CALGARY, ALBERTA, Oct. 23, 2009 (Marketwire) --
CALGARY, ALBERTA -- (Marketwire) -- 10/23/09 -- Shaw Communications Inc. (TSX: SJR.B) (NYSE: SJR) announced results for the fourth quarter and fiscal year ended August 31, 2009. Consolidated service revenue for the three and twelve month periods of $873 million and $3.39 billion, respectively, was up 8% and 9% over the same periods last year. Service operating income before amortization(1) of $395 million and $1.54 billion, respectively, improved 7% and 9% over the comparable periods. Funds flow from operations(2) was $321 million and $1.32 billion for the quarter and year respectively, compared to $321 million and $1.22 billion in the same periods last year.
During the quarter Basic cable subscribers increased 6,374 to 2,289,900, Digital customers were up 110,501 to 1,297,684, and Internet and Digital Phone lines grew by 27,376 to 1,678,335 and 55,708 to 829,717, respectively. DTH customers increased 2,728 to 900,941.
Chief Executive Officer and Vice Chair Jim Shaw commented, "Throughout 2009 subscriber growth was solid. Our focus on Digital deployment, combined with the consumers increased demand for HDTV, drove record Digital growth during the year. We added over 388,000 new subscribers increasing our Digital penetration of Basic from 40% at August 31, 2008 to almost 57% at August 31, 2009."
Free cash flow(1) for the quarter and year was $99 million and $504 million, respectively, compared to $143 million and $453 million for the same periods last year. The quarterly decline was due to increased capital investment and the impact of cash taxes offsetting higher service operating income before amortization. The annual improvement in free cash flow was achieved through higher service operating income before amortization after taking into account almost $50 million of increased capital investment and the impact of the Company becoming cash taxable during the current quarter.
Jim Shaw stated, "Our financial and operational results for the quarter and annual period demonstrate our ability to manage effectively in a challenging economic and highly competitive environment. Our prudent management approach enabled us to invest in the business and execute on our strategic initiatives providing customers with high quality innovative products, value pricing, and exceptional customer service. The foundation of our service delivery system includes our dedicated employee base and our technologically advanced broadband network. Our commitment to customer service is a strong competitive advantage, and in support of this our employee base grew rapidly from 6,500 in 2005 to over 10,000 today. During 2009 we invested over $775 million in our capital infrastructure in order to continue to meet customers' demands. The investment was directed to the enhancement of our broadband network including capacity upgrades to accommodate the continued growth of HD services, subscriber growth with a focus on increasing our Digital base, expansion of our Digital Phone footprint, continued node segmentation, Internet speed increases of 50% and the launch of a 100 Mbps service with DOCSIS 3.0 deployment, back office and customer support systems, and facilities expansion. Our business is capital intensive: we must continue to reinvest a large portion of our operating profits to remain in step with technology advancements and provide consumers the choice and innovation they demand. From 2005 through 2009 we invested over $3.0 billion in capital.
For 2009 specifically we achieved solid growth across our key financial metrics: 9% improvement in both consolidated service revenue and service operating income before amortization, and an increase of over $50 million, or 11%, in free cash flow. Our continued financial success is directly related to our ability to deliver real value by anticipating and responding to the needs of our customers, offering variety and competitive rates. We do this while also making significant contributions to the enhancement of the Canadian broadcasting system. Our financial results include substantial investments, over $100 million in 2009, in support of Canadian television including Canadian content and local programming."
Mr. Shaw continued, "We have added employees and invested to ensure our service delivery system is strong and our business has a sound future. While doing this we have maintained our profitability in a consistent manner. Also, while many other companies loaded up on debt overlooking that economic cycles occur, we have consistently lowered our debt each year and strengthened our business financially."
Net income of $124 million or $0.29 per share for the quarter ended August 31, 2009 compared to $132 million or $0.31 per share for the same quarter last year. Net income for the annual period was $535 million or $1.25 per share compared to $672 million or $1.56 per share last year. All periods included non-operating items which are more fully detailed in Management's Discussions and Analysis (MD&A).(3) The current and comparable annual periods each benefitted from tax recoveries primarily related to reductions in enacted income tax rates of $23 million and $199 million, respectively. The prior year 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 twelve month periods ended August 31, 2009 would have been $123 million and $504 million compared to $133 million and $460 million in the same periods last year.
