Shaw Communications Inc. (“Shaw” or the “Company”) announces
consolidated financial and operating results for the quarter ended
May 31, 2022. On a year-over-year basis, consolidated revenue
decreased by 2.1% to $1.35 billion, adjusted EBITDA increased 0.3%
to $644 million and net income decreased 42.7% to $203 million. The
prior year period included incremental Wireline Consumer revenue of
approximately $20 million related to the release of a provision
following the Canadian Radiotelevision and Telecommunications
Commission (CRTC) decision on final aggregated Third Party Internet
Access (TPIA) rates. On a year-over-year basis, this revenue impact
is effectively offset by equity-based compensation adjustments
driven by significant fluctuations in Shaw’s share price and
adjustments to employee benefits provisions, resulting in no
significant impact on EBITDA variances.
In the third quarter, the Company continued to
compete for subscribers while balancing profitability and investing
in its networks to ensure the customer experience continues to
improve. This focus resulted in the continued positive trend in
Consumer Internet net additions as well as stronger Wireless
additions compared to the second quarter of fiscal 2022. The
impacts from COVID-19 continue to subside and customer activity in
both Wireline and Wireless is increasing, although have not yet
reached pre-pandemic levels.
“Shaw remains deeply committed to the
combination with Rogers and our announced agreement for the sale of
Freedom Mobile to Quebecor marks a critical point in our bold and
transformative journey to join together with Rogers. We feel
strongly that the sale of Freedom to Quebecor will be seen as a
positive outcome by the regulators as Quebecor expands their
successful wireless operations through this acquisition. We
continue to support the ongoing process and remain optimistic that
there is a clear path to obtaining the remaining regulatory
approvals in an expeditious manner. The joining together of Rogers
and Shaw remains a transformational transaction that will deliver
significant benefits to many stakeholders, most importantly,
Canadian consumers and businesses, through a strong national
network with new and better technologies. I want to acknowledge and
thank all the Shaw employees who have not only successfully managed
through over two years of COVID-19 disruptions but have also
continued to deliver solid results while working diligently in
support of the Rogers-Shaw Transaction,” said Brad Shaw, Executive
Chair & Chief Executive Officer.
___________________________________
1 Adjusted EBITDA and free cash flow are
non-GAAP financial measures 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. Additional information about these measures, including
quantitative reconciliations to the most directly comparable
financial measures in the Company’s Consolidated Financial
Statements, is included in “Non-GAAP and additional financial
measures” in the management’s discussion and analysis (MD&A)
dated June 30, 2022 for the three and nine month periods ending May
31, 2022, which section is incorporated by reference herein and is
available on SEDAR at www.sedar.com.
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 “Rogers-Shaw 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.
The Rogers-Shaw 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.
Regulatory Approval Status
On March 24, 2022, the Canadian Radiotelevision
and Telecommunications Commission (“CRTC”) completed its
comprehensive review and approved the transfer of Shaw’s licenced
broadcasting undertakings to Rogers, marking an important milestone
towards closing of the Rogers-Shaw Transaction. On April 27, 2022,
the National Pensioners Federation and Public Interest Advocacy
Centre (NPF-PIAC) filed a Petition to the federal Cabinet
requesting that the CRTC decision approving the change of ownership
and effective control of Shaw’s licensed broadcasting assets be set
aside or referred back to the CRTC for reconsideration and hearing.
On June 22, 2022, Cabinet declined to consider the NPF-PIAC
Petition.
The Rogers-Shaw Transaction remains under review
by Innovation, Science and Economic Development Canada (“ISED”), as
the Minister of Innovation, Science and Industry must approve any
direct or indirect transfer of Shaw’s spectrum licences. In a
public statement on March 3, 2022, the Minister of Innovation,
Science and Industry (the “Minister”), Francois-Philippe Champagne,
acknowledged the ongoing regulatory reviews of the Rogers-Shaw
Transaction and that decisions are expected in due course. He also
noted that he will not permit “the wholesale transfer of Shaw’s
wireless licences to Rogers.”
In accordance with the terms of the Arrangement
Agreement, Rogers and Shaw filed pre-merger notifications pursuant
to Part IX of the Competition Act (Canada) in April 2021 to trigger
the Competition Bureau’s review of the Rogers-Shaw Transaction. On
May 9, 2022, the Commissioner of Competition (the “Commissioner”)
filed applications to the Competition Tribunal (the “Tribunal”)
seeking an order to prevent the Rogers-Shaw Transaction from
proceeding and an interim injunction to prevent closing until the
Competition Bureau’s case can be heard by the Tribunal. The
Commissioner must ultimately prove his case before the Tribunal in
a hearing in order to prevent the Rogers-Shaw Transaction from
being completed.
On May 30, 2022, the Commissioner’s interim
injunction application was resolved on the basis that Rogers and
Shaw agreed to not proceed with closing the Rogers-Shaw Transaction
until either a negotiated settlement is agreed with the
Commissioner or the Tribunal has ruled on the matter. As a result,
there is no need for the Tribunal to hear the Commissioner’s
application for an interim injunction. Resolving the interim
injunction application allows the parties to focus on addressing
the Commissioner’s concerns with the Rogers-Shaw Transaction in an
effort to reach a settlement to the litigation.
Agreement to Sell Freedom Mobile to Quebecor
On June 17, 2022, Rogers, Shaw and Quebecor Inc.
(“Quebecor”) announced a divestiture agreement for the sale of
Freedom Mobile to Quebecor for a purchase price of $2.85 billion
(the “Freedom Transaction”), which is subject to regulatory
approvals from the Commissioner and ISED, and conditional on: (i)
the completion of the Rogers-Shaw Transaction; and (ii) entering
into definitive documentation on or before July 15, 2022, or such
later date Rogers and Quebecor reasonably agree to in writing.
Rogers, Shaw and Quebecor strongly believe the divestiture
agreement effectively addresses the concerns raised by the
Commissioner and the Minister regarding viable and sustainable
wireless competition in Canada.
Under the terms of the divestiture agreement,
Quebecor will acquire all Freedom-branded wireless and Internet
customers, as well as all of Freedom’s infrastructure, spectrum and
retail locations. The agreement does not contemplate divestiture of
Shaw Mobile-branded wireless subscribers. The Freedom Transaction
also includes long-term agreements by Shaw and Rogers to provide
Quebecor transport services (including backhaul and backbone),
roaming services and other services for the provision of Freedom’s
mobile wireless network. Rogers and Quebecor will provide each
other with customary transition services as are necessary to
operate Freedom’s business for a reasonable period of time
post-closing and to facilitate the separation of Freedom’s business
from the other businesses and operations of Shaw and its
affiliates. The parties are working expeditiously and in good faith
to finalize definitive documentation on or before July 15, 2022, or
such later date as Rogers and Quebecor reasonably agree to in
writing. Closing of the Freedom Transaction will occur
substantially concurrently with closing of the Rogers-Shaw
Transaction.
Rogers and Shaw Continue to Work with Regulatory
Authorities to Secure the Requisite Regulatory Approvals
Rogers and Shaw continue to engage
constructively with the Competition Bureau in an effort to reach a
negotiated settlement, which offers the most expeditious path
forward to closing the Rogers-Shaw Transaction and delivering its
benefits to Canadians.
While the divestiture agreement with Quebecor
provides a basis for advancing settlement negotiations with the
Commissioner, Rogers and Shaw are also taking the necessary steps
to oppose the Commissioner’s application to prevent the Rogers-Shaw
Transaction. On June 3, 2022, each of Rogers and Shaw filed a
written response disputing the basis for the Commissioner’s
application, and on June 16, 2022, the Commissioner filed his
written reply to these responses. On June 17, 2022, the Tribunal
issued an order setting the timeframe for its consideration of the
Commissioner’s application. The Tribunal’s scheduling order
includes a voluntary mediation process, currently scheduled for
July, in which the parties have agreed to participate. Should it be
required, the Tribunal hearing of the Commissioner’s application is
expected to occur in November and December of this calendar
year.
Rogers and Shaw strongly believe the Rogers-Shaw
Transaction is in the best interests of Canadian consumers,
businesses and the Canadian economy, resulting in a combined entity
with the capabilities necessary to invest in digital
infrastructure, create jobs, drive innovation, increase choice, and
bridge the digital divide. In addition, the Rogers-Shaw Transaction
will foster greater competition by creating Canada’s most robust
wholly-owned national network, and generating more choice for
businesses and consumers so they may realize the full economic and
social benefits of next generation networks.
As previously disclosed, in order to permit
continued engagement with the pending regulatory approval
processes, Rogers, Shaw and the Shaw Family Living Trust agreed to
extend the Outside Date for closing the Rogers-Shaw Transaction
from June 13, 2022 to July 31, 2022 in accordance with the terms of
the Arrangement Agreement. Subject to receipt of all required
approvals and satisfaction of all closing conditions, the parties
are working towards closing the Rogers-Shaw Transaction on or
before July 31, 2022. Nonetheless, the time required for Rogers and
Shaw to address the Commissioner’s concerns and agree on the terms
of a negotiated settlement with the Commissioner (or any associated
litigation, including the Tribunal hearing), as well as ISED
approval, and any appeals of the outcomes of these processes, is
uncertain and could result in further delays in or prevent the
closing of the Rogers-Shaw Transaction.
Further information regarding the Rogers-Shaw
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.
Third Quarter Fiscal 2022
In the third quarter, the Company added
approximately 35,000 Wireless customers. Postpaid net additions of
approximately 19,400 in the quarter were down compared to the prior
year due to wireless competition, a limited supply of key devices,
bundle adjustments effective in late 2021 for Shaw Mobile and
moderating demand for Shaw Mobile plans. Third quarter Wireless
revenue increased 4.4% to $311 million and adjusted EBITDA
increased 12.2% to $129 million compared to the third quarter of
fiscal 2021. Wireless service revenue grew 8.9% due to continued
subscriber growth in both the Freedom and Shaw Mobile brands. Third
quarter Wireless ARPU2 decreased a modest 0.2% from the prior year
period to $36.86. Wireless postpaid churn3 of 1.10% compared to
1.07% from the third quarter of fiscal 2021.
Consumer Wireline RGU4 losses of approximately
19,900 improved over the prior year period, including positive
Internet additions of approximately 6,200 primarily due to improved
retention tactics and continued investments. Third quarter Wireline
revenue and adjusted EBITDA decreased 3.9% and 2.3% to $1.04
billion and $515 million, respectively, compared to the third
quarter of fiscal 2021. The prior year period included incremental
Wireline Consumer revenue of approximately $20 million related to
the release of a provision following the CRTC decision on final
aggregated TPIA rates, which was effectively offset by equity-based
compensation adjustments due to the significant increase in Shaw’s
share price and adjustments to employee benefit provisions both
also recorded in the prior year.
___________________________________
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 included in “Key Performance Drivers” in the MD&A
dated June 30, 2022 for the three and nine month periods ending May
31, 2022, which section is incorporated by reference herein and is
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 included
in “Key Performance Drivers” in the MD&A dated June 30, 2022
for the three and nine month periods ending May 31, 2022, which
section is incorporated by reference herein and is 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 included in “Key
Performance Drivers” in the MD&A dated June 30, 2022 for the
three and nine month periods ending May 31, 2022, which section is
incorporated by reference herein and is available on SEDAR at
www.sedar.com.
Selected Financial Highlights
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars except for percentages and per share
amounts) |
2022 |
2021 |
Change % |
|
2022 |
2021 |
Change % |
Revenue |
1,346 |
|
1,375 |
|
(2.1 |
) |
|
4,091 |
|
4,132 |
|
(1.0 |
) |
Adjusted EBITDA(1) |
644 |
|
642 |
|
0.3 |
|
|
1,910 |
|
1,886 |
|
1.3 |
|
Adjusted EBITDA Margin(2) |
47.8 |
% |
46.7 |
% |
2.4 |
|
|
46.7 |
% |
45.6 |
% |
2.4 |
|
Free Cash Flow(1) |
217 |
|
307 |
|
(29.3 |
) |
|
670 |
|
781 |
|
(14.2 |
) |
Net income |
203 |
|
354 |
|
(42.7 |
) |
|
595 |
|
734 |
|
(18.9 |
) |
Earnings per share |
|
|
|
|
|
|
|
Basic |
0.41 |
|
0.71 |
|
|
|
1.19 |
|
1.44 |
|
|
Diluted |
0.41 |
|
0.70 |
|
|
|
1.19 |
|
1.44 |
|
|
(1) |
See “Non-GAAP and additional financial measures” in the
accompanying MD&A. |
(2) |
Adjusted EBITDA margin is a non-GAAP ratio and should not be
considered a substitute or alternative for GAAP measures. Adjusted
EBITDA margin 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
ratio is included in “Non-GAAP and additional financial measures”
in the MD&A dated June 30, 2022 for the three and nine month
periods ending May 31, 2022, which section is incorporated by
reference herein and is available on SEDAR at www.sedar.com. |
Third quarter Wireless revenue increased 4.4% to
$311 million and adjusted EBITDA of $129 million increased 12.2%
year-over-year. Wireless service revenue increased 8.9% to $245
million due to an increased subscriber base, while Wireless
equipment revenue decreased 9.6% to $66 million as the number of
devices sold in the quarter decreased compared to the prior year.
The increase in adjusted EBITDA is mainly due to continued service
revenue growth as well as the favorable margin impact from lower
equipment sales relative to total wireless revenues in the current
quarter.
Wireline RGUs declined by approximately 24,300
in the quarter compared to a loss of approximately 36,500 in the
third quarter of fiscal 2021. The current quarter included a gain
of approximately 6,200 Consumer Internet additions, offset with
declines in Video, Satellite and Phone resulting in Consumer RGUs
declining by 19,900 in the aggregate. In Business, positive
Internet RGUs were offset by declines in Video and Phone resulting
in Business RGUs declining by approximately 4,300.
Third quarter Wireline revenue and adjusted
EBITDA of $1.04 billion and $515 million, respectively, decreased
3.9% and 2.3%, respectively, when compared with the prior year.
Consumer revenue of $885 million decreased 5.3% compared to the
prior year primarily due to the incremental Wireline Consumer
revenue of approximately $20 million related to the release of a
provision following the CRTC decision on final aggregated TPIA
rates as well as growth in Internet revenue offset by declines in
Video, Satellite and Phone subscribers and revenue. Business
revenue of $153 million increased 5.5% year-over-year with Internet
revenue growth and continued demand for the Smart suite of
products.
Free cash flow for the quarter of $217 million
decreased 29.3% compared to the prior year. The decrease was mainly
due to higher capital expenditures, increased cash taxes and the
impact of a $35 million reduction of tax related interest expense
recorded in the prior year. Capital expenditures in the third
quarter of $266 million compared to $233 million in the prior
year.
Net income for the third quarter of fiscal 2022
of $203 million decreased $151 million compared to $354 million in
the third quarter of fiscal 2021 primarily due to a revision to
liabilities for uncertain tax positions that became statute barred
in the prior year, which reduced income tax expense by $125 million
and interest expense by $35 million. These decreases in net income
were offset by higher adjusted EBITDA compared to a year ago and an
$11 million decrease in non-operating costs related to the
Rogers-Shaw Transaction.
As at the end of May 31, 2022, the Company’s net
debt leverage ratio was 2.2x5.
___________________________________
5 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. For more information about
this measure and ratio see “Non-GAAP and additional financial
measures” in the MD&A dated June 30, 2022 for the three and
nine month periods ending May 31, 2022, which section is
incorporated by reference herein and is available on SEDAR at
www.sedar.com.
