Rogers Reports Third Quarter 2009 Financial and Operating Results
Third Quarter Adjusted Operating Profit up 15% as Revenue Grows to
Over $3 Billion;
Wireless Network and Cable Operations Revenue Both up by 7% Helping
Drive Adjusted Operating Profit Growth of 22% and 8%, Respectively;
Wireless Delivers Strong Subscriber Growth and Reduced Postpaid
Churn While Wireless Data Revenue Growth Accelerates to 46%;
Cable Drives Continued Margin Expansion and Healthy Growth in Cash
Flow on Slower Subscriber Growth;
Advertising and The Shopping Channel Sales Declines at Media Begin to
Moderate While Sportsnet Delivers Double-Digit Revenue and Adjusted
Operating Profit Growth;
$592 Million of Cash Returned to Shareholders during Quarter with
Share Buybacks and Dividends
Financial highlights are as follows:
-------------------------------------------------------------------------
Three months ended Nine months ended
(In millions of September 30, September 30,
dollars, except -------------------------------------------------
per share amounts) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Operating revenue $ 3,036 $ 2,982 2 $ 8,674 $ 8,394 3
Operating profit(1) 1,152 1,085 6 3,267 3,176 3
Net income 485 495 (2) 1,168 1,140 2
Basic and diluted net
income per share $ 0.79 $ 0.78 1 $ 1.86 $ 1.79 4
As adjusted:(2)
Operating
profit(1) $ 1,181 $ 1,025 15 $ 3,269 $ 3,092 6
Net income 505 465 9 1,173 1,096 7
Basic and diluted
net income
per share $ 0.82 $ 0.73 12 $ 1.87 $ 1.72 9
-------------------------------------------------------------------------
(1) Operating profit should not be considered as a substitute or
alternative for operating income or net income, in each case
determined in accordance with Canadian generally accepted accounting
principles ("GAAP"). See the section entitled "Reconciliation of Net
Income to Operating Profit and Adjusted Operating Profit for the
Period" for a reconciliation of operating profit and adjusted
operating profit to operating income and net income under Canadian
GAAP and the section entitled "Key Performance Indicators and Non-
GAAP Measures".
(2) For details on the determination of the 'as adjusted' amounts, which
are non-GAAP measures, see the sections entitled "Supplementary
Information" and "Key Performance Indicators and Non-GAAP Measures".
The 'as adjusted' amounts presented above are reviewed regularly by
management and our Board of Directors in assessing our performance
and in making decisions regarding the ongoing operations of the
business and the ability to generate cash flows. The 'as adjusted'
amounts exclude (i) stock-based compensation (recovery) expense; (ii)
integration and restructuring expenses; (iii) contract termination
fee; (iv) adjustment for CRTC Part II fees decision; and (v) in
respect of net income and net income per share, debt issuance costs
and the related income tax impact of the above amounts.
Highlights of the third quarter of 2009 include the following:
- Generated 7% revenue growth at both Wireless network and Cable
Operations, offset partially by lower wireless equipment sales and
advertising sales declines at Media, resulting in consolidated
quarterly revenue growth of 2%. Wireless and Cable Operations
adjusted operating profit increased by 22% and 8%, respectively,
partially offset by the declines at Media, RBS and Retail.
- Wireless network revenue growth was fuelled by postpaid net
subscriber additions of 167,000 and data revenue growth of 46%. Data
revenue now comprises 23% of network revenue and was helped by the
activation of more than 370,000 additional smartphone devices,
predominantly iPhone, BlackBerry and Android devices, during the
quarter of which approximately 45% were to subscribers new to
Wireless. Subscribers with smartphones now represent approximately
28% of the overall postpaid subscriber base, up from 15% from the
same quarter last year, and generate significantly higher than
average ARPU. The growth in subscribers and data revenues was
partially offset by economic pressures on roaming, long-distance and
other usage based revenue items.
- Wireless announced the commercial availability of Rogers' next
generation high-speed HSPA+ network in Vancouver, Calgary, Toronto,
Ottawa and Montreal, clocking in at maximum speeds of 21 Mbps. The
majority of Canadians can now access the fastest wireless speeds in
North America with Rogers' new 21 Mbps HSPA+ Rocket Mobile Internet
Stick.
- Wireless announced it had entered into a shared 3.5G HSPA wireless
network building agreement with MTS Allstream in the province of
Manitoba to cost effectively increase Wireless' mobile coverage in
the province. Wireless has also established a roaming agreement with
MTS under which their HSPA customers can roam on Rogers' national
network outside of Manitoba.
- Additions of digital cable, Internet, and home phone subscribers at
Cable all improved sequentially from the previous quarter, but have
slowed from the previous year reflecting the negative economic and
employment trends in Ontario where 90% of Cable's market is
concentrated. Increasing levels of product maturity have also
contributed to slowing subscriber growth with Internet subscriber
penetration at 70% of basic cable customers, digital penetration at
71% of basic cable households, and residential voice-over-cable
telephony penetration at 40% of basic cable subscribers.
- Cable enhanced its position in the small business market with the
launch of innovative business-grade communications services designed
specifically for the Canadian SME segment providing multi-line small
businesses with access to a suite of leading-edge telephony solutions
including line hunting and simultaneous ringing.
- Cable began the launch of its new 50Mbps DOCSIS 3 high-speed Internet
service, the fastest residential Internet access service available in
the market.
- Media announced it received 29 Gemini nominations for homegrown
Canadian programming broadcast on its Citytv and Outdoor Life Network
television properties.
- Announced a more streamlined organizational structure focused on
creating a more consistent and enhanced customer experience with the
further integration of our Cable and Wireless businesses to
accelerate time to market, further drive innovation and continue to
deliver sector leading growth by improving the Company's
effectiveness and efficiency.
- Repurchased 13.9 million RCI Class B Non-Voting shares for
$408 million during the quarter under our expanded $1.5 billion share
buyback program and paid dividends on our common shares totalling
$184 million.
"Our third quarter results represent a healthy balance of growth, cost control and margin expansion, and double-digit increases in cash flow generation and cash returns to shareholders" said Nadir Mohamed, President and Chief Executive Officer. "We also further solidified our network leadership positions with the launch of our innovative HSPA+ 21 Mbps wireless data and 50Mbps DOCSIS 3 high speed Internet services, both the fastest available in our markets."
"Importantly, the results of the quarter reflect record high growth in our wireless data revenues which contributed significantly to the strong double-digit adjusted operating profit growth and margin expansion at Wireless and which reflects the success of the investments we've made over the past several quarters bringing smartphones to market," continued Mohamed.
This management's discussion and analysis ("MD&A"), which is current as of
In this MD&A, the terms "we", "us", "our", "Rogers" and "the Company" refer to Rogers Communications Inc. and our subsidiaries, which are reported in the following segments:
- "Wireless", which refers to our wireless communications operations,
including Rogers Wireless Partnership ("RWP") and Fido Solutions Inc.
("Fido");
- "Cable", which refers to our wholly-owned cable television
subsidiaries, including Rogers Cable Communications Inc. ("RCCI") and
its subsidiary, Rogers Cable Partnership; and
- "Media", which refers to our wholly-owned subsidiary Rogers Media
Inc. and its subsidiaries, including Rogers Broadcasting, which owns
a group of 54 radio stations, the Citytv television network, the
Rogers Sportsnet television network, The Shopping Channel, the OMNI
television stations, and Canadian specialty channels including The
Biography Channel Canada, G4TechTV and Outdoor Life Network; Rogers
Publishing, which publishes approximately 70 magazines and trade
journals; and Rogers Sports Entertainment, which owns the Toronto
Blue Jays Baseball Club ("Blue Jays") and Rogers Centre. Media also
holds ownership interests in entities involved in specialty
television content, television production and broadcast sales.
"RCI" refers to the legal entity Rogers Communications Inc., excluding our subsidiaries.
Substantially all of our operations are in
Throughout this MD&A, percentage changes are calculated using numbers rounded as they appear.
SUMMARIZED CONSOLIDATED FINANCIAL RESULTS
-------------------------------------------------------------------------
Three months ended Nine months ended
(In millions of September 30, September 30,
dollars, except -------------------------------------------------
per share amounts) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Operating revenue
Wireless $ 1,760 $ 1,727 2 $ 4,920 $ 4,680 5
Cable
Cable Operations 773 724 7 2,279 2,137 7
RBS 126 131 (4) 379 394 (4)
Rogers Retail 97 108 (10) 289 300 (4)
Corporate items
and eliminations (7) (2) n/m (18) (7) 157
-------------------------------------------------
989 961 3 2,929 2,824 4
Media 364 386 (6) 1,014 1,102 (8)
Corporate items
and eliminations (77) (92) (16) (189) (212) (11)
-------------------------------------------------
Total 3,036 2,982 2 8,674 8,394 3
-------------------------------------------------
-------------------------------------------------
Adjusted operating
profit (loss)(1)
Wireless 846 693 22 2,298 2,167 6
Cable
Cable Operations 325 302 8 962 873 10
RBS 8 12 (33) 30 45 (33)
Rogers Retail (4) 4 n/m (7) 2 n/m
-------------------------------------------------
329 318 3 985 920 7
Media 36 43 (16) 63 96 (34)
Corporate items
and eliminations (30) (29) 3 (77) (91) (15)
-------------------------------------------------
Adjusted operating
profit(1) 1,181 1,025 15 3,269 3,092 6
Stock-based
compensation
recovery (expense)(2) (6) 62 n/m 62 125 (50)
Integration and
restructuring
expenses(3) (11) (2) n/m (52) (10) n/m
Contract termination
fee(4) (12) - n/m (12) - n/m
Adjustment for CRTC
Part II fees
decision(5) - - n/m - (31) n/m
-------------------------------------------------
Operating profit(1) 1,152 1,085 6 3,267 3,176 3
Other income and
expense, net(6) 667 590 13 2,099 2,036 3
-------------------------------------------------
Net income $ 485 $ 495 (2) $ 1,168 $ 1,140 2
-------------------------------------------------
-------------------------------------------------
Basic and diluted
net income per share $ 0.79 $ 0.78 1 $ 1.86 $ 1.79 4
As adjusted:(1)
Net income $ 505 $ 465 9 $ 1,173 $ 1,096 7
Basic and diluted
net income
per share $ 0.82 $ 0.73 12 $ 1.87 $ 1.72 9
Additions to property,
plant and equipment
("PP&E")(1)
Wireless $ 221 $ 205 8 $ 599 $ 619 (3)
Cable
Cable Operations 180 187 (4) 440 493 (11)
RBS 10 11 (9) 27 25 8
Rogers Retail 3 5 (40) 9 12 (25)
-------------------------------------------------
193 203 (5) 476 530 (10)
Media 11 11 - 41 49 (16)
Corporate(7) 66 17 n/m 168 40 n/m
-------------------------------------------------
Total $ 491 $ 436 13 $ 1,284 $ 1,238 4
-------------------------------------------------------------------------
(1) As defined. See the sections entitled "Supplementary Information" and
"Key Performance Indicators and Non-GAAP Measures".
(2) See the section entitled "Stock-based Compensation".
(3) In the three and nine months ended September 30, 2009, costs incurred
relate to i) severances resulting from the targeted restructuring of
our employee base to combine the Cable and Wireless businesses into a
communications organization and to improve our cost structure in
light of the current economic conditions; ii) severances and
restructuring expenses related to the outsourcing of certain
information technology functions; iii) the integration of Futureway
Communications Inc. ("Futureway") and Aurora Cable TV Limited
("Aurora Cable"); and iv) the closure of certain Rogers Retail
stores. In the three and nine months ended September 30, 2008, costs
incurred relate to i) the integration of Futureway and Call-Net
Enterprises Inc. ("Call-Net"); ii) the restructuring of Rogers
Business Solutions ("RBS"); and iii) the closure of certain Rogers
Retail stores.
(4) Relates to the termination of a Blue Jays player contract prior to
the end of the contract term.
