Rogers Reports Second Quarter 2009 Financial and Operating Results
Second Quarter Consolidated Revenue Grows By 3% to $2.9 Billion;
Wireless Delivers Strong Subscriber Growth, Historically Low Postpaid
Churn, 38% Wireless Data Revenue Growth, and 49% Network Revenue Margins;
Cable Drives Continued Margin Expansion and Healthy Growth in Cash Flow
as Subscriber Growth Slows in Face of Economic Recession in Ontario and
Growing Maturation of Certain Products;
Double Digit Adjusted Operating Profit Growth at Cable Operations Offset
by Reductions in Roaming and Other Discretionary Usage at Wireless,
Advertising Sales Declines at Media, and Costs From Successful
Smartphone Campaign at Wireless
Financial highlights are as follows:
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of June 30, June 30,
dollars, except -------------------------------------------------
per share amounts) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Operating revenue $ 2,891 $ 2,803 3 $ 5,638 $ 5,412 4
Operating profit(1) 1,033 996 4 2,115 2,091 1
Net income 374 301 24 683 645 6
Basic and diluted
net income per share $ 0.59 $ 0.47 26 $ 1.08 $ 1.01 7
As adjusted:(2)
Operating profit(1) $ 1,083 $ 1,089 (1) $ 2,088 $ 2,067 1
Net income 412 364 13 668 631 6
Basic and diluted
net income
per share $ 0.65 $ 0.57 14 $ 1.06 $ 0.99 7
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(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; and (iii) 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 second quarter of 2009 include the following:
- We generated consolidated growth in quarterly revenue of 3%, while
adjusted operating profit declined by 1% to $1.083 billion as the
growth at Cable was more than offset by acquisition and retention
costs from the continued success of the smartphone campaign and
economic pressures on usage at Wireless and advertising revenue
declines at Media.
- Wireless network revenue grew by 6% year-over-year driven by postpaid
net subscriber additions of 148,000, data revenue growth accelerating
by 38% to 20% of network revenue, and a further reduction of postpaid
churn to 1.00%, partially offset by economic pressures on roaming,
long distance and other usage based revenue items.
- Wireless activated more than 315,000 smartphone devices,
predominantly iPhone 3G, BlackBerry and Android devices, during the
quarter. Approximately half of these activations were to subscribers
new to Wireless with the other half being to existing Wireless
subscribers who upgraded devices, committed to new term contracts,
and in most cases attached both voice and monthly data packages which
generate considerably above average ARPU. The results of the
continued success of the smartphone campaign drove significantly
higher acquisition and retention costs at Wireless.
- Wireless launched the next generation Apple iPhone 3G S in Canada
which offers speeds up to two times faster than the previous iPhone
3G with download speeds up to 7.2 Mbps. Wireless also launched the
first two Android operating system powered smartphones in Canada
featuring built-in integration with many of Google's leading mobile
services including the Android Market, which features more than 3,200
downloadable mobile applications.
- Wireless recently announced that together with HP it is introducing
Internet-ready netbooks which are Canada's first to integrate
embedded mobile broadband technology to connect to the Web over
Rogers' next generation HSPA wireless network across Canada - three
times faster than any other.
- Basic cable, digital cable, Internet, and home phone service
subscriber growth all continued to slow from the previous year
reflecting the worsening economic recession and unemployment levels
in Ontario where 90% of Cable's market is concentrated. Increasing
levels of product maturity have also contributed to slowing
subscriber growth with cable Internet subscriber penetration at 69%
of basic cable customers, digital penetration at 70% of basic cable
households, and residential voice-over-cable telephony penetration at
38% of basic cable subscribers.
- Cable recently announced that it would launch a 50Mbps DOCSIS 3 high
speed Internet service, and also that it is the first cable Internet
provider in North America to offer customers a DOCSIS 3 gateway
wireless home networking device, the fastest wireless home networking
device available, which combines a cable modem providing the fastest
Internet available on the market and a wireless router into one
device, enabling customers to extend their wireless broadband
connection further and with better signal quality and with fewer in-
home electronic components.
- Cable announced the launch of 18 new HDTV channels bringing the total
number of HDTV channels available through its digital cable to 72. As
of the end of the second quarter, 40% of Rogers Digital Cable
customers now subscribe to HDTV, and viewership of HD titles On
Demand has doubled in the last year. Rogers offers its over 640,000
HD customers the most choice with the most HD movies, the most HD
sports programming and 255 HD On Demand titles that are not available
on satellite.
- Media received CRTC approval for the purchase of radio stations K-
Rock and KIX Country in Kingston, Ontario, and the acquisition closed
during the quarter. Media now operates 54 radio stations across
Canada, and is the third largest radio operator in Canada measured in
revenues.
- Rogers announced on May 19, 2009 that it had increased its Class B
Non-Voting share buy back program authorization from $300 million to
the lesser of $1.5 billion or 48 million Class B shares during the
twelve month period commencing February 20, 2009 and ending February
19, 2010. Year-to-date at June 30, 2009 Rogers had repurchased
16,480,000 Class B shares for cancellation for an aggregate total of
approximately $509 million. At the same time, Rogers also announced
that it has set a target leverage range for its capital structure of
net debt to adjusted operating profit of 2.0 to 2.5 times.
- Rogers announced on May 21, 2009 that it had priced an offering of
$1.0 billion of 5.80% Senior Notes due May 2016. The Senior Notes
were priced at $997.67 per $1,000 principal amount, for an effective
yield of 5.841% per annum, with the net proceeds from the offering
intended to be used for general corporate purposes.
- At June 30, 2009 Rogers had the full availability under its $2.4
billion committed bank credit facility that matures in July, 2013,
and has no scheduled debt maturities until May 2011. This financial
position provides us with substantial liquidity and flexibility.
“Whereas we had slower growth on our top line due to sustained recessionary economic pressures and the increasing maturation of certain of our services, we were successful during the second quarter in reducing costs, returning increasing amounts of cash to shareholders and further enhancing the quality of our balance sheet,” said
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.
Substantially all of our operations are in Canada.
"RCI" refers to the legal entity Rogers Communications Inc., excluding our
subsidiaries.
Throughout this MD&A, percentage changes are calculated using numbers
rounded as they appear.
SUMMARIZED CONSOLIDATED FINANCIAL RESULTS
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of June 30, June 30,
dollars, except -------------------------------------------------
per share amounts) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Operating revenue
Wireless $ 1,616 $ 1,522 6 $ 3,160 $ 2,953 7
Cable
Cable Operations 763 718 6 1,506 1,413 7
RBS 125 130 (4) 253 263 (4)
Rogers Retail 90 92 (2) 192 192 -
Corporate items
and eliminations (6) (2) 200 (11) (5) 120
-------------------------------------------------
972 938 4 1,940 1,863 4
Media 366 409 (11) 650 716 (9)
Corporate items
and eliminations (63) (66) (5) (112) (120) (7)
-------------------------------------------------
Total 2,891 2,803 3 5,638 5,412 4
-------------------------------------------------
-------------------------------------------------
Adjusted operating
profit (loss)(1)
Wireless 742 769 (4) 1,452 1,474 (1)
Cable
Cable Operations 329 293 12 637 571 12
RBS 7 16 (56) 22 33 (33)
Rogers Retail (4) (5) (20) (3) (2) 50
-------------------------------------------------
332 304 9 656 602 9
Media 37 52 (29) 27 53 (49)
Corporate items
and eliminations (28) (36) (22) (47) (62) (24)
-------------------------------------------------
Adjusted operating
profit(1) 1,083 1,089 (1) 2,088 2,067 1
Stock-based
compensation
recovery (expense)(2) (13) (53) (75) 68 63 8
Integration and
restructuring
expenses(3) (37) (3) n/m (41) (8) n/m
Adjustment for CRTC
Part II fees
decision(5) - (37) n/m - (31) n/m
-------------------------------------------------
Operating profit(1) 1,033 996 4 2,115 2,091 1
Other income and
expense, net(4) 659 695 (5) 1,432 1,446 (1)
-------------------------------------------------
Net income $ 374 $ 301 24 $ 683 $ 645 6
-------------------------------------------------
Basic and diluted net
income per share $ 0.59 $ 0.47 26 $ 1.08 $ 1.01 7
-------------------------------------------------
As adjusted:(1)
Net income $ 412 $ 364 13 $ 668 $ 631 6
Basic and diluted
net income
per share $ 0.65 $ 0.57 14 $ 1.06 $ 0.99 7
Additions to property,
plant and equipment
("PP&E")(1)
Wireless $ 204 $ 251 (19) $ 378 $ 414 (9)
Cable
Cable Operations 156 185 (16) 260 306 (15)
RBS 9 10 (10) 17 14 21
Rogers Retail 3 4 (25) 6 7 (14)
-------------------------------------------------
168 199 (16) 283 327 (13)
Media 16 17 (6) 30 38 (21)
Corporate(6) 46 14 n/m 102 23 n/m
-------------------------------------------------
Total $ 434 $ 481 (10) $ 793 $ 802 (1)
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(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 six months ended June 30, 2009, costs incurred
relate to i) severances resulting from the restructuring of our
employee base to improve our cost structure in light of the declining
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 six
months ended June 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) See the section entitled "Reconciliation of Net Income to Operating
Profit and Adjusted Operating Profit for the Period".
