Shaw Communications Inc. (“Shaw” or the “Company”) announces
consolidated financial and operating results for the quarter ended
May 31, 2021. Consolidated revenue increased by 4.8% to $1.38
billion, adjusted EBITDA1 increased 5.4% year-over-year to
$642 million and net income increased 92.4% to $354 million.
Third quarter results include incremental Wireline Consumer revenue
of approximately $20 million related to the release of a provision
following the Canadian Radio-television and Telecommunications
Commission (CRTC) decision on final aggregated Third Party Internet
Access (TPIA) rates, substantially offset by approximately $25
million higher employee related costs primarily driven by
equity-based compensation due to the significant increase in Shaw’s
share price and adjustments to employee benefit provisions.
Excluding the aforementioned items, consolidated revenue and
adjusted EBITDA increased approximately 3.3% and 6.2%,
respectively.
“Following nearly two years of regulatory
uncertainty impacting our industry, the recent decisions by the
CRTC have restored confidence in the regulatory framework and
provided the necessary certainty to make the generational
facilities–based investments that are required and critical in
support of the latest technologies, strong competition and choice
for more Canadians. By Shaw and Rogers coming together, the
combined entity will have the scale, assets and capabilities to
confidently invest billions of dollars that will serve future
generations, help to close the digital divide and deliver
coast-to-coast 5G service throughout Canada,” said Brad Shaw,
Executive Chair & Chief Executive Officer.
Shaw and Rogers Transaction
On March 15, 2021, Shaw announced that it
entered into an arrangement agreement (the “Arrangement Agreement”)
with Rogers Communications Inc. (“Rogers”), under which Rogers will
acquire all of Shaw’s issued and outstanding Class A Participating
Shares (“Class A Shares”) and Class B Non-Voting Participating
Shares (“Class B Shares”) in a transaction valued at approximately
$26 billion, inclusive of approximately $6 billion of Shaw debt
(the “Transaction”). Holders of Class A Shares and Class B Shares
(other than the Shaw Family Living Trust, the controlling
shareholder of Shaw, and related persons (collectively, the “Shaw
Family Shareholders”)) will receive $40.50 per share in cash. The
Shaw Family Shareholders will receive 60% of the consideration for
their shares in the form of Class B Non-Voting Shares of Rogers
(“Rogers Shares”) on the basis of the volume-weighted average
trading price for the Rogers Shares for the 10 trading days ending
March 12, 2021, and the balance in cash. As at March 13, 2021, when
the Arrangement Agreement was signed, the value of the
consideration attributable to the Class A Shares and Class B Shares
held by the Shaw Family Shareholders (calculated using the
volume-weighted average trading price for the Rogers Shares for the
10 trading days ending March 12, 2021) was equivalent to $40.50 per
share.
The Transaction is being implemented by way of a
court-approved plan of arrangement under the Business Corporations
Act (Alberta). At the special meeting of Shaw shareholders held on
May 20, 2021, the Company obtained approval of the plan of
arrangement by the holders of Shaw’s Class A Shares and Class B
Shares in the manner required by the interim order granted by the
Court of Queen’s Bench of Alberta on April 19, 2021. On May 25,
2021, the Court of Queen’s Bench of Alberta issued a final order
approving the plan of arrangement.
The Transaction remains subject to other
customary closing conditions including approvals from certain
Canadian regulators. Shaw and Rogers are working cooperatively and
constructively with the Competition Bureau, Innovation, Science and
Economic Development Canada (ISED) and the CRTC in order to secure
the requisite approvals. Subject to receipt of all required
approvals and satisfaction of all closing conditions, closing of
the Transaction is expected to occur in the first half of 2022.
On May 28, 2021, the Company announced the
redemption of all of its issued and outstanding Cumulative
Redeemable Rate Reset Class 2 Preferred Shares, Series A (the
“Series A Shares”) and Cumulative Redeemable Floating Rate Class 2
Preferred Shares, Series B (the “Series B Shares” and, together
with the Series A Shares, the “Preferred Shares”) in accordance
with their terms (as set out in the Company’s articles) on June 30,
2021 (the “Redemption Date”) at a price equal to $25.00 per
Preferred Share (the “Redemption Price”), less any tax required to
be deducted or withheld.
On the Redemption Date, there were 10,012,393
Series A Shares and 1,987,607 Series B Shares issued and
outstanding. Accordingly, the aggregate Redemption Price paid by
Shaw on the Redemption Date to redeem the Preferred Shares was $300
million.
On April 14, 2021, the Company’s Board of
Directors declared a dividend of $0.17444 per Series A Share and
$0.12956 per Series B Share, each payable on June 30, 2021 to
holders of record on June 15, 2021. These were the final dividends
on the Preferred Shares, which were paid separately from the
aggregate Redemption Price and in the usual manner. Following
payment of the June 30, 2021 dividends, there were no accrued and
unpaid dividends on the Preferred Shares.
Further information regarding the Transaction is
contained in the management information circular filed April 23,
2021 on Shaw’s SEDAR profile at www.sedar.com and EDGAR profile at
www.sec.gov/edgar.shtml.
Third Quarter Fiscal 2021
In the third quarter, the Company added
approximately 51,000 new Wireless customers. Postpaid net additions
of approximately 46,600 in the quarter were driven by the continued
momentum of Shaw Mobile. Wireless service revenue growth of 9.2% is
due to subscriber growth, partially offset by lower ARPU2. As the
Company continues to scale its lower revenue Shaw Mobile customer
base, third quarter Wireless ARPU decreased 5.1% from the prior
year period to $36.94; however, an increase in customers signing up
for our bundled offerings and Internet migration to faster speed
tiers continues to accelerate which led to Internet revenue growth.
Wireless postpaid churn3 of 1.07% improved approximately 18-basis
points from the second quarter of fiscal 2021 and marginally
increased from the record low churn of 0.96% in the third quarter
of fiscal 2020.
In the quarter, Consumer RGU4 losses of
approximately 36,300 continued its improving trend, led by Internet
RGU additions of approximately 1,300 as customers continue to
bundle their Internet and Wireless service together. Third quarter
Wireline revenue increased 1.6% year-over-year to $1.08 billion and
adjusted EBITDA increased 3.7% to $527 million. Third quarter
Wireline financial results include approximately $20 million of
incremental revenue due to the release of a provision following the
CRTC decision on final aggregated TPIA rates, substantially offset
by approximately $25 million higher employee related costs
primarily driven by equity-based compensation due to the
significant increase in Shaw’s share price and adjustments to
employee benefit provisions. Excluding the aforementioned items,
Wireline revenue decreased 0.3% and adjusted EBITDA increased 4.7%,
resulting in adjusted EBITDA margin5 of 50.2% compared to 47.8% in
the prior year period.
Selected Financial
Highlights
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars except per share amounts) |
2021 |
|
2020 |
|
Change % |
|
2021 |
|
2020 |
|
Change % |
Revenue |
1,375 |
|
1,312 |
|
4.8 |
|
4,132 |
|
4,058 |
|
1.8 |
Adjusted EBITDA(1) |
642 |
|
609 |
|
5.4 |
|
1,886 |
|
1,797 |
|
5.0 |
Adjusted EBITDA Margin(1) |
46.7 |
% |
46.4 |
% |
0.6 |
|
45.6 |
% |
44.3 |
% |
2.9 |
Free Cash Flow(2) |
307 |
|
221 |
|
38.9 |
|
781 |
|
595 |
|
31.3 |
Net income |
354 |
|
184 |
|
92.4 |
|
734 |
|
513 |
|
43.1 |
Earnings per share |
|
|
|
|
|
|
|
Basic |
0.71 |
|
0.35 |
|
|
|
1.44 |
|
0.98 |
|
|
Diluted |
0.70 |
|
0.35 |
|
|
|
1.44 |
|
0.98 |
|
|
(1) See “Non-GAAP and additional financial
measures” in the accompanying MD&A. (2) Free cash flow is
a non-GAAP financial measure and should not be considered a
substitute or alternative for GAAP measures. This is not a defined
term under IFRS and does not have a standardized meaning, and
therefore may not be a reliable way to compare us to other
companies. Additional information about this measure, including a
quantitative reconciliation to the most directly comparable
financial measure in the Company’s Consolidated Financial
Statements, is incorporated by reference to “Non-GAAP and
additional financial measures” in the MD&A dated June 30, 2021
for the three-month period ending May 31, 2021, available on SEDAR
at www.sedar.com.
In the quarter, the Company added approximately
51,000 net Wireless RGUs, consisting of approximately 46,600
postpaid additions and 4,400 prepaid additions. Wireless service
revenue for the three-month period increased 9.2% to $225 million
over the comparable period in fiscal 2020 due to the increased
subscriber base, including significant Shaw Mobile additions in the
quarter. Third quarter ARPU decreased 5.1% year-over-year to
$36.94. Wireless equipment revenue for the three-month period
increased 58.7% to $73 million mainly due to increased device
sales. Third quarter Wireless adjusted EBITDA of $115 million grew
13.9% year-over-year, primarily due to continued service revenue
growth and improved equipment margins partially offset by higher
IT, network and advertising costs relative to the prior year.
Wireless adjusted EBITDA margin of 38.6% compared to 40.1% in the
prior year primarily due to equipment sales being a higher
proportion of wireless revenues in the current period.
Consumer RGUs declined by approximately 36,300
in the quarter compared to a loss of approximately 47,500 in the
third quarter of fiscal 2020. The current quarter includes an
improvement in Internet RGUs with a gain of approximately 1,300
compared to a loss of 5,100 in the same period last year. The
mature products within the Consumer division, including Video,
Satellite and Phone declined in the aggregate by 37,600 RGUs.
During the quarter, the Company introduced Shaw Gig WiFi,
leveraging the best in-home technology to give customers the faster
speeds, lower latency and more consistent WiFi signal they need to
connect all their devices. Through continued broadband product
enhancements and Shaw Mobile bundling initiatives, the Company is
focused on profitable subscriber growth and reducing household
churn.
Third quarter Wireline revenue of $1.08 billion
increased 1.6% and adjusted EBITDA of $527 million increased 3.7%
year-over-year. Consumer revenue of $935 million increased
1.3% compared to the prior year period due to the incremental $20
million in revenue related to the final aggregated TPIA rates that
date back to August 2019. Excluding the TPIA adjustment, Consumer
revenue decreased 0.9% as growth in Internet revenue was offset by
declines in Video, Satellite and Phone subscribers and revenue.
Business revenue increased 3.6% to $145 million with Internet
revenue growth and continued demand for the Smart suite of
products, partially offset by lower Video revenue primarily related
to the impacts of COVID-19 on the hospitality sector. Third quarter
Wireline adjusted EBITDA increased 3.7% year-over-year due to
higher Wireline revenue, including the TPIA adjustment, proactive
base management, and lower bad debt expense, partially offset by
increased employee related costs primarily driven by equity-based
compensation due to the significant increase in Shaw’s share price
and adjustments to employee benefit provisions, as well as
increased advertising and customer care expenses in the quarter.
Excluding the $20 million TPIA adjustment and the higher employee
related costs of approximately $25 million, Wireline adjusted
EBITDA increased 4.7% compared to the prior year period.
Capital expenditures in the third quarter of
$233 million were $35 million, or 13.1%, lower than the prior
year period. Wireline capital spending decreased $32 million
compared to the third quarter of fiscal 2020 primarily due to a
decrease in success-based capital while Wireless spending was
relatively flat compared to the prior year period.
Free cash flow for the quarter of
$307 million compared to $221 million in the prior year
period. The increase was primarily due to higher adjusted EBITDA,
lower capital spending, and a $35 million reduction of tax related
interest expense.
Net income for the third quarter of fiscal 2021
of $354 million compared to $184 million in the third
quarter of fiscal 2020. The increase of $170 million was due mainly
to an increase in adjusted EBITDA of $33 million and a revision to
liabilities for uncertain tax positions that became statute barred
in the period, which reduced income tax expense by $125 million and
interest expense by $35 million. These increases in net income were
offset by $18 million of non-operating costs related to the
Transaction.
Fiscal 2021 Guidance
The Company confirms that it remains on track to
meet its fiscal 2021 guidance of adjusted EBITDA growth over fiscal
2020, consolidated capital investments of approximately $1.0
billion. In light of the Company’s performance to date, the Company
now expects free cash flow will exceed $800 million in fiscal
2021.
The severity and duration of impacts from the
COVID-19 pandemic remain uncertain and management continues to
focus on the safety of our people, most of whom continue to work
from home, connectivity of our customer base, compliance with
guidelines and requirements issued by various health authorities
and government organizations, and continuity of other critical
business operations. During the third quarter of fiscal 2021, the
Company continued to experience a reduction in overall Wireline
subscriber activity, an increase in wireline network usage as well
as extended peak hours, increased demand for Wireless voice
services, a decrease in Wireless roaming revenue, customer payments
substantially in-line with historical trends, and an increase in
credits provided for, as well as the reduction or cancellation of
Shaw Business customer accounts.
While the financial impacts from COVID-19 in the
third quarter of fiscal 2021 were not material, the situation is
still uncertain in terms of its magnitude, outcome, duration,
resurgence, emergence of variants, and/or subsequent waves.
Consumer behavior impacts remain uncertain and could still change
materially, including the potential downward migration of services,
acceleration of cord-cutting and reduced ability of certain
customers to pay their bills. Shaw Business primarily serves the
small and medium sized market, which is also particularly
vulnerable to COVID-19 related restrictions, including mandated
closures, capacity restrictions, self-quarantines or further social
distancing requirements.
The Company believes its business and
facilities-based networks provide critical and essential services
to Canadians which remained resilient throughout the pandemic and
will continue to be resilient in this dynamic and uncertain
environment. Management continues to actively monitor the impacts
to the business and make the appropriate adjustments to operating
and capital expenditures to reflect the evolving environment.
Considering the ongoing presence of COVID-19, the speed at which it
develops and/or changes, and the continued uncertainty of the
magnitude, outcome, duration, resurgence, emergence of variants,
and/or subsequent waves of the pandemic or the potential efficacy
and continued availability and distribution of any COVID-19
vaccines, the current estimates of our operational and financial
results which underlie our outlook for fiscal 2021 are subject to a
significantly higher degree of uncertainty. Any estimate of the
length and severity of these developments is therefore subject to
uncertainty, as are our estimates of the extent to which the
COVID-19 pandemic may, directly or indirectly, materially and
adversely affect our operations, financial results, and condition
in future periods.
The Transaction could cause the attention of
management of the Company to be diverted from the day-to-day
operations of the Company. These disruptions could be exacerbated
by a delay in the completion of the Transaction and could have an
adverse effect on the current and future business, operations,
results of operations, financial condition and prospects of the
Company. Because the completion of the Transaction is subject to
significant uncertainty, officers and employees of the Company may
experience uncertainty about their future roles with the Company,
which may adversely affect the Company’s ability to attract or
retain key management and personnel in the period until the
completion or termination of the Arrangement Agreement.
In addition, third parties with which the
Company currently has business relationships or may have business
relationships in the future, including industry partners,
regulators, customers and suppliers, may experience uncertainty
associated with the Transaction, including with respect to current
or future relationships with the Company or Rogers. Such
uncertainty could have a material and adverse effect on the current
and future business, operations, results of operations, financial
condition and prospects of the Company.
As at the end of May 31, 2021, the Company’s net
debt leverage ratio6 of 2.4x was below its target leverage range of
2.5x to 3.0x. In the third quarter, Shaw repurchased 1,559,202
Class B Shares for approximately $36 million. For the nine months
ended May 31, 2021, the Company purchased 14,783,974 Class B Shares
for cancellation for a total cost of approximately $336 million. In
connection with the announcement of the proposed Transaction on
March 15, 2021, the Company suspended share buybacks under its
normal course issuer bid (NCIB) program.
Mr. Shaw concluded, “Our third quarter and
year-to-date results reflect our balanced approach to profitable
subscriber growth, improved customer experience, and solid
execution throughout the organization. While we continue to
navigate the COVID-19 pandemic, I am optimistic that returning to
our normal routine is imminent and that connectivity will remain
just as important to Canadians. As significant network investments
we have made in the past enabled us to provide critical
connectivity during their time of need through COVID, our
combination with Rogers will serve future generations with a robust
5G service and by reaching deeper into rural, remote and Indigenous
communities. With a successful shareholder vote completed and court
approval obtained, we turn our focus to working closely with Rogers
to obtain the required regulatory approvals to close the
Transaction.”
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.
Shaw is traded on the Toronto and New York stock
exchanges and is included in the S&P/TSX 60 Index (Symbol: TSX
– SJR.B, NYSE – SJR, 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
____________________
1 Adjusted EBITDA is a non-GAAP financial
measure and should not be considered a substitute or alternative
for GAAP measures. This is not a defined term under IFRS and does
not have a standardized meaning, and therefore may not be a
reliable way to compare us to other companies. Additional
information about this measure, including a quantitative
reconciliation to the most directly comparable financial measure in
the Company’s Consolidated Financial Statements, is incorporated by
reference to “Non-GAAP and additional financial measures” in the
management’s discussion and analysis (MD&A) dated June 30, 2021
for the three-month period ending May 31, 2021, available on SEDAR
at www.sedar.com.
2 ARPU is a supplementary financial measure
which may not be comparable to similar measures presented by other
issuers. Additional information about this supplementary financial
measure is incorporated by reference to “Key Performance Drivers”
in the MD&A dated June 30, 2021 for the three-month period
ending May 31, 2021, available on SEDAR at www.sedar.com.
3 Wireless postpaid churn is a metric used to
measure the Company’s success in retaining Wireless subscribers.
Additional information about this metric is incorporated by
reference to “Key Performance Drivers” in the MD&A dated June
30, 2021 for the three-month period ending May 31, 2021, available
on SEDAR at www.sedar.com.
4 RGUs is a metric used to measure the count of
subscribers in the Company’s Wireline and Wireless segments.
Additional information about this metric is incorporated by
reference to “Key Performance Drivers” in the MD&A dated June
30, 2021 for the three-month period ending May 31, 2021, available
on SEDAR at www.sedar.com.
5 Adjusted EBITDA margin is a non-GAAP ratio.
Adjusted EBITDA margin is not a standardized measure under IFRS and
may not be a reliable way to compare us to other companies.
Additional information about this measure is incorporated by
reference to “Non-GAAP and additional financial measures” in the
MD&A dated June 30, 2021 for the three-month period ending May
31, 2021, available on SEDAR at www.sedar.com.
6 Net debt leverage ratio is a non-GAAP ratio
and net debt, which is a component of net debt leverage ratio, is a
non-GAAP financial measure. Net debt leverage ratio and net debt
are not standardized measures under IFRS and may not be a reliable
way to compare us to other companies. Additional information about
these measures is incorporated by reference to “Non-GAAP and
additional financial measures” in the MD&A dated June 30, 2021
for the three-month period ending May 31, 2021, available on SEDAR
at www.sedar.com.
MANAGEMENT’S DISCUSSION AND ANALYSISFor
the three and nine months ended May 31, 2021
June 30, 2021
Contents
|
|
Introduction |
12 |
Selected financial and operational highlights |
16 |
Overview |
18 |
Outlook |
20 |
Non-GAAP and additional financial measures |
22 |
Discussion of operations |
25 |
Other income and expense items |
28 |
Supplementary quarterly financial information |
29 |
Financial position |
31 |
Liquidity and capital resources |
32 |
Accounting standards |
35 |
Related party transactions |
35 |
Financial instruments |
35 |
Internal controls and procedures |
36 |
Risks and uncertainties |
36 |
Government regulations and regulatory developments |
39 |
Advisories
The following Management’s Discussion and
Analysis (MD&A) of Shaw Communications Inc. is dated June 30,
2021 and should be read in conjunction with the condensed interim
Consolidated Financial Statements and Notes thereto for the three
and nine-month periods ended May 31, 2021 and the 2020 Annual
Consolidated Financial Statements, the Notes thereto and related
MD&A included in the Company’s 2020 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. They can generally be
identified by words such as “anticipate,” “believe,” “expect,”
“plan,” “intend,” “target,” “goal” and similar expressions
(although not all forward-looking statements contain such words).
