Rogers Reports Fourth Quarter 2008 Financial and Operating Results
Fourth Quarter Consolidated Revenue Grows 9% to $2.9 Billion;
Adjusted Operating Profit Grows 1% to $968 Million as Strong
Double-Digit Operating Profit Growth at Cable is Partially Offset
by Acquisition and Retention Costs From Successful Smartphone
Campaign at Wireless and Advertising Revenue Declines at Media;
Wireless Generates Further Improvements in ARPU and Churn, While
Cable Drives Continued Year-Over-Year Margin Expansion;
Consolidated Net Loss Reflects Non-Cash Impairment Charge of $294
Million Relating to Conventional Television Assets Resulting from
Recessionary Declines in Advertising Revenues;
Rogers Board Approves 16% Increase in Annual Dividend and Renewal of
$300 Million Share Repurchase Program for 2009
TORONTO, Feb. 18 /CNW/ - Rogers Communications Inc. today announced its
consolidated financial and operating results for the three and twelve months
ended December 31, 2008.
Financial highlights are as follows:
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
-----------------------------------------------------
(In millions of
dollars, except
per share amounts) 2008 2007 % Chg 2008 2007 % Chg
-------------------------------------------------------------------------
Operating revenue $ 2,941 $ 2,687 9 $11,335 $10,123 12
Operating profit(1) 902 884 2 4,078 3,099 32
Net income (loss) (138) 254 n/m 1,002 637 57
Net income (loss)
per share:
Basic $ (0.22) $ 0.40 n/m $ 1.57 $ 1.00 57
Diluted (0.22) 0.40 n/m 1.57 0.99 59
As adjusted:(2)
Operating
profit(1) $ 968 $ 957 1 $ 4,060 $ 3,703 10
Net income 164 302 (46) 1,260 1,066 18
Net income
per share:
Basic $ 0.26 $ 0.47 (45) $ 1.98 $ 1.67 19
Diluted 0.26 0.47 (45) 1.98 1.66 19
-------------------------------------------------------------------------
(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) the impact of a one-time non-cash charge related
to the introduction of a cash settlement feature for employee stock
options; (ii) stock-based compensation (recovery) expense; (iii)
integration and restructuring expenses; (iv) the impact of a one-time
charge resulting from the renegotiation of an Internet-related
services agreement; (v) an adjustment for Canadian Radio-television
and Telecommunications Commission ("CRTC") Part II fees related to
prior periods; and (vi) in respect of net income and net income per
share, debt issuance costs, loss on repayment of long-term debt,
impairment losses on goodwill, intangible assets and other long-term
assets and the related income tax impact of the above amounts.
n/m: not meaningful.
Highlights of the fourth quarter of 2008 include the following:
- Generated growth in quarterly revenue of 9%, while adjusted operating
profit grew 1% to $968 million as strong double-digit operating
profit growth at Cable is partially offset by acquisition and
retention costs from the successful smartphone campaign at Wireless
and advertising revenue declines at Media.
- Wireless subscriber net additions totalled 199,000, with higher-value
postpaid net additions of 158,000. Postpaid monthly ARPU (average
revenue per user) increased 2% year-over-year to $74.71, driven in
part by the 36% growth in data revenue to $262 million, representing
approximately 18% of network revenue, while churn was further reduced
to 1.12%.
- Wireless activated more than 400,000 smartphone devices during the
quarter. Approximately 40% of these activations were to subscribers
new to Wireless with the other 60% 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 this
successful smartphone campaign drove significantly higher acquisition
and retention costs at Wireless.
- Wireless unveiled even faster speeds on its 3.5G next generation HSPA
network, with 7.2 Mbps speeds now available from coast-to-coast to
more than 75% of the Canadian population. Rogers' 3.5G network ranks
amongst the fastest mobile networks anywhere in the world and allows
customers to communicate in innovative ways with mobile multimedia,
download large files ultra-fast and utilize Internet speeds on the go
that are similar to a standard broadband connection.
- Fido launched new branding and a suite of straightforward 'all-in'
plans aimed at the value oriented consumer segment that include usage
alerts, easy price plan switching and the option of no term contract.
- Cable's Internet subscriber base grew during the quarter by 19,000 to
1.6 million, and digital cable households increased by 61,000 to
reach 1.6 million, of which more than 568,000 households now receive
high-definition television ("HDTV") services.
- Cable ended the quarter with 840,000 residential voice-over-cable
telephony lines, reflecting net additions of 40,000 lines for the
quarter. This brings the total penetration of cable telephony lines
to 36% of basic cable subscribers, up from 29% at December 31, 2007.
- Rogers recorded non-cash impairment losses on goodwill, intangible
assets and other long-term assets totalling $294 million related to
its conventional television business to adjust its carrying value to
reflect a lower assessment of fair value amidst recent recessionary
declines in advertising revenues.
- At December 31, 2008 Rogers had approximately $1.8 billion in
available credit under its $2.4 billion committed bank credit
facility that matures in July 2013. This liquidity position is also
enhanced by the fact that our earliest scheduled debt maturity is in
May 2011. This financial position provides us with substantial
liquidity and flexibility.
- Rogers also announced today that its Board of Directors has approved
a 16% increase in the annual dividend to $1.16 per share effective
immediately, and that it has approved the renewal of a normal course
issuer bid ("NCIB") to repurchase up to $300 million of Rogers shares
on the open market during the next twelve months.
- Rogers' founder, President and Chief Executive Officer Edward S.
"Ted" Rogers, passed away on December 2, 2008. Alan Horn, Chairman of
the Board of Rogers Communications Inc., was appointed by the Board
to serve as acting Chief Executive Officer as the Board performs a
search, considering internal and external candidates, for a permanent
CEO.
"In December 2008, we mourned the passing of the Company's founder and
Chief Executive Officer, Ted Rogers," said Alan Horn, Chairman and acting
Chief Executive Officer of Rogers Communications Inc. "Ted Rogers was one of a
kind who built this company from one FM radio station nearly 50 years ago into
what is today Canada's largest wireless, cable and media company. His absence
has been felt deeply during this difficult time by everyone at Rogers and he
will be sadly missed, but never forgotten."
"Generating nine percent top line growth in the face of the increasingly
challenging economic backdrop is a respectable performance for Rogers,"
continued Alan Horn. "Our Wireless and Cable businesses continue to generate
good subscriber growth, which speaks to the quality and utility of our
products. Our operating results also reflect the large but successful
investment our Wireless business again made this quarter in activating a very
significant number of smartphone customers who will in turn provide higher
than average revenue per customer and lower churn in subsequent periods."
Horn concluded by saying "The increased dividend and renewal of our share
buyback program for 2009, which were both announced today, combine to provide
for a balanced and tax efficient allocation of a portion of the free cash flow
we expect to generate this year and underline our Board and management's
continued confidence in the strategic position of the Company."
This earnings release should be read in conjunction with our 2007 Annual
MD&A and our 2007 Annual Audited Consolidated Financial Statements and Notes
thereto, as well as our 2008 quarterly interim financial and other recent
securities filings available on SEDAR at www.sedar.com. As this earnings
release includes forward-looking statements and assumptions, readers should
carefully review the sections of this release entitled "Caution Regarding
Forward-Looking Statements, Risks and Assumptions".
In this earnings release, 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 52 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 earnings release, percentage changes are calculated using
numbers rounded to which they appear.
SUMMARIZED CONSOLIDATED FINANCIAL RESULTS (Unaudited)
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
-----------------------------------------------------
(In millions of
dollars, except
per share amounts) 2008 2007 % Chg 2008 2007 % Chg
-------------------------------------------------------------------------
Operating revenue
Wireless $ 1,655 $ 1,466 13 $ 6,335 $ 5,503 15
Cable
Cable Operations 741 680 9 2,878 2,603 11
RBS 132 140 (6) 526 571 (8)
Rogers Retail 117 105 11 417 393 6
Corporate items
and eliminations (5) (2) 150 (12) (9) 33
-----------------------------------------------------
985 923 7 3,809 3,558 7
Media 394 364 8 1,496 1,317 14
Corporate items
and eliminations (93) (66) 41 (305) (255) 20
-----------------------------------------------------
Total 2,941 2,687 9 11,335 10,123 12
-----------------------------------------------------
-----------------------------------------------------
Adjusted operating
profit (loss)(1)
Wireless 639 658 (3) 2,806 2,589 8
Cable
Cable Operations 298 260 15 1,171 1,008 16
RBS 14 8 75 59 12 n/m
Rogers Retail 1 (3) n/m 3 (4) n/m
-----------------------------------------------------
313 265 18 1,233 1,016 21
Media 46 63 (27) 142 176 (19)
Corporate items
and eliminations (30) (29) 3 (121) (78) 55
-----------------------------------------------------
Adjusted operating
profit(1) 968 957 1 4,060 3,703 10
Stock option plan
amendment(2) - - n/m - (452) n/m
Stock-based
compensation recovery
(expense)(2) (25) (4) n/m 100 (62) n/m
Integration and
restructuring
expenses(3) (41) (17) 141 (51) (38) 34
Contract renegotiation
fee(4) - (52) n/m - (52) n/m
Adjustment for CRTC
Part II fees
decision(5) - - n/m (31) - n/m
-----------------------------------------------------
Operating profit(1) 902 884 2 4,078 3,099 32
Other income and
expense, net(6) 1,040 630 65 3,076 2,462 25
-----------------------------------------------------
Net income (loss) $ (138) $ 254 n/m $ 1,002 $ 637 57
-----------------------------------------------------
-----------------------------------------------------
Net income (loss)
per share:
Basic $ (0.22) $ 0.40 n/m $ 1.57 $ 1.00 57
Diluted (0.22) 0.40 n/m 1.57 0.99 59
As adjusted:(1)
Net income $ 164 $ 302 (46) $ 1,260 $ 1,066 18
Net income per
share:
Basic $ 0.26 $ 0.47 (45) $ 1.98 $ 1.67 19
Diluted 0.26 0.47 (45) 1.98 1.66 19
Additions to
property, plant
and equipment
("PP&E")(1)
Wireless $ 310 $ 252 23 $ 929 $ 822 13
Cable
Cable Operations 336 246 37 829 710 17
RBS 11 25 (56) 36 83 (57)
Rogers Retail 9 9 - 21 21 -
-----------------------------------------------------
356 280 27 886 814 9
Media 32 32 - 81 77 5
Corporate 85 60 42 125 83 51
-----------------------------------------------------
Total $ 783 $ 624 25 $ 2,021 $ 1,796 13
-------------------------------------------------------------------------
(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) 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
Enterprises Inc. ("Call-Net"), Futureway Communications Inc.
("Futureway") and Aurora Cable TV Limited ("Aurora Cable"), the
restructuring of Rogers Business Solutions ("RBS"), and the closure
of certain Rogers Retail stores.
(4) One-time charge resulting from the renegotiation of an Internet-
related services agreement.
(5) Relates to an adjustment for CRTC Part II fees related to prior
periods.
(6) See the section entitled "Reconciliation of Net Income to Operating
Profit and Adjusted Operating Profit for the Period".
For discussions of the results of operations of each of these segments,
refer to the respective segment sections of this earnings release.
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 tables in the
Supplemental Information section entitled "Segmented Information".
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
---------------------------------------------------
(In millions
of dollars) 2008 2007 % Chg 2008 2007 % Chg
-------------------------------------------------------------------------
Net income (loss) $ (138) $ 254 n/m $ 1,002 $ 637 57
Income tax expense 87 84 4 424 249 70
Other expense
(income), net (3) (2) 50 (28) 4 n/m
Change in the fair
value of derivative
instruments (43) 3 n/m (64) 34 n/m
Loss on repayment
of long-term debt - - n/m - 47 n/m
Foreign exchange
loss (gain) 77 (1) n/m 99 (54) n/m
Debt issuance costs - - n/m 16 - n/m
Interest on
long-term debt 157 138 14 575 579 (1)
-----------------------------------------------------
Operating income 137 476 (71) 2,024 1,496 35
Impairment losses on
goodwill, intangible
assets and other
long-term assets 294 - n/m 294 - n/m
Depreciation and
amortization 471 408 15 1,760 1,603 10
-----------------------------------------------------
Operating profit 902 884 2 4,078 3,099 32
Stock option plan
amendment - - n/m - 452 n/m
Stock-based
compensation
(recovery) expense 25 4 n/m (100) 62 n/m
Integration and
restructuring
expenses 41 17 141 51 38 34
Adjustment for CRTC
Part II fees decision - - n/m 31 - n/m
Contract renegotiation
fee - 52 n/m - 52 n/m
-----------------------------------------------------
Adjusted operating
profit $ 968 $ 957 1 $ 4,060 $ 3,703 10
-------------------------------------------------------------------------
Net Income (Loss) and Net Income (Loss) Per Share
We recorded a net loss of $138 million for the three months ended
December 31, 2008, or basic and diluted loss per share of $0.22, compared to
net income of $254 million, or basic and diluted earnings per share of $0.40
in the corresponding period in 2007.
