CALGARY, ALBERTA -- (Marketwire) -- 06/26/09 -- Shaw Communications Inc. (TSX: SJR.B) (NYSE: SJR) announced results for the third quarter ended May 31, 2009. Consolidated service revenue for the three and nine month periods of $861 million and $2.52 billion, respectively, was up 9% and 10% over the same periods last year. Service operating income before amortization(1) of $395 million and $1.14 billion, respectively, improved 11% and 10% over the comparable periods. Funds flow from operations(2) increased to $356 million and $1.00 billion for the quarter and year-to-date periods, respectively, compared to $311 million and $902 million in the same periods last year.
Strong subscriber growth continued during the quarter reflecting Shaw's brand strength, gained through consistent delivery of leading edge products and exceptional service. Basic cable subscribers increased 9,622 to 2,283,526, Digital customers were up 110,810 to 1,187,183, and Internet and Digital Phone lines grew by 24,625 to 1,650,959 and 54,633 to 774,009, respectively. DTH customers increased 1,580 to 898,213.
Chief Executive Officer and Vice Chair Jim Shaw commented, "The Digital momentum started earlier this year continued with a record quarterly gain in Digital customers of over 110,000. On a year-to-date basis we have added almost 280,000 Digital customers increasing our penetration of Basic from 40% at August 31, 2008 to 52%. Digital and HDTV continue to enhance the home entertainment experience offering viewer's access to a wider variety of programming options, an ever-expanding VOD library and superior picture quality. Shaw is committed to being at the forefront of technology advances that continue to support growth in this area."
Free cash flow(1) for the quarter and year-to-date periods was $154 million and $406 million, respectively, compared to $81 million and $309 million for the same periods last year. The improvement in free cash flow was achieved through higher service operating income before amortization and after increased capital investment.
Net income of $132 million or $0.31 per share compared to $128 million or $0.30 per share for the same period last year. Net income for the first nine months of the year was $411 million or $0.96 per share compared to $539 million or $1.25 per share last year.(3) The current and comparable three and nine month periods included non-operating items which are more fully detailed in Management's Discussions and Analysis (MD&A). The current nine month period included a tax recovery of approximately $23 million, while the comparable period included a tax recovery of approximately $199 million. These tax recoveries were primarily related to reductions in enacted income tax rates. The prior nine month period also benefitted from a net duty recovery of approximately $22 million before income taxes related to the importation of satellite receivers. Excluding the non-operating items, net income for the current three and nine month periods ended May 31, 2009 would have been $131 million and $381 million compared to $117 million and $327 million in the same periods last year.
Service revenue in the Cable division was up 10% and 11% for the quarter and year-to-date periods, respectively, to $670 million and $1.95 billion. The improvement was primarily driven by customer growth and rate increases. Service operating income before amortization improved almost 11% for the three and nine month periods to $325 million and $942 million, respectively.
Service revenue in the Satellite division was $192 million and $569 million for the three and nine month periods respectively, up 4% and 5%, respectively, over the comparable periods last year. The improvement was primarily due to rate increases and customer growth. Service operating income before amortization for the quarter increased 13% to $70 million, and the year-to-date was up 8% to $203 million.
Jim Shaw stated, "Strong subscriber growth and solid operational performance delivered financial results year-to-date that keep us on track to achieve our financial guidance for the year, including generating free cash flow of at least $500 million."
On March 27, 2009 the Company closed a $600 million offering of 6.50% senior notes due June 2, 2014. The net proceeds are being used for debt repayment, working capital and general corporate purposes. On April 15, 2009 Shaw subsequently redeemed the Videon Cablesystems Inc. Cdn $130 million Senior Debentures.
Mr. Shaw concluded "Our dedicated team of 10,000 Shaw employees have met the challenge of these uncertain economic times by consistently delivering exceptional customer service, introducing new products, and managing the operations prudently. Our strategy is sound: we focus on our core business, deliver consistent service, grow our subscriber base, offer value through new products and services, and manage our finances - all to deliver growth and value for our shareholders."
