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

Shaw Communications Inc.

April 13, 2007 08:30 ET

Shaw Communications Inc.: Strong Continued Quarterly Growth and Dividend Increase

CALGARY, ALBERTA--(CCNMatthews - April 13, 2007) - Shaw Communications Inc. (TSX:SJR.B) (NYSE:SJR) announced results for the second quarter ended February 28, 2007. Consolidated service revenue of $685.7 million and $1.36 billion for the three and six month periods improved 12.2% and 13.0%, respectively, over the comparable periods last year. Total service operating income before amortization(1) of $303.0 million and $602.8 million increased by 13.1% and 15.2% respectively, over the same periods. Funds flow from operations(2) increased to $252.4 million for the quarter and $496.3 million for the year-to-date compared to $208.3 million and $405.5 million in the same periods last year.

During the quarter customer growth continued across all products. Internet and Digital subscribers increased by 40,694 to 1,389,333 and 28,641 to 725,528, respectively. Digital Phone lines increased 41,721 to 292,625. Basic subscribers were up 6,625 to 2,220,082 and DTH customers increased 928 to 872,562.

Jim Shaw, Chief Executive Officer, remarked: "We are pleased with the performance across our divisions and saw strong growth in revenue and service operating income before amortization. This quarter we continued to drive performance through customer growth and as a result delivered solid business metrics to our shareholders."

Free cash flow(1) for the quarter was $100.4 million bringing the year to date amount to $176.5 million. This compares to $82.0 million and $114.1 million for the same periods last year, an improvement of $18.4 million and $62.4 million, respectively, despite an increase in capital spending of over $20.0 million in each of the current three and six month periods. The growth in free cash flow was primarily related to the increase in service operating income before amortization.

Net income of $79.8 million or $0.37 per share for the second quarter ended February 28, 2007 compared to $45.8 million or $0.21 per share for the same quarter last year. Net income for the first six months of the year was $160.9 million or $0.75 per share compared to $121.5 million and $0.56 per share last year. The current and comparable three and six month periods 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 six month period. Excluding the non-operating items, net income for the three and six month periods ended February 28, 2007 would have been $78.9 million and $159.9 million compared to net income of $49.5 million and $88.3 million in the comparable periods.(3)

Shaw continued to roll-out Digital Phone during the quarter and the service is now available to approximately 2.6 million homes, representing over 75% of homes passed. During the quarter the Digital Phone footprint was expanded to include Kelowna, Kamloops and Penticton, all in British Columbia, as well as Fort Saskatchewan and Canmore, both in Alberta. Most recently, the service was rolled-out to Abbotsford and Chilliwack, British Columbia. During the quarter Shaw also introduced a new telephony product, Shaw Digital Phone Lite. This new service includes a local phone line, popular calling features, and long distance anytime calling at competitive per minute rates.

"The success of Digital Phone has been achieved, until this quarter, with one offer in the market. With the introduction of Shaw Digital Phone Lite we now offer broader home phone services which appeal to a larger customer base. This new offering is tailored for light long distance users and gives our customers the opportunity to customize their home phone service to meet their needs." said Jim Shaw.

Cable service revenue increased 14.5% for the quarter to $514.4 million and 15.1% on a year to date basis to $1.01 billion. The improvement was driven by customer growth and rate increases. Service operating income before amortization increased 14.4% to $244.2 million for the quarter and 14.5% to $481.9 million for the six month period.

Satellite division service revenue increased 5.7% and 7.1% to $171.3 million and $343.1 million, respectively, for the three and six month periods over the same periods last year primarily due to rate increases and customer growth. Service operating income before amortization for the three and six month periods increased 7.9% to $58.9 million and 18.1% to $120.9 million, respectively, largely due to growth in DTH revenues.

Mr. Shaw announced revisions to the guidance: "As a result of our performance for the first half of the year and our outlook for the remaining two quarters, we anticipate service operating income before amortization will exceed $1.2 billion. Consistent with previous guidance, fiscal 2007 free cash flow is expected to be in excess of $310.0 million as we may accelerate certain capital spending in order to ensure that we continue to meet customer demand and maintain the high standards for delivery of services on our network."

Mr. Shaw continued, "Our Board of Directors increased the equivalent annual dividend rate to $1.12 on Shaw's Class B Non-Voting Participating shares and $1.115 on Shaw's Class A Participating shares. This represents an increase of 12% or $0.12 per share. Shaw's dividends are declared and paid on a monthly basis and this increase will commence June 30, 2007."

On March 2, 2007 the Company closed a $400 million offering of 5.70% senior notes due March 2, 2017. The net proceeds were used for debt repayment, working capital and general corporate purposes.

In closing, Mr. Shaw summarized: "We continue to see ongoing demand and prospects for growth across all our products. We believe we are well positioned to capture this growth by offering value to our customers across our triple play of entertainment and communications services. Our focus on strengthening and enhancing current products, developing innovative new offerings and investing in our network to ensure it is fully capable of delivering these offerings is generating significant operating momentum and improved financial performance. We will continue with this focus through the remainder of the year."

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 3.2 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 FEBRUARY 28, 2007

April 12, 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
SECOND QUARTER ENDING FEBRUARY 28, 2007
SELECTED FINANCIAL HIGHLIGHTS


Three months ended
February 28,
---------------------------
Change
2007 2006 %
----------------------------------------------------------------------------
($000's Cdn except per share amounts)
Operations:
Service revenue 685,730 611,197 12.2
Service operating income before amortization (1) 303,038 267,924 13.1
Funds flow from operations (2) 252,412 208,273 21.2
Net income 79,751 45,790 74.2
Per share data:
Earnings per share - basic $ 0.37 $ 0.21
- diluted $ 0.37 $ 0.21
Weighted average participating shares
outstanding during period (000's) 215,983 217,620
----------------------------------------------------------------------------

Six months ended
February 28,
------------------------------
Change
2007 2006 %
----------------------------------------------------------------------------
($000's Cdn except per share amounts)
Operations:
Service revenue 1,356,736 1,200,742 13.0
Service operating income before amortization (1) 602,825 523,246 15.2
Funds flow from operations (2) 496,348 405,481 22.4
Net income 160,889 121,471 32.5
Per share data:
Earnings per share - basic $ 0.75 $ 0.56
- diluted $ 0.74 $ 0.56
Weighted average participating shares
outstanding during period (000's) 215,505 218,331
----------------------------------------------------------------------------

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

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


SUBSCRIBER HIGHLIGHTS

Growth
----------------------------------
Three months ended Six months ended
Total February 28, February 28,
----------------------------------------------------
February 28,
2007 2007 2006 2007 2006
----------------------------------------------------------------------------
Subscriber statistics:
Basic cable customers 2,220,082 6,625 6,838 19,289 36,267
Digital customers 725,528 28,641 18,594 53,972 46,890
Internet customers
(including pending
installs) 1,389,333 40,694 36,296 76,571 91,020
DTH customers 872,562 928 6,843 3,354 17,042
Digital phone lines
(including pending
installs) 292,625 41,721 28,018 79,918 62,106
----------------------------------------------------------------------------


ADDITIONAL HIGHLIGHTS

- The expansion of Shaw's Digital Phone footprint continued with roll-outs during the quarter in Kelowna, Kamloops and Penticton, all in British Columbia, as well as Fort Saskatchewan and Canmore, both in Alberta. Most recently, the service was rolled-out to Abbotsford and Chilliwack, British Columbia. As at February 28, 2007 the number of Digital Phone lines, including pending installations, was 292,625.

