Shaw Communications Inc. (“Shaw” or the “Company”) announces
consolidated financial and operating results for the quarter ended
November 30, 2018 reported in accordance with the newly adopted
IFRS 15 accounting standard, Revenue from contracts with customers
(IFRS 15). Revenue from continuing operations increased by
approximately 8.8% to $1.36 billion compared to the first quarter
in fiscal 2018 and operating income before restructuring costs and
amortization increased 13.5% year-over-year to $545 million.
“We continue to build momentum in our Wireless
business by leveraging our significant network investments and
offering affordable and innovative data plans. In addition,
never seen before promotions in Canada, such as the Big Binge Bonus
that was recently introduced, provides a strong value proposition
to Canadians who increasingly want and use more wireless data,”
said Brad Shaw, Chief Executive Officer. “Our strategy to invest
and focus on growing our Wireless postpaid market share has
delivered another quarter of strong results, adding over 86,000
postpaid customers while improving Wireless postpaid churn from
1.64% to 1.28% over the last year due to significant and ongoing
enhancements to our network and customer experience. Through these
investments, we are attracting and retaining customers with higher
lifetime value.”
The Company continues to deploy its 700 MHz
spectrum, which is now approximately 25% complete, including
initial deployment in all its major markets. Deployment of this low
band spectrum provides customers with farther-reaching coverage and
stronger indoor wireless reception. Voice-over-LTE (VoLTE) is
substantially complete and has been enabled on approximately 35
devices on Freedom’s network representing approximately 800,000 of
its total subscriber base. In the quarter, the Company completed
the launch of 140 new retail locations with Walmart and is now
operating in a combined total of approximately 240 national retail
locations across its footprint with Loblaws’ ‘The Mobile Shop’ and
Walmart. When combined with its existing corporate and dealer store
network, Freedom Mobile now has over 600 retail locations in
operation.
Mr. Shaw continued, “We have taken some
important steps this quarter in our Wireline segment, adding
Consumer Internet subscribers, doubling the speeds of our top
Internet tiers, and stabilizing revenue through our fresh approach
to base management, which includes a balanced and digital focus on
acquisition and retention. While we are still early days in our
journey towards a modern Shaw, I am encouraged by the progress we
have made as we improve upon the fundamentals of our business,
further supporting the delivery of our broadband strategy
throughout fiscal 2019.”
Wireline results include Consumer Internet
growth of approximately 5,600 RGUs contributing to stable
year-over-year Consumer revenue while the Business segment
continues to deliver consistent top-line growth with revenue
increasing 5.0% in the quarter. Combined with reduced expenses,
primarily due to the voluntary departure program (“VDP”) initiated
in fiscal 2018, Wireline margins improved to approximately 46% as
the Company continues to focus on profitable and stable growth.
Selected Financial
Highlights
Fiscal 2019 and restated fiscal 2018 results are
reported in accordance with IFRS 15. Supplementary information is
provided in the accompanying Management’s Discussion and Analysis
(“MD&A”), under the heading “Accounting Standards”, which
discusses our previous revenue recognition policies and the changes
on adoption of the new standard.
|
|
|
|
|
Three months ended November 30, |
(millions of
Canadian dollars except per share amounts) |
2018 |
|
2017
(restated)(1) |
|
Change % |
|
Revenue |
1,355 |
|
1,245 |
|
8.8 |
|
Operating income before
restructuring costs and amortization(2) |
545 |
|
480 |
|
13.5 |
|
Operating
margin(2) |
40.2 |
% |
38.6 |
% |
1.6pts |
|
Free cash flow(2) |
164 |
|
64 |
|
>100.0 |
|
Net income from
continuing operations |
187 |
|
117 |
|
59.8 |
|
Net loss from
discontinued operations, net of tax |
– |
|
(6 |
) |
(100.0 |
) |
Net income |
187 |
|
111 |
|
68.5 |
|
Basic earnings per
share |
0.36 |
|
0.22 |
|
|
Diluted
earnings per share |
0.36 |
|
0.22 |
|
|
(1) Fiscal 2018 reported figures have been
restated applying IFRS 15 and also reflect a change in accounting
policy related to the treatment of digital cable terminals (“DCTs”)
to record as property, plant and equipment where under the previous
policy DCTs were initially recorded as inventory upon acquisition.
See “Accounting Standards” in the accompanying
MD&A.(2) See definitions and discussion under
“Non-IFRS and additional GAAP measures” in the accompanying
MD&A.
In the quarter, the Company added approximately
66,000 net Wireless RGUs, consisting of over 86,000 postpaid
additions and 20,000 prepaid losses, compared to the 34,000 net
RGUs achieved in the first quarter of fiscal 2018. The increase in
the postpaid customer base reflects continued customer demand for
premium smartphones combined with device pricing and packaging
options, affordable data centric plans, and the Company’s ongoing
execution of its wireless growth strategy to improve the network
and customer experience. More than half of the prepaid losses in
the quarter included customer migrations to higher value postpaid
plans while the other half was attributable to a more active
competitive environment targeting the prepaid segment.
Consolidated Wireless revenue for the
three-month period improved by 60% to $273 million over the
comparable period in fiscal 2018. In the quarter, service revenue
increased 32% to $167 million and equipment revenue of
$106 million compared to $44 million in the first quarter
of fiscal 2018. Growth in Wireless revenue is due primarily to
continued subscriber growth, the growing penetration of Big Gig
data plans and higher equipment sales. As a result, ABPU grew 12%
year-over-year to $41.99 reflecting the increased number of
customers that are subscribing to higher service plans and
purchasing a device through Freedom. Average revenue per
subscriber unit (“ARPU”)2 of $38.64 increased almost 7% compared to
the first quarter of fiscal 2018 and reflects the changes in
accounting policies upon the adoption of IFRS 15, whereby a portion
of the device subsidy, previously fully allocated to equipment
revenue, is allocated to service revenue. First quarter Wireless
operating income before restructuring costs and amortization of
$45 million improved 36.4% year-over-year due primarily to
increased service revenue.
Wireline RGUs declined by approximately 52,800
in the quarter compared to a loss of approximately 34,000 in the
first quarter of fiscal 2018. The current quarter includes growth
in Consumer Internet RGUs of approximately 5,600 whereas the mature
products within the Consumer division, Video and Phone, continued
to decline.
First quarter Wireline revenue and operating
income before restructuring costs and amortization of $1,083
million and $500 million improved by 0.7% and 11.9%
year-over-year, respectively. Consumer revenue remained flat at
$936 million compared to the prior year as contributions from
rate adjustments and growth in Internet revenue were offset by
declines in Video, Satellite and Phone subscribers and revenue.
Business revenue increased 5.0% year-over-year to
$147 million, reflecting continued demand for our SmartSuite
of business products. First quarter Wireline results also include
operating costs savings of approximately $25 million related to the
VDP and lower marketing costs as compared to the first quarter of
fiscal 2018.
Capital expenditures in the first quarter of
$271 million decreased by $68 million compared to a year
ago. Wireline capital spending decreased by approximately $18
million primarily due to fewer network upgrades and decreased
deployment of customer premise equipment. Wireless spending
decreased by approximately $50 million year-over-year.
Investments in the Wireless network, retail footprint expansion and
deployment of low band spectrum are expected to increase over the
coming quarter and for the remainder of fiscal 2019.
Free cash flow for the quarter of
$164 million compared to $64 million in the prior year.
The increase for the quarter was largely due to higher operating
income before restructuring costs and amortization and lower
capital expenditures offset in part by higher cash taxes and lower
dividends received from our equity accounted associates.
Net income for the quarter of $187 million
compared to net income of $111 million in the first quarter of
fiscal 2018 driven primarily by an increase in operating income
before restructuring costs and amortization.
On November 2, 2018, the Company solidified its
balance sheet through the issuance of $1 billion in senior notes,
comprised of $500 million at a rate of 3.80% due November 2, 2023
and $500 million at a rate of 4.40% due November 2, 2028. The funds
will be used for general corporate purposes which may include the
repayment of indebtedness.
In the first quarter of fiscal 2019,
approximately 220 employees exited the Company in relation to the
VDP, bringing the total number of employees who departed under the
VDP to over 1,500 employees since the program commenced in March
2018. This led to operating cost reductions of approximately
$25 million and capital cost reductions of approximately
$6 million in the quarter. See also “Introduction,” “Other
Income and Expense Items,” and “Caution Concerning Forward Looking
Statements,” in the accompanying MD&A for a discussion of the
Total Business Transformation (“TBT”), the VDP and the risks and
assumptions associated therewith.
The Company confirms that it remains on track to
meet 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 includes assumptions related to
cost reductions that will be achieved through TBT initiatives
(specifically the VDP savings) that are expected to amount to a
combined $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.
Mr. Shaw concluded, “First quarter results
represent a solid start to fiscal 2019 where we expect to continue
to grow our Wireless business with our innovative and data centric
plans that leverage our continuously improving network. We also
expect to increase our market share in Western Canada as we expand
our network into new cities throughout 2019, including Victoria and
Red Deer, which are set to launch in the coming weeks. In our
Wireline business, we remain focused on growing broadband
subscribers and have an exciting IP roadmap that will launch this
year, differentiating our already strong broadband proposition. We
remain focused on the execution of our Wireline and Wireless
operating priorities while transforming into an agile, lean and
digital-first organization that meets the needs of its customers
now and into the future.”
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 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.
- See definitions and discussion of ABPU, ARPU and Wireless
Postpaid Churn under “Key Performance Drivers” in the accompanying
MD&A.
MANAGEMENT’S DISCUSSION AND ANALYSISFor
the three months ended November 30, 2018
January 14, 2019
Contents
Introduction |
8 |
Selected financial and operational highlights |
10 |
Overview |
14 |
Outlook |
15 |
Non-IFRS and additional GAAP measures |
15 |
Discussion of operations |
19 |
Supplementary quarterly financial information |
22 |
Other income and expense items |
23 |
Financial position |
25 |
Liquidity and capital resources |
26 |
Accounting standards |
29 |
Related party transactions |
38 |
Financial instruments |
38 |
Internal controls and procedures |
39 |
Risk and uncertainties |
39 |
Government Regulations and Regulatory |
39 |
Advisories
The following Management’s Discussion and
Analysis (“MD&A”) of Shaw Communications Inc. is dated January
14, 2019 and should be read in conjunction with the unaudited
interim Consolidated Financial Statements and Notes thereto for the
quarter ended November 30, 2018 and the 2018 Annual
Consolidated Financial Statements, the Notes thereto and related
MD&A included in the Company’s 2018 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 but not limited to next generation wireless
and wireline technologies such as 5G and IPTV, respectively;
- expected growth in the Company’s
market share;
- 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;
- the Company being able to
successfully deploy: (i) network infrastructure required to improve
capacity and coverage and (ii) new technologies, including but not
limited to next generation wireless and wireline technologies such
as 5G and IPTV, respectively;
- short-term incremental costs
associated with growth in Wireless handset sales;
- 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 Company’s failure to grow
market share;
- 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 failure to complete the
deployment of: (i) network infrastructure required to improve
capacity and coverage and (ii) new technologies, including but not
limited to next generation wireless and wireline technologies such
as 5G and IPTV, respectively;
- 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, 2018 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 2019. Shaw discloses
this information because it believes that certain investors,
analysts and others utilize this and other forward-looking
information 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.
Additional
Information
Additional information concerning the Company,
including the Company’s Annual Information Form is available
through the Internet on SEDAR which may be accessed at
www.sedar.com. Copies of such information may also be obtained on
the Company’s website at www.shaw.ca, or on request and without
charge from the Corporate Secretary of the Company, Suite 900,
630 – 3rd Avenue S.W., Calgary, Alberta, Canada T2P 4L4,
telephone (403) 750-4500.
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, free cash flow and the net debt leverage
ratio.
Introduction
In fiscal 2018 we demonstrated the emerging
strength of our Wireless operations and our focus on profitability
and sustainable cost savings in our core Wireline business. In
fiscal 2019 we continue to execute on our Wireline and Wireless
operating priorities while continuing our transformation into an
agile, lean and digital-first organization that meets the needs of
its customers now and into the future.
Wireless
Our Wireless operations have enabled a strategic
and transformative shift that supports our long-term, sustainable
growth ambitions. Our footprint now covers approximately 16 million
people in some of Canada’s largest urban centres, or almost half of
the Canadian population. In fiscal 2019, we expect to expand to an
additional population of 1.3 million, primarily in Western Canada,
including Victoria and Red Deer which are set to launch in the
coming weeks.
In fiscal 2018, we added over 255,000 Wireless
subscribers and ended the year at over 1.4 million customers, a 22%
increase compared to a year earlier. The growth of Freedom Mobile’s
subscriber base was complemented by strong financial performance
reflecting the appeal of our differentiated value proposition. Our
affordable and innovative Big Gig and Big Binge Bonus data plans
combined with the latest devices available in the market continue
to attract high lifetime value customers to Freedom Mobile. In
addition, our Wireless service is now even more accessible to
Canadians through the addition of 240 locations with national
retail partners, Loblaws’ “The Mobile Shop” and Walmart. 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 had over 600
retail locations operational at the end of the quarter.
Supporting our Wireless sales growth are
significant investments in our network and customer service
capabilities. We are executing a step-by-step plan to improve our
network and deploy spectrum in the most efficient way. In fiscal
2018, we completed the deployment of the 2500 MHz spectrum,
refarmed 10 MHz of AWS-1 spectrum and most recently, in October
2018, we launched our Extended Range LTE in Calgary, Edmonton,
Vancouver and Southwestern Ontario, leveraging 700 MHz spectrum to
provide customers with improved service in-building as well as
extending service at the edge of the current coverage area. The
Company continues to deploy its 700 MHz spectrum, which is now
approximately 25% complete, including initial deployment in all its
major markets. We have also introduced Voice-over-LTE (“VoLTE”)
enabled on approximately 35 devices using Freedom Mobile’s network.
Approximately 800,000 Freedom customers are now able to use
VoLTE.
The Company continues to deploy 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. These network investments support
continued growth in our Wireless business and are the potential
building blocks for future technologies, such as 5G.
Wireline
As we look to fiscal 2019, we are focused on
delivering stable Wireline results, including improved broadband
growth through more effective targeting and customer segmentation
while also shifting our efforts in Video to optimize
profitability.
Our team is modernizing all aspects of our
operations as we work to better meet the needs of today’s customer.
We are leveraging insights from data to help us better understand
customer preferences and provide them with the services they want.
We are shifting customer interactions to digital platforms and
driving more self-help, self-install and self-service.
We are starting to see the results of these
efforts as our teams begin to think and work differently to deliver
a modern connectivity experience anchored in broadband. As the key
product in the customer’s home, our broadband service is a
significant and cost-effective competitive advantage. We have
deployed DOCSIS 3.1 across our extensive wireline network to give
us the ability to deliver gigabit speeds across virtually all of
our cable footprint.
We have taken some important steps in our
Wireline segment this quarter, adding Consumer Internet
subscribers, doubling the speeds of our top two Internet tiers, and
stabilizing revenue through our fresh approach to base management,
which includes a balanced and digital focus on acquisition and
retention. While we are still early days in our journey towards a
modern Shaw, we are encouraged by the progress we have made as we
improve upon the fundamentals of our business, further supporting
the delivery of our broadband strategy through fiscal 2019.
Our best-in-class partnerships enable us to
leverage the latest technology and applications, including
Comcast’s XB6 Advanced WiFi modem – the heart of the Shaw connected
home. In early 2019, we will enable additional internet protocol
(“IP”) services such as xFi and WiFi extenders that will
differentiate our broadband service from the competition. In
addition, in 2019 we will begin deploying a full IPTV experience to
our customers. With this service, we will reduce the amount of
equipment needed in the home and simplify the installation process
– enhancing the ability of customers to self-install.
Our Wireline Business division contributed solid
results again in early fiscal 2019, leveraging our SmartSuite
products that deliver enterprise-grade services to small and medium
size businesses. SmartSuite products are the foundation for growth
in Shaw Business and we expect to continue increasing market share,
revenue and profitability, as we focus on delivering our services
in targeted strategic verticals. Our SmartSuite products can scale
to larger businesses as well giving us opportunities to deliver
services across Canada.
Selected financial and
operational highlights
Fiscal 2019 and restated fiscal 2018 results are
reported in accordance with the newly adopted IFRS 15, Revenue from
contracts with customers (“IFRS 15”). Supplementary information is
provided in "Accounting Standards", reflecting the previous revenue
recognition policies and the changes from the adoption of the new
standard.
Basis of
presentation
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 Shaw Tracking business (an operating segment
within the Wireline division) are presented as discontinued
operations separate from the Company’s continuing operations. This
MD&A reflects the results of continuing operations, unless
otherwise noted.
