Seamless Connections
Rogers Communications Inc.
2010 Annual Report
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 the second
largest Canadian cable services provider, offering cable television, high-speed Internet access,
and telephony products for residential and business customers, and 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 2010
Pre-tax Free Cash
Flow Growth
Dividend
Increases
Share
Buybacks
Top-line
Growth
What We Said: Deliver
approximately 5% growth in
consolidated free cash flow.
What We Did: Generated a
14% year-over-year increase in
pre-tax free cash flow growth
in 2010.
What We Said: Increase cash
returns to shareholders consistently
over time.
What We Did: Increased annualized
dividend per share 10% from $1.16
to $1.28 in 2010.
What We Said: Return
additional cash to shareholders
by repurchasing Rogers shares
on open market.
What We Did: Repurchased
37.1 million Rogers Class B shares
for $1.3 billion.
What We Said: Leverage
networks, channels and brands
to deliver continued revenue
growth.
What We Did: Delivered 4%
consolidated top-line growth
with 6% growth in adjusted
operating profit.
Capture Operating
Leverage
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 80 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 Did: Completed
deployment of HSPA+ 21 Mbps
wireless network nationally and
DOCSIS-3 50 Mbps Internet service
across entire cable territory.
What We Said: Strong double-digit
wireless data growth to support
continued ARPU leadership.
What We Did: 34% wireless data
revenue growth with data as a
percent of network revenue
expanding to 28% from 22%
in 2009.
What We Said: Continued rapid
growth in smartphone subscriber
base to drive wireless data revenue
and ARPU.
What We Did: Activated nearly
1.9 million smartphones helping
bring smartphone penetration to
41% of postpaid subscriber base.
Table of Contents
1 Letter to Shareholders
4 Seamless Connections
14 Why Invest in Rogers
15 2010 Financial and Operating Highlights
16 2010 Financial Highlights
18 Management’s Discussion and Analysis
80 Management’s Responsibility for
Financial Reporting
83 Consolidated Statement of
Comprehensive Income
80 Independent Auditors’ Report of Registered
84 Consolidated Statements of Cash Flows
Public Accounting Firm
81 Consolidated Statements of Income
82 Consolidated Balance Sheets
83 Consolidated Statements of
Shareholders’ Equity
85 Notes to Consolidated Financial Statements
120 Corporate Governance
122 Directors and Senior Corporate Officers
124 Corporate and Shareholder Information
Rogers Communications Inc. at a glance
ROGERS COMMUNICATIONS
Rogers Communications (TSX: RCI; NYSE: RCI) is a diversified
Canadian communications and media company. As discussed in
the following pages, Rogers Communications is engaged in three
primary lines of business through its three operating segments
Rogers Wireless, Rogers Cable and Rogers Media.
Rogers Communications
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y2010 REVENUE:
$12.2 billion
11.3
11.3
11.7
11.7
12.2
12.2
4.1
4.1
4.4
4.4
4.7
4.7
Wireless
Cable
Media
2008
2008
2009
2009
2010
2010
2008
2008
2009
2009
2010
2010
WIRELESS
Rogers Wireless provides wireless voice and data communications
services across Canada to approximately 9 million customers under
the Rogers Wireless, Fido and chatr 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
approximately 200 countries internationally, Rogers Wireless also
provides wireless broadband services across Canada utilizing its
2.5 GHz fixed 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 62% basic
penetration of its homes passed. Its advanced digital two-way
hybrid fibre-coax network provides the leading selection of
on-demand and high-definition television programming including
an extensive line-up of sports and multicultural programming.
Rogers Cable pioneered high-speed Internet access and now 73%
of its television customers subscribe to its high-speed Internet
service, while Rogers Cable boasts approximately 1.2 million
residential and business telephony lines. Rogers Cable also includes
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 55 radio stations
across Canada, while its Television properties include the five-
station Citytv network; its five multicultural OMNI television
stations; Rogers Sportsnet and Sportsnet ONE specialty sports
television services licenced to provide sports programming across
Canada; and The Shopping Channel, Canada’s only nationally
televised shopping service. Media’s Publishing group produces
55 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 Y2010 REVENUE:
$7.0 billion
6.3
6.3
6.7
6.7
7.0
7.0
2.8
2.8
3.0
3.0
3.2
3.2
2008
2008
2009
2009
2010
2010
2008
2008
2009
2009
2010
2010
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y2010 REVENUE:
$4.1 billion
3.8
3.8
3.9
3.9
4.1
4.1
1.2
1.2
1.3
1.3
1.4
1.4
2008
2008
2009
2009
2010
2010
2008
2008
2009
2009
2010
2010
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y2010 REVENUE:
$1.5 billion
1.50
1.50
1.40
1.40
1.50
1.50
0.14
0.14
0.12
0.12
0.15
0.15
2008
2008
2009
2009
2010
2010
2008
2008
2009
2009
2010
2010
Wireless
56%
Cable
32%
Media
12%
Postpaid Voice
65%
Wireless Data
26%
Prepaid Voice
Equipment Sales
3%
6%
Television
45%
High-Speed Internet
21%
Home Phone
12%
Business Solutions
14%
Retail
8%
Core Media
88%
Sports Entertainment
12%
For a detailed discussion of our financial and operating metrics and results, please see the accompanying MD&A later in this report.
Seamless
Connections
Fellow Shareholders,
I’m pleased to report that despite an intensely competitive
environment that moderated our growth, we met or exceeded
our key financial commitments in 2010 and delivered against
our strategic priorities.
We grew revenue and adjusted operating profit at a healthy
rate and we held operating and capital expenditures in solid
check. This operating discipline allowed us to deliver double
digit growth in free cash flow per share and return significant
amounts of cash to shareholders through a combination of
dividends and share buybacks.
In fact I believe we returned more cash as a percentage
of equity market capitalization to shareholders than any
other telecom or cable company in North America. At the
same time, we maintained a solid investment grade balance
sheet with approximately $2.4 billion of available liquidity.
And we continued to invest in customer retention, network
enhancement and product development initiatives.
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 1
LET TER T O ShAREhOLdERS
We delivered respectable results in a year marked by a new
competitive reality and a sluggish recovery from the economic
recession. In particular, we maintained our relentless focus on
driving wireless data growth and smartphone penetration where
we have proven success in attracting and retaining higher value
customers who generate greater average revenue and churn less.
At the same time, the competitive environment reflects multiple
new wireless entrants who have now launched service, our two
primary wireless competitors fully transitioned to HSPA networks
gaining access to an expanded array of wireless devices, and the
launch of IPTV video services by the primary incumbent telco in
our cable territory.
There’s no question that 2011 will be both dynamic and
challenging, and as a company we remain focused on our game
plan – perfecting and evolving our core business, investing in next
generation platforms and building new revenue streams to
drive long-term growth.
Evolving our Core Business
Last year I wrote about the transformation underway in
communications and media.
Today, our customers are using smartphones as TVs, laptops as
telephones, TVs as time shifted entertainment and gaming stations,
and cell phones as boarding passes. And as a company we continued
to create the seamless connections whenever, wherever and
however Canadians choose to communicate and consume content --
a key focus for Rogers and a key theme of the pages that follow
in this annual report.
We are resolute in our focus on continuing to strengthen our core
business in the areas of service, network and cost management.
Enhancing the Customer Experience -- Continually enhancing our
customers’ experience and making it easier to do business with us
is a key area of focus. We know that more of our revenue growth
will come from existing customers than from new customers as we
go forward, and we will continually develop newer, better, and
faster ways to deliver what customers want.
We delivered a number of initiatives in 2010 to strengthen the
customer experience. We launched a successful handset protection
guarantee program that enables eligible customers to quickly
and inexpensively replace lost or broken wireless devices. We also
deployed an award-winning new sales and service channel for our
small and medium-sized business segment called Live Agent, where
customers can bypass voice response systems to directly connect
with a knowledgeable agent. While 2010 was not without its
customer service challenges, overall we met or exceeded our
targeted service metrics.
For a growing segment of value-oriented urban consumers, we
launched a set of no-frills unlimited wireless talk and text services
under a new wireless brand called “chatr”. We brought the
Rogers on-demand TV experience to the Internet with the Rogers
On-Demand Online broadband video product which enables “TV
Everywhere” functionality for our customers. And we used the
2010 FIFA World Cup to bring a unique cross-platform experience to
Canadians by enabling them to enjoy the matches on-demand across
their TV, Internet and wireless devices.
Industry-leading Networks -- Our advanced wireless and broadband
networks are some of the best in the world and we deliver fast,
reliable and proven network experiences. In 2010 we continued
to push the envelope by increasing the speed of our national 3.5G
HSPA wireless network, and today provide wireless speeds of up
to 21Mbps to approximately 90 percent of Canada’s population.
We also cost effectively expanded our wireless broadband footprint
in rural parts of the country by crafting additional HSPA network
sharing arrangements.
We expanded the switched digital video and on-demand capabilities
of our cable network enabling industry-leading selections of HDTV
and on-demand content. And we completed the deployment of
DOCSIS 3.0 technology across 100% of our cable system enabling
significant increases in our broadband Internet service speeds.
Competitive Cost Structure -- As our business matures and
competition intensifies, revenue growth will continue to slow and
margins will be challenged. This means our focus will continue to
evolve from subscriber growth towards cash flow growth, and
managing costs and operating efficiently will become increasingly
important. In 2010 we made solid progress in controlling costs,
essentially holding our operating costs flat to 2009 levels excluding
costs associated with wireless equipment sales. This in turn enabled
us to invest significantly in our customers, our networks and our
products while returning significant amounts of cash to shareholders.
Investing in Next Generation Platforms
While we continue to evolve our core business, we also remain
focused on investing in the next generation of technology platforms
to ensure we remain Canada’s innovation leader.
I believe we have the assets and the proven track record to embrace
and lead the technology transformation underway. Broadband
and wireless continue to converge onto increasingly integrated
IP platforms, and content and distribution are becoming more
and more intertwined. This is setting the stage for more and
more ways of interacting, engaging and consuming information,
communications and entertainment – any content, on any device, any
where, any time – and this will enable future growth opportunities
for Rogers and exciting new experiences for our customers.
To leverage these possibilities, we are increasingly developing
cross-platform capabilities. And we’re investing in new platforms
that evolve our wireless and cable networks to enable the next
generation of capabilities and services.
We began trials late in 2010 of a true 4G wireless technology called
LTE, which promises even faster broadband data speeds delivered
with greater efficiency. The trial results to date, combined with
positive progress being realized by other wireless carriers, have
reaffirmed our view that LTE is the next generation technology to
which GSM based carriers such as Rogers will evolve. In 2011, we will
begin making the necessary investments and laying the foundation
for a multi-year deployment of LTE in Canada.
” I’m pleased to report that despite
an intensely competitive environment
that moderated our growth, we
met or exceeded our key financial
commitments in 2010 and delivered
against our strategic priorities.”
The recent completion of our DOCSIS 3.0 deployment will in turn
enable the future evolution of cable television services from one
based on linear broadcast technology to a fully IP-based product
with exciting new capabilities and flexibility. This will be a multi-
year evolution, but we believe the path is quickly becoming clearer
and intend to begin making investments to start the transition
later in 2011.
Building New Revenue Streams
To help drive future growth, we continued to advance our plans in
the areas of wireless data, machine-to-machine, digital media,
home monitoring and the business telecom segment.
To help us serve a larger number of business customers in the small
and medium-sized enterprise segment with on-net services, we
acquired two large fibre optic data networks previously owned by
electrical utility providers within and adjacent to our cable networks.
The acquisitions of Atria Networks and Blink Communications bring
fibre connections to thousands of additional commercial buildings,
existing customer bases and experienced employees.
At Rogers Media, to further reinforce our successful sports media
presence, we secured 10-year programming deals with Alberta’s two
NHL teams -- the Edmonton Oilers and Calgary Flames -- and the
Rogers Arena naming rights for the Vancouver facility that is home
to the NHL Canucks. We then leveraged our very successful Sportsnet
television franchise with the launch of a new national sports
network called Sportsnet ONE that features extensive live-event
programming, including professional hockey, basketball, soccer,
baseball and tennis.
Delivering Results in 2011
In February 2011 we announced an increase to our annual dividend
of 11 percent and a share buy-back program for 2011 of up to
$1.5 billion. These two announcements reflect our continued
success in generating free cash flow and our continued confidence
in the strength of the company.
Our 2011 plan strikes a healthy balance between continued subscriber
and financial growth, and the continued return of significant
amounts of free cash flow to shareholders. It reflects a disciplined
management approach to a complex and intensified competitive
environment. It reflects a focus on our networks, systems and service
delivery platforms to enable more seamless connections for our
customers. And it reflects prudent investments to reinforce our
competitive advantage and drive new streams of revenue.
Importantly, we’ll also invest in our brand and our reputation.
The environment around us has shifted and become more complex,
and we’re adapting to this changing environment with programs,
policies and investments that reflect the diverse needs of our
stakeholders. We will continually reinforce the Rogers brand – a
proven, valuable franchise that resonates strongly with Canadians
from coast-to-coast. It’s a brand that has long stood for innovation
and choice. Our decisions and actions will continue to reinforce
those hallmarks, whether it’s about being first with technology,
responding to changing markets, or being responsive to our
customers changing needs.
I am pleased with the progress of our business in 2010 and in
particular would like to thank our employees for their incredible
hard work and dedication. We are steadfastly focused on execution,
are enthusiastically pursuing the many opportunities in front of us,
and are up for the challenges that we know will continue in 2011.
Thank you for your continued investment and support,
Nadir Mohamed
President and Chief Executive Officer
Rogers Communications Inc.
2 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 3
Any screen
WATCh TV ON yOUR LAPTOP
GET CALLER Id ON yOUR TV
TRANSACT WITh yOUR CELL PhONE
RECEIVE VOICE MAIL by E-MAIL
PROGRAM yOUR PVR FROM yOUR TAbLET
TExT MESSAGES TO yOUR hOME PhONE
MAkE VIdEO CALLS ON yOUR SMARTPhONE
USE ONE CONTACT LIST ACROSS MULTIPLE dEVICES
Rogers was one of the first carriers in
the world to offer the communications
‘quadruple play’ of wireless, television,
Internet and telephony services – all over
its own networks. Few have more
experience or success in enabling
subscribers to seamlessly shift their
experience across screens.
Rogers subscribers aren’t tied to a specific
screen for each service. Our customers can
watch our digital cable TV content, à la carte
movies and much more on their computer
or tablet with Rogers On-Demand Online,
whether at home or on the go. Never out of
touch, they are able to program their PVR with
their smartphone, listen to their voice mail on
their laptop or tablet, screen their phone
calls on their TV and even receive talking text
messages on their home phone. And they can
easily keep track of it all through a single data
service plan.
The future is here today for Rogers customers
who seamlessly experience iconic events like
FIFA World Cup soccer and the Winter Olympics
at home, at work and on the move, enjoying
the same content across their TV, PC, tablet
and smartphone screens.
Productivity also thrives as commerce shifts
across screens. With Rogers, today’s
professionals will access their applications,
contacts and calendars in real-time on their
smartphone. They’ll enjoy the convenience of
a common voice mail box for their office and
wireless phones. They’ll collaborate with
colleagues through virtual white boarding
sessions on their tablet. They’ll video
conference with their customers. And they’ll
pay for lunch with their cell phone.
Whether with their mobile phone, television,
computer, tablet or home phone, Canadians
can enjoy seamless connections to rich
communications, information and entertainment
experiences across devices and screens,
thanks to Rogers.
4 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 5
Any time
WATCh MOVIES ON dEMANd
NETWORk ThROUGh TExT, ChAT ANd INSTANT MESSAGING
kNOW yOUR ChILd’S GPS LOCATION
ShARE FILES ANd APPLICATIONS
PAUSE, REWINd ANd PROGRAM yOUR TV
COLLAbORATE ON CLIENT PROjECTS
WORk ACROSS TIME zONES
AUTOMATE MAChINE-TO-MAChINE COMMUNICATIONS
Rogers provides exceptional convenience
and flexibility by enabling Canadians to
‘time shift’ how they access the broad
array of communications, information and
entertainment experiences we provide.
For some customers, having anytime access
to the people, content and things that
matter to them is a necessity. For others,
it’s simply about the convenience and
simplicity of being able to live life the
way they choose.
When it comes to entertainment, Rogers’
digital cable TV offers the most in on-demand
programming and the widest selection of
PVRs in Canada. With thousands of hours of
on-demand entertainment and the ability to
easily record, pause, forward and rewind live
content, our customers watch what they want
when they want it. Rogers On-Demand Online
then takes the digital TV experience, expands it
and transports it to their PC or smartphone. For
the customer, it’s all about making the most of
their time by scheduling entertainment around
their busy lives, not the other way around.
In today’s fast-paced, knowledge-based world
of business, the ability to communicate and
access information any time is a competitive
advantage. Rogers helps make sure business
people are accessible to their customers and
colleagues, and always have access to their files
and business tools. We help them control how
and when they are reached, so important calls
and messages can be directed to them at
different times or places. Whether it’s catching
up late at night or conducting a web conference
with a client nine time zones away, Rogers helps
make sure that time doesn’t get in the way.
6 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 7
Any content
NEWS, SPORTS ANd LOCAL
MUSIC ANd POdCASTS
SOCIAL MEdIA ANd NETWORkING
WORLd WIdE WEb
MOVIES, VIdEO ANd PhOTOS
CALENdAR ANd CONTACTS
ebOOkS ANd MAGAzINES
bANkING ANd PAyMENTS
Consumers today want access to a broader
selection of the content they enjoy and the
ability to view it on whatever screen is in
front of them. They want to easily access
the same personalized experiences in the
home, at work or on the go. And they want
to easily share their pictures, videos, music
and documents with friends, colleagues
and family.
Rogers has its roots in the media business,
and today we’re proud to be able to bring
the best in entertainment and information
to our customers – TV, movies, sports, news,
episodic, multicultural, high-definition,
shopping, social networking and Internet
content. It’s all complemented by the more
than 15,000 hours of local programming
produced each year by our 34 Rogers TV
cable stations.
Our diverse array of content is reinforced by
Rogers Media’s own collection of category-
leading Canadian broadcast, specialty,
publishing, sports and on-line properties.
These include 55 radio stations; the five-station
Citytv network and five multicultural OMNI
television stations. Our portfolio also includes
the Rogers Sportsnet specialty sports television
services; The Shopping Channel, the country’s
only nationally televised and on-line shopping
service; and a collection of 55 well-known
consumer magazines and trade publications.
And in addition to Rogers’ significant sports
content rights, we own the Toronto Blue Jays
Baseball Club and the Rogers Centre, Canada’s
largest sports and entertainment facility.
8 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 9
Any place
WATCh TV ON ThE TRAIN
WORk FROM A VIRTUAL OFFICE
ACCESS FILES ANd APPLICATIONS REMOTELy
SIMPLIFy WITh ONE NUMbER ANd ONE VOICE MAIL bOx
jOIN A REMOTE TELEPRESENCE MEETING
MONITOR yOUR hOME OVER ThE INTERNET
PROGRAM yOUR PVR REMOTELy
PAy bILLS FROM ThE GOLF COURSE
Rogers knows that no matter where
customers are, being in touch with friends,
family and colleagues makes their lives
more connected. And being connected
to the information and entertainment
that matters most makes life easier and
more enjoyable.
Rogers makes ‘place-shifting’ a reality.
Today Canadians can connect to their
communications, information and
entertainment almost anywhere they want
to be, easily and seamlessly. We’re enabling
a shift to where watching TV on the train,
conducting a virtual white boarding session
from the beach, disarming a home monitoring
system from a smartphone, or answering
a home phone from 5,000 miles away are
becoming everyday activities.
Customers are no longer restricted to their
couch to watch their favourite shows. They
don’t have to pick up the phone to check their
voice mail. They don’t need to be in town to
catch their local news. They don’t have to be
in your house to monitor your home in real
time. They don’t have to be at their PC to
access their e-mail. And they don’t have to
be at the phone to get their calls.
And we make sure that the office is where the
employee is. Connected around town or around
the world, with complete access to customers,
colleagues, files and corporate applications,
they’re as productive on the road as they are
in the office.
Rogers makes it easier for customers to
access the same personalized information,
communications and entertainment experiences
at work, at home and away, travelling to any of
approximately 200 countries around the world.
Businesses no longer need to work in traditional
offices because Rogers helps them to quickly
set up virtual workspaces for employees across
the country, in branch offices or at home.
10 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 11
In a caring, sustainable manner
ENVIRONMENTAL STEWARdShIP
RESPONSIbLE SOURCING
WIRELESS dEVICE RECyCLING
SUPPLIER COdE OF CONdUCT
LOCAL ShELTERS ANd FOOd bANkS
COMMUNITy TELEVISION
SAFE ANd ACTIVE ChILdREN
ARTS ANd ENTERTAINMENT
12 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
Rogers supports a broad array of
community and sustainability initiatives,
and is an Imagine Canada Caring Company,
committing at least 1% of net earnings
before taxes annually to charities and
non-profit organizations through cash and
in-kind donations. As one of Canada’s largest
employers, caring for and giving back to our
communities is vital. We support programs
that are dedicated to keeping children and
families nourished, safe and active – kids’
sports, the recovery of lost children, local
food banks and community safety.
We also sponsor a range of community events
in support of organizations such as the Toronto
Hospital for Sick Children, Easter Seals and many
more. Our 34 Rogers TV cable stations produce
thousands of hours of local programming
involving over 29,000 community groups,
donating coverage of local charitable events as
well as advertising resources. And we sponsor
a variety of arts and culture initiatives which
highlight Canada’s artistic talent through our
support of museums, galleries, film festivals and
literary awards.
As a particularly large purchaser of electronics
and paper, we pay special attention to minimizing
potential environmental issues. 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
responsible, efficient use of natural resources,
while at the same time, reducing environmental
impacts and ensuring regulatory compliance
wherever we and our partners operate. We also
measure our own carbon footprint and undertake
initiatives to reduce our greenhouse emissions
where possible.
For more information, please visit the Corporate and Social Responsibility section of rogers.com
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 13
Why invest in Rogers
Rogers Communications, through its three operating segments, 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.
2010 Financial and Operating Highlights
The following represents a sampling of Rogers Communications Inc.’s 2010 performance highlights.
LEAdER IN
CANAdIAN
COMMUNICATIONS
INdUSTRy
Canada’s largest wireless carrier
and a leading cable television
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.
CONTINUEd TOP-LINE
GROWTh
OPERATING LEVERAGE
FREE CASh FLOW GROWTh
Delivered 4% consolidated revenue
growth with contributions from each
of our three operating segments
Expanded adjusted operating profit
margins 80 basis points despite
economic and competitive pressures
Consolidated pre-tax free cash flow
increased by 14% to $2.1 billion
CATEGORy
LEAdING
MEdIA ASSETS
Unique and complementary
collection of leading broadcast
radio and television, specialty
TV, magazine and sports
entertainment assets.
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.
dIVIdENd GROWTh
ShARE bUybACkS
dEbT REFINANCING
Annualized dividend per share increased
10% in 2010 from $1.16 to $1.28 annually
Repurchased 37.1 million Rogers
Class B shares for $1.3 billion
Issued $1.7 billion of investment grade
long-term notes on favourable terms
reducing the average cost of our
existing debt by 59 basis points
POWERFUL
bRANdS
Nationally recognized and
highly respected brands that
stand strongly in Canada for
innovation, entrepreneurial
spirit, choice and value.
ExTENSIVE
PROdUCT
dISTRIbUTION
NETWORk
Powerful and well balanced
national product distribution
network consisting of more
than 2,900 Rogers-owned,
dealer and retail outlets.
Approximately $2.4 billion of available
liquidity with no debt maturities until
2012, and a ratio of 2 times net debt to
adjusted operating profit
Grew wireless network revenue by
5% to $6.6 billion and subscribers
by 466,000 to 9 million
Completed deployment of HSPA+
21 Mbps wireless network nationally
and launched DOCSIS-3.0 50 Mbps
high-speed Internet service across
entire cable territory
bALANCE ShEET STRENGTh
WIRELESS GROWTh
LEAdING NETWORkS
PROVEN
LEAdERShIP ANd
OPERATING
MANAGEMENT
Experienced, performance-
oriented management and
operating teams with solid
industry expertise, technical
depth and company tenures.
FINANCIALLy
STRONG
Financially strong with an
investment grade balance
sheet, conservative debt leverage
and significant available liquidity.
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 $1.42
per share in 2011.
TRACk RECORd
OF VALUE
CREATION
Proven 30-year public market
track record of long-term index-
beating shareholder value creation
SMARTPhONE LEAdERShIP
dOUbLE-dIGIT WIRELESS
dATA GROWTh
hIGhER VALUE WIRELESS
SUbSCRIbERS
Hold an approximate 45% market share
of smartphone customers in Canada
based upon analyst estimates
34% wireless data revenue growth
with data as a percent of network
revenue expanding to 28%
Activated 1.9 million smartphones
helping bring smartphone
penetration to 41% of postpaid
subscriber base
INTERNET ANd TELEPhONy
SERVICES PENETRATION
bUSINESS SEGMENT
OPPORTUNITy
MEdIA PARTNERShIPS
Grew high-speed Internet and cable
telephony penetration levels to 73%
and 44% of television subscribers,
respectively
Enhanced position in SME market with
the aquisition of Blink and Atria, who
offer on-net data centric services to the
medium sized business segment
Media entered into strategic content
partnerships with the Vancouver
Canucks, Edmonton Oilers and Calgary
Flames and launched Sportsnet ONE
focused on live event 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. 2010 ANNUAL REPORT
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 15
2010 Financial Highlights
Financial Highlights
(In millions of dollars, except per share and employee data)
2010
2009
2008
2007
2006
Revenue
$ 12,186
$ 11,731
$ 11,335
$ 10,123
$ 8,838
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
4,653
38%
1,707
2.96
1.28
17,330
8,718
3,959
27,971
4,388
37%
1,556
2.51
1.16
17,018
8,464
4,273
28,985
4,060
36%
1,260
1.98
1.00
17,082
8,507
4,716
29,200
3,703
37%
1,066
1.67
0.50
15,325
6,033
4,624
27,900
2,942
33%
684
1.08
0.16
14,105
6,988
4,200
25,700
2010 Consolidated Revenue and Operating Profit Profile
Revenue
Adjusted Operating Profit
Wireless
56%
Cable Operations
25%
Media
12%
Business Solutions
4%
Retail
3%
Wireless
67%
Cable Operations
30%
Media
3%
Total Shareholder Return
Ten-Year Comparative Total Return: 2001–2010
Five-Year Comparative Total Return: 2006–2010
209%
209%
89%
89%
15%
15%
29%
29%
(3%)
(3%)
57%
57%
37%
37%
12%
12%
42%
42%
38%
38%
RCI.b on TSX
RCI.b on TSX
S&P/TSX
S&P/TSX
COMPOSITE
COMPOSITE
INDEX
INDEX
S&P 500
S&P 500
INDEX
INDEX
TSX TELECOM
TSX TELECOM
INDEX
INDEX
S&P 500
S&P 500
TELECOM INDEX
TELECOM INDEX
RCI.b on TSX
RCI.b on TSX
S&P/TSX
S&P/TSX
COMPOSITE
COMPOSITE
INDEX
INDEX
S&P 500
S&P 500
INDEX
INDEX
TSX TELECOM
TSX TELECOM
INDEX
INDEX
S&P 500
S&P 500
TELECOM INDEX
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. 2010 ANNUAL REPORT
Financial section contents
18 MANAGEMENT’S DISCUSSION AND ANALYSIS
Corporate Overview
19 Our Business
19 Our Strategy
20 Consolidated Financial and Operating Results
23 2011 Financial and Operating Guidance
Segment Review and Reconciliation to Net Income
24 Wireless
30 Cable
40 Media
43 Reconciliation of Net Income to Operating Profit
45 Additions to PP&E
Interest Rate and Foreign Exchange Management
Consolidated Liquidity and Financing
46 Liquidity and Capital Resources
49
50 Outstanding Common Share Data
51 Dividends on RCI Equity Securities
52 Commitments and Other Contractual Obligations
52 Off-Balance Sheet Arrangements
Operating Environment
52 Government Regulation and
Regulatory Developments
54 Wireless Regulation and Regulatory Developments
55 Cable Regulation and Regulatory Developments
56 Media Regulation and Regulatory Developments
56 Competition in our Businesses
57 Risks and Uncertainties Affecting our Businesses
Accounting Policies and Non-GAAP Measures
62 Key Performance Indicators and
Non-GAAP Measures
63 Critical Accounting Policies
64 Critical Accounting Estimates
66 New Accounting Standards
66 Recent Canadian Accounting Pronouncements
68 Changes in Accounting Policies
72 U.S. GAAP Differences
Additional Financial Information
72 Related Party Transactions
73 Five-Year Summary of Consolidated Financial Results
74 Summary of Seasonality and Quarterly Results
77 Summary of Financial Results of Long-Term Debt Guarantors
77 Controls and Procedures
78 Supplementary Information: Non-GAAP Calculations
80 MANAGEMENT’S RESPONSIBILITY FOR
80
FINANCIAL REPORTING
INDEPENDENT AUDITORS’ REPORT OF REGISTERED
PUBLIC ACCOUNTING FIRM
81 CONSOLIDATED STATEMENTS OF INCOME
82 CONSOLIDATED BALANCE SHEETS
83 CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY
83 CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
84 CONSOLIDATED STATEMENTS OF CASH FLOWS
85 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
85 Note 1: Nature of the Business
85 Note 2: Significant Accounting Policies
89 Note 3: Segmented Information
92 Note 4: Business Combinations
94 Note 5: Investment in Joint Ventures
94 Note 6: Integration and Restructuring Expenses
95 Note 7: Income Taxes
96 Note 8: Net Income Per Share
96 Note 9: Other Current Assets
97 Note 10: Property, Plant and Equipment
97 Note 11: Goodwill and Intangible Assets
99 Note 12: Investments
99 Note 13: Other Long-Term Assets
100 Note 14: Long-Term Debt
102 Note 15: Financial Risk Management and
Financial Instruments
107 Note 16: Other Long-Term Liabilities
107 Note 17: Pensions
110 Note 18: Shareholders’ Equity
111 Note 19: Stock-Based Compensation
113 Note 20: Consolidated Statements of Cash Flows
and Supplemental Information
113 Note 21: Capital Risk Management
114 Note 22: Related Party Transactions
114 Note 23: Commitments
115 Note 24: Contingent Liabilities
116 Note 25: Canadian and United States
Accounting Policy Differences
119 Note 26: Subsequent Events
120 CORPORATE GOVERANCE
122 DIRECTORS AND SENIOR CORPORATE OFFICERS
124 CORPORATE AND SHAREHOLDER INFORMATION
RoGeRs coMMUnications inc. 2010 annUal RePoRt 17
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition
anD ResUlts oF oPeRations
FOR THE YEAR ENDED DECEMBER 31, 2010
This Management’s Discussion and Analysis (“MD&A”) should be read
in conjunction with our 2010 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 2010 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 28, 2011, is organized into six sections.