Forward looking statements in this MD&A may include, but are
not limited to statements relating to:
-
the expected impact of the COVID-19 pandemic;
-
future capital expenditures;
-
proposed asset acquisitions and dispositions;
-
anticipated benefits of the Transaction (as defined below) to Shaw
and its securityholders, including corporate, operational, scale
and other synergies and the timing thereof;
-
the timing, receipt and conditions of required regulatory or other
third party approvals, including but not limited to the receipt of
applicable approvals under the Broadcasting Act (Canada), the
Competition Act (Canada) and the Radiocommunication Act (Canada)
(collectively, the “Key Regulatory Approvals”) related to the
Transaction;
-
the ability of the Company and Rogers to satisfy the other
conditions to the closing of the Transaction and the anticipated
timing for closing of the Transaction;
-
expected cost efficiencies;
-
financial guidance and expectations for future performance;
-
business and technology strategies and measures to implement
strategies;
-
the Company’s equity investments, joint ventures, and partnership
arrangements;
-
expected growth in subscribers and the products/services to which
they subscribe;
-
competitive strengths and pressures;
-
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 effectiveness of any changes to the design and performance of
the Company’s internal controls and procedures;
-
the expected impact of changes in laws, regulations, decisions by
regulators or other actions by governments or regulators on the
Company’s business, operations and/or financial performance or the
markets in which the Company operates;
-
the expected impact of any emergency measures implemented or
withdrawn by governments or regulators;
-
timing of new product and service launches;
-
the resiliency and performance of the Company’s wireline and
wireless networks;
-
the deployment of: (i) network infrastructure to improve capacity
and coverage and (ii) new technologies, including but not limited
to next generation wireless and wireline technologies such as 5G
and IPTV, respectively;
-
expected changes in the Company’s market share;
-
the cost of acquiring and retaining subscribers and deployment of
new services;
-
expansion of and changes in the Company’s business and operations
and other goals and plans; and
-
execution and success of the Company’s current and long term
strategic initiatives.
All of the forward-looking statements made in
this MD&A 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. Considering the uncertain and changing
circumstances surrounding the COVID-19 pandemic and the related
response from the Company, governments (federal, provincial and
municipal), regulatory authorities, businesses and customers, there
continues to be inherently more uncertainty associated with the
Company’s assumptions as compared to prior periods.
These assumptions, many of which are
confidential, include but are not limited to management
expectations with respect to:
-
general economic conditions, which includes the impact on the
economy and financial markets of the COVID-19 pandemic and other
health risks;
-
the impact of the COVID-19 pandemic and other health risks on the
Company’s business, operations, capital resources and/or financial
results;
-
anticipated benefits of the Transaction to the Company and its
security holders;
-
the timing, receipt and conditions of required regulatory or other
third-party approvals, including but not limited to the receipt of
the Key Regulatory Approvals related to the Transaction;
-
the ability of the Company and Rogers to satisfy the other
conditions to closing of the Transaction in a timely manner and the
completion of the Transaction on expected terms;
-
the ability of Rogers to obtain the debt financing required to
complete the Transaction through the satisfaction of the limited
conditions of the debt commitment letter for the debt financing and
the absence of events that would prevent Rogers from consummating
the debt financing;
-
the ability to successfully integrate the Company with Rogers in a
timely manner;
-
the impact of the announcement of the Transaction and the
dedication of substantial Company resources to pursuing the
Transaction on the Company’s ability to maintain its current
business relationships (including with current and prospective
employees, customers and suppliers) and its current and future
operations, financial condition and prospects;
-
the ability to satisfy the other expectations and assumptions
concerning the Transaction and the operations and capital
expenditure plans for the Company following completion of the
Transaction;
-
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;
-
incremental costs associated with growth in wireless handset
sales;
-
pricing, usage and churn rates;
-
availability and cost of programming, content, equipment, and
devices;
-
industry structure, conditions and stability;
-
regulation, legislation or other actions by governments or
regulators (and the impact or projected impact on the Company’s
business);
-
the implementation or withdrawal of any emergency measures by
governments or regulators (and the impact or projected impact on
the Company’s business, operations, and/or financial results);
-
access to key suppliers and third-party service providers and their
goods and services required to execute on the Company’s current and
long-term strategic initiatives on commercially reasonable
terms;
-
key suppliers performing their obligations within the expected
timelines;
-
retention of key employees;
-
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;
-
operating expenses and capital cost estimates associated with the
implementation of enhanced health and safety measures for the
Company’s offices, retail stores and employees to reduce the spread
of COVID-19;
-
the Company’s access to sufficient retail distribution
channels;
-
the Company’s access to the spectrum resources required to execute
on its current and long-term strategic initiatives; and
-
the Company being able to execute on its current and long term
strategic initiatives.
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
including the impact of the COVID-19 pandemic and other health
risks, on the economy and financial markets which may have a
material adverse effect on the Company’s business, operations,
capital resources and/or financial results;
-
increased operating expenses and capital costs associated with the
implementation of enhanced health and safety measures for the
Company’s offices, retail stores and employees in response to the
COVID-19 pandemic;
-
the failure of the Company and Rogers to receive, in a timely
manner and on satisfactory terms, the necessary regulatory or other
third-party approvals, including but not limited to the Key
Regulatory Approvals required to close the Transaction;
-
the ability to satisfy, in a timely manner, the other conditions to
the closing of the Transaction;
-
the ability to complete the Transaction on the terms contemplated
by the arrangement agreement (the “Arrangement Agreement”) between
the Company and Rogers;
-
the ability to successfully integrate the Company with Rogers in a
timely manner;
-
the ability of Rogers to obtain the debt financing required to
complete the Transaction through the satisfaction of the limited
conditions of the debt commitment letter for the debt financing and
the absence of events that would prevent Rogers from consummating
the debt financing;
-
the Company’s failure to complete the Transaction for any reason
could materially negatively impact the trading price of the
Company’s securities;
-
the announcement of the Transaction and the dedication of
substantial Company resources to pursuing the Transaction may
adversely impact the Company’s current business relationships
(including with current and prospective employees, customers and
suppliers) and its current and future operations, financial
condition and prospects;
-
the failure of the Company to comply with the terms of the
Arrangement Agreement may, in certain circumstances, result in the
Company being required to pay the termination fee to Rogers, the
result of which will or could have a material adverse effect on the
Company’s financial position and results of operations and its
ability to fund growth prospects and current operations;
-
changes in interest rates, income taxes and exchange rates;
-
changes in the competitive environment in the markets in which the
Company operates and from the development of new markets for
emerging technologies;
-
changing industry trends, technological developments and other
changing conditions in the entertainment, information and
communications industries;
-
changes in laws, regulations and decisions by regulators, or other
actions by governments or regulators, that affect the Company or
the markets in which it operates;
-
any emergency measures implemented or withdrawn by governments or
regulators;
-
technology, privacy, cyber security and reputational risks;
-
disruptions to service, including due to network failure or
disputes with key suppliers;
-
the Company’s ability to execute its strategic plans and complete
its capital and other projects by the completion date;
-
the Company’s ability to grow subscribers and market share;
-
the Company’s ability to have and/or obtain 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’s ability to access key suppliers and third-party
service providers and their goods and services required to execute
on its current and long-term strategic initiatives on commercially
reasonable terms;
-
the ability of key suppliers to perform their obligations within
expected timelines;
-
the Company’s ability to retain key employees;
-
the Company’s ability to achieve cost efficiencies;
-
the Company’s 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;
-
opportunities that may be presented to and pursued by the
Company;
-
the Company’s ability to recognize and adequately respond to
climate change concerns or public and governmental expectations on
environmental matters;
-
the Company’s status as a holding company with separate operating
subsidiaries; and
-
other factors described in the Company’s fiscal 2020 Annual
MD&A 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 in the Company’s fiscal 2020 Annual MD&A and
this MD&A. 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.” 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-GAAP and additional financial
measures
Certain measures in this MD&A do not have
standard meanings prescribed by GAAP and are therefore considered
non-GAAP financial 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, GAAP and do not have standardized
meanings. Therefore, they are unlikely to be comparable to similar
measures presented by other entities.
Please refer to “Non-GAAP and additional
financial measures” in this MD&A for a discussion and
reconciliation of non-GAAP financial measures, including adjusted
EBITDA, free cash flow and net debt as well as net debt leverage
ratio and adjusted EBITDA margin, which are non-GAAP ratios.
Introduction
At Shaw, we focus on delivering sustainable
long-term growth by connecting customers to the world through a
best-in-class seamless connectivity experience by leveraging our
world class converged network. This includes driving operational
efficiencies and executing on our strategic priorities through the
delivery of an exceptional customer experience and a more agile
operating model. Our strategic priorities include growing our
customer relationships, identifying sustainable cost savings in our
core Wireline business, and making the appropriate investments to
capitalize on future growth, including network related investments
to support continued broadband product enhancements and improve the
wireless experience.
With the onset of the global COVID-19 pandemic
in 2020, connectivity rapidly became a critical lifeline for
Canadians and our economy. During this unprecedented period, our
network performance was exceptional, and we remain focused on
supporting our employees, customers and communities. Our robust
facilities-based network, the result of years of significant
investment, has showcased its strength in addressing our customers’
need to stay connected to family, friends and colleagues and work
from home throughout the COVID-19 pandemic. During the third
quarter, the Company continued to experience the following key
impacts related to COVID-19:
- a reduction in overall wireline subscriber activity,
- an increase in wireline network usage as well as extended peak
hours,
- increased demand for wireless voice services,
- a decrease in wireless roaming revenue,
- customer payments substantially in-line with historical trends,
and
- an increase in credits provided for, as well as the reduction
or cancellation of, Shaw Business customer accounts.
While the pandemic has had an impact on our
business, Shaw continues to be resilient, delivering solid
financial and operating results, and we believe that we are well
positioned to meet the rapidly changing and increasing demands of
our customers. The financial impacts from COVID-19 in the third
quarter were not material; however, the situation remains uncertain
in terms of (i) its magnitude, outcome, duration, resurgences,
emergence of variants, and/or subsequent waves, and (ii) the
continued availability and distribution of any COVID-19 vaccines.
Consumer behavior impacts remain uncertain and could still change
materially, including the potential downward migration of services,
acceleration of cord-cutting and reduced ability of certain
customers to pay their bills. Shaw Business primarily serves the
small and medium sized market, which is also particularly
vulnerable to COVID-19 related restrictions, including mandated
closures or further social distancing requirements.
As an ongoing risk, the duration and impact of
the COVID-19 pandemic is still unknown, as is the efficacy and
duration of the government interventions. Any estimate of the
length and severity of these developments is therefore subject to
significant uncertainty, and accordingly estimates of the extent to
which the COVID-19 pandemic may materially and adversely affect the
Company’s operations, financial results and condition in future
periods are also subject to significant uncertainty.
Shaw and Rogers Transaction
On March 15, 2021, Shaw announced that it
entered into an arrangement agreement (the “Arrangement Agreement”)
with Rogers Communications Inc. (“Rogers”), under which Rogers will
acquire all of Shaw’s issued and outstanding Class A Participating
Shares (“Class A Shares”) and Class B Non-Voting Participating
Shares (“Class B Shares”) in a transaction valued at approximately
$26 billion, inclusive of approximately $6 billion of Shaw debt
(the “Transaction”). Holders of Class A Shares and Class B Shares
(other than the Shaw Family Living Trust, the controlling
shareholder of Shaw, and related persons (collectively, the “Shaw
Family Shareholders”)) will receive $40.50 per share in cash. The
Shaw Family Shareholders will receive 60% of the consideration for
their shares in the form of Class B Non-Voting Shares of Rogers
(the “Rogers Shares”) on the basis of the volume-weighted average
trading price for the Rogers Shares for the 10 trading days ending
March 12, 2021, and the balance in cash. As at March 13, 2021, when
the Arrangement Agreement was signed, the value of the
consideration attributable to the Class A Shares and Class B Shares
held by the Shaw Family Shareholders (calculated using the
volume-weighted average trading price for the Rogers Shares for the
10 trading days ending March 12, 2021) was equivalent to $40.50 per
share.
The Transaction is being implemented by way of a
court-approved plan of arrangement under the Business Corporations
Act (Alberta). At the special meeting of Shaw shareholders held on
May 20, 2021, the Company obtained approval of the plan of
arrangement by the holders of Shaw’s Class A Shares and Class B
Shares in the manner required by the interim order granted by the
Court of Queen’s Bench of Alberta on April 19, 2021. On May 25,
2021, the Court of Queen’s Bench of Alberta issued a final order
approving the plan of arrangement.
The Transaction remains subject to other
customary closing conditions including approvals from certain
Canadian regulators. Shaw and Rogers are working cooperatively and
constructively with the Competition Bureau, Innovation, Science and
Economic Development Canada (ISED) and the Canadian
Radio-television and Telecommunications Commission (CRTC) in order
to secure the requisite approvals. Subject to receipt of all
required approvals and satisfaction of all closing conditions,
closing of the Transaction is expected to occur in the first half
of 2022.
On May 28, 2021, the Company announced the
redemption of all of its issued and outstanding Cumulative
Redeemable Rate Reset Class 2 Preferred Shares, Series A (the
“Series A Shares”) and Cumulative Redeemable Floating Rate Class 2
Preferred Shares, Series B (the “Series B Shares”, and together
with the Series A Shares, the “Preferred Shares”) in accordance
with their terms (as set out in the Company’s articles) on June 30,
2021 (the “Redemption Date”) at a price equal to $25.00 per
Preferred Share (the “Redemption Price”), less any tax required to
be deducted or withheld.
On the Redemption Date, there were 10,012,393
Series A Shares and 1,987,607 Series B Shares issued and
outstanding. Accordingly, the aggregate Redemption Price paid by
Shaw on the Redemption Date to redeem the Preferred Shares was $300
million.
On April 14, 2021, the Company’s Board of
Directors declared a dividend of $0.17444 per Series A Share and
$0.12956 per Series B Share, each payable on June 30, 2021 to
holders of record on June 15, 2021. These were the final dividends
on the Preferred Shares, which were paid separately from the
aggregate Redemption Price and in the usual manner. Following
payment of the June 30, 2021 dividends, there were no accrued and
unpaid dividends on the Preferred Shares.
Further information regarding the Transaction is
contained in the management information circular filed April 23,
2021 on Shaw’s SEDAR profile at www.sedar.com and EDGAR profile at
www.sec.gov/edgar.shtml.
Wireless
Our Wireless division currently operates in
Ontario, Alberta and British Columbia, covering approximately 50%
of the Canadian population.
On July 30, 2020, the Company launched Shaw
Mobile, a new wireless service in western Canada that leverages
Shaw’s LTE and Fibre+ networks, along with Canada’s largest WiFi
service, to provide Shaw Internet customers with an innovative
wireless experience. Shaw Mobile provides Shaw Internet customers
with bundling opportunities to take advantage of unprecedented
savings, combined with the ability to customize their mobile data
requirements through two rate plans – By The Gig and Unlimited
Data. Shaw Mobile is a powerful example of how facilities-based
service providers can compete and innovate. Shaw Mobile capitalizes
on the long-term trend that shows the vast majority of Canadians’
smart device data usage occurs on WiFi networks, a fact amplified
by recent work-from-home trends. Freedom Mobile continues to
promote its Big Gig Unlimited and Absolute Zero offers.
Third quarter fiscal 2021 results include
Wireless net additions of approximately 51,000. Wireless service
revenue increased 9.2% to $225 million and adjusted EBITDA1
increased 13.9% to $115 million compared to the third quarter of
fiscal 2020, primarily due to continued service revenue growth and
improved equipment margins partially offset by higher IT, network
and advertising costs relative to the prior year. Wireless adjusted
EBITDA margin of 38.6% compared to 40.1% in the prior year
primarily due to equipment sales being a higher proportion of
wireless revenues in the current period.
The Company made significant investments in its
wireless network and customer service capabilities. Total wireless
retail locations across its operating footprint, including
corporate, dealer and national retail, are approximately 740, where
Shaw Mobile is available in approximately 150 locations.
The Company continues to prioritize network
investments as part of its converged network strategy and leverages
the coaxial cable (which transports both power and multi-gigabit
data speeds) in its Fibre+ network for the rapid and flexible
deployment of small cells, which will support densification
efforts.
Wireline
In our Wireline business, we continue to be a
technology leader and western Canada’s leader in gig speed Internet
underpinned by our Fibre+ network. Through our digital
transformation, we have made it easier to interact with our
customers and are leveraging insights from customer data to better
understand their preferences so we can provide them with the
services they want. We continue to streamline and simplify manual
processes to improve the customer experience and day-to-day
operations for our employees.
Despite the unprecedented impact that the
COVID-19 pandemic has had on the lives of our customers, and the
corresponding impacts to the way we serve our customers, our focus
remains on the execution and delivery of stable and profitable
Wireline results. This includes growth in high quality Internet
subscribers and improving overall customer account profitability by
attracting and retaining higher value households with our best
value proposition on 2-year ValuePlans for those who want faster
Internet with a better customer experience in addition to Video and
Wireless services.
During the quarter, the Company introduced Shaw
Gig WiFi, leveraging the best in-home technology to give customers
the faster speeds, lower latency and more consistent WiFi signal
they need to connect all their devices. Through continued broadband
product enhancements and Shaw Mobile bundling initiatives, the
Company is focused on profitable subscriber growth and reducing
household churn.
In the quarter, Consumer RGU2 losses of
approximately 36,300 continued its improving trend, led by Internet
RGU additions of approximately 1,300 as customers bundled their
Internet and Wireless service together. Third quarter Wireline
revenue increased 1.6% year-over-year to $1.08 billion and adjusted
EBITDA increased 3.7% to $527 million. Third quarter Wireline
financial results include approximately $20 million of incremental
revenue related to the release of a provision following the CRTC
decision on final aggregated TPIA rates, substantially offset by
approximately $25 million higher employee related costs primarily
driven by equity-based compensation due to the significant increase
in Shaw’s share price and adjustments to employee benefit
provisions. Excluding the aforementioned items, Wireline revenue
decreased 0.3% and adjusted EBITDA increased 4.7%, resulting in an
adjusted EBITDA margin3 of 50.2% compared to 47.8% in the prior
year period.
Our Wireline Business division provides
connectivity solutions to its customers by leveraging our Smart
suite products which provide cost-effective enterprise grade
managed IT and communications solutions that are increasingly
valued by businesses of all sizes as the digital economy grows in
scope and complexity. The COVID-19 pandemic impacted the Business
division by causing the crediting, as well as the reduction or
cancellation, of a number of Business customer accounts and slowing
revenue growth. In response to the changing needs of its customers
during the pandemic, Shaw Business added a suite of collaboration
tools and new Smart products, such as Microsoft 365, Smart Remote
Office, SmartSecurity and SmartTarget and launched a 1.5 Gig
Internet speed tier providing businesses of all sizes the speed and
bandwidth to leverage data-heavy applications and cloud services.
Despite the continued uncertain environment, Shaw Business revenue
grew 3.6% to $145 million year-over-year.
_____________________
1 Adjusted EBITDA is a non-GAAP financial
measure and should not be considered a substitute or alternative
for GAAP measures. Adjusted EBITDA is not a defined term under IFRS
and does not have a standard meaning, and therefore may not be a
reliable way to compare us to other companies. See “Non-GAAP and
additional financial measures” for more information about this
measure, including a quantitative reconciliation to the most
directly comparable financial measure in the Company’s Consolidated
Financial Statements.
2 See “Key Performance Drivers.”
3 Adjusted EBITDA margin is a non-GAAP ratio
that is calculated by dividing adjusted EBITDA by revenue. Adjusted
EBITDA margin is not a standardized measure under IFRS and may not
be a reliable way to compare us to other companies. See “Non-GAAP
and additional financial measures” for more information about this
non-GAAP ratio.