Financial
Highlights
|
Three months ended November 30, |
(millions of
Canadian dollars except per share amounts) |
2018 |
|
2017
(restated)(1) |
|
Change % |
|
Operations: |
|
|
|
Revenue |
1,355 |
|
1,245 |
|
8.8 |
|
Operating
income before restructuring costs and amortization(2) |
545 |
|
480 |
|
13.5 |
|
Operating
margin(2) |
40.2 |
% |
38.6 |
% |
1.6pts |
|
Net
income from continuing operations |
187 |
|
117 |
|
59.8 |
|
Loss from
discontinued operations, net of tax |
– |
|
(6 |
) |
(100.0 |
) |
Net
income |
187 |
|
111 |
|
68.5 |
|
Per share
data: |
|
|
|
Basic earnings (loss)
per share |
|
|
|
Continuing operations |
0.36 |
|
0.23 |
|
|
Discontinued operations |
– |
|
(0.01 |
) |
|
|
0.36 |
|
0.22 |
|
|
Diluted earnings (loss)
per share |
|
|
|
Continuing operations |
0.36 |
|
0.23 |
|
|
Discontinued operations |
– |
|
(0.01 |
) |
|
|
0.36 |
|
0.22 |
|
|
Weighted
average participating shares for basic earnings per share
outstanding during period (millions) |
507 |
|
498 |
|
|
Funds flow from
continuing operations(3) |
439 |
|
367 |
|
19.6 |
|
Free cash
flow(2) |
164 |
|
64 |
|
>100.0 |
|
(1) Fiscal 2018 reported figures have
been restated applying IFRS 15 and also reflect a change in
accounting policy related to the treatment of digital cable
terminals (“DCTs”) to record as property, plant and equipment where
under the previous policy DCTs were initially recorded as inventory
upon acquisition. See “Accounting Standards.”(2) See
definitions and discussion under “Non-IFRS and additional GAAP
measures.” (3) 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.
Key Performance
Drivers
Shaw measures the success of its strategies
using a number of key performance drivers which are defined and
described under “Key Performance Drivers - Statistical Measures” in
the 2018 Annual MD&A and in this MD&A below, which includes
a discussion as to their relevance, definitions, calculation
methods and underlying assumptions. The following key
performance indicators are not measurements in accordance with
IFRS, should not be considered alternatives to net income or any
other measure of performance under IFRS and may not be comparable
to similar measures presented by other issuers.
Commencing this fiscal year, we are disclosing
Wireless average billing per subscriber unit (“ABPU”) and Wireless
postpaid churn as key performance indicators.
Subscriber (or revenue
generating unit (“RGU”)) highlights
|
|
|
Change |
|
|
|
Three months ended |
|
November 30, 2018 |
August 31, 2018 |
November 30, 2018 |
November 30, 2017 |
Wireline – Consumer |
|
|
|
|
Video – Cable |
1,561,464 |
1,585,232 |
(23,768 |
) |
(18,008 |
) |
Video –
Satellite |
721,510 |
750,403 |
(28,893 |
) |
(20,505 |
) |
Internet |
1,882,550 |
1,876,944 |
5,606 |
|
17,694 |
|
Phone |
837,890 |
853,847 |
(15,957 |
) |
(17,418 |
) |
Total Consumer |
5,003,414 |
5,066,426 |
(63,012 |
) |
(38,237 |
) |
Wireline – Business |
|
|
|
|
Video –
Cable |
49,352 |
49,606 |
(254 |
) |
(705 |
) |
Video –
Satellite |
35,389 |
34,831 |
558 |
|
(512 |
) |
Internet |
174,107 |
172,859 |
1,248 |
|
(494 |
) |
Phone |
363,561 |
354,912 |
8,649 |
|
6,097 |
|
Total Business |
622,409 |
612,208 |
10,201 |
|
4,386 |
|
Total Wireline |
5,625,823 |
5,678,634 |
(52,811 |
) |
(33,851 |
) |
Wireless |
|
|
|
|
Postpaid |
1,115,787 |
1,029,720 |
86,067 |
|
33,050 |
|
Prepaid |
352,686 |
373,138 |
(20,452 |
) |
1,260 |
|
Total Wireless |
1,468,473 |
1,402,858 |
65,615 |
|
34,310 |
|
Total Subscribers |
7,094,296 |
7,081,492 |
12,804 |
|
459 |
|
In Wireless, the Company continued to add
wireless subscribers, gaining a net combined 65,615 postpaid and
prepaid subscribers in the quarter. This represents an increase of
almost double the 34,310 net additions gained in the first quarter
of fiscal 2018. The increase in the postpaid customer base reflects
continued customer demand for premium smartphones combined with
device pricing and affordable packaging options, data centric
plans, and the Company’s ongoing execution of its wireless growth
strategy to improve the network and customer experience. More than
half of the prepaid losses in the quarter included customer
migrations to higher value postpaid plans while the other half was
attributable to an active competitive environment targeting the
prepaid segment.
Wireline RGUs declined by 52,811 in the quarter
compared to a loss of 33,851 RGUs in the first quarter of 2018. The
current quarter includes a decline in Consumer RGUs of 63,012 due
primarily to the Company’s continued discipline with subscriber
acquisition offers resulting in lower gross RGU additions.
Wireless Postpaid Churn
To assist in understanding the performance of
our Wireless business, this quarter we commenced disclosing
Wireless postpaid subscriber or RGU churn (“postpaid churn”).
Subscriber churn measures success in retaining subscribers.
Postpaid churn is a measure of the number of postpaid subscribers
that deactivated during a period as a percentage of the average
postpaid subscriber base during a period, calculated on a monthly
basis. It is calculated by dividing the number of Wireless postpaid
subscribers that deactivated (in a month) by the average number of
postpaid subscribers during the month. When used or reported for a
period greater than one month, postpaid churn represents the sum of
the number of subscribers deactivating for each period incurred
divided by the sum of the average number of postpaid subscribers of
each period incurred.
Postpaid churn of 1.28% in the first quarter of
fiscal 2019 compares to 1.64% in the first quarter of fiscal 2018
reflecting the significant and ongoing enhancements to the wireless
customer experience.
Wireless average billing per
subscriber unit (“ABPU”)
To assist in understanding the underlying
economics of our Wireless business, this quarter we commenced
disclosing Wireless average billing per subscriber unit per month
(“ABPU”). We use ABPU as a measure that approximates the average
amount the Company invoices an individual subscriber unit on a
monthly basis. ABPU helps us to identify trends and
measure the Company’s success in attracting and retaining higher
lifetime value subscribers. Wireless ABPU is calculated as service
revenue (excluding the allocation of the device subsidy
attributable to service revenue under IFRS 15) plus the monthly
re-payments of the outstanding device balance owing from customers
on contract, divided by the average number of subscriber units on
the network during the period and is expressed as a rate per
month.
ABPU of $41.99 in the first quarter of fiscal
2019 compares to $37.46 in the first quarter of fiscal 2018
reflecting the increased number of customers that are subscribing
to higher value service plans and purchasing a device through
Freedom.
Wireless average revenue
per subscriber unit (“ARPU”)
Wireless ARPU is calculated as
service revenue divided by the average number of subscribers on the
network during the period and is expressed as a rate per month.
This measure is an industry metric that is useful in assessing the
operating performance of a wireless entity. ARPU helps to identify
trends and measure the Company’s success in attracting and
retaining higher-value subscribers.
ARPU of $38.64 in the first quarter of fiscal
2019 increased almost 7% compared to the first quarter of fiscal
2018 and reflects the changes in accounting policies upon the
adoption of IFRS 15, whereby a portion of the device subsidy,
previously fully allocated as a reduction to equipment revenue, is
allocated as a reduction to service revenue.
Overview
For detailed discussion of divisional
performance see “Discussion of operations”. Highlights of the
consolidated first quarter financial results are as
follows:
Revenue
Revenue for the first quarter
of fiscal 2019 of $1.36 billion increased $110 million or 8.8%
from $1.25 billion for the first quarter of fiscal 2018,
highlighted by the following:
- The year-over-year improvement in
revenue was primarily due to growth in the Wireless division which
contributed an incremental $102 million or 59.6% to
consolidated revenue driven primarily by higher postpaid RGUs
(approximately 318,000 since November 30, 2017), a 12% and 7%
year-over-year increase in ABPU to $41.99 and ARPU to $38.64,
respectively, and a significantly greater proportion of postpaid
subscribers purchasing handsets in the first quarter of fiscal
2019, resulting in a $40 million increase in service revenue and a
$62 million increase in equipment revenue compared to the
first quarter of fiscal 2018.
- The Business division contributed
$7 million or 5.0% growth over the first quarter of fiscal
2018 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
quarter remained largely unchanged compared to the first quarter of
fiscal 2018 mainly due to higher Internet revenues and from Video
and Internet rate increases during the period, all of which were
fully offset by the impact of Video and Phone RGU losses and the
change in Video customer and package mix.
Compared to the fourth quarter
of fiscal 2018, consolidated revenue for the quarter increased 2.2%
or $29 million (post-IFRS 15 from $1.326 billion to $1.355
billion). The increase in revenue over the prior quarter relates
primarily to the growth in the Wireless division driven by added
RGUs, higher ABPU (up from $41.00 in the fourth quarter of fiscal
2018 to $41.99 this quarter) and higher ARPU (post- IFRS 15 up from
$38.38 in the fourth quarter of fiscal 2018 to $38.64) partially
offset by a decrease in Wireline revenues as a result of lower
Video RGUs.
Operating income before
restructuring costs and amortization
Operating income before restructuring costs and
amortization for the first quarter of fiscal 2019
of $545 million increased by $65 million or 13.5% from
$480 million for the first quarter of fiscal 2018, highlighted
by the following:
- The year-over-year improvement in
the Wireless division of $12 million was mainly due to RGU
growth and the impact of a higher ABPU and ARPU partially offset by
a decrease in equipment margins.
- The year-over-year improvement in
the Wireline division of $53 million driven primarily by
higher revenues, lower employee-related costs attributed to the VDP
and other cost saving initiatives.
Operating margin for the first
quarter of 40.2% was up compared to 38.6% in the first
quarter of fiscal 2018 due primarily to a 4.6% increase in the
Wireline operating margin driven primarily by VDP related cost
reductions partially offset by a decrease in the Wireless operating
margin of 2.8% as a result of the additional equipment sales in the
quarter and the lower resulting upfront margin when loading new
subscribers.
Compared to the fourth quarter
of fiscal 2018, operating income before restructuring costs and
amortization for the current quarter decreased $10 million
primarily due to higher Wireline operating costs including planned
marketing costs related to sponsorships, lower Wireline revenues
from net RGU losses and higher Wireless equipment costs partially
offset by the overall growth in Wireless revenue.
Free cash
flow
Free cash flow for the first
quarter of fiscal 2019 of $164 million increased
$100 million from $64 million in the first quarter of
fiscal 2018, mainly due to a $65 million increase in operating
income before restructuring costs and amortization and a decrease
in capital expenditures and equipment costs in the amount of $68
million partially offset by higher cash taxes and lower dividends
from associates.
Net income
(loss)
Net income of $187 million for the three
months ended November 30, 2018 compared to net income of
$111 million for the same period in fiscal 2018. The changes
in net income are outlined in the following table.
|
November 30, 2018 net income compared
to: |
|
Three months
ended |
|
Three months
ended |
|
(millions
of Canadian dollars) |
August 31, 2018(restated)(1) |
|
November 30, 2017(restated)(1) |
|
Increased (decreased)
operating income before restructuring costs and
amortization(2) |
(10 |
) |
65 |
|
Decreased (increased)
restructuring costs |
15 |
|
(1 |
) |
Increased
amortization |
(1 |
) |
(2 |
) |
Change in net other
costs and revenue(3) |
(14 |
) |
(12 |
) |
Decreased income
taxes |
3 |
|
20 |
|
Increased
income from discontinued operations, net of tax |
- |
|
6 |
|
|
(7 |
) |
76 |
|
(1) Fiscal 2018 reported figures have
been restated applying IFRS 15 and also reflect a change in
accounting policy. See “Accounting
Standards”.(2) See definitions and discussion
under “Non-IFRS and additional GAAP measures.”(3) 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.
Outlook
The Company confirms that it remains on track to
meet 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 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 “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 November 30, |
(millions of
Canadian dollars) |
2018 |
|
2017
(restated)(1) |
|
Operating income from
continuing operations |
282 |
|
220 |
|
Add back
(deduct): |
|
|
Restructuring costs |
1 |
|
– |
|
Amortization: |
|
|
Deferred
equipment revenue |
(6 |
) |
(9 |
) |
Deferred
equipment costs |
24 |
|
30 |
|
Property, plant and equipment, intangibles and other |
244 |
|
239 |
|
Operating income before restructuring costs
and amortization |
545 |
|
480 |
|
(1) Fiscal 2018 reported figures have
been restated applying IFRS 15 and also reflect a change in
accounting policy. See “Accounting Standards”.
Operating
margin
Operating margin is calculated by dividing operating income
before restructuring costs and amortization by revenue.
|
Three months ended November 30, |
|
2018 |
|
2017
(restated)(1) |
|
Change % |
Wireline |
46.2 |
% |
41.6 |
% |
4.6pts |
Wireless |
16.5 |
% |
19.3 |
% |
(2.8pts) |
Combined
Wireline and Wireless |
40.2 |
% |
38.6 |
% |
1.6pts |
(1) Fiscal 2018 reported figures have
been restated applying IFRS 15. See “Accounting Standards”.
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 November 30, |
(millions of
Canadian dollars) |
2018 |
2017 |
|
Loss from
discontinued operations, net of tax |
– |
– |
|
Add back
(deduct): |
|
|
Loss on divestiture, net of tax |
– |
(6 |
) |
Loss from discontinued operations before restructuring
costs, amortization, taxes and other non-operating
items |
– |
(6 |
) |
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 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 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 is calculated as follows:
|
Three months ended November 30, |
(millions
of Canadian dollars) |
2018 |
|
2017 (restated)(1) |
|
Change % |
|
Revenue |
|
|
|
Consumer |
936 |
|
935 |
|
0.1 |
|
Business |
147 |
|
140 |
|
5.0 |
|
Wireline |
1,083 |
|
1,075 |
|
0.7 |
|
Service |
167 |
|
127 |
|
31.5 |
|
Equipment |
106 |
|
44 |
|
>100.0 |
|
Wireless |
273 |
|
171 |
|
59.6 |
|
|
1,356 |
|
1,246 |
|
8.8 |
|
Intersegment eliminations |
(1 |
) |
(1 |
) |
– |
|
|
1,355 |
|
1,245 |
|
8.8 |
|
Operating
income before restructuring costs and
amortization(2) |
|
|
|
Wireline |
500 |
|
447 |
|
11.9 |
|
Wireless |
45 |
|
33 |
|
36.4 |
|
|
545 |
|
480 |
|
13.5 |
|
Capital
expenditures and equipment costs (net):(3) |
|
|
|
Wireline |
205 |
|
223 |
|
(8.1 |
) |
Wireless |
66 |
|
116 |
|
(43.1 |
) |
|
271 |
|
339 |
|
(20.1 |
) |
Free cash flow
before the following |
274 |
|
141 |
|
94.3 |
|
Less: |
|
|
|
Interest |
(62 |
) |
(61 |
) |
1.6 |
|
Cash
taxes |
(50 |
) |
(44 |
) |
13.6 |
|
Other
adjustments: |
|
|
|
Dividends
from equity accounted associates |
– |
|
23 |
|
(100.0 |
) |
Non-cash
share-based compensation |
1 |
|
1 |
|
– |
|
Pension
adjustment |
3 |
|
4 |
|
(25.0 |
) |
Customer
equipment financing |
– |
|
2 |
|
(100.0 |
) |
Preferred share dividends |
(2 |
) |
(2 |
) |
– |
|
Free cash flow |
164 |
|
64 |
|
>100.0 |
|
(1) Fiscal 2018 reported figures have
been restated applying IFRS 15 and also reflect a change in
accounting policy. See “Accounting
Standards”.(2) See definitions and discussion
under “Non-IFRS and additional GAAP
measures.”(3) Per Note 3 to the unaudited
interim Consolidated Financial Statements.
Discussion of
operations
Wireline
|
Three months ended November 30, |
(millions of
Canadian dollars) |
2018 |
|
2017
(restated)(1) |
|
Change % |
Consumer |
936 |
|
935 |
|
0.1 |
Business |
147 |
|
140 |
|
5.0 |
Wireline revenue |
1,083 |
|
1,075 |
|
0.7 |
Operating
income before restructuring costs and amortization(2) |
500 |
|
447 |
|
11.9 |
Operating margin(2) |
46.2 |
% |
41.6 |
% |
4.6pts |
(1) Fiscal 2018 reported figures have
been restated applying IFRS 15. See “Accounting
Standards”.(2) See definitions and discussion under
“Non-IFRS and additional GAAP measures.”
In the first quarter of fiscal
2019, Wireline RGUs decreased by 52,811 compared to a 33,851 RGU
loss in the first quarter of fiscal 2018. The current quarter
includes a decline in Consumer RGUs of 63,012 reflecting the
Company’s continued discipline with subscriber acquisition offers
resulting in lower gross RGU additions.
Revenue highlights include:
- Consumer revenue for the
first quarter of fiscal 2019 was essentially flat
compared to the first quarter of fiscal 2018. Revenue generated by
annual rate adjustments and incremental Internet RGUs were fully
offset by the impact of reductions to Video and Phone RGUs, as well
as customer downward migration in Video packages relative to a year
ago.