- Internet penetration of basic now stands at 62.6% up from 59.6% at August 31, 2006. Shaw added 40,694 Internet customers in the quarter and now has 1,389,333 customers. Customer growth continued across all other business lines with increases of 6,625 for Basic cable, 28,641 for Digital, 41,721 for Digital Phone and 928 for DTH in the second quarter.

- Consolidated service revenue of $685.7 million and $1.36 billion for the three and six month periods, respectively, improved 12.2% and 13.0% over the comparable periods last year and total service operating income before amortization2 of $303.0 million and $602.8 million increased by 13.1% and 15.2% respectively, over the same periods. Consolidated free cash flow of $100.4 million and $176.5 million year to date compares to $82.0 million and $114.1 million for the same periods last year.

- Consolidated free cash flow(1) of $100.4 million and $176.5 million for the three and six month periods, respectively, improved $18.4 million and $62.4 million over the same periods last year. To date in fiscal 2007, free cash flow has been used to repay debt and pay dividends.

- The Company increased the equivalent annual dividend rate to $1.12 on Shaw's Class B Non-Voting Participating shares and $1.115 on Shaw's Class A Participating shares. This represents an increase of 12% or $0.12 per share and will be payable in monthly installments commencing June 30, 2007.

- On March 2, 2007 the Company closed a $400 million offering of 5.70% senior notes due March 2, 2017. The net proceeds were used for debt repayment, working capital and general corporate purposes.

- The Company recently completed the acquisition of several small systems in British Columbia that complement existing cable systems. The acquisition provides synergies with existing operations and represents growing markets.

Consolidated Overview

Consolidated service revenue of $685.7 million and $1.36 billion for the three and six month periods, respectively, improved by 12.2% and 13.0% over the same periods last year. Increased service revenue primarily resulted from customer growth and rate increases. Consolidated service operating income before amortization for the three and six month periods increased by 13.1% and 15.2% over the comparable periods to $303.0 million and $602.8 million primarily due to overall revenue growth. Increased expenditures incurred to support continued growth, the delivery of quality customer service, enhancements to products, and the launch of Digital Phone in new markets in the cable division partially offset these improvements.

Net income was $79.8 million and $160.9 million for the three and six months ended February 28, 2007, compared to $45.8 million and $121.5 million for the same periods last year. A number of non-operating items affected net income in each of the quarters 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.



Six months ended
------------------

February 28, Operating net Non-
($000's Cdn) 2007 of interest operating
----------------------------------------------------------------------------
Operating income 367,505
Interest on long-term debt (123,438)
----------------------------------------------------------------------------
Operating income after interest 244,067 244,067 -
Gain on sale of investment 415 - 415
Write-down of investment - - -
Debt retirement costs - - -
Foreign exchange gain on unhedged
long-term debt - - -
Fair value loss on foreign currency
forward contract - - -
Other gains 562 - 562
----------------------------------------------------------------------------
Income before income taxes 245,044 244,067 977
Income tax expense (recovery) 84,356 84,119 237
----------------------------------------------------------------------------
Income before following 160,688 159,948 740
Equity income (loss) on investees 201 - 201
----------------------------------------------------------------------------
Net income 160,889 159,948 941
----------------------------------------------------------------------------

Six months ended
------------------

February 28, Operating net Non-
($000's Cdn) 2006 of interest operating
----------------------------------------------------------------------------
Operating income 267,051
Interest on long-term debt (127,826)
----------------------------------------------------------------------------
Operating income after interest 139,225 139,225 -
Gain on sale of investment 1,690 - 1,690
Write-down of investment (374) - (374)
Debt retirement costs (8,123) - (8,123)
Foreign exchange gain on unhedged
long-term debt 4,352 - 4,352
Fair value loss on foreign currency
forward contract (360) - (360)
Other gains 4,322 - 4,322
----------------------------------------------------------------------------
Income before income taxes 140,732 139,225 1,507
Income tax expense (recovery) 19,113 50,971 (31,858)
----------------------------------------------------------------------------
Income before following 121,619 88,254 33,365
Equity income (loss) on investees (148) - (148)
----------------------------------------------------------------------------
Net income 121,471 88,254 33,217
----------------------------------------------------------------------------

Three months ended
--------------------
February 28, Operating net Non-
($000's Cdn) 2007 of interest operating
----------------------------------------------------------------------------
Operating income 183,735
Interest on long-term debt (61,597)
----------------------------------------------------------------------------
Operating income after interest 122,138 122,138 -
Write-down of investment - - -
Debt retirement costs - - -
Foreign exchange gain on unhedged
long-term debt - - -
Other gains 1,045 - 1,045
----------------------------------------------------------------------------
Income before income taxes 123,183 122,138 1,045
Income tax expense (recovery) 43,530 43,209 321
----------------------------------------------------------------------------
Income before following 79,653 78,929 724
Equity income (loss) on investees 98 - 98
----------------------------------------------------------------------------
Net income 79,751 78,929 822
----------------------------------------------------------------------------

Three months ended
--------------------
February 28, Operating net Non-
($000's Cdn) 2006 of interest operating
----------------------------------------------------------------------------
Operating income 141,898
Interest on long-term debt (64,384)
----------------------------------------------------------------------------
Operating income after interest 77,514 77,514 -
Write-down of investment (374) - (374)
Debt retirement costs (8,123) - (8,123)
Foreign exchange gain on unhedged
long-term debt 871 - 871
Other gains 2,191 - 2,191
----------------------------------------------------------------------------
Income before income taxes 72,079 77,514 (5,435)
Income tax expense (recovery) 26,073 28,034 (1,961)
----------------------------------------------------------------------------
Income before following 46,006 49,480 (3,474)
Equity income (loss) on investees (216) - (216)
----------------------------------------------------------------------------
Net income 45,790 49,480 (3,690)
----------------------------------------------------------------------------


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

Increase (decrease) of February
28, 2007 net income compared to:
--------------------------------

Three months ended Six months ended
--------------------------------------------
November 30, February 28, February 28,
2006 2006 2006
----------------------------------------------------------------------------
($millions Cdn)
Increased service operating
income before amortization 3,251 35,114 79,579
Decreased (increased) amortization (3,286) 6,723 20,875
Decreased interest expense 244 2,787 4,388
Change in net other costs and
revenue (1) 1,108 6,794 (181)
Decreased (increased) income taxes (2,704) (17,457) (65,243)
----------------------------------------------------------------------------
(1,387) 33,961 39,418
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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


Earnings per share were $0.37 and $0.75 for the quarter and six months respectively which represents a $0.16 and $0.19 improvement over the same periods last year. The improvement in the current quarter was due to higher net income of $34.0 million and included increased service operating income before amortization of $35.1 million and decreased amortization of $6.7 million. The current quarter also benefited as debt retirement costs of $8.1 million were included in the comparable quarter. These improvements were partially offset by increased income taxes of $17.5 million. The increased income taxes were due to higher service operating income before amortization in the current quarter. On a year-to-date basis, the improvement was due to increased net income of $39.4 million resulting primarily from increased service operating income before amortization of $79.6 million, decreased amortization of $20.9 million and decreased interest expense of $4.4 million. These improvements were partially offset by increased income taxes of $65.2 million that resulted from higher service operating income before amortization in the current period and a tax recovery of $31.4 million in the comparable period related to reductions in corporate income tax rates.

