- Fourth quarter consolidated
revenue improved 7% and operating income before restructuring costs
and amortization1 improved 17% year-over-year due to
strong financial results from all business
segments
- Wireless postpaid net
additions of 85,000 in the quarter and average revenue per unit
(“ARPU”) growth of 9% year-over-year
- Wireline operating income
before restructuring costs and amortization1 improved
15.7% in the quarter primarily due to continued revenue growth in
Business and Internet combined with approximately 9% lower
operating costs year-over-year
- Full year 2018 consolidated
operating income before restructuring costs and
amortization1 of $2.09 billion in line with guidance of
approximately $2.1 billion and Free Cash Flow of $411 million
exceeds guidance of $375 million
CALGARY, Alberta, Oct. 25, 2018 (GLOBE NEWSWIRE)
-- Shaw Communications Inc. announces
consolidated financial and operating results for the quarter ended
August 31, 2018. Revenue from continuing operations
increased by approximately 7% both in the fourth quarter and on a
full year fiscal 2018 basis to $1.34 billion and $5.24 billion
respectively, compared to the same periods in fiscal 2017.
Operating income before restructuring costs and
amortization1 of $560 million for the quarter
and $2.09 billion for the year increased 16.9% and 4.6%
respectively, over the comparable periods in fiscal 2017.
Chief Executive Officer, Brad Shaw said, “Fiscal
2018 was an exciting year for our Wireless business. In a short
amount of time, we have created a stronger, high quality network
and are delivering an improved customer experience. Our impressive
Wireless results in the quarter and throughout 2018 reflect our
ongoing Wireless investments (including spectrum deployment),
device parity, data-centric Big Gig plans, and a significantly
expanded retail distribution network. We are executing against our
operating strategy which has enabled us to rationally grow our
market share and ARPU, both in the quarter and throughout the year.
In the fourth quarter, we added 85,000 postpaid Wireless
subscribers bringing our postpaid customer base to over 1 million
and total customers of approximately 1.4 million, a 22.3%
improvement from the end of fiscal 2017. Fourth quarter ARPU was
particularly strong, increasing by 9% year-over-year, fueled by
customer demand for larger data plans. Our fiscal 2018 Wireless
results are a true testament to Freedom Mobile delivering a
differentiated and sustainable value proposition to customers and
we have significant momentum as we enter fiscal 2019.”
During the quarter, the Company began
distributing Freedom Mobile in approximately 100 locations with
Loblaws ‘The Mobile Shop’ and has all of the approximate 140
Walmart locations throughout Ontario, Alberta and British Columbia
in operation as of the end of September 2018. In addition, the
Company has introduced a new format to its corporate stores which
it will continue to roll out and expand into new markets in fiscal
2019. Over recent months the Company also launched Voice over LTE
(“VoLTE”) across its network on a wide range of devices and expects
that over 800,000 Freedom customers will be able to use VoLTE
before the end of 2018.
Mr. Shaw continued, “Wireless network
investments remain our top priority and in the fourth quarter we
increased spending related to the deployment of our 700 MHz
spectrum, which was recently enabled in Calgary, and deployment
will continue through fiscal 2019. This spectrum materially
improves network coverage and provides customers with enhanced
indoor LTE coverage and combined with VoLTE capability, we are
closing the gap between our wireless network and the
incumbents’.”
In the Wireline segment, revenue growth from
Consumer and Business, combined with cost savings primarily related
to the Voluntary Departure Program (“VDP”), resulted in strong
operating income before restructuring costs and
amortization1 growth over the prior year and prior
quarter. Consumer subscriber losses reflect the Company’s continued
discipline in the quarter, focusing on profitability in a highly
competitive market. Consumer Internet revenue generating units
(“RGUs”) declined modestly in the quarter, however increased by
approximately 16,000 in fiscal 2018 as broadband remains an
important growth driver for the Company over the long-term.
“We are pleased with our fiscal 2018
consolidated results, including strong Wireless growth and stable
Wireline operations supported by our focus on profitability,
realization of VDP savings and disciplined cost control across the
organization. The solid execution of our operating plan generated
operating income before restructuring costs and amortization of
$2,089 million, capital investments of $1,367 million and free cash
flow of $411 million. These key metrics are in-line with our fiscal
2018 guidance,” Mr. Shaw said.
Selected Financial
Highlights
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars except per
share amounts) |
2018 |
|
2017 |
|
Change
% |
|
2018 |
|
2017 |
|
Change
% |
Revenue |
1,336 |
|
1,244 |
|
7.4 |
|
|
5,239 |
|
4,882 |
|
7.3 |
|
Operating income before restructuring costs and
amortization(1) |
560 |
|
479 |
|
16.9 |
|
|
2,089 |
|
1,997 |
|
4.6 |
|
Operating margin(1) |
41.9 |
% |
38.5 |
% |
3.4pts |
|
39.9 |
% |
40.9 |
% |
(1.0pts) |
Free cash flow(1) |
34 |
|
2 |
|
>100.0 |
|
411 |
|
438 |
|
(6.2 |
) |
Net income from continuing operations |
200 |
|
149 |
|
34.2 |
|
|
66 |
|
557 |
|
(88.2 |
) |
Net income (loss) from discontinued operations, net of
tax |
– |
|
332 |
|
(100.0 |
) |
|
(6 |
) |
294 |
|
>(100.0) |
Net income |
200 |
|
481 |
|
(58.4 |
) |
|
60 |
|
851 |
|
(92.9 |
) |
Basic earnings per share |
0.39 |
|
0.97 |
|
|
|
0.10 |
|
1.72 |
|
|
Diluted earnings per share |
0.39 |
|
0.96 |
|
|
|
0.10 |
|
1.71 |
|
|
(1)
See definitions and discussion under “Non-IFRS and additional GAAP
measures in the accompanying MD&A”.
In the quarter, the Company added approximately
85,000 net Wireless RGUs, which were substantially all postpaid
customers, a significant improvement over the 41,000 net additions
achieved in the fourth quarter of fiscal 2017. The increase in the
customer base reflects continued customer demand for premium
smartphones combined with device pricing and packaging options,
data centric plans, and the ongoing execution of the wireless
growth strategy to improve the network and customer experience.
Consolidated Wireless revenue for the three and
twelve month periods improved by 45.3% and 57.2%, respectively, to
$250 million and $951 million over the comparable periods in fiscal
2017. In the quarter, service revenue increased 31.5% to $167
million and equipment revenue of $83 million compared to
$45 million in the fourth quarter of fiscal 2017. Growth in
Wireless revenue is due primarily to continued subscriber growth
and ARPU improvement which increased by 9%, to $41.00, compared to
the fourth quarter of fiscal 2017.
Fourth quarter Wireless operating income before
restructuring costs and amortization of $44 million improved
33.3% year-over-year despite Wireless margin compression due
primarily to incremental costs from higher subscriber loading in
the period including higher device sales compared to a year ago.
For the twelve month period, Wireless operating income before
restructuring costs and amortization increased 32.3% to $176
million.
Wireline RGUs declined by approximately 59,200
in the quarter compared to a gain of approximately 25,400 in the
fourth quarter of fiscal 2017. The current quarter includes a
decline in Consumer RGUs of approximately 71,000 due to an active
competitive environment specifically relating to back-to-school
offers. The Company remained disciplined with its subscriber
acquisition offers resulting in lower gross RGU addition activity
in Consumer, partially offset by Business RGU growth of 11,800
compared to 3,600 in the fourth quarter of fiscal 2017.
Fourth quarter Wireline revenue and operating
income before restructuring costs and
amortization1 of $1,087 million and
$516 million increased 1.3% and 15.7%, respectively,
year-over-year. Consumer revenue was flat at $942 million
compared to the prior year as rate adjustments and continued growth
in Internet revenue was offset by declines in Video and Phone
subscribers and revenue. Business revenue increased 6.6%
year-over-year to $145 million, reflecting continued demand
for the SmartSuite of products. Fourth quarter Wireline results
also include operating costs savings of approximately
$23 million related to the VDP as well as lower marketing
expenses.
For the twelve month period Wireline revenue of
$4,292 million was comparable to the prior year period and
operating income before restructuring costs and amortization of
$1,913 million increased 2.6% resulting in a Wireline
operating margin of 44.6%, an improvement of 100 basis points over
fiscal 2017.
“We are transforming our Wireline business to
enable an agile, digital-first company that will continue to meet
the needs of our customers. In fiscal 2018, we introduced a
significant amount of change and disruption that resulted in a
leaner organization and a management team with clear
accountabilities, direction and targets as we head into the new
fiscal year. We will remain focused on delivering profitable growth
and stabilizing our Consumer results by improving on our execution,
leading with strong broadband services and optimizing our Video
packages,” Mr. Shaw said.
Capital expenditures in the fourth quarter of
$434 million increased by $36 million compared to a year
ago. Wireline capital spending increased by approximately $12
million primarily due to new housing development and network
upgrading. Wireless spending increased by approximately $24 million
as the Company began deployment of the 700 MHz spectrum and
continued to expand its retail footprint. Fiscal 2018 capital
expenditures of $1,367 million increased by $142 million compared
to the previous year with the majority of the increased investment
aligned with growth objectives in our Wireless business.
Free cash flow1 for the quarter of
$34 million compared to $2 million in the prior year. The
increase for the quarter was largely due to higher operating income
before restructuring costs and amortization partially offset by
increased capital expenditures and cash taxes. Free cash flow for
fiscal 2018 of $411 million was $27 million lower than the prior
year due primarily to higher capital expenditures in fiscal
2018.
Net income for the quarter of $200 million
compared to net income of $481 million in the fourth quarter
of fiscal 2017. Excluding income from discontinued operations
of $332 million in the prior year quarter, mainly related to the
gain on the sale of ViaWest, net income was $51 million higher in
current quarter driven primarily by an increase in operating income
before restructuring costs and amortization.
In the fourth quarter of fiscal 2018,
approximately 460 employees exited the Company, bringing the total
number of employees who departed under VDP to approximately 1,300
employees. This led to operating cost reductions of
approximately $23 million and capital cost reductions of
approximately $5 million. The Company delivered its total
expected cost reductions for fiscal 2018 of approximately $47
million in capital and operating cost savings. See also
“Introduction,” “Other Income and Expense Items,” “Caution
Concerning Forward Looking Statements,” and “Risks and
Uncertainties” in the accompanying Management’s Discussion and
Analysis (“MD&A”) for a discussion of the Total Business
Transformation (“TBT”), the VDP and the risks and assumptions
associated therewith.
In connection with various other TBT activities,
Shaw has incurred an additional restructuring charge of
$16 million in the fourth quarter for a total of
$446 million in fiscal 2018, primarily related to severance
and other employee related costs, as well as additional costs
directly associated with the TBT initiative. The Company still
expects that total restructuring costs will not exceed $450 million
as the restructuring activities related to TBT initiatives have
been substantially completed.
Shaw is introducing its fiscal 2019 guidance,
which includes consolidated operating income before restructuring
costs and amortization growing 4% to 6% over fiscal 2018; capital
investments of approximately $1.2 billion; and free cash flow in
excess of $500 million. The Company’s guidance also includes
assumptions related to cost reductions that will be achieved
through TBT initiatives (specifically the VDP savings) that are
expected to amount to $140 million of operating and capital savings
in fiscal 2019 (approximately $85 million attributed to operating
expenses and approximately $55 million attributed to capital
expenditures). See also “Caution Concerning Forward Looking
Statements” in the accompanying MD&A.
Shaw’s fiscal 2019 guidance and growth range
includes the expected impact of IFRS 15, Revenue from Contracts
with Customers, which the Company will adopt on a fully
retroactive basis beginning in the first quarter of fiscal
2019. The fiscal 2018 and expected fiscal 2019 adjustments
under IFRS 15 do not have a material impact on the aforementioned
fiscal 2019 guidance. The Company will provide additional details
with respect to the impact of IFRS 15 when the Company files its
fiscal 2018 Annual Report and with the release of its first quarter
fiscal 2019 results.
Mr. Shaw concluded, “Fiscal 2019 reflects an
important milestone with respect to the free cash flow profile of
our Company. Since we embarked on our asset transformation back in
2015, we have made significant investments in our networks and
overall business to support our growth strategy while maintaining a
strong balance sheet and leverage profile. We believe our overall
capital intensity will moderate, predominately in our Wireline
business, as we continue to make Wireless infrastructure
investments that enhance the customer experience and lay the
foundation for future growth. Our fiscal 2019 plan includes new
technology, tools and automation that enable us to deliver on our
digital first service model and to strengthen and grow our Wireless
business. We have undergone several years of significant change and
have made difficult decisions along the way. However, with
these changes in place, we can focus entirely on execution and
continue to progress towards our goal of generating long-term,
sustainable free cash flow growth.”
Shaw Communications Inc. is a leading Canadian
connectivity company. The Wireline division consists of Consumer
and Business services. Consumer serves residential customers with
broadband Internet, Shaw Go WiFi, video and digital phone. Business
provides business customers with Internet, data, WiFi, digital
phone and video services. The Wireless division provides wireless
voice and LTE-Advanced data services through an expanding and
improving mobile wireless network infrastructure.
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, SJR.PR.A, SJR.PR.B, NYSE – SJR, and TSXV – SJR.A). For
more information, please visit www.shaw.ca
The accompanying MD&A forms part of this
news release and the “Caution concerning forward-looking
statements” applies to all the forward-looking statements made in
this news release.
For more information, please contact:
Shaw Investor Relations
Investor.relations@sjrb.ca
- See definitions and discussion under “Non-IFRS and additional
GAAP measures” in the accompanying MD&A.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve months ended August 31,
2018
October 25, 2018
Contents
Introduction |
9 |
Selected financial and operational highlights |
12 |
Overview |
14 |
Outlook |
16 |
Non-IFRS and additional GAAP measures |
17 |
Discussion of operations |
20 |
Supplementary quarterly financial information |
25 |
Other income and expense items |
26 |
Financial position |
28 |
Liquidity and capital resources |
29 |
Accounting standards |
32 |
Related party transactions |
35 |
Financial instruments |
35 |
Risk and uncertainties |
35 |
Government Regulations and Regulatory |
36 |
Advisories
The following Management’s Discussion and
Analysis (“MD&A”), dated October 25, 2018, should be read
in conjunction with the unaudited interim Consolidated Financial
Statements and Notes thereto for the quarter ended August 31,
2018 and the 2017 Annual Consolidated Financial Statements, the
Notes thereto and related MD&A included in the Company’s 2017
Annual Report. 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 unless otherwise indicated.
References to “Shaw”, the “Company”, “we”, “us” or “our” mean Shaw
Communications Inc. and its subsidiaries and consolidated entities,
unless the context otherwise requires.
Caution concerning forward-looking
statements
Statements included in this MD&A that are
not historic constitute “forward-looking information” within the
meaning of applicable securities laws. Such statements 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). Forward looking statements in this MD&A include,
but are not limited to statements related to:
- future capital expenditures;
- proposed asset acquisitions and
dispositions;
- expected cost efficiencies;
- financial guidance and expectations
for future performance;
- business and technology strategies
and measures to implement strategies;
- the Company’s equity investments,
joint ventures and partnership arrangements;
- competitive strengths;
- expected project schedules,
regulatory timelines, completion/in-service dates for the Company’s
capital and other projects;
- expected number of retail
outlets;
- timing of new product and service
launches;
- expected number of customers using
Voice over LTE (“VoLTE”);
- the deployment of: (i) network
infrastructure to improve capacity and coverage and (ii) new
technologies, including next generation wireless and wireline
technologies such as 5G and IPTV, respectively;
- expected growth in subscribers and
the products/services to which they subscribe;
- the cost of acquiring and retaining
subscribers and deployment of new services;
- the total restructuring charges
(related primarily to severance and employee related costs as well
as additional costs directly associated with the Company’s Total
Business Transformation (“TBT”) initiative) expected to be incurred
in connection with the TBT initiative;
- the anticipated annual cost
reductions related to the Voluntary Departure Program (“VDP”)
(including reductions in operating and capital expenditures) and
the timing of realization thereof;
- the impact that the employee exits
will have on Shaw’s business operations;
- outcome of the TBT initiative,
including the timing thereof and the total savings at completion;
and
- expansion and growth of the
Company’s business and operations and other goals and
plans.
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 the Company 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. The Company’s management believes that its
assumptions and analysis in this MD&A are reasonable and that
the expectations reflected in the forward-looking statements
contained herein are also reasonable based on the information
available on the date such statements are made and the process used
to prepare the information. These assumptions, many of which are
confidential, include but are not limited to management
expectations with respect to:
- general economic, market and
business conditions;
- future interest rates;
- previous performance being
indicative of future performance;
- future income tax and exchange
rates;
- technology deployment;
- future expectations and demands of
our customers;
- subscriber growth;
- short-term incremental costs
associated with growth in Wireless handset sales;
- cost reductions associated with the
CRTC finalizing wholesale mobile wireless roaming rates;
- pricing, usage and churn
rates;
- availability of devices;
- content and equipment costs;
- industry structure, conditions and
stability;
- government regulation;
- the completion of proposed
transactions;
- the TBT initiative being completed
in a timely and cost-effective manner and yielding the expected
results and benefits, including: (i) resulting in a leaner, more
integrated and agile company with improved efficiencies and
execution to better meet Shaw’s consumers’ needs and expectations
(including the products and services offered to its customers) and
(ii) realizing the expected cost reductions;
- the Company being able to complete
the employee exits pursuant to the VDP with minimal impact on
business operations within the anticipated timeframes and for the
budgeted amount;
- the cost estimates for any
outsourcing requirements and new roles in connection with the
VDP;
- the Company being able to gain
access to sufficient retail distribution channels;
- the Company being able to access
the spectrum resources required to execute on its current and long
term strategic initiatives; and
- the integration of recent
acquisitions.
You should not place undue reliance on any forward-looking
statements. Many risk factors, including those not within the
Company's control, may cause the Company's actual results to be
materially different from the views expressed or implied by such
forward-looking statements, including but not limited to:
- changes in general economic, market
and business conditions;
- changing interest rates, income
taxes and exchange rates;
- changes in the competitive
environment in the markets in which the Company operates and from
the development of new markets for emerging technologies;
- changing industry trends,
technological developments, and other changing conditions in the
entertainment, information and communications industries;
- changes in value of the Company’s
equity investments, joint ventures and partnership
arrangements;
- the Company’s failure to execute
its strategic plans and complete capital and other projects by the
completion date;
- the Company’s failure to grow
subscribers;
- the failure to realize roaming cost
reductions;
- the Company’s failure to close any
transactions;
- the Company’s failure to have the
spectrum resources required to execute on its current and long term
strategic initiatives;
- the Company’s failure to gain
sufficient access to retail distribution channels;
- the Company’s failure to achieve
cost efficiencies;
- the Company’s failure to implement
the TBT initiative as planned and realize the anticipated benefits
therefrom, including: (i) the failure of the TBT to result in a
leaner, more integrated and agile company with improved
efficiencies and execution to better meet Shaw’s consumers’ needs
and expectations (including the products and services offered to
its customers) and (ii) the failure to realize the expected cost
reductions;
- the Company’s failure to complete
employee exits pursuant to the VDP with minimal impact on
operations;
- technology, privacy, cyber security
and reputational risks;
- opportunities that may be presented
to and pursued by the Company;
- changes in laws, regulations and
decisions by regulators that affect the Company or the markets in
which it operates;
- the Company’s status as a holding
company with separate operating subsidiaries; and
- other factors described in this
MD&A under the heading “Risks and Uncertainties” and in the
MD&A for the year ended August 31, 2017 under the heading
“Known events, Trends, Risks, and Uncertainties.”
The foregoing is not an exhaustive list of all
possible risk 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.
This MD&A provides certain future-oriented
financial information or financial outlook (as such terms are
defined in applicable securities laws), including the financial
guidance and assumptions disclosed under “Outlook,” the expected
annualized savings to be realized from the VDP and the total
anticipated TBT restructuring costs for fiscal 2018. Shaw discloses
this information because it believes that certain investors,
analysts and others utilize this and other forward-looking
information in order to assess Shaw's expected operational and
financial performance and as an indicator of its ability to service
debt and pay dividends to shareholders. The Company cautions that
such financial information 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, the Company 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. All forward looking statements
contained in this MD&A are expressly qualified by this
statement.
Non-IFRS and additional GAAP
measures
Certain measures in this MD&A do not have
standard meanings prescribed by IFRS and are therefore considered
non-IFRS measures. These measures are provided to enhance the
reader’s overall understanding of our financial performance or
current financial condition. They are included to provide
investors and management with an alternative method for assessing
our operating results in a manner that is focused on the
performance of our ongoing operations and to provide a more
consistent basis for comparison between periods. These measures are
not in accordance with, or an alternative to, IFRS and do not have
standardized meanings. Therefore, they are unlikely to be
comparable to similar measures presented by other
entities.
Please refer to “Non-IFRS and additional GAAP
measures” in this MD&A for a discussion and reconciliation of
non-IFRS measures, including operating income before restructuring
costs and amortization and free cash flow.
Introduction
We have taken purposeful strides to evolve
Shaw’s value proposition of providing leading and innovative
products and services, driving operational momentum and enhancing
our customers’ connectivity experience.
