- Record Wireless net
subscriber additions of 90,700 in the fourth quarter resulting in
over 266,000 new customers during the year
- Wireless revenue exceeds $1
billion in fiscal 2019 and Wireless operating income before
restructuring and amortization grows 45% year-over-year to over
$205 million
- Continued growth in
Broadband customers, including 11,400 Consumer Internet additions
in the fourth quarter, and delivery of efficiency initiatives, lead
to solid Wireline results for the year and a 90-basis point
improvement in operating margin to 45.5%
- Adjusted fiscal 2019
results in line with guidance, including consolidated operating
income before restructuring costs and amortization growth of 6.3%
year-over-year and free cash flow of approximately $570
million
- Company releases fiscal
2020 guidance, including consolidated operating income before
restructuring costs and amortization growth to range between 11% -
12%, capital investment of approximately $1.1 billion and free cash
flow of approximately $700 million
CALGARY, Alberta, Oct. 25, 2019 (GLOBE NEWSWIRE)
-- Shaw Communications Inc. (“Shaw” or the “Company”) announces
consolidated financial and operating results for the quarter ended
August 31, 2019, reported in accordance with the IFRS 15 accounting
standard, Revenue from contracts with customers (IFRS
15). Consolidated revenue increased by 1.9% to $1.35 billion
and operating income before restructuring costs and amortization
decreased 3.4% year-over-year to $537 million.
Fiscal 2019 consolidated revenue increased by
3.0% to $5.35 billion and operating income before restructuring
costs and amortization increased 5.1% year-over-year to
$2.16 billion. Adjusting for certain items including the $15
million payment to address certain intellectual property (IP)
licensing matters in the third quarter of fiscal 2019 and a $10
million charge related to CRTC regulatory matters in the fourth
quarter, consolidated operating income before restructuring costs
and amortization decreased 1.6% in the quarter and increased 6.3%
for the full year.
“In all areas across our organization, we made
significant progress in fiscal 2019. We have firmly established
Freedom Mobile as the industry innovator and recognized champion of
wireless affordability for Canadians. Through years of thoughtful
and strategic capital investing, we have built a high quality,
facilities-based wireless network that is capable of meeting the
evolving needs of our customers and continuing to fuel Freedom’s
momentum,” said Brad Shaw, Chief Executive Officer. “In our
Wireline business, we have cemented our status as a technology
leader with our BlueCurve and SmartSuite products. Throughout our
digital transformation, we have made it easier to interact with our
customers and to self-install our services. We also continue to
work hard to streamline and simplify manual processes that improve
the customer experience and day-to-day operations for our
employees. This focus has played an instrumental role in executing
our overall VDP program, which is approximately 70% complete as at
the end of fiscal 2019.”
In the fourth quarter, Freedom Mobile delivered
the strongest period of customer growth in company history, adding
a record 90,700 new customers during the highly competitive
back-to-school season. Subscriber momentum is attributable to the
continued success of our Big Gig data plans, further complemented
by the newly launched Big Gig Unlimited and Absolute Zero
campaigns. Throughout the year, the Company continued to materially
improve the customer network experience with the deployment of 700
MHz spectrum, with approximately 70% of the build complete in
Western Canada, resulting in significant postpaid churn improvement
of 22-basis points to 1.32% in fiscal 2019. In addition, Freedom
Mobile launched 19 new wireless markets in Alberta, British
Columbia and Ontario covering an additional population of 1.4
million Canadians.
In the Wireline segment, Consumer added
approximately 35,000 Internet customers in fiscal 2019, including
11,400 net additions in the fourth quarter. The Company continues
to expand its IPTV service, which is now available in approximately
70% of its footprint, and expects to complete the roll out over the
next several months. Business segment revenue grew approximately 5%
for the year to nearly $600 million primarily due to continued
growth of SmartSuite services and the launch of new products in
fiscal 2019. Effective August 1, 2019 Shaw Business sold its
Calgary-1 data center and will continue to focus on growing its
market share.
Mr. Shaw continued, “In an industry that remains
competitive, with increasing regulatory uncertainty, we delivered
solid fiscal 2019 results and improved execution. On an adjusted
basis we achieved our targets for the year, including strong free
cash flow, underpinning our overall strategy to deliver long term,
sustainable growth.”
Selected Financial
Highlights
Fiscal 2019 and restated fiscal 2018 results are
reported in accordance with IFRS 15. Supplementary information is
provided in the accompanying Management’s Discussion and Analysis
(“MD&A”), under the heading “Accounting Standards,” which
discusses our previous revenue recognition policies and the changes
on adoption of the new standard.
|
Three months ended August 31, |
Year ended August 31, |
(millions of Canadian dollars except per share
amounts) |
2019 |
|
2018
(restated)(1) |
|
Change % |
|
2019 |
|
2018
(restated)(1) |
|
Change % |
Revenue |
1,352 |
|
1,327 |
|
1.9 |
|
5,347 |
|
5,189 |
|
3.0 |
Operating income before
restructuring costs and amortization(2) |
537 |
|
556 |
|
(3.4 |
) |
2,161 |
|
2,057 |
|
5.1 |
Operating
margin(2) |
39.7 |
% |
41.9 |
% |
(5.3 |
) |
40.4 |
% |
39.6 |
% |
2.0 |
Free cash
flow(2) |
45 |
|
31 |
|
45.2 |
|
545 |
|
385 |
|
41.6 |
Net income from continuing
operations |
167 |
|
196 |
|
(14.8 |
) |
738 |
|
39 |
|
>100.0 |
Net loss from
discontinued operations, net of tax |
– |
|
– |
|
– |
|
– |
|
(6 |
) |
100.0 |
Net income |
167 |
|
196 |
|
(14.8 |
) |
738 |
|
33 |
|
>100.0 |
Basic earnings per share |
0.32 |
|
0.38 |
|
|
1.42 |
|
0.05 |
|
|
Diluted
earnings per share |
0.32 |
|
0.38 |
|
|
1.42 |
|
0.05 |
|
|
(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
90,700 net Wireless RGUs, consisting of 75,900 postpaid and 14,800
prepaid additions. The increase in the postpaid subscriber base
reflects the seasonally active back-to-school period and continued
customer demand for our Big Gig data-centric pricing and packaging
options. The increase in the prepaid customer base reflects the
success of the new plans that were launched in early April.
Wireless service revenue for the three and
twelve-month periods increased 19.1% and 24.3% respectively, to
$187 million and $701 million over the comparable periods in fiscal
2018 due to an increased subscriber base and growing penetration of
our Big Gig data plans. Wireless equipment revenue for the three
and twelve-month periods increased 14.3% and 4.7% respectively, to
$96 million and $353 million as more customers secure a device
through Freedom Mobile. Fourth quarter ABPU grew approximately 3.9%
year-over-year to $42.58 and ARPU grew 0.5% to $38.59 reflecting
the back-to-school promotions, including Absolute Zero, and prepaid
customer growth.
Fourth quarter Wireless operating income before
restructuring costs and amortization of $54 million improved
38.5% year-over-year due primarily to increased service revenue.
For the twelve-month period, Wireless operating income before
restructuring costs and amortization increased 45.1% to $206
million.
Wireline RGUs declined by approximately 54,400
in the quarter compared to a loss of approximately 59,200 in the
fourth quarter of fiscal 2018. The current quarter includes growth
in Consumer Internet RGUs of approximately 11,400 whereas the
mature products within the Consumer division, including Video,
Satellite and Phone declined in the aggregate by 69,300 RGUs. The
Company remains focused on growing Internet subscribers, primarily
through two-year ValuePlans, and on attracting and retaining high
quality Video subscribers which supports its Consumer profitability
objectives.
Fourth quarter Wireline revenue and operating
income before restructuring costs and amortization of $1,071
million and $483 million decreased 1.5% and 6.6%,
respectively, year-over-year. Consumer revenue of $923 million
decreased 2.0% 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 2.1% year-over-year to
$148 million, reflecting continued demand for the SmartSuite
of business products. Excluding the impact of the $10 million
charge related to CRTC regulatory matters in the fourth quarter,
Wireline operating income before restructuring costs and
amortization decreased 4.6%.
For the twelve-month period, Wireline revenue of
$4,300 million was comparable to the prior year and operating
income before restructuring costs and amortization of $1,955
million increased 2.1% resulting in a Wireline operating margin of
45.5%, an improvement of 90-basis points over fiscal 2018.
Excluding both the $15 million IP license payment to address
certain IP licensing matters in the third quarter and the $10
million charge related to CRTC regulatory matters in the fourth
quarter, full year Wireline operating income before restructuring
costs and amortization increased 3.4% year-over-year.
Capital expenditures in the fourth quarter of
$382 million compared to $433 million a year ago. Wireline
capital spending decreased by approximately $96 million primarily
due to lower network investments. Wireless spending increased by
approximately $45 million year-over-year due to continued
deployment of 700 MHz spectrum and expansion of the wireless
network into new markets. Consolidated fiscal 2019 capital
expenditures of $1,212 million decreased by $149 million compared
to the previous year mainly due to a decrease of $191 million in
Wireline partially offset by a $42 million increase in
Wireless.
Free cash flow for the quarter of
$45 million compared to $31 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. Free cash flow for fiscal 2019 of
$545 million was $160 million higher than the prior year due to
growth in operating income before restructuring costs and
amortization and lower capital expenditures in fiscal 2019.
Net income for the fourth quarter of fiscal 2019
of $167 million compared to $196 million in the fourth
quarter of fiscal 2018. The decrease of $29 million was primarily
due to lower equity income associated with the investment in Corus
and gains on the dispositions of certain assets in fiscal 2018
partially offset by a decrease in restructuring costs in fiscal
2019. Net income for fiscal 2019 of $738 million was $705 million
higher than the prior year primarily due to the $446 million
restructuring charge recorded in fiscal 2018 and a $137 million
decrease in losses relating to the Company’s investment in
Corus.
In the fourth quarter of fiscal 2019,
approximately 300 employees exited the Company, bringing the total
number of employees who departed under the Voluntary Departure
Program (“VDP”) to approximately 2,300 since the program commenced
in March 2018. In fiscal 2019, the Company achieved operating cost
savings of approximately $98 million and capital cost savings
of approximately $37 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 introducing its fiscal 2020
guidance which includes our preliminary estimate of the impact of
IFRS 16, Leases (IFRS 16). Financial results for fiscal
2019 will not be restated with the impact of IFRS 16; however, we
estimate that our operating income before restructuring costs and
amortization for 2019 would have been approximately $155 million
higher under IFRS 16 (approximately 55% attributable to Wireline
and approximately 45% to Wireless). With the adoption of IFRS 16,
our definition of free cash flow will be adjusted to remove the
increase to operating income before restructuring costs and
amortization attributable to IFRS 16 to ensure a consistent focus
on free cash flow generation.
Consolidated |
Fiscal 2020 Guidance
as reported 1 |
Fiscal 2020 Guidance
excluding IFRS 16 1 |
Operating Income before Restructuring Costs and Amortization |
11% to 12% |
4% to 5% |
Capital Expenditures 2 |
Approximately $1.1 billion |
Approximately $1.1 billion |
Free Cash Flow 3 |
Approximately $700 million |
Approximately $700 million |
- Fiscal 2020 guidance reflects our preliminary estimate of the
impact of the implementation of IFRS 16, Leases. While
financial results for fiscal 2019 will not be restated, our
preliminary estimate is that 2019 consolidated operating income
before restructuring costs and amortization would have increased by
approximately $155 million to $2,316 million. When applying the
estimated IFRS 16 impact to fiscal 2019, our fiscal 2020
consolidated operating income before restructuring costs and
amortization represents growth of 4% to 5% as referenced in the
table above.
- Capital Expenditure guidance excludes expenditures for spectrum
licenses.
- Definition of Free Cash Flow has been adjusted to remove the
estimated increase to operating income before restructuring costs
and amortization attributable to IFRS 16 to ensure a consistent
focus on free cash flow generation
The Company’s guidance also includes assumptions
related to cost savings that will be achieved through the TBT
initiative (specifically VDP savings) and are expected to amount to
a combined $200 million in fiscal 2020 (approximately $125 million
attributable to operating expenses and $75 million attributable to
capital expenditures) which is materially in line with the original
estimate of $215 million. See also “Caution Concerning Forward
Looking Statements” in the accompanying MD&A.
“As we continue to make progress on our
transformation initiatives, we are improving the customer
experience across both Wireline and Wireless and, at the same time,
we are removing significant operating and capital expenses from the
business. Our foundation is solid, and we will continue to drive
growth across our Wireless, Broadband and Business segments which
we believe will translate into long-term sustainable free cash flow
growth. Fiscal 2020 represents a significant inflection point
in our free cash profile, growing to an expected $700 million
compared to $545 million in fiscal 2019 and $385 million in fiscal
2018, and a testament that the significant transformation
undertaken in the past few years is yielding meaningful results
that are flowing to the bottom line,” said Brad Shaw.
As at the end of fiscal 2019, leverage stood at
1.9x compared to its target leverage range of 2.0 to 2.5x. On
October 1, 2019, the Company repaid $1.25 billion of maturing
senior notes with cash on hand and has no debt maturities in the
next 12 months. Considering the current leverage position along
with strengthening free cash flow profile, Shaw is pleased to
announce that it intends to implement a normal course issuer bid
(“NCIB”) program to purchase up to 24,758,127 Class B Non-Voting
Shares (“Class B Shares”) representing 5% of all of the issued and
outstanding Class B Shares. The NCIB program has been approved by
the Board of Directors but remains subject to approval by the
Toronto Stock Exchange (“TSX”) and, if accepted, will be conducted
in accordance with the applicable rules and policies of the TSX and
applicable Canadian securities law.
In accordance with the terms of the Dividend
Reinvestment Plan (“DRIP”), the Company is also announcing that, in
lieu of issuing shares, it will satisfy its share delivery
obligations under the DRIP by purchasing Class B Shares on the open
market thus avoiding future equity dilution and creating synergies
with the contemplated NCIB program. In addition, Shaw will reduce
the DRIP discount from 2% to 0% for shares delivered under the
DRIP. These changes to the DRIP will apply to the dividends payable
on November 28, 2019 to shareholders of record on November 15,
2019.
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 twelve months ended August 31,
2019
October 25, 2019
Contents
Introduction |
10 |
Selected financial and operational highlights |
13 |
Overview |
16 |
Outlook |
19 |
Non-IFRS and additional GAAP measures |
19 |
Discussion of operations |
23 |
Supplementary quarterly financial information |
26 |
Other income and expense items |
27 |
Financial position |
29 |
Liquidity and capital resources |
30 |
Accounting standards |
33 |
Related party transactions |
43 |
Financial instruments |
43 |
Internal controls and procedures |
43 |
Risks and uncertainties |
44 |
Government Regulations and Regulatory |
44 |
Advisories
The following Management’s Discussion and
Analysis (“MD&A”) of Shaw Communications Inc. is dated October
25, 2019 and should be read in conjunction with the unaudited
interim Consolidated Financial Statements and Notes thereto for the
quarter ended August 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 rates;
- future foreign 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 savings;
- 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
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;
- changes in laws, regulations and
decisions by regulators that affect the Company or the markets in
which it operates;
- changing interest rates, income
taxes and exchange rates;
- technology, privacy, cyber security
and reputational risks;
- 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;
- disruptions to service, including
due to network failure or disputes with key suppliers;
- the Company’s ability to execute
its strategic plans and complete capital and other projects by the
completion date;
- the Company’s ability to grow
subscribers;
- the Company’s ability to grow
market share;
- the Company’s ability to close any
transactions;
- the Company’s ability to have the
spectrum resources required to execute on its current and long-term
strategic initiatives;
- the Company’s ability to gain
sufficient access to retail distribution channels;
- the Company ability 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 ability to achieve
cost efficiencies;
- the Company’s ability 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
savings;
- the Company’s ability to complete
employee exits pursuant to the VDP with minimal impact on
operations;
- the Company’s ability to recognize
and adequately respond to climate change concerns or public and
governmental expectations on environmental matters;
- opportunities that may be presented
to and pursued by the Company;
- 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 2020. 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 continued to make progress on
our transformation initiatives by improving the customer experience
across both our Wireline and Wireless divisions while, at the same
time, removing significant operating and capital expenses from the
business. Through our 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
entire equity investment in Corus Entertainment Inc. (“Corus”) in
the year 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. With our successful acquisition of 600 MHz spectrum across
our wireless operating footprint, we can continue to improve our
LTE experience, provide affordable options for our customers, and
lay the foundation for 5G services.
Wireless
We made significant progress in our Wireless
business in fiscal 2019 and have firmly established Freedom Mobile
as the industry innovator and recognized champion of wireless
affordability for Canadians. Through years of thoughtful and
strategic capital investing, we are expanding and improving our
facilities-based wireless network that is capable of meeting the
evolving needs of our customers and continuing to fuel Freedom
Mobile’s momentum. In fiscal 2019, we launched 19 new wireless
markets in Alberta, British Columbia, and Ontario covering an
additional population of 1.4 million. Our footprint now covers
approximately 18 million people in some of Canada’s largest urban
centres, or almost half of the Canadian population.
In the fourth quarter, Freedom Mobile delivered
the strongest period of customer growth in company history, adding
a record 90,700 new customers during the highly competitive
back-to-school season. Subscriber momentum is attributable to the
continued success of our Big Gig data plans, further complemented
by the newly launched Big Gig Unlimited and Absolute Zero campaigns
all of which continue to attract high lifetime value customers to
Freedom Mobile. In April, the Company launched new prepaid service
plans that better align with current market offers which have been
successful in attracting and growing our prepaid customer base. The
growth and retention of our subscriber base and improving financial
performance reflect the appeal of our differentiated value
proposition. 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 had
over 650 retail locations operational at the end of 2019.
