Rogers Reports Third Quarter 2011 Financial and Operating Results

Oct 26, 2011, 06:47 ET from Rogers Communications Inc.

Third Quarter Adjusted EPS up 7% to $0.89, $492 Million of Free Cash Flow Generated;

Wireless Subscribers up 161,000 Driven by Record Number of New Smartphone Customers, While Wireless Data Revenue Growth Strong at 28% and Wireless Network Margins Solid at 48%;

Cable Operations Revenue up 4% on Continued Subscriber Growth with Strong Margins of 44% Reflecting Ongoing Realization of Cost Efficiencies;

Media Revenue up 10% Reflecting Top Line Growth Broadly Across Portfolio with Adjusted Operating Profit Growing 38%

TORONTO, Oct. 26, 2011 /PRNewswire/ - Rogers Communications Inc. today announced its consolidated financial and operating results for the three and nine months ended September 30, 2011, in accordance with International Financial Reporting Standards ("IFRS").

Financial highlights are as follows(1):

                       
        Three months ended September 30,     Nine months ended September 30,
(In millions of dollars, except per share amounts)       2011 2010 % Chg     2011 2010 % Chg
                       
Operating revenue
Adjusted operating profit
Adjusted net income
Adjusted earnings per share
Adjusted diluted earnings per share
      $   3,149
      1,220
         485
$     0.89
$     0.89
$   3,111
      1,218
         479
$     0.83
$     0.83
             1
             -
             1
             7
             7








$   9,251
      3,622
      1,375
$     2.51
$     2.50
$   9,004
      3,571
      1,340
$     2.30
$     2.29
             3
             1
             3
             9
             9

(1)    This summary of our third quarter 2011 results should be read in conjunction with our third quarter 2011 MD&A, our third quarter 2011 Unaudited Interim Consolidated Financial Statements and Notes thereto, and our 2010 Annual Report all of which are incorporated by reference in this news release. The financial information presented herein has been prepared on the basis of International Financial Reporting Standards ("IFRS") for interim financial statements and is expressed in Canadian dollars.

"Rogers delivered a balanced set of financial and subscriber results in the third quarter, with continued growth in the face of an extremely competitive environment," said Nadir Mohamed, President and Chief Executive Officer of Rogers Communications Inc. "The strength of our asset mix, combined with a focused execution on our priorities - wireless data growth, customer retention and managing our cost structure - enabled Rogers to generate continued strong margins and free cash flow while increasing the amount of cash returned to shareholders by double digits year-over-year."

Highlights of the third quarter of 2011 include the following: 

  • Generated consolidated quarterly revenue growth of 1%, with Wireless network revenue growth of 1%, Cable Operations revenue growth of 4%, and Media revenue growth of 10%, versus the same quarter last year. Adjusted operating profit increased by 38% at Media, but was offset by a 1% decline at Wireless primarily reflecting the upfront costs associated with a record number of new smartphone sales and ongoing declines in voice ARPU, while adjusted operating profit at Cable Operations was relatively unchanged from the prior year period.

  • Wireless data revenue growth accelerated to 28% and net postpaid subscriber additions totalled 74,000, helping drive wireless data revenue to now comprise 36% of Wireless network revenue. During the third quarter, Wireless activated and upgraded 609,000 additional smartphones, of which approximately 42% were for subscribers new to Wireless, compared to 529,000 in the prior year quarter. This resulted in subscribers with smartphones, who typically generate ARPU nearly twice that of voice only subscribers, representing 52% of the overall postpaid subscriber base as at September 30, 2011, up from 37% as at September 30, 2010.

  • Rogers turned on Canada's first Long Term Evolution ("LTE") wireless network services across four of the country's largest cities -- Toronto, Ottawa, Montreal and Vancouver -- giving more than 5.5 million Canadians access to the world's fastest mobile network technology. LTE is a next generation wireless technology that enables unparalleled connectivity, capable of speeds that are between three and four times faster than HSPA+.

  • Wireless launched a set of innovative new wireless roaming solutions to help Canadians easily manage their data use while travelling outside of Canada. Another first in Canada, Rogers launched Roaming Data Passes that provide real-time data usage alerts while roaming abroad, giving cost certainty and peace of mind.

  • Rogers Remote TV Manager was introduced enabling Cable's digital TV subscribers in Ontario the freedom and flexibility to search TV programming and manage PVR recordings online from anywhere with their computers, tablets and certain smartphones.

  • Cable launched its innovative new broadband-based Smart Home Monitoring offering, a first of its kind service in Canada that provides real-time home monitoring, control, viewing and alerts from computers or smartphones.

  • Media launched its CityNews Channel, a new 24-hour, interactive, local news channel in Toronto, as well as its reality TV competition series "Canada's Got Talent" and its new Sportsnet Magazine, Canada's first national biweekly sports magazine, leveraging the Rogers Sportsnet franchise and brand to connect readers with the premier source for sports features and opinion. Media also finalized an agreement to launch FX Canada.

  • Media relaunched the Setanta Sports service as Sportsnet World, providing Canadians with the world's top international sports events including professional soccer, rugby and cricket.

  • Generated $492 million of consolidated free cash flow in the quarter, defined as adjusted operating profit less PP&E expenditures, interest on long-term debt (net of capitalization) and cash income taxes, up 4% from third quarter of 2010 and reflecting steady levels of adjusted operating profit, an increased level of PP&E expenditures and lower cash taxes. Free cash flow per share increased by 10% over the same period reflecting accretion from the ongoing share buyback program which has decreased the base of outstanding shares.

  • Repurchased 11.9 million RCI Class B Non-Voting shares during the quarter under our $1.5 billion share buyback authorization for $440 million, and paid dividends on our common shares of $194 million, in total returning $634 million of cash to shareholders, a 21% increase from third quarter of 2010.