Selected financial and operational
highlights
Financial
Highlights |
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars except per share amounts) |
2021 |
|
2020 |
|
Change % |
|
2021 |
|
2020 |
|
Change % |
Operations: |
|
|
|
|
|
|
|
Revenue |
1,375 |
|
1,312 |
|
4.8 |
|
4,132 |
|
4,058 |
|
1.8 |
Adjusted EBITDA(1) |
642 |
|
609 |
|
5.4 |
|
1,886 |
|
1,797 |
|
5.0 |
Adjusted EBITDA margin(1) |
46.7 |
% |
46.4 |
% |
0.6 |
|
45.6 |
% |
44.3 |
% |
2.9 |
Funds flow from operations(2) |
708 |
|
541 |
|
30.9 |
|
1,735 |
|
1,487 |
|
16.7 |
Free cash flow(1) |
307 |
|
221 |
|
38.9 |
|
781 |
|
595 |
|
31.3 |
Net income |
354 |
|
184 |
|
92.4 |
|
734 |
|
513 |
|
43.1 |
Per share
data: |
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
Basic |
0.71 |
|
0.35 |
|
|
|
1.44 |
|
0.98 |
|
|
Diluted |
0.70 |
|
0.35 |
|
|
|
1.44 |
|
0.98 |
|
|
Weighted average participating shares for basic earnings per share
outstanding during period (millions) |
499 |
|
513 |
|
|
|
505 |
|
516 |
|
|
(1) Adjusted EBITDA, adjusted EBITDA margin
and free cash flow are non-GAAP financial measures or non-GAAP
ratios and should not be considered substitutes or alternatives for
GAAP measures. These are not defined terms under IFRS and do not
have standardized meanings, and therefore may not be a reliable way
to compare us to other companies. See “Non-GAAP and additional
financial measures” for more information about these measures
including quantitative reconciliations to the most directly
comparable financial measures in the Company’s Consolidated
Financial Statements. (2) Funds flow from operations is
before changes in non-cash balances related to operations as
presented in the condensed interim Consolidated Statements of Cash
Flows.
Key Performance Drivers
The Company 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 2020 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
GAAP, should not be considered alternatives to revenue, net income
or any other measure of performance under GAAP and may not be
comparable to similar measures presented by other issuers.
Subscriber (or revenue generating unit (RGU))
highlights
The Company measures the count of its
subscribers in its Consumer, Business, and Wireless divisions. For
further details and discussion on subscriber counts for RGUs see
“Key Performance Drivers – Statistical Measures – Subscriber Counts
for RGUs” in the MD&A for the year ended August 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
Change |
|
Change |
|
|
|
Three months ended |
|
Nine months ended |
|
May 31, 2021 |
August 31, 2020 |
May 31,2021 |
May 31, 2020 |
|
May 31,2021 |
May 31, 2020 |
Wireline – Consumer |
|
|
|
|
|
|
|
Video – Cable |
1,308,669 |
1,390,520 |
(20,917 |
) |
(21,604 |
) |
|
(81,851 |
) |
(54,862 |
) |
Video – Satellite |
602,771 |
650,727 |
(861 |
) |
(110 |
) |
|
(47,956 |
) |
(45,196 |
) |
Internet |
1,884,658 |
1,903,868 |
1,283 |
|
(5,103 |
) |
|
(19,210 |
) |
6,617 |
|
Phone |
612,655 |
672,610 |
(15,777 |
) |
(20,648 |
) |
|
(59,955 |
) |
(70,373 |
) |
Total Consumer |
4,408,753 |
4,617,725 |
(36,272 |
) |
(47,465 |
) |
|
(208,972 |
) |
(163,814 |
) |
Wireline – Business |
|
|
|
|
|
|
|
Video – Cable |
37,838 |
37,512 |
29 |
|
(4,854 |
) |
|
326 |
|
(6,011 |
) |
Video – Satellite |
35,162 |
36,002 |
(1,302 |
) |
(4,835 |
) |
|
(840 |
) |
(1,403 |
) |
Internet |
180,961 |
178,270 |
1,131 |
|
82 |
|
|
2,691 |
|
438 |
|
Phone |
391,057 |
387,660 |
(47 |
) |
1,779 |
|
|
3,397 |
|
7,541 |
|
Total Business |
645,018 |
639,444 |
(189 |
) |
(7,828 |
) |
|
5,574 |
|
565 |
|
Total Wireline |
5,053,771 |
5,257,169 |
(36,461 |
) |
(55,293 |
) |
|
(203,398 |
) |
(163,249 |
) |
Wireless |
|
|
|
|
|
|
|
Postpaid |
1,691,144 |
1,482,175 |
46,604 |
|
2,236 |
|
|
208,969 |
|
123,390 |
|
Prepaid |
364,704 |
339,339 |
4,404 |
|
(7,701 |
) |
|
25,365 |
|
(19,885 |
) |
Total Wireless |
2,055,848 |
1,821,514 |
51,008 |
|
(5,465 |
) |
|
234,334 |
|
103,505 |
|
Total Subscribers |
7,109,619 |
7,078,683 |
14,547 |
|
(60,758 |
) |
|
30,936 |
|
(59,744 |
) |
In Wireless, the Company gained 51,008 net
postpaid and prepaid subscribers in the quarter, consisting of
46,604 postpaid additions and 4,404 prepaid additions.
Wireline RGUs decreased by 36,461 compared to a
55,293 RGU loss in the third quarter of fiscal 2020. The current
quarter includes an improvement in Internet RGUs with a gain of
1,283 compared to a loss of 5,103 in the same period last year. The
mature products within the Consumer division, including Video,
Satellite and Phone, declined in the aggregate by 37,555 RGUs.
Wireless Postpaid Churn
Wireless postpaid subscriber or RGU churn
(“postpaid 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 1.07% in the third quarter of
fiscal 2021 increased 11-basis points from 0.96% in the third
quarter of fiscal 2020.
Wireless average billing per subscriber
unit (ABPU)
Wireless ABPU 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 for service 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 allocations to wireless service revenue under IFRS 15)
divided by the average number of subscribers on the network during
the period and is expressed as a rate per month.
ABPU of $40.56 in the third quarter of fiscal
2021 compares to $44.27 in the third quarter of fiscal 2020,
representing a decrease of 8.4%.
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 $36.94 in the third quarter of fiscal
2021 compares to $38.94 in the third quarter of fiscal 2020,
representing a decrease of 5.1%.
Overview
For detailed discussion of divisional
performance see “Discussion of operations.” Highlights of the
consolidated third quarter financial results are as
follows:
Revenue
Revenue for the third quarter
of fiscal 2021 of $1.38 billion increased $63 million, or
4.8%, from $1.31 billion for the third quarter of fiscal 2020,
highlighted by the following:
-
Revenues in the Consumer division of $935 million increased
$12 million, or 1.3%, compared to the prior year period due to the
incremental $20 million in revenue related to the release of a
provision following the CRTC decision on the final aggregated TPIA
rates that date back to August 2019. Excluding the TPIA adjustment,
Consumer revenue decreased 0.9% as growth in Internet revenue was
offset by declines in Video, Satellite and Phone subscribers and
revenue.
-
The Wireless division contributed $298 million and included a $46
million, or 18.3%, increase over the third quarter of fiscal 2020
reflecting a $19 million increase in service revenue due to the
increased subscriber base, including significant Shaw Mobile
additions in the quarter and an increase in equipment revenue of
$27 million mainly due to increased device sales.
-
The Business division had growth of $5 million, or 3.6%, in
comparison to the third quarter of fiscal 2020 reflecting Internet
revenue growth and continued demand for the Smart suite of
products, partially offset by lower video revenue primarily related
to impacts of COVID-19 on the hospitality sector.
Compared to the second quarter
of fiscal 2021, consolidated revenue for the quarter decreased
0.9%, or$12 million. The decrease in revenue over the prior quarter
includes a $38 million decrease in the Wireless division driven by
a $45 million decrease in equipment revenue partially offset by a
$7 million increase in service revenue which reflects the impact of
the increased subscriber base partially mitigated by a decrease in
ABPU (down from $40.98 in the second quarter of fiscal 2021 to
$40.56 in the current quarter). Meanwhile, ARPU increased
quarter-over-quarter (from $36.82 in the second quarter of fiscal
2021 to $36.94 in the current quarter). The decrease in Wireless
was partially offset by Wireline as revenues increased by $26
million over the prior quarter primarily due to the incremental $20
million in revenue related to the release of a provision following
the CRTC decision on the final aggregated TPIA rates that date back
to August 2019.
Revenue for the nine-month
period ended May 31, 2021 of $4.13 billion increased $74
million, or 1.8%, from $4.06 billion for the comparable period in
fiscal 2020.
- The year-over-year improvement in
revenue was primarily due to a $79 million increase in the Wireless
division as revenues increased to $951 million mainly due to an
increase in service revenue of $54 million, or 8.9%, and equipment
revenue of $25 million, or 9.3%, compared to the comparable
nine-month period of fiscal 2020.
- The Business division contributed
$8 million, or 1.9%, to the consolidated revenue improvements for
the nine-month period driven primarily by customer growth.
- Consumer division revenues
decreased $11 million, or 0.4%, compared to the comparable
nine-month period of fiscal 2020 as the incremental $20 million in
revenue related to the release of a provision following the CRTC
decision on the final aggregated TPIA rates that date back to
August 2019 recorded in the current period and growth in Internet
revenues were fully offset by declines in Video, Satellite and
Phone subscribers and revenues.
Adjusted EBITDA
Adjusted EBITDA for the third
quarter of fiscal 2021 of $642 million increased by $33
million, or 5.4%, from $609 million for the third quarter of fiscal
2020, highlighted by the following:
-
The year-over-year improvement in the Wireless division of
$14 million, or 13.9%, is mainly due to continued service
revenue growth and improved equipment margins partially offset by
higher IT, network and advertising costs relative to the prior
year. Wireless adjusted EBITDA margin of 38.6% compared to 40.1% in
the prior year primarily due to equipment sales being a higher
proportion of wireless revenues in the current period.
-
The year-over-year increase in the Wireline division of
$19 million, or 3.7%, was primarily due to higher Wireline
revenue, including the TPIA adjustment, proactive base management,
and lower bad debt expense, partially offset by increased employee
related costs primarily driven by equity-based compensation due to
the significant increase in Shaw’s share price and adjustments to
employee benefit provisions, as well as increased advertising and
customer care expenses in the quarter. Excluding the $20 million
TPIA adjustment and the higher employee related costs of
approximately $25 million, Wireline adjusted EBITDA increased 4.7%
compared to the prior year.
Consistent with the variances noted above,
adjusted EBITDA margin for the third quarter of
46.7% increased 30-basis points compared to 46.4% in the third
quarter of fiscal 2020.
Compared to the second quarter
of fiscal 2021, adjusted EBITDA for the current quarter increased$5
million, or 0.8%, primarily due to an $18 million increase in the
Wireless division largely due to a $7 million increase in service
revenues and the impact of higher margins due to equipment sales
being a lower proportion of wireless revenues in the current
quarter, partially offset by a $13 million decrease in the Wireline
division as the impact of the incremental $20 million in revenue
related to the release of a provision following the CRTC decision
on the final aggregated TPIA rates that date back to August 2019
recorded in the current period was more than fully offset by the
$25 million increase of various employee related costs primarily
driven by equity-based compensation due to the significant increase
in Shaw’s share price in the current quarter and the $8 million
employee benefits provision release in the prior quarter.
For the nine-month period ended May 31, 2021,
adjusted EBITDA of $1.89 billion increased $89 million, or 5.0%,
from $1.80 billion for the comparable prior year period.
- Wireless adjusted EBITDA for the
nine-month period increased $34 million, or 13.4%, over the
comparable period mainly due to an increase in service revenues,
partially offset by additional costs in connection with the
expansion of the Shaw retail footprint in the current year.
- Wireline adjusted EBITDA for the
nine-month period increased $55 million, or 3.6%, over the
comparable period mainly due to decreased operating costs,
including lower employee related costs, travel expenses, and
advertising, partially offset by a decrease in Consumer revenue as
noted above.
Free cash flow
Free cash flow for the third
quarter of fiscal 2021 of $307 million
increased $86 million from $221 million in the third
quarter of fiscal 2020, mainly due to a $33 million increase in
adjusted EBITDA, a $35 million decrease in capital expenditures and
a $35 million reduction of tax related interest expense, partially
offset by an $18 million increase in cash taxes.
Net income (loss)
Net income of $354 million and $734 million for
the three and nine months ended May 31, 2021 respectively, compared
to a net income of $184 and $513 million for the same periods in
fiscal 2020. The changes in net income are outlined in the
following table:
|
May 31, 2021 net income compared to: |
|
Three months ended |
|
Nine months ended |
(millions of Canadian dollars) |
February 28, 2021 |
May 31, 2020 |
|
May 31 , 2020 |
Increased adjusted EBITDA(1) |
5 |
|
33 |
|
89 |
|
Decreased restructuring
costs(2) |
- |
|
13 |
|
- |
|
Decreased (increased)
amortization |
2 |
|
1 |
|
(4 |
) |
Change in net other costs and
revenue(3) |
(11 |
) |
8 |
|
61 |
|
Decreased income taxes |
141 |
|
115 |
|
75 |
|
|
137 |
|
170 |
|
221 |
|
(1) See “Non-GAAP and additional financial
measures.”(2) During the first, second, and third quarters of
fiscal 2021, the Company made a number of changes to its
organizational structure in an effort to streamline the business,
consolidate certain functions and reduce redundancies between the
Wireless and Wireline segments. In connection with the
restructuring, the Company recorded costs of $12 million in the
first quarter of fiscal 2021, $1 million in the second quarter of
fiscal 2021, and $1 million in the third quarter of fiscal 2021, in
each case primarily related to severance and employee related
costs.(3) Net other costs and revenue include accretion of
long-term liabilities and provisions, interest, debt retirement
costs, realized and unrealized foreign exchange differences and
other losses as detailed in the unaudited Consolidated Statements
of Income. In the second quarter of fiscal 2021, the Company
recorded a $27 million fair value gain on private investments in
this category while in the third quarter of fiscal 2021, the
Company recorded $18 million in Transaction-related advisory,
legal, financial, and other professional costs.
Outlook
The Company confirms that it remains on track to
meet its fiscal 2021 guidance of adjusted EBITDA growth over fiscal
2020, consolidated capital investments of approximately $1.0
billion. In light of the Company’s performance to date, the Company
now expects free cash flow will exceed $800 million in fiscal
2021.
The severity and duration of impacts from the
COVID-19 pandemic remain uncertain and management continues to
focus on the safety of our people, most of whom continue to work
from home, connectivity of our customer base, compliance with
guidelines and requirements issued by various health authorities
and government organizations, and continuity of other critical
business operations. During the third quarter of fiscal 2021, the
Company continued to experience a reduction in overall Wireline
subscriber activity, an increase in wireline network usage as well
as extended peak hours, increased demand for Wireless voice
services, a decrease in Wireless roaming revenue, customer payments
substantially in-line with historical trends, and an increase in
credits provided for, as well as the reduction or cancellation of
Shaw Business customer accounts.
While the financial impacts from COVID-19 in the
third quarter of fiscal 2021 were not material, the situation is
still uncertain in terms of its magnitude, outcome, duration,
resurgence, emergence of variants, and/or subsequent waves.
Consumer behavior impacts remain uncertain and could still change
materially, including the potential downward migration of services,
acceleration of cord-cutting and reduced ability of certain
customers to pay their bills. Shaw Business primarily serves the
small and medium sized market, which is also particularly
vulnerable to COVID-19 related restrictions, including mandated
closures, capacity restrictions, self-quarantines or further social
distancing requirements.
The Company believes its business and
facilities-based networks provide critical and essential services
to Canadians which remained resilient throughout the pandemic and
will continue to be resilient in this dynamic and uncertain
environment. Management continues to actively monitor the impacts
to the business and make the appropriate adjustments to operating
and capital expenditures to reflect the evolving environment.
Considering the ongoing presence of COVID-19, the speed at which it
develops and/or changes, and the continued uncertainty of the
magnitude, outcome, duration, resurgence, emergence of variants,
and/or subsequent waves of the pandemic or the potential efficacy
and continued availability and distribution of any COVID-19
vaccines, the current estimates of our operational and financial
results which underlie our outlook for fiscal 2021 are subject to a
significantly higher degree of uncertainty. Any estimate of the
length and severity of these developments is therefore subject to
uncertainty, as are our estimates of the extent to which the
COVID-19 pandemic may, directly or indirectly, materially and
adversely affect our operations, financial results, and condition
in future periods.
The Transaction could cause the attention of
management of the Company to be diverted from the day-to-day
operations of the Company. These disruptions could be exacerbated
by a delay in the completion of the Transaction and could have an
adverse effect on the current and future business, operations,
results of operations, financial condition and prospects of the
Company. Because the completion of the Transaction is subject to
significant uncertainty, officers and employees of the Company may
experience uncertainty about their future roles with the Company,
which may adversely affect the Company’s ability to attract or
retain key management and personnel in the period until the
completion or termination of the Arrangement Agreement.
In addition, third parties with which the
Company currently has business relationships or may have business
relationships in the future, including industry partners,
regulators, customers and suppliers, may experience uncertainty
associated with the Transaction, including with respect to current
or future relationships with the Company or Rogers. Such
uncertainty could have a material and adverse effect on the current
and future business, operations, results of operations, financial
condition and prospects of the Company.
Under the Arrangement Agreement, the Company
must generally use its reasonable best efforts to conduct its
business in the Ordinary Course (as such term is defined in the
Arrangement Agreement) and, prior to the completion of the
Transaction or the termination of the Arrangement Agreement, the
Company is subject to certain covenants which restrict it from
taking certain actions without the prior consent of Rogers and
which require it to take certain other actions. In either case,
such covenants may delay or prevent the Company from pursuing
business opportunities that may arise or preclude actions that
would otherwise be advisable if the Company were to remain a
standalone entity. The entering into of the Arrangement Agreement
may also preclude the Company from participating in any auction by
ISED for wireless spectrum licensing.
On April 6, 2021, ISED published its list of
applicants to participate in the 3500 MHz spectrum auction, which
commenced on June 15, 2021. The list confirms that Shaw has
elected not to participate in the auction.
See “Caution concerning forward-looking
statements.”
Non-GAAP and additional
financial measures
The Company’s continuous disclosure documents
may provide discussion and analysis of non-GAAP financial measures
or ratios. These financial measures or ratios 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 financial measures. Additional financial
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-GAAP financial measures, ratios and
additional financial measures have not been presented as an
alternative to revenue, net income or any other measure of
performance required by GAAP.
Below is a discussion of the non-GAAP financial
measures, ratios and additional financial measures used by the
Company and provides a reconciliation to the nearest GAAP measure
or provides a reference to such reconciliation.
Adjusted EBITDA
Adjusted earnings before interest, taxes,
depreciation and amortization (“adjusted EBITDA”) 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), taxes and interest.
Adjusted EBITDA is one measure used by the investing community to
value the business. Adjusted EBITDA has no directly comparable GAAP
financial measure. Alternatively, the following table provides a
reconciliation of net income to adjusted EBITDA:
|
Three months ended May 31, |
Nine months ended May 31, |
(millions of Canadian dollars) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Net
income |
354 |
|
184 |
|
734 |
|
513 |
|
Add back (deduct): |
|
|
|
|
Restructuring costs |
1 |
|
14 |
|
14 |
|
14 |
|
Amortization: |
|
|
|
|
Deferred equipment revenue |
(3 |
) |
(4 |
) |
(9 |
) |
(13 |
) |
Deferred equipment costs |
11 |
|
16 |
|
37 |
|
51 |
|
Property, plant and equipment, intangibles and other |
292 |
|
290 |
|
881 |
|
867 |
|
Amortization of financing costs – long-term debt |
1 |
|
- |
|
2 |
|
2 |
|
Interest expense |
31 |
|
67 |
|
164 |
|
206 |
|
Other losses (gains) |
21 |
|
(7 |
) |
(4 |
) |
15 |
|
Current income tax expense |
(88 |
) |
19 |
|
(8 |
) |
78 |
|
Deferred income tax expense |
22 |
|
30 |
|
75 |
|
64 |
|
Adjusted EBITDA |
642 |
|
609 |
|
1,886 |
|
1,797 |
|
|
|
|
|
|
Adjusted EBITDA margin
Adjusted EBITDA margin is a non-GAAP ratio that
is calculated by dividing adjusted EBITDA by revenue. Adjusted
EBITDA margin is also one of the measures used by the investing
community to value the business.
|
Three months ended May 31, |
Nine months ended May 31, |
|
2021 |
|
2020 |
|
Change % |
2021 |
|
2020 |
|
Change % |
Wireline |
48.8 |
% |
47.8 |
% |
2.1 |
|
50.1 |
% |
48.4 |
% |
3.5 |
Wireless |
38.6 |
% |
40.1 |
% |
(3.7 |
) |
30.2 |
% |
29.0 |
% |
4.1 |
Combined Wireline and Wireless |
46.7 |
% |
46.4 |
% |
0.6 |
|
45.6 |
% |
44.3 |
% |
2.9 |
Net debt
The Company uses this measure to perform
valuation-related analysis and make decisions about the Company’s
capital structure. We believe this measure aids investors in
analyzing the value of the business and assessing our leverage.