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 on our operating plan to improve our network and
deploy spectrum in the most efficient way. Throughout the year, the
Company continued to materially improve the customer network
experience with the deployment of our Extended Range LTE,
leveraging our 700 MHz spectrum, which provides customers with
improved in-building service and extends service at the edge of the
current coverage area. This enhanced service resulted in postpaid
churn of 1.32%, which is a 22-basis point improvement over the
previous year. At the end of fiscal 2019, approximately 70% of the
build is complete in Western Canada, with the remaining deployment
of our 700 MHz spectrum is expected to continue throughout fiscal
2020.
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/voice-over-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
In our Wireline business, we have cemented our
status as a technology leader with our BlueCurve and SmartSuite
products. Throughout our digital transformation, we have made it
easier to interact with our customers and to self-install our
services. We also continue to work hard to streamline and simplify
manual processes that improve the customer experience and
day-to-day operations for our employees. This focus has played an
instrumental role in executing our overall VDP program, which is
approximately 70% complete as at the end of fiscal 2019.
Our focus remains on the execution and delivery
of stable and profitable Wireline results. This includes growing
internet subscribers, primarily through two-year ValuePlans, and
attracting and retaining high quality 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 Gateway (DOCSIS
3.1 modem), Home App, and Pods. We are shifting customer
interactions to digital platforms and driving more self-help,
self-install and self-service. At the end of fiscal 2019, 45% of
customers elected to self-install their services.
The Company announced several significant
Wireline enhancements related to its broadband service for its
customers in fiscal 2019. 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 continues to expand
this service, which is now available in approximately 70% of its
Western Canadian footprint. The Company expects to complete the
roll out over the next several months.
Due to these enhancements and our focus on
improving execution, our Consumer division added approximately
35,000 Internet customers in fiscal 2019, including 11,400 net
additions in the fourth quarter. In an industry that remains
competitive, with increasing regulatory uncertainty, we delivered
solid fiscal 2019 results and improved execution. As we continue on
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.
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, leveraging our SmartSuite products that deliver
enterprise-grade services to small and medium size businesses. Our
SmartSuite products can scale to larger businesses, giving us
opportunities to deliver services across Canada. Shaw Business
customers also benefit from speed increases from Business Internet
and SmartWiFi 150 and 300 plans moving to 300Mbps and 600Mbps,
respectively. Shaw Business also provides download speeds of up to
one gigabit, which will help customers keep up with the demands of
their growing businesses.
Effective August 1, 2019 Shaw Business sold its
Calgary-1 data center and will continue to focus on growing its
market share.
Fiscal 2020
The year ahead represents a significant
inflection point in our free cash flow profile and a testament that
the significant transformation undertaken in the past few years is
yielding meaningful results. Our foundation is solid, and we will
continue to drive growth across our Wireless, Broadband and
Business segments which should translate into long-term sustainable
free cash flow growth.
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 August 31, |
Year ended August 31, |
(millions of Canadian dollars except per share
amounts) |
2019 |
|
2018
(restated)(1) |
|
Change % |
|
2019 |
|
2018
(restated)(1) |
|
Change % |
Operations: |
|
|
|
|
|
|
Revenue |
1,352 |
|
1,327 |
|
1.9 |
|
5,347 |
|
5,189 |
|
3.0 |
Operating income before restructuring costs and
amortization(2) |
537 |
|
556 |
|
(3.4 |
) |
2,161 |
|
2,057 |
|
5.1 |
Operating margin(2) |
39.7 |
% |
41.9 |
% |
(5.3 |
) |
40.4 |
% |
39.6 |
% |
2.0 |
Net income from continuing operations |
167 |
|
196 |
|
(14.8 |
) |
738 |
|
39 |
|
>100.0 |
Loss from discontinued operations, net of tax |
– |
|
– |
|
- |
|
– |
|
(6 |
) |
100.0 |
Net income |
167 |
|
196 |
|
(14.8 |
) |
738 |
|
33 |
|
>100.0 |
Per share
data: |
|
|
|
|
|
|
Basic earnings (loss) per
share |
|
|
|
|
|
|
Continuing operations |
0.32 |
|
0.38 |
|
|
1.42 |
|
0.06 |
|
|
Discontinued operations |
– |
|
– |
|
|
– |
|
(0.01 |
) |
|
|
0.32 |
|
0.38 |
|
|
1.42 |
|
0.05 |
|
|
Diluted earnings (loss) per
share |
|
|
|
|
|
|
Continuing operations |
0.32 |
|
0.38 |
|
|
1.42 |
|
0.06 |
|
|
Discontinued operations |
– |
|
– |
|
|
– |
|
(0.01 |
) |
|
|
0.32 |
|
0.38 |
|
|
1.42 |
|
0.05 |
|
|
Weighted average participating shares for basic earnings per share
outstanding during period (millions) |
515 |
|
505 |
|
|
511 |
|
502 |
|
|
Funds flow from continuing
operations(3) |
430 |
|
422 |
|
1.9 |
|
1,784 |
|
1,177 |
|
51.6 |
Free
cash flow(2) |
45 |
|
31 |
|
45.2 |
|
545 |
|
385 |
|
41.6 |
(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.
In fiscal 2019, we commenced 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 |
|
Year ended |
|
August 31,
2019 |
August 31,
2018 |
August 31,
2019 |
August 31,
2018 |
|
August 31,
2019 |
August 31,
2018 |
Wireline – Consumer |
|
|
|
|
|
|
|
Video – Cable |
1,478,371 |
1,585,232 |
(29,837 |
) |
(33,990 |
) |
|
(106,861 |
) |
(86,045 |
) |
Video – Satellite |
703,223 |
750,403 |
(11,794 |
) |
(7,399 |
) |
|
(47,180 |
) |
(23,139 |
) |
Internet |
1,911,703 |
1,876,944 |
11,401 |
|
(3,481 |
) |
|
34,759 |
|
15,935 |
|
Phone |
767,745 |
853,847 |
(27,712 |
) |
(26,160 |
) |
|
(86,102 |
) |
(71,684 |
) |
Total Consumer |
4,861,042 |
5,066,426 |
(57,942 |
) |
(71,030 |
) |
|
(205,384 |
) |
(164,933 |
) |
Wireline – Business |
|
|
|
|
|
|
|
Video – Cable |
41,843 |
49,606 |
(1,743 |
) |
(77 |
) |
|
(7,763 |
) |
(1,433 |
) |
Video – Satellite |
35,656 |
34,831 |
63 |
|
1,947 |
|
|
825 |
|
3,296 |
|
Internet |
173,686 |
172,859 |
592 |
|
1,734 |
|
|
827 |
|
2,215 |
|
Phone |
379,434 |
354,912 |
4,669 |
|
8,195 |
|
|
24,522 |
|
27,713 |
|
Total Business |
630,619 |
612,208 |
3,581 |
|
11,799 |
|
|
18,411 |
|
31,791 |
|
Total Wireline |
5,491,661 |
5,678,634 |
(54,361 |
) |
(59,231 |
) |
|
(186,973 |
) |
(133,142 |
) |
Wireless |
|
|
|
|
|
|
|
Postpaid(1) |
1,313,828 |
1,029,720 |
75,913 |
|
84,882 |
|
|
287,929 |
|
265,629 |
|
Prepaid(1) |
344,357 |
373,138 |
14,831 |
|
132 |
|
|
(21,688 |
) |
(9,944 |
) |
Total Wireless |
1,658,185 |
1,402,858 |
90,744 |
|
85,014 |
|
|
266,241 |
|
255,685 |
|
Total Subscribers |
7,149,846 |
7,081,492 |
36,383 |
|
25,783 |
|
|
79,268 |
|
122,543 |
|
(1) The Company reduced the
August 31, 2019 ending balance by 10,914 due to account
cancellations dating back to 2016 previously not reported. The
cancellations were comprised of 3,821 postpaid and 7,093 prepaid
subscribers. In the Company’s view, the cancellations were not
significant in relation to previously reported amounts.
In Wireless, the Company continued to add
subscribers, gaining a record net combined 90,744 postpaid and
prepaid subscribers in the quarter. The increase in the postpaid
subscriber base reflects the seasonally active back-to-school
period and continued customer demand for the Big Gig data-centric
pricing and packaging options, including Absolute Zero. The
increase in the prepaid customer base reflects the success of the
new plans that were launched in the market in early April.
Wireline RGUs declined by 54,361 in the quarter
compared to a loss of 59,231 RGUs in the fourth quarter of 2018.
The current quarter includes growth in Consumer Internet RGUs of
approximately 11,400 whereas the mature products within the
Consumer division, including Video, Satellite and Phone declined in
the aggregate by 69,300 RGUs. The Company remains focused on
growing Internet subscribers, primarily through two-year
ValuePlans, and on attracting and retaining higher quality Video
subscribers which supports its Consumer profitability
objectives.
Wireless Postpaid Churn
To assist in understanding the performance of
our Wireless business, in fiscal 2019 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 1.47% in the fourth quarter of
fiscal 2019 compares to 1.49% in the fourth quarter of fiscal 2018
reflecting the active back-to-school period. Postpaid churn
improved 22-basis points in fiscal 2019 to 1.32% reflecting the
ongoing enhancements to the wireless customer experience including
our expanding and improving network, the Big Gig data-centric
pricing and packaging options, and the increased competitive
environment experienced during the quarter.
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 $42.58 in the fourth quarter of fiscal
2019 compares to $41.00 in the fourth quarter of fiscal 2018, while
fiscal 2019 ABPU of $42.05 compares to $39.19 in the prior year.
ABPU growth in the year reflects 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 $38.59 in the fourth quarter of fiscal
2019 compares to $38.38 in the fourth quarter of fiscal 2018, while
fiscal 2019 ARPU of $38.29 compares to $37.11 in the prior year.
ARPU growth in the year 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 fourth quarter financial results are as
follows:
Revenue
Revenue for the fourth quarter
of fiscal 2019 of $1.35 billion increased $25 million or 1.9%
from $1.33 billion for the fourth quarter of fiscal 2018,
highlighted by the following:
- The year-over-year increase in
revenue was primarily due to a $42 million or 17.4% increase in the
Wireless division driven by higher service revenues which
contributed an incremental $30 million or 19.1% to
consolidated revenue primarily due to higher postpaid RGUs
(approximately 288,000 since August 31, 2018) and a 3.9% and 0.5%
year-over-year increase in ABPU to $42.58 and ARPU to $38.59,
respectively. There was also a $12 million or 14.3% increase in
equipment revenue compared to the fourth quarter of fiscal
2018.
- The Business division contributed
$3 million or 2.1% growth over the fourth quarter of fiscal
2018 to consolidated revenue reflecting continued demand for the
SmartSuite of business products.
- Consumer division revenue for the
quarter decreased $19 million or 2.0% compared to the fourth
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 third quarter
of fiscal 2019, consolidated revenue for the quarter increased 2.1%
or $28 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 $42.30 in the third
quarter of fiscal 2019 to $42.58 in the current quarter) and higher
ARPU (up from $38.36 in the third quarter of fiscal 2019 to $38.59
in the current quarter) and a $23 million increase in Wireless
equipment revenues partially offset by a $4 million decrease in
Wireline revenues.
Revenue for the twelve-month
period ended August 31, 2019 of $5.35 billion increased
$158 million or 3.0% from $5.19 billion for the comparable period
in fiscal 2018.
- The year-over-year improvement in revenue was primarily due to
the Wireless division which contributed an incremental $153 million
or 17.0% to consolidated revenue, comprised of higher service
revenues of $137 million and higher equipment revenues of $16
million, driven primarily by higher postpaid RGUs, higher ARPU and
higher ABPU.
- The Business division contributed $26 million or 4.6% to the
consolidated revenue improvements for the twelve-month period
driven primarily by customer growth.
- Consumer division revenues decreased $18 million for the
twelve-month period for the reasons noted above.
Operating income before restructuring costs and
amortization
Operating income before restructuring costs and
amortization for the fourth quarter of fiscal 2019
of $537 million decreased by $19 million or 3.4% from
$556 million for the fourth quarter of fiscal 2018,
highlighted by the following:
- The year-over-year improvement in
the Wireless division of $15 million was mainly due to
postpaid RGU growth and the 3.9% increase in ABPU.
- The year-over-year decrease in the
Wireline division of $34 million was mainly due to the
decrease in revenue, a $10 million provision related primarily to
the CRTC decision to reduce wholesale broadband rates available to
third party internet providers from 2016 onward, and higher
programming costs.
Operating margin for the fourth
quarter of 39.7% decreased 220-basis points compared to
41.9% in the fourth quarter of fiscal 2018 mainly due to a
250-basis points decrease in the Wireline operating margin for the
reasons noted above, partially offset by a 290-basis points
increase in the Wireless operating margin primarily due to
increased service revenues.
Compared to the third quarter
of fiscal 2019, operating income before restructuring costs and
amortization for the current quarter increased $7 million
primarily due to an $8 million increase in the Wireline division
mainly as a result of the impact of the $15 million payment to
address certain IP licensing matters in the prior quarter partially
offset a $10 million provision related primarily to the CRTC
decision to reduce wholesale broadband rates available to third
party internet providers from 2016 onward in the current quarter,
partially offset by a $1 million decrease in the Wireless
division.
For the twelve-month period
ended August 31, 2019, operating income before restructuring costs
and amortization of $2.16 billion increased $104 million or 5.1%
from $2.06 billion for the comparable prior year period.
- Wireless operating income before restructuring costs and
amortization for the twelve-month period increased $64 million or
45.1% over the comparable period driven primarily by subscriber
growth, higher equipment margins and ABPU growth, partially offset
by higher distribution channel costs and the impact of the $13
million credit for a retroactive domestic roaming rate adjustment
in the prior year.
- Wireline operating income before restructuring costs and
amortization for the twelve-month period increased $40 million or
2.1% over the comparable period primarily as a result of lower
operating costs mainly related to VDP partially offset by the $10
million provision related primarily to the CRTC decision to reduce
wholesale broadband rates available to third party internet
providers from 2016 onward and the impact of the $15 million
payment to address certain IP licensing matters.
Free cash flow
Free cash flow for the fourth
quarter of fiscal 2019 of $45 million increased
$14 million from $31 million in the fourth quarter of
fiscal 2018, mainly due to a $51 million decrease in capital
expenditures and lower cash taxes partially offset by an $19
million decrease in operating income before restructuring costs and
amortization and lower dividends received from equity accounted
associates.
For the twelve-month period,
free cash flow of $545 million increased $160 million or 41.6% from
$385 million for the comparable period, mainly due to a planned
decrease in capital expenditures of $149 million and an increase in
operating income before restructuring costs and amortization of
$104 million partially offset by an $82 million decrease in
dividends from equity accounted associates.
Net income (loss)
Net income of $167 million and $738 million
for the three and twelve months ended August 31, 2019, compared to
a net income of $196 million and $33 million for the same periods
in fiscal 2018. The changes in net income are outlined in the
following table.
|
|
|
|
|
August 31, 2019 net income compared to: |
|
Three months ended |
Year ended |
(millions of Canadian dollars) |
May 31, 2019 |
|
August 31, 2018
(restated)(1) |
|
August 31, 2018
(restated)(1) |
|
Increased (decreased) operating income before restructuring costs
and amortization(2) |
7 |
|
(19 |
) |
104 |
|
Decreased restructuring
costs |
10 |
|
26 |
|
455 |
|
Decreased (increased)
amortization |
13 |
|
10 |
|
(13 |
) |
Change in net other costs and
revenue(3) |
34 |
|
(39 |
) |
145 |
|
Decreased (increased) income
taxes |
(126 |
) |
(7 |
) |
8 |
|
Increased income from discontinued operations, net of tax |
- |
|
- |
|
6 |
|
|
(62 |
) |
(29 |
) |
705 |
|
(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
Restructuring costs in the fourth
quarter of fiscal 2018 of approximately $16 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. The $10 million recovery of restructuring costs in the
fourth quarter of fiscal 2019 is the result of approximately 90
employees either rescinding their acceptance of the VDP package
with the approval of the Company or forgoing their package to
expedite their departure date.
Net other costs and revenue in the
twelve-month period of fiscal 2019 includes a $109
million loss related to the disposition of the Company’s equity
investment in Corus Entertainment Inc. (“Corus”) in the third
quarter of fiscal 2019 while the twelve-month period of fiscal 2018
included a $284 million impairment from the Company’s investment in
Corus.
Outlook
The Company is introducing its fiscal 2020
guidance which includes our preliminary estimate of the impact of
IFRS 16, Leases (IFRS 16). Financial results for fiscal
2019 will not be restated with the impact of IFRS 16; we estimate
that our operating income before restructuring costs and
amortization for 2019 would have been approximately $155 million
higher under IFRS 16 (approximately 55% attributable to Wireline
and approximately 45% to Wireless). With the adoption of IFRS 16,
our definition of free cash flow will be adjusted to remove the
increase to operating income before restructuring costs and
amortization attributable to IFRS 16 to ensure a consistent focus
on free cash flow generation.
Consolidated |
Fiscal 2020 Guidance
as reported 1 |
Fiscal 2020 Guidance
excluding IFRS 16 1 |
Operating Income before Restructuring Costs and Amortization |
11% to 12% |
4% to 5% |
Capital Expenditures 2 |
Approximately $1.1 billion |
Approximately $1.1 billion |
Free Cash Flow 3 |
Approximately $700 million |
Approximately $700 million |
- Fiscal 2020 guidance reflects our preliminary estimate of the
impact of the implementation of IFRS 16, Leases. While
financial results for fiscal 2019 will not be restated, our
preliminary estimate is that 2019 consolidated operating income
before restructuring costs and amortization would have increased by
approximately $155 million to $2,316 million. When applying the
estimated non-cash IFRS 16 impact to fiscal 2019, our fiscal 2020
consolidated operating income before restructuring costs and
amortization represents growth of 4% to 5% as referenced in the
table above.
- Capital Expenditure guidance excludes expenditures for spectrum
licenses.
- Definition of Free Cash Flow has been adjusted to remove the
estimated non-cash increase to operating income before
restructuring costs and amortization attributable to IFRS 16 to
ensure a consistent focus on free cash flow generation
The Company’s guidance also includes assumptions
related to cost savings that will be achieved through the TBT
initiative (specifically VDP savings) and are expected to amount to
a combined $200 million in fiscal 2020 (approximately $125 million
attributable to operating expenses and $75 million attributable to
capital expenditures) which is materially in line with the original
estimate of $215 million.