1
coRPoRate oVeRVieW
2
seGMent ReVieW anD
Reconciliation to
net incoMe
19 Our Business
19 Our Strategy
20
23
Consolidated Financial and
Operating Results
2011 Financial and
Operating Guidance
24 Wireless
30
Cable
40 Media
43
Reconciliation of Net Income
to Operating Profit
45
Additions to PP&E
3
46
49
consoliDateD liQUiDitY
anD FinancinG
Liquidity and Capital Resources
Interest Rate and Foreign
Exchange Management
50 Outstanding Common Share Data
51 Dividends on RCI Equity Securities
52
Commitments and Other
Contractual Obligations
52 Off-Balance Sheet Arrangements
4
oPeRatinG enViRonMent
5
accoUntinG Policies anD
non-GaaP MeasURes
6
aDDitional Financial
inFoRMation
52 Government Regulation and
Regulatory Developments
62 Key Performance Indicators and
Non-GAAP Measures
54
55
56
56
57
Wireless Regulation and
Regulatory Developments
Cable Regulation and
Regulatory Developments
Media Regulation and
Regulatory Developments
Competition in our Businesses
Risks and Uncertainties
Affecting our Businesses
63
64
Critical Accounting Policies
Critical Accounting Estimates
66 New Accounting Standards
66
Recent Canadian Accounting
Pronouncements
68
Changes in Accounting Policies
72 U.S. GAAP Differences
72
73
74
77
77
78
Related Party Transactions
Five-Year Summary of
Consolidated Financial Results
Summary of Seasonality and
Quarterly Results
Summary of 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
repor ted in the following segment s for the year ende d
December 31, 2010:
• “Wireless”, which refers to our wireless communications operations,
carried on by Rogers Communications Partnership (“RCP”), formerly
Rogers Wireless Partnership (“RWP”), and Fido Solutions Inc. (“Fido”);
consumer and business 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.
• “Cable”, which refers to our cable communications operations,
carried on by Rogers Communications Partnership, formerly Rogers
Cable Communications Inc. (“RCCI”) and its subsidiary, Rogers Cable
Partnership; and
On July 1, 2010, our shared services and substantially all of Cable and
Wireless operations were consolidated into Rogers Communications
Partnership. See the section entitled “Consolidated Liquidity and
Financing”.
• “Media”, which refers to our wholly-owned subsidiary Rogers Media
Inc. and its subsidiaries, including Rogers Broadcasting, which owns a
group of 55 radio stations, the Citytv television network, the Rogers
Sportsnet and Sportsnet ONE television networks, The Shopping
Channel, the OMNI television stations, and Canadian specialty
channels, including The Biography Channel (Canada), G4 Canada
and Outdoor Life Network; Rogers Publishing, which publishes
Substantially all of our operations are in Canada.
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. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
c aUtion ReGaRDinG FoRWaRD - lookinG stateMents,
Risks anD assUMP 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,
dividend payments, expected growth in subscribers and the services to
which they subscribe, the cost of acquiring subscribers and the
deployment of new services, the currently estimated financial impacts
of converting to International Financial Reporting Standards (“IFRS”)
accounting standards, and all other statements that are not historical
facts. Such forward-looking statements are based on current objectives,
strategies, expectations and assumptions, most of which are
confidential and proprietary, that we believe to be reasonable at the
time including, but not limited to, general economic and industry
growth rates, currency exchange rates, product pricing levels and
competitive intensity, subscriber growth and usage rates, changes in
government regulation, technology deployment, device availability,
the timing of new product launches, content and equipment costs, the
integration of acquisitions, industry structure and stability, and current
guidance from accounting standard bodies with respect to the
conversion to IFRS accounting standards.
Except as otherwise indicated, this 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 new interpretations from
accounting standards bodies, economic conditions, technological
change, the integration of acquisitions, unanticipated changes in
content or equipment costs, changing conditions in the entertainment,
information and communications industries, regulatory changes,
litigation and tax matters, the level of competitive intensity and the
emergence of new opportunities, many of which are beyond our
control and current expectation or knowledge. Therefore, should one
or more of these risks materialize, should our objectives or strategies
change, or should any other factors underlying the forward-looking
statements prove incorrect, actual results and our plans may vary
significantly from what we currently foresee. Accordingly, we warn
investors to exercise caution when considering any such forward-
looking information herein and that it would be unreasonable to rely
on such statements as creating any legal rights regarding our future
results or plans. We are under no obligation (and we expressly disclaim
any such obligation) to update or alter any forward-looking statements
or assumptions whether as a result of new information, future events or
otherwise, except as required by law.
Before making any investment decisions and for a detailed discussion of
the risks, uncertainties and environment associated with our business,
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 2010 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 and sales 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 ser vices and retailing of
communications and home entertainment products and services.
Through Media, we are engaged in radio and television broadcasting,
televised shopping, magazines and trade publications, spor ts
entertainment and digital media. We are publicly traded on the Toronto
Stock Exchange (TSX: RCI.a and RCI.b) and on the New York Stock
Exchange (NYSE: RCI).
For 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)
$6,335
$6,654
$6,968
3,809
1,496
3,948
1,407
4,052
1,501
$2,806
$3,042
$3,167
1,233
142
1,324
119
1,437
147
2008
2008
2009
2009
2010
2010
2008
2008
2009
2009
2010
2010
Wireless
Cable
Media
Wireless
Cable
Media
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 leading and preferred provider of innovative
communications, entertainment and information services to Canadians.
We seek to leverage our advanced 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.
RoGeRs coMMUnications inc. 2010 annUal RePoRt 19
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
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.
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, deliver an enhanced and
more consistent customer experience, and improve the overall
effectiveness and efficiency of the Wireless and Cable businesses. This
more integrated operating approach also recognizes the continued
convergence of certain aspects of wireless and wireline networks and
services. In July 2010, our shared services and substantially all of Cable
and Wireless operations were consolidated into Rogers Communications
Partnership. Segmented reporting continues to reflect the foregoing
Cable and Wireless services as separate product segments (See the
section entitled “July 1, 2010 Corporate Reorganization”).
ADDITIONS TO
CONSOLIDATED PP&E
(In millions of dollars)
CONSOLIDATED TOTAL ASSETS
(In millions of dollars)
$2,021
$1,855
$1,839
$17,082
$17,018
$17,330
2008
2008
2009
2009
2010
2010
200 8
2008
2009
2009
201 0
2010
consoliDateD Financial anD oPeR atinG ResUlts
See the sections in this MD&A entitled “Critical Accounting Policies”,
“Critical Accounting Estimates” and “New Accounting Standards” and
also the Notes to the 2010 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- GA AP 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 (recover y); (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) settlement
of pension obligations; (vi) other items (net); and (vii) 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.
The increased levels of competitive intensity have negatively impacted
the results of our Wireless and Cable businesses during 2010. This
includes higher subscriber churn and lower average revenue per user
(“ARPU”) at Wireless and a slowing in the number of new subscriber
additions and increased promotional and retention activity at Cable.
During 2010, Media has benefited from a rebound in the advertising
market. In response to the competitive intensity and economic
conditions, we restructured our organization and employee base to
improve our organizational efficiency and cost structure which resulted
in cost efficiencies during 2010.
We believe that we are well-positioned from both a leverage and a
liquidity perspective with a debt to adjusted operating profit ratio of
2.1. In addition, there were no advances outstanding under our entire
$2.4 billion fully committed multi-year bank credit facility at
December 31, 2010 and we have no scheduled debt maturities until
May 2012.
20 RoGeRs coMMUnications inc. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
operating Highlights and significant Developments in 2010
• Generated revenue growth of 5% at Wireless network, 4% at Cable
Operations and 7% at Media, with consolidated annual revenue
growth of 4%. Adjusted operating profit grew 6% to $4,653 million
and adjusted operating profit margins expanded by 80 basis points
to 38.2%.
• In February 2010, we renewed our normal course issuer bid (“NCIB”)
to repurchase up to the lesser of $1.5 billion or 43.6 million Class B
Non-Voting shares during the twelve-month period ending February
21, 2011, under which we purchased for cancellation 37.1 million
Class B Non-Voting shares during 2010 for $1.3 billion.
Year ended December 31, 2010 compared to Year ended
December 31, 2009
For the year ended December 31, 2010, Wireless, Cable and Media
represented 57%, 34% and 12% of our consolidated revenue,
respectively (2009 – 57%, 34% and 12%), offset by corporate items and
eliminations of 3%. On the basis of consolidated adjusted operating
profit, Wireless, Cable and Media also represented 68%, 31% and 3%,
respectively (2009 – 69%, 30% and 3%), offset by corporate items and
eliminations of 2% (2009 – 2%).
For detailed discussions of Wireless, Cable and Media, refer to the
respective segment discussions below.
CONSOLIDATED REVENUE BY SEGMENT
(%)
Media 12%
Cable 32%
Wireless 56%
CONSOLIDATED ADJUSTED OPERATING PROFIT BY SEGMENT
(%)
Cable 30%
Media 3%
Wireless 67%
• In February 2010, we increased the annualized dividend from $1.16
to $1.28 per Class A Voting and Class B Non-Voting share, paying out
$734 million in dividends to shareholders during the year.
• We closed $1.7 billion aggregate principal amount of investment
grade debt offerings during the year, consisting of $800 million of
6.11% Senior Notes due 2040 and $900 million of 4.70% Senior Notes
due 2020. Among other things, proceeds of the offerings were used
to repay bank debt and redeem our public debt issues maturing in
2011. We redeemed all three of our public debt issues maturing in
2011, including US$490 million of 9.625% Senior Notes, $460 million
of 7.625% Senior Notes and $175 million of 7.25% Senior Notes. In
total, we reduced our weighted average cost of borrowing to 6.68%
at December 31, 2010 from 7.27% at December 31, 2009.
• We increased our ownership position in Cogeco Cable Inc. and
Cogeco Inc. for investment purposes, with the acquisition of
892,250 subordinate voting shares of Cogeco Cable Inc. and 946,090
subordinate voting shares of Cogeco Inc.
• We increased free cash flow, defined as adjusted operating profit
less PP&E expenditures and interest on long-term debt, by 14%
from 2009 levels to $2.1 billion. Free cash flow per share increased
by 23% reflecting the growth in underlying free cash flow and the
accretion from our share buybacks, which have decreased the base of
outstanding shares.
• At December 31, 2010, there were no advances outstanding under
our $2.4 billion committed bank credit facility that matures in July
2013. This strong liquidity position is further enhanced by the fact
that our earliest scheduled debt maturity is in May 2012, together
providing us with substantial liquidity and flexibility.
• Subsequent to the end of 2010, on February 15, 2011, we announced
that our Board of Directors had approved a 11% increase in the
annualized dividend to $1.42 per share effective immediately, and
that it has approved the renewal of our NCIB share buyback program
authorizing the repurchase of up to $1.5 billion of Rogers shares on
the open market during the next twelve months.
• Also subsequent to the end of the year, on February 18, 2011, we
announced that we have issued notices to redeem on March 21, 2011
all of our US$350 million principal amount of 7.875% Senior Notes
due 2012 and all of our US$470 million principal amount of 7.25%
Senior Notes due 2012, in each case at the applicable redemption
price plus accrued interest to the date of redemption, as prescribed
in the applicable indenture.
RoGeRs coMMUnications inc. 2010 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)
2010
2009
%Chg
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 (expense) recovery(3)
Settlement of pension obligations(4)
Integration and restructuring expenses(5)
Other items, net (6)
Contract termination fees(7)
Adjustment for CRTC Part II fees decision(8)
Operating profit(1)
Other income and expense, net(9)
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
Total
$
6,968 $
6,654
3,185
560
355
(48)
4,052
1,501
(335)
12,186
3,074
503
399
(28)
3,948
1,407
(278)
11,731
3,167
3,042
1,424
40
(27)
1,437
147
(98)
4,653
(47)
–
(40)
(14)
–
–
4,552
3,024
1,528 $
2.65 $
1,298
35
(9)
1,324
119
(97)
4,388
33
(30)
(117)
–
(19)
61
4,316
2,838
1,478
2.38
1,707 $
2.96 $
1,556
2.51
937 $
865
$
$
$
$
$
611
38
13
662
46
194
$
1,839 $
642
37
14
693
62
235
1,855
5
4
11
(11)
71
3
7
21
4
4
10
14
200
9
24
1
6
n/m
n/m
(66)
n/m
n/m
n/m
5
7
3
11
10
18
8
(5)
3
(7)
(4)
(26)
(17)
(1)
(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 operating income or net income, in each case determined in accordance with canadian 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 cRtc Part ii fees related to prior periods; (v) settlement of pension obligations; (vi) other items (net); and (vii) 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, 2010, costs incurred relate to i) severances resulting from the targeted restructuring of our employee base; ii) restructuring expenses related to the outsourcing of certain
information technology functions; iii) acquisition transaction costs incurred and the integration of acquired businesses; and iv) the closure of certain Rogers Retail stores. 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
acquired businesses; and iv) the closure of certain Rogers Retail stores.
(6) Relates to the resolution of obligations and accruals relating to prior periods.
(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. see the section entitled “Government Regulation and Regulatory Developments”.
(9) see the section entitled “Reconciliation of net income to operating Profit and adjusted operating Profit for the Period”.
n/m: not meaningful.
22 RoGeRs coMMUnications inc. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
Of the $455 million year-over-year increase in our consolidated revenue,
Wireless contributed $314 million, Cable contributed $104 million and
Media contributed $94 million, offset by an increase in corporate items
and eliminations of $57 million.
Of the $265 million year-over-year increase in our consolidated adjusted
operating profit, Wireless contributed $125 million, Cable contributed
$113 million and Media contributed $28 million, offset by an increase in
corporate items and eliminations of $1 million.
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.
2010 Performance against targets
The following table sets forth the guidance ranges for selected full-
year financial and operating metrics that we provided for 2010 versus
the actual results we achieved for the year. We achieved performance
consistent with each of the financial objectives that were set forth
for 2010.
(In millions of dollars)
Consolidated
2009
Actual
2010 Guidance Range %
(As at February 17, 2010)
2010 Guidance Range $
(As at February 17, 2010)
2010
actual
Adjusted operating profit(1)
Additions to PP&E(2)
Free cash flow(3)
$ 4,388
$ 1,855
$ 1,886
Up
Flat
Up
2%
3%
to
to
to
7%
5%
8%
$ 4,476
$ 1,855
$ 1,943
to
to
to
$
$
$
4,695
1,948
2,037
$
$
$
4,653
1,839
2,145
Cash income taxes
Assumptions for the timing
and amount of cash income
tax payments(4)
$
8
~$150
~$150
$
152
(1) excludes stock-based compensation expense (recovery), integration and restructuring expenses, and other items (net).
(2) in addition to Wireless, cable operations and Media PP&e expenditures, consolidated additions to PP&e includes RBs, Rogers Retail and corporate.
(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 to be fully cash taxable in the 2012 timeframe.
2011 Financial anD oPeR atinG GUiDance
The following table outlines guidance ranges and assumptions for
selected 2011 financial metrics. This information is forward-looking and
should be read in conjunction with the section entitled “Caution
Regarding Forward-Looking Statements, Risks and Assumptions” and
in related disclosures, for the various economic, competitive, and
regulatory assumptions and factors that could cause actual future
financial and operating results to differ from those currently expected.
Full Year 2011 Guidance
(In millions of dollars)
Consolidated
Adjusted operating profit(1)
Additions to PP&E(2)
After-tax free cash flow(3)
GaaP 2010
actual
i FRs 2010
actual
IFRS 2011 Guidance
$
$
$
4,653
1,839
1,993
$
$
$
4,635
1,842
1,972
$
$
$
4,600
1,950
1,850
to
to
to
$
$
$
4,765
2,050
1,975
(1) excludes stock-based compensation expense, integration and restructuring expenses, and other items (net).
(2) in addition to Wireless, cable operations and Media PP&e expenditures, consolidated additions to PP&e includes RBs, Rogers Retail and corporate.
(3) after-tax cash flow is defined as adjusted operating profit less PP&e expenditures, interest expense and cash taxes, and is not a term defined under canadian GaaP or iFRs. cash taxes are expected to be
approximately $90 million in 2011.
RoGeRs coMMUnications inc. 2010 annUal RePoRt 23
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
2. seGMent ReVieW
WiReless
WiReless BUsiness
Wireless is the largest Canadian wireless communications service
provider, serving approximately 9.0 million retail voice and data
subscribers at December 31, 2010, representing approximately 36% of
Canadian wireless subscribers. Wireless operates on the global
standards Global System for Mobile communications/High-Speed
Packet Access (“GSM/HSPA”) wireless network technology platforms. Its
underlying GSM/General Packet Radio Service/Enhanced Data for GSM
Evolution (“GSM/GPRS/EDGE”) network provides coverage to
approximately 95% of Canada’s population. Overlaying the GSM
network is a next generation wireless data technology called Universal
Mobile Telephone System/ Evolved HSPA (“UMTS/HSPA+”) which covers
approximately 88% of the population with wireless data services at
speeds of up to 21 Mbps.
Wireless customers are able to access their services in most parts of the
world through roaming agreements with various other GSM and HSPA
wireless network operators. Rogers has one of the largest roaming
footprints and number of available destinations for its customers’
wireless usage in the world. With each roaming agreement, Rogers has
established a direct relationship with the operator rather than
implementing third party services.
Wireless has generally negotiated wireless roaming with multiple
operators within the majority of its roaming destinations in order
to eliminate the possibility of its customers travelling in an area
without coverage. This coverage depth also helps to ensure that
Wireless’ customers roam on the best possible network available in a
specific destination.
WIRELESS REVENUE MIX
Data 26%
Equipment 6%
Prepaid Voice 3%
Postpaid Voice 65%
Wireless Products and services
Wireless offers wireless voice, data and messaging services including
related handset devices and accessories, across Canada. Wireless’
services are generally all available under either postpaid or prepaid
payment options. Wireless’ 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” or “text messaging”).
Wireless Distribution
Wireless’ nationwide distribution network includes: an independent
dealer network; Rogers Wireless, Fido and chatr stores, which are
managed by Rogers Retail; major retail chains; and convenience stores.
Wireless markets its products and services under the Rogers Wireless,
Fido and chatr brands through an extensive nationwide distribution
network across Canada of approximately 2,900 dealer and retail third
party locations and approximately 400 Rogers Retail locations (which is
a segment of Cable). The distribution network sells its service plans and
24 RoGeRs coMMUnications inc. 2010 annUal RePoRt
devices, and there are also thousands of additional locations selling its
prepaid services. Wireless also offers many of its products and services
through telemarketing and on the rogers.com, fido.ca and
chatrwireless.com e-business websites.
Wireless networks and spectrum
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 broadband 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 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.
Wireless participated in the Advanced Wireless Services (“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 10 provinces and 3 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, together with
Bell Canada, through an equally-owned joint venture called Inukshuk.
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 fixed
wireless service offerings over the network. During 2010, Inukshuk
acquired approximately 61 MHz of additional 2500 MHz to 2690 MHz
spectrum in the provinces of British Columbia and Manitoba for $80
million from Craig Wireless and 61 MHz of the same spectrum in the
province of Saskatchewan for $14 million from YourLink Inc. As well,
Inukshuk converted its 2500 MHz to 2690 MHz spectrum to Broadband
Radio Service (“BRS”) mobile licences and, pursuant to government
policy, approximately one-third of this spectrum was returned to
Industry Canada. During 2009, Inukshuk also acquired 92 MHz of
additional 2500 MHz to 2690 MHz spectrum in the provinces of Ontario
and Quebec for $80 million from Look Communications Inc. and
converted the spectrum licences to BRS mobile licences. Pursuant
to government policy, one-third of this spectrum was returned to
Industry Canada.
In the third quarter of 2009, Rogers initiated a network sharing
arrangement with Manitoba Telecom Services (“MTS”) for the purpose
of building a joint HSPA+ 3.5G wireless network in the province of
Manitoba. This joint network was completed in 2010 and is being
launched during the first quarter of 2011 covering approximately 96%
of the Manitoba population. In addition, Rogers completed a business
network sharing arrangement with TBayTel in 2010 that enables our
combined base of customers in North Western Ontario to receive
HSPA+ 3.5G wireless services under a joint brand (TBayTel with the
power of Rogers) and Rogers customers in the rest of Canada to
receive such services within the Thunder Bay coverage area in
North Western Ontario.
During 2010, we announced the start of technical trials of next
generation Long Term Evolution (“LTE”) wireless network technology
in various frequency bands in the Ottawa area to better understand
and plan for LTE data throughput speeds, performance quality, and the
interoperability with our existing HSPA+ network.
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
WiReless stR ateGY
Wireless’ objective is to drive profitable growth within the Canadian
wireless communications industry, and its strategy is designed to
maximize subscriber share, cash flow and return on invested capital.
The key elements of its strategy are as follows:
• Continually enhancing its scale and competitive position in the
Canadian wireless communications market;
• Focusing on offering innovative voice and wireless data services
into the targeted youth, family, and small and medium-sized
business segments, and specifically to drive increased penetration of
smartphones and other advanced wireless devices;
Demand for sophisticated Data applications
The ongoing development of wireless data transmission technologies
has led wireless device developers, such as handsets and portable
computing devices, to develop more sophisticated 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
devices and applications will drive continued growth of wireless data
services. Along with the acceleration of smartphone penetration comes
the higher costs of equipment subsidies.
• Enhancing the customer experience through ongoing focus
principally in the areas of wireless devices, network quality and
customer service in order to maximize service revenue and minimize
customer deactivations, or churn;
• Increasing revenue from existing customers by cross selling and up
selling wireless data and other enhanced and converged services to
wireless voice customers;
• Enhancing and expanding owned and third party sales distribution
channels to deliver products, services and support to customers;
• Maintaining the most technologically advanced, high-quality and
national wireless network possible with global coverage enabled by
widely adopted global standard network technologies; and
• Leveraging relationships across the Rogers group of companies
to provide bundled product and service offerings at attractive
prices to common customers, in addition to implementing cross-
selling, distribution and branding initiatives as well as leveraging
infrastructure sharing opportunities.
WIRELESS POSTPAID
MONTHLY ARPU
WIRELESS POSTPAID
MONTHLY CHURN
$75.41
$73.93
$73.12
1.10%
1.06%
1.18%
200 8
2008
2009
2009
201 0
2010
200 8
2008
2009
2009
201 0
2010
Recent WiReless inDUstRY tRenDs
Focus on customer Retention
The wireless communications industry’s current market penetration in
Canada is estimated to be 74% of the population, compared to
approximately 96% in the U.S. and approximately 121% 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. As penetration
deepens, it requires an increasing focus on customer satisfaction, the
promotion of new data and voice services to existing customers, and
customer retention.
increased competition from other Wireless operators
Wireless faces increased competition from incumbent wireless
operators as well as new entrants, which is fully described in the section
of this MD&A entitled “Competition in our Businesses”. Some new
entrants are introducing new unlimited pricing plans which have
resulted in downward price adjustments and lower ARPU.
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+ and LTE. These networks are intended
to provide wireless communications with wireline quality sound, far
higher data transmission speeds with increased efficiency, and
enhanced 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. Wireless has been progressing towards next generation
technology with LTE technical trials being conducted in the Ottawa
area. Capital intensity is expected to increase with continuing network
investments.
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, WiMA X and 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, the worldwide GSM community’s new fourth generation (“4G”)
broadband wireless technology evolution path, is being deployed in
certain parts of the world. 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
RoGeRs coMMUnications inc. 2010 annUal RePoRt 25
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
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 and standard upon which
Wireless operates. LTE is fully backwards compatible with UMTS/HSPA
and is designed to provide seamless voice and broadband data
capabilities and data rates of more than 100 Mbps (dependent upon
spectrum availability). Wireless is currently conducting a technical trial
of LTE.
WiMAX (the IEEE 802.16 standard) is a relatively new and not broadly
adopted 4G technology that is being developed to enable broadband
wireless services over a wide area at a cost point to enable mass market
adoption. In 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 oPeR atinG anD Financial ResUlts
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, data usage, 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, data usage and other ancillary charges
such as long-distance and roaming.
• Equipment sales, which consist of revenue generated from the
sale, generally at or below our cost, of hardware and accessories 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 and
retain current and 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.
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(2)(3)
Stock-based compensation expense(4)
Settlement of pension obligations(5)
Integration and restructuring expenses(6)
Other items(7)
Operating profit(2)
Adjusted operating profit margin as % of network revenue(2)
Additions to PP&E(2)
2010 (1 )
2009
% Chg
$
6,272 $
5,948
297
6,569
399
6,968
1,225
628
1,948
3,801
3,167
(11)
–
(5)
(5)
297
6,245
409
6,654
1,059
630
1,923
3,612
3,042
–
(3)
(33)
–
$
3,146 $
3,006
48.2%
48.7%
$
937 $
865
5
–
5
(2)
5
16
–
1
5
4
n/m
n/m
(85)
n/m
5
8
(1) the operating results of cityfone telecommunications inc. (“cityfone”) are included in Wireless’ results of operations from the date of acquisition on July 9, 2010.
(2) as defined. see the sections entitled “key Performance indicators and non-GaaP Measures” and “supplementary information: non-GaaP calculations”.
(3) adjusted operating profit includes losses of $11 million and $13 million related to the inukshuk wireless broadband initiative for 2010 and 2009, respectively.
(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, 2010, costs incurred relate to i) severances expenses resulting from the targeted restructuring of our employee base; ii) restructuring expenses resulting from the outsourcing
of certain information technology functions; and iii) the acquisition transaction costs incurred and integration of acquired businesses. 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
resulting from the outsourcing of certain information technology functions.
(7) Relates to the resolution of obligations and accruals relating to prior periods.
26 RoGeRs coMMUnications inc. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
Wireless operating Highlights For the Year ended December 31, 2010
• Network revenue increased by 5% from 2009 while adjusted
operating profit increased by 4% during the same period, with
margins for the year at 48.2%.
• Subscriber growth continued in 2010, with net additions of 466,000,
of which approximately 68% were postpaid subscribers.
• Postpaid subscriber monthly churn was 1.18% in 2010, compared to
1.06% in 2009.
• Postpaid monthly ARPU was relatively flat compared to 2009 at
$73.12, reflecting the impact of competitive intensity and declines in
roaming and out-of-plan usage revenues, which offset the significant
growth in wireless data revenue.
• Revenues from wireless data services grew approximately 34% year-
over-year to $1,834 million in 2010 from $1,366 million in 2009, and
represented approximately 28% of network revenue compared to
22% in 2009.
• Wireless activated approximately 1.9 million smartphone devices
during the year, predominantly iPhone, BlackBerry and Android
devices. Approximately 33% of these activations were for subscribers
new to Wireless and 67% being for existing Wireless subscribers
who upgraded to smartphones and generally committed to new
term contracts. Subscribers with smartphones now represent
approximately 41% of the overall postpaid subscriber base, up from
31% from last year, and generate average ARPU nearly twice that of
voice only subscribers.
• Wireless announced a strategic business relationship with TBayTel
to extend HSPA+ service across Northern Ontario giving Rogers
and TBayTel customers significantly expanded 3.5G coverage across
communities and major highway corridors covering an area of close
to 300,000 square kilometres.
summarized Wireless subscriber Results
(Subscriber statistics in thousands, except ARPU, churn and usage)
Postpaid
Gross additions
Net additions (1)(2)
Total postpaid retail subscribers
Average monthly revenue per user (“ARPU”)(3)
Average monthly minutes of usage
Monthly churn
Prepaid
Gross additions
Net additions (2)
Total prepaid retail subscribers
ARPU(3)
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(3)
Blended average monthly minutes of usage
• Wireless, through its 50%-owned Inukshuk Wireless Partnership,
entered into an agreement to acquire from Craig Wireless
approximately 61 MHz of broadband radio service spectrum in the
2500 MHz to 2690 MHz frequency range across the provinces of
British Columbia and Manitoba, as well as between 6 MHz to 24 MHz
of miscellaneous spectrum in certain Manitoba markets.
• Wireless unveiled the Rogers Handset Protection Guarantee program
for wireless customers. The program, a first from a Canadian wireless
service provider, provides a simple and cost effective replacement
service for customers whose devices have been lost, stolen or broken.
• Wireless launched Rogers’ Extreme Text Messaging service, a North
American first, allowing wireless customers to personalize their
texting experience with signatures, distribution lists, blocking and
forwarding, making the texting experience as easy and feature-rich
as e-mail.
• Wireless announced the introduction of a new wireless brand called
chatr which offers prepaid unlimited talk and text network services
within defined urban chatr zones.
• Wireless launched the next generation Apple iPhone 4 that includes
new features such as video calling, higher-resolution display, multi-
tasking and HD video recording, and also began offering wireless
service plans for Apple’s iPad for customers who want to take their
movies, TV shows, music, games and reading with them.
• Wireless commenced a LTE wireless network technical trial in the
Ottawa area. LTE is a 4G wireless technology that enables network
speeds of up to 150 Mbps. The trial seeks to validate how LTE
technology performs across a variety of spectrum frequencies
in urban, suburban and rural environments, as well as actual
throughput speeds, performance quality and interoperability with
our existing HSPA+ network.
2010
20 09
Chg
1,330
319
7,325
1,377
528
6,979
$
73.12 $
73.93 $
559
585
(47)
(209)
346
(0.81)
(26)
1.18%
1.06%
0.12%
731
147
582
24
1,652
1,515
149
123
137
$
16.10 $
16.73 $
(0.63)
115
3.18%
121
3.15%
(6)
0.03%
2,061
466
8,977
1.53%
1,959
552
8,494
1.44%
102
(86)
483
0.09%
$
63.03 $
63.59 $
(0.56)
478
500
(22)
(1) on July 9, 2010, we acquired 44,000 postpaid subscribers from cityfone. these subscribers are not included in net additions for the year ended December 31, 2010.
(2) During 2010, we migrated 17,000 postpaid subscribers and 10,000 prepaid subscribers to tBaytel. these subscribers are not included in net additions for the year ended December 31, 2010 nor in the
determination of postpaid or prepaid monthly churn.
(3) as defined. see the section entitled “key Performance indicators and non-GaaP Measures”. as calculated in the “supplementary information: non-GaaP calculations” section.
RoGeRs coMMUnications inc. 2010 annUal RePoRt 27
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
19.0%
31.0%
41.0%
SMARTPHONES AS A PERCENT
OF POSTPAID SUBSCRIBERS
During 2010, Wireless activated
and upgraded approximately
1. 9 m i l l i o n s m a r t p h o n e s ,
compared to approximately 1.5
million smar tphones during
2009. These smartphones were
p r e d o m i n a t e l y
i P h o n e ,
BlackBerry and Android devices,
of which approximately 33%
were for subscribers new to
W irele s s . T hi s re sul te d
in
subscribers with smartphones
representing 41% of the overall
postpaid subscriber base as at
December 31, 2010, compared to
31% as at December 31, 2009.
