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ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
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ROGERS.COM
ROGERS COMMUNIC ATIONS INC . AT A GL ANCE
Rogers Communications Inc. is a diversified Canadian communications and media company
engaged in three primary lines of business. Rogers Wireless is Canada’s largest wireless voice
and data communications services provider and the country’s only national carrier operating
on both the world standard GSM and HSPA technology platforms. Rogers Cable is a leading
Canadian cable services provider, offering cable television, high-speed Internet access, and
telephony products for residential and business customers, and operating a retail distribution
chain which offers Rogers branded wireless and home entertainment services. Rogers Media
is Canada’s premier group of category-leading broadcast, specialty, print and on-line media
assets with businesses in radio and television broadcasting, televised shopping, magazine
and trade journal publication, and sports entertainment.
Delivering Results In 2009
Free Cash Flow
Growth
Dividend
Increases
Share
Buybacks
Strong Single-Digit
Revenue Growth
What We Said: Deliver
approximately 16% growth in
consolidated free cash flow.
What We Did: Generated a 29%
increase in free cash flow growth.
What We Said: Increase cash
returns to shareholders consistently
over time.
What We Said: Repurchase up to
$300 million of Rogers shares on
open market.
What We Did: Increased annual
dividend per share 16% from $1.00
to $1.16 in 2009.
What We Did: Increased share
buyback program repurchasing
43.8 million Rogers shares for
$1.35 billion.
What We Said: Leverage
networks, channels and brand
to deliver strong single-digit
revenue growth.
What We Did: Drove 7% top-line
growth in core Wireless Network
and Cable Operations businesses.
Expand Adjusted
Operating Profit Margins
Fast and Reliable
Networks
Grow Wireless Data
Revenue
Gain Higher Value
Wireless Subscribers
What We Said: Implement cost
containment initiatives to capture
efficiencies.
What We Did: Delivered 160 basis
points of consolidated adjusted
operating profit margin expansion
despite economic and competitive
pressures.
What We Said: Maintain Rogers’
leadership in network technology
and innovation.
What We Said: Strong double-digit
wireless data growth to support
continued ARPU leadership.
What We Did: Launched North
America’s first HSPA+ 21 Mbps
wireless network and deployed
leading-edge DOCSIS 3 50 Mbps
high-speed Internet service.
What We Did: 44% wireless data
revenue growth with data as a
percent of network revenue
expanding to 22% from 16%
in 2008.
What We Said: Continued rapid
growth in smartphone subscriber
base to drive wireless data revenue
and ARPU.
What We Did: Activated nearly
1.5 million smartphone customers
bringing smartphone penetration
to 31% of postpaid subscriber base.
Table Of Contents
1 Letter to Shareholders 4 Defi ning Next 14 Why Invest in Rogers 15 2009 Financial and Operating Highlights 16 2009 Financial Highlights
18 Management’s Discussion and Analysis 82 Management’s Responsibility for Financial Reporting 82 Auditors’ Report to the Shareholders
83 Consolidated Statements of Income 84 Consolidated Balance Sheets 85 Consolidated Statements of Shareholders’ Equity
86 Consolidated Statement of Comprehensive Income 87 Consolidated Statements of Cash Flows 88 Notes to Consolidated Financial Statements
128 Corporate Governance 130 Directors and Senior Corporate Offi cers 132 Corporate and Shareholder Information
Defi ning
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ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
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ROGERS.COM
ROGERS COMMUNIC ATIONS INC . AT A GL ANCE
Rogers Communications Inc. is a diversified Canadian communications and media company
engaged in three primary lines of business. Rogers Wireless is Canada’s largest wireless voice
and data communications services provider and the country’s only national carrier operating
on both the world standard GSM and HSPA technology platforms. Rogers Cable is a leading
Canadian cable services provider, offering cable television, high-speed Internet access, and
telephony products for residential and business customers, and operating a retail distribution
chain which offers Rogers branded wireless and home entertainment services. Rogers Media
is Canada’s premier group of category-leading broadcast, specialty, print and on-line media
assets with businesses in radio and television broadcasting, televised shopping, magazine
and trade journal publication, and sports entertainment.
Delivering Results In 2009
Free Cash Flow
Growth
Dividend
Increases
Share
Buybacks
Strong Single-Digit
Revenue Growth
What We Said: Deliver
approximately 16% growth in
consolidated free cash flow.
What We Did: Generated a 29%
increase in free cash flow growth.
What We Said: Increase cash
returns to shareholders consistently
over time.
What We Said: Repurchase up to
$300 million of Rogers shares on
open market.
What We Did: Increased annual
dividend per share 16% from $1.00
to $1.16 in 2009.
What We Did: Increased share
buyback program repurchasing
43.8 million Rogers shares for
$1.35 billion.
What We Said: Leverage
networks, channels and brand
to deliver strong single-digit
revenue growth.
What We Did: Drove 7% top-line
growth in core Wireless Network
and Cable Operations businesses.
Expand Adjusted
Operating Profit Margins
Fast and Reliable
Networks
Grow Wireless Data
Revenue
Gain Higher Value
Wireless Subscribers
What We Said: Implement cost
containment initiatives to capture
efficiencies.
What We Did: Delivered 160 basis
points of consolidated adjusted
operating profit margin expansion
despite economic and competitive
pressures.
What We Said: Maintain Rogers’
leadership in network technology
and innovation.
What We Said: Strong double-digit
wireless data growth to support
continued ARPU leadership.
What We Did: Launched North
America’s first HSPA+ 21 Mbps
wireless network and deployed
leading-edge DOCSIS 3 50 Mbps
high-speed Internet service.
What We Did: 44% wireless data
revenue growth with data as a
percent of network revenue
expanding to 22% from 16%
in 2008.
What We Said: Continued rapid
growth in smartphone subscriber
base to drive wireless data revenue
and ARPU.
What We Did: Activated nearly
1.5 million smartphone customers
bringing smartphone penetration
to 31% of postpaid subscriber base.
Table Of Contents
1 Letter to Shareholders 4 Defi ning Next 14 Why Invest in Rogers 15 2009 Financial and Operating Highlights 16 2009 Financial Highlights
18 Management’s Discussion and Analysis 82 Management’s Responsibility for Financial Reporting 82 Auditors’ Report to the Shareholders
83 Consolidated Statements of Income 84 Consolidated Balance Sheets 85 Consolidated Statements of Shareholders’ Equity
86 Consolidated Statement of Comprehensive Income 87 Consolidated Statements of Cash Flows 88 Notes to Consolidated Financial Statements
128 Corporate Governance 130 Directors and Senior Corporate Offi cers 132 Corporate and Shareholder Information
Rogers Communications Inc. at a glance
ROGERS COMMUNICATIONS
Rogers Communications (TSX: RCI; NYSE: RCI) is a diversifi ed
Canadian communications and media company. As discussed in
the following pages, Rogers Communications is engaged in three
primary lines of business through its wholly owned subsidiaries
Rogers Wireless, Rogers Cable and Rogers Media.
Rogers Communications
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 09 REVENUE:
$11.7 billion
10.1
11.3
11.7
3.7
4.1
4.4
Wireless
Cable
Media
2007
2008
2009
20000077
2007
200000888
2008
2009
WIRELESS
Rogers Wireless provides wireless voice and data communications
services across Canada to 8.5 million customers under both the
Rogers Wireless and Fido brands. Rogers Wireless is Canada’s largest
wireless provider and the only national carrier operating on both
the global standard GSM and highly advanced 3G HSPA+ technology
platforms. Rogers Wireless is Canada’s leader in innovative
wireless voice and data services, and provides customers with the
best and latest wireless devices and applications. In addition to
providing seamless wireless roaming across the U.S. and more
than 200 countries internationally, Rogers Wireless also provides
wireless broadband services across Canada utilizing its 2.5 GHz
fi xed wireless spectrum.
CABLE
Rogers Cable is a leading Canadian cable services provider, whose
territory covers approximately 3.5 million homes in Ontario,
New Brunswick and Newfoundland and Labrador with 63% basic
penetration of its homes passed. Its advanced digital two-way
hybrid fi bre-coax network provides the leading selection of
on-demand and high-defi nition television programming including
an extensive line-up of sports and multicultural programming.
Rogers Cable pioneered high-speed Internet access and now 71%
of its television customers subscribe to its high-speed Internet
service, while Rogers Cable boasts 1.2 million residential and
business telephony subscribers. Rogers Cable also operates a retail
distribution chain which offers Rogers branded wireless, cable and
home entertainment products and services.
MEDIA
Rogers Media is Canada’s premier combination of category-leading
radio and television broadcasting, publishing, sports entertainment
and on-line properties. Its Radio group operates 54 radio stations
across Canada, while its Television properties include the fi ve-
station Citytv network; its fi ve multicultural OMNI television
stations; Rogers Sportsnet, a specialty sports television service
licenced to provide regional sports programming across Canada;
and The Shopping Channel, Canada’s only nationally televised
shopping service. Media’s Publishing group produces 70 well-known
consumer magazines and trade and professional publications in
Canada. Media’s Sports Entertainment assets include the Toronto
Blue Jays Baseball Club and Rogers Centre, Canada’s largest sports
and entertainment facility.
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 09 REVENUE:
$6.7 billion
5.5
6.3
6.7
2.6
2.8
3.0
2007
2008
2009
2007
2008
2009
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 09 REVENUE:
$3.9 billion
3.6
3.8
3.9
1.0
1.2
1.3
2007
2008
2009
2007
2008
2009
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 09 REVENUE:
$1.4 billion
1.32
1.50
1.40
0.18
0.14
0.12
2007
2008
2009
2007
2008
2009
Wireless
55%
Cable
33%
Media
12%
Postpaid Voice
70%
Wireless Data
20%
Prepaid Voice
Equipment sales
4%
6%
Core Cable
45%
High-Speed Internet
20%
Home Phone
13%
Business Solutions
12%
Retail
10%
Core Media
86%
Sports Entertainment
14%
For a detailed discussion of our financial and operating metrics and results, please see the accompanying MD&A later in this report.
“The best is yet to come.”
Ted Rogers 1933-2008
Defi ning
Next
Fellow Shareholders,
In a year where we faced the challenge of an economic recession, intensifying
competition and significant changes in our industry, I’m pleased to report that
we met or exceeded all of our key commitments.
We delivered solid financial results. We grew operating profit and free cash flow,
expanded our profit margins and returned increasing amounts of cash to you,
our shareholders. We continued to invest in the future while improving our
cost structure today. We demonstrated the underlying strength, durability and
stability of our company.
As I look to the future, I see a fundamental transformation occurring in our
industry. Staying ahead of the curve is the opportunity before us. As the pace
of change quickens, Rogers is in a unique position of strength. We have the
best asset mix, the best platforms, a long history of innovative firsts, and an
undisputed track record for competing and winning in any environment.
Leading this change, defining what’s next; that’s our legacy and that’s the
hallmark of our future.
LET TER TO SHAREHOLDERS
“We have the best asset mix of any communications company in North America.
Our competitive advantage includes network and operating scale and scope,
some of the most advanced networks in the world, unmatched distribution and
service channels, powerful brands, and complementary communications products.
Importantly, we have a rich history of entrepreneurship and an innate desire to
continually define and lead what’s next.”
Embracing and Leading Industry Change
The transformation underway in our industry is about the
blurring of lines between wireline and wireless; between the
TV screen, the computer screen and the smartphone screen;
between the excitement of real-time and the convenience of
time-shifting. It’s about richer content, greater mobility, and
faster speeds on our customers’ platform of choice. It’s about
digital content available across multiple IP-based platforms.
At the same time, competition is increasing both from
traditional players, from new wireless entrants and from
disruptive new technologies that challenge the status quo
and offer customers new alternatives.
As our industry transforms, it will be defined by the
marriage of broadband and wireless in an all IP world –
setting the stage for new ways of interacting, engaging and
consuming information, communications and entertainment –
facilitating the intersection of content and distribution.
The future will increasingly be driven by consumers looking to
access media and communicate anywhere, anytime, anyplace.
The challenge for Rogers and the industry is clear: Embrace
and facilitate this change, or watch others lead the charge.
At Rogers we’re ready for this challenge. We’re ready to set
the pace, to embrace, and to lead this transformation. Three
key building blocks will drive our efforts – a significantly
improved customer experience, industry-leading networks,
and a competitive cost structure.
Customer Experience. Enhancing our customers experience is
critical for our ongoing success. Looking forward, more revenue
growth will come from existing customers rather than from new
customers. We need to make it easier for our customers to do
business with us. And we need to develop newer, better, and
faster ways to deliver what customers want, while delivering
attractive returns for shareholders.
In 2009 we introduced a number of visible efforts to enhance
the customer experience. We created a dedicated team who
engage with customers looking for help in online forums and
micro blogs; we established a simple four-step process for our
customers to escalate their concerns; we introduced an Office
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ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
of the Ombudsman to provide our customers with a fair
and impartial mediator; and we created the Rogers Customer
Commitment to help our customers understand what they can
expect when they choose to do business with us. These examples
reflect early, visible signs of progress. We know we need to do
more, and we are committed to better meeting our customers’
expectations long-term.
Industry-Leading Networks. Our networks are among the best
in the world and Canadians have come to rely on Rogers for a
fast, reliable and proven network experience. The quality of
our advanced networks and our commitment to driving broad-
band and wireless data growth position us to win as consumer
behaviour evolves. More than ever we will focus our investment
on defining the future of leading-edge networks to ensure
Canadians continue to view Rogers as the leader in Canada.
In 2009 we launched the next generation HSPA+ network, the
first in North America, offering customers wireless speeds up to
21.1 Mbps, nearly triple those previously available. On the cable
side Rogers launched a 50 Mbps high-speed Internet service on
our new DOCSIS 3.0 platform, representing the fastest landline
residential Internet speed available in our market.
Competitive Cost Structure. As our business matures and
revenue growth moderates, our focus shifts from subscriber
growth towards cash flow. Managing costs and operating
efficiently becomes imperative. In 2009, we took significant
steps toward resetting our cost structure. Key initiatives included
outsourcing the majority of our physical IT infrastructure to IBM
to drive meaningful capital expenditure efficiencies. And we
significantly streamlined our organization structure to enhance
our operating efficiency and to position Rogers effectively for
the changing industry landscape. We are on a path to continually
drive efficiencies, maintain strong profit margins, and continue to
grow cash flow.
Underscoring all of this is innovation and Rogers’ thirst to
embrace new technologies; to be first to market, to ensure if it’s
new, Rogers will have it. It’s this innate drive; this competitive
spirit; which will continue to fuel our growth and drive our
differentiation in an increasingly crowded marketplace.
Delivering Results
2009 was a significant year of change for the company. We
delivered on our key financial metrics, and established a solid
foundation for the future.
We refined and institutionalized our strategy. We defined success
and the critical pillars needed to get us there. We took costs out
of the business to maintain double-digit growth in cash flow as
top-line growth moderated. We organized the company around
a more streamlined, efficient and customer-focused organization
structure. We reduced our capital expenditures as a percentage
of revenue. We further strengthened our already healthy balance
sheet and increased cash returns to shareholders. And we
demonstrated that we have the team, the assets, the brands and
the fortitude to deliver on our commitments to shareholders in
even the most challenging of times.
In 2009, we continued to grow subscribers at a healthy rate,
increased revenue by three percent to nearly $12 billion, and
grew adjusted operating profit by 8 percent. At the same time,
we reduced capital expenditures by 8 percent. As a result, we were
able to increase free cash flow, defined as adjusted operating
profit less capital expenditures and interest, by 29 percent to
$1.89 billion for the year. We established a target leverage range
of net debt to adjusted operating profit of 2.0 to 2.5 times. We
issued investment-grade bonds in Canada, raising $2 billion at
favourable rates to remain within our target leverage range.
And we executed the largest share buy back in the history of the
company, which, together with our dividend payments, enabled
us to return $2.1 billion of cash to shareholders. Overall, we
continue to have a solid investment grade balance sheet with
$2.8 billion of available liquidity and no near-term debt maturities.
In February 2010 we increased our annual dividend by 10 percent
and we announced another share buy back program for 2010 of
up to $1.5 billion. These two announcements reflect our continued
success in delivering free cash flow and signal our continued
confidence in the strength of the company. For 2010, our plan
strikes a healthy balance between continued subscriber and
financial growth, the return of increasing amounts of free cash
flow to shareholders, and prudent investments in our networks,
systems and service delivery platforms that will help ensure that
such growth continues in the future.
Defining Next
We’re truly fortunate to participate in an industry where
demand for our products and services is insatiable. As consumer
utilization of technology and consumption of content evolve,
so will we.
It’s our goal to define what’s next, to lead the changing
intersection of content and distribution, to lead our customers
through this incredible transformation.
Rogers moves into this new era from a position of tremendous
strength.
We have the best asset mix of any communications company in
North America. Our competitive advantage includes network
and operating scale and scope, some of the most advanced
networks in the world, extensive distribution and service
channels, powerful brands, and complementary communications
products. Importantly, we have a rich history of entrepreneurship
and an innate desire to continually define and lead what’s next.
Ted Rogers, our late founder, knew that you couldn’t succeed in
the future by relying on what you did in the past. He was a keen
observer of changing trends and constantly looking for ways to
build a business around them. Great companies look to the future
and this is where our sights are firmly set.
I’d like to extend my thanks to the Rogers employees across
Canada for their hard work and continuing dedication.
Thank you for your investment, confidence and support.
Nadir Mohamed
President and Chief Executive Officer
Rogers Communications Inc.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
3
We’re defining
how today’s
youth connect,
socialize and get
entertained
For today’s youth it’s all about mobile
and broadband to stay connected and
entertained. With Rogers’ blistering
fast Internet speeds at home and
wireless coverage around the globe,
it is just as easy to connect with a friend
through an e-mail, a text, a chat or
a digital photo as it is to access and
enjoy the latest content and the
hottest social-networking websites like
Facebook, MySpace and YouTube.
Around the city or around the world,
friends know that it’s Rogers that
keeps them connected, enabling them
to share moments as they happen with
the latest wireless devices and fastest
Internet speeds as talking, messaging,
networking and entertainment
all converge.
DISCOVERED AND
DOWNLOADED NEW
BAND THROUGH
UR MUSIC
BFF
L
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P
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S
S
O
G
D
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V
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UPDATE FACEBOOK STATUS
UNLIMITED TXTS
MAKE-UP TIPS
FROM FLARE
MAGAZINE
CHAT WITH MY BEST FRIEND
8@
SCORED CHOICE OUTFITS
FROM THE SHOPPING CHANNEL
PM
N A M E : Jessica
> 20 years old
> Sent 219 texts yesterday
> More Facebook friends than
she can count
> Chats with mom online twice
a week
> Acing Chem 101
ONLINE RESEARCH
IS REALLY FAST
WITH ROGERS
ROCKET STICK
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ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
5
We’re defining
how families
come together
and connect
with their world
Today’s families rely on Rogers to help
them pull together as they face the
unending demands of work, school,
home and play. Rogers provides the
innovative ways families keep connected
on the move and the simple peace of
mind of knowing that the people they
care about most are never far away.
At home with Rogers, families come
together around the fastest, most
reliable Internet service and thousands
of viewing choices enabled by
on-demand digital cable TV. With the
most in on-demand, sports, movies,
episodic, specialty, multicultural and
high definition programming, TV has
never been this good, this easy or this
much in their control. And it only gets
better with Rogers Media’s own unique
and exciting selection of TV, radio and
magazine properties.
KEEPING
CONNECTED
WITH ROGERS
FAMILY PLAN
PAUSES TV, NOT LIFE
SET UP
HOME
THEATRE
WITH HELP
FROM G4
TECH TV
VISITS
GRANDMA VIA
WEB CAM
GETS THEIR HOME PHONE
CALLER ID ON THE TV
PLANNING NEXT FAMILY TRIP ONLINE
WITH 50MBPS ROGERS INTERNET
N A M E : The Scott Family
> First house in the ‘burbs
> Friday night is pizza night
> Ongoing discussion about getting a puppy
> Winning at work/life balance
LOVES TREEHOUSE TV ON DEMAND
KEEPS UP ON
NUTRITIONAL
IDEAS WITH
TODAY’S PARENT
MAGAZINE
6
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
7
CATCHES UP ON FAVOURITE SHOWS
ONLINE AT ROGERSONDEMAND.COM
DOWNLOADS APPS
CHECKS MOVIE TIMES
WITH MOBILE DEVICE APPS
N A M E : Allison and Jeff
> Downtowners
> Met online and was love at fi rst sight
> Gets tweets from favourite architect
> Loft down payment almost there
> Still on the quest for the city’s best Thai
UPLOADS LATEST PICS
INSTANTLY TO FLICKR
NEVER
MISSES
MAD MEN
We’re defining
how young
adults build
connected lives
Young adults today have live-in-the-
moment lifestyles that depend on
having anytime access to the people
and things that matter to them most.
Theirs is a world of options. Rogers
helps them define their experience
like no one else with more choices in
services, applications, devices, speed
and coverage.
No one gets or better meets the unique
communications, information and
entertainment needs of this on-the-
move, on-demand generation of
connected Canadians like Rogers.
Young adults know that with Rogers
they’re able to stay in touch, online,
informed and entertained with the
latest wireless devices, the fastest
Internet speeds and the most flexible
and engaging television services.
E-MAIL
EVERYWHERE
S
WORKS
WORKS AT THE CAFÉ
W
H
WITH
WITH MOBILE INTERNET
8
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9
9
We’re defining
how businesses
win in the
digital world
In today’s hypercompetitive business
world, connectivity and productivity
go hand in hand, and Rogers provides
high-quality voice and data connectivity
solutions designed specifically for the
most demanding of wireless and wired
commercial requirements.
Fast and reliable wireless networks,
the broadest array of wireless applications
and devices, and seamless global
connectivity are why businesses rely on
Rogers’ wireless services. At the office,
Rogers delivers business-grade voice and
data networking solutions, providing a
single reliable source for innovative wired
and wireless connectivity. And to drive
more business in the door, businesses
connect with Rogers’ leading media
brands as their one-stop solution for
local and national radio, television and
print advertising.
POST COMMENTS ON CANADIAN BUSINESS ONLINE
200+ E-MAILS DAILY
YOU HAVE MAIL
ALWAYS CONNECTED
TO TRADING DESK,
EVEN ON THE RIVER
20 VOICE LINES
PLUS INTERNET,
READY TO GROW
FIRST CALL WITH IMPORTANT
NEW CLIENT
CHECK STOCK
PRICES ONLINE
N A M E : Michael
> 38 years old
> Trades stocks and bonds
> Unwinds with kayaking
> Coaches daughter’s hockey
> Made VP on fast track
STAYING
UP-TO-DATE
WITH 680 NEWS
140
130
120
ADVERTISES
WITH
ROGERS
BROADCASTING
10
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 11
We’re helping
define community
support and
global
sustainability
Rogers supports a broad array
of community and sustainability
initiatives. In local communities,
Rogers supports programs that are
dedicated to keeping children and
families healthy, nourished, safe and
active – kids’ sports, the recovery of lost
children, local food banks and Rogers
Pumpkin Patrol on Halloween night.
Rogers sponsors a range of community
events to help organizations such as
the Hospital for Sick Children, Easter
Seals, and many more. Our 34 Rogers
TV cable stations produce more than
15,000 hours of local programming
involving over 29,000 community groups,
including coverage of local charitable
events and the donation of media and
advertising resources. And Rogers’
Jolly Trolley program provides innovative
new mobile entertainment units to 35
children’s hospitals from coast-to-coast.
In the procurement supply chain,
Rogers continually works with its
partners through its agreements,
relationships and code of conduct to
assure adherence to and enhancement
of sound sourcing, production and
recycling standards. Our objective is
simple yet crucial – to ensure respon-
sible, efficient use of natural resources
while at the same time reducing
environmental impacts and ensuring
regulatory compliance wherever
we and our partners operate.
VOLUNTEERS AT ROGERS-SUPPORTED
UNITED WAY AGENCY WITH MOM
ROGERS PROMOTES ONLINE BILLING TO SAVE
PAPER AND REDUCE CARBON FOOTPRINT
SUPPORTS AND COVERS
THOUSANDS OF
COMMUNITY EVENTS
THROUGHOUT
THE YEAR
ROGERS MULTICULTURAL
PROGRAMMING MAKES
COMMUNITIES FEEL
MORE LIKE HOME
ROGERS IS AN
IMAGINE CANADA
CARING COMPANY
COMMITTED TO
DONATING OVER
1% OF PRE-TAX
EARNINGS TO
CHARITY
S
’
A
D
A
N
A
C
F
O
E
N
O
S
R
E
Y
O
L
P
M
E
T
S
E
G
R
A
L
YOUTH SPORTS
SUPPORTED
BY ROGERS
N A M E : Jamie
> 8 years old
> Dreams of the big leagues
> Loves cheering on the Jays
at Rogers Centre
> Plants trees with Scouts
> Likes carrots dipped in chocolate
ROGERS IS
COMMUNITY
TELEVISION
RECYCLES USED CELL PHONES
TO SUPPORT FOOD BANKS
A PUBLISHING LEADER
IN ENVIRONMENTAL
PAPER SOURCING
12
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 13
Why invest in Rogers
Rogers Communications has excellent positions in growing markets, powerful brands, proven management,
a long record of driving growth and shareholder value, and the financial strength to continue its growth well
into the future.
2009 Financial and Operating Highlights
The following represents a sampling of Rogers Communications Inc.’s 2009 performance highlights.
Leader in Canadian
Communications Industry
Canada’s largest wireless carrier
and a leading cable services
provider, offering a ‘quadruple
play’ of wireless, television,
Internet and telephony services
to consumers and businesses.
Must-Have Products and Services
A leading provider of communications and
entertainment products and services that are
increasingly becoming necessities in today’s world.
Extensive Product Distribution Network
Powerful national product distribution network
consisting of more than 3,600 Rogers-owned,
dealer and retail outlets.
Healthy Liquidity and Meaningful Dividends
RCI common stock actively trades on the TSX and NYSE, with average daily trading volume greater
than two million shares. Each share pays an annualized dividend of $1.28 per share in 2010.
Superior Asset Mix
Majority of revenue and cash flow is generated from wireless and broadband services, the
healthiest and fastest growing segments of the communications industry.
Powerful Brands
Nationally recognized and highly respected brands
that stand strongly in Canada for innovation,
entrepreneurial spirit, choice and value.
Track Record of Value Creation
Proven 30-year public market track
record of long-term index-beating
shareholder value creation.
Strong Balance Sheet
Financially strong with
balance sheet leverage
at 2.1 times net debt
to adjusted operating
profit, investment grade
credit ratings, $2.8 billion
of available liquidity and
no debt maturities until
May 2011.
Category-Leading
Media Assets
Unique and
complementary
collection of leading
broadcast radio and
television, specialty
TV, magazine and
sports entertainment
assets.
Proven Leadership and
Operating Management
Experienced, performance-
oriented management and
operating teams with solid
industry expertise, technical
depth and company tenures.
Strong Single-Digit
Revenue Growth
Margin Expansion
Free Cash Flow Growth
Drove 7% top-line growth in core
Wireless Network and Cable Operations
businesses
Expanded adjusted operating profit
margins 160 basis points despite
economic and competitive pressures
Consolidated free cash flow increased
by 29% to $1.9 billion
Dividend Growth
Share Buybacks
Debt Financing
Annual dividend per share increased
16% in 2009 from $1.00 to $1.16 annually
Expanded share buyback program,
repurchasing 43.8 million Rogers shares
for $1.35 billion
Issued $2.0 billion of investment grade
long-term notes on favourable terms
Balance Sheet Strength
Wireless Growth
Leading Networks
$2.8 billion liquidity with no debt
maturities until mid-2011, and a ratio
of 2.1 times net debt to adjusted
operating profit
Grew Wireless Network revenue by 7%
to $6.3 billion and subscribers by 552,000
to 8.5 million
Launched North America’s first HSPA+
21 Mbps wireless network and deployed
leading-edge DOCSIS-3.0 50 Mbps
high-speed Internet service
Smartphone Leadership
Double-Digit Wireless
Data Growth
Higher Value Wireless
Subscribers
First in Canada to launch the Apple
iPhone 3GS and Android smartphone
devices
44% wireless data revenue growth with
data as a percent of network revenue
expanding to 22%.
Activated nearly 1.5 million smartphone
customers bringing smartphone
penetration to 31% of postpaid
subscriber base
Internet and Digital Services
Penetration
Small Business Segment
Opportunity
Media Awards
Grew high-speed Internet and digital
cable penetration levels to 71% and 72%
of television subscribers, respectively
Enhanced position in SME market with
launch of business-grade telephony and
broadband services
Media’s Citytv and OLN television
properties received 29 Gemini nomina-
tions for Canadian programming
For a detailed discussion of our financial and operating metrics and results, please see the accompanying MD&A later in this report.
14
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 15
2009 Financial Highlights
Financial Highlights
(In millions of dollars, except per share and employee data)
Revenue
Adjusted operating profit
Adjusted operating profit margin
Adjusted net income
Adjusted basic earnings per share
Annualized dividend rate at year-end
Total assets
Long-term debt (includes current portion)
Shareholders‘ equity
Number of employees
2 0 0 9
$ 11,731
4,388
37%
1,556
2.51
1.16
17,018
8,464
4,273
28,985
2 0 0 8
2 0 0 7
2 0 0 6
2 0 0 5
$ 11,335
4,060
36%
1,260
1.98
1.00
17,082
8,507
4,716
29,200
$ 10,123
3,703
37%
1,066
1.67
0.50
15,325
6,033
4,624
27,900
$ 8,838
2,942
33%
684
1.08
0.16
14,105
6,988
4,200
25,700
$ 7,334
2,252
31%
47
0.08
0.075
13,834
7,739
3,528
22,600
2009 Consolidated Revenue and Operating Profit Profile
Revenue
Adjusted Operating Profit
Wireless
55%
Cable Operations
26%
Media
12%
Business Solutions
4%
Retail
3%
Wireless
68%
Cable Operations
29%
Media
2%
Business Solutions
1%
Total Shareholder Return
Ten-Year Comparative Total Return: 2000–2009
Five-Year Comparative Total Return: 2005–2009
103%
73%
(24%)
18%
(51%)
125%
45%
(8%)
38%
8%
RCI.b on TSX
S&P/TSX
COMPOSITE
S&P 500
TSX TELECOM
INDEX
S&P 500
S&P 500
TELECOM INDEX
RCI.b on TSX
S&P/TSX
COMPOSITE
S&P 500
TSX TELECOM
INDEX
S&P 500
TELECOM INDEX
For a detailed discussion of our financial and operating metrics and results, please see the accompanying MD&A later in this report.
16
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
FINANCIAL SECTION CONTENTS
18 MANAGEMENT’S DISCUSSION AND ANALYSIS
82 MANAGEMENT’S RESPONSIBILITY FOR
Corporate Overview
19 Our Business
20 Our Strategy
20 Acquisitions
20 Consolidated Financial and Operating Results
23 2010 Financial and Operating Guidance
Segment Review and Reconciliation to Net Income
24 Wireless
31 Cable
40 Media
42 Reconciliation of Net Income to Operating Profit
Interest Rate and Foreign Exchange Management
Consolidated Liquidity and Financing
45 Liquidity and Capital Resources
48
50 Outstanding Common Share Data
50 Dividends on RCI Equity Securities
51 Commitments and Other Contractual Obligations
52 Off-Balance Sheet Arrangements
Operating Environment
52 Government Regulation and
Regulatory Developments
55 Cable Regulation and Regulatory Developments
57 Media Regulation and Regulatory Developments
57 Competition in our Businesses
59 Risks and Uncertainties Affecting our Businesses
Accounting Policies and Non-GAAP Measures
65 Key Performance Indicators and
Non-GAAP Measures
66 Critical Accounting Policies
67 Critical Accounting Estimates
70 New Accounting Standards
70 Recent Canadian Accounting Pronouncements
74 U.S. GAAP Differences
Additional Financial Information
74 Related Party Transactions
75 Five-Year Summary of Consolidated Financial Results
76 Summary of Seasonality and Quarterly Results
78 Summary Financial Results of Long-Term Debt Guarantors
79 Controls and Procedures
80 Supplementary Information: Non-GAAP Calculations
FINANCIAL REPORTING
82 AUDITORS’ REPORT TO THE SHAREHOLDERS
83 CONSOLIDATED STATEMENTS OF INCOME
84 CONSOLIDATED BALANCE SHEETS
85 CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY
86 CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
87 CONSOLIDATED STATEMENTS OF CASH FLOWS
88 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
88 Note 1: Nature of the Business
88 Note 2: Significant Accounting Policies
94 Note 3: Segmented Information
96 Note 4: Business Combinations and Divestitures
98 Note 5: Investment in Joint Ventures
98 Note 6: Integration and Restructuring Expenses
99 Note 7: Income Taxes
100 Note 8: Net Income Per Share
100 Note 9: Other Current Assets
101 Note 10: Property, Plant and Equipment
101 Note 11: Goodwill and Intangible Assets
103 Note 12: Investments
104 Note 13: Other Long-Term Assets
105 Note 14: Long-Term Debt
107 Note 15: Financial Risk Management and
Financial Instruments
112 Note 16: Other Long-Term Liabilities
113 Note 17: Pensions
116 Note 18: Shareholders’ Equity
117 Note 19: Stock-Based Compensation
119 Note 20: Consolidated Statements of Cash Flows
and Supplemental Information
120 Note 21: Capital Risk Management
120 Note 22: Related Party Transactions
121 Note 23: Commitments
122 Note 24: Contingent Liabilities
123 Note 25: Canadian and United States
Accounting Policy Differences
127 Note 26: Subsequent Events
128 CORPORATE GOVERANCE
130 DIRECTORS AND SENIOR CORPORATE OFFICERS
132 CORPORATE AND SHAREHOLDER INFORMATION
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
17
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2009
This Management’s Discussion and Analysis (“MD&A”) should be
read in conjunction with our 2009 Audited Consolidated Financial
Statements and Notes thereto. The financial information presented
herein has been prepared on the basis of Canadian generally accepted
accounting principles (“GAAP”) and is expressed in Canadian dollars,
unless otherwise stated. Please refer to Note 25 to the 2009 Audited
Consolidated Financial Statements for a summary of differences
between Canadian and United States (“U.S.”) GAAP. This MD&A,
which is current as of February 17, 2010, is organized into six sections.
1 CORPORATE OVERVIEW
2 SEGMENT REVIEW AND
RECONCILIATION TO NET INCOME
3 CONSOLIDATED LIQUIDITY
AND FINANCING
19 Our Business
20 Our Strategy
20 Acquisitions
24 Wireless
31
Cable
40 Media
20
23
Consolidated Financial and
Operating Results
42
Reconciliation of Net Income
to Operating Profit
2010 Financial and
Operating Guidance
45
48
Liquidity and Capital Resources
Interest Rate and Foreign
Exchange Management
50 Outstanding Common Share Data
50 Dividends and Other Payments
on RCI Equity Securities
51
Commitments and Other
Contractual Obligations
52 Off-Balance Sheet Arrangements
4 OPERATING ENVIRONMENT
5
AC C O U N T I N G P O L I C I E S A N D
N O N - G A A P M E A S U R E S
6 A D D I T I O N A L F I N A N C I A L
I N F O R M AT I O N
52 Government Regulation and
Regulatory Developments
65 Key Performance Indicators and
Non-GAAP Measures
55
Cable Regulation and
Regulatory Developments
57 Media Regulation and
Regulatory Developments
57
59
Competition in our Businesses
Risks and Uncertainties Affecting
our Businesses
66
67
Critical Accounting Policies
Critical Accounting Estimates
70 New Accounting Standards
70
Recent Canadian Accounting
Pronouncements
74 U.S. GAAP Differences
74
75
76
78
79
80
Related Party Transactions
Five-Year Summary of
Consolidated Financial Results
Summary of Seasonality and
Quarterly Results
Summary Financial Results of
Long-Term Debt Guarantors
Controls and Procedures
Supplementary Information:
Non-GAAP Calculations
In this MD&A, the terms “we”, “us”, “our”, “Rogers” and “the
Company” refer to Rogers Communications Inc. and our subsidiaries,
which were reported in the following segments for the year ended
December 31, 2009:
• “Wireless”, which refers to our wireless communications
operations, including Rogers Wireless Partnership (“RWP”) and
Fido Solutions Inc. (“Fido”);
• “Cable”, which refers to our cable communications operations,
including Rogers Cable Communications Inc. (“RCCI”) and its
subsidiary, Rogers Cable Partnership; and
specialty channels including The Biography Channel Canada,
G4TechTV and Outdoor Life Network; Rogers Publishing, which
publishes approximately 70 magazines and trade journals; and
Rogers Sports Entertainment, which owns the Toronto Blue Jays
Baseball Club (“Blue Jays”) and Rogers Centre. Media also holds
ownership interests in entities involved in specialty television
content, television production and broadcast sales.
“RCI” refers to the legal entity Rogers Communications Inc.
excluding our subsidiaries.
Substantially all of our operations are in Canada.
• “Media”, which refers to our wholly-owned subsidiary Rogers
Media Inc. and its subsidiaries, including Rogers Broadcasting,
which owns a group of 54 radio stations, the Citytv televi-
sion network, the Rogers Sportsnet television network, The
Shopping Channel, the OMNI television stations, and Canadian
Throughout this MD&A, all percentage changes are calculated
using numbers rounded to the decimal to which they appear. Please
note that the charts, graphs and diagrams that follow have been
included for ease of reference and illustrative purposes only and do
not form part of management’s discussion and analysis.
18
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
C AUTION REGARDING FORWARD -LOOkING STATEMENTS, RISkS
AND A SSUMP TIONS
This MD&A includes forward-looking statements and assumptions
concerning our business, its operations and its financial performance
and condition approved by management on the date of this MD&A.
These forward-looking statements and assumptions include, but
are not limited to, statements with respect to our objectives and
strategies to achieve those objectives, statements with respect
to our beliefs, plans, expectations, anticipations, estimates or
intentions, including guidance and forecasts relating to revenue,
adjusted operating profit, property, plant and equipment (“PP&E”)
expenditures, free cash flow, amounts and timing of income tax
payments, 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, 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, and industry
structure and stability.
Except as otherwise indicated, this MD&A and our forward-looking
statements do not reflect the potential impact of any non-recurring
or other special items or of any dispositions, monetizations,
mergers, acquisitions, other business combinations or other
transactions that may be considered or announced or may occur
after the date of the financial information contained herein.
We caution that all forward-looking information, including any
statement regarding our current intentions, is inherently subject
to change and uncertainty and that actual results may differ
materially from the assumptions, estimates or expectations
reflected in the forward-looking information. A number of factors
could cause actual results to differ materially from those in the
forward-looking statements or could cause our current objectives
and strategies to change, including but not limited to economic
conditions, technological change, the integration of acquisitions,
unanticipated changes in content or equipment costs, changing
conditions in the entertainment, information and communications
industries, regulatory changes, litigation and tax matters, the level
of competitive intensity and the emergence of new opportunities,
many of which are beyond our control and current expectation
or knowledge. Therefore, should one or more of these risks
materialize, should our objectives or strategies change, or should
any other factors underlying the forward-looking statements
prove incorrect, actual results and our plans may vary significantly
from what we currently foresee. Accordingly, we warn investors
to exercise caution when considering any such forward-looking
information herein and that it would be unreasonable to rely on
such statements as creating any legal rights regarding our future
results or plans. We are under no obligation (and we expressly
disclaim any such obligation) to update or alter any forward-looking
statements or assumptions whether as a result of new information,
future events or otherwise, except as required by law.
Before making any investment decisions and for a detailed
discussion of the risks, uncertainties and environment associated
with our business, see the sections of this MD&A entitled “Risks
and Uncertainties Affecting our Businesses” and “Government
Regulation and Regulatory Developments”. Our annual and
quarterly reports can be found online at rogers.com, sedar.com,
and sec.gov or are available directly from Rogers.
ADDITIONAL INFORMATION
Additional information relating to Rogers, including our Annual
Information Form, discussions of our 2009 quarterly results, and
a glossary of communications and media industry terms, may be
found online at sedar.com, sec.gov or rogers.com. Information
contained in or connected to these websites are not a part of and
not incorporated into this MD&A.
1. CORPORATE OVERVIEW
OUR BUSINESS
We are a diversified Canadian communications and media
company with substantially all of our operations in Canada. We
are engaged in wireless voice and data communications services
through Wireless, Canada’s largest wireless provider. Through
Cable, we are one of Canada’s largest providers of cable television
services as well as high-speed Internet access, telephony services
and video retailing. Through 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 more detailed descriptions of our Wireless, Cable and Media
businesses, see the respective segment discussions that follow.
REVENUE
(In millions of dollars)
ADJUSTED OPERATING PROFIT
(In millions of dollars)
$5,503
3,558
1,317
$6,335
3,809
1,496
$6,654
3,948
1,407
$2,589
1,016
176
$2,806
1,233
142
$3,042
1,324
119
2007
2007
2008
2008
2009
2009
2007
2007
2008
2008
2009
2009
Wireless
Cable
Media
Wireless
Cable
Media
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
19
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OUR STR ATEGY
Our business objective is to maximize subscribers, revenue,
operating profit and return on invested capital by enhancing our
position as one of Canada’s leading diversified communications
and media companies. Our strategy is to be the preferred provider
of communications, entertainment and information services to
Canadians. We seek to leverage our networks, infrastructure, sales
channels, brands and marketing resources across the Rogers group of
companies by implementing cross-selling and joint sales distribution
initiatives as well as cost-reduction initiatives through infrastructure
sharing, to create value for our customers and shareholders.
We seek to exploit opportunities for Wireless, Cable and Media to
create bundled product and service offerings at attractive prices,
in addition to implementing cross-marketing and cross-promotion
of products and services to increase sales and enhance subscriber
loyalty. We also work to identify and implement areas of opportunity
for our businesses that will enhance operating efficiencies by sharing
infrastructure, corporate services and sales distribution channels. We
continue to develop brand awareness and promote the “Rogers”
brand as a symbol of quality and innovation and as representing
Canada’s leading media and communications company.
In September 2009, we announced the further integration of our
Cable and Wireless businesses with the creation of a Communications
Services organization. This more streamlined organizational
structure is intended to facilitate faster time to market and generally
improve the overall effectiveness and efficiency of the Wireless and
Cable businesses. Reporting continues to reflect the foregoing Cable
and Wireless services as separate product segments.
ADDITIONS TO
CONSOLIDATED PP&E
(In millions of dollars)
CONSOLIDATED TOTAL ASSETS
(In millions of dollars)
$1,796
$2,021
$1,855
$15,325
$17,082
$17,018
2007
2007
200 8
2008
2009
2009
2007
2007
2008
2008
2009
2009
ACQUISITIONS
Acquisition of Outdoor Life Network
During the year ended December 31, 2009, we finalized
the purchase price allocation for the Outdoor Life Network
(“OLN”) acquisition, which was acquired by Media on July 31, 2008.
This resulted in an increase in the valuation of broadcast licences
of $15 million, an increase in future income tax liabilities of
$3 million, and a corresponding decrease in goodwill of $12 million
from the purchase price allocation recorded and disclosed at
December 31, 2008.
20
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
Acquisition of k- Rock 1057 Inc.
On May 31, 2009, Media acquired the assets of K-Rock 1057 Inc. for
cash consideration of $11 million. K-Rock 1057 Inc. held the assets
of radio stations K-Rock and KIX Country in Kingston, Ontario.
The acquisition was accounted for using the purchase method and
the related results are included in Media’s results of operations
effective May 31, 2009.
Acquisition of Blink Communications Inc.
On January 29, 2010, the Company announced that it has entered
into an agreement to purchase 100% of the outstanding common
shares of Blink Communications Inc. (“Blink”), a wholly owned
subsidiary of Oakville Hydro Corporation, for cash consideration of
$130 million. Blink is a data focused telecom provider that delivers
next generation and leading edge service, through its end-to-end
owned network, to small and medium sized businesses, including
municipalities, universities, schools and hospitals, in the Oakville
and Mississauga, Ontario areas.
CONSOLIDATED F INANCIAL AND O PER ATING R ESULTS
See the sections in this MD&A entitled “Critical Accounting Policies”,
“Critical Accounting Estimates” and “New Accounting Standards”
and also the Notes to the 2009 Audited Consolidated Financial
Statements for a discussion of critical and new accounting policies
and estimates as they relate to the discussion of our operating and
financial results below.
We measure the success of our strategies using a number of
key performance indicators as outlined in the section entitled
“Key Performance Indicators and Non-GAAP Measures”. These
key performance indicators are not measurements in accordance
with Canadian or U.S. GAAP and should not be considered as
alternatives to net income or any other measure of performance
under Canadian or U.S. GAAP. The non-GAAP measures presented
in this MD&A include, among other measures, operating profit,
adjusted operating profit, adjusted operating profit margin,
adjusted net income, adjusted basic and diluted net income per
share and free cash flow. We believe that the non-GAAP financial
measures provided, which exclude: (i) stock-based compensation
expense (recovery); (ii) integration and restructuring expenses;
(iii) contract termination fees; (iv) an adjustment for Canadian
Radio-television and Telecommunications Commission (“CRTC”)
Part II fees related to prior periods; (v) pension settlement;
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 impacts of the above items, provide for a more
effective analysis of our operating performance. See the sections
entitled “Key Performance Indicators and Non-GAAP Measures”
and “Supplementary Information: Non-GAAP Calculations” for
further details.
An overall economic slowdown in Canada and particularly in
Ontario, which is the largest market for each of our three business
segments, as well as increased levels of competitive intensity
have negatively impacted the results of our Wireless, Cable and
Media segments during 2009. This includes lower subscriber
additions as well as declines of advertising, roaming and other
more discretionary types of revenues. In response to the economic
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
conditions and competitive intensity, we took decisive action
during 2009 to restructure our organization and employee base to
improve our cost structure going forward. To reflect these changes,
amongst other things, we incurred restructuring and impairment
charges which are fully described later in this MD&A.
• We created a streamlined organizational structure with the
further integration of our Cable and Wireless businesses
to enable an enhanced customer experience, accelerated
time to market, heightened innovation and targeted sector
leading growth.
Despite the economic slowdown, we are well-positioned from
both a leverage and a liquidity perspective with a debt to adjusted
operating profit ratio of 2.1. Debt is net of $0.4 billion of cash.
In addition, the entire $2.4 billion bank credit facility was available
to be drawn at December 31, 2009 with no debt maturities
until May 2011.
Operating Highlights and Significant Developments in 20 09
• In March 20 0 9, we announced the appointment of
Nadir Mohamed as President and Chief Executive Officer.
This appointment followed an extensive search carried out by
our Board of Directors following the December 2008 passing
of our founder and Chief Executive Officer, Ted Rogers. A
communications industry veteran with more than 25 years of
experience, Nadir Mohamed was previously President and Chief
Operating Officer of our Communications Group division, which
included our Wireless and Cable businesses.
• Generated 7% Wireless network and Cable Operations revenue
growth, with consolidated annual revenue growth of 3%, while
adjusted operating profit grew 8% to $4,388 million and adjusted
operating profit margins expanded by 160 basis points to 37.4%.
• In May 2009, we announced that we set a target capital structure
leverage range of net debt to adjusted operating profit of 2.0
to 2.5 times. At the same time, we also announced an increase
in our authorized Class B Non-Voting share buyback program
from $300 million to the lesser of $1.5 billion or 48 million
Class B Non-Voting shares during the twelve month period end-
ing February 19, 2010 under which we purchased for cancellation
43.8 million outstanding Class B Non-Voting shares during 2009
for $1.3 billion.
• In February 2009, we announced an increase in the annual
dividend from $1.00 to $1.16 per Class A Voting and Class B Non-
Voting share. This reflects our Board of Directors’ continued
confidence in the strategies that we have employed to position
ourselves as a leading Canadian communications and media
company, while concurrently recognizing the importance of
returning meaningful portions of our growing cash flows to
shareholders. We paid $704 million in dividends to shareholders
during the year.
• We closed $2.0 billion aggregate principal amount of investment
grade debt offerings during the year, consisting of $1.0 billion of
5.80% Senior Notes due May 2016, $500 million of 5.38% Senior
Notes due November 2019 and $500 million of 6.68% Senior
Notes due November 2039. Among other things, proceeds of the
offerings were used to repay bank debt and redeem our US$400
million 8.00% Senior Subordinated Notes.
• For full year 2009, our free cash flow, defined as adjusted
operating profit less PP&E expenditures and interest, increased
29% to $1.9 billion.
• We increased our ownership position in Cogeco Cable Inc. and
Cogeco Inc. with the acquisition of 3.2 million subordinate
voting common shares of Cogeco Cable Inc. and 1.6 million
subordinate voting common shares of Cogeco Inc. These
opportunistic purchases made for investment purposes increase
Rogers’ ownership of Cogeco Cable Inc. from approximately 14%
to 20% and of Cogeco Inc. from approximately 20% to 30%.
• At December 31, 2009, we had the full amount in available credit
under our $2.4 billion committed bank credit facility that matures
July 2013. This strong liquidity position is further enhanced by
the fact that our earliest scheduled debt maturity is in May 2011,
together providing us with substantial liquidity and flexibility.
• We announced in February 2010, that our Board of Directors
had approved a 10% increase in the annual dividend to $1.28
per share effective immediately, and that it has approved the
renewal of our normal course issuer bid (“NCIB”) program for
the repurchase of up to $1.5 billion of Rogers shares on the open
market during the next twelve months.
Year Ended December 31, 20 09 Compared to Year Ended
December 31, 20 08
For the year ended December 31, 2009, Wireless, Cable and Media
represented 57%, 34% and 12% of our consolidated revenue,
respectively, offset by corporate items and eliminations of 3%. On
the basis of consolidated adjusted operating profit, Wireless, Cable
and Media also represented 69%, 30% and 3%, respectively, offset
by corporate items and eliminations of 2%.
For the year ended December 31, 2008, Wireless, Cable and Media
represented 56%, 34% and 13% of our consolidated revenue,
respectively, offset by corporate items and eliminations of 3%. On
the basis of consolidated adjusted operating profit, Wireless, Cable
and Media also represented 69%, 30% and 4%, respectively, offset
by corporate items and eliminations of 3%.
For detailed discussions of Wireless, Cable and Media, refer to the
respective segment discussions below.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summarized Consolidated Financial Results
Years ended December 31,
(In millions of dollars, except per share amounts)
Operating revenue
Wireless
Cable
Cable Operations
RBS
Rogers Retail
Corporate items and eliminations
Media
Corporate items and eliminations
Total
Adjusted operating profit(1)
Wireless
Cable
Cable Operations
RBS
Rogers Retail
Media
Corporate items and eliminations
Adjusted operating profit(1)
Stock-based compensation recovery(3)
Settlement of pension obligations(4)
Integration and restructuring expenses(5)
Contract termination fees(6)
Adjustment for CRTC Part II fees decision(7)
Operating profit(1)
Other income and expense, net(8)
Net income
Basic and diluted net income per share
As adjusted:(2)
Net income
Basic and diluted net income per share
Additions to property, plant and equipment ("PP&E")(1)
Wireless
Cable
Cable Operations
RBS
Rogers Retail
Media
Corporate(9)
Total
2009
2008
%Chg
$
6,654 $
6,335
5
3,074
503
399
(28)
3,948
1,407
(278)
11,731
2,878
526
417
(12)
3,809
1,496
(305)
11,335
3,042
2,806
1,298
35
(9)
1,324
119
(97)
4,388
33
(30)
(117)
(19)
61
4,316
2,838
1,478 $
2.38 $
1,171
59
3
1,233
142
(121)
4,060
100
-
(51)
-
(31)
4,078
3,076
1,002
1.57
1,556 $
2.51 $
1,260
1.98
865 $
929
642
37
14
693
62
235
1,855 $
829
36
21
886
81
125
2,021
$
$
$
$
$
$
7
(4)
(4)
133
4
(6)
(9)
3
8
11
(41)
n/m
7
(16)
(20)
8
(67)
n/m
129
n/m
n/m
6
(8)
48
52
23
27
(7)
(23)
3
(33)
(22)
(23)
88
(8)
(1) As defined. See the sections entitled “Supplementary Information: Non-GAAP Calculations” and “key Performance Indicators and Non-GAAP Measures”. Operating profit should not be considered as a substitute or alternative for oper-
ating 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: Non-GAAP Calculations” and “key Performance Indicators and Non-GAAP
Measures”. The ‘as adjusted’ amounts presented above are reviewed regularly by management and our Board of Directors in assessing our performance and in making decisions regarding the ongoing operations of the business and
the ability to generate cash flows. The ‘as adjusted’ amounts exclude (i) stock-based compensation (recovery) expense; (ii) integration and restructuring expenses; (iii) contract termination fees; (iv) an adjustment for Canadian Radio-
television and Telecommunications Commission (“CRTC”) Part II fees related to prior periods; (v) pension settlement; 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.
(3) See the section entitled “Stock-based Compensation”.
(4) Relates to the settlement of pension obligations for all employees in the pension plans who had retired as of January 1, 2009 as a result of annuity purchases by the Company’s pension plans.
(5) For the year ended December 31, 2009, costs incurred relate to i) severances resulting from the targeted restructuring of our employee base to combine the Cable and Wireless businesses into a communications organization and to
improve our cost structure in light of the current economic and competitive conditions; ii) severances and restructuring expenses related to the outsourcing of certain information technology functions; iii) the integration of Futureway
Communications Inc. (“Futureway”) and Aurora Cable TV Limited (“Aurora Cable”); and iv) the closure of certain Rogers Retail stores. For the year ended December 31, 2008, costs incurred relate to i) severances resulting from the
restructuring of our employee base to improve our cost structure in light of the current economic conditions; ii) the integration of Futureway and Call-Net Enterprises Inc. (“Call-Net”); iii) the restructuring of Rogers Business Solutions
(“RBS”); and iv) the closure of certain Rogers Retail stores.
(6) Relates to the termination and release of certain Blue Jays players from the remaining term of their contracts.
(7) Relates to an adjustment for CRTC Part II fees related to prior periods. See the section entitled “Government Regulation and Regulatory Developments”.
(8) See the section entitled “Reconciliation of Net Income to Operating Profit and Adjusted Operating Profit for the Period”.
(9) The corporate additions to PP&E included $151 million for the year ended December 31, 2009 and $38 million for the year ended December 31, 2008, both of which related to spending on an enterprise-wide billing and business support
system initiative.
n/m: not meaningful.
22
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our consolidated revenue was $11,731 million in 2009, an increase
of $396 million, or 3%, from $11,335 million in 2008. Of the increase,
Wireless contributed $319 million, Cable contributed $139 million,
a decrease in corporate items and eliminations contributed
$27 million and these were offset by a decrease in Media of
$89 million.
income of $1,002 million in 2008, and we generated free cash flow
of $1,886 million, up 29% from 2008.
Refer to the respective individual segment discussions for details of
the revenue, operating expenses, operating profit and additions to
PP&E of Wireless, Cable and Media.
Our consolidated adjusted operating profit was $4,388 million, an
increase of $328 million, or 8%, from $4,060 million in 2008. Of this
increase, Wireless contributed $236 million, Cable contributed $91
million, a decrease in corporate items and eliminations contributed
$24 million and these were offset by a decrease in Media of $23
million. On a consolidated basis, we recorded net income of $1,478
million for the year ended December 31, 2009, compared to net
20 09 Performance Against Targets
The following table sets forth the guidance ranges for selected
full-year financial and operating metrics that we provided for 2009,
as revised during the year, versus the actual results we achieved for
the year. Certain of the measures included below are not defined
under Canadian GAAP.
(In millions of dollars, except dividend)
Consolidated
Revenue(1)
Adjusted operating profit(2)
Additions to PP&E(3)
Free cash flow(4)
Annualized dividend
Supplementary Detail:
Revenue
Wireless (network revenue)
Cable Operations(5)
Media
Adjusted operating profit(2)
Wireless
Cable Operations(5)
Media(6)
Additions to PP&E
Wireless
Cable Operations
2008
Actual
2009 Original Guidance Range %
(As at February 18, 2009)
Updated Guidance Range %
(As at July 28, 2009)
Guidance Range $
(As at July 28, 2009)
2009
Actual
$ 11,335
4,060
2,021
1,464
$1.00
$
$
$
5,843
2,878
1,496
2,806
1,171
142
929
829
Up
Up
Up
5%
3%
0%
9%
9%
to
to
8%
to (10%)
to 23%
$1.16
Up 6%
Up 6%
Up 4%
to 10%
8%
to
(6%)
to
Up 5%
Up 6%
Up 2%
to
9%
to 10%
to (19%)
Up 2% to 4%
Unchanged
Unchanged
Unchanged
Unchanged
Unchanged
Unchanged
to
(10%)
(4%)
Unchanged
Unchanged
to
(60%)
(40%)
$ 11,562
to $ 11,788
4,400
2,021
1,800
4,200 to
1,821 to
1,600 to
$1.16
$ 6,195
3,050
1,346
to $6,425
3,120
to
1,436
to
$ 2,945
to $ 3,060
1,290
85
1,240 to
57 to
(2%)
(7%)
to (10%)
to (16%)
Unchanged
Unchanged
$
840
700
to $
to
915
770
$
$
$
$
$
11,731
4,388
1,855
1,886
1.16
6,245
3,074
1,407
3,042
1,298
119
865
642
(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 (recovery), integration and restructuring expenses, contract termination fees, adjustment for CRTC Part II fees decision, and settlement
of pension obligations.