Wireless
Fiscal 2018 was an exciting year for our
Wireless business. In a short amount of time, we have created a
stronger, high quality network and are delivering an improved
customer experience. Our continued strong results are due to the
ongoing Wireless investments (including spectrum deployment),
device parity, data-centric Big Gig plans, and a significantly
expanded retail distribution network. We are executing against our
operating strategy which has enabled us to rationally grow our
market share and average revenue per unit (“ARPU”), both in the
quarter and throughout the year. In the fourth quarter, we added
85,000 postpaid Wireless subscribers bringing our postpaid customer
base to over 1 million and total customers to approximately 1.4
million. Fourth quarter ARPU was particularly strong, increasing by
9% year-over-year, fueled by customer demand for larger data plans.
Our fiscal 2018 Wireless results are a true testament to Freedom
Mobile delivering a differentiated and sustainable value
proposition to customers and we have significant momentum as we
enter fiscal 2019.
We’re excited about our continued expansion of
the Wireless retail distribution network, ensuring that more
Canadians have access to the value provided by Freedom
Mobile. We’ve recently launched approximately 100 locations
with Loblaws ‘The Mobile Shop’ and all of the approximate 140
Walmart locations throughout Ontario, Alberta and British Columbia
were distributing Freedom Mobile by the end of September 2018. In
addition, the Company has introduced a new format to its corporate
stores which it will continue to roll out and expand into new
markets in fiscal 2019. These retail growth initiatives will
substantially improve the accessibility of our Wireless products
and help close our historical retail distribution gap. When
combined with our existing corporate and dealer store network,
Freedom Mobile expects to have approximately 600 retail locations
operational in fiscal 2019.
The Company also launched Voice over LTE
(“VoLTE”) across its network on a wide range of devices and expects
that approximately 800,000 Freedom customers will be able to use
VoLTE before the end of December 2018. The Company has also started
deploying small cell technology (low-powered wireless transmitters
and receivers with a range of 100 m to 200 m), designed to provide
network coverage to smaller areas. As tall high-power macro towers
keep the network signal strong across large distances, small cells
suit more densely developed areas like city centres and popular
venues by providing LTE/VoLTE quality, speed, capacity and coverage
improvements in these high traffic areas.
In fiscal 2018, the Company successfully
upgraded and deployed 2500 MHz in high traffic sites in the Greater
Toronto Area (“GTA”), Calgary, Edmonton and Vancouver. This step
along with completion of the re-farming of 10 MHz of our existing
AWS-1 spectrum to LTE in the second quarter of fiscal 2018 resulted
in a large majority of our existing customers migrating from 3G to
LTE service using their existing devices. This transition has
shifted our data traffic from 92% 3G to currently 80% on our LTE
network, which now offers LTE service across three spectrum bands –
AWS-1, AWS-3 and 2500 MHz. As a result, service significantly
improved for customers that were migrated from our AWS-1 to 2500
MHz LTE spectrum band as well as for our remaining 3G
customers.
Wireless network investments remain our top
priority and in the fourth quarter we increased spending related to
the deployment of our 700 MHz spectrum, which was recently enabled
in Calgary, and deployment will continue throughout fiscal 2019.
This spectrum materially improves network coverage and provides
customers with enhanced indoor LTE coverage, further closing the
gap between our wireless network and the incumbents’.
While the distribution and network improvements
that we have made, and continue to make, provide significant
benefits to customers today, we are also making decisions that
reflect our long-term view regarding new technology that is on the
horizon. In 2018, the government announced consultations to release
certain spectrum bands that will support 5G wireless network
deployment. This exciting step provides further visibility into the
deployment of 5G where our Wireline and Wireless networks are very
well positioned. We are pleased that our initial trials have been a
success and, through our partnerships with best-in-class industry
leaders, we will work to better understand the strengths and
capabilities of 5G while continuing to invest in our network to
offer Canadians a new era of strong and sustainable competition for
the next generation of wireless technologies.
Since acquiring the Wireless business in the
spring of 2016, we have made significant investments and
improvements to our network and our service. We are excited by the
tremendous growth potential of the Wireless business, and, as shown
by our results this year, we are committed to delivering a strong
and competitive wireless alternative that will benefit all
Canadians.
Wireline
We are transforming our Wireline business to
enable an agile, digital-first company that will continue to meet
the needs of our customers. In fiscal 2018, we introduced a
significant amount of change and disruption that resulted in a
leaner organization and a management team with clear
accountabilities, direction and targets as we head into the new
fiscal year. We will remain focused on delivering profitable growth
and stabilizing our Consumer results by improving on our execution,
leading with strong broadband services and optimizing our Video
offering.
Our focus on driving profitable subscriber
growth continued this quarter through disciplined pricing and
promotions. Internet revenue continues to grow despite the marginal
net revenue generating unit (“RGU”) loss this quarter and our
strategy is to compete based on product innovation, service and
value. We expect that the strength of our network, products and
people will drive results in our Wireline division and our
partnership with Comcast provides an exciting roadmap that
encompasses broadband in addition to Video. We are deploying
the latest DOCSIS 3.1 modem (XB6) which enables faster internet
speeds and our BlueSky platform continues to improve and now
integrates YouTube seamlessly with live TV, video-on-demand and
recorded content.
Continued investment in our extensive hybrid
co-axial broadband network enables us to offer WideOpen Internet
150 across 99% of our Western Canadian cable footprint and,
introduced this quarter, Internet 300, our fastest internet ever.
We believe Canadians should not have limitations on how much they
use the Internet – by offering our flagship WideOpen Internet 150
and Internet 300 plans with unlimited data, we are providing
customers with peace of mind in knowing they can stream, download
and browse without any overage charges for exceeding monthly data
limits.
On the shoulders of its SmartSuite of products,
Shaw Business continues to grow at a steady pace despite recent
years of economic challenges experienced in parts of Western
Canada. Highlighted by growth in the small and medium-sized
business markets, the Business division continues to consistently
increase its customer base, revenue and profitability.
Total Business Transformation
In the second quarter of fiscal 2018, the
Company introduced TBT, a multi-year initiative designed to
reinvent Shaw’s operating model to better meet the evolving needs
and expectations of consumers and businesses by reducing staff,
optimizing the use of resources and maintaining and ultimately
improving customer service. Three key elements of the
transformation are to: 1) shift customer interactions to digital
platforms; 2) drive more self-install and self-serve; and, 3)
streamline the organization that builds and services the networks.
As part of the TBT initiative, the Company also plans to reduce
input costs, consolidate functions, and streamline processes, which
is expected to create operational improvements across the business
allowing it to evolve into a more efficient organization.
As a first step in the TBT, a VDP was offered to
eligible employees. The outcome of the program had approximately
3,300 Shaw employees accepting the VDP packages. The anticipated
annualized savings, which include reductions in operating expenses
and capital expenditures (i.e. labour costs that can be identified
or associated with a capital project), related to the VDP, are
expected to be approximately $215 million and will be fully
realized in fiscal 2020. Shaw expects these cost reductions to be
weighted 60% to operating expenses, being approximately $130
million, and 40% to capital expenditures, being approximately $85
million.
In the fourth quarter of fiscal 2018,
approximately 460 employees exited the Company, bringing the total
number of employee exits relating to VDP in the year to
approximately 1,300 employees. This led to operating cost
reductions in the quarter of approximately $23 million and capital
cost reductions of approximately $5 million. The Company
delivered its total expected cost reductions for fiscal 2018 of
approximately $47 million in capital and operating cost savings
combined.
In connection with various other TBT activities,
Shaw has incurred an additional restructuring charge of $16 million
in the fourth quarter, for a total of $446 million in fiscal 2018,
primarily related to severance and other employee related costs, as
well as additional costs directly associated with the TBT
initiative. The Company still expects that total restructuring
costs will not exceed $450 million as the restructuring activities
related to TBT initiatives have been substantially completed.
See also “Introduction,” “Other Income and Expense Items,” “Caution
Concerning Forward Looking Statements,” and “Risks and
Uncertainties” for a discussion of the TBT, the VDP and the risks
and assumptions associated therewith.
Fiscal 2019
The year ahead will reflect an important
milestone with respect to the free cash flow profile of our
Company. Since we embarked on our asset transformation back in
2015, we have made significant investments in our networks and
overall business to support our growth strategy while maintaining a
strong balance sheet and leverage profile. We believe our overall
capital intensity will moderate, predominately in our Wireline
business, as we continue to make Wireless infrastructure
investments that enhance the customer experience and lay the
foundation for future growth. Our fiscal 2019 plan includes new
technology, tools and automation that enable us to deliver on our
digital first service model and to strengthen and grow our Wireless
business. We have undergone several years of significant change and
have made difficult decisions along the way. However, with
these changes in place, we can focus entirely on execution and
continue to progress towards our goal of generating long-term,
sustainable free cash flow growth. See “Outlook” for a
discussion of fiscal 2019 financial guidance.
Selected financial and operational
highlights
Effective September 1, 2017, and as a
result of the restructuring undertaken in fiscal 2017, the Company
reorganized and integrated its management structure, previously
separated in the Consumer and Business Network Services segments,
into a combined Wireline segment, as management and costs were
becoming increasingly inseparable between the previously reported
segments. Fiscal 2017 comparative figures have been restated to
reflect this change. There was no change to the Wireless operating
segment.
Basis of presentation
On August 1, 2017, the Company sold 100% of
its wholly owned subsidiary ViaWest, Inc. (“ViaWest”), previously
reported under the Business Infrastructure Services division, to an
external party.
On May 31, 2017, the Company entered an
agreement to sell a group of assets comprising the operations of
Shaw Tracking, a fleet tracking operation reported within the
Company’s Wireline segment, to an external party. The transaction
closed on September 15, 2017.
Accordingly, the operating results and operating
cash flows for the previously reported Business Infrastructure
Services division and the Shaw Tracking business (an operating
segment within the Wireline division) are presented as discontinued
operations separate from the Company’s continuing operations. The
Business Infrastructure Services division was comprised primarily
of ViaWest. The remaining operations of the previously reported
Business Infrastructure Services segment and their results are now
included within the Wireline segment. This MD&A reflects the
results of continuing operations, unless otherwise noted.
Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars except per
share amounts) |
2018 |
|
2017 |
|
Change % |
|
2018 |
|
2017 |
|
Change % |
Operations: |
|
|
|
|
|
|
|
Revenue |
1,336 |
|
1,244 |
|
7.4 |
|
|
5,239 |
|
4,882 |
|
7.3 |
|
Operating income before restructuring costs
and amortization(1) |
560 |
|
479 |
|
16.9 |
|
|
2,089 |
|
1,997 |
|
4.6 |
|
Operating margin(1) |
41.9 |
% |
38.5 |
% |
3.4pts |
|
39.9 |
% |
40.9 |
% |
(1.0pts) |
Net income from continuing operations |
200 |
|
149 |
|
34.2 |
|
|
66 |
|
557 |
|
(88.2 |
) |
Income (loss) from discontinued
operations, net of tax |
– |
|
332 |
|
(100.0 |
) |
|
(6 |
) |
294 |
|
>(100.0) |
Net income |
200 |
|
481 |
|
(58.4 |
) |
|
60 |
|
851 |
|
(92.9 |
) |
Per share data: |
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
|
|
|
|
|
|
Continuing operations |
0.39 |
|
0.30 |
|
|
|
0.11 |
|
1.12 |
|
|
Discontinued operations |
– |
|
0.67 |
|
|
|
(0.01 |
) |
0.60 |
|
|
|
0.39 |
|
0.97 |
|
|
|
0.10 |
|
1.72 |
|
|
Diluted earnings (loss) per share |
|
|
|
|
|
|
|
Continuing operations |
0.39 |
|
0.30 |
|
|
|
0.11 |
|
1.11 |
|
|
Discontinued operations |
– |
|
0.66 |
|
|
|
(0.01 |
) |
0.60 |
|
|
|
0.39 |
|
0.96 |
|
|
|
0.10 |
|
1.71 |
|
|
Weighted average participating shares for basic
earnings per share outstanding during period (millions) |
505 |
|
495 |
|
|
|
502 |
|
491 |
|
|
Funds flow from continuing operations(2) |
441 |
|
382 |
|
15.4 |
|
|
1,259 |
|
1,530 |
|
(17.7 |
) |
Free cash flow(1) |
34 |
|
2 |
|
>100.0 |
|
411 |
|
438 |
|
(6.2 |
) |
(1)
See definitions and discussion under “Non-IFRS and additional GAAP
measures.”
(2) Funds
flow from operations is before changes in non-cash balances related
to operations as presented in the unaudited interim Consolidated
Statements of Cash Flows.
Subscriber (or revenue generating unit
(“RGU”)) highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
Change |
|
|
|
Three months ended |
|
Year ended |
|
August 31,
2018 |
August 31,
2017 |
August 31,
2018 |
August 31,
2017 |
|
August 31,
2018 |
August 31,
2017 |
Wireline – Consumer |
|
|
|
|
|
|
|
Video – Cable |
1,585,232 |
1,671,277 |
(33,990 |
) |
7,567 |
|
|
(86,045 |
) |
218 |
|
Video – Satellite |
750,403 |
773,542 |
(7,399 |
) |
(3,283 |
) |
|
(23,139 |
) |
(17,032 |
) |
Internet |
1,876,944 |
1,861,009 |
(3,481 |
) |
22,045 |
|
|
15,935 |
|
73,367 |
|
Phone |
853,847 |
925,531 |
(26,160 |
) |
(4,535 |
) |
|
(71,684 |
) |
(31,232 |
) |
Total Consumer |
5,066,426 |
5,231,359 |
(71,030 |
) |
21,794 |
|
|
(164,933 |
) |
25,321 |
|
Wireline – Business |
|
|
|
|
|
|
|
Video – Cable |
49,606 |
51,039 |
(77 |
) |
(2,483 |
) |
|
(1,433 |
) |
(10,114 |
) |
Video – Satellite |
34,831 |
31,535 |
1,947 |
|
544 |
|
|
3,296 |
|
541 |
|
Internet |
172,859 |
170,644 |
1,734 |
|
(2,065 |
) |
|
2,215 |
|
(9,223 |
) |
Phone |
354,912 |
327,199 |
8,195 |
|
7,562 |
|
|
27,713 |
|
25,871 |
|
Total Business |
612,208 |
580,417 |
11,799 |
|
3,558 |
|
|
31,791 |
|
7,075 |
|
Total Wireline |
5,678,634 |
5,811,776 |
(59,231 |
) |
25,352 |
|
|
(133,142 |
) |
32,396 |
|
Wireless |
|
|
|
|
|
|
|
Postpaid |
1,029,720 |
764,091 |
84,882 |
|
29,089 |
|
|
265,629 |
|
97,063 |
|
Prepaid |
373,138 |
383,082 |
132 |
|
11,925 |
|
|
(9,944 |
) |
6,822 |
|
Total Wireless |
1,402,858 |
1,147,173 |
85,014 |
|
41,014 |
|
|
255,685 |
|
103,885 |
|
Total Subscribers |
7,081,492 |
6,958,949 |
25,783 |
|
66,366 |
|
|
122,543 |
|
136,281 |
|
In Wireless, the Company continued to add
wireless subscribers, gaining a net combined 85,014 postpaid and
prepaid subscribers in the quarter. This represents an increase of
more than double the 41,014 net additions achieved in the fourth
quarter of fiscal 2017. The increase in the customer base reflects
continued customer demand for premium smartphones combined with
device pricing and packaging options, data centric plans, and the
ongoing execution of the wireless growth strategy to improve the
network and customer experience.
Wireline RGUs declined by 59,231 in the quarter
compared to a gain of 25,352 RGUs in the fourth quarter of 2017.
The current quarter includes a decline in Consumer RGUs of 71,030
due primarily to a highly competitive market environment
specifically relating to back-to-school offers. The Company
remained disciplined with its subscriber acquisition offers
resulting in lower gross RGU addition activity in Consumer,
partially offset by Business RGU growth of 11,799.
Overview
For detailed discussion of divisional
performance see “Discussion of operations”. Highlights of the
consolidated fourth quarter financial results are as
follows:
Revenue
Revenue for the fourth quarter
of fiscal 2018 of $1.34 billion increased $92 million or 7.4%
from $1.24 billion for the fourth quarter of fiscal 2017,
highlighted by the following:
- The year-over-year improvement in
revenue was primarily due to growth in the Wireless division which
contributed an incremental $78 million or 45.3% to
consolidated revenue driven primarily by higher postpaid RGUs
(approximately 266,000 since August 31, 2017), an increase in
average revenue per unit (“ARPU”) and a significantly greater
proportion of postpaid subscribers purchasing handsets in fiscal
2018, resulting in a $40 million increase in service revenue and a
$38 million increase in equipment revenue compared to the
fourth quarter of fiscal 2017.
- The Business division contributed
$9 million or 6.6% growth to consolidated revenue driven
primarily by consistent customer growth reflecting the continued
strong demand for Shaw’s SmartSuite of products and the impact of
annual rate increases.
- Consumer division revenue for the
period increased $5 million or 0.5% compared to the fourth
quarter of fiscal 2017 mainly due to higher Internet revenues
driven mostly by the addition of approximately 16,000 Internet RGUs
since August 31, 2017 and from Video and Internet rate
increases during the year, all of which were partially offset by
the impact of Video RGU losses and the change in Video customer and
package mix.
Compared to the third quarter
of fiscal 2018, consolidated revenue for the quarter increased 2.8%
or $36 million. The increase in revenue over the prior quarter
relates primarily to the impact of rate increases in the quarter in
the Consumer division as well as growth in the Wireless division
driven by added RGUs and higher ARPU.
Revenue for the twelve-month
period of $5.24 billion increased $357 million or
7.3% from $4.88 billion for the comparable period in fiscal
2017.
- The year-over-year improvement in
revenue was primarily due to the Wireless division which
contributed an incremental $346 million or 57.2% to
consolidated revenue including higher equipment revenues of $233
million and higher service revenues of $113 million driven
primarily by added postpaid RGUs, higher ARPU and a large share of
new postpaid subscribers purchasing handsets.
- The Business division contributed
$34 million or 6.4% to the consolidated revenue improvements
for the twelve-month period driven primarily by customer growth and
the impact of annual rate increases.
- Consumer division revenues
decreased $22 million or 0.6% compared to the twelve-month
period of fiscal 2017 reflecting the change in customer mix and a
decline in Video and phone RGUs.
Operating income before restructuring costs and
amortization
Operating income before restructuring costs and
amortization for the fourth quarter of fiscal 2018
of $560 million increased by $81 million or 16.9% from
$479 million for the fourth quarter of fiscal 2017,
highlighted by the following:
- The year-over-year improvement in
the Wireless division of $11 million was mainly due to the
impact of a higher ARPU partially offset by a decrease in equipment
margins.
- The year-over-year improvement in
the Wireline division of $70 million driven primarily by lower
employee-related costs attributed to the VDP and additional cost
focus including lower marketing costs.
Operating margin for the fourth
quarter of 41.9% was up compared to 38.5% in the fourth
quarter of fiscal 2017 due primarily to an increase in the Wireline
operating margin of 5.9% driven primarily by VDP cost reductions
partially offset by a decrease in the Wireless operating margin of
1.6% as a result of the additional equipment sales in the quarter
and the lower resulting upfront margin when loading new
subscribers.
Compared to the third quarter of fiscal
2018, operating income before restructuring costs and
amortization for the current quarter was up $13 million
primarily due to higher Wireline revenues driven by an annual rate
adjustment in the quarter, lower corporate costs, and lower
employee related costs partially offset by the impact of a
$13 million credit for a retroactive domestic roaming rate
adjustment received in the Wireless division in the third
quarter.
For the twelve-month period,
operating income before restructuring costs and amortization of
$2.1 billion increased $92 million or 4.6% from $2.0 billion
for the comparable period.
- Wireless operating income before
restructuring costs and amortization for the twelve-month period
increased $43 million or 32.3% over the comparable period
primarily due to the growth in subscribers and ARPU and a
$13 million credit for a retroactive domestic roaming rate
adjustment received in the year partially offset by lower equipment
margins and higher distribution channel costs.
- Wireline operating income before
restructuring costs and amortization for the twelve-month period
increased $49 million or 2.6% over the comparable period as a
result of VDP cost reductions and lower marketing costs, partially
offset by the change in the Video customer and package mix and
higher programming costs.
Free cash flow
Free cash flow for the fourth
quarter of fiscal 2018 of $34 million increased
$32 million from $2 million in the fourth quarter of
fiscal 2017, mainly due to an $81 million increase in
operating income before restructuring costs and amortization, which
was partially offset by a planned increase in capital expenditures
and equipment costs of $36 million.
For the twelve-month period,
free cash flow of $411 million decreased $27 million or 6.2% from
$438 million for the comparable period, mainly due to a planned
increase in capital expenditures and equipment costs of $142
million, which was partially offset by a $92 million increase in
operating income before restructuring costs and amortization and an
$18 million decrease in interest.