Refer to “Liquidity and capital resources” for further detail.
Net debt leverage ratio
The Company uses this non-GAAP 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 adjusted EBITDA
and then deducting capital expenditures (on an accrual basis and
net of proceeds on capital dispositions) and equipment costs (net),
interest, cash taxes paid or payable, interest on lease
liabilities, lease payments relating to lease liabilities,
dividends paid on the preferred shares, and recurring cash funding
of pension amounts net of pension expense and adjusted to exclude
share-based compensation expense or recovery.
Free cash flow has not been reported on a
segmented basis. Certain components of free cash flow, including
adjusted EBITDA, continue to be reported on a segmented basis.
Capital expenditures and equipment costs (net) are also reported on
a segmented basis. Other items, including interest and cash taxes,
are not generally directly attributable to a segment, and are
reported on a consolidated basis.
Free cash flow is
calculated as
follows: |
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2021 |
|
2020 |
|
Change % |
|
2021 |
|
2020 |
|
Change % |
Revenue |
|
|
|
|
|
|
|
Consumer |
935 |
|
923 |
|
1.3 |
|
|
2,755 |
|
2,766 |
|
(0.4 |
) |
Business |
145 |
|
140 |
|
3.6 |
|
|
435 |
|
427 |
|
1.9 |
|
Wireline |
1,080 |
|
1,063 |
|
1.6 |
|
|
3,190 |
|
3,193 |
|
(0.1 |
) |
Service |
225 |
|
206 |
|
9.2 |
|
|
658 |
|
604 |
|
8.9 |
|
Equipment |
73 |
|
46 |
|
58.7 |
|
|
293 |
|
268 |
|
9.3 |
|
Wireless |
298 |
|
252 |
|
18.3 |
|
|
951 |
|
872 |
|
9.1 |
|
|
1,378 |
|
1,315 |
|
4.8 |
|
|
4,141 |
|
4,065 |
|
1.9 |
|
Intersegment eliminations |
(3 |
) |
(3 |
) |
– |
|
|
(9 |
) |
(7 |
) |
28.6 |
|
|
1,375 |
|
1,312 |
|
4.8 |
|
|
4,132 |
|
4,058 |
|
1.8 |
|
Adjusted
EBITDA |
|
|
|
|
|
|
|
Wireline |
527 |
|
508 |
|
3.7 |
|
|
1,599 |
|
1,544 |
|
3.6 |
|
Wireless |
115 |
|
101 |
|
13.9 |
|
|
287 |
|
253 |
|
13.4 |
|
|
642 |
|
609 |
|
5.4 |
|
|
1,886 |
|
1,797 |
|
5.0 |
|
Capital expenditures
and equipment costs (net):(1) |
|
|
|
|
|
|
|
Wireline |
163 |
|
195 |
|
(16.4 |
) |
|
502 |
|
623 |
|
(19.4 |
) |
Wireless |
70 |
|
73 |
|
(4.1 |
) |
|
214 |
|
181 |
|
18.2 |
|
|
233 |
|
268 |
|
(13.1 |
) |
|
716 |
|
804 |
|
(10.9 |
) |
Free cash flow before
the following |
409 |
|
341 |
|
19.9 |
|
|
1,170 |
|
993 |
|
17.8 |
|
Less: |
|
|
|
|
|
|
|
Interest on debt and provisions |
(19 |
) |
(54 |
) |
(64.8 |
) |
|
(128 |
) |
(168 |
) |
(23.8 |
) |
Interest on lease liabilities |
(12 |
) |
(11 |
) |
9.1 |
|
|
(34 |
) |
(33 |
) |
3.0 |
|
Cash taxes |
(48 |
) |
(30 |
) |
60.0 |
|
|
(146 |
) |
(113 |
) |
29.2 |
|
Lease payments relating to lease liabilities |
(24 |
) |
(25 |
) |
(4.0 |
) |
|
(82 |
) |
(82 |
) |
– |
|
Other
adjustments: |
|
|
|
|
|
|
|
Non-cash share-based compensation |
– |
|
– |
|
– |
|
|
1 |
|
1 |
|
– |
|
Pension adjustment |
3 |
|
3 |
|
– |
|
|
6 |
|
4 |
|
50.0 |
|
Preferred share dividends |
(2 |
) |
(3 |
) |
(33.3 |
) |
|
(6 |
) |
(7 |
) |
(14.3 |
) |
Free cash flow |
307 |
|
221 |
|
38.9 |
|
|
781 |
|
595 |
|
31.3 |
|
(1) Per Note 3 to the unaudited
interim Consolidated Financial Statements.
Discussion of operations
Wireline
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2021 |
|
2020 |
|
Change % |
|
2021 |
|
2020 |
|
Change % |
Consumer |
935 |
|
923 |
|
1.3 |
|
2,755 |
|
2,766 |
|
(0.4 |
) |
Business |
145 |
|
140 |
|
3.6 |
|
435 |
|
427 |
|
1.9 |
|
Wireline revenue |
1,080 |
|
1,063 |
|
1.6 |
|
3,190 |
|
3,193 |
|
(0.1 |
) |
Adjusted EBITDA(1) |
527 |
|
508 |
|
3.7 |
|
1,599 |
|
1,544 |
|
3.6 |
|
Adjusted EBITDA margin(1) |
48.8 |
% |
47.8 |
% |
2.1 |
|
50.1 |
% |
48.4 |
% |
3.5 |
|
(1) See “Non-GAAP and additional financial
measures.” In the
third quarter of fiscal 2021, Wireline RGUs
decreased by 36,461 compared to a 55,293 RGU loss in the third
quarter of fiscal 2020. The current quarter includes an improvement
in Internet RGUs with a gain of 1,283 compared to a loss of 5,103
in the same period last year. The mature products within the
Consumer division, including Video, Satellite and Phone, declined
in the aggregate by 37,555 RGUs.
Revenue highlights include:
- Consumer revenue for the
third quarter of fiscal 2021 increased by $12
million, or 1.3%, compared to the third quarter of fiscal 2020
primarily due to the incremental $20 million in revenue related to
the release of a provision following the CRTC decision on the final
aggregated TPIA rates that date back to August 2019. Excluding the
TPIA adjustment, Consumer revenue decreased 0.9% as growth in
Internet revenue was offset by declines in Video, Satellite and
Phone subscribers and revenue.
- As compared to the second quarter of fiscal
2021, the current quarter revenue increased by $26 million, or
2.9%. Excluding the $20 million TPIA adjustment, Consumer revenue
increased 0.7%
- Business revenue of $145 million
for the third quarter of fiscal 2021 increased $5
million, or 3.6%, compared to the third quarter of fiscal 2020,
reflecting Internet revenue growth and continued demand for the
Smart suite of products, partially offset by lower video revenue
primarily related to impacts of COVID-19 on the hospitality sector.
- As compared to the second quarter of fiscal
2021, the current quarter revenue remained unchanged.
- Wireline revenue for the
first nine months of fiscal 2021 decreased $3
million, or 0.1%, compared to the first nine months of fiscal 2020,
primarily due to a $11 million decrease in Consumer revenue as the
incremental $20 million in revenue related to the release of a
provision following the CRTC decision on the final aggregated TPIA
rates that date back to August 2019 recorded in the current period
and growth in Internet revenues were fully offset by declines in
Video, Satellite and Phone subscribers and revenues. This was
partially offset by a $8 million increase in Business revenue.
Adjusted EBITDA highlights include:
- Adjusted EBITDA for the
third quarter of fiscal 2021 of $527 million
increased 3.7%, or $19 million, from $508 million in the third
quarter of fiscal 2020. The increase was primarily due to higher
Wireline revenue, including the TPIA adjustment, proactive base
management, and lower bad debt expense, partially offset by
increased employee related costs primarily driven by equity-based
compensation due to the significant increase in Shaw’s share price
and adjustments to employee benefit provisions, as well as
increased advertising and customer care expenses in the quarter.
Excluding the $20 million TPIA adjustment and the higher employee
related costs of approximately $25 million, Wireline adjusted
EBITDA increased 4.7% compared to the prior year period.
- As compared to the second quarter of fiscal
2021, Wireline adjusted EBITDA for the current quarter decreased by
$13 million, or 2.4%, as the impact of the incremental $20
million in revenue related to the release of a provision following
the CRTC decision on the final aggregated TPIA rates that date back
to August 2019 recorded in the current period was more than fully
offset by the $25 million increase of various employee related
costs primarily driven by equity-based compensation due to the
significant increase in Shaw’s share price in the current quarter
and the $8 million employee benefits provision release in the prior
quarter.
- Adjusted EBITDA for the
first nine months of fiscal 2021 increased $55
million, or 3.6%, compared to the first nine months of fiscal 2020,
mainly due to decreased operating costs, including lower employee
related costs, travel expenses, and advertising, partially offset
by a decrease in Consumer revenue as noted above.
Wireless |
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2021 |
|
2020 |
|
Change % |
|
2021 |
|
2020 |
|
Change % |
Service |
225 |
|
206 |
|
9.2 |
|
|
658 |
|
604 |
|
8.9 |
Equipment and other |
73 |
|
46 |
|
58.7 |
|
|
293 |
|
268 |
|
9.3 |
Wireless revenue |
298 |
|
252 |
|
18.3 |
|
|
951 |
|
872 |
|
9.1 |
Adjusted EBITDA(1) |
115 |
|
101 |
|
13.9 |
|
|
287 |
|
253 |
|
13.4 |
Adjusted EBITDA margin(1) |
38.6 |
% |
40.1 |
% |
(3.7 |
) |
|
30.2 |
% |
29.0 |
% |
4.1 |
(1) See “Non-GAAP and additional financial
measures.”
The Wireless division added 51,008 RGUs in the
third quarter of fiscal 2021 as compared to 5,465
RGUs lost in the third quarter of fiscal 2020. The net additions in
the quarter consisted of 46,604 postpaid and 4,404 prepaid
additions.
Revenue highlights include:
- Revenue of $298 million for the
third quarter of fiscal 2021 increased
$46 million, or 18.3%, over the third quarter of fiscal 2020.
This was primarily due to an increase in service revenues of $19
million, or 9.2%, due to the increased subscriber base, including
significant Shaw Mobile additions in the quarter and an increase in
equipment revenue of $27 million, or 58.7%, mainly due to increased
device sales. There was an 8.4% and 5.1% year-over-year decrease in
ABPU to $40.56 and ARPU to $36.94, respectively.
- As compared to the second quarter of fiscal
2021, the current quarter revenue decreased $38 million, or 11.3%,
due to a $45 million decrease in equipment revenue partially offset
by a $7 million increase in service revenue which reflects the
impact of the increased subscriber base partially mitigated by a
decrease in ABPU (down from $40.98 in the second quarter of fiscal
2021 to $40.56 in the current quarter). Meanwhile, ARPU increased
quarter-over-quarter (from $36.82 in the second quarter of fiscal
2021 to $36.94 in the current quarter).
- Revenue of $951 million for the
first nine months of fiscal 2021 increased
$79 million, or 9.1%, over the first nine months of fiscal
2020 mainly due to an increase in service revenue of $54 million,
or 8.9%, due to the increased subscriber base, along with an
increase in equipment revenue of $25 million, or 9.3%.
Adjusted EBITDA highlights include:
- Adjusted EBITDA of $115 million for
the third quarter of fiscal 2021 improved by
$14 million, or 13.9%, over the third quarter of fiscal 2020.
The increase is primarily due to continued service revenue growth
and improved equipment margins partially offset by higher IT,
network and advertising costs relative to the prior year. Wireless
adjusted EBITDA margin of 38.6% compared to 40.1% in the prior year
primarily due to equipment sales being a higher proportion of
wireless revenues in the current period.
- As compared to the second quarter of fiscal
2020, adjusted EBITDA for the current quarter increased
$18 million, or 18.6%, mainly due to a $7 million increase in
service revenues and the impact of higher margins due to equipment
sales being a lower proportion of wireless revenues in the current
quarter.
- Adjusted EBITDA for the
first nine months of fiscal 2021 increased $34
million, or 13.4%, compared to the first nine months of fiscal
2020, primarily due to an increase in service revenues partially
offset by additional costs in connection with the expansion of the
Shaw retail footprint in the current year.
Capital
expenditures and equipment costs |
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2021 |
2020 |
Change % |
|
2021 |
2020 |
Change % |
Wireline |
|
|
|
|
|
|
|
New housing development |
29 |
31 |
(6.5 |
) |
|
79 |
97 |
(18.6 |
) |
Success-based |
35 |
57 |
(38.6 |
) |
|
113 |
185 |
(38.9 |
) |
Upgrades and enhancements |
75 |
81 |
(7.4 |
) |
|
248 |
244 |
1.6 |
|
Replacement |
8 |
6 |
33.3 |
|
|
23 |
21 |
9.5 |
|
Building and other |
16 |
20 |
(20.0 |
) |
|
39 |
76 |
(48.7 |
) |
Total
as per Note 3 to the unaudited interim consolidated financial
statements |
163 |
195 |
(16.4 |
) |
|
502 |
623 |
(19.4 |
) |
Wireless |
|
|
|
|
|
|
|
Total
as per Note 3 to the unaudited interim consolidated financial
statements |
70 |
73 |
(4.1 |
) |
|
214 |
181 |
18.2 |
|
Consolidated total as per Note 3 to the unaudited interim
consolidated financial statements |
233 |
268 |
(13.1 |
) |
|
716 |
804 |
(10.9 |
) |
In the third quarter of fiscal
2021, capital investment of $233 million decreased $35 million from
the comparable period in fiscal 2020. Total Wireline capital
spending of $163 million decreased $32 million compared to the
prior year period primarily due to lower success-based capital,
capitalized labour, and upgrades and enhancements. Wireless
spending decreased by approximately $3 million year-over-year
primarily due to lower network and IT related investment in the
quarter, mainly due to timing, partially offset by increased
spending related to retail and office space in the current
year.
Wireline highlights for the quarter include:
-
For the quarter, investment in combined upgrades, enhancements and
replacement categories was $83 million which is a decrease of $4
million, or 4.6%, over the prior year period.
-
Investments in new housing development were $29 million, a $2
million, or 6.5%, decrease over the prior year period, driven by
lower residential and commercial customer network growth and
acquisition in the current year.
-
Success-based capital for the quarter of $35 million was $22
million, or 38.6%, lower than the third quarter of fiscal 2020
primarily due to lower equipment purchases in the period.
-
Investments in buildings and other in the amount of $16 million was
$4 million lower year-over year primarily due to higher corporate
related costs in the comparable period.
Wireless highlights for the quarter include:
-
Capital investment of $70 million in the third quarter
decreased relative to the third quarter of fiscal 2020 by $3
million, primarily due to lower network and IT related investment
in the quarter, mainly due to timing, partially offset by increased
spending related to retail and office space in the current year. In
fiscal 2021, the Company continues to focus on investment in the
Wireless network and infrastructure, specifically the continued
deployment of 700 MHz spectrum, 600 MHz spectrum, LTE and small
cells as well as enhancements to the back-office systems, retail
locations and other corporate initiatives.
Other income and expense items
Restructuring costs
Restructuring costs generally include severance,
employee related costs and other costs directly associated with a
restructuring program. During the first, second and third quarters
of fiscal 2021, the Company made a number of changes to its
organizational structure in an effort to streamline the business,
consolidate certain functions, and reduce redundancies between the
Wireless and Wireline segments. In connection with the
restructuring, the Company recorded costs of $12 million in the
first quarter of fiscal 2021, $1 million in the second quarter, and
$1 million in the third quarter of fiscal 2021 primarily related to
severance and employee related costs.
Amortization |
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2021 |
|
2020 |
|
Change % |
|
2021 |
|
2020 |
|
Change % |
Amortization revenue
(expense) |
|
|
|
|
|
|
|
Deferred equipment revenue |
3 |
|
4 |
|
(25.0 |
) |
|
9 |
|
13 |
|
(30.8 |
) |
Deferred equipment costs |
(11 |
) |
(16 |
) |
(31.3 |
) |
|
(37 |
) |
(51 |
) |
(27.5 |
) |
Property, plant and equipment, intangibles and other |
(292 |
) |
(290 |
) |
0.7 |
|
|
(881 |
) |
(867 |
) |
1.6 |
|
Amortization of property, plant and equipment,
intangibles and other increased 0.7% for the three months ended May
31, 2021 and increased 1.6% for the nine months ended May 31, 2021,
when compared to the same periods in fiscal 2020. The increase in
amortization reflects the amortization of new expenditures
exceeding the amortization of assets that became fully amortized
during the period.
Amortization of financing costs and interest
expense |
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2021 |
2020 |
Change % |
|
2021 |
2020 |
Change % |
Amortization of financing costs – long-term debt |
1 |
- |
100.0 |
|
|
2 |
2 |
- |
|
Interest expense |
31 |
67 |
(53.7 |
) |
|
164 |
206 |
(20.4 |
) |
Interest expense for the three and nine months
ended May 31, 2021 decreased $36 million, or 53.7%, and $42
million, or 20.4%, respectively, over the comparable periods which
primarily reflects a $35 million reduction of tax related interest
expense in the quarter as well as a lower average outstanding debt
balances in the period and the decrease in the weighted average
interest rate.
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, realized and unrealized
gains and losses on private investments, and the Company’s share of
the operations of Burrard Landing Lot 2 Holdings Partnership. In
the second quarter of fiscal 2021, the Company recorded a $27
million fair value gain on private investments in this category
while in the third quarter of fiscal 2021, the Company recorded $18
million in Transaction-related advisory, legal, financial, and
other professional costs.
Income taxes
Income taxes are lower in the quarter compared
to the third quarter of fiscal 2020 due mainly to a revision to
liabilities for uncertain tax positions that became statute barred
in the period, which decreased income tax expense by $125
million.
|
|
|
|
|
|
|
|
|
Supplementary quarterly financial
information |
|
2021(3) |
2020(3) |
2019 |
|
(millions of Canadian dollars except per
share amounts) |
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
|
|
|
|
|
|
|
|
|
Revenue |
1,375 |
|
1,387 |
|
1,370 |
|
1,349 |
|
1,312 |
|
1,363 |
|
1,383 |
|
1,349 |
|
Adjusted EBITDA(1) |
642 |
|
637 |
|
607 |
|
594 |
|
609 |
|
600 |
|
588 |
|
534 |
|
Restructuring costs |
(1 |
) |
(1 |
) |
(12 |
) |
– |
|
(14 |
) |
– |
|
– |
|
10 |
|
Amortization |
(300 |
) |
(303 |
) |
(305 |
) |
(312 |
) |
(302 |
) |
(300 |
) |
(303 |
) |
(250 |
) |
Amortization of financing
costs |
(1 |
) |
– |
|
(1 |
) |
(1 |
) |
– |
|
(1 |
) |
(1 |
) |
(1 |
) |
Interest expense |
(31 |
) |
(67 |
) |
(66 |
) |
(68 |
) |
(67 |
) |
(68 |
) |
(71 |
) |
(66 |
) |
Other income (expense) |
(21 |
) |
26 |
|
(2 |
) |
(1 |
) |
7 |
|
(19 |
) |
(3 |
) |
2 |
|
Income taxes |
66 |
|
(75 |
) |
(58 |
) |
(37 |
) |
(49 |
) |
(45 |
) |
(48 |
) |
(63 |
) |
Net income(2) |
354 |
|
217 |
|
163 |
|
175 |
|
184 |
|
167 |
|
162 |
|
166 |
|
Net income attributable to
equity shareholders |
354 |
|
217 |
|
163 |
|
175 |
|
184 |
|
167 |
|
162 |
|
166 |
|
Earnings per share |
|
|
|
|
|
|
|
|
Basic |
0.71 |
|
0.43 |
|
0.31 |
|
0.34 |
|
0.35 |
|
0.32 |
|
0.31 |
|
0.32 |
|
Diluted |
0.70 |
|
0.43 |
|
0.31 |
|
0.34 |
|
0.35 |
|
0.32 |
|
0.31 |
|
0.32 |
|
Other
Information |
|
|
|
|
|
|
|
|
Cash flows from operating
activities |
560 |
|
473 |
|
300 |
|
632 |
|
588 |
|
361 |
|
339 |
|
435 |
|
Free cash flow(1) |
307 |
|
248 |
|
225 |
|
152 |
|
221 |
|
191 |
|
183 |
|
42 |
|
Capital
expenditures and equipment costs |
233 |
|
250 |
|
234 |
|
307 |
|
268 |
|
276 |
|
260 |
|
382 |
|
(1) See “Non-GAAP and additional financial
measures.”(2) Net income attributable to both equity
shareholders and non-controlling interests.(3) Fiscal 2021 and
2020 figures reflect the impact of the adoption and application of
IFRS 16 while Fiscal 2019 figures do not and are not comparable.
