- Consolidated operating income
before restructuring costs and amortization1 improved
3.8% year-over-year, excluding certain one-time
adjustments
- Strong Wireless results
with approximately 62,000 total net additions and record low
postpaid churn as the Company deploys spectrum and network into new
markets
- Acquired 600 MHz spectrum
for a total price of $492 million, or $0.78 per MHz-Pop, including
30 MHz across each of British Columbia, Alberta and Southern
Ontario as well as 20 MHz in Eastern Ontario, that will be used to
improve existing LTE service and lay the foundation for
5G
- Completed the sale of 80.6
million Class B non-voting participating shares of Corus
Entertainment Inc. for net proceeds of approximately $526
million
CALGARY, Alberta, June 27, 2019 (GLOBE NEWSWIRE)
-- Shaw Communications Inc. (“Shaw” or the
“Company”) announces consolidated financial and operating results
for the quarter ended May 31, 2019, reported in accordance with the
newly adopted IFRS 15 accounting standard, Revenue from
contracts with customers (IFRS 15). Consolidated revenue
increased by 2.7% to $1.32 billion compared to the third quarter in
fiscal 2018 and operating income before restructuring costs and
amortization decreased 1.5% year-over-year to $530 million.
Excluding adjustments related to a $13 million retroactive roaming
benefit in the third quarter of fiscal 2018 and a $15 million
payment to address certain intellectual property (IP) licensing
matters in the third quarter of fiscal 2019, consolidated operating
income before restructuring costs and amortization increased 3.8%
to $545 million in the quarter.
“Freedom Mobile maintained its strong momentum
in the quarter, growing wireless subscribers and operating margin.
We are reaching more Canadians with our affordable data-centric
plans, expanded retail and consumer friendly practices, all of
which are changing the competitive landscape. The deployment of low
band spectrum is significantly enhancing the customer experience
and consistently reducing churn. With our successful acquisition of
600 MHz spectrum across our entire wireless operating footprint, we
can continue to improve our network experience and provide
affordable options for our customers,” said Brad Shaw, Chief
Executive Officer.
Wireless results for the third quarter include
postpaid net subscriber additions of approximately 61,000, and
prepaid net additions of approximately 800. In April, the Company
launched new prepaid service plans that are better aligned with
current market offers to attract new subscribers and grow this
customer segment. Third quarter prepaid subscriber results
demonstrate the significant improvement from prepaid losses in both
the prior year and prior quarter. The Company continues to focus on
improving its customer experience through the deployment of 700 MHz
spectrum, resulting in an 18-basis point reduction year-over-year
in postpaid customer churn to a record low 1.18%.
Third quarter Wireline performance reflects
improved Consumer Internet subscriber growth of approximately 6,600
RGUs, offset by continued Video and Phone RGU losses, resulting in
stable year-over-year Consumer revenue. The Business division
delivered consistent top-line growth with revenue increasing 6.4%
in the quarter as the penetration of the SmartSuite of services
continues to grow.
On April 4th, the Company unveiled
Shaw BlueCurve, a technology that provides customers greater
control over their home Wi-Fi experience through the BlueCurve Home
app and Pods. The launch of Shaw BlueCurve technology is aligned
with the Company’s strategic initiative regarding a more agile,
innovative, and customer-centric approach to modernizing all
aspects of its operations, including a more efficient delivery of
products and services. Building on the BlueCurve gateway modem, the
Company launched IPTV in Calgary in May and will continue to make
this service available to additional markets over the coming
months.
During the quarter, we entered into a multi-year
IP agreement with a large IP licensing company. With this
agreement, we will gain broader access to next-generation video IP
offerings across all our platforms. In conjunction with this
agreement, we paid approximately $15 million to address certain
licensing matters. Excluding the $15 million payment, Wireline
operating income before restructuring costs and amortization
increased 1.0% compared to the third quarter fiscal 2018
results.
“Our Wireline division is delivering solid and
consistent financial and subscriber performance in fiscal 2019. We
continue to improve Consumer broadband net additions through
increased speeds and innovative new products. The launch of Shaw
BlueCurve is the latest way in which we are delivering more value
to our customers with speed, coverage and control. Our BlueCurve
platform is the foundation on which we will continue to introduce
more innovations and drive broadband growth,” said Mr. Shaw.
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 May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars except per share
amounts) |
2019 |
|
2018
(restated)(1) |
Change % |
|
2019 |
|
2018
(restated)(1) |
Change % |
Revenue |
1,324 |
|
1,289 |
|
2.7 |
|
|
3,995 |
|
3,863 |
|
3.4 |
Operating income before
restructuring costs and amortization(2) |
530 |
|
538 |
|
(1.5 |
) |
|
1,624 |
|
1,501 |
|
8.2 |
Operating
margin(2) |
40.0 |
% |
41.7 |
% |
(4.1 |
) |
|
40.7 |
% |
38.9 |
% |
4.6 |
Free cash
flow(2) |
176 |
|
167 |
|
5.4 |
|
|
500 |
|
355 |
|
40.8 |
Net income (loss) from
continuing operations |
229 |
|
(99 |
) |
>100.0 |
|
571 |
|
(157 |
) |
>100.0 |
Net loss from
discontinued operations, net of tax |
– |
|
– |
|
– |
|
|
– |
|
(6 |
) |
100.0 |
Net income (loss) |
229 |
|
(99 |
) |
>100.0 |
|
571 |
|
(163 |
) |
>100.0 |
Basic earnings (loss) per
share |
0.44 |
|
(0.20 |
) |
|
|
1.10 |
|
(0.34 |
) |
|
Diluted
earnings (loss) per share |
0.44 |
|
(0.20 |
) |
|
|
1.10 |
|
(0.34 |
) |
|
(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 them as
property, plant and equipment rather than 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
62,000 net Wireless RGUs, consisting of 61,300 postpaid and 800
prepaid additions. The continued increase in the postpaid
subscriber base reflects customer demand for the Big Gig
data-centric pricing and packaging options. The increase in the
prepaid customer base reflects the new plans that were launched in
the market in early April.
Wireless service revenue for the three-month
period increased by 22% to $178 million over the comparable period
in fiscal 2018 due to the growing penetration of Big Gig data
plans. Wireless equipment revenue decreased by 9% to $73 million as
a higher proportion of customers elected the Bring Your Own Device
(“BYOD”) option compared to the prior period. Third quarter ABPU
grew approximately 6.2% year-over-year to $42.30 reflecting the
increased number of customers that are subscribing to higher
service plans and have purchased a device through Freedom Mobile.
Wireless ARPU grew 2.2% to $38.36 reflecting the promotions in the
market and increase in prepaid customers.
Wireless operating income before restructuring
costs and amortization of $55 million improved 3.8%
year-over-year. Excluding the $13 million benefit from retroactive
roaming rates recognized in the third quarter of fiscal 2018,
operating income before restructuring costs and amortization grew
38% due primarily to increased service revenue and improved
efficiencies from additional scale.
Wireline RGUs declined by approximately 35,100
in the quarter compared to a loss of approximately 14,400 in the
third quarter of fiscal 2018. The current quarter includes growth
in Consumer Internet RGUs of approximately 6,600 whereas the mature
products within the Consumer division, including Video, Satellite
and Phone declined in the aggregate by 42,600 RGUs. The Company
remains focused on growing broadband subscribers, primarily through
two-year ValuePlans, and on attracting and retaining high quality
video subscribers which supports its consumer profitability
objectives.
Third quarter Wireline revenue and operating
income before restructuring costs and amortization of $1,075
million and $475 million increased by 1.0% and decreased 2.1%
year-over-year, respectively. Excluding the $15 million licensing
payment, Wireline operating income before restructuring costs and
amortization increased 1.0% to approximately $490 million. Consumer
revenue remained flat at $925 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 6.4%
year-over-year to $150 million, reflecting continued demand
for the SmartSuite of business products.
Capital expenditures in the third quarter of
$280 million compared to $308 million a year ago. Wireline
capital spending decreased by approximately $47 million primarily
due to lower network investments and success-based customer premise
equipment. Wireless spending increased by approximately $19 million
year-over-year due to continued deployment of 700 MHz spectrum and
expansion of the wireless network into new markets.
Free cash flow for the quarter of
$176 million compared to $167 million in the prior year.
The increase was largely due to lower capital expenditures and
lower cash taxes, offset in part by lower operating income before
restructuring costs and amortization and lower dividends received
from equity accounted associates.
Net income for the third quarter of fiscal 2019
of $229 million compared to a net loss of $99 million in
the third quarter of fiscal 2018. The increase of $328 million was
primarily due to a lower loss associated with the investment in
Corus, a deferred tax benefit associated with the future reduction
in Alberta’s corporate tax rate announced in May 2019, and gains on
the dispositions of certain real estate holdings and minor
investments in fiscal 2019.
In the third quarter of fiscal 2019,
approximately 350 employees exited the Company, bringing the total
number of employees who departed under the Voluntary Departure
Program (“VDP”) to approximately 2,060 since the program commenced
in March 2018. On a year-to-date basis, the Company has achieved
operating cost savings of approximately $73 million and
capital cost savings of approximately $25 million. 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 is refining its fiscal 2019 guidance
which excludes the $15 million payment to address certain IP
licensing matters. It expects consolidated operating income before
restructuring costs and amortization growth of approximately 6%
over fiscal 2018; capital investments of approximately $1.2
billion; and free cash flow of approximately $550 million. The
Company’s guidance includes assumptions related to cost savings
that will be achieved through the TBT initiative (specifically the
VDP savings) that have also been refined and are expected to amount
to a combined $135 million in fiscal 2019 which is materially in
line with the $140 million original estimate. The savings during
the fiscal year are now expected to be approximately $95 million
attributed to operating expenses and approximately $40 million
attributed to capital expenditures, which represents a minor shift
from original guidance. See also “Caution Concerning Forward
Looking Statements” in the accompanying MD&A.
Mr. Shaw concluded, “We continue to deliver
results that are consistent with our overall plan for fiscal 2019.
Through our unwavering focus on execution, we are growing our
wireless and broadband customers, managing through the VDP exits
and making the appropriate investments to capitalize on future
growth. During the quarter, we also completed two significant
transactions that are aligned with our strategic focus, including
the purchase of 600 MHz spectrum and the sale of our Corus
investment. Considering both of the transactions, our balance sheet
continues to be strong with leverage at the low end of our target
range.”
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, RGUs and Wireless
Postpaid Churn under “Key Performance Drivers” in the accompanying
MD&A.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and nine months ended May 31,
2019
June 27, 2019
Contents
Introduction |
8 |
Selected financial and operational highlights |
11 |
Overview |
14 |
Outlook |
16 |
Non-IFRS and additional GAAP measures |
16 |
Discussion of operations |
20 |
Supplementary quarterly financial information |
23 |
Other income and expense items |
24 |
Financial position |
26 |
Liquidity and capital resources |
27 |
Accounting standards |
30 |
Related party transactions |
39 |
Financial instruments |
39 |
Internal controls and procedures |
39 |
Risks and uncertainties |
40 |
Government Regulations and Regulatory |
40 |
Advisories
The following Management’s Discussion and
Analysis (“MD&A”) of Shaw Communications Inc. is dated June 27,
2019 and should be read in conjunction with the unaudited interim
Consolidated Financial Statements and Notes thereto for the quarter
ended May 31, 2019 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;
- competitive strengths;
- expected project schedules,
regulatory timelines, completion/in-service dates for the Company’s
capital and other projects;
- the expected number of retail
outlets;
- the expected impact of new
accounting standards, recently adopted or expected to be adopted in
the future;
- the expected impact of government
regulations or regulatory developments on the Company’s business,
operations, and/or financial performance;
- timing of new product and service
launches;
- 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;
- the expected growth in the
Company’s market share;
- the 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);
- 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 employee exits will
have on Shaw’s business operations;
- the outcome of the TBT initiative,
including the timing thereof and the total savings at completion;
and
- the 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 and
legislation;
- 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;
- 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;
- disruptions to service, including
due to network failure or disputes with key suppliers;
- 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 2019, we continue to deliver results
that are consistent with our overall plan by executing on our
operating priorities. Through our unwavering focus on execution, we
are growing our wireless and broadband customers, identifying
sustainable cost savings in our core Wireline business, and making
the appropriate investments to capitalize on future growth. The
disposal of our equity investment in Corus Entertainment Inc.
(“Corus”) in the quarter, further solidifies our balance sheet and
allows us to continue our transformation into an agile, lean and
digital-first organization that is focused on providing a seamless
connectivity experience 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 17 million
people in some of Canada’s largest urban centres, or almost half of
the Canadian population. In the first three quarters of fiscal
2019, we launched in a number of new markets including Victoria,
British Columbia and Red Deer, Alberta in February, and six
additional communities in Eastern Ontario in March.
Freedom Mobile maintained its strong momentum in
the quarter, growing wireless subscribers and operating margin.
The growth and retention of our subscriber base and improving
financial performance reflect the appeal of our differentiated
value proposition. Our affordable and innovative Big Gig data
plans, combined with the latest devices available in the market,
continue to attract high lifetime value customers to Freedom
Mobile. In April, the Company launched new prepaid service plans
that are better aligned with current market offers in order to
attract new subscribers and grow this customer segment. Early
results indicate that the new plans are having an impact on
subscriber results. In addition, our Wireless service is accessible
to more Canadians through the addition of approximately
240 locations in 2018, with national retail partners including
Loblaws’ “The Mobile Shop” and Walmart. When combined with our
existing corporate and dealer store network, Freedom Mobile expects
to have over 650 retail locations operational at the end of 2019.
As we continue to reach more Canadians with our affordable
data-centric plans, expanded retail presence and consumer friendly
practices, we are changing the competitive landscape.
Supporting our Wireless revenue growth and
improved Wireless postpaid churn results are the significant
investments in our network and customer service capabilities. We
are executing a step-by-step operating plan to improve our network
and deploy spectrum in the most efficient way. We continue to
deploy our Extended Range LTE in Calgary, Edmonton, Vancouver and
Southwestern Ontario, which leverages our 700 MHz spectrum to
provide customers with improved in-building service as well as
extending service at the edge of the current coverage area. The
deployment of the 700 MHz spectrum is expected to continue
throughout fiscal 2019 and 2020. With our successful acquisition of
600 MHz spectrum across our entire wireless operating footprint, we
can continue to improve our network experience and provide
affordable options for our customers.
The Company also continues to deploy small cell
technology (low-powered wireless transmitters and receivers with a
range of 100 meters to 200 meters), 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 by significantly
enhancing the customer experience while consistently reducing churn
and are the building blocks for emerging technologies, such as
5G.
Wireline
We continue to focus on the execution and
delivery of stable and profitable Wireline results. This includes
growing broadband subscribers, primarily through two-year
ValuePlans, and attracting and retaining high lifetime value video
subscribers which support our consumer profitability
objectives.
Our team is modernizing several 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,
including the recently introduced Shaw BlueCurve Home app and Pods.
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. We have
deployed DOCSIS 3.1 over our extensive wireline network to give us
the ability to deliver gigabit speeds across virtually all of our
cable footprint. As the key product in the customer’s home, our
broadband service has a significant and cost-effective competitive
advantage.
We remain focused on growing our Wireline
broadband customer base and improving execution. In the third
quarter, we added approximately 6,600 Consumer Internet subscribers
and significantly improved Wireline profitability through
disciplined cost control, including the execution of the VDP. While
we are only part of the way through our journey towards a modern
Shaw, we are encouraged by the progress we have made as we improve
upon the fundamentals of our Wireline business, further supporting
the delivery of our broadband strategy through fiscal 2019.
The Company has announced several significant
Wireline enhancements related to its broadband service for its
customers. In late November, Shaw doubled Internet speeds of its
top residential tiers and, in April, the Company unveiled Shaw
BlueCurve, a technology that provides customers greater control
over their home Wi-Fi experience through the BlueCurve Home app and
Pods.
Shaw BlueCurve is a simple and powerful new
technology that gives customers more coverage and greater control
over their home Wi-Fi experience while at the same time helping
redefine their relationship with in-home connected devices. The
BlueCurve Home app is the latest innovative product that Shaw has
introduced to market through its partnership with Comcast, and it
is available with Shaw’s BlueCurve Gateway modem – the hub of our
customers’ in-home content and connectivity experience. Shaw
BlueCurve Pods expand in-home coverage by creating a mesh Wi-Fi
network which blankets your home with wireless coverage and reduces
the challenges of Wi-Fi dead spots.
The launch of Shaw BlueCurve technology is
aligned with the Company’s strategic initiative regarding a more
agile, innovative, and customer-centric approach to modernizing all
aspects of its operations, including a more efficient delivery of
products and services. Building on the BlueCurve gateway modem, the
Company launched IPTV in Calgary in May and will continue to make
this service available to additional markets over the coming
months.
We are capitalizing on the network investments
that we have made, and continue to make, in pursuit of providing
customers with an enhanced connectivity experience. The launch of
Shaw BlueCurve is the latest way in which we are delivering more
value to our customers with speed, coverage and control. Our
BlueCurve platform is the foundation on which we will continue to
introduce more innovations and, through this enhanced customer
experience, we can more effectively differentiate ourselves from
the competition and drive broadband growth, while building upon our
journey to a modern Shaw.
Our Wireline Business division contributed solid
results again this quarter, 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. Shaw Business customers will also benefit
from speed increases that are now eligible on Business Internet and
SmartWiFi 150 and 300 plans moving to 300Mbps and 600Mbps,
respectively. Shaw Business also announced the launch of gigabit
download speeds, which will help customers keep up with the demands
of their growing businesses.
