FORM 6-K

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

For the month of June 2012

Commission File Number: 001-14684

Shaw Communications Inc.

(Translation of registrant’s name into English)

 

 

Suite 900, 630 – 3rd Avenue S.W., Calgary,

Alberta T2P 4L4 (403) 750-4500

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F  ¨            Form 40-F  x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ¨             No  x

If “ Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-                    

The information contained in this report on Form 6-K and any exhibits hereto shall be deemed filed with the Securities and Exchange Commission (“SEC”) solely for purpose of being and hereby are incorporated by reference into and as part of the Registration Statement on Form F-10 (File No. 333-170416) filed by the registrant under the Securities Act of 1933, as amended.

 

 

 


Shaw Communications Inc.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

MAY 31, 2012

June 28, 2012

Certain statements in this report may constitute forward-looking statements. Included herein is a “Caution Concerning Forward-Looking Statements” section which should be read in conjunction with this report.

The following Management’s Discussion and Analysis (“MD&A”) should also be read in conjunction with the unaudited interim consolidated Financial Statements and Notes thereto of the current quarter, the 2011 Annual MD&A included in the Company’s August 31, 2011 Annual Report including the Consolidated Financial Statements and the Notes thereto.

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 stated. The amounts in this MD&A and the Company’s interim financial statements for the period ended May 31, 2011 have been restated to reflect the adoption of IFRS, with effect from September 1, 2010. Periods prior to September 1, 2010 have not been restated and are prepared in accordance with Canadian GAAP. Refer to note 14 of the May 31, 2012 interim financial statements for a summary of the differences between the financial statements previously prepared under Canadian GAAP and to those under IFRS.

The unaudited IFRS related disclosures and values in this MD&A have been prepared using the standards and interpretations currently issued and expected to be effective at the end of the Company’s first annual IFRS reporting period, August 31, 2012. Certain accounting policies expected to be adopted under IFRS may not be adopted and the application of policies to certain transactions or circumstances may be modified and as a result, the May 31, 2012 and August 31, 2011 underlying values prepared on a basis consistent with IFRS are subject to change.

CONSOLIDATED RESULTS OF OPERATIONS

THIRD QUARTER ENDING MAY 31, 2012

Selected Financial Highlights

 

     Three months ended May 31,     Nine months ended May 31,  
                 Change                 Change  

($millions Cdn except per share amounts)

   2012     2011     %     2012     2011     %  

Operations:

            

Revenue

     1,278        1,285        (0.5     3,788        3,560        6.4   

Operating income before amortization (1)

     567        586        (3.2     1,626        1,570        3.6   

Operating margin (1)

     44.4     45.6     (1.2     42.9     44.1     (1.2

Funds flow from continuing operations (2)

     424        428        (0.9     944        1,077        (12.3

Net income from continuing operations

     248        203        22.2        628        392        60.2   

Per share data:

            

Earnings per share from continuing operations

            

Basic

     0.53        0.45          1.34        0.86     

Diluted

     0.53        0.45          1.33        0.86     

Weighted average participating shares outstanding during period (millions)

     441        435          440        434     
  

 

 

   

 

 

     

 

 

   

 

 

   

 

(1)

See definitions and discussion under Key Performance Drivers in MD&A.

(2) 

Funds flow from continuing operations is before changes in non-cash working capital balances related to continuing operations as presented in the unaudited interim Consolidated Statements of Cash Flows.

 

2


Shaw Communications Inc.

 

Subscriber Highlights

 

            Growth  
     Total      Three months ended May 31,     Nine months ended May 31,  
     May 31, 2012      2012     2011     2012     2011  

Subscriber statistics:

           

Basic cable customers

     2,235,546         (21,515     (13,577     (54,229     (34,781

Digital customers

     1,925,764         246        19,202        106,376        116,821   

Internet customers (including pending installs)

     1,906,168         (429     11,165        28,937        40,689   

Digital phone lines (including pending installs)

     1,339,559         29,142        31,404        106,518        113,758   

DTH customers

     908,868         (1,820     1,644        (15     2,281   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Additional Highlights

 

   

Consolidated revenue and operating income before amortization of $3.79 billion and $1.63 billion for the nine months ended May 31, 2012 improved 6.4% and 3.6%, respectively over the same period last year. The current three month period operating income before amortization of $567 million declined marginally from $586 million last year.

 

   

Free cash flow1 for the quarter and year-to-date periods was $203 million and $379 million, respectively, compared to $240 million and $568 million for the same periods last year.

Consolidated Overview

Consolidated revenue of $1.28 billion for the current quarter compares to $1.29 billion for the same period last year. Revenue for the nine month period of $3.79 billion improved 6.4% over last year. Both the current periods benefitted from rate increases in the Cable and Satellite divisions while the year-to-date period also included a full nine months of revenue from Shaw Media.

Consolidated operating income before amortization for the three month period of $567 million declined 3.2% compared to the same period last year. The revenue related growth in the Cable and Satellite divisions was offset by higher programming and employee related costs while Media declined modestly primarily due to lower conventional advertising revenues. On a year-to-date basis operating income before amortization was up 3.6% to $1.63 billion. The current year-to-date period included three full quarters of Shaw Media and revenue related growth in the Cable and Satellite divisions, partially offset by higher programming, employee related costs, and sales and marketing expenses.

Net income from continuing operations was $248 million and $628 million for the three and nine months ended May 31, 2012, respectively, compared to $203 million and $392 million for the same periods last year. Non-operating items affected net income in both periods. The prior year-to-date period included a charge of $139 million for the discounted value of the CRTC benefit obligation, net of incremental revenues, related to the Media acquisition, as well as business acquisition, integration and restructuring expenses of $90 million. Outlined below are further details on these and other operating and non-operating components of net income from continuing operations for each period.

 

1

See definitions and discussion under Key Performance Drivers in MD&A.

 

3


Shaw Communications Inc.

 

     Nine months
ended
                Nine months
ended
             

($millions Cdn)

   May 31, 2012     Operating     Non-
operating
    May 31, 2011     Operating     Non-
operating
 

Operating income

     1,027        1,027        —          1,020        1,020        —     

Amortization of financing costs – long-term debt

     (3     (3     —          (3     (3     —     

Interest expense

     (247     (247     —          (244     (244     —     

Gain on repurchase of debt

     —          —          —          10        —          10   

CRTC benefit obligations

     (2     —          (2     (139     —          (139

Business acquisition, integration and restructuring expenses

     —          —          —          (90     —          (90

Gain on remeasurement of interests in equity investments

     6        —          6        —          —          —     

Gain (loss) on derivative instruments

     1        —          1        (26     —          (26

Accretion of long-term liabilities and provisions

     (11     —          (11     (11     —          (11

Foreign exchange gain on unhedged long-term debt

     —          —          —          23        —          23   

Equity income from associates

     1        —          1        14        —          14   

Other gains (losses)

     (2     —          (2     7        —          7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     770        777        (7     561        773        (212

Current income tax expense (recovery)

     197        218        (21     167        194        (27

Deferred income tax expense (recovery)

     (55     (48     (7     2        15        (13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) from continuing operations

     628        607        21        392        564        (172
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

($millions Cdn)

   Three months
ended
                Three months
ended
             
   May 31, 2012     Operating     Non-operating     May 31, 2011     Operating     Non-operating  

Operating income

     369        369        —          408        408        —     

Amortization of financing costs – long-term debt

     (1     (1     —          (1     (1     —     

Interest expense

     (82     (82     —          (90     (90     —     

CRTC benefit obligations

     (2     —          (2      

Business acquisition, integration and restructuring expenses

     —          —          —          (29     —          (29

Gain on remeasurement of interests in equity investments

     6        —          6        —          —          —     

Loss on derivative instruments

     —          —          —          (3     —          (3

Accretion of long-term liabilities and provisions

     (4     —          (4     (5     —          (5

Other gains

     3        —          3        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     289        286        3        280        317        (37

Current income tax expense (recovery)

     51        70        (19     52        68        (16

Deferred income tax expense (recovery)

     (10     (3     (7     25        20        5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) from continuing operations

     248        219        29        203        229        (26
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

4


Shaw Communications Inc.

 

The changes in net income from continuing operations are outlined in the table below.

 

     May 31, 2012 net income from continuing
operations compared to:
 
     Three months ended     Nine months ended  
     February 29, 2012     May 31, 2011     May 31, 2011  

($millions Cdn)

                  

Increased (decreased) operating income before efore amortization

     74        (19     56   

Decreased (increased) amortization

     9        (20     (49

Decreased (increased) interest expense

     1        8        (3

Change in net other costs and revenue (1)

     3        40        205   

Decreased (increased) income taxes

     (17     36        27   
  

 

 

   

 

 

   

 

 

 
     70        45        236   
  

 

 

   

 

 

   

 

 

 

 

(1) 

Net other costs and revenue includes gain on repurchase of debt, CRTC benefit obligations, business acquisition, integration and restructuring expenses, gain on remeasurement of interests in equity investments, gain (loss) on derivative instruments, accretion of long-term liabilities and provisions, foreign exchange gain on unhedged long-term debt, other gains (losses) and equity income from associates as detailed in the unaudited interim Consolidated Statements of Income.

Basic earnings per share were $0.53 and $1.34 for the quarter and year-to-date, respectively, compared to $0.45 and $0.86 in the same periods last year. In the current quarter, reduced operating income before amortization of $19 million and increased amortization of $20 million were offset by lower net other costs and revenue and income taxes of $40 million and $36 million, respectively. The reduced net other costs and revenue related to various acquisition, integration and restructuring expenses incurred in the prior year while the lower taxes included a tax recovery related to the resolution of certain tax matters with Canada Revenue Agency (“CRA”). The year-to-date increase was primarily due to the favourable change in net other costs and revenue of $205 million along with improved operating income before amortization of $56 million and lower income taxes of $27 million. The change in net other costs and revenue was primarily due to amounts included in the prior year related to the CRTC benefit obligation and various acquisition, integration and restructuring costs. Operating income before amortization was up in the current period due to the inclusion of Shaw Media for the full nine months and the lower taxes included a tax recovery related to the resolution of certain tax matters with CRA. These improvements were partially reduced by increased amortization of $49 million.

Net income in the current quarter increased $70 million compared to the second quarter of fiscal 2012 driven by improved operating income before amortization of $74 million primarily due to seasonality in the Media business as well as improved operating income in the Cable and Satellite divisions.

Free cash flow for the quarter and year-to-date periods of $203 million and $379 million, respectively, compared to $240 million and $568 million in the same periods last year. The decrease in the current quarter was mainly due to higher capital investment of $16 million and lower operating income before amortization. The lower year-to-date amount was mainly due to higher capital investment of $153 million related to the strategic initiatives and customer equipment subsidies, as well as increased interest, cash taxes, and CRTC benefit funding of $18 million, $24 million, and $16 million, respectively, partially offset by improved operating income before amortization of $56 million. Operating income before amortization was up due to the full nine month inclusion of Media.

 

5


Shaw Communications Inc.

 

During the quarter the Company announced the opening of its first store in Calgary offering a new retail experience as part of its continued investment in defining the customer experience. The new store showcases all of Shaw’s products and services through a unique technology experience of interactive displays along with hands on training and technical support.

Shaw continues to make a positive contribution in the communities across Canada. During the quarter Shaw concluded its Fill the Food Banks Campaign, a national initiative to raise awareness and donations for food banks across the country. Shaw partnered with Campbell Canada, Food Banks Canada and Purolator and, together with Shaw employees, customers and members of the community donated 1.2 million pounds of food and over $0.6 million. During the quarter Shaw also hosted the A World of Smiles telethon raising almost $0.4 million for BC Children’s Hospital.