- As compared to the fourth
quarter of fiscal 2018, the current quarter revenue
decreased by $6 million or 0.6%, primarily due to the
reduction in Video and Phone RGUs.
- Business revenue of
$147 million for the first quarter of fiscal
2019 was up $7 million or 5.0% over the first quarter of
fiscal 2018. Growth was led by the continued success of selling the
SmartSuite of products, specifically Smart Voice, as well as the
impact of annual rate adjustments.
- As compared to the fourth quarter of fiscal
2018, the current quarter revenue increased $2 million or
1.4%, primarily due to customer growth, specifically Phone RGU
gains.
Operating income before restructuring costs and
amortization highlights include:
- Operating income before
restructuring costs and amortization for the first
quarter of fiscal 2019 of $500 million was up 11.9%
or $53 million from $447 million in the first quarter of
fiscal 2018. The increase related primarily to higher
revenues in Business and lower operating costs driven by
VDP-related reductions of approximately $25 million, reduced
marketing spend and decreased programming costs offset partially by
retroactive costs of $7.4 million related to higher rates than
expected from the Copyright Board of Canada’s notice on rates
payable for the Distant Signal Retransmission Tariff for the past
tariff period of 2014 to 2018 (see “Government Regulations and
Regulatory”).
- As compared to the fourth quarter of fiscal
2018, Wireline operating income before restructuring costs and
amortization for the current quarter decreased by $17 million
driven primarily by lower Consumer revenue as a result of RGU
losses and higher operating costs including planned marketing costs
related to sponsorships.
Wireless
|
Three months ended November 30, |
(millions of
Canadian dollars) |
2018 |
|
2017
(restated)(1) |
|
Change % |
Service |
167 |
|
127 |
|
31.5 |
Equipment
and other |
106 |
|
44 |
|
>100.0 |
Wireless revenue |
273 |
|
171 |
|
59.6 |
Operating
income before restructuring costs and amortization(2) |
45 |
|
33 |
|
36.4 |
Operating margin(2) |
16.5 |
% |
19.3 |
% |
(2.8pts) |
(1) Fiscal 2018 reported figures
have been restated applying IFRS 15. See “Accounting
Standards”.(2) See definitions and discussion under
“Non-IFRS and additional GAAP measures.”
The Wireless division added 65,615 RGUs in the
first quarter of fiscal 2019 as compared to 34,310
RGUs gained in the first quarter of fiscal 2018. The increase in
the postpaid customer base reflects continued customer demand for
premium smartphones combined with device pricing and packaging
options, data centric plans, and the Company’s ongoing execution of
its wireless growth strategy to improve the network and customer
experience. More than half of the prepaid losses in the quarter
included customer migrations to postpaid as well as a more active
competitive environment targeting the prepaid segment. Wireless
Postpaid Churn of 1.28% represents a significant improvement from
1.64% in the first quarter of fiscal 2018 due to significant and
ongoing enhancements to the customer experience.
Revenue highlights include:
- Revenue of $273 million for
the first quarter of fiscal 2019 was up
$102 million or 59.6% over the first quarter of fiscal 2018.
The increase in revenue was driven primarily by year-over-year
growth in both equipment and service revenue. Service revenue grew
by 31.5% as a result of increased postpaid RGUs and improved ABPU
of $41.99 and ARPU of $38.64 as compared to $37.46 and $36.23,
respectively, in the first quarter of fiscal 2018.
- As compared to the fourth quarter of fiscal
2018, the current quarter revenue increased $33 million or
13.7% and ABPU increased by $0.99 or 2.4% (ABPU of $41.00 in the
fourth quarter of fiscal 2018) and ARPU increased by $0.26 or 0.7%
(ARPU of $38.38 in the fourth quarter of fiscal 2018).
Operating income before restructuring costs and
amortization highlights include:
- Operating income before
restructuring costs and amortization of $45 million for the
first quarter of fiscal 2019 improved by
$12 million or 36.4% over the first quarter of fiscal 2018.
The improvements were driven primarily by increased subscribers at
higher ABPU/ARPU offset partially by higher distribution and
handset costs associated with loading new customers.
- As compared to the fourth quarter of fiscal
2018, operating income before restructuring costs and amortization
for the current quarter increased $7 million or
18.4%.
Capital expenditures and
equipment costs
|
Three months ended November 30, |
(millions of
Canadian dollars) |
2018 |
2017
(restated)(1) |
Change % |
|
Wireline |
|
|
|
|
New
housing development |
30 |
29 |
3.4 |
|
Success-based |
69 |
79 |
(12.7 |
) |
Upgrades
and enhancements |
65 |
93 |
(30.1 |
) |
Replacement |
6 |
7 |
(14.3 |
) |
Building and other |
35 |
15 |
>100.0 |
|
Total as
per Note 3 to the unaudited interim consolidated financial
statements |
205 |
223 |
(8.1 |
) |
Wireless |
|
|
|
|
Total as
per Note 3 to the unaudited interim consolidated financial
statements |
66 |
116 |
(43.1 |
) |
Consolidated total as per Note 3 to the unaudited
interim consolidated financial statements |
271 |
339 |
(20.1 |
) |
(1) Fiscal 2018 reported figures
have been restated as a result of a change in accounting policy.
See “Accounting Standards”.
In the first quarter of fiscal
2019, capital investment was $271 million, a $68 million
or 20.1% decrease from the comparable period in fiscal 2018, driven
by lower planned capital expenditures of $50 million in the
Wireless division, $29 million less investment in Wireline
system infrastructure and $10 million lower Wireline
success-based equipment partially offset by approximately $20
million in higher capital expenditures for buildings and back
office systems.
Wireline highlights include:
- Success-based capital for the
quarter of $69 million was $10 million lower than in the
first quarter of fiscal 2018. The decrease was driven primarily by
lower Video activations in the current quarter.
- For the quarter, investment in
combined upgrades, enhancements and replacement categories was $71
million, a $29 million or 29% decrease over the prior year driven
by lower planned Wireline spend on system network
infrastructure.
- Investments in buildings and other
in the amount of $35 million was $20 million higher year-over-year
primarily related to costs associated with back office system
upgrades and other corporate related costs.
Wireless highlights include:
- Capital investment of
$66 million in the first quarter decreased relative to the
first quarter of fiscal 2018 primarily due to timing of
expenditures. In fiscal 2019 there will be a continued focus on
investment in the Wireless network and infrastructure, specifically
the deployment of 700 MHz spectrum, LTE and small cells as well as
retail expansion in new and existing markets and enhancements to
the back-office systems. Network expansion related investment and
the deployment of our low band spectrum is planned to increase over
the coming quarter and for the remainder of fiscal 2019.
Supplementary quarterly
financial information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
Revenue |
Operating income before restructuring costs and
amortization (3) |
Net income (loss) from continuing operations
attributable to equity shareholders |
Net income (loss) attributable to equity
shareholders |
Net income (loss)(4) |
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) |
|
|
|
|
2019 |
|
|
|
|
|
|
|
First |
1,355 |
545 |
187 |
|
187 |
|
187 |
|
0.36 |
|
0.36 |
|
2018 |
|
|
|
|
|
|
|
Fourth(1) |
1,326 |
555 |
194 |
|
194 |
|
194 |
|
0.38 |
|
0.38 |
|
Third(1) |
1,289 |
538 |
(99 |
) |
(99 |
) |
(99 |
) |
(0.20 |
) |
(0.20 |
) |
Second(1) |
1,329 |
483 |
(175 |
) |
(175 |
) |
(175 |
) |
(0.35 |
) |
(0.35 |
) |
First(1) |
1,245 |
480 |
117 |
|
111 |
|
111 |
|
0.23 |
|
0.22 |
|
2017 |
|
|
|
|
|
|
|
Fourth(2) |
1,244 |
479 |
149 |
|
481 |
|
481 |
|
0.30 |
|
0.97 |
|
Third(2) |
1,216 |
511 |
164 |
|
133 |
|
133 |
|
0.33 |
|
0.27 |
|
Second(2) |
1,206 |
503 |
150 |
|
147 |
|
147 |
|
0.30 |
|
0.30 |
|
(1) Fiscal 2018 reported figures
have been restated applying IFRS 15 and also reflect a change in
accounting policy. See “Accounting
Standards”.(2) Amounts calculated on a basis
consistent with the Company’s previous accounting policies prior to
adopting IFRS 15 and change in accounting
policy.(3) See definition and discussion under
“Non-IFRS and additional GAAP measures.”(4) Net
income attributable to both equity shareholders and non-controlling
interests
|
|
F19 Q1 vs F18 Q4 |
In the first quarter of fiscal 2019, net
income decreased $7 million compared to the fourth quarter of
fiscal 2018 mainly due to a $10 million decrease in operating
income before restructuring costs and amortization and a decrease
in other gains mainly related to a $16 million gain on the sale of
certain wireless spectrum licenses in the fourth quarter of fiscal
2018. These decreases were partially offset by a $10 million
increase in equity income related to the Company’s investment in
Corus in the quarter. |
F18 Q4 vs F18 Q3 |
In the fourth quarter of fiscal 2018, net
income improved by $293 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
Entertainment Inc. (“Corus”) recorded in the prior quarter. |
F18 Q3 vs F18 Q2 |
In the third quarter of fiscal 2018, the net
loss decreased $76 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 $286 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. The
decrease was partially offset by increased wireless revenues of $93
million. |
F18 Q1 vs F17 Q4 |
In the first quarter of fiscal 2018, net
income decreased $370 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. |
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
November 30, 2018, the category included $1 million in
restructuring charges related to the Company’s TBT initiative for a
total of $447 million since the beginning of the program in
March 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 prior year; however, in
the first quarter of fiscal 2019, further organizational changes in
the execution of TBT resulted in additional restructuring
costs.
In the first quarter of fiscal 2019,
approximately 220 employees exited the Company, bringing the total
number of employees who departed under the VDP to over 1,500
employees. This led to operating cost reductions of
approximately $25 million and capital cost reductions of
approximately $6 million in the quarter.
Amortization
|
Three months ended November 30, |
(millions of
Canadian dollars) |
2018 |
|
2017
(restated)(1) |
|
Change % |
|
Amortization revenue
(expense) |
|
|
|
Deferred
equipment revenue |
6 |
|
9 |
|
(33.3 |
) |
Deferred
equipment costs |
(24 |
) |
(30 |
) |
(20.0 |
) |
Property, plant and equipment, intangibles and other |
(244 |
) |
(239 |
) |
2.1 |
|
(1) Fiscal 2018 reported figures have been restated
as a result of a change in accounting policy. See “Accounting
Standards”.
Amortization of property, plant and equipment,
intangibles and other increased 2.1% for the three months ended
November 30, 2018, over the comparable period 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 November 30, |
(millions
of Canadian dollars) |
2018 |
2017 |
Change % |
Amortization of
financing costs – long-term debt |
1 |
1 |
– |
Interest
expense |
62 |
61 |
1.6 |
Interest expense for the three month period
ended November 30, 2018 was higher than the comparable period due
to higher average outstanding debt balances in the current year.
See note 9 of the unaudited interim consolidated financial
statements for further detail.
Equity income of an associate or
joint venture
For the three month period ended November 30,
2018 the Company recorded equity income of $23 million related
to its interest in Corus, compared to equity income of
$30 million for the comparable period.
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.
Income
taxes
Income taxes are lower in the quarter compared
to the first quarter of fiscal 2018 mainly due to an increase in
applicable tax rates in the first quarter of fiscal 2018 partially
offset by the increase in net income in the current quarter.
Financial
position
Total assets were $15.4 billion at November 30,
2018 compared to $14.4 billion at August 31, 2018. The
following is a discussion of significant changes in the
consolidated statement of financial position since August 31,
2018.
Current assets increased $923 million due
to increases in cash of $805 million, accounts receivable of
$3 million, inventories of $43 million, other current assets
of $63 million, and current portion of contract assets of
$9 million. Cash increased primarily due to the issuance of $1
billion of senior notes that netted proceeds of $993 million,
partially offset by cash outlays for investing activities that
exceeded the funds provided by operations. Inventories increased
mainly due to the purchase of handsets within the Wireless
division.
Other current assets increased over the period
mainly due to a significant increase in Wireless subscribers
participating in the Company’s MyTab Boost, a plan that allows
customers to pay less for their handset upfront if they pay a
predetermined incremental amount on a monthly basis which continues
to be driven by growth in handset sales.
The current portion of contract assets increased
over the period mainly due to an increase in Wireless subscribers
participating in the Company’s discretionary wireless handset
discount program. Under IFRS 15, the portion of this discount
relating to the handset is applied against equipment revenue at the
point in time that the handset is transferred to the customer while
the portion relating to service revenue is recorded as a contract
asset and amortized over the life of the contract against future
service revenues.
Investments and other assets increased by
$24 million due to equity income and other comprehensive
income of associates related to the Company’s investment in Corus
Entertainment Inc. Property, plant and equipment increased
$15 million due to capital investments in excess of
amortization.
Current liabilities increased $1.1 billion
during the period primarily due to an increase in the current
portion of long-term debt of $1.25 billion and provisions of
$29 million, partially offset by decreases in accounts payable
and accrued liabilities of $114 million and income taxes
payable of $15 million. The increase in current provisions was
mainly due to the increase in restructuring costs related to TBT
becoming due in the next 12 months. In connection with the VDP, the
Company recorded a total of $447 million in restructuring
charges in fiscal 2018 and 2019 primarily related to severance and
other related costs, of which $198 million has been paid,
$187 million is included in current provisions and
$64 million is included in long-term provisions. Income taxes
payable decreased due to normal course tax installment payments,
partially offset by the current period provision. Accounts payable
and accruals decreased due to the timing of payment and
fluctuations in various payables including capital expenditures,
interest and programming costs. Current portion of long-term debt
increased due to the reclassification of a $1.25 billion senior
note coming due in October 2019.
Long-term debt decreased $256 million primarily
due to the change in classification of the $1.25 billion senior
note to current, as noted above, partially offset by the issuance
of $1 billion in senior notes, with $500 million due in 2023 and
$500 million due in 2028.
Shareholders’ equity increased $99 million
mainly due to an increase in share capital of $55 million,
retained earnings of $32 million, and accumulated other
comprehensive income of $11 million. Share capital increased
due to the issuance of 2,216,054 Class B non-voting participating
shares (“Class B Non-Voting Shares”) under the Company’s option
plan and Dividend Reinvestment Plan (“DRIP”). Retained earnings
increased due to current year income of $187 million partially
offset by dividends of $102 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 December 31, 2018, there were 487,211,164
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 December 31, 2018, 15,991,367 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 three-month period ended November 30,
2018, the Company generated $164 million of free cash flow.
Shaw used its free cash flow along with $993 million net proceeds
from a senior note issuance, proceeds on issuance of Class B
Non-Voting Shares of $2 million, and cash on hand to pay
common share dividends of $98 million, fund the net working
capital change of $211 million and pay restructuring costs of
$27 million.
On November 2, 2018, the Company solidified its
balance sheet through the issuance of $1 billion in senior notes,
comprised of $500 million at a rate of 3.80% due November 2, 2023
and $500 million at a rate of 4.40% due November 2, 2028. The funds
will be used for general corporate purposes which may include the
repayment of indebtedness. On November 21, 2018, the Company
amended the terms of its $1.5 billion bank credit facility to
extend the maturity date to December 2023. The facility can be used
for working capital and general corporate purposes, including to
issue letters of credit.
As at November 30, 2018, the Company had
$1.2 billion of cash on hand and its $1.5 billion bank credit
facility was fully undrawn.
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 $53 million during
the three month period ending November 30, 2018.
The Company has established an accounts
receivable securitization program with a Canadian financial
institution which allows it to sell certain trade receivables into
the program. As at November 30, 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 November 30, 2018, the net debt
leverage ratio for the Company was 2.0x. Considering the 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 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) |
November 30, 2018 |
|
|
August 31, 2018
restated(3) |
|
Short-term borrowings |
40 |
|
|
40 |
|
Current
portion of long-term debt |
1,251 |
|
|
1 |
|
Long-term
debt |
4,054 |
|
|
4,310 |
|
50% of
outstanding preferred shares |
147 |
|
|
147 |
|
Cash |
(1,189 |
) |
|
(384 |
) |
(A) Net debt(2) |
4,303 |
|
|
4,114 |
|
Operating
income before restructuring costs and amortization |
2,121 |
|
|
2,056 |
|
Corus dividends |
69 |
|
|
92 |
|
(B) Adjusted operating income before restructuring
costs and amortization(2) |
2,190 |
|
|
2,148 |
|
(A/B) Net debt leverage ratio |
2.0x |
|
|
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. (3) Fiscal 2018 reported
figures have been restated applying IFRS 15 and also reflect a
change in accounting policy. See “Accounting Standards”.
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 November 30, 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 which currently mature in December of 2023.
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.
Subsequent to quarter-end, on December 4, 2018,
the Company entered into new unsecured letter of credit facilities,
under which letters of credit were issued in favour of and filed
with Innovation, Science and Economic Development Canada (“ISED”)
to fulfill the pre-auction financial deposit requirement with
respect to its application to participate in the 600 MHz spectrum
auction that will commence on March 12, 2019. Under the terms of
ISED’s 600 MHz auction, communications between bidders that would
provide insights into bidding strategies, including references to
preferred blocks, technologies or valuations are precluded until
the deadline for the final payment. Disclosure of the precise
amount of the letters of credit could be interpreted as a signal of
bidding intentions.
