Shaw Communications Inc.
NYSE : SJR
TSX : SJR.B

Shaw Communications Inc.

January 11, 2007 08:30 ET

Shaw Communications Inc. Announces Solid Start to 2007 With First Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Jan. 11, 2007) - Shaw Communications Inc. (TSX:SJR.B) (NYSE:SJR) announced today results for its first quarter ended November 30, 2006. Consolidated service revenue of $671.0 million for the three month period, increased 13.8% over the comparable quarter and total service operating income before amortization(1) of $299.8 million improved by 17.4%. Funds flow from operations(2) increased to $243.9 million for the quarter compared to $197.2 million.

Commenting on the results, Jim Shaw, Chief Executive Officer, noted: "We are off to a solid start in fiscal 2007. Both divisions reported strong revenue growth and improved service operating income before amortization over last year. We continued the roll-out of Digital Phone with the service now available to approximately 2.3 million homes, representing approximately 70% of homes passed. We provide a facilities-based, competitive alternative to the traditional phone companies and offer the services and value our customers are looking for."

Customer gains were posted this quarter across all products. Digital Phone lines increased 38,197 to 250,904 as at November 30, 2006. Internet and Digital subscribers increased by 35,877 to 1,348,639 and 25,331 to 696,887, respectively. Basic subscribers were up 12,664 to 2,213,457 and DTH customers increased 2,426 to 871,634.

Free cash flow(2) for the quarter was $76.1 million compared to $32.1 million for the same period last year. The growth in free cash flow was primarily related to the increase in service operating income before amortization.

"Shaw's continued customer growth and improved financial performance results from our focus on the customer, the commitment of our team, the capabilities of our network, and the strength of our product offering. The performance to date sets us on a clear path to meet Shaw's fiscal 2007 free cash flow guidance of $300 - $320 million as announced in October." said Jim Shaw.

Net income of $81.1 million or $0.38 per share for the first quarter ended November 30, 2006 compared to net income of $75.7 million or $0.35 per share for the same quarter last year. The current and comparable three month period included non-operating items which are more fully detailed in Management's Discussions and Analysis (MD&A). These included a tax recovery related to reductions in enacted income tax rates in the comparable three month period. Excluding the non-operating items, net income for the three month period ended November 30, 2006 would have been $81.0 million this quarter compared to net income of $38.8 million in the comparable period(3).

Cable service revenue for the quarter of $499.2 million was up 15.8% over the same period last year primarily as a result of customer growth and rate increases. Service operating income before amortization for the three month period increased 14.6% over the same quarter to $237.8 million driven by the growth in revenue.

Satellite division quarterly service revenue of $171.8 million improved 8.4% over the same period last year primarily due to rate increases and customer growth. Service operating income before amortization for the quarter increased by 29.7% to $62.0 million. The improvement was largely due to growth in DTH revenues.

In closing, Mr. Shaw summarized: "Throughout the remainder of this year we will continue to focus on our key priorities of customer service, the further expansion of the Digital Phone foot print, strengthening our video offering with new programming and HDTV services, and bundling strategies. We also plan to launch a business voice service. Our customer focus continues to differentiate us, strengthen our financial position, and build value for all shareholders."

Shaw Communications Inc. is a diversified communications company whose core business is providing broadband cable television, High-Speed Internet, Digital Phone, telecommunications services (through Shaw Business Solutions) and satellite direct-to-home services (through Star Choice) to 3.1 million customers. Shaw is traded on the Toronto and New York stock exchanges and is included in the S&P/TSX 60 Index (Symbol: TSX - SJR.B, NYSE - SJR).

This news release contains forward-looking statements, identified by words such as "anticipate", "believe", "expect", "plan", "intend" and "potential". These statements are based on current conditions and assumptions and are not a guarantee of future events. Actual events could differ materially as a result of changes to Shaw's plans and the impact of events, risks and uncertainties. For a discussion of these factors, refer to Shaw's current annual information form, annual and quarterly reports to shareholders and other documents filed with regulatory authorities.

1. See definitions and discussion under Key Performance Drivers in MD&A.

2. Funds flow from operations is before changes in non-cash working capital as presented in the unaudited interim Consolidated Statement of Cash Flows.

3. See reconciliation of Net Income in Consolidated Overview in MD&A

MANAGEMENT'S DISCUSSION AND ANALYSIS

NOVEMBER 30, 2006

January 2, 2007

Certain statements in this report may constitute forward-looking statements. Such forward-looking statements involve risks, uncertainties and other factors which may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Included herein is a "Caution Concerning Forward-Looking Statements" section which should be read in conjunction with this report.

The following should also be read in conjunction with Management's Discussion and Analysis included in the Company's August 31, 2006 Annual Report and the Consolidated Financial Statements and the Notes thereto and the unaudited interim Consolidated Financial Statements of the current quarter.



CONSOLIDATED RESULTS OF OPERATIONS
FIRST QUARTER ENDING NOVEMBER 30, 2006
SELECTED FINANCIAL HIGHLIGHTS

Three months ended November 30,
--------------------------------
Change
2006 2005 %
---------------------------------------------------------------------------
($000's Cdn except per share amounts)
Operations:
Service revenue 671,006 589,545 13.8
Service operating income before
amortization (1) 299,787 255,322 17.4
Funds flow from operations (2) 243,936 197,208 23.7
Net income 81,138 75,681 7.2
Per share data:
Earnings per share - basic and diluted 0.38 0.35
Weighted average participating shares
outstanding during period (000's) 215,034 219,035
---------------------------------------------------------------------------

(1) See definition and discussion under Key Performance Drivers in
Management's Discussion and Analysis.

(2) Funds flow from operations is before changes in non-cash working
capital as presented in the unaudited interim Consolidated Statement of
Cash Flows.


SUBSCRIBER HIGHLIGHTS

Growth
-------------------------------------
Three months ended
Total November 30,
-------------------------------------
November 30, 2006 2006 2005
---------------------------------------------------------------------------
Subscriber statistics:
Basic cable customers 2,213,457 12,664 29,429
Digital customers 696,887 25,331 28,296
Internet customers (including pending
installs) 1,348,639 35,877 54,724
DTH customers 871,634 2,426 10,199
Digital phone lines (including
pending installs) 250,904 38,197 34,088
---------------------------------------------------------------------------


ADDITIONAL HIGHLIGHTS

- The expansion of Shaw's Digital Phone footprint continued with roll-outs during the quarter in New Westminster, British Columbia; Lethbridge, Medicine Hat and Red Deer, Alberta; and, Saskatoon, Saskatchewan. Most recently, the service was launched in Kelowna and Kamloops in British Columbia. As at November 30, 2006, the number of Digital Phone lines, including pending installations, was 250,904.

- Customer growth continued across all business lines in the first quarter with increases of 12,664 for Basic cable, 25,331 for Digital, 35,877 for Internet, 38,197 for Digital Phone and 2,426 for DTH.

- Consolidated service revenue of $671.0 million for the three month period, increased 13.8% over the prior year and total service operating income before amortization2 of $299.8 million improved by 17.4% over the same period. Consolidated free cash flow more than doubled over the same quarter last year to $76.1 million.

- The Company announced a 67% increase in the equivalent annual dividend rate on Shaw's Class A Participating Shares and Class B Non-Voting Participating Shares to an equivalent annual dividend rate of $0.995 per Class A Participating Share and $1.00 per Class B Non-Voting Participating Share, payable in monthly installments commencing December 29, 2006.

- The Company received approval from the Toronto Stock Exchange ("TSX") to renew its normal course issuer bid to purchase up to an additional 15,300,000 of its Class B Non-Voting Shares for cancellation. Shaw's normal course issuer bid will now expire on November 16, 2007.

Consolidated Overview

Consolidated service revenue of $671.0 million for the three month period improved by 13.8% over the same period last year primarily due to customer growth and rate increases. Consolidated service operating income before amortization for the quarter increased by 17.4% over the comparable period to $299.8 million primarily due to overall revenue growth. These improvements were partially offset by increased costs in the cable division resulting from expenditures incurred to support continued growth, the delivery of quality customer service, enhancements to products, and the launch of Digital Phone in new markets.