(5) Relates to an adjustment in 2008 for CRTC Part II fees related to
prior periods.
(6) See the section entitled "Reconciliation of Net Income to Operating
Profit and Adjusted Operating Profit for the Period".
(7) The year-over-year increase in corporate additions to PP&E for the
three and nine months ended September 30, 2009 primarily reflects
approximately $41 million and $98 million, respectively, of spending
on an enterprise-wide billing and business support system initiative.
n/m: not meaningful.
SEGMENT REVIEW
WIRELESS
--------
Summarized Wireless Financial Results
-------------------------------------------------------------------------
Three months ended Nine months ended
(In millions of September 30, September 30,
dollars, except -------------------------------------------------
margin) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Operating revenue
Postpaid $ 1,562 $ 1,459 7 $ 4,424 $ 4,130 7
Prepaid 83 78 6 223 215 4
-------------------------------------------------
Network revenue 1,645 1,537 7 4,647 4,345 7
Equipment sales 115 190 (39) 273 335 (19)
-------------------------------------------------
Total operating
revenue 1,760 1,727 2 4,920 4,680 5
-------------------------------------------------
Operating expenses
before the
undernoted
Cost of equipment
sales 272 378 (28) 751 679 11
Sales and marketing
expenses 155 186 (17) 444 477 (7)
Operating, general
and administrative
expenses 487 470 4 1,427 1,357 5
-------------------------------------------------
914 1,034 (12) 2,622 2,513 4
-------------------------------------------------
Adjusted operating
profit(1) 846 693 22 2,298 2,167 6
Stock-based
compensation recovery
(expense) (2) (3) 7 n/m 5 9 (44)
Integration and
restructuring
expenses(3) (5) - n/m (14) - n/m
-------------------------------------------------
Operating profit(1) $ 838 $ 700 20 $ 2,289 $ 2,176 5
-------------------------------------------------
-------------------------------------------------
Adjusted operating
profit margin as % of
network revenue(1) 51.4% 45.1% 49.5% 49.9%
Additions to PP&E(1) $ 221 $ 205 8 $ 599 $ 619 (3)
-------------------------------------------------------------------------
(1) As defined. See the sections entitled "Key Performance Indicators and
Non-GAAP Measures" and "Supplementary Information".
(2) See the section entitled "Stock-based Compensation".
(3) Costs incurred relate to combining the Cable and Wireless businesses
into a communications organization and to severances and
restructuring expenses related to the outsourcing of certain
information technology functions.
Summarized Wireless Subscriber Results
-------------------------------------------------------------------------
(Subscriber
statistics in Three months ended Nine months ended
thousands, except September 30, September 30,
ARPU, churn -------------------------------------------------
and usage) 2009 2008 Chg 2009 2008 Chg
-------------------------------------------------------------------------
Postpaid
Gross additions 381 396 (15) 1,043 972 71
Net additions 167 191 (24) 419 379 40
Total postpaid
retail subscribers 6,869 6,293 576 6,869 6,293 576
Average monthly
revenue per user
("ARPU")(1) $ 76.79 $ 78.60 $(1.81) $ 74.08 $ 75.60 $(1.52)
Average monthly
usage (minutes) 580 583 (3) 585 586 (1)
Monthly churn 1.06% 1.11% (0.05%) 1.05% 1.09% (0.04%)
Prepaid
Gross additions 171 177 (6) 436 459 (23)
Net additions 43 48 (5) 5 26 (21)
Total prepaid
retail subscribers 1,496 1,451 45 1,496 1,451 45
ARPU(1) $ 18.80 $ 18.23 0.56 $ 16.84 $ 16.91 $(0.06)
Monthly churn 2.93% 3.04% (0.11%) 3.27% 3.41% (0.14%)
Total Postpaid
and Prepaid
Gross additions 552 573 (21) 1,479 1,431 48
Net additions 210 239 (29) 424 405 19
Total postpaid and
prepaid retail
subscribers 8,365 7,744 621 8,365 7,744 621
Monthly churn 1.39% 1.47% (0.08%) 1.45% 1.53% (0.08%)
Blended ARPU(1) $ 66.45 $ 67.30 $(0.85) $ 63.70 $ 64.52 $(0.82)
-------------------------------------------------------------------------
(1) As defined. See the section entitled "Key Performance Indicators and
Non-GAAP Measures". As calculated in the "Supplementary Information"
section.
Wireless Subscribers and Network Revenue
While subscriber additions have increased on a year-to-date basis, the modest year-over-year decrease in subscriber additions for the third quarter primarily reflects the unusually high number of additions during the third quarter of 2008 due to the much anticipated Canadian iPhone launch during that period.
The increase in network revenue for the three and nine months ended
For the three and nine months ended
Wireless' success in the continued year-over-year reduction of postpaid churn reflects targeted customer retention activities and continued enhancements in network coverage and quality.
Wireless activated more than 370,000 smartphone devices, predominately iPhone 3G, BlackBerry and Android devices, during the three months ended
Wireless Equipment Sales
The year-over-year decrease in revenue from equipment sales, including activation fees and net of equipment subsidies, for the three months ended
Wireless Operating Expenses
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(In millions -------------------------------------------------
of dollars) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Operating expenses
Cost of equipment
sales $ 272 $ 378 (28) $ 751 $ 679 11
Sales and marketing
expenses 155 186 (17) 444 477 (7)
Operating, general
and administrative
expenses 487 470 4 1,427 1,357 5
-------------------------------------------------
Operating expenses
before the undernoted 914 1,034 (12) 2,622 2,513 4
Stock-based
compensation expense
(recovery)(1) 3 (7) n/m (5) (9) (44)
Integration and
restructuring
expenses(2) 5 - n/m 14 - n/m
-------------------------------------------------
Total operating
expenses $ 922 $ 1,027 (10) $ 2,631 $ 2,504 5
-------------------------------------------------------------------------
(1) See the section entitled "Stock-based Compensation".
(2) Costs incurred relate to combining the Cable and Wireless businesses
into a communications organization and to severances and
restructuring expenses related to the outsourcing of certain
information technology functions.
The decrease in equipment sales and cost of equipment sales for the three months ended
Operating, general and administrative expenses, for the third quarter, excluding retention spending discussed below, were relatively unchanged from the prior year. Increases in information technology and customer care as a result of the complexity of supporting more sophisticated devices and services were predominately offset by savings related to operating and scale efficiencies across various functions.
Total retention spending, including subsidies on handset upgrades, was
Wireless Adjusted Operating Profit
The 22% year-over-year increase in adjusted operating profit and adjusted operating profit margin of 51.4% on network revenue (which excludes equipment sales revenue) for the three months ended
Wireless Additions to Property, Plant and Equipment ("PP&E")
Wireless additions to PP&E are classified into the following categories:
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(In millions -------------------------------------------------
of dollars) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Additions to PP&E
High-Speed Packet
Access ("HSPA") $ 79 $ 57 39 $ 244 $ 239 2
Network - capacity 80 53 51 157 146 8
Network - other 31 65 (52) 116 154 (25)
Information and
technology and
other 31 30 3 82 80 3
-------------------------------------------------
Total additions to
PP&E $ 221 $ 205 8 $ 599 $ 619 (3)
-------------------------------------------------------------------------
Additions to Wireless PP&E reflect spending on network capacity, such as radio channel additions and network enhancing features. Additions to PP&E associated with the deployment of our HSPA network were mainly for the continued roll-out to various markets across
HSPA spending for the three months ended
Other Wireless Developments
In
CABLE
-----
Summarized Cable Financial Results
-------------------------------------------------------------------------
Three months ended Nine months ended
(In millions of September 30, September 30,
dollars, except -------------------------------------------------
margin) 2009 2008(1) % Chg 2009 2008(1) % Chg
-------------------------------------------------------------------------
Operating revenue
Cable Operations(2) $ 773 $ 724 7 $ 2,279 $ 2,137 7
RBS 126 131 (4) 379 394 (4)
Rogers Retail 97 108 (10) 289 300 (4)
Intercompany
eliminations (7) (2) n/m (18) (7) 157
-------------------------------------------------
Total operating
revenue 989 961 3 2,929 2,824 4
-------------------------------------------------
Adjusted operating
profit (loss)
before the
undernoted
Cable Operations(2) 325 302 8 962 873 10
RBS 8 12 (33) 30 45 (33)
Rogers Retail (4) 4 n/m (7) 2 n/m
-------------------------------------------------
Adjusted operating
profit(3) 329 318 3 985 920 7
Stock-based
compensation
recovery(4) - 17 n/m 21 39 (46)
Integration and
restructuring
expenses(5) (6) (2) 200 (17) (10) 70
Adjustment for CRTC
Part II fees
decision(6) - - n/m - (25) n/m
-------------------------------------------------
Operating profit(3) $ 323 $ 333 (3) $ 989 $ 924 7
-------------------------------------------------
-------------------------------------------------
Adjusted operating
profit (loss)
margin(3)
Cable Operations(2) 42.0% 41.7% 42.2% 40.9%
RBS 6.3% 9.2% 7.9% 11.4%
Rogers Retail (4.1%) 3.7% (2.4%) 0.7%
Additions to PP&E(3)
Cable Operations(2) $ 180 $ 187 (4) $ 440 $ 493 (11)
RBS 10 11 (9) 27 25 8
Rogers Retail 3 5 (40) 9 12 (25)
-------------------------------------------------
Total additions to
PP&E $ 193 $ 203 (5) $ 476 $ 530 (10)
-------------------------------------------------------------------------
(1) The operating results of Aurora Cable are included in Cable's results
of operations from the date of acquisition on June 12, 2008.
(2) Cable Operations segment includes Core Cable services, Internet
services and Rogers Home Phone services.
(3) As defined. See the sections entitled "Key Performance Indicators and
Non-GAAP Measures" and "Supplementary Information".
(4) See the section entitled "Stock-based Compensation".
(5) In the three and nine months ended September 30, 2009, costs incurred
relate to i) severances and restructuring expenses related to
combining the Cable and Wireless businesses into a communications
organization and to the outsourcing of certain information technology
functions; ii) the integration of Futureway and Aurora Cable; and
iii) the closure of certain Rogers Retail stores. In the three and
nine months ended September 30, 2008, costs incurred relate to i) the
integration of Futureway and Call-Net; ii) the restructuring of RBS;
and iii) the closure of certain Rogers Retail stores.
(6) Relates to an adjustment in 2008 for CRTC Part II fees related to
prior periods.
The following segment discussions provide a detailed discussion of the Cable operating results.
CABLE OPERATIONS
Summarized Financial Results
-------------------------------------------------------------------------
Three months ended Nine months ended
(In millions of September 30, September 30,
dollars, except -------------------------------------------------
margin) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Operating revenue
Core Cable $ 447 $ 419 7 $ 1,315 $ 1,239 6
Internet 198 176 13 579 513 13
Rogers Home Phone 128 129 (1) 385 385 -
-------------------------------------------------
Total Cable
Operations
operating
revenue 773 724 7 2,279 2,137 7
-------------------------------------------------
Operating expenses
before the
undernoted
Sales and marketing
expenses 63 62 2 182 190 (4)
Operating, general
and administrative
expenses 385 360 7 1,135 1,074 6
-------------------------------------------------
448 422 6 1,317 1,264 4
-------------------------------------------------
Adjusted operating
profit(1) 325 302 8 962 873 10
Stock-based
compensation
recovery(2) 1 16 (94) 20 37 (46)
Integration and
restructuring
expenses(3) (4) (1) n/m (11) (2) n/m
Adjustment for CRTC
Part II fees
decision(4) - - n/m - (25) n/m
-------------------------------------------------
Operating profit(1) $ 322 $ 317 2 $ 971 $ 883 10
-------------------------------------------------
-------------------------------------------------
Adjusted operating
profit margin(1) 42.0% 41.7% 42.2% 40.9%
-------------------------------------------------------------------------
(1) As defined. See the sections entitled "Key Performance Indicators and
Non-GAAP Measures" and "Supplementary Information".