This earnings release, which is current as of October 25, 2011, is a summary of our third quarter 2011 results and should be read in conjunction with our third quarter 2011 MD&A, third quarter 2011 Unaudited Interim Consolidated Financial Statements and Notes thereto, our 2010 Annual MD&A and our 2010 Audited Annual Consolidated Financial Statements and Notes thereto and other recent securities filings available on SEDAR at sedar.com or at rogers.com/investors.

The financial information presented herein has been prepared on the basis of International Financial Reporting Standards ("IFRS") for interim financial statements and is expressed in Canadian dollars unless otherwise stated.  Comparative amounts for 2010 included in this earnings release have been conformed to reflect our adoption of IFRS, with effect from January 1, 2010. Periods prior to January 1, 2010 have not been conformed and are prepared in accordance with Canadian GAAP.

Concurrent with the impact of the transition to IFRS, we made certain changes to our reportable segments. Commencing January 1, 2011, the results of the former Rogers Retail segment are reported as follows: the results of the Video retailing portion are now presented as a separate operating sub-segment under the Cable segment, and the portions related to retail distribution of wireless and cable products and services are now included in the results of operations of Wireless and Cable Operations, respectively. In addition, certain intercompany transactions between the Rogers Business Solutions ("RBS") segment and other operating segments, which were previously recorded as revenue in RBS and operating expenses in the other operating segments, are now recorded as cost recoveries in RBS beginning January 1, 2011. While there is no change to the consolidated results or to the adjusted operating profit of RBS, as a result of this second change, the reported revenue of RBS is lower as intercompany sales are no longer included. Comparative figures for 2010 have been reclassified to conform to the current year's presentation of both changes discussed above.

As this earnings release includes forward-looking statements and assumptions, readers should carefully review the sections of this earnings 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, "Wireless", "Cable" and "Media".

SUMMARIZED CONSOLIDATED FINANCIAL RESULTS

                       
        Three months ended September 30,     Nine months ended September 30,
(In millions of dollars, except per share amounts)       2011 2010 % Chg     2011 2010 % Chg
                       
Operating revenue                      
  Wireless
Cable
      $  1,832
 
$  1,816
 
            1  
$  5,312
 
$  5,185
 
            2
 
    Cable Operations
RBS
Video
              826
          96
          18
        798
        115
          33
            4
         (17)
         (45)
         2,471
        312
          60
     2,379
        341
        111
            4
           (9)
         (46)
                940         946            (1)          2,843      2,831              -
  Media
Corporate items and eliminations
              407
         (30)
        369
         (20)
          10
          50
         1,183
         (87)
     1,045
         (57)
          13
          53
Total operating revenue            3,149      3,111             1          9,251      9,004             3
                       
Adjusted operating profit (loss)                      
  Wireless
Cable
              815
 
        821
 
           (1)  
     2,366
 
     2,469
 
           (4)
 
    Cable Operations
RBS
Video
              367
          19
           (7)
        367
          11
           (5)
             -
          73
          40
         1,146
          66
         (16)
     1,047
          28
         (13)
            9
        136
          23
                379         373             2          1,196      1,062          13
  Media
Corporate items and eliminations
                55
         (29)
          40
         (16)
          38
          81
            136
         (76)
        107
         (67)
          27
          13
Adjusted operating profit
Stock-based compensation (expense) recovery
Settlement of pension obligations
Integration, restructuring and acquisition expenses
Other items, net
           1,220
          19
             -
         (17)
             -
    1,218
         (41)
             -
           (8)
           (4)
             -
n/m
n/m
        113
n/m
         3,622
         (30)
         (11)
         (47)
             -
     3,571
         (76)
             -
         (18)
         (19)
            1
         (61)
n/m
        161
n/m
Operating profit
Other income and expense, net
           1,222
        731
     1,165
        785
            5
           (7)
         3,534
     2,298
     3,458
     2,258
            2
            2
Net income       $     491 $     380           29     $  1,236 $  1,200             3
                       
Basic earnings per share
Diluted earnings per share
      $    0.91
$    0.87
$    0.66
$    0.66
          38
          32
    $    2.26
$    2.24
$    2.06
$    2.05
          10
            9
                       
As adjusted:                      
  Net income
Basic earnings per share
Diluted earnings per share
      $     485
$    0.89
$    0.89
$     479
$    0.83
$    0.83
            1
            7
            7
    $  1,375
$    2.51
$    2.50
$  1,340
$    2.30
$    2.29
            3
            9
            9
                       
Additions to PP&E                      
  Wireless
Cable
      $     329
 
$     186
 
          77  
$     845
 
$     591
 
          43
 
    Cable Operations
RBS
Video
              190
          13
             -
        177
          11
            1
            7
          18
n/m
            517
          42
             -
        454
          25
            5
          14
          68
n/m
                203         189             7             559         484           15
  Media
Corporate
                10
          17
          10
          54
             -
         (69)
              30
          40
          23
        145
          30
         (72)
Total additions to PP&E       $     559 $     439           27     $  1,474 $  1,243           19
 

SEGMENT REVIEW

WIRELESS

Summarized Wireless Financial Results

                       
          Three months ended September 30,     Nine months ended September 30,
(In millions of dollars, except margin)       2011 2010 % Chg     2011 2010 % Chg
                       
Operating revenue                      
  Network revenue
Equipment sales



$1,707
      125
$1,692
      124
          1
          1


$4,960
     352
$4,885
      300
          2
        17
Total operating revenue          1,832    1,816           1     5,312    5,185           2
                       
Operating expenses before the undernoted                      
  Cost of equipment sales
Other operating expenses



      319
      698
      341
      654
        (6)
          7


960
  1,986
      821
   1,895
        17
          5
           1,017      995           2     2,946    2,716           8
Adjusted operating profit
Stock-based compensation (expense) recovery
Settlement of pension obligations
Integration, restructuring and acquisition expenses
Other items, net












      815
          3
          -
        (5)
          -
      821
        (7)
          -
        (3)
         -
        (1)
n/m
n/m
        67
n/m








  2,366
   (5)
  (2)
     (13)
        -
   2,469
      (14)
          -
        (4)
      (10)
        (4)
      (64)
n/m
n/m
n/m
Operating profit       $   813 $   811           -     $2,346 $2,441         (4)
                       
