1404745 AR Inside_Cover_1111_v3.indd - Shaw.ca

149 Pages·2011·3 MB·English

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2011
Annual Report
We, the leading entertainment and communications
company, deliver exceptional customer experience
through outstanding people sharing Shaw Values.
Home content sharing
Whole home HDPVR
5,000+ titles, 1200+ in HD
Community Wi-Fi zones
250 Mbps download speed
Record 6 HD programs & playback 5
Voicemail to email
ScoreScore ScoreScore

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1 Report to Shareholders
4 Management’s Discussion and Analysis
70 Management’s Responsibility for Financial Statements
and Report on Internal Control over Financial Reporting
72 Independant Auditors’ Reports
76 Consolidated Financial Statements
80 Notes to Consolidated Financial Statements
142 Five Years in Review
143 Shareholders’ Information
144 Corporate Information
The Annual General Meeting of Shareholders will be held on January 12, 2012 at 11:00am
(Mountain Time) at the Shaw Barlow Trail Building, 2400 – 32 Avenue NE, Calgary Alberta.
AR 2011
It’s an exciting time for Shaw. We’re taking our business
to the next level through innovation and leading edge
technology. The power of the most advanced network gives
us the opportunity to off er Canadians unparalleled products
and services, compelling choice and everyday value.
Over the next year we’ll continue to innovate, creating a
whole new entertainment experience for our customers.
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AR 2011
07 08 09 10 11 07 08 09 10 11
FREE CASH FLOW DIVIDENDS
[in millions] [in millions]
07 08 09 10 11 07 08 09 10 11
EBITDA REVENUE
[in billions] [in billions]
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ShawCommunicationsInc.
REPORTTOSHAREHOLDERS
August31,2011
DearfellowShareholders:
As we look back, 2011 was a year of significant accomplishments for Shaw Communications
Inc., both operationally and financially. This was also a year of considerable change that
included the completion of the strategic acquisition of our new Media assets, our senior
leadership transition, the start of our digital network upgrade, our broadband leadership
initiatives including our Wi-Fi build, and our decision to not pursue a conventional wireless
business.
Looking back 40 years, to 1971 when we connected our first Cable customer, it’s exciting to see
Shaw today. We have evolved from a single product company to a diverse entertainment and
communications leader. We are a valued part of everyday life in more than 12 million homes,
entertaining and engaging our customers through our portfolio of specialty channels and
conventional programmingdeliveredthroughhighquality televisioninhighdefinition.Weconnect
people to the world and each other through our broadband and phone services. We inform people
on the happenings around the globe and beyond through our news programming. We put our
customers first, working hard to provide an exceptional customer experience. We are constantly
looking for ways to improve and we challenge ourselves to continue to enhance our products and
services.Weareadynamiccompany,asuccessfuloperator,andatechnologyleader.
STRATEGICINITATIVES
The year was highlighted by the completion of the acquisition of our broadcasting business,
Shaw Media, which has proven to be a key strategic asset and very attractive acquisition. The
division performed very well this year, showcasing its leading portfolio of specialty channels and
conventional programming. Shaw, including our executive team, was recognized in March
2011, receiving the 2010 Canadian Dealmaker of the Year Award for the Media and
Telecommunications Industry. This strategic acquisition allows us to unite broadcasting
services and content with our advanced distribution platforms to offer customers the choices
they want in this rapidly evolving competitive landscape.
Late in fiscal 2011 we made the decision to not pursue a conventional wireless build and
instead focus on initiatives that align with leveraging our Media and programming assets and
strengthening our leadership position in broadband and video. One of the broadband leadership
initiatives that recently commenced includes the build of a managed carrier-grade Wi-Fi
network to extend our customers’ broadband experience beyond their home. Shaw will become
the first service provider in Canada to deliver secure and reliable wireless broadband through an
extensive Wi-Fi network covering thousands of locations.