Shaw Communications Inc. is a diversified communications company whose core business is providing broadband cable television, High-Speed Internet, Digital Phone, telecommunications services (through Shaw Business Solutions) and satellite direct-to-home services (through Star Choice). The Company serves 3.4 million customers, including over 1.6 million Internet and 775,000 Digital Phone customers, through a reliable and extensive network, which comprises 625,000 kilometres of fibre. Shaw is traded on the Toronto and New York stock exchanges and is included in the S&P/TSX 60 Index (Symbol: TSX - SJR.B, NYSE - SJR).
The accompanying Management's Discussion and Analysis forms part of this news release and the "Caution Concerning Forward Looking Statements" applies to all forward-looking statements made in this news release.
1. See definitions and discussion under Key Performance Drivers in MD&A.
2. Funds flow from operations is before changes in non-cash working capital
balances related to operations as presented in the unaudited interim
Consolidated Statements of Cash Flows.
3. See reconciliation of Net Income in Consolidated Overview in MD&A
MANAGEMENT'S DISCUSSION AND ANALYSIS
MAY 31, 2009
June 25, 2009
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 should also be read in conjunction with Management's Discussion and Analysis included in the Company's August 31, 2008 Annual Report including the Consolidated Financial Statements and the Notes thereto and the unaudited interim Consolidated Financial Statements and the Notes thereto of the current quarter.
CONSOLIDATED RESULTS OF OPERATIONS
THIRD QUARTER ENDING MAY 31, 2009
Selected Financial Highlights
Three months ended May 31 Nine months ended May 31
--------------------------- -----------------------------
Change Change
2009 2008 % 2009 2008 %
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($000's Cdn except
per share amounts)
Operations:
Service revenue 861,382 792,149 8.7 2,517,994 2,299,159 9.5
Service operating
income before
amortization (1) 395,270 356,089 11.0 1,144,422 1,038,709 10.2
Operating
margin(1) 45.9% 45.0% 0.9 45.4% 45.2% 0.2
Funds flow from
operations (2) 356,046 310,984 14.5 1,002,521 901,619 11.2
Net income 131,945 128,113 3.0 411,251 539,184 (23.7)
Per share data:
Earnings per share
- basic $0.31 $0.30 $0.96 $1.25
- diluted $0.31 $0.30 $0.95 $1.24
Weighted average
participating
shares
outstanding during
period (000's) 429,877 431,010 428,828 431,533
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(1) See definition under Key Performance Drivers in Management's Discussion
and Analysis.
(2) Funds flow from operations is before changes in non-cash working capital
balances related to operations as presented in the unaudited interim
Consolidated Statements of Cash Flows.
Subscriber Highlights
Growth
----------------------------------------
Three months ended Nine months ended
Total May 31, May 31,
----------------------------------------------------
May 31,
2009 2009 2008 2009 2008
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Subscriber statistics:
Basic cable customers 2,283,526 9,622 2,495 23,093 17,157
Digital customers 1,187,183 110,810 32,658 278,016 120,160
Internet customers
(including pending
installs) 1,650,959 24,625 23,185 81,907 89,421
DTH customers 898,213 1,580 4,686 5,685 11,207
Digital phone lines
(including pending
installs) 774,009 54,633 57,700 162,078 164,575
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Additional Highlights
- Consolidated service revenue of $861.4 million and $2.52 billion for the three and nine month periods, respectively, improved 8.7% and 9.5% over the comparable periods last year. Total service operating income before amortization of $395.3 million and $1.14 billion was up 11.0% and 10.2% over the same periods.
- Consolidated free cash flow(1) for the quarter and year-to-date periods was $154.3 million and $405.6 million, respectively, compared to $81.2 million and $309.3 million for the same periods last year.