Income Tax Expense
Due to our non-capital loss carryforwards, our income tax expense for the
three months ended December 31, 2008 and 2007 substantially represents
non-cash income taxes. As illustrated in the table below, our effective income
tax rate for the three months ended December 31, 2008 was (170.6%). The
effective income tax rate differed significantly from the 2008 statutory
income tax rate of 32.7% primarily due to impairment losses on goodwill and
intangible assets that are not deductible for income tax purposes. These
losses do not give rise to any tax benefits. Accordingly, our reconciliation
of income tax expense includes an increase of $51 million in respect of this
item. In addition, during the three months ended December 31, 2008, we
recorded a future income tax charge of $64 million relating to an increase in
the valuation allowance recorded in respect of realized and unrealized capital
losses and other future tax assets. The effective income tax rate for the
three months ended December 31, 2007 was 24.9%. The effective income tax rate
for the three months ended December 31, 2007 differed from the 2007 statutory
income tax rate of 35.2% primarily due to benefits realized from changes to
prior year tax filing positions and other adjustments.
-------------------------------------------------------------------------
Three months Twelve months
ended ended
December 31, December 31,
------------------------------------
(In millions of dollars) 2008 2007 2008 2007
-------------------------------------------------------------------------
Statutory income tax rates 32.7% 35.2% 32.7% 35.2%
-------------------------------------------------------------------------
Income before income taxes $ (51) $ 338 $ 1,426 $ 886
Income tax expense (recovery) at
statutory income tax rate on income
before income taxes $ (17) $ 119 $ 466 $ 312
Increase (decrease) in income taxes
resulting from:
Ontario harmonization credit - - (65) -
Stock-based compensation 2 2 5 (17)
Vidéotron Ltée termination payment - - - (25)
Change in valuation allowance 64 (13) 19 (20)
Effect of tax rate changes (11) 21 (33) 47
Impairment losses on goodwill and
intangible assets not deductible
for income tax purposes 51 - 51 -
Difference between rates applicable
to subsidiaries 1 (3) (2) (12)
Benefits related to changes to
prior year tax filing positions
and other items (3) (42) (17) (36)
------------------------------------
Income tax expense $ 87 $ 84 $ 424 $ 249
-------------------------------------------------------------------------
Effective income tax rate (170.6%) 24.9% 29.7% 28.1%
-------------------------------------------------------------------------
Change in Fair Value of Derivative Instruments
The change in the fair value of derivative instruments in the three
months ended December 31, 2008 was primarily the result of the changes in the
value of the Canadian dollar relative to that of the U.S. dollar related to
the Cross-Currency Interest Rate Exchange Agreements ("Cross-Currency Swaps")
hedging the US$350 million Senior Notes due 2038 that have not been designated
as hedges for accounting purposes. We have recorded our Cross-Currency Swaps
at an estimated credit-adjusted mark-to-market valuation. For the impact,
refer to the section entitled "Fair Market Value Asset and Liability for
Cross-Currency Swaps".
Foreign Exchange Loss (Gain)
During the three months ended December 31, 2008, the Canadian dollar
weakened by 16 cents versus the U.S. dollar resulting in a foreign exchange
loss of $77 million, primarily related to US$750 million of U.S.
dollar-denominated long-term debt that is not hedged for accounting purposes.
During the corresponding period of 2007, the Canadian dollar strengthened by
0.8 cents, versus the U.S. dollar and we had a foreign exchange gain of $1
million during the three months ended December 31, 2007.
Interest on Long-Term Debt
The increase in interest expense for the three months ended December 31,
2008, compared to the corresponding period of the prior year, is primarily due
to the $0.9 billion net increase in long-term debt at December 31, 2008
compared to December 31, 2007, including the impact of Cross-Currency Swaps
and the August 2008 issuance of US$1.75 billion aggregate principal amount of
Senior Notes, partially offset by the $655 million decrease in the amount
drawn under our bank credit facility at year-end. The net increase in our
long-term debt in 2008 was largely required due to the payment of an aggregate
$1.0 billion for the acquisition of spectrum licences in the AWS spectrum
auction.
Operating Income
The decrease in operating income in the three months ended December 31,
2008, compared to the corresponding period of the prior year, reflects the
growth in expenses, including impairment losses on goodwill, intangible assets
and other long-term assets, and integration and restructuring expenses, of
$593 million exceeding the growth in revenue of $254 million. See the section
entitled "Segment Review" for a detailed discussion of respective segment
results.
Impairment Losses on Goodwill, Intangible Assets and Other Long-Term
Assets
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.
Depreciation and Amortization Expense
The increase in depreciation and amortization expense for the three
months ended December 31, 2008, compared to the corresponding period of the
prior year, primarily reflects an increase in depreciation on property, plant
and equipment ("PP&E") expenditures.
Stock-based Compensation
On May 28, 2007, our stock option plans were amended to attach cash
settled share appreciation rights ("SARs") to all new and previously granted
options. As a result, all outstanding stock options were classified as
liabilities and are now carried at their intrinsic value, as adjusted for
vesting, measured as the difference between the current stock price and the
option exercise price. The intrinsic value of the liability is now
marked-to-market each period and is amortized to expense over the period in
which the related services are rendered, which is usually the graded vesting
period, or, as applicable, over the period to the date an employee is eligible
to retire, whichever is shorter.
A summary of stock-based compensation (recovery) expense is as follows:
Stock-based Compensation (Recovery) Expense
Included in Operating, General
and Administrative Expenses
One-time -----------------------------------------------
Non-cash Three months Twelve months
Charge ended ended
Upon December 31, December 31,
(In millions Adoption -----------------------------------------------
of dollars) in Q2 2007 2008 2007 2008 2007
-------------------------------------------------------------------------
Wireless $ 46 $ 4 $ 2 $ (5) $ 11
Cable 113 7 (2) (32) 11
Media 84 5 1 (17) 10
Corporate 209 9 3 (46) 30
-----------------------------------------------------------
$ 452 $ 25 $ 4 $ (100) $ 62
-------------------------------------------------------------------------
At December 31, 2008, we had a liability of $278 million related to
stock-based compensation recorded at its intrinsic value, including stock
options, restricted share units and deferred share units. In the three months
ended December 31, 2008, $41 million was paid to holders of stock options and
restricted share units upon exercise using the SAR feature.
Integration and Restructuring Expenses
During the three months ended December 31, 2008, we incurred $38 million
of restructuring expenses related to severances resulting from targeted
restructuring of our employee base to improve our cost structure in light of
the declining economic conditions. In addition, we incurred integration
expenses of $3 million related to the integration of previously acquired
businesses and related restructuring.
Adjusted Operating Profit
Cable contributed to the increase in adjusted operating profit for the
three months ended December 31, 2008 compared to the three months ended
December 31, 2007, partially offset by a decrease in both Wireless' and
Media's adjusted operating profit for the three months ended December 31,
2008, compared to the corresponding period in 2007. Wireless' quarterly
adjusted operating profit reflects the significant costs associated with the
heavy sales volumes of smartphone devices as discussed below, while Media's
quarterly adjusted operating profit reflects the weakening industry
expectations in the conventional television business and declines in
advertising revenues amidst the slowing economy. Refer to the individual
segment discussions for details of the respective changes in adjusted
operating profit.
Consolidated adjusted operating profit for the three months ended
December 31, 2008 and 2007, respectively, excludes: (i) stock-based
compensation expense of $25 million and $4 million; (ii) integration and
restructuring expenses of $41 million and $17 million; and (iii) a one-time
charge resulting from the renegotiation of an Internet-related services
agreement of $52 million in the three months ended December 31, 2007.
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".
SEGMENT REVIEW
WIRELESS
--------
Summarized Wireless Financial Results
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
-----------------------------------------------------
(In millions of
dollars, except
margin) 2008 2007 % Chg 2008 2007 % Chg
-------------------------------------------------------------------------
Operating revenue
Postpaid $ 1,426 $ 1,283 11 $ 5,548 $ 4,868 14
Prepaid 70 70 - 285 273 4
One-way messaging 2 3 (33) 10 13 (23)
-----------------------------------------------------
Network revenue 1,498 1,356 10 5,843 5,154 13
Equipment sales 157 110 43 492 349 41
-----------------------------------------------------
Total operating
revenue 1,655 1,466 13 6,335 5,503 15
-----------------------------------------------------
Operating expenses
before the undernoted
Cost of equipment
sales 326 208 57 1,005 703 43
Sales and marketing
expenses 214 186 15 691 653 6
Operating, general
and administrative
expenses 476 414 15 1,833 1,558 18
-----------------------------------------------------
1,016 808 26 3,529 2,914 21
-----------------------------------------------------
Adjusted operating
profit(1)(2) 639 658 (3) 2,806 2,589 8
Stock option plan
amendment(3) - - n/m - (46) n/m
Stock-based
compensation recovery
(expense)(3) (4) (2) 100 5 (11) n/m
Integration and
restructuring
expenses(4) (14) - n/m (14) - n/m
-----------------------------------------------------
Operating
profit(1) $ 621 $ 656 (5) $ 2,797 $ 2,532 10
-----------------------------------------------------
-----------------------------------------------------
Adjusted operating
profit margin as %
of network
revenue(1) 42.7% 48.5% 48.0% 50.2%
Additions to
PP&E(1) $ 310 $ 252 23 $ 929 $ 822 13
-------------------------------------------------------------------------
(1) As defined. See the sections entitled "Key Performance Indicators and
Non-GAAP Measures" and "Supplementary Information".
(2) Adjusted operating profit includes a loss of $3 million and
$14 million for the three and twelve months ended December 31, 2008,
respectively, and a loss of $8 million and $31 million for the three
and twelve months ended December 31, 2007, respectively, related to
the Inukshuk wireless broadband initiative.
(3) See the section entitled "Stock-based Compensation".
(4) Costs incurred relate to severances resulting from the restructuring
of our employee base to improve our cost structure in light of the
declining economic conditions.
Summarized Wireless Subscriber Results
Three months ended Twelve months ended
December 31, December 31,
---------------------------------------------------
(Subscriber statistics
in thousands, except
ARPU, churn and
usage) 2008 2007 Chg 2008 2007 Chg
-------------------------------------------------------------------------
Postpaid
Gross additions(1) 369 362 7 1,341 1,352 (11)
Net additions 158 158 - 537 581 (44)
Adjustment to
postpaid subscriber
base(2) - - - - (65) 65
Total postpaid
retail
subscribers 6,451 5,914 537 6,451 5,914 537
Average monthly
revenue per user
("ARPU")(3) $ 74.71 $ 73.33 $ 1.38 $ 75.27 $ 72.21 $ 3.06
Average monthly
usage (minutes) 596 596 - 589 573 16
Monthly churn 1.12% 1.17% (0.05%) 1.10% 1.15% (0.05%)
Prepaid
Gross additions 173 156 17 632 635 (3)
Net additions 41 25 16 67 70 (3)
Adjustment to
prepaid
subscriber
base(2) - - - - (26) 26
Total prepaid
retail
subscribers 1,491 1,424 67 1,491 1,424 67
ARPU(3) $ 15.91 $ 16.59 $ (0.68) $ 16.65 $ 16.46 $ 0.19
Monthly churn 3.03% 3.12% (0.09%) 3.31% 3.42% (0.11%)
-------------------------------------------------------------------------
(1) During the third quarter of 2008, an adjustment associated with
laptop wireless data card ("air card") subscribers resulted in the
addition of approximately 11,000 subscribers to Wireless' postpaid
subscriber base. This adjustment is included in gross additions for
the twelve months ended December 31, 2008. Beginning in the third
quarter of 2008, air cards are included in the gross additions for
postpaid subscribers.