Service revenue in the Cable division was up 10% and 11% for the three and twelve month periods, respectively, to $682 million and $2.63 billion. The improvement was primarily driven by customer growth and rate increases. Service operating income before amortization improved 9% and 10%, respectively, for the three and twelve month periods to $328 million and $1.27 billion.
Service revenue in the Satellite division was $190 million and $760 million for the three and twelve month periods respectively, up 3% and 4% 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 and annual period was $67 million and $269 million, respectively, compared to $67 million and $255 million for the same periods last year.
Mr. Shaw continued, "Looking forward we anticipate steady growth in fiscal 2010. Including the impact of a one-time CRTC Part II fee recovery, our preliminary view calls for consolidated service operating income before amortization to increase by 14% or more. We plan to continue our rate of capital investment driving business growth and improvements, including implementation of new technologies to provide our customers with unprecedented choice and leading edge products. Considering the full year impact of cash taxes, we expect free cash flow to be comparable to fiscal 2009. We caution that this preliminary guidance may change in light of competitive market dynamics and other risk factors."
On October 1, 2009 the Company closed a $1.25 billion offering of 5.65% senior notes due October 1, 2019. The net proceeds are being used to repay near term maturing debt, potential acquisitions, working capital and general corporate purposes. Shaw subsequently redeemed its US$440 million Senior Notes and US$225 million Senior Notes on October 13, 2009 and its US$300 million Senior Notes on October 20, 2009.
The Company has received CRTC approval and will close the acquisition of Mountain Cablevision shortly. Mountain Cablevision, based in Hamilton, Ontario, was one of the larger remaining independent cable companies in Canada and represents a complementary growth opportunity for Shaw adding approximately 41,000 cable customers, 29,000 Internet subscribers, and 30,000 Digital Phone lines.
Mr. Shaw concluded "As we focus on the year ahead we plan to continue to invest in our high quality network and drive innovation in our products and services. These initiatives, combined with our focus on the delivery of a superior customer experience, strengthen our competitive position and build long-term 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 Shaw Direct). The Company serves 3.4 million customers, including over 1.6 million Internet and 800,000 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 (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
AUGUST 31, 2009
October 23, 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
FOURTH QUARTER ENDING AUGUST 31, 2009
Selected Financial Highlights
Three months ended August 31 Year ended August 31
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Change Change
2009 2008 % 2009 2008 %
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($000's Cdn except
per share amounts)
Operations:
Service revenue 872,919 805,700 8.3 3,390,913 3,104,859 9.2
Service operating
income before
amortization (1) 394,528 369,527 6.8 1,538,950 1,408,236 9.3
Operating margin(1) 45.2% 45.9% 45.4% 45.4%
Funds flow from
operations (2) 321,319 321,276 - 1,323,840 1,222,895 8.3
Net income 123,988 132,378 (6.3) 535,239 671,562 (20.3)
Per share data:
Earnings per share
- basic $0.29 $0.31 $1.25 $1.56
- diluted $0.29 $0.31 $1.24 $1.55
Weighted average
participating shares
outstanding during
period (000's) 430,117 429,694 429,153 431,070
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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
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Three months ended Year ended
Total August 31, August 31,
----------------------------------------------------
August 31, 2009 2009 2008 2009 2008
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Subscriber statistics:
Basic cable customers 2,289,900 6,374 4,122 29,467 21,279
Digital customers 1,297,684 110,501 23,020 388,517 143,180
Internet customers
(including pending
installs) 1,678,335 27,376 24,785 109,283 114,206
DTH customers 900,941 2,728 1,736 8,413 12,943
Digital phone lines
(including pending
installs) 829,717 55,708 61,999 217,786 226,574
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Additional Highlights
- Consolidated service revenue of $872.9 million and $3.39 billion for the quarter and year respectively, improved 8.3% and 9.2% over the comparable periods last year. Total service operating income before amortization of $394.5 million and $1.54 billion was up 6.8% and 9.3% over the same periods.
- Consolidated free cash flow(1) for the quarter was $98.8 million bringing the annual total to $504.4 million compared to $143.3 million and $452.6 million, respectively, for the same periods last year.