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 August 31, |
Year ended August 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated)(1) |
|
2019 |
|
2018
(restated)(1) |
|
Operating income from
continuing operations |
297 |
|
281 |
|
1,132 |
|
586 |
|
Add back (deduct): |
|
|
|
|
Restructuring costs |
(10 |
) |
16 |
|
(9 |
) |
446 |
|
Amortization: |
|
|
|
|
Deferred equipment revenue |
(5 |
) |
(6 |
) |
(21 |
) |
(30 |
) |
Deferred equipment costs |
19 |
|
25 |
|
85 |
|
110 |
|
Property, plant and equipment, intangibles and other |
236 |
|
240 |
|
974 |
|
945 |
|
Operating income before restructuring costs
and amortization |
537 |
|
556 |
|
2,161 |
|
2,057 |
|
(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 August 31, |
Year ended August 31, |
|
2019 |
|
2018
(restated)(1) |
|
Change % |
|
2019 |
|
2018
(restated)(1) |
|
Change % |
Wireline |
45.1 |
% |
47.6 |
% |
(5.3 |
) |
45.5 |
% |
44.6 |
% |
2.0 |
Wireless |
19.1 |
% |
16.2 |
% |
17.9 |
|
19.5 |
% |
15.8 |
% |
23.4 |
Combined Wireline and Wireless |
39.7 |
% |
41.9 |
% |
(5.3 |
) |
40.4 |
% |
39.6 |
% |
2.0 |
(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 August 31, |
|
Year ended August 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 wireline 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 August 31, |
Year ended August 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated)(1) |
|
Change % |
|
2019 |
|
2018
(restated)(1) |
|
Change % |
|
Revenue |
|
|
|
|
|
|
Consumer |
923 |
|
942 |
|
(2.0 |
) |
3,707 |
|
3,725 |
|
(0.5 |
) |
Business |
148 |
|
145 |
|
2.1 |
|
593 |
|
567 |
|
4.6 |
|
Wireline |
1,071 |
|
1,087 |
|
(1.5 |
) |
4,300 |
|
4,292 |
|
0.2 |
|
Service |
187 |
|
157 |
|
19.1 |
|
701 |
|
564 |
|
24.3 |
|
Equipment |
96 |
|
84 |
|
14.3 |
|
353 |
|
337 |
|
4.7 |
|
Wireless |
283 |
|
241 |
|
17.4 |
|
1,054 |
|
901 |
|
17.0 |
|
|
1,354 |
|
1,328 |
|
2.0 |
|
5,354 |
|
5,193 |
|
3.1 |
|
Intersegment eliminations |
(2 |
) |
(1 |
) |
100.0 |
|
(7 |
) |
(4 |
) |
75.0 |
|
|
1,352 |
|
1,327 |
|
1.9 |
|
5,347 |
|
5,189 |
|
3.0 |
|
Operating income
before restructuring costs and
amortization(2) |
|
|
|
|
|
|
Wireline |
483 |
|
517 |
|
(6.6 |
) |
1,955 |
|
1,915 |
|
2.1 |
|
Wireless |
54 |
|
39 |
|
38.5 |
|
206 |
|
142 |
|
45.1 |
|
|
537 |
|
556 |
|
(3.4 |
) |
2,161 |
|
2,057 |
|
5.1 |
|
Capital expenditures
and equipment costs (net):(3) |
|
|
|
|
|
|
Wireline |
234 |
|
330 |
|
(29.1 |
) |
827 |
|
1,018 |
|
(18.8 |
) |
Wireless |
148 |
|
103 |
|
43.7 |
|
385 |
|
343 |
|
12.2 |
|
|
382 |
|
433 |
|
(11.8 |
) |
1,212 |
|
1,361 |
|
(10.9 |
) |
Free cash flow before
the following |
155 |
|
123 |
|
26.0 |
|
949 |
|
696 |
|
36.4 |
|
Less: |
|
|
|
|
|
|
Interest |
(66 |
) |
(63 |
) |
4.8 |
|
(256 |
) |
(247 |
) |
3.6 |
|
Cash taxes |
(41 |
) |
(50 |
) |
(18.0 |
) |
(160 |
) |
(166 |
) |
(3.6 |
) |
Other
adjustments: |
|
|
|
|
|
|
Dividends from equity accounted associates |
– |
|
23 |
|
(100.0 |
) |
10 |
|
92 |
|
(89.1 |
) |
Non-cash share-based compensation |
1 |
|
– |
|
100.0 |
|
3 |
|
2 |
|
50.0 |
|
Pension adjustment |
(2 |
) |
(1 |
) |
100.0 |
|
7 |
|
11 |
|
(36.4 |
) |
Customer equipment financing |
– |
|
1 |
|
(100.0 |
) |
1 |
|
5 |
|
(80.0 |
) |
Preferred share dividends |
(2 |
) |
(2 |
) |
– |
|
(9 |
) |
(8 |
) |
12.5 |
|
Free cash flow |
45 |
|
31 |
|
45.2 |
|
545 |
|
385 |
|
41.6 |
|
(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 August 31, |
Year ended August 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated)(1) |
|
Change % |
|
2019 |
|
2018
(restated)(1) |
|
Change % |
|
Consumer |
923 |
|
942 |
|
(2.0 |
) |
3,707 |
|
3,725 |
|
(0.5 |
) |
Business |
148 |
|
145 |
|
2.1 |
|
593 |
|
567 |
|
4.6 |
|
Wireline revenue |
1,071 |
|
1,087 |
|
(1.5 |
) |
4,300 |
|
4,292 |
|
0.2 |
|
Operating income before restructuring and
amortization(2) |
483 |
|
517 |
|
(6.6 |
) |
1,955 |
|
1,915 |
|
2.1 |
|
Operating margin(2) |
45.1 |
% |
47.6 |
% |
(5.3 |
) |
45.5 |
% |
44.6 |
% |
2.0 |
|
(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 fourth quarter of fiscal
2019, Wireline RGUs decreased by 54,361 compared to a 59,231 RGU
loss in the fourth quarter of fiscal 2018. The current quarter
includes growth in Consumer Internet RGUs of approximately 11,400
whereas the mature products within the Consumer division, including
Video, Satellite and Phone declined in the aggregate by 69,300
RGUs. The Company remains focused on growing Internet subscribers,
primarily through two-year ValuePlans, and on attracting and
retaining high quality Video subscribers which supports its
Consumer profitability objectives.
Revenue highlights include:
- Consumer revenue for the
fourth quarter of fiscal 2019 decreased by $19
million or 2.0%, compared to the fourth 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 third quarter of fiscal 2019,
the current quarter revenue decreased by $2 million or
0.2%.
- Business revenue of
$148 million for the fourth quarter of fiscal
2019 was up $3 million or 2.1% over the fourth quarter of
fiscal 2018, reflecting continued demand for the SmartSuite of
business products.
• As compared to the third quarter of fiscal
2019, the current quarter revenue decreased $2 million or
1.3%.
Operating income before restructuring costs
and amortization highlights include:
- Operating income before
restructuring costs and amortization for the fourth
quarter of fiscal 2019 of $483 million was down 6.6% or
$34 million from $517 million in the fourth quarter of
fiscal 2018. The decrease relates primarily to the decrease
in revenue, including the $10 million provision related primarily
to the CRTC decision to reduce wholesale broadband rates available
to third party internet providers from 2016 onward, and higher
programming costs.
• As compared to the third quarter of fiscal
2019, Wireline operating income before restructuring costs and
amortization for the current quarter increased by $8 million
mainly as a result of the impact of the $15 million payment to
address certain IP licensing matters in the prior quarter partially
offset by a $10 million provision related primarily to the CRTC
decision to reduce wholesale broadband rates available to third
party internet providers from 2016 onward in the current
quarter.
Wireless |
|
|
|
|
|
|
|
Three months ended August 31, |
Year ended August 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated)(1) |
|
Change % |
2019 |
|
2018
(restated)(1) |
|
Change % |
Service |
187 |
|
157 |
|
19.1 |
701 |
|
564 |
|
24.3 |
Equipment and other |
96 |
|
84 |
|
14.3 |
353 |
|
337 |
|
4.7 |
Wireless revenue |
283 |
|
241 |
|
17.4 |
1,054 |
|
901 |
|
17.0 |
Operating income before restructuring and
amortization(2) |
54 |
|
39 |
|
38.5 |
206 |
|
142 |
|
45.1 |
Operating margin(2) |
19.1 |
% |
16.2 |
% |
17.9 |
19.5 |
% |
15.8 |
% |
23.4 |
The Wireless division added 90,744 RGUs in the
fourth quarter of fiscal 2019 as compared to
85,014 RGUs gained in the fourth quarter of fiscal 2018. The
increase in the postpaid subscriber base reflects the seasonally
active back-to-school period and continued customer demand for the
Big Gig data-centric pricing and packaging options, including
Absolute Zero. The increase in the prepaid customer base reflects
the success of the new plans that were launched in the market in
early April.
Revenue highlights include:
- Revenue of $283 million for
the fourth quarter of fiscal 2019 increased
$42 million or 17.4% over the fourth quarter of fiscal 2018.
The increase was driven mainly by higher service revenues which
contributed an incremental $30 million or 19.1% to
consolidated revenue primarily due to higher postpaid RGUs
(approximately 288,000 since August 31, 2018) and a 3.9% and 0.5%
year-over-year increase in ABPU to $42.58 and ARPU to $38.59,
respectively. There was also a $12 million or 14.3% increase in
equipment revenue.
• As compared to the third quarter of fiscal 2019,
the current quarter revenue increased $32 million or 12.7%,
while ABPU increased by $0.28 or 0.7% (ABPU of $42.30 in the third
quarter of fiscal 2019), and ARPU increased by $0.23 or 0.6% (ARPU
of $38.36 in the third 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 $54 million for the
fourth quarter of fiscal 2019 improved by
$15 million over the fourth quarter of fiscal 2018. The
improvements were mainly due to postpaid RGU growth and the 3.9%
increase in ABPU.
• As compared to the third quarter of fiscal 2019, operating
income before restructuring costs and amortization for the current
quarter decreased $1 million or 1.8%.
|
|
|
|
|
|
|
|
Capital expenditures
and equipment costs |
|
|
|
|
|
|
|
|
Three months ended August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2019 |
2018
(restated)1 |
Change % |
|
|
2019 |
2018
(restated)1 |
Change % |
|
Wireline |
|
|
|
|
|
|
|
New housing development |
39 |
35 |
11.4 |
|
|
138 |
124 |
11.3 |
|
Success-based |
66 |
64 |
3.1 |
|
|
256 |
278 |
(7.9 |
) |
Upgrades and enhancements |
90 |
185 |
(51.4 |
) |
|
346 |
493 |
(29.8 |
) |
Replacement |
10 |
9 |
11.1 |
|
|
28 |
31 |
(9.7 |
) |
Building and other |
29 |
37 |
(21.6 |
) |
|
59 |
92 |
(35.9 |
) |
Total
as per Note 3 to the unaudited interim consolidated financial
statements |
234 |
330 |
(29.1 |
) |
|
827 |
1,018 |
(18.8 |
) |
Wireless |
|
|
|
|
|
|
|
Total
as per Note 3 to the unaudited interim consolidated financial
statements |
148 |
103 |
43.7 |
|
|
385 |
343 |
12.2 |
|
Consolidated total as per Note 3 to the unaudited
interim consolidated financial statements |
382 |
433 |
(11.8 |
) |
|
1,212 |
1,361 |
(10.9 |
) |
(1) Fiscal 2018 reported figures have been
restated as a result of a change in accounting policy. See
“Accounting Standards" |
In the fourth quarter of fiscal
2019, capital investment of $382 million decreased $51 million
compared to the prior year period. Wireline capital spending
decreased by approximately $96 million primarily due to lower
network investments. Wireless spending increased by approximately
$45 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:
- For the quarter, investment in
combined upgrades, enhancements and replacement categories was $100
million, a $94 million or 48.5% decrease over the prior year driven
by lower planned
Wireline spend on system network infrastructure.
- Investments in new housing
development was $39 million, comparable to the prior period, driven
by residential and commercial customer network growth and
acquisition.
Wireless highlights include:
- Capital investment of
$148 million in the fourth quarter increased relative to the
fourth quarter of fiscal 2018 by $45 million, primarily due to the
planned increase in Wireless spending in the current year. In
fiscal 2019, the Company continued 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.
|
|
|
|
|
|
|
|
Supplementary quarterly financial
information |
Quarter |
Revenue |
Operating
income before
restructuring
costs and
amortization(2) |
Net income (loss)
from continuing
operations
attributable to
equity
shareholders |
Net income
(loss)
attributable
to equity
shareholders |
Net income
(loss)(3) |
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 |
|
|
|
|
|
|
|
Fourth |
1,352 |
537 |
167 |
|
167 |
|
167 |
|
0.32 |
|
0.32 |
|
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 |
|
(1) Fiscal 2018 reported figures have been restated
applying IFRS 15 and also reflect a change in accounting policy.
See “Accounting Standards”.
(2) See definition and discussion under “Non-IFRS and
additional GAAP measures.”
(3) Net income attributable to both equity shareholders
and non-controlling interests |
|
|
F19 Q4
vs
F19 Q3 |
In the fourth quarter of fiscal 2019, net income decreased $62
million compared to the third quarter of fiscal 2019 mainly due to
a $21 million increase in current taxes in the fourth quarter, 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 entire equity investment in Corus all
recorded in the third quarter. |
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 all recorded in the
third 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
first 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 third 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 in the third
quarter. |
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 second 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. |
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 twelve months ended August
31, 2019, the category included a recovery of $10 and $9 million
respectively in restructuring charges related to the Company’s TBT
initiative for a total of $437 million since the beginning of
the program in March 2018, of which $292 million has been paid up
to and including August 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 at that time. 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 addition,
approximately 90 employees either rescinded their acceptance of the
VDP package with the approval of the Company or declined their
package in order to expedite their departure date resulting in a
$10 million recovery of restructuring costs in fiscal 2019.
In the fourth quarter of fiscal 2019,
approximately 300 employees exited the Company, bringing the total
number of employees who have departed under the VDP to
approximately 2,300 employees.
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
Three months ended August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated)(1) |
|
Change % |
|
|
2019 |
|
2018
(restated)(1) |
|
Change % |
|
Amortization revenue
(expense) |
|
|
|
|
|
|
|
Deferred equipment revenue |
5 |
|
6 |
|
(16.7 |
) |
|
21 |
|
30 |
|
(30.0 |
) |
Deferred equipment costs |
(19 |
) |
(25 |
) |
(24.0 |
) |
|
(85 |
) |
(110 |
) |
(22.7 |
) |
Property, plant and equipment, intangibles and other |
(236 |
) |
(240 |
) |
(1.7 |
) |
|
(974 |
) |
(945 |
) |
3.1 |
|
(1)
Fiscal 2018 reported figures have been restated as a result of a
change in accounting policy. See “Accounting Standards” |
Amortization of property, plant and equipment,
intangibles and other decreased 1.7% and increased 3.1% for the
three and twelve months ended August 31, 2019, respectively. The
amortization of new expenditures exceeded the amortization of
assets that became fully amortized during the year.
|
|
|
|
|
|
|
|
Amortization of financing costs and interest
expense |
|
|
|
|
|
Three months ended August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2019 |
2018 |
Change % |
|
|
2019 |
2018 |
Change % |
Amortization of financing costs – long-term debt |
1 |
2 |
(50.0 |
) |
|
3 |
3 |
- |
Interest expense |
66 |
64 |
3.1 |
|
|
258 |
248 |
4.0 |
Interest expense for the three and twelve months
ended August 31, 2019, was higher than the comparable periods
primarily due to higher average outstanding debt balances in the
current year.
Equity income (loss) of an
associate
For the three and twelve months ended August 31,
2019, the Company recorded equity income of $nil and $46
million, respectively, related to its interest in Corus, compared
to equity income of $13 million and an equity loss of $200
million for the comparable periods. The year-over-year decrease
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
twelve months ended August 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 twelve-month period ended August 31,
2019, the Company recorded a net $32 million gain on the disposal
of property, plant and equipment, a $6 million gain on the disposal
of a non-core business, as well as a $15 million gain on the
disposal of a minor portfolio investment.
Income
taxes
Income taxes are higher in the quarter compared
to the fourth quarter of fiscal 2018 mainly due to miscellaneous
tax adjustments.
Financial position
Total assets were $15.6 billion at August 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 $1.16 billion
primarily due to increases in cash of $1.06 billion,
receivables of $34 million, inventory of $25 million, other current
assets of $18 million, and current portion of contract assets of
$16 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 $59 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 $181 million due to capital
investments in excess of amortization. Intangible assets
increased $497 million primarily due to the acquisition of spectrum
for $492 million.
Current liabilities increased $1.21 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 due in October
2019, and accounts payable and accrued liabilities of $45 million,
partially offset by decreases in provisions of $21 million,
income taxes payable of $51 million and current portion of
contract liabilities of $10 million.
Accounts payable and accruals increased 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 $437 million in restructuring
charges in fiscal 2018 and 2019 primarily related to severance and
other related costs, of which $292 million has been paid,
$142 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 $253 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 $320 million
mainly due to an increase in share capital of $256 million and
retained earnings of $118 million partially offset by an increase
in accumulated other comprehensive loss of $55 million. Share
capital increased due to the issuance of 10,147,427 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
$736 million partially offset by dividends of
$618 million.
As at October 15, 2019, there were 494,400,771
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 October 15, 2019, 8,231,823 Class B Non-Voting
Shares were issuable on exercise of outstanding options. Shaw is
traded on the Toronto and New York stock exchanges and is included
in the S&P/TSX 60 Index (Trading Symbols: TSX – SJR.B,
SJR.PR.A, SJR.PR.B, NYSE – SJR, and TSXV – SJR.A). For more
information, please visit www.shaw.ca.