(2) See the section entitled "Stock-based Compensation".
(3) Costs incurred relate to i) severances and restructuring expenses
related to combining the Cable and Wireless businesses into a
communications organization and to the outsourcing of certain
information technology functions; and ii) the integration of
Futureway and Aurora Cable.
(4) Relates to an adjustment in 2008 for CRTC Part II fees related to
prior periods.
Summarized Subscriber Results
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(Subscriber statistics -------------------------------------------------
in thousands) 2009 2008(1) Chg 2009 2008(1) Chg
-------------------------------------------------------------------------
Cable homes passed(2) 3,609 3,530 79 3,609 3,530 79
Basic Cable
Net additions
(losses)(3) - 18 (18) (27) 5 (32)
Total Basic Cable
subscribers(4) 2,292 2,316 (24) 2,292 2,316 (24)
Cable High-speed
Internet
Net additions(5) 19 33 (14) 26 86 (60)
Total Internet
subscribers
(residential)(4)(5) 1,597 1,549 48 1,597 1,549 48
Digital Cable
Terminals, net
additions 56 110 (54) 161 267 (106)
Total terminals
in service(4) 2,444 2,146 298 2,444 2,146 298
Households, net
additions 32 58 (26) 75 130 (55)
Total
households(2)(4) 1,625 1,489 136 1,625 1,489 136
Cable telephony lines
Net additions
and migrations(6) 31 55 (24) 69 142 (73)
Total Cable
telephony lines(4) 909 800 109 909 800 109
Cable Revenue
Generating Units
("RGUs")(7)
Net additions 82 164 (82) 143 363 (220)
Total RGUs 6,423 6,154 269 6,423 6,154 269
-------------------------------------------------------------------------
Circuit-switched
lines
Net losses and
migrations(6) (22) (44) 22 (72) (80) 8
Total circuit-
switched lines 143 255 (112) 143 255 (112)
-------------------------------------------------------------------------
(1) Certain of the comparative figures have been reclassified to conform
to the current year presentation.
(2) Since September 30, 2008, a change in subscriber reporting resulted
in a cumulative decrease to cable homes passed of approximately
171,000.
(3) During the three months ended September 30, 2008, a reclassification
of certain subscribers had the impact of increasing basic cable net
additions by approximately 16,000. In addition, basic cable net
subscriber additions for the nine months ended September 30, 2008
reflect the impact of the conversion of a large municipal housing
authority's cable TV arrangement with Rogers from a bulk to an
individual tenant pay basis, which had the impact of reducing basic
cable subscribers by approximately 5,000.
(4) On June 12, 2008, we acquired approximately 16,000 basic cable
subscribers, 11,000 high-speed Internet subscribers, 8,000 terminals
in service, 6,000 digital households and 2,000 cable telephony
subscriber lines, representing 35,000 RGUs, from Aurora Cable.
(5) Cable high-speed Internet subscriber base excludes ADSL subscribers
of 6,000 and 14,000 at September 30, 2009 and September 30, 2008,
respectively. In addition, net additions excludes ADSL subscriber
losses of 1,000 and 5,000 in the three and nine months ended
September 30, 2009, respectively, and ADSL subscriber losses of 4,000
and 3,000 in the three and nine months ended September 30, 2008,
respectively. The comparative figures have been restated to conform
to the basis of presentation used in the current year. In addition,
during the first quarter of 2008, a change in subscriber reporting
resulted in the reclassification of approximately 4,000 high-speed
Internet subscribers from RBS' broadband data circuits to Cable
Operations' high-speed Internet subscriber base. These subscribers
are not included in net additions for the three and nine months ended
September 30, 2008.
(6) Includes approximately 4,000 and 15,000 migrations from circuit-
switched to cable telephony for the three and nine months ended
September 30, 2009, respectively, and includes approximately 23,000
and 39,000 migrations from circuit-switched to cable telephony for
the three and nine months ended September 30, 2008, respectively.
(7) Cable RGUs are comprised of basic cable subscribers, digital cable
households, Cable high-speed Internet subscribers and residential
cable telephony lines.
In addition to increased levels of penetration for many of Cable's products and a level of increased competitive intensity, an economic recession in Ontario has driven a slowdown in new home construction and high rates of unemployment resulting in lower net additions of our cable products in the three and nine months ended
Core Cable Revenue
Within Cable Operations, the increase in Core Cable revenue for the three and nine months ended
Rogers continues to lead the Canadian cable industry in digital penetration. The digital cable subscriber base grew by 9% from
Internet (Residential) Revenue
The year-over-year increase in Internet revenues for the three and nine months ended
With the high-speed Internet base now at approximately 1.6 million subscribers, Internet penetration is approximately 44% of the homes passed by our cable networks and 70% of our basic cable customer base.
In addition to the impact of the economic recession discussed above, the lower number of high-speed Internet net additions also reflects an increasing degree of product maturation as penetration of broadband slows.
Rogers Home Phone Revenue
The Rogers Home Phone revenue for the three and nine months ended
Cable telephony lines in service grew 14% from
Cable continues to focus principally on growing its on-net cable telephony line base. As part of this on-net focus, Cable began to significantly de-emphasize circuit-switched sales early in 2008 and intensified its efforts to convert circuit-switched lines that are within the cable territory onto its cable telephony platform. Of the 31,000 net line additions to cable telephony during the third quarter of 2009, approximately 4,000 were migrations of lines from our circuit-switched platform to our cable telephony platform. Because of the strategic decision in early 2008 to de-emphasize sales of the circuit-switched telephony product outside of the cable footprint, Cable expects that circuit-switched net line losses will continue as that base of subscribers continues to contract over time.
Excluding the impact of the shrinking circuit-switched telephony business, the year-over-year revenue growth for Rogers Home Phone and Cable Operations for the third quarter ended
Cable Operations Operating Expenses
The increase in Cable Operation's operating expenses for the three and nine months ended
Cable Operations Adjusted Operating Profit
The year-over-year growth in adjusted operating profit was primarily the result of the revenue growth described above, combined with decreased activity levels and cost efficiencies. As a result, Cable Operations adjusted operating profit margins increased to 42.0% and 42.2% for the three and nine months ended
Other Cable Operations Developments
As discussed below in the section entitled "CRTC Part II Fees", the CRTC is expected to amend its regulation relating to Part II fees. Once the settlement is finalized, Cable estimates these fees going forward will be approximately one third less than the current rate of approximately
ROGERS BUSINESS SOLUTIONS
Summarized Financial Results
-------------------------------------------------------------------------
Three months ended Nine months ended
(In millions of September 30, September 30,
dollars, except -------------------------------------------------
margin) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
RBS operating
revenue $ 126 $ 131 (4) $ 379 $ 394 (4)
-------------------------------------------------
Operating expenses
before the undernoted
Sales and marketing
expenses 7 6 17 19 19 -
Operating, general
and administrative
expenses 111 113 (2) 330 330 -
-------------------------------------------------
118 119 (1) 349 349 -
-------------------------------------------------
Adjusted operating
profit(1) 8 12 (33) 30 45 (33)
Stock-based
compensation recovery
(expense)(2) (1) - n/m - 1 n/m
Integration and
restructuring
expenses(3) - (1) n/m (1) (4) (75)
-------------------------------------------------
Operating profit(1) $ 7 $ 11 (36) $ 29 $ 42 (31)
-------------------------------------------------
-------------------------------------------------
Adjusted operating
profit margin(1) 6.3% 9.2% 7.9% 11.4%
-------------------------------------------------------------------------
(1) As defined. See the sections entitled "Key Performance Indicators and
Non-GAAP Measures" and "Supplementary Information".
(2) See the section entitled "Stock-based Compensation".
(3) In the three and nine months ended September 30, 2009, costs incurred
relate to severances and restructuring expenses related to combining
the Cable and Wireless businesses into a communications organization
and to the outsourcing of certain information technology functions.
In the three and nine months ended September 30, 2008, costs incurred
relate to the integration of Call-Net and the restructuring of RBS.
Summarized Subscriber Results
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(Subscriber statistics -------------------------------------------------
in thousands) 2009 2008 Chg 2009 2008 Chg
-------------------------------------------------------------------------
Local line
equivalents(1)
Total local line
equivalents 180 207 (27) 180 207 (27)
Broadband data
circuits(2)(3)
Total broadband
data circuits 36 34 2 36 34 2
-------------------------------------------------------------------------
(1) Local line equivalents include individual voice lines plus Primary
Rate Interfaces ("PRIs") at a factor of 23 voice lines each.
(2) Broadband data circuits are those customer locations accessed by data
networking technologies including DOCSIS, DSL, E10/100/1000, OC 3/12
and DS 1/3.
(3) During the first quarter of 2008, a change in subscriber reporting
resulted in the reclassification of approximately 4,000 high-speed
Internet subscribers from RBS' broadband data circuits to Cable
Operations' high-speed Internet subscriber base. These subscribers
are not included in net additions for 2008.
RBS Revenue
The decrease in RBS revenues reflects a decline in the higher margin legacy data service business, with a shift in focus to leveraging on-net revenue opportunities utilizing Cable's existing network facilities. As well, RBS continues to focus on retaining its existing medium-enterprise customer base while growing the carrier business. For the three and nine months ended
RBS Operating Expenses
Operating, general and administrative expenses were relatively unchanged for the three and nine months ended
Sales and marketing expenses were relatively unchanged for the three and nine months ended
RBS Adjusted Operating Profit
Lower legacy data and local revenues and an increase in the lower margin long-distance revenue combined with legacy operating costs which have not declined in proportion to the lower revenue has resulted in a year-over-year decline in adjusted operating profit for the three and nine months ended
ROGERS RETAIL
Summarized Financial Results
-------------------------------------------------------------------------
Three months ended Nine months ended
(In millions of September 30, September 30,
dollars, except -------------------------------------------------
margin) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Rogers Retail
operating revenue $ 97 $ 108 (10) $ 289 $ 300 (4)
-------------------------------------------------
Operating expenses
before the undernoted 101 104 (3) 296 298 (1)
-------------------------------------------------
Adjusted operating
(loss) profit(1) (4) 4 n/m (7) 2 n/m
Stock-based
compensation
recovery(2) - 1 n/m 1 1 -
Integration and
restructuring
expenses(3) (2) - n/m (5) (4) 25
-------------------------------------------------
Operating (loss)
profit(1) $ (6) $ 5 n/m $ (11) $ (1) n/m
-------------------------------------------------
-------------------------------------------------
Adjusted operating
(loss) profit
margin(1) (4.1%) 3.7% (2.4%) 0.7%
-------------------------------------------------------------------------
(1) As defined. See the sections entitled "Key Performance Indicators and
Non-GAAP Measures".
(2) See the section entitled "Stock-based Compensation".
(3) Costs incurred relate to severances resulting from combining the
Cable and Wireless businesses into a communications organization and
to the closure of certain Rogers Retail stores.
Rogers Retail Revenue
Rogers Retail revenue for the three months ended
Rogers Retail Adjusted Operating (Loss) Profit
Adjusted operating (loss) profit at Rogers Retail decreased for the three and nine months ended
CABLE ADDITIONS TO PP&E
The Cable Operations segment categorizes its PP&E expenditures according to a standardized set of reporting categories that were developed and agreed to by the U.S. cable television industry and which facilitate comparisons of additions to PP&E between different cable companies. Under these industry definitions, Cable Operations additions to PP&E are classified into the following five categories:
- Customer premise equipment ("CPE"), which includes the equipment for
digital set-top terminals, Internet modems and associated
installation costs;
- Scalable infrastructure, which includes non-CPE costs to meet
business growth and to provide service enhancements, including many
of the costs to-date of the cable telephony initiative;
- Line extensions, which includes network costs to enter new service
areas;
- Upgrades and rebuild, which includes the costs to modify or replace
existing coaxial cable, fibre-optic equipment and network
electronics; and
- Support capital, which includes the costs associated with the
purchase, replacement or enhancement of non-network assets.