About Shaw
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.caMANAGEMENT’S
DISCUSSION AND ANALYSISFor the three and nine
months ended May 31, 2022
June 30, 2022
Contents
|
|
Introduction |
13 |
Selected financial and
operational highlights |
17 |
Overview |
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 |
34 |
Related party
transactions |
34 |
Financial instruments |
34 |
Internal controls and
procedures |
35 |
Risks and uncertainties |
35 |
Government regulations and
regulatory developments |
36 |
|
|
Advisories
The following Management’s Discussion and
Analysis (MD&A) of Shaw Communications Inc. is dated June 30,
2022 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, 2022 and the 2021 Annual
Consolidated Financial Statements, the Notes thereto and related
MD&A included in the Company’s 2021 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).
All of the forward-looking statements made in this report are
qualified by these cautionary statements. Forward looking
statements in this MD&A include, but are not limited to,
statements relating to:
- future capital expenditures;
- proposed asset acquisitions and
dispositions;
- anticipated benefits of the
Rogers-Shaw Transaction (as defined below) to Shaw and its
securityholders, including corporate, operational, scale and other
synergies and the timing thereof;
- anticipated benefits of the
Rogers-Shaw Transaction and the Freedom Transaction (as defined
below) for Canadian consumers, businesses and the Canadian
economy;
- engagement or negotiations with the
Commissioner (as defined below) to address the Commissioner’s
concerns with the Rogers-Shaw Transaction and the impact such
engagement or negotiations, including the Freedom Transaction, may
have on the likelihood of a Tribunal hearing to consider the
Commissioner’s application;
- timing or status of the Tribunal
process to consider the Commissioner’s application, including any
hearing if required;
- the potential timing, anticipated
receipt and conditions of required regulatory, competition or other
third-party approvals, including but not limited to the receipt of
applicable approvals under the Competition Act (Canada) and the
Radiocommunication Act (Canada) (collectively, the “Key Regulatory
Approvals”) related to the Rogers-Shaw Transaction, the Freedom
Transaction or any other related divestitures, and any judicial or
other appeals of any judicial, regulatory or government decision in
connection with the regulatory approval processes for the
Rogers-Shaw Transaction, the Freedom Transaction or any other
related divestitures;
- the ability of the Company and
Rogers (as defined below) to satisfy the other conditions to the
closing of the Rogers-Shaw Transaction (including the Freedom
Transaction and any other related divestitures) and the anticipated
timing for closing of the Rogers-Shaw Transaction, the Freedom
Transaction and any other related divestitures;
- the terms and conditions of the
Freedom Transaction;
- the proposed divestiture of Freedom
Mobile and the anticipated benefits and effects of the Rogers-Shaw
Transaction and the Freedom Transaction, including the timing
thereof;
- expected cost efficiencies;
- expectations for future
performance;
- business and technology strategies
and measures to implement strategies;
- expected growth in subscribers and
the products/services to which they subscribe;
- competitive strengths and
pressures;
- expected project schedules,
regulatory timelines, and completion/in-service dates for the
Company’s capital and other projects;
- 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;
- 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 next generation wireless technologies such
as 5G;
- 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.
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 at the
current date. The Company’s management believes that its
assumptions and analysis in this MD&A are reasonable and that
the expectations reflected in the forward-looking statements
contained herein are also reasonable based on the information
available on the date such statements are made and the process used
to prepare the information.
These assumptions, many of which are
confidential, include but are not limited to management
expectations with respect to:
- general economic conditions,
including the impact on the economy, financial markets, and sources
of supply, resulting from 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
Rogers-Shaw Transaction to the Company and its security holders,
Canadian consumers, businesses and the Canadian economy;
- the anticipated benefits and
effects of the Freedom Transaction and the Rogers-Shaw Transaction
and the timing thereof;
- Rogers’ and Shaw’s ability to
address the Commissioner’s concerns and agree on the terms of a
negotiated settlement with the Commissioner;
- the impact any pending or potential
litigation associated with the Rogers-Shaw Transaction, including
any hearing or proceeding by or involving competition, government
or regulatory authorities (e.g. the application by the
Commissioner), and any associated appeals, could have on closing or
the timing of closing of the Rogers-Shaw Transaction;
- the potential timing, anticipated
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 Rogers-Shaw Transaction, the
Freedom Transaction or any other related divestitures;
- the ability of the Company and
Rogers to satisfy the other conditions to closing of the
Rogers-Shaw Transaction (including the Freedom Transaction any
other related divestitures) in a timely manner and the completion
of the Rogers-Shaw Transaction, the Freedom Transaction and any
other related divestitures on expected terms;
- Rogers’ and Shaw’s ability to enter
into a definitive agreement with Quebecor (as defined below) on or
before July 15, 2022 or such later date as Rogers and Quebecor
reasonably agree to in writing, and to close the transactions
contemplated by such definitive agreement;
- the ability to successfully
integrate the Company with Rogers in a timely manner;
- the impact of the announcement of
the Rogers-Shaw Transaction and the Freedom Transaction, and the
dedication of substantial Company resources to pursuing the
Rogers-Shaw Transaction and the Freedom 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 Rogers-Shaw Transaction
and the Freedom Transaction and the operations and capital
expenditure plans for the Company following completion of the
Rogers-Shaw Transaction and the Freedom 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 next generation wireless technologies such as 5G;
- the Company’s operations not being
subject to material disruptions in service or material failures in
its networks, systems or equipment;
- 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 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,
political, 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;
- impacts on the availability of
components and electronics due to global silicon (microprocessor)
supply shortages and logistical/transport issues;
- the possibility that the
Rogers-Shaw Transaction, the Freedom Transaction or any other
related divestitures made in connection therewith, will not be
completed in the expected timeframe or at all;
- the possibility that the
Rogers-Shaw Transaction will not be completed in order to permit
the Freedom Transaction to be consummated, or vice versa;
- 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 Rogers-Shaw Transaction and, in the case of the Freedom
Transaction, agreement by the parties of the terms of a definitive
agreement on or before July 15, 2022 or such later date as Rogers
and Quebecor reasonably agree to in writing;
- the possibility that the parties
will not be able to agree on the terms of a negotiated settlement
with the Commissioner;
- pending or potential litigation
associated with the Rogers-Shaw Transaction, including any hearing
or proceeding by or involving regulatory authorities (e.g. the
below-noted application by the Commissioner) may delay or prevent
the closing of the Rogers-Shaw Transaction;
- the ability to satisfy, in a timely
manner, the other conditions to the closing of the Rogers-Shaw
Transaction (including the Freedom Transaction and any other
related divestitures);
- the ability to complete the
Rogers-Shaw Transaction on the terms contemplated by the
Arrangement Agreement (as defined below) between the Company and
Rogers;
- the failure to realize the
anticipated benefits of the Rogers-Shaw Transaction and the Freedom
Transaction in the expected timeframe or at all;
- the ability to successfully
integrate the Company with Rogers in a timely manner;
- the Company’s failure to complete
the Rogers-Shaw Transaction or the Freedom Transaction for any
reason could materially negatively impact the trading price of the
Company’s securities;
- the announcement of the Rogers-Shaw
Transaction and the Freedom Transaction and the dedication of
substantial Company resources to pursuing the Rogers-Shaw
Transaction and the Freedom 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, system, or equipment failure or disputes with key
suppliers;
- the Company’s ability to execute
its strategic plans and complete its capital and other projects on
a timely basis;
- 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 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 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 2021 annual MD&A under the heading “Known
Events, Trends, Risks and Uncertainties” and in this third quarter
fiscal 2022 MD&A under the heading “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 2021 Annual MD&A and this
third quarter fiscal 2022 MD&A.
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
seamless connectivity experience. In the third quarter, the Company
continued to compete for subscriber growth while balancing
profitability and investing in its networks to ensure the customer
experience continues to improve.
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 “Rogers-Shaw 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.
The Rogers-Shaw 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.
Regulatory Approval Status
On March 24, 2022, the Canadian Radiotelevision
and Telecommunications Commission (“CRTC”) completed its
comprehensive review and approved the transfer of Shaw’s licenced
broadcasting undertakings to Rogers, marking an important milestone
towards closing of the Rogers-Shaw Transaction. On April 27, 2022,
the National Pensioners Federation and Public Interest Advocacy
Centre (NPF-PIAC) filed a Petition to the federal Cabinet
requesting that the CRTC decision approving the change of ownership
and effective control of Shaw’s licensed broadcasting assets be set
aside or referred back to the CRTC for reconsideration and hearing.
On June 22, 2022, Cabinet declined to consider the NPF-PIAC
Petition.
The Rogers-Shaw Transaction remains under review
by Innovation, Science and Economic Development Canada (“ISED”), as
the Minister of Innovation, Science and Industry must approve any
direct or indirect transfer of Shaw’s spectrum licences. In a
public statement on March 3, 2022, the Minister of Innovation,
Science and Industry (the “Minister”), Francois-Philippe Champagne,
acknowledged the ongoing regulatory reviews of the Rogers-Shaw
Transaction and that decisions are expected in due course. He also
noted that he will not permit “the wholesale transfer of Shaw’s
wireless licences to Rogers.”
In accordance with the terms of the Arrangement
Agreement, Rogers and Shaw filed pre-merger notifications pursuant
to Part IX of the Competition Act (Canada) in April 2021 to trigger
the Competition Bureau’s review of the Rogers-Shaw Transaction. On
May 9, 2022, the Commissioner of Competition (the “Commissioner”)
filed applications to the Competition Tribunal (the “Tribunal”)
seeking an order to prevent the Rogers-Shaw Transaction from
proceeding and an interim injunction to prevent closing until the
Competition Bureau’s case can be heard by the Tribunal. The
Commissioner must ultimately prove his case before the Tribunal in
a hearing in order to prevent the Rogers-Shaw Transaction from
being completed.
On May 30, 2022, the Commissioner’s interim
injunction application was resolved on the basis that Rogers and
Shaw agreed to not proceed with closing the Rogers-Shaw Transaction
until either a negotiated settlement is agreed with the
Commissioner or the Tribunal has ruled on the matter. As a result,
there is no need for the Tribunal to hear the Commissioner’s
application for an interim injunction. Resolving the interim
injunction application allows the parties to focus on addressing
the Commissioner’s concerns with the Rogers-Shaw Transaction in an
effort to reach a settlement to the litigation.
Agreement to Sell Freedom Mobile to Quebecor
On June 17, 2022, Rogers, Shaw and Quebecor Inc.
(“Quebecor”) announced a divestiture agreement for the sale of
Freedom Mobile to Quebecor for a purchase price of $2.85 billion
(the “Freedom Transaction”), which is subject to regulatory
approvals from the Commissioner and ISED, and conditional on: (i)
the completion of the Rogers-Shaw Transaction; and (ii) entering
into definitive documentation on or before July 15, 2022, or such
later date Rogers and Quebecor reasonably agree to in writing.
Rogers, Shaw and Quebecor strongly believe the divestiture
agreement effectively addresses the concerns raised by the
Commissioner and the Minister regarding viable and sustainable
wireless competition in Canada.
Under the terms of the divestiture agreement,
Quebecor will acquire all Freedom-branded wireless and Internet
customers, as well as all of Freedom’s infrastructure, spectrum and
retail locations. The agreement does not contemplate divestiture of
Shaw Mobile-branded wireless subscribers. The Freedom Transaction
also includes long-term agreements by Shaw and Rogers to provide
Quebecor transport services (including backhaul and backbone),
roaming services and other services for the provision of Freedom’s
mobile wireless network. Rogers and Quebecor will provide each
other with customary transition services as are necessary to
operate Freedom’s business for a reasonable period of time
post-closing and to facilitate the separation of Freedom’s business
from the other businesses and operations of Shaw and its
affiliates. The parties are working expeditiously and in good faith
to finalize definitive documentation on or before July 15, 2022, or
such later date as Rogers and Quebecor reasonably agree to in
writing. Closing of the Freedom Transaction will occur
substantially concurrently with closing of the Rogers-Shaw
Transaction.
Rogers and Shaw Continue to Work with Regulatory
Authorities to Secure the Requisite Regulatory Approvals
Rogers and Shaw continue to engage
constructively with the Competition Bureau in an effort to reach a
negotiated settlement, which offers the most expeditious path
forward to closing the Rogers-Shaw Transaction and delivering its
benefits to Canadians.
While the divestiture agreement with Quebecor
provides a basis for advancing settlement negotiations with the
Commissioner, Rogers and Shaw are also taking the necessary steps
to oppose the Commissioner’s application to prevent the Rogers-Shaw
Transaction. On June 3, 2022, each of Rogers and Shaw filed a
written response disputing the basis for the Commissioner’s
application, and on June 16, 2022, the Commissioner filed his
written reply to these responses. On June 17, 2022, the Tribunal
issued an order setting the timeframe for its consideration of the
Commissioner’s application. The Tribunal’s scheduling order
includes a voluntary mediation process, currently scheduled for
July, in which the parties have agreed to participate. Should it be
required, the Tribunal hearing of the Commissioner’s application is
expected to occur in November and December of this calendar
year.
Rogers and Shaw strongly believe the Rogers-Shaw
Transaction is in the best interests of Canadian consumers,
businesses and the Canadian economy, resulting in a combined entity
with the capabilities necessary to invest in digital
infrastructure, create jobs, drive innovation, increase choice, and
bridge the digital divide. In addition, the Rogers-Shaw Transaction
will foster greater competition by creating Canada’s most robust
wholly-owned national network, and generating more choice for
businesses and consumers so they may realize the full economic and
social benefits of next generation networks.
As previously disclosed, in order to permit
continued engagement with the pending regulatory approval
processes, Rogers, Shaw and the Shaw Family Living Trust agreed to
extend the Outside Date for closing the Rogers-Shaw Transaction
from June 13, 2022 to July 31, 2022 in accordance with the terms of
the Arrangement Agreement. Subject to receipt of all required
approvals and satisfaction of all closing conditions, the parties
are working towards closing the Rogers-Shaw Transaction on or
before July 31, 2022. Nonetheless, the time required for Rogers and
Shaw to address the Commissioner’s concerns and agree on the terms
of a negotiated settlement with the Commissioner (or any associated
litigation, including the Tribunal hearing), as well as ISED
approval, and any appeals of the outcomes of these processes, is
uncertain and could result in further delays in or prevent the
closing of the Rogers-Shaw Transaction.
Further information regarding the Rogers-Shaw
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.
Third quarter Wireless revenue increased 4.4% to
$311 million and adjusted EBITDA of $129 million increased 12.2%
year-over-year. Wireless service revenue increased 8.9% to $245
million due to an increased subscriber base, while Wireless
equipment revenue decreased 9.6% to $66 million as the number of
devices sold in the quarter decreased compared to the prior year.
The increase in adjusted EBITDA is mainly due to continued service
revenue growth as well as the favorable margin impact from lower
equipment sales relative to total wireless revenues in the current
quarter.
We have over 800 wireless retail locations
across our operating footprint, including corporate, dealer and
national retail, with Shaw Mobile being available in approximately
200 locations in Alberta and British Columbia.
Wireline
In our Wireline business, gig speed Internet is
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.
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 2-year ValuePlans.
Wireline RGUs declined by approximately 24,300
in the quarter compared to a loss of approximately 36,500 in the
third quarter of fiscal 2021. The current quarter included a gain
of approximately 6,200 Consumer Internet additions, offset with
declines in Video, Satellite and Phone resulting in Consumer RGUs
declining by 19,900 in the aggregate. In Business, positive
Internet RGUs were offset by declines in Video and Phone resulting
in Business RGUs declining by approximately 4,300.
Third quarter Wireline revenue and adjusted
EBITDA of $1.04 billion and $515 million, respectively, decreased
3.9% and 2.3%, respectively, when compared with the prior year.
