Shaw Announces Third Quarter and Year-to-Date Results
(firmenpresse) - CALGARY, ALBERTA -- (Marketwired) -- 06/28/17 --
Shaw Communications Inc. (TSX: SJR.B)(TSX: SJR.PR.A)(TSX: SJR.PR.B)(NYSE: SJR)(TSX VENTURE: SJR.A) today announced consolidated financial and operating results for the quarter ended May 31, 2017. Revenue from continuing operations for the quarter of $1.31 billion increased by 2.8% over the comparable period. Operating income before restructuring costs and amortization(1) for the quarter of $550 million decreased 0.5% over the comparable period.
Chief Executive Officer, Brad Shaw said, "Strong subscriber growth in both cable video and Internet reflects our continued focus on delivering leading customer service and innovative products to the market including WideOpen Internet 150 and BlueSky TV. The recently announced acquisition of spectrum will add critical wireless capacity and capability to our network, adding to our foundation that will make us Canada''s leading connectivity provider."
Mr. Shaw added, "We are confident that the acquisition of 700 MHz and 2500 MHz spectrum from Quebecor Media Inc., combined with Freedom''s current portfolio of assets, will materially improve our customer experience and will further enable our ability to offer best-in-class converged network solutions. With our customers'' future connectivity needs at the heart of every strategic decision we make, we are excited about the opportunity this additional spectrum presents and the compelling wireless experience we will continue to create for our existing and future customers."
In the quarter, Shaw delivered a net gain of over 38,000 revenue generating units ("RGUs") in the Consumer division representing a substantial improvement over the approximately 47,000 RGU losses in the third quarter of fiscal 2016. The Consumer division''s net gains in the quarter included the addition of approximately 20,000 Internet RGUs, 12,000 cable video RGUs, and 6,000 satellite video RGUs. This trend of year-over-year improvement is attributed to strong Internet subscriber growth led by WideOpen Internet 150, compelling bundle and value plan offerings driving notable reductions in disconnects, and by the launch of BlueSky TV across Shaw''s entire cable video footprint. This quarter''s subscriber result also represents the division''s first positive net video RGU quarter since the fourth quarter of fiscal 2010.
In Wireless, the Company continued to grow postpaid and prepaid wireless subscribers, gaining a combined 20,000 RGUs in the quarter, as compared to approximately 22,000 RGUs in the third quarter of fiscal 2016. The LTE-A network deployment continued ahead of schedule, with upgrades now complete in the GTA, Hamilton, Vancouver, Edmonton and Calgary and with LTE roaming launched in Canada and in the U.S. The handset lineup has continued to expand, with a total of nine handsets compatible with the AWS-3 LTE network, including LG, Samsung, Sony and ZTE. On April 25, 2017, Freedom Mobile launched another key enhancement with Wi-Fi calling, which enables calls to be made at no cost from outside the cellular calling area, or at indoor locations.
Selected Financial Highlights
Operating income before restructuring costs and amortization for the three and nine month periods of $550 million and $1.63 billion, respectively, compared to $553 million and $1.56 billion in fiscal 2016. The slight decrease in the quarter is attributed primarily to higher operating expenses in the Consumer division driven by costs related to marketing the launch of BlueSky TV and other corporate related costs. Increases in the Wireless, Business Network Services and Business Infrastructure Services divisions substantially offset the year-over-year decline in the Consumer division.
Free cash flow for the three and nine month periods of $132 million and $436 million, respectively, compared to $182 million and $473 million in fiscal 2016. The decrease in free cash flow was largely due to higher planned capital expenditures and by the loss of free cash flow generated in the prior year by the former Media division which was sold on April 1, 2016.
Net income for the current quarter of $133 million decreased $571 million relative to $704 million in the third quarter of fiscal 2016 mainly due to prior year income from the discontinued Media and fleet tracking operations, and the gain on the sale of the Media operation in the amount of $630 million. Excluding discontinued operations, net income from continuing operations increased by $90 million compared to the third quarter of fiscal 2016 driven primarily by lower non-operating costs.
On June 13, 2017, Shaw announced that it entered a share purchase agreement with GI Partners portfolio company Peak 10 Holding Corporation to sell 100% of its wholly owned subsidiary, ViaWest, Inc. for US$1.675 billion (approximately C$2.3 billion). The transaction is subject to customary conditions, including U.S. regulatory approval, and is expected to close by the end of fiscal 2017.
On June 13, 2017, Shaw also announced that it entered a definitive agreement with Quebecor Media Inc. to acquire 700 MHz and 2500 MHz wireless spectrum licences held by Quebecor''s subsidiary, Videotron, for $430 million. The spectrum transaction is subject to customary closing conditions including necessary regulatory approvals and is expected to close in the summer of 2017. The Company estimates capital expenditures associated with the deployment of the acquired spectrum to be approximately $350 million. The Company expects the majority of the capital related to the network build to be incurred during fiscal 2018, which reinforces Shaw''s commitment to the wireless space, and improves its long-term wireless growth prospects.
Heading into the final quarter of fiscal 2017, the Company is refining its full year fiscal 2017 financial guidance for operating income before restructuring costs and amortization to range between $2.135 and $2.160 billion, capital investment of approximately $1.35 billion and free cash flow of approximately $400 million. These refinements include the results of the Business Infrastructure Services division, comprised primarily of ViaWest, Inc., through the end of fiscal 2017 and reflect a modest acceleration of capital spend associated primarily with strategic network enhancements and the evolving wireless platform. Providing both the sale of ViaWest, Inc. and the acquisition of spectrum are completed in the near term, the Company expects its ratio of debt to operating income before restructuring costs and amortization(1) to be below the low end of its target 2.0 to 2.5x and the $1.5 billion credit facility to be fully undrawn.