Net income in the current quarter decreased $1.4 million over the first quarter of fiscal 2007.

Funds flow from operations was $252.4 million in the second quarter compared to $208.3 million in the comparable quarter, and on a year-to-date basis was $496.3 million compared to $405.5 million in 2006. The growth over the respective quarterly and year-to-date comparative periods was principally due to increased service operating income before amortization and reduced interest expense.

Consolidated free cash flow for the quarter and year-to-date of $100.4 million and $176.5 million, respectively, increased $18.4 million and $62.4 million over the comparable periods. The improvement came despite increased capital spending of over $20.0 million in each of the current three and six month periods and was primarily due to improved service operating income before amortization. The Cable division generated $70.6 million of free cash flow for the quarter compared to $59.5 million in the comparable period. The Satellite division achieved free cash flow of $29.7 million compared to free cash flow of $22.5 million in the same period last year.

As a result of the Company's performance for the first half of the year and the outlook for the remaining two quarters, the Company anticipates service operating income before amortization will exceed $1.2 billion. Consistent with previous guidance fiscal 2007 free cash flow is expected to be in excess of $310.0 million as the Company may accelerate certain capital spending in order to meet customer demand and maintain the high standards for delivery of services on our network."

Today Shaw's Board of Directors increased the equivalent annual dividend rate to $1.12 on Shaw's Class B Non-Voting Participating shares and $1.115 on Shaw's Class A Participating shares. This represents an increase of 12% or $0.12 per share. Shaw's dividends are declared and paid monthly and this increase will commence June 30, 2007.

On March 2, 2007 the Company closed a $400 million offering of 5.70% senior notes due March 2, 2017. The net proceeds were used for debt repayment, working capital and general corporate purposes.

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 Six months ended
February 28, February 28,
------------------- ------------------
2007 2006 2007 2006
----------------------------------------------------------------------------
($000's Cdn)
Cable free cash flow (1) 70,615 59,461 115,060 91,454
Combined satellite free cash flow (1) 29,735 22,494 61,427 22,604
----------------------------------------------------------------------------
Consolidated 100,350 81,955 176,487 114,058
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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 Six months ended
February 28, February 28,
--------------------------- --------------------------
Change Change
2007 2006 % 2007 2006 %
--------------------------------------------------------
($000's Cdn)
Service revenue
(third party) 514,416 449,195 14.5 1,013,611 880,256 15.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Service operating
income before
amortization (1) 244,164 213,383 14.4 481,933 420,898 14.5
Less:
Interest 51,465 53,245 (3.3) 102,855 106,114 (3.1)
Cash taxes on net
income - 1,041 (100.0) - 2,083 (100.0)
----------------------------------------------------------------------------
Cash flow before
the following: 192,699 159,097 21.1 379,078 312,701 21.2
----------------------------------------------------------------------------
Capital
expenditures and
equipment costs
(net):
New housing
development 22,632 18,317 23.6 45,125 41,583 8.5
Success based 17,588 24,483 (28.2) 37,916 47,793 (20.7)
Upgrades and
enhancement 61,051 38,126 60.1 138,199 97,097 42.3
Replacement 9,207 12,040 (23.5) 18,489 22,175 (16.6)
Buildings/other 11,606 6,670 74.0 24,289 12,599 92.8
----------------------------------------------------------------------------
Total as per Note 2
to the unaudited
interim
Consolidated
Financial
Statements 122,084 99,636 22.5 264,018 221,247 19.3
----------------------------------------------------------------------------
Free cash flow (1) 70,615 59,461 18.8 115,060 91,454 25.8
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Operating margin 47.5% 47.5% - 47.5% 47.8% (0.3)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) See definitions and discussion under Key Performance Drivers in
Management's Discussion and Analysis.


OPERATING HIGHLIGHTS

- The expansion of Shaw's Digital Phone footprint continued with the service now available to over 75% of homes passed and included roll-outs during the quarter in Kelowna, Kamloops and Penticton, all in British Columbia, as well as Fort Saskatchewan and Canmore, both in Alberta. Most recently, the service was rolled-out to Abbotsford and Chilliwack, British Columbia. During the quarter the Company introduced a new Digital Phone product, Shaw Digital Phone Lite and added 41,721 Digital Phone lines to total 292,625, including pending installations, at February 28, 2007.

- Customer growth continued in the second quarter with increases of 6,625 for Basic cable, 28,641 for Digital, and 40,694 for Internet. Internet penetration of basic now stands at 62.6% up from 59.6% at August 31, 2006.

- The Company recently closed the acquisition of several small systems in British Columbia that complement existing cable systems adding approximately 5,000 cable subscribers. The acquisition provides synergies with existing operations and represents growing markets.

Cable service revenue improved 14.5% and 15.1% over the respective quarter and six month period last year. Customer growth, rate increases and the impact of acquisitions completed in the immediately preceding two quarters accounted for the increase. Service operating income before amortization grew 14.4% and 14.5% over the comparable three and six month periods. 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 $15.2 million or 3.0% over the first quarter of fiscal 2007 as a result of customer growth, the impact of acquisitions that were completed in the first quarter and rate increases. Service operating income before amortization improved $6.4 million or 2.7% over this same period mainly due to the revenue related growth.

Capital expenditures of $122.1 million and $264.0 million for the quarter and year-to-date respectively, increased $22.4 million and $42.8 million over the comparable periods last year. Shaw invested $23.1 million in the second quarter of 2007 on Digital Phone compared to $17.8 million in the same quarter last year. The increase was mainly due to spending on new launches, increasing softswitch capacity, and projects that will allow Shaw to operate independently as a Competitive Local Exchange Carrier ("CLEC"). Total spending to date on Digital Phone is now $201.0 million.

Spending in the upgrade and enhancement category for the three and six month periods increased $22.9 million and $41.1 million, respectively, over the same periods last year primarily due to projects undertaken to increase network capacity to support digital phone and internet growth, and upgrades to support Video-On-Demand ("VOD"), digital cable and high definition ("HD") TV initiatives. Spending in Buildings and Other was up $4.9 million and $11.7 million for the quarter and year-to-date, respectively, over the same periods last year primarily due to initiatives to upgrade certain corporate assets and various facilities projects.

Success based capital decreased over the comparable three and six month periods by $6.9 million and $9.9 million, respectively. Digital Phone and Internet success based capital increased during the current quarter as a result of customer growth and increased Internet promotions, however, this was more than offset by reduced success based capital primarily related to digital cable terminal ("DCT") sales as a result of price increases implemented on sales units during the latter part of fiscal 2006.

Throughout the past quarter Shaw continued to deliver on its strategy of enhancing the various service offerings, and launching new products. In December, the Company introduced a Digital Phone Lite product to the range of service offerings. This new service includes a local phone line, popular calling features, and long distance anytime calling at competitive per minute rates. This new service offering is tailored for light long distance users and gives customers the opportunity to customize their home phone service to meet their needs.

