Shaw 2012 Annual Report Download - page 48

Shaw Communications Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS
August 31, 2012
During 2011, the Company incurred costs in respect of the acquisition of the broadcasting
business and organizational restructuring which amounted to $91 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. 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.
The Company recorded a $6 million gain in respect of a remeasurement to fair value of the
Company’s 50% interest in Mystery and 49% interest in The Cave which were held prior to the
acquisition on May 31, 2012. The fair value of the Company’s equity interest in these specialty
channels held prior to the acquisition was $19 million compared to a carrying value of $13 million.
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. The fluctuation in amounts recorded in 2012 compared to 2011 is due
to a reduction in the number of outstanding contracts as well as the amounts recorded in
respect of the embedded derivative in the prior year.
The Company records accretion expense in respect of the discounting of certain long-term
liabilities and provisions 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 which fixed the settlement of the principal portion of the
swaps in December 2011.
In conjunction with the acquisition of the broadcasting business, the Company assumed a US
$390 million term loan and US $338 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. A portion of the senior unsecured notes were repurchased during the
second quarter of 2011 and the Company redeemed the remaining notes in the fourth quarter
of 2011. As a result of fluctuations of the Canadian dollar relative to the US dollar, a foreign
exchange gain was recorded.
The Company recorded income of $14 million primarily 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 $20 million of operating income before amortization
partially offset by interest expense of $5 million and other net costs of $2 million. The Company
also records equity income (loss) in respect of interests in several specialty channels.
Other gains generally includes 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 minor investments, and the Company’s share of the operations of Burrard
Landing Lot 2 Holdings Partnership. In the current year, the category also includes a loss of
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