Net income was $81.1 million for the three months ended November 30, 2006, compared to $75.7 million for the same period last year. A number of non-operating items affected net income in each of the periods including a future tax recovery recorded during the first quarter of fiscal 2006 related to a reduction in corporate income tax rates which contributed $31.4 million to net income. Outlined below are further details on this and other operating and non-operating components of net income for each quarter. The fiscal 2006 tax recovery, related to reductions in corporate income tax rates, has been reflected as non-operating.



Three months Three months
ended ended
---------------------------------------------------------------------------
Operating Operating
November net of Non- November net of Non-
($000's Cdn) 30, 2006 interest operating 30, 2005 interest operating
---------------------------------------------------------------------------
Operating
income 183,770 125,153
Interest
on long-term
debt (61,841) (63,442)
---------------------------------------------------------------------------
Operating
income after
interest 121,929 121,929 - 61,711 61,711 -
Gain on
sale of
investments 415 - 415 1,690 - 1,690
Foreign exchange
gain on
unhedged
long-term debt - - - 3,481 - 3,481
Fair value loss
on a foreign
currency
forward contract - - - (360) - (360)
Other gains
(losses) (483) - (483) 2,131 - 2,131
---------------------------------------------------------------------------
Income (loss)
before income
taxes 121,861 121,929 (68) 68,653 61,711 6,942
Income tax
(recovery)
expense 40,826 40,911 (85) (6,960) 22,937 (29,897)
---------------------------------------------------------------------------
Income before
the following 81,035 81,018 17 75,613 38,774 36,839
Equity income
on investees 103 - 103 68 - 68
---------------------------------------------------------------------------
Net income 81,138 81,018 120 75,681 38,774 36,907
---------------------------------------------------------------------------


The changes in net income are outlined in the table below.


Increase of November 30, 2006
net income compared to:
-----------------------------------------
Three months ended
-----------------------------------------
August 31, 2006 November 30, 2005
-----------------------------------------
---------------------------------------------------------------------------
($millions Cdn)
Increased service operating income
before amortization 24.7 44.5
Decreased amortization 6.7 14.2
Decreased interest expense 0.9 1.6
Change in net other costs and revenue (1) (0.2) (7.0)
Increased income taxes (161.3) (47.8)
---------------------------------------------------------------------------
(129.2) 5.5
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(1) Net other costs and revenue include: gain on sale of investments,
foreign exchange gain on unhedged long-term debt, fair value loss on
a foreign currency forward contract, other gains (losses) and equity
income on investees as detailed in the unaudited interim Consolidated
Statements of Income and Deficit.


Earnings per share were $0.38 for the quarter which represents a $0.03 improvement over the same period last year. The improvement in the current quarter was due to higher net income of $5.5 million and included increased service operating income before amortization of $44.5 million and decreased amortization of $14.2 million. These improvements were partially offset by increased income taxes of $47.8 million. The increased income taxes were due to higher service operating income before amortization in the current quarter and a tax recovery of $31.4 million in the comparable quarter related to reductions in corporate income tax rates.

Net income in the current quarter decreased $129.2 million over the fourth quarter of fiscal 2006. The reduction was due to a $150.0 million tax recovery recorded in the fourth quarter, primarily related to reductions in corporate income tax rates, partially offset by improved service operating income before amortization in the current quarter of $24.7 million.

Funds flow from operations was $243.9 million in the first quarter compared to $197.2 million last year. The growth was principally due to increased service operating income before amortization of $44.5 million and reduced interest expense of $1.6 million.

Consolidated free cash flow for the quarter of $76.1 million increased $44.0 million over the comparable quarter due to improved service operating income before amortization. The Cable division generated $44.4 million of free cash flow for the quarter compared to $32.0 million in the comparable period. The Satellite division achieved free cash flow of $31.7 million compared to free cash flow of $0.1 million last year.

During the quarter, the Company increased the equivalent annual dividend rate on Shaw's Class A Participating Shares and Class B Non-Voting Participating Shares to $0.995 per Class A Participating Share and $1.00 per Class B Non-Voting Participating Share, payable in monthly installments commencing December 29, 2006.

In November, 2006 Shaw received approval from 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's normal course issuer bid will expire on November 16, 2007 and Shaw is authorized to repurchase up to an additional 15,300,000 Class B Non-Voting Shares. Shaw continues to believe that purchases of Class B Non-Voting Shares under the bid are in the best interests of its shareholders and that such purchases constitute a desirable use of Shaw's free cash flow.

Key Performance Drivers

The Company's continuous disclosure documents may provide discussion and analysis of non-GAAP financial measures. These financial measures do not have standard definitions prescribed by Canadian GAAP or US GAAP and therefore may not be comparable to similar measures disclosed by other companies. The Company utilizes these measures in making operating decisions and assessing its performance. Certain investors, analysts and others, utilize these measures in assessing the Company's financial performance and as an indicator of its ability to service debt. These non-GAAP financial measures have not been presented as an alternative to net income or any other measure of performance required by Canadian or US GAAP.

The following contains a listing of the Company's use of non-GAAP financial measures and provides a reconciliation to the nearest GAAP measurement or provides a reference to such reconciliation.

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

Free cash flow

The Company utilizes this measurement as it measures the Company's ability to repay debt and return cash to shareholders. Free cash flow for cable and satellite is calculated as service operating income before amortization, less interest, cash taxes on net income, capital expenditures (on an accrual basis) and equipment costs (net). Consolidated free cash flow is calculated as follows:



Three months ended November 30,
--------------------------------
2006 2005
---------------------------------------------------------------------------
($000's Cdn)
Cable free cash flow (1) 44,445 31,993
Combined satellite free cash flow (1) 31,692 110
---------------------------------------------------------------------------
Consolidated 76,137 32,103
---------------------------------------------------------------------------

(1) The reconciliation of free cash flow for both cable and satellite is
provided in the following segmented analysis.


CABLE
FINANCIAL HIGHLIGHTS

Three months ended November 30,
--------------------------------
Change
2006 2005 %
---------------------------------------------------------------------------
($000's Cdn)
Service revenue (third party) 499,195 431,061 15.8
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Service operating income before
amortization (1) 237,769 207,515 14.6
Less:
Interest 51,390 52,869 (2.8)
Cash taxes on net income - 1,042 (100.0)
---------------------------------------------------------------------------
Cash flow before the following: 186,379 153,604 21.3
---------------------------------------------------------------------------
Capital expenditures and equipment costs
(net):
New housing development 22,493 23,266 (3.3)
Success based 20,328 23,310 (12.8)
Upgrades and enhancement 77,148 58,971 30.8
Replacement 9,282 10,135 (8.4)
Buildings/other 12,683 5,929 113.9
---------------------------------------------------------------------------
Total as per Note 2 to the unaudited
interim Consolidated Financial Statements 141,934 121,611 16.7
---------------------------------------------------------------------------
Free cash flow (1) 44,445 31,993 38.9
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Operating margin 47.6% 48.1% (0.5)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(1) See definitions and discussion under Key Performance Drivers in
Management's Discussion and Analysis.


OPERATING HIGHLIGHTS

- During the quarter the Company added 38,197 Digital Phone lines to total 250,904, including pending installations. The expansion of Shaw's Digital Phone footprint continued with the service now available to approximately 70% of homes passed and included roll-outs during the quarter in New Westminster, British Columbia; Lethbridge, Medicine Hat and Red Deer, Alberta; and, Saskatoon, Saskatchewan. Most recently, the service was launched in Kelowna and Kamloops in British Columbia.

- Customer growth continued in the first quarter with increases of 12,664 for Basic cable, 25,331 for Digital, and 35,877 for Internet. At November 30, Basic subscribers total 2,213,457, and Digital and Internet stand at 696,887 and 1,348,639, respectively. Internet penetration of basic is now 60.9%.

- Shaw completed the acquisition of several cable systems that complement existing operations including Whistler Cable and Grand Forks, both in British Columbia, as well as a system operating in and around Kenora, Ontario adding a total of 14,702 cable subscribers.

Cable service revenue improved 15.8% over the same period last year primarily as a result of customer growth and rate increases. Commencing in September 2006, rate increases were implemented on stand alone services and packages part of which relate to value enhancements implemented earlier in the year. The increases were fully implemented in October and generate additional revenue of approximately $5.0 million per month. Service operating income before amortization increased 14.6% for the comparable three month period. The increase was driven by revenue growth, partially offset by increased costs resulting from expenditures incurred to support continued growth, the delivery of quality customer service, and the launch of Digital Phone.