(2) During the second quarter of 2007, Wireless decommissioned its Time
Division Multiple Access ("TDMA") and analog networks and
simultaneously revised certain aspects of its subscriber reporting
for data-only subscribers. The deactivation of the remaining TDMA
subscribers and the change in subscriber reporting resulted in the
removal of approximately 65,000 subscribers from Wireless' postpaid
subscriber base and the removal of approximately 26,000 subscribers
from Wireless' prepaid subscriber base. These adjustments are not
included in the determination of postpaid or prepaid monthly churn.
(3) As defined. See the section entitled "Key Performance Indicators and
Non-GAAP Measures". As calculated in the "Supplementary Information"
section.
Wireless Network Revenue
The increase in network revenue for the three months ended December 31,
2008, compared to the corresponding period of the prior year, was driven
predominantly by the continued growth of Wireless' postpaid subscriber base
and the year-over-year growth of wireless data. The 2% year-over-year increase
in postpaid ARPU reflects the impact of higher wireless data revenue, as well
as increased usage of various calling features, which was partially offset by
a modest decline in the voice component of ARPU. The voice component of
postpaid ARPU declined by approximately 2% during the quarter, reflecting the
impact of a softer economy on North American roaming, long-distance and
out-of-bucket voice usage combined with a general increase in the level of
competitive intensity. Excluding the decline in roaming which is linked
principally to the economic slowdown, the voice component of postpaid ARPU
would have decreased by less than 1% during the quarter.
Wireless' success in the continued reduction of postpaid churn reflects
targeted customer retention activities and continued enhancements in network
coverage and quality.
For the three months ended December 31, 2008, wireless data revenue
increased by approximately 36% over the corresponding period of 2007, to $262
million. This increase in data revenue reflects the continued growth of
smartphone and air card devices which is driving the use of text messaging and
e-mail, wireless Internet access, and other wireless data services, partially
offset by the impact of certain data services price reductions made in the
second and third quarters of 2008. For the three months ended December 31,
2008, data revenue represented approximately 18% of total network revenue,
compared to 14% in the corresponding period of 2007.
Wireless Equipment Sales
The year-over-year increase in revenue from equipment sales, including
activation fees and net of equipment subsidies, reflects the large volume of
smartphones sold in the fourth quarter of 2008.
Wireless activated more than 400,000 smartphone devices, including iPhone
3G and BlackBerry devices, during the fourth quarter of 2008. Approximately
40% of these activations were to subscribers new to Wireless with the other
60% being to existing Wireless subscribers who upgraded devices, committed to
new multi-year term contracts, and in most cases attached both voice and
monthly data packages which generate considerably above average ARPU.
Smartphone devices as a percent of postpaid gross additions increased to
approximately 49% in the current quarter from approximately 13% in the same
quarter in 2007, while smartphone devices as a percent of device upgrades
increased to approximately 51% in the current quarter from approximately 18%
in the same quarter in 2007. Because Wireless incurs significant handset
subsidies for each unit activated, the results of this successful smartphone
sales campaign drove significantly higher acquisition and retention costs at
Wireless.
The high upfront cost associated with adding smartphone subscribers so
rapidly is an investment made to obtain customers with significantly higher
than average ARPU for multi-year contracts 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 Twelve months ended
December 31, December 31,
-----------------------------------------------------
(In millions of
dollars, except
per subscriber
statistics) 2008 2007 % Chg 2008 2007 % Chg
-------------------------------------------------------------------------
Operating expenses
Cost of equipment
sales $ 326 $ 208 57 $ 1,005 $ 703 43
Sales and
marketing
expenses 214 186 15 691 653 6
Operating, general
and
administrative
expenses 476 414 15 1,833 1,558 18
-----------------------------------------------------
Operating expenses
before the
undernoted 1,016 808 26 3,529 2,914 21
Stock option plan
amendment(1) - - n/m - 46 n/m
Stock-based
compensation
(recovery)
expense(1) 4 2 100 (5) 11 n/m
Integration and
restructuring
expenses(2) 14 - n/m 14 - n/m
-----------------------------------------------------
Total operating
expenses $ 1,034 $ 810 28 $ 3,538 $ 2,971 19
-----------------------------------------------------
-----------------------------------------------------
Average monthly
operating expense
per subscriber
before sales and
marketing
expenses(3) $ 24.46 $ 21.25 15 $ 23.09 $ 20.61 12
Sales and marketing
costs per gross
subscriber
addition(3) $ 509 $ 440 16 $ 459 $ 401 14
-------------------------------------------------------------------------
(1) See the 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.
(3) As defined. See the section entitled "Key Performance Indicator and
Non-GAAP Measures". As calculated in the "Supplementary Information"
section. Average monthly operating expense per subscriber includes
retention costs and excludes sales and marketing expenses and stock-
based compensation (recovery) expense.
As a result of the significant number of smartphone activations, certain
Wireless metrics for the fourth quarter of 2008, including cost of equipment
sales, retention costs, cost of acquisition per subscriber and operating
expense per subscriber, increased measurably over the same period in the prior
year which had a dilutive impact on Wireless' operating profit growth.
However, the large majority of smartphone customers subscribe to both voice
and data service plans for multi-year terms, which has, to date, resulted in
these customers generating greater than 150% of the average subscriber ARPU.
These investments in attracting and retaining smartphone subscribers results
in the creation of net positive lifetime value per subscriber added.
Consequently, Wireless' ARPU levels are expected to be positively impacted
over the term of the subscribers' three year contracts. See the sections
entitled "Caution Regarding Forward-Looking Statements, Risks and Assumptions"
and "2009 Financial and Operating Guidance" below.
Cost of equipment sales increased for the three months ended December 31,
2008, compared to the corresponding period of the prior year, and was
primarily the result of the large volume of smartphone sales.
The year-over-year increase in operating, general and administrative
expenses, excluding retention spending discussed below, in the three months
ended December 31, 2008, compared to the corresponding period of 2007, were
partially driven by growth in the Wireless subscriber base. In addition, there
were higher costs to support increased usage of wireless data services, as
well as increases in information technology, customer care, and credit and
collection costs as a result of the complexity of supporting more
sophisticated devices and services. These costs were partially offset by
savings related to operating and scale efficiencies across various functions.
Total retention spending, including subsidies on handset upgrades, was
$176 million in the three months ended December 31, 2008, compared to $110
million in the corresponding period of the prior year. As a result of the
fourth quarter smartphone marketing campaign, Wireless had a higher than
normal rate of upgrade activity by existing subscribers during the quarter.
Approximately 60% of the smartphone device activations in the fourth quarter
of 2008 were hardware and service plan upgrades by existing subscribers which
drove the largest portion of the increase in retention spending.
Wireless estimates that the incremental hardware subsidy and data plan
commission costs associated with the significant smartphone volumes during the
fourth quarter of 2008 drove approximately $85 million of incremental expenses
versus what the same volume of devices would have been with the device sales
mix which existed in the fourth quarter of the prior year.
Wireless Adjusted Operating Profit
The year-over-year change in adjusted operating profit reflects primarily
the significant increase in cost of equipment sales from the smartphone
handset subsidies discussed above, partially offset by the increase in network
revenue. Primarily as a result of the 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 42.7% for the three months ended December 31, 2008,
compared to 48.5% in the corresponding period of 2007.
Spectrum Auction Conclusion
Wireless participated in the AWS spectrum auction in Canada which
commenced on May 27, 2008 and concluded on July 21, 2008. Wireless acquired 20
MHz of AWS spectrum, which operates in the 1700/2100 MHz frequency range,
across all 13 provinces and territories with winning bids that totalled
approximately $1.0 billion, or approximately $1.67/MHz/pop. Final payment was
submitted to Industry Canada on September 3, 2008 and Rogers was granted its
licences on December 22, 2008.
Wireless Additions to Property, Plant and Equipment
Wireless additions to PP&E, which excludes the acquisition of AWS
spectrum discussed above, are classified into the following categories:
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
---------------------------------------------------
(In millions
of dollars) 2008 2007 % Chg 2008 2007 % Chg
-------------------------------------------------------------------------
Additions to PP&E
HSPA ("High-Speed
Packet Access") $ 76 $ 57 33 $ 315 $ 316 (0)
Network - capacity 54 38 42 200 169 18
Network - other 107 100 7 259 175 48
Information and
technology and
other 72 54 33 152 147 3
Inukshuk 1 3 (67) 3 15 (80)
------------------------------------------------------
Total additions
to PP&E $ 310 $ 252 23 $ 929 $ 822 13
-------------------------------------------------------------------------
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 and the upgrade to faster network throughput
speeds. Other network-related PP&E additions included national site build
activities, additional spending on test and monitoring equipment, network
sectorization work, operating support system activities, investments in
network reliability and renewal initiatives, and new product platforms.
Information and technology and other initiatives included billing and back
office system upgrades, and other facilities and equipment spending.
CABLE
-----
Summarized Cable Financial Results
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
-----------------------------------------------------
(In millions of
dollars, except
margin) 2008(1) 2007(2) % Chg 2008(1) 2007(2) % Chg
-------------------------------------------------------------------------
Operating revenue
Cable
Operations(3) $ 741 $ 680 9 $ 2,878 $ 2,603 11
RBS 132 140 (6) 526 571 (8)
Rogers Retail 117 105 11 417 393 6
Intercompany
eliminations (5) (2) 150 (12) (9) 33
------------------------------------------------------
Total operating
revenue 985 923 7 3,809 3,558 7
------------------------------------------------------
Operating profit
(loss) before the
undernoted
Cable Operations(3) 298 260 15 1,171 1,008 16
RBS 14 8 75 59 12 n/m
Rogers Retail 1 (3) n/m 3 (4) n/m
------------------------------------------------------
Adjusted operating
profit(4) 313 265 18 1,233 1,016 21
Stock option plan
amendment(5) - - n/m - (113) n/m
Stock-based
compensation
recovery
(expense)(5) (7) 2 n/m 32 (11) n/m
Integration and
restructuring
expenses(6) (10) (17) (41) (20) (38) (47)
Contract
renegotiation fee(7) - (52) n/m - (52) n/m
Adjustment for CRTC
Part II fees
decision(8) - - n/m (25) - n/m
------------------------------------------------------
Operating
profit(4) $ 296 $ 198 49 $ 1,220 $ 802 52
------------------------------------------------------
------------------------------------------------------
Adjusted operating
profit (loss)
margin(4)
Cable
Operations(3) 40.2% 38.2% 40.7% 38.7%
RBS 10.6% 5.7% 11.2% 2.1%
Rogers Retail 0.9% (2.9%) 0.7% (1.0%)
Additions to PP&E(4)
Cable
Operations(3) $ 336 $ 246 37 $ 829 $ 710 17
RBS 11 25 (56) 36 83 (57)
Rogers Retail 9 9 - 21 21 -
------------------------------------------------------
Total additions
to PP&E $ 356 $ 280 27 $ 886 $ 814 9
-------------------------------------------------------------------------
(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) The operating results of Futureway are included in Cable's results of
operations from the date of acquisition on June 22, 2007.
(3) Cable Operations segment includes Core Cable services, Internet
services and Rogers Home Phone services.
(4) As defined. See the sections entitled "Key Performance Indicators and
Non-GAAP Measures" and "Supplementary Information".
(5) See the section entitled "Stock-based Compensation".
(6) 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.
(7) One-time charge resulting from the renegotiation of an Internet-
related services agreement.
(8) 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 Twelve months ended
December 31, December 31,
-----------------------------------------------------
(In millions of
dollars, except
margin) 2008 2007 % Chg 2008 2007 % Chg
-------------------------------------------------------------------------
Operating revenue
Core Cable $ 430 $ 397 8 $ 1,669 $ 1,540 8
Internet 182 160 14 695 608 14
Rogers Home Phone 129 123 5 514 455 13
------------------------------------------------------
Total Cable
Operations
operating revenue 741 680 9 2,878 2,603 11
------------------------------------------------------
Operating expenses
before the
undernoted
Sales and marketing
expenses 58 69 (16) 248 257 (4)
Operating, general
and administrative
expenses 385 351 10 1,459 1,338 9
------------------------------------------------------
443 420 5 1,707 1,595 7
------------------------------------------------------
Adjusted operating
profit(1) 298 260 15 1,171 1,008 16
Stock option plan
amendment(2) - - n/m - (106) n/m
Stock-based
compensation
recovery
(expense)(2) (7) 1 n/m 30 (10) n/m
Integration and
restructuring
expenses(3) (7) - n/m (9) (9) -
Contract renegotation
fee(4) - (52) n/m - (52) n/m
Adjustment for CRTC
Part II fees
decision(5) - - n/m (25) - n/m
------------------------------------------------------
Operating
profit(1) $ 284 $ 209 36 $ 1,167 $ 831 40
------------------------------------------------------
------------------------------------------------------
Adjusted operating
profit margin(1) 40.2% 38.2% 5 40.7% 38.7%
-------------------------------------------------------------------------
(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 resulting from the restructuring
of our employee base to improve our cost structure in light of the
declining economic conditions and the integration of Call-Net,
Futureway and Aurora Cable.