Summarized Cable PP&E Additions
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(In millions -------------------------------------------------
of dollars) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Additions to PP&E
Customer premise
equipment $ 67 $ 72 (7) $ 145 $ 171 (15)
Scalable
infrastructure 64 58 10 168 168 -
Line extensions 10 10 - 28 31 (10)
Upgrades and rebuild 5 8 (38) 15 16 (6)
Support capital 34 39 (13) 84 107 (21)
-------------------------------------------------
Total Cable Operations 180 187 (4) 440 493 (11)
RBS 10 11 (9) 27 25 8
Rogers Retail 3 5 (40) 9 12 (25)
-------------------------------------------------
$ 193 $ 203 (5) $ 476 $ 530 (10)
-------------------------------------------------------------------------
Additions to Cable PP&E include continued investments in the cable network to continue to enhance customer experience through increased speed and performance of our Internet service and capacity enhancements to our digital network to allow for incremental HD and On-Demand services to be added.
The decline in Cable Operations PP&E additions for the three and nine months ended
The changes in RBS PP&E additions for the three and nine months ended
Rogers Retail PP&E additions are attributable to improvements made to certain retail locations.
MEDIA
-----
Summarized Media Financial Results
-------------------------------------------------------------------------
Three months ended Nine months ended
(In millions of September 30, September 30,
dollars, except -------------------------------------------------
margin) 2009 2008(1)(2) % Chg 2009 2008(1)(2) % Chg
-------------------------------------------------------------------------
Operating revenue $ 364 $ 386 (6) $ 1,014 $ 1,102 (8)
-------------------------------------------------
Operating expenses
before the
undernoted 328 343 (4) 951 1,006 (5)
-------------------------------------------------
Adjusted operating
profit(3) 36 43 (16) 63 96 (34)
Stock-based
compensation
recovery (expense)(4) (1) 11 n/m 13 22 (41)
Integration and
restructuring
expenses(5) - - n/m (21) - n/m
Contract termination
fee(6) (12) - n/m (12) - n/m
Adjustment for CRTC
Part II fees
decision(7) - - n/m - (6) n/m
-------------------------------------------------
Operating profit(3) $ 23 $ 54 (57) $ 43 $ 112 (62)
-------------------------------------------------
-------------------------------------------------
Adjusted operating
profit margin(3) 9.9% 11.1% 6.2% 8.7%
Additions to
property, plant
and equipment(3) $ 11 $ 11 - $ 41 $ 49 (16)
-------------------------------------------------------------------------
(1) The operating results of channel m are included in Media's results of
operations from the date of acquisition on April 30, 2008.
(2) The operating results of Outdoor Life Network are included in Media's
results of operations from the date of acquisition on July 31, 2008.
(3) As defined. See the section entitled "Key Performance Indicators and
Non-GAAP Measures".
(4) See the section entitled "Stock-based Compensation".
(5) Costs incurred relate to severances resulting from the restructuring
of our employee base to improve our cost structure in light of the
current economic conditions.
(6) Relates to the termination of a Blue Jays player contract prior to
the end of the contract term.
(7) Relates to an adjustment in 2008 for CRTC Part II fees related to
prior periods.
Media Revenue
The decline in Media's revenues for the three and nine months ended
Media Operating Expenses
The decrease in Media's operating expenses for the three and nine months ended
Media Adjusted Operating Profit
The decrease in Media's adjusted operating profit for the three and nine months ended
Media Additions to PP&E
The majority of Media's PP&E additions in the three and nine months ended
Other Media Developments
As discussed below in the section entitled "CRTC Part II Fees", the CRTC is expected to amend its regulation relating to Part II fees. Once the settlement is finalized, Media estimates these fees going forward will be approximately one third less than the current rate of approximately
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 operating profit and adjusted operating profit for the period. See the "Supplementary Information" 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 understanding of intersegment eliminations on consolidation, the following section should be read in conjunction with the tables in the Supplemental Information section entitled "Segmented Information".
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
-------------------------------------------------
(In millions of dollars) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Net income $ 485 $ 495 (2) $ 1,168 $ 1,140 2
Income tax expense 129 14 n/m 414 337 23
Other (income)
expense, net 1 (12) n/m (5) (25) (80)
Change in the fair
value of derivative
instruments 27 (20) n/m 28 (21) n/m
Foreign exchange
(gain) loss (72) 16 n/m (123) 22 n/m
Debt issuance costs - 16 n/m 5 16 (69)
Interest on long-term
debt 166 147 13 474 418 13
-------------------------------------------------
Operating income 736 656 12 1,961 1,887 4
Depreciation and
amortization 416 429 (3) 1,306 1,289 1
-------------------------------------------------
Operating profit 1,152 1,085 6 3,267 3,176 3
Stock-based compensation
expense (recovery) 6 (62) n/m (62) (125) (50)
Integration and
restructuring expenses 11 2 n/m 52 10 n/m
Adjustment for CRTC
Part II fees decision - - n/m - 31 n/m
Contract termination fee 12 - n/m 12 - n/m
-------------------------------------------------
Adjusted operating
profit $ 1,181 $ 1,025 15 $ 3,269 $ 3,092 6
-------------------------------------------------------------------------
Net Income and Net Income Per Share
We recorded net income of
On an adjusted basis, we recorded net income of
Income Tax Expense
The Company's effective income tax rates for the three and nine months ended
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
-------------------------------------------
(In millions of dollars) 2009 2008 2009 2008
-------------------------------------------------------------------------
Statutory income tax rates 32.1% 32.7% 32.1% 32.7%
-------------------------------------------------------------------------
Income before income taxes $ 614 $ 509 $ 1,582 $ 1,477
Income tax expense at statutory
income tax rate on income
before income taxes $ 197 $ 166 $ 508 $ 483
Increase (decrease) in income
taxes resulting from:
Ontario income tax
harmonization credit - (65) - (65)
Change in valuation allowance (38) (48) (61) (45)
Effect of tax rate charges (18) (21) (23) (22)
Other items (12) (18) (10) (14)
-------------------------------------------
Income tax expense $ 129 $ 14 $ 414 $ 337
-------------------------------------------------------------------------
Effective income tax rate 21.0% 2.8% 26.2% 22.8%
-------------------------------------------------------------------------
Change in Fair Value of Derivative Instruments
The change in the fair value of derivative instruments in the three and nine months ended
Foreign Exchange Gain (Loss)
During the three months ended
During the nine months ended
Debt Issuance Costs
There were no debt issuance costs for the three months ended
Interest on Long-Term Debt
The
The
Operating Income
The increase in operating income in the three and nine months ended
Depreciation and Amortization Expense
The change in depreciation and amortization expense for the three months and nine months ended
Stock-based Compensation
A summary of stock-based compensation (recovery) expense is as follows:
-------------------------------------------
Stock-based Compensation Expense (Recovery)
Included in Operating, General and
Administrative Expenses
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
-------------------------------------------
(In millions of dollars) 2009 2008 2009 2008
-------------------------------------------------------------------------
Wireless $ 3 $ (7) $ (5) $ (9)
Cable - (17) (21) (39)
Media 1 (11) (13) (22)
Corporate 2 (27) (23) (55)
-------------------------------------------
$ 6 $ (62) $ (62) $ (125)
-------------------------------------------------------------------------
At
Integration and Restructuring Expenses
During the three and nine months ended
As the Company continues to combine the Cable and Wireless businesses into a communications organization, further integration and restructuring expenses are expected in the fourth quarter of 2009.
Contract Termination Fee
During the three months ended
Adjusted Operating Profit
As discussed above, the growth in Wireless and Cable's adjusted operating profit for the three and nine months ended
For the three months ended
For the nine months ended
For details on the determination of adjusted operating profit, which is a non-GAAP measure, see the sections entitled "Supplementary Information" and "Key Performance Indicators and Non-GAAP Measures".
ADDITIONS TO PP&E
For details on the additions of PP&E for the Wireless, Cable and Media segments, refer to the section entitled "Segment Review".
Corporate Additions to PP&E
The year-over-year increase in corporate additions to PP&E for the three and nine months ended
OVERVIEW OF LIQUIDITY, FINANCING AND SHARE CAPITAL ACTIVITIES
Liquidity
Three Months Ended
For the three months ended
Taking into account the changes in non-cash working capital items for the three months ended
Net funds used during the three months ended
- additions to PP&E of $459 million, net of $32 million of related
changes in non-cash working capital;
- the payment of quarterly dividends of $184 million on our Class A
Voting and Class B Non-Voting shares;
- the purchase for cancellation of 13,860,800 Class B Non-Voting
shares for an aggregate purchase price of $408 million;
- payments for program rights of $39 million;
- repayments of capital leases of $1 million; and
- acquisitions and other investments aggregating $31 million,
including $25 million to acquire spectrum licences and $6 million
of other investments.
Taking into account the cash and cash equivalents of
Nine Months Ended
For the nine months ended
Taking into account the changes in non-cash working capital items for the nine months ended
Net funds used during the nine months ended
- additions to PP&E of $1,375 million, including $91 million of
related changes in non-cash working capital;
- net repayments under our bank credit facility aggregating $585
million and capital leases aggregating $1 million;
- the payment of dividends of $527 million on our Class A Voting and
Class B Non-Voting shares;
- the purchase for cancellation of 30,340,800 Class B Non-Voting
shares for an aggregate purchase price of $917 million;
- payments for program rights of $131 million; and
- acquisitions and other investments aggregating $62 million,
including $40 million to acquire spectrum licences, $11 million to
acquire K-Rock and KIX Country, Kingston FM radio stations, and
$11 million of other investments.
Taking into account the cash deficiency of
Financing
Our long-term debt instruments are described in Note 14 to the 2008 Annual Audited Consolidated Financial Statements and Note 6 to the Unaudited Interim Consolidated Financial Statements for the three and nine months ended
Three Months Ended
At
Pension Plans' Purchase of Annuities
During the three months ended
Redemption of Debt
The Company intends to redeem the entire outstanding principal amount of its US$400 million 8.00% Senior Subordinated Notes due 2012 on
Nine months Ended
During the nine months ended
On
In
Normal Course Issuer Bid
In
In
During the three and nine months ended
Credit Ratings Upgrades
In
In
In
Interest Rate and Foreign Exchange Management
Economic Hedge Analysis
For the purposes of our discussion on the hedged portion of long-term debt, we have used non-GAAP measures in that we include all Derivatives, whether or not they qualify as hedges for accounting purposes, since all such Derivatives are used for risk-management purposes only and are designated as a hedge of specific debt instruments for economic purposes. As a result, the Canadian dollar equivalent of U.S. dollar-denominated long-term debt reflects the contracted foreign exchange rate for all of our Derivatives regardless of qualifications for accounting purposes as a hedge.
During the three and nine months ended
Consolidated Hedged Position
-------------------------------------------------------------------------
(In millions of dollars,
except percentages) September 30, 2009 December 31, 2008
-------------------------------------------------------------------------
U.S. dollar-denominated long-term
debt US $ 5,940 US $ 5,940
Hedged with Derivatives US $ 5,540 US $ 5,540
Hedged exchange rate 1.2043 1.2043
Percent hedged 93.3%(1) 93.3%
-------------------------------------------------------------------------
Amount of long-term debt(2)
at fixed rates:
Total long-term debt Cdn $ 8,736 Cdn $ 8,383
Total long-term debt at fixed rates Cdn $ 8,736 Cdn $ 7,798
Percent of long-term debt fixed 100.0% 93.0%
-------------------------------------------------------------------------
Weighted average interest rate on
long-term debt 7.45% 7.29%
-------------------------------------------------------------------------
(1) Pursuant to the requirements for hedge accounting under Canadian
Institute of Chartered Accountants ("CICA") Handbook Section 3865,
Hedges, on September 30, 2009, RCI accounted for 93.5% of its
Derivatives as hedges against designated U.S. dollar-denominated
debt. As a result, 87.4% of U.S. dollar-denominated debt is hedged
for accounting purposes versus 93.3% on an economic basis.