Key Performance Drivers

The Company’s continuous disclosure documents may provide discussion and analysis of non-IFRS financial measures. These financial measures do not have standard definitions prescribed by IFRS and therefore may not be comparable to similar measures disclosed by other companies. The Company’s continuous disclosure documents may also provide discussion and analysis of additional GAAP measures. Additional GAAP measures include line items, headings, and sub-totals included in the financial statements. The Company utilizes these measures in making operating decisions and assessing its performance. Certain investors, analysts and others, utilize these measures in assessing the Company’s operational and financial performance and as an indicator of its ability to service debt and return cash to shareholders. The non-IFRS financial measures and additional GAAP measures have not been presented as an alternative to net income or any other measure of performance required by IFRS.

The following contains a listing of non-IFRS financial measures and additional GAAP measures used by the Company and provides a reconciliation to the nearest IFRS measure or provides a reference to such reconciliation.

Operating income before amortization and operating margin

Operating income before amortization is calculated as revenue less operating, general and administrative expenses and is presented as a sub-total line item in the Company’s unaudited interim Consolidated Statements of Income. It is intended to indicate the Company’s ability to service and/or incur debt, and therefore it is calculated before amortization (a non-cash expense) and interest. Operating income before amortization is also one of the measures used by the investing community to value the business. Operating margin is calculated by dividing operating income before amortization by revenue.

Free cash flow

The Company utilizes this measure to assess the Company’s ability to repay debt and return cash to shareholders.

 

6


Shaw Communications Inc.

 

Free cash flow is calculated as operating income before amortization, less interest, cash taxes paid or payable, capital expenditures (on an accrual basis and net of proceeds on capital dispositions) and equipment costs (net), adjusted to exclude share-based compensation expense, less cash amounts associated with funding the new and assumed CRTC benefit obligations related to the acquisition of Shaw Media as well as excluding non-controlling interest amounts that are consolidated in the operating income before amortization, capital expenditure and cash tax amounts. Free cash flow also includes changes in receivable related balances with respect to customer equipment financing transactions as a cash item, and is adjusted for cash funding of pension amounts net of pension expense. Dividends paid on the Company’s Cumulative Redeemable Rate Reset Preferred Shares are also deducted.

Commencing in 2012 free cash flow has not been reported on a segmented basis. Certain components of free cash flow including operating income before amortization, capital expenditures (on an accrual basis) net of proceeds on capital dispositions and equipment costs (net), CRTC benefit obligation funding, and non-controlling interest amounts continue to be 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 Cdn)

   2012     2011 (2)     Change
%
    2012     2011 (2)     Change
%
 

Revenue

            

Cable

     794        785        1.1        2,390        2,312        3.4   

Satellite

     211        210        0.5        631        620        1.8   

Media

     295        312        (5.4     836        681        22.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,300        1,307        (0.5     3,857        3,613        6.8   

Intersegment eliminations

     (22     (22     —          (69     (53     30.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,278        1,285        (0.5     3,788        3,560        6.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income before amortization (1)

            

Cable

     377        392        (3.8     1,106        1,114        (0.7

Satellite

     76        76        —          216        216        —     

Media

     114        118        (3.4     304        240        26.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     567        586        (3.2     1,626        1,570        3.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Capital expenditures and equipment costs (net):

            

Cable

     169        152        11.2        626        486        28.8   

Satellite

     17        16        6.3        67        58        15.5   

Media

     5        7        (28.6     18        14        28.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total as per Note 3 to the unaudited interim Consolidated Financial Statements

     191        175        9.1        711        558        27.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow before the following

     376        411        (8.5     915        1,012        (9.6

Less:

            

Interest

     (82     (85     (3.5     (246     (228     7.9   

Cash taxes

     (70     (68     2.9        (218     (194     12.4   

Other adjustments:

            

Non-cash share-based compensation

     2        2        —          5        7        (28.6

CRTC benefit obligation funding

     (10     (8     25.0        (31     (15     >100.0   

Non-controlling interests

     (10     (6     66.7        (30     (17     76.5   

Pension adjustment

     3        3        —          11        12        (8.3

Customer equipment financing

     (3     (9     (66.7     (16     (9     77.8   

Preferred share dividends

     (3     —          >100.0        (11     —          >100.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow (1)

     203        240        (15.4     379        568        (33.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin (1)

            

Cable

     47.5     49.9     (2.4     46.3     48.2     (1.9

Satellite

     36.0     36.2     (0.2     34.2     34.8     (0.6

Media

     38.6     37.8     0.8        36.4     35.2     1.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

See definitions and discussion under Key Performance Drivers in MD&A.

(2) 

Restated to reflect changes in the calculation related to the pension adjustment and customer equipment financing.

 

7


Shaw Communications Inc.

 

CABLE

FINANCIAL HIGHLIGHTS

 

     Three months ended May 31,     Nine months ended May 31,  

($millions Cdn)

   2012     2011     Change
%
    2012     2011     Change
%
 

Revenue

     794        785        1.1        2,390        2,312        3.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income before amortization (1)

     377        392        (3.8     1,106        1,114        (0.7

Capital expenditures and equipment costs (net):

            

New housing development

     26        19        36.8        75        65        15.4   

Success based

     43        43        —          208        149        39.6   

Upgrades and enhancement

     65        62        4.8        243        186        30.6   

Replacement

     11        10        10.0        32        33        (3.0

Buildings and other

     24        18        33.3        68        53        28.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total as per Note 3 to the unaudited interim

Consolidated Financial Statements

     169        152        11.2        626        486        28.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin (1)

     47.5     49.9     (2.4     46.3     48.2     (1.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

See definitions and discussion under Key Performance Drivers in MD&A.

Operating Highlights

 

 

Digital Phone lines increased 29,142 during the three month period to 1,339,559 and Internet customers were consistent with the prior quarter totaling 1,906,168 as at May 31, 2012. During the quarter Basic cable subscribers decreased 21,515.

 

 

Shaw’s Digital penetration of Basic is now 86.1%, up from 79.5% and 70.7% at August 31, 2011 and 2010, respectively.

Cable revenue for the three and nine month periods of $794 million and $2.39 billion improved 1.1% and 3.4%, respectively, over the comparable periods last year. Rate increases and customer growth in Internet and Digital Phone partially offset by lower Basic subscribers accounted for the improvement.

Operating income before amortization of $377 million for the quarter decreased 3.8% compared to the same period last year. Revenue growth and lower marketing and sales related expenses were more than offset by higher employee related amounts, mainly related to annual merit increases and employee growth to bring new customer service centres on line, and also higher programming amounts related to new services and increased rates as contracts renewed.

Operating income before amortization for the year-to-date period declined modestly over last year. The revenue improvement was offset by increased employee related expenses, programming costs, and marketing and sales related spend.

Revenue decreased 1.2% compared to the second quarter of fiscal 2012 primarily due to declines in On Demand and lower Cable subscribers, partially offset by reduced promotional discounts and growth in Digital Phone. Operating income before amortization improved $25 million over this same period primarily due to lower sales, marketing and various other expenses. As a result margins increased from 43.8% in the second quarter to 47.5%. Capital expenditures declined $65 million compared to the prior quarter. The decrease was due to lower success based spend arising from higher pricing on digital boxes, lower Digital Network Upgrade (“DNU”) related activations and reduced modem purchases; along with lower upgrades and enhancements due to prior quarter bulk purchasing of network electronics and plant gear in support of the DNU.

 

8


Shaw Communications Inc.

 

Total capital investment of $169 million and $626 million for the current quarter and nine month periods increased $17 million and $140 million, respectively, over the same periods last year.

Success-based capital was in line with the prior year quarter and up $59 million over the comparable nine month period. The increase was primarily due to higher subsidies on sales of HDPVRs resulting from lower customer pricing and increased volumes, deployment of digital boxes related to the DNU, and investment in wireless internet modems. These increases were partially offset by lower HDPVR rentals and phone modem purchases.

Investment in Upgrades and enhancement and Replacement categories combined increased $4 million and $56 million for the quarter and year-to-date periods, respectively, compared to the same periods last year. The year-to-date investment included higher spending on hub upgrades and network electronics related to the DNU, Digital Phone infrastructure to support business growth and soft-switch upgrades, and investment related to the Wi-Fi build.

Investment in Buildings and other was up $6 million and $15 million, respectively, over the comparable three and nine month periods. The increase was mainly due to higher spend related to back office infrastructure replacement projects, as well as facility investment related to the Calgary data centre, customer service centres and new retail location.

Spending in New housing development increased $7 million and $10 million, respectively, over the comparable three and nine month periods mainly due to higher activity.

During the quarter Shaw Business announced multi-year agreements with the City of Winnipeg and BC Biomedical Laboratories. Telecommunication services provided by Shaw Business deliver standard and customized offerings on a competitive basis.

 

9


Shaw Communications Inc.

 

Subscriber Statistics

 

                 May 31, 2012  
                 Three months ended     Nine months ended  
     May 31,
2012
    August 31,
2011
    Growth     Change
%
    Growth     Change
%
 

CABLE:

            

Basic service:

            

Actual

     2,235,546        2,289,775        (21,515     (1.0     (54,229     (2.4

Penetration as % of homes passed

     56.8     59.0        

Digital customers

     1,925,764        1,819,388        246        —          106,376        5.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INTERNET:

            

Connected and scheduled

     1,906,168        1,877,231        (429     —          28,937        1.5   

Penetration as % of basic

     85.3     82.0        

Standalone Internet not included in basic cable

     216,554        217,068        13,019        6.4        (514     (0.2

DIGITAL PHONE:

            

Number of lines (1)

     1,339,559        1,233,041        29,142        2.2        106,518        8.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Represents primary and secondary lines on billing plus pending installs.

SATELLITE (DTH and Satellite Services)

FINANCIAL HIGHLIGHTS

 

     Three months ended May 31,     Nine months ended May 31,  

($millions Cdn)

   2012     2011     Change
%
    2012     2011     Change
%
 

Revenue

            

DTH (Shaw Direct)

     190        189        0.5        570        558        2.2   

Satellite Services

     21        21        —          61        62        (1.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     211        210        0.5        631        620        1.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income before amortization (1)

            

DTH (Shaw Direct)

     66        65        1.5        186        184        1.1   

Satellite Services

     10        11        (9.1     30        32        (6.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     76        76        —          216        216        —     

Capital expenditures and equipment costs (net):

            

Success based (2)

     16        15        6.7        61        55        10.9   

Buildings and other

     1        1        —          6        3        100.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total as per Note 3 to the unaudited interim Consolidated Financial Statements

     17        16        6.3        67        58        15.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin (1)

     36.0     36.2     (0.2     34.2     34.8     (0.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

See definitions and discussion under Key Performance Drivers in MD&A.

(2) 

Net of the profit on the sale of satellite equipment as it is viewed as a recovery of expenditures on customer premise equipment.

Operating Highlights

 

 

Revenues for the quarter and year-to-date periods were up 0.5% and 1.8%, respectively, over last year. Operating income before amortization for the three and nine month periods of $76 million and $216 million were consistent with the prior year periods.

Revenue of $211 million and $631 million for the three and nine month periods, respectively, was up 0.5% and 1.8% over the same periods last year. The improvement was primarily due to rate increases. Operating income before amortization of $76 million and $216 million for the three and nine month periods, respectively, were comparable to the same periods last year.

