49 Media's Operating Expenses Consist Of
Total Page:16
File Type:pdf, Size:1020Kb
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Media’s operating expenses consist of: Summarized Media Financial Results • Cost of sales, which is primarily comprised of the cost of retail The operating results of channel m and OLN, which were acquired products sold by The Shopping Channel; in 2008, are included in Media’s results of operations from the dates • Sales and marketing expenses; and of acquisition on April 30, 2008 and July 31, 2008, respectively. The • Operating, general and administrative expenses, which include operating results of Citytv are included in Media’s results of opera- programming costs, production expenses, circulation expenses, tions from the date of acquisition on October 31, 2007. player salaries and other back-office support functions. 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 acquisition of Citytv closed on October 31, 2007, and as a result only The increase in Media revenue in 2008, compared to 2007, pri- two months of operating costs were included in 2007 related to this marily reflects the acquisition of Citytv. This acquisition closed on acquisition. In addition in 2008, Media incurred a $9 million charge October 31, 2007 and contributed $152 million and $28 million to for terminating a concession agreement at Rogers Centre, bought revenue in 2008 and 2007, respectively. Excluding the impact of the out certain player and coaching contracts, increased programming Citytv acquisition, Media’s revenue for 2008 would have increased costs at Sportsnet, and incurred expenses related to the above 4% versus the prior year. Also contributing to revenue growth at noted NFL series held at Rogers Centre. These increases were par- Media was the Buffalo Bills NFL Toronto series and organic growth tially offset by cost savings across various functions. at Sportsnet. Radio’s revenue was relatively unchanged from prior year, while there were modest revenue declines at Publishing Media Adjusted Operating Profit driven by advertising softness and The Shopping Channel given the The decrease in Media’s adjusted operating profit for 2008, com- challenging retail environment. pared to 2007, primarily reflects revenue and expense changes discussed above and overall is reflective of the challenging eco- Media Operating Expenses nomic conditions and the resultant declines in advertising and The increase in Media operating expenses for 2008, compared to retail sales activity. 2007, primarily reflects the $153 million of Citytv operating costs that exceeded the Citytv operating costs of $31 million in 2007. The The challenging economic conditions have resulted in a weakening of industry expectations in the conventional television business. As MEDIA MEDIA ADJUSTED a result of the challenging conditions and declines in advertising REVENUE OPERATING PROFIT (In millions of dollars) (In millions of dollars) revenues, we recorded a non-cash impairment charge of $294 mil- lion. Refer to the section entitled “Impairment Losses on Goodwill, $1,210 $1,317 $1,496 $156 $176 $142 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. 2006 2007 2008 2006 20072007 2008 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 49.