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 into
an agreement to sell a group of assets comprising the operations of
Shaw Tracking, a fleet tracking operation reported within the
Company’s Wireline segment, 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 May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars except per share
amounts) |
2019 |
|
2018
(restated)(1) |
Change % |
|
2019 |
|
2018
(restated)(1) |
Change % |
Operations: |
|
|
|
|
|
|
|
Revenue |
1,324 |
|
1,289 |
|
2.7 |
|
|
3,995 |
|
3,863 |
|
3.4 |
Operating income before restructuring costs and
amortization(2) |
530 |
|
538 |
|
(1.5 |
) |
|
1,624 |
|
1,501 |
|
8.2 |
Operating margin(2) |
40.0 |
% |
41.7 |
% |
(4.1 |
) |
|
40.7 |
% |
38.9 |
% |
4.6 |
Net income (loss) from continuing operations |
229 |
|
(99 |
) |
>100.0 |
|
571 |
|
(157 |
) |
>100.0 |
Loss from discontinued operations, net of tax |
– |
|
– |
|
– |
|
|
– |
|
(6 |
) |
100.0 |
Net income (loss) |
229 |
|
(99 |
) |
>100.0 |
|
571 |
|
(163 |
) |
>100.0 |
Per share
data: |
|
|
|
|
|
|
|
Basic earnings (loss) per
share |
|
|
|
|
|
|
|
Continuing operations |
0.44 |
|
(0.20 |
) |
|
|
1.10 |
|
(0.33 |
) |
|
Discontinued operations |
– |
|
– |
|
|
|
– |
|
(0.01 |
) |
|
|
0.44 |
|
(0.20 |
) |
|
|
1.10 |
|
(0.34 |
) |
|
Diluted earnings (loss) per
share |
|
|
|
|
|
|
|
Continuing operations |
0.44 |
|
(0.20 |
) |
|
|
1.10 |
|
(0.33 |
) |
|
Discontinued operations |
– |
|
– |
|
|
|
– |
|
(0.01 |
) |
|
|
0.44 |
|
(0.20 |
) |
|
|
1.10 |
|
(0.34 |
) |
|
Weighted average participating shares for basic earnings per share
outstanding during period (millions) |
512 |
|
503 |
|
|
|
510 |
|
500 |
|
|
Funds flow from continuing
operations(3) |
471 |
|
437 |
|
7.8 |
|
|
1,354 |
|
755 |
|
79.3 |
Free
cash flow(2) |
176 |
|
167 |
|
5.4 |
|
|
500 |
|
355 |
|
40.8 |
(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 them as
property, plant and equipment rather than 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 revenue, 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 defined below) as key performance
indicators.
Subscriber (or revenue
generating unit (“RGU”)) highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
Change |
|
|
|
Three months ended |
|
Nine months ended |
|
May 31,
2019 |
August 31,
2018 |
May 31,
2019 |
May 31,
2018 |
|
May 31,
2019 |
May 31,
2018 |
Wireline – Consumer |
|
|
|
|
|
|
|
Video – Cable |
1,508,208 |
1,585,232 |
(24,303 |
) |
(16,332 |
) |
|
(77,024 |
) |
(52,055 |
) |
Video – Satellite |
715,017 |
750,403 |
3,134 |
|
9,066 |
|
|
(35,386 |
) |
(15,740 |
) |
Internet |
1,900,302 |
1,876,944 |
6,647 |
|
(3,754 |
) |
|
23,358 |
|
19,416 |
|
Phone |
795,457 |
853,847 |
(21,517 |
) |
(13,264 |
) |
|
(58,390 |
) |
(45,524 |
) |
Total Consumer |
4,918,984 |
5,066,426 |
(36,039 |
) |
(24,284 |
) |
|
(147,442 |
) |
(93,903 |
) |
Wireline – Business |
|
|
|
|
|
|
|
Video – Cable |
43,586 |
49,606 |
(4,301 |
) |
(251 |
) |
|
(6,020 |
) |
(1,356 |
) |
Video – Satellite |
35,593 |
34,831 |
(626 |
) |
531 |
|
|
762 |
|
1,349 |
|
Internet |
173,094 |
172,859 |
427 |
|
813 |
|
|
235 |
|
481 |
|
Phone |
374,765 |
354,912 |
5,368 |
|
8,766 |
|
|
19,853 |
|
19,518 |
|
Total Business |
627,038 |
612,208 |
868 |
|
9,859 |
|
|
14,830 |
|
19,992 |
|
Total Wireline |
5,546,022 |
5,678,634 |
(35,171 |
) |
(14,425 |
) |
|
(132,612 |
) |
(73,911 |
) |
Wireless |
|
|
|
|
|
|
|
Postpaid |
1,241,736 |
1,029,720 |
61,279 |
|
54,189 |
|
|
212,016 |
|
180,747 |
|
Prepaid |
336,619 |
373,138 |
820 |
|
(7,530 |
) |
|
(36,519 |
) |
(10,076 |
) |
Total Wireless |
1,578,355 |
1,402,858 |
62,099 |
|
46,659 |
|
|
175,497 |
|
170,671 |
|
Total Subscribers |
7,124,377 |
7,081,492 |
26,928 |
|
32,234 |
|
|
42,885 |
|
96,760 |
|
In Wireless, the Company continued to add
subscribers, gaining a net combined 62,099 postpaid and prepaid
subscribers in the quarter. The continued increase in the postpaid
subscriber base reflects our expanding and improving network and
customer demand for the Big Gig data-centric pricing and packaging
options. The increase in the prepaid customer base reflects the new
plans that were launched in the market in early April.
Wireline RGUs declined by 35,171 in the quarter
compared to a loss of 14,425 RGUs in the third quarter of 2018. The
current quarter includes growth in Consumer Internet RGUs of
approximately 6,600 whereas the mature products within the Consumer
division, including Video, Satellite and Phone declined in
aggregate by 42,600 RGUs. The Company remains focused on growing
broadband subscribers, primarily through two-year ValuePlans, and
on attracting and retaining high lifetime value video subscribers
which support its consumer profitability objectives.
Wireless Postpaid Churn
To assist in understanding the performance of
our Wireless business, this fiscal year we commenced disclosing
Wireless postpaid subscriber or RGU churn (“postpaid churn”).
Subscriber churn measures success in retaining subscribers.
Wireless 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 1.18% in the third quarter of
fiscal 2019 compares to 1.36% in the third quarter of fiscal 2018
reflecting the significant and ongoing enhancements to the wireless
customer experience including our expanding and improving network
and the Big Gig data-centric pricing and packaging
options.
Wireless average billing per
subscriber unit (“ABPU”)
To assist in understanding the underlying
economics of our Wireless business, this fiscal year we commenced
disclosing Wireless average billing per subscriber per month
(“ABPU”). This measure is an industry metric that is useful in
assessing the operating performance of a wireless entity. 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 measures 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 subscribers on the network during the period and
is expressed as a rate per month.
ABPU of $42.30 in the third quarter of fiscal
2019 compares to $39.84 in the third quarter of fiscal 2018,
reflecting the increased number of customers that are subscribing
to higher value service plans and purchasing a device through
Freedom Mobile.
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 also helps to identify
trends and measure the Company’s success in attracting and
retaining higher-value subscribers.
ARPU of $38.36 in the third quarter of fiscal
2019 compares to $37.54 in the third quarter of fiscal 2018 and
reflects the impact of 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
now partially 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 third quarter
of fiscal 2019 of $1.32 billion increased $35 million or 2.7%
from $1.29 billion for the third quarter of fiscal 2018,
highlighted by the following:
- The year-over-year increase in
revenue was primarily due to a $25 million or 11.1% increase in the
Wireless division driven by higher service revenues which
contributed an incremental $32 million or 21.9% to
consolidated revenue primarily due to higher postpaid RGUs
(approximately 297,000 since May 31, 2018) and a 6.2% and 2.2%
year-over-year increase in ABPU to $42.30 and ARPU to $38.36,
respectively. This was partially offset by a $7 million or 8.8%
decrease in equipment revenue compared to the third quarter of
fiscal 2018.
- The Business division contributed
$9 million or 6.4% growth over the third quarter of fiscal
2018 to consolidated revenue reflecting continued demand for the
SmartSuite of business products.
- Consumer division revenue for the
quarter increased $2 million or 0.2% compared to the third quarter
of fiscal 2018 as contributions from rate adjustments and growth in
Internet revenue were offset by declines in Video, Satellite and
Phone subscribers and revenue.
Compared to the second quarter
of fiscal 2019, consolidated revenue for the quarter increased 0.6%
or $8 million. The increase in revenue over the prior quarter
relates primarily to an increase of $9 million in service revenue
in the Wireless division, higher ABPU (up from $41.34 in the second
quarter of fiscal 2019 to $42.30 in the current quarter) and higher
ARPU (up from $37.58 in the second quarter of fiscal 2019 to $38.36
in the current quarter) and a $4 million increase in Wireline
revenues partially offset by a $5 million decrease in Wireless
equipment revenue.
Revenue for the nine-month
period ended May 31, 2019 of $3.99 billion increased $132
million or 3.4% from $3.86 billion for the comparable period in
fiscal 2018.
- The year-over-year improvement in revenue was primarily due to
the Wireless division contributing revenues of $771 million, an
increase of $110 million or 16.6% compared to the comparable
nine-month period of fiscal 2018.
- The Business division contributed $24 million or 5.7% to the
consolidated revenue improvements for the nine-month period driven
primarily by customer growth.
- Consumer division revenues were consistent with the comparable
nine-month period of fiscal 2018.
Operating income before restructuring costs and
amortization
Operating income before restructuring costs and
amortization for the third quarter of fiscal 2019
of $530 million decreased by $8 million or 1.5% from
$538 million for the third quarter of fiscal 2018, highlighted
by the following:
- The year-over-year improvement in
the Wireless division of $2 million was mainly due to postpaid
RGU growth and the 6.2% increase in ABPU partially offset by the
impact of the $13 million credit for a retroactive domestic roaming
rate adjustment received in the prior year. Excluding the impact of
this credit in 2018, Wireless operating income before restructuring
costs and amortization increased 38%.
- The year-over-year decrease in the
Wireline division of $10 million was driven primarily by a $15
million payment to address certain intellectual property (“IP”)
licensing matters in the quarter partially offset by higher
revenues. Excluding the impact of the $15 million licensing
payment, Wireline operating income before restructuring costs and
amortization increased 1.0% year-over-year.
Operating margin for the third
quarter of 40.0% decreased 170 basis points compared to
41.7% in the third quarter of fiscal 2018 due primarily to a 140
basis points decrease in the Wireline operating margin driven
primarily by the impact of the $15 million payment to address
certain IP licensing matters, as well as a 160 basis points
decrease in the Wireless operating margin as a result of the impact
of the $13 million credit for a retroactive domestic roaming rate
adjustment in the prior year quarter.
Compared to the second quarter
of fiscal 2019, operating income before restructuring costs and
amortization for the current quarter decreased $19 million
primarily due to a $22 million decrease in the Wireline division
mainly as a result of the $15 million payment to address certain IP
licensing matters partially offset higher Wireless revenues
attributed to net RGU gains.
For the nine-month period ended
May 31, 2019, operating income before restructuring costs and
amortization of $1.62 billion increased $123 million or 8.2% from
$1.50 billion for the comparable prior year period.
- Wireless operating income before restructuring costs and
amortization for the nine-month period increased $48 million or
46.2% over the comparable period driven primarily by subscriber and
ABPU growth, partially offset by the impact of the $13 million
credit for a retroactive domestic roaming rate adjustment received
in the prior year.
- Wireline operating income before restructuring costs and
amortization for the nine-month period increased $75 million or
5.4% over the comparable period primarily as a result of lower
operating costs mainly related to VDP and a $24 million increase in
revenues partially offset by the impact of the $15 million payment
to address certain IP licensing matters.
Free cash flow
Free cash flow for the third
quarter of fiscal 2019 of $176 million increased
$9 million from $167 million in the third quarter of
fiscal 2018, mainly due to a $28 million decrease in capital
expenditures and lower cash taxes partially offset by an $8 million
decrease in operating income before restructuring costs and
amortization and lower dividends received from equity-accounted
associates.
Net income (loss)
Net income of $229 million and $571 million
for the three and nine months ended May 31, 2019, compared to a net
loss of $99 million and $163 million for the same period in fiscal
2018. The changes in net income are outlined in the following
table.
|
|
|
|
|
|
|
|
|
|
|
May 31, 2019 net income compared to: |
|
|
Three months ended |
|
Nine months ended |
(millions of Canadian dollars) |
February 28, 2019 |
May 31, 2018
(restated)(1) |
|
May 31, 2018
(restated)(1) |
Increased (decreased)
operating income before restructuring costs and
amortization(2) |
(19 |
) |
(8 |
) |
|
123 |
|
Decreased (increased)
restructuring costs |
- |
|
13 |
|
|
429 |
|
Increased amortization |
- |
|
(12 |
) |
|
(22 |
) |
Change in net other costs and
revenue(3) |
(29 |
) |
220 |
|
|
184 |
|
Decreased (increased) income
taxes |
122 |
|
115 |
|
|
14 |
|
Increased income from discontinued operations, net of tax |
- |
|
- |
|
|
6 |
|
|
74 |
|
328 |
|
|
734 |
|
(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
Net other costs and revenue in the third
quarter of fiscal 2018 included a $284 million impairment
from the Company’s equity investment in Corus Entertainment Inc.
Restructuring costs in the third quarter of fiscal 2018 of
approximately $13 million related to further organizational
restructuring under the TBT initiative and VDP program offered in
the second quarter of fiscal 2018. The costs primarily relate to
severance and other employee costs as well as other costs directly
associated with the TBT initiative.
Outlook
The Company is refining its fiscal 2019 guidance
which excludes the $15 million payment to address certain IP
licensing matters. It expects consolidated operating income before
restructuring costs and amortization growth of approximately 6%
over fiscal 2018; capital investments of approximately $1.2
billion; and free cash flow of approximately $550 million. The
Company’s guidance includes assumptions related to cost savings
that will be achieved through the TBT initiative (specifically the
VDP savings) that have also been refined and are expected to amount
to a combined $135 million in fiscal 2019 which is materially in
line with the $140 million original estimate. The savings during
the fiscal year are now expected to be approximately $95 million
attributed to operating expenses and approximately $40 million
attributed to capital expenditures, which represents a minor shift
from original guidance.
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 revenue, 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 items such as restructuring costs, equity
income/loss of an associate or joint venture, amortization (a
non-cash expense) and interest. Operating income before
restructuring costs and amortization is one measure used by the
investing community to value the business.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated)(1) |
|
2019 |
|
2018
(restated)(1) |
Operating income from
continuing operations |
267 |
|
273 |
|
|
835 |
|
305 |
|
Add back (deduct): |
|
|
|
|
|
Restructuring costs |
– |
|
13 |
|
|
1 |
|
430 |
|
Amortization: |
|
|
|
|
|
Deferred equipment revenue |
(5 |
) |
(7 |
) |
|
(16 |
) |
(24 |
) |
Deferred equipment costs |
21 |
|
27 |
|
|
66 |
|
85 |
|
Property, plant and equipment, intangibles and other |
247 |
|
232 |
|
|
738 |
|
705 |
|
Operating income before restructuring costs and
amortization |
530 |
|
538 |
|
|
1,624 |
|
1,501 |
|
(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. Operating margin is also one of the measures used by the
investing community to value the business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
2019 |
|
2018
(restated)(1) |
Change % |
|
2019 |
|
2018
(restated)(1) |
Change % |
Wireline |
44.2 |
% |
45.6 |
% |
(3.1 |
) |
|
45.6 |
% |
43.6 |
% |
4.6 |
Wireless |
21.9 |
% |
23.5 |
% |
(6.8 |
) |
|
19.7 |
% |
15.7 |
% |
25.5 |
Combined Wireline and Wireless |
40.0 |
% |
41.7 |
% |
(4.1 |
) |
|
40.7 |
% |
38.9 |
% |
4.6 |
(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 May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2019 |
2018 |
|
2019 |
2018 |
|
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 May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated)(1) |
Change % |
|
2019 |
|
2018
(restated)(1) |
Change % |
Revenue |
|
|
|
|
|
|
|
Consumer |
925 |
|
923 |
|
0.2 |
|
|
2,784 |
|
2,784 |
|
– |
|
Business |
150 |
|
141 |
|
6.4 |
|
|
445 |
|
421 |
|
5.7 |
|
Wireline |
1,075 |
|
1,064 |
|
1.0 |
|
|
3,229 |
|
3,205 |
|
0.7 |
|
Service |
178 |
|
146 |
|
21.9 |
|
|
513 |
|
407 |
|
26.0 |
|
Equipment |
73 |
|
80 |
|
(8.8 |
) |
|
258 |
|
254 |
|
1.6 |
|
Wireless |
251 |
|
226 |
|
11.1 |
|
|
771 |
|
661 |
|
16.6 |
|
|
1,326 |
|
1,290 |
|
2.8 |
|
|
4,000 |
|
3,866 |
|
3.5 |
|
Intersegment eliminations |
(2 |
) |
(1 |
) |
100.0 |
|
|
(5 |
) |
(3 |
) |
66.7 |
|
|
1,324 |
|
1,289 |
|
2.7 |
|
|
3,995 |
|
3,863 |
|
3.4 |
|
Operating income
before restructuring costs and
amortization(2) |
|
|
|
|
|
|
|
Wireline |
475 |
|
485 |
|
(2.1 |
) |
|
1,472 |
|
1,397 |
|
5.4 |
|
Wireless |
55 |
|
53 |
|
3.8 |
|
|
152 |
|
104 |
|
46.2 |
|
|
530 |
|
538 |
|
(1.5 |
) |
|
1,624 |
|
1,501 |
|
8.2 |
|
Capital expenditures
and equipment costs (net):(3) |
|
|
|
|
|
|
|
Wireline |
193 |
|
240 |
|
(19.6 |
) |
|
593 |
|
687 |
|
(13.7 |
) |
Wireless |
87 |
|
68 |
|
27.9 |
|
|
237 |
|
241 |
|
(1.7 |
) |
|
280 |
|
308 |
|
(9.1 |
) |
|
830 |
|
928 |
|
(10.6 |
) |
Free cash flow before
the following |
250 |
|
230 |
|
8.7 |
|
|
794 |
|
573 |
|
38.6 |
|
Less: |
|
|
|
|
|
|
|
Interest |
(60 |
) |
(60 |
) |
– |
|
|
(190 |
) |
(183 |
) |
3.8 |
|
Cash taxes |
(19 |
) |
(29 |
) |
(34.5 |
) |
|
(119 |
) |
(116 |
) |
2.6 |
|
Other
adjustments: |
|
|
|
|
|
|
|
Dividends from equity accounted associates |
5 |
|
23 |
|
(78.3 |
) |
|
10 |
|
69 |
|
(85.5 |
) |
Non-cash share-based compensation |
– |
|
– |
|
– |
|
|
2 |
|
2 |
|
– |
|
Pension adjustment |
3 |
|
4 |
|
(25.0 |
) |
|
9 |
|
12 |
|
(25.0 |
) |
Customer equipment financing |
– |
|
1 |
|
(100.0 |
) |
|
1 |
|
4 |
|
(75.0 |
) |
Preferred share dividends |
(3 |
) |
(2 |
) |
50.0 |
|
|
(7 |
) |
(6 |
) |
16.7 |
|
Free cash flow |
176 |
|
167 |
|
5.4 |
|
|
500 |
|
355 |
|
40.8 |
|
(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 May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated)(1) |
Change % |
|
2019 |
|
2018
(restated)(1) |
Change % |
Consumer |
925 |
|
923 |
|
0.2 |
|
|
2,784 |
|
2,784 |
|
– |
Business |
150 |
|
141 |
|
6.4 |
|
|
445 |
|
421 |
|
5.7 |
Wireline revenue |
1,075 |
|
1,064 |
|
1.0 |
|
|
3,229 |
|
3,205 |
|
0.7 |
Operating income before restructuring costs
and amortization(2) |
475 |
|
485 |
|
(2.1 |
) |
|
1,472 |
|
1,397 |
|
5.4 |
Operating margin(2) |
44.2 |
% |
45.6 |
% |
(3.1 |
) |
|
45.6 |
% |
43.6 |
% |
4.6 |
(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 third quarter of fiscal
2019, Wireline RGUs decreased by 35,171 compared to a 14,425 RGU
loss in the third quarter of fiscal 2018. The current quarter
includes growth in Consumer Internet RGUs of approximately 6,600
whereas the mature products within the Consumer division, including
Video, Satellite and Phone declined in aggregate by 42,600 RGUs.
