Shaw 2011 Annual Report Download - page 54

Shaw Communications Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
August 31, 2011
During 2010, the Company redeemed all of its outstanding US $440 million 8.25% senior
notes due April 11, 2010, US $225 million 7.25% senior notes due April 6, 2011 and US
$300 million 7.20% senior notes due December 15, 2011. In connection with the early
redemptions, the Company incurred costs of $79.5 million and wrote-off the remaining
discount and finance costs of $2.1 million. The Company used proceeds from its $1.25 billion
senior notes issuance in early October 2009 to fund the cash requirements for the redemptions.
During 2009, the Company redeemed the Videon CableSystems Inc. $130 million senior
debentures. In connection with the early redemption, the Company incurred costs of $9.2
million and wrote-off the remaining unamortized fair value adjustment of $0.9 million. The
Company used part of the proceeds from its $600 million senior notes issuance completed in
March 2009 to fund the redemption.
As part of the CRTC decision approving the Media acquisition the Company is required to
contribute approximately $180 million in new benefits to the Canadian broadcasting system
over the next seven years. Most of this contribution will be used to create new programming on
Shaw Media services, construct digital transmission towers and provide a satellite solution for
OTA viewers whose local television stations do not convert to digital. The fair value of the
obligation on the acquisition date of $139.1 million was determined by discounting future net
cash flows using a 5.75% discount rate and has been recorded in the income statement.
During the current year, the Company incurred costs in respect of the acquisition of the
broadcasting business and organizational restructuring which amounted to $90.6 million.
Amounts include acquisition related costs to effect the acquisition, such as professional fees
paid to lawyers and consultants. The integration and restructuring costs relate to integrating the
new business and increasing organizational effectiveness for future growth as well as package
costs for the former CEO of Shaw. In March 2011 Shaw implemented various cost saving
initiatives including staff reductions and a review of overhead expenses to drive efficiencies and
enhance competitiveness. Approximately 550 employee positions were eliminated, including
150 at the management level.
For derivative instruments where hedge accounting is not permissible or derivatives are not
designated in a hedging relationship, the Company records changes in the fair value of
derivative instruments in the income statement. In addition, the Media senior unsecured notes
had a variable prepayment option which represented an embedded derivative that was
accounted for separately at fair value until the Company gave notice of redemption during the
fourth quarter of 2011. Fiscal 2010 included a loss of $50.1 million which was reclassified
from accumulated other comprehensive loss in respect of the cross-currency interest rate
exchange agreements that no longer qualified as cash flow hedges when the US senior notes
were redeemed in October 2009.
The Company records accretion expense in respect of the discounting of certain long-term
liabilities which are accreted to their estimated value over their respective terms. The expense is
primarily in respect of CRTC benefit obligations as well as the liability which arose in 2010 when
the Company entered into amended agreements with the counterparties to certain cross-currency
agreements to fix the settlement of the principal portion of the swaps in December 2011.
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