Cash Flow from
Operations
Operating Activities
|
Three months ended November 30, |
(millions of
Canadian dollars) |
2018 |
|
2017
(restated)(1) |
|
Change % |
|
Funds flow from
continuing operations |
439 |
|
367 |
|
19.6 |
|
Net change in non-cash
balances related to operations |
(104 |
) |
1 |
|
(100.0 |
) |
Operating
activities of discontinued operations |
– |
|
(2 |
) |
(100.0 |
) |
|
335 |
|
366 |
|
(8.5 |
) |
(1) Fiscal 2018 reported figures
have been restated applying IFRS 15 and also reflect a change in
accounting policy. See “Accounting Standards”.
For the three months ended November 30, 2018,
funds flow from operating activities decreased over the comparable
period in fiscal 2018 primarily due to a decrease in net change in
non-cash balances related to operations, which was partially offset
by higher funds flow from continuing 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 November 30, |
(millions of
Canadian dollars) |
2018 |
|
2017
(restated)(1) |
|
Increase |
Cash flow
used in investing activities |
(423 |
) |
(351 |
) |
72 |
(1) Fiscal 2018 reported figures
have been restated applying IFRS 15 and also reflects a change in
accounting policy. See “Accounting Standards”.
For the three months ended November 30,
2018, the cash used in investing activities increased over the
comparable period in fiscal 2018 due primarily to higher net
additions of property, plant and equipment and inventory during the
current period.
Financing Activities
The changes in financing activities during the
comparative periods were as follows:
|
|
Three months ended November 30, |
(millions of
Canadian dollars) |
|
2018 |
|
2017 |
|
Senior notes – net
borrowings |
|
993 |
|
– |
|
Bank facility
arrangement costs |
|
(2 |
) |
– |
|
Dividends |
|
(100 |
) |
(98 |
) |
Issuance
of Class B Non-Voting Shares |
|
2 |
|
21 |
|
|
|
893 |
|
(77 |
) |
On November 2, 2018, the Company solidified its
balance sheet through the issuance of $1 billion in senior notes,
comprised of $500 million at a rate of 3.80% due November 2, 2023
and $500 million at a rate of 4.40% due November 2, 2028, less
transaction costs of $7 million. On November 21, 2018 the Company
amended the terms of its $1.5 billion bank credit facility to
extend the maturity date to December 2023 which resulted in $2
million in facility arrangement costs in the quarter. (see
“Liquidity and Capital Resources” for further detail).
Capital
Resources
There has been no material change in the Company’s capital
resources, including commitments for capital expenditures, between
August 31, 2018 and November 30, 2018
Accounting
standards
The MD&A included in the Company’s
August 31, 2018 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, 201. 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.
a)
New accounting standards
We adopted the following new accounting standards effective
September 1, 2018.
- 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 impacted the Company’s reported results,
including the classification and timing of revenue recognition and
the treatment of costs incurred to obtain contracts with customers.
The application of this standard most significantly affected 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 was 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 resulted in a decrease to equipment revenue
recognized at contract inception, as the discount previously
recognized over 24 months is now 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 is allocated to service revenue. The
measurement of total revenue recognized over the life of a contract
was unaffected by the new standard. 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 previously
expensed such costs as incurred.The Company’s financial position
was also 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.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.We have made
a policy choice to adopt IFRS 15 with full retrospective
application, subject to certain practical expedients. As a result,
all comparative information in these financial statements has been
prepared as if IFRS 15 had been in effect since September 1, 2017.
The accounting policies set out in note 2 have been applied in
preparing the interim consolidated financial statements as at and
for the three months ended November 30, 2018, the comparative
information presented for the three months ended November 30, 2017,
and for the consolidated statements of financial position as at
September 1, 2017 and August 31, 2018. Upon adoption of, and
transition to, IFRS 15, we elected to utilize the following
practical expedients:
- Completed contracts that begin and end within the same annual
reporting period and those completed before September 1, 2017 are
not restated;
- Contracts modified prior to September 1, 2017 are not restated.
The aggregate effect of these modifications is reflected when
identifying the satisfied and unsatisfied performance obligations,
determining the transaction price and allocating the transaction
price to the satisfied and unsatisfied performance obligations;
and
- Not disclose, on an annual basis, the unsatisfied portions of
performance obligations related to contracts with a duration of one
year or less or where the revenue we recognize is equal to the
amount invoiced to the customer.
|
Impacts of IFRS 15, Revenue from Contracts with
Customers The effect of transition to IFRS 15 on
impacted line items on our condensed Consolidated Statements of
Income as disclosed in “Transition adjustments” below for the three
months ended November 30, 2017 are as follows: |
|
|
|
|
|
|
|
Three months ended November 30, 2017 |
|
|
|
As |
|
Effect |
|
Subsequent to |
|
(millions
of Canadian dollars) |
|
reported |
|
of transition |
|
transition |
|
Revenue |
i. |
1,249 |
|
|
(4 |
) |
|
1,245 |
|
|
Operating, general and
administrative expenses |
ii. |
(768 |
) |
|
3 |
|
|
(765 |
) |
|
Income tax expense |
|
77 |
|
|
(1 |
) |
|
76 |
|
|
Net
income from continuing operations |
|
120 |
|
|
– |
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
i) Allocation of transaction priceRevenue 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 is lower than
previously recognized as noted above. ii) Deferred commission
costsCosts 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 customer 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. |
|
The effect of transition to IFRS 15 on our disaggregated
revenues for the three months ended November 30, 2017 are as
follows: |
|
|
|
|
Three months ended November 30, 2017 |
|
|
As |
|
Effect |
|
Subsequent to |
|
(millions of Canadian dollars) |
reported |
|
of transition |
|
transition |
|
Services |
|
|
|
|
|
|
Wireline -
Consumer |
935 |
|
|
– |
|
|
935 |
|
|
Wireline - Business |
140 |
|
|
– |
|
|
140 |
|
|
Wireless |
131 |
|
|
(4 |
) |
|
127 |
|
|
|
1,206 |
|
|
(4 |
) |
|
1,202 |
|
|
Equipment and other |
|
|
|
|
|
|
Wireless |
44 |
|
|
– |
|
|
44 |
|
|
|
44 |
|
|
– |
|
|
44 |
|
|
Intersegment eliminations |
(1 |
) |
|
– |
|
|
(1 |
) |
|
Total revenue |
1,249 |
|
|
(4 |
) |
|
1,245 |
|
|
|
|
For the year ended August 31, 2018, the total effect of
transition on revenue was a decrease of $50 million. Additional
details on the full impact of IFRS 15 on fiscal 2018 results can be
found under Note 2 of the Consolidated Financial Statements of
the Company for the year ended August 31, 2018. |
|
The effect
of transition to IFRS 15 on impacted line items on our condensed
Consolidated Statements of Financial Position as disclosed in
“Transition adjustments” below as at September 1, 2017 and August
31, 2018 are as follows: |
|
|
|
|
|
As at September 1, 2017 |
|
As at August 31, 2018 |
|
|
|
As |
Effect |
Subsequent to |
|
As |
Effect |
Subsequent to |
|
(millions
of Canadian dollars) |
|
reported |
of transition |
transition |
|
reported |
of transition |
transition |
|
|
|
|
|
|
|
|
|
|
|
Current portion of
contract assets |
i. |
– |
15 |
|
15 |
|
– |
59 |
|
59 |
|
Other current
assets |
ii. |
155 |
24 |
|
179 |
|
286 |
(13 |
) |
273 |
|
Contract assets |
i. |
– |
44 |
|
44 |
|
– |
76 |
|
76 |
|
Other long-term
assets |
ii. |
255 |
(39 |
) |
216 |
|
300 |
(102 |
) |
198 |
|
Accounts payable and
accrued liabilities |
i. |
913 |
(4 |
) |
909 |
|
971 |
(1 |
) |
970 |
|
Unearned revenue |
i. |
211 |
(211 |
) |
– |
|
221 |
(221 |
) |
– |
|
Current portion of
contract liabilities |
i. |
– |
214 |
|
214 |
|
– |
226 |
|
226 |
|
Deferred credits |
i. |
490 |
(21 |
) |
469 |
|
460 |
(18 |
) |
442 |
|
Deferred income tax
liabilities |
ii. |
1,858 |
5 |
|
1,863 |
|
1,894 |
(6 |
) |
1,888 |
|
Contract
liabilities |
i. |
– |
21 |
|
21 |
|
– |
18 |
|
18 |
|
Shareholders' equity |
|
6,154 |
40 |
|
6,194 |
|
5,957 |
22 |
|
5,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
i)
Contract assets and liabilitiesContract 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 assetUnder 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.Refer to “Transition
adjustments” below for the impact of application of IFRS 15 on our
previously reported consolidated statements of cash flows. |
- IFRS 9 Financial Instruments was revised and issued in July
2014 and replaces IAS 39 Financial Instruments: Recognition and
Measurement. IFRS 9 includes updated guidance on the classification
and measurement of financial instruments, new guidance on measuring
impairment on financial assets, and new hedge accounting guidance.
We have applied IFRS 9, and the related consequential amendments to
other IFRSs, on a retrospective basis except for the changes to
hedge accounting as described below which were applied on a
prospective basis. The adoption of IFRS 9 did not have a
significant impact on our financial performance or the carrying
amounts of our financial instruments as set out in “Transition
adjustments” below.IFRS 9 replaces the classification and
measurement models in IAS 39 with a single model under which
financial assets are classified and measured at amortized cost,
fair value through other comprehensive income (FVOCI) or fair value
through profit or loss (FVTPL) and eliminates the IAS 39 categories
of held-to-maturity, loans and receivables and available-for-sale.
Investments and equity instruments are required to be measured by
default at FVTPL unless an irrevocable option for each equity
instrument is taken to measure at FVOCI. The classification and
measurement of financial assets is based on the business model that
the asset is managed and its contractual cash flow characteristics.
The adoption of IFRS 9 did not change the measurement bases of our
financial assets
- Cash and derivative instruments classified as held-for-trading
and measured at FVTPL under IAS 39 continue to be measured as such
under IFRS 9 with an updated classification of FVTPL
- Other financial assets classified as available-for-sale and
measured at FVOCI under IAS 39 continue to be measured as such
under IFRS 9 with an updated classification of FVOCI
- Investments in equity securities not quoted in an active market
and where fair value cannot be reliably measured that were
classified as available-for-sale and recorded at cost less
impairment under IAS 39 are now required to be classified and
measured at FVTPL under IFRS 9. There has been no change to the
measurement of these assets on transition
- Trade and other receivables classified as loans and receivables
and measured at amortized cost under IAS 39 continue to be measured
as such under IFRS 9 with an updated classification of amortized
cost
|
For financial
liabilities, IFRS 9 retains most of the IAS 39 requirements. We did
not choose the option of designating any financial liabilities at
FVTPL as such, the adoption of IFRS 9 did not impact our accounting
policies for financial liabilities as all liabilities continue to
be measured at amortized cost.The impairment of financial assets
under IFRS 9 is based on an expected credit loss (ECL) model, as
opposed to the incurred loss model in IAS 39. IFRS 9 applies to
financial assets measured at amortized cost, including contract
assets under IFRS 15, and requires that we consider factors that
include historical, current and forward-looking information when
measuring the ECL. We use the simplified approach for measuring
losses based on the lifetime ECL for trade receivables and contract
assets. Amounts considered uncollectible are written off and
recognized in operating, general and administrative expenses in the
Consolidated Statement of Income. This change did not have a
significant impact to our receivables.IFRS 9 does not fundamentally
change the types of hedging relationships or the requirements to
measure and recognize ineffectiveness; however, it requires us to
ensure that the hedge accounting relationships are aligned with our
risk management objective and strategy and to apply a more
qualitative and forward-looking approach to assess hedge
effectiveness. It also requires that amounts related to cash flow
hedges of anticipated purchases of non-financial assets settled
during the period to be reclassified from accumulated other
comprehensive income to the initial cost of the non-financial asset
when it is recognized. Under IAS 39, when an anticipated
transaction was subsequently recorded as a non-financial asset, the
amounts were reclassified from other comprehensive income (loss).In
accordance with IFRS 9’s transition provisions for hedge
accounting, the Company has applied the IFRS 9 hedge accounting
requirements prospectively from the date of initial application
without restatement of prior period comparatives. The Company’s
qualifying hedging relationships in place as at August 31, 2018
also qualified for hedge accounting in accordance with IFRS 9 and
were therefore regarded as continuing hedging relationships. As the
critical terms of the hedging instruments match those of their
corresponding hedged items, all hedging relationships continue to
be effective under IFRS 9’s effectiveness assessment requirements.
The Company has not designated any hedging relationships under IFRS
9 that would not have met the qualifying hedge accounting criteria
under IAS 39. |
b)
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 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.This new standard is described in our 2018 consolidated
financial statements. We continue to assess the impact of this
standard on our consolidated financial statements and we are
progressing with the implementation of this standard. As at the
date of these interim financial statements, there have been no
significant changes to the disclosure related to the implementation
of this standard that was included in our 2018 financial
statements. We intend to disclose the estimated financial effects
of the adoption of IFRS 16 in our 2019 annual audited consolidated
financial statements.
c) Change in accounting
policy
Effective September 1, 2018, the Company
voluntarily changed its accounting policy related to the treatment
of digital cable terminals (“DCTs”) to record them as property,
plant and equipment rather than inventory upon acquisition. The
Company believes that the change in accounting policy will result
in clearer and more relevant financial information as the Company
has recently changed its offerings to customers, which has resulted
in DCTs being predominantly rented rather than sold to customers.
Previously, inventories included DCTs which were held pending
rental or sale to the customer at cost or at a subsidized price.
When the subscriber equipment was rented, it was transferred to
property, plant and equipment and amortized over its useful life
and then removed from capital and returned to inventory when
returned by a customer. Under the new policy, all DCTs will be
classified as property, plant and equipment regardless of whether
or not they are currently deployed to a customer as the Company
believes that this better reflects the economic substance of its
operations. This change in accounting policy has been applied
retrospectively. Refer to “Transition adjustments” below for the
impact of this change of accounting policy on previously reported
Consolidated Statements of Financial Position, Consolidated
Statements of Income and Consolidated Statements of Cash Flows.
d) Transition adjustments
Below is the effect of transition to IFRS 15 and
adoption of our new accounting policy described above on our
condensed consolidated Statements of Income for the three months
ended November 30, 2017.
|
Three months ended November 30, 2017 |
|
As |
|
IFRS 15 |
|
Change in |
|
Subsequent to |
(millions
of Canadian dollars) |
reported |
|
transition |
|
accounting policy |
|
transition |
Revenue |
1,249 |
|
|
(4 |
) |
|
– |
|
|
1,245 |
|
Operating, general and
administrative expenses |
(768 |
) |
|
3 |
|
|
– |
|
|
(765 |
) |
Restructuring
costs |
– |
|
|
– |
|
|
– |
|
|
– |
|
Amortization: |
|
|
|
|
|
|
– |
|
Deferred
equipment revenue |
9 |
|
|
– |
|
|
– |
|
|
9 |
|
Deferred
equipment costs |
(30 |
) |
|
– |
|
|
– |
|
|
(30 |
) |
Property, plant and equipment, intangibles and other |
(235 |
) |
|
– |
|
|
(4 |
) |
|
(239 |
) |
Operating
income from continuing operations |
225 |
|
|
(1 |
) |
|
(4 |
) |
|
220 |
|
Amortization of financing costs – long-term debt |
(1 |
) |
|
– |
|
|
– |
|
|
(1 |
) |
Interest
expense |
(61 |
) |
|
– |
|
|
– |
|
|
(61 |
) |
Equity
income of an associate or joint venture |
30 |
|
|
– |
|
|
– |
|
|
30 |
|
Other gains |
4 |
|
|
– |
|
|
– |
|
|
4 |
|
Income from
continuing operations before income taxes |
197 |
|
|
(1 |
) |
|
(4 |
) |
|
192 |
|
Current
income tax expense |
36 |
|
|
– |
|
|
– |
|
|
36 |
|
Deferred income tax expense |
41 |
|
|
(1 |
) |
|
(1 |
) |
|
39 |
|
Net income from
continuing operations |
120 |
|
|
– |
|
|
(3 |
) |
|
117 |
|
Loss from
discontinued operations, net of tax |
(6 |
) |
|
– |
|
|
– |
|
|
(6 |
) |
Net income |
114 |
|
|
– |
|
|
(3 |
) |
|
111 |
|
Net income from
continuing operations attributable to: |
|
|
|
|
|
|
|
Equity
shareholders |
120 |
|
|
– |
|
|
(3 |
) |
|
117 |
|
Loss from
discontinued operations attributable to: |
|
|
|
|
|
|
|
Equity
shareholders |
(6 |
) |
|
– |
|
|
– |
|
|
(6 |
) |
Basic earnings
(loss) per share |
|
|
|
|
|
|
|
Continuing
operations |
0.23 |
|
|
– |
|
|
– |
|
|
0.23 |
|
Discontinued operations |
(0.01 |
) |
|
– |
|
|
– |
|
|
(0.01 |
) |
|
0.22 |
|
|
– |
|
|
– |
|
|
0.22 |
|
Diluted
earnings (loss) per share |
|
|
|
|
|
|
|
Continuing
operations |
0.23 |
|
|
– |
|
|
– |
|
|
0.23 |
|
Discontinued operations |
(0.01 |
) |
|
– |
|
|
– |
|
|
(0.01 |
) |
|
0.22 |
|
|
– |
|
|
– |
|
|
0.22 |
|
Below is the effect of transition to IFRS 15 and
adoption of our new accounting policy described above on our
condensed consolidated Statement of Financial Position as at
September 1, 2017.