(4) One-time charge resulting from the renegotiation of an Internet-
related services agreement.
(5) Relates to an adjustment for CRTC Part II fees related to prior
periods.
Summarized Subscriber Results
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
-----------------------------------------------------
(Subscriber
statistics in
thousands,
except ARPU) 2008 2007(1) Chg 2008 2007(1) Chg
-------------------------------------------------------------------------
Cable homes
passed(2) 3,547 3,575 (28) 3,547 3,575 (28)
Basic Cable
Net additions(3) 4 20 (16) 9 18 (9)
Total Basic Cable
subscribers(4) 2,320 2,295 25 2,320 2,295 25
Core Cable
ARPU(5) $ 61.79 $ 57.97 $ 3.82 $ 60.47 $ 56.39 $ 4.08
High-speed Internet
Net additions 19 46 (27) 102 165 (63)
Total Internet
subscribers
(residen-
tial)(4)(6)(7)(8) 1,582 1,465 117 1,582 1,465 117
Internet ARPU(5) $ 38.81 $ 36.67 $ 2.14 $ 37.82 $ 36.51 $ 1.31
Digital Cable
Terminals, net
additions 137 110 27 404 374 30
Total terminals
in service(4) 2,283 1,871 412 2,283 1,871 412
Households, net
additions 61 61 - 191 219 (28)
Total
households(4) 1,550 1,353 197 1,550 1,353 197
Cable telephony
lines
Net additions and
migrations(9) 40 65 (25) 182 290 (108)
Total Cable
telephony
lines(4) 840 656 184 840 656 184
Cable Revenue
Generating Units
("RGUs")(10)
Net additions 124 192 (68) 484 692 (208)
Total RGUs 6,292 5,769 523 6,292 5,769 523
Circuit-switched
lines
Net losses and
migrations(9) (39) (3) (36) (119) (37) (82)
Total circuit-
switched lines(7) 215 334 (119) 215 334 (119)
-------------------------------------------------------------------------
(1) Certain of the comparative figures have been reclassified to conform
to the current year presentation.
(2) During 2008, a change in subscriber reporting resulted in a decrease
to cable homes passed of approximately 150,000.
(3) During the third quarter of 2008, a reclassification of certain
subscribers had the impact of increasing basic cable net
additions by approximately 16,000. In addition, basic cable net
subscriber additions for the twelve months ended December 31, 2008
reflect the impact of the conversion of a large municipal housing
authority's cable TV arrangement with Rogers from a bulk to an
individual tenant pay basis, which had the impact of reducing basic
cable subscribers by approximately 5,000.
(4) Included in total subscribers at December 31, 2008 are approximately
16,000 basic cable subscribers, 11,000 high-speed Internet
subscribers, 8,000 terminals in service, 6,000 digital cable
households and 2,000 cable telephony lines, representing 35,000
RGUs, acquired from Aurora Cable on June 12, 2008. These subscribers
are not included in net additions for the twelve months ended
December 31, 2008.
(5) As defined. See the sections entitled "Key Performance Indicators
and Non-GAAP Measures" and "Supplementary Information".
(6) 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 twelve months ended
December 31, 2008.
(7) Included in total subscribers at December 31, 2007 are approximately
3,000 high-speed Internet subscribers and 21,000 circuit-switched
telephony lines, representing 24,000 RGUs, acquired from Futureway.
These subscribers are not included in net additions for 2007.
(8) Included in high-speed Internet subscribers are 10,000 and 14,000
ADSL subscribers at December 31, 2008 and 2007, respectively. In
addition, ADSL subscriber losses were 2,000 in the three months
ended December 31, 2008, while there were 3,000 subscriber additions
in the three months ended December 31, 2007.
(9) Includes approximately 21,000 and 60,000 migrations from circuit-
switched to cable telephony for the three and twelve months ended
December 31, 2008, respectively, and includes approximately 2,000
and 42,000 migrations from circuit-switched to cable telephony for
the three and twelve months ended December 31, 2007, respectively.
(10) Cable RGUs are comprised of basic cable subscribers, digital cable
households, residential high-speed Internet subscribers and
residential cable telephony lines.
An overall economic slowdown in Ontario has resulted in lower net
additions of most of our cable products compared to the previous year, and has
most impacted sales of our Internet and Home Phone products.
Core Cable Revenue
Within Cable Operations, the increase in Core Cable revenue for the three
months ended December 31, 2008, compared to the corresponding period of the
prior year, reflects further penetration of our digital cable product
offerings, including increased HDTV adoption, combined with the year-over-year
increase in the number of analog cable customers. Equipment sales revenue
increased by $9 million when compared to the corresponding period in the prior
year, which is primarily the result of the HD digital box sale (versus rental)
campaign that ran during the quarter. Additionally, the impact of certain
price changes introduced in March 2008 and in March 2007 to both our digital
and basic cable services contributed to the growth in revenue.
The digital cable subscriber base grew by 15% from December 31, 2007 to
December 31, 2008. Digital penetration now represents approximately 67% of
basic cable households. Increased demand for HDTV and personal video recorder
("PVR") digital set-top box equipment and digital content generally, combined
with multi-product marketing campaigns, which package cable television,
high-speed Internet and Rogers Home Phone services, contributed to the growth
in the digital subscriber base of 61,000 in the three months ended December
31, 2008. HDTV digital cable subscribers were up 37% from December 31, 2007 to
December 31, 2008, to 568,000 helped in part by an HD digital box purchase
promotion during the quarter.
Internet (Residential) Revenue
The year-over-year increase in Internet revenues for the three months
ended December 31, 2008, primarily reflects the 8% increase in the Internet
subscriber base combined with increased ARPU resulting from Internet services
price increases made during the previous twelve months and incremental revenue
from additional usage charges.
With the high-speed Internet base now at approximately 1.6 million,
Internet penetration is approximately 45% of the homes passed by our cable
networks.
In addition to the economic impacts on sales as discussed above, the
lower high-speed Internet net additions also reflect the growing penetration
of broadband in Canada.
Rogers Home Phone Revenue
The revenue growth of Rogers Home Phone for the three months ended
December 31, 2008, reflects the year-over-year growth in the cable telephony
customer base, offset by the ongoing decline of the circuit-switched and
long-distance only customer bases. The lower net additions of cable telephony
lines versus the previous year reflects the impact of a slowing Ontario
economy combined with increased win-back activities by incumbent telecom
providers as Rogers' market share increases.
The base of cable telephony lines grew 28% from December 31, 2007 to
December 31, 2008. At December 31, 2008, cable telephony lines represented 36%
of basic cable subscribers and 24% of the homes passed by our cable networks.
Cable continues to focus principally on growing its on-net cable
telephony line base, and as part of this on-net focus, began to significantly
de-emphasize circuit-switched sales earlier this year and intensified its
efforts to convert circuit-switched lines that are within the cable territory
onto its cable telephony platform. Of the 40,000 net line additions to cable
telephony during the quarter, approximately 21,000 were migrations of lines
from our circuit-switched to our cable telephony platform.
The greater number of circuit-switched net line losses during 2008
compared to the corresponding period of 2007 reflect Cable's migrations of
lines within the cable areas from the circuit-switched platform onto the cable
telephony platform, combined with a significant de-emphasis since early 2008
on the sales and marketing of the lower margin circuit-switched telephony
product in markets outside of the cable footprint. Because of the strategic
decision 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 shrinks over time.
Cable Operations Operating Expenses
The increase in Cable's operating expenses for the three months ended
December 31, 2008 compared to the corresponding period of 2007 was primarily
driven by the increases in the digital cable, Internet and Rogers Home Phone
line bases, resulting in higher costs associated with programming content,
customer care, network operations, credit and collection costs, costs
associated with CRTC Part II fees, and increases in information technology
costs. Additionally, during the fourth quarter of 2008 equipment costs
increased by $17 million, which is primarily the result of an HD digital box
sale (versus rental) campaign. Partially offsetting these increases was a
reduction in certain costs associated with Cable's Internet product resulting
from a renegotiated agreement with Yahoo! which became effective January 1,
2008, a year-over-year reduction in selling expenditures resulting from lower
volumes of RGU net additions than in the corresponding period of the prior
year, and scale efficiencies across various functions.
Cable Operations Adjusted Operating Profit
The year-over-year growth in adjusted operating profit was primarily the
result of the revenue growth described above, partially offset by the changes
in Cable's operating expenses. As a result, Cable Operations adjusted
operating profit margins increased to 40.2% for the three months ended
December 31, 2008, compared to 38.2% in the corresponding period of 2007.
Cable Operations' base of circuit-switched local telephony customers as
discussed above, which was acquired in July 2005 through the acquisition of
Call-Net, is generally less capital intensive than its on-net cable telephony
business but also generates lower margins. As a result, the inclusion of the
circuit-switched local telephony business, which includes approximately
215,000 customers which have not been migrated to our cable network telephony
platform with Cable Operations' telephony business, has a dilutive impact on
operating profit margins.
ROGERS BUSINESS SOLUTIONS
Summarized Financial Results
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
-----------------------------------------------------
(In millions of
dollars, except
margin) 2008 2007 % Chg 2008 2007 % Chg
-------------------------------------------------------------------------
RBS operating
revenue $ 132 $ 140 (6) $ 526 $ 571 (8)
-----------------------------------------------------
Operating expenses
before the
undernoted
Sales and marketing
expenses 7 18 (61) 26 75 (65)
Operating, general
and administrative
expenses 111 114 (3) 441 484 (9)
-----------------------------------------------------
118 132 (11) 467 559 (16)
-----------------------------------------------------
Adjusted operating
profit(1) 14 8 75 59 12 n/m
Stock option plan
amendment(2) - - n/m - (2) n/m
Stock-based
compensation
recovery (expense)(2) - 1 n/m 1 - n/m
Integration and
restructuring
expenses(3) (2) (17) (88) (6) (29) (79)
-----------------------------------------------------
Operating profit
(loss)(1) $ 12 $ (8) n/m $ 54 $ (19) n/m
-----------------------------------------------------
-----------------------------------------------------
Adjusted operating
profit margin(1) 10.6% 5.7% 11.2% 2.1%
-------------------------------------------------------------------------
(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 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 and the
restructuring of RBS.
Summarized Subscriber Results
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
-----------------------------------------------------
(Subscriber
statistics in
thousands) 2008 2007 Chg 2008 2007 Chg
-------------------------------------------------------------------------
Local line
equivalents(1)
Total local line
equivalents(2) 197 237 (40) 197 237 (40)
Broadband data
circuits(3)
Total broadband
data circuits(2)(4) 34 35 (1) 34 35 (1)
-------------------------------------------------------------------------
(1) Local line equivalents include individual voice lines plus Primary
Rate Interfaces ("PRIs") at a factor of 23 voice lines each.
(2) Included in total subscribers at December 31, 2007 are approximately
14,000 local line equivalents and 1,000 broadband data circuits
acquired from Futureway. These subscribers are not included in net
additions for 2007.
(3) 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.
(4) 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 lower margin resale
and legacy data service businesses, with a shift in focus to increasing the
strength of profitable relationships and leveraging revenue opportunities over
Cable's existing network. RBS continues to focus on retaining its existing
medium-enterprise and carrier customer base, but in late 2007 it suspended
most sales and marketing initiatives related to acquiring new medium and large
business customers other than purely on-net opportunities within Cable's
footprint. For the three months ended December 31, 2008, RBS data and local
revenues declined $9 million and $4 million, respectively, while long-distance
revenue increased by $7 million compared to the corresponding period of the
prior year.
RBS continues to focus on managing the profitability of its existing
customer base and evaluate 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 were relatively unchanged
compared to the corresponding period of 2007 as a modest increase in carrier
charges was offset by reductions in technical service and information
technology costs.
The reduction in sales and marketing expenses for the three months ended
December 31, 2008, compared to the corresponding period of the prior year,
reflects streamlining initiatives associated with the refocusing of RBS'
business as discussed above.