FINANCIALPERFORMANCE
Consolidated revenue, operating income before amortization and free cash flow growth
continued in 2011 driven by the Media acquisition and increases in the core Cable and
Satellite divisions. We also continued to return value to shareholders.
Š Revenue for the year improved 28% to $4.74 billion and operating income before
amortization was up over 15% to $2.03 billion.
Š Consolidated free cash flow increased to $603 million.
Š During 2011 we increased the dividend rate by approximately 5% and paid over $390
million in dividends.
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REPORTTOSHAREHOLDERS
August31,2011
During the year we also continued to strengthen our capital structure and lower costs, taking
advantage of favorable market conditions. We issued $1.3 billion in debt and $300 million in
preferred equity using a portion of the proceeds to refinance higher cost debt assumed in the
Media acquisition.
OPERATIONALPERFORMANCE
We continue to focus on the strength of our core business and make important investments in
new technology platforms, digital reclamation and broadband capacity in order to ensure we
maintain our technological leadership. During the year we commenced a major upgrade of our
network to convert television analog tiers to digital (the Digital Network Upgrade). This upgrade
is expected to triple the capacity of our network and allow expansion of our Internet, HD and On
Demand offerings. We know that our investment in infrastructure provides further differentiation
from our competition and we make capital and operating decisions ensuring that long-term
value and profitability is generated from the appropriate investments.
We are evolving our service offerings in-step with our customers, responding to their desire for
more choice, value and freedom to choose. In 2011 we launched the Shaw Plan Personalizer,
enabling customers to customize their core entertainment service needs and receive everyday
value. We also launched the Shaw Gateway television product, providing the next generation in
television viewing with advanced features and home networking capability, bringing together the
power of broadband and high-definition technology that will be the centre of a connected home.
During 2011, we initiated an extensive consultation process having our Internet customers
share their ideas on Internet usage allowances and billing. As a result of these consultations, we
launched new Internet packages with higher speeds and expanded usage allowances, including
an industry leading 250 Mbps service using DOCSIS3.0 technology to meet the increasing data
needs of our subscribers. Currently, telecommunication competitors are unable to match our
broadband speeds and this provides a competitive advantage now and for the foreseeable
future.
Subscriber growth during the year was balanced against strong financial performance as the
competitive environment continued to increase across our operating areas.
Š We achieved Digital television customer growth of over 165,000. At the end of fiscal
2011 there were over 1.8 million Digital customers, representing almost 80% of Basic
customers. In 2011 we lost 51,000Basic cable customers.
Š During the year almost 55,000 Internet customers were added, maintaining one of the
strongest broadband businesses in North America. We continue to increase the
penetration rate of the service and now the equivalent of 82% of Basic subscribers take
the Internet service, which represents one of the highest penetration rates in North
America.
Š The Digital Phone product has been a great success and we have over 1,200,000 Digital
Phone lines since our first market launch in February 2005. Customer growth of 137,000
Digital Phone lines was achieved in fiscal 2011, with the equivalent of 54% of Basic
subscribers now taking the telephone service.
The broadcasting business acquisition included the Global Television Network (“Global”) and
over 20 Specialty services. The segment performed very well in 2011 benefitting from the
vendor operating under creditor protection and having undergone a restructuring process
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REPORTTOSHAREHOLDERS
August31,2011
removing significant costs from the business and rationalizing assets, and a recovery in the
economic cycle. We completed the organizational alignment of Shaw Media within the broader
Shaw group of companies and then began setting key priorities to capitalize on opportunities
from the combination of content and distribution. We hold a number of the top ten positions in
the channel rankings amongst our specialty services and programs on Global and continue to
optimize our portfolio to maximize long term value. Global reaches over 95% of Canadian
households and Global National, featuring Canada’s first female national news anchor, averages
one million viewers daily.
MANAGEMENTCHANGE
During the year the Corporation’s Board announced the orderly evolution of executive
management responsibilities with the appointment of Bradley S. Shaw into the Chief Executive
Officer role effective November 17, 2010. Mr. Shaw has been an employee of the Corporation
since 1987, moving through a succession of increasingly responsible positions, most recently
as Executive Vice President. This transfer of responsibilities will serve the Corporation’s
shareholders and stakeholders well for many years to come.