(3) Consolidated additions to PP&E include expenditures related to billing system development, Rogers Media and corporately owned real estate in addition to Wireless and Cable Operations
PP&E expenditures.
(4) Free cash flow is defined as adjusted operating profit less PP&E expenditures and interest expense and is not a term defined under Canadian GAAP.
(5) Includes cable television, residential high-speed Internet and residential telephony services; excludes Rogers Business Solutions and Rogers Retail.
(6) Includes losses from Rogers Sports Entertainment of $20 million in 2009.
Our actual 2009 consolidated revenue, adjusted operating profit
and PP&E expenditures were within the updated guidance ranges
provided. Free cash flow and adjusted operating profit at Cable
Operations and Media exceeded the guidance ranges provided
resulting from cost containment initiatives, as well as better than
expected fourth quarter advertising revenues in Media.
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.
2010 FINANCIAL AND OPER ATING GUIDANCE
The following table outlines guidance ranges and assumptions
for selected 2010 financial metrics. This information is forward-
looking and should be read in conjunction with the section
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
23
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Full Year 2010 Guidance
(millions of dollars)
Consolidated
Adjusted operating profit(1)
Additions to PP&E(2)
Pre-tax free cash flow(3)
Cash Income Taxes
Assumptions for the timing and amount of cash income tax payments(4)
2009
A ctua l
4,388
1,855
1,886
2010
Guidance
Up 2% to 7%
Flat to up 5%
Up 3% to 8%
8
~$150
$
$
$
$
(1) Excludes stock-based compensation expense (recovery), integration and restructuring expenses, contract termination fees, adjustment for CRTC Part II fees decision,
and settlement of pension obligations.
(2) In addition to Wireless, Cable Operations and Rogers Media PP&E expenditures, consolidated additions to PP&E includes expenditures related to billing system development
and corporately owned real estate.
(3) Pre-tax 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.
(4) Management currently expects that its 2011 cash income tax payments will not exceed the 2010 guidance and that it will not be fully cash taxable until 2012.
2. SEGMENT REVIEW
W I R E L ESS
WIRELESS B USINESS
Wireless is the largest Canadian wireless communications service
provider, serving approximately 8.5 million retail voice and data
subscribers at December 31, 2009, representing approximately 37%
of Canadian wireless subscribers. Wireless operates a GSM/General
Packet Radio Service (“GSM/GPRS”) network, with Enhanced Data
for GSM Evolution (“EDGE”) technology which provides coverage
to approximately 95% of Canada’s population.
Wireless has also deployed a next generation wireless data
technology called UMTS/HSPA (“Universal Mobile Telephone
System/High-Speed Packet Access”) in markets across Canada
representing approximately 85% of the population.
Wireless’ customers are able to access to their services across the U.S.
and in most other parts of the world through roaming agreements
with various other GSM and HSPA wireless operators.
Wireless is the only national carrier in Canada operating on both
the GSM and HSPA wireless technology standards.
WIRELESS REVENUE MIX
(%)
Equipment 6%
Data 20%
Prepaid Voice 4%
Postpaid Voice 70%
Wireless Products and Services
Wireless offers wireless voice, data and messaging services
including related handsets and devices, across Canada. Wireless
voice services are available in either postpaid or prepaid payment
options. In addition, the network provides customers with
advanced high-speed wireless data services, including mobile
access to the Internet, wireless e-mail, digital picture and video
transmission, mobile video, music and application downloading,
video calling and two-way short messaging service (“SMS”).
Wireless Distribution
Wireless markets its products and services under both the Rogers
Wireless and Fido brands through an extensive nationwide
distribution network of over 3,600 dealer and retail locations across
Canada (excluding approximately 448 Rogers Retail locations,
which is a segment of Cable), selling subscriptions to service plans,
handsets and prepaid air time and thousands of additional locations
selling prepaid cards. Wireless’ nationwide distribution network
includes: an independent dealer network; Rogers Wireless and Fido
stores which are managed by Rogers Retail; major retail chains;
and convenience stores. Wireless also offers many of its products
and services through telemarketing and on the Rogers.com and
Fido.ca e-business websites. As competition intensifies in the
Canadian wireless industry, distribution challenges could arise
as more carriers attempt to market their products and services
through existing channels.
Wireless Networks
Wireless is a facilities-based carrier operating its wireless
networks over a broad, national coverage area, much of which is
interconnected by its own fibre-optic and microwave transmission
infrastructure. The seamless, integrated nature of its networks
enables subscribers to make and receive calls and to activate
network features anywhere in Wireless’ coverage area and in
the coverage area of roaming partners as easily as if they were in
their home area.
Wireless operates a digital wireless GSM network in the 1900
megahertz (“MHz”) and 850 MHz frequency bands across its
national footprint. The GSM network, which operates seamlessly
between the two frequencies, provides integrated voice and high-
speed packet data transmission service capabilities and utilizes
24
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GPRS and EDGE technologies for wireless data transmission.
Wireless’ UMTS/HSPA technology is deployed in 850 MHz and 1900
MHz, and the network covers 85% of Canada’s population.
Wireless holds 25 MHz of contiguous spectrum across Canada in
the 850 MHz frequency range and 60 MHz in the 1900 MHz frequency
range across the country, with the exception of southwestern
Ontario, northern Québec, and the Yukon, Northwest and
Nunavut territories, where Wireless holds 50 MHz in the 1900 MHz
frequency range.
In addition, Wireless participated in the AWS spectrum auction
in Canada which 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.
Wireless also holds certain broadband fixed wireless spectrum
in the 2300 MHz, 2500 MHz and 3500 MHz frequency ranges. In
September 2005, Wireless, together with Bell Canada, announced
the formation of an equally-owned joint venture called Inukshuk
to construct a pan-Canadian wireless broadband network based
on the evolving World Interoperability for Microwave Access
(“WiMAX”) standards. Both companies have contributed fixed
wireless spectrum holdings to the joint venture, along with access
to their respective cellular towers and network backhaul facilities.
The fixed wireless network acts as a wholesale provider of capacity
to each of the joint venture partners, who in turn market, sell,
support and bill for their respective service offerings over the
network. During 2009, Inukshuk acquired 92 MHz of additional
2.3 gigahertz (“GHz”) spectrum in the provinces of Ontario and
Quebec for $80 million from Look Communications and converted
the spectrum licence to a Broadband Radio Service (“BRS”) licence.
Pursuant to government policy, one-third of this spectrum was
returned to Industry Canada.
In the third quarter of 2009 Rogers entered into a joint venture with
Manitoba Telecom Services (“MTS”) for the purpose of building a
joint HSPA 3G Wireless Network in the province of Manitoba. Once
completed in 2010, this joint network will cover approximately 96%
of the Manitoba population.
WIRELESS S TR ATEGY
Wireless’ goal is to drive profitable subscriber and revenue growth
within the Canadian wireless communications industry, and its
strategy is designed to maximize cash flow and return on invested
capital. The key elements of its strategy are as follows:
• Enhancing its scale and competitive position in the Canadian
wireless communications market;
• Focusing on voice and data services that are attractive to youth,
families, and small and medium-sized businesses to optimize its
customer mix;
• Delivering on customer expectations by improving handset
reliability, network quality and customer service while reducing
subscriber deactivations, or churn;
• Increasing revenue from existing customers by utilizing
analytical tools to target customers likely to purchase enhanced
services such as voicemail, caller line ID, text messaging and wireless
data services;
• Enhancing sales distribution channels to increase focus on
targeted customer segments;
• Maintaining the most technologically advanced, high quality and
pervasive wireless network possible; and
• Leveraging relationships across the Rogers group of companies
to provide bundled product and service offerings at attractive
prices, in addition to implementing cross-selling, joint sales
distribution initiatives and infrastructure sharing initiatives.
WIRELESS POSTPAID
MONTHLY ARPU
($)
WIRELESS POSTPAID
MONTHLY CHURN
(%)
$72.21
$75.41
$73.93
1.15%
1.10%
1.06%
2007
2007
2008
2008
2009
2009
2007
2007
2008
2008
2009
2009
RECENT WIRELESS INDUSTRY TRENDS
Focus on Customer Retention
The wireless communications industry’s current market penetration
in Canada is estimated to be 69% of the population, compared
to approximately 93% in the U.S. and approximately 129% in the
United Kingdom, and Wireless expects the Canadian wireless
industry to continue to grow by approximately 4 to 5 percentage
points of penetration each year for the next several years. This
deeper penetration drives a need for increased focus on customer
satisfaction, the promotion of new data and voice services and
features, and customer retention generally.
Demand for Sophisticated Data Applications
The ongoing development of wireless data transmission
technologies has led wireless device developers, such as handsets
and other hand-held devices, to develop more sophisticated
handsets and other smartphone type devices with increasingly
advanced capabilities, including access to e-mail and other
corporate information technology platforms, news, sports,
financial information and services, shopping services, photos,
music, applications, and streaming video clips, mobile television
and other functions. Wireless believes that the introduction
of such new applications will drive continued growth of wireless
data services.
Increased Competition from Other Wireless Operators
As fully described in the section of this MD&A entitled “Competition
in our Businesses”, Wireless faces increased competition from
incumbent wireless operators as well as new entrants.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
25
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Migration to Next Generation Wireless Technology
The ongoing development of wireless data transmission
technologies and the increased demand for sophisticated wireless
services, especially data communications services, have led wireless
providers to migrate towards the next generation of digital voice
and data broadband wireless networks such as HSPA. These
networks are intended to provide wireless communications with
wireline quality sound, far higher data transmission speeds and
streaming video capabilities. These networks support a variety
of increasingly advanced data applications, including broadband
Internet access, multimedia services and seamless access to
corporate information systems, including desktop, client and
server-based applications that can be accessed on a local, national
or international basis.
Development of Additional Technologies
In addition to the two main technology paths of the mobile/
broadband wireless industry, namely GSM/HSPA and Code Division
Multiple Access/Evolution Data Optimized (“CDMA/EVDO”), three
other significant broadband wireless technologies are in the process
of development: WiFi, WiMAX and Long-term Evolution (“LTE”).
These technologies may accelerate the widespread adoption of
digital voice and broadband wireless data networks.
WiFi (the IEEE 802.11 industry standard) allows suitably equipped
devices, such as laptop computers and personal digital assistants,
to connect to a local area wireless access point. These access
points utilize unlicenced spectrum and the wireless connection
is only effective within a local area radius of approximately
50-100 metres of the access point, and provide speeds similar to
a wired local area network (“LAN”) environment (most recently
the version designated as 802.11n). As the technology is primarily
designed for in-building wireless access, many access points must
be deployed to cover the selected local geographic area, and must
also be interconnected with a broadband network to supply the
connectivity to the Internet. Future enhancements to the range of
WiFi service and the networking of WiFi access points may provide
additional opportunities for wireless operators or municipal WiFi
network operators, each providing capacity and coverage under
the appropriate circumstances.
LTE is the worldwide GSM community’s new fourth generation
(“4G”) broadband wireless technology evolution path, which
is currently in development. LTE is planned to be an all IP-based
wireless data technology based on a new modulation scheme
(orthogonal frequency-division multiplexing) that is specifically
designed to improve efficiency, lower costs, improve and expand
the range of voice and data services available via mobile broadband
wireless networks, make use of new spectrum allocations, and
better integrate with other open technology standards. As a 4G
technology, LTE is designed to build on and evolve the capabilities
inherent in UMTS/HSPA, which is the world standard for mobile
broadband wireless. LTE is fully backwards compatible with UMTS/
HSPA. LTE is designed to provide seamless voice and broadband
data capabilities and data rates of at least 100 Mbps (or greater,
dependent upon spectrum availability).
WiMAX (the IEEE 802.16 standard) is a relatively new 4G technology
that is being developed to enable broadband wireless services
over a wide area at a cost point to enable mass market adoption.
By contrast with WiFi, WiMAX is a cellular-like technology that
operates in defined, licenced frequency bands and is thereby
not hampered by interference from other applications and
services using the same frequencies. The technology is designed
to provide similar coverage and capabilities to traditional cellular
networks (depending upon the amount of spectrum allocated
and available). There are two main applications of WiMAX today:
fixed (point-to-point) applications for backhaul and services
to homes and small businesses and point-to-multipoint mobile
broadband access. WiMAX is still an early stage, data-focused
technology with capabilities that have yet to fully match existing
cellular technologies.
WIRELESS O PER ATING AND F INANCIAL R ESULTS
For purposes of this discussion, our Wireless segment revenue has
been classified according to the following categories:
• Network revenue, which includes revenue derived from:
• postpaid (voice and data), which consists of revenues
generated principally from monthly fees, airtime and long-
distance charges, optional service charges, system access and
government cost recovery fees, and roaming charges; and
• prepaid (voice and data), which consists of revenues generated
principally from airtime, usage and long-distance charges.
• Equipment sales, which consist of revenue generated from
the sale, generally at or below our cost, of hardware and access-
ories to independent dealers, agents and retailers, and directly to
subscribers through direct fulfillment by Wireless’ customer
service groups, websites and telesales, net of subsidies.
Wireless’ operating expenses are segregated into the following
categories for assessing business performance:
• Cost of equipment sales, representing costs related to equipment
revenue;
• Sales and marketing expenses, consisting of costs to acquire
new subscribers, such as advertising, commissions paid to third
parties for new activations, remuneration and benefits to sales
and marketing employees as well as direct overheads related to
these activities; and
• Operating, general and administrative expenses, consisting
primarily of network operating expenses, customer care
expenses, retention costs, including residual commissions
paid to distribution channels, Industry Canada licencing fees
associated with spectrum utilization, inter-carrier payments
to roaming partners and long-distance carriers, CRTC contribution
levy and all other expenses incurred to operate the business on a
day-to-day basis.
26
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summarized Wireless Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Postpaid
Prepaid
Network revenue
Equipment sales
Total operating revenue
Operating expenses before the undernoted
Cost of equipment sales
Sales and marketing expenses
Operating, general and administrative expenses
Adjusted operating profit(1)(2)
Stock-based compensation recovery (expense)(3)
Settlement of pension obligations(4)
Integration and restructuring expenses(5)
Operating profit(1)
Adjusted operating profit margin as % of network revenue(1)
Additions to PP&E(1)
2009
2008
%Chg
$
5,948 $
5,558
297
285
6,245
409
6,654
1,059
630
1,923
5,843
492
6,335
1,005
691
1,833
3,612
3,529
3,042
–
(3)
(33)
2,806
5
–
(14)
$
3,006 $
2,797
48.7%
$865
48.0%
$929
7
4
7
(17)
5
5
(9)
5
2
8
n/m
n/m
136
7
(7)
(1) As defined. See the sections entitled “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
(2) Adjusted operating profit includes losses of $13 million and $14 million related to the Inukshuk wireless broadband initiative for 2009 and 2008, respectively.
(3) See the section entitled “Stock-based Compensation”.
(4) Relates to the settlement of pension obligations for all employees in the pension plans who had retired as of January 1, 2009 as a result of annuity purchases by the Company’s pension plans.
(5) For the year ended December 31, 2009, costs incurred relate to severances resulting from the targeted restructuring of our employee base to combine the Cable and Wireless businesses into a
communications organization and to severances and restructuring expenses related to the outsourcing of certain information technology functions. For the year ended December 31, 2008,
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.
Wireless Operating Highlights for the Year Ended
December 31, 20 09
• Network revenue increased by 7% to $6,245 million in 2009 from
$5,843 million in 2008.
• Strong subscriber grow th continued in 2009, with net
additions of 552,000, of which approximately 95% were postpaid
subscribers.
• Postpaid subscriber monthly churn was 1.06% in 2009, compared
to 1.10% in 2008.
• Postpaid monthly average revenue per user (“ARPU”) decreased
2.0% from 2008 to $73.93, reflecting the impact of competitive
intensity and declines in roaming and out-of-plan usage revenues
as customers reduce travel and adjust their wireless usage during
the economic recession, which offset the significant growth in
wireless data revenue.
• Revenues from wireless data services grew approximately 44%
year-over-year to $1,366 million in 2009 from $946 million in
2008, and represented approximately 22% of network revenue
compared to 16% in 2008.
• Wireless activated approximately 1,450,000 smartphone devices
during the year, predominantly iPhone, BlackBerry and Android
devices. Approximately 45% of these activations were for
subscribers new to Wireless and 55% being for existing Wireless
subscribers who upgraded to smartphones and committed
to new term contracts. Subscribers with smartphones now
represent approximately 31% of the overall postpaid subscriber
base, up from 19% from last year, and generate average ARPU
nearly twice that of voice only subscribers.
• Wireless launched the next generation Apple iPhone 3GS in
Canada which offers speeds up to two times faster than the
previous iPhone 3G with download speeds of up to 7.2 Mbps.
Wireless also launched the first two Android operating system
powered smartphones in Canada featuring built-in integration
with many of Google’s leading mobile services including the
Android Market, which features thousands of downloadable
mobile applications.
• Wireless announced the commercial availability of Rogers’ next
generation high-speed HSPA+ network to approximately 85% of
Canadians across major Canadian cities, with maximum speeds of
up to 21 Mbps.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summarized Wireless Subscriber Results
Years ended December 31,
(Subscriber statistics in thousands, except ARPU, churn and usage)
Postpaid
Gross additions(1)
Net additions
Total postpaid retail subscribers
Average monthly revenue per user (“ARPU”)(2)
Average monthly minutes of usage
Monthly churn
Prepaid
Gross additions
Net additions
Total prepaid retail subscribers
ARPU(2)
Average monthly minutes of usage
Monthly churn
Total Postpaid and Prepaid
Gross additions
Net additions
Total postpaid and prepaid retail subscribers
Monthly churn
Blended ARPU(2)
Blended average monthly minutes of usage
2009
2008
Chg
1,377
528
6,979
73.93 $
585
1,341
537
6,451
75.41 $
589
36
(9)
528
(1.48)
(4)
1.06%
1.10%
(0.04%)
582
24
1,515
16.73 $
121
3.15%
632
67
1,491
16.65 $
131
3.31%
(50)
(43)
24
0.08
(10)
(0.16%)
$
$
1,959
552
8,494
1.44%
1,973
604
7,942
1.51%
(14)
(52)
552
(0.07%)
$
63.59 $
64.34 $
(0.75)
500
502
(2)
(1) During the third quarter of 2008, an adjustment associated with laptop wireless data card (“data 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 year ended December 31, 2008. Beginning in the third quarter of 2008, data cards are included
in the gross additions for postpaid subscribers.
(2) As defined. See the section entitled “key Performance Indicators and Non-GAAP Measures”. As calculated in the “Supplementary Information: Non-GAAP Calculations” section.
Wireless Subscribers and Network Revenue
The year-over-year decrease in subscriber additions primarily
reflects slower overall market growth, increased competitive
intensity in certain segments of the market, and the unusually high
number of additions during the second half of 2008 following the
Canadian iPhone launch.
The increase in network revenue in 2009 compared to 2008 was
driven predominantly by the continued growth of Wireless’
postpaid subscriber base and the year-over-year growth of wireless
data. Year-over-year, blended ARPU declined by 1.2%, which
reflects the impact of declines in roaming and out-of-plan usage
revenues as customers curtailed travel and adjusted their wireless
WIRELESS POSTPAID AND
PREPAID SUBSCRIBERS
(In thousands)
5,914
1,424
6,451
1,491
6,979
1,515
LIFE-TIME REVENUE
PER SUBSCRIBER
WIRELESS NETWORK
REVENUE
(In millions of dollars)
WIRELESS DATA
REVENUE
(In millions of dollars)
$3,824
$4,261
$4,416
$5,154
$5,843
$6,245
$683
$946
$1,366
2007
2007
2008
2008
2009
2009
2007
2007
2008
2008
2009
2009
2007
2007
2008
2008
2009
2009
2007
2007
200 8
2008
2009
2009
Postpaid
Prepaid
28
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
usage during the economic recession. These reductions in roaming
and out-of-plan usage caused a decline in the voice component
of postpaid ARPU compared to 2008, which was to a large degree
offset by the significant growth in wireless data.
Wireless’ success in the continued year-over-year reduction of
postpaid churn reflects targeted customer retention activities and
continued enhancements in network coverage and quality.
During 2009, wireless data revenue increased by approximately
44% over 2008, to $1,366 million. This growth in wireless data
revenue reflects the continued penetration and growing usage
of smartphone and wireless laptop devices which are driving the
use of text messaging and e-mail, wireless Internet access, and
other wireless data applications and services. In 2009, data revenue
represented approximately 22% of total network revenue,
compared to 16% in 2008.
DATA REVENUE PERCENT
OF BLENDED ARPU
(%)
SMARTPHONES AS A PERCENT
OF POSTPAID SUBSCRIBERS
(%)
13.6%
16.4%
21.9%
19.0%
31.0%
Wireless activated approximately 1,450,000 smartphone devices,
predominately iPhone 3G, BlackBerry and Android devices, during
2009. Subscribers with smartphones represented approximately
31% of the overall postpaid subscriber base as at December 31,
2009, compared to 19% as at December 31, 2008. These subscribers
have committed to new multi-year term contracts and, in a majority
of cases, attached both voice and monthly data packages which
generate considerably above average ARPU.
Wireless Equipment Sales
The year-over-year decrease in revenue from equipment sales,
including activation fees and net of equipment subsidies, in 2009
versus 2008 reflects an overall increased mix to higher subsidy
smartphone devices, including the incremental subsidy required
with the iPhone 3GS launch in June 2009.
2007
2007
2008
2008
2009
2009
2008
2008
2009
2009
Wireless Operating Expenses
Years ended December 31,
(In millions of dollars)
Operating expenses
Cost of equipment sales
Sales and marketing expenses
Operating, general and administrative expenses
Operating expenses before the undernoted
Stock-based compensation expense (recovery)(1)
Settlement of pension obligations(2)
Integration and restructuring expenses(3)
Total operating expenses
2009
2008
%Chg
$
1,059 $
630
1,923
3,612
–
3
33
1,005
691
1,833
3,529
(5)
–
14
$
3,648 $
3,538
5
(9)
5
2
n/m
n/m
136
3
(1) See the section entitled “Stock-based Compensation”.
(2) Relates to the settlement of pension obligations for all employees in the pension plans who had retired as of January 1, 2009 as a result of annuity purchases by the Company’s pension plans.
(3) For the year ended December 31, 2009, costs incurred relate to severances resulting from the targeted restructuring of our employee base to combine the Cable and Wireless businesses into a
communications organization and to severances and restructuring expenses related to the outsourcing of certain information technology functions. For the year ended December 31, 2008,
costs incurred relate to severances resulting for the restructuring of our employee base to improve our cost structure in light of the declining economic conditions.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
29
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The increase in cost of equipment sales for 2009, compared to 2008,
was primarily the result of the higher mix of smartphone sales.
The year-over-year decrease in sales and marketing expenses for
2009, compared to 2008, was driven by cost containment initiatives.
The year-over-year increase in operating, general and administrative
expenses for 2009, compared to 2008, excluding retention spending
discussed below, were partially driven by growth in the Wireless
subscriber base. In addition, increases in information technology
and customer care as a result of the complexity of supporting
more sophisticated devices and services were predominately
offset by savings related to operating and scale efficiencies across
various functions.
Total retention spending, including subsidies on handset upgrades,
was $588 million in 2009, compared to $536 million in 2008. The
retention spending for 2009 increased compared to 2008 as a result
of higher upgrade activity and an increase in the mix of upgrades
more heavily towards smartphone devices by existing subscribers
during 2009.
Wireless Adjusted
Operating Profit
The 8% year-over-year increase
in adjusted operating profit and
the 48.7% adjusted operating
profit margin on net work
r e v e n u e
( w h i c h e x c l u d e s
equipment sales revenue) for
20 09 primarily reflec ts the
increase in network revenue
and the decrease in sales
a n d m a r ke t i n g e x p e n s e s
discussed above.
Wireless Additions to
Property, Plant and Equipment
Wireless additions to PP&E
are classified into the following
categories:
WIRELESS ADJUSTED
OPERATING PROFIT
(In millions of dollars)
$2,589
$2,806
$3,042
2007
2007
200 8
2008
2009
2009
2009
2008
%Chg
$
345 $
239
152
129
$
865 $
315
200
262
152
929
10
20
(42)
(15)
(7)
WIRELESS ADDITIONS TO PP&E
(%)
Other 15%
HSPA 40%
Network 45%
Years ended December 31,
(In millions of dollars)
Additions to PP&E
High-Speed Packet Access (“HSPA”)
Network - capacity
Network - other
Information technology and other
Total additions to PP&E
Additions to Wireless PP&E for 2009 reflect spending on network
capacity, such as radio channel additions and network enhancing
features. Additions to PP&E associated with the deployment of our
HSPA network were mainly for the continued roll-out to various
markets across Canada along with upgrades to the network to
enable higher throughput speeds. Other network-related PP&E
additions included national site build activities, test and monitoring
equipment, network sectorization work, operating support system
activities, investments in network reliability and renewal initiatives,
infrastructure upgrades, and new product platforms. Information
technology and other wireless specific system initiatives included
billing and back-office system upgrades, and other facilities and
equipment spending.
HSPA spending increased year-over-year due to the expansion of 21
Mbps speeds in major urban centres. Capacity spending increased
over the same period in the prior year due to the acquisition of
IP transmission interfaces and augmentation to the radio access
network to meet demand for migrations from GSM to HSPA due
to a faster adoption of 3G devices. Offsetting these increases from
the corresponding period of the prior year was lower spending
on enhancements to services and capabilities included in other
network additions due to lower site build activity.
30
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
C A B L E
C ABLE’S BUSINESS
Cable is one of Canada’s largest providers of cable television, cable
telephony and high-speed Internet access, and is also a facilities-
based telecommunications alternative to the traditional telephone
companies. Its business consists of the following three segments:
The Cable Operations segment has 2.3 million television subscribers
at December 31, 2009, representing approximately 30% of all
television subscribers in Canada. At December 31, 2009, it provided
digital cable services to approximately 1.7 million of its television
subscribers and high-speed Internet service to approximately
1.6 million residential subscribers. It provides local telephone
and long-distance services under the Rogers Home Phone brand
to residential customers with both voice- over- cable and
circuit-switched technologies with 1.1 million subscriber lines at
December 31, 2009.
The RBS segment of Cable offers local and long-distance telephone,
enhanced voice and data services, and IP access to medium and
large Canadian businesses and governments, as well as making
some of these offerings available on a wholesale basis to other
telecommunications providers. At December 31, 2009, there were
169,000 local line equivalents and 36,000 broadband data circuits
in service. Cable is increasingly focusing its business segment sales
efforts within its traditional cable television footprint, where it is
able to provide and serve customers with voice and data telephony
services provided over its own infrastructure.
The Rogers Retail segment operates a retail distribution chain with
448 stores at December 31, 2009, many of which provide customers
with the ability to purchase any of Rogers’ primary services (cable
television, Internet, cable telephony and wireless), to pay their
Rogers bills, and to pick up or return Rogers digital and Internet
equipment. The segment also offers digital video disc (“DVD”)
and video game sales and rentals through Canada’s second largest
chain of video rental stores.
Cable’s Products and Services
Cable has highly-clustered and technologically advanced broadband
networks in Ontario, New Brunswick and Newfoundland. Its
Ontario cable systems, which encompass approximately 90% of its
2.3 million television subscribers, are concentrated in and around
three principal clusters: (i) the Greater Toronto Area, Canada’s
largest metropolitan centre; (ii) Ottawa, the national capital city
of Canada; and (iii) the Guelph to London corridor in southwestern
Ontario. The New Brunswick and Newfoundland and Labrador
cable systems in Atlantic Canada comprise the balance of its cable
systems and subscribers.
CABLE REVENUE MIX
(%)
Internet 20%
Home Phone 13%
Business Solutions 12%
Retail 10%
Core Cable 45%
Through its technologically advanced broadband networks,
Cable offers a diverse range of services, including analog
and digital cable, residential Internet services and voice-over-cable
telephony services.
As at December 31, 2009, more than 88% of Cable’s overall network
and 99% of its network in Ontario had been upgraded to transmit
860 MHz of bandwidth. With approximately 99% of Cable’s
network offering digital cable services, it has a richly featured and
highly-competitive video offering, which includes high-definition
television (“HDTV”), on-demand programming including movies,
television series and events available on a per purchase basis or
in some cases on a subscription basis, personal video recorders
(“PVR”), time-shifted programming, as well as a significant line-up
of digital specialty, multicultural and sports programming.
Cable’s Internet services are available to approximately 99% of
homes passed by its network. Cable’s high-speed Internet has been
found to have the fastest and most reliable speeds supported by
independent third-party research comparing average download
speeds to the equivalent speeds of the incumbent telephone
provider’s DSL internet access service. Cable offers multiple tiers of
Internet services, which are differentiated principally by bandwidth
capabilities and monthly usage allowances.
Cable’s voice-over-cable telephony services were introduced in
July 2005 and have grown both in the number of subscribers and
in the size of the geographic area where the service is available.
Cable offers packages that include from one to six calling features
and competitive unlimited or pay-by-the-minute long-distance
plans. Rogers Home Phone customers receive free long-distance
calling to other Rogers Wireless, Rogers Home Phone and Fido
customers. At December 31, 2009, Cable’s voice-over-cable
telephony services were available to approximately 99% of homes
passed by its network.
Cable offers multi-product bundles at discounted rates, which
allow customers to choose from among a range of Rogers’ cable,
Internet, voice-over-cable telephony and wireless products
and services, subject to, in most cases, minimum purchase and
term commitments.
Cable’s RBS segment offers local and long-distance services,
enhanced voice and data services, and IP application solutions to
businesses, government agencies and telecom wholesalers in many
markets across Canada on both an on-net and resold basis. Cable
has increasingly refocused its marketing and sales to concentrate
more on developing offerings that utilize its own facilities within
its traditional cable television serving areas.
Cable sells and services Rogers branded products and also offers
DVD and video game sales and rentals through Rogers Retail.
Cable’s Distribution
In addition to the Rogers Retail stores, Cable markets its services
through an extensive network of third party retail locations across
its network footprint. Rogers Retail provides customers with a
single direct retail channel featuring all of Rogers’ wireless and
cable products and services. In addition to its own and third party
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
31
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
retail locations, Cable markets its services and products through
a variety of additional channels, including call centres, outbound
telemarketing, field agents, direct mail, television advertising, its
own direct sales force, exclusive and non-exclusive agents, as well
as through business associations. Cable also offers products and
services and customer service via our e-business website, rogers.
com. The information contained in or connected to our website is
not a part of and not incorporated into this MD&A.
Cable’s Networks
Cable’s networks in Ontario and New Brunswick, with few
exceptions, are interconnected to regional head-ends, where
analog and digital channel line-ups are assembled for distribution
to customers and Internet traffic is aggregated and routed to and
from customers, by inter-city fibre-optic rings. The fibre-optic
interconnections allow the majority of its cable systems to function
as a single cable network. Cable’s two regional head-ends in
Toronto, Ontario and Moncton, New Brunswick provide the source
for most television signals used across our cable systems.
Cable’s technology architecture is based on a three-tiered structure
of primary hubs, optical nodes and co-axial distribution. The primary
hubs, located in each service region, are connected by an inter-city
fibre-optic network carrying television, Internet, network control
and monitoring and administrative traffic. The fibre-optic network
is generally configured in rings that allow signals to flow in and out
of each primary hub, or head-end, through two paths, providing
protection from a fibre cut or other disruption. These high-capacity
fibre-optic networks deliver high performance and reliability and
generally have capacity for future growth in the form of dark fibres
and unused optical wavelengths. Approximately 99% of the homes
passed by Cable’s network are fed from primary hubs, or head-ends,
which serve on average 90,000 homes each. The remaining 1% of
the homes passed by the network are in smaller more rural systems
mostly in New Brunswick and Newfoundland that are served by
smaller non-fibre connected hubs.
Optical fibre joins the primary hub to the optical nodes in the
cable distribution plant. Final distribution to subscriber homes
from optical nodes uses high bandwidth co-axial cable with two-
way amplifiers to support on-demand television and Internet
service. Co-axial cable capacity has been increased repeatedly by
introducing more advanced amplifier technologies. Co-axial cable
is a cost-effective, high bandwidth and widely deployed means
of carrying two-way digital television, broadband Internet and
telephony services to residential subscribers.
Groups of on average 430 homes are served from each optical node
in a cable architecture commonly referred to as fibre-to-the-feeder
(“FTTF”). The FTTF plant provides bandwidth up to 860 MHz, which
includes 37 MHz of bandwidth used for “upstream” transmission
from the subscribers’ premises to the primary hub. As additional
downstream and/or upstream capacity is required, the number of
homes served by each optical node is reduced in an engineering
practice referred to as node-splitting. Fibre cable has been placed to
permit a continuous reduction of the average node size by installing
additional optical transceiver modules and optical transmitters and
return receivers in the head-ends and primary hubs.
Cable believes that the 860 MHz FTTF architecture provides
sufficient bandwidth to provide for television, data, telephony
32
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
and other future services, high picture quality, advanced two-way
capability and network reliability. This architecture also allows for
the introduction of bandwidth optimization technologies, such as
switched digital video (“SDV”) and MPEG4, and offers the ability to
continue to expand service offerings on the existing infrastructure.
SDV has been successfully deployed in head-ends serving over 99%
of Ontario homes. In addition, Cable’s clustered network of cable
systems served by regional head-ends facilitates its ability to rapidly
introduce new services to large areas of subscribers simultaneously.
In new construction projects in major urban areas, Cable is now
deploying a cable network architecture commonly referred to as
fibre-to-the-curb (“FTTC”). This architecture provides improved
reliability and reduced maintenance due to fewer active network
devices being deployed.
Cable’s voice-over-cable telephony services are offered over
an advanced broadband IP multimedia network layer deployed
across its cable service areas. This network platform provides
for a scalable primary line quality digital voice-over-cable
telephony service utilizing Packet Cable and Data Over Cable
Service Interface Specification (“DOCSIS”) standards, including
network redundancy as well as multi-hour network and customer
premises backup powering.
To serve telephony customers on circuit-switched platforms, Cable
co-locates its equipment in the switch centres of the incumbent
local phone companies (“ILECs”). At December 31, 2009, Cable was
active in 179 co-locations in 63 municipalities in five of Canada’s
most populous metropolitan areas in and around Vancouver,
Calgary, Toronto, Ottawa and Montreal. Many of these co-locations
are connected to its local switches by metro area fibre networks
(“MANs”). Cable also operates a North American transcontinental
fibre-optic network extending over 21,000 route kilometres
providing a significant North American geographic footprint
connecting Canada’s largest markets while also reaching key U.S.
markets for the exchange of data and voice traffic, also known
as peering. In Canada, the network extends from Vancouver
in the west to St. John’s in the east. The assets include local and
regional fibre, transmission electronics and systems, hubs, points of
presence (“POPs”), ILEC co-locations and switching infrastructure.
Cable’s network extends into the U.S. from Vancouver south to
Seattle in the west, from the Manitoba-Minnesota border, through
Minneapolis, Milwaukee and
Chicago in the mid-west and
from Toronto through Buffalo
and Montreal through Albany
to New York City in the east.
Cable has connected its North
American network with Europe
through international gateway
switches in New York City and
London, England.
CABLE TOTAL REVENUE
(In millions of dollars)
$3,948
$3,558
$3,809
Where Cable does not have its
own local facilities directly to a
business customer’s premises,
Cable provides its local services
through a hybrid carrier strategy
utilizing unbundled local loops
of the ILECs. Cable has deployed
its own scalable switching and
2007
2007
200 8
2008
2009
2009
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
intelligent services infrastructure while using connections between
its co-located equipment and customer premises, provided largely
by other carriers.
C ABLE’S S TR ATEGY
Cable seeks to maximize subscribers, revenue, operating profit,
and return on invested capital by leveraging its technologically
advanced cable network to meet the information, entertainment
and communications needs of its residential and small business
customers, from basic cable television to advanced two-way cable
services, including digital cable, pay-per-view (“PPV”), video-on-
demand (“VOD”), subscription video-on-demand (“SVOD”), PVR
and HDTV, Internet access, voice-over-cable telephony service, as
well as the continued expansion of its services into the business
telecom and data networking market. The key elements of the
strategy are as follows:
• Clustering of interconnected cable systems in and around
metropolitan areas;
• Offering a wide selection of products and services;
• Maintaining technologically advanced cable networks;
• Continuing to focus on increased quality and reliability of
service, and customer satisfaction;
• Tailoring services to the changing demographic of the Cable
customer base, including expansion of products directly serving
several multicultural communities;
• Continuing to enhance and evolve product features, includ-
ing expanding available TV content, including HDTV and VOD
selection, faster tiers of Internet service and new telephony
service offerings;
• Expanding the availability of high-quality digital primary line
voice-over-cable telephony service into most of the markets in its
cable service areas; and
• Further focusing on the business and international carrier market.
RECENT C ABLE I NDUSTRY T RENDS
Investment in Improved Cable Television Networks and
Expanded Service Offerings
In recent years, North American cable television companies have
made substantial investments in the installation of fibre-optic cable
and electronics in their respective networks and in the development
of Internet, digital cable and voice-over-cable telephony services.
These investments have enabled cable television companies to
offer expanded packages of digital cable television services,
including VOD and SVOD, pay television packages, PVR, HDTV
programming, multiple increasingly fast tiers of Internet services,
and telephony services.
Increased Competition from Alternative Broadcasting
Distribution Undertakings
As fully described in the section of this MD&A entitled “Competition
in our Businesses”, Canadian cable television systems generally face
legal and illegal competition from several alternative multi-channel
broadcasting distribution systems.
In the enterprise market, there is a continuing shift to IP-based
services, in particular from asynchronous transfer mode (“ATM”)
and frame relay (two common data networking technologies) to IP
delivered through virtual private networking (“VPN”) services. This
transition results in lower costs for both users and carriers.
Increasing Availability of Online Access to Cable T V Content
Cable and content providers in the U.S. and Canada have begun to
create platforms and portals which allow online access to certain
television content via broadband Internet connections instead
of traditional cable television access. These platforms, including
one launched in late 2009 by Cable called Rogers On Demand
Online, generally provide features which control and limit access
to content which is subscribed to at the user’s residence. The
launch and development of these online content platforms are in
the early stages and are subject to ongoing discussions between
content providers and cable companies with respect to how access
to televised and on-demand content is granted, controlled and
monetized. It is unclear today whether such platforms will be
complimentary or competitive to Cable’s business over time.
Facilities-Based Telephony Services Competitors
Competition has remained intense for a number of years in the
long-distance telephony service markets with the average price
per minute continuing to decline year-over-year. Competition in
the local telephone market also continues to be intense between
Cable, ILECs and various VoIP providers.
C ABLE O PER ATING AND F INANCIAL R ESULTS
For purposes of this discussion, revenue has been classified
according to the following categories:
• Cable, which includes revenue derived from:
• analog cable service, consisting of basic cable service fees plus
extended basic (or tier) service fees, and access fees for use of
channel capacity by third and related parties; and
• digital cable service revenue, consisting of digital channel ser-
vice fees, including premium and specialty service subscription
fees, PPV service fees, VOD service fees, and revenue earned
on the sale and rental of digital cable set-top terminals;
• Internet, which includes monthly and additional use service
revenues from residential and small business Internet access
service and modem sale and rental fees;
• Rogers Home Phone, which includes revenues from residential
and small business local telephony service, calling features such
as voice mail and call-waiting, and long-distance;
• RBS, which includes local and long-distance revenues, enhanced
voice and data services revenue from enterprise and government
customers, as well as the sale of these offerings on a wholesale
basis to other telecommunications carriers; and
• Rogers Retail, which includes commissions earned while acting as
an agent to sell other Rogers’ services, such as wireless, Internet,
digital cable and cable telephony, as well as the sale and rental
of DVDs and video games and confectionary sales.
Grow th of Internet Protocol-Based Services
The availability of television shows and movies streaming over
the Internet has become a direct competitor to Canadian cable
television systems. Voice-over-Internet Protocol (“VoIP”) local
services are being provided by non-facilities-based providers, such
as Vonage, who market VoIP local services to the subscribers of
ILEC, cable and other companies’ high-speed Internet services.
Operating expenses are segregated into the following categories
for assessing business performance:
• Sales and marketing expenses, which include sales and
retention-related advertising and customer communications as
well as other customer acquisition costs, such as sales support
and commissions as well as costs of operating, advertising and
promoting the Rogers Retail chain;
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
33
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• Operating, general and administrative expenses, which include
all other expenses incurred to operate the business on a day-to-
day basis and to service subscriber relationships, including:
• the monthly contracted payments for the acquisition of
programming paid directly to the programming suppliers,
copyright collectives and the Canadian Programming
Production Funds;
• Internet interconnectivity and usage charges and the cost of
operating Cable’s Internet service;
• intercarrier payments for interconnect to the local access and
long-distance carriers related to cable and circuit-switched
telephony service;
• technical service expenses, which include the costs of
operating and maintaining cable networks as well as certain
customer service activities, such as installations and repair;
• customer care expenses, which include the costs associated
with customer order-taking and billing inquiries;
• community television expenses, which consist of the costs to
operate a series of local community-based television stations
per regulatory requirements in Cable’s licenced systems;
• other general and administrative expenses; and
• expenses related to the corporate management of the Rogers
Retail stores;
• Cost of Rogers Retail sales, which is composed of store
merchandise and depreciation related to the acquisition of DVD
and game rental assets.
In the cable industry in Canada, the demand for services, particularly
Internet, digital television and cable telephony services, continues
to grow and the variable costs associated with this growth, such
as commissions for subscriber activations, as well as the fixed costs
of acquiring new subscribers, are significant. As such, fluctuations
in the number of activations of new subscribers from period-to-
period result in fluctuations in sales, marketing and field services
expenses.
OPER ATING HIGHLIGHTS FOR THE YEAR ENDED
DECEMBER 31, 20 09
• Grew cable telephony lines by 97,000, high-speed Internet sub-
scribers by 48,000, and digital cable households by 114,000, while
television subscribers declined by 24,000 in the year.
Summarized Cable Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Cable Operations(2)
RBS
Rogers Retail
Intercompany eliminations
Total operating revenue
Adjusted operating profit (loss) before the undernoted
Cable Operations(2)
RBS
Rogers Retail
Adjusted operating profit(3)
Stock-based compensation recovery(4)
Settlement of pension obligations(5)
Integration and restructuring expenses(6)
Adjustment for CRTC Part II fees decision(7)
Operating profit(3)
Adjusted operating profit (loss) margin(3)
Cable Operations(2)
RBS
Rogers Retail
Additions to PP&E(3)
Cable Operations(2)
RBS
Rogers Retail
Total additions to PP&E
2009
2008 (1)
%Chg
7
(4)
(4)
133
4
11
(41)
n/m
7
(63)
n/m
130
n/m
9
$
3,074 $
503
399
(28)
2,878
526
417
(12)
3,948
3,809
1,298
35
(9)
1,324
12
(11)
(46)
46
1,171
59
3
1,233
32
–
(20)
(25)
$
1,325 $
1,220
42.2%
7.0%
(2.3%)
40.7%
11.2%
0.7%
$
642 $
37
14
$
693 $
829
36
21
886
(23)
3
(33)
(22)
(1) The operating results of Aurora Cable are included in Cable’s results of operations from the date of acquisition on June 12, 2008.
(2) Cable Operations segment includes Core Cable services, Internet services and Rogers Home Phone services.
(3) As defined. See the sections entitled “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
(4) See the section entitled “Stock-based Compensation”.
(5) Relates to the settlement of pension obligations for all employees in the pension plans who had retired as of January 1, 2009 as a result of annuity purchases by the Company’s pension plans.
(6) For the year ended December 31, 2009, costs incurred relate to combining the Cable and Wireless businesses into a communications organization and to severances and restructuring expenses
related to the outsourcing of certain information technology functions, the integration of Futureway Communications Inc. (“Futureway”) and Aurora Cable TV Limited (“Aurora Cable”); and
the closure of certain Rogers Retail stores. For the year ended December 31, 2008, 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) Relates to an adjustment for CRTC Part II fees related to prior periods. See the section entitled “Government Regulation and Regulatory Developments”.
34
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• Cable’s Internet subscriber base continued to grow during the
year and penetration is approximately 45% of the homes passed
by our cable networks and 71% of our television subscriber base.
In addition, digital penetration now represents approximately
72% of television households.
• HDTV digital cable subscribers increased 26% from December 31,
2008 to December 31, 2009, to 715,000.
• Expanded the availability of our residential telephony service
to approximately 26% of homes passed by our cable networks.
Cable ended the year with 937,000 residential voice-over-
cable telephony lines, which brings the total penetration of
cable telephony lines to 41% of television subscribers at
December 31, 2009, up from 36% in the prior year.
• Independent research firm comScore Inc. found Rogers Hi-Speed
Internet to have the fastest and most reliable Internet access
speeds for Ontario customers. The results, which were based on
over 300,000 network speed tests conducted over a three month
period in mid-2009, showed that the Rogers Hi-Speed Internet
product delivers the faster and more reliable Internet speeds
when compared to Cable’s primary DSL competitor.
• Cable launched DOCSIS 3.0 high-speed Internet service,
including two new 25 Mbps and 50 Mbps tiers, the fastest resi-
dential Internet access service available in our Cable territory. As
part of the DOCSIS 3.0 launch, Rogers introduced the first DOCSIS
3.0 wireless “N” cable gateway in North America.
• Cable enhanced its position in the small business market
with the launch of innovative business-grade communications
services designed specifically for the Canadian SME segment
providing multi-line small businesses with access to a suite of
leading-edge telephony solutions including line hunting and
simultaneous ringing.
• Cable began the launch of its new 50 Mbps DOCSIS 3 high-speed
Internet service, the fastest residential Internet access service
currently available in the market.
• Cable fur thered its lead as Canada’s premium video
enter tainment provider with the addition of 34 high-
definition channels during 2009 to its already robust content
lineup, bringing Cable’s offering to more than 100 fully dedicated
HD channels and over 470 HD Movies, specials and TV shows On
Demand. Rogers Cable customers can now receive four times
more HD content choices than are available through Canadian
satellite TV offerings.
• Cable launched TV Call Display, a new product enhancement to
its Rogers Home Phone and Rogers Digital TV service whereby
incoming calls are displayed and managed on customers’ TV
screens, including the option for customers to send calls directly
to their Rogers voicemail with their TV remote control.
• Cable introduced the Rogers On Demand Online portal, Canada’s
most comprehensive online destination for primetime and
specialty TV programming, movies, sports and web-only extras.
By expanding the TV experience to the Internet, Rogers’
Cable, Internet and Wireless customers can now enjoy their
TV anywhere, anytime with a vast and rapidly expanding library
of top programming wherever they have an Internet connection
in Canada.
Total operating revenue increased $139 million, or 4%, from 2008,
and total adjusted operating profit increased to $1,324 million or
by $91 million, a 7% increase from 2008. See the following segment
discussions for a detailed discussion of operating results.
C ABLE OPER ATIONS
Summarized Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Core Cable
Internet
Rogers Home Phone
Total Cable Operations operating revenue
Operating expenses before the undernoted
Sales and marketing expenses
Operating, general and administrative expenses
Adjusted operating profit(1)
Stock-based compensation recovery(2)
Settlement of pension obligations(3)
Integration and restructuring expenses(4)
Adjustment for CRTC Part II fees decision(5)
Operating profit(1)
Adjusted operating profit margin(1)
2009
2008
%Chg
$
1,780 $
781
513
3,074
243
1,533
1,776
1,298
12
(10)
(31)
46
1,669
695
514
2,878
248
1,459
1,707
1,171
30
–
(9)
(25)
$
1,315 $
1,167
42.2%
40.7%
7
12
–
7
(2)
5
4
11
(60)
n/m
n/m
n/m
13
(1) As defined. See the sections entitled “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
(2) See the section entitled “Stock-based Compensation”.
(3) Relates to the settlement of pension obligations for all employees in the pension plans who had retired as of January 1, 2009 as a result of annuity purchases by the Company’s pension plans.
(4) For the year ended December 31, 2009, costs incurred relate to i) severances resulting from the targeted restructuring of our employee base to combine the Cable and Wireless businesses into a
communications organization; ii) severances and restructuring expenses related to the outsourcing of certain information technology functions; and iii) the integration of Futureway and Aurora
Cable. For the year ended December 31, 2008, costs incurred relate to i) severances resulting from the restructuring of our employee base to improve our cost structure in light of the declining
economic conditions; and ii) the integration of Futureway and Call-Net Enterprises Inc. (“Call-Net”).
(5) Relates to an adjustment for CRTC Part II fees related to prior periods. See the section entitled “Government Regulation and Regulatory Developments”.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
35
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summarized Subscriber Results
Years ended December 31,
(Subscriber statistics in thousands)
Cable homes passed(2)
Television
Net additions (losses)(3)
Total Television subscribers(4)
Digital Cable
Households, net additions
Total households(4)
Cable High-speed Internet
Net additions(5)
Total Internet subscribers (residential)(4)(5)(6)
Cable telephony lines
Net additions and migrations(7)
Total Cable telephony lines(4)
Circuit-switched lines
Net losses and migrations(7)
Total circuit-switched items
2009
2008 (1)
Chg
3,635
3,547
(24)
2,296
114
1,664
48
1,619
97
937
(91)
124
9
2,320
191
1,550
109
1,571
182
840
(119)
215
88
(33)
(24)
(77)
114
(61)
48
(85)
97
28
(91)
(1) Certain of the comparative figures have been reclassified to conform to the current year presentation.
(2) Since December 31, 2008, a change in subscriber reporting resulted in a cumulative decrease to cable homes passed of approximately 171,000.
(3) During 2008, a reclassification of certain subscribers had the impact of increasing television net additions by approximately 16,000. In addition, television net subscriber additions for the year 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 television subscribers by approximately 5,000.
(4) On June 12, 2008, we acquired approximately 16,000 television subscribers, 11,000 high-speed Internet subscribers, 6,000 digital cable households and 2,000 cable telephony lines from Aurora Cable.
These subscribers are not included in net additions for the year ended December 31, 2008.
(5) Cable high-speed Internet subscriber base excludes ADSL subscribers of 5,000 and 10,000 at December 31, 2009 and 2008, respectively. In addition, net additions exclude ADSL subscriber losses of
6,000 and 3,000 in the years ended December 31, 2009 and 2008, respectively.
(6) During 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 year ended December 31, 2008.
(7) Includes approximately 17,000 and 60,000 migrations from circuit-switched to cable telephony for the years ended December 31, 2009 and 2008, respectively.
CABLE SUBSCRIBER BREAKDOWN
(%)
Home Phone 14%
Internet 25%
Television 35%
Digital 26%
Increased levels of penetration for many of Cable’s products
and a level of increased competitive intensity, combined with an
economic recession in Ontario, which drove a slowdown in new
home construction and high rates of unemployment, resulted in
lower net additions of most of Cable’s products in 2009, compared
to 2008. The impact of this recession has affected sales of Cable’s
products as customers move residences less and the growth in new
home construction has slowed significantly, which historically are
two of Cable’s largest sources of new product sales. In response to
these conditions, Cable has implemented strategic cost reduction
and efficiency improvement initiatives to enable a sustained
reduction of operating costs.
Core Cable Revenue
Within Cable Operations, the increase in Core Cable revenue
for 2009, compared to 2008, reflects the continued increasing
penetration of digital cable product offerings. Additionally, the
impact of certain price changes introduced during the previous
year to both analog and digital cable services contributed to the
growth in revenue.
Cable continues to lead the Canadian cable industry in digital
penetration. The digital cable subscriber base grew by 7% from
December 31, 2008 to December 31, 2009, to 72% of television
households, compared to 67% as at December 31, 2008. Increased
demand from subscribers for digital content, HDTV and personal
video recorder (“PVR”) equipment, combined with marketing
campaigns which package cable television, high-speed Internet
and Rogers Home Phone services, contributed to the growth in the
digital subscriber base of 114,000 in 2009.
Cable Internet Revenue
The year-over-year increase in Internet revenues for 2009 primarily
reflects the increase in the Internet subscriber base, combined
with Internet services price changes made during 2009 and
incremental revenue charges for additional usage for customers
who exceed monthly gigabyte allowances associated with their
respective plans.
36
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DIGITAL HOUSEHOLDS
AND PENETRATION OF
TELEVISION CUSTOMERS
(In thousands)
HIGH-DEFINITION
HOUSEHOLDS
(In thousands)
INTERNET SUBSCRIBERS
AND PENETRATION
OF HOMES PASSED (In thousands)
1,353
1,550
1,664
361
568
715
1,451
1,571
1,619
67%
72%
59%
41%
44%
45%
2007
2007
2008
2008
2009
2009
2007
2007
2008
2008
2009
2009
2007
2007
2008
2008
2009
2009
With the high-speed Internet base now at approximately
1.6 million subscribers, Internet penetration is approximately
45% of the homes passed by our cable networks and 71% of our
television customer base.
Excluding the impact of the shrinking circuit-switched telephony
customer base, the year-over-year revenue growth for Rogers
Home Phone and Cable Operations for 2009 would have been 19%
and 10%, respectively.
Rogers Home Phone Revenue
The Rogers Home Phone revenue for 2009 is relatively unchanged
year-over-year as revenue generated from the growth in the cable
telephony customer base revenue is offset by the ongoing decline
of the circuit-switched telephony and long-distance only customer
bases. The lower net additions of cable telephony lines in 2009
versus 2008 reflects the impact of the economic recession in
Ontario and product maturation as Rogers’ market share increases,
combined with intensified win-back activities by incumbent
telecom providers.
Cable telephony lines in service grew 12% from December 31, 2008
to December 31, 2009. At December 31, 2009, cable telephony lines
represented 26% of the homes passed by our cable networks and
41% of television subscribers.
Cable continues to focus principally on growing its on-net cable
telephony line base. As part of this on-net focus, Cable continued
to significantly de-emphasize circuit-switched sales through 2009
and intensified its efforts to convert circuit-switched lines that
are within the cable territory onto its cable telephony platform.
Of the 97,000 net line additions to cable telephony during 2009,
approximately 17,000 were migrations of lines from our circuit-
switched platform to our cable telephony platform. Because of the
strategic decision in early 2008 to de-emphasize sales of the circuit-
switched telephony product outside of the cable footprint, Cable
expects that circuit-switched net line losses will continue as that
base of subscribers continues to contract over time.
Cable Operations Operating Expenses
The increase in Cable Operations’ operating expenses for 2009
compared to 2008 was primarily driven by the increases in the digital
cable, Internet and Rogers Home Phone subscriber bases, resulting
in higher costs associated with programming and other content,
subscriber equipment, network operations, credit and collections
and information technology. Partially offsetting these increases
was a reduction in certain other costs resulting from lower volumes
of subscriber net additions in 2009, cost reduction and efficiency
initiatives across various functions, and the reversal of that portion
of CRTC Part II fees accruals relating to the 2009 broadcast year.
Cable Operations continues to focus on implementing cost
reduction and efficiency improvement initiatives to further control
the overall growth in operating expenses.
CABLE TELEPHONY SUBSCRIBERS
AND PENETRATION OF
HOMES PASSED (In thousands)
CABLE SUBSCRIBER
BREAKDOWN
(In thousands)
656
840
937
2,295
1,353
1,451
656
2,320
1,550
1,571
840
2,296
1,664
1,619
937
24%
26%
18%
2007
2007
2008
2008
2009
2009
2007
2007
2008
2008
2009
2009
Television
Digital
Internet
Home Phone
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
37
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cable Operations Adjusted Operating Profit
The year-over-year growth in adjusted operating profit was
primarily the result of the revenue growth described above,
combined with decreased activity levels and cost efficiencies.
As a result, Cable Operations adjusted operating profit margins
increased to 42.2% for 2009, compared to 40.7% in 2008.
Other Cable Operations Developments
In October 2009, the CRTC amended its regulation relating to Part
II fees. These fees going forward will be approximately one-third
less than the historical rate of approximately $21 million annually.
For the three months ended December 31, 2009, the $60 million
adjustment represents the reversal of Part II fees for the period from
September 1, 2006 to August 31, 2009. For the year ended December
31, 2009, the $46 million adjustment represents the reversal of Part
II fees for the period from September 1, 2006 to December 31, 2008.
The remaining $14 million was related to the period from January
1, 2009 to August 31, 2009, and has been recorded as a credit within
adjusted operating profit.
CABLE OPERATIONS ADJUSTED
OPERATING PROFIT
AND MARGIN (In millions of dollars)
1,008
1,171
1,298
42.2%
40.7%
38.7%
2007
2007
2008
2008
2009
2009
ROGERS BUSINESS SOLUTIONS
Summarized Financial Results
Years ended December 31,
(In millions of dollars, except margin)
RBS operating revenue
Operating expenses before the undernoted
Sales and marketing expenses
Operating, general and administrative expenses
Adjusted operating profit(1)
Stock-based compensation recovery (expense)(2)
Integration and restructuring expenses(3)
Operating profit(1)
Adjusted operating profit margin(1)
2009
2008
%Chg
$
503 $
526
(4)
26
442
468
35
(1)
(3)
$
31 $
26
441
467
59
1
(6)
54
–
–
–
(41)
n/m
(50)
(43)
7.0%
11.2%
(1) As defined. See the sections entitled “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
(2) See the section entitled “Stock-based Compensation”.