The Company continues to expand its High Definition ("HD") line-up, adding Showcase HD and National Geographic HD in December. Shaw currently has over 150,000 HD capable cable customers.



SUBSCRIBER STATISTICS

February 28, 2007
-------------------------------------
Three months ended Six months ended
------------------- -----------------

February 28, August 31, Change Change
2007 2006(1) Growth % Growth %
-------------------------------------- -------------------------------------
CABLE:
Basic service:
Actual 2,220,082 2,200,793 6,625 0.3 19,289 0.9
Penetration as %
of homes passed 65.2% 65.4%
Digital terminals 945,760 855,647 51,131 5.7 90,113 10.5
Digital customers 725,528 671,556 28,641 4.1 53,972 8.0
----------------------------------------------------------------------------

INTERNET:
Connected and
scheduled 1,389,333 1,312,762 40,694 3.0 76,571 5.8
Penetration as %
of basic 62.6% 59.6%
Standalone
Internet not
included in basic
cable 168,561 157,200 5,239 3.2 11,361 7.2

DIGITAL PHONE:
Number of
lines(1) 292,625 212,707 41,721 16.6 79,918 37.6
----------------------------------------------------------------------------

(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 Six months ended
February 28, February 28,
-------------------- ------------------
Churn (3) 2007 2006 2007 2006
------------------------------------------------------- ------------------
Digital customers 3.1% 3.3% 6.4% 6.7%
Internet customers 2.8% 3.0% 6.4% 6.1%
----------------------------------------------------------------------------

(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.


SATELLITE (DTH and Satellite Services)

FINANCIAL HIGHLIGHTS

Three months ended Six months ended
February 28, February 28,
--------------------------- --------------------------
Change Change
2007 2006 % 2007 2006 %
--------------------------------------------------------
($000's Cdn)
Service revenue
(third party)
DTH (Star Choice) 150,293 141,413 6.3 300,485 279,157 7.6
----------------------------------------------------------------------------
Satellite Services 21,021 20,589 2.1 42,640 41,329 3.2
----------------------------------------------------------------------------
171,314 162,002 5.7 343,125 320,486 7.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Service operating
income before
amortization (1)
DTH (Star Choice) 47,579 43,532 9.3 97,261 80,225 21.2
Satellite Services 11,295 11,009 2.6 23,631 22,123 6.8
----------------------------------------------------------------------------
58,874 54,541 7.9 120,892 102,348 18.1

Less:
Interest (2) 9,776 10,777 (9.3) 19,870 20,986 (5.3)
Cash taxes on net
income - 66 (100.0) - 131 (100.0)
----------------------------------------------------------------------------
Cash flow before
the following: 49,098 43,698 12.4 101,022 81,231 24.4
----------------------------------------------------------------------------
Capital
expenditures and
equipment costs
(net):
Success based (3) 13,970 19,428 (28.1) 32,361 49,630 (34.8)
Transponders and
other 5,393 1,776 203.7 7,234 8,997 (19.6)
----------------------------------------------------------------------------
Total as per Note 2
to the unaudited
interim
Consolidated
Financial
Statements 19,363 21,204 (8.7) 39,595 58,627 (32.5)
----------------------------------------------------------------------------
Free cash flow (1) 29,735 22,494 32.2 61,427 22,604 171.8
----------------------------------------------------------------------------
Operating Margin 34.4% 33.7% 0.7 35.2% 31.9% 3.3
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(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 of $29.7 million and $61.4 million for the three and six month periods, respectively, improved $7.2 million and $38.8 million over the same periods last year.

- On February 1, 2007 Star Choice implemented rate increases on a number of its packages. The increases, which were fully implemented in March, will generate additional revenue of approximately $0.7 million per month.

Service revenue improved 5.7% over the same quarter last year and 7.1% for the year-to-date primarily as a result of rate increases and customer growth. Service operating income before amortization increased 7.9% and 18.1% over the comparable three and six month periods, respectively, to $58.9 million and $120.9 million. The improvement was primarily due to the growth in service revenue and was partially offset by costs to increase transponder capacity. The year-to-date period also benefited from recovery of provisions related to certain contractual matters.

Service revenue decreased $0.5 million over the first quarter of fiscal 2007 primarily due to increased programming credits. Service operating income before amortization declined $3.1 million over this same quarter primarily due to the reduced revenues and various increased costs.

Capital expenditures of $19.4 million and $39.6 million for the quarter and year-to-date respectively, decreased $1.8 million and $19.0 million over the comparable periods last year. Quarterly and year-to-date success based capital expenditures of $14.0 million and $32.4 million, respectively, declined $5.5 million and $17.3 million over the comparable periods mainly due to favorable pricing on receivers and reduced activations. Current quarter spending in Transponders and Other increased $3.6 million over the same period last year primarily due to current year investments to upgrade certain Satellite Service technology and increased office equipment to support call centre expansions. On a year-to-date basis, spending has decreased $1.8 million mainly due to investments in the comparable period to add additional transponder capacity.

During the quarter, Star Choice announced plans to add a third call centre in Mississauga. The Company currently operates two call centres in Calgary and Montreal. Star Choice also expanded their channel line up with new HD programming adding Showcase HD and National Geographic HD. They now offer 20 HD channels and have over 110,000 HD capable customers.



CUSTOMER STATISTICS

February 28, 2007
----------------------------
Three months Six months
ended ended
----------------------------
February 28, August 31, Growth % Growth %
2007 2006
--------------------------------------------------

Star Choice customers (1) 872,562 869,208 928 0.1 3,354 0.4
----------------------------------------------------------------------------

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


----------------------------------------------------------------------------
Three months ended Six months ended
February 28, February 28,
-------------------- ------------------
Churn (2) 2007 2006 2007 2006
----------------------------------------------------------------------------
Star Choice customers 2.4% 2.2% 5.6% 5.6%
----------------------------------------------------------------------------

(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 Six months ended
February 28, February 28,
--------------------------- --------------------------
Change Change
2007 2006 % 2007 2006 %
----------------------------------------------------------------------------
($000's Cdn)
Amortization
revenue (expense)
Deferred IRU
revenue 3,136 3,136 - 6,273 6,273 -
Deferred equipment
revenue 25,771 19,511 32.1 48,989 37,880 29.3
Deferred equipment
cost (50,166) (50,326) (0.3) (99,136) (99,903) (0.8)
Deferred charges (1,236) (1,325) (6.7) (2,473) (2,583) (4.3)
Property, plant
and equipment (96,808) (97,022) (0.2) (188,973) (197,862) (4.5)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The increase in amortization of deferred equipment revenue over the comparative periods 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 six month period as the impact of assets that became fully depreciated in fiscal 2006 exceeded amortization on new capital purchases.