|
As at September 1, 2017 |
|
As |
IFRS 15 |
Change in |
Subsequent to |
(millions
of Canadian dollars) |
reported |
transition |
accounting policy |
transition |
ASSETS |
|
|
|
|
Current |
|
|
|
|
Cash |
507 |
– |
|
– |
|
507 |
Accounts
receivable |
286 |
– |
|
– |
|
286 |
Inventories |
109 |
– |
|
(50 |
) |
59 |
Other
current assets |
155 |
24 |
|
– |
|
179 |
Current
portion of contract assets |
– |
15 |
|
– |
|
15 |
Assets held for sale |
61 |
– |
|
– |
|
61 |
|
1,118 |
39 |
|
(50 |
) |
1,107 |
Investments and other
assets |
937 |
– |
|
– |
|
937 |
Property, plant and
equipment |
4,344 |
– |
|
50 |
|
4,394 |
Other long-term
assets |
255 |
(39 |
) |
– |
|
216 |
Deferred income tax
assets |
4 |
– |
|
– |
|
4 |
Intangibles |
7,435 |
– |
|
– |
|
7,435 |
Goodwill |
280 |
– |
|
– |
|
280 |
Contract
assets |
– |
44 |
|
– |
|
44 |
|
14,373 |
44 |
|
– |
|
14,417 |
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
|
Current |
|
|
|
|
Short-term borrowings |
– |
– |
|
– |
|
– |
Accounts
payable and accrued liabilities |
913 |
(4 |
) |
– |
|
909 |
Provisions |
76 |
– |
|
– |
|
76 |
Income
taxes payable |
151 |
– |
|
– |
|
151 |
Unearned
revenue |
211 |
(211 |
) |
– |
|
– |
Current
portion of contract liabilities |
– |
214 |
|
– |
|
214 |
Current
portion of long-term debt |
2 |
– |
|
– |
|
2 |
Liabilities held for sale |
39 |
– |
|
– |
|
39 |
|
1,392 |
(1 |
) |
– |
|
1,391 |
Long-term debt |
4,298 |
– |
|
– |
|
4,298 |
Other long-term
liabilities |
114 |
– |
|
– |
|
114 |
Provisions |
67 |
– |
|
– |
|
67 |
Deferred credits |
490 |
(21 |
) |
– |
|
469 |
Contract
liabilities |
– |
21 |
|
– |
|
21 |
Deferred
income tax liabilities |
1,858 |
5 |
|
– |
|
1,863 |
|
8,219 |
4 |
|
– |
|
8,223 |
Shareholders'
equity |
|
|
|
|
Common and preferred
shareholders |
6,153 |
40 |
|
– |
|
6,193 |
Non-controlling interests in subsidiaries |
1 |
– |
|
– |
|
1 |
|
6,154 |
40 |
|
– |
|
6,194 |
|
14,373 |
44 |
|
– |
|
14,417 |
Below is the effect of transition to IFRS 15 and
adoption of our new accounting policy described above on our
condensed consolidated Statement of Financial Position as at August
31, 2018.
|
As at August 31, 2018 |
|
As |
IFRS 15 |
Change in |
Subsequent to |
(millions
of Canadian dollars) |
reported |
transition |
accounting policy |
transition |
ASSETS |
|
|
|
|
Current |
|
|
|
|
Cash |
384 |
– |
|
– |
|
384 |
Accounts
receivable |
255 |
– |
|
(2 |
) |
253 |
Inventories |
101 |
– |
|
(40 |
) |
61 |
Other
current assets |
286 |
(13 |
) |
– |
|
273 |
Current
portion of contract assets |
– |
59 |
|
– |
|
59 |
Assets held for sale |
– |
– |
|
– |
|
– |
|
1,026 |
46 |
|
(42 |
) |
1,030 |
Investments and other
assets |
660 |
– |
|
– |
|
660 |
Property, plant and
equipment |
4,672 |
– |
|
30 |
|
4,702 |
Other long-term
assets |
300 |
(102 |
) |
(1 |
) |
197 |
Deferred income tax
assets |
4 |
– |
|
– |
|
4 |
Intangibles |
7,482 |
– |
|
– |
|
7,482 |
Goodwill |
280 |
– |
|
– |
|
280 |
Contract
assets |
– |
76 |
|
– |
|
76 |
|
14,424 |
20 |
|
(13 |
) |
14,431 |
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
|
Current |
|
|
|
|
Short-term borrowings |
40 |
– |
|
– |
|
40 |
Accounts
payable and accrued liabilities |
971 |
(1 |
) |
– |
|
970 |
Provisions |
245 |
– |
|
– |
|
245 |
Income
taxes payable |
133 |
– |
|
– |
|
133 |
Unearned
revenue |
221 |
(221 |
) |
– |
|
– |
Current
portion of contract liabilities |
– |
226 |
|
– |
|
226 |
Current
portion of long-term debt |
1 |
– |
|
– |
|
1 |
Liabilities held for sale |
– |
– |
|
– |
|
– |
|
1,611 |
4 |
|
– |
|
1,615 |
Long-term debt |
4,310 |
– |
|
– |
|
4,310 |
Other long-term
liabilities |
13 |
– |
|
– |
|
13 |
Provisions |
179 |
– |
|
– |
|
179 |
Deferred credits |
460 |
(18 |
) |
– |
|
442 |
Contract
liabilities |
– |
18 |
|
– |
|
18 |
Deferred
income tax liabilities |
1,894 |
(7 |
) |
(3 |
) |
1,884 |
|
8,467 |
(3 |
) |
(3 |
) |
8,461 |
Shareholders'
equity |
|
|
|
|
Common and preferred
shareholders |
5,956 |
22 |
|
(9 |
) |
5,969 |
Non-controlling interests in subsidiaries |
1 |
– |
|
– |
|
1 |
|
5,957 |
22 |
|
(9 |
) |
5,970 |
|
14,424 |
19 |
|
(12 |
) |
14,431 |
Below is the effect of transition to IFRS 15 and
adoption of our new accounting policy described above on our
condensed consolidated Statement of Cash Flows for the three months
ended November 30, 2017.
|
Three months ended November 30, 2017 |
|
As |
|
IFRS 15 |
|
Change in |
|
Subsequent to |
(millions
of Canadian dollars) |
reported |
|
transition |
|
accounting policy |
|
transition |
OPERATING
ACTIVITIES |
|
|
|
|
|
|
|
Funds flow from
continuing operations |
384 |
|
|
(17 |
) |
|
– |
|
|
367 |
|
Net change in non-cash
balances related to continuing operations |
(17 |
) |
|
17 |
|
|
1 |
|
|
1 |
|
Operating
activities of discontinued operations |
(2 |
) |
|
– |
|
|
– |
|
|
(2 |
) |
|
365 |
|
|
– |
|
|
1 |
|
|
366 |
|
INVESTING
ACTIVITIES |
|
|
|
|
|
|
|
Additions to property,
plant and equipment |
(332 |
) |
|
– |
|
|
14 |
|
|
(318 |
) |
Additions to equipment
costs (net) |
(16 |
) |
|
– |
|
|
– |
|
|
(16 |
) |
Additions to other
intangibles |
(35 |
) |
|
– |
|
|
– |
|
|
(35 |
) |
Net additions
(reductions) to inventories |
(15 |
) |
|
– |
|
|
(15 |
) |
|
(30 |
) |
Proceeds on sale of
discontinued operations, net of cash sold |
18 |
|
|
– |
|
|
– |
|
|
18 |
|
Net additions to
investments and other assets |
23 |
|
|
– |
|
|
– |
|
|
23 |
|
Proceeds
on disposal of property, plant and equipment |
7 |
|
|
– |
|
|
– |
|
|
7 |
|
|
(350 |
) |
|
– |
|
|
(1 |
) |
|
(351 |
) |
FINANCING
ACTIVITIES |
|
|
|
|
|
|
|
Issue of Class B
Non-Voting Shares |
21 |
|
|
– |
|
|
– |
|
|
21 |
|
Dividends paid on Class
A Shares and Class B Non-Voting Shares |
(96 |
) |
|
– |
|
|
– |
|
|
(96 |
) |
Dividends
paid on Preferred Shares |
(2 |
) |
|
– |
|
|
– |
|
|
(2 |
) |
|
(77 |
) |
|
– |
|
|
– |
|
|
(77 |
) |
Increase
(decrease) in cash |
(62 |
) |
|
– |
|
|
– |
|
|
(62 |
) |
Cash,
beginning of the period |
507 |
|
|
– |
|
|
– |
|
|
507 |
|
Cash of continuing operations, end of the
period |
445 |
|
|
– |
|
|
– |
|
|
445 |
|
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, 2018 under “Related Party Transactions” and under
Note 28 of the Consolidated Financial Statements of the
Company for the year ended August 31, 2018. There has
been no material change in the Company’s transactions with related
parties between August 31, 2018 and November 30,
2018.
Financial
instruments
There has been no material change in the
Company’s risk management practices with respect to financial
instruments between August 31, 2018 and November 30,
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, 2018 and the section entitled “Financial
Instruments” under Note 29 of the Consolidated Financial
Statements of the Company for the year ended August 31,
2018.
Internal controls and
procedures
Details relating to disclosure controls and
procedures, and internal control over financial reporting (“ICFR”),
are discussed in the Company’s Management’s Discussion and Analysis
for the year ended August 31, 2018 under “Certification”. Other
than the items described below, there have been no changes in the
Company’s ICFR this quarter that have materially affected, or are
reasonably likely to materially affect, the Company’s ICFR.
On September 1, 2018, the Company adopted IFRS
15 Revenue from Contracts with Customers and implemented a new
revenue recognition accounting system that enabled it to comply
with the IFRS 15 requirements. As a result, significant additions
and modifications have been made to the Company’s ICFR for the
Wireless segment. Notably, the Company has:
- updated its policies and procedures related to how revenue is
recognized;
- implemented controls surrounding the recently implemented
revenue recognition system to ensure the inputs, processes, and
outputs are accurate; and
- implemented controls designed to address risks associated with
the five-step revenue recognition model.
Risks and
uncertainties
The significant risks and uncertainties
affecting the Company and its business are discussed in the
Company’s MD&A for the year ended August 31, 2018 under “Known
Events, Trends, Risks and Uncertainties”.
Government regulations and
regulatory developments
See our MD&A for the year ended August 31,
2018 for a discussion of the significant regulations that affected
our operations as at November 28, 2018. The following is a list of
the significant regulatory developments since that date.
Lower-Cost Data Only Plans
In Telecom Decision CRTC 2018-97, the Canadian
Radio-television and Telecommunications Commission (“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. In December 2018, the CRTC determined that it would
refrain from mandating specific low-cost data-only plans instead
opting to direct the three incumbent national wireless carriers to
make available proposed low-cost data-only plans and to keep those
plans in the market at least until a decision is issued in the
review of mobile wireless services scheduled to commence in early
2019.
ISED Consultation on Service Areas
At the end of 2018, ISED initiated a
consultation on a new set of smaller service areas for spectrum
licensing (Tier 5) to complement ISED’s existing suite of spectrum
licensing mechanisms, noting that a smaller licensing area option
would encourage additional access to spectrum within rural
areas.
Copyright
Bill C-86, the Budget Implementation Act (“BIA”)
received Royal Assent on December 17, 2018 and contains several
amendments to the Copyright Act which will come into force on April
1, 2019. The amendments create the potential for increased fees as
well as risk of copyright infringement. The BIA will eliminate the
Act’s mandatory tariff-setting regime for SOCAN tariffs (public
performance of works) by the Copyright Board, providing SOCAN the
option of negotiating payments on a user-by-user basis through
direct licensing. A direct licensing approach, if undertaken by
SOCAN, could increase royalty rates as well as the transactional
costs associated with negotiating rates. The BIA also potentially
increases risk of claims (and associated liability) in connection
with unrepresented repertoire, by removing a provision that
prevented infringement proceedings by unrepresented rightsholders
in situations where no tariff is filed.
On December 18, 2018, the Copyright Board issued
a notice on the rates payable for the Distant Signal Retransmission
Tariff for the past tariff period of 2014-2018, inclusive. If any
rightsholder collective or objector to the tariff applies for
judicial review, such a review could result in increased royalty
rates pursuant to any redetermination of the rates by the
Board.
In the current quarter, the Company incurred
retroactive costs of $7.4 million related to higher rates than
expected for the retransmission tariffs related to the period of
2014 to 2018.
CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31, 2018 |
|
September 1, 2017 |
(millions
of Canadian dollars) |
November 30, 2018 |
|
(restated, note 2) |
|
(restated, note 2) |
ASSETS |
|
|
|
|
|
Current |
|
|
|
|
|
Cash |
1,189 |
|
384 |
|
507 |
Accounts
receivable |
256 |
|
253 |
|
286 |
Inventories |
104 |
|
61 |
|
59 |
Other
current assets [note 5] |
336 |
|
273 |
|
179 |
Current
portion of contract assets [note 4] |
68 |
|
59 |
|
15 |
Assets held for sale |
– |
|
– |
|
61 |
|
1,953 |
|
1,030 |
|
1,107 |
Investments and other
assets [notes 14 and 15] |
684 |
|
660 |
|
937 |
Property, plant and
equipment |
4,717 |
|
4,702 |
|
4,394 |
Other long-term assets
[note 14] |
186 |
|
197 |
|
216 |
Deferred income tax
assets |
5 |
|
4 |
|
4 |
Intangibles |
7,483 |
|
7,482 |
|
7,435 |
Goodwill |
280 |
|
280 |
|
280 |
Contract
assets [note 4] |
76 |
|
76 |
|
44 |
|
15,384 |
|
14,431 |
|
14,417 |
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
|
|
Current |
|
|
|
|
|
Short-term borrowings [note 6] |
40 |
|
40 |
|
– |
Accounts
payable and accrued liabilities |
856 |
|
970 |
|
909 |
Provisions [note 7] |
274 |
|
245 |
|
76 |
Income
taxes payable |
118 |
|
133 |
|
151 |
Current
portion of contract liabilities [note 4] |
222 |
|
226 |
|
214 |
Current
portion of long-term debt [notes 9 and 14] |
1,251 |
|
1 |
|
2 |
Liabilities held for sale |
– |
|
– |
|
39 |
|
2,761 |
|
1,615 |
|
1,391 |
Long-term debt [notes 9
and 14] |
4,054 |
|
4,310 |
|
4,298 |
Other long-term
liabilities |
4 |
|
13 |
|
114 |
Provisions [note
7] |
132 |
|
179 |
|
67 |
Deferred credits |
438 |
|
442 |
|
469 |
Contract liabilities
[note 4] |
17 |
|
18 |
|
21 |
Deferred
income tax liabilities |
1,909 |
|
1,884 |
|
1,863 |
|
9,315 |
|
8,461 |
|
8,223 |
Shareholders'
equity [notes 10 and 12] |
|
|
|
|
|
Common and preferred
shareholders |
6,068 |
|
5,969 |
|
6,193 |
Non-controlling interests in subsidiaries |
1 |
|
1 |
|
1 |
|
6,069 |
|
5,970 |
|
6,194 |
|
15,384 |
|
14,431 |
|
14,417 |
See accompanying notes.