Mr. Shaw concluded, "We have built a long term strategy to serve the connectivity needs of Canadians and will continue to focus on execution. Our first step was the launch of WideOpen Internet 150, which transformed the marketplace by offering significantly faster speeds at affordable prices across 99% of our wireline footprint. Our next step was becoming the first in Canada to launch BlueSky TV, a truly revolutionary viewing experience featuring "TV you can talk to." And earlier this month, we took a bold step forward for our wireless business in acquiring spectrum that will enhance our network capabilities and our capacity to offer affordable wireless service on a more robust network. Shaw''s business performance coupled with the recent announcements showcase an unwavering commitment to our growth strategy."
Shaw Communications Inc. is an enhanced connectivity provider. Our Consumer division serves consumers with broadband Internet, Shaw Go WiFi, video and digital phone. Our Wireless division provides wireless voice and data services through an expanding and improving mobile wireless network infrastructure. The Business Network Services division provides business customers with Internet, data, WiFi, telephony, and video services. The Business Infrastructure Services division, through ViaWest, provides hybrid IT solutions including colocation, cloud computing and security and compliance for North American enterprises.
Shaw is traded on the Toronto and New York stock exchanges and is included in the S&P/TSX 60 Index (TSX: SJR.B)(TSX: SJR.PR.A)(TSX: SJR.PR.B)(NYSE: SJR)(TSX VENTURE: SJR.A). For more information, please visit
The accompanying Management''s Discussion and Analysis ("MD&A") forms part of this news release and the "Caution concerning forward-looking statements" applies to all the forward-looking statements made in this news release.
Shaw Communications Inc.
MANAGEMENT''S DISCUSSION AND ANALYSIS
For the three and nine months ended May 31, 2017
June 28, 2017
Contents
Advisories
The following Management''s Discussion and Analysis ("MD&A"), dated June 28, 2017, should be read in conjunction with the unaudited interim Consolidated Financial Statements and Notes thereto for the quarter ended May 31, 2017 and the 2016 Annual Consolidated Financial Statements, the Notes thereto and related MD&A included in the Company''s 2016 Annual Report. The financial information presented herein has been prepared on the basis of International Financial Reporting Standards ("IFRS") for interim financial statements and is expressed in Canadian dollars unless otherwise indicated. References to "Shaw", the "Company", "we", "us" or "our" mean Shaw Communications Inc. and its subsidiaries and consolidated entities, unless the context otherwise requires.
Caution concerning forward-looking statements
Statements included in this MD&A that are not historic constitute "forward-looking statements" within the meaning of applicable securities laws. Such statements include, but are not limited to:
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 the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances as of the current date. The Company''s management believes that its assumptions and analysis in this MD&A are reasonable and that the expectations reflected in the forward looking statements contained herein are also reasonable based on the information available on the date such statements are made and the process used to prepare the information. These assumptions, many of which are confidential, include but are not limited to:
You should not place undue reliance on any forward-looking statements. Many factors, including those not within the Company''s control, may cause the Company''s actual results to be materially different from the views expressed or implied by such forward-looking statements, including but not limited to:
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 pay dividends 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, the Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement to reflect any change in related assumptions, events, conditions or circumstances. All forward looking statements contained in this MD&A are expressly qualified by this statement.
Non-IFRS and additional GAAP measures
Certain measures in this MD&A do not have standard meanings prescribed by IFRS and are therefore considered non-IFRS measures. These measures are provided to enhance the reader''s overall understanding of our financial performance or current financial condition. They are included to provide investors and management with an alternative method for assessing our operating results in a manner that is focused on the performance of our ongoing operations and to provide a more consistent basis for comparison between periods. These measures are not in accordance with, or an alternative to, IFRS and do not have standardized meanings. Therefore, they are unlikely to be comparable to similar measures presented by other entities.
Please refer to "Non-IFRS and additional GAAP measures" in this MD&A for a discussion and reconciliation of non-IFRS measures, including operating income before restructuring costs and amortization and free cash flow.
Introduction
Strategic update
Shaw is focused to deliver long term growth and connect customers to the world through a best-in-class seamless connectivity experience. In 2016, Shaw positioned itself as a leading enhanced connectivity provider through the acquisition of Freedom Mobile (formerly, WIND Mobile). The addition of a wireless business enabled the Company to combine the power of fibre, coax, Wi-Fi and wireless networks to deliver a seamless experience of anytime and anywhere enhanced connectivity within its operating footprint. On June 13, 2017, Shaw announced that it has entered into a definitive agreement with Quebecor Media Inc. ("Quebecor") to acquire 700 MHz and 2500 MHz wireless spectrum licences, the Company''s next step in executing on its long-term strategic plan which is centered on delivering exceptional customer experiences by leveraging and further developing a world-class converged network and providing leading technology through best-in-class strategic partners.
Spectrum acquisition
The spectrum licences are being acquired for $430 million and comprise Quebecor''s 10 MHz licences of 700 MHz spectrum in each of British Columbia, Alberta, and Southern Ontario, as well as 20 MHz licences of 2500 MHz spectrum in each of Vancouver, Edmonton, Calgary, and Toronto. The acquisition is subject to customary closing conditions and all necessary regulatory approvals from the Ministry of Innovation, Science and Economic Development Canada (ISED), and under the Competition Act. The acquisition will be funded using a combination of cash on hand and Shaw''s existing credit facility, and is expected to close in the summer of 2017.
Shaw believes this incremental investment in the wireless business, particularly with the addition of the 700 MHz spectrum, will materially improve the long-term wireless customer experience, and will further enable its ability to offer converged network solutions. Considering the acquisition of Freedom Mobile (formerly, WIND Mobile) in 2016, Shaw now has more synergistic investment opportunities as a leading enhanced connectivity provider within its Canadian footprint.
Capital expenditures associated with the deployment of the acquired spectrum are estimated to be approximately $350 million. The Company expects most of the capital related to the network build to be incurred during fiscal 2018, which reinforces Shaw''s commitment to the wireless space, and improves its long-term wireless growth prospects.
Sale of ViaWest, Inc.