Net income (loss)
Net income of $200 million and
$60 million for the three and twelve months ended
August 31, 2018, respectively compared to net income of
$481 million and $851 million for the same periods in
fiscal 2017. The changes in net income are outlined in the
following table.
|
|
|
|
|
|
|
|
|
|
|
August 31, 2018 net income
compared to: |
|
Three months ended |
|
Year ended |
(millions of Canadian dollars) |
May 31,
2018 |
August 31,
2017 |
|
August 31,
2017 |
Increased operating income before restructuring costs and
amortization(1) |
13 |
|
81 |
|
|
92 |
|
Increased restructuring costs |
(3 |
) |
(16 |
) |
|
(392 |
) |
Increased amortization |
(9 |
) |
(10 |
) |
|
(69 |
) |
Change in net other costs and revenue(2) |
293 |
|
4 |
|
|
(160 |
) |
Decreased (increased) income taxes |
(3 |
) |
(8 |
) |
|
38 |
|
Decreased income from discontinued
operations, net of tax |
– |
|
(332 |
) |
|
(300 |
) |
|
291 |
|
(281 |
) |
|
(791 |
) |
(1)
See definitions and discussion under “Non-IFRS and additional GAAP
measures.”
(2) Net
other costs and revenue include equity income (loss) of an
associate or joint venture, business acquisition costs, accretion
of long-term liabilities and provisions, debt retirement costs,
realized and unrealized foreign exchange differences and other
losses as detailed in the unaudited Consolidated Statements of
Income.
The change in net other costs and revenue in the
fourth quarter had a $293 million favourable impact on net income
compared to the third quarter of fiscal 2018 primarily due to the
impact of a $284 million impairment from the Company’s
investment in Corus Entertainment Inc. recorded in the third
quarter of fiscal 2018.
Restructuring costs in the fourth quarter of
fiscal 2018 of approximately $16 million related to further
organizational restructuring under the TBT initiative and the VDP
program offered in the second quarter of fiscal 2018. The costs
primarily relate to severance and other employee costs as well as
other costs directly associated with the TBT initiative. Total
year-to-date restructuring costs for fiscal 2018 relating to this
initiative were $446 million. See also “Introduction,” “Other
Income and Expense Items,” “Caution Forward Looking Statements,”
and “Risk and Uncertainty” in this MD&A for additional
discussion of the TBT, the VDP and the risks and assumptions
associated therewith.
Outlook
Shaw is introducing its fiscal 2019 guidance,
which includes consolidated operating income before restructuring
costs and amortization growing 4% to 6% over fiscal 2018; capital
investments of approximately $1.2 billion; and free cash flow in
excess of $500 million. The Company’s guidance also includes
assumptions related to cost reductions that will be achieved
through TBT initiatives (specifically the VDP savings) that are
expected to amount to $140 million of operating and capital savings
in fiscal 2019 (approximately $85 million attributed to operating
expenses and approximately $55 million attributed to capital
expenditures).
Shaw’s fiscal 2019 guidance and growth range
includes the expected impact of IFRS 15, Revenue from Contracts
with Customers, which the Company will adopt on a fully
retroactive basis beginning in the first quarter of fiscal 2019.
The fiscal 2018 and expected fiscal 2019 adjustments under IFRS 15
do not have a material impact on the aforementioned fiscal 2019
guidance. The Company will provide additional details with respect
to the impact of IFRS 15 when the Company files its fiscal 2018
Annual Report and with the release of its first quarter fiscal 2019
results.
See “Caution concerning forward-looking
statements.”
Non-IFRS and additional GAAP
measures
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.
Below is a discussion of the 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 restructuring
costs and amortization
Operating income before restructuring costs and
amortization is calculated as revenue less operating, general and
administrative expenses. It is intended to indicate the Company’s
ongoing ability to service and/or incur debt and is therefore
calculated before one-time items such as restructuring costs,
amortization (a non-cash expense) and interest. Operating income
before restructuring costs and amortization is also one of the
measures used by the investing community to value the business.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
Operating income from continuing operations |
288 |
|
232 |
|
|
631 |
|
999 |
|
Add back (deduct): |
|
|
|
|
|
Restructuring costs |
16 |
|
– |
|
|
446 |
|
54 |
|
Amortization: |
|
|
|
|
|
Deferred equipment revenue |
(6 |
) |
(9 |
) |
|
(30 |
) |
(38 |
) |
Deferred equipment costs |
25 |
|
30 |
|
|
110 |
|
122 |
|
Property, plant and equipment, intangibles
and other |
237 |
|
226 |
|
|
932 |
|
860 |
|
Operating income before restructuring
costs and
amortization |
560 |
|
479 |
|
|
2,089 |
|
1,997 |
|
Operating margin
Operating margin is calculated by dividing operating income
before restructuring costs and amortization by revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
|
2018 |
|
2017 |
|
Change
% |
|
2018 |
|
2017 |
|
Change
% |
Wireline |
47.5 |
% |
41.6 |
% |
5.9pts |
|
44.6 |
% |
43.6 |
% |
1.0pts |
Wireless |
17.6 |
% |
19.2 |
% |
(1.6pts) |
|
18.5 |
% |
22.0 |
% |
(3.5pts) |
Combined Wireline and Wireless |
41.9 |
% |
38.5 |
% |
3.4pts |
|
39.9 |
% |
40.9 |
% |
(1.0pts) |
Income from discontinued operations
before restructuring costs, amortization, taxes and other
non-operating items
Income from discontinued operations before
restructuring costs, amortization, taxes and other non-operating
items is calculated as revenue less operating, general and
administrative expenses from discontinued operations. This
measure is used in the determination of free cash flow.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
2017 |
|
|
2018 |
|
2017 |
|
Income (loss) from discontinued operations, net of
tax |
– |
332 |
|
|
(6 |
) |
294 |
|
Add back (deduct): |
|
|
|
|
|
Loss on divestiture, net of tax |
– |
(330 |
) |
|
(6 |
) |
(330 |
) |
Income taxes |
– |
2 |
|
|
– |
|
(4 |
) |
Interest on long-term debt |
– |
6 |
|
|
– |
|
32 |
|
Amortization of property, plant and equipment,
intangibles and other |
– |
4 |
|
|
– |
|
101 |
|
Impairment of goodwill/disposal group |
– |
14 |
|
|
– |
|
47 |
|
Income from discontinued operations
before restructuring costs, amortization, taxes and other
non-operating items |
– |
28 |
|
|
– |
|
140 |
|
Net debt leverage ratio
The Company uses this ratio to determine its
optimal leverage ratio. Refer to “Liquidity and capital resources”
for further detail.
Free cash flow
The Company utilizes this measure to assess the
Company’s ability to repay debt and pay dividends to shareholders.
Free cash flow is calculated as free cash flow from continuing
operations and free cash flow from discontinued operations.
Free cash flow from continuing
operations is comprised of operating income before
restructuring costs and amortization, adding dividends from equity
accounted associates, changes in receivable related balances with
respect to customer equipment financing transactions as a cash item
and deducting capital expenditures (on an accrual basis and net of
proceeds on capital dispositions) and equipment costs (net),
interest, cash taxes paid or payable, dividends paid on the
preferred shares, recurring cash funding of pension amounts net of
pension expense and adjusted to exclude share-based compensation
expense.
Free cash flow from continuing operations has
not been reported on a segmented basis. Certain components of free
cash flow from continuing operations, including operating income
before restructuring costs and amortization continue to be reported
on a segmented basis. Capital expenditures and equipment costs
(net) are also 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.
Free cash flow from discontinued
operations is comprised of income from discontinued
operations before restructuring costs, amortization, taxes and
other non-operating items after deducting capital expenditures (on
an accrual basis and net of proceeds on capital dispositions),
interest and cash taxes paid or payable that are included in the
income from discontinued operations before restructuring costs,
amortization, taxes and other non-operating items.
Free cash flow is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
|
2017 |
|
Change
% |
|
2018 |
|
2017 |
|
Change
% |
Revenue |
|
|
|
|
|
|
|
Consumer |
942 |
|
937 |
|
0.5 |
|
|
3,725 |
|
3,747 |
|
(0.6 |
) |
Business |
145 |
|
136 |
|
6.6 |
|
|
567 |
|
533 |
|
6.4 |
|
Wireline |
1,087 |
|
1,073 |
|
1.3 |
|
|
4,292 |
|
4,280 |
|
0.3 |
|
Service |
167 |
|
127 |
|
31.5 |
|
|
595 |
|
482 |
|
23.4 |
|
Equipment |
83 |
|
45 |
|
84.4 |
|
|
356 |
|
123 |
|
>100.0 |
Wireless |
250 |
|
172 |
|
45.3 |
|
|
951 |
|
605 |
|
57.2 |
|
|
1,337 |
|
1,245 |
|
7.4 |
|
|
5,243 |
|
4,885 |
|
7.3 |
|
Intersegment eliminations |
(1 |
) |
(1 |
) |
– |
|
|
(4 |
) |
(3 |
) |
33.3 |
|
|
1,336 |
|
1,244 |
|
7.4 |
|
|
5,239 |
|
4,882 |
|
7.3 |
|
Operating income before restructuring costs and
amortization(1) |
|
|
|
|
|
|
|
Wireline |
516 |
|
446 |
|
15.7 |
|
|
1,913 |
|
1,864 |
|
2.6 |
|
Wireless |
44 |
|
33 |
|
33.3 |
|
|
176 |
|
133 |
|
32.3 |
|
|
560 |
|
479 |
|
16.9 |
|
|
2,089 |
|
1,997 |
|
4.6 |
|
Capital expenditures and equipment costs
(net):(2) |
|
|
|
|
|
|
|
Wireline |
331 |
|
319 |
|
3.8 |
|
|
1,024 |
|
970 |
|
5.6 |
|
Wireless |
103 |
|
79 |
|
30.4 |
|
|
343 |
|
255 |
|
34.5 |
|
|
434 |
|
398 |
|
9.0 |
|
|
1,367 |
|
1,225 |
|
11.6 |
|
Free cash flow before the following |
126 |
|
81 |
|
55.6 |
|
|
722 |
|
772 |
|
(6.5 |
) |
Less: |
|
|
|
|
|
|
|
Interest |
(63 |
) |
(66 |
) |
(4.5 |
) |
|
(247 |
) |
(265 |
) |
(6.8 |
) |
Cash taxes |
(50 |
) |
(41 |
) |
22.0 |
|
|
(166 |
) |
(174 |
) |
(4.6 |
) |
Other adjustments: |
|
|
|
|
|
|
|
Dividends from equity accounted
associates |
23 |
|
23 |
|
– |
|
|
92 |
|
88 |
|
4.5 |
|
Non-cash share-based compensation |
– |
|
1 |
|
(100.0 |
) |
|
2 |
|
3 |
|
(33.3 |
) |
Pension adjustment |
(1 |
) |
– |
|
(100.0 |
) |
|
11 |
|
8 |
|
37.5 |
|
Customer equipment financing |
1 |
|
2 |
|
(50.0 |
) |
|
5 |
|
8 |
|
(37.5 |
) |
Preferred share dividends |
(2 |
) |
(2 |
) |
– |
|
|
(8 |
) |
(8 |
) |
– |
|
Free cash flow from continuing
operations |
34 |
|
(2 |
) |
>100.0 |
|
411 |
|
432 |
|
(4.9 |
) |
Income from discontinued operations before
restructuring
costs, amortization taxes and other non-operating
items |
– |
|
28 |
|
(100.0 |
) |
|
– |
|
140 |
|
(100.0 |
) |
Less: |
|
|
|
|
|
|
|
Capital expenditures |
– |
|
(17 |
) |
(100.0 |
) |
|
– |
|
(99 |
) |
(100.0 |
) |
Interest |
– |
|
(6 |
) |
(100.0 |
) |
|
– |
|
(33 |
) |
(100.0 |
) |
Cash taxes |
– |
|
(1 |
) |
(100.0 |
) |
|
– |
|
(2 |
) |
(100.0 |
) |
Free cash flow from discontinued
operations |
– |
|
4 |
|
(100.0 |
) |
|
– |
|
6 |
|
(100.0 |
) |
Free cash flow |
34 |
|
2 |
|
>100.0 |
|
411 |
|
438 |
|
(6.2 |
) |
(1)
See definitions and discussion under “Non-IFRS and additional GAAP
measures.”
(2)
Per Note 4 to the unaudited interim Consolidated Financial
Statements.
Discussion of operations
Wireline
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
|
2017 |
|
Change
% |
|
2018 |
|
2017 |
|
Change
% |
Consumer |
942 |
|
937 |
|
0.5 |
|
3,725 |
|
3,747 |
|
(0.6 |
) |
Business |
145 |
|
136 |
|
6.6 |
|
567 |
|
533 |
|
6.4 |
|
Wireline revenue |
1,087 |
|
1,073 |
|
1.3 |
|
4,292 |
|
4,280 |
|
0.3 |
|
Operating income before restructuring costs
and amortization(1) |
516 |
|
446 |
|
15.7 |
|
1,913 |
|
1,864 |
|
2.6 |
|
Operating
margin(1) |
47.5 |
% |
41.6 |
% |
5.9pts |
|
44.6 |
% |
43.6 |
% |
1.0pts |
(1)
See definitions and discussion under “Non-IFRS and additional GAAP
measures.”
In the fourth quarter of fiscal
2018, Wireline RGUs decreased by 59,231 compared to a 25,352 RGU
gain in the fourth quarter of fiscal 2017. The current quarter
includes a decline in Consumer RGUs of 71,030 due primarily to a
highly competitive market environment specifically relating to
back-to-school offers. The Company remained disciplined with its
subscriber acquisition offers resulting in lower gross RGU addition
activity in Consumer, partially offset by Business RGU growth of
11,799.
Revenue highlights include:
- Consumer revenue for the
fourth quarter of fiscal 2018 increased by
$5 million or 0.5% compared to the fourth quarter of fiscal
2017. Higher revenue generated by annual rate adjustments and
incremental Internet RGUs were fully offset by the impact of
reductions to cable Video and Phone RGUs, as well as customer
downward migration in Video packages relative to a year
ago.
- As compared to the third quarter of fiscal
2018, the current quarter revenue increased by $19 million or
2.1%, primarily due to rate adjustments.
- Business revenue of
$145 million for the fourth quarter of fiscal
2018 was up $9 million or 6.6% over the fourth quarter of
fiscal 2017. Growth was led by the continued success of selling the
SmartSuite of products, specifically Smart WiFi, Smart Voice and
Smart Security.
- As compared to the third quarter of fiscal
2018, the current quarter revenue increased $4 million or
2.8%, primarily due to rate adjustments and added
customers.
Operating income before restructuring costs
and amortization highlights include:
- Operating income before
restructuring costs and amortization for the fourth
quarter of fiscal 2018 of $516 million was up 15.7%
or $70 million from $446 million in the fourth quarter of
fiscal 2017. The increase related primarily to lower
operating costs driven by VDP-related operating cost reductions of
approximately $23 million and additional cost focus including
lower marketing costs.
- As compared to the third quarter of fiscal
2018, Wireline operating income before restructuring costs and
amortization for the current quarter increased by $31 million
driven primarily by cost reductions relating to VDP and the impact
of additional revenues generated by annual rate adjustments in the
fourth quarter.
Wireless
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
|
2017 |
|
Change
% |
|
2018 |
|
2017 |
|
Change
% |
Service |
167 |
|
127 |
|
31.5 |
|
595 |
|
482 |
|
23.4 |
Equipment and other |
83 |
|
45 |
|
84.4 |
|
356 |
|
123 |
|
>100.0 |
Wireless revenue |
250 |
|
172 |
|
45.3 |
|
951 |
|
605 |
|
57.2 |
Operating income before restructuring costs
and amortization(1) |
44 |
|
33 |
|
33.3 |
|
176 |
|
133 |
|
32.3 |
Operating
margin(1) |
17.6 |
% |
19.2 |
% |
(1.6pts) |
|
18.5 |
% |
22.0 |
% |
(3.5pts) |
(1)
See definitions and discussion under “Non-IFRS and additional GAAP
measures.”
The Wireless division added 85,014 RGUs in the
fourth quarter of fiscal 2018 as compared to
41,014 RGUs gained in the fourth quarter of fiscal 2017. The
increase in the customer base reflects continued customer demand
for premium smartphones combined with device pricing and packaging
options, data centric plans, and the ongoing execution of the
wireless growth strategy to improve the network and customer
experience.
Revenue highlights include:
- Revenue of $250 million for
the fourth quarter of fiscal 2018 was up
$78 million or 45.3% over the fourth quarter of fiscal 2017.
The increase in revenue was driven primarily by year-over-year
growth in both equipment and service revenue. Service revenue grew
as a result of increased postpaid RGUs, and improved ARPU of $41.00
as compared to $37.62 in the fourth quarter of fiscal
2017.
- As compared to the third quarter of fiscal
2018, the current quarter revenue increased $13 million or
5.5% and ARPU increased by $1.16 or 2.9% (ARPU of $39.84 in the
third quarter of fiscal 2018).
Operating income before restructuring costs
and amortization highlights include:
- Operating income before
restructuring costs and amortization of $44 million for the
fourth quarter of fiscal 2018 improved by
$11 million or 33.3% over the fourth quarter of fiscal 2017.
The improvements were driven primarily by increased subscribers and
higher ARPU offset partially by higher distribution and handset
costs associated with the loading of new customers.
- As compared to the third quarter of fiscal
2018, operating income before restructuring costs and amortization
for the current quarter decreased $18 million or
29.0%.
Capital expenditures and equipment
costs
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
2017 |
Change
% |
|
2018 |
2017 |
Change
% |
Wireline |
|
|
|
|
|
|
|
New housing development |
36 |
24 |
50.0 |
|
|
124 |
98 |
26.5 |
|
Success-based |
64 |
89 |
(28.1 |
) |
|
284 |
308 |
(7.8 |
) |
Upgrades and enhancements |
185 |
157 |
17.8 |
|
|
493 |
432 |
14.1 |
|
Replacement |
9 |
12 |
(25.0 |
) |
|
31 |
31 |
– |
|
Building and other |
37 |
37 |
- |
|
|
92 |
101 |
(8.9 |
) |
Total as per Note 4 to the unaudited
interim
consolidated financial statements |
331 |
319 |
3.8 |
|
|
1,024 |
970 |
5.6 |
|
Wireless |
|
|
|
|
|
|
|
Total as per Note 4 to the unaudited
interim
consolidated financial statements |
103 |
79 |
30.4 |
|
|
343 |
255 |
34.5 |
|
Consolidated total as per Note 4 to the
unaudited interim
consolidated financial statements |
434 |
398 |
9.0 |
|
|
1,367 |
1,225 |
11.6 |
|
In the fourth quarter of fiscal
2018, capital investment was $434 million, a $36 million
or 9.0% increase over the comparable period in fiscal 2017, driven
by higher planned capital expenditures of $24 million in the
Wireless division, $9 million in Wireline growth and upgrades
related to residential and business customers and $28 million
in Wireline system infrastructure partially offset by lower capital
expenditures of $25 million in success-based equipment.
Wireline highlights include:
- Success-based capital for the
quarter of $64 million was $25 million lower than in the
fourth quarter of fiscal 2017. The decrease was driven primarily by
lower Video and Internet activations in the current quarter.
- For the quarter, investment in
combined upgrades and enhancements and replacement categories was
$194 million, a $25 million or 14.8% increase over the prior year
driven by higher planned spend on back office enhancements and
system infrastructure.
- Investment in new housing
development was $36 million, a $12 million increase over
the comparable period, driven by residential and commercial
customer network growth and acquisition.
Wireless highlights include:
- Capital investment of
$103 million in the fourth quarter was related primarily to
continued investment in network infrastructure, specifically the
deployment of 700 MHz spectrum, LTE and small cells as well as back
office system and retail upgrades.
Discontinued operations
Shaw Tracking
On May 31, 2017, the Company entered an
agreement to sell a group of assets comprising the operations of
Shaw Tracking, a fleet tracking operation reported within the
Company’s Business Network Services segment. The Company determined
that the assets and liabilities of the Shaw Tracking business met
the criteria to be classified as a disposal group held for sale.
Accordingly, the assets and liabilities of the Shaw Tracking
business were classified in the consolidated statement of financial
position at August 31, 2017 as current assets held for sale or
current liabilities held for sale, respectively, as the sale of
these assets and liabilities was expected to be completed within
one year. In addition, the operating results and operating cash
flows of the business are presented as discontinued operations
separate from the Company’s continuing operations. The transaction
closed on September 15, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
|
2018 |
2017 |
|
|
2018 |
|
2017 |
|
Revenue |
– |
8 |
|
|
1 |
|
33 |
|
Operating, general and administrative
expenses |
|
|
|
|
|
Employee salaries and benefits |
– |
2 |
|
|
– |
|
7 |
|
Purchases of goods and services |
– |
4 |
|
|
1 |
|
18 |
|
|
– |
6 |
|
|
1 |
|
25 |
|
Restructuring |
– |
3 |
|
|
– |
|
3 |
|
Amortization |
– |
(1 |
) |
|
– |
|
(2 |
) |
Impairment of goodwill/disposal group |
– |
– |
|
|
– |
|
32 |
|
Loss from discontinued operations before tax |
– |
– |
|
|
– |
|
(25 |
) |
Income taxes |
– |
– |
|
|
– |
|
2 |
|
Loss from discontinued operations,
net of tax,
before divestiture |
– |
– |
|
|
– |
|
(27 |
) |
Loss on divestiture, net of tax |
– |
– |
|
|
(6 |
) |
– |
|
Loss from discontinued operations,
net of tax |
– |
– |
|
|
(6 |
) |
(27 |
) |
ViaWest, Inc.