 

10


Shaw Communications Inc.

 

Operating income before amortization improved $5 million over the second quarter of fiscal 2012 primarily due to the full quarter impact of the February 2012 rate increases and lower sales and marketing expenditures.

Total capital investment of $17 million and $67 million for the three and nine month periods, respectively, compared to $16 million and $58 million in the same periods last year. The year-to-date increase was mainly due to new customer activations, customer equipment upgrades to new receivers, outfitting outdoor equipment to access triple satellites, and purchases of uplink ground equipment for the new Anik G1 satellite. Construction of Anik G1, which will provide capacity to add over 100 HD channels, continues to progress and is on track for a fall launch.

During the quarter, Shaw Direct launched National Geographic Wild HD, the 11th HD channel launched this year. Shaw Direct now has over 565,000 HD customers representing an HD penetration of over 60%.

Also in the quarter Shaw Direct completed and implemented a marketing and sales agreement with Xplornet to offer a DTH and satellite high speed internet service. More recently, Shaw Direct became the first Canadian DTH service to offer a video-on-demand service using adaptive streaming technology directly to satellite set-top receivers. This internet based service was launched with over 1,500 movie and TV titles. Additional titles will be added over the next few months.

Subscriber Statistics

 

                   May 31, 2012  
                   Three months ended      Nine months ended  
     May 31, 2012      August 31, 2011      Growth     Change
%
     Growth     Change
%
 

DTH customers (1)

     908,868         908,883         (1,820     —           (15     —     
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(1) 

Including seasonal customers who temporarily suspend their service.

 

11


Shaw Communications Inc.

 

MEDIA

FINANCIAL HIGHLIGHTS

 

     Three months ended May 31,     Nine months
ended
   

Period from

October 27,2010

       

($millions Cdn)

   2012     2011     Change
%
    May 31, 2012     to
May 31, 2011
    Change
%
 

Revenue

     295        312        (5.4     836        681        22.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income before amortization (1)

     114        118        (3.4     304        240        26.7   

Capital expenditures:

            

Broadcast and transmission

     1        4        (75.0     7        7        —     

Buildings and other

     4        3        33.3        11        7        57.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total as per Note 3 to the unaudited interim Consolidated Financial Statements

     5        7        (28.6     18        14        28.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other adjustments:

            

CRTC benefit obligation funding

     (10     (8     25.0        (31     (15     >100.0   

Non-controlling interests

     (10     (6     66.7        (30     (17     76.5   

Operating margin (1)

     38.6     37.8     0.8        36.4     35.2     1.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

See definitions and discussion under Key Performance Drivers in MD&A.

Operating Highlights

Revenue and operating income before amortization for the quarter of $295 million and $114 million, respectively, compared to $312 million and $118 million last year. Revenue for the quarter was down 5.4% mainly due to lower conventional advertising revenues. Operating income decreased 3.4% due to the revenue decline partially offset by lower programming costs and various other expenses.

For informational purposes, on a comparative basis to the full nine months ended May 31, 2011, Media revenues and operating income before amortization were each down approximately 3%, reflecting the softness in the advertising market as a result of continuing economic uncertainty. Advertising revenue in the nine month period was driven by spend in the automotive, household supplies, service and direct marketing categories.

Compared to the second quarter of fiscal 2012, revenue and operating income before amortization increased $53 million and $44 million, respectively. The increases were primarily due to the cyclical nature of the Media business, with higher advertising revenues in the first and third quarters driven by the launches of season premieres in the first quarter and season finales and mid season launches in the third quarter.

During the quarter, Global delivered solid programming results, increasing the number of Top 20 positions nationally with Glee, House and Survivor leading as top performing shows. The quarter also saw high audience delivery on the season finales of Hawaii 5-0, Survivor, Bones, Glee and the series finale of House.

The Media specialty portfolio continues to lead the channel rankings in the adult 25-54 category, with 4 of the Top 10 Analog services, including History as the top entertainment network in Canada, and 7 of the Top 10 Digital services, with National Geographic as the leading Digital channel. National Geographic and Action’s strong audience results rank the channels within the Top 20 Analog services. In the quarter Shaw Media launched National Geographic Wild and announced the launches of Lifetime and H2 in late August.

 

12


Shaw Communications Inc.

 

The on-line business continued to move forward in the quarter by signing an exclusive sales representation agreement with CBS Interactive which includes their full suite of on-line properties, such as CBS, CBS News, CBS Sports and CNET.

Capital investment continued on various projects and included upgrading production equipment, infrastructure and facility investments.

OTHER INCOME AND EXPENSE ITEMS

Amortization

 

     Three months ended May 31,      Nine months ended May 31,  

($millions Cdn)

   2012     2011     Change
%
     2012     2011     Change
%
 

Amortization revenue (expense) -

             

Deferred equipment revenue

     29        26        11.5         85        79        7.6   

Deferred equipment costs

     (59     (51     15.7         (169     (153     10.5   

Property, plant and equipment, intangibles

and other

     (168     (153     9.8         (515     (476     8.2   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Amortization of deferred equipment revenue and deferred equipment costs increased over the comparative periods due to the sales mix of equipment and changes in customer pricing on certain equipment.

Amortization of property, plant and equipment, intangibles and other increased over the comparable periods as the amortization of new expenditures and inclusion of the Media division for the full nine months in the current year exceeded the impact of assets that became fully depreciated.

Amortization of financing costs and Interest expense

 

     Three months ended May 31,     Nine months ended May 31,  

($millions Cdn)

   2012      2011      Change
%
    2012      2011      Change
%
 

Amortization of financing costs – long-term debt

     1         1         —          3         3         —     

Interest expense

     82         90         (8.9     247         244         1.2   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Interest expense fluctuated over the comparative periods primarily due to changes in debt levels. Approximately $1 billion was required to complete the Media acquisition in October 2010 including repayment of a term loan and breakage of related currency swaps. The transaction was initially funded by the Company’s credit facility which was subsequently repaid during the second quarter of 2011 with the net proceeds from the three senior notes offerings totaling $1.3 billion. In addition, the Company assumed US $338 million senior unsecured notes as part of the Media transaction of which US $56 million were repurchased in December 2010 and remaining US $282 million redeemed in the fourth quarter of 2011.

 

13


Shaw Communications Inc.

 

Gain on repurchase of debt

During the second quarter of the prior year, the Company repurchased and cancelled US $56 million of the Media unsecured notes and recorded a gain of $10 million as result of recognizing the related remaining unamortized acquisition date fair value adjustment.

CRTC benefit obligations

As part of the CRTC decisions approving the acquisition of Mystery and The Cave during the current quarter and the Media acquisition during the first quarter of 2011, the Company is required to contribute approximately $2 million and $180 million, respectively in new benefits to the Canadian broadcasting system over the following seven years. The fair value of the obligations of $2 million and $139 million have been recorded in the income statement.

Business acquisition, integration and restructuring expenses

During the three and nine months ended May 31, 2011, the Company recorded $29 million and $90 million, respectively related to the acquisition of the broadcasting business of Canwest and organizational restructuring. Amounts included acquisition related costs to effect the acquisition, such as professional fees paid to lawyers and consultants. The integration and restructuring costs related to integrating the new business and increasing organizational effectiveness for future growth as well as package costs for the former CEO.

Gain on remeasurement of interests in equity investments

The Company recorded a $6 million gain in respect of remeasurement to fair value of the Company’s 50% interest in Mystery and 49% interest in The Cave which were held prior to the acquisition on May 31, 2012. The fair value of the Company’s equity interest in these specialty channels held prior to the acquisition was $19 million compared to a carrying value of $13 million.

Gain (loss) on derivative instruments

For derivative instruments where hedge accounting is not permissible or derivatives are not designated in a hedging relationship, the Company records changes in the fair value of derivative instruments in the income statement. In addition, the Media senior unsecured notes had a variable prepayment option which represented an embedded derivative that was accounted for separately at fair value until the Company gave notice of redemption in the fourth quarter of 2011. The fluctuation in amounts recorded in 2012 compared to 2011 is due to a reduction in the number of outstanding contracts as well as the amounts recorded in respect of the embedded derivative in the prior year.

 

 

14


Shaw Communications Inc.

 

Accretion of long-term liabilities and provisions

The Company records accretion expense in respect of the discounting of certain long-term liabilities and provisions which are accreted to their estimated value over their respective terms. The expense is primarily in respect of CRTC benefit obligations as well as the liability which arose in 2010 when the Company entered into amended agreements with the counterparties to certain cross-currency agreements to fix the settlement of the principal portion of the swaps in December 2011.

Foreign exchange gain on unhedged long-term debt

In conjunction with the Media business acquisition in October 2010, the Company assumed a US $390 million term loan and US $338 million senior unsecured notes. Shortly after closing the acquisition, the Company repaid the term loan including breakage of the related cross currency interest rate swaps. A portion of the senior unsecured notes were repurchased during the second quarter of 2011 and the Company elected to redeem the remaining notes in the fourth quarter. As a result of fluctuations of the Canadian dollar relative to the US dollar, a foreign exchange gain of $23 million was recorded for the nine months ended May 31, 2011.

Other gains (losses)

This category generally includes realized and unrealized foreign exchange gains and losses on US dollar denominated current assets and liabilities, gains and losses on disposal of property, plant and equipment and minor investments, and the Company’s share of the operations of Burrard Landing Lot 2 Holdings Partnership.

Income taxes

Income taxes fluctuated over the comparative periods due to a tax recovery included in the current year related to resolution with CRA on certain tax matters.

Equity income from associates

During the first quarter of the prior year, the Company recorded income of $14 million primarily in respect of its 49.9% equity interest in CW Media Investments Co. (“CW Media”) for the period September 1 to October 26, 2010. On October 27, 2010, the Company acquired the remaining equity interest in CW Media as part of its purchase of all the broadcasting assets of Canwest. Results of operations are consolidated effective October 27, 2010. The remaining equity income is in respect of interests in several specialty channels.

Loss from discontinued operations

During the fourth quarter of 2011, the Company discontinued further construction of its traditional wireless network and accordingly, all traditional wireless activities in the comparative year have been classified as discontinued operations.

 

15


Shaw Communications Inc.

 

RISKS AND UNCERTAINTIES

The significant risks and uncertainties affecting the Company and its business are discussed in the Company’s August 31, 2011 Annual Report under the Introduction to the Business – Known Events, Trends, Risks and Uncertainties in Management’s Discussion and Analysis.

FINANCIAL POSITION

Total assets at May 31, 2012 were $12.7 billion compared to $12.6 billion at August 31, 2011. Following is a discussion of significant changes in the consolidated statement of financial position since August 31, 2011.

Current assets decreased $110 million primarily due to decreases in cash of $191 million and assets held for sale of $15 million partially offset by increases in accounts receivable of $61 million, inventories of $24 million and other current assets of $11 million. Cash decreased as the cash outlay for investing and financing activities exceeded the funds provided by operations. Assets held for sale decreased as the sale of the wireless assets was completed during the first quarter. Accounts receivable were up primarily due to higher advertising revenue during the third quarter of the current year in comparison to the fourth quarter of the prior year. Inventories were higher due to timing of equipment purchases while other current assets were up primarily as a result of increases in program rights and prepaid maintenance and support contracts.

Property, plant and equipment increased $60 million as current year capital investment exceeded amortization.