Adjusted operating profit margin as
  % of network revenue



 
47.7%
 
48.5%
 
       


 
47.7%
 
50.5%
 
       
                       
Additions to PP&E       $   329 $   186         77     $   845 $   591         43
                       
Data revenue included in network revenue       $   611 $   476         28     $1,725 $1,327         30
 

Summarized Wireless Subscriber Results

                       
(Subscriber statistics in thousands,         Three months ended September 30,     Nine months ended September 30,
except ARPU, churn and usage)        2011 2010 Chg     2011 2010 Chg
                       
Postpaid                      
  Gross additions
Net additions
Total postpaid retail subscribers
Monthly churn
Average monthly revenue per user ("ARPU")












      380
        74
   7,532
1.36%
$72.08
      387
      125
   7,293
1.21%
$74.47
        (7)
      (51)
      239
0.15%
$(2.39)








1,072
   227
7,532
1.27%
$70.78
      986
      270
   7,293
1.12%
$73.03
        86
      (43)
      239
0.15%
$(2.25)
                       
Prepaid                       
  Gross additions
Net additions 
Total prepaid retail subscribers 
Monthly churn
ARPU












      258
        87
   1,756
3.37%
$16.72
      217
        86
   1,588
2.84%
$17.10
        41
          1
      168
0.53%
$(0.38)








    654
    104
1,756
3.68%
$15.71
      510
        73
   1,588
3.23%
$16.10
      144
        31
      168
0.45%
$(0.39)
                       
Total                       
  Gross additions
Net additions 
Total postpaid and prepaid retail subscribers
Monthly churn









      638
      161
   9,288
1.73%
      604
      211
   8,881
1.50%
        34
      (50)
      407
0.23%






1,726
   331
   9,288
1.71%
   1,496
      343
   8,881
1.49%
      230
      (12)
      407
0.22%
                       
Blended ARPU       $61.79 $64.38 $(2.59)     $60.64 $63.04 $(2.40)
Blended average monthly minutes of usage             465       465           -           464       478       (14)


Wireless Subscribers and Network Revenue

The combination of postpaid and prepaid gross subscriber additions in the three months ended September 30, 2011, reflects the strongest quarter of wireless subscriber gross additions ever on a combined basis. The year-over-year decrease in subscriber net additions for the quarter primarily reflects an increase in the level of postpaid churn associated with heightened competitive intensity. Included in postpaid gross additions are the highest number of new smartphone subscribers Wireless has ever added in a single quarter. The increase in prepaid subscriber gross additions primarily reflects sales activity from Wireless' launch of its urban zone-based unlimited voice and text service, chatr, as well as prepaid wireless data plans for tablets and USB devices.

The increase in network revenue for the three and nine months ended September 30, 2011, compared to the corresponding periods of 2010, was driven predominantly by the continued growth of Wireless' subscriber base and the increased adoption and usage of wireless data services, partially offset by a decrease in voice ARPU as discussed below.

For the three and nine months ended September 30, 2011, wireless data revenue increased by approximately 28% and 30% from the corresponding periods of 2010, to $611 million and $1,725 million, respectively. This growth in wireless data revenue reflects the continued penetration and growing usage of smartphone and wireless laptop and tablet devices which are driving increased usage of e-mail, wireless Internet access, text messaging and other wireless data services. For the three and nine months ended September 30, 2011, data revenue represented approximately 36% and 35%, respectively, of total network revenue, compared to approximately 28% and 27% in the corresponding periods of 2010.

For the three months ended September 30, 2011, Wireless activated and upgraded approximately 609,000 smartphones, compared to approximately 529,000 smartphones in the third quarter of 2010. This is the second highest number of smartphone activations and upgrades that Wireless has ever reported in a quarter. These smartphones were predominantly iPhone, BlackBerry and Android devices, of which approximately 42% were for subscribers new to Wireless, during the three months ended September 30, 2011. This resulted in subscribers with smartphones representing 52% of the overall postpaid subscriber base as at September 30, 2011, compared to 37% as at September 30, 2010. These subscribers generally commit to new multi-year-term contracts, and typically generate ARPU nearly twice that of voice only subscribers.

Year-over-year postpaid ARPU decreased by 3%, which reflects declines in most categories of wireless voice revenues, offset by higher wireless data and feature revenues. The 14% decrease in the wireless voice component of postpaid ARPU is primarily due to the general level of competitive intensity in the wireless voice services market, which was largely offset by a 24% increase in wireless data ARPU. During the quarter, Wireless heightened its focus on initiatives aimed at slowing the decline of voice ARPU which has accelerated in recent quarters.

Wireless Equipment Sales

The year-over-year increase for the three and nine months ended September 30, 2011 in revenue from equipment sales, including activation fees and net of equipment subsidies, versus the corresponding periods of 2010, reflects the increase in the number of smartphone activations.

Wireless Operating Expenses

                       
        Three months ended September 30,     Nine months ended September 30,
(In millions of dollars)       2011 2010 % Chg     2011 2010 % Chg
                       
Operating expenses                      
  Cost of equipment sales
Other operating expenses



$    319
       698
$    341
       654
          (6)
           7


$    960
    1,986
$    821
    1,895
         17
           5
Operating expenses before the undernoted
Stock-based compensation expense (recovery)
Settlement of pension obligations
Integration, restructuring and acquisition expenses
Other items, net












    1,017
          (3)
            -
           5
            -
       995
           7
            -
           3
            -
           2
n/m
n/m
         67
n/m








    2,946
          5
          2
       13
         -
    2,716
         14
            -
           4
         10
           8
        (64)
n/m
n/m
n/m
Total operating expenses        $ 1,019 $ 1,005            1     $ 2,966 $ 2,744            8


The decrease in cost of equipment sales for the three months ended September 30, 2011, compared to the corresponding period of 2010, was the result of a reduction in the number of hardware upgrades by existing customers and a change in the mix of iPhones for upgrading subscribers.  Also attributing to the decline in cost of equipment sales was a modest reduction in the net cost per upgrade unit as a result of changes to device upgrade policies earlier in 2011. The increase in cost of equipment sales for the nine months ended September 30, 2011 reflects a larger number of smartphone device upgrades versus the corresponding period of 2010.