In the fourth quarter of fiscal 2017, the
Company entered into an agreement to sell 100% of its wholly owned
subsidiary ViaWest, Inc. (“ViaWest”) for proceeds of approximately
US$1.68 billion. Accordingly, the operating results and operating
cash flows for the previously reported Business Infrastructure
Services segment relating to ViaWest are presented as discontinued
operations separate from the Company’s continuing operations. The
remaining operations of the previously reported Business
Infrastructure Services segment and their results are now included
within the Wireline segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
2017 |
|
2018 |
2017 |
|
Revenue |
– |
61 |
|
– |
336 |
|
Eliminations(1) |
– |
– |
|
– |
(2 |
) |
|
– |
61 |
|
– |
334 |
|
Operating, general and administrative
expenses |
|
|
|
|
|
Employee salaries and benefits |
– |
13 |
|
– |
80 |
|
Purchases of goods and services |
– |
22 |
|
– |
124 |
|
|
– |
35 |
|
– |
204 |
|
Eliminations(1) |
– |
– |
|
– |
(2 |
) |
|
– |
35 |
|
– |
202 |
|
Amortization(2) |
– |
5 |
|
– |
103 |
|
Interest on long-term debt |
– |
6 |
|
– |
32 |
|
Amortization of transaction costs |
– |
11 |
|
– |
12 |
|
Income (loss) from discontinued operations before tax
and gain on divestiture |
– |
4 |
|
– |
(15 |
) |
Income taxes |
– |
2 |
|
– |
(6 |
) |
Income (loss) from discontinue
operations, net of tax,
before gain on divestiture |
– |
2 |
|
– |
(9 |
) |
Gain on Divestiture, net of tax |
– |
330 |
|
– |
330 |
|
Income from discontinued operations,
net of tax |
– |
332 |
|
– |
321 |
|
(1)
Eliminations relate to intercompany transactions between continuing
and discontinued operations. The costs are included in continuing
operations as they continue to be incurred subsequent to the
disposition.
(2)
As of the date ViaWest met the criteria to be classified as held
for sale, on June 12, 2017, the Company ceased amortization of
non-current assets of the division, including property, plant and
equipment, intangibles and other. Amortization that would otherwise
have been taken in the three and twelve month periods ended August
31, 2017 amounted to $16.
Supplementary quarterly financial
information
|
|
|
|
|
|
|
|
Quarter |
Revenue |
Operating
income before
restructuring
costs and
amortization (1) |
Net income (loss)
from continuing
operations
attributable to
equity shareholders |
Net income
(loss)
attributable
to equity
shareholders |
Net income
(loss)(2) |
Basic and
Diluted earnings
(loss) per share
from continuing
operations |
Basic and
Diluted
earnings
(loss) per
share |
(millions of Canadian dollars except per share
amounts) |
|
|
|
|
2018 |
|
|
|
|
|
|
|
Fourth |
1,336 |
560 |
200 |
|
200 |
|
200 |
|
0.39 |
|
0.39 |
|
Third |
1,300 |
547 |
(91 |
) |
(91 |
) |
(91 |
) |
(0.18 |
) |
(0.18 |
) |
Second |
1,355 |
501 |
(164 |
) |
(164 |
) |
(164 |
) |
(0.33 |
) |
(0.33 |
) |
First |
1,249 |
481 |
120 |
|
114 |
|
114 |
|
0.23 |
|
0.22 |
|
2017 |
|
|
|
|
|
|
|
Fourth |
1,244 |
479 |
149 |
|
481 |
|
481 |
|
0.30 |
|
0.97 |
|
Third |
1,216 |
511 |
164 |
|
133 |
|
133 |
|
0.33 |
|
0.27 |
|
Second |
1,206 |
503 |
150 |
|
147 |
|
147 |
|
0.30 |
|
0.30 |
|
First |
1,216 |
504 |
93 |
|
89 |
|
89 |
|
0.19 |
|
0.18 |
|
(1)
See definition and discussion under “Non-IFRS and additional GAAP
measures.”
(2)
Net income attributable to both equity shareholders and
non-controlling interests
|
|
F18 Q4
vs
F18 Q3 |
In the fourth quarter of fiscal 2018, net
income improved by $291 million compared to the third quarter of
fiscal 2018 primarily due to an impairment charge of
$284 million related to the Company’s investment in Corus
recorded in the prior quarter. |
F18 Q3
vs
F18 Q2 |
In the third quarter of fiscal 2018, net
income increased $73 million compared to the second quarter of
fiscal 2018 mainly due to a decrease in current quarter
restructuring costs of $404 million and an increase in
operating income before restructuring costs and amortization. The
increase was partially offset by an impairment charge of
$284 million related to the Company’s investment in Corus and
higher income taxes. |
F18 Q2
vs
F18 Q1 |
In the second quarter of fiscal 2018, net
income decreased $278 million compared to the first quarter of
fiscal 2018 mainly due to $417 million of restructuring costs
recorded during the quarter related to the Company’s TBT initiative
and composed primarily of the costs associated with the VDP. See
“Other income and expense items” for further details on
non-operating items. |
F18 Q1
vs
F17 Q4 |
In the first quarter of fiscal 2018, net
income decreased $367 million compared to the fourth quarter
of fiscal 2017 mainly due to the $330 million gain on
divestiture, net of tax, of ViaWest, as well as an $11 million
non-operating provision recovery in the prior quarter. |
F17 Q4
vs
F17 Q3 |
In the fourth quarter of fiscal 2017, net
income increased $348 million compared to the third quarter of
fiscal 2017 mainly due to the gain on divestiture, net of tax, of
ViaWest, and lower current quarter restructuring costs. The
increase was partially offset by a decrease in operating income
before restructuring costs and amortization, higher amortization,
lower equity income from our investment in Corus and higher income
taxes. Net other costs and revenue changed primarily due to a
$14 million decrease in income from an equity accounted
associate and an $11 million provision reversal related to the
wind down of shomi in the quarter. |
F17 Q3
vs
F17 Q2 |
In the third quarter of fiscal 2017, net
income decreased $14 million compared to the second quarter of
fiscal 2017 mainly due to current quarter restructuring costs and
losses on discontinued operations, net of tax, as well as increased
amortization. The decrease was partially offset by an increase in
operating income before restructuring costs and amortization and
lower income taxes. Net other costs and revenue changed
primarily due to a $16 million increase in income from an
equity accounted associate and a $15 million provision
reversal related to the wind down of shomi in the quarter. |
F17 Q2
vs
F17 Q1 |
In the second quarter of fiscal 2017, net
income increased $58 million compared to the first quarter of
fiscal 2017 mainly due to a non-recurring provision related to the
wind down of shomi operations recorded in the first quarter,
partially offset by an increase in amortization and income taxes.
Also contributing to the increased net income were lower
restructuring costs, partially offset by lower equity income from
our investment in Corus. Net other costs and revenue changed
primarily due to a provision of $107 million recorded in the
prior quarter relating to shomi operations partially offset by a
$17 million decrease in income from an equity accounted
associate in the quarter. |
F17 Q1
vs
F16 Q4 |
In the first quarter of fiscal 2017, net
income decreased $65 million compared to the fourth quarter of
fiscal 2016 mainly due to a non-recurring provision related to the
wind down of shomi operations included in net other costs and
revenue for the current quarter. Also contributing to the decreased
net income was lower operating income before restructuring costs
and amortization, higher restructuring charges and lower income
from discontinued operations, partially offset by lower income
taxes. Net other costs and revenue changed primarily due to a
$107 million impairment of the Company’s joint venture
investment in shomi and a $27 million increase in income from
an equity accounted associate in the quarter. |
Other income and expense
items
Restructuring costs
Restructuring costs generally include severance,
employee related costs and other costs directly associated with a
restructuring program. For the three-month period ended
August 31, 2018, the category included an additional
$16 million in restructuring charges related to the Company’s
TBT initiative for a total of $446 million in the twelve-month
period ended August 31, 2018. As a first step in the
TBT, the VDP was offered to eligible employees in the second
quarter of fiscal 2018. The outcome of the program had
approximately 3,300 Shaw employees accepting the VDP package,
representing approximately 25% of all employees. The costs related
to this program make up the majority of the restructuring costs
recorded in the year to date; however, in the fourth quarter of
fiscal 2018, further organizational changes in the execution of TBT
resulted in additional restructuring costs. See “Introduction” for
further details on the TBT and the VDP.
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
|
2017 |
|
Change
% |
|
2018 |
|
2017 |
|
Change
% |
Amortization revenue (expense) |
|
|
|
|
|
|
|
Deferred equipment revenue |
6 |
|
9 |
|
(33.3 |
) |
|
30 |
|
38 |
|
(21.1 |
) |
Deferred equipment costs |
(25 |
) |
(30 |
) |
(16.7 |
) |
|
(110 |
) |
(122 |
) |
(9.8 |
) |
Property, plant and equipment, intangibles and
other |
(237 |
) |
(226 |
) |
4.9 |
|
|
(932 |
) |
(860 |
) |
8.4 |
|
Amortization of property, plant and equipment,
intangibles and other increased 4.9% and 8.4% for the three and
twelve months ended August 31, 2018, respectively, over the
comparable periods due to amortization of new expenditures
exceeding the amortization of assets that became fully amortized
during the period.
Amortization of financing costs and
interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
2017 |
Change
% |
|
2018 |
2017 |
Change
% |
Amortization of financing costs – long-term debt |
2 |
1 |
100.0 |
|
|
3 |
2 |
50 |
|
Interest expense |
64 |
66 |
(3.0 |
) |
|
248 |
267 |
(7.1 |
) |
Interest expense for the three and twelve-month
periods ended August 31, 2018 was lower than the comparable
periods due to lower average outstanding debt balances in the
current year. (See note 10 of the unaudited interim consolidated
financial statements for further detail.)
Equity income of an associate or joint
venture
For the three and twelve-month periods ended
August 31, 2018 the Company recorded equity income of
$13 million and loss of $200 million, respectively,
related to its interest in Corus, compared to equity income of
$11 million and $73 million for the comparable periods.
The decrease substantially reflects a $284 million impairment
from the Company’s investment in Corus Entertainment Inc. recorded
in the third quarter of fiscal 2018.
Other gains/losses
This category generally includes realized and
unrealized foreign exchange gains and losses on U.S. 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. For the twelve-month period ended
August 31, 2018, the category includes a $16 million gain on
the sale of certain wireless spectrum licenses as well as a $5
million provision recovery. In the comparable year, the category
includes a $82 million provision in respect of the Company’s
investment in shomi, which discontinued operations in fiscal
2017.
Income taxes
Income taxes are higher in the quarter compared
to the fourth quarter of fiscal 2017 mainly due to the increase in
net income partially offset by prior year true-ups and other tax
adjustments.
Financial position
Total assets were $14.4 billion at
August 31, 2018 compared to $14.4 billion at August 31,
2017. The following is a discussion of significant changes in the
consolidated statement of financial position since August 31,
2017.
Current assets decreased $92 million due to
decreases in cash of $123 million, accounts receivable of
$31 million, inventories of $8 million and assets held for
sale of $61 million partially offset by an increase in other
current assets of $131 million. Cash decreased as the cash
outlay for investing activities and financing activities exceeded
the funds provided by operations. Accounts receivable decreased
primarily due to the receipt of a commodity tax refund relating to
the purchase of spectrum licenses in fiscal 2017. Assets held for
sale as at August 31, 2017 included the assets of the Shaw
Tracking business, which was sold on September 15, 2017.
Other current assets increased over the period
mainly due to a significant increase in Wireless subscribers
participating in both the Company’s MyTab plan, a discretionary
wireless handset discount plan and MyTab Boost, a plan that allows
customers to pay less for their handset upfront if they pay a
predetermined incremental charge on a monthly basis. The
significant growth in handset sales was primarily related to the
introduction of the iPhone to the Company’s handset lineup in the
second quarter of fiscal 2018.
Investments and other assets decreased by
$277 million primarily due to an impairment charge of
$284 million partially offset by equity income and other
comprehensive income of associates both related to the Company’s
investment in Corus. The Company assessed its investment in Corus
for indicators of impairment, which included a significant and
sustained decrease in the share price as well as the recording by
Corus of an impairment charge against their goodwill and broadcast
license intangibles, and found that there was evidence that
impairment had occurred. The Company compared the recoverable
amount to the carrying value and determined that an impairment
charge of $284 million was required. The recoverable amount
was determined based on the value in use of the investment.
Property, plant and equipment increased
$328 million due to capital investments in excess of
amortization.
Current liabilities increased $219 million
during the period primarily due to an increase in provisions of
$169 million, accounts payable and accrued liabilities of
$58 million, short-term borrowings of $40 million and unearned
revenue of $10 million partially offset by decreases in income
taxes payable of $18 million, and liabilities held for sale of
$39 million. The increase in current provisions was mainly due
to the restructuring costs related to TBT. In connection with the
VDP, the Company recorded $446 million in restructuring
charges primarily related to severance and other related costs, of
which $172 million has been paid, $164 million is
included in current provisions and $110 million is included in
long-term provisions. Income taxes payable decreased due to normal
course tax installment payments (net of refunds), offset by the
current period provision. Accounts payable and accruals increased
due to the timing of payment and fluctuations in various payables
including capital expenditures and network fees. Liabilities held
for sale as at August 31, 2017 included the liabilities of the
Shaw Tracking business, which was sold on September 15,
2017.
Long-term debt increased $12 million
primarily due to an increase in the Burrard Landing Lot 2 Holdings
Partnership mortgage of $10 million. The additional loan matures on
November 1, 2024 and bears interest at 4.14% compounded
semi-annually.
Other long-term liabilities decreased
$101 million during the year primarily due to a remeasurement
of the Company’s defined benefit plan related to the effect of
experience adjustments due to changes in demographic assumptions.
The cost and related accrued benefit obligation of the Company’s
non-registered pension plans are determined using actuarial
valuations. The actuarial valuations involve estimates and
actuarial assumptions including discount rates and rate of
compensation increase (financial assumptions) as well as mortality
rates and retirement rates (demographic assumptions). Due to the
long-term nature of the non-registered pension plans, such
estimates are subject to significant uncertainty. Remeasurements
related to the effect of experience adjustments arise when the
non-registered pension plans’ experience differs from the
experience expected using the actuarial assumptions, such as
mortality and retirement rates.
Shareholders’ equity decreased $197 million
mainly due to a decrease in retained earnings of $545 million
partially offset by an increase in share capital of
$259 million and accumulated other comprehensive income of
$92 million. Share capital increased due to the issuance of
9,843,483 Class B non-voting participating shares (“Class B
Non-Voting Shares”) under the Company’s option plan and Dividend
Reinvestment Plan (“DRIP”). Retained earnings decreased due to
dividends of $605 million, offset by current year income of
$60 million. Accumulated other comprehensive loss decreased
due to the re-measurement recorded on employee benefit plans and a
change in unrealized fair value of derivatives.
As at October 15, 2018, there were
484,931,716 Class B Non-Voting Shares, 10,012,393 Series A Shares,
1,987,607 Series B Shares and 22,420,064 Class A Shares issued and
outstanding. As at October 15, 2018, 10,254,691 Class B
Non-Voting Shares were issuable on exercise of outstanding options.
Shaw is traded on the Toronto and New York stock exchanges and is
included in the S&P/TSX 60 Index (Trading Symbols: TSX – SJR.B,
SJR.PR.A, SJR.PR.B, NYSE – SJR, and TSXV – SJR.A). For more
information, please visit www.shaw.ca.
Liquidity and capital
resources
In the twelve-month period ended August 31,
2018, the Company generated $411 million of free cash flow.
Shaw used its free cash flow along with proceeds on issuance of
Class B Non-Voting Shares of $43 million, proceeds from the
sale of the Shaw Tracking business of $18 million, and cash on
hand to pay common share dividends of $384 million, fund the
net working capital change of $107 million and pay
restructuring costs of $177 million.
As at August 31, 2018, the Company had
$384 million of cash on hand and its $1.5 billion fully
undrawn bank credit facility. The facility can be used for working
capital and general corporate purposes.
On June 19, 2018, the Company established an
accounts receivable securitization program with a Canadian
financial institution which allows it to sell certain trade
receivables into the program. As at August 31, 2018, the proceeds
of the sales were committed up to a maximum of $100 million
(with $40 million currently drawn under the program).
The Company continues to service and retain substantially all of
the risks and rewards relating to the trade receivables sold, and
therefore, the trade receivables remain recognized on the Company’s
Consolidated Statement of Financial Position and the funding
received is recorded as a current liability (revolving floating
rate loans) secured by the trade receivables. The buyer’s interest
in the accounts receivable ranks ahead of the Company’s interest
and the program restricts it from using the trade receivables as
collateral for any other purpose. The buyer of the trade receivable
has no claim on any of our other assets.
As at August 31, 2018, the net debt
leverage ratio for the Company is 1.9x, which is consistent with
August 31, 2017. Having regard to prevailing competitive,
operational and capital market conditions, the Board of Directors
has determined that having this ratio in the range of 2.0 to 2.5x
would be optimal leverage for the Company in the current
environment. Should the ratio fall below this, other than on a
temporary basis, the Board may choose to recapitalize back into
this optimal range. The Board may also determine to increase the
Company’s debt above these levels to finance specific strategic
opportunities such as a significant acquisition or repurchase of
Class B Non-Voting Participating Shares in the event that pricing
levels were to drop precipitously.
The Company calculates net debt leverage ratio
as follows(1):
|
|
|
|
|
|
(millions of Canadian dollars) |
August 31,
2018 |
August 31, 2017 |
Short-term borrowings |
40 |
|
– |
|
Current portion of long-term debt |
1 |
|
2 |
|
Long-term debt |
4,310 |
|
4,298 |
|
50% of outstanding preferred shares |
147 |
|
147 |
|
Cash |
(384 |
) |
(507 |
) |
(A) Net
debt(2) |
4,114 |
|
3,940 |
|
Operating income before restructuring costs and
amortization |
2,089 |
|
1,997 |
|
Corus dividends |
92 |
|
88 |
|
(B) Adjusted operating income before
restructuring costs and
amortization(2) |
2,181 |
|
2,085 |
|
(A/B) Net debt leverage
ratio |
1.9x |
1.9x |
(1)
The following contains a description of the Company’s use of
non-IFRS financial measures, provides a reconciliation to the
nearest IFRS measure or provides a reference to such
reconciliation.
(2)
These financial measures do not have standard definitions
prescribed by IFRS and therefore may not be comparable to similar
measures disclosed by other companies and have not been presented
as an alternative to liquidity prescribed by IFRS.
The Company issued Class B Non-Voting Shares
from treasury under its DRIP which resulted in cash savings and
incremental Class B Non-Voting Shares of $52 million and
$211 million, during the three and twelve month periods ending
August 31, 2018, respectively.
Shaw’s credit facilities are subject to
customary covenants which include maintaining minimum or maximum
financial ratios.
|
|
|
|
|
|
|
|
Covenant Limit |
Shaw Credit Facilities |
|
|
Total Debt to Operating Cash
Flow(1) Ratio |
|
< 5.00:1 |
Operating Cash Flow(1) to
Fixed Charges(2) Ratio |
|
> 2.00:1 |
(1) Operating Cash
Flow, for the purposes of the covenants, is calculated as net
earnings before interest expense, depreciation, amortization and
current and deferred income taxes, excluding profit or loss from
investments accounted for on an equity basis, for the most recently
completed fiscal quarter multiplied by four, plus cash dividends
and other cash distributions received in the most recently
completed four fiscal quarters from investments accounted for on an
equity basis.
(2)
Fixed Charges are defined as the aggregate interest expense for the
most recently completed fiscal quarter multiplied by four.
As at August 31, 2018, Shaw is in
compliance with these covenants and based on current business
plans, the Company is not aware of any condition or event that
would give rise to non-compliance with the covenants over the life
of the borrowings.
Based on the aforementioned financing
activities, available credit facilities and forecasted free cash
flow, the Company expects to have sufficient liquidity to fund
operations, obligations, working capital requirements, including
maturing debt, during the upcoming 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 from Operations
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
|
2017 |
|
Change
% |
|
2018 |
|
2017 |
|
Change
% |
Funds flow from continuing operations |
441 |
|
382 |
|
15.4 |
|
|
1,259 |
|
1,530 |
|
(17.7 |
) |
Net change in non-cash balances related to operations |
(6 |
) |
(39 |
) |
(84.6 |
) |
|
94 |
|
(110 |
) |
>(100.0) |
Operating activities of discontinued
operations |
– |
|
13 |
|
(100.0 |
) |
|
(2 |
) |
82 |
|
>(100.0) |
|
435 |
|
356 |
|
22.2 |
|
|
1,351 |
|
1,502 |
|
(10.1 |
) |
For the three months ended August 31, 2018,
funds flow from operating activities increased over the comparable
period in fiscal 2017 primarily due to higher funds flow from
continuing operations, which was partially offset by a decrease in
net change in non-cash balances related to operations. The net
change in non-cash balances related to operations fluctuated over
the comparative period due to changes in accounts receivable and
other current asset balances, and the timing of payment of current
income taxes payable and accounts payable and accrued
liabilities.
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
|
2017 |
Increase |
|
2018 |
|
2017 |
Increase |
Cash flow used in investing activities |
(297 |
) |
1,089 |
1,386 |
|
(1,174 |
) |
49 |
1,223 |
For the three months ended August 31, 2018,
the cash used in investing activities decreased over the comparable
period in fiscal 2017 due primarily to proceeds received on the
sale of discontinued operations in the prior year. This was
slightly offset by the purchase of spectrum licenses in the fourth
quarter of 2017.