- Dividends paid to shareholders in fiscal 2009 increased 15.8% to $351.9 million.
- On October 1, 2009 the Company closed a $1.25 billion offering of 5.65% Senior Notes due October 1, 2019. The net proceeds are being used to repay near maturing debt, potential acquisitions, working capital and general corporate purposes.
- Shaw redeemed its US$440 million Senior Notes and US$225 million Senior Notes on October 13, 2009 and its US$300 million Senior Notes on October 20, 2009.
- Shaw has full availability under its $1.0 billion revolving bank credit facility and after the redemption of the US$ Senior Notes has no scheduled debt repayments until November 2012.
(1) See definitions and discussion under Key Performance Drivers in Management's Discussion and Analysis.
Consolidated Overview
Consolidated service revenue of $872.9 million and $3.39 billion for the quarter and year respectively, improved 8.3% and 9.2% 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 twelve month periods improved 6.8% and 9.3% over the comparable periods to $394.5 million and $1.54 billion. The increase was driven by the revenue improvements partially offset by higher employee and other costs related to growth.
Net income was $124.0 million and $535.2 million for the quarter and year, respectively compared to $132.4 million and $671.6 million for the same periods last year. Non-operating items affected net income in all periods including tax recoveries primarily related to reductions in enacted income tax rates in the current and comparable annual period of $22.6 million and $199.1 million, respectively. The prior twelve month period also benefitted from a net duty recovery related to satellite importations of $22.3 million. Outlined below are further details on these and other operating and non-operating components of net income for each period.
Year Year
ended ended
-------- --------
Operating Operating
August net of Non- August net of Non-
($000's Cdn) 31, 2009 interest operating 31, 2008 interest operating
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Operating
income 955,754 903,103
Amortization
of financing
costs -
long-term
debt (3,984) (3,627)
Interest
expense -
debt (237,047) (230,588)
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Operating
income after
interest 714,723 714,723 - 668,888 668,888 -
Debt
retirement
costs (8,255) - (8,255) (5,264) - (5,264)
Other gains 19,644 - 19,644 24,009 - 24,009
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Income before
income
taxes 726,112 714,723 11,389 687,633 668,888 18,745
Current
income tax
expense 23,300 23,300 - - - -
Future
income tax
expense
(recovery) 167,474 186,962 (19,488) 16,366 209,108 (192,742)
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Income before
following 535,338 504,461 30,877 671,267 459,780 211,487
Equity
income (loss)
on investee (99) - (99) 295 - 295
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Net income 535,239 504,461 30,778 671,562 459,780 211,782
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Three Three
months months
ended ended
-------- --------
Operating Operating
August net of Non- August net of Non-
($000's Cdn) 31, 2009 interest operating 31, 2008 interest operating
----------------------------------------------------------------------------
Operating
income 236,407 241,838
Amortization
of financing
costs -
long-term
debt (1,066) (882)
Interest
expense -
debt (62,400) (56,563)
----------------------------------------------------------------------------
Operating
income after
interest 172,941 172,941 - 184,393 184,393 -
Debt
retirement
costs - - - - -
Other gains 828 - 828 (1,742) (1,742)
----------------------------------------------------------------------------
Income before
income
taxes 173,769 172,941 828 182,651 184,393 (1,742)
Current
income tax
expense 23,300 23,300 - - - -
Future
income tax
expense
(recovery) 26,481 26,365 116 50,574 51,149 (575)
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Income before
following 123,988 123,276 712 132,077 133,244 (1,167)
Equity
income on
investee - - - 301 - 301
----------------------------------------------------------------------------
Net income 123,988 123,276 712 132,378 133,244 (866)
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The changes in net income are outlined in the table below.
August 31, 2009 net income compared to:
------------------------------------------------
Three months ended Year ended
------------------------------------------------
May 31, 2009 August 31, 2008 August 31, 2008
----------------------------------------------------------------------------
(000's Cdn)
Increased (decreased)
service operating income
before amortization (742) 25,001 130,714
Increased amortization (11,322) (30,616) (78,420)
Increased interest expense (1,317) (5,837) (6,459)
Change in net other costs
and revenue (1) (627) 2,269 (7,750)
Decreased (increased) income
taxes 6,051 793 (174,408)
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(7,957) (8,390) (136,323)
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(1) Net other costs and revenue includes debt retirement costs, other gains
and equity income (loss) on investee as detailed in the unaudited
interim Consolidated Statements of Income and Retained Earnings
(Deficit).
