Shaw 2011 Annual Report Download - page 25

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Shaw Communications Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
August 31, 2011
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 and Retained Earnings. 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.
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:
($000’s Cdn) 2011 2010(5) 2009(4)(5)
Cable free cash flow(1) 400,924 362,656 341,115
Satellite free cash flow(2) 104,762 152,484 164,960
Media free cash flow(3) 97,341 ––
Consolidated free cash flow 603,027 515,140 506,075
(1) The reconciliation of free cash flow for cable is provided on page 53.
(2) The reconciliation of free cash flow for satellite is provided on page 58.
(3) The reconciliation of free cash flow for media is provided on page 60.
(4) Free cash flow for 2009 has not been restated to exclude stock-based compensation.
(5) The presentation of segmented free cash flow has been adjusted to reflect on a gross
basis intersegment transactions. As a result, Cable free cash flow has decreased and
Satellite free cash flow has increased by $3,398 and $3,342 for 2010 and 2009,
respectively.
Free cash flow for cable and satellite is calculated as operating income before amortization,
less interest, cash taxes paid or payable on income, capital expenditures (on an accrual basis)
net of proceeds on capital dispositions and equipment costs (net). All of the line items used in
the free cash flow calculation are as reported on a segmented basis in the Company’s Note 16
to the Consolidated Financial Statements.
Commencing in 2010, for purposes of determining free cash flow, the Company has excluded
stock-based compensation expense, reflecting the fact that it is not a reduction in the
Company’s cash flow. This practice is more in line with the Company’s North American peers
who also report a calculation of free cash flow.
Commencing in 2011 with respect to the new Media segment, free cash flow has been
determined as detailed above and in addition Shaw has deducted 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.
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