The Company remains focused on growing broadband subscribers,
primarily through two-year ValuePlans, and on attracting and
retaining high lifetime value video subscribers which support its
consumer profitability objectives.
Revenue highlights include:
- Consumer revenue for the
third quarter of fiscal 2019 increased by $2
million or 0.2%, compared to the third quarter of fiscal 2018 as
contributions from rate adjustments and growth in Internet revenue
were offset by declines in Video, Satellite and Phone subscribers
and revenue.
- As compared to the second
quarter of fiscal 2019, the current quarter revenue
increased by $2 million or 0.2%.
- Business revenue of
$150 million for the third quarter of fiscal
2019 was up $9 million or 6.4% over the third quarter of
fiscal 2018, reflecting continued demand for the SmartSuite of
business products.
- As compared to the second
quarter of fiscal 2019, the current quarter revenue
increased $2 million or 1.4%.
Operating income before restructuring costs
and amortization highlights include:
- Operating income before
restructuring costs and amortization for the third
quarter of fiscal 2019 of $475 million was down 2.1% or
$10 million from $485 million in the third quarter of
fiscal 2018. The decrease relates primarily to a $15 million
payment to address certain IP licensing matters in the third
quarter of fiscal 2019 partially offset by higher revenues.
Excluding the impact of the licensing payment, Wireline operating
income before restructuring costs and amortization increased 1.0%
year-over-year.
- As compared to the second
quarter of fiscal 2019, Wireline operating income before
restructuring costs and amortization for the current quarter
decreased by $22 million driven primarily by the $15 million
payment to address certain IP licensing matters.
Wireless
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated)(1) |
Change % |
|
2019 |
|
2018
(restated)(1) |
Change % |
Service |
178 |
|
146 |
|
21.9 |
|
|
513 |
|
407 |
|
26.0 |
Equipment and other |
73 |
|
80 |
|
(8.8 |
) |
|
258 |
|
254 |
|
1.6 |
Wireless revenue |
251 |
|
226 |
|
11.1 |
|
|
771 |
|
661 |
|
16.6 |
Operating income before restructuring costs
and amortization(2) |
55 |
|
53 |
|
3.8 |
|
|
152 |
|
104 |
|
46.2 |
Operating margin(2) |
21.9 |
% |
23.5 |
% |
(6.8 |
) |
|
19.7 |
% |
15.7 |
% |
25.5 |
(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 62,099 RGUs in the
third quarter of fiscal 2019 as compared to 46,659
RGUs gained in the third quarter of fiscal 2018. The continued
increase in the postpaid subscriber base reflects our expanding and
improving network and customer demand for the Big Gig data-centric
pricing and packaging options. The increase in the prepaid customer
base reflects the new plans that were launched in the market in
early April.
Revenue highlights include:
- Revenue of $251 million for
the third quarter of fiscal 2019 increased
$25 million or 11.1% over the third quarter of fiscal 2018.
The increase in revenue was driven primarily by a year-over-year
increase in service revenue which grew by $32 million or 21.9% as a
result of increased postpaid RGUs and improved ABPU of $42.30 and
ARPU of $38.36 as compared to $39.84 and $37.54, respectively, in
the third quarter of fiscal 2018. This increase was partially
offset by a decrease in equipment revenue of $7 million or 8.8%.
- As compared to the second
quarter of fiscal 2019, the current quarter revenue
increased $4 million or 1.6%, while ABPU increased by $0.96 or
2.3% (ABPU of $41.34 in the second quarter of fiscal 2019), and
ARPU increased by $0.78 or 2.1% (ARPU of $37.58 in the second
quarter of fiscal 2019). The quarter-over-quarter increase in
both ABPU and ARPU was driven primarily by our expanding and
improving network and customer demand for the Big Gig data-centric
pricing and packaging options.
Operating income before restructuring costs
and amortization highlights include:
- Operating income before
restructuring costs and amortization of $55 million for the
third quarter of fiscal 2019 improved by
$2 million over the third quarter of fiscal 2018. The
improvements were driven primarily by increased subscribers at
higher ABPU/ARPU partially offset by the impact of the $13 million
credit for a retroactive domestic roaming rate adjustment received
in the prior year. Excluding the impact of this credit in 2018,
Wireless operating income before restructuring costs and
amortization increased 38%.
- As compared to the second
quarter of fiscal 2019, operating income before
restructuring costs and amortization for the current quarter
increased $3 million or 5.8%.
Capital expenditures and
equipment costs
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated)(1) |
Change % |
|
2019 |
2018
(restated)(1) |
Change % |
Wireline |
|
|
|
|
|
|
|
New housing development |
36 |
|
31 |
16.1 |
|
|
99 |
88 |
12.5 |
|
Success-based |
64 |
|
72 |
(11.1 |
) |
|
190 |
215 |
(11.6 |
) |
Upgrades and enhancements |
98 |
|
112 |
(12.5 |
) |
|
256 |
309 |
(17.2 |
) |
Replacement |
7 |
|
10 |
(30.0 |
) |
|
19 |
23 |
(17.4 |
) |
Building and other |
(12 |
) |
15 |
(180.0 |
) |
|
29 |
52 |
(44.2 |
) |
Total
as per Note 3 to the unaudited interim
consolidated financial statements |
193 |
|
240 |
(19.6 |
) |
|
593 |
687 |
(13.7 |
) |
Wireless |
|
|
|
|
|
|
|
Total
as per Note 3 to the unaudited interim
consolidated financial statements |
87 |
|
68 |
27.9 |
|
|
237 |
241 |
(1.7 |
) |
Consolidated total as per Note 3 to the unaudited interim
consolidated financial statements |
280 |
|
308 |
(9.1 |
) |
|
830 |
928 |
(10.6 |
) |
(1) Fiscal 2018
reported figures have been restated as a result of a change in
accounting policy. See “Accounting Standards”
In the third quarter of fiscal
2019, capital investment of $280 million decreased $28 million
compared to the prior year period. Wireline capital spending
decreased by approximately $47 million primarily due to lower
network investments and success-based customer premise equipment.
Wireless spending increased by approximately $19 million
year-over-year due to the continued deployment of 700 MHz spectrum
and the expansion of the wireless network into new
markets.
Wireline highlights include:
- Success-based capital for the
quarter of $64 million was $8 million lower than in the
third quarter of fiscal 2018. The decrease was driven primarily by
lower Video equipment purchases in the current quarter.
- For the quarter, investment in
combined upgrades, enhancements and replacement categories was $105
million, a $17 million or 13.9% decrease over the prior year driven
by lower planned
Wireline spend on system network infrastructure.
- Investments in new housing
development was $36 million, a $5 million increase over the
comparable period, driven by residential and commercial customer
network growth and acquisition.
Wireless highlights include:
- Capital investment of
$87 million in the third quarter increased relative to the
third quarter of fiscal 2018 by $19 million, primarily due to the
timing of expenditures. In fiscal 2019, the Company plans to
continue to 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 700 MHz
spectrum is also expected to increase throughout 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 |
|
|
|
|
|
|
|
Third |
1,324 |
530 |
227 |
|
227 |
|
229 |
|
0.44 |
|
0.44 |
|
Second |
1,316 |
549 |
155 |
|
155 |
|
155 |
|
0.30 |
|
0.30 |
|
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 |
|
(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 a 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 Q3 vs
F19 Q2 |
In the third quarter of fiscal 2019, net income increased $74
million compared to the second quarter of fiscal 2019 mainly due to
a $41 million gain on the disposal of property, plant and equipment
to a related party, a $15 million gain on the sale of a portfolio
investment and the $102 million impact of a tax rate change on
deferred taxes partially offset by a $109 million loss on the
disposal of the Company’s investment in Corus in the quarter. |
F19 Q2 vs
F19 Q1 |
In the second quarter of fiscal 2019, net income decreased
$32 million compared to the first quarter of fiscal 2019
mainly due to a $20 million decrease in equity income related to
the Company’s investment in Corus in the quarter and higher income
taxes. |
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 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 third 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, including
severance and other employee related costs. 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. |
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 and nine months ended May 31,
2019, the category included $nil and $1 million respectively 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, of which $272 million has been paid up to and including
May 31, 2019.
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 of
$1 million.
In the third quarter of fiscal 2019,
approximately 350 employees exited the Company, bringing the total
number of employees who have departed under the VDP to
approximately 2,060 employees.
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated)(1) |
Change % |
|
2019 |
|
2018
(restated)(1) |
Change % |
Amortization revenue
(expense) |
|
|
|
|
|
|
|
Deferred equipment revenue |
5 |
|
7 |
|
(28.6 |
) |
|
16 |
|
24 |
|
(33.3 |
) |
Deferred equipment costs |
(21 |
) |
(27 |
) |
(22.2 |
) |
|
(66 |
) |
(85 |
) |
(22.4 |
) |
Property, plant and equipment, intangibles and other |
(247 |
) |
(232 |
) |
6.5 |
|
|
(738 |
) |
(705 |
) |
4.7 |
|
(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 6.5% and 4.7% for the three and
nine months ended May 31, 2019, 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 May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2019 |
2018 |
Change % |
|
2019 |
2018 |
Change % |
Amortization of financing
costs – long-term debt |
1 |
– |
– |
|
2 |
2 |
– |
Interest expense |
62 |
60 |
3.3 |
|
192 |
184 |
4.3 |
Interest expense for the three and nine months
ended May 31, 2019, was higher than the comparable periods
primarily due to higher average outstanding debt balances in the
current year. See note 11 of the unaudited interim consolidated
financial statements for further detail.
Equity income (loss) of an
associate
For the three and nine months ended May 31,
2019, the Company recorded equity income of $20 million and
$46 million, respectively, related to its interest in Corus,
compared to equity losses of $259 million and $213 million for
the comparable period. The increase substantially reflects a $284
million impairment from the Company’s investment in Corus recorded
in the third quarter of fiscal 2018.
On May 31, 2019, the Company sold all of its
80,630,383 Class B non-voting participating shares of Corus at a
price of $6.80 per share. Proceeds, net of transaction costs, were
$526 million, which resulted in a loss of $109 million for the
three and nine months ended May 31, 2019.
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.
During the three-month period ended May 31,
2019, the Company recorded a net $41 million gain on the disposal
of property, plant and equipment as well as a $15 million gain on
the disposal of a minor portfolio investment.
Income
taxes
Income taxes are lower in the quarter compared
to the third quarter of fiscal 2018 mainly due to the decrease in
applicable tax rates (Alberta statutory tax rate decrease).
Financial
position
Total assets were $15.5 billion at May 31, 2019,
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 $1,062 million
primarily due to increases in cash of $1,043 million, other
current assets of $33 million, and current portion of contract
assets of $2 million partially offset by a decrease in accounts
receivable of $19 million. Cash increased primarily due to the
issuance of $1 billion of senior notes, netting proceeds of $993
million, proceeds of $551 million collected from the sale of Corus
and other portfolio investments, proceeds of $46 million on the
disposal of property, plant and equipment as well as funds provided
by continuing operations. This was partially offset by cash outlays
for the spectrum acquisition of $492 million and other capital
additions.
Other current assets increased over the period
mainly due to an 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. This increase 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, MyTab. 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 decreased by
$623 million due to the disposal of the Company’s investment
in Corus and another minor portfolio investment. Property, plant
and equipment increased $115 million due to capital
investments in excess of amortization. Intangible assets
increased $470 million primarily due to the acquisition of spectrum
for $492 million, partially offset by amortization of existing
intangible assets.
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 due to the
reclassification of a $1.25 billion senior note coming due in
October 2019, partially offset by decreases in accounts payable and
accrued liabilities of $61 million, provisions of
$6 million, income taxes payable of $40 million and
current portion of contract liabilities of $7 million.
Accounts payable and accruals decreased due to
the timing of payment and fluctuations in various payables
including capital expenditures, interest and programming costs. The
decrease in current provisions was mainly due to the payment of
restructuring costs related to the TBT. 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 $272 million has been paid,
$174 million is included in current provisions and
$1 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.
Long-term debt decreased $254 million primarily
due to the change in classification of the $1.25 billion senior
note to current liabilities, 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 $265 million
mainly due to an increase in share capital of $198 million and
retained earnings of $107 million partially offset by an increase
in accumulated other comprehensive loss of $40 million. Share
capital increased due to the issuance of 7,871,860 Class B
non-voting participating shares (“Class B Non-Voting Shares”) under
the Company’s stock option plan and Dividend Reinvestment Plan
(“DRIP”). Retained earnings increased due to current year income of
$569 million partially offset by dividends of
$301 million.
As at June 15, 2019, there were 492,145,608
Class B Non-Voting Shares, 10,012,393 Series A Shares, 1,987,607
Series B Shares and 22,372,064 Class A Shares issued and
outstanding. As at June 15, 2019, 8,518,001 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 nine-month period ended May 31, 2019, the
Company generated $500 million of free cash flow. Shaw used its
free cash flow along with $551 million net proceeds from the sale
of its investment in Corus Class B shares and another minor
portfolio investment, $993 million net proceeds from a senior note
issuance, and proceeds on issuance of Class B Non-Voting Shares of
$33 million to fund the net working capital change of $169 million,
pay common share dividends of $292 million, purchase $492 million
in spectrum licenses, and pay $102 million in restructuring
costs.
Debt structure and financial
policy
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.
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 $161 million during
the nine-month period ending May 31, 2019.
Effective May 29, 2019, the Company amended the
terms of its accounts receivable securitization program to extend
the term of the program to May 29, 2022 and increase the sales
committed up to a maximum of $200 million. As at May 31, 2019,
$40 million was 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 other assets of the Company.
As at May 31, 2019, the net debt leverage ratio
for the Company was 1.8x. 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) |
May 31, 2019 |
|
August 31, 2018
restated(3) |
Short-term borrowings |
40 |
|
|
40 |
|
Current portion of long-term debt |
1,251 |
|
|
1 |
|
Long-term debt |
4,056 |
|
|
4,310 |
|
50% of outstanding preferred shares |
147 |
|
|
147 |
|
Cash |
(1,427 |
) |
|
(384 |
) |
(A) Net debt(2) |
4,067 |
|
|
4,114 |
|
Operating income before restructuring costs and amortization |
2,179 |
|
|
2,056 |
|
Corus dividends |
33 |
|
|
92 |
|
(B) Adjusted operating income before restructuring
costs and amortization(2) |
2,212 |
|
|
2,148 |
|
(A/B) Net debt leverage ratio |
1.8x |
|
|
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, restructuring, 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 May 31, 2019, 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.
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 which occurred during
the period from March 14, 2019 to April 10, 2019. The
Company’s wireless subsidiary, Freedom Mobile Inc., successfully
acquired 11 paired blocks of 20-year 600 MHz spectrum, across its
wireless operating footprint, for a total price of $492
million. In accordance with 600 MHz auction terms, 20% ($98
million) was paid to ISED on April 26, 2019 and the remaining 80%
balance ($394 million) was paid on May 24, 2019. As of May
31, 2019, all of the letters of credit were cancelled and the
unsecured letter of credit facilities were all terminated.
As at May 31, 2019, the Company had
$1.4 billion of cash on hand, its $1.5 billion bank credit
facility was fully undrawn and there was an additional $160 million
available to draw under its accounts receivable securitization
program.