Basic earnings per share were $0.29 and $1.25 for the quarter and twelve months, respectively, compared to $0.31 and $1.56 in the same periods last year. The current three month period benefitted from higher service operating income before amortization of $25.0 million which was more than offset by increased amortization of $30.6 million and interest of $5.8 million. On a year-to-date basis service operating income before amortization was up $130.7 million partially offset by increased amortization of $78.4 million. The improvement was more than offset due to lower income taxes in the prior year of $174.4 million that included a $199.1 million future tax recovery as compared to a current twelve month period tax recovery of $22.6 million. Both recoveries were primarily related to reductions in corporate income tax rates. The prior twelve month period also benefitted from improved net other costs and revenue of $7.8 million mainly 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 $8.0 million compared to the third quarter of fiscal 2009 mainly due to increased amortization of $11.3 million partially offset by lower income taxes of $6.1 million.
Funds flow from operations was $321.3 million in both the current and comparable quarter last year. Improved service operating income before amortization in the current quarter was offset by current income taxes. On an annual basis funds flow from operations was $1.32 billion compared to $1.22 billion in 2008. The annual increase was principally due to higher service operating income before amortization partially reduced by current income taxes.
Consolidated free cash flow for the quarter of $98.8 million compared to $143.3 million in the same period last year. Improved service operating income in the current quarter of $25.0 million was more than offset by increased capital investment of $40.4 million and cash taxes of $23.3 million. For the year free cash flow was up $51.8 million over last year to $504.4 million. The annual growth was primarily due to increased service operating income before amortization of $130.7 million partially offset by increased capital investment of $49.1 million and cash taxes of $23.3 million. The Cable division generated $62.8 million of free cash flow for the quarter compared to $102.5 million in the comparable period. The Satellite division achieved free cash flow of $36.0 million for the quarter compared to $40.8 million in the same period last year.
On October 1, 2009 the Company closed a $1.25 billion offering of 5.65% senior notes due October 1, 2019. The net proceeds are being used to repay near maturing debt, potential acquisitions, working capital and general corporate purposes. Shaw redeemed its US$440 million Senior Notes and US$225 million Senior Notes on October 13, 2009 and its US$300 million Senior Notes on October 20, 2009. Shaw has full availability under its $1.0 billion revolving bank credit facility and after the redemption of the US Senior Notes has no scheduled debt repayments until November 2012 providing it significant liquidity and flexibility.
On October 7, 2009 the Government of Canada and members of the broadcasting industry that are required to pay Part II license fees announced they had entered into a settlement agreement on the Part II license fee issue. The agreement has resulted in the government agreeing that it will not seek Part II license fees owing for the fiscal years 2007, 2008 and 2009 that were not collected due to the ongoing legal dispute. In return, members of the broadcasting industry, including Shaw, discontinued their appeal before the Supreme Court of Canada challenging the validity of the fees. Under the settlement, the government is also recommending that the CRTC develop a new forward-looking regime that would be capped at $100 million per year, indexed to inflation. In October 2009 the Company recorded a recovery of approximately $52 million after taxes for the Part II fees that had been accrued for the past three years and will not be collected pursuant to the agreement.
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.
Commencing in 2010, for the purpose of determining free cash flow, the Company will exclude stock-based compensation expense, reflecting the fact that it is not a reduction in the Company's cash flow. This practice is also more in line with our North American peers who report free cash flow.
