Rogers 2008 Annual Report Download - page 53

ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 49
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Media’s operating expenses consist of:
• Costofsales,whichisprimarilycomprisedofthecostofretail
products sold by The Shopping Channel;
• Salesandmarketingexpenses;and
• Operating,generalandadministrativeexpenses,whichinclude
programming costs, production expenses, circulation expenses,
player salaries and other back-office support functions.
Summarized Media Financial Results
The operating results of channel m and OLN, which were acquired
in 2008, are included in Media’s results of operations from the dates
of acquisition on April 30, 2008 and July 31, 2008, respectively. The
operating results of Citytv are included in Media’s results of opera-
tions from the date of acquisition on October 31, 2007.
20082007
$1,496$1,317$1,210
MEDIA
REVENUE
(In millions of dollars)
2007
2008
2006
20082007
$142$176$156
MEDIA ADJUSTED
OPERATING PROFIT
(In millions of dollars)
200
7
2008
2006
Years ended December 31,
(In millions of dollars, except margin) 2008 2007 % Chg
Operating revenue $ 1,496 $ 1,317 14
Operating expenses before the undernoted 1,354 1,141 19
Adjusted operating profit (1) 142 176 (19)
Stock option plan amendment (2) – (84) n/m
Stock-based compensation recovery (expense) (2) 17 (10) n/m
Integration and restructuring expenses (4) (11) – n/m
Adjustment for CRTC Part II fees decision (3) (6) – n/m
Operating profit (1) $ 142 $ 82 73
Adjusted operating profit margin (1) 9.5% 13.4%
Additions to property, plant and equipment (1) $ 81 $ 77 5
(1) As defined. See the section entitled “Key Performance Indicators and Non-GAAP Measures”.
(2) See the section entitled “Stock-based Compensation”.
(3) Relates to an adjustment for CRTC Part II fees related to prior periods. See the section entitled “Government Regulation and Regulatory Developments”.
(4) Costs incurred relate to severances resulting from the restructuring of our employee base to improve our cost structure in light of the declining economic conditions.
Media Operating Revenue
The increase in Media revenue in 2008, compared to 2007, pri-
marily reflects the acquisition of Citytv. This acquisition closed on
October 31, 2007 and contributed $152 million and $28 million to
revenue in 2008 and 2007, respectively. Excluding the impact of the
Citytv acquisition, Media’s revenue for 2008 would have increased
4% versus the prior year. Also contributing to revenue growth at
Media was the Buffalo Bills NFL Toronto series and organic growth
at Sportsnet. Radio’s revenue was relatively unchanged from prior
year, while there were modest revenue declines at Publishing
driven by advertising softness and The Shopping Channel given the
challenging retail environment.
Media Operating Expenses
The increase in Media operating expenses for 2008, compared to
2007, primarily reflects the $153 million of Citytv operating costs
that exceeded the Citytv operating costs of $31 million in 2007. The
acquisition of Citytv closed on October 31, 2007, and as a result only
two months of operating costs were included in 2007 related to this
acquisition. In addition in 2008, Media incurred a $9 million charge
for terminating a concession agreement at Rogers Centre, bought
out certain player and coaching contracts, increased programming
costs at Sportsnet, and incurred expenses related to the above
noted NFL series held at Rogers Centre. These increases were par-
tially offset by cost savings across various functions.
Media Adjusted Operating Profit
The decrease in Media’s adjusted operating profit for 2008, com-
pared to 2007, primarily reflects revenue and expense changes
discussed above and overall is reflective of the challenging eco-
nomic conditions and the resultant declines in advertising and
retail sales activity.
The challenging economic conditions have resulted in a weakening
of industry expectations in the conventional television business. As
a result of the challenging conditions and declines in advertising
revenues, we recorded a non-cash impairment charge of $294 mil-
lion. Refer to the section entitled “Impairment Losses on Goodwill,
Intangible Assets and Other Long-Term Assets” for more details on
the impairment charges recognized.
Media Additions to PP&E
The majority of Media’s PP&E additions in 2008 reflect the con-
struction of a new television production facility for the combined
Ontario operations of Citytv and OMNI, and are relatively the same
as the year ended December 31, 2007.