On June 13, 2017, Shaw also announced that it entered a share purchase agreement with GI Partners portfolio company Peak 10 Holding Corporation ("Peak 10") to sell 100% of its wholly-owned subsidiary ViaWest, Inc. ("ViaWest"). The purchase price of US$1.675 billion (approximately $2.3 billion) is comprised of all cash.
ViaWest was acquired by Shaw in 2014 marking a pivotal moment in Shaw''s history and provided a growth engine which has delivered, and continues to deliver, strong results. The North American colocation and managed services industry is consolidating and scale is becoming an important factor for continued long-term success.
The transaction is subject to customary conditions, including U.S. regulatory approval and is expected to close by the end of fiscal 2017. The transaction is not subject to financing. Shaw expects to realize net cash proceeds from the sale of approximately $900 million after the repayment of ViaWest level indebtedness of approximately US$580 million, repayment of the US$380 million Shaw credit facility borrowings associated with the original investment and subsequent INetU acquisition, and estimated transaction expenses and taxes.
Shaw''s Business Infrastructure Services division, through ViaWest, provides hybrid IT solutions including colocation, cloud computing and security and compliance for North American enterprises. See selected financial and operational highlights of the Business Infrastructure Services division under "Discussion of Operations."
See "Outlook" for a discussion of the financial condition of the Company following the completion of the two transactions.
Shaw''s world-class converged network
Shaw''s broadband network strategy provides flexibility, cost efficiency and a speed advantage that continues to support the success of its Internet offerings, including WideOpen Internet 150, the fastest widely available Internet speed provided in nearly every neighborhood across Shaw''s wireline footprint. The combination of this exceptional service with the tremendous value and pricing stability offered through value plans have had a positive impact on customer retention. Shaw''s wireline and wireless network roadmap continues to progress with the DOCSIS 3.1 and the LTE-Advanced network upgrades targeted for completion by the end of fiscal 2017.
LTE is now live across the Greater Toronto area, Hamilton, Vancouver, Edmonton and Calgary and LTE roaming recently launched in Canada and in the U.S. The handset lineup has continued to expand, with a total of nine handsets compatible with the AWS-3 LTE network, including LG, Samsung, Sony and ZTE. On April 25, 2017 Freedom Mobile launched another key enhancement with Wi-Fi calling, which enables calls to be made at no cost from outside its cellular calling area, or at indoor locations.
Global technology leader
BlueSky TV is now available everywhere Shaw offers cable video. Western Canadians are now able to enjoy a revolutionary TV experience made possible by Shaw''s strategic partnership with Comcast. The Company''s partnerships with global technology leaders, such as Comcast, will allow it to continue to access leading-edge technology in the global communications industry.
The BlueSky TV experience is more than just a new guide and set-top-box, it is an elegant system that listens, learns and curates content to provide an exceptional viewing experience. Shaw is optimistic that BlueSky TV combined with WideOpen 150 and flexible TV packages will provide a compelling reason for consumers to stay and switch to Shaw.
Organizational initiatives
In the quarter, the Company incurred a non-recurring restructuring charge in the amount of $43 million. These charges were attributed primarily to employee related costs associated with the integration of Freedom Mobile and other organization rationalization initiatives. These initiatives included the announced closure of Shaw TV stations in Vancouver, Calgary and Edmonton and a planned realignment to integrate certain operational activities within the Consumer and Business Network Services divisions.
Selected financial and operational highlights
Basis of presentation
During the current quarter, the Company entered an agreement to sell a group of assets comprising the operations of Shaw Tracking, a fleet tracking operation reported within the Company''s Business Network Services segment, to an external party. The Company determined that the assets and liabilities of the Shaw Tracking business met the criteria to be classified as a disposal group held for sale for the period ended May 31, 2017. On April 1, 2016, Shaw sold 100% of its wholly owned subsidiary Shaw Media Inc. to Corus Entertainment Inc. Accordingly, the operating results and operating cash flows for the previously reported Shaw Tracking business and Media division are presented as discontinued operations separate from the Company''s continuing operations. This MD&A reflects the results of continuing operations, unless otherwise noted.
Financial Highlights
Subscriber (or revenue generating unit ("RGU")) highlights
In the quarter, the Company continued its momentum of improving subscriber trends with consolidated RGU net gains of 64,347.
Consumer RGUs in the third quarter of fiscal 2017 increased by 38,517, a substantial improvement over the 47,256 RGU losses in the third quarter of fiscal 2016. The Consumer division''s net gains in the quarter included the addition of 12,921 cable video RGUs, 20,892 internet RGUs and 6,531 satellite video RGUs. The trend of year-over-year improvement is attributed to strong Internet subscriber growth led by WideOpen Internet 150, compelling bundle and value plan offerings driving notable reductions in disconnects, and by the launch of BlueSky TV across Shaw''s entire cable video footprint. This quarter''s subscriber result also represents the division''s first positive net video RGU quarter since the fourth quarter of fiscal 2010.
In Wireless, the Company added a combined 19,974 postpaid and prepaid subscribers as compared to 33,427 RGUs gained in the second quarter of fiscal 2017 and approximately 22,000 RGUs gained in the third quarter of fiscal 2016, finishing the period with a total 1,106,159 RGUs. Strong RGU results in consecutive quarters reflect the compelling value proposition of Freedom Mobile''s offering to thousands of value-conscious Canadians.
Overview
Our fiscal 2017 third quarter financial results represent improvements in consolidated revenue over the third quarter of fiscal 2016. For further discussion of divisional performance see "Discussion of operations."
Highlights of the third quarter financial results are as follows.
Revenue
Revenue for the quarter of $1.31 billion increased $36 million or 2.8% from $1.28 billion for the third quarter of 2016, highlighted by the following:
Compared to the second quarter of fiscal 2017, consolidated revenue for the quarter increased 1.2% or by $15 million. The increase in revenue over the prior quarter relates primarily to growth in the Wireless division driven by higher handset sales, added RGUs and improved ARPU.