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 Year ended
August 31, August 31,
------------------------------------------
2009 2008 2009 2008
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($000's Cdn)
Cable free cash flow (1) 62,813 102,525 342,798 305,338
Combined satellite free
cash flow (1) 35,965 40,759 161,618 147,293
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Consolidated free cash flow 98,778 143,284 504,416 452,631
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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 August 31, Year ended August 31,
------------------------------------------------------------
Change Change
2009 2008 % 2009 2008 %
----------------------------------------------------------------------------
($000's Cdn)
Service revenue
(third party) 682,463 620,410 10.0 2,630,982 2,375,586 10.8
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Service operating
income before
amortization (1) 328,007 302,166 8.6 1,269,620 1,153,274 10.1
Less:
Interest expense 55,501 49,657 11.8 209,438 199,600 4.9
Cash taxes 23,300 - 23,300 -
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Cash flow before the
following: 249,206 252,509 (1.3) 1,036,882 953,674 8.7
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Capital expenditures
and equipment costs
(net):
New housing
development 14,588 22,786 (36.0) 73,676 93,547 (21.2)
Success based 55,475 30,185 83.8 185,469 102,735 80.5
Upgrades and
enhancement 77,556 67,198 15.4 297,651 271,242 9.7
Replacement 17,274 13,187 31.0 55,798 57,575 (3.1)
Buildings/other 21,500 16,628 29.3 81,490 123,237 (33.9)
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Total as per Note 2
to the
unaudited interim
Consolidated
Financial
Statements 186,393 149,984 24.3 694,084 648,336 7.1
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Free cash flow (1) 62,813 102,525 (38.7) 342,798 305,338 12.3
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Operating margin 48.1% 48.7% (0.6) 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
- Cable service revenue for the quarter and year of $682.5 million and $2.63 billion, respectively, was up 10.0% and 10.8% over the same periods last year. Service operating income before amortization of $328.0 million and $1.27 billion, respectively, increased 8.6% and 10.1% over the comparable three and twelve month periods.
- During the quarter Basic cable subscribers increased 6,374 to 2,289,900. On an annual basis Basic subscribers were up 29,467.
- Digital customers increased 110,501 during the quarter to 1,297,684, and for the twelve month period 388,517 customers were added. Shaw's Digital penetration of Basic has increased from 40.2% at August 31, 2008 to 56.7% at August 31, 2009.
- Digital Phone lines increased 55,708 during the quarter to 829,717 lines and Internet was up 27,376 to total 1,678,335 as at August 31, 2009. Internet penetration of Basic continues to be one of the highest in North America and now stands at 73.3% up from 69.4% at August 31, 2008.
Cable service revenue for the quarter and year of $682.5 million and $2.63 billion, respectively, was up 10.0% and 10.8% over the same periods last year. Customer growth and rate increases accounted for the improvement. Service operating income before amortization of $328.0 million and $1.27 billion, respectively, increased 8.6% and 10.1% over the comparable three and twelve month periods. The improvement was driven by revenue related growth partially offset by higher employee costs and other expenses, including marketing, sales activities, and equipment maintenance and support.
Service revenue was up $12.9 million or 2.0% over the third quarter of fiscal 2009 primarily due to customer growth and rate increases. Service operating income before amortization improved $2.6 million over this same period due to the revenue related growth partially reduced by increased employee related costs and other costs related to growth.
Total capital investment of $186.4 million for the quarter increased $36.4 million compared to the same quarter last year. Capital investment of $694.1 million for the year increased $45.7 million over the comparable annual period.
Spending in new housing development for the three and twelve month periods declined $8.2 million and $19.9 million, respectively, over the same periods last year mainly due to reduced activity.
Success-based capital increased $25.3 million and $82.7 million over the comparable quarter and annual periods, respectively. Both current periods had higher Digital success-based capital primarily due to increased customer activations associated with the new rental strategy and lower customer pricing of certain equipment. Internet and Digital Phone success-based capital was also up as the current periods included higher investment mainly due to bulk purchases of equipment at the end of the year as well as increased activity.
Investment in the upgrades and enhancement category and replacement category combined was up $14.4 million for the quarter and $24.6 million on an annual basis compared to the same periods last year. The current quarterly period included higher spending on various network projects including mainline upgrades, node segmentation, Digital Phone related investment mainly related to softswitch expansion, and bulk vehicle purchases. The annual period included higher spending on Internet projects to enhance the speed of Shaw's various Internet offerings partially offset by lower investment on Digital Phone related capital.