Other long-term assets were up $72 million primarily due to an increase in deferred equipment costs and related customer equipment financing receivables.

Intangibles increased $72 million due to higher program rights and advances and the broadcast licenses recorded on the acquisition of Mystery and The Cave in the current quarter. Program rights and advances (current and noncurrent) increased as advances and additional investment in acquired rights exceeded the amortization for the current year. The increase in goodwill of $2 million is due to the aforementioned acquisition of Mystery and The Cave.

Current liabilities were up $213 million due to increases in income taxes payable of $21 million and current portion of long-term debt of $449 million partially offset by decreases in accounts payable and accrued liabilities of $90 million, other current liability of $161 million and derivative instruments of $8 million. Income taxes payable increased due to the current year provision partially offset by tax installment payments. The current portion of long-term debt increased and long-term debt decreased due to the reclassification of the 6.1% $450 million senior notes which are due in November 2012. Accounts payable and accrued liabilities decreased due to lower trade and other payables primarily in respect of timing of payment of capital expenditures and interest payments partially offset by the amount owing in respect of the acquisition of Mystery and The Cave. The other liability decreased due to settlement of previously amended cross-currency interest rate agreements and derivative instruments decreased due to settlement of contracts.

 

16


Shaw Communications Inc.

 

Other long-term liabilities increased $73 million due to the actuarial losses recorded on employee benefit plans.

Deferred credits were up $10 million due to an increase in deferred equipment revenue partially offset by amortization of deferred IRU revenue.

Deferred income tax liabilities, net of deferred income tax assets, decreased $73 million due to the current year recovery.

Shareholders’ equity increased $318 million primarily due to increases in share capital of $86 million, retained earnings of $273 million and non-controlling interests of $12 million partially offset by an increase in accumulated other comprehensive loss of $57 million. Share capital increased due to the issuance of 4,367,298 Class B Non-Voting Shares under the Company’s option plan and Dividend Reinvestment Plan (“DRIP”). As of June 15, 2012, share capital is as reported at May 31, 2012 with the exception of the issuance of a total of 24,000 Class B Non-Voting Shares upon exercise of options under the Company’s option plan subsequent to the quarter end. Retained earnings increased due to current year earnings of $599 million partially offset by dividends of $326 million while non-controlling interests increased as their share of earnings exceeded the distributions declared during the year. Accumulated other comprehensive loss increased due to the actuarial loss recorded on employee benefit plans.

LIQUIDITY AND CAPITAL RESOURCES

In the current year, the Company generated $379 million of free cash flow. Shaw used its free cash flow along with cash of $191 million, proceeds on issuance of Class B Non-Voting Shares of $13 million and other net items of $23 million to fund the $162 million on settlement of amended cross-currency interest rate agreements, pay common share dividends of $238 million, fund the net change in working capital requirements and inventory of $151 million and invest an additional net $55 million in program rights.

During the second quarter, the Company entered into a five-year $1 billion bank credit facility which includes a revolving term facility to a maximum of $50 million and matures in January 2017. This facility replaces the prior credit and operating loan facilities which were scheduled to mature in May 2012. The new facility will be used for general corporate purposes.

On November 29, 2011 Shaw received the approval of the TSX to renew its normal course issuer bid to purchase its Class B Non-Voting Shares for a further one year period. The Company is authorized to acquire up to 20,000,000 Class B Non-Voting Shares during the period December 1, 2011 to November 30, 2012. No shares have been repurchased during the current year.

The Company issues Class B Non-Voting Shares from treasury under its DRIP which resulted in cash savings and incremental Class B Non-Voting Shares of $71 million during the nine months ending May 31, 2012.

Based on available credit facilities and forecasted free cash flow, the Company expects to have sufficient liquidity to fund operations and obligations during the current fiscal year. On a longer-term basis, Shaw expects to generate free cash flow and have borrowing capacity sufficient to finance foreseeable future business plans and refinance maturing debt.

 

17


Shaw Communications Inc.

 

CASH FLOW

Operating Activities

 

     Three months ended May 31,     Nine months ended May 31,  

($millions Cdn)

   2012     2011     Change
%
    2012     2011     Change
%
 

Funds flow from continuing operations

     424        428        (0.9     944        1,077        (12.3

Net increase in non-cash working capital balances related to continuing operations

     (74     (59     25.4        (81     (303     (73.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     350        369        (5.1     863        774        11.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Funds flow from continuing operations decreased over the comparative nine month period as the higher operating income before amortization adjusted for non-cash program rights expenses in the current year and charges in the prior year for termination of swap contracts and business acquisition, integration and restructuring expenses were more than offset by the combined impact of the settlement of the amended cross-currency interest rate agreements as well as higher current income taxes, program rights purchases and CRTC benefit obligation funding in the current year. The net change in non-cash working capital balances related to continuing operations fluctuated over the comparative periods due to fluctuations in accounts receivable and the timing of payment of current income taxes payable and accounts payable and accrued liabilities.

Investing Activities

 

     Three months ended May 31,      Nine months ended May 31,  

($millions Cdn)

   2012     2011     Decrease      2012     2011     Decrease  

Cash flow used in investing activities

     (167     (172     5         (792     (1,066     274   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The cash used in investing activities decreased over the comparable nine month period due to amounts paid to complete the Media business acquisition in the first quarter of 2011 partially offset by the higher capital expenditures in the current year.

 

18


Shaw Communications Inc.

 

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 Cdn)

   2012     2011     2012     2011  

Bank loans and bank indebtedness – net borrowings (repayments)

     —          (75     —          —     

Bank credit facility arrangement costs

     —          —          (4     —     

Issuance of Cdn $500 million 5.50% senior notes

     —          —          —          498   

Issuance of Cdn $800 million 6.75% senior notes

     —          —          —          779   

Senior notes issuance costs

     —          (10     —          (17

Repayment of CW Media US $390 million term loan

     —          —          —          (395

Repurchase US $56 million of CW Media 13.5% senior notes

     —          —          —          (56

Senior notes repurchase premium

     —          —          —          (1

Dividends

     (86     (90     (249     (281

Issuance of Class B Non-Voting Shares

     4        9        14        33   

Issuance of preferred shares

     —          300        —          300   

Distributions paid to non-controlling interests

     (5     (9     (19     (14

Repayment of Partnership debt

     (1     (1     (1     (1
  

 

 

   

 

 

   

 

 

   

 

 

 
     (88     124        (259     845   
  

 

 

   

 

 

   

 

 

   

 

 

 

SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION

 

($millions Cdn except

per share amounts)

   Revenue      Operating
income before

amortization(1)
     Net income
from
continuing
operations
attributable
to common
shareholders
     Net income
attributable
to common
shareholders
     Net
income(2)
     Basic
earnings per
share from
continuing
operations(3)
     Basic
earnings
per  share(4)
 

IFRS

                    

2012

                    

Third

     1,278         567         238         238         248         0.53         0.53   

Second

     1,231         493         169         169         178         0.38         0.38   

First

     1,279         566         192         192         202         0.43         0.43   

2011

                    

Fourth

     1,181         481         164         81         84         0.38         0.19   

Third

     1,285         586         197         195         201         0.45         0.45   

Second

     1,196         505         166         163         169         0.38         0.37   

First

     1,079         479         13         12         16         0.03         0.03   

Canadian GAAP

                    

2010

                    

Fourth

     939         424         123         122         122         0.28         0.28   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

See definition and discussion under Key Performance Drivers in MD&A.

(2) 

Net income attributable to both common shareholders and non-controlling interests.

(3) 

Diluted earnings per share from continuing operations is the same as basic earnings per share from continuing operations except in the fourth quarter of 2011 where it is $0.37.

(4) 

Diluted earnings per share is the same as basic earnings per share except in the fourth quarter of 2011 where it is $0.18.

 

19


Shaw Communications Inc.

 

Generally, revenue and operating income before amortization have grown quarter-over-quarter mainly due to customer growth and rate increases with the exception of the fourth quarter of 2011 and second quarter of 2012. In the second quarter of 2012, revenue and operating income before amortization decreased by $48 million and $73 million, respectively due to the seasonality of the Media business with higher revenues in the first quarter driven by the fall launch of season premieres and high demand as well as lower operating income before amortization in the Cable division. Operating expenses increased in the second quarter which included employee related costs, mainly related to bringing the new customer service centres on line, as well as higher marketing, sales and programming costs. In the fourth quarter of 2011, revenue and operating income before amortization declined $104 million and $105 million, respectively, due to the cyclical nature of the Media business with lower advertising revenues in the summer months.

Net income has fluctuated quarter-over-quarter primarily as a result of the growth in operating income before amortization described above and the impact of the net change in non-operating items. In the third quarter of 2012, net income increased by $70 million due to higher operating income before amortization of $74 million and lower amortization of $9 million partially offset by increased income tax expense of $17 million. In the second quarter of 2012, net income decreased by $24 million due to a decline in operating income before amortization of $73 million partially offset by lower income tax expense of $53 million. Net income increased by $118 million in the first quarter of 2012 due to the combined impact of higher operating income before amortization of $85 million and income tax expense of $18 million in the first quarter and the loss from discontinued operations of $84 million and gain on redemption of debt of $23 million recorded in the preceding quarter. The first and second quarters of 2011 were impacted by the Media acquisition. As a result, net income declined by $106 million in the first quarter of 2011 as the higher operating income before amortization of $55 million due to the contribution from the new Media division and lower income taxes of $22 million were offset by the CRTC benefit obligation of $139 million and acquisition, integration and restructuring costs of $58 million. Net income increased $153 million in the second quarter of 2011 due to the impact of the broadcasting business acquisition in the immediately preceding quarter and higher operating income before amortization and foreign exchange gain on unhedged long-term debt, the total of which was partially offset by increases in interest expense, loss on derivative instruments and income tax expense. During the third quarter of 2011 net income increased by $32 million due to higher operating income before amortization and a lower loss on derivative instruments partially offset by increased income taxes, a lower foreign exchange gain on unhedged long-term debt and the impact of the restructuring activities undertaken by the Company. In the fourth quarter of 2011 net income declined $117 million due to lower operating income before amortization of $105 million and the loss of $83 million in respect of the wireless discontinued operations partially offset by the gain on redemption of debt and the aforementioned restructuring activities in the previous quarter. As a result of the aforementioned changes in net income, basic and diluted earnings per share have trended accordingly.

 

20


Shaw Communications Inc.

 

ACCOUNTING STANDARDS

Update to critical accounting policies and estimates

The MD&A included in the Company’s August 31, 2011 Annual Report outlined critical accounting policies including key estimates and assumptions that management has made under these policies and how they affect the amounts reported in the Consolidated Financial Statements. The MD&A also describes significant accounting policies where alternatives exist.

On September 1, 2011 with the adoption of IFRS the critical accounting policies have been updated to conform with this adoption. Refer to Note 2 of the Company’s unaudited interim consolidated financial statements for a detailed discussion regarding the Company’s significant accounting policies, application of critical accounting estimates and recent accounting pronouncements.

Adoption of recent accounting pronouncements

In February 2008, the CICA Accounting Standards Board confirmed that Canadian publicly accountable enterprises would be required to adopt IFRS, as issued by the International Accounting Standards Board, for fiscal periods beginning on or after January 1, 2011. These standards required the Company to begin reporting under IFRS in the first quarter of fiscal 2012 with comparative data for the prior year. Refer to note 14 to the unaudited interim consolidated financial statements for a summary of the differences between financial statements previously prepared under Canadian GAAP and those prepared under IFRS as at September 1, 2010, for the three and nine months ended May 31, 2011 and as at and for the year ended August 31, 2011.

