------------------------------
4,797 53 4,850 5,243 57 5,300
----------------------------------------------------------------------------
Other
Burrard Landing Lot 2
Holdings Partnership 19 - 19 20 - 20
----------------------------------------------------------------------------
Total consolidated debt 4,816 53 4,869 5,263 57 5,320
Less current portion
(1) 350 - 350 451 - 451
----------------------------------------------------------------------------
4,466 53 4,519 4,812 57 4,869
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Current portion of long-term debt at May 31, 2013 includes the 7.50%
senior notes due November 20, 2013 and the amount due within one year
on the Partnership's mortgage bonds.
7. SHARE CAPITAL
Changes in share capital during the nine months ended May 31,
2013 are as follows:
Class B Non-Voting
Class A Shares Shares Preferred Shares
---------------- ------------------ -----------------
Number $ Number $ Number $
----------------------------------------------------------------------------
August 31, 2012 22,520,064 2 421,188,697 2,455 12,000,000 293
Issued upon stock
option plan exercises - - 2,498,230 56 - -
Issued pursuant to
dividend reinvestment
plan - - 4,094,597 91 - -
----------------------------------------------------------------------------
May 31, 2013 22,520,064 2 427,781,524 2,602 12,000,000 293
----------------------------------------------------------------------------
----------------------------------------------------------------------------
8. EARNINGS PER SHARE
Earnings per share calculations are as follows:
Three months ended Nine months ended
May 31, May 31,
------------------- -------------------
2013 2012 2013 2012
----------------------------------------------------------------------------
Numerator for basic and diluted
earnings per share ($)
Net income 250 248 667 628
Deduct: net income attributable to
non-controlling interests (11) (10) (32) (29)
Deduct: dividends on Preferred Shares (4) (4) (10) (11)
----------------------------------------------------------------------------
Net income attributable to common
shareholders 235 234 625 588
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Denominator (millions of shares)
Weighted average number of Class A
Shares and Class B Non-Voting Shares
for basic earnings per share 449 441 447 440
Effect of dilutive securities (1) 2 1 2 1
----------------------------------------------------------------------------
Weighted average number of Class A
Shares and Class B Non-Voting Shares
for diluted earnings per share 451 442 449 441
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share ($)
Basic 0.52 0.53 1.40 1.34
Diluted 0.52 0.53 1.39 1.33
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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 and nine months ended May 31, 2013,
8,448,424 (2012 - 17,545,871) and 7,960,022 (2012 - 14,301,465) options
were excluded from the diluted earnings per share calculation,
respectively.
9. OTHER COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER
COMPREHENSIVE LOSS
Components of other comprehensive income and the related income
tax effects for the nine months ended May 31, 2013 are as
follows:
Amount Income taxes Net
$ $ $
----------------------------------------------------------------------------
Items that may subsequently be reclassified to
income
Change in unrealized fair value of derivatives
designated as cash flow hedges 4 (1) 3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Components of other comprehensive income and the related income
tax effects for the three months ended May 31, 2013 are as
follows:
Amount Income 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 loss and the related income
tax effects for the nine months ended May 31, 2012 are as
follows:
Amount Income taxes Net
$ $ $
----------------------------------------------------------------------------
Items that may subsequently be reclassified to
income
Change in unrealized fair value of derivatives
designated as cash flow hedges 2 (1) 1
Adjustment for hedged items recognized in the
period (2) 1 (1)
Unrealized gain on available-for-sale
investment 3 - 3
Reclassification of realized gain on
available-for-sale investment (3) - (3)
----------------------------------------------------------------------------
- - -
----------------------------------------------------------------------------
Items that will not be subsequently reclassified
to income
Actuarial losses on employee benefit plans (76) 19 (57)
----------------------------------------------------------------------------
(76) 19 (57)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Components of other comprehensive loss and the related income
tax effects for the three months ended May 31, 2012 are as
follows:
Amount Income taxes Net
$ $ $
----------------------------------------------------------------------------
Items that may subsequently be reclassified to
income
Change in unrealized fair value of derivatives
designated as cash flow hedges 2 (1) 1
Adjustment for hedged items recognized in the
period (1) 1 -
Unrealized gain on available-for-sale
investment 3 - 3
Reclassification of realized gain on
available-for-sale investment (3) - (3)
----------------------------------------------------------------------------
1 - 1
----------------------------------------------------------------------------
Items that will not be subsequently reclassified
to income
Actuarial losses on employee benefit plans (76) 19 (57)
----------------------------------------------------------------------------
(75) 19 (56)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated other comprehensive loss is comprised of the
following:
May 31, 2013 August 31, 2012
$ $
----------------------------------------------------------------------------
Items that may subsequently be reclassified to
income
Fair value of derivatives 2 (1)
Items that will not be subsequently
reclassified to income
Actuarial losses on employee benefit plans (92) (92)
----------------------------------------------------------------------------
(90) (93)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
10. 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 Nine months ended
May 31, May 31,
------------------ ------------------
2013 2012 2013 2012
$ $ $ $
----------------------------------------------------------------------------
Net income 250 248 667 628
Adjustments to reconcile net income to
funds flow from operations:
Amortization 213 199 634 602
Program rights 2 (6) (63) (55)
Deferred income tax expense
(recovery) 31 (10) 77 (55)
Equity income from associates - - - (1)
CRTC benefit obligation - 2 - 2
CRTC benefit obligation funding (13) (10) (37) (31)
Gain on sale of cablesystem (note 4) (50) - (50) -
Divestment costs (note 4) 5 - 5 -
Gain on remeasurement of interests in
equity investments - (6) - (6)
Gain on sale of associate (note 4) (9) - (9) -
Share-based compensation 1 1 3 4
Defined benefit pension plans 3 3 (292) 11
Gain on derivative instruments - - - (1)
Realized loss on settlement of
derivative instruments - - - (7)
Accretion of long-term liabilities
and provisions 2 4 7 11
Settlement of amended cross-currency
interest rate agreements - - - (162)
Other 3 (1) 9 4
----------------------------------------------------------------------------
Funds flow from operations 438 424 951 944
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(ii) Interest and income taxes paid and classified as operating
activities are as follows:
Three months ended Nine months ended
May 31, May 31,
------------------- -------------------
2013 2012 2013 2012
$ $ $ $
----------------------------------------------------------------------------
Interest 117 131 283 295
Income taxes 4 53 135 169
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(iii) Non-cash transactions:
The Consolidated Statements of Cash Flows exclude the following
non-cash transactions:
Three months ended Nine months ended
May 31, May 31,
------------------- -------------------
2013 2012 2013 2012
$ $ $ $
----------------------------------------------------------------------------
Issuance of Class B Non-Voting
Shares:
Dividend reinvestment plan 34 24 91 71
Issuance of promissory note:
Transactions with a related party
(note 4) 45 - 45 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
11. OTHER LONG-TERM LIABILITIES
During the first quarter, 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.
12. OTHER GAINS (LOSSES)
Other gains (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 year, the
Company received insurance advances of $5 related to its claim for
costs that were incurred in the fourth quarter of fiscal 2012 and
incurred additional costs of $12 in respect of ongoing recovery
activities.
13. SUBSEQUENT EVENT
On June 11, 2013, the CRTC approved the Company's acquisition of
Rogers' 33.3% interest in TVtropolis. The sale is expected to close
during the fourth quarter.
Contacts: Shaw Communications Inc. Shaw Investor
RelationsInvestor.relations@sjrb.ca www.shaw.ca
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