Revenue for the nine-month period of $3.91 billion increased $359 million or 10.1% from $3.55 billion for the comparable period in fiscal 2016, highlighted by the following:
Operating income before restructuring costs and amortization
Third quarter operating income before restructuring costs and amortization of $550 million decreased slightly by $3 million or 0.5% from $553 million for the third quarter of 2016, highlighted by the following:
Consolidated operating margin for the third quarter of 42.0% was down from 43.4% in the third quarter of fiscal 2016 due primarily to the impact of the lower Consumer division margin driven by higher costs in the quarter.
Compared to the second quarter of fiscal 2017, operating income before restructuring costs and amortization for the current quarter was up $12 million driven primarily by the Wireless division operating results.
For the nine-month period, operating income before restructuring costs and amortization of $1.63 billion increased $67 million or 4.3% from $1.56 billion for the comparable period, highlighted by the following:
Free cash flow
Free cash flow for the third quarter of $132 million decreased $50 million from $182 million for the third quarter of 2016.
Net Income
Net income of $133 million and $370 million for the three and nine months ended May 31, 2017, respectively, compared to $704 million and $1.09 billion for the same periods in fiscal 2016. The changes in net income are outlined in the following table.
Change in net other costs and revenue in the third quarter had a $38 million favourable impact on net income compared to the second quarter of fiscal 2017 primarily due to a $15 provision reversal related to the wind down of shomi and $17 million higher equity income from our investment in Corus.
Change in net other costs and revenue in the third quarter had a $155 million favourable impact on net income compared to the third quarter of fiscal 2016 primarily due to a decrease in year-over-year non-operating costs including the following; i) prior year write-down and equity loss on the investment in shomi in the amount of $66 million, ii) prior year write-down of $20 million in respect of a private portfolio investment, and iii) $12 million business acquisition costs related to the acquisition of Freedom Mobile (formerly, WIND). Also, in the current quarter, the company recorded a $15 million provision reversal related to the wind down of shomi and $36 million increase in the year-over-year equity income from our investment in Corus.
Outlook
Heading into the final quarter of fiscal 2017, the Company is refining its full year fiscal 2017 financial guidance for operating income before restructuring costs and amortization to range between $2.135 and $2.160 billion, capital investment of approximately $1.35 billion and free cash flow of approximately $400 million.
These refinements include the results of the Business Infrastructure Services division, comprised primarily of ViaWest, Inc., through the end of fiscal 2017 and reflect a modest acceleration of capital spend associated primarily with strategic network enhancements and the evolving wireless platform.
Providing both the sale of ViaWest and the acquisition of spectrum are completed in the near term, the Company expects its ratio of debt to operating income before restructuring costs and amortization to be below the low end of its target 2.0 to 2.5 times and the $1.5 billion credit facility to be fully undrawn.
See "Caution concerning forward-looking statements."
Non-IFRS and additional GAAP measures
The Company''s continuous disclosure documents may provide discussion and analysis of non-IFRS financial measures. These financial measures do not have standard definitions prescribed by IFRS and therefore may not be comparable to similar measures disclosed by other companies. The Company''s continuous disclosure documents may also provide discussion and analysis of additional GAAP measures. Additional GAAP measures include line items, headings, and sub-totals included in the financial statements.
The Company utilizes these measures in making operating decisions and assessing its performance. Certain investors, analysts and others utilize these measures in assessing the Company''s operational and financial performance and as an indicator of its ability to service debt and return cash to shareholders. The non-IFRS financial measures and additional GAAP measures have not been presented as an alternative to net income or any other measure of performance required by IFRS.
Below is a discussion of the non-IFRS financial measures and additional GAAP measures used by the Company and provides a reconciliation to the nearest IFRS measure or provides a reference to such reconciliation.
Operating income before restructuring costs and amortization
Operating income before restructuring costs and amortization is calculated as revenue less operating, general and administrative expenses. It is intended to indicate the Company''s ongoing ability to service and/or incur debt, and is therefore calculated before one-time items such as restructuring costs, amortization (a non-cash expense) and interest. Operating income before restructuring costs and amortization is also one of the measures used by the investing community to value the business.
Operating margin
Operating margin is calculated by dividing operating income before restructuring costs and amortization by revenue.
Income from discontinued operations before restructuring costs, amortization, taxes and other non-operating items
Income from discontinued operations before restructuring costs, amortization, taxes and other non-operating items is calculated as revenue less operating, general and administrative expenses from discontinued operations. This measure is used in the determination of free cash flow.
Free cash flow
The Company utilizes this measure to assess the Company''s ability to repay debt and pay dividends to shareholders. Free cash flow is calculated as free cash flow from continuing operations and free cash flow from discontinued operations.
Free cash flow from continuing operations is comprised of operating income before restructuring costs and amortization adding dividends from equity accounted associates, changes in receivable related balances with respect to customer equipment financing transactions as a cash item and deducting capital expenditures (on an accrual basis and net of proceeds on capital dispositions) and equipment costs (net), interest, cash taxes paid or payable, dividends paid on the preferred shares, recurring cash funding of pension amounts net of pension expense and adjusted to exclude share-based compensation expense.
Free cash flow from continuing operations has not been reported on a segmented basis. Certain components of free cash flow from continuing operations, including operating income before restructuring costs and amortization continue to be reported on a segmented basis. Capital expenditures and equipment costs (net) are reported on a combined basis for Consumer and Business Network Services due to the common infrastructure and separately for Business Infrastructure Services and Wireless. 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 from discontinued operations is comprised of income from discontinued operations before restructuring costs, amortization, taxes and other non-operating items after deducting capital expenditures (on an accrual basis and net of proceeds on capital dispositions), cash taxes paid or payable, program rights amortization on assets held for sale, cash amounts associated with funding CRTC benefit obligations related to media acquisitions, recurring cash funding of pension amounts net of pension expense and excludes non-controlling interest amounts that are included in the income from discontinued operations before restructuring costs, amortization, taxes and other non-operating items.