Consumer revenue of $885 million decreased 5.3% compared to the
prior year primarily due to the incremental Wireline Consumer
revenue of approximately $20 million related to the release of a
provision following the CRTC decision on final aggregated Third
Party Internet Access (TPIA) rates as well as growth in Internet
revenue offset by declines in Video, Satellite and Phone
subscribers and revenue. Business revenue of $153 million increased
5.5% year-over-year with Internet revenue growth and continued
demand for the Smart suite of products.
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. In response to the needs of its customers,
Shaw Business offers a suite of collaboration tools and Smart
products, such as Microsoft 365, Smart Remote Office, SmartSecurity
and SmartTarget and launched a 2.0 Gig Internet speed tier
providing businesses of all sizes the speed and bandwidth to
leverage data-heavy applications and cloud services.
Selected financial and operational highlights
Financial
Highlights |
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars except for percentages and per share
amounts) |
2022 |
2021 |
Change % |
|
2022 |
2021 |
Change % |
Operations: |
|
|
|
|
|
|
|
Revenue |
1,346 |
|
1,375 |
|
(2.1 |
) |
|
4,091 |
|
4,132 |
|
(1.0 |
) |
Adjusted EBITDA |
644 |
|
642 |
|
0.3 |
|
|
1,910 |
|
1,886 |
|
1.3 |
|
Adjusted EBITDA margin(1) |
47.8 |
% |
46.7 |
% |
2.4 |
|
|
46.7 |
% |
45.6 |
% |
2.4 |
|
Funds flow from operations(2) |
518 |
|
708 |
|
(26.8 |
) |
|
1,505 |
|
1,735 |
|
(13.3 |
) |
Free cash flow(1) |
217 |
|
307 |
|
(29.3 |
) |
|
670 |
|
781 |
|
(14.2 |
) |
Net income |
203 |
|
354 |
|
(42.7 |
) |
|
595 |
|
734 |
|
(18.9 |
) |
Per share
data: |
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
Basic |
0.41 |
|
0.71 |
|
|
|
1.19 |
|
1.44 |
|
|
Diluted |
0.41 |
|
0.70 |
|
|
|
1.19 |
|
1.44 |
|
|
Weighted average participating shares for basic earnings per share
outstanding during period (millions) |
499 |
|
499 |
|
|
|
499 |
|
505 |
|
|
(1) |
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 and ratios 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 2021 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 or RGUs see
“Key Performance Drivers – Statistical Measures – Subscriber counts
(or Revenue Generating Units (RGUs))” in the MD&A for the year
ended August 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
Change |
|
Change |
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
May 31, 2022 |
August 31, 2021 |
2022 |
2021 |
|
2022 |
2021 |
Wireline – Consumer |
|
|
|
|
|
|
|
Video – Cable |
1,218,411 |
1,282,879 |
(13,951 |
) |
(20,917 |
) |
|
(64,468 |
) |
(81,851 |
) |
Video – Satellite |
540,944 |
590,578 |
(1,148 |
) |
(861 |
) |
|
(49,634 |
) |
(47,956 |
) |
Internet |
1,896,976 |
1,889,752 |
6,178 |
|
1,283 |
|
|
7,224 |
|
(19,210 |
) |
Phone |
552,007 |
595,580 |
(11,025 |
) |
(15,777 |
) |
|
(43,573 |
) |
(59,955 |
) |
Total Consumer |
4,208,338 |
4,358,789 |
(19,946 |
) |
(36,272 |
) |
|
(150,451 |
) |
(208,972 |
) |
Wireline – Business |
|
|
|
|
|
|
|
Video – Cable |
35,790 |
37,110 |
(249 |
) |
29 |
|
|
(1,320 |
) |
326 |
|
Video – Satellite |
37,380 |
40,090 |
200 |
|
(1,302 |
) |
|
(2,710 |
) |
(840 |
) |
Internet |
183,544 |
182,123 |
583 |
|
1,131 |
|
|
1,421 |
|
2,691 |
|
Phone |
382,863 |
390,272 |
(4,878 |
) |
(47 |
) |
|
(7,409 |
) |
3,397 |
|
Total Business |
639,577 |
649,595 |
(4,344 |
) |
(189 |
) |
|
(10,018 |
) |
5,574 |
|
Total Wireline |
4,847,915 |
5,008,384 |
(24,290 |
) |
(36,461 |
) |
|
(160,469 |
) |
(203,398 |
) |
Wireless |
|
|
|
|
|
|
|
Postpaid |
1,803,402 |
1,739,289 |
19,392 |
|
46,604 |
|
|
64,113 |
|
208,969 |
|
Prepaid |
420,455 |
377,082 |
15,620 |
|
4,404 |
|
|
43,373 |
|
25,365 |
|
Total Wireless |
2,223,857 |
2,116,371 |
35,012 |
|
51,008 |
|
|
107,486 |
|
234,334 |
|
Total Subscribers |
7,071,772 |
7,124,755 |
10,722 |
|
14,547 |
|
|
(52,983 |
) |
30,936 |
|
In Wireless, the Company added 35,012 net
postpaid and prepaid subscribers in the quarter, consisting of
19,392 postpaid additions and 15,620 prepaid additions. Postpaid
net additions were down compared to the prior year due to continued
strong wireless competition, a limited supply of key devices,
bundle adjustments effective in late 2021 for Shaw Mobile, and
moderating demand for Shaw Mobile plans.
Wireline RGUs declined by 24,290 in the quarter
compared to a loss of 36,461 in the third quarter of fiscal 2021.
The current quarter included a gain of 6,178 Consumer Internet
additions, offset with declines in Video, Satellite and Phone
resulting in Consumer RGUs declining by 19,946 in the aggregate. In
Business, positive Internet RGUs were offset by declines in Video
and Phone resulting in Business RGUs declining by approximately
4,344.Wireless Postpaid Churn
Wireless postpaid subscriber 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 1.10% in the third quarter of
fiscal 2022 compared to 1.07% in the third quarter of fiscal
2021.
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 $37.56 in the third quarter of fiscal
2022 decreased by 7.40% from $40.56 in the third quarter of fiscal
2021 with a higher proportion of wireless subscribers being Shaw
Mobile customers compared to the prior year.
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 $36.86 in the third quarter of fiscal
2022 compares to $36.94 in the third quarter of fiscal 2021,
representing a modest decrease of 0.22%.
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 2022 of $1.35 billion decreased $29 million, or 2.1%,
from $1.38 billion for the third quarter of fiscal 2021,
highlighted by the following:
- Consumer division revenues of
$885 million decreased $50 million, or 5.3%, compared to the
prior year period due to an incremental $20 million in revenue in
the prior year related to the release of a provision following the
CRTC decision on the final aggregated TPIA rates that dated back to
August 2019. Excluding the TPIA adjustment, Consumer revenue
decreased 3.3% as growth in Internet revenue was offset by declines
in Video, Satellite and Phone subscribers and revenue.
- The Wireless division contributed
$311 million resulting in a $13 million, or 4.4%, increase over the
third quarter of fiscal 2021 reflecting a $20 million, or 8.9%,
increase in service revenue due to an increased subscriber base
partially offset by $7 million, or 9.6%, decrease in equipment
revenue as the number of devices sold in the quarter decreased
compared to the prior year.
- The Business division had growth of
$8 million, or 5.5%, in comparison to the third quarter of fiscal
2021 due to Internet revenue growth and continued demand for the
Smart suite of products.
Compared to the second quarter
of fiscal 2022, consolidated revenue for the quarter decreased
1.0%, or $13 million. The decrease in revenue over the prior
quarter includes a $12 million decrease in the Wireless division
driven by a $19 million decrease in equipment revenue, partially
offset by an increase in service revenue of $7 million, which
includes the impact of the increase in ABPU (up from $37.38 in the
second quarter of fiscal 2022 to $37.56 in the current quarter).
Meanwhile, ARPU increased quarter-over-quarter (from $36.43 in the
second quarter of fiscal 2022 to $36.86 in the current quarter). In
Wireline, revenues decreased by $2 million over the prior quarter.
This was driven by a $2 million decrease in the Consumer division
while the Business division revenues remained flat.
Revenue for the nine-month
period ended May 31, 2022 of $4.10 billion decreased $41
million, or 1.0%, from $4.13 billion for the comparable period in
fiscal 2021, highlighted by the following:
- Consumer division revenues of
$2.67 billion decreased $87 million, or 3.2%, compared to the
prior year period due to an incremental $15 million in revenue in
the prior year related to the accrual and release of a provision
following the CRTC decision on the final aggregated TPIA rates that
dated back to August 2019. Excluding the TPIA adjustment, Consumer
revenue decreased 2.4% as growth in Internet revenue was offset by
declines in Video, Satellite and Phone subscribers and
revenue.
- The Wireless division contributed
$966 million which included a $64 million, or 9.7%, increase in
service revenue compared to the prior year due to an increased
subscriber base, partially offset by a $49 million, or 16.7%,
decrease in equipment revenue as more consumers took advantage of
bring your own device plans.
- The Business division had growth of
$32 million, or 7.4%, in comparison to the prior year period due to
Internet revenue growth and continued demand for the Smart suite of
products along with the impact of approximately $9 million of
revenue related to a financing lease arrangement involving a
facility that was designed and built to customer specifications
recorded in the first quarter of fiscal 2022.
Adjusted EBITDA
Adjusted EBITDA for the third
quarter of fiscal 2022 of $644 million increased by $2
million, or 0.3%, from $642 million for the comparable period in
fiscal 2021, highlighted by the following:
- The year-over-year increase in the
Wireless division of $14 million, or 12.2%, is mainly due to
continued service revenue growth as well as the favorable margin
impact from lower equipment sales relative to total wireless
revenues in the current quarter. Wireless adjusted EBITDA margin of
41.5% increased compared to 38.6% in the prior year.
- The year-over-year decrease in the
Wireline division of $12 million, or 2.3%, was primarily due to the
decrease in Consumer revenue and includes the TPIA adjustment in
the prior year which was effectively offset by equity-based
compensation adjustments due to the significant increase in Shaw’s
share price and adjustments to employee benefit provisions, both
also recorded in the prior year.
Consistent with the variances noted above,
adjusted EBITDA margin for the third quarter of
47.8% increased 110-basis points compared to 46.7% in the third
quarter of fiscal 2021.
Compared to the second quarter
of fiscal 2022, adjusted EBITDA for the current quarter increased
$12 million, or 1.9%, primarily due to a $6 million increase in the
Wireless division primarily due to the favorable margin impact from
lower equipment sales relative to total wireless revenues in the
current quarter along with a $6 million, or 1.2%, increase in the
Wireline division driven by lower equity-based compensation costs
primarily due to the impact of a decrease on Shaw’s share price in
the quarter and an adjustment to employee benefit provisions
recorded in the current quarter.
Adjusted EBITDA for the nine-month
period ended May 31, 2022 of $1.91 billion increased by
$24 million, or 1.3%, from $1.89 billion for the comparable period
in fiscal 2021, highlighted by the following:
- The year-over-year improvement in
the Wireless division of $75 million, or 26.1%, is mainly due to
continued service revenue growth and the favorable margin impact
from lower equipment sales relative to total wireless revenues in
the current period. Wireless adjusted EBITDA margin of 37.5%
compared to 30.2% in the prior year.
- The year-over-year decrease in the
Wireline division of $51 million, or 3.2%, was primarily due
to a decrease in Consumer revenue and includes the TPIA adjustment
in the prior year which was effectively offset by equity-based
compensation adjustments due to the significant increase in Shaw’s
share price and adjustments to employee benefit provisions, both
also recorded in the prior year, partially offset by an increase in
Business service revenue.
Free cash flow
Free cash flow for the third
quarter of fiscal 2022 of $217 million decreased $90
million from $307 million in the third quarter of fiscal 2021,
mainly due to a $26 million increase in cash taxes, a $35 million
increase in interest on debt and provisions primarily due to a $35
million reduction of tax related interest expense in the prior
year, and a $33 million increase in capital expenditures.
