0001193125-12-486201.txt : 20121130 0001193125-12-486201.hdr.sgml : 20121130 20121129205538 ACCESSION NUMBER: 0001193125-12-486201 CONFORMED SUBMISSION TYPE: 40-F PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20120831 FILED AS OF DATE: 20121130 DATE AS OF CHANGE: 20121129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHAW COMMUNICATIONS INC CENTRAL INDEX KEY: 0000932872 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 000000000 FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 40-F SEC ACT: 1934 Act SEC FILE NUMBER: 001-14684 FILM NUMBER: 121233012 BUSINESS ADDRESS: STREET 1: STE 900 STREET 2: 630 3RD AVE SW CITY: CALGARY ALBERTA CANA STATE: A0 BUSINESS PHONE: 4037504500 40-F 1 d426574d40f.htm FORM 40-F Form 40-F

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 40-F

 

 

Check One

 

¨ Registration Statement Pursuant to Section 12 of the Securities Exchange Act of 1934

 

x Annual Report Pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended August 31, 2012

Commission File Number: 001-14684

 

 

Shaw Communications Inc.

(Exact name of Registrant as specified in its charter)

 

 

N/A

 

(Translation of Registrant’s name into English (if applicable))

Alberta, Canada

 

(Province or other jurisdiction of incorporation or organization)

4841

 

(Primary Standard Industrial Classification Code Number (if applicable))

N/A

 

(I.R.S. Employer Identification Number (if applicable))

Suite 900, 630 – 3rd Avenue S.W., Calgary, Alberta, Canada T2P 4L4

(403) 750-4500

 

(Address and telephone number of Registrant’s principal executive offices)

CT Corporation System, 111 Eighth Avenue, 13th Floor, New York, NY 10011 (212) 894-8940

 

(Name, address (including zip code) and telephone number (including area code of agent for service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

  

Name of each exchange on which registered

Class B Non-Voting

Participating Shares

   New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

 

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

7.50% Senior Notes due 2013

6.50% Senior Notes due 2014

6.15% Senior Notes due 2016

5.70% Senior Notes due 2017

5.65% Senior Notes due 2019

5.50% Senior Notes due 2020

6.75% Senior Notes due 2039

 

(Title of Class)


For annual reports, indicate by check mark the information filed with this Form:

x Annual information form            x Audited annual financial statements

The following are the number of outstanding shares of each of the issuer’s classes of capital or common stock as of August 31, 2012:

Class A Participating Shares - 22,520,064 issued and outstanding

Class B Non-Voting Participating Shares - 421,188,697 issued and outstanding

Indicate by check mark whether the Registrant by filing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). If “Yes” is marked, indicate the filing number assigned to the Registrant in connection with such Rule.

Yes  ¨            No  x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes  x            No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

Yes  ¨            No  ¨

 

 

DISCLOSURE CONTROLS AND PROCEDURES

Shaw Communications Inc. (the “Corporation”) has designed disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) to ensure that material information relating to the Corporation, including its consolidated subsidiaries, is made known to the Chief Executive Officer and Chief Financial Officer by others within the Corporation, including its consolidated subsidiaries, on a regular basis, including during the period in which the Corporation’s Annual Report on Form 40-F relating to financial results for the fiscal year ended August 31, 2012 is being prepared. The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer have concluded, as of that evaluation date, that the Corporation’s disclosure controls and procedures were effective to ensure that the material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporation’s periodic filings under the Exchange Act, was (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Corporation’s management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

 

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROLS

See page 56 of Exhibit 2.

 

 

 

2


AUDITOR ATTESTATION

See page 58 of Exhibit 2.

 

 

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the fiscal year ended August 31, 2012, there were no significant changes in the Corporation’s internal controls over financial reporting, or in other factors that could significantly affect such internal controls, that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

 

 

IDENTIFICATION OF THE AUDIT COMMITTEE

The Corporation has a standing audit committee of the board of directors (the “Audit Committee”) established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee consists of Paul K. Pew (Chair), Gregory J. Keating, Jeffrey C. Royer and Carl E. Vogel.

 

 

AUDIT COMMITTEE FINANCIAL EXPERT

The board of directors of the Corporation has determined that it has three audit committee financial experts serving on its Audit Committee. Each of Paul K. Pew, Jeffrey C. Royer and Carl E. Vogel has been determined to be such an audit committee financial expert, within the meaning of Item 407 of Regulation S-K. Each of Mr. Pew, Mr. Royer and Mr. Vogel is independent, as that term is defined by the New York Stock Exchange’s listing standards applicable to the Corporation. The Securities and Exchange Commission has indicated that the designation of Mr. Pew, Mr. Royer and Mr. Vogel as an audit committee financial expert does not make any of Mr. Pew, Mr. Royer and Mr. Vogel an “expert” for any purpose, impose any duties, obligations or liability on Mr. Pew, Mr. Royer and Mr. Vogel that are greater than those imposed on members of the Audit Committee and board of directors of the Corporation who do not carry this designation, or affect the duties, obligations or liabilities of any other member of the Audit Committee.

 

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The aggregate amounts paid or accrued by the Corporation with respect to fees payable to Ernst & Young LLP for audit (including financings, regulatory reporting requirements and services related to the Sarbanes-Oxley Act of 2002), audit-related, tax and other services in the fiscal years ended August 31, 2012 and 2011 were as follows:

 

Type of Service

   Fiscal 2012      Fiscal 2011  

Audit Fees

   $ 2,915,180       $ 2,955,953   

Audit-related Fees

     387,083         100,866   

Tax Fees

     280,434         393,579   

All Other Fees

     —           122,262   
  

 

 

    

 

 

 

Total

   $ 3,582,697       $ 3,572,660   
  

 

 

    

 

 

 

Audit-related fees for fiscal 2012 and 2011 relate to consultation on International Financial Reporting Standards (“IFRS”). The tax fees for fiscal 2012 relate to post-acquisition tax advisory services, linear property tax compliance and general tax advisory services and for fiscal 2011 relate to tax advisory services in respect of the acquisition of the broadcasting business of Canwest Global Communications Corp. and linear property tax compliance. The other fees for fiscal 2011 relate to project advisory services.

 

3


The Audit Committee of the Corporation considered and agreed that the above fees are compatible with maintaining the independence of the Corporation’s auditors. Further, the Audit Committee determined that, in order to ensure the continued independence of the auditors, only limited non-audit services will be provided to the Corporation by Ernst & Young LLP and in such case, only with the prior approval of the Audit Committee. The Chair of the Audit Committee has been delegated authority to approve the retainer of Ernst & Young LLP to provide non-audit services in extraordinary circumstances where it is not feasible or practical to convene a meeting of the Audit Committee, subject to an aggregate limit of $150,000 in fees payable to Ernst & Young LLP for such services at any time until ratified by the Audit Committee. The Chair of the Audit Committee is required to report any such services approved by him to the Audit Committee.

For the fiscal year ended August 31, 2012, none of the services described above were approved by the Audit Committee pursuant to the “de minimus exception” set forth in Rule 2-01, paragraph (c)(7)(i)(C) of Regulation S-X.

 

 

CODE OF ETHICS

The Corporation has adopted a code of ethics (the “Shaw Business Conduct Standards”) that applies to all employees and officers, including its Chief Executive Officer, Chief Financial Officer, principal accounting officer and persons performing similar functions. A copy of the Shaw Business Conduct Standards, as amended, is available on the Corporation’s website. To access the Shaw Business Conduct Standards, visit the Corporation’s website at www.shaw.ca and select “Investors,” then select “Corporate Governance,” and then select “Business Conduct Standards”. Except for the Shaw Business Conduct Standards, no information contained on the Corporation’s website shall be incorporated by reference in this Form 40-F.

 

 

OFF-BALANCE SHEET ARRANGEMENTS

The Corporation has no off-balance sheet arrangements as defined in General Instruction B(11) to Form 40-F.

 

 

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

See page 54 of Exhibit 1.

 

 

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

The Corporation undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

The Corporation has previously filed a Form F-X in connection with each class of securities to which the obligation to file this Form 40-F arises. Any change to the name and address of the agent for service of process shall be communicated promptly to the Commission by amendment to Form F-X.

 

 

 

4


SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Form 40-F to be signed on its behalf by the undersigned, thereto duly authorized.

 

SHAW COMMUNICATIONS INC.
By:  

/s/ Steve Wilson

  Steve Wilson,
 

Senior Vice President and Chief

Financial Officer

Dated: November 29, 2012

 

 

 

5


EXHIBITS

The following documents are filed as exhibits to this Form 40-F:

 

Exhibit
Number
   Document
1.    Management’s Discussion and Analysis of the financial condition and operations of the Registrant with respect to the year ended August 31, 2012.
2.    Audited consolidated statements of financial position of the Registrant as at August 31, 2012 and 2011 and September 1, 2010 and statements of income, statements of comprehensive income, statements of changes in shareholders’ equity, and statements of cash flows for the years ended August 31, 2012 and 2011, together with the notes thereto and the auditors’ report thereon.
3.    Annual Information Form for the fiscal year ended August 31, 2012.
4.    Consent of Ernst & Young LLP.
5.    Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated November 29, 2012.
6.    Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November 29, 2012.
EX-99.1 2 d426574dex991.htm EXHIBIT 1 Exhibit 1

Exhibit 1

Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

November 29, 2012

FORWARD

Tabular dollars are in millions of Canadian dollars, except per share amounts or unless otherwise indicated. Management’s Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements.

INDEX

 

CONTENTS            Page  
Outline               
I.    

INTRODUCTION TO THE BUSINESS

     6   
  A.  

Company overview – core business and strategies

     6   
  B.  

Description of the business

     7   
  C.  

Seasonality and other additional information concerning the business

     14   
  D.  

Government regulations and regulatory developments

     15   
  E.  

Key performance drivers

     20   
  F.  

Critical accounting policies and estimates

     23   
  G.  

Related party transactions

     28   
  H.  

New accounting standards

     29   
  I.  

Known events, trends, risks and uncertainties

     32   
II.    

SUMMARY OF QUARTERLY RESULTS

     39   
III.    

RESULTS OF OPERATIONS

     41   
IV.    

FINANCIAL POSITION

     50   
V.    

CONSOLIDATED CASH FLOW ANALYSIS

     51   
VI.    

LIQUIDITY AND CAPITAL RESOURCES

     52   
VII.    

ADDITIONAL INFORMATION

     54   
VIII.    

COMPLIANCE WITH NYSE CORPORATE GOVERNANCE LISTING STANDARDS

     54   
IX.    

CERTIFICATION

     55   

CAUTION CONCERNING FORWARD LOOKING STATEMENTS

Statements included in this Management’s Discussion and Analysis that are not historic constitute “forward-looking statements” within the meaning of applicable securities laws. Such statements include, but are not limited to, statements about future capital expenditures, financial guidance for future performance, business strategies and measures to implement strategies, competitive strengths, expansion and growth of Shaw’s business and operations and other goals and plans. They can generally be identified by words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “target”, “goal” and similar expressions (although not all forward-looking statements contain such words). All of the forward-looking statements made in this report are qualified by these cautionary statements.

Forward-looking statements are based on assumptions and analyses made by Shaw in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances as of the current date. These assumptions include, but are not limited to, general economic conditions, interest and exchange rates, technology deployment, content and equipment costs, industry structure, conditions and stability, government regulation and the integration of recent acquisitions. Many of these assumptions are confidential.

 

4


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

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

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

Any forward-looking statement speaks only as of the date on which it was originally made and, except as required by law, Shaw expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement to reflect any change in related assumptions, events, conditions or circumstances.

 

5


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

I. INTRODUCTION TO THE BUSINESS

 

A. Company overview – core business and strategies

Shaw Communications Inc. (“Shaw” or the “Company” or “Corporation”) is a diversified Canadian communications and media company whose business is providing consumers with broadband cable television, Internet, Home Phone, telecommunications services (through Shaw Business), satellite direct-to-home services (through Shaw Direct) and engaging programming content (through Shaw Media). Shaw Media operates the second largest conventional television network in Canada, Global Television, and numerous specialty networks. It provides customers with high-quality entertainment, information and communications services, utilizing a variety of distribution technologies.

Shaw’s business is encapsulated within its vision statement: “We, the leading entertainment and communications company, deliver exceptional customer experience through outstanding people sharing Shaw values.”

Shaw’s strategy is to maximize shareholder value through the generation of free cash flow.1 The key elements of this strategy include: leveraging its network infrastructure and programming assets to offer customers a wider variety of products and services; enhancing existing products to provide greater value to customers; providing strong 24/7/365 service; bundling product offerings to provide value to both Shaw and the customer; and focusing on sound capital management and operational efficiencies to maintain a competitive edge.

The strategy also includes promoting brand awareness, strengthening the Shaw name from coast to coast. The Shaw brand is synonymous with diverse product offerings and high-quality customer service.

During 2012 the Company operated three principal business segments: (1) Cable – comprised of cable television, Internet, Digital Phone and Shaw Business operations; (2) Satellite –comprised of direct-to-home (“DTH”) and Satellite Services; and (3) Media – comprised of television broadcasting. As a percentage of Shaw’s consolidated revenues for the year ended August 31, 2012, the Cable, Satellite and Media divisions represented approximately 63%, 16% and 21% of Shaw’s business, respectively. During 2012 Shaw’s businesses generated consolidated revenues of $5.0 billion.

A fourth business segment, Wireless, was in the development/construction stage during 2010 and 2011. During 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. In March 2010 the Company commenced activities on a traditional wireless infrastructure build and late in 2011, after completing a strategic review of this initiative, concluded that the economics as a new entrant would be extremely challenging, even with the Company’s established base and considerable strengths and assets. Shaw decided to not pursue a traditional wireless business and instead plans to focus on initiatives that align with leveraging its Media and programming assets, and strengthening its leadership position in broadband and video.

The description of these operating business segments, including more specific details for the last two fiscal years follows.

 

 

 

1 

See definitions under key performance drivers on page 20.

 

6


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

B. Description of the business

 

(i) Cable

Shaw’s Cable operations provide Cable television, Internet, and Digital Phone services to residential and business customers. These services are delivered through an extensive fibre optic and co-axial cable distribution network.

Shaw’s strategy is to leverage its network by providing additional services beyond traditional cable television. In past years, it enhanced the quality, depth and capacity of its plant and network infrastructure through significant capital investments, and the plant and network is essentially fully digital and two-way capable. These investments enabled Shaw to leverage its existing network and expand its service offerings to include digital programming, On Demand programming, High Definition (“HD”) television including three dimensional (“3D”) HD, Internet, and Digital Phone. During 2011 Shaw commenced a major upgrade of its network to convert television analog tiers to digital (the Digital Network Upgrade “DNU”). This upgrade, which continued through 2012, is expected to significantly increase the capacity of the Shaw network and allow the Company to expand its Internet, HD and On Demand offerings. Shaw’s investments in plant infrastructure will accommodate further growth opportunities. Shaw continues to invest in technology initiatives to recapture bandwidth and optimize its network, including increasing the number of nodes on the network and using advanced encoding and digital compression technologies such as MPEG-4.

To take advantage of potential administrative, operating and marketing synergies that arise from larger, focused operations, Shaw has consolidated its position as the dominant provider of cable services in Western Canada. Approximately 70% of the Company’s cable television subscribers are clustered in and around five major urban markets in Western Canada: Vancouver and Victoria, British Columbia; Calgary and Edmonton, Alberta; and Winnipeg, Manitoba. The balance of Shaw’s subscribers are mainly in smaller regional clusters, linked via fibre either to each other or to larger markets. These markets include the Okanagan region, British Columbia (Kamloops, Kelowna, Penticton, Vernon); Saskatoon/Prince Albert/Moose Jaw/Swift Current, Saskatchewan; and Thunder Bay/Sault Ste. Marie/Hamilton, Ontario.

Shaw continues to acquire cable systems to complement its cable “clustering” strategy. During fiscal 2011 Shaw completed the acquisition of Lake Broadcasting and Sun Country Cablevision cable systems located in the interior region of British Columbia.

Shaw has a customer-centric strategy designed to deliver high-quality customer service, simplicity and value to its customers through various bundled service offerings for its video, Internet and Digital Phone services. The benefits of bundling to customers include the convenience of “one-stop shopping” and value pricing. The benefits to Shaw include retention of existing customers (churn reduction); attraction of new customers; incremental penetration as customers upgrade to additional services offered in a bundle; and operational efficiencies through centralized billing and customer care.

A more detailed description of each of the principal operations comprising the Company’s Cable Segment is set forth below.

Cable Television

The Company’s initial core business was cable television services, which today provides the customer base and physical infrastructure for much of the Company’s distribution service businesses. The Company is one of the largest cable television providers in Canada. As at

 

7


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

August 31, 2012, Shaw served approximately 2.2 million cable television customers in five provinces (British Columbia, Alberta, Saskatchewan, Manitoba and certain portions of Ontario), representing approximately 31% of the Canadian cable television market.

The Company’s cable television business is operated through its extensive fibre optic and co-axial cable distribution network. Shaw’s fibre backbone and interconnect network link its cable systems and subscribers together. Shaw receives originating television signals at its head-end sites and re-transmits these signals via its network to customers’ homes in its cable serving areas. Digital cable customers receive additional services via digital cable terminals (“DCTs”) which translate encrypted signals delivered to customers’ homes over Shaw’s network.

Digital cable significantly expands the range of services that may be offered to a subscriber and extends programming capacity. Digital cable, which is delivered by the Company’s network to DCTs deployed in subscribers’ premises, also enhances picture and sound quality and provides the platform from which Shaw has launched, and expects to continue to be able to launch, new revenue-generating video and interactive services. Shaw offers customers a variety of DCTs for purchase or rent.

To its Digital subscribers, Shaw also offers On Demand viewing options, including Pay-Per-View (“PPV”) and Video-on-Demand (“VOD”) services. The PPV service allows customers to select and pay for specific programs which are available on various channels with different start times. The VOD service enables customers to select programming from a library of titles through an on-line ordering system or directly through the set-top interactive program guide, and to view the programming on their television at a time of their choosing, with pause, skip backward and skip forward functionality. On Demand programming includes movies, sports, concerts and other special events, with prices dependent on the nature of the programming. Shaw also offers a wide variety of free On Demand programming including hit TV series, movies, events, music videos and more. Shaw offers On Demand programming to over 97% of its customers.

As at August 31, 2012, the Company had approximately 1.9 million Digital subscribers, representing a penetration rate of over 86% of Basic cable subscribers. Of the Digital customers, over 1.0 million have HD capabilities. Shaw continues to launch HD channels which offer superior picture detail and sound quality in a format that fully utilizes the capabilities of wide screen, HD ready televisions. In support of HD, Shaw offers for purchase or rent DCTs which support the decoding and processing of HD content, as well as DCTs which incorporate HD and Personal Video Recorder (“PVR”) features.

Shaw recently launched the first phase of its TV Everywhere service, Shaw Go, which allows customers streaming access to TV shows, sporting events and movies on popular mobile devices. The first phase of the service includes the Shaw Go Movie Central and Shaw Go NFL Sunday Ticket apps.

Internet

Leveraging its cable television infrastructure, Shaw provides high-speed Internet access services to residential and business subscribers in almost all of its operating areas. The Company currently offers a wide variety of residential Internet service levels to match the speed, usage and budget requirements of its subscribers. Similar to its residential Internet service, Shaw also offers a variety of Internet services for small and medium business customers. As at August 31, 2012, there were over 1.9 million subscribers (connected and scheduled installations) to Shaw’s Internet access services.

 

8


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

In providing its Internet access services, Shaw deploys cable modems, generally based on DOCSIS 2.0 or 3.0 specifications. This technology has enabled the Company to increase the capabilities and reliability of its network by increasing the capacity and throughput of both the upstream and downstream portions of Shaw’s cable infrastructure. Upgrades and enhancements of its capital infrastructure are ongoing and include the DNU, building up the Company’s Internet backbone, and decreasing the average node size.

During 2012, Shaw commenced building a managed carrier-grade WiFi network to extend a customer’s broadband experience beyond their home, and launched the service on a trial basis in select cities. WiFi is in virtually all portable consumer devices and customers are actively seeking WiFi hotspots to reduce data costs and improve their wireless broadband experience. The Shaw WiFi trial is currently available in Calgary, Edmonton, Winnipeg, Vancouver and Victoria.

During 2011 Shaw conducted an extensive consultation process which allowed its Internet customers to share their ideas on Internet usage allowances and billing. As a result of these consultations, Shaw launched new Internet packages with higher speeds and expanded usage allowances, including an industry leading 250 Mbps service using DOCSIS 3.0 technology to meet the increasing data needs of its subscribers. Currently, the 250 Mbps service is available to approximately 17% of the Company’s customers, and will be rolled out to additional areas as the DNU is completed.

In 2011 Shaw also launched a 1 Gigabit Internet service in limited service areas. The service utilizes Fibre-to-the-Premises (“FTTP”) and will be able to support new, cutting-edge broadband applications that require faster download speeds.

Shaw operates two Internet data centres in Calgary, Alberta and several smaller regional centres. The data centres allow the Company to manage its Internet services exclusively, providing e-mail service directly to its customers using “@shaw.ca” e-mail addresses, provisioning web space, and managing backbone connectivity and peering arrangements. The centres also host Shaw customers’ most popular web content locally.

During 2011 the Company commenced construction of a new data centre in Calgary that will allow it to stay ahead of the technology curve being able to handle new innovations as they are adopted, such as the WiFi network initiative. The data centre will incorporate energy efficient cooling systems allowing Shaw to reduce the environmental impact. The centre is planned to be complete late in fiscal 2015.

Digital Phone

In 2005, Shaw entered the “triple play” market of voice, video and data services with the launch of Shaw Digital Phone, a reliable, fully featured and affordable residential telephone service. Since then, the Company continued to expand its Digital Phone footprint and offers the service to 96% of homes passed. As at August 31, 2012, it had approximately 1.4 million Digital Phone lines (primary and secondary lines on billing plus pending installs).

Shaw Digital Phone offers packages tailored to meet the needs of residential subscribers with varying levels of included long distance and calling features. Professional installation, access to E-911 (enhanced 911 emergency service), directory and operator services, and around-the-clock (24/7/365) customer support are included in the Digital Phone service at no additional cost to subscribers. Similar to the residential packages, Shaw offers a variety of Shaw Business products for home based or smaller businesses including managed and hosted PBX and a Primary Rate Interface (“PRI”) service for medium and larger businesses.

 

9


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

Shaw Digital Phone utilizes PacketCable technology and DOCSIS specifications. Customers’ existing phone lines are connected into modems usually installed at the location of the central wiring in the customers’ premises. The modem converts the voice conversation (sounds waves) into digital IP packets that are carried to an IP-based telephone switch (“softswitch”). At this point, the packets are transformed again into traditional telephone signals for connection to the public switched telephone network or may be routed through the IP network to the called party.

Unlike internet phone providers who use the internet to route calls, Shaw’s Digital Phone service uses Shaw’s own private managed broadband network and the public switched telephone network to route calls, allowing the Company to ensure a consistent level of quality and reliability to its phone customers.

During 2012, Shaw Digital Phone expanded its service in the Kootenay region of British Columbia to Fairmont, Invermere and Radium, and in 2011 Shaw Digital Phone services were made available in a number of smaller communities in British Columbia, Alberta and Manitoba.

Shaw Business

Shaw Business is responsible for the development and management of the national fibre network that is the primary Internet backbone for Shaw’s broadband Internet customers. This backbone network is also used to carry Shaw Digital Phone capacity and video signals. In addition, Shaw Business provides services to small and medium size business, Internet Service Providers (“ISPs”), cable companies, broadcasters, governments and other organizations that require end-to-end Internet, data and voice connectivity. Shaw Business is also a major account and wholesale provider offering third parties advanced high speed data connectivity and Internet services in Canada and the United States. Its offerings currently include data, voice and video transport and Internet connectivity services. It also continues to establish public and private peering arrangements with high speed connections to major North American, European and Asian network access points and other tier-one backbone carriers.

Shaw Business has built both its fibre network and its customer base to promote future revenue growth. Its network includes multiple fibre capacity on two diverse cross-North America routes. The Company’s southern route principally consists of approximately 6,400 route kilometres (4,000 miles) of fibre located on routes between Vancouver (via Calgary, Winnipeg, Chicago, Toronto and Buffalo) and New York City and between Vancouver and Sacramento. The northern route consists of approximately 4,000 route kilometres (2,500 miles) of fibre between Edmonton (via Saskatoon, Winnipeg and Thunder Bay) and Toronto. This route provides redundancy for the existing southern route. Shaw Business also maintains a marine route consisting of approximately 330 route kilometres (200 miles) located on two fibres from Seattle to Vancouver Mainland (via Victoria). In addition, Shaw Business has secured additional capacity to connect the cities of Toronto (via Montreal and Boston) to New York City, Seattle to Vancouver and Edmonton to Toronto.

 

(ii) Satellite

Shaw’s Satellite operations own and lease, directly and indirectly, satellite transponders that receive and amplify digital signals and transmit them to receiving dishes located within the footprint covered by the satellite. Shaw Direct and Satellite Services businesses share the satellite infrastructure distributing digital video and audio signals to different markets (residential and business), thereby allowing the Company to derive distinct revenue streams from different customers using a common platform.

 

10


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

Satellite interests in these transponders are set forth in the table below.

 

    Satellite    Transponders   

Nature of Satellite

Interest

    Anik F2

   18 Ku-band    Owned
   6 Ku-band    Leased
   2 Ku-band (partial)    Leased

    Anik F1R

   28 Ku-band    Leased
   1 C-band    Leased
   1 C-band (partial)    Leased

    Intelsat Galaxy 16

   1 Ku-band (partial)    Leased
           

During 2010, Satellite entered into agreements to acquire capacity on a new satellite, Anik G1, expected to be available in early calendar 2013. This capacity will provide additional bandwidth for expanded customer choice, including new HD channels and other advanced services.

A more detailed description of each of the principal operations comprising the Company’s Satellite Segment is set forth below.

Shaw Direct

Shaw Direct is one of three DTH satellite operators licensed by the CRTC to deliver digital subscription video and audio programming services from satellites directly to subscribers’ homes and businesses. Shaw Direct began its national roll-out of digital DTH services in 1997 and, as at August 31, 2012, had approximately 910,000 subscribers.

The market for Shaw Direct’s digital DTH services can be divided into three principal categories: households not served by cable and typically having access to a limited number of broadcast services; households underserved by cable (i.e. served by cable systems that offer fewer than 80 channels); and households that receive full service cable (80 or more channels), primarily in urban areas. Other potential customers include commercial, institutional and recreational facilities interested in video and audio programming.

With dual satellites (Anik F2 and Anik F1R) whose signals are received by subscribers through an elliptical dish, as at August 31, 2012, Shaw Direct offered over 500 digital video and audio channels with a programming line-up offering the majority of television services that are available in Canada, including local over-the-air broadcasters, national networks, specialty channels, U.S. and foreign channels, adult programming and ethnic services. Shaw Direct’s subscribers have the option of choosing from a menu of programming packages designed to target and accommodate subscriber interests, primary language, income level and type of household. Such packages are marketed through Shaw Direct and a nation-wide distribution network of third party retail locations.

Shaw Direct continues to transition to advanced modulation and encoding technology, including MPEG-4, for its programming allowing it to increase its channel capacity. As part of its commitment to enhance its service offerings, over 10 standard and high definition channels were added during 2012. As at August 31, 2012, Shaw Direct offered over 90 HD channels. In addition, during 2012 Shaw Direct began to offer a streaming VOD service through the satellite receiver. Shaw Direct’s VOD service currently provides customers with access to over 3,000 movie and TV titles and series.

 

11


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

With the new satellite expected to be available in early calendar 2013, Shaw Direct’s satellite television services capacity will expand by 30 percent through 16 additional national transponders. The new transponders will provide bandwidth for expanded subscriber choice, including new HD channels and other advanced services. The additional transponders will also provide enhanced service quality, acting as important in-orbit back-up capacity. During 2012 Shaw Direct continued to install compatible outdoor equipment so that many customers will be able to immediately access the new capacity once it is available.

Satellite Services

Satellite Services operations include two primary businesses, Shaw Broadcast Services and Shaw Tracking.

Shaw Broadcast Services redistributes television and radio signals via satellite to cable operators and other multi-channel system operators in Canada and the U.S., referred to as a satellite relay distribution undertaking (“SRDU”), and provides uplink and network management services for conventional and specialty broadcasters on a contract basis.

The redistribution of signals to cable companies and other operators is known in Canada as SRDU services. Shaw Broadcast Services currently provides SRDU and signal transport services to approximately 400 distribution undertakings, primarily cable operators, and redistributes 350 television signals and over 100 audio signals in both English and French to multi-channel system operators. Shaw Broadcast Services also offers HITS/QT and QT Plus (Headend In the Sky/Quick Take), which allow small and medium size cable companies to offer digital signals to subscribers with a substantially reduced capital outlay. HITS/QT and QT Plus facilitate increased availability and penetration of digital services in Canada and thereby add incremental revenues to Shaw Broadcast Services from the additional services provided to smaller cable companies.

Shaw Broadcast Services’ uplink and network management services include backhaul (transport of signals to the uplink site), uplink (delivery of signal to the satellite so that it can be distributed to cable operators and other distributors), bandwidth, authorization and signal monitoring. Shaw Broadcast Services currently provides such services to over 130 specialty and pay broadcasters across Canada, as well as to Canadian pay audio providers.

Shaw Tracking provides asset tracking and communication services to approximately 700 companies in the transportation industry in Canada, with over 45,000 vehicles using its services. Shaw Tracking’s services capture all related information pertaining to an asset (i.e. location, performance and productivity measures) and effectively integrate into a carrier’s fleet management system. Via satellite, cellular and Bluetooth networks, Shaw Tracking provides immediate real time visibility to a company’s fleet and freight. Shaw’s services and solutions target a wide variety of segments of transportation across Canada.

 

(iii) Media

In May 2010, the Company entered into agreements to acquire, subject to various regulatory approvals, 100% of the broadcasting business of Canwest Global Communcations Corp. (“Canwest”) including CW Investments Co. (“CW Media”), the company that owned the specialty channels acquired from Alliance Atlantis Communications Inc. in 2007. During 2010, the Company completed certain portions of the acquisition including acquiring a 49.9% equity interest, a 29.9% voting interest, and an option to acquire an additional 14.8% equity interest and 3.4% voting interest in CW Media for total consideration of approximately $750 million,

 

12


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

including acquisition costs. Also during 2010, the Competition Bureau cleared Shaw’s acquisition and the Ontario Superior Court of Justice issued a sanction order approving the related consolidated plan of compromise, arrangement and reorganization. In late October 2010 the CRTC approved Shaw’s application to assume control of Canwest’s broadcasting business and the outstanding portions of the acquisition closed on October 27, 2010. The total consideration, including debt assumed, was approximately $2.0 billion.

In 2011 the Media results were equity accounted until October 27, 2010, at which time the balance sheet and results of operations were consolidated.

The acquisition of Shaw’s Media business included the Global Television Network (“Global”) and a leading portfolio of Specialty services. Technology is driving change in the Canadian Broadcasting system, transforming content distribution and viewership. This strategic acquisition allows Shaw to unite broadcasting services and content with its advanced distribution platforms to offer customers strong choices in this rapidly evolving landscape.

The Canadian television broadcasting market is comprised of a number of English, French, and third language stations and services that operate in different segments of the market. The “Conventional” broadcast sector includes government owned public networks, such as the Canadian Broadcasting Corporation (“CBC”), as well as privately owned station groups and networks, such as Global and the CTV Television Network (“CTV” owned by BCE Inc.). The “Specialty and Pay” sector includes Specialty television services, such as Showcase, History, HGTV Canada, TSN (owned by BCE Inc.), and Sportsnet (owned by Rogers Communications Inc), which provide special interest programming including news, sports, arts, lifestyle and entertainment programming.

Global reaches 96% of Canada’s population through 12 over-the-air (“OTA”) conventional television stations. Global offers a programming mix of entertainment programs and news that includes hit programs such as Bones, Glee, NCIS:LA, Hawaii Five-O, Rookie Blue and the reality series Survivor and Big Brother. Global offers news through its early-evening network newscast Global National and delivers local news programs to a number of markets. Global expanded its news line-up in 2012 with the launch of morning news programming in Toronto, Regina, Saskatoon and Winnipeg, and plans to launch morning news programming in Montreal and Halifax in 2013.

The Specialty television services owned and operated by the Media division comprise 18 channels, including Showcase, History, HGTV Canada, Food Network Canada, Slice and TVtropolis. The Company also has an interest in several non-operated channels including two French language specialty television services and one English language specialty television service. In 2012, Media launched National Geographic Wild, a channel dedicated to wildlife programming, and rebranded two existing channels as Lifetime and H2. Media also acquired the remaining equity interest in Mystery during the year. Media plans to launch a dedicated 24 hour all news Specialty channel in the province of British Columbia in 2013.

 

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Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

The following table sets forth all of the Specialty services in which the Company holds an interest:

 

Specialty Services Operated    % Equity Interest

Showcase

   100%

Slice

   100%

History

   100%

H2

   100%

HGTV Canada

     67%

Food Network Canada

     51%

Action

   100%

Lifetime

   100%

National Geographic Canada

     50%

National Geographic Canada Wild

     50%

BBC Canada

     50%

Twist TV

   100%

IFC Canada

   100%

DIY

     67%

TVtropolis

     67%

MovieTime

   100%

DejaView

   100%

Mystery

   100%
Specialty Services Not Operated    % Equity Interest

Historia

     50%

Series+

     50%

ABC Spark

     49%

 

C. Seasonality and other additional information concerning the business

 

(a) Seasonality and customer dependency

Although financial results of the Cable and Satellite business segments are generally not subject to significant seasonal fluctuations, subscriber activity may fluctuate from one quarter to another. Subscriber activity may also be affected by competition and varying levels of promotional activity undertaken by the Company. Shaw’s Cable and Satellite businesses generally are not dependent upon any single customer or upon a few customers.

The Media business segment financial results are subject to fluctuations throughout the year due to, among other things, seasonal advertising and viewing patterns. In general, advertising revenues are higher during the fall, the first quarter, and lower during the summer months, the fourth quarter. Expenses are incurred more evenly throughout the year. The Specialty Services are dependent on a small number of broadcast distribution undertakings (“BDUs”) for distribution of the services.

 

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Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

(b) Environmental matters

Shaw’s operations are subject to environmental regulations, including those related to electronic waste. A number of provinces have enacted regulations providing for the diversion of certain types of electronic waste through product stewardship programs (“PSP”). Under a PSP, companies who sell designated products in or into a province are required to participate in or develop an approved program for the collection and recycling of designated electronic materials and, in some cases, pay a per-item fee. Such regulations have not had, and are not expected to have, a material effect on the Company’s earnings or competitive position.

 

(c) Foreign operations

Shaw does not have material foreign assets or operations.

Shaw Business U.S. Inc., a wholly-owned subsidiary of the Company, has entered into an indefeasible right of use (“IRU”) with respect to a portion of a United States fibre network and owns certain other fibre and facilities in the United States. Shaw Business U.S. Inc. commenced revenue-generating operations in the United States in 2002. Its revenues for the year ended August 31, 2012 were not material.

 

(d) Employees

As at August 31, 2012, the Company employed approximately 14,000 people.

 

D. Government regulations and regulatory developments

Substantially all of the Corporation’s business activities are subject to regulations and policies established under various Acts (Broadcasting Act (Canada) (“Broadcasting Act”), Telecommunications Act (Canada) (“Telecommunications Act”), Radiocommunication Act (Canada) (“Radiocommunication Act”) and Copyright Act (Canada) (“Copyright Act”)). Broadcasting and telecommunications are generally administered by the CRTC under the supervision of the Department of Canadian Heritage (Canadian Heritage) and Department of Industry (Industry Canada), respectively.

Pursuant to the Broadcasting Act, the CRTC is mandated to supervise and regulate all aspects of the broadcasting system in a flexible manner. The Broadcasting Act requires BDUs to give priority to the carriage of Canadian services and to provide efficient delivery of programming services. The Broadcasting Act also sets out requirements for television broadcasters with respect to Canadian content. Shaw’s businesses are dependent upon licenses (or operate pursuant to an exemption order) granted and issued by the CRTC and Industry Canada.

Under the Telecommunications Act, the CRTC is responsible for ensuring that Canadians in all regions of Canada have access to reliable and affordable telecommunication services of high-quality. The CRTC has the authority to forbear from regulating certain services or classes of services provided by a carrier if the CRTC finds that there is sufficient competition for that service to protect the interests of users. All of Shaw’s telecommunication retail services have been forborne from regulation and are not subject to price regulation. However, regulations do impact certain terms and conditions under which these services are provided.

The technical operating aspects of the Corporation’s businesses are also regulated by technical requirements and performance standards established by Industry Canada, primarily under the Telecommunications Act and the Radiocommunication Act.

Pursuant to the Copyright Act, the Copyright Board of Canada oversees the collective administration of copyright royalties in Canada including the review and approval of copyright tariff royalties payable to copyright collectives by BDUs.

 

15


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

The sections below include a more detailed discussion of various regulatory matters and recent developments specific to Shaw’s businesses.