(3) For the year ended December 31, 2009, costs incurred relate to i) severances resulting from the targeted restructuring of our employee base to combine the Cable and Wireless businesses into a
communications organization; and ii) severances and restructuring expenses related to the outsourcing of certain information technology functions. For the year ended December 31, 2008, costs
incurred relate to i) severances resulting from the restructuring of our employee base to improve our cost structure in light of the current economic conditions and ii) the integration of
Call-Net Enterprises Inc. (“Call-Net”).
Summarized Subscriber Results
Years ended December 31,
(Subscriber statistics in thousands)
Local line equivalents(1)
Total local line equivalents
Broadband data circuits(2)(3)
Total broadband data circuits
2009
2008
Chg
169
197
(28)
36
34
2
(1) Local line equivalents include individual voice lines plus Primary Rate Interfaces (“PRIs”) at a factor of 23 voice lines each.
(2) Broadband data circuits are those customer locations accessed by data networking technologies including DOCSIS, DSL, E10/100/1000, OC 3/12 and DS 1/3.
(3) During the first quarter of 2008, a change in subscriber reporting resulted in the reclassification of approximately 4,000 high-speed Internet subscribers from RBS’ broadband data circuits to
Cable Operations’ high-speed Internet subscriber base. These subscribers are not included in net additions for 2008.
38
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RBS Revenue
The decrease in RBS revenues reflects an ongoing decline in
the legacy portion of RBS’ business partially offset by an increase
in long-distance revenue. RBS is focused on leveraging on-net
revenue opportunities utilizing Cable’s existing network facilities
as well as maintaining its existing medium enterprise customer
base while growing the carrier portion of its business. RBS
continues to work to manage the profitability of existing enterprise
customers. For 2009, RBS long-distance revenues increased
$21 million and local and data revenues decreased by $21 million
and $23 million respectively.
RBS Operating Expenses
Operating, general and administrative expenses were relatively
unchanged for 2009, compared to 2008. An increase in long-
distance costs due to higher call volumes and country mix resulted
in higher operating costs which were offset by lower data and local
carriers charges.
Sales and marketing expenses were relatively unchanged year-over-
year and reflect cost control initiatives and targeted marketing
within the medium and large enterprise and carrier segments.
RBS Adjusted Operating Profit
RBS adjusted operating profit has declined year over year compared
to 2008 due to the decrease in revenues as RBS transitions away from
its legacy data and local revenues. As RBS is focusing its attention
on growing future revenue streams from on-net IP technologies
in voice and data it is investing in incremental operating costs to
support that growth and therefore offsetting the cost declines
from the legacy side of the business.
ROGERS R ETAIL
Summarized Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Rogers Retail operating revenue
Operating expenses before the undernoted
Adjusted operating (loss) profit(1)
Stock-based compensation recovery(2)
Settlement of pension obligations(3)
Integration and restructuring expenses(4)
Operating loss(1)
Adjusted operating (loss) profit margin(1)
2009
2008
%Chg
$
399 $
408
(9)
1
(1)
(12)
$
(21) $
417
414
3
1
-
(5)
(1)
(4)
(1)
n/m
-
n/m
140
n/m
(2.3%)
0.7%
(1) As defined. See the sections entitled “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
(2) See the section entitled “Stock-based Compensation”.
(3) Relates to the settlement of pension obligations for all employees in the pension plans who had retired as of January 1, 2009 as a result of annuity purchases by the Company’s pension plans.
(4) For the year ended December 31, 2009, costs incurred relate to i) severances resulting from the targeted restructuring of our employee base to combine the Cable and Wireless businesses into
a communications organization; and ii) the closure of certain Rogers Retail stores. For the year ended December 31, 2008, costs incurred relate to i) severances resulting from the restructuring
of our employee base to improve our cost structure in light of the current economic conditions; and ii) the closure of certain Rogers Retail stores.
Rogers Retail Revenue
The decrease in Rogers Retail revenue for 2009, compared to
2008, was the result of the continued decline in video rental and
sales combined with a lower volume of certain wireless product
upgrades in 2009 by existing Wireless customers, partially offset by
strong sales of Cable’s products.
Rogers Retail Adjusted Operating (Loss) Profit
Adjusted operating (loss) profit at Rogers Retail decreased for 2009,
compared to 2008, reflecting the trends noted above.
• 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 co-axial 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.
C ABLE 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;
CABLE ADDITIONS TO PP&E
(%)
Business Solutions 5%
Cable Operations 93%
Retail 2%
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
39
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summarized Cable PP&E Additions
Years ended December 31,
(In millions of dollars)
Additions to PP&E
Customer premise equipment
Scalable infrastructure
Line extensions
Upgrades and rebuild
Support capital
Total Cable Operations
RBS
Rogers Retail
2009
2008
%Chg
$
185 $
259
40
20
138
642
37
14
$
693 $
284
279
48
35
183
829
36
21
886
(35)
(7)
(17)
(43)
(25)
(23)
3
(33)
(22)
Additions to Cable PP&E include continued investments in the
cable network to continue to enhance customer experience
through increased speed and performance of our Internet service
and capacity enhancements to our digital network to allow for
incremental HD and on-demand services to be added.
The decline in Cable Operations PP&E additions for 2009, compared
to 2008, resulted primarily from lower spending associated with
lower levels of subscriber additions.
Rogers Retail PP&E additions are attributable to improvements
made to certain retail locations.
M E D I A
MEDIA’S BUSINESS
Media operates our radio and television broadcasting and
speciality television businesses, our consumer and trade publishing
operations, our televised home shopping service and Rogers Sports
Entertainment. In addition to Media’s more traditional broadcast
and print media platforms, it also provides content and conducts
e-commerce over the Internet.
Media’s broadcasting group (“Broadcasting”) comprises 54 radio
stations across Canada; multicultural OMNI broadcast television
stations; the five station Citytv broadcast television network;
specialty sports television services including regional sports service
Rogers Sportsnet and Setanta Sports Canada; other specialty
services including OLN, The Biography Channel Canada and
G4TechTV Canada; and Canada’s only nationally televised shopping
service (“The Shopping Channel”). Media also holds 50% ownership
in Dome Productions, a mobile production and distribution joint
venture that is a leader in HDTV production in Canada.
MEDIA REVENUE MIX
(%)
Radio 16%
Sports Entertainment 14%
Publishing 19%
Television 33%
The Shopping
Channel 18%
40
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
Media’s publishing group (“Publishing”) publishes more than 70
consumer magazines and trade and professional publications and
directories in Canada.
Media’s sports entertainment group (“Sports Entertainment”)
owns the Toronto Blue Jays Major League Baseball (“MLB”) club
and Rogers Centre sports and entertainment venue.
MEDIA’S STR ATEGY
Media seeks to maximize revenues, operating profit and return on
invested capital across each of its businesses. Media’s strategies to
achieve this objective include:
• Continuing to leverage its strong media brand names and
content over its multiple media platforms and in association with
the “Rogers” brand;
• Focusing on specialized content and audience development
through its broadcast, publication and sports properties, as well
its growing portfolio of specialty channel investments;
• Investing in technology and content to support audience
migration to the web, wireless and other mobile platforms; and
• Enhancing the Sports Entertainment fan experience by
continuing to invest in enhancing the Blue Jays fan
experience, including upgrades to both the player roster and
the Rogers Centre.
RECENT M EDIA I NDUSTRY T RENDS
Increased Fragmentation of Radio and T V Markets
In recent years, Canadian radio and television broadcasters have
had to operate in increasingly fragmented markets. Canadian
consumers have a growing number of radio and television services
available to them, providing them with an increasing number of
different programming formats. In the radio industry, since the
introduction of its Commercial Radio Policy in 1998, the CRTC
has licenced numerous new radio stations through competitive
processes in most markets across Canada. In that time, the CRTC
has also licenced a large number of additional new FM stations
through AM to FM station conversions. In 2005, the CRTC licenced
two satellite radio providers, both of which are affiliated with U.S.
satellite operators and both of which began offering service in
Canada. In the television industry since 2000, the CRTC has licenced
a small number of new, over-the-air stations and a significant
number of new digital television services. The new services,
additional licences and the new formats combine to fragment the
market for existing radio and television operators.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Migration to Digital Media
The media landscape is changing significantly; driven by the
following major forces impacting audience and advertiser
behaviour:
• Digitization of content;
• Roll-out and extensive availability of high-speed broadband
networks;
• Increasingly fragmented and time-shifted audience time and
attention;
• Explosion of user-generated, free and pirated content; and
• Marketers searching for higher-ROI media vehicles.
The impact of the foregoing is that audiences are migrating a
portion of their time and attention from traditional to online and
other digital media. As a result, advertisers are following this trend
by shifting a portion of their spending from traditional to digital
media formats.
Consolidation of Industry Competitors
Ownership of Canadian radio and TV stations has consolidated
through several large acquisitions in the sector by other media
companies over the past five years. This has resulted in the Canadian
industry being left with fewer owners but larger competitors in the
media marketplace.
MEDIA O PER ATING AND F INANCIAL R ESULTS
Media’s revenues primarily consist of:
• Advertising revenues;
• Circulation revenues;
• Subscription revenues;
• Retail product sales; and
• Sales of tickets, receipts of MLB revenue sharing and concession
sales associated with Rogers Sports Entertainment.
Media’s operating expenses consist of:
• Cost of sales, which is primarily comprised of the cost of retail
products sold by The Shopping Channel;
• Sales and marketing expenses; and
• Operating, general and administrative expenses, which include
programming costs, production expenses, circulation expenses,
Blue Jays player salaries and other back-office support functions.
Summarized Media Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Operating expenses before the undernoted
Adjusted operating profit(3)
Stock-based compensation recovery(4)
Settlement of pension obligations(5)
Integration and restructuring expenses(6)
Contract termination fee(7)
Adjustment for CRTC Part II fees decision(8)
Operating profit(3)
Adjusted operating profit margin(3)
Additions to property, plant and equipment(3)
2009
2008 (1 )(2 )
%Chg
$
1,407 $
1,496
1,288
1,354
119
8
(15)
(35)
(19)
15
142
17
–
(11)
–
(6)
$
$
73 $
142
8.5%
62 $
9.5%
81
(6)
(5)
(16)
(53)
n/m
n/m
n/m
n/m
(49)
(23)
(1) The operating results of channel m are included in Media’s results of operations from the date of acquisition on April 30, 2008.
(2) The operating results of Outdoor Life Network are included in Media’s results of operations from the date of acquisition on July 31, 2008.
(3) As defined. See the section entitled “key Performance Indicators and Non-GAAP Measures”.
(4) See the section entitled “Stock-based Compensation”.
(5) Relates to the settlement of pension obligations for all employees in the pension plans who had retired as of January 1, 2009 as a result of annuity purchases by the Company’s pension plans.
(6) For the year ended December 31, 2009 and December 31, 2008, costs incurred relate to severances resulting from the targeted restructuring of our employee base to improve our cost structure
in light of the current economic and competitive conditions.
(7) Relates to the termination and release of certain Blue Jays players from the remaining term of their contracts.
(8) Relates to an adjustment for CRTC Part II fees related to prior periods.
Media Operating Revenue
The overall decrease in Media revenue in 2009, compared to 2008,
was reflective of a soft advertising market and a challenging retail
environment which resulted in lower revenues in Radio, Publishing
and The Shopping Channel. However, starting in the third quarter
of 2009, the rate of year-over-year decline in advertising sales
began to moderate for the first time in several quarters. Despite
the soft advertising market, Sportsnet delivered organic growth
and Television delivered revenues in line with 2008 levels due to the
market’s favourable response to the planned investment in Citytv’s
programming schedule. Sports Entertainment revenue was lower
mainly as a result of hosting only one Buffalo Bills NFL game in 2009
versus two in 2008.
Media Operating Expenses
The decrease in Media’s operating expenses in 2009, compared to
2008, was driven by a focused cost reduction program across all of
Media’s divisions and lower variable costs associated with printing
and production at Publishing and retail sales at The Shopping
Channel. This was offset by planned increases in programming
costs at Sportsnet and Television.
Media Adjusted Operating Profit
The decrease in Media’s adjusted operating profit for 2009,
compared to 2008, primarily reflects 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.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
41
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MEDIA REVENUE
(In millions of dollars)
MEDIA ADJUSTED
OPERATING PROFIT
(In millions of dollars)
$1,317
$1,496
$1,407
$176
$142
$119
2007
2007
200 8
2008
2009
2009
2007
2007
2008
2008
2009
2009
The challenging economic conditions have resulted in a weakening
of revenue expectations for certain parts of our broadcasting
portfolio. As a result of the challenging conditions and declines in
advertising revenues, we recorded a non-cash impairment charge
of $18 million related to certain of our broadcast assets. See the
section entitled “Impairment Losses on Goodwill, Intangible Assets
and Other Long-Term Assets” for further details.
Media Additions to PP&E
Media’s PP&E additions in 2009 declined from 2008 due to cost
containment initiatives. A significant portion of Media’s additions
reflect the construction of a new television production facility for
the combined Ontario operations of Citytv and OMNI, which was
completed in 2009.
Other Media Developments
In October 2009, the CRTC amended its regulation relating to Part II
fees. These fees going forward will be approximately one-third less
than the historical rate of approximately $6 million annually. For the
three months ended December 31, 2009, the $19 million adjustment
represents the reversal of Part II fees for the period from September
1, 2006 to August 31, 2009. For the year ended December 31, 2009,
the $15 million adjustment represents the reversal of Part II fees
for the period from September 1, 2006 to December 31, 2008. The
remaining $4 million was related to the period from January 1,
2009 to August 31, 2009, and has been recorded as a credit within
adjusted operating profit.
RECONCILIATION OF NET INCOME TO OPER ATING
PROFIT AND ADJUSTED OPER ATING 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 year. See the section
entitled “Supplementary Information: Non-GAAP Calculations”
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 Note 3 to the
20 09 Audited Consolidated Financial Statements entitled
“Segmented Information”.
Years ended December 31,
(In millions of dollars)
Net income
Income tax expense
Other (income) expense, net
Change in the fair value of derivative instruments
Loss on repayment of long-term debt
Foreign exchange (gain) loss
Debt issuance costs
Interest on long-term debt
Operating income
Impairment losses on goodwill, intangible assets and
other long-term assets
Depreciation and amortization
Operating profit
Stock-based compensation expense (recovery)
Settlement of pension obligations
Integration and restructuring expenses
Contract termination fees
Adjustment for CRTC Part II fees decision
Adjusted operating profit
42
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
2009
2008
%Chg
$
1,478 $
502
(6)
65
7
(136)
11
647
1,002
424
(28)
(64)
–
99
16
575
2,568
2,024
18
1,730
4,316
(33)
30
117
19
(61)
294
1,760
4,078
(100)
–
51
–
31
$
4,388 $
4,060
48
18
(79)
n/m
n/m
n/m
(31)
13
27
(94)
(2)
6
(67)
n/m
129
n/m
n/m
8
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Income and Net Income per Share
We recorded net income of $1,478 million in 2009, or basic and
diluted net income per share of $2.38, compared to net income of
$1,002 million, or basic and diluted net income per share of $1.57 for
the year ended December 31, 2008. This increase in net income was
primarily due to the growth in operating income, foreign exchange
gains of $136 million mainly related to foreign exchange on our
U.S. dollar-denominated debt that is not hedged for accounting
purposes, reduced by impairment losses on intangible assets and
other long-term assets related to certain of our broadcast assets of
$18 million and by $65 million related to the change in the fair value
of derivative instruments.
Income Tax Expense
As illustrated in the table below, our effective income tax rate
for the years ended December 31, 2009 and 2008 was 25.4% and
29.7%, respectively. The 2009 effective income tax rate was less
than the 2009 statutory income tax rate of 32.3% primarily due to
an income tax recovery of $58 million resulting from reductions
in substantively enacted tax rates and the $64 million release of
our valuation allowance. The release of our valuation allowance
includes $14 million relating to a decrease of foreign tax assets
arising from foreign exchange rate fluctuations, and $50 million
due to unrealized gains on financial instruments.
Years ended December 31,
(In millions of dollars)
Statutory income tax rates
Income before income taxes
Income tax expense at statutory income tax rate
on income before income taxes
Increase (decrease) in income taxes resulting from:
Ontario income tax harmonization credit
Change in valuation allowance
Effect of tax rate changes
Impairment losses on goodwill and intangible assets not
deductible for income tax purposes
Other items
Income tax expense
Effective income tax rate
$1,066
$1,260
$1,556
CONSOLIDATED ADJUSTED
NET INCOME
(In millions of dollars)
During 2008, we recorded an
income tax credit of $65 million
arising from the harmonization
of the Ontario provincial income
tax system within the Canadian
federal income tax system. The
resulting income tax credit will
be available to reduce future
Ontario income taxes until 2013.
In addition, we recorded an
increase in income tax expense
of $51 million to recognize
that impairment losses on
i n t a n g i b l e
g o o d w i l l a n d
assets are not deductible for
income tax purposes, and an
income tax recovery of $33
million reflecting the effect of
scheduled tax rate changes. We
also recorded an increase of $19 million in our valuation allowance
to offset the increase in foreign tax assets due to foreign exchange
rate fluctuations.
2008
2008
2007
2007
2009
2009
Income tax expense varies from the amounts that would be
computed by applying the statutory income tax rate to income
before income taxes for the following reasons:
2009
2008
32.3%
32.7%
1,980 $
1,426
640 $
466
$
$
–
(64)
(58)
–
(16)
(65)
19
(33)
51
(14)
$
502 $
424
25.4%
29.7%
Other Expense (Income)
Other income of $6 million in 2009 was primarily associated with
investment income received from certain of our investments, which
decreased from $28 million in 2008.
by 24 cents versus the U.S. dollar. We have recorded our Derivatives
at an estimated credit-adjusted mark-to-market valuation. For the
impact, refer to the section entitled “Fair Value for Derivatives”.
Change in Fair Value of Derivative Instruments
In 2009 and 2008, the changes in fair value of the derivative
instruments were primarily the result of the impact 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
(“Derivatives”) hedging the US$350 million Senior Notes due 2038
that have not been designated as hedges for accounting purposes.
During 2009, the Canadian dollar strengthened by 17 cents versus
the U.S. dollar, while during 2008, the Canadian dollar weakened
Foreign Exchange Gain (Loss)
During 2009, the Canadian dollar strengthened by 17 cents
versus the U.S. dollar resulting in a foreign exchange gain of $136
million, primarily related to US$750 million of our U.S. dollar-
denominated long-term debt that is not hedged for accounting
purposes, comprising the US$400 million of Subordinated Notes
due 2012, which were not hedged and which were redeemed in
December 2009, and US$350 million of Senior Notes due 2038 for
which the Derivatives have not been designated as hedges for
accounting purposes. During 2008, the Canadian dollar weakened
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
43
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
by 24 cents versus the U.S. dollar resulting in a foreign exchange
loss of $99 million, primarily related to the US$750 million of
U.S. dollar-denominated long-term debt that is not hedged for
accounting purposes.
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.
Debt Issuance Costs
We recorded debt issuance costs of $11 million during 2009 due to
the transaction costs incurred in connection with the $2.0 billion of
issuances, including the $1.0 billion of 5.80% Senior Notes due 2016
issued on May 26, 2009 and the $500 million of 5.38% Senior Notes
due 2019 and $500 million of 6.68% Senior Notes due 2039 issued on
November 4, 2009.
Interest on Long-Term Debt
The $72 million increase in interest expense during 2009, compared
to 2008, is primarily due to the increase in our long-term debt at
December 31, 2009, compared to December 31, 2008, including the
impact of Derivatives.
Operating Income
The increase in our operating income of $544 million, compared
to the prior year, is due to the growth in revenue of $396 million
and the reduction of operating expenses of $148 million. See the
detailed discussion on respective segment results included in this
section entitled “Segment Review” above.
Impairment Losses on Goodwill, Intangible Assets and Other
Long-Term Assets
In the fourth quarter of 2009, we determined that the fair value of
a radio station licence of Media was lower than its carrying value.
This primarily resulted from the weakening of advertising revenues
in a local market. As a result, we recorded a non-cash impairment
charge of $4 million related to one of our Ontario radio licences. In
addition, and also related to declines in advertising revenue, we
recorded an impairment charge of $14 million related to our OMNI
television network with the following components: $1 million
related to the broadcast licences and $13 million related to other
long-lived 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
Depreciation and Amortization Expense
The increase in depreciation and amortization expense for the
year ended December 31, 2009, over 2008, primarily reflects the
$1.9 billion of additions to PP&E during 2009, partially offset by a
decrease in amortization of intangible assets resulting from certain
intangible assets that were acquired in the Fido acquisition, which
have now been fully amortized.
Stock-based Compensation
Our employee stock option plans attach cash settled share
appreciation rights (“SARs”) to all new and previously granted
options. The SAR feature allows the option holder to elect to
receive in cash an amount equal to the intrinsic value, being the
excess market price of the Class B Non-Voting share over the
exercise price of the option, instead of exercising the option and
acquiring Class B Non-Voting shares. All outstanding stock options
are classified as liabilities and are 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 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.
The liability for stock-based compensation expense is recorded
based on the intrinsic value of the options, as described above, and
the expense is impacted by the change in the price of RCI’s Class
B Non-Voting shares during the life of the option. At December
31, 2009, we had a liability of $178 million related to stock-based
compensation recorded at its intrinsic value, including stock
options, restricted share units and deferred share units. In the year
ended December 31, 2009, $63 million (2008 – $106 million) was paid
to holders upon exercise of restricted share units and stock options
using the SAR feature.
A summary of stock-based compensation expense is as follows:
Years ended December 31,
(In millions of dollars)
Wireless
Cable
Media
Corporate
Stock-based Compensation
Expense (Recovery) Included
in Operating, General and
Administrative Expenses
2009
2008
$
– $
(12)
(8)
(13)
(5)
(32)
(17)
(46)
$
(33) $
(100)
Integration and Restructuring Expenses
During the year ended December 31, 2009, we incurred $117 million
of integration and restructuring expenses related to: i) severances
resulting from the targeted restructuring of our employee base to
combine our Cable and Wireless businesses into a communications
organization and to improve our cost structure in light of the current
economic and competitive conditions ($87 million); ii) severances
and restructuring expenses related to the outsourcing of certain
44
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
information technology functions ($23 million); iii) the integration
of previously acquired businesses and related restructuring
($3 million); and iv) the closure of certain retail stores ($4 million).
3. CONSOLIDATED LIQUIDITY AND FINANCING
Contract Termination Fees
During the year ended December 31, 2009, the Blue Jays released
certain players from the remaining term of their contracts, which
resulted in a $19 million charge to operating profit.
Adjusted Operating Profit
As discussed above, Wireless and Cable both contributed to the
increase in adjusted operating profit for the year ended December
31, 2009, partially offset by a decrease in Media’s adjusted operating
profit for 2009 compared to 2008.
Consolidated adjusted operating profit increased to $4,388 million
in 2009, compared to $4,060 million in 2008. Adjusted operating
profit excludes: (i) stock-based compensation (recovery) expense
of $(33) million in 2009 and $(100) million in 2008; (ii) integration
and restructuring expenses of $117 million in 2009 and $51 million
in 2008; (iii) an adjustment for CRTC Part II fees related to prior
periods of $(61) million in 2009 and $31 million in 2008; (iv) contract
termination fees of $19 million in 2009; and (v) pension settlement
of $30 million in 2009.
For details on the determination of adjusted operating profit, which
is a non-GAAP measure, see the sections entitled “Supplementary
Information: Non-GAAP Calculations” and “Key Performance
Indicators and Non-GAAP Measures”.
Employees
Employee remuneration represents a material portion of our
expenses. At December 31, 2009, we had approximately 25,900
full-time equivalent employees (“FTEs”) across all of our operating
groups, including our shared services organization and corporate
office, which was essentially unchanged from the level at
December 31, 2008. Increases in our shared services staffing and
customer facing functions were partially offset by reductions
associated with operational efficiencies and the integration of our
Cable and Wireless organizations during the year and reductions
in Media associated with improvements to its cost structure. Total
remuneration paid to employees (both full and part-time) in 2009
was approximately $1,715 million, an increase of approximately $149
million from $1,566 million in 2008. The increase in remuneration
paid to employees is primarily attributed to the change in
stock prices resulting in a $33 million recovery to stock-based
compensation compared to a $100 million recovery in 2008 and an
increase in the FTEs during the first half of 2009 compared to 2008.
ADDITIONS TO PP&E
For details on the additions of PP&E for the Wireless, Cable and
Media segments, refer to the section entitled “Segment Review”.
LIQUIDIT Y AND C APITAL RESOURCES
Operations
For 2009, cash generated from operations before changes in
non-cash operating items, which is calculated by removing the effect
of all non-cash items from net income, increased to $3,526 million
from $3,500 million in 2008. The $26 million increase is primarily the
result of a $328 million increase in adjusted operating profit, most
notably offset by the $66 million increase in the integration and
restructuring charge, $72 million increase in interest expense and
$61 million cash contribution to the Company’s pension plans to
fund annuity purchases.
Taking into account the changes in non-cash working capital
items for 2009, cash generated from operations was $3,790
million, compared to $3,285 million in 2008. The cash generated
from operations of $3,790 million, together with the following
items, resulted in total net funds of approximately $5,795 million
generated or raised in 2009:
• Receipt of $2.0 billion aggregate gross proceeds from the issu-
ance of $1.0 billion 5.80% Senior Notes due 2016, $500 million
5.38% Senior Notes due 2019 and $500 million 6.68% Senior Notes
due 2039 public debt;
• Receipt of $3 million from the issuance of Class B Non-Voting
shares under the exercise of employee stock options; and
• Receipt of $2 million in net proceeds from the settlement of
US$408 million aggregate amount of forward contracts
relating to the redemption of our US$400 million 8.00%
Senior Subordinated Notes due 2012.
Net funds used during 2009 totalled approximately $5,393 million,
the details of which include the following:
• Additions to PP&E of $1,910 million, including $55 million of
related changes in non-cash working capital;
• The purchase for cancellation of 43,776,200 Class B Non-Voting
shares for an aggregate purchase price of $1,347 million;
• The payment of quarterly dividends aggregating $704 million on
our Class A Voting and Class B Non-Voting shares;
• Net repayments under our bank credit facility aggregating $585
million and capital leases aggregating $1 million;
• Payment of $424 million for the redemption of our US$400 million
8.00% Subordinated Notes due 2012 and $8 million repayment
premium;
• Additions to program rights aggregating $185 million;
• The payment of $40 million for the acquisition of the spectrum
licences of Look Communications; and
• Acquisitions and other net investments aggregating $189 million,
including $163 million to purchase 3.2 million shares of Cogeco
Cable Inc. and 1.6 million shares of Cogeco Inc., $11 million to
acquire K-Rock and KIX Country, Kingston FM radio stations, and
$15 million of other net investments.
Corporate Additions to PP&E
The corporate additions to PP&E included $151 million for the
year ended December 31, 2009 and $38 million for the year ended
December 31, 2008, both of which related to spending on an
enterprise-wide billing and business support system initiative.
Taking into account the cash deficiency of $19 million at the
beginning of the year and the cash sources and uses described
above, cash and cash equivalents at December 31, 2009 was
$383 million.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
45
ADDITIONS TO
CONSOLIDATED PP&E
(In millions of dollars)
$1,712
$1,796
$2,021
2006
2007
2008
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financing
Our long-term debt instruments are described in Note 14 and Note
15 to the 2009 Audited Consolidated Financial Statements. During
2009, the following financing activities took place.
2009 USES OF CASH
(In millions of dollars)
Additions to PP&E: $1,910
$5,393
Repurchase of shares: $1,347
Dividends: $704
Payments under bank credit facility: $585
Redemption of subordinated note: $424
Acquisitions and other net investments: $198
Additions to program rights: $185
Acquisition of spectrum licenses: $40
2009
On May 26, 2009, we issued $1.0 billion principal amount of public
debt securities, comprised of 5.80% Senior Notes due 2016 (the
“2016 Notes”). The 2016 Notes were issued at a discount of 99.767%
for an effective yield of 5.841% per year. RCI received aggregate
net proceeds of $993 million from the issuance of the 2016 Notes
after deducting the issue discount, underwriting commission and
other related expenses. The 2016 Notes are unsecured and are
guaranteed on an unsecured basis by each of Rogers Wireless
Partnership and Rogers Cable Communications Inc. and rank pari
passu with all of RCI’s other senior unsecured and unsubordinated
notes and debentures and bank credit facility.
On November 4, 2009, we issued $1.0 billion aggregate principal
amount of public debt securities, comprised of $500 million of
5.38% Senior Notes due 2019 (the “2019 Notes”) and $500 million
of 6.68% Senior Notes due 2039 (the “2039 Notes”). The 2019 Notes
were issued at a discount of 99.931% for an effective yield of 5.389%
per year and the 2039 Notes were issued at a discount of 99.897%
ADJUSTED OPERATING PROFIT
LESS CAPEX AND INTEREST (FCF)
(In millions of dollars)
RATIO OF DEBT TO
ADJUSTED OPERATING PROFIT
$1,328
$1,464
$1,886
2.1x
2.1x
2.1x
for an effective yield of 6.688% per year. RCI received aggregate
net proceeds of $993 million from the issuance of the 2019 Notes
and the 2039 Notes after deducting the respective issue discounts,
underwriting commissions and other related expenses. The 2019
Notes and the 2039 Notes are unsecured and are guaranteed on an
unsecured basis by each of Rogers Wireless Partnership and Rogers
Cable Communications Inc. and rank pari passu with all of RCI’s
other senior unsecured and unsubordinated notes and debentures
and bank credit facility.
On December 15, 2009, we redeemed the entire outstanding
principal amount of our US$400 million (Cdn$424 million) 8.00%
Senior Subordinated Notes due 2012 at the prescribed redemption
price of 102% of the principal amount, or US$408 million (Cdn$432
million). As a result, we incurred a net loss on repayment of long
term debt of $7 million, which is expensed in the consolidated
statement of income, comprised of the $8 million cash payment for
the 2% redemption premium, partially offset by a corresponding
$1 million non-cash write-down of the related fair value increment
arising from purchase accounting.
In addition, during 2009, an aggregate $585 million net repayment
was made under our bank credit facility. As of December 31,
2009, there were no advances outstanding under our $2.4 billion
bank credit facility that matures in July 2013 and the full amount
is available to be drawn, excluding letters of credit of $47 million.
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, we
filed shelf prospectuses with securities regulators to qualify debt
securities of RCI for sale in Canada and/or in the U.S. These shelf
prospectuses were scheduled to expire in December 2009. To replace
these expiring shelf prospectuses, in November 2009, we filed two
new shelf prospectuses with securities regulators to qualify debt
securities of RCI, one for the sale of up to Cdn$4 billion of debt
securities in Canada and the other for the sale of up to US$4 billion
in the United States and Ontario. These new shelf prospectuses
expire in December 2011. The notice set forth in this paragraph
does not constitute an offer of any securities for sale.
Normal Course Issuer Bid
In February 2009, we filed a NCIB authorizing us to repurchase up
to the lesser of 15 million of RCI’s 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.
This NCIB, which expires on February 19, 2010, replaced a previously
filed NCIB which expired in January 2009.
In May 2009, we amended the NCIB to provide that we may, during
the twelve-month period commencing February 20, 2009 and
ending February 19, 2010, purchase on the TSX up to the lesser of
48 million of RCI’s 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 $1.5 billion.
2007
2007
200 8
2008
2009
2009
2007
2007
2008
2008
2009
2009
46
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In 20 09, we purchased an aggregate 43,776,20 0 Class B
Non-Voting shares for an aggregate purchase price of $1,347 million.
An aggregate 1,051,000 of these shares comprising $34 million of
the aggregate purchase price were purchased and recorded in
December 2009 but were settled in early January 2010. In addition,
10,280,000 of the shares were purchased by RCI pursuant to private
agreements between RCI and certain arm’s-length third party
sellers for an aggregate purchase price of $285 million. Each of these
purchases was made under an issuer bid exemption order issued
by the Ontario Securities Commission and is included in calculating
the number of Class B Non-Voting shares that RCI may purchase
pursuant to the NCIB. The NCIB expires on February 19, 2010.
$368 million due in 2013 and $1,156 million due in 2014. The required
principal repayments due in 2011 consist of $515 million (US$490
million) 9.625% Senior Notes, $460 million 7.625% Senior Notes and
$175 million 7.25% Senior Notes. The required principal repayments
due in 2012 consist of $494 million (US$470 million) 7.25% Senior
Notes and $368 million (US$350 million) 7.875% Senior Notes. The
required principal repayment due in 2013 is the $368 million (US$350
million) 6.25% Senior Notes, as well as the maturity of the bank credit
facility, which at December 31, 2009 is undrawn. The required
principal repayments due in 2014 consist of $368 million (US$350
million) 5.50% Senior Notes and $788 million (US$750 million)
6.375% Senior Notes.
On February 17, 2010, we announced that the Toronto Stock
Exchange has accepted a notice filed by RCI of our intention
to renew our NCIB for a further one-year period commencing
February 22, 2010 and ending February 21, 2011, and which during
such one-year period we may purchase on the TSX up to the lesser
of 43.6 million 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 $1.5 billion. The actual number of Class
B Non-Voting shares purchased under the NCIB and the timing
of such purchases will be determined by RCI considering market
conditions, stock prices, its cash position, and other factors.
Covenant Compliance
We are currently in compliance with all of the covenants under our
debt instruments, and we expect to remain in compliance with all
of these covenants during 2010. At December 31, 2009, there are no
financial leverage covenants in effect other than those pursuant
to our bank credit facility (see Note 14(b) to the 2009 Audited
Consolidated Financial Statements). Based on our most restrictive
leverage covenants, we would have had the capacity to issue up
to approximately $16.8 billion of additional long-term debt at
December 31, 2009, including the full amount of our existing $2.4
billion bank credit facility, excluding letters of credit of $47 million.
2010 Cash Requirements
On a consolidated basis, we anticipate that we will generate a
net cash surplus in 2010 from cash generated from operations.
We expect that we will have sufficient capital resources to satisfy
our cash funding requirements in 2010, including the funding of
dividends on our common shares, taking into account cash from
operations and the amount available under our $2.4 billion bank
credit facility. At December 31, 2009, there were no restrictions on
the flow of funds between subsidiary companies nor between RCI
and any of its subsidiaries.
In the event that we require additional funding, we believe that any
such funding requirements may be satisfied by issuing additional
debt financing, which may include the restructuring of our existing
bank credit facility or issuing public or private debt or issuing equity,
all depending on market conditions. In addition, we may refinance
a portion of existing debt subject to market conditions and other
factors. There is no assurance that this will or can be done.
Required Principal Repayments
At December 31, 2009, the required repayments on all long-term debt
in the next five years totals $3,537 million, comprised of $1 million
of capital leases due in 2010, $1,150 million principal repayments
due in 2011, $862 million principal repayments due in 2012,
Coincident with the maturity of our U.S. dollar-denominated long
term debt, certain of our Derivatives also mature.
Credit Ratings Upgrades
In May 2009, Moody’s Investors Service upgraded the rating for RCI’s
senior unsecured debt to Baa2 (from Baa3) and upgraded the rating
for RCI’s senior subordinated debt (redeemed in December 2009) to
Baa3 (from Ba1), each with a Stable outlook (from Positive). Also in
May 2009, Moody’s assigned its Baa2 rating to the 2016 Notes and
in October 2009 Moody’s assigned its Baa2 rating to the 2019 Notes
and to the 2039 Notes.
In May 2009, Standard & Poor’s Ratings Services upgraded each
of the following: the long term corporate credit rating for RCI to
BBB (from BBB-); the rating for RCI’s senior unsecured debt to BBB
(from BBB-); and the rating for RCI’s senior subordinated debt to
BBB- (from BB+). All of these ratings have a stable outlook. Also
in May 2009, Standard & Poor’s assigned its BBB rating to the 2016
Notes and in October 2009 Moody’s assigned its BBB rating to the
2019 Notes and to the 2039 Notes and affirmed each of the ratings
noted above.
In May 2009, Fitch Ratings affirmed each of the following: the issuer
default rating for RCI at BBB; the rating for RCI’s senior unsecured
debt at BBB; and the rating for RCI’s senior subordinated debt at
BBB-, each with a Stable outlook. Also in May 2009, Fitch assigned
its BBB rating to the 2016 Notes and in October 2009 Fitch assigned
its BBB rating to the 2019 Notes and to the 2039 Notes.
Credit ratings are intended
to provide investors with an
independent measure of credit
quality of an issue of securities.
Ratings for debt instruments
range along a scale from AAA,
in the case of Standard & Poor’s
and Fitch, or Aaa in the case of
Moody’s, which represent the
highest quality of securities
rated, to D, in the case of
Standard & Poor’s, C, in the
case of Moody’s and Substantial
Risk in the case of Fitch, which
represent the lowest quality of
securities rated. The credit ratings
accorded by the rating agencies
are not recommendations to
purchase, hold or sell the rated
RATIO OF ADJUSTED
OPERATING PROFIT TO INTEREST
6.4x
7.1x
6.8x
2007
2007
2008
2008
2009
2009
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
47
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
securities inasmuch as such ratings do not comment as to market
price or suitability for a particular investor. There is no assurance
that any rating will remain in effect for any given period of time,
or that any rating will not be revised or withdrawn entirely by a
rating agency in the future if in its judgment circumstances so
warrant. The ratings on RCI’s senior debt of BBB from Standard &
Poor’s and Fitch and of Baa2 from Moody’s represent investment
grade ratings.
Deficiency of Pension Plan Assets Over Accrued Obligations
In 2009, we made a lump-sum contribution of $61 million to our
pension plans, following which the pension plans purchased $172
million of annuities from insurance companies for employees
in the pension plans who had retired as of January 1, 2009. The
purchase of the annuities relieves us of primary responsibility for,
and eliminates significant risk associated with, the accrued benefit
obligation for the retired employees. The non-cash settlement loss
arising from this settlement of pension obligations was $30 million
and was recorded in 2009.
As disclosed in Note 17 to our 2009 Audited Consolidated Financial
Statements, our pension plans had a deficiency of plan assets over
accrued obligations of $8 million and $66 million at December 31,
2009, and December 31, 2008, respectively, related to funded plans,
and a deficiency of $31 million and $27 million at December 31, 2009
and December 31, 2008, respectively, related to unfunded plans.
Our pension plans had a deficiency on a solvency basis at December
31, 2008, and is anticipated to have a deficiency on a solvency basis
at December 31, 2009. Consequently, in addition to our regular
contributions, we are making certain minimum monthly special
payments to eliminate the solvency deficiency. In 2009, the special
payment totalled approximately $34 million. Our total estimated
annual funding requirements, which include both our regular
contributions and these special payments, are expected to decrease
from $120 million in 2009 (which included the $61 million lump
sum contribution discussed above) to $56 million in 2010, subject
to annual adjustments thereafter, due to various market factors
and the assumption that our staffing levels will remain relatively
stable year-over-year. We are contributing to the plans on this basis.
As further discussed in the section of this MD&A entitled “Critical
Accounting Estimates”, changes in factors such as the discount rate,
the rate of compensation increase and the expected return on
plan assets can impact the accrued benefit obligation, pension
expense and the deficiency of plan assets over accrued obligations
in the future.
INTEREST R ATE AND F OREIGN Ex CHANGE M ANAGEMENT
Economic Hedge Analysis
For the purposes of our discussion on the hedged portion of long-
term debt, we have used non-GAAP measures in that we include all
Derivatives, whether or not they qualify as hedges for accounting
purposes, since all such Derivatives are used for risk management
purposes only and are designated as a hedge of specific debt
instruments for economic purposes. As a result, the Canadian dollar
equivalent of U.S. dollar-denominated long-term debt reflects
the contracted foreign exchange rate for all of our Derivatives
regardless of qualifications for accounting purposes as a hedge.
On December 15, 2009, we redeemed the entire outstanding
principal amount of our US$400 million 8.00% Senior Subordinated
Notes due 2012, which were not hedged on an economic basis nor
on an accounting basis. As a result of the redemption of these
unhedged Senior Subordinated Notes due 2012, on December 31,
2009, 100% of our U.S. dollar-denominated debt was hedged on an
economic basis while 94% of our U.S. dollar-denominated debt was
hedged on an accounting basis. The Derivatives hedging our US$350
million 7.50% Senior Notes due 2038 do not qualify as hedges for
accounting purposes.
Consolidated Hedged Position
Years ended December 31,
(In millions of dollars, except percentages)
U.S. dollar-denominated long-term debt
Hedged with Derivatives
Hedged exchange rate
Percent hedged
Amount of long-term debt(2) at fixed rates:
Total long-term debt
Total long-term debt at fixed rates
Percent of long-term debt fixed
Weighted average interest rate on long-term debt
D ecemb er 31, 2009
D ecember 31, 2008
US $
US $
Cdn $
Cdn $
5,540
5,540
1.2043
100.0%(1)
9,307
9,307
100.0%
7.27%
US $
US $
Cdn $
Cdn $
5,940
5,540
1.2043
93.3%
8,383
7,798
93.0%
7.29%
(1) Pursuant to the requirements for hedge accounting under Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3865, Hedges, on December 31, 2009, RCI accounted for 93.5% of its
Derivatives as hedges against designated U.S. dollar denominated debt. As a result, 93.7% of our U.S. dollar-denominated debt is hedged for accounting purposes versus 100% on an economic basis.
(2) Long-term debt includes the effect of the Derivatives.
48
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIXED VERSUS FLOATING DEBT COMPOSITION
(% at December 31)
2007
Fixed 83% Floating 17%
2008
Fixed 93% Floating 7%
2009
Fixed 100% Floating 0%
Fair Value of Derivatives
In accordance with Canadian GAAP, we have recorded our
Derivatives using 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 bond spread (“Bond Spread”) for
the relevant term and counterparty for each derivative. In the case of
Derivatives accounted for as assets by Rogers (i.e. those Derivatives
for which the counterparties owe Rogers), the Bond Spread for
the bank counterparty was added to the risk-free discount rate to
determine the estimated credit-adjusted value whereas, in the case
of Derivatives accounted for as liabilities (i.e. those Derivatives for
which Rogers owes the counterparties), Rogers’ Bond Spread was
added to the risk-free discount rate. The estimated credit-adjusted
values of the Derivatives are subject to changes in credit spreads of
Rogers and its counterparties.
The effect of estimating the credit-adjusted fair value of
Derivatives at December 31, 2009, versus the unadjusted risk-free
mark-to-market value of Derivatives is illustrated in the table below.
As at December 31, 2009, the credit-adjusted estimated net liability
value of Rogers’ Derivatives portfolio was $1,002 million, which
is $25 million less than the unadjusted risk-free mark-to-market
net liability value.
(In millions of dollars)
Mark-to-market value - risk-free analysis
Mark-to-market value - credit-adjusted estimate (carrying value)
Difference
Derivatives in an
asset position (A)
Derivatives in a
liability position (B)
Net liability
position (A + B)
$
$
$
94
82
(12)
$
$
$
(1,121)
(1,084)
37
$
$
$
(1,027)
(1,002)
25
Long-Term Debt Plus Net Derivative Liabilities
The aggregate of our long-term debt plus net derivative liabilities
at the mark-to-market values using risk-free analysis (“the risk-free
analytical value”) is used by us and many analysts to most closely
represent the Company’s net debt-related obligations for valuation
purposes, and is calculated as follows:
(In millions of dollars)
Long-term debt(1)
Net derivative liabilities at the
risk-free analytical value(1)
Total
(1) Includes current and long-term portions.
D ecemb er 31, 2009
D ecember 31, 2008
$
$
$
8,464
1,027
9,491
$
$
$
8,507
144
8,651
We believe that the non-GAAP financial measure of long-term
debt plus net derivative liabilities (assets) at the risk-free analytical
value provides the most relevant and practical measure of our
outstanding net debt-related obligations. We use this non-GAAP
measure internally to conduct valuation-related analysis and make
capital structure related decisions and it is reviewed regularly by
management. It is also useful to investors and analysts in enabling
them to analyze the enterprise and equity value of the Company
and to assess various leverage ratios as performance measures. This
non-GAAP measure does not have a standardized meaning and
should be viewed as a supplement to, and not a substitute for, our
results of operations or financial position reported under Canadian
and U.S. GAAP.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
49
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OUTSTANDING C OMMON S HARE D ATA
Set forth below is RCI’s outstanding common share data
as at December 31, 2009 and at December 31, 2008. For additional
information, refer to Note 18 to our 2009 Audited Consolidated
Financial Statements.
Common Shares(1)
Class A Voting
Class B Non-Voting(2)
Total Common Shares
Options to purchase Class B Non-Voting shares
Outstanding options
Outstanding options exercisable
D ecemb er 31, 2009
D ecember 31, 2008
112,462,014
479,948,041
592,410,055
13,467,096
8,149,361
112,462,014
523,429,539
635,891,553
13,841,620
9,228,740
(1) Holders of RCI’s Class B Non-Voting shares are entitled to receive notice of and to attend meetings of our shareholders, but, except as required by law or as stipulated by stock exchanges, are not
entitled to vote at such meetings. If an offer is made to purchase outstanding Class A Voting shares, there is no requirement under applicable law or RCI’s constating documents that an offer be made
for the outstanding Class B Non-Voting shares and there is no other protection available to shareholders under RCI’s constating documents. If an offer is made to purchase both Class A Voting shares
and Class B Non-Voting shares, the offer for the Class A Voting shares may be made on different terms than the offer to the holders of Class B Non-Voting shares.
(2) The outstanding Class B Non-Voting shares as at December 31, 2009 reflects the cancellation of an aggregate 1,051,000 shares purchased pursuant to the NCIB during the three months ended December
31, 2009 but which settled in early January 2010.
DIVIDENDS ON RCI E QUIT Y S ECURITIES
Our dividend policy is reviewed periodically by the RCI Board of
Directors (“the Board”). The declaration and payment of dividends
are at the sole discretion of the Board and depend on, among other
things, our financial condition, general business conditions, legal
restrictions regarding the payment of dividends by us, some of
which are referred to below, and other factors that the Board may
at any point consider to be relevant. As a holding company with no
direct operations, we rely on cash dividends and other payments
from our subsidiaries and our own cash balances and debt to
pay dividends to our shareholders. The ability of our subsidiaries
to pay such amounts to us is subject to the various risks as outlined
in this MD&A.
We declared and paid dividends on each of our outstanding Class A
Voting and Class B Non-Voting shares, as follows:
Declaration date
February 15, 2007
May 28, 2007
July 31, 2007
November 1, 2007
February 21, 2008
April 29, 2008
August 19, 2008
October 28, 2008
February 17, 2009
April 29, 2009
August 20, 2009
October 27, 2009
Record date
March 15, 2007
June 14, 2007
September 13, 2007
December 12, 2007
March 6, 2008
May 13, 2008
September 3, 2008
November 25, 2008
March 6, 2009
May 15, 2009
September 9, 2009
November 20, 2009
Payment date
April 2, 2007
July 3, 2007
October 1, 2007
January 2, 2008
April 1, 2008
July 2, 2008
October 1, 2008
January 2, 2009
April 1, 2009
July 2, 2009
October 1, 2009
January 2, 2010
Dividend
per share
0.040
0.125
0.125
0.125
0.25
0.25
0.25
0.25
0.29
0.29
0.29
0.29
$
$
$
$
$
$
$
$
$
$
$
$
Dividends paid
(In millions)
$
$
$
$
$
$
$
$
$
$
$
$
26
80
80
80
160
160
159
159
184
184
177
175
50
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
ADDITIONS TO
CONSOLIDATED PP&E
(In millions of dollars)
$1,712
$1,796
$2,021
2006
2007
2008
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANNUALIZED DIVIDENDS
PER SHARE AT YEAR END
($)
$0.50
$1.00
$1.16
CASH RETURNED TO SHAREHOLDERS
(In millions of dollars)
In February 2010, the Board
adopted a dividend policy
which increased the annual
dividend rate from $1.16 to $1.28
per Class A Voting and Class
B Non-Voting share effective
immediately to be paid in
quarterly amounts of $0.32 per
share. Such quarterly dividends
are only payable as and when
declared by our Board and
there is no entitlement to any
dividend prior thereto.
In addition, on February 17,
2010, the Board declared a
quarterly dividend totalling
$0.32 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, 2010, to shareholders of record on March 5, 2010, and is the first
quarterly dividend to reflect the newly increased $1.28 per share
annual dividend level.
2008
2008
2009
2009
2007
2007
$2,114
Share buybacks: $1,347
Dividends: $704
Stock option buybacks: $63
2009
In May 2007, the Board approved an increase in the annual
dividend from $0.16 to $0.50 per share effective with the next
quarterly dividend.
In February 2009, the Board adopted a dividend policy which
increased the annual dividend rate from $1.00 to $1.16 per Class
A Voting and Class B Non-Voting share effective with the next
quarterly dividend.
COMMITMENTS AND O THER C ONTR AC TUAL O BLIGATIONS
Contractual Obligations
Our material obligations under firm contractual arrangements are
summarized below at December 31, 2009. See also Notes 14, 15 and
23 to the 2009 Audited Consolidated Financial Statements.
In January 2008, the Board approved an increase in the annual
dividend from $0.50 to $1.00 per Class A Voting and Class B
Non-Voting share effective with the next quarterly dividend.
Material Obligations Under Firm Contractual Arrangements
(In millions of dollars)
Long-term debt(1)
Derivative instruments(2)
Capital leases and other
Operating leases
Player contracts
Purchase obligations(3)
Pension obligation(4)
Other long-term liabilities
Total
Less Than 1 Year
–
–
1
156
91
603
55
–
906
1-3 Years
2,012
503
–
225
62
763
–
71
4-5 Years
After 5 Years
1,524
282
–
143
54
380
–
20
4,922
69
–
78
11
308
–
42
3,636
2,403
5,430
Total
8,458
854
1
602
218
2,054
55
133
12,375
(1) Amounts reflect principal obligations due at maturity.
(2) Amounts reflect net disbursements due at maturity.
(3) Purchase obligations consist of agreements to purchase goods and services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be
purchased, price provisions and timing of the transaction. In addition, we incur expenditures for other items that are volume-dependent.
(4) Represents expected contributions to our pension plans in 2010. Contributions for the year ended December 31, 2011 and beyond cannot be reasonably estimated as they will depend on future economic
conditions and may be impacted by future government legislation.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
51
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OFF-BAL ANCE S HEET A RR ANGEMENTS
Guarantees
As a regular part of our business, we enter into agreements that
provide for indemnification and guarantees to counterparties
in transactions involving business sale and business combination
agreements, sales of services and purchases and development of
assets. Due to the nature of these indemnifications, we are unable
to make a reasonable estimate of the maximum potential amount
we could be required to pay counterparties. Historically, we have
not made any significant payment under these indemnifications or
guarantees. Refer to Note 15(e)(ii) to the 2009 Audited Consolidated
Financial Statements.
Derivative Instruments
As previously discussed, we use derivative instruments to manage
our exposure to interest rate and foreign currency risks. We do not
use derivative instruments for speculative purposes.
Operating Leases
We have entered into operating leases for the rental of premises,
distribution facilities, equipment and microwave towers and other
contracts. The effect of terminating any one lease agreement would
not have an adverse effect on us as a whole. Refer to “Contractual
Obligations” above and Note 23 to the 2009 Audited Consolidated
Financial Statements.
4. OPERATING ENVIRONMENT
Additional discussion of regulator y mat ters and recent
developments specific to the Wireless, Cable and Media segments
follows.
GOVERNMENT REGUL ATION AND REGUL ATORY
DEVELOPMENTS
Substantially all of our business activities, except for Cable’s Rogers
Retail segment and the non-broadcasting operations of Media,
are subject to regulation by one or more of: the Canadian Federal
Department of Industry, on behalf of the Minister of Industry
(Canada) (collectively, “Industry Canada”), the CRTC under the
Telecommunications Act (Canada) (the “Telecommunications
Act”) and the CRTC under the Broadcasting Act (Canada)
(the “Broadcasting Act”), and, accordingly, our results of operations
are affected by changes in regulations and by the decisions
of these regulators.
Canadian Radio -Television and Telecommunications
Commission
Canadian broadcasting operations, including our cable television
systems, radio and television stations, and specialty services
are licenced (or operated pursuant to an exemption order) and
regulated by the CRTC pursuant to the Broadcasting Act. Under
the Broadcasting Act, the CRTC is responsible for regulating and
supervising all aspects of the Canadian broadcasting system with
a view to implementing certain broadcasting policy objectives
enunciated in that Act.
The CRTC is also responsible under the Telecommunications Act
for the regulation of telecommunications carriers, which
includes the regulation of Wireless’ mobile voice and data
operations and Cable’s Internet and telephone services. Under
the Telecommunications Act, the CRTC has the power to forbear
from regulating certain services or classes of services provided by
individual carriers. If the CRTC finds that a service or class of services
provided by a carrier is subject to a degree of competition that is
sufficient to protect the interests of users, the CRTC is required
to forbear from regulating those services unless such an order
would be likely to unduly impair the establishment or continuance
of a competitive market for those services. All of our Cable and
telecommunications retail services have been deregulated and
are not subject to price regulation. However, regulations can
and do affect the terms and conditions under which we offer
these services. Accordingly, any change in policy, regulations or
interpretations could have a material adverse effect on Cable’s
operations and financial condition and operating results.
Copyright Board of Canada
The Copyright Board of Canada (“Copyright Board”) is a regulatory
body established pursuant to the Copyright Act (Canada) (the
“Copyright Act”) to oversee the collective administration of
copyright royalties in Canada and to establish the royalties payable
for the use of certain copyrighted works. The Copyright Board is
responsible for the review, consideration and approval of copyright
tariff royalties payable to copyright collectives by Canadian
broadcasting undertakings, including cable, radio, television and
specialty services.
Industry Canada
The technical aspects of the operation of radio and television
stations, the frequency-related operations of the cable television
networks and the awarding and regulatory supervision of spectrum
for cellular, messaging and other radio-telecommunications
systems in Canada are subject to the licencing requirements and
oversight of Industry Canada. Industry Canada may set technical
standards for telecommunications under the Radiocommunication
Ac t (Canada) (the “Radiocommunication Ac t”) and the
Telecommunications Act.
Restrictions on Non- Canadian Ownership and Control
Non-Canadians are permitted to own and control directly or
indirectly up to 33.3% of the voting shares and 33.3% of the votes
of a holding company that has a subsidiary operating company
licenced under the Broadcasting Act. In addition, up to 20% of
the voting shares and 20% of the votes of the operating licencee
company may be owned and controlled directly or indirectly
by non-Canadians. The chief executive officer and 80% of the
members of the Board of Directors of the operating licencee must
be resident Canadians. There are no restrictions on the number of
non-voting shares that may be held by non-Canadians at either the
holding-company or licencee-company level. Neither the Canadian
carrier nor its parent may be otherwise controlled in fact by non-
Canadians. Subject to appeal to the federal Cabinet, the CRTC has
the jurisdiction to determine as a question of fact whether a given
licencee is controlled by non-Canadians.
52
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pursuant to the Telecommunications Act and associated regulations,
the same rules apply to Canadian carriers such as Wireless, except
that there is no requirement that the chief executive officer be
a resident Canadian. The same restrictions are contained in the
Radiocommunication Act and associated regulations.
In July 2007, the federal government appointed the Competition
Policy Review Panel. Among other things, this panel examined
foreign ownership rules in Canada’s communications sector and in
June 2008 issued its report. While this panel and its report have
no force of law, the report recommended that non-Canadians be
permitted to start new telecommunications carriers in Canada and to
purchase existing carriers which have less than 10% of the Canadian
telecommunications market. The report further recommends that
after five years, following a review of broadcasting and cultural
policies including foreign investment, telecommunications and
broadcasting foreign ownership restrictions should be liberalized in
a manner that is competitively neutral for telecommunications and
broadcasting companies. There is no certainty of implementation.
Similar recommendations have been made as a result of previous
studies over the past several years which did not result in any
changes by government.
Policy Direction to the CRTC on Telecommunications
In December 2006, the Minister of Industry issued a Policy Direction
on Telecommunications to the CRTC under the Telecommunications
Act. The Direction instructs the CRTC to rely on market forces to the
maximum extent feasible under the Telecommunications Act and
regulate, if needed, in a manner that interferes with market forces
to the minimum extent necessary.
Proposed Legislation
The House of Commons was prorogued on December 30, 2009 which
means all Government legislation currently on the Order Paper
dies. It does not impact Private Members Bills. However, as was the
case in the last two prorogations, it is possible to return legislation
to the Commons at the stage at which it was last debated with all
party consent. The House of Commons is scheduled to re-open on
March 3, 2010.
Prior to prorogation, Bill C-27, An Act to promote the efficiency
and adaptability of the Canadian economy by regulating certain
activities that discourage reliance on electronic means of carrying out
commercial activities, and to amend the Canadian Radio-television
and Telecommunications Commission Act, the Competition Act,
the Personal Information Protection and Electronic Documents Act
and the Telecommunications Act (Anti-Spam Act), passed second
reading in the Senate and was referred to the Senate Standing
Committee on Transportation and Communications.
This Bill prohibits the sending of commercial electronic messages
without the prior consent of the recipient and provides rules
governing the sending of those types of messages, including a
mechanism for the withdrawal of consent. It also prohibits other
practices relating to the alteration of data transmissions and the
unauthorized installation of computer programs. In addition,
that Act provides for the imposition of administrative monetary
penalties by the CRTC, after taking into account specified factors.