Financing Activities
The changes in financing activities during the
comparative periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
Bank loans – net borrowings |
40 |
|
(475 |
) |
|
49 |
|
(475 |
) |
Bank facility arrangement costs |
– |
|
– |
|
|
– |
|
(2 |
) |
Repay 5.70% Senior unsecured notes |
– |
|
– |
|
|
– |
|
(400 |
) |
Senior notes issuance costs |
– |
|
– |
|
|
– |
|
(2 |
) |
Freedom Mobile finance lease obligations |
– |
|
– |
|
|
– |
|
(2 |
) |
Issuance of 3.80% Senior unsecured notes |
– |
|
– |
|
|
– |
|
300 |
|
Dividends |
(100 |
) |
(100 |
) |
|
(392 |
) |
(393 |
) |
Issuance of Class B Non-Voting Shares |
12 |
|
40 |
|
|
43 |
|
77 |
|
Financing activities of discontinued
operations |
– |
|
(578 |
) |
|
– |
|
(551 |
) |
|
(48 |
) |
(1,113 |
) |
|
(300 |
) |
(1,448 |
) |
Capital Resources
There has been no material change in the Company’s capital
resources, including commitments for capital expenditures, between
August 31, 2017 and August 31, 2018.
Accounting standards
The MD&A included in the Company’s
August 31, 2017 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. See “Critical Accounting Policies and Estimates” in the
Company’s Management Discussion and Analysis for the year ended
August 31, 2017. 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 described below.
Standards and amendments to standards issued but not yet
effective
The Company has not yet adopted certain
standards and amendments that have been issued but are not yet
effective. The following pronouncements are being assessed to
determine their impact on the Company’s results and financial
position.
- IFRS 15 Revenue from Contracts with Customers, was
issued in May 2014 and replaces IAS 11 Construction
Contracts, IAS 18 Revenue, IFRIC 13 Customer
Loyalty Programs, IFRIC 15 Agreements for the Construction
of Real Estate, IFRIC 18 Transfers of Assets from
Customers and SIC-31 Revenue—Barter Transactions Involving
Advertising Services. The new standard requires revenue to be
recognized in a manner that depicts the transfer of promised goods
or services to customers in an amount that reflects the
consideration expected to be received in exchange for those goods
or services. The principles are to be applied in the following five
steps: (1) identify the contract(s) with a customer, (2) identify
the performance obligations in the contract, (3) determine the
transaction price, (4) allocate the transaction price to the
performance obligations in the contract, and (5) recognize revenue
when (or as) the entity satisfies a performance obligation. IFRS 15
also provides guidance relating to the treatment of contract
acquisition and contract fulfillment costs.
The application of IFRS 15 will impact the Company’s reported
results, including the classification and timing of revenue
recognition and the treatment of costs incurred to obtain contracts
with customers.
Revenue – timing and classification
The application of
this standard will most significantly affect our Wireless
arrangements that bundle equipment and service together,
specifically with regards to the timing of recognition and
classification of revenue. The timing of recognition and
classification of revenue is affected because at contract
inception, IFRS 15 requires the estimation of total consideration
to be received over the contract term, and the allocation of that
consideration to performance obligations in the contract, typically
based on the relative stand-alone selling price of each
obligation. This will result in a decrease to equipment
revenue recognized at contract inception, as the discount
previously recognized over 24 months will now be recognized at
contract inception, and a decrease to service revenue recognized
over the course of the contract, as a portion of the discount
previously allocated solely to equipment revenue will be allocated
to service revenue. The measurement of total revenue recognized
over the life of a contract will be largely unaffected by the new
standard. We do not expect the application of IFRS 15 to affect our
cash flows from operations or the methods and underlying economics
through which we transact with our customers.
Costs of contract acquisition – timing of
recognition
IFRS 15 also requires that incremental costs to
obtain a contract with a customer (for example, commissions) be
capitalized and amortized into operating expenses over the life of
a contract on a rational, systematic basis consistent with the
pattern of the transfer of goods or services to which the asset
relates. The Company currently expenses such costs as incurred.
Contract assets and liabilities
The Company’s financial
position will also be impacted by the adoption of IFRS 15, with new
contract asset and contract liability categories recognized to
reflect differences between the timing of revenue recognition and
the actual billing of those goods and services to customers. While
similar differences are recognized currently, IFRS 15 introduces
additional requirements and disclosures specific to contracts with
customers.
For purposes of applying the new standard on an ongoing basis, we
must make judgments in respect of the new standard. We must make
judgments in determining whether a promise to deliver goods or
services is considered distinct, how to determine the transaction
prices and how to allocate those amounts amongst the associated
performance obligations. We must also exercise judgment as to
whether sales-based compensation amounts are costs incurred to
obtain contracts with customers that should be capitalized and
subsequently amortized on a systematic basis over time.
The new standard is effective for annual periods beginning on or
after January 1, 2018, which for the Company will be the annual
period commencing September 1, 2018 and must be applied either
retrospectively or on a modified retrospective basis for all
contracts that are not complete as at that date. We have made a
policy choice to restate each period presented and recognize the
cumulative effect of initially applying IFRS 15 as an adjustment to
the opening balance of equity at the beginning of the earliest
period presented, subject to certain adopted practical
expedients.
Impacts of IFRS 15, Revenue from Contracts with
Customers
IFRS 15, Revenue from Contracts with
Customers, will affect the fiscal 2018 comparative amounts to
be reported in our fiscal 2019 Consolidated Statements of Income as
follows:
i) Allocation of transaction price
Revenue recognized at point of sale requires the estimation of
total consideration over the contract term and allocation of that
consideration to all performance obligations in the contract based
on their relative stand-alone selling prices. For Wireless term
contracts, equipment revenue recognized at contract inception, as
well as service revenue recognized over the course of the contract
will be lower than previously recognized as noted above.
ii) Deferred commission costs
Costs incurred to obtain or fulfill a contract with a customer were
previously expensed as incurred. Under IFRS 15, these costs are
capitalized and subsequently amortized as an expense over the life
of the contract on a rational, systematic basis consistent with the
pattern of the transfer of goods and services to which the asset
relates. As a result, commission costs are reduced in the period,
with an offsetting increase in amortization of capitalized costs
over the average life of a customer contract.
IFRS 15, Revenue from Contracts with Customers, will
affect the fiscal 2018 comparative amounts to be reported in our
fiscal 2019 Consolidated Statements of Financial Position as
follows:
i) Contract assets and liabilities
Contract assets and liabilities are the result of the difference in
timing related to revenue recognized at the beginning of a contract
and cash collected. Contract assets arise primarily as a result of
the difference between revenue recognized on the sale of wireless
device at the onset of a term contract and the cash collected at
the point of sale.
Contract liabilities are the result of receiving payment related to
a customer contract before providing the related goods or services.
We will account for contract assets and liabilities on a
contract-by-contract basis, with each contract being presented as a
single net contract asset or net contract liability
accordingly.
ii) Deferred commission cost asset
Under IFRS 15, we will defer commission costs paid to internal and
external representatives as a result of obtaining contracts with
customers as deferred commission cost assets and amortize them over
the pattern of the transfer of goods and services to the customer,
which is typically evenly over 24 to 36 months.
The application of IFRS 15 will not affect our cash flows from
operating, investing, or financing activities.
- IFRS 16 Leases was issued in January 2016 and replaces
IAS 17 Leases. The new standard requires entities to
recognize lease assets and lease obligations on the balance sheet.
For lessees, IFRS 16 removes the classification of leases as either
operating leases or finance leases, effectively treating all leases
as finance leases. Certain short-term leases (less than 12 months)
and leases of low-value are exempt from the requirements and may
continue to be treated as operating leases. Lessors will continue
with a dual lease classification model. Classification will
determine how and when a lessor will recognize lease revenue, and
what assets would be recorded.
As the Company has significant contractual obligations currently
being recognized as operating leases, we anticipate that the
application of IFRS 16 will result in a material increase to both
assets and liabilities and material changes to the timing of the
recognition of expenses associated with the lease arrangements
although at this stage in the Company’s IFRS 16 implementation
process, it is not possible to make reasonable quantitative
estimates of the effects of the new standard.
We have a team engaged to ensuring our compliance with IFRS 16.
This team has been responsible for determining information
technology requirements, ensuring scoping and data collection is
appropriate, and communicating the upcoming changes with various
stakeholders. In 2019, we will be implementing a process that will
enable us to comply with the requirements of IFRS 16 on a
lease-by-lease basis. As a result, we are continuing to assess the
effect of this standard on our consolidated financial statements
and it is not yet possible to make a reliable estimate of its
effect. We expect to disclose the estimated financial effects of
the adoption of IFRS 16 in our 2019 consolidated financial
statements.
The standard may be applied retroactively or using a modified
retrospective approach for annual periods commencing January 1,
2019, which for the Company will be the annual period commencing
September 1, 2019. The Company will evaluate the adoption approach
in conjunction with its assessment of the expected impacts of
adoption.
Change in accounting policy
In September 2017, the IFRS Interpretations
Committee (“the Committee”) published a summary of its agenda
decision regarding accounting for interest and penalties related to
income taxes, which is not specifically addressed by IFRS
Standards. Although the Committee decided not to add this issue to
its standard-setting agenda, the Committee noted if an entity
considers a particular amount payable or receivable for interest
and penalties to be an income tax, then the entity applies IAS 12
Income Taxes to that amount. If an entity does not apply
IAS 12 to a particular amount payable or receivable for interest
and penalties, it applies IAS 37 Provisions, Contingent
Liabilities and Contingent Assets. As such, the Company
retrospectively changed its accounting policy for the accounting of
interest and penalties related to income taxes to be in line with
the Committee decision. The change of accounting policy did not
have a significant impact on the previously reported consolidated
financial statements.
Related party transactions
The Company’s transactions with related parties are discussed in
its Management’s Discussion and Analysis for the year ended
August 31, 2017 under “Related Party Transactions” and under
Note 27 of the Consolidated Financial Statements of the
Company for the year ended August 31, 2017. There has
been no material change in the Company’s transactions with related
parties between August 31, 2017 and August 31, 2018.
Financial instruments
There has been no material change in the
Company’s risk management practices with respect to financial
instruments between 2017 and August 31, 2018. See “Known
Events, Trends, Risks and Uncertainties – Interest Rates, Foreign
Exchange Rates and Capital Markets” in the Company’s Management’s
Discussion and Analysis for the year ended August 31, 2017 and
the section entitled “Risk Management” under Note 28 of the
Consolidated Financial Statements of the Company for the year ended
August 31, 2017.
Risks and uncertainties
See our MD&A for the year ended August 31,
2017 under “Known Events, Trends, Risks and Uncertainties” for a
discussion of the principal risks and uncertainties that could have
a material adverse effect on our business and financial results.
The following may contribute to those risks and uncertainties. In
the second quarter, the Company introduced TBT, a multi-year
initiative designed to reinvent Shaw’s operating model to better
meet the changing tastes and expectations of consumers and
businesses by reducing staff, optimizing the use of resources, and
maintaining and ultimately improving customer service. Three key
elements of TBT are to: 1) shift customer interactions to digital
platforms; 2) drive more self-install and self-serve; and, 3)
streamline the organization that builds and services our network.
As part of the TBT initiative, the Company also plans to reduce
input costs, consolidate functions, and streamline processes, which
is expected to create operational improvements across the business
allowing it to evolve into a more efficient organization.
There is an overall risk that the TBT initiative
may not be completed in a timely and cost-effective manner to yield
the expected results and benefits or result in a leaner, more
integrated and agile company with improved efficiencies and
execution to better meet its consumers’ needs and expectations
(including the products and services offered to its customers).
Specifically, there is a risk that the Company may not be able to:
(i) establish and continue to upgrade a digital platform that will
effectively engage customers digitally; (ii) successfully
adopt a digital platform that will yield the expected results and
benefits, including maintaining the quality of customer service,
protecting the security of customer information, and coordinating
the delivery of product and service offerings; (iii) deploy
programs that will result in customers using the self-serve
functions and electing to self-install the Company’s products and
services; and (iv) consolidate and streamline the functions and
processes of the divisions responsible for building and servicing
its networks. The realization of any of these risks may have a
material adverse effect on Shaw, its operations and/or financial
results.
As a first step in the TBT, the VDP was offered
to eligible employees. The outcome of the program had approximately
3,300 Shaw employees accepting the VDP package representing
approximately 25% of all employees. As part of the program design,
the majority of customer-facing employees (i.e., Customer Care,
Retail, Sales) were not eligible to participate in the VDP. A
large portion of employees who elected to participate in the VDP
are in functions that will be addressed through the aforementioned
key elements of the TBT and Shaw has control over the timing of
employee departures across the Company through an actively managed,
orderly transition over the next 12 months. In select
functions, the Company determined that some employees will
transition over a 24-month period, an extension from the 18-month
period initially expected. Approximately 1,300 employees had exited
as at the end of fiscal 2018. For a detailed discussion of the
restructuring charge, anticipated annual cost reduction, and VDP
related cost reductions in fiscal 2018, see “Introduction.”
With approximately 3,300 employees accepting the
VDP package, there is a risk that the Company may not be able to:
(i) complete the employee exits with minimal impact on business
operations within the anticipated timeframes and for the budgeted
amounts, (ii) replace or outsource the functions performed by
certain key employees that have accepted the VDP package in a
manner that aligns with customer expectations which may have a
material adverse effect on the Company’s business operations, (iii)
continue to operate the business in the normal course, and maintain
or improve customer services, (iv) maintain employee morale as a
result of the organizational changes, staff and cost reductions;
(v) ensure that the staff reductions will reduce costs, and achieve
the financial goals, cost competitiveness and profitability
required to be attractive to investors. In addition, there can be
no assurance that restructuring costs of the VDP will be limited to
the budgeted amounts or that the expected annualized cost
reductions from the VDP (including reductions in operating and
capital expenditures). The realization of any of these risks may
have a material adverse effect on Shaw, its operations and/or
financial results.
Other significant risks and uncertainties
affecting the Company and its business are discussed in the
Company’s MD&A for the fiscal year ended August 31, 2017
under “Known Events, Trends, Risks and Uncertainties.”
Government Regulations and Regulatory
Developments
See our MD&A for the year ended August 31,
2017 for a discussion of the significant regulations that affected
our operations as at August 31, 2017. The following is a list of
the significant regulatory developments since that date.
In June 2018, pursuant to the commitment in Budget 2017,
Innovation, Science and Economic Development Canada (“ISED”) and
the Department of Canadian Heritage (“Canadian Heritage”) launched
a joint review of the Broadcasting Act (Canada) and the
Telecommunications Act (Canada), which will also include a
review of the Radiocommunication Act (Canada) (the “Joint
Review”). The Joint Review will be conducted by a panel of external
experts tasked with studying the legislation and making
recommendations to the Ministers of ISED and Canadian Heritage by
January 31, 2020. The expert panel will examine issues such as
telecommunications and content creation in the digital age, net
neutrality and cultural diversity, and how to strengthen the future
of Canadian media and Canadian content creation.
Broadcasting Act
Licensing and
ownership
For each of its cable, direct-to-home satellite
(“DTH”) and Satellite Relay Distribution Undertaking (“SRDU”)
services, the Company holds a separate broadcasting license or is
exempt from licensing under the Broadcasting Act. In August 2018,
the Commission renewed the Company’s cable licenses for a five-year
term from September 1, 2018 to August 31, 2023. On August 31, 2018,
the Company submitted renewal applications for its DTH and SRDU
licenses which expire on August 31, 2019. The Company also holds
separate licenses for each of Shaw’s on-demand programming
services: Shaw On Demand, and Shaw Pay-Per-View (“PPV”). On August
31, 2018, the Company submitted renewal applications for Shaw PPV’s
terrestrial and DTH PPV licenses which expire on August 31,
2019.
The potential for new or increased
fees
Any changes to the Broadcasting Act
pursuant to the Joint Review could impact the business practices of
the Company, or result in new fees on the Company’s cable, DTH or
SRDU services. New fees could also be imposed pursuant to the
Canadian Radio-television and Telecommunications Commission
(“CRTC”) Regulations, as the Commission indicated that in 2019-2020
it may consider ways to support television news production through
increased access to subscription revenue, which could increase
costs for the Company’s cable and DTH services.
Telecommunications Act
Any changes to the Telecommunications Act
pursuant to the Joint Review could impact the business practices of
the Company, and/or result in new fees on the Company, for example,
by requiring internet service providers (“ISPs”) to contribute a
fixed percentage of revenues to support the creation of Canadian
content – a possible policy option presented in the CRTC’s May 2018
report.
Third party Internet
Access
Shaw is mandated by the CRTC to provide a
wholesale service at regulated rates that allows ISPs to provide
Internet services at premises served by Shaw’s wireline network
(“Third Party Internet Access” or “TPIA”). In 2015, the CRTC
completed a review of the wholesale wireline telecommunications
policy framework, including TPIA, and initiated a shift to a new
disaggregated wholesale Internet access service. The new
disaggregated service will be phased-in over a period of three
years and is intended to allow independent ISPs to reduce reliance
on the transport facilities currently included as part of the
regulated wholesale service.
The CRTC has initiated a process to extend the
disaggregated service into Western Canada, including Shaw’s
territory. Shaw has filed a proposed network architecture for
disaggregated TPIA but has not yet been directed to file
disaggregated tariffs or proposed rates for its serving area.
Although the CRTC has initiated a shift to a new
disaggregated service, in October 2016, the CRTC approved, pending
the completion of its review of aggregated costing studies, interim
aggregated rates which were lower than the proposed rates. At the
completion of this review, the CRTC may require further adjustment
to Shaw’s costing studies, which may result in further reductions
in the wholesale rates we charge for aggregated TPIA service.
The CRTC further indicated its intention to
review the process for setting rates of regulated wireline and
wireless wholesale services, including consideration of alternative
costing approaches, the feasibility of using a common economic
model by wholesale service carriers to establish wholesale rates
and certain costing elements such as cost of capital.
Competition Bureau Study on the
State of Competition in the Wireline Broadband
Market
In May 2018, the Competition Bureau launched a
market study into the state of competition in the wireline
broadband sector, with a goal of identifying the steps that
regulators or policy makers could take to enhance competition.
Following the filing of submissions and expert reports by Shaw and
other stakeholders, in October, the Bureau released an update to
the Study as well as an online survey. The Bureau will
continue with consultations during the Fall and Winter of 2019 and
is targeting June 2019 for publication of its report. The
Bureau’s recommendations could influence future government and CRTC
policies and regulations, including the CRTC’s framework for
wholesale wireline services and the regulations for TPIA.
CRTC Review of Wholesale Roaming
Rates and Wi-Fi First
As part of its comprehensive policy framework
for wholesale wireless services, the CRTC had established interim
wholesale roaming rates pending its review of the costing studies
submitted by the incumbent wireless carriers. In March 2018, the
CRTC completed its review of rates for the mandated wholesale
roaming service and established final rates that were lower than
the interim rates set in early 2015.
In Telecom Decision 2017-56 the CRTC had
determined that public Wi-Fi did not constitute a mobile wireless
home network for the purposes of accessing mandated wholesale
wireless roaming rates. In June 2017, the Governor in Council
(“GiC”) referred CRTC Telecom Decision 2017-56 back to the CRTC for
review. The GiC asked the CRTC to review whether expanding the
definition of home network to include public Wi-Fi would have a
positive impact on the affordability of retail mobile wireless
services and whether the negative impact of such a change on
facilities-based investment and competition would outweigh the
benefits. In March 2018, the CRTC declined to extend the mandated
roaming regime to include Wi-Fi First providers.
The CRTC has indicated that it will review its
regulatory framework for mobile wireless services beginning in
2019. As part of this review, the Commission will consider
whether additional regulatory measures are necessary to further
support the competitiveness of the market, such as mandating mobile
virtual network operators (MVNOs) access or developing policies
that facilitate the sharing or deployment of wireless
facilities. If the CRTC reverses its previous positions,
Wi-Fi First, MVNO and other resale providers could gain access to
incumbent wireless networks at regulated rates for the purposes of
roaming.
Lower-Cost Data Only
Plans
In its Wi-Fi First Decision, the CRTC
acknowledged the Government’s concerns about wireless affordability
at the lower end of the market, particularly for data-only
packages, and found that it was unclear whether the market could be
relied on to deliver lower-cost data only plans. Accordingly,
the CRTC launched a new consultation to investigate the
availability and pricing of data-only packages, including whether
wireless carriers should be required to offer low-cost data-only
packages. As part of this proceeding, the three national
wireless incumbent carriers were required to propose an affordable
data-only offering for comment. A CRTC decision to mandate
the provision of these products at specific rates or other terms
may affect our ability to compete in the data-only segment of the
market.
Retail Sales
Practices
In June 2018, the GiC issued an order to the
CRTC, directing it to investigate the retail sales practices used
by Canada’s large telecommunications carriers and report back to
the GiC by February 2019 with its findings on the prevalence of
such practices and how existing consumer protections could be
expanded, or new protections developed, to ensure consumers are
empowered and treated fairly by their service providers. Shaw
was made a party to this proceeding by the CRTC and will
participate in the oral public hearing in October. A decision to
regulate our retail sales practices could impact our ability to
serve our customers and could result in cost increases to the
Company.