Total retention spending, including subsidies on handset upgrades, was $173 million and $548 million in the three and nine months ended September 30, 2011, respectively, compared to $221 million and $532 million in the corresponding periods of 2010. The changes for the three and nine month periods primarily reflect the smartphone volume and cost changes discussed in the preceding paragraph.

The year-over-year increase in other operating expenses for the three months ended September 30, 2011, excluding retention spending discussed above was driven by higher network and service costs associated with a larger subscriber base as well as higher sales costs combined with the impact of certain one-time adjustments which reduced operating expenses in the third quarter of 2010. These increases were partially offset by savings resulting from cost reduction initiatives and scale efficiencies across various functions.

Wireless Adjusted Operating Profit

The 1% year-over-year decrease in adjusted operating profit and the 47.7% adjusted operating profit margin on network revenue (which excludes equipment sales revenue) for the three months ended September 30, 2011 primarily reflect the increase in the total operating expenses discussed above, partially offset by the increase in network revenue. Excluding the one-time adjustments in the third quarter of 2010, adjusted operating profit would have increased by 1%.

Wireless Additions to PP&E

Wireless additions to PP&E are classified into the following categories:

                           
            Three months ended September 30,     Nine months ended September 30,
(In millions of dollars)           2011 2010 % Chg     2011 2010 % Chg
                           
Additions to PP&E                          
  Capacity
Quality
Network - other
Information technology and other















$    194
         64
         10
         61
$      76
         65
         10
         35
       155
         (2)
           -
         74






$    477
       157
       37
    174
$    300
       181
         23
         87
         59
       (13)
         61
       100
Total additions to PP&E           $    329 $    186          77     $    845 $    591          43


Wireless PP&E additions for the three months ended September 30, 2011 reflects spending on network capacity, such as radio channel additions, network core improvements and network enhancing features, including the continued deployment of our HSPA+ network and the initial construction and launch of our LTE network. Quality-related additions to PP&E are associated with upgrades to the network to enable higher throughput speeds in addition to improved network access associated activities, such as site build programs and network sectorization work. Moreover, Quality includes test and monitoring equipment and operating support system activities. Investments in Network - other are associated with network reliability and renewal initiatives, infrastructure upgrades and new product platforms. Information technology and other wireless specific system initiatives include billing and back-office system upgrades, and other facilities and equipment spending.

The increase in Wireless PP&E additions for the three and nine months ending September 30, 2011 is largely due to investments to build out the LTE network in Canada's top four markets with the services now available in Ottawa, Toronto, Montreal, and Vancouver and spending on Information technology investments on our customer billing systems and platforms for new services.

CABLE

Summarized Cable Financial Results

                       
        Three months ended September 30,     Nine months ended September 30,
(In millions of dollars, except margin)       2011 2010 % Chg     2011 2010 % Chg
                       
Operating revenue                      
  Cable Operations
RBS
Video






$    826
         96
         18
$    798
       115
         33
           4
        (17)
        (45)




$ 2,471
      312
      60
$ 2,379
       341
       111
           4
          (9)
        (46)
Total operating revenue              940        946           (1)       2,843     2,831             -
                       
Adjusted operating profit (loss) before the undernoted                      
  Cable Operations
RBS
Video






       367
         19
          (7)
       367
         11
          (5)
            -
         73
         40




  1,146
        66
     (16)
    1,047
         28
        (13)
           9
       136
         23
Adjusted operating profit
Stock-based compensation (expense) recovery
Settlement of pension obligations
Integration, restructuring and acquisition expenses
Other items, net












       379
           2
            -
          (5)
            -
       373
          (6)
            -
          (5)
            -
           2
n/m
n/m
            -
n/m








  1,196
    (4)
    (5)
   (23)
          -
    1,062
        (12)
            -
        (13)
          (5)
         13
        (67)
n/m
         77
n/m
Operating profit       $    376 $    362            4     $ 1,164 $ 1,032          13
                       
Adjusted operating profit (loss) margin                      
  Cable Operations
RBS
Video






44.4%
19.8%
(38.9%)
46.0%
9.6%
(15.2%)
 
 
 




46.4%
21.2%
(26.7%)
44.0%
8.2%
(11.7%)
 
 
 
                       
Additions to PP&E                      
  Cable Operations
RBS
Video






$    190
         13
            -
$    177
         11
           1
           7
         18
n/m




$    517
         42
            -
$    454
         25
           5
         14
         68
n/m
Total additions to PP&E       $    203 $    189            7     $    559 $    484          15

The following segment discussions provide a detailed discussion of the Cable operating results.

CABLE OPERATIONS

Summarized Financial Results

                       
        Three months ended September 30,     Nine months ended September 30,
(In millions of dollars, except margin)       2011 2010 % Chg     2011 2010 % Chg
                       
Operating revenue                      
  Cable Television
Internet
Home Phone






$    475
       232
       119
$    458
       213
       127
           4
           9
          (6)




$ 1,423
     688
   360
$ 1,365
       631
       383
           4
           9
          (6)
Total Cable Operations operating revenue              826        798            4     2,471     2,379            4
                       
Operating expenses before the undernoted                      
  Cost of equipment sales
Other operating expenses



           7
       452
           8
       423
        (13)
           7


     19
1,306
         29
    1,303
        (34)
            -
               459        431            6     1,325     1,332           (1)
Adjusted operating profit
Stock-based compensation (expense) recovery
Settlement of pension obligations
Integration, restructuring and acquisition expenses
Other items, net












       367
           2
            -
          (3)
            -
       367
          (6)
            -
          (2)
            -
            -
n/m
n/m
         50
n/m