Free cash flow is calculated as follows:
Discussion of operations
Consumer
Consumer RGUs in the second quarter increased by 38,517, a substantial improvement over the 47,256 RGU loss in the third quarter of fiscal 2016. This quarter''s Consumer RGU result represents the division''s first positive net video RGU quarter since the fourth quarter of fiscal 2010. The trend of year-over-year subscriber improvement continues to be driven by strong Internet subscriber growth linked to the WideOpen Internet 150 offering combined with our new BlueSky TV offering and by notable reductions in disconnects. The Company''s network strength, strong value plan offerings and positive customer retention are also contributing positively to subscriber gains.
Revenue
Operating income before restructuring costs and amortization
Business Network Services
Revenue
Operating income before restructuring costs and amortization
Business Infrastructure Services
Revenue
Operating income before restructuring costs and amortization
Wireless
The Wireless division added nearly 20,000 RGUs in the quarter as compared to approximately 22,000 RGUs gained in the third quarter of fiscal 2016.
Revenue
Operating income before restructuring costs and amortization
Capital expenditures and equipment costs
Third quarter capital investment was $323 million, a $36 million or 12.5% increase over the comparable period, driven by added capital expenditures of $21 million in broadband capacity expansion, $16 million in success based equipment and $7 million in the Wireless division. The increases were partially offset by $6 million of reduced network replacement activity.
Consumer and Business Network Services
Business Infrastructure Services
Wireless
Discontinued operations
Shaw Tracking
During the current quarter, the Company entered an agreement to sell a group of assets comprising the operations of Shaw Tracking, a fleet tracking operation reported within the Company''s Business Network Services segment. The Company determined that the assets and liabilities of the Shaw Tracking business met the criteria to be classified as a disposal group held for sale for the period ended May 31, 2017. Accordingly, the assets and liabilities of the Shaw Tracking business were reclassified in the consolidated balance sheet at May 31, 2017 to current assets held for sale or current liabilities held for sale, respectively, as the sale of such assets and liabilities is expected within one year. In addition, the operating results and operating cash flows of the business are presented as discontinued operations separate from the Company''s continuing operations.
In connection with the reclassification of assets and liabilities of the Shaw Tracking business as held for sale, the Company reviewed the carrying value of the resulting disposal group and determined it exceeded its fair value less cost to sell at May 31, 2017. Accordingly, an impairment charge of $32 million was recorded during the quarter.
Shaw Media
On April 1, 2016, Shaw sold 100% of its wholly owned subsidiary Shaw Media Inc. to Corus, a related party subject to common voting control for $2.65 billion, comprised of $1.85 billion in cash and 71,364,853 Corus Class B non-voting participating shares. Accordingly, the operating results and operating cash flows for the previously reported Media division are presented as discontinued operations separate from the Company''s continuing operations.
Supplementary quarterly financial information
In the third quarter of fiscal 2017, net income decreased $14 million compared to the second quarter of fiscal 2017 mainly due to current quarter restructuring costs and losses on discontinued operations, net of tax, as well as increased amortization. The decrease was partially offset by an increase in operating income before restructuring costs and amortization, higher equity income from our investment in Corus and lower income taxes. See "Other income and expense items" for further detail on non-operating items.
In the second quarter of fiscal 2017, net income increased $58 million compared to the first quarter of fiscal 2017 mainly due to a non-recurring provision related to the wind down of shomi operations recorded in the first quarter, partially offset by an increase in amortization and income taxes. Also contributing to the increased net income were lower restructuring costs, partially offset by lower equity income from our investment in Corus. See "Other income and expense items" for further detail on non-operating items.
In the first quarter of fiscal 2017, net income decreased $65 million compared to the fourth quarter of fiscal 2016 mainly due to a non-recurring provision related to the wind down of shomi operations included in net other costs and revenue for the current quarter. Also contributing to the decreased net income was lower operating income before restructuring costs and amortization, higher restructuring charges and lower income from discontinued operations, partially offset by $27 million equity income from our investment in Corus and lower income taxes. See "Other income and expense items" for further detail on non-operating items.
In the fourth quarter of fiscal 2016 net income decreased $550 million compared to the third quarter of fiscal 2016 mainly due to lower income from discontinued operations, net of tax, relating primarily to the gain on the divestiture of the former Media division recorded in the third quarter, decreased operating income before restructuring costs and amortization, and higher income taxes. Partly offsetting the decrease in net income were decreases in net other costs and revenue and restructuring costs. Net other costs and revenue decreased primarily due to non-recurring charges recorded in the third quarter, including a $17 million impairment of goodwill relating to the Tracking business, a $51 million impairment of the Company''s joint venture investment in shomi, a $20 million write-down of a private portfolio investment, $12 million acquisition related costs and a $10 million loss from an equity accounted associate.
Net income for the third quarter of fiscal 2016 increased $540 million compared to the second quarter of fiscal 2016 mainly due to higher income from discontinued operations, net of tax, relating primarily to the gain on the divestiture of the former Media division, increased operating income before restructuring costs and amortization and lower income taxes. Partly offsetting the net income improvement in the quarter were: i) decreased net other costs and revenue; ii) increased restructuring charges; and iii) increased amortization. Net other costs and revenue decreased primarily due to a $17 million impairment of goodwill relating to the Shaw Tracking operations in the Business Network Services division, a $51 million impairment of the Company''s shomi joint venture investment, a $20 million write-down of a private portfolio investment and a $10 million loss from an equity accounted associate.
In the second quarter of fiscal 2016, net income decreased $54 million compared to the first quarter of fiscal 2016 mainly due to decreased income from discontinued operations, net of tax, of $32 million, primarily due to the seasonality of the Media business reflected in income from discontinued operations, net of tax, and net other costs and revenue of $13 million. Net other costs and revenue decreased primarily due to $8 million of costs recorded in the quarter related to the acquisition of Freedom Mobile (formerly, WIND) and INetU.