Net income (loss)
Net income of $203 million and $595 million for
the three and nine months ended May 31, 2022, respectively,
compared to a net income of $354 million and $734 million for the
same periods in fiscal 2021. The changes in net income are outlined
in the following table:
|
|
|
|
|
|
May 31, 2022 net income compared to: |
|
Three months ended |
|
Nine months ended |
(millions of Canadian dollars) |
February 28, 2022 |
May 31, 2021 |
|
May 31, 2021 |
Increased adjusted EBITDA(1) |
12 |
|
2 |
|
|
24 |
|
Decreased restructuring
costs(2) |
- |
|
1 |
|
|
14 |
|
Increased amortization |
- |
|
(4 |
) |
|
- |
|
Change in net other costs and
revenue(3) |
1 |
|
(17 |
) |
|
(49 |
) |
Increased income taxes |
(6 |
) |
(133 |
) |
|
(128 |
) |
|
7 |
|
(151 |
) |
|
(139 |
) |
(1) |
See “Non-GAAP and additional financial measures.” |
(2) |
The Company recorded restructuring 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. There were no restructuring activities in fiscal 2022. |
(3) |
Net other costs and revenue include accretion of long-term
liabilities and provisions, interest, debt retirement costs,
realized and unrealized foreign exchange differences, fair value
adjustments of private investments, 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. In the first,
second and third quarters of fiscal 2022, the Company recorded $2
million, $3 million, and $8 million respectively, in Rogers-Shaw
Transaction-related advisory, legal, financial, and other
professional costs compared to $18 million in Rogers-Shaw
Transaction-related costs in the third quarter of fiscal 2021. |
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, income 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, other gains (losses), 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) |
2022 |
2021 |
2022 |
2021 |
Net income |
203 |
|
354 |
|
595 |
|
734 |
|
Add back (deduct): |
|
|
|
|
Restructuring costs |
- |
|
1 |
|
- |
|
14 |
|
Amortization: |
|
|
|
|
Deferred equipment revenue |
(2 |
) |
(3 |
) |
(7 |
) |
(9 |
) |
Deferred equipment costs |
11 |
|
11 |
|
30 |
|
37 |
|
Property, plant and equipment, intangibles and other |
295 |
|
292 |
|
886 |
|
881 |
|
Amortization of financing costs – long-term debt |
1 |
|
1 |
|
2 |
|
2 |
|
Interest expense |
66 |
|
31 |
|
196 |
|
164 |
|
Other losses (gains) |
3 |
|
21 |
|
13 |
|
(4 |
) |
Current income tax expense |
71 |
|
(88 |
) |
244 |
|
(8 |
) |
Deferred income tax expense |
(4 |
) |
22 |
|
(49 |
) |
75 |
|
Adjusted EBITDA |
644 |
|
642 |
|
1,910 |
|
1,886 |
|
|
|
|
|
|
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, |
|
2022 |
2021 |
Change % |
2022 |
2021 |
Change % |
Wireline |
49.6 |
% |
48.8 |
% |
1.6 |
49.4 |
% |
50.1 |
% |
(1.4 |
) |
Wireless |
41.5 |
% |
38.6 |
% |
7.5 |
37.5 |
% |
30.2 |
% |
24.2 |
|
Combined Wireline and Wireless |
47.8 |
% |
46.7 |
% |
2.4 |
46.7 |
% |
45.6 |
% |
2.4 |
|
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) |
2022 |
2021 |
Change % |
|
2022 |
2021 |
Change % |
Revenue |
|
|
|
|
|
|
|
Consumer |
885 |
|
935 |
|
(5.3 |
) |
|
2,668 |
|
2,755 |
|
(3.2 |
) |
Business |
153 |
|
145 |
|
5.5 |
|
|
467 |
|
435 |
|
7.4 |
|
Wireline |
1,038 |
|
1,080 |
|
(3.9 |
) |
|
3,135 |
|
3,190 |
|
(1.7 |
) |
Service |
245 |
|
225 |
|
8.9 |
|
|
722 |
|
658 |
|
9.7 |
|
Equipment and other |
66 |
|
73 |
|
(9.6 |
) |
|
244 |
|
293 |
|
(16.7 |
) |
Wireless |
311 |
|
298 |
|
4.4 |
|
|
966 |
|
951 |
|
1.6 |
|
|
1,349 |
|
1,378 |
|
(2.1 |
) |
|
4,101 |
|
4,141 |
|
(1.0 |
) |
Intersegment eliminations |
(3 |
) |
(3 |
) |
– |
|
|
(10 |
) |
(9 |
) |
11.1 |
|
|
1,346 |
|
1,375 |
|
(2.1 |
) |
|
4,091 |
|
4,132 |
|
(1.0 |
) |
Adjusted EBITDA |
|
|
|
|
|
|
|
Wireline |
515 |
|
527 |
|
(2.3 |
) |
|
1,548 |
|
1,599 |
|
(3.2 |
) |
Wireless |
129 |
|
115 |
|
12.2 |
|
|
362 |
|
287 |
|
26.1 |
|
|
644 |
|
642 |
|
0.3 |
|
|
1,910 |
|
1,886 |
|
1.3 |
|
Capital expenditures and equipment costs
(net):(1) |
|
|
|
|
|
|
|
Wireline |
237 |
|
163 |
|
45.4 |
|
|
646 |
|
502 |
|
28.7 |
|
Wireless |
29 |
|
70 |
|
(58.6 |
) |
|
98 |
|
214 |
|
(54.2 |
) |
|
266 |
|
233 |
|
14.2 |
|
|
744 |
|
716 |
|
3.9 |
|
Free cash flow before the following |
378 |
|
409 |
|
(7.6 |
) |
|
1,166 |
|
1,170 |
|
(0.3 |
) |
Less: |
|
|
|
|
|
|
|
Interest on debt and provisions |
(54 |
) |
(19 |
) |
>100.0 |
|
|
(163 |
) |
(128 |
) |
27.3 |
|
Interest on lease liabilities |
(9 |
) |
(12 |
) |
(25.0 |
) |
|
(31 |
) |
(34 |
) |
(8.8 |
) |
Cash taxes |
(74 |
) |
(48 |
) |
54.2 |
|
|
(226 |
) |
(146 |
) |
54.8 |
|
Lease payments relating to lease liabilities |
(27 |
) |
(24 |
) |
12.5 |
|
|
(85 |
) |
(82 |
) |
3.7 |
|
Other
adjustments: |
|
|
|
|
|
|
|
Non-cash share-based compensation |
– |
|
– |
|
– |
|
|
1 |
|
1 |
|
– |
|
Pension adjustment |
3 |
|
3 |
|
– |
|
|
8 |
|
6 |
|
33.3 |
|
Preferred share dividends |
– |
|
(2 |
) |
(100.0 |
) |
|
– |
|
(6 |
) |
(100.0 |
) |
Free cash flow |
217 |
|
307 |
|
(29.3 |
) |
|
670 |
|
781 |
|
(14.2 |
) |
(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) |
2022 |
2021 |
Change % |
|
2022 |
2021 |
Change % |
Consumer |
885 |
|
935 |
|
(5.3 |
) |
|
2,668 |
|
2,755 |
|
(3.2 |
) |
Business |
153 |
|
145 |
|
5.5 |
|
|
467 |
|
435 |
|
7.4 |
|
Wireline revenue |
1,038 |
|
1,080 |
|
(3.9 |
) |
|
3,135 |
|
3,190 |
|
(1.7 |
) |
Adjusted EBITDA(1) |
515 |
|
527 |
|
(2.3 |
) |
|
1,548 |
|
1,599 |
|
(3.2 |
) |
Adjusted EBITDA
margin(1) |
49.6 |
% |
48.8 |
% |
1.6 |
|
|
49.4 |
% |
50.1 |
% |
(1.4 |
) |
(1) |
See “Non-GAAP
and additional financial measures.” |
In the third quarter of fiscal
2022, Wireline RGUs declined by 24,290 in the quarter compared to a
loss of 36,461 in the third quarter of fiscal 2021. The current
quarter included a gain of 6,178 Consumer Internet additions,
offset with declines in Video, Satellite and Phone resulting in
Consumer RGUs declining by 19,946 in the aggregate. In Business,
positive Internet RGUs were offset by declines in Video and Phone
resulting in Business RGUs declining by approximately 4,344.
Revenue highlights include:
- Consumer revenue for the
third quarter of fiscal 2022 decreased by $50
million, or 5.3%, compared to the prior year period due to an
incremental $20 million in revenue in the prior year related to the
release of a provision following the CRTC decision on the final
aggregated TPIA rates that dated back to August 2019. Excluding the
TPIA adjustment, Consumer revenue decreased 3.3% 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 2022, the current quarter revenue
decreased by $2 million, or 0.2%.
- Business revenue of $153 million
for the third quarter of fiscal 2022 increased $8
million, or 5.5%, compared to the third quarter of fiscal 2021, due
to Internet revenue growth and continued demand for the Smart suite
of products.
- As compared to the second
quarter of fiscal 2022, the current quarter revenue was
flat at $153 million.
- Wireline revenue for the
first nine months of fiscal 2022 decreased $55
million, or 1.7%, compared to the first nine months of fiscal 2021,
primarily due to a $87 million decrease in Consumer revenue which
includes an incremental $15 million in revenue in the prior year
related to the accrual and release of a provision following the
CRTC decision on the final aggregated TPIA rates that dated back to
August 2019. Excluding the TPIA adjustment, Consumer revenue
decreased 2.6% as growth in Internet revenue was offset by declines
in Video, Satellite and Phone subscribers and revenue. This was
partially offset by a $32 million increase in Business revenue
which includes approximately $9 million of revenue related to a
financing lease arrangement involving a facility that was designed
and built to customer specifications recorded in the first quarter
of fiscal 2022.
Adjusted EBITDA highlights include:
- Adjusted EBITDA for the
third quarter of fiscal 2022 of $515 million
decreased 2.3%, or $12 million, from $527 million in the third
quarter of fiscal 2021. The decrease was primarily due to the
decrease in Consumer revenue and includes the TPIA adjustment in
the prior year which was effectively offset by equity-based
compensation adjustments due to the significant increase in Shaw’s
share price and adjustments to employee benefit provisions, both
also recorded in the prior year.
- As compared to the second
quarter of fiscal 2022, Wireline adjusted EBITDA for the
current quarter increased by $6 million, or 1.2%, driven by lower
equity-based compensation costs primarily due to the impact of a
decrease on Shaw’s share price in the quarter and an adjustment to
employee benefit provisions recorded in the current quarter
- Adjusted EBITDA for the
first nine months of fiscal 2022 of $1.55 billion
decreased 3.2%, or $51 million, from $1.60 billion compared to
the first nine months of fiscal 2021. The decrease was primarily
due to a decrease in Consumer revenue and includes the TPIA
adjustment in the prior year which was effectively offset by
equity-based compensation adjustments due to the significant
increase in Shaw’s share price and adjustments to employee benefit
provisions, both also recorded in the prior year, partially offset
by an increase in Business service revenue.
Wireless |
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2022 |
2021 |
Change % |
|
2022 |
2021 |
Change % |
Service |
245 |
|
225 |
|
8.9 |
|
|
722 |
|
658 |
|
9.7 |
|
Equipment and other |
66 |
|
73 |
|
(9.6 |
) |
|
244 |
|
293 |
|
(16.7 |
) |
Wireless revenue |
311 |
|
298 |
|
4.4 |
|
|
966 |
|
951 |
|
1.6 |
|
Adjusted EBITDA(1) |
129 |
|
115 |
|
12.2 |
|
|
362 |
|
287 |
|
26.1 |
|
Adjusted EBITDA
margin(1) |
41.5 |
% |
38.6 |
% |
7.5 |
|
|
37.5 |
% |
30.2 |
% |
24.2 |
|
(1) |
See “Non-GAAP
and additional financial measures.” |
The Wireless division added 35,012 net postpaid
and prepaid subscribers in the quarter, consisting of 19,392
postpaid additions and 15,620 prepaid additions. Postpaid net
additions were down compared to the prior year due to continued
strong wireless competition, a limited supply of key devices,
bundle adjustments effective in late 2021 for Shaw Mobile, and
moderating demand for Shaw Mobile plans.
Revenue highlights include:
- Revenue of $311 million for the
third quarter of fiscal 2022 increased
$13 million, or 4.4%, over the third quarter of fiscal 2021.
This was primarily due to a $20 million, or 8.9%, increase in
service revenue due to an increased subscriber base, partially
offset by $7 million, or 9.6%, decrease in equipment revenue as the
number of devices sold in the quarter decreased compared to the
prior year. There was a 7.4% and 0.2% year-over-year decrease in
ABPU to $37.56 and ARPU to $36.86, respectively.
- As compared to the second
quarter of fiscal 2022, the current quarter revenue
decreased $12 million, or 3.7%, driven by a $19 million decrease in
equipment revenue, partially offset by an increase in service
revenue of $7 million, which includes the impact of the increase in
ABPU (up from $37.38 in the second quarter of fiscal 2022 to $37.56
in the current quarter). Meanwhile, ARPU increased
quarter-over-quarter (from $36.43 in the second quarter of fiscal
2022 to $36.86 in the current quarter).
- Revenue of $966 million for the
first nine months of fiscal 2022 increased $15
million, or 1.6%, over the first nine months of fiscal 2021. This
was primarily due to a $64 million, or 9.7%, increase in service
revenue due to an increased subscriber base, partially offset by a
$49 million, or 16.7%, decrease in equipment revenue as more
consumers took advantage of bring your own device plans.
Adjusted EBITDA highlights include:
- Adjusted EBITDA of $129 million for
the third quarter of fiscal 2022 improved by
$14 million, or 12.2%, over the third quarter of fiscal 2021.
The increase is mainly due to continued service revenue growth as
well as the favorable margin impact from lower equipment sales
relative to total wireless revenues in the current quarter.
Wireless adjusted EBITDA margin of 41.5% compared to 38.6% in the
prior year.
- As compared to the second
quarter of fiscal 2022, adjusted EBITDA for the current
quarter increased $6 million, or 4.9%, primarily due to the
favorable margin impact from lower equipment sales relative to
total wireless revenues in the current quarter.
- Adjusted EBITDA for the
first nine months of fiscal 2022 increased $75
million, or 26.1%, compared to the first nine months of fiscal
2021. The increase is mainly due to continued service revenue
growth and the favorable margin impact from lower equipment sales
relative to total wireless revenues in the current quarter.
Wireless adjusted EBITDA margin of 37.5% compared to 30.2% in the
prior year.
Capital
expenditures and equipment costs |
|
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2022 |
2021 |
Change % |
|
2022 |
2021 |
Change % |
Wireline |
|
|
|
|
|
|
|
New housing development |
35 |
29 |
20.7 |
|
|
97 |
79 |
22.8 |
|
Success-based |
70 |
35 |
100.0 |
|
|
168 |
113 |
48.7 |
|
Upgrades and enhancements |
107 |
75 |
42.7 |
|
|
307 |
248 |
23.8 |
|
Replacement |
12 |
8 |
50.0 |
|
|
29 |
23 |
26.1 |
|
Building and other |
13 |
16 |
(18.8 |
) |
|
45 |
39 |
15.4 |
|
Total as per Note 3 to the unaudited interim consolidated financial
statements |
237 |
163 |
45.4 |
|
|
646 |
502 |
28.7 |
|
Wireless |
|
|
|
|
|
|
|
Total
as per Note 3 to the unaudited interim consolidated financial
statements |
29 |
70 |
(58.6 |
) |
|
98 |
214 |
(54.2 |
) |
Consolidated total as per Note 3 to the unaudited interim
consolidated financial statements |
266 |
233 |
14.2 |
|
|
744 |
716 |
3.9 |
|
In the third quarter of fiscal
2022, capital investment of $266 million increased $33 million, or
14.2%, from the comparable period in fiscal 2021. There was a $74
million increase in Wireline spending due to higher investments in
combined upgrades, enhancements and replacement categories as well
as an increase in new housing development and success-based
capital, which was partially offset by a $41 million decrease in
Wireless spending as a result of lower planned capital
expenditures.
Wireline highlights for the quarter include:
- For the quarter, investment in
combined upgrades, enhancements and replacement categories was $119
million which is an increase of $36 million, or 43.4%, over the
prior year period.
- Investments in new housing
development were $35 million, a $6 million, or 20.7%, increase over
the prior year period, driven by higher residential and commercial
customer network growth and acquisition in the current year.
- Success-based capital for the
quarter of $70 million was $35 million, or 100%, higher than the
third quarter of fiscal 2021 primarily due to higher equipment
purchases in the period.
- Investments in buildings and other
in the amount of $13 million was $3 million lower year-over year
primarily due to higher proceeds on the disposal of certain network
assets in the current period.
Wireless highlights for the quarter include:
- Capital investment of $29 million
in the third quarter decreased relative to the third quarter of
fiscal 2021 by $41 million, primarily due to lower planned network
related investment in the quarter.
Other income and expense items
Restructuring costs
Restructuring costs generally include severance,
employee related costs and other costs directly associated with a
restructuring program. The Company recorded restructuring 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. There were no restructuring activities in
fiscal 2022.
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2022 |
2021 |
Change % |
|
2022 |
2021 |
Change % |
Amortization revenue (expense) |
|
|
|
|
|
|
|
Deferred equipment revenue |
2 |
|
3 |
|
(33.3 |
) |
|
7 |
|
9 |
|
(22.2 |
) |
Deferred equipment costs |
(11 |
) |
(11 |
) |
- |
|
|
(30 |
) |
(37 |
) |
(18.9 |
) |
Property, plant and equipment, intangibles and other |
(295 |
) |
(292 |
) |
1.0 |
|
|
(886 |
) |
(881 |
) |
0.6 |
|
Amortization of property, plant and equipment,
intangibles and other increased 1.0% for the three months ended May
31, 2022 and increased 0.6% for the nine months ended May 31, 2022,
when compared to the same periods in fiscal 2021. 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) |
2022 |
2021 |
Change % |
|
2022 |
2021 |
Change % |
Amortization of financing costs – long-term debt |
1 |
1 |
- |
|
2 |
2 |
- |
Interest expense |
66 |
31 |
>100.0 |
|
196 |
164 |
19.5 |
Interest expense for the three and nine months ended May 31,
2022 increased $35 million, or 112.9%, and $32 million, or 19.5%,
respectively, over the comparable periods which primarily reflects
a $35 million reduction of tax related interest expense in the
third quarter of the prior year.
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. In
the first, second, and third quarters of fiscal 2022, the Company
recorded $2 million, $3 million, and $8 million respectively, in
Rogers-Shaw Transaction-related advisory, legal, financial, and
other professional costs compared to $18 million in Rogers-Shaw
Transaction-related costs in the third quarter of fiscal 2021.