CONSOLIDATED STATEMENTS OF
INCOME (unaudited)
|
|
|
|
Three months ended November 30, |
(millions of
Canadian dollars) |
2018 |
|
2017 (restated,
note 2) |
|
Revenue [notes 3 and 4] |
1,355 |
|
1,245 |
|
Operating, general and
administrative expenses [note 8] |
(810 |
) |
(765 |
) |
Restructuring costs
[notes 7 and 8] |
(1 |
) |
– |
|
Amortization: |
|
|
Deferred
equipment revenue |
6 |
|
9 |
|
Deferred
equipment costs |
(24 |
) |
(30 |
) |
Property, plant and equipment, intangibles and other |
(244 |
) |
(239 |
) |
Operating
income from continuing operations |
282 |
|
220 |
|
Amortization of financing costs – long-term debt |
(1 |
) |
(1 |
) |
Interest
expense |
(62 |
) |
(61 |
) |
Equity
income of an associate or joint venture [note 15] |
23 |
|
30 |
|
Other gains |
– |
|
4 |
|
Income from
continuing operations before income taxes |
242 |
|
192 |
|
Current
income tax expense [note 3] |
35 |
|
36 |
|
Deferred income tax expense |
20 |
|
39 |
|
Net income from
continuing operations |
187 |
|
117 |
|
Loss from
discontinued operations, net of tax |
– |
|
(6 |
) |
Net income |
187 |
|
111 |
|
Net income from
continuing operations attributable to: |
|
|
Equity
shareholders |
187 |
|
117 |
|
Loss from
discontinued operations attributable to: |
|
|
Equity
shareholders |
– |
|
(6 |
) |
Basic earnings
(loss) per share [note 11] |
|
|
Continuing
operations |
0.36 |
|
0.23 |
|
Discontinued operations |
– |
|
(0.01 |
) |
|
0.36 |
|
0.22 |
|
Diluted
earnings (loss) per share [note 11] |
|
|
Continuing
operations |
0.36 |
|
0.23 |
|
Discontinued operations |
– |
|
(0.01 |
) |
|
0.36 |
|
0.22 |
|
See accompanying notes.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME(unaudited)
|
|
|
|
|
Three months ended November 30, |
(millions of
Canadian dollars) |
2018 |
|
2017 (restated,
note 2) |
|
Net
income |
187 |
|
111 |
|
|
|
|
|
Other
comprehensive income [note 12] |
|
|
|
Items that may
subsequently be reclassified to income: |
|
|
|
Continuing operations: |
|
|
|
Change in
unrealized fair value of derivatives designated as cash flow
hedges |
1 |
|
5 |
|
Adjustment for hedged items recognized in the period |
– |
|
1 |
|
Share of other comprehensive income (loss) of associates |
1 |
|
(1 |
) |
|
2 |
|
5 |
|
Items that will
not subsequently be reclassified to income: |
|
|
|
Remeasurements on
employee benefit plans: |
|
|
|
Continuing operations |
9 |
|
(11 |
) |
|
11 |
|
(6 |
) |
Comprehensive income |
198 |
|
105 |
|
Comprehensive
income attributable to: |
|
|
|
Equity shareholders |
198 |
|
105 |
|
See accompanying notes.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY(unaudited)
|
|
|
|
|
|
|
|
Three months ended
November 30, 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 |
September 1, 2018, as
previously reported |
4,349 |
27 |
1,619 |
|
(39 |
) |
5,956 |
|
1 |
5,957 |
|
Transition adjustments - IFRS 15 [note 2] |
– |
– |
22 |
|
– |
|
22 |
|
– |
22 |
|
Restated balance at
September 1, 2018 |
4,349 |
27 |
1,641 |
|
(39 |
) |
5,978 |
|
1 |
5,979 |
|
Change in
accounting policy adjustments [note 2] |
– |
– |
(9 |
) |
– |
|
(9 |
) |
– |
(9 |
) |
Restated balance as at
September 1, 2018 |
4,349 |
27 |
1,632 |
|
(39 |
) |
5,969 |
|
1 |
5,970 |
|
Net income |
– |
– |
187 |
|
– |
|
187 |
|
– |
187 |
|
Other
comprehensive income |
– |
– |
– |
|
11 |
|
11 |
|
– |
11 |
|
Comprehensive
income |
– |
– |
187 |
|
11 |
|
198 |
|
– |
198 |
|
Dividends |
– |
– |
(102 |
) |
– |
|
(102 |
) |
– |
(102 |
) |
Dividend reinvestment
plan |
53 |
– |
(53 |
) |
– |
|
– |
|
– |
– |
|
Shares issued under
stock option plan |
2 |
– |
– |
|
– |
|
2 |
|
– |
2 |
|
Share-based compensation |
– |
1 |
– |
|
– |
|
1 |
|
– |
1 |
|
Balance as at November 30, 2018 |
4,404 |
28 |
1,664 |
|
(28 |
) |
6,068 |
|
1 |
6,069 |
|
|
|
|
|
|
|
|
|
Three months ended
November 30, 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 |
September 1, 2017, as
previously reported |
4,090 |
30 |
|
2,164 |
|
(131 |
) |
6,153 |
|
1 |
6,154 |
|
Transition adjustments - IFRS 15 [note 2] |
– |
– |
|
40 |
|
– |
|
40 |
|
– |
40 |
|
Restated balance as at
September 1, 2017 |
4,090 |
30 |
|
2,204 |
|
(131 |
) |
6,193 |
|
1 |
6,194 |
|
Net income [restated,
note 2] |
– |
– |
|
111 |
|
– |
|
111 |
|
– |
111 |
|
Other
comprehensive income |
– |
– |
|
– |
|
(6 |
) |
(6 |
) |
– |
(6 |
) |
Comprehensive
income |
– |
– |
|
111 |
|
(6 |
) |
105 |
|
– |
105 |
|
Dividends |
– |
– |
|
(98 |
) |
– |
|
(98 |
) |
– |
(98 |
) |
Dividend reinvestment
plan |
52 |
– |
|
(52 |
) |
– |
|
– |
|
– |
– |
|
Shares issued under
stock option plan |
25 |
(5 |
) |
– |
|
– |
|
20 |
|
– |
20 |
|
Share-based compensation |
– |
1 |
|
– |
|
– |
|
1 |
|
– |
1 |
|
Restated
balance as at November 30, 2017 |
4,167 |
26 |
|
2,165 |
|
(137 |
) |
6,221 |
|
1 |
6,222 |
|
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH
FLOWS(unaudited)
|
|
|
|
|
|
|
Three months ended November 30, |
(millions of
Canadian dollars) |
2018 |
|
2017 (restated,
note 2) |
|
OPERATING
ACTIVITIES |
|
|
Funds flow from
continuing operations [note 13] |
439 |
|
367 |
|
Net change in non-cash
balances related to continuing operations |
(104 |
) |
1 |
|
Operating
activities of discontinued operations |
– |
|
(2 |
) |
|
335 |
|
366 |
|
INVESTING
ACTIVITIES |
|
|
Additions to property,
plant and equipment [note 3] |
(336 |
) |
(318 |
) |
Additions to equipment
costs (net) [note 3] |
(9 |
) |
(16 |
) |
Additions to other
intangibles [note 3] |
(34 |
) |
(35 |
) |
Net (additions)
reductions to inventories |
(44 |
) |
(30 |
) |
Proceeds on sale of
discontinued operations, net of cash sold |
– |
|
18 |
|
Net additions to
investments and other assets |
– |
|
23 |
|
Proceeds
on disposal of property, plant and equipment |
– |
|
7 |
|
|
(423 |
) |
(351 |
) |
FINANCING
ACTIVITIES |
|
|
Increase in long-term
debt |
993 |
|
– |
|
Bank facility
arrangement costs |
(2 |
) |
– |
|
Issue of Class B
Non-Voting Shares [note 10] |
2 |
|
21 |
|
Dividends paid on Class
A Shares and Class B Non-Voting Shares |
(98 |
) |
(96 |
) |
Dividends
paid on Preferred Shares |
(2 |
) |
(2 |
) |
|
893 |
|
(77 |
) |
Increase
(decrease) in cash |
805 |
|
(62 |
) |
Cash,
beginning of the period |
384 |
|
507 |
|
Cash of continuing operations, end of the
period |
1,189 |
|
445 |
|
See accompanying notes.
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 months ended November 30,
2018 were authorized for issue by the Audit Committee on
January 13, 2019.
a)
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, 2018 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, 2018.
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.
b)
New accounting standards
We adopted the following new accounting standards effective
September 1, 2018.
- 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 impacted the Company’s reported results,
including the classification and timing of revenue recognition and
the treatment of costs incurred to obtain contracts with
customers. The application of this standard most significantly
affected 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 was 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 resulted in a decrease to equipment
revenue recognized at contract inception, as the discount
previously recognized over 24 months is now 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 is allocated to service
revenue. The measurement of total revenue recognized over the life
of a contract was unaffected by the new standard. 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
previously expensed such costs as incurred.The Company’s financial
position was also 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.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.We have made
a policy choice to adopt IFRS 15 with full retrospective
application, subject to certain practical expedients. As a result,
all comparative information in these financial statements has been
prepared as if IFRS 15 had been in effect since September 1, 2017.
The accounting policies set out in note 2 have been applied in
preparing the interim consolidated financial statements as at and
for the three months ended November 30, 2018, the comparative
information presented for the three months ended November 30, 2017,
and for the consolidated statements of financial position as at
September 1, 2017 and August 31, 2018. Upon adoption of, and
transition to, IFRS 15, we elected to utilize the following
practical expedients:
- Completed contracts that begin and end within the same annual
reporting period and those completed before September 1, 2017 are
not restated;
- Contracts modified prior to September 1, 2017 are not restated.
The aggregate effect of these modifications is reflected when
identifying the satisfied and unsatisfied performance obligations,
determining the transaction price and allocating the transaction
price to the satisfied and unsatisfied performance obligations;
and
- Not disclose, on an annual basis, the unsatisfied portions of
performance obligations related to contracts with a duration of one
year or less or where the revenue we recognize is equal to the
amount invoiced to the customer.
|
Impacts of IFRS 15, Revenue from Contracts
with CustomersThe effect of transition to IFRS 15 on
impacted line items on our condensed Consolidated Statements of
Income as disclosed in note 2(f) - “Transition adjustments” for the
three months ended November 30, 2017 are as follows: |
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 30, 2017 |
|
|
|
As |
|
Effect |
|
Subsequent to |
|
(millions
of Canadian dollars) |
|
reported |
|
of transition |
|
transition |
|
Revenue |
i. |
1,249 |
|
|
(4 |
) |
|
1,245 |
|
|
Operating, general and
administrative expenses |
ii. |
(768 |
) |
|
3 |
|
|
(765 |
) |
|
Income tax expense |
|
77 |
|
|
(1 |
) |
|
76 |
|
|
Net
income from continuing operations |
|
120 |
|
|
– |
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
i) Allocation of transaction priceRevenue 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 is lower than
previously recognized as noted above. ii) Deferred commission
costsCosts 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 customer 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. |
|
The effect
of transition to IFRS 15 on our disaggregated revenues for the
three months ended November 30, 2017 are as follows: |
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 30, 2017 |
|
|
|
As |
|
Effect |
|
Subsequent to |
|
(millions
of Canadian dollars) |
|
reported |
|
of transition |
|
transition |
|
Services |
|
|
|
|
|
|
|
Wireline -
Consumer |
|
935 |
|
|
– |
|
|
935 |
|
|
Wireline -
Business |
|
140 |
|
|
– |
|
|
140 |
|
|
Wireless |
|
131 |
|
|
(4 |
) |
|
127 |
|
|
|
|
1,206 |
|
|
(4 |
) |
|
1,202 |
|
|
Equipment and
other |
|
|
|
|
|
|
|
Wireless |
|
44 |
|
|
– |
|
|
44 |
|
|
|
|
44 |
|
|
– |
|
|
44 |
|
|
Intersegment eliminations |
|
(1 |
) |
|
– |
|
|
(1 |
) |
|
Total revenue |
|
1,249 |
|
|
(4 |
) |
|
1,245 |
|
|
The effect of transition to IFRS 15 on impacted line
items on our condensed Consolidated Statements of Financial
Position as disclosed in note 2(f) - “Transition adjustments” as at
September 1, 2017 and August 31, 2018 are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 1, 2017 |
|
As at August 31, 2018 |
|
|
|
As |
Effect |
Subsequent to |
|
As |
Effect |
Subsequent to |
|
(millions
of Canadian dollars) |
|
reported |
of transition |
transition |
|
reported |
of transition |
transition |
|
|
|
|
|
|
|
|
|
|
|
Current portion of
contract assets |
i. |
– |
15 |
|
15 |
|
– |
59 |
|
59 |
|
Other current
assets |
ii. |
155 |
24 |
|
179 |
|
286 |
(13 |
) |
273 |
|
Contract assets |
i. |
– |
44 |
|
44 |
|
– |
76 |
|
76 |
|
Other long-term
assets |
ii. |
255 |
(39 |
) |
216 |
|
300 |
(102 |
) |
198 |
|
Accounts payable and
accrued liabilities |
i. |
913 |
(4 |
) |
909 |
|
971 |
(1 |
) |
970 |
|
Unearned revenue |
i. |
211 |
(211 |
) |
– |
|
221 |
(221 |
) |
– |
|
Current portion of
contract liabilities |
i. |
– |
214 |
|
214 |
|
– |
226 |
|
226 |
|
Deferred credits |
i. |
490 |
(21 |
) |
469 |
|
460 |
(18 |
) |
442 |
|
Deferred income tax
liabilities |
ii. |
1,858 |
5 |
|
1,863 |
|
1,894 |
(6 |
) |
1,888 |
|
Contract
liabilities |
i. |
– |
21 |
|
21 |
|
– |
18 |
|
18 |
|
Shareholders' equity |
|
6,154 |
40 |
|
6,194 |
|
5,957 |
22 |
|
5,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
i) Contract assets and liabilitiesContract 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 assetUnder 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.Refer to note 2(f)
“Transition adjustments” for the impact of application of IFRS 15
on our previously reported consolidated statements of cash
flows. |
- IFRS 9 Financial Instruments was revised and issued in July
2014 and replaces IAS 39 Financial Instruments: Recognition and
Measurement. IFRS 9 includes updated guidance on the classification
and measurement of financial instruments, new guidance on measuring
impairment on financial assets, and new hedge accounting guidance.
We have applied IFRS 9, and the related consequential amendments to
other IFRSs, on a retrospective basis except for the changes to
hedge accounting as described below which were applied on a
prospective basis. The adoption of IFRS 9 did not have a
significant impact on our financial performance or the carrying
amounts of our financial instruments as set out in note 2(f)
below.IFRS 9 replaces the classification and measurement models in
IAS 39 with a single model under which financial assets are
classified and measured at amortized cost, fair value through other
comprehensive income (FVOCI) or fair value through profit or loss
(FVTPL) and eliminates the IAS 39 categories of held-to-maturity,
loans and receivables and available-for-sale. Investments and
equity instruments are required to be measured by default at FVTPL
unless an irrevocable option for each equity instrument is taken to
measure at FVOCI. The classification and measurement of financial
assets is based on the business model that the asset is managed and
its contractual cash flow characteristics. The adoption of IFRS 9
did not change the measurement bases of our financial assets
- Cash and derivative instruments classified as held-for-trading
and measured at FVTPL under IAS 39 continue to be measured as such
under IFRS 9 with an updated classification of FVTPL
- Other financial assets classified as available-for-sale and
measured at FVOCI under IAS 39 continue to be measured as such
under IFRS 9 with an updated classification of FVOCI
- Investments in equity securities not quoted in an active market
and where fair value cannot be reliably measured that were
classified as available-for-sale and recorded at cost less
impairment under IAS 39 are now required to be classified and
measured at FVTPL under IFRS 9. There has been no change to the
measurement of these assets on transition
- Trade and other receivables classified as loans and receivables
and measured at amortized cost under IAS 39 continue to be measured
as such under IFRS 9 with an updated classification of amortized
cost
|
For financial
liabilities, IFRS 9 retains most of the IAS 39 requirements. We did
not choose the option of designating any financial liabilities at
FVTPL as such, the adoption of IFRS 9 did not impact our accounting
policies for financial liabilities as all liabilities continue to
be measured at amortized cost.The impairment of financial assets
under IFRS 9 is based on an expected credit loss (ECL) model, as
opposed to the incurred loss model in IAS 39. IFRS 9 applies to
financial assets measured at amortized cost, including contract
assets under IFRS 15, and requires that we consider factors that
include historical, current and forward-looking information when
measuring the ECL. We use the simplified approach for measuring
losses based on the lifetime ECL for trade receivables and contract
assets. Amounts considered uncollectible are written off and
recognized in operating, general and administrative expenses in the
Consolidated Statement of Income. This change did not have a
significant impact to our receivables.IFRS 9 does not fundamentally
change the types of hedging relationships or the requirements to
measure and recognize ineffectiveness; however, it requires us to
ensure that the hedge accounting relationships are aligned with our
risk management objective and strategy and to apply a more
qualitative and forward-looking approach to assess hedge
effectiveness. It also requires that amounts related to cash flow
hedges of anticipated purchases of non-financial assets settled
during the period to be reclassified from accumulated other
comprehensive income to the initial cost of the non-financial asset
when it is recognized. Under IAS 39, when an anticipated
transaction was subsequently recorded as a non-financial asset, the
amounts were reclassified from other comprehensive income (loss).In
accordance with IFRS 9’s transition provisions for hedge
accounting, the Company has applied the IFRS 9 hedge accounting
requirements prospectively from the date of initial application
without restatement of prior period comparatives. The Company’s
qualifying hedging relationships in place as at August 31, 2018
also qualified for hedge accounting in accordance with IFRS 9 and
were therefore regarded as continuing hedging relationships. As the
critical terms of the hedging instruments match those of their
corresponding hedged items, all hedging relationships continue to
be effective under IFRS 9’s effectiveness assessment requirements.
The Company has not designated any hedging relationships under IFRS
9 that would not have met the qualifying hedge accounting criteria
under IAS 39. |
c)
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 pronouncement is being assessed to
determine their impact on the Company’s results and financial
position.