Cash Flow from
Operations
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated)(1) |
Change % |
|
2019 |
|
2018
(restated)(1) |
Change % |
Funds flow from continuing
operations |
471 |
|
437 |
|
7.8 |
|
1,354 |
|
755 |
|
79.3 |
Net change in non-cash
balances related to operations |
(39 |
) |
(64 |
) |
39.1 |
|
(221 |
) |
143 |
|
>(100.0) |
Operating activities of discontinued operations |
– |
|
– |
|
– |
|
– |
|
(2 |
) |
100.0 |
|
432 |
|
373 |
|
15.8 |
|
1,133 |
|
896 |
|
26.5 |
(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 May 31, 2019, funds
flow from operating activities increased over the comparable period
in fiscal 2018 primarily due to an increase in net income from
continuing operations and an increase in the net change in non-cash
balances related to operations. The net change in non-cash balances
related to operations fluctuated over the comparative period due to
changes in accounts receivable and other current asset balances,
and the timing of payment of current income taxes payable and
accounts payable and accrued liabilities.
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated)(1) |
Decrease |
|
2019 |
|
2018
(restated)(1) |
Decrease |
Cash
flow used in investing activities |
(202 |
) |
(262 |
) |
(60 |
) |
|
(814 |
) |
(857 |
) |
(43 |
) |
(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 May 31, 2019, the
cash used in investing activities decreased over the comparable
period in fiscal 2018 due primarily to the $526 million of net
proceeds received on the disposal of the Company’s equity
investment in Corus partially offset by the acquisition of spectrum
of $492 million in and higher cash outlays for capital expenditures
in the current period.
Financing Activities
The changes in financing activities during the
comparative periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2019 |
|
2018 |
|
|
2019 |
|
2018 |
|
Senior notes – net
borrowings |
– |
|
– |
|
|
1,000 |
|
10 |
|
Bank facility arrangement
costs |
– |
|
– |
|
|
(9 |
) |
– |
|
Dividends |
(100 |
) |
(98 |
) |
|
(299 |
) |
(292 |
) |
Issuance of Class B Non-Voting
Shares |
10 |
|
4 |
|
|
33 |
|
31 |
|
Other |
(1 |
) |
(1 |
) |
|
(1 |
) |
(1 |
) |
|
(91 |
) |
(95 |
) |
|
724 |
|
(252 |
) |
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. (See “Liquidity and Capital
Resources” for further detail).
Contractual Obligations
There has been no material change in the Company’s contractual
obligations, including commitments for capital expenditures,
between August 31, 2018 and May 31, 2019.
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 MD&A 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 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
are required to make judgments in respect of the new standard,
including 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 and nine months ended May 31,
2019, the comparative information presented for the three and nine
months ended May 31, 2018, 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 and nine
months ended May 31, 2018, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, 2018 |
|
Nine months ended May 31, 2018 |
|
|
As |
|
Effect of |
|
Subsequent to |
|
As |
|
Effect of |
|
Subsequent to |
|
(millions of Canadian dollars) |
|
reported |
|
transition |
|
transition |
|
reported |
|
transition |
|
transition |
|
Revenue |
i. |
1,300 |
|
|
(11 |
) |
|
1,289 |
|
|
3,904 |
|
|
(41 |
) |
|
3,863 |
|
|
Operating, general and
administrative expenses |
ii. |
(753 |
) |
|
2 |
|
|
(751 |
) |
|
(2,375 |
) |
|
13 |
|
|
(2,362 |
) |
|
Other revenue (expense) |
|
1 |
|
|
– |
|
|
1 |
|
|
3 |
|
|
3 |
|
|
6 |
|
|
Income tax expense
(recovery) |
|
58 |
|
|
(3 |
) |
|
55 |
|
|
82 |
|
|
(10 |
) |
|
72 |
|
|
Net
loss from continuing operations |
|
(91 |
) |
|
(6 |
) |
|
(97 |
) |
|
(141 |
) |
|
(15 |
) |
|
(156 |
) |
|
i) Allocation of transaction price
Revenue recognized at point of sale requires the estimation of
total consideration over the contract term and allocation of that
consideration to all performance obligations in the contract based
on their relative stand-alone selling prices. For Wireless term
contracts, equipment revenue recognized at contract inception, as
well as service revenue recognized over the course of the contract
is lower than previously recognized as noted above.
ii) Deferred commission costs
Costs incurred to obtain or fulfill a contract with a customer were
previously expensed as incurred. Under IFRS 15, these costs are
capitalized and subsequently amortized as an expense over the life
of the 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 and nine months ended May 31,
2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, 2018 |
|
Nine months ended May 31, 2018 |
|
|
As |
|
Effect of |
|
Subsequent to |
|
As |
|
Effect of |
|
Subsequent to |
(millions of Canadian dollars) |
|
reported |
|
transition |
|
transition |
|
reported |
|
transition |
|
transition |
Services |
|
|
|
|
|
|
|
|
|
|
|
|
Wireline -
Consumer |
|
923 |
|
|
– |
|
|
923 |
|
|
2,784 |
|
|
– |
|
|
2,784 |
|
Wireline -
Business |
|
141 |
|
|
– |
|
|
141 |
|
|
421 |
|
|
– |
|
|
421 |
|
Wireless |
|
155 |
|
|
(9 |
) |
|
146 |
|
|
428 |
|
|
(21 |
) |
|
407 |
|
|
|
1,219 |
|
|
(9 |
) |
|
1,210 |
|
|
3,633 |
|
|
(21 |
) |
|
3,612 |
|
Equipment and
other |
|
|
|
|
|
|
|
|
|
|
|
|
Wireless |
|
82 |
|
|
(2 |
) |
|
80 |
|
|
274 |
|
|
(20 |
) |
|
254 |
|
|
|
82 |
|
|
(2 |
) |
|
80 |
|
|
274 |
|
|
(20 |
) |
|
254 |
|
Intersegment eliminations |
|
(1 |
) |
|
– |
|
|
(1 |
) |
|
(3 |
) |
|
– |
|
|
(3 |
) |
Total revenue |
|
1,300 |
|
|
(11 |
) |
|
1,289 |
|
|
3,904 |
|
|
(41 |
) |
|
3,863 |
|
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 of |
Subsequent to |
|
As |
Effect of |
Subsequent to |
(millions of Canadian dollars) |
|
reported |
transition |
transition |
|
reported |
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 liabilities
Contract assets and liabilities are the result
of the difference in timing related to revenue recognized at the
beginning of a contract and cash collected. Contract assets arise
primarily as a result of the difference between revenue recognized
on the sale of wireless device at the onset of a term contract and
the cash collected at the point of sale.
Contract liabilities are the result of receiving
payment related to a customer contract before providing the related
goods or services. We will account for contract assets and
liabilities on a contract-by-contract basis, with each contract
being presented as a single net contract asset or net contract
liability accordingly.
ii) Deferred commission cost asset
Under IFRS 15, we will defer commission costs
paid to internal and external representatives as a result of
obtaining contracts with customers as deferred commission cost
assets and amortize them over the pattern of the transfer of goods
and services to the customer, which is typically evenly over 24 to
36 months.
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
- 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.
The Company continues to assess the impact of this standard on its
consolidated financial statements and is progressing with the
implementation of a new system that will enable it to comply with
the requirements of the standard on a contract-by-contract basis.
The Company continues to evaluate its accounting policy
determinations and has commenced the data validation process, both
of which the Company expects will continue throughout fiscal 2019.
The Company has decided that it will use a modified retrospective
approach upon adoption of IFRS 16 on September 1, 2019. The Company
intends to disclose the estimated financial effects of the adoption
of IFRS 16 in its 2019 annual audited consolidated financial
statements.
- IFRIC 23 Uncertainty over Income Tax Treatments was
issued in 2017 to clarify how to apply the recognition and
measurement requirements in IAS 12 when there is uncertainty over
income tax treatments. It is required to be applied for
annual periods commencing January 1, 2019, which for the Company
will be the annual period commencing September 1, 2019. The Company
is currently assessing the impact of this standard on its
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 and nine
months ended May 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, 2018 |
|
Nine months ended May 31, 2018 |
(millions of Canadian dollars) |
As reported |
|
IFRS 15 transition |
|
Change in accounting
policy |
|
Subsequent
to transition |
|
As reported |
|
IFRS 15 transition |
|
Change in accounting
policy |
|
Subsequent
to transition |
Revenue |
1,300 |
|
|
(11 |
) |
|
– |
|
|
1,289 |
|
|
3,904 |
|
|
(41 |
) |
|
– |
|
|
3,863 |
|
Operating, general and administrative expenses |
(753 |
) |
|
2 |
|
|
– |
|
|
(751 |
) |
|
(2,375 |
) |
|
13 |
|
|
– |
|
|
(2,362 |
) |
Restructuring costs |
(13 |
) |
|
– |
|
|
– |
|
|
(13 |
) |
|
(430 |
) |
|
– |
|
|
– |
|
|
(430 |
) |
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred equipment revenue |
7 |
|
|
– |
|
|
– |
|
|
7 |
|
|
24 |
|
|
– |
|
|
– |
|
|
24 |
|
Deferred equipment costs |
(27 |
) |
|
– |
|
|
– |
|
|
(27 |
) |
|
(85 |
) |
|
– |
|
|
– |
|
|
(85 |
) |
Property, plant and equipment, intangibles and other |
(229 |
) |
|
– |
|
|
(3 |
) |
|
(232 |
) |
|
(695 |
) |
|
– |
|
|
(10 |
) |
|
(705 |
) |
Operating income from
continuing operations |
285 |
|
|
(9 |
) |
|
(3 |
) |
|
273 |
|
|
343 |
|
|
(28 |
) |
|
(10 |
) |
|
305 |
|
Amortization of financing costs – long-term debt |
– |
|
|
– |
|
|
– |
|
|
– |
|
|
(2 |
) |
|
– |
|
|
– |
|
|
(2 |
) |
Interest expense |
(60 |
) |
|
– |
|
|
– |
|
|
(60 |
) |
|
(184 |
) |
|
– |
|
|
– |
|
|
(184 |
) |
Equity income of an associate or joint venture |
(259 |
) |
|
– |
|
|
– |
|
|
(259 |
) |
|
(213 |
) |
|
– |
|
|
– |
|
|
(213 |
) |
Other revenue (expense) |
1 |
|
|
– |
|
|
– |
|
|
1 |
|
|
3 |
|
|
3 |
|
|
– |
|
|
6 |
|
Loss from continuing operations before income
taxes |
(33 |
) |
|
(9 |
) |
|
(3 |
) |
|
(45 |
) |
|
(53 |
) |
|
(25 |
) |
|
(10 |
) |
|
(88 |
) |
Current income tax expense |
18 |
|
|
– |
|
|
– |
|
|
18 |
|
|
96 |
|
|
– |
|
|
– |
|
|
96 |
|
Deferred income tax expense (recovery) |
40 |
|
|
(3 |
) |
|
(1 |
) |
|
36 |
|
|
(14 |
) |
|
(10 |
) |
|
(3 |
) |
|
(27 |
) |
Net loss from continuing operations |
(91 |
) |
|
(6 |
) |
|
(2 |
) |
|
(99 |
) |
|
(135 |
) |
|
(15 |
) |
|
(7 |
) |
|
(157 |
) |
Loss from discontinued
operations, net of tax |
– |
|
|
– |
|
|
– |
|
|
– |
|
|
(6 |
) |
|
– |
|
|
– |
|
|
(6 |
) |
Net loss from
continuing operations |
(91 |
) |
|
(6 |
) |
|
(2 |
) |
|
(99 |
) |
|
(141 |
) |
|
(15 |
) |
|
(7 |
) |
|
(163 |
) |
Net loss from continuing operations attributable
to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
shareholders |
(91 |
) |
|
(6 |
) |
|
(2 |
) |
|
(99 |
) |
|
(135 |
) |
|
(15 |
) |
|
(7 |
) |
|
(157 |
) |
Loss from discontinued
operations attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
shareholders |
– |
|
|
– |
|
|
– |
|
|
– |
|
|
(6 |
) |
|
– |
|
|
– |
|
|
(6 |
) |
Basic earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
(0.18 |
) |
|
– |
|
|
– |
|
|
(0.20 |
) |
|
(0.28 |
) |
|
– |
|
|
– |
|
|
(0.33 |
) |
Discontinued
operations |
- |
|
|
– |
|
|
– |
|
|
- |
|
|
(0.01 |
) |
|
– |
|
|
– |
|
|
(0.01 |
) |
|
(0.18 |
) |
|
– |
|
|
– |
|
|
(0.20 |
) |
|
(0.29 |
) |
|
– |
|
|
– |
|
|
(0.34 |
) |
Diluted earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
(0.18 |
) |
|
– |
|
|
– |
|
|
(0.20 |
) |
|
(0.28 |
) |
|
– |
|
|
– |
|
|
(0.33 |
) |
Discontinued
operations |
- |
|
|
– |
|
|
– |
|
|
- |
|
|
(0.01 |
) |
|
– |
|
|
– |
|
|
(0.01 |
) |
|
(0.18 |
) |
|
– |
|
|
– |
|
|
(0.20 |
) |
|
(0.29 |
) |
|
– |
|
|
– |
|
|
(0.34 |
) |
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 and August
31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 1, 2017 |
|
As at August 31, 2018 |
(millions of Canadian dollars) |
As reported |
IFRS 15 transition |
Change in
accounting policy |
Subsequent to transition |
|
As reported |
IFRS 15 transition |
Change in
accounting policy |
Subsequent to transition |
ASSETS |
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
Cash |
507 |
– |
|
– |
|
507 |
|
384 |
– |
|
– |
|
384 |
Accounts receivable |
286 |
– |
|
– |
|
286 |
|
255 |
– |
|
(2 |
) |
253 |
Inventories |
109 |
– |
|
(50 |
) |
59 |
|
101 |
– |
|
(40 |
) |
61 |
Other current assets |
155 |
24 |
|
– |
|
179 |
|
286 |
(13 |
) |
– |
|
273 |
Current portion of contract assets |
– |
15 |
|
– |
|
15 |
|
– |
59 |
|
– |
|
59 |
Assets held for sale |
61 |
– |
|
– |
|
61 |
|
– |
– |
|
– |
|
– |
|
1,118 |
39 |
|
(50 |
) |
1,107 |
|
1,026 |
46 |
|
(42 |
) |
1,030 |
Investments and other
assets |
937 |
– |
|
– |
|
937 |
|
660 |
– |
|
– |
|
660 |
Property, plant and
equipment |
4,344 |
– |
|
50 |
|
4,394 |
|
4,672 |
– |
|
30 |
|
4,702 |
Other long-term assets |
255 |
(39 |
) |
– |
|
216 |
|
300 |
(102 |
) |
(1 |
) |
197 |
Deferred income tax
assets |
4 |
– |
|
– |
|
4 |
|
4 |
– |
|
– |
|
4 |
Intangibles |
7,435 |
– |
|
– |
|
7,435 |
|
7,482 |
– |
|
– |
|
7,482 |
Goodwill |
280 |
– |
|
– |
|
280 |
|
280 |
– |
|
– |
|
280 |
Contract assets |
– |
44 |
|
– |
|
44 |
|
– |
76 |
|
– |
|
76 |
|
14,373 |
44 |
|
– |
|
14,417 |
|
14,424 |
20 |
|
(13 |
) |
14,431 |
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
Short-term borrowings |
– |
– |
|
– |
|
– |
|
40 |
– |
|
– |
|
40 |
Accounts payable and accrued liabilities |
913 |
(4 |
) |
– |
|
909 |
|
971 |
(1 |
) |
– |
|
970 |
Provisions |
76 |
– |
|
– |
|
76 |
|
245 |
– |
|
– |
|
245 |
Income taxes payable |
151 |
– |
|
– |
|
151 |
|
133 |
– |
|
– |
|
133 |
Unearned revenue |
211 |
(211 |
) |
– |
|
- |
|
221 |
(221 |
) |
– |
|
– |
Current portion of contract liabilities |
– |
214 |
|
– |
|
214 |
|
– |
226 |
|
– |
|
226 |
Current portion of long-term debt |
2 |
– |
|
– |
|
2 |
|
1 |
– |
|
– |
|
1 |
Liabilities held for sale |
39 |
– |
|
– |
|
39 |
|
– |
– |
|
– |
|
– |
|
1,392 |
(1 |
) |
– |
|
1,391 |
|
1,611 |
4 |
|
– |
|
1,615 |
Long-term debt |
4,298 |
– |
|
– |
|
4,298 |
|
4,310 |
– |
|
– |
|
4,310 |
Other long-term
liabilities |
114 |
– |
|
– |
|
114 |
|
13 |
– |
|
– |
|
13 |
Provisions |
67 |
– |
|
– |
|
67 |
|
179 |
– |
|
– |
|
179 |
Deferred credits |
490 |
(21 |
) |
– |
|
469 |
|
460 |
(18 |
) |
– |
|
442 |
Contract liabilities |
– |
21 |
|
– |
|
21 |
|
– |
18 |
|
– |
|
18 |
Deferred income tax liabilities |
1,858 |
5 |
|
– |
|
1,863 |
|
1,894 |
(6 |
) |
(4 |
) |
1,884 |
|
8,219 |
4 |
|
– |
|
8,223 |
|
8,467 |
(2 |
) |
(4 |
) |
8,461 |
Shareholders'
equity |
|
|
|
|
|
|
|
|
|
Common and preferred
shareholders |
6,153 |
40 |
|
– |
|
6,193 |
|
5,956 |
22 |
|
(9 |
) |
5,969 |
Non-controlling interests in subsidiaries |
1 |
– |
|
– |
|
1 |
|
1 |
– |
|
– |
|
1 |
|
6,154 |
40 |
|
– |
|
6,194 |
|
5,957 |
22 |
|
(9 |
) |
5,970 |
|
14,373 |
44 |
|
– |
|
14,417 |
|
14,424 |
20 |
|
(13 |
) |
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 and
nine months ended May 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, 2018 |
|
Nine months ended May 31, 2018 |
(millions of Canadian dollars) |
As reported |
|
IFRS 15 transition |
|
Change in accounting
policy |
|
Subsequent to transition |
|
As reported |
|
IFRS 15 transition |
|
Change in accounting
policy |
|
Subsequent to transition |
OPERATING
ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds flow from
continuing operations |
459 |
|
|
(22 |
) |
|
– |
|
|
437 |
|
|
817 |
|
|
(62 |
) |
|
– |
|
|
755 |
|
Net change in non-cash
balances related to continuing operations |
(101 |
) |
|
22 |
|
|
15 |
|
|
(64 |
) |
|
86 |
|
|
62 |
|
|
(5 |
) |
|
143 |
|
Operating activities of discontinued operations |
– |
|
|
– |
|
|
– |
|
|
– |
|
|
(2 |
) |
|
– |
|
|
– |
|
|
(2 |
) |
|
358 |
|
|
– |
|
|
15 |
|
|
373 |
|
|
901 |
|
|
– |
|
|
(5 |
) |
|
896 |
|
INVESTING
ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant
and equipment |
(231 |
) |
|
– |
|
|
(15 |
) |
|
(246 |
) |
|
(833 |
) |
|
– |
|
|
5 |
|
|
(828 |
) |
Additions to equipment costs
(net) |
(11 |
) |
|
– |
|
|
– |
|
|
(11 |
) |
|
(37 |
) |
|
– |
|
|
– |
|
|
(37 |
) |
Additions to other
intangibles |
(29 |
) |
|
– |
|
|
– |
|
|
(29 |
) |
|
(84 |
) |
|
– |
|
|
– |
|
|
(84 |
) |
Proceeds on sale of
discontinued operations, net of cash sold |
– |
|
|
– |
|
|
– |
|
|
– |
|
|
18 |
|
|
– |
|
|
– |
|
|
18 |
|
Net additions to investments
and other assets |
23 |
|
|
– |
|
|
– |
|
|
23 |
|
|
65 |
|
|
– |
|
|
– |
|
|
65 |
|
Proceeds on disposal of property, plant and equipment |
1 |
|
|
– |
|
|
– |
|
|
1 |
|
|
9 |
|
|
– |
|
|
– |
|
|
9 |
|
|
(247 |
) |
|
– |
|
|
(15 |
) |
|
(262 |
) |
|
(862 |
) |
|
– |
|
|
5 |
|
|
(857 |
) |
FINANCING
ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in long-term
debt |
– |
|
|
– |
|
|
– |
|
|
– |
|
|
10 |
|
|
– |
|
|
– |
|
|
10 |
|
Debt repayments |
(1 |
) |
|
– |
|
|
– |
|
|
(1 |
) |
|
(1 |
) |
|
– |
|
|
– |
|
|
(1 |
) |
Issue of Class B Non-Voting
Shares |
4 |
|
|
– |
|
|
– |
|
|
4 |
|
|
31 |
|
|
– |
|
|
– |
|
|
31 |
|
Dividends paid on Class A
Shares and Class B Non-Voting Shares |
(96 |
) |
|
– |
|
|
– |
|
|
(96 |
) |
|
(286 |
) |
|
– |
|
|
– |
|
|
(286 |
) |
Dividends paid on Preferred Shares |
(2 |
) |
|
– |
|
|
– |
|
|
(2 |
) |
|
(6 |
) |
|
– |
|
|
– |
|
|
(6 |
) |
|
(95 |
) |
|
– |
|
|
– |
|
|
(95 |
) |
|
(252 |
) |
|
– |
|
|
– |
|
|
(252 |
) |
Increase (decrease) in
cash |
16 |
|
|
– |
|
|
– |
|
|
16 |
|
|
(213 |
) |
|
– |
|
|
– |
|
|
(213 |
) |
Cash,
beginning of the period |
278 |
|
|
– |
|
|
– |
|
|
278 |
|
|
507 |
|
|
– |
|
|
– |
|
|
507 |
|
Cash of continuing operations, end of the
period |
294 |
|
|
– |
|
|
– |
|
|
294 |
|
|
294 |
|
|
– |
|
|
– |
|
|
294 |
|
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.
