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Abstract
Operating expenses were $49.3 million for the year ended December 31, 2006 compared to $55.9 million for the year ended in 2005. Operating expenses for the year ended December 31, 2006 included a credit of $1.3 million related to the reversal of accrued charges for the FEPP. In 2006 the Fund reduced the carrying value of goodwill by $29.4 million. In 2005 the carrying value of goodwill was reduced by $34.8 million. In the second quarter of 2006 the Fund also reduced the carrying value of identifiable intangible assets by $1.9 million. Excluding the adjustments for the FEPP, goodwill and intangible assets, operating expenses were $19.3 million for the year ended December 31, 2006 compared to $20.8 million for the year ended December 31, 2005. The net decrease of $1.5 million in operating expense for 2006 was related to a $2.3 million reduction in selling, general and administrative expenses, a $0.4 million reduction in amortization expense, a $0.1 million decrease in interest and miscellaneous income and a $1.1 million increase in charges related to the change in the value of our foreign exchange and interest rate hedges. Selling, general and administrative costs were lower as a result of lower salary and benefit costs and lower sales commissions paid to outside sales representatives.
In our Annual Information Form we describe the Founders' Employee Participation Plan ("FEPP") established by GVP for the benefit of the employees of AIM LP. Under the FEPP, GVP provides bonus payments to employees based on the notional interest in certain retained interest units of AIM LP. Employees are entitled to bonus payments based on the quarterly distributions on Class C LP units. The FEPP will also entitle the employees to the notional value of the Fund units subject to certain vesting and subordination provisions. The FEPP costs are accrued and recorded as a charge against the Fund but are funded by GVP. There is no impact to net earnings, EBITDA or distributable cash. Amounts previously accrued for the FEPP were reversed in the second quarter of 2006.
We use currency derivatives to manage our exposure to fluctuations in exchange rates between the Canadian and US dollar. Approximately 90% of our sales are denominated in US dollars. While a portion of our costs are in US dollars, each period we normally have net US dollars to sell. Our practice is to enter into forward foreign exchange contracts to minimize our exposure to currency fluctuations related to these net US dollars. At December 31, 2006 we had US$26.5 million face value of contracts with maturities through March 2008. These contracts have exchange rates from 1.12 USD/CAD to 1.25 USD/CAD and a weighted average rate of 1.18 USD/CAD. Canadian GAAP requires that we record our sales at the USD/CAD exchange rate at the time of the sale. We then record an unrealized gain or loss based on the mark-to-market ("MTM") value of our forward foreign exchange contracts in the statement of operations. Based on our existing contracts in place at December 31, 2006, our net earnings for the twelve months then ended included a $4.0 million unrealized loss related to the drop in the MTM value of our foreign exchange hedges. At December 31, 2006 our forward foreign exchange contracts were booked as a net asset of $0.6 million based on their MTM value.