Recent accounting pronouncements:

The Company has not yet adopted certain standards, interpretations and amendments that have been issued but are not yet effective. Unless otherwise indicated, the following standards are required to be applied for periods beginning on or after September 1, 2013. The following pronouncements are being assessed to determine their impact on the Company’s results and financial position.

 

 

IFRS 9, Financial Instruments, is required to be applied for annual periods commencing September 1, 2015

 

 

Other than for the disclosure requirements therein, the requirements of the following standards and amended standards must be initially applied concurrently:

 

   

IFRS 10, Consolidated Financial Statements

 

   

IFRS 11, Joint Arrangements

 

 

   

IFRS 12, Disclosure of Interests in Other Entities

 

   

IAS 27, Separate Financial Statements (amended 2011)

 

   

IAS 28, Investments in Associates (amended 2011)

 

 

IFRS 13, Fair Value Measurement

 

 

IAS 12, Income Taxes (amended 2011), is required to be applied for periods beginning on or after September 1, 2012

 

 

IAS 19, Employee Benefits (amended 2011)

 

 

IAS 1, Presentation of Financial Statements, amendments regarding presentation of items of other comprehensive income and is required to be applied for annual periods commencing September 1, 2012

 

21


Shaw Communications Inc.

 

2012 GUIDANCE

The Company expects to deliver consolidated free cash flow of approximately $450 million and anticipates a marginal decline in Cable operating income before amortization year-over-year, modest growth in Satellite, and consistent operating income before amortization on a full year-over-year comparative basis in Media. The Company expects moderate revenue growth in Cable and Satellite and consistent revenue on a full year-over-year comparative basis in Media. For the remainder of this year the Company plans to continue to execute on and invest in the various strategic initiatives including the DNU and Wi-Fi build with capital investment expected to exceed 2011 spend levels (excluding wireless).

Certain important assumptions for 2012 guidance purposes include: continued overall customer growth; stable pricing environment for Shaw’s products relative to current rates; no significant market disruption or other significant changes in economic conditions, competition or regulation that would have a material impact; stable advertising demand and rates; cash income taxes to be paid or payable in 2012; and a stable regulatory environment.

See the following section entitled “Caution Concerning Forward-Looking Statements”.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

Statements included in this MD&A that are not historic constitute “forward-looking statements” within the meaning of applicable securities laws. Such statements include, but are not limited to, statements about future capital expenditures, financial guidance for future performance, business strategies and measures to implement strategies, competitive strengths, expansion and growth of Shaw’s business and operations and other goals and plans. 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 are based on assumptions and analyses made by Shaw in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances as of the current date. These assumptions include, but are not limited to, general economic and industry growth rates, currency exchange rates, technology deployment, content and equipment costs, industry structure and stability, government regulation and the integration of recent acquisitions. Many of these assumptions are confidential.

 

22


Shaw Communications Inc.

 

You should not place undue reliance on any forward-looking statements. Many factors, including those not within Shaw’s control, may cause Shaw’s actual results to be materially different from the views expressed or implied by such forward-looking statements, including, but not limited to, general economic, market or business conditions; opportunities that may be presented to and pursued by Shaw; Shaw’s ability to execute its strategic plans; changing conditions in the entertainment, information and communications industries; industry trends; changes in the competitive environment in the markets in which Shaw operates and from the development of new markets for emerging technologies; changes in laws, regulations and decisions by regulators that affect Shaw or the markets in which it operates in both Canada and the United States; Shaw’s status as a holding company with separate operating subsidiaries; and other factors referenced in this report under the heading “Risks and uncertainties”. The foregoing is not an exhaustive list of all possible factors. Should one or more of these risks materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein.

The Company provides certain financial guidance for future performance as the Company believes that certain investors, analysts and others utilize this and other forward-looking information in order to assess the Company’s expected operational and financial performance and as an indicator of its ability to service debt and return cash to shareholders. The Company’s financial guidance may not be appropriate for this or other purposes.

Any forward-looking statement speaks only as of the date on which it was originally made and, except as required by law, Shaw 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.

 

23


Shaw Communications Inc.

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(unaudited)

 

[millions of Canadian dollars]

   May 31, 2012      August 31, 2011      September 1, 2010  
            [Note 14]      [Note 14]  

ASSETS

        

Current

        

Cash

     252         443         217   

Accounts receivable

     504         443         196   

Inventories

     121         97         54   

Other current assets

     93         82         34   

Derivative instruments

     2         2         67   

Assets held for sale

     —           15         —     
  

 

 

    

 

 

    

 

 

 
     972         1,082         568   

Investments and other assets

     13         13         743   

Property, plant and equipment

     3,260         3,200         3,005   

Other long-term assets

     330         258         233   

Assets held for sale

     1         1         —     

Deferred income tax assets [note 15]

     16         30         —     

Intangibles

     7,364         7,292         5,596   

Goodwill

     714         712         169   
  

 

 

    

 

 

    

 

 

 
     12,670         12,588         10,314   
  

 

 

    

 

 

    

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

        

Current

        

Accounts payable and accrued liabilities

     788         878         700   

Provisions

     21         18         19   

Income taxes payable

     145         124         249   

Unearned revenue

     154         155         145   

Current portion of long-term debt [note 8]

     450         1         1   

Current portion of derivative instruments

     —           8         80   

Other liability [note 13]

     —           161         —     
  

 

 

    

 

 

    

 

 

 
     1,558         1,345         1,194   

Long-term debt [note 8]

     4,811         5,256         3,982   

Other long-term liabilities [notes 13 and 15]

     580         507         429   

Provisions

     8         8         —     

Derivative instruments

     —           —           7   

Deferred credits

     640         630         632   

Deferred income tax liabilities [note 15]

     1,077         1,164         1,065   
  

 

 

    

 

 

    

 

 

 
     8,674         8,910         7,309   

Shareholders’ equity [notes 9 and 11]

        

Common and preferred shareholders

     3,712         3,406         3,005   

Non-controlling interests

     284         272         —     
  

 

 

    

 

 

    

 

 

 
     3,996         3,678         3,005   
  

 

 

    

 

 

    

 

 

 
     12,670         12,588         10,314   
  

 

 

    

 

 

    

 

 

 

See accompanying notes

 

24


Shaw Communications Inc.

 

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 

     Three months ended May 31,     Nine months ended May 31,  

[millions of Canadian dollars except per share amounts]

   2012     2011     2012     2011  
           [Note 14]           [Note 14]  

Revenue [note 3]

     1,278        1,285        3,788        3,560   

Operating, general and administrative expenses [note 5]

     711        699        2,162        1,990   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income before amortization [note 3]

     567        586        1,626        1,570   

Amortization:

        

Deferred equipment revenue

     29        26        85        79   

Deferred equipment costs

     (59     (51     (169     (153

Property, plant and equipment, intangibles and other

     (168     (153     (515     (476
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     369        408        1,027        1,020   

Amortization of financing costs – long-term debt

     (1     (1     (3     (3

Interest expense [notes 3 and 6]

     (82     (90     (247     (244

Gain on repurchase of debt

     —          —          —          10   

CRTC benefit obligations [note 4]

     (2     —          (2     (139

Business acquisition, integration and restructuring expenses

     —          (29     —          (90

Gain on remeasurement of interests in equity investments [note 4]

     6        —          6        —     

Gain (loss) on derivative instruments

     —          (3     1        (26

Accretion of long-term liabilities and provisions

     (4     (5     (11     (11

Foreign exchange gain on unhedged long-term debt

     —          —          —          23   

Equity income from associates

     —          —          1        14   

Other gains (losses)

     3        —          (2     7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     289        280        770        561   

Current income tax expense [note 3]

     51        52        197        167   

Deferred income tax expense (recovery)

     (10     25        (55     2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations

     248        203        628        392   

Loss from discontinued operations [note 7]

     —          (2     —          (6
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     248        201        628        386   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to:

        

Common shareholders

     238        195        599        370   

Non-controlling interests

     10        6        29        16   
  

 

 

   

 

 

   

 

 

   

 

 

 
     248        201        628        386   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share – basic [note 10]

        

Earnings per share from continuing operations

     0.53        0.45        1.34        0.86   

Loss per share from discontinued operations

     —          —          —          (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share

     0.53        0.45        1.34        0.85   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share – diluted [note 10]

        

Earnings per share from continuing operations

     0.53        0.45        1.33        0.86   

Loss per share from discontinued operations

     —          —          —          (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share

     0.53        0.45        1.33        0.85   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes

 

25


Shaw Communications Inc.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

     Three months ended May 31,      Nine months ended May 31,  

[millions of Canadian dollars]

   2012     2011      2012     2011  
           [Note 14]            [Note 14]  

Net income

     248        201         628        386   

Other comprehensive income (loss) [note 11]

         

Change in unrealized fair value of derivatives designated as cash flow hedges

     1        —           1        (13

Adjustment for hedged items recognized in the period

     —          1         (1     2   

Unrealized gain on available-for-sale investment

     3        —           3        —     

Reclassification of realized gain on available-for-sale investment

     (3     —           (3     —     

Actuarial losses on employee benefit plans

     (57     —           (57     (8
  

 

 

   

 

 

    

 

 

   

 

 

 
     (56     1         (57     (19
  

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income

     192        202         571        367   
  

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income attributable to:

         

Common shareholders

     182        196         542        351   

Non-controlling interests

     10        6         29        16   
  

 

 

   

 

 

    

 

 

   

 

 

 
     192        202         571        367   
  

 

 

   

 

 

    

 

 

   

 

 

 

See accompanying notes

 

26


Shaw Communications Inc.

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)

 

Nine months ended May 31, 2012  
            Attributable to common shareholders              

[millions of Canadian dollars]

   Share
capital
     Contributed
surplus
    Retained
earnings
    Accumulated
other

comprehensive
loss
    Total     Equity
attributable
to non-
controlling
interests
    Total
equity
 

Balance as at September 1, 2011

     2,633         73        729        (29     3,406        272        3,678   

Net income

     —           —          599        —          599        29        628   

Other comprehensive loss

     —           —          —          (57     (57     —          (57
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     —           —          599        (57     542        29        571   

Dividends

     —           —          (255     —          (255     —          (255

Dividend reinvestment plan

     71         —          (71     —          —          —          —     

Shares issued under stock option plan

     15         (1     —          —          14        —          14   

Share-based compensation

     —           5        —          —          5        —          5   

Distributions declared by subsidiaries to non-controlling interests

     —           —          —          —          —          (17     (17
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at May 31, 2012

     2,719         77        1,002        (86     3,712        284        3,996   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Nine months ended May 31, 2011  
           Attributable to common shareholders              

[millions of Canadian dollars]

   Share
capital
    Contributed
surplus
    Retained
earnings
    Accumulated
other
comprehensive
income (loss)
    Total     Equity
attributable
to non-
controlling
interests
    Total
equity
 

Balance as at September 1, 2010

     2,250        67        679        9        3,005        —          3,005   

Business acquisition

     —          —          —          —          —          277        277   

Net income

     —          —          370        —          370        16        386   

Other comprehensive loss

     —          —          —          (19     (19     —          (19
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     —          —          370        (19     351        16        367   

Dividends

     —          —          (286     —          (286     —          (286

Dividend reinvestment plan

     10        —          (10     —          —          —          —     

Issue of preferred shares

     300        —          —          —          300        —          300   

Share issue costs (net of taxes)