See “New Accounting Standards” as well as “Results of Operations”
and “Segmented Operations Review” in the MD&A for the year
ended August 31, 2020.
|
|
F21 Q3 vs F21 Q2 |
In the third quarter of fiscal 2021, net income increased $137
million compared to the second quarter of fiscal 2021 mainly due to
a $131 million decrease in current income taxes expense and a $36
million decrease in interest expense mainly due to a revision to
liabilities for uncertain tax positions that became statute barred
in the period, which reduced these expenses by $125 million and $35
million respectively, a $9 million decrease in deferred taxes, and
a $5 million increase in adjusted EBITDA, partially offset by $18
million in Transaction related advisory, legal, financial, and
other professional fees in the quarter and the impact of the $27
million fair value gain on private investments recorded in the
second quarter. |
F21 Q2 vs F21 Q1 |
In the second quarter of fiscal 2021, net income increased $54
million compared to the first quarter of fiscal 2021 mainly due to
a $30 million increase in adjusted EBITDA, an $11 million decrease
in restructuring costs, and a $27 million fair value gain on
private investments recorded in the second quarter, partially
offset by a $9 million increase in deferred taxes and an $8 million
increase in current taxes, all in the second quarter. |
F21 Q1 vs F20 Q4 |
In the first quarter of fiscal 2021, net income decreased $12
million compared to the fourth quarter of fiscal 2020 mainly due to
a $12 million increase in restructuring costs in the first quarter
and a $27 million increase in deferred taxes, partially offset by a
$13 million increase in adjusted EBITDA and a $6 million decrease
in current taxes, all in the first quarter. |
F20 Q4 vs F20 Q3 |
In the fourth quarter of fiscal 2020, net income decreased $9
million compared to the third quarter of fiscal 2020 mainly due to
an $15 million decrease in adjusted EBITDA and a $23 million
increase in current taxes in the fourth quarter as well an $8
million decrease in other gains (losses) as a result of an
insurance claim recovery in the third quarter, partially offset by
a $35 million decrease in deferred taxes and a $14 million decrease
in restructuring costs in the fourth quarter. |
F20 Q3 vs F20 Q2 |
In the third quarter of fiscal 2020, net income increased $17
million compared to the second quarter of fiscal 2020 mainly due to
a $26 million increase in other gains (losses), which includes the
impact of the $17 million payment related to the early redemption
of $800 million in senior notes in the second quarter, a $6 million
insurance claim recovery, a $9 million increase in adjusted EBITDA
in the third quarter and a $4 million decrease in current taxes,
partially offset by an $8 million increase in deferred taxes, also
in the third quarter. |
F20 Q2 vs F20 Q1 |
In the second quarter of fiscal 2020, net income increased
$5 million compared to the first quarter of fiscal 2020 mainly
due to a $13 million decrease in current taxes, a $12 million
increase in adjusted EBITDA and a $3 million decrease in interest
expense, all in the second quarter, partially offset by a $17
million payment related to the early redemption of $800 million in
senior notes and a $10 million increase in deferred taxes, also in
the second quarter. |
F20 Q1 vs F19 Q4 |
In the first quarter of fiscal 2020, net income decreased $3
million compared to the fourth quarter of fiscal 2019 mainly due to
a $23 million decrease in deferred taxes in the first quarter. This
was partially offset by a $7 million increase in current taxes in
the first quarter as well as the net impact of the adoption of IFRS
16 which resulted in a decrease to operating, general and
administrative costs that was more than offset by increases to
amortization of property, plant and equipment, intangibles and
other and interest expense. |
Financial position
Total assets were $16.0 billion at May 31, 2021
compared to $16.2 billion at August 31, 2020. The following is a
discussion of significant changes in the Consolidated Statements of
Financial Position since August 31, 2020.
Current assets decreased $92 million primarily
due to a decrease in cash of $272 million and a decrease in the
current portion of contract assets of $24 million, partially offset
by increases in accounts receivables of $38 million, inventories of
$4 million, other current assets of $36 million, and income taxes
recoverable of $126 million. Cash decreased primarily due to the
payment of $455 million in dividends, $336 million for share
repurchases, as described below, and cash outlays for investing
activities, partially offset by funds flow from operations. Refer
to “Liquidity and capital resources” for more information.
Accounts receivable increased $38 million mainly
due to timing, as the Company continues to migrate customers from
two-month advance billing to one-month advance billing, and the
impact of an $18 million capital project reimbursement accrual
recorded in the period.
The current portion of contract assets decreased
$24 million over the period due to a $12 million decrease in
deferred Wireline costs as a result of lower onboarding promotional
activity for new subscribers over the past year and a $12 million
decrease due to a decrease in Wireless subscribers participating in
the Company’s discretionary wireless handset discount program over
the past year. Under IFRS 15, up-front promotional offers, such as
onboarding or switch credits, offered to new two-year value-plan
customers are recorded as a contract asset and amortized over the
life of the contract against future service revenues while the
portion of the Wireless 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.
Property, plant and equipment decreased
$102 million as the amortization of capital and right-of-use
assets exceeded the capital investments and additions to
right-of-use assets in the period.
Current liabilities increased $72 million during
the period primarily due to the reclassification of $300 million in
Preferred Shares from equity to current liabilities as a result of
the Company providing notice to holders of the Preferred Shares on
May 28, 2021 that the Preferred Shares would be redeemed on June
30, 2021. Refer to “Liquidity and capital resources” for more
information. This increase was partially offset by a $112 million
decrease in accounts payable, a decrease in income taxes payable of
$57 million, and a decrease of $59 million in current
provisions.
Accounts payable and accrued liabilities
decreased due to the timing of payments and fluctuations in various
payables including capital expenditures and tax remittances. The
decrease in current provisions was mainly due to a $35 million
reduction to the interest expense provision, a $20 million
provision release related to the CRTC decision on final aggregated
TPIA rates and the payment of outstanding restructuring costs in
the period.
Lease liabilities increased $9 million mainly
due to $91 million in new lease liabilities, partially offset by
principal repayments of $82 million in the period.
Shareholders’ equity decreased $313 million
mainly due to the reclassification of $300 million in Preferred
Shares to a current liability as noted above. Retained earnings
increased as the current period income of $734 million was
greater than the dividends of $451 million and the impact of
shares repurchased under the normal course issuer bid (NCIB)
program of $207 million. Share capital decreased $406 million due
to the impact of 14,783,974 Class B Shares repurchased under the
terms of the Company’s NCIB program, and the reclassification of
all 12,000,000 issued and outstanding Preferred Shares to current
liability, which were partially offset by the issuance of 569,213
Class B Shares under the Company’s stock option plan. Accumulated
other comprehensive loss decreased $24 million due to the
remeasurement recorded on employee benefit plans in the period.
As at June 15, 2021, there were 476,449,262
Class B Shares, 10,012,393 Series A Shares, 1,987,607 Series B
Shares, and 22,372,064 Class A Shares issued and outstanding. As at
June 15, 2021, 2021, 7,597,890 Class B Shares were issuable on
exercise of outstanding options. On June 30, 2021, all 12,000,000
issued and outstanding Preferred Shares were redeemed by the
Company as noted above. 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, NYSE – SJR, and TSXV – SJR.A). For
more information, please visit www.shaw.ca.
Liquidity and capital
resources
In the nine-month period ended May 31, 2021, the
Company generated $781 million of free cash flow. Shaw used its
free cash flow along with cash of $272 million and proceeds from
the issuance of Class B Shares of $15 million to pay common share
dividends of $449 million, repurchase $336 million in Class B
Shares under the Company’s NCIB program, pay $25 million in
restructuring costs, and fund the net working capital
change.
Debt structure and financial
policy
The Company has an accounts receivable
securitization program with a Canadian financial institution which
allows it to sell certain trade receivables into the program. As at
May 31, 2021, the proceeds of the sales were committed up to a
maximum of $200 million (with $200 million drawn under
the program as at May 31, 2021). 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 Statements of
Financial Position and the funding received is recorded as a
current liability (revolving floating rate loans) secured by the
trade receivables. The buyer’s interest in the accounts receivable
ranks ahead of the Company’s interest and the program restricts it
from using the trade receivables as collateral for any other
purpose. The buyer of the trade receivable has no claim on any of
the Company’s other assets.
As at May 31, 2021, the net debt leverage ratio
for the Company was 2.4x. Considering the prevailing competitive,
operational and capital market conditions, the Board of Directors
has determined that having this ratio in the range of 2.5x to 3.0x
would be appropriate for the Company in the current environment. In
addition, the terms of the Arrangement Agreement require Shaw to
obtain Rogers’ consent prior to incurring certain types of
indebtedness.
The
Company calculates net debt leverage ratio as follows(1): |
|
|
|
|
|
|
|
(millions of Canadian dollars) |
May 31, 2021 |
|
|
August 31, 2020 |
|
Short-term borrowings |
200 |
|
|
200 |
|
Preferred shares classified as current liabilities |
300 |
|
|
- |
|
Current portion of long-term debt |
1 |
|
|
1 |
|
Current portion of lease liabilities |
110 |
|
|
113 |
|
Long-term debt |
4,549 |
|
|
4,547 |
|
Lease liabilities |
1,169 |
|
|
1,157 |
|
50% of outstanding preferred shares classified as equity |
- |
|
|
147 |
|
Cash and cash equivalents |
(491 |
) |
|
(763 |
) |
(A) Net
debt(2) |
5,838 |
|
|
5,402 |
|
(B) Adjusted EBITDA(2) |
2,480 |
|
|
2,391 |
|
(A/B) Net debt leverage ratio(3) |
2.4x |
|
|
2.3x |
|
(1) The following contains a breakdown of
the components in the calculation of net debt leverage ratio, which
is a non-GAAP ratio.(2) See “Non-GAAP and additional financial
measures.”(3) Net debt leverage ratio is a non-GAAP ratio and
should not be considered as a substitute or alternative for a GAAP
measure and may not be a reliable way to compare us to other
companies. See “Non-GAAP and additional financial measures” for
further information about this ratio.
On November 2, 2020, the Company announced that
it had received approval from the TSX to establish an NCIB program.
The program commenced on November 5, 2020 and will remain in effect
until November 4, 2021. As approved by the TSX, the Company has the
ability to purchase for cancellation up to 24,532,404 Class B
Shares representing approximately 5% of all of the issued and
outstanding Class B Shares as at October 22, 2020.
During the three and nine months ended May 31,
2021, the Company purchased 1,559,202 and 14,783,974 Class B Shares
for cancellation for a total cost of approximately $36 million and
$336 million, respectively, under the NCIB program. In connection
with the announcement of the Transaction on March 15, 2021, the
Company suspended share buybacks under its NCIB program.
Shaw’s credit facilities are subject to
customary covenants which include maintaining minimum or maximum
financial ratios.
|
Covenant as atMay 31, 2021 |
|
Covenant Limit |
Shaw Credit Facilities |
|
|
|
Total Debt to Operating Cash Flow(1) Ratio |
1.89:1 |
|
< 5.00:1 |
Operating Cash Flow(1) to Fixed Charges(2) Ratio |
11.17:1 |
|
> 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, less payments made with regards
to lease liabilities 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 broadly defined as the aggregate
interest expense, excluding the interest related to lease
liabilities, for the most recently completed fiscal quarter
multiplied by four.
As at May 31, 2021, 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 2024.
On May 28, 2021, the Company announced the
redemption of all of its issued and outstanding Preferred Shares in
accordance with their terms (as set out in the Company’s articles)
on the Redemption Date at a price equal to $25.00 per Preferred
Share, less any tax required to be deducted or withheld.
On the Redemption Date, there were 10,012,393
Series A Shares and 1,987,607 Series B Shares issued and
outstanding. Accordingly, the aggregate Redemption Price paid by
Shaw on the Redemption Date to redeem the Preferred Shares was $300
million.
On April 14, 2021, the Company’s Board of
Directors declared a dividend of $0.17444 per Series A Share and
$0.12956 per Series B Share, each payable on June 30, 2021 to
holders of record on June 15, 2021. These were the final dividends
on the Preferred Shares, which were paid separately from the
aggregate Redemption Price and in the usual manner. Following
payment of the June 30, 2021 dividends, there were no accrued and
unpaid dividends on the Preferred Shares.
As at May 31, 2021, the Company had $491 million
of cash on hand and its $1.5 billion bank credit facility was fully
undrawn.
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 and working capital requirements, including
maturing debt, during the upcoming year. The terms of the
Arrangement Agreement require that the Company maintain sufficient
liquidity to pay an $800 million termination fee payable by Shaw in
certain circumstances.
Cash Flow |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2021 |
|
2020 |
Change % |
|
2021 |
|
2020 |
|
Change % |
Funds flow from operations |
708 |
|
541 |
30.9 |
|
|
1,735 |
|
1,487 |
|
16.7 |
Net
change in non-cash balances related to operations |
(148 |
) |
47 |
>(100.0 |
) |
|
(402 |
) |
(199 |
) |
>(100.0) |
|
560 |
|
588 |
(4.8 |
) |
|
1,333 |
|
1,288 |
|
3.5 |
For the three months ended May 31, 2021, funds
flow from operating activities decreased over the comparable period
in fiscal 2020 primarily due to a large decrease in the net change
in non-cash balances related to operations partially offset by an
increase in the funds flow from operations. The net change in
non-cash balances related to operations fluctuated over the
comparative period due to changes in accounts receivable, inventory
and other current asset balances, and the timing of payments of
current income taxes payable and accounts payable and accrued
liabilities.
Investing Activities |
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2021 |
|
2020 |
|
Decrease |
|
2021 |
|
2020 |
|
Decrease |
Cash used in investing activities |
(260 |
) |
(261 |
) |
(1 |
) |
|
(746 |
) |
(865 |
) |
(119 |
) |
For the three months ended May 31, 2021, the
cash used in investing activities was consistent with the
comparable period in fiscal 2020.
Financing Activities |
|
|
|
|
|
|
The changes in
financing activities during the comparative periods were as
follows: |
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2021 |
|
2020 |
|
|
2021 |
|
2020 |
|
Increase in short-term
borrowings [note 7] |
- |
|
(5 |
) |
|
- |
|
210 |
|
Issuance of long-term
debt |
- |
|
500 |
|
|
- |
|
1,300 |
|
Repayment of long-term
debt |
(1 |
) |
- |
|
|
(1 |
) |
(2,068 |
) |
Debt arrangement costs |
- |
|
(4 |
) |
|
- |
|
(14 |
) |
Payment of lease liabilities
[note 6] |
(24 |
) |
(25 |
) |
|
(82 |
) |
(82 |
) |
Issue of Class B Shares [note
10] |
14 |
|
1 |
|
|
15 |
|
6 |
|
Purchase of Class B
Shares |
(36 |
) |
(35 |
) |
|
(336 |
) |
(140 |
) |
Dividends paid on Class A
Shares and Class B Shares |
(148 |
) |
(152 |
) |
|
(449 |
) |
(421 |
) |
Dividends paid on Preferred
Shares |
(2 |
) |
(3 |
) |
|
(6 |
) |
(7 |
) |
Payment
of distributions to non-controlling interests |
- |
|
- |
|
|
- |
|
(2 |
) |
|
(197 |
) |
277 |
|
|
(859 |
) |
(1,218 |
) |
Contractual Obligations
There has been no material change in the Company’s contractual
obligations, including commitments for capital expenditures,
between August 31, 2020 and May 31, 2021.
Accounting standards
The MD&A included in the Company’s
August 31, 2020 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 2020 Annual 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, 2020. The condensed interim Consolidated Financial
Statements follow the same accounting policies and methods of
application as the 2020 Annual Consolidated Financial
Statements.
Related party
transactions
The Company’s transactions with related parties
are discussed in its MD&A for the year ended August 31,
2020 under “Related Party Transactions” and under Note 29 of
the Consolidated Financial Statements of the Company for the year
ended August 31, 2020.
There has been no material change in the
Company’s transactions with related parties between August 31,
2020 and May 31, 2021.
Financial instruments
There has been no material change in the
Company’s risk management practices with respect to financial
instruments between August 31, 2020 and May 31, 2021. See “Known
Events, Trends, Risks and Uncertainties – Interest Rates, Foreign
Exchange Rates and Capital Markets” in the Company’s MD&A for
the year ended August 31, 2020 and the section entitled
“Financial Instruments” under Note 30 of the Consolidated
Financial Statements of the Company for the year ended
August 31, 2020.
Internal controls and
procedures
Details relating to disclosure controls and
procedures, and internal control over financial reporting (ICFR),
are discussed in the Company’s MD&A for the year ended August
31, 2020 under “Certification.” As at May 31, 2021, there have been
no changes in the Company’s ICFR that have materially affected, or
are reasonably likely to materially affect, the Company’s ICFR in
fiscal 2021.
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, 2020 under “Known
Events, Trends, Risks and Uncertainties.” The following is a list
of the significant risks and uncertainties since that date.
Risks Related to the
Transaction
The completion of the Transaction is
subject to the satisfaction or waiver of several conditions
precedent
The completion of the Transaction is subject to
a number of conditions precedent, some of which are outside of the
control of the Company and Rogers, including receipt of the Key
Regulatory Approvals, there not having occurred a Material Adverse
Effect or Purchaser Material Adverse Effect (as such terms are
defined in the Arrangement Agreement), and the satisfaction of
certain other customary closing conditions. There can be no
certainty, nor can the Company or Rogers provide any assurance,
that all conditions precedent to the Transaction will be satisfied
or waived, nor can there be any certainty of the timing of their
satisfaction or waiver. In addition, shareholders are advised that
the condition relating to the occurrence of a Purchaser Material
Adverse Effect is enforceable by, and is for the benefit of, the
Shaw Family Living Trust. Accordingly, the Shaw Family Living
Trust, which may have interests in the Transaction different from,
or in addition to, those of other shareholders, has the right to
prevent or delay the completion of the Transaction should it
determine that a Purchaser Material Adverse Effect has
occurred.
If, for any reason, the Transaction is not
completed or its completion is materially delayed and/or the
Arrangement Agreement is terminated, the market price of the Shares
may be materially adversely affected. In such circumstances,
the Company’s business, financial condition or results of
operations could also be subject to various material adverse
consequences. In addition, if the Transaction is not completed, in
certain circumstances, the Company may be required to pay a
termination fee of $800 million to Rogers, the result of which
could have a material adverse effect on the Company’s business,
financial position and results of operations and its ability to
fund growth prospects and current operations.
The Key Regulatory Approvals necessary
to complete the Transaction may not be obtained or may only be
obtained after substantial delay
To complete the Transaction, each of the Company
and Rogers must make certain filings with and obtain certain
consents and approvals from certain governmental and regulatory
authorities. In particular, the Company and Rogers have not yet
obtained the Key Regulatory Approvals, all of which are required to
complete the Transaction. In addition, governmental or regulatory
agencies could deny permission for, or seek to block or challenge
the Transaction or the transfer or deemed transfer of specific
assets, including spectrum licenses, or impose material conditions
relating to the Arrangement or any such transfer. If any one of the
Key Regulatory Approvals is not obtained or any applicable law is
in effect which makes the consummation of the Transaction illegal,
the Transaction will not be completed.
