Rogers 2008 Annual Report Download - page 34

30 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Loss on Repayment of Long-Term Debt
During 2007, we redeemed Wireless’ US$155 million 9.75% Senior
Debentures due 2016 and Wireless’ US$550 million Floating Rate
Senior Notes due 2010. These redemptions resulted in a loss on
repayment of long-term debt of $47 million, including aggregate
redemption premiums of $59 million offset by a write-off of the fair
value increment arising from purchase accounting of $12 million.
Foreign Exchange Gain (Loss)
During 2008, the Canadian dollar weakened by 24 cents versus
the U.S. dollar resulting in a foreign exchange loss of $99 million,
primarily related to US$750 million of U.S. dollar-denominated
long-term debt that is not hedged for accounting purposes. During
2007, the foreign exchange gain of $54 million arose primarily from
the strengthening of the Canadian dollar by 18 cents versus the
U.S. dollar, favourably affecting the translation of our U.S. dollar-
denominated long-term debt that was not hedged for accounting
purposes.
Debt Issuance Costs
We recorded debt issuance costs of $16 million during 2008 due
to the fees and expenses incurred in connection with the
US$1.75 billion investment grade debt offerings that were closed on
August 6, 2008.
Interest on Long-Term Debt
Despite the $0.9 billion net increase in long-term debt, including the
impact of Cross-Currency Swaps, at December 31, 2008 compared
to December 31, 2007, interest expense declined marginally in 2008
reflecting the 0.24% decrease in the weighted average interest
rate on our long-term debt, which was 7.29% at December 31, 2008
compared to 7.53% at December 31, 2007. This decrease was largely
due to the following: the full year impact of the 2007 repayments
of three higher coupon debt issues; the 2008 recouponing of three
Cross-Currency Swaps aggregating US$575 million notional principal
amount at Canadian dollar interest rates lowered by approximately
1.0%; and, lower floating interest rates on our bank debt in 2008.
Operating Income
The increase in our operating income, compared to the prior year,
is primarily due to the growth in revenue of $1,212 million exceed-
ing the growth in operating expenses, including integration and
restructuring expenses, of $684 million. See the section entitled
“Segment Review” for a detailed discussion on respective segment
results.
Impairment Losses on Goodwill, Intangible Assets and Other
Long-Term Assets
In the fourth quarter of 2008, we determined that the fair value
of the conventional television business of Media was lower than
its carrying value. This primarily resulted from weakening of indus-
try expectations and declines in advertising revenues amidst the
slowing economy. As a result, we recorded an aggregate non-cash
impairment charge of $294 million with the following components:
$154 million related to goodwill, $75 million related to broadcast
licences and $65 million related to intangible assets and other long-
term assets.
Depreciation and Amortization Expense
The increase in depreciation and amortization expense for the year
ended December 31, 2008, over 2007, primarily reflects an increase
in depreciation on PP&E expenditures.
Integration and Restructuring Expenses
During the year ended December 31, 2008, we incurred $38 mil-
lion of restructuring expenses related to severances resulting from
targeted restructuring of our employee base to improve our cost
structure in light of the declining economic conditions. In addition,
we incurred integration expenses of $9 million related to the inte-
gration of previously acquired businesses and certain restructuring
and $4 million for the closure of 18 underperforming Rogers Retail
locations.
Adjusted Operating Profit
Wireless and Cable both contributed to the increase in adjusted
operating profit for the year ended December 31, 2008. This increase
was partially offset by a decrease in Media’s adjusted operating
profit for 2008 compared to 2007. Wireless’ adjusted operating
profit reflects significant costs associated with the heavy sales
volumes of smartphone devices. Refer to the individual segment
discussions for details of the respective increases and decreases in
adjusted operating profit.
Consolidated adjusted operating profit increased to $4,060 million
in 2008, compared to $3,703 million in 2007. Adjusted operating
profit excludes: (i) the impact of a $452 million one-time non-cash
charge related to the introduction of a cash settlement feature for
stock options during 2007; (ii) stock-based compensation (recov-
ery) expense of $(100) million in 2008 and $62 million in 2007;
(iii) integration and restructuring expenses of $51 million in 2008 and
$38 million in 2007; (iv) the impact of a one-time charge of
$52 million resulting from the renegotiation of an Internet-related
services agreement in 2007; and (v) an adjustment for CRTC Part II
fees related to prior periods of $31 million in 2008. See the section
entitled “Government Regulation and Regulatory Developments”
for further details.
For details on the determination of adjusted operating profit, which
is a non-GAAP measure, see the sections entitled “Supplementary
Information: Non-GAAP Calculations” and “Key Performance
Indicators and Non-GAAP Measures”.
Employees
Employee remuneration represents a material portion of our
expenses. At December 31, 2008, we had approximately 25,800
full-time equivalent employees (“FTEs”) across all of our operating
groups, including our shared services organization and corporate
office, representing an increase of approximately 1,400 from the
level at December 31, 2007. The increase is primarily due to an
increase in our shared services staffing, partially offset by reduc-
tions associated with operational efficiencies. Total remuneration
paid to employees (both full and part-time) in 2008 was approxi-
mately $1,566 million, a decrease of approximately $13 million from
$1,579 million in 2007. The decrease in remuneration paid to employ-
ees is primarily attributed to the change in stock prices resulting
in a $100 million recovery to stock-based compensation which is
partially offset by an increase in the FTEs compared to 2007.