     (7     —          —          —          (7     —          (7

Shares issued under stock option plan

     36        (3     —          —          33        —          33   

Share-based compensation

     —          8        —          —          8        —          8   

Distributions declared by subsidiaries to non-controlling interests

     —          —          —          —          —          (14     (14
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at May 31, 2011

     2,589        72        753        (10     3,404        279        3,683   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes

 

27


Shaw Communications Inc.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

     Three months ended May 31,     Nine months ended May 31,  

[millions of Canadian dollars]

   2012     2011     2012     2011  

OPERATING ACTIVITIES [note 12]

        

Funds flow from continuing operations

     424        428        944        1,077   

Net increase in non-cash working capital balances related to continuing operations

     (74     (59     (81     (303
  

 

 

   

 

 

   

 

 

   

 

 

 
     350        369        863        774   
  

 

 

   

 

 

   

 

 

   

 

 

 

INVESTING ACTIVITIES

        

Additions to property, plant and equipment [note 3]

     (155     (141     (595     (502

Additions to equipment costs (net) [note 3]

     (32     (32     (137     (87

Additions to other intangibles [note 3]

     (14     (14     (50     (45

Net reduction (addition) to inventories

     19        10        (24     (26

Cable business acquisition, net of cash acquired

     —          —          —          (3

Television broadcasting business acquisitions, net of cash acquired [note 4]

     3        —          3        (417

Proceeds on disposal of property, plant and equipment [note 3]

     —          —          8        7   

Proceeds from investments and other assets

     12        5        3        7   
  

 

 

   

 

 

   

 

 

   

 

 

 
     (167     (172     (792     (1,066
  

 

 

   

 

 

   

 

 

   

 

 

 

FINANCING ACTIVITIES

        
        

Increase in long-term debt, net of discounts

     —          —          —          2,352   

Senior notes issuance costs

     —          (10     —          (17

Debt repayments

     (1     (76     (1     (1,527

Senior notes repurchase premium

     —          —          —          (1

Bank credit facility arrangement costs

     —          —          (4     —     

Issue of Class B Non-Voting Shares [note 9]

     4        9        14        33   

Issue of preferred shares

     —          300        —          300   

Dividends paid on Class A Shares and Class B Non-Voting Shares [note 9]

     (83     (90     (238     (281

Dividends paid on Preferred Shares [note 9]

     (3     —          (11     —     

Distributions paid to non-controlling interests

     (5     (9     (19     (14
  

 

 

   

 

 

   

 

 

   

 

 

 
     (88     124        (259     845   
  

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash from continuing operations

     95        321        (188     553   

Decrease in cash from discontinued operations [note 7]

     —          (27     (3     (137
  

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash

     95        294        (191     416   

Cash, beginning of the period

     157        339        443        217   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash, ending of the period

     252        633        252        633   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes

 

28


Shaw Communications Inc.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

May 31, 2012 and 2011

[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 communications company whose core operating business is providing broadband cable television services, Internet, Digital Phone, and telecommunications services (“Cable”); Direct-to-home (“DTH”) satellite services (Shaw Direct); satellite distribution services (“Satellite Services”); and programming content (through Shaw Media).

The Company was incorporated under the laws of the Province of Alberta on December 9, 1966 under the name Capital Cable Television Co. Ltd. and was subsequently continued under the Business Corporations Act (Alberta) on March 1, 1984 under the name Shaw Cablesystems Ltd. Its name was changed to Shaw Communications Inc. on May 12, 1993. The Company’s shares are listed on the Toronto and New York Stock Exchanges. The registered office of the Company is located at Suite 900, 630 – 3rd Avenue S.W., Calgary, Alberta, Canada T2P 4L4.

 

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 and IFRS 1 First-time Adoption of International Financial Reporting Standards (“IFRS 1”) as issued by the International Accounting Standards Board (“IASB”) and using the accounting policies the Company expects to adopt in its consolidated financial statements as at and for the year ended August 31, 2012. An explanation of how the transition to IFRS has affected the Company’s consolidated financial statements is provided in note 14.

The accounting policies are based on standards currently issued and effective for the Company’s first annual IFRS reporting period. Accounting policies currently adopted under IFRS are subject to potential change as a result of either a new accounting standard being issued with an effective date of August 31, 2012 or prior, or as a result of a voluntary change in accounting policy made by the Company during fiscal 2012.

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 in the Company’s annual consolidated financial statements. Annual required disclosures that have been significantly impacted by the transition to IFRS are included in note 15 for the year ended August 31, 2011. As a result, these condensed interim consolidated financial statements should also be read in conjunction with the Company’s consolidated financial statements prepared under Canadian GAAP for the year ended August 31, 2011 and the IFRS transition disclosures included in note 14.

The condensed interim consolidated financial statements of the Company for the three and nine months ended May 31, 2012, were authorized for issue in accordance with a resolution of the Audit Committee on June 27, 2012.

Basis of presentation

These condensed interim consolidated financial statements have been prepared primarily under the historical cost convention and are expressed in millions of Canadian dollars unless otherwise indicated. Other measurement bases used are outlined in the applicable notes below. The condensed interim consolidated statements of income are presented using the nature classification for expenses.

 

29


Shaw Communications Inc.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

May 31, 2012 and 2011

[all amounts in millions of Canadian dollars, except share and per share amounts]

 

Basis of consolidation

The condensed interim consolidated financial statements include the accounts of the Company and those of its subsidiaries. Intercompany transactions and balances are eliminated on consolidation. The results of operations of subsidiaries acquired during the period are included from their respective dates of acquisition.

The accounts also include the Company’s proportionate share of the assets, liabilities, revenues, and expenses of its interests in joint ventures which includes a 33.33% interest in the Burrard Landing Lot 2 Holdings Partnership and 50% interest in three specialty television channels including Mystery Partnership which became a wholly-owned subsidiary on May 31, 2012 (see note 4).

Non-controlling interests arise from business combinations in which the Company acquires less than 100% interest. At the time of acquisition, non-controlling interests are measured at either fair value or their proportionate share of the fair value of acquiree’s identifiable assets. The Company determines the measurement basis on a transaction by transaction basis. Subsequent to acquisition, the carrying amount of non-controlling interests is increased or decreased for their share of changes in equity.

Investments and other assets

Investments in associates are accounted for using the equity method based on the Company’s ability to exercise significant influence over the operating and financial policies of the investee. Investments of this nature are recorded at original cost and adjusted periodically to recognize the Company’s proportionate share of the associate’s net income or losses after the date of investment, additional contributions made and dividends received. Investments are written down when there has been a significant or prolonged decline in fair value.

Revenue and expenses

The Company has multiple deliverable arrangements comprised of upfront fees (subscriber connection and installation fee revenue and/or customer premise equipment revenue) and related subscription revenue. Upfront fees charged to customers do not constitute separate units of accounting, therefore these revenue streams are assessed as an integrated package.

 

(i) Revenue

Revenue from cable, Internet, Digital Phone and DTH customers includes subscriber revenue earned as services are provided. Satellite distribution services and telecommunications service revenue is recognized in the period in which the services are rendered to customers. Affiliate subscriber revenue is recognized monthly based on subscriber levels. Advertising revenues are recognized in the period in which the advertisements are broadcast and recorded net of agency commissions as these amounts are paid directly to the agency or advertiser. When a sales arrangement includes multiple advertising spots, the proceeds are allocated to individual advertising spots under the arrangement based on relative fair values.

Subscriber connection fees received from customers are deferred and recognized as revenue on a straight-line basis over two years. Direct and incremental initial selling, administrative and connection costs related to subscriber acquisitions are recognized as an operating expense as incurred. The costs of physically connecting a new home are capitalized as part of the distribution system and costs of disconnections are expensed as incurred.

Installation revenue received on contracts with commercial business customers is deferred and recognized as revenue on a straight-line basis over the related service contract, which generally span two to ten years. Direct and incremental costs associated with the service contract, in an amount not exceeding the upfront installation revenue, are deferred and recognized as an operating expense on a straight-line basis over the same period.

 

30


Shaw Communications Inc.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

May 31, 2012 and 2011

[all amounts in millions of Canadian dollars, except share and per share amounts]

 

(ii) Deferred equipment revenue and deferred equipment costs

Revenue from sales of DTH equipment and digital cable terminals (“DCTs”) is deferred and recognized on a straight-line basis over two years commencing when subscriber service is activated. The total cost of the equipment, including installation, represents an inventoriable cost which is deferred and recognized on a straight-line basis over the same period. The DCT and DTH equipment is generally sold to customers at cost or a subsidized price in order to expand the Company’s customer base.

Revenue from sales of satellite tracking hardware and costs of goods sold are deferred and recognized on a straight-line basis over the related service contract for monthly service charges for air time, which is generally five years. The amortization of the revenue and cost of sale of satellite service equipment commences when goods are shipped.

Recognition of deferred equipment revenue and deferred equipment costs is recorded as deferred equipment revenue amortization and deferred equipment costs amortization, respectively.

(iii) Deferred IRU revenue

Prepayments received under indefeasible right to use (“IRU”) agreements are amortized on a straight-line basis into income over the term of the agreement and included in amortization of property, plant and equipment, intangibles and other in the consolidated statements of income.

Cash

Cash is presented net of outstanding cheques. When the amount of outstanding cheques and the amount drawn under the Company’s revolving term facility are greater than the amount of cash, the net amount is presented as bank indebtedness.

Allowance for doubtful accounts

The Company maintains an allowance for doubtful accounts for the estimated losses resulting from the inability of its customers to make required payments. In determining the allowance, the Company considers factors such as the number of days the account is past due, whether or not the customer continues to receive service, the Company’s past collection history and changes in business circumstances.

Inventories

Inventories include subscriber equipment such as DCTs and DTH receivers, which are held pending rental or sale at cost or at a subsidized price. When subscriber equipment is sold, the equipment revenue and equipment costs are deferred and amortized over two years. When the subscriber equipment is rented, it is transferred to property, plant and equipment and amortized over its useful life. Inventories are determined on a first-in, first-out basis, and are stated at cost due to the eventual capital nature as either an addition to property, plant and equipment or deferred equipment costs.

Property, plant and equipment

Property, plant and equipment are recorded at purchase cost. Direct labour and other directly attributable costs incurred to construct new assets, upgrade existing assets and connect new subscribers are capitalized and borrowing costs on qualifying assets for which the commencement date is on or after September 1, 2010 are also capitalized. As well, any asset removal and site restoration costs in connection with the retirement of assets are capitalized. Repairs and maintenance expenditures are charged to operating expense as incurred. Amortization is recorded on a straight-line basis over the estimated useful lives of assets as follows:

 

31


Shaw Communications Inc.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

May 31, 2012 and 2011

[all amounts in millions of Canadian dollars, except share and per share amounts]

 

 

Asset

   Estimated useful life  
Cable and telecommunications distribution system      6-15 years   
Digital cable terminals and modems      2-7 years   
Satellite audio, video and data network equipment and DTH receiving equipment      4-10 years   
Transmitters, broadcasting and communication equipment      5-15 years   
Buildings      20-40 years   
Data processing      3-4 years   
Other      3-20 years   
  

 

 

 

The Company reviews the estimates of lives and useful lives on a regular basis.