(5) Relates to an adjustment for CRTC Part II fees related to prior
periods.
(6) The year-over-year increase in corporate additions to PP&E for the
three and six months ended June 30, 2009 primarily reflects
approximately $26 million and $57 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 Six months ended
(In millions of June 30, June 30,
dollars, except -------------------------------------------------
margin) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Operating revenue
Postpaid $ 1,456 $ 1,374 6 $ 2,862 $ 2,671 7
Prepaid 73 71 3 140 137 2
-------------------------------------------------
Network revenue 1,529 1,445 6 3,002 2,808 7
Equipment sales 87 77 13 158 145 9
-------------------------------------------------
Total operating
revenue 1,616 1,522 6 3,160 2,953 7
-------------------------------------------------
Operating expenses
before the
undernoted
Cost of equipment
sales 254 156 63 479 301 59
Sales and marketing
expenses 149 151 (1) 289 291 (1)
Operating, general
and administrative
expenses 471 446 6 940 887 6
-------------------------------------------------
874 753 16 1,708 1,479 15
-------------------------------------------------
Adjusted operating
profit(1) 742 769 (4) 1,452 1,474 (1)
Stock-based
compensation recovery
(expense)(2) (2) (8) (75) 8 2 n/m
Integration and
restructuring
expenses(3) (9) - n/m (9) - n/m
-------------------------------------------------
Operating profit(1) $ 731 $ 761 (4) $ 1,451 $ 1,476 (2)
-------------------------------------------------
-------------------------------------------------
Adjusted operating
profit margin as %
of network revenue(1) 48.5% 53.2% 48.4% 52.5%
Additions to PP&E(1) $ 204 $ 251 (19) $ 378 $ 414 (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 severances and restructuring expenses
related to the outsourcing of certain information technology
functions.
Summarized Wireless Subscriber Results
-------------------------------------------------------------------------
(Subscriber
statistics in Three months ended Six months ended
thousands, except June 30, June 30,
ARPU, churn -------------------------------------------------
and usage) 2009 2008 Chg 2009 2008 Chg
-------------------------------------------------------------------------
Postpaid
Gross additions 347 283 64 662 576 86
Net additions 148 92 56 252 188 64
Total postpaid
retail subscribers 6,702 6,102 600 6,702 6,102 600
Average monthly
revenue per user
("ARPU")(1) $ 73.24 $ 75.62 $(2.38) $ 72.69 $ 74.11 $(1.42)
Average monthly
usage (minutes) 604 604 - 587 588 (1)
Monthly churn 1.00% 1.06% (0.06%) 1.05% 1.08% (0.03%)
Prepaid
Gross additions 135 149 (14) 265 282 (17)
Net additions (losses) (6) 8 (14) (38) (21) (17)
Total prepaid retail
subscribers 1,454 1,403 51 1,454 1,403 51
ARPU(1) $ 16.77 $ 16.86 $(0.09) $ 15.92 $ 16.27 $(0.35)
Monthly churn 3.24% 3.39% (0.15%) 3.44% 3.60% (0.16%)
Blended ARPU(1) $ 63.09 $ 64.56 $(1.47) $ 62.32 $ 63.16 $(0.84)
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(1) As defined. See the section entitled "Key Performance Indicators and
Non-GAAP Measures". As calculated in the "Supplementary Information"
section.
Wireless Network Revenue
The year-over-year increase in subscriber additions reflects, in part, the growth in activations of smartphone and wireless laptop devices, offset by lower sales of voice only handsets. The increase in network revenue for the three and six months ended
For the three and six months ended
Wireless’ success in the continued incremental reduction of postpaid churn reflects targeted customer retention activities and continued enhancements in network coverage and quality.
Wireless Equipment Sales
The year-over-year increase in revenue from equipment sales, including activation fees and net of equipment subsidies, reflects the larger volume of smartphones sold in the three and six months ended
Wireless activated more than 315,000 smartphone devices, predominately iPhone 3G, BlackBerry and Android devices, during the three months ended
The high upfront cost associated with adding smartphone subscribers so rapidly is an investment made to contract customers with significantly higher than average ARPU for multi-year terms which we expect will have the effect in subsequent periods of being accretive to overall ARPU while reducing overall churn.
Wireless Operating Expenses
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(In millions -------------------------------------------------
of dollars) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Operating expenses
Cost of
equipment sales $ 254 $ 156 63 $ 479 $ 301 59
Sales and marketing
expenses 149 151 (1) 289 291 (1)
Operating, general
and administrative
expenses 471 446 6 940 887 6
-------------------------------------------------
Operating expenses
before the undernoted 874 753 16 1,708 1,479 15
Stock-based
compensation
recovery (expense)(1) 2 8 (75) (8) (2) n/m
Integration and
restructuring
expenses(2) 9 - n/m 9 - n/m
-------------------------------------------------
Total operating
expenses $ 885 $ 761 16 $ 1,709 $ 1,477 16
-------------------------------------------------------------------------
(1) See the section entitled "Stock-based Compensation".
(2) Costs incurred relate to severances and restructuring expenses
related to the outsourcing of certain information technology
functions.
As a result of the significant number of smartphone activations in the three and six months ended
The increase in cost of equipment sales for the three and six months ended
The year-over-year increase in operating, general and administrative expenses, excluding retention spending discussed below, for the three and six months ended
Total retention spending, including subsidies on handset upgrades, was
Wireless Adjusted Operating Profit
The year-over-year decrease in adjusted operating profit reflects the increase in network revenue largely offset by the significant increase in cost of equipment sales from the smartphone handset subsidies discussed above. Primarily as a result of our investment in a significant number of high ARPU, but high subsidy, smartphone activations, Wireless’ adjusted operating profit margin on network revenue (which excludes equipment sales revenue) decreased to 48.5% and 48.4% for the three and six 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 Six months ended
June 30, June 30,
-------------------------------------------------
(In millions of dollars) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Additions to PP&E
High-Speed Packet
Access ("HSPA") $ 80 $ 120 (33) $ 165 $ 182 (9)
Network - capacity 56 52 8 77 93 (17)
Network - other 37 51 (27) 85 89 (4)
Information and
technology and other 31 28 11 51 50 2
-------------------------------------------------
Total additions to
PP&E $ 204 $ 251 (19) $ 378 $ 414 (9)
-------------------------------------------------------------------------
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 HSPA were mainly for the continued roll-out to various markets across Canada. Other network-related PP E additions included national site build activities, test and monitoring equipment, network sectorization work, operating support system activities, investments in network reliability and renewal initiatives, and new product platforms. Information technology and other wireless specific system initiatives included billing and back-office system upgrades, and other facilities and equipment spending.