- On March 27, 2009 the Company closed a $600 million offering of 6.50% senior notes due June 2, 2014. The net proceeds are being used for debt repayment, working capital and general corporate purposes.
- On April 15, 2009 Shaw redeemed $130.0 million of Videon Cablesystems Inc. Senior Debentures
Consolidated Overview
Consolidated service revenue of $861.4 million and $2.52 billion for the three and nine month periods, respectively, improved 8.7% and 9.5% over the same periods last year. The improvement was primarily due to customer growth and rate increases. Consolidated service operating income before amortization for the three month and nine month periods improved 11.0% and 10.2% over the comparable periods to $395.3 million and $1.14 billion. The increase was driven by the revenue improvements partially offset by higher employee and other costs related to growth. The comparable three month period included increased CRTC Part II fees as the Company had stopped accruing for these in October 2007 and reinstated the accrual in May 2008.
Net income was $131.9 million and $411.3 million for the three and nine months ended May 31, 2009 compared to $128.1 million and $539.2 million for the same periods last year. Non-operating items affected net income in all periods. The prior comparable quarter included a tax recovery of $11.1 million related to the resolution of certain tax matters, while the prior year-to-date period included a recovery of approximately $199.1 million primarily related to reductions in enacted income tax rates and also benefitted from a net duty recovery related to satellite importations of $22.3 million. The current year-to-date period includes a tax recovery of $22.6 million related to reductions in enacted income tax rates. Outlined on the following page are further details on this and other operating and non-operating components of net income for each period.
1. See definitions and discussion under Key Performance Drivers in
Management's Discussion and Analysis.
Nine months ended
------------------- Operating net Non-
($000's Cdn) May 31, 2009 of interest operating
----------------------------------------------------------------------------
Operating income 719,347
Amortization of financing
costs - long-term debt (2,918)
Interest expense - debt (174,647)
----------------------------------------------------------------------------
Operating income after
interest 541,782 541,782 -
Debt retirement costs (8,255) - (8,255)
Other gains 18,816 - 18,816
----------------------------------------------------------------------------
Income before income taxes 552,343 541,782 10,561
Income tax expense (recovery) 140,993 160,597 (19,604)
----------------------------------------------------------------------------
Income before following 411,350 381,185 30,165
Equity loss on investee (99) - (99)
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Net income 411,251 381,185 30,066
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Nine months ended
------------------- Operating net Non-
($000's Cdn) May 31, 2008 of interest operating
----------------------------------------------------------------------------
Operating income 661,265
Amortization of financing
costs - long-term debt (2,745)
Interest expense - debt (174,025)
----------------------------------------------------------------------------
Operating income after interest 484,495 484,495 -
Debt retirement costs (5,264) - (5,264)
Other gains 25,751 - 25,751
----------------------------------------------------------------------------
Income before income taxes 504,982 484,495 20,487
Income tax expense (recovery) (34,208) 157,959 (192,167)
----------------------------------------------------------------------------
Income before following 539,190 326,536 212,654
Equity loss on investee (6) - (6)
----------------------------------------------------------------------------
Net income 539,184 326,536 212,648
----------------------------------------------------------------------------
Three months ended
-------------------- Operating net Non-
($000's Cdn) May 31, 2009 of interest operating
----------------------------------------------------------------------------
Operating income 248,431
Amortization of financing
costs - long-term debt (1,026)
Interest expense - debt (61,083)
----------------------------------------------------------------------------
Operating income after interest 186,322 186,322 -
Debt retirement costs (8,255) - (8,255)
Other gains 9,822 - 9,822
----------------------------------------------------------------------------
Income before income taxes 187,889 186,322 1,567
Income tax expense (recovery) 55,832 55,367 465
----------------------------------------------------------------------------
Income before following 132,057 130,955 1,102
Equity loss on investee (112) - (112)
----------------------------------------------------------------------------
Net income 131,945 130,955 990
----------------------------------------------------------------------------
Three months ended
-------------------- Operating net Non-
($000's Cdn) May 31, 2008 of interest operating
----------------------------------------------------------------------------
Operating income 231,242
Amortization of financing
costs - long-term debt (882)
Interest expense - debt (56,798)
----------------------------------------------------------------------------
Operating income after interest 173,562 173,562 -
Debt retirement costs - - -
Other gains 233 - 233
----------------------------------------------------------------------------
Income before income taxes 173,795 173,562 233
Income tax expense (recovery) 45,612 56,636 (11,024)
----------------------------------------------------------------------------
Income before following 128,183 116,926 11,257
Equity loss on investee (70) - (70)
----------------------------------------------------------------------------
Net income 128,113 116,929 11,187
----------------------------------------------------------------------------
The changes in net income are outlined in the table below.