RBS Adjusted Operating Profit
The changes described above resulted in RBS adjusted operating profit of
$14 million for the three months ended December 31, 2008, compared to an
adjusted operating profit of $8 million in the corresponding period of 2007.
ROGERS RETAIL
Summarized Financial Results
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
---------------------------------------------------
(In millions
of dollars) 2008 2007 % Chg 2008 2007 % Chg
-------------------------------------------------------------------------
Rogers Retail
operating revenue $ 117 $ 105 11 $ 417 $ 393 6
-----------------------------------------------------
Operating expenses 116 108 7 414 397 4
-----------------------------------------------------
Adjusted operating
profit (loss)(1) 1 (3) n/m 3 (4) n/m
Stock option plan
amendment(2) - - n/m - (5) n/m
Stock-based
compensation
recovery (expense)(2) - - n/m 1 (1) n/m
Integration and
restructuring
expenses(3) (1) - n/m (5) - n/m
-----------------------------------------------------
Operating profit
(loss)(1) $ - $ (3) n/m $ (1) $ (10) (90)
-----------------------------------------------------
-----------------------------------------------------
Adjusted operating
profit (loss)
margin(1) 0.9% (2.9%) 0.7% (1.0%)
-------------------------------------------------------------------------
(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 resulting from the restructuring
of our employee base to improve our cost structure in light of the
declining economic conditions and the closure of certain Rogers
Retail stores.
Rogers Retail Revenue
The increase in Rogers Retail revenue for the three months ended December
31, 2008, compared to the corresponding period of 2007, was the result of
increased sales of wireless products and services, partially offset by the
continued decline in video rentals.
Rogers Retail Adjusted Operating Profit
Adjusted operating profit at Rogers Retail was relatively unchanged for
the three months ended December 31, 2008, compared to the corresponding period
of the prior year, and reflects the trends noted above.
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 Twelve months ended
December 31, December 31,
---------------------------------------------------
(In millions
of dollars) 2008 2007 % Chg 2008 2007 % Chg
-------------------------------------------------------------------------
Additions to PP&E
Customer premise
equipment $ 113 $ 91 24 $ 284 $ 304 (7)
Scalable
infrastructure 111 72 54 279 167 67
Line extensions 17 15 13 48 57 (16)
Upgrades and
rebuild 19 14 36 35 43 (19)
Support capital 76 54 41 183 139 32
-----------------------------------------------------
Total Cable
Operations 336 246 37 829 710 17
RBS 11 25 (56) 36 83 (57)
Rogers Retail 9 9 - 21 21 -
-----------------------------------------------------
$ 356 $ 280 27 $ 886 $ 814 9
-------------------------------------------------------------------------
The increase in Cable Operations PP&E additions for the three months
ended December 31, 2008, compared to the corresponding period of 2007, is
primarily attributable to a larger subscriber base, increased demand for
high-speed Internet access and the deployment of new technologies. This
resulted in increased spending on scalable infrastructure related to, amongst
other things, network capacity and continued investment in switched-digital
technology. The year-over-year increase in support capital reflects higher
investments in IT initiatives. Spending on CPE increased for the three months
ended December 31, 2008, compared to the corresponding period of the prior
year to support end-of-year digital promotional marketing activities.
The reduction in RBS PP&E additions for the three months ended December
31, 2008, compared to the corresponding period of the prior year, reflects the
refocusing of RBS's business as discussed above.
Rogers Retail PP&E additions are attributable to improvements made to
certain retail locations.
MEDIA
-----
Summarized Media Financial Results
-------------------------------------------------------------------------
Three months ended Twelve months ended
December 31, December 31,
------------------------------------------------------
(In millions of
dollars, except 2008 2008
margin) (1)(2) 2007(3) % Chg (1)(2) 2007(3) % Chg
-------------------------------------------------------------------------
Operating revenue $ 394 $ 364 8 $ 1,496 $ 1,317 14
------------------------------------------------------
Operating expenses
before the
undernoted 348 301 16 1,354 1,141 19
------------------------------------------------------
Adjusted operating
profit(4) 46 63 (27) 142 176 (19)
Stock option plan
amendment(5) - - n/m - (84) n/m
Stock-based
compensation
recovery
(expense)(5) (5) (1) n/m 17 (10) n/m
Integration and
restructuring
expenses(6) (11) - n/m (11) - n/m
Adjustment for CRTC
Part II fees
decision(7) - - n/m (6) - n/m
------------------------------------------------------
Operating
profit(4) $ 30 $ 62 (52) $ 142 $ 82 73
------------------------------------------------------
------------------------------------------------------
Adjusted operating
profit margin(4) 11.7% 17.3% 9.5% 13.4%
Additions to
property, plant
and equipment(4) $ 32 $ 32 - $ 81 $ 77 5
-------------------------------------------------------------------------
(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) The operating results of Citytv are included in Media's results of
operations from the date of acquisition on October 31, 2007.
(4) As defined. See the section entitled "Key Performance Indicators and
Non-GAAP Measures".
(5) See the section entitled "Stock-based Compensation".
(6) 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.
(7) Relates to an adjustment for CRTC Part II fees related to prior
periods.
Media Revenue
The increase in Media revenue for the three months ended December 31,
2008, over the corresponding period of 2007, primarily reflects the October
31, 2007 acquisition of Citytv which contributed $40 million and $28 million
to revenue in the fourth quarter of 2008 and 2007, respectively. Excluding the
impact of the Citytv acquisition, Media's revenue for the fourth quarter 2008
would have increased 5% versus the corresponding period in 2007. Also
contributing to revenue growth at Media was the Buffalo Bills NFL Toronto
series, revenues from Major League Baseball and Sportsnet, offset by modest
revenue declines at Publishing and Radio driven by advertising softness and
The Shopping Channel driven by a challenging retail environment.
Media Operating Expenses
The increase in Media operating expenses for the three months ended
December 31, 2008, compared to the corresponding period of 2007, primarily
reflects an additional $11 million of Citytv operating costs versus the two
month period following the October 31, 2007 acquisition date. Current year
expenses also include the Buffalo Bills NFL Toronto series and CRTC Part II
fees, both of which did not occur in 2007, partially offset by cost savings
across various functions.
Media Adjusted Operating Profit
The decrease in Media's adjusted operating profit for the three months
ended December 31, 2008, compared to the corresponding period of 2007,
primarily reflects the revenue and expense changes discussed above and overall
is reflective of the challenging economic conditions and the resultant
declines in advertising and retail sales activity.
The challenging economic conditions have resulted in a weakening of
industry expectations in the conventional television business. As a result of
the challenging conditions and declines in advertising revenues, we recorded
an impairment charge of $294 million. See the section entitled "Impairment
Losses on Goodwill, Intangible Assets and Other Long-Term Assets" for further
details.
Media Additions to PP&E
The majority of Media's PP&E additions in the three months ended December
31, 2008, reflect the construction of a new television production facility for
the combined Toronto, Ontario operations of Citytv and OMNI, and are
relatively unchanged from the three months ended December 31, 2007.
Recent Media Developments
Media announced that the CRTC had approved its application for a 24-hour
news television channel to serve the city of Toronto and the Greater Toronto
Area. The channel will reflect Citytv's unique brand of news delivery, will be
complemented by content from Rogers' ethnically diverse OMNI stations and will
also feature news items contributed from other Rogers Media properties
including The Fan 590, 680News, Sportsnet, Publishing and the Blue Jays.
OMNI was honoured by the Canadian Association of Broadcasters with Gold
Ribbon Awards in two categories, including Diversity in News and Information
Programming, and in Magazine Programming. These awards reaffirm OMNI's
excellence in delivering independent and third language programming to
Canada's multilingual and multicultural communities.
OVERVIEW OF RECENT FINANCING AND SHARE CAPITAL ACTIVITIES
Consolidated Liquidity and Capital Resources
Operations
For the three months ended December 31, 2008, cash generated from
operations before changes in non-cash operating working capital items, which
is calculated by eliminating the effect of all non-cash items from net income,
increased to $804 million from $791 million in the corresponding period of
2007.
Taking into account the changes in non-cash working capital items for the
three months ended December 31, 2008, cash generated from operations was $840
million, compared to $839 million in the corresponding period of 2007. The
cash generated from operations of $840 million, together with the following
items, resulted in total net funds of approximately $868 million generated or
raised in the three months ended December 31, 2008:
- receipt of $20 million aggregate net advances borrowed under our bank
credit facility;
- receipt of $1 million from the issuance of Class B Non-Voting shares
under the exercise of employee stock options;
- receipt of $1 million in net proceeds from the settlement at maturity
of certain Cross-Currency Swaps and the related forward foreign
exchange contracts; and
- receipt of $6 million from other net investments.
Net funds used during the three months ended December 31, 2008 totalled
approximately $850 million, the details of which include funding:
- additions to PP&E of $636 million, net of $147 million of related
changes in non-cash working capital;
- the payment of quarterly dividends of $159 million on our Class A
Voting and Class B Non-Voting shares; and
- additions to program rights and CRTC commitments aggregating
$55 million.
Taking into account the cash deficiency of $37 million at the beginning
of the period and the cash sources and uses described above, the cash
deficiency at December 31, 2008 was $19 million.
Financing
Our long-term debt instruments are described in Note 15 to the 2007
Annual Audited Consolidated Financial Statements. During the three months
ended December 31, 2008, an aggregate $20 million net advances were drawn
under our bank credit facility.
In addition, on December 15, 2008, two of our Cross-Currency Swaps
matured on their scheduled maturity date and, as a result, we received US$400
million and paid $475 million aggregate notional principal amounts on the
settlement at maturity. Also on December 15, 2008, we settled forward foreign
exchange contracts to sell an aggregate US$400 million in exchange for $476
million. As a result of the maturity of these Cross-Currency Swaps, our US$400
million 8.00% Senior Subordinated Notes due 2012 are no longer hedged.
At December 31, 2008, we had an aggregate $585 million of bank debt drawn
under our $2.4 billion bank credit facility that matures in July 2013, leaving
approximately $1.8 billion available to be drawn. This liquidity position is
also enhanced by the fact that our earliest scheduled debt maturity is in May,
2011.
Shelf Prospectuses
In order to maintain financial flexibility, in November 2007 RCI filed
shelf prospectuses with securities regulators to qualify debt securities of
RCI for sale in Canada and/or in the United States. In August 2008, US$1.75
billion aggregate principal amount of debt securities was issued in the United
States pursuant to the U.S. dollar shelf prospectus. In October 2008, an
amendment was filed to permit additional securities to be issued in Canada and
the United States pursuant to the shelf prospectuses so that the limit
available for securities to be issued in the United States pursuant to the
U.S. dollar shelf prospectus was essentially restored to the range of the
original shelf prospectus filings. The notice set forth in this paragraph does
not constitute an offer of any securities for sale.
Normal Course Issuer Bid
In January 2008, RCI filed an NCIB which authorizes us to repurchase up
to the lesser of 15,000,000 of our Class B Non-Voting shares and that number
of Class B Non-Voting shares that can be purchased under the NCIB for an
aggregate purchase price of $300 million for a period of one year. On May 21,
2008, RCI repurchased for cancellation 1,000,000 of its outstanding Class B
Non-Voting shares pursuant to a private agreement between RCI and an
arm's-length third party seller for an aggregate purchase price of $39.9
million and, on August 1, 2008, RCI repurchased for cancellation 3,000,000 of
its outstanding Class B Non-Voting shares pursuant to a private agreement
between RCI and an arm's-length third party seller for an aggregate purchase
price of $93.9 million. Each of these purchases was made under an issuer bid
exemption order issued by the Ontario Securities Commission and will be
included in calculating the number of Class B Non-Voting shares that RCI may
purchase pursuant to the NCIB. In addition, in August and September 2008, RCI
purchased an aggregate 77,400 of its outstanding Class B Non-Voting shares
directly under the NCIB for an aggregate purchase price of $2.9 million. The
NCIB expired on January 13, 2009. On February 18, 2009, RCI announced that it
had filed a notice of intention to renew its prior NCIB for a further one-year
period commencing February 20, 2009 and ending February 19, 2010. The number
of Class B Non-Voting shares to be purchased under the renewed NCIB, if any,
and the timing of such purchases will be determined by RCI considering market
conditions, stock prices, its cash position, and other factors.
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 Cross-Currency
Swaps, whether or not they qualify as hedges for accounting purposes, since
all such Cross-Currency Swaps 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
Cross-Currency Swaps regardless of qualifications for accounting purposes as a
hedge.