  1,146
      (4)
     (4)
       (6)
          -
    1,047
        (12)
            -
          (3)
          (7)
           9
        (67)
n/m
       100
n/m
Operating profit       $    366 $    359            2     $ 1,132 $ 1,025          10
                       
Adjusted operating profit margin       44.4% 46.0%       46.4% 44.0%  
 

Summarized Subscriber Results

                       
        Three months ended September 30,     Nine months ended September 30,
(Subscriber statistics in thousands)       2011 2010 Chg     2011 2010 Chg
                       
Cable homes passed           3,740     3,688          52         3,740     3,688          52
                       
Television                      
  Net additions (losses)
Total television subscribers



           9
    2,303
           7
    2,309
           2
          (6)


       (8)
    2,303
           8
    2,309
        (16)
          (6)
                       
  Digital cable                      
    Households, net additions
Total digital cable households



         22
    1,767
         16
    1,719
           6
         48


     29
1,767
         53
    1,719
        (24)
         48
                       
Cable high-speed Internet                      
  Net additions
Total cable high-speed Internet subscribers



         39
    1,768
         27
    1,673
         12
         95


       58
  1,768
         51
    1,673
           7
         95
                       
Cable telephony lines                      
  Net additions and migrations
Total cable telephony lines



         16
    1,044
         20
       995
          (4)
         49


       37
  1,044
         58
       995
        (21)
         49
                       
Total cable service units                      
  Net additions
Total cable service units



         64
    5,115
         54
    4,977
         10
       138


      87
5,115
       117
    4,977
        (30)
       138
                       
Circuit-switched lines                      
  Net losses and migrations to cable telephony platform
Total circuit-switched lines



            (1)
           1
          (12)
         83
           11
        (82)


     (12)
     1
          (39)
         83
           27
        (82)


Cable Television Revenue

The increase in Cable Television revenue for the three and nine months ended September 30, 2011, compared to the corresponding periods of 2010, reflects the timing of pricing changes made in March 2011 and August 2010, together with continued increase in penetration of our digital cable product offerings and greater usage of on-demand and pay-per-view services.

The digital cable subscriber base grew by 3% and represented 77% of the television subscriber base as at September 30, 2011, compared to 74% as at September 30, 2010. Increased demand from subscribers for the larger selection of digital content, video on-demand, HDTV and personal video recorder ("PVR") equipment continues to contribute to the growth in the digital subscriber base and Cable Television revenue.

Cable Internet Revenue

The year-over-year increase in Internet revenue for the three and nine months ended September 30, 2011 reflects the increase in the Internet subscriber base, combined with the timing of Internet service pricing changes made in July 2010 and in March 2011. Also impacting the increase is the timing and mix of promotional programs and a general movement by subscribers towards higher end tiers and an increase in revenue from additional usage.

With the high-speed Internet base at approximately 1.8 million subscribers, Internet penetration is approximately 47% of the homes passed by our cable networks and 77% of our television subscriber base, as at September 30, 2011.

Home Phone Revenue

The year-over-year decrease in Home Phone revenue for the three and nine months ended September 30, 2011, reflects the declines in revenue associated with the legacy circuit-switched telephony base that Cable is in the final stages of divesting, which was partially offset by the increase in the cable telephony customer base combined with price changes in March 2011.

Excluding the impact of the declining circuit-switched telephony business that Cable is in the process of divesting as described below, the year-over-year revenue growth for Home Phone and for Cable Operations overall for the three months ended September 30, 2011 would have been 4% and 5%, respectively.

Cable telephony lines in service grew 5% from September 30, 2010 to September 30, 2011. At September 30, 2011, cable telephony lines represented 28% of the homes passed by our cable networks and 45% of television subscribers.  The lower net additions of cable telephony lines in the three and nine months ended September 30, 2011, versus the corresponding periods of 2010, are the result of lower sales due to a combination of product maturation and increased competition.

Cable continues to focus principally on growing its on-net cable telephony line base. As a result, in Q3 2010, it announced that it was divesting the assets of its off-net circuit-switched telephony business where services cannot be provided over Rogers' own cable network facilities. Under this arrangement, most of its co-location sites and related equipment were sold. In addition, the sale involved residential circuit-switched lines, with the customers served by these facilities being migrated to a third-party reseller starting late in the third quarter of 2010 and continuing over the first half of 2011. This is the principal driver of the decline of 82,000 in the legacy circuit-switched telephony base from September 30, 2010 to the current level of approximately 1,000. During the three and nine months ended September 30, 2011, approximately 1,000 and 33,000 circuit-switched lines, were migrated to third-party resellers, with the exception of 3,000 which were migrated to RBS in the first quarter of 2011. For the three and nine months ended September 30, 2011, the revenue reported by Cable Operations associated with the residential circuit-switched telephony business being divested totalled approximately $3 million and $13 million, respectively, whereas the circuit-switched telephony revenues in the three and nine months ended September 30, 2010 totalled approximately $15 million and $50 million, respectively.

Cable Operations Operating Expenses

The increase in Cable Operations' operating expenses for the three months ended September 30, 2011, compared to the corresponding periods of 2010, was due to higher network and service costs associated with a larger subscriber base, programming, and sales and marketing activities combined with the impact of certain one-time adjustments which reduced operating expenses in the third quarter of 2010. These increases were offset by cost reduction and efficiency initiatives across various functions, with activity driven costs generally benefiting from the lower number of new customer additions and customer churn versus the same period in the prior year. Cable Operations continues to focus on implementing a program of permanent cost reduction and efficiency improvement initiatives to control the overall growth in operating expenses.

Cable Operations Adjusted Operating Profit

Cable Operations' adjusted operating profit margins were 44.4% and 46.4% for the three and nine months ended September 30, 2011, respectively, compared to 46.0% and 44.0% in the corresponding periods of 2010.  Excluding the one-time adjustments in the third quarter of 2010, adjusted operating profit would have increased by 3% and the adjusted operating profit margin would have been 44.6% for the three months ended September 30, 2010.