Liquidity and capital
resources
In the twelve-month period ended August 31,
2019, the Company generated $545 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 $35 million to fund the net working capital change of
$120 million, pay common share dividends of $389 million, purchase
$492 million in spectrum licenses, and pay $124 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 $217 million during
the twelve-month period ending August 31, 2019. Subsequent to
year-end, on October 25, 2019, and in accordance with the terms of
our Dividend Reinvestment Plan (the “DRIP”), the Company announced
that in lieu of issuing shares from treasury, it will satisfy its
share delivery obligations under the DRIP by purchasing Class B
Shares on the open market. In addition, the Company will reduce its
discount from 2% to 0% for the Class B Shares delivered under the
DRIP. These changes to the DRIP will apply to the dividends payable
on November 28, 2019 to shareholders of record on November 15,
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 August 31, 2019,
$40 million was drawn under the program and, pursuant to the
terms of the amendment, the Company will also be required to draw
an additional $40 million (for a total of $80 million) under the
program by November 1, 2019. 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 August 31, 2019, the net debt leverage
ratio for the Company was 1.9x. 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.
Subsequent to year-end, on October 1, 2019, the
Company repaid the $1.25 billion of 5.65% senior notes.
Subsequent to year-end, on October 25, 2019, the
Company announced that it intends to implement a normal course
issuer bid (“NCIB”) program to purchase up to 24,758,127 Class B
Shares representing 5% of all of the issued and outstanding Class B
Shares. The NCIB program has been approved by the Board of
Directors but remains subject to approval by the Toronto Stock
Exchange (“TSX”) and, if accepted, will be conducted in accordance
with the applicable rules and policies of the TSX and applicable
Canadian securities law.
The
Company calculates net debt leverage ratio as
follows(1): |
|
|
|
|
|
|
|
(millions of Canadian dollars) |
August 31, 2019 |
|
|
August 31, 2018
(restated)(3) |
|
Short-term borrowings |
40 |
|
|
40 |
|
Current portion of long-term debt |
1,251 |
|
|
1 |
|
Long-term debt |
4,057 |
|
|
4,310 |
|
50% of outstanding preferred shares |
147 |
|
|
147 |
|
Cash |
(1,446 |
) |
|
(384 |
) |
(A) Net debt(2) |
4,049 |
|
|
4,114 |
|
Operating income before restructuring costs and amortization |
2,161 |
|
|
2,056 |
|
Corus dividends |
10 |
|
|
92 |
|
(B) Adjusted operating income before restructuring
costs and amortization(2) |
2,171 |
|
|
2,148 |
|
(A/B) Net debt leverage ratio |
1.9x |
|
|
1.9x |
|
(1) The
following contains a description of the Company’s use of non-IFRS
financial measures, provides a reconciliation to the nearest IFRS
measure or provides a reference to such reconciliation.
(2) These financial measures do not have standard
definitions prescribed by IFRS and therefore may not be comparable
to similar measures disclosed by other companies and have not been
presented as an alternative to liquidity prescribed by IFRS.
(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 August 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., 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 August 31, 2019, all
of the letters of credit were cancelled and the unsecured letter of
credit facilities were all terminated.
As at August 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. On October 1, 2019, $1.25 billion of 5.65% senior notes
and accrued interest were repaid by the Company with cash on
hand.
Cash Flow |
|
|
|
|
|
|
|
Operating
Activities |
|
|
|
|
|
|
|
|
Three months ended August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2019 |
2018
(restated)(1) |
Change % |
|
|
2019 |
|
2018
(restated)(1) |
|
Change % |
Funds flow from continuing
operations |
430 |
422 |
1.9 |
|
|
1,784 |
|
1,177 |
|
51.6 |
Net change in non-cash
balances related to operations |
5 |
34 |
(85.3 |
) |
|
(216 |
) |
178 |
|
>(100.0) |
Operating activities of discontinued operations |
- |
- |
- |
|
|
- |
|
(2 |
) |
100.0 |
|
435 |
456 |
(4.6 |
) |
|
1,568 |
|
1,353 |
|
15.9 |
(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 August 31, 2019,
funds flow from operating activities decreased over the comparable
period in fiscal 2018 primarily due to a decrease in the net change
in non-cash balances related to operations, which was partially
offset by an increase in funds flow from continuing operations. The
net change in non-cash balances related to operations fluctuated
over the comparative period due to changes in accounts receivable
and other current asset balances, and the timing of payment of
current income taxes payable and accounts payable and accrued
liabilities.
Investing
Activities |
|
|
|
|
|
|
|
|
Three months ended August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2019 |
|
2018
(restated)(1) |
|
Increase |
|
2019 |
|
2018
(restated)(1) |
|
Decrease |
|
Cash
used in investing activities |
(319 |
) |
(318 |
) |
1 |
|
(1,133 |
) |
(1,176 |
) |
(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 August 31, 2019, the
cash used in investing activities was consistent with the
comparable period in fiscal 2018.
Financing Activities |
|
|
|
|
|
|
The changes in
financing activities during the comparative periods were as
follows: |
|
Three months ended August 31, |
|
Year ended August 31, |
(millions of Canadian dollars) |
2019 |
|
2018 |
|
|
2019 |
|
2018 |
|
Senior notes – net
borrowings |
- |
|
- |
|
|
1,000 |
|
10 |
|
Bank loans - net
borrowings |
- |
|
40 |
|
|
- |
|
40 |
|
Bank facility arrangement
costs |
- |
|
- |
|
|
(9 |
) |
- |
|
Dividends |
(99 |
) |
(100 |
) |
|
(398 |
) |
(392 |
) |
Issuance of Class B Non-Voting
Shares |
2 |
|
12 |
|
|
35 |
|
43 |
|
Other |
- |
|
- |
|
|
(1 |
) |
(1 |
) |
|
(97 |
) |
(48 |
) |
|
627 |
|
(300 |
) |
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 August 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 replaced 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 twelve months
ended August 31, 2019, the comparative information presented for
the three and twelve months ended August 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
twelve months ended August 31, 2018, are as follows:
|
|
Three months ended August 31, 2018 |
|
Year ended August 31, 2018 |
|
|
As |
|
Effect of |
|
Subsequent to |
|
As |
|
Effect of |
|
Subsequent to |
(millions of Canadian dollars) |
|
reported |
|
transition |
|
transition |
|
reported |
|
transition |
|
transition |
Revenue |
i. |
1,336 |
|
|
(9 |
) |
|
1,327 |
|
|
5,239 |
|
|
(50 |
) |
|
5,189 |
|
Operating, general and
administrative expenses |
ii. |
(776 |
) |
|
5 |
|
|
(771 |
) |
|
(3,150 |
) |
|
18 |
|
|
(3,132 |
) |
Other revenue (expense) |
|
26 |
|
|
– |
|
|
26 |
|
|
29 |
|
|
3 |
|
|
32 |
|
Income tax expense
(recovery) |
|
61 |
|
|
(2 |
) |
|
59 |
|
|
143 |
|
|
(12 |
) |
|
131 |
|
Net
income (loss) from continuing operations |
|
200 |
|
|
(2 |
) |
|
198 |
|
|
66 |
|
|
(17 |
) |
|
49 |
|
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 twelve months ended August
31, 2018 are as follows:
|
|
Three months ended August 31, 2018 |
|
Year ended August 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 |
|
942 |
|
|
– |
|
|
942 |
|
|
3,725 |
|
|
– |
|
|
3,725 |
|
Wireline –
Business |
|
145 |
|
|
– |
|
|
145 |
|
|
567 |
|
|
– |
|
|
567 |
|
Wireless |
|
167 |
|
|
(10 |
) |
|
157 |
|
|
595 |
|
|
(31 |
) |
|
564 |
|
|
|
1,254 |
|
|
(10 |
) |
|
1,244 |
|
|
4,887 |
|
|
(31 |
) |
|
4,856 |
|
Equipment and
other |
|
|
|
|
|
|
|
|
|
|
|
|
Wireless |
|
83 |
|
|
1 |
|
|
84 |
|
|
356 |
|
|
(19 |
) |
|
337 |
|
|
|
83 |
|
|
1 |
|
|
84 |
|
|
356 |
|
|
(19 |
) |
|
337 |
|
Intersegment eliminations |
|
(1 |
) |
|
– |
|
|
(1 |
) |
|
(4 |
) |
|
– |
|
|
(4 |
) |
Total revenue |
|
1,336 |
|
|
(9 |
) |
|
1,327 |
|
|
5,239 |
|
|
(50 |
) |
|
5,189 |
|
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 |
(7 |
) |
1,887 |
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 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) 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.
c) Transition and
change in accounting policy 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
twelve months ended August 31, 2018.
|
Three months ended August 31, 2018 |
Year ended August 31, 2018 |
|
|
|
Change in |
|
|
|
Change in |
|
|
As |
IFRS 15 |
accounting |
Subsequent |
As |
IFRS 15 |
accounting |
Subsequent |
(millions of Canadian dollars) |
reported |
transition |
policy |
to transition |
reported |
transition |
policy |
to transition |
Revenue |
1,336 |
|
(9 |
) |
– |
|
1,327 |
|
5,239 |
|
(50 |
) |
– |
|
5,189 |
|
Operating, general and administrative expenses |
(776 |
) |
5 |
|
– |
|
(771 |
) |
(3,150 |
) |
18 |
|
– |
|
(3,132 |
) |
Restructuring costs |
(16 |
) |
– |
|
– |
|
(16 |
) |
(446 |
) |
– |
|
– |
|
(446 |
) |
Amortization: |
|
|
|
|
|
|
|
|
Deferred equipment revenue |
6 |
|
– |
|
– |
|
6 |
|
30 |
|
– |
|
– |
|
30 |
|
Deferred equipment costs |
(25 |
) |
– |
|
– |
|
(25 |
) |
(110 |
) |
– |
|
– |
|
(110 |
) |
Property, plant and equipment, intangibles and other |
(237 |
) |
– |
|
(3 |
) |
(240 |
) |
(932 |
) |
– |
|
(13 |
) |
(945 |
) |
Operating income from
continuing operations |
288 |
|
(4 |
) |
(3 |
) |
281 |
|
631 |
|
(32 |
) |
(13 |
) |
586 |
|
Amortization of financing
costs – long-term debt |
(2 |
) |
– |
|
– |
|
(2 |
) |
(3 |
) |
– |
|
– |
|
(3 |
) |
Interest expense |
(64 |
) |
– |
|
– |
|
(64 |
) |
(248 |
) |
– |
|
– |
|
(248 |
) |
Equity income of an associate
or joint venture |
13 |
|
– |
|
– |
|
13 |
|
(200 |
) |
– |
|
– |
|
(200 |
) |
Other revenue
(expense) |
26 |
|
– |
|
– |
|
26 |
|
29 |
|
3 |
|
– |
|
32 |
|
Income from continuing operations before income
taxes |
261 |
|
(4 |
) |
(3 |
) |
254 |
|
209 |
|
(29 |
) |
(13 |
) |
167 |
|
Current income tax expense |
41 |
|
– |
|
– |
|
41 |
|
137 |
|
– |
|
– |
|
137 |
|
Deferred income tax
expense (recovery) |
20 |
|
(2 |
) |
(1 |
) |
17 |
|
6 |
|
(12 |
) |
(3 |
) |
(9 |
) |
Net income from continuing operations |
200 |
|
(2 |
) |
(2 |
) |
196 |
|
66 |
|
(17 |
) |
(10 |
) |
39 |
|
Loss from discontinued
operations, net of tax |
– |
|
– |
|
– |
|
– |
|
(6 |
) |
– |
|
– |
|
(6 |
) |
Net
income |
200 |
|
(2 |
) |
(2 |
) |
196 |
|
60 |
|
(17 |
) |
(10 |
) |
33 |
|
Net income from continuing operations attributable
to: |
|
|
|
|
|
|
|
|
Equity
shareholders |
200 |
|
(2 |
) |
(2 |
) |
196 |
|
66 |
|
(17 |
) |
(10 |
) |
39 |
|
Loss from discontinued
operations attributable to: |
|
|
|
|
|
|
|
|
Equity
shareholders |
– |
|
– |
|
– |
|
– |
|
(6 |
) |
– |
|
– |
|
(6 |
) |
Basic earnings (loss) per share |
|
|
|
|
|
|
|
|
Continuing operations |
0.39 |
|
– |
|
– |
|
0.38 |
|
0.11 |
|
– |
|
– |
|
0.06 |
|
Discontinued
operations |
- |
|
– |
|
– |
|
- |
|
(0.01 |
) |
– |
|
– |
|
(0.01 |
) |
|
0.39 |
|
– |
|
– |
|
0.38 |
|
0.10 |
|
– |
|
– |
|
0.05 |
|
Diluted earnings (loss) per share |
|
|
|
|
|
|
|
|
Continuing operations |
0.39 |
|
– |
|
– |
|
0.38 |
|
0.11 |
|
– |
|
– |
|
0.06 |
|
Discontinued
operations |
- |
|
– |
|
– |
|
- |
|
(0.01 |
) |
– |
|
– |
|
(0.01 |
) |
|
0.39 |
|
– |
|
– |
|
0.38 |
|
0.10 |
|
– |
|
– |
|
0.05 |
|
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 August 31, 2018 |
As at September 1, 2017 |
|
|
|
|
Change in |
|
|
|
Change in |
|
|
|
As |
IFRS 15 |
accounting |
Subsequent |
As |
IFRS 15 |
accounting |
Subsequent |
|
(millions of Canadian dollars) |
reported |
transition |
policy |
to transition |
reported |
transition |
policy |
to transition |
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
Cash |
384 |
– |
|
– |
|
384 |
507 |
– |
|
– |
|
507 |
|
Accounts receivable |
255 |
– |
|
(2 |
) |
253 |
286 |
– |
|
– |
|
286 |
|
Inventories |
101 |
– |
|
(40 |
) |
61 |
109 |
– |
|
(50 |
) |
59 |
|
Other current assets |
286 |
(13 |
) |
– |
|
273 |
155 |
24 |
|
– |
|
179 |
|
Current portion of contract assets |
– |
59 |
|
– |
|
59 |
– |
15 |
|
– |
|
15 |
|
Assets held for sale |
– |
– |
|
– |
|
– |
61 |
– |
|
– |
|
61 |
|
|
1,026 |
46 |
|
(42 |
) |
1,030 |
1,118 |
39 |
|
(50 |
) |
1,107 |
|
Investments and other
assets |
660 |
– |
|
– |
|
660 |
937 |
– |
|
– |
|
937 |
|
Property, plant and
equipment |
4,672 |
– |
|
30 |
|
4,702 |
4,344 |
– |
|
50 |
|
4,394 |
|
Other long-term assets |
300 |
(102 |
) |
(1 |
) |
197 |
255 |
(39 |
) |
– |
|
216 |
|
Deferred income tax
assets |
4 |
– |
|
– |
|
4 |
4 |
– |
|
– |
|
4 |
|
Intangibles |
7,482 |
– |
|
– |
|
7,482 |
7,435 |
– |
|
– |
|
7,435 |
|
Goodwill |
280 |
– |
|
– |
|
280 |
280 |
– |
|
– |
|
280 |
|
Contract assets |
– |
76 |
|
– |
|
76 |
– |
44 |
|
– |
|
44 |
|
|
14,424 |
20 |
|
(13 |
) |
14,431 |
14,373 |
44 |
|
– |
|
14,417 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
Short-term borrowings |
40 |
– |
|
– |
|
40 |
- |
– |
|
– |
|
- |
|
Accounts payable and accrued liabilities |
971 |
(1 |
) |
– |
|
970 |
913 |
(4 |
) |
– |
|
909 |
|
Provisions |
245 |
– |
|
– |
|
245 |
76 |
– |
|
– |
|
76 |
|
Income taxes payable |
133 |
– |
|
– |
|
133 |
151 |
– |
|
– |
|
151 |
|
Unearned revenue |
221 |
(221 |
) |
– |
|
- |
211 |
(211 |
) |
– |
|
– |
|
Current portion of contract liabilities |
– |
226 |
|
– |
|
226 |
– |
214 |
|
– |
|
214 |
|
Current portion of long-term debt |
1 |
– |
|
– |
|
1 |
2 |
– |
|
– |
|
2 |
|
Liabilities held for sale |
- |
– |
|
– |
|
- |
39 |
– |
|
– |
|
39 |
|
|
1,611 |
4 |
|
– |
|
1,615 |
1,392 |
(1 |
) |
– |
|
1,391 |
|
Long-term debt |
4,310 |
– |
|
– |
|
4,310 |
4,298 |
– |
|
– |
|
4,298 |
|
Other long-term
liabilities |
13 |
– |
|
– |
|
13 |
114 |
– |
|
– |
|
114 |
|
Provisions |
179 |
– |
|
– |
|
179 |
67 |
– |
|
– |
|
67 |
|
Deferred credits |
460 |
(18 |
) |
– |
|
442 |
490 |
(21 |
) |
– |
|
469 |
|
Contract liabilities |
– |
18 |
|
– |
|
18 |
– |
21 |
|
– |
|
21 |
|
Deferred income tax liabilities |
1,894 |
(7 |
) |
(3 |
) |
1,884 |
1,858 |
5 |
|
– |
|
1,863 |
|
|
8,467 |
(3 |
) |
(3 |
) |
8,461 |
8,219 |
4 |
|
- |
|
8,223 |
|
Shareholders'
equity |
|
|
|
|
|
|
|
|
|
Common and preferred
shareholders |
5,956 |
22 |
|
(9 |
) |
5,969 |
6,153 |
40 |
|
– |
|
6,193 |
|
Non-controlling interests in subsidiaries |
1 |
– |
|
– |
|
1 |
1 |
– |
|
– |
|
1 |
|
|
5,957 |
22 |
|
(9 |
) |
5,970 |
6,154 |
40 |
|
- |
|
6,194 |
|
|
14,424 |
19 |
|
(12 |
) |
14,431 |
14,373 |
44 |
|
- |
|
14,417 |
|
Below is the effect of transition to IFRS 15 and
adoption of our new accounting policy described above on our
condensed consolidated Statement of Cash Flows for the three and
twelve months ended August 31, 2018.