Licensing and ownership

For each of its cable, DTH and SRDU undertakings, the Corporation holds a separate broadcasting license or is exempt from licensing. In November 2010, cable undertakings owned and operated by the Corporation were renewed by the CRTC for a five-year period ending August 31, 2015. The licenses of the Corporation’s DTH and SRDU undertakings were recently renewed by the CRTC for a seven year period to August 31, 2019. Shaw has never failed to obtain a license renewal for its cable, DTH or SRDU undertakings.

The Company also holds a separate license for each of its conventional OTA television stations and each specialty service. These CRTC broadcasting licenses must be renewed from time to time and cannot be transferred without regulatory approval. The majority of the Corporation’s licenses for its OTA television stations and specialty services expired on August 31, 2011 and were renewed for a five-year term effective September 1, 2011 and ending August 31, 2016. The renewal decision implemented an expenditure-based regulatory regime, whereby the Corporation must expend a certain percentage of its prior-year revenues from its conventional OTA and specialty services on Canadian content, and also on specific categories of Canadian programs defined as “programs of national interest”. With certain restrictions, the Corporation may share these regulatory obligations between and among its various conventional OTA and specialty licenses. These obligations are imposed on an individual license basis.

The potential for new or increased fees through regulation

Effective September 1, 2009, each licensed BDU was required to contribute 1.5% of its gross revenues derived from Broadcasting to the Local Programming Improvement Fund (“LPIF”) to support local television stations operating in non-metropolitan markets. Exempt systems were not required to contribute to the LPIF. In July 2012, the Commission determined that it is inappropriate to maintain the LPIF in the long term and that it will phase out the LPIF over the next two broadcast years. Accordingly, for the 2012-2013 broadcast year, the LPIF contribution rate is reduced from 1.5% to 1.0%. For the 2013-2014 broadcast year, the LPIF contribution rate will be further reduced to 0.5%. As of September 2014, the LPIF will be discontinued.

In October 2008 the CRTC announced a change in its policy regarding the delivery of distant signals by licensed BDUs. Under the new policy, licensed cable BDUs must obtain the consent of an OTA broadcaster to deliver its signal in a distant market. DTH distribution undertakings can distribute a local over-the-air television signal without consent within the province of origin, but must obtain permission to deliver the over-the-air television signal beyond the province of origin unless the DTH distribution undertaking is required to carry the signal on its basic service.

In May 2011 the CRTC released its new DTH satellite distribution policy, pursuant to which it will require Shaw Direct to distribute, in standard definition, all conventional OTA stations that conform with LPIF eligibility requirements 30 days after Anik G1 comes into operation. The CRTC did not introduce any specific rules with respect to the permitted scope of distribution of local stations or any new rights of remuneration.

In March 2010 the CRTC introduced a new regime to allow privately-owned local television stations to negotiate a value for the distribution of their programming with cable and satellite companies. The CRTC was uncertain as to its authority to implement this regime and sought clarification of its jurisdiction to do so under the Broadcasting Act by reference of the matter to

 

16


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

the Federal Court of Appeal. In February 2011 the Federal Court of Appeal ruled, by a 2-1 majority, that the CRTC has the required jurisdiction. In April 2012, the Supreme Court of Canada heard an appeal of the Federal Court of Appeal’s decision. Depending on the outcome of the appeal, which was initiated by major broadcast distribution companies, it is possible that the CRTC will implement a value-for-signal policy that requires the negotiation of monetary and/or non-monetary compensation or, where no agreements are reached, permits blackouts.

Genre exclusivity

The CRTC has indicated its intention to review the Genre Protection Policy in 2013-2014. This policy applies specifically to Category A specialty services, which are licensed on a one-per-genre basis and enjoy broad protection from direct competition within their respective programming genres. As a result of this proceeding, the policy could be removed entirely or for specific programming genres.

Access rights

Shaw’s cable systems require access to support structures, such as poles, strand and conduits of telecommunication carriers and electric utilities, in order to deploy cable facilities. Under the Telecommunications Act the CRTC has jurisdiction over support structures of telecommunication carriers, including rates for third party use. The CRTC’s jurisdiction does not extend to electrical utility support structures, which are regulated by provincial utility authorities. In December 2010 the CRTC issued Telecom Decision 2010-900, significantly increasing the rates (including a retroactive component dating back to July 2009) for licensees, such as the Corporation, to attach their facilities to support structures of incumbent telecom carriers. In 2011, cable carriers, including the Corporation, applied to the Commission requesting a review and variance of the decision, but the application was denied. In a follow-up proceeding to Telecom Decision 2010-900, the CRTC approved in July 2011 a new charge for the Corporation’s attachments to the service poles of telecommunications carriers, which is equal to the normal pole charge set out in Telecom Decision 2010-900.

Under the Telecommunications Act, the Corporation may construct facilities in roadways and other public places with the consent of the municipality. The CRTC recently initiated a proceeding to develop a non-binding model municipal access agreement and the Corporation is a participant in that proceeding along with other industry members and municipalities.

Digital Phone, new media and Internet

Regulation of the incumbent local exchange carriers (“ILECs”), competitors of Shaw’s Digital Phone business, is now largely governed by the current Government’s deregulatory initiatives. Specifically, in December 2006, the Governor in Council directed the CRTC to “rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives, and when relying on regulation to use measures that are efficient and proportionate to their purpose and that interfere with the operations of competitive market forces to the minimum extent necessary to meet the policy objectives”. Over the past several years this has resulted in numerous forbearance orders being granted to TELUS Corporation (“TELUS”), Manitoba Telecom Services Inc. (“MTS”), BCE Inc. and/or Bell Canada (collectively “Bell”), and SaskTel that cover the majority of Shaw’s operating territory.

In May 2011, the CRTC issued its decision on the obligations of carriers to provide service and to subsidize the provision of services to customers living in high cost areas. The CRTC reduced the number of high-cost serving areas that were eligible for subsidy and eliminated the subsidy

 

17


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

granted to competitive phone providers such as Shaw. These changes resulted in a decrease in the percentage of contribution by the Corporation to fund local telephone service in high cost serving areas, and eliminated any subsidy that Shaw was receiving for providing telephone service in rural or remote areas.

In June 2009 the CRTC issued its decision on “new media” by extending its exemption of the provision of digital media broadcasting undertakings for another five years. It also decided against imposing any regulatory measures, including financial contribution requirements on ISPs, to support Canadian new media content.

In August 2009 the CRTC initiated a reference to the Federal Court of Appeal on the legal question of whether the Broadcasting Act applies to ISPs. Shaw participated in the Federal Court of Appeal Reference in June 2010 and submitted that ISPs are not subject to the Broadcasting Act. In July 2010 the Federal Court of Appeal issued a decision finding that the Broadcasting Act does not apply to ISPs. Leave to appeal that decision to the Supreme Court of Canada was obtained by certain cultural groups. In February 2012, the Supreme Court of Canada issued a decision upholding the Federal Court of Appeal’s finding that ISPs are not subject to the Broadcasting Act.

Shaw is mandated by the CRTC to provide Third Party Internet Access (“TPIA”) service, which enables independent ISPs to provide Internet services at premises served by Shaw’s network. In 2011, the CRTC reviewed the billing model for TPIA services, TPIA rates and whether, and how, usage based billing may be applied to TPIA services. In the decision that followed its review (the “Wholesale Internet Access Decision”), the CRTC approved two billing models, a flat-rate model in which the TPIA rate includes access and usage and a capacity-based model in which access and capacity usage are billed separately. Shaw is currently approved to provide TPIA service under the flat-rate model although Shaw may elect to move to a capacity-based model in the future.

In late 2010 Parliament passed anti-spam legislation, which has not yet come into force. Canada’s anti-spam legislation (“CASL”) sets out a comprehensive regulatory regime regarding on-line commerce, including requirements to obtain consent prior to sending commercial electronic messages and installing computer programs. Compliance with CASL will require Shaw to review and update its current practices with respect to marketing and other communications with customers.

Shaw and other telecommunications providers will also need to review and may be required to upgrade their interception and other systems to comply with anticipated lawful access requirements. In February 2012, the Government introduced Bill C-30, An Act to enact the Investigating and Preventing Criminal Electronic Communications Act and to amend the Criminal Code and other Acts, which has not yet come into force or proceeded beyond introduction and first reading in the House of Commons. The legislation would require telecommunications service providers and ISPs to establish and maintain capabilities to facilitate the lawful interception of information transmitted by telecommunications and to provide information about subscribers to law enforcement agencies.

Digital transition

In July 2009 the CRTC identified the major markets where it expected conventional television broadcasters to convert their full-power OTA analog transmitters to digital transmitters by August 31, 2011. The conversion from analog to digital is expected to free up spectrum for government auction.

 

18


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

The Corporation completed the digital transition in all mandatory markets as of August 31, 2011. During 2012 the Corporation commenced converting transmitters in non-mandatory markets and expects to be complete in 2016.

Vertical integration proceeding

In view of increasing industry consolidation and vertical integration, the CRTC recently initiated a hearing to review the regulatory framework relating to vertical integration. A decision pursuant to this proceeding was issued in September 2011.

The Commission recognizes that vertical integration can be beneficial and that it also has potential to enable preferential treatment. Accordingly, it introduced new safeguards in addition to various regulatory mechanisms that already exist, including a prohibition on the distribution of television programs on an exclusive basis on new media and a reverse onus of proof in cases where undue preference is alleged in connection with the terms of distribution of any programming service. New measures also include a code of conduct governing commercial relations and interactions between and among broadcast distributors, programmers and new media undertakings, and a standstill requirement prohibiting a distribution undertaking from changing the terms of distribution or carriage pending the resolution of a dispute. Uncertainty remains as to the ultimate impact of the CRTC decision introducing the new safeguards. The code of conduct will be applied on a case-by-case basis when disputes arise. The new safeguards could impact efficiencies and innovation that could otherwise be realized by the Corporation.

Limits on non-Canadian ownership and control for broadcasting undertakings

Non-Canadians are permitted to own and control, directly or indirectly, up to 33.3% of the voting shares and 33.3% of the votes of a holding company that has a subsidiary operating company licensed under the Broadcasting Act. In addition, up to 20% of the voting shares and 20% of the votes of the licensee may be owned and controlled, directly or indirectly, by non-Canadians. As well, the chief executive officer (CEO) and not less than 80% of the board of directors of the licensee must be resident Canadians. There are no restrictions on the number of non-voting shares that may be held by non-Canadians at either the holding company or licensee level. Neither the holding company nor the licensee may be controlled in fact by non-Canadians, the determination of which is a question of fact within the jurisdiction of the CRTC.

The same restrictions apply to certain Canadian carriers pursuant to the Telecommunications Act and associated regulations and the Radiocommunication Act and associated regulations, except that there is no requirement that the CEO be a resident Canadian. In March 2012, the government announced its intention to amend the Telecommunications Act to remove Canadian ownership requirements for wire-line and wireless telecommunications carriers with annual revenues from the provision of telecommunications services in Canada that represent less than 10% of the total annual revenues, as determined by the CRTC. These amendments were passed as part of the federal budget bill in June 2012 and may lead to greater levels of competition in the Canadian telecommunications market.

The Corporation’s Articles contain measures to ensure the Corporation is able to remain compliant with applicable Canadian ownership requirements and its ability to obtain, amend or renew a license to carry on any business. Shaw must file a compliance report annually with the CRTC confirming that it is eligible to operate in Canada as a telecommunications common carrier.

 

19


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

E. Key performance drivers

Shaw measures the success of its strategies using a number of key performance drivers which are outlined below, including a discussion as to their relevance, definitions, calculation methods and underlying assumptions.

FINANCIAL MEASURES:

 

i) Revenue

Revenue is a measurement determined in accordance with International Financial Reporting Standards (“IFRS”). It represents the inflow of cash, receivables or other consideration arising from the sale of products and services. Revenue is net of items such as trade or volume discounts, agency commissions and certain excise and sales taxes. It is the base on which free cash flow, a key performance driver, is determined; therefore, it measures the potential to deliver free cash flow as well as indicating growth in a competitive market place.

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 requirements may also provide discussion and analysis of additional GAAP measures. Additional GAAP measures include line items, headings and sub-totals included in 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. These non-IFRS measures and additional GAAP measures have not been presented as an alternative to net income or any other measure of performance or liquidity prescribed by IFRS. The following contains a listing of the Company’s use of non-IFRS financial measures and additional GAAP measures and provides a reconciliation to the nearest IFRS measure or provides a reference to such reconciliation.

 

ii) Operating income before amortization and operating margin

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

Relative increases period over period in operating income before amortization and in operating margin are indicative of the Company’s success in delivering valued products and services, and engaging programming content to its customers in a cost-effective manner.

 

20


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

iii) Free cash flow

The Company uses free cash flow as a measure of the Company’s ability to repay debt and return cash to shareholders. Consolidated free cash flow is calculated as follows:

 

     Year ended August 31,  
($millions Cdn)    2012    

2011(2)

   

Change

%

 

Revenue

      

Cable

     3,193        3,096        3.1   

Satellite

     844        827        2.1   

Media

     1,053        891        18.2   
                          
     5,090        4,814        5.7   

Intersegment eliminations

     (92     (73     26.0   
                          
     4,998        4,741        5.4   
                          

Operating income before amortization(1)

      

Cable

     1,502        1,510        (0.5

Satellite

     293        289        1.4   

Media

     332        252        31.7   
                          
     2,127        2,051        3.7   
                          

Capital expenditures and equipment costs (net):

      

Cable

     810        709        14.2   

Satellite

     94        107        (12.1

Media

     31        27        14.8   
                          

Total

     935        843        10.9   
                          

Free cash flow before the following

     1,192        1,208        (1.3

Less:

      

Interest

     (329     (312     5.4   

Cash taxes

     (282     (240     17.5   

Other adjustments:

      

Non-cash share-based compensation

     6        10        (40.0

CRTC benefit obligation funding

     (48     (30     60.0   

Non-controlling interests

     (34     (20     70.0   

Pension adjustment

     12        16        (25.0

Customer equipment financing

     (20     (15     33.3   

Preferred share dividends

     (15            >100.0   
                          

Free cash flow

     482        617        (21.9
                          

Operating margin(1)

      

Cable

     47.0%        48.8%        (1.8

Satellite

     34.7%        34.9%        (0.2

Media

     31.5%        28.3%        3.2   
                          

 

(1) See key performance drivers on page 20.
(2) Restated to reflect changes in the calculation related to the pension adjustment and customer equipment financing.

 

21


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

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

Free cash flow has not been reported on a segmented basis. Certain components of free cash flow including operating income before amortization, capital expenditures (on an accrual basis net of proceeds on capital dispositions) and equipment costs (net), CRTC benefit obligation funding, and non-controlling interest amounts continue to be reported on a segmented basis. Other items, including interest and cash taxes, are not generally directly attributable to a segment, and are reported on a consolidated basis.

STATISTICAL MEASURES:

Subscriber counts, including penetration and bundled customers

The Company measures the count of its customers in Cable and DTH (Shaw Direct). Basic cable subscribers include residential customers, multiple dwelling units (“MDUs”) and commercial customers. A residential subscriber who receives at a minimum, basic cable service, is counted as one subscriber. In the case of MDUs, such as apartment buildings, each tenant with a minimum of basic cable service is counted as one subscriber, regardless of whether invoiced individually or having services included in his or her rent. Each building site of a commercial customer (e.g., hospitals, hotels or retail franchises) that is receiving at a minimum, basic cable service, is counted as one subscriber. Digital customers include the count of Basic subscribers with one or more active DCTs. Internet customers include all modems on billing plus pending installations and Digital Phone lines includes all phone lines on billing plus scheduled installations. All subscriber counts exclude complimentary accounts but include promotional accounts.

Cable measures penetration for basic services as a percentage of homes passed and, in the case of all other services, as a percentage of Basic customers.

Shaw Direct measures its count of subscribers in the same manner as Cable counts its Basic customers, except that it also includes seasonal customers who have indicated their intention to reconnect within 180 days of disconnection.

Subscriber counts and penetration statistics measure market share and also indicate the success of bundling and pricing strategies.

Commencing in 2013 the Company will no longer include pending installations in the subscriber counts for Internet and Digital Phone. Opening balances and subscriber growth will be restated for comparable periods commencing in the first quarter reporting for 2013. Also, given the growth in and penetration of Digital customers, the Company will also combine the reporting of Basic cable and Digital as a Video subscriber.

 

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Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

F. Critical accounting policies and estimates

The Company prepared its Consolidated Financial Statements in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). An understanding of the Company’s accounting policies is necessary for a complete analysis of results, financial position, liquidity and trends. Refer to Note 2 to the Consolidated Financial Statements for additional information on accounting policies. The following section discusses key estimates and assumptions that management has made under IFRS and how they affect the amounts reported in the Consolidated Financial Statements and notes. Following is a discussion of the Company’s critical accounting policies:

 

i) Revenue and expense recognition

Revenue is considered earned as services are performed, provided that at the time of performance, ultimate collection is reasonably assured. Such performance is regarded as having been achieved when reasonable assurance exists regarding the measurement of the consideration that will be derived from rendering the service. Revenue from cable, Internet, Digital Phone and DTH customers includes subscriber service revenue when earned. The revenue is considered earned as the period of service relating to the customer billing elapses.

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

With Shaw Media, subscriber revenue is recognized monthly based on subscriber levels. Advertising revenues are recognized in the period in which the advertisements are aired or displayed on the Companys’ digital properties and recorded net of agency commissions as these amounts are paid directly to the agency or advertiser. When a sales arrangement includes multiple advertising spots, the proceeds are allocated to individual advertising spots under the arrangement based on relative fair values.

Subscriber connection fee revenue

Connection fees have no stand alone value to the customer separate and independent of the Company providing additional subscription services, therefore the connection fee revenue must be deferred and recognized systematically over the periods that the subscription services are earned. There is no specified term for which the customer will receive the related subscription service, therefore the Company has considered its customer churn rate and other factors, such as competition from new entrants, to determine the deferral period of two years.

Customer premise equipment revenue and costs

Customer premise equipment available for sale, which generally includes DCT and DTH equipment, has no stand alone value to the customer separate and independent of the Company providing additional subscription services. Therefore the equipment revenue must be deferred and recognized systematically over the periods that the subscription services are earned. As the equipment sales and the related subscription revenue are considered one transaction, recognition of the equipment revenue commences once the subscriber service is activated. There is no specified term for which the customer will receive the related subscription service, therefore the Company has considered various factors including customer churn, competition from new entrants, and technology changes to determine the deferral period of two years.

 

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Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

In conjunction with equipment revenue, the Company also incurs incremental direct costs which include equipment and related installation costs. These direct costs cannot be separated from the undelivered subscription service included in the multiple deliverable arrangement. Under IAS 2 “Inventories”, these costs represent inventoriable costs and are deferred and amortized over the period of two years, consistent with the recognition of the related equipment revenue. The equipment and installation costs generally exceed the amounts received from customers on the sale of equipment (the equipment is sold to the customer at a subsidized price). The Company defers the entire cost of the equipment, including the subsidy portion, as it has determined that this excess cost will be recovered from future subscription revenues and that the investment by the customer in the equipment creates value through increased retention.

Shaw Tracking equipment revenue and costs

Shaw Tracking equipment revenue is recognized over the period of the related service contract for airtime, which is generally five years.

In conjunction with Shaw Tracking equipment revenue, the Company incurs incremental direct costs which include equipment and related installation costs. These direct costs cannot be separated from the undelivered tracking service included in the multiple deliverable arrangement. Under IAS 2 “Inventories”, these costs represent inventoriable costs and are deferred and amortized over the period of five years, consistent with the recognition of the related tracking equipment revenue.

Shaw Business installation revenue and expenses

The Company also receives installation revenues in its Shaw Business operation on contracts with commercial customers which are deferred and recognized as revenue on a straight-line basis over the related service contract, generally spanning two to ten years. Direct and incremental costs associated with the service contract, in an amount not exceeding the upfront installation revenue, are deferred and recognized as an operating expense on a straight-line basis over the same period.

Subscriber connection and installation costs

The costs of physically connecting a new home are capitalized as part of the Company’s distribution system as the service potential of the distribution system is enhanced by the ability to generate future subscriber revenue. Costs of disconnections are expensed as incurred as the activity does not generate future revenue.

Income statement classification

The Company distinguishes amortization of deferred equipment revenue and deferred equipment costs from the revenue and expenses recognized from ongoing service activities on its income statement. Equipment revenue and costs are deferred and recognized over the anticipated term of the related future revenue (i.e., the monthly service revenue) with the period of recognition spanning two to five years. As a result, the amortization of deferred equipment revenue and deferred equipment costs are non-cash items on the income statement, similar to the Company’s amortization of deferred IRU revenue, which the Company also segregates from ongoing revenue. Further, within the lifecycle of a customer relationship, the customer generally purchases customer premise equipment at the commencement of the customer relationship, whereas the subscription revenue represents a continuous revenue stream throughout that customer relationship. Therefore, the segregated presentation provides a

 

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Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

clearer distinction within the income statement between cash and non-cash activities and between up-front and continuous revenue streams, which assists financial statement readers to predict future cash flows from operations.

 

ii) Allowance for doubtful accounts

The majority of the Company’s revenues are earned from selling on credit to individual subscribers. Because there are some customers who do not pay their debts, selling on credit necessarily involves credit losses. The Company is required to make an estimate of an appropriate allowance for doubtful accounts on its receivables. In determining its estimate, the Company considers factors such as the number of days the account is past due, whether or not the customer continues to receive service, the Company’s past collection history and changes in business circumstances. The estimated allowance required is a matter of judgement and the actual loss eventually sustained may be more or less than the estimate, depending on events which have yet to occur and which cannot be foretold, such as future business, personal and economic conditions. Conditions causing deterioration or improvement in the aging of accounts receivable and collections will increase or decrease bad debt expense.

 

iii) Property, plant and equipment and other intangibles – capitalization of direct labour and overhead

As outlined in IAS 16 “Property, plant and equipment”, the cost of property, plant and equipment and other intangibles includes direct construction or development costs (such as materials and labour) and overhead costs directly attributable to the construction or development activity. The Company capitalizes direct labour and direct overhead incurred to construct new assets, upgrade existing assets and connect new subscribers. These costs are capitalized as they are directly attributable to the acquisition, construction, development or betterment of the networks or other intangibles. Repairs and maintenance expenditures are charged to operating expenses as incurred.

Direct labour and overhead costs are capitalized in three principal areas:

 

1. Corporate departments such as engineering and information technology (“IT”): Engineering is primarily involved in overall planning and development of the cable/Internet/Digital Phone infrastructure. Labour and overhead costs directly related to these activities are capitalized as the activities directly relate to the planning and design of the construction of the distribution system. The IT department devotes considerable efforts towards the development of systems to support Digital Phone, WiFi, and projects related to new customer management, billing and operating support systems. Labour costs directly related to these and other projects are capitalized.

 

2. Cable regional construction departments, which are principally involved in constructing, rebuilding and upgrading the cable/Internet/Digital Phone infrastructure: Labour and overhead costs directly related to the construction activity are capitalized as the activities directly relate to the construction or upgrade of the distribution system. Capital projects include, but are not limited to, projects such as the new subdivision builds, increasing network capacity for Internet, Digital Phone and VOD by reducing the number of homes fed from each node, and upgrades of plant capacity, including the DNU project, and the WiFi build.

 

3.

Subscriber-related activities such as installation of new drops and Internet and Digital Phone services: The labour and overhead directly related to the installation of new services are capitalized as the activity involves the installation of capital assets

 

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Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

  (i.e., wiring, filters, software, etc.) which enhance the service potential of the distribution system through the ability to earn future revenues. Costs associated with service calls, collections, disconnects and reconnects that do not involve the installation of a capital asset are expensed.

Amounts of direct labour and direct overhead capitalized fluctuate from year to year depending on the level of customer growth and plant upgrades for new services. In addition, the level of capitalization fluctuates depending on the proportion of internal labour versus external contractors used in construction projects.

The percentage of direct labour capitalized in many cases is determined by the nature of employment in a specific department. For example, a significant portion of labour and direct overhead of the cable regional construction departments is capitalized as a result of the nature of the activity performed by those departments. Capitalization is also based on piece rate work performed by unit-based employees which is tracked directly. In some cases, the amount of capitalization depends on the level of maintenance versus capital activity that a department performs. In these cases, an analysis of work activity is applied to determine this percentage split; however, such analysis is subject to overall reasonability checks on the percentage capitalization based on known capital projects and customer growth.

 

iv) Amortization policies and useful lives

The Company amortizes the cost of property, plant and equipment and other intangibles over the estimated useful service lives of the items. These estimates of useful lives involve considerable judgment. In determining these estimates, the Company takes into account industry trends and company-specific factors, including changing technologies and expectations for the in-service period of these assets. On an annual basis, the Company reassesses its existing estimates of useful lives to ensure they match the anticipated life of the technology from a revenue-producing perspective. If technological change happens more quickly or in a different way than the Company has anticipated, the Company may have to shorten the estimated life of certain property, plant and equipment or other intangibles which could result in higher amortization expense in future periods or an impairment charge to write down the value of property, plant and equipment or other intangibles.

 

v) Intangibles

The excess of the cost of acquiring cable and satellite and media businesses over the fair value of related net identifiable tangible and intangible assets acquired is allocated to goodwill. Net identifiable intangible assets acquired consist primarily of amounts allocated to broadcast rights and licenses which represent identifiable assets with indefinite useful lives.

Broadcast rights and licenses in the cable and satellite businesses are comprised of broadcast authorities including licenses and exemptions from licensing that allow access to homes and subscribers in a specific area that are identified on a business combination with respect to the acquisition of shares or assets of a BDU.

Broadcast licenses in the media business are licenses to operate conventional and specialty services that are identified on a business combination with respect to the acquisition of shares or assets of a broadcasting undertaking.

 

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Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

The Company has concluded that the broadcast rights and licenses have indefinite useful lives since there are no legal, regulatory, contractual, economic or other factors that would prevent the Company’s license renewals or limit the period over which these assets will contribute to the Company’s cash flows. Goodwill and broadcast rights and licenses are not amortized but assessed for impairment on an annual basis in accordance with IAS 36 “Impairment”.

The Company also owns AWS licenses that are required to operate a wireless system in Canada. The AWS licenses have indefinite lives and are subject to an annual review for impairment by comparing the estimated fair value to the carrying amount. In late 2011 Shaw decided not to pursue a conventional wireless build. The Company continues to hold its wireless spectrum while it reviews all options.

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

Other intangibles include software that is not an integral part of the related hardware as well as a trademark and brands. Software is amortized on a straight line basis over their estimated useful lives ranging from four to ten years.

 

vi) Asset impairment

The Company tests goodwill and indefinite-life intangibles for impairment annually (as at March 1) and when events or changes in circumstances indicate that the carrying value may be impaired. The recoverable amount of each cash-generating unit (“CGU”) is determined based on the higher of the CGU’s fair value less costs to sell and its value in use. A CGU is the smallest identifiable group of assets that generate cash flows that are independent of the cash inflows from other assets or groups of assets. The Company’s cash generating units are consistent with its reporting segments, Cable, DTH and Satellite Services and Media. Where the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. The results of the impairment tests are provided in Note 10 to the Consolidated Financial Statements.

 

vii) Employee benefit plans

As at August 31, 2012, Shaw had an unfunded defined benefit pension plan for key senior executives and various funded defined benefit plans for certain unionized and non-unionized employees. The amounts reported in the financial statements relating to the defined benefit pension plans are determined using actuarial valuations that are based on several assumptions including the discount rate, rate of compensation increase and the expected return on plan assets (for funded plans). While the Company believes these assumptions are reasonable, differences in actual results or changes in assumptions could affect employee benefit obligations and the related income statement impact. The Company accounts for differences between actual and

 

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Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

assumed results by immediately recognizing differences in benefit obligations and plan performance in other comprehensive income/loss. The most significant assumption used to calculate the net employee benefit plan expense is the discount rate. The discount rate is the interest rate used to determine the present value of the future cash flows that is expected will be needed to settle employee benefit obligations. It is based on the yield of long-term, high-quality corporate fixed income investments closely matching the term of the estimated future cash flows and is reviewed and adjusted as changes required. The following table illustrates the increase on the accrued benefit obligation and pension expense of a 1% decrease in the discount rate:

 

      Accrued Benefit
Obligation at
End of Fiscal 2012
    Pension Expense
Fiscal 2012
 

Discount Rate – Unfunded Plan

     4.50     5.50

Weighted Average Discount Rate – Funded Plans

     4.67     5.75

Impact of: 1% decrease ($ millions Cdn) – Unfunded Plan

     65        1   

Impact of: 1% decrease ($ millions Cdn) – Funded Plans

     26        1   
                  

 

viii) Deferred income taxes

The Company has recognized deferred income tax assets in respect of its losses and losses of certain of its subsidiaries. Realization of deferred income tax assets is dependent upon generating sufficient taxable income during the period in which the temporary differences are deductible. The Company has evaluated the likelihood of realization of deferred income tax assets based on forecasts of taxable income of future years and based on the ability to reorganize its corporate structure to accommodate use of tax losses in future years. Assumptions used in these taxable income forecasts are consistent with internal forecasts and are compared for reasonability to forecasts prepared by external analysts. Significant changes in assumptions with respect to internal forecasts or the inability to implement tax planning strategies could result in future impairment of these assets.

 

ix) Commitments and contingencies

The Company is subject to various claims and contingencies related to lawsuits, taxes and commitments under contractual and other commercial obligations. Contingent losses are recognized by a charge to income when it is likely that a future event will confirm that an asset has been impaired or a liability incurred at the date of the financial statements and the amount can be reasonably estimated. Contractual and other commercial obligations primarily relate to network fees, program rights and operating lease agreements for use of transmission facilities, including maintenance of satellite transponders and lease of premises in the normal course of business. Significant changes in assumptions as to the likelihood and estimates of the amount of a loss could result in recognition of additional liabilities.

 

G. Related party transactions

Related party transactions are reviewed by Shaw’s Corporate Governance and Nominating Committee, comprised of independent directors. The following sets forth certain transactions in which the Company is involved.

 

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Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

Corus Entertainment Inc. (“Corus”)

The Company and Corus are subject to common voting control. During the year, network, advertising and programming fees were paid to various Corus subsidiaries. The Company provided cable system distribution access, administrative services, uplinking of television signals and Internet services and lease of circuits to various Corus subsidiaries. In addition, the Company provided Corus with television advertising spots in return for radio and television advertising.

Burrard Landing Lot 2 Holdings Partnership

The Company has a 33.33% interest in the Partnership. During the current year, the Company paid the Partnership for lease of office space in Shaw Tower. Shaw Tower, located in Vancouver, BC, is the Company’s headquarters for its lower mainland operations.

Specialty Channels

The Company has interests in a number of specialty television channels which are either subject to joint control or significant influence, including Historia, Series+ and ABC Spark. During the current year the Company paid network fees and provided uplink of television signals to these channels.

Key management personnel

Key management personnel consist of the Board of Directors and the most senior executive team that have the authority and responsibility for directing and controlling the activities of the Company. In addition to compensation provided to key management personnel for services rendered, the Company transacts with companies related to certain board members primarily for the purchase of remote control units and agency services for direct sales and related installation of equipment.

 

H. New accounting standards

Shaw has adopted or will adopt a number of new accounting policies as a result of recent changes in IFRS as issued by the IASB. The ensuing discussion provides additional information as to the date that Shaw is or was required to adopt the new standards, the methods of adoption permitted by the standards, the method chosen by Shaw, and the effect on the financial statements as a result of adopting the new policy. The adoption or future adoption of these accounting policies has not and is not expected to result in changes to the Company’s current business practices.

The following policies were adopted in fiscal 2012:

International Financial Reporting Standards

In February 2008, the CICA Accounting Standards Board confirmed that Canadian publicly accountable enterprises are required to adopt IFRS as issued by the IASB for fiscal periods beginning on or after January 1, 2011. The Company’s date of transition to IFRS is September 1, 2010 and its date of adoption is September 1, 2011.

 

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Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

Exemption elections

The Company’s adoption of IFRS requires application of IFRS 1 which provides guidance for an entity’s initial adoption of IFRS. IFRS 1 generally requires that an entity apply all IFRS effective at the end of its first IFRS annual reporting period retrospectively. However, IFRS 1 does include certain mandatory exceptions and limited optional exemptions in specified areas of certain standards from this general requirement. The Company has elected the following exemptions from the general requirement of retrospective application as follows:

 

(a) Business combinations

IFRS 1 provides the option to apply IFRS 3 Business Combinations retrospectively or prospectively from the date of transition. Retrospective application would require restatement of all business combinations that occurred prior to the date of transition. The Company has elected to not restate any business combinations that occurred prior to September 1, 2010. Under Canadian GAAP, the Company had early adopted the new accounting standards for business combinations, consolidation and non-controlling interests effective September 1, 2010, which are aligned with IFRS 3 Business Combinations and IAS 27 Consolidated and Separate Financial Statements.

 

(b) Employee benefits

IFRS 1 provides the option to recognize all cumulative actuarial gains and losses on defined benefit plans deferred under Canadian GAAP in opening retained earnings. The Company elected to recognize the cumulative unamortized actuarial loss in opening retained earnings as at September 1, 2010.

 

(c) Borrowing costs

IFRS 1 allows IAS 23 Borrowing Costs to be applied prospectively from the date of transition. The Company has elected to apply IAS 23 prospectively for projects commenced on or after September 1, 2010.

The significant differences between Canadian GAAP and IFRS are explained below.

 

(i) Share-based compensation

Under IFRS, the fair value of stock options with service conditions is required to be expensed over a vesting period (“graded vesting”) based on when options vest. Under Canadian GAAP, share-based compensation was recognized using a straight-line method.

Under IFRS, cash settled share-based payments are measured initially and remeasured at the end of each reporting period at fair value as determined by an option pricing model. Under Canadian GAAP, the liability was measured and remeasured at intrinsic values.

 

(ii) Employee benefits

As stated in exemption elections above, the Company elected to recognize cumulative unamortized actuarial losses under IFRS in opening retained earnings. Subsequent to the date of transition, actuarial gains and losses are recorded in other comprehensive income at the end of each reporting period. Under Canadian GAAP, actuarial gains and losses were amortized into income on a straight-line basis over the estimated average remaining service life of employees.

Under IFRS, past service costs of defined benefit plans are expensed on a straight-line basis over the vesting period. Under Canadian GAAP, past service costs were amortized on

 

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Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

a straight-line basis over the estimated average remaining service life of employees. As part of the retrospective application of IAS 19, all vested past service costs have been recognized in opening retained earnings at the transition date.

 

(iii) Income taxes

The expected manner of recovery of intangible assets with indefinite useful lives for the purpose of calculating deferred income taxes is different under IFRS than Canadian GAAP. This difference in inclusion rate results in a reduction in the deferred income tax liability related to these assets at transition and also results in a decrease to goodwill and deferred income tax liability and increase to non-controlling interests in respect of the Media business acquisition in fiscal 2011.

Under IFRS, the Company applies a probable weighted average methodology in respect to its determination of measurement of its tax uncertainties.

Income taxes reflect the tax effect of other IFRS transition adjustments.

Also, under IFRS, deferred income tax assets and liabilities are only classified as long term.

 

(iv) Intangibles

Under IFRS, amortization of indefinite-life intangibles is prohibited. Upon transition, amortization of broadcast rights and licenses that had been previously recorded under Canadian GAAP has been reversed and recognized in opening retained earnings at the date of transition.

Under Canadian GAAP, program rights were segregated between current and noncurrent in the statement of financial position based on estimated time of usage. Under IFRS, program rights are segregated between current and noncurrent based on expected life at time of acquisition.

 

(v) Constructive obligation

Under IFRS, constructive obligations must be recognized when certain criteria are met. These have been accrued at the transition date.

 

(vi) Provisions

IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires separate disclosure on the face of the statement of financial position. Under Canadian GAAP, separate disclosure was not required, therefore on transition all provisions were reclassified from accounts payable and accrued liabilities or other long-term liabilities.

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

The Company has not yet adopted certain standards, interpretations and amendments that have been issued but are not yet effective. The following pronouncements are being assessed to determine their impact on the Company’s results and financial position.

 

·  

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

 

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Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

·  

The following standards and amended standards are required to be applied retrospectively for the annual period commencing September 1, 2013 and other than the disclosure requirements therein, they must be initially applied concurrently:

  ·  

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

  ·  

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

  ·  

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

  ·  

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

  ·  

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

·  

IFRS 13, Fair Value Measurement, defines fair value, provides guidance on its determination and introduces consistent requirements for disclosure of fair value measurements and is required to be applied prospectively for the annual period commencing September 1, 2013.

·  

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

·  

IAS 19, Employee Benefits (amended 2011), eliminates the existing option to defer actuarial gains and losses and requires changes from the remeasurement of defined benefit plan assets and liabilities to be presented in the statement of other comprehensive income and is required to be applied retrospectively (with certain exemptions) for the annual period commencing September 1, 2013.

·  

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

 

I. Known events, trends, risks and uncertainties

The Company is subject to a number of risks and uncertainties which could have a material adverse effect on its future profitability. Included herein is a “Caution Concerning Forward-Looking Statements” section which should be read in conjunction with this report.