ROGERS BUSINESS SOLUTIONS

Summarized Financial Results

                       
          Three months ended September 30,     Nine months ended September 30,
(In millions of dollars, except margin)       2011 2010 % Chg     2011 2010 % Chg
                         
Operating revenue       $      96 $    115        (17)     $    312 $    341          (9)
                         
Operating expenses before the undernoted                77        104        (26)            246        313        (21)
Adjusted operating profit
Settlement of pension obligations
Integration, restructuring and acquisition expenses






         19
            -
            -
         11
            -
         (1)
         73
n/m
n/m




     66
     (1)
      (6)
         28
            -
         (4)
       136
n/m
         50
Operating profit       $      19 $      10          90     $      59 $      24        146
                         
Adjusted operating profit margin       19.8% 9.6%       21.2% 8.2%  



Summarized Subscriber Results

                                     
                      Three months ended September 30,     Nine months ended September 30,
(Subscriber statistics in thousands)                     2011 2010 Chg     2011 2010 Chg
                                       
Local line equivalents                                    
  Total local line equivalents                         129        153         (24)         129        153         (24)
                                       
Broadband data circuits                                    
  Total broadband data circuits                            32          36           (4)         32          36           (4)

RBS Revenue

The decrease in RBS revenue for the three and nine months ended September 30, 2011, primarily reflects the planned decline in certain categories of lower margin legacy business, partially offset by the growth in next generation IP and other on-net services. RBS' focus is primarily on IP-based services and increasingly on leveraging higher margin on-net and near-net revenue opportunities utilizing both the acquired Atria and Blink networks and Cable's existing network facilities to expand offerings to the medium-sized enterprise, public sector and carrier markets. The lower margin legacy business, which includes long-distance, local and certain legacy data services, continues to decline and is down 37% for the quarter and 29% year to date. In comparison, the higher margin next generation business is up 5% and 7%, respectively. For the three and nine months ended September 30, 2011, the acquisition of Atria contributed revenue of $18 million and $55 million, respectively.

RBS Operating Expenses

Operating expenses decreased for the three and nine months ended September 30, 2011, compared to the corresponding periods of 2010 and reflects the planned decrease in legacy services related costs due to lower volumes and subscriber levels, permanent cost reductions resulting from a 2010 restructuring of the employee base, lower sales within certain customer segments, and operating efficiencies stemming from the integration of Blink and Atria.

RBS Adjusted Operating Profit

The year-over-year growth in adjusted operating profit reflects the acquisition of the higher margin Atria and Blink on-net data businesses and the RBS focus on growing its on-net next generation data revenue. This strategic shift has more than offset the declines in the lower margin legacy voice and data services. Cost reductions and efficiency initiatives across various functions have also contributed to higher operating profit and operating profit margins in the quarter. For the three and nine months ended September 30, 2011, the acquisition of Atria contributed adjusted operating profit of $11 million and $33 million, respectively, contributing to the growth of the next generation services market, including data and Internet.

VIDEO

Summarized Financial Results

                       
        Three months ended September 30,     Nine months ended September 30,
(In millions of dollars, except margin)       2011 2010 % Chg     2011 2010 % Chg
                       
Operating revenue       $      18 $      33         (45)     $      60 $    111         (46)
                       
Operating expenses before the undernoted                25          38         (34)              76        124         (39)
Adjusted operating loss
Integration, restructuring and acquisition expenses
Other items, net






          (7)
       (2)
            -
          (5)
          (2)
            -
         40
            -
n/m




        (16)
     (11)
          -
        (13)
          (6)
           2
         23
         83
n/m
Operating loss       $      (9) $      (7)          29     $    (27) $    (17)          59
                       
Adjusted operating loss margin       (38.9%) (15.2%)       (26.7%) (11.7%)  

Video Revenue

The results of the Video segment include our video and game sale and rental business which has and continues to be restructured and downsized coinciding with the declining market opportunity. The decrease in Video revenue for the three and nine months ended September 30, 2011, compared to the corresponding periods of 2010, was the result of a continued decline in video rental and sales activity and the reduction of nearly 20% in the number of store locations since the start of 2010.

Video Adjusted Operating Loss

The adjusted operating loss at Video increased for the three months and nine months ended September 30, 2011, compared to the corresponding periods of 2010, reflecting the trends in revenue and operating expenses above.

Cable Additions to PP&E

Cable additions to PP&E are classified into the following categories:

                                 
                    Three months ended September 30,     Nine months ended September 30,
(In millions of dollars)                 2011 2010 % Chg     2011 2010 % Chg
                                   
Additions to PP&E                                
  Customer premise equipment
Scalable infrastructure
Line extensions
Upgrades and rebuild
Support capital
































$       74
          56
          12
            4
          44
$       87
          47
          10
            6
          27
         (15)
          19
          20
         (33)
          63








$     155
        181
          32
            8
        141
$     199
        134
          30
          14
          77
         (22)
          35
            7
         (43)
          83
Total Cable Operations
RBS
Video
















        190
          13
             -
        177
          11
            1
            7
          18
n/m




        517
          42
             -
        454
          25
            5
          14
          68
n/m
Total additions to PP&E                 $     203 $     189             7     $     559 $     484           15


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 that 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;
  • 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.

Additions to Cable PP&E include continued investments in the cable network to enhance the customer experience through increased speed and performance of our Internet service and capacity enhancements to our digital network to allow for incremental HD and On-Demand services to be added.

The increase in Cable Operations PP&E for the three and nine months ended September 30, 2011, compared to the corresponding periods of 2010, resulted primarily from higher Scalable infrastructure and Support capital expenditures due to projects associated with increasing capacity on our Video platform and quality related investments on our Voice platform and timing of spend on project to de-risk our infrastructures. Support capital investments that contributed to the increase relate to customer billing systems and platforms for new services. Lower investments in Set Top Boxes due to lower subscriber activity and lower unit pricing contributed to the decrease in Customer premise equipment for the three and nine months ended September 30, 2011.