Service revenue improved $31.9 million or 6.8% over the fourth quarter of fiscal 2006 as a result of customer growth and rate increases. Service operating income before amortization improved $21.0 million or 9.7% over this same period mainly due to the revenue related growth.

First quarter capital expenditures were $141.9 million, an increase of $20.3 million over the same period last year. Shaw invested $29.2 million in the first quarter of 2007 on Digital Phone compared to $35.4 million in the same quarter last year. Total spending to date on Digital Phone is now $177.9 million.

Spending in the upgrade and enhancement category increased $18.2 million over the comparable three month period primarily due to increase network capacity to support digital phone and internet growth, upgrades to support Video-On-Demand ("VOD"), digital cable and high definition ("HD") TV initiatives. Spending in Buildings and Other was up $6.8 million over the comparable three month period mainly due to various facilities projects.

Success based capital decreased over the comparable three month period to $20.3 million. Digital Phone success based capital increased during the current quarter as a result of customer growth, however, this was more than offset by reduced success based capital related to digital cable terminal ("DCT") sales as a result of price increases implemented during the latter part of fiscal 2006.

Throughout the quarter Shaw delivered on its strategy of enhancing its various service offerings, and launching new products. In September, the Company announced the doubling of the download speed of the High-Speed Lite Internet service, at no additional cost to the customer, and in November announced the launch of its newest Internet product, Shaw High-Speed Nitro. This new service has a download speed of up to 25 Mbps and an upload speed of 1 Mbps. Shaw now offers four levels of Internet service including High Speed Nitro, High Speed Xtreme-I, High Speed Internet and High Speed Lite.

The Company continues to expand VOD content, signing agreements during the quarter with Sony Pictures and CBS Paramount to provide "Survivor: Cook Islands" on Shaw's VOD service.

The Company also recently launched a new Standard Definition Personal Video Recorder (PVR) to complement the HD PVR offered for the past several years. These ongoing initiatives allow Shaw to meet the needs of their customers' home entertainment requirements and contribute to continued subscriber growth.



SUBSCRIBER STATISTICS

Three months ended
November 30, 2006
-------------------
November 30, August 31, Growth Change
2006 2006(1) %
------------------------------------------------------ -------------------
CABLE:
Basic service:
Actual 2,213,457 2,200,793 12,664 0.6
Penetration as % of homes
passed 65.4% 65.4%
Digital terminals 894,629 855,647 38,982 4.6
Digital customers 696,887 671,556 25,331 3.8
---------------------------------------------------------------------------

INTERNET:
Connected and scheduled 1,348,639 1,312,762 35,877 2.7
Penetration as % of basic 60.9% 59.6%
Standalone Internet not
included in basic cable 163,322 157,200 6,122 3.9

DIGITAL PHONE:
Number of lines(2) 250,904 212,707 38,197 18.0
---------------------------------------------------------------------------

(1) August 31, 2006 statistics are restated for comparative purposes to
adjust subscribers as if the acquisitions of the Whistler and Grand
Forks cable systems in British Columbia and the Kenora cable system in
Ontario had occurred on that date.
(2) Represents primary and secondary lines on billing plus pending
installs.

Three months ended November 30,
------------------------------------------
Churn (3) 2006 2005
---------------------------------------------------------------------------
Digital customers 3.3% 3.4%
Internet customers 3.7% 3.1%
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(3) Calculated as the number of new customer activations less the net gain
of customers during the period divided by the average of the opening
and closing customers for the applicable period.


Shaw began to digitally simulcast its channel line up in Calgary, Edmonton and Vancouver which has allowed the Company to introduce a new low priced digital terminal. The new terminal permits access to all digital features including the on-screen programming guide, music, and VOD and PPV movies and events.



SATELLITE (DTH and Satellite Services)

FINANCIAL HIGHLIGHTS

Three months ended November 30,
--------------------------------
Change
2006 2005 %
---------------------------------------------------------------------------
($000's Cdn)
Service revenue (third party)
DTH (Star Choice) 150,192 137,744 9.0
Satellite Services 21,619 20,740 4.2
---------------------------------------------------------------------------
171,811 158,484 8.4
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Service operating income before
amortization (1)
DTH (Star Choice) 49,682 36,693 35.4
Satellite Services 12,336 11,114 11.0
---------------------------------------------------------------------------
62,018 47,807 29.7
Less:
Interest (2) 10,094 10,209 (1.1)
Cash taxes on net income - 65 (100.0)
---------------------------------------------------------------------------
Cash flow before the following: 51,924 37,533 38.3
---------------------------------------------------------------------------
Capital expenditures and equipment costs
(net):
Success based (3) 18,391 30,202 (39.1)
Transponders and other 1,841 7,221 (74.5)
---------------------------------------------------------------------------
Total as per Note 2 to the unaudited interim
Consolidated Financial Statements 20,232 37,423 (45.9)
---------------------------------------------------------------------------
Free cash flow (1) 31,692 110 greater
than 100
---------------------------------------------------------------------------
Operating Margin 36.1% 30.2% 5.9
---------------------------------------------------------------------------

(1) See definitions and discussion under Key Performance Drivers in
Management's Discussion and Analysis.

(2) Interest is allocated to the Satellite division based on the actual
cost of debt incurred by the Company to repay prior outstanding
Satellite debt and to fund accumulated cash deficits of Shaw Satellite
Services and Star Choice.

(3) Net of the profit on the sale of satellite equipment as it is viewed
as a recovery of expenditures on customer premise equipment.


OPERATING HIGHLIGHTS

- Free cash flow for the quarter was $31.7 million compared to $0.1 million for the same period last year.

- Star Choice added 2,426 customers to total 871,634.

- For the second year in a row Star Choice received the SQM Group Inc. award for its customer satisfaction rating for customer contact in a call centre within the Telecommunications and TV Industry.

Service revenue improved 8.4% over the same quarter last year primarily as a result of rate increases and customer growth. Effective September 1, 2006 Star Choice implemented rate increases on a number of packages which were fully implemented in September and generate additional revenue of approximately $1.5 million per month. Service operating income before amortization increased 29.7% over the comparable three month period to $62.0 million. The improvement was primarily due to the growth in service revenue, lower bad debt, the recovery of provisions related to certain contractual matters, and certain reduced expenses.

Service revenue increased 4.4% over the fourth quarter of fiscal 2006 primarily due to rate increases and customer growth. Service operating income before amortization improved 6.3% over this same quarter primarily due to revenue growth.

Capital spending of $20.2 million decreased $17.2 million over the comparable three month period. Quarterly success based capital expenditures of $18.4 million was $11.8 million lower mainly due to favorable pricing on receivers and reduced activations. Spending in Transponders and Other decreased $5.4 million over the comparable period primarily due to spending in the comparable quarter on uplink equipment to add additional transponder capacity.

During the quarter, and for the second consecutive year, Star Choice was recognized by SQM Group Inc., receiving their award for customer satisfaction within the Telecommunications and TV Industry. In addition to the focus on customer service, Star Choice has also undertaken several initiatives to enhance the quality of the programming service it offers by continually adding popular channels and new HD channels. Star Choice expanded their channel line up with new HD programming adding A&E HD, Super Ecran HD and Discovery HD during the quarter, and most recently added Showcase HD and National Geographic HD. They now offer 20 HD channels.



CUSTOMER STATISTICS

Three months ended November 30, 2006
--------------------------------------
November 30, August 31,
2006 2006 Growth %
---------------------------------------------------

Star Choice customers(1) 871,634 869,208 2,426 0.3
---------------------------------------------------------------------------

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


Three months ended November 30,
--------------------------------
Churn (2) 2006 2005
---------------------------------------------------------------------------
Star Choice customers 3.2% 3.4%
---------------------------------------------------------------------------

(2) Calculated as the number of new customer activations less the net gain
of customers during the period divided by the average of the opening
and closing customers for the applicable period.


OTHER INCOME AND EXPENSE ITEMS:

Amortization

Three months ended November 30,
--------------------------------
Change
2006 2005 %
------------------------------------------------------------------
($000's Cdn)
Amortization revenue (expense) -
Deferred IRU revenue 3,137 3,137 -
Deferred equipment revenue 23,218 18,369 26.4
Deferred equipment cost (48,970) (49,577) (1.2)
Deferred charges (1,237) (1,258) (1.7)
Property, plant and equipment (92,165) (100,840) (8.6)
------------------------------------------------------------------
------------------------------------------------------------------


The increase in amortization of deferred equipment revenue over the comparative period is primarily due to growth in sales of higher priced HD digital equipment commencing in fiscal 2005. Amortization of property, plant and equipment decreased over the comparative period as the impact of assets that became fully depreciated in fiscal 2006 exceeded amortization on new capital purchases.