It also provides for a private right of action that enables a person
affected by an act or omission that constitutes a contravention
under that Act to obtain an amount equal to the actual amount of
the loss or damage suffered, or expenses incurred, and statutory
damages for the contravention.
Bill C-46, An Act to amend the Criminal Code, the Competition
Act and the Mutual Legal Assistance in Criminal Matters Act
(Investigative Powers for the 21st Century Act), passed second
reading and had been referred to the House of Commons Standing
Committee on Public Safety and National Security.
This Bill amends the Criminal Code to add new investigative powers
in relation to computer crime and the use of new technologies
in the commission of crimes. It provides, among other things,
the power to make preservation demands/orders to compel the
preservation of electronic evidence; new production orders to
compel the production of data relating to the transmission of
communications and the location of transactions, individuals or
things; a warrant to obtain transmission data that will extend to
all means of telecommunication the investigative powers that
are currently restricted to data associated with telephones; and
warrants that will enable the tracking of transactions, individuals
and things and that are subject to legal thresholds appropriate to
the interests at stake.
It also amends offences in the Criminal Code relating to hate
propaganda and its communication over the Internet, false
information, indecent communications, harassing communications,
devices used to obtain telecommunication services without
payment and devices used to obtain the unauthorized use of
computer systems or to commit mischief. It also creates an offence
of agreeing or arranging with another person by a means of
telecommunication to commit a sexual offence against a child.
A private members bill, Bill C-555, An Act to Provide Clarity and
Fairness in the Provision of Telecommunications Services in Canada,
was re-introduced in the House of Commons on October 29, 2009.
If passed, the bill would require the Minister of Industry to amend
the licence conditions of PCS and cellular spectrum licences to
prohibit carriers from charging additional fees or charges that are
not part of the subscriber’s monthly fee or monthly rate plan. The
bill would also require the CRTC to inquire into, and make a report
on, a wide range of issues including billing, cell phone locking,
information regarding network speeds and limitations, network
management practices and the Commissioner for Complaints for
Telecommunications Services.
Amendments to the Quebec Consumer Protection Act were
passed in December 2009 to introduce new provisions applicable
to sequential performance contracts provided at a distance,
including wireless, wireline and Internet service contracts. These
amendments include new rules on the content of such contracts, the
determination of the early cancellation fees that can be charged to
customers, the use of security deposits and on the cancellation and
renewal rights of the consumers. The amendments also introduce
new provisions on the sale of prepaid cards and the disclosure of the
costs of the services and products they advertise. The Amendments
will come into force no later than June 30, 2010.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
WIRELESS REGUL ATION AND REGUL ATORY DEVELOPMENTS
Consultation on the Renewal of Cellular and Personal
Communications Services (“PCS” ) Spectrum Licences
In March 2009, Industry Canada initiated a public consultation to
discuss the renewal of cellular and PCS licences that were granted
through any competitive process. Most of Rogers’ cellular licences
expire on March 31, 2011 with the PCS auction licences expiring June
2011. The decisions made as a result of this consultation will apply
to cellular and PCS licences granted by any competitive process,
including auctions. Industry Canada received extensive comments
on its proposal to renew licences and the licence conditions that
would apply to new and renewed cellular and PCS licences, including
issues such as licence terms, renewals, extent of deployment and
research and development. No policy has been released to date,
although a decision is expected before the end of 2010.
Industry Canada also announced in March 2009 that it would
undertake a formal study to assess the current market value of the
above noted spectrum licences with a separate consultation seeking
comments on a proposed fee. This consultation is expected to
begin in the first quarter of 2010. This review excludes the spectrum
recently acquired through the AWS auction.
In addition, Industry Canada in response to a further consultation
initiated in April 2009 received comments on auction processes
going forward. There is considerable overlap with the renewal
consultation concerning issues such as research and development
and licence terms. Again, no policy has been released to date.
Consultation on Transition to Broadband Radio Service (“BRS” )
in the Band 250 0 -2696 MHz
In March 2009, Industry Canada announced a new consultation
process to address issues related to the transition to BRS licencing
in this band and the establishment of a firm transition date to allow
for nation-wide implementation of a new band plan and mobile
services. Industry Canada also announced that it will conduct
a stakeholder proposal development process with existing licencees
to identify band plan proposals that will be the subject of a future
consultation. The future consultation will also consider the policy
and licencing frameworks for the auction of available spectrum
in this band.
Advanced Wireless Services (“AWS” ) Auction, Roaming and
Tower/Site Policy
In November 2007, Industry Canada released its policy framework
for the AWS auction in a document entitled Policy Framework for
the Auction for Spectrum Licences for Advanced Wireless Services
and other Spectrum in the 2 GHz Range. Of the 90 MHz of available
AWS spectrum, 40 MHz were set aside for new entrants.
The policy further prescribed that all carriers are allowed to
roam on the networks of other carriers outside of their licenced
territories at commercial rates. New entrants are able to roam at
commercial rates on the networks of incumbent carriers for five
years within their licenced territories and for 10 years nationally.
National new entrant licencees will be entitled to five years of
roaming and a further five years if they comply with specified
rollout requirements. Roaming privileges enable new entrants
to potentially enter the market on a broader geographic scale
more quickly.
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ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
New entrants are defined as carriers with less than 10% of Canada’s
wireless revenue. Roaming is to be provided at commercial rates.
In the event that the parties cannot agree, the rates and other
terms will be settled by an arbitrator. Industry Canada expects that
roaming will be offered at commercial rates that are reasonably
comparable to rates that are currently charged to others for similar
services. Industry Canada also mandated antenna tower and site
sharing for all holders of spectrum licences, radio licences and
broadcasting certificates. All of these entities must share towers
and antenna sites where technically feasible at commercial rates.
Where parties cannot agree on terms, the terms will be set by
arbitration. It is expected that site-sharing arrangements would
be offered at commercial rates that are reasonably comparable to
rates currently charged to others for similar access.
In February 2008, Industry Canada issued Responses to Questions
for Clarification on the AWS Policy and Licencing Frameworks,
which answered questions about the AWS spectrum auction and
about tower sharing and roaming obligations of licencees. This was
followed in February 2008 by revised conditions of licence which
imposed those obligations on wireless carriers. The documents
clarified that roaming must provide connectivity for digital voice
and data services regardless of the spectrum band or underlying
technology used. The policy does not require a host network
carrier to provide a roamer with a service which that carrier does
not provide to its own subscribers, nor to provide a roamer with
a service, or level of service, which the roamer’s network carrier
does not provide. The policy also does not require seamless
communications hand-off between home and host networks.
The Auction commenced on May 27, 2008 and concluded on July
21, 2008. Rogers was the only party to successfully obtain 20 MHz
of AWS spectrum nationally and received its licences on December
22, 2008. Significant quantities of spectrum were acquired by
existing wireless companies, Bell Canada, TELUS, MTS Allstream
and SaskTel and by entrants, Bragg Communications Inc., DAVE
Wireless Inc., Globalive Wireless Management Corp., Public Mobile
Inc., Quebecor Media Inc. and Shaw Communications Inc. See also
the section entitled “Wireless Competition”.
Inukshuk Joint Venture
In March 2006, Industry Canada approved the transfer of Wireless’
Inukshuk licence to Inukshuk Wireless Partnership, a Rogers-Bell
joint venture. New licence terms were also issued. These licence
terms required Inukshuk to return spectrum that it is not using as
of December 31, 2009. At the same time as the licence was issued,
Industry Canada issued their new policy on the 2.5 GHz spectrum
used by Inukshuk. The policy confirmed that the spectrum was
currently only to be used for fixed services (which, in Canada,
includes portable services). Companies that wished to have a
mobile licence for this spectrum would be required to apply for a
mobile licence and required to return one-third of the spectrum
to the government. The returned spectrum would be auctioned.
There was no assurance that Wireless or any other incumbent
licencee would be allowed to purchase the spectrum at an auction.
In August 2009, Rogers received a mobile licence for this spectrum
from Industry Canada and returned one-third of the spectrum. The
previous licence term that required Inukshuk to return spectrum
not being used as of December 31, 2009 was eliminated. See also
“Consultation on Transition to Broadband Radio Service (“BRS”) in
the Band 2500-2696 MHz” above.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wireless Enhanced E9 -1-1 Service
In February 2009, the CRTC released Telecom Regulatory Policy CRTC
2009-40 issuing a directive to the wireless industry to complete
the deployment of wireless Phase II enhanced E9-1-1 service in
Canada by February 2010. Phase II allows wireless carriers to send
more accurate location information with each 9-1-1 call. We have
rolled out the necessary technologies to meet this requirement and
have met the CRTC deadline in those areas where the Public Safety
Answering Points (“PSAP”) are ready and equipped to receive the
location-based information. Wireless service providers must inform
their customers of the availability, characteristics and limitations
of their enhanced 9-1-1 services before they are implemented, and
reiterate them on an annual basis thereafter. Rogers provided this
information on customer bills in the fall of 2009.
Basic Telecommunications Services and
Other Matters Proceeding
In January 2010 in Telecom Notice of Consultation CRTC 2010-
43, the Commission initiated a proceeding to re-examine the
appropriateness of the existing forbearance framework for
mobile wireless data services. The proceeding will include a public
consultation, which will begin on October 25, 2010. See also “Basic
Telecommunications Services and Other Matters Proceeding” under
“Cable Regulation and Regulatory Developments” below.
C ABLE REGUL ATION AND REGUL ATORY DEVELOPMENTS
Part II Fees
The CRTC collects two different types of fees from broadcast
licencees, including Cable and Media, which are known as Part I
and Part II fees. In 2003 and 2004, lawsuits were commenced in the
Federal Court alleging that the Part II licence fees are taxes rather
than fees and that the regulations authorizing them are unlawful.
On December 14, 2006, the Federal Court ruled that the CRTC did
not have the jurisdiction to charge Part II fees. On October 15, 2007,
the CRTC sent a letter to all broadcast licencees stating that the
CRTC would not collect Part II fees due in November, 2007. Both
the Crown and the applicants appealed this case to the Federal
Court of Appeal. On April 28, 2008, the Federal Court of Appeal
overturned the Federal Court and ruled that Part II fees are valid
regulatory charges. Leave to appeal the April 28, 2008 Federal
Court of Appeal decision was granted by the Supreme Court on
December 18, 2008. On October 7, 2009, the Minister of Canadian
Heritage and Official Languages, announced that a settlement had
been reached between the Government of Canada and members
of the broadcasting industry. Under the terms of the settlement,
the government agreed to forgive the amounts otherwise owing to
it from the industry under the Part II fee regime in November 2007,
2008 and 2009. The industry had been accruing for these amounts
but had not yet paid them given the CRTC’s October 15, 2007 letter
to all broadcast licencees stating it would not collect these fees
until there was a final decision in the Part II fee litigation. Industry-
wide, this amounts to approximately $450 million. In exchange,
the Canadian Association of Broadcasters agreed to discontinue
its court action against the Government of Canada. On a going
forward basis, the Government of Canada agreed to recommend
to the CRTC that it amend the Part II fee regulation in order to
cap the annual fee at $100 million per year (with indexed
CPI increases annually) commencing in November 2010. Each
broadcasting licencee will pay its share of the capped fee based on
its percentage of revenue share across all broadcasting licencees.
In December 2009, the CRTC initiated the required process to
amend the regulation to act according to the Government’s
recommendation in a timely manner (Broadcasting Notice of
Consultation 2009-797).
As a result, during the fourth quarter of 2009, Cable and Media
recorded recoveries in operating, general and administrative
expenses of approximately $60 million and $19 million, respectively,
for CRTC Part II fees covering periods from September 1, 2006 to
August 31, 2009. For the year ended December 31, 2009, Cable and
Media recorded recoveries in operating, general and administrative
expenses of approximately $46 million and $15 million, respectively,
for the reversal of Part II fees for the period from September 1,
2006 to December 31, 2008. The remaining $18 million was related
to the period from January 1, 2009 to August 31, 2009, and has been
recorded as a credit within adjusted operating profit. We continue
to record these fees at a new rate equal to approximately two-
thirds the old rate on a prospective basis in operating, general and
administrative expenses.
New Media Proceeding
In June 2009, the CRTC released its decision on its new media
proceeding. It decided to maintain the New Media Exemption
Order which exempts all broadcasting content on the Internet from
regulation thereby continuing to exempt new media broadcasting
undertakings from licencing. However, the CRTC ordered new
media broadcasting undertakings (primarily websites tied to linear
broadcast channels) to file annual reports on their revenues and
expenses for the purpose of monitoring the growth of this activity.
The CRTC also rejected the notion of a tax on ISP revenues to fund
Canadian ‘webisodes’. Based on conflicting legal opinions filed
in the proceeding, the decision determined that the CRTC would
refer to the Federal Court the question of whether an ISP, when
it distributes broadcasting, is subject to the Broadcasting Act.
The referral to the Court has been made and a decision is expected
in 2010.
Review of Broadcasting Regulations including Fee -for- Carriage
and Distant Signal Fees
In October 2008, the CRTC released its Decision on the Review of
Broadcasting Regulations proceeding initiated by Broadcasting
Notice of Public Hearing 2007-10. The CRTC issued new policy
frameworks for cable and satellite companies and pay and specialty
services aimed at streamlining existing packaging rules and
relaxing genre protection rules for news and sports services. Most
of its proposed changes do not take effect until August 31, 2011.
The CRTC again rejected fee-for-carriage for local broadcasters.
However, it decided to levy a new 1% tax on cable and DTH revenues
(starting in September 2009) to fund local TV programming, the
Local Programming Improvement Fund (“LPIF”). It will also allow
broadcasters to negotiate payments with cable and satellite
companies for carriage of distant signals. It also announced further
proceedings regarding advertising on local commercial availabilities
and VOD.
In a follow-up proceeding in late April, 2009, the CRTC held a hearing
to consider whether private Canadian OTA Broadcasters (CTV,
Global, Citytv and OMNI) should be relieved of any of their local or
priority programming obligations over the 2009/10 broadcast year.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
55
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
It also considered whether it should impose a one-on-one spending
ratio on Canadian versus U.S. programming and whether it should
increase the Broadcasting Distribution Undertaking (“BDU”)
contribution to the LPIF from the already-decided 1% level,
effective September 2009.
In a May 15, 2009 decision, the CRTC renewed Media’s Citytv licences
for one year (expiring August 31, 2010) and Media’s OMNI TV’s
licences for six years (expiring August 31, 2015), the latter of which
was requested by Rogers Media. It rejected applying a spending
ratio on Canadian versus U.S. programming for the 2009 and 2010
broadcast year.
In a July 6, 2009 decision on the other matters in the proceeding, the
CRTC further decided to raise the LPIF contribution to 1.5% from 1%
for the 2009 and 2010 broadcast year. The Commission also reversed
its position on fee-for-carriage stating that it was “now of the view
that a negotiated solution for compensation for the free market
value of local conventional television signals is also appropriate”
and announced a new proceeding with an oral hearing in the
fall of 2009. The Commission noted that in the new proceeding
it would consider imposing a requirement on BDUs to negotiate
Fee-for-Carriage (“FFC”) with the broadcasters using arbitration
for settlement if a fee could not be successfully negotiated. The
proceeding would consider tying a BDU’s continued carriage of the
U.S. network signals (CBS, NBC, Fox, ABC and PBS) to a successfully
negotiated fee. The proceeding would also establish the framework
for a group-based licence renewal proceeding in 2010 which will
consider group-based expenditures and exhibition requirements
for Canadian content and the digital transition.
On August 11, 2009, the Commission rescheduled the Oral
Hearing from September 29 to November 16, 2009. Where the
Commission had stated in its July 6, 2009 notice that it is of the
view that compensation for local conventional television signals is
appropriate, in the August 11, 2009 notice, the Commission stated
that “the Commission will proceed with an examination de novo of
the question of whether or not the Commission should put in place
a regime for the establishment of fair value for local conventional
television signals”. On September 17, 2009, the Government
of Canada issued an Order-in-Council through the Minister of
Canadian Heritage and Official Languages requesting the CRTC
to hold hearings and provide the government with “a report on
the implications of implementing a compensation regime for
the value of local television signals, more commonly known as
fee-for-carriage.” In response to this order, the Commission
scheduled another public process with an Oral Hearing commencing
December 7, 2009, to seek wide input on a number of items
identified in the Order-in-Council relevant to FFC. The two oral
hearings were completed and the report to the government and
any decisions on these matters is expected before the end of the
first quarter of 2010.
Copyright Legislation
The federal government introduced amendments to the Canadian
copyright legislation in the House of Commons in June 2008. The
Bill would have required Internet service providers (“ISPs”) to use a
“notice and notice” regime whereby notices would have been sent
to the ISPs alleging copyright infringement. The ISP would then
forward these notices to its customers. This would have been similar
to the procedure currently used by us and therefore would not have
imposed any new costs. The copyright legislation would also have
legalized forms of copying currently used by Cable’s customers,
but would not have permitted cable operators to use network PVR
technology. Since an election was called in September 2008, this
Bill did not proceed. Although the federal Government pledged
to reintroduce similar legislation, no proposed legislation was
introduced in 2009.
Internet Traffic Management
In October 2009, the CRTC issued Telecom Decision 2009-657 on
Internet traffic management practices for both wholesale and
retail Internet services. The decision permitted the application of
network traffic management practices with respect to Internet
access services so long as they do not result in unjust discrimination
or undue preference. A framework was established to address
specific complaints of discrimination and preference. In response
to a complaint, ISPs will be required to show that they are not
favouring their own content and applications. The decision requires
ISPs to disclose their traffic management practices on their websites
including the speed to which peer-to-peer traffic is slowed. We
believe that this decision does not require changes to our current
traffic management practices.
Essential Facilities
In January 2009, in response to a review application, the CRTC did
amended its Essential Services Decision (CRTC 2008-17) in order to
permit negotiated agreements for certain services. The amendment
provides the incumbent local telephone companies with additional
pricing flexibility.
Parliamentary Committee on Canadian Heritage Hearings on
Conventional Television
In March 2009, the House of Commons Standing Committee on
Canadian Heritage initiated a study including hearings on the
future of television in Canada and the impact of current economic
conditions on local programming. The issue of FFC for local
broadcasters was an identified topic in the study.
In June 2009, the House of Commons Standing Committee on
Canadian Heritage released its report. The report did not contain a
recommendation on FFC but did recommend that the LPIF go from
1% to 2.5% with 1% dedicated to the CBC/Radio Canada. It also
recommended the elimination of CRTC Part II broadcasting fees. The
government members on the Committee filed a dissenting opinion
in which they recommended rejecting FFC in any form, whether
through a CRTC-imposed fee or a CRTC-imposed negotiation
with arbitration. The report also recommended that broadcasters
be permitted to engage in pharmaceutical advertising, which
is currently prohibited. The Minister of Canadian Heritage and
Official Languages formally responded to the Report in October
and identified the current process of updating the Copyright
Act and the Order-in-Council requesting a report from the CRTC
on the implications of FCC as the focus of the government’s ongoing
initiatives regarding the future of television and local programming
in Canada.
Third Party ISP Access to Cable Plant
In a broad proceeding addressing Internet wholesale services for
both ILECs and cable companies initiated by Telecom Notice of
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consultation 2009-261 issued in March 2009, the CRTC is examining
requests from ISPs that the cable industry should be mandated to
extend its current regulated Third Party Internet Access service
to provide dedicated channels to third parties. An Oral Hearing is
scheduled to begin on May 31, 2010.
Basic Telecommunications Services and
Other Matters Proceeding
In January 2010 in Telecom Notice of Consultation CRTC 2010-43,
the Commission initiated a proceeding to review issues associated
with access to basic telecommunications services, including the
obligation to serve, the basic service objective, and local service
subsidy. This proceeding will also re-examine the local competition
and wireless number portability frameworks in the territories
of the small incumbent local exchange carriers. In addition, the
Commission will re-examine the appropriateness of the existing
forbearance framework for mobile wireless data services. The
proceeding will include a public consultation, which will begin on
October 25, 2010.
MEDIA R EGUL ATION AND R EGUL ATORY D EVELOPMENTS
Commercial Radio Copyright Tariffs
In February 2008, the Copyright Board reaffirmed the rates it set
in 2005 for fees payable to the Society of Composers, Authors and
Music Publishers of Canada (“SOCAN”) and Neighbouring Rights
Collective of Canada (“NRCC”) for use of music from 2003 to 2007. In
its reaffirmation of the SOCAN-NRCC decision, the Copyright Board
also granted the Canadian Association of Broadcasters’ (“CAB”)
request for a consolidated tariff proceeding. The CAB hopes to
persuade the Copyright Board to set an overall valuation for the
use of music by commercial radio, which would then be divided
amongst the collectives.
The consolidated radio tariff proceeding was held in December
2008, with the Copyright Board considering tariff proposals filed
by music collectives: SOCAN, NRCC, CSI, AVLA /SOPROQ, and
ArtistI. The CAB is representing radio broadcasters and will argue
for an “all-in broadcaster tariff” that, if achieved, will effectively
rationalize payments and reduce the impact of the collectives’
multiple tariff demands. The CAB is arguing that from a pure
economic standpoint, the combined rate should be 2.8% for all
tariffs. In the alternative “multiple tariff” approach, the maximum
combined rate should be 5.96%. With respect to talk-based radio
stations, the CAB is arguing that the existing 20% “low music rate”
should continue, and a “very low music rate” for stations at or
below 5% music use (exclusive of production music) should be set at
a “double discount”. A decision is anticipated in 2010.
New Media Proceeding
As noted above under Cable, on June 4, 2009, the CRTC released
its decision on its new media proceeding. It decided to maintain
the New Media Exemption Order which exempts all broadcasting
content on the Internet from regulation thereby continuing to
exempt new media broadcasting undertakings from licencing.
However, the CRTC indicated it will require new media broadcasting
undertakings (primarily websites tied to linear broadcast channels)
to file annual reports on their revenues and expenses for the
purpose of monitoring the growth of this activity. This requirement
has not yet come into effect.
Review of Broadcasting Regulations
Rogers’ over-the-air television stations will have limited access to
the CRTC’s LPIF described above as our stations operate primarily in
large urban markets with the exception of Citytv Winnipeg, which
received LPIF funding in 2009. Citytv and OMNI to a lesser extent,
post-August 31, 2011, will be able to negotiate payments with
cable and satellite companies for carriage of their signals into
distant markets.
Licence Renewals
In February 2009, the CRTC announced that it intended to issue one-
year licence renewals for all private conventional television stations.
In a May 15, 2009 decision, the CRTC renewed Citytv licences for one
year (expiring August 31, 2010) and OMNI TV’s licences for six years
(expiring August 31, 2015), the latter of which was requested by
Rogers Media. The CRTC will consider group-based (conventional
and discretionary specialty) licence renewals in the spring of 2010.
The Rogers group would include the Citytv and OMNI conventional
television stations and the specialty services Rogers Sportsnet,
G4TechTV Canada, OLN and The Biography Channel Canada.
COMPETITION IN OUR B USINESSES
We currently face significant competition in each of our primary
wireless, cable and media businesses from entities providing
substantially similar services. Each of our segments also faces
competition from entities utilizing alternative communications and
transmission technologies and may face competition from other
technologies being developed or to be developed in the future.
Below is a discussion of the specific competition facing each of our
Wireless, Cable and Media businesses.
Wireless Competition
At December 31, 2009, the highly-competitive Canadian wireless
industry had approximately 23 million subscribers. Competition
for wireless subscribers is based on price, scope of services, service
coverage, quality of service, sophistication of wireless technology,
breadth of distribution, selection of devices, brand and marketing.
Wireless also competes with its rivals for dealers and retail
distribution outlets.
In the wireless voice and data market, Wireless competes primarily
with two other national wireless service providers and two large
regional players, resellers such as Primus, Vidéotron, impending new
entrants described further below and other emerging providers
using alternative wireless technologies, such as WiFi “hotspots”.
Wireless messaging (or one-way paging) also competes with a
number of local and national paging providers and potential users
of wireless voice and data systems may find their communications
needs satisfied by other current or development technologies, such
as WiFi “hotspots” or trunk radio systems, which have the technical
capability to handle mobile telephone calls.
Industry Canada’s auction for AWS spectrum concluded on July 21,
2008. Each of the three large incumbent national wireless operators,
Rogers, Bell Canada and TELUS, acquired spectrum licences
of varying sizes and in varying markets across Canada. Rogers
acquired 20 MHz of spectrum across the country, while Bell Canada
and TELUS each acquired a mix of 10 MHz and 20 MHz spectrum
licences across the country with the exception of Bell Canada in
the Eastern Townships, Quebec licence territory, where Bell did
not obtain spectrum. The regional players, MTS Allstream Inc., and
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Saskatchewan Telecommunications Holding Corporation, acquired
spectrum only in Manitoba and Saskatchewan, respectively.
Through the auction, six new entrants acquired substantial
regional holdings of AWS spectrum, and several much smaller
companies acquired small amounts of spectrum in generally rural
locations. As per the “Advanced Wireless Services (“AWS”) Auction,
Roaming and Tower/Site Policy” (described above), Rogers has
entered into roaming agreements with a number of new entrants
at commercially negotiated rates. Consistent with the Policy,
Rogers has also reached commercial agreements for antenna tower
and site sharing with several new entrants. Roaming and tower
antenna and site sharing will enable new entrants to expand their
service coverage quickly. Currently, no single potential new entrant
has acquired spectrum sufficient to become a national licencee as
defined by Industry Canada to qualify for mandated roaming on a
national basis for 10 years. See above under “Wireless Regulation
and Regulatory Developments” regarding Advanced Wireless
Services (“AWS”) Auction, Roaming and Tower/Site Policy.
Globalive Wireless Management Corp. under the brand name,
WIND, launched service in December 2009 in Toronto and Calgary
with announced expansion to Vancouver, Ottawa and Edmonton
in early 2010. Quebecor Media Inc. has announced its intentions
to launch service in Quebec by the summer of 2010. Public Mobile
Canada Inc. has indicated that it expects to launch service in
mid-2010 in Ontario and Quebec. DAVE Wireless Inc., under the
brand name Mobilicity, has announced plans to launch in Toronto
in Spring 2010 and to launch in Vancouver, Ottawa, Calgary and
Edmonton later in 2010. In January 2010, Shaw Communications Inc.
announced that it was taking initial steps to commence wireless
activities, with build-out planned over the next several years.
Bragg Communications Inc. has made no announcements. New
entrants could also partner with one another or other competitors
providing greater competition to Wireless in more than one region
or on a national scale.
In November 2009, Bell Canada and TELUS each launched service
over their joint HSPA networks, overlaid on their code division
multiple access/evolution data optimized (“CDMA/EVDO”) based
wireless networks. Until this time, Rogers Wireless was the only
carrier in Canada operating on the world standard GSM/GPRS/
EDGE/HSPA technology. The Bell and TELUS HSPA launches enable
these companies to provide a wider selection of wireless devices,
and to compete for HSPA roaming revenues which are expected to
grow over time as HSPA becomes more widely deployed around the
world, both of which will increase competition at Wireless.
Cable Competition
Canadian cable television systems generally face competition
from several alternative Canadian multi-channel broadcasting
distribution undertakings (including Bell TV and Star Choice
satellite services and telephone company IP TV services), satellite
master antenna television, and multi-channel, multi-point wireless
distribution systems, as well as from the direct reception by antenna
of over-the-air local and regional broadcast television signals. They
also face competition from illegal reception of U.S. direct broadcast
satellite services. In addition and importantly, the availability
of television shows and movies streaming over the Internet has
become a direct competitor to Canadian cable television systems.
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ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
Cable’s Internet access services compete generally with a number
of other Internet Service Providers (“ISPs”) offering competing
residential and commercial dial-up and high-speed Internet access
services. Rogers Hi-Speed Internet services, where available,
compete directly with Bell’s DSL Internet service in the Internet
market in Ontario, with the DSL Internet services of Bell Aliant in
New Brunswick and Newfoundland and Labrador, and various DSL
resellers in local markets.
Cable’s Home Phone services compete with Bell’s wireline phone
service in Ontario and with Bell Aliant’s wireline phone service
in New Brunswick and Newfoundland and Labrador. In addition,
Rogers Home Phone service competes with ILEC local loop resellers
(such as Primus) as well as VoIP service providers (such as Vonage
and Primus) riding over the services of ISPs.
Rogers Retail competes with other wireless dealers and DVD and
video game sales and rental store chains, as well as individually
owned and operated outlets and, more recently, online-based
subscription rental services and illegally downloaded content
as well as distributors of copied DVDs. Competition is principally
based on location, price and availability of titles.
One of the biggest forces of change in the telecommunications
industry is substitution of the traditional wireline video, voice and
data services by new technologies. Internet delivery is increasingly
becoming a direct threat to voice and video service delivery.
Younger generations increasingly use the Internet as a substitute
for traditional wireline telephone and television services.
The use of mobile phones among younger generations has
resulted in some abandonment of wireline telephone service.
Wireless-only households are increasing although the vast majority
of homes today continue to use standard home telephone service.
In addition, wireless Internet service is increasing in popularity.
Media Competition
Rogers’ radio stations compete with the other stations in their
respective markets as well as with other media, such as newspapers,
magazines, television, outdoor advertising and the Internet.
Competition within the radio broadcasting industry occurs
primarily in individual market areas, amongst individual stations.
On a national level, Media’s radio division competes generally
with other larger radio operators, which own and operate radio
station clusters in markets across Canada. Additionally, over the
past several years the CRTC has granted additional licences in
various markets for the development of new radio stations, which
in turn provide additional competition to the established stations
in the respective markets. Two licenced satellite subscription-based
radio services also provide competition to Media’s radio stations.
New technologies, such as online web information services, music
downloading, MP3 players and online music streaming services,
provide competition for radio stations’ audience share.
The Shopping Channel competes with various retail stores,
catalogue retailers, Internet retailers and direct mail retailers for
sales of its products. On a broadcasting level, The Shopping Channel
competes with other television channels for channel placement,
viewer attention and loyalty, and particularly with infomercials
selling products on television.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Canadian magazine industry is highly-competitive, competing
for both readers and advertisers. This competition comes from
other Canadian magazines and from foreign, mostly U.S., titles
that sell in significant quantities in Canada. Online information
and entertainment websites compete with the Canadian magazine
publications for readership and revenue.
Rogers’ conventional television and specialty services compete
principally for viewers and advertisers with other Canadian
television stations that broadcast in their local markets, specialty
channels and increasingly with other distant Canadian signals
and U.S. border stations given the time-shifting capacity available
to digital subscribers. Internet information and entertainment
and video downloading also represent competition for share
of viewership.
Sports Entertainment competes principally for audiences with
other Major League Baseball teams and other professional sports,
while Rogers Centre competes with other local sporting and special
event venues.
RISkS AND U NCERTAINTIES A FFEC TING OUR B USINESSES
Our business is subject to risks and uncertainties that could result
in a material adverse effect on our business and financial results.
The strategies to mitigate risks are the responsibility of many
levels of the organization to ensure that an appropriate balance
is maintained between seizing new opportunities and managing
risk. Our culture and policies support the requirement for
risk management.
Our Board is responsible, in its governance role, for overseeing
management in its responsibility for identifying the principal risks
of our businesses and the implementation of appropriate risk
assessment systems to manage these risks. The Audit Committee
supports the Board through its responsibility to discuss policies with
respect to risk assessment and risk management. In addition, it is
responsible for assisting the Board in the oversight of compliance
with legal and regulatory requirements. The Audit Committee
also reviews with senior management the adequacy of the
internal controls that we have adopted to safeguard assets from
loss and unauthorized use, to prevent, deter and detect fraud,
and to verify the accuracy of the financial records and review any
special audit steps adopted in light of material weaknesses or
significant deficiencies.
Our Internal Audit group supports the Audit Committee and the
Board’s responsibility for risk by facilitating regular enterprise wide
risk assessments as a part of the annual business planning process.
The risk assessments are conducted on a business unit level and
thereafter summarized and agreed upon at the senior management
level. A fraud risk assessment is also carried out to identify those
areas in which significant financial statement fraud could occur and
ensure that any identified fraud risks of this nature are mitigated
by documented and verified controls.
In 2009 we established an Enterprise Risk Management (“ERM”)
group to develop a holistic ERM program. While the ERM group will
bring a consistent and measurable approach to risk management,
we will also continue to rely on the expertise of our management
and employees to identify risks and opportunities as well as
implement mitigation strategies.
A discussion of the risks and uncertainties to us and our subsidiaries,
as well as a discussion of the specific risks and uncertainties
associated with each of our businesses, is presented below.
RISkS AND UNCERTAINTIES APPLIC ABLE TO RCI AND
OUR SUBSIDIARIES
We Face Substantial Competition.
The competition facing our businesses is described in the section
of this MD&A entitled “Competition in our Businesses”. There can
be no assurance that our current or future competitors will not
provide services superior to those we provide, or at lower prices,
adapt more quickly to evolving industry trends or changing market
requirements, enter the market in which we operate, or introduce
competing services. Any of these factors could reduce our
market share or decrease our revenue or increase churn. Wireless
anticipates some ongoing re-pricing of the existing subscriber base
as lower pricing offered to attract new customers is extended to or
requested by existing customers. In addition, as wireless penetration
of the population deepens, new wireless customers may generate
lower average monthly revenues than those generated from
existing customers, which could slow revenue growth.
In addition, the CRTC Broadcasting Distribution Regulations
do not allow Cable or its competitors to obtain exclusive contracts
in buildings where it is technically feasible to install two or
more systems.
We Are Controlled by One Shareholder.
Prior to his death in December 2008, Edward S. “Ted” Rogers
controlled RCI through his ownership of voting shares of a private
holding company. Under his estate arrangements, the voting
shares of that company, and consequently voting control of RCI
and its subsidiaries, passed to the Rogers Control Trust, a trust
of which the trust company subsidiary of a Canadian chartered
bank is trustee and members of the family of the late Mr. Rogers
are beneficiaries. As of December 31, 2009, private Rogers family
holding companies controlled by the Rogers Control Trust together
owned approximately 90.9% of the outstanding RCI Class A Shares,
which class is the only class of issued shares carrying the right to
vote in all circumstances, and approximately 7.5% of the RCI Class B
Voting Shares. Accordingly, the Rogers Control Trust is able to elect
all of our Board of Directors and to control the vote on matters
submitted to a vote of our shareholders. See “Outstanding Shares
and Main Shareholder” in RCI’s Information Circular.
The Rogers Control Trust holds voting control of the Rogers group
of companies for the benefit of successive generations of the Rogers
family and deals with RCI on the company’s long-term strategy
and direction.
The Rogers Control Trust satisfies the Canadian ownership
and control requirements that apply to RCI and its regulated
subsidiaries, and RCI made all necessary filings relating to the Trust
with the relevant Canadian regulatory authorities in January 2009.
Our Holding Company Structure May Limit Our Ability
to Meet Our Financial Obligations.
As a holding company, our ability to meet our financial obligations
is dependent primarily upon the receipt of interest and principal
payments on intercompany advances, rental payments, cash
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
59
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
dividends and other payments from our subsidiaries together with
proceeds raised by us through the issuance of equity and debt and
from the sale of assets.
Substantially all of our business activities are operated by our
subsidiaries, other than certain centralized functions, such as
payables, remittance processing, call centres, real estate, and certain
shared information technology functions. All of our subsidiaries
are distinct legal entities and have no obligation, contingent or
otherwise, to make funds available to us whether by dividends,
interest payments, loans, advances or other payments, subject to
payment arrangements on intercompany advances. In addition,
the payment of dividends and the making of loans, advances and
other payments to us by these subsidiaries are subject to statutory
or contractual restrictions, are contingent upon the earnings of
those subsidiaries and are subject to various businesses and other
considerations. Certain subsidiaries provide unsecured guarantees
of our bank and public debt and Derivatives.
Changes in Government Regulations Could Adversely Affect
Our Results of Operations in Wireless, Cable and Media.
As described in the section of this MD&A entitled “Government
Regulation and Regulatory Developments”, substantially all of our
business activities are regulated by Industry Canada and/or the
CRTC, and accordingly our results of operations on a consolidated
basis could be adversely affected by changes in regulations and
by the decisions of these regulators. This regulation relates to,
among other things, licencing, competition, the cable television
programming services that we must distribute, wireless and
wireline interconnection agreements, the rates we may charge
to provide access to our network by third parties, resale of our
networks and roaming on to our networks, our operation and
ownership of communications systems and our ability to acquire an
interest in other communications systems. In addition, the costs of
providing services may be increased from time-to-time as a result
of compliance with industry or legislative initiatives to address
consumer protection concerns or such Internet-related issues as
copyright infringement, unsolicited commercial e-mail, cyber-crime
and lawful access. Our cable, wireless and broadcasting licences
may not generally be transferred without regulatory approval.
Generally, our licences are granted for a specified term and are
subject to conditions on the maintenance of these licences. These
licencing conditions may be modified at any time by the regulators.
The regulators may decide not to renew a licence when it expires
and any failure by us to comply with the conditions on the
maintenance of a licence could result in a revocation or forfeiture
of any of our licences or the imposition of fines.
The licences include conditions requiring us to comply with
Canadian ownership restrictions of the applicable legislation. We
are currently in compliance with all of these Canadian ownership
and control requirements. However, if these requirements are
violated, we would be subject to various penalties, possibly
including, in the extreme case, the loss of a licence.
We May Engage in Unsuccessful Acquisitions or Divestitures.
Acquisitions of complementary businesses and technologies,
development of strategic alliances and divestitures of portions of
our business are a part of our overall business strategy. Services,
technologies, key personnel or businesses of acquired companies
may not be effectively assimilated into our business or service
offerings and our alliances may not be successful. We may not be
able to successfully complete any divestitures on satisfactory terms,
if at all. Divestitures may result in a reduction in our total revenues
and net income.
We Have Substantial Debt and Interest Payment Requirements
that May Restrict our Future Operations and Impair our Ability
to Meet our Financial Obligations.
Our substantial debt may have important consequences. For
instance, it could:
• Make it more difficult for us to satisfy our financial obligations;
• Require us to dedicate a substantial portion of any cash flow
from operations to the payment of interest and principal due
under our debt, which would reduce funds available for other
business purposes;
• Increase our vulnerability to general adverse economic and
industry conditions;
• Limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
• Place us at a competitive disadvantage compared to some of our
competitors that have less financial leverage; and
• Limit our ability to obtain additional financing required to fund
working capital and capital expenditures and for other general
corporate purposes.
Our ability to satisfy our obligations depends on our future
operating performance and on economic, financial, competitive and
other factors, many of which are beyond our control. Our business
may not generate sufficient cash flow and future financings may
not be available to provide sufficient net proceeds to meet these
obligations or to successfully execute our business strategy.
We Are Subject to Various Risks from Competing Technologies.
There are several technologies that may impact the way in which
our services are delivered. These technologies include broadband,
IP-based voice, data and video delivery services; the mass market
deployment of optical fibre technologies to the residential and
business markets; the deployment of broadband wireless access; and
wireless services using radio frequency spectrum to which we may
have limited access. These technologies may result in significantly
different cost structures for the users of the technologies, and
may consequently affect the long-term viability of certain of our
currently deployed technologies. Some of these new technologies
may allow competitors to enter our markets with similar products
or services that may have lower cost structures. Some of these
competitors may be larger with more access to financial resources
than we have.
We May Fail to Achieve Expected Revenue Grow th from New
and Advanced Services.
We expect that a substantial portion of our future revenue growth
will be achieved from new and advanced services. Accordingly, we
have invested and continue to invest significant capital resources in
the development of our networks in order to offer these services.
However, there may not be sufficient consumer demand for these
60
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
new and advanced services. Alternatively, we may fail to anticipate
or satisfy demand for certain products and services, or may not be
able to offer or market these new products and services successfully
to subscribers. The failure to attract subscribers to new products
and services, or failure to keep pace with changing consumer
preferences for products and services, would slow revenue growth
and could have a materially adverse effect on our business, results
of operations and financial condition.
We Are Highly Dependent Upon our Information Technology
Systems and the Inability to Enhance our Systems or Prevent
a Security Breach (Data or System) or Disaster Could Have an
Adverse Impact on our Financial Results and Operations.
The day-to-day operations of our businesses are highly dependent
on their information technology systems. An inability to enhance
information technology systems to accommodate additional
customer growth and support new products and services could
have an adverse impact on our ability to acquire new subscribers,
manage subscriber churn, produce accurate and timely subscriber
invoices, generate revenue growth and manage operating
expenses, all of which could adversely impact our financial results
and position.
In addition, we use industry standard network and information
technology security, survivability and disaster recovery practices.
Our ongoing success is in part dependent on the protection of
our corporate business sensitive data including our Customers’
as well as employees’ personal information. This information
is considered company intellectual property and it needs to be
protected from unauthorized access and compromise for which
we rely on policies and procedures as well as IT systems. Failure
to secure our data and the privacy of our customer information
may result in noncompliance with regulatory standards, may lead
to negative publicity, litigation, reputation damage any of which
may result in customer losses, financial losses and an erosion
of public confidence.
A portion of our employees and critical elements of the network
infrastructure and information technology systems are located at
our corporate offices in Toronto, Ontario, and Brampton, Ontario,
as well as an operations facility in Markham, Ontario. In the event
that we cannot access these facilities, as a result of a natural or
manmade disaster or otherwise, operations may be significantly
affected and may result in a condition that is beyond the scope of
our ability to recover without significant service interruption and
commensurate revenue and customer loss.
We Are Reliant on Third Party Service Providers Through
Outsourcing Arrangements.
Through outsourcing arrangements, third parties provide
certain essential components of our business operations to our
employees and customers, including payroll, call centre support,
installation and service technicians and invoice printing. In
addition, we have recently completed an outsourcing arrangement
for certain information technology functions. Interruptions in
these services can adversely affect our ability to provide services
to our customers.
We Are Heavily Involved in Operational Convergence.
In an effort to more efficiently serve our customer base, there is
an ongoing emphasis on convergence of our wireless and
cable operations, including organization structure and network
platforms. We have also commenced an enterprise-wide billing
and business support system initiative. In the event that
implementation of our convergence plans lead to operational
problems or unforeseen delays are incurred, operational efficiencies
may not be achieved and service impairment may result in loss of
revenue and customers.
We Are Subject to General Economic Conditions.
Our businesses are affected by general economic conditions,
consumer confidence and spending. Recessions or declines in
economic activity or economic uncertainty, such as that which has
occurred since late 2008, generally cause an erosion of consumer
and business confidence and may materially reduce discretionary
consumer spending. Any reduction in discretionary spending
by consumers and businesses or weak economic conditions may
materially negatively affect us through decreased demand for
our products and services including decreased advertising,
decreased revenue and profitability, higher churn and higher
bad debt expense.
Poor economic conditions may also have an impact on our pension
plans as there is no assurance that the plans will be able to earn
the assumed rate of return. As well, market driven changes may
result in changes in the discount rates and other variables which
would result in Rogers being required to make contributions in the
future that differ significantly from the current contributions and
assumptions incorporated into the actuarial valuation process.
Network Failures Could Reduce Revenue and
Impact Customer Service.
The failure of our networks or key network components could, in
some circumstances, result in an indefinite loss of service for our
customers and could adversely impact our financial results and
position. In addition, we rely on business partners to carry certain
of our customers’ traffic. The failure of one of these carriers might
also cause an interruption in service for our customers that would
last until we could reroute the traffic to an alternative carrier.
We Are and Will Continue to Be Involved in Litigation.
In August 2008, a proceeding was commenced in Ontario pursuant
to that province’s Class Proceedings Act, 1992 against Cable
and other providers of communications services in Canada. The
proceedings involve allegations of, among other things, false,
misleading and deceptive advertising relating to charges for
long-distance telephone usage. The plaintiffs are seeking
$20 million in general damages and punitive damages of $5 million.
The plaintiffs intend to seek an order certifying the proceedings as
a class action. Any potential liability is not yet determinable.
In June 2008, a proceeding was commenced in Saskatchewan
under that province’s Class Actions Act against providers of
wireless communications services in Canada. The proceeding
involves allegations of, among other things, breach of contract,
misrepresentation and false advertising in relation to the 9-1-1 fee
charged by us and the other wireless communication providers
in Canada. The plaintiffs are seeking unquantified damages
and restitution. The plaintiffs intend to seek an order certifying
the proceeding as a national class action in Saskatchewan. Any
potential liability is not yet determinable.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
61
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In August 2004, a proceeding under the Class Actions Act
(Saskatchewan) was commenced against providers of wireless
communications in Canada relating to the system access fee charged
by wireless carriers to some of their customers. In September 2007,
the Saskatchewan Court granted the plaintiffs’ application to
have the proceeding certified as a national, “opt-in” class action.
As a national, “opt-in” class action, affected customers outside
Saskatchewan would have to take specific steps to participate in
the proceeding. We applied for leave to appeal the certification
decision to the Saskatchewan Court of Appeal. That application
was later adjourned pending the hearing of certain motions. In
December 2007, we brought a motion to stay the proceeding based
on the arbitration clause in our wireless service agreements. Our
motion was granted in February 2008, and the Saskatchewan Court
directed that its order in respect of the certification of the action
would exclude from the class of plaintiffs those customers who
are bound by an arbitration clause. In April 2008, the Class Actions
Act (Saskatchewan) was amended to authorize the certification
of national, “opt-out” class actions. In an “opt-out” class action,
affected customers outside of Saskatchewan would automatically
be part of the proceeding in that province. As a consequence of the
amendment, counsel for the plaintiffs brought a motion to amend
the certification order previously granted by the Saskatchewan
Court so as to certify a national, opt-out class action. In May 2009,
the Court refused to grant the requested relief and dismissed
the plaintiffs’ motion. In August 2009, counsel for the plaintiffs
commenced a second proceeding under the Class Actions Act
(Saskatchewan) asserting the same claims against wireless carriers
with respect to the system access fee. In December 2009, the Court
ordered that the second proceeding be conditionally stayed on
the basis that it is an abuse of process. Our application for leave
to appeal the 2007 certification decision in the original proceeding
is currently scheduled to be heard in February 2010. We have not
recorded a liability for this contingency since the likelihood and
amount of any potential loss cannot be reasonably estimated. If
the ultimate resolution of this action differs from our assessment
and assumptions, a material adjustment to our financial position
and results of operations could result.
In April 2004, a proceeding was brought against Fido and other
Canadian wireless carriers claiming damages totalling $160 million,
breach of contract, breach of confidence, breach of fiduciary duty
and, as an alternative to the damages claims, an order for specific
performance of a conditional agreement relating to the use of
38 MHz of MCS Spectrum. In May 2009, the Company settled this
litigation for $4 million, which is included in operating, general and
administrative expenses for the year ended December 31, 2009.
We believe that we have adequately provided for income
taxes based on all of the information that is currently available.
The calculation of income taxes in many cases, however, requires
significant judgment in interpreting tax rules and regulations.
Our tax filings are subject to audits, which could materially change
the amount of current and future income tax assets and liabilities,
and could, in certain circumstances, result in assessment of interest
and penalties.
There exist certain other claims and potential claims against us,
none of which is expected to have a materially adverse effect on
our consolidated financial position.
62
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
Tariff Increases Could Adversely Affect Results of Operations.
Copyright liability pressures continue to affect our services. If fees
were to increase, such increases could adversely affect our results
of operations.
RISkS AND U NCERTAINTIES S PECIFIC TO W IRELESS
Spectrum Fees May Increase With the Renewal of Cellular &
PCS Spectrum Licences
In March 2009, Industry Canada announced that it would
undertake a formal study to assess the current market value of
certain spectrum licences with a separate consultation seeking
comments on a proposed fee. This consultation is expected to
begin in the first quarter of 2010. This review excludes the spectrum
acquired in 2008 in the AWS auction. The proceeding to examine
spectrum fees could significantly increase Rogers’ payments and
as a result, could materially reduce our operating profit. Any
such increases would begin to apply in 2011 and may impact our
current accounting policies under which the spectrum licenses are
treated as an indefinite life intangible asset and are not amortized.
See also “Consultation on the Renewal of Cellular and Personal
Communications Services (“PCS”) Spectrum Licences” under
Wireless Regulation and Regulatory Developments above.
There is no Guarantee that Wireless’ Service Revenue Will
Exceed Increased Handset Subsidies.
Wireless’ business model, as is generally the case for other North
American wireless carriers, is substantially based on subsidizing the
cost of the handset to the customer to reduce the barrier to entry,
while in return requiring a term commitment from the customer.
For certain handsets and smartphone devices, Wireless will commit
with the supplier to a minimum subsidy. Wireless’ business could
be materially adversely affected if by virtue of law or regulation
or negative customer behaviour, Wireless was unable to require
term commitments or early cancellation fees from its customers or
did not receive the service revenues that it anticipated from the
customer commitment.
The National Wireless Tower Policy Could Increase Wireless’
Costs or Delay the Expansion of Wireless’ Networks.
On June 28, 2007, Industry Canada released a new Tower Policy
(CPC-2-0-03) outlining a new antenna siting policy that took effect
on January 1, 2008. The new policy affects all parties that plan to
install or modify an antenna system, including PCS, cellular and
broadcasting service providers. Among other things, the policy
requires that antenna proponents must consider the use of existing
antenna structures before proposing new structures and owners
of existing systems must respond to sharing requests. Antenna
proponents must also undertake public notification using defined
processes and must address local requirements and concerns.
Certain types of antenna installations are excluded from the
requirement to consult with local authorities and the public.
Foreign Ownership Changes Could Increase Competition.
Wireless could face increased competition if there is a removal of
the limits on foreign ownership and control of wireless licences or a
relaxation of the limits such as seen with the approval of Globalive
to operate with its current ownership structure. Legislative action to
remove or relax these limits can result in foreign telecommunication
companies entering the Canadian wireless communications market,
through the acquisition of either wireless licences or of a holder of
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
wireless licences. The entry into the market of such companies with
significantly greater capital resources than Wireless could reduce
Wireless’ market share and cause Wireless’ revenues to decrease.
Wireless is Dependent on Certain key Infrastructure and
Handset Vendors, Which Could Impact the Quality of Wireless’
Services or Impede Network Development and Expansion.
Wireless has relationships with a small number of essential
network infrastructure and handset vendors, over which it has no
operational or financial control and only limited influence in how
the vendors conduct their businesses. The failure of one of our
network infrastructure suppliers could delay programs to provide
additional network capacity or new capabilities and services across
the business. Handsets and network infrastructure suppliers may,
among other things, extend delivery times, raise prices and limit
supply due to their own shortages and business requirements. If
these suppliers fail to deliver products and services on a timely
basis or fail to develop and deliver handsets that satisfy Wireless’
customers’ demands, this could have a material adverse effect on
Wireless’ business, financial condition and results of operations.
Similarly, interruptions in the supply of equipment for our networks
could impact the quality of Wireless’ service or impede network
development and expansion.
Long-Distance Equal Access Could Increase Competition.
The CRTC’s three-year Work Plan indicates their intent to review
the issue of Long-Distance Equal Access for Wireless Carriers.
If required, this may introduce additional competition in the
provision of wireless long-distance thus impacting Wireless’
long-distance revenues.
Restrictions on the Use of Wireless Handsets While Driving
May Reduce Subscriber Usage.
Most provincial government bodies have introduced and/or
enacted legislation to restrict or prohibit wireless handset usage
while driving while permitting hands-free usage. Some studies
have indicated that certain aspects of using wireless handsets while
driving may impair the attention of drivers in various circumstances,
making accidents more likely. Laws prohibiting or restricting the
use of wireless handsets while driving could have the effect of
reducing subscriber usage, which could cause an adverse effect on
Wireless’ business. Additionally, concerns over the use of wireless
handsets while driving could lead to litigation relating to accidents,
deaths or bodily injuries, which could also have an adverse effect
on Wireless’ business.
In April 2009, the Ontario Legislature passed the bill prohibiting
wireless handset usage while driving except with the use
of Bluetooth or other hands-free devices. The implementation date
was October 26, 2009, with a three-month grace period during
which warnings will be issued. In June 2009, Manitoba introduced
and passed similar legislation. A date for implementation has
not been set. Both British Columbia and Saskatchewan implemented
legislation as of January 1, 2010, and Prince Edward Island has
legislation effective January 23, 2010. Legislation banning the
use of handheld devices while driving, except when used in
conjunction with hands-free devices, already exists in the provinces
of Quebec, Manitoba, Nova Scotia and Newfoundland and
Labrador. Alberta, Yukon and New Brunswick are expected to
introduce legislation in 2010.
Concerns About Radio Frequency Emissions May Adversely
Affect Our Business.
Occasionally, media and other reports have highlighted alleged
links between radio frequency emissions from wireless handsets
and various health concerns, including cancer, and interference with
various medical devices, including hearing aids and pacemakers.
While there are no definitive reports or studies stating that such
health issues are directly attributable to radio frequency emissions,
concerns over radio frequency emissions may discourage the use
of wireless handsets or expose us to potential litigation. It is also
possible that future regulatory actions may result in the imposition
of more restrictive standards on radio frequency emissions from
low powered devices, such as wireless handsets. Wireless is unable
to predict the nature or extent of any such potential restrictions.
RISkS AND U NCERTAINTIES S PECIFIC TO C ABLE
Changes in Technology Could Increase Competition.
Improvements in the quality of streaming video over the Internet
coupled with increasing availability of television shows and movies
on the Internet increases competition to Canadian cable television
systems. If changes in technology are made to any alternative
Canadian multi-channel broadcasting distribution system,
competition with our cable services may increase. In addition, as
improvements in technology are made with respect to wireless
Internet, it increasingly becomes a substitute for the traditional
high-speed Internet service.
Failure to Obtain Access to Support Structures and Municipal
Rights of Way Could Increase Cable’s Costs and Adversely
Affect Our Business.
Cable requires access to support structures and municipal rights of
way in order to deploy facilities. Where access to municipal rights
of way cannot be secured, Cable may apply to the CRTC to obtain
a right of access under the Telecommunications Act. However, the
Supreme Court of Canada ruled in 2003 that the CRTC does not
have the jurisdiction to establish the terms and conditions of access
to the poles of hydroelectric companies. As a result of this decision,
Cable’s access to hydroelectric company poles is obtained pursuant
to orders from the Ontario Energy Board and the New Brunswick
Public Utilities Board.
If Cable is Unable to Develop or Acquire Advanced
Encryption Technology to Prevent Unauthorized Access to Its
Programming, Cable Could Experience a Decline in Revenues.
Cable utilizes encryption technology to protect its cable signals
from unauthorized access and to control programming access
based on subscription packages. There can be no assurance that
Cable will be able to effectively prevent unauthorized decoding of
signals in the future. If Cable is unable to control cable access with
our encryption technology, Cable’s subscription levels for digital
programming including, premium VOD and SVOD, as well as
Rogers Retail rentals, may decline, which could result in a decline in
Cable’s revenues.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
63
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Increasing Programming Costs Could Adversely Affect Cable’s
Results of Operations.
Cable’s single most significant purchasing commitment is the cost
of acquiring programming. Programming costs have increased
significantly in recent years, particularly in connection with the
recent growth in subscriptions to digital specialty channels.
Increasing programming costs within the industry could adversely
affect Cable’s operating results if Cable is unable to pass such
programming costs on to its subscribers.
Cable Telephony is Highly Dependent on Facilities and
Services of the ILECs.
Cable’s out-of-territory telephony business is highly-dependent on
the availability of unbundled facilities acquired from incumbent
telecom operators, pursuant to CRTC rules. Changes to these rules
could severely affect the cost of operating these businesses.
Over-the -Air Television Station Licence Renewals Could
Adversely Affect Cable’s Results of Operations.
In Broadcasting Notice of Consultation 2009-411, the CRTC
announced that it is “now of the view that a negotiated solution
for compensation for the free market value of local conventional
television signals is also appropriate”. In Broadcasting Notice of
Consultation 2009-411-3 released on August 11, 2009, the CRTC
announced that “the Commission will proceed with an examination
de novo of the question of whether or not the Commission should
put in place a regime for the establishment of fair value for local
conventional television signals”. An imposition of FFC would
increase Rogers’ costs. See the “Review of Broadcasting Regulations
including Fee-for-Carriage and Distant Signal Fees” section under
“Government Regulation and Regulatory Developments”.
Unbundled Local Loop Rates Could Adversely Affect Cable’s
Results of Operations.
In June 2009, Bell Canada and Bell Aliant filed tariff applications to
increase the rates for their unbundled copper loops. The proposed
increases range from 25% to 100% according to location. Rogers
leases unbundled loops from Bell Canada and Bell Aliant to provide
both residential and business primary exchange services, mostly
outside of the cable footprint in Ontario, Quebec and the Maritimes
and approval of these proposed rates would increase Rogers’ costs.
Rogers is opposing these rate increases.
RISkS AND U NCERTAINTIES S PECIFIC TO M EDIA
Changes in Regulatory Policies May Adversely
Affect Media’s Business.
The CRTC conducted a review of the specialty and pay television
sector, as well as the regulations affecting all distributors
(the Broadcasting Distribution Regulations). This review focused
on a number of different issues, including wholesale fees,
dispute resolution and packaging and linkage requirements.
This broad-based review impacts all specialty services, including
Rogers Sportsnet, The Biography Channel Canada, OLN and
G4TechTV Canada. See the “Review of Broadcasting Regulations
including Fee-for-Carriage and Distant Signal Fees” section under
“Government Regulation and Regulatory Developments”. The
ability to collect fees impacts all broadcasters, including OMNI
Television and Citytv.