The increases in RBS PP&E additions for the three and nine months ended September 30, 2011 reflect the timing of expenditures on customer networks and support capital.

MEDIA

Summarized Media Financial Results

                       
        Three months ended September 30,     Nine months ended September 30,
(In millions of dollars, except margin)       2011 2010 % Chg     2011 2010 % Chg
                       
Operating revenue       $    407 $    369          10     $ 1,183 $ 1,045          13
                       
Operating expenses before the undernoted       352        329            7         1,047        938          12
Adjusted operating profit
Stock-based compensation (expense) recovery
Settlement of pension obligations
Integration, restructuring and acquisition expenses
Other items, net












55
2
-
         (7)
-
         40
         (7)
            -
            -
         (4)
         38
n/m
n/m
n/m
n/m








       136
        (5)
         (3)
       (11)
            -
       107
       (13)
            -
         (1)
         (4)
         27
       (62)
n/m
n/m
n/m
Operating profit       $      50 $      29          72     $    117 $      89          31
                       
Adjusted operating profit margin       13.5% 10.8%       11.5% 10.2%  
                       
Additions to PP&E       $      10 $      10             -     $      30 $      23          30

Media Revenue

The increases in Media's revenue for the three and nine months ended September 30, 2011, respectively, compared to the corresponding periods of 2010, were mainly the result of increased advertising sales and new subscriber fees generated from Sportsnet ONE. For the three and nine months ended September 30, 2011, Radio, Sportsnet, Television, Sports Entertainment, and Digital Media all contributed to the growth in revenue and was partially offset by a decline at Publishing, primarily due to the disposition of a portion of the business publishing portfolio, and relatively flat year-over-year sales at The Shopping Channel. The slowing in the rate of Media's revenue growth from the 13% in the second quarter of 2011 to the 10% in the current quarter in part reflects a slow down in advertising market activity stemming from apprehension associated with negative global economic news.

Media Operating Expenses

Media's operating expenses increased for the three and nine months ended September 30, 2011, compared to the corresponding periods of 2010, primarily due to additional costs related to the acquisition of BV Media and planned Television programming.

Media Adjusted Operating Profit

The increase in Media's adjusted operating profit for the three and nine months ended September 30, 2011, compared to the corresponding periods of 2010, primarily reflects the revenue and expense changes discussed above.

Media Additions to PP&E

Media's PP&E additions during the nine months ended September 30, 2011 increased from the corresponding periods in 2010 due primarily to Television broadcast equipment additions related to the CRTC mandated digital transition and planned infrastructure upgrades.

2011 FINANCIAL AND OPERATING GUIDANCE

We have no specific revisions to the 2011 annual guidance ranges which we provided on a consolidated basis on February 16, 2011. See the section entitled "Caution Regarding Forward-Looking Statements, Risks and Assumptions" below.

Rogers Communications Inc.
Unaudited Interim Consolidated Statements of Income
(In millions of Canadian dollars, except per share amounts)

                                       
              Three months ended       Nine months ended
              September 30,       September 30,
              2011       2010       2011       2010
                                       
Operating revenue           $   3,149     $   3,111     $   9,251     $   9,004
                                       
Operating expenses:                                      
  Operating costs               1,910         1,938         5,670         5,528
  Integration, restructuring and
  acquisition costs
                  17               8            47             18
  Depreciation and amortization                  427            399         1,289         1,210
                                       
Operating income                  795            766         2,245         2,248
                                       
Finance costs                (146)          (253)          (580)          (590)
Other income, net                      -               2               7               4
Share of the income of associates
  and joint ventures accounted for
  using the equity method, net of tax
             1        -        4        7
                                       
Income before income taxes                  650            515         1,676         1,669
                                       
Income tax expense:                                      
  Current                   96               2            375            221
  Deferred                   63            133             65            248
                   159            135            440            469
Net income for the period           $      491     $      380     $   1,236     $   1,200
                                       
Earnings per share:                                      
  Basic           $     0.91     $     0.66     $     2.26     $     2.06
  Diluted                 0.87           0.66           2.24           2.05
 

Rogers Communications Inc.
Unaudited Interim Consolidated Statements of Financial Position
(In millions of Canadian dollars)

                                   
                          September 30,           December 31,
                          2011           2010
                                         
Assets                                    
                                         
Current assets:                                    
  Accounts receivable                       $          1,478           $          1,498
  Other current assets                                      444                          364
  Current portion of derivative instruments                                      26                              1
                                        1,948                        1,863
                                         
Property, plant and equipment                                    8,884                        8,437
Goodwill                                    3,282                        3,108
Intangible assets                                     2,682                        2,514
Investments                                      994                          878
Derivative instruments                                      180                              6
Other long-term assets                                      196                          175
Deferred tax assets                                        30                            52
                          $        18,196           $        17,033
                                         
Liabilities and Shareholders' Equity                                    
                                         
Current liabilities:                                    
  Bank advances                        $              24           $              45
  Accounts payable and accrued liabilities                                  1,792                        2,133
  Income tax payable                                       739                         376
  Current portion of provisions                                         19                            21
  Current portion of derivative instruments                                      40                            67
  Unearned revenue                                       330                          329
                                         2,944                        2,971
                                         
Provisions                                         62                            62
Long-term debt                                    10,034                        8,654
Derivative instruments                                       447                          840
Other long-term liabilities                                       214                          229
Deferred tax liabilities                                       660                          517
                                     14,361                      13,273
                                       
Shareholders' equity                                     3,835                        3,760
                          $        18,196           $        17,033

 

Rogers Communications Inc.
Unaudited Interim Consolidated Statements of Cash Flows
(In millions of Canadian dollars)

                             
                              Three months ended       Nine months ended
          September 30,       September 30,
          2011       2010       2011       2010
                                     
Cash provided by (used in):                            
                                     