(2) Long-term debt includes the effect of the Derivatives.
Mark-to-Market Value of Derivatives
In accordance with Canadian GAAP, we have recorded our Derivatives using an estimated credit-adjusted mark-to-market valuation which was determined by increasing the treasury-related discount rates used to calculate the risk-free estimated mark-to-market valuation by an estimated credit default swap spread ("CDS Spread") for the relevant term and counterparty for each derivative. In the case of Derivatives accounted for as assets by Rogers (i.e. those Derivatives for which the counterparties owe Rogers), the CDS Spread for the bank counterparty was added to the risk-free discount rate to determine the estimated credit-adjusted value whereas, in the case of Derivatives accounted for as liabilities (i.e. those Derivatives for which Rogers owes the counterparties), Rogers' CDS Spread was added to the risk-free discount rate. The estimated credit-adjusted values of the Derivatives are subject to changes in credit spreads of Rogers and its counterparties.
The effect of estimating the credit-adjusted value of Derivatives at
-------------------------------------------------------------------------
Derivatives
Derivatives in a Net
in an asset liability liability
position position position
(In millions of dollars) (A) (B) (A + B)
-------------------------------------------------------------------------
Mark-to-market value -
risk-free analysis $ 172 $ (1,067) $ (895)
-------------------------------------------------------------------------
Mark-to-market value -
credit-adjusted estimate
(carrying value) $ 156 $ (1,039) $ (883)
-------------------------------------------------------------------------
Difference $ 16 $ (28) $ (12)
-------------------------------------------------------------------------
Long-term Debt Plus Net Derivative Liabilities (Assets)
The aggregate of our long-term debt plus net derivative liabilities (assets) at the mark-to-market values using risk-free analysis ("the risk-free analytical value") is used by us and many analysts to most closely represent the Company's net debt-related obligations for valuation purposes, and is calculated as follows:
-------------------------------------------------------------------------
September June March December
(In millions of dollars) 30, 2009 30, 2009 31, 2009 31, 2008
-------------------------------------------------------------------------
Long-term debt(1) $ 8,012 $ 8,551 $ 8,647 $ 8,507
Net derivative liabilities
(assets) at the risk-free
analytical value(1) $ 895 $ 390 $ (174) $ 144
-------------------------------------------
Total $ 8,907 $ 8,941 $ 8,473 $ 8,651
-------------------------------------------------------------------------
(1) Includes current and long-term portions.
We believe that the non-GAAP financial measure of long-term debt plus net derivative liabilities (assets) at the risk-free analytical value provides the most relevant and practical measure of our outstanding net debt-related obligations. We use this non-GAAP measure internally to conduct valuation-related analysis and make capital structure-related decisions and it is reviewed regularly by management. It is also useful to investors and analysts in enabling them to analyze the enterprise and equity value of the Company and to assess various leverage ratios as performance measures. This non-GAAP measure does not have a standardized meaning and should be viewed as a supplement to, and not a substitute for, our results of operations or financial position reported under Canadian and U.S. GAAP.
Outstanding Share Data
Set out below is our outstanding share data as at
For additional information, refer to Note 18 of our 2008 Annual Audited Consolidated Financial Statements and the Unaudited Interim Consolidated Financial Statements for the three and nine months ended
-------------------------------------------------------------------------
September 30, 2009
-------------------------------------------------------------------------
Common Shares(1)
Class A Voting 112,462,014
Class B Non-Voting(2) 493,262,163
-------------------------------------------------------------------------
Options to purchase Class B Non-Voting shares
Outstanding options 15,167,989
Outstanding options exercisable 9,624,557
-------------------------------------------------------------------------
(1) Holders of our Class B Non-Voting shares are entitled to receive
notice of and to attend meetings of our shareholders, but, except as
required by law or as stipulated by stock exchanges, are not entitled
to vote at such meetings. If an offer is made to purchase outstanding
Class A Voting shares, there is no requirement under applicable law
or RCI's constating documents that an offer be made for the
outstanding Class B Non-Voting shares and there is no other
protection available to shareholders under RCI's constating
documents. If an offer is made to purchase both Class A Voting shares
and Class B Non-Voting shares, the offer for the Class A Voting
shares may be made on different terms than the offer to the holders
of Class B Non-Voting shares.
(2) The outstanding Class B Non-Voting shares recorded above reflects the
cancellation of an aggregate 2,418,100 shares purchased pursuant to
the NCIB during the three months ended September 30, 2009 but which
settled in early October 2009.
Dividends and Other Payments on Equity Securities
The Company declared and paid the following dividends on each of its outstanding Class A Voting and Class B Non-Voting shares, as follows:
-------------------------------------------------------------------------
Dividend Dividends
per paid (in
Declaration date Record date Payment date share millions)
-------------------------------------------------------------------------
November 1, 2007 December 12, 2008 January 1, 2008 $0.125 $ 80
February 21, 2008 March 6, 2008 April 1, 2008 $ 0.25 $ 160
April 29, 2008 May 13, 2008 July 2, 2008 $ 0.25 $ 160
August 19, 2008 September 3, 2008 October 1, 2008 $ 0.25 $ 159
October 28, 2008 November 25, 2008 January 2, 2009 $ 0.25 $ 159
February 17, 2009 March 6, 2009 April 1, 2009 $ 0.29 $ 184
April 29, 2009 May 15, 2009 July 2, 2009 $ 0.29 $ 184
August 20, 2009 September 9, 2009 October 1, 2009 $ 0.29 $ 177
-------------------------------------------------------------------------
On
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
Our material obligations under firm contractual arrangements, including commitments for future payments under long-term debt arrangements, capital lease obligations and operating lease arrangements, are summarized in our 2008 Annual MD&A, and are further discussed in Notes 14, 15 and 23 of our 2008 Annual Audited Consolidated Financial Statements. There have been no significant changes to these material contractual obligations since
- In June 2009, we entered into an agreement to outsource certain
information technology infrastructure functions. The agreement has
a seven year term, resulting in committed expenditures of $632
million.
- Changes to our bank credit facility balance and the issuance of
long-term debt previously discussed in the "Overview of Liquidity,
Financing and Share Capital Activities - Financing" section.
GOVERNMENT REGULATION AND REGULATORY DEVELOPMENTS
The significant government regulations which impact our operations are summarized in our 2008 Annual MD&A. Significant developments regarding those regulations since our 2008 MD&A was published on
Over-the-Air Television Station Licence Renewals
In
In late
In a
In a
In
Parliamentary Committee on Canadian Heritage Hearings on Conventional
Television
In
In
Consultation on the Renewal of Cellular and Personal Communications
Services ("PCS") Spectrum Licences
In
Industry
In addition, Industry
Consultation on Transition to Broadband Radio Service in the Band 2500-
2696 MHz
In
New Media Proceeding
In
The CRTC also rejected the notion of a tax on ISP revenues to fund Canadian 'webisodes'. Based on conflicting legal opinions filed in the proceeding, the CRTC will refer to the Federal Court the question of whether an ISP, when it distributes broadcasting, is subject to the Broadcasting Act.
CRTC Part II Fees
In
Third Party ISP Access to Cable Plant
In a proceeding initiated by Telecom Notice of Consultation 2009-261, the CRTC is examining requests from ISPs that the cable industry should be mandated to extend its current regulated Third Party Internet Access service to provide dedicated channels to third parties. An Oral Hearing is scheduled to begin on
UPDATES TO RISKS AND UNCERTAINTIES
Our significant risks and uncertainties are discussed in our 2008 Annual MD&A, which was current as of
Wireless Technologies
On
Litigation Update
In
Over-the-Air Television Station Licence Renewals
In Broadcasting Notice of Consultation 2009-411, the CRTC announced that it is "now of the view that a negotiated solution for compensation for the free market value of local conventional television signals is also appropriate." In Broadcasting Notice of Consultation 2009-411-3 released on
Restrictions on the Use of Wireless Handsets While Driving may Reduce
Subscriber Usage
In
Unbundled Local Loop Rates
In
KEY PERFORMANCE INDICATORS AND NON-GAAP MEASURES
We measure the success of our strategies using a number of key performance indicators that are defined and discussed in our 2008 Annual MD&A and this interim quarterly MD&A. These key performance indicators are not measurements under Canadian or U.S. GAAP, but we believe they allow us to appropriately measure our performance against our operating strategy as well as against the results of our peers and competitors. They include:
- Network revenue and ARPU;
- Subscriber counts and subscriber churn;
- Operating expenses;
- Sales and marketing costs;
- Operating profit;
- Adjusted operating profit;
- Adjusted operating profit margin;
- Additions to PP&E; and
- Long-term debt plus net derivative liabilities (assets).
We believe that the non-GAAP financial measure of long-term debt plus net derivative liabilities (assets) at the risk-free analytical value provides the most relevant and practical measure of our outstanding net debt-related obligations. We use this non-GAAP measure internally to conduct valuation-related analysis and make capital structure-related decisions and it is reviewed regularly by management. This is also useful to investors and analysts in enabling them to analyze the enterprise and equity value of our business and to assess various leverage ratios as performance measures. This non-GAAP measure does not have a standardized meaning and should be viewed as a supplement to, and not a substitute for, our results of operations and financial position reported under Canadian and U.S. GAAP.
RELATED PARTY ARRANGEMENTS
We have entered into certain transactions with companies, the partners or senior officers of which are Directors of the Company. During the three and nine months ended
We have entered into certain transactions with our controlling shareholder and companies controlled by our controlling shareholder. These transactions are subject to formal agreements approved by the Audit Committee, or if material, by the Board of Directors following the recommendation of a specially constituted independent committee. Total amounts received from these related parties, during the nine months ended
These transactions are recorded at the exchange amount, being the amount agreed to by the related parties, and are reviewed by the Audit Committee.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In our 2008 Annual Audited Consolidated Financial Statements and Notes thereto, as well as in our 2008 Annual MD&A, we have identified the accounting policies and estimates that are critical to the understanding of our business operations and our results of operations. For the three and nine months ended
NEW ACCOUNTING STANDARDS
Goodwill and Intangible Assets
In 2008, the CICA issued Handbook Section 3064, Goodwill and Intangible Assets ("CICA 3064"). CICA 3064, which replaces Section 3062, Goodwill and Intangible Assets, and Section 3450, Research and Development Costs, establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. The provisions relating to the definition and initial recognition of intangible assets, including internally generated intangible assets, are equivalent to the corresponding provisions of IAS 38, Intangible Assets. This new standard is effective for our Interim and Annual Consolidated Financial Statements commencing
Recent Accounting Pronouncements
Financial Instruments - Disclosures
In
International Financial Reporting Standards ("IFRS")
In 2006, the Canadian Accounting Standards Board ("AcSB") published a new strategic plan that significantly affects financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five year transitional period.
In
The table below illustrates key elements of our conversion plan, our major milestones and current status. Our conversion plan is organized in phases over time and by area. We have completed all activities to date per our detailed project plan and expect to meet all milestones through to completion of the conversion to IFRS. During the quarter, we have continued implementing the changes to our systems and processes required for implementation and expect all changes to be complete in time for our parallel run in 2010.
We have allocated sufficient resources to our conversion project, which include certain full-time employees in addition to contributions by other employees on a part-time or as needed basis. We have completed the delivery of training to all employees with responsibilities in the conversion process. Training for all other employees who will be impacted by our conversion to IFRS is underway. Our training efforts have focused on updating those individuals whose roles and responsibilities are directly impacted by the changes being implemented and providing general training to employees on the impacts transition to IFRS will have on the Company.