May 31, 2009 net income compared to:
----------------------------------------------------
Three months ended Nine months ended
----------------------------------------------------
February 28, 2009 May 31, 2008 May 31, 2008
----------------------------------------------------------------------------
(000's Cdn)
Increased service
operating income before
amortization 13,915 39,181 105,713
Increased amortization (3,744) (22,136) (47,804)
Increased interest
expense (4,729) (4,285) (622)
Change in net other
costs and revenue (1) (5,737) 1,292 (10,019)
Increased income taxes (23,989) (10,220) (175,201)
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(24,284) 3,832 (127,933)
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(1) Net other costs and revenue includes debt retirement costs, other gains
and equity loss on investee as detailed in the unaudited interim
Consolidated Statements of Income and Retained Earnings (Deficit).
Basic earnings per share were $0.31 and $0.96 for the quarter and nine months, respectively, compared to $0.30 and $1.25 in the same periods last year. The current three month period benefitted from higher service operating income before amortization of $39.2 million partially offset by increased amortization of $22.1 million. Lower income taxes in the comparable quarter of $10.2 million included a tax recovery of $11.1 million related to the resolution of certain tax matters and further offset this improvement. On a year-to-date basis service operating income before amortization was up $105.7 million partially offset by increased amortization of $47.8 million. The improvement was more than offset by lower income taxes in the prior year that included a $199.1 million future tax recovery as compared to a current nine month period tax recovery of $22.6 million. Both recoveries were primarily related to reductions in corporate income tax rates. The prior nine month period also benefitted from improved net other costs and revenue of $10.0 million due to a $22.3 million net duty recovery related to satellite receiver importations partially offset by a current period gain of $10.8 million realized on settlement of a bond forward contract.
Net income in the current quarter decreased $24.3 million compared to the second quarter of fiscal 2009 primarily due to lower income taxes in the prior period resulting from a tax recovery of $22.6 million related to reductions in corporate income tax rates. Improved service operating income before amortization of $13.9 million was offset by increased amortization and interest expense of $3.7 million and $4.7 million, respectively, and lower net other costs and revenue of $5.7 million. The lower net other costs and revenue was primarily due to a gain in the prior quarter realized on the sale of certain redundant facilities.
Funds flow from operations was $356.0 million in the third quarter compared to $311.0 million in the comparable quarter, and on a year-to-date basis was $1.00 billion compared to $901.6 million in 2008. The improvement over the comparative periods was principally due to increased service operating income before amortization.
Consolidated free cash flow for the quarter of $154.3 million compared to $81.2 million in the same period last year. The improvement was due to increased service operating income of $39.2 million and lower capital investment of $38.2 million in the current quarter. For the nine month period free cash flow was up $96.3 million over last year to $405.6 million. The year-to-date growth was principally due to increased service operating income before amortization of $105.7 million partially offset by increased capital investment of $8.8 million. The Cable division generated $109.0 million of free cash flow for the quarter compared to $44.4 million in the comparable period. The Satellite division achieved free cash flow of $45.2 million for the quarter compared to $36.7 million in the same period last year.