Radiocommunications Act
Any changes to the Radiocommunications Act
pursuant to the Joint Review could impact the business practices of
the Company and/or the processes governing its acquisition of new
spectrum for purposes of building its wireless networks.
Wireless Spectrum
Licenses
The applicable terms and conditions of renewal
of our and other carriers’ spectrum licenses after the initial term
are determined by ISED through public consultation processes that
begin prior to the expiry of those licenses. Following a public
consultation in the summer of 2017, in early 2018 ISED issued its
policy decision relating to the renewal of AWS-1 and other spectrum
licenses auctioned in 2008, including those held by our Wireless
division. The decision confirmed that, if Freedom Mobile has met
its conditions of license, including any applicable deployment
obligations, Freedom Mobile will have a high expectation to be
eligible for renewal. We expect to meet the applicable requirements
and conditions of license for those spectrum licenses that are
material to our plans for the Wireless division. As expected, ISED
also imposed more onerous deployment conditions for licenses issued
through the renewal process.
Over the past year, ISED conducted several
spectrum policy consultations regarding spectrum bands that will be
licensed or otherwise made available for future wireless
deployments, including 5G. The consultations relate to:
- the release of millimetre wave spectrum in the 26 GHz, 28 GHz,
37-40 GHz and 64-71 GHz frequency bands;
- revisions to the 3500 MHz Band to accommodate mobile
services;
- the technical, policy and licensing framework to govern the
auction of spectrum licenses in the 600 MHz band for mobile use;
and
- ISED’s Spectrum Outlook, which reviewed the department’s
overall approach and planning activities related to the release of
spectrum for commercial mobile services, license-exempt
applications, satellite services and wireless backhaul services
over the years 2018-2022.
In March 2018, ISED released its decision on the
policy and licensing framework for the 600 MHz band. In the
decision, ISED established a set aside of 30 MHz for eligible
entities (of the total 70 MHz of spectrum that will be auctioned
off). The auction will commence on March 12, 2019.
In June 2018, ISED released its Spectrum Outlook
decision. Citing the importance of mobile services and the future
of 5G, ISED stated its intention to release a variety of low, mid
and high band spectrum over the next several years. ISED’s highest
priority bands for release include 600 MHz, 3500 MHz and the
millimetre wave bands for mobile, as well as 32 GHz, 70 GHz, and 80
GHz for backhaul use.
Decisions on the millimetre wave and 3500 MHz
consultations are pending. We anticipate that ISED will hold
further public consultations on a licensing process regarding the
3500 MHz band for mobile use.
Copyright Act
Canada’s Copyright Act accords the creators and
owners of content various rights to authorize or be remunerated for
the use of their works and performances, including, in some
instances, by broadcast distribution undertakings. In addition, the
Copyright Act creates certain exceptions that permit the use of
copyrighted works without the authorization or remuneration of
rights holders. Parliament initiated a mandated five-year review of
the Copyright Act in December 2017. The Standing Committee on
Industry, Science and Technology is conducting the review and will
produce a report making recommendations to the Government in 2019.
This process could lead to amendments to the Copyright Act that
impact the terms and conditions applicable to the use of content,
including the potential for increased fees, and the scope of
flexibility with respect to the use of content pursuant to
exceptions under the Copyright Act.
Personal Information Protection and
Electronic Documents Act and Canadian Anti-Spam
Legislation
The Personal Information Protection and
Electronic Documents Act (Canada) (“PIPEDA”) provisions requiring
mandatory reporting of serious privacy breaches, introduced in
2015, come into effect on November 1, 2018. These provisions
require companies to (i) track all breaches of security safeguards
that involve personal information under their control, and (ii)
report to affected individuals and to the Office of the Privacy
Commissioner serious breaches of personal information that create a
real risk of significant harm. Any such breach and disclosure by
Company could result in fines and significant reputational
harm.
New consent Guidelines issued by the Office of
the Privacy Commissioner of Canada (“OPC”) will come into effect on
January 1, 2019. These Guidelines set out principles for
organizations to follow in order to obtain meaningful consent and
require that organizations provide more interactive,
easy-to-understand privacy disclosures to their users. The Company
has established internal practices and policies to facilitate
compliance with the new consent Guidelines.
More broadly, the Government initiated a
National Digital and Data Consultation in June 2018. This process
includes consultations in connection with “Privacy and Trust” and
could lead to changes to privacy regulation that increase
privacy-related measures with which the Company is required to
comply, as well as Company’s exposure to increased penalties and
claims in connection with any non-compliance.
CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[millions of Canadian dollars] |
August 31, 2018 |
|
August 31, 2017 |
ASSETS |
|
|
|
Current |
|
|
|
Cash |
384 |
|
507 |
Accounts receivable |
255 |
|
286 |
Inventories |
101 |
|
109 |
Other current assets [note 5] |
286 |
|
155 |
Assets held for sale [note 3] |
– |
|
61 |
|
1,026 |
|
1,118 |
Investments and other assets [notes 15 and 16] |
660 |
|
937 |
Property, plant and equipment |
4,672 |
|
4,344 |
Other long-term assets [note 15] |
300 |
|
255 |
Deferred income tax assets |
4 |
|
4 |
Intangibles |
7,482 |
|
7,435 |
Goodwill |
280 |
|
280 |
|
14,424 |
|
14,373 |
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
Current |
|
|
|
Short-term borrowings [note 6] |
40 |
|
– |
Accounts payable and accrued liabilities |
971 |
|
913 |
Provisions [note 7] |
245 |
|
76 |
Income taxes payable |
133 |
|
151 |
Unearned revenue |
221 |
|
211 |
Current portion of long-term debt [notes 10 and
15] |
1 |
|
2 |
Liabilities held for sale [note
3] |
– |
|
39 |
|
1,611 |
|
1,392 |
Long-term debt [notes 10 and 15] |
4,310 |
|
4,298 |
Other long-term liabilities [notes 8 and 17] |
13 |
|
114 |
Provisions [note 7] |
179 |
|
67 |
Deferred credits |
460 |
|
490 |
Deferred income tax liabilities |
1,894 |
|
1,858 |
|
8,467 |
|
8,219 |
Shareholders' equity [notes 11 and
13] |
|
|
|
Common and preferred shareholders |
5,956 |
|
6,153 |
Non-controlling interests in
subsidiaries |
1 |
|
1 |
|
5,957 |
|
6,154 |
|
14,424 |
|
14,373 |
See accompanying notes.
CONSOLIDATED STATEMENTS OF
INCOME
(unaudited)
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
Revenue [note 4] |
1,336 |
|
1,244 |
|
|
5,239 |
|
4,882 |
|
Operating, general and administrative expenses [note
9] |
(776 |
) |
(765 |
) |
|
(3,150 |
) |
(2,885 |
) |
Restructuring costs [notes 7 and 9] |
(16 |
) |
– |
|
|
(446 |
) |
(54 |
) |
Amortization: |
|
|
|
|
|
Deferred equipment revenue |
6 |
|
9 |
|
|
30 |
|
38 |
|
Deferred equipment costs |
(25 |
) |
(30 |
) |
|
(110 |
) |
(122 |
) |
Property, plant and equipment, intangibles
and other |
(237 |
) |
(226 |
) |
|
(932 |
) |
(860 |
) |
Operating income from continuing operations |
288 |
|
232 |
|
|
631 |
|
999 |
|
Amortization of financing costs – long-term
debt |
(2 |
) |
(1 |
) |
|
(3 |
) |
(2 |
) |
Interest expense |
(64 |
) |
(66 |
) |
|
(248 |
) |
(267 |
) |
Equity income (loss) of an associate or joint
venture [note 16] |
13 |
|
11 |
|
|
(200 |
) |
73 |
|
Other gains (losses) |
26 |
|
26 |
|
|
29 |
|
(65 |
) |
Income from continuing operations before income
taxes |
261 |
|
202 |
|
|
209 |
|
738 |
|
Current income tax expense [note 4] |
41 |
|
33 |
|
|
137 |
|
142 |
|
Deferred income tax expense |
20 |
|
20 |
|
|
6 |
|
39 |
|
Net income from continuing operations |
200 |
|
149 |
|
|
66 |
|
557 |
|
Income (loss) from discontinued operations,
net of tax [note 3] |
– |
|
332 |
|
|
(6 |
) |
294 |
|
Net income |
200 |
|
481 |
|
|
60 |
|
851 |
|
Net income from continuing operations attributable
to: |
|
|
|
|
|
Equity shareholders |
200 |
|
149 |
|
|
66 |
|
557 |
|
Income (loss) from discontinued operations attributable
to: |
|
|
|
|
|
Equity shareholders |
– |
|
332 |
|
|
(6 |
) |
294 |
|
Basic earnings (loss) per share [note
12] |
|
|
|
|
|
Continuing operations |
0.39 |
|
0.30 |
|
|
0.11 |
|
1.12 |
|
Discontinued operations |
– |
|
0.67 |
|
|
(0.01 |
) |
0.60 |
|
|
0.39 |
|
0.97 |
|
|
0.10 |
|
1.72 |
|
Diluted earnings (loss) per share [note
12] |
|
|
|
|
|
Continuing operations |
0.39 |
|
0.30 |
|
|
0.11 |
|
1.11 |
|
Discontinued operations |
– |
|
0.66 |
|
|
(0.01 |
) |
0.60 |
|
|
0.39 |
|
0.96 |
|
|
0.10 |
|
1.71 |
|
See accompanying notes.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(unaudited)
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
2017 |
|
|
2018 |
2017 |
|
Net income |
200 |
481 |
|
|
60 |
851 |
|
|
|
|
|
|
|
Other comprehensive income (loss) [note
13] |
|
|
|
|
|
Items that may subsequently be reclassified to
income: |
|
|
|
|
|
Continuing operations: |
|
|
|
|
|
Change in unrealized fair value of derivatives
designated as cash
flow hedges |
1 |
(9 |
) |
|
5 |
(7 |
) |
Adjustment for hedged items recognized in the
period |
– |
– |
|
|
3 |
(2 |
) |
Share of other comprehensive income of
associates |
3 |
6 |
|
|
10 |
13 |
|
Discontinued operations: |
|
|
|
|
|
Exchange differences on translation of a foreign
operation |
– |
(78 |
) |
|
– |
(50 |
) |
Exchange differences on translation of US
denominated debt
hedging a foreign operation |
– |
36 |
|
|
– |
24 |
|
Reclassification of accumulated exchange
differences to income
related to the sale of a foreign operation |
– |
(82 |
) |
|
|
(82 |
) |
|
4 |
(127 |
) |
|
18 |
(104 |
) |
Items that will not subsequently be reclassified to
income: |
|
|
|
|
|
Remeasurements on employee benefit plans: |
|
|
|
|
|
Continuing operations |
11 |
25 |
|
|
74 |
25 |
|
|
15 |
(102 |
) |
|
92 |
(79 |
) |
Comprehensive income |
215 |
379 |
|
|
152 |
772 |
|
Comprehensive income attributable to: |
|
|
|
|
|
Equity shareholders |
215 |
379 |
|
|
152 |
772 |
|
See accompanying notes.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, 2018 |
|
|
|
|
|
|
|
|
Attributable to equity
shareholders |
|
|
[millions of Canadian dollars] |
Share
capital |
Contributed
surplus |
Retained
earnings |
Accumulated
other
comprehensive
loss |
Total |
Equity
attributable
to non-
controlling
interests |
Total
equity |
Balance as at September 1, 2017 |
4,090 |
30 |
|
2,164 |
|
(131 |
) |
6,153 |
|
1 |
6,154 |
|
Net income |
– |
– |
|
60 |
|
– |
|
60 |
|
– |
60 |
|
Other comprehensive income |
– |
– |
|
– |
|
92 |
|
92 |
|
– |
92 |
|
Comprehensive income |
– |
– |
|
60 |
|
92 |
|
152 |
|
– |
152 |
|
Dividends |
– |
– |
|
(394 |
) |
– |
|
(394 |
) |
– |
(394 |
) |
Dividend reinvestment plan |
211 |
– |
|
(211 |
) |
– |
|
– |
|
– |
– |
|
Shares issued under stock option plan |
48 |
(6 |
) |
– |
|
– |
|
42 |
|
– |
42 |
|
Share-based compensation |
– |
3 |
|
– |
|
– |
|
3 |
|
– |
3 |
|
Balance as at August 31,
2018 |
4,349 |
27 |
|
1,619 |
|
(39 |
) |
5,956 |
|
1 |
5,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, 2017 |
|
|
|
|
|
|
|
|
Attributable to equity
shareholders |
|
|
[millions of Canadian dollars] |
Share
capital |
Contributed
surplus |
Retained
earnings |
Accumulated
other
comprehensive
loss |
Total |
Equity
attributable
to non-
controlling
interests |
Total
equity |
Balance as at September 1, 2016 |
3,799 |
42 |
|
1,908 |
|
(52 |
) |
5,697 |
|
1 |
5,698 |
|
Net income |
– |
– |
|
851 |
|
– |
|
851 |
|
– |
851 |
|
Other comprehensive loss |
– |
– |
|
– |
|
(79 |
) |
(79 |
) |
– |
(79 |
) |
Comprehensive income |
– |
– |
|
851 |
|
(79 |
) |
772 |
|
– |
772 |
|
Dividends |
– |
– |
|
(397 |
) |
– |
|
(397 |
) |
– |
(397 |
) |
Dividend reinvestment plan |
198 |
– |
|
(198 |
) |
– |
|
– |
|
– |
– |
|
Shares issued under stock option plan |
93 |
(15 |
) |
– |
|
– |
|
78 |
|
– |
78 |
|
Share-based compensation |
– |
3 |
|
– |
|
– |
|
3 |
|
– |
3 |
|
Balance as at August 31, 2017 |
4,090 |
30 |
|
2,164 |
|
(131 |
) |
6,153 |
|
1 |
6,154 |
|
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
OPERATING ACTIVITIES |
|
|
|
|
|
Funds flow from continuing operations
[note 14] |
441 |
|
382 |
|
|
1,259 |
|
1,530 |
|
Net change in non-cash balances related to continuing
operations |
(6 |
) |
(39 |
) |
|
94 |
|
(110 |
) |
Operating activities of discontinued
operations |
– |
|
13 |
|
|
(2 |
) |
82 |
|
|
435 |
|
356 |
|
|
1,351 |
|
1,502 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
Additions to property, plant and equipment [note 4] |
(294 |
) |
(263 |
) |
|
(1,127 |
) |
(999 |
) |
Additions to equipment costs (net) [note 4] |
(12 |
) |
(15 |
) |
|
(49 |
) |
(73 |
) |
Additions to other intangibles [note 4] |
(46 |
) |
(39 |
) |
|
(131 |
) |
(111 |
) |
Net additions (reductions) to inventories |
22 |
|
(19 |
) |
|
8 |
|
(48 |
) |
Proceeds on sale of discontinued operations, net of cash sold
[note 3] |
– |
|
1,905 |
|
|
18 |
|
1,905 |
|
Proceeds on spectrum licenses |
35 |
|
– |
|
|
35 |
|
– |
|
Purchase of spectrum licenses |
(25 |
) |
(430 |
) |
|
(25 |
) |
(430 |
) |
Net additions to investments and other assets |
23 |
|
(42 |
) |
|
88 |
|
(92 |
) |
Distributions received and proceeds from sale of investments |
– |
|
6 |
|
|
– |
|
6 |
|
Proceeds on disposal of property, plant and equipment |
– |
|
– |
|
|
9 |
|
– |
|
Investing activities of discontinued
operations |
– |
|
(14 |
) |
|
– |
|
(109 |
) |
|
(297 |
) |
1,089 |
|
|
(1,174 |
) |
49 |
|
FINANCING ACTIVITIES |
|
|
|
|
|
Increase in short-term borrowings [note 6] |
40 |
|
– |
|
|
40 |
|
– |
|
Increase in long-term debt |
– |
|
933 |
|
|
10 |
|
1,233 |
|
Debt repayments [note 10] |
– |
|
(1,408 |
) |
|
(1 |
) |
(1,810 |
) |
Bank facility arrangement costs |
– |
|
– |
|
|
– |
|
(4 |
) |
Issue of Class B Non-Voting Shares [note 11] |
12 |
|
40 |
|
|
43 |
|
77 |
|
Dividends paid on Class A Shares and Class B Non-Voting Shares |
(98 |
) |
(98 |
) |
|
(384 |
) |
(385 |
) |
Dividends paid on Preferred Shares |
(2 |
) |
(2 |
) |
|
(8 |
) |
(8 |
) |
Financing activities of discontinued
operations |
– |
|
(578 |
) |
|
– |
|
(551 |
) |
|
(48 |
) |
(1,113 |
) |
|
(300 |
) |
(1,448 |
) |
Effect of currency translation on
cash balances |
– |
|
– |
|
|
– |
|
(1 |
) |
Increase (decrease) in cash |
90 |
|
332 |
|
|
(123 |
) |
102 |
|
Cash, beginning of the period |
294 |
|
175 |
|
|
507 |
|
405 |
|
Cash of continuing operations, end of
the period |
384 |
|
507 |
|
|
384 |
|
507 |
|
See accompanying notes.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
August 31, 2018 and 2017
[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 connectivity company whose core operating
business is providing: Cable telecommunications, Satellite video
services and data networking to residential customers, businesses
and public-sector entities (“Wireline”); and wireless services for
voice and data communications (“Wireless”). The Company’s shares
are listed on the Toronto Stock Exchange (“TSX”), TSX Venture
Exchange and New York Stock Exchange (“NYSE”) (Symbol: TSX - SJR.B,
SJR.PR.A, SJR.PR.B, NYSE - SJR, and TSXV - SJR.A).
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 twelve months ended
August 31, 2018 were authorized for issue by the Board of
Directors on October 24, 2018.
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, 2017 and are
expressed in millions of Canadian dollars unless otherwise
indicated. The condensed interim consolidated statements of income
are presented using the nature classification for expenses.
Certain comparative figures have been
reclassified to conform to the current period’s presentation.
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, 2017.
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.
Standards and amendments to standards issued but not yet
effective
The Company has not yet adopted certain
standards and amendments that have been issued but are not yet
effective. The following pronouncements are being assessed to
determine their impact on the Company’s results and financial
position.
- IFRS 15 Revenue from Contracts with Customers, was
issued in May 2014 and replaces IAS 11 Construction
Contracts, IAS 18 Revenue, IFRIC 13 Customer
Loyalty Programs, IFRIC 15 Agreements for the Construction
of Real Estate, IFRIC 18 Transfers of Assets from
Customers and SIC-31 Revenue—Barter Transactions Involving
Advertising Services. The new standard requires revenue to be
recognized in a manner that depicts the transfer of promised goods
or services to customers in an amount that reflects the
consideration expected to be received in exchange for those goods
or services. The principles are to be applied in the following five
steps: (1) identify the contract(s) with a customer, (2) identify
the performance obligations in the contract, (3) determine the
transaction price, (4) allocate the transaction price to the
performance obligations in the contract, and (5) recognize revenue
when (or as) the entity satisfies a performance obligation. IFRS 15
also provides guidance relating to the treatment of contract
acquisition and contract fulfillment costs.
The application of IFRS 15 will impact the Company’s reported
results, including the classification and timing of revenue
recognition and the treatment of costs incurred to obtain contracts
with customers.
Revenue – timing and classification
The application of
this standard will most significantly affect our Wireless
arrangements that bundle equipment and service together,
specifically with regards to the timing of recognition and
classification of revenue. The timing of recognition and
classification of revenue is affected because at contract
inception, IFRS 15 requires the estimation of total consideration
to be received over the contract term, and the allocation of that
consideration to performance obligations in the contract, typically
based on the relative stand-alone selling price of each
obligation. This will result in a decrease to equipment
revenue recognized at contract inception, as the discount
previously recognized over 24 months will now be recognized at
contract inception, and a decrease to service revenue recognized
over the course of the contract, as a portion of the discount
previously allocated solely to equipment revenue will be allocated
to service revenue. The measurement of total revenue recognized
over the life of a contract will be largely unaffected by the new
standard. We do not expect the application of IFRS 15 to affect our
cash flows from operations or the methods and underlying economics
through which we transact with our customers.
Costs of contract acquisition – timing of
recognition
IFRS 15 also requires that incremental costs to
obtain a contract with a customer (for example, commissions) be
capitalized and amortized into operating expenses over the life of
a contract on a rational, systematic basis consistent with the
pattern of the transfer of goods or services to which the asset
relates. The Company currently expenses such costs as incurred.
Contract assets and liabilities
The Company’s financial
position will also be impacted by the adoption of IFRS 15, with new
contract asset and contract liability categories recognized to
reflect differences between the timing of revenue recognition and
the actual billing of those goods and services to customers. While
similar differences are recognized currently, IFRS 15 introduces
additional requirements and disclosures specific to contracts with
customers.
For purposes of applying the new standard on an ongoing basis, we
must make judgments in respect of the new standard. We must make
judgments in determining whether a promise to deliver goods or
services is considered distinct, how to determine the transaction
prices and how to allocate those amounts amongst the associated
performance obligations. We must also exercise judgment as to
whether sales-based compensation amounts are costs incurred to
obtain contracts with customers that should be capitalized and
subsequently amortized on a systematic basis over time.