On May 15, 2019, the Company completed the sale of a non-core
parcel of land and the building located thereon (the “Property”),
to an affiliate of Shaw Family Living Trust (“SFLT”) (the
“Purchaser”), for total net proceeds of approximately $45 million
(for further detail about SFLT see “Known Events, Risks and
Uncertainties - Control of the Company” in the Company’s 2018
Annual MD&A). The Property had a net book value of
approximately $4 million resulting in a gain on disposition of
approximately $41 million. The purchase price was determined based
on appraisals performed by two independent valuators. As part
of the transaction, the Purchaser agreed to lease back the Property
to the Company for a term of three years at market rental rates
(which was also based on appraisals from the two independent
valuators) allowing the Company to monetize a non-core asset. The
transaction was approved by the independent Board members of the
Company.
Other than the transaction noted above, there has been no
material change in the Company’s transactions with related parties
between August 31, 2018 and May 31, 2019.
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 May 31, 2019.
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 in fiscal 2019 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.
On December 4, 2018, the Company implemented a
new Enterprise Resource Planning (“ERP”) system for its Wireline
operations that comprises both accounting and supply chain modules.
In connection with the implementation, the Company updated its
ICFR, as necessary, to accommodate related changes to its business
processes and accounting procedures. Management will continue to
monitor the effectiveness of these processes going forward.
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.
Income Tax
On May 28, 2019, the Alberta government passed
Bill 3, the Job Creation Tax Cut, which will reduce the Alberta
provincial corporate tax rates from 12% to 8% in a phased approach
between July 1, 2019 and January 1, 2022. As these changes were
considered substantively enacted on May 28, 2019, we recognized a
$102 million recovery of deferred tax for the three months ended
May 31, 2019 related to this change.
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. A
decision is pending.
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
came 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
released a rate decision for the Distant Signal Retransmission
Tariff for the past tariff period of 2014-2018, inclusive, without
written reasons. The decision introduced a rate increase over
the last year of the previous tariff period, from $0.98 per
subscriber/month to an average of $1.14 over the tariff period,
with a 2018 rate of $1.17. In the first quarter, the Company
incurred retroactive costs of $7.4 million for the higher than
expected retransmission tariff rates applicable to the 2014 to 2018
period. An interim tariff for 2019 is now in effect, based on the
2018 rate set out in the December 18, 2018 decision. On January 18,
2019, the Collectives and Objectors each filed a Notice of
Application for judicial review with the Federal Court of Appeal
(“FCA”), and a request for an adjournment pending the issuance of
the Board’s written reasons for the rate decision, which request
has been granted. This preserves the rights of both sides to file
for judicial review when the Copyright Board’s reasons are
issued. If, following the Copyright Board’s reasons, any
Collective or Objector chooses to resume the judicial review of the
Board’s decision, such a review could result in increased royalty
rates pursuant to any redetermination of the rates by the
Board.
Lower Cost Data-Only Plans
In Telecom Decision CRTC 2018-97, the CRTC
acknowledged the Government’s concerns about wireless affordability
at the lower end of the market, particularly for data-only
packages, and found that it was unclear whether the market could be
relied on to deliver lower cost data-only plans. Accordingly,
the CRTC launched a new consultation to investigate the
availability and pricing of data-only packages, including whether
wireless carriers should be required to offer low-cost data-only
packages. On December 17, 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 an upcoming review of mobile wireless services, which review is
described below.
CRTC Report on Use of Misleading or
Aggressive Sales Practices
On February 20, 2019, the CRTC published its
Report on Misleading or Aggressive Communications Retail Sales
Practices and found that “a significant portion of Canadians are
experiencing misleading or aggressive sales practices through all
types of sales channels” in connection with their purchase of
telecommunications and broadcasting services. While the
Report did not result in new rules or regulatory obligations, the
Report’s findings could lead to new measures implemented in the
context of current or future proceedings, which, if introduced,
could negatively impact the Company’s revenues.
CRTC Wireless Review
On February 28, 2019, the CRTC issued the Notice
of Consultation for its anticipated review of the regulatory
framework for mobile wireless services in Canada. The proceeding
will include assessments of:
- retail mobile wireless competition
and whether any regulatory interventions in the retail market are
required,
- wholesale wireless regulation, with
a focus on wholesale access for mobile virtual network operators
(“MVNO”), and
- whether there are barriers to the
introduction of new technologies and any regulatory interventions
required to support investment and competition.
The Notice conveys the CRTC’s preliminary view
that it would be appropriate to mandate wholesale MVNO access to
the networks of the national incumbents. The Notice includes a
series of questions regarding the possible eligibility requirements
and other terms and conditions of a possible mandated MVNO regime,
among other topics. The CRTC’s determinations on these and other
questions in the Notice could affect Shaw’s ability to compete in
the mobile wireless market. The new Policy Direction to the CRTC
regarding telecommunications, described below, will apply to this
proceeding.
ISED Spectrum Policy Developments
On June 5, 2019, ISED released its decision on
revisions to the 3500 MHz (3450-3650 MHz) band to accommodate use
for mobile services, as well as its framework consultation for the
auction, which will likely take place in 2020. The decision enables
existing holders to retain a portion of their spectrum and convert
it to mobile spectrum. The remainder of the spectrum will be made
available for the auction. The consultation seeks comments on
potential pro-competitive measures, including a set-aside, a cap,
or a combination of mechanisms. The decision also indicated that
ISED will undertake further review of the 3650-3700 MHz and
3700-4200 MHz bands in the future.
On June 5, ISED also released a decision on the
future release of millimeter wave spectrum. The decision allows
future mobile use in the 26 GHz, 28 GHz, and 38 GHz bands, and
licence-exempt use in the 64-71 GHz bands, the details of which
will be determined through future proceedings.
New Government Policy Direction to CRTC
Regarding Telecommunications
On June 16, 2019, the Government published a
finalized Policy Direction (following its publication of a proposed
Policy Direction on March 9, 2019) that provides general guidance
to the CRTC on all telecommunications regulatory measures,
including those affecting our Consumer and Business internet and
phone services, our wholesale telecommunications services, and our
Wireless services. The new Policy Direction directs the CRTC to
consider how measures can promote all forms of competition and
investment, as well as affordability, consumer interests and
innovation. The impact of the new Policy Direction will depend on
how the CRTC interprets it in the context of specific matters and
proceedings.
CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2018 |
|
September 1, 2017 |
(millions of Canadian dollars) |
May 31, 2019 |
|
(restated, note 2) |
|
(restated, note 2) |
ASSETS |
|
|
|
|
|
Current |
|
|
|
|
|
Cash |
1,427 |
|
384 |
|
507 |
Accounts receivable |
234 |
|
253 |
|
286 |
Inventories |
64 |
|
61 |
|
59 |
Other current assets [note 5] |
306 |
|
273 |
|
179 |
Current portion of contract assets [note 4] |
61 |
|
59 |
|
15 |
Assets held for sale |
– |
|
– |
|
61 |
|
2,092 |
|
1,030 |
|
1,107 |
Investments and other assets
[notes 16 and 17] |
37 |
|
660 |
|
937 |
Property, plant and
equipment |
4,817 |
|
4,702 |
|
4,394 |
Other long-term assets
[note 16] |
210 |
|
197 |
|
216 |
Deferred income tax
assets |
4 |
|
4 |
|
4 |
Intangibles [note
18] |
7,952 |
|
7,482 |
|
7,435 |
Goodwill |
280 |
|
280 |
|
280 |
Contract assets [note 4] |
75 |
|
76 |
|
44 |
|
15,467 |
|
14,431 |
|
14,417 |
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
|
|
Current |
|
|
|
|
|
Short-term borrowings [note 6] |
40 |
|
40 |
|
– |
Accounts payable and accrued liabilities |
909 |
|
970 |
|
909 |
Provisions [note 7] |
239 |
|
245 |
|
76 |
Income taxes payable |
93 |
|
133 |
|
151 |
Current portion of contract liabilities [note 4] |
219 |
|
226 |
|
214 |
Current portion of long-term debt [notes 11 and 16] |
1,251 |
|
1 |
|
2 |
Liabilities held for sale |
– |
|
– |
|
39 |
|
2,751 |
|
1,615 |
|
1,391 |
Long-term debt [notes 11
and 16] |
4,056 |
|
4,310 |
|
4,298 |
Other long-term
liabilities |
57 |
|
13 |
|
114 |
Provisions [note
7] |
75 |
|
179 |
|
67 |
Deferred credits |
431 |
|
442 |
|
469 |
Contract liabilities [note
4] |
15 |
|
18 |
|
21 |
Deferred income tax liabilities |
1,847 |
|
1,884 |
|
1,863 |
|
9,232 |
|
8,461 |
|
8,223 |
Shareholders'
equity [notes 12 and 14] |
|
|
|
|
|
Common and preferred
shareholders |
6,232 |
|
5,969 |
|
6,193 |
Non-controlling interests in subsidiaries |
3 |
|
1 |
|
1 |
|
6,235 |
|
5,970 |
|
6,194 |
|
15,467 |
|
14,431 |
|
14,417 |
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME
(LOSS)
(unaudited)
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated, note 2) |
|
2019 |
|
2018
(restated, note 2) |
Revenue [notes 3 and 4] |
1,324 |
|
1,289 |
|
|
3,995 |
|
3,863 |
|
Operating, general and administrative expenses [note
8] |
(794 |
) |
(751 |
) |
|
(2,371 |
) |
(2,362 |
) |
Restructuring costs [notes 7 and 8] |
– |
|
(13 |
) |
|
(1 |
) |
(430 |
) |
Amortization: |
|
|
|
|
|
Deferred equipment revenue |
5 |
|
7 |
|
|
16 |
|
24 |
|
Deferred equipment costs |
(21 |
) |
(27 |
) |
|
(66 |
) |
(85 |
) |
Property, plant and equipment, intangibles and other |
(247 |
) |
(232 |
) |
|
(738 |
) |
(705 |
) |
Operating income (loss) from continuing
operations |
267 |
|
273 |
|
|
835 |
|
305 |
|
Amortization of financing costs – long-term debt |
(1 |
) |
– |
|
|
(2 |
) |
(2 |
) |
Interest expense |
(62 |
) |
(60 |
) |
|
(192 |
) |
(184 |
) |
Equity income (loss) of an associate or joint venture [note
17] |
20 |
|
(259 |
) |
|
46 |
|
(213 |
) |
Loss on disposal of an associate or joint venture [note
17] |
(109 |
) |
– |
|
|
(109 |
) |
– |
|
Other gains [note 9] |
53 |
|
1 |
|
|
48 |
|
6 |
|
Income (loss) from continuing operations
before income taxes |
168 |
|
(45 |
) |
|
626 |
|
(88 |
) |
Current income tax expense [note 3] |
8 |
|
18 |
|
|
85 |
|
96 |
|
Deferred income tax expense (recovery) [note 10] |
(69 |
) |
36 |
|
|
(30 |
) |
(27 |
) |
Net income (loss) from continuing
operations |
229 |
|
(99 |
) |
|
571 |
|
(157 |
) |
Loss from discontinued
operations, net of tax |
– |
|
– |
|
|
– |
|
(6 |
) |
Net income
(loss) |
229 |
|
(99 |
) |
|
571 |
|
(163 |
) |
Net income (loss) from
continuing operations attributable to: |
|
|
|
|
|
Equity shareholders |
227 |
|
(99 |
) |
|
569 |
|
(157 |
) |
Non-controlling
interests |
2 |
|
– |
|
|
2 |
|
– |
|
|
229 |
|
(99 |
) |
|
571 |
|
(157 |
) |
Loss from discontinued
operations attributable to: |
|
|
|
|
|
Equity
shareholders |
– |
|
– |
|
|
– |
|
(6 |
) |
Basic earnings (loss)
per share [note 13] |
|
|
|
|
|
Continuing operations |
0.44 |
|
(0.20 |
) |
|
1.10 |
|
(0.33 |
) |
Discontinued
operations |
– |
|
– |
|
|
– |
|
(0.01 |
) |
|
0.44 |
|
(0.20 |
) |
|
1.10 |
|
(0.34 |
) |
Diluted earnings
(loss) per share [note 13] |
|
|
|
|
|
Continuing operations |
0.44 |
|
(0.20 |
) |
|
1.10 |
|
(0.33 |
) |
Discontinued
operations |
– |
|
– |
|
|
– |
|
(0.01 |
) |
|
0.44 |
|
(0.20 |
) |
|
1.10 |
|
(0.34 |
) |
See accompanying notes.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(unaudited)
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated, note 2) |
|
2019 |
|
2018
(restated, note 2) |
Net income
(loss) |
229 |
|
(99 |
) |
|
571 |
|
(163 |
) |
|
|
|
|
|
|
Other comprehensive
income (loss) [note 14] |
|
|
|
|
|
Items that may
subsequently be reclassified to income: |
|
|
|
|
|
Change in unrealized fair value of derivatives designated as
cash
flow hedges |
2 |
|
1 |
|
|
3 |
|
4 |
|
Adjustment for hedged items recognized in the period |
(1 |
) |
1 |
|
|
(2 |
) |
3 |
|
Share of other comprehensive income of associates |
(7 |
) |
2 |
|
|
(13 |
) |
7 |
|
Reclassification of accumulated gain to income related to the sale
of an associate |
(3 |
) |
– |
|
|
(3 |
) |
– |
|
|
(9 |
) |
4 |
|
|
(15 |
) |
14 |
|
Items that will not
subsequently be reclassified to income: |
|
|
|
|
|
Remeasurements on employee benefit plans |
(25 |
) |
– |
|
|
(25 |
) |
63 |
|
|
(34 |
) |
4 |
|
|
(40 |
) |
77 |
|
Comprehensive income (loss) |
195 |
|
(95 |
) |
|
531 |
|
(86 |
) |
Comprehensive income
(loss) attributable to: |
|
|
|
|
|
Equity shareholders |
195 |
|
(95 |
) |
|
531 |
|
(86 |
) |
See accompanying notes.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended May 31,
2019 |
|
|
|
|
|
|
|
|
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 |
– |
– |
|
569 |
|
– |
|
569 |
|
2 |
571 |
|
Other
comprehensive loss |
– |
– |
|
– |
|
(40 |
) |
(40 |
) |
– |
(40 |
) |
Comprehensive income
(loss) |
– |
– |
|
569 |
|
(40 |
) |
529 |
