Shaw 2011 Annual Report Download - page 55

Shaw Communications Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
August 31, 2011
In conjunction with the acquisition of the broadcasting business, the Company assumed a US
$389.6 million term loan and US $338.3 million senior unsecured notes. Shortly after closing
the acquisition, the Company repaid the term loan including breakage of the related cross
currency interest rate swaps. During the second quarter, the Company repurchased and
cancelled US $51.6 million face amount of the senior secured notes which had an aggregate
accrued value of US $56 million. During the fourth quarter, the Company elected to redeem the
remaining outstanding US $260.4 million face amount of the senior secured notes, having an
aggregate accrued valued of US $282.3 million. As a result of fluctuations of the Canadian
dollar relative to the US dollar, a foreign exchange gain was recorded.
Other gains increased in 2011 and decreased in 2010 due to a gain of $10.8 million on
cancellation of a bond forward contract in 2009 and amounts realized on disposal of property,
plant and equipment.
Equity income (loss) on investees
The Company recorded income of $13.4 million in respect of its 49.9% equity interest in CW
Media for the period September 1 to October 26, 2010. On October 27, 2010, the Company
acquired the remaining equity interest in CW Media as part of its purchase of all the broadcasting
assets of Canwest. Results of operations are consolidated effective October 27, 2010. The equity
income was comprised of approximately $19.6 million of operating income before amortization
partially offset by interest expense of $4.5 million and other net costs of $1.7 million. The
remaining equity income on investees is in respect of interests in several specialty channels. The
$11.3 million loss in the prior year was in respect of the 49.9% equity interest in CW Media for
the period May 3 to August 31, 2010. The loss was comprised of approximately $20.8 million of
operating income before amortization offset by interest expense of $9.9 million and other costs of
$22.2 million, the majority of which were fair value adjustments on derivative instruments and
foreign exchange losses on US denominated long-term debt.
Income tax expense
The income tax expense was calculated using current statutory income tax rates of 27.9% for
2011, 29.3% for 2010, and 30.2% for 2009 and was adjusted for the reconciling items
identified in Note 15 to the Consolidated Financial Statements. Future income tax recoveries of
$17.6 million and $22.6 million related to reductions in corporate income tax rates were
recorded in 2010 and 2009, respectively. The significant growth in net income before taxes
over the past several years has reduced the Company’s tax loss carryforwards and the Company
became cash taxable in the latter part of 2009.
Loss from discontinued operations
Shaw completed its review of the wireless strategic initiative and concluded that the economics
as a new entrant would be extremely challenging, even with the Company’s established base
and considerable strengths and assets. As a result, the Company decided to discontinue further
construction of its wireless network and has classified all wireless activities as discontinued
operations, including restatement of the comparative period. The Company recorded after tax
losses of $89.3 million and $1.0 million for 2011 and 2010, respectively. The loss of $89.3
million was comprised of a write-down of assets of $111.5 million, operating expenditures and
amortization of $8.3 million and an income tax recovery of $30.5 million.
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