Assets held for sale and discontinued operations

Assets are classified as held for sale when specific criteria are met and are measured at the lower of carrying amount and estimated fair value less costs to sell. Assets held for sale are not amortized and are reported separately on the statement of financial position. The operating results of a component that has been disposed of or is classified as held for sale are reported as discontinued operations if the operations and cash flows of the component have been, or will be, eliminated from the company’s ongoing operations and if the company does not have significant continuing involvement in the operations of the component after the disposal transaction. A component of a company includes operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of a company’s operations and cash flows. The Company does not allocate interest to discontinued operations.

Other long-term assets

Other long-term assets primarily include (i) equipment costs, as described in the revenue and expenses accounting policy, deferred and amortized on a straight-line basis over two to five years; (ii) credit facility arrangement fees amortized on a straight-line basis over the term of the facility; (iii) long-term receivables; and (iv) the non-current portion of prepaid maintenance and support contracts.

Intangibles

The excess of the cost of acquiring cable, satellite and media businesses over the fair value of related net identifiable tangible and intangible assets acquired is allocated to goodwill. Net identifiable intangible assets acquired consist of amounts allocated to broadcast rights, trademarks, brands, program rights, material agreements and software assets. Broadcast rights, trademarks and brands represent identifiable assets with indefinite useful lives. Spectrum licenses were acquired in Industry Canada’s auction of licenses for advanced wireless services and have an indefinite life.

Program rights represent licensed rights acquired to broadcast television programs on the Company’s conventional and specialty television channels and program advances are in respect of payments for programming prior to the window license start date. For licensed rights, the Company records a liability for program rights and corresponding asset when the license period has commenced and all of the following conditions have been met: (i) the cost of the program is known or reasonably determinable, (ii) the program material has been accepted by the Company in accordance with the license agreement and (iii) the material is available to the Company for telecast. Program rights are expensed on a systematic basis generally over the estimated exhibition period as the programs are aired and are included in operating, general and administrative expenses. Program rights are segregated on the Statement of Financial Position between current and noncurrent based on expected life at time of acquisition.

Software that is not an integral part of the related hardware is classified as an intangible asset. Internally developed software assets are recorded at historical cost and include direct material and labour costs as well as borrowing costs on qualifying assets for which the commencement date is on or after September 1, 2010. Software assets are amortized on a straight-line basis over estimated useful lives ranging from four to ten years. The Company reviews the estimates of lives and useful lives on a regular basis.

 

32


Shaw Communications Inc.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

May 31, 2012 and 2011

[all amounts in millions of Canadian dollars, except share and per share amounts]

 

Borrowing costs

The Company capitalizes borrowing costs on qualifying assets, for which the commencement date is on or after September 1, 2010, that take more than one year to construct or develop using the Company’s weighted average cost of borrowing.

Impairment

(i) Goodwill and indefinite-life intangible assets

Goodwill and indefinite-life intangibles assets, such as broadcast rights, are tested annually (as at March 1) and assessed at each reporting period to determine whether there is an indication that the carrying value may be impaired. The recoverable amount of each cash-generating unit (“CGU”) is determined based on the higher of the CGU’s fair value less costs to sell and its value in use. A CGU is the smallest identifiable group of assets that generate cash flows that are independent of the cash inflows from other assets or groups of assets. Where the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.

(ii) Non-financial assets with finite useful lives

For non-financial assets, such as property, plant and equipment and finite-lived intangible assets, an assessment is made at each reporting date as to whether there is an indication that an asset may be impaired. If any indication exists, the recoverable amount of the asset is determined based on the higher of the fair value less costs to sell and value in use. Where the carrying amount of the asset exceeds its recoverable amount, the asset is considered impaired and written down to its recoverable amount. Previously recognized impairment losses are reviewed for possible reversal at each reporting date and all or a portion of the impairment reversed if the asset’s value has increased.

CRTC benefit obligations

The fair value of CRTC benefit obligations committed as part of business acquisitions are initially recorded, on a discounted basis, at the present value of amounts to be paid net of any expected incremental cash inflows. The obligation is subsequently adjusted for the incurrence of related expenditures, the passage of time and for revisions to the timing of the cash flows. Changes in the obligation due to the passage of time are recorded as accretion of long-term liabilities and provisions in the income statement.

Provisions

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured using the best estimate of the expenditure required to settle the present obligation at the end of the reporting period, taking into account risks and uncertainties associated with the obligation. Provisions are discounted where the time value of money is considered material.

 

33


Shaw Communications Inc.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

May 31, 2012 and 2011

[all amounts in millions of Canadian dollars, except share and per share amounts]

 

 

(i) Asset retirement obligations

The Company recognizes the fair value of a liability for an asset retirement obligation in the period in which it is incurred, on a discounted basis, with a corresponding increase to the carrying amount of property and equipment, primarily in respect of transmitter sites. This cost is amortized on the same basis as the related asset. The liability is subsequently increased for the passage of time and the accretion is recorded in the income statement as accretion of long-term liabilities and provisions. The discount rates applied are subsequently adjusted to current rates as required at the end of reporting periods. Revisions due to the estimated timing of cash flows or the amount required to settle the obligation may result in an increase or decrease in the liability. Actual costs incurred upon settlement of the obligation are charged against the liability to the extent recorded.

(ii) Other provisions

Provisions for disputes, legal claims and contingencies are recognized when warranted. The Company establishes provisions after taking into consideration legal assessments (if applicable), expected availability of insurance or other recourse and other available information.

Deferred credits

Deferred credits primarily include: (i) prepayments received under IRU agreements amortized on a straight-line basis into income over the term of the agreement; (ii) equipment revenue, as described in the revenue and expenses accounting policy, deferred and amortized over two years to five years; (iii) connection fee revenue and upfront installation revenue, as described in the revenue and expenses accounting policy, deferred and amortized over two to ten years; and (iv) a deposit on a future fibre sale.

Income taxes

The Company accounts for income taxes using the liability method, whereby deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities measured using substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset and they relate to income taxes levied by the same authority in the same taxable entity. Income tax expense for the period is the tax payable for the period using tax rates substantively enacted at the reporting date, any adjustments to taxes payable in respect of previous years and any change during the period in deferred income tax assets and liabilities, except to the extent that they relate to a business combination, items recognized directly in equity or in other comprehensive income. The Company records interest and penalties related to income taxes in income tax expense.

Tax credits and government grants

The Company has access to a government program which supports local programming produced by conventional television stations. In addition, the Company receives tax credits primarily related to its research and development activities. Government financial assistance is recognized when management has reasonable assurance that the conditions of the government programs are met and accounted for as a reduction of related costs, whether capitalized and amortized or expensed in the period the costs are incurred.

Foreign currency translation

Transactions originating in foreign currencies are translated into Canadian dollars at the exchange rate at the date of the transaction. Monetary assets and liabilities are translated at the period-end rate of exchange and non-monetary items are translated at historic exchange rates.

 

34


Shaw Communications Inc.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

May 31, 2012 and 2011

[all amounts in millions of Canadian dollars, except share and per share amounts]

 

Exchange gains and losses on translating hedged and unhedged long-term debt are included in the consolidated statements of income. Foreign exchange gains and losses on hedging derivatives are reclassified from other comprehensive income (loss) to income to offset the foreign exchange adjustments on hedged long-term debt.

Financial instruments other than derivatives

Financial instruments have been classified as loans and receivables, assets available-for-sale, assets held-for-trading or financial liabilities. Cash has been classified as held-for-trading and is recorded at fair value with any change in fair value immediately recognized in income (loss). Other financial assets are classified as available-for-sale or as loans and receivables. Available-for-sale assets are carried at fair value with changes in fair value recorded in other comprehensive income (loss) until realized. Loans and receivables and financial liabilities are carried at amortized cost. None of the Company’s financial assets are classified as held-to-maturity and none of its financial liabilities are classified as held-for-trading. Certain private investments where market value is not readily determinable are carried at cost net of write-downs and are included in Investments and other assets in the Statement of Financial Position.

Finance costs, discounts and proceeds on bond forward contracts associated with the issuance of debt securities and fair value adjustments to debt assumed in business acquisitions are netted against the related debt instrument and amortized to income using the effective interest rate method. Accordingly, long-term debt accretes over time to the principal amount that will be owing at maturity.

Derivative financial instruments

The Company uses derivative financial instruments to manage risks from fluctuations in foreign exchange rates and interest rates. These instruments include cross-currency interest rate exchange agreements, foreign currency forward purchase contracts and bond forward contracts. All derivative financial instruments are recorded at fair value in the statement of financial position. Where permissible, the Company accounts for these financial instruments as hedges which ensures that counterbalancing gains and losses are recognized in income in the same period. With hedge accounting, changes in the fair value of derivative financial instruments designated as cash flow hedges are recorded in other comprehensive income (loss) until the variability of cash flows relating to the hedged asset or liability is recognized in income (loss). When an anticipated transaction is subsequently recorded as a non-financial asset, the amounts recognized in other comprehensive income (loss) are reclassified to the initial carrying amount of the related asset. Where hedge accounting is not permissible or derivatives are not designated in a hedging relationship, they are classified as held-for-trading and the changes in fair value are immediately recognized in income (loss).

Instruments that have been entered into by the Company to hedge exposure to foreign exchange and interest rate risk are reviewed on a regular basis to ensure the hedges are still effective and that hedge accounting continues to be appropriate.

Derivatives embedded in other financial instruments or contracts are separated from their host contracts and separately accounted for as derivatives when their economic characteristics and risks are not closely related to the host contract, they meet the definition of a derivative and the combined instrument or contract is not measured at fair value. The Company records embedded derivatives at fair value with changes recognized in the income statement as loss/gain on derivative instruments.

 

35


Shaw Communications Inc.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

May 31, 2012 and 2011

[all amounts in millions of Canadian dollars, except share and per share amounts]

 

Employee benefits

The Company accrues its obligations and related costs under its employee benefit plans, net of plan assets. The cost of pensions and other retirement benefits earned by certain employees is actuarially determined using the projected benefit method pro-rated on service and management’s best estimate of expected plan investment performance, salary escalation and retirement ages of employees. For purposes of calculating the expected return on plan assets, those assets are valued at fair value. Past service costs from plan initiation and amendments are recognized immediately in the income statement to the extent they are vested. Unvested past service costs are amortized on a straight-line basis over the expected average remaining vesting period. Negative plan amendments which reduce costs are applied to reduce any existing unamortized past service costs. The excess, if any, is amortized over the expected average remaining vesting period. Actuarial gains or losses occur because assumptions about benefit plans relate to a long time frame and differ from actual experiences. These assumptions are revised based on actual experience of the plans such as changes in discount rates, expected return on plan assets, expected retirement ages and projected salary increases. Actuarial gains (losses) are recognized in other comprehensive income (loss) on annual basis, at a minimum, and on an interim basis when there are significant changes in assumptions. When the restructuring of a benefit plan gives rise to both a curtailment and a settlement of obligations, the curtailment is accounted for prior to the settlement.

August 31 is the measurement date for the Company’s employee benefit plans. The last actuarial valuations for funding purposes for the various plans were performed between December 31, 2008 and January 1, 2011. The next actuarial valuations for funding purposes are effective December 31, 2011.

Share-based compensation

The Company has a stock option plan for directors, officers, employees and consultants to the Company. The options to purchase shares must be issued at not less than the fair value at the date of grant. Any consideration paid on the exercise of stock options, together with any contributed surplus recorded at the date the options vested, is credited to share capital. The Company calculates the fair value of share-based compensation awarded to employees using the Black-Scholes option pricing model. The fair value of options are expensed and credited to contributed surplus over the vesting period of the options using the graded vesting method.