In addition, a substantial delay in obtaining
the Key Regulatory Approvals could result in the Transaction not
being completed. In particular, if the Transaction is not completed
by March 15, 2022 (subject to an extension of up to 90 days if
required to obtain the Key Regulatory Approvals), either Shaw or
Rogers may terminate the Arrangement Agreement, in which case the
Transaction will not be completed.
Under certain circumstances, if the Key
Regulatory Approvals are not obtained or any law (that relates to
one or more of the Key Regulatory Approvals or the Competition Act
(Canada)) is in effect which would make the consummation of the
Transaction illegal and the failure to obtain the Key Regulatory
Approvals is not caused by, and is not a result of, the failure by
the Company to perform in all material respects any of its
covenants or agreements under the Arrangement Agreement, then
Rogers is obligated to pay the $1.2 billion reverse termination
amount and holders of the Class A Shares and Class B Shares will
not receive the consideration under the Arrangement Agreement (as
the Transaction will not be completed).
Federal election could impact the
regulatory reviews of the Transaction
The potential for a federal election to be
called before the expected closing of the Transaction may have an
unpredictable impact on the timing and outcome of the regulatory
reviews of the Transaction.
The Arrangement Agreement may be
terminated in certain circumstances
The Transaction may be terminated by the Company
or Rogers in certain circumstances, in which case the Transaction
will not be completed. Accordingly, there is no certainty, nor can
the Company provide any assurance, that the Arrangement Agreement
will not be terminated by the Company or Rogers prior to the
completion of the Transaction. The failure to complete the
Transaction could materially negatively impact the market price of
Shaw’s securities. Moreover, if the Arrangement Agreement is
terminated and the Company’s Board determines to pursue another
merger or business combination, there is no assurance that the
Company’s Board will be able to find a party willing to pay an
equivalent or greater price for all of Shaw’s issued and
outstanding Class A Shares and Class B Shares than the price to be
paid by Rogers pursuant to the Transaction.
The failure to complete the Transaction
could negatively impact the Company and have a material adverse
effect on the current and future operations, financial condition
and prospects of the Company
If the Transaction is not completed for any
reason, there are risks that the announcement of the Transaction
and the dedication of substantial resources of the Company to the
completion thereof could have a negative impact on the Company’s
current business relationships (including with future and
prospective employees, customers, suppliers and partners) and could
have a material adverse effect on the current and future business,
operations, results of operations, financial condition and
prospects of the Company. In addition, failure to complete the
Transaction for any reason could materially negatively impact the
market price of Shaw’s securities. The entering into of the
Arrangement Agreement may also preclude the Company from
participating in any auction by ISED for wireless spectrum
licenses.
On April 6, 2021, ISED published its list of
applicants to participate in the 3500 MHz spectrum auction, which
commenced on June 15, 2021. The list confirms that Shaw has
elected not to participate in the auction.
If the Transaction is not completed, the
inability of the Company to participate in any wireless spectrum
auction and to acquire licenses thereunder could have a material
adverse effect on the current and future operations, financial
condition and prospects of the Company.
The Company will incur significant costs
and, in certain circumstances, may be required to pay a Termination
Fee
Certain costs relating to the Transaction, such
as legal, accounting, tax and financial advisory fees, must be paid
by the Company even if the Transaction is not completed. In
addition, if the Transaction is not completed for certain reasons,
the Company may be required to pay a termination fee of $800
million to Rogers, the result of which could have a material
adverse effect on the Company’s business, financial position and
results of operations and its ability to fund growth prospects and
current operations.
The Transaction may divert the attention
of management of the Company, impact the Company’s ability to
attract or retain key personnel or impact the Company’s third party
business relationships
The Transaction could cause the attention of the
Company’s management to be diverted from the day-to-day operations
of the Company. These disruptions could be exacerbated by a delay
in the completion of the Transaction and could have an adverse
effect on the current and future business, operations, results of
operations, financial condition and prospects of the Company.
Because the completion of the Transaction is subject to
uncertainty, officers and employees of the Company may experience
uncertainty about their future roles with the Company, which may
adversely affect the Company’s ability to attract or retain key
management and personnel in the period until the completion or
termination of the Transaction.
In addition, third parties with which the
Company currently has business relationships or may have business
relationships in the future, including industry partners,
regulators, customers and suppliers, may experience uncertainty
associated with the Transaction, including with respect to current
or future relationships with the Company or Rogers. Such
uncertainty could have a material and adverse effect on the current
and future business, operations, results of operations, financial
condition and prospects of the Company.
The Arrangement Agreement contains
certain restrictions on the ability of the Company to conduct its
business
Under the Arrangement Agreement, the Company
must generally use its reasonable best efforts to conduct its
business in the ordinary course and, prior to the completion of the
Transaction or the termination of the Arrangement Agreement, the
Company is subject to certain covenants which restrict it from
taking certain actions without the prior consent of Rogers and
which require it to take certain other actions. In either case,
such covenants may delay or prevent the Company from pursuing
business opportunities that may arise or preclude actions that
would otherwise be advisable if the Company were to remain a
standalone entity.
The financing of the
Transaction
Although the Arrangement Agreement does not
contain a financing condition and Rogers has received the debt
commitment letter to provide for the debt financing in order to
finance the Transaction, the obligation of the lenders under the
debt commitment letter to provide the debt financing is subject to
certain limited conditions. In the event that the Transaction
cannot be completed due to the failure of Rogers to obtain
financing required to close the Transaction either because the
limited conditions to the financing are not satisfied or other
events arise which prevent Rogers from consummating the Debt
Financing, the Company expects that Rogers may be unable to fund
the Consideration required to complete the Arrangement, in which
case Rogers will be required to pay a reverse termination fee of
$1.2 billion to the Company and the holders of the Class A Shares
and Class B Shares will not receive the consideration under the
Arrangement Agreement (as the Transaction will not be
completed).
Government regulations and regulatory
developments
See our MD&A in the Annual Report for the
year ended August 31, 2020 for a discussion of the significant
regulations that affected our operations as of October 30, 2020.
The following is a list of the significant regulatory developments
since that date.
For a discussion of the regulatory approval
processes related to the Transaction, see “Introduction – Shaw and
Rogers Transaction” and “Risks and uncertainties – Risks Related to
the Transaction – The Key Regulatory Approvals necessary to
complete the Transaction may not be obtained or may only be
obtained after substantial delay and a Federal election could
impact the regulatory reviews of the Transaction” of this
MD&A.
Broadcasting Act
Potential for requirements that entrench or
augment regulatory asymmetry
On November 3, 2020, the Minister of Heritage
introduced a bill to amend the Broadcasting Act (“Bill C-10”). Bill
C-10 will form the basis of a new regulatory regime applicable to
various classes of service providers, including cable and
direct-to-home satellite (DTH) services, as well as online
broadcasting services. Bill C-10, while subject to amendment
pursuant to the parliamentary process, does not currently introduce
material new obligations applicable to or fees payable by the
Company’s cable, DTH, Satellite Relay Distribution or digital media
services. It would, however, establish a regulatory framework for
online services that does not require licensing and may ultimately
lead to a lighter set of regulatory obligations for such services
as compared to licensees (including cable and DTH services). The
details with respect to regulatory obligations applicable to both
licensees and online undertakings will be determined by the CRTC,
which will – subsequent to any royal assent to Bill C-10 – engage
in one or more proceedings to align Canadian broadcasting
regulation with the amended Broadcasting Act. Furthermore, the
Minister of Heritage has indicated that the CRTC’s subsequent
regulatory processes will be subject to a Direction by the
Governor-in-Council that sets out the Government’s expectations
with respect to how the newly-incorporated amendments to the
Broadcasting Act should be reflected in regulation, which Direction
may also specify the requirement that new regulations be brought
into force within a relatively short timeframe. On February 16,
2021, Bill C-10 passed Second Reading and was referred to the
Standing Committee on Canadian Heritage for study. On June 14,
2021, the Standing Committee presented its report on Bill C-10 with
amendments in the House of Commons, and on June 22, 2021, the House
of Commons passed the Bill, which is now before, and requires
passing by, the Senate. The implementation of new regulatory
measures in connection with Bill C-10, alone or in combination with
the maintenance of existing regulatory measures applicable to the
Company’s cable and DTH services, could impact the Company’s cable
and DTH services if regulatory fees and obligations are not applied
symmetrically as between licensed and unlicensed entities.
Telecommunications Act
Telecom Order CRTC 2019-288
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 were
significantly lower than the interim rates set in October 2016, and
retroactive to January 31, 2017. For a detailed summary regarding
all proceedings and decisions issued between August 15, 2019 and
October 30, 2020 related to the Company’s multiple routes of appeal
of the Order, see “Government Relations and Regulatory Developments
– Third Party Internet Access” of the Company’s Annual Report for
the year ended August 31, 2020.
On November 12, 2020, the Company, together with
Cogeco, Eastlink, Rogers and Videotron (collectively, the “Cable
Carriers”), filed an application with the Supreme Court of Canada
(SCC), seeking leave to appeal the Federal Court of Appeal’s (FCA)
decision dated September 10, 2020 denying the Company’s appeal of
the Order. On February 25, 2021, the application for leave to
appeal was dismissed.
On May 27, 2021, the CRTC released its decision
in the Cable Carriers’ application to review and vary the rates set
by the Order (“TD 2021-181”). The CRTC determined that there was
substantial doubt as to the correctness of the aggregated wholesale
HSA service rates set by the Order and approved on a final basis
the interim rates set in October 2016. On May 28, 2021, TekSavvy
Solutions Inc. (“TekSavvy”) petitioned to the Governor in Council
(GIC) to vary TD 2021-181, asking the GIC to finalize the rates set
by the Order and direct all facilities-based wholesale service
providers to immediately remit all retroactive payments in
connection with the Order’s rates. On June 28, TekSavvy also filed
a motion for leave to appeal TD 2021-181 to the FCA and has
requested that the appeal be heard on an expedited basis. If
leave is granted, TekSavvy will seek an order from the FCA that TD
2021-181 is quashed, and the 2019 Order is reinstated or, in the
alternative, that the matter is remitted to the CRTC for
redetermination. If the GIC or the FCA were to intervene in any way
with the effect of decreasing the aggregated wholesale HSA service
rates set by TD 2021-181, this could significantly reduce the
amount that the Company can charge for aggregated wholesale HSA
services and negatively impact the Company’s broadband Wireline
revenues and investments, as well as its ability to compete with
Resellers and other facilities-based HSA providers.
CRTC Wireless Review
In February 2019, the CRTC initiated its review
of the regulatory framework for mobile wireless services and held a
public hearing in February 2020. The Commission reviewed
competition in the retail market, including potential regulatory
intervention, such as new retail policies and mandated low-cost
data-only plans, and wholesale wireless regulation, including
wholesale access for mobile virtual network operators (MVNOs), and
whether there is any need to make changes to the wholesale roaming
policy.
In April 2021, the CRTC issued Wireless Review
decision, Telecom Regulatory Policy CRTC 2021-130 (“TRP 2021-130”).
In it, the CRTC rejected a broad MVNO regime and instead mandated
wholesale MVNO access on the incumbent national carriers’ networks
only for carriers holding a spectrum licence in a given service
area. The CRTC directed the incumbents to file proposed terms and
conditions for the MVNO service by July 14, 2021. Rates will be
determined through commercial negotiation, with recourse to CRTC
Final Offer Arbitration if negotiations reach an impasse. The CRTC
also held that the incumbent carriers would be required to provide
seamless roaming as part of their mandated domestic wholesale
roaming services used by the Company and other carriers as of April
15, 2022 and confirmed that the wholesale roaming policy applies to
5G networks. The incumbents’ wholesale roaming tariffs will be
reviewed to ensure the rates reflect the underlying costs
associated with seamless roaming following its implementation. At
that time, the CRTC will also assess the underlying costs of
wholesale roaming on 5G networks. TRP 2021-130 did not mandate
specific retail services but set clear expectations for the offer
and promotion by the incumbent national carriers of low-cost,
emergency use, and occasional use plans at specified rates. The
CRTC expects these plans to be offered by July 14, 2021. Finally,
the CRTC determined that the Telecommunications Act does not give
it the jurisdiction to adjudicate disputes concerning access to
public places for the purpose of constructing, maintaining and
operating mobile wireless transmission facilities. On May 14, 2021,
TELUS filed for leave to appeal the CRTC’s determinations related
to seamless roaming and jurisdiction over access to public places
relating to wireless facilities.
Compliance and Enforcement and Telecom Notice of Consultation
CRTC 2021-9
On January 13, 2021, the CRTC initiated a
proceeding to develop a network-level blocking framework to limit
botnet traffic targeting Canadians. Shaw has recommended a limited
role for the CRTC. If, however, the CRTC implements more onerous
obligations, this could introduce additional costs to the Company
and a risk of penalties in connection with any non-compliance.
36-Month Device Financing
On March 4, 2021, the CRTC released its decision
regarding 36-month device financing plans (also referred to as
equipment installment plans), in which it confirmed that plans
longer than 24-months violate the Wireless Code. The CRTC also
ordered all wireless service providers to update their contracts,
sales, training material and any other documentation, to ensure
that the offering of device financing plans complies with the
Wireless Code’s limitation on rules applicable to contract length
and early cancellation fees. The Company has never offered device
financing plans longer than 24-months.
Radiocommunication Act
Wireless Spectrum Licences
In May 2021, ISED released its decision allowing
future mobile use in the 3800 MHz band (3650-3900 MHz). The band is
currently used primarily to provide fixed satellite services.
Existing satellite users of the spectrum in remote, satellite
dependent areas of the country will be permitted to continue to
operate across the band, while those in urban areas will be
consolidated in the 4000-4200 MHz spectrum range and subject to a
transition process that will be complete in March 2025. The details
of the licensing framework for the band will be the subject of a
future proceeding.
In May 2021, ISED also released a decision
confirming its intention to make 1200 MHz of spectrum in the 6 GHz
band (5925-7125 MHz) available for Wi-Fi and other unlicensed uses.
Technical standards for equipment operating in the band must be
developed before the spectrum becomes available for use.
Copyright Act
Interpretation of s.2.4(1.1)
In June 2020, the Federal Court of Appeal
overturned the Copyright Board’s interpretation of the scope and
meaning of the “making available” provision (section 2.4(1.1) of
the Copyright Act). The Copyright Board determined that section
2.4(1.1) expands the scope of the performance right and the Society
of Composers, Authors and Music Publishers of Canada’s (SOCAN)
entitlement to royalties. On November 12, 2020, SOCAN and Music
Canada (collectively, the “Applicants”) filed an application for
leave to appeal to the SCC. On April 21, 2021, leave to appeal was
granted to the Applicants. If the SCC restores the Copyright
Board’s interpretation, it could lead to new claims by rights
holders in connection with Company technologies that facilitate
downloading.
Judicial Review of the Distant Signal
Retransmission Tariff Rates (2014-2018)
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, which
introduced a rate increase that applied retroactively, and
established an interim tariff for 2019 based on the 2018 rate. Both
the Copyright Collective of Canada (the “Collectives”) and
Objectors filed a Notice of Application for judicial review with
the FCA on November 4, 2019. The FCA hearing in the judicial review
was held on March 1-2, 2021. If the Collectives succeed in the
judicial review, the Company could become subject to significantly
increased royalty rates for the 2014-2018 period, pursuant to
either the FCA’s decision in the judicial review or any
redetermination of the rates by the Copyright Board.
Personal Information Protection and Electronic Documents
Act (PIPEDA)
On November 17, 2020, the Minister of
Innovation, Science and Industry introduced Bill C-11 – the Digital
Charter Implementation Act (“DCIA”), which, if passed and brought
into force, will repeal and replace PIPEDA. Bill C-11 is comprised
of two parts: (1) the Consumer Privacy Protection Act (the “CPPA”),
which establishes protections and parameters for the collection,
use and disclosure of personal information (“PI”), including
enhanced rights for individuals with respect to their privacy and
data; enhanced accountabilities for organizations with respect to
consent gathering and data usage; and significant penalties (up to
5% of an organization’s gross revenue the previous year) for
breaches of rights and responsibilities; and (2) the Personal
Information and Data Protection Tribunal Act (the “PIDPTA”), which
creates a new administrative tribunal to oversee enforcement of the
CPPA. As of June 17, 2021, Bill C-11 remains in Second Reading
before the House of Commons.
Changes to privacy laws and regulations
resulting from the passage of Bill C-11 will require the Company to
incur costs to adjust its policies and practices related to
privacy, as well as data collection, management, disposal and
access practices. Such changes could: result in significant new
costs payable by the Company to ensure compliance; limit the
Company’s ability to utilize data in support of its business, as
well as preserve and expand its customer base; and expose the
Company to the risk of significant penalties and claims (including
pursuant to a proposed right of private action) in connection with
any non-compliance. The Government will be consulting on Bill C-11,
and the timing of its coming into force will be set at the time the
legislation is passed.
CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION(unaudited)
(millions of Canadian dollars) |
May 31, 2021 |
|
August 31, 2020 |
|
|
|
|
|
ASSETS |
|
|
|
Current |
|
|
|
|
Cash and cash equivalents |
491 |
|
763 |
|
Accounts receivable |
306 |
|
268 |
|
Income taxes recoverable |
126 |
|
- |
|
Inventories |
64 |
|
60 |
|
Other current assets [note
4] |
313 |
|
277 |
|
Current
portion of contract assets [note 12] |
108 |
|
132 |
|
|
1,408 |
|
1,500 |
Investments and
other assets [note 5 & 17] |
70 |
|
42 |
Property, plant
and equipment |
6,040 |
|
6,142 |
Other long-term
assets |
149 |
|
163 |
Contract assets
[note 12] |
30 |
|
40 |
Deferred income
tax assets |
2 |
|
1 |
Intangibles [note
18] |
8,001 |
|
7,997 |
Goodwill [note 18] |
280 |
|
280 |
|
|
15,980 |
|
16,165 |
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
Current |
|
|
|
|
Short-term borrowings [note
7] |
200 |
|
200 |
|
Accounts payable and accrued
liabilities |
887 |
|
999 |
|
Provisions [note 8] |
42 |
|
101 |
|
Income taxes payable |
- |
|
57 |
|
Preferred shares [note
10] |
300 |
|
- |
|
Current portion of contract
liabilities [note 12] |
209 |
|
211 |
|
Current portion of long-term
debt [notes 9 and 17] |
1 |
|
1 |
|
Current portion of lease
liabilities [note 6] |
110 |
|
113 |
|
Current
portion of derivatives |
11 |
|
6 |
|
|
1,760 |
|
1,688 |
Long-term debt
[notes 9 and 17] |
4,549 |
|
4,547 |
Lease liabilities
[note 6] |
1,169 |
|
1,157 |
Other long-term
liabilities |
42 |
|
72 |
Provisions [note
8] |
81 |
|
80 |
Deferred
credits |
393 |
|
406 |
Contract
liabilities [note 12] |
14 |
|
14 |
Deferred income tax liabilities |
2,052 |
|
1,968 |
|
|
10,060 |
|
9,932 |
Shareholders' equity [notes 10 and 15] |
|
|
|
Common
and preferred shareholders |
5,920 |
|
6,233 |
|
|
15,980 |
|
16,165 |
|
|
|
|
|
See accompanying
notes. |
|
|
|
|
CONSOLIDATED STATEMENTS OF
INCOME(unaudited)
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2021 |
|
2020 |
|
|
2021 |
|
2020 |
|
Revenue [notes 3 and 12] |
1,375 |
|
1,312 |
|
|
4,132 |
|
4,058 |
|
Operating, general
and administrative expenses [note 13] |
(733 |
) |
(703 |
) |
|
(2,246 |
) |
(2,261 |
) |
Restructuring
costs [notes 8 and 13] |
(1 |
) |
(14 |
) |
|
(14 |
) |
(14 |
) |
Amortization: |
|
|
|
|
|
|
Deferred equipment
revenue |
3 |
|
4 |
|
|
9 |
|
13 |
|
|
Deferred equipment
costs |
(11 |
) |
(16 |
) |
|
(37 |
) |
(51 |
) |
|
Property, plant and equipment, intangibles and other |
(292 |
) |
(290 |
) |
|
(881 |
) |
(867 |
) |
Operating
income |
341 |
|
293 |
|
|
963 |
|
878 |
|
|
|
Amortization of financing costs – long-term debt |
(1 |
) |
- |
|
|
(2 |
) |
(2 |
) |
|
|
Interest expense [note 9] |
(31 |
) |
(67 |
) |
|
(164 |
) |
(206 |
) |
|
|
Other
gains (losses) [note 14] |
(21 |
) |
7 |
|
|
4 |
|
(15 |
) |
Income
before income taxes |
288 |
|
233 |
|
|
801 |
|
655 |
|
|
|
Current income tax expense
(recovery)[note 3] |
(88 |
) |
19 |
|
|
(8 |
) |
78 |
|
|
|
Deferred income tax expense |
22 |
|
30 |
|
|
75 |
|
64 |
|
Net income |
354 |
|
184 |
|
|
734 |
|
513 |
|
Net income
attributable to: |
|
|
|
|
|
Equity
shareholders |
354 |
|
184 |
|
|
734 |
|
513 |
|
|
|
|
|
|
|
|
|
Earnings
per share: [note 11] |
|
|
|
|
|
Basic |
0.71 |
|
0.35 |
|
|
1.44 |
|
0.98 |
|
Diluted |
0.70 |
|
0.35 |
|
|
1.44 |
|
0.98 |
|
|
|
|
|
|
|
|
|
See accompanying
notes. |
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME(unaudited)
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2021 |
|
2020 |
|
|
2021 |
|
2020 |
|
Net
income |
354 |
|
184 |
|
|
734 |
|
513 |
|
|
|
|
|
|
|
|
|
Other
comprehensive income [note 15] |
|
|
|
|
|
Items that
may subsequently be reclassified to income: |
|
|
|
|
|
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
(5 |
) |
(1 |
) |
|
(6 |
) |
2 |
|
|
|
Adjustment for hedged items recognized in the period |
2 |
|
1 |
|
|
3 |
|
(1 |
) |
|
|
|
(3 |
) |
- |
|
|
(3 |
) |
1 |
|
Items that
will not subsequently be reclassified to income: |
|
|
|
|
|
Remeasurements on employee benefit plans |
4 |
|
40 |
|
|
27 |
|
34 |
|
|
|
|
1 |
|
40 |
|
|
24 |
|
35 |
|
Comprehensive income |
355 |
|
224 |
|
|
758 |
|
548 |
|
Comprehensive income attributable to: |
|
|
|
|
|
|
Equity
shareholders |
355 |
|
224 |
|
|
758 |
|
548 |
|
|
|
|
|
|
|
|
|
See accompanying
notes. |
|
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY(unaudited)
Nine months ended May 31,
2021 |
|
|
|
|
|
|
|
|
Attributable to equity shareholders |
|
|
(millions of Canadian dollars) |
Sharecapital |
Contributedsurplus |
Retainedearnings |
Accumulatedothercomprehensiveloss |
Total |
Equityattributableto noncontrollinginterest |
Totalequity |
Balance as at September 1, 2020 |
4,602 |
|
27 |
|
1,703 |
|
(99 |
) |
6,233 |
|
- |
6,233 |
|
Net income |
- |
|
- |
|
734 |
|
- |
|
734 |
|
- |
734 |
|
Other
comprehensive income |
- |
|
- |
|
- |
|
24 |
|
24 |
|
- |
24 |
|
Comprehensive income |
- |
|
- |
|
734 |
|
24 |
|
758 |
|
- |
758 |
|
Dividends |
- |
|
- |
|
(451 |
) |
- |
|
(451 |
) |
- |
(451 |
) |
Shares issued under stock
option plan |
16 |
|
(1 |
) |
- |
|
- |
|
15 |
|
- |
15 |
|
Shares repurchased [note
10] |
(129 |
) |
- |
|
(207 |
) |
- |
|
(336 |
) |
- |
(336 |
) |
Preferred shares reclassified
to current liabilities [note 10] |
(293 |
) |
- |
|
(7 |
) |
- |
|
(300 |
) |
- |
(300 |
) |
Share-based compensation |
- |
|
1 |
|
- |
|
- |
|
1 |
|
- |
1 |
|
Balance as at May 31, 2021 |
4,196 |
|
27 |
|
1,772 |
|
(75 |
) |
5,920 |
|
- |
5,920 |
|
Nine months ended May 31,
2020 |
|
|
|
|
|
|
|
|
Attributable to equity shareholders |
|
|
(millions of Canadian dollars) |
Sharecapital |
Contributedsurplus |
Retainedearnings |
Accumulatedothercomprehensiveloss |
Total |
Equityattributableto noncontrollinginterest |
Totalequity |
Balance as at September 1, 2019 |
4,605 |
|
26 |
1,723 |
|
(94 |
) |
6,260 |
|
3 |
|
6,263 |
|
Net income |
- |
|
- |
513 |
|
- |
|
513 |
|
- |
|
513 |
|
Other
comprehensive income |
- |
|
- |
- |
|
35 |
|
35 |
|
- |
|
35 |
|
Comprehensive income |
- |
|
- |
513 |
|
35 |
|
548 |
|
- |
|
548 |
|
Dividends |
- |
|
- |
(426 |
) |
- |
|
(426 |
) |
- |
|
(426 |
) |
Dividend reinvestment
plan |
37 |
|
- |
(37 |
) |
- |
|
- |
|
- |
|
- |
|
Distributions declared to
non-controlling interest |
- |
|
- |
- |
|
- |
|
- |
|
(3 |
) |
(3 |
) |
Shares issued under stock
option plan |
6 |
|
- |
- |
|
- |
|
6 |
|
- |
|
6 |
|
Shares repurchased |
(49 |
) |
- |
(91 |
) |
- |
|
(140 |
) |
- |
|
(140 |
) |
Share-based compensation |
- |
|
1 |
- |
|
- |
|
1 |
|
- |
|
1 |
|
Balance
as at May 31, 2020 |
4,599 |
|
27 |
1,682 |
|
(59 |
) |
6,249 |
|
- |
|
6,249 |
|
|
|
|
|
|
|
|
|
See accompanying
notes. |
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS(unaudited)
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2021 |
|
2020 |
|
|
2021 |
|
2020 |
|
OPERATING
ACTIVITIES |
|
|
|
|
|
Funds flow from
operations [note 16] |
708 |
|
541 |
|
|
1,735 |
|
1,487 |
|
Net
change in non-cash balances |
(148 |
) |
47 |
|
|
(402 |
) |
(199 |
) |
|
560 |
|
588 |
|
|
1,333 |
|
1,288 |
|
INVESTING
ACTIVITIES |
|
|
|
|
|
Additions to property, plant
and equipment [note 3] |
(227 |
) |
(224 |
) |
|
(641 |
) |
(742 |
) |
Additions to equipment costs
(net) [note 3] |
(4 |
) |
(5 |
) |
|
(16 |
) |
(23 |
) |
Additions to other intangibles
[note 3] |
(31 |
) |
(32 |
) |
|
(107 |
) |
(96 |
) |
Net additions to investments
and other assets |
- |
|
- |
|
|
(1 |
) |
(5 |
) |
Proceeds on disposal of property, plant and equipment |
2 |
|
- |
|
|
19 |
|
1 |
|
|
(260 |
) |
(261 |
) |
|
(746 |
) |
(865 |
) |
FINANCING
ACTIVITIES |
|
|
|
|
|
Increase (decrease) in
short-term borrowings [note 7] |
- |
|
(5 |
) |
|
- |
|
210 |
|
Issuance of long-term
debt |
- |
|
500 |
|
|
- |
|
1,300 |
|
Repayment of long-term
debt |
(1 |
) |
- |
|
|
(1 |
) |
(2,068 |
) |
Debt arrangement costs |
- |
|
(4 |
) |
|
- |
|
(14 |
) |
Payment of lease liabilities
[note 6] |
(24 |
) |
(25 |
) |
|
(82 |
) |
(82 |
) |
Issue of Class B Shares [note
10] |
14 |
|
1 |
|
|
15 |
|
6 |
|
Purchase of Class B Shares
[note 10] |
(36 |
) |
(35 |
) |
|
(336 |
) |
(140 |
) |
Dividends paid on Class A
Shares and Class B Shares |
(148 |
) |
(152 |
) |
|
(449 |
) |
(421 |
) |
Dividends paid on Preferred
Shares |
(2 |
) |
(3 |
) |
|
(6 |
) |
(7 |
) |
Payment
of distributions to non-controlling interests |
- |
|
- |
|
|
- |
|
(2 |
) |
|
(197 |
) |
277 |
|
|
(859 |
) |
(1,218 |
) |
Increase (decrease) in
cash |
103 |
|
604 |
|
|
(272 |
) |
(795 |
) |
Cash,
beginning of the period |
388 |
|
47 |
|
|
763 |
|
1,446 |
|
Cash, end of the period |
491 |
|
651 |
|
|
491 |
|
651 |
|
|
|
|
|
|
|
See accompanying notes. |
|
|
|
|
|
|
|
|
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(unaudited)
May 31, 2021 and May 31, 2020 [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, NYSE - SJR, and TSXV - SJR.A).
On March 15, 2021, the Company announced that it
had entered into an arrangement agreement (the “Arrangement
Agreement”) with Rogers Communications Inc. (“Rogers”), under which
Rogers will acquire all of Shaw’s issued and outstanding Class A
Participating Shares (“Class A Shares”) and Class B Non-Voting
Participating Shares (“Class B Shares”) in a transaction valued at
approximately $26 billion, inclusive of approximately $6 billion of
Shaw debt (the “Transaction”). Holders of Shaw Class A Shares
and Class B Shares (other than the Shaw Family Living Trust, the
controlling shareholder of Shaw, and related persons (collectively
the “Shaw Family Shareholders”)) will receive $40.50 per share in
cash. The Shaw Family Shareholders will receive 60% of the
consideration for their shares in the form of Class B Non-Voting
Shares of Rogers (the “Rogers Shares”) on the basis of the
volume-weighted average trading price for the Rogers Shares for the
10 trading days ending March 12, 2021, and the balance in cash.
The Transaction is being implemented by way of a
court-approved plan of arrangement under the Business Corporations
Act (Alberta). At the special meeting of Shaw shareholders held on
May 20, 2021, the Company obtained approval of the plan of
arrangement by the holders of Shaw’s Class A Shares and Class B
Shares in the manner required by the interim order granted by the
Court of Queen’s Bench of Alberta on April 19, 2021. On May 25,
2021, the Court of Queen’s Bench of Alberta issued a final order
approving the plan of arrangement.
The Transaction remains subject to other
customary closing conditions including approvals from certain
Canadian regulators, including the Competition Bureau, Innovation,
Science and Economic Development Canada (ISED) and the Canadian
Radio-television and Telecommunications Commission (CRTC). Subject
to the receipt of all required approvals, and the satisfaction of
all closing conditions, the Transaction is expected to close in the
first half of 2022.
2. BASIS OF
PRESENTATION AND ACCOUNTING POLICIES
Statement of compliance
These condensed interim consolidated financial
statements of the Company have been prepared in accordance with
International Financial Reporting Standards (IFRS) and in
compliance with International Accounting Standard (IAS) 34 Interim
Financial Reporting as issued by the International Accounting
Standards Board (IASB).
The condensed interim consolidated financial
statements of the Company for the three and nine months ended May
31, 2021 were authorized for issue by the Board of Directors on
June 30, 2021.
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, 2020 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.
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,
2020.
The condensed interim consolidated financial
statements follow the same accounting policies and methods of
application as the most recent annual consolidated financial
statements.
3. BUSINESS
SEGMENT INFORMATION
The Company’s chief operating decision makers
are the Executive Chair & 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
adjusted earnings before interest, income taxes, depreciation and
amortization (“adjusted EBITDA”) for each segment as a key measure
in making operating decisions and assessing performance.
The Wireline segment provides Cable
telecommunications services including Video, Internet, WiFi, 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 through Freedom Mobile and in
British Columbia and Alberta through Shaw Mobile.
Both of the Company’s reportable segments are
substantially located in Canada. Information on operations by
segment is as follows:
Operating information
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
|
2021 |
|
2020 |
|
|
2021 |
|
2020 |
|
Revenue |
|
|
|
|
|
|
Wireline |
1,080 |
|
1,063 |
|
|
3,190 |
|
3,193 |
|
|
Wireless |
298 |
|
252 |
|
|
951 |
|
872 |
|
|
|
1,378 |
|
1,315 |
|
|
4,141 |
|
4,065 |
|
Intersegment eliminations |
(3 |
) |
(3 |
) |
|
(9 |
) |
(7 |
) |
|
|
1,375 |
|
1,312 |
|
|
4,132 |
|
4,058 |
|
Adjusted
EBITDA(1) |
|
|
|
|
|
|
Wireline |
527 |
|
508 |
|
|
1,599 |
|
1,544 |
|
|
Wireless |
115 |
|
101 |
|
|
287 |
|
253 |
|
|
|
642 |
|
609 |
|
|
1,886 |
|
1,797 |
|
Restructuring
costs |
(1 |
) |
(14 |
) |
|
(14 |
) |
(14 |
) |
Amortization |
(300 |
) |
(302 |
) |
|
(909 |
) |
(905 |
) |
Operating income |
341 |
|
293 |
|
|
963 |
|
878 |
|
|
|
|
|
|
|
|
Current
taxes(2) |
|
|
|
|
|
|
Operating |
39 |
|
18 |
|
|
117 |
|
72 |
|
|
Other/non-operating |
(127 |
) |
1 |
|
|
(125 |
) |
6 |
|
|
|
(88 |
) |
19 |
|
|
(8 |
) |
78 |
|
(1) Adjusted EBITDA does not have any
standardized meaning prescribed by IFRS and is therefore unlikely
to be comparable to similar measures presented by other issuers;
the Company defines adjusted EBITDA as revenues less operating,
general and administrative expenses. (2) Current taxes are lower
for the three and nine months ended May 31, 2021 due mainly to a
revision to liabilities for uncertain tax positions that became
statute barred in the period of $125.
Capital expenditures |
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Capital
expenditures accrual basis |
|
|
|
|
|
|
Wireline |
158 |
|
190 |
|
486 |
|
599 |
|
|
Wireless |
70 |
|
73 |
|
214 |
|
181 |
|
|
|
228 |
|
263 |
|
700 |
|
780 |
|
Equipment
costs (net of revenue) |
|
|
|
|
|
|
Wireline |
5 |
|
5 |
|
16 |
|
24 |
|
|
|
|
|
|
|
|
Capital
expenditures and equipment costs (net) |
|
|
|
|
|
|
Wireline |
163 |
|
195 |
|
502 |
|
623 |
|
|
Wireless |
70 |
|
73 |
|
214 |
|
181 |
|
|
|
233 |
|
268 |
|
716 |
|
804 |
|
|
|
|
|
|
|
|
Reconciliation to Consolidated Statements of Cash
Flows |
|
|
|
|
|
|
Additions to property, plant
and equipment |
227 |
|
224 |
|
641 |
|
742 |
|
|
Additions to equipment costs
(net) |
4 |
|
5 |
|
16 |
|
23 |
|
|
Additions to other intangibles |
31 |
|
32 |
|
107 |
|
96 |
|
|
Total of capital expenditures
and equipment costs (net) per Consolidated Statements of Cash
Flows |
262 |
|
261 |
|
764 |
|
861 |
|
|
Increase/(decrease) in working
capital and other liabilities related to capital expenditures |
(27 |
) |
7 |
|
(29 |
) |
(56 |
) |
|
Less:
Proceeds on disposal of property, plant and equipment |
(2 |
) |
- |
|
(19 |
) |
(1 |
) |
|
Total
capital expenditures and equipment costs (net) reported by
segments |
233 |
|
268 |
|
716 |
|
804 |
|
4. OTHER CURRENT
ASSETS
|
|
May 31, 2021 |
August 31, 2020 |
Prepaid
expenses |
98 |
89 |
Deferred
commission costs(1) |
59 |
61 |
Wireless handset receivables(2) |
156 |
127 |
|
|
313 |
277 |
(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,
2020, these amounts relate to the current portion of wireless
handset receivables.
5. INVESTMENTS AND OTHER
ASSETS
|
|
May 31, 2021 |
August 31, 2020 |
Investments in private entities |
70 |
42 |
The Company has a portfolio of investments in
various private entities. In the second quarter of fiscal 2021, the
Company recorded a net fair value adjustment of $27 relating to
these investments. This gain is included in other gains (losses) on
the Consolidated Statements of Income for the nine months ended May
31, 2021.
6. LEASE
LIABILITIES
Below is a summary of the activity related to the Company’s
lease liabilities.
|
|
August 31, 2020 |
1,270 |
|
Net additions |
91 |
|
Interest on lease
liabilities |
34 |
|
Interest payments on lease
liabilities |
(34 |
) |
Principal payments of lease
liabilities |
(82 |
) |
Other |
- |
|
Balance as at May 31, 2021 |
1,279 |
|
|
|
Current |
113 |
|
Long-term |
1,157 |
|
Balance
as at August 31, 2020 |
1,270 |
|
Current |
110 |
|
Long-term |
1,169 |
|
Balance as at May 31, 2021 |
1,279 |
|
7. SHORT-TERM
BORROWINGS
A summary of our accounts receivable
securitization program is as follows:
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
|
2021 |
2020 |
|
2021 |
2020 |
Accounts
receivable securitization program, beginning of period |
200 |
200 |
|
200 |
40 |
|
Proceeds received from
accounts receivable securitization |
- |
- |
|
- |
160 |
|
Repayment of accounts receivable securitization |
- |
- |
|
- |
- |
Accounts receivable securitization program, end of
period |
200 |
200 |
|
200 |
200 |
|
May 31, 2021 |
August 31, 2020 |
Trade accounts receivable sold to buyer as security |
432 |
|
446 |
|
Short-term borrowings from buyer |
(200 |
) |
(200 |
) |
Over-collateralization |
232 |
|
246 |
|
|
|
|
8.
PROVISIONS
|
|
Asset |
|
|
|
|
|
retirement |
Restructuring |
|
|
|
|
obligations |
(1)(2) |
Other |
Total |
|
|
$ |
$ |
$ |
$ |
Balance as at August 31, 2020 |
79 |
|
13 |
|
89 |
|
181 |
|
Additions |
- |
|
14 |
|
9 |
|
23 |
|
Accretion |
3 |
|
- |
|
- |
|
3 |
|
Reversal (3) |
- |
|
- |
|
(58 |
) |
(58 |
) |
Payments |
(1 |
) |
(25 |
) |
- |
|
(26 |
) |
Balance as at May 31, 2021 |
81 |
|
2 |
|
40 |
|
123 |
|
|
|
|
|
|
|
Current |
- |
|
13 |
|
88 |
|
101 |
|
Long-term |
79 |
|
- |
|
1 |
|
80 |
|
Balance
as at August 31, 2020 |
79 |
|
13 |
|
89 |
|
181 |
|
|
|
|
|
|
|
Current |
- |
|
2 |
|
40 |
|
42 |
|
Long-term |
81 |
|
- |
|
- |
|
81 |
|
Balance as at May 31, 2021 |
81 |
|
2 |
|
40 |
|
123 |
|
(1) During fiscal 2018 the Company offered
a voluntary departure program to a group of eligible employees as
part of a total business transformation initiative and in fiscal
2020 restructured certain operations within the Wireline segment
and announced a realignment of the senior leadership team. A total
of $12 has been paid in fiscal 2021 relating to these initiatives.
The remaining costs are expected to be paid out within the next 8
months.(2) During fiscal 2021, the Company made a number of
changes to its organizational structure in an effort to streamline
the business, consolidate certain functions, and reduce
redundancies between the Wireless and Wireline segments. In
connection with the restructuring, the Company recorded $1 in the
third quarter, $1 in the second quarter and $12 in the first
quarter primarily related to severance and employee related costs,
of which $13 has been paid as at May 31, 2021. The remaining costs
are expected to be paid within the next 8 months.(3) During
the third quarter of fiscal 2021, the Company recorded a $20
reversal following the CRTC decision on final aggregated Third
Party Internet Access rates and a $35 reduction of tax related
interest expense.