On December 15, 2008, two of our Cross-Currency Swaps matured on their
scheduled maturity date and, as a result, we received US$400 million and paid
$475 million aggregate notional principal amounts on the settlement at
maturity. Also on December 15, 2008, we settled forward foreign exchange
contracts to sell an aggregate US$400 million in exchange for $476 million. As
a result of the maturity of these Cross-Currency Swaps, our US$400 million
8.00% Senior Subordinated Notes due 2012 are no longer hedged.
As a result of the maturity of the Cross-Currency Swaps described above,
on December 31, 2008, 93% of our U.S. dollar-denominated debt was hedged on an
economic basis while 87% of our U.S. dollar-denominated debt was hedged on an
accounting basis. That is, the Cross-Currency Swaps hedging our US$350 million
7.50% Senior Notes due 2038 do not qualify as hedges for accounting purposes
and our US$400 million 8.00% Senior Subordinated Notes due 2012 are no longer
hedged.
Consolidated Hedged Position
-------------------------------------------------------------------------
(In millions of
dollars, except December 31, December 31,
percentages) 2008 2007
-------------------------------------------------------------------------
U.S. dollar-denominated long-term debt US $5,940 US $4,190
Hedged with cross-currency interest
rate exchange agreements US $5,540 US $4,190
Hedged exchange rate Cdn $1.2043 Cdn $1.3313
Percent hedged 93.3%(1) 100.0%
-------------------------------------------------------------------------
Amount of long-term debt(2) at fixed rates:
Total long-term debt Cdn $8,383 Cdn $7,454
Total long-term debt at fixed rates Cdn $7,798 Cdn $6,214
Percent of long-term debt fixed 93.0% 83.4%
-------------------------------------------------------------------------
Weighted average interest
rate on long-term debt 7.29% 7.53%
-------------------------------------------------------------------------
(1) Pursuant to the requirements for hedge accounting under Canadian
Institute of Chartered Accountants ("CICA") Handbook Section 3865,
Hedges, on December 31, 2008, RCI accounted for 93% of its Cross-
Currency Swaps as hedges against designated U.S. dollar-denominated
debt. As a result, 87% of our U.S. dollar-denominated debt is hedged
for accounting purposes versus 93% on an economic basis.
(2) Long-term debt includes the effect of the Cross-Currency Swaps.
Fair Market Value Asset and Liability for Cross-Currency Swaps
In accordance with Canadian GAAP, we have recorded our Cross-Currency
Swaps at an estimated credit-adjusted mark-to-market valuation which is
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 Cross-Currency Swap. In the case of Cross-Currency Swaps accounted for as
assets by Rogers (i.e. those Cross-Currency Swaps for which the counterparties
owe Rogers on a net basis), the CDS Spread for the bank counterparty is added
to the risk-free discount rate to determine the estimated credit-adjusted
value. In the case of Cross-Currency Swaps accounted for as liabilities (i.e.
- those Cross-Currency Swaps for which Rogers owes the counterparties),
Rogers' CDS Spread is added to the risk-free discount rate. The estimated
credit-adjusted values of the Cross-Currency Swaps are subject to changes in
credit spreads of Rogers and its counterparties. In 2007, we recorded our
Cross-Currency Swaps at the estimated risk-free fair value.
The effect of estimating the credit-adjusted fair value of Cross-Currency
Swaps at December 31, 2008 is illustrated in the table below. As at December
31, 2008, the net liability of Rogers' Cross-Currency Swap portfolio increased
by $10 million to $154 million versus the net liability calculated on an
unadjusted mark-to-market basis. The increase in the net liability is a result
of the estimated fair value of the Cross-Currency Swaps accounted for as
assets decreasing by $65 million while the estimated fair value of the
Cross-Currency Swaps accounted for as liabilities decreased by $55 million.
-------------------------------------------------------------------------
Swaps
Swaps accounted Net
accounted for liability
for as as liabi- position
(In millions of dollars) assets (A) lities (B) (A + B)
------------------------------------------------------------------------
Mark-to-market value - risk free analysis $ 572 $ (716) $ (144)
------------------------------------------------------------------------
Mark-to-market value - credit-adjusted
estimate (carrying value) $ 507 $ (661) $ (154)
-------------------------------------------------------------------------
Difference $ (65) $ 55 $ (10)
-------------------------------------------------------------------------
Of the $10 million impact, $7 million was recorded in the consolidated
statement of income related to Cross-Currency Swaps not accounted for as
hedges and $3 million related to hedges was recorded in other comprehensive
income.
Outstanding Common Share Data
Set forth below is our outstanding common share data as at December 31,
2008.
-------------------------------------------------------------------------
December 31, 2008
-------------------------------------------------------------------------
Common Shares(1)
Class A Voting 112,462,014
Class B Non-Voting 523,429,539
-------------------------------------------------------------------------
Options to purchase Class B Non-Voting shares
Outstanding options 13,841,620
Outstanding options exercisable 9,228,740
-------------------------------------------------------------------------
(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 August 19, 2008, we declared a quarterly dividend of $0.25 per share
on each of the outstanding Class A Voting and Class B Non-Voting shares. This
quarterly dividend totalling $158 million was paid on October 1, 2008 to
shareholders of record on September 3, 2008.
On October 28, 2008, we declared a quarterly dividend of $0.25 per share
on each of the outstanding Class A Voting and Class B Non-Voting shares. This
quarterly dividend totalling $159 million was paid on January 2, 2009 to
shareholders of record on November 25, 2008.
In February 2009, our Board of Directors adopted a dividend policy which
increases the annual dividend rate from $1.00 to $1.16 per Class A Voting and
Class B Non-Voting share effective immediately to be paid in quarterly amounts
of $0.29 per share. Such quarterly dividends are only payable as and when
declared by our Board of Directors and there is no entitlement to any dividend
prior thereto.
In addition, on February 17, 2009, the Board of Directors declared a
quarterly dividend totaling $0.29 per share on each of its outstanding Class B
Non-voting shares and Class A Voting shares, such dividend to be paid on April
1, 2009, to shareholders of record on March 6, 2009, and is the first
quarterly dividend to reflect the newly increased $1.16 per share annual
dividend level.
2009 FINANCIAL AND OPERATING GUIDANCE
The following table outlines guidance ranges and assumptions for selected
financial and operating statistics for 2009. This information is
forward-looking and should be read in conjunction with the section below
entitled "Caution Regarding Forward-Looking Statements, Risks and Assumptions"
and in related disclosures, for the various economic, competitive, and
regulatory assumptions and factors that could cause actual future financial
and operating results to differ from those currently expected.
Full Year 2009 Guidance
----------------------------------------- -------- --------------------
2008 2009
(Millions of dollars, except subscribers) Actual Guidance Range
----------------------------------------- -------- --------------------
Consolidated
Revenue(1) $11,335 Up 5% to 9%
Adjusted operating profit(2) 4,060 Up 3% to 8%
Additions to PP&E(3) 2,021 (10%) to 0%
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 (6%) to 4%
Adjusted operating profit(2)
Wireless $2,806 Up 5% to 9%
Cable Operations(5) 1,171 Up 6% to 10%
Media(6) 142 (19%) to 2%
Additions to PP&E
Wireless $929 (10%) to (2%)
Cable Operations 829 (16%) to (7%)
----------------------------------------- -------- --------------------
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 includes 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 Sports Entertainment estimated at $20 million in
2009.
KEY PERFORMANCE INDICATORS AND NON-GAAP MEASURES
Calculation of Adjusted Operating Profit, Net Income and Earnings
Per Share
-------------------------------------------------------------------------
Three months ended Twelve months ended
(In millions of dollars, December 31, December 31,
number of shares outstanding ------------------------------------------
in millions) 2008 2007 2008 2007
-------------------------------------------------------------------------
Operating profit $ 902 $ 884 $ 4,078 $ 3,099
Add (deduct):
Stock option plan amendment - - - 452
Stock-based compensation
(recovery) expense 25 4 (100) 62
Adjustment for CRTC Part II
fees decision - - 31 -
Integration and restructuring
expenses 41 17 51 38
Contract renegotiation fee - 52 - 52
------------------------------------------
Adjusted operating profit $ 968 $ 957 $ 4,060 $ 3,703
------------------------------------------
------------------------------------------
Net income (loss) $ (138) $ 254 $ 1,002 $ 637
Add (deduct):
Stock option plan amendment - - - 452
Stock-based compensation
(recovery) expense 25 4 (100) 62
Adjustment for CRTC Part II
fees decision - - 31 -
Integration and restructuring
expenses 41 17 51 38
Contract renegotiation fee - 52 - 52
Loss on repayment of
long-term debt - - - 47
Impairment losses on goodwill,
intangible assets and other
long-term assets 294 - 294 -
Debt issuance costs - - 16 -
Income tax impact (58) (25) (34) (222)
------------------------------------------
Adjusted net income $ 164 $ 302 $ 1,260 $ 1,066
------------------------------------------
------------------------------------------
Adjusted basic earnings per
share:
Adjusted net income $ 164 $ 302 $ 1,260 $ 1,066
Divided by: weighted average
number of shares outstanding 636 639 638 638
------------------------------------------
Adjusted basic earnings per
share $ 0.26 $ 0.47 $ 1.98 $ 1.67
------------------------------------------
------------------------------------------
Adjusted diluted earnings
per share:
Adjusted net income $ 164 $ 302 $ 1,260 $ 1,066
Divided by: diluted weighted
average number of shares
outstanding 636 639 638 642
------------------------------------------
Adjusted diluted earnings per
share $ 0.26 $ 0.47 $ 1.98 $ 1.66
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Calculations of Wireless Non-GAAP Measures
--------------------------------------------------- ---------------------
(In millions of dollars, Three months ended Twelve months ended
subscribers in thousands, December 31, December 31,
except ARPU figures and -------------------- ---------------------
operating profit margin) 2008 2007 2008 2007
--------------------------------------------------- ---------------------
Postpaid ARPU (monthly)
Postpaid (voice and data)
revenue $ 1,426 $ 1,283 $ 5,548 $ 4,868
Divided by: average postpaid
wireless voice and data
subscribers 6,362 5,832 6,142 5,618
Divided by: 3 months for the
quarter and 12 months for
year-to-date 3 3 12 12
-------------------- ---------------------
$ 74.71 $ 73.33 $ 75.27 $ 72.21
--------------------------------------------------- ---------------------
Prepaid ARPU (monthly)
Prepaid (voice and data)
revenue $ 70 $ 70 $ 285 $ 273
Divided by: average prepaid
subscribers 1,467 1,406 1,426 1,382
Divided by: 3 months for the
quarter and 12 months for
year-to-date 3 3 12 12
-------------------- ---------------------
$ 15.91 $ 16.59 $ 16.65 $ 16.46
--------------------------------------------------- ---------------------
Cost of acquisition per gross
addition
Total sales and marketing
expenses $ 214 $ 186 $ 691 $ 653
Equipment margin loss
(acquisition related) 63 43 219 149
-------------------- ---------------------
$ 277 $ 229 $ 910 $ 802
-------------------- ---------------------
-------------------- ---------------------
Divided by: total gross
wireless additions
(postpaid, prepaid and
one-way messaging) 544 520 1,982 1,998
-------------------- ---------------------
$ 509 $ 440 $ 459 $ 401
--------------------------------------------------- ---------------------
Operating expense per average
subscriber (monthly)
Operating, general and
administrative expenses $ 476 $ 414 $ 1,833 $ 1,558
Equipment margin loss
(retention related) 106 55 294 205
-------------------- ---------------------
$ 582 $ 469 $ 2,127 $ 1,763
-------------------- ---------------------
-------------------- ---------------------
Divided by: average total
wireless subscribers 7,930 7,357 7,678 7,128
Divided by: 3 months for
the quarter and 12 months
for year-to-date 3 3 12 12
-------------------- ---------------------
$ 24.46 $ 21.25 $ 23.09 $ 20.61
--------------------------------------------------- ---------------------
Equipment margin loss
Equipment sales $ 157 $ 110 $ 492 $ 349
Cost of equipment sales (326) (208) (1,005) (703)
-------------------- ---------------------
$ (169) $ (98) $ (513) $ (354)
-------------------- ---------------------
-------------------- ---------------------
Acquisition related $ (63) $ (43) $ (219) $ (149)
Retention related (106) (55) (294) (205)
-------------------- ---------------------
$ (169) $ (98) $ (513) $ (354)
-------------------- ---------------------
-------------------- ---------------------
--------------------------------------------------- ---------------------
Adjusted operating profit
margin
Adjusted operating profit $ 639 $ 658 $ 2,806 $ 2,589
Divided by network revenue 1,498 1,356 5,843 5,154
-------------------- ---------------------
Adjusted operating profit
margin 42.7% 48.5% 48.0% 50.2%
--------------------------------------------------- ---------------------
Calculations of Cable Non-GAAP Measures
--------------------------------------------------- ---------------------
(In millions of dollars, Three months ended Twelve months ended
subscribers in thousands, December 31, December 31,
except ARPU figures and ------------------------------------------
operating profit margin) 2008 2007 2008 2007
--------------------------------------------------- ---------------------
Core Cable ARPU
Core Cable revenue $ 430 $ 397 $ 1,669 $ 1,540
Divided by: average basic
cable subscribers 2,320 2,283 2,300 2,276
Divided by: 3 months for the
quarter and 12 months for
year-to-date 3 3 12 12
-------------------- ---------------------
$ 61.79 $ 57.97 $ 60.47 $ 56.39
--------------------------------------------------- ---------------------
Internet ARPU
Internet revenue $ 182 $ 160 $ 695 $ 608
Divided by: average Internet
(residential) subscribers 1,563 1,454 1,531 1,388
Divided by: 3 months for the
quarter and 12 months for
year-to-date 3 3 12 12
-------------------- ---------------------
$ 38.81 $ 36.67 $ 37.82 $ 36.51
--------------------------------------------------- ---------------------
Cable Operations adjusted
operating profit margin:
Adjusted operating profit $ 298 $ 260 $ 1,171 $ 1,008
Divided by revenue 741 680 2,878 2,603
-------------------- ---------------------
Cable Operations adjusted
operating profit margin 40.2% 38.2% 40.7% 38.7%
--------------------------------------------------- ---------------------
RBS adjusted operating profit
margin:
Adjusted operating profit $ 14 $ 8 $ 59 $ 12
Divided by revenue 132 140 526 571
-------------------- ---------------------
RBS adjusted operating profit
margin 10.6% 5.7% 11.2% 2.1%
--------------------------------------------------- ---------------------
Rogers Communications Inc.