Income taxes
Income taxes are higher in the quarter compared
to the third quarter of fiscal 2021 due mainly to a revision to
liabilities for uncertain tax positions that became statute barred
in the prior year, which decreased income tax expense by $125
million.
|
|
|
|
|
|
|
|
|
Supplementary quarterly financial information |
|
2022 |
2021 |
2020 |
(millions of Canadian dollars except per
share amounts) |
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
|
|
|
|
|
|
|
|
|
Revenue |
1,346 |
|
1,359 |
|
1,386 |
|
1,377 |
|
1,375 |
|
1,387 |
|
1,370 |
|
1,349 |
|
Adjusted EBITDA(1) |
644 |
|
632 |
|
633 |
|
614 |
|
642 |
|
637 |
|
607 |
|
594 |
|
Restructuring costs |
– |
|
– |
|
– |
|
– |
|
(1 |
) |
(1 |
) |
(12 |
) |
– |
|
Amortization |
(304 |
) |
(305 |
) |
(300 |
) |
(310 |
) |
(300 |
) |
(303 |
) |
(305 |
) |
(312 |
) |
Amortization of financing
costs |
(1 |
) |
– |
|
(1 |
) |
– |
|
(1 |
) |
– |
|
(1 |
) |
(1 |
) |
Interest expense |
(66 |
) |
(65 |
) |
(65 |
) |
(67 |
) |
(31 |
) |
(67 |
) |
(66 |
) |
(68 |
) |
Other income (expense) |
(3 |
) |
(5 |
) |
(4 |
) |
(6 |
) |
(21 |
) |
26 |
|
(2 |
) |
(1 |
) |
Income taxes |
(67 |
) |
(61 |
) |
(67 |
) |
21 |
|
66 |
|
(75 |
) |
(58 |
) |
(37 |
) |
Net income(2) |
203 |
|
196 |
|
196 |
|
252 |
|
354 |
|
217 |
|
163 |
|
175 |
|
Earnings per share |
|
|
|
|
|
|
|
|
Basic |
0.41 |
|
0.39 |
|
0.39 |
|
0.50 |
|
0.71 |
|
0.43 |
|
0.31 |
|
0.34 |
|
Diluted |
0.41 |
|
0.39 |
|
0.39 |
|
0.50 |
|
0.70 |
|
0.43 |
|
0.31 |
|
0.34 |
|
Other Information |
|
|
|
|
|
|
|
|
Cash flows from operating
activities |
564 |
|
487 |
|
362 |
|
590 |
|
560 |
|
473 |
|
300 |
|
632 |
|
Free cash flow(1) |
217 |
|
217 |
|
236 |
|
180 |
|
308 |
|
248 |
|
225 |
|
152 |
|
Capital
expenditures and equipment costs |
266 |
|
249 |
|
229 |
|
287 |
|
233 |
|
250 |
|
234 |
|
307 |
|
(1) |
See “Non-GAAP
and additional financial measures.” |
(2) |
Net income attributable to both equity shareholders and
non-controlling interests. |
F22 Q3 vs F22 Q2 |
In the third quarter of fiscal 2022, net income increased $7
million compared to the second quarter of fiscal 2022 mainly due to
an increase in adjusted EBITDA of $12 million, partially offset by
an increase in interest expense of $1 million and a $6 million
increase in income taxes, all in the third quarter. |
F22 Q2 vs F22 Q1 |
In the second quarter of fiscal 2022, net income was flat compared
to the first quarter of fiscal 2022 mainly due to a $6 million
decrease in income taxes and a decrease in adjusted EBITDA of $1
million, partially offset by an increase in amortization of $5
million and an increase in Rogers-Shaw Transaction-related costs of
$1 million, all in the second quarter. |
F22 Q1 vs F21 Q4 |
In the first quarter of fiscal 2022, net income decreased $56
million compared to the fourth quarter of fiscal 2021 mainly due to
an $88 million increase in taxes in the first quarter as a result
of the recognition of a tax benefit associated with previously
unrecognized tax losses in the fourth quarter partially offset by a
$19 million increase in adjusted EBITDA and a $10 million decrease
in amortization expense, all in the first quarter. |
F21 Q4 vs F21 Q3 |
In the fourth quarter of fiscal 2021, net income decreased $102
million compared to the third quarter of fiscal 2021 mainly due to
a $36 million increase in interest expense and a $126 million
increase in current taxes in the fourth quarter as a result of a
revision to liabilities for uncertain tax positions which reduced
these expenses by $35 million and $125 million respectively in the
third quarter as well as a $28 million decrease in adjusted EBITDA
partially offset by an $81 million decrease in deferred taxes
resulting mainly from the recognition of a tax benefit associated
with previously unrecognized tax losses and a decrease of $15
million in other expenses mainly due to lower Rogers-Shaw
Transaction-related costs, all in the fourth quarter. |
F21 Q3 vsF21 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 Rogers-Shaw 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 vsF21 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 vsF20 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. |
Financial position
Total assets were $15.8 billion at May 31, 2022
compared to $15.8 billion at August 31, 2021. The following is a
discussion of significant changes in the Consolidated Statements of
Financial Position since August 31, 2021.
Current assets increased $101 million primarily
due to increases in cash of $135 million, accounts receivable of
$35 million, other current assets of $36 million, and inventories
of $13 million, partially offset by decreases in income taxes
recoverable of $87 million and the current portion of contract
assets of $31 million. Cash increased primarily due to funds flow
from operations, partially offset by the payment of $444 million in
dividends, cash outlays for investing activities, and payment of
lease liabilities. Refer to “Liquidity and capital resources” for
more information.
Accounts receivable increased $35 million mainly
due to timing and a decrease in the allowance for doubtful
accounts.
The current portion of contract assets decreased
$31 million over the period due to a $2 million decrease in
deferred Wireline costs as a result of lower onboarding promotional
activity for new subscribers over the past year and a $29 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
$147 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 decreased $157 million
during the period primarily due to a decrease in accounts payable
of $169 million, current portion of contract liabilities of $9
million, and current portion of derivatives of $1 million. This
decrease was partially offset by an $18 million increase in income
taxes payable, a $3 million increase in current portion of lease
liabilities and a $1 million increase in current provisions.
Accounts payable and accrued liabilities
decreased due to the timing of payments and fluctuations in various
payables including capital expenditures, interest and employee
incentive plans.
Lease liabilities decreased $68 million mainly
due to principal repayments of $85 million in the period, partially
offset by an increase of $18 million in net new lease
liabilities.
Shareholders’ equity increased $256 million
mainly due to an increase in retained earnings. Retained earnings
increased as the current period net income of $595 million was
greater than the dividends of $394 million. Share capital
increased $13 million due to the issuance of 454,285 and 10,085
Class B Shares under the Company’s stock option plan and RSU plan,
respectively. Accumulated other comprehensive loss decreased $42
million primarily due to the remeasurement recorded on employee
benefit plans.
As at June 15, 2022, there were 477,029,107
Class B Shares and 22,372,064 Class A Shares issued and
outstanding. As at June 15, 2022, 6,964,027 Class B Shares were
issuable on exercise of outstanding options. Shaw is traded on the
Toronto and New York stock exchanges and is included in the
S&P/TSX 60 Index (Trading Symbols: TSX – SJR.B, 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, 2022, the
Company generated $670 million of free cash flow and increased its
cash balance $135 million. Shaw used its remaining free cash flow
and proceeds from the issuance of Class B Shares of $12 million to
pay common share dividends of $444 million, pay $13 million in
Rogers-Shaw Transaction-related 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, 2022, 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, 2022). 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. Effective May 26, 2022, the Company
amended the terms of its accounts receivable securitization program
to extend the term of the program to May 31, 2023.
As at May 31, 2022, the net debt leverage ratio
for the Company was 2.2x. 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, 2022 |
|
August 31, 2021 |
Short-term borrowings |
200 |
|
|
200 |
|
Current portion of long-term debt |
1 |
|
|
1 |
|
Current portion of lease liabilities |
113 |
|
|
110 |
|
Long-term debt |
4,551 |
|
|
4,549 |
|
Lease liabilities |
1,064 |
|
|
1,135 |
|
Cash and cash equivalents |
(490 |
) |
|
(355 |
) |
(A) Net
debt(2) |
5,439 |
|
|
5,640 |
|
(B) Adjusted
EBITDA(2) |
2,523 |
|
|
2,500 |
|
(A/B) Net debt leverage
ratio(3) |
2.2x |
|
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.” |
(4) |
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 ended November 4,
2021. As approved by the TSX, the Company had 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. In connection with the
announcement of the Rogers-Shaw 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, 2022 |
|
Covenant Limit |
Shaw Credit Facilities |
|
|
|
Total Debt to Operating Cash Flow(1) Ratio |
1.74:1 |
|
< 5.00:1 |
Operating Cash Flow(1) to Fixed Charges(2) Ratio |
10.91:1 |
|
> 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, 2022, 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.
As at May 31, 2022, the Company had $490 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) |
2022 |
2021 |
Change % |
|
2022 |
2021 |
Change % |
Funds flow from operations |
518 |
708 |
|
(26.8 |
) |
|
1,505 |
|
1,735 |
|
(13.3 |
) |
Net
change in non-cash balances related to operations |
46 |
(148 |
) |
>100.0 |
|
|
(92 |
) |
(402 |
) |
77.1 |
|
|
564 |
560 |
|
0.7 |
|
|
1,413 |
|
1,333 |
|
6.0 |
|
For the three months ended May 31, 2022, the
cash received from operating activities increased slightly over the
comparable period in fiscal 2021 primarily due to an increase in
the net change in non-cash balances related to operations in the
funds flow from operations, partially offset by a decrease in 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) |
2022 |
2021 |
Decrease |
|
2022 |
2021 |
Increase |
Cash used in investing activities |
(254 |
) |
(260 |
) |
(6 |
) |
|
(760 |
) |
(746 |
) |
14 |
For the three months ended May 31, 2022, the
cash used in investing activities decreased by $6 million over the
comparable period in fiscal 2021 primarily due to an increase in
proceeds on disposal of property, plant and equipment of $10
million and decrease in additions to equipment costs of $3 million,
partially offset by increases in additions to property, plant and
equipment of $3 million and additions to other intangibles of $4
million.
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) |
2022 |
2021 |
|
2022 |
2021 |
Repayment of long-term debt |
(1 |
) |
(1 |
) |
|
(1 |
) |
(1 |
) |
Payment of lease liabilities
[note 6] |
(27 |
) |
(24 |
) |
|
(85 |
) |
(82 |
) |
Issue of Class B Shares [note
11] |
5 |
|
14 |
|
|
12 |
|
15 |
|
Purchase of Class B
Shares |
- |
|
(36 |
) |
|
- |
|
(336 |
) |
Dividends paid on Class A
Shares and Class B Shares |
(148 |
) |
(148 |
) |
|
(444 |
) |
(449 |
) |
Dividends paid on Preferred Shares |
- |
|
(2 |
) |
|
- |
|
(6 |
) |
|
(171 |
) |
(197 |
) |
|
(518 |
) |
(859 |
) |
Contractual Obligations
There has been no material change in the Company’s contractual
obligations, including commitments for capital expenditures,
between August 31, 2021 and May 31, 2022.
Accounting standards
The MD&A included in the Company’s Annual
Report for the year ended August 31, 2021 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 2021 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, 2021. The condensed interim Consolidated
Financial Statements follow the same accounting policies and
methods of application as the 2021 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,
2021 under “Related Party Transactions” and under Note 29 of
the Consolidated Financial Statements of the Company for the year
ended August 31, 2021.
There has been no material change in the
Company’s transactions with related parties between August 31,
2021 and May 31, 2022.
Financial instruments
There has been no material change in the
Company’s risk management practices with respect to financial
instruments between August 31, 2021 and May 31, 2022. 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, 2021 and the section entitled
“Financial Instruments” under Note 30 of the Consolidated
Financial Statements of the Company for the year ended
August 31, 2021.
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, 2021 under “Certification.” As at May 31, 2022, 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 2022.
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, 2021 under “Known
Events, Trends, Risks and Uncertainties.” Developments of note
since then are as follows:
The completion of the Rogers-Shaw
Transaction is still subject to the two remaining regulatory
approvals under the Competition Act (Canada) and
the Radiocommunication Act (Canada) which may delay or prevent
completion of the Rogers-Shaw Transaction
On May 30, 2022, Rogers and Shaw entered into an
interim consent agreement with the Commissioner, pursuant to which
Rogers and Shaw have agreed to not proceed with closing the
Rogers-Shaw Transaction until either a negotiated settlement is
agreed with the Commissioner or the Tribunal has ruled on the
matter. On June 17, 2022, Rogers, Shaw and Quebecor announced a
divestiture agreement for the sale of Freedom Mobile to Quebecor,
which is still subject to regulatory approval by the Commissioner
and the Minister, and conditional on: (i) the completion of the
Rogers-Shaw Transaction; and (ii) entering into definitive
documentation on or before July 15, 2022, or such later date as
Rogers and Quebecor reasonably agree to in writing. Shaw, Rogers
and Quebecor strongly believe the divestiture agreement effectively
addresses the concerns raised by the Commissioner and the Minister
regarding viable and sustainable wireless competition in Canada in
order to obtain approval of the Rogers-Shaw Transaction.
If the Commissioner does not approve the terms
of the divestiture agreement, which provides for the sale of
Freedom Mobile to Quebecor, it is unlikely a negotiated settlement
will be reached. In that case, Rogers and Shaw will be permitted to
close the Rogers-Shaw Transaction only if the Tribunal declines to
prohibit the Rogers-Shaw Transaction, as requested by the
Commissioner. Separate from the Tribunal proceedings, Rogers and
Shaw must also obtain ISED approval for all applicable spectrum
licence transfers. Although Rogers’ and Shaw’s belief that the
Commissioner’s application is without merit is strengthened by the
agreement concluded with Quebecor for the sale of Freedom Mobile,
the outcome of a Tribunal hearing or any associated appeals is
inherently uncertain and could: (i) result in significant delays to
either the closing or the termination of the Rogers-Shaw
Transaction; or (ii) prevent the closing of the Rogers-Shaw
Transaction. There can also be no assurance of ISED approval being
received, received on time, or at all. There can also be no
assurance that the Outside Date (as defined in the Arrangement
Agreement) of the Rogers-Shaw Transaction will be further extended
by the parties (if required). In addition, a significant portion of
Rogers’ debt financing to fund the purchase price for the
Rogers-Shaw Transaction is subject to mandatory redemption if the
Rogers-Shaw Transaction has not closed prior to December 31, 2022.
Any delay in closing beyond this date will require Rogers to either
refinance such debt financing or obtain a consent from the holders
of such debt to amend the date for the mandatory redemption
provisions, and there can be no guarantee that Rogers will be able
to complete any such refinancing or amendment on terms that are
acceptable to Rogers, or at all.
Government regulations and regulatory
developments
See the Company’s MD&A for the year ended
August 31, 2021 for a discussion of the significant regulations
that affected our operations as of October 29, 2021. The following
is a list of the significant regulatory developments since that
date.
For a discussion of the regulatory approval
processes related to the Rogers-Shaw Transaction in the Annual
Report, see “About our Business – Shaw and Rogers Transaction” and
“Known Events, Trends 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”.Broadcasting
Act
Legislative Changes and Other Government
Actions
On December 16, 2021, the Federal Government
issued Ministerial mandate letters. The Minister of Canadian
Heritage has been directed to “reintroduce legislation to reform
the Broadcasting Act to ensure foreign web giants contribute to the
creation and promotion of Canadian stories and music.” The
fulfillment of the foregoing Ministerial mandate could lead to
legislative changes and the introduction of new regulatory measures
that result in new costs and fees payable by the Company in
connection with its provision of digital media services, result in
new competition in the provision of broadcasting distribution
services, and/or negatively impact the Company’s financial results
from broadcasting.
