Rogers Reports Second Quarter 2009 Financial and Operating Results
Posted on: Tuesday, 28 July 2009, 05:50 CDT
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"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
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
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
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
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 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
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
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
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, 2009For 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
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
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
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
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
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
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
In
On
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
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 UsageIn
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) ----------------------------------------------------------------------- 918 944 1,800 1,813 Change in non-cash operating working capital items (42) (74) (236) (244) ----------------------------------------------------------------------- 876 870 1,564 1,569 ------------------------------------------------------------------------- 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 ----------------------------------------------------------------------- (504) (615) (1,039) (1,075) ------------------------------------------------------------------------- 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) ----------------------------------------------------------------------- (208) (233) (437) (478) ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- $ (42) $ (74) $ (236) $ (244) ------------------------------------------------------------------------- -------------------------------------------------------------------------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.
Source: PR Newswire
Related Articles
- Patterson-UTI Energy Reports Financial Results for Three and Six Months Ended June 30, 2009
- National Safety Council Launches June National Safety Month With Free Training
- Peyto Energy Trust announces 2008 year end reserves and distribution adjustment
- Synthesis Energy Systems Announces Fourth Quarter and Fiscal Year Ended June 30, 2008 Financial Results
- A-Power Reports Financial Results for the Three and Six Months Ended June 30, 2008 & Reaffirms 2008 Earnings Guidance
- Revett Minerals Reports Operating and Financial Results for the Three and Six Months Ended June 30, 2008
- Cleco Corp. Posts 2008 Second-Quarter Net Income of $29.4 Million
- Patriot Coal Announces Results for the Quarter Ended June 30, 2008
- NWN Reports Results for the Quarter & Six Months Ended June 30, 2008
- Revett Minerals Reports Operating and Financial Results for the Three Months Ended March 31, 2008
 |
 |
User Comments (0)
RSS Feeds