The risks and uncertainties discussed below highlight the more important and relevant factors that could significantly affect the Company’s operations. They do not represent an exhaustive list of all potential issues that could affect the financial results of the Company. The principal risks relate to:

 

·  

Competition and technological change, including change in regulatory regime

·  

Economic conditions

·  

Interest rates, foreign exchange rates, and capital markets

·  

Litigation

·  

Uninsured risks of loss

 

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Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

·  

Reliance on suppliers

·  

Programming expenses

·  

Unionized labour

·  

Holding company structure

·  

Control of the Company by the Shaw family

·  

Information systems and internal business processes

·  

Dividend payments

·  

Acquisitions and other strategic transactions

 

i) Competition and technological change

Cable and satellite providers and television broadcasters operate in an open and competitive marketplace. Shaw’s businesses face competition from regulated and unregulated entities utilizing existing or new communications technologies and from illegal services. In addition, the rapid deployment of new technologies, services and products has reduced the traditional lines between telecommunications, Internet and broadcasting services and expands further the competitive landscape. Shaw may face competition in the future from other technologies being developed or yet to be developed. While Shaw continually seeks to enhance its competitive position through investments in infrastructure, technology, programming and customer service, there can be no assurance that these investments will be sufficient to maintain Shaw’s market share or performance in the future.

CABLE TELEVISION AND DTH

Shaw’s cable television and DTH systems currently compete or may in the future compete with other distributors of video and audio signals, including other DTH satellite services, satellite master antenna systems, multipoint distribution systems (“MDS”), other competitive cable television undertakings and telephone companies offering video service. To a lesser extent, Shaw’s cable television systems compete with the direct reception by antenna of unencrypted OTA local and regional broadcast television signals. As noted above, Shaw also competes with unregulated internet services, illegal satellite services including grey and black market offerings, and unregulated video services and offerings available over high-speed internet connections.

Almost all of Shaw’s cable television systems are concentrated in major urban markets, having favourable demographics and growth potential, with most of the remainder in smaller clusters, linked by fibre optic distribution systems to each other or to larger markets. Through this clustering strategy, Shaw maximizes the benefits of operating efficiencies to strengthen its competitive position in smaller markets. In addition, Shaw continues to invest in technologies to increase channel capacity, to expand the range and quality of its services, and to enhance its programming and communication service offerings. Shaw’s ability to offer its cable, internet and telecommunications services in bundles allows for strong competitive offerings. The Company expects that competition will continue to increase and there can be no assurance that such increased competition will not have a material adverse effect on Shaw’s results of operations. The Company also expects increased IPTV competition across Canada with respect to its DTH Satellite services.

INTERNET

There are a number of different types of ISPs offering residential and business Internet services that compete or may compete in the future with Shaw’s Internet services. These include independent service providers, ILECs, wireless providers and electricity transmission and distribution companies.

 

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Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

High-speed Internet access services are principally provided through cable modem and digital subscriber line (“DSL”) technology. Internet services through cable modem technology are primarily provided by cable companies, although the CRTC has also authorized third-party ISPs to access cable companies’ facilities, such as Shaw’s, to deliver high-speed Internet services.

Although operating in a competitive environment, Shaw expects that consumer demand for Internet access services and for bandwidth-intensive applications on the Internet (including streaming video, digital downloading and interactive gaming) will lead to continued demand for high-speed Internet services. Shaw continues to expand the capacity of its network to handle the anticipated increases in demand, however there can be no assurance that network capacity will continue to meet the increasing demand of its customers.

DIGITAL PHONE

The competitors of Shaw Digital Phone include ILECs, Competitive Local Exchange Carriers (“CLECs”), non-facilities-based Voice over Internet Protocol (“VoIP”) providers and wireless providers. ILECs currently control the majority of the local telephone services market in Canada. Several of such competitors have larger operational and financial resources than the Corporation and are well established with residential customers in their respective markets. In addition, there is an emerging trend toward households opting to rely on wireless voice services in place of landline services such as Digital Phone. These developments may negatively affect the business and prospects of Shaw’s Digital Phone.

INTERNET INFRASTRUCTURE

Through Shaw Business, Shaw competes with other telecommunications carriers in providing high-speed broadband communications services (data and video transport and Internet connectivity services) to businesses, ISPs and other telecommunications providers. The telecommunications services industry in Canada is highly competitive, rapidly evolving and subject to constant change. Competitors of Shaw Business include ILECs, competitive access providers, CLECs, ISPs, private networks built by large end users and other telecommunications companies. In addition, the development and implementation of new technologies by others could give rise to significant competition.

SATELLITE SERVICES

In its Canadian SRDU business, Satellite Services faces competition principally from one other operating SRDU operator in Canada. In February 2010, another company was licensed by the CRTC to provide both DTH and SRDU services in Canada, but has not yet commenced service. Satellite Services also faces competition from the expansion of fibre distribution systems delivering distant US and Canadian conventional television signals into territories previously served only by SRDU operators.

MEDIA

The OTA and Specialty television business and the advertising markets in which they operate are highly competitive. Numerous broadcast and specialty television networks compete for advertising revenues. The CRTC continues to grant new Specialty television licenses which further increases competition. The Company’s ability to compete successfully depends on a number of factors, including its ability to secure popular television programming and achieve high distribution levels. The Company expects that competition will continue to increase and there can be no assurance that increased competition will not have a material adverse effect on Shaw’s results of operations.

 

34


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

IMPACT OF REGULATION

As more fully discussed under Government regulations and regulatory developments, substantially all of the Corporation’s business activities are subject to regulations and policies administered by Industry Canada and/or the CRTC. The Corporation’s operations and results are affected by changes in regulations, policies and decisions, including changes in interpretation of existing regulations by courts, the regulator (the CRTC) or the government. This regulation relates to, among other things, licensing, competition, programming carriage and the potential for new or increased fees. Changes in the regulatory regime may adversely affect the operations and performance of the Company.

 

ii) Economic conditions

Canada’s economy is affected by uncertainty in global financial and equity markets and slowdowns in global economic growth. Advertising revenues are affected by prevailing economic conditions. Changes in economic conditions may affect discretionary consumer spending, resulting in increased or decreased demand for Shaw’s product offerings as well as advertising airtime and rates. There can be no assurance that current or future events caused by volatility in domestic or international economic conditions or a decline in economic growth will not have an adverse effect on the Company’s business and operating results.

 

iii) Interest rates, foreign exchange rates and capital markets

As at August 31, 2012 Shaw has the following financial exposures at risk in its day-to-day operations:

 

  (a) Interest rates: Due to the capital-intensive nature of Shaw’s operations, the Company utilizes long-term financing extensively in its capital structure. The primary components of this structure are:

 

  1. Banking facilities as more fully described in Note 13 to the Consolidated Financial Statements.

 

  2. Various Canadian denominated senior notes and debentures with varying maturities issued in the public markets as more fully described in Note 13 to the Consolidated Financial Statements.

Interest on bank indebtedness is based on floating rates while the senior notes are fixed-rate obligations. If required, Shaw utilizes its credit facility to finance day-to-day operations and, depending on market conditions, periodically converts the bank loans to fixed-rate instruments through public market debt issues. Increases in interest rates could have a material adverse effect on the Company’s cash flows.

As at August 31, 2012, 100% of Shaw’s consolidated long-term debt was fixed with respect to interest rates.

 

  (b) Foreign exchange: Some of the Company’s capital expenditures are incurred in US dollars. Decreases in the value of the Canadian dollar relative to the US dollar could have a material adverse effect on the Company’s cash flows.

 

  (c) Capital markets: The Company requires ongoing access to capital markets to support its operations. Changes in capital market conditions, including significant changes in market interest rates or lending practices, or changes in Shaw’s credit ratings, may have a material adverse effect on the Company’s ability to raise or refinance short-term or long-term debt, and thus on its financial position and ability to operate.

 

35


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

Shaw manages its exposure to floating interest rates through maintaining a balance of fixed and floating rate debt. To mitigate some of the foreign exchange uncertainty with respect to capital expenditures, the Company regularly enters into forward contracts in respect of US dollar commitments. In order to minimize the risk of counterparty default under its swap agreements, Shaw assesses the creditworthiness of its swap counterparties. Currently 100% of the total swap portfolio is held by a financial institution with Standard & Poor’s ratings ranging from A+ to A-1. Further information concerning the policy and use of derivative financial instruments is contained in Notes 2 and 28 to the Consolidated Financial Statements.

 

iv) Litigation

The Company and its subsidiaries are involved in litigation matters arising in the ordinary course and conduct of its business. Although management does not expect that the outcome of these matters will have a material adverse effect on the Corporation, there can be no assurance that these matters, or other matters that arise in the future, will not have an adverse effect on the Corporation’s business and operating results.

 

v) Uninsured risks of loss

The Company presently relies on two satellites (Anik F2 and Anik F1R) owned by Telesat Canada (“Telesat”) to conduct its DTH and Satellite Services business. The Company has also secured a dedicated payload (16 transponders plus 5 spares) on Telesat’s soon to be launched Anik G1 satellite (projected in service date in early calendar 2013). The Company owns certain transponders on Anik F2 and has long-term capacity service agreements in place in respect of transponders on Anik F1R, Anik F2 and Anik G1. As the satellite owner, Telesat maintains insurance policies on each of these satellites. In the case of Anik F1R and Anik F2, Shaw funds a portion of the insurance cost such that in the event Telesat recovers insurance proceeds in connection with an insured loss, Shaw will be entitled to receive certain compensation payments from Telesat. The Company expects that Telesat will renew the insurance policies in respect of Anik F1R and Anik F2 and that Shaw will continue to contribute to the cost of these policies while they are in effect. In the case of Anik G1, Telesat will maintain insurance, at minimum, for the launch and first five years of in orbit operation. Shaw maintains a security interest in the transponder capacity and any insurance proceeds related thereto. The Company does not maintain business interruption insurance covering damage or loss to one or more of the satellites used in its DTH and Satellite Services business as it believes the premium costs are uneconomic relative to the risk of satellite failure. Transponder capacity is available to the Company on an unprotected, non-preemptible service level basis, in both the case of the Anik F2 transponders that are owned by Shaw and the Anik F1R and Anik F2 transponders that are secured through service capacity agreements. The Company has priority access to spare transponders on Anik F1R and Anik F2 in the case of interruption, although there is no assurance that such transponders would be available. In the event of satellite failure, service will only be restored as additional capacity becomes available. Restoration of satellite service on another satellite may require repositioning or re-pointing of customers’ receiving dishes. As a result, the customers’ level of service may be diminished or they may require a larger dish. The Anik G1 satellite has a switch feature that allows the whole channel services (transponders and available spares) to be switched from extended Ku-band to Ku-band, which does provide the Company with limited back-up to restore failed whole channel services on Anik F1R. Satellite failure could cause customers to deactivate their DTH subscriptions or otherwise have a material adverse effect on business and results of operations.

 

36


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

Network failures caused by damage by fire, natural disaster, power loss, hacking, computer viruses, disabling devices, acts of war or terrorism and other events could have a material adverse affect on the business, including customer relationships and operating results. The Company protects its network through a number of measures including physical security, ongoing maintenance and placement of insurance on its network equipment and data centers. The Company self-insures the plant in the cable and Internet distribution system as the cost of insurance is generally prohibitive. The risk of loss is mitigated as most of the cable plant is located underground. In addition, it is likely that damages caused by any one incident would be limited to a localized geographic area and therefore resulting business interruption and financial damages would be limited. Further, the Company has back-up disaster recovery plans in the event of plant failure and redundant capacity with respect to certain portions of the system. In the past, it has successfully recovered from damages caused by natural disasters without significant cost or disruption of service. Although the Company has taken steps to reduce this risk, there can be no assurance that major disruptions will not occur.

 

vi) Reliance on suppliers

Shaw’s distribution and call center network is connected to or relies on other telecommunication carriers and certain other utilities. Any of the events described in the preceding paragraph, as well as labour strikes and other work disruptions, bankruptcies, technical difficulties or other events affecting the business operations of these carriers or utilities may have an adverse effect on the Company’s business and operating results.

The Company sources its customer premise and capital equipment and capital builds from certain key suppliers. While the Company has alternate sources for most of its purchases, the loss of a key supplier could adversely affect the Company in the short term.

 

vii) Programming expenses

Shaw’s programming expenses for cable and DTH continue to be one of the most significant single expense items. Costs continue to increase, particularly for sports programming. In addition, as the Company adds programming or distributes existing programming to more of the subscriber base, programming expenses increase. Although the Company has been successful at reducing the impact of these increases through sale of additional services or increasing subscriber rates, there can be no assurance that the Company will continue to be able to do so and operating results may be impacted.

In Media one of the most significant expenses is also programming costs. Increased competition in the television broadcasting industry, developments affecting producers and distributors of programming content, changes in viewer preferences and other developments could impact both the availability and cost of programming content. Although the Corporation has processes to effectively manage these costs, programming content may be purchased for broadcasting one to two years in advance, making it more difficult to predict how such content will perform.

 

viii) Unionized labour

Approximately 50% of the Media division employees are employed under one of five collective agreements represented by three bargaining units. If labour disruptions occur, it is possible large numbers of employees may be involved and that the Media business may be disrupted. Currently all collective agreements have been renewed and are in effect for the next one to three years.

 

37


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

ix) Holding company structure

Substantially all of Shaw’s business activities are operated by its subsidiaries. As a holding company, the Company’s ability to meet its financial obligations is dependent primarily upon the receipt of interest and principal payments on intercompany advances, management fees, cash dividends and other payments from its subsidiaries together with proceeds raised by the Company through the issuance of equity and the incurrence of debt, and from proceeds received on the sale of assets. The payment of dividends and the making of loans, advances and other payments to the Company by its subsidiaries may be subject to statutory or contractual restrictions, are contingent upon the earnings of those subsidiaries and are subject to various business and other considerations.

 

x) Control of the Company by the Shaw family

As at October 31, 2012, JR Shaw and members of his family and the corporations owned and/or controlled by JR Shaw and members of his family (the “Shaw Family Group”) own approximately 79% of the outstanding Class A Shares of the Company. The Class A Shares are the only shares entitled to vote in all shareholder matters. All of the Class A Shares held by the Shaw Family Group are subject to a voting trust agreement entered into by such persons. The voting rights with respect to such Class A Shares are exercised by the representative of a committee of five trustees. Accordingly, the Shaw Family Group is, and as long as it owns a majority of the Class A Shares will continue to be, able to elect a majority of the Board of Directors of the Company and to control the vote on matters submitted to a vote of the Company’s Class A shareholders.

 

xi) Information systems and internal business processes

Many aspects of the Company’s business depend to a large extent on various IT systems and software and internal business processes. Shaw also undertakes ongoing initiatives to update and improve these systems and processes. Although the Company has taken steps to reduce these risks, there can be no assurance that potential failures of, or deficiencies in, these systems, processes or change initiatives will not have an adverse effect on the Corporation’s business and operating results.

 

xii) Dividend payments

The Company currently pays monthly common share dividends in amounts approved on a quarterly basis by the Board of Directors. At the current approved dividend amount, the Company would pay approximately $430 million in common share dividends during 2013 (before taking into account the Company’s dividend reinvestment plan (“DRIP”), see further details on page 53). While the Company expects to generate sufficient free cash flow in 2013 to fund these dividend payments, if actual results are different from expectations there can be no assurance that the Company will continue common share dividend payments at the current level.

 

xiii) Acquisitions and other strategic transactions

The Company may from time to time make acquisitions and enter into other strategic transactions. In connection with these acquisitions and strategic transactions, Shaw may fail to realize the anticipated benefits, incur unanticipated expenses and/or have difficulty incorporating or integrating the acquired business, the occurrence of which could have a material adverse effect on the Company.

 

38


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

II. SUMMARY OF QUARTERLY RESULTS

 

Quarter

   Revenue     

Operating
income

before

amortization(1)

     Net income
from
continuing
operations
attributable
to equity
shareholders
     Net income
attributable
to equity
shareholders
     Net
income(2)
    

Basic

earnings

per share
from
continuing
operations(3)

    

Basic

earnings

per share(3)

 
($millions Cdn except per share amounts)  

2012

                    

Fourth

     1,210         501         129         129         133         0.28         0.28   

Third

     1,278         567         238         238         248         0.53         0.53   

Second

     1,231         493         169         169         178         0.38         0.38   

First

     1,279         566         192         192         202         0.43         0.43   
                                                                

Total

     4,998         2,127         728         728         761         1.62         1.62   
                                                                

2011

                    

Fourth

     1,181         481         164         81         84         0.37         0.18   

Third

     1,285         586         197         195         201         0.45         0.45   

Second

     1,196         505         166         163         169         0.38         0.37   

First

     1,079         479         13         12         16         0.03         0.03   
                                                                

Total

     4,741         2,051         540         451         470         1.23         1.02   
                                                                

 

(1) See key performance drivers on page 20.
(2) Net income attributable to both equity shareholders and non-controlling interests.
(3) Diluted earnings per share from continuing operations and diluted earnings per share is $1.61 for 2012. Diluted earnings per share from continuing operations and diluted earnings per share for 2011 is $1.23 and $1.02, respectively.

Generally, revenue and operating income before amortization have grown quarter-over-quarter mainly due to customer growth and rate increases with the exception of the fourth quarters of 2012 and 2011 and second quarter of 2012. In the second quarter of 2012, revenue and operating income before amortization decreased by $48 million and $73 million, respectively, due to the seasonality of the Media business with higher revenues in the first quarter driven by the fall launch of season premieres and high demand as well as lower operating income before amortization in the Cable division. Operating expenses increased in the second quarter which included employee related costs, mainly related to bringing the new customer service centres on line, as well as higher marketing, sales and programming costs. The fourth quarters of 2011 and 2012 were both impacted by the cyclical nature of the Media business with lower advertising revenues in the summer months. Accordingly, in the fourth quarter of 2011, revenue and operating income before amortization declined $104 million and $105 million, respectively, while in the fourth quarter of 2012, revenue and operating income before amortization declined $68 million and $66 million, respectively. The impact of the Media business in the fourth quarter of 2012 was partially offset by improved operating income before amortization in the Cable division.

Net income has fluctuated quarter-over-quarter primarily as a result of the growth in operating income before amortization described above and the impact of the net change in non-operating items. In the fourth quarter of 2012, net income decreased by $115 million, primarily due to

 

39


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

lower operating income before amortization of $66 million and increased income tax expense of $31 million. The fourth quarter also included a loss of $26 million in respect of the electrical fire at the Company’s head office offset by a pension curtailment gain of $25 million. In the third quarter of 2012, net income increased by $70 million due to higher operating income before amortization of $74 million and lower amortization of $9 million partially offset by increased income tax expense of $17 million. In the second quarter of 2012, net income decreased by $24 million due to a decline in operating income before amortization of $73 million partially offset by lower income tax expense of $53 million. Net income increased by $118 million in the first quarter of 2012 due to the combined impact of higher operating income before amortization of $85 million and income tax expense of $18 million in the first quarter and the loss from discontinued operations of $84 million and gain on redemption of debt of $23 million recorded in the preceding quarter. The first and second quarters of 2011 were impacted by the Media acquisition. As a result, net income increased $153 million in the second quarter of 2011 due to the impact of the CRTC benefit obligation of $139 million and acquisition, integration and restructuring costs of $58 million recorded in the first quarter and higher operating income before amortization and foreign exchange gain on unhedged long-term debt in the second quarter, the total of which was partially offset by increases in interest expense, loss on derivative instruments and income tax expense. During the third quarter of 2011 net income increased by $32 million due to higher operating income before amortization and a lower loss on derivative instruments partially offset by increased income taxes, a lower foreign exchange gain on unhedged long-term debt and the impact of the restructuring activities undertaken by the Company. In the fourth quarter of 2011 net income declined $117 million due to lower operating income before amortization of $105 million and the loss of $83 million in respect of the wireless discontinued operations partially offset by the gain on redemption of debt and the aforementioned restructuring activities in the previous quarter. As a result of the aforementioned changes in net income, basic and diluted earnings per share have trended accordingly.

The following further assists in explaining the trend of quarterly revenue and operating income before amortization:

Growth in subscriber statistics as follows:

 

    2012     2011  
Subscriber Statistics   First     Second     Third     Fourth     First     Second     Third     Fourth  

Basic cable customers

    (22,768     (9,946     (21,515     (16,474     (7,542     (13,662     (13,577     (16,207

Digital customers

    59,566        46,564        246        (7,907     62,216        35,403        19,202        49,548   

Internet customers

    10,685        18,681        (429     6,062        18,752        10,772        11,165        13,528   

Digital Phone lines

    22,969        54,407        29,142        24,185        49,842        32,512        31,404        22,776   

DTH customers

    531        1,274        (1,820     1,155        (1,539     2,176        1,644        806   
                                                                 

 

40


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

III. RESULTS OF OPERATIONS

OVERVIEW OF FISCAL 2012 CONSOLIDATED RESULTS

 

                      Change  
(In $millions Cdn except per share amounts)   2012    

2011

    2010(3)    

2012

%

   

2011

%

 

Operations:

         

Revenue

    4,998        4,741        3,718        5.4        27.5   

Operating income before amortization(1)

    2,127        2,051        1,760        3.7        16.5   

Operating margin(1)

    42.6%        43.3%        47.3%       

Funds flow from continuing operations(2)

    1,299        1,433        1,377        (9.4     4.1   

Net income from continuing operations

    761        559        534        36.1        4.7   

Free cash flow(1)

    482        617        515        (21.9     19.8   

Balance sheet:

         

Total assets

    12,722        12,588        10,154       

Long-term financial liabilities (including current portion)

         

Long-term debt

    5,263        5,257        3,983       

Derivative instruments

    1        8        87       

Other financial liabilities

    7        171        159       

Per share data:

         

Earnings per share from continuing operations

         

Basic

    1.62        1.23        1.23       

Diluted

    1.61        1.23        1.23       

Weighted average number of participating shares outstanding during period (millions)

    441        435        433       

Cash dividends declared per share

         

Class A

    0.9550        0.9075        0.8675       

Class B

    0.9575        0.9100        0.8700       
                                         

 

(1) See key performance drivers on page 20.
(2) Funds flow from continuing operations is presented before changes in non-cash working capital as presented in the Consolidated Statements of Cash Flows.
(3) 2010 comparative figures have not been restated for adoption of IFRS on September 1, 2010.

Highlights

  ·  

Net income from continuing operations was $761 million for the year compared to $559 million in 2011.

  ·  

Earnings per share from continuing operations were $1.62 compared to $1.23 in 2011.

  ·  

Revenue for the year improved 5.4% to $5.00 billion from $4.74 billion last year.

  ·  

Operating income before amortization of $2.13 billion was up 3.7% over last year’s amount of $2.05 billion.

  ·  

Consolidated free cash flow was $482 million compared to $617 million in 2011.

 

41


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

  ·  

During 2012 the Company increased the dividend rate on Shaw’s Class A Participating Shares and Class B Non-Voting Participating Shares to an equivalent dividend rate of $0.9675 and $0.97 respectively. Dividends paid in 2012 increased approximately 6% over 2011 to $416 million.

  ·  

During the year the Company opened retail stores in Calgary, Vancouver and Richmond offering a new retail experience as part of its continued investment in defining the customer experience. The new stores showcase all of Shaw’s products and services through a unique technology experience of interactive displays along with hands on training and technical support.

  ·  

In October 2010 Shaw completed its acquisition of the broadcasting business of Canwest including CW Media, the company that owned the specialty channels acquired from Alliance Atlantis Communications Inc. in 2007. The total consideration, including debt assumed, was approximately $2.0 billion.

  ·  

On December 7, 2010 the Company issued $500 million senior notes at a rate of 5.5% due December 7, 2020 and issued an additional $400 million under the reopened 6.75% senior notes due November 9, 2039. The net proceeds from the notes issuances were used to repay borrowings under the Company’s $1 billion revolving credit facility.

  ·  

On February 17, 2011 the Company issued an additional $400 million under the reopened 6.75% senior notes due November 9, 2039. The net proceeds were used for working capital and general corporate purposes as well as to partially repay borrowings under the revolving credit facility while excess funds are held in cash and cash equivalents.

  ·  

In March 2011 Shaw implemented various cost saving initiatives including staff reductions and a review of overhead expenses to drive efficiencies and enhance competitiveness.

  ·  

On May 31, 2011 the Company issued 12,000,000 Cumulative Redeemable Rate Reset Preferred Shares, Series A (“Preferred Shares”) at a price of $25.00 per Preferred Share for aggregate gross proceeds of $300 million. The net proceeds were used for working capital and general corporate purposes while excess funds are held in cash and cash equivalents.

Revenue and operating expenses

Consolidated revenue of $5.00 billion for the twelve month period improved 5.4% over the prior year. The improvement was primarily due to twelve months of revenue from Shaw Media, as well as rate increases and growth in the Cable and Satellite divisions. Consolidated operating income before amortization of $2.13 billion increased 3.7% over last year. The improvement was primarily due to the current period including twelve months of Shaw Media.

Amortization

 

(In $millions Cdn)    2012     2011     Change
%
 

Amortization revenue (expense) –

      

Deferred equipment revenue

     115        107        7.5   

Deferred equipment costs

     (231     (205     12.7   

Property, plant and equipment, intangibles and other

     (692     (637     8.6   
                          

 

42


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

Amortization of deferred equipment revenue and deferred equipment costs increased in 2012 due to the sales mix of equipment and changes in customer pricing on certain equipment.

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

Amortization of financing costs and Interest expense

 

(In $millions Cdn)    2012      2011      Change
%
 

Amortization of financing costs – long-term debt

     5         4         25.0   

Interest expense

     330         332         (0.6
                            

Other income and expenses

 

(In $millions Cdn)    2012     2011    

Increase
(decrease)

in income

 

Gain on redemption of debt

            33        (33

CRTC benefit obligations

     (2     (139     137   

Business acquisition, integration and restructuring costs

            (91     91   

Gain on remeasurement of interests in equity investments

     6               6   

Gain (loss) on derivative instruments

     1        (22     23   

Accretion of long-term liabilities and provisions

     (14     (15     1   

Foreign exchange gain on unhedged long-term debt

            17        (17

Equity income from associates

            14        (14

Other gains

            11        (11
                          

The gain on redemption of debt is in respect of the Media 13.5% senior unsecured notes. As a result of a change of control triggered on the acquisition of the Media business an offer to purchase all of the US $338 million 13.5% senior unsecured notes at a cash price equal to 101% was required. An aggregate US $52 million face amount, having an aggregate accrued value of US $56 million, was tendered under the offer and purchased by the Company for cancellation. Also during 2011, the Company redeemed the remaining outstanding US $260 million face amount, having an aggregate accrued valued of US $282 million, at 106.75% as set out under the terms of the indenture. As a result, the Company recorded a gain of $33 million which resulted from recognizing the remaining unamortized acquisition date fair value adjustment of $57 million partially offset by the 1% repurchase and 6.75% redemption premiums totaling $19 million and $5 million in respect of the write-off of the embedded derivative instrument associated with the early prepayment option.

As part of the CRTC decisions approving the acquisition of Mystery and The Cave during the current year and the Media acquisition in the prior year, the Company is required to contribute approximately $2 million and $180 million in new benefits to the Canadian broadcasting system over seven years. Most of this contribution will be used to create new programming on Shaw Media services, construct digital transmission towers and provide a satellite solution for OTA viewers whose local television stations do not convert to digital. The fair value of the obligations of $2 million and $139 million was determined by discounting future net cash flows using appropriate discount rates and have been recorded in the income statement.

 

43


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

During 2011, the Company incurred costs in respect of the acquisition of the broadcasting business and organizational restructuring which amounted to $91 million. Amounts include acquisition related costs to effect the acquisition, such as professional fees paid to lawyers and consultants. The integration and restructuring costs relate to integrating the new business and increasing organizational effectiveness for future growth as well as package costs for the former CEO. In March 2011 Shaw implemented various cost saving initiatives including staff reductions and a review of overhead expenses to drive efficiencies and enhance competitiveness. Approximately 550 employee positions were eliminated, including 150 at the management level.

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

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

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

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

The Company recorded income of $14 million primarily in respect of its 49.9% equity interest in CW Media for the period September 1 to October 26, 2010. On October 27, 2010, the Company acquired the remaining equity interest in CW Media as part of its purchase of all the broadcasting assets of Canwest. Results of operations are consolidated effective October 27, 2010. The equity income was comprised of approximately $20 million of operating income before amortization partially offset by interest expense of $5 million and other net costs of $2 million. The Company also records equity income (loss) in respect of interests in several specialty channels.

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

 

44


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

$26 million related to an electrical fire and resulting water damage to Shaw Court as well as a pension curtailment gain of $25 million. The loss of $26 million includes $6 million of costs in respect of restoration and recovery activities, including amounts incurred in the relocation of employees, and an asset write-down of $20 million related to the damages sustained to the building and its contents. Insurance recoveries are expected and amounts will be included in Other gains as claims are approved. No insurance recoveries were recorded in 2012. The pension curtailment gain arose due to a plan amendment to freeze base salary levels.

Income tax expense

The income tax expense was calculated using current statutory income tax rates of 26.3% for 2012 and 27.9% for 2011 and was adjusted for the reconciling items identified in Note 23 to the Consolidated Financial Statements.

Loss from discontinued operations

In 2011, the Company discontinued further construction of its traditional wireless network and accordingly, all traditional wireless activities have been classified as discontinued operations.

The Company recorded an after tax loss of $89 million comprised of a write-down of assets of $112 million, operating expenditures and amortization of $8 million and an income tax recovery of $31 million.

Earnings per share from continuing operations

 

(In $millions Cdn except per share amounts)    2012      2011     

Change

%

 

Net income from continuing operations

     761         559         36.1   

Weighted average number of participating

        

shares outstanding during period (millions)

     441         435         1.4   

Earnings per share from continuing operations –

        

Basic

     1.62         1.23         31.7   

Diluted

     1.61         1.23         30.9   
                            

Net income from continuing operations

Net income from continuing operations was $761 million in 2012 compared to $559 million in 2011. The year-over-year changes are summarized in the table below.

Net income from continuing operations increased $202 million over the prior year. The current year benefitted from a reduction in net other costs of $183 million, improved operating income before amortization of $76 million and decreased income taxes of $15 million partially offset by higher amortization of $74 million. The change in net other costs and revenue of $183 million was due to amounts recorded in the prior year and were primarily in respect of the Media business acquisition. These amounts included the CRTC benefit obligation, various acquisition, integration and restructuring costs and the loss on derivative instruments partially offset by the gain on redemption of debt, foreign exchange gain on unhedged long-term debt and equity income from associates.

 

45


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

(In $millions Cdn)        

Increased operating income before amortization

     76   

Increased amortization

     (74

Decreased interest expense

     2   

Change in other net costs and revenue(1)

     183   

Decreased income taxes

     15   
          
     202   
          

 

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

SEGMENTED OPERATIONS REVIEW

CABLE

FINANCIAL HIGHLIGHTS

 

($millions Cdn)    2012      2011     

Change

%

 

Revenue

     3,193         3,096         3.1   
                            

Operating income before amortization(1)

     1,502         1,510         (0.5

Capital expenditures and equipment costs (net):

        

New housing development(2)

     100         88         13.6   

Success-based(3)

     250         207         20.8   

Upgrades and enhancement(4)

     322         278         15.8   

Replacement(5)

     41         47         (12.8

Buildings and other

     97         89         9.0   
                            
     810         709         14.2   
                            

Operating margin(1)

     47.0%         48.8%         (1.8
                            

 

(1) See key performance drivers on page 20.
(2) Build out of mainline cable and the addition of drops in new subdivisions.
(3) Capital and equipment costs (net) related to the acquisition of new customers, including installation of internet and digital phone modems, DCTs, filters and commercial drops for Shaw Business customers.
(4) Upgrades to the plant and build out of fibre backbone to reduce use of leased circuits and costs to decrease node size and Digital Phone capital.
(5) Normal replacement of aged assets such as drops, vehicles and other equipment.

OPERATING HIGHLIGHTS

 

·  

Cable revenue of $3.19 billion improved 3.1% over last year. Cable operating income before amortization of $1.50 billion declined modestly over last year.

 

46


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

·  

Digital customers increased 98,469 during the year to 1,917,857 and penetration of Basic is now 86.4%, up from 79.5% at August 31, 2011.

·  

Digital Phone lines increased 130,703 to 1,363,744 lines and Internet was up 34,999 to total 1,912,230 as at August 31, 2012. During the year Basic cable subscribers decreased 70,703.

Cable revenue for 2012 of $3.19 billion improved 3.1% over the prior year. Rate increases and customer growth in Internet and Digital Phone, including Business growth, partially offset by lower Basic cable subscribers, accounted for the improvement.

Operating income before amortization of $1.50 billion declined modestly over the prior year. The revenue related improvement was offset by higher employee related amounts, programming costs, and various other expenses.

As at August 31, 2012 Shaw had 1,912,230 Internet customers which represents an 86% penetration of Basic.

In pursuit of Shaw’s continued improvement for its approximately 1.9 million Internet customers, the Company announced as part of its WiFi strategy a technical trial of HotSpot 2.0 in conjunction with Cisco Systems (“Cisco”), Shaw’s WiFi technology partner. HotSpot 2.0 provides a significant improvement in WiFi accessibility and security, and allows Shaw’s broadband WiFi enabled customers to automatically connect and authenticate to the WiFi network. The Company is now offering WiFi at over 1,500 sites in Calgary, Edmonton, Vancouver, Victoria and Winnipeg.

Shaw recently introduced content offerings for its TV Everywhere applications with the introduction of Shaw Go. The Shaw Go Movie Central app for Apple devices provides access to current and library content for Shaw customers who subscribe to Movie Central programming, including HBO Canada titles. The app provides several features that enhance the user experience, including intelligent streaming, which provides the most optimal video quality based on Internet connection speed, and video bookmarking, which allows customers to stop and resume video playback at their convenience. The Shaw Go NFL Sunday Ticket app provides Shaw NFL Sunday Ticket subscribers with live broadcasts of up to 14 NFL regular season games along with interactive features, such as instant replay and play-by-play summaries. Shaw customers have the added benefit of being able to access content on Shaw’s WiFi network.

Total capital investment of $810 million increased $101 million compared to 2011. Success based capital increased $43 million mainly due to higher subsidies on sales of HDPVRs resulting from increased volumes and lower customer pricing, and investment in DOCSIS 3.0 WiFi internet modems, partially offset by lower HDPVR rentals and phone modem purchases.

Investment in Upgrades and enhancement and Replacement categories combined increased $38 million compared to last year. The current period included higher spending on hub upgrades, network electronics related to the DNU, Digital Phone infrastructure to support Business growth, as well as investment related to the strategic WiFi build.

Buildings and other increased $8 million compared to the prior year. The current year increase was mainly due to facility investment related to the Calgary data centre, customer service centres and new retail locations. The prior year also benefitted from proceeds from the sale of redundant real estate assets.

 

47


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

Spending in new housing development increased $12 million over the comparable period mainly due to higher activity.

SUBSCRIBER STATISTICS

 

      2012      2011      Growth    

Change

%

 

CABLE:

          

Basic subscribers

     2,219,072         2,289,775         (70,703     (3.1

Penetration as a % of homes passed

     56.0%         59.0%        

Digital customers

     1,917,857         1,819,388         98,469        5.4   
                                    

INTERNET:

          

Connected and scheduled installations

     1,912,230         1,877,231         34,999        1.9   

Penetration as % of basic

     86.2%         82.0%        

Stand-alone Internet not included in basic cable

     225,639         217,068         8,571        3.9   

DIGITAL PHONE:

          

Number of lines(1)

     1,363,744         1,233,041         130,703        10.6   
                                    

 

(1) Represents primary and secondary lines on billing plus pending installs.

SATELLITE (DTH and Satellite Services)

FINANCIAL HIGHLIGHTS

 

($millions Cdn)    2012      2011     

Change

%

 

Revenue

        

DTH (Shaw Direct)

     763         745         2.4   

Satellite Services

     81         82         (1.2
                            
     844         827         2.1   
                            

Operating income before amortization(1)

        

DTH (Shaw Direct)

     254         246         3.3   

Satellite Services

     39         43         (9.3
                            
     293         289         1.4   

Capital expenditures and equipment costs (net):

        

Success-based

     81         76         6.6   

Transponders

     2         25         (92.0

Buildings and other

     11         6         83.3   
                            
     94         107         (12.1
                            

Operating margin(1)

     34.7%         34.9%         (0.2
                            

 

(1) See key performance drivers on page 20.

 

48


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

SUBSCRIBER STATISTICS

 

      2012      2011      Growth  

Shaw Direct customers(1)

     910,023         908,883         1,140   
                            

 

(1) Including seasonal customers who temporarily suspend their service.

OPERATING HIGHLIGHTS

 

·  

Satellite revenue of $844 million improved 2.1% over the comparable period

·  

Operating income before amortization of $293 million improved 1.4%

Revenue of $844 million for 2012 was up 2.1% over last year. The improvement was primarily due to customer rate increases. Operating income before amortization improved 1.4%.