On February 2, 2022, the Minister of Heritage
introduced a bill to amend the Broadcasting Act (Bill C-11). Bill
C-11 completed second reading on May 12, 2022. On June 14, 2022,
the Standing Committee on Canadian Heritage completed its study of
the bill and presented its report to the House of Commons on June
15, 2022. On June 21, 2022, Bill C-11 passed Third Reading in the
House of Commons and was sent to the Senate for consideration. The
Senate completed First Reading on June 21, 2022. While Bill C-11
does not introduce material new obligations applicable to or fees
payable by the Company’s cable, Direct-to-Home (DTH), Satellite
Relay Distribution or digital media services, the Bill remains
subject to amendment prior to its passage, pursuant to the
parliamentary process. In addition, the CRTC will, subsequent to
any royal assent to Bill C-11, 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.
The implementation of new regulatory measures in
connection with Bill C-11 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
New Government Policy Direction to CRTC
Regarding Telecommunications
On June 4, 2022, the Government published a
proposed Policy Direction in the Canada Gazette with respect
to the CRTC’s oversight of telecommunications regulation. The
Telecommunications Act provides authority for the Government to
issue directions of general application to the CRTC on broad policy
matters, which are intended to lay out the Government’s priorities
for telecommunications. The Government has proposed that the new
Policy Direction repeal and replace both of the existing Policy
Directions introduced in 2006 and 2019. The Company and other
parties have the opportunity to comment on, and propose changes to,
the proposed Policy Direction until July 19, 2022, and it is
expected to come into force in late 2022. The new Policy Direction,
as proposed, would maintain most of the 2019 Policy Direction,
which directs the CRTC to consider how measures can promote all
forms of competition as well as affordability, consumer interests
and innovation. It also retains an instruction from the 2006 Policy
Direction that regulatory measures should be efficient and
proportionate to their purpose, but disposes of that Policy
Direction’s emphasis on reliance on market forces. Most of the
proposed Policy Direction is new and includes specific instructions
to the CRTC on fixed internet and mobile wireless competition,
consumer welfare, and universal access policy matters. Once
implemented in its final form, the Policy Direction will apply to
all telecommunications regulatory measures, including those
affecting the Company’s Consumer and Business Internet and Phone
services, wholesale telecommunications services, and Wireless
services. The impact of the Policy Direction will depend on the
final text and how the CRTC interprets and applies it in the
context of specific matters and proceedings. Wireless Review –
Petition of Data On Tap Inc.
On April 14, 2022, Cabinet rejected the petition
of Data on Tap Inc. (a mobile virtual network operator (“MVNO”)
operating as “dotmobile”) to vary the CRTC’s Wireless Review
decision. Data On Tap Inc. had sought broadened access to mandated
MVNO through the elimination of certain eligibility criteria and
the time limitation, as well as regulated rates.
Imposition of an Administrative Monetary Penalty
on Bell Canada
In April 2021, the CRTC found that Bell Canada
had breached three sections of the Telecommunications Act in
relation to its processing of permit applications, filed by
Videotron Ltd., for access to Bell’s support structures. Following
a public consultation to determine the appropriateness of issuing
an administrative monetary penalty (“AMP”) in relation to the
violations, on June 15, 2022, the CRTC imposed a $7.5M AMP on Bell
Canada. The imposition of an AMP for violations of this nature
suggests an increasing willingness on the part of the CRTC to use
this enforcement tool, heightening the risk of such penalties for
contraventions of the Telecommunications Act, regulations, or CRTC
decisions in the future.
Radiocommunication Act
Consultation on a Policy and Licensing Framework
for Spectrum in the 26, 28 and 38 GHz Bands
On June 6, 2022, ISED initiated a new
consultation on the licensing framework for spectrum in the 26, 28
and 38 GHz (also known as “millimetre wave” or “mmWave”) bands. The
consultation follows ISED’s 2019 decision to make 1850 MHz of
spectrum in the 26-28 GHz bands and 2400 MHz of spectrum in the 38
GHz band available for mobile use. In this consultation, ISED seeks
comment on its proposal to implement pro-competitive measures in
the mmWave auction through the use of an 800 MHz set-aside or cap
(across all bands). ISED also seeks input on appropriate licence
tier size and term, deployment obligations, auction format, and
treatment of existing users in the bands. The consultation will
close on October 7, 2022. The outcome of the auction could enhance
competition in the wireless sector.
Consultation on a Policy and Licensing Framework
for Spectrum in the 3800 MHz Band
Parties have filed their initial and reply
comments in connection with ISED consultation on the policy and
licensing framework for the 3800 MHz spectrum band (3650-4200 MHz).
The consultation considered the implementation of pro-competitive
measures, in the form of a set-aside, a cross-band cap applicable
to cumulative 3500 MHz and 3800 MHz holdings, or a combination of
both. ISED also sought comments on, among other things, licence
tier sizes and conditions, and auction format and rules. The
consultation is now closed and ISED is expected to render its
decision in the second half of 2022. The 3800 MHz auction is
anticipated to take place in 2023. The outcome of this auction
could increase competition in the wireless sector.
New Licence-Exempt Spectrum Consultations
On February 24, 2022, ISED commenced two
consultations on the potential release of additional spectrum for
licence-exempt use. This includes spectrum in the 5850-5895 MHz
range and various high-frequency ranges above 95 GHz. These
consultations could result in additional spectrum being made
available for licence-exempt technologies including Wi-Fi and the
Internet of Things. These consultations are now closed. Decisions
from ISED are expected in Fall 2022.
Copyright Act
Legislative Changes and Other Government
Actions
The Minister of Canadian Heritage and the
Minister of Innovation, Science and Industry were directed,
pursuant to mandate letters issued December 16, 2021, “to amend the
Copyright Act to further protect artists, creators and copyright
holders, including to allow resale rights for artists.” Any
amendments to the Copyright Act that modify the terms and
conditions applicable to the use of content, including new rights
and/or the scope of flexibility pursuant to exceptions under the
Copyright Act, could create increased fees and negatively impact
the business practices of the Company, as well as the ability to
serve our customers.
Judicial Review of the Distant Television Signal
Retransmission Tariff Rates (2014-2018)
On December 18, 2018, the Copyright Board
released a rate decision for the Distant Television Signal
Retransmission Tariff (the “Tariff”) for the past tariff period of
2014-2018, inclusive, which introduced a rate increase that applied
retroactively, and established an interim tariff for the 2019-2023
period based on the 2018 rate. Both the collective societies
representing distant television signal retransmission rightsholders
(the “Collectives”) and Objectors – including the Company – filed a
Notice of Application for judicial review with the FCA on November
4, 2019. On July 23, 2021, the FCA dismissed the Objectors’
application on all grounds, and granted the Collectives’
application on two grounds, for the years 2016-2018, requiring the
Copyright Board to redetermine two valuation issues related to the
Tariff. On September 29, 2021, the Objectors filed an application
for leave to appeal the FCA decision with the Supreme Court of
Canada (“SCC”). On March 24, 2022, the SCC leave application was
dismissed. The Board’s redetermination of the valuation issues
could subject the Company to significantly increased royalty rates
for the 2016-2018 period.
Privacy and Anti-Spam
Legislation
The Minister of Innovation, Science and Industry
was directed, pursuant to a mandate letter issued December 16,
2021, to introduce legislation to advance the Digital Charter,
strengthen privacy protections for consumers and provide a clear
set of rules that ensure fair competition in the online
marketplace. On June 16, 2022, the Government introduced Bill C-27,
the Digital Charter Implementation Act, 2022 (“DCIA 2022”). The
proposed legislation builds upon the Government’s previous attempt
to modernize Canada’s Privacy Laws (Bill C-11, which was introduced
in November 2020 but did not proceed to passage) and will replace
Canada’s existing federal privacy statute (the Personal Information
Protection and Electronic Documents Act). The DCIA 2022 is
comprised of 3 proposed Acts: the Consumer Privacy Protection Act;
the Personal Information and Data Protection Tribunal Act; and the
Artificial Intelligence and Data Act. The DCIA 2022 is expected to
pass as early as Fall 2022, and will include a significant
transition period prior to its coming into force. It will require
the Company to incur costs to adjust its policies and practices
related to privacy, as well as data collection, management,
disposal, access practices and the usage of Artificial Intelligence
to ensure compliance; could 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.
Cybersecurity Legislation
On June 14, 2022, the Government introduced new
cybersecurity legislation, Bill C-26, An Act Respecting Cyber
Security (the “Bill”). The Bill will modify the Telecommunications
Act to grant the Governor in Council and the Minister of
Innovation, Science and Industry broad powers to mandate any
necessary action to protect Canada’s telecommunications system. In
addition, the legislation introduces the Critical Cyber Systems
Protection Act (“CCSPA”) which aims to strengthen baseline
cybersecurity for services and systems that are vital to national
security and public safety, and which will introduce a regulatory
regime requiring operators in the telecommunications, finance,
federally regulated energy, and federally regulated transport
sectors to protect their critical cyber systems. The Bill
introduces significant fines for non-compliance, up to $10 million
for the first violation of an Order issued or regulations
introduced pursuant to the proposed amendments to the
Telecommunications Act, and $15 million for the first and any
subsequent violations of the CCSPA and regulations introduced
pursuant to the CCSPA. Such changes could result in the Company
incurring significant new costs to ensure compliance or, in the
event of any finding of non-compliance, as penalties in connection
therewith. Bill C-26 has received First Reading in the House. While
the timing for subsequent readings, referral to Committee for
consideration, and passage have not yet been determined, the Bill
may be passed into law by the end of the year.
CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION(unaudited)
(millions of Canadian dollars) |
May 31, 2022 |
|
August 31, 2021 |
|
|
|
|
|
ASSETS |
|
|
|
Current |
|
|
|
|
Cash and cash equivalents |
490 |
|
355 |
|
Accounts receivable |
336 |
|
301 |
|
Income taxes recoverable |
- |
|
87 |
|
Inventories |
76 |
|
63 |
|
Other current
assets [note 4] |
367 |
|
331 |
|
Current
portion of contract assets [note 13] |
66 |
|
97 |
|
|
1,335 |
|
1,234 |
Investments and
other assets [note 18] |
70 |
|
70 |
Property, plant
and equipment |
5,872 |
|
6,019 |
Other long-term
assets [note 5] |
175 |
|
163 |
Deferred income
tax assets |
2 |
|
2 |
Intangibles |
8,003 |
|
7,996 |
Goodwill |
280 |
|
280 |
Contract assets [note 13] |
23 |
|
28 |
|
|
15,760 |
|
15,792 |
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
Current |
|
|
|
|
Short-term
borrowings [note 7] |
200 |
|
200 |
|
Accounts payable and accrued
liabilities |
819 |
|
988 |
|
Provisions [note 8] |
47 |
|
46 |
|
Income taxes payable |
18 |
|
- |
|
Current portion of contract
liabilities [note 13] |
204 |
|
213 |
|
Current portion of long-term
debt [notes 9 and 18] |
1 |
|
1 |
|
Current portion of lease
liabilities [note 6] |
113 |
|
110 |
|
Current
portion of derivatives |
1 |
|
2 |
|
|
1,403 |
|
1,560 |
Long-term
debt [notes 9 and 18] |
4,551 |
|
4,549 |
Lease
liabilities [note 6] |
1,064 |
|
1,135 |
Other long-term
liabilities [note 10] |
7 |
|
26 |
Provisions [note 8] |
78 |
|
77 |
Deferred
credits |
377 |
|
389 |
Contract
liabilities [note 13] |
18 |
|
15 |
Deferred income tax liabilities |
1,963 |
|
1,998 |
|
|
9,461 |
|
9,749 |
Shareholders' equity [notes 11 and 16] |
|
|
|
Common
and preferred shareholders |
6,299 |
|
6,043 |
|
|
15,760 |
|
15,792 |
|
|
|
|
|
See accompanying
notes. |
|
|
|
CONSOLIDATED STATEMENTS OF
INCOME(unaudited)
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2022 |
2021 |
|
2022 |
2021 |
Revenue [notes 3 and 13] |
1,346 |
|
1,375 |
|
|
4,091 |
|
4,132 |
|
Operating, general
and administrative expenses [note 14] |
(702 |
) |
(733 |
) |
|
(2,181 |
) |
(2,246 |
) |
Restructuring
costs [note 14] |
- |
|
(1 |
) |
|
- |
|
(14 |
) |
Amortization: |
|
|
|
|
|
|
Deferred equipment
revenue |
2 |
|
3 |
|
|
7 |
|
9 |
|
|
Deferred equipment
costs |
(11 |
) |
(11 |
) |
|
(30 |
) |
(37 |
) |
|
Property, plant and equipment, intangibles and other |
(295 |
) |
(292 |
) |
|
(886 |
) |
(881 |
) |
Operating income |
340 |
|
341 |
|
|
1,001 |
|
963 |
|
|
|
Amortization of financing costs – long-term debt |
(1 |
) |
(1 |
) |
|
(2 |
) |
(2 |
) |
|
|
Interest expense [note
9] |
(66 |
) |
(31 |
) |
|
(196 |
) |
(164 |
) |
|
|
Other
gains (losses) [note 15] |
(3 |
) |
(21 |
) |
|
(13 |
) |
4 |
|
Income before income taxes |
270 |
|
288 |
|
|
790 |
|
801 |
|
|
|
Current income tax (recovery)
expense [note 3] |
71 |
|
(88 |
) |
|
244 |
|
(8 |
) |
|
|
Deferred income tax (recovery) expense |
(4 |
) |
22 |
|
|
(49 |
) |
75 |
|
Net income |
203 |
|
354 |
|
|
595 |
|
734 |
|
Net income attributable to: |
|
|
|
|
|
Equity
shareholders |
203 |
|
354 |
|
|
595 |
|
734 |
|
|
|
|
|
|
|
|
|
Earnings
per share: [note 12] |
|
|
|
|
|
Basic |
0.41 |
|
0.71 |
|
|
1.19 |
|
1.44 |
|
Diluted |
0.41 |
|
0.70 |
|
|
1.19 |
|
1.44 |
|
|
|
|
|
|
|
|
|
See accompanying
notes. |
|
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME(unaudited)
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2022 |
2021 |
|
2022 |
2021 |
Net income |
203 |
|
354 |
|
|
595 |
734 |
|
|
|
|
|
|
|
|
|
Other
comprehensive income [note 16] |
|
|
|
|
|
Items that
may subsequently be reclassified to income: |
|
|
|
|
|
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
(1 |
) |
(5 |
) |
|
1 |
(6 |
) |
|
|
Adjustment for hedged items recognized in the period |
- |
|
2 |
|
|
- |
3 |
|
|
|
|
(1 |
) |
(3 |
) |
|
1 |
(3 |
) |
Items that
will not subsequently be reclassified to income: |
|
|
|
|
|
Remeasurements on employee benefit plans |
10 |
|
4 |
|
|
41 |
27 |
|
|
|
|
9 |
|
1 |
|
|
42 |
24 |
|
Comprehensive income |
212 |
|
355 |
|
|
637 |
758 |
|
Comprehensive income attributable to: |
|
|
|
|
|
|
Equity
shareholders |
212 |
|
355 |
|
|
637 |
758 |
|
|
|
|
|
|
|
|
|
See accompanying
notes. |
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY(unaudited)
Nine months ended May 31,
2022 |
|
|
|
|
|
|
Attributable to equity shareholders |
|
(millions of Canadian dollars) |
Sharecapital |
Contributedsurplus |
Retainedearnings |
Accumulatedothercomprehensiveloss |
Totalequity |
Balance as at September 1, 2021 |
4,199 |
27 |
|
1,876 |
|
(59 |
) |
6,043 |
|
Net income |
- |
- |
|
595 |
|
- |
|
595 |
|
Other
comprehensive income |
- |
- |
|
- |
|
42 |
|
42 |
|
Comprehensive income |
- |
- |
|
595 |
|
42 |
|
637 |
|
Dividends |
- |
- |
|
(394 |
) |
- |
|
(394 |
) |
Shares issued under stock
option plan |
13 |
(1 |
) |
- |
|
- |
|
12 |
|
Share-based compensation |
- |
1 |
|
- |
|
- |
|
1 |
|
Balance as at May 31, 2022 |
4,212 |
27 |
|
2,077 |
|
(17 |
) |
6,299 |
|
Nine months ended May 31,
2021 |
|
|
|
|
|
|
Attributable to equity shareholders |
|
(millions of Canadian dollars) |
Sharecapital |
Contributedsurplus |
Retainedearnings |
Accumulatedothercomprehensiveloss |
Totalequity |
Balance as at September 1, 2020 |
4,602 |
|
27 |
|
1,703 |
|
(99 |
) |
6,233 |
|
Net income |
- |
|
- |
|
734 |
|
- |
|
734 |
|
Other
comprehensive income |
- |
|
- |
|
- |
|
24 |
|
24 |
|
Comprehensive income |
- |
|
- |
|
734 |
|
24 |
|
758 |
|
Dividends |
- |
|
- |
|
(451 |
) |
- |
|
(451 |
) |
Shares issued under stock
option plan |
16 |
|
(1 |
) |
- |
|
- |
|
15 |
|
Shares repurchased |
(129 |
) |
- |
|
(207 |
) |
- |
|
(336 |
) |
Preferred shares reclassified
to current liabilities |
(293 |
) |
- |
|
(7 |
) |
- |
|
(300 |
) |
Share-based compensation |
- |
|
1 |
|
- |
|
- |
|
1 |
|
Balance as at May 31, 2021 |
4,196 |
|
27 |
|
1,772 |
|
(75 |
) |
5,920 |
|
|
|
|
|
|
|
See accompanying notes. |
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS(unaudited)
|
Three months ended May 31, |
|
Nine months ended May 31, |
(millions of Canadian dollars) |
2022 |
2021 |
|
2022 |
2021 |
OPERATING ACTIVITIES |
|
|
|
|
|
Funds flow from operations [note 17] |
518 |
|
708 |
|
|
1,505 |
|
1,735 |
|
Net
change in non-cash balances |
46 |
|
(148 |
) |
|
(92 |
) |
(402 |
) |
|
564 |
|
560 |
|
|
1,413 |
|
1,333 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
Additions to property, plant
and equipment [note 3] |
(230 |
) |
(227 |
) |
|
(645 |
) |
(641 |
) |
Additions to equipment costs
(net) [note 3] |
(1 |
) |
(4 |
) |
|
(9 |
) |
(16 |
) |
Additions to other
intangibles [note 3] |
(35 |
) |
(31 |
) |
|
(121 |
) |
(107 |
) |
Net additions to investments
and other assets |
- |
|
- |
|
|
(1 |
) |
(1 |
) |
Proceeds on disposal of property, plant and equipment |
12 |
|
2 |
|
|
16 |
|
19 |
|
|
(254 |
) |
(260 |
) |
|
(760 |
) |
(746 |
) |
FINANCING ACTIVITIES |
|
|
|
|
|
Repayment of long-term
debt |
(1 |
) |
(1 |
) |
|
(1 |
) |
(1 |
) |
Payment of lease
liabilities [note 6] |
(27 |
) |
(24 |
) |
|
(85 |
) |
(82 |
) |
Issue of Class B
Shares [note 11] |
5 |
|
14 |
|
|
12 |
|
15 |
|
Purchase of Class B
Shares |
- |
|
(36 |
) |
|
- |
|
(336 |
) |
Dividends paid on Class A
Shares and Class B Shares |
(148 |
) |
(148 |
) |
|
(444 |
) |
(449 |
) |
Dividends paid on Preferred
Shares |
- |
|
(2 |
) |
|
- |
|
(6 |
) |
|
(171 |
) |
(197 |
) |
|
(518 |
) |
(859 |
) |
Increase (Decrease) in cash |
139 |
|
103 |
|
|
135 |
|
(272 |
) |
Cash,
beginning of the period |
351 |
|
388 |
|
|
355 |
|
763 |
|
Cash, end of the period |
490 |
|
491 |
|
|
490 |
|
491 |
|
|
|
|
|
|
|
See accompanying notes. |
|
|
|
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(unaudited)
May 31, 2022 and May 31, 2021[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 “Rogers-Shaw 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 Rogers-Shaw 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.