Operating activities:                            
  Net income $      491     $      380     $   1,236     $   1,200
  Adjustments to reconcile                             
    net income to net cash flows                             
    from operating activities:                               
    Depreciation and amortization             427            399         1,289         1,210
    Program rights and Video                                  
      rental amortization               52              52            152            157
    Finance costs             146            253            580            590
    Current income tax expense               96               2            375            221
    Deferred taxes               63            133              65            248
    Pension contributions,                                  
      net of expense               (6)              (5)            (38)            (25)
    Settlement of pension obligations                 -                -              11                -
    Stock-based compensation expense                                 
      (recovery)             (19)              41              30              76
    Amortization of fair value                                 
      decrement (increment) on                                 
      long-term debt                 -               1               1              (2)
    Share of the income of associates                                 
      and joint ventures accounted                                 
      for using the equity                                 
      method, net of tax               (1)                -              (4)              (7)
    Other             (10)              (4)              (1)                -
            1,239         1,252         3,696         3,668
  Change in non-cash operating                              
    working capital items           156          (102)          (268)          (371)
                1,395         1,150         3,428         3,297
  Income taxes paid         (11)          (139)            (17)          (151)
  Interest paid       (244)          (182)          (553)          (521)
            1,140            829         2,858         2,625
                                     
Investing activities:                            
  Additions to property, plant                              
    and equipment ("PP&E")       (559)          (439)       (1,474)       (1,243)
  Change in non-cash working                              
    capital items related to PP&E           38              58          (121)            (12)
  Acquisitions, net of cash and                              
    cash equivalents acquired             -            (45)          (532)          (177)
  Additions to program rights         (52)            (24)          (142)          (109)
  Other            (9)              (2)            (28)              22
             (582)          (452)       (2,297)       (1,519)
                                     
Financing activities:                            
  Issuance of long-term debt         240         2,425         3,650         2,475
  Repayment of long-term debt       (120)       (1,701)       (2,482)       (1,752)
  Premium on repayment of                              
    long-term debt             -            (79)            (76)            (79)
  Payment on settlement of                              
    cross-currency interest rate                              
    exchange agreements                              
    and forward contracts             -          (816)       (1,208)          (816)
  Proceeds on settlement of                           
    cross-currency interest rate                              
    exchange agreements                              
    and forward contracts             -            547            878            547
  Transaction costs incurred             -              (8)            (10)              (8)
  Repurchase of Class B                              
    Non-Voting shares       (440)          (335)          (725)         (965)
  Proceeds received on exercise                              
    of stock options            1               1               1               3
  Dividends paid        (194)          (187)          (568)          (550)
             (513)          (153)          (540)       (1,145)
                                     
Change in cash and                             
  cash equivalents (bank advances)          45            224              21            (39)
                                     
Cash and cash equivalents                            
  (bank advances), beginning of period        (69)            115            (45)            378
Cash and cash equivalents                            
  (bank advances), end of period $      (24)     $      339     $      (24)     $      339
                                     
The change in non-cash operating working                             
  capital items is as follows:                            
  (Increase)/Decrease in accounts                              
    receivable $        53     $    (151)     $        31     $    (110)
  (Increase)/Decrease in other assets           45               -            (90)          (130)
  Increase/(Decrease) in accounts payable                              
    and accrued liabilities           62             77          (204)          (113)
  Increase/(Decrease) in income taxes payable           2             (5)               5              (5)
  Increase/(Decrease) in unearned revenue           (6)           (23)            (10)            (13)
        $      156     $    (102)     $    (268)     $    (371)

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, dividend payments, expected growth in subscribers and the services to which they subscribe, the cost of acquiring subscribers and the deployment of new services, the currently estimated financial impacts of converting to IFRS accounting standards, and all other statements that are not historical facts. Such forward-looking statements are based on current objectives, strategies, expectations and assumptions, most of which are confidential and proprietary, 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, industry structure and stability, and current guidance from accounting standard bodies with respect to the conversion to IFRS accounting standards.

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 uncertainty and that actual results may differ materially from the assumptions, estimates or expectations reflected in the forward-looking information. A number of factors could cause actual results to differ materially from those in the forward-looking statements or could cause our current objectives and strategies to change, including but not limited to new interpretations from accounting standards bodies, economic conditions, technological change, the integration of acquisitions, unanticipated changes in content or equipment costs, changing conditions in the entertainment, information and communications industries, regulatory changes, litigation and tax matters, the level of competitive intensity and the emergence of new opportunities, many of which are beyond our control and current expectation or knowledge. Therefore, should one or more of these risks materialize, should our objectives or strategies change, or should any other factors underlying the forward-looking statements prove incorrect, actual results and our plans may vary significantly from what we currently foresee. Accordingly, we warn investors to exercise caution when considering any such forward-looking information herein and that it would be unreasonable to rely on such statements as creating any legal rights regarding our future results or plans. We are under no obligation (and we expressly disclaim any such obligation) to update or alter any forward-looking statements or assumptions whether as a result of new information, future events or otherwise, except as required by law.

Before making any investment decisions and for a detailed discussion of the risks, uncertainties and environment associated with our business, fully review the sections of our third quarter MD&A entitled "Updates to Risks and Uncertainties" and "Government Regulation and Regulatory Developments", and also sections entitled "Risks and Uncertainties Affecting our Businesses" and "Government Regulation and Regulatory Developments" in our 2010 Annual MD&A. Our annual and quarterly reports can be found online at rogers.com, sedar.com and sec.gov or are available directly from Rogers.

About Rogers Communications Inc.

Rogers Communications is a diversified Canadian communications and media company. We are Canada's largest provider of wireless voice and data communications services and one of Canada's leading providers of cable television, high-speed Internet and telephony services. Through Rogers Media we are engaged in radio and television broadcasting, televised shopping, magazines and trade publications, sports entertainment, and digital media. 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 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 rogers.com/webcast beginning at 8:00 a.m. ET today, October 26, 2011. A rebroadcast of this teleconference will be available on the Events and Presentations page of Rogers' Investor Relations website rogers.com/investors for a period of at least two weeks following the conference call. 

 

 

 

 

 

SOURCE Rogers Communications Inc.