OURCOMMUNITIES
Shaw is committed to making a positive contribution in the communities across Canada where
we do business. Through funding, time, talent and innovative partnerships we strive to enrich,
connect, and improve the lives of Canadians. We support many areas including families,
education, athletes, the arts and the environment. From filling food banks, powering Canadian
athletes, preserving and sustaining green spaces, opening doors to innovate educational
programs, and bringing families together, our aim is to help communities grow and flourish. In
2011 we contributed almost $50 million through cash and in kind contributions supporting an
array of organizations and initiatives.
LOOKINGAHEAD
We look forward to the challenges and opportunities ahead as we build on our past success. We
are starting the new fiscal year with a number of strategic initiatives on the agenda including
our digital network upgrade and Wi-Fi build. We are operating in a dynamic environment
marked by rapid technology advances, intense competition and lingering economic
uncertainties; however, we are confident we have the resources and the creativity to
successfully execute on our fiscal 2012 strategic business priorities building value for our
shareholders.
Our innovation, spirit and drive have made us what we are today and will move us forward to
become what we want to be tomorrow. We close expressing our many thanks to our customers,
employees and our shareholders. We value your continued support.
[Signed] [Signed]
JR Shaw Bradley S. Shaw
Executive Chair Chief Executive Officer
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MANAGEMENT’SDISCUSSIONANDANALYSIS
August31,2011
November29,2011
FORWARD
Tabular dollars are in thousands 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. INTRODUCTIONTO 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 22
G. Related party transactions 30
H. New accounting standards 31
I. Knownevents, trends, risks and uncertainties 37
II. SUMMARY OF QUARTERLYRESULTS 44
III. RESULTSOF OPERATIONS 46
IV. FINANCIAL POSITION 61
V. CONSOLIDATEDCASHFLOW ANALYSIS 63
VI. LIQUIDITY ANDCAPITAL RESOURCES 65
VII. ADDITIONALINFORMATION 68
VIII. COMPLIANCEWITH NYSECORPORATEGOVERNANCELISTING
STANDARDS 68
IX. CERTIFICATION 68
CAUTIONCONCERNINGFORWARDLOOKINGSTATEMENTS
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 and industry
growth rates, currency exchange rates, technology deployment, content and equipment costs,
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MANAGEMENT’SDISCUSSIONANDANALYSIS
August31,2011
industry structure and stability, government regulation and the integration of recent
acquisitions. Many of these assumptions are confidential.
You should not place undue reliance on any forward-looking statements. Many factors,
including those not within Shaw’s control, may cause Shaw’s actual results to be materially
different from the views expressed or implied by such forward-looking statements, including,
but not limited to, general economic, market or business conditions; opportunities that may be
presented to and pursued by Shaw; Shaw’s ability to execute its strategic plans; changing
conditions in the entertainment, information and communications industries; industry trends;
changes in the competitive environment in the markets in which Shaw operates and from the
development of new markets for emerging technologies; changes in laws, regulations and
decisions by regulators that affect Shaw or the markets in which it operates in both Canada and
the United States; Shaw’s status as a holding company with separate operating subsidiaries;
and other factors 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.
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ShawCommunicationsInc.
MANAGEMENT’SDISCUSSIONANDANALYSIS
August31,2011
I. INTRODUCTIONTO 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 18 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 best-in-class 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 exceptional
customer service.
During 2011 the Company operated three principal business segments: (1) Cable – comprised
of cable television, Internet, Digital Phone and Business Solutions 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, 2011, the Cable, Satellite and Media divisions represented approximately 64%,
17% and 19% of Shaw’s business, respectively. During 2011 Shaw’s businesses generated
consolidated revenues of $4.74 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 three fiscal years follows.
1 Seedefinitionsunderkeyperformancedriversonpage20.
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