|
2 |
531 |
|
Dividends |
– |
– |
|
(301 |
) |
– |
|
(301 |
) |
– |
(301 |
) |
Dividend reinvestment
plan |
161 |
– |
|
(161 |
) |
– |
|
– |
|
– |
– |
|
Shares issued under stock
option plan |
37 |
(4 |
) |
– |
|
– |
|
33 |
|
– |
33 |
|
Share-based compensation |
– |
2 |
|
– |
|
– |
|
2 |
|
– |
2 |
|
Balance as at May 31, 2019 |
4,547 |
25 |
|
1,739 |
|
(79 |
) |
6,232 |
|
3 |
6,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended May 31,
2018 |
|
|
|
|
|
|
|
|
Attributable to equity shareholders |
|
|
(millions of Canadian dollars) |
Share
capital |
Contributed
surplus |
Retained
earnings |
Accumulated
other
comprehensive
loss |
Total |
Equity
attributable
to non-
controlling
interests |
Total
equity |
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 loss [restated, note
2] |
– |
– |
|
(163 |
) |
– |
|
(163 |
) |
– |
(163 |
) |
Other
comprehensive income |
– |
– |
|
– |
|
77 |
|
77 |
|
– |
77 |
|
Comprehensive income
(loss) |
– |
– |
|
(163 |
) |
77 |
|
(86 |
) |
– |
(86 |
) |
Dividends |
– |
– |
|
(294 |
) |
– |
|
(294 |
) |
– |
(294 |
) |
Dividend reinvestment
plan |
159 |
– |
|
(159 |
) |
– |
|
– |
|
– |
– |
|
Shares issued under stock
option plan |
35 |
(4 |
) |
– |
|
– |
|
31 |
|
– |
31 |
|
Share-based compensation |
– |
2 |
|
– |
|
– |
|
2 |
|
– |
2 |
|
Restated balance as at May 31, 2018 |
4,284 |
28 |
|
1,588 |
|
(54 |
) |
5,846 |
|
1 |
5,847 |
|
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated, note 2) |
|
2019 |
|
2018
(restated, note 2) |
OPERATING
ACTIVITIES |
|
|
|
|
|
Funds flow from
continuing operations [note 15] |
471 |
|
437 |
|
|
1,354 |
|
755 |
|
Net change in non-cash
balances related to continuing operations |
(39 |
) |
(64 |
) |
|
(221 |
) |
143 |
|
Operating activities of discontinued operations |
– |
|
– |
|
|
– |
|
(2 |
) |
|
432 |
|
373 |
|
|
1,133 |
|
896 |
|
INVESTING
ACTIVITIES |
|
|
|
|
|
Additions to property, plant
and equipment [note 3] |
(271 |
) |
(246 |
) |
|
(827 |
) |
(828 |
) |
Additions to equipment costs
(net) [note 3] |
(11 |
) |
(11 |
) |
|
(30 |
) |
(37 |
) |
Additions to other intangibles
[note 3] |
(29 |
) |
(29 |
) |
|
(82 |
) |
(84 |
) |
Spectrum acquisitions |
(492 |
) |
– |
|
|
(492 |
) |
– |
|
Proceeds on sale of
discontinued operations, net of cash sold |
– |
|
– |
|
|
– |
|
18 |
|
Proceeds on sale of
investments |
551 |
|
– |
|
|
551 |
|
– |
|
Net additions to investments
and other assets |
4 |
|
23 |
|
|
7 |
|
65 |
|
Proceeds on disposal of property, plant and equipment |
46 |
|
1 |
|
|
59 |
|
9 |
|
|
(202 |
) |
(262 |
) |
|
(814 |
) |
(857 |
) |
FINANCING
ACTIVITIES |
|
|
|
|
|
Increase in long-term
debt |
– |
|
– |
|
|
1,000 |
|
10 |
|
Bank facility arrangement
costs |
– |
|
– |
|
|
(9 |
) |
– |
|
Issue of Class B Non-Voting
Shares [note 12] |
10 |
|
4 |
|
|
33 |
|
31 |
|
Dividends paid on Class A
Shares and Class B Non-Voting Shares |
(97 |
) |
(96 |
) |
|
(292 |
) |
(286 |
) |
Dividends paid on Preferred
Shares |
(3 |
) |
(2 |
) |
|
(7 |
) |
(6 |
) |
Other |
(1 |
) |
(1 |
) |
|
(1 |
) |
(1 |
) |
|
(91 |
) |
(95 |
) |
|
724 |
|
(252 |
) |
Increase (decrease) in
cash |
139 |
|
16 |
|
|
1,043 |
|
(213 |
) |
Cash,
beginning of the period |
1,288 |
|
278 |
|
|
384 |
|
507 |
|
Cash, end of the period |
1,427 |
|
294 |
|
|
1,427 |
|
294 |
|
See accompanying notes.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
May 31, 2019 and 2018
[all amounts in millions of Canadian dollars, except share
and per share amounts]
1. CORPORATE
INFORMATION
Shaw Communications Inc. (the “Company”) is a
diversified Canadian connectivity company whose core operating
business is providing: Cable telecommunications, Satellite video
services and data networking to residential customers, businesses
and public-sector entities (“Wireline”); and wireless services for
voice and data communications (“Wireless”). The Company’s shares
are listed on the Toronto Stock Exchange (“TSX”), TSX Venture
Exchange (“TSXV”) and New York Stock Exchange (“NYSE”) (Symbol: TSX
- SJR.B, SJR.PR.A, SJR.PR.B, NYSE - SJR, and TSXV - SJR.A).
2. BASIS OF PRESENTATION AND
ACCOUNTING POLICIES
Statement of compliance
These condensed interim consolidated financial
statements of the Company have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) and in
compliance with International Accounting Standard (“IAS”) 34
Interim Financial Reporting as issued by the International
Accounting Standards Board (“IASB”).
The condensed interim consolidated financial
statements of the Company for the three and nine months ended May
31, 2019 were authorized for issue by the Audit Committee on June
26, 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 are required to make judgments in respect of the
new standard, including 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 and nine months ended
May 31, 2019, the comparative information presented for the three
and nine months ended May 31, 2018, 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 note 2(f) - “Transition adjustments” for the three and
nine months ended May 31, 2018, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, 2018 |
|
Nine months ended May 31, 2018 |
|
|
As |
|
Effect of |
|
Subsequent to |
|
As |
|
Effect of |
|
Subsequent to |
(millions of Canadian dollars) |
|
reported |
|
transition |
|
transition |
|
reported |
|
transition |
|
transition |
Revenue |
i. |
1,300 |
|
|
(11 |
) |
|
1,289 |
|
|
3,904 |
|
|
(41 |
) |
|
3,863 |
|
Operating, general and
administrative expenses |
ii. |
(753 |
) |
|
2 |
|
|
(751 |
) |
|
(2,375 |
) |
|
13 |
|
|
(2,362 |
) |
Other revenue (expense) |
|
1 |
|
|
– |
|
|
1 |
|
|
3 |
|
|
3 |
|
|
6 |
|
Income tax expense
(recovery) |
|
58 |
|
|
(3 |
) |
|
55 |
|
|
82 |
|
|
(10 |
) |
|
72 |
|
Net
loss from continuing operations |
|
(91 |
) |
|
(6 |
) |
|
(97 |
) |
|
(141 |
) |
|
(15 |
) |
|
(156 |
) |
i) Allocation of transaction price
Revenue recognized at point of sale requires the estimation of
total consideration over the contract term and allocation of that
consideration to all performance obligations in the contract based
on their relative stand-alone selling prices. For Wireless term
contracts, equipment revenue recognized at contract inception, as
well as service revenue recognized over the course of the contract
is lower than previously recognized as noted above.
ii) Deferred commission costs
Costs incurred to obtain or fulfill a contract with a customer were
previously expensed as incurred. Under IFRS 15, these costs are
capitalized and subsequently amortized as an expense over the life
of the 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 and nine months ended May 31,
2018, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, 2018 |
|
Nine months ended May 31, 2018 |
|
|
As |
|
Effect of |
|
Subsequent to |
|
As |
|
Effect of |
|
Subsequent to |
(millions of Canadian dollars) |
|
reported |
|
transition |
|
transition |
|
reported |
|
transition |
|
transition |
Services |
|
|
|
|
|
|
|
|
|
|
|
|
Wireline -
Consumer |
|
923 |
|
|
– |
|
|
923 |
|
|
2,784 |
|
|
– |
|
|
2,784 |
|
Wireline -
Business |
|
141 |
|
|
– |
|
|
141 |
|
|
421 |
|
|
– |
|
|
421 |
|
Wireless |
|
155 |
|
|
(9 |
) |
|
146 |
|
|
428 |
|
|
(21 |
) |
|
407 |
|
|
|
1,219 |
|
|
(9 |
) |
|
1,210 |
|
|
3,633 |
|
|
(21 |
) |
|
3,612 |
|
Equipment and
other |
|
|
|
|
|
|
|
|
|
|
|
|
Wireless |
|
82 |
|
|
(2 |
) |
|
80 |
|
|
274 |
|
|
(20 |
) |
|
254 |
|
|
|
82 |
|
|
(2 |
) |
|
80 |
|
|
274 |
|
|
(20 |
) |
|
254 |
|
Intersegment eliminations |
|
(1 |
) |
|
– |
|
|
(1 |
) |
|
(3 |
) |
|
– |
|
|
(3 |
) |
Total revenue |
|
1,300 |
|
|
(11 |
) |
|
1,289 |
|
|
3,904 |
|
|
(41 |
) |
|
3,863 |
|
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 of |
Subsequent to |
|
As |
Effect of |
Subsequent to |
(millions of Canadian dollars) |
|
reported |
transition |
transition |
|
reported |
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 liabilities
Contract assets and liabilities are the result
of the difference in timing related to revenue recognized at the
beginning of a contract and cash collected. Contract assets arise
primarily as a result of the difference between revenue recognized
on the sale of wireless device at the onset of a term contract and
the cash collected at the point of sale.
Contract liabilities are the result of receiving
payment related to a customer contract before providing the related
goods or services. We will account for contract assets and
liabilities on a contract-by-contract basis, with each contract
being presented as a single net contract asset or net contract
liability accordingly.
ii) Deferred commission cost asset
Under IFRS 15, we will defer commission costs
paid to internal and external representatives as a result of
obtaining contracts with customers as deferred commission cost
assets and amortize them over the pattern of the transfer of goods
and services to the customer, which is typically evenly over 24 to
36 months.
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
- 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 pronouncements are 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.
The Company continues to assess the impact of this standard on its
consolidated financial statements and is progressing with the
implementation of a new system that will enable it to comply with
the requirements of the standard on a contract-by-contract basis.
The Company continues to evaluate its accounting policy
determinations and has commenced the data validation process, both
of which the Company expects will continue throughout fiscal 2019.
The Company has decided that it will use a modified retrospective
approach upon adoption of IFRS 16 on September 1, 2019. The Company
intends to disclose the estimated financial effects of the adoption
of IFRS 16 in its 2019 annual audited consolidated financial
statements.
- IFRIC 23 Uncertainty over Income Tax Treatments was
issued in 2017 to clarify how to apply the recognition and
measurement requirements in IAS 12 when there is uncertainty over
income tax treatments. It is required to be applied for
annual periods commencing January 1, 2019, which for the Company
will be the annual period commencing September 1, 2019. The Company
is currently assessing the impact of this standard on its
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 and nine
months ended May 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, 2018 |
|
Nine months ended May 31, 2018 |
(millions of Canadian dollars) |
As reported |
|
IFRS 15 transition |
|
Change in accounting
policy |
|
Subsequent to transition |
|
As reported |
|
IFRS 15 transition |
|
Change in accounting
policy |
|
Subsequent to transition |
Revenue |
1,300 |
|
|
(11 |
) |
|
– |
|
|
1,289 |
|
|
3,904 |
|
|
(41 |
) |
|
– |
|
|
3,863 |
|
Operating, general and administrative expenses |
(753 |
) |
|
2 |
|
|
– |
|
|
(751 |
) |
|
(2,375 |
) |
|
13 |
|
|
– |
|
|
(2,362 |
) |
Restructuring costs |
(13 |
) |
|
– |
|
|
– |
|
|
(13 |
) |
|
(430 |
) |
|
– |
|
|
– |
|
|
(430 |
) |
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred equipment revenue |
7 |
|
|
– |
|
|
– |
|
|
7 |
|
|
24 |
|
|
– |
|
|
– |
|
|
24 |
|
Deferred equipment costs |
(27 |
) |
|
– |
|
|
– |
|
|
(27 |
) |
|
(85 |
) |
|
– |
|
|
– |
|
|
(85 |
) |
Property, plant and equipment, intangibles and other |
(229 |
) |
|
– |
|
|
(3 |
) |
|
(232 |
) |
|
(695 |
) |
|
– |
|
|
(10 |
) |
|
(705 |
) |
Operating income from
continuing operations |
285 |
|
|
(9 |
) |
|
(3 |
) |
|
273 |
|
|
343 |
|
|
(28 |
) |
|
(10 |
) |
|
305 |
|
Amortization of financing costs – long-term debt |
– |
|
|
– |
|
|
– |
|
|
– |
|
|
(2 |
) |
|
– |
|
|
– |
|
|
(2 |
) |
Interest expense |
(60 |
) |
|
– |
|
|
– |
|
|
(60 |
) |
|
(184 |
) |
|
– |
|
|
– |
|
|
(184 |
) |
Equity income of an associate or joint venture |
(259 |
) |
|
– |
|
|
– |
|
|
(259 |
) |
|
(213 |
) |
|
– |
|
|
– |
|
|
(213 |
) |
Other revenue (expense) |
1 |
|
|
– |
|
|
– |
|
|
1 |
|
|
3 |
|
|
3 |
|
|
– |
|
|
6 |
|
Loss from continuing operations before income
taxes |
(33 |
) |
|
(9 |
) |
|
(3 |
) |
|
(45 |
) |
|
(53 |
) |
|
(25 |
) |
|
(10 |
) |
|
(88 |
) |
Current income tax expense |
18 |
|
|
– |
|
|
– |
|
|
18 |
|
|
96 |
|
|
– |
|
|
– |
|
|
96 |
|
Deferred income tax expense (recovery) |
40 |
|
|
(3 |
) |
|
(1 |
) |
|
36 |
|
|
(14 |
) |
|
(10 |
) |
|
(3 |
) |
|
(27 |
) |
Net loss from continuing operations |
(91 |
) |
|
(6 |
) |
|
(2 |
) |
|
(99 |
) |
|
(135 |
) |
|
(15 |
) |
|
(7 |
) |
|
(157 |
) |
Loss from discontinued
operations, net of tax |
– |
|
|
– |
|
|
– |
|
|
– |
|
|
(6 |
) |
|
– |
|
|
– |
|
|
(6 |
) |
Net loss from
continuing operations |
(91 |
) |
|
(6 |
) |
|
(2 |
) |
|
(99 |
) |
|
(141 |
) |
|
(15 |
) |
|
(7 |
) |
|
(163 |
) |
Net loss from continuing operations attributable
to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
shareholders |
(91 |
) |
|
(6 |
) |
|
(2 |
) |
|
(99 |
) |
|
(135 |
) |
|
(15 |
) |
|
(7 |
) |
|
(157 |
) |
Loss from discontinued
operations attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
shareholders |
– |
|
|
– |
|
|
– |
|
|
– |
|
|
(6 |
) |
|
– |
|
|
– |
|
|
(6 |
) |
Basic earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
(0.18 |
) |
|
– |
|
|
– |
|
|
(0.20 |
) |
|
(0.28 |
) |
|
– |
|
|
– |
|
|
(0.33 |
) |
Discontinued
operations |
- |
|
|
– |
|
|
– |
|
|
- |
|
|
(0.01 |
) |
|
– |
|
|
– |
|
|
(0.01 |
) |
|
(0.18 |
) |
|
– |
|
|
– |
|
|
(0.20 |
) |
|
(0.29 |
) |
|
– |
|
|
– |
|
|
(0.34 |
) |
Diluted earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
(0.18 |
) |
|
– |
|
|
– |
|
|
(0.20 |
) |
|
(0.28 |
) |
|
– |
|
|
– |
|
|
(0.33 |
) |
Discontinued
operations |
- |
|
|
– |
|
|
– |
|
|
- |
|
|
(0.01 |
) |
|
– |
|
|
– |
|
|
(0.01 |
) |
|
(0.18 |
) |
|
– |
|
|
– |
|
|
(0.20 |
) |
|
(0.29 |
) |
|
– |
|
|
– |
|
|
(0.34 |
) |
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 and August 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 1, 2017 |
|
As at August 31, 2018 |
(millions of Canadian dollars) |
As reported |