Investment in Buildings and other increased $4.9 million on a quarterly basis and declined $41.7 million on an annual basis compared to the same periods last year. The lower spend in the annual period was primarily due to higher investment last year in various facilities projects, including the purchase of a property in Calgary adjacent to existing Company owned facilities, partially offset by increased investment in the current year on IT projects to upgrade back office and customer support systems. The current annual period also benefitted from proceeds on the sale of redundant facilities.
Subscriber Statistics
August 31, 2009
------------------------------------
Three months ended Year ended
------------------------------------
August 31, August 31, Change Change
2009 2008(1) Growth % Growth %
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CABLE:
Basic service:
Actual 2,289,900 2,260,433 6,374 0.3 29,467 1.3
Penetration as
% of homes
passed 62.8% 63.5%
Digital customers 1,297,684 909,167 110,501 9.3 388,517 42.7
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INTERNET:
Connected and
scheduled 1,678,335 1,569,052 27,376 1.7 109,283 7.0
Penetration as
% of basic 73.3% 69.4%
Standalone
Internet not
included in basic
cable 235,686 214,315 4,085 1.8 21,371 10.0
DIGITAL PHONE:
Number of lines(2) 829,717 611,931 55,708 7.2 217,786 35.6
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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 capital investment driving business growth and improvements, including implementation of new technologies to provide our customers with choice and leading edge products. The Company continues to enhance its HD offerings, with the most recent addition of AMC to the HD channel line-up, and now carries 56 HD channels and offers over 500 HD titles through Shaw Video on Demand and HD PPV. It now has over 500,000 HD capable cable customers.
The Digital Phone footprint grew in the quarter with continued launches in various smaller centres in Southern Alberta and surrounding areas of Edmonton. The Digital Phone service is available to 94% of Basic customers and over 38% are taking the service at August 31, 2009.
Internet speed increases of 50 per cent or greater were implemented during the year as well as a new 100 Mbps service, High-Speed Nitro, using DOCSIS 3.0 technology. As at August 31, 2009, the new 100 Mbps service was available in Saskatoon, Victoria and Winnipeg and recently the service was launched in Vancouver, Calgary and Edmonton. Internet penetration of Basic continues to be one of the highest in North America and now stands at 73.3% up from 69.4% at August 31, 2008.
Late in fiscal 2008 the Company participated in the Canadian Advanced Wireless Spectrum ("AWS") auction and was successful in acquiring 20 megahertz of spectrum across most of its cable footprint for a cost of $190.9 million. In early September 2009 the Company received its ownership compliance decision from Industry Canada and was granted its AWS licenses.
SATELLITE (DTH and Satellite Services) FINANCIAL HIGHLIGHTS
Three months ended August 31, Year ended August 31,
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Change Change
2009 2008 % 2009 2008 %
------------------------------------------------------------
($000's Cdn)
Service revenue
(third party)
DTH (Shaw Direct) 169,319 162,879 4.0 673,226 640,061 5.2
Satellite Services 21,137 22,411 (5.7) 86,705 89,212 (2.8)
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190,456 185,290 2.8 759,931 729,273 4.2
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Service operating
income before
amortization (1)
DTH (Shaw Direct) 55,686 55,538 0.3 223,499 206,541 8.2
Satellite Services 10,835 11,823 (8.4) 45,831 48,421 (5.3)
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66,521 67,361 (1.2) 269,330 254,962 5.6
Less:
Interest expense(2) 6,563 6,562 - 26,251 29,599 (11.3)
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Cash flow before the
following: 59,958 60,799 (1.4) 243,079 225,363 7.9
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Capital expenditures
and equipment costs
(net):
Success based (3) 20,750 18,524 12.0 73,453 72,512 1.3
Transponders and
other 3,243 1,516 113.9 8,008 5,558 44.1
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Total as per Note 2
to the unaudited
interim
Consolidated
Financial Statements 23,993 20,040 19.7 81,461 78,070 4.3
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Free cash flow (1) 35,965 40,759 (11.8) 161,618 147,293 9.7
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Operating Margin 34.9% 36.4% (1.5) 35.4% 35.0% 0.4
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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 $36.0 million for the quarter compares to $40.8 million in the same period last year. On a annual basis free cash flow of $161.6 million increased $14.3 million over the prior year.
- During the quarter Shaw Direct added 2,728 customers bringing the annual growth to 8,413 customers. As at August 31, 2009 DTH customers now total 900,941.