Interest

Three months ended November 30,
--------------------------------
Change
2006 2005 %
------------------------------------------------------------------
($000's Cdn)
Interest 61,841 63,442 (2.5)
------------------------------------------------------------------
------------------------------------------------------------------


Interest expense decreased over the comparative period mainly as a result of lower average debt levels.

Investment activity

During the current and comparative quarter, the Company realized gains of $0.4 million and $1.7 million, respectively, on the sale of minor interests in publicly traded companies.



Foreign exchange gain on unhedged and hedged long-term debt

Three months ended November 30,
--------------------------------
Change
2006 2005 %
------------------------------------------------------------------
($000's Cdn)
Foreign exchange gain on unhedged
long-term debt - 3,481 (100)
------------------------------------------------------------------
------------------------------------------------------------------


In June 2006, the Company amended its existing credit facility and repaid US dollar denominated bank loans. Until that time Shaw recorded foreign exchange gains on the translation of foreign denominated unhedged bank debt. In addition, the Company recorded a foreign exchange gain on the US $172.5 million COPrS prior to entering into a US dollar forward purchase contract in the first quarter of 2006 to hedge the redemption of the issue. Currently the Company does not have any foreign denominated unhedged long-term debt and therefore, does not anticipate recording any further foreign exchange gains and losses.

Under Canadian generally accepted accounting principles ("GAAP"), the Company translates long-term debt at period-end foreign exchange rates. Because the Company follows hedge accounting, the resulting foreign exchange gains or losses on translating hedged long-term debt are included in deferred credits or deferred charges. As a result, the amount of hedged long-term debt that is reported under GAAP is often different than the amount at which the hedged debt would be settled under existing cross-currency interest rate agreements. As outlined in Note 4 to the unaudited interim Consolidated Financial Statements, if the rate of translation was adjusted to reflect the hedged rates of the Company's cross-currency agreements (which fix the liability for interest and principal), long-term debt would increase by $373.1 million (August 31, 2006 - $408.7 million) which represents the corresponding hedged amounts included in deferred credits.

Other gains and losses

This category consists mainly of realized and unrealized foreign exchange gains and losses on US dollar denominated current assets and liabilities, gains and losses on disposal of property, plant and equipment, and the Company's share of the operations of Burrard Landing Lot 2 Holdings Partnership ("the Partnership"). Due to fluctuations of the Canadian dollar relative to the US dollar, the Company recorded a foreign exchange loss of $1.3 million for the quarter (2005 - gain of $1.2 million).

Income Taxes

Income taxes increased over the comparative period primarily due to the future income tax recovery of $31.4 million related to reductions in corporate income tax rates recorded in the comparative quarter and increased income taxes on higher income in the current quarter.

RISKS AND UNCERTAINTIES

There have been no material changes in any risks or uncertainties facing the Company since August 31, 2006. A discussion of risks affecting the Company and its business is set forth in the Company's August 31, 2006 Annual Report under the Introduction to the Business - Known Events, Trends, Risks and Uncertainties in Management's Discussion and Analysis.

FINANCIAL POSITION

Total assets at November 30, 2006 were $7.7 billion compared to $7.5 billion at August 31, 2006. Following is a discussion of significant changes in the consolidated balance sheet since August 31, 2006.

Current assets increased by $16.5 million due to an increase in accounts receivable of $16.4 million. Accounts receivable increased primarily due to customer growth, rate increases and timing of equipment shipments to retailers.

Investments and other assets decreased by $9.3 million due to the sale of an interest in a publicly traded company.

Property, plant and equipment increased by $57.7 million as current quarter capital expenditures exceeded amortization.

Broadcast licenses increased by $67.2 million due to the acquisition of Whistler and Grand Forks cable systems in British Columbia and the Kenora cable system in Ontario.

Current liabilities (excluding current portion of long-term debt) decreased by $16.4 million due to lower accounts payable of $39.8 million, partially offset by increases in bank indebtedness of $17.6 million and unearned revenue of $5.9 million. Accounts payable decreased primarily due to timing of interest payments. Unearned revenue increased due to customer growth and rate increases.

Total long-term debt increased by $60.5 million as a result of higher bank borrowings and Partnership debt of $24.9 million and an increase of $35.6 million relating to the translation of US denominated debt.

Deferred credits decreased by $30.0 million principally due to the decrease in deferred foreign exchange gains on the translation of hedged US dollar denominated debt of $35.6 million. Future income taxes increased by $55.6 million due to the impact of cable system acquisitions and the future income tax expense recorded in the current year.

Share capital increased by $12.0 million due to the issuance of Class B Non-Voting Shares. During the quarter, the Company issued 89,794 Class B Non-Voting Shares for $3.0 million as partial consideration in respect of a cable system acquisition and 274,968 Class B Non-Voting Shares were issued for $9.0 million under the Company's option and warrant plans. As of December 31, 2006, share capital is as reported at November 30, 2006 with the exception of the issuance of 272,107 Class B Non-Voting Shares upon exercise of options subsequent to the quarter end.

LIQUIDITY AND CAPITAL RESOURCES

In the current year, Shaw generated $76.1 million of consolidated free cash flow. Shaw used its free cash flow along with the increase in bank debt of $42.6 million, proceeds on the sale of various assets of $9.8 million, proceeds on issuance of Class B Non-Voting Shares of $8.8 million and other net items of $8.6 million to fund the cash component of cable systems acquisitions of $52.4 million, pay common share dividends of $32.2 million and fund the net change in working capital requirements of $61.3 million.

On November 14, 2006, 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 an additional 15,300,000 Class B Non-Voting Shares, representing approximately 10% of the public float of Class B Non-Voting Shares, during the period November 17, 2006 to November 16, 2007.

At November 30, 2006, Shaw had access to $716.6 million of available credit facilities. Based on available credit facilities and forecasted free cash flow, the Company expects to have sufficient liquidity to fund operations and obligations during the current 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 to refinance maturing debt.



Shaw Communications Inc.

CASH FLOW

Operating Activities

Three months ended November 30,
-------------------------------
Change
2006 2005 %
---------------------------------------------------------------------------
($000's Cdn)
Funds flow from operations 243,936 197,208 23.7
Net increase in non-cash working capital
balances related to operations (61,345) (22,193) (176.4)
---------------------------------------------------------------------------
182,591 175,015 4.3
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Funds flow from operations increased over comparative periods as a result of growth in service operating income before amortization and lower interest expense. The net change in non-cash working capital balances over the comparative periods is mainly due to timing of payment of accounts payable and accrued liabilities.



Investing Activities

Three months ended November 30,
-------------------------------
2006 2005 Increase
---------------------------------------------------------------------------
($000's Cdn)
Cash flow used in investing activities (201,680) (167,767) (33,913)
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The cash used in investing activities increased $33.9 million over the comparative quarter due to cable systems acquisitions and higher capital expenditures in the current quarter, partially offset by lower cash requirements for equipment costs (net) and inventories.



Financing Activities

The changes in financing activities during the comparative periods were as
follows:

Three months ended November 30,
-------------------------------
2006 2005
---------------------------------------------------------------------------
($millions Cdn)
Bank loans and bank indebtedness - net
borrowings (repayments) 42.6 (170.5)
Proceeds on $450 million senior unsecured
notes - 450.0
Dividends (32.2) (22.4)
Purchase of Class B Non-Voting Shares for
cancellation - (58.0)
Repayment of Partnership debt (0.1) (0.1)
Proceeds on bond forward - 2.5
Issue of Class B Non-Voting Shares 8.8 -
Proceeds on prepayment of IRU - 0.2
---------------------------------------------------------------------------
19.1 201.7
---------------------------------------------------------------------------
---------------------------------------------------------------------------


SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION

Service
operating Basic
income earnings Funds
Service before per flow from
revenue amortization(1) Net income share (2) operations (3)
---------------------------------------------------------------------------
($000's Cdn except per share amounts)
2007
First 671,006 299,787 81,138 0.38 243,936
---------------------------------------------------------------------------
2006
Fourth 631,888 275,127 210,369 0.97 220,617
Third 626,654 279,544 126,410 0.58 221,099
Second 611,197 267,924 45,790 0.21 208,273
First 589,545 255,322 75,681 0.35 197,208
---------------------------------------------------------------------------
2005
Fourth 562,958 250,759 69,959 0.31 191,507
Third 559,883 252,899 32,836 0.14 190,144
Second 549,919 244,311 5,721 0.02 176,557
---------------------------------------------------------------------------

(1) See definition and discussion under Key Performance Drivers in
Management's Discussion and Analysis.
(2) Diluted earnings per share equals basic earnings per share except in
the fourth quarter of 2006 where diluted earnings per share is $0.96.
(3) Funds flow from operations is presented before changes in net non-cash
working capital as presented in the unaudited interim Consolidated
Statements of Cash Flows.