Total capital investment of $94 million decreased over last year primarily due to the deposit for the Anik G1 satellite included in the prior year partially offset by higher investment in the current period on satellite related ground equipment. The launch of the satellite, originally expected to occur this fall, has been delayed as a result of issues experienced on an unrelated satellite launch, and Anik G1 is now expected to launch early in calendar 2013.

During 2012, Shaw Direct started offering a video on demand service using adaptive streaming technology through the satellite receiver. This new internet based service currently has over 3,000 movie and TV titles available. In addition, with their television subscription package, Shaw Direct customers now have access to the Shaw Go apps, including the recently launched Shaw Go Movie Central and Shaw Go NFL Sunday Ticket.

MEDIA

FINANCIAL HIGHLIGHTS

 

($millions Cdn)   

Year ended

2012

    Period from
October 27, 2010 to
August 31, 2011
   

Change

%

 

Revenue

     1,053        891        18.2   
                          

Operating income before amortization(1)

     332        252        31.7   

Capital expenditures:

      

Broadcast and transmission

     12        15        (20.0

Buildings/other

     19        12        58.3   
                          
     31        27        14.8   
                          

Other adjustments:

      

CRTC benefit obligation funding

     (48     (30     60.0   

Non-controlling interests

     (34     (20     70.0   

Operating margin(1)

     31.5%        28.3%        3.2   
                          

 

(1) See key performance drivers on page 20.

 

49


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

OPERATING HIGHLIGHTS

Revenue and operating income before amortization for the year were $1.05 billion and $332 million, respectively, compared to $891 million and $252 million for the prior year period from October 27, 2010 to August 31, 2011. For informational purposes, on a comparative basis to the full twelve months ended August 31, 2011, Media revenues were down 2% reflecting softness in the advertising market as a result of continued economic uncertainty. Operating income before amortization increased 2%, as lower programming costs in 2012 more than offset the reduced advertising revenues.

During the year, Global delivered solid programming results led by the strength of Big Brother, Hotel Hell and Rookie Blue. The Media specialty portfolio also led in the channel rankings in the adult 25-54 category, with 4 of the Top 10 analog services, including History as the top entertainment network in Canada, and 5 of the Top 10 digital services, with National Geographic as the leading digital channel. During late 2012 Shaw Media launched Lifetime, H2 and National Geographic Wild.

In News, Global is in the number one position in all three major western markets with ratings up for the majority of all news programs. Global Toronto News Hour moved into the number two position and the station also delivered solid audience growth in the News Hour Final. The West Block with Tom Clark continued to perform well, beginning its second season as Canada’s most watched political talk show.

The conventional fall programming premiered throughout the month of September with a solid returning line-up and new drama programming including Vegas, Chicago Fire, Last Resort and Elementary. Shaw Media also added several new comedies to the fall schedule including Go On and Guys With Kids.

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

IV.  FINANCIAL POSITION

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

Current assets declined $31 million primarily due to decreases in cash of $16 million, assets held for sale of $15 million, and accounts receivable of $10 million, the total of which was partially offset by increased inventories of $5 million and other current assets of $7 million. Cash decreased as the cash outlay for investing and financing activities exceeded the funds provided by operations. Assets held for sale decreased as the sale of the wireless assets was completed during the first quarter and accounts receivable declined due to timing of collection of miscellaneous receivables. Inventories were higher due to timing of equipment purchases while other current assets were up primarily as a result of increases in program rights.

Property, plant and equipment increased $42 million as current year capital investment exceeded amortization and the asset write-down related to the electrical fire and resulting water damage at Shaw Court.

Other long-term assets were up $73 million primarily due to an increase in deferred equipment costs and related customer equipment financing receivables.

 

50


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

Intangibles increased $63 million due to higher program rights and advances and the broadcast licenses recorded on the acquisition of Mystery and The Cave. Program rights and advances (current and noncurrent) increased as advances and additional investment in acquired rights exceeded the amortization for the current year. The increase in goodwill of $3 million is due to the aforementioned acquisition of Mystery and The Cave.

Current liabilities were up $250 million due to increases in income taxes payable of $32 million and current portion of long-term debt of $450 million partially offset by decreases in accounts payable and accrued liabilities of $67 million, other current liability of $161 million and derivative instruments of $7 million. Income taxes payable increased due to the current year provision partially offset by tax installment payments. The current portion of long-term debt increased and long-term debt decreased due to the reclassification of the 6.1% $450 million senior notes which were repaid at maturity on November 16, 2012. Accounts payable and accrued liabilities decreased due to lower trade and other payables primarily in respect of timing of payment of capital expenditures and inventory and a reduction in the current portion of the CRTC benefit obligations. The other liability decreased due to settlement of previously amended cross-currency interest rate agreements and derivative instruments decreased due to settlement of contracts.

Other long-term liabilities were up $45 million due to an increase in employee benefit plans of $71 million, primarily as a result of actuarial losses recorded in the current year, partially reduced by a decrease in CRTC benefit obligations of $22 million.

Deferred credits were up $5 million due to an increase in deferred equipment revenue partially offset by amortization of deferred IRU revenue.

Deferred income tax liabilities, net of deferred income tax assets, decreased $63 million due to the current year recovery.

Shareholders’ equity increased $357 million primarily due to increases in share capital of $117 million, retained earnings of $291 million and non-controlling interests of $9 million partially offset by an increase in accumulated other comprehensive loss of $64 million. Share capital increased due to the issuance of 5,972,349 Class B Non-Voting Shares under the Company’s option plan and DRIP. As of November 15, 2012, share capital is as reported at August 31, 2012 with the exception of the issuance of a total of 1,274,017 Class B Non-Voting Shares under the DRIP and upon exercise of options under the Company’s option plan subsequent to the year end. Retained earnings increased due to current year earnings of $728 million partially offset by dividends of $437 million while non-controlling interests increased as their share of earnings exceeded the distributions declared during the year. Accumulated other comprehensive loss increased due to the actuarial losses recorded on employee benefit plans.

V.  CONSOLIDATED CASH FLOW ANALYSIS

Operating activities

 

(In $millions Cdn)    2012      2011    

Change

%

 

Funds flow from continuing operations

     1,299         1,433        (9.4

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

     18         (192     >100.0   
                           
     1,317         1,241        6.1   
                           

 

51


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

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

Investing activities

 

(In $millions Cdn)    2012     2011    

Decrease

 

Cash flow used in investing activities

     (983     (1,350     367   
                          

Cash requirements for investing activities decreased over the comparable year due to amounts paid to complete the Media business acquisition in 2011 and fluctuations in inventory levels partially offset by the higher capital expenditures in the current year.

Financing activities

The changes in financing activities during 2012 and 2011 were as follows:

 

(In $millions Cdn)    2012      2011  

Bank credit facility arrangement costs

     (4        

Issuance of Cdn $500 million 5.50% senior notes

             498   

Issuance of Cdn $800 million 6.75% senior notes

             779   

Issuance of Preferred Shares

             300   

Senior notes and Preferred Shares issuance costs

        (17

Repayment of CW Media US $390 million term loan

        (395

Redemption of CW Media US $338 million 13.5% senior notes

        (334

Dividends

     (333      (352

Distributions paid to non-controlling interests

     (26      (22

Senior notes prepayment premium

             (19

Issuance of Class B Non-Voting Shares

     17         46   

Repayment of Partnership debt

     (1      (1
                   

Cash flow provided by financing activities

     (347      483   
                   

VI.  LIQUIDITY AND CAPITAL RESOURCES

In the current year, the Company generated $482 million of free cash flow. Shaw used its free cash flow along with cash of $16 million, proceeds on issuance of Class B Non-Voting Shares of $17 million and other net items of $25 million to pay common share dividends of $318 million, fund the $162 million on settlement of amended cross-currency interest rate agreements, invest an additional net $42 million in program rights and purchase the remaining interests in two specialty channels for $18 million.

 

52


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

To allow for timely access to capital markets, the Company filed a short form base shelf prospectus with securities regulators in Canada and the U.S. on November 18, 2010. The shelf prospectus allows for the issue of up to an aggregate $4 billion of debt and equity securities over a 25 month period. Pursuant to this shelf prospectus, the Company issued $300 million of Preferred Shares and completed three senior notes offerings totalling $1.3 billion in 2011.

During the current year, the Company entered into a five-year $1 billion bank credit facility which includes a revolving term facility to a maximum of $50 million and matures in January 2017. The credit facility has a feature whereby the Company may request an additional $500 million of borrowing capacity so long as no event of default or pending event of default has occurred and is continuing or would occur as a result of the increased borrowings. No lender has any obligation to participate in the requested increase unless it agrees to do so at its sole discretion. This facility replaced the prior credit and operating loan facilities which were scheduled to mature in May 2012. The new facility will be used for general corporate purposes.

On November 16, 2012, the Company repaid the 6.1% $450 million senior unsecured notes.

The Company’s DRIP allows holders of Class A Shares and Class B Non-Voting Shares who are residents of Canada to automatically reinvest monthly cash dividends to acquire additional Class B Non-Voting Shares. Effective for the May 31, 2011 dividend payment, Class B Non-Voting Shares distributed under the Company’s DRIP are new shares issued from treasury at a 2% discount from the 5 day weighted average market price immediately preceding the applicable dividend payment date. Previously, the Class B Non-Voting Shares were acquired on the open market at prevailing market prices. The DRIP has resulted in cash savings and incremental Class B Non-Voting Shares of $98 million in 2012.

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

At August 31, 2012, the Company held $427 million in cash and had access to $1 billion under its credit facility. Based on the available credit facility and forecasted free cash flow, the Company expects to have sufficient liquidity to fund operations and obligations 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.

Debt structure and financial policy

Shaw structures its borrowings generally on a stand-alone basis. The borrowings of Shaw are unsecured. While certain non-wholly owned subsidiaries are subject to contractual restrictions which may prevent the transfer of funds to Shaw, there are no similar restrictions with respect to wholly-owned subsidiaries of the Company.

Shaw’s borrowings are subject to covenants which include maintaining minimum or maximum financial ratios. At August 31, 2012, 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. As at August 31, 2012, the ratio of debt to operating income before amortization for the Corporation is 2.4 times.

Having regard to prevailing competitive, operational and capital market conditions, the Board of Directors has determined that having this ratio in the range of 2.0 to 2.5 times would be

 

53


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

optimal leverage for the Corporation in the current environment. Should the ratio fall below this the Board may choose to recapitalize back into this optimal range. The Board may also determine to increase the Corporation’s debt above these levels to finance specific strategic opportunities such as a significant acquisition or repurchase of Class B Non-Voting Participating Shares in the event that pricing levels were to drop precipitously.

Off-balance sheet arrangement and guarantees

Guarantees

Generally it is not the Company’s policy to issue guarantees to non-controlled affiliates or third parties; however, it has entered into certain agreements as more fully described in Note 25 to the Consolidated Financial Statements. As disclosed thereto, Shaw believes it is remote that these agreements would require any cash payment.

Contractual obligations

The amounts of estimated future payments under the Company’s contractual obligations at August 31, 2012 are detailed in the following table.

CONTRACTUAL OBLIGATIONS

 

     Payments due by period  
(In $millions Cdn)    Total     

Within

1 year

     2 – 3 years      4 – 5 years      More than
5 years
 

Long-term debt(1)

     9,096         768         1,497         1,156         5,675   

Operating obligations(2)

     2,017         683         617         275         442   

Purchase obligations(3)

     88         88                           

Other long-term obligations(4 )

     7         7                           
                                              
     11,208         1,546         2,114         1,431         6,117   
                                              

 

(1) Includes principal repayments and interest payments.
(2) Includes maintenance and lease of satellite transponders, program related agreements, lease of transmission facilities and lease of premises.
(3) Includes capital expenditure and inventory purchase commitments.
(4) Includes other financial liabilities and are primarily in respect of program rights.

VII.  ADDITIONAL INFORMATION

Additional information relating to Shaw, including the Company’s Annual Information Form dated November 29, 2012, can be found on SEDAR at www.sedar.com.

VIII.  COMPLIANCE WITH NYSE CORPORATE GOVERNANCE LISTING STANDARDS

Disclosure of the Company’s corporate governance practices which differ from the New York Stock Exchange (“NYSE”) corporate governance listing standards are posted on Shaw’s website, www.shaw.ca (under Investors/Corporate Governance/Compliance with NYSE Corporate Governance Listing Standards).

 

54


Shaw Communications Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

August 31, 2012

 

IX.  CERTIFICATION

The Company’s Chief Executive Officer and Chief Financial Officer have filed certifications regarding Shaw’s disclosure controls and procedures and internal control over financial reporting.

As at August 31, 2012, the Company’s management, together with its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of each of the Company’s disclosure controls and procedures and internal control over financial reporting. Based on these evaluations, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures and the Company’s internal control over financial reporting are effective.

There were no changes in the Company’s internal controls over financial reporting during the fiscal year that have materially affected or are reasonably likely to materially affect Shaw’s internal controls over financial reporting.

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of certain events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

55

EX-99.2 3 d426574dex992.htm EXHIBIT 2 Exhibit 2

Exhibit 2

Shaw Communications Inc.

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS AND

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 

November 29, 2012

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

The accompanying consolidated financial statements of Shaw Communications Inc. and all the information in this annual report are the responsibility of management and have been approved by the Board of Directors.

The financial statements have been prepared by management in accordance with International Financial Reporting Standards. When alternative accounting methods exist, management has chosen those it deems most appropriate in the circumstances. Financial statements are not precise since they include certain amounts based on estimates and judgments. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly, in all material respects. Management has prepared the financial information presented elsewhere in the annual report and has ensured that it is consistent with the financial statements.

Management has a system of internal controls designed to provide reasonable assurance that the financial statements are accurate and complete in all material respects. The internal control system includes an internal audit function and an established business conduct policy that applies to all employees. Management believes that the systems provide reasonable assurance that transactions are properly authorized and recorded, financial information is relevant, reliable and accurate and that the Company’s assets are appropriately accounted for and adequately safeguarded.

The Board of Directors is responsible for ensuring management fulfils its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out this responsibility through its Audit Committee.

The Audit Committee is appointed by the Board and its directors are unrelated and independent. The Committee meets periodically with management, as well as the external auditors, to discuss internal controls over the financial reporting process, auditing matters and financial reporting issues; to satisfy itself that each party is properly discharging its responsibilities; and, to review the annual report, the financial statements and the external auditors’ report. The Audit Committee reports its findings to the Board for consideration when approving the financial statements for issuance to the shareholders. The Committee also considers, for review by the Board and approval by the shareholders, the engagement or re-appointment of the external auditors.

The financial statements have been audited by Ernst & Young LLP, the external auditors, in accordance with Canadian generally accepted auditing standards on behalf of the shareholders. Ernst & Young LLP has full and free access to the Audit Committee.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Also, projections of any of the effectiveness of internal

 

56


Shaw Communications Inc.

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS AND

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 

control are subject to the risk that the controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the financial statement preparation and presentation.

Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the framework in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s system of internal control over financial reporting was effective as at August 31, 2012.

 

[Signed]    [Signed]

Brad Shaw

Chief Executive Officer

  

Steve Wilson

Senior Vice President and

Chief Financial Officer

 

57


Shaw Communications Inc.

INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders of

Shaw Communications Inc.

We have audited the accompanying consolidated financial statements of Shaw Communications Inc., which comprise the consolidated statements of financial position as at August 31, 2012 and 2011, and September 1, 2010, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years ended August 31, 2012 and 2011, and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Shaw Communications Inc. as at August 31, 2012 and 2011, and September 1, 2010, and its financial performance and its cash flows for the years ended August 31, 2012 and 2011 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

58


Other matter

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Shaw Communication Inc.’s internal control over financial reporting as of August 31, 2012, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 29, 2012 expressed an unqualified opinion on Shaw Communications Inc’s internal control over financial reporting.

 

Calgary, Canada    LOGO
November 29, 2012   
   Chartered Accountants

 

59


Shaw Communications Inc.

INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROLS

UNDER STANDARDS OF THE PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD (UNITED STATES)

 

To the Shareholders of

Shaw Communications Inc.

We have audited Shaw Communications Inc.’s internal control over financial reporting as at August 31, 2012, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Shaw Communications Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorization of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Shaw Communications Inc. maintained, in all material respects, effective internal control over financial reporting as at August 31, 2012, based on the COSO criteria.

 

60


We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Accounting Oversight Board (United States), the consolidated statements of financial position of Shaw Communications Inc. as at August 31, 2012 and 2011, and September 1, 2010, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years ended August 31, 2012 and 2011, and our report dated November 29, 2012 expressed an unqualified opinion thereon.

 

Calgary, Canada    LOGO
November 29, 2012   
   Chartered Accountants

 

61


Shaw Communications Inc.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

[millions of Canadian dollars]  

August 31,
2012

$

   

August 31,
2011

$

   

September 1,

2010

$

       
          [note 31]     [note 31]       

ASSETS

        

Current

        

Cash

    427        443        217      

Accounts receivable [note 4]

    433        443        196      

Inventories [note 5]

    102        97        54      

Other current assets [note 6]

    89        82        34      

Derivative instruments [note 28]

           2        67      

Assets held for sale [note 3]

           15             
                              
    1,051        1,082        568      

Investments and other assets [note 7]

    13        13        743      

Property, plant and equipment [note 8]

    3,242        3,200        3,005      

Assets held for sale [note 3]

    1        1             

Other long-term assets [note 9]

    331        258        233      

Deferred income tax assets [note 23]

    14        30             

Intangibles [note 10]

    7,355        7,292        5,596      

Goodwill [note 10]

    715        712        169      
                              
    12,722        12,588        10,314      
                              

LIABILITIES AND SHAREHOLDERS’ EQUITY

        

Current

        

Accounts payable and accrued liabilities [notes 11 and 26]

    811        878        700      

Provisions [note 12]

    19        18        19      

Income taxes payable

    156        124        249      

Unearned revenue

    157        155        145      

Current portion of long-term debt [notes 13 and 28]

    451        1        1      

Current portion of derivative instruments [note 28]

    1        8        80      

Other liability [note 28]

           161             
                              
    1,595        1,345        1,194      

Long-term debt [notes 13 and 28]

    4,812        5,256        3,982      

Other long-term liabilities [note 14]

    552        507        429      

Provisions [note 12]

    8        8             

Derivative instruments [note 28]

                  7      

Deferred credits [note 15]

    635        630        632      

Deferred income tax liabilities [note 23]

    1,085        1,164        1,065      
                              
    8,687        8,910        7,309      
                              

Commitments and contingencies [notes 13, 25 and 26]

        

Shareholders’ equity

        

Common and preferred shareholders

    3,754        3,406        3,005      

Non-controlling interests in subsidiaries

    281        272             
                              
    4,035        3,678        3,005      
                              
    12,722        12,588        10,314      
                              

 

See accompanying notes   
On behalf of the Board:   
[Signed]    [Signed]
JR Shaw    Michael O’Brien
Director    Director

 

62


Shaw Communications Inc.

CONSOLIDATED STATEMENTS OF INCOME

 

 

Years ended August 31 [millions of Canadian dollars

except per share amounts]

  

2012

$

   

2011

$

      
           [note 31]      

Revenue [note 24]

     4,998        4,741     

Operating, general and administrative expenses [note 21]

     2,871        2,690     
                      

Operating income before amortization [note 24]

     2,127        2,051     

Amortization –

      

Deferred equipment revenue [note 15]

     115        107     

Deferred equipment costs [note 9]

     (231     (205  

Property, plant and equipment, intangibles and other [notes 8, 9, 10 and 15]

     (692     (637  
                      

Operating income

     1,319        1,316     

Amortization of financing costs – long-term debt [note 13]

     (5     (4  

Interest expense [notes 13 and 24]

     (330     (332  

Gain on redemption of debt [note 13]

            33     

CRTC benefit obligations [note 3]

     (2     (139  

Business acquisition, integration and restructuring expenses [notes 3 and 11]

            (91  

Gain on remeasurement of interests in equity investments [note 3]

     6            

Gain (loss) on derivative instruments [note 28]

     1        (22  

Accretion of long-term liabilities and provisions

     (14     (15  

Foreign exchange gain on unhedged long-term debt

            17     

Equity income from associates [note 7]

            14     

Other gains [note 22]

            11     
                      

Income before income taxes

     975        788     

Current income tax expense [note 23]

     257        220     

Deferred income tax expense (recovery)

     (43     9     
                      

Net income from continuing operations

     761        559     

Loss from discontinued operations [note 3]

            (89  
                      

Net income

     761        470     
                      

Net income attributable to:

      

Equity shareholders

     728        451     

Non-controlling interests in subsidiaries

     33        19     
                      
     761        470     
                      

Earnings per share – basic [note 18]

      

Earnings per share from continuing operations

     1.62        1.23     

Loss per share from discontinued operations

            (0.21  
                      

Earnings per share

     1.62        1.02     
                      

Earnings per share – diluted [note 18]

      

Earnings per share from continuing operations

     1.61        1.23     

Loss per share from discontinued operations

            (0.21  
                      

Earnings per share

     1.61        1.02     
                      

See accompanying notes

 

63


Shaw Communications Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

Years ended August 31 [millions of Canadian dollars]   

2012

$

   

2011

$

 
           [note 31]  

Net income

     761        470   

Other comprehensive income (loss) [note 20]

    

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

            (12

Adjustment for hedged items recognized in the period

     (2     4   

Actuarial losses on employee benefit plans

     (62     (30
                  
     (64     (38
                  

Comprehensive income

     697        432   
                  

Comprehensive income attributable to:

    

Equity shareholders

     664        413   

Non-controlling interests in subsidiaries

     33        19   
                  
     697        432   
                  

See accompanying notes

 

64


Shaw Communications Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

 

 

Year ended August 31, 2012              
   

Attributable to equity shareholders

             
[millions of Canadian dollars]   Share
capital
    Contributed
surplus
    Retained
earnings
   

Accumulated
other

comprehensive
loss

    Total     Equity
attributable
to non-
controlling
interests
    Total
    equity    
 

Balance as at September 1, 2011

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

Net income

                  728               728        33        761   

Other comprehensive loss

                         (64     (64            (64
                                                         

Comprehensive income (loss)

                  728        (64     664        33        697   

Dividends

                  (339            (339            (339

Dividend reinvestment plan

    98               (98                            

Shares issued under stock option plan

    19        (2                   17               17   

Share-based compensation

           6                      6               6   

Distributions declared by subsidiaries to non-controlling interests

                                       (24     (24
                                                         

Balance as at August 31, 2012

    2,750        77        1,020        (93     3,754        281        4,035   
                                                         

 

Year ended August 31, 2011                    
   

Attributable to equity shareholders

             
[millions of Canadian dollars]   Share
capital
    Contributed
surplus
    Retained
earnings
    Accumulated
other
comprehensive
income (loss)
    Total     Equity
attributable
to non-
controlling
interests
    Total
    equity    
 

Balance as at September 1, 2010

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

Business acquisition

                                       277        277   

Net income

                  451               451        19        470   

Other comprehensive loss

                         (38     (38            (38
                                                         

Comprehensive income (loss)

                  451        (38     413        19        432   

Dividends

                  (362            (362            (362

Dividend reinvestment plan

    39               (39                            

Issue of preferred shares

    300                             300               300   

Share issue costs (net of taxes)

    (7                          (7            (7

Shares issued under stock option plan

    51        (5                   46               46   

Share-based compensation

           11                      11               11   

Distributions declared by subsidiaries to non-controlling interests

                                       (24     (24
                                                         

Balance as at August 31, 2011

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

See accompanying notes

 

65


Shaw Communications Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

     2012             2011          
Years ended August 31 [millions of Canadian dollars]    $     $  

OPERATING ACTIVITIES [note 29]

    

Funds flow from continuing operations

     1,299        1,433   

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

     18        (192
                  
     1,317        1,241   
                  

INVESTING ACTIVITIES

    

Additions to property, plant and equipment [note 24]

     (730     (705

Additions to equipment costs (net) [note 24]

     (178     (120

Additions to other intangibles [note 24]

     (65     (65

Net increase to inventories

     (5     (43

Business acquisitions, net of cash acquired [note 3]

     (18     (453

Proceeds on disposal of property, plant and equipment [note 24]

     9        27   

Proceeds from investments and other assets

     4        9   
                  
     (983     (1,350
                  

FINANCING ACTIVITIES

    

Increase in long-term debt, net of discounts

            2,352   

Senior notes and Series A Preferred Shares issuance costs

            (17

Debt repayments

     (1     (1,805

Issuance of Series A Preferred Shares

            300   

Debt retirement costs [note 13]

            (19

Bank credit facility arrangement costs

     (4       

Issue of Class B Non-Voting Shares, net of after-tax expenses

     17        46   

Dividends paid on Class A Shares and Class B Non-Voting Shares

     (318     (352

Dividends paid on Series A Preferred Shares

     (15       

Distributions paid to non-controlling interests in subsidiaries

     (26     (22
                  
     (347     483   
                  

Increase (decrease) in cash from continuing operations

     (13     374   

Decrease in cash from discontinued operations [note 3]

     (3     (148
                  

Increase (decrease) in cash

     (16     226   

Cash, beginning of year

     443        217   
                  

Cash, end of year

     427        443   
                  

Cash includes cash and cash equivalents

See accompanying notes

 

66


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

1. CORPORATE INFORMATION

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

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

 

2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Statement of compliance

These consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These are the first annual financial statements prepared under IFRS and IFRS 1 First-time Adoption of International Financial Reporting Standards (“IFRS 1”) has been applied. An explanation of how the transition to IFRS has affected the Company’s consolidated financial statements is provided in note 31.

The consolidated financial statements of the Company for the years ended August 31, 2012 and 2011 and as at September 1, 2010, were approved by the Board of Directors and authorized for issue on November 29, 2012.

Basis of presentation

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

Basis of consolidation

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

The accounts also include the Company’s proportionate share of the assets, liabilities, revenues, and expenses of its interests in joint ventures which includes a 33.33% interest in the Burrard Landing Lot 2 Holdings Partnership and 50% interest in several specialty television channels.

 

67


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

The Company’s interest in the assets, liabilities, results of operations and cash flows of these joint ventures are as follows:

 

     

2012

$

    

2011

$

       

Current assets

     8         12      

Program rights

             1      

Property, plant and equipment

     16         16        
     24         29      

Current liabilities

     1         1      

Long-term debt

     20         21        

Proportionate share of net assets

     3         7        

 

     

2012

$

   

2011

$

      

Revenue

     31        27     

Operating, general and administrative expenses

     (14     (12  

Amortization

     (1     (1  

Interest

     (1     (1  

Other gains

     1        1       

Proportionate share of income before income taxes

     16        14       

Cash flow provided by operating activities

     14        14     

Cash flow used in financing activities

     (1     (1    

Proportionate share of cash distributions

     13        13       

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

Investments and other assets

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

Revenue and expenses

The Company has multiple deliverable arrangements comprised of upfront fees (subscriber connection and installation fee revenue and/or customer premise equipment revenue) and

 

68


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

related subscription revenue. Upfront fees charged to customers do not constitute separate units of accounting, therefore these revenue streams are assessed as an integrated package.

 

(i) Revenue

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

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

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

 

(ii) Deferred equipment revenue and deferred equipment costs

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

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

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

 

(iii) Deferred IRU revenue

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

 

69


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Cash

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

Allowance for doubtful accounts

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

Inventories

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

Property, plant and equipment

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

 

Asset    Estimated useful life      

Cable and telecommunications distribution system

           5-15 years   

Digital cable terminals and modems

     2-7 years   

Satellite audio, video and data network equipment and DTH receiving equipment

     2-10 years   

Transmitters, broadcasting and communication equipment

     5-15 years   

Buildings

     15-40 years   

Data processing

     3-4 years   

Other

     3-20 years   
          

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

Assets held for sale and discontinued operations

Assets are classified as held for sale when specific criteria are met and are measured at the lower of carrying amount and estimated fair value less costs to sell. Assets held for sale are not

 

70


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

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

Other long-term assets

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

Intangibles

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

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

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

Borrowing costs

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

 

71


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Impairment

 

(i) Goodwill and indefinite-life intangibles

The Company tests goodwill and indefinite-life intangibles for impairment annually (as at March 1) and when events or changes in circumstances indicate that the carrying value may be impaired. The recoverable amount of each cash-generating unit (“CGU”) is determined based on the higher of the CGU’s fair value less costs to sell (“FVLCS”) and its value in use (“VIU”). A CGU is the smallest identifiable group of assets that generate cash flows that are independent of the cash inflows from other assets or groups of assets. The Company’s cash generating units are consistent with its reporting segments, Cable, DTH and Satellite Services and Media. Where the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.

 

(ii) Non-financial assets with finite useful lives

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

CRTC benefit obligations

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

Provisions

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

 

(i) Asset retirement obligations

The Company recognizes the fair value of a liability for an asset retirement obligation in the period in which it is incurred, on a discounted basis, with a corresponding increase to the carrying amount of property and equipment, primarily in respect of transmitter sites. This cost

 

72


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

is amortized on the same basis as the related asset. The liability is subsequently increased for the passage of time and the accretion is recorded in the income statement as accretion of long-term liabilities and provisions. The discount rates applied are subsequently adjusted to current rates as required at the end of reporting periods. Revisions due to the estimated timing of cash flows or the amount required to settle the obligation may result in an increase or decrease in the liability. Actual costs incurred upon settlement of the obligation are charged against the liability to the extent recorded.

 

(ii) Other provisions

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

Deferred credits

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

Income taxes

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

Tax credits and government grants

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

Foreign currency translation

Transactions originating in foreign currencies are translated into Canadian dollars at the exchange rate at the date of the transaction. Monetary assets and liabilities are translated at the

 

73


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

period-end rate of exchange and non-monetary items are translated at historic exchange rates. The net foreign exchange gain recognized on the translation and settlement of current monetary assets and liabilities was $nil (2011 – $4) and is included in other gains.

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

Financial instruments other than derivatives

Financial instruments have been classified as loans and receivables, assets available-for-sale, assets held-for-trading or financial liabilities. Cash has been classified as held-for-trading and is recorded at fair value with any change in fair value immediately recognized in income (loss). Other financial assets are classified as available-for-sale or as loans and receivables. Available-for-sale assets are carried at fair value with changes in fair value recorded in other comprehensive income (loss) until realized. Loans and receivables and financial liabilities are carried at amortized cost. None of the Company’s financial assets are classified as held-to-maturity and none of its financial liabilities are classified as held-for-trading.

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

Derivative financial instruments

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

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

Derivatives embedded in other financial instruments or contracts are separated from their host contracts and separately accounted for as derivatives when their economic characteristics and risks are not closely related to the host contract, they meet the definition of a derivative and the

 

74


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

combined instrument or contract is not measured at fair value. The Company records embedded derivatives at fair value with changes recognized in the income statement as loss/gain on derivative instruments.

Fair value measurements

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.

The fair value hierarchy consists of the following three levels:

 

Level 1 Inputs are quoted prices in active markets for identical assets or liabilities.

 

Level 2 Inputs for the asset or liability are based on observable market data, either directly or indirectly, other than quoted prices.

 

Level 3 Inputs for the asset or liability that are not based on observable market data.

Employee benefits

The Company accrues its obligations and related costs under its employee benefit plans, net of plan assets. The cost of pensions and other retirement benefits earned by certain employees is actuarially determined using the projected benefit method pro-rated on service and management’s best estimate of expected plan investment performance, salary escalation and retirement ages of employees. For purposes of calculating the expected return on plan assets, those assets are valued at fair value. Past service costs from plan initiation and amendments are recognized immediately in the income statement to the extent they are vested. Unvested past service costs are amortized on a straight-line basis over the expected average remaining vesting period. Negative plan amendments which reduce costs are applied to reduce any existing unamortized past service costs. The excess, if any, is amortized over the expected average remaining vesting period. Actuarial gains or losses occur because assumptions about benefit plans relate to a long time frame and differ from actual experiences. These assumptions are revised based on actual experience of the plans such as changes in discount rates, expected return on plan assets, expected retirement ages and projected salary increases. Actuarial gains (losses) are recognized in other comprehensive income (loss) on an annual basis, at a minimum, and on an interim basis when there are significant changes in assumptions. Curtailment gains arising from amendments to the terms of a defined benefit plan such that a significant element of future service by current employees will no longer qualify for benefits, or will only qualify for reduced benefits, are recognized in the period in which they occur. When the restructuring of a benefit plan gives rise to both a curtailment and a settlement of obligations, the curtailment is accounted for prior to the settlement.

 

75


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

August 31 is the measurement date for the Company’s employee benefit plans. The last actuarial valuations for funding purposes for the various plans were performed between December 31, 2011 and January 1, 2012. The next actuarial valuations for funding purposes are effective December 31, 2012.

Share-based compensation

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

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

The Company has a deferred share unit (“DSU”) plan for its Board of Directors. Compensation cost is recognized immediately as DSUs vest when granted. DSUs will be settled in cash and the obligation is measured at the end of each period at fair value using the Black-Scholes option pricing model and the number of outstanding DSUs.

The Company has an employee share purchase plan (the “ESPP”) under which eligible employees may contribute to a maximum of 5% of their monthly base compensation. The Company contributes an amount equal to 25% of the participant’s contributions.

Earnings per share

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

Guarantees

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

Estimation uncertainty and critical judgements

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

 

76


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Actual results could differ from those estimates and significant changes in assumptions could cause an impairment in assets. The following require the most difficult, complex or subjective judgements which result from the need to make estimates about the effects of matters that are inherently uncertain.

Estimation uncertainty

The following are key assumptions concerning the future and other key sources of estimation uncertainty that could impact the carrying amount of assets and liabilities and results of operations in future periods:

 

(i) Allowance for doubtful accounts

The Company is required to make an estimate of an appropriate allowance for doubtful accounts on its receivables. The estimated allowance required is a matter of judgement and the actual loss eventually sustained may be more or less than the estimate, depending on events which have yet to occur and which cannot be foretold, such as future business, personal and economic conditions.

 

(ii) Property, plant and equipment

The Company is required to estimate the expected useful lives of its property, plant and equipment. These estimates of useful lives involve significant judgement. In determining these estimates, the Company takes into account industry trends and company-specific factors, including changing technologies and expectations for the in-service period of these assets. Management’s judgement is also required in determination of the amortization method, the residual value of assets and the capitalization of labour and overhead.

 

(iii) Business combinations – purchase price allocation

Purchase price allocations involve uncertainty because management is required to make assumptions and judgements to estimate the fair value of the identifiable assets acquired and liabilities assumed in business combinations. Fair value estimates are based on quoted market prices and widely accepted valuation techniques, including discounted cash flow (“DCF”) analysis. Such estimates include assumptions about inputs to the valuation techniques, industry economic factors and business strategies.

 

(iv) Impairment

The Company estimates the recoverable amount of its CGUs using a FVLCS calculation based on a DCF analysis. Significant judgements are inherent in this analysis including estimating the amount and timing of the cash flows attributable to the broadcast rights and licenses and the AWS licenses, the selection of an appropriate discount rate, and the identification of appropriate terminal growth rate assumptions. In this analysis the Company estimates the discrete future cash flows associated with the intangible asset for five years and determines a terminal value. The future cash flows are based on the Company’s estimates of future operating results, economic conditions and the competitive environment. The terminal value is estimated using both a perpetuity growth assumption and a multiple of operating income before

 

77


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

amortization. The discount rates used in the analysis are based on the Company’s weighted average cost of capital and an assessment of the risk inherent in the projected cash flows. In analyzing the FVLCS determined by the DCF analysis the Company also considers a market approach determining a recoverable amount for each unit and total entity value determined using a market capitalization approach. Recent market transactions are taken into account, when available. The key assumptions used to determine the recoverable amounts, including a sensitivity analysis, are included in note 10.

 

(v) Employee benefit plans

The amounts reported in the financial statements relating to the defined benefit pension plans are determined using actuarial valuations that are based on several assumptions including the discount rate, rate of compensation increase and the expected return on plan assets (for funded plans). While the Company believes these assumptions are reasonable, differences in actual results or changes in assumptions could affect employee benefit obligations and the related income statement impact. The most significant assumption used to calculate the net employee benefit plan expense is the discount rate. The discount rate is the interest rate used to determine the present value of the future cash flows that is expected will be needed to settle employee benefit obligations. It is based on the yield of long-term, high-quality corporate fixed income investments closely matching the term of the estimated future cash flows and is determined at the end of every year.

 

(vi) Income taxes

The Company is required to estimate income taxes using substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse. In determining the measurement of tax uncertainties, the Company applies a probable weighted average methodology. Realization of deferred income tax assets is dependent on generating sufficient taxable income during the period in which the temporary differences are deductible. Although realization is not assured, management believes it is more likely than not that all recognized deferred income tax assets will be realized based on reversals of deferred income tax liabilities, projected operating results and tax planning strategies available to the Company and its subsidiaries.

 

(vii) Contingencies

The Company is subject to various claims and contingencies related to lawsuits, taxes and commitments under contractual and other commercial obligations. Contingent losses are recognized by a charge to income when it is likely that a future event will confirm that an asset has been impaired or a liability incurred at the date of the financial statements and the amount can be reasonably estimated. Significant changes in assumptions as to the likelihood and estimates of the amount of a loss could result in recognition of additional liabilities.