These subscribers generally
commit to new multi-year-term
contracts, and typically generate
ARPU nearly twice that of voice
only subscribers. This is the
largest number of smartphone
activations and new smartphone customer additions that Wireless has
ever reported.
2009
2009
201 0
2010
2008
2008
Wireless equipment sales
The year-over-year decrease in revenue from equipment sales, including
activation fees and net of equipment subsidies for 2010, reflects the
higher smartphone subsidy levels, which offset the increase in the
number of smartphone activations.
Wireless subscribers and network Revenue
The year-over-year decrease in total net subscriber additions for the
year primarily reflects an increase in the level of postpaid churn
associated with heightened competitive intensity, partially offset by
increased gross additions of prepaid subscribers.
Included in postpaid additions are a record number of new smartphone
subscriber sales. The increase in prepaid subscriber additions was the
result of Wireless’ launch of its urban zone-based unlimited voice and
text ‘chatr’ product and also its continued offering from earlier in the
summer of prepaid wireless service plans for the Apple iPad. In addition,
Wireless introduced prepaid Rocket stick wireless data plans that offer
the same speed and reliability as existing postpaid plans but are
designed for customers seeking the convenience of prepaid online
credit card activation without term contracts.
During 2010, we acquired British Columbia based wireless service
reseller Cityfone, a wholesale customer of Wireless. The Cityfone
customer base of approximately 44,000 subscribers was added as an
adjustment to Wireless’ postpaid subscriber base during the year. In
addition, we signed a strategic business relationship with TBayTel to
extend HSPA+ service across Northern Ontario, and migrated 17,000
postpaid subscribers and 10,000 prepaid subscribers to TBayTel.
The increase in network revenue in 2010 compared to 2009 was driven
predominantly by the continued growth of Wireless’ postpaid
subscriber base and the continued adoption of wireless data services.
Year-over-year blended ARPU decreased by 0.9%, which reflects
declines in roaming, out-of-plan usage and network access fees, offset
by higher wireless data and other ancillary revenues. These decreases
reflect a combination of factors, including the creation over the past
year of voice and data roaming value plans for frequent travelers, and
general competitive intensity.
During 2010, wireless data revenue increased by approximately 34%
from 2009, to $1,834 million. This growth in wireless data revenue
reflects the continued penetration and growing usage of smartphone
and wireless laptop devices which are driving increased usage of e-mail,
wireless Internet access, text messaging and other wireless data
services. In 2010, data revenue represented approximately 28% of total
network revenue, compared to 22% in 2009.
WIRELESS POSTPAID AND
PREPAID SUBSCRIBERS
(In thousands)
WIRELESS NETWORK
REVENUE
(In millions of dollars)
WIRELESS DATA
REVENUE
(In millions of dollars)
DATA REVENUE PERCENT
OF BLENDED ARPU
6,451
1,491
6,979
1,515
7,325
1,652
$5,843
$6,245
$6,569
$946
$1,366
$1,834
16.4%
21.9%
27.9%
200 8
2008
2009
2009
201 0
2010
2008
2008
2009
2009
2010
2010
2008
2008
2009
2009
2010
2010
2008
2008
2009
2009
201 0
2010
Postpaid
Prepaid
28 RoGeRs coMMUnications inc. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
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(1)
Settlement of pension obligations(2)
Integration and restructuring expenses(3)
Other items, net(4)
Total operating expenses
2010
20 09
%Chg
$
1,225 $
1,059
628
1,948
3,801
11
–
5
5
630
1,923
3,612
–
3
33
–
$
3,822 $
3,648
16
–
1
5
n/m
n/m
(85)
n/m
5
(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, 2010, costs incurred relate to i) severances resulting from the targeted restructuring of our employee base; ii) restructuring expenses resulting from the outsourcing of certain
information technology functions; and iii) the closure of certain Rogers Retail stores. 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 resulting from the outsourcing of certain information
technology functions.
(4) Relates to the resolution of obligations and accruals relating to prior periods.
The $166 million increase in cost of equipment sales for 2010, compared
to 2009, was primarily the result of an increase in hardware upgrade
units versus the prior period and a continued increase in the mix of
smartphones for both new and upgrading subscribers. A large number
of existing iPhone and BlackBerry subscribers became eligible for
hardware upgrades during the second half of 2010, which led to a 57%
increase in the number of smartphone upgrades versus the year ended
December 31, 2009. This was the single largest factor driving the year-
over-year increase in expenses, and Wireless views these costs as net
present value positive investments in the acquisition and retention of
higher ARPU, lower churning customers who are on term contracts.
Sales and marketing expenses were flat for 2010, compared to 2009, as
increased spending on advertising and promotion costs for new
marketing campaigns, higher data activations, and higher dealer
compensation associated with both volumes and mix, were offset by
savings resulting from cost reduction initiatives.
The year-over-year increase in operating, general and administrative
expenses for 2010, compared to 2009, excluding retention spending
discussed below, was driven by the growth in the Wireless subscriber
base, offset by savings related to operating and scale efficiencies across
various functions. 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 $815 million in 2010, compared to $588 million in 2009. The
significant increase is a result of a higher volume of upgrade activity
by existing subscribers as discussed above and a higher mix of
smartphones compared to 2009.
Wireless adjusted operating Profit
The 4% year-over-year increase in adjusted operating profit and the
48.2% adjusted operating profit margin on network revenue (which
excludes equipment sales revenue) for 2010 primarily reflect the
increase in the total operating expenses discussed above, driven heavily
by the record level of smartphone activations and upgrades and related
level of subsidy spending, partially offset by the increase in
network revenue.
WIRELESS ADJUSTED
OPERATING PROFIT
(In millions of dollars)
$2,806
$3,042
$3,167
2008
2008
2009
2009
2010
2010
RoGeRs coMMUnications inc. 2010 annUal RePoRt 29
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
WiReless acQUisition
acquisition of cityfone telecommunications inc.
On July 9, 2010, we acquired the assets of Cityfone for cash
consideration of $26 million. Cityfone is a Canadian Mobile Virtual
Network Operator and offers postpaid wireless voice and data services
to approximately 44,000 subscribers through private label programs
with major Canadian brands. The acquisition was accounted for using
the acquisition method with the results of operations consolidated
with those of ours effective July 9, 2010.
Wireless additions to Property, Plant and equipment
Wireless additions to PP&E are classified into the following categories:
Years ended December 31,
(In millions of dollars)
Additions to PP&E
Capacity
Quality
Network – other
Information technology and other
Total additions to PP&E
2010
2009
% Chg
$
446 $
284
61
146
$
937 $
498
199
39
129
865
(10)
43
56
13
8
Wireless PP&E additions for 2010 reflect spending on network capacity,
such as radio channel additions, network core improvements and
network enhancing features, including the continued deployment of
our HSPA+ network. Quality-related additions to PP&E are associated
with upgrades to the network to enable higher throughput speeds, in
addition to improved network access associated activities such as site
build programs and network sectorization work. Moreover, Quality
includes test and monitoring equipment and operating support system
activities. Investments in Network – other are associated with network
reliability and renewal initiatives, infrastructure upgrades and new
product platforms. Information technology and other wireless specific
system initiatives include billing and back-office system upgrades, and
other facilities and equipment spending.
The increase in Wireless PP&E additions for 2010 is largely due to
Quality-related deployment of additional cell sites into the network,
while the increase in Network – other spending reflects deployment of
cross-platform feature enablement. The increase in information
technology and other was driven primarily by an enterprise data
warehouse project and start up of the chatr brand during the year.
These increases were partially offset by the decrease in capacity related
to completion of the HSPA 21Mbps roll-out program in 2010.
During 2010, we announced the start of technical trials of next
generation LTE wireless network technology in various frequency
bands in the Ottawa area to better understand and plan for LTE data
throughput speeds, performance quality and the interoperability of
LTE with our existing HSPA+ network.
WIRELESS ADDITIONS TO PP&E
IT & Other 16%
Network – Other 6%
Quality 30%
Capacity 48%
caBle
c aBle’s BUsiness
Cable is one of Canada’s largest providers of cable television, high-
speed Internet access and cable telephony services, 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, 2010, representing approximately 29% of all television
subscribers in Canada. At December 31, 2010, it provided digital cable
services to approximately 1.7 million of its television subscribers and
high-speed Internet service to approximately 1.7 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 over a
million subscriber lines at December 31, 2010.
The Rogers Business Solutions (“RBS”) segment of Cable offers local and
long-distance telephone, enhanced voice and data networking
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 and within RCI.
At December 31, 2010, there were 146,000 local line equivalents and
42,000 broadband data circuits in service. Cable and RBS are 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
approximately 400 stores at December 31, 2010, many of which provide
customers with the ability to purchase all of Rogers’ primary services
(cable television, Internet, cable telephony and wireless), pay their
Rogers bills, and pick up or return Rogers digital and Internet
equipment. The segment also offers digital video disc (“DVD”) and
video game sales and rentals.
30 RoGeRs coMMUnications inc. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
cable’s Products and services
Cable has highly-clustered and technologically advanced broadband
cable networks in the provinces of Ontario, New Brunswick and
Newfoundland and Labrador. 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
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
Retail 8%
Business Solutions 14%
Home Phone 12%
Internet 21%
Television 45%
Through its technologically advanced broadband networks, Cable
offers a diverse range of services, including digital and analog cable
television, Internet access and voice-over-cable telephony services.
As at December 31, 2010, approximately 89% 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.
During 2009, Cable introduced Rogers On-Demand Online, Canada’s
most comprehensive online destination for primetime and specialty TV
programming, movies, sports and web-only extras. The service is
offered as strong added value to all Rogers Customers across Canada,
with Cable customers getting additional access to specialty content
based on their cable package. In the fall of 2010, a transactional section
was added to service, allowing users to rent and stream new releases
and library titles online. The service is currently accessible through
laptops and desktops, with plans to extend access to other devices in
the near future.
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 a
variety of home phone packages coupled with competitive feature sets
and long-distance plans.
Cable offers multi-product bundles at discounted rates, which allow
customers to choose from among a range of Rogers’ cable television,
Internet, voice - over- cable telephony and wireless produc ts
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 networking 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 on
offerings that utilize its own facilities within its traditional cable
television serving areas.
Cable sells and services Rogers branded Cable and Wireless 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 Rogers’ wireless and cable products and
services. In addition to its own and third party 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.
cable’s networks
Cable’s networks in the provinces of Ontario, New Brunswick, and
Newfoundland and Labrador, 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 its 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 and Labrador 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 generally at 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.
RoGeRs coMMUnications inc. 2010 annUal RePoRt 31
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
Cable believes that the 860 MHz FTTF architecture provides sufficient
bandwidth to provide for television, data, telephony 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 almost all head-ends. 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.
Cable operates on behalf of Wireless and RBS (including the recently
acquired Atria Networks LP), a North American transcontinental fibre-
optic network extending over 38,000 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”), 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.
Where Cable does not have its own local facilities directly to a business
customer’s premises, the local service is provided under a third party
wholesale arrangement.
c aBle’s stR ateGY
C a b l e s e e k s t o m a x i m ize
sub s crib e r s hare , reve nu e ,
operating profit and return on
invested capital by leveraging its
technologically advanced cable
n e t w o r k s a n d
i n n o v a t i v e
products and services to meet
the information, entertainment
and communications needs of
its residential and small business
customers. The key elements of
the strategy are as follows:
• Maintaining technologically
advanced cable net works
and systems clustered and
interconnected in and around
metropolitan areas;
CABLE TOTAL REVENUE
(In millions of dollars)
$3,809
$3,948
$4,052
2008
2008
2009
2009
2010
2010
• Offering a wide selection of advanced and innovative information,
entertainment and communications products and services over
its broadband networks, such as the ongoing expansion of its
HDTV, specialty and on-demand video services, increasingly faster
broadband Internet speeds, and emerging opportunities for home
monitoring and control;
• Ongoing focus on enhanced customer experience through the
quality and reliability of its innovative products, services and
customer support programs;
• Targeting its product and content development to the changing
demographic trends within its service territory, such as products
targeted to multicultural communities and small businesses;
• Continuing to lead the development and expansion of the online
content and entertainment experience with the continued expansion
of its successful broadband video platform, Rogers On-Demand
Online;
• Continuing to deepen our presence and core connections in an
increasing number of customer homes with anchor products such as
broadband Internet, video and telephony; and
• Focusing on driving deeper penetration of its on-net data and voice
services into the small and medium-sized business segments within
and contiguous to its cable footprint.
Recent c aBle inDUstRY tRenDs
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, including
fibre to the home and premises initiatives, 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, increasingly fast tiers of Internet
services, and telephony services. These investments have enabled cable
television companies to offer increased speed and quality of service in
their expanded digital television packages, PVR, HDTV programming,
higher speed Internet and telephony services.
increased competition from alternative Broadcasting Distribution
Undertakings
As fully described in the section entitled “Competition in our
Businesses”, Canadian cable television systems generally face legal and
illegal competition from several alternative multi-channel broadcasting
distribution systems.
Growth of internet Protocol-Based services
The availability of telephony 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. In addition and as discussed below, certain television and
movie content is increasingly becoming available over the Internet.
Traditional TV viewing will be challenged by wide range of options
available to consumers such as over-the-top television (such as Apple
TV), online video offerings (such as Netflix) and Mobile TV.
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.
32 RoGeRs coMMUnications inc. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
increasing availability of online access to cable tV content
Cable and content providers in the U.S. and Canada continue to create
platforms and portals which provide for 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 authentication features, which control and limit
access to content that 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 whether such platforms will be complementary 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 oPeR atinG anD Financial ResUlts
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 service
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 within RCI; and
• Rogers Retail, which includes commissions and revenues 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.
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;
• 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;
• inter-carrier 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;
• expenses related to the corporate management of the Rogers
Retail stores; and
• other general and administrative expenses.
• 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 the
cost of content, commissions for subscriber activations, as well as the
fixed costs of acquiring new subscribers, are material. As such,
fluctuations in the number of activations of new subscribers from
period-to-period result in fluctuations in sales, marketing, cost of sales
and field services expenses.
RoGeRs coMMUnications inc. 2010 annUal RePoRt 33
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
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 (expense) recovery(4)
Settlement of pension obligations(5)
Integration and restructuring expenses(6)
Other items, net (7)
Adjustment for CRTC Part II fees decision(8)
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
2010 (1 )
2009
% Chg
4
11
(11)
71
3
10
14
200
9
n/m
n/m
(50)
n/m
n/m
6
$
3,185 $
3,074
560
355
(48)
503
399
(28)
4,052
3,948
1,424
1,298
40
(27)
1,437
(7)
–
(23)
(5)
–
35
(9)
1,324
12
(11)
(46)
–
46
$
1,402
$
1,325
44.7%
7.1%
(7.6%)
42.2%
7.0%
(2.3%)
$
611
$
642
38
13
37
14
$
662
$
693
(5)
3
(7)
(4)
(1) the operating results of Blink communications inc. (“Blink”) are included in RBs’s results of operations from the date of acquisition on January 29, 2010 and the operating results of kincardine cable t.V. ltd.
(“kincardine”) are included in cable operations’ results of operations from the date of acquisition on July 30, 2010.
(2) cable operations segment includes cable television 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, 2010, costs incurred relate to i) severances resulting from the targeted restructuring of our employee base to improve our cost structure; ii) restructuring expenses resulting
from the outsourcing of certain information technology functions; iii) acquisition transaction costs and the integration of acquired businesses; and iv) the closure of certain Rogers Retail stores. 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 resulting from the outsourcing of certain information technology functions; iii) the integration of acquired businesses; and iv) the closure of certain
Rogers Retail stores.
(7) Relates to the resolution of obligations and accruals relating to prior periods.
(8) 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. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
oPeR atinG HiGHliGHts FoR tHe YeaR enDeD DeceMBeR 31, 2010
• Cable grew high-speed Internet subscribers by 67,000, cable
telephony lines by 66,000, digital cable households by 69,000 and
television subscribers by 9,000 during the year.
• 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 73% of our television subscriber base. In
addition, digital penetration now represents approximately 75% of
television households.
• HDTV digital cable subscribers increased 19% from December 31, 2009
to December 31, 2010, to approximately 850,000.
• The cable residential telephony subscriber base continued to grow
ending the year with just over 1 million residential voice-over-cable
telephony lines, which brings the total penetration of cable telephony
lines to 44% of television subscribers at December 31, 2010, up from
41% in the prior year.
• Cable completed the deployment of DOCSIS 3.0 high-speed Internet
service to 100% of its footprint.
• Cable continues to leverage its position in the small business market
with its 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 grew its Rogers On Demand Online broadband video service
offerings to over 10,000 hours of content and a registered user base
of approximately 300,000. This included the launch of a transactional
rentals section that allows consumers to rent new release movies
and library titles, the addition of 2 live streaming channels and a
comprehensive 2010 FIFA World cup cross platform offering, which
featured live streaming and on demand coverage of over 60 games in
4 languages.
• Cable divested certain assets related to its remaining circuit-switched
operations, including co-location sites and related equipment. In
addition, the remaining residential circuit-switched lines in Cable
Operations are in the process of being transferred to a third party
reseller. The portion of RBS’s business customer lines provisioned
over these circuit-switched co-location facilities will continue to be
serviced by RBS under a separate wholesale arrangement.
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
Cable Television
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(2)
Stock-based compensation (expense) recovery(3)
Settlement of pension obligations(4)
Integration and restructuring expenses(5)
Other items, net(6)
Adjustment for CRTC Part II fees decision(7)
Operating profit(2)
Adjusted operating profit margin(2)
2010 (1 )
200 9
% Chg
$
1,830 $
1,780
848
507
781
513
3,185
3,074
222
1,539
243
1,533
1,761
1,776
1,424
(7)
1,298
12
–
(3)
(7)
–
(10)
(31)
–
46
$
1,407 $
1,315
44.7%
42.2%
3
9
(1)
4
(9)
–
(1)
10
n/m
n/m
(90)
n/m
n/m
7
(1) the operating results of kincardine are included in cable operations’ results of operations from the date of acquisition on July 30, 2010.
(2) as defined. see the sections entitled “key Performance indicators and non-GaaP Measures” and “supplementary information: non-GaaP calculations”.
(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, 2010, costs incurred relate to restructuring expenses resulting from the outsourcing of certain information technology functions. 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 resulting from the outsourcing of certain information technology functions; and iii) the integration of acquired businesses.
(6) Relates to the resolution of obligations and accruals relating to prior periods.
(7) 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. 2010 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
Television
Net additions (losses)
Total television subscribers(1)
Digital Cable
Households, net additions
Total digital cable households(1)
Cable High-speed Internet
Net additions(2)
Total cable high-speed Internet subscribers(1)(2)
Cable telephony lines
Net additions and migrations(3)
Total cable telephony lines
Total cable service units(4)
Net additions
Total cable service units
Circuit-switched lines
Net losses and migrations(3)
Total circuit-switched lines(5)
2010
2009
Chg
3,708
3,635
4
(24)
2,305
2,296
67
1,733
64
1,686
66
1,003
134
4,994
114
1,664
48
1,619
97
937
121
4,852
(48)
46
(91)
124
73
28
9
(47)
69
16
67
(31)
66
13
142
43
(78)
(1) on July 30, 2010, we acquired 6,000 television subscribers, 2,000 digital cable households, and 3,000 cable high-speed internet subscribers from kincardine. these subscribers are not included in net additions
for 2010.
(2) cable high-speed internet subscriber base excludes aDsl subscribers of 2,000 and 5,000 at December 31, 2010 and 2009, respectively. in addition, net additions exclude aDsl subscriber losses of 3,000 and
6,000 in the years ended December 31, 2010 and 2009, respectively.
(3) includes approximately 8,000 and 17,000 migrations from circuit-switched to cable telephony for the years ended December 31, 2010 and 2009, respectively.
(4) total cable service units are comprised of television subscribers, cable high-speed internet subscribers and cable telephony lines.
(5) approximately 30,000 circuit-switched lines were migrated during 2010 to a third party reseller under the terms of an agreement to sell the remaining circuit-switched telephone business. these migrations are
not included in net losses and migrations for 2010.
CABLE SUBSCRIBER BREAKDOWN
Home Phone 15%
Internet 25%
Television 34%
Digital 26%
cable television Revenue
The increase in Cable Television revenue for 2010, compared to 2009,
reflects the continuing increase in penetration of our digital cable
product offerings and pricing changes. The slowdown in the year-over-
year growth rate of Cable Television revenue from 2009 to 2010 partially
reflects the timing of annual pricing changes, which took place in
March 2009 and July 2010, combined with the cumulative effect of
targeted bundling and retention initiatives to transition portions of the
subscriber base to term contracts and a lower number of subsidized
digital box sales.
DIGITAL HOUSEHOLDS
AND PENETRATION OF
TELEVISION CUSTOMERS
(In thousands)
HIGH-DEFINITION
HOUSEHOLDS
(In thousands)
1,550
1,664
1,733
568
715
850
72%
75%
67%
36 RoGeRs coMMUnications inc. 2010 annUal RePoRt
2008
2008
2009
2009
2010
2010
2008
2008
2009
2009
2010
2010
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
INTERNET SUBSCRIBERS
AND PENETRATION
OF HOMES PASSED (In thousands)
CABLE TELEPHONY SUBSCRIBERS
AND PENETRATION OF
HOMES PASSED (In thousands)
CABLE OPERATIONS ADJUSTED
OPERATING PROFIT
AND MARGIN (In millions of dollars)
CABLE SUBSCRIBER
BREAKDOWN
(In thousands)
1,571
1,619
1,686
840
937
1,003
$1,171
$1,298
$1,424
2,320
1,550
1,571
840
2,296
1,664
1,619
937
2,305
1,733
1,686
1,003
44%
45%
45%
41%
42%
45%
24%
26%
27%
2008
2008
2009
2009
2010
2010
2008
2008
2009
2009
2010
2010
200 8
2008
2009
2009
201 0
2010
2008
2008
2009
2009
2010
2010
Cable continues to lead the Canadian cable industry in digital cable
penetration. The digital cable subscriber base grew by 4% and
represented 75% of television households passed by our cable networks
as at December 31, 2010, compared to 72% as at December 31, 2009.
Increased demand from subscribers for the larger selection of digital
content, video on demand, HDTV and PVR equipment continues to
contribute to the growth in the digital subscriber base and cable
television revenue.
cable internet Revenue
The year-over-year increase in Internet revenue for 2010 primarily
reflects the increase in the Internet subscriber base, combined with
Internet services price changes made during 2010 and the timing and
mix of promotional programs.
With the high-speed Internet base at approximately 1.7 million
subscribers, Internet penetration is approximately 45% of the homes
passed by our cable networks and 73% of our television subscriber
base, as at December 31, 2010.
Rogers Home Phone Revenue
Rogers Home Phone revenue for 2010 reflects the year-over-year
growth in the cable telephony customer base with a corresponding
cable telephony revenue growth of approximately 8% for 2010, offset
by the ongoing decline of the legacy circuit-switched telephony base.
This decline of the legacy circuit-switched telephony base included
approximately 30,000 subscribers which were migrated to a third party
carrier during the second half of 2010, per the sale agreement entered
into during the year, as discussed below. The lower net additions of
cable telephony lines in 2010 versus 2009 are the result of lower sales
activity as campaigns were less aggressive compared to the prior year.
Cable telephony lines in service grew 7% from December 31, 2009 to
December 31, 2010. At December 31, 2010, cable telephony lines
represented 27% of the homes passed by our cable networks and 44%
of television subscribers.
Cable continues to focus principally on growing its on-net cable
telephony line base. Therefore, it continues its strategy to de-emphasize
the off-net circuit-switched telephony business where services cannot
be provisioned fully over Rogers’ own network facilities. During the
third quarter of 2010, Cable announced that it was divesting most of
the assets related to the remaining circuit-switched telephony
Television
Digital
Internet
Home Phone
operations. Under this arrangement, most of its co-location sites and
related equipment were sold. In addition, the sale involved residential
circuit-switched lines, with the customers served by these facilities
being migrated from Cable Operations to a third party reseller starting
towards the end of the third quarter of 2010 and continuing over the
first several months of 2011. During 2010, approximately 30,000 of these
subscribers were migrated, leaving approximately 46,000 lines which
will be migrated during early 2011. For the year ended December 31,
2010 the revenue reported by Cable Operations associated with the
residential circuit-switched telephony business being divested totalled
approximately $61 million.
Excluding the impact of the declining circuit-switched telephony
business that Cable is in the process of divesting, the year-over-year
revenue growth for Rogers Home Phone and Cable Operations for 2010
would have been 8% and 5%, respectively.
cable operations operating expenses
The decrease in Cable Operations’ operating expenses for 2010,
compared to 2009, was primarily due to cost reductions and efficiency
initiatives across various functions. Cable Operations continues to
focus on implementing a program of permanent cost reduction and
efficiency improvement initiatives to control the overall growth in
operating expenses.
cable operations adjusted operating Profit
The year-over-year growth in adjusted operating profit was primarily
the result of the revenue growth and cost changes described above. As
a result, Cable Operations’ adjusted operating profit margins increased
to 44.7% for 2010, compared to 42.2% for 2009.
RoGeRs coMMUnications inc. 2010 annUal RePoRt 37
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
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(2)
Stock-based compensation expense(3)
Integration and restructuring expenses(4)
Operating profit(2)
Adjusted operating profit margin(2)
2010 (1 )
2009
%Chg
$
560
$
503
40
480
520
40
–
(13)
$
27
$
26
442
468
35
(1)
(3)
31
7.1%
7.0%
11
54
9
11
14
n/m
n/m
(13)
(1) the operating results of Blink are included in RBs’s results of operations from the date of acquisition on January 29, 2010.
(2) as defined. see the sections entitled “key Performance indicators and non-GaaP Measures” and “supplementary information: non-GaaP calculations”.
(3) see the section entitled “stock-based compensation”.
(4) For the year ended December 31, 2010, costs incurred relate to i) severances resulting from the targeted restructuring of our employee base; and ii) acquisition transaction costs incurred and the integration of
acquired businesses. 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 integration of acquired businesses.
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
(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) on January 29, 2010, RBs acquired 2,000 broadband data circuits acquired from its acquisition of Blink, and are reflected in the total amounts shown.
2010
2009
Chg
146
169
(23)
42
36
6
RBs adjusted operating Profit
The year-over-year growth in adjusted operating profit was due in part
to the Blink acquisition and higher revenue. As a result, RBS adjusted
operating profit margins increased to 7.1% for 2010, compared to 7.0%
in 2009. Excluding the acquisition of Blink, adjusted operating profit for
2010 would have been approximately $30 million, versus $40 million as
reported. RBS is focused on growing future revenue streams from
on-net IP services and is incurring incremental operating costs to
support that growth, and therefore offsetting the cost declines from
the legacy services portion of the business. (See the sections entitled
“Acquisition of Blink Communications Inc.” and “Acquisition of Atria
Networks LP”).
RBs Revenue
The increase in RBS revenues reflects the increase in long-distance
revenue, which includes higher volumes by both carrier and internal
customers, and the acquisition of Blink, partially offset by the ongoing
decline in the legacy portions of the business. RBS is focused on
leveraging on-net revenue opportunities utilizing Cable’s existing
network facilities to launch on-net services while maintaining its
existing medium enterprise customer base. Excluding the acquisition of
Blink, revenue for 2010 would have increased by 7% instead of the 11%
as reported, compared to 2009. Further, excluding internal customers
within the Rogers group of companies, revenue for 2010 would have
declined by 3%, compared to 2009. For 2010, long-distance revenue
increased by $50 million and data and Internet revenue increased by
$21 million, which was offset by a decline in local revenues of $14
million, compared to the corresponding period of 2009.
RBs operating expenses
Sales and marketing expenses increased for 2010, compared to 2009,
and reflect increased marketing within the medium and large
enterprise and carrier segments associated with RBS’s launch of a new
suite of Ethernet services.
Operating, general and administrative expenses increased for 2010,
compared to 2009. This reflects the increase in long-distance costs due
to higher call volumes and country mix and the inclusion of the Blink
operating costs.
38 RoGeRs coMMUnications inc. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
RoGeRs Retail
summarized Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Wireless and Cable sales
Video rental and sales
Total Rogers Retail operating revenue
Operating expenses before the undernoted
Adjusted operating loss(1)
Stock-based compensation recovery(2)
Settlement of pension obligations(3)
Integration and restructuring expenses(4)
Other items, net(5)
Operating loss(1)
Adjusted operating loss margin(1)
2010
20 09
% Chg
$
212 $
143
355
382
(27)
–
–
(7)
2
$
(32) $
192
207
399
408
(9)
1
(1)
(12)
–
(21)
10
(31)
(11)
(6)
200
n/m
n/m
(42)
n/m
52
(7.6%)
(2.3%)
(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, 2010, costs incurred relate to i) severances resulting from the targeted restructuring of our employee base; and ii) the closure of certain Rogers Retail stores. 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.
(5) Relates to the resolution of accruals relating to prior periods.
acquisition of atria networks lP
Subsequent to the year-end 2010, on January 4, 2011, Cable acquired
Atria Networks LP (“Atria”) for cash consideration of $425 million.
Atria, based in Kitchener, Ontario, owns and operates one of the largest
fibre-optic networks in Ontario, delivering on-net data networking
services to business customers in approximately 3,700 buildings in and
adjacent to Cable’s service area.
cable additions to PP&e
CABLE ADDITIONS TO PP&E
Business Solutions 6%
Cable Operations 92%
Retail 2%
Rogers Retail Revenue
The decrease in Rogers Retail revenue for 2010, compared to 2009, was
the result of a continued decline in video rental and sales activity. This
was partially offset by the continued growth in sales and services
associated with Wireless and Cable customers.
Early in 2010, Rogers began an initiative to more deeply integrate its
wireless, cable and video rental distribution channels to better respond
to changing customer needs and preferences. As a result of this
integration, certain facilities and stores associated principally with the
video rental portion of Rogers Retail have been and will continue to
be closed.
Rogers Retail adjusted operating loss
The adjusted operating loss at Rogers Retail increased for 2010,
compared to 2009, reflecting the changes and trends noted above.
c aBle acQUisitions
acquisition of Blink communications inc.
On January 29, 2010, Cable acquired 100% of the outstanding common
shares of Blink, a wholly-owned subsidiary of Oakville Hydro
Corporation, for cash consideration of $131 million. Blink is a facilities-
based, data network service provider that delivers next generation and
leading-edge services, to small and medium-sized businesses, including
municipalities, universities, schools and hospitals, in the Oakville,
Milton, and Mississauga, Ontario areas. The acquisition was accounted
for using the acquisition method with the results of operations
consolidated with those of ours effective January 29, 2010.
acquisition of kincardine cable t.V. ltd.