Generally, service revenue and service operating income before amortization have grown quarter-over-quarter mainly due to customer growth and rate increases. Net income has generally trended positively quarter-over-quarter as a result of the growth in service operating income before amortization described above, reductions of interest expense as a result of debt repayment and retirement, the impact of the net change in non-operating items such as gains on sale of investments, foreign currency fluctuations on unhedged US denominated debt, fair value adjustments on foreign currency forward contracts and the impact of corporate income tax rate reductions. The exceptions to the consecutive quarter-over-quarter increases in net income are the second quarter of 2006 and first quarter of 2007. Net income declined by $29.9 million in the second quarter of 2006 and by $129.2 million in the first quarter of 2007 due to income tax recoveries primarily related to reductions in corporate income tax rates. The Company recorded $31.4 million and $150.0 million in the first and fourth quarters of 2006, respectively. As a result of the aforementioned changes in net income, basic and diluted earnings per share have trended accordingly.

ACCOUNTING STANDARDS

Update to critical accounting policies and estimates

The Management's Discussion and Analysis ("MD&A") included in the Company's August 31, 2006 Annual Report outlined critical accounting policies including key estimates and assumptions that management has made under these policies and how they affect the amounts reported in the Consolidated Financial Statements. The MD&A also describes significant accounting policies where alternatives exist. The unaudited interim Consolidated Financial Statements follow the same accounting policies and methods of application as the most recent annual consolidated financial statements.

CAUTION CONCERNING FORWARD LOOKING STATEMENTS

Certain statements included and incorporated by reference herein may constitute forward-looking statements. Such forward-looking statements involve risks, uncertainties and other factors which may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used, the words "anticipate", "believe", "expect", "plan", intend", "target", "guideline", "goal", and similar expressions generally identify forward-looking statements. These forward-looking statements include, but are not limited to, references to future capital expenditures (including the amount and nature thereof), financial guidance for future performance, business strategies and measures to implement strategies, competitive strengths, goals, expansion and growth of Shaw's business and operations, plans and references to the future success of Shaw. These forward-looking statements are based on certain 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. However, whether actual results and developments will conform with expectations and predictions of the Company is subject to a number of risks and uncertainties. These factors include include general economic, market or business conditions; the opportunities (or lack thereof) that may be presented to and pursued by Shaw; increased competition 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 in Shaw's industries in both Canada and the United States; Shaw's status as a holding company with separate operating subsidiaries; changing conditions in the entertainment, information and communications industries; risks associated with the economic, political and regulatory policies of local governments and laws and policies of Canada and the United States; and other factors, many of which are beyond the control of Shaw. 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 as described herein. Consequently, all of the forward-looking statements made in this report and the documents incorporated by reference herein are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by Shaw will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company.

You should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement (and such risks, uncertainties and other factors) speaks only as of the date on which it was originally made and the Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained in this document to reflect any change in expectations with regard to those statements or any other change in events, conditions or circumstances on which any such statement is based, except as required by law. New factors affecting the Company emerge from time to time, and it is not possible for the Company to predict what factors will arise or when. In addition, the Company cannot assess the impact of each factor on its business or the extent to which any particular factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.



CONSOLIDATED BALANCE SHEETS
(Unaudited)

November 30, August 31,
(thousands of Canadian dollars) 2006 2006
---------------------------------------------------------------------------

ASSETS
Current
Accounts receivable 154,564 138,142
Inventories 53,734 53,994
Prepaids and other 21,177 20,870
---------------------------------------------------------------------------
229,475 213,006
Investments and other assets 8,707 17,978
Property, plant and equipment 2,307,735 2,250,056
Deferred charges 265,071 261,908
Intangibles
Broadcast licenses 4,758,719 4,691,484
Goodwill 88,111 88,111
---------------------------------------------------------------------------
7,657,818 7,522,543
---------------------------------------------------------------------------
---------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 37,999 20,362
Accounts payable and accrued liabilities 421,290 461,119
Income taxes payable 4,831 4,918
Unearned revenue 112,414 106,497
Current portion of long-term debt (note 4) 297,216 449
---------------------------------------------------------------------------
873,750 593,345
Long-term debt (note 4) 2,759,667 2,995,936
Other long-term liabilities (note 10) 41,362 37,724
Deferred credits 1,070,892 1,100,895
Future income taxes 1,040,587 984,938
---------------------------------------------------------------------------
5,786,258 5,712,838
---------------------------------------------------------------------------
Shareholders' equity
Share capital (note 5) 1,988,917 1,976,966
Contributed surplus 6,102 5,110
Deficit (123,804) (172,701)
Cumulative translation adjustment 345 330
---------------------------------------------------------------------------
1,871,560 1,809,705
---------------------------------------------------------------------------
7,657,818 7,522,543
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes


CONSOLIDATED STATEMENTS OF INCOME AND DEFICIT
(Unaudited)

Three months ended November 30,
(thousands of Canadian dollars -------------------------------
except per share amounts) 2006 2005
---------------------------------------------------------------------------

Service revenue (note 2) 671,006 589,545
Operating, general and
administrative expenses 371,219 334,223
---------------------------------------------------------------------------
Service operating income before
amortization (note 2) 299,787 255,322
Amortization:
Deferred IRU revenue 3,137 3,137
Deferred equipment revenue 23,218 18,369
Deferred equipment cost (48,970) (49,577)
Deferred charges (1,237) (1,258)
Property, plant and equipment (92,165) (100,840)
---------------------------------------------------------------------------
Operating income 183,770 125,153
Interest on long-term debt (note 2) (61,841) (63,442)
---------------------------------------------------------------------------
121,929 61,711
Gain on sale of investments 415 1,690
Foreign exchange gain on
unhedged long-term debt - 3,481
Fair value loss on a foreign
currency forward contract - (360)
Other gains (losses) (483) 2,131
---------------------------------------------------------------------------
Income before income taxes 121,861 68,653
Income tax expense (recovery) 40,826 (6,960)
---------------------------------------------------------------------------
Income before the following 81,035 75,613
Equity income on investees 103 68
---------------------------------------------------------------------------
Net income 81,138 75,681
Deficit, beginning of period (172,701) (428,855)
Reduction on Class B Non-Voting
Shares purchased for cancellation - (35,085)
Amortization of opening fair value
loss on a foreign currency
forward contract - (93)
Dividends -
Class A and Class B Non-Voting Shares (32,241) (22,440)
---------------------------------------------------------------------------
Deficit, end of period (123,804) (410,792)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Earnings per share (note 6)
Basic and diluted 0.38 0.35
---------------------------------------------------------------------------
(thousands of shares)
Weighted average participating shares
outstanding during period 215,034 219,035
Participating shares outstanding,
end of period 215,307 217,619
---------------------------------------------------------------------------

See accompanying notes


CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Three months ended November 30,
-------------------------------
(thousands of Canadian dollars) 2006 2005
---------------------------------------------------------------------------

OPERATING ACTIVITIES (note 7)
Funds flow from operations 243,936 197,208
Net increase in non-cash working
capital balances related to operations (61,345) (22,193)
---------------------------------------------------------------------------
182,591 175,015
---------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and
equipment (note 2) (139,375) (109,398)
Additions to equipment costs
(net) (note 2) (19,798) (38,745)
Net reduction (addition) to inventories 260 (18,987)
Cable business acquisitions (note 3) (52,426) -
Proceeds on sale of investments
and other assets 9,839 7,863
Additions to deferred charges (180) (8,500)
---------------------------------------------------------------------------
(201,680) (167,767)
---------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in bank indebtedness 17,637 -
Increase in long-term debt 35,000 525,000
Long-term debt repayments (10,110) (245,591)
Issue of Class B Non-Voting Shares,
net of after-tax expenses 8,790 -
Proceeds on bond forward - 2,486
Proceeds on prepayment of IRU - 152
Purchase of Class B Non-Voting
Shares for cancellation - (57,954)
Dividends paid on Class A and Class B
Non-Voting Shares (32,241) (22,440)
---------------------------------------------------------------------------
19,076 201,653
---------------------------------------------------------------------------
Effect of currency translation on cash
balances and cash flows 13 (4)
---------------------------------------------------------------------------
Increase in cash - 208,897
Cash, beginning of the period - 1,713
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Cash, end of the period - 210,610
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Cash includes cash and term deposits