Critical judgements

The following are critical judgements apart from those involving estimation:

 

(i) Determination of a CGU

Management’s judgement is required in determining the Company’s cash generating units for the impairment assessment of its indefinite-life intangible assets. The CGUs have been determined considering operating activities and asset management and are consistent with the Company’s reporting segments, Cable, DTH and Satellite Services and Media.

 

78


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

(ii) Broadcast rights and licenses and spectrum licenses – indefinite-life assessment

The Company’s businesses are dependent upon broadcast licenses (or operate pursuant to an exemption order) granted and issued by the CRTC. In addition, the Company holds AWS licenses to operate a wireless system in Canada. While these licenses must be renewed from time to time, the Company has never failed to do so. In addition, there are currently no legal, regulatory or competitive factors that limit the useful lives of these assets.

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

The Company has not yet adopted certain standards, interpretations and amendments that have been issued but are not yet effective. The following pronouncements are being assessed to determine their impact on the Company’s results and financial position.

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

 

·  

The following standards and amended standards are required to be applied retrospectively for the annual period commencing September 1, 2013 and other than the disclosure requirements therein, they must be applied concurrently:

 

  ·  

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

 

  ·  

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

 

  ·  

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

 

  ·  

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

 

  ·  

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

 

·  

IFRS 13, Fair Value Measurement, defines fair value, provides guidance on its determination and introduces consistent requirements for disclosure of fair value measurements and is required to be applied prospectively for the annual period commencing September 1, 2013.

 

·  

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

 

·  

IAS 19, Employee Benefits (amended 2011), eliminates the existing option to defer actuarial gains and losses and requires changes from the remeasurement of defined

 

79


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

 

benefit plan assets and liabilities to be presented in the statement of other comprehensive income and is required to be applied retrospectively (with certain exemptions) for the annual period commencing September 1, 2013.

 

·  

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

 

3. BUSINESS ACQUISITIONS AND DISCONTINUED OPERATIONS

Business acquisitions

2012

Television broadcasting businesses

 

          $      

Cash

     21   

Consideration for the equity interests held prior to the acquisition

     9   
          
     30   

Cumulative income from equity interests prior to acquisition

     4   

Gain on remeasurement of interests in equity investments

     6   
          
     40   
          

On May 31, 2012, the Company closed the acquisition of the partnership units of Mystery Partnership (“Mystery”) and Men TV General Partnership (“The Cave”) not already owned by the Company, for total consideration of $21. Prior to the acquisition, the Company held a 50% interest in Mystery which was proportionately consolidated and a 49% interest in The Cave which was accounted for under the equity method. The fair value of the previous ownership interests in these specialty channels on the acquisition date was $19. The transaction is accounted for using the acquisition method and as a result of remeasuring these equity interests to fair value, the Company recorded a gain of $6 in the income statement. If the acquisition had occurred on September 1, 2011, revenue and net income for the year would have been approximately $12 and $2, respectively.

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

 

80


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

A summary of net assets acquired and allocation of consideration is as follows:

 

          $      

Net assets acquired at assigned fair values

  

Cash

     6   

Accounts receivable

     4   

Other current assets(1)

     4   

Intangibles(2) [note 10]

     28   

Goodwill, not deductible for tax(3) [note 10]

     3   
          
     45   

Current liabilities

     3   

Deferred income taxes

     2   
          
     40   
          

 

(1) Other current assets is comprised of program rights.

 

(2) Intangibles include broadcast licenses and program rights.

 

(3) Goodwill comprises the value of expected efficiencies and synergies from integrating the operations with the Company’s other wholly-owned specialty channels.

2011

 

(i) Television broadcasting businesses

 

      Cash(1)
$
    

Cumulative
equity
income

$

    

    Total    

$

 

Television broadcasting businesses

     1,208         2         1,210   
                            

 

(1) The cash consideration includes $708 paid in 2010 for the Company’s initial equity investment in CW Investments Co. (“CW Media”) and an option to acquire an additional equity interest. The acquisition-date fair value of the Company’s initial equity investment approximated $549 compared to its carrying value of $558 under the equity method of accounting which resulted in an amount of approximately $9 related to transaction costs which are included in business acquisition, integration and restructuring expenses in the income statement.

On May 3, 2010 the Company announced that it had entered into agreements to acquire 100% of the broadcasting businesses of Canwest Global Communications Corp. (“Canwest”). The acquisition includes all of the over-the-air channels, which were in creditor protection, and the specialty television business of Canwest, including Canwest’s equity interest in CW Media, the company that owns the portfolio of specialty channels acquired from Alliance Atlantis Communications Inc. in 2007. During 2010, the Company completed certain portions of the acquisition including acquiring a 49.9% equity interest, a 29.9% voting interest, and an option to acquire an additional 14.8% equity interest and 3.4% voting interest in CW Media. On October 22, 2010, the CRTC approved the transaction and the Company closed the purchase on October 27, 2010. Certain of the subsidiary specialty channels continue to have non-controlling interests. The purpose of the acquisition is to

 

81


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

combine programming content with the Company’s cable and satellite distribution network to create a vertically integrated entertainment and communications company.

The transaction has been accounted for using the acquisition method and results of operations have been included commencing October 27, 2010. These broadcasting businesses have contributed $891 of revenue and $252 of operating income before amortization for the period from October 27 to August 31, 2011. If the acquisition had closed on September 1, 2010, the Media revenue and operating income before amortization for the year would have been approximately $1,075 and $325, respectively. Net income is not determinable due to emergence of certain portions of the business from bankruptcy protection.

In 2011, acquisition related costs of $61 were expensed and include amounts incurred to effect the transaction, such as professional fees paid to lawyers and consultants, as well as restructuring costs to integrate the new businesses and increase organizational effectiveness for future growth as well as senior leadership reorganization.

As part of the CRTC decision approving the transaction, the Company is required to contribute approximately $180 in new benefits to the Canadian broadcasting system over the next seven years. Most of this contribution will be used to create new programming on Canwest services, construct digital transmission towers and provide a satellite solution for over-the-air viewers whose local television stations do not convert to digital. The obligation has been recorded in the income statement at fair value, being the sum of the discounted future net cash flows using a 5.75% discount rate. In addition, the Company assumed the CRTC benefit obligation from Canwest’s acquisition of Specialty services in 2007 which was a remaining commitment of approximately $95 on acquisition.

A summary of net assets acquired and allocation of consideration is as follows:

 

              $          

Net assets acquired at assigned fair values

  

Cash

     83   

Receivables

     297   

Other current assets(1)

     147   

Deferred income tax assets

     27   

Derivative instrument

     16   

Investments and other assets

     16   

Property and equipment

     141   

Intangibles(2)

     1,651   

Goodwill, not deductible for tax(3)

     538   
          
     2,916   

Current liabilities(1)

     307   

Current debt(4)

     399   

Derivative instruments(4)

     82   

Non-current liabilities

     105   

Deferred income tax liabilities

     124   

Long-term debt(5)

     412   

Non-controlling interests(6)

     277   
          
     1,210   
          

 

82


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

(1) The Company acquired a remaining tax indemnity amount of $21 as part of the acquisition. The indemnity arose in 2007 as part of Canwest’s acquisition of Specialty services where a wholly-owned subsidiary of CW Media entered into an agreement pursuant to which certain of the parties agreed to indemnify the company in respect of certain tax liabilities. A corresponding income tax liability was also assumed which according to the terms of the agreement, will be recovered from other parties to the agreement if and when the liabilities are settled.

 

(2) Intangibles include broadcast licenses, brands, program rights, a trademark and software assets.

 

(3) Goodwill comprises the value of expected efficiencies from combining programming content and distribution businesses into vertically integrated operations, growth expectations and an assembled workforce.

 

(4) Current debt was comprised of a US $390 term loan. Shortly after closing the acquisition, the Company repaid the term loan including breakage of the related currency swaps.

 

(5) Long-term debt is comprised of US $338 13.5% senior unsecured notes due 2015. The notes were subsequently redeemed (see note 13).

 

(6) Non-controlling interests in certain of the subsidiary specialty channels were assumed as part of the acquisition and are recorded at their proportionate share of the fair value of identifiable net assets acquired.

 

(ii) Cable systems

A summary of net assets acquired and allocation of the consideration is as follows:

 

         2011      
      $  

Net assets acquired at assigned fair values

  

Property, plant and equipment

     9   

Broadcast rights [note 10]

     24   

Goodwill, not deductible for tax [note 10]

     5   
          
     38   

Other liability

     2   
          

Cash purchase price

     36   
          

During 2011, the Company purchased the assets of several cable systems serving approximately 7,300 basic subscribers in the interior of British Columbia. These assets were purchased as they compliment the Company’s existing surrounding cable systems. Goodwill comprises the value of expected synergies and future growth opportunities. The transaction has been accounted for using the acquisition method and results of operations have been included from their respective acquisition dates. These assets contributed approximately $2 of revenue and $1 of operating income before amortization in 2011.

Discontinued operations

During late 2011, the Company completed a strategic review of its wireless business opportunity including the potential value of wireless with its other operating segments, the rapid

 

83


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

evolution of wireless technologies, the capital required to build a competitive network and recent changes in the wireless competitive environment. As a result, the Company decided to discontinue any further construction of its traditional wireless network. Accordingly, the assets were measured at the lower of carrying amount and estimated fair value less costs to sell resulting in a write-down of $112 and classification of $16 as assets held for sale. The Company has determined the carrying value of the wireless spectrum licenses continues to be appropriate and intends to hold these assets while it reviews all options.

The results of operations and related cash flows have been reported as discontinued operations. The loss from discontinued operations in 2012 and 2011 is comprised of the following:

 

      2012
$
         2011    
$
 

Operating expenditures

             7   

Amortization

             1   

Write-down of assets

             112   

Income tax recovery

             (31
                   

Loss from discontinued operations

             89   
                   

The cash flows used in discontinued operations in 2012 and 2011 is comprised of the following:

 

      2012
$
         2011    
$
 

Cash used in operating activities

             11   

Cash used in investing activities

     3         137   
                   

Decrease in cash from discontinued operations

     3         148   
                   

 

4. ACCOUNTS RECEIVABLE

 

          2012    
$
         2011    
$
   

    September 1,    
2010

$

 

Subscriber and trade receivables

     436         425        210   

Due from related parties [note 27]

     1         1        1   

Miscellaneous receivables

     24         46        4   
                           
     461         472        215   

Less allowance for doubtful accounts

     (28      (29     (19
                           
     433         443        196   
                           

Included in operating, general and administrative expenses is a provision for doubtful accounts of $30 (2011 – $34).

 

84


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

5. INVENTORIES

 

     2012        2011          September 1,    
2010
 
      $        $      $  

Subscriber equipment

     98           91         51   

Other

     4           6         3   
                              
     102           97         54   
                              

Subscriber equipment includes DTH equipment, DCTs and related customer premise equipment.

 

6. OTHER CURRENT ASSETS

 

     2012        2011          September 1,    
2010
 
      $        $      $  

Program rights

     21           14           

Tax indemnity

     17           21           

Prepaid expenses and other

     51           47         34   
                              
     89           82         34   
                              

 

7. INVESTMENTS AND OTHER ASSETS

 

     2012        2011     

    September 1,    

2010

 
      $        $      $  

Investments, at equity:

          

CW Media

                       739   

Specialty channel networks

     10           10           

Other assets:

          

Loan

                       4   

Loan to equity associate

     2           2           

Other

     1           1           
                              
     13           13         743   
                              

Investments at equity

The Company exercised significant influence over CW Media with its 49.9% ownership and recorded equity income of $13 for the period of September 1 to October 26, 2010. On October 22, 2010, the CRTC approved the transaction and the Company closed the purchase on October 27, 2010 (see note 3).

During 2012, the Company recorded equity income of $nil in respect of its non-controlling interests in several specialty channels which were acquired as part of the Media acquisition (2011 – $1).

 

85


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

The Company’s interest in the assets, liabilities and results of operations of investments in associates accounted for using the equity method are summarized as follows:

 

     

2012

$

    

    2011    

$

 

Current assets

     2         3   

Non-current assets

     13         11   
     15         14   

Current liabilities

     3         2   

Non-current liabilities

     2         2   
                   

Proportionate interest in net assets

     10         10   
                   

 

     

2012

$

   

    2011    

$

 

Revenue

     5        44   

Expenses

     (5     (30
                  

Proportionate share of net income

            14   
                  

Other assets

The loan to an equity associate bears interest at prime plus 2.5% and is repayable on demand. The Company has agreed to not demand repayment unless certain conditions and events occur.

 

86


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

8. PROPERTY, PLANT AND EQUIPMENT

 

    Cable and
telecommunications
distribution system
    Digital
cable
terminals
and
modems
    Satellite
audio,
video and
data
network
and DTH
receiving
equipment
    Transmitters,
broadcasting,
communications
and production
equipment
    Land
and
buildings
    Data
processing
and other
    Assets
under
construction
        Total      
     $     $     $     $     $     $     $     $  

Cost

               

September 1, 2010

    4,198        552        154               406        311        124        5,745   

Additions

    387        174        9        15        12        55        113        765   

Business acquisitions

    8                      63        53        26               150   

Transfers

                                5        21        (26       

Assets held for resale

                                              (16     (16

Discontinued operations

                                              (77     (77

Retirement and disposals

    (244     (78     (2     (2     (12     (59     (7     (404
                                                                 

August 31, 2011

    4,349        648        161        76        464        354        111        6,163   

Additions

    441        167        3        13        11        38        42        715   

Transfers

    21                             2        19        (42       

Write-down

                                (23     (8            (31

Retirement and disposals

    (414     (96     (79     (1     (6     (38     (4     (638
                                                                 

August 31, 2012

    4,397        719        85        88        448        365        107        6,209   
                                                                 

Accumulated amortization

               

September 1, 2010

    2,129        224        115               121        151               2,740   

Amortization

    358        152        16        12        20        46               604   

Retirement and disposals

    (243     (78     (2     (1     (3     (54            (381
                                                                 

August 31, 2011

    2,244        298        129        11        138        143               2,963   

Amortization

    380        165        11        14        21        52               643   

Write-down

                                (7     (4            (11

Retirement and disposals

    (414     (96     (79     (1     (6     (32            (628
                                                                 

August 31, 2012

    2,210        367        61        24        146        159               2,967   
                                                                 

Net carrying amount

               

September 1, 2010

    2,069        328        39               285        160        124        3,005   

August 31, 2011

    2,105        350        32        65        326        211        111        3,200   

August 31, 2012

    2,187        352        24        64        302        206        107        3,242   
                                                                 

In 2012, the Company recognized a gain (loss) of ($1) (2011 – $4) on the disposal of property, plant and equipment.

 

87


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

9. OTHER LONG-TERM ASSETS

 

     2012        2011          September 1,    
2010
 
      $        $      $  

Equipment costs subject to a deferred revenue arrangement

     278           216         202   

Customer equipment financing receivables

     17           9           

Credit facility arrangement fees

     3           1         2   

Other

     33           32         29   
                              
     331           258         233   
                              

Amortization provided in the accounts for 2012 amounted to $232 (2011 – $206) and was recorded as amortization of deferred equipment costs and other amortization.

 

10. INTANGIBLES AND GOODWILL

 

     Carrying amount  
     2012        2011          September 1,    
2010
 
      $        $      $  

Broadcast rights and licenses

          

Cable systems

     4,260           4,260         4,236   

DTH and satellite services

     1,013           1,013         1,013   

Television broadcasting

     1,402           1,382           
                              
     6,675           6,655         5,249   

Program rights and advances

     253           217           

Goodwill

          

Non-regulated satellite services

     88           88         88   

Cable systems

     86           86         81   

Television broadcasting

     541           538           
                              
     715           712         169   

Wireless spectrum licenses

     191           191         191   

Other intangibles

          

Software

     195           188         156   

Trademark and brands

     41           41           
                              
     236           229         156   
                              

Net book value

     8,070           8,004         5,765   
                              

Broadcast rights and licenses, trademark, brands and wireless spectrum licenses have been assessed as having indefinite useful lives. While licenses must be renewed from time to time, the Company has never failed to do so. In addition, there are currently no legal, regulatory, competitive or other factors that limit the useful lives of these assets.

 

88


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

The changes in the carrying amount of intangibles with indefinite useful lives, and therefore not subject to amortization, are as follows:

 

    

Broadcast

rights and
licenses

     Trademark and
brands
     Goodwill     

Wireless
spectrum

licenses

 
      $      $      $      $  

September 1, 2010

     5,249                 169         191   

Business acquisitions [note 3]

     1,406         41         543           
                                     

August 31, 2011

     6,655         41         712         191   

Business acquisitions [note 3]

     20                 3           
                                     

August 31, 2012

     6,675         41         715         191   
                                     

Intangibles subject to amortization are as follows:

 

    Program rights
and advances
    Software     Software under
construction
    Total  
     $     $     $     $  

Cost

       

September 1, 2010

           171        72        243   

Business acquisitions [note 3]

    332        19               351   

Additions

    260        37        54        351   

Transfers

           18        (18       

Discontinued operations

           (4     (29     (33

Retirement and disposals

           (14            (14
                                 

August 31, 2011

    592        227        79        898   

Business acquisitions [note 3]

    1                      1   

Additions

    427        52        16        495   

Transfers

           19        (19       

Retirement and disposals

    (215     (22            (237
                                 

August 31, 2012

    805        276        76        1,157   
                                 

Accumulated amortization

       

September 1, 2010

           87               87   

Amortization

    361        46               407   

Discontinued operations

           (1            (1

Retirement and disposals

           (14            (14
                                 

August 31, 2011

    361        118               479   

Amortization

    385        60               445   

Retirement and disposals

    (215     (21            (236
                                 

August 31, 2012

    531        157               688   
                                 

Net carrying amount

       

September 1, 2010

           84        72        156   
                                 

August 31, 2011

    231        109        79        419   

Less current portion of program rights

    14                      14   
                                 
    217        109        79        405   
                                 

August 31, 2012

    274        119        76        469   

Less current portion of program rights

    21                      21   
                                 
    253        119        76        448   
                                 

 

89


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Impairment testing of indefinite-life intangibles and goodwill

The Company conducted its annual impairment test on goodwill and indefinite-life intangibles as at March 1, 2012 and the recoverable amount of each of the cash generating units exceeded their carrying value by a significant amount.

The Company also conducted an impairment test on its wireless spectrum assets utilizing the Greenfield Approach as at March 1, 2012. The recoverable amount of the assets exceeded their carrying amount. During August 2011 the Company discontinued construction of a traditional wireless network and considered if this would result in an impairment to the spectrum carrying value. The Company concluded that the carrying value of the AWS licenses continues to be appropriate and intends to hold these assets while it reviews all options. A hypothetical decline of 10% and 20% in the fair value of the wireless spectrum as at March 1, 2012 would not result in any impairment loss.

A hypothetical decline of 10% and 15% in the recoverable amount of the broadcast rights and licenses for each cash generating unit as at March 1, 2012 would not result in any impairment loss. Further, any changes in economic conditions since the impairment testing conducted as at March 1, 2012 do not represent events or changes in circumstance that would be indicative of impairment at August 31, 2012.

Significant estimates inherent to this analysis include discount rates and the terminal value. At March 1, 2012, the estimates that have been utilized in the impairment tests reflect any changes in market conditions and are as follows:

 

           Terminal value        
     

Pre-tax

discount rate

    Terminal growth rate     Terminal operating
income before
amortization
multiple
       

Cable systems

     11.5     1.50     5.50x      

DTH and satellite services

     13.6     1.00     4.50x      

Media

     12.3     n/a        6.50x      

Wireless

     15.7     n/a        5.25x      
                               

A sensitivity analysis of significant estimates is conducted as part of every impairment test. With respect to the impairment tests performed in the third quarter, the estimated decline in recoverable amount for the sensitivity of significant estimates is as follows:

 

     Estimated decline in recoverable amount       
           Terminal value       
     

1% increase in

discount rate

    1% decrease in
terminal growth rate
   

0.5 times decrease in

terminal operating
income before
amortization

multiple

      

Cable systems

     6     3     3  

DTH and satellite services

     6     2     3  

Media

     4     n/a        4  

Wireless

     30     n/a        37  
                              

 

90


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

     2012        2011     

    September 1,    

2010

 
      $        $      $  

Trade

     50           99         113   

Program rights

     72           78         12   

CRTC benefit obligations

     43           53           

Accrued liabilities

     289           296         266   

Accrued network fees

     105           102         91   

Interest and dividends

     219           214         181   

Related parties [note 27]

     24           27         36   

Current portion of unfunded pension plan liability [note 26]

     9           9         1   
                              
     811           878         700   
                              

During 2011, the Company recorded $30 in respect of its restructuring activities to streamline operations, drive efficiencies and enhance competiveness. The restructuring included elimination of approximately 550 employee positions, management relocations and facilities consolidation. A total of $28 was paid in 2011 and of the majority of remaining $2 was paid in 2012.

 

12. PROVISIONS

 

     Asset
retirement
obligations
     Other         Total      
      $      $     $  

September 1, 2010

             19        19   

Media business acquisition [note 3]

     7         8        15   

Additions

             9        9   

Accretion

     1                1   

Reversal

             (7     (7

Payments

             (11     (11
                           

August 31, 2011

     8         18        26   

Additions

             6        6   

Reversal

             (1     (1

Payments

             (4     (4
                           

August 31, 2012

     8         19        27   
                           

Current

             19        19   

Long-term

                      
                           

September 1, 2010

             19        19   
                           

Current

             18        18   

Long-term

     8                8   
                           

August 31, 2011

     8         18        26   
                           

Current

             19        19   

Long-term

     8                8   
                           

August 31, 2012

     8         19        27   
                           

 

91


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

13. LONG-TERM DEBT

 

          2012     2011     September 1,
2010
 
   

Effective

interest

rates

    Long-term
debt at
amortized
cost(1)
   

Adjustment

for

finance

costs(1)

    Long-term
debt
repayable at
maturity
    Long-term
debt at
amortized
cost(1)
   

Adjustment
for

finance
costs(1)

   

Long-term

debt
repayable
at maturity

   

Long-term

debt at

amortized

cost(1)

 
     %     $     $     $     $     $     $     $  

Corporate

               

Cdn senior notes-

               

6.10% due November 16, 2012(2)

    6.11        450               450        449        1        450        448   

7.50% due November 20, 2013

    7.50        349        1        350        348        2        350        347   

6.50% due June 2, 2014

    6.56        598        2        600        596        4        600        595   

6.15% due May 9, 2016

    6.34        295        5        300        294        6        300        293   

5.70% due March 2, 2017

    5.72        397        3        400        397        3        400        396   

5.65% due October 1, 2019

    5.69        1,242        8        1,250        1,241        9        1,250        1,241   

5.50% due December 7, 2020

    5.55        496        4        500        495        5        500          

6.75% due November 9, 2039

    6.89        1,416        34        1,450        1,416        34        1,450        642   
                                                                 
      5,243        57        5,300        5,236        64        5,300        3,962   
                                                                 

Other

               

Burrard Landing Lot 2 Holdings Partnership

    6.31        20               20        21               21        21   
                                                                 

Total consolidated debt

      5,263        57        5,320        5,257        64        5,321        3,983   

Less current portion(2)

      451               451        1               1        1   
                                                                 
      4,812        57        4,869        5,256        64        5,320        3,982   
                                                                 

 

(1) Long-term debt is presented net of unamortized discounts, finance costs and bond forward proceeds of $57 (August 31, 2011 – $64; September 1, 2010 – $38).

 

(2) Current portion of long-term debt includes the 6.10% senior notes which were repaid on November 16, 2012 and the amount due within one year on the Partnership’s mortgage bonds.

Corporate

Bank loans

During the current year, a syndicate of banks provided the Company with an unsecured $1 billion credit facility which includes a maximum revolving term facility of $50 and matures in January 2017. The credit facility has a feature whereby the Company may request an additional $500 of borrowing capacity so long as no event of default or pending event of default has occurred and is continuing or would occur as a result of the increased borrowings. No lender has any obligation to participate in the requested increase unless it agrees to do so at its sole discretion. This facility replaces the prior credit and operating loan facilities which were scheduled to mature in May 2012. Funds are available to the Company in both Canadian and US dollars. At August 31, 2012, $1 has been drawn as committed letters of credit against the revolving term facility. Interest rates fluctuate with Canadian prime and bankers’ acceptance rates, US bank base rates and LIBOR rates. The effective interest rate on the operating and revolving term facilities for 2012 was 3% (2011 – 2.99%). The effective interest rate on actual borrowings under the prior credit facility during 2011 was 2.59%. Excluding the revolving term facility, no amounts were borrowed under either the new or prior credit facilities during 2012.

 

92


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Senior notes

The senior notes are unsecured obligations and rank equally and ratably with all existing and future senior indebtedness. The notes are redeemable at the Company’s option at any time, in whole or in part, prior to maturity at 100% of the principal amount plus a make-whole premium.

Other

Burrard Landing Lot 2 Holdings Partnership

The Company has a 33.33% interest in the Partnership which built the Shaw Tower project with office/retail space and living/working space in Vancouver, BC. In the fall of 2004, the commercial construction of the building was completed and at that time, the Partnership issued ten year secured mortgage bonds in respect of the commercial component of the Shaw Tower. The bonds bear interest at 6.31% compounded semi-annually and are collateralized by the property and the commercial rental income from the building with no recourse to the Company.

Gain on redemption of debt

In 2011, the Company assumed US $338 senior unsecured notes on acquisition of the Canwest broadcasting business. The US $312 13.5% senior unsecured notes were originally issued on July 3, 2008. For periods up to August 15, 2011, interest was accrued, however was not payable until maturity unless CW Media elected to do so. As at acquisition date, US $26 of accrued interest remained outstanding and was included in the principal debt balance with respect to the period July 3, 2008 to February 15, 2009. Interest for all periods subsequent to February 15, 2009 was paid in cash.

Within 30 days of closing the transaction, a subsidiary of CW Media was required to make a change of control offer at a cash price equal to 101% of the obligations under the US $338 senior unsecured notes in accordance with a related indenture. As a result, on November 15, 2010, an offer was made to purchase all of the notes. An aggregate of US $52 face amount was tendered under the offer and purchased by the Company for cancellation for an aggregate price of US $59 including accrued interest and repurchase premium. In August, 2011, the Company redeemed the remaining outstanding US $260 face amount at 106.75% as set out under the terms of the indenture for an aggregate purchase price of US $320 including accrued interest and prepayment premium.

The Company recorded a gain of $33 in respect of the redemption which resulted from recognizing the remaining unamortized acquisition date fair value adjustment of $57 partially offset by the 1% repurchase and 6.75% redemption premiums totaling $19 and $5 in respect of the write-off of the embedded derivative instrument associated with the early prepayment option.

Debt covenants

The Company and its subsidiaries have undertaken to maintain certain covenants in respect of the credit agreements and trust indentures described above. The Company and its subsidiaries were in compliance with these covenants at August 31, 2012.

 

93


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Long-term debt repayments

Mandatory principal repayments on all long-term debt in each of the next five years and thereafter are as follows:

 

      $  

2013

     451       

2014

     951       

2015

     18       

2016

     300       

2017

     400       

Thereafter

     3,200       
          
     5,320       
          

Interest expense

 

     2012         2011      
      $     $  

Interest expense – long-term debt

     334        341   

Amortization of senior notes discounts

     2        2   

Amortization of fair value adjustment to debt assumed in the Media business acquisition

            (8

Interest income – short-term (net)

     (3     (3

Capitalized interest

     (3       
                  
     330        332   
                  

 

14. OTHER LONG-TERM LIABILITIES

 

     2012        2011     

    September 1,    

2010

 
      $        $      $  

Pension liabilities [note 26]

     401           334         270   

Amended cross-currency interest rate agreements [note 28]

                       159   

CRTC benefit obligations

     125           147           

Post retirement liabilities [note 26]

     19           16           

Program rights liabilities

     4           7           

Other

     3           3           
                              
     552           507         429   
                              

 

94


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

15. DEFERRED CREDITS

 

     2012        2011          September 1,    
2010
 
      $        $      $  

IRU prepayments

     485           497         510   

Equipment revenue

     137           120         112   

Connection fee and installation revenue

     10           10         7   

Deposit on future fibre sale

     2           2         2   

Other

     1           1         1   
                              
     635           630         632   
                              

Amortization of deferred credits for 2012 amounted to $136 (2011 – $126) and was recorded in the accounts as described below.

IRU agreements are in place for periods ranging from 21 to 60 years and are being amortized to income over the agreement periods. Amortization in respect of the IRU agreements for 2012 amounted to $12 (2011 – $13) and was recorded as other amortization. Amortization of equipment revenue for 2012 amounted to $115 (2011 – $107). Amortization of connection fee and installation revenue for 2012 amounted to $9 (2011 – $7) and was recorded as revenue.

 

16. SHARE CAPITAL

Authorized

The Company is authorized to issue a limited number of Class A voting participating shares (“Class A Shares”) of no par value, as described below, and an unlimited number of Class B non-voting participating shares (“Class B Non-Voting Shares”) of no par value, Class 1 preferred shares, Class 2 preferred shares, Class A preferred shares and Class B preferred shares.

The authorized number of Class A Shares is limited, subject to certain exceptions, to the lesser of that number of shares (i) currently issued and outstanding and (ii) that may be outstanding after any conversion of Class A Shares into Class B Non-Voting Shares.

 

2012      2011            2012            2011            
Number of securities         $        $     
  22,520,064         22,520,064       Class A Shares      2           2      
  421,188,697         415,216,348       Class B Non-Voting Shares      2,455           2,338      
  12,000,000         12,000,000       Series A Preferred Shares      293           293      
                                            
  455,708,761         449,736,412            2,750           2,633      
                                            

Class A Shares and Class B Non-Voting Shares

Class A Shares are convertible at any time into an equivalent number of Class B Non-Voting Shares. In the event that a take-over bid is made for Class A Shares, in certain circumstances, the Class B Non-Voting Shares are convertible into an equivalent number of Class A Shares.

 

95


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Changes in Class A Share capital and Class B Non-Voting Share capital in 2012 and 2011 are as follows:

 

     Class A Shares           Class B Non-Voting Shares        
      Number      $            Number      $        

September 1, 2010

     22,520,064         2            410,622,001         2,248      

Stock option exercises

                        2,690,118         51      

Dividend reinvestment plan

                        1,904,229         39      
                                               

August 31, 2011

     22,520,064         2            415,216,348         2,338      

Stock option exercises

                        969,803         19      

Dividend reinvestment plan

                        5,002,546         98      
                                               

August 31, 2012

     22,520,064         2            421,188,697         2,455      
                                               

Series A Preferred Shares

The Cumulative Redeemable Rate Reset Preferred Shares, Series A (“Series A Preferred Shares”) are classified as equity since redemption, at $25.00 per Series A Preferred Share, is at the Company’s option and payment of dividends is at the Company’s discretion.

Share transfer restriction

The Articles of the Company empower the directors to refuse to issue or transfer any share of the Company that would jeopardize or adversely affect the right of Shaw Communications Inc. or any subsidiary to obtain, maintain, amend or renew a license to operate a broadcasting undertaking pursuant to the Broadcasting Act (Canada).

 

17. SHARE-BASED COMPENSATION

Stock option plan

Under a stock option plan, directors, officers, employees and consultants of the Company are eligible to receive stock options to acquire Class B Non-Voting Shares with terms not to exceed ten years from the date of grant. Options granted up to August 31, 2012 vest evenly on the anniversary dates from the original grant date at either 25% per year over four years or 20% per year over five years. The options must be issued at not less than the fair market value of the Class B Non-Voting Shares at the date of grant. The maximum number of Class B Non-Voting Shares issuable under the plan may not exceed 52,000,000. As at August 31, 2012, 17,764,506 Class B Non-Voting Shares have been issued under the plan.

 

96


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

The changes in options are as follows:

 

      2012      2011
      Number    

Weighted
average
exercise
price

$

     Number    

Weighted
average
exercise
price

$

      

Outstanding, beginning of year

     21,970,400        20.91         23,993,150        20.48     

Granted

     1,229,000        21.05         3,269,000        20.91     

Forfeited

     (1,066,925     20.96         (2,601,632     20.88     

Exercised(1)

     (969,803     17.09         (2,690,118     17.08     
                                       

Outstanding, end of year

     21,162,672        21.09         21,970,400        20.91     
                                       

 

(1) The weighted average Class B Non-Voting Share price for the options exercised was $20.67.

The following table summarizes information about the options outstanding at August 31, 2012:

 

      Options outstanding      Options exerciseable
Range of prices    Number
outstanding
     Weighted
average
remaining
contractual
life
     Weighted
average
exercise
price
     Number
exercisable
    

Weighted
average
exercise

price

      

$14.85 – $22.27

     13,720,672         6.50       $ 19.29         8,304,972       $ 18.82     

$22.28 – $26.20

     7,442,000         5.17       $ 24.42         7,139,250       $ 24.51     
                                                  

The weighted average estimated fair value at the date of the grant for common share options granted for the year ended August 31, 2012 was $2.72 (2011 – $3.13) per option. The fair value of each option granted was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

 

      2012      2011       

Dividend yield

     4.48%         4.32%     

Risk-free interest rate

     1.42%         2.19%     

Expected life of options

     5 years         5 years     

Expected volatility factor of the future expected market price of Class B Non-Voting Shares

     24.7%         25.8%     
                       

Restricted share unit plan

During 2011, the Company implemented an RSU plan whereby RSUs are granted to eligible employees and officers of the Company. An RSU is a right that tracks the value of one Class B Non-Voting Share and permits the holder to receive a cash payment equal to the market value once RSUs are vested. Market value is determined by the average of the closing prices of the Class B Non-Voting Shares on the Toronto Stock Exchange for the five trading days preceding the applicable payment date as determined by the Company. When cash dividends are paid on Class B Non-Voting Shares, holders are credited with RSUs equal to the dividend. RSUs do not have voting rights as there are no shares underlying the plan.

 

97


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

During 2012, $2 was recorded as compensation expense (2011 – $1) and at August 31, 2012, the carrying value of the liability was $3 (2011 – $1).

Deferred share unit plan

The Company has a DSU plan for its Board of Directors whereby directors can elect to receive their annual cash compensation, or a portion thereof, in DSUs. In addition, the Company may adjust and/or supplement directors’ compensation with periodic grants of DSUs. A DSU is a right that tracks the value of one Class B Non-Voting Share. Holders will be entitled to a cash payout when they cease to be a director. The cash payout will be based on market value of a Class B Non-Voting Share at the time of payout. When cash dividends are paid on Class B Non-Voting Shares, holders are credited with DSUs equal to the dividend. DSUs do not have voting rights as there are no shares underlying the plan.

During 2012, $1 was recognized as compensation expense (2011 – $1). The carrying value and intrinsic value of DSUs at August 31, 2012 was $6 and $5, respectively (August 31, 2011 – $5 and $4, respectively).

Employee share purchase plan

The Company’s ESPP provides employees with an incentive to increase the profitability of the Company and a means to participate in that increased profitability. Generally, all non-unionized full time or part time employees of the Company are eligible to enroll in the ESPP. Under the ESPP, eligible employees may contribute to a maximum of 5% of their monthly base compensation. The Company contributes an amount equal to 25% of the employee’s contributions.

During the 2012, $5 was recorded as compensation expense (2011 – $4).

 

98


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

18. EARNINGS PER SHARE

Earnings per share calculations are as follows:

 

      2012     2011       

Numerator for basic and diluted earnings per share ($)

      

Net income from continuing operations

     761        559     

Deduct: net income attributable to non-controlling interests in subsidiaries

     (33     (19  

Deduct: dividends on Series A Preferred Shares

     (15     (4  
                      

Net income from continuing operations attributable to common shareholders

     713        536     

Net loss from discontinued operations attributable to common shareholders

            (89  
                      

Net income attributable to common shareholders

     713        447     
                      

Denominator (millions of shares)

      

Weighted average number of Class A Shares and Class B Non-Voting Shares for basic earnings per share

     441        435     

Effect of potentially dilutive securities(1)

     1        1     
                      

Weighted average number of Class A Shares and Class B Non-Voting Shares for diluted earnings per share

     442        436     
                      

Earnings per share – basic ($)

      

Earnings per share from continuing operations

     1.62        1.23     

Loss per share from discontinued operations

            (0.21  
                      

Earnings per share

     1.62        1.02     
                      

Earnings per share – diluted ($)

      

Earnings per share from continuing operations

     1.61        1.23     

Loss per share from discontinued operations

            (0.21  
                      

Earnings per share

     1.61        1.02     
                      

 

(1) The earnings per share calculation does not take into consideration the potential dilutive effect of certain stock options since their impact is anti-dilutive. For the year ended August 31, 2012, 12,083,206 options were excluded from the diluted earnings per share calculation (2011 – 8,100,404).

 

19. DIVIDENDS

Common share dividends

The holders of Class A Shares and Class B Non-Voting Shares are entitled to receive such dividends as the Board of Directors determines to declare on a share-for-share basis, as and when any such dividends are declared or paid. The holders of Class B Non-Voting Shares are entitled to receive during each dividend period, in priority to the payment of dividends on the Class A Shares, an additional dividend at a rate of $0.0025 per share per annum. This additional dividend is subject to proportionate adjustment in the event of future consolidations or subdivisions of shares and in the event of any issue of shares by way of stock dividend. After payment or setting aside for payment of the additional non-cumulative dividends on the Class B Non-Voting Shares, holders of Class A Shares and Class B Non-Voting Shares participate equally, share for share, as to all subsequent dividends declared.