On July 30, 2010, Cable acquired the assets of Kincardine for cash
consideration of $20 million. Kincardine provides cable television and
Internet services in Kincardine, Ontario and the surrounding area. The
acquisition was accounted for using the acquisition method with the
results of operations consolidated with those of ours effective
July 30, 2010.
RoGeRs coMMUnications inc. 2010 annUal RePoRt 39
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
cable additions to Property, Plant and equipment
Cable additions to PP&E are classified into the following categories:
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
2010
2009
% Chg
$
234 $
201
43
20
113
611
38
13
185
259
40
20
138
642
37
14
$
662 $
693
26
(22)
8
–
(18)
(5)
3
(7)
(4)
The Cable Operations segment categorizes its PP&E expenditures
according to a standardized set of reporting categories that were
developed and agreed to by the U.S. cable television industry and that
facilitate comparisons of additions to PP&E between different cable
companies. Under these industry definitions, Cable Operations
additions to PP&E are classified into the following five categories:
• Customer premise equipment (“CPE”), which includes the equipment
for digital set-top terminals, Internet modems and associated
installation costs;
• Scalable infrastructure, which includes non-CPE costs to meet
business growth and to provide service enhancements, 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.
Additions to Cable PP&E include continued investments in the cable
network to continue to enhance the customer experience through
increased speed and performance of our Internet service and capacity
enhancements to our digital network to allow for incremental HD and
on-demand services to be added.
The decline in Cable Operations PP&E additions for 2010, compared to
2009, resulted primarily from lower spending on Scalable infrastructure
expenditures due to the completion of certain projects associated with
our Internet platform and infrastructure investments.
RBS PP&E additions for 2010 reflect the timing of expenditures on
customer networks and support capital, while Rogers Retail PP&E
additions are attributable to enhancements made to certain
retail locations.
MeDia
MeDia’s BUsiness
Media operates our radio and television broadcasting and specialty
television businesses, our consumer and trade publishing operations,
our national televised home shopping service and Rogers Sports
Entertainment. In addition to Media’s more traditional broadcast and
print media platforms, it has also invested significantly in infrastructure,
people and processes to enhance capabilities in providing digital
content, selling advertising on behalf of other digital content providers
and conducting e-commerce over the Internet.
Media’s broadcasting group (“Broadcasting”) comprises 55 radio
stations across Canada; the multicultural OMNI broadcast television
stations; the five-station Citytv broadcast television network; specialty
sports television services including Rogers Sportsnet, Sportsnet ONE
and Setanta Sports Canada; other specialty services including Outdoor
Life Network, The Biography Channel (Canada) and G4 Canada; and
The Shopping Channel, Canada’s only nationally televised shopping
service. Media also holds a 50% ownership in Dome Productions, a
mobile sports and events production and distribution joint venture that
is a leader in HDTV production in Canada.
Media’s publishing group (“Publishing”) publishes consumer magazines
and trade and professional publications and directories in Canada.
Media’s sports entertainment group (“Sports Entertainment”) owns
the Toronto Blue Jays, a Major League Baseball (“MLB”) club, and
Rogers Centre sports and entertainment venue.
MEDIA REVENUE MIX
Radio 15%
Sports Entertainment 12%
Publishing 19%
Television 37%
The Shopping
Channel 17%
40 RoGeRs coMMUnications inc. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
MeDia’s stR ateGY
Media seeks to maximize revenues, operating profit and return on
invested capital across its portfolio of businesses. Media’s strategies to
achieve this objective include:
• Continuing to leverage its strong media brands and content across
its multiple media platforms to offer advertising customers more
comprehensive audience solutions and reach;
• Drive revenue share increases by continually improving broadcast
ratings through strategically developing and securing the rights to
unique and compelling content;
• Collaboratively working with Wireless and Cable to provide unique
video, online and wireless content experiences to customers over
advanced network distribution platforms and in association with the
“Rogers” brand;
• Focusing on specialized content and audience development through
its broadcast and sports properties, as well its growing portfolio of
specialty channel and online assets;
• Continuing to invest in technology and content to leverage the
trend of audience migration to the web, wireless and other digital
platforms; and
• Enhancing the Sports Entertainment fan experience by continuing
to invest in enhancing the Blue Jays and in upgrades to the
Rogers Centre.
Recent MeDia inDUstRY tRenDs
Migration to Digital Media
The media landscape continues to evolve driven by the following major
forces impacting audience and advertiser behaviour:
• Digitization of content;
• 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 shifting a portion
of their time and attention from traditional broadcast and print 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 and ownership of industry competitors
Ownership of Canadian radio and TV stations has consolidated through
several large acquisitions in the sector by other media and
telecommunications companies. This has resulted in the Canadian
media sector being composed of fewer owners but larger competitors
with more financial resources to compete in the media marketplace.
MeDia oPeR atinG anD Financial ResUlts
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
• Increased availability of high-speed broadband networks;
• Increasingly fragmented and time-shifted audience time and attention;
• 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(2)
Stock-based compensation (expense) recovery(3)
Settlement of pension obligations(4)
Integration and restructuring expenses(5)
Other items, net(6)
Contract termination fee(7)
Adjustment for CRTC Part II fees decision(8)
Operating profit(2)
Adjusted operating profit margin(2)
Additions to PP&E(2)
2010 (1 )
200 9
% Chg
$
1,501 $
1,407
1,354
147
(9)
–
(12)
(4)
–
–
122 $
1,288
119
8
(15)
(35)
–
(19)
15
73
7
5
24
n/m
n/m
(66)
n/m
n/m
n/m
67
$
$
9.8%
8.5%
46 $
62
(26)
(1) the operating results of BV! Media inc. (“BV! Media”) are included in Media’s results of operations from the date of acquisition on october 1, 2010.
(2) as defined. see the section entitled “key Performance indicators and non-GaaP Measures”.
(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, 2010, cost incurred related to i) severances resulting from the targeted restructuring of our employee base; and ii) the acquisition transaction costs incurred and the
integration of acquired businesses. For the year ended December 31, 2009, costs incurred relate to severances resulting from the targeted restructuring of our employee base.
(6) Relates to the resolution of obligations and accruals relating to prior periods.
(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.
RoGeRs coMMUnications inc. 2010 annUal RePoRt 41
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
MeDia acQUisitions
acquisition of BV! Media inc.
On October 1, 2010, we acquired 100% of the outstanding common
shares of BV! Media Inc. for cash consideration of $24 million. BV!
Media is a Canadian Internet advertising network and publisher of
news and information portals. The acquisition was accounted for using
the acquisition method with the results of operations consolidated
with those of ours effective October 1, 2010.
acquisition of Radio stations
On January 31, 2011, we acquired the assets of Edmonton, Alberta FM
radio station BOUNCE (CHBN-FM) to strengthen our presence in
this market.
On January 31, 2011, we acquired the assets of London, Ontario FM
radio station BOB-FM (CHST-FM). This acquisition of BOB-FM, which is
a continual ratings leader, represents our entry into the London,
Ontario market.
Media additions to PP&e
Media’s PP&E additions during 2010 decreased from 2009 due primarily
to the completion of Television’s new Ontario broadcasting facility
in 2009.
Media Revenue
The increase in Media’s revenue in 2010, compared to 2009, reflects
continuous increases in Media’s prime time TV ratings, increased
subscriber fees and improvements in the advertising market, which
together are favourably impacting Television, Sportsnet, Radio, and
The Shopping Channel revenues. Publishing revenue was relatively
consistent with 2009, while Sports Entertainment reported revenue
declines associated with fluctuations in event attendance levels and
Major League Baseball revenue sharing. As Sportsnet ONE, Media’s new
national sports network, launched in the late part of 2010, limited
revenues were realized in 2010 but are expected to increase over the
course of 2011.
Media operating expenses
Media’s operating expenses increased slightly in 2010, compared to
2009. While a focus on managing costs across all of Media’s divisions
over the past year has resulted in reduced operating expenses, these
savings were offset by certain planned increases in programming costs
at Sportsnet and Television and the costs of new content for Sportsnet
ONE, which we expect to break even in the first quarter 2011 time
frame. Excluding the impact of Sportsnet ONE, operating expenses for
2010 would have grown at a rate of 2% instead of the 5% as reported,
compared to 2009.
Media adjusted operating Profit
The increase in Media’s adjusted operating profit for 2010, compared to
2009, primarily reflects the revenue and expense changes discussed
above. Excluding the impact of Sportsnet ONE, adjusted operating
profit for 2010 would have increased 48% compared to 2009.
Media Developments
Late in 2010, Media launched a new national sports network called
Sportsnet ONE, which features extensive live-event programming,
including professional hockey, basketball, baseball and soccer. Media
also announced a 10-year programming partnership with Alberta’s two
NHL teams, the Edmonton Oilers and Calgary Flames.
MEDIA REVENUE
(In millions of dollars)
MEDIA ADJUSTED
OPERATING PROFIT
(In millions of dollars)
$1,496
$1,407
$1,501
$142
$119
$147
2008
2008
2009
2009
2010
2010
2008
2008
2009
2009
2010
2010
42 RoGeRs coMMUnications inc. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
Reconciliation oF net incoMe to oPeRatinG
PRoFit anD aDJUsteD oPeRatinG PRoFit FoR
tHe PeRioD
The items listed below represent the consolidated income and expense
amounts that are required to reconcile net income as defined under
Canadian GAAP to the non-GAAP measures operating profit and
adjusted operating profit for the 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 2010 Audited Consolidated Financial
Statements entitled “Segmented Information”.
Years ended December 31,
(In millions of dollars)
Net income
Income tax expense
Other expense (income)
Change in the fair value of derivative instruments
Loss on repayment of long-term debt
Foreign exchange gain
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
Other items, net
Contract termination fees
Adjustment for CRTC Part II fees decision
Adjusted operating profit
2010
20 09
% Chg
$
1,528 $
1,478
610
1
16
87
(20)
10
669
502
(6)
65
7
(136)
11
647
2,901
2,568
6
1,645
4,552
18
1,730
4,316
47
–
40
14
–
–
(33)
30
117
–
19
(61)
$
4,653 $
4,388
3
22
n/m
(75)
n/m
(85)
(9)
3
13
(67)
(5)
5
n/m
n/m
(66)
n/m
n/m
n/m
6
net income
The $50 million increase in net
income compared to the prior
year is primarily due to the growth
in operating income of $333
million, of f set mainly by a
decrease in foreign exchange
gains of $116 million, an increase
in loss on repayment of long-term
debt of $80 million, and a $108
million increase in income tax
expense.
income tax expense
Our effective income tax rate for
the years ended December 31,
2010 and 2009 was 28.5% and
25.4%, respectively. The 2010
effective income tax rate was less
than the 2010 statutory income
CONSOLIDATED ADJUSTED
NET INCOME
(In millions of dollars)
$1,260
$1,556
$1,707
2008
2008
2009
2009
2010
2010
tax rate of 30.5% primarily due to an income tax recovery of $69 million
resulting from the effect of tax rate changes, which was partially offset
by an income tax charge of $35 million to reduce future tax assets
previously recognized relating to stock options (see the section entitled
“Stock-based Compensation”). For the year ended December 31, 2010,
our income taxes paid were $152 million.
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
future tax assets in foreign jurisdictions arising from foreign exchange
rate fluctuations and $50 million relating to unrealized gains on
investments and financial instruments. For the year ended December
31, 2009, our income taxes paid were $8 million.
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:
RoGeRs coMMUnications inc. 2010 annUal RePoRt 43
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
Years ended December 31,
(In millions of dollars)
Statutory income tax rate
Income before income taxes
Computed income tax expense
Increase (decrease) in income taxes resulting from:
Change in valuation allowance
Effect of tax rate changes
Stock-based compensation
Other items
Income tax expense
Effective income tax rate
2010
30.5%
20 09
32.3%
$
2,138 $
1,980
652
640
(5)
(69)
35
(3)
$
610 $
(64)
(58)
–
(16)
502
28.5%
25.4%
other expense (income)
Other expense of $1 million in 2010 was primarily associated with
investment income and expenses from certain of our investments,
compared to income of $6 million in 2009.
change in Fair Value of Derivative instruments
In 2010, the change in fair value of the derivative instruments was the
result of the $16 million (2009 – $65 million) non-cash change in the fair
value of the cross-currency interest rate exchange agreements
(“Derivatives”) hedging our US$350 million Senior Notes due 2038 that
have not been designated as hedges for accounting purposes. This
change in fair value of the Derivatives was primarily caused by the
Canadian dollar’s strengthening by 5.6 cents in 2010 (2009 – 17.4 cents)
versus the U.S. dollar. We have recorded the fair value of our Derivatives
at an estimated credit-adjusted mark-to-market valuation. For the
impact, refer to the section entitled “Mark-to-Market Value
of Derivatives”.
loss on Repayment of long-term Debt
During 2010, we recorded a loss of repayment of long-term debt of $87
million, comprised of aggregate redemption premiums of $79 million
related to the redemption of three public debt issues and a net loss on
the termination of the related Derivatives of $16 million, partially offset
by a gain of $8 million relating to the non-cash write-down of the fair
value increment of long-term debt (See the section entitled “Debt
Redemptions and Termination of Derivatives”).
Foreign exchange Gain
During 2010, the Canadian dollar strengthened by 5.6 cents versus the
U.S. dollar resulting in a foreign exchange gain of $20 million, primarily
related to our US$350 million of Senior Notes due 2038 for which the
associated Derivatives have not been designated as hedges for
accounting purposes. During 2009, the Canadian dollar strengthened
by 17.4 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 was 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.
Debt issuance costs
During 2010, we recorded debt issuance costs of $10 million due to the
transaction costs incurred in connection with the $1.7 billion of debt
issuances, including the $800 million of 6.11% Senior Notes due 2040
issued on August 25, 2010 and the $900 million of 4.70% Senior Notes
due 2020 issued on September 29, 2010.
During 2009, we recorded debt issuance costs of $11 million due to the
transaction costs incurred in connection with the $2.0 billion of debt
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 $22 million increase in interest expense during 2010, compared to
2009, is primarily due to the increase in our long-term debt through
December 31, 2010, compared to December 31, 2009, including the
impact of Derivatives, partially offset by the decrease in the weighted-
average interest rate on long-term debt at December 31, 2010 compared
to December 31, 2009, largely due to refinancing activity. See the
section entitled “Liquidity and Capital Resources”.
operating income
The increase in our operating income compared to the prior year is due
to the growth in revenue of $455 million offset by the increase of
operating expenses of $122 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 2010, we determined that the fair value of a
radio station licence 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 $6 million
related to the radio licence. In the fourth quarter of 2009, we recorded
a non-cash impairment charge of $4 million related to a similar
situation.
Also in the fourth quarter of 2009, 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.
Depreciation and amortization expense
The decrease in depreciation and amortization expense for the year
ended December 31, 2010, over 2009, primarily reflects a decrease in
amortization of intangible assets resulting from certain intangible
assets that have now been fully amortized, partially offset by the $1.8
billion of additions to PP&E during 2010.
44 RoGeRs coMMUnications inc. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
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, 2010, we
had a liability of $162 million (2009 – $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, 2010, $58 million (2009 – $63 million) was paid to
holders of stock options, restricted share units and deferred share units
upon exercise using the SAR feature.
In March 2010, the federal budget introduced proposed changes that
impact the tax deductibility of cash-settled stock options. The proposed
legislative changes were enacted in December 2010. As a result, the
Company recorded an income tax charge of $35 million to reduce
future tax assets previously recognized with respect to its stock option
related liabilities.
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
2010
11
7
9
20
47
$
$
20 09
–
(12)
(8)
(13)
(33)
$
$
integration and Restructuring expenses
During the year ended December 31, 2010, we incurred $40 million of
integration and restructuring expenses to improve our cost structure
related to i) severances resulting from the targeted restructuring of our
employee base ($21 million); ii) restructuring expenses related to the
outsourcing of certain information technology functions ($9 million);
iii) acquisition transaction costs incurred and the integration of
acquired businesses and related restructuring ($5 million); and iv) the
closure of certain retail stores ($5 million).
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 then
current economic and competitive conditions ($87 million); ii)
severances and restructuring expenses related to the outsourcing of
certain information technology functions ($23 million); iii) the
integration of acquired businesses and related restructuring ($3
million); and iv) the closure of certain retail stores ($4 million).
other items
During the year ended December 31, 2010, we recorded $14 million of
net adjustments related to the resolution of obligations and accruals
relating to prior periods.
adjusted operating Profit
As discussed above, Wireless, Cable and Media contributed to the
increase in adjus ted operating profit for the year ended
December 31, 2010 compared to 2009.
Consolidated adjusted operating profit increased to $4,653 million in
2010, compared to $4,388 million in 2009. Adjusted operating profit for
2010 and 2009, respectively, excludes: (i) stock-based compensation
expense (recovery) of $47 million and $(33) million; (ii) integration and
restructuring expenses of $40 million and $117 million; (iii) other items
of $14 million and $nil; (iv) an adjustment for CRTC Part II fees related to
prior periods of $nil and $(61) million; (v) contract termination fees of
$nil and $19 million; and (vi) settlement of pension obligations of $nil
and $30 million.
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, 2010, we had approximately 25,100 (2009 – 25,900)
full-time equivalent employees (“FTEs”) across all of our operating
groups, including our shared services organization and corporate
office, which was a slight decrease from the level at December 31, 2009.
Reductions associated with operational efficiencies and the integration
of our Cable and Wireless organizations and reductions in Media
associated with improvements to its cost structure, were partially offset
by increases in our shared services staffing and customer facing
functions. Total remuneration costs incurred for employees (both full
and part-time) in 2010 was approximately $1,715 million, which is
unchanged from 2009. The amount of remuneration costs incurred for
employees decreased due to the number of FTEs compared to 2009, but
was offset by the increase in stock-based compensation expense to $47
million compared to a $33 million recovery in 2009, as a result of
fluctuations in the Company’s stock price.
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”.
corporate additions to PP&e
The corporate additions to PP&E included $133 million for the year
ended December 31, 2010 and $151 million for the year ended December
31, 2009, both of which related to spending on an enterprise-wide
billing and business support system initiative.
RoGeRs coMMUnications inc. 2010 annUal RePoRt 45
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
Taking into account the opening cash and cash equivalents balance of
$383 million at the beginning of the year and the cash sources and uses
described above, the cash deficiency at December 31, 2010, represented
by bank advances, was $40 million.
Financing
Our long-term debt instruments are described in Note 14 and Note 15
to the 2010 Audited Consolidated Financial Statements. During 2010,
the following financing activities took place.
Debt issuances
On August 25, 2010, RCI issued in Canada $800 million aggregate
principal amount of 6.11% Senior Notes due 2040 (the “2040 Notes”).
The 2040 Notes were issued at a discount of 99.904% for an effective
yield of 6.117% per annum if held to maturity. RCI received net proceeds
of $794 million from the issuance of the 2040 Notes after deducting the
original issue discount, agents’ fees and other related expenses. The
net proceeds from the 2040 Notes were used together with cash on
hand and advances under our bank credit facility to fund the August
2010 redemptions of three public debt issues maturing in 2011 together
with the termination of the associated Derivatives, each as described
below under the section entitled “Debt Redemptions and Termination
of Derivatives”.
On September 29, 2010, RCI issued in Canada $900 million aggregate
principal amount of 4.70% Senior Notes due 2020 (the “2020 Notes”).
The 2020 Notes were issued at a discount of 99.945% for an effective
yield of 4.707% per annum if held to maturity. RCI received net
proceeds of $895 million from the issuance of the 2020 Notes after
deducting the original issue discount, agents’ fees and other related
expenses. The net proceeds from the 2020 Notes were used to repay
outstanding advances under our bank credit facility, which had been
borrowed to partially fund the redemptions and termination of the
associated Derivatives, and for general corporate purposes.
RCI received an aggregate net proceeds of $1,689 million from the
issuance of the 2040 Notes and the 2020 Notes after deducting the
original issue discount, agents’ fees and other related expenses. We
recorded debt issuance costs of $10 million in 2010 due to the
transaction costs incurred in connection with the issuance of the 2040
Notes and the 2020 Notes. Each of the 2040 Notes and the 2020 Notes
are guaranteed by RCP and rank pari passu with all of RCI’s other senior
unsecured notes and debentures and bank credit facility. See the
section entitled “July 1, 2010 Corporate Reorganization”.
2010 USES OF CASH
(In millions of dollars)
Cash PP&E expenditures: $1,713
$5,746
Redemption of long-term debt: $1,499
Repurchase of shares: $1,312
Dividends: $734
Acquisitions and other net investments: $318
Additions to program rights: $170
2010
3. consoliDateD liQUiDitY anD FinancinG
liQUiDit Y anD c aPital ResoURces
operations
For 2010, 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 $3,800 million from $3,526
million in 2009. The $274 million increase includes the impact of a $265
million increase in adjusted operating profit.
Taking into account the changes in non-cash working capital items for
2010, cash generated from operations was $3,620 million, a decrease of
$170 million, compared to $3,790 million in 2009. The cash generated
from operations of $3,620 million, together with the following items,
resulted in total net funds of approximately $5,323 million in 2010:
• the receipt of an aggregate $1,700 million gross proceeds from two
new public debt issues: the August 2010 issuance of $800 million
6.11% Senior Notes due 2040 and the September 2010 issuance of
$900 million 4.70% Senior Notes due 2020;
• the receipt of $3 million from the issuance of Class B Non-Voting
shares under the exercise of employee stock options.
Net funds used during 2010 totalled approximately $5,746 million, the
details of which include the following:
• additions to PP&E of $1,713 million, net of $126 million of related
changes in non-cash working capital;
• the payment of an aggregate $1,499 million for the August 2010
redemption of three public debt issues maturing in 2011, comprising
$1,151 million aggregate principal amount, $79 million aggregate
redemption premiums and $269 million net settlement paid on
termination of the associated Derivatives;
• the purchase for cancellation of 37,080,906 Class B Non-Voting shares
for an aggregate purchase price of $1,312 million;
• the payment of quarterly dividends aggregating $734 million on our
Class A Voting and Class B Non-Voting shares;
• the purchase of 892,250 subordinate voting shares of Cogeco Cable
Inc. and 946,090 subordinate voting shares of Cogeco Inc. for an
aggregate purchase price of $75 million;
• acquisitions and other net investments aggregating $242 million,
including $131 million to acquire Blink Communications Inc.,
$47 million for the acquisition
of spectrum licences through
Inukshuk, $26 million to acquire
Cityfone Telecommunications
Inc., $20 million to acquire
Kincardine Cable T.V. Ltd. and
$24 million to acquire BV!
Media Inc.;
CONSOLIDATED CASH FLOW
FROM OPERATIONS
(In millions of dollars)
$3,526
$3,500
$3,800
• additions to program rights
aggregating $170 million; and
• the repayment of $1 million of
capital leases.
2008
2008
2009
2009
2010
2010
46 RoGeRs coMMUnications inc. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
2.1x
2.1x
2.1x
RATIO OF DEBT TO
ADJUSTED OPERATING PROFIT
Debt Redemptions and termination of Derivatives
On August 27, 2010 RCI redeemed all of the US$490 million principal
amount of its 9.625% Senior Notes due 2011 (the “9.625% Notes”) and
on August 31, 2010 RCI redeemed all of the $460 million principal
amount of its 7.625% Senior Notes due 2011 (the “7.625% Notes”) and
$175 million principal amount of 7.25% Senior Notes due 2011 (the
“7.25% Notes” and, together with the 9.625% Notes and 7.625% Notes,
the “2011 Notes”). RCI paid an aggregate of approximately $1,230
million for the redemption of the
2011 Notes (the “Redemptions”),
including approximately $1,151
m illi o n a g g r e g a t e p ri n ci p al
amount for the 2011 Notes and
$79 million for the premiums
payable in connection with the
Redemptions. Concurrently with
RCI’s redemption of the 9.625%
Notes, RCI made a net payment of
approximately $269 million to
t h e a s s o c i a t e d
t e r m i n a t e
Derivatives (the “Derivatives
Termination”). As a result, the
total cash expenditure associated
with the Redemptions and the
Derivative s Termination wa s
$1,499 million and RCI recorded a
loss on repayment of long-term
debt of $87 million, comprised of
t h e a g g r e g a t e r e d e m p t i o n
premiums of $79 million and a net loss on the termination of the related
Derivatives of $16 million, partially offset by a gain of $8 million related
to the non-cash write-down of the fair value increment of long-
term debt.
2008
2008
2010
2010
2009
2009
At December 31, 2010, the undrawn portion of our bank credit facility
was approximately $2.4 billion, excluding letters of credit of $94
million. This liquidity position is further enhanced by the fact that our
earliest scheduled debt maturity is in May 2012.
On February 18, 2011 RCI announced that it had issued notices to
redeem on March 21, 2011 all of the US$350 million principal amount of
7.875% Senior Notes due 2012 and all of the US$470 million principal
amount of 7.25% Senior Notes due 2012, in each case at the applicable
redemption price plus accrued interest to the date of redemption. In
each case, the respective redemption price will include a make whole
premium based on the present value of the remaining scheduled
payments as prescribed in the applicable indenture.
shelf Prospectuses
In November 2009, we filed two 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. Each of these shelf
prospectuses expire in December 2011. To date, we have issued an
aggregate $1.7 billion of debt securities in Canada pursuant to the
Cdn$4 billion shelf prospectus. The notice set forth in this paragraph
does not constitute an offer of any securities for sale.
July 1, 2010 corporate Reorganization
On June 30, 2010, Rogers Wireless Partnership changed its name to
Rogers Communications Partnership. On July 1, 2010, the Company
completed a reorganization which included the amalgamation of RCI
and Rogers Cable Communications Inc. (“RCCI”) and another of RCI’s
wholly-owned subsidiaries forming one amalgamated company under
the name Rogers Communications Inc. Following this amalgamation,
certain of the operating assets and operating liabilities of the
amalgamated company together with all of its employees were
transferred to RCP, subject to certain exceptions. The amalgamated
company did not transfer its interests or obligations in or under: equity
interests in any subsidiaries; long-term debt; derivative instruments;
real estate assets; and intercompany notes.
As a result of this reorganization, effective July 1, 2010, RCP holds
substantially all of the Company’s shared services and Cable and
Wireless operations. Reporting will continue to reflect the Cable and
Wireless services as separate operating segments.
In addition, RCCI ceased to be a separate legal entity on July 1, 2010 as a
result of the amalgamation and effective July 1, 2010 RCCI is no longer
a guarantor or obligor, as applicable, for the Company’s bank credit
facility, public debt and derivative instruments. RCI continues to be the
obligor in respect of each of these, while RCP remains either a
co-obligor or guarantor, as applicable, for the public debt and a
guarantor for the bank credit facility and Derivatives. The Company’s
respective obligations under the bank credit facility, the public debt
and the derivative instruments continue to rank pari passu on an
unsecured basis.
There has been no impact on Media as a result of this reorganization.
normal course issuer Bid
On February 17, 2010, we announced that the Toronto Stock Exchange
had 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 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.
In 2010, we purchased an aggregate 37,080,906 Class B Non-Voting
shares for an aggregate purchase price of $1,312 million. Of these
shares, 14,480,000 were purchased pursuant to private agreements
between RCI and arm’s length third party sellers for an aggregate
purchase price of $482 million. These purchases were made under an
issuer bid exemption order issued by the Ontario Securities Commission
and are included in calculating the number of Class B Non-Voting shares
that RCI may purchase pursuant to the NCIB.
In 2009, we purchased an aggregate 43,776,200 Class B Non-Voting
shares for an aggregate purchase price of $1,347 million. Of these
shares, 1,051,000 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. These purchases were made under an issuer bid
exemption order issued by the Ontario Securities Commission and are
included in calculating the number of Class B Non-Voting shares that
RCI may purchase pursuant to the NCIB.
In February 2011, we announced that the Toronto Stock Exchange has
accepted a notice filed by RCI of our intention to renew our NCIB for
our Class B Non-Voting shares for a further one-year period
commencing February 22, 2011 and ending February 21, 2012, and that
during such one-year period we may purchase on the TSX up to the
lesser of 39.8 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 management considering market
conditions, stock prices, our cash position and other factors.
On February 22, 2011, we purchased for cancellation, pursuant to a
private agreement between the Company and an arm’s-length third
RoGeRs coMMUnications inc. 2010 annUal RePoRt 47
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
party, 1.4 million shares for an aggregate purchase price of $45 million.
The transaction 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 we may purchase pursuant to
the NCIB.
RCI’s senior unsecured debt to
be BBB, each with a Stable
outlook and assigned its BBB
rating to each of the 2040 Notes
and the 2020 Notes.
RATIO OF ADJUSTED OPERATING
PROFIT TO INTEREST
7.1x
6.8x
7.0x
investment in cogeco cable inc. and cogeco inc.
In November 2010, we acquired additional 892,250 subordinate voting
shares of Cogeco Cable Inc. and 946,090 subordinate voting shares of
Cogeco Inc. for an aggregate purchase price of $75 million. These
purchases were made for investment purposes.
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 2011. At December 31, 2010, there were no financial
leverage covenants in effect other than those pursuant to our bank
credit facility (see Note 14(a) to the 2010 Audited Consolidated Financial
Statements). Based on our most restrictive leverage covenants, we
would have had the capacity to issue up to approximately $18.1 billion
of additional long-term debt at December 31, 2010.
2011 cash Requirements
On a consolidated basis, we anticipate that we will generate a net cash
surplus in 2011 from cash generated from operations. We expect that
we will have sufficient capital resources to satisfy our cash funding
requirements in 2011, 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, 2010, there were no restrictions on the flow of funds
between subsidiary companies or 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, 2010, the required repayments on all long-term debt
in the next five years totalled $3,084 million, comprised of $816 million
principal repayments due in 2012, $348 million due in 2013, $1,094
million due in 2014 and $826 million due in 2015. The required principal
repayments due in 2012 consist of $468 million (US$470 million) 7.25%
Senior Notes and $348 million (US$350 million) 7.875% Senior Notes.
The required principal repayment due in 2013 is the $348 million
(US$350 million) 6.25% Senior Notes, as well as the maturity of the bank
credit facility, which at December 31, 2010 is undrawn. The required
principal repayments due in 2014 consist of $348 million (US$350
million) 5.50% Senior Notes and $746 million (US$750 million) 6.375%
Senior Notes. The required principal repayments due in 2015 consist of
$279 million (US$280 million) 6.75% Senior Notes and $547 million
(US$550 million) 7.50% Senior Notes.