Pressures Regarding Channel Placement Could Negatively
Impact the Tier Status of Certain of Media’s Channels.
Unfavourable channel placement could negatively affect the
results of The Shopping Channel, Sportsnet, G4TechTV, The
Biography Channel Canada and OLN.
A Loss in Media’s Leadership Position in Radio, Television
or Magazine Readership Could Adversely Impact Media’s
Sales Volumes and Advertising Rates.
It is well established that advertising dollars migrate to media
properties that are leaders in their respective markets and
categories when advertising budgets are tightened. Although
most of Media’s radio, television and magazine properties are
currently leaders in their respective markets, such leadership
may not continue in the future. Advertisers base a substantial
part of their purchasing decisions on statistics such as ratings
and readership generated by industry associations and agencies.
If Media’s radio and television ratings or magazine readership
levels were to decrease substantially, Media’s advertising sales
volumes and the rates which it charges advertisers could be
adversely affected.
Changes in Technology Could Increase Competition.
The increasing utilization of PVRs could influence Media’s
capability to generate television advertising revenues as
viewers are provided with the opportunity to skip advertising
aired on the television networks. The emergence of subscriber-
based satellite and digital radio products could change radio
audience listening habits and negatively impact the results of
Media’s radio stations. Certain audiences are also migrating
to the Internet as more video becomes available. In addition,
as mandated by the CRTC, Canadian television signals are
migrating to a strictly digital platform by August 31, 2011, which
could impact Media’s ability to reach certain audiences.
An Increase in Paper Prices, Printing Costs or Postage Could
Adversely Affect Media’s Results of Operations.
A significant portion of Publishing’s operating expenses
consists of paper, printing and postage expenses. Paper is
Publishing’s single largest raw material expense, representing
approximately 8% of Publishing’s operating expenses in 2009.
Publishing depends upon outside suppliers for all of its paper
supplies, holds limited quantities of paper in stock itself,
and is unable to control paper prices, which can fluctuate
considerably. Moreover, Publishing is generally unable to pass
paper cost increases on to customers. Printing costs represented
approximately 12% of Publishing’s operating expenses in 2009.
Publishing relies on third parties for all of its printing services.
In addition, Publishing relies on the Canadian Postal Service to
distribute a large percentage of its publications. Any disruption
in printing or postage services could have a material impact on
Media’s results of operations or financial condition. A material
increase in paper prices, printing costs or postage expenses to
Publishing could have a materially adverse effect on Media’s
business, results of operations or financial condition.
Blue Jays Player Contract Activity Could Adversely Affect
Media’s Results of Operations.
The termination and release of Blue Jays player contracts before
the end of the contract term adversely affects Media’s results.
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ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
5. ACCOUNTING POLICIES AND NON-GAAP MEASURES
kEY P ERFORMANCE I NDIC ATORS AND N ON - GA AP MEASURES
We measure the success of our strategies using a number of key
performance indicators, which are outlined below. The following
key performance indicators are not measurements in accordance
with Canadian or U.S. GAAP and should not be considered as an
alternative to net income or any other measure of performance
under Canadian or U.S. GAAP.
Subscriber Counts
We determine the number of subscribers to our services based on
active subscribers. A wireless subscriber is represented by each
identifiable telephone number. A cable subscriber is represented by
a dwelling unit. In the case of multiple units in one dwelling, such
as an apartment building, each tenant with cable service, whether
invoiced individually or having services included in his or her rent, is
counted as one subscriber. Commercial or institutional units, such as
hospitals or hotels, are each considered to be one subscriber. When
subscribers are deactivated, either voluntarily or involuntarily
for non-payment, they are considered to be deactivations in the
period the services are discontinued. Wireless prepaid subscribers
are considered active for a period of 180 days from the date of their
last revenue-generating usage.
We report wireless subscribers in two categories: postpaid and
prepaid. Postpaid includes voice-only and data-only subscribers,
as well as subscribers with service plans integrating both voice and
data, while prepaid includes voice-only subscribers.
Internet, Rogers Home Phone and RBS subscribers include only
those subscribers with service installed, operating and on billing
and excludes those subscribers who have subscribed to the service
but for whom installation of the service was still pending.
Subscriber Churn
Subscriber churn is calculated on a monthly basis. For any
particular month, subscriber churn for Wireless represents the
number of subscribers deactivating in the month divided by the
aggregate number of subscribers at the beginning of the month.
When used or reported for a period greater than one month,
subscriber churn represents the monthly average of the subscriber
churn for the period.
Average Revenue Per User
ARPU is calculated on a monthly basis. For any particular month,
ARPU represents monthly revenue divided by the average number
of subscribers during the month. In the case of Wireless, ARPU
represents monthly network revenue divided by the average
number of subscribers during the month. ARPU, when used
in connection with a particular type of subscriber, represents
monthly revenue generated from those subscribers divided by the
average number of those subscribers during the month. When
used or reported for a period greater than one month, ARPU
represents the monthly average of the ARPU calculations for the
period. We believe ARPU helps to identify trends and to indicate
whether we have been successful in attracting and retaining higher
value subscribers.
Operating Expenses
Operating expenses are segregated into three categories for
assessing business performance:
• Cost of sales, which is comprised of wireless equipment
costs, Rogers Retail merchandise and depreciation of
Rogers Retail rental assets, as well as cost of goods sold by
The Shopping Channel;
• Sales and marketing expenses, which represent the costs to
acquire new subscribers (other than those related to equipment),
such as advertising, commissions paid to third parties for new
activations, remuneration and benefits to sales and marketing
employees, as well as direct overheads related to these activities
and the costs of operating the Rogers Retail store locations; and
• Operating, general and administrative expenses, which include
all other expenses incurred to operate the business on a day-to-
day basis and service existing subscriber relationships, including
retention costs, inter-carrier payments to roaming partners
and long-distance carriers, network maintenance costs,
programming related costs, the CRTC contribution levy, Internet
and e-mail services and printing and production costs.
In the wireless and cable industries in Canada, the demand
for services continues to grow and the variable costs, such as
commissions paid for subscriber activations, as well as the fixed
costs of acquiring new subscribers, are significant. Fluctuations in
the number of activations of new subscribers from period-to-period
and the seasonal nature of both wireless and cable subscriber
additions result in fluctuations in sales and marketing expenses
and accordingly, in the overall level of operating expenses. In our
Media business, sales and marketing expenses may be significant to
promote publishing, radio and television properties, which in turn
attract advertisers, viewers, listeners and readers.
Operating Profit and Operating Profit Margin
We define operating profit as net income before depreciation and
amortization, interest expense, income taxes and non-operating
items, which include impairment losses on goodwill, intangible
assets and other long-term assets, foreign exchange gains (losses),
loss on repayment of long-term debt, debt issuance costs, change
in fair value of derivative instruments, and other income. Operating
profit is a standard measure used in the communications industry
to assist in understanding and comparing operating results
and is often referred to by our peers and competitors as EBITDA
(earnings before interest, taxes, depreciation and amortization) or
OIBDA (operating income before depreciation and amortization).
We believe this is an important measure as it allows us to assess
our ongoing businesses without the impact of depreciation or
amortization expenses as well as non-operating factors. It is
intended to indicate our ability to incur or service debt, invest in
PP&E and allows us to compare us to our peers and competitors
who may have different capital or organizational structures. This
measure is not a defined term under Canadian GAAP or U.S. GAAP.
We calculate operating profit margin by dividing operating profit
by total revenue, except in the case of Wireless. For Wireless,
operating profit margin is calculated by dividing operating profit
by network revenue. Network revenue is used in the calculation,
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
65
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
instead of total revenue, because network revenue better reflects
Wireless’ core business activity of providing wireless services.
Refer to the section entitled “Supplementary Information:
Non-GAAP Calculations” for further details on this Wireless, Cable
and Media calculation.
Adjusted Operating Profit, Adjusted Operating Profit Margin,
Adjusted Net Income, and Adjusted Basic and Diluted Net
Income Per Share
We have included certain non-GAAP financial measures that we
believe provide useful information to management and readers of
this MD&A in measuring our financial performance. These measures,
which include adjusted operating profit, adjusted operating profit
margin, adjusted net income and adjusted basic and diluted net
income per share, do not have a standardized meaning under GAAP
and, therefore, may not be comparable to similarly titled measures
presented by other publicly traded companies, nor should they be
construed as an alternative to other financial measures determined
in accordance with GAAP. We define adjusted operating profit as
operating profit less: (i) the impact of the one-time non-cash charge
resulting from the introduction of a cash settlement feature related
to employee stock options; (ii) stock-based compensation expense
(recovery); (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; (vi) contract termination fees;
and (vii) pension settlement. In addition, adjusted net income and
adjusted net income per share excludes 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 impacts of the above items.
We believe that these non-GAAP financial measures may provide
for a more effective analysis of our operating performance. In
addition, the items mentioned above could potentially distort
the analysis of trends due to the fact that they are either volatile
or unusual or non-recurring, can vary widely from company-to-
company and can impair comparability. The exclusion of these items
does not mean that they are unusual, infrequent or non-recurring.
We use these non-GAAP measures internally to make strategic
decisions, forecast future results and evaluate our performance
from period-to-period and compared to forecasts on a consistent
basis. We believe that these measures present trends that are useful
in managing the business, and to investors and analysts in enabling
them to assess the underlying changes in our business over time.
Adjusted operating profit and adjusted operating profit margins,
which are reviewed regularly by management and our Board
of Directors, are also useful in assessing our performance and in
making decisions regarding the ongoing operations of the business
and the ability to generate cash flows.
Additions to PP&E
Additions to PP&E include those costs associated with acquiring
and placing our PP&E into service. Because the communications
business requires extensive and continual investment in equipment,
including investment in new technologies and expansion of
geographical reach and capacity, additions to PP&E are significant
and management focuses continually on the planning, funding and
management of these expenditures. We focus more on managing
additions to PP&E than we do on managing depreciation and
amortization expense because additions to PP&E have a direct
impact on our cash flow, whereas depreciation and amortization
are non-cash accounting measures required under Canadian and
U.S. GAAP.
The additions to PP&E before related changes to non-cash
working capital represent PP&E that we actually took title to in
the period. Accordingly, for purposes of comparing our PP&E
outlays, we believe that additions to PP&E before related changes
to non-cash working capital best reflect our cost of PP&E in a
period, and provide a more accurate determination for period-to-
period comparisons.
CRITIC AL ACCOUNTING POLICIES
This MD&A has been prepared with reference to our 2009 Audited
Consolidated Financial Statements and Notes thereto, which have
been prepared in accordance with Canadian GAAP. The Audit
Committee of our Board reviews our accounting policies, reviews
all quarterly and annual filings, and recommends approval of our
annual financial statements to our Board. For a detailed discussion
of our accounting policies, see Note 2 to the 2009 Audited
Consolidated Financial Statements. In addition, a discussion of
new accounting standards adopted by us and critical accounting
estimates are discussed in the sections “New Accounting Standards”
and “Critical Accounting Estimates”, respectively.
Revenue Recognition
Revenue is categorized into the following types, the majority of
which are recurring in nature on a monthly basis from ongoing
relationships, contractual or otherwise, with our subscribers:
• Monthly subscriber fees in connection with wireless and
wireline ser vices, cable, telephony, Internet ser vices,
rental of equipment, network services and media subscriptions
are recorded as revenue on a pro rata basis as the service
is provided;
• Revenue from airtime, roaming, long-distance and optional
services, pay-per-use services, video rentals and other sales
of products are recorded as revenue as the services or products
are delivered;
• Revenue from the sale of wireless and cable equipment is
recorded when the equipment is delivered and accepted by
the independent dealer or subscriber in the case of direct sales.
Equipment subsidies related to new and existing subscribers are
recorded as a reduction of equipment revenues;
These non-GAAP measures should be viewed as a supplement to,
and not a substitute for, our results of operations reported under
Canadian and U.S. GAAP. A reconciliation of these non-GAAP
financial measures to operating profit, net income and net income
per share is included in the section entitled “Supplementary
Information: Non-GAAP Calculations”.
• Installation fees and activation fees charged to subscribers
do not meet the criteria as a separate unit of accounting. As a
result, in Wireless, these fees are recorded as part of equipment
revenue and, in the case of Cable, are deferred and amortized
over the related service period. The related service period
for Cable ranges from 26 to 48 months, based on subscriber
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ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
disconnects, transfers of service and moves. Incremental direct
installation costs related to re-connects are deferred to the
extent of deferred installation fees and amortized over the same
period as these related installation fees. New connect installation
costs are capitalized to PP&E and amortized over the useful life of
the related assets;
• Advertising revenue is recorded in the period the advertising
airs on our radio or television stations and the period in which
advertising is featured in our publications;
• Monthly subscription revenues received by television stations for
subscriptions from cable and satellite providers are recorded in
the month in which they are earned;
• Blue Jays’ revenue from home game admission and concessions is
recognized as the related games are played during the baseball
regular season. Revenue from radio and television agreements is
recorded at the time the related games are aired. The Blue Jays
also receive revenue from the Major League Baseball Revenue
Sharing Agreement, which distributes funds to and from member
clubs, based on each club’s revenues. This revenue is recognized
in the season in which it is earned, when the amount is estimable
and collectibility is reasonably assured; and
• Discounts provided to customers related to combined
purchases of Wireless, Cable, and Media products and services are
charged directly to the revenue for the products and services to
which they relate.
We offer certain products and services as part of multiple
deliverable arrangements. We divide multiple deliverable
arrangements into separate units of accounting. Components of
multiple deliverable arrangements are separately accounted for
provided the delivered elements have stand-alone value to the
customers and the fair value of any undelivered elements can be
objectively and reliably determined. Consideration for these units is
measured and allocated amongst the accounting units based upon
their fair values and our relevant revenue recognition policies are
applied to them. We recognize revenue once persuasive evidence
of an arrangement exists, delivery has occurred or services have
been rendered, fees are fixed and determinable and collectibility
is reasonably assured.
Unearned revenue includes subscriber deposits, installation fees
and amounts received from subscribers related to services and
subscriptions to be provided in future periods.
Subscriber Acquisition and Retention Costs
We operate within a highly-competitive industry and generally
incur significant costs to attract new subscribers and retain
existing subscribers. All sales and marketing expenditures related
to subscriber acquisitions, retention and contract renewals, such
as commissions, and the cost associated with the sale of customer
premises equipment, are expensed as incurred.
A large percentage of the subscriber acquisition and retention
costs, such as equipment subsidies and commissions, are variable
in nature and directly related to the acquisition or renewal of a
subscriber. In addition, subscriber acquisition and retention costs
on a per-subscriber-acquired basis fluctuate based on the success
of promotional activity and the seasonality of the business.
Accordingly, if we experience significant growth in subscriber
activations or renewals during a period, expenses for that period
will increase.
Capitalization of Direct Labour and Overhead
During construction of new assets, direct costs plus a portion of
applicable overhead costs are capitalized. Repairs and maintenance
expenditures are charged to operating expenses as incurred.
CRITIC AL ACCOUNTING ESTIMATES
This MD&A has been prepared with reference to our 2009 Audited
Consolidated Financial Statements and Notes thereto, which have
been prepared in accordance with Canadian GAAP. The preparation
of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and the related disclosure
of contingent assets and liabilities. These estimates are based on
management’s historical experience and various other assumptions
that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the
reported amounts of assets, liabilities, revenue and expenses
that are not readily apparent from other sources. Actual results
could differ from those estimates. We believe that the accounting
estimates discussed below are critical to our business operations
and an understanding of our results of operations or may involve
additional management judgment due to the sensitivity of the
methods and assumptions necessary in determining the related
asset, liability, revenue and expense amounts.
Purchase Price Allocations
The allocations of the purchase prices for our acquisitions involves
considerable judgment in determining the fair values assigned
to the tangible and intangible assets acquired and the liabilities
assumed on acquisition. Among other things, the determination of
these fair values involved the use of discounted cash flow analyses,
estimated future margins, estimated future subscribers, estimated
future royalty rates, the use of information available in the financial
markets and estimates as to costs to close duplicate facilities and
buy out certain contracts. Refer to Note 4 of the 2009 Audited
Consolidated Financial Statements for acquisitions made during
2009. Should actual rates, cash flows, costs and other items differ
from our estimates, this may necessitate revisions to the carrying
value of the related assets and liabilities acquired, including
revisions that may impact net income in future periods.
Useful Lives of PP&E
We depreciate the cost of PP&E over their respective estimated
useful lives. These estimates of useful lives involve considerable
judgment. In determining the estimates of these useful lives,
we take into account industry trends and company-specific
factors, including changing technologies and expectations for
the in-service period of certain assets. On an annual basis, we
re-assess our existing estimates of useful lives to ensure they match
the anticipated life of the technology from a revenue-producing
perspective. If technological change happens more quickly or in
a different way than anticipated, we might have to reduce the
estimated life of PP&E, which could result in a higher depreciation
expense in future periods or an impairment charge to write down
the value of PP&E.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
67
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capitalization of Direct Labour and Overhead
Certain direct labour and indirect costs associated with the
acquisition, construction, development or betterment of our
networks are capitalized to PP&E. The capitalized amounts are
calculated based on estimated costs of projects that are capital
in nature, and are generally based on a rate per hour. Although
interest costs are permitted to be capitalized during construction
under Canadian GAAP, it is our policy not to capitalize interest.
Accrued Liabilities
The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts
of accrued liabilities at the date of the financial statements and the
reported amounts expensed during the year. Actual results could
differ from those estimates.
Amortization of Intangible Assets
We amortize the cost of finite-lived intangible assets over their
estimated useful lives. These estimates of useful lives involve
considerable judgment. During 2004 and 2005, the acquisitions of
Fido, Call-Net, the minority interests in Wireless and Sportsnet,
together with the consolidation of the Blue Jays, as well as the
acquisitions of Futureway and Citytv in 2007, and Aurora Cable and
channel m in 2008, resulted in significant increases to our intangible
asset balances. Judgment is also involved in determining that
spectrum and broadcast licences have indefinite lives, and are
therefore not amortized.
The determination of the estimated useful lives of brand names
involves historical experience, marketing considerations and the
nature of the industries in which we operate. The useful lives of
subscriber bases are based on the historical churn rates of the
underlying subscribers and judgments as to the applicability of
these rates going forward. The useful lives of roaming agreements
are based on estimates of the useful lives of the related network
equipment. The useful lives of wholesale agreements and dealer
networks are based on the underlying contractual lives. The useful
life of the marketing agreement is based on historical customer
lives. The determination of the estimated useful lives of intangible
assets impacts amortization expense in the current period as well
as future periods. The impact on net income on a full-year basis of
changing the useful lives of the finite-lived intangible assets by one
year is shown in the chart below.
Impact of Changes in Estimated Useful Lives
(In millions of dollars)
Brand names
Rogers
Fido
Citytv
Subscriber base
Rogers
Cable
Roaming agreements
Marketing agreement
Amorization
Period
Increase in Net Income
if Life Increased by 1 year
Decrease in Net Income
if Life Decreased by 1 year
20.0 years
5.0 years
5.0 years
4.7 years
3.0 years
12.0 years
5.0 years
$
$
$
$
$
$
$
1
3
0
30
2
3
2
$
$
$
$
$
$
$
(1)
(5)
(1)
(46)
(3)
(4)
(3)
Impairment of Goodwill, Indefinite -Lived Intangible Assets
and Long-Lived Assets
Indefinite-lived intangible assets, including goodwill and spectrum/
broadcast licences, as well as long-lived assets, including PP&E and
other intangible assets, are assessed for impairment on at least
an annual basis or more often if events or circumstances warrant.
These impairment tests involve the use of both undiscounted
and discounted net cash flow analyses to assess the recoverability
of the carrying value of these assets and the fair value of both
indefinite-lived and long-lived assets, if applicable. These analyses
involve estimates of future cash flows, estimated periods of use and
applicable discount rates. During 2009, we recorded an impairment
charge of $18 million related to certain of our broadcast assets, and
during 2008, we recorded an impairment charge of $294 million
relating to our conventional television business. These impairments
resulted from challenging economic conditions and weakening
industry expectations in the conventional television business and a
decline in advertising revenues.
Income Tax Estimates
We use judgment in the estimation of income taxes and future
income tax assets and liabilities. In the preparation of our
Consolidated Financial Statements, we are required to estimate
income taxes in each of the jurisdictions in which we operate.
This involves estimating actual current tax expense, together
with assessing temporary differences that result from differing
treatments in items for accounting purposes versus tax purposes,
and in estimating the recoverability of the benefits arising from tax
loss carryforwards. We are required to assess whether it is more
likely than not that future income tax assets will be realized prior
to the expiration of the related tax loss carryforwards. Judgment
is required to determine if a valuation allowance is needed against
either all or a portion of our future income tax assets. Various
considerations are reflected in this judgment, including future
profitability of related companies, tax planning strategies that
are being implemented or could be implemented to recognize the
benefits of these tax assets, as well as the expiration of the tax loss
carryforwards. Judgments and estimates made to assess the tax
68
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
treatment of items and the need for a valuation allowance impact
the future income tax balances as well as net income through the
current and future income tax provisions. As at December 31, 2009,
and as detailed in Note 7 to the 2009 Audited Consolidated Financial
Statements, we have non-capital income tax loss carryforwards of
approximately $370 million. Our net future income tax liability,
prior to valuation allowances, totals approximately $125 million
at December 31, 2009 (2008 – asset of $251 million). The recorded
valuation allowance results in a future income tax asset of $52
million, reflecting that it is more likely than not that certain income
tax assets will be realized.
Credit Spreads and the Impact on Fair Value of Derivatives
Rogers’ Derivatives are recorded using 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 Bond Spread
for the relevant term and counterparty for each Derivative. In
the case of Derivatives in an asset position (i.e., those Derivatives
for which the counterparties owe Rogers), the Bond Spread for
the bank counterparty is added to the risk-free discount rate to
determine the estimated credit-adjusted value. In the case of
Derivatives in a liability position (i.e., those Derivatives for which
Rogers owes the counterparties), Rogers’ Bond Spread is added to
the risk-free discount rate. The estimated credit-adjusted values of
the Derivatives are subject to changes in credit spreads of Rogers
and its counterparties.
and the future performance of plan assets. Delayed recognition
of differences between actual results and expected or estimated
results is a guiding principle of pension accounting. This principle
results in recognition of changes in benefit obligations and plan
performance over the working lives of the employees receiving
benefits under the plan. The primary assumptions and estimates
include the discount rate, the expected return on plan assets and
the rate of compensation increase. Changes to these primary
assumptions and estimates would impact pension expense and
the deferred pension asset. The current economic conditions may
also have an impact on the pension plan of the Company as there
is no assurance that the plan will be able to earn the assumed rate
of return. As well, market driven changes may result in changes in
the discount rates and other variables which would result in the
Company being required to make contributions in the future that
differ significantly from the current contributions and assumptions
incorporated into the actuarial valuation process.
During 2009, the Company made a lump-sum contribution of
$61 million to its pension plans, following which the pension plans
purchased $172 million of annuities from insurance companies for
all employees in the pension plans who had retired as of January
1, 2009. The purchase of the annuities relieves the Company of
primary responsibility for, and eliminates significant risk associated
with, the accrued benefit obligation for the retired employees.
The non-cash settlement loss arising from this transaction was
$30 million and was recorded in the year ended December 31, 2009.
Pension Plans
When accounting for defined benefit pension plans, assumptions
are made in determining the valuation of benefit obligations
The following table illustrates the increase (decrease) in the accrued
benefit obligation and pension expense for changes in these
primary assumptions and estimates:
Impact of Changes in Pension- Related Assumptions
(In millions of dollars)
Discount rate
Impact of: 1% increase
1% decrease
Rate of compensation increase
Impact of: 0.25% increase:
0.25% decrease
Expected rate of return on assets
Impact of: 1% increase
1% decrease
Accrued Benefit Obligation at
End of Fiscal 2009
Pension Expense
Fiscal 2009
$
$
7.20%
(83)
91
3.00%
4
(4)
N/A
N/A
N/A
$
$
6.75%
(12)
18
3.00%
1
(1)
7.25%
6
(6)
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
69
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Allowance for Doubtful Accounts
A significant portion of our revenue is earned from selling on credit
to individual consumers and business customers. The allowance
for doubtful accounts is calculated by taking into account factors
such as our historical collection and write-off experience, the
number of days the customer is past due and the status of the
customer’s account with respect to whether or not the customer is
continuing to receive service. As a result, fluctuations in the aging
of subscriber accounts will directly impact the reported amount of
bad debt expense. For example, events or circumstances that result
in a deterioration in the aging of subscriber accounts will in turn
increase the reported amount of bad debt expense. Conversely,
as circumstances improve and customer accounts are adjusted and
brought current, the reported bad debt expense will decline.
NEW A CCOUNTING S TANDARDS
Goodwill and Intangible Assets
In 2008, the CICA issued Handbook Section 3064, Goodwill and
Intangible Assets (“CICA 3064”). CICA 3064, which replaces Section
3062, Goodwill and Intangible Assets, and Section 3450, Research
and Development Costs, establishes standards for the recognition,
measurement and disclosure of goodwill and intangible assets.
The provisions relating to the definition and initial recognition of
intangible assets, including internally generated intangible assets,
are equivalent to the corresponding provisions of IAS 38, Intangible
Assets. This new standard is effective for our Interim and Annual
Consolidated Financial Statements commencing January 1, 2009
and was applied retrospectively, with restatement of prior periods.
The adoption of CICA 3064 resulted in a $16 million decrease in
long-term other assets relating to deferred commissions and pre-
operating costs, and an $11 million decrease in retained earnings
at January 1, 2008, net of income taxes of $5 million and had no
material impact on previously reported net income in 2008.
Financial Instruments – Disclosures
In June 2009, the CICA amended Section 3862, “Financial Instruments
– Disclosures”, to include additional disclosure requirements about
fair value measurement for financial instruments and liquidity risk
disclosures. These amendments require a three-level hierarchy
that reflects the significance of the inputs used in making the fair
value measurements. Fair value of financial assets and financial
liabilities included in Level 1 are determined by reference to
quoted prices in active markets for identical assets and liabilities.
Assets and liabilities in Level 2 include valuations using inputs
other than the quoted prices for which all significant inputs are
based on observable market data, either directly or indirectly.
Level 3 valuations are based on inputs that are not based on
observable market data. The amendments to Section 3862 apply for
annual financial statements relating to fiscal years ending after
September 30, 2009.
The amendment to this standard did not have any impact
on the classification and measurement of our financial instruments.
The new disclosures pursuant to these new Handbook Sections
are included in Note 15 of the 2009 Audited Consolidated
Financial Statements.
RECENT C ANADIAN ACCOUNTING PRONOUNCEMENTS
Business Combinations
In October 2008, the CICA issued Handbook Section 1582, Business
Combinations (“CICA 1582”), concurrently with Handbook Sections
1601, Consolidated Financial Statements (“CICA 1601”), and 1602,
Non-Controlling Interests (“CICA 1602”). CICA 1582, which replaces
Handbook Section 1581, Business Combinations, establishes
standards for the measurement of a business combination and
the recognition and measurement of assets acquired and liabilities
assumed. CICA 1601, which replaces Handbook Section 1600,
carries forward the existing Canadian guidance on aspects of
the preparation of consolidated financial statements subsequent
to acquisition other than non-controlling interests. CICA 1602
establishes guidance for the treatment of non-controlling interests
subsequent to acquisition through a business combination. These
new standards are effective for the Company’s interim and annual
consolidated financial statements commencing on January 1, 2011
with earlier adoption permitted as of the beginning of a fiscal year.
The Company is assessing the impact of the new standards on its
consolidated financial statements.
Multiple Deliverable Revenue A rrangements
In December 2009, the CICA issued EIC-175, Multiple Deliverable
Revenue Arrangements (“EIC-175”). EIC-175, which replaces EIC-142,
Revenue Arrangements with Multiple Deliverables, addresses some
aspects of the accounting by a vendor for arrangements under
which it will perform multiple revenue-generating activities. These
new standards are effective for the Company’s interim and annual
consolidated financial statements commencing on January 1, 2011
with earlier adoption permitted as of the beginning of a fiscal year.
The Company is assessing the impact of the new standards on its
consolidated financial statements.
International Financial Reporting Standards (“IFRS” )
In February 2008, the Accounting Standards Board (“AcSB”)
confirmed that IFRS will be mandatory in Canada for profit-oriented
publicly accountable entities for fiscal periods beginning on or after
January 1, 2011. Our first annual IFRS financial statements will be for
the year ending December 31, 2011 and will include the comparative
period of 2010. Starting in the first quarter of 2011, we will provide
unaudited consolidated financial information in accordance with
IFRS including comparative figures for 2010.
The following table illustrates key elements of our conversion plan,
our major milestones and current status. Our conversion plan is
organized in phases over time and by area. We have completed all
activities to date per our detailed project plan and expect to meet
all milestones through to completion of the conversion to IFRS.
During the fourth quarter, we have finalized the changes to our
systems and processes required for implementation to ensure we
are ready for our conversion strategy to produce a parallel set of
IFRS financial records in 2010.
70
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AC TIVIT Y
Financial reporting:
• Assessment of accounting and
reporting differences.
• Selection of IFRS accounting policies
and IFRS 1 elections.
• Development of IFRS financial
statement format, including disclosures.
• Quantification of effects of conversion.
Systems and processes:
• Assessment of impact of changes on
systems and processes.
• Implementation of any system and
process design changes including
training appropriate personnel.
• Documentation and testing of internal
controls over new systems and
processes.
Business:
• Assessment of impacts on all areas of
the business, including contractual
arrangements and implement changes
as necessary.
• Communicate conversion plan and
progress internally and externally.
MILESTONES
STATUS
• Senior management and Audit
Committee sign-off for policy
recommendations and IFRS 1 elections
during 2009.
• Senior management and Audit
Committee preliminary approval
obtained for IFRS accounting policies
and IFRS 1 elections.
• Senior management and Audit
• Monitoring of impacts on policy
Committee sign-off on financial
statement format during 2010.
recommendations of new or amended
IFRS standards issued ongoing.
• Final quantification of conversion
• Preliminary IFRS financial statement
effects on 2010 comparative period by
Q1 2011.
format and disclosures drafted.
• Systems, process and internal control
changes implemented and training
complete in time for parallel run in
2010.
• Systems and process changes
completed in preparation for parallel
run. Internal reporting changes
underway.
• Testing of internal controls for 2010
comparatives completed by Q1 2011.
• Internal controls for impacted process
and transition updated in preparation
for parallel run.
• Training on new systems, processes
and internal controls completed.
• Contracts updated/renegotiated by
the end of 2010.
• Communication at all levels
• Preliminary assessment of impacts
on other areas of the business
completed.
throughout the conversion process.
• Communication is ongoing.
• Training for employees on expected
impacts completed.
We have allocated sufficient resources to our conversion
project, which include certain full-time employees in addition to
contributions by other employees on a part-time or as needed
basis. We have completed the delivery of training to all employees
with responsibilities in the conversion process. As well, training
for all other employees who will be impacted by our conversion
to IFRS has been completed. Our training efforts have focused on
updating those individuals whose roles and responsibilities are
directly impacted by the changes being implemented and providing
general training to employees on the impacts transition to IFRS will
have on the Company.
Although our IFRS accounting policies have been approved by
senior management and the Audit Committee, such approval is
contingent upon the realization of our expectations regarding
the IFRS standards that will be effective at the time of transition.
Consequently, we are unable to make a final determination of the
full impact of conversion until all of the IFRS standards applicable
at the conversion date are known. Our preliminary analysis of
the impacts of transition to IFRS on specific areas is detailed on
following page. When we are able to preliminarily determine
the areas of significant impact on our financial reporting, including
on our key performance indicators, systems and processes, and
other areas of our business, we will disclose such impacts in our
future MD&As.
CHANGES IN A CCOUNTING P OLICIES
In the period leading up to the changeover, the AcSB will continue
to issue accounting standards that are converged with IFRS, thus
mitigating the impact of adopting IFRS at the changeover date. The
International Accounting Standard Board (“IASB”) will also continue
to issue new accounting standards during the conversion period,
and as a result, the final impact of IFRS on our consolidated financial
statements will only be measured once all the IFRS applicable at the
conversion date are known. Consequently, our analysis of changes
and policy decisions have been made based on our expectations
regarding the accounting standards that we anticipate will be
effective at the time of transition. The future impacts of IFRS will
also depend on the particular circumstances prevailing in those
years. At this stage, we are only able to preliminarily estimate
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
71
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the anticipated impacts expected on our IFRS opening balance
sheet for some of the differences. In other areas we are not yet
able to reliably quantify the impacts to the consolidated financial
statements for these differences. These quantifications will be
completed throughout 2010. See the section entitled “Caution
Regarding Forward-Looking Statements, Risk and Assumptions”.
The overall impact of the above differences has not been finalized
however it has been estimated to result in a significant reduction
in the net pension asset and to give rise to an estimated opening
pension liability reflecting the deficit position of the plan at the
date of transition. This adjustment will be offset through opening
retained earnings.
Set out below are the key areas where changes in accounting policies
are expected to impact our consolidated financial statements. The
list and comments should not be regarded as a complete list of
changes that will result from transition to IFRS and are intended to
highlight those areas we believe to be most significant.
Share -Based Payments
IFRS 2, Share-Based Payments, requires that cash-settled
share-based payments to employees be measured (both initially and
at each reporting date) based on fair values of the awards. Canadian
GAAP requires that such payments be measured based on intrinsic
values of the awards. This difference is expected to impact the
accounting measurement of our stock-based payments, including
our stock options, restricted share units and deferred share units.
While we have not yet recalculated the impact of changing from
intrinsic value to fair value, we expect that the change will result in
an insignificant increase in the Company’s liability for share based
payments. Per the requirements of IFRS 1, this adjustment will be
offset in opening retained earnings upon transition to IFRS.
Employee Benefits
IAS 19, Employee Benefits, (“IAS 19”) requires the past service
cost element of defined benefit plans be expensed on an accelerated
basis, with vested past service costs expensed immediately
and unvested past service costs recognized on a straight-line basis
until the benefits become vested. Under Canadian GAAP, past
service costs are generally amortized on a straight-line basis over
the average remaining service period of active employees expected
under the plan. All of the past service costs for the Company’s
pension plan are vested; therefore, we expect that the impact of
transition will result in a reduction of the opening pension asset
balance equal to the amount of any previously unrecognized past
service costs.
In addition, IAS 19 requires an entity to make an accounting policy
choice regarding the treatment of actuarial gains and losses. The
Company intends to adopt the option allowing the immediate
recognition of actuarial gains and losses directly in equity with no
impact on profit or loss. The impact of this policy choice will be
to further reduce the Company’s pension asset by the amount of
any unamortized net actuarial losses and unrecognized transitional
assets that exist at the date of transition.
Furthermore, IAS 19 requires that the defined benefit obligation
and plan assets be measured at the balance sheet date while
Canadian GAAP allows the measurement date of the defined
benefit obligation and plan assets to be up to three months prior
to the date of the financial statements. The Company’s current
accounting policy is to measure the defined benefit obligation
and plan assets at September 30, 2009. The impact of this difference
has not been finalized, but is expected to further reduce the
pension asset.
72
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
Borrowing Costs
IAS 23, Borrowing Costs (“IAS 23”), requires the capitalization
of borrowing costs directly attributable to the acquisition,
construction or production of a qualifying asset as part of the
cost of that asset. Under Canadian GAAP, the Company elected
the accounting policy choice to expense these costs as incurred.
IFRS 1 provides an election that permits the Company to apply the
requirements of IAS 23 prospectively from the date of transition,
January 1, 2010. The Company intends to apply this election and
consequently, the Company does not expect to have an adjustment
on its opening IFRS balance sheet.
Joint Ventures
IAS 31, Interests in Joint Ventures (“IAS 31”) currently provides
the entity with a policy choice to account for joint ventures using
either proportionate consolidation or the equity method. The
IASB is currently considering Exposure Draft 9, Joint Arrangements
(“ED 9”), that is intended to modify IAS 31. The IASB has indicated
that it expects to issue a new standard to replace IAS 31 in 2010.
Currently, under Canadian GAAP, we proportionately account for
interests in joint ventures. ED 9 proposes to eliminate the option to
proportionately consolidate such interests that exists in IAS 31, and
require an entity to recognize its interest in a joint venture, using
the equity method. While our decision to use the equity method
will not be finally confirmed until the new standard is issued,
the impact of using the equity method is anticipated to result in
reductions of the opening balances for Current Assets, Property,
Plant & Equipment, Intangible Assets and Current Liabilities with
an offsetting increase in Investments.
Financial Instruments: Transaction Costs
IAS 39, Financial Instruments: Recognition and Measurement
(“IAS 39”) requires that transaction costs incurred upon initial
acquisition of a financial instrument be deferred and amortized
into profit and loss over the life of the instrument. Under Canadian
GAAP these costs are recognized immediately in net income. Initial
application of IAS 39 will result in a reduction in long-term debt
on the date of transition. This adjustment will be offset through
opening retained earnings.
Financial Instruments: Hedge Accounting
When assessing hedge effectiveness under IAS 39, the Company
will be required to include in its test the risk that the parties to
the hedging instrument will default by failing to make payment.
Under Canadian GAAP, the Company elected not to include credit
risk in the hedge effectiveness tests. Upon transition to IFRS, the
Company intends to continue to apply hedge accounting to all its
hedging arrangements to which Canadian GAAP hedge accounting
is applied and which meet the IFRS hedge accounting criteria,
including passing the revised effectiveness tests.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Customer Loyalty Programs
IFRIC 13 Customer Loyalty Programmes (“IFRIC 13”) requires a
revenue approach in accounting for customer loyalty programs.
Canadian GAAP does not provide specific guidance on accounting
for customer loyalty programs. We have adopted a liability approach
for our customer loyalty program offered to Fido subscribers. The
current policy is to classify the liability for loyalty points as an
accrued liability on the balance sheet and to record the net cost of
the program in equipment revenue. The liability is initially recorded
at the face value of the loyalty awards granted and subsequently
adjusted based on redemption rates. The application of IFRIC 13
is expected to result in a reclassification of revenue between the
Network and Equipment categories as well as a reclassification on
the balance sheet for the deferred revenue balance from Accrued
Liabilities to Unearned Revenue. Furthermore, we will also be
required to defer a portion of the revenue for the initial sales
transaction in which the awards are granted based on the fair
value of the awards granted. While we have not yet calculated the
impact of applying the revenue approach for the accounting for
loyalty programs, we expect the difference to be insignificant on
adoption of IFRS.
Impairment of Assets
International Accounting Standard 36, Impairment of Assets
(“IAS 36”), uses a one-step approach for both testing for and
measurement of impairment, with asset carrying values compared
directly with the higher of fair value less costs to sell and value in
use (which uses discounted future cash flows). Canadian GAAP
however, uses a two-step approach to impairment testing: first
comparing asset carrying values with undiscounted future cash
flows to determine whether impairment exists; and then measuring
any impairment by comparing asset carrying values with fair
values. The difference in methodologies may potentially result in
additional asset impairments upon transition to IFRS.
Additionally, under Canadian GAAP assets are grouped at the lowest
level for which identifiable cash flows are largely independent of
the cash flows of other assets and liabilities for impairment testing
purposes. IFRS requires that assets be tested for impairment at
the level of cash generating units, which is the lowest level of
assets that generate largely independent cash inflows. This lower
level grouping could result in identification of impairment more
frequently under IFRS, but of potentially smaller amounts.
However, with the exception of goodwill, new write-downs may
potentially be offset by the requirement under IAS 36 to reverse
any previous impairment losses where circumstances have changed.
Canadian GAAP prohibits reversal of impairment losses.
At this time we have not yet finalized the impairment testing for
the opening balance sheet under IFRS and are unable to state
whether or not the results would differ from our Canadian GAAP
impairment tests.
Provisions for Onerous Contracts
IAS 37 Provisions, Contingent Liabilities and Contingent Assets (“IAS
37”), requires an entity to recognize a provision when a contract
becomes onerous, that is when it has a contract in which the
unavoidable costs of meeting the obligations under the contract
exceed the economic benefits expected to be received under it.
The unavoidable costs under a contract reflect the least net cost of
exiting from the contract, which is the lower of the cost of fulfilling
it and any compensation or penalties arising from failure to fulfill
it. If an entity has a contract that is onerous, the present obligation
under the contract shall be recognized and measured as a provision.
Canadian GAAP only requires the recognition of such a liability
in certain situations (e.g. for operating leases that the entity has
ceased to use). This difference could result in recognition of an
obligation under IFRS that was not previously recognized under
Canadian GAAP. The Company is in the process of reviewing all
contracts to determine if any were onerous at the date of transition
and cannot yet reliably quantify the impact of this difference on
the opening balance sheet.
First-Time Adoption of International Financial Reporting
Standards
Our adoption of IFRS will require the application of IFRS 1, First-Time
Adoption of International Financial Reporting Standards (“IFRS 1”),
which provides guidance for an entity’s initial adoption of IFRS. IFRS
1 generally requires that an entity apply all IFRS effective at the
end of its first IFRS reporting period retrospectively. However, IFRS
1 does include certain mandatory exceptions and limited optional
exemptions in specified areas of certain standards from this general
requirement. The following are the significant optional exemptions
available under IFRS 1 that we expect to apply in preparing our first
financial statements under IFRS.
Business
Combinations
We expect to elect to not restate any
Business Combinations that have occurred
prior to January 1, 2010.
Borrowing
Costs
Employee
Benefits
We expect to elect to apply the
requirements of IAS 23 Borrowing Costs
prospectively from January 1, 2010.
We expect to elect to recognize any
actuarial gains/losses as at January 1, 2010
in retained earnings.
The information above is provided to allow investors and others to
obtain a better understanding of our IFRS changeover plan and the
resulting possible effects on, for example, our financial statements
and operating performance measures. Readers are cautioned,
however, that it may not be appropriate to use such information for
any other purpose. This information also reflects our most recent
assumptions and expectations; circumstances may arise, such as
changes in IFRS, regulations or economic conditions, which could
change these assumptions or expectations.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
73
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
U.S. GA AP DIFFERENCES
We prepare our financial statements in accordance with Canadian
GAAP. U.S. GAAP differs from Canadian GAAP in certain respects.
The areas of principal differences and their impact on our 2009
Audited Consolidated Financial Statements are described in Note
25 to the 2009 Audited Consolidated Financial Statements. The
significant differences in accounting relate to:
• Differences in business combinations and consolidation accounting;
• Gain on Sale of Cable Systems;
• Capitalized Interest;
• Financial Instruments;
• Stock-Based Compensation;
• Pensions;
• Income Taxes; and
• Installation Revenues and Costs.
Recent U.S. accounting pronouncements are also discussed in Note
25 to the 2009 Audited Consolidated Financial Statements.
6. ADDITIONAL FINANCIAL INFORMATION
REL ATED PART Y T R ANSAC TIONS
We have entered into certain transactions in the normal course
of business with certain broadcasters in which we have an equity
interest. The amounts paid to these broadcasters are as follows:
Years ended December 31,
(in millions of dollars)
Fees paid to broadcasters accounted
for by the equity method
2009
2008
%Chg
$
16 $
17
(6)
We have entered into certain transactions with companies, the partners or senior officers of which are Directors of our Company and/or its
subsidiary companies. Total amounts paid to these related parties, directly or indirectly, are as follows:
Years ended December 31,
(in millions of dollars)
Printing, legal services and commissions paid on premiums
for insurance coverage
2009
2008
%Chg
$
39 $
7
n/m
We have entered into certain transactions with our controlling shareholder and companies controlled by the controlling shareholder.
These transactions are subject to formal agreements approved by the Audit Committee. Total amounts paid (received) by us to (from)
these related parties are as follows:
Years ended December 31,
(in millions of dollars)
Charges to Rogers for business use of aircraft, net
of other adminstrative services
2009
2008
%Chg
$
(1) $
(1)
–
These transactions are measured at the exchange amount, being the amount agreed to by the related parties and are reviewed by the
Audit Committee and are at market terms and conditions.
In January 2010, with the approval of the Board of Directors, we
closed an agreement to sell our aircraft to a private Rogers’ family
holding company for cash proceeds of US$18 million. The terms
of the sale were negotiated by a Special Committee of the Board
of Directors comprised entirely of independent directors. The
Special Committee was advised by several independent parties
knowledgeable in aircraft valuations to ensure that the sale price
was within a range that was reflective of current market value. As
the aircraft was held for sale at December 31, 2009, an additional
$5 million of depreciation was recorded in 2009 to write down the
net book value of the aircraft to approximate the amount realized
from the sale of the aircraft.
74
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIVE-YEAR S UMMARY OF C ONSOLIDATED F INANCIAL R ESULTS
Years ended December 31,
(in millions of dollars, except per share amounts)
2009
2008
2007
2006
2005
Income and Cash Flow:
Revenue
Wireless
Cable
Media
Corporate and eliminations
Operating profit(1)
Wireless
Cable
Media
Corporate and eliminations
Adjusted operating profit(1)
Wireless
Cable
Media
Corporate and eliminations
Net Income (loss)
Adjusted net income
Cash flow from operations(2)
Property, plant and equipment expenditures
Average Class A and Class B shares
outstanding (Ms)(3)
Net income (loss) per share:(3)
Basic
Diluted
Adjusted net income per share:
Basic
Diluted
Balance Sheet:
Assets
Property, plant and equipment, net
Goodwill
Intangible assets
Investments
Other assets
Liabilities and Shareholders' Equity
Long-term debt
Accounts payable and other liabilities
Total liabilities
Shareholders' equity
Ratios:
Revenue growth
Adjusted operating profit growth
Debt/adjusted operating profit(3)
Dividends declared per share(4)
$ 6,654 $ 6,335 $ 5,503 $ 4,580 $ 3,860
2,492
1,097
(115)
$ 11,731 $ 11,335 $ 10,123 $ 8,838 $ 7,334
3,809
1,496
(305)
3,948
1,407
(278)
3,558
1,317
(255)
3,201
1,210
(153)
$ 3,006 $ 2,797 $ 2,532 $ 1,969 $ 1,337
765
128
(86)
$ 4,316 $ 4,078 $ 3,099 $ 2,875 $ 2,144
1,325
73
(88)
1,220
142
(81)
802
82
(317)
890
151
(135)
$ 3,042 $ 2,806 $ 2,589 $ 1,987 $ 1,409
778
131
(66)
$ 4,388 $ 4,060 $ 3,703 $ 2,942 $ 2,252
1,324
119
(97)
1,233
142
(121)
1,016
176
(78)
916
156
(117)
$ 1,478 $ 1,002 $
637 $
$ 1,556 $ 1,260 $ 1,066 $
622 $
684 $
(45)
47
$ 3,526 $ 3,500 $ 3,135 $ 2,386 $ 1,551
$ 1,855 $ 2,021 $ 1,796 $ 1,712 $ 1,355
621
638
642
642
577
2.38 $
2.38
1.57 $
1.57
1.00 $ 0.99 $
0.99
0.97
(0.08)
(0.08)
2.51 $
2.51
1.98 $
1.98
1.67 $ 1.08 $
1.66
1.07
0.08
0.08
$
$
$ 8,197 $ 7,898 $ 7,289 $ 6,732 $ 6,152
3,036
2,627
138
1,881
$ 17,018 $ 17,082 $ 15,325 $ 14,105 $ 13,834
3,018
2,643
547
2,613
3,027
2,086
485
2,438
2,779
2,152
139
2,303
3,024
2,761
343
3,056
$ 8,463 $ 8,506 $ 6,033 $ 6,988 $ 7,739
2,567
10,306
3,528
$ 17,018 $ 17,082 $ 15,325 $ 14,105 $ 13,834
3,860
12,366
4,716
4,282
12,745
4,273
4,668
10,701
4,624
2,917
9,905
4,200
3%
8%
2.1
1.16 $
12%
10%
2.1
1.00 $
15%
26%
2.1
21%
31%
2.8
0.42 $ 0.08 $
33%
29%
4.0
0.06
$
(1) As defined. See section entitled “key Performance Indicators and Non-GAAP Measures”.
(2) Cash flow from operations before changes in working capital amounts.
(3) Debt includes net derivative liabilities at the risk free mark-to-market value and is net of cash as applicable.
(4) Prior period shares and per share amounts have been retroactively adjusted to reflect a two-for-one-split of the Company’s Class A Voting and Class B Non-Voting shares on December 29, 2006.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
75
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY OF SEASONALIT Y AND QUARTERLY RESULTS
Quarterly results and statistics for the previous eight quarters are
outlined following this section.
Our operating results are subject to seasonal fluctuations that
materially impact quarter-to-quarter operating results. As a result,
one quarter’s operating results are not necessarily indicative
of what a subsequent quarter’s operating results will be. Each
of Wireless, Cable and Media has unique seasonal aspects to
its business.
Wireless’ operating results are subject to seasonal fluctuations
that materially impact quarter-to-quarter operating results. In
particular, operating results may be influenced by the timing of
our marketing and promotional expenditures and higher levels of
subscriber additions and subsidies, resulting in higher subscriber
acquisition and activation-related expenses in certain periods.
The operating results of Cable Operations services are subject
to modest seasonal fluctuations in subscriber additions and
disconnections, which are largely attributable to movements
of university and college students and individuals temporarily
suspending service due to extended vacations, or seasonal
relocations, as well as our concentrated marketing efforts generally
conducted during the fourth quarter. Rogers Retail operations
may also experience modest fluctuations from quarter-to-quarter
due to the availability and timing of release of popular titles
throughout the year. RBS does not have any unique seasonal
aspects to its business.
The seasonality at Media is a result of fluctuations in advertising
and related retail cycles, since they relate to periods of increased
consumer activity as well as fluctuations associated with the Major
League Baseball season, where revenues are generally concentrated
in the spring, summer and fall months.
Cable Operations services revenue and operating profit increased
primarily due to price increases, increased penetration of its digital
products and incremental programming packages, and the scaling
and rapid growth of our cable telephony service. Similarly, the
steady growth of Internet revenues has been the result of a greater
penetration of Internet subscribers as a percentage of homes
passed. RBS’ operating profit margin reflects the pricing pressures
on long-distance and higher carrier costs, with an increase in lower
margin long-distance revenue. Rogers Retail revenue has decreased
as a result of lower iPhone sales in 2009 due to the launch of the
product in the prior year.
Media’s results are primarily attributable to a general downturn in
demand for advertising due to the softness in the economy and the
decline in consumer discretionary retail sales.
Other fluctuations in net income from quarter-to-quarter can
also be attributed to losses on repayment of debt, foreign
exchange gains or losses, changes in the fair value of derivative
instruments, other income and expenses, writedowns of goodwill,
intangible assets and other long-term assets and changes in income
tax expense.
Summary of Fourth Quarter 20 09 Results
During the three months ended December 31, 2009, consolidated
operating revenue increased 4% to $3,057 million in 2009 compared
to $2,941 million in the corresponding period in 2008, with 7%
growth Wireless network and Cable Operations growth, and flat
results at Media. Consolidated fourth quarter adjusted operating
profit grew 14% year-over-year to $1,101 million, with 16% growth
at Wireless, 4% growth at Cable, and 13% growth at Media.
Consolidated operating income for the three months ended
December 31, 2009, totalled $607 million, compared to $137 million
in the corresponding period of 2008.
In addition to the seasonal trends, revenue and operating profit
can fluctuate from general economic conditions. The Canadian
economy, and Ontario in particular, experienced an economic
slowdown in 2009.
We recorded net income of $310 million for the three months ended
December 31, 2009, or basic and diluted net income per share of
$0.51, compared to a net loss of $138 million or basic and diluted net
loss per share of $0.22 in the corresponding period of 2008.
Wireless revenue and operating profit growth reflects the
increasing number of wireless voice and data subscribers and
increased handset subsidies as a result of a consumer shift towards
smartphones, offset by a decrease in blended ARPU. Wireless has
continued its strategy of targeting higher value postpaid subscribers
and selling prepaid handsets at higher price points, which has also
contributed over time to the significantly heavier mix of postpaid
versus prepaid subscribers. Meanwhile, the successful growth in
customer base and increased market penetration have been met by
increasing customer service and retention expenses and increasing
credit and collection costs. However, these costs have been offset
by operating efficiencies and increasing GSM network roaming
revenues from our subscribers travelling outside of Canada, as
well as strong growth in roaming revenues from visitors to Canada
utilizing our GSM network.
76
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarterly Consolidated Financial Summary
(in millions of dollars,
except per share amounts)
Operating Revenue
Wireless
Cable
Media
Q1
Q2
Q3
2009
Q4
Q1
Q2
Q3
2008
Q4
$ 1,544 $ 1,616 $ 1,760 $ 1,734 $ 1,431 $ 1,522 $ 1,727 $ 1,655
985
394
1,019
393
938
409
961
386
968
284
989
364
972
366
925
307
Corporate and eliminations
(49)
(63)
(77)
(89)
(54)
(66)
(92)
(93)
2,747
2,891
3,036
3,057
2,609
2,803
2,982
2,941
Operating profit (loss) before the undernoted
Wireless
Cable
Media
Corporate and eliminations
Stock-based compensation recovery (expense)(1)
Settlement of pension obligations(2)
Integration and restructuring expenses(3)
Contract termination fees(4)
Adjustment for CRTC Part II fees decision(5)
Operating profit(6)
Depreciation and amortization
Impairment losses on goodwill, intangible assets
and other long-term assets(7)
Operating income
Interest on long-term debt
Debt issuance costs
Other income (expense)
Income tax expense
710
324
(10)
(19)
1,005
81
–
(4)
–
–
1,082
444
–
638
(152)
–
(17)
(160)
742
332
37
(28)
1,083
(13)
–
(37)
–
–
1,033
446
846
329
36
(30)
1,181
(6)
–
(11)
(12)
–
1,152
416
744
325
52
(20)
1,101
(29)
(30)
(65)
(7)
79
1,049
424
705
303
2
(26)
984
116
–
(5)
–
–
1,095
440
769
304
52
(36)
1,089
(53)
–
(3)
–
(37)
996
420
693
318
43
(29)
1,025
62
–
(2)
–
–
1,085
429
639
313
46
(30)
968
(25)
–
(41)
–
–
902
471
–
–
18
–
–
–
294
587
(156)
(5)
73
(125)
736
(166)
–
44
(129)
607
(173)
(6)
(30)
(88)
655
(138)
–
(3)
(170)
576
(133)
–
11
(153)
656
(147)
(16)
16
(14)
137
(157)
–
(31)
(87)
Net income (loss) for the period
$
309 $
374 $
485 $
310 $
344 $
301 $
495 $
(138)
Net income (loss) per share:
Basic
Diluted
Additions to property, plant and equipment(6)
$
$
$
0.49 $
0.49 $
359 $
0.59 $
0.59 $
434 $
0.79 $
0.79 $
491 $
0.51 $
0.51 $
571 $
0.54 $
0.54 $
321 $
0.47 $
0.47 $
481 $
0.78 $
0.78 $
436 $
(0.22)
(0.22)
783
(1) See section entitled “Stock-based Compensation”.
(2) Relates to the settlement of pension obligations for all employees in the pension plans who had retired as of January 1, 2009 as a result of annuity purchases by the Company’s pension plans.
(3) Costs incurred relate to severances resulting from the restructuring of our employee base to combine the Cable and Wireless businesses into a communications organization and to improve
our cost structure in light of the current economic and competitive conditions, severances and restructuring expenses related to the outsourcing of certain information technology functions,
the integration of Call-Net, Futureway and Aurora Cable, the restructuring of RBS, and the closure of certain Rogers Retail stores.
(4) Relates to the termination and release of certain Blue Jays players from the remaining term of their contracts.
(5) Related to an adjustment of CRTC Part II fees related to prior periods. The adjustments related to Part II CRTC fees are applicable to the quarters in which they occur and only partially impact
the full years. See the section entitled “Government Regulation and Regulatory Developments”.
(6) As defined. See the section entitled “key Performance Indicators and Non-GAAP Measures”.