 

99


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Preferred share dividends

Holders of the Series A Preferred Shares are entitled to receive, as and when declared by the Company’s Board of Directors, a cumulative quarterly fixed dividend yielding 4.50% annually for the initial period ending June 30, 2016. Thereafter, the dividend rate will be reset every five years at a rate equal to the then current 5-year Government of Canada bond yield plus 2.00%. Holders of Series A Preferred Shares will have the right, at their option, to convert their shares into Cumulative Redeemable Floating Rate Preferred Shares, Series B (the “Series B Preferred Shares”), subject to certain conditions, on June 30, 2016 and on June 30 every five years thereafter. The Series B Preferred Shares also represent a series of Class 2 preferred shares and holders will be entitled to receive cumulative quarterly dividends, as and when declared by the Company’s Board of Directors, at a rate set quarterly equal to the then current three-month Government of Canada Treasury Bill yield plus 2.00%.

Dividend reinvestment plan

The Company has a Dividend Reinvestment Plan (“DRIP”) that allows holders of Class A Shares and Class B Non-Voting Shares who are residents of Canada to automatically reinvest monthly cash dividends to acquire additional Class B Non-Voting Shares. During 2011 the Company announced that the Class B Non-Voting Shares distributed under its DRIP would be new shares issued from treasury at a 2% discount from the 5 day weighted average market price immediately preceding the applicable dividend payment date. Previously, the Class B Non-Voting Shares were acquired on the open market at prevailing market prices. The change was effective for the May 30, 2011 dividend payment.

Dividends declared

The dividends per share recognized as distributions to common shareholders for dividends declared during the year ended August 31, 2012 and 2011 are as follows:

 

2012         2011
Class A Voting Share    Class B Non-Voting Share          Class A Voting Share    Class B Non-Voting Share

0.9550

   0.9575       0.9075    0.9100
                     

The Preferred Shares were issued on May 31, 2011. On June 29, 2011, the Company declared dividends of $0.37603 per Preferred Share. The total amount payable was $4 of which $1 was not recognized as at August 31, 2011. The dividend payment was made on September 30, 2011.

On October 20, 2011, January 12, 2012 and April 13, 2012, the Company declared dividends of $0.28125 per Preferred Share. The dividend payments were made on January 3, 2012, April 2, 2012 and July 3, 2012, respectively.

On June 28, 2012, the Company declared dividends of $0.28125 per Preferred Share which were paid on October 1, 2012. The total amount paid was $3 of which $1 was not recognized as at August 31, 2012.

On October 25, 2012, the Company declared dividends of $0.080625 per Class A Voting Share and $0.080833 per Class B Non-Voting Share payable on each of December 28, 2012, January 30, 2013 and February 27, 2013 to shareholders of record at the close of business on December 14, 2012, January 15, 2013 and February 15, 2013, respectively.

 

100


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

On October 25, 2012, the Company declared dividends of $0.28125 per Preferred Share payable on December 31, 2012 to holders of record at the close of business on December 14, 2012.

 

20. OTHER COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Components of other comprehensive income (loss) and the related income tax effects for 2012 are as follows:

 

      Amount
$
    Income taxes
$
     Net
$
      

Adjustment for hedged items recognized in the period

     (3     1         (2  

Actuarial losses on employee benefit plans

     (83     21         (62  
                               
     (86     22         (64  
                               

Components of other comprehensive income (loss) and the related income tax effects for 2011 are as follows:

 

      Amount
$
    Income taxes
$
    Net
$
      

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

     (14     2        (12  

Adjustment for hedged items recognized in the period

     6        (2     4     

Actuarial losses on employee benefit plans

     (41     11        (30  
                              
     (49     11        (38  
                              

Accumulated other comprehensive income (loss) is comprised of the following:

 

      2012
$
     2011
$
   

September 1,
2010

$

       

Fair value of derivatives

     (1      1        9      

Actuarial losses on employee benefit plans

     (92      (30          
                                
     (93      (29     9      
                                

 

21. OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES

 

     

2012

$

      

2011

$

       

Employee salaries and benefits

     835           751      

Purchases of goods and services

     2,036           1,939      
                          
     2,871           2,690      
                          

 

22. OTHER GAINS

Other gains generally includes realized and unrealized foreign exchange gains and losses on US dollar denominated current assets and liabilities, gains and losses on disposal of property, plant and equipment and minor investments, and the Company’s share of the operations of Burrard

 

101


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Landing Lot 2 Holdings Partnership. During the current year, the category also includes a loss of $26 related to the electrical fire and resulting water damage at the Company’s head office in Calgary, Alberta as well as a pension curtailment gain of $25. The loss of $26 includes $6 of costs in respect of restoration and recovery activities, including amounts incurred in the relocation of employees, and a write-down of $20 related to the damages sustained to the building and its contents. Insurance recoveries are expected and will be included in Other gains as claims are approved. No insurance recoveries were recorded in 2012. The pension curtailment gain arose due to a plan amendment to freeze salary levels.

 

23. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred income tax liabilities and assets are as follows:

 

     

2012

$

      

2011

$

    

    September 1,    
2010

$

 

Deferred income tax liabilities:

          

Property, plant and equipment and software assets

     133           145         167   

Broadcast rights and licenses

     840           820         635   

Partnership income

     271           354         350   
                              
     1,244           1,319         1,152   
                              

Deferred income tax assets:

          

Non-capital loss carryforwards

     33           50         8   

Accrued charges

     137           132         63   

Foreign exchange on long-term debt and fair value of derivative instruments

     3           3         16   
                              
     173           185         87   
                              

Net deferred income tax liabilities

     1,071           1,134         1,065   

Deferred income tax assets

     14           30           
                              

Deferred income tax liabilities

     1,085           1,164         1,065   
                              

 

102


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Significant changes recognized to deferred income tax assets (liabilities) are as follows:

 

    

Property, plant
and equipment
and software
assets

$

   

Broadcast
rights

and

licenses

$

   

Partnership
income

$

   

Non-capital
loss carry-
forwards

$

   

Accrued
charges

$

   

Foreign
exchange on
long-term debt
and fair value
of derivative
instruments

$

   

Total

$

      

Balance at September 1, 2010

    (167     (635     (350     8        63        16        (1,065  

Recognized in statement of income

    (8     (17     (3     (3     36        (14     (9  

Recognized in discontinued operations

    26                                           26     

Recognized in other comprehensive income (loss)

                                10        1        11     

Recognized on Media business acquisition

    4        (168     (1     45        23               (97  
                                                             

Balance at August 31, 2011

    (145     (820     (354     50        132        3        (1,134  

Recognized in statement of income

    12        (18     83        (17     (17            43     

Recognized in other comprehensive income (loss)

                                22               22     

Recognized on business acquisition

           (2                                 (2  
                                                             

Balance at August 31, 2012

    (133     (840     (271     33        137        3        (1,071  
                                                             

The Company has capital loss carryforwards of approximately $146 for which no deferred income tax asset has been recognized in the accounts. These capital losses can be carried forward indefinitely.

The Company has taxable temporary differences associated with its investment in its subsidiaries. No deferred tax liabilities have been provided with respect to such temporary differences as the Company is able to control the timing of the reversal and such reversal is not probable in the foreseeable future.

 

103


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

The income tax expense differs from the amount computed by applying Canadian statutory rates to income before income taxes for the following reasons:

 

     2012     2011       
      $     $        

Current statutory income tax rate

     26.3%        27.9%      
                       

Income tax expense at current statutory rates

     256        220      

Net increase (decrease) in taxes resulting from:

       

Effect of tax rate changes

     11             

Recognition of previously unrecognized deferred tax assets

     (32          

Originating temporary differences recorded at future tax rates expected to be in effect when realized

     2        2      

Other

     (23     7      
                       

Income tax expense

     214        229      
                       

Due to Canadian federal and provincial enacted corporate income tax rate changes, the statutory income tax rate for the Company decreased from 27.9% in 2011 to 26.3% in 2012.

The components of income tax expense are as follows:

 

     2012     2011       
      $     $        

Current income tax expense

     257        220      
                       

Deferred tax expense (recovery) related to temporary differences

     (22     9      

Deferred tax expense from tax rate changes

     11             

Deferred tax recovery from recognition of previously unrecognized deferred tax assets

     (32          
                       

Income tax expense

     214        229      
                       

 

104


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

24. BUSINESS SEGMENT INFORMATION

The Company’s operating segments are Cable, Media, DTH and Satellite Services, all of which are substantially located in Canada. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Management evaluates divisional performance based on revenue and operating income before charges such as amortization.

 

     2012       
                    Satellite                   
     

Cable

$

    

Media

$

    

DTH

$

    

Satellite

Services

$

    

Total

$

    

Intersegment

eliminations

$

   

Total

$

      

Revenue

     3,193         1,053         763         81         844         (92     4,998     
                                                                   

Operating income before amortization

     1,502         332         254         39         293                2,127     
                                                                   

Operating income as % of revenue

     47.0%         31.5%         33.3%         48.1%         34.7%                42.6%     
                                                                   

Interest(1)

                      329     

Burrard Landing Lot 2 Holdings Partnership

                      1     
                             
                      330     
                                                                   

Cash taxes(1)

                      282     

Corporate/other

                      (25  
                             
                      257     
                                                                   

Capital expenditures and equipment costs (net) by segment

                     

Capital expenditures

     729         31         3         8         11                771     

Equipment costs (net)

     81                 83                 83                164     
                                                                   
     810         31         86         8         94                935     
                                                                   

Reconciliation to Consolidated Statements of Cash Flows

                     

Additions to property, plant and equipment

                      730     

Additions to equipment costs (net)

                      178     

Additions to other intangibles

                      65     
                                                                   

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

                      973     

Increase in working capital related to capital expenditures

                      (10  

Increase in customer equipment financing receivables

                      (16  

Less: Proceeds on disposal of property, plant and equipment

                      (9  

Less: Satellite services equipment profit(2 )

                      (3  
                                                                   

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

                      935     
                                                                   

See notes following 2011 business segment table.

 

105


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

     2011       
                   Satellite                   
     

Cable

$

    

Media

$

    

DTH

$

    

Satellite

Services

$

    

Total

$

    

Intersegment

eliminations

$

   

Total

$

      

Revenue

     3,096         891         745         82         827         (73     4,741     
                                                                   

Operating income before amortization

     1,510         252         246         43         289                2,051     
                                                                   

Operating income as % of revenue

     48.8%         28.3%         33.0%         52.4%         34.9%                43.3%     
                                                                   

Interest(1)

                      312     

Burrard Landing Lot 2 Holdings Partnership

                      1     

Wireless

                      19     
                             
                      332     
                                                                   

Cash taxes(1)

                      240     

Corporate/other

                      (20  
                             
                      220     
                                                                   

Capital expenditures and equipment costs (net) by segment

                     

Capital expenditures

     677         27         6         26         32                736     

Equipment costs (net)

     32                 75                 75                107     
                                                                   
     709         27         81         26         107                843     
                                                                   

Reconciliation to Consolidated Statements of Cash Flows

                     

Additions to property, plant and equipment

                      705     

Additions to equipment costs (net)

                      120     

Additions to other intangibles

                      65     
                                                                   

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

                      890     

Increase in working capital related to capital expenditures

                      (4  

Increase in customer equipment financing receivables

                      (13  

Less: Proceeds on disposal of property, plant and equipment

                      (27  

Less: Satellite services equipment profit(2 )

                   (3  
                                                                   

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

                      843     
                                                                   
(1) The Company does not report interest or cash taxes on a segmented basis. Interest was allocated to the discontinued Wireless division in 2011 based on the Company’s average cost of borrowing to fund the capital expenditures and operating costs and therefore has not been included in discontinued operations.

 

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

 

25. COMMITMENTS AND CONTINGENCIES

Commitments

 

(i)

During prior years, the Company, through its subsidiaries, purchased 28 Ku-band transponders on the Anik F1 satellite and 18 Ku-band transponders on the Anik F2 satellite from Telesat Canada. During 2006, the Company’s traffic on the Anik F1 was transferred to the Anik F1R under a capacity services arrangement which has all of the

 

106


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

  same substantive benefits and obligations as on Anik F1. In addition, the Company leases a number of C-band and Ku-band transponders. Under the Ku-band F1 and F2 transponder purchase agreements, the Company is committed to paying an annual transponder maintenance fee for each transponder acquired from the time the satellite becomes operational for a period of 15 years.

 

(ii) The Company has various long-term commitments of which the majority are for the maintenance and lease of satellite transponders, program related agreements, lease of transmission facilities, and lease of premises as follows:

 

     $        

2013

    683      

2014-2017

    892      

Thereafter

    442      
              
    2,017      
              

Program agreements generally commit the Company to acquire specific programs or films or certain levels of future productions. The acquisition of these program rights is contingent on actual production or airing of the programs or films. At August 31, 2012, there is approximately $503 included above in respect of such program rights commitments.

Included in operating, general and administrative expenses are transponder maintenance expenses of $58 (2011 – $58) and rental expenses of $95 (2011 – $90).

 

(iii) At August 31, 2012, the Company had capital expenditure commitments in the normal course of business including $22 for transponders on the new Anik G1 satellite which is expected to be available in fiscal 2013.

 

(iv) As part of the CRTC decisions approving the acquisition of the broadcasting businesses in 2012 and 2011, the Company is required to contribute approximately $182 in new benefits to the Canadian broadcasting system over seven years. The obligations have been recorded in the income statement at fair value, being the sum of the discounted future net cash flows using appropriate discount rates. In addition, the Company assumed the CRTC benefit obligation from Canwest’s acquisition of Specialty services in 2007. At August 31, 2012, the remaining expenditure commitments in respect of these obligations is $198 which will be funded over future years through fiscal 2019.

Contingencies

The Company and its subsidiaries are involved in litigation matters arising in the ordinary course and conduct of its business. Although resolution of such matters cannot be predicted with certainty, management does not consider the Company’s exposure to litigation to be material to these consolidated financial statements.

Guarantees

In the normal course of business the Company enters into indemnification agreements and has issued irrevocable standby letters of credit and commercial surety bonds with and to third parties.

 

107


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Indemnities

Many agreements related to acquisitions and dispositions of business assets include indemnification provisions where the Company may be required to make payment to a vendor or purchaser for breach of contractual terms of the agreement with respect to matters such as litigation, income taxes payable or refundable or other ongoing disputes. The indemnification period usually covers a period of two to four years. Also, in the normal course of business, the Company has provided indemnifications in various commercial agreements, customary for the telecommunications industry, which may require payment by the Company for breach of contractual terms of the agreement. Counterparties to these agreements provide the Company with comparable indemnifications. The indemnification period generally covers, at maximum, the period of the applicable agreement plus the applicable limitations period under law.

The maximum potential amount of future payments that the Company would be required to make under these indemnification agreements is not reasonably quantifiable as certain indemnifications are not subject to limitation. However, the Company enters into indemnification agreements only when an assessment of the business circumstances would indicate that the risk of loss is remote. At August 31, 2012, management believes it is remote that the indemnification provisions would require any material cash payment.

The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in the performance of their service to the Company to the extent permitted by law.

Irrevocable standby letters of credit and commercial surety bonds

The Company and certain of its subsidiaries have granted irrevocable standby letters of credit and commercial surety bonds, issued by high rated financial institutions, to third parties to indemnify them in the event the Company does not perform its contractual obligations. As of August 31, 2012, the guarantee instruments amounted to $4. The Company has not recorded any additional liability with respect to these guarantees, as the Company does not expect to make any payments in excess of what is recorded on the Company’s consolidated financial statements. The guarantee instruments mature at various dates during fiscal 2013 and 2014.

 

26. EMPLOYEE BENEFIT PLANS

Defined contribution pension plans

The Company has defined contribution pension plans for the majority of its non-union and certain union employees and, for the majority of these employees, contributes 5% of eligible earnings to the maximum amount deductible under the Income Tax Act. Total pension costs in respect of these plans for the year were $32 (2011 – $29) of which $20 (2011 – $18) was expensed and the remainder capitalized.

Defined benefit pension plans

The Company provides a non-contributory defined benefit pension plan for certain of its senior executives. Benefits under this plan are based on the employees’ length of service and their highest three-year average rate of eligible pensionable earnings during their years of service. In 2012, the Company closed the plan to new participants and amended the plan to freeze base salary levels at August 31, 2012 for purposes of determining eligible pensionable earnings.

 

108


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Employees are not required to contribute to this plan and there are no minimum required employer contributions under the plan. Subsequent to year end, the plan became partially funded as the Company made discretionary contributions of $300 to a Retirement Compensation Arrangement Trust.

The table below shows the change in benefit obligation for this plan.

 

      2012
$
    2011
$
      

Accrued benefit obligation and plan deficit, beginning of year

     334        275     

Current service cost

     7        6     

Past service cost

                

Interest cost

     19        16     

Curtailment gain

     (25         

Actuarial losses

     52        43     

Payment of benefits to employees

     (9     (6  
                      

Accrued benefit obligation and plan deficit, end of year

     378        334     
                      

 

Reconciliation of accrued benefit obligation to

Consolidated Statement of Financial Position accrued benefit liability

  

2012

$

    

2011

$

       

Balance of unamortized pension obligation:

        

Past service costs

     1         1      
                        

Accrued pension benefit liability recognized in Consolidated Statement of Financial Position:

        

Accounts payable and accrued liabilities

     9         9      

Other long-term liabilities

     368         324      
                        
     377         333      
                        

Accrued benefit obligation, end of year as above

     378         334      
                        

The actuarial losses resulted primarily from changes in interest rate assumptions, salary escalation assumptions, and changes in the mortality table.

The tables below show the significant weighted-average assumptions used to measure the pension obligation and cost for this plan.

 

Accrued benefit obligation    2012
%
    2011
%
       

Discount rate

     4.50        5.50      

Rate of compensation increase

     5.00 (1)      5.00      
                       

 

Benefit cost for the year    2012
%
     2011
%
       

Discount rate

     5.50         5.75      

Rate of compensation increase

     5.00         5.00      
                        

 

(1) Applies only to incentive compensation component of eligible pensionable earnings.

 

109


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

A one percentage point decrease in the discount rate would have increased the accrued benefit obligation at August 31, 2012 by $65 and 2012 pension expensed by $1.

The net pension benefit plan expense is comprised of the following components:

 

          2012    
$
        2011    
$
       

Current service cost

     7        6      

Interest cost

     19        16      

Curtailment gain

     (25          

Past service costs

            1      
                       

Pension expense

     1        23      
                       

The components of pension expense are included in employee salaries and benefits except for the curtailment gain which is included in other gains in the income statement.

As part of the broadcasting business acquisition in 2011, the Company assumed a number of funded defined benefit pension plans which provide pension benefits to certain unionized and non-unionized employees. Benefits under these plans are based on the employees’ length of service and final average salary.

The table below shows the change in the benefit obligations, change in fair value of plan assets and the funded status of these defined benefit plans.

 

          2012    
$
        2011    
$
      

Accrued benefit obligation, beginning of year

     119            

Media business acquisition

            124     

Current service cost

     4        4     

Interest cost

     7        6     

Employee contributions

     1        1     

Actuarial losses (gains)

     24        (7  

Payment of benefits to employees

     (6     (9  
                      

Accrued benefit obligation, end of year

     149        119     
                      

Fair value of plan assets, beginning of year

     109            

Media business acquisition

            110     

Employer contributions

     10        6     

Employee contributions

     1        1     

Expected return on plan assets

     6        6     

Actuarial losses

     (4     (5  

Payment of benefit and administrative expenses

     (6     (9  
                      

Fair value of plan assets, end of year

     116        109     
                      

Accrued benefit liability and plan deficit, end of year

     33        10     
                      

 

110


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

The accrued benefit liability is included in other long-term liabilities. The actuarial gains and losses resulted primarily from changes in interest rate assumptions, salary escalation assumptions, and changes in the mortality table.

The asset allocation of the plans at August 31, 2012 is as follows:

 

          % of plan    
assets
 

Equity securities

     69   

Fixed income securities

     31   
          
     100   
          

The tables below show the significant weighted-average assumptions used to measure the pension obligation and cost for these plans. The expected rate of return on plan assets is based on investment mix, current yields and past experience.

 

Accrued benefit obligation    2012
%
     2011
%
       

Discount rate

     4.67         5.75      

Rate of compensation increase

     3.50         4.00      
                        

 

Benefit cost for the year    2012
%
     2011
%
       

Discount rate

     5.75         5.65      

Expected return on plan assets

     5.25         6.70      

Rate of compensation increase

     4.00         3.70      
                        

A one percentage point decrease in the discount rate would have increased the accrued benefit obligation at August 31, 2012 by $26 and 2012 pension expense by $1.

The net pension benefit plan expense, which is included in employee salaries and benefits expense, is comprised of the following components:

 

      2012
$
    2011
$
      

Current service cost

     4        4     

Interest cost

     7        6     

Expected return on plan assets

     (6     (6  
                      

Pension expense

     5        4     
                      

 

111


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Other benefit plans

As part of the broadcasting business acquisition in fiscal 2011, the Company assumed post employment benefits plans that provide post retirement health and life insurance coverage.

 

      2012
$
    2011
$
      

Accrued benefit obligation, beginning of year

     15            

Media business acquisition

            15     

Current service cost

     1            

Interest cost

     1        1     

Plan amendment

            (1  

Actuarial loss

     3            

Payment of benefits to employees

     (1         
                      

Accrued benefit obligation and plan deficit, end of year

     19        15     
                      

 

Reconciliation of accrued benefit obligation to Consolidated Statement of Financial Position
accrued benefit liability
  

2012

$

    

2011

$

     
                       

Balance of unamortized obligation:

       

Plan amendment

             (1  
                       

Accrued post-retirement liability recognized in Consolidated Statement of Financial Position:

       

Other long-term liabilities

     19         16     
                       

Accrued benefit obligation, end of year as above

     19         15     
                       

The table below shows the components of the post-retirement benefit plan expense. The net post-retirement benefit plan expense, which is included in employee salaries and benefits expense, is comprised of the following components:

 

     2012     2011       
      $     $        

Current service cost

     1             

Interest cost

     1        1      

Plan amendment

     (1          
                       

Post-retirement expense

     1        1      
                       

The discount rates used to measure the post-retirement benefit cost for the year and the accrued benefit obligation as at August 31, 2012 were 5.50% and 4.50%, respectively (2011 – 5.50% and 5.50%, respectively). The assumed health care cost trend rate for the next year used to measure expected benefit costs is 6.39% decreasing to an ultimate rate of 4.58% in 2029. A one percentage point increase in the assumed health care cost trend rate would have increased the service and interest costs and accrued obligation by $nil and $3, respectively. A one percentage point decrease in the assumed health care cost trend rate would have lowered the service and interest costs and accrued obligation by $nil and $3, respectively.

 

112


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Experience adjustments

The Company’s defined benefit plan experience adjustments were as follows:

 

     

2012

$

    

2011

$

      

Unfunded plans:

       

Experience losses on liabilities

     52         43     

Funded plans:

       

Experience losses on assets

     4         5     

Experience losses (gains) on liabilities

     24         (7  
                       

Employer contributions

The Company’s estimated contributions to the defined benefit plans in fiscal 2013 are $311.

 

27. RELATED PARTY TRANSACTIONS

Controlling shareholder

The majority of the Class A Shares are held by JR Shaw, members of his family and the companies owned and/or controlled them (the “Shaw Family Group”). All of the Class A Shares held by the Shaw Family Group are subject to a voting trust agreement entered into by such persons. The Shaw Family Group is represented as Directors, Senior Executive and Corporate Officers of the Company.

Significant investments in subsidiaries

The following are the significant subsidiaries of the Company, all of which are incorporated in Canada.

 

     Ownership Interest  
          August 31,    
2012
        August 31,    
2011
        September 1,    
2010
 

Shaw Cablesystems Limited

     100     100     100

Shaw Cablesystems G.P.

     100     100     100

Mountain Cablevision Limited

     100     100     100

Shaw Telecom Inc.

     100     100     100

Shaw Telecom G.P.

     100     100     100

Shaw Satellite Services Inc.

     100     100     100

Star Choice Television Network Incorporated

     100     100     100

Shaw Satellite G.P.

     100     100     100

Shaw Media Inc.

     100     100     49.9

Shaw Television Limited Partnership

     100     100       
                          

Key management personnel

Key management personnel consist of the Board of Directors and the most senior executive team that have the authority and responsibility for planning, directing and controlling the activities of the Company.

 

113


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Compensation

The compensation expense of key management personnel is as follows:

 

     2012         2011      
      $     $  

Short-term employee benefits

     32        35   

Post-employment pension benefits

     (23     21   

Retirement benefits

            26   

Share-based compensation

     3        5   
                  
     12        87   
                  

Transactions

The Company paid $3 (2011 – $4) for direct sales agent, marketing, installation and maintenance services to a company controlled by a Director of the Company.

During the year, the Company paid $9 (2011 – $6) for remote control units to a supplier where Directors of the Company hold positions on the supplier’s board of directors.

Loans have in the past been granted to executive officers in connection with their employment for periods ranging up to ten years. In 2011, the remaining amount outstanding of $4 was repaid. The effective interest rate on the interest bearing loan for 2011 was 1.0%.

Other related parties

The Company has entered into certain transactions and agreements in the normal course of business with certain of its related parties. These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

Corus Entertainment Inc. (“Corus”)

The Company and Corus are subject to common voting control. During the year, network fees of $132 (2011 – $136), advertising fees of $2 (2011 – $1) and programming fees of $1 (2011 – $1) were paid to various Corus subsidiaries and entities subject to significant influence. In addition, the Company provided administrative and other services for $1 (2011 – $1), uplink of television signals for $5 (2011 – $5) and Internet services and lease of circuits for $1 (2011 – $1).

The Company provided Corus with television advertising spots in return for radio and television advertising. No monetary consideration was exchanged for these transactions and no amounts were recorded in the accounts.

Burrard Landing Lot 2 Holdings Partnership

During the year, the Company paid $10 (2011 – $10) to the Partnership for lease of office space in Shaw Tower. Shaw Tower, located in Vancouver, BC, is the Company’s headquarters for its Lower Mainland operations.

 

114


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Specialty Channels

The Company holds interests in a number of specialty television channels which are subject to either joint control or significant influence. The Company paid network fees of $6 (2011 – $5) and provided uplink of television signals of $1 (2011 – $1) to these channels during the year.

 

28. FINANCIAL INSTRUMENTS

Fair values

The fair value of financial instruments has been determined as follows:

 

(i) Current assets and current liabilities

The fair value of financial instruments included in current assets and current liabilities approximates their carrying value due to their short-term nature.

 

(ii) Investment and other assets and Other long-term assets

The carrying value of investments and other assets approximates their fair value. The fair value of long-term receivables approximates their carrying value as they are recorded at the net present values of their future cash flows, using an appropriate discount rate.

 

(iii) Other current/non-current liabilities

The carrying value of the liability in respect of amended cross-currency interest rate agreements, which fixed the settlement of the principal portion of the liability on December 15, 2011, was at amortized cost based on an estimated mark-to-market valuation at the date of amendment. The fair value of this liability was determined using an estimated mark-to-market valuation. The fair value of program rights payable, estimated by discounting future cash flows, approximates their carrying value.

 

(iv) Long-term debt

The carrying value of long-term debt is at amortized cost based on the initial fair value as determined at the time of issuance or at the time of a business acquisition. The fair value of publicly traded notes is based upon current trading values. Other notes and debentures are valued based upon current trading values for similar instruments.

 

(v) Derivative financial instruments

The fair value of cross-currency interest rate exchange agreements and US currency forward purchase contracts is determined using an estimated credit-adjusted mark-to-market valuation.

 

115


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

The carrying values and estimated fair values of long-term debt, other liabilities and derivative financial instruments are as follows:

 

     August 31, 2012      August 31, 2011      September 1, 2010        
    

Carrying

value

    

Estimated

fair value

    

Carrying

value

    

Estimated

fair value

    

Carrying

value

    

Estimated

fair value

      
      $      $      $      $      $      $        

Assets

                    

Derivative financial instruments –

                    

Cross-currency interest rate exchange agreements(1)

                                     57         57      

US currency forward purchase contracts(1)

                     2         2         10         10      
                                                            
                     2         2         67         67      

Liabilities

                    

Other current/non-current liability

                     161         162         159         160      

Long-term debt

     5,263         5,753         5,257         5,542         3,983         4,353      

Derivative financial instruments –

                    

US currency forward purchase contracts(1)

     1         1                                      

Cross-currency interest rate exchange agreements(1)

                     8         8         87         87      
                                                            
     5,264         5,754         5,426         5,712         4,229         4,600      
                                                            

 

(1) Level 2 fair value – determined by valuation techniques using inputs based on observable market data, either directly or indirectly, other than quoted prices.

Derivative financial instruments held at August 31, 2012 have maturity dates throughout fiscal 2013.

As at August 31, 2012 and 2011 and September 1, 2010, US currency forward purchase contracts qualified as hedging instruments and were designated as cash flow hedges. The cross-currency interest rate exchange agreements did not qualify as hedging instruments as the underlying hedged US denominated debt was repaid during 2010.

Upon redemption of US $300 7.2% senior notes in 2010, the Company entered into amended agreements with the counterparties of the cross-currency agreements to fix the settlement of the principal liability on December 15, 2011 at $162. At August 31, 2011, the carrying amount of the liability was $161 (September 1, 2010 – $159).

Risk management

The Company is exposed to various market risks including currency risk and interest rate risk, as well as credit risk and liquidity risk associated with financial assets and liabilities. The Company has designed and implemented various risk management strategies, discussed further below, to ensure the exposure to these risks is consistent with its risk tolerance and business objectives.

 

116


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Currency risk

Certain of the Company’s capital expenditures and equipment costs are incurred in US dollars, while its revenue is primarily denominated in Canadian dollars. Decreases in the value of the Canadian dollar relative to the US dollar could have an adverse effect on the Company’s cash flows. To mitigate some of the uncertainty in respect to capital expenditures and equipment costs, the Company regularly enters into forward contracts in respect of US dollar commitments. With respect to 2012, the Company entered into forward contracts to purchase US $83 over a period of 12 months commencing in September 2011 at an average exchange rate of 0.9725 Cdn. At August 31, 2012 the Company had forward contracts to purchase US $75 over a period of 12 months commencing in September 2012 at an average exchange rate of 0.9998 Cdn in respect of capital expenditures and equipment costs.

As part of the broadcasting business acquisition in 2011, the Company assumed US dollar denominated debt. To mitigate some of the foreign exchange risk with respect to interest payments and amounts due on redemption of the senior unsecured notes, the Company entered into forward contracts to purchase US $340 at an average exchange rate of 0.9931.

Interest rate risk

Due to the capital-intensive nature of its operations, the Company utilizes long-term financing extensively in its capital structure. The primary components of this structure are a banking facility and various Canadian senior notes with varying maturities issued in the public markets as more fully described in note 13.

Interest on the Company’s banking facility is based on floating rates, while the senior notes are fixed-rate obligations. The Company utilizes its credit facility to finance day-to-day operations and, depending on market conditions, periodically converts the bank loans to fixed-rate instruments through public market debt issues. As at August 31, 2012, 100% of the Company’s consolidated long-term debt was fixed with respect to interest rates.

Market risk

Net income and other comprehensive income for 2012 could have varied if the Canadian dollar to US dollar foreign exchange rates or market interest rates varied by reasonably possible amounts.

The sensitivity to currency risk has been determined based on a hypothetical change in Canadian dollar to US dollar foreign exchange rates of 10%. The financial instruments impacted by this hypothetical change include foreign exchange forward contracts and cross-currency interest rate exchange agreements and would have changed net income by $nil net of tax (2011 – $1) and other comprehensive income by $5 net of tax (2011 – $4). A portion of the Company’s accounts receivables and accounts payable and accrued liabilities is denominated in US dollars; however, due to their short-term nature, there is no significant market risk arising from fluctuations in foreign exchange rates.

The sensitivity to interest rate risk has been determined based on a hypothetical change of one percentage or 100 basis points. The financial instruments impacted by this hypothetical change include foreign exchange forward contracts and cross-currency interest rate exchange agreements and would not have changed net income in 2012 or 2011. Interest on the Company’s banking facility is based on floating rates and there is no significant market risk arising from fluctuations in interest rates.

 

117


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Credit risk

Accounts receivable in respect of Cable and Satellite divisions are not subject to any significant concentrations of credit risk due to the Company’s large and diverse customer base. For the Media division, a significant portion of sales are made to advertising agencies which results in some concentration of credit risk. At August 31, 2012, approximately 58% (2011 – 58%) of the $182 (2011 – $176) of advertising receivables is due from the ten largest accounts. The largest amount due from an advertising agency is $20 (2011 – $20) which is approximately 11% (2011 – 12%) of advertising receivables. As at August 31, 2012, the Company had accounts receivable of $433 (August 31, 2011 – $443; September 1, 2010 – $196), net of the allowance for doubtful accounts of $28 (August 31, 2011 – $29; September 1, 2010 – $19). The Company maintains an allowance for doubtful accounts for the estimated losses resulting from the inability of its customers to make required payments. In determining the allowance, the Company considers factors such as the number of days the subscriber account is past due, whether or not the customer continues to receive service, the Company’s past collection history and changes in business circumstances. As at August 31, 2012, $111 (August 31, 2011 – $121; September 1, 2010 – $79) of accounts receivable is considered to be past due, defined as amounts outstanding past normal credit terms and conditions. Uncollectible accounts receivable are charged against the allowance account based on the age of the account and payment history. The Company believes that its allowance for doubtful accounts is sufficient to reflect the related credit risk.

The Company mitigates the credit risk of advertising receivables by performing initial and ongoing credit evaluations of advertising customers. Credit is extended and credit limits are determined based on credit assessment criteria and credit quality. In addition, the Company mitigates credit risk of subscriber receivables through advance billing and procedures to downgrade or suspend services on accounts that have exceeded agreed credit terms.

Credit risks associated with cross-currency interest rate exchange agreements and US currency contracts arise from the inability of counterparties to meet the terms of the contracts. In the event of non-performance by the counterparties, the Company’s accounting loss would be limited to the net amount that it would be entitled to receive under the contracts and agreements. In order to minimize the risk of counterparty default under its swap agreements, the Company assesses the creditworthiness of its swap counterparties. Currently 100% of the total swap portfolio is held by a financial institution with Standard & Poor’s ratings ranging from A+ to A-1.

Liquidity risk

Liquidity risk is the risk that the Company will experience difficulty in meeting obligations associated with financial liabilities. The Company manages its liquidity risk by monitoring cash flow generated from operations, available borrowing capacity, and by managing the maturity profiles of its long-term debt.

 

118


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

The Company’s undiscounted contractual maturities as at August 31, 2012 are as follows:

 

     Accounts
payable and
accrued
liabilities(1)
     Other
liabilities
     Long-term
debt
repayable at
maturity
     Derivative
instruments(2)
     Interest
payments
      
      $      $      $      $      $        

Within one year

     811                 451         1         317      

1 to 3 years

             4         969                 528      

3 to 5 years

                     700                 456      

Over 5 years

                     3,200                 2,475      
                                                   
     811         4         5,320         1         3,776      
                                                   

 

(1) Includes accrued interest and dividends of $219.

 

(2) The estimated net undiscounted cash outflow for derivative instruments is based on the US dollar foreign exchange rate as at August 31, 2012.

 

29. CONSOLIDATED STATEMENTS OF CASH FLOWS

Additional disclosures with respect to the Consolidated Statements of Cash Flows are as follows:

 

(i) Funds flow from continuing operations

 

     2012     2011      
      $     $       

Net income from continuing operations

     761        559     

Adjustments to reconcile net income to funds flow from continuing operations:

      

Amortization

     813        739     

Program rights

     (42     101     

Deferred income tax expense (recovery)

     (43     9     

Equity income from associates

            (14  

Gain on redemption of debt

            (33  

CRTC benefit obligations [note 3]

     2        139     

CRTC benefit obligation funding

     (48     (30  

Business acquisition, integration and restructuring expenses

            37     

Gain on remeasurement of interests in equity investments [note 3]

     (6         

Share-based compensation

     5        9     

Defined benefit pension plans

     (13     16     

Loss (gain) on derivative instruments

     (1     22     

Realized loss on settlement of derivative instruments

     (7     (29  

Payments on cross-currency agreements [note 3]

            (86  

Foreign exchange gain on unhedged long-term debt

            (17  

Accretion of long-term liabilities and provisions

     14        15     

Settlement of amended cross-currency interest rate agreements [note 28]

     (162         

Write-down of property damaged by electrical fire

     20            

Other

     6        (4  
                      

Funds flow from continuing operations

     1,299        1,433     
                      

 

119


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

(ii) Changes in non-cash working capital balances related to continuing operations include the following:

 

     2012     2011      
      $     $       

Accounts receivable

     22        54     

Other current assets

            (13  

Accounts payable and accrued liabilities and provisions

     (37     (54  

Income taxes payable

     31        (187  

Unearned revenue

     2        8     
                      
     18        (192  
                      

 

(iii) Interest and income taxes paid and classified as operating activities are as follows:

 

     2012      2011       
      $      $        

Interest

     328         332      

Income taxes

     218         400      
                        

 

(iv) Non-cash transactions

The Consolidated Statements of Cash Flows exclude the following non-cash transactions:

 

     2012      2011       
      $      $        

Issuance of Class B Non-Voting Shares:

        

Dividend reinvestment plan [note 19]

     98         39      
                        

 

30. CAPITAL STRUCTURE MANAGEMENT

The Company’s objectives when managing capital are:

 

(i) to maintain a capital structure which optimizes the cost of capital, provides flexibility and diversity of funding sources and timing of debt maturities, and adequate anticipated liquidity for organic growth and strategic acquisitions;

 

(ii) to maintain compliance with debt covenants; and

 

(iii) to manage a strong and efficient capital base to maintain investor, creditor and market confidence.