- 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.This new standard is described in our 2018 consolidated
financial statements. We continue to assess the impact of this
standard on our consolidated financial statements and we are
progressing with the implementation of this standard. As at the
date of these interim financial statements, there have been no
significant changes to the disclosure related to the implementation
of this standard that was included in our 2018 financial
statements. We intend to disclose the estimated financial effects
of the adoption of IFRS 16 in our 2019 annual audited consolidated
financial statements.
d)
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 the Company’s consolidated financial
statements for the year ended August 31, 2018 for further
information regarding the Company’s discontinued operations.
e)
Change in accounting policy
Effective September 1, 2018, the Company
voluntarily changed its accounting policy related to the treatment
of digital cable terminals (“DCTs”) to record them as property,
plant and equipment rather than inventory upon acquisition. The
Company believes that the change in accounting policy will result
in clearer and more relevant financial information as the Company
has recently changed its offerings to customers, which has resulted
in DCTs being predominantly rented rather than sold to customers.
Previously, inventories included DCTs which were held pending
rental or sale to the customer at cost or at a subsidized price.
When the subscriber equipment was rented, it was transferred to
property, plant and equipment and amortized over its useful life
and then removed from capital and returned to inventory when
returned by a customer. Under the new policy, all DCTs will be
classified as property, plant and equipment regardless of whether
or not they are currently deployed to a customer as the Company
believes that this better reflects the economic substance of its
operations. This change in accounting policy has been applied
retrospectively. Refer to note 2(f) - “Transition adjustments”
below for the impact of this change of accounting policy on
previously reported consolidated Statements of Financial Position,
consolidated Statements of Income and consolidated Statements of
Cash Flows.
f) Transition
adjustments
Below is the effect of transition to IFRS 15 and
adoption of our new accounting policy described above on our
condensed consolidated Statements of Income for the three months
ended November 30, 2017.
|
Three months ended November 30, 2017 |
|
As |
|
IFRS 15 |
|
Change in |
|
Subsequent to |
(millions
of Canadian dollars) |
reported |
|
transition |
|
accounting policy |
|
transition |
Revenue |
1,249 |
|
|
(4 |
) |
|
– |
|
|
1,245 |
|
Operating, general and
administrative expenses |
(768 |
) |
|
3 |
|
|
– |
|
|
(765 |
) |
Restructuring
costs |
– |
|
|
– |
|
|
– |
|
|
– |
|
Amortization: |
|
|
|
|
|
|
– |
|
Deferred
equipment revenue |
9 |
|
|
– |
|
|
– |
|
|
9 |
|
Deferred
equipment costs |
(30 |
) |
|
– |
|
|
– |
|
|
(30 |
) |
Property, plant and equipment, intangibles and other |
(235 |
) |
|
– |
|
|
(4 |
) |
|
(239 |
) |
Operating
income from continuing operations |
225 |
|
|
(1 |
) |
|
(4 |
) |
|
220 |
|
Amortization of financing costs – long-term debt |
(1 |
) |
|
– |
|
|
– |
|
|
(1 |
) |
Interest
expense |
(61 |
) |
|
– |
|
|
– |
|
|
(61 |
) |
Equity
income of an associate or joint venture |
30 |
|
|
– |
|
|
– |
|
|
30 |
|
Other gains |
4 |
|
|
– |
|
|
– |
|
|
4 |
|
Income from
continuing operations before income taxes |
197 |
|
|
(1 |
) |
|
(4 |
) |
|
192 |
|
Current
income tax expense |
36 |
|
|
– |
|
|
– |
|
|
36 |
|
Deferred income tax expense |
41 |
|
|
(1 |
) |
|
(1 |
) |
|
39 |
|
Net income from
continuing operations |
120 |
|
|
– |
|
|
(3 |
) |
|
117 |
|
Loss from
discontinued operations, net of tax |
(6 |
) |
|
– |
|
|
– |
|
|
(6 |
) |
Net income |
114 |
|
|
– |
|
|
(3 |
) |
|
111 |
|
Net income from
continuing operations attributable to: |
|
|
|
|
|
|
|
Equity
shareholders |
120 |
|
|
– |
|
|
(3 |
) |
|
117 |
|
Loss from
discontinued operations attributable to: |
|
|
|
|
|
|
|
Equity
shareholders |
(6 |
) |
|
– |
|
|
– |
|
|
(6 |
) |
Basic earnings
(loss) per share |
|
|
|
|
|
|
|
Continuing
operations |
0.23 |
|
|
– |
|
|
– |
|
|
0.23 |
|
Discontinued operations |
(0.01 |
) |
|
– |
|
|
– |
|
|
(0.01 |
) |
|
0.22 |
|
|
– |
|
|
– |
|
|
0.22 |
|
Diluted
earnings (loss) per share |
|
|
|
|
|
|
|
Continuing
operations |
0.23 |
|
|
– |
|
|
– |
|
|
0.23 |
|
Discontinued operations |
(0.01 |
) |
|
– |
|
|
– |
|
|
(0.01 |
) |
|
0.22 |
|
|
– |
|
|
– |
|
|
0.22 |
|
Below is the effect of transition to IFRS 15 and
adoption of our new accounting policy described above on our
condensed consolidated Statement of Financial Position as at
September 1, 2017.
|
As at September 1, 2017 |
|
As |
IFRS 15 |
Change in |
Subsequent to |
(millions
of Canadian dollars) |
reported |
transition |
accounting policy |
transition |
ASSETS |
|
|
|
|
Current |
|
|
|
|
Cash |
507 |
– |
|
– |
|
507 |
Accounts
receivable |
286 |
– |
|
– |
|
286 |
Inventories |
109 |
– |
|
(50 |
) |
59 |
Other
current assets |
155 |
24 |
|
– |
|
179 |
Current
portion of contract assets |
– |
15 |
|
– |
|
15 |
Assets held for sale |
61 |
– |
|
– |
|
61 |
|
1,118 |
39 |
|
(50 |
) |
1,107 |
Investments and other
assets |
937 |
– |
|
– |
|
937 |
Property, plant and
equipment |
4,344 |
– |
|
50 |
|
4,394 |
Other long-term
assets |
255 |
(39 |
) |
– |
|
216 |
Deferred income tax
assets |
4 |
– |
|
– |
|
4 |
Intangibles |
7,435 |
– |
|
– |
|
7,435 |
Goodwill |
280 |
– |
|
– |
|
280 |
Contract
assets |
– |
44 |
|
– |
|
44 |
|
14,373 |
44 |
|
– |
|
14,417 |
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
|
Current |
|
|
|
|
Short-term borrowings |
– |
– |
|
– |
|
– |
Accounts
payable and accrued liabilities |
913 |
(4 |
) |
– |
|
909 |
Provisions |
76 |
– |
|
– |
|
76 |
Income
taxes payable |
151 |
– |
|
– |
|
151 |
Unearned
revenue |
211 |
(211 |
) |
– |
|
- |
Current
portion of contract liabilities |
– |
214 |
|
– |
|
214 |
Current
portion of long-term debt |
2 |
– |
|
– |
|
2 |
Liabilities held for sale |
39 |
– |
|
– |
|
39 |
|
1,392 |
(1 |
) |
– |
|
1,391 |
Long-term debt |
4,298 |
– |
|
– |
|
4,298 |
Other long-term
liabilities |
114 |
– |
|
– |
|
114 |
Provisions |
67 |
– |
|
– |
|
67 |
Deferred credits |
490 |
(21 |
) |
– |
|
469 |
Contract
liabilities |
– |
21 |
|
– |
|
21 |
Deferred
income tax liabilities |
1,858 |
5 |
|
– |
|
1,863 |
|
8,219 |
4 |
|
– |
|
8,223 |
Shareholders'
equity |
|
|
|
|
Common and preferred
shareholders |
6,153 |
40 |
|
– |
|
6,193 |
Non-controlling interests in subsidiaries |
1 |
– |
|
– |
|
1 |
|
6,154 |
40 |
|
– |
|
6,194 |
|
14,373 |
44 |
|
– |
|
14,417 |
Below is the effect of transition to IFRS 15 and
adoption of our new accounting policy described above on our
condensed consolidated Statement of Financial Position as at August
31, 2018.
|
As at August 31, 2018 |
|
As |
IFRS 15 |
Change in |
Subsequent to |
(millions
of Canadian dollars) |
reported |
transition |
accounting policy |
transition |
ASSETS |
|
|
|
|
Current |
|
|
|
|
Cash |
384 |
– |
|
– |
|
384 |
Accounts
receivable |
255 |
– |
|
(2 |
) |
253 |
Inventories |
101 |
– |
|
(40 |
) |
61 |
Other
current assets |
286 |
(13 |
) |
– |
|
273 |
Current
portion of contract assets |
– |
59 |
|
– |
|
59 |
Assets held for sale |
– |
– |
|
– |
|
– |
|
1,026 |
46 |
|
(42 |
) |
1,030 |
Investments and other
assets |
660 |
– |
|
– |
|
660 |
Property, plant and
equipment |
4,672 |
– |
|
30 |
|
4,702 |
Other long-term
assets |
300 |
(102 |
) |
(1 |
) |
197 |
Deferred income tax
assets |
4 |
– |
|
– |
|
4 |
Intangibles |
7,482 |
– |
|
– |
|
7,482 |
Goodwill |
280 |
– |
|
– |
|
280 |
Contract
assets |
– |
76 |
|
– |
|
76 |
|
14,424 |
20 |
|
(13 |
) |
14,431 |
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
|
Current |
|
|
|
|
Short-term borrowings |
40 |
– |
|
– |
|
40 |
Accounts
payable and accrued liabilities |
971 |
(1 |
) |
– |
|
970 |
Provisions |
245 |
– |
|
– |
|
245 |
Income
taxes payable |
133 |
– |
|
– |
|
133 |
Unearned
revenue |
221 |
(221 |
) |
– |
|
– |
Current
portion of contract liabilities |
– |
226 |
|
– |
|
226 |
Current
portion of long-term debt |
1 |
– |
|
– |
|
1 |
Liabilities held for sale |
– |
– |
|
– |
|
– |
|
1,611 |
4 |
|
– |
|
1,615 |
Long-term debt |
4,310 |
– |
|
– |
|
4,310 |
Other long-term
liabilities |
13 |
– |
|
– |
|
13 |
Provisions |
179 |
– |
|
– |
|
179 |
Deferred credits |
460 |
(18 |
) |
– |
|
442 |
Contract
liabilities |
– |
18 |
|
– |
|
18 |
Deferred
income tax liabilities |
1,894 |
(7 |
) |
(3 |
) |
1,884 |
|
8,467 |
(3 |
) |
(3 |
) |
8,461 |
Shareholders'
equity |
|
|
|
|
Common and preferred
shareholders |
5,956 |
22 |
|
(9 |
) |
5,969 |
Non-controlling interests in subsidiaries |
1 |
– |
|
– |
|
1 |
|
5,957 |
22 |
|
(9 |
) |
5,970 |
|
14,424 |
19 |
|
(12 |
) |
14,431 |
Below is the effect of transition to IFRS 15 and
adoption of our new accounting policy described above on our
condensed consolidated Statement of Cash Flows for the three months
ended November 30, 2017.
|
Three months ended November 30, 2017 |
|
As |
|
IFRS 15 |
|
Change in |
|
Subsequent to |
(millions
of Canadian dollars) |
reported |
|
transition |
|
accounting policy |
|
transition |
OPERATING
ACTIVITIES |
|
|
|
|
|
|
|
Funds flow from
continuing operations |
384 |
|
|
(17 |
) |
|
– |
|
|
367 |
|
Net change in non-cash
balances related to continuing operations |
(17 |
) |
|
17 |
|
|
1 |
|
|
1 |
|
Operating
activities of discontinued operations |
(2 |
) |
|
– |
|
|
– |
|
|
(2 |
) |
|
365 |
|
|
– |
|
|
1 |
|
|
366 |
|
INVESTING
ACTIVITIES |
|
|
|
|
|
|
|
Additions to property,
plant and equipment |
(332 |
) |
|
– |
|
|
14 |
|
|
(318 |
) |
Additions to equipment
costs (net) |
(16 |
) |
|
– |
|
|
– |
|
|
(16 |
) |
Additions to other
intangibles |
(35 |
) |
|
– |
|
|
– |
|
|
(35 |
) |
Net additions
(reductions) to inventories |
(15 |
) |
|
– |
|
|
(15 |
) |
|
(30 |
) |
Proceeds on sale of
discontinued operations, net of cash sold |
18 |
|
|
– |
|
|
– |
|
|
18 |
|
Net additions to
investments and other assets |
23 |
|
|
– |
|
|
– |
|
|
23 |
|
Proceeds
on disposal of property, plant and equipment |
7 |
|
|
– |
|
|
– |
|
|
7 |
|
|
(350 |
) |
|
– |
|
|
(1 |
) |
|
(351 |
) |
FINANCING
ACTIVITIES |
|
|
|
|
|
|
|
Issue of Class B
Non-Voting Shares |
21 |
|
|
– |
|
|
– |
|
|
21 |
|
Dividends paid on Class
A Shares and Class B Non-Voting Shares |
(96 |
) |
|
– |
|
|
– |
|
|
(96 |
) |
Dividends
paid on Preferred Shares |
(2 |
) |
|
– |
|
|
– |
|
|
(2 |
) |
|
(77 |
) |
|
– |
|
|
– |
|
|
(77 |
) |
Increase
(decrease) in cash |
(62 |
) |
|
– |
|
|
– |
|
|
(62 |
) |
Cash,
beginning of the period |
507 |
|
|
– |
|
|
– |
|
|
507 |
|
Cash of continuing operations, end of the
period |
445 |
|
|
– |
|
|
– |
|
|
445 |
|
3.
BUSINESS SEGMENT INFORMATION
The Company’s chief operating decision makers
are the Chief Executive Officer, the President and the Executive
Vice President, Chief Financial & Corporate Development Officer
and they review the operating performance of the Company by
segments which are comprised 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.
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.
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 November 30, |
|
2018 |
|
2017 (restated, note 2) |
|
Revenue |
|
|
Wireline |
1,083 |
|
1,075 |
|
Wireless |
273 |
|
171 |
|
|
1,356 |
|
1,246 |
|
Intersegment eliminations |
(1 |
) |
(1 |
) |
|
1,355 |
|
1,245 |
|
Operating
income before restructuring costs and
amortization |
|
|
Wireline |
500 |
|
447 |
|
Wireless |
45 |
|
33 |
|
|
545 |
|
480 |
|
Restructuring
costs |
(1 |
) |
– |
|
Amortization |
(262 |
) |
(260 |
) |
Operating income |
282 |
|
220 |
|
Current
taxes |
|
|
Operating |
50 |
|
44 |
|
Other/non-operating |
(15 |
) |
(8 |
) |
|
35 |
|
36 |
|
Capital expenditures
|
Three months ended November 30, |
|
2018 |
|
2017 (restated, note 2) |
|
Capital
expenditures accrual basis |
|
|
Wireline |
195 |
|
205 |
|
Wireless |
66 |
|
116 |
|
|
261 |
|
321 |
|
Equipment costs
(net of revenue) |
|
|
Wireline |
10 |
|
18 |
|
Capital
expenditures and equipment costs (net) |
|
|
Wireline |
205 |
|
223 |
|
Wireless |
66 |
|
116 |
|
|
271 |
|
339 |
|
Reconciliation
to Consolidated Statements of Cash Flows |
|
|
Additions
to property, plant and equipment |
336 |
|
318 |
|
Additions
to equipment costs (net) |
9 |
|
16 |
|
Additions to other intangibles |
34 |
|
35 |
|
Total of
capital expenditures and equipment costs (net) per
Consolidated Statements of Cash Flows |
379 |
|
369 |
|
Increase/decrease in working capital and other liabilities
related to capital expenditures |
(109 |
) |
(24 |
) |
Decrease
in customer equipment financing receivables |
1 |
|
1 |
|
Less: Proceeds on disposal of property, plant and
equipment |
– |
|
(7 |
) |
Total capital expenditures and equipment costs (net) reported
by segments |
271 |
|
339 |
|
4.
REVENUE
Significant accounting
policies
The Company records revenue from contracts with
customers in accordance with the following five steps in IFRS 15:
(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) we satisfy a performance obligation.
Revenue for each performance obligation is
recognized either over time (i.e. services) or at a point in time
(i.e. equipment). For performance obligations satisfied over time,
revenue is recognized as the services are provided. These services
are typically provided, and recognized on a monthly basis. Revenue
for performance obligations satisfied at a point in time is
recognized when control of the item or service transfers to the
customer. Revenues on certain long-term contracts are recognized
using output methods based on products delivered, performance
completed to date and time elapsed.
For bundled arrangements (e.g. wireless
handsets, and voice and data services), items are accounted for as
separate performance obligations if the item meets the definition
of a distinct good or service. Stand-alone selling prices are
determined using observable prices adjusted for market conditions
and other factors, as appropriate.
When a customer can modify their contract within
predefined terms such that we are not able to enforce the
transaction price agreed to, but can only contractually enforce a
lower amount, we allocate revenue between performance obligations
using the minimum enforceable rights and obligations and any excess
amount is recognized as revenue as its earned.
Contract assets and liabilitiesWe record a
contract asset when we have provided goods and services to our
customer but our right to related consideration for the performance
obligation is conditional on satisfying other performance
obligations. Contract assets are transferred to trade receivables
when our right to consideration becomes conditional only as to the
passage of time. A contract liability is recognized when we receive
consideration in advance of the transfer of products or services to
the customer. We account for contract assets and liabilities on a
contract-by-contract basis, with each contract presented as either
a net contract asset or a net contract liability accordingly.