Regulatory Approval Status
On March 24, 2022, the CRTC completed its
comprehensive review and approved the transfer of Shaw’s licenced
broadcasting undertakings to Rogers, marking an important milestone
towards closing of the Rogers-Shaw Transaction. On April 27, 2022,
the National Pensioners Federation and Public Interest Advocacy
Centre (NPF-PIAC) filed a Petition to the federal Cabinet
requesting that the CRTC decision approving the change of ownership
and effective control of Shaw’s licensed broadcasting assets be set
aside or referred back to the CRTC for reconsideration and hearing.
On June 22, 2022, Cabinet declined to consider the NPF-PIAC
Petition.
The Rogers-Shaw Transaction remains under review
by Innovation, Science and Economic Development Canada (“ISED”), as
the Minister of Innovation, Science and Industry must approve any
direct or indirect transfer of Shaw’s spectrum licences.
In accordance with the terms of the Arrangement
Agreement, Rogers and Shaw filed pre-merger notifications pursuant
to Part IX of the Competition Act (Canada) in April 2021 to trigger
the Competition Bureau’s review of the Rogers-Shaw Transaction. On
May 9, 2022, the Commissioner of Competition (the “Commissioner”)
filed applications to the Competition Tribunal (the “Tribunal”)
seeking an order to prevent the Rogers-Shaw Transaction from
proceeding and an interim injunction to prevent closing until the
Competition Bureau’s case can be heard by the Tribunal. The
Commissioner must ultimately prove his case before the Tribunal in
a hearing in order to prevent the Rogers-Shaw Transaction from
being completed.
On May 30, 2022, the Commissioner’s interim
injunction application was resolved on the basis that Rogers and
Shaw agreed to not proceed with closing the Rogers-Shaw Transaction
until either a negotiated settlement is agreed with the
Commissioner or the Tribunal has ruled on the matter. As a result,
there is no need for the Tribunal to hear the Commissioner’s
application for an interim injunction. Resolving the interim
injunction application allows the parties to focus on addressing
the Commissioner’s concerns with the Rogers-Shaw Transaction in
order to reach a settlement.
Agreement to Sell Freedom Mobile to Quebecor
Subsequent to quarter-end, on June 17, 2022,
Rogers and Shaw entered into a divestiture agreement for the sale
of Freedom Mobile to Quebecor Inc. (“Quebecor”) for a purchase
price of $2.85 billion (the “Freedom Transaction”), which is
subject to regulatory approvals from the Commissioner and the
Minister of Innovation, Science and Industry (the “Minister”), and
conditional on: (i) the completion of the Rogers-Shaw Transaction;
and (ii) entering into definitive documentation on or before July
15, 2022, or such later date as Rogers and Quebecor reasonably
agree to in writing. Shaw, Rogers and Quebecor strongly believe the
agreement effectively addresses the concerns raised by the
Commissioner and the Minister regarding viable and sustainable
wireless competition in Canada.
Under the terms of the divestiture agreement,
Quebecor will acquire all Freedom Mobile-branded wireless and
Internet customers as well as all of Freedom Mobile’s
infrastructure, spectrum and retail locations. The agreement does
not contemplate the divestiture of Shaw Mobile-branded wireless
subscribers. The Freedom Transaction includes long-term agreements
by Shaw and Rogers to provide Quebecor transport services
(including backhaul and backbone), roaming services and other
services for the provision of Freedom’s mobile wireless network.
Rogers and Quebecor will provide each other with customary
transition services as are necessary to operate Freedom’s business
for a reasonable period of time post-closing and to facilitate the
separation of Freedom’s business from the other businesses and
operations of Shaw and its affiliates. The parties will work
expeditiously and in good faith to finalize definitive
documentation on or before July 15, 2022, or such later date as
Rogers and Quebecor reasonably agree to in writing. Closing of the
Freedom Transaction will occur substantially concurrently with
closing of the Rogers-Shaw Transaction.
Rogers and Shaw Continue to Work with Regulatory
Authorities to Secure the Requisite Regulatory Approvals
Rogers and Shaw continue to engage
constructively with the Competition Bureau in an effort to reach a
negotiated settlement, which offers the most expeditious path
forward to closing the Rogers-Shaw Transaction and delivering its
benefits to Canadians. While the divestiture agreement with
Quebecor provides a basis for advancing settlement negotiations
with the Commissioner, Rogers and Shaw are also taking the
necessary steps to oppose the Commissioner’s application to prevent
the Rogers-Shaw Transaction. On June 3, 2022, each of Rogers and
Shaw filed a written response disputing the basis for the
Commissioner’s application, and on June 16, 2022, the Commissioner
filed his written reply to these responses. On June 17, 2022, the
Tribunal issued an order setting the timeframe for its
consideration of the Commissioner’s application. The Tribunal’s
scheduling order includes a voluntary mediation process, currently
scheduled for July, in which the parties have agreed to
participate. Should it be required, the Tribunal hearing of the
Commissioner’s application is expected to occur in November and
December of this calendar year.
In order to permit continued engagement with the
pending regulatory approval processes, Rogers, Shaw and the Shaw
Family Living Trust agreed to extend the Outside Date for closing
the Rogers-Shaw Transaction from June 13, 2022 to July 31, 2022 in
accordance with the terms of the Arrangement Agreement. Subject to
receipt of all required approvals and satisfaction of all closing
conditions, the parties are working towards closing of Rogers-Shaw
Transaction on or before July 31, 2022. Nonetheless, the time
required for Rogers and Shaw to address the Commissioner’s concerns
and agree on the terms of a negotiated settlement with the
Commissioner (or any associated litigation, including the Tribunal
hearing), as well as ISED approval, and any appeals of the outcomes
of these processes, is uncertain and could result in further delays
in or prevent the closing of the Rogers-Shaw Transaction.
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, 2022 were authorized for issue by the Board of Directors on
June 30, 2022.
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, 2021 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,
2021.
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, |
|
|
2022 |
2021 |
|
2022 |
2021 |
Revenue |
|
|
|
|
|
|
Wireline |
1,038 |
|
1,080 |
|
|
3,135 |
|
3,190 |
|
|
Wireless |
311 |
|
298 |
|
|
966 |
|
951 |
|
|
|
1,349 |
|
1,378 |
|
|
4,101 |
|
4,141 |
|
Intersegment eliminations |
(3 |
) |
(3 |
) |
|
(10 |
) |
(9 |
) |
|
|
1,346 |
|
1,375 |
|
|
4,091 |
|
4,132 |
|
Adjusted
EBITDA(1) |
|
|
|
|
|
|
Wireline |
515 |
|
527 |
|
|
1,548 |
|
1,599 |
|
|
Wireless |
129 |
|
115 |
|
|
362 |
|
287 |
|
|
|
644 |
|
642 |
|
|
1,910 |
|
1,886 |
|
Restructuring
costs |
- |
|
(1 |
) |
|
- |
|
(14 |
) |
Amortization |
(304 |
) |
(300 |
) |
|
(909 |
) |
(909 |
) |
Operating income |
340 |
|
341 |
|
|
1,001 |
|
963 |
|
|
|
|
|
|
|
|
Current
taxes |
|
|
|
|
|
|
Operating |
71 |
|
39 |
|
|
239 |
|
117 |
|
|
Other/non-operating |
- |
|
(127 |
) |
|
5 |
|
(125 |
) |
|
|
71 |
|
(88 |
) |
|
244 |
|
(8 |
) |
(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. |
Capital
expenditures |
|
|
|
|
|
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
|
2022 |
2021 |
|
2022 |
2021 |
Capital expenditures accrual basis |
|
|
|
|
|
|
Wireline |
236 |
|
158 |
|
|
637 |
|
486 |
|
|
Wireless |
29 |
|
70 |
|
|
98 |
|
214 |
|
|
|
265 |
|
228 |
|
|
735 |
|
700 |
|
Equipment costs (net of revenue) |
|
|
|
|
|
|
Wireline |
1 |
|
5 |
|
|
9 |
|
16 |
|
|
|
|
|
|
|
|
Capital
expenditures and equipment costs (net) |
|
|
|
|
|
|
Wireline |
237 |
|
163 |
|
|
646 |
|
502 |
|
|
Wireless |
29 |
|
70 |
|
|
98 |
|
214 |
|
|
|
266 |
|
233 |
|
|
744 |
|
716 |
|
|
|
|
|
|
|
|
Reconciliation to Consolidated Statements of Cash
Flows |
|
|
|
|
|
|
Additions to property, plant
and equipment |
230 |
|
227 |
|
|
645 |
|
641 |
|
|
Additions to equipment costs
(net) |
1 |
|
4 |
|
|
9 |
|
16 |
|
|
Additions to other intangibles |
35 |
|
31 |
|
|
121 |
|
107 |
|
|
Total of capital expenditures and equipment costs (net) per
Consolidated Statements of Cash Flows |
266 |
|
262 |
|
|
775 |
|
764 |
|
|
Increase/(decrease) in working
capital and other |
|
|
|
|
|
|
liabilities related to
capital expenditures |
12 |
|
(27 |
) |
|
(15 |
) |
(29 |
) |
|
Less:
Proceeds on disposal of property, plant and equipment |
(12 |
) |
(2 |
) |
|
(16 |
) |
(19 |
) |
|
Total capital expenditures and equipment costs (net) reported
by segments |
266 |
|
233 |
|
|
744 |
|
716 |
|
4. OTHER CURRENT
ASSETS
|
May 31, 2022 |
August 31, 2021 |
Prepaid expenses |
127 |
103 |
Costs incurred to obtain or
fulfill a contract with a customer(1) |
61 |
59 |
Wireless handset
receivables(2) |
179 |
168 |
Current
portion of derivatives |
- |
1 |
|
367 |
331 |
(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, 2021, these amounts relate
to the current portion of wireless handset receivables. |
5. OTHER LONG-TERM
ASSETS
|
May 31, 2022 |
August 31, 2021 |
Equipment costs subject to a deferred revenue arrangement |
31 |
49 |
Long-term Wireless handset
receivables |
55 |
45 |
Costs incurred to obtain or
fulfill a contract with a customer |
38 |
33 |
Credit facility arrangement
fees |
2 |
3 |
Pension assets(1) |
28 |
- |
Other |
21 |
33 |
|
175 |
163 |
(1) |
In
the first nine months of the fiscal year, the accumulated benefit
obligation of the Supplemental Executive Retirement Plan was
adjusted by $88 as a result of a 190 bps increase in the discount
rate from August 31, 2021, partially offset by a $40 decrease in
the plan asset values, resulting in the plan being in a net asset
position as at May 31, 2022. |
6. LEASE
LIABILITIES
Below is a summary of the activity related to the Company’s
lease liabilities.
|
|
August 31, 2021 |
1,245 |
|
Net additions |
18 |
|
Interest on lease
liabilities |
31 |
|
Interest payments on lease
liabilities |
(31 |
) |
Principal payments of lease
liabilities |
(85 |
) |
Other |
(1 |
) |
Balance as at May 31, 2022 |
1,177 |
|
|
|
Current |
110 |
|
Long-term |
1,135 |
|
Balance as at August 31, 2021 |
1,245 |
|
Current |
113 |
|
Long-term |
1,064 |
|
Balance as at May 31, 2022 |
1,177 |
|
7. SHORT-TERM
BORROWINGS
Effective May 26, 2022, the Company amended the
terms of its accounts receivable securitization program to extend
the term of the program to May 31, 2023.