Recent Wireless Development
In
CABLE
-----
Summarized Cable Financial Results
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of June 30, June 30,
dollars, except -------------------------------------------------
margin) 2009 2008(1) % Chg 2009 2008(1) % Chg
-------------------------------------------------------------------------
Operating revenue
Cable Operations(2) $ 763 $ 718 6 $ 1,506 $ 1,413 7
RBS 125 130 (4) 253 263 (4)
Rogers Retail 90 92 (2) 192 192 -
Intercompany
eliminations (6) (2) 200 (11) (5) 120
-------------------------------------------------
Total operating revenue 972 938 4 1,940 1,863 4
-------------------------------------------------
Adjusted operating
profit before
the undernoted
Cable Operations(2) 329 293 12 637 571 12
RBS 7 16 (56) 22 33 (33)
Rogers Retail (4) (5) (20) (3) (2) 50
-------------------------------------------------
Adjusted operating
profit(3) 332 304 9 656 602 9
Stock-based compensation
recovery (expense)(4) (4) (11) (64) 21 22 (5)
Integration and
restructuring expenses(5) (7) (3) 133 (11) (8) 38
Adjustment for CRTC
Part II fees decision(6) - (30) n/m - (25) n/m
-------------------------------------------------
Operating profit(3) $ 321 $ 260 23 $ 666 $ 591 13
-------------------------------------------------
-------------------------------------------------
Adjusted operating
profit (loss) margin(3)
Cable Operations(2) 43.1% 40.8% 42.3% 40.4%
RBS 5.6% 12.3% 8.7% 12.5%
Rogers Retail (4.4%) (5.4%) (1.6%) (1.0%)
Additions to PP&E(3)
Cable Operations(2) $ 156 $ 185 (16) $ 260 $ 306 (15)
RBS 9 10 (10) 17 14 21
Rogers Retail 3 4 (25) 6 7 (14)
-------------------------------------------------
Total additions to
PP&E $ 168 $ 199 (16) $ 283 $ 327 (13)
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(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 six months ended June 30, 2009, costs incurred
relate to i) severances and restructuring expenses related 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 six months ended
June 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 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 Six months ended
(In millions of June 30, June 30,
dollars, except -------------------------------------------------
margin) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Operating revenue
Core Cable $ 440 $ 417 6 $ 868 $ 820 6
Internet 195 171 14 381 337 13
Rogers Home Phone 128 130 (2) 257 256 0
-------------------------------------------------
Total Cable Operations
operating revenue 763 718 6 1,506 1,413 7
-------------------------------------------------
Operating expenses
before the undernoted
Sales and marketing
expenses 64 64 - 119 128 (7)
Operating, general
and administrative
expenses 370 361 2 750 714 5
-------------------------------------------------
434 425 2 869 842 3
-------------------------------------------------
Adjusted operating
profit(1) 329 293 12 637 571 12
Stock-based compensation
recovery (expense)(2) (4) (10) (60) 19 21 (10)
Integration and
restructuring expenses(3) (6) (1) n/m (7) (1) n/m
Adjustment for CRTC
Part II fees decision(4) - (30) n/m - (25) n/m
-------------------------------------------------
Operating profit(1) $ 319 $ 252 27 $ 649 $ 566 15
-------------------------------------------------
-------------------------------------------------
Adjusted operating
profit margin(1) 43.1% 40.8% 42.3% 40.4%
-------------------------------------------------------------------------
(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) Costs incurred relate to i) severances and restructuring expenses
related to the outsourcing of certain information technology
functions; and ii) the integration of Futureway and Aurora Cable.
(4) Relates to an adjustment for CRTC Part II fees related to prior
periods.
Summarized Subscriber Results
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(Subscriber statistics -------------------------------------------------
in thousands) 2009 2008(1) Chg 2009 2008(1) Chg
-------------------------------------------------------------------------
Cable homes passed(2) 3,577 3,648 (71) 3,577 3,648 (71)
Basic Cable
Net losses (19) (13) (6) (27) (13) (14)
Total Basic Cable
subscribers(3) 2,292 2,298 (6) 2,292 2,298 (6)
Cable High-speed Internet
Net additions(4) (4) 14 (18) 7 53 (46)
Total Internet
subscribers
(residential)(3)(4) 1,578 1,516 62 1,578 1,516 62
Digital Cable
Terminals, net
additions 27 54 (27) 105 157 (52)
Total terminals in
service(3) 2,388 2,036 352 2,388 2,036 352
Households, net
additions 8 23 (15) 43 72 (29)
Total households(2) 1,593 1,431 162 1,593 1,431 162
Cable telephony lines
Net additions and
migrations(5) 21 41 (20) 38 87 (49)
Total Cable telephony
lines(3) 878 745 133 878 745 133
Cable Revenue Generating
Units ("RGUs")(6)
Net additions 6 65 (59) 61 199 (138)
Total RGUs 6,341 5,990 351 6,341 5,990 351
-------------------------------------------------------------------------
Circuit-switched lines
Net losses and
migrations(5) (27) (22) (5) (50) (36) (14)
Total circuit-switched
lines 165 298 (133) 165 298 (133)
-------------------------------------------------------------------------
(1) Certain of the comparative figures have been reclassified to conform
to the current year presentation.
(2) Since June 30, 2008, a change in subscriber reporting resulted in a
cumulative decrease to cable homes passed of approximately 168,000.
(3) 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.
(4) Cable high-speed Internet subscriber base excludes ADSL subscribers
of 7,000 and 18,000 at June 30, 2009 and June 30, 2008, respectively.
In addition, net additions excludes ADSL subscriber losses of 2,000
and 4,000 in the three and six months ended June 30, 2009,
respectively, and ADSL subscriber losses (gains) of 1,000 and (1,000)
in the three and six months ended June 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 six months ended
June 30, 2008.
(5) Includes approximately 6,000 and 11,000 migrations from
circuit-switched to cable telephony for the three and six months
ended June 30, 2009, respectively, and includes approximately 13,000
and 16,000 migrations from circuit-switched to cable telephony for
the three and six months ended June 30, 2008, respectively.
(6) Cable RGUs are comprised of basic cable subscribers, digital cable
households, Cable high-speed Internet subscribers and residential
cable telephony lines.
A relatively deep and sustained economic recession in
Additionally, the second quarter is traditionally the cable industry’s lowest net gain quarter of the year due to seasonal patterns associated with early summer university student disconnects.
Core Cable Revenue
Within Cable Operations, the increase in Core Cable revenue for the three and six months ended
The digital cable subscriber base grew by 11% from
Internet (Residential) Revenue
The year-over-year increase in Internet revenues for the three and six 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 69% of our basic cable customer base.
In addition to the impact of the economic recession on sales as discussed above, the lower high-speed Internet net additions also reflect an increasing degree of product maturation as penetration of broadband in Canada continues to deepen.