Coincident with the maturity of our U.S. dollar-denominated long-term
debt, certain of our Derivatives also mature, the impact of which is not
included in the principal repayments noted above (See the section
entitled “Material Obligations Under Firm Contractual Agreements”).
credit Ratings
In August and September 2010, Moody’s Investors Service affirmed the
rating for RCI’s senior unsecured debt to be Baa2, with a Stable outlook
and assigned its Baa2 rating to each of the 2040 Notes and the
2020 Notes.
In August and September 2010, Standard & Poor’s Ratings Services
affirmed the corporate credit rating for RCI to be BBB and the rating for
48 RoGeRs coMMUnications inc. 2010 annUal RePoRt
In August and September 2010,
Fitch Ratings af firmed the
issuer default rating for RCI to
be BBB and the rating for RCI’s
senior unsecured debt to be
BBB, each with a Stable outlook
and assigned its BBB rating to
each of the 2040 Notes and the
2020 Notes.
2009
2009
2008
2008
2010
2010
Credit ratings are intended to
provide inves tor s 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 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
As disclosed in Note 17 to our 2010 Audited Consolidated Financial
Statements, our pension plans had a deficiency of plan assets over
accrued obligations of $152 million and $8 million at our September 30
measurement date for the years ended December 31, 2010 and
December 31, 2009, respectively, related to funded plans, and a
deficiency of $37 million and $31 million at our September 30
measurement date for the years ended December 31, 2010 and
December 31, 2009, respectively, related to unfunded plans. Our
pension plans had a deficiency on a solvency basis at December 31,
2009, and are expected to have a deficiency on a solvency basis at
December 31, 2010. Consequently, in addition to our regular
contributions, we are making certain minimum monthly special
payments to eliminate the solvency deficiency. In 2010, the special
payments, including contributions associated with benefits paid from
the plans, totalled approximately $33 million. Our total estimated
annual funding requirements, which include both our regular
contributions and these special payments, are expected to increase
from $61 million in 2010 to approximately $70 million in 2011, 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 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.
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
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
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. The
Company did not make any additional lump-sum contributions to its
pension plans in the year ended December 31, 2010.
inteRest R ate anD FoReiGn eXcHanGe ManaGeMent
economic Hedge analysis
For the purposes of our discussion on the hedged portion of long-term
debt, we have used non-GAAP measures in that we include all
Derivatives, whether or not they qualify as hedges for accounting
purposes, since all such Derivatives are used for risk management
purposes only and are designated as a hedge of specific debt
instruments for economic purposes. As a result, the Canadian dollar
equivalent of U.S. dollar-denominated long-term debt reflects the
contracted foreign exchange rate for all of our Derivatives regardless of
qualifications for accounting purposes as a hedge.
As discussed above in the section entitled “Debt Redemptions and
Termination of Derivatives”, in August 2010, RCI redeemed all of its
US$490 million 9.625% Senior Notes due 2011 and terminated the
related US$500 million notional principal amount of Derivatives. As a
result, on December 31, 2010, 100% of our U.S. dollar-denominated
debt was hedged on an economic basis while 93% 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
(In millions of dollars, except percentages)
U.S. dollar-denominated long-term debt
Hedged with Derivatives
Hedged exchange rate
Percent hedged(1)
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
Dec ember 31, 2010
Dec ember 31, 20 09
Us $
Us $
cdn $
cdn $
5,050
5,050
1.1697
100.0%
9,607
9,607
100.0%
6.68%
US $
US $
Cdn $
Cdn $
5,540
5,540
1.2043
100.0%
9,307
9,307
100.0%
7.27%
(1) Pursuant to the requirements for hedge accounting under canadian institute of chartered accountants (“cica”) Handbook section 3865, Hedges, on December 31, 2010, Rci accounted for 93.1% of its
Derivatives as hedges against designated U.s. dollar-denominated debt. as a result, 93.1% 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.
FIXED VERSUS FLOATING DEBT COMPOSITION
(% at December 31)
2008
Fixed 93% Floating 7%
2009
Fixed 100% Floating 0%
2010
Fixed 100% Floating 0%
Mark-to-Market Value of Derivatives
In accordance with Canadian GAAP, we have recorded our Derivatives
using an estimated credit-adjusted mark-to-market valuation which 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 (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
instruments for which we owe 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, 2010 versus the unadjusted risk-free mark-to-market
value of Derivatives is illustrated in the table below. As at December 31,
2010, the credit-adjusted estimated net liability value of Rogers’
Derivatives portfolio was $900 million, which is $17 million less than the
unadjusted risk-free mark-to-market net liability value.
RoGeRs coMMUnications inc. 2010 annUal RePoRt 49
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
(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)
$
$
$
7
7
–
$
$
$
(924)
(907)
17
$
$
$
(917)
(900)
17
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 our 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.
Dec ember 31, 2010
Dec ember 3 1, 2 009
$
$
$
8,718
917
9,635
$
$
$
8,464
1,027
9,491
We believe that the non-GAAP financial measure of long-term debt
plus net derivative liabilities (assets) at the risk-free analytical value
provides the most relevant and practical measure of our outstanding
net debt-related obligations. We use this non-GAAP measure internally
to conduct valuation-related analysis and make capital structure-
related decisions and it is reviewed regularly by management. It is also
useful to investors and analysts in enabling them to analyze the
enterprise and equity value of the Company and to assess various
leverage ratios as performance measures. This non-GAAP measure does
not have a standardized meaning and should be viewed as a supplement
to, and not a substitute for, our results of operations or financial
position reported under Canadian and U.S. GAAP.
oUtstanDinG coMMon sHaRe Data
Set out below is RCI’s outstanding common share data as at
December 31, 2010 and at December 31, 2009. In the year ended
December 31, 2010 we repurchased an aggregate 37,080,906 Class B
Non-Voting shares for cancellation pursuant to our NCIB for total
purchase price of approximately $1,312 million. For additional
information, refer to Note 18 to our 2010 Audited Consolidated
Financial Statements.
Common Shares(1)
Class A Voting
Class B Non-Voting
Total Common Shares
Options to purchase Class B Non-Voting shares
Outstanding options
Outstanding options exercisable
Dec ember 31, 2010
Dec ember 31, 20 09
112,462,014
443,072,044
555,534,058
11,841,680
6,415,933
112,462,014
479,948,041
592,410,055
13,467,096
8,149,361
(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.
50 RoGeRs coMMUnications inc. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
DiViDenDs on Rci eQUit Y secURities
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 21, 2008
April 29, 2008
August 19, 2008
October 28, 2008
February 17, 2009
April 29, 2009
August 20, 2009
October 27, 2009
February 16, 2010
April 29, 2010
August 18, 2010
October 26, 2010
Record date
March 6, 2008
May 13, 2008
September 3, 2008
November 25, 2008
March 6, 2009
May 15, 2009
September 9, 2009
November 20, 2009
March 5, 2010
May 14, 2010
September 9, 2010
November 18, 2010
Payment date
April 1, 2008
July 2, 2008
October 1, 2008
January 2, 2009
April 1, 2009
July 2, 2009
October 1, 2009
January 2, 2010
April 1, 2010
July 2, 2010
October 1, 2010
January 4, 2011
Dividend
per share
Dividends paid
(In millions)
$
$
$
$
$
$
$
$
$
$
$
$
0.25
0.25
0.25
0.25
0.29
0.29
0.29
0.29
0.32
0.32
0.32
0.32
$
$
$
$
$
$
$
$
$
$
$
$
160
160
159
159
184
184
177
175
188
187
184
179
In February 2011, the Board adopted a dividend policy that increased
the annualized dividend rate from $1.28 to $1.42 per Class A Voting and
Class B Non-Voting share effective immediately to be paid in quarterly
amounts of $0.355 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 15, 2011, the Board declared a quarterly
dividend totalling $0.355 per share on each of its outstanding Class A
Voting and Class B Non-Voting shares, such dividend to be paid on April
1, 2011, to shareholders of record on March 18, 2011, and is the first
quarterly dividend to reflect the newly increased $1.42 per share annual
dividend level.
Dividend Reinvestment Plan (“DRiP”)
On October 26, 2010, the Rogers’ Board of Directors approved the DRIP
effective November 1, 2010. The DRIP enables eligible shareholders to
have all or a portion of their regular quarterly cash dividends
automatically reinvested in additional Class B Non-Voting shares of
Rogers’ common stock. No commissions, service charges or brokerage
fees will be payable by Plan participants in connection with shares
purchased under the DRIP.
Shareholders who elect to participate see all or a portion of their
quarterly dividends reinvested in additional Class B Non-Voting shares
of Rogers at the average market price, as described in the DRIP Plan
Document, with respect to the applicable dividend payment date.
In February 2010, the Board adopted a dividend policy that increased
the annualized dividend rate from
$1.16 to $1.28 per Class A Voting
and Class B Non-Voting share
effective with the next quarterly
dividend.
ANNUALIZED DIVIDENDS
PER SHARE AT YEAR END
$1.28
$1.16
$1.00
In Februar y 20 09, the Board
adopted a dividend policy that
increased the annualized dividend
rate from $1.00 to $1.16 per Class
A Voting and Class B Non-Voting
share effective with the next
quarterly dividend.
In Januar y 20 0 8 , the Board
approved an increase in the
annualized dividend from $0.50 to
$1.00 per Class A Voting and Class
B Non-Voting share effective with
the next quarterly dividend.
CASH RETURNED TO SHAREHOLDERS
(In millions of dollars)
$2,104
Share buybacks: $1,312
2008
2008
2009
2009
201 0
2010
2010
Dividends: $734
Stock option buybacks: $58
RoGeRs coMMUnications inc. 2010 annUal RePoRt 51
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
Computershare Trust Company of Canada is the Plan Agent and acts on
behalf of participants to invest eligible dividends. Registered
shareholders of Rogers wishing to participate in the DRIP can find the
full text of the DRIP Plan Document and enrolment forms at
computershare.com/rogers. Non-registered beneficial shareholders are
advised to contact their broker, investment dealer or other financial
intermediary for details on how to participate in the DRIP.
While Rogers, at its discretion, may fund the quarterly DRIP share
requirements with either Class B Non-Voting shares acquired on the
Canadian open market or issued by Rogers, our current intention is that
such shares will, for the foreseeable future, be acquired on the
Canadian open market by the DRIP Agent.
Quarterly dividends are only payable as and when declared by Rogers’
Board of Directors and there is no entitlement to any dividend prior
thereto. Before enrolling, shareholders are advised to read the
complete text of the DRIP and to consult their financial advisors
regarding their unique investment profile and tax situation. Only
Canadian and U.S. residents can participate in the DRIP.
coMMitMents anD otHeR contR ac tUal oBliGations
contractual obligations
Our material obligations under firm contractual arrangements are
summarized below at December 31, 2010. See also Notes 14, 15 and 23
to the 2010 Audited Consolidated Financial Statements.
Material obligations Under Firm contractual arrangements
(In millions of dollars)
Long-term debt(1)
Derivative instruments(2)
Operating leases
Player contracts
Purchase obligations(3)
Pension obligation(4)
Other long-term liabilities
$
–
–
130
53
572
70
–
Less Than 1 Year
1–3 Years
4–5 Years
$
1,164
$
1,920
After 5 Years
$
5,639
Total
$
8,723
406
158
34
532
–
65
418
73
19
338
–
20
60
43
9
240
–
39
884
404
115
1,682
70
124
Total
$
825
$
2,359
$
2,788
$
6,030
$
12,002
(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 2011. contributions for the year ended December 31, 2012 and beyond cannot be reasonably estimated as they will depend on future economic
conditions and may be impacted by future government legislation.
oFF-Bal ance sHeet aRR anGeMents
4. oPeRatinG enViRonMent
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 2010 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 the section
entitled “Contractual Obligations” above and Note 23 to the 2010
Audited Consolidated Financial Statements.
Additional discussion of regulatory matters 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)
(c o ll e c t i v e l y, “ I n d u s t r y C a n a d a” ), t h e C R TC u n d e r t h e
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.
52 RoGeRs coMMUnications inc. 2010 annUal RePoRt
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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 Act (Canada) (the “Radiocommunication
Act”) 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.
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
C a n a d i a n . T h e s a m e r e s t r i c ti o n s a r e co n t a i n e d
i n t h e
Radiocommunication Act and associated regulations.
In its March 2010 Budget, the federal government announced its
intention to remove the existing restrictions on foreign ownership of
Canadian satellites (subsequently passed into law in the fall of 2010).
The government also announced that it would review the foreign
ownership restrictions currently applied to telecommunications
companies. In June 2010, Industry Canada released its consultation
paper on this matter asking for comments by July 2010 on
three options:
1. Increasing the limit for direct foreign investment in broadcasting
and telecommunications common carriers to 49 percent;
2. Lifting restrictions on telecommunications common carriers with a
10 percent market share or less, by revenue; or
3. Removing telecommunications restrictions completely.
Rogers filed its comments in July 2010 submitting that of the three
options only option 1 was acceptable because options 2 and 3 fail to
recognize the converged market for communications services in
Canada. The attempt made in Options 2 and 3 to limit the reforms to
“pure telecommunications” networks is out of step with the reality of
broadband markets and inconsistent with the government’s attempt to
implement a digital economy strategy for Canada.
In November 2010, Industry Canada announced that the government’s
deliberations on potential foreign ownership changes would be
coordinated with the spring 2011 consultation on the appropriate
structure of the 700 MHz spectrum auction.
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.
2010 legislation
Bill C-28, 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 into law on
December 15, 2010.
The Bill addresses unsolicited commercial electronic mail (spam) by
prohibiting the sending of commercial electronic messages without
consent. It prohibits detrimental practices to electronic commerce,
protects the integrity of transmission data and prohibits the installation
of computer programs without consent in the course of commercial
activity. In addition, it prohibits false or misleading commercial
representations online and prohibits the collection of personal
information via unlawful access to computer systems and the
unauthorized compiling or supplying of lists of electronic addresses. It
also provides for a private right of action for businesses and consumers
with extended liability. It allows the CRTC and the Competition Tribunal
of Canada to impose administrative monetary penalties on those who
violate the respective Acts and allows for the international sharing of
information and evidence to pursue spammers outside of Canada with
our global partners.
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 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 came into force on June 30, 2010.
Proposed legislation
Bill C-22, An Act respecting the mandatory reporting of Internet child
pornography by persons who provide an Internet service, was introduced in
the House of Commons in May 2010. Bill C-22 is intended to fight
Internet child pornography by requiring Internet service providers
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(“ISPs”) and other persons providing Internet services (e.g., Facebook,
Google and Hotmail) to report any incident of child pornography. This
requirement includes the following: if a person providing Internet
services is advised of an Internet address where child pornography may
be available, the person must report that address to the organization
designated by the regulations. If a person has reasonable grounds to
believe that the Internet services operated by that person are being
used to transmit child pornography, the person must notify the police
and preserve the computer data. Bill C-22 has been passed by the House
of Commons but has not been enacted.
Bill C-32, An Act to amend the Copyright Act (Copyright Modernization Act),
was introduced in the House of Commons in June 2010, and is currently
being considered by the Legislative Committee on Bill C-32. Bill C-32 is
intended to update the rights and protections of copyright owners to
better address the challenges and opportunities of the Internet. It
would clarify Internet service providers’ liability and would require ISPs
to use a “notice and notice” regime whereby notices alleging copyright
infringement sent to ISPs would be forwarded in turn to the customers.
The bill provides for cost recovery for notice and notice. It would make
Internet sites designed to enable illegal file sharing a violation of
copyright. The bill would also legalize forms of copying for time shifting
television programs currently used by Cable’s customers such as PVRs,
and would permit cable operators to offer customers network PVR
technology services. The bill would eliminate the current obligation of
broadcasters to pay for copies made for the purpose of broadcasting.
Bill C-51, 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), was introduced in the House of Commons in November
2010. 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 and new production orders to compel the
production of data relating to the transmission of communications and
the location of transactions, individuals or things.
Bill C-52, An Act regulating telecommunications facilities to support
investigations was also introduced in November 2010. This Bill requires
telecommunications service providers to put in place and maintain
certain capabilities that facilitate the lawful interception of information
transmitted by telecommunications and to provide basic information
about their subscribers to the Royal Canadian Mounted Police, the
Canadian Security Intelligence Ser vice, the Commissioner of
Competition and any police service constituted under the laws of
a province.
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.
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. The study has not been released and the consultation has
not occurred. This review excludes the spectrum acquired through the
AWS auction in 2008. However, in November 2010, the Minister of
54 RoGeRs coMMUnications inc. 2010 annUal RePoRt
Industry announced that Industry Canada would freeze the spectrum
fees at current levels, for cellular and PCS spectrum due for renewal in
March 2011. The duration of the freeze is not known. It also remains
unknown at this point whether Industry Canada will apply any
spectrum fees related to the 2001 PCS auction spectrum licences that
expire in June 2011 or maintain the status quo. See also the section
entitled “Spectrum Fees May Increase With the Renewal of Cellular and
PCS Spectrum Licences”.
In November 2010, through the release of its consultation paper,
Industry Canada initiated a consultation on a policy and technical
framework to auction spectrum in the 700 MHz band. Comments are
sought on general policy considerations related to commercial mobile
broadband spectrum use, competition issues and on the use of the 700
MHz band for commercial mobile services. In addition, Industry Canada
is seeking comments on spectrum use for public safety broadband
applications. Industry Canada has stated that the 700 MHz auction is
anticipated to occur in late 2012.
Noting that the Department will consult on licensing measures for the
band 2500–2690 MHz in a separate consultation, this consultation
paper also seeks views on whether or not government measures are
required to promote competition, in the context of spectrum being
made available in both bands.
consultation on transition to Broadband Radio service (“BRs”) in
the Band 2500–2690 MHz
In June 2010, Industry Canada released its Decisions on the transition to
BRS in the 2500 –2690 MHz band and initiated a consultation on
changes related to the band plan. The decision established a firm date
of March 31, 2011 for transitioning to BRS licences. The decision also set
out the eligibility criteria that would be used for issuing BRS licence and
the geographic service areas used for BRS licences. Certain conditions
of licence were also established. The consultation examined issues such
as the band plan to be adopted for BRS, the mapping of incumbent
licencees into the new band plan and the timing of the migration of
incumbents to the new band plan. The future consultation will also
consider the policy and licencing frameworks for the auction of
available spectrum in this band.
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.
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. Rogers has
entered into roaming agreements with a number of new entrants at
commercially negotiated rates. 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
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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. Rogers has reached
commercial agreements for antenna tower and site sharing with several
new entrants.
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.
Globalive Communications Corp. (“Globalive”) filed a complaint with
the CRTC in October 2010 against Rogers and the chatr brand, claiming
that Rogers was providing an undue preference to itself in providing
our chatr brand with seamless handoff for roaming. This type of
roaming was not mandated in the Industry Canada conditions of
licence. The record of the proceeding closed late in November 2010,
and the CRTC indicated that they would provide an interim or final
decision on this matter within four months.
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
along with wireline issues described below in the section entitled “Basic
Telecommunications Services and Other Matters Proceeding” under
“Cable Regulation and Regulatory Developments”. The wireless issue
was severed from the wireline issues and in a June 2010 Decision the
Commission determined it will now apply existing Sections 24, 27(2),
27(3) and 27(4) of the Telecommunications Act to mobile data services.
These services will also be subject to the Internet Traffic Management
Practices (“ITMP”) framework established last year by the CRTC.
Federal court Decision overturning Governor in council Decision
that Ruled Globalive eligible to operate in canada
On February 4, 2011, the Federal Court overturned the Governor in
Council Decision P.C 2009-2008 in which the Governor in Council had
varied the CRTC Decision that ruled Globalive was in fact controlled by a
non - C anadian and therefore
ineligible to op erate a s a
telecommunications common carrier by determining the opposite, that
is, that Globalive was not controlled in fact by a non-Canadian and thus
was eligible to operate as a telecommunications common carrier. The
Federal Court found that the Governor in Council Decision was based on
errors of law and should be quashed. The Court stayed its judgment for a
period of 45 days to permit Globalive to pursue any appeals and remedies
as may be available. On February 15, 2011, Industry Canada Minister
Clement announced the federal government’s intention to appeal this
Court Decision. On February 17, 2011, Globalive filed a Notice of Appeal
with the Federal Court of Appeal and filed an application for an
extension of the 45 day stay issued by the Federal Court.
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 October 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. 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. The new rate is equal to approximately two-
thirds the old rate. In Broadcasting Regulatory Policy CRTC 2010-476,
released in July 2010, the CRTC announced that, with Treasury Board’s
approval, it has amended the Broadcasting Licence Fee Regulations,
1997 relating to Part II licence fees in the manner proposed by the
government recommendation described above. The new regulations
applied to 2010 Part II fees.
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 was recorded as a credit within adjusted
operating profit.
new Media Proceeding Follow-up
In June 2009, the CRTC released its decision on its new media
proceeding. In that Decision, the CRTC 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 of Appeal the question of whether an
ISP, when it distributes broadcasting, is subject to the Broadcasting Act.
The Court released its Decision in July 2010 ruling that ISPs do not act as
broadcasters by offering connectivity to television and movie websites.
Therefore the Court concluded they cannot be regulated under the
Broadcasting Act.
Review of Broadcasting Regulations including Fee-for-carriage and
Distant signal Fees
In March 2010, in Broadcasting Decision 2010-167, the CRTC made the
determination to implement a “value for signal” (“VFS”) regime that is
similar to the U.S. “retransmission consent regime”. Since the CRTC
received conflicting legal opinions as to whether it has the authority to
implement such a regime, it has asked the Federal Court of Appeal for a
ruling on an expedited basis. The Federal Court heard parties’
arguments in mid-September and a decision is pending. Implementation
of the regime is on hold pending the ruling.
Under this VFS regime, the proposed market-based negotiations will
apply only to licencees of private local TV stations, thus excluding the
CBC. Broadcasters will choose on a station-by-station basis whether to:
(1) negotiate with broadcasting distribution undertakings (“BDU”s) for
the value of their signals; or (2) continue under the existing regulatory
framework. This choice will be valid for a fixed term of three years.
Those who choose negotiation would forego: (i) mandator y
distribution; (ii) priority channel placement; and (iii) simultaneous
substitution. However, if unsuccessful after the CRTC-imposed timeline
for negotiations, broadcasters can require a distributor to blackout
their signal and the programs they have purchased the rights to that
are airing on U.S. (i.e. NBC, CBS, FOX and ABC) or other Canadian
services. Negotiated compensation could be cash or a combination of
cash and other consideration (e.g. channel placement, promotion,
marketing). The CRTC will only arbitrate should both parties request it.
In March 2010, the CRTC also released its report requested in the fall of
2009 by the Government of Canada Order-in-Council through the
Minister of Canadian Heritage and Official Languages on the
implications of implementing a compensation regime for the value of
RoGeRs coMMUnications inc. 2010 annUal RePoRt 55
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local television signals, more commonly known as fee-for-carriage. The
report simply referred to the conclusions and policy laid out in Decision
2010-167 in regard to the impact of any VFS regime on the various
sectors of the communications industry.
The Report did recommend that the Government amend the Canadian
Radio-television and Telecommunications Commission Act to clarify that
the Commission has the power to award interim or final costs and
incidentals to participants representing the views of consumers in
broadcasting proceedings before it. The report also recommended that
the Government issue an Order in Council enjoining the CRTC to seek
establishment by BDUs of an independent self-regulatory body to
address complaints regarding broadcasting distribution services, and
that this self-regulatory body work with the Commissioner for
Complaints for Telecommunications Services to provide consumers with
a single point of contact for consumer complaints. Finally, the report
made a number of recommendations regarding government funding of
consumer subsidies for set-top boxes and of an education campaign
regarding the digital transition. There is no certainty of implementation
of these recommendations.
third Party isP access to cable Plant
In August 2010, the CRTC released Decision 2010-632 addressing
Internet wholesale services for both ILECs and cable companies, thereby
concluding the proceeding initiated by Telecom Notice of Consultation
2009-261. The Commission denied the request 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. The Decision generally maintained the regulated access rules
and arrangements in place since 2000.
cRtc Review of Wholesale internet service Pricing and
Usage-based Billing
In February 2011, the CRTC initiated a proceeding to review its previous
decisions on the pricing of wholesale Internet services whereby
reselling ISPs would be subject to additional charges when their end-
users exceeded specific bandwidth caps. Final comments are due by
April 29, 2011, after which a decision will be made as to whether an
online consultation and/or oral public hearing is required as part of
further processes on this matter.
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 also re-examined the local competition and wireless
number portability frameworks in the territories of the small incumbent
local exchange carriers. The proceeding included a public consultation,
which took place during the fall. A decision is expected in the first half
of 2011.
MeDia ReGUl ation anD ReGUl atoRY DeVeloPMents
commercial Radio copyright tariffs
The Copyright Board released its consolidated radio copyright tariff
decision in July 2010. The Board certified a single tariff for commercial
radio valued at a total of 8.95% of revenue. This represents an increase
of 1.65 basis points from the previous marginal rate of 7.3% of revenue.
licence Renewals
In December 2010, the CRTC announced its proceeding to consider the
group-based (conventional and discretionary specialty) licence renewal
applications of major media companies including Rogers Media. This
represents the first time the CRTC will impose licence commitments
relating to Canadian program expenditures and exhibition on a group
basis. The Rogers group will include the OMNI and Citytv conventional
television stations and specialty services G4 Canada, Outdoor Life
Network and The Biography Channel (Canada). The hearing will be held
in April 2011.
56 RoGeRs coMMUnications inc. 2010 annUal RePoRt
coMPetition in oUR BUsinesses
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, 2010, the highly competitive Canadian wireless
industry had approximately 25 million subscribers. Competition for
wireless subscribers is based on price, quality of service, scope of
services, service coverage, 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, the new entrants
described further below, and two large regional players, resellers such
as Primus, 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.
Through the 2008 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. Globalive Wireless Management Corp. under the brand name
WIND, launched service in December 2009 in Toronto and Calgary with
expansion to Vancouver, Ottawa, Edmonton and Hamilton in 2010.
Quebecor Media Inc. launched service in Quebec in August 2010. Public
Mobile Canada Inc. launched service in the Toronto-Montreal corridor
in early 2010 in Ontario and Quebec. DAVE Wireless Inc., under the
brand name Mobilicity, launched in Toronto in the spring of 2010 with
subsequent expansion in Vancouver, Ottawa and Edmonton later in
2010. In January 2011, Shaw Communications Inc. announced plans to
launch wireless service in Western Canada early in 2012. 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 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 Canada and TELUS HSPA launches enabled 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 (previously Bell ExpressVu) and Star
Choice satellite services and telephone company IP TV services), and
satellite master antenna television, 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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Cable’s Internet access services compete generally with a number of
other 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, on-line-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 adver tising 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. New technologies, such as on-line web information
services, music downloading, MP3 players and on-line 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.
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. On -line 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 UnceRtainties aFFec tinG oUR BUsinesses
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
processes 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 Enterprise Risk Management Group supports the Audit Committee
and the Board’s responsibility for risk by facilitating Strategic Risk
Assessments. In addition, our Internal Audit Group conducts a fraud
risk assessment 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.
While having an Enterprise Risk Management methodology enables a
consistent and measurable approach to risk management, at Rogers we
also rely on the expertise of our management and employees to
identify risks and opportunities as well as implementing risk mitigation
strategies as required.
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
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. 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, 2010,
RoGeRs coMMUnications inc. 2010 annUal RePoRt 57
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private Rogers family holding companies controlled by the Rogers
Control Trust together owned approximately 90.9% of the outstanding
RCI Class A Voting Shares, which class is the only class of issued shares
carrying the right to vote in all circumstances, and approximately 9.0%
of the RCI Class B Non-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 the section
entitled “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 March 2010.
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 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. 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.
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.
58 RoGeRs coMMUnications inc. 2010 annUal RePoRt
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 complementar y 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 Growth 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,
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
there may not be sufficient consumer demand for these 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, increase churn 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 non-compliance with regulatory
standards, may lead to negative publicity, litigation and 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, certain information technology functions, and
invoice printing. 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.
our Businesses are complex.
Our businesses, technologies, processes and systems are operationally
complex. A failure to execute properly may lead to negative customer
experiences, resulting in increased churn and loss of revenue.
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 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 911 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.
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. The “opt-in” nature of the class was later
confirmed by the Saskatchewan Court of Appeal. As a national, “opt-in”
class action, affected customers outside Saskatchewan have to take
specific steps to participate in the proceeding. In February 2008, our
motion to stay the proceeding based on the arbitration clause in our
wireless service agreements was granted 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 August 2009, counsel for the plaintiffs commenced a second
proceeding under the Class Actions Act (Saskatchewan) asserting the
same claims as the original proceeding. This second proceeding was
ordered conditionally stayed in December 2009 on the basis that it was
an abuse of process.
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Our appeal of the 2007 certification decision was heard in December
2010 and we await the decision. 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.
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.
tariff increases could adversely affect Results of operations.
Copyright tariff pressures continue to affect our services. If fees were
to increase, such increases could adversely affect our results of
operations.
Risks anD UnceRtainties sPeciFic to WiReless
spectrum Fees May increase With the Renewal of cellular and
Pcs spectrum licences.
In November 2010, the Minister of Industry announced that Industry
Canada would freeze the spectrum fees at current levels for cellular and
PCS spectrum due for renewal in March 2011. The duration of the freeze
is not known. It also remains unknown at this point whether Industry
Canada will apply any spectrum fees related to the 2001 PCS Auction
spectrum licences that expire in June 2011 or maintain the status quo.
Changes to spectrum fees could significantly increase Rogers’ payments
and as a result, could materially reduce our operating profit. The timing
of fee increases (if any) are unknown but increases may impact our
current accounting policies under which the spectrum licences are
treated as an indefinite life intangible asset and are not amortized.
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, or was significantly restricted in its
ability, 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.
In June 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
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
significantly. See the section entitled “Restrictions on Non-Canadian
Ownership and Control” under “Government Regulation and
Regulatory Developments”.
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 with Wireless. 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 continues to indicate 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. During 2010, Yukon, New Brunswick
and Alberta passed legislation. The effective date for the latter two
provinces has not been set, but is expected to be in mid-2011. The only
Canadian jurisdictions currently not having this type of legislation are
Nunavut and the Northwest Territories.
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.
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
60 RoGeRs coMMUnications inc. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
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 UnceRtainties sPeciFic 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.
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’s Business telephony operations are Highly Dependent on
Facilities and services of the ilecs.
Cable’s out-of-territory business telephony operations are highly
dependent on the availability of facilities/services 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.
An imposition of a VFS regime would increase Rogers’ costs. See the
section entitled “Review of Broadcasting Regulations including Fee-
for-Carriage and Distant Signal Fees” under “Government Regulation
and Regulatory Developments”.
Risks anD UnceRtainties sPeciFic to MeDia
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, Sportsnet ONE, G4 Canada, The
Biography Channel (Canada) and Outdoor Life Network.
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 2010. 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 13% of Publishing’s operating expenses in 2010.
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 addition of new players or the termination and release of Blue Jays
player contracts before the end of the contract term could have an
adverse effect on Media’s results.