(7) In the fourth quarter of 2009 and 2008, we determined that the fair values of certain broadcasting assets were lower than their carrying values. This primarily resulted from weakening industry
expectations and declines in advertising revenues amidst the slowing economy. As a result, we recorded an aggregate non-cash impairment charge of $18 million in 2009 with the following
components: $5 million related to broadcast licences and $13 million related to other long-term assets; and $294 million in 2008 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.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
77
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Adjusted Quarterly Consolidated Financial Summary (1)
(in millions of dollars,
except per share amounts)
Operating Revenue
Wireless
Cable
Media
Corporate and eliminations
Adjusted operating profit (loss)(2)
Wireless
Cable
Media
Corporate and eliminations
Depreciation and amortization
Adjusted operating income
Interest on long-term debt
Other income (expense)
Income tax expense
Q1
Q2
Q3
2009
Q4
Q1
Q2
Q3
2008
Q4
$ 1,544 $ 1,616 $ 1,760 $ 1,734 $
968
284
(49)
972
366
(63)
989
364
(77)
1,019
393
(89)
1,431 $
925
307
1,522 $ 1,727 $ 1,655
985
961
394
386
938
409
(54)
(66)
(92)
(93)
2,747
2,891
3,036
3,057
2,609
2,803
2,982
2,941
710
324
(10)
(19)
742
332
37
(28)
846
329
36
(30)
744
325
52
(20)
1,005
1,083
1,181
1,101
444
561
(152)
(17)
(136)
446
637
(156)
73
(142)
416
765
(166)
44
(138)
424
677
(173)
(23)
(111)
705
303
2
(26)
984
440
544
(138)
(3)
(133)
769
304
52
(36)
693
318
43
(29)
1,089
1,025
420
669
(133)
11
(183)
429
596
(147)
16
–
639
313
46
(30)
968
471
497
(157)
(31)
(145)
Adjusted net income for the period
$
256 $
412 $
505 $
370 $
270 $
364 $
465 $
164
Adjusted net income per share:
Basic
Diluted
Additions to property, plant and equipment(2)
$
$
$
0.40 $
0.40 $
359 $
0.65 $
0.65 $
434 $
0.82 $
0.82 $
491 $
0.61 $
0.61
571
0.42 $
$0.42 $
$321 $
0.57 $
0.57 $
481 $
0.73 $
0.73 $
436 $
0.26
0.26
783
(1) This quarterly summary has been adjusted to exclude stock-based compensation (recovery) expense, integration and restructuring expenses, contract termination fees, an adjustment to CRTC Part II
fees related to prior periods, pension settlement, debt issuance costs, loss on repayment of long-term debt, impairment losses on goodwill, intangible assets and other long-term assets, and the
income tax impact related to the above items. Certain prior year numbers have been reclassified to conform to the current year presentation. See the section entitled “key Performance Indicators
and Non-GAAP Measures”.
(2) As defined. See the section entitled “key Performance Indicators and Non-GAAP Measures”.
SUMMARY FINANCIAL RESULTS OF LONG -TERM
DEBT GUAR ANTORS
The Company’s outstanding public debt, $2.4 billion bank credit
facility and Derivatives are unsecured obligations of RCI. RCI’s
public debt originally issued by Rogers Cable Inc. has Rogers
Cable Communications Inc. (“RCCI”), a wholly owned subsidiary,
as a co-obligor and Rogers Wireless Partnership (“RWP”), a wholly
owned subsidiary, as an unsecured guarantor while RCI’s public debt
originally issued by Rogers Wireless Inc. has RWP as a co-obligor
and RCCI as an unsecured guarantor. Similarly, RCCI and RWP have
provided unsecured guarantees for the public debt issued by RCI,
the bank credit facility and the Derivatives. Accordingly, RCI’s
bank debt, senior public debt and Derivatives rank pari passu on
an unsecured basis. Prior to its redemption in December 2009, the
Company’s US$400 million 8.00% Senior Subordinated Notes were
subordinated to its senior debt.
The following table sets forth the selected unaudited consolidating
summar y financial information for RCI for the periods
identified below, presented with a separate column for: (i) RCI;
(ii) RWP and RCCI (the “Guarantors”), on a combined basis;
(iii) our non-guarantor subsidiaries (“Other Subsidiaries”) on a
combined basis; (iv) consolidating adjustments; and (v) the total
consolidated amounts.
78
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In millions of dollars (unaudited)
Years ended December 31 (unaudited)
De c. 31
20 09
De c . 31
2008
D ec. 31
2007
D ec.31
2009
D ec. 31
2008
D ec. 31
2007
D ec.31
2009
D ec. 31
2008
Dec. 31
2007
RCI(1)(2)(3)(4)
Guarantors(1)(2)(3)(4)
Other Subsidiaries (2)(3)(4)
Statement of Income Data:
Revenue
Operating Income (loss)
Net income (loss)
Balance Sheet Data
(at period end):
Current assets
Non-current assets
Current liabilities
Non-current liabilities
$
90 $
83 $
75 $
(133)
1,478
(131)
1,002
(352)
637
8,884 $
2,270
2,153
8,469 $
2,145
1,814
7,461 $
1,612
1,479
3,159 $
580
(498)
3,186 $
260
(293)
2,934
456
16
$
3,339 $
21,681
7,724
3,011 $
17,406
4,190
3,622 $
14,337
3,321
5,296 $
8,366
4,005
3,253 $
7,105
3,903
3,669 $
6,830
5,885
3,349 $
8,328
748
2,097 $
7,689
691
9,489
9,134
7,651
147
149
170
81
132
2,356
5,159
1,047
17
In millions of dollars (unaudited)
Years ended December 31 (unaudited)
De c. 31
20 09
De c. 31
2008
D ec. 31
2007
D ec.31
2009
D ec. 31
2008
D ec. 31
2007
Consolidating Adjustments (2)(3)(4)
Total Consolidated Amounts
Statement of Income Data:
Revenue
Operating Income (loss)
Net income (loss)
Balance Sheet Data
(at period end):
Current assets
Non-current assets
Current liabilities
Non-current liabilities
$
(402) $
(149)
(1,655)
(403) $
(250)
(1,521)
(347) $ 11,731 $ 11,335 $ 10,123
1,496
(220)
637
(1,495)
2,568
1,478
2,024
1,002
$
(9,729) $
(23,612)
(9,729)
(6,065) $
(17,414)
(6,068)
(7,499) $
(13,160)
(7,511)
2,255 $
14,763
2,748
2,296 $
14,786
2,716
280
235
121
9,997
9,650
2,148
13,166
2,742
7,959
(1) All information contained in the foregoing table is presented as if the intracompany amalgamation of RCI and certain of its wholly-owned subsidiaries, including Rogers Cable Inc. and
Rogers Wireless Inc., that occurred on July 1, 2007, as well as the provision of the RWP and RCCI guarantees in respect of our bank debt, our public debt and our Derivatives, had occurred
at the start of the earliest period presented (ie. January 1, 2007).
(2) For the purposes of this table, investments in subsidiary companies are accounted for by the equity method.
(3) Amounts recorded in current liabilities and non-current liabilities for the guarantors do not include any obligations arising as a result of being a guarantor or co-obligor, as the case may be,
under any of RCI’s long-term debt.
(4) On January 1, 2009, we adopted CICA Handbook section 3064, Goodwill and Intangible Assets. The adoption was applied retrospectively with restatement of prior periods and resulted in a
$5 million increase in current assets, a $16 million decrease in non-current assets, and an $11 million decrease in retained earnings for the periods presented above prior to January 1, 2009
and had no material impact on previously reported net income for those periods.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report (the “Evaluation
Date”), we conducted an evaluation (under the supervision and
with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer), pursuant to Rule
13a-15 promulgated under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), of the effectiveness of the design
and operation of our disclosure controls and procedures. Based
on this evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that as of the Evaluation Date such disclosure
controls and procedures were effective.
Management ’s Report on Internal Control
Over Financial Reporting
The management of our company is responsible for establishing and
maintaining adequate internal controls over financial reporting.
Our internal control system was designed to provide reasonable
assurance to our management and Board of Directors regarding the
preparation and fair presentation of published financial statements
in accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
79
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management maintains a comprehensive system of controls
intended to ensure that transactions are executed in accordance
with management’s authorization, assets are safeguarded, and
financial records are reliable. Management also takes steps to
see that information and communication flows are effective
and to monitor performance, including performance of internal
control procedures.
Management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2009, based on the
criteria set forth in the Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”). Based on this assessment, management has
concluded that, as of December 31, 2009, our internal control over
SUPPLEMENTARY INFORMATION: NON - GA AP C ALCUL ATIONS
Operating Profit Margin Calculations
financial reporting is effective. Our independent auditor, KPMG
LLP, has issued an audit report that we maintained, in all material
respects, effective internal control over financial reporting as of
December 31, 2009, based on the criteria established in Internal
Control – Integrated Framework issued by the COSO.
Changes in Internal Control Over Financial Reporting
and Disclosure Controls and Procedures
There have been no changes in our internal controls over financial
reporting during 2009 that have materially affected, or are
reasonably likely to materially affect, our internal controls over
financial reporting.
Years ended December 31,
(In millions of dollars)
RCI:
Adjusted operating profit
Divided by total revenue
RCI adjusted operating profit margin
WIRELESS:
Adjusted operating profit
Divided by network revenue
Wireless adjusted operating profit margin
CABLE:
Cable Operations:
Adjusted operating profit
Divided by revenue
Cable Operations adjusted operating profit margin
Rogers Business Solutions:
Adjusted operating profit
Divided by revenue
Rogers Business Solutions adjusted operating profit margin
Rogers Retail:
Adjusted operating profit (loss)
Divided by revenue
Rogers Retail adjusted operating profit (loss) margin
MEDIA:
Adjusted operating profit
Divided by revenue
Media adjusted operating profit margin
80
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
2009
2008
$
4,388 $
11,731
37.4%
4,060
11,335
35.8%
$
3,042 $
6,245
2,806
5,843
48.7%
48.0%
$
1,298 $
3,074
1,171
2,878
42.2%
40.7%
$
35 $
503
7.0%
59
526
11.2%
$
(9) $
399
3
417
(2.3%)
0.7%
$
119 $
1,407
8.5%
142
1,496
9.5%
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Calculations of Adjusted Operating Profit, Net Income and Earnings Per Share
Years ended December 31,
(In millions of dollars, number of shares outstanding in millions)
Operating profit
Add (deduct):
Stock-based compensation expense (recovery)
Settlement of pension obligations
Integration and restructuring expenses
Contract termination fees
Adjustment for CRTC Part II fees decision
Adjusted operating profit
Net income
Add (deduct):
Stock-based compensation expense (recovery)
Settlement of pension obligations
Integration and restructuring expenses
Contract termination fees
Adjustment for CRTC Part II fees decision
Loss on repayment of long-term debt
Impairment losses on goodwill, intangible assets
and other long-term assets
Debt issuance costs
Income tax impact
Adjusted net income
Adjusted basic and diluted earnings per share:
Adjusted net income
Divided by: weighted average number
of shares outstanding
Adjusted basic and diluted earnings per share
Wireless Non- GA AP Calculations (1)
Years ended December 31,
(In millions of dollars, subscribers in thousands, except ARPU figures and adjusted operating profit margin)
Postpaid ARPU (monthly)
Postpaid (voice and data) revenue
Divided by: average postpaid wireless voice and data subscribers
Divided by: 12 months
Prepaid ARPU (monthly)
Prepaid (voice and data) revenue
Divided by: average prepaid subscribers
Divided by: 12 months
Blended ARPU (monthly)
Voice and data revenue
Divided by: average wireless voice and data subscribers
Divided by: 12 months
Adjusted operating profit margin
Adjusted operating profit
Divided by: network revenue
Adjusted operating profit margin
2009
2008
$
4,316 $
4,078
(33)
30
117
19
(61)
(100)
–
51
–
31
$
$
4,388 $
4,060
1,478 $
1,002
(33)
30
117
19
(61)
7
18
11
(30)
(100)
–
51
–
31
–
294
16
(34)
$
1,556 $
1,260
$
1,556 $
1,260
621
$
2.51 $
638
1.98
2009
2008
$
5,948 $
6,705
12
5,558
6,142
12
$
73.93 $
75.41
$
297 $
1,479
12
285
1,426
12
$
16.73 $
16.65
$
6,245 $
8,184
12
5,843
7,568
12
$
63.59 $
64.34
$
3,042 $
6,245
48.7%
2,806
5,843
48.0%
(1) For definitions of key performance indicators and non-GAAP measures, see the section entitled “key Performance Indicators and Non-GAAP Measures”.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
81
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
DECEMBER 31, 2009
The accompanying consolidated financial statements of Rogers
Communications Inc. and its subsidiaries and all the information
in Management’s Discussion and Analysis are the responsibility of
management and have been approved by the Board of Directors.
The Board of Directors is responsible for overseeing management’s
responsibility for financial reporting and is ultimately responsible
for reviewing and approving the consolidated financial
statements. The Board carries out this responsibility through
its Audit Committee.
The consolidated financial statements have been prepared by
management in accordance with Canadian generally accepted
accounting principles. The consolidated financial statements
include certain amounts that are based on the best estimates and
judgments of management and in their opinion present fairly, in all
material respects, Rogers Communications lnc.’s financial position,
results of operations and cash flows. Management has prepared
the financial information presented elsewhere in Management’s
Discussion and Analysis and has ensured that it is consistent with
the consolidated financial statements.
Management of Rogers Communications Inc., in furtherance of the
integrity of the consolidated financial statements, has developed
and maintains a system of internal controls, which is supported
by the internal audit function. Management believes the internal
controls provide reasonable assurance that transactions are
properly authorized and recorded, financial records are reliable
and form a proper basis for the preparation of consolidated
financial statements and that Rogers Communications lnc.’s assets
are properly accounted for and safeguarded. The internal control
processes include management’s communication to employees of
policies that govern ethical business conduct.
The Audit Committee meets periodically with management, as
well as the internal and external auditors, to discuss internal
controls over the financial reporting process, auditing matters and
financial reporting issues; to satisfy itself that each party is properly
discharging its responsibilities; and to review Management’s
Discussion and Analysis, the consolidated financial statements
and the external auditors’ report. The Audit Committee reports
its findings to the Board of Directors for consideration when
approving the consolidated financial statements for issuance to
the shareholders. The Audit Committee also considers, for review
by the Board of Directors and approval by the shareholders, the
engagement or re-appointment of the external auditors.
The consolidated financial statements have been audited by KPMG
LLP, the external auditors, in accordance with Canadian generally
accepted auditing standards on behalf of the shareholders. KPMG
LLP has full and free access to the Audit Committee.
February 17, 2010
Nadir H. Mohamed, FCA
President and
Chief Executive Officer
William W. Linton, CA
Executive Vice President,
Finance and
Chief Financial Officer
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the Company
as at December 31, 2009 and 2008 and the results of its operations
and its cash flows for the years then ended in accordance with
Canadian generally accepted accounting principles.
Chartered Accountants, Licensed Public Accountants
Toronto, Canada
February 17, 2010
AUDITORS’ REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Rogers
Communications Inc. as at December 31, 2009 and 2008 and
the consolidated statements of income, shareholders’ equity,
comprehensive income and cash flows for the years then ended.
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally
accepted auditing standards. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation.
82
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
CONSOLIDATED S TATEMENTS OF I NCOME
(IN MILLIONs OF CANADIAN DOLLARs, ExCEPT PER sHARE AMOuNTs)
Years ended December 31, 2009 and 2008
Operating revenue (note 3(b))
Operating expenses:
Cost of sales
sales and marketing
Operating, general and administrative
settlement of pension obligations (note 17(d))
Integration and restructuring (note 6)
Depreciation and amortization
Impairment losses on goodwill, intangible assets
and other long-term assets (notes 11(a) and 13)
Operating income
Interest on long-term debt
Debt issuance costs (note 14(a))
Foreign exchange gain (loss)
Loss on repayment of long-term debt (note 14(c))
Change in fair value of derivative instruments
Other income
Income before income taxes
Income tax expense (note 7):
Current
Future
Net income for the year
Net income per share (note 8):
Basic and diluted
See accompanying notes to consolidated financial statements.
2009
2008
$
11,731 $
11,335
1,380
1,207
4,681
30
117
1,730
1,303
1,334
4,569
–
51
1,760
18
294
2,568
(647)
(11)
136
(7)
(65)
6
2,024
(575)
(16)
(99)
–
64
28
1,980
1,426
215
287
502
3
421
424
$
1,478 $
1,002
$
2.38 $
1.57
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
83
2009
2008
(Restated –
note 2(p)(i))
$
383 $
1,310
338
4
220
2,255
8,197
3,018
2,643
547
78
280
–
1,403
442
–
451
2,296
7,898
3,024
2,761
343
507
253
$
17,018 $ 17,082
$
– $
2,383
1
80
284
2,748
8,463
1,004
133
397
12,745
4,273
19
2,412
1
45
239
2,716
8,506
616
184
344
12,366
4,716
$
17,018 $ 17,082
CONSOLIDATED B ALANCE SHEETS
(IN MILLIONs OF CANADIAN DOLLARs)
December 31, 2009 and 2008
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $157 (2008 – $163)
Other current assets (note 9)
Current portion of derivative instruments (note 15(d))
Future income tax assets (note 7)
Property, plant and equipment (note 10)
Goodwill (note 11(b))
Intangible assets (note 11(c))
Investments (note 12)
Derivative instruments (note 15(d))
Other long-term assets (note 13)
Liabilities and shareholders' Equity
Current liabilities:
Bank advances, arising from outstanding cheques
Accounts payable and accrued liabilities
Current portion of long-term debt (note 14)
Current portion of derivative instruments (note 15(d))
unearned revenue
Long-term debt (note 14)
Derivative instruments (note 15(d))
Other long-term liabilities (note 16)
Future income tax liabilities (note 7)
shareholders' equity (note 18)
Guarantees (note 15(e)(ii))
Commitments (note 23)
Contingent liabilities (note 24)
Canadian and united states accounting policy differences (note 25)
subsequent events (notes 22 and 26)
See accompanying notes to consolidated financial statements.
On behalf of the Board:
Alan D. Horn, CA
Director
Ronald D. Besse
Director
84
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
CONSOLIDATED S TATEMENTS OF S HAREHOLDERS’ EqUITY
(IN MILLIONs OF CANADIAN DOLLARs)
Class A Voting shares
Class B Non-Voting shares
Number
of shares
Number
of shares
Amount
72
$
(000s)
112,462 $
Amount
471
(000s)
527,005 $
Contributed
surplus
3,689 $
Retained
earnings
(Restated -
note 2(p)(i))
Accumulated
other
comprehensive
income
(loss)
Total
shareholders’
equity
(Restated -
note 2(p)(i))
4,624
50 $
Years ended December 31, 2009 and 2008
Balances, December 31, 2007
Change in accounting policy related to
goodwill and intangible assets (note 2(p)(i))
As restated, January 1, 2008
Net income for the year
shares issued on exercise
of stock options
Dividends declared
Repurchase of Class B
Non-Voting shares (note 18(c))
Other comprehensive loss
Balances, December 31, 2008
Net income for the year
shares issued on exercise
of stock options
Dividends declared
Repurchase of Class B
Non-Voting shares (note 18(c))
Other comprehensive income
Balances, December 31, 2009
See accompanying notes to consolidated financial statements.
–
72
–
–
–
–
–
72
–
–
–
–
–
–
112,462
–
–
–
–
–
112,462
–
–
–
–
–
–
471
–
21
–
(4)
–
488
–
9
–
(41)
–
–
527,005
–
502
–
(4,077)
–
523,430
–
294
–
–
3,689
–
–
–
(129)
–
3,560
–
–
–
(43,776)
–
(1,256)
–
342 $
(11)
331
1,002
–
(638)
(4)
–
691
1,478
–
(721)
(50)
–
–
50
–
–
–
–
(145)
(95)
–
–
–
–
138
(11)
4,613
1,002
21
(638)
(137)
(145)
4,716
1,478
9
(721)
(1,347)
138
$
72
112,462 $
456
479,948 $
2,304 $
1,398 $
43 $
4,273
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
85
CONSOLIDATED S TATEMENTS OF COMPREHENSI vE INCOME
(IN MILLIONs OF CANADIAN DOLLARs)
Years ended December 31, 2009 and 2008
Net income for the year
Other comprehensive income (loss):
Increase (decrease) in fair value of available-for-sale investments
Cash flow hedging derivative instruments:
Change in fair value of derivative instruments
Reclassification to net income of foreign exchange gain (loss) on long-term debt
Reclassification to net income of accrued interest
Other comprehensive income (loss) before income taxes
Related income tax recovery
Comprehensive income for the year
See accompanying notes to consolidated financial statements.
2009
2008
$
1,478 $
1,002
14
(146)
(844)
901
1,122
(1,274)
64
121
135
3
138
110
(42)
(188)
43
(145)
$
1,616 $
857
86
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
CONSOLIDATED S TATEMENTS OF C ASH FLOwS
(IN MILLIONs OF CANADIAN DOLLARs)
Years ended December 31, 2009 and 2008
Cash provided by (used in):
Operating activities:
Net income for the year
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization
Impairment losses on goodwill, intangible assets and other long-term assets
Program rights and Rogers Retail rental amortization
Future income taxes
unrealized foreign exchange loss (gain)
Loss on repayment of long-term debt
Change in fair value of derivative instruments
settlement of pension obligations
Pension contributions, net of expense
stock-based compensation recovery
Amortization of fair value increment on long-term debt
Other
Change in non-cash operating working capital items (note 20(a))
Investing activities:
Additions to property, plant and equipment ("PP&E")
Change in non-cash working capital items related to PP&E
Acquisition of spectrum licences
Investment in Cogeco Inc. and Cogeco Cable Inc. (note 12)
Acquisitions, net of cash and cash equivalents acquired
Additions to program rights
Other
2009
2008
$
1,478 $
1,002
1,730
18
174
287
(126)
7
65
30
(102)
(33)
(5)
3
3,526
264
3,790
(1,855)
(55)
(40)
(163)
(11)
(185)
(15)
1,760
294
146
421
65
–
(64)
–
(22)
(100)
(5)
3
3,500
(215)
3,285
(2,021)
40
(1,008)
–
(191)
(150)
15
(2,324)
(3,315)
Financing activities:
Issuance of long-term debt
Repayment of long-term debt
Premium on repayment of long-term debt
Payment on re-couponing of cross-currency interest rate exchange agreements
Payment on settlement of cross-currency interest rate exchange agreements and forward contracts
Proceeds on settlement of cross-currency interest rate exchange agreements and forward contracts
Repurchase of Class B Non-Voting shares
Issuance of capital stock on exercise of stock options
Dividends paid
Increase in cash and cash equivalents
Cash deficiency, beginning of year
2,875
(1,885)
(8)
–
(431)
433
(1,347)
3
(704)
(1,064)
402
(19)
Cash and cash equivalents (deficiency), end of year
$
383 $
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.
For supplemental cash flow information see note 20(b).
See accompanying notes to consolidated financial statements.
4,474
(3,335)
–
(375)
(969)
970
(137)
3
(559)
72
42
(61)
(19)
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABuLAR AMOuNTs IN MILLIONs OF CANADIAN DOLLARs, ExCEPT PER sHARE AMOuNTs)
YEARs ENDED DECEMBER 31, 2009 AND 2008
1.
NATURE OF THE BUSINESS :
Rogers Communications Inc. (“RCI”) is a diversified Canadian
communications and media company, with substantially all of its
operations and sales in Canada. RCI is engaged in wireless voice
and data communications services through its Wireless segment
(“Wireless”); cable television, high-speed Internet access, telephony,
data networking and retailing of wireless, cable and video products
and services (“Rogers Retail”) through its Cable segment (“Cable”);
and radio and television broadcasting, televised shopping,
magazines and trade publications, and sports entertainment
through its Media segment (“Media”). RCI and its subsidiary
companies are collectively referred to herein as the “Company”.
In september 2009, RCI announced the further integration of its
Cable and Wireless business with the creation of a Communications
services organization. Internal management and public reporting
continue to reflect the foregoing Cable and Wireless services as
separate operating segments.
2.
SIGNIFICANT ACCOUNTING POLICIES :
(A) BASIS OF PRESENTATION :
The consolidated financial statements are prepared in accordance
with Canadian generally accepted accounting principles (“GAAP”)
and differ in certain significant respects from accounting principles
generally accepted in the united states of America (“united states
GAAP”) as described in note 25.
(iv)
The consolidated financial statements include the accounts of
RCI and its subsidiary companies. Intercompany transactions and
balances are eliminated on consolidation.
Investments over which the Company is able to exercise significant
influence are accounted for by the equity method. Investments
over which the Company has joint control are accounted for by the
proportionate consolidation method. Publicly traded investments
where no control or significant influence exists are classified as
available-for-sale investments and are recorded at fair value.
Changes in fair value are recorded in other comprehensive income
until such time as the investments are disposed of or impaired. Other
investments where fair value is not readily available are recorded at
cost. Investments are written down when there is evidence that a
decline in value that is other than temporary has occurred.
Certain of the prior year comparative figures have been re-classified
to conform with the financial statement presentation adopted in
the current year.
(B) REvENUE RECOGNITION:
The Company’s principal sources of revenue and recognition of
these revenues for financial statement purposes are as follows:
(i) Monthly subscriber fees in connection with wireless and wireline
services, cable, telephony, Internet services, rental of equipment,
network services and media subscriptions are recorded as
revenue on a pro rata basis as the service is provided;
(ii) Revenue from airtime, roaming, long-distance and optional
services, pay-per-use services, video rentals and other sales of
products are recorded as revenue as the services or products
are delivered;
(iii) Revenue from the sale of wireless and cable equipment is
recorded when the equipment is delivered and accepted by
the independent dealer or subscriber in the case of direct sales.
Equipment subsidies related to new and existing subscribers
are recorded as a reduction of equipment revenues;
88
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
Installation fees and activation fees charged to subscribers
do not meet the criteria as a separate unit of accounting. As a
result, in Wireless these fees are recorded as part of equipment
revenue and, in Cable, are deferred and amortized over the
related service period. The related service period for Cable
ranges from 26 to 48 months, based on subscriber disconnects,
transfers of service and moves. Incremental direct installation
costs related to reconnects are deferred to the extent of
deferred installation fees and amortized over the same period
as these related installation fees. New connect installation
costs are capitalized to PP&E and amortized over the useful life
of the related assets;
(v) Advertising revenue is recorded in the period the advertising
airs on the Company’s radio or television stations and the
period in which advertising is featured in the Company’s
publications;
(vi) Monthly subscription revenues received by television stations
for subscriptions from cable and satellite providers are
recorded in the month in which they are earned;
(vii) The Toronto Blue Jays Baseball Club’s (“Blue Jays”) revenue from
home game admission and concessions is recognized as the
related games are played during the baseball regular season.
Revenue from radio and television agreements is recorded at
the time the related games are aired. The Blue Jays also receive
revenue from the Major League Baseball Revenue sharing
Agreement, which distributes funds to and from member clubs,
based on each club’s revenues. This revenue is recognized in the
season in which it is earned, when the amount is estimable and
collectibility is reasonably assured; and
(viii) Discounts provided to customers related to combined purchases
of Wireless, Cable and Media products and services are charged
directly to the revenue for the products and services to which
they relate.
The Company offers certain products and services as part of
multiple deliverable arrangements. The Company divides multiple
deliverable arrangements into separate units of accounting.
Components of multiple deliverable arrangements are separately
accounted for provided the delivered elements have stand-alone
value to the customers and the fair value of any undelivered
elements can be objectively and reliably determined. Consideration
for these units is measured and allocated amongst the accounting
units based upon their fair values and the Company’s relevant
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
revenue recognition policies are applied to them. The Company
recognizes revenue once persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, fees
are fixed and determinable and collectibility is reasonably assured.
unearned revenue includes subscriber deposits, cable installation
fees and amounts received from subscribers related to services and
subscriptions to be provided in future periods.
(C ) SUBSCRIBER AC qUISITION AND RETENTION COSTS :
Except as described in note 2(b)(iv), as it relates to cable installation
costs, the Company expenses the costs related to the acquisition or
retention of subscribers.
(D) STOCk-BASED COMPENSATION AND OTHER STOC k-BASED
PAYMENTS:
The Company’s employee stock option plans, which are described in
note 19(a), attach cash settled share appreciation rights (“sARs”) to
all granted stock options. The sARs feature allows the option holder
to elect to receive in cash an amount equal to the intrinsic value,
being the excess market price of the Class B Non-Voting share over
the exercise price of the option, instead of exercising the option and
acquiring Class B Non-Voting shares. All outstanding stock options
are classified as liabilities and are 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 marked-to-market each period and is amortized to
income 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.
The Company has a restricted share unit (“Rsu”) plan, which is
described in note 19(b). Rsus that will be settled in cash are recorded
as liabilities. The measurement of the liability and compensation
costs for these awards is based on the intrinsic value of the award
and is recorded as a charge to income over the vesting period of the
award. Changes in the Company’s liability subsequent to the grant
of the award and prior to the settlement date, due to changes in
the market value of the underlying Class B Non-Voting shares, are
recorded as a charge to income in the period incurred. The payment
amount is established as of the vesting date of the award.
The Company has a deferred share units (“Dsu”) plan, which is
described in note 19(c). Dsus that will be settled in cash are recorded
as liabilities. The measurement of the liability and compensation
costs for these awards is based on the intrinsic value of the award at
the date of grant. Changes in the Company’s liability subsequent to
grant of the award and prior to the settlement date, due to changes
in the market value of the underlying Class B Non-Voting shares, are
recorded as a charge to income in the period incurred. The payment
amount is established as of the vesting date of the award.
The employee share accumulation plan allows employees to
voluntarily participate in a share purchase plan. under the terms
of the plan, employees of the Company can contribute a specified
percentage of their regular earnings through payroll deductions
and the Company makes certain defined contribution matches,
which are recorded as compensation expense in the period made.
(E) DEPRECIATION:
PP&E are depreciated over their estimated useful lives as follows:
Asset
Buildings
Towers, head-ends and transmitters
Distribution cable and subscriber drops
Network equipment
Wireless network radio base station equipment
Computer equipment and software
Customer equipment
Leasehold improvements
Basis
Mainly diminishing balance
straight line
straight line
straight line
straight line
straight line
straight line
straight line
Equipment and vehicles
Mainly diminishing balance
Rate
5% to 6²⁄ ³%
6²⁄ ³% to 25%
5% to 20%
6²⁄ ³% to 33¹⁄ ³%
12½% to 14¹⁄ ³%
14¹⁄ ³% to 33¹⁄ ³%
20% to 33¹⁄ ³%
Over shorter of
estimated useful life
and lease term
5% to 33¹⁄ ³%
INCOME TA xES:
(F )
Future income tax assets and liabilities are recognized for the future
income tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Future income tax
assets and liabilities are measured using enacted or substantively
enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered
or settled. A valuation allowance is recorded against any future
income tax asset if it is not more likely than not that the asset will
be realized.
(G) FOREIGN CURRENC Y TR ANSL ATION :
Monetary assets and liabilities denominated in a foreign currency
are translated into Canadian dollars at the exchange rate in effect
at the balance sheet dates and non-monetary assets and liabilities
and related depreciation and amortization expenses are translated
at the historical exchange rate. Revenue and expenses, other than
depreciation and amortization, are translated at the average rate
for the month in which the transaction was recorded. Exchange
gains or losses on translating long-term debt are recognized in the
consolidated statements of income and consolidated statements of
comprehensive income, as applicable. Foreign exchange gains or
losses are primarily related to the translation of long-term debt.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(H) FINANCIAL AND DERI vATIvE INSTRUMENTS :
(i) Adoption of new financial instruments standards:
Effective December 31, 2009, the Company adopted The
Canadian Institute of Chartered Accountants’ (“CICA”)
amended section 3862, Financial Instruments – Disclosures,
to include additional disclosure requirements about fair
value measurement for financial instruments and liquidity
risk disclosures. These amendments require disclosure of the
three-level hierarchy that reflects the significance of the inputs
used in making the fair value measurements. Fair value of
financial assets and financial liabilities included in Level 1 are
determined by reference to quoted prices in active markets
for identical assets and liabilities. Financial assets and financial
liabilities in Level two include valuations using inputs based on
observable market data, either directly or indirectly other than
the quoted prices. Level three valuations are based on inputs
that are not based on observable market data. The adoption
of these standards did not have any impact on the classification
and measurement of the Company’s financial instruments or
the liquidity risk disclosures. The new disclosures pursuant to
this amended Handbook section are included in note 15.
On January 1, 2008, the Company adopted CICA Handbook
section 3862, Financial Instruments – Disclosures (“CICA 3862”),
and CICA Handbook section 3863, Financial Instruments –
Presentation (“CICA 3863”).
CICA 3862 requires entities to provide disclosures in their
financial statements that enable users to evaluate the
significance of financial instruments on the entity’s financial
position and its performance and the nature and extent of
risks arising from financial instruments to which the entity is
exposed during the year and at the balance sheet date, and
how the entity manages those risks.
CICA 3863 establishes standards for presentation of financial
instruments and non-financial derivatives. It deals with the
classification of financial instruments, from the perspective of
the issuer, between liabilities and equities, the classification of
related interest, dividends, gains and losses, and circumstances
in which financial assets and financial liabilities are offset.
The adoption of these standards did not have any impact on
the classification and measurement of the Company’s financial
instruments. The disclosures pursuant to these Handbook
sections are included in note 15.
(ii) Financial instruments:
Cash and cash equivalents are classified as held-for-trading.
Held-for-trading financial assets are recorded at fair value on
the consolidated balance sheets with changes in fair value
recorded in the consolidated statements of income.
The Company’s other financial assets are classified as
available-for-sale or loans and receivables. Available-for-sale
investments are carried at fair value on the balance sheet, with
changes in fair value recorded in other comprehensive income,
until such time as the investments are disposed of or an other-
than-temporary impairment has occurred, in which case the
90
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
impairment is recorded in income. Loans and receivables and
all financial liabilities are carried at amortized cost using the
effective interest method. The Company determined that none
of its non-derivative financial assets are classified as held-to-
maturity and none of its non-derivative financial liabilities are
classified as held-for-trading.
The Company records all transaction costs for financial assets
and financial liabilities in the consolidated statements of
income as incurred, except for transaction costs paid to a
lending institution relating to the bank credit facility which
are deferred and amortized over the term of the facility.
(iii) Derivative instruments:
All derivatives, including embedded derivatives that must
be separately accounted for, are measured at fair value,
with changes in fair value recorded in the consolidated
statements of income unless they are effective cash flow
hedging instruments.
When hedge accounting is applied, the Company formally
documents the relationship between derivative instruments
and the hedged items, as well as its risk management objective
and strategy for undertaking various hedge transactions. At
the instrument’s inception, the Company also formally assesses
whether the derivatives are highly effective at reducing or
modifying interest rate or foreign exchange risk related to
the future anticipated interest and principal cash outflows
associated with the hedged item. Effectiveness requires a high
correlation of changes in fair values or cash flows between the
hedged item and the hedging item. On a quarterly basis, the
Company confirms that the derivative instruments continue
to be highly effective at reducing or modifying interest rate
or foreign exchange risk associated with the hedged items.
Any hedge ineffectiveness is recognized in the consolidated
statements of income immediately.
The fair value of the Company’s cross-currency interest rate
exchange agreements (“Derivatives”) is determined using an
estimated credit-adjusted mark-to-market valuation which
involves increasing the treasury-related discount rates used to
calculate the risk-free estimated mark-to-market valuation by
an estimated credit spread (“Credit spread”) for the relevant
term and counterparty for each Derivative. In the case of
Derivatives in an asset position (i.e., those Derivatives for
which the counterparties owe the Company on a net basis),
the Credit spread for the counterparty is added to the risk-
free discount rate to determine the estimated credit-adjusted
value. In the case of Derivatives in a liability position (i.e., those
Derivatives for which the Company owes the counterparties on
a net basis), the Company’s Credit spread is added to the risk-
free discount rate. The changes in fair value of the Derivatives
designated as hedges for accounting purposes are recorded in
other comprehensive income, to the extent effective, until the
variability of cash flows relating to the hedged asset or liability
is recognized in the consolidated statements of income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(I) C APITAL DISCLOSURES :
Effective January 1, 2008, the Company adopted the new
recommendations of CICA Handbook section 1535, Capital
Disclosures (“CICA 1535”). CICA 1535 requires that an entity disclose
information that enables users of its financial statements to
evaluate an entity’s objectives, policies and processes for managing
capital, including disclosures of any externally imposed capital
requirements and the consequences for non-compliance. These
disclosures are included in note 21.
(j) NET INCOME PER SHARE :
The diluted net income per share calculation considers the impact
of employee stock options using the treasury stock method. There
is no dilutive impact of employee stock options after May 28, 2007,
due to the amendment to attach cash settled sARs to all new and
previously granted options.
INvENTORIES AND R OGERS R ETAIL RENTAL IN vENTORY:
(k )
Inventories are primarily valued at the lower of cost, determined
on a first-in, first-out basis, and net realizable value. Rogers Retail
rental inventory, which includes videocassettes, DVDs and video
games, is amortized to its estimated residual value. The residual
value of Rogers Retail rental inventory is recorded as a charge to
operating expense upon the sale of Rogers Retail rental inventory.
Amortization of Rogers Retail rental inventory is charged to cost of
sales on a diminishing-balance basis over a six month period.
(L) DEFERRED FINANCING COSTS :
The direct costs paid to lenders to obtain revolving credit facilities
are deferred and amortized on a straight-line basis over the life of
the revolving credit facilities to which they relate.
(M) PENSION BENEFITS :
The Company accrues its pension plan obligations as employees
render the services necessary to earn the pension. The Company
uses a discount rate determined by reference to market yields at
the measurement dates to measure the accrued pension benefit
obligation and uses the corridor method to amortize actuarial gains
or losses (such as changes in actuarial assumptions and experience
gains or losses) over the average remaining service life of the
employees. under the corridor method, amortization is recorded
only if the accumulated net actuarial gains or losses exceed 10% of
the greater of accrued pension benefit obligation and the fair value
of the plan assets at the beginning of the year.
The Company uses the following methods and assumptions for
pension accounting:
(i)
The cost of pensions is actuarially determined using
the projected benefit method prorated on service and
management’s best estimate of expected plan investment
performance, salary escalation, compensation levels at the
time of retirement and retirement ages of employees. Changes
in these assumptions would impact future pension expense.
(ii) For the purpose of calculating the expected return on plan
assets, those assets are valued at fair value.
(iii) Past service costs from plan amendments are amortized
on a straight-line basis over the average remaining service
period of employees.
(N) PROPERT Y, PL ANT AND E qUIPMENT:
PP&E are recorded at cost. During construction of new assets, direct
costs plus a portion of applicable overhead costs are capitalized.
Repairs and maintenance expenditures are charged to operating
expenses as incurred.
The cost of the initial cable subscriber installation is capitalized.
Costs of all other cable connections and disconnections are
expensed, except for direct incremental installation costs related
to reconnect Cable customers, which are deferred to the extent of
reconnect installation revenues. Deferred reconnect revenues and
expenses are amortized over the related estimated service period.
(O) ACqUIRED PROGR AM RIGHTS :
Acquired program rights for broadcasting are carried at the lower
of cost less accumulated amortization, and net realizable value.
Acquired program rights and the related liabilities are recorded
on the consolidated balance sheets when the licence period begins
and the program is available for use. The cost of acquired program
rights is amortized over the expected exhibition period of the
related programs. Net realizable value of acquired program rights
is assessed using an industry standard methodology.
(P) GOODwILL AND INTANGIBLE ASSETS :
(i) Adoption of new goodwill and intangible assets standard:
Effective January 1, 2009, the Company adopted Handbook
section 3064, Goodwill and Intangible Assets (“CICA 3064”).
CICA 3064, which replaces section 3062, Goodwill and Other
Intangible Assets, and section 3450, Research and Development
Costs, establishes standards for the recognition, measurement
and disclosure of goodwill and intangible assets. This new
standard was applied retrospectively, with restatement of
prior periods. The adoption of CICA 3064 resulted in a $16
million decrease in other long-term assets relating to deferred
commissions and pre-operating costs, and an $11 million
decrease in retained earnings at January 1, 2008, net of income
taxes of $5 million and had no material impact on previously
reported net income in 2008.
(ii) Goodwill:
Goodwill is the residual amount that results when the purchase
price of an acquired business exceeds the sum of the amounts
allocated to the tangible and identifiable intangible assets
acquired, less liabilities assumed, based on their fair values.
When the Company enters into a business combination, the
purchase method of accounting is used. Goodwill is assigned,
as of the date of the business combination, to reporting units
that are expected to benefit from the business combination.
Goodwill is not amor tized but instead is tested for
impairment annually or more frequently if events or changes
in circumstances indicate that the asset might be impaired.
The impairment test is carried out in two steps. In the first
step, the carrying amount of the reporting unit, including
goodwill, is compared with its fair value. When the fair value
of the reporting unit exceeds its carrying amount, goodwill of
the reporting unit is not considered to be impaired and the
second step of the impairment test is unnecessary. The second
step is carried out when the carrying amount of a reporting
unit exceeds its fair value, in which case, the implied fair value
of the reporting unit’s goodwill, determined in the same
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
manner as the value of goodwill is determined in a business
combination, is compared with its carrying amount to measure
the amount of the impairment loss, if any.
(iii)
Intangible assets:
Intangible assets acquired in a business combination are
recorded at their fair values. Intangible assets with finite
useful lives are amortized over their estimated useful lives and
are tested for impairment, as described in note 2(q). Intangible
assets having an indefinite life, being spectrum and broadcast
licences, are not amortized but are tested for impairment on
an annual or more frequent basis by comparing their fair value
to their carrying amount. An impairment loss on an indefinite
life intangible asset is recognized when the carrying amount
of the asset exceeds its fair value.
Intangible assets with finite useful lives are amortized on a
straight-line basis over their estimated useful lives as follows:
Brand name – Rogers
Brand name – Fido
Brand name – Citytv
subscriber bases
Roaming agreements
Dealer networks
Marketing agreement
20 years
5 years
5 years
2¼ to 4²⁄ ³ years
12 years
4 years
5 years
The Company tested goodwill and intangible assets with indefinite
lives for impairment during 2009 and recorded a write-down in
intangible assets of $5 million related to the CIKZ Kitchener and
OMNI broadcast licences (note 11(a)). The Company tested goodwill
and intangible assets with indefinite lives for impairment during
2008 and recorded a write-down of $154 million related to the
goodwill of the conventional television reporting unit and $75
million related to the Citytv broadcast licence (note 11(a)).
IMPAIRMENT OF LONG -LIvED ASSETS :
(q)
The Company reviews long-lived assets, which include PP&E and
intangible assets with finite useful lives, for impairment annually
or more frequently if events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the sum of
the undiscounted future cash flows expected to result from the
use and eventual disposition of a group of assets is less than its
carrying amount, it is considered to be impaired. An impairment
loss is measured as the amount by which the carrying amount of
the group of assets exceeds its fair value.
The Company tested long-lived assets with finite useful lives
for impairment during 2009 and recorded a write-down of $13
million related to the OMNI Canadian Radio-television and
Telecommunication Commission (“CRTC”) commitments asset (note
13). The Company tested long-lived assets with finite useful lives for
impairment during 2008 and recorded a write-down of $51 million
related to the Citytv CRTC commitments asset (note 13) and $14
million related to the Citytv brand name (note 11(a)(ii)).
(R ) ASSET RETIREMENT OBLIGATIONS:
Asset retirement obligations are legal obligations associated with
the retirement of PP&E that result from their acquisition, lease,
construction, development or normal operations. The Company
records the estimated fair value of a liability for an asset retirement
obligation in the year in which it is incurred and when a reasonable
estimate of fair value can be made. The fair value of a liability for
an asset retirement obligation is the amount at which that liability
could be settled in a current transaction between willing parties,
that is, other than in a forced or liquidation transaction and, in the
absence of observable market transactions, is determined as the
present value of expected cash flows. The Company subsequently
allocates the asset retirement cost to expense using a systematic
and rational method over the asset’s useful life, and records the
accretion of the liability as a charge to operating expenses.
(S) USE OF ESTIMATES :
The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the years. Actual results
could differ from those estimates.
Key areas of estimation, where management has made difficult,
complex or subjective judgments, often as a result of matters
that are inherently uncertain, include the allowance for doubtful
accounts and certain accrued liabilities, the ability to use income
tax loss carryforwards and other future income tax assets and
liabilities, capitalization of internal labour and overhead, useful
lives of depreciable assets and intangible assets with finite useful
lives, discount rates and expected returns on plan assets affecting
pension expense and the deferred pension asset, estimation of
Credit spreads for determination of the fair value of derivative
instruments and the assessment of the recoverability or impairment
of long-lived assets, goodwill and intangible assets, which require
estimates of future cash flows and discount rates. For business
combinations, key areas of estimation and judgment include the
allocation of the purchase price and related severance costs.
significant changes in the assumptions, including those with respect
to future business plans and cash flows, could materially change the
recorded carrying amounts.
( T ) RECENT C ANADIAN ACCOUNTING PRONOUNCEMENTS :
(i) Business Combinations:
In October 2008, the CICA issued Handbook section 1582,
Business Combinations (“CICA 1582”), concurrently with
Handbook sections 1601, Consolidated Financial statements
(“CICA 1601”), and 1602, Non-controlling Interests (“CICA 1602”).
CICA 1582, which replaces Handbook section 1581, Business
Combinations, establishes standards for the measurement of
a business combination and the recognition and measurement
of assets acquired and liabilities assumed. CICA 1601, which
replaces Handbook section 1600, carries forward the
92
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
existing Canadian guidance on aspects of the preparation of
consolidated financial statements subsequent to acquisition
other than non-controlling interests. CICA 1602 establishes
guidance for the treatment of non-controlling interests
subsequent to acquisition through a business combination.
These new standards are effective for the Company’s interim
and annual consolidated financial statements commencing
on January 1, 2011 with earlier adoption permitted as of the
beginning of a fiscal year. The Company is assessing the impact
of the new standards on its consolidated financial statements.
(ii) Multiple deliverable revenue arrangements:
In December 2009, the CIC A issued EIC-175, Multiple
Deliverable Revenue Arrangements (“EIC-175”). EIC-175,
which replaces EIC-142, Revenue Arrangements with Multiple
Deliverables, addresses some aspects of the accounting by a
vendor for arrangements under which it will perform multiple
revenue-generating activities. This new standard is effective
for the Company’s interim and annual consolidated financial
statements commencing on January 1, 2011 with earlier
adoption permitted as of the beginning of a fiscal year. The
Company is assessing the impact of the new standard on its
consolidated financial statements.
(iii)
International Financial Reporting Standards (“IFRS”):
In 2006, the Canadian Accounting standards Board (“AcsB”)
published a new strategic plan that significantly affects
financial reporting requirements for Canadian public
companies. The AcsB strategic plan outlines the convergence
of Canadian GAAP with IFRs over an expected five-year
transitional period.
In February 2008, the AcsB confirmed that IFRs will be
mandatory in Canada for profit-oriented publicly accountable
entities for fiscal periods beginning on or after January 1, 2011.
The Company’s first annual IFRs financial statements will be
for the year ending December 31, 2011 and will include the
comparative period of 2010. starting in the first quarter of 2011,
the Company will provide unaudited consolidated financial
information in accordance with IFRs including comparative
figures for 2010.
The Company has completed a preliminary assessment of the
accounting and reporting differences under IFRs as compared
to Canadian GAAP, however, management has not yet finalized
its determination of the impact of these differences on the
consolidated financial statements.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3.
SEGMENTED INFORMATION :
(A) OPER ATING SEGMENTS :
The accounting policies of the segments are the same as those
described in the significant accounting policies (note 2). The Company
discloses segment operating results based on income before
settlement of pension obligations, integration and restructuring,
stock-based compensation expense (recovery), adjustment for CRTC
Part II fees decision, contract termination fees, depreciation and
amortization, impairment losses on goodwill, intangible assets and
other long-term assets, interest on long-term debt, debt issuance
costs, loss on repayment of long-term debt, foreign exchange gain
(loss), change in fair value of derivative instruments, other income
(expense) and income taxes, consistent with internal management
reporting. This measure of segment operating results differs from
operating income in the consolidated statements of income. All of
the Company’s reportable segments are substantially in Canada.
Information by reportable segments is as follows:
wireless
Cable
Media
2009
Corporate
items and
eliminations
Consolidated
totals
Wireless
Cable
Media
2008
Corporate
items and
eliminations
Consolidated
totals
Operating revenue
$
6,654 $
3,948 $
1,407 $
(278) $ 11,731 $
6,335 $
3,809 $
1,496 $
(305) $ 11,335
Cost of sales
sales and marketing
Operating, general and
administrative*
settlement of pension obligations
Integration and restructuring
stock-based compensation
recovery*
Adjustment for CRTC Part II
fees decision*
Contract termination fees*
Depreciation and amortization
Impairment losses on goodwill,
intangible assets and other
long-term assets
Operating income (loss)
Interest on long-term debt
Debt issuance costs
Loss on repayment of
long-term debt
Foreign exchange gain (loss)
Change in fair value
of derivative instruments
Other income, net
Income before income taxes
1,059
630
1,923
3,042
3
33
–
–
–
201
446
1,977
1,324
11
46
(12)
(46)
–
3,006
660
1,325
808
167
209
912
119
15
35
(8)
(15)
19
73
63
(47)
(78)
(56)
(97)
1
3
(13)
–
–
(88)
199
1,380
1,207
4,756
4,388
30
117
(33)
(61)
19
1,005
691
1,833
2,806
–
14
(5)
–
–
4,316
1,730
2,797
588
197
466
1,913
1,233
–
20
178
269
907
142
–
11
(77)
(92)
1,303
1,334
(15)
4,638
(121)
–
6
4,060
–
51
(32)
(17)
(46)
(100)
25
–
1,220
791
6
–
142
76
–
–
(81)
305
31
–
4,078
1,760
–
–
18
–
18
–
–
294
–
294
$ 2,346 $
517 $
(8) $
(287)
2,209 $
429 $
(228) $
(386)
2,568 $
(647)
(11)
(7)
136
(65)
6
2,024
(575)
(16)
–
(99)
64
28
$
1,980
$
1,426
Additions to PP&E
Goodwill
Total assets
$
$
$
865 $
693 $
62 $
235 $
1,855 $
929 $
886 $
81 $
125 $
2,021
1,140 $
982 $
896 $
– $
3,018 $
1,140 $
982 $
902 $
– $
3,024
7,988 $
5,055 $
1,884 $
2,091 $ 17,018 $
8,357 $
5,153 $
1,930 $
1,642 $ 17,082
*Included with operating, general and administrative expenses in consolidated statements of income.
94
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, Cable consists of the following reportable segments:
Cable
Operations
Rogers
Business
Solutions
Rogers
Retail
Corporate
items and
eliminations
Total
Cable
Cable
Operations
Rogers
Business
solutions
Rogers
Retail
Corporate
items and
eliminations
2009
2008
Total
Cable
Operating revenue
$
3,074 $
503 $
399 $
(28) $
3,948 $
2,878 $
526 $
417 $
(12) $
3,809
Cost of sales
sales and marketing
Operating, general
and administrative*
settlement of pension obligations
Integration and restructuring
stock-based compensation
expense (recovery)*
Adjustment for CRTC Part II
fees decision*
Depreciation and amortization
Operating income
Additions to PP&E
Goodwill
Total assets
$
$
$
–
243
1,533
1,298
10
31
(12)
(46)
–
26
442
35
–
3
1
–
201
182
–
(5)
201
446
–
248
–
26
25
(9)
1
12
(1)
–
(23)
1,977
1,459
441
–
–
–
–
–
1,324
11
46
(12)
(46)
1,171
–
9
(30)
25
59
–
6
(1)
–
197
192
25
3
–
5
(1)
–
1,315
31
(21) –
1,325
1,167
54
(1) –
808
517
$
642 $
37 $
14 $
– $
693 $
829 $
36 $
21 $
982 $
– $
– $
– $
982 $
982 $
– $
– $
–
–
197
466
(12)
1,913
–
–
–
–
–
$
– $
– $
1,233
–
20
(32)
25
1,220
791
429
886
982
4,714 $
482 $
181 $
(322) $
5,055 $
4,003 $
1,210 $
265 $
(325) $
5,153
*Included with operating, general and administrative expenses in consolidated statements of income.
(B) PRODUC T RE vENUE:
Revenue is comprised of the following:
Wireless:
Postpaid
Prepaid
Network revenue
Equipment sales
Cable:
Cable Operations
Rogers Business solutions ("RBs")
Rogers Retail
Intercompany eliminations
Media:
Advertising
Circulation and subscription
Retail
Blue Jays/sports Entertainment
Other
Corporate items and intercompany eliminations
2009
2008
$
5,948 $
5,558
297
6,245
409
6,654
3,074
503
399
285
5,843
492
6,335
2,878
526
417
(28)
(12)
3,948
3,809
674
219
258
181
75
758
184
276
198
80
1,407
(278)
1,496
(305)
$
11,731 $
11,335
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4.
BUSINESS COMBINATIONS AND DI vESTITURES:
(A) 20 09 ACqUISITIONS:
(i) k-Rock 1057 Inc.:
On May 31, 2009, the Company acquired the assets of K-Rock
1057 Inc. for cash consideration of $11 million. K-Rock 1057 Inc.
held the assets of radio stations K-Rock and Kix Country in
Kingston, Ontario. The acquisition was accounted for using the
purchase method with the results of operations consolidated
with those of the Company effective May 31, 2009. The fair
values of the assets acquired and liabilities assumed, which
were finalized during 2009, are as follows:
Purchase price
PP&E
Broadcast licence
Fair value of net assets acquired
Goodwill
$
$
$
$
11
1
4
5
6
The goodwill has been allocated to the Media reporting
segment and is tax deductible.
(B) 20 08 ACqUISITIONS AND DI vESTITURES:
(i) Outdoor Life Network:
On July 31, 2008, the Company acquired the remaining two-
thirds of the shares of Outdoor Life Network that it did not
already own, for cash consideration of $39 million. The
acquisition was accounted for using the purchase method
with the results of operations consolidated with those of the
Company effective July 31, 2008.
During 2009, the Company finalized the purchase price
allocation for the Outdoor Life Network acquisition. This
resulted in an increase in broadcast licence of $15 million,
an increase in future income tax liabilities of $3 million, and
a corresponding decrease in goodwill of $12 million. The
adjustments had the following effects on the purchase price
allocation from the amounts recorded and disclosed in the
2008 consolidated financial statements:
Purchase price
Current assets
Broadcast licence
Future income
tax liabilities
Current liabilities
Fair value of
net assets acquired
Goodwill
As at
December 31,
2008
Adjustments
Final
purchase
price
allocation
$
$
$
$
39 $
11 $
–
–
(3)
– $
– $
15
(3)
–
8 $
12 $
31 $
(12) $
39
11
15
(3)
(3)
20
19
The goodwill has been allocated to the Media reporting
segment and is not tax deductible.
96
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
(ii) Aurora Cable Tv Limited:
On June 12, 2008, the Company acquired 100% of the
outstanding shares of Aurora Cable TV Limited (“Aurora Cable”)
for cash consideration of $80 million, including a $16 million
deposit paid during the first quarter of 2008. In addition, the
Company contributed $10 million to simultaneously pay down
certain credit facilities of Aurora Cable. Aurora Cable provides
cable television, Internet and telephony services in the Town
of Aurora and the community of Oak Ridges, in Richmond Hill,
Ontario. The acquisition was accounted for using the purchase
method with the results of operations consolidated with those
of the Company effective June 12, 2008. The fair values of the
assets acquired and liabilities assumed, which were finalized
during 2008 are as follows:
Purchase price
Current assets
subscriber base
PP&E
Current liabilities
Future income tax liabilities
Credit facilities
Fair value of net assets acquired
Goodwill
$
$
$
$
80
1
13
31
(3)
(8)
(10)
24
56
The goodwill has been allocated to the Cable reporting
segment and is not tax deductible.
(iii) channel m:
On April 30, 2008, the Company acquired the assets of
Vancouver multicultural television station channel m, from
Multivan Broadcast Corporation, for cash consideration of $61
million. The acquisition was accounted for using the purchase
method with the results of operations consolidated with those
of the Company effective April 30, 2008. The fair values of the
assets acquired and liabilities assumed, which were finalized
during 2008 are as follows:
Purchase price
Current assets
Broadcast licence
PP&E
Current liabilities
Fair value of net assets acquired
Goodwill
$
$
$
$
61
5
9
6
(7)
13
48
The goodwill has been allocated to the Media reporting
segment and is tax deductible.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(iv) CIkZ-FM kitchener:
(vi) Other:
On January 27, 2008, the Company acquired the radio assets of
CIKZ-FM Kitchener in exchange for: the net assets of CICx-FM
Orillia; the redemption of an investment in the shares of the
Kitchener station of $4 million; and $4 million in cash. The
transaction was accounted for using the purchase method
with the results of operations consolidated with those of the
Company effective January 27, 2008.
(v) Citytv:
On October 31, 2007, the Company acquired certain real
properties and 100% of the shares of the legal entities holding
the operations of the Citytv network of five television stations
in Canada, from CTVglobemedia Inc. for cash consideration of
$405 million, including acquisition costs. The acquisition was
accounted for using the purchase method, with the results of
operations consolidated with those of the Company effective
October 31, 2007.
During 2008, the Company finalized the purchase price
allocation of the Citytv acquisition and the Company paid
an additional $3 million as settlement for a working capital
adjustment which increased the purchase price paid to
$408 million. In addition to the working capital adjustment,
valuations of certain tangible and intangible assets acquired
were completed. The adjustments had the following effects
on the purchase price allocation from the amounts recorded
and disclosed in the 2007 consolidated financial statements:
Purchase price
Current assets
Program inventory
PP&E
Brand name
Broadcast licence
Advertising bookings
Future income tax liabilities
Current liabilities
Other liabilities
Fair value of net assets
acquired
Goodwill
The goodwill has been allocated to the Media reporting segment
and is not tax deductible.
During 2007, the Company announced its intention to divest
of the assets of two television stations in British Columbia
and Manitoba for approximately $6 million as part of CRTC
approval to secure the Citytv acquisition. The transaction to
divest these stations received CRTC approval on March 31, 2008
and the transaction closed on May 25, 2008.
During 2008, the Company made various other acquisitions,
accounted for by the purchase method, for cash consideration
of approximately $4 million.