Unaudited Consolidated Statements of Income
Three Months Ended Twelve Months Ended
(In millions of dollars, December 31, December 31,
except per share amounts) 2008 2007 2008 2007
------------------------------ ---------- ---------- ---------- ---------
Operating revenue $ 2,941 $ 2,687 $ 11,335 $ 10,123
Operating expenses:
Cost of sales 408 245 1,303 961
Sales and marketing 381 336 1,334 1,322
Operating, general and
administrative 1,209 1,205 4,569 4,251
Stock option plan amendment - - - 452
Integration and restructuring 41 17 51 38
Depreciation and amortization 471 408 1,760 1,603
Impairment losses on goodwill,
intangible assets and other
long-term assets 294 - 294 -
------------------------------ ---------- ---------- ---------- ---------
Operating income 137 476 2,024 1,496
Interest on long-term debt (157) (138) (575) (579)
Debt issuance costs - - (16) -
Foreign exchange gain (loss) (77) 1 (99) 54
Loss on repayment of
long-term debt - - - (47)
Change in the fair value of
derivative instruments 43 (3) 64 (34)
Other income (expense), net 3 2 28 (4)
------------------------------ ---------- ---------- ---------- ---------
Income (loss) before income
taxes (51) 338 1,426 886
Income tax expense (recovery):
Current 1 (2) 3 (1)
Future 86 86 421 250
------------------------------ ---------- ---------- ---------- ---------
Net income (loss) for the
period $ (138) $ 254 $ 1,002 $ 637
------------------------------ ---------- ---------- ---------- ---------
------------------------------ ---------- ---------- ---------- ---------
Net income (loss) per share:
Basic $ (0.22) $ 0.40 $ 1.57 $ 1.00
Diluted (0.22) 0.40 1.57 0.99
------------------------------ ---------- ---------- ---------- ---------
Rogers Communications Inc.
Unaudited Consolidated Statements of Cash Flows
Three Months Ended Twelve Months Ended
December 31, December 31,
(In millions of dollars) 2008 2007 2008 2007
------------------------------ ---------- ---------- ---------- ---------
Cash provided by (used in):
Operating activities:
Net income for the period $ (138) $ 254 $ 1,002 $ 637
Adjustments to reconcile net
income to net cash flows
from operating activities:
Depreciation and
amortization 471 408 1,760 1,603
Impairment losses on
goodwill, intangible
assets, and other
long-term assets 294 - 294 -
Program rights and Rogers
Retail rental amortization 43 35 146 92
Future income taxes 86 86 421 250
Unrealized foreign exchange
loss (gain) 53 - 65 (46)
Change in the fair value
of derivative instruments (43) 3 (64) 34
Loss on repayment of
long-term debt - - - 47
Stock option plan amendment - - - 452
Stock-based compensation
expense (recovery) 25 4 (100) 62
Amortization of fair value
increment of long-term debt (1) (1) (5) (6)
Other 14 2 3 10
------------------------------ ---------- ---------- ---------- ---------
804 791 3,522 3,135
Change in non-cash operating
working capital items 36 48 (215) (310)
------------------------------ ---------- ---------- ---------- ---------
840 839 3,307 2,825
------------------------------ ---------- ---------- ---------- ---------
Investing activities:
Additions to property, plant
and equipment (783) (624) (2,021) (1,796)
Change in non-cash working
capital items related to
property, plant and equipment 147 119 40 (20)
Acquisition of spectrum
licences - - (1,008) -
Acquisitions, net of cash
and cash equivalents acquired - (408) (191) (537)
Additions to program rights
and CRTC commitments (55) (26) (150) (67)
Other 6 (9) (7) (18)
------------------------------ ---------- ---------- ---------- ---------
(685) (948) (3,337) (2,438)
Financing activities:
Issuance of long-term debt 675 690 4,474 5,476
Repayment of long-term debt (655) (485) (3,335) (5,623)
Premium on repayment of
long-term debt - - - (59)
Financing costs incurred - - - (4)
Payment on re-couponing of
cross-currency interest rate
exchange agreements - - (375) -
Payment on settlement of
cross-currency interest rate
exchange agreements and
forward contracts (969) - (969) (873)
Proceeds on settlement of
cross-currency interest rate
exchange agreements and
forward contracts 970 - 970 838
Repurchase of Class B
Non-Voting shares - - (137) -
Issuance of capital stock on
exercise of stock options 1 1 3 27
Dividends paid (159) (80) (559) (211)
------------------------------ ---------- ---------- ---------- ---------
(137) 126 72 (429)
------------------------------ ---------- ---------- ---------- ---------
Increase (decrease) in cash
and cash equivalents 18 17 42 (42)
Cash deficiency, beginning
of period (37) (78) (61) (19)
------------------------------ ---------- ---------- ---------- ---------
Cash deficiency, end of period $ (19) $ (61) $ (19) $ (61)
------------------------------ ---------- ---------- ---------- ---------
------------------------------ ---------- ---------- ---------- ---------
Supplemental cash flow
information:
Income taxes paid $ - $ - $ 1 $ 1
Interest paid 162 177 532 605
------------------------------ ---------- ---------- ---------- ---------
------------------------------ ---------- ---------- ---------- ---------
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.
Change in Non-Cash Working Capital Items
Three Months Ended Twelve Months Ended
December 31, December 31,
(In millions of dollars) 2008 2007 2008 2007
------------------------------ ---------- ---------- ---------- ---------
Cash provided by (used in):
Increase in accounts
receivable $ (92) $ (51) $ (166) $ (122)
Decrease (increase) in other
assets (105) 17 (176) (71)
Increase (decrease) in accounts
payable and accrued liabilities 220 68 115 (115)
Increase (decrease) in
unearned revenue 13 14 12 (2)
------------------------------ ---------- ---------- ---------- ---------
$ 36 $ 48 $ (215) $ (310)
------------------------------ ---------- ---------- ---------- ---------
Rogers Communications Inc.
Unaudited Consolidated Balance Sheets
December 31, December 31,
(In millions of dollars) 2008 2007
----------------------------------------------------------- -------------
Assets
Current assets
Accounts receivable $ 1,403 $ 1,245
Other current assets 442 304
Future income tax assets 446 594
----------------------------------------------------------- -------------
2,291 2,143
Property, plant and equipment 7,898 7,289
Goodwill 3,024 3,027
Intangible assets 2,761 2,086
Investments 343 485
Derivative instruments 507 -
Other long-term assets 269 295
----------------------------------------------------------- -------------
$ 17,093 $ 15,325
----------------------------------------------------------- -------------
----------------------------------------------------------- -------------
Liabilities and Shareholders' Equity
Liabilities
Current liabilities
Bank advances, arising from
outstanding cheques $ 19 $ 61
Accounts payable and accrued liabilities 2,412 2,260
Current portion of long-term debt 1 1
Current portion of derivative instruments 45 195
Unearned revenue 239 225
----------------------------------------------------------- -------------
2,716 2,742
Long-term debt 8,506 6,032
Derivative instruments 616 1,609
Other long-term liabilities 184 214
Future income tax liabilities 344 104
----------------------------------------------------------- -------------
12,366 10,701
Shareholders' equity 4,727 4,624
----------------------------------------------------------- -------------
$ 17,093 $ 15,325
----------------------------------------------------------- -------------
SUPPLEMENTARY INFORMATION
Investments
December 31, December 31,
(In millions of dollars) 2008 2007
----------------------------------------------------------- -------------
Carrying Carrying
Value Value
----------------------------------------------------------- -------------
Publicly traded companies, at quoted market value:
Cogeco Cable Inc. 6,595,675 Subordinate Voting
Common shares $ 228 $ 315
Cogeco Inc. 3,399,800 Subordindate Voting
Common shares 85 134
Other publicly traded companies 6 16
----------------------------------------------------------- -------------
319 465
Private companies, at cost 17 8
Investments accounted for by the equity method 7 12
----------------------------------------------------------- -------------
$ 343 $ 485
----------------------------------------------------------- -------------
Long-term Debt
December December
Due Principal Interest 31, 31,
(In millions of dollars) date amount Rate 2008 2007
---------------------------------------------------------------- --------
Corporate:
Bank credit facility Floating $ 585 $1,240
Senior Notes 2018 $ U.S. 1,400 6.80% 1,714 -
Senior Notes 2038 U.S. 350 7.50% 429 -
Formerly Rogers Wireless
Inc.:
Senior Notes 2011 U.S. 490 9.625% 600 484
Senior Notes 2011 460 7.625% 460 460
Senior Notes 2012 U.S. 470 7.25% 575 464
Senior Notes 2014 U.S. 750 6.375% 918 741
Senior Notes 2015 U.S. 550 7.50% 673 543
Senior Subordinated Notes 2012 U.S. 400 8.00% 490 395
Fair value increment
arising from purchase
accounting 12 17
Formerly Rogers Cable Inc.:
Senior Notes 2011 175 7.25% 175 175
Senior Notes 2012 U.S. 350 7.875% 429 346
Senior Notes 2013 U.S. 350 6.25% 429 346
Senior Notes 2014 U.S. 350 5.50% 429 346
Senior Notes 2015 U.S. 280 6.75% 343 277
Senior Debentures 2032 U.S. 200 8.75% 245 198
Capital leases and other Various 1 1
---------------------------------------------------------------- --------
8,507 6,033
Less current portion 1 1
---------------------------------------------------------------- --------
$8,506 $6,032
---------------------------------------------------------------- --------
Shareholders' Equity
Class A Voting Shares Class B Non-Voting Shares
--------------------------- --------------------------
Number of Number of
(in millions of Amount shares Amount shares
dollars, except ------------------------------------------------------
number of shares) (000s) (000s)
-------------------------------------------------------------------------
Balances, January
1, 2008: $ 72 112,462 $ 471 527,005
Net income for the
period - - - -
Shares issued on
exercise of stock
options - - 21 502
Dividends declared - - - -
Repurchase of Class
B Non-Voting
shares - - (4) (4,077)
Other comprehensive
income (loss) - - - -
-------------------------------------------------------------------------
Balances, December
31, 2008 $ 72 112,462 $ 488 523,430
-------------------------------------------------------------------------
Accumulated
other
Retained comprehensive Total
Contributed earnings Income Shareholders'
(in millions of Surplus (deficit) (loss) Equity
dollars, except ------------------------------------------------------
number of shares)
-------------------------------------------------------------------------
Balances, January
1, 2008: $ 3,689 $ 342 $ 50 $ 4,624
Net income for the
period - 1,002 - 1,002
Shares issued on
exercise of stock
options - - - 21
Dividends declared - (638) - (638)
Repurchase of Class
B Non-Voting
shares (129) (4) - (137)
Other comprehensive
income (loss) - - (145) (145)
-------------------------------------------------------------------------
Balances, December
31, 2008 $ 3,560 $ 702 $ (95) $ 4,727
-------------------------------------------------------------------------
Calculation of Net Income (Loss) Per Share
Three Months Ended Twelve Months Ended
(In millions, except December 31, December 31,
per share amounts) 2008 2007 2008 2007
------------------ ------------- ------------- ------------- ------------
Numerator:
Net income (loss)
for the period,
basic and
diluted $ (138) $ 254 $ 1,002 $ 637
------------------ ------------- ------------- ------------- ------------
Denominator (in
millions):
Weighted average
number of shares
outstanding
- basic 636 639 638 638
Effect of
dilutive
securities:
Employee
stock options - - - 4
------------------ ------------- ------------- ------------- ------------
Weighted average
number of shares
outstanding - diluted 636 639 638 642
------------------ ------------- ------------- ------------- ------------
------------------ ------------- ------------- ------------- ------------
Net income (loss)
per share:
Basic $ (0.22) $ 0.40 $ 1.57 $ 1.00
Diluted (0.22) 0.40 1.57 0.99
------------------ ------------- ------------- ------------- ------------
Segmented Information
For the Three Months Ended December 31, 2008
Corporate