The new standard is effective for annual periods beginning on or
after January 1, 2018, which for the Company will be the annual
period commencing September 1, 2018 and must be applied either
retrospectively or on a modified retrospective basis for all
contracts that are not complete as at that date. We have made a
policy choice to restate each period presented and recognize the
cumulative effect of initially applying IFRS 15 as an adjustment to
the opening balance of equity at the beginning of the earliest
period presented, subject to certain adopted practical
expedients.
Impacts of IFRS 15, Revenue from Contracts with
Customers
IFRS 15, Revenue from Contracts with
Customers, will affect the fiscal 2018 comparative amounts to
be reported in our fiscal 2019 Consolidated Statements of Income as
follows:
i) Allocation of transaction price
Revenue recognized at point of sale requires the estimation of
total consideration over the contract term and allocation of that
consideration to all performance obligations in the contract based
on their relative stand-alone selling prices. For Wireless term
contracts, equipment revenue recognized at contract inception, as
well as service revenue recognized over the course of the contract
will be lower than previously recognized as noted above.
ii) Deferred commission costs
Costs incurred to obtain or fulfill a contract with a customer were
previously expensed as incurred. Under IFRS 15, these costs are
capitalized and subsequently amortized as an expense over the life
of the contract on a rational, systematic basis consistent with the
pattern of the transfer of goods and services to which the asset
relates. As a result, commission costs are reduced in the period,
with an offsetting increase in amortization of capitalized costs
over the average life of a customer contract.
IFRS 15, Revenue from Contracts with Customers, will
affect the fiscal 2018 comparative amounts to be reported in our
fiscal 2019 Consolidated Statements of Financial Position as
follows:
i) Contract assets and liabilities
Contract assets and liabilities are the result of the difference in
timing related to revenue recognized at the beginning of a contract
and cash collected. Contract assets arise primarily as a result of
the difference between revenue recognized on the sale of wireless
device at the onset of a term contract and the cash collected at
the point of sale.
Contract liabilities are the result of receiving payment related to
a customer contract before providing the related goods or services.
We will account for contract assets and liabilities on a
contract-by-contract basis, with each contract being presented as a
single net contract asset or net contract liability
accordingly.
ii) Deferred commission cost asset
Under IFRS 15, we will defer commission costs paid to internal and
external representatives as a result of obtaining contracts with
customers as deferred commission cost assets and amortize them over
the pattern of the transfer of goods and services to the customer,
which is typically evenly over 24 to 36 months.
The application of IFRS 15 will not affect our cash flows from
operating, investing, or financing activities.
- IFRS 16 Leases was issued on January 2016 and replaces
IAS 17 Leases. The new standard requires entities to recognize
lease assets and lease obligations on the balance sheet. For
lessees, IFRS 16 removes the classification of leases as either
operating leases or finance leases, effectively treating all leases
as finance leases. Certain short-term leases (less than 12 months)
and leases of low-value are exempt from the requirements and may
continue to be treated as operating leases. Lessors will continue
with a dual lease classification model. Classification will
determine how and when a lessor will recognize lease revenue, and
what assets would be recorded.
As the Company has significant contractual obligations currently
being recognized as operating leases, we anticipate that the
application of IFRS 16 will result in a material increase to both
assets and liabilities and material changes to the timing of the
recognition of expenses associated with the lease arrangements
although at this stage in the Company’s IFRS 16 implementation
process, it is not possible to make reasonable quantitative
estimates of the effects of the new standard.
We have a team engaged to ensuring our compliance with IFRS 16.
This team has been responsible for determining information
technology requirements, ensuring scoping and data collection is
appropriate, and communicating the upcoming changes with various
stakeholders. In 2019, we will be implementing a process that will
enable us to comply with the requirements of IFRS 16 on a
lease-by-lease basis. As a result, we are continuing to assess the
effect of this standard on our consolidated financial statements
and it is not yet possible to make a reliable estimate of its
effect. We expect to disclose the estimated financial effects of
the adoption of IFRS 16 in our 2019 consolidated financial
statements.
The standard may be applied retroactively or using a modified
retrospective approach for annual periods commencing January 1,
2019, which for the Company will be the annual period commencing
September 1, 2019. The Company will evaluate the adoption approach
in conjunction with its assessment of the expected impacts of
adoption.
Discontinued operations
The Company reports financial results for
discontinued operations separately from continuing operations to
distinguish the financial impact of disposal transactions from
ongoing operations. Discontinued operations reporting occurs when
the disposal of a component or a group of components of the Company
represents a strategic shift that will have a major impact on the
Company’s operations and financial results, and where the
operations and cash flows can be clearly distinguished,
operationally and for financial reporting purposes, from the rest
of the Company.
The results of discontinued operations are
excluded from both continuing operations and business segment
information in the condensed interim consolidated financial
statements and the notes to the condensed interim consolidated
financial statements, unless otherwise noted, and are presented net
of tax in the statement of income for the current and comparative
periods. Refer to Note 3 Discontinued Operations for
further information regarding the Company’s discontinued
operations.
Change in accounting policy
In September 2017, the IFRS Interpretations
Committee (“the Committee”) published a summary of its agenda
decision regarding accounting for interest and penalties related to
income taxes, which is not specifically addressed by IFRS
Standards. Although the Committee decided not to add this issue to
its standard-setting agenda, the Committee noted if an entity
considers a particular amount payable or receivable for interest
and penalties to be an income tax, then the entity applies IAS 12
Income Taxes to that amount. If an entity does not apply
IAS 12 to a particular amount payable or receivable for interest
and penalties, it applies IAS 37 Provisions, Contingent
Liabilities and Contingent Assets. As such, the Company
retrospectively changed its accounting policy for the accounting of
interest and penalties related to income taxes to be in line with
the Committee decision. The change of accounting policy did not
have a significant impact on the previously reported consolidated
financial statements.
3.
DISCONTINUED OPERATIONS
Shaw Tracking
In the third quarter of fiscal 2017, the Company
entered into an agreement to sell a group of assets comprising the
operations of Shaw Tracking, a fleet tracking operation reported
within the Company’s Wireline segment, for proceeds of
approximately USD $20, net of working capital adjustments.
Accordingly, the operating results and operating cash flows of the
Tracking business are presented as discontinued operations separate
from the Company’s continuing operations.
The transaction closed on September 15,
2017 and the Company recognized a loss on the divestiture within
income from discontinued operations as follows:
|
|
|
|
|
|
|
August 31,
2018 |
Proceeds on disposal, net of transaction costs of $nil |
18 |
|
Net assets disposed |
(22 |
) |
|
(4 |
) |
Income taxes |
2 |
|
Loss on divestiture, net of
tax |
(6 |
) |
The assets and liabilities disposed of were as follows:
|
|
|
|
|
$ |
Accounts receivable |
6 |
|
Inventories |
5 |
|
Other current assets |
1 |
|
Other long-term assets |
25 |
|
Goodwill |
24 |
|
|
61 |
|
Accounts payable and accrued liabilities |
8 |
|
Deferred credits |
33 |
|
Deferred income tax liabilities |
(2 |
) |
|
22 |
|
A reconciliation of the major classes of line
items related to Shaw Tracking constituting income from
discontinued operations, net of tax, as presented in the
consolidated statements of income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
|
2018 |
2017 |
|
|
2018 |
|
2017 |
|
Revenue |
– |
8 |
|
|
1 |
|
33 |
|
Operating, general and administrative
expenses |
|
|
|
|
|
Employee salaries and benefits |
– |
2 |
|
|
– |
|
7 |
|
Purchases of goods and services |
– |
4 |
|
|
1 |
|
18 |
|
|
– |
6 |
|
|
1 |
|
25 |
|
Restructuring |
– |
3 |
|
|
– |
|
3 |
|
Amortization |
– |
(1 |
) |
|
– |
|
(2 |
) |
Impairment of goodwill/disposal group |
– |
– |
|
|
– |
|
32 |
|
Loss from discontinued operations before tax |
– |
– |
|
|
– |
|
(25 |
) |
Income taxes |
– |
– |
|
|
– |
|
2 |
|
Loss from discontinued operations,
net of tax,
before divestiture |
– |
– |
|
|
– |
|
(27 |
) |
Loss on divestiture, net of tax |
– |
– |
|
|
(6 |
) |
– |
|
Loss from discontinued operations,
net of tax |
– |
– |
|
|
(6 |
) |
(27 |
) |
ViaWest
In the fourth quarter of fiscal 2017, the
Company entered into an agreement to sell 100% of its wholly owned
subsidiary ViaWest, Inc. (“ViaWest”) for proceeds of approximately
USD $1.68 billion. Accordingly, the operating results and operating
cash flows for the previously reported Business Infrastructure
Services segment are presented as discontinued operations separate
from the Company’s continuing operations. Prior period financial
information has been reclassified to present the Business
Infrastructure Services division of the Company as a discontinued
operation.
A reconciliation of the major classes of line
items related to ViaWest constituting income from discontinued
operations, net of tax, as presented in the consolidated statements
of income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2018 |
2017 |
|
2018 |
2017 |
|
Revenue |
– |
61 |
|
– |
336 |
|
Eliminations(1) |
– |
– |
|
– |
(2 |
) |
|
– |
61 |
|
– |
334 |
|
Operating, general and administrative
expenses |
|
|
|
|
|
Employee salaries and benefits |
– |
13 |
|
– |
80 |
|
Purchases of goods and services |
– |
22 |
|
– |
124 |
|
|
– |
35 |
|
– |
204 |
|
Eliminations(1) |
– |
– |
|
– |
(2 |
) |
|
– |
35 |
|
– |
202 |
|
Amortization(2) |
– |
5 |
|
– |
103 |
|
Interest on long-term debt |
– |
6 |
|
– |
32 |
|
Amortization of transaction costs |
– |
11 |
|
– |
12 |
|
Income (loss) from discontinued operations before tax
and gain on divestiture |
– |
4 |
|
– |
(15 |
) |
Income taxes |
– |
2 |
|
– |
(6 |
) |
Income (loss) from discontinue
operations, net of tax,
before gain on divestiture |
– |
2 |
|
– |
(9 |
) |
Gain on Divestiture, net of tax |
– |
330 |
|
– |
330 |
|
Income from discontinued operations,
net of tax |
– |
332 |
|
– |
321 |
|
(1)
Eliminations relate to intercompany transactions between continuing
and discontinued operations. The costs are included in continuing
operations as they continue to be incurred subsequent to the
disposition.
(2)
As of the date ViaWest met the criteria to be classified as held
for sale, the Company ceased amortization of non-current assets of
the division, including property, plant and equipment, intangibles
and other. Amortization that would otherwise have been taken in the
three and twelve month periods ended August 31, 2017 amounted to
$16.
4.
BUSINESS SEGMENT INFORMATION
The Company’s chief operating decision makers
are the CEO, President and CFO and they review the operating
performance of the Company by segments which comprise of Wireline
and Wireless. The chief operating decision makers utilize operating
income before restructuring costs and amortization for each segment
as a key measure in making operating decisions and assessing
performance. As a result of the restructuring undertaken in 2017,
the Company reorganized and integrated its management structure,
previously separated in the Consumer and Business Network Services
segments, into a combined Wireline segment, as costs were becoming
increasingly inseparable between these segments. There was no
change to the Wireless operating segment.
The Wireline segment provides Cable
telecommunications services including Video, Internet, Wi-Fi,
Phone, Satellite Video and data networking through a national
fibre-optic backbone network to Canadian consumers, North American
businesses and public-sector entities. The Wireless segment
provides wireless services for voice and data communications
serving customers in Ontario, British Columbia and Alberta.
The previously reported Business Infrastructure
Services segment was comprised primarily of the ViaWest operations
and as a result, the majority of this segment is now reported in
discontinued operations. The remaining operations and their results
are now included within the Wireline segment.
Both of the Company’s reportable segments are
substantially located in Canada. Information on operations by
segment is as follows:
Operating information
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
|
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
Revenue |
|
|
|
|
|
Wireline |
1,087 |
|
1,073 |
|
|
4,292 |
|
4,280 |
|
Wireless |
|
|
|
|
|
Service |
167 |
|
127 |
|
|
595 |
|
482 |
|
Equipment and other |
83 |
|
45 |
|
|
356 |
|
123 |
|
|
250 |
|
172 |
|
|
951 |
|
605 |
|
|
1,337 |
|
1,245 |
|
|
5,243 |
|
4,885 |
|
Intersegment eliminations |
(1 |
) |
(1 |
) |
|
(4 |
) |
(3 |
) |
|
1,336 |
|
1,244 |
|
|
5,239 |
|
4,882 |
|
Operating income before restructuring costs and
amortization |
|
|
|
|
|
Wireline |
516 |
|
446 |
|
|
1,913 |
|
1,864 |
|
Wireless |
44 |
|
33 |
|
|
176 |
|
133 |
|
|
560 |
|
479 |
|
|
2,089 |
|
1,997 |
|
Restructuring costs |
(16 |
) |
– |
|
|
(446 |
) |
(54 |
) |
Amortization |
(256 |
) |
(247 |
) |
|
(1,012 |
) |
(944 |
) |
Operating income |
288 |
|
232 |
|
|
631 |
|
999 |
|
Current taxes |
|
|
|
|
|
Operating |
50 |
|
41 |
|
|
166 |
|
174 |
|
Other/non-operating |
(9 |
) |
(8 |
) |
|
(29 |
) |
(32 |
) |
|
41 |
|
33 |
|
|
137 |
|
142 |
|
Capital expenditures
|
|
|
|
|
|
Three months ended
August 31, |
Year ended August 31, |
|
2018 |
2017 |
2018 |
|
2017 |
Capital expenditures accrual basis |
|
|
|
|
Wireline |
318 |
302 |
970 |
|
890 |
Wireless |
103 |
79 |
343 |
|
255 |
|
421 |
381 |
1,313 |
|
1,145 |
Equipment costs (net of revenue) |
|
|
|
|
Wireline |
13 |
17 |
54 |
|
80 |
Capital expenditures and equipment costs
(net) |
|
|
|
|
Wireline |
331 |
319 |
1,024 |
|
970 |
Wireless |
103 |
79 |
343 |
|
255 |
|
434 |
398 |
1,367 |
|
1,225 |
Reconciliation to Consolidated Statements of Cash
Flows |
|
|
|
|
Additions to property, plant and equipment |
294 |
263 |
1,127 |
|
999 |
Additions to equipment costs (net) |
12 |
15 |
49 |
|
73 |
Additions to other intangibles |
46 |
39 |
131 |
|
111 |
Total of capital expenditures and equipment costs
(net) per
Consolidated Statements of Cash Flows |
352 |
317 |
1,307 |
|
1,183 |
Increase/decrease in working capital and other
liabilities related to capital expenditures |
81 |
79 |
65 |
|
35 |
Decrease in customer equipment financing
receivables |
1 |
2 |
4 |
|
7 |
Less: Proceeds on disposal of property,
plant and equipment |
– |
– |
(9 |
) |
– |
Total capital expenditures and equipment costs
(net) reported
by segments |
434 |
398 |
1,367 |
|
1,225 |
5.
OTHER CURRENT ASSETS
|
|
|
|
|
|
|
|
|
August 31, 2018 |
|
August 31, 2017 |
|
$ |
|
$ |
Prepaid expenses |
103 |
|
99 |
Wireless handset
receivables(1) |
183 |
|
56 |
|
286 |
|
155 |
(1)
As described in the revenue and expenses accounting policy detailed
in the significant accounting policies disclosed in the Company’s
consolidated financial statements for the year ended
August 31, 2017, these amounts relate to the current portion
of wireless handset discounts receivable.
6.
SHORT-TERM BORROWINGS
On June 19, 2018 the Company established an
accounts receivable securitization program with a Canadian
financial institution which will allow it to sell certain trade
receivables into the program up to a maximum of $100. The
Company will continue to service and retain substantially all of
the risks and rewards relating to the trade receivables sold, and
therefore, the trade receivables will remain recognized on the
Company’s Consolidated Statement of Financial Position and the
funding received will be recorded as a current liability (revolving
floating rate loans) secured by the trade receivables. The buyer’s
interest in the accounts receivable ranks ahead of the Company’s
interest and the program restricts it from using the trade
receivables as collateral for any other purpose. The buyer of
the trade receivables has no claim on any of the Company’s other
assets. Sale proceeds in respect of the new securitization program
of approximately $40 were received on June 19, 2018. The term
of this revolving-period agreement ends on June 19, 2019.
A summary of our accounts receivable
securitization program is as follows:
|
|
|
|
|
|
|
|
|
August 31,
2018 |
|
August 31, 2017 |
|
$ |
|
$ |
Trade accounts receivable sold to buyer as security |
429 |
|
|
– |
Short-term borrowings from buyer |
(40) |
|
|
– |
Over-collateralization |
389 |
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
|
2018 |
2017 |
|
2018 |
2017 |
Accounts receivable securitization program, beginning of
period |
– |
– |
|
– |
– |
Proceeds received from accounts receivable
securitization |
40 |
– |
|
40 |
– |
Repayment of accounts receivable
securitization |
– |
– |
|
– |
– |
Accounts receivable securitization
program, end of period |
40 |
– |
|
40 |
– |
7.
PROVISIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
retirement
obligations |
Restructuring
(1)(2) |
Other |
Total |
|
$ |
$ |
$ |
$ |
Balance as at September 1, 2017 |
60 |
7 |
|
(1) |
76 |
|
143 |
|
Additions |
6 |
446 |
|
(2) |
25 |
|
477 |
|
Accretion |
1 |
– |
|
|
– |
|
1 |
|
Reversal |
– |
– |
|
|
(13 |
) |
(13 |
) |
Payments |
– |
(177 |
) |
|
(7 |
) |
(184 |
) |
Balance as at August 31,
2018 |
67 |
276 |
|
|
81 |
|
424 |
|
Current |
– |
7 |
|
|
69 |
|
76 |
|
Long-term |
60 |
– |
|
|
7 |
|
67 |
|
Balance as at September 1, 2017 |
60 |
7 |
|
|
76 |
|
143 |
|
Current |
– |
166 |
|
|
79 |
|
245 |
|
Long-term |
67 |
110 |
|
|
2 |
|
179 |
|
Balance as at August 31,
2018 |
67 |
276 |
|
|
81 |
|
424 |
|
(1) During
fiscal 2017, the Company restructured certain operations within the
Wireline segment and announced a realignment to integrate certain
Consumer/Business operations and Freedom Mobile. A total of $5 has
been paid in fiscal 2018. The majority of the remaining costs are
expected to be paid within the next six months.
(2)
During the second quarter of fiscal 2018, the Company offered a
voluntary departure program to a group of eligible employees and in
the third and fourth quarters made additional changes to its
organizational structure as part of a total business transformation
initiative. In connection with the restructuring, the Company
recorded $446 primarily related to severance and employee related
costs in respect of the approximate 3,300 affected employees. A
total of $172 has been paid in fiscal 2018. The remaining costs are
expected to be paid out within the next 29 months.
8.
OTHER LONG-TERM LIABILITIES
|
|
|
|
|
|
|
|
|
August 31, 2018 |
|
August 31, 2017 |
|
$ |
|
$ |
Pension liabilities [note 17] |
10 |
|
99 |
Post retirement liabilities |
3 |
|
5 |
Other |
– |
|
10 |
|
13 |
|
114 |
9.
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES AND RESTRUCTURING
COSTS
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
|
2018 |
2017 |
|
2018 |
2017 |
Employee salaries and benefits(1) |
184 |
202 |
|
1,176 |
859 |
Purchase of goods and services |
608 |
563 |
|
2,420 |
2,080 |
|
792 |
765 |
|
3,596 |
2,939 |
(1)
For the three and twelve months ended August 31, 2018,
employee salaries and benefits include $15 (2017 - $nil) and $423
(2017 - $54) in restructuring costs, respectively.
10.
LONG-TERM
DEBT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
2018 |
|
August 31, 2017 |
|
Effective
interest
rates |
Long-term
debt at
amortized
cost (1) |
Adjustment
for finance
costs (1) |
Long-term
debt
repayable
at maturity |
|
Long-term
debt at
amortized
cost (1) |
Adjustment
for finance
costs (1) |
Long-term
debt
repayable
at maturity |
|
% |
$ |
$ |
$ |
|
$ |
$ |
$ |
Corporate |
|
|
|
|
|
|
|
|
Cdn fixed rate senior notes- |
|
|
|
|
|
|
|
|
5.65% due October 1, 2019 |
5.69 |
1,248 |
2 |
1,250 |
|
1,247 |
3 |
1,250 |
5.50% due December 7, 2020 |
5.55 |
499 |
1 |
500 |
|
498 |
2 |
500 |
3.15% due February 19, 2021 |
3.17 |
299 |
1 |
300 |
|
298 |
2 |
300 |
4.35% due January 31, 2024 |
4.35 |
498 |
2 |
500 |
|
498 |
2 |
500 |
3.80% due March 1, 2027 |
3.84 |
298 |
2 |
300 |
|
298 |
2 |
300 |
6.75% due November 9, 2039 |
6.89 |
1,419 |
31 |
1,450 |
|
1,419 |
31 |
1,450 |
|
|
4,261 |
39 |
4,300 |
|
4,258 |
42 |
4,300 |
Other |
|
|
|
|
|
|
|
|
Freedom Mobile – other |
Various |
– |
– |
– |
|
2 |
– |
2 |
Burrard Landing Lot 2 Holdings
Partnership(1) |
Various |
50 |
– |
50 |
|
40 |
– |
40 |
Total consolidated debt |
|
4,311 |
39 |
4,350 |
|
4,300 |
42 |
4,342 |
Less current portion(2) |
|
1 |
– |
1 |
|
2 |
– |
2 |
|
|
4,310 |
39 |
4,349 |
|
4,298 |
42 |
4,340 |
(1)
In February 2018, the Partnership refinanced its debt. The
Partnership received an additional mortgage loan of $30 and used
the proceeds to loan excess funds to each of its partners, of which
the Company received $10. The additional loan matures on
November 1, 2024 and bears interest at 4.14% compounded
semi-annually.