See accompanying notes


Shaw Communications Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

November 30, 2006 and 2005
(all amounts in thousands of Canadian dollars, except per share amounts)


1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The unaudited interim Consolidated Financial Statements include the accounts of Shaw Communications Inc. and its subsidiaries (collectively the "Company"). The notes presented in these unaudited interim Consolidated Financial Statements include only significant events and transactions occurring since the Company's last fiscal year end and are not fully inclusive of all matters required to be disclosed in the Company's annual audited consolidated financial statements. As a result, these unaudited interim Consolidated Financial Statements should be read in conjunction with the Company's consolidated financial statements for the year ended August 31, 2006.

The unaudited interim Consolidated Financial Statements follow the same accounting policies and methods of application as the most recent annual consolidated financial statements.

2. BUSINESS SEGMENT INFORMATION

The Company provides cable television services, high-speed Internet access, Digital Phone and Internet infrastructure services ("Cable"); DTH (Star Choice) satellite services and, satellite distribution services ("Satellite Services"). All of these operations are located in Canada. Information on operations by segment is as follows:



Operating information

Three months ended November 30,
-------------------------------
2006 2005
$ $
---------------------------------------------------------------------------
Service revenue
Cable 500,006 431,751
DTH 151,692 138,805
Satellite Services 22,494 21,625
---------------------------------------------------------------------------
674,192 592,181
Inter segment -
Cable (811) (690)
DTH (1,500) (1,061)
Satellite Services (875) (885)
---------------------------------------------------------------------------
671,006 589,545
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Service operating income before amortization
Cable 237,769 207,515
DTH 49,682 36,693
Satellite Services 12,336 11,114
---------------------------------------------------------------------------
299,787 255,322
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Interest on long-term debt (1)
Cable 51,390 52,869
DTH and Satellite Services 10,094 10,209
Burrard Landing Lot 2 Holdings Partnership 357 364
---------------------------------------------------------------------------
61,841 63,442
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Cash taxes (1)
Cable - 1,042
DTH and Satellite Services - 65
---------------------------------------------------------------------------
- 1,107
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(1) The Company reports interest and cash taxes on a segmented basis for
Cable and combined Satellite only. It does not report interest and cash
taxes on a segmented basis for DTH and Satellite Services.


Capital expenditures
Three months ended November 30,
-------------------------------
2006 2005
$ $
---------------------------------------------------------------------------
Capital expenditures accrual basis
Cable 132,270 109,587
Corporate 9,051 4,216
---------------------------------------------------------------------------
Sub-total Cable including corporate 141,321 113,803
Satellite (net of equipment profit) 1,047 6,486
---------------------------------------------------------------------------
142,368 120,289
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Equipment costs (net of revenue received)
Cable 613 7,808
Satellite 19,185 30,937
---------------------------------------------------------------------------
19,798 38,745
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Capital expenditures and equipment costs (net)
Cable 141,934 121,611
Satellite 20,232 37,423
---------------------------------------------------------------------------
162,166 159,034
---------------------------------------------------------------------------
---------------------------------------------------------------------------

---------------------------------------------------------------------------
Reconciliation to Consolidated Statements of Cash
Flows
Additions to property, plant and equipment 139,375 109,398
Additions to equipment costs (net) 19,798 38,745
---------------------------------------------------------------------------
Total of capital expenditures and equipment
costs (net) per Consolidated Statements of
Cash Flows 159,173 148,143
Increase in working capital related to capital
expenditures 3,833 13,001
Less: Partnership capital expenditures (1) - (1,270)
Less: IRU prepayments (2) (7) (101)
Less: Satellite equipment profit (3) (833) (739)
---------------------------------------------------------------------------
Total capital expenditures and equipment costs
(net) reported by segments 162,166 159,034
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(1) Consolidated capital expenditures include the Company's proportionate
share of the Burrard Landing Lot 2 Holdings Partnership ("Partnership")
capital expenditures which the Company is required to proportionately
consolidate (see Note 1 to the Company's 2006 Consolidated Financial
Statements). As the Partnership is financed by its own debt with no
recourse to the Company, the Partnership's capital expenditures are
subtracted from the calculation of segmented capital expenditures and
equipment costs (net).

(2) Prepayments on indefeasible rights to use ("IRUs") certain specifically
identified fibres in amounts not exceeding the costs to build the fiber
subject to the IRUs are subtracted from the calculation of segmented
capital expenditures and equipment costs (net).

(3) 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.


Assets
November 30, 2006

---------------------------------------------------------

Satellite
Cable DTH Services Total
$ $ $ $
---------------------------------------------------------------------------
Segment assets 6,031,936 856,579 534,361 7,422,876
----------------------------------------------------------------
----------------------------------------------------------------
Corporate assets 234,942
-----------
Total assets 7,657,818
-----------
-----------

August 31, 2006

---------------------------------------------------------

Satellite
Cable DTH Services Total
$ $ $ $
---------------------------------------------------------------------------
Segment assets 5,891,103 859,941 536,044 7,287,088
----------------------------------------------------------------
----------------------------------------------------------------
Corporate assets 235,455
-----------
Total assets 7,522,543
-----------
-----------

3. CABLE BUSINESS ACQUISITIONS

November 30, 2006
---------------------------------------------------------
Issuance
of Class B Total
Accounts Non-Voting purchase
Cash payable Shares price
$ $ $ $
---------------------------------------------------------------------------
Cable systems 52,401 859 3,000 56,260
---------------------------------------------------------------------------
---------------------------------------------------------------------------

A summary of net assets acquired on cable business acquisitions, accounted
for as purchases, is as follows:

$
---------------------------------------------------------------------------

Identifiable net assets acquired at assigned fair values
Property, plant and equipment 6,655
Broadcast licenses 67,235
---------------------------------------------------------------------------
73,890
---------------------------------------------------------------------------

Working capital deficiency 2,826
Future income taxes 14,804
---------------------------------------------------------------------------
17,630
---------------------------------------------------------------------------
Purchase price 56,260
---------------------------------------------------------------------------
---------------------------------------------------------------------------


During the three months ended November 30, 2006, the Company purchased three cable systems serving approximately 14,700 basic subscribers in British Columbia and Ontario. The $3,000 value of the 89,794 Class B Non-Voting Shares, issued as partial consideration for one of the acquisitions, was determined based upon the average market price around the date the terms of the purchase were agreed to and announced. The purchase price allocation may be impacted by settlement of final closing adjustments.



4. LONG-TERM DEBT

November 30, 2006
-----------------------------------
Translated
Effective at period
interest end Adjustment Translated
rates exchange for hedged at hedged
% rate debt (1) rate
---------------------------------------------------------------------------
$ $ $

Corporate

Fixed and
Bank loans (2) variable 305,000 - 305,000
Senior notes-
Due November 16, 2012 6.11 450,000 - 450,000
Due May 9, 2016 6.34 300,000 - 300,000
Due October 17, 2007 7.40 296,760 - 296,760
US $440,000 due April 11, 2010 7.88 502,568 140,052 642,620
US $225,000 due April 6, 2011 7.68 256,995 98,843 355,838
US $300,000 due December 15,
2011 7.61 342,660 134,190 476,850
Due November 20, 2013 7.50 350,000 - 350,000
COPrS -
Due September 30, 2027 8.54 100,000 - 100,000
---------------------------------------------------------------------------
2,903,983 373,085 3,277,068
---------------------------------------------------------------------------