Although our IFRS accounting policies have been approved by senior management and the Audit Committee, such approval is contingent upon the realization of our expectations regarding the IFRS standards that will be effective at the time of transition. Consequently, we are unable to make a final determination of the full impact of conversion until all of the IFRS standards applicable at the conversion date are known. As we determine significant impacts on our financial reporting, including on our key performance indicators, systems and processes, and other areas of our business, we intend to disclose such impacts in our future MD&As.
In the period leading up to the changeover, the AcSB will continue to issue accounting standards that are converged with IFRS, thus mitigating the impact of adopting IFRS at the changeover date. The International Accounting Standard Board ("IASB") will also continue to issue new accounting standards during the conversion period, and as a result, the final impact of IFRS on our consolidated financial statements will only be measured once all the IFRS applicable at the conversion date are known.
-------------------------------------------------------------------------
Activity Milestones Status
-------------------------------------------------------------------------
Financial reporting:
- Assessment of Senior management and Senior management and
accounting and Audit Committee Audit Committee
reporting differences. sign-off for policy preliminary approval
- Selection of IFRS recommendations and obtained for IFRS
accounting policies IFRS 1 elections accounting policies
and IFRS 1 elections. during 2009. and IFRS 1 elections.
- Development of IFRS
financial statement Senior management Monitoring of impacts
format, including and Audit Committee on policy
disclosures. sign-off on financial recommendations of new
- Quantification of statement format or amended IFRS
effects of conversion. during 2010. standards issued
ongoing.
Final quantification
of conversion effects Development of IFRS
on 2010 comparative financial statement
period by Q1 2011. format and disclosures
underway.
-------------------------------------------------------------------------
Systems and processes:
- Assessment of impact Systems, process and Analysis of potential
of changes on systems internal control design solutions
and processes. changes implemented completed.
- Implementation of any and training complete
system and process in time for parallel Implementation of
design changes run in 2010. system and process
including training design changes, and
appropriate personnel. Testing of internal training are underway.
- Documentation and controls for 2010
testing of internal comparatives completed
controls over new by Q1 2011.
systems and processes.
-------------------------------------------------------------------------
Business:
- Assessment of impacts Contracts updated/ Preliminary assessment
on all areas of the renegotiated by end of impacts on other
business, including of 2010. areas of the business
contractual completed.
arrangements and Communication at all
implement changes levels throughout the Communication is
as necessary. conversion process. ongoing.
- Communicate conversion
plan and progress Training for employees
internally and on expected impacts
externally. underway.
-------------------------------------------------------------------------
Set out below are the key areas where changes in accounting policies are expected that may impact our consolidated financial statements. The list and comments should not be regarded as a complete list of changes that will result from transition to IFRS and are intended to highlight those areas we believe to be most significant. Furthermore, the IASB has significant ongoing projects that could affect the ultimate differences between Canadian GAAP and IFRS and their impact on the Company's consolidated financial statements. Consequently, our analysis of changes and policy decisions have been made based on our expectations regarding the accounting standards that we anticipate will be effective at the time of transition. The future impacts of IFRS will also depend on the particular circumstances prevailing in those years. At this stage, we are not able to reliably quantify the impacts expected on our consolidated financial statements for these differences. See the section entitled "Caution Regarding Forward-Looking Statements, Risk and Assumptions".
Share-Based Payments
IFRS 2, Share-Based Payments, requires that cash-settled share-based payments to employees be measured (both initially and at each reporting date) based on fair values of the awards. Canadian GAAP requires that such payments be measured based on intrinsic values of the awards. This difference is expected to impact the accounting measurement of our stock-based payments, including our stock options, restricted share units and deferred share units.
Employee Benefits
IAS 19, Employee Benefits, requires the past service cost element of defined benefit plans be expensed on an accelerated basis, with vested past service costs expensed immediately and unvested past service costs recognized on a straight-line basis until the benefits become vested. Under Canadian GAAP, past service costs are generally amortized on a straight-line basis over the average remaining service period of active employees expected under the plan.
In addition, IAS 19 requires an entity to make an accounting policy choice regarding the treatment of actuarial gains and losses. The Company intends to adopt the option allowing the immediate recognition of actuarial gains and losses directly in equity with no impact on profit or loss.
Borrowing Costs
IAS 23, Borrowing Costs, requires the capitalization of borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Under Canadian GAAP, we have made an accounting policy choice to expense these costs as incurred.
Joint Ventures
The IASB is currently considering Exposure Draft 9, Joint Arrangements ("ED 9"), that is intended to modify IAS 31, Interests in Joint Ventures ("IAS 31"). The IASB has indicated that it expects to issue a new standard to replace IAS 31 in 2009. Currently, under Canadian GAAP, we proportionately account for interests in joint ventures. ED 9 proposes to eliminate the option to proportionately consolidate such interests that exists in IAS 31, and require an entity to recognize its interest in a joint venture, using the equity method. Therefore, we are expecting to use the equity method to account for such interests on transition.
Financial Instruments: Transaction Costs
IAS 39, Financial Instruments: Recognition and Measurement requires that transaction costs incurred upon initial acquisition of a financial instrument be deferred and amortized into profit and loss over the life of the instrument. Currently, we recognize these costs immediately in net income.
Customer Loyalty Programs
Canadian GAAP does not provide specific guidance on accounting for customer loyalty programs. We have adopted a liability approach for our customer loyalty program offered to Fido subscribers. The current policy is to classify the liability for loyalty points as an accrued liability on the balance sheet and to record the net cost of the program in equipment revenue. The liability is initially recorded at the face value of the loyalty awards granted and subsequently adjusted based on redemption rates. Upon transition to IFRS, the Company will be required to apply IFRIC 13 Customer Loyalty Programmes ("IFRIC 13"), which requires a revenue approach in accounting for the loyalty programs. Consequently, we will be required to defer a portion of the revenue for the initial sales transaction in which the awards are granted based on the fair value of the awards granted. The application of IFRIC 13 is expected to result in a reclassification of revenue between the Network and Equipment categories as well as a reclassification on the balance sheet for the deferred revenue balance from Accrued Liabilities to Unearned Revenue.
Impairment of Assets
Canadian GAAP generally uses a two-step approach to impairment testing: first comparing asset carrying values with undiscounted future cash flows to determine whether impairment exists; and then measuring any impairment by comparing asset carrying values with fair values. International Accounting Standard (IAS) 36, Impairment of Assets ("IAS 36"), uses a one-step approach for both testing for and measurement of impairment, with asset carrying values compared directly with the higher of fair value less costs to sell and value in use (which uses discounted future cash flows). The difference in methodologies may potentially result in additional asset impairments upon transition to IFRS.
Additionally, under Canadian GAAP assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities for impairment testing purposes. IFRS requires that assets be tested for impairment at the level of cash generating units, which is the lowest level of assets that generate largely independent cash inflows. This lower level grouping could result in identification of impairment more frequently under IFRS, but of potentially smaller amounts.
However, with the exception of goodwill, new write-downs may potentially be offset by the requirement under IAS 36 to reverse any previous impairment losses where circumstances have changed. Canadian GAAP prohibits reversal of impairment losses.
First-Time Adoption of International Financial Reporting Standards
Our adoption of IFRS will require the application of IFRS 1, First-Time Adoption of International Financial Reporting Standards ("IFRS 1"), which provides guidance for an entity's initial adoption of IFRS. IFRS 1 generally requires that an entity apply all IFRS effective at the end of its first IFRS reporting period retrospectively. However, IFRS 1 does include certain mandatory exceptions and limited optional exemptions in specified areas of certain standards from this general requirement. The following are the significant optional exemptions available under IFRS 1 that we expect to apply in preparing our first financial statements under IFRS.
-------------------------------------------------------------------------
Business Combinations We expect to elect to not restate any Business
Combinations that have occurred prior to
January 1, 2010.
-------------------------------------------------------------------------
Borrowing Costs We expect to elect to apply the requirements of
IAS 23 Borrowing Costs prospectively from
January 1, 2010.
-------------------------------------------------------------------------
Employee Benefits We expect to elect to recognize any actuarial
gains/losses as at January 1, 2010 in retained
earnings.
-------------------------------------------------------------------------
The information above is provided to allow investors and others to obtain a better understanding of our IFRS changeover plan and the resulting possible effects on, for example, our financial statements and operating performance measures. Readers are cautioned, however, that it may not be appropriate to use such information for any other purpose. This information also reflects our most recent assumptions and expectations; circumstances may arise, such as changes in IFRS, regulations or economic conditions, which could change these assumptions or expectations.
CONTROLS AND PROCEDURES
There have been no changes in our internal controls over financial reporting during the third quarter of 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
SEASONALITY
Our operating results are subject to seasonal fluctuations that materially impact quarter-to-quarter operating results, and thus one quarter's operating results are not necessarily indicative of a subsequent quarter's operating results.
Each of Wireless, Cable and Media has unique seasonal aspects to their businesses. For specific discussions of the seasonal trends affecting the Wireless, Cable and Media segments, please refer to our 2008 Annual MD&A.