Interest

Three months ended Six months ended
February 28, February 28,
--------------------------- --------------------------
Change Change
2007 2006 % 2007 2006 %
----------------------------------------------------------------------------

($000's Cdn)
Interest 61,597 64,384 (4.3) 123,438 127,826 (3.4)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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

Investment activity

During the current and comparative six month periods, 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 Six months ended
February 28, February 28,
--------------------------- --------------------------
Change Change
2007 2006 % 2007 2006 %
----------------------------------------------------------------------------
($000's Cdn)
Foreign exchange
gain on unhedged
long-term debt - 871 (100) - 4,352 (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 $346.5 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 $0.6 million for the quarter (2006 - nil), and $1.9 million (2006 - gain of $1.2 million) for the six month period.

Income Taxes

Income taxes increased over the comparative periods primarily due to the future income tax recovery of $31.4 million related to reductions in corporate income tax rates recorded in the first quarter of fiscal 2006 and increased income taxes on higher income in the current fiscal year.

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 February 28, 2007 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 $38.5 million due to increases in accounts receivable of $21.7 million and inventory of $15.6 million. Accounts receivable increased mainly due to customer growth, rate increases and timing of equipment shipments to retailers. Inventories increased due to timing of purchases, continued growth and to ensure adequate stock levels are on hand during a supplier's plant relocation.

Investments and other assets decreased by $9.2 million due to the sale of an interest in a publicly traded company.

Property, plant and equipment increased by $84.1 million as current year capital expenditures exceeded amortization.

Deferred charges increased $10.2 million primarily due to an increase in deferred equipment costs of $8.7 million.

Broadcast licenses increased by $67.4 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) increased by $26.6 million due to an increase in bank indebtedness of $21.8 million and unearned revenue of $6.2 million. Unearned revenue increased due to customer growth and rate increases.

Total long-term debt decreased by $33.0 million as a result of repayment of bank borrowings and Partnership debt of $95.2 million partially offset by an increase of $62.2 million relating to the translation of hedged US denominated debt.

Deferred credits decreased by $49.3 million principally due to the decrease in deferred foreign exchange gains on the translation of hedged US dollar denominated debt of $62.2 million offset by an increase in deferred equipment revenue of $22.1 million. Future income taxes increased by $99.2 million due to the impact of cable system acquisitions and the future income tax expense recorded in the current year.

Share capital increased by $59.7 million primarily due to the issuance of Class B Non-Voting Shares. During the six months ended February 28, 2007, 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 1,707,302 Class B Non-Voting Shares were issued for $55.2 million under the Company's option and warrant plans. As of March 31, 2007, share capital is as reported at February 28, 2007 with the exception of the issuance of 150,056 Class B Non-Voting Shares upon exercise of options subsequent to the quarter end.

LIQUIDITY AND CAPITAL RESOURCES

In the current year, Shaw generated $176.5 million of consolidated free cash flow. Shaw used its free cash flow along with proceeds on issuance of Class B Non-Voting Shares of $55.2 million, proceeds on the sale of various assets of $10.3 million, and other net items of $9.2 million to repay bank debt of 73.2 million, fund the cash component of cable systems acquisitions of $52.9 million, pay common share dividends of $86.2 million, purchase inventory of $15.6 million and fund the net change in working capital requirements of $23.3 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.

On March 2, 2007, Shaw issued $400 million of senior unsecured notes at a rate of 5.7% due March 2, 2017. Net proceeds (after issue and underwriting expenses) of $394.8 million were used for repayment of unsecured bank loans and general working capital purposes. The notes were issued at a discount of $0.9 million.
At February 28, 2007, Shaw had access to $832.4 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.



CASH FLOW

Operating Activities

Three months ended Six months ended
February 28, February 28,
--------------------------- --------------------------
Change Change
2007 2006 % 2007 2006 %
----------------------------------------------------------------------------
($000's Cdn)
Funds flow from
operations 252,412 208,273 21.2 496,348 405,481 22.4
Net decrease
(increase) in
non-cash working
capital balances
related to
operations 37,989 10,991 245.6 (23,356) (11,202) (108.5)
----------------------------------------------------------------------------
290,401 219,264 32.4 472,992 394,279 20.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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 the timing of payment of accounts
payable and accrued liabilities.



Investing Activities

Three months ended Six months ended
February 28, February 28,
---------------------------- --------------------------
2007 2006 Increase 2007 2006 Increase
----------------------------------------------------------------------------
($000's Cdn)
Cash flow used in
investing
activities (166,920) (124,670) (42,250) (368,600) (292,437) (76,163)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The cash used in investing activities increased $42.2 million over the comparative quarter due to higher expenditures on capital and inventory, partially offset by lower cash requirements for equipment costs (net). The cash used in investing activities increased $76.2 million over the comparative six month period due to cable system acquisitions and higher capital expenditures, partially offset by lower cash requirements for equipment costs (net).

Financing Activities

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



Three months ended Six months ended
February 28, February 28,
-------------------------------------
2007 2006 2007 2006
----------------------------------------------------------------------------
(In $millions Cdn)
Bank loans and bank indebtedness
- net repayments (115.8) (65.3) (73.2) (235.7)
Proceeds on $450 million senior
unsecured notes - - - 450.0
Dividends (54.0) (22.3) (86.2) (44.7)
Purchase of Class B Non-Voting Shares
for cancellation - - - (58.0)
Repayment of Partnership debt (0.1) (0.1) (0.2) (0.2)
Proceeds on bond forward - - - 2.5
Issue of Class B Non-Voting Shares 46.4 0.1 55.2 0.1
Proceeds on prepayment of IRU - 0.1 - 0.2
Cost to terminate foreign currency
forward contract - (15.8) - (15.8)
Redemption of COPrS - (201.9) - (201.9)
----------------------------------------------------------------------------
(123.5) (305.2) (104.4) (103.5)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION

Service
operating Basic Funds flow
Service income before Net earnings from
revenue amortization(1) income per share(2) operations(3)
----------------------------------------------------------------------------
($000's Cdn
except per
share amounts)
2007
Second 685,730 303,038 79,751 0.37 252,412
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
----------------------------------------------------------------------------

(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 the first and second quarters 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 which contributed $31.4 million and $150.0 million to net income in the first and fourth quarters of 2006, respectively. The decline in the second quarter of 2007 was marginal. 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)

(thousands of Canadian dollars) February 28, 2007 August 31, 2006
----------------------------------------------------------------------------
ASSETS
Current
Accounts receivable 159,793 138,142
Inventories 69,564 53,994
Prepaids and other 22,187 20,870
----------------------------------------------------------------------------
251,544 213,006
Investments and other assets 8,823 17,978
Property, plant and equipment 2,334,140 2,250,056
Deferred charges 272,096 261,908
Intangibles
Broadcast licenses 4,758,862 4,691,484
Goodwill 88,111 88,111
----------------------------------------------------------------------------
7,713,576 7,522,543
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 42,163 20,362
Accounts payable and accrued liabilities 459,672 461,119
Income taxes payable 4,985 4,918
Unearned revenue 112,719 106,497
Current portion of long-term debt (note 4) 297,223 449
----------------------------------------------------------------------------
916,762 593,345
Long-term debt (note 4) 2,666,183 2,995,936
Other long-term liabilities (note 9) 49,580 37,724
Deferred credits 1,051,643 1,100,895
Future income taxes 1,084,155 984,938
----------------------------------------------------------------------------
5,768,323 5,712,838
----------------------------------------------------------------------------
Shareholders' equity
Share capital (note 5) 2,036,706 1,976,966
Contributed surplus (note 5) 6,212 5,110
Deficit (98,021) (172,701)
Cumulative translation adjustment 356 330
----------------------------------------------------------------------------
1,945,253 1,809,705
----------------------------------------------------------------------------
7,713,576 7,522,543
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes


CONSOLIDATED STATEMENTS OF INCOME AND DEFICIT
(Unaudited)
Three months ended Six months ended
February 28, February 28,
-----------------------------------------
(thousands of Canadian dollars
except per share amounts) 2007 2006 2007 2006
----------------------------------------------------------------------------
Service revenue (note 2) 685,730 611,197 1,356,736 1,200,742
Operating, general and
administrative expenses 382,692 343,273 753,911 677,496
----------------------------------------------------------------------------
Service operating income before
amortization (note 2) 303,038 267,924 602,825 523,246
Amortization:
Deferred IRU revenue 3,136 3,136 6,273 6,273
Deferred equipment revenue 25,771 19,511 48,989 37,880
Deferred equipment cost (50,166) (50,326) (99,136) (99,903)
Deferred charges (1,236) (1,325) (2,473) (2,583)
Property, plant and equipment (96,808) (97,022) (188,973) (197,862)
----------------------------------------------------------------------------
Operating income 183,735 141,898 367,505 267,051
Interest on long-term debt
(note 2) (61,597) (64,384) (123,438) (127,826)
----------------------------------------------------------------------------
122,138 77,514 244,067 139,225
Gain on sale of investment - - 415 1,690
Write-down of investment - (374) - (374)
Foreign exchange gain on unhedged
long-term debt - 871 - 4,352
Fair value loss on a foreign
currency forward contract - - - (360)
Debt retirement costs - (8,123) - (8,123)
Other gains 1,045 2,191 562 4,322
----------------------------------------------------------------------------
Income before income taxes 123,183 72,079 245,044 140,732
Income tax expense 43,530 26,073 84,356 19,113
----------------------------------------------------------------------------
Income before the following 79,653 46,006 160,688 121,619
Equity income (loss) on investees 98 (216) 201 (148)
----------------------------------------------------------------------------
Net income 79,751 45,790 160,889 121,471
Deficit, beginning of period (123,804) (410,792) (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 - (1,612) - (1,705)
Dividends -
Class A and Class B Non-Voting
Shares (53,968) (22,292) (86,209) (44,732)
----------------------------------------------------------------------------
Deficit, end of period (98,021) (388,906) (98,021) (388,906)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share (note 6)
Basic 0.37 0.21 0.75 0.56
Diluted 0.37 0.21 0.74 0.56
----------------------------------------------------------------------------
(thousands of shares)
Weighted average participating
shares outstanding during period 215,983 217,620 215,505 218,331
Participating shares outstanding,
end of period 216,739 217,623 216,739 217,623
----------------------------------------------------------------------------

See accompanying notes



CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended Six months ended
February 28, February 28,
---------------------------------------
(thousands of Canadian dollars) 2007 2006 2007 2006
----------------------------------------------------------------------------

OPERATING ACTIVITIES (note 7)
Funds flow from operations 252,412 208,273 496,348 405,481
Net decrease (increase) in non-cash
working capital balances related
to operations 37,989 10,991 (23,356) (11,202)
----------------------------------------------------------------------------
290,401 219,264 472,992 394,279
----------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and
equipment (note 2) (131,875) (105,456) (271,250) (214,854)
Additions to equipment costs (net)
(note 2) (19,014) (26,632) (38,812) (65,377)
Net reduction (addition) to
inventories (15,830) 1,916 (15,570) (17,071)
Cable business acquisitions (note 3) (492) - (52,918) -
Proceeds on sale of investments and
other assets 476 5,799 10,315 13,662
Additions to deferred charges (185) (297) (365) (8,797)
----------------------------------------------------------------------------
(166,920) (124,670) (368,600) (292,437)
----------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in bank indebtedness 4,164 29,677 21,801 29,677
Increase in long-term debt 25,000 125,000 60,000 650,000
Long-term debt repayments (145,111) (421,999) (155,221) (667,590)
Cost to terminate foreign currency
forward contract - (15,774) - (15,774)
Issue of Class B Non-Voting Shares,
net of after-tax expenses 46,426 116 55,216 116
Proceeds on bond forward - - - 2,486
Proceeds on prepayment of IRU - 76 - 228
Purchase of Class B Non-Voting
Shares for cancellation - - - (57,954)
Dividends paid on Class A and Class B
Non-Voting Shares (53,968) (22,292) (86,209) (44,732)
----------------------------------------------------------------------------
(123,489) (305,196) (104,413) (103,543)
----------------------------------------------------------------------------
Effect of currency translation on
cash balances and cash flows 8 (8) 21 (12)
----------------------------------------------------------------------------
Decrease in cash - (210,610) - (1,713)
Cash, beginning of the period - 210,610 - 1,713
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash, end of the period - - - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Cash includes cash and term deposits

See accompanying notes

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

February 28, 2007 and 2006
(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 satellite services (Star Choice); 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 Six months ended
February 28, February 28,
-----------------------------------------
2007 2006 2007 2006
$ $ $ $
----------------------------------------------------------------------------
Service revenue
Cable 515,257 449,967 1,015,263 881,718
DTH 151,990 142,662 303,682 281,467
Satellite Services 21,896 21,474 44,390 43,099
----------------------------------------------------------------------------
Inter segment - 689,143 614,103 1,363,335 1,206,284
Cable (841) (772) (1,652) (1,462)
DTH (1,697) (1,249) (3,197) (2,310)
Satellite Services (875) (885) (1,750) (1,770)
----------------------------------------------------------------------------
685,730 611,197 1,356,736 1,200,742
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Service operating income before
amortization
Cable 244,164 213,383 481,933 420,898
DTH 47,579 43,532 97,261 80,225
Satellite Services 11,295 11,009 23,631 22,123
----------------------------------------------------------------------------
303,038 267,924 602,825 523,246
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest on long-term debt (1)
Cable 51,465 53,245 102,855 106,114
DTH and Satellite Services 9,776 10,777 19,870 20,986
Burrard Landing Lot 2 Holdings
Partnership 356 362 713 726
----------------------------------------------------------------------------
61,597 64,384 123,438 127,826
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash taxes (1)
Cable - 1,041 - 2,083
DTH and Satellite Services - 66 - 131
----------------------------------------------------------------------------
- 1,107 - 2,214
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(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 Six months ended
February 28, February 28,
-----------------------------------------
2007 2006 2007 2006
$ $ $ $
----------------------------------------------------------------------------
Capital expenditures accrual basis
Cable 109,777 88,344 242,047 197,931
Corporate 8,110 4,867 17,161 9,083
----------------------------------------------------------------------------
Sub-total Cable including
corporate 117,887 93,211 259,208 207,014
Satellite
(net of equipment profit) 4,546 997 5,593 7,483
----------------------------------------------------------------------------
122,433 94,208 264,801 214,497
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Equipment costs (net of revenue
received)
Cable 4,197 6,425 4,810 14,233
Satellite 14,817 20,207 34,002 51,144
----------------------------------------------------------------------------
19,014 26,632 38,812 65,377
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures and
equipment costs (net)
Cable 122,084 99,636 264,018 221,247
Satellite 19,363 21,204 39,595 58,627
----------------------------------------------------------------------------
141,447 120,840 303,613 279,874
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Reconciliation to Consolidated
Statements of Cash Flows
Additions to property, plant
and equipment 131,875 105,456 271,250 214,854
Additions to equipment costs
(net) 19,014 26,632 38,812 65,377
----------------------------------------------------------------------------
Total of capital expenditures
and equipment costs (net) per
Consolidated Statements of
Cash Flows 150,889 132,088 310,062 280,231
Decrease in working capital
related to capital expenditures (8,566) (9,863) (4,733) 3,138
Less: Partnership capital
expenditures (1) - (533) - (1,803)
Less: IRU prepayments (2) - (60) (7) (161)
Less: Satellite equipment
profit (3) (876) (792) (1,709) (1,531)
----------------------------------------------------------------------------
Total capital expenditures and
equipment costs (net) reported
by segments 141,447 120,840 303,613 279,874
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(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