Other subsidiaries and entities

Videon CableSystems Inc. 8.15%
Senior Debentures Series "A" due
April 26, 2010 7.63 130,000 - 130,000
Burrard Landing Lot 2 Holdings
Partnership 6.31 22,900 - 22,900
---------------------------------------------------------------------------
152,900 - 152,900
---------------------------------------------------------------------------
Total consolidated debt 3,056,883 373,085 3,429,968
Less current portion (3) 297,216 - 297,216
---------------------------------------------------------------------------
2,759,667 373,085 3,132,752
---------------------------------------------------------------------------
---------------------------------------------------------------------------

August 31, 2006
-----------------------------------
Translated
at year
end Adjustment Translated
exchange for hedged at hedged
rate debt (1) rate
---------------------------------------------------------------------------
$ $ $
Corporate

Bank loans (2) 280,000 - 280,000
Senior notes-
Due November 16, 2012 450,000 - 450,000
Due May 9, 2016 300,000 - 300,000
Due October 17, 2007 296,760 - 296,760
US $440,000 due April 11, 2010 486,332 156,288 642,620
US $225,000 due April 6, 2011 248,693 107,145 355,838
US $300,000 due December 15, 2011 331,590 145,260 476,850
Due November 20, 2013 350,000 - 350,000
COPrS -
Due September 30, 2027 100,000 - 100,000
---------------------------------------------------------------------------
2,843,375 408,693 3,252,068
---------------------------------------------------------------------------

Other subsidiaries and entities

Videon CableSystems Inc. 8.15% Senior
Debentures Series "A" due April 26, 2010 130,000 - 130,000
Burrard Landing Lot 2 Holdings
Partnership 23,010 - 23,010
---------------------------------------------------------------------------
153,010 - 153,010
---------------------------------------------------------------------------
Total consolidated debt 2,996,385 408,693 3,405,078
Less current portion (3) 449 - 449
---------------------------------------------------------------------------
2,995,936 408,693 3,404,629
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(1) Foreign denominated long-term debt is translated at the period-end
foreign exchange rates. Because the Company follows hedge accounting,
the resulting exchange gains and losses on translating hedged long-term
debt are included in deferred charges or deferred credits. If the rate
of translation was adjusted to reflect the hedged rates of the
Company's cross-currency interest rate agreements (which fix the
liability for interest and principal), long-term debt would increase by
$373,085 (August 31, 2006 - $408,693) representing a corresponding
amount in deferred credits. The hedged rates on the Senior notes of US
$440,000, US $225,000 and US $300,000 are 1.4605, 1.5815 and 1.5895,
respectively.

(2) Availabilities under banking facilities are as follows at November 30,
2006:


Bank loans Operating credit
Total (a) (b) facilities (a)
$ $ $
----------------------------------------
Total facilities 1,060,000 1,000,000 60,000
Amount drawn (excluding letters
of credit of $406) 342,999 305,000 37,999
----------------------------------------
717,001 695,000 22,001
----------------------------------------
----------------------------------------

(a) Bank loans represent liabilities classified as long-term debt.
Operating credit facilities are for terms less than one year and
accordingly are classified as bank indebtedness.

(b) The $1 billion revolving credit facility is due May 31, 2011 and is
unsecured and ranks pari passu with the senior unsecured notes.

(3) Current portion of long-term debt includes the Senior notes due October
17, 2007 and the amount due within one year on the Partnership's
mortgage bonds.

5. SHARE CAPITAL

Issued and outstanding

November 30, 2006 August 31, 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Number of Securities $ $
-------------------------- -----------------------------------
November 30, August 31,
2006 2006
-------------------------
-------------------------

11,291,932 11,291,932 Class A Shares 2,475 2,475
Class B Non-Voting
204,014,666 203,649,904 Shares 1,986,442 1,974,491
---------------------------------------------------------------------------
215,306,598 214,941,836 1,988,917 1,976,966
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Stock option plan

In our 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 10 years from the date of grant. Twenty-five percent of the options are exercisable on each of the first four anniversary dates from the date of the original grant. 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 this plan and the warrant plan described below may not exceed 16,000,000. To date, 344,085 Class B Non-Voting Shares have been issued under these plans. During the three months ended November 30, 2006, 270,218 options were exercised for $8,675.



The changes in options for the quarter ended November 30, 2006 are as
follows:

Weighted average
exercise price
Shares $
---------------------------------------------------------------------------
Outstanding at beginning of period 9,558,801 32.60
Granted 1,174,500 33.41
Forfeited (398,383) 32.75
Exercised (270,218) 32.10
---------------------------------------------------------------------------
Outstanding at end of period 10,064,700 32.70
---------------------------------------------------------------------------
---------------------------------------------------------------------------

The following table summarizes information about the options outstanding at
November 30, 2006:

Number Weighted Number
Outstanding average Weighted exercisable Weighted
at remaining average at average
November 30, contractual exercise November 30, exercise
Range of prices 2006 life price 2006 price
---------------------------------------------------------------------------
$17.37 10,000 6.89 $ 17.37 7,500 $ 17.37
$29.70 - $34.70 10,054,700 6.39 $ 32.72 5,934,640 $ 32.63
---------------------------------------------------------------------------
---------------------------------------------------------------------------


During the quarter, the Company recorded compensation expense and credited contributed surplus for $1,152 (2005 - $620) in respect of the estimated fair value of the options. Upon exercise of 270,218 options in the current quarter, $160 was transferred from contributed surplus to share capital.

For all common share options granted to employees up to August 2003, had the Company determined compensation costs based on the fair values at grant dates of the common share options consistent with the method prescribed under CICA Handbook Section 3870, the Company's net income and earnings per share would have been reported as the pro forma amounts indicated below:



Three months ended November 30,
-------------------------------
2006 2005
$ $
---------------------------------------------------------------------------
Net income for the period 81,138 75,681
Fair value of stock option grants 30 468
---------------------------------------------------------------------------
Pro forma net income for the period 81,108 75,213
Pro forma earnings per share - basic and
diluted 0.38 0.34
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The weighted average estimated fair value at the date of the grant for common share options granted was $6.45 per option (2005 - $2.69 per option) for the quarter. 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 assumptions:



Three months ended November 30,
-------------------------------
2006 2005
$ $
---------------------------------------------------------------------------
Dividend yield 2.99% 1.67%
Risk-free interest rate 3.98% 3.51%
Expected life of options 4 years 4 years
Expected volatility factor of the future
expected market price of Class B Non-Voting
Shares 25.6% 23.9%
---------------------------------------------------------------------------
---------------------------------------------------------------------------


For the purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period.

Other stock options

In conjunction with the acquisition of Satellite Services, holders of Satellite Services options elected to receive 0.9 of a Shaw Class B Non-Voting Share in lieu of one Satellite Services share which would have been received upon the exercise of an option under the Satellite Services plan.

At November 30, 2006 there were 33,836 Satellite Services options outstanding with exercise prices between $7.75 and $23.25 and a weighted average price of $11.70. The weighted average remaining contractual life of the Satellite Services options is 1.3 years. At November 30, 2006, 33,836 Satellite Services options were exercisable into 30,452 Class B Non-Voting Shares of the Company at a weighted average price of $13.00 per Class B Non-Voting Share. During the three months ended November 30, 2006, 5,000 options were exercised into 4,500 Class B Non-Voting Shares for $116.

Warrants

Prior to the Company's acquisition and consolidation of Satellite Services effective July 1, 2000, Satellite Services and its subsidiary Star Choice had established a plan to grant warrants to acquire Satellite Services common shares at a price of $22.50 per share to distributors and dealers. The Company provided for this obligation (using $25 per equivalent Shaw Class B Non-Voting Share) in assigning fair values to the assets and liabilities in the purchase equation on consolidation based on the market price of the Shaw Class B Non-Voting Shares at that time. Accordingly, the issue of the warrants under the plan had no impact on the earnings of the Company.

On September 1, 2006, 250 warrants were exercised for $6 and the remaining 5,350 warrants expired.



6. EARNINGS PER SHARE

Earnings per share calculations are as follows:

Three months ended November 30,
-------------------------------
2006 2005
$ $
---------------------------------------------------------------------------
Net income 81,138 75,681
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Earnings per share -- basic and diluted 0.38 0.35
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Weighted average number of Class A and Class B
Non-Voting Shares used as denominator in
above calculation (thousands of shares) 215,034 219,035
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The Class B Non-Voting Shares issuable on settlement of the COPrS and under the terms of the Company's stock option and warrant plans are anti-dilutive (increase earnings per share) and are therefore, not included in the calculation of diluted earnings per share.