2009 GUIDANCE
We have no revisions to the 2009 annual financial and operating guidance ranges which we provided on
SUPPLEMENTARY INFORMATION
Calculations of Wireless Non-GAAP Measures
-------------------------------------------------------------------------
(In millions of dollars,
subscribers in thousands, Three months ended Nine months ended
except ARPU figures and September 30, September 30,
adjusted operating -------------------------------------------
profit margin) 2009 2008 2009 2008
-------------------------------------------------------------------------
Postpaid ARPU (monthly)
Postpaid (voice and data)
revenue $ 1,562 $ 1,459 $ 4,424 $ 4,130
Divided by: average
postpaid wireless voice
and data subscribers 6,780 6,187 6,635 6,070
Divided by: 3 months for
the quarter and 9 months
for the year-to-date 3 3 9 9
-------------------------------------------
$ 76.79 $ 78.60 $ 74.08 $ 75.60
-------------------------------------------------------------------------
Prepaid ARPU (monthly)
Prepaid (voice and data)
revenue $ 83 $ 78 $ 223 $ 215
Divided by: average
prepaid subscribers 1,472 1,426 1,471 1,413
Divided by: 3 months for
the quarter and 9 months
for the year-to-date 3 3 9 9
-------------------------------------------
$ 18.80 $ 18.23 $ 16.84 $ 16.91
-------------------------------------------------------------------------
Blended ARPU (monthly)
Voice and data revenue $ 1,645 $ 1,537 $ 4,647 $ 4,345
Divided by: average
wireless voice and
data subscribers 8,252 7,613 8,106 7,483
Divided by: 3 months for
the quarter and 9 months
for the year-to-date 3 3 9 9
-------------------------------------------
$ 66.45 $ 67.30 $ 63.70 $ 64.52
-------------------------------------------------------------------------
Adjusted operating
profit margin
Adjusted operating profit $ 846 $ 693 $ 2,298 $ 2,167
Divided by: network revenue 1,645 1,537 4,647 4,345
-------------------------------------------
Adjusted operating
profit margin 51.4% 45.1% 49.5% 49.9%
-------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
Calculations of Cable Non-GAAP Measures
-------------------------------------------------------------------------
Three months ended Nine months ended
(In millions of dollars, September 30, September 30,
except adjusted operating -------------------------------------------
profit margin) 2009 2008 2009 2008
-------------------------------------------------------------------------
Cable Operations adjusted
operating profit margin:
Adjusted operating profit $ 325 $ 302 $ 962 $ 873
Divided by revenue 773 724 2,279 2,137
-------------------------------------------
Cable Operations adjusted
operating profit margin 42.0% 41.7% 42.2% 40.9%
-------------------------------------------------------------------------
RBS adjusted operating
profit margin:
Adjusted operating profit $ 8 $ 12 $ 30 $ 45
Divided by revenue 126 131 379 394
-------------------------------------------
RBS adjusted operating
profit margin 6.3% 9.2% 7.9% 11.4%
-------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
Calculation of Adjusted Operating Profit, Net Income and
Earnings Per Share
-------------------------------------------------------------------------
Three months ended Nine months ended
(In millions of dollars, September 30, September 30,
number of shares -------------------------------------------
outstanding in millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Operating profit $ 1,152 $ 1,085 $ 3,267 $ 3,176
Add (deduct):
Stock-based compensation
expense (recovery) 6 (62) (62) (125)
Adjustment for CRTC Part II
fees decision - - - 31
Integration and
restructuring expenses 11 2 52 10
Contract termination fee 12 - 12 -
-------------------------------------------
Adjusted operating profit $ 1,181 $ 1,025 $ 3,269 $ 3,092
-------------------------------------------
-------------------------------------------
Net income $ 485 $ 495 $ 1,168 $ 1,140
Add (deduct):
Stock-based compensation
expense (recovery) 6 (62) (62) (125)
Adjustment for CRTC Part II
fees decision - - - 31
Integration and
restructuring expenses 11 2 52 10
Contract termination fee 12 - 12 -
Debt issuance costs - 16 5 16
Income tax impact (9) 14 (2) 24
-------------------------------------------
Adjusted net income $ 505 $ 465 $ 1,173 $ 1,096
-------------------------------------------
-------------------------------------------
Adjusted basic and diluted
earnings per share:
Adjusted net income $ 505 $ 465 $ 1,173 $ 1,096
Divided by: weighted
average number of
shares outstanding 616 637 627 639
-------------------------------------------
Adjusted basic and diluted
earnings per share $ 0.82 $ 0.73 $ 1.87 $ 1.72
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
Quarterly Consolidated Financial Summary
2009
-----------------------------------------------------
(In millions of
dollars, except per
share amounts) Q1 Q2 Q3
-----------------------------------------------------
Income Statement
Operating Revenue
Wireless $ 1,544 $ 1,616 $ 1,760
Cable 968 972 989
Media 284 366 364
Corporate and
eliminations (49) (63) (77)
-----------------------------------------------------
2,747 2,891 3,036
-----------------------------------------------------
Operating profit (loss)
before the undernoted
Wireless 710 742 846
Cable 324 332 329
Media (10) 37 36
Corporate and
eliminations (19) (28) (30)
-----------------------------------------------------
1,005 1,083 1,181
Stock-based
compensation recovery
(expense)(1) 81 (13) (6)
Integration and
restructuring
expenses(2) (4) (37) (11)
Adjustment for CRTC
Part II fees
decision(3) - - -
Contract
renegotiation fee(6) - - -
Contract
termination fee(7) - - (12)
-----------------------------------------------------
Operating profit(4) 1,082 1,033 1,152
Depreciation and
amortization 444 446 416
Impairment losses on
goodwill, intangible
assets and other
long-term assets(5) - - -
-----------------------------------------------------
Operating income 638 587 736
Interest on
long-term debt (152) (156) (166)
Debt issuance costs - (5) -
Other income (expense) (17) 73 44
Income tax expense (160) (125) (129)
-----------------------------------------------------
Net income (loss) for
the period $ 309 $ 374 $ 485
-----------------------------------------------------
-----------------------------------------------------
Net income (loss) per
share:
Basic $ 0.49 $ 0.59 $ 0.79
Diluted $ 0.49 $ 0.59 $ 0.79
Additions to property,
plant and equipment(4) $ 359 $ 434 $ 491
-----------------------------------------------------
2008 2007
--------------------------------------------------------------- ---------
(In millions of
dollars, except per
share amounts) Q1 Q2 Q3 Q4 Q4
--------------------------------------------------------------- ---------
Income Statement
Operating Revenue
Wireless $ 1,431 $ 1,522 $ 1,727 $ 1,655 $ 1,466
Cable 925 938 961 985 923
Media 307 409 386 394 364
Corporate and
eliminations (54) (66) (92) (93) (66)
--------------------------------------------------------------- ---------
2,609 2,803 2,982 2,941 2,687
--------------------------------------------------------------- ---------
Operating profit (loss)
before the undernoted
Wireless 705 769 693 639 658
Cable 303 304 318 313 265
Media 2 52 43 46 63
Corporate and
eliminations (26) (36) (29) (30) (29)
--------------------------------------------------------------- ---------
984 1,089 1,025 968 957
Stock-based
compensation recovery
(expense)(1) 116 (53) 62 (25) (4)
Integration and
restructuring
expenses(2) (5) (3) (2) (41) (17)
Adjustment for CRTC
Part II fees
decision(3) - (37) - - -
Contract
renegotiation fee(6) - - - - (52)
Contract
termination fee(7) - - - - -
--------------------------------------------------------------- ---------
Operating profit(4) 1,095 996 1,085 902 884
Depreciation and
amortization 440 420 429 471 408
Impairment losses on
goodwill, intangible
assets and other
long-term assets(5) - - - 294 -
--------------------------------------------------------------- ---------
Operating income 655 576 656 137 476
Interest on
long-term debt (138) (133) (147) (157) (138)
Debt issuance costs - - (16) - -
Other income (expense) (3) 11 16 (31) -
Income tax expense (170) (153) (14) (87) (84)
--------------------------------------------------------------- ---------
Net income (loss) for
the period $ 344 $ 301 $ 495 $ (138) $ 254
--------------------------------------------------------------- ---------
--------------------------------------------------------------- ---------
Net income (loss) per
share:
Basic $ 0.54 $ 0.47 $ 0.78 $ (0.22) $ 0.40
Diluted $ 0.54 $ 0.47 $ 0.78 $ (0.22) $ 0.40
Additions to property,
plant and equipment(4) $ 321 $ 481 $ 436 $ 783 $ 624
--------------------------------------------------------------- ---------
(1) See the section entitled "Stock-based Compensation."
(2) Costs incurred relate to severances resulting from the restructuring
of our employee base to combine the Cable and Wireless businesses
into a communications organization and to improve our cost structure
in light of the current economic conditions, severances and
restructuring expenses related to the outsourcing of certain
information technology functions, the integration of Call-Net,
Futureway and Aurora Cable, the restructuring of RBS, and the closure
of certain Rogers Retail stores.
(3) Related to an adjustment in 2008 of CRTC Part II fees related to
prior periods.
(4) As defined. See the section entitled "Key Performance Indicators and
Non-GAAP Measures".
(5) 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 industry
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.
(6) One-time charge resulting from the renegotiation of an Internet-
related services agreement with Yahoo!.
(7) Relates to the termination of a Blue Jays player contract prior to
the end of the contact term.
SUPPLEMENTARY INFORMATION
Adjusted Quarterly Consolidated Financial Summary(1)
2009
-----------------------------------------------------
(In millions of
dollars, except per
share amounts) Q1 Q2 Q3
-----------------------------------------------------
Income Statement
Operating Revenue
Wireless $ 1,544 $ 1,616 $ 1,760
Cable 968 972 989
Media 284 366 364
Corporate and
eliminations (49) (63) (77)
-----------------------------------------------------
2,747 2,891 3,036
-----------------------------------------------------
Adjusted operating
profit (loss)(2)
Wireless 710 742 846
Cable 324 332 329
Media (10) 37 36
Corporate and
eliminations (19) (28) (30)
-----------------------------------------------------
1,005 1,083 1,181
Depreciation and
amortization 444 446 416
-----------------------------------------------------
Adjusted operating
income 561 637 765
Interest on
long-term debt (152) (156) (166)
Other income (expense) (17) 73 44
Income tax expense (136) (142) (138)
-----------------------------------------------------
Adjusted net income
for the period $ 256 $ 412 $ 505
-----------------------------------------------------
-----------------------------------------------------
Adjusted net income
per share:
Basic $ 0.40 $ 0.65 $ 0.82
Diluted $ 0.40 $ 0.65 $ 0.82
Additions to property,
plant and equipment(2) $ 359 $ 434 $ 491
-----------------------------------------------------
2008 2007
--------------------------------------------------------------- ---------
(In millions of
dollars, except per
share amounts) Q1 Q2 Q3 Q4 Q4
--------------------------------------------------------------- ---------
Income Statement
Operating Revenue
Wireless $ 1,431 $ 1,522 $ 1,727 $ 1,655 $ 1,466
Cable 925 938 961 985 923
Media 307 409 386 394 364
Corporate and
eliminations (54) (66) (92) (93) (66)
--------------------------------------------------------------- ---------
2,609 2,803 2,982 2,941 2,687
--------------------------------------------------------------- ---------
Adjusted operating
profit (loss)(2)
Wireless 705 769 693 639 658
Cable 303 304 318 313 265
Media 2 52 43 46 63
Corporate and
eliminations (26) (36) (29) (30) (29)
--------------------------------------------------------------- ---------
984 1,089 1,025 968 957
Depreciation and
amortization 440 420 429 471 408
--------------------------------------------------------------- ---------
Adjusted operating
income 544 669 596 497 549
Interest on
long-term debt (138) (133) (147) (157) (138)
Other income (expense) (3) 11 16 (31) -
Income tax expense (133) (183) - (145) (109)
--------------------------------------------------------------- ---------
Adjusted net income
for the period $ 270 $ 364 $ 465 $ 164 $ 302
--------------------------------------------------------------- ---------
--------------------------------------------------------------- ---------
Adjusted net income
per share:
Basic $ 0.42 $ 0.57 $ 0.73 $ 0.26 $ 0.47
Diluted $ 0.42 $ 0.57 $ 0.73 $ 0.26 $ 0.47
Additions to property,
plant and equipment(2) $ 321 $ 481 $ 436 $ 783 $ 624
--------------------------------------------------------------- ---------
(1) This quarterly summary has been adjusted to exclude stock-based
compensation (recovery) expense, integration and restructuring
expenses, contract termination fee, adjustments to CRTC Part II fees
related to prior periods, debt issuance costs and the income tax
impact related to the above items. See the section entitled "Key
Performance Indicators and Non-GAAP Measures".
(2) As defined. See the section entitled "Key Performance Indicators and
Non-GAAP Measures".
Rogers Communications Inc.
Unaudited Interim Consolidated Statements of Income
(In millions of dollars, except per share amounts)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
Operating revenue $ 3,036 $ 2,982 $ 8,674 $ 8,394
Operating expenses:
Cost of sales 345 442 983 895
Sales and marketing 300 343 877 953
Operating, general and
administrative 1,228 1,110 3,495 3,360
Integration and restructuring 11 2 52 10
Depreciation and amortization 416 429 1,306 1,289
-------------------------------------------------------------------------
Operating income 736 656 1,961 1,887
Interest on long-term debt (166) (147) (474) (418)
Debt issuance costs - (16) (5) (16)
Foreign exchange gain (loss) 72 (16) 123 (22)
Change in fair value of
derivative instruments (27) 20 (28) 21
Other income (expense), net (1) 12 5 25
-------------------------------------------------------------------------
Income before income taxes 614 509 1,582 1,477
-------------------------------------------------------------------------
Income tax expense:
Current 112 1 111 2
Future 17 13 303 335
-----------------------------------------------------------------------
129 14 414 337
-------------------------------------------------------------------------
Net income for the period $ 485 $ 495 $ 1,168 $ 1,140
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income per share:
Basic and diluted $ 0.79 $ 0.78 $ 1.86 $ 1.79
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Rogers Communications Inc.
Unaudited Interim Consolidated Balance Sheets
(In millions of dollars)
-------------------------------------------------------------------------
September 30, December 31,
2009 2008
-------------------------------------------------------------------------
(Restated)
Assets
Current assets:
Cash and cash equivalents $ 168 $ -
Accounts receivable 1,240 1,403
Other current assets 438 442
Current portion of derivative instruments 7 -
Future income tax assets 171 451
-----------------------------------------------------------------------
2,024 2,296
Property, plant and equipment 8,032 7,898
Goodwill 3,019 3,024
Intangible assets 2,670 2,761
Investments 333 343
Derivative instruments 149 507
Other long-term assets 332 253
-------------------------------------------------------------------------
$ 16,559 $ 17,082
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Bank advances, arising from
outstanding cheques $ - $ 19
Accounts payable and accrued liabilities 2,198 2,412
Current portion of long-term debt 430 1
Current portion of derivative instruments 69 45
Unearned revenue 265 239
-----------------------------------------------------------------------
2,962 2,716
Long-term debt 7,582 8,506
Derivative instruments 970 616
Other long-term liabilities 154 184
Future income tax liabilities 361 344
-------------------------------------------------------------------------
12,029 12,366
Shareholders' equity 4,530 4,716
-------------------------------------------------------------------------
$ 16,559 $ 17,082
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Rogers Communications Inc.