As at
December 31,
2007
Adjustments
Final
purchase
price
allocation
$
$
405 $
3 $
408
33 $
25
32
26
86
–
(15)
(32)
(14)
(2) $
(16)
18
–
–
6
–
(16)
6
31
9
50
26
86
6
(15)
(48)
(8)
$
$
141 $
264 $
(4) $
7 $
137
271
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5.
INvESTMENT IN j OINT vENTURES:
The Company has contributed certain assets to joint ventures
involved in the provision of wireless broadband Internet service and
in certain mobile commerce initiatives. As at December 31, 2009 and
2008 and for the years then ended, proportionately consolidating
these joint ventures resulted in the following increases (decreases)
in the accounts of the Company:
Current assets
Long-term assets
Current liabilities
Revenue
Expenses
Net loss for the year
2009
2008
$
– $
103
16
–
32
(32)
7
68
4
–
29
(29)
In 2009, the Company completed the purchase of spectrum and
broadcast licences from Look Communications Inc. (“Look”)
(through the Company’s joint venture with Bell Canada, Inukshuk
Wireless Partnership (“Inukshuk”)). under the agreement, Inukshuk
paid $80 million for Look’s 92 MHz of spectrum in the provinces of
Ontario and Quebec. The Company recorded an increase in spectrum
licences of $40 million (note 11(c)) related to its proportionate share
of the purchase.
In 2007, the Company contributed its 2.3 GHz and 3.5 GHz spectrum
licences with a carrying value of $11 million to a 50% owned joint
venture for non-cash consideration of $58 million. A deferred gain
of $24 million, being the portion of the excess of fair value over
carrying value related to the other non-related venturer’s interest
in the spectrum licences contributed by the Company, was recorded
on contribution of these spectrum licences. This deferred gain is
recorded in other long-term liabilities and is being amortized to
income on a straight-line basis over seven years, of which $4 million
was recognized in 2009 (2008 – $4 million). In addition to a cash
contribution of $8 million, the other venturer also contributed its 2.3
GHz and 3.5 GHz spectrum licences valued at $50 million to the joint
venture. The Company recorded an increase in spectrum licences
and cash of $25 million and $4 million, respectively, related to its
proportionate share of the contribution by the other venturer.
6.
INTEGRATION AND RESTRUCTURING E xPENSES:
During 2009, the Company incurred $87 million (2008 – $38 million)
of restructuring expenses related to severances resulting from the
targeted restructuring of its employee base to combine the Cable
and Wireless businesses into a communications organization and
to improve the Company’s cost structure in light of the current
economic and competitive conditions, which related to Media in
2009 and to Cable, Wireless and Media in 2008.
During 2009, the Company incurred $23 million (2008 – nil) of
restructuring expenses resulting from the outsourcing of certain
information technology functions.
During 2009, the Company incurred $2 million (2008 – $8 million)
of integration expenses related to the integration of previously
acquired businesses and related restructuring.
During 2009, the Company incurred $1 million (2008 – $1 million)
of restructuring expenses related to RBs, which is related to
severances resulting from staff reductions to reflect a reduction
in customer acquisition efforts related to enterprise and larger
business segments.
During 2009, the Company incurred $4 million (2008 – $4 million)
related to the closure of 20 (2008 – 18) underperforming retail store
locations, primarily located in the province of Ontario.
The additions to the liabilities related to the severances and
payments made against such liabilities during 2009 are as follows:
As at
December 31,
2008
Additions
Payments
As at
December 31,
2009
2008 severances to improve Company’s cost structure
$
35 $
– $
(27) $
2009 severances to improve Company’s cost structure in Media and combine
Cable and Wireless ongoing activities
severances related to RBs restructuring costs
Outsourcing of certain information technology functions
Retail store closures
Integration of previously acquired businesses
–
2
–
1
–
87
1
23
4
2
(14)
(1)
(14)
(3)
–
$
38 $
117 $
(59) $
8
73
2
9
2
2
96
The remaining liability, which is included in accounts payable and accrued liabilities as at December 31, 2009, will be paid over the course
of 2010 and 2011.
98
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
2009
2008
(Restated -
note 2(p)(i))
148 $
31
42
8
47
64
144
484
52
432
(246)
(325)
(38)
(609)
(177)
220
377
37
39
13
81
65
154
766
144
622
(126)
(367)
(22)
(515)
107
451
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7.
INCOME TAxES:
The income tax effects of temporary differences that give rise to
significant portions of future income tax assets and liabilities are
as follows:
Future income tax assets:
Non-capital income tax loss carryforwards
Capital loss carryforwards
Deductions relating to long-term debt and other transactions denominated in foreign currencies
$
Investments
Liability for stock-based compensation
Ontario harmonization credit
Other deductible differences
Total future income tax assets
Less valuation allowance
Future income tax liabilities:
PP&E and inventory
Goodwill and intangible assets
Other taxable differences
Total future income tax liabilities
Net future income tax asset (liability)
Less current portion
Future income tax liabilities
In assessing future income tax assets, management considers
whether it is more likely than not that some portion or all of the
future income tax assets will be realized. The ultimate realization
of future income tax assets is dependent upon the generation of
future taxable income during the years in which the temporary
differences are deductible. Management considers the scheduled
reversals of future income tax liabilities, the character of the future
income tax assets and available tax planning strategies in making
this assessment.
$
(397) $
(344)
To the extent that management believes that the future income tax
assets do not meet the more likely than not recognition criterion, a
valuation allowance is recorded against the future income tax assets.
The valuation allowance at December 31, 2009, includes $44 million
of foreign future income tax assets and $8 million relating to capital
loss carryforwards.
Income tax expense varies from the amounts that would be
computed by applying the statutory income tax rate to income
before income taxes for the following reasons:
statutory income tax rate
Computed income tax expense
Increase (decrease) in income taxes resulting from:
Change in valuation allowance
Effect of tax rate changes
Ontario harmonization credit
Impairment losses on goodwill and intangible assets not deductible for tax
Other items
Income tax expense
2009
2008
32.3%
32.7%
$
640 $
466
(64)
(58)
–
–
(16)
19
(33)
(65)
51
(14)
$
502 $
424
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2009, the Company released $64 million of its valuation
allowance as an income tax recovery in the consolidated statements
of income. Of this amount, $14 million relates to a decrease of future
tax assets in foreign jurisdictions arising from foreign exchange
fluctuations and the remaining $50 million relates to unrealized
gains on investments and financial instruments.
Income taxes payable of $207 million (2008 – $1 million) is included
in accounts payable and accrued liabilities.
As at December 31, 2009, the Company has the following Canadian
non-capital income tax losses available to reduce future years’
income for income tax purposes:
During 2008, the Company recorded an increase in its valuation
allowance of $25 million. Of this increase, $19 million relates to
future tax assets in foreign jurisdictions and was recorded as an
increase in income tax expense in the consolidated statements of
income. The remaining $6 million relates primarily to unrealized
losses on investments and financial instruments and was charged to
other comprehensive income.
During 2008, the Company recorded the benefit of an income tax
credit of $65 million arising from the harmonization of the Ontario
provincial income tax system with the Canadian federal income tax
system. The resulting income tax credit will be available to reduce
future Ontario income taxes until 2013.
Income tax losses expiring in the year ending December 31:
2010
2011 – 2014
Thereafter
$
$
17
–
353
370
In addition to the amounts above, as at December 31, 2009, the
Company had approximately $73 million in non-capital income tax
losses in foreign subsidiaries expiring between 2023 and 2028.
As at December 31, 2009, the Company had approximately
$246 million of available capital losses to offset future capital gains.
8.
NET INCOME PER SHARE :
The following table sets forth the calculation of basic and diluted
net income per share:
Numerator:
Net income for the year, basic and diluted
Denominator (in millions):
Weighted average number of shares outstanding – basic and diluted
Basic and diluted net income per share
9.
OTHER CURRENT ASSETS :
Inventories
Prepaid expenses
Acquired program rights
Rogers Retail rental inventory
Deferred compensation
Other
2009
2008
$
1,478 $
1,002
621
638
$
2.38 $
1.57
$
2009
2008
129 $
110
61
27
10
1
256
99
43
29
12
3
$
338 $
442
Amortization expense for Rogers Retail rental inventory is charged
to cost of sales and amounted to $43 million in 2009 (2008 – $43
million). The costs of acquired program rights are amortized to
operating, general and administrative expenses over the expected
performances of the related programs and amounted to $131
million in 2009 (2008 – $103 million). Cost of sales includes $1,337
million (2008 – $1,260 million) of inventory costs.
100 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10.
PROPERTY, PLANT AND E qUIPMENT:
Details of PP&E are as follows:
Land and buildings
Towers, head-ends and transmitters
Distribution cable and subscriber drops
Network equipment
Wireless network radio base station equipment
Computer equipment and software
Customer equipment
Leasehold improvements
Equipment and vehicles
2009
2008
Accumulated
depreciation
Cost
Net book
value
Accumulated
depreciation
Cost
Net book
value
$
828 $
1,361
5,058
5,530
1,219
2,853
1,358
369
891
181 $
833
3,055
2,847
654
1,974
949
212
647 $
528
2,003
2,683
565
879
409
157
565
326
762 $
1,179
4,874
5,320
1,459
2,424
1,260
349
825
156 $
705
2,802
2,805
876
1,730
787
193
500
606
474
2,072
2,515
583
694
473
156
325
$
19,467 $
11,270 $
8,197 $
18,452 $
10,554 $
7,898
Depreciation expense for 2009 amounted to $1,543 million
(2008 – $1,456 million).
PP&E not yet in service and, therefore, not depreciated at December
31, 2009 amounted to $1,013 million (2008 – $853 million).
11. GOODwILL AND INTANGIBLE ASSETS:
IMPAIRMENT:
(A)
(i) Goodwill:
The Company tested goodwill for impairment during 2009 and
no impairment of goodwill was recorded.
In the fourth quarter of 2008, the Company determined that the
fair value of its conventional television reporting unit was lower
than its carrying value. This primarily resulted from weakening
of industry expectations in the conventional television business
and declines in advertising revenues. As a result, the Company
recorded a goodwill impairment charge of $154 million related
to its conventional television reporting unit, which is included
in the Company’s Media operating segment.
In assessing whether or not there is an impairment, the
Company uses a combination of approaches to determine the
fair value of a reporting unit, including both the discounted
cash flows and market approaches. If there is an indication of
impairment, the Company uses a discounted cash flow model
in estimating the amount of impairment. under the discounted
cash flows approach, the Company estimates the discounted
future cash flows for three to seven years, depending on the
reporting unit, and a terminal value. The future cash flows are
based on the Company’s estimates and include consideration
for expected future operating results, economic conditions and
a general outlook for the industry in which the reporting unit
operates. The discount rates used by the Company consider
debt to equity ratios and certain risk premiums. The terminal
value is the value attributed to the reporting unit’s operations
beyond the projected time period of three to six years using a
perpetuity rate based on expected economic conditions and a
general outlook for the industry. under the market approach,
the Company estimates the fair value of the reporting unit by
multiplying normalized earnings before interest, income taxes
and depreciation and amortization by multiples based on
market inputs.
The Company has made certain assumptions for the discount and
terminal growth rates to reflect variations in expected future
cash flows. These assumptions may differ or change quickly
depending on economic conditions or other events. Therefore,
it is possible that future changes in assumptions may negatively
impact future valuations of reporting units and goodwill which
would result in further goodwill impairment losses.
(ii)
Intangible assets:
In the fourth quarter of 2009, the Company recorded an
impairment charge of $4 million relating to the CIKZ Kitchener
broadcast license. using the Greenfield income approach (in
which the value is determined based on the present value of
required resources and eventual returns of the broadcast
licences), the Company determined the fair value of the CIKZ
Kitchener broadcast license to be lower than its carrying value.
In addition, the Company recorded an impairment charge of
$1 million related to the channel m (now part of OMNI) broadcast
license using the Greenfield income approach and replacement
cost. The Company determined the fair value of the channel m
broadcast license to be lower than its carrying value.
In the fourth quarter of 2008, the Company recorded an
impairment charge of $75 million relating to the Citytv
broadcast licences. using the Greenfield income approach and
replacement cost, the Company determined the fair value of the
Citytv broadcast licences to be lower than their carrying value.
In addition, the Company recorded an impairment charge
of $14 million related to the Citytv brand name as the Citytv
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
asset group was determined to be impaired and its carrying
value exceeded its fair value. The Company determined the
fair value of the Citytv brand name using the Capitalized
Royalty Method.
The fair values of the broadcast licences and brand name
declined in 2008 primarily as a result of the weakening of
industry expectations in the conventional television business
and declines in advertising revenues.
The Company has made certain assumptions within the
Greenfield income approach and Capitalized Royalty Method
which may differ or change quickly depending on economic
conditions or other events. Therefore, it is possible that
future changes in assumptions may negatively impact future
valuations of intangible assets which would result in further
impairment losses.
(B) GOOD wILL:
A summary of the changes to goodwill is as follows:
Opening balance
Acquisition of K-Rock and Kix Country (note 4(a)(i))
Adjustments to Outdoor Life Network purchase price allocation (note 4(b)(i))
Acquisition of Aurora Cable (note 4(b)(ii))
Acquisition of channel m (note 4(b)(iii))
Other acquisitions and adjustments
Adjustments to Citytv purchase price allocation(note 4(b)(v))
Impairment charge on conventional television reporting unit (note 11(a)(i))
INTANGIBLE ASSETS :
(C )
Details of intangible assets are as follows:
$
2009
3,024 $
6
(12)
–
–
–
–
2008
3,027
–
31
56
48
9
7
–
(154)
$
3,018 $
3,024
Indefinite life:
spectrum licences
Broadcast licences
Definite life:
Brand names
subscriber bases
Roaming agreements
Dealer networks
Marketing agreement
Wholesale agreement
Advertising bookings
Cost
prior to
impairment
losses
Accumulated
amortization
Impairment
losses
(note 11 (a)(ii))
Net book
value
Cost
prior to
impairment
losses
Accumulated
amortization
Impairment
losses
(note 11 (a)(ii))
Net book
value
2009
2008
$
1,969 $
115
– $
–
– $
5
1,969 $
110
1,929 $
164
– $
–
– $
75
1,929
89
420
1,001
523
41
52
–
–
188
992
225
41
27
–
–
–
–
–
–
–
–
–
232
9
298
–
25
–
–
437
999
523
41
52
13
6
158
900
181
41
15
13
6
14
–
–
–
–
–
–
265
99
342
–
37
–
–
$
4,121 $
1,473 $
5 $
2,643 $
4,164 $
1,314 $
89 $
2,761
102 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amor tization of brand names, subscriber bases, roaming
agreements, dealer networks, wholesale agreements and marketing
agreements amounted to $181 million for the year ended December
31, 2009 (2008 – $280 million).
During 2009, broadcast licences increased by $26 million as a result
of acquisitions and adjustments to previously recorded purchase
price allocations, and decreased by $5 million to reflect impairment
of the carrying amount of the CIKZ Kitchener and OMNI broadcast
licenses (note 11(a)(ii)). On July 29, 2009, the Company acquired
the radio license for CFDR-AM Halifax from Newcap Inc. for cash
consideration of $5 million and its CIGM-AM sudbury radio licence,
valued at $2 million.
during the year ended December 31, 2008, totalled approximately
$1,002 million. In addition, $6 million of incremental costs associated
with the acquisition of the spectrum licences were capitalized,
resulting in a total cost of $1,008 million. This amount has been
recorded as part of the spectrum licences. The Company has
determined that these licences have indefinite lives for accounting
purposes and are, therefore, not being amortized.
During 2008, broadcast licences increased by $17 million as a
result of acquisitions and decreased by $75 million to reflect
impairment of the carrying amount of the Citytv broadcast licence
(note 11(a)(ii)).
During 2009, brand names decreased by $3 million to reflect the full
amortization and removal of a trademark.
During 2008, brand names decreased by $14 million to reflect
impairment of the carrying amount of the Citytv brand name
(note 11(a)(ii)).
During 2009, subscriber bases increased by $2 million as a result of
Media acquisitions.
During 2008, subscriber bases increased by $13 million resulting
from the acquisition of Aurora Cable (note 4(b)(ii)).
During 2008, the Company participated in the Advanced Wireless
services spectrum auction in Canada which concluded on July 21,
2008, and acquired 20 MHz of spectrum across all 13 provinces and
territories. The payments made to Industry Canada for the spectrum
During 2008, the valuation of intangible assets acquired as part of
the Citytv acquisition was finalized (note 4(b)(v)). This resulted in a
$6 million increase in advertising bookings.
12.
INvESTMENTS:
Publicly traded companies, at quoted market value:
Cogeco Cable Inc.
Cogeco Inc.
Other publicly traded companies
Private companies, at cost
Investments accounted for by the equity method
Number
2009
2008
Description
Carrying
value
Carrying
value
9,795,675 (2008 – 6,595,675) subordinate Voting Common shares $
5,023,300 (2008 – 3,399,800) subordinate Voting Common shares
343 $
144
9
496
18
33
$
547 $
228
85
6
319
17
7
343
In 2009, the Company acquired 3,200,000 subordinate Voting
common shares of Cogeco Cable Inc. for aggregate consideration
of $117 million and 1,623,500 subordinate Voting common shares of
Cogeco Inc. for aggregate consideration of $46 million.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. OTHER LONG-TERM ASSETS:
Deferred pension asset (note 17)
Acquired program rights
Indefeasible right of use agreements
Long-term receivables
Deferred installation costs
Deferred compensation
Cash surrender value of life insurance
CRTC commitments
Other
$
2009
2008
134 $
39
29
23
16
12
11
6
10
Restated –
(note 2(p)(i))
62
48
31
25
16
25
10
24
12
253
$
280 $
Amortization of certain long-term assets for 2009 amounted to
$6 million (2008 – $24 million). Accumulated amortization as at
December 31, 2009, amounted to $6 million (2008 – $76 million).
During 2009, the Company recorded an impairment charge of
$13 million related to CRTC commitments as the carrying value
of the OMNI asset group was determined to be in excess of fair
value during impairment testing (note 11(a)(ii)). During 2008, the
Company recorded an impairment charge of $51 million related to
CRTC commitments as the carrying value of the Citytv asset group
was determined to be in excess of fair value during impairment
testing (note 11(a)(ii)).
During 2008, the CRTC commitments increased by $24 million, due
to the CRTC grant of two new television licences ($10 million over
seven years) and one new radio station ($1 million over six years),
and the acquisition of channel m ($8 million over seven years),
Outdoor Life Network ($4 million over seven years), and CIKZ-FM
Kitchener ($1 million over seven years). The liability for CRTC
committed expenditures is recorded upon granting of the licence
with a corresponding asset. The liability is reduced as the qualifying
expenditures are made. The amount of these liabilities, included
in accounts payable and accrued liabilities and other long-term
liabilities, is $62 million at December 31, 2009 (2008 – $83 million).
104 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14.
LONG-TERM DEBT:
Corporate:
Bank credit facility
senior Notes
senior Notes
senior Notes
senior Notes
senior Notes
Formerly Rogers Wireless Inc.:
senior Notes
senior Notes
senior Notes
senior Notes
senior Notes
senior subordinated Notes
Fair value increment arising from purchase accounting
Formerly Rogers Cable Inc.:
senior Notes
senior Notes
senior Notes
senior Notes
senior Notes
senior Debentures
Capital leases and other
Less current portion
Due
date
Principal
amount
Interest
rate
2009
2008
2016 $
1,000
2018 u.s. 1,400
500
2019
350
2038 u.s.
500
2039
2011 u.s.
2011
2012 u.s.
2014 u.s.
2015 u.s.
2012 u.s.
2011
2012 u.s.
2013 u.s.
2014 u.s.
2015 u.s.
2032 u.s.
490
460
470
750
550
400
175
350
350
350
280
200
Floating $
5.80%
6.80%
5.38%
7.50%
6.68%
– $
1,000
1,471
500
368
500
585
–
1,714
–
429
–
9.625%
7.625%
7.25%
6.375%
7.50%
8.00%
7.25%
7.875%
6.25%
5.50%
6.75%
8.75%
Various
515
460
494
788
578
–
6
175
368
368
368
294
210
1
600
460
575
918
673
490
12
175
429
429
429
343
245
1
8,464
8,507
1
1
$
8,463 $
8,506
ISSUANCE OF S ENIOR N OTES:
(A)
On November 4, 2009, the Company issued $500 million of 5.38%
senior Notes which mature on November 4, 2019 and $500 million of
6.68% senior Notes which mature on November 4, 2039. The notes
are redeemable, in whole or in part, at the Company’s option, at any
time, subject to a certain prepayment premium. The net proceeds
from the offering were approximately $993 million after deduction
of the original issue discount of $1 million, and debt issuance costs
of $6 million related to this issuance, which were incurred and
expensed in 2009.
On May 26, 2009, the Company issued $1.0 billion of 5.80% senior
Notes which mature on May 26, 2016. The notes are redeemable, in
whole or in part, at the Company’s option, at any time, subject to a
certain prepayment premium. The net proceeds from the offering
were approximately $993 million after deduction of the original
issue discount of $2 million and debt issuance costs of $5 million
related to this issuance, which were incurred and expensed in 2009.
On August 6, 2008, the Company issued u.s.$1.4 billion of 6.80%
senior Notes which mature on August 15, 2018 and u.s.$350 million
of 7.50% senior Notes which mature on August 15, 2038. Each of
these notes is redeemable, in whole or in part, at the Company’s
option, at any time, subject to a certain prepayment premium.
simultaneously, the Company entered into Derivatives (note 15(d)).
The net proceeds from the offering were approximately $1,774
million after deduction of the original issue discount of $2 million,
and debt issuance costs of $16 million, which were incurred and
expensed in 2008.
(B) BANk CREDIT FACILIT Y :
The bank credit facility provides the Company with up to $2.4 billion
from a consortium of Canadian financial institutions. The bank
credit facility is available on a fully revolving basis until maturity
on July 2, 2013, and there are no scheduled reductions prior to
maturity. The interest rate charged on the bank credit facility
ranges from nil to 0.5% per annum over the bank prime rate or base
rate or 0.475% to 1.75% over the bankers’ acceptance rate or the
London Inter-Bank Offered Rate (“LIBOR”). The Company’s bank
credit facility is unsecured and ranks pari passu with the Company’s
senior public debt and Derivatives. The bank credit facility requires
that the Company satisfy certain financial covenants, including the
maintenance of certain financial ratios.
(C ) SENIOR NOTES, DEBENTURES AND SENIOR
SUBORDINATED N OTES:
Interest is paid semi-annually on all of the Company’s notes
and debentures.
Each of the Company’s senior Notes, Debentures and senior
subordinated Notes are redeemable, in whole or in part, at
the Company’s option, at any time, subject to a certain prepayment
premium.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 15, 2009, the Company redeemed the entire
outstanding principal amount of its u.s.$400 million ($424 million)
8.00% senior subordinated Notes due 2012 at the prescribed
redemption price of 102% of the principal amount effective on that
date. The Company incurred a net loss on repayment of the senior
subordinated Notes aggregating $7 million, including aggregate
redemption premiums of $8 million offset by a write-down of a
previously recorded fair value increment of $1 million.
(D) UNSECURED OBLIGATIONS :
The Company’s outstanding public debt, $2.4 billion bank credit
facility and Derivatives are unsecured obligations of RCI. RCI’s
public debt originally issued by Rogers Cable Inc. has Rogers
Cable Communications Inc. (“RCCI”), a wholly owned subsidiary,
as a co-obligor and Rogers Wireless Partnership (“RWP”), a wholly
owned subsidiary, as an unsecured guarantor while RCI’s public debt
originally issued by Rogers Wireless Inc. has RWP as a co-obligor
and RCCI as an unsecured guarantor. similarly, RCCI and RWP have
provided unsecured guarantees for the public debt issued directly
by RCI, the bank credit facility and the Derivatives. Accordingly,
RCI’s bank debt, senior public debt and Derivatives rank pari passu
on an unsecured basis. Prior to its redemption in December 2009,
the Company’s u.s.$400 million 8.00% senior subordinated Notes
were subordinated to its senior debt.
(E) FAIR vALUE INCREMENT ARISING FROM PURCHASE
ACCOUNTING:
The fair value increment on long-term debt is a purchase accounting
adjustment required by GAAP as a result of the acquisition of
the minority interest of Wireless during 2004. under GAAP, the
purchase method of accounting requires that the assets and
liabilities of an acquired enterprise be revalued to fair value when
allocating the purchase price of the acquisition. The fair value
increment is amortized over the remaining term of the related debt
and recorded as part of interest expense. The fair value increment,
applied to the specific debt instruments to which it relates, results
in the following carrying values at December 31, 2009 and 2008 of
the debt in the Company’s consolidated accounts:
senior Notes, due 2011
senior Notes, due 2011
senior Notes, due 2012
senior Notes, due 2014
senior Notes, due 2015
senior subordinated Notes, due 2012
Total
9.625% $
7.625%
7.250%
6.375%
7.500%
8.000%
2009
2008
533 $
460
495
774
579
–
621
461
577
905
675
489
$
2,841 $
3,728
(F ) wEIGHTED AvER AGE INTEREST R ATE:
The Company’s effective weighted average interest rate on all
long-term debt, as at December 31, 2009, including the effect of all
of the derivative instruments, was 7.27% (2008 – 7.29%).
(I) TERMS AND CONDITIONS :
The provisions of the Company’s $2.4 billion bank credit facility
described above impose certain restrictions on the operations and
activities of the Company, the most significant of which are debt
maintenance tests.
(G) PRINCIPAL REPAYMENTS:
As at December 31, 2009, principal repayments due within each
of the next five years and thereafter on all long-term debt are as
follows:
2010
2011
2012
2013
2014
Thereafter
$
1
1,150
862
368
1,156
4,921
$
8,458
Coincident with the maturity of the Company’s u.s. dollars
denominated long-term debt, certain of the Company’s Derivatives
also mature (note 15(d)(iii)).
(H) FOREIGN E xCHANGE:
Foreign exchange gains related to the translation of long-term
debt recorded in the consolidated statements of income totalled
$126 million (2008 – loss of $65 million).
106 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
In addition, certain of the Company’s senior Notes and Debentures
described above (including the Company’s 9.625% senior Notes due
2011, 7.875% senior Notes due 2012, 6.25% senior Notes due 2013 and
8.75% senior Debentures due 2032) contain debt incurrence tests as
well as restrictions upon additional investments, sales of assets and
payment of dividends, all of which are suspended in the event the
public debt securities are assigned investment grade ratings by at
least two of three specified credit rating agencies. As at December
31, 2009, all of these public debt securities were assigned an
investment grade rating by each of the three specified credit rating
agencies and, accordingly, these restrictions have been suspended
for so long as such investment grade ratings are maintained. The
Company’s other senior Notes and its senior subordinated Notes
do not contain any such restrictions, regardless of the credit ratings
for such securities.
In addition to the foregoing, the repayment dates of certain
debt agreements may be accelerated if there is a change in control
of the Company.
At December 31, 2009 and 2008, the Company was in compliance with
all of the terms and conditions of its long-term debt agreements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15.
FINANCIAL RISk MANAGEMENT AND FINANCIAL INSTRUMENTS :
(A) OvERvIEw:
The Company is exposed to credit risk, liquidity risk and market risk.
The Company’s primary risk management objective is to protect
its income and cash flows and, ultimately, shareholder value. Risk
management strategies, as discussed below, are designed and
implemented to ensure the Company’s risks and the related exposures
are consistent with its business objectives and risk tolerance.
(B) CREDIT RIS k:
Credit risk represents the financial loss that the Company would
experience if a counterparty to a financial instrument, in which the
Company has an amount owing from the counterparty, failed to
meet its obligations in accordance with the terms and conditions of
its contracts with the Company.
The Company’s credit risk is primarily attributable to its accounts
receivable. The amounts disclosed in the consolidated balance
sheets are net of allowances for doubtful accounts, estimated by
the Company’s management based on prior experience and their
assessment of the current economic environment. The Company
establishes an allowance for doubtful accounts that represents
its estimate of incurred losses in respect of accounts receivable.
The main components of this allowance are a specific loss
component that relates to individually significant exposures and an
overall loss component established based on historical trends.
At December 31, 2009, the Company had accounts receivable
of $1,310 million (2008 – $1,403 million), net of an allowance
for doubtful accounts of $157 million (2008 – $163 million). At
December 31, 2009, $563 million (2008 – $614 million) of accounts
receivable is considered past due, which is defined as amounts
outstanding beyond normal credit terms and conditions for the
respective customers. The Company believes that its allowance for
doubtful accounts is sufficient to reflect the related credit risk.
The Company believes that the concentration of credit risk of
accounts receivable is limited due to its broad customer base,
dispersed across varying industries and geographic locations
throughout Canada.
The Company has established various internal controls, such as
credit checks, deposits on account and billing in advance, designed
to mitigate credit risk and has also established procedures to
suspend the availability of services when customers have fully
utilized approved credit limits or have violated established payment
terms. While the Company’s credit controls and processes have been
effective in mitigating credit risk, these controls cannot eliminate
credit risk and there can be no assurance that these controls will
continue to be effective or that the Company’s current credit loss
experience will continue.
Credit risk related to Derivatives arises from the possibility that the
counterparties to the agreements may default on their respective
obligations under the agreements in instances where these
agreements have positive fair value for the Company. The Company
assesses the creditworthiness of the counterparties in order to
minimize the risk of counterparty default under the agreements.
All of the portfolio is held by financial institutions with a standard
& Poor’s rating (or the equivalent) ranging from A to AA-. The
Company does not require collateral or other security to support
the credit risk associated with Derivatives due to the Company’s
assessment of the creditworthiness of the counterparties. The
obligations under u.s. $5.5 billion aggregate notional amount
of the Derivatives are unsecured and generally rank equally
with the Company’s senior indebtedness. The credit risk of the
counterparties is taken into consideration in determining fair value
of the Derivatives for accounting purposes (note 15(d)).
(C ) LIqUIDIT Y RIS k:
Liquidity risk is the risk that the Company will not be able to meet
its financial obligations as they fall due. The Company manages
liquidity risk through the management of its capital structure and
financial leverage, as outlined in note 21. It also manages liquidity
risk by continuously monitoring actual and projected cash flows
to ensure that it will have sufficient liquidity to meet its liabilities
when due, under both normal and stressed conditions, without
incurring unacceptable losses or risking damage to the Company’s
reputation. At December 31, 2009, the undrawn portion of the
Company’s bank credit facility was approximately $2.4 billion
(2008 – $1.8 billion), excluding letters of credit of $47 million.
utilizations include advances borrowed under the bank credit
facility and issuances of letters of credit.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following are the contractual maturities, excluding interest
payments, reflecting undiscounted disbursements of the
Company’s financial liabilities at December 31, 2009:
Accounts payable and accrued liabilities
Long-term debt
Other long-term liabilities
Derivatives:
Cash outflow (Canadian dollar)
Cash inflow (Canadian dollar equivalent of u.s. dollar)
Net carrying amounts of Derivatives
Carrying
amount
Contractual
cash flows
Less than
1 year
1 to 3
years
4 to 5
years
More than
5 years
$
2,383
8,458
133
$
2,383
8,458
133
$
2,383
1
–
$
– $
– $
2,012
71
1,524
20
–
4,921
42
6,687
(5,833)*
–
–
1,890
(1,387)*
1,806
(1,524)*
2,991
(2,922)*
1,002
$ 11,976
$ 11,828
$
2,384
$
2,586
$
1,826
$ 5,032
*Represents Canadian dollar equivalent amount of U.S. dollar inflows matched to an equal amount of U.S. dollar maturities in long-term debt.
In addition to the amounts noted above, at December 31, 2009, net
interest payments over the life of the long-term debt, including
the impact of Derivatives, are:
Interest payments
Less than
1 year
1 to 3
years
4 to 5
years
More than
5 years
$
680
$
1,171
$
827
$ 2,443
(D) MARkET RIS k:
Market risk is the risk that changes in market prices, such as
fluctuations in the market prices of the Company’s publicly traded
investments, the Company’s share price, foreign exchange rates
and interest rates, will affect the Company’s income or the value of
its financial instruments.
(i)
Publicly traded investments:
The Company manages its risk related to fluctuations in the
market prices of its publicly traded investments by regularly
conducting financial reviews of publicly available information
related to these investments to ensure that any risks are
within established levels of risk tolerance. The Company does
not routinely engage in risk management practices such as
hedging, derivatives or short selling with respect to its publicly
traded investments.
At December 31, 2009, a $1 change in the market price per
share of the Company’s publicly traded investments would
have resulted in an $13 million change in the Company’s other
comprehensive income, net of income taxes of $2 million.
(ii) Company’s share price:
In addition, market risk arises from accounting for the
Company’s stock-based compensation. All of the Company’s
outstanding stock options are classified as liabilities and
are carried at their intrinsic value, as adjusted for vesting,
measured as the difference between the current share price
and the option exercise price. The intrinsic value of the
liability is marked-to-market each period, and stock-based
compensation expense is impacted by the change in the price
of the Company’s Class B Non-Voting shares during the life of
the option. At December 31, 2009, a $1 change in the market
price of the Company’s Class B Non-Voting shares would have
resulted in a change of $6 million in net income, net of income
taxes of $3 million.
(iii) Foreign exchange and interest rates:
The Company uses derivative financial instruments to manage
risks from fluctuations in exchange rates and interest rates.
From time-to-time, these instruments include cross-currency
swaps, interest rate exchange agreements, foreign exchange
forward contracts and foreign exchange option agreements. All
such instruments are only used for risk management purposes.
Effective August 6, 2008, in conjunction with the issuance of the
u.s. $1.4 billion senior Notes due 2018, and the u.s. $350 million
senior Notes due 2038, the Company entered into an aggregate
u.s. $1.75 billion notional principal amount of Derivatives. An
aggregate u.s. $1,400 million notional principal amount of these
Derivatives hedge the principal and interest obligations for the
u.s. $1.4 billion senior Notes due 2018 through to maturity in 2018,
while the remaining u.s. $350 million aggregate notional principal
amount of these Derivatives hedge the principal and interest
obligations on the $350 million senior Notes due 2038 for 10 years to
August 15, 2018. These Derivatives have the effect of: (a) converting
the u.s. $1.4 billion aggregate principal amount of senior Notes due
2018 from a fixed coupon rate of 6.80% into Cdn. $1,435 million at
a weighted average fixed interest rate of 6.80%; and (b) converting
the u.s. $350 million aggregate principal amount of senior Notes due
2038 from a fixed coupon rate of 7.50% into Cdn. $359 million at
a weighted average fixed interest rate of 7.53%. The Derivatives
hedging the senior Notes due 2018 have been designated as
effective hedges against the designated u.s. dollar-denominated
debt for accounting purposes, while the Derivatives hedging the
senior Notes due 2038 have not been designated as hedges for
accounting purposes.
108 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Also effective on August 6, 2008, the Company re-couponed three
of its existing Derivatives by terminating the original Derivatives
aggregating u.s. $575 million notional principal amount and
simultaneously entering into three new Derivatives aggregating
u.s. $575 million notional principal amount at then current market
rates. In each case, only the fixed foreign exchange rate and the
Canadian dollar fixed interest rate were changed and all other terms
for the new Derivatives are identical to the respective terminated
Derivatives they are replacing. The termination of the three original
Derivatives resulted in the Company paying u.s. $360 million
(Cdn. $375 million) for the aggregate out-of-the-money fair value
for the terminated Derivatives on the date of termination, thereby
reducing by an equal amount, the fair value of the derivative
instruments liability on that date. The three new Derivatives have
the effect of converting u.s. $575 million aggregate notional
principal amount of u.s. dollar denominated debt from a weighted
average u.s. dollar fixed interest rate of 7.20% into notional
Cdn. $589 million ($1.025 exchange rate) at a weighted average
Canadian dollar fixed interest rate of 6.88%. In comparison, the
original Derivatives had the effect of converting u.s. $575 million
aggregate notional principal amount of u.s. dollar-denominated
debt from a weighted average u.s. dollar fixed interest rate of 7.20%
into notional Cdn. $815 million ($1.4177 exchange rate) at a weighted
average Canadian dollar fixed interest rate of 7.89%. Each of the
three new Derivatives has been designated as a hedge against the
designated u.s. dollar-denominated debt for accounting purposes.
balance in accumulated other comprehensive income relating
to these terminated Derivatives on the termination date was
$144 million. The portion related to future periodic exchanges of
interest of $68 million, net of income taxes of $26 million, will be
recorded in income over the remaining life of the specific debt
securities to which the settled hedging items related using the
effective interest rate method. The portion of the remaining
balance that relates to the future principal exchange of $43 million,
net of income taxes of $7 million, will remain in accumulated other
comprehensive income until such time as the related debt is settled.
The total amortization of the terminated Derivatives is $6 million
for 2009 (2008 – $3 million) and is recorded in interest expense.
In addition, two Derivatives matured on December 15, 2008.
These Derivatives hedged the foreign exchange risk related to the
u.s. $400 million 8.00% senior subordinated Notes due 2012. As a
result of the maturity of these Derivatives, the Company’s u.s. $400
million 8.00% senior subordinated Notes due 2012 were not hedged
for the period from December 15, 2008 until their redemption on
December 15, 2009 (see note 14(c)). Proceeds of $494 million (u.s.
$400 million) were received on the settlement of the Derivatives
and a payment of $475 million was made. In addition, upon
settlement of forward foreign exchange contracts on December 15,
2008, proceeds of $476 million were received and payments on the
forward contracts of $494 million (u.s. $400 million) were made.
Prior to the termination of the Derivatives noted above, changes in
the fair value of these Derivatives had been recorded in accumulated
other comprehensive income and were periodically reclassified to
income to offset foreign exchange gains or losses on related debt
or to modify interest expense to its hedged amount. The remaining
The effect of estimating fair value using credit-adjusted interest
rates on the Company’s Derivatives at December 31, 2009 is
illustrated in the table below. As at December 31, 2009, the credit-
adjusted net liability position of the Company’s derivative portfolio
was $1,002 million, which is $25 million less than the unadjusted risk-
free mark-to-market net liability position.
As at December 31, 2009
Mark-to-market value – risk-free analysis
Mark-to-market value – credit-adjusted estimate (carrying value)
Difference
Derivatives
in an asset
position (A)
Derivatives
in a liability
position (B)
Net liability
position
(A) + (B)
$
$
94 $
(1,121) $
(1,027)
82
(1,084)
(1,002)
12 $
(37) $
25
Of the $25 million impact, ($1) million was recorded in the
consolidated statements of income related to Derivatives
not accounted for as hedges and $26 million related to Derivatives
accounted for as hedges was recorded in other comprehensive
income.
The effect of estimating fair value using credit-adjusted interest
rates on the Company’s Derivatives at December 31, 2008 is
illustrated in the table below. As at December 31, 2008, the
credit-adjusted net liability position of the Company’s derivative
portfolio was $154 million, which is $10 million more than the
unadjusted risk-free mark-to-market net liability position.
As at December 31, 2008
Mark-to-market value – risk-free analysis
Mark-to-market value – credit-adjusted estimate (carrying value)
Difference
Derivatives
in an asset
position (A)
Derivatives
in a liability
position (B)
Net liability
position
(A) + (B)
$
$
572 $
(716) $
507
(661)
(144)
(154)
65 $
(55) $
(10)
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Of the $10 million impact, $7 million was recorded in the
consolidated statements of income related to Derivatives not
accounted for as hedges and $3 million related to Derivatives
accounted for as hedges was recorded in other comprehensive
income.
At December 31, 2009, 93.7% of the Company’s u.s. dollar-
denominated long-term debt instruments were hedged against
fluctuations in foreign exchange rates for accounting purposes. At
December 31, 2009, details of the Derivatives net liability position
are as follows:
2009
Derivatives accounted for as cash flow hedges:
As assets
As liabilities
Net mark-to-market liability
Derivatives not accounted for as hedges:
As assets
As liabilities
Net mark-to-market asset
Net mark-to-market liability
Less net current liability portion
Net long-term liability portion
U.S. $
notional
Exchange
rate
Cdn. $
notional
Unadjusted
mark-to-
market
value
on a
risk free
basis
Estimated
fair value,
being
carrying
amount on
a credit risk
adjusted
basis
$
1,975
3,215
1.0252 $
2,025 $
84 $
73
1.3337
4,288
(1,117)
(1,080)
350
10
1.0258
1.5370
359
15
(1,033)
(1,007)
10
(4)
6
9
(4)
5
$
(1,027) $
(1,002)
(76)
$
(926)
In 2009, $1 million (2008 – ($3) million) related to hedge ineffec-
tiveness was recognized as an increase (decrease) in net income.
The long-term portion above is comprised of a derivative
instruments liability of $1,004 million and a derivative instruments
asset of $78 million as at December 31, 2009.
At December 31, 2008, 87.4% of the Company’s u.s. dollar-
denominated long-term debt instruments were hedged against
fluctuations in foreign exchange rates for accounting purposes. At
December 31, 2008, details of the Derivatives net liability position
are as follows:
2008
Derivatives accounted for as cash flow hedges:
As assets
As liabilities
Net mark-to-market liability
Derivatives not accounted for as hedges:
As assets
As liabilities
Net mark-to-market asset
Net mark-to-market liability
Less net current liability portion
Net long-term liability portion
u.s. $
notional
Exchange
rate
Cdn. $
notional
unadjusted
mark-to-
market
value
on a
risk free
basis
Estimated
fair value,
being
carrying
amount on
a credit risk
adjusted
basis
$
1,975
3,215
1.0252 $
2,025 $
492 $
1.3337
4,288
350
10
1.0258
1.5370
359
15
(712)
(220)
79
(3)
76
$
(144) $
435
(658)
(223)
72
(3)
69
(154)
(45)
$
(109)
The long-term portion above is comprised of a derivative
instruments liability of $616 million and a derivative instruments
asset of $507 million as at December 31, 2008.
At December 31, 2009, all of the Company’s long-term debt was at
fixed interest rates.
u.s. $350 million of the Company’s u.s. dollar-denominated
long-term debt instruments are not hedged for accounting purposes
and, therefore, a one cent change in the Canadian dollar relative to
the u.s. dollar would have resulted in a $4 million change in the
carrying value of long-term debt at December 31, 2009. In addition,
this would have resulted in a $3 million change in net income, net of
income taxes of $1 million.
110 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A portion of the Company’s accounts receivable and accounts
payable and accrued liabilities is denominated in u.s. dollars;
however, due to their short-term nature, there is no significant
market risk arising from fluctuations in foreign exchange rates.
In addition, RCCI and RWP have provided unsecured guarantees for
all of the Company’s Derivatives (notes 14(d) and 15(b)).
(E) FINANCIAL INSTRUMENTS :
(i) Classification and fair values of financial instruments:
All of the Company’s Derivatives are unsecured obligations of RCI.
The Company has classified its financial instruments as follows:
Cash and cash equivalents, held-for-trading, measured at fair value
$
383 $
383 $
– $
–
2009
Carrying
amount
Fair
value
Carrying
amount
2008
Fair
value
Financial assets, available-for-sale, measured at fair value:
Investments
Loans and receivables, measured at amortized cost:
Accounts receivable
Financial liabilities, measured at amortized cost:
Bank advances, arising from outstanding cheques
Accounts payable and accrued liabilities
Long-term debt
Other long-term liabilities
Financial liabilities (assets), held-for-trading:
Derivatives not accounted for as hedges
Derivatives accounted for as cash flow hedges, net
496
496
319
319
1,310
1,310
1,403
1,403
$
2,189 $
2,189 $
1,722 $
1,722
2009
Carrying
amount
Fair
value
Carrying
amount
$
– $
– $
19 $
2,383
8,464
133
2,383
9,315
133
(5)
(5)
1,007
1,007
2,412
8,507
184
(69)
223
2008
Fair
value
19
2,412
8,700
184
(69)
223
$
11,982 $
12,833 $
11,276 $
11,469
The Company did not have any non-derivative held-to-maturity
financial assets during the years ended December 31, 2009 and 2008.
(ii) Guarantees:
In the normal course of business, the Company has entered into
agreements that contain features that meet the definition of a
guarantee under GAAP. A description of the major types of such
agreements is provided below:
(c) Purchases and development of assets:
A s par t of transac tions involving purchases and
development of assets, the Company may be required
to pay counterparties for costs and losses incurred as a
result of breaches of representations and warranties, loss
or damages to property, changes in laws and regulations
(including tax legislation) or litigation against the
counterparties.
(a) Business sale and business combination agreements:
(d) Indemnifications:
As part of transactions involving business dispositions, sales
of assets or other business combinations, the Company
may be required to pay counterparties for costs and losses
incurred as a result of breaches of representations and
warranties, intellectual property right infringement, loss
or damages to property, environmental liabilities, changes
in laws and regulations (including tax legislation), litigation
against the counterparties, contingent liabilities of a
disposed business or reassessments of previous tax filings
of the corporation that carries on the business.
(b) sales of services:
As part of transactions involving sales of services, the
Company may be required to pay counterparties for costs
and losses incurred as a result of breaches of representations
and warranties, changes in laws and regulations (including
tax legislation) or litigation against the counterparties.
The Company indemnifies its directors, officers and
employees against claims reasonably incurred and resulting
from the performance of their services to the Company, and
maintains liability insurance for its directors and officers as
well as those of its subsidiaries.
The Company is unable to make a reasonable estimate of
the maximum potential amount it would be required to pay
counterparties. The amount also depends on the outcome of future
events and conditions, which cannot be predicted. No amount has
been accrued in the consolidated balance sheets relating to these
types of indemnifications or guarantees at December 31, 2009
or 2008. Historically, the Company has not made any significant
payments under these indemnifications or guarantees.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(iii) Fair values:
The Company has determined the fair values of its financial
instruments as follows:
(a) The carrying amounts in the consolidated balance sheets
of cash and cash equivalents, accounts receivable, bank
advances arising from outstanding cheques and accounts
payable and accrued liabilities approximate fair values
because of the short-term nature of these financial
instruments.
(b) The fair values of investments that are publicly traded are
determined by the quoted market values for each of the
investments.
(c) The fair values of each of the Company’s public debt
instruments are based on the year-end trading values.
(d) The fair values of the Company’s Derivatives and
other derivative instruments are based on estimated
mark-to-market value at year-end and credit-adjusted
mark-to-market valuation models.
(e) The fair values of the Company’s other long-term financial
assets and financial liabilities are not significantly different
from their carrying amounts.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instruments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
The table below presents the Level in the fair value hierarchy into
which the fair values of financial instruments that are carried at fair
value on the consolidated balance sheets are categorized:
Financial assets:
Cash and cash equivalents
Investments
Derivatives accounted for as cash flow hedges
Derivatives not accounted for as hedges
Total financial assets
Financial liabilities:
Derivatives accounted for as cash flow hedges
Derivatives not accounted for as hedges
Total financial liabilities
There were no financial instruments categorized in Level 3
(valuation technique using non-observable market inputs) as at
December 31, 2009.
16. OTHER LONG-TERM LIABILITIES:
CRTC commitments (note 13)
Deferred compensation
Program rights liability
supplemental executive retirement plan (note 17)
Deferred gain on contribution of spectrum licences,
net of accumulated amortization of $10 million (2008 – $6 million) (note 5)
Restricted share units
Liabilities related to stock options
Other
112 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
$
$
$
$
$
Level 1
Level 2
Valuation
technique
using
observable
market inputs
Quoted
market
price
383 $
496
–
–
879 $
–
–
73
9
82
– $
1,080
–
4
– $
1,084
2009
2008
45 $
18
11
29
14
12
2
2
63
33
29
26
18
9
2
4
$
133 $
184
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17.
PENSIONS:
The Company maintains both contributory and non-contributory
defined benefit pension plans that cover most of its employees.
The plans provide pensions based on years of service, years of
contributions and earnings. The Company does not provide any
non-pension post-retirement benefits.
completed as at January 1, 2009, for all of the plans except one
which was completed January 1, 2008. The next actuarial valuation
for funding purposes must be of a date no later than January 1, 2010
for certain of the plans and January 1, 2011 for one of the plans.
Actuarial estimates are based on projections of employees’
compensation levels at the time of retirement. Maximum retirement
benefits are primarily based upon career average earnings, subject
to certain adjustments. The most recent actuarial valuations were
The estimated present value of accrued plan benefits and the
estimated market value of the net assets available to provide
for these benefits measured at september 30 for the year ended
December 31 are as follows:
Plan assets, at fair value
Accrued benefit obligations
Deficiency of plan assets over accrued benefit obligations
Employer contributions after measurement date
unrecognized transitional asset
unamortized past service costs
unamortized net actuarial loss
Deferred pension asset
2009
2008
$
518 $
526
(8)
14
(1)
9
120
$
134 $
556
622
(66)
12
(9)
10
115
62
Pension fund assets consist primarily of fixed income and equity
securities, valued at fair value. The following information is
provided on pension fund assets measured at september 30 for the
year ended December 31:
Plan assets, beginning of year
Actual return (loss) on plan assets
Contributions by employees
Contributions by employer
Benefits paid
Net transfer out on settlement (d)
Plan assets, end of year
Accrued benefit obligations are outlined below measured at
september 30 for the year ended December 31:
Accrued benefit obligations, beginning of year
service cost
Interest cost
Benefits paid
Contributions by employees
Actuarial loss (gain)
Obligation being settled (d)
Accrued benefit obligations, end of year
$
2009
2008
556 $
25
21
120
(32)
(172)
606
(83)
21
38
(26)
–
$
518 $
556
$
2009
2008
622 $
21
43
(32)
21
23
(172)
689
28
40
(26)
21
(130)
–
$
526 $
622
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net pension expense is outlined below:
Plan cost:
service cost
Interest cost
Actual loss (return) on plan assets
Actuarial loss (gain) on benefit obligations
settlement of pension obligations (d)
Costs
Differences between costs arising during the year and costs recognized during the year in respect of:
Return (loss) on plan assets
Actuarial loss (gain)
Plan amendments/prior service cost
Amortization of transitional asset
Net pension expense
2009
2008
$
21 $
43
(25)
23
30
$
92 $
(17)
(18)
2
(8)
28
40
83
(130)
–
21
(127)
135
2
(10)
$
51 $
21
The Company also provides supplemental unfunded pension
benefits to certain executives. The accrued benefit obligation
relating to these supplemental plans amounted to approximately
$31 million at December 31, 2009 (2008 – $27 million), and the
related expense for 2009 was $3 million (2008 – $11 million).
The accrued pension liability at December 31, 2009 is $29 million
(2008 – $26 million) (note 16).
(A) AC TUARIAL ASSUMP TIONS :
Weighted average discount rate used to determine accrued benefit obligations
Weighted average discount rate used to determine pension expense
Weighted average rate of compensation increase used to determine accrued benefit obligations
Weighted average rate of compensation increase used to determine pension expense
Weighted average expected long-term rate of return on plan assets
2009
2008
7.20%
6.75%
3.00%
3.00%
7.25%
6.75%
5.65%
3.00%
3.25%
7.00%
Expected return on assets represents management’s best estimate
of the long-term rate of return on plan assets applied to the fair
value of the plan assets. The Company establishes its estimate of the
expected rate of return on plan assets based on the fund’s target
asset allocation and estimated rate of return for each asset class.
Estimated rates of return are based on expected returns from fixed
income securities which take into account bond yields. An equity
risk premium is then applied to estimate equity returns. Differences
between expected and actual return are included in actuarial gains
and losses.
The estimated average remaining service periods for the plans
range from 8 to 11 years (2008 – 9 to 13 years).
(B) ALLOC ATION OF PL AN ASSETS :
Asset category
Equity securities
Debt securities
Other (cash)
Percentage of plan assets at
measurement date
2009
2008
59.4%
39.9%
0.7%
52.2%
47.6%
0.2%
100.0%
100.0%
Target
asset allocation
percentage
50% to 70%
35% to 45%
0% to 5%
Plan assets are comprised primarily of pooled funds that invest
in common stocks and bonds. The pooled Canadian equity fund
has investments in the Company’s equity securities comprising
approximately 1% of the pooled fund. This results in approximately
$1 million (2008 – $1 million) of the plans’ assets being indirectly
invested in the Company’s equity securities.
The Company makes contributions to the plans to secure the
benefits of plan members and invests in permitted investments
using the target ranges established by the Pension Committee of
the Company. The Pension Committee reviews actuarial assumptions
on an annual basis.
114 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(C ) AC TUAL CONTRIBUTIONS TO THE PL ANS FOR THE YEARS
ENDED D ECEMBER 31, 20 09 AND 20 08 ARE AS FOLLO wS:
2009
2008
Employer
Employee
Total
$
120 $
38
21 $
21
141
59
Expected contributions by the Company in 2010 are estimated to be
$56 million.
Employee contributions for 2010 are assumed to be at levels similar
to 2009 on the assumption staffing levels in the Company will
remain the same on a year-over-year basis.
all employees in the pension plans who had retired as of January
1, 2009. The purchase of the annuities relieves the Company of the
primary responsibility for, and eliminates significant risk associated
with, the accrued benefit obligation for the retired employees. The
non-cash settlement loss arising from this settlement of pension
obligations was $30 million.
(D) SET TLEMENT OF PENSION OBLIGATIONS :
During 2009, the Company made a lump-sum contribution of $61
million to its pension plans, following which the pension plans
purchased $172 million of annuities from insurance companies for
In 2008, a curtailment loss of $8 million associated with the
supplemental executive retirement plan was recognized upon the
death of one of the Company’s executives. The Company did not
have any curtailment gains or losses in 2009.
(E) ExPEC TED C ASH FLO wS:
Expected benefit payments for funded and unfunded plans for the
next 10 fiscal years are as follows:
2010
2011
2012
2013
2014
Next five years
$
$
19
20
21
23
25
108
149
257
Certain subsidiaries have defined contribution plans with total pension expense of $2 million in 2009 (2008 – $2 million).
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18.
SHAREHOLDERS’ EqUITY:
(A) C APITAL STOC k:
(i)
Preferred shares:
Rights and conditions:
There are 400 million authorized Preferred shares without
par value, issuable in series, with rights and terms of each
series to be fixed by the Board of Directors prior to the issue
of such series. The Preferred shares have no rights to vote at
any general meeting of the Company. No Preferred shares
have been issued.
(ii) Common shares:
Rights and conditions:
There are 112,474,388 authorized Class A Voting shares
without par value. Each Class A Voting share is entitled to
50 votes. The Class A Voting shares are convertible on a one-
for-one basis into Class B Non-Voting shares.
There are 1.4 billion authorized Class B Non-Voting shares
without par value.
The Articles of Continuance of the Company under the
Company Act (British Columbia) impose restrictions on the
transfer, voting and issue of the Class A Voting and Class B
Non-Voting shares in order to ensure that the Company
remains qualified to hold or obtain licences required to carry
on certain of its business undertakings in Canada.
The Company is authorized to refuse to register transfers
of any shares of the Company to any person who is not a
Canadian in order to ensure that the Company remains
qualified to hold the licences referred to above.
(B) DIvIDENDS:
During 2008 and 2009, the Company declared and paid the
following dividends on each of its outstanding Class A Voting and
Class B Non-Voting shares:
Date declared
February 21, 2008
April 29, 2008
August 19, 2008
October 28, 2008
February 17, 2009
April 29, 2009
August 20, 2009
October 27, 2009
Date paid
Dividend
per share
April 1, 2008 $
July 2, 2008
October 1, 2008
January 2, 2009
$
April 1, 2009 $
July 2, 2009
October 1, 2009
January 2, 2010
$
0.25
0.25
0.25
0.25
1.00
0.29
0.29
0.29
0.29
1.16
In February 2009, the Board adopted a dividend policy which
increased the annualized dividend rate from $1.00 to $1.16 per Class
A Voting and Class B Non-Voting share effective immediately to be
paid quarterly in amounts of $0.29 per share on each outstanding
Class A Voting and Class B Non-Voting share. Consequently, the
116 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
Class A Voting shares may receive a dividend at a quarterly rate of
up to $0.29 per share only after the Class B Non-Voting shares have
been paid a dividend at a quarterly rate of $0.29 per share. The Class
A Voting and Class B Non-Voting shares share equally in dividends
after payment of a dividend of $0.29 per share for each class. such
quarterly dividends are only payable as and when declared by the
Board and there is no entitlement to any dividends prior thereto.
(C ) NORMAL COURSE ISSUER BID :
In February 2009, the Company filed a normal course issuer bid
(“NCIB”) with the Toronto stock Exchange (“Tsx”) authorizing the
Company to purchase up to the lesser of 15 million 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 during the 12-month period commencing February 20,
2009 and ending February 19, 2010. This NCIB replaced a previously
filed NCIB which expired in January 2009.
In May 2009, the Company filed an amendment to its NCIB to provide
that the Company may, during the 12-month period commencing
February 20, 2009 and ending February 19, 2010, purchase on the Tsx
the lesser of 48 million Class B shares, representing approximately
10% of the public float, and that number of Class B shares that can
be purchased under the NCIB for an aggregate purchase price of
$1,500 million.
In 2009, the Company repurchased for cancellation an aggregate
43,776,200 Class B Non-Voting shares for an aggregate purchase
price of $1,347 million, resulting in a reduction to stated capital,
contributed surplus and retained earnings of $41 million, $50
million and $1,256 million, respectively. An aggregate 1,051,000
of these shares comprising $34 million of the aggregate purchase
price was purchased and recorded in December 2009 but was
settled in early January 2010. In addition, 33,496,200 of these
shares were repurchased for cancellation directly under the NCIB
for an aggregate purchase price of $1,062 million. The remaining
10,280,000 of these shares were repurchased for cancellation
pursuant to private agreements between the Company and certain
arm’s-length third party sellers for an aggregate purchase price of
$285 million, each of which was made under an issuer bid exemption
order issued by the Ontario securities Commission and is included
in calculating the number of Class B Non-Voting shares that the
Company may purchase pursuant to the NCIB. The NCIB expires on
February 19, 2010 (note 26(a)).