February 28, 2007

------------------------------------------
Satellite
Cable DTH Services Total
$ $ $ $
----------------------------------------------------------------------------
Segment assets 6,078,390 862,463 532,805 7,473,658
----------------------------------------------------------------
Corporate assets 239,918
-----------
Total assets 7,713,576
-----------

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

February 28, 2007
------------------------------------------------------
Total
Accounts Issuance of Class B purchase
Cash payable Non-Voting Shares price
$ $ $ $
----------------------------------------------------------------------------
Cable systems 52,893 447 3,000 56,340
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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 6,588
Broadcast licenses 67,378
----------------------------------------------------------------------------
73,966
----------------------------------------------------------------------------
Working capital deficiency 2,801
Future income taxes 14,825
----------------------------------------------------------------------------
17,626
----------------------------------------------------------------------------
Purchase price 56,340
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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 over the five day period prior to 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

February 28, 2007
--------------------------------------------
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 185,000 - 185,000
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 7.88 514,712 127,908 642,620
US $225,000 due April 6, 2011 7.68 263,205 92,633 355,838
US $300,000 due December 15, 2011 7.61 350,940 125,910 476,850
Due November 20, 2013 7.50 350,000 - 350,000
COPrS -
Due September 30, 2027 8.54 100,000 - 100,000
----------------------------------------------------------------------------
2,810,617 346,451 3,157,068
----------------------------------------------------------------------------

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 22,789 - 22,789
----------------------------------------------------------------------------
152,789 - 152,789
----------------------------------------------------------------------------
Total consolidated debt 2,963,406 346,451 3,309,857
Less current portion (3) 297,223 - 297,223
----------------------------------------------------------------------------
2,666,183 346,451 3,012,634
----------------------------------------------------------------------------
----------------------------------------------------------------------------

August 31, 2006
--------------------------------------------

Translated Adjustment Translated
at year end for hedged at hedged
exchange 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 $346,451
(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 February 28,
2007:

Operating
Total Bank loans (a) (b) credit facilities (a)
$ $ $
------------------------------------------------------
Total facilities 1,060,000 1,000,000 60,000
Amount drawn
(excluding letters
of credit of $428) 227,163 185,000 42,163
------------------------------------------------------
832,837 815,000 17,837
------------------------------------------------------
------------------------------------------------------

(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

Changes in Class A and Class B Non-Voting Share capital in the six months
ended February 28, 2007 are as follows:

Class A Shares Class B Non-Voting Shares
---------------- ---------------------------
Number $ Number $
----------------------------------------------------------------------------
August 31, 2006 11,291,932 2,475 203,649,904 1,974,491
Class A Share conversion - - - -
Stock option plans exercises - - 1,707,302 56,745
Issued in respect of
acquisition - - 89,794 3,000
Share issue costs - - - (5)
----------------------------------------------------------------------------
February 28, 2007 11,291,932 2,475 205,447,000 2,034,231
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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, 1,762,768 Class B Non-Voting Shares have been issued under these plans. During the three and six months ended February 28, 2007, 1,418,683 and 1,688,901 options were exercised for $46,172 and $54,847, respectively.



The changes in options for the six months ended February 28, 2007 are as
follows:

Weighted average
Shares exercise price $
----------------------------------------------------------------------------
Outstanding at beginning of period 9,558,801 32.60
Granted 2,036,250 34.24
Forfeited (612,133) 33.16
Exercised (1,688,901) 32.47
----------------------------------------------------------------------------
Outstanding at end of period 9,294,017 32.90
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The following table summarizes information about the options outstanding at
February 28, 2007:

Number Weighted Number
Outstanding average Weighted exercisable Weighted
at remaining average at average
February 28, contractual exercise February 28, exercise
Range of prices 2007 life price 2007 price
----------------------------------------------------------------------------
$ 17.37 10,000 6.64 $ 17.37 7,500 $ 17.37
$ 29.70 - $35.57 9,284,017 6.55 $ 32.91 4,767,897 $ 32.65
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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 Six months ended
February 28, February 28,
-----------------------------------
2007 2006 2007 2006
$ $ $ $
----------------------------------------------------------------------------
Net income for the period 79,751 45,790 160,889 121,471
Fair value of stock options 30 468 60 935
----------------------------------------------------------------------------
Pro forma net income for the period 79,721 45,322 160,829 120,536
Pro forma basic earnings per share 0.37 0.21 0.75 0.55
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Pro forma diluted earnings per share 0.37 0.21 0.74 0.55
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The weighted average estimated fair value at the date of the grant for common share options granted was $6.42 per option (2006 - $1.76 per option) and $6.45 per option (2006 - $2.30 per option) for the quarter and year-to-date, respectively. 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 Six months ended
February 28, February 28,
---------------------------------------
2007 2006 2007 2006
----------------------------------------------------------------------------
Dividend yield 2.84% 2.25% 2.92% 1.96%
Risk-free interest rate 3.99% 3.89% 3.99% 3.70%
Expected life of options 4 years 4 years 4 years 4 years
Expected volatility factor of the
future expected market price of
Class B Non-Voting Shares 24.1% 20.6% 24.9% 22.2%
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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 February 28, 2007 there were 18,668 Satellite Services options outstanding with an exercise price of $7.75. The weighted average remaining contractual life of the Satellite Services options is 1.3 years. At February 28, 2007, 18,668 Satellite Services options were exercisable into 16,801 Class B Non-Voting Shares of the Company at $8.61 per Class B Non-Voting Share. During the three and six month periods ended February 28, 2007, 15,168 options were exercised into 13,651 Class B Non-Voting Shares for $251 and 20,168 options were exercised into 18,151 Class B Non-Voting Shares for $367, respectively.

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.