Rogers Home Phone Revenue
The Rogers Home Phone revenue for the three and six months ended
Total cable telephony lines grew 18% 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 21,000 net line additions to cable telephony during the second quarter of 2009, approximately 6,000 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 Rogers Home Phone and overall Cable Operations year over year revenue growth for the second quarter ended
Cable Operations Operating Expenses
Cable operations have focused on implementing a program of permanent cost reduction and efficiency improvement initiatives which has enabled the overall operating expense growth to remain minimal for 2009. The increase in Cable’s operating expenses for the three and six 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 improved operating efficiencies, cost reductions and decreased activity levels. As a result, Cable Operations adjusted operating profit margins increased to 43.1% and 42.3% for the three and six months ended
Cable Operations’ base of circuit-switched local telephony customers, which was acquired in
ROGERS BUSINESS SOLUTIONS
Summarized Financial Results
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of June 30, June 30,
dollars, except -------------------------------------------------
margin) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
RBS operating revenue $ 125 $ 130 (4) $ 253 $ 263 (4)
-------------------------------------------------
Operating expenses
before the undernoted
Sales and marketing
expenses 6 6 - 12 13 (8)
Operating, general and
administrative
expenses 112 108 4 219 217 1
-------------------------------------------------
118 114 4 231 230 0
-------------------------------------------------
Adjusted operating
profit(1) 7 16 (56) 22 33 (33)
Stock-based compensation
recovery(2) - - n/m 1 1 -
Integration and
restructuring
expenses(3) (1) (2) (50) (1) (3) (67)
-------------------------------------------------
Operating profit(1) $ 6 $ 14 (57) $ 22 $ 31 (29)
-------------------------------------------------
-------------------------------------------------
Adjusted operating
profit margin(1) 5.6% 12.3% 8.7% 12.5%
-------------------------------------------------------------------------
(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 six months ended June 30, 2009 costs incurred relate
to severances and restructuring expenses related to the outsourcing
of certain information technology functions. In the three and six
months ended June 30, 2008 costs incurred relate to the integration
of Call-Net and the restructuring of RBS.
Summarized Subscriber Results
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(Subscriber statistics -------------------------------------------------
in thousands) 2009 2008 Chg 2009 2008 Chg
-------------------------------------------------------------------------
Local line
equivalents(1)
Total local line
equivalents 187 215 (28) 187 215 (28)
Broadband data
circuits(2)(3)
Total broadband data
circuits 37 30 7 37 30 7
-------------------------------------------------------------------------
(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 lower margin resale and legacy data service businesses, 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 and carrier customer base. For the three and six months ended
RBS continues to focus on managing the profitability of its existing customer base and evaluating profitable opportunities within the medium and large enterprise and carrier segments, while Cable Operations focuses on continuing to grow Rogers’ penetration of telephony and Internet services into the small business and home office markets within Cable’s territory.
RBS Operating Expenses
Operating, general and administrative expenses increased for the three and six months ended
Sales and marketing expenses were relatively unchanged for the three and six months ended
RBS Adjusted Operating Profit
The decline in revenue described above combined with modest increases in cost of sales and other operating expenses resulted in the year over year declines in RBS adjusted operating profit for the three and six months ended
ROGERS RETAIL
Summarized Financial Results
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of June 30, June 30,
dollars, except -------------------------------------------------
margin) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Rogers Retail
operating revenue $ 90 $ 92 (2) $ 192 $ 192 -
-------------------------------------------------
Operating expenses
before the undernoted 94 97 (3) 195 194 1
-------------------------------------------------
Adjusted operating
loss(1) (4) (5) (20) (3) (2) 50
Stock-based compensation
recovery (expense)(2) - (1) n/m 1 - n/m
Integration and
restructuring
expenses(3) - - n/m (3) (4) (25)
-------------------------------------------------
Operating loss(1) $ (4) $ (6) (33) $ (5) $ (6) (17)
-------------------------------------------------
-------------------------------------------------
Adjusted operating
loss margin(1) (4.4%) (5.4%) (1.6%) (1.0%)
-------------------------------------------------------------------------
(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 the closure of certain Rogers Retail stores.
Rogers Retail Revenue
Rogers Retail revenue for the three and six months ended
Rogers Retail Adjusted Operating Loss
Adjusted operating loss at Rogers Retail was also relatively unchanged for the three and six 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 Six months ended
June 30, June 30,
-------------------------------------------------
(In millions of dollars) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Additions to PP&E
Customer premise
equipment $ 45 $ 53 (15) $ 78 $ 99 (21)
Scalable
infrastructure 69 75 (8) 104 110 (5)
Line extensions 10 12 (17) 18 21 (14)
Upgrades and rebuild 5 5 - 10 8 25
Support capital 27 40 (33) 50 68 (26)
-------------------------------------------------
Total Cable Operations 156 185 (16) 260 306 (15)
RBS 9 10 (10) 17 14 21
Rogers Retail 3 4 (25) 6 7 (14)
-------------------------------------------------
$ 168 $ 199 (16) $ 283 $ 327 (13)
-------------------------------------------------------------------------
Additions to Cable PPE include continued investments in the cable network to improve our customers experience through increased speed and performance of our internet service and capacity enhancements to our digital network to allow for incremental HD and on On-Demand services to be added.
The decline in Cable Operations PP E additions for the three and six months ended
The changes in RBS PP E additions for the three and six months ended
Rogers Retail PP E additions are attributable to improvements made to certain retail locations.
MEDIA
-----
Summarized Media Financial Results
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of June 30, June 30,
dollars, except -------------------------------------------------
margin) 2009 2008(1)(2) % Chg 2009 2008(1)(2) % Chg
-------------------------------------------------------------------------
Operating revenue $ 366 $ 409 (11) $ 650 $ 716 (9)
-------------------------------------------------
Operating expenses
before the undernoted 329 357 (8) 623 663 (6)
-------------------------------------------------
Adjusted operating
profit(3) 37 52 (29) 27 53 (49)
Stock-based compensation
recovery (expense)(4) (2) (9) (78) 14 11 27
Integration and
restructuring
expenses(5) (21) - n/m (21) - n/m
Adjustment for CRTC
Part II fees decision(6) - (7) n/m - (6) n/m
-------------------------------------------------
Operating profit(3) $ 14 $ 36 (61) $ 20 $ 58 (66)
-------------------------------------------------
-------------------------------------------------
Adjusted operating
profit margin(3) 10.1% 12.7% 4.2% 7.4%
Additions to property,
plant and equipment(3) $ 16 $ 17 (6) $ 30 $ 38 (21)
-------------------------------------------------------------------------
(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
declining economic conditions.
(6) Relates to an adjustment for CRTC Part II fees related to prior
periods.