In January 2008, the Company filed an NCIB which authorized
the Company to repurchase up to the lesser of 15,000,000 of the
Company’s 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2008, the Company repurchased for cancellation 4,000,000 of
its outstanding Class B Non-Voting shares pursuant to private
agreements between the Company and an arm’s length third
party seller for an aggregate purchase price of $133.8 million. As
a result of these purchases, the Company recorded a reduction
to stated capital, contributed surplus and retained earnings of
$3.7 million, $126.1 million and $4.0 million, respectively. Each of
these purchases was made under issuer bid exemption orders
issued by the Ontario securities Commission and will be included
in calculating the number of Class B Non-Voting shares that the
Company may purchase pursuant to the NCIB. In addition, the
Company repurchased for cancellation 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, resulting in a reduction
to stated capital, contributed surplus and retained earnings of
$0.1 million, $2.7 million and $0.1 million, respectively.
(D) ACCUMUL ATED OTHER COMPREHENSI vE INCOME ( LOSS):
unrealized gain on available-for-sale investments
unrealized loss on cash flow hedging instruments
Related income taxes
19.
STOCk-BASED COMPENSATION :
stock options, share units and share purchase plans:
A summary of stock-based compensation expense (recovery), which is
included in operating, general and administrative expense, is as follows:
stock-based compensation:
stock options (a)
Restricted share units (b)
Deferred share units (c)
At December 31, 2009, the Company had a liability of $178 million
(2008 – $278 million), of which $164 million (2008 – $267 million) is
a current liability related to stock-based compensation recorded at
its intrinsic value, including stock options, restricted share units and
deferred share units. During the year ended December 31, 2009,
$63 million (2008 – $106 million) was paid to holders upon
exercise of restricted share units and stock options using the cash
settlement feature.
$
2009
2008
219 $
(256)
80
205
(377)
77
$
43 $
(95)
2009
2008
$
(38) $
7
(2)
(104)
7
(3)
$
(33) $
(100)
(A) STOCk OP TIONS :
Stock option plans:
(i)
Options to purchase Class B Non-Voting shares of the Company
on a one-for-one basis may be granted to employees, directors
and officers of the Company and its affiliates by the Board of
Directors or by the Company’s Management Compensation
Committee. There are 30 million options authorized under the
2000 Plan, 25 million options authorized under the 1996 Plan,
and 9.5 million options authorized under the 1994 Plan. The
term of each option is 7 to 10 years and the vesting period is
generally four years but may be adjusted by the Management
Compensation Committee on the date of grant. The exercise
price for options is equal to the fair market value of the Class B
Non-Voting shares determined as the five-day average before
the grant date as quoted on the Tsx.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2009, a summary of the stock option plans is as follows:
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Exercisable, end of year
At December 31, 2009, the range of exercise prices, the weighted
average exercise price and the weighted average remaining
contractual life are as follows:
Range of
exercise prices
$ 1.38 – $ 6.99
$ 7.00 – $ 9.99
$ 10.00 – $ 10.99
$ 11.00 – $ 11.99
$ 12.00 – $ 16.99
$ 17.00 – $ 18.99
$ 19.00 – $ 37.99
$ 38.00 – $ 47.99
Number
outstanding
586,880
966,422
1,907,050
370,876
1,214,547
435,000
4,288,941
3,697,380
13,467,096
2009
weighted
average
exercise
price
Number of
options
2008
Weighted
average
exercise
price
Number of
options
13,841,620 $
2,636,600
(2,604,787)
20.80 15,586,066 $
29.50
2,148,110
12.88 (3,804,520)
(406,337)
32.20
(88,036)
15.96
38.83
10.55
34.69
13,467,096 $
23.73 13,841,620 $
20.80
8,149,361 $
17.56
9,228,740 $
13.82
Options outstanding
Options exercisable
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise
price
Number
exercisable
586,880 $
966,422
1,907,050
370,876
1,214,547
435,000
1,323,480
1,345,106
5.50
8.36
10.43
11.81
13.89
18.07
26.79
39.03
23.73
8,149,361
Weighted
average
exercise
price
5.50
8.36
10.43
11.81
13.89
18.07
22.87
39.08
17.56
2.5 $
3.4
3.7
1.1
2.7
0.7
4.9
4.7
4.0
For in-the-money stock options measured at the Company’s
December 31 share price, unrecognized stock-based
compensation expense related to stock-option plans was
$5 million (2008 – $3 million), and will be recorded in the
consolidated statements of income over the next four years.
On the vesting date, the Company shall redeem all of the
participants’ restricted share units in cash or by issuing one
Class B Non-Voting share for each restricted share unit. The
Company has reserved 4,000,000 Class B Non-Voting shares for
issuance under this plan.
(ii) Performance options:
During the year ended December 31, 2009, the Company
granted 1,156,200 (2008 – 1,142,300) performance-based
options to certain key executives. These options are governed
by the terms of the 2000 Plan. These options vest on a straight-
line basis over four years provided that certain targeted stock
prices are met on or after the anniversary date.
During the year ended December 31, 2009, the Company granted
431,185 restricted share units (2008 – 451,535). At December 31,
2009, 1,060,223 (2008 – 1,126,548) restricted share units were
outstanding. These restricted share units vest at the end of
three years from the grant date. stock-based compensation
expense for the year ended December 31, 2009, related to these
restricted share units was $7 million (2008 – $7 million).
For restricted share units measured at the Company’s December
31 share price, unrecognized stock-based compensation
expense as at December 31, 2009 related to these restricted
share units was $17 million (2008 – $16 million), and will be
recorded in the consolidated statements of income over the
next three years.
All outstanding options, including the performance options,
are classified as liabilities and are carried at their intrinsic value
as adjusted for vesting.
(b) Restricted share units:
The restricted share unit plan enables employees, officers and
directors of the Company to participate in the growth and
development of the Company. under the terms of the plan,
restricted share units are issued to the participant and the
units issued vest over a period not to exceed three years from
the grant date.
118 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) Deferred share units:
(d) Employee share accumulation plan:
The deferred share unit plan enables directors and certain
key executives of the Company to elect to receive certain
types of remuneration in deferred share units, which are
classified as a liability on the consolidated balance sheets
(2009 – $20 million; 2008 – $27 million). During the year ended
December 31, 2009, the Company granted 110,516 deferred
share units (2008 – 186,084). At December 31, 2009, 613,777
(2008 – 730,454) deferred share units were outstanding. stock-
based compensation recovery for the year ended December
31, 2009 related to these deferred share units was $2 million
(2008 – $3 million). There is no unrecognized compensation
expense related to deferred share units, since these awards
vest immediately when granted.
The employee share accumulation plan allows employees to
voluntarily participate in a share purchase plan. under the
terms of the plan, employees of the Company can contribute a
specified percentage of their regular earnings through payroll
deductions. The designated administrator of the plan then
purchases, on a monthly basis, Class B Non-Voting shares of
the Company on the open market on behalf of the employee.
At the end of each month, the Company makes a contribution
of 25% to 50% of the employee’s contribution in the month,
which is recorded as compensation expense. The administrator
then uses this amount to purchase additional shares of the
Company on behalf of the employee, as outlined above.
Compensation expense related to the employee share
accumulation plan amounted to $17 million (2008 – $14 million)
for the year ended December 31, 2009.
20.
CONSOLIDATED STATEMENTS OF CASH FLO wS AND SUPPLEMENTAL INFORMATION :
(A) CHANGE IN NON -CASH OPERATING w ORkING CAPITAL ITEMS :
Decrease (increase) in accounts receivable
Decrease (increase) in other assets
Increase in accounts payable and accrued liabilities
Increase in unearned revenue
(B) SUPPLEMENTAL CASH FLO w INFORMATION:
Income taxes paid
Interest paid
$
2009
2008
93 $
76
50
45
(166)
(176)
115
12
$
264 $
(215)
2009
2008
$
8 $
632
1
532
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21.
CAPITAL RISk MANAGEMENT:
The Company’s objectives in managing capital are to ensure
sufficient liquidity to pursue its strategy of organic growth
combined with strategic acquisitions and to provide returns to its
shareholders. The Company defines capital that it manages as the
aggregate of its shareholders’ equity, which is comprised of issued
capital, contributed surplus, accumulated other comprehensive
income and retained earnings.
In 2009, the Company repurchased an aggregate 43,776,200 of
Class B Non-Voting shares, of which 33,496,200 were repurchased
directly under the NCIB and the remaining 10,280,000 were made
under issuer bid exemption orders issued by the Ontario securities
Commission and are included in calculating the number of Class B
Non-Voting shares that the Company may purchase pursuant to the
NCIB (note 18(c)). The NCIB expires on February 19, 2010 (note 26(a)).
The Company manages its capital structure and makes adjustments
to it in light of general economic conditions, the risk characteristics
of the underlying assets and the Company’s working capital
requirements. In order to maintain or adjust its capital structure, the
Company, upon approval from its Board of Directors, may issue or
repay long-term debt, issue shares, repurchase shares, pay dividends
or undertake other activities as deemed appropriate under the
specific circumstances. The Board of Directors reviews and approves
any material transactions out of the ordinary course of business,
including proposals on acquisitions or other major investments or
divestitures, as well as annual capital and operating budgets.
In 2009, the Company issued $1,000 million of 5.80% senior Notes,
$500 million of 5.38% senior Notes and $500 million of 6.68% senior
Notes (note 14(a)).
On December 15, 2009, the Company redeemed the entire
outstanding principal amount of its u.s. $400 million ($425 million)
8.00% senior subordinated Notes (note 14(c)).
The Company monitors debt leverage ratios as part of the
management of liquidity and shareholders’ return and to sustain
future development of the business.
In May 2009, the Company filed an amendment to its NCIB to provide
that the Company may, during the 12-month period commencing
February 20, 2009 and ending February 19, 2010, purchase on
the Tsx up to the lesser of 48 million of the Company’s 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 $1,500 million.
In May 2009, the Company announced that it had set a target
leverage range for its capital structure of net debt to adjusted
operating profit of 2.0 to 2.5 times.
The Company is not subject to externally imposed capital
requirements and, except as noted above, its overall strategy with
respect to capital risk management remains unchanged from the
year ended December 31, 2008.
22.
RELATED PARTY TRANSACTIONS :
The Company entered into the following related party transactions:
(A) The Company has entered into certain transactions in the
normal course of business with certain broadcasters in which
the Company has an equity interest. The amounts paid to these
broadcasters are as follows:
Access fees paid to broadcasters accounted for by the equity method
2009
2008
$
16 $
17
(B) The Company has entered into certain transactions with
companies, the partners or senior officers of which are directors of
the Company. Total amounts paid by the Company to these related
parties, directly or indirectly, are as follows:
Legal services, printing and commissions paid on premiums for insurance coverage
2009
2008
$
39 $
7
(C) The Company entered into certain transactions with the
controlling shareholder of the Company and companies controlled
by the controlling shareholder of the Company. These transactions
are subject to formal agreements approved by the Audit Committee.
Total amounts received from these related parties are as follows:
Recoveries for use of aircraft and other administrative services
2009
2008
$
(1) $
(1)
120 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
These transactions are recorded at the exchange amount, being the
amount agreed to by the related parties, and are reviewed by the
Audit Committee.
In January 2010, with the approval of the Board of Directors, the
Company closed an agreement to sell the Company’s aircraft
to a private Rogers’ family holding company for cash proceeds
of u.s. $18 million. The terms of the sale were negotiated by a
special Committee of the Board of Directors comprised entirely
of independent directors. The special Committee was advised by
several independent parties knowledgeable in aircraft valuations
to ensure that the sale price was within a range that was reflective
of current market value. As the aircraft was held for sale at
December 31, 2009, an additional $5 million of depreciation was
recorded in 2009 to write down the net book value of the aircraft to
approximate the amount realized from the sale of the aircraft.
23.
COMMITMENTS:
(A) The Company is committed, under the terms of its licences
issued by Industry Canada, to spend 2% of certain wireless revenues
earned in each year on research and development activities over
the license period.
(E) Pursuant to CRTC regulation, the Company is required to
pay certain telecom contribution fees. These fees are based on a
formula including certain types of revenue, including the majority
of wireless revenue. The Company estimates that these fees for 2010
will amount to approximately $50 million.
(B) The Company enters into agreements with suppliers to provide
services and products that include minimum spend commitments.
The Company has agreements with certain telecommunications
companies that guarantee the long-term supply of network facilities
and agreements relating to the operations and maintenance of
the network.
(F) Pursuant to Industry Canada regulation, the Company is
required to pay certain fees for the use of its licensed radio spectrum.
These fees are primarily based on the bandwidth and population
covered by the spectrum licence. The Company estimates that these
fees for 2010 will amount to $78 million.
In the ordinary course of business and in addition to the
(C)
amounts recorded on the consolidated balance sheets and disclosed
elsewhere in the notes, the Company has entered into agreements
to acquire broadcasting rights to programs and films over the next
five years at a total cost of approximately $387 million. In addition,
the Company has commitments to pay access fees over the next
year totalling approximately $18 million.
(G) In addition to the items listed above, the future minimum
lease payments under operating leases for the rental of premises,
distribution facilities, equipment and microwave towers,
commitments for player contracts, purchase obligations and other
contracts, including outsourcing arrangements, at December 31,
2009 are as follows:
(D) Pursuant to CRTC regulation, the Company is required to make
contributions to the Canadian Television Fund (“CTF”), which is a
cable industry fund designed to foster the production of Canadian
television programming. Contributions to the CTF are based on
a formula, including gross broadcast revenues and the number
of subscribers. The Company may elect to spend a portion of the
above amount for local television programming and may also elect
to contribute a portion to another CRTC-approved independent
production fund. The Company estimates that its total contribution
for 2010 will amount to approximately $74 million.
Year ending December 31:
2010
2011
2012
2013
2014
2015 and thereafter
$
850
638
412
303
274
397
$
2,874
R e n t e x p e n s e f o r 2 0 0 9 a m o u n t e d t o $181 m i l l i o n
(2008 – $178 million).
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
24.
CONTINGENT LIABILITIES:
(A) The CRTC collects two different types of fees from broadcast
licensees which are known as Part I and Part II fees. In 2003 and
2004, lawsuits were commenced in the Federal Court alleging
that the Part II licence fees are taxes rather than fees and that the
regulations authorizing them are unlawful. On December 14, 2006,
the Federal Court ruled that the CRTC did not have the jurisdiction
to charge Part II fees. On October 15, 2007, the CRTC sent a letter to
all broadcast licensees stating that the CRTC would not collect Part II
fees due in November 2007. As a result, in the third quarter of 2007,
the Company reversed its accrual of $18 million related to Part II fees
from september 1, 2006 to June 30, 2007. Both the Crown and the
applicants appealed this case to the Federal Court of Appeal. On April
28, 2008, the Federal Court of Appeal overturned the Federal Court
and ruled that Part II fees are valid regulatory charges. As a result,
during the second quarter of 2008, Cable and Media recorded charges
of approximately $30 million and $7 million, respectively, for CRTC
Part II fees covering the period from september 1, 2006 to March 31,
2008. In addition to recording $5 million and $2 million in the second
quarter of 2008 for Cable and Media, respectively, the Company
continued to record these fees on a prospective basis in operating,
general and administrative expenses. Leave to appeal the April 28,
2008 Federal Court of Appeal decision was granted by the supreme
Court on December 18, 2008. On October 7, 2009, the Government of
Canada announced that a settlement had been reached between the
Government of Canada and members of the broadcasting industry
with respect to Part II fees. under the terms of the settlement, the
Government agreed to forgive the amounts otherwise owing to it up
to August 31, 2009 and the fees going forward will be approximately
one-third less than historical rates. As a result, during the fourth
quarter of 2009, Cable and Media recorded recoveries in operating,
general and administrative expenses of approximately $60 million
and $19 million, respectively, for CRTC Part II fees covering periods
from september 1, 2006 to August 31, 2009.
In August 2008, a proceeding was commenced in Ontario
(B)
pursuant to that province’s Class Proceedings Act, 1992 against
Cable and other providers of communications services in Canada.
The proceedings involve allegations of, among other things, false,
misleading and deceptive advertising relating to charges for long-
distance telephone usage. The plaintiffs are seeking $20 million in
general damages and punitive damages of $5 million. The plaintiffs
intend to seek an order certifying the proceedings as a class action.
Any potential liability is not yet determinable.
In June 2008, a proceeding was commenced in saskatchewan
(C)
under that province’s Class Actions Act against providers of
wireless communications services in Canada. The proceeding
involves allegations of, among other things, breach of contract,
misrepresentation and false advertising in relation to the 911 fee
charged by the Company and the other wireless communication
providers in Canada. The plaintiffs are seeking unquantified
damages and restitution. The plaintiffs intend to seek an order
certifying the proceeding as a national class action in saskatchewan.
Any potential liability is not yet determinable.
In August 2004, a proceeding under the Class Actions Act
(D)
(saskatchewan) was commenced against providers of wireless
communications in Canada relating to the system access fee charged
122 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
by wireless carriers to some of their customers. In september 2007,
the saskatchewan Court granted the plaintiffs’ application to
have the proceeding certified as a national, “opt-in” class action.
As a national, “opt-in” class action, affected customers outside
saskatchewan would have to take specific steps to participate in
the proceeding. The Company has applied for leave to appeal the
certification decision to the saskatchewan Court of Appeal. That
application was later adjourned pending the hearing of certain
motions. In December 2007, the Company brought a motion to
stay the proceeding based on the arbitration clause in its wireless
service agreements. The Company’s motion was granted in February
2008, and the saskatchewan Court directed that its order in respect
of the certification of the action would exclude from the class of
plaintiffs those customers who are bound by an arbitration clause.
In April 2008, the Class Actions Act (saskatchewan) was amended to
authorize the certification of national, “opt-out” class actions. In an
“opt-out” class action, affected customers outside of saskatchewan
would automatically be part of the proceeding in that province. As a
consequence of the amendment, counsel for the plaintiffs brought
a motion to amend the certification order previously granted by the
saskatchewan Court so as to certify a national, opt-out class action.
In May 2009, the Court refused to grant the requested relief and
dismissed the plaintiffs’ motion. In August 2009, counsel for the
plaintiffs commenced a second proceeding under the Class Actions
Act (saskatchewan) asserting the same claims against wireless
carriers with respect to the system access fee. In December 2009, the
Court ordered that the second proceeding be conditionally stayed
on the basis that it is an abuse of process. The Company’s application
for leave to appeal the 2007 certification decision in the original
proceeding is currently scheduled to be heard in February 2010. The
Company has not recorded a liability for this contingency since the
likelihood and amount of any potential loss cannot be reasonably
estimated. If the ultimate resolution of this action differs from the
Company’s assessment and assumptions, a material adjustment to
its financial position and results of operations could result.
In April 2004, a proceeding was brought against Fido and other
(E)
Canadian wireless carriers claiming damages totalling $160 million,
breach of contract, breach of confidence, breach of fiduciary duty
and, as an alternative to the damages claims, an order for specific
performance of a conditional agreement relating to the use of
38 MHz of MCs spectrum. In May 2009, the Company settled this
litigation for $4 million, which is included in operating, general and
administrative expenses for the year ended December 31, 2009.
(F) The Company believes that it has adequately provided for
income taxes based on all of the information that is currently
available. The calculation of income taxes in many cases, however,
requires significant judgment in interpreting tax rules and
regulations. The Company’s tax filings are subject to audits, which
could materially change the amount of current and future income
tax assets and liabilities, and could, in certain circumstances, result
in the assessment of interest and penalties.
(G) There exist certain other claims and potential claims against
the Company, none of which is expected to have a material adverse
effect on the consolidated financial position of the Company.
$
2009
2008
1,478 $
(4)
6
145
13
3
(28)
4
–
1,002
(4)
11
(76)
(32)
–
90
10
(1)
$
1,617 $
1,000
$
2.60 $
2.60
1.57
1.57
2009
2008
$
1,616 $
139
(113)
(45)
857
(2)
5
16
$
1,597 $
876
If united states GAAP were employed, net income for the years
ended December 31, 2009 and 2008 would be adjusted as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25.
CANADIAN AND U NITED STATES ACCOUNTING POLICY DIFFERENCES :
The consolidated financial statements of the Company have been
prepared in accordance with GAAP as applied in Canada. In the
following respects, GAAP, as applied in the united states, differs
from that applied in Canada.
Net income for the year based on Canadian GAAP
Gain on sale of cable systems (b)
Capitalized interest, net of related depreciation (c)
Financial instruments (d)
stock-based compensation (e)
Net periodic pension cost (f)
Income taxes (g)
Installation revenues and costs, net (h)
Other
Net income for the year based on united states GAAP
Net income per share based on united states GAAP:
Basic
Diluted
If united states GAAP were employed, comprehensive income for
the years ended December 31, 2009 and December 31, 2008 would
be adjusted as follows:
Comprehensive income for the year based on Canadian GAAP
Impact of united states GAAP differences on net income
Reclassification to net income of change in fair value of derivative instruments not accounted for
as hedges under united states GAAP, net of income taxes of $26 (2008 – $88) (d)
Change in funded status of pension plans for unrecognized amounts, net of income taxes of $16 (2008 – $6) (f)
Comprehensive income for the year based on united states GAAP
The cumulative effect of these adjustments on the consolidated
shareholders’ equity of the Company is as follows:
shareholders' equity based on Canadian GAAP
$
Cumulative impact of differences in business combinations and consolidation accounting (a)
Gain on sale of cable systems (b)
Capitalized interest (c)
Financial instruments (d)
stock-based compensation (e)
Pension liability (f), (k)
Income taxes (g)
Installation revenues and costs, net (h)
Other
2009
2008
4,273 $
(8)
101
85
49
13
(165)
(14)
16
(7)
4,716
(8)
105
79
43
8
(107)
(25)
12
(7)
shareholders' equity based on united states GAAP
$
4,343 $
4,816
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The areas of material difference between Canadian and united
states GAAP and their impact on the consolidated financial
statements of the Company are described below:
(A) CUMUL ATIvE IMPAC T OF DIFFERENCES IN BUSINESS
COMBINATIONS AND CONSOLIDATION ACCOUNTING :
Certain differences between united states and Canadian GAAP
arose in prior years relating to the dilution gain on the sale of
Wireless shares, non-controlling interest accounting during the
time period that RCI did not own 100% of Wireless, the acquisition
of the outstanding shares in Wireless and the acquisition of a cable
company in Atlantic Canada.
Effective January 1, 2009, the Financial Accounting standards
Board (“FAsB”) Accounting standards Codification (“AsC”) Topic
805, Business Combinations (formerly FAsB statement No. 141R,
Business Combinations), was adopted by the Company. This
statement requires the acquirer to recognize the assets acquired,
liabilities assumed and any non-controlling interest in the acquiree
at fair value as of the acquisition date. This statement also requires
acquisition-related costs to be expensed as incurred. The adoption
of this statement did not have a material impact on the Company’s
consolidated financial statements as the Company had no material
acquisitions during the year ended December 31, 2009.
(B) GAIN ON SALE OF C ABLE SYSTEMS :
under Canadian GAAP, the cash proceeds on the non-monetary
exchange of cable assets in prior years were recorded as a reduction
in the carrying value of PP&E. under united states GAAP, a portion
of the cash proceeds received was recognized as a $40 million gain
in the consolidated statements of income on an after-tax basis. This
difference is being amortized over 10 years.
As a result of this transaction, the carrying amount of the above
assets is higher and additional depreciation expense is recorded
under united states GAAP.
under Canadian GAAP, the after-tax gain arising on the sale of
certain of the Company’s cable television systems in prior years was
recorded as a reduction of the carrying value of goodwill acquired in a
contemporaneous acquisition of certain cable television systems. under
united states GAAP, the Company included the $101 million gain on sale
of the cable television systems in income, net of related income taxes.
(C ) C APITALIZED INTEREST:
under united states GAAP, interest costs are capitalized as
part of the historical cost of acquiring certain qualifying assets,
which require a period of time to prepare for their intended use.
Capitalization is not required under Canadian GAAP.
(D) FINANCIAL INSTRUMENTS :
under Canadian GAAP, the Company records the changes in fair
value of cash flow hedging derivatives in other comprehensive
income, to the extent effective, until the variability of cash flows
relating to the hedged asset or liability is recognized in the
consolidated statements of income. under united states GAAP,
certain instruments are not accounted for as hedges but instead
changes in the fair value of the derivative instruments, reflecting
primarily market changes in foreign exchange rates, interest rates,
as well as the level of short-term variable versus long-term fixed
interest rates, are recognized in the consolidated statements of
income immediately. For the year ended December 31, 2009, a gain
of $113 million ($139 million less income taxes of $26 million) (2008 –
loss of $5 million) was reclassified from other comprehensive income
under Canadian GAAP to the consolidated statements of income
for united states GAAP.
under Canadian GAAP, the Company separates the early repayment
option on one of the Company’s debt instruments. During 2009, the
decrease in fair value of this early repayment option, amounting
to $4 million (2008 – $9 million), was recorded in the consolidated
statements of income under Canadian GAAP as the debt instrument
was repaid. under united states GAAP, the Company is not
permitted to separate the early repayment option.
under Canadian GAAP, the Company records all transaction costs for
financial assets and financial liabilities in income as incurred. under
united states GAAP, the Company defers these costs and amortizes
them over the term of the related asset or liability. During 2009,
the Company capitalized $11 million (2008 – $16 million) in debt
issuance costs for united states GAAP purposes. Offsetting this was
amortization of previously deferred transaction costs in 2009 of
$9 million (2008 – $8 million).
124 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The impact of these changes on net income on a pre-tax basis is
summarized as follows for the year ended December 31:
Reclassification from other comprehensive income of change in fair value of derivatives
not accounted for as hedges under united states GAAP
Decrease in fair value of prepayment option not accounted for under united states GAAP
Deferral of transaction costs under united states GAAP
Amortization of deferred transaction costs under united states GAAP
united states GAAP difference in net income (pre-tax)
The impact of these changes on shareholders’ equity is summarized
as follows:
Deferral of transaction costs
Early repayment option
united states GAAP difference in ending shareholders' equity (pre-tax)
2009
2008
$
139 $
4
11
(9)
$
145 $
(93)
9
16
(8)
(76)
2009
2008
49 $
–
49 $
47
(4)
43
$
$
FAsB AsC subtopic 820-10 (“AsC 820-10”), Fair Value Measurements
and Disclosures (formerly FAsB statement No. 157, Fair Value
Measurements), defines fair value, establishes a framework for
measuring fair value under generally accepted accounting principles
and establishes a hierarchy that categorizes and prioritizes the
sources to be used to estimate fair value. The Company elected a
partial deferral of AsC 820-10 under the provisions of FAsB AsC
section 820-10-15, when it was adopted on January 1, 2008, related
to the measurement of fair value used when initially measuring
non-financial assets and non-financial liabilities in a business
combination, evaluating goodwill, other intangible assets, wireless
licences and other long-lived assets for impairment and valuing asset
retirement obligations and liabilities for exit or disposal activities.
The impact of fully adopting AsC 820-10, effective January 1, 2009,
was not material to the Company’s financial statements.
value is amortized to expense over the graded vesting period or,
as applicable, over the period in which the employee is eligible
to retire, whichever is shorter. For certain modified awards that
are outstanding at the reporting date, united states GAAP also
requires that cumulative compensation cost for these awards be
equal to the greater of (a) the grant-date fair value of the original
equity award and (b) the fair value of the modified liability award
until it is settled. As a result of the foregoing differences, stock-
based compensation expense would be decreased by $13 million
under united states GAAP for the year ended December 31, 2009
(2008 – increased by $32 million).
At December 31, 2009, the recorded liability for these awards is
$13 million lower under united states GAAP than recorded under
Canadian GAAP (2008 – $8 million).
Effective January 1, 2009, FAsB AsC subtopic 815-10, Derivatives
and Hedging (formerly FAsB statement No. 161, Disclosures about
Derivative Instruments and Hedging Activities), was adopted by
the Company. This statement enhances disclosures regarding an
entity’s derivative and hedging activities. The adoption of this
statement did not have an impact on the Company’s consolidated
financial statements.
(E) STOCk-BASED COMPENSATION :
All of the Company’s outstanding stock options can be settled in
cash at the discretion of the employee or director (note 19(a)(i)).
under united states GAAP, the cost of stock-based awards that
are settled in cash, or may be settled in cash at the discretion
of the employee or director, are required to be measured at
fair value on each reporting date. under Canadian GAAP, the
liability and compensation cost for these awards are measured
at the intrinsic value of the awards at each reporting date. In
addition, under united states GAAP, the fair value is amortized
to expense on a straight-line basis over the vesting period or, as
applicable, over the period in which the employee is eligible to
retire, whichever is shorter. under Canadian GAAP, the intrinsic
(F ) PENSION COST :
To comply with the requirements of AsC 715-20, the Company
adopted December 31, as its measurement date effective December
31, 2008, without remeasuring the plan assets and obligations at
January 1, 2008. This resulted in a decrease in retained earnings
of $4 million ($6 million less income taxes of $2 million), with a
corresponding increase of $6 million to the Company’s pension
liability. For the year ended December 31, 2009, the net periodic
pension cost under u.s. GAAP decreased by $3 million (2008 – nil)
due to the difference in measurement dates.
under united states GAAP, the Company was required to adopt
the recognition and disclosure provisions of FAsB AsC subtopic 715-
20 (“AsC 715-20”), Compensation – Retirement Benefits (formerly
FAsB statement No. 158, Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans), as at December 31, 2006.
under AsC 715-20, the Company is required to recognize the funded
status of defined benefit postretirement plans on the balance sheet
with changes recorded in other comprehensive income (loss). For
the year ended December 31, 2009, under united states GAAP, the
Company recorded a decrease of $45 million (2008 – increase of
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$16 million) to other comprehensive income, net of income taxes
of $16 million (2008 – $6 million) to reflect the current period
increase in the funded status differences.
INCOME TA xES:
(G)
Included in the caption “Income taxes” is the tax effect of various
adjustments where appropriate.
united states GAAP requires the valuation allowance to be allocated
on a pro rata basis between current and non-current future tax
assets for the relevant tax jurisdiction. This GAAP difference would
result in a decrease in current future tax assets under united
states GAAP of $4 million and a decrease in non-current future tax
liabilities of the same amount.
INSTALL ATION RE vENUES AND COSTS , NET:
(H)
For Canadian GAAP purposes, cable installation revenues for both
new connects and re-connects are deferred and amortized over the
customer relationship period. For united states GAAP purposes,
installation revenues are immediately recognized in income to
the extent of direct selling costs, with any excess deferred and
amortized over the customer relationship period.
(I) CONSOLIDATED STATEMENTS OF C ASH FLO wS:
(i) Canadian GAAP permits the disclosure of a subtotal of the
amount of funds provided by operations before changes in
non-cash operating working capital items in the consolidated
statements of cash flows. united states GAAP does not permit
this subtotal to be included.
(ii) Canadian GAAP permits bank advances to be included in the
determination of cash and cash equivalents in the consolidated
statements of cash flows. united states GAAP requires that
bank advances be reported as financing cash flows. As a result,
under united states GAAP, the total increase in cash and cash
equivalents in 2009 in the amount of $402 million reflected
in the consolidated statements of cash flows would be $383
million and cash used by financing activities would increase by
$19 million. The total increase in cash and cash equivalents in
2008 in the amount of $42 million reflected in the consolidated
statements of cash flows would be nil and cash provided by
financing activities would increase by $42 million.
(j) OTHER DISCLOSURES :
united states GAAP requires the Company to disclose accrued
liabilities, which is not required under Canadian GAAP. Accrued
liabilities included in accounts payable and accrued liabilities as at
December 31, 2009, were $1,843 million (2008 – $1,712 million). At
December 31, 2009, accrued liabilities in respect of PP&E totalled
$108 million (2008 – $130 million), accrued interest payable totalled
$144 million (2008 – $142 million), accrued liabilities related to payroll
totalled $337 million (2008 – $388 million), and CRTC commitments
totalled $10 million (2008 – $64 million).
(k ) PENSIONS:
The following summarizes the additional disclosures required and
different pension-related amounts recognized or disclosed in the
Company’s accounts under united states GAAP:
2009
2008
Current service cost (employer portion)
Interest cost
Expected return on plan assets
settlement of pension obligations
Amortization:
Transitional asset
Realized gains included in income
Net actuarial loss
Net periodic pension cost under united states GAAP
Accrued benefit asset under Canadian GAAP
One-time adjustment for change in measurement period
Net periodic pension cost difference
Accumulated other comprehensive loss under united states GAAP, on a pre-tax basis
$
$
$
16 $
41
(39)
30
(6)
2
4
48 $
134 $
(6)
3
(159)
Net amount recognized in the consolidated balance sheets under united states GAAP
$
(28) $
27
40
(43)
–
(10)
2
5
21
62
(6)
–
(101)
(45)
In addition to the amounts disclosed above, under united states GAAP,
the net amount recognized in the consolidated balance sheets related
to the Company’s supplemental unfunded pension benefits for certain
executives was $32 million (2008 – $27 million). The total accumulated
other comprehensive loss associated with the supplemental plan
amounts to $3 million (2008 – nil), on a pre-tax basis.
126 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(L) RECENT U NITED S TATES ACCOUNTING PRONOUNCEMENTS :
In June 2009, the FAsB issued FAsB statement No. 165, subsequent
Events. This statement introduces the concept of financial
statements being available to be issued. It requires the disclosure of
the date through which an entity has evaluated subsequent events
and whether that date represents the date the financial statements
were issued or were available to be issued. The Company recognizes
the effects of events or transactions that occur after the balance
sheet date but before financial statements are available to be issued
(“subsequent events”) if there is evidence that conditions related
to the subsequent event existed at the date of the balance sheet,
including the impact of such events on management’s estimates
and assumptions used in preparing the financial statements.
Other significant subsequent events that are not recognized in the
financial statements are disclosed in the notes to the consolidated
financial statements. subsequent events have been evaluated
through February 17, 2010, the date when these consolidated
financial statements are available to be issued.
In June 2009, the FAsB issued AsC subtopic 105-10, Generally
Accepted Accounting Principles (formerly FAsB statement No. 168,
The FAsB Accounting standards Codification and the Hierarchy of
Generally Accepted Accounting Principles). The FAsB Accounting
26.
SUBSEqUENT E vENTS:
In February 2010, the Tsx accepted a notice filed by the
(A)
Company of its intention to renew its prior NCIB for a further
one-year period. The Tsx notice provides that the Company may,
during the twelve-month period commencing February 22, 2010
and ending February 21, 2011, purchase on the Tsx the lesser of
43.6 million Class B Non-Voting shares, representing approximately
9% of the issued and outstanding 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 $1,500 million.
The actual number of Class B Non-Voting shares purchased, if
any, and the timing of such purchases will be determined by the
Company considering market conditions, share prices, its cash
position, and other factors.
In February 2010, the Company’s Board of Directors adopted a
(B)
dividend policy which increases the annual dividend rate from $1.16
to $1.28 per Class A Voting and Class B Non-Voting share effective
immediately to be paid in quarterly amounts of $0.32 per share.
such quarterly dividends are only payable as and when declared by
the Board of Directors and there is no entitlement to any dividend
prior thereto.
standards Codification (“Codification”) became the source of
authoritative u.s. GAAP recognized by the FAsB to be applied by
nongovernmental entities. On the effective date of this statement,
the Codification superseded all then-existing non-sEC accounting
and reporting standards. All other non-grandfathered non-sEC
accounting literature not included in the Codification became non-
authoritative. The issuance of this statement and the Codification
does not change GAAP. This statement was effective for the
Company september 15, 2009.
In september 2009, the FAsB issued Accounting standards update
2009-13, Revenue Arrangements with Multiple Deliverables (Topic
605), which addresses some aspects of the accounting by a vendor
for arrangements under which it will perform multiple revenue-
generating activities. This new standard is effective for the
Company’s interim and annual consolidated financial statements
commencing on January 1, 2011 with earlier adoption permitted as
of the beginning of a fiscal year. The Company is assessing the impact
of the new standard on its consolidated financial statements.
In addition, on February 16, 2010, the Board of Directors declared
a quarterly dividend totalling $0.32 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, 2010, to shareholders of record
on March 5, 2010, and is the first quarterly dividend to reflect the
newly increased $1.28 per share annual dividend level.
(C) On January 29, 2010, the Company announced that it has entered
into an agreement to purchase 100% of the outstanding common
shares of Blink Communications Inc. (“Blink”), a wholly owned
subsidiary of Oakville Hydro Corporation, for cash consideration of
$130 million. Blink is a data focused telecom provider that delivers
next generation and leading edge service, through its end-to-end
owned network, to small and medium sized businesses, including
municipalities, universities, schools and hospitals, in the Oakville
and Mississauga, Ontario areas.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 127
Corporate Governance
Board Of Directors and Its Committees
Audit
Corporate
Governance
Nominating
Compensation
Executive
Finance
Pension
As of February 17, 2010
Alan D. Horn, CA
Peter C. Godsoe, OC
Ronald D. Besse
C. William D. Birchall
John H. Clappison, FCA
Thomas I. Hull
Philip B. Lind, CM
Isabelle Marcoux
Nadir H. Mohamed, FCA
The Hon. David R. Peterson, PC, QC
Edward S. Rogers
Loretta A. Rogers
Martha L. Rogers
Melinda M. Rogers
William T. Schleyer
John A. Tory, QC
J. Christopher C. Wansbrough
Colin D. Watson
CHAIR
MEMBER
“ Over the years the Canadian economy has benefited greatly from family-
founded and controlled companies that are able to take a longer-term view
of investment horizons and general business management. At Rogers, we have
successfully overlaid disciplined corporate governance processes that strike
a healthy balance of being supportive of the business’ continued success,
making common business sense, and benefiting all shareholders.”
Alan D. Horn
Chairman of the Board
Rogers Communications Inc.
128 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
Rogers Communications’ Board of Directors is strongly committed
to sound corporate governance and continuously reviews its
governance practices and benchmarks them against acknowledged
leaders and evolving legislation. We are a family-controlled
company and take pride in our proactive and disciplined approach
towards ensuring that Rogers’ governance structures and practices
are deserving of the confidence of the public equity markets.
With the December 2008 passing of Company founder and CEO
Ted Rogers, his voting control of RCI passed to a trust of which
members of the Rogers family are beneficiaries. This trust holds
voting control of RCI for the benefit of successive generations of
the Rogers family.
As substantial stakeholders, the Rogers family is represented on
our Board and brings a long-term commitment to oversight and
value creation. At the same time, we benefit from having outside
directors who are some of the most experienced business leaders
in North America.
In the Board’s view its corporate governance model must be
appropriate to the Company’s circumstances but it believes in the
central role played by directors in the overall governance process.
The Board believes that the Company’s governance system is
effective and that there are appropriate structures and procedures
in place to ensure its independence.
The composition of our Board and structure of its various
committees are outlined on the previous page. As well, we make
detailed information of our governance structures and practices –
including our complete statement of corporate governance practic-
es, our codes of conduct and ethics, full committee charters, and
board member biographies – easily available in the corporate gov-
ernance section within the Investor Relations section of rogers.
com. Also in the corporate governance section of our website you
will find a summary of the differences between the NYsE corpo-
rate governance rules applicable to u.s.-based companies and our
governance practices as a non-u.s.-based issuer that is listed
on the NYsE.
Committee also assists the Board in its oversight of the Company’s
compliance with legal and regulatory requirements relating to
financial reporting and assesses the systems of internal accounting
and financial controls and the qualifications, independence and
work of external auditors and internal auditors.
The Corporate Governance Committee assists and makes
recommendations to the Board to ensure the Board of Directors
has developed appropriate systems and procedures to enable the
Board to exercise and discharge its responsibilities. To carry this
out the Corporate Governance Committee assists the Board in
developing, recommending and establishing corporate governance
policies and practices and leads the Board in its periodic review of
the performance of the Board and its committees.
The Nominating Committee assists and makes recommendations
to the Board to ensure that the Board of Directors is properly
constituted to meet its fiduciary obligations to shareholders
and the Company. To carry this out, the Nominating Committee
identifies prospective Director nominees for election by the
shareholders and for appointment by the Board and also recom-
mends nominees for each committee of the Board including each
committee’s Chair.
The Compensation Committee assists the Board in monitoring,
reviewing and approving compensation and benefit policies
and practices. The Committee is responsible for recommending
senior management compensation and for succession planning
with respect to senior executives.
The Executive Committee assists the Board in discharging its
responsibilities in the intervals between meetings of the Board,
including to act in such areas as specifically designated and
authorized at a preceding meeting of the Board and to consider
matters concerning the Company that may arise from time to time.
The Finance Committee reviews and reports to the Board on
matters relating to the Company’s investment strategies and
general debt and equity structure.
The Audit Committee reviews the Company’s accounting policies
and practices, the integrity of the Company’s financial reporting
processes and procedures and the financial statements and other
relevant public disclosures to be provided to the public. The
The Pension Committee supervises the administration of
the Company’s pension plans and reviews the provisions and
investment performance of the Company’s pension plans.
“ Rogers has long benefited from strong independent voices and directors in the
boardroom and sound governance structures which ensure that their influence
is real. The structure of our Board is very much intended to ensure that the
Directors and management act in the interests of all Rogers’ shareholders –
an approach that has helped ensure the continuance of strong independent
family-founded Canadian companies.”
Peter C. Godsoe
Lead Director
Rogers Communications Inc.
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 129
Directors and senior Corporate Officers
of Rogers Communications Inc.
As of February 17, 2010
Directors
Alan D. Horn, CA
Chairman; President and
Chief Executive Officer
Rogers Telecommunications
Limited
Peter C. Godsoe, OC
Lead Director;
Company Director
Nadir H. Mohamed, FCA*
President and Chief
Executive Officer
Rogers Communications
Ronald D. Besse
President, Besseco
Holdings Inc.
Charles william David Birchall
Vice Chairman, Barrick Gold
Corporation
john H. Clappison, FCA
Company Director
Thomas I. Hull
Chairman and
Chief Executive Officer
The Hull Group of Companies
Philip B. Lind, CM*
Vice Chairman and Executive
Vice President Regulatory
Rogers Communications
Isabelle Marcoux
Vice Chair and Vice President
Corporate Development
Transcontinental Inc.
The Hon. David R. Peterson,
PC, qC
senior Partner and Chairman
Cassels Brock & Blackwell LLP
Melinda M. Rogers*
senior Vice President,
strategy and Development
Rogers Communications
Edward S. Rogers*
Deputy Chairman and
Executive Vice President
Emerging Business, Corporate
Development
Rogers Communications
Loretta A. Rogers
Company Director
Martha L. Rogers
Dr. of Naturopathic Medicine
william T. Schleyer
Company Director
john A. Tory, qC
Director, The Woodbridge
Company Limited
j. Christopher C. wansbrough
Chairman, Rogers
Telecommunications Limited
Colin D. watson
Company Director
Left to right, seated: Isabelle Marcoux, Ronald D. Besse, Colin D. Watson, John H. Clappison
Left to right, standing: William T. schleyer, Thomas I. Hull, John A. Tory, Charles William David Birchall, Alan D. Horn, Peter C. Godsoe, David R. Peterson,
Martha L. Rogers, J. Christopher C. Wansbrough, Loretta A. Rogers
* Management Directors are pictured on the following page
130 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
senior Corporate Officers
Nadir H. Mohamed, FCA
President and Chief
Executive Officer
Rogers Communications
Robert w. Bruce
President Communications
Rogers Communications
Anthony P. viner
President and Chief Executive
Officer, Rogers Media
william w. Linton, CA
Executive Vice President,
Finance and Chief
Financial Officer
Rogers Communications
Edward S. Rogers
Deputy Chairman and
Executive Vice President
Emerging Business, Corporate
Development
Rogers Communications
Robert F. Berner
Executive Vice President
Network and Chief Technology
Officer
Rogers Communications
jerry D. Brace
Executive Vice President
Information Technology and
Chief Information Officer
Rogers Communications
Philip B. Lind, CM
Executive Vice President
Regulatory and Vice Chairman
Rogers Communications
Melinda M. Rogers
senior Vice President,
strategy and Development
Rogers Communications
David P. Miller
senior Vice President, Legal
and General Counsel, Rogers
Communications
Terrie L. Tweddle
Vice President, Corporate
Communications
Rogers Communications
kevin P. Pennington
senior Vice President Human
Resources and Chief Human
Resources Officer
Rogers Communications
see rogers.com for an expanded
listing and biographical
information of Rogers’ corporate
and operating company
management teams.
Left to right, seated: Kevin P. Pennington, Robert F. Berner, Terrie L. Tweddle
Left to right, standing: David P. Miller, Melinda M. Rogers, Philip B. Lind, Anthony P. Viner, Edward s. Rogers, Robert W. Bruce, Nadir H. Mohamed,
William W. Linton, Jerry D. Brace
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT 131
Corporate and shareholder Information
CORPOR ATE OFFICES
Rogers Communications Inc.
333 Bloor street East, 10th Floor
Toronto, Ontario M4W 1G9
416-935-7777 or www.rogers.com
CUSTOMER SERvICE AND
PRODUC T INFORMATION
888-764-3771 or www.rogers.com
SHAREHOLDER SERvICES
If you are a shareholder and have inquiries
regarding your account, wish to change
your name or address, or have questions
about lost stock certificates, share transfers
or dividends, please contact our Transfer
Agent and Registrar:
Computershare Investor services Inc.
100 university Ave., 9th Floor, North Tower
Toronto, Ontario M5J 2Y1
800-564-6253 or
service@computershare.com
Multiple Mailings
If you receive duplicate shareholder mail-
ings from Rogers Communications, please
contact Computershare at 800-564-6253 or
service@computershare.com to consolidate
your holdings.
STOCk E xCHANGE LISTINGS
Toronto Stock Exchange (TSx):
RCI.a – Class A Voting shares
(CusIP # 775109101)
RCI.b – Class B Non-Voting shares
(CusIP # 775109200)
New York Stock Exchange (NYSE):
RCI – Class B Non-Voting shares
(CusIP # 775109200)
Equity Index Inclusions:
Dow Jones Telecom Titans 30 Index
FTsE Global Telecoms Index
s&P/Tsx Composite Index
s&P/Tsx 60 Index
s&P/Tsx Telecom services Index
DEBT SECURITIES
For details of the public debt securities
of the Rogers companies, please refer to
the Debt securities section under Investor
Relations at rogers.com.
INDEPENDENT AUDITORS
KPMG LLP
INvESTOR REL ATIONS
Institutional investors, security analysts
and others requiring additional financial
information can visit the Investor Relations
section of the rogers.com website
or contact:
FORM 40 -F
Rogers files its annual report with the
securities and Exchange Commission of
the u.s. on Form 40-F. A copy is available
on EDGAR at sec.gov and at the Investor
Relations section of rogers.com.
Bruce M. Mann, CPA
Vice President, Investor Relations
416-935-3532 or
bruce.mann@rci.rogers.com
Dan R. Coombes
Director, Investor Relations
416-935-3550 or
dan.coombes@rci.rogers.com
Media inquiries: 416-935-7777
ON -LINE INFORMATION
Rogers is committed to open and full
financial disclosure and best practices
in corporate governance. We invite you
to visit the Investor Relations section of
rogers.com where you will find additional
information about our business and
growth opportunities including events and
presentations, news releases, regulatory
filings, governance practices, and our
continuous disclosure materials including
quarterly financial releases, Annual
Information Forms and Management
Information Circulars. Also, please take the
opportunity to subscribe to our news by
e-mail or Rss feeds to automatically receive
Rogers’ news releases electronically.
COMMON STOCk PRICE AND
DIvIDEND INFORMATION
2009
First quarter
Second quarter
Third quarter
Fourth q uarter
2008
First Quarter
second Quarter
Third Quarter
Fourth Q uarter
Dividends
Closing Price RCI.b on TSx Declared
Per Share
$0.290
$0.290
$0.290
$0.290
Low
$25.84
$26.74
$28.49
$27.57
High
$37.45
$32.71
$31.37
$33.80
Dividends
Closing Price RCI.b on TSx Declared
Per Share
$0.250
$0.250
$0.250
$0.250
High
$44.46
$46.06
$40.65
$36.74
Low
$33.26
$39.14
$33.62
$29.07
2010 Expected Dividend Dates
Record Date*:
March 5, 2010
May 14, 2010
september 9, 2010
November 18, 2010
Payment Date*:
April 1, 2010
July 2, 2010
October 1, 2010
January 4, 2011
* Subject to Board approval
unless indicated otherwise, all dividends
paid by Rogers Communications are
designated as “eligible” dividends for the
purposes of the Income Tax Act (Canada)
and any similar provincial legislation.
ELEC TRONIC DELIvERY OF
SHAREHOLDER MATERIALS
Registered shareholders can receive
electronic notice of financial statements
and proxy materials and utilize the Internet
to submit proxies on-line by registering
at rogers.com/electronicdelivery. This
approach gets information to shareholders
more quickly than conventional mail and
helps Rogers protect the environment and
reduce printing and postage costs.
CORPOR ATE PHIL ANTHROPY
For information relating to Rogers’
various philanthropic endeavours, refer to
the “About Rogers” section of rogers.com
vERSION FR AN ç AISE DU R APPORT
Pour obtenir la version française du rapport
annuel de Rogers Communications, veuillez
vous adresser au service des relations exté-
rieures en composant le 416-935-7777.
FORwARD - LOOk ING INFORMATION
This annual report includes forward-looking statements about the financial condition and prospects of Rogers Communications which involve significant risks and uncertainties
that are detailed in the “Risks and uncertainties Affecting our Businesses” and “Caution Regarding Forward-Looking statements, Risks and Assumptions” sections of the MD&A
contained herein which should be read in full in conjunction with any other parts of this annual report.
This report is printed on FsC certified paper. The fibre used in the
manufacture of the stock, comes from well managed forests, controlled
sources and recycled wood or fiber. This annual report is recyclable.
7 trees
preserved
for the
future
11,729 liters of
wastewater
flow saved
155 kg. of
solid waste
not generated
306 kg. net
greenhouse
gases prevented
5,166,558 BTus
energy not
consumed
132 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
132 ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
© 2010 Rogers Communications Inc.
Other registered trademarks that
appear are the property of the
respective owners.
Design: Interbrand
Printed in Canada
Rogers Communications Inc. at a glance
ROGERS COMMUNICATIONS
Rogers Communications (TSX: RCI; NYSE: RCI) is a diversifi ed
Canadian communications and media company. As discussed in
the following pages, Rogers Communications is engaged in three
primary lines of business through its wholly owned subsidiaries
Rogers Wireless, Rogers Cable and Rogers Media.
Rogers Communications
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 09 REVENUE:
$11.7 billion
10.1
11.3
11.7
3.7
4.1
4.4
Wireless
Cable
Media
2007
2008
2009
20000077
2007
200000888
2008
2009
WIRELESS
Rogers Wireless provides wireless voice and data communications
services across Canada to 8.5 million customers under both the
Rogers Wireless and Fido brands. Rogers Wireless is Canada’s largest
wireless provider and the only national carrier operating on both
the global standard GSM and highly advanced 3G HSPA+ technology
platforms. Rogers Wireless is Canada’s leader in innovative
wireless voice and data services, and provides customers with the
best and latest wireless devices and applications. In addition to
providing seamless wireless roaming across the U.S. and more
than 200 countries internationally, Rogers Wireless also provides
wireless broadband services across Canada utilizing its 2.5 GHz
fi xed wireless spectrum.
CABLE
Rogers Cable is a leading Canadian cable services provider, whose
territory covers approximately 3.5 million homes in Ontario,
New Brunswick and Newfoundland and Labrador with 63% basic
penetration of its homes passed. Its advanced digital two-way
hybrid fi bre-coax network provides the leading selection of
on-demand and high-defi nition television programming including
an extensive line-up of sports and multicultural programming.
Rogers Cable pioneered high-speed Internet access and now 71%
of its television customers subscribe to its high-speed Internet
service, while Rogers Cable boasts 1.2 million residential and
business telephony subscribers. Rogers Cable also operates a retail
distribution chain which offers Rogers branded wireless, cable and
home entertainment products and services.
MEDIA
Rogers Media is Canada’s premier combination of category-leading
radio and television broadcasting, publishing, sports entertainment
and on-line properties. Its Radio group operates 54 radio stations
across Canada, while its Television properties include the fi ve-
station Citytv network; its fi ve multicultural OMNI television
stations; Rogers Sportsnet, a specialty sports television service
licenced to provide regional sports programming across Canada;
and The Shopping Channel, Canada’s only nationally televised
shopping service. Media’s Publishing group produces 70 well-known
consumer magazines and trade and professional publications in
Canada. Media’s Sports Entertainment assets include the Toronto
Blue Jays Baseball Club and Rogers Centre, Canada’s largest sports
and entertainment facility.
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 09 REVENUE:
$6.7 billion
5.5
6.3
6.7
2.6
2.8
3.0
2007
2008
2009
2007
2008
2009
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 09 REVENUE:
$3.9 billion
3.6
3.8
3.9
1.0
1.2
1.3
2007
2008
2009
2007
2008
2009
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 09 REVENUE:
$1.4 billion
1.32
1.50
1.40
0.18
0.14
0.12
2007
2008
2009
2007
2008
2009
Wireless
55%
Cable
33%
Media
12%
Postpaid Voice
70%
Wireless Data
20%
Prepaid Voice
Equipment sales
4%
6%
Core Cable
45%
High-Speed Internet
20%
Home Phone
13%
Business Solutions
12%
Retail
10%
Core Media
86%
Sports Entertainment
14%
For a detailed discussion of our financial and operating metrics and results, please see the accompanying MD&A later in this report.
“The best is yet to come.”
Ted Rogers 1933-2008
Defi ning
Next
ROGERS COMMUNICATIONS INC. 2009 ANNUAL REPORT
Defi ning
Next
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ROGERS.COM
ROGERS COMMUNIC ATIONS INC . AT A GL ANCE
Rogers Communications Inc. is a diversified Canadian communications and media company
engaged in three primary lines of business. Rogers Wireless is Canada’s largest wireless voice
and data communications services provider and the country’s only national carrier operating
on both the world standard GSM and HSPA technology platforms. Rogers Cable is a leading
Canadian cable services provider, offering cable television, high-speed Internet access, and
telephony products for residential and business customers, and operating a retail distribution
chain which offers Rogers branded wireless and home entertainment services. Rogers Media
is Canada’s premier group of category-leading broadcast, specialty, print and on-line media
assets with businesses in radio and television broadcasting, televised shopping, magazine
and trade journal publication, and sports entertainment.
Delivering Results In 2009
Free Cash Flow
Growth
Dividend
Increases
Share
Buybacks
Strong Single-Digit
Revenue Growth
What We Said: Deliver
approximately 16% growth in
consolidated free cash flow.
What We Did: Generated a 29%
increase in free cash flow growth.
What We Said: Increase cash
returns to shareholders consistently
over time.
What We Said: Repurchase up to
$300 million of Rogers shares on
open market.
What We Did: Increased annual
dividend per share 16% from $1.00
to $1.16 in 2009.
What We Did: Increased share
buyback program repurchasing
43.8 million Rogers shares for
$1.35 billion.
What We Said: Leverage
networks, channels and brand
to deliver strong single-digit
revenue growth.
What We Did: Drove 7% top-line
growth in core Wireless Network
and Cable Operations businesses.
Expand Adjusted
Operating Profit Margins
Fast and Reliable
Networks
Grow Wireless Data
Revenue
Gain Higher Value
Wireless Subscribers
What We Said: Implement cost
containment initiatives to capture
efficiencies.
What We Did: Delivered 160 basis
points of consolidated adjusted
operating profit margin expansion
despite economic and competitive
pressures.
What We Said: Maintain Rogers’
leadership in network technology
and innovation.
What We Said: Strong double-digit
wireless data growth to support
continued ARPU leadership.
What We Did: Launched North
America’s first HSPA+ 21 Mbps
wireless network and deployed
leading-edge DOCSIS 3 50 Mbps
high-speed Internet service.
What We Did: 44% wireless data
revenue growth with data as a
percent of network revenue
expanding to 22% from 16%
in 2008.
What We Said: Continued rapid
growth in smartphone subscriber
base to drive wireless data revenue
and ARPU.
What We Did: Activated nearly
1.5 million smartphone customers
bringing smartphone penetration
to 31% of postpaid subscriber base.
Table Of Contents
1 Letter to Shareholders 4 Defi ning Next 14 Why Invest in Rogers 15 2009 Financial and Operating Highlights 16 2009 Financial Highlights
18 Management’s Discussion and Analysis 82 Management’s Responsibility for Financial Reporting 82 Auditors’ Report to the Shareholders
83 Consolidated Statements of Income 84 Consolidated Balance Sheets 85 Consolidated Statements of Shareholders’ Equity
86 Consolidated Statement of Comprehensive Income 87 Consolidated Statements of Cash Flows 88 Notes to Consolidated Financial Statements
128 Corporate Governance 130 Directors and Senior Corporate Offi cers 132 Corporate and Shareholder Information