 

120


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

The Company defines capital as comprising all components of shareholders’ equity (other than non-controlling interests and amounts in accumulated other comprehensive income/loss), long-term debt (including the current portion thereof), and bank indebtedness less cash and cash equivalents.

 

     

August 31, 2012

$

   

August 31, 2011

$

   

    September 1, 2010    

$

 

Cash and cash equivalents

     (427     (443     (217

Long-term debt repayable at maturity

     5,320        5,321        4,021   

Share capital

     2,750        2,633        2,250   

Contributed surplus

     77        73        67   

Retained earnings

     1,020        729        679   
                          
     8,740        8,313        6,800   
                          

The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of underlying assets. The Company may also from time to time change or adjust its objectives when managing capital in light of the Company’s business circumstances, strategic opportunities, or the relative importance of competing objectives as determined by the Company. There is no assurance that the Company will be able to meet or maintain its currently stated objectives.

On November 29, 2011 Shaw received the approval of the TSX to renew its normal course issuer bid to purchase its Class B Non-Voting Shares for a further one year period. The Company is authorized to acquire up to 20,000,000 Class B Non-Voting Shares during the period December 1, 2011 to November 30, 2012.

The Company’s banking facility is subject to covenants which include maintaining minimum or maximum financial ratios, including total debt to operating cash flow and operating cash flow to fixed charges. At August 31, 2012, the Company is in compliance with these covenants and based on current business plans and economic conditions, the Company is not aware of any condition or event that would give rise to non-compliance with the covenants.

The Company’s overall capital structure management strategy remains unchanged from the prior year.

 

31. TRANSITION TO IFRS

The Company’s date of transition to IFRS is September 1, 2010 and its date of adoption is September 1, 2011.

Exemption elections

The Company’s adoption of IFRS requires application of IFRS 1 which provides guidance for an entity’s initial adoption of IFRS. IFRS 1 generally requires that an entity apply all IFRS effective at the end of its first IFRS annual reporting period retrospectively. However, IFRS 1 does include certain mandatory exceptions and limited optional exemptions in specified areas of certain standards from this general requirement. The Company has elected the following exemptions from the general requirement of retrospective application as follows:

 

(a) Business combinations

IFRS 1 provides the option to apply IFRS 3 Business Combinations retrospectively or prospectively from the date of transition. Retrospective application would require

 

121


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

restatement of all business combinations that occurred prior to the date of transition. The Company has elected to not restate any business combinations that occurred prior to September 1, 2010. Under Canadian GAAP, the Company had early adopted the new accounting standards for business combinations, consolidation and non-controlling interests effective September 1, 2010, which are aligned with IFRS 3 Business Combinations and IAS 27 Consolidated and Separate Financial Statements.

 

(b) Employee benefits

IFRS 1 provides the option to recognize all cumulative actuarial gains and losses on defined benefit plans deferred under Canadian GAAP in opening retained earnings. The Company elected to recognize the cumulative unamortized actuarial loss in opening retained earnings as at September 1, 2010.

 

(c) Borrowing costs

IFRS 1 allows IAS 23 Borrowing Costs to be applied prospectively from the date of transition. The Company has elected to apply IAS 23 prospectively for projects commenced on or after September 1, 2010.

 

122


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

Reconciliation of Canadian GAAP to IFRS

 

A. Consolidated statements of financial position as at September 1, 2010 and August 31, 2011

 

        September 1, 2010         August 31, 2011       
     Explanation   Canadian
GAAP
    Effect of
transition
to IFRS
    IFRS         

Canadian

GAAP

    Effect of
transition
to IFRS
    IFRS       

ASSETS

                 

Current

                 

Cash

      217               217          443               443     

Account receivable

      196               196          443               443     

Inventories

      54               54          97               97     

Other current assets

  (iii), (iv)     34               34          236        (154     82     

Derivative instruments

      67               67          2               2     

Assets held for sale

                             15               15     

Deferred income tax assets

  (iii)     28        (28              26        (26         
                                                             
      596        (28     568          1,262        (180     1,082     

Investments and other assets

      743               743          13               13     

Property, plant and equipment

      3,005               3,005          3,200               3,200     

Assets held for sale

                             1               1     

Other long-term assets

      233               233          258               258     

Deferred income taxes

  (iii)                            22        8        30     

Intangibles

  (iv)     5,408        188        5,596          6,955        337        7,292     

Goodwill

  (iii)     169               169          815        (103     712     
                                                             
      10,154        160        10,314          12,526        62        12,588     
                                                             

LIABILITIES AND SHAREHOLDERS’ EQUITY

                 

Current

                 

Accounts payable and accrued liabilities

  (i), (v), (vi)     623        77        700          795        83        878     

Provisions

  (vi)            19        19                 18        18     

Income taxes payable

  (iii)     171        78        249          12        112        124     

Unearned revenue

      145               145          155               155     

Current portion of long-term debt

      1               1          1               1     

Current portion of derivative instruments

      80               80          8               8     

Other liability

                             161          161     
                                                             
      1,020        174        1,194          1,132        213        1,345     

Long-term debt

      3,982               3,982          5,256               5,256     

Other long-term liabilities

  (ii), (vi)     291        138        429          351        156        507     

Provisions

  (vi)                                   8        8     

Derivative instruments

      7               7                            

Deferred credits

      632               632          630               630     

Deferred income tax liabilities

  (i) to (iv)     1,452        (387     1,065          1,700        (536     1,164     
                                                             
      7,384        (75     7,309          9,069        (159     8,910     

Shareholders’ equity

                 

Common and preferred shareholders

  (i) to (v)     2,770        235        3,005          3,216        190        3,406     

Non-controlling interests in subsidiaries

  (iii)                            241        31        272     
                                                             
      2,770        235        3,005          3,457        221        3,678     
                                                             
      10,154        160        10,314          12,526        62        12,588     
                                                             

 

123


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

B. Consolidated statements of income and comprehensive income for the year ended August 31, 2011

 

      Explanation    Canadian
GAAP
    Effect of
transition
to IFRS
    IFRS       

Revenue

        4,741               4,741     

Operating, general and administrative expenses

   (i), (ii)      2,710        (20     2,690     
                                   

Operating income before amortization

        2,031        20        2,051     

Amortization:

           

Deferred equipment revenue

        107               107     

Deferred equipment costs

        (205            (205  

Property, plant and equipment, intangibles and other

        (637            (637  
                                   

Operating income

        1,296        20        1,316     

Amortization of financing costs – long-term debt

        (4            (4  

Interest expense

        (332            (332  

Gain on redemption of debt

        33               33     

CRTC benefit obligation

        (139            (139  

Business acquisition, integration and restructuring expenses

        (91            (91  

Loss on derivative instruments

        (22            (22  

Accretion of long-term liabilities and provisions

        (15            (15  

Foreign exchange gain on unhedged long-term debt

        17               17     

Equity income from associates

        14               14     

Other gains

        11               11     
                                   

Income before income taxes

        768        20        788     

Current income tax expense

   (iii)      210        10        220     

Deferred income tax expense (recovery)

   (i) to (iii)      (5     14        9     
                                   

Net income from continuing operations

        563        (4     559     

Loss from discontinued operations

        (89            (89  
                                   

Net income

        474        (4     470     
                                   

Other comprehensive income (loss)

           

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

        (12            (12  

Adjustment for hedged items recognized in the period

        4               4     

Actuarial losses on employee benefit plans

   (ii)             (30     (30  
                                   
        (8     (30     (38  
                                   

Comprehensive income

        466        (34     432     
                                   

Net income attributable to:

           

Equity shareholders

        455        (4     451     

Non-controlling interests in subsidiaries

        19               19     
                                   
        474        (4     470     
                                   

Comprehensive income attributable to:

           

Equity shareholders

        447        (34     413     

Non-controlling interests in subsidiaries

        19               19     
                                   
        466        (34     432     
                                   

Earnings per share – basic and diluted

           

Earnings per share from continuing operations

        1.24        (0.01     1.23     

Loss per share from discontinued operations

        (0.21            (0.21  
                                   

Earnings per share

        1.03        (0.01     1.02     
                                   

 

124


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

The significant differences between Canadian GAAP and IFRS are explained below.

 

(i) Share-based compensation

Under IFRS, the fair value of stock options with service conditions is required to be expensed over a vesting period (“graded vesting”) based on when options vest. Under Canadian GAAP, share-based compensation was recognized using a straight-line method.

Under IFRS, cash settled share-based payments, such as DSUs and RSUs, are measured initially and remeasured at the end of each reporting period at fair value as determined by an option pricing model. Under Canadian GAAP, the liability was measured and remeasured at intrinsic values.

 

(ii) Employee benefits

As stated in exemption elections above, the Company elected to recognize cumulative unamortized actuarial losses under IFRS in opening retained earnings. Subsequent to the date of transition, actuarial gains and losses are recorded in other comprehensive income at the end of each reporting period. Under Canadian GAAP, actuarial gains and losses were amortized into income on a straight-line basis over the estimated average remaining service life of employees.

Under IFRS, past service costs of defined benefit plans are expensed on a straight-line basis over the vesting period. Under Canadian GAAP, past service costs were amortized on a straight-line basis over the estimated average remaining service life of employees. As part of the retrospective application of IAS 19, all vested past service costs have been recognized in opening retained earnings at the transition date.

 

(iii) Income taxes

The expected manner of recovery of intangible assets with indefinite useful lives for the purpose of calculating deferred income taxes is different under IFRS than Canadian GAAP. This difference in inclusion rate results in a reduction in the deferred income tax liability related to these assets at transition and also results in a decrease to goodwill and deferred income tax liability and increase to non-controlling interests in respect of the Media business acquisition in fiscal 2011.

Under IFRS, the Company applies a probable weighted average methodology in respect to its determination of measurement of its tax uncertainties.

Income taxes reflect the tax effect of other IFRS transition adjustments.

Also, under IFRS, deferred income tax assets and liabilities are only classified as long term.

 

(iv) Intangibles

Under IFRS, amortization of indefinite-life intangibles is prohibited. Upon transition, amortization of broadcast rights and licenses that had been previously recorded under Canadian GAAP has been reversed and recognized in opening retained earnings at the date of transition.

Under Canadian GAAP, program rights were segregated between current and noncurrent in the statement of financial position based on estimated time of usage. Under IFRS, program rights are segregated between current and noncurrent based on expected life at time of acquisition.

 

125


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2012 and 2011

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

 

(v) Constructive obligation

Under IFRS, constructive obligations must be recognized when certain criteria are met. These have been accrued at the transition date.

 

(vi) Provisions

IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires separate disclosure on the face of the statement of financial position. Under Canadian GAAP, separate disclosure was not required, therefore on transition all provisions were reclassified from accounts payable and accrued liabilities or other long-term liabilities.

 

C. Consolidated statements of cash flows

The Company’s consolidated statements of cash flows were not materially affected by the transition to IFRS.

 

126

EX-99.3 4 d426574dex993.htm EXHIBIT 3 Exhibit 3
Table of Contents

Exhibit 3

Shaw Communications Inc.

ANNUAL INFORMATION FORM

November 29, 2012

 

TABLE OF CONTENTS

 

CORPORATE STRUCTURE

     2   

DESCRIPTION OF THE BUSINESS

     3   

CAPITAL STRUCTURE, DIVIDENDS AND RELATED MATTERS

  
  1.   Description of Capital Structure      3   
  2.   Dividends      9   
  3.   Ratings      10   
  4.   Market for Securities      12   

DIRECTORS AND OFFICERS

  
  1.   Directors      13   
  2.   Board Committee Members      14   
  3.   Executive Officers      15   
  4.   Shareholdings of Directors and Executive Officers      15   

AUDIT COMMITTEE

  
  1.   Audit Committee Charter      16   
  2.   Audit Committee Composition, Education and Experience      16   
  3.   Audit Fees      17   

LEGAL PROCEEDINGS

     17   

REGISTRAR AND TRANSFER AGENT

     17   

INTERESTS OF EXPERTS

     18   

ADDITIONAL INFORMATION

     18   

CAUTION CONCERNING FORWARD LOOKING STATEMENTS

     18   

SCHEDULE A – AUDIT COMMITTEE CHARTER

  

 

1


Table of Contents

Shaw Communications Inc.

ANNUAL INFORMATION FORM

November 29, 2012

 

CORPORATE STRUCTURE

Shaw Communications Inc. (“Shaw” or the “Corporation”) is a diversified communications and media company, providing consumers with broadband cable television, High-Speed Internet, Home Phone, telecommunications services (through Shaw Business), satellite direct-to-home services (through Shaw Direct) and engaging programming content (through Shaw Media). Shaw serves 3.4 million customers through a reliable and extensive fibre network. Shaw Media operates one of the largest conventional television networks in Canada, Global Television, and 19 specialty networks including HGTV Canada, Food Network Canada, History and Showcase.

The Corporation was incorporated under the laws of the Province of Alberta on December 9, 1966 under the name Capital Cable Television Co. Ltd. and was subsequently continued under the Business Corporations Act (Alberta) on March 1, 1984 under the name Shaw Cablesystems Ltd. Its name was changed to Shaw Communications Inc. on May 12, 1993. Shaw was reorganized pursuant to a plan of arrangement under the Business Corporations Act (Alberta) effective September 1, 1999, and amended its articles on January 28, 2004 to limit the number of Class A Voting Participating Shares that may be issued and on May 26, 2011 to create the Series A Shares and Series B Shares (each as hereinafter defined). The head and registered office of the Corporation is located at Suite 900, 630 – 3rd Avenue S.W., Calgary, Alberta, Canada T2P 4L4, telephone (403) 750-4500.

The following table lists certain subsidiaries and entities owned or controlled by Shaw, their jurisdictions of incorporation or organization and the nature of their operations. All of such entities are wholly-owned, directly or indirectly, by Shaw.

 

Entity    Jurisdiction    Nature of Operations

Shaw Cablesystems Limited

   Alberta    Television Distribution Services

Shaw Cablesystems G.P.(2)

   Alberta    Television Distribution and Internet Services

Mountain Cablevision Limited

   Alberta    Television Distribution, Internet and Telecommunications Services

Shaw Telecom Inc.

   Alberta    Telecommunications Services

Shaw Telecom G.P.(3)

   Alberta    Telecommunications Services

Shaw Satellite Services Inc.

   Federal    Satellite Services

Star Choice Television Network Incorporated

   Federal    Satellite Services

Shaw Satellite G.P.(4)

   Alberta    Satellite Services

Shaw Media Inc.

   Alberta    Over-the-air and specialty television businesses

Shaw Television Limited Partnership

   Manitoba    Over-the-air and specialty television businesses

Notes:

(1)

The above table lists subsidiaries of Shaw in accordance with the Canadian Securities Administrators National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102”) as well as certain other entities owned or controlled, directly or indirectly, by Shaw.

(2)

Shaw Cablesystems G.P. is a partnership of Shaw Communications Inc. and Shaw Cablesystems Limited formed to operate the cable television and internet systems owned by the partners.

(3)

Shaw Telecom G.P. is a partnership of Shaw Telecom Inc. and Shaw Business Inc. formed to operate the telecommunications systems owned by the partners.

(4)

Shaw Satellite G.P. is a partnership of Shaw Satellite Services Inc. and Star Choice Television Network Incorporated formed to operate the satellite systems owned by the partners.

Unless the context otherwise indicates, a reference to “Shaw” or the “Corporation” in this Annual Information Form means Shaw Communications Inc. and its subsidiaries and other entities owned or controlled, directly or indirectly, by Shaw Communications Inc.

 

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Shaw Communications Inc.

ANNUAL INFORMATION FORM

November 29, 2012

 

DESCRIPTION OF THE BUSINESS

To comply with Items 4.1, 4.2, 5.1 and 5.2 of Form 51-102F2 of NI-51-102, the following subsections of the section titled “Description of the Business” in the Corporation’s Management’s Discussion and Analysis for the year ended August 31, 2012 (the “2012 Annual MD&A”) are incorporated by reference herein:

A. Company overview – core business and strategies

B. Description of the business

C. Seasonality and other additional information concerning the business

D. Government regulations and regulatory developments

I. Known events, trends, risks and uncertainties

The 2012 Annual MD&A, is available through the Internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) which may be accessed at www.sedar.com.

CAPITAL STRUCTURE, DIVIDENDS AND RELATED MATTERS

 

1.

Description of Capital Structure

 

(a)

General

The authorized share capital of the Corporation consists of a limited number of Class A Participating Shares (the “Class A Shares”), which are voting, as described below; an unlimited number of Class B Non-Voting Participating Shares (the “Class B Non-Voting Shares”); an unlimited number of Class 1 Preferred Shares (the “Class 1 Preferred Shares”) issuable in series; and an unlimited number of Class 2 Preferred Shares (the “Class 2 Preferred Shares”) issuable in series, of which 12,000,000 were designated Cumulative Redeemable Rate Reset Class 2 Preferred Shares, Series A (the “Series A Shares”) and 12,000,000 were designated Cumulative Redeemable Floating Rate Class 2 Preferred Shares, Series B (the “Series B Shares”). As at August 31, 2012, there were 22,520,064 Class A Shares, 421,188,697 Class B Non-Voting Shares and 12,000,000 Series A Shares outstanding.

 

(b)

Class A Shares and Class B Non-Voting Shares

 

(i)

Authorized Number of Class A Shares

The authorized number of Class A Shares is limited to the lesser of that number of such shares (i) currently issued and outstanding; and (ii) that may be outstanding after any conversion of Class A Shares into Class B Non-Voting Shares (subject to certain conversion rights as described below under the heading “Conversion Privilege”).

 

(ii)

Voting Rights

The holders of Class A Shares are entitled to one vote per share at all meetings of shareholders. The holders of Class B Non-Voting Shares are entitled to receive notice of, to attend, and to speak at all meetings of shareholders but are not entitled to vote thereat except as required by law and except upon any resolution to authorize the liquidation, dissolution and winding-up of

 

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Shaw Communications Inc.

ANNUAL INFORMATION FORM

November 29, 2012

 

Shaw or the distribution of assets among the shareholders of Shaw for the purpose of winding up its affairs, in which event each holder of Class B Non-Voting Shares will be entitled to one vote per share.

 

(iii)

Dividends

In general, subject to the rights of any preferred shares outstanding from time-to-time (such as the Series A Shares), holders of Class A Shares and Class B Non-Voting Shares are entitled to receive such dividends as the Board of Directors of Shaw determines to declare on a share-for-share basis, as and when any such dividends are declared or paid, except that, for each Dividend Period (as defined below), the aggregate of the dividends (other than stock dividends) declared and paid on each Class A Share shall be $0.0025 per share per annum less than the aggregate of the dividends declared and paid on each Class B Non-Voting Share, subject to proportionate adjustment in the event of any future consolidations or subdivisions of Class A Shares and Class B Non-Voting Shares and in the event of any issue of Class A Shares and Class B Non-Voting Shares by way of stock dividends. A “Dividend Period” is defined as the fiscal year of Shaw or such other period, not to exceed one year, in respect of which the directors of Shaw have announced a current policy to declare and pay, or set aside for payment, regular dividends on the Class A Shares and Class B Non-Voting Shares.

 

(iv)

Rights on Liquidation

In the event of the liquidation, dissolution or winding-up of Shaw or other distribution of assets of Shaw for the purpose of winding up its affairs, all property and assets of Shaw available for distribution to the holders of Class A Shares and Class B Non-Voting Shares will be paid or distributed equally, share-for-share, to the holders of Class A Shares and Class B Non-Voting Shares without preference or distinction.

 

(v)

Conversion Privileges

Any holder of Class A Shares may, at any time or from time-to-time, convert any or all Class A Shares held by such holder into Class B Non-Voting Shares on the basis of one Class B Non-Voting Share for each Class A Share so converted.

Subject to certain exceptions described below, if an Exclusionary Offer is made, any holder of Class B Non-Voting Shares may, at any time or from time-to-time during a Conversion Period, convert any or all of the Class B Non-Voting Shares held by such holder into Class A Shares on the basis of one Class A Share for each Class B Non-Voting Share so converted. For the purpose of this paragraph, the following terms have the following meanings:

Class A Offeror” means a person or company that makes an offer to purchase Class A Shares (the “bidder”), and includes any associate or affiliate of the bidder or any person or company that is disclosed in the offering document to be acting jointly or in concert with the bidder;

Conversion Period” means the period of time commencing on the eighth day after the Offer Date and terminating on the Expiry Date;

Exclusionary Offer” means an offer to purchase Class A Shares that:

 

  (A)

must, by reason of applicable securities legislation or the requirements of a stock exchange on which the Class A Shares are listed, be made to all or substantially all holders of Class A Shares who are residents of a province of Canada to which the requirement applies; and

 

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ANNUAL INFORMATION FORM

November 29, 2012

 

  (B)

is not made concurrently with an offer to purchase Class B Non-Voting Shares that is identical to the offer to purchase Class A Shares in terms of price per share and percentage of outstanding shares to be taken up exclusive of shares owned immediately prior to the offer by the Class A Offeror, and in all other material respects (except with respect to the conditions that may be attached to the offer for Class A Shares), and that has no condition attached other than the right not to take up and pay for shares tendered if no shares are purchased pursuant to the offer for Class A Shares, and for the purposes of this definition if an offer to purchase Class A Shares is not an Exclusionary Offer as defined above but would be an Exclusionary Offer if it were not for this sub-clause (B), the varying of any term of such offer shall be deemed to constitute the making of a new offer unless an identical variation concurrently is made to the corresponding offer to purchase Class B Non-Voting Shares;

Expiry Date” means the last date upon which holders of Class A Shares may accept an Exclusionary Offer;

Offer Date” means the date on which an Exclusionary Offer is made; and

Transfer Agent” means the transfer agent for the time being of the Class A Shares.

Subject to certain exceptions, the conversion right of a holder of Class B Non-Voting Shares shall not come into effect if:

 

  (A)

prior to the time at which the offer is made there is delivered to the Transfer Agent and to the Secretary of Shaw a certificate or certificates signed by or on behalf of one or more shareholders of Shaw owning in the aggregate, as at the time the Exclusionary Offer is made, more than 50% of the then outstanding Class A Shares, exclusive of shares owned immediately prior to the Exclusionary Offer by the Class A Offeror, which certificate or certificates shall confirm, in the case of each such shareholder, that such shareholder shall not:

 

  a.

tender any shares in acceptance of any Exclusionary Offer without giving the Transfer Agent and the Secretary of Shaw written notice of such acceptance or intended acceptance at least seven days prior to the Expiry Date;

 

  b.

make any Exclusionary Offer;

 

  c.

act jointly or in concert with any person or company that makes any Exclusionary Offer; or

 

  d.

transfer any Class A Shares, directly or indirectly, during the time at which any Exclusionary Offer is outstanding without giving the Transfer Agent and the Secretary of Shaw written notice of such transfer or intended transfer at least seven days prior to the Expiry Date, which notice shall state, if known to the transferor, the names of the transferees and the number of Class A Shares transferred or to be transferred to each transferee; or

 

  (B)

as of the end of the seventh day after the Offer Date there has been delivered to the Transfer Agent and to the Secretary of Shaw a certificate or certificates signed by or on behalf of one or more shareholders of Shaw owning in the aggregate more

 

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Shaw Communications Inc.

ANNUAL INFORMATION FORM

November 29, 2012

 

 

than 50% of the then outstanding Class A Shares, exclusive of shares owned immediately prior to the Exclusionary Offer by the Class A Offeror, which certificate or certificates shall confirm, in the case of each such shareholder:

 

  a.

the number of Class A Shares owned by the shareholder;

 

  b.

that such shareholder is not making the offer and is not an associate or affiliate of, or acting jointly or in concert with, the person or company making the offer;

 

  c.

that such shareholder shall not tender any shares in acceptance of the offer, including any varied form of the offer, without giving the Transfer Agent and the Secretary of Shaw written notice of such acceptance or intended acceptance at least seven days prior to the Expiry Date; and

 

  d.

that such shareholder shall not transfer any Class A Shares, directly or indirectly, prior to the Expiry Date without giving the Transfer Agent and the Secretary of Shaw written notice of such transfer or intended transfer at least seven days prior to the Expiry Date, which notice shall state, if known to the transferor, the names of the transferees and the number of Class A Shares transferred or to be transferred to each transferee; or

 

  (C)

as of the end of the seventh day after the Offer Date, a combination of certificates that comply with either clause (a) or (b) from shareholders of Shaw owning in the aggregate more than 50% of the then outstanding Class A Shares, exclusive of shares owned immediately prior to the Exclusionary Offer by the Class A Offeror, has been delivered to the Transfer Agent and to the Secretary of Shaw.

 

(vi)

Modification

Neither the Class A Shares nor the Class B Non-Voting Shares may be subdivided, consolidated, reclassified or otherwise changed unless contemporaneously therewith the other class is also subdivided, consolidated, reclassified or otherwise changed in the same proportion and in the same manner.

 

(vii)

Offer to Purchase

Shaw may not make an offer to purchase any outstanding Class A Shares unless at the same time it makes an offer to purchase, on the same terms, an equivalent proportion of the outstanding Class B Non-Voting Shares.

 

(viii)

Redemption

Neither the Class A Shares nor the Class B Non-Voting Shares are redeemable at the option of either Shaw or the holder thereof.

 

(c)

Preferred Shares

 

(i)

Class 1 Preferred Shares

The Class 1 Preferred Shares are issuable in one or more series. The Board of Directors may fix from time-to-time before such issue the number of shares which is to comprise each series then to be issued and the designation, rights, conditions, restrictions and limitations attaching thereto, including, without limiting the generality of the foregoing, the rate of preferential

 

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Shaw Communications Inc.

ANNUAL INFORMATION FORM

November 29, 2012

 

dividends and whether or not such dividends shall be cumulative, the dates of payment thereof, the redemption price and terms and conditions of redemption (including the rights, if any, of the holders of the Class 1 Preferred Shares of such series to require the redemption thereof), conversion rights (if any) and any redemption fund, purchase fund or other provisions to be attached to the Class 1 Preferred Shares of such series.

The shares of each successive series of Class 1 Preferred Shares shall have preference over the Class A Shares and Class B Non-Voting Shares as to dividends of not less than 1/100th of a cent per share, and shall not confer upon the shares of one series a priority over the shares of any other series of the Class 1 Preferred Shares in respect of voting, dividends or return of capital. If any amount of cumulative dividends or any amount payable on return of capital in respect of shares of a series of the Class 1 Preferred Shares is not paid in full, the shares of such series shall participate rateably with the shares of all other series of Class 1 Preferred Shares in respect of accumulated dividends and return of capital.

 

(ii)

Class 2 Preferred Shares

The Class 2 Preferred Shares are issuable in one or more series. From time-to-time before any such issue, the directors may fix the number of shares which is to comprise each series then to be issued and the designation, rights, conditions, restrictions or limitations attaching thereto, including, without limiting the generality of the foregoing, the rate of preferential dividends, and whether or not the same shall be cumulative, the dates of payment thereof, the redemption price and terms and conditions of redemption (including the rights, if any, of the holders of Class 2 Preferred Shares of such series to require the redemption thereof), conversion rights (if any), and any redemption fund, purchase fund or other provisions to be attached to the Class 2 Preferred Shares of such series.

The shares of each successive series of Class 2 Preferred Shares shall have preference over the Class A Shares and Class B Non-Voting Shares (but shall rank junior to the Class 1 Preferred Shares) as to dividends and shall not confer upon the shares of one series a priority over the shares of any other series of Class 2 Preferred Shares in respect of voting, dividends or return of capital. If any amount of cumulative dividends or any amount payable on return of capital in respect of shares of a series of Class 2 Preferred Shares is not paid in full, the shares of such series shall participate rateably with the shares of all other series of the Class 2 Preferred Shares in respect of accumulated dividends and return of capital.

 

(iii)

Series A Shares and Series B Shares

The Series A Shares and the Series B Shares are each a series of Class 2 Preferred Shares. On May 31, 2011, the Corporation issued 12,000,000 Series A Shares.

Holders of the Series A Shares are entitled to receive fixed cumulative preferential cash dividends, as and when declared by the Board of Directors of the Corporation, payable quarterly on the last day of each of March, June, September and December (or if such date is not a business day, the next succeeding business day) at an annual rate of $1.125 per Series A Share, for the initial five-year period ending on June 30, 2016. The dividend rate will be reset on June 30, 2016 and every five years thereafter at a rate equal to the sum of the five-year Government of Canada bond yield and 2.00%.

On June 30, 2016 and on June 30 of every fifth year thereafter, the Corporation may, at its option, redeem the Series A Shares in whole or in part by the payment of $25.00 in cash per

 

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Series A Share together with all declared and unpaid dividends to but excluding the date fixed for redemption. The Series A Shares do not have a fixed maturity date and are not redeemable at the option of the holders of the Series A Shares. Holders of Series A Shares will have the right, at their option, to convert all or any of their Series A Shares into Series B Shares, on the basis of one Series B Share for each Series A Share, subject to certain conditions, on June 30, 2016 and on June 30 of every fifth year thereafter.

Holders of the Series B Shares will be entitled to receive quarterly floating rate cumulative preferred cash dividends, as and when declared by the Board of Directors of the Corporation, payable on the last day of each March, June, September and December (each three month period ending on such a day, a “Quarterly Floating Rate Period”) in the amount per Series B Share determined by multiplying the Floating Quarterly Dividend Rate for such Quarterly Floating Rate Period by $25.00 and multiplying that product by a fraction, the numerator of which is the actual number of days in such Quarterly Floating Rate Period and the denominator of which is 365 or 366, depending on the actual number of days in the applicable year, where the “Floating Quarterly Dividend Rate” for a Quarterly Floating Rate Period equals the sum of 2.00% and the average yield expressed as an annual rate on three-month Government of Canada treasury bills for the most recent treasury bills auction that precedes by at least 30 days the first day of such Quarterly Floating Rate Period.

On any Series B Conversion Date (as hereinafter defined) on and after June 30, 2021, the Corporation may, at its option, redeem the Series B Shares in whole or in part by the payment of $25.00 in cash per Series B Share together with all declared and unpaid dividends to, but excluding, the date fixed for redemption. On any date after June 30, 2016 that is not a Series B Conversion Date, the Corporation may, at its option, redeem all or any part of the outstanding Series B Shares by the payment of an amount in cash of $25.50 per Series B Share together with all declared and unpaid dividends to but excluding the redemption date. The Series B Shares do not have a fixed maturity date and are not redeemable at the option of the holders of the Series B Shares.

Holders of Series B Shares will have the right, at their option, on June 30, 2021 and on each June 30 every fifth year thereafter (each such date a “Series B Conversion Date”), to convert, subject to certain conditions, all or any of their Series B Shares, into Series A Shares, on the basis of one Series A Share for each Series B Share.

In the event of the liquidation, dissolution or winding-up of the Corporation or any other distribution of assets of the Corporation among its shareholders for the purpose of winding-up its affairs, subject to the prior satisfaction of the claims of all creditors of the Corporation and of holders of shares of the Corporation ranking prior to the Series A Shares and the Series B Shares, the holders of Series A Shares and Series B Shares will be entitled to payment of $25.00 per share, and all accrued and unpaid dividends up to, but excluding, the date fixed for payment or distribution, before any amount may be paid or any assets of the Corporation are distributed to the registered holders of any shares ranking junior to the Series A Shares and the Series B Shares. After payment of such amounts, the holders of Series A Shares and Series B Shares will not be entitled to share in any further distribution of the assets of the Corporation.

Subject to applicable law, holders of the Series A Shares and Series B Shares will not be entitled to receive notice of, attend, or vote at any meeting of shareholders of the Corporation. In the event that, at any time, the Corporation has failed to pay eight quarterly dividends on the

 

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Series A Shares or the Series B Shares, which, at such time, have not been paid in full, whether or not such dividends are consecutive and whether or not such dividends have been declared, the Corporation shall take all necessary steps to nominate for election to the Board of Directors one independent candidate proposed by the holders of the Series A Shares, the Series B Shares and the holders of any other preferred shares in the capital of the Corporation in whose favour any right to nominate upon failure of the Corporation to pay dividends is then in force, all of such holders to be considered one class for the purpose of proposing such candidate. Such candidate shall be nominated for election at the next scheduled annual shareholders’ meeting following the Corporation’s failure to pay such dividends, such election to be pursuant to the vote of all shareholders eligible to vote in respect thereof in accordance with the articles and by-laws of the Corporation. Until all such dividends are paid in full, such a nominee shall be nominated for election at each annual shareholders’ meeting. When such dividends are paid in full, this right shall be extinguished and the nominee shall immediately resign. This right shall become effective again at such time as the Corporation may again so fail to pay dividends.

 

(d)

Share Constraints

The statutes which govern the provision of broadcasting and telecommunications services by Shaw and its regulated subsidiaries impose restrictions on the ownership of shares of the Corporation and its regulated subsidiaries by persons that are not Canadian. In order to ensure that the Corporation and its regulated subsidiaries remain eligible or qualified to provide broadcasting and telecommunications services in Canada, the articles of the Corporation require its directors to refuse to issue or register the transfer of any Class A Shares to a person that is not a Canadian if such issue or transfer would result in the total number of such shares held by non-Canadians exceeding the maximum number permitted by applicable law. In addition, the directors of Shaw are required to refuse to issue or register the transfer of any Class A Shares to a person in circumstances where such issue or transfer would affect the ability of the Corporation and its regulated subsidiaries to obtain, maintain, amend or renew a license to carry on any business. The articles of the Corporation further provide that if, for whatever reason, the number of Class A Shares held by non-Canadians or other such persons exceeds the maximum number permitted by applicable law or would affect the ability to carry on any licensed business, Shaw may, to the extent permitted by corporate or communications statutes, sell the Class A Shares held by such non-Canadians or other persons as if it were the owner of such shares. The articles of the Corporation also give its directors the right to refuse to issue or register the transfer of shares of any class in the capital of the Corporation if (i) the issue or the transfer requires the prior approval of a regulatory authority unless and until such approval has been obtained; or (ii) the person to whom the shares are to be issued or transferred has not provided Shaw with such information as the directors may request for the purposes of administering these share constraints.

 

2.

Dividends

 

(a)

Dividend Policy

The Corporation’s dividend policy for Class A Shares and Class B Non-Voting Shares is reviewed on a quarterly basis by the Board of Directors of Shaw. In general, subject to the rights of any preferred shares outstanding from time-to-time, holders of Class A Shares and Class B Non-Voting Shares are entitled to receive such dividends as the Board of Directors determines to declare on a share-for-share basis, if, as and when any such dividends are declared and paid.

 

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In accordance with the terms and conditions of such shares, for each Dividend Period the aggregate of the dividends (other than stock dividends) declared and paid on each Class A Share shall be $0.0025 per share per annum less than the aggregate of the dividends declared and paid on each Class B Non-Voting Share. See the information under the heading “Capital Structure, Dividends and Related Matters – Description of Capital Structure – Class A Shares and Class B Non-Voting Shares – Dividends”.

Dividends on the Series A Shares and the Series B Shares are described under the heading “Capital Structure, Dividends and Related Matters – Description of Capital Structure – Preferred Shares – Series A Shares and Series B Shares”.

 

(b)

Dividend Rates and Payment Dates

The tables below set out dividend amounts and payment dates for the Class A Shares and the Class B Non-Voting Shares for the fiscal year ended August 31, 2012 and the aggregate annual cash dividends declared per Class A Share and Class B Non-Voting Share for each of the past three fiscal years.

 

Payment Dates   

Dividends on

Class A Shares

    

Dividends on

Class B Non-Voting Shares

     Payment Dates   

Dividends on

Series A Preferred Shares

 

September 29, 2011

   $ 0.076458       $ 0.076667       September 30, 2011    $ 0.37603   

October 28, 2011

   $ 0.076458       $ 0.076667         

November 29, 2011

   $ 0.076458       $ 0.076667         

December 29, 2011

   $ 0.076458       $ 0.076667       January 3, 2012    $ 0.28125   

January 30, 2012

   $ 0.076458       $ 0.076667         

February 28, 2012

   $ 0.076458       $ 0.076667         

March 29, 2012

   $ 0.080625       $ 0.080833       April 2, 2012    $ 0.28125   

April 27, 2012

   $ 0.080625       $ 0.080833         

May 30, 2012

   $ 0.080625       $ 0.080833         

June 28, 2012

   $ 0.080625       $ 0.080833       July 3, 2012    $ 0.28125   

July 30, 2012

   $ 0.080625       $ 0.080833         

August 30, 2012

   $ 0.080625       $ 0.080833         
Payment Period   

Dividends on

Class A Shares

    

Dividends on

Class B Non-Voting Shares

             

Fiscal 2010

   $ 0.857502       $ 0.860000         

Fiscal 2011

   $ 0.897498       $ 0.900000         

Fiscal 2012

   $ 0.942498       $ 0.945000         

 

3.