Media Revenue
The significant decline in Media’s revenues for the three and six months ended
Media Operating Expenses
The decrease in Media’s operating expenses for the three and six months ended
Media Adjusted Operating Profit
The decrease in Media’s adjusted operating profit for the three and six months ended
Media Additions to PP E
The majority of Media’s PP E additions in the three and six months ended
Recent Media Developments
In
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 Six months ended
June 30, June 30,
-------------------------------------------------
(In millions of dollars) 2009 2008 % Chg 2009 2008 % Chg
-------------------------------------------------------------------------
Net income $ 374 $ 301 24 $ 683 $ 645 6
Income tax expense 125 153 (18) 285 323 (12)
Other income, net (4) (5) (20) (6) (13) (54)
Change in the fair value
of derivative instruments 11 (5) n/m 1 (1) n/m
Foreign exchange (gain)
loss (80) (1) n/m (51) 6 n/m
Debt issuance costs 5 - n/m 5 - n/m
Interest on long-term
debt 156 133 17 308 271 14
-------------------------------------------------
Operating income 587 576 2 1,225 1,231 (0)
Depreciation and
amortization 446 420 6 890 860 3
-------------------------------------------------
Operating profit 1,033 996 4 2,115 2,091 1
Stock-based compensation
expense (recovery) 13 53 (75) (68) (63) 8
Integration and
restructuring
expenses 37 3 n/m 41 8 n/m
Adjustment for CRTC
Part II fees decision - 37 n/m - 31 n/m
-------------------------------------------------
Adjusted operating
profit $ 1,083 $ 1,089 (1) $ 2,088 $ 2,067 1
-------------------------------------------------------------------------
Net Income and Net Income Per Share
We recorded net income of
On an adjusted basis, we recorded net income of
Income Tax Expense
Due to our non-capital loss carryforwards, our income tax expense for the three and six months ended
-------------------------------------------------------------------------
Three months ended Six months ended
----------------------------------------
(In millions of dollars) June 30, June 30, June 30, June 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
Statutory income tax rates 32.1% 32.7% 32.1% 32.7%
-------------------------------------------------------------------------
Income before income taxes $ 499 $ 454 $ 968 $ 968
Income tax expense at statutory
income tax rate on income
before income taxes $ 160 $ 148 $ 311 $ 316
Increase (decrease) in income
taxes resulting from:
Change in the valuation allowance
for future income taxes (38) 2 (23) 3
Other items 3 3 (3) 4
Income tax expense $ 125 $ 153 $ 285 $ 323
-------------------------------------------------------------------------
Effective income tax rate 25.1% 33.7% 29.4% 33.4%
-------------------------------------------------------------------------
Change in Fair Value of Derivative Instruments
The change in the fair value of derivative instruments in the three and six months ended
Foreign Exchange Gain (Loss)
During the three months ended
During the six months ended
Debt Issuance Costs
During the three months ended
Interest on Long-Term Debt
The
The
Operating Income
The increase in operating income in the three months ended
Depreciation and Amortization Expense
The increase in depreciation and amortization expense for the three and six 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 Six months ended
June 30, June 30,
-------------------------------------------
(In millions of dollars) 2009 2008 2009 2008
-------------------------------------------------------------------------
Wireless $ 2 $ 8 $ (8) $ (2)
Cable 4 11 (21) (22)
Media 2 9 (14) (11)
Corporate 5 25 (25) (28)
-------------------------------------------
$ 13 $ 53 $ (68) $ (63)
-------------------------------------------------------------------------
At
Integration and Restructuring Expenses
During the three and six months ended
Adjusted Operating Profit
As discussed above, the growth in Cable’s adjusted operating profit for the three and six months ended
For the three months ended
For the six 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”.
OVERVIEW OF LIQUIDITY, FINANCING AND SHARE CAPITAL ACTIVITIES
Liquidity
Three Months Ended June 30, 2009
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 $426 million, net of $8 million of related
changes in non-cash working capital;
- net repayments under our bank credit facility aggregating
$515 million;
- the payment of quarterly dividends of $184 million on our Class A
Voting and Class B Non-Voting shares;
- the purchase for cancellation of 16,480,000 Class B Non-Voting shares
for an aggregate purchase price of $509 million;
- payments for program rights of $48 million; and
- acquisitions and other investments aggregating $30 million, including
$11 million to acquire K-Rock and KIX Country, Kingston FM radio
stations, $15 million to acquire spectrum licences and $4 million of
other investments.
Taking into account the cash deficiency of
Six Months Ended
For the six months ended
Taking into account the changes in non-cash working capital items for the six months ended
Net funds used during the six months ended
- additions to PP&E of $916 million, including $123 million of related
changes in non-cash working capital;
- net repayments under our bank credit facility aggregating
$585 million;
- the payment of dividends of $343 million on our Class A Voting and
Class B Non-Voting shares;
- the purchase for cancellation of 16,480,000 Class B Non-Voting shares
for an aggregate purchase price of $509 million;
- payments for program rights of $92 million; and
- acquisitions and other investments aggregating $31 million, including
$11 million to acquire K-Rock and KIX Country, Kingston FM radio
stations, $15 million to acquire spectrum licences and $5 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 six months ended
Three Months Ended
As mentioned above, during the three months ended
On
In
Six Months Ended
As mentioned above, during the six months ended
Normal Course Issuer Bid
In
In
During the three and six 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 six months ended
Consolidated Hedged Position
-------------------------------------------------------------------------
(In millions of dollars,
except percentages) June 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 Cdn $ 1.2043 Cdn $ 1.2043
Percent hedged 93.3%(1) 93.3%
-------------------------------------------------------------------------
Amount of long-term debt(2)
at fixed rates:
Total long-term debt Cdn $ 8,773 Cdn $ 8,383
Total long-term debt at fixed rates Cdn $ 8,773 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 June 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 $ 399 $ (789) $ (390)
-------------------------------------------------------------------------
Mark-to-market value -
credit-adjusted estimate
(carrying value) $ 351 $ (747) $ (396)
-------------------------------------------------------------------------
Difference $ 48 $ (42) $ 6
-------------------------------------------------------------------------
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:
-------------------------------------------------------------------------
June 30, March 31, December 31,
(In millions of dollars) 2009 2009 2008
-------------------------------------------------------------------------
Long-term debt(1) $ 8,551 $ 8,647 $ 8,507
Net derivative liabilities
(assets) at the risk-free
analytical value(1) $ 390 $ (174) $ 144
-------------------------------------------------------------------------
Total $ 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 six months ended
-------------------------------------------------------------------------
June 30, 2009
-------------------------------------------------------------------------
Common Shares Outstanding(1)
Class A Voting 112,462,014
Class B Non-Voting 506,979,463
-------------------------------------------------------------------------
Options to purchase Class B Non-Voting shares
Outstanding options 15,843,736
Outstanding options exercisable 10,310,725
-------------------------------------------------------------------------
(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.
Dividends and Other Payments on Equity Securities
On
On
In addition, on
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, the Company entered into an agreement to outsource
certain information technology 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 April, 2009 the CRTC held a hearing to consider whether Private Canadian OTA Broadcasters (CTV, Global, CityTV and OMNI) should be relieved of any of their local or priority programming obligations over the 2009/10 broadcast year. It also considered whether it should impose a 1:1 spending ratio on Canadian versus U.S. programming and whether it should increase the BDU contribution to the LPIF from the already-decided 1% level, effective
In a
In a
Parliamentary Committee on Canadian Heritage Hearings on Conventional
Television
In
On
Consultation on the Renewal of Cellular and Personal Communications
Services ("PCS") Spectrum Licences
In
Industry Canada is seeking comments on its proposal to renew licences and the licence conditions that would apply to new and renewed cellular and PCS licences, including issues such as licence terms, renewals and research and development. Industry Canada will also undertake a formal study to assess the current market value of these spectrum licences, and will launch a separate consultation later in 2009 that will seek comments on a proposed fee.
In addition, Industry Canada released a further consultation in
Consultation on Transition to Broadband Radio Service ("BRS") in the Band
2500-2696 MHz
In
New Media Proceeding
On
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 (Canada).
UPDATES TO RISKS AND UNCERTAINTIES
Our significant risks and uncertainties are discussed in our 2008 Annual MD A, which was current as of
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.” Any imposition of FCC will increase Rogers’ costs. See the “Over-the-Air Television Station Licence Renewals” section under “Government Regulation and Regulatory Developments”.
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 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 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 six months ended
We have entered into certain transactions with the controlling shareholder of the Company and companies controlled by the controlling shareholder of the Company. These transactions are subject to formal agreements approved by the Audit Committee. Total amounts received from these related parties, during the six 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 six 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.
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.
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 KPIs, 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 during accounting policies
and IFRS 1 elections. 2009. and IFRS 1 elections.
- Development of IFRS
financial statement Senior management and Development of IFRS
format, including audit committee financial statement
disclosures. sign-off on financial format and
- Quantification of statement format during disclosures underway.
effects of conversion. 2010.
Final quantification
of conversion effects
on 2010 comparative
period by Q1 2011.
-------------------------------------------------------------------------
Systems and processes:
- Assessment of impact Systems, process and Analysis of potential
of changes on systems internal control design solutions
and processes. changes implemented and completed.
- Implementation of any training complete in
system and process time for parallel run Implementation of
design changes in 2010. system and process
including training design changes
appropriate personnel. Testing of internal 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
on all areas of the renegotiated by end of assessment
business, including 2010. of impacts on other
contractual arrangements areas of the business
and implement changes Communication at all completed.
as necessary. levels throughout the
- Communicate conversion conversion process. Communication is
plan and progress ongoing.
against it internally
and externally.