Coincident with the expiry of Shaw's shelf prospectus on March 17, 2009, Shaw filed a short form base shelf prospectus with securities regulators in Canada and the U.S. on March 11, 2009 to allow for timely access to capital markets. The shelf prospectus allows for the issue of up to an aggregate $2.5 billion of debt and equity securities over a 25 month period. On March 27, 2009 the Company closed a $600.0 million offering of 6.50% senior notes due June 2, 2014. The net proceeds are being used for debt repayment, working capital and general corporate purposes. On April 15, 2009 Shaw subsequently redeemed the Videon Cablesystems Inc. Cdn $130.0 million Senior Debentures.
Key Performance Drivers
The Company's continuous disclosure documents may provide discussion and analysis of non-GAAP financial measures. These financial measures do not have standard definitions prescribed by Canadian GAAP or US GAAP and therefore may not be comparable to similar measures disclosed by other companies. 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. These non-GAAP financial measures have not been presented as an alternative to net income or any other measure of performance required by Canadian or US GAAP.
The following contains a listing of non-GAAP financial measures used by the Company and provides a reconciliation to the nearest GAAP measurement or provides a reference to such reconciliation.
Service operating income before amortization and operating margin
Service operating income before amortization is calculated as service 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 and Retained Earnings (Deficit). 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. Service 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 service operating income before amortization by service revenue.
Free cash flow
The Company utilizes this measurement as it measures the Company's ability to repay debt and return cash to shareholders.
Free cash flow for cable and satellite is calculated as service operating income before amortization, less interest, cash taxes paid or payable on net income, capital expenditures (on an accrual basis and net of proceeds on capital dispositions) and equipment costs (net).
Commencing in 2009, for the purpose of determining free cash flow, the Company revised its calculation of capital expenditures to net proceeds on capital dispositions. Historically, the proceeds received on the sale of property, plant and equipment were not included in the free cash flow calculation as they were generally nominal. The Company expects these will be more material on a prospective basis as it commences to consolidate its operating groups at its new campus style facility in Calgary, disposes of redundant assets, and replaces various operating assets as it continues to upgrade and improve competitiveness. The definition of free cash flow is more fully described in the Company's August 31, 2008 Annual Report on page 10.
Consolidated free cash flow is calculated as follows:
Three months ended Nine months ended
May 31, May 31,
----------------------------------------
2009 2008 2009 2008
----------------------------------------------------------------------------
($000's Cdn)
Cable free cash flow (1) 109,021 44,411 279,985 202,813
Combined satellite free cash
flow (1) 45,229 36,749 125,653 106,534
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Consolidated free cash flow 154,250 81,160 405,638 309,347
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(1) Reconciliations of free cash flow for both cable and satellite are
provided under "Cable - Financial Highlights" and "Satellite - Financial
Highlights".
CABLE
FINANCIAL HIGHLIGHTS
Three months ended May 31, Nine months ended May 31,
---------------------------------------------------------
Change Change
2009 2008 % 2009 2008 %
----------------------------------------------------------------------------
($000's Cdn)
Service revenue
(third party) 669,606 607,849 10.2 1,948,519 1,755,176 11.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Service operating
income before
amortization (1) 325,360 294,341 10.5 941,613 851,108 10.6
Less:
Interest expense 54,180 49,231 10.1 153,937 149,943 2.7
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Cash flow before
the following: 271,180 245,110 10.6 787,676 701,165 12.3
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Capital
expenditures and
equipment costs
(net):
New housing
development 18,348 21,478 (14.6) 59,088 70,761 (16.5)
Success based 52,813 29,102 81.5 129,994 72,550 79.2
Upgrades and
enhancement 66,576 64,181 3.7 220,095 204,044 7.9
Replacement 12,726 15,038 (15.4) 38,524 44,388 (13.2)
Buildings/other 11,696 70,900 (83.5) 59,990 106,609 (43.7)
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Total as per Note 2
to the unaudited
interim
Consolidated
Financial
Statements 162,159 200,699 (19.2) 507,691 498,352 1.9
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Free cash flow (1) 109,021 44,411 145.5 279,985 202,813 38.1
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Operating margin 48.6% 48.4% 0.2 48.3% 48.5% (0.2)
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(1) See definitions and discussion under Key Performance Drivers in
Management's Discussion and Analysis.