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5. accoUntinG Policies anD non-GaaP MeasURes
keY PeRFoRMance inDic atoRs anD non - 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 subscribers, 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, 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
62 RoGeRs coMMUnications inc. 2010 annUal RePoRt
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cash-settlement feature related to employee stock options; (ii) stock-
based compensation expense (recover y); (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 CRTC Part II fees related to prior periods; (vi) contract
termination fees; (vii) settlement of pension obligations; and (viii) other
items (net). 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 var y 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 compare 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.
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 “Supplementar y Information: Non- GA AP
Calculations”.
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 2010 Audited
Consolidated Financial Statements and Notes thereto, which have been
prepared in accordance with Canadian GAAP. The Audit Committee of
the Board reviews our accounting policies, reviews all quarterly and
annual filings, and recommends approval of our annual financial
statements to the Board. For a detailed discussion of our accounting
policies, see Note 2 to the 2010 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
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;
• Revenue from airtime, data services, 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;
• 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 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, is featured in our publications, or is
displayed on our digital properties;
• 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
RoGeRs coMMUnications inc. 2010 annUal RePoRt 63
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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.
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.
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
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.
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 2010 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.
Determining the Fair Values of assets acquired and
liabilities assumed
The determination of the fair values of the tangible and intangible
assets acquired and the liabilities assumed in an acquisition involves
considerable judgment. Among other things, the determination of
these fair values involves the use of discounted cash flow analyses,
estimated future margins, estimated future subscribers, estimated
future royalty rates and the use of information available in the financial
markets. Refer to Note 4 of the 2010 Audited Consolidated Financial
Statements for acquisitions made during 2010. 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.
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, Aurora Cable and channel m in 2008,
K-Rock and Outdoor Life Network in 2009, and Blink, Cityfone,
Kincardine and BV! Media in 2010, 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.
64 RoGeRs coMMUnications inc. 2010 annUal RePoRt
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impact of changes in estimated Useful lives
(In millions of dollars)
Brand names
Customer relationships
Roaming agreements
Marketing agreement
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
2010, we recorded an impairment charge of $6 million related to a radio
station licence, due to the weakening of advertising revenues in a local
market. During 2009, we recorded an impairment charge of $18 million
related to certain of our broadcast assets, due to the 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 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, 2010, and as detailed in Note 7 to the
2010 Audited Consolidated Financial Statements, we have non-capital
income tax loss carryforwards of approximately $188 million. Our net
future income tax liability, prior to valuation allowances, totals
approximately $470 million at December 31, 2010 (2009 – liability of
$125 million). The recorded valuation allowance of $47 million reduces
future income tax assets to $323 million, which the Company believes it
is more likely than not to realize.
Amortization
Period
5–20 years
2–5 years
12 years
5 years
Increase in Net Income
if Life Increased by 1 year
Decrease in Net Income
if Life Decreased by 1 year
$
$
$
$
1
5
3
2
$
$
$
$
(1)
(10)
(4)
(3)
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.
Pension Plans
When accounting for defined benefit pension plans, assumptions are
made in determining the valuation of benefit obligations 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. The Company did not
make any additional lump sum contributions to its pension plans in the
year ended December 31, 2010.
The following table illustrates the increase (decrease) in the accrued
benefit obligation and pension expense for changes in these primary
assumptions and estimates:
RoGeRs coMMUnications inc. 2010 annUal RePoRt 65
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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 2010
Pension Expense
Fiscal 2010
$
$
5.60%
(137)
165
3.00%
7
(7)
N/A
N/A
N/A
$
$
$
7.20%
(15)
18
3.00%
1
(1)
7.00%
(5)
5
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 accoUntinG stanDaRDs
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, establishes standards for the
preparation of consolidated financial statements. CICA 1602 establishes
guidance for the treatment of non-controlling interests. These new
standards are effective for our interim and annual consolidated
financial statements commencing on January 1, 2011 with earlier
adoption permitted as of the beginning of a fiscal year. We have chosen
to adopt these three sections on January 1, 2010. CICA 1582 and CICA
1601 were applied prospectively, while the presentation requirements
of CICA 1602 were applied retrospectively. The adoption of the
standards had no material impact on previously reported amounts.
Recent c anaDian accoUntinG PRonoUnceMents
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 quarterly financial information in accordance with IFRS
including comparative figures for 2010.
The table below illustrates key elements of our conversion plan, our
major milestones and current status. Our conversion plan is organized
in phases over time and by area. We have substantially completed all
per our detailed project plan as follows:
66 RoGeRs coMMUnications inc. 2010 annUal RePoRt
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Activity
Milestones
Status
Financial reporting:
• Assessment of accounting and
reporting differences.
• Selection of IFRS accounting policies
and IFRS 1 elections.
• Senior management and Audit
Committee sign-off for policy
recommendations and IFRS 1 elections
during 2009.
• Senior management and Audit
Committee approval obtained
for IFRS accounting policies and
IFRS 1 elections.
• Development of IFRS financial
statement format, including disclosures.
Committee sign-off on financial
statement format during 2010.
recommendations of new or amended
IFRS standards issued ongoing.
• Senior management and Audit
• Monitoring of impacts on policy
• Quantification of effects of conversion.
• Final quantification of estimated
• Preliminary IFRS financial statement
conversion effects on 2010
comparative period by Q1 2011.
format and disclosures drafted.
• Expected impacts of conversion
determined on opening balance
sheet and 2010 comparative
period completed.
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.
• Systems, process and internal control
changes implemented and training
complete in time for parallel run in
2010.
• Systems and process changes
completed and operational for
parallel run. Internal reporting
changes complete.
• Testing of internal controls for 2010
comparatives completed by Q1 2011.
• Internal controls for impacted
processes and transition updated and
operational for parallel run.
• Training on new systems, processes
and internal controls completed.
• Contracts updated/renegotiated by
the end of 2010.
• Communication at all levels
• Assessment of impacts on other
areas of the business completed.
No significant impacts noted.
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 our business.
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. We are required to apply
all IFRS standards that are effective at our first annual reporting date
under IFRS, i.e. December 31, 2011. While the International Accounting
Standards Board’s (“IASB”) most recent project plan does not anticipate
any further changes to IFRS between now and December 31, 2011, the
IASB may, at its discretion, implement changes to IFRS with an effective
date of December 31, 2011 or earlier. Such changes, if implemented,
could give rise to transitional adjustments that differ from those
detailed below.
RoGeRs coMMUnications inc. 2010 annUal RePoRt 67
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impact of conversion
The table below summarizes our current estimated impact of conversion
to IFRS on our key financial highlights for the year ended
December 31, 2010.
Year ended December 31, 2010
(In millions of dollars, except per share amounts)
IFRS
Canadian GAAP
% Chg
$
12,142
$
12,186
Operating revenue
Operating profit(1)
Net income
Basic net income per share
Comprehensive income
As adjusted(2)
Operating profit(1)
Net income
Basic net income per share
December 31, 2010
Total assets
Total liabilities
Shareholders’ equity
4,531
1,502
2.61
1,647
4,635
1,703
2.96
IFRS
17,028
13,268
3,760
$
$
$
$
$
$
$
4,552
1,528
2.65
1,729
4,653
1,707
2.96
$
$
$
$
–
–
(2)
(2)
(5)
–
–
–
Canadian GAAP
% Chg
$
$
$
17,330
13,371
3,959
(2)
(1)
(5)
(1) operating profit should not be considered as a substitute or alternative for operating income or net income, in each case determined in accordance with both canadian GaaP and iFRs.
(2) 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 expense (recovery); (ii) integration and restructuring expenses; (iii) other items (net); and (iv)
in respect of net income and net income per share, loss on the repayment of long-term debt, debt issuance costs, impairment losses on goodwill, intangible assets and other long-term assets, and the related
income tax impact of the above amounts, and for iFRs only, amortization of deferred transaction costs.
cHanGes in accoUntinG Policies
As discussed above, the IASB, at its discretion, may 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 definitively
known. Consequently, our analysis and estimates of changes and policy
decisions have been made based on our current 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. See the section
entitled “Caution Regarding Forward-Looking Statements, Risk and
Assumptions”.
Set out below are the key areas where changes in accounting policies
are expected to impact our consolidated financial statements. The
individual amounts disclosed, which are only estimates based on
current expectations, are on a pre-tax basis and the tax impact of all
changes discussed on an overall basis. The list and comments should not
be regarded as a complete list of estimated changes that will result
from transition to IFRS and are intended to highlight those areas we
currently believe to be most significant.
share-Based Payments
Differences from existing Canadian GAAP: IFRS 2, Share-Based Payments,
requires that cash-settled stock-based payments to employees be
measured (both initially and at each reporting date) based on fair
values of the awards, which are determined using an option pricing
model. Canadian GAAP requires that such payments be measured
based on intrinsic values of the awards, which are determined with
reference to the market price of the Company’s underlying shares. 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.
Expected impact: Per the requirements of IFRS 1, First-Time Adoption of
International Financial Reporting Standards (“IFRS 1”), this adjustment will
be recorded in opening retained earnings upon transition to IFRS. We
expect the impact of the change at January 1, 2010 will be to decrease
retained earnings by $15 million with a corresponding increase in
liabilities, split between current ($9 million) and long-term ($6 million).
Net income for the year ended December 31, 2010 is expected to
decrease by $3 million.
employee Benefits
Differences with existing Canadian GAAP: International Accounting
Standard (“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 estimated
average remaining service period of active employees under the plan.
All of the past service costs for our 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,
subsequent to the transition date. We intend to adopt the option
allowing the immediate recognition of actuarial gains and losses
directly in equity, with no impact on profit or loss.
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. Our current accounting policy is to measure the
defined benefit obligation and plan assets at September 30.
68 RoGeRs coMMUnications inc. 2010 annUal RePoRt
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Also, IAS 19 limits the amount that can be recognized as an asset on the
statement of financial position to the present value of available
contribution reductions or refunds plus unrecognized actuarial losses
and unrecognized past service costs. This restriction is expected to
apply to one of our pension plans at the date of transition further
reducing the pension asset.
Expected impact: We expect the impact of these changes at January 1,
2010 will be to decrease retained earnings by $174 million offset by a
decrease in other long-term assets of $121 million and an increase in
other long-term liabilities of $53 million. Net income for the year ended
December 31, 2010 is expected to increase by $5 million. Other
comprehensive income for the year ended December 31, 2010
is expected to decrease by $80 million, due to actuarial losses
being recognized.
Borrowing costs
Differences from existing Canadian GAAP: 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,
we elected the accounting policy choice to expense these costs as
incurred.
Expected impact: IFRS 1 provides an election that permits application
of the requirements of IAS 23 prospectively from the date of transition,
January 1, 2010; therefore there is no change to the opening IFRS
balance sheet. We expect net income for the year ended December 31,
2010 will increase by $3 million.
Fixed assets: componentization
Differences from existing Canadian GAAP: IAS 16, Property, Plant and
Equipment (“IAS 16”) requires an entity to identify the significant
component parts of its items of PP&E and depreciate those parts over
their respec tive useful lives. Canadian GA AP only requires
componentization to the extent practicable. We have identified a small
number of assets with significant component parts that were not
depreciated separately under Canadian GAAP.
Expected impact: Per the requirements of IFRS 1, this adjustment will
be recorded in opening retained earnings upon transition to IFRS. We
expect the impact of the change at January 1, 2010 will be to decrease
retained earnings by $11 million offset by a corresponding decrease in
property, plant & equipment. Net income for the year ended December
31, 2010 is expected to decrease by $2 million.
Joint Ventures
Differences from existing Canadian GAAP: IAS 31, Interests in Joint
Ventures (“IAS 31”), currently provides us 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 early 2011. 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 exist in IAS 31,
and require an entity to recognize its interest in a joint venture, using
the equity method. Consequently, we expect to adopt the equity
method upon transition to IFRS to minimize the impact of the new
standard in the post transition period. The impact of using the equity
method is anticipated to result in reductions of the opening balances
for current assets, property, plant and equipment, intangible assets
and current liabilities with an offsetting increase in investments, with
no impact to the opening retained earnings balance.
In accordance with Canadian GAAP, the Company had previously
recorded a deferred gain in relation to the contribution of certain
assets to one of its joint ventures. The portion of this gain relating to
the other venturer’s interest in the joint venture is being amortized to
income over a seven-year period. Under IFRS, the Company would have
recognized the portion of the gain relating to the other venturer’s
interest in the joint venture fully into income at the time the
contribution was made.
Expected impact: While the change from proportionate consolidation
to equity accounting for the Company’s joint ventures will not impact
opening retained earnings, nor will it impact net income, it is expected
to decrease operating revenue by $41 million for the year ended
December 31, 2010. The change is also expected to decrease operating
profit and adjusted operating profit by $22 million for the year ended
December 31, 2010. Also, the treatment of the deferred gain associated
with the contribution of certain assets to one of the Company’s joint
ventures is expected to result in an increase in retained earnings at
January 1, 2010 of $15 million with an offsetting decrease to other
long-term liabilities. As a result, net income is expected to decrease by
approximately $4 million for the year ended December 31, 2010.
Financial instruments: transaction costs
Differences from existing Canadian GAAP: 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 GA AP these costs are recognized
immediately in net income.
Expected impact: Per the requirements of IFRS 1, this adjustment will
be recorded in opening retained earnings upon transition to IFRS. We
expect the impact of the change at January 1, 2010 will be to increase
retained earnings by $58 million with an offsetting decrease to long-
term debt. Net income for the year ended December 31, 2010 is
expected to decrease by $3 million.
Financial instruments: Hedge accounting
Differences from existing Canadian GAAP: When assessing hedge
effectiveness under IAS 39, we will be required to include in the test
the risk that the parties to the hedging instrument will default by
failing to make payment. Under Canadian GAAP, we elected not to
include credit risk in the hedge effectiveness tests. Upon transition to
IFRS, we intend to continue to apply hedge accounting to all of our
hedging arrangements for which Canadian GAAP hedge accounting is
applied and that meet the IFRS hedge accounting criteria, including
passing the revised effectiveness tests.
Expected impact: While the change will not impact overall
shareholders’ equity, it is expected to increase retained earnings by $7
million and correspondingly decrease the hedging equity reserve by $7
million at January 1, 2010. Net income for the year ended December 31,
2010 is expected to decrease by $6 million. The change to net income is
offset by a corresponding impact to other comprehensive income.
customer loyalty Programs
Differences from existing Canadian GAAP: 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. For
Canadian GAAP, 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 (decrease) and
equipment (increase) 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.
RoGeRs coMMUnications inc. 2010 annUal RePoRt 69
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other impacts
Private investments: Under IFRS, the Company’s investments in equity
instruments that do not have a quoted market price must be measured
at fair value. Under Canadian GAAP, these instruments are measured at
historical cost. The impact on transition is expected to increase the
carrying value of investments by $1 million with a corresponding
increase to the available-for-sale equity reserve. Comprehensive income
for the year ended December 31, 2010 is expected to decrease by
$2 million.
Deferred Income Tax: We have not identified any differences in the
recognition and measurement of deferred income taxes under IFRS;
however, we have determined the deferred tax impact of each of the
above accounting changes. Per the requirements of IFRS 1, the deferred
tax adjustment will be recorded in opening retained earnings upon
transition to IFRS. We expect the impact of the change at January 1, 2010
will be to decrease the net deferred tax liability by $34 million. Income
tax expense for the year ended December 31, 2010 is expected to
increase by $2 million and income tax expense related to other
comprehensive income for the year ended December 31, 2010 is
expected to decrease by $20 million.
First-time adoption of international Financial Reporting standards
Our adoption of IFRS will require the application of 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
We expect to elect to apply the requirements
of IAS 23 Borrowing Costs prospectively from
January 1, 2010.
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. These are estimates based on our
current understandings, and readers are cautioned 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.
The following unaudited consolidated financial statements show the
expected impacts of the above noted differences between IFRS and
Canadian GAAP as at the date of transition (January 1, 2010) and as at
and for the year ended December 31, 2010.
Expected impact: Per the requirements of IFRS 1, this adjustment will be
recorded in opening retained earnings upon transition to IFRS. We
expect the impact of the change at January 1, 2010 will be to increase
retained earnings by $4 million. Additionally, the liability balance will
be reclassified to unearned revenue from accounts payable and accrued
liabilities. Net income for the year ended December 31, 2010 is expected
to decrease by $3 million.
impairment of assets
Differences from existing Canadian GAAP: IAS 36, Impairment of Assets
(“IAS 36”), uses a one-step approach for both testing for and
measurement of impairment, with asset carrying values compared
directly with the higher of fair value less costs to sell and value in use
(which uses discounted future cash flows). 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.
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, any impairment losses 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.
Expected impact: Our impairment testing for the January 1, 2010
opening balance sheet under IFRS did not result in the recognition of
any additional impairment losses or reversals of previously recorded
impairment losses. Based on our impairment testing for the year ended
December 31, 2010, we expect to recognize an additional $5 million
impairment over the amount recognized under Canadian GAAP.
Provisions for onerous contracts
Differences from existing Canadian GAAP: 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.
Expected impact: Our review of significant contracts at January 1, 2010
identified one contract that must be provided for under IFRS. Per the
requirements of IFRS 1, this adjustment will be recorded in opening
retained earnings upon transition to IFRS. The impact of the change at
January 1, 2010 is expected to decrease retained earnings by $29
million. During the fourth quarter of 2010, a second contract became
onerous. The impact of both contracts on the December 31, 2010
balance sheet was to recognize a total onerous contract provision of
$35 million. Net income for the year ended December 31, 2010 is
expected to decrease by $6 million, which includes both partial
utilization of the opening provision as well as the recognition of
additional provisions.
70 RoGeRs coMMUnications inc. 2010 annUal RePoRt
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condensed consolidated balance sheets:
(In millions of dollars)
Assets
Current assets
Jan uary 1, 2010
Dec ember 31, 20 10
Canadian
GA AP, as
repor ted
Rec lassification
for IFRS
presentation (1)
Adjustments to
shareholders’
equity
canadian
GaaP, as
reported
Reclassification
for iFRs
presentation (1)
adjustments to
shareholders’
equity
IFRS
iFRs
$ 2,255
$
(230)
$
– $ 2,025
$ 2,005
$
(147)
$
– $ 1,858
Property, plant and equipment(2)
Goodwill and intangible assets(3)
Other long-term assets(4)
8,197
5,661
905
(50)
(110)
228
(11)
–
(120)
8,136
5,551
1,013
8,493
5,784
1,048
(46)
(157)
201
(10)
(5)
(138)
8,437
5,622
1,111
$ 17,018
$
(162)
$
(131) $ 16,725
$ 17,330
$
(149)
$
(153) $ 17,028
Liabilities and Shareholders’ equity
Current liabilities(5)
Long-term debt(6)
Provisions(7)
Other long-term liabilities(8)
Shareholders’ equity
$ 2,748
$
(59)
$
15 $
2,704
$ 3,013
$
8,463
–
1,534
12,745
4,273
(9)
39
(133)
(162)
–
(58)
8,396
8,718
19
10
58
–
1,411
1,640
(14)
12,569
13,371
(117)
4,156
3,959
(69)
(9)
36
(107)
(149)
–
$
22 $ 2,966
(55)
26
8,654
62
53
1,586
46
13,268
(199)
3,760
$ 17,018
$
(162)
$
(131) $ 16,725
$ 17,330
$
(149)
$
(153) $ 17,028
(1) Reclassification includes change from proportionate consolidation to equity method for joint ventures as well as other presentation changes which do not impact shareholders’ equity.
(2) see the section entitled “Fixed assets: componentization”.
(3) see the section entitled “impairment of assets”.
(4) see the section entitled “employee Benefits”.
(5) see the sections entitled “share-Based Payments”, “customer loyalty Programs” and “Provisions for onerous contracts”.
(6) see the section entitled “Financial instruments: transaction costs”.
(7) see the section entitled “Provisions for onerous contracts”.
(8) see the sections entitled “share-Based Payments”, “employee Benefits”, “Joint Ventures” and “other impacts”.
consolidated statement of income:
Year ended December 31,2010
(In millions of dollars, except per share amounts)
Operating revenue(1)
Operating expenses before the undernoted(2)
Adjusted operating profit(3)(4)
Stock-based compensation expense(5)
Integration and restructuring expenses
Other items, net
Operating profit(3)
Depreciation and amortization(6)
Impairment losses on goodwill, intangible assets
and other long-term assets(7)
Operating income
Interest on long-term debt
Loss on repayment of long-term debt
Other income (expense), net(8)
Income tax expense
Net income for the year
Basic net income per share
As adjusted:(4)
Net income
Basic net income per share
Canadian GAAP,
as reported
$ 12,186
7,533
4,653
47
40
14
4,552
1,645
6
2,901
(669)
(87)
(7)
(610)
1,528
2.65
1,707
2.96
$
$
$
$
Adjustments
$
(44)
(26)
(18)
3
–
–
(21)
(6)
5
(20)
–
–
(4)
(2)
$
(26)
IFRS
$ 12,142
7,507
4,635
50
40
14
4,531
1,639
11
2,881
(669)
(87)
(11)
(612)
$ 1,502
$ 2.61
$ 1,703
$ 2.96
(1) see the sections entitled “Joint Ventures” and “customer loyalty Programs”.
(2) see the sections entitled “Joint Ventures”, “employee Benefits” and “Provisions for onerous contracts”.
(3) operating profit should not be considered as a substitute or alternative for operating income or net income, in each case determined in accordance with both canadian GaaP and iFRs.
(4) 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 expense (recovery); (ii) integration and restructuring expenses; (iii) other items (net); and (iv)
in respect of net income and net income per share, debt issuance costs, loss on the 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, and for iFRs only, amortization of deferred transaction costs.
(5) see the section entitled “share-Based Payments”.
(6) see the sections entitled “Fixed asset: componentization” and “Joint Ventures”.
(7) see the section entitled “impairment of assets”.
(8) see the sections entitled “Joint Ventures” and “Financial instruments: transactions costs”. the adjustments also include reclassification related to income from associates.
RoGeRs coMMUnications inc. 2010 annUal RePoRt 71
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consolidated statement of comprehensive income:
Year ended Decemeber 31, 2010
(In millions of dollars, except per share amounts)
Net income for the year
Other comprehensive income (loss):
Pension actuarial losses(1)
Increase in fair value of available-for-sale investments(2)
Cash flow hedging derivative instruments(3)
Other comprehensive income before income taxes
Related income taxes
Canadian GAAP, as recorded
$ 1,528
Adjustments
$
(26)
IFRS
$
1,502
–
104
134
238
(37)
201
(80)
(2)
6
(76)
20
(56)
(82)
(80)
102
140
162
(17)
145
$
1,647
Total comprehensive income
$ 1,729
$
(1) see the section entitled “employee Benefits”.
(2) see the section entitled “Private investments”.
(3) see the section entitled “Financial instruments: Hedge accounting”.
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 2010 Audited
Consolidated Financial Statements are described in Note 25 to the 2010
Audited Consolidated Financial Statements. The significant differences
in accounting relate to:
6. aDDitional Financial inFoRMation
Rel ateD PaRt Y tR 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
• 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 2010 Audited Consolidated Financial Statements.
2010
2009
% Chg
$
16 $
16
–
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
2010
2009
% Chg
$
39 $
39
–
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
2010
2009
% Chg
$
– $
(1)
(100)
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 the Company’s aircraft to a private Rogers’ family
holding company for cash proceeds of $19 million (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.
72 RoGeRs coMMUnications inc. 2010 annUal RePoRt
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FiVe-YeaR sUMMaRY oF consoliDateD Financial ResUlts
Years ended December 31,
(In millions of dollars, except per share amounts)
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
Adjusted net income(1)
Cash flow from operations(2)
Property, plant and equipment expenditures
Average Class A and Class B shares
outstanding (Ms)(4)
Net income per share:(4)
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)
2010
2009
2008
200 7
2 006
$ 6,968 $ 6,654 $ 6,335 $ 5,503 $ 4,580
4,052
1,501
3,948
1,407
3,809
1,496
3,558
1,317
(335)
(278)
(305)
(255)
3,201
1,210
(153)
$ 12,186 $ 11,731 $ 11,335 $ 10,123 $ 8,838
$ 3,146 $ 3,006 $ 2,797 $ 2,532 $ 1,969
1,402
1,325
1,220
122
(118)
73
(88)
142
(81)
802
82
(317)
890
151
(135)
$ 4,552 $ 4,316 $ 4,078 $ 3,099 $ 2,875
$ 3,167 $ 3,042 $ 2,806 $ 2,589 $ 1,987
1,437
1,324
1,233
1,016
147
(98)
119
(97)
142
(121)
176
(78)
916
156
(117)
$ 4,653 $ 4,388 $ 4,060 $ 3,703 $ 2,942
$ 1,528 $ 1,478 $ 1,002 $
637 $
$ 1,707 $ 1,556 $ 1,260 $ 1,066 $
622
684
$ 3,800 $ 3,526 $ 3,500 $ 3,135 $ 2,386
$ 1,839 $ 1,855 $ 2,021 $ 1,796 $ 1,712
576
621
638
642
642
$
2.65 $
2.38 $
1.57 $ 1.00 $
2.65
2.38
1.57
0.99
0.99
0.97
$
2.96 $
2.51 $
1.98 $ 1.67 $
1.08
2.96
2.51
1.98
1.66
1.07
$ 8,493 $ 8,197 $ 7,898 $ 7,289 $ 6,732
3,115
2,669
721
3,018
2,643
547
3,024
2,761
343
3,027
2,086
485
2,779
2,152
139
2,332
2,613
3,056
2,438
2,303
$ 17,330 $ 17,018 $ 17,082 $ 15,325 $ 14,105
$ 8,718 $ 8,463 $ 8,506 $ 6,033 $ 6,988
4,653
4,282
3,860
4,668
13,371
12,745
12,366
10,701
3,959
4,273
4,716
4,624
2,917
9,905
4,200
$ 17,330 $ 17,018 $ 17,082 $ 15,325 $ 14,105
4%
6%
2.1
3%
8%
2.1
12%
10%
2.1
15%
26%
2.1
21%
31%
2.8
$
1.28 $
1.16 $
1.00 $ 0.42 $
0.08
(1) as defined. see the 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. 2010 annUal RePoRt 73
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
modes t seasonal fluc tuations in sub scriber 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 and expenses are generally
concentrated in the spring, summer and fall months.
In addition to the seasonal trends, revenue and operating profit can
fluctuate from general economic conditions. The Canadian economy,
and the economy of Ontario in particular, experienced an economic
slowdown in 2009.
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.
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’s 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 a continued decline in video rental and sales activity.
Media’s results are generally attributable to continuous increases in
prime time ratings, increased subscriber fees and improvements in the
advertising market. The launch of Sportsnet ONE in the latter part of
2010 resulted in incremental costs, while only limited revenues were
realized in 2010.
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, impairment losses on goodwill, intangible assets and
other long-term assets and changes in income tax expense.
summary of Fourth Quarter 2010 Results
During the three months ended December 31, 2010, consolidated
operating revenue increased 3% to $3,152 million in 2010 compared to
$3,057 million in the corresponding period in 2009, with Wireless
network revenue growth of 3%, Cable Operations revenue growth of
2%, and Media revenue growth of 9%. Consolidated fourth quarter
adjusted operating profit decreased 2% year-over-year to $1,074
million, with 14% growth at Cable, offset by a 6% decline at Wireless
and a 33% decline at Media.
Consolidated operating income for the three months ended December
31, 2010 totalled $648 million, compared to $607 million in the
corresponding period of 2009.
We recorded net income of $327 million for the three months ended
December 31, 2010, or basic and diluted net income per share of $0.58,
compared to a net income of $310 million or basic and diluted net
income per share of $0.51 in the corresponding period of 2009.
74 RoGeRs coMMUnications inc. 2010 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
Corporate and eliminations
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)
Other items, net(5)
Adjustment for CRTC Part II fees decision(6)
Operating profit(7)
Depreciation and amortization
Impairment losses on goodwill, intangible assets
and other long-term assets(8)
Operating income
Interest on long-term debt
Loss on repayment of long-term debt
Debt issuance costs
Other income (expense)
Income tax expense
Net income for the period
Net income per share:
Basic and diluted
Additions to PP&E(7)
Q1
Q2
Q 3
2010
Q4
Q1
Q2
Q3
20 09
Q4
$ 1,662 $ 1,700 $ 1,822 $ 1,784 $ 1,544 $ 1,616 $ 1,760 $ 1,734
1,004
1,020
1,031
997
301
(73)
396
(71)
2,887
3,029
832
344
8
(21)
815
344
66
(25)
376
(100)
3,118
823
379
38
(24)
428
(91)
968
284
(49)
972
366
(63)
989
364
(77)
1,019
393
(89)
3,152
2,747
2,891
3,036
3,057
697
370
35
(28)
710
324
(10)
(19)
742
332
37
(28)
846
329
36
(30)
744
325
52
(20)
1,163
1,200
1,216
1,074
1,005
1,083
1,181
1,101
(24)
–
(2)
–
(15)
–
(10)
–
(8)
–
–
–
(40)
–
(8)
–
(4)
–
27
–
(22)
–
5
–
81
–
(4)
–
–
–
(13)
–
(37)
–
–
–
(6)
–
(11)
(12)
–
–
1,122
408
1,182
406
1,164
1,084
1,082
1,033
1,152
401
430
444
446
416
–
714
(168)
–
–
(2)
(164)
–
776
(170)
–
–
18
–
763
(167)
(87)
(10)
3
(173)
(132)
6
648
(164)
–
–
(16)
(141)
–
638
(152)
–
–
(17)
(160)
–
587
(156)
–
(5)
73
(125)
–
736
(166)
–
–
44
(129)
$
380 $
451 $
370 $
327 $
309 $
374 $
485 $
(29)
(30)
(65)
(7)
–
79
1,049
424
18
607
(173)
–
(6)
(30)
(88)
310
$
$
0.64 $
0.78 $
0.64 $
0.58 $
0.49 $
0.59 $
0.79 $
0.51
366 $
439 $
442 $
592 $
359 $
434 $
491 $
571
(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) costs incurred relate to severances resulting from the targeted restructuring of our employee base, severances and restructuring expenses related to the outsourcing of certain information technology
functions, acquisition transaction costs incurred and the integration of acquired businesses, 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) costs incurred relate to the resolution of obligations and accruals relating to prior periods.
(6) Related to an adjustment of cRtc Part ii fees related to prior periods. the adjustments related to cRtc Part ii 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”.
(7) as defined. see the section entitled “key Performance indicators and non-GaaP Measures”.
(8) in the fourth quarter of 2010 and 2009, 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. as a result, we recorded an aggregate non-cash impairment charge of $6 million in 2010 related to a radio licence and $18 million in 2009 with the following components:
$5 million related to broadcast licences and $13 million related to other long-term assets.