|
Three months ended August 31, 2018 |
Year ended August 31, 2018 |
|
|
|
Change in |
|
|
|
Change in |
|
|
As |
IFRS 15 |
accounting |
Subsequent |
As |
IFRS 15 |
accounting |
Subsequent |
(millions of Canadian dollars) |
reported |
transition |
policy |
to transition |
reported |
transition |
policy |
to transition |
OPERATING
ACTIVITIES |
|
|
|
|
|
|
|
|
Funds flow from continuing operations |
441 |
|
(19 |
) |
– |
|
422 |
|
1,259 |
|
(82 |
) |
– |
|
1,177 |
|
Net change in non-cash
balances related to continuing operations |
16 |
|
19 |
|
(1 |
) |
34 |
|
102 |
|
82 |
|
(6 |
) |
178 |
|
Operating activities of discontinued operations |
– |
|
– |
|
– |
|
– |
|
(2 |
) |
– |
|
– |
|
(2 |
) |
|
457 |
|
– |
|
(1 |
) |
456 |
|
1,359 |
|
– |
|
(6 |
) |
1,353 |
|
INVESTING
ACTIVITIES |
|
|
|
|
|
|
|
|
Additions to property, plant
and equipment |
(294 |
) |
– |
|
1 |
|
(293 |
) |
(1,127 |
) |
– |
|
6 |
|
(1,121 |
) |
Additions to equipment costs
(net) |
(12 |
) |
– |
|
– |
|
(12 |
) |
(49 |
) |
– |
|
– |
|
(49 |
) |
Additions to other
intangibles |
(46 |
) |
– |
|
– |
|
(46 |
) |
(131 |
) |
– |
|
– |
|
(131 |
) |
Proceeds on sale of spectrum
licenses |
35 |
|
– |
|
– |
|
35 |
|
35 |
|
– |
|
– |
|
35 |
|
Purchase of specturm
licenses |
(25 |
) |
– |
|
– |
|
(25 |
) |
(25 |
) |
– |
|
– |
|
(25 |
) |
Proceeds on sale of
discontinued operations, net of cash sold |
– |
|
– |
|
– |
|
– |
|
18 |
|
– |
|
– |
|
18 |
|
Net additions to investments
and other assets |
23 |
|
– |
|
– |
|
23 |
|
88 |
|
– |
|
– |
|
88 |
|
Proceeds on disposal of property, plant and equipment |
– |
|
– |
|
– |
|
– |
|
9 |
|
– |
|
– |
|
9 |
|
|
(319 |
) |
– |
|
1 |
|
(318 |
) |
(1,182 |
) |
– |
|
6 |
|
(1,176 |
) |
FINANCING
ACTIVITIES |
|
|
|
|
|
|
|
|
Increase in short-term
borrowings |
40 |
|
– |
|
– |
|
40 |
|
40 |
|
– |
|
– |
|
40 |
|
Increase in long-term
debt |
– |
|
– |
|
– |
|
– |
|
10 |
|
– |
|
– |
|
10 |
|
Issue of Class B Non-Voting
Shares |
12 |
|
– |
|
– |
|
12 |
|
43 |
|
– |
|
– |
|
43 |
|
Dividends paid on Class A
Shares and Class B Non-Voting Shares |
(98 |
) |
– |
|
– |
|
(98 |
) |
(384 |
) |
– |
|
– |
|
(384 |
) |
Dividends paid on Preferred
Shares |
(2 |
) |
– |
|
– |
|
(2 |
) |
(8 |
) |
– |
|
– |
|
(8 |
) |
Other |
– |
|
– |
|
– |
|
– |
|
(1 |
) |
– |
|
– |
|
(1 |
) |
|
(48 |
) |
– |
|
– |
|
(48 |
) |
(300 |
) |
– |
|
– |
|
(300 |
) |
Increase (decrease) in
cash |
90 |
|
– |
|
– |
|
90 |
|
(123 |
) |
– |
|
– |
|
(123 |
) |
Cash,
beginning of the period |
294 |
|
– |
|
– |
|
294 |
|
507 |
|
– |
|
– |
|
507 |
|
Cash, end of the period |
384 |
|
– |
|
– |
|
384 |
|
384 |
|
– |
|
– |
|
384 |
|
d) 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.
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 has decided that it will use a modified retrospective
approach upon adoption of IFRS 16 on September 1, 2019.
Accordingly, financial results for fiscal 2019 will not be restated
with the impact of IFRS 16, however, our preliminary estimate is
that 2019 consolidated operating income before restructuring costs
and amortization would have increased by approximately $155 million
under IFRS 16. The Company intends to disclose the estimated
balance sheet 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 does not expect this standard to
have a material effect on its September 1, 2019 balance sheet.
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 August 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 August 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 year ended August 31,
2019 related to this change.
Broadcasting Act
Licensing and Ownership
On August 31, 2018, the Company submitted
renewal applications for its Direct-to-Home Undertaking and its
Satellite Relay Distribution Undertaking licences, which were to
expire on August 31, 2019. In July 2019, these services were
issued administrative renewals of their licences, which will expire
November 30, 2019.
The Potential for New or Increased
Fees
Legislative, regulatory or policy changes made
pursuant to the ongoing review of the Broadcasting Act, the
Telecommunications Act and the Radiocommunication Act (the “Joint
Review”) could impact the business practices of the Company or
result in new fees payable by the Company’s cable, DTH, online or
internet services. In July 2019, the Minister of Canadian
Heritage indicated that the Government intends to take appropriate
measures swiftly, when it receives the final report of the Expert
Panel in connection with the Joint Review in January 2020, to
ensure that “all players, including the Internet giants” offer
meaningful levels of Canadian content, contribute to the creation
of Canadian content, and promote Canadian content and make it
easily accessible on platforms. Any impact of such measures
on the Company will depend on how the Government defines new
entities to which such measures will apply and whether the
introduction of any new measures will cause the Government to alter
the existing measures that apply to the Company.
New fees could also be imposed pursuant to CRTC
regulations separate from the Joint Review, as the Commission has
indicated that, in 2020-2021, it will consider whether to examine
new mechanisms to support television news production. If the
CRTC were to consider and implement support for television news
production through increased access to subscription revenue, it
would increase costs for the Company.
Telecommunications Act
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 the implementation of new measures
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.
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.
2019 Federal Election
During the recent federal election, which
resulted in a minority government, several parties expressed
commitments to reduce the price of mobile and internet
services. The introduction of any future regulation or policy
to implement such commitments could have a material adverse impact
on our financial results.
CRTC Internet Service Provider Code
On November 9, 2018, the CRTC initiated a
proceeding to establish a mandatory code applicable to Internet
services provided by internet service providers, or ISPs, such as
Shaw. The CRTC has already enacted a Wireless Code and a
Television Service Provider Code applicable to wireless and
television service providers, respectively.
On July 31, 2019, the Commission published a final version of the
Internet Code and indicated that it would take effect on January
31, 2020. The final version is generally consistent with
Shaw’s submissions as to appropriate scope and commercial terms and
practices. However, implementation of the Internet Code may
result in cost increases for the Company.
36-Month Device Financing
The Commission is reviewing whether 36-month
equipment installment plans (“EIPs”) are compliant with the
Wireless Code. On August 2, 2019, following the introduction
by the national incumbent wireless carriers of EIPs ranging from
24- to 36-months, the Commission ordered all wireless service
providers to cease offering EIPs longer than 24 months pending a
full review of the practice. If 36-month EIPs are permitted,
it could impact Freedom’s ability to gain market-share.
Competition Bureau Study on the State of
Competition in the Wireline Broadband Market
On August 7, 2019, the Competition Bureau
released its report regarding the state of competition in the
wireline broadband sector (the “Report”). The Report was the
result of a year-long study that was initiated with the goal of
identifying the steps that regulators and policy makers could take
to enhance competition. Rather than making recommendations,
the Report articulated key questions which “will be important to
address in the process of crafting and refining” industry
regulation going forward and “necessary to conceptualize and define
competition analysis in future fora.” The Report indicated
that the results of the study “paint a largely positive picture”
regarding the state of competition and consumer choice in Canada’s
broadband market and emphasized that the strength of Canada’s
wireline broadband networks depend on investment and innovation by
facilities-based competitors. The Bureau’s recommendations
could influence future government and CRTC policies and
regulations, including those pertaining to wholesale wireline
services and the regulations for TPIA.
Third Party Internet Access
On August 15, 2019, the CRTC issued Telecom
Order 2019-288 (the “Order”), which set Shaw’s final wholesale
high-speed access (“HSA”) service rates. The final rates are
significantly lower than the interim rates set in October 2016, and
retroactive to January 31, 2017. On September 13, 2019, Shaw,
jointly with other Cogeco, Eastlink, Rogers, and Videotron (the
“Cable Carriers”) filed a motion for leave to appeal the Order with
the Federal Court of Appeal, as well as a motion to stay the Order,
pending the final judgment on the appeal (if leave is
granted). In response to a separate motion, the Federal Court
of Appeal granted a temporary stay of the Order pending its ruling
on the Cable Carriers’ request for a further stay of the Order
pending the Court’s determination of the Cable Carriers’ motion for
Leave to Appeal. Any of the following legal developments would
significantly reduce the amount that Shaw can charge for aggregated
HSA service and negatively impact Shaw’s broadband wireline
revenues and its ability to compete with Resellers and other
facilities-based HSA providers: a refusal by the Federal Court of
Appeal to grant leave to appeal; a granting of leave to appeal the
Order coupled with a refusal to grant a further stay pending the
resolution of such appeal; and, any decision, pursuant to the
granting of an appeal, to uphold the Order in a form that is
substantially unvaried.
ISED Spectrum Policy Developments and Wireless Spectrum
Licences
The Wireless division’s AWS-1 spectrum licences
were up for renewal at three different stages in 2019. The licences
up for renewal at the first two stages have been officially renewed
for a term of 20 years. We are awaiting confirmation from ISED with
respect to the renewal of the licences up for renewal at the third
stage. The licences have a high expectation of renewal. The
applicable terms and conditions of renewal of Shaw’s and other
carriers’ spectrum licences, after the initial terms, were
determined by ISED pursuant to public consultation processes that
began in the summer of 2017. In early 2018, ISED issued its
policy decision relating to the renewal of AWS-1 and other spectrum
licences auctioned in 2008. As expected, ISED imposed more
onerous deployment conditions for licences issued through the
renewal process.
The AWS-3 spectrum licences were issued in April
2015 and have a term of 20 years. The 700 MHz and 2500 MHz
spectrum licences that the Company purchased from Quebecor were
initially issued in February 2014 and May 2015, respectively for a
term of 20 years. The Company also secured 2500 MHz spectrum
licences through ISED’s 2018 Residual Spectrum Auction. These
licences were issued in 2018 for a 20-year term, expiring in
2038.
ISED’s 600 MHz auction took place in March and
April 2019, following a public consultation process in 2018.
The auction framework included a set-aside of 30 MHz of the total
70 MHz of spectrum available. Shaw secured spectrum in
Alberta, British Columbia and Ontario. These licences were issued
for a 20-year term, expiring in 2039.
Following a consultation in 2018, on June 5,
2019, ISED released a decision allowing future mobile use in the
millimeter wave bands including 26 GHz, 28 GHz, and 38 GHz bands,
as well as licence-exempt use in the 64-71 GHz bands. The
details of these frameworks will be the subject of future
proceedings.
In June 2019, ISED released its decision on
revisions to the 3500 MHz band, enabling existing holders to retain
a portion of their 3500 MHz band. At the same time, ISED launched a
new consultation proceeding, seeking comments on the 3500 MHz
auction format and rules, including potential pro-competitive
measures, including a set-aside, a cap, or a combination of
mechanisms. The 3500 MHz auction is expected to take place in
2020.
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.
In July 2019, ISED issued a decision in response
to its consultation on a new set of smaller service areas for
spectrum licensing (“Tier 5 Service Areas”) to complement ISED’s
existing service areas. ISED has created Tier 5 Service Areas
with the objective of encouraging additional access to spectrum
within rural areas pursuant to its licensing process. Currently,
none of the Company’s licences are subject to Tier 5 deployment
requirements, but future licences may incorporate a requirement for
deployment in such new service areas.
Copyright Act
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 eliminates 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
was granted. The Board issued its written reasons on August 5,
2019. If any Collective or Objector files a revised Notice of
Application by November 4, 2019 and thus resumes 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.
Personal Information Protection and Electronic Documents
Act (“PIPEDA”) and Canadian Anti-Spam Legislation
(“CASL”)
The Government initiated a National Digital and
Data Consultation in June 2018. This led to the Government’s
publication, in May 2019, of a principles-based Digital Charter and
a consultation to modernize PIPEDA. These processes could
lead to changes to privacy regulation that increase privacy-related
measures with which the Company is required to comply, as well as
expose the Company to increased penalties and claims in connection
with any non-compliance.
On November 5, 2018, the CRTC issued guidelines
(“Guidelines”) on the Commission’s approach to enforcement of CASL
provisions prohibiting a party from, among other things, aiding a
violation of CASL. These suggest that “Telecommunications and
Internet Service Providers” could be found liable for violating
CASL by facilitating or technically enabling services that
transgress CASL. While the guidance suggests that liability would
be linked to the level of control and connection with the
violators, and whether reasonable safeguards were in place to
prevent or stop a violation, no examples of potential liability for
ISPs or telecommunications service providers were provided.
As well, the guidelines indicate that awareness of a violation is
not necessary for a finding of liability. As such, the
Guidelines create a risk that Shaw could be fined for
non-compliance in connection with the provision of network
services.
CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
(unaudited)
|
|
|
|
August 31, 2018 |
|
September 1, 2017 |
(millions of Canadian dollars) |
August 31, 2019 |
|
(restated, note 2) |
|
(restated, note 2) |
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
Current |
|
|
|
|
|
|
Cash |
1,446 |
|
384 |
|
507 |
|
Accounts receivable |
287 |
|
253 |
|
286 |
|
Inventories |
86 |
|
61 |
|
59 |
|
Other current assets [note
5] |
291 |
|
273 |
|
179 |
|
Current portion of contract
assets [note 4] |
75 |
|
59 |
|
15 |
|
Assets
held for sale |
- |
|
- |
|
61 |
|
|
2,185 |
|
1,030 |
|
1,107 |
Investments and
other assets [notes 16 and 17] |
37 |
|
660 |
|
937 |
Property, plant
and equipment |
4,883 |
|
4,702 |
|
4,394 |
Other long-term
assets [note 16] |
195 |
|
197 |
|
216 |
Deferred income
tax assets |
4 |
|
4 |
|
4 |
Intangibles
[note 18] |
7,979 |
|
7,482 |
|
7,435 |
Goodwill |
280 |
|
280 |
|
280 |
Contract assets [note 4] |
83 |
|
76 |
|
44 |
|
|
15,646 |
|
14,431 |
|
14,417 |
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
Current |
|
|
|
|
|
|
Short-term borrowings
[note 6] |
40 |
|
40 |
|
- |
|
Accounts payable and accrued
liabilities |
1,015 |
|
970 |
|
909 |
|
Provisions [note
7] |
224 |
|
245 |
|
76 |
|
Income taxes payable |
82 |
|
133 |
|
151 |
|
Current portion of contract
liabilities [note 4] |
216 |
|
226 |
|
214 |
|
Current portion of long-term
debt [notes 11 and 16] |
1,251 |
|
1 |
|
2 |
|
Liabilities held for sale |
- |
|
- |
|
39 |
|
|
2,828 |
|
1,615 |
|
1,391 |
Long-term debt
[notes 11 and 16] |
4,057 |
|
4,310 |
|
4,298 |
Other long-term
liabilities |
75 |
|
13 |
|
114 |
Provisions
[note 7] |
79 |
|
179 |
|
67 |
Deferred
credits |
425 |
|
442 |
|
469 |
Contract
liabilities [note 4] |
15 |
|
18 |
|
21 |
Deferred income tax liabilities |
1,877 |
|
1,884 |
|
1,863 |
|
|
9,356 |
|
8,461 |
|
8,223 |
Shareholders' equity [notes 12 and
14] |
|
|
|
|
|
Common and
preferred shareholders |
6,287 |
|
5,969 |
|
6,193 |
Non-controlling interests in subsidiaries |
3 |
|
1 |
|
1 |
|
|
6,290 |
|
5,970 |
|
6,194 |
|
|
15,646 |
|
14,431 |
|
14,417 |
|
|
|
|
|
|
|
See
accompanying notes. |
|
|
|
|
|
CONSOLIDATED STATEMENTS OF
INCOME
(unaudited)
|
|
|
Three months ended August 31, |
|
Year ended August 31, |
|
|
|
|
2018 |
|
|
|
2018 |
|
(millions of Canadian dollars) |
2019 |
|
(restated, note 2) |
|
|
2019 |
|
(restated, note 2) |
|
Revenue [notes 3 and 4] |
1,352 |
|
1,327 |
|
|
5,347 |
|
5,189 |
|
Operating, general
and administrative expenses [note 8] |
(815 |
) |
(771 |
) |
|
(3,186 |
) |
(3,132 |
) |
Restructuring
costs [notes 7 and 8] |
10 |
|
(16 |
) |
|
9 |
|
(446 |
) |
Amortization: |
|
|
|
|
|
|
Deferred equipment
revenue |
5 |
|
6 |
|
|
21 |
|
30 |
|
|
Deferred equipment
costs |
(19 |
) |
(25 |
) |
|
(85 |
) |
(110 |
) |
|
Property, plant and equipment, intangibles and other |
(236 |
) |
(240 |
) |
|
(974 |
) |
(945 |
) |
Operating
income from continuing operations |
297 |
|
281 |
|
|
1,132 |
|
586 |
|
|
|
Amortization of financing costs – long-term debt |
(1 |
) |
(2 |
) |
|
(3 |
) |
(3 |
) |
|
|
Interest expense |
(66 |
) |
(64 |
) |
|
(258 |
) |
(248 |
) |
|
|
Equity income (loss) of an
associate or joint venture [note 17] |
- |
|
13 |
|
|
46 |
|
(200 |
) |
|
|
Loss on disposal of an
associate or joint venture [note 17] |
- |
|
- |
|
|
(109 |
) |
- |
|
|
|
Other
gains [note 9] |
2 |
|
26 |
|
|
50 |
|
32 |
|
Income
from continuing operations before income taxes |
232 |
|
254 |
|
|
858 |
|
167 |
|
|
|
Current income tax expense
[note 3] |
29 |
|
41 |
|
|
114 |
|
137 |
|
|
|
Deferred income tax expense (recovery) [note 10] |
36 |
|
17 |
|
|
6 |
|
(9 |
) |
Net income
from continuing operations |
167 |
|
196 |
|
|
738 |
|
39 |
|
Loss
from discontinued operations, net of tax |
- |
|
- |
|
|
- |
|
(6 |
) |
Net income |
167 |
|
196 |
|
|
738 |
|
33 |
|
|
|
|
|
|
|
|
|
Net income
from continuing operations attributable to: |
|
|
|
|
|
Equity
shareholders |
167 |
|
196 |
|
|
736 |
|
39 |
|
Non-controlling interests |
- |
|
- |
|
|
2 |
|
- |
|
|
|
|
167 |
|
196 |
|
|
738 |
|
39 |
|
Loss from
discontinued operations attributable to: |
|
|
|
|
|
Equity
shareholders |
- |
|
- |
|
|
- |
|
(6 |
) |
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share [note 13] |
|
|
|
|
|
Continuing
operations |
0.32 |
|
0.38 |
|
|
1.42 |
|
0.06 |
|
Discontinued operations |
- |
|
- |
|
|
- |
|
(0.01 |
) |
|
|
|
0.32 |
|
0.38 |
|
|
1.42 |
|
0.05 |
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per share [note 13] |
|
|
|
|
|
Continuing
operations |
0.32 |
|
0.38 |
|
|
1.42 |
|
0.06 |
|
Discontinued operations |
- |
|
- |
|
|
- |
|
(0.01 |
) |
|
|
|
0.32 |
|
0.38 |
|
|
1.42 |
|
0.05 |
|
|
|
|
|
|
|
|
|
See
accompanying notes. |
|
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
(unaudited)
|
|
|
Three months ended August 31, |
|
Year ended August 31, |
|
|
|
|
2018 |
|
|
2018 |
(millions of Canadian dollars) |
2019 |
|
(restated, note 2) |
|
2019 |
|
(restated, note 2) |
Net
income |
167 |
|
196 |
|
738 |
|
33 |
|
|
|
|
|
|
|
|
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 |
(1 |
) |
1 |
|
2 |
|
5 |
|
|
Adjustment for hedged items
recognized in the period |
- |
|
- |
|
(2 |
) |
3 |
|
|
Share of other comprehensive
income of associates |
- |
|
3 |
|
(13 |
) |
10 |
|
|
Reclassification of accumulated gain to income related to the sale
of an associate |
- |
|
- |
|
(3 |
) |
- |
|
|
|
(1 |
) |
4 |
|
(16 |
) |
18 |
Items that
will not subsequently be reclassified to income: |
|
|
|
|
|
Remeasurements on employee benefit plans: |
(14 |
) |
11 |
|
(39 |
) |
74 |
|
|
|
(15 |
) |
15 |
|
(55 |
) |
92 |
Comprehensive income |
152 |
|
211 |
|
683 |
|
125 |
|
|
|
|
|
|
|
|
Comprehensive income attributable to: |
|
|
|
|
|
|
Equity
shareholders |
152 |
|
211 |
|
683 |
|
125 |
|
|
|
|
|
|
|
|
See
accompanying notes. |
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY
(unaudited)
Year ended August 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 |
- |
- |
|
736 |
|
- |
|
736 |
|
2 |
738 |
|
Other
comprehensive loss |
- |
- |
|
- |
|
(55 |
) |
(55 |
) |
- |
(55 |
) |
Comprehensive income
(loss) |
- |
- |
|
736 |
|
(55 |
) |
681 |
|
2 |
683 |
|
Dividends |
- |
- |
|
(401 |
) |
- |
|
(401 |
) |
- |
(401 |
) |
Dividend reinvestment
plan |
217 |
- |
|
(217 |
) |
- |
|
- |
|
- |
- |
|
Shares issued under stock
option plan |
39 |
(4 |
) |
- |
|
- |
|
35 |
|
- |
35 |
|
Share-based compensation |
- |
3 |
|
- |
|
- |
|
3 |
|
- |
3 |
|
Balance as at August 31, 2019 |
4,605 |
26 |
|
1,750 |
|
(94 |
) |
6,287 |
|
3 |
6,290 |
|
Year ended August 31,
2018 |
|
|
|
|
|
|
|
|
Attributable to equity shareholders |
|
|
(millions of Canadian dollars) |
Share
capital |
Contributed
surplus |
Retained
earnings |
Accumulated
other
comprehensive
loss |
Total |
Equity
attributable
to non
controlling
interests |
Total
equity |
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 at September
1, 2017 |
4,090 |
30 |
|
2,204 |
|
(131 |
) |
6,193 |
|
1 |
6,194 |
|
Net income [restated, note
2] |
- |
- |
|
33 |
|
- |
|
33 |
|
- |
33 |
|
Other
comprehensive income |
- |
- |
|
- |
|
92 |
|
92 |
|
- |
92 |
|
Comprehensive income |
- |
- |
|
33 |
|
92 |
|
125 |
|
- |
125 |
|
Dividends |
- |
- |
|
(394 |
) |
- |
|
(394 |
) |
- |
(394 |
) |
Dividend reinvestment
plan |
211 |
- |
|
(211 |
) |
- |
|
- |
|
- |
- |
|
Shares issued under stock
option plan |
48 |
(6 |
) |
- |
|
- |
|
42 |
|
- |
42 |
|
Share-based compensation |
- |
3 |
|
- |
|
- |
|
3 |
|
- |
3 |
|
Restated balance as at August 31, 2018 |
4,349 |
27 |
|
1,632 |
|
(39 |
) |
5,969 |
|
1 |
5,970 |
|
|
|
|
|
|
|
|
|
See accompanying
notes. |
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited)
|
Three months ended August 31, |
|
Year ended August 31, |
|
|
2018 |
|
|
|
2018 |
|
(millions of Canadian dollars) |
2019 |
|
(restated, note 2) |
|
|
2019 |
|
(restated, note 2) |
|
OPERATING
ACTIVITIES |
|
|
|
|
|
Funds flow from
continuing operations [note 15] |
430 |
|
422 |
|
|
1,784 |
|
1,177 |
|
Net change in non-cash
balances related to continuing operations |
5 |
|
34 |
|
|
(216 |
) |
178 |
|
Operating activities of discontinued operations |
- |
|
- |
|
|
- |
|
(2 |
) |
|
435 |
|
456 |
|
|
1,568 |
|
1,353 |
|
INVESTING
ACTIVITIES |
|
|
|
|
|
Additions to property, plant
and equipment [note 3] |
(282 |
) |
(293 |
) |
|
(1,109 |
) |
(1,121 |
) |
Additions to equipment costs
(net) [note 3] |
(12 |
) |
(12 |
) |
|
(42 |
) |
(49 |
) |
Additions to other intangibles
[note 3] |
(65 |
) |
(46 |
) |
|
(147 |
) |
(131 |
) |
Proceeds on sale of non-core
business |
40 |
|
- |
|
|
40 |
|
- |
|
Proceeds on sale of spectrum
licenses |
- |
|
35 |
|
|
- |
|
35 |
|
Spectrum acquisitions |
- |
|
(25 |
) |
|
(492 |
) |
(25 |
) |
Proceeds on sale of
discontinued operations, net of cash sold |
- |
|
- |
|
|
- |
|
18 |
|
Proceeds on sale of
investments |
- |
|
- |
|
|
551 |
|
- |
|
Net additions to investments
and other assets |
- |
|
23 |
|
|
7 |
|
88 |
|
Proceeds on disposal of property, plant and equipment |
- |
|
- |
|
|
59 |
|
9 |
|
|
(319 |
) |
(318 |
) |
|
(1,133 |
) |
(1,176 |
) |
FINANCING
ACTIVITIES |
|
|
|
|
|
Increase in short-term
borrowings |
- |
|
40 |
|
|
- |
|
40 |
|
Increase in long-term
debt |
- |
|
- |
|
|
1,000 |
|
10 |
|
Bank facility arrangement
costs |
- |
|
- |
|
|
(9 |
) |
- |
|
Issue of Class B Non-Voting
Shares [note 12] |
2 |
|
12 |
|
|
35 |
|
43 |
|
Dividends paid on Class A
Shares and Class B Non-Voting Shares |
(97 |
) |
(98 |
) |
|
(389 |
) |
(384 |
) |
Dividends paid on Preferred
Shares |
(2 |
) |
(2 |
) |
|
(9 |
) |
(8 |
) |
Other |
- |
|
- |
|
|
(1 |
) |
(1 |
) |
|
(97 |
) |
(48 |
) |
|
627 |
|
(300 |
) |
Increase (decrease) in
cash |
19 |
|
90 |
|
|
1,062 |
|
(123 |
) |
Cash,
beginning of the period |
1,427 |
|
294 |
|
|
384 |
|
507 |
|
Cash, end of the period |
1,446 |
|
384 |
|
|
1,446 |
|
384 |
|
|
|
|
|
|
|
See accompanying
notes. |
|
|
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
August 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 twelve months ended
August 31, 2019 were authorized for issue by the Board of Directors
on October 24, 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 replaced 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 twelve months
ended August 31, 2019, the comparative information presented for
the three and twelve months ended August 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” for the three and twelve
months ended August 31, 2018, are as follows:
|
|
Three months ended August 31, 2018 |
Year ended August 31, 2018 |
|
|
As |
Effect of |
Subsequent to |
As |
Effect of |
Subsequent to |
(millions of Canadian dollars) |
|
reported |
transition |
transition |
reported |
transition |
transition |
Revenue |
i. |
1,336 |
|
(9 |
) |
1,327 |
|
5,239 |
|
(50 |
) |
5,189 |
|
Operating, general and
administrative expenses |
ii. |
(776 |
) |
5 |
|
(771 |
) |
(3,150 |
) |
18 |
|
(3,132 |
) |
Other revenue (expense) |
|
26 |
|
- |
|
26 |
|
29 |
|
3 |
|
32 |
|
Income tax expense
(recovery) |
|
61 |
|
(2 |
) |
59 |
|
143 |
|
(12 |
) |
131 |
|
Net
income (loss) from continuing operations |
|
200 |
|
(2 |
) |
198 |
|
66 |
|
(17 |
) |
49 |
|
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 twelve months ended August
31, 2018, are as follows:
|
|
Three months ended August 31, 2018 |
Year ended August 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 |
942 |
|
- |
|
942 |
|
3,725 |
|
- |
|
3,725 |
|
|
Wireline - Business |
145 |
|
- |
|
145 |
|
567 |
|
- |
|
567 |
|
|
Wireless |
167 |
|
(10 |
) |
157 |
|
595 |
|
(31 |
) |
564 |
|
|
|
1,254 |
|
(10 |
) |
1,244 |
|
4,887 |
|
(31 |
) |
4,856 |
|
Equipment
and other |
|
|
|
|
|
|
|
Wireless |
83 |
|
1 |
|
84 |
|
356 |
|
(19 |
) |
337 |
|
|
|
83 |
|
1 |
|
84 |
|
356 |
|
(19 |
) |
337 |
|
Intersegment eliminations |
(1 |
) |
- |
|
(1 |
) |
(4 |
) |
- |
|
(4 |
) |
Total revenue |
1,336 |
|
(9 |
) |
1,327 |
|
5,239 |
|
(50 |
) |
5,189 |
|
The effect of transition to IFRS 15 on impacted
line items on our condensed Consolidated Statements of Financial
Position as disclosed in note 2(d) - “Transition adjustments” as at
September 1, 2017 and August 31, 2018 are as follows:
|
|
As at September 1, 2017 |
As at August 31, 2018 |
|
|
As |
Effect |
Subsequent to |
As |
Effect |
Subsequent to |
(millions of Canadian dollars) |
|
reported |
of transition |
transition |
reported |
of transition |
transition |
|
|
|
|
|
|
|
|
Current portion of contract assets |
i. |
- |
15 |
|
15 |
- |
59 |
|
59 |
Other current assets |
ii. |
155 |
24 |
|
179 |
286 |
(13 |
) |
273 |
Contract assets |
i. |
- |
44 |
|
44 |
- |
76 |
|
76 |
Other long-term assets |
ii. |
255 |
(39 |
) |
216 |
300 |
(102 |
) |
198 |
Accounts payable and accrued
liabilities |
i. |
913 |
(4 |
) |
909 |
971 |
(1 |
) |
970 |
Unearned revenue |
i. |
211 |
(211 |
) |
- |
221 |
(221 |
) |
- |
Current portion of contract
liabilities |
i. |
- |
214 |
|
214 |
- |
226 |
|
226 |
Deferred credits |
i. |
490 |
(21 |
) |
469 |
460 |
(18 |
) |
442 |
Deferred income tax
liabilities |
ii. |
1,858 |
5 |
|
1,863 |
1,894 |
(7 |
) |
1,887 |
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 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(d) “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
º 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
º 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
º 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) 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(d) - “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 and change in
accounting policy 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
twelve months ended August 31, 2018.