Operating Highlights
- Shaw had a record quarterly Digital gain, adding 110,810 customers. As at May 31, 2009 Digital customers totaled 1,187,183 representing 52.0% penetration of Basic compared to 40.2% penetration at August 31, 2008.
- Digital Phone lines increased 54,633 during the quarter to 774,009 lines at May 31, 2009. The Digital Phone footprint grew in the quarter with continued launches in various smaller centres in British Columbia and Alberta.
- Shaw added 24,625 Internet customers during the three month period to total 1,650,959 as at May 31, 2009. Internet penetration of Basic now stands at 72.3% up from 69.4% at August 31, 2008. During the quarter Shaw launched its 100Mbps service in Victoria and Winnipeg.
- Basic customers increased 9,622 during the quarter to 2,283,526 at May 31, 2009.
Cable service revenue for the three and nine month periods of $669.6 million and $1.95 billion, respectively, was up 10.2% and 11.0% over the same periods last year. Customer growth and rate increases accounted for the improvement. Service operating income before amortization of $325.4 million and $941.6 million, respectively, increased 10.5% and 10.6% over the comparable three and nine month periods. The improvement was driven by revenue related growth partially offset by higher employee costs and other expenses, including marketing activities and equipment maintenance and support. The comparable three month period also included higher CRTC Part II fees as the Company had stopped accruing for these in October 2007 and reinstated the accrual in May 2008.
Service revenue was up $20.0 million or 3.1% over the second quarter of fiscal 2009 primarily due to customer growth and rate increases partially implemented in the current quarter. Service operating income before amortization improved $12.3 million or 3.9% over this same period due to the revenue related growth partially reduced by costs related to growth including increased marketing related activities.
Total capital investment of $162.2 million for the quarter declined $38.5 million compared to the same quarter last year. Capital investment of $507.7 million for the year-to-date period increased $9.3 million over the same period last year.
Spending in New housing development for the three and nine month periods declined $3.1 million and $11.7 million, respectively, over the same periods last year mainly due to reduced activity.
Success-based capital increased $23.7 million and $57.4 million over the comparable three and nine month periods, respectively. Both current periods had higher Digital success-based capital primarily due to increased customer activations associated with the new rental strategy. The current year-to-date period also included increased digital success based amounts related to lower customer pricing of certain equipment earlier in the year.
Investment in the Upgrades and enhancement category was up $16.1 million for the year-to-date period compared to the same period last year. The current period included higher spending on Internet projects to enhance the speed of Shaw's various Internet offerings. The comparable nine month period included higher investment on Digital Phone capital mainly related to the expansion of softswitch and network capacity to accommodate continued growth which partially offset the increase.
Investment in Buildings and other declined $59.2 million and $46.6 million, respectively, compared to the quarter and year-to-date periods last year. The higher spend in the comparable periods was primarily due to investments in various facilities projects including the purchase of a property in Calgary adjacent to existing Company owned facilities. This property has since been used to consolidate various operating groups that were previously located in other areas of Calgary. The current quarter also benefitted from lower spending on IT related projects. The nine month period ending May 31, 2009 included proceeds on the sale of redundant facilities which was offset primarily with higher investment in IT projects to upgrade back office and customer support systems.