9. LONG-TERM
DEBT
|
|
|
May 31, 2021 |
|
August 31, 2020 |
|
|
|
Effectiveinterestrates |
Long-termdebt
atamortizedcost(1) |
Adjustmentfor
financecosts (1) |
Long-termdebtrepayableat
maturity |
|
Long-termdebt atamortizedcost(1) |
Adjustmentfor financecosts (1) |
Long-termdebtrepayableat maturity |
|
|
|
% |
$ |
$ |
$ |
|
$ |
$ |
$ |
Corporate |
|
|
|
|
|
|
|
|
Cdn fixed rate
senior notes- |
|
|
|
|
|
|
|
|
|
3.80% due November
2, 2023 |
3.80 |
499 |
1 |
500 |
|
498 |
2 |
500 |
|
4.35% due January
31, 2024 |
4.35 |
499 |
1 |
500 |
|
499 |
1 |
500 |
|
3.80% due March 1,
2027 |
3.84 |
299 |
1 |
300 |
|
298 |
2 |
300 |
|
4.40% due November
2, 2028 |
4.40 |
496 |
4 |
500 |
|
496 |
4 |
500 |
|
3.30% due December
10, 2029 |
3.41 |
496 |
4 |
500 |
|
495 |
5 |
500 |
|
2.90% due December
9, 2030 |
2.92 |
496 |
4 |
500 |
|
496 |
4 |
500 |
|
6.75% due November
9, 2039 |
6.89 |
1,421 |
29 |
1,450 |
|
1,421 |
29 |
1,450 |
|
4.25%
due December 9, 2049 |
4.33 |
296 |
4 |
300 |
|
296 |
4 |
300 |
|
|
|
|
4,502 |
48 |
4,550 |
|
4,499 |
51 |
4,550 |
Other |
|
|
|
|
|
|
|
|
Burrard
Landing Lot 2 HoldingsPartnership |
Various |
48 |
- |
48 |
|
49 |
- |
49 |
Total consolidated
debt |
|
4,550 |
48 |
4,598 |
|
4,548 |
51 |
4,599 |
Less
current portion(2) |
|
1 |
- |
1 |
|
1 |
- |
1 |
|
|
|
|
4,549 |
48 |
4,597 |
|
4,547 |
51 |
4,598 |
(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
the Burrard Landing loans.
Interest Expense
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
2021 |
|
2020 |
|
|
2021 |
|
2020 |
|
Interest expense – long-term
debt |
55 |
|
55 |
|
|
166 |
|
168 |
|
Amortization of senior notes
discounts |
- |
|
- |
|
|
1 |
|
1 |
|
Interest income – short-term
(net) |
(1 |
) |
(1 |
) |
|
(4 |
) |
(5 |
) |
Interest on lease liabilities
(note 6) |
12 |
|
11 |
|
|
34 |
|
33 |
|
Interest expense – other (1) |
(35 |
) |
2 |
|
|
(33 |
) |
9 |
|
|
31 |
|
67 |
|
|
164 |
|
206 |
|
(1) Interest expense - other includes a $35
million reduction of tax related interest expense resulting from a
revision of liabilities for uncertain tax provisions that became
statute barred in the period.
10. PREFERRED SHARES LIABILITY
AND SHARE CAPITAL
Changes in share capital during the nine months ended May 31,
2021 are as follows:
|
Class AShares |
|
Class BShares |
|
Series APreferred Shares |
|
Series BPreferred Shares |
|
Number |
$ |
|
Number |
$ |
|
Number |
$ |
|
Number |
$ |
August 31, 2020 |
22,372,064 |
2 |
|
490,632,833 |
|
4,307 |
|
|
10,012,393 |
|
245 |
|
|
1,987,607 |
|
48 |
|
Issued upon stock option plan
exercises |
- |
- |
|
569,217 |
|
16 |
|
|
- |
|
- |
|
|
- |
|
- |
|
Issued upon restricted share
unit exercises |
- |
- |
|
6,423 |
|
- |
|
|
- |
|
- |
|
|
- |
|
- |
|
Preferred shares reclassified
to current liabilities |
- |
- |
|
- |
|
- |
|
|
(10,012,393 |
) |
(245 |
) |
|
(1,987,607 |
) |
(48 |
) |
Shares
repurchased |
- |
- |
|
(14,783,974 |
) |
(129 |
) |
|
- |
|
- |
|
|
- |
|
- |
|
May 31, 2021 |
22,372,064 |
2 |
|
476,424,499 |
|
4,194 |
|
|
- |
|
- |
|
|
- |
|
- |
|
Series A and B Preferred Shares
On May 28, 2021, the Company announced that it
intends to redeem all of its issued and outstanding Cumulative
Redeemable Rate Reset Class 2 Preferred Shares, Series A (the
“Series A Shares”) and Cumulative Redeemable Floating Rate Class 2
Preferred Shares, Series B (the “Series B Shares”, and together
with the Series A Shares, the “Preferred Shares”) in accordance
with their terms (as set out in the Company’s articles) on June 30,
2021 (the “Redemption Date”) at a price equal to $25.00 per
Preferred Share (the “Redemption Price”), less any tax required to
be deducted or withheld.
As at May 31, 2021, there are 10,012,393 Series
A Shares and 1,987,607 Series B Shares issued and outstanding.
Accordingly, the aggregate Redemption Price payable by Shaw to
redeem the Preferred Shares will be $300 million. As notice was
provided to the holders of the Series A Shares and Series B Shares
on May 28, 2021, these amounts have been reclassified from share
capital to current liabilities as at May 31, 2021.
On April 14, 2021, the Company’s Board of
Directors declared a dividend of $0.17444 per Series A Share and
$0.12956 per Series B Share, each payable on June 30, 2021 to
holders of record on June 15, 2021. These will be the final
dividends on the Preferred Shares. Upon payment of the June 30,
2021 dividends, there will be no accrued and unpaid dividends on
the Preferred Shares as at the Redemption Date.
Subsequent to quarter-end, both the aggregate
Redemption Price of $300 and the final dividends on the Preferred
Shares were paid by Shaw on the Redemption Date.
Normal Course Issuer Bid
On November 2, 2020, the Company announced that
it had received approval from the TSX to establish a normal course
issuer bid (NCIB) program. The program commenced on November 5,
2020 and will remain in effect until November 4, 2021. As approved
by the TSX, the Company has the ability to purchase for
cancellation up to 24,532,404 Class B Shares representing
approximately 5% of all of the issued and outstanding Class B
Shares as at October 22, 2020.
During the nine months ended May 31, 2021, the
Company purchased 14,783,974 Class B Shares for cancellation for a
total cost of approximately $336 under the NCIB program. The
average book value of the shares repurchased was $8.77 per share
and was charged to share capital. The excess of the market price
over the average book value, including transaction costs, was
approximately $207 and was charged to retained earnings.
In connection with the announcement of the
Transaction on March 15, 2021 (as discussed in more detail in Note
1), the Company suspended share buybacks under its NCIB
program.
11. EARNINGS PER
SHARE
Earnings per share calculations are as follows:
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
|
2021 |
|
2020 |
|
|
2021 |
|
2020 |
|
Numerator
for basic and diluted earnings per share ($) |
|
|
|
|
|
Net income |
354 |
|
184 |
|
|
734 |
|
513 |
|
Deduct:
dividends on Preferred Shares |
(2 |
) |
(3 |
) |
|
(6 |
) |
(7 |
) |
Net
income attributable to common shareholders |
352 |
|
181 |
|
|
728 |
|
506 |
|
Denominator (millions of shares) |
|
|
|
|
|
Weighted average
number of Class A Shares and Class B Shares for basic earnings per
share |
499 |
|
513 |
|
|
505 |
|
516 |
|
Effect
of dilutive securities (1) |
2 |
|
- |
|
|
- |
|
- |
|
Weighted average number of Class A Shares and Class B Shares for
diluted earnings per share |
501 |
|
513 |
|
|
505 |
|
516 |
|
Basic
earnings per share ($) |
|
|
|
|
|
Basic |
0.71 |
|
0.35 |
|
|
1.44 |
|
0.98 |
|
Diluted |
0.70 |
|
0.35 |
|
|
1.44 |
|
0.98 |
|
(1) The earnings per share calculation does
not take into consideration the potential dilutive effect of
certain stock options since their impact is anti-dilutive.
For the three and nine months ended May 31, 2021, nil (May 31, 2020
– 7,523,834) and 4,072,443 (May 31, 2020 – 6,619,109) options were
excluded from the diluted earnings per share calculation,
respectively.
12. REVENUE
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 |
Balance as at August 31, 2020 |
172 |
|
|
225 |
|
Increase in contract assets
from revenue recognized during the year |
108 |
|
|
- |
|
Contract assets transferred to
trade receivables |
(129 |
) |
|
- |
|
Contract terminations
transferred to trade receivables |
(13 |
) |
|
- |
|
Revenue recognized included in
contract liabilities at the beginning of the year |
- |
|
|
(217 |
) |
Increase in contract liabilities during the year |
- |
|
|
215 |
|
Balance as at May 31, 2021 |
138 |
|
|
223 |
|
|
Contract |
|
Contract |
|
Assets |
|
Liabilities |
Current |
132 |
|
211 |
Long-term |
40 |
|
14 |
Balance
as at August 31, 2020 |
172 |
|
225 |
Current |
108 |
|
209 |
Long-term |
30 |
|
14 |
Balance as at May 31, 2021 |
138 |
|
223 |
Deferred commission cost
assets
The table below provides a summary of the
changes in the deferred commission cost assets recognized from the
incremental costs incurred to obtain contracts with customers
during the nine months ended May 31, 2021. 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.
August 31, 2020 |
98 |
|
Additions to deferred commission cost assets |
54 |
|
Amortization
recognized on deferred commission cost assets |
(61 |
) |
Balance as at
May 31, 2021 |
91 |
|
|
|
Current |
61 |
|
Long-term |
37 |
|
Balance as at August
31, 2020 |
98 |
|
Current |
59 |
|
Long-term |
32 |
|
Balance as at
May 31, 2021 |
91 |
|
Commission costs are amortized over a period
ranging from 24 to 36 months.
Disaggregation of revenue
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
|
2021 |
|
2020 |
|
|
2021 |
|
2020 |
|
Services |
|
|
|
|
|
|
Wireline - Consumer |
935 |
|
923 |
|
|
2,755 |
|
2,766 |
|
|
Wireline - Business |
145 |
|
140 |
|
|
435 |
|
427 |
|
|
Wireless |
225 |
|
206 |
|
|
658 |
|
604 |
|
|
|
1,305 |
|
1,269 |
|
|
3,848 |
|
3,797 |
|
Equipment
and other |
|
|
|
|
|
|
Wireless |
73 |
|
46 |
|
|
293 |
|
268 |
|
|
|
73 |
|
46 |
|
|
293 |
|
268 |
|
Intersegment eliminations |
(3 |
) |
(3 |
) |
|
(9 |
) |
(7 |
) |
Total revenue |
1,375 |
|
1,312 |
|
|
4,132 |
|
4,058 |
|
Remaining performance obligations
The following table includes revenues expected
to be recognized in the future related to performance obligations
that are unsatisfied (or partially unsatisfied) as at May 31,
2021.
|
Within |
Within |
Within |
Within |
Within |
|
|
|
1 year |
2 years |
3 years |
4 years |
5 years |
Thereafter |
Total |
Wireline |
1,644 |
716 |
136 |
71 |
22 |
2 |
2,591 |
Wireless |
373 |
114 |
- |
- |
- |
- |
487 |
Total |
2,017 |
830 |
136 |
71 |
22 |
2 |
3,078 |
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. The estimated amounts disclosed are
based upon contractual terms and maturities. Revenues recognized
based on actual minimum transaction price, and the timing thereof,
will differ from these estimates due to the frequency with which
the actual durations of contracts with customers do not match their
contractual maturities.
13. OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
AND RESTRUCTURING COSTS
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
|
2021 |
2020 |
|
2021 |
2020 |
Employee salaries
and benefits(1) |
183 |
166 |
|
490 |
483 |
Purchase of goods and services |
551 |
551 |
|
1,770 |
1,792 |
|
734 |
717 |
|
2,260 |
2,275 |
(1) For the three and nine months ended May
31, 2021, employee salaries and benefits include $1 (2020 - $14)
and $14 (2020 - $14) in restructuring costs respectively.
14. OTHER GAINS (LOSSES)
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Gain/(loss) on
disposal of fixed assets |
1 |
|
– |
|
3 |
|
(2 |
) |
Fair value
adjustment for private investments |
– |
|
– |
|
27 |
|
– |
|
Transaction costs
(1) |
(18 |
) |
– |
|
(18 |
) |
– |
|
Debt redemption
penalty |
– |
|
– |
|
– |
|
(17 |
) |
Other
(2) |
(4 |
) |
7 |
|
(8 |
) |
4 |
|
|
(21 |
) |
7 |
|
4 |
|
(15 |
) |
(1) The Company has incurred a number of
Transaction related advisory, legal, financial, and other
professional fees in connection with the proposed acquisition of
Shaw by Rogers. As these costs do not relate to ongoing operations,
they have been classified as non-operating expenses. Please refer
to Note 1 for further details on the Transaction.(2) Other
gains (losses) generally includes realized and unrealized foreign
exchange gains and losses on US dollar denominated current assets
and liabilities and the Company’s share of the operations of
Burrard Landing Lot 2 Holdings Partnership.
15. OTHER COMPREHENSIVE INCOME AND ACCUMULATED
OTHER COMPREHENSIVE LOSS
Components of other comprehensive income and the
related income tax effects for the three months ended May 31, 2021
are as follows:
|
|
|
Amount |
Income taxes |
Net |
Items that
may subsequently be reclassified to income |
|
|
|
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
(6 |
) |
1 |
|
(5 |
) |
|
|
Adjustment for hedged items recognized in the period |
2 |
|
- |
|
2 |
|
|
|
|
(4 |
) |
1 |
|
(3 |
) |
Items that
will not be subsequently reclassified to income |
|
|
|
|
Remeasurements on employee benefit plans |
5 |
|
(1 |
) |
4 |
|
|
|
|
1 |
|
- |
|
1 |
|
Components of other comprehensive income and the
related income tax effects for the nine months ended May 31, 2021
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 |
(8 |
) |
2 |
|
(6 |
) |
|
|
Adjustment for hedged items recognized in the period |
4 |
|
(1 |
) |
3 |
|
|
|
|
(4 |
) |
1 |
|
(3 |
) |
Items that
will not be subsequently reclassified to income |
|
|
|
|
Remeasurements on employee benefit plans |
36 |
|
(9 |
) |
27 |
|
|
|
|
32 |
|
(8 |
) |
24 |
|
Components of other comprehensive income and the
related income tax effects for the three months ended May 31, 2020
are as follows:
|
|
|
Amount |
Income taxes |
Net |
Items that
may subsequently be reclassified to income |
|
|
|
|
Change in
unrealized fair value of derivatives designated as cash flow
hedges |
2 |
|
(1 |
) |
1 |
|
|
Adjustment for hedged items recognized in the period |
(2 |
) |
1 |
|
(1 |
) |
|
|
|
- |
|
- |
|
- |
|
Items that
will not be subsequently reclassified to income |
|
|
|
|
Remeasurements on employee benefit plans |
54 |
|
(14 |
) |
40 |
|
|
|
|
54 |
|
(14 |
) |
40 |
|
Components of other comprehensive income and the
related income tax effects for the nine months ended May 31, 2020
are as follows:
|
|
|
Amount |
Income taxes |
Net |
Items that
may subsequently be reclassified to income |
|
|
|
|
Change in
unrealized fair value of derivatives designated as cash flow
hedges |
2 |
|
- |
|
2 |
|
|
Adjustment for hedged items recognized in the period |
(2 |
) |
1 |
|
(1 |
) |
|
|
|
- |
|
1 |
|
1 |
|
Items that
will not be subsequently reclassified to income |
|
|
|
|
Remeasurements on employee benefit plans |
47 |
|
(13 |
) |
34 |
|
|
|
|
47 |
|
(12 |
) |
35 |
|
Accumulated other comprehensive loss is
comprised of the following:
|
|
|
May 31, 2021 |
|
August 31, 2020 |
Items that
may subsequently be reclassified to income |
|
|
|
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
(8 |
) |
|
(5 |
) |
|
|
|
|
|
|
Items that
will not be subsequently reclassified to income |
|
|
|
|
Remeasurements on employee benefit plans |
(67 |
) |
|
(94 |
) |
|
|
|
(75 |
) |
|
(99 |
) |
16. CONSOLIDATED STATEMENTS OF CASH
FLOWS
(i) Funds flow from operations
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
|
2021 |
2020 |
|
2021 |
|
2020 |
|
Net income from
continuing operations |
354 |
184 |
|
734 |
|
513 |
|
Adjustments to
reconcile net income to funds flow from operations: |
|
|
|
|
|
|
Amortization |
301 |
302 |
|
911 |
|
907 |
|
|
Deferred income tax
expense |
22 |
30 |
|
75 |
|
64 |
|
|
Share-based compensation |
- |
- |
|
1 |
|
1 |
|
|
Defined benefit pension
plans |
3 |
3 |
|
6 |
|
4 |
|
|
Net change in contract asset
balances |
26 |
20 |
|
34 |
|
(25 |
) |
|
Fair value adjustments for
private investments |
- |
- |
|
(27 |
) |
- |
|
|
Other |
2 |
2 |
|
1 |
|
23 |
|
Funds flow from operations |
708 |
541 |
|
1,735 |
|
1,487 |
|
(ii) Interest and income taxes paid and interest
received and classified as operating activities are as follows:
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
2021 |
2020 |
|
2021 |
2020 |
Interest paid |
76 |
77 |
|
186 |
217 |
Income taxes paid (net of
refunds) |
17 |
13 |
|
175 |
115 |
Interest received |
1 |
1 |
|
4 |
6 |
(iii) Non-cash transactions:
The Consolidated Statements of Cash Flows
exclude the following non-cash transactions:
|
|
Nine months ended May 31, |
|
|
2021 |
2020 |
Issuance of Class
B Non-Voting Shares: |
|
|
|
Dividend reinvestment plan |
- |
37 |
17. 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.
The carrying value and estimated fair value of
long-term debt are as follows:
|
|
May 31, 2021 |
|
August 31, 2020 |
|
|
Carryingvalue |
Estimatedfair value |
|
Carryingvalue |
Estimatedfair value |
Liabilities |
|
|
|
|
|
Long-term debt (including current portion)(1) |
4,550 |
5,215 |
|
4,548 |
5,613 |
(1) Level 2 fair value – determined by
valuation techniques using inputs based on observable market data,
either directly or indirectly, other than quoted prices.
(iv) 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.
18.
INTANGIBLES AND GOODWILL
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, 2021
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, 2021 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, 2021 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, 2021 would
not result in any impairment loss.
Any changes in economic conditions since the
impairment testing conducted as at February 1, 2021 do not
represent events or changes in circumstance that would be
indicative of impairment at May 31, 2021.
Significant estimates inherent to this analysis
include discount rates and the terminal value. At February 1, 2021,
the estimates that have been utilized in the impairment tests
reflect any changes in market conditions and are as follows:
|
|
Terminal value |
|
Post-taxdiscount rate |
Terminalgrowth rate |
Terminal adjusted EBITDA
multiple |
Cable |
5.0% |
0.0% |
9.7x |
Satellite |
6.0% |
-8.0% |
6.5x |
Wireless |
6.0% |
1.0% |
6.1x |
A sensitivity analysis of significant estimates
is conducted as part of every impairment test. With respect to the
impairment tests performed in the second quarter, the estimated
decline in recoverable amount for the sensitivity of significant
estimates is as follows:
|
Estimated decline in recoverable amount |
|
|
Terminal value |
|
1% increase indiscount rate |
1% decrease interminal growth rate |
0.5 times decrease interminal adjusted
EBITDA multiple |
Cable |
16.4% |
13.8% |
1.9% |
Satellite |
6.5% |
4.2% |
3.6% |
Wireless |
21.9% |
13.5% |
2.1% |
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