|
|
Three months ended August 31, 2018 |
Year ended August 31, 2018 |
|
|
|
|
Change in |
|
|
|
Change in |
|
|
|
As |
IFRS 15 |
accounting |
Subsequent |
As |
IFRS 15 |
accounting |
Subsequent |
(millions of Canadian dollars) |
reported |
transition |
policy |
to transition |
reported |
transition |
policy |
to transition |
Revenue |
1,336 |
|
(9 |
) |
- |
|
1,327 |
|
5,239 |
|
(50 |
) |
- |
|
5,189 |
|
Operating, general
and administrative expenses |
(776 |
) |
5 |
|
- |
|
(771 |
) |
(3,150 |
) |
18 |
|
- |
|
(3,132 |
) |
Restructuring
costs |
(16 |
) |
- |
|
- |
|
(16 |
) |
(446 |
) |
- |
|
- |
|
(446 |
) |
Amortization: |
|
|
|
|
|
|
|
|
|
Deferred equipment revenue |
6 |
|
- |
|
- |
|
6 |
|
30 |
|
- |
|
- |
|
30 |
|
|
Deferred equipment costs |
(25 |
) |
- |
|
- |
|
(25 |
) |
(110 |
) |
- |
|
- |
|
(110 |
) |
|
Property, plant and equipment, intangibles and other |
(237 |
) |
- |
|
(3 |
) |
(240 |
) |
(932 |
) |
- |
|
(13 |
) |
(945 |
) |
Operating
income from continuing operations |
288 |
|
(4 |
) |
(3 |
) |
281 |
|
631 |
|
(32 |
) |
(13 |
) |
586 |
|
|
Amortization of financing
costs – long-term debt |
(2 |
) |
- |
|
- |
|
(2 |
) |
(3 |
) |
- |
|
- |
|
(3 |
) |
|
Interest expense |
(64 |
) |
- |
|
- |
|
(64 |
) |
(248 |
) |
- |
|
- |
|
(248 |
) |
|
Equity income of an associate
or joint venture |
13 |
|
- |
|
- |
|
13 |
|
(200 |
) |
- |
|
- |
|
(200 |
) |
|
Other
gains |
26 |
|
- |
|
- |
|
26 |
|
29 |
|
3 |
|
- |
|
32 |
|
Income
from continuing operations before income taxes |
261 |
|
(4 |
) |
(3 |
) |
254 |
|
209 |
|
(29 |
) |
(13 |
) |
167 |
|
|
Current income tax
expense |
41 |
|
- |
|
- |
|
41 |
|
137 |
|
- |
|
- |
|
137 |
|
|
Deferred income tax expense |
20 |
|
(2 |
) |
(1 |
) |
17 |
|
6 |
|
(12 |
) |
(3 |
) |
(9 |
) |
Net income
from continuing operations |
200 |
|
(2 |
) |
(2 |
) |
196 |
|
66 |
|
(17 |
) |
(10 |
) |
39 |
|
Loss
from discontinued operations, net of tax |
- |
|
- |
|
- |
|
- |
|
(6 |
) |
- |
|
- |
|
(6 |
) |
Net income |
200 |
|
(2 |
) |
(2 |
) |
196 |
|
60 |
|
(17 |
) |
(10 |
) |
33 |
|
Net income
from continuing operations attributable to: |
|
|
|
|
|
|
|
|
Equity
shareholders |
200 |
|
(2 |
) |
(2 |
) |
196 |
|
66 |
|
(17 |
) |
(10 |
) |
39 |
|
Loss from
discontinued operations attributable to: |
|
|
|
|
|
|
|
|
Equity
shareholders |
- |
|
- |
|
- |
|
- |
|
(6 |
) |
- |
|
- |
|
(6 |
) |
Basic
earnings (loss) per share |
|
|
|
|
|
|
|
|
Continuing
operations |
0.39 |
|
- |
|
- |
|
0.38 |
|
0.11 |
|
- |
|
- |
|
0.06 |
|
Discontinued operations |
- |
|
- |
|
- |
|
- |
|
(0.01 |
) |
- |
|
- |
|
(0.01 |
) |
|
|
0.39 |
|
- |
|
- |
|
0.38 |
|
0.10 |
|
- |
|
- |
|
0.05 |
|
Diluted
earnings (loss) per share |
|
|
|
|
|
|
|
|
Continuing
operations |
0.39 |
|
- |
|
- |
|
0.38 |
|
0.11 |
|
- |
|
- |
|
0.06 |
|
Discontinued operations |
- |
|
- |
|
- |
|
- |
|
(0.01 |
) |
- |
|
- |
|
(0.01 |
) |
|
|
0.39 |
|
- |
|
- |
|
0.38 |
|
0.10 |
|
- |
|
- |
|
0.05 |
|
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 August 31, 2018 |
As at September 1, 2017 |
|
|
|
|
Change in |
|
|
|
Change in |
|
|
|
As |
IFRS 15 |
accounting |
Subsequent |
As |
IFRS 15 |
accounting |
Subsequent |
(millions of Canadian dollars) |
reported |
transition |
policy |
to transition |
reported |
transition |
policy |
to transition |
ASSETS |
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
Cash |
384 |
- |
|
- |
|
384 |
507 |
- |
|
- |
|
507 |
|
Accounts receivable |
255 |
- |
|
(2 |
) |
253 |
286 |
- |
|
- |
|
286 |
|
Inventories |
101 |
- |
|
(40 |
) |
61 |
109 |
- |
|
(50 |
) |
59 |
|
Other current assets |
286 |
(13 |
) |
- |
|
273 |
155 |
24 |
|
- |
|
179 |
|
Current portion of contract
assets |
- |
59 |
|
- |
|
59 |
- |
15 |
|
- |
|
15 |
|
Assets
held for sale |
- |
- |
|
- |
|
- |
61 |
- |
|
- |
|
61 |
|
|
1,026 |
46 |
|
(42 |
) |
1,030 |
1,118 |
39 |
|
(50 |
) |
1,107 |
Investments and
other assets |
660 |
- |
|
- |
|
660 |
937 |
- |
|
- |
|
937 |
Property, plant
and equipment |
4,672 |
- |
|
30 |
|
4,702 |
4,344 |
- |
|
50 |
|
4,394 |
Other long-term
assets |
300 |
(102 |
) |
(1 |
) |
197 |
255 |
(39 |
) |
- |
|
216 |
Deferred income
tax assets |
4 |
- |
|
- |
|
4 |
4 |
- |
|
- |
|
4 |
Intangibles |
7,482 |
- |
|
- |
|
7,482 |
7,435 |
- |
|
- |
|
7,435 |
Goodwill |
280 |
- |
|
- |
|
280 |
280 |
- |
|
- |
|
280 |
Contract assets |
- |
76 |
|
- |
|
76 |
- |
44 |
|
- |
|
44 |
|
|
14,424 |
20 |
|
(13 |
) |
14,431 |
14,373 |
44 |
|
- |
|
14,417 |
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
Short-term borrowings |
40 |
- |
|
- |
|
40 |
- |
- |
|
- |
|
- |
|
Accounts payable and accrued
liabilities |
971 |
(1 |
) |
- |
|
970 |
913 |
(4 |
) |
- |
|
909 |
|
Provisions |
245 |
- |
|
- |
|
245 |
76 |
- |
|
- |
|
76 |
|
Income taxes payable |
133 |
- |
|
- |
|
133 |
151 |
- |
|
- |
|
151 |
|
Unearned revenue |
221 |
(221 |
) |
- |
|
- |
211 |
(211 |
) |
- |
|
- |
|
Current portion of contract
liabilities |
- |
226 |
|
- |
|
226 |
- |
214 |
|
- |
|
214 |
|
Current portion of long-term
debt |
1 |
- |
|
- |
|
1 |
2 |
- |
|
- |
|
2 |
|
Liabilities held for sale |
- |
- |
|
- |
|
- |
39 |
- |
|
- |
|
39 |
|
|
1,611 |
4 |
|
- |
|
1,615 |
1,392 |
(1 |
) |
- |
|
1,391 |
Long-term
debt |
4,310 |
- |
|
- |
|
4,310 |
4,298 |
- |
|
- |
|
4,298 |
Other long-term
liabilities |
13 |
- |
|
- |
|
13 |
114 |
- |
|
- |
|
114 |
Provisions |
179 |
- |
|
- |
|
179 |
67 |
- |
|
- |
|
67 |
Deferred
credits |
460 |
(18 |
) |
- |
|
442 |
490 |
(21 |
) |
- |
|
469 |
Contract
liabilities |
- |
18 |
|
- |
|
18 |
- |
21 |
|
- |
|
21 |
Deferred income tax liabilities |
1,894 |
(7 |
) |
(3 |
) |
1,884 |
1,858 |
5 |
|
- |
|
1,863 |
|
|
8,467 |
(3 |
) |
(3 |
) |
8,461 |
8,219 |
4 |
|
- |
|
8,223 |
Shareholders' equity |
|
|
|
|
|
|
|
|
Common and
preferred shareholders |
5,956 |
22 |
|
(9 |
) |
5,969 |
6,153 |
40 |
|
- |
|
6,193 |
Non-controlling interests in subsidiaries |
1 |
- |
|
- |
|
1 |
1 |
- |
|
- |
|
1 |
|
|
5,957 |
22 |
|
(9 |
) |
5,970 |
6,154 |
40 |
|
- |
|
6,194 |
|
|
14,424 |
19 |
|
(12 |
) |
14,431 |
14,373 |
44 |
|
- |
|
14,417 |
Below is the effect of transition to IFRS 15 and
adoption of our new accounting policy described above on our
condensed consolidated Statement of Cash Flows for the three and
twelve months ended August 31, 2018.
|
Three months ended August 31, 2018 |
Year ended August 31, 2018 |
|
|
|
Change in |
|
|
|
Change in |
|
|
As |
IFRS 15 |
accounting |
Subsequent |
As |
IFRS 15 |
accounting |
Subsequent |
(millions of Canadian dollars) |
reported |
transition |
policy |
to transition |
reported |
transition |
policy |
to transition |
OPERATING
ACTIVITIES |
|
|
|
|
|
|
|
|
Funds flow from continuing operations |
441 |
|
(19 |
) |
- |
|
422 |
|
1,259 |
|
(82 |
) |
- |
|
1,177 |
|
Net change in non-cash
balances related to continuing operations |
16 |
|
19 |
|
(1 |
) |
34 |
|
102 |
|
82 |
|
(6 |
) |
178 |
|
Operating activities of discontinued operations |
- |
|
- |
|
- |
|
- |
|
(2 |
) |
- |
|
- |
|
(2 |
) |
|
457 |
|
- |
|
(1 |
) |
456 |
|
1,359 |
|
- |
|
(6 |
) |
1,353 |
|
INVESTING
ACTIVITIES |
|
|
|
|
|
|
|
|
Additions to property, plant
and equipment |
(294 |
) |
- |
|
1 |
|
(293 |
) |
(1,127 |
) |
- |
|
6 |
|
(1,121 |
) |
Additions to equipment costs
(net) |
(12 |
) |
- |
|
- |
|
(12 |
) |
(49 |
) |
- |
|
- |
|
(49 |
) |
Additions to other
intangibles |
(46 |
) |
- |
|
- |
|
(46 |
) |
(131 |
) |
- |
|
- |
|
(131 |
) |
Proceeds on sale of spectrum
licenses |
35 |
|
- |
|
- |
|
35 |
|
35 |
|
- |
|
- |
|
35 |
|
Purchase of spectrum
licenses |
(25 |
) |
- |
|
- |
|
(25 |
) |
(25 |
) |
- |
|
- |
|
(25 |
) |
Proceeds on sale of
discontinued operations, net of cash sold |
- |
|
- |
|
- |
|
- |
|
18 |
|
- |
|
- |
|
18 |
|
Net additions to investments
and other assets |
23 |
|
- |
|
- |
|
23 |
|
88 |
|
- |
|
- |
|
88 |
|
Proceeds on disposal of property, plant and equipment |
- |
|
- |
|
- |
|
- |
|
9 |
|
- |
|
- |
|
9 |
|
|
(319 |
) |
- |
|
1 |
|
(318 |
) |
(1,182 |
) |
- |
|
6 |
|
(1,176 |
) |
FINANCING
ACTIVITIES |
|
|
|
|
|
|
|
|
Increase in short-term
borrowings |
40 |
|
- |
|
- |
|
40 |
|
40 |
|
- |
|
- |
|
40 |
|
Increase in long-term
debt |
- |
|
- |
|
- |
|
- |
|
10 |
|
- |
|
- |
|
10 |
|
Issue of Class B Non-Voting
Shares |
12 |
|
- |
|
- |
|
12 |
|
43 |
|
- |
|
- |
|
43 |
|
Dividends paid on Class A
Shares and Class B Non-Voting Shares |
(98 |
) |
- |
|
- |
|
(98 |
) |
(384 |
) |
- |
|
- |
|
(384 |
) |
Dividends paid on Preferred
Shares |
(2 |
) |
- |
|
- |
|
(2 |
) |
(8 |
) |
- |
|
- |
|
(8 |
) |
Other |
- |
|
- |
|
- |
|
- |
|
(1 |
) |
- |
|
- |
|
(1 |
) |
|
(48 |
) |
- |
|
- |
|
(48 |
) |
(300 |
) |
- |
|
- |
|
(300 |
) |
Increase (decrease) in
cash |
90 |
|
- |
|
- |
|
90 |
|
(123 |
) |
- |
|
- |
|
(123 |
) |
Cash,
beginning of the period |
294 |
|
- |
|
- |
|
294 |
|
507 |
|
- |
|
- |
|
507 |
|
Cash, end of the period |
384 |
|
- |
|
- |
|
384 |
|
384 |
|
- |
|
- |
|
384 |
|
e) 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.
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 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 balance sheet 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
does not expect this standard to have a material effect on its
September 1, 2019 balance sheet.
f) 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.
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 August 31, |
|
Year ended August 31, |
|
|
|
2018 |
|
|
|
2018 |
|
|
|
2019 |
|
(restated, note 2) |
|
|
2019 |
|
(restated, note 2) |
|
Revenue |
|
|
|
|
|
|
Wireline |
1,071 |
|
1,087 |
|
|
4,300 |
|
4,292 |
|
|
Wireless |
283 |
|
241 |
|
|
1,054 |
|
901 |
|
|
|
1,354 |
|
1,328 |
|
|
5,354 |
|
5,193 |
|
Intersegment eliminations |
(2 |
) |
(1 |
) |
|
(7 |
) |
(4 |
) |
|
|
1,352 |
|
1,327 |
|
|
5,347 |
|
5,189 |
|
Operating
income before restructuring costs and
amortization |
|
|
|
|
|
|
Wireline |
483 |
|
517 |
|
|
1,955 |
|
1,915 |
|
|
Wireless |
54 |
|
39 |
|
|
206 |
|
142 |
|
|
|
537 |
|
556 |
|
|
2,161 |
|
2,057 |
|
Restructuring
costs |
10 |
|
(16 |
) |
|
9 |
|
(446 |
) |
Amortization |
(250 |
) |
(259 |
) |
|
(1,038 |
) |
(1,025 |
) |
Operating income |
297 |
|
281 |
|
|
1,132 |
|
586 |
|
|
|
|
|
|
|
|
Current
taxes |
|
|
|
|
|
|
Operating |
34 |
|
50 |
|
|
114 |
|
166 |
|
|
Other/non-operating |
(5 |
) |
(9 |
) |
|
- |
|
(29 |
) |
|
|
29 |
|
41 |
|
|
114 |
|
137 |
|
Capital
expenditures |
|
|
Three months ended August 31, |
Year ended August 31, |
|
|
|
2018 |
|
2018 |
|
|
|
2019 |
(restated, note 2) |
2019 |
|
(restated, note 2) |
|
Capital
expenditures accrual basis |
|
|
|
|
|
Wireline |
222 |
317 |
784 |
|
965 |
|
|
Wireless |
148 |
103 |
385 |
|
343 |
|
|
|
370 |
420 |
1,169 |
|
1,308 |
|
Equipment
costs (net of revenue) |
|
|
|
|
|
Wireline |
12 |
13 |
43 |
|
53 |
|
|
|
|
|
|
|
Capital
expenditures and equipment costs (net) |
|
|
|
|
|
Wireline |
234 |
330 |
827 |
|
1,018 |
|
|
Wireless |
148 |
103 |
385 |
|
343 |
|
|
|
382 |
433 |
1,212 |
|
1,361 |
|
|
|
|
|
|
|
Reconciliation to Consolidated Statements of Cash
Flows |
|
|
|
|
|
Additions to property, plant
and equipment |
282 |
293 |
1,109 |
|
1,121 |
|
|
Additions to equipment costs
(net) |
12 |
12 |
42 |
|
49 |
|
|
Additions to other intangibles |
65 |
46 |
147 |
|
131 |
|
|
Total of capital expenditures
and equipment costs (net) per Consolidated Statements of Cash
Flows |
359 |
351 |
1,298 |
|
1,301 |
|
|
Increase/(decrease) in working
capital and other |
|
|
|
|
|
liabilities related to
capital expenditures |
22 |
81 |
(28 |
) |
65 |
|
|
Decrease in customer equipment
financing receivables |
- |
1 |
1 |
|
4 |
|
|
Less: Proceeds on disposal of property, plant and
equipment |
1 |
- |
(59 |
) |
(9 |
) |
|
Total
capital expenditures and equipment costs (net) reported by
segments |
382 |
433 |
1,212 |
|
1,361 |
|
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 year.
|
Contract |
|
Contract |
|
Assets |
|
Liabilities |
September 1, 2017 |
59 |
|
|
235 |
|
Increase in contract assets
from revenue recognized during the year |
198 |
|
|
- |
|
Contract assets transferred to
trade receivables |
(118 |
) |
|
- |
|
Contract terminations
transferred to trade receivables |
(4 |
) |
|
- |
|
Revenue recognized included in
contract liabilities at the beginning of the year |
- |
|
|
(225 |
) |
Increase in contract liabilities during the year |
- |
|
|
234 |
|
August 31, 2018 |
135 |
|
|
244 |
|
Increase in contract assets
from revenue recognized during the period |
179 |
|
|
- |
|
Contract assets transferred to
trade receivables |
(145 |
) |
|
- |
|
Contract terminations
transferred to trade receivables |
(11 |
) |
|
- |
|
Revenue recognized included in
contract liabilities at the beginning of the year |
- |
|
|
(236 |
) |
Increase in contract liabilities during the period |
- |
|
|
223 |
|
August 31, 2019 |
158 |
|
|
231 |
|
|
|
|
|
|
Contract |
|
Contract |
|
Assets |
|
Liabilities |
Current |
59 |
|
226 |
Long-term |
76 |
|
18 |
Balance
as at September 1, 2018 |
135 |
|
244 |
Current |
75 |
|
216 |
Long-term |
83 |
|
15 |
Balance as at August 31, 2019 |
158 |
|
231 |
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 year ended August 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.
Balance as at September 1, 2017 |
57 |
|
Additions to deferred
commission cost assets |
70 |
|
Amortization recognized on deferred commission cost assets |
(52 |
) |
Balance as at August 31,
2018 |
75 |
|
Additions to deferred
commission cost assets |
85 |
|
Amortization recognized on deferred commission cost assets |
(66 |
) |
Balance as at August 31, 2019 |
94 |
|
|
|
Current |
50 |
|
Long-term |
25 |
|
Balance
as at September 1, 2018 |
75 |
|
Current |
59 |
|
Long-term |
35 |
|
Balance as at August 31, 2019 |
94 |
|
Commission costs are amortized over a period
ranging from 24 to 36 months.
Disaggregation of revenue
|
|
Three months ended August 31, |
|
Year ended August 31, |
|
|
|
2018 |
|
|
|
2018 |
|
|
|
2019 |
|
(restated, note 2) |
|
|
2019 |
|
(restated, note 2) |
|
Services |
|
|
|
|
|
|
Wireline - Consumer |
923 |
|
942 |
|
|
3,707 |
|
3,725 |
|
|
Wireline - Business |
148 |
|
145 |
|
|
593 |
|
567 |
|
|
Wireless |
187 |
|
157 |
|
|
701 |
|
564 |
|
|
|
1,258 |
|
1,244 |
|
|
5,001 |
|
4,856 |
|
Equipment
and other |
|
|
|
|
|
|
Wireless |
96 |
|
84 |
|
|
353 |
|
337 |
|
|
|
96 |
|
84 |
|
|
353 |
|
337 |
|
Intersegment eliminations |
(2 |
) |
(1 |
) |
|
(7 |
) |
(4 |
) |
Total revenue |
1,352 |
|
1,327 |
|
|
5,347 |
|
5,189 |
|
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
August 31, 2019.
|
Within |
Within |
|
|
1 year |
2 years |
Total |
Wireline |
2,747 |
1,211 |
3,958 |
Wireless |
362 |
145 |
507 |
Total |
3,109 |
1,356 |
4,465 |
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
|
|
|
August 31, 2018 |
|
August 31, 2019 |
|
(restated, note 2) |
Prepaid
expenses |
108 |
|
104 |
Deferred
commission costs(1) |
59 |
|
48 |
Wireless handset receivables(2) |
124 |
|
121 |
|
291 |
|
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
On 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. Under the terms of the
amendment, the Company will also be required to draw an additional
$40 million under the program by November 1, 2019.