-------------------------------------------------------------------------
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 IFRSs. It is intended to highlight those areas we believe to be most significant. However, 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 IFRSs 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 options include the immediate recognition of actuarial gains and losses directly in equity with no impact on profit or loss, which is the alternative we expect to adopt.
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, 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). This may potentially result in more writedowns where carrying values of assets were previously supported under Canadian GAAP on an undiscounted cash flow basis, but could not be supported on a discounted cash flow basis.
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, the extent of any new writedowns may be partially offset by the requirement under IAS 36 to reverse any previous impairment losses where circumstances have changed such that the impairments have been reduced. 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 optional exemptions available under IFRS 1 significant to us that we expect to apply in preparing its 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 second 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
Based on our current outlook for the second half of 2009, we are updating certain of the full year 2009 guidance ranges which we originally issued on
Consolidated revenue, Media revenue and Media adjusted operating profit guidance ranges have each been updated to reflect greater and more prolonged than forecasted media advertising revenue declines associated with the sustained recessionary economic environment. Consolidated revenue guidance has also been updated to reflect lower than initially forecasted wireless equipment revenues which generally carry little or no margin and are not a component of Wireless network revenue.
We note that Wireless recently launched the iPhone 3G S, for which sales volumes in the second half of 2009 cannot be accurately estimated. If sales volumes of these new iPhone models are greater than expected, the cost of acquisition in the second half of 2009 could be higher than contemplated in our original 2009 guidance thus impacting Wireless’ operating profit in the same period. As discussed above, while sales of smartphones with higher than average subsidies depress operating profit in the period of the sale, the devices in turn generate higher than average ARPU and lower than average churn in the periods following initial sale thus positively impacting margins in future periods.
Full Year 2009 Mid-Year Guidance Update
-------------------------------------------------------------------------
($Millions, 2008 2009 Original Updated
except dividend) Actual Guidance Range % Guidance Range %
-------------------------------------------------------------------------
Consolidated
Revenue(1) $11,335 Up 5% to 9% Up 2% to 4%
Adjusted operating
profit(2) 4,060 Up 3% to 8%
Additions to PP&E(3) 2,021 0% to (10%)
Free cash flow(4) 1,464 Up 9% to 23%
Annualized dividend $1.00 $1.16
Supplementary Detail:
Revenue
Wireless
(network revenue) $5,843 Up 6% to 10%
Cable Operations(5) 2,878 Up 6% to 8%
Media 1,496 Up 4% to (6%) (4%) to (10%)
Adjusted operating
profit(2)
Wireless $2,820 Up 5% to 9%
Cable Operations(5) 1,171 Up 6% to 10%
Media(6) 142 Up 2% to (19%) (40%) to (60%)
Additions to PP&E
Wireless $929 (2%) to (10%)
Cable Operations 829 (7%) to (16%)
-------------------------------------------------------------------------
(1) Consolidated revenue includes revenue from Wireless equipment, RBS,
Rogers Retail and Corporate items and eliminations in addition to
Wireless Network, Cable Operations and Media revenue.
(2) Excludes stock-based compensation expense and integration and
restructuring related expenditures.
(3) Consolidated additions to PP&E include expenditures related to
billing system development, Rogers Media and corporately owned real
estate in addition to Wireless and Cable Operations PP&E
expenditures.
(4) Free cash flow is defined as adjusted operating profit less PP&E
expenditures and interest expense and is not a term defined under
Canadian GAAP.
(5) Includes cable television, residential high-speed Internet and
residential telephony services; excludes Rogers Business Solutions
and Rogers Retail.
(6) Includes losses from Rogers Sports Entertainment estimated at
$20 million in 2009.
SUPPLEMENTARY INFORMATION
Calculations of Wireless Non-GAAP Measures
-------------------------------------------------------------------------
(In millions of dollars,
subscribers in thousands, Three months ended Six months ended
except ARPU figures and June 30, June 30,
adjusted operating -------------------------------------------
profit margin) 2009 2008 2009 2008
-------------------------------------------------------------------------
Postpaid ARPU (monthly)
Postpaid (voice and data)
revenue $ 1,456 $ 1,374 $ 2,862 $ 2,671
Divided by: average
postpaid wireless voice
and data subscribers 6,627 6,057 6,562 6,007
Divided by: 3 months for
the quarter and 6 months
for the year-to-date 3 3 6 6
-------------------------------------------
$ 73.24 $ 75.62 $ 72.69 $ 74.11
-------------------------------------------------------------------------
Prepaid ARPU (monthly)
Prepaid (voice and data)
revenue $ 73 $ 71 $ 140 $ 137
Divided by: average
prepaid subscribers 1,451 1,404 1,466 1,403
Divided by: 3 months for
the quarter and 6 months
for the year-to-date 3 3 6 6
-------------------------------------------
$ 16.77 $ 16.86 $ 15.92 $ 16.27
-------------------------------------------------------------------------
Blended ARPU (monthly)
Voice and data revenue $ 1,529 $ 1,445 $ 3,002 $ 2,808
Divided by: average
wireless voice and
data subscribers 8,078 7,461 8,028 7,410
Divided by: 3 months for
the quarter and 6 months
for the year-to-date 3 3 6 6
-------------------------------------------
$ 63.09 $ 64.56 $ 62.32 $ 63.16
-------------------------------------------------------------------------
Adjusted operating profit margin
Adjusted operating profit $ 742 $ 769 $ 1,452 $ 1,474
Divided by: network revenue 1,529 1,445 3,002 2,808
-------------------------------------------
Adjusted operating
profit margin 48.5% 53.2% 48.4% 52.5%
-------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
Calculations of Cable Non-GAAP Measures
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of dollars, June 30, June 30,
except adjusted operating -------------------------------------------
profit margin) 2009 2008 2009 2008
-------------------------------------------------------------------------
Cable Operations adjusted
operating profit margin:
Adjusted operating profit $ 329 $ 293 $ 637 $ 571
Divided by revenue 763 718 1,506 1,413
-------------------------------------------
Cable Operations adjusted
operating profit margin 43.1% 40.8% 42.3% 40.4%
-------------------------------------------------------------------------
RBS adjusted operating
profit margin:
Adjusted operating profit $ 7 $ 16 $ 22 $ 33
Divided by revenue 125 130 253 263
-------------------------------------------
RBS adjusted operating
profit margin 5.6% 12.3% 8.7% 12.5%
-------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
Calculation of Adjusted Operating Profit, Net Income and
Earnings Per Share
-------------------------------------------------------------------------
Three months ended Six months ended
(In millions of dollars, June 30, June 30,
number of shares -------------------------------------------
outstanding in millions) 2009 2008 2009 2008
-------------------------------------------------------------------------
Operating profit $ 1,033 $ 996 $ 2,115 $ 2,091
Add (deduct):
Stock-based compensation
expense (recovery) 13 53 (68) (63)
Adjustment for CRTC Part II
fees decision - 37 - 31
Integration and
restructuring expenses 37 3 41 8
-------------------------------------------
Adjusted operating profit $ 1,083 $ 1,089 $ 2,088 $ 2,067
-------------------------------------------
-------------------------------------------
Net income $ 374 $ 301 $ 683 $ 645
Add (deduct):
Stock-based compensation
expense (recovery) 13 53 (68) (63)
Adjustment for CRTC Part II
fees decision - 37 - 31
Integration and
restructuring expenses 37 3 41 8
Debt issuance costs 5 - 5 -
Income tax impact (17) (30) 7 10
-------------------------------------------
Adjusted net income $ 412 $ 364 $ 668 $ 631
-------------------------------------------
-------------------------------------------
Adjusted basic and diluted
earnings per share:
Adjusted net income $ 412 $ 364 $ 668 $ 631
Divided by: weighted
average number of
shares outstanding 630 639 633 639
-------------------------------------------
Adjusted basic and diluted
earnings per share $ 0.65 $ 0.57 $ 1.06 $ 0.99
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
Quarterly Consolidated Financial Summary
2009 2008
--------------------------------------------------- --------------------
(In millions of dollars,
except per share amounts) Q1 Q2 Q1 Q2