The Company has a restricted share unit (“RSU”) plan for officers and employees of the Company. RSUs vest on the second anniversary of the grant date and compensation is recognized on a straight-line basis over the two year vesting period. RSUs will be settled in cash and the obligation for RSUs is measured at the end of each period at fair value using the Black-Scholes option pricing model and the number of outstanding RSUs. The carrying value of RSUs at August 31, 2011 was $1.

The Company has a deferred share unit (“DSU”) plan for its board of directors whereby directors can elect to receive their annual cash compensation, or a portion thereof, in the DSUs. Compensation cost is recognized immediately as DSUs vest when granted. DSUs will be settled in cash and the obligation is measured at the end of each period at fair value using the Black-Scholes option pricing model and the number of outstanding DSUs. The carrying value and intrinsic value of DSUs at August 31, 2011 was $5 and $4, respectively.

Earnings per share

Basic earnings per share is based on net income attributable to common shareholders adjusted for dividends on preferred shares and is calculated using the weighted average number of Class A Shares and Class B Non-Voting Shares outstanding during the period. The Company uses the treasury stock method of calculating diluted earnings per share. This method assumes that any proceeds from the exercise of stock options and other dilutive instruments would be used to purchase Class B Non-Voting Shares at the average market price during the period.

Guarantees

The Company discloses information about certain types of guarantees that it has provided, including certain types of indemnities, without regard to whether it will have to make any payments under the guarantees.

 

36


Shaw Communications Inc.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

May 31, 2012 and 2011

[all amounts in millions of Canadian dollars, except share and per share amounts]

 

Use of estimates and measurement uncertainty

The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Key areas of estimation, where management has made difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain, are the allowance for doubtful accounts, the ability to use income tax loss carryforwards and other deferred income tax assets, capitalization of labour and overhead, useful lives of depreciable assets, contingent liabilities, certain assumptions used in determining defined benefit plan pension expense, the fair value of assets acquired and liabilities assumed in business acquisitions, and the recoverability of equipment costs, indefinite life identifiable intangibles and goodwill using estimated future cash flows. Significant changes in assumptions could result in impairment of intangible assets.

Standards, interpretations and amendments to standards issued but not yet effective

The Company has not yet adopted certain standards, interpretations and amendments that have been issued but are not yet effective. Unless otherwise indicated, the following standards are required to be applied for the Company’s annual period commencing September 1, 2013. The following pronouncements are being assessed to determine their impact on the Company’s results and financial position.

 

   

IFRS 9, Financial Instruments: Classification and Measurement, is the first part of the replacement of IAS 39 Financial Instruments and applies to the classification and measurement of financial assets and financial liabilities as defined by IAS 39. It is required to be applied for the annual period commencing September 1, 2015.

 

   

Other than for the disclosure requirements therein, the requirements of the following standards and amended standards must be initially applied concurrently:

 

   

IFRS 10, Consolidated Financial Statements, replaces previous consolidation guidance and outlines a single consolidation model that identifies control as the basis for consolidation of all types of entities.

 

   

IFRS 11, Joint Arrangement, replaces IAS 31 Interests in Joint Ventures and SIC 13 Jointly Controlled Entities – Non-Monetary Contributions by Venturers. The new standard classifies joint arrangements as either joint operations or joint ventures.

 

   

IFRS 12, Disclosure of Interests in Other Entities, sets out required disclosures on application of IFRS 10, IFRS 11, and IAS 28 (amended 2011).

 

   

IAS 27, Separate Financial Statements was amended in 2011for the issuance of IFRS 10 and retains the current guidance for separate financial statements.

 

   

IAS 28, Investments in Associates was amended in 2011for changes based on issuance of IFRS 10 and IFRS 11 and provides guidance on accounting for joint ventures, as defined by IFRS 11, using the equity method.

 

   

IFRS 13, Fair Value Measurement, defines fair value, provides guidance on its determination and introduces consistent requirements for disclosure of fair value measurements.

 

   

IAS 12, Income Taxes (amended 2011), introduces an exception to the general measurement requirements of IAS 12 in respect of investment properties measured at fair value. It is required to be applied for the annual period commencing September 1, 2012.

 

   

IAS 19, Employee Benefits (amended 2011), eliminates the existing option to defer actuarial gains and losses and requires changes from the remeasurement of defined benefit plan assets and liabilities to be presented in the statement of other comprehensive income.

 

   

IAS 1, Presentation of Financial Statements, was amended to require presentation of items of other comprehensive income based on whether they may be reclassified to the statement of income and is required to be applied for the annual period commencing September 1, 2012.

 

37


Shaw Communications Inc.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

May 31, 2012 and 2011

[all amounts in millions of Canadian dollars, except share and per share amounts]

 

 

3. BUSINESS SEGMENT INFORMATION

The Company’s operating segments are Cable, DTH, Satellite Services and Media, all of which are substantially located in Canada. Shaw Media’s operating results are affected by seasonality and fluctuate throughout the year due to a number of factors including seasonal advertising and viewing patterns. As such, operating results for an interim period should not be considered indicative of full fiscal year performance. In general, advertising revenues are higher during the first quarter and lower during the fourth quarter and expenses are incurred more evenly throughout the year. Information on operations by segment is as follows:

Operating information

 

     Three months ended May 31,     Nine months ended May 31,  
     2012     2011     2012     2011  
     $     $     $     $  

Revenue

        

Cable

     794        785        2,390        2,312   

DTH

     190        189        570        558   

Satellite Services

     21        21        61        62   

Media

     295        312        836        681   
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,300        1,307        3,857        3,613   

Intersegment eliminations

     (22     (22     (69     (53
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,278        1,285        3,788        3,560   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income before amortization

        

Cable

     377        392        1,106        1,114   

DTH

     66        65        186        184   

Satellite Services

     10        11        30        32   

Media

     114        118        304        240   
  

 

 

   

 

 

   

 

 

   

 

 

 
     567        586        1,626        1,570   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest (1)

        

Operating

     82        85        246        228   

Burrard Landing Lot 2 Holdings Partnership

     —          —          1        1   

Wireless

     —          5        —          15   
  

 

 

   

 

 

   

 

 

   

 

 

 
     82        90        247        244   
  

 

 

   

 

 

   

 

 

   

 

 

 

Current taxes

        

Operating

     70        68        218        194   

Other/non-operating

     (19     (16     (21     (27
  

 

 

   

 

 

   

 

 

   

 

 

 
     51        52        197        167   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Effective August 31, 2011, Wireless was presented as discontinued operations with restatement of comparative periods. Interest was allocated to the Wireless division based on the Company’s average cost of borrowing to fund the capital expenditures and operating costs, and therefore, has not been included in the loss from discontinued operations.

 

38


Shaw Communications Inc.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

May 31, 2012 and 2011

[all amounts in millions of Canadian dollars, except share and per share amounts]

 

Capital expenditures

 

     Three months ended May 31,     Nine months ended May 31,  
     2012     2011     2012     2011  
     $     $     $     $  

Capital expenditures accrual basis

        

Cable (including corporate)

     155        143        565        461   

Satellite (net of equipment profit)

     —          1        4        4   

Media

     5        7        18        14   
  

 

 

   

 

 

   

 

 

   

 

 

 
     160        151        587        479   
  

 

 

   

 

 

   

 

 

   

 

 

 

Equipment costs (net of revenue)

        

Cable

     14        9        61        25   

Satellite

     17        15        63        54   
  

 

 

   

 

 

   

 

 

   

 

 

 
     31        24        124        79   
  

 

 

   

 

 

   

 

 

   

 

 

 

Capital expenditures and equipment costs (net)

        

Cable

     169        152        626        486   

Satellite

     17        16        67        58   

Media

     5        7        18        14   
  

 

 

   

 

 

   

 

 

   

 

 

 
     191        175        711        558   
  

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation to Consolidated Statements of Cash Flows

        

Additions to property, plant and equipment

     155        141        595        502   

Additions to equipment costs (net)

     32        32        137        87   

Additions to other intangibles

     14        14        50        45   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total of capital expenditures and equipment costs (net) per Consolidated Statements of Cash Flows

     201        187        782        634   

Decrease in working capital related to capital expenditures

     (7     (2     (47     (58

Increase in customer equipment financing receivables

     (2     (9     (14     (9

Less: Proceeds on disposal of property, plant and equipment

     —          —          (8     (7

Less: Satellite equipment profit (1)

     (1     (1     (2     (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Total capital expenditures and equipment costs (net) reported by segments

     191        175        711        558   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

The profit from the sale of satellite equipment is subtracted from the calculation of segmented capital expenditures and equipment costs (net) as the Company views the profit on sale as a recovery of expenditures on customer premise equipment.

 

40


Shaw Communications Inc.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

May 31, 2012 and 2011

[all amounts in millions of Canadian dollars, except share and per share amounts]

 

Assets

 

     May 31, 2012  
     Cable      DTH     

Satellite

Services

     Media      Total  
     $      $      $      $      $  

Segment assets

     7,567         898         502         2,799         11,766   
  

 

 

    

 

 

    

 

 

    

 

 

    

Corporate assets

                 903   

Asset held for sale

                 1   
              

 

 

 

Total assets

                 12,670   
              

 

 

 
     August 31, 2011  
     Cable      DTH      Satellite
Services
     Media      Total  
     $      $      $      $      $  

Segment assets

     7,408         891         503         2,717         11,519   
  

 

 

    

 

 

    

 

 

    

 

 

    

Corporate assets

                 1,053   

Asset held for sale

                 16   
              

 

 

 

Total assets

                 12,588   
              

 

 

 

 

4. TELEVISION BROADCASTING BUSINESS ACQUISITION

On May 31, 2012, the Company closed the acquisition of the partnership units of Mystery Partnership (“Mystery”) and Men TV General Partnership (“The Cave”) not already owned by the Company, for total consideration of $21. Prior to the acquisition, the Company held a 50% interest in Mystery which was proportionately consolidated and a 49% interest in The Cave which was accounted for under the equity method. The fair value of the previous ownership interests in these specialty channels on the acquisition date was $19. The transaction is accounted for using the acquisition method and as a result of remeasuring these equity interests to fair value, the Company recorded a gain of $6 in the income statement. If the acquisition had occurred on September 1, 2011, revenue and net income for the nine month period would have been approximately $9 and $2, respectively.

As part of the CRTC decisions approving the transaction, the Company is required to contribute $2 in new benefits to the Canadian broadcasting system over the next seven years. The contribution will be used to create new programming. The obligation has been recorded in the income statement at fair value, being the discounted future cash flows using a 4% discount rate.

The consideration was comprised of the following:

 

     $  

Payable to the vendor (1)

     21   

Consideration for the equity interests held prior to the acquisition

     9   
  

 

 

 
     30   

Cumulative income from equity interests prior to acquisition

     4   

Gain on remeasurement of interests in equity investments

     6   
  

 

 

 
     40   
  

 

 

 

 

(1)

The purchase price was paid in June 2012.

The purchase price allocation is preliminary pending finalization of valuation of the net assets acquired and settlement of final closing adjustments. A summary of net assets acquired and preliminary allocation of consideration is as follows:

 

41


Shaw Communications Inc.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

May 31, 2012 and 2011

[all amounts in millions of Canadian dollars, except share and per share amounts]

 

     $  

Net assets acquired at assigned fair values

  

Cash

     6   

Accounts receivable

     4   

Other current assets (1)

     4   

Intangibles (2)