Rogers 2007 Annual Report Download - page 28

24 ROGERS COMMUNICATIONS INC. 2007 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The intrinsic value of the liability is marked-to-market each period
and is amortized to expense over the period in which the related
services are rendered, which is usually the graded vesting period,
or, as applicable, over the period to the date an employee is eligible
to retire, whichever is shorter. As a result of this amendment, we
recorded a liability of $502 million, a one-time non-cash charge of
$452 million to revalue the outstanding options at May 28, 2007,
and a $50 million decrease in contributed surplus. This charge was
partially offset by a future income tax recovery of $160 million,
which was recorded as a result of the amendment.
Previously, all stock options were classified as equity and were mea-
sured at the estimated fair value established by the Black-Scholes
or binomial models on the date of grant. Under this method, the
estimated fair value was amortized to expense over the period in
which the related services were rendered, which was generally
the vesting period or, as applicable, over the period to the date an
employee was eligible to retire, whichever was shorter. Subsequent
to May 28, 2007, the liability for stock-based compensation expense
is recorded based on the intrinsic value of the options, as described
above, and the expense is impacted by the change in the price
of our Class B Non-Voting shares during the life of the option. At
December 31, 2007, we have a liability of $493 million related to
stock-based compensation recorded at its intrinsic value, includ-
ing stock options, restricted share units and deferred share units.
In the year ended December 31, 2007, $78 million was paid to option
holders upon exercise of options using the SAR feature (2006 –
not applicable).
A summary of stock-based compensation expense is as follows:
Stock-based Compensation
Expense Included in
Operating, General and
One-time Administrative Expenses
Non-cash Charge Years ended December 31,
Upon Adoption
(In millions of dollars) on May 28, 2007 2007 2006
Wireless $ 46 $ 11 $ 15
Cable 113 11 11
Media 84 10 5
Corporate 209 30 18
$ 452 $ 62 $ 49
Reconciliation of Net Income to Operating Profit and Adjusted
Operating Profit for the Period
The items listed below represent the consolidated income and
expense amounts that are required to reconcile net income as
defined under Canadian GAAP to the non-GAAP measures oper-
ating profit and adjusted operating profit for the year. See the
“Supplementary Information: Non-GAAP Calculations” section for
a full reconciliation to adjusted operating profit, adjusted net
income and adjusted net income per share. For details of these
amounts on a segment-by-segment basis and for an understand-
ing of intersegment eliminations on consolidation, the following
section should be read in conjunction with Note 3 to the 2007
Audited Consolidated Financial Statements entitled “Segmented
Information”.
Years ended December 31,
(In millions of dollars) 2007 2006 % Chg
Net income $ 637 $ 622 2
Income tax expense 249 56 n/m
Other expense (income) 4 (10) n/m
Change in the fair value of derivative instruments 34 4 n/m
Loss on repayment of long-term debt 47 1 n/m
Foreign exchange gain (54) (2) n/m
Interest on long-term debt 579 620 (7)
Operating income 1,496 1,291 16
Depreciation and amortization 1,603 1,584 1
Operating profit 3,099 2,875 8
Stock option plan amendment 452 – n/m
Stock-based compensation expense 62 49 27
Integration and restructuring expenses 38 18 111
Contract renegotiation fee 52 – n/m
Adjusted operating profit $ 3,703 $ 2,942 26