In the first quarter of fiscal 2016, net income decreased $58 million compared to the fourth quarter of 2015 mainly due to a change in net other costs and revenues of $140 million and decrease in operating income before restructuring costs and amortization of $17 million offset by an increase in income from discontinued operations, net of tax, of $51 million and a decrease in income taxes of $50 million. Net other costs and revenue decreased primarily due to a fourth quarter fiscal 2015 gain on the sale of wireless spectrum of $158 million less the impact of a $27 million write-down of a private portfolio investment in the same period offset by an increase in the equity loss of a joint venture interest in shomi of $5 million in the first quarter of fiscal 2016.
In the fourth quarter of fiscal 2015, net income increased $67 million primarily due to improved net other costs and revenue of $191 million partially offset by lower income from discontinued operations, net of tax, of $44 million and higher income tax expense of $70 million. The improvement in net other costs and revenue items was due to the combined effect of the aforementioned sale of spectrum licenses and write-down of a private portfolio investment during the fourth quarter and the $59 million net charge arising in the third quarter related to an impairment of goodwill, write-down of IPTV assets and proceeds received from the Shaw Court insurance claim.
Other income and expense items
Amortization
Amortization of property, plant and equipment, intangibles and other increased 10.0% and 14.4% for the three and nine months ended May 31, 2017 over the comparable periods due to amortization of new expenditures exceeding the amortization of assets that became fully amortized during the periods, and only three months of Wireless division amortization included in the prior year subsequent to the acquisition of Freedom Mobile (formerly WIND Mobile) on March 1, 2016.
Amortization of financing costs and Interest expense
Interest expense for the three and nine month periods ended May 31, 2017 was lower than the comparable periods due to lower average outstanding debt balances in the current year.
Equity income (loss) of an associate or joint venture
For the three and nine month periods ended May 31, 2017 the Company recorded equity income of $26 million and $62 million related to its interest in Corus, compared to equity losses of $10 million for the comparable periods. In the comparable periods, the Company also recorded equity losses of $15 million and $51 million, respectively, related to its interest in shomi.
Other losses
This category generally includes realized and unrealized foreign exchange gains and losses on U.S. dollar denominated current assets and liabilities, gains and losses on disposal of property, plant and equipment and minor investments, and the Company''s share of the operations of Burrard Landing Lot 2 Holdings Partnership. For the nine months ended May 31, 2017, the category also includes a net $92 million provision in respect of the Company''s investment in shomi which announced a wind down of operations during the first quarter. In the comparable year, the category includes a write-down of $51 million in respect of the Company''s investment in shomi, a write-down of $20 million in respect of a private portfolio investment and asset write-downs of $6 million.
Income taxes
Income taxes are higher in the current year mainly due to an increase in net income from continuing operations and the impact of other adjustments.
Financial position
Total assets were $15.4 billion at May 31, 2017 and August 31, 2016. Following is a discussion of significant changes in the consolidated statement of financial position since August 31, 2016.
Current assets decreased $148 million due to decreases in cash of $230 million and account receivable of $25 million, offset by increases in inventories of $24 million, other current assets of $22 million and assets held for sale of $61 million. Cash decreased as the cash outlay for investing activities and financing activities exceeded the funds provided by operations. Inventories increased due to the acquisition of additional customer equipment to support the newly-launched BlueSky TV service. Other current assets increased due to the timing of payments related to prepaid expenses. Assets held for sale include the assets of the Shaw Tracking business for which the sale is expected to be completed within a year.
Investments and other assets increased $69 million primarily due to equity income and other comprehensive income of associates related to the Company''s investment in Corus. Property, plant and equipment increased $124 million due to capital investment in excess of amortization and the effect of foreign exchange rates on the translation of ViaWest. Intangibles and goodwill decreased $25 million due to Shaw Tracking goodwill reclassified as held for sale partially offset by net software intangible additions and the ongoing effect of foreign exchange arising on translation of ViaWest.
Current liabilities decreased $463 million during the year due to decreases in current portion of long-term debt of $400 million, accounts payable and accrued liabilities of $69 million and income taxes payable of $87 million, partially offset by increases of $59 million in current provisions and $35 million in liabilities held for sale. Current portion of long-term debt decreased due to the repayment of $400 million 5.7% senior note at maturity on March 2, 2017. Accounts payable and accruals decreased due to the timing of payment and fluctuations in various payables including capital expenditures and interest. Income taxes payable decreased due to tax installment payments, partially offset by the current period provision. Current provisions increased primarily due to unpaid amounts relating to the provision for the wind down of the shomi investment and restructuring.
Long-term debt increased $356 million due to the issuance of $300 million fixed rate senior notes at a rate of 3.80% due March 1, 2027, additional U.S. dollar borrowings by ViaWest under its bank credit facilities and the effect of foreign exchange rates on ViaWest''s debt and the Company''s U.S. dollar borrowings under its credit facility. The $300 million proceeds from the issuance of the fixed rate senior notes, together with cash on hand, was used to repay the $400 million senior note due on March 2, 2017.
Shareholders'' equity increased $138 million primarily due to an increase in share capital of $194 million and decrease in accumulated other comprehensive loss of $23 million, partly offset by a decrease in retained earnings of $75 million. Share capital increased due to the issuance of 7,123,282 Class B non-voting participating shares ("Class B Non-Voting Shares") under the Company''s option plan and Dividend Reinvestment Plan ("DRIP"). As at June 15, 2017, share capital is as reported at May 31, 2017 with the exception of the issuance of a total of 65,460 Class B Non-Voting Shares upon exercise of options under the Company''s option plan. Retained earnings decreased due to dividends of $445 million, partially offset by current year earnings of $370 million. Accumulated other comprehensive loss decreased due to the net effect of exchange differences arising on the translation of ViaWest and U.S. dollar denominated debt designated as a hedge of the Company''s net investment in those foreign operations as well as re-measurements recorded on employee benefit plans and the Company''s share of other comprehensive income of associates.