A summary of our accounts receivable
securitization program is as follows:
|
August 31, 2019 |
|
August 31, 2018 |
Trade accounts receivable sold to buyer as security |
434 |
|
|
429 |
|
Short-term borrowings from buyer |
(40 |
) |
|
(40 |
) |
Over-collateralization |
394 |
|
|
389 |
|
|
|
Three months ended August 31, |
|
Year ended August 31, |
|
|
2019 |
2018 |
|
2019 |
2018 |
Accounts
receivable securitization program, beginning of period |
40 |
- |
|
40 |
- |
|
Proceeds received from
accounts receivable securitization |
- |
40 |
|
- |
40 |
|
Repayment of accounts receivable securitization |
- |
- |
|
- |
- |
Accounts receivable securitization program, end of
period |
40 |
40 |
|
40 |
40 |
7. PROVISIONS
|
|
Asset |
|
|
|
|
|
retirement |
|
|
|
|
|
obligations |
Restructuring (1) |
Other |
Total |
|
|
$ |
$ |
$ |
$ |
Balance as at September 1, 2018 |
67 |
276 |
|
81 |
|
424 |
|
Additions |
10 |
1 |
|
28 |
|
39 |
|
Accretion |
1 |
- |
|
- |
|
1 |
|
Reversal(2) |
- |
(10 |
) |
- |
|
(10 |
) |
Payments |
- |
(124 |
) |
(27 |
) |
(151 |
) |
Balance as at August 31, 2019 |
78 |
143 |
|
82 |
|
303 |
|
|
|
|
|
|
|
Current |
- |
166 |
|
79 |
|
245 |
|
Long-term |
67 |
110 |
|
2 |
|
179 |
|
Balance
as at September 1, 2018 |
67 |
276 |
|
81 |
|
424 |
|
|
|
|
|
|
|
Current |
- |
142 |
|
82 |
|
224 |
|
Long-term |
78 |
1 |
|
- |
|
79 |
|
Balance as at August 31, 2019 |
78 |
143 |
|
82 |
|
303 |
|
(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 $121 has been paid in fiscal 2019. The
remaining costs are expected to be paid out within the next 17
months. |
(2) During the year, certain employees and the Company agreed to
rescind earlier elections under the Voluntary Departure
Program. |
8. OPERATING, GENERAL AND ADMINISTRATIVE
EXPENSES AND RESTRUCTURING COSTS
|
|
Three months ended August 31, |
|
Year ended August 31, |
|
|
|
2018 |
|
|
2018 |
|
|
2019 |
(restated, note 2) |
|
2019 |
(restated, note 2) |
Employee salaries
and benefits(1) |
152 |
179 |
|
663 |
1,158 |
Purchase of goods and services |
653 |
608 |
|
2,514 |
2,420 |
|
805 |
787 |
|
3,177 |
3,578 |
(1) For the three and twelve months ended August 31, 2019, employee
salaries and benefits include a recovery of $10 and $9 in
restructuring costs, respectively compared to $15 and $423 in
restructuring costs for the three and twelve months ended August
31, 2018, respectively. |
9. OTHER GAINS (LOSSES)
|
|
Three months ended August 31, |
|
Year ended August 31, |
|
|
|
2018 |
|
|
2018 |
|
|
2019 |
|
(restated, note 2) |
|
2019 |
|
(restated, note 2) |
Gain/(loss) on
disposal of fixed assets |
(4 |
) |
14 |
|
32 |
|
15 |
Gain on disposal
of non-core business |
6 |
|
- |
|
6 |
|
- |
Gain on disposal
of investments |
- |
|
- |
|
15 |
|
- |
Other |
- |
|
12 |
|
(3 |
) |
17 |
|
|
2 |
|
26 |
|
50 |
|
32 |
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
Holding 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, the Company
recognized a $102 recovery of deferred tax for the year ended
August 31, 2019 related to this change.
11. LONG-TERM DEBT
|
|
|
August 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 |
1,250 |
- |
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 |
|
|
|
|
5,258 |
42 |
5,300 |
|
4,261 |
39 |
4,300 |
Other |
|
|
|
|
|
|
|
|
Burrard
Landing Lot 2 Holdings Partnership |
Various |
50 |
- |
50 |
|
50 |
- |
50 |
Total consolidated
debt |
|
5,308 |
42 |
5,350 |
|
4,311 |
39 |
4,350 |
Less
current portion(2) |
|
1,251 |
1 |
1,252 |
|
1 |
- |
1 |
|
|
|
|
4,057 |
41 |
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., acquired 11 paired blocks
of 20-year 600 MHz spectrum, across its wireless operating
footprint, for a total price of $492. In accordance with the 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
August 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 year ended August 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 |
- |
|
- |
|
1,658,465 |
39 |
|
- |
- |
|
- |
- |
Issued pursuant to
dividend
reinvestment plan |
- |
|
- |
|
8,488,962 |
217 |
|
- |
- |
|
- |
- |
Class A
conversions to Class B |
(48,000 |
) |
- |
|
48,000 |
- |
|
- |
- |
|
- |
- |
August 31, 2019 |
22,372,064 |
|
2 |
|
494,389,771 |
4,310 |
|
10,012,393 |
245 |
|
1,987,607 |
48 |
13. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share calculations are as follows:
|
|
Three months ended August 31, |
|
Year ended August 31, |
|
|
|
2018 |
|
|
|
2018 |
|
|
|
2019 |
|
(restated, note 2) |
|
|
2019 |
|
(restated, note 2) |
|
Numerator
for basic and diluted earnings (loss) per share ($) |
|
|
|
|
|
Net income from
continuing operations |
167 |
|
196 |
|
|
738 |
|
39 |
|
Deduct; net income
attributable to non-controlling interests in subsidiaries |
- |
|
- |
|
|
(2 |
) |
- |
|
Deduct:
dividends on Preferred Shares |
(2 |
) |
(2 |
) |
|
(9 |
) |
(8 |
) |
Net income
attributable to common shareholders from continuing operations |
165 |
|
194 |
|
|
727 |
|
31 |
|
Loss
from discontinued operations |
- |
|
- |
|
|
- |
|
(6 |
) |
Loss
from discontinued operations attributable to common
shareholders |
- |
|
- |
|
|
- |
|
(6 |
) |
Net
income attributable to common shareholders |
165 |
|
194 |
|
|
727 |
|
25 |
|
Denominator (millions of shares) |
|
|
|
|
|
Weighted average
number of Class A Shares and Class B Non-Voting Shares for basic
earnings per share |
515 |
|
505 |
|
|
511 |
|
502 |
|
Effect
of dilutive securities (1) |
- |
|
1 |
|
|
- |
|
1 |
|
Weighted average number of Class A Shares and Class B
Non-Voting
Shares for diluted earnings per share |
515 |
|
506 |
|
|
511 |
|
503 |
|
Basic
earnings (loss) per share ($) |
|
|
|
|
|
Continuing
operations |
0.32 |
|
0.38 |
|
|
1.42 |
|
0.06 |
|
Discontinued operations |
- |
|
- |
|
|
- |
|
(0.01 |
) |
Attributable to common shareholders |
0.32 |
|
0.38 |
|
|
1.42 |
|
0.05 |
|
Diluted
earnings (loss) per share ($) |
|
|
|
|
|
Continuing
operations |
0.32 |
|
0.38 |
|
|
1.42 |
|
0.06 |
|
Discontinued operations |
- |
|
- |
|
|
- |
|
(0.01 |
) |
Attributable to common shareholders |
0.32 |
|
0.38 |
|
|
1.42 |
|
0.05 |
|
(1) The earnings per share calculation does not take into
consideration the potential dilutive effect of certain stock
options since their impact is anti-dilutive. For the three
and twelve months ended August 31, 2019, 6,015,038 (2018 –
3,899,995) and 6,126,210 (2018 – 4,263,940) options were excluded
from the diluted earnings per share calculation, respectively. |
14. OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER
COMPREHENSIVE LOSS
Components of other comprehensive income and the
related income tax effects for the year ended August 31, 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 |
(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 |
) |
|
|
|
(16 |
) |
- |
|
(16 |
) |
Items that
will not be subsequently reclassified to income |
|
|
|
|
Remeasurements on employee benefit plans |
(52 |
) |
13 |
|
(39 |
) |
|
|
|
(68 |
) |
13 |
|
(55 |
) |
Components of other comprehensive income (loss) and the related
income tax effects for the three months ended August 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 |
(1 |
) |
- |
(1 |
) |
|
|
Adjustment for hedged items
recognized in the period |
- |
|
- |
- |
|
|
|
Share of other comprehensive
income of associates |
- |
|
- |
- |
|
|
|
Reclassification of accumulated loss to income related to the sale
of an associate |
- |
|
- |
- |
|
|
|
|
(1 |
) |
- |
(1 |
) |
Items that
will not be subsequently reclassified to income |
|
|
|
|
Remeasurements on employee benefit plans |
(19 |
) |
5 |
(14 |
) |
|
|
|
(20 |
) |
5 |
(15 |
) |
Components of other comprehensive income and the
related income tax effects for the year ended August 31, 2018
are as follows:
|
|
|
Amount |
Income taxes |
Net |
Items that
may subsequently be reclassified to income |
|
|
|
|
Change in
unrealized fair value of derivatives designated as cash flow
hedges |
7 |
(2 |
) |
5 |
|
Adjustment for
hedged items recognized in the period |
4 |
(1 |
) |
3 |
|
Share
of other comprehensive income of associates |
10 |
- |
|
10 |
|
|
|
21 |
(3 |
) |
18 |
Items that
will not be subsequently reclassified to income |
|
|
|
|
Remeasurements on employee benefit plans |
101 |
(27 |
) |
74 |
|
|
|
122 |
(30 |
) |
92 |
Components of other comprehensive income and the
related income tax effects for the three months ended
August 31, 2018 are as follows:
|
|
|
Amount |
Income taxes |
Net |
Items that
may subsequently be reclassified to income |
|
|
|
|
Change in
unrealized fair value of derivatives designated as cash flow
hedges |
1 |
- |
|
1 |
|
Adjustment for
hedged items recognized in the period |
- |
- |
|
- |
|
Share
of other comprehensive income of associates |
3 |
- |
|
3 |
|
|
|
4 |
- |
|
4 |
Items that
will not be subsequently reclassified to income |
|
|
|
|
Remeasurements on employee benefit plans |
15 |
(4 |
) |
11 |
|
|
|
19 |
(4 |
) |
15 |
Accumulated other comprehensive loss is
comprised of the following:
|
|
|
August 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 |
1 |
|
|
- |
|
|
|
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: |
(95 |
) |
|
(57 |
) |
|
|
|
(94 |
) |
|
(39 |
) |
15. STATEMENTS OF CASH FLOWS
(i) Funds flow from continuing operations
|
|
Three months ended August 31, |
|
Year ended August 31, |
|
|
|
2018 |
|
|
|
2018 |
|
|
|
2019 |
|
(restated, note 2) |
|
2019 |
|
(restated, note 2) |
Net income from
continuing operations |
167 |
|
196 |
|
|
738 |
|
39 |
|
Adjustments to
reconcile net income to funds flow from operations: |
|
|
|
|
|
|
Amortization |
251 |
|
261 |
|
|
1,041 |
|
1,028 |
|
|
Deferred income tax expense
(recovery) |
36 |
|
17 |
|
|
6 |
|
(9 |
) |
|
Share-based compensation |
1 |
|
1 |
|
|
3 |
|
3 |
|
|
Defined benefit pension
plans |
(2 |
) |
(1 |
) |
|
7 |
|
11 |
|
|
Equity (income)/loss of an
associate or joint venture |
- |
|
(13 |
) |
|
(46 |
) |
200 |
|
|
Loss on disposal of an
associate or joint venture |
- |
|
- |
|
|
109 |
|
- |
|
|
Gain on sale of
investments |
- |
|
- |
|
|
(15 |
) |
- |
|
|
Net change in contract asset
balances |
(22 |
) |
(19 |
) |
|
(23 |
) |
(76 |
) |
|
Gain/(loss) on disposal of
fixed assets |
4 |
|
(14 |
) |
|
(32 |
) |
(15 |
) |
|
Other |
(5 |
) |
(6 |
) |
|
(4 |
) |
(4 |
) |
Funds flow from continuing operations |
430 |
|
422 |
|
|
1,784 |
|
1,177 |
|
(ii) Interest and income taxes paid and
interest received and classified as operating activities are as
follows:
|
Three months ended August 31, |
|
Year ended August 31, |
|
2019 |
2018 |
|
2019 |
2018 |
Interest paid |
10 |
29 |
|
230 |
239 |
Income taxes paid (net of
refunds) |
40 |
19 |
|
166 |
155 |
Interest received |
10 |
1 |
|
29 |
4 |
(iii) Non-cash transactions:
The Consolidated Statements of Cash Flows
exclude the following non-cash transactions:
|
|
Three months ended August 31, |
|
Year ended August 31, |
|
|
2019 |
2018 |
|
2019 |
2018 |
Issuance of Class
B Non-Voting Shares: |
|
|
|
|
|
|
Dividend reinvestment plan |
56 |
52 |
|
217 |
211 |
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:
(i) Current assets and current liabilities
The fair value of financial instruments included
in current assets and current liabilities approximates their
carrying value due to their short-term nature.
(ii) Investments and other assets and
other long-term assets
The fair value of publicly traded investments is
determined by quoted market prices. Investments in private entities
which do not have quoted market prices in an active market and
whose fair value cannot be readily measured are carried at
approximate fair value. No published market exists for such
investments. These equity investments have been made as they are
considered to have the potential to provide future benefit to the
Company and accordingly, the Company has no current intention to
dispose of these investments in the near term. The fair value of
long-term receivables approximates their carrying value as they are
recorded at the net present values of their future cash flows,
using an appropriate discount rate.
(iii) Long-term debt
The carrying value of long-term debt is at
amortized cost based on the initial fair value as determined at the
time of issuance or at the time of a business acquisition. The fair
value of publicly traded notes is based upon current trading
values. The fair value of finance lease obligations is determined
by discounting future cash flows using a rate for loans with
similar terms, conditions and maturity dates. The carrying value of
bank credit facilities approximates fair value as the debt bears
interest at rates that fluctuate with market values. Other notes
and debentures are valued based upon current trading values for
similar instruments.
(iv) Other long-term liabilities
The fair value of contingent consideration
arising from a business acquisition is determined by calculating
the present value of the probability weighted assessment of the
likelihood that revenue targets will be met and the estimated
timing of such payments.
(v) Derivative financial
instruments
The fair value of US currency forward purchase
contracts is determined by an estimated credit-adjusted
mark-to-market valuation using observable forward exchange rates at
the end of reporting periods and contract forward rates.
The carrying values and estimated fair values of
long-term debt and a contingent liability are as follows:
|
|
August 31, 2019 |
|
August 31, 2018 |
|
|
Carrying
value |
Estimated
fair value |
|
Carrying
value |
Estimated
fair value |
Liabilities |
|
|
|
|
|
Long-term debt (including current portion)(1) |
5,308 |
6,014 |
|
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
|
|
August 31, 2019 |
|
August 31, 2018 |
Publicly traded
companies |
- |
|
615 |
Investment in private entities |
37 |
|
45 |
|
|
37 |
|
660 |
In the third quarter of fiscal 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.
The Company’s weighted average ownership of
Corus for the nine months ended May 31, 2019 was 38% (2018 – 39%).
For the three and twelve months ended August 31, 2019, the Company
received dividends of $nil (2018 – $23) and $10 (2018 - $92) from
Corus, respectively.
Summary financial information for Corus through the
disposal date is as follows: |
|
|
|
|
|
|
Summarized statement of earnings of
Corus: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
Three months ended |
Year ended |
|
|
|
|
May 31, 2019 |
|
August 31, 2018 |
August 31, 2018 |
|
Revenue |
1,310 |
|
379 |
1,647 |
|
Net income
attributable to: |
|
|
|
|
Shareholders |
133 |
|
34 |
(784 |
) |
|
Non-controlling interest |
19 |
|
6 |
26 |
|
|
|
|
152 |
|
40 |
(758 |
) |
Other
comprehensive income (loss), attributable to shareholders |
(40 |
) |
7 |
25 |
|
Comprehensive income |
112 |
|
47 |
(733 |
) |
Equity income from
associates, excluding goodwill impairment |
46 |
|
13 |
84 |
|
Impairment of investment in associate (1) |
- |
|
- |
(284 |
) |
Equity income from
associates(2) |
46 |
|
13 |
(200 |
) |
Other
comprehensive income (loss) from equity accounted
associates(2) |
(13 |
) |
3 |
10 |
|
|
|
|
33 |
|
16 |
(190 |
) |
(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
nine month period until disposition on May 31, 2019 and for the
three and twelve month periods ended August 31, 2018. |
Carrying amount at August 31, 2018 |
615 |
|
Share of equity at
disposition date |
46 |
|
Share of other
comprehensive income (loss) of associate |
(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. 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 August 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 |
|
|
|
Terminal operating |
|
|
|
income before |
|
Post-tax |
Terminal |
restructuring costs and |
|
discount rate |
growth rate |
amortized 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 |
|
|
|
0.5 times decrease in |
|
|
|
terminal operating |
|
|
|
income before |
|
1% increase in |
1% decrease in |
restructuring costs and |
|
discount rate |
terminal growth rate |
amortization multiple |
Cable |
16.4 |
% |
14.2 |
% |
4.8 |
% |
Satellite |
8.1 |
% |
5.6 |
% |
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.
20. SUBSEQUENT
EVENTS
On October 1, 2019, the Company repaid $1,250 of
5.65% senior notes at their maturity.
Subsequent to year-end, on October 24, 2019, and
in accordance with the terms of our Dividend Reinvestment Plan (the
“DRIP”), the Company’s Board of Directors approved changes to the
Company’s DRIP program. In lieu of issuing shares from treasury, it
will satisfy its share delivery obligations under the DRIP by
purchasing Class B Shares on the open market. In addition, the
Company will reduce its discount from 2% to 0% for the Class B
Shares delivered under the DRIP. These changes to the DRIP will
apply to the dividends payable on November 28, 2019 to shareholders
of record on November 15, 2019.
Subsequent to year-end, on October 24, 2019, the
Company’s Board of Directors approved the implementation of a
normal course issuer bid (“NCIB”) program to purchase up to
24,758,127 Class B Shares representing 5% of all of the issued and
outstanding Class B Shares. The NCIB program remains subject to
approval by the Toronto Stock Exchange (“TSX”) and, if accepted,
will be conducted in accordance with the applicable rules and
policies of the TSX and applicable Canadian securities
law.
Shaw Communications (NYSE:SJR)
Historical Stock Chart
From Jun 2024 to Jul 2024
Shaw Communications (NYSE:SJR)
Historical Stock Chart
From Jul 2023 to Jul 2024