Subscriber Statistics
May 31, 2009
---------------------------------
Three months Nine months
ended ended
---------------------------------
May 31, August 31, Growth Change Growth Change
2009 2008(1) % %
----------------------------------------------------------------------------
CABLE:
Basic service:
Actual 2,283,526 2,260,433 9,622 0.4 23,093 1.0
Penetration as %
of homes passed 63.1% 63.5%
Digital customers 1,187,183 909,167 110,810 10.3 278,016 30.6
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INTERNET:
Connected and
scheduled 1,650,959 1,569,052 24,625 1.5 81,907 5.2
Penetration as % of
basic 72.3% 69.4%
Standalone Internet
not included in
basic cable 231,601 214,315 1,033 0.4 17,286 8.1
DIGITAL PHONE:
Number of lines(2) 774,009 611,931 54,633 7.6 162,078 26.5
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(1) August 31, 2008 figures are restated for comparative purposes as if the
acquisition of the Campbell River cable system in British Columbia had
occurred on that date.
(2) Represents primary and secondary lines on billing plus pending installs.
Shaw is committed to continually upgrading its infrastructure to offer customers new and improved services. The Company has continued to roll-out Digital simulcast, adding approximately 300,000 additional homes this year, and is now digital simulcasting in approximately 95% of its footprint. During the quarter the Company launched a number of new digital offerings including the Star Trek series and UFC content on Shaw VOD, continuing to expand the variety of affordable entertainment available in the customers own home. Digital subscriber growth continued with the momentum gained earlier in the year adding over 110,000 customers, a record quarterly gain. As at May 31, 2009, Digital penetration of Basic stands at 52.0% compared to 40.2% at August 31, 2008. Shaw now has almost 500,000 HD capable customers.
Internet speed increases of 50 per cent or greater were implemented during the previous quarter as well as a new 100 Mbps service, High-Speed Nitro, using DOCSIS 3.0 technology. During the current quarter the new 100 Mbps service was rolled out in Winnipeg and Victoria.
Shaw's Digital Phone footprint continued to expand during the quarter with launches in various smaller centres in British Columbia, including Lumby, Falkland and Aspen Park, and in Alberta, including Morinville and Namao. Since the launch of Shaw Digital Phone in Calgary just over 4 years ago the Company has expanded the range of service offerings to meet the needs of a variety of customers and penetration of Digital Phone lines now stands at over 36% of Basic customers who have the service available to them.
SATELLITE (DTH and Satellite Services)
FINANCIAL HIGHLIGHTS
Three months ended May 31, Nine months ended May 31,
-----------------------------------------------------
Change Change
2009 2008 % 2009 2008 %
-----------------------------------------------------
($000's Cdn)
Service revenue (third
party)
DTH (Star Choice) 170,047 161,619 5.2 503,907 477,182 5.6
Satellite Services 21,729 22,681 (4.2) 65,568 66,801 (1.8)
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191,776 184,300 4.1 569,475 543,983 4.7
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Service operating
income before
amortization (1)
DTH (Star Choice) 58,298 49,531 17.7 167,813 151,003 11.1
Satellite Services 11,612 12,217 (5.0) 34,996 36,598 (4.4)
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69,910 61,748 13.2 202,809 187,601 8.1
Less:
Interest expense (2) 6,564 7,220 (9.1) 19,688 23,037 (14.5)
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Cash flow before the
following: 63,346 54,528 16.2 183,121 164,564 11.3
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Capital expenditures
and equipment costs
(net):
Success based (3) 15,835 16,134 (1.9) 52,703 53,988 (2.4)
Transponders and other 2,282 1,645 38.7 4,765 4,042 17.9
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Total as per Note 2 to
the unaudited interim
Consolidated Financial
Statements 18,117 17,779 1.9 57,468 58,030 (1.0)
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Free cash flow (1) 45,229 36,749 23.1 125,653 106,534 17.9
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Operating Margin 36.5% 33.5% 3.0 35.6% 34.5% 1.1
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(1) See definitions and discussion under Key Performance Drivers in
Management's Discussion and Analysis.