Liquidity and capital resources
In the nine-month period ended May 31, 2017, the Company generated $436 million of free cash flow. Shaw used its free cash flow along with cash of $230 million, $300 million proceeds from a senior note issuance, borrowings of $33 million under ViaWest''s credit facility and proceeds on issuance of Class B Non-Voting Shares of $37 million to repay at maturity $400 million 5.7% senior notes, fund the net working capital change of $180 million, pay common share dividends of $286 million, make $115 million in financial investments, pay $45 million in restructuring costs and pay $10 million in other net items.
As at May 31, 2017, the Company had $175 million of cash on hand, as well as approximately $980 million of available credit under its $1.5 billion bank credit facility. On December 15, 2016, the Company amended the terms of this bank credit facility to extend the maturity date from December 2019 to December 2021. The facility is used for working capital and general corporate purposes.
The Company issued Class B Non-Voting Shares from treasury under its DRIP which resulted in cash savings and incremental Class B Non-Voting Shares of $149 million during the nine months ending May 31, 2017. On December 16, 2016, the Company amended its DRIP to permit eligible shareholders who are residents of the United States to enroll their Class A Participating Shares and Class B Non-voting Participating Shares in the DRIP. Prior to this amendment, the DRIP was only available to eligible shareholders who were residents of Canada.
Shaw''s and ViaWest''s credit facilities are subject to customary covenants which include maintaining minimum or maximum financial ratios.
At May 31, 2017, Shaw is in compliance with these covenants and based on current business plans, the Company is not aware of any condition or event that would give rise to non-compliance with the covenants over the life of the borrowings.
Based on the aforementioned financing activities, available credit facilities and forecasted free cash flow, the Company expects to have sufficient liquidity to fund operations and obligations, including maturing debt, during the upcoming fiscal year. On a longer-term basis, Shaw expects to generate free cash flow and have borrowing capacity sufficient to finance foreseeable future business plans and refinance maturing debt.
Cash Flow from Operations
Operating Activities
For the three months ended May 31, 2017, funds flow from operations decreased over the comparable periods primarily due to higher restructuring costs and lower operating income before restructuring costs and amortization and lower income tax expense, partially offset by lower business acquisition costs. For the nine months ended May 31, 2017, funds flow from operations increased over the comparable periods primarily due to higher operating income before restructuring costs and amortization, lower income tax expense and lower business acquisition costs, partially offset by higher restructuring costs in the current year. For the nine-month period, funds flow from operations also included the impact of lower pension funding during the current year. The net change in non-cash working capital balances related to operations fluctuated over the comparative periods due to changes in other current asset balances and the timing of payment of current income taxes payable and accounts payable and accrued liabilities.
Investing Activities
The cash used in investing activities increased over the comparable periods due primarily to the $246 million net impact of the acquisition of Freedom Mobile (formerly, WIND Mobile) and sale of Media in the prior year, and higher cash outlays for inventory and capital expenditures in the current year. The nine-month period also includes the $223 acquisition of INetU in the prior year.
Financing Activities
The changes in financing activities during the comparative periods were as follows:
Accounting standards
The MD&A included in the Company''s August 31, 2016 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. The condensed interim consolidated financial statements follow the same accounting policies and methods of application as the most recent annual consolidated financial statements except as described below.
Standards and amendments to standards issued but not yet effective
The Company has not yet adopted certain standards and amendments that have been issued but are not yet effective. The following pronouncements are being assessed to determine their impact on the Company''s results and financial position.
Change in accounting policy
In November 2016, the IFRS Interpretations Committee ("the Committee") published a summary of its meeting discussion regarding a request to clarify how an entity determines the expected manner of recovery of an intangible asset with an indefinite useful life for the purposes of measuring deferred tax in accordance with IAS 12 Income Taxes. Although the Committee decided not to add this issue to its agenda, the Committee noted that an intangible asset with an indefinite useful life is not a non-depreciable asset because a non-depreciable asset has an unlimited (or infinite) life, and that indefinite does not mean infinite. Consequently, the fact that an entity does not amortize an intangible asset with an indefinite useful life does not necessarily mean that the entity will recover the carrying amount of that asset only through sale and not through use. As such, the Company changed retrospectively its accounting policy for the accounting of deferred tax on intangible assets with indefinite useful lives to be in line with the Committee discussions.
The following table summarizes the impact of this change of accounting policy on previously reported consolidated statements of financial position. The change of accounting policy did not have an impact on the previously reported consolidated statements of income or consolidated statements of cash flows.
Increase (decrease) to previously reported amounts:
Related Party Transactions
The Company''s transactions with related parties are discussed in its Management''s Discussion and Analysis for the year ended August 31, 2016 under "Related Party Transactions" and under Note 27 of the Consolidated Financial Statements of the Company for the year ended August 31, 2016. There has been no material change in the Company''s transactions with related parties between August 31, 2016 and May 31, 2017.
Financial Instruments
There has been no material change in the Company''s risk management practices with respect to financial instruments between August 31, 2016 and May 31, 2017. See "Known Events, Trends and Uncertainties - Interest Rates, Foreign Exchange Rates and Capital Markets" in the Company''s Management''s Discussion and Analysis for the year ended August 31, 2016 and the section entitled "Risk Management" under Note 28 of the Consolidated Financial Statements of the Company for the year ended August 31, 2016.
Risks and Uncertainties
The significant risks and uncertainties affecting the Company and its business are discussed in the Company''s August 31, 2016 Annual Report under "Known Events, Trends, Risks and Uncertainties" in Management''s Discussion and Analysis.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited)
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'' EQUITY
(unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Shaw Communications Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
May 31, 2017 and 2016
(all amounts in millions of Canadian dollars, except share and per share amounts)
1. CORPORATE INFORMATION
Shaw Communications Inc. (the "Company") is a diversified Canadian connectivity company whose core operating business is providing: Cable telecommunications and Satellite video services to residential customers ("Consumer"); data networking, Cable telecommunications, and Satellite video services to businesses and public sector entities ("Business Network Services"); data centre colocation, cloud technology and managed IT solutions to businesses ("Business Infrastructure Services"); and wireless services for voice and data communications ("Wireless"). The Company''s shares are listed on the Toronto Stock Exchange ("TSX"), TSX Venture Exchange and New York Stock Exchange.