Ratings

The following information relating to the Corporation’s credit and preferred share ratings is provided as it relates to the Corporation’s financing costs, liquidity and operations. Specifically, credit ratings affect the Corporation’s ability to obtain short-term and long term financing and the cost of such financing. Additionally, the ability of the Corporation to engage in certain business activities on a cost effective basis may depend on these ratings. A reduction in the current ratings, particularly a downgrade below investment grade ratings or a negative change in the Corporation’s ratings outlook, could adversely affect the Corporation’s cost of financing and its access to sources of liquidity and capital. In addition, changes in these ratings may affect the Corporation’s ability to, and the associated costs of, entering into and maintaining ordinary course contracts with customers or suppliers on acceptable terms.

 

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The following table sets forth the ratings assigned to the Corporation’s senior note obligations by DBRS Limited (“DBRS”), Standard & Poor’s, a division of The McGraw Hill Companies, Inc. (“S&P”) and Moody’s Investors Services, Inc. (“Moody’s”).

 

Security    DBRS(1)      S&P(2)      Moody’s(3)  

Senior Notes

     BBB (stable)         BBB-(stable)         Baa3 (stable)   

Notes:

(1)

DBRS’ credit ratings are on a long-term debt rating scale that ranges from AAA to D, which represents the range from highest to lowest quality of such securities rated. A rating of BBB by DBRS is the fourth highest of ten categories and is assigned to debt securities considered to be of adequate credit quality. Protection of interest and principal is considered acceptable, but the entity is fairly susceptible to adverse changes in financial and economic conditions, or there may be other adverse conditions present which reduce the strength of the entity and its rated securities. The assignment of a “(high)” or “(low)” modifier within certain rating categories indicates relative standing within such category. The absence of either a “high” or “low” designation indicates the rating is in the middle of the category.

(2)

S&P’s credit ratings are on a long-term debt rating scale that ranges from AAA to D, which represents the range from highest to lowest quality of such securities rated. A rating of BBB by S&P is the fourth highest of ten major categories. According to the S&P rating system, an obligor with debt securities rated BBB has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments. The addition of a plus (+) or minus (-) designation after a rating indicates the relative standing within a particular rating category.

(3)

Moody’s credit ratings are on a long-term debt rating scale that ranges from Aaa to C, which represents the range from highest to lowest quality of such securities rated. A rating of Baa by Moody’s is the fourth highest of nine categories and denotes obligations judged to have speculative elements and which are subject to substantial credit risk. The addition of a 1, 2 or 3 modifier after a rating indicates the relative standing within a particular rating category. The modifier 1 indicates that the issue ranks in the higher end of its generic rating category, the modifier 2 indicates a mid-range ranking and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.

The following table sets forth the ratings assigned to the Series A Shares by DBRS and S&P.

 

Security    DBRS(1)      S&P(2)  

Series A Shares

     Pfd-3 (stable)         P-3 (stable)   

Notes:

(1)

DBRS ratings for preferred shares range from a high of Pfd-1 to a low of D. A Pfd-3 rating by DBRS is the third highest of six categories granted by DBRS. According to the DBRS rating system, securities rated Pfd-3 are of adequate credit quality. While protection of dividends and principal is still considered acceptable, the issuing entity is more susceptible to adverse changes in financial and economic conditions, and there may be other adverse conditions present which detract from debt protection. “High” or “low” grades are used to indicate the relative standing within a rating category. The absence of either a “high” or “low” designation indicates the rating is in the middle of the category.

(2)

S&P’s ratings for preferred shares range from a high of P-1 to a low of D. A P-3 rating by S&P is the third highest of eight categories granted by S&P. According to the S&P rating system, while securities rated P-3 are regarded as having significant speculative characteristics, they are less vulnerable to non-payment than other speculative issues, however face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation. The ratings from P-1 to P-5 may be modified by “high” and “low” grades which indicate relative standing within the major rating categories. The absence of either a “high” or “low” designation indicates the rating is in the middle of the category.

 

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Ratings accorded by a rating agency are not recommendations to purchase, hold or sell the relevant securities inasmuch as such ratings do not comment as to market price or suitability for a particular investor. There is no assurance that any rating will remain in effect for any given period of time or that any rating will not be revised or withdrawn entirely by a rating agency in the future if, in its judgment, circumstances so warrant and if any such rating is so revised or withdrawn, the Corporation is under no obligation to update this Annual Information Form. The lowering of any rating may negatively affect the quoted market price, if any, of the relevant securities.

The Corporation made payments to each of DBRS, S&P and Moody’s in connection with obtaining the above ratings and over the past two years has made payments in respect of certain other services provided to the Corporation by each of S&P and Moody’s. Over the past two years the Corporation has not made any other payments to DBRS.

 

4.

Market for Securities

 

(a)

Marketplaces

As at August 31, 2012, the following securities of the Corporation were listed and posted for trading on the exchanges set forth below.

 

Security    Exchange    Symbol    CUSIP Number  

Class A Shares

   TSX Venture Exchange    SJR.A      82028K101   

Class B Non-Voting Shares

   Toronto Stock Exchange    SJR.B      82028K200   
   New York Stock Exchange    SJR      82028K200   

Series A Shares

   Toronto Stock Exchange    SJR.PR.A      82028K879   

 

(b)

Trading Price and Volume

The following table sets forth the monthly price range and volume traded on the identified Canadian marketplace for each of the Corporation’s publicly traded securities for each month during the fiscal year ending August 31, 2012.

 

     Class A Shares
TSX Venture-SJR.A
     Class B Non-Voting Shares
TSX-SJR.B
     Series A Shares
TSX-SJR.PR.A
 
      High      Low      Volume      High      Low      Volume      High      Low      Volume  

September 2011

     24.70         22.32         6,907         22.25         20.53         20,005,469         25.50         24.93         283,723   

October 2011

     24.50         21.86         8,667         21.71         19.60         17,576,477         25.68         25.00         205,169   

November 2011

     23.50         21.65         7,540         21.41         19.80         25,628,049         25.78         25.11         137,416   

December 2011

     24.00         21.96         5,920         21.24         19.56         16,859,932         25.68         25.06         112,677   

January 2012

     25.93         21.61         3,796         20.66         19.62         15,541,382         26.15         25.20         140,437   

February 2012

     23.00         21.50         5,945         20.38         19.50         16,837,045         25.65         25.20         129,984   

March 2012

     24.00         22.34         7,788         21.33         20.00         20,388,644         25.85         24.95         160,440   

April 2012

     24.00         23.00         2,360         21.41         19.47         17,880,774         25.98         25.11         119,143   

May 2012

     25.75         22.10         6,026         20.59         18.97         25,235,421         25.96         25.30         140,735   

June 2012

     23.37         21.00         3,820         19.75         18.93         18,031,456         25.85         25.00         103,134   

July 2012

     24.34         22.16         12,734         20.03         18.98         16,166,614         25.62         25.02         250,752   

August 2012

     24.97         22.23         3,889         20.60         19.35         16,038,349         25.78         25.25         74,400   

Note:

(1)

All price and volume information is from independent third-party sources (i.e. Toronto Stock Exchange (“TSX”) website and Thomson Reuters).

 

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DIRECTORS AND OFFICERS

 

1.

Directors

Set forth below is a list of the directors of the Corporation as of November 29, 2012 indicating their municipality, province or state and country of residence, their principal occupations during the five preceding years and the year in which they became a director of the Corporation. Directors are typically elected at the annual meeting of shareholders to serve until the next annual meeting or until a successor is elected or appointed.

 

Name and

Municipality of Residence

   Principal Occupation During the Five Preceding Years   

Director

Since

Peter J. Bissonnette

Calgary, Alberta,

Canada

  

President of the Corporation

   2009

Adrian I. Burns

Rockcliffe Park, Ontario,

Canada

  

Corporate Director; former Member of the Copyright Board of Canada; former Commissioner of the CRTC

   2001

George F. Galbraith

Vernon, British Columbia,

Canada

  

Corporate Director; former President of Vercom Cable Services Ltd. which operated the cable television system serving Vernon, British Columbia

   1991

Richard R. Green

Boulder, Colorado

U.S.A.

  

Corporate Director; former President and CEO of Cable Television Laboratories Inc. (CableLabs®), a non-profit research development consortium dedicated to pursuing new cable telecommunications technologies

   2010

Dr. Lynda Haverstock

Regina, Saskatchewan

Canada

  

Senior Vice President, Operations of RMD Engineering; former President and Chief Executive Officer of Tourism Saskatchewan; former Lieutenant Governor of Saskatchewan

   2007

Gregory J. Keating

Porters Lake, Nova Scotia

Canada

  

Chairman and Chief Executive Officer, Altimax Venture Capital, parent company of the Keating Group which comprises a diverse portfolio of business interests

   2007

Michael W. O’Brien

Canmore, Alberta,

Canada

  

Corporate Director; former Executive Vice-President, Corporate Development and Chief Financial Officer of Suncor Energy Inc., an integrated oil and gas company

   2003

Paul K. Pew,

Toronto, Ontario,

Canada

  

Co-Founder and Co-CEO of G3 Capital Corp., a Toronto-based alternative asset manager (G3’s principal units operate within the hedge fund and venture fund areas); Corporate Director and Private Investor; former Vice Chairman, Investment Banking, GMP Securities Ltd., an independent investment dealer

   2008

Jeffrey C. Royer

Toronto, Ontario,

Canada

  

Corporate Director and Private Investor

   1995

Bradley S. Shaw(1)

Calgary, Alberta,

Canada

  

Chief Executive Officer of the Corporation since November 2010 and, prior thereto, Executive Vice President

   1999

Jim Shaw(1)

Calgary, Alberta,

Canada

  

Vice Chair of the Corporation and, until November 2010, Chief Executive Officer of the Corporation

   2002

 

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Name and

Municipality of Residence

   Principal Occupation During the Five Preceding Years   

Director

Since

JR Shaw(1)

Calgary, Alberta,

Canada

  

Executive Chair of the Corporation

   1966

JC Sparkman

Lakewood, Colorado

U.S.A.

  

Corporate Director; former Executive Vice President and Executive Officer of Telecommunications Inc. (also known as TCI), one of the largest cable television operators in the United States

   1994

Carl E. Vogel

Cherry Hills Village, Colorado

U.S.A.

  

Private Investor; Senior Advisor to DISH Network. Former Vice Chairman of each of DISH Network Corporation (formerly EchoStar Communications Corporation, a satellite-delivered digital television services provider in the United States) and EchoStar Corp. (a developer of set-top boxes and other electronic technology) from February 2008 until March 2009. President from September 2006 and Vice Chairman from June 2005, EchoStar Communications Corporation until February 2008. Former President, Chief Executive Officer and a director of Charter Communications, a broadband service provider in the United States

   2006

Sheila C. Weatherill

Edmonton, Alberta

Canada

  

Corporate Director; former President and Chief Executive Officer of the Capital Health Authority (Edmonton region health administrative authority)

   2009

Willard H. Yuill

Medicine Hat, Alberta,

Canada

  

Chairman and Chief Executive Officer of The Monarch Corporation, a private investment company

   1999

Note:

(1)

JR Shaw is the father of brothers, Jim Shaw and Bradley S. Shaw.

 

2.

Board Committee Members

The Board of Directors of the Corporation has established four standing committees: Executive, Audit, Corporate Governance and Nominating, and Human Resources and Compensation. The membership of each committee is set forth below.

The Executive Committee consists of JR Shaw (Chair), Adrian Burns, Michael W. O’Brien, Bradley S. Shaw and JC Sparkman.

The Audit Committee consists of Paul Pew (Chair), Gregory J. Keating, Jeffrey C. Royer and Carl E. Vogel. For further details concerning the Audit Committee, see the information under the heading “Audit Committee”.

The Corporate Governance and Nominating Committee consists of Michael W. O’Brien (Chair), Adrian Burns, George F. Galbraith and Dr. Lynda Haverstock.

The Human Resources and Compensation Committee consists of Willard H. Yuill (Chair), Richard Green, JC Sparkman and Sheila C. Weatherill.

 

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3.

Executive Officers

Set forth below is a list of the executive officers of the Corporation as of November 29, 2012 indicating their municipality, province or state and country of residence and their respective positions with the Corporation. Officers are appointed annually and serve at the discretion of the Board of Directors of the Corporation.

 

Name and Municipality of Residence    Principal Position with the Corporation

JR Shaw(1)

Calgary, Alberta, Canada

  

Executive Chair

Jim Shaw(1)

Calgary, Alberta, Canada

  

Vice Chair

Bradley S. Shaw(1)

Calgary, Alberta, Canada

  

Chief Executive Officer

Peter J. Bissonnette

Calgary, Alberta, Canada

  

President

Steve Wilson

Calgary, Alberta, Canada

  

Senior Vice President and Chief Financial Officer

Jay Mehr

Calgary, Alberta, Canada

  

Senior Vice President, Operations

Michael D’Avella

Calgary, Alberta, Canada

  

Senior Vice President, Planning

Jean Brazeau

Toronto, Ontario, Canada

  

Senior Vice President, Regulatory Affairs

Paul Robertson

Toronto, Ontario, Canada

  

Group Vice President, Broadcasting and President, Shaw Media

Rhonda D. Bashnick

Calgary, Alberta, Canada

  

Group Vice President, Finance

Peter Johnson

Calgary, Alberta, Canada

  

General Counsel and Corporate Secretary

Louis A. Desrochers, Q.C.

Edmonton, Alberta, Canada

  

Honorary Corporate Secretary

Note:

(1)

JR Shaw is the father of brothers, Jim Shaw and Bradley S. Shaw.

All of the above officers have been employed in various capacities by the Corporation during the past five years except Paul Robertson who was President, Television of Corus Entertainment Inc. until joining the Corporation in May 2010 and Louis A. Desrochers, Q.C., who was counsel with McCuaig Desrochers, Barristers and Solicitors, until September 2003 and is now retired.

 

4.

Shareholdings of Directors and Executive Officers

To the knowledge of the Corporation, the directors and executive officers, as a group, beneficially own, directly or indirectly, or exercise control or direction over, 17,868,500 Class A Shares, representing, as of November 29, 2012, approximately 79.3% of the issued and

 

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outstanding shares of such class. Of such number, JR Shaw beneficially owns, controls or directs 17,782,600 Class A Shares, representing approximately 79% of the issued and outstanding shares of such class. JR Shaw, members of his family and corporations owned or controlled by them are parties to a Voting Trust Agreement relating to all Class A Shares that they own, control or direct. The voting rights with respect to such shares are exercised by the representative of a committee of five trustees.

AUDIT COMMITTEE

 

1.

Audit Committee Charter

The Audit Committee of the Board of Directors of the Corporation is responsible for overseeing the integrity of the Corporation’s financial reporting process.

A copy of the charter of the Audit Committee is attached as Schedule A to this Annual Information Form.

 

2.

Audit Committee Composition, Education and Experience

The Audit Committee consists of Paul K. Pew (Chair), Gregory J. Keating, Jeffrey C. Royer and Carl E. Vogel. Each member of the Audit Committee is independent and financially literate, as such terms are defined in Multilateral Instrument 52-110 – Audit Committees. In addition, Messrs. Pew, Royer and Vogel each qualify as a “financial expert” under the Sarbanes-Oxley Act of 2002 and other applicable regulatory requirements.

In addition to each member’s general business experience, the education and experience of each member of the Audit Committee that is relevant to the performance of his responsibilities as a member of the Audit Committee are set forth below.

Paul Pew (Chair) is the Co-Founder and Co-Chief Executive Officer of G3 Capital Corp., a Toronto-based alternative asset manager (G3’s principal units operate within the hedge fund and venture fund areas). He formerly served as a Senior Financial Analyst and Investment Banker with GMP Securities Ltd. He received his Honors Business Administration from the University of Western Ontario and is a Chartered Accountant and Chartered Financial Analyst.

Gregory Keating is Chairman and Chief Executive Officer of Altimax Venture Capital, parent company of the Keating Group which comprises a diverse portfolio of business interests, and was President of Access Communications Inc. from 1992 to 1999. He has completed the YPO Harvard School of Business CEO Program.

Jeffrey Royer is a private investor. He is Chairman of Galtronics Corporation and Galtronics Medical Corporation, Tiberius, Israel; General Partner of the Arizona Diamondbacks Baseball Club, Phoenix, Arizona; and Chairman of Massuah Hotels, Jerusalem, Israel, among other for-profit and non-profit entities. He served as a member and Chairman of the Audit Committee in previous years. Mr. Royer received his BA in Economics from Lawrence University.

Carl Vogel is a private investor. He is also a director and Senior Advisor of DISH Network Corporation. He is a director of numerous public and private companies, Chairman of the audit committee of NextWave Wireless Inc., and a member of the audit committees of Ascent Media

 

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Shaw Communications Inc.

ANNUAL INFORMATION FORM

November 29, 2012

 

Corporation, ION Media Corporation and Universal Electronics Inc. He received his Bachelor of Science from St. Norbert College, with an emphasis in finance and accounting, and was a former active Certified Public Accountant.

 

3.

Audit Fees

The aggregate amounts paid or accrued by the Corporation with respect to fees payable to Ernst & Young LLP, the auditors of the Corporation, for audit (including financings, regulatory reporting requirements and Sarbanes-Oxley Act-related services), audit-related, tax and other services in the fiscal years ended August 31, 2012 and 2011 were as follows:

 

Type of Service    Fiscal 2012      Fiscal 2011  

Audit Fees

   $ 2,915,180       $ 2,955,953   

Audit-related Fees

     387,083         100,866   

Tax Fees

     280,434         393,579   

All Other Fees

     -         122,262   

 

 

Total

   $ 3,582,697       $ 3,572,660   

 

 

Audit-related fees for fiscal 2012 and 2011 relate to consultation on International Financial Reporting Standards (“IFRS”). The tax fees for fiscal 2012 relate to post-acquisition tax advisory services, linear property tax compliance and general tax advisory services and for fiscal 2011 relate to tax advisory services in respect of the acquisition of the broadcasting business of Canwest Global Communications Corp. and linear property tax compliance. The other fees for fiscal 2011 relate to project advisory services.

The Audit Committee of the Corporation considered and agreed that the above fees are compatible with maintaining the independence of the Corporation’s auditors. Further, the Audit Committee determined that, in order to ensure the continued independence of the auditors, only limited non-audit services will be provided to the Corporation by Ernst & Young LLP and in such case, only with the prior approval of the Audit Committee. The Chair of the Audit Committee has been delegated authority to approve the retainer of Ernst & Young LLP to provide non-audit services in extraordinary circumstances where it is not feasible or practical to convene a meeting of the Audit Committee, subject to an aggregate limit of $150,000 in fees payable to Ernst & Young LLP for such services at any time until ratified by the Audit Committee. The Chair of the Audit Committee is required to report any such services approved by him to the Audit Committee.

LEGAL PROCEEDINGS

The Corporation is involved in litigation matters arising in the ordinary course and conduct of its business. Although such proceedings cannot be predicted with certainty, management of the Corporation does not expect that the outcome of these matters will have a material adverse effect on the Corporation.

REGISTRAR AND TRANSFER AGENT

The registrar and transfer agent for the Class A Shares, Class B Non-Voting Shares and Series A Shares is CIBC Mellon Trust Company at its principal offices in Vancouver, British Columbia; Calgary, Alberta; Toronto, Ontario; and Halifax, Nova Scotia (which business is currently being

 

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Shaw Communications Inc.

ANNUAL INFORMATION FORM

November 29, 2012

 

operated by Canadian Stock Transfer Company Inc. in the name of CIBC Mellon Trust Company during a transition period). The co-registrar and co-transfer agent in the United States for the Class B Non-Voting Shares is BNY Mellon Shareowner Services at its principal office in Jersey City, New Jersey.

INTERESTS OF EXPERTS

The Corporation’s auditors are Ernst & Young LLP. The Corporation’s audited consolidated financial statements for the year ended August 31, 2012 have been filed under NI 51-102 – Continuous Disclosure Obligations. Ernst & Young LLP has communicated to the Corporation that, in their opinion, they are independent of the Corporation within the meaning of the rules of Professional Conduct of the Institute of Chartered Accountants of Alberta and the applicable rules and regulations adopted by the U.S Securities and Exchange Commission and Public Company Accounting Oversight Board (United States).

ADDITIONAL INFORMATION

Additional information concerning the Corporation is available through the Internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) which may be accessed at www.sedar.com. Copies of such information may also be obtained on the Corporation’s website at www.shaw.ca, or on request without charge from the Group Vice President, Finance of the Corporation, Suite 900, 630 – 3rd Avenue S.W., Calgary, Alberta, Canada T2P 4L4 (telephone (403) 750-4500).

Additional information including directors’ and officers’ remuneration and indebtedness, principal holders of the Corporation’s securities, and securities authorized for issuance under equity compensation plans will be contained in the Corporation’s Proxy Circular for its January 9, 2013 shareholder’s meeting. Additional financial information is provided in the Corporation’s comparative financial statements for its most recently completed financial year, and management’s discussion and analysis thereon. Copies of such documents may be obtained in the manner set forth above.

CAUTION CONCERNING FORWARD LOOKING STATEMENTS

Statements included in this Annual Information Form that are not historic constitute “forward-looking statements” within the meaning of applicable securities laws. Such statements include, but are not limited to, statements about future capital expenditures, financial guidance for future performance, business strategies and measures to implement strategies, competitive strengths, expansion and growth of Shaw’s business and operations and other goals and plans. They can generally be identified by words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “target”, “goal” and similar expressions (although not all forward-looking statements contain such words). All of the forward-looking statements made in this report are qualified by these cautionary statements.

Forward-looking statements are based on assumptions and analyses made by Shaw in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances as of the current date. These assumptions include, but are not limited to, general economic conditions, interest and exchange rates, technology deployment, content and equipment costs, industry structure, conditions and stability, government regulation and the integration of recent acquisitions. Many of these assumptions are confidential.

 

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Shaw Communications Inc.

ANNUAL INFORMATION FORM

November 29, 2012

 

You should not place undue reliance on any forward-looking statements. Many factors, including those not within Shaw’s control, may cause Shaw’s actual results to be materially different from the views expressed or implied by such forward-looking statements, including, but not limited to, general economic, market and business conditions; changes in the competitive environment in the markets in which Shaw operates and from the development of new markets for emerging technologies; industry trends and other changing conditions in the entertainment, information and communications industries; Shaw’s ability to execute its strategic plans; opportunities that may be presented to and pursued by Shaw; changes in laws, regulations and decisions by regulators that affect Shaw or the markets in which it operates; Shaw’s status as a holding company with separate operating subsidiaries; and other factors described in the Corporation’s 2012 Annual MD&A under the heading “Known events, trends, risks and uncertainties”. The foregoing is not an exhaustive list of all possible factors. Should one or more of these risks materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein.

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

Any forward-looking statement speaks only as of the date on which it was originally made and, except as required by law, Shaw expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement to reflect any change in related assumptions, events, conditions or circumstances.

 

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SCHEDULE A

SHAW COMMUNICATIONS INC.

AUDIT COMMITTEE CHARTER

This Charter of the Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of Shaw Communications Inc. (the “Corporation”) was adopted and approved June 28, 2012.

 

I.

Mandate

The primary function of the Committee is to assist the Board in fulfilling its oversight responsibilities with respect to the integrity of the Corporation’s financial reporting process. In this regard, the primary duties of the Committee involve reviewing the Corporation’s annual and interim financial statements; monitoring the effectiveness and integrity of the Corporation’s financial reporting, internal control and related management information systems; and overseeing the audits conducted by the Corporation’s external auditors.

The Committee will fulfill this mandate primarily by carrying out the duties and responsibilities set forth in Section IV of this Charter.

 

II.

Composition

The Committee shall be comprised of three or more directors that meet the independence, financial literacy, financial expertise, and other membership requirements under applicable laws, policies and guidelines of securities regulatory authorities and any other applicable policies established by the Board.

The members of the Committee shall be appointed by the Board annually. Each member shall serve until the next annual general meeting of shareholders of the Corporation or until his or her earlier resignation or removal by the Board. The Chair of the Committee shall be appointed by the Board annually and shall carry out the responsibilities and duties set forth in Section V of this Charter.

 

III.

Meetings

The Committee shall meet at least quarterly, or more frequently as circumstances require or as requested by the Board, a member of the Committee, the Corporation’s external auditors or a senior officer of the Corporation.

The Committee shall also meet at least annually with the Corporation’s senior management (which shall include the Chief Financial Officer), internal auditors and external auditors in separate in camera sessions to discuss any matters that the Committee or any of these groups believe should be discussed privately. In addition, the Committee (or at least its Chair) shall meet with the external auditors and management quarterly to review the Corporation’s interim financial statements.

Notice of each meeting of the Committee shall be given to each member of the Committee as far in advance of the time for the meeting as practicable, but in any event, not later than 24 hours preceding the time of the meeting (unless otherwise waived by all members of the Committee). Each notice of meeting shall state the nature of the business to be transacted at the meeting in reasonable detail and, to the extent practicable, be accompanied by copies of documentation to be considered at the meeting.

 

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A quorum for the transaction of business at a meeting shall consist of not less than a majority of the members of the Committee. Members of the Committee may participate in any meeting by means of such telephonic, electronic or other communication facilities as permit all persons participating in the meeting to communicate adequately with each other, and a member participating by any such means shall be deemed to be present at that meeting.

Senior management of the Corporation and other parties may attend meetings of the Committee, as may be deemed appropriate by the Committee.

Minutes shall be kept of all meetings of the Committee (other than in camera sessions) and shall be signed by the Chair and Secretary of the meeting.

 

IV.

Responsibilities and Duties of the Committee

The Committee shall fulfill its oversight responsibilities primarily by carrying out the activities set forth below as well as all such other actions which may be incidental thereto or which may be necessary for the Committee to comply with the spirit and intent of this Charter and applicable law. The items enumerated below are not intended to be exhaustive of the duties of the Committee and may be supplemented and revised from time to time as may be appropriate.

Financial Statement Review

 

1.

Review with management and the internal and external auditors the Corporation’s annual financial statements (including any certification, report, opinion or review thereon rendered by external auditors) and any public disclosure documents containing financial information (including, in particular, management’s discussion and analysis (“MD&A”), prospectuses and registration statements) and make recommendations to the Board, as required, as to the approval of such documents prior to public disclosure.

 

2.

Review with management and the internal and external auditors the Corporation’s quarterly financial statements and any public disclosure documents containing financial information, and approve such quarterly financial statements for disclosure to the public (provided that such statements are subsequently tabled before the Board for ratification, confirmation and approval), or make recommendations to the Board, as required, as to the approval of such documents prior to public disclosure.

 

3.

Review earnings press releases as well as financial information and earnings guidance given to analysts and rating agencies.

 

4.

Review the Corporation’s public disclosure documents to ensure that they present all material information in a fair and balanced manner, in compliance with applicable requirements.

 

5.

Periodically consult with the Corporation’s external auditors in the absence of management concerning the fullness and accuracy of the Corporation’s financial statements.

 

6.

Establish regular, timely and separate systems of reporting to the Committee by each of management of the Corporation and the external auditors regarding any significant judgments made in management’s preparation of the financial statements and the view of each as to appropriateness of such judgments.

 

7.

Review any proposed changes in major auditing and accounting practices and policies, the presentation of significant risks and uncertainties and key estimates and judgments of management that may be material to financial statement presentation and reporting.

 

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8.

Obtain assurance that financial statement certifications and attestations from management of the Corporation have been or will be completed and filed with applicable securities regulatory authorities.

 

9.

Report to the Board on at least a quarterly basis on the results of the Committee’s activities, including the Committee’s review of the Corporation’s annual and interim financial statements.

Financial Reporting, Internal Control and Related Management Information Systems

 

10.

In consultation with the external auditors, review the integrity of the Corporation’s financial reporting processes, both internal and external, and the Corporation’s accounting policies as applied in its financial statements, to determine the quality and acceptability of the Corporation’s financial reporting.

 

11.

Review the extent to which changes or improvements in financial or accounting practices, as approved by the Committee, have been implemented.

 

12.

Receive timely reports from the external auditors concerning:

 

  (a)

all critical accounting policies and practices of the Corporation,

 

  (b)

all alternative accounting policies within generally accepted accounting principles that have been discussed with management; and

 

  (c)

all material written correspondence and disagreements between management and the external auditors (including any management letter or schedule of unadjusted differences).

 

13.

Review summaries of significant, unusual or material off-balance sheet arrangements to assess their impact on the Corporation’s financial reporting process and financial statements.

 

14.

Jointly with the Human Resources and Compensation Committee review pension and other post-employment benefit liabilities, including underlying assumptions, financial health of pension plans and disclosure in the Corporation’s financial statements.

 

15.

Review the effectiveness and integrity of internal controls, including information systems related thereto, and disclosure processes and controls (as evaluated by the internal and external auditors or otherwise) and make recommendations with respect thereto.

 

16.

Review the appointment, removal, independence and performance of the Corporation’s internal auditor.

 

17.

Review the Corporation’s internal audit procedures, including the mandate of, and all reports issued by, the Corporation’s internal auditor and management’s response and subsequent follow up to any identified weaknesses.

 

18.

Review and approve an annual control assurance plan.

 

19.

Establish procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal control or auditing matters, including a procedure for the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters, and review and consider reports on the investigation and resolution of such complaints.

 

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20.

Review reports of any fraud that involves management or other employees, particularly where such individuals have a significant role in the Corporation’s internal controls.

 

21.

Consider the implications of applicable laws and regulatory policies on the Corporation’s financial reporting process and financial statements.

 

22.

Review the status of performance monitoring information systems which relate to disclosure of non-financial information.

 

23.

Review major changes to management information systems that affect financial or internal control processes.

External Auditors

 

24.

Make recommendations to the Board and the shareholders of the Corporation, on an annual basis:

 

           (a)

concerning the appointment of the external auditors (considering, in particular, their independence and effectiveness); and

 

           (b)

concerning the terms of engagement and fees and other compensation to be paid to the external auditors.

 

25.

Oversee and review the qualifications and performance of the external auditors, who shall report directly and be accountable to the Committee (and ultimately, the Board), and approve any proposed discharge or change of the external auditors, or of the lead audit partner thereof, when circumstances warrant.

 

26.

Review in advance any engagements for non-audit services to be provided by the external auditors’ firm or its affiliates, together with estimated fees, along with any other significant relationships which the external auditors have with the Corporation, to confirm that such non-audit services and other relationships do not impair the independence of the external auditor and compliance with applicable laws.

 

27.

Request and review a report by the external auditors, to be submitted at least annually, regarding the auditing firm’s relationship with the Corporation, internal quality-control procedures, any material issues raised by the most recent internal quality-control review, or peer review, of the auditing firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the external auditors, and any steps taken to deal with any such issues.

Audit Process

 

28.

Review the audit plan with the external auditors and with senior management of the Corporation.

 

29.

Review, in camera with the external auditors, any problems experienced in performing the audit, including any restrictions imposed by management or significant accounting issues on which there was a disagreement with management.

 

30.

Review the post-audit or management letter, containing the recommendations of the external auditor and management’s response and subsequent follow up to any identified weakness.

 

31.

Resolve disputes, if any, that may arise between the external auditors and management regarding financial reporting.

 

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Risk Management

 

32.

For those risk areas that the Board has assigned oversight to this committee, identify and review, with management, the principal risks in those areas facing the Corporation and ensure that management has in place the policies and systems to assess and manage these risks.

 

33.

Review financial risks (foreign exchange risk, interest rate risk, etc.) of the Corporation and the management of such risks.

 

34.

Review the Corporation’s long term financing strategy, annual financing plan and specific proposed financings not otherwise considered in such plan.

 

35.

Review the Corporation’s tax status and monitor its approach to tax strategy, including tax reserves and potential reassessments and audits.

 

36.

Review, with the Corporation’s internal legal counsel and/or external counsel, any material legal matter that could have a significant impact on the Corporation’s financial reporting.

 

37.

Review the status of the Corporation’s compliance with laws, regulations and internal policies and procedures, and the scope and status of systems designed to ensure such compliance, particularly in relation to contingent liabilities and material risks facing the Corporation.

 

38.

Review the amount and terms of any insurance to be obtained or maintained by the Corporation and any other related risk management policies or measures.

Other

 

39.

Engage and set the remuneration of such independent external advisors, including independent legal counsel, at the Corporation’s expense, as the Committee may deem necessary or desirable to carry out its duties.

 

40.

Review the appointment of the Chief Financial Officer and any key financial executives of the Corporation involved in the financial reporting process, and set policies for the hiring by the Corporation of employees or former employees of the Corporation’s external auditors.

 

41.

Review policies and procedures with respect to the expense accounts and perquisites of executives and directors of the Corporation.

 

42.

Review the succession plans for the Chair of the Committee and for Committee’s financial experts.

 

43.

Provide orientation and training for new members of the Committee and continuing education initiatives for existing members.

 

44.

Conduct all such investigations, or authorize others to conduct such investigations, as may be necessary or desirable with respect to matters within the Committee’s mandate.

 

45.

Review this charter of the Committee on an annual basis and suggest to the Corporate Governance and Nominating Committee of the Board such revisions as the Committee may believe to be required by new laws or to be prudent.

 

46.

Perform any other activities consistent with this Charter, the Corporation’s constating documents and governing law, as the Committee or the Board deems necessary or appropriate.

 

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V. Responsibilities and Duties of the Chair of the Committee

To fulfill his or her responsibilities and duties, the Chair of the Committee shall:

 

 

Facilitate the effective operation and management of, and provide leadership to, the Committee.

 

Act as chair of meetings of the Committee.

 

Assist in setting the agenda for each meeting of the Committee and in otherwise bringing forward for consideration matters within the mandate of the Committee.

 

Facilitate the Committee’s interaction with management of the Corporation, the Board and other committees of the Board.

 

Act as a resource and mentor for other members of the Committee.

 

Perform such other duties and responsibilities as may be delegated to the Chair by the Committee from time to time.

 

vi

EX-99.4 5 d426574dex994.htm EXHIBIT 4 Exhibit 4

Exhibit 4

CONSENT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use in this Annual Report on Form 40-F of our reports dated November 29, 2012 on the consolidated financial statements of Shaw Communications Inc. as at August 31, 2012 and 2011 and September 1, 2010 and for the two years ended August 31, 2012, and the effectiveness of internal control over financial reporting of Shaw Communications Inc as of August 31, 2012 filed with the Securities and Exchange Commission.

 

Calgary, Canada

November 29, 2012

   

LOGO

 

    Chartered Accountants
EX-99.5 6 d426574dex995.htm EXHIBIT 5 Exhibit 5

Exhibit 5

SHAW COMMUNICATIONS INC.

CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER

I, Brad Shaw, Chief Executive Officer of Shaw Communications Inc., certify that:

 

1. I have reviewed this annual report on Form 40-F of Shaw Communications Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

 

4. The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

 

  (d) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

 

5. The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of issuer’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: November 29, 2012

 

/s/ Brad Shaw

Brad Shaw
Chief Executive Officer
Shaw Communications Inc.


SHAW COMMUNICATIONS INC.

CERTIFICATE OF THE CHIEF FINANCIAL OFFICER

I, Steve Wilson, Senior Vice President and Chief Financial Officer of Shaw Communications Inc., certify that:

 

1. I have reviewed this annual report on Form 40-F of Shaw Communications Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

 

4. The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

 

  (d) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

 

5. The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of issuer’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: November 29, 2012

 

/s/ Steve Wilson

Steve Wilson
Senior Vice President and Chief Financial Officer
Shaw Communications Inc.
EX-99.6 7 d426574dex996.htm EXHIBIT 6 Exhibit 6

Exhibit 6

SHAW COMMUNICATIONS INC.

CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER

Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002

Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18 of the United States Code

In connection with the annual report of Shaw Communications Inc. (the “Corporation”) on Form 40-F for the fiscal year ending August 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brad Shaw, Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Dated at Calgary, Alberta, Canada, this 29th day of November 2012.

 

/s/ Brad Shaw

Brad Shaw
Chief Executive Officer
Shaw Communications Inc.


SHAW COMMUNICATIONS INC.

CERTIFICATE OF THE CHIEF FINANCIAL OFFICER

Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002

Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18 of the United States Code

In connection with the annual report of Shaw Communications Inc. (the “Corporation”) on Form 40-F for the fiscal year ending August 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steve Wilson, Senior Vice President and Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Dated at Calgary, Alberta, Canada, this 29th day of November 2012.

 

/s/ Steve Wilson

Steve Wilson
Senior Vice President and Chief Financial Officer
Shaw Communications Inc.
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