Service revenue of $190.5 million and $759.9 million for the three and twelve month periods, respectively, was up 2.8% and 4.2% over the same periods last year. The improvement was primarily due to rate increases and customer growth. Service operating income before amortization for the quarter of $66.5 million compared to $67.4 million last year. The modest decline in the current period was due to lower contribution from the Satellite Services division resulting from the economic impact on Shaw Tracking. On an annual basis service operating income before amortization was up 5.6% to $269.3 million. The increase was mainly due to the revenue related improvement partially offset by costs to support customer service and other costs related to growth.
Service operating income before amortization decreased $3.4 million from the third quarter mainly due to timing of marketing and sales expenses.
Total capital investment of $24.0 million and $81.5 million for the quarter and year respectively, were comparable to the prior year spends of $20.0 million and $78.1 million, respectively. The increase in Transponder and other in both the current periods was mainly due to the relocation and expansion of the Montreal call centre.
During the quarter Shaw Direct added Canal D, a popular French specialty channel, to its HD line up and most recently added AMC HD. Shaw Direct now offers a total of 55 HD services to almost 325,000 HD customers.
Subscriber Statistics
August 31, 2009
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Three months ended Year ended
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August 31, August 31, Change Change
2009 2008 Growth % Growth %
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DTH customers (1) 900,941 892,528 2,728 0.3 8,413 0.9
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(1) Including seasonal customers who temporarily suspend their service.
OTHER INCOME AND EXPENSE ITEMS
Amortization
Three months ended August 31, Year ended August 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 - 12,547 12,547 -
Deferred equipment
revenue 32,655 33,034 (1.1) 132,974 126,601 5.0
Deferred equipment
costs (61,045) (58,975) 3.5 (247,110) (228,524) 8.1
Deferred charges (257) (257) - (1,025) (1,025) -
Property, plant and
equipment (132,611) (104,628) 26.7 (480,582) (414,732) 15.9
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The increase in amortization of deferred equipment revenue and deferred equipment costs over the comparative year is primarily due to continued growth in sales of higher priced HD digital equipment up to February 2009. During the third 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 August 31, Year ended August 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 1,066 882 20.9 3,984 3,627 9.8
Interest expense -
debt 62,400 56,563 10.3 237,047 230,588 2.8
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Interest expense increased over the comparative periods as a result of a higher average debt level partially offset by a lower average cost of borrowing resulting from changes in various components of long-term debt.
Debt retirement costs
During the third 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 completed in March 2009 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"). In addition, the current year includes a gain of $10.8 million on cancellation of a bond forward contract while the prior year includes a net customs duty recovery of $22.3 million related to satellite receiver importations in prior years.
Income taxes
Future income taxes fluctuated over the comparative periods due to income tax recoveries primarily in respect of reductions in the enacted corporate income tax rates.
RISKS AND UNCERTAINTIES
The significant risks and uncertainties affecting the Company and its business are discussed in the Company's August 31, 2008 Annual Report under the Introduction to the Business - Known Events, Trends, Risks and Uncertainties in Management's Discussion and Analysis. Developments of note since then are as follows:
Impact of Regulation - Potential for New or Increased Fees
On June 4, 2009 the CRTC released its decision in the New Media hearing and determined the new media exemption order would be maintained and no fees would be imposed on the revenues of Internet Service Providers at this time.
On July 6, 2009 the CRTC set the level of contribution by a BDU to fund the new Local Programming Improvement Fund ("LPIF") at 1.5%. The approved level of contribution to the LPIF will increase Shaw's costs.
On September 17, 2009 the Government issued an Order-in-Council (OIC) to the CRTC under section 15 of the Broadcasting Act that requires the CRTC to hold a hearing and report on fee for carriage from the perspective of the impacts that a fee-for-carriage regime would have on consumers and on the evolution of the broadcasting system. The CRTC issued a Public Notice on October 2, 2009 scheduling a Public Hearing on fee for carriage to be held December 7, 2009. It is possible that changes to the regulations respecting fee for carriage will result, including the potential for new or increased fees.
FINANCIAL POSITION
Total assets at August 31, 2009 were $8.9 billion compared to $8.4 billion at August 31, 2008.