--------------------------------------------------- --------------------
Income Statement
Operating Revenue
Wireless $ 1,544 $ 1,616 $ 1,431 $ 1,522
Cable 968 972 925 938
Media 284 366 307 409
Corporate and eliminations (49) (63) (54) (66)
--------------------------------------------------- --------------------
2,747 2,891 2,609 2,803
--------------------------------------------------- --------------------
Operating profit before
the undernoted
Wireless 710 742 705 769
Cable 324 332 303 304
Media (10) 37 2 52
Corporate and eliminations (19) (28) (26) (36)
--------------------------------------------------- --------------------
1,005 1,083 984 1,089
Stock-based compensation
recovery (expense)(1) 81 (13) 116 (53)
Integration and
restructuring expenses(2) (4) (37) (5) (3)
Adjustment for CRTC Part II
fees decision(3) - - - (37)
Contract renegotiation fee(6) - - - -
--------------------------------------------------- --------------------
Operating profit(4) 1,082 1,033 1,095 996
Depreciation and amortization 444 446 440 420
Impairment losses on goodwill,
intangible assets and other
long-term assets(5) - - - -
--------------------------------------------------- --------------------
Operating income 638 587 655 576
Interest on long-term debt (152) (156) (138) (133)
Debt issuance costs - (5) - -
Other income (expense) (17) 73 (3) 11
Income tax expense (160) (125) (170) (153)
--------------------------------------------------- --------------------
Net income (loss)
for the period $ 309 $ 374 $ 344 $ 301
--------------------------------------------------- --------------------
--------------------------------------------------- --------------------
Net income (loss) per share:
Basic $ 0.49 $ 0.59 $ 0.54 $ 0.47
Diluted $ 0.49 $ 0.59 $ 0.54 $ 0.47
Additions to property,
plant and equipment(4) $ 359 $ 434 $ 321 $ 481
--------------------------------------------------- --------------------
2008 2007
--------------------------------------------------- --------------------
(In millions of dollars,
except per share amounts) Q3 Q4 Q3 Q4
--------------------------------------------------- --------------------
Income Statement
Operating Revenue
Wireless $ 1,727 $ 1,655 $ 1,442 $ 1,466
Cable 961 985 899 923
Media 386 394 339 364
Corporate and eliminations (92) (93) (69) (66)
--------------------------------------------------- --------------------
2,982 2,941 2,611 2,687
--------------------------------------------------- --------------------
Operating profit before
the undernoted
Wireless 693 639 686 658
Cable 318 313 265 265
Media 43 46 46 63
Corporate and eliminations (29) (30) (13) (29)
--------------------------------------------------- --------------------
1,025 968 984 957
Stock-based compensation
recovery (expense)(1) 62 (25) (11) (4)
Integration and
restructuring expenses(2) (2) (41) (5) (17)
Adjustment for CRTC Part II
fees decision(3) - - 18 -
Contract renegotiation fee(6) - - - (52)
--------------------------------------------------- --------------------
Operating profit(4) 1,085 902 986 884
Depreciation and amortization 429 471 397 408
Impairment losses on goodwill,
intangible assets and other
long-term assets(5) - 294 - -
--------------------------------------------------- --------------------
Operating income 656 137 589 476
Interest on long-term debt (147) (157) (140) (138)
Debt issuance costs - - - -
Other income (expense) - (31) (14) -
Income tax expense (14) (87) (166) (84)
--------------------------------------------------- --------------------
Net income (loss)
for the period $ 495 $ (138) $ 269 $ 254
--------------------------------------------------- --------------------
--------------------------------------------------- --------------------
Net income (loss) per share:
Basic $ 0.78 $ (0.22) $ 0.42 $ 0.40
Diluted $ 0.78 $ (0.22) $ 0.42 $ 0.40
Additions to property,
plant and equipment(4) $ 436 $ 783 $ 397 $ 624
--------------------------------------------------- --------------------
(1) See section entitled "Stock-based Compensation."
(2) Costs incurred relate to severances resulting from the restructuring
of our employee base to improve our cost structure in light of the
declining economic conditions, 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 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 of 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!.
SUPPLEMENTARY INFORMATION
Adjusted Quarterly Consolidated Financial Summary(1)
2009 2008
--------------------------------------------------- --------------------
(In millions of dollars,
except per share amounts) Q1 Q2 Q1 Q2
--------------------------------------------------- --------------------
Income Statement
Operating Revenue
Wireless $ 1,544 $ 1,616 $ 1,431 $ 1,522
Cable 968 972 925 938
Media 284 366 307 409
Corporate and eliminations (49) (63) (54) (66)
--------------------------------------------------- --------------------
2,747 2,891 2,609 2,803
--------------------------------------------------- --------------------
Adjusted operating profit(2)
Wireless 710 742 705 769
Cable 324 332 303 304
Media (10) 37 2 52
Corporate and eliminations (19) (28) (26) (36)
--------------------------------------------------- --------------------
1,005 1,083 984 1,089
Depreciation and amortization 444 446 440 420
--------------------------------------------------- --------------------
Adjusted operating income 561 637 544 669
Interest on long-term debt (152) (156) (138) (133)
Other income (expense) (17) 73 (3) 11
Income tax expense (136) (142) (133) (183)
--------------------------------------------------- --------------------
Adjusted net income
for the period $ 256 $ 412 $ 270 $ 364
--------------------------------------------------- --------------------
--------------------------------------------------- --------------------
Adjusted net income per share:
Basic $ 0.40 $ 0.65 $ 0.42 $ 0.57
Diluted $ 0.40 $ 0.65 $ 0.42 $ 0.57
Additions to property,
plant and equipment(2) $ 359 $ 434 $ 321 $ 481
--------------------------------------------------- --------------------
2008 2007
--------------------------------------------------- --------------------
(In millions of dollars,
except per share amounts) Q3 Q4 Q3 Q4
--------------------------------------------------- --------------------
Income Statement
Operating Revenue
Wireless $ 1,727 $ 1,655 $ 1,442 $ 1,466
Cable 961 985 899 923
Media 386 394 339 364
Corporate and eliminations (92) (93) (69) (66)
--------------------------------------------------- --------------------
2,982 2,941 2,611 2,687
--------------------------------------------------- --------------------
Adjusted operating profit(2)
Wireless 693 639 686 658
Cable 318 313 265 265
Media 43 46 46 63
Corporate and eliminations (29) (30) (13) (29)
--------------------------------------------------- --------------------
1,025 968 984 957
Depreciation and amortization 429 471 397 408
--------------------------------------------------- --------------------
Adjusted operating income 596 497 587 549
Interest on long-term debt (147) (157) (140) (138)
Other income (expense) 16 (31) (14) -
Income tax expense - (145) (165) (109)
--------------------------------------------------- --------------------
Adjusted net income
for the period $ 465 $ 164 $ 268 $ 302
--------------------------------------------------- --------------------
--------------------------------------------------- --------------------
Adjusted net income per share:
Basic $ 0.73 $ 0.26 $ 0.42 $ 0.47
Diluted $ 0.73 $ 0.26 $ 0.41 $ 0.47
Additions to property,
plant and equipment(2) $ 436 $ 783 $397 $ 624
--------------------------------------------------- --------------------
(1) This quarterly summary has been adjusted to exclude stock-based
compensation (recovery) expense, integration and restructuring
expenses, 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 Six months ended
June 30, June 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
Operating revenue $ 2,891 $ 2,803 $ 5,638 $ 5,412
Operating expenses:
Cost of sales 328 225 638 453
Sales and marketing 296 311 577 610
Operating, general and
administrative 1,197 1,268 2,267 2,250
Integration and restructuring 37 3 41 8
Depreciation and amortization 446 420 890 860
-------------------------------------------------------------------------
Operating income 587 576 1,225 1,231
Interest on long-term debt (156) (133) (308) (271)
Debt issuance costs (5) - (5) -
Foreign exchange gain (loss) 80 1 51 (6)
Change in fair value of
derivative instruments (11) 5 (1) 1
Other income, net 4 5 6 13
-------------------------------------------------------------------------
Income before income taxes 499 454 968 968
-------------------------------------------------------------------------
Income tax expense:
Current (1) (1) (1) 1
Future 126 154 286 322
-----------------------------------------------------------------------
125 153 285 323
-------------------------------------------------------------------------
Net income for the period $ 374 $ 301 $ 683 $ 645
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income per share:
Basic and diluted $ 0.59 $ 0.47 $ 1.08 $ 1.01
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Rogers Communications Inc.