IFRS 15 transition |
Change in
accounting policy |
Subsequent to transition |
|
As reported |
IFRS 15 transition |
Change in
accounting policy |
Subsequent to transition |
ASSETS |
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
Cash |
507 |
– |
|
– |
|
507 |
|
384 |
– |
|
– |
|
384 |
Accounts receivable |
286 |
– |
|
– |
|
286 |
|
255 |
– |
|
(2 |
) |
253 |
Inventories |
109 |
– |
|
(50 |
) |
59 |
|
101 |
– |
|
(40 |
) |
61 |
Other current assets |
155 |
24 |
|
– |
|
179 |
|
286 |
(13 |
) |
– |
|
273 |
Current portion of contract assets |
– |
15 |
|
– |
|
15 |
|
– |
59 |
|
– |
|
59 |
Assets held for sale |
61 |
– |
|
– |
|
61 |
|
– |
– |
|
– |
|
– |
|
1,118 |
39 |
|
(50 |
) |
1,107 |
|
1,026 |
46 |
|
(42 |
) |
1,030 |
Investments and other
assets |
937 |
– |
|
– |
|
937 |
|
660 |
– |
|
– |
|
660 |
Property, plant and
equipment |
4,344 |
– |
|
50 |
|
4,394 |
|
4,672 |
– |
|
30 |
|
4,702 |
Other long-term assets |
255 |
(39 |
) |
– |
|
216 |
|
300 |
(102 |
) |
(1 |
) |
197 |
Deferred income tax
assets |
4 |
– |
|
– |
|
4 |
|
4 |
– |
|
– |
|
4 |
Intangibles |
7,435 |
– |
|
– |
|
7,435 |
|
7,482 |
– |
|
– |
|
7,482 |
Goodwill |
280 |
– |
|
– |
|
280 |
|
280 |
– |
|
– |
|
280 |
Contract assets |
– |
44 |
|
– |
|
44 |
|
– |
76 |
|
– |
|
76 |
|
14,373 |
44 |
|
– |
|
14,417 |
|
14,424 |
20 |
|
(13 |
) |
14,431 |
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
Short-term borrowings |
– |
– |
|
– |
|
– |
|
40 |
– |
|
– |
|
40 |
Accounts payable and accrued liabilities |
913 |
(4 |
) |
– |
|
909 |
|
971 |
(1 |
) |
– |
|
970 |
Provisions |
76 |
– |
|
– |
|
76 |
|
245 |
– |
|
– |
|
245 |
Income taxes payable |
151 |
– |
|
– |
|
151 |
|
133 |
– |
|
– |
|
133 |
Unearned revenue |
211 |
(211 |
) |
– |
|
- |
|
221 |
(221 |
) |
– |
|
– |
Current portion of contract liabilities |
– |
214 |
|
– |
|
214 |
|
– |
226 |
|
– |
|
226 |
Current portion of long-term debt |
2 |
– |
|
– |
|
2 |
|
1 |
– |
|
– |
|
1 |
Liabilities held for sale |
39 |
– |
|
– |
|
39 |
|
– |
– |
|
– |
|
– |
|
1,392 |
(1 |
) |
– |
|
1,391 |
|
1,611 |
4 |
|
– |
|
1,615 |
Long-term debt |
4,298 |
– |
|
– |
|
4,298 |
|
4,310 |
– |
|
– |
|
4,310 |
Other long-term
liabilities |
114 |
– |
|
– |
|
114 |
|
13 |
– |
|
– |
|
13 |
Provisions |
67 |
– |
|
– |
|
67 |
|
179 |
– |
|
– |
|
179 |
Deferred credits |
490 |
(21 |
) |
– |
|
469 |
|
460 |
(18 |
) |
– |
|
442 |
Contract liabilities |
– |
21 |
|
– |
|
21 |
|
– |
18 |
|
– |
|
18 |
Deferred income tax liabilities |
1,858 |
5 |
|
– |
|
1,863 |
|
1,894 |
(6 |
) |
(4 |
) |
1,884 |
|
8,219 |
4 |
|
– |
|
8,223 |
|
8,467 |
(2 |
) |
(4 |
) |
8,461 |
Shareholders'
equity |
|
|
|
|
|
|
|
|
|
Common and preferred
shareholders |
6,153 |
40 |
|
– |
|
6,193 |
|
5,956 |
22 |
|
(9 |
) |
5,969 |
Non-controlling interests in subsidiaries |
1 |
– |
|
– |
|
1 |
|
1 |
– |
|
– |
|
1 |
|
6,154 |
40 |
|
– |
|
6,194 |
|
5,957 |
22 |
|
(9 |
) |
5,970 |
|
14,373 |
44 |
|
– |
|
14,417 |
|
14,424 |
20 |
|
(13 |
) |
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 and
nine months ended May 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, 2018 |
|
Nine months ended May 31, 2018 |
(millions of Canadian dollars) |
As reported |
|
IFRS 15 transition |
|
Change in accounting
policy |
|
Subsequent to transition |
|
As reported |
|
IFRS 15 transition |
|
Change in accounting
policy |
|
Subsequent to transition |
OPERATING
ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds flow from
continuing operations |
459 |
|
|
(22 |
) |
|
– |
|
|
437 |
|
|
817 |
|
|
(62 |
) |
|
– |
|
|
755 |
|
Net change in non-cash
balances related to continuing operations |
(101 |
) |
|
22 |
|
|
15 |
|
|
(64 |
) |
|
86 |
|
|
62 |
|
|
(5 |
) |
|
143 |
|
Operating activities of discontinued operations |
– |
|
|
– |
|
|
– |
|
|
– |
|
|
(2 |
) |
|
– |
|
|
– |
|
|
(2 |
) |
|
358 |
|
|
– |
|
|
15 |
|
|
373 |
|
|
901 |
|
|
– |
|
|
(5 |
) |
|
896 |
|
INVESTING
ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant
and equipment |
(231 |
) |
|
– |
|
|
(15 |
) |
|
(246 |
) |
|
(833 |
) |
|
– |
|
|
5 |
|
|
(828 |
) |
Additions to equipment costs
(net) |
(11 |
) |
|
– |
|
|
– |
|
|
(11 |
) |
|
(37 |
) |
|
– |
|
|
– |
|
|
(37 |
) |
Additions to other
intangibles |
(29 |
) |
|
– |
|
|
– |
|
|
(29 |
) |
|
(84 |
) |
|
– |
|
|
– |
|
|
(84 |
) |
Proceeds on sale of
discontinued operations, net of cash sold |
– |
|
|
– |
|
|
– |
|
|
– |
|
|
18 |
|
|
– |
|
|
– |
|
|
18 |
|
Net additions to investments
and other assets |
23 |
|
|
– |
|
|
– |
|
|
23 |
|
|
65 |
|
|
– |
|
|
– |
|
|
65 |
|
Proceeds on disposal of property, plant and equipment |
1 |
|
|
– |
|
|
– |
|
|
1 |
|
|
9 |
|
|
– |
|
|
– |
|
|
9 |
|
|
(247 |
) |
|
– |
|
|
(15 |
) |
|
(262 |
) |
|
(862 |
) |
|
– |
|
|
5 |
|
|
(857 |
) |
FINANCING
ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in long-term
debt |
– |
|
|
– |
|
|
– |
|
|
– |
|
|
10 |
|
|
– |
|
|
– |
|
|
10 |
|
Debt repayments |
(1 |
) |
|
– |
|
|
– |
|
|
(1 |
) |
|
(1 |
) |
|
– |
|
|
– |
|
|
(1 |
) |
Issue of Class B Non-Voting
Shares |
4 |
|
|
– |
|
|
– |
|
|
4 |
|
|
31 |
|
|
– |
|
|
– |
|
|
31 |
|
Dividends paid on Class A
Shares and Class B Non-Voting Shares |
(96 |
) |
|
– |
|
|
– |
|
|
(96 |
) |
|
(286 |
) |
|
– |
|
|
– |
|
|
(286 |
) |
Dividends paid on Preferred Shares |
(2 |
) |
|
– |
|
|
– |
|
|
(2 |
) |
|
(6 |
) |
|
– |
|
|
– |
|
|
(6 |
) |
|
(95 |
) |
|
– |
|
|
– |
|
|
(95 |
) |
|
(252 |
) |
|
– |
|
|
– |
|
|
(252 |
) |
Increase (decrease) in
cash |
16 |
|
|
– |
|
|
– |
|
|
16 |
|
|
(213 |
) |
|
– |
|
|
– |
|
|
(213 |
) |
Cash,
beginning of the period |
278 |
|
|
– |
|
|
– |
|
|
278 |
|
|
507 |
|
|
– |
|
|
– |
|
|
507 |
|
Cash of continuing operations, end of the
period |
294 |
|
|
– |
|
|
– |
|
|
294 |
|
|
294 |
|
|
– |
|
|
– |
|
|
294 |
|
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 May 31, |
|
Nine months ended May 31, |
|
2019 |
|
2018
(restated, note 2) |
|
2019 |
|
2018
(restated, note 2) |
Revenue |
|
|
|
|
|
Wireline |
1,075 |
|
1,064 |
|
|
3,229 |
|
3,205 |
|
Wireless |
251 |
|
226 |
|
|
771 |
|
661 |
|
|
1,326 |
|
1,290 |
|
|
4,000 |
|
3,866 |
|
Intersegment eliminations |
(2 |
) |
(1 |
) |
|
(5 |
) |
(3 |
) |
|
1,324 |
|
1,289 |
|
|
3,995 |
|
3,863 |
|
Operating income
before restructuring costs and
amortization |
|
|
|
|
|
Wireline |
475 |
|
485 |
|
|
1,472 |
|
1,397 |
|
Wireless |
55 |
|
53 |
|
|
152 |
|
104 |
|
|
530 |
|
538 |
|
|
1,624 |
|
1,501 |
|
Restructuring costs |
– |
|
(13 |
) |
|
(1 |
) |
(430 |
) |
Amortization |
(263 |
) |
(252 |
) |
|
(788 |
) |
(766 |
) |
Operating income |
267 |
|
273 |
|
|
835 |
|
305 |
|
Current
taxes |
|
|
|
|
|
Operating |
10 |
|
29 |
|
|
80 |
|
116 |
|
Other/non-operating |
(2 |
) |
(11 |
) |
|
5 |
|
(20 |
) |
|
8 |
|
18 |
|
|
85 |
|
96 |
|
Capital expenditures
|
|
|
|
|
|
Three months ended May 31, |
Nine months ended May 31, |
|
2019 |
|
2018
(restated, note 2) |
2019 |
|
2018
(restated, note 2) |
Capital expenditures
accrual basis |
|
|
|
|
Wireline |
182 |
|
228 |
|
562 |
|
646 |
|
Wireless |
87 |
|
68 |
|
237 |
|
241 |
|
|
269 |
|
296 |
|
799 |
|
887 |
|
Equipment costs (net
of revenue) |
|
|
|
|
Wireline |
11 |
|
12 |
|
31 |
|
41 |
|
Capital expenditures
and equipment costs (net) |
|
|
|
|
Wireline |
193 |
|
240 |
|
593 |
|
687 |
|
Wireless |
87 |
|
68 |
|
237 |
|
241 |
|
|
280 |
|
308 |
|
830 |
|
928 |
|
Reconciliation to
Consolidated Statements of Cash Flows |
|
|
|
|
Additions to property, plant and equipment |
271 |
|
246 |
|
827 |
|
828 |
|
Additions to equipment costs (net) |
11 |
|
11 |
|
30 |
|
37 |
|
Additions to other intangibles |
29 |
|
29 |
|
82 |
|
84 |
|
Total of capital expenditures and equipment costs (net) per
Consolidated Statements of Cash Flows |
311 |
|
286 |
|
939 |
|
949 |
|
Increase/(decrease) in working capital and other
liabilities related to capital expenditures |
15 |
|
22 |
|
(51 |
) |
(15 |
) |
Decrease in customer equipment financing receivables |
– |
|
1 |
|
1 |
|
3 |
|
Less: Proceeds on disposal of property, plant and
equipment |
(46 |
) |
(1 |
) |
(59 |
) |
(9 |
) |
Total capital expenditures and equipment costs (net) reported
by segments |
280 |
|
308 |
|
830 |
|
928 |
|
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 liabilities
We 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 assets
We defer the incremental cost to 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 as 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 |
116 |
|
|
– |
|
Contract assets transferred to
trade receivables |
(109 |
) |
|
– |
|
Contract terminations
transferred to trade receivables |
(6 |
) |
|
– |
|
Revenue recognized included in
contract liabilities at the beginning of the year |
– |
|
|
(234 |
) |
Increase in contract liabilities during the period |
– |
|
|
224 |
|
Ending balance, as at May 31, 2019 |
136 |
|
|
234 |
|
|
|
|
|
|
|
|
|
|
Contract |
|
Contract |
|
Assets |
|
Liabilities |
Current |
59 |
|
226 |
Long-term |
76 |
|
18 |
Balance
as at September 1, 2018 |
135 |
|
244 |
Current |
61 |
|
219 |
Long-term |
75 |
|
15 |
Balance as at May 31, 2019 |
136 |
|
234 |
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 nine months ended May 31, 2019 and 2018. 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.
|
|
|
|
|
|
|
2019 |
|
2018 |
|
Opening balance, as at September 1 |
75 |
|
57 |
|
Additions to deferred commission cost assets |
58 |
|
41 |
|
Amortization
recognized on deferred commission cost assets |
(48 |
) |
(38 |
) |
Ending
balance, as at May 31 |
85 |
|
60 |
|
Commission costs are amortized over a period
ranging from 24 to 36 months.
Disaggregation of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
2019 |
|
2018
(restated, note 2) |
|
2019 |
|
2018
(restated, note 2) |
Services |
|
|
|
|
|
Wireline -
Consumer |
925 |
|
923 |
|
|
2,784 |
|
2,784 |
|
Wireline -
Business |
150 |
|
141 |
|
|
445 |
|
421 |
|
Wireless |
178 |
|
146 |
|
|
513 |
|
407 |
|
|
1,253 |
|
1,210 |
|
|
3,742 |
|
3,612 |
|
Equipment and
other |
|
|
|
|
|
Wireless |
73 |
|
80 |
|
|
258 |
|
254 |
|
|
73 |
|
80 |
|
|
258 |
|
254 |
|
Intersegment eliminations |
(2 |
) |
(1 |
) |
|
(5 |
) |
(3 |
) |
Total revenue |
1,324 |
|
1,289 |
|
|
3,995 |
|
3,863 |
|
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 May 31,
2019.
|
|
|
|
|
|
|
|
|
Within |
Within |
|
|
1 year |
2 years |
Total |
Wireline |
733 |
140 |
873 |
Wireless |
318 |
127 |
445 |
Total |
1,051 |
267 |
1,318 |
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
|
|
|
|
|
|
|
|
|
May 31, 2019 |
|
August 31, 2018
(restated, note 2) |
Prepaid expenses |
120 |
|
104 |
Costs incurred to obtain or
fulfill a contract with a customer(1) |
56 |
|
48 |
Wireless handset receivables(2) |
130 |
|
121 |
|
306 |
|
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
Effective May 29, 2019, the Company amended the
terms of its accounts receivable securitization program to extend
the term of the program to May 29, 2022 and increase the sales
committed up to a maximum of $200 million.
A summary of our accounts receivable
securitization program is as follows:
|
|
|
|
|
|
|
|
|
May 31, 2019 |
|
August 31, 2018 |
Trade accounts receivable sold
to buyer as security |
403 |
|
|
429 |
|
Short-term borrowings from buyer |
(40 |
) |
|
(40 |
) |
Over-collateralization |
363 |
|
|
389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
2019 |
2018 |
|
2019 |
2018 |
Accounts receivable
securitization program, beginning of period |
40 |
– |
|
40 |
– |
Proceeds received from accounts receivable securitization |
– |
– |
|
– |
– |
Repayment of accounts receivable securitization |
– |
– |
|
– |
– |
Accounts receivable securitization program, end of
period |
40 |
– |
|
40 |
– |
7. PROVISIONS
|
|
|
|
|
|
|
|
|
|
|
Asset
retirement
obligations |
Restructuring (1) |
Other |
Total |
Balance as at September 1,
2018 |
67 |
276 |
|
81 |
|
424 |
|
Additions |
– |
1 |
|
10 |
|
11 |
|
Accretion |
7 |
– |
|
– |
|
7 |
|
Reversal |
– |
– |
|
– |
|
– |
|
Payments |
– |
(102 |
) |
(26 |
) |
(128 |
) |
Balance as at May 31, 2019 |
74 |
175 |
|
65 |
|
314 |
|
Current |
– |
166 |
|
79 |
|
245 |
|
Long-term |
67 |
110 |
|
2 |
|
179 |
|
Balance
as at September 1, 2018 |
67 |
276 |
|
81 |
|
424 |
|
Current |
– |
174 |
|
65 |
|
239 |
|
Long-term |
74 |
1 |
|
– |
|
75 |
|
Balance as at May 31, 2019 |
74 |
175 |
|
65 |
|
314 |
|
(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 $101 has been paid in fiscal 2019. The
remaining costs are expected to be paid out within the next 20
months.
8. OPERATING, GENERAL AND
ADMINISTRATIVE EXPENSES AND RESTRUCTURING COSTS
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
2019 |
2018
(restated, note 2) |
|
2019 |
2018
(restated, note 2) |
Employee salaries and benefits(1) |
176 |
186 |
|
511 |
980 |
Purchase of goods and
services |
618 |
578 |
|
1,861 |
1,812 |
|
794 |
764 |
|
2,372 |
2,792 |
(1)
For the three and nine months ended May 31, 2019, employee salaries
and benefits include nil (2018 - $5) and $1 (2018 - $407) in
restructuring costs, respectively.
9. OTHER GAINS
(LOSSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
2019 |
|
2018 |
|
2019 |
|
2018
(restated, note 2) |
Gain on disposal of fixed assets |
40 |
|
– |
|
36 |
|
1 |
Gain on disposal of investments |
15 |
|
– |
|
15 |
|
– |
Other |
(2 |
) |
1 |
|
(3 |
) |
5 |
|
53 |
|
1 |
|
48 |
|
6 |
Other gains (losses) generally includes realized
and unrealized foreign exchange gains and losses on US dollar
denominated current assets and liabilities, gains and losses on
disposal of property, plant and equipment and minor investments,
and the Company’s share of the operations of Burrard Landing Lot 2
Holdings Partnership
10. INCOME TAXES
On May 28, 2019, the Alberta government passed Bill 3, the Job
Creation Tax Cut, which will reduce the Alberta provincial
corporate tax rates from 12% to 8% in a phased approach between
July 1, 2019 and January 1, 2022. As these changes were considered
substantively enacted on May 28, 2019, we recognized a $102
recovery of deferred tax for the three months ended May 31, 2019
related to this change.