Unaudited Interim Consolidated Statements of Shareholders' Equity
(In millions of dollars)
Nine months ended September 30, 2009
-------------------------------------------------------------------------
Class A Voting Class B Non-Voting
shares shares
-------------------- --------------------
Number Number
Amount of shares Amount of shares
-------------------------------------------------------------------------
(000s) (000s)
Balances, December 31, 2008 $ 72 112,462 $ 488 523,430
Change in accounting policy
related to goodwill and
intangible assets - - - -
-------------------------------------------------------------------------
As restated,
January 1, 2009 72 112,462 488 523,430
Net income for the period - - - -
Shares issued on exercise
of stock options - - 5 173
Dividends declared - - - -
Repurchase of Class B
Non-Voting shares - - (28) (30,341)
Other comprehensive income - - - -
-------------------------------------------------------------------------
Balances,
September 30, 2009 $ 72 112,462 $ 465 493,262
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated
other Total
compre- share-
Contributed Retained hensive holders'
surplus earnings income equity
-------------------------------------------------------------------------
(Restated) (Restated)
Balances, December 31, 2008 $ 3,560 $ 702 $ (95) $ 4,727
Change in accounting policy
related to goodwill and
intangible assets - (11) - (11)
-------------------------------------------------------------------------
As restated,
January 1, 2009 3,560 691 (95) 4,716
Net income for the period - 1,168 - 1,168
Shares issued on exercise
of stock options - - - 5
Dividends declared - (545) - (545)
Repurchase of Class B
Non-Voting shares (857) (32) - (917)
Other comprehensive income - - 103 103
-------------------------------------------------------------------------
Balances,
September 30, 2009 $ 2,703 $ 1,282 $ 8 $ 4,530
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine months ended September 30, 2008
-------------------------------------------------------------------------
Class A Voting Class B Non-Voting
shares shares
-------------------- --------------------
Number Number
Amount of shares Amount of shares
-------------------------------------------------------------------------
(000s) (000s)
Balances, January 1, 2008 $ 72 112,462 $ 471 527,005
Change in accounting policy
related to goodwill and
intangible assets - - - -
-------------------------------------------------------------------------
As restated,
January 1, 2008 72 112,462 471 527,005
Net income for the period - - - -
Shares issued on exercise
of stock options - - 12 275
Dividends declared - - - -
Repurchase of Class B
Non-Voting shares - - (4) (4,077)
Other comprehensive income - - - -
-------------------------------------------------------------------------
Balances,
September 30, 2008 $ 72 112,462 $ 479 523,203
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated
other Total
compre- share-
Contributed Retained hensive holders'
surplus earnings income equity
-------------------------------------------------------------------------
(Restated) (Restated)
Balances, January 1, 2008 $ 3,689 $ 342 $ 50 $ 4,624
Change in accounting policy
related to goodwill and
intangible assets - (11) - (11)
-------------------------------------------------------------------------
As restated,
January 1, 2008 3,689 331 50 4,613
Net income for the period - 1,140 - 1,140
Shares issued on exercise
of stock options - - - 12
Dividends declared - (478) - (478)
Repurchase of Class B
Non-Voting shares (129) (4) - (137)
Other comprehensive income - - 15 15
-------------------------------------------------------------------------
Balances,
September 30, 2008 $ 3,560 $ 989 $ 65 $ 5,165
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Rogers Communications Inc.
Unaudited Interim Consolidated Statements of Comprehensive Income
(In millions of dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
Net income for the period $ 485 $ 495 $ 1,168 $ 1,140
Other comprehensive income
(loss):
Change in fair value of
available-for-sale
investments:
Increase (decrease) in
fair value 26 19 (25) (86)
-----------------------------------------------------------------------
Cash flow hedging derivative
instruments:
Change in fair value of
derivative instruments (477) 300 (710) 292
Reclassification to net
income of foreign
exchange gain (loss) 469 (222) 791 (350)
Reclassification to net
income of accrued interest 22 30 39 100
---------------------------------------------------------------------
14 108 120 42
-----------------------------------------------------------------------
Other comprehensive income
(loss) before income taxes 40 127 95 (44)
Related income taxes 10 33 8 59
-----------------------------------------------------------------------
50 160 103 15
-------------------------------------------------------------------------
Total comprehensive income $ 535 $ 655 $ 1,271 $ 1,155
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Rogers Communications Inc.
Unaudited Interim Consolidated Statements of Cash Flows
(In millions of dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net income for the period $ 485 $ 495 $ 1,168 $ 1,140
Adjustments to reconcile
net income for the period
to cash flows from
operating activities:
Depreciation and
amortization 416 429 1,306 1,289
Program rights and Rogers
Retail rental amortization 42 31 119 103
Future income taxes 17 13 303 335
Unrealized foreign
exchange loss (gain) (67) 12 (114) 12
Change in the value of
derivative instruments 27 (20) 28 (21)
Pension contributions,
net of expense (73) (4) (92) (13)
Stock-based compensation
expense (recovery) 6 (62) (62) (125)
Amortization of fair
value increment on
long-term debt (1) (1) (4) (4)
Other 5 - 5 (11)
-----------------------------------------------------------------------
857 893 2,657 2,705
Change in non-cash operating
working capital items 362 (7) 126 (251)
-----------------------------------------------------------------------
1,219 886 2,783 2,454
-------------------------------------------------------------------------
Investing activities:
Additions to property, plant
and equipment ("PP&E") (491) (436) (1,284) (1,238)
Change in non-cash working
capital items related to PP&E 32 (53) (91) (107)
Acquisition of spectrum
licences (25) (1,008) (40) (1,008)
Acquisitions, net of cash and
cash equivalents acquired (5) (44) (16) (191)
Additions to program rights (39) (17) (131) (95)
Other (1) (7) (6) -
-----------------------------------------------------------------------
(529) (1,565) (1,568) (2,639)
-------------------------------------------------------------------------
Financing activities:
Issuance of long-term debt - 3,019 1,825 3,799
Repayment of long-term debt (1) (1,700) (1,411) (2,680)
Payment on re-couponing of
cross-currency interest rate
exchange agreements - (375) - (375)
Repurchase of Class B
Non-Voting shares (408) (97) (917) (137)
Issuance of capital stock on
exercise of stock options 2 - 2 2
Dividends paid (184) (160) (527) (400)
-----------------------------------------------------------------------
(591) 687 (1,028) 209
-------------------------------------------------------------------------
Increase in cash and cash
equivalents 99 8 187 24
Cash and cash equivalents
(deficiency), beginning
of period 69 (45) (19) (61)
-------------------------------------------------------------------------
Cash and cash equivalents
(deficiency), end of period $ 168 $ (37) $ 168 $ (37)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow
information:
Income taxes paid $ 1 $ 1 $ 1 $ 1
Interest paid 147 97 454 370
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The change in non-cash
operating working capital
items is as follows:
Decrease (increase) in
accounts receivable $ (57) $ (134) $ 165 $ (74)
Decrease (increase) in
other assets 27 45 16 (71)
Increase (decrease) in
accounts payable and
accrued liabilities 407 103 (80) (105)
Increase (decrease) in
unearned revenue (15) (21) 25 (1)
-------------------------------------------------------------------------
$ 362 $ (7) $ 126 $ (251)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents (deficiency) is defined as cash and short-term deposits which have an original maturity of less than 90 days, less bank advances.
The preceding MD&A and financial statements should be read in conjunction with the third quarter 2009 Notes to the Unaudited Interim Consolidated Financial Statements that can be found at www.rogers.com and on SEDAR at www.sedar.com or on EDGAR at www.sec.gov.
Caution Regarding Forward-Looking Statements, Risks and Assumptions
This MD&A includes forward-looking statements and assumptions concerning our business, its operations and its financial performance and condition approved by management on the date of this MD&A. These forward-looking statements and assumptions include, but are not limited to, statements with respect to our objectives and strategies to achieve those objectives, statements with respect to our beliefs, plans, expectations, anticipations, estimates or intentions, including guidance and forecasts relating to revenue, adjusted operating profit, PP&E expenditures, free cash flow, expected growth in subscribers and the services to which they subscribe, the cost of acquiring subscribers and the deployment of new services and all other statements that are not historical facts. Such forward-looking statements are based on current objectives, strategies, expectations and assumptions that we believe to be reasonable at the time including, but not limited to, general economic and industry growth rates, currency exchange rates, product pricing levels and competitive intensity, subscriber growth and usage rates, changes in government regulation, technology deployment, device availability, the timing of new product launches, content and equipment costs, the integration of acquisitions, and industry structure and stability.
Except as otherwise indicated, this MD&A and our forward-looking statements do not reflect the potential impact of any non-recurring or other special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be considered or announced or may occur after the date of the financial information contained herein.
We caution that all forward-looking information, including any statement regarding our current intentions, is inherently subject to change and uncertainty and that actual results may differ materially from the assumptions, estimates or expectations reflected in the forward-looking information. A number of factors could cause actual results to differ materially from those in the forward-looking statements or could cause our current objectives and strategies to change, including but not limited to economic conditions, technological change, the integration of acquisitions, unanticipated changes in content or equipment costs, changing conditions in the entertainment, information and communications industries, regulatory changes, litigation and tax matters, the level of competitive intensity and the emergence of new opportunities, many of which are beyond our control and current expectation or knowledge. Therefore, should one or more of these risks materialize, should our objectives or strategies change, or should any other factors underlying the forward-looking statements prove incorrect, actual results and our plans may vary significantly from what we currently foresee. Accordingly, we warn investors to exercise caution when considering any such forward-looking information herein and that it would be unreasonable to rely on such statements as creating any legal rights regarding our future results or plans. We are under no obligation (and we expressly disclaim any such obligation) to update or alter any forward-looking statements or assumptions whether as a result of new information, future events or otherwise, except as required by law.
Before making any investment decisions and for a detailed discussion of the risks, uncertainties and environment associated with our business, fully review the sections of this MD&A entitled "Updates to Risks and Uncertainties" and "Government Regulation and Regulatory Developments", and also the sections entitled "Risks and Uncertainties Affecting our Businesses" and "Government Regulation and Regulatory Developments" in our 2008 Annual MD&A.
Additional Information
Additional information relating to our company and business, including our 2008 Annual MD&A and 2008 Annual Information Form, may be found on SEDAR at www.sedar.com or on EDGAR at www.sec.gov.
About the Company
We are a diversified Canadian communications and media company. We are engaged in wireless voice and data communications services through Rogers Wireless, Canada's largest wireless provider and the operator of the country's only national GSM and HSPA based network. Through Rogers Cable we are one of Canada's largest providers of cable television services as well as high-speed Internet access, telephony services and video retailing. Through Rogers Media, we are engaged in radio and television broadcasting, televised shopping, magazines and trade publications, and sports entertainment. We are publicly traded on the
For further information about the Rogers group of companies, please visit www.rogers.com.
Quarterly Investment Community Conference Call
As previously announced by press release, a live Webcast of our quarterly results conference call with the investment community will be broadcast via the Internet at www.rogers.com/webcast beginning at
For further information: Investment Community Contacts: Bruce M. Mann, (416) 935-3532, [email protected]; Dan Coombes, (416) 935-3550, [email protected]; Media Contacts: Wireless and Cable: Terrie Tweddle, (416) 935-4727, [email protected]; Media and Regulatory: Jan Innes, (416) 935-3525, [email protected]
Share this article