items and Consol-
(In millions of elimi- idated
dollars) Wireless Cable Media nations Totals
-------------------------------------------------------------------------
Operating revenue $ 1,655 $ 985 $ 394 $ (93) $ 2,941
Cost of sales 326 59 49 (26) 408
Sales and marketing 214 115 79 (27) 381
Operating, general
and administrative 476 498 220 (10) 1,184
-------------------------------------------------------------------------
639 313 46 (30) 968
Integration and
restructuring 14 10 11 6 41
Stock-based
compensation
(recovery) expense 4 7 5 9 25
-------------------------------------------------------------------------
621 296 30 (45) 902
Depreciation and
amortization 178 206 19 68 471
Impairment losses on
goodwill, intangible
assets and other
long-term assets - - 294 - 294
-------------------------------------------------------------------------
Operating income (loss) $ 443 $ 90 $ (283) $ (113) $ 137
--------------------------------------
--------------------------------------
Interest on long-term
debt (157)
Foreign exchange loss (77)
Change in fair value of
derivative instruments 43
Other income 3
-------------------------------------------------------------------------
Loss before income taxes $ (51)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to PP&E $ 310 $ 356 $ 32 $ 85 $ 783
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the Three Months Ended December 31, 2007
Corporate
items and Consol-
(In millions of elimi- idated
dollars) Wireless Cable Media nations Totals
-------------------------------------------------------------------------
Operating revenue $ 1,466 $ 923 $ 364 $ (66) $ 2,687
Cost of sales 208 51 46 (60) 245
Sales and marketing 186 137 66 (53) 336
Operating, general
and administrative 414 470 189 76 1,149
-------------------------------------------------------------------------
658 265 63 (29) 957
Integration and
restructuring - 17 - - 17
Stock-based
compensation
(recovery) expense 2 (2) 1 3 4
Contract renegotiation
fee - 52 - - 52
-------------------------------------------------------------------------
656 198 62 (32) 884
Depreciation and
amortization 133 194 15 66 408
-------------------------------------------------------------------------
Operating income (loss) $ 523 $ 4 $ 47 $ (98) 476
--------------------------------------
--------------------------------------
Interest on long-term
debt (138)
Foreign exchange gain 1
Change in fair value of
derivative instruments (3)
Other income 2
-------------------------------------------------------------------------
Income before income
taxes $ 338
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to PP&E $ 252 $ 280 $ 32 $ 60 $ 624
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Segmented Information
For the Twelve Months Ended December 31, 2008
Corporate
items and Consol-
(In millions of elimi- idated
dollars) Wireless Cable Media nations Totals
-------------------------------------------------------------------------
Operating revenue $ 6,335 $ 3,809 $ 1,496 $ (305) $11,335
Cost of sales 1,005 197 178 (77) 1,303
Sales and marketing 691 466 269 (92) 1,334
Operating, general
and administrative 1,833 1,913 907 (15) 4,638
-------------------------------------------------------------------------
2,806 1,233 142 (121) 4,060
Integration and
restructuring 14 20 11 6 51
Stock-based
compensation
(recovery) expense (5) (32) (17) (46) (100)
Adjustment for CRTC
Part II fees decision - 25 6 - 31
-------------------------------------------------------------------------
2,797 1,220 142 (81) 4,078
Depreciation and
amortization 588 791 76 305 1,760
Impairment losses on
goodwill, intangible
assets and other
long-term assets - - 294 - 294
-------------------------------------------------------------------------
Operating income (loss) $ 2,209 $ 429 $ (228) $ (386) $ 2,024
--------------------------------------
--------------------------------------
Interest on long-term
debt (575)
Debt issuance costs (16)
Foreign exchange loss (99)
Change in fair value of
derivative instruments 64
Other income 28
-------------------------------------------------------------------------
Income before income
taxes $ 1,426
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to PP&E $ 929 $ 886 $ 81 $ 125 $ 2,021
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the Twelve Months Ended December 31, 2007
Corporate
items and Consol-
(In millions of elimi- idated
dollars) Wireless Cable Media nations Totals
-------------------------------------------------------------------------
Operating revenue $ 5,503 $ 3,558 $ 1,317 $ (255) $10,123
Cost of sales 703 186 173 (101) 961
Sales and marketing 653 519 226 (76) 1,322
Operating, general
and administrative 1,558 1,837 742 - 4,137
-------------------------------------------------------------------------
2,589 1,016 176 (78) 3,703
Stock option plan
amendment 46 113 84 209 452
Integration and
restructuring - 38 - - 38
Stock-based
compensation
(recovery) expense 11 11 10 30 62
Contract renegotiation
fee - 52 - 52
-------------------------------------------------------------------------
2,532 802 82 (317) 3,099
Depreciation and
amortization 560 737 52 254 1,603
-------------------------------------------------------------------------
Operating income (loss) $ 1,972 $ 65 $ 30 $ (571) $ 1,496
--------------------------------------
--------------------------------------
Interest on long-term
debt (579)
Loss on repayment of
long-term debt (47)
Foreign exchange gain 54
Change in fair value of
derivative instruments (34)
Other expense (4)
-------------------------------------------------------------------------
Income before income
taxes $ 886
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to PP&E $ 822 $ 814 $ 77 $ 83 $ 1,796
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Segmented Information
For the Three Months Ended December 31, 2008
Cable
-------------------------------------------------
Corporate
items and
(In millions of Cable Rogers elimi- Total
dollars) Operations RBS Retail nations Cable
-------------------------------------------------------------------------
Operating revenue $ 741 $ 132 $ 117 $ (5) $ 985
Cost of sales - - 59 - 59
Sales and marketing 58 7 50 - 115
Operating, general
and administrative 385 111 7 (5) 498
-------------------------------------------------------------------------
298 14 1 - 313
Integration and
restructuring 7 2 1 - 10
Stock-based
compensation
(recovery) expense 7 - - - 7
-------------------------------------------------------------------------
284 12 - - 296
Depreciation and
amortization 206
-------------------------------------------------------------------------
Operating income $ 90
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to PP&E $ 336 $ 11 $ 9 $ - $ 356
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the Three Months Ended December 31, 2007
Cable
-------------------------------------------------
Corporate
items and
(In millions of Cable Rogers elimi- Total
dollars) Operations RBS Retail nations Cable
-------------------------------------------------------------------------
Operating revenue $ 680 $ 140 $ 105 $ (2) $ 923
Cost of sales - - 51 - 51
Sales and marketing 69 18 50 - 137
Operating, general
and administrative 351 114 7 (2) 470
-------------------------------------------------------------------------
260 8 (3) - 265
Integration and
restructuring - 17 - - 17
Stock-based compensation
(recovery) expense (1) (1) - - (2)
Contract renegotiation
fee 52 - - - 52
-------------------------------------------------------------------------
209 (8) (3) - 198
Depreciation and
amortization 194
-------------------------------------------------------------------------
Operating income $ 4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to PP&E $ 246 $ 25 $ 9 $ - $ 280
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Segmented Information
For the Twelve Months Ended December 31, 2008
Cable
-------------------------------------------------
Corporate
items and
(In millions of Cable Rogers elimi- Total
dollars) Operations RBS Retail nations Cable
-------------------------------------------------------------------------
Operating revenue $ 2,878 $ 526 $ 417 $ (12) $ 3,809
Cost of sales - - 197 - 197
Sales and marketing 248 26 192 - 466
Operating, general
and administrative 1,459 441 25 (12) 1,913
-------------------------------------------------------------------------
1,171 59 3 - 1,233
Integration and
restructuring 9 6 5 - 20
Stock-based
compensation
(recovery) expense (30) (1) (1) - (32)
Adjustment for CRTC
Part II fees decision 25 - - - 25
-------------------------------------------------------------------------
1,167 54 (1) - 1,220
Depreciation and
amortization 791
-------------------------------------------------------------------------
Operating income $ 429
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to PP&E $ 829 $ 36 $ 21 $ - $ 886
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the Twelve Months Ended December 31, 2007
Cable
-------------------------------------------------
Corporate
items and
(In millions of Cable Rogers elimi- Total
dollars) Operations RBS Retail nations Cable
-------------------------------------------------------------------------
Operating revenue $ 2,603 $ 571 $ 393 $ (9) $ 3,558
Cost of sales - - 186 - 186
Sales and marketing 257 75 187 - 519
Operating, general
and administrative 1,338 484 24 (9) 1,837
-------------------------------------------------------------------------
1,008 12 (4) - 1,016
Stock-option plan
amendment 106 2 5 - 113
Integration and
restructuring 9 29 - - 38
Stock based
compensation
(recovery) expense 10 - 1 - 11
Contract renegotiation
fee 52 - - - 52
-------------------------------------------------------------------------
831 (19) (10) - 802
Depreciation and
amortization 737
-------------------------------------------------------------------------
Operating income $ 65
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to PP&E $ 710 $ 83 $ 21 $ - $ 814
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Audited Full Year 2008 Financial Statements
In late February 2009, we intend to file with securities regulators in
Canada and the U.S. our Audited Annual Consolidated Financial Statements and
Notes thereto for the year ended December 31, 2008 and MD&A in respect of such
annual financial statements. Notification of such filings will be made by a
press release and such statements will be made available on the rogers.com,
sedar.com, and sec.gov websites or upon request.
Caution Regarding Forward-Looking Statements, Risks and Assumptions
This earnings release 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 earnings release. 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 earnings release 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
uncertain 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, see the
MD&A sections of our 2007 Annual Report entitled "Risks and Uncertainties
Affecting Our Businesses" (found on pages 55 to 59), as well as the "Updates
to Risks and Uncertainties" and "Government Regulation and Regulatory
Developments" sections of our Third Quarter 2008 MD&A. Our annual and
quarterly reports can be found at www.rogers.com, www.sedar.com, and
www.sec.gov or are available directly from Rogers.
Additional Information
Additional information relating to our company and business, including
our 2007 Annual MD&A and 2007 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/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 and telephony services. 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 8:00 a.m. ET today,
February 18. A rebroadcast of this call will be available on the Webcast
Archive page of the Investor Relations section of www.rogers.com for a period
of at least two weeks following the conference call.
For further information: Investment Community Contacts: Bruce M. Mann,
(416) 935-3532, bruce.mann@rci.rogers.com; Dan Coombes, (416) 935-3550,
dan.coombes@rci.rogers.com; Media Contacts: Corporate and Media: Jan Innes,
(416) 935-3525, jan.innes@rci.rogers.com; Wireless and Cable: Terrie Tweddle,
(416) 935-4727, terrie.tweddle@rci.rogers.com
ROGERS COMMUNICATIONS INC.
ROGERS CABLE INC.
ROGERS MEDIA INC.
RSS
Share
Tell a friend
Printer friendly
Subscribe to Portfolio e-mail