11. LONG-TERM
DEBT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2019 |
|
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 |
498 |
2 |
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 |
1,420 |
30 |
1,450 |
|
1,419 |
31 |
1,450 |
|
|
5,257 |
43 |
5,300 |
|
4,261 |
39 |
4,300 |
Other |
|
|
|
|
|
|
|
|
Burrard
Landing Lot 2 Holdings Partnership |
Various |
50 |
– |
50 |
|
50 |
– |
50 |
Total consolidated debt |
|
5,307 |
43 |
5,350 |
|
4,311 |
39 |
4,350 |
Less
current portion(2) |
|
1,251 |
1 |
1,252 |
|
1 |
– |
1 |
|
|
4,056 |
42 |
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.
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 which occurred during the period
from March 14, 2019 to April 10, 2019. The Company’s wireless
subsidiary, Freedom Mobile Inc., successfully acquired 11 paired
blocks of 20-year 600 MHz spectrum, across its wireless operating
footprint, for a total price of $492. In accordance with 600
MHz auction terms, 20% ($98) was paid to ISED on April 26, 2019 and
the remaining 80% balance ($394) was paid on May 24, 2019. As
of May 31, 2019, all of the letters of credit were cancelled and
the unsecured letter of credit facilities were all terminated.
12. SHARE CAPITAL
Changes in share capital during the nine-months
ended May 31, 2019 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 |
– |
|
– |
|
1,576,311 |
37 |
|
– |
– |
|
– |
– |
Issued pursuant to dividend
reinvestment plan |
– |
|
– |
|
6,295,549 |
161 |
|
– |
– |
|
– |
– |
Class A
conversions to Class B |
(48,000 |
) |
– |
|
48,000 |
– |
|
– |
– |
|
– |
– |
May 31, 2019 |
22,372,064 |
|
2 |
|
492,114,204 |
4,252 |
|
10,012,393 |
245 |
|
1,987,607 |
48 |
13. EARNINGS (LOSS) PER
SHARE
Earnings (loss) per share calculations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
2019 |
|
2018
(restated, note 2) |
|
2019 |
|
2018
(restated, note 2) |
Numerator for basic
and diluted earnings (loss) per share ($) |
|
|
|
|
|
Net income (loss) from
continuing operations |
229 |
|
(99 |
) |
|
571 |
|
(157 |
) |
Deduct: net income
attributable to non-controlling interests in subsidiaries |
(2 |
) |
– |
|
|
(2 |
) |
– |
|
Deduct:
dividends on Preferred Shares |
(3 |
) |
(2 |
) |
|
(7 |
) |
(6 |
) |
Net income (loss) attributable
to common shareholders from continuing operations |
224 |
|
(101 |
) |
|
562 |
|
(163 |
) |
Loss
from discontinued operations |
– |
|
– |
|
|
– |
|
(6 |
) |
Loss
from discontinued operations attributable to common
shareholders |
– |
|
– |
|
|
– |
|
(6 |
) |
Net
income (loss) attributable to common shareholders |
224 |
|
(101 |
) |
|
562 |
|
(169 |
) |
Denominator (millions
of shares) |
|
|
|
|
|
Weighted average number of
Class A Shares and Class B Non-Voting Shares for basic
earnings per share |
512 |
|
503 |
|
|
510 |
|
500 |
|
Effect
of dilutive securities (1) |
– |
|
1 |
|
|
– |
|
1 |
|
Weighted average number of Class A Shares and Class
B Non-Voting Shares for diluted earnings per share |
512 |
|
504 |
|
|
510 |
|
501 |
|
Basic earnings (loss)
per share ($) |
|
|
|
|
|
Continuing operations |
0.44 |
|
(0.20 |
) |
|
1.10 |
|
(0.33 |
) |
Discontinued operations |
– |
|
– |
|
|
– |
|
(0.01 |
) |
Attributable to common shareholders |
0.44 |
|
(0.20 |
) |
|
1.10 |
|
(0.34 |
) |
Diluted earnings
(loss) per share ($) |
|
|
|
|
|
Continuing operations |
0.44 |
|
(0.20 |
) |
|
1.10 |
|
(0.33 |
) |
Discontinued operations |
– |
|
– |
|
|
– |
|
(0.01 |
) |
Attributable to common shareholders |
0.44 |
|
(0.20 |
) |
|
1.10 |
|
(0.34 |
) |
(1)
The earnings per share calculation does not take into consideration
the potential dilutive effect of certain stock options since their
impact is anti-dilutive. For the three and nine months ended
May 31, 2019, 4,602,448 (2018 – 5,800,939) and 6,226,089 (2018 –
4,200,298) options were excluded from the diluted earnings per
share calculation, respectively.
14. OTHER COMPREHENSIVE INCOME
(LOSS) AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Components of other comprehensive income (loss)
and the related income tax effects for the nine months ended
May 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
Amount |
Income taxes |
Net |
Items that may
subsequently be reclassified to income |
|
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
4 |
|
(1 |
) |
3 |
|
Adjustment for hedged items recognized in the period |
(3 |
) |
1 |
|
(2 |
) |
Share of other comprehensive income of associates |
(13 |
) |
– |
|
(13 |
) |
Reclassification of accumulated loss to income related to the sale
of an associate |
(3 |
) |
– |
|
(3 |
) |
|
(15 |
) |
– |
|
(15 |
) |
Items that will not be
subsequently reclassified to income |
|
|
|
Remeasurements on employee benefit plans |
(33 |
) |
8 |
|
(25 |
) |
|
(48 |
) |
8 |
|
(40 |
) |
Components of other comprehensive income (loss)
and the related income tax effects for the three months ended
May 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
Amount |
Income taxes |
Net |
Items that may
subsequently be reclassified to income |
|
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
3 |
|
(1 |
) |
2 |
|
Adjustment for hedged items recognized in the period |
(2 |
) |
1 |
|
(1 |
) |
Share of other comprehensive income of associates |
(7 |
) |
– |
|
(7 |
) |
Reclassification of accumulated loss to income related to the sale
of an associate |
(3 |
) |
– |
|
(3 |
) |
|
(9 |
) |
– |
|
(9 |
) |
Items that will not be
subsequently be reclassified to income |
|
|
|
Remeasurements on employee benefit plans |
(33 |
) |
8 |
|
(25 |
) |
|
(42 |
) |
8 |
|
(34 |
) |
Components of other comprehensive income and the
related income tax effects for the nine months ended May 31, 2018
are as follows:
|
|
|
|
|
|
|
|
|
Amount |
Income taxes |
Net |
Items that may
subsequently be reclassified to income |
|
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
6 |
(2 |
) |
4 |
Adjustment for hedged items recognized in the period |
4 |
(1 |
) |
3 |
Share of other comprehensive income of associates |
7 |
– |
|
7 |
|
17 |
(3 |
) |
14 |
Items that will not be
subsequently reclassified to income |
|
|
|
Remeasurements on employee benefit plans |
85 |
(22 |
) |
63 |
|
102 |
(25 |
) |
77 |
Components of other comprehensive income and the
related income tax effects for the three months ended May 31, 2018
are as follows:
|
|
|
|
|
|
|
|
|
Amount |
Income taxes |
Net |
Items that may
subsequently be reclassified to income |
|
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
2 |
(1 |
) |
1 |
Adjustment for hedged items recognized in the period |
1 |
– |
|
1 |
Share of other comprehensive income of associates |
2 |
– |
|
2 |
|
5 |
(1 |
) |
4 |
Accumulated other comprehensive loss is comprised of the
following:
|
|
|
|
|
|
|
|
|
May 31, 2019 |
|
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 |
|
Reclassification of accumulated gain from other comprehensive
income related to the sale of an associate |
(18 |
) |
|
– |
|
|
|
|
|
Items that will not be
subsequently reclassified to income |
|
|
|
Remeasurements on employee benefit plans: |
|
|
|
Continuing operations |
(81 |
) |
|
(57 |
) |
|
(79 |
) |
|
(39 |
) |
15. 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 May 31, |
|
Nine months ended May 31, |
|
2019 |
|
2018
(restated, note 2) |
|
2019 |
|
2018
(restated, note 2) |
Net income (loss) from
continuing operations |
229 |
|
(99 |
) |
|
571 |
|
(157 |
) |
Adjustments to reconcile net
income to funds
flow from operations: |
|
|
|
|
|
Amortization |
264 |
|
252 |
|
|
790 |
|
768 |
|
Deferred income tax expense (recovery) |
(69 |
) |
36 |
|
|
(30 |
) |
(27 |
) |
Share-based compensation |
– |
|
– |
|
|
2 |
|
2 |
|
Defined benefit pension plans |
3 |
|
4 |
|
|
9 |
|
12 |
|
Equity (income)/loss of an associate or joint venture |
(20 |
) |
259 |
|
|
(46 |
) |
213 |
|
Loss on disposal of an associate or joint venture |
109 |
|
– |
|
|
109 |
|
– |
|
Gain on sale of investments |
(15 |
) |
– |
|
|
(15 |
) |
– |
|
Net change in contract asset balances |
9 |
|
(16 |
) |
|
(1 |
) |
(57 |
) |
Gain on disposal of fixed assets |
(40 |
) |
– |
|
|
(36 |
) |
(1 |
) |
Other |
1 |
|
1 |
|
|
1 |
|
2 |
|
Funds
flow from continuing operations |
471 |
|
437 |
|
|
1,354 |
|
755 |
|
(ii)
Interest and
income taxes paid and interest received and classified as operating
activities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
2019 |
2018 |
|
|
2019 |
2018 |
Interest paid |
109 |
90 |
|
|
220 |
207 |
Income taxes paid (recovered)
(net of refunds) |
29 |
(28 |
) |
|
126 |
136 |
Interest received |
1 |
1 |
|
|
4 |
3 |
(iii)
Non-cash
transactions:
The Consolidated Statements of Cash Flows
exclude the following non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
2019 |
2018 |
|
2019 |
2018 |
Issuance of Class B Non-Voting
Shares: |
|
|
|
|
|
Dividend reinvestment plan |
54 |
53 |
|
161 |
159 |
16. 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 liabilities
The 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 assets
The fair value of publicly traded investments is determined by
quoted market prices. Investments in private entities which do not
have quoted market prices in an active market and whose fair value
cannot be readily measured are carried at cost. No published market
exists for such investments. These equity investments have been
made as they are considered to have the potential to provide future
benefit to the Company and accordingly, the Company has no current
intention to dispose of these investments in the near term. The
fair value of long-term receivables approximates their carrying
value as they are recorded at the net present values of their
future cash flows, using an appropriate discount rate.
- Long-term debt
The carrying value of long-term debt is at amortized cost based on
the initial fair value as determined at the time of issuance or at
the time of a business acquisition. The fair value of publicly
traded notes is based upon current trading values. The fair value
of finance lease obligations is determined by discounting future
cash flows using a rate for loans with similar terms, conditions
and maturity dates. The carrying value of bank credit facilities
approximates fair value as the debt bears interest at rates that
fluctuate with market values. Other notes and debentures are valued
based upon current trading values for similar instruments.
- Other long-term liabilities
The fair value of contingent consideration arising from a business
acquisition is determined by calculating the present value of the
probability weighted assessment of the likelihood that revenue
targets will be met and the estimated timing of such payments.
- Derivative financial instruments
The fair value of US currency forward purchase contracts is
determined by an estimated credit-adjusted mark-to-market valuation
using observable forward exchange rates at the end of reporting
periods and contract forward rates.
The carrying values and estimated fair values of
long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2019 |
|
August 31, 2018 |
|
Carrying
value |
Estimated
fair value |
|
Carrying
value |
Estimated
fair value |
Liabilities |
|
|
|
|
|
Long-term debt (including current portion)(1) |
5,307 |
5,933 |
|
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.
17. INVESTMENTS AND OTHER
ASSETS
|
|
|
|
|
|
|
|
|
May 31, 2019 |
|
August 31, 2018 |
Publicly traded companies |
– |
|
615 |
Investments in private entities |
37 |
|
45 |
|
37 |
|
660 |
During the three months ended May 31, 2019, the Company disposed
of a portfolio investment with a book value of $10 for proceeds of
$25.
Corus Entertainment Inc.
On May 31, 2019, the Company sold all of its
80,630,383 Class B non-voting participating shares of Corus at a
price of $6.80 per share. Proceeds, net of transaction costs were
$526, which resulted in a loss of $109 for the three and nine
months ended May 31, 2019.
The Company’s weighted average ownership of
Corus for the nine months ended May 31, 2019 was 38% (2018 – 39%).
For the three and nine months ended May 31, 2019, the Company
received dividends of $5 (2018 - $23) and $10 (2018 - $69) from
Corus, respectively.
Summary financial information for Corus through
the disposal date is as follows:
|
|
|
|
|
|
|
|
|
|
Summarized statement
of earnings of Corus: |
|
|
|
|
|
Three months ended May 31, |
Nine months ended May 31, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
Revenue |
458 |
|
441 |
|
1,310 |
|
1,268 |
|
Net income attributable
to: |
|
|
|
|
Shareholders |
66 |
|
(936 |
) |
133 |
|
(818 |
) |
Non-controlling interest |
7 |
|
7 |
|
19 |
|
20 |
|
|
73 |
|
(929 |
) |
152 |
|
(798 |
) |
Other
comprehensive income (loss), attributable to shareholders |
(24 |
) |
5 |
|
(40 |
) |
18 |
|
Comprehensive income |
49 |
|
(924 |
) |
112 |
|
(780 |
) |
Equity income from associates,
excluding goodwill impairment |
20 |
|
25 |
|
46 |
|
71 |
|
Impairment of investment in associate(1) |
– |
|
(284 |
) |
– |
|
(284 |
) |
Equity income from
associates(2) |
20 |
|
(259 |
) |
46 |
|
(213 |
) |
Other
comprehensive income (loss) from equity accounted
associates(2) |
(7 |
) |
2 |
|
(13 |
) |
7 |
|
|
13 |
|
(257 |
) |
33 |
|
(206 |
) |
(1)
The Company assessed its investment in Corus for
indicators of impairment, which included a significant and
sustained decrease in the share price as well as the recording by
Corus of an impairment charge against their goodwill and broadcast
license intangibles, and found that there was evidence that
impairment had occurred. The Company compared the recoverable
amount to the carrying value and determined that an impairment
charge of $284 million was required. The recoverable amount was
determined based on the value in use of the investment.
(2)
The Company’s share of income and other comprehensive income
reflect the weighted average proportion of Corus net income and
other comprehensive income attributable to shareholders for the
three and nine month periods ended May 31, 2019 and 2018.
|
|
|
|
|
|
Carrying amount at August 31,
2018 |
615 |
|
Share of equity at disposition
date |
46 |
|
Share of other comprehensive
income (loss) of associates |
(13 |
) |
Dividends received to disposition date |
(10 |
) |
Carrying value at disposition date |
638 |
|
|
|
Proceeds on disposal, net of
transaction costs |
526 |
|
Reclassification of accumulated gain from other comprehensive
income related to the sale of an associate |
(3 |
) |
Loss on sale of investment |
109 |
|
18. INTANGIBLES AND GOODWILL
In April 2019, the Company acquired 11 paired blocks of 20-year
600 MHz spectrum, across its wireless operating footprint, for a
total price of $492 million. The spectrum acquisition rights
secured through the auction include 30 MHz across each of British
Columbia, Alberta and Southern Ontario as well as 20 MHz in Eastern
Ontario.
The purchase was funded from cash on hand.
Impairment testing of indefinite-life intangibles and
goodwill
The Company conducted its annual impairment test
on goodwill and indefinite-life intangibles as at February 1, 2019
and the recoverable amount of the cash generating units exceeded
their carrying value.
A hypothetical decline of 10% in the recoverable
amount of the broadcast rights and licences for the Cable cash
generating unit as at February 1, 2019 would not result in any
impairment loss. A hypothetical decline of 10% in the recoverable
amount of the broadcast rights and licences for the Satellite cash
generating unit as at February 1, 2019 would not result in an
impairment loss. A hypothetical decline of 10% in the recoverable
amount of the Wireless generating unit as at February 1, 2019 would
not result in any impairment loss.
Any changes in economic conditions since the
impairment testing conducted as at February 1, 2019 do not
represent events or changes in circumstance that would be
indicative of impairment at May 31, 2019.
Significant estimates inherent to this analysis
include discount rates and the terminal value. At February 1, 2019,
the
estimates that have been utilized in the impairment tests reflect
any changes in market conditions and are as follows:
|
|
|
|
|
|
|
|
|
|
Terminal value |
|
Post-tax
discount rate |
Terminal
growth rate |
Terminal operating
income before
restructuring costs and
amortization multiple |
Cable |
6.5 |
% |
1.5 |
% |
7.4X |
Satellite |
7.5 |
% |
-3.0 |
% |
5.4X |
Wireless |
9.3 |
% |
1.0 |
% |
4.5X |
A sensitivity analysis of significant estimates
is conducted as part of every impairment test. With respect to the
impairment tests performed in the second quarter, the estimated
decline in recoverable amount for the sensitivity of significant
estimates is as follows:
|
|
|
|
|
|
|
|
|
Estimated decline in recoverable amount |
|
|
Terminal value |
|
1% increase in
discount rate |
1% decrease in
terminal growth rate |
0.5 times decrease in
terminal operating
income before
restructuring costs and
amortization multiple |
Cable |
16.4 |
% |
14.2 |
% |
4.8 |
% |
Satellite |
8.1 |
% |
9.7 |
% |
5.6 |
% |
Wireless |
15.2 |
% |
7.7 |
% |
8.0 |
% |
19. RELATED PARTY TRANSACTIONS
On May 15, 2019, the Company completed the sale
of a non-core parcel of land and the building located thereon (the
“Property”), to an affiliate of Shaw Family Living Trust (“SFLT”)
(the “Purchaser”), for total net proceeds of approximately $45. The
Property had a net book value of approximately $4 resulting in a
gain on disposition of approximately $41. The purchase price was
determined based on appraisals performed by two independent
valuators. As part of the transaction, the Purchaser agreed
to lease back the Property to the Company for a term of three years
at market rental rates (which was also based on appraisals from the
two independent valuators) allowing the Company to monetize a
non-core asset. The transaction was approved by the independent
Board members of the Company.
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