A summary of our accounts receivable
securitization program is as follows:
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
|
2022 |
2021 |
|
2022 |
2021 |
Accounts
receivable securitization program, beginning of period |
200 |
200 |
|
200 |
200 |
Accounts receivable securitization program, end of
period |
200 |
200 |
|
200 |
200 |
|
|
|
|
May 31, 2022 |
August 31, 2021 |
Trade accounts receivable sold to buyer as security |
413 |
|
416 |
|
Short-term borrowings from buyer |
(200 |
) |
(200 |
) |
Over-collateralization |
213 |
|
216 |
|
|
|
|
8. PROVISIONS
|
Asset |
|
|
|
|
retirement |
Restructuring |
|
|
|
obligations |
(1) |
Other |
Total |
|
$ |
$ |
$ |
$ |
Balance as at August 31, 2021 |
77 |
2 |
|
44 |
123 |
|
Additions |
- |
- |
|
2 |
2 |
|
Accretion |
1 |
- |
|
- |
1 |
|
Payments |
- |
(1 |
) |
- |
(1 |
) |
Balance as at May 31, 2022 |
78 |
1 |
|
46 |
125 |
|
|
|
|
|
|
Current |
- |
2 |
|
44 |
46 |
|
Long-term |
77 |
- |
|
- |
77 |
|
Balance as at August 31, 2021 |
77 |
2 |
|
44 |
123 |
|
|
|
|
|
|
Current |
- |
1 |
|
46 |
47 |
|
Long-term |
78 |
- |
|
- |
78 |
|
Balance as at May 31, 2022 |
78 |
1 |
|
46 |
125 |
|
(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 2021 the Company
made a number of changes to its organizational structure. A total
of $1 has been paid in fiscal 2022 relating to these initiatives.
The remaining costs are expected to be paid out within the next 8
months. |
9. LONG-TERM
DEBT
|
|
|
May 31, 2022 |
|
August 31, 2021 |
|
|
|
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 |
|
499 |
1 |
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 |
|
299 |
1 |
300 |
|
4.40% due November
2, 2028 |
4.40 |
497 |
3 |
500 |
|
497 |
3 |
500 |
|
3.30% due December
10, 2029 |
3.41 |
496 |
4 |
500 |
|
496 |
4 |
500 |
|
2.90% due December
9, 2030 |
2.92 |
497 |
3 |
500 |
|
496 |
4 |
500 |
|
6.75% due November
9, 2039 |
6.89 |
1,422 |
28 |
1,450 |
|
1,421 |
29 |
1,450 |
|
4.25%
due December 9, 2049 |
4.33 |
296 |
4 |
300 |
|
296 |
4 |
300 |
|
|
|
|
4,505 |
45 |
4,550 |
|
4,503 |
47 |
4,550 |
Other |
|
|
|
|
|
|
|
|
Burrard
Landing Lot 2 HoldingsPartnership |
Various |
47 |
- |
47 |
|
47 |
- |
47 |
Total
consolidated debt |
|
4,552 |
45 |
4,597 |
|
4,550 |
47 |
4,597 |
Less
current portion(2) |
|
1 |
- |
1 |
|
1 |
- |
1 |
|
|
|
|
4,551 |
45 |
4,596 |
|
4,549 |
47 |
4,596 |
(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, |
|
2022 |
2021 |
|
2022 |
2021 |
Interest expense – long-term debt |
58 |
|
55 |
|
|
168 |
|
166 |
|
Amortization of senior notes
discounts |
- |
|
- |
|
|
- |
|
1 |
|
Interest income – short-term
(net) |
(1 |
) |
(1 |
) |
|
(2 |
) |
(4 |
) |
Interest on lease liabilities
(note 6) |
10 |
|
12 |
|
|
31 |
|
34 |
|
Interest expense – other |
(1 |
) |
(35 |
) |
|
(1 |
) |
(33 |
) |
|
66 |
|
31 |
|
|
196 |
|
164 |
|
10. OTHER LONG-TERM
LIABILITIES
|
May 31, 2022 |
August 31, 2021 |
Pension liabilities(1) |
2 |
21 |
Post
retirement liabilities |
5 |
5 |
|
7 |
26 |
(1) |
The pension liabilities as at May 31, 2022 relate to the Company’s
Executive Retirement Plan. For details on the changes to the
Company’s Supplemental Executive Retirement Plan, please refer to
note 5. |
11. SHARE
CAPITAL
Changes in share capital during the nine months ended May 31,
2022 are as follows:
|
Class AShares |
|
Class BShares |
|
|
Number |
$ |
|
Number |
$ |
|
August 31, 2021 |
22,372,064 |
2 |
|
476,537,262 |
4,197 |
|
Issued upon stock option plan
exercises |
- |
- |
|
454,285 |
13 |
|
Issued upon restricted share
unit exercises |
- |
- |
|
10,085 |
- |
|
May 31, 2022 |
22,372,064 |
2 |
|
477,001,632 |
4,210 |
|
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 ended November 4, 2021. As approved by the TSX, the
Company had 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.
In connection with the announcement of the Rogers-Shaw Transaction
on March 15, 2021 (as discussed in more detail in Note 1), the
Company suspended share buybacks under its NCIB program.
12. EARNINGS PER
SHARE
Earnings per share calculations are as follows:
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
2022 |
2021 |
|
2022 |
2021 |
Numerator for basic and diluted earnings per share
($) |
|
|
|
|
|
Net income |
203 |
354 |
|
|
595 |
734 |
|
Deduct:
dividends on Preferred Shares |
- |
(2 |
) |
|
- |
(6 |
) |
Net income attributable to common shareholders |
203 |
352 |
|
|
595 |
728 |
|
Denominator (millions of shares) |
|
|
|
|
|
Weighted average number of
Class A Shares and Class B Shares for basic earnings per share |
499 |
499 |
|
|
499 |
505 |
|
Effect
of dilutive securities(1) |
2 |
2 |
|
|
2 |
- |
|
Weighted average number of Class A Shares and Class B Shares for
diluted earnings per share |
501 |
501 |
|
|
501 |
505 |
|
Earnings per share ($) |
|
|
|
|
|
Basic |
0.41 |
0.71 |
|
|
1.19 |
1.44 |
|
Diluted |
0.41 |
0.70 |
|
|
1.19 |
1.44 |
|
(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, 2022, nil (May 31, 2021 – nil) and nil (May 31, 2021 –
4,072,443) options were excluded from the diluted earnings per
share calculation, respectively. |
13. 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, 2021 |
125 |
|
|
228 |
|
Increase in contract assets
from revenue recognized during the year |
84 |
|
|
- |
|
Contract assets transferred to
trade receivables |
(104 |
) |
|
- |
|
Contract terminations
transferred to trade receivables |
(16 |
) |
|
- |
|
Revenue recognized included in
contract liabilities at the beginning of the year |
- |
|
|
(219 |
) |
Increase in contract liabilities during the year |
- |
|
|
213 |
|
Balance as at May 31, 2022 |
89 |
|
|
222 |
|
|
|
|
|
|
Contract |
|
Contract |
|
Assets |
|
Liabilities |
Current |
97 |
|
213 |
Long-term |
28 |
|
15 |
Balance as at August 31, 2021 |
125 |
|
228 |
Current |
66 |
|
204 |
Long-term |
23 |
|
18 |
Balance as at May 31, 2022 |
89 |
|
222 |
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, 2022. 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, 2021 |
92 |
|
Additions to deferred
commission cost assets |
68 |
|
Amortization recognized on deferred commission cost assets |
(61 |
) |
Balance as at May 31, 2022 |
99 |
|
|
|
Current |
59 |
|
Long-term |
33 |
|
Balance as at August 31, 2021 |
92 |
|
Current |
61 |
|
Long-term |
38 |
|
Balance as at May 31, 2022 |
99 |
|
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, |
|
|
2022 |
2021 |
|
2022 |
2021 |
Services |
|
|
|
|
|
|
Wireline - Consumer |
885 |
|
935 |
|
|
2,668 |
|
2,755 |
|
|
Wireline - Business |
153 |
|
145 |
|
|
467 |
|
435 |
|
|
Wireless |
245 |
|
225 |
|
|
722 |
|
658 |
|
|
|
1,283 |
|
1,305 |
|
|
3,857 |
|
3,848 |
|
Equipment and other |
|
|
|
|
|
|
Wireless |
66 |
|
73 |
|
|
244 |
|
293 |
|
|
|
66 |
|
73 |
|
|
244 |
|
293 |
|
Intersegment eliminations |
(3 |
) |
(3 |
) |
|
(10 |
) |
(9 |
) |
Total revenue |
1,346 |
|
1,375 |
|
|
4,091 |
|
4,132 |
|
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,
2022.
|
Within |
Within |
Within |
Within |
Within |
|
|
|
1 year |
2 years |
3 years |
4 years |
5 years |
Thereafter |
Total |
Wireline |
1,770 |
772 |
155 |
84 |
22 |
3 |
2,806 |
Wireless |
337 |
102 |
- |
- |
- |
- |
439 |
Total |
2,107 |
874 |
155 |
84 |
22 |
3 |
3,245 |
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.
14. OPERATING, GENERAL
AND ADMINISTRATIVE EXPENSES AND RESTRUCTURING COSTS
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
2022 |
2021 |
|
2022 |
2021 |
Employee salaries and benefits(1) |
168 |
183 |
|
502 |
490 |
Purchase of goods and services |
534 |
551 |
|
1,679 |
1,770 |
|
702 |
734 |
|
2,181 |
2,260 |
(1) |
For the three
and nine months ended May 31, 2022, employee salaries and benefits
include $nil (2021 - $1) and $nil (2021 - $14) in restructuring
costs, respectively. |
15. OTHER GAINS
(LOSSES)
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
2022 |
2021 |
|
2022 |
2021 |
Gain on disposal of fixed assets |
1 |
|
1 |
|
|
3 |
|
3 |
|
Fair value adjustment for
private investments |
– |
|
– |
|
|
– |
|
27 |
|
Transaction costs(1) |
(8 |
) |
(18 |
) |
|
(13 |
) |
(18 |
) |
Other(2) |
4 |
|
(4 |
) |
|
(3 |
) |
(8 |
) |
|
(3 |
) |
(21 |
) |
|
(13 |
) |
4 |
|
(1) |
The Company has incurred a number of Rogers-Shaw
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 Rogers-Shaw 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. |
16. 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, 2022
are as follows:
|
|
|
Amount |
Income taxes |
Net |
Items that may subsequently be reclassified to
income |
|
|
|
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
(1 |
) |
- |
|
(1 |
) |
|
|
Adjustment for hedged items recognized in the period |
- |
|
- |
|
- |
|
|
|
|
(1 |
) |
- |
|
(1 |
) |
Items that
will not be subsequently reclassified to income |
|
|
|
|
Remeasurements on employee benefit plans |
13 |
|
(3 |
) |
10 |
|
|
|
|
12 |
|
(3 |
) |
9 |
|
Components of other comprehensive income and the
related income tax effects for the nine months ended May 31, 2022
are as follows:
|
|
|
Amount |
Income taxes |
Net |
Items that may subsequently be reclassified to
income |
|
|
|
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
1 |
- |
|
1 |
|
|
Adjustment for hedged items recognized in the period |
- |
- |
|
- |
|
|
|
1 |
- |
|
1 |
Items that
will not be subsequently reclassified to income |
|
|
|
|
Remeasurements on employee benefit plans |
55 |
(14 |
) |
41 |
|
|
|
56 |
(14 |
) |
42 |
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 |
|
Accumulated other comprehensive loss is
comprised of the following:
|
|
|
May 31, 2022 |
|
August 31, 2021 |
Items that may subsequently be reclassified to
income |
|
|
|
|
|
Change in unrealized fair value of derivatives designated as cash
flow hedges |
- |
|
|
(1 |
) |
|
|
|
|
|
|
Items that
will not be subsequently reclassified to income |
|
|
|
|
Remeasurements on employee benefit plans |
(17 |
) |
|
(58 |
) |
|
|
|
(17 |
) |
|
(59 |
) |
17. CONSOLIDATED
STATEMENTS OF CASH FLOWS
(i) |
Funds flow
from operations |
|
|
Three months ended May 31, |
|
Nine months ended May 31, |
|
|
2022 |
2021 |
|
2022 |
2021 |
Net income
from operations |
203 |
|
354 |
|
595 |
|
734 |
|
Adjustments to
reconcile net income to funds flow from operations: |
|
|
|
|
|
|
Amortization |
305 |
|
301 |
|
911 |
|
911 |
|
|
Deferred income tax expense
(recovery) |
(4 |
) |
22 |
|
(49 |
) |
75 |
|
|
Share-based compensation |
- |
|
- |
|
1 |
|
1 |
|
|
Defined benefit pension
plans |
3 |
|
3 |
|
8 |
|
6 |
|
|
Net change in contract asset
balances |
11 |
|
26 |
|
36 |
|
34 |
|
|
Fair value adjustments for
private investments |
- |
|
- |
|
- |
|
(27 |
) |
|
Other |
- |
|
2 |
|
3 |
|
1 |
|
Funds flow from operations |
518 |
|
708 |
|
1,505 |
|
1,735 |
|
|
|
|
|
|
|
|
(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, |
|
2022 |
2021 |
|
2022 |
2021 |
Interest paid |
74 |
76 |
|
186 |
186 |
Income taxes paid (net of
refunds) |
41 |
17 |
|
138 |
175 |
Interest received |
1 |
1 |
|
2 |
4 |
18. 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, 2022 |
|
August 31, 2021 |
|
Carryingvalue |
Estimatedfair value |
|
Carryingvalue |
Estimatedfair value |
Liabilities |
|
|
|
|
|
Long-term debt (including current portion)(1) |
4,552 |
4,487 |
|
4,550 |
5,263 |
(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.
19. INTANGIBLES AND
GOODWILL
Impairment testing of indefinite-life intangibles and
goodwill
The Company performs its annual impairment test
on goodwill and indefinite-life intangibles as at February 1 each
year. There have been no changes to the assets and liabilities
making up the CGUs since the last test performed as at February 1,
2021. The prior test also resulted in a recoverable amount that
exceeded the carrying amount by a substantial margin. The Company
performed a qualitative assessment of the factors impacting the
determination of recoverable amount and concluded that the
likelihood that a recoverable amount calculation as at February 1,
2022, would be less than the carrying amount of the CGUs is remote.
As such, the key assumptions used in the impairment test remain
consistent with those disclosed for the February 1, 2021 test.
As a result of the announcement Rogers and Shaw
are engaged in a process to sell Freedom Mobile conditioned on the
closure of the Rogers-Shaw Transaction, management reviewed the
estimated recoverable amount of its Wireless CGU and determined
that there was no impairment as at May 31, 2022.
20.
SUBSEQUENT EVENT
On June 17, 2022, Rogers and Shaw entered into a
divestiture agreement for the sale of Freedom Mobile to Quebecor
Inc. (“Quebecor”) for a purchase price of $2.85 billion (the
“Freedom Transaction”), which is subject to regulatory approvals
from the Commissioner and the Minister of Innovation, Science and
Industry (the “Minister”), and conditional on: (i) the completion
of the Rogers-Shaw Transaction; and (ii) entering into definitive
documentation on or before July 15, 2022, or such later date as
Rogers and Quebecor reasonably agree to in writing. Given the
circumstances surrounding the planned sale, management concluded
that this bid is not indicative of impairment.
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