RoGeRs coMMUnications inc. 2010 annUal RePoRt 75
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
Q 3
2010
Q4
Q1
Q2
Q 3
20 09
Q4
$ 1,662 $ 1,700 $ 1,822 $ 1,784 $
1,544 $ 1,616 $ 1,760 $ 1,734
997
301
(73)
1,004
1,020
1,031
396
(71)
376
(100)
428
(91)
968
284
(49)
972
366
(63)
989
364
(77)
1,019
393
(89)
2,887
3,029
3,118
3,152
2,747
2,891
3,036
3,057
832
344
8
(21)
815
344
66
(25)
823
379
38
(24)
697
370
35
(28)
710
324
(10)
(19)
742
332
37
(28)
846
329
36
(30)
744
325
52
(20)
1,163
1,200
1,216
1,074
1,005
1,083
1,181
1,101
408
755
(168)
(2)
(177)
406
794
(170)
18
(178)
401
815
(167)
3
(175)
430
644
(164)
(16)
(105)
444
561
(152)
(17)
(136)
446
637
(156)
73
(142)
416
765
(166)
44
(138)
424
677
(173)
(23)
(111)
Adjusted net income for the period
$
408 $
464 $
476 $
359 $
256 $
412 $
505 $
370
Adjusted net income per share:
Basic and diluted
Additions to PP&E(2)
$
$
0.69 $
0.80 $
0.83 $
0.64 $
0.40 $
0.65 $
0.82 $
0.61
366 $
439 $
442 $
592 $
359 $
434 $
491 $
571
(1) this quarterly summary has been adjusted to exclude stock-based compensation expense (recovery), integration and restructuring expenses, contract termination fees, an adjustment to cRtc Part ii fees
related to prior periods, settlement of pension obligations, other items (net), 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. 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”.
76 RoGeRs coMMUnications inc. 2010 annUal RePoRt
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
sUMMaRY oF Financial ResUlts oF lonG-teRM DeBt GUaRantoRs
Our outstanding public debt, $2.4 billion bank credit facility and
Derivatives are unsecured obligations of RCI, as obligor, and RCP, as
co-obligor or guarantor, as applicable.
The following table sets forth the selected unaudited consolidating
summary financial information for RCI for the periods identified below,
presented with a separate column for: (i) RCI; (ii) RCP; (iii) our
non-guarantor subsidiaries (“Other Subsidiaries”) on a combined basis;
(iv) consolidating adjustments; and (v) the total consolidated amounts.
Information for periods prior to July 1, 2010 has been presented as if
the corporate reorganization (which occurred on July 1, 2010) had
occurred on January 1, 2009. For further details in respect of the
corporate reorganization, see the section entitled “Liquidity and
Capital Resources”.
Years ended December 31 (unaudited)(3)
RCI(1)(2)
RCP(1)(2)
Other Subsidiaries (1)(2)
Consolidating
Adjustments (1)(2)
Total Consolidated
Amounts
De c. 31
20 10
De c. 31
20 09
Dec . 31
2010
Dec . 31
2009
Dec . 31
2010
Dec . 31
2009
Dec . 31
2010
Dec . 31
2009
Dec. 31
20 10
De c. 31
20 09
(In millions of dollars)
Statement of Income Data:
Revenue
$
97 $
97 $ 10,894 $ 10,626 $
1,560 $
1,409 $
(365) $
(401) $ 12,186 $ 11,731
Operating Income (loss)
Net income (loss)
(143)
(111)
1,528
1,478
3,077
728
2,843
1,450
28
555
(13)
25
(61)
(151)
(1,283)
(1,475)
2,901
1,528
2,568
1,478
As at period end December 31 (unaudited)(3)
RCI(1)(2)
RCP(1)(2)
Other Subsidiaries (1)(2)
Consolidating
Adjustments (1)(2)
Total Consolidated
Amounts
De c. 31
20 10
De c. 31
20 09
Dec . 31
2010
Dec . 31
2009
Dec . 31
2010
Dec . 31
2009
Dec . 31
2010
Dec . 31
2009
Dec. 31
20 10
De c. 31
20 09
$
738 $ 3,740 $
2,838 $ 10,731 $
1,692 $
1,383 $
(3,263) $ (13,599) $
2,005 $
2,255
19,688
21,411
9,178
12,688
5,323
1,790
(18,864)
(21,126)
15,325
14,763
3,156
9,905
7,860
9,484
2,094
8,059
106
211
964
167
427
85
(3,201)
(13,598)
3,013
180
217
10,358
2,748
9,997
(In millions of dollars)
Balance Sheet Data
Current assets
Non-current assets
Current liabilities
Non-current liabilities
(1) For the purposes of this table, investments in subsidiary companies are accounted for by the equity method.
(2) 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.
(3) information for periods prior to July 1, 2010 has been presented as if the corporate reorganization (which occurred on July 1, 2010) had occurred on January 1, 2009.
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.
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, 2010, 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, 2010, our internal control over 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, 2010, 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 2010 that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.
RoGeRs coMMUnications inc. 2010 annUal RePoRt 77
2010
20 09
$
4,653 $
4,388
12,186
11,731
38.2%
37.4%
$
3,167 $
6,569
3,042
6,245
48.2%
48.7%
$
1,424 $
1,298
3,185
3,074
44.7%
42.2%
$
40 $
560
7.1%
$
(27) $
355
35
503
7.0%
(9)
399
(7.6%)
(2.3%)
$
147 $
1,501
9.8%
119
1,407
8.5%
ManaGeMent’s DiscUssion anD analYsis oF Financial conDition anD ResUlts oF oPeRations
sUPPleMentaRY inFoRMation: non - Ga aP c alcUl ations
operating Profit Margin calculations
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 loss
Divided by revenue
Rogers Retail adjusted operating loss margin
MeDia:
Adjusted operating profit
Divided by revenue
Media adjusted operating profit margin
78 RoGeRs coMMUnications inc. 2010 annUal RePoRt
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
Other items, net
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
Other items, net
Contract termination fees
Adjustment for CRTC Part II fees decision
Debt issuance costs
Loss on repayment of long-term debt
Impairment losses on goodwill, intangible assets
and other long-term assets
Income tax impact of above items
Income tax charge, cash-settled stock options
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-GaaP 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
201 0
20 09
$
4,552 $
4,316
47
–
40
14
–
–
(33)
30
117
–
19
(61)
$
$
4,653 $
4,388
1,528 $
1,478
47
–
40
14
–
–
10
87
6
(60)
35
(33)
30
117
–
19
(61)
11
7
18
(30)
–
$
1,707 $
1,556
$
1,707 $
1,556
576
$
2.96 $
621
2.51
201 0
20 09
$
6,272 $
5,948
7,148
12
6,705
12
$
73.12 $
73.93
$
297 $
297
1,537
12
1,479
12
$
16.10 $
16.73
$
6,569 $
6,245
8,685
12
8,184
12
$
63.03 $
63.59
(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. 2010 annUal RePoRt 79
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
DECEMBER 31, 2010
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 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 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.
INDEPENDENT AUDITORS’ REPORT OF
REGISTERED PUBLIC ACCOUNTING FIRM
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 and the standards of the Public Company Accounting
Oversight Board (United States) on behalf of the shareholders. KPMG
LLP has full and free access to the Audit Committee.
February 28, 2011
Nadir H. Mohamed, FCA
President and
Chief Executive Officer
William W. Linton, CA
Executive Vice President, Finance
and Chief Financial Officer
TO ThE ShAREhOLDERS OF ROGERS COMMUNIC ATIONS INC .:
We have audited the accompanying consolidated financial statements
of Rogers Communications Inc. and its subsidiaries, which comprise the
consolidated balance sheets as at December 31, 2010 and 2009, the
consolidate d s t atement s of income, shareholder s’ e quit y,
comprehensive income and cash flows for the years then ended, and
notes, comprising a summary of significant accounting policies and
other explanatory information.
consolidated financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to
the entity’s preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that are
appropriate in the circumstances. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements.
Management ’s Responsibility for the Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation of
these consolidated financial statements in accordance with Canadian
generally accepted accounting principles, and for such internal control
as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards and
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free
from material misstatement.
We believe that the audit evidence we have obtained in our audits is
sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of Rogers Communications
Inc. and its subsidiaries as at December 31, 2010 and 2009 and the
results of their operations and their cash flows for the years then ended
in accordance with Canadian generally accepted accounting principles.
Chartered Accountants, Licensed Public Accountants
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgment,
including the assessment of the risks of material misstatement of the
Toronto, Canada
February 28, 2011
80 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS OF CANADIAN DOLLARS, ExCEPT PER SHARE AMOUNTS)
Years ended December 31, 2010 and 2009
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(c))
Loss on repayment of long-term debt (note 14(d))
Foreign exchange gain
Change in fair value of derivative instruments
Other income (expense)
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.
20 10
20 09
$
12,186 $
11,731
1,520
1,227
4,847
–
40
1,380
1,207
4,681
30
117
1,645
1,730
6
18
2,901
(669)
2,568
(647)
(10)
(87)
20
(16)
(1)
(11)
(7)
136
(65)
6
2,138
1,980
322
288
610
215
287
502
$
1,528 $
1,478
$
2.65 $
2.38
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 81
2010
20 09
$
– $
1,480
365
1
159
383
1,310
338
4
220
2,005
2,255
8,493
3,115
2,669
721
6
321
8,197
3,018
2,643
547
78
280
$
17,330 $
17,018
$
40 $
2,256
376
–
67
274
–
2,175
208
1
80
284
3,013
2,748
8,718
840
124
676
13,371
3,959
8,463
1,004
133
397
12,745
4,273
$
17,330 $
17,018
CONSOLIDATED BALANCE ShEETS
(IN MILLIONS OF CANADIAN DOLLARS)
December 31, 2010 and 2009
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $138 (2009 – $157)
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’ EqUIT Y
Current liabilities:
Bank advances
Accounts payable and accrued liabilities
Income tax payable
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 4, 18 and 26)
See accompanying notes to consolidated financial statements.
On behalf of the Board:
Alan D. Horn, CA
Director
Ronald D. Besse
Director
82 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF ShAREhOLDERS’ EqUITY
(IN MILLIONS OF CANADIAN DOLLARS)
Years ended December 31, 2010 and 2009
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
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, 2010
See accompanying notes to consolidated financial statements.
Class A Voting shares
Class B Non-Voting shares
Amount
Number
of shares
(000s)
Amount
Number
of shares
(000s)
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
income
(loss)
Total
shareholders’
equity
$
72
112,462 $
488
523,430 $
3,560 $
691 $
(95) $
4,716
–
–
–
–
–
–
–
–
–
–
–
9
–
–
294
–
–
–
–
(41)
–
(43,776)
(1,256)
–
–
72
112,462
456
479,948
2,304
–
–
–
–
–
–
–
–
–
–
–
7
–
–
205
–
–
–
–
(37)
–
(37,081)
(1,191)
–
–
1,478
–
(721)
(50)
–
1,398
1,528
–
(738)
(84)
–
–
–
–
–
138
43
–
–
–
–
201
1,478
9
(721)
(1,347)
138
4,273
1,528
7
(738)
(1,312)
201
$
72
112,462 $
426
443,072 $
1,113 $
2,104 $
244 $
3,959
CONSOLIDATED STATEMENTS OF COMPREhENSIVE INCOME
(IN MILLIONS OF CANADIAN DOLLARS)
Years ended December 31, 2010 and 2009
Net income for the year
Other comprehensive income (loss):
Increase in fair value of available-for-sale investments
Cash flow hedging derivative instruments:
Change in fair value of cash flow hedging derivative instruments
Reclassification to net income of foreign exchange gain on hedged long-term debt
Reclassification to net income of accrued interest
Other comprehensive income before income taxes
Related income tax (expense) recovery
Comprehensive income for the year
See accompanying notes to consolidated financial statements.
20 10
20 09
$
1,528 $
1,478
104
14
(227)
(844)
264
97
134
238
(37)
201
901
64
121
135
3
138
$
1,729 $
1,616
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 83
CONSOLIDATED STATEMENTS OF CASh FLOWS
(IN MILLIONS OF CANADIAN DOLLARS)
Years ended December 31, 2010 and 2009
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 (notes 11(a) and 13)
Program rights and Rogers Retail rental amortization
Future income taxes
Unrealized foreign exchange gains (note 14(i))
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 expense (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
Financing activities:
Issuance of long-term debt
Repayment of long-term debt
Premium on repayment of long-term debt
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 (decrease) in cash and cash equivalents
Cash and cash equivalents (bank advances), beginning of year
Cash and cash equivalents (bank advances), end of year
Cash and cash equivalents (bank advances) 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.
2010
20 09
$
1,528 $
1,478
1,645
1,730
6
221
288
(20)
87
16
–
(30)
47
(2)
14
18
174
287
(126)
7
65
30
(102)
(33)
(5)
3
3,800
(180)
3,620
3,526
264
3,790
(1,839)
(1,855)
126
(47)
(75)
(201)
(170)
6
(55)
(40)
(163)
(11)
(185)
(15)
(2,200)
(2,324)
2,935
2,875
(2,387)
(1,885)
(79)
(816)
547
(8)
(431)
433
(1,312)
(1,347)
3
(734)
3
(704)
(1,843)
(1,064)
(423)
383
402
(19)
$
(40) $
383
84 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS, ExCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, 2010 AND 2009
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. Through its Wireless segment
(“Wireless”), RCI is engaged in wireless voice and data communications
services. The Company’s Cable segment (“Cable”) consists of Cable
Operations, Rogers Business Solutions (“RBS”) and Rogers Retail.
Through Cable Operations, the Company provides television, high-
speed Internet and telephony products primarily to residential
customers; RBS provides local and long-distance telephone, enhanced
voice and data networking services, and IP access to medium and large
Canadian businesses and governments; and Rogers Retail operates a
retail distribution chain that provides customers with the ability to
purchase all of the Company’s primary services (cable television,
Internet, cable telephony and wireless), pay their Rogers bills, and pick
up or return digital and Internet equipment. The segment also offers
digital video disc (“DVD”) and video game sales and rentals. The
Company is engaged in radio and television broadcasting, televised
shopping, magazines and trade publications, sports entertainment,
and digital media through its Media segment (“Media”). RCI and
its subsidiary companies are collectively referred to herein as
the “Company”.
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.
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 lives of the related assets;
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 comparative figures have been reclassified to conform to
current year’s presentation.
(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, data services, 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;
(iv)
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
(v) Advertising revenue is recorded in the periods the advertising airs
on the Company’s radio or television stations; is featured in the
Company’s publications; or is displayed on the Company’s digital
properties;
(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 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.
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(C) SUBSCRIBER ACqUISITION 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 STOCk-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
(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
Equipment and vehicles
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 exercise 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.
Basis
Mainly diminishing balance
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line
Mainly diminishing balance
Rate
5% to 6-2/3%
6-2/3% to 25%
5% to 20%
6-2/3% to 33-1/3%
12-1/2% to 14-1/3%
14-1/3% to 33-1/3%
20% to 33-1/3%
Over shorter of estimated
useful life and lease term
5% to 33-1/3%
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. Foreign exchange gains or losses are primarily related to the
translation of long-term debt.
(h) FINANCIAL AND DERIVATIVE INSTRUMENTS:
(i) 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 non-hedging 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
impairment is recorded in the consolidated statements of income.
Loans and receivables and all non-hedging 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 except for bank
advances, 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
86 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
(ii) 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.
(iii) Fair value measurements:
The Company provides 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 2 include valuations using inputs
based on observable market data, either directly or indirectly
other than the quoted prices. Level 3 valuations are based on
inputs that are not based on observable market data.
(I) 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 ROGERS RETAIL RENTAL INVENTORY:
(j)
Inventories, including equipment and merchandise for resale, 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 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.
(k) 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.
(L) 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.
(M) PROPERT Y, PL ANT AND EqUIPMENT:
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.
(N) ACqUIRED PROGR AM RIGhTS:
Program rights represent contractual rights acquired from third parties
to broadcast television programs. 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.
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 87
The Company tested goodwill and intangible assets with indefinite
lives for impairment during 2010 and recorded a write-down in
intangible assets of $6 million related to the broadcast licence of a
radio station (note 11(a)). 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 a radio station and a conventional television broadcast
licence (note 11(a)).
IMPAIRMENT OF LONG -LIVED ASSETS:
(P)
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 2010 and no write-downs were required. The
Company tested long-lived assets with finite useful lives for impairment
during 2009 and recorded a write-down of $13 million related to a
c o n v e n t i o n a l t e l e v i s i o n C a n a d i a n R a d i o - t e l e v i s i o n a n d
Telecommunication Commission (“CRTC”) commitments asset (note 13).
(q) 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The cost of acquired program rights is amortized over the expected
exhibition period of the related programs. Program rights for multi-
year sports programming arrangements are expensed as incurred.
Impairment of acquired program rights is assessed using an industry
standard methodology.
(O) GOODWILL AND INTANGIBLE ASSETS:
(i) 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 amortized 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 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.
(ii) 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(p). 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. For purposes of impairment testing, the Company
determines the fair value of spectrum licences using a market-
based approach. This approach determines fair value based on
recent market prices from Industry Canada spectrum auctions and
other recent transactions in the marketplace. The Company
determines the fair value of broadcast licences using the Greenfield
income approach. The Greenfield income approach determines
the value based on the present value of required resources and
eventual returns of the broadcast licences. 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 names
Customer relationships
Roaming agreements
Marketing agreement
5 to 20 years
2 to 5 years
12 years
5 years
88 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(R) 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 determination of the fair value of
the assets acquired and liabilities assumed.
Significant changes in the assumptions, including those with respect to
future business plans and cash flows, could materially change the
recorded carrying amounts.
(S) ADOP TED C ANADIAN ACCOUNTING STANDARDS:
In October 2008, The Canadian Institute of Chartered Accountants
(“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, establishes standards for the preparation of consolidated
financial statements. CICA 1602 establishes guidance for the treatment
of non-controlling interests. 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 has chosen to adopt these
three sections effective January 1, 2010. CICA 1582 and CICA 1601 were
applied prospectively, while the presentation requirements of CICA
1602 were applied retrospectively. The adoption of these standards had
no material impact on previously reported amounts.
( T ) RECENT C ANADIAN ACCOUNTING PRONOUNCEMENTS:
International Financial Reporting Standards (“IFRS”):
In February 2008, the Canadian Accounting Standards Board 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.
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, other items (net), 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.
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information by reportable segment is as follows:
Wireless
Cable
Media
2010
Corporate
items and
eliminations
Consolidated
totals
Wireless
Cable
Media
20 09
Corporate
items and
eliminations
Consolidated
totals
Operating revenue
$
6,968 $
4,052 $
1,501 $
(335) $ 12,186 $
6,654 $
3,948 $
1,407 $
(278) $ 11,731
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*
Contract termination fees*
Other items (net)*
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
Change in fair value
of derivative instruments
Other income (expense)
Income before income taxes
Additions to PP&E
Goodwill
Total assets
1,225
628
1,948
3,167
–
5
11
–
–
5
181
441
1,993
1,437
–
23
7
–
–
5
171
235
948
147
–
12
9
–
–
4
(57)
(77)
(103)
(98)
–
–
20
–
–
–
1,520
1,227
4,786
4,653
–
40
47
–
–
14
1,059
630
1,923
3,042
3
33
201
446
1,977
1,324
11
46
167
209
912
119
15
35
(47)
(78)
(56)
(97)
1
3
1,380
1,207
4,756
4,388
30
117
–
(12)
(8)
(13)
(33)
–
–
–
(46)
–
–
(15)
19
–
73
63
–
–
–
(61)
19
–
(88)
199
4,316
1,730
3,146
650
1,402
807
122
64
(118)
124
4,552
1,645
3,006
660
1,325
808
–
–
6
–
6
–
–
18
–
18
$ 2,496 $
595 $
52 $
(242)
2,901 $
2,346 $
517 $
(8) $
(287)
2,568
(669)
(10)
(87)
20
(16)
(1)
(647)
(11)
(7)
136
(65)
6
$
2,138
$
1,980
$
$
$
937 $
662 $
46 $
194 $
1,839 $
865 $
693 $
62 $
235 $
1,855
1,146 $
1,058 $
911 $
– $
3,115 $
1,140 $
982 $
896 $
– $
3,018
8,506 $
5,320 $
1,918 $
1,586 $ 17,330 $
7,988 $
5,055 $
1,884 $
2,091 $ 17,018
*Included with operating, general and administrative expenses in consolidated statements of income.
90 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, Cable consists of the following reportable segments:
2010
Cable
Operations
Rogers
Business
Solutions
Rogers
Retail
Corporate
items and
eliminations
Total
Cable
Cable
Operations
Rogers
Business
Solutions
Rogers
Retail
Corporate
items and
eliminations
20 09
Total
Cable
Operating revenue
$
3,185 $
560 $
355 $
(48) $
4,052 $
3,074 $
503 $
399 $
(28) $
3,948
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*
Other items (net)*
Depreciation and amortization
Operating income
Additions to PP&E
Goodwill
Total assets
–
222
1,539
1,424
–
3
7
–
7
–
40
480
40
–
13
–
–
–
181
179
22
(27)
–
7
–
–
(2)
–
–
(48)
–
–
–
–
–
–
181
441
1,993
1,437
–
23
7
–
5
–
243
1,533
1,298
10
31
(12)
(46)
–
–
26
442
35
–
3
1
–
–
201
182
25
(9)
1
12
(1)
–
–
–
(5)
(23)
–
–
–
–
–
–
201
446
1,977
1,324
11
46
(12)
(46)
–
$
1,407 $
27 $
(32) $
– $
1,402 $
1,315 $
31 $
(21) $
– $
1,325
611 $
992 $
38 $
66 $
13 $
– $
$
– $
– $
807
595
662 $
1,058 $
642 $
982 $
37 $
– $
14 $
– $
808
517
693
982
$
– $
– $
4,102 $
951 $
175 $
92 $
5,320 $
4,714 $
482 $
181 $
(322) $
5,055
$
$
$
*Included with operating, general and administrative expenses in consolidated statements of income.
(B) PRODUC T REVENUE:
Revenue comprises the following:
Wireless:
Postpaid
Prepaid
Network revenue
Equipment sales
Cable:
Cable Operations:
Television
Internet
Telephony
RBS
Rogers Retail
Intercompany eliminations
Media:
Advertising
Circulation and subscription
Retail
Sports Entertainment
Other
Corporate items and intercompany eliminations
20 10
20 09
$
6,272 $
5,948
297
6,569
399
6,968
1,830
848
507
3,185
560
355
(48)
297
6,245
409
6,654
1,780
781
513
3,074
503
399
(28)
4,052
3,948
772
234
265
155
75
674
219
258
181
75
1,501
(335)
1,407
(278)
$
12,186 $
11,731
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. BUSINESS COMBINATIONS:
(A) 2010 ACqUISITIONS:
(i) Blink Communications Inc.:
On January 29, 2010, the Company closed 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 $131 million.
Blink is a facilities-based, data network service provider that
delivers next generation and leading edge services, to small and
medium sized businesses, including municipalities, universities,
schools and hospitals, in the Oakville, Milton and Mississauga,
Ontario areas. The acquisition was accounted for using the
acquisition method in accordance with CICA 1582 with the results
of operations consolidated with those of the Company effective
January 29, 2010 and has contributed incremental revenue of $20
million and operating income of $11 million for the year ended
December 31, 2010. The transaction costs related to the acquisition
amounted to approximately $1 million and have been charged to
integration and restructuring expenses.
The fair values of the assets acquired and liabilities assumed, which
were finalized during 2010, are as follows:
Purchase price
Current assets
PP&E
Customer relationships
Current liabilities
Future income tax liabilities
Fair value of net identifiable assets acquired
Goodwill
$
$
$
$
131
3
35
40
(2)
(11)
65
66
The goodwill has been allocated to the Wireless reporting segment and
is tax deductible.
The customer relationships are being amortized over a period of
5 years.
(iii) kincardine Cable T.V. Ltd.:
On July 30, 2010, the Company closed an agreement to acquire the
assets of Kincardine Cable T.V. Ltd. (“Kincardine”) for cash
consideration of $20 million. Kincardine provides cable television
and Internet services in Kincardine, Ontario and the surrounding
area. The acquisition was accounted for using the acquisition
method in accordance with CICA 1582 with the results of
operations consolidated with those of the Company effective
July 30, 2010 and has contributed incremental revenue of
$2 million and operating income of $1 million for the year ended
December 31, 2010.
The fair values of the assets acquired and liabilities assumed, which
were finalized during 2010, are as follows:
Purchase price
PP&E
Customer relationships
Current liabilities
Fair value of net identifiable assets acquired
Goodwill
$
$
$
$
20
2
9
(1)
10
10
The goodwill has been allocated to the Cable Operations reporting
segment and is tax deductible.
The customer relationships are being amortized over a period of
3 years.
The goodwill has been allocated to the RBS reporting segment and
is not tax deductible.
(iv) BV! Media Inc.:
The customer relationships are being amortized over a period of
5 years.
(ii) Cityfone Telecommunications Inc .:
On July 9, 2010, the Company closed an agreement to acquire the
assets of Cityfone Telecommunications Inc. (“Cityfone”) for cash
consideration of $26 million. Cityfone is a Canadian Mobile Virtual
Network Operator and offers postpaid wireless voice and data
services to subscribers through private label programs with major
Canadian brands. The acquisition was accounted for using the
acquisition method in accordance with CICA 1582 with the results
of operations consolidated with those of the Company effective
July 9, 2010 and has contributed incremental revenue of $3 million
and an operating loss of $1 million for the year ended
December 31, 2010.
The fair values of the assets acquired and liabilities assumed, which
were finalized during 2010, are as follows:
Purchase price
Current assets
PP&E
Customer relationships
Current liabilities
Fair value of net identifiable assets acquired
Goodwill
$
$
$
$
26
3
1
17
(1)
20
6
On October 1, 2010, the Company closed an agreement to purchase
100% of the outstanding common shares of BV! Media Inc. (“BV!
Media”) for cash consideration of $24 million. BV! Media is a
Canadian internet advertising network and publisher of news and
information portals. The acquisition was accounted for using the
acquisition method in accordance with CICA 1582 with the results
of operations consolidated with those of the Company effective
October 1, 2010 and has contributed incremental revenue of $5
million and operating income of $1 million for the year ended
December 31, 2010. The transaction costs related to the acquisition
amounted to approximately $1 million and have been charged to
integration and restructuring expenses. The fair values assigned
are preliminary pending finalization of the valuation of certain net
identifiable assets acquired. The Company expects to finalize the
valuation of the PP&E and identifiable intangible assets acquired
during the 2011 fiscal year.
The preliminary estimated fair values of the assets acquired and
liabilities assumed in the acquisition are as follows:
Purchase price
Current assets
PP&E
Customer relationships
Current liabilities
Future income tax liabilities
Preliminary fair value of net identifiable assets acquired
Goodwill
$
$
$
$
24
5
4
6
(3)
(3)
9
15
92 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The goodwill has been allocated to the Media reporting segment
and is not tax deductible.
(C) 20 09 ACqUISITIONS:
(i) k- Rock 1057 Inc.:
The customer relationships are being amortized over a period of
2 years.
(v) Pro forma disclosures:
Since the acquisition dates, the Company has recorded revenue
relating to these above acquisitions of $30 million, and operating
income relating to these acquisitions of $12 million. If the
acquisitions had occurred on January 1, 2010, the Company’s
revenue would have been $12,207 million and operating
income would have been $2,905 million for the year ended
December 31, 2010.
(B) ACqUISITIONS SUBSEqUENT TO 2010:
(i) Atria Networks LP:
On January 4, 2011, the Company closed an agreement to purchase
a 100% interest in Atria Networks LP (“Atria”) for cash
consideration of $425 million. Atria, based in Kitchener, Ontario,
owns and operates one of the largest fibre-optic networks in
Ontario, delivering premier business Internet and data services.
The acquisition will augment RBS’s small business and medium-
sized business offerings by enhancing its ability to deliver on-net
data centric services within and adjacent to Cable’s footprint. The
acquisition will be accounted for using the acquisition method
with the results of operations consolidated with those of the
Company effective January 4, 2011. The transaction costs related
to the acquisition amounted to approximately $2 million and have
been charged to integration and restructuring expenses in fiscal
2010. The fair values assigned are preliminary pending finalization
of the valuation of certain net identifiable assets acquired. The
Company expects to finalize the valuation of the PP&E and
identifiable intangible assets acquired during the 2011 fiscal year.
The preliminary estimated fair values of the assets and liabilities
assumed are as follows:
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 identifiable assets acquired
Goodwill
$
$
$
$
11
1
4
5
6
The goodwill has been allocated to the Media reporting segment
and is tax deductible.
(ii) 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
PP&E
Customer relationships
Current liabilities
Future income tax liabilities
$
$
Preliminary fair value of net identifiable assets acquired $
Goodwill
$
425
10
121
195
(17)
(45)
264
161
Purchase price
Current assets
Broadcast licence
Future income tax liabilities
Current liabilities
Fair value of net identifiable
assets acquired
The goodwill will be allocated to the RBS reporting segment and is
not tax deductible.
Goodwill
As at
December 31,
2008
Adjustments
Final
purchase
price
allocation
$
$
$
$
39
11
$
$
–
–
(3)
– $
– $
15
(3)
–
8
31
$
$
12 $
(12) $
39
11
15
(3)
(3)
20
19
(ii) Other:
On January 31, 2011, the Company closed agreements to acquire
the assets of London, Ontario FM radio station BOB-FM (CHST-FM)
and to acquire the assets of Edmonton, Alberta FM radio station
BOUNCE (CHBN-FM).
The goodwill has been allocated to the Media reporting segment
and is not tax deductible.
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INVESTMENT IN jOINT 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, 2010 and 2009 and for
the years then ended, proportionately consolidating these joint
ventures resulted in the following increases (decreases) in the accounts
of the Company:
In 2009, Inukshuk completed the purchase of spectrum and broadcast
licences from Look Communications Inc. (“Look”). 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 related to its proportionate share of
the purchase.
Long-term assets
Current liabilities
Revenue
Expenses
Net loss for the year
20 10
2009
$
143 $
103
50
1
31
(30)
16
–
32
(32)
In 2010, the Company completed the purchase of spectrum and
broadcast licences from Craig Wireless (“Craig”) and YourLink Inc.
(“YourLink”) (through Inukshuk Wireless Partnership (“Inukshuk”), the
Company’s 50% owned joint venture with Bell Canada). Under the
agreement, Inukshuk paid $80 million for Craig’s 61 MHz of BRS
spectrum licences in the provinces of British Columbia and Manitoba
and paid $14 million for YourLink’s 61 MHz spectrum in the province of
Saskatchewan. The Company recorded an increase in spectrum licences
of $47 million related to its proportionate share of the purchases.