Unaudited Interim Consolidated Balance Sheets
(In millions of dollars)
-------------------------------------------------------------------------
June 30, December 31,
2009 2008
-------------------------------------------------------------------------
(Restated)
Assets
Current assets:
Cash and cash equivalents $ 69 $ -
Accounts receivable 1,181 1,403
Other current assets 430 442
Current portion of derivative instruments 15 -
Future income tax assets 137 451
-----------------------------------------------------------------------
1,832 2,296
Property, plant and equipment 7,929 7,898
Goodwill 3,017 3,024
Intangible assets 2,654 2,761
Investments 309 343
Derivative instruments 336 507
Other long-term assets 289 253
-------------------------------------------------------------------------
$ 16,366 $ 17,082
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Bank advances, arising from
outstanding cheques $ - $ 19
Accounts payable and accrued liabilities 1,741 2,412
Current portion of long-term debt 1 1
Current portion of derivative instruments 60 45
Unearned revenue 279 239
-----------------------------------------------------------------------
2,081 2,716
Long-term debt 8,550 8,506
Derivative instruments 687 616
Other long-term liabilities 152 184
Future income tax liabilities 320 344
-------------------------------------------------------------------------
11,790 12,366
Shareholders' equity 4,576 4,716
-------------------------------------------------------------------------
$ 16,366 $ 17,082
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Rogers Communications Inc.
Unaudited Interim Consolidated Statements of Shareholders' Equity
(In millions of dollars)
Six months ended June 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 - - 1 30
Dividends declared - - - -
Repurchase of Class B
Non-Voting shares - - (16) (16,480)
Other comprehensive loss - - - -
-------------------------------------------------------------------------
Balances,
June 30, 2009 $ 72 112,462 $ 473 506,980
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated
other
compre- Total
hensive share-
Contributed Retained income holders'
surplus earnings (loss) 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 - 683 - 683
Shares issued on exercise
of stock options - - - 1
Dividends declared - (368) - (368)
Repurchase of Class B
Non-Voting shares (476) (17) - (509)
Other comprehensive loss - - 53 53
-------------------------------------------------------------------------
Balances,
June 30, 2009 $ 3,084 $ 989 $ (42) $ 4,576
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Six months ended June 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 - - 11 245
Dividends declared - - - -
Repurchase of Class B
Non-Voting shares - - (1) (1,000)
Other comprehensive loss - - - -
-------------------------------------------------------------------------
Balances,
June 30, 2008 $ 72 112,462 $ 481 526,250
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated
other
compre- Total
hensive share-
Contributed Retained income holders'
surplus earnings (loss) 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 - 645 - 645
Shares issued on exercise
of stock options - - - 11
Dividends declared - (320) - (320)
Repurchase of Class B
Non-Voting shares (38) (1) - (40)
Other comprehensive loss - - (145) (145)
-------------------------------------------------------------------------
Balances,
June 30, 2008 $ 3,651 $ 655 $ (95) $ 4,764
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Rogers Communications Inc.
Unaudited Interim Consolidated Statements of Comprehensive Income
(In millions of dollars)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
Net income for the period $ 374 $ 301 $ 683 $ 645
Other comprehensive income
(loss):
Change in fair value of
available-for-sale
investments:
Increase (decrease) in
fair value (29) 6 (51) (105)
-----------------------------------------------------------------------
Cash flow hedging derivative
instruments:
Change in fair value of
derivative instruments (473) (159) (233) (8)
Reclassification to net
income of foreign
exchange gain (loss) on
long-term debt 507 39 322 (128)
Reclassification to net
income of accrued interest 13 35 17 70
---------------------------------------------------------------------
47 (85) 106 (66)
-------------------------------------------------------------------------
Other comprehensive income
(loss) before tax 18 (79) 55 (171)
Related income taxes 22 40 (2) 26
-----------------------------------------------------------------------
40 (39) 53 (145)
-------------------------------------------------------------------------
Total comprehensive income $ 414 $ 262 $ 736 $ 500
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Rogers Communications Inc.
Unaudited Interim Consolidated Statements of Cash Flows
(In millions of dollars)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net income for the period $ 374 $ 301 $ 683 $ 645
Adjustments to reconcile
net income to cash flows
from operating activities:
Depreciation and
amortization 446 420 890 860
Program rights and Rogers
Retail rental amortization 37 37 77 72
Future income taxes 126 154 286 322
Unrealized foreign
exchange gain (74) - (47) -
Change in the value of
derivative instruments 11 (5) 1 (1)
Stock-based compensation
expense (recovery) 13 53 (68) (63)
Pension expense,
net of contributions (14) (8) (19) (8)
Amortization of fair value
increment on long-term debt (2) (2) (3) (3)
Other 1 (6) - (11)
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918 944 1,800 1,813
Change in non-cash operating
working capital items (42) (74) (236) (244)
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876 870 1,564 1,569
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Investing activities:
Additions to property, plant
and equipment ("PP&E") (434) (481) (793) (802)
Change in non-cash working
capital items related to PP&E 8 28 (123) (54)
Acquisitions, net of cash
and cash equivalents acquired (11) (124) (11) (147)
Additions to program rights (48) (42) (92) (78)
Acquisition of spectrum
licences (15) - (15) -
Other (4) 4 (5) 6
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(504) (615) (1,039) (1,075)
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Financing activities:
Issuance of long-term debt 1,460 530 1,825 780
Repayment of long-term debt (975) (565) (1,410) (980)
Repurchase of Class B
Non-Voting shares (509) (40) (509) (40)
Issuance of capital stock
on exercise of stock options - 2 - 2
Dividends paid (184) (160) (343) (240)
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(208) (233) (437) (478)
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Increase in cash and
cash equivalents 164 22 88 16
Cash deficiency,
beginning of period (95) (67) (19) (61)
-------------------------------------------------------------------------
Cash and cash equivalents
(deficiency), end of period $ 69 $ (45) $ 69 $ (45)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow
information:
Interest paid $ 154 $ 169 $ 307 $ 273
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The change in non-cash
operating working capital
items is as follows:
Decrease (increase) in
accounts receivable $ (24) $ (58) $ 222 $ 60
Decrease (increase)
in other assets 63 (26) (11) (116)
Increase (decrease) in
accounts payable and
accrued liabilities (55) 17 (487) (208)
Increase (decrease) in
unearned revenue (26) (7) 40 20
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$ (42) $ (74) $ (236) $ (244)
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Cash and cash equivalents (deficiency) are 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 second 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 Toronto Stock Exchange (TSX: RCI.a and RCI.b) and on the New York Stock Exchange (NYSE: RCI).
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
SOURCE Rogers Communications Inc.