(2)
Current portion of long-term debt includes amounts due within one
year in respect of Freedom Mobile’s finance lease obligations and
the Burrard Landing loans.
11. SHARE
CAPITAL
Changes in share capital during the year ended
August 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
Shares |
|
Class B
Non-Voting Shares |
|
Series A
Preferred Shares |
|
Series B
Preferred Shares |
|
Number |
$ |
|
Number |
$ |
|
Number |
$ |
|
Number |
$ |
August 31, 2017 |
22,420,064 |
2 |
|
474,350,861 |
3,795 |
|
10,012,393 |
245 |
|
1,987,607 |
48 |
Issued upon stock option plan exercises |
– |
– |
|
1,854,594 |
48 |
|
– |
– |
|
– |
– |
Issued pursuant to dividend reinvestment
plan |
– |
– |
|
7,988,889 |
211 |
|
– |
– |
|
– |
– |
August 31, 2018 |
22,420,064 |
2 |
|
484,194,344 |
4,054 |
|
10,012,393 |
245 |
|
1,987,607 |
48 |
12.
EARNINGS (LOSS)
PER SHARE
Earnings (loss) per share calculations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
|
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
Numerator for basic and diluted earnings per share
($) |
|
|
|
|
|
Net income (loss) from continuing operations |
200 |
|
149 |
|
|
66 |
|
557 |
|
Deduct: dividends on Preferred Shares |
(2 |
) |
(2 |
) |
|
(8 |
) |
(8 |
) |
Net income (loss) attributable to common shareholders from
continuing operations |
198 |
|
147 |
|
|
58 |
|
549 |
|
Net income (loss) from discontinued
operations |
– |
|
332 |
|
|
(6 |
) |
294 |
|
Net loss from discontinued
operations attributable to common shareholders |
– |
|
332 |
|
|
(6 |
) |
294 |
|
Net income (loss) attributable to common
shareholders |
198 |
|
479 |
|
|
52 |
|
843 |
|
Denominator (millions of shares) |
|
|
|
|
|
Weighted average number of Class A Shares and Class
B Non-Voting Shares for basic earnings per share |
505 |
|
495 |
|
|
502 |
|
491 |
|
Effect of dilutive securities
(1) |
1 |
|
1 |
|
|
1 |
|
1 |
|
Weighted average number of Class A Shares and
Class B Non-Voting Shares for diluted earnings per share |
506 |
|
496 |
|
|
503 |
|
492 |
|
Basic earnings (loss) per share ($) |
|
|
|
|
|
Continuing operations |
0.39 |
|
0.30 |
|
|
0.11 |
|
1.12 |
|
Discontinued operations |
– |
|
0.67 |
|
|
(0.01 |
) |
0.60 |
|
Attributable to common shareholders |
0.39 |
|
0.97 |
|
|
0.10 |
|
1.72 |
|
Diluted earnings (loss) per share ($) |
|
|
|
|
|
Continuing operations |
0.39 |
|
0.30 |
|
|
0.11 |
|
1.11 |
|
Discontinued operations |
– |
|
0.66 |
|
|
(0.01 |
) |
0.60 |
|
Attributable to common shareholders |
0.39 |
|
0.96 |
|
|
0.10 |
|
1.71 |
|
(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 twelve months
ended August 31, 2018, 5,798,864 (2017 – 1,338,170) and
5,907,682 (2017 – 2,138,047) options were excluded from the diluted
earnings per share calculation, respectively.
13.
OTHER
COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE
LOSS
Components of other comprehensive income and the
related income tax effects for the year ended August 31, 2018
are as follows:
|
|
|
|
|
|
|
|
|
Amount |
Income
taxes |
Net |
|
$ |
$ |
$ |
Items that may subsequently be reclassified to
income |
|
|
|
Continuing operations: |
|
|
|
Change in unrealized fair value of derivatives
designated as cash flow hedges |
7 |
(2 |
) |
5 |
Adjustment for hedged items recognized in the
period |
4 |
(1 |
) |
3 |
Share of other comprehensive income of
associates |
10 |
– |
|
10 |
|
21 |
(3 |
) |
18 |
Items that will not be subsequently reclassified to
income |
|
|
|
Remeasurements on employee benefit plans: |
|
|
|
Continuing operations |
101 |
(27 |
) |
74 |
|
122 |
(30 |
) |
92 |
Components of other comprehensive income and the
related income tax effects for the three months ended
August 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
Amount
$ |
Income taxes
$ |
Net
$ |
Items that may subsequently be reclassified to
income |
|
|
|
Continuing operations: |
|
|
|
Change in unrealized fair value of derivatives
designated as cash flow hedges |
1 |
– |
|
1 |
Adjustment for hedged items recognized in the
period |
– |
– |
|
|
Share of other comprehensive income of
associates |
3 |
– |
|
3 |
|
4 |
– |
|
4 |
Items that will not be subsequently be reclassified to
income |
|
|
– |
Remeasurements on employee benefit plans: |
|
|
– |
Continuing operations |
15 |
(4 |
) |
11 |
|
19 |
(4 |
) |
15 |
Components of other comprehensive income and the
related income tax effects for the year ended August 31, 2017
are as follows:
|
|
|
|
|
|
|
|
|
Amount |
Income
taxes |
Net |
|
$ |
$ |
$ |
Items that may subsequently be reclassified to
income |
|
|
|
Continuing operations: |
|
|
|
Change in unrealized fair value of derivatives
designated as cash flow hedges |
(9 |
) |
2 |
|
(7 |
) |
Adjustment for hedged items recognized in the
period |
(3 |
) |
1 |
|
(2 |
) |
Share of other comprehensive income of
associates |
13 |
|
– |
|
13 |
|
Discontinued operations: |
|
|
|
Exchange differences on translation of a foreign
operation |
(50 |
) |
– |
|
(50 |
) |
Exchange differences on translation of US
denominated debt hedging a foreign
operation |
24 |
|
– |
|
24 |
|
Reclassification of accumulated exchange
differences to income related to the sale of a foreign
operation |
(82 |
) |
– |
|
(82 |
) |
|
(107 |
) |
3 |
|
(104 |
) |
Items that will not be subsequently reclassified to
income |
|
|
|
Remeasurements on employee benefit plans: |
|
|
|
Continuing operations |
34 |
|
(9 |
) |
25 |
|
|
(73 |
) |
(6 |
) |
(79 |
) |
Components of other comprehensive loss and the
related income tax effects for the three months ended
August 31, 2017 are as follows:
|
|
|
|
|
|
|
|
|
Amount
$ |
Income taxes
$ |
Net
$ |
Items that may subsequently be reclassified to
income |
|
|
|
Continuing operations: |
|
|
|
Change in unrealized fair value of derivatives
designated as cash flow hedges |
(12 |
) |
3 |
|
(9 |
) |
Adjustment for hedged items recognized in the
period |
– |
|
– |
|
– |
|
Share of other comprehensive income of
associates |
6 |
|
– |
|
6 |
|
Discontinued operations: |
|
|
|
Exchange differences on translation of a foreign
operation |
(78 |
) |
– |
|
(78 |
) |
Exchange differences on translation of US
denominated debt
hedging a foreign operation |
36 |
|
– |
|
36 |
|
Reclassification of accumulated exchange
differences
to income related to the sale of a foreign operation |
(82 |
) |
– |
|
(82 |
) |
|
(130 |
) |
3 |
|
(127 |
) |
Items that will not be subsequently be reclassified to
income |
|
|
|
Remeasurements on employee benefit plans: |
|
|
|
Continuing operations |
34 |
|
(9 |
) |
25 |
|
|
(96 |
) |
(6 |
) |
(102 |
) |
Accumulated other comprehensive loss is comprised of the
following:
|
|
|
|
|
|
|
|
|
August 31,
2018 |
|
August 31, 2017 |
|
$ |
|
$ |
Items that may subsequently be reclassified to
income |
|
|
|
Continuing operations: |
|
|
|
Change in unrealized fair value of derivatives
designated as cash flow hedges |
– |
|
|
(8 |
) |
Share of other comprehensive income of
associates |
18 |
|
|
8 |
|
|
|
|
|
Items that will not be subsequently reclassified to
income |
|
|
|
Remeasurements on employee benefit plans: |
|
|
|
Continuing operations |
(57 |
) |
|
(131 |
) |
|
(39 |
) |
|
(131 |
) |
14. STATEMENTS OF
CASH FLOWS
Disclosures with respect to the Consolidated
Statements of Cash Flows are as follows:
(i)
Funds
flow from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
|
2018 |
|
2017 |
|
|
2018 |
|
2017 |
|
Net income (loss) from continuing operations |
200 |
|
149 |
|
|
66 |
|
557 |
|
Adjustments to reconcile net income (loss) to funds
flow from operations: |
|
|
|
|
|
Amortization |
258 |
|
248 |
|
|
1,015 |
|
946 |
|
Deferred income tax expense |
20 |
|
20 |
|
|
6 |
|
39 |
|
Share-based compensation |
1 |
|
1 |
|
|
3 |
|
3 |
|
Defined benefit pension plans |
(1 |
) |
– |
|
|
11 |
|
8 |
|
Accretion of long-term liabilities and
provisions |
(3 |
) |
– |
|
|
(5 |
) |
(1 |
) |
Equity (income) loss of an associate or joint
venture |
(13 |
) |
(11 |
) |
|
200 |
|
(73 |
) |
Provision for investment loss |
– |
|
(10 |
) |
|
– |
|
82 |
|
Other |
(21 |
) |
(15 |
) |
|
(37 |
) |
(31 |
) |
Funds flow from continuing
operations |
441 |
|
382 |
|
|
1,259 |
|
1,530 |
|
(ii)
Interest and
income taxes paid and interest received and classified as operating
activities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
|
2018 |
2017 |
|
2018 |
2017 |
Interest paid |
29 |
47 |
|
239 |
271 |
Income taxes paid (net of refunds) |
19 |
16 |
|
155 |
220 |
Interest received |
1 |
1 |
|
4 |
3 |
(iii)
Non-cash
transactions:
The Consolidated Statements of Cash Flows
exclude the following non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
August 31, |
|
Year ended August 31, |
|
2018 |
2017 |
|
2018 |
2017 |
Issuance of Class B Non-Voting Shares: |
|
|
|
|
|
Dividend reinvestment plan |
52 |
58 |
|
211 |
198 |
15.
FAIR VALUE
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Financial instruments
The fair value of financial instruments has been determined as
follows:
(i) Current assets and current liabilities
The fair value of financial instruments included in current
assets and current liabilities approximates their carrying value
due to their short-term nature.
(ii) Investments and other assets
and other long-term assets
The fair value of publicly traded investments is determined by
quoted market prices. Investments in private entities which do not
have quoted market prices in an active market and whose fair value
cannot be readily measured are carried at cost. No published market
exists for such investments. These equity investments have been
made as they are considered to have the potential to provide future
benefit to the Company and accordingly, the Company has no current
intention to dispose of these investments in the near term. The
fair value of long-term receivables approximates their carrying
value as they are recorded at the net present values of their
future cash flows, using an appropriate discount rate.
(iii) Long-term debt
The carrying value of long-term debt is at
amortized cost based on the initial fair value as determined at the
time of issuance or at the time of a business acquisition. The fair
value of publicly traded notes is based upon current trading
values. The fair value of finance lease obligations is determined
by discounting future cash flows using a rate for loans with
similar terms, conditions and maturity dates. The carrying value of
bank credit facilities approximates fair value as the debt bears
interest at rates that fluctuate with market values. Other notes
and debentures are valued based upon current trading values for
similar instruments.
(iv) Other long-term liabilities
The fair value of contingent consideration
arising from a business acquisition is determined by calculating
the present value of the probability weighted assessment of the
likelihood that revenue targets will be met and the estimated
timing of such payments.
(v) Derivative financial
instruments
The fair value of US currency forward purchase
contracts is determined by an estimated credit-adjusted
mark-to-market valuation using observable forward exchange rates at
the end of reporting periods and contract forward rates.
The carrying values and estimated fair values of
long-term debt and a contingent liability are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
2018 |
|
August 31, 2017 |
|
Carrying
value |
Estimated
fair value |
|
Carrying
value |
Estimated
fair value |
|
$ |
$ |
|
$ |
$ |
Liabilities |
|
|
|
|
|
Long-term debt (including current
portion)(1) |
4,311 |
4,788 |
|
4,300 |
4,901 |
(1)
Level 2 fair value – determined by valuation techniques using
inputs based on observable market data, either directly or
indirectly, other than quoted prices.
16.
INVESTMENTS AND
OTHER ASSETS
Corus Entertainment Inc.
In connection with the sale of the Media
division to Corus in 2016, the Company received 71,364,853 Corus
Class B non-voting participating shares (the “Corus B Consideration
Shares”) representing approximately 37% of Corus’ total issued
equity of Class A and Class B shares. The Company agreed to retain
approximately one third of its Corus B Consideration Shares for 12
months post-closing, a second one third for 18 months post-closing
and the final one third for 24 months post-closing. The Company
also agreed to have its Corus B Consideration Shares participate in
Corus’ dividend reinvestment plan while subject to these retention
periods until September 1, 2017. For the three and
twelve months ended August 31, 2018, the Company received
dividends of $23 (2017 - $23) and $92 (2017 - $88) from Corus, of
which $nil (2017 - $21) and $nil (2017 - $81) were reinvested in
additional Corus Class B shares, respectively. At
August 31, 2018, the Company owned 80,630,383 (2017 –
80,630,383) Corus Class B shares having a market value of $298
(2017 - $1,109) and representing 38% (2017 – 39%) of Corus’ total
issued equity of Class A and Class B shares. The Company’s weighted
average ownership of Corus for the three months ended
August 31, 2018 was 38% (2017 – 39%). As of September 1,
2017, the Company’s Corus B Consideration Shares no longer
participate in Corus’ dividend reinvestment plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
2018 |
|
August 31, 2017 |
Current assets |
508 |
|
|
525 |
|
Non-current assets |
4,375 |
|
|
5,543 |
|
Current liabilities |
(523 |
) |
|
(604 |
) |
Non-current liabilities |
(2,683 |
) |
|
(2,864 |
) |
Net assets |
1,677 |
|
|
2,600 |
|
Less: non-controlling interests |
(154 |
) |
|
(159 |
) |
|
1,523 |
|
|
2,441 |
|
Carrying amount of the investment less
accumulated impairment losses |
615 |
|
|
897 |
|
Summary financial information for Corus and
reconciliation with the carrying amount of the investment in the
unaudited interim condensed consolidated balance sheets is as
follows:
|
|
|
|
|
|
|
|
|
|
Summarized statement of earnings of Corus: |
|
|
|
|
|
Three months ended
August 31, |
Year ended August 31, |
|
2018 |
2017 |
2018 |
|
2017 |
Revenue |
379 |
381 |
1,647 |
|
1,679 |
Net income (loss) attributable to: |
|
|
|
|
Shareholders |
34 |
29 |
(784 |
) |
192 |
Non-controlling interest |
6 |
7 |
26 |
|
32 |
|
40 |
36 |
(758 |
) |
224 |
Other comprehensive income (loss),
attributable to shareholders |
7 |
14 |
25 |
|
33 |
Comprehensive income (loss) |
47 |
50 |
(733 |
) |
257 |
Equity income from associates, excluding goodwill impairment |
13 |
11 |
84 |
|
73 |
Impairment of investment in
associate(1) |
– |
– |
(284 |
) |
– |
Equity income from associates(2) |
13 |
11 |
(200 |
) |
73 |
Other comprehensive income (loss) from
equity
accounted associates(2) |
3 |
6 |
10 |
|
13 |
|
16 |
17 |
(190 |
) |
86 |
(1) The
Company assessed its investment in Corus for indicators of
impairment, which included a significant and sustained decrease in
the share price as well as the recording by Corus of an impairment
charge against their goodwill and broadcast license intangibles,
and found that there was evidence that impairment had occurred. The
Company compared the recoverable amount to the carrying value and
determined that an impairment charge of $284 was required. The
recoverable amount was determined based on the value in use of the
investment.
(2) The
Company’s share of income and other comprehensive income reflect
the weighted average proportion of Corus net income and other
comprehensive income attributable to shareholders for the three and
twelve months periods ended August 31, 2018 and 2017,
excluding the impact of any impairment charges against their
goodwill and broadcast license intangibles which are evaluated
separately as noted above.
17.
EMPLOYEE BENEFIT
PLANS
Defined benefit pension plans
The Company has two non-registered retirement
plans for designated executives and senior executives. The
following is a summary of the accrued benefit liabilities
recognized in the statement of financial position.
|
|
|
|
|
|
|
|
|
August 31, 2018 |
|
August 31, 2017 |
|
$ |
|
$ |
Non-registered plans |
|
|
|
Accrued benefit obligation |
446 |
|
532 |
Fair value of plan assets |
436 |
|
433 |
Accrued benefit liabilities and deficit |
10 |
|
99 |
The plans expose the Company to a number of risks, of which the
most significant are as follows:
- Volatility in market conditions: The accrued benefit
obligations are calculated using discount rates with reference to
bond yields closely matching the term of the estimated cash flows
while many of the assets are invested in other types of
assets. If plan assets underperform these yields, this will
result in a deficit. Changing market conditions in conjunction with
discount rate volatility will result in volatility of the accrued
benefit liabilities. To minimize some of the investment risk, the
Company has established long-term funding targets where the time
horizon and risk tolerance are specified.
- Selection of accounting assumptions: The calculation of the
accrued benefit obligations involves projecting future cash flows
of the plans over a long-time frame. This means that assumptions
used can have a material impact on the statements of financial
position and comprehensive income because in practice, future
experience of the plans may not be in line with the selected
assumptions.
Non-registered pension plans
The Company provides a supplemental executive
retirement plan (“SERP”) for certain of its senior executives.
Benefits under this plan are based on the employees’ length of
service and their highest three-year average rate of eligible
pensionable earnings during their years of service. In 2012, the
Company closed the plan to new participants and amended the plan to
freeze base salary levels at August 31, 2012 for purposes of
determining eligible pensionable earnings. Employees are not
required to contribute to this plan.
The Company provides an executive retirement
plan (“ERP”) for certain executives not covered by the SERP.
Benefits under this plan are comprised of defined contribution and
defined benefit components and are based on the employees’ length
of service as well as final average earnings during their years of
service. Employees are not required to contribute to this
plan.
The table below shows the change in benefit
obligation and funding status and the fair value of plan
assets.
|
|
|
|
|
|
|
|
|
SERP
$ |
ERP
$ |
Total
$ |
Accrued benefit obligation, as at September 1, 2017 |
518 |
|
14 |
|
532 |
|
Current service cost |
6 |
|
8 |
|
14 |
|
Interest cost |
17 |
|
1 |
|
18 |
|
Payment of benefits to employees |
(18 |
) |
(7 |
) |
(25 |
) |
Transfer from DC Plan |
– |
|
3 |
|
3 |
|
Remeasurements: |
|
|
|
Effect of changes in demographic assumptions |
(5 |
) |
|
(5 |
) |
Effect of experience
adjustments(1) |
(89 |
) |
(2 |
) |
(91 |
) |
Accrued benefit obligation, as at August 31,
2018 |
429 |
|
17 |
|
446 |
|
Fair value of plan assets, as at September 1, 2017 |
420 |
|
13 |
|
433 |
|
Employer contributions |
– |
|
5 |
|
5 |
|
Interest income |
15 |
|
1 |
|
16 |
|
Transfer from DC Plan |
– |
|
3 |
|
3 |
|
Payment of benefits to employees |
(18 |
) |
(7 |
) |
(25 |
) |
Return on plan assets, excluding interest
income |
4 |
|
– |
|
4 |
|
Fair value of plan assets, as at August 31,
2018 |
421 |
|
15 |
|
436 |
|
Accrued benefit liability and plan deficit,
as at August 31, 2018 |
8 |
|
2 |
|
10 |
|
(1)
In the second quarter of the fiscal year, a remeasurement related
to the effect of experience adjustments of $85 was recognized to
reflect the decrease in the accrued benefit obligation due to
demographic experience in the quarter.
The cost and related accrued benefit obligation
of the Company’s non-registered pension plans are determined using
actuarial valuations. The actuarial valuations involve estimates
and actuarial assumptions including discount rates and rate of
compensation increase (financial assumptions) as well as mortality
rates and retirement rates (demographic assumptions). Due to the
long-term nature of the non-registered pension plans, such
estimates are subject to significant uncertainty. Remeasurements
related to the effect of experience adjustments arise when the
non-registered pension plans’ experience differs from the
experience expected using the actuarial assumptions.
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