2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Statement of compliance
These condensed interim consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") and in compliance with International Accounting Standard ("IAS") 34 Interim Financial Reporting as issued by the International Accounting Standards Board ("IASB").
The condensed interim consolidated financial statements of the Company for the three and nine months ended May 31, 2017 were authorized for issue by the Audit Committee on June 27, 2017.
Basis of presentation
These condensed interim consolidated financial statements have been prepared primarily under the historical cost convention except as detailed in the significant accounting policies disclosed in the Company''s consolidated financial statements for the year ended August 31, 2016 and are expressed in millions of Canadian dollars unless otherwise indicated. The condensed interim consolidated statements of income are presented using the nature classification for expenses.
The notes presented in these condensed interim consolidated financial statements include only significant events and transactions occurring since the Company''s last fiscal year end and are not fully inclusive of all matters required to be disclosed by IFRS in the Company''s annual consolidated financial statements. As a result, these condensed interim consolidated financial statements should be read in conjunction with the Company''s consolidated financial statements for the year ended August 31, 2016.
The condensed interim consolidated financial statements follow the same accounting policies and methods of application as the most recent annual consolidated financial statements except as noted below.
Standards and amendments to standards issued but not yet effective
The Company has not yet adopted certain standards and amendments that have been issued but are not yet effective. The following pronouncements are being assessed to determine their impact on the Company''s results and financial position.
Discontinued operations
The Company reports financial results for discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. Discontinued operations reporting occurs when the disposal of a component or a group of components of the Company represents a strategic shift that will have a major impact on the Company''s operations and financial results, and where the operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company.
The results of discontinued operations are excluded from both continuing operations and business segment information in the interim consolidated financial statements and the notes to the interim consolidated financial statements, unless otherwise noted, and are presented net of tax in the statement of income for the current and comparative periods. Refer to Note 3 Discontinued Operations for further information regarding the Company''s discontinued operations.
Change in accounting policy
In November 2016, the IFRS Interpretations Committee ("the Committee") published a summary of its meeting discussion regarding a request to clarify how an entity determines the expected manner of recovery of an intangible asset with an indefinite useful life for the purposes of measuring deferred tax in accordance with IAS 12 Income Taxes. Although the Committee decided not to add this issue to its agenda, the Committee noted that an intangible asset with an indefinite useful life is not a non-depreciable asset because a non-depreciable asset has an unlimited (or infinite) life, and that indefinite does not mean infinite. Consequently, the fact that an entity does not amortize an intangible asset with an indefinite useful life does not necessarily mean that the entity will recover the carrying amount of that asset only through sale and not through use. As such, the Company changed retrospectively its accounting policy for the accounting of deferred tax on intangible assets with indefinite useful lives to be in line with the Committee discussions.
The following table summarizes the impact of this change of accounting policy on previously reported consolidated statements of financial position. The change of accounting policy did not have an impact on the previously reported consolidated statements of income or consolidated statements of cash flows.
3. DISCONTINUED OPERATIONS
Shaw Tracking
During the quarter, the Company entered into an agreement to sell a group of assets comprising the operations of Shaw Tracking, a fleet tracking operation reported within the Company''s Business Network Services segment, for proceeds of approximately USD $20. The Company determined that the assets and liabilities of the Shaw Tracking business met the criteria to be classified as a disposal group held for sale for the period ended May 31, 2017. Accordingly, the assets and liabilities of the Shaw Tracking business were reclassified in the consolidated balance sheet at May 31, 2017 to current assets held for sale or current liabilities held for sale, respectively, as the sale of such assets and liabilities is expected within one year. In addition, the operating results and operating cash flows of the business are presented as discontinued operations separate from the Company''s continuing operations.
In connection with the reclassification of assets and liabilities of the Shaw Tracking business as held for sale, the Company reviewed the carrying value of the resulting disposal group and determined it exceeded its fair value less cost to sell at May 31, 2017. Accordingly, an impairment charge of $32 was recorded during the quarter.
The following table summarizes the carrying value of the major classes of assets and liabilities of the disposal group which were classified as held for sale as at May 31, 2017:
A reconciliation of the major classes of line items related to Shaw Tracking constituting income from discontinued operations, net of tax, as presented in the consolidated statements of income is as follows:
Shaw Media
In the second quarter of fiscal 2016, the Company announced it had entered into an agreement with Corus Entertainment Inc. ("Corus"), a related party subject to common voting control, to sell 100% of its wholly owned subsidiary Shaw Media Inc. ("Shaw Media") for a purchase price of approximately $2.65 billion comprised of $1.85 billion of cash and 71,364,853 Corus Class B non-voting participating shares. The transaction closed on April 1, 2016.
Although, through holding of the shares in Corus, the Company effectively retains an indirect, non-controlling interest in the former Media division subsequent to the sale, the Company no longer has control over the division. Accordingly, the operating results and operating cash flows for the previously reported Media segment are presented as discontinued operations separate from the Company''s continuing operations.
A reconciliation of the major classes of line items related to Shaw Media constituting income from discontinued operations, net of tax, as presented in the consolidated statements of income is as follows:
4. BUSINESS SEGMENT INFORMATION
The Company''s chief operating decision makers are the CEO, President and CFO and they review the operating performance of the Company by segments which comprise Consumer, Business Network Services, Business Infrastructure Services and Wireless. The chief operating decision makers utilize operating income before restructuring costs and amortization for each segment as a key measure in making operating decisions and assessing performance. The Consumer segment provides Cable telecommunications services including Video, Internet, Wi-Fi, Phone, and Satellite Video to Canadian consumers. The Business Network Services segment provides data networking, video, voice and Internet services through a national fibre-optic backbone network and also provides satellite Video services to North American businesses and public sector entities. The Business Infrastructure Services segment provides data centre colocation, cloud and managed servi
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Datum: 28.06.2017 - 05:30 Uhr
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