7. STATEMENTS OF CASH FLOWS

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

(i) Funds flow from operations

Three months ended November 30,
-------------------------------
2006 2005
$ $
---------------------------------------------------------------------------
Net income 81,138 75,681
Non-cash items:
Amortization
Deferred IRU revenue (3,137) (3,137)
Deferred equipment revenue (23,218) (18,369)
Deferred equipment cost 48,970 49,577
Deferred charges 1,237 1,258
Property, plant and equipment 92,165 100,840
Future income tax expense (recovery) 40,826 (8,067)
Gain on sale of investments (415) (1,690)
Foreign exchange gain on unhedged long-term debt - (3,481)
Equity income on investees (103) (68)
Fair value loss on foreign currency forward
contracts - 360
Stock option expense 1,152 620
Defined benefit pension plan 3,638 3,153
Other 1,683 531
---------------------------------------------------------------------------
Funds flow from operations 243,936 197,208
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(ii) Changes in non-cash working capital balances related to operations
include the following:

Three months ended November 30,
-------------------------------
2006 2005
$ $
---------------------------------------------------------------------------
Accounts receivable (15,597) (14,660)
Prepaids and other (3,531) 1,397
Accounts payable and accrued liabilities (46,778) (16,126)
Income taxes payable (725) (22)
Unearned revenue 5,286 7,218
---------------------------------------------------------------------------
(61,345) (22,193)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(iii) Interest and income taxes paid and classified as operating
activities are as follows:

Three months ended November 30,
-------------------------------
2006 2005
$ $
---------------------------------------------------------------------------
Interest 99,328 89,345
Income taxes 719 1,130
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(iv) Non-cash transaction:

The Consolidated Statements of Cash Flows exclude the following non-cash
transaction:

Three months ended November 30,
-------------------------------
2006 2005
$ $
---------------------------------------------------------------------------
Issuance of Class B Non-Voting Shares on a cable
system acquisition 3,000 -
---------------------------------------------------------------------------
---------------------------------------------------------------------------


8. UNITED STATES ACCOUNTING PRINCIPLES

The unaudited interim Consolidated Financial Statements of the Company are prepared in Canadian dollars in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"). The following adjustments and disclosures would be required in order to present these unaudited interim Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States ("US GAAP").



Three months ended November 30,
-------------------------------
2006 2005
$ $
---------------------------------------------------------------------------

Net income using Canadian GAAP 81,138 75,681
Add (deduct) adjustments for:
Deferred charges (2) 6,787 (6,778)
Foreign exchange gains (losses) on hedged
long-term debt (8) (35,609) 20,210
Reclassification of hedge gains (losses) from
other comprehensive income (7) 35,609 (20,210)
Income tax effect of adjustments (2,087) 2,339
Effect of future income tax rate reductions on
differences - (785)
---------------------------------------------------------------------------
Net income using US GAAP 85,838 70,457
---------------------------------------------------------------------------

Unrealized foreign exchange gain (loss) on
translation of self-sustaining foreign
operations 15 (7)
Unrealized gains on available-for-sale
securities, net of tax (6)
Unrealized holding gains arising during the
period - 6,789
Less: reclassification adjustment for gains
included in net income - (1,371)
---------------------------------------------------------------------------
15 5,411
Adjustment to fair value of derivatives (7) 42,181 (5,456)
Reclassification of derivative losses (gains) to
income to offset foreign exchange
gains/losses on hedged long-term debt (7) (30,134) 16,724
Effect on future income tax rate reductions on
differences - (1,036)
---------------------------------------------------------------------------
12,062 15,643
---------------------------------------------------------------------------
Comprehensive income using US GAAP 97,900 86,100
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net income per share using US GAAP 0.40 0.32
Comprehensive income per share using US GAAP 0.46 0.39
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Balance sheet items using US GAAP

November 30, 2006 August 31, 2006
------------------- --------------------
Canadian US Canadian US
GAAP GAAP GAAP GAAP
$ $ $ $
---------------------------------------------------------------------------

Deferred charges (2) (8) (9) (10) 265,071 175,568 261,908 164,053
Broadcast licenses (1) (4) (5) 4,758,719 4,733,485 4,691,484 4,666,250
Other long-term liabilities (7)
(10) 41,362 564,960 37,724 612,306
Deferred credits (8) (9) 1,070,892 686,823 1,100,895 679,652
Future income taxes 1,040,587 995,054 984,938 933,990
Shareholders' equity 1,871,560 1,662,827 1,809,705 1,584,225
---------------------------------------------------------------------------

The cumulative effect of these adjustments on consolidated shareholders'
equity is as follows:

November 30, 2006 August 31, 2006
$ $
---------------------------------------------------------------------------

Shareholders' equity using Canadian GAAP 1,871,560 1,809,705
Amortization of intangible assets (1) (130,208) (130,208)
Deferred charges (2) (3,471) (8,171)
Equity in loss of investees (3) (35,710) (35,710)
Gain on sale of subsidiary (4) 16,052 16,052
Gain on exchange of cable television
systems (5) 50,063 50,063
Foreign exchange gains on hedged
long-term debt (8) 315,726 345,860
Reclassification of hedge losses from
other comprehensive income (7) (315,726) (345,860)
Accumulated other comprehensive loss (105,114) (117,176)
Cumulative translation adjustment (345) (330)
---------------------------------------------------------------------------
Shareholders' equity using US GAAP 1,662,827 1,584,225
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Included in shareholders' equity is accumulated other comprehensive income (loss), which refers to revenues, expenses, gains and losses that under US GAAP are included in comprehensive income (loss) but are excluded from income (loss) as these amounts are recorded directly as an adjustment to shareholders' equity, net of tax. The Company's accumulated other comprehensive loss is comprised of the following:



November 30, 2006 August 31, 2006
$ $
---------------------------------------------------------------------------
Accumulated other comprehensive income (loss)
Unrealized foreign exchange gain on translation
of self-sustaining foreign operations 345 330
Fair value of derivatives (7) (91,067) (103,114)
Minimum liability for pension plan (10) (14,392) (14,392)
---------------------------------------------------------------------------
(105,114) (117,176)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Areas of material difference between accounting principles generally
accepted in Canada and the United States and their impact on the unaudited
interim Consolidated Financial Statements are as follows:

(1) Amortization of intangibles prior to September 1, 2001 is required on a
straight-line basis for US GAAP purposes, instead of an increasing
charge method.
(2) US GAAP requires the excess of equipment cost deferrals over equipment
revenue deferrals to be expensed as incurred instead of being deferred
and amortized.
(3) Equity in loss of investees have been adjusted to reflect US GAAP.
(4) Gain on a sale of a subsidiary that was not permitted to be recognized
under Canadian GAAP was required to be recognized under US GAAP.
(5) Gain on an exchange of cable systems was required to be recorded under
US GAAP but may not be recorded under Canadian GAAP.
(6) US GAAP requires equity securities included in investments to be
carried at fair value rather than cost as required by Canadian GAAP.
(7) Under US GAAP, all derivatives are recognized in the balance sheet at
fair value with gains and losses recorded in income or comprehensive
income (loss).
(8) Foreign exchange gains (losses) on translation of hedged long-term debt
are deferred under Canadian GAAP but included in income (loss) for US
GAAP.
(9) US GAAP requires subscriber connection revenue and related costs to be
recognized immediately instead of being deferred and amortized.
(10) The Company's unfunded non-contributory defined benefit pension plan
for certain of its senior executives had an accumulated benefit
obligation of $79,902 as at August 31, 2006. Under US GAAP, an
additional minimum liability is to be recorded for the difference
between the accumulated benefit obligation and the accrued pension
liability. The additional liability is offset in deferred charges up
to an amount not exceeding the unamortized past service costs. The
remaining difference is recognized in other comprehensive income
(loss), net of tax. Under Canadian GAAP, the accumulated benefit
obligation and additional minimum liability are not recognized.


9. PENSION PLAN

The total benefit costs expensed under the Company's defined benefit pension were $3,911 (2005 - $3,425), for the quarter ended November 30, 2006.

10. OTHER LONG-TERM LIABILITIES

Other long-term liabilities include the long-term portion of the Company's defined benefit pension plan of $41,362 (August 31, 2006 - $37,724).

Contact Information

  • Shaw Communications Inc.
    Steve Wilson
    Senior Vice President, Chief Financial Officer
    (403) 750-4500
    Website: www.shaw.ca