(2) Interest is allocated to the Satellite division based on the actual cost
of debt incurred by the Company to repay Satellite debt and to fund
accumulated cash deficits of Shaw Satellite Services and Shaw Direct.
(3) 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
- Free cash flow of $45.2 million for the quarter compares to $36.7 million in the same period last year.
- During the quarter Shaw Direct added 1,580 customers and as at May 31, 2009 DTH customers now total 898,213.
Service revenue of $191.8 million and $569.5 million for the three and nine month periods, respectively, was up 4.1% and 4.7% over the same periods last year. The improvement was primarily due to rate increases and customer growth. Service operating income before amortization improved 13.2% and 8.1% over the comparable three and nine month periods respectively, to $69.9 million and $202.8 million. The increase was mainly due to the revenue related growth partially offset by costs to support customer service and growth. The comparable quarter also included higher CRTC Part II fees as the Company had stopped accruing for these in October 2007 and reinstated the accrual in May 2008.
Service operating income before amortization improved 2.4% over the second quarter. The increase was mainly due to customer growth and rate increases.
Total capital investment of $18.1 million and $57.5 million for the quarter and year-to-date periods, respectively, were comparable to the prior year spends of $17.8 million and $58.0 million, respectively.
During the quarter Star Choice changed its name to Shaw Direct, strengthening the Shaw name from coast to coast and building on the Shaw brand extension in 2007 to include Shaw Tracking, Shaw Business Solutions and Shaw Broadcast Services.
Shaw Direct added Golf HD during the quarter to its HD channel line up and now offers a total of 53 HD services to over 300,000 HD customers.
Subscriber Statistics
May 31, 2009
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Three months ended Nine months ended
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May 31, August 31, Change Change
2009 2008 Growth % Growth %
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DTH customers (1) 898,213 892,528 1,580 0.2 5,685 0.6
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(1) Including seasonal customers who temporarily suspend their service.
OTHER INCOME AND EXPENSE ITEMS
Amortization
Three months ended May 31, Nine months ended May 31,
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Change Change
2009 2008 % 2009 2008 %
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($000's Cdn)
Amortization
revenue (expense)
Deferred IRU
revenue 3,137 3,137 - 9,410 9,410 -
Deferred equipment
revenue 33,341 32,463 2.7 100,319 93,567 7.2
Deferred equipment
costs (62,674) (57,210) 9.6 (186,065) (169,549) 9.7
Deferred charges (256) (256) - (768) (768) -
Property, plant and
equipment (120,387) (102,981) 16.9 (347,971) (310,104) 12.2
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The increase in amortization of deferred equipment revenue and deferred equipment costs over the comparative periods is primarily due to continued growth in sales of higher priced HD digital equipment up to February 2009. During the current quarter, the Company launched a new HD digital rental program as part of its focus on growing the HD customer base.
Amortization of property, plant and equipment increased over the comparable periods as the amortization of capital expenditures incurred in fiscal 2008 and 2009 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,
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Change Change
2009 2008 % 2009 2008 %
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($000's Cdn)
Amortization of
financing costs
long-term debt 1,026 882 16.3 2,918 2,745 6.3
Interest expense - debt 61,083 56,798 7.5 174,647 174,025 0.4
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Interest expense increased over the comparative quarter as a result of a higher average debt level.
Debt retirement costs
During the current quarter, the Company redeemed the Videon CableSystems Inc. Cdn $130 million Senior Debentures. In connection with the early redemption, the Company incurred costs of $9.2 million and wrote-off the remaining unamortized fair value adjustment of $0.9 million. The Company used part of the proceeds from its $600 million Senior notes issuance to fund the redemption.
The debt retirement costs in the prior year were in relation to the early redemption of the Cdn $100 million 8.54% COPrS in January 2008.
Other gains
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 the Company's share of the operations of Burrard Landing Lot 2 Holdings Partnership ("the Partnership").