Contributed surplus

The changes in contributed surplus are as follows:

February 28, 2007 August 31, 2006
$ $
----------------------------------------------------------------------------
Balance, beginning of period 5,110 1,866
Stock-based compensation 2,627 3,272
Stock options exercised (1,525) (28)
----------------------------------------------------------------------------
Balance, end of period 6,212 5,110
----------------------------------------------------------------------------
----------------------------------------------------------------------------


6. EARNINGS PER SHARE

Earnings per share calculations are as follows:

Three months ended Six months ended
February 28, February 28,
---------------------------------------
2007 2006 2007 2006
----------------------------------------------------------------------------
Numerator for basic and diluted
earnings per share ($)
Net income 79,751 45,790 160,889 121,471
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Denominator (thousands of shares)
Weighted average number of Class A
and Class B Non-Voting Shares for
basic earnings per share 215,983 217,620 215,505 218,331
Effect of dilutive securities 1,942 - 1,270 -
----------------------------------------------------------------------------
Weighted average number of Class A
and Class B Non-Voting Shares for
diluted earnings per share 217,925 217,620 216,775 218,331
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Earnings per share ($)
Basic 0.37 0.21 0.75 0.56
Diluted 0.37 0.21 0.74 0.56
----------------------------------------------------------------------------
----------------------------------------------------------------------------


7. STATEMENTS OF CASH FLOWS

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

(i) Funds flow from operations

Three months ended Six months ended
February 28, February 28,
---------------------------------------
2007 2006 2007 2006
$ $ $ $
----------------------------------------------------------------------------
Net income 79,751 45,790 160,889 121,471
Non-cash items:
Amortization
Deferred IRU revenue (3,136) (3,136) (6,273) (6,273)
Deferred equipment revenue (25,771) (19,511) (48,989) (37,880)
Deferred equipment cost 50,166 50,326 99,136 99,903
Deferred charges 1,236 1,325 2,473 2,583
Property, plant and equipment 96,808 97,022 188,973 197,862
Future income tax expense 43,530 24,966 84,356 16,899
Write-down of investment - 374 - 374
Gain on sale of investment - - (415) (1,690)
Foreign exchange gain on unhedged
long-term debt - (871) - (4,352)
Equity loss (income) on investee (98) 216 (201) 148
Fair value loss on foreign currency
forward contracts - - - 360
Debt retirement costs - 8,123 - 8,123
Stock option expense 1,475 662 2,627 1,282
Defined benefit pension plan 8,218 3,153 11,856 6,306
Other 233 (166) 1,916 365
----------------------------------------------------------------------------
Funds flow from operations 252,412 208,273 496,348 405,481
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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

Three months ended Six months ended
February 28, February 28,
---------------------------------------
2007 2006 2007 2006
$ $ $ $
----------------------------------------------------------------------------
Accounts receivable (5,198) (8,420) (20,795) (23,080)
Prepaids and other (3,866) (4,390) (7,397) (2,993)
Accounts payable and accrued
liabilities 46,777 24,262 (1) 8,136
Income taxes payable 125 15 (600) (7)
Unearned revenue 151 (476) 5,437 6,742
----------------------------------------------------------------------------
37,989 10,991 (23,356) (11,202)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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

Three months ended Six months ended
February 28, February 28,
---------------------------------------
2007 2006 2007 2006
$ $ $ $
----------------------------------------------------------------------------
Interest 22,048 33,786 121,376 123,131
Income taxes (127) 1,095 592 2,225
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(iv) Non-cash transaction:

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

Six months ended February 28,
------------------------------
2007 2006
$ $
----------------------------------------------------------------------------
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 Six months ended
February 28, February 28,
---------------------------------------
2007 2006 2007 2006
$ $ $ $
----------------------------------------------------------------------------

Net income using Canadian GAAP 79,751 45,790 160,889 121,471
Add (deduct) adjustments for:
Deferred charges (2) 2,898 5,019 9,685 (1,759)
Foreign exchange gains (losses)
on hedged long-term debt (8) (26,634) 28,848 (62,243) 49,058
Reclassification of hedge gains
(losses) from other
comprehensive income (7) 26,634 (28,848) 62,243 (49,058)
Income tax effect of adjustments (891) (1,732) (2,978) 607
Effect of future income tax rate
reductions on differences - - - (785)
----------------------------------------------------------------------------
Net income using US GAAP 81,758 49,077 167,596 119,534
----------------------------------------------------------------------------

Unrealized foreign exchange gain
(loss) on translation of
Self-sustaining foreign operations 11 (13) 26 (20)
Unrealized gains on available-for-
sale securities, net of tax (6)
Unrealized holding gains arising
during the period - 1,235 - 8,024
Less: reclassification adjustment
for gains included in net income - - - (1,371)
----------------------------------------------------------------------------
11 1,222 26 6,633
Adjustment to fair value of
derivatives (7) 35,187 (17,276) 77,368 (22,732)
Reclassification of derivative losses
(gains) to income to offset foreign
exchange gains/losses on hedged
long-term debt (7) (22,539) 23,872 (52,673) 40,596
Effect on future income tax rate
reductions on differences - - - (1,036)
----------------------------------------------------------------------------
12,659 7,818 24,721 23,461
----------------------------------------------------------------------------
Comprehensive income using US GAAP 94,417 56,895 192,317 142,995
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net income per share using US GAAP 0.38 0.23 0.78 0.55
Comprehensive income per share
using US GAAP 0.44 0.26 0.89 0.65
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Balance sheet items using US GAAP

February 28, 2007 August 31, 2006
-------------------- ----------------------
Canadian US Canadian US
GAAP GAAP GAAP GAAP
$ $ $ $

Deferred charges (2) (9) (10) 272,096 186,663 261,908 164,053
Broadcast licenses (1) (4) (5) 4,758,862 4,733,628 4,691,484 4,666,250
Other long-term liabilities
(7) (10) 49,580 530,899 37,724 612,306
Deferred credits (8) (9) 1,051,643 695,380 1,100,895 679,652
Future income taxes 1,084,155 1,042,510 984,938 933,990
Shareholders' equity 1,945,253 1,751,175 1,809,705 1,584,225
----------------------------------------------------------------------------

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

February 28, 2007 August 31, 2006
$ $
----------------------------------------------------------------------------

Shareholders' equity using Canadian GAAP 1,945,253 1,809,705
Amortization of intangible assets (1) (130,208) (130,208)
Deferred charges (2) (1,464) (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) 293,187 345,860
Reclassification of hedge losses from other
comprehensive income (7) (293,187) (345,860)
Accumulated other comprehensive loss (92,455) (117,176)
Cumulative translation adjustment (356) (330)
----------------------------------------------------------------------------
Shareholders' equity using US GAAP 1,751,175 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:



February 28, 2007 August 31, 2006
$ $
----------------------------------------------------------------------------

Accumulated other comprehensive income
(loss)
Unrealized foreign exchange gain on
translation of self-sustaining
foreign operations 356 330
Fair value of derivatives (7) (78,419) (103,114)
Minimum liability for pension plan (10) (14,392) (14,392)
----------------------------------------------------------------------------
(92,455) (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. OTHER LONG-TERM LIABILITIES

Other long-term liabilities include the long-term portion of the Company's defined benefit pension plan of $49,580 (August 31, 2006 - $37,724). The total benefit costs expensed under the Company's defined benefit pension were $8,910 (2006 - $3,425), and $12,821 (2006 - $6,850) for the three and six months ended February 28, 2007 respectively.

10. SUBSEQUENT EVENT

On March 2, 2007, the Company issued $400,000 of senior unsecured notes at a rate of 5.70% due March 2, 2017.

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