Deferred commission cost assetsWe defer the
incremental cost of obtain or fulfill a contract with a customer
over their expected period of benefit to the extent they are
recoverable. These costs include certain commissions paid to
internal and external representatives. We defer them a deferred
commission cost assets in other assets and amortize them to
operating costs over the pattern of the transfer of goods and
services to the customer, which is typically evenly over either 24
or 36 consecutive months.
Use of estimates and
judgments
The application of IFRS 15 requires Shaw to make
judgments and estimates that affect the amount and timing of
revenue from contracts with customers, including estimates of the
stand-alone selling prices of wireless products and services, the
identification of performance obligations within a contract and the
timing of satisfaction of performance obligations under long-term
contracts.
Determining the costs we incur to obtain or
fulfill a contract that meet the deferral criteria within IFRS 15
requires us to make significant judgments. We expect incremental
commission fees paid to internal and external representatives as a
result of obtaining contracts with customers to be recoverable.
Contract assets and
liabilities
The table below provides a reconciliation of the
significant changes to the current and long-term portion of
contract assets and liabilities balances during the period.
|
Contract |
|
Contract |
|
Assets |
|
Liabilities |
Opening balance, as at
September 1, 2018 |
135 |
|
|
244 |
|
Increase in contract
assets from revenue recognized during the period |
49 |
|
|
– |
|
Contract assets
transferred to trade receivables |
(38 |
) |
|
– |
|
Contract terminations
transferred to trade receivables |
(2 |
) |
|
– |
|
Revenue recognized
included in contract liabilities at the beginning of the year |
– |
|
|
(229 |
) |
Increase
in contract liabilities during the period |
– |
|
|
224 |
|
Ending
balance, as at November 30, 2018 |
144 |
|
|
239 |
|
Deferred commission cost
assets
The table below provides a summary of the
changes in the deferred commission cost assets recognized from the
incremental costs incurred to obtain contracts with customers
during the three months ended November 30, 2018 and 2017. We
believe these amounts to be recoverable through the revenue earned
from the related contracts. The deferred commission cost assets are
presented within other current assets (when they will be amortized
into net income within twelve months of the date of the financial
statements) or other long-term assets.
|
Three months ended November 30, |
|
2018 |
|
2017 |
|
Opening balance |
75 |
|
57 |
|
Additions to deferred
commission cost assets |
20 |
|
14 |
|
Amortization recognized on deferred commission cost assets |
(15 |
) |
(11 |
) |
Ending
balance |
80 |
|
60 |
|
Commission costs are amortized over a period
ranging from 24 to 36 months.
Disaggregation of revenue
|
Three months ended November 30, |
|
2018 |
|
2017 (restated, note 2) |
|
Services |
|
|
Wireline -
Consumer |
936 |
|
935 |
|
Wireline -
Business |
147 |
|
140 |
|
Wireless |
167 |
|
127 |
|
|
1,250 |
|
1,202 |
|
Equipment and
other |
|
|
Wireless |
106 |
|
44 |
|
|
106 |
|
44 |
|
Intersegment eliminations |
(1 |
) |
(1 |
) |
Total revenue |
1,355 |
|
1,245 |
|
Remaining performance
obligations
The following table includes revenues expected
to be recognized in the future related to performance obligations
that are unsatisfied (or partially unsatisfied) as at November 30,
2018.
|
Within |
Within |
|
|
1 year |
2 years |
Total |
Wireline |
707 |
259 |
966 |
Wireless |
281 |
116 |
397 |
Total |
988 |
375 |
1,363 |
When estimating minimum transaction prices
allocated to the remaining unfilled, or partially unfulfilled,
performance obligations, Shaw applied the practical expedient to
not disclose information about remaining performance obligations
that have original expected duration of one year or less and for
those contracts where we bill the same value as that which is
transferred to the customer.
5.
OTHER CURRENT ASSETS
|
November 30,
2018 |
|
August 31, 2018
(restated, note 2) |
|
$ |
|
$ |
Prepaid expenses |
135 |
|
104 |
Costs incurred to
obtain or fulfill a contract with a customer(1) |
52 |
|
48 |
Wireless
handset receivables(2) |
149 |
|
121 |
|
336 |
|
273 |
(1) Costs incurred to obtain or
fulfill a contract with a customer are capitalized and subsequently
amortized as an expense over the average life of a
customer.(2) 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, 2018, these amounts relate to the
current portion of wireless handset receivables.
6.
SHORT-TERM BORROWINGS
The Company has 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. The term of this revolving-period agreement ends on June
19, 2019.
A summary of our accounts receivable
securitization program is as follows:
|
November 30, 2018 |
|
August 31, 2018 |
|
$ |
|
$ |
Trade accounts
receivable sold to buyer as security |
443 |
|
|
429 |
|
Short-term borrowings from buyer |
(40 |
) |
|
(40 |
) |
Over-collateralization |
403 |
|
|
389 |
|
|
Three months ended November 30, |
|
2018 |
2017 |
Accounts
receivable securitization program, beginning of
period |
40 |
– |
Proceeds
received from accounts receivable securitization |
– |
– |
Repayment of accounts receivable securitization |
– |
– |
Accounts receivable securitization program, end of
period |
40 |
– |
7.
PROVISIONS
|
Asset retirement obligations |
Restructuring (1) |
Other |
Total |
|
$ |
$ |
$ |
$ |
Balance as at September
1, 2018 |
67 |
276 |
|
81 |
|
424 |
|
Additions |
– |
1 |
|
9 |
|
10 |
|
Accretion |
1 |
– |
|
– |
|
1 |
|
Reversal |
– |
– |
|
(1 |
) |
(1 |
) |
Payments |
– |
(26 |
) |
(2 |
) |
(28 |
) |
Balance as at November 30, 2018 |
68 |
251 |
|
87 |
|
406 |
|
Current |
– |
166 |
|
79 |
|
245 |
|
Long-term |
67 |
110 |
|
2 |
|
179 |
|
Balance
as at September 1, 2018 |
67 |
276 |
|
81 |
|
424 |
|
Current |
– |
187 |
|
87 |
|
274 |
|
Long-term |
68 |
64 |
|
– |
|
132 |
|
Balance as at November 30, 2018 |
68 |
251 |
|
87 |
|
406 |
|
(1) 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. A total of $26
has been paid in fiscal 2019. The remaining costs are expected to
be paid out within the next 26 months.
8.
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES AND RESTRUCTURING
COSTS
|
Three months ended November 30, |
|
2018 |
2017 (restated,
note 2) |
Employee salaries and
benefits(1) |
162 |
196 |
Purchase
of goods and services |
649 |
569 |
|
811 |
765 |
(1) For the three months ended November 30, 2018,
employee salaries and benefits include $1 (2017 - $nil) in
restructuring costs.
9.
LONG-TERM DEBT
|
|
November 30, 2018 |
|
August 31, 2018 |
|
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 |
1,249 |
1 |
1,250 |
|
1,248 |
2 |
1,250 |
5.50% due
December 7, 2020 |
5.55 |
499 |
1 |
500 |
|
499 |
1 |
500 |
3.15% due
February 19, 2021 |
3.17 |
299 |
1 |
300 |
|
299 |
1 |
300 |
3.80% due
November 2, 2023 |
3.80 |
497 |
3 |
500 |
|
– |
– |
– |
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 |
4.40% due
November 2, 2028 |
4.40 |
496 |
4 |
500 |
|
– |
– |
– |
6.75% due November 9, 2039 |
6.89 |
1,419 |
31 |
1,450 |
|
1,419 |
31 |
1,450 |
|
|
5,255 |
45 |
5,300 |
|
4,261 |
39 |
4,300 |
Other |
|
|
|
|
|
|
|
|
Burrard
Landing Lot 2 Holdings Partnership |
Various |
50 |
– |
50 |
|
50 |
– |
50 |
Total consolidated
debt |
|
5,305 |
45 |
5,350 |
|
4,311 |
39 |
4,350 |
Less
current portion(2) |
|
1,251 |
1 |
1,252 |
|
1 |
– |
1 |
|
|
4,054 |
44 |
4,098 |
|
4,310 |
39 |
4,349 |
(1) Long-term debt is presented net
of unamortized discounts and finance costs.(2) Current
portion of long-term debt includes amounts due within one year in
respect of senior notes due October 1, 2019 and the Burrard Landing
loans.
On November 2, 2018, the Company issued $500 senior notes at a
rate of 3.80% due November 2, 2023 and $500 senior notes at a rate
of 4.40% due November 2, 2028.
On November 21, 2018, the Company amended the terms of its bank
credit facility to extend the maturity date to December 2023.
10.
SHARE
CAPITAL
Changes in share capital during the year ended
November 30, 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, 2018 |
22,420,064 |
2 |
|
484,194,344 |
4,054 |
|
10,012,393 |
245 |
|
1,987,607 |
48 |
Issued upon stock
option plan exercises |
– |
– |
|
73,067 |
2 |
|
– |
– |
|
– |
– |
Issued
pursuant to dividend reinvestment plan |
– |
– |
|
2,142,987 |
53 |
|
– |
– |
|
– |
– |
November 30, 2018 |
22,420,064 |
2 |
|
486,410,398 |
4,109 |
|
10,012,393 |
245 |
|
1,987,607 |
48 |
11.
EARNINGS (LOSS)
PER SHARE
Earnings (loss) per share calculations are as follows:
|
Three months ended November 30, |
|
2018 |
|
2017 (restated,
note 2) |
|
Numerator for
basic and diluted earnings per share ($) |
|
|
Net income from
continuing operations |
187 |
|
117 |
|
Deduct:
dividends on Preferred Shares |
(2 |
) |
(2 |
) |
Net income attributable
to common shareholders from continuing operations |
185 |
|
115 |
|
Loss from
discontinued operations |
– |
|
(6 |
) |
Loss from
discontinued operations attributable to common
shareholders |
– |
|
(6 |
) |
Net
income attributable to common shareholders |
185 |
|
109 |
|
Denominator
(millions of shares) |
|
|
Weighted average number
of Class A Shares and Class B Non-Voting Shares for basic
earnings per share |
507 |
|
498 |
|
Effect of
dilutive securities (1) |
1 |
|
1 |
|
Weighted
average number of Class A Shares and Class B Non-Voting Shares
for diluted earnings per share |
508 |
|
499 |
|
Basic earnings
(loss) per share ($) |
|
|
Continuing
operations |
0.36 |
|
0.23 |
|
Discontinued operations |
– |
|
(0.01 |
) |
Attributable to common shareholders |
0.36 |
|
0.22 |
|
Diluted
earnings (loss) per share ($) |
|
|
Continuing
operations |
0.36 |
|
0.23 |
|
Discontinued operations |
– |
|
(0.01 |
) |
Attributable to common shareholders |
0.36 |
|
0.22 |
|
(1) The earnings per share
calculation does not take into consideration the potential dilutive
effect of certain stock options since their impact is
anti-dilutive. For the three months ended November 30, 2018,
6,976,976 (2017 – 2,383,853) options were excluded from the diluted
earnings per share calculation.
12.
OTHER
COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE
LOSS
Components of other comprehensive income and the
related income tax effects for the year ended November 30,
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 |
Share of other comprehensive income of
associates |
1 |
– |
|
1 |
|
2 |
– |
|
2 |
Items that will not be subsequently reclassified to
income |
|
|
|
Remeasurements on employee benefit plans: |
|
|
|
Continuing operations |
12 |
(3 |
) |
9 |
|
14 |
(3 |
) |
11 |
Components of other comprehensive income and the
related income tax effects for the three months ended November 30,
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 |
7 |
|
(2 |
) |
5 |
|
Adjustment for hedged items recognized in the
period |
1 |
|
– |
|
1 |
|
Share of other comprehensive income of
associates |
(1 |
) |
– |
|
(1 |
) |
|
7 |
|
(2 |
) |
5 |
|
Items that will not be subsequently reclassified to
income |
|
|
|
Remeasurements on employee benefit plans: |
|
|
|
Continuing operations |
(15 |
) |
4 |
|
(11 |
) |
|
(8 |
) |
2 |
|
(6 |
) |
Accumulated other comprehensive loss is comprised of the
following:
|
November 30, 2018 |
|
August 31, 2018 |
|
$ |
|
$ |
Items that may
subsequently be reclassified to income |
|
|
|
Continuing operations: |
|
|
|
Change in unrealized
fair value of derivatives designated as cash flow hedges |
2 |
|
|
– |
|
Share of
other comprehensive income of associates |
18 |
|
|
18 |
|
|
|
|
|
Items that will
not be subsequently reclassified to income |
|
|
|
Remeasurements on employee benefit plans: |
|
|
|
Continuing operations |
(48 |
) |
|
(57 |
) |
|
(28 |
) |
|
(39 |
) |
13.
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 November 30, |
|
2018 |
|
2017 (restated, note 2) |
|
Net income from
continuing operations |
187 |
|
117 |
|
Adjustments to
reconcile net income to funds flow from operations: |
|
|
Amortization |
263 |
|
261 |
|
Deferred
income tax expense |
20 |
|
39 |
|
Share-based compensation |
1 |
|
1 |
|
Defined
benefit pension plans |
3 |
|
4 |
|
Equity
income of an associate or joint venture |
(23 |
) |
(30 |
) |
Net
change in contract asset balances |
(10 |
) |
(26 |
) |
Other |
(2 |
) |
1 |
|
Funds
flow from continuing operations |
439 |
|
367 |
|
(ii)
Interest and
income taxes paid and interest received and classified as operating
activities are as follows:
|
|
|
|
|
|
|
Three months ended November 30, |
|
2018 |
2017 |
Interest paid |
87 |
89 |
Income taxes paid (net
of refunds) |
52 |
113 |
Interest
received |
1 |
1 |
(iii)
Non-cash
transactions:
The Consolidated Statements of Cash Flows
exclude the following non-cash transactions:
|
Three months ended November 30, |
|
2018 |
2017 |
Issuance of Class B
Non-Voting Shares: |
|
|
Dividend reinvestment plan |
53 |
52 |
14.
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:
- Current assets and current liabilitiesThe fair value of
financial instruments included in current assets and current
liabilities approximates their carrying value due to their
short-term nature.
- Investments and other assets and other long-term assetsThe 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.
- Long-term debtThe 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.
- Other long-term liabilitiesThe 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.
- Derivative financial instrumentsThe 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:
|
November 30, 2018 |
|
August 31, 2018 |
|
Carrying
value |
Estimated
fair value |
|
Carrying value |
Estimated fair
value |
|
$ |
$ |
|
$ |
$ |
Liabilities |
|
|
|
|
|
Long-term
debt (including current portion)(1) |
5,305 |
5,656 |
|
4,311 |
4,788 |
(1) Level 2 fair value – determined
by valuation techniques using inputs based on observable market
data, either directly or indirectly, other than quoted
prices.
15.
INVESTMENTS AND
OTHER ASSETS
Corus Entertainment Inc.
At November 30, 2018, the Company owned
80,630,383 (2017 – 80,630,383) Corus Class B shares having a market
value of $398 (2017 - $944) 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 November 30, 2018 was 38% (2017 – 39%). For the three months
ended November 30, 2018, the Company received dividends of $nil
(2017 - $23) from Corus.
|
November 30, 2018 |
|
August 31, 2018 |
Current assets |
610 |
|
|
508 |
|
Non-current assets |
4,372 |
|
|
4,375 |
|
Current
liabilities |
(590 |
) |
|
(523 |
) |
Non-current liabilities |
(2,653 |
) |
|
(2,683 |
) |
Net assets |
1,739 |
|
|
1,677 |
|
Less:
non-controlling interests |
(155 |
) |
|
(154 |
) |
|
1,584 |
|
|
1,523 |
|
Carrying
amount of the investment less accumulated impairment losses |
639 |
|
|
615 |
|
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 November 30, |
|
2018 |
2017 |
|
Revenue |
467 |
457 |
|
Net income attributable
to: |
|
|
Shareholders |
61 |
78 |
|
Non-controlling interest |
6 |
7 |
|
|
67 |
85 |
|
Other
comprehensive income (loss), attributable to
shareholders |
2 |
(3 |
) |
Comprehensive income |
69 |
82 |
|
Equity income from
associates(1) |
23 |
30 |
|
Other
comprehensive income (loss) from equity accounted
associates(1) |
1 |
(1 |
) |
|
24 |
29 |
|
(1) 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 month periods ended
November 30, 2018 and 2017.
16.
SUBSEQUENT
EVENT
On December 4, 2018, the Company entered into new unsecured
letter of credit facilities, under which letters of credit were
issued in favour of and filed with Innovation, Science and Economic
Development Canada (“ISED”) to fulfill the pre-auction financial
deposit requirement with respect to its application to participate
in the 600 MHz spectrum auction to be held in March 2019. Under the
terms of ISED’s 600 Mhz auction, communications between bidders
that would provide insights into bidding strategies, including
references to preferred blocks, technologies or valuations are
precluded until the deadline for the final payment. Disclosure of
the precise amount of the letters of credit could be interpreted as
a signal of bidding intentions.
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