In 2007, the Company contributed its 2.3 GHz and 3.5 GHz spectrum
licences with a carrying value of $11 million to Inukshuk 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 2010 (2009 –
$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 ExPENSES:
During 2010, the Company incurred $21 million (2009 – $88 million) of
restructuring expenses related to severances resulting from the
targeted restructuring of its employee base and to improve the
Company’s cost structure.
During 2010, the Company incurred $5 million (2009 – $2 million) of
acquisition transaction costs for business combinations and integration
expenses related to previously acquired businesses and related
restructuring.
During 2010, the Company incurred $9 million (2009 – $23 million) of
restructuring expenses resulting from the outsourcing of certain
information technology functions.
The additions to the liabilities related to the integration and
restructuring activities and payments made against such liabilities
during 2010 are as follows:
During 2010, the Company incurred $5 million (2009 – $4 million) related
to the closure of 50 (2009 – 20) underperforming retail store locations,
primarily located in the province of Ontario.
As at
December 31,
2009
Additions
Payments
As at
December 31,
2010
Severances resulting from the targeted restructuring of the Company’s employee base
$
83 $
21 $
(57) $
Outsourcing of certain information technology functions
Retail store closures
Acquisition costs and integration of previously acquired businesses
9
2
2
9
5
5
(18)
(3)
(4)
$
96 $
40 $
(82) $
47
–
4
3
54
The remaining liability, which is included in accounts payable and accrued liabilities as at December 31, 2010, will be paid over the course of 2011
and 2012.
94 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
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
Investments
Other taxable differences
Total future income tax liabilities
Net future income tax liability
Less current portion – future tax assets
Future income tax liabilities
20 10
20 09
$
74 $
148
31
32
–
24
58
151
370
47
323
(428)
(359)
(5)
(48)
(840)
(517)
159
31
42
8
47
64
144
484
52
432
(246)
(325)
–
(38)
(609)
(177)
220
$
(676) $
(397)
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.
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, 2010 includes $39 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
Stock-based compensation
Other items
Income tax expense
20 10
20 09
30.5%
32.3%
$
652 $
640
(5)
(69)
35
(3)
(64)
(58)
–
(16)
$
610 $
502
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2010, the Company released $5 million of its valuation allowance
that primarily relates to a decrease of foreign future income tax assets
due to foreign exchange fluctuations.
In March 2010, the federal budget introduced proposed changes that
impact the tax deductibility of cash-settled stock options. The proposed
legislative changes were enacted in December 2010. As a result, the
Company recorded an income tax charge of $35 million to reduce future
tax assets previously recognized with respect to its stock option-related
liabilities.
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.
As at December 31, 2010, the Company had approximately $188 million
of Canadian income tax losses available to reduce future years’ income.
Substantially all Canadian losses expire after 2025. In addition, the
Company had approximately $62 million of income tax losses in foreign
subsidiaries expiring between 2023 and 2029.
During 2009, the Company released $64 million of its valuation
allowance as an income tax recovery in the consolidated statements of
At December 31, 2010, the Company had approximately $238 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
Other
2010
20 09
$
1,528 $
1,478
576
621
$
2.65 $
2.38
2010
20 09
$
185 $
114
49
14
3
129
110
61
27
11
$
365 $
338
Amortization expense for Rogers Retail rental inventory is charged to
cost of sales and amounted to $54 million in 2010 (2009 – $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 $167 million in 2010 (2009 –
$131 million). Cost of sales includes $1,466 million (2009 – $1,337 million)
of inventory costs.
96 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. PROPERTY, PLANT AND EqUIPMENT:
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
2010
20 09
Accumulated
depreciation
Cost
Net book
value
Accumulated
depreciation
Cost
Net book
value
$
821 $
196 $
625 $
828 $
181 $
1,583
5,206
6,082
1,408
3,292
1,469
384
974
996
3,315
3,276
774
2,232
1,086
224
627
587
1,891
2,806
634
1,060
383
160
347
1,361
5,058
5,530
1,219
2,853
1,358
369
891
833
3,055
2,847
654
1,974
949
212
565
647
528
2,003
2,683
565
879
409
157
326
$
21,219 $
12,726 $
8,493 $
19,467 $
11,270 $
8,197
Depreciation expense for 2010 amounted to $1,560 million (2009 –
$1,543 million).
PP&E not yet in ser vice and, therefore, not depreciated at
December 31, 2010 amounted to $1,610 million (2009 – $1,013 million).
11. GOODWILL AND INTANGIBLE ASSETS:
IMPAIRMENT:
(A)
(i) Goodwill:
The Company tested goodwill for impairment during 2010 and
2009 and no impairment of goodwill was recorded.
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 seven
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 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 could result in
goodwill impairment losses.
(ii)
Intangible assets:
In the fourth quarter of 2010, the Company recorded an
impairment charge of $6 million relating to the broadcast licence
of a radio station in the Media segment. Using the Greenfield
income approach, the Company determined the fair value of the
broadcast licence to be lower than its carrying value.
In the fourth quarter of 2009, the Company recorded an
impairment charge of $4 million relating to the broadcast licence
of a radio station in the Media segment. Using the Greenfield
income approach, the Company determined the fair value of the
broadcast licence to be lower than its carrying value.
Also in the fourth quarter of 2009, the Company recorded an
impairment charge of $1 million related to a conventional
television broadcast licence in the Media segment using the
Greenfield income approach and replacement cost. The Company
determined the fair value of the broadcast licence to be lower than
its carrying value.
The Company has made certain assumptions within the Greenfield
income approach which may differ or change 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 could result in further
impairment losses.
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(B) GOODWILL:
A summary of the changes to goodwill is as follows:
Opening balance
Acquisition of Blink (note 4(a)(i))
Acquisition of Cityfone (note 4(a)(ii))
Acquisition of Kincardine (note 4(a)(iii))
Acquisition of BV! Media (note 4(a)(iv))
Acquisition of K-Rock and KIx Country (note 4(c)(i))
Adjustments to Outdoor Life Network purchase price allocation (note 4(c)(ii))
2010
20 09
$
3,018 $
3,024
66
6
10
15
–
–
–
–
–
–
6
(12)
$
3,115 $
3,018
INTANGIBLE ASSETS:
(C)
Details of intangible assets are as follows:
Indefinite life:
Spectrum licences
Broadcast licences
Definite life:
Brand names
Customer relationships
Roaming agreements
Marketing agreement
Cost
prior to
impairment
losses
Accumulated
amortization
Impairment
losses
(note 11 (a)
(ii))
2010
Net book
value
Cost
prior to
impairment
losses
Accumulated
amortization
Impairment
losses
(note 11 (a)
(ii))
20 09
Net book
value
$
2,016 $
110
420
1,073
523
52
– $
–
205
1,007
269
38
– $
2,016 $
1,969 $
6
–
–
–
–
104
215
66
254
14
115
420
1,001
523
52
– $
–
188
992
225
27
– $
1,969
5
–
–
–
–
110
232
9
298
25
$
4,194 $
1,519 $
6 $
2,669 $
4,080 $
1,432 $
5 $
2,643
Amortization of brand names, customer relationships, roaming
agreements and marketing agreements amounted to $87 million for
the year ended December 31, 2010 (2009 – $181 million).
During 2010, spectrum licences, which are recorded in the Wireless
segment, increased by $47 million from the proportionate share of the
spectrum acquisitions made by Inukshuk (note 5).
During 2010, broadcast licences decreased by $6 million to reflect
impairment of the carrying amount of the broadcast licence of a radio
station (note 11(a)(ii)).
During 2010, customer relationships increased by $72 million as a result
of acquisitions across all divisions.
During 2009, spectrum licences, which are recorded in the Wireless
segment, increased by $40 million from the proportionate share of the
spectrum acquisitions made by Inukshuk (note 5).
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 a radio broadcast licence and a conventional
television broadcast licence (note 11(a)(ii)). On July 29, 2009, the
Company acquired the radio licence 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 2009, brand names decreased by $3 million to reflect the full
amortization and removal of a trademark.
During 2009, customer relationships increased by $2 million as a result
of Media acquisitions.
98 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INVESTMENTS:
Number
20 10
20 09
Description
Carrying
value
Carrying
value
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
10,687,925 (2009 – 9,795,675)
Subordinate Voting common shares $
438 $
5,969,390 (2009 – 5,023,300)
Subordinate Voting common shares
224
13
675
27
19
$
721 $
343
144
9
496
18
33
547
In 2010, the Company acquired 892,250 Subordinate Voting common
shares of Cogeco Cable Inc. for aggregate consideration of $39 million
and 946,090 Subordinate Voting common shares of Cogeco Inc. for
aggregate consideration of $36 million. 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.
13. OThER LONG-TERM ASSETS:
Deferred pension asset (note 17)
Long-term receivables
Acquired program rights
Indefeasible right of use agreements
Deferred installation costs
Cash surrender value of life insurance
Deferred compensation
Other
Amortization of certain long-term assets for 2010 amounted to
$2 million (2009 – $6 million). Accumulated amortization, as at
December 31, 2010, amounted to $8 million (2009 – $6 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.
20 10
20 09
$
163 $
134
47
28
27
14
13
10
19
23
39
29
16
11
12
16
$
321 $
280
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. LONG-TERM DEBT:
Bank credit facility
Senior Notes*
Senior Notes*
Senior Notes**
Senior Notes**
Senior Notes*
Senior Notes**
Senior Notes*
Senior Notes**
Senior Notes*
Senior Notes**
Senior Notes
Senior Notes
Senior Notes
Senior Notes
Senior Debentures**
Senior Notes
Senior Notes
Senior Notes
Fair value increment (decrement) arising from purchase accounting
Capital leases and other
Less current portion
Due
date
Principal
amount
Interest
rate
2010
20 09
Floating $
– $
2011 $U.S. 490
2011
2011
460
175
2012 U.S. 350
2012 U.S. 470
2013 U.S. 350
9.625%
7.625%
7.25%
7.875%
7.25%
6.25%
2014 U.S. 750
6.375%
2014 U.S. 350
2015 U.S. 550
2015 U.S. 280
2016
1,000
2018 U.S. 1,400
2019
2020
500
900
2032 U.S. 200
2038 U.S. 350
2039
2040
500
800
5.50%
7.50%
6.75%
5.80%
6.80%
5.38%
4.70%
8.75%
7.50%
6.68%
6.11%
Various
–
–
–
348
468
348
746
348
547
279
–
515
460
175
368
494
368
788
368
578
294
1,000
1,392
1,000
1,471
500
900
199
348
500
800
(5)
–
500
–
210
368
500
–
6
1
8,718
8,464
–
1
$
8,718 $
8,463
(*)Denotes senior notes originally issued by Rogers Wireless Inc. which are now unsecured obligations of RCI and for which Rogers Communications Partnership (“RCP”) is an unsecured co-obligor (note 14(e)).
(**)Denotes senior notes and debentures originally issued by Rogers Cable Inc. which are now unsecured obligations of RCI and for which RCP is an unsecured guarantor (note 14(e)).
(A) 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.
(B) SENIOR NOTES AND SENIOR DEBENTURES:
Interest is paid semi-annually on all of the Company’s notes
and debentures.
Each of the Company’s Senior Notes and Senior Debentures are
redeemable, in whole or in part, at the Company’s option, at any time,
subject to a certain prepayment premium.
ISSUANCE OF SENIOR NOTES:
(C)
On August 25, 2010, the Company issued $800 million of 6.11% Senior
Notes which mature on August 25, 2040. 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 $794 million after deduction of the original issue
discount and debt issuance costs.
On September 29, 2010, the Company issued $900 million of 4.70%
Senior Notes which mature on September 29, 2020. 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 $895 million after deduction of the
original issue discount and debt issuance costs.
Debt issuance costs of $10 million related to these debt issuances were
incurred and expensed in the year ended December 31, 2010.
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 and debt issuance costs.
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 and debt issuance costs.
Debt issuance costs of $11 million related to these debt issuances were
incurred and expensed in the year ended December 31, 2009.
100 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(D) REDEMP TION OF SENIOR NOTES:
On August 27, 2010, the Company redeemed the entire outstanding
principal amount of its U.S.$490 million ($516 million) 9.625% Senior
Notes due 2011 at the prescribed redemption price of 105.999% of the
principal amount effective on that date. The Company incurred a loss
on the repayment of the Senior Notes aggregating $39 million,
including aggregate redemption premiums of $31 million, a net loss on
the termination of the associated swaps of $16 million, offset by a
write-down of a previously recorded fair value increment of $8 million.
Concurrently with this redemption, on August 27, 2010, the Company
terminated the associated Derivatives aggregating U.S.$500 million
notional principal amount, including the U.S.$10 million notional
principal amount which were not accounted for as hedges. The
Company made a net payment of approximately $269 million to
terminate these Derivatives.
On August 31, 2010, the Company redeemed the entire outstanding
principal amount of its $460 million 7.625% Senior Notes due 2011 at
the prescribed redemption price of 107.696% of the principal amount
effective on that date. The Company incurred a loss on repayment of
the Senior Notes of $35 million.
On August 31, 2010, the Company redeemed the entire outstanding
principal amount of its $175 million 7.25% Senior Notes due 2011 at the
prescribed redemption price of 107.219% of the principal amount
effective on that date. The Company incurred a loss on repayment of
the Senior Notes of $13 million.
The total loss on repayment of the Senior Notes was $87 million for the
year ended December 31, 2010.
As a result of these redemptions, the Company paid an aggregate of
approximately $1,230 million, including approximately $1,151 million
aggregate principal amount and $79 million for the premiums payable
in connection with the redemptions.
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.
(E) UNSECURED OBLIGATIONS:
Prior to the Company’s reorganization completed on July 1, 2010, RCl’s
public debt originally issued by Rogers Cable Inc. had 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 RCl’s public debt originally
issued by Rogers Wireless Inc. had RWP as a co-obligor and RCCI as an
unsecured guarantor. Similarly, RCCI and RWP had provided unsecured
guarantees for the public debt issued directly by RCI, the bank credit
facility and the Derivatives. Accordingly, RCI’s bank credit facility, senior
public debt and Derivatives ranked pari passu on an unsecured basis.
Prior to its redemption in December 2009, RCI’s U.S.$400 million 8.00%
Senior Subordinated Notes were subordinated to its senior debt.
July 1, 2010 corporate reorganization:
On June 30, 2010, RWP changed its name to Rogers Communications
Partnership (“RCP”). On July 1, 2010, the Company completed a
reorganization which included the amalgamation of RCI and RCCI and
another of RCI’s wholly-owned subsidiaries forming one amalgamated
company under the name Rogers Communications Inc. Following this
amalgamation, certain of the operating assets and operating liabilities
of the amalgamated company together with all of its employees were
transferred to RCP, subject to certain exceptions. The amalgamated
company did not transfer its interests or obligations in or under: equity
interests in any subsidiaries; long-term debt; derivative instruments;
real estate assets; and intercompany notes.
As a result of this reorganization, effective July 1, 2010, RCP holds
substantially all of the Company’s shared services and Cable and
Wireless operations. Reporting will continue to reflect the Cable and
Wireless services as separate operating segments.
In addition, RCCI ceased to be a separate legal entity on July 1, 2010 as a
result of the amalgamation and effective July 1, 2010 RCCI is no longer a
guarantor or obligor, as applicable, for the Company’s bank credit
facility, public debt and Derivatives. Following the amalgamation, RCI
continues to be the obligor in respect of each of the Company’s bank
credit facility, public debt and Derivatives, while RCP remains either a
co-obligor or guarantor, as applicable, for the public debt and a
guarantor for the bank credit facility and Derivatives. RCl’s and RCP’s
respective obligations under the bank credit facility, the public debt
and the Derivatives continue to rank pari passu on an unsecured basis.
(F)
FAIR VALUE INCREMENT (DECREMENT ) ARISING FROM
PURChASE ACCOUNTING:
The fair value increment (decrement) 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 (decrement)
is amortized over the remaining term of the related debt and recorded
as part of interest expense. The fair value increment (decrement),
applied to the specific debt instruments to which it relates, results in
the following carrying values at December 31, 2010 and 2009 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
Total
201 0
20 09
9.625% $
– $
7.625%
7.250%
6.375%
7.500%
–
469
738
549
533
460
495
774
579
$
1,756 $
2,841
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2010, the Company redeemed the entire outstanding
principal amount of its U.S.$490 million ($516 million) 9.625% Senior
Notes due 2011 and $460 million 7.625% Senior Notes due 2011,
resulting in a write-down of the previously recorded fair value
increment of $8 million.
(G) WEIGhTED AVER AGE INTEREST R ATE:
The Company’s effective weighted average interest rate on all long-
term debt, as at December 31, 2010, including the effect of the
Derivatives, was 6.68% per annum (2009 – 7.27% per annum).
(h) PRINCIPAL REPAYMENTS:
As at December 31, 2010, principal repayments due within each of the
next five years and thereafter on all long-term debt are as follows:
2011
2012
2013
2014
2015
Thereafter
$
$
–
816
348
1,094
826
5,639
8,723
Coincident with the maturity of the Company’s U.S. dollar denominated
long-term debt, certain of the Company’s Derivatives also mature
(note 15(d)(iii)).
FOREIGN ExChANGE:
(I)
Foreign exchange gains related to the translation of long-term debt
recorded in the consolidated statements of income totalled $20 million
(2009 – gain of $126 million).
(j) 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.
In addition, certain of the Company’s Senior Notes and Debentures
described above 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, 2010, 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 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 D e ce m b e r 31, 2010 an d 20 0 9, th e C o m p any wa s
in
compliance with all of the terms and conditions of its long-term
debt agreements.
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 RISk:
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, 2010, the
Company had accounts receivable of $1,480 million (2009 – $1,310
million), net of an allowance for doubtful accounts of $138 million (2009
– $157 million). At December 31, 2010, $715 million (2009 – $563 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.$5.1 billion aggregate
notional amount of the Derivatives are unsecured and generally rank
equally with the Company’s senior indebtedness. The credit risk of the
Company and the counterparties, as applicable, is taken into
consideration in determining the fair value of the Derivatives for
accounting purposes (note 15(d)).
102 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(C) LIqUIDIT Y RISk:
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,
2010, the undrawn portion of the Company’s bank credit facility was
approximately $2.4 billion (2009 – $2.4 billion), excluding letters of
credit of $94 million (2009 – $47 million).
The following are the contractual maturities, excluding interest
payments, reflecting undiscounted disbursements of the Company’s
financial liabilities at December 31, 2010:
(In millions of dollars)
Bank advances
Accounts payable and accrued liabilities
Income tax payable
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
$
40
$
40
$
40
$
2,256
376
8,718
64
–
–
900
2,256
376
8,723
64
5,907
(5,023)*
2,256
376
–
–
–
–
–
–
–
1,164
33
$
–
–
–
1,920
19
$
–
–
–
5,639
12
1,570
(1,164)*
2,338
(1,920)*
1,999
(1,939)*
$ 12,354
$ 12,343
$
2,672
$ 1,603
$
2,357
$
5,711
*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, 2010, 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
$
645 $
1,158 $
864 $
3,548
(D) MARkET RISk:
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, 2010, a $1 change in the market price per share of
the Company’s publicly traded investments would have resulted in
a $14 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, RSUs and DSUs, 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 respective
option, RSU and DSU exercise price, as applicable. 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, RSU and DSU. At December 31, 2010, 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.
(iii) Foreign exchange and interest rates:
The Company uses derivative financial instruments to manage risks
from fluctuations in exchange rates and interest rates related to its
U.S. dollar denominated debt instruments. From time-to-time,
these derivative financial 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.
The effect of estimating fair value using credit-adjusted interest rates
on the Company’s Derivatives at December 31, 2010 is illustrated in the
table below. As at December 31, 2010, the credit-adjusted net liability
position of the Company’s Derivative portfolio was $900 million, which
is $17 million less than the unadjusted risk-free mark-to-market net
liability position.
As at December 31, 2010
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)
$
$
7 $
(924) $
7
(907)
(917)
(900)
– $
17 $
17
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All of the $17 million related to Derivatives accounted for as hedges was
recorded in other comprehensive income.
On August 27, 2010, the Company redeemed all of the U.S.$490 million
principal amount of its 9.625% Senior Notes due 2011 and, concurrently
with this redemption, on August 27, 2010, the Company terminated the
associated Derivatives aggregating U.S.$500 million notional principal
amount, including the U.S.$10 million notional principal amount which
were not accounted for as hedges. The Company made a net payment
of approximately $269 million to terminate these Derivatives.
As at December 31, 2009
Mark-to-market value – risk-free analysis
Mark-to-market value – credit-adjusted estimate (carrying value)
Difference
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.
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.
At December 31, 2010, 93.1% 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, 2010,
details of the Derivatives net liability position are as follows:
2010
Derivatives accounted for as cash flow hedges:
As assets
As liabilities
Net mark-to-market liability
Derivatives not accounted for as hedges:
As liabilities
Net mark-to-market liability
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
$
575
4,125
1.0250 $
589 $
7 $
1.2021
4,959
350
1.0258
359
(918)
(911)
(6)
(6)
$
(917) $
7
(901)
(894)
(6)
(6)
(900)
(66)
$
(834)
In 2010, nil (2009 – $1 million increase) related to hedge ineffectiveness
was recognized in net income.
The long-term portion above comprises a derivative instruments
liability of $840 million and a derivative instruments asset of $6 million
as at December 31, 2010.
At December 31, 2010, all of the Company’s long-term debt was at fixed
interest rates.
US$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, 2010. In addition, this would have resulted in
a $3 million change in net income, net of income taxes of $1 million.
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.
All of the Company’s Derivatives are unsecured obligations of RCI. In
addition, RCP has provided unsecured guarantees for all of the
Company’s Derivatives (notes 14(e) and 15(b)).
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:
104 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
(E) FINANCIAL INSTRUMENTS:
(i) Classification and fair values of financial instruments:
The Company has classified its financial instruments as follows:
U.S. $
notional
Exchange
rate
Cdn. $
notional
Unadjusted
Estimated fair value,
mark-to market
value on a risk
free basis
being carrying
amount on a credit
risk adjusted basis
1,975
3,215
350
10
1.0252 $
1.3337
2,025 $
4,288
1.0258
1.5370
359
15
84 $
(1,117)
(1,033)
10
(4)
6
$
(1,027) $
$
2010
Carrying
amount
Fair
value
Carrying
amount
Cash and cash equivalents, held-for-trading, measured at fair value
Financial assets, available-for-sale, measured at fair value:
Investments
Loans and receivables, measured at amortized cost:
Accounts receivable
$
– $
– $
383 $
383
675
675
496
496
1,480
1,480
1,310
1,310
$
2,155 $
2,155 $
2,189 $
2,189
Financial liabilities, measured at amortized cost:
Bank advances
Accounts payable and accrued liabilities
Income tax payable
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
The Company did not have any non-derivative held-to-maturity
financial assets during the years ended December 31, 2010
and 2009.
(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:
2010
Carrying
amount
Fair
value
Carrying
amount
$
40 $
40 $
– $
2,256
376
8,718
64
6
894
2,256
376
9,688
64
6
894
2,175
208
8,464
76
(5)
1,007
1,007
$
12,354 $
13,324 $
11,925 $
12,776
(a)
Business sale and business combination agreements:
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 proper ty,
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.
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 105
73
(1,080)
(1,007)
9
(4)
5
(1,002)
(76)
(926)
20 09
Fair
value
20 09
Fair
value
–
2,175
208
9,315
76
(5)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) Sales of services:
(iii) Fair values:
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.
(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.
(d)
Indemnifications:
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, 2010 or 2009. Historically, the Company
has not made any significant payments under these indemnifications
or guarantees.
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, accounts payable and accrued liabilities and
income tax payable 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-
marke t valu e at year- e n d an d cre dit- a dju s te d
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:
2010
2009
Level 1
Level 2
Level 1
Level 2
Valuation
technique
using
observable
market inputs
Quoted
market
price
Valuation
technique
using
observable
market inputs
Quoted
market
price
Financial assets:
Cash and cash equivalents
Publicly traded investments
Derivatives accounted for as cash flow hedges
Derivatives not accounted for as hedges
Total financial assets
Financial liabilities:
Bank advances
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, 2010
and 2009.
$
– $
675
–
–
675 $
40 $
–
–
$
$
$
40 $
–
–
7
–
7
–
901
6
907
106 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
$
383 $
496
–
–
879 $
–
–
73
9
82
– $
–
–
–
1,080
4
– $
1,084
$
$
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. OThER LONG-TERM LIABILITIES:
CRTC commitments
Supplemental executive retirement plan (note 17)
Restricted share units
Deferred compensation
Program rights liability
Deferred gain on contribution of spectrum licences,
net of accumulated amortization of $14 million (2009 – $10 million) (note 5)
Liabilities related to stock options
Other
20 10
20 09
$
31 $
30
17
16
10
10
3
7
45
29
12
18
11
14
2
2
$
124 $
133
The liability for CRTC committed expenditures is recorded upon
granting of the licence. 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 $45 million at December 31, 2010 (2009 – $62 million).
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.
Ac tuarial estimates are based on projec tions 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
completed as at January 1, 2010 for two of the plans and January 1,
2009 for one of the other plans. The next actuarial valuation for funding
purposes must be of a date no later than January 1, 2011 for certain of
the plans and January 1, 2012 for one of the other plans.
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
20 10
20 09
$
614 $
766
(152)
14
–
6
295
$
163 $
518
526
(8)
14
(1)
9
120
134
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 on plan assets
Contributions by employees
Contributions by employer
Benefits paid
Net transfer out on settlement (d)
Plan assets, end of year
20 10
20 09
$
518 $
48
21
61
(34)
–
556
25
21
120
(32)
(172)
$
614 $
518
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Obligation being settled (d)
Accrued benefit obligations, end of year
Net pension expense is outlined below:
Plan cost:
Service cost
Interest cost
Actual return on plan assets
Actuarial loss 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 gain
Plan amendments/prior service cost
Amortization of transitional asset
Net pension expense
2010
20 09
$
526 $
22
39
(34)
21
192
–
622
21
43
(32)
21
23
(172)
$
766 $
526
2010
20 09
$
22 $
39
(48)
192
–
$
205 $
10
(186)
2
–
$
31 $
21
43
(25)
23
30
92
(17)
(18)
2
(8)
51
The Company also provides supplemental unfunded pension benefits to
certain executives. The accrued benefit obligation relating to these
supplemental plans amounted to approximately $37 million at
December 31, 2010 (2009 – $31 million), and the related expense for
2010 was $4 million (2009 – $3 million). The accrued pension liability at
December 31, 2010 is $30 million (2009 – $29 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
2010
20 09
5.60%
7.20%
3.00%
3.00%
7.00%
7.20%
6.75%
3.00%
3.00%
7.25%
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 (2009 – 8 to 11 years).
108 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(B) ALLOC ATION OF PL AN ASSETS:
Asset category
Equity securities
Debt securities
Other – cash
Percentage of plan assets at
measurement date
2010
2009
58.2%
41.5%
0.3%
59.4%
39.9%
0.7%
100.0%
100.0%
Target
asset allocation
percentage
50% to 70%
35% to 45%
0% to 5%
Plan assets primarily comprise 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 (2009 – $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.
(C) AC TUAL CONTRIBUTIONS TO ThE PL ANS FOR ThE YEARS
ENDED DECEMBER 31, 2010 AND 20 09 ARE AS FOLLOWS:
2010
2009
Employer
Employee
Total
$
61 $
120
21 $
21
82
141
Expected contributions by the Company in 2011 are estimated to be
approximately $70 million.
Employee contributions for 2011 are assumed to be at levels similar to
2010 on the assumption staffing levels in the Company will remain the
same on a year-over-year basis.
(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 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.
The Company did not have any curtailment gains or losses in 2010
and 2009.
(E) ExPEC TED C ASh FLOWS:
Expected benefit payments for funded and unfunded plans for the next
10 fiscal years are as follows:
2011
2012
2013
2014
2015
Next five years
$
$
26
27
29
30
32
144
195
339
Certain subsidiaries have defined contribution plans with total pension expense of $2 million in 2010 (2009 – $2 million).
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. ShAREhOLDERS’ EqUITY:
(A) C APITAL STOCk:
Preferred shares:
(i)
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 (the “Board”) 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 Amalgamation of the Company under the Business
Corporations 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 2009 and 2010, 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 17, 2009
April 29, 2009
August 20, 2009
October 27, 2009
February 16, 2010
April 29, 2010
August 18, 2010
October 26, 2010
Date paid
Dividend
per share
April 1, 2009 $
July 2, 2009
October 1, 2009
January 2, 2010
$
April 1, 2010 $
July 2, 2010
October 1, 2010
January 4, 2011
$
0.29
0.29
0.29
0.29
1.16
0.32
0.32
0.32
0.32
1.28
In February 2010, the Board adopted a dividend policy which increased
the annualized dividend rate from $1.16 to $1.28 per Class A Voting and
Class B Non-Voting share effective immediately to be paid quarterly in
amounts of $0.32 per share on each outstanding Class A Voting and
Class B Non-Voting share. Consequently, the Class A Voting shares may
receive a dividend at a quarterly rate of up to $0.32 per share only after
the Class B Non-Voting shares have been paid a dividend at a quarterly
rate of $0.32 per share. The Class A Voting and Class B Non-Voting
shares share equally in dividends after payment of a dividend of $0.32
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.
110 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
(C) NORMAL COURSE ISSUER BID:
In February 2010, the Toronto Stock Exchange (“TSx”) accepted a notice
filed by the Company of its intention to renew its prior normal course
issuer bid (“NCIB”) for a further one-year period. The TSx notice
provides that the Company may, during the 12-month period
commencing February 22, 2010 and ending February 21, 2011, 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 $1,500 million. The
actual number of Class B Non-Voting shares purchased under the NCIB,
and the timing of such purchases will be determined by the Company
considering market conditions, share prices, its cash position and
other factors.
In 2010, the Company repurchased for cancellation an aggregate
37,080,906 Class B Non-Voting shares for an aggregate purchase price
of $1,312 million, resulting in a reduction to stated capital, contributed
surplus and retained earnings of $37 million, $1,191 million and $84
million, respectively. An aggregate 22,600,906 of these shares were
repurchased for cancellation directly under the NCIB for an aggregate
purchase price of $830 million. The remaining 14,480,000 of these
shares were repurchased for cancellation pursuant to private
agreements between the Company and arm’s-length third party sellers
for an aggregate purchase price of $482 million. These purchases 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.
The NCIB expired on February 21, 2011 (note 26(a)).
In February 2009, the Company filed an NCIB with the 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, $1,256 million and $50
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 was
included in calculating the number of Class B Non-Voting shares that
the Company was able to purchase pursuant to this NCIB.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(D) ACCUMUL ATED OThER COMPREhENSIVE INCOME (LOSS):
Unrealized gain on available-for-sale investments
Unrealized loss on cash flow hedging instruments
Related income taxes
19. STOCk-BASED COMPENSATION:
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, 2010, the Company had a liability of $162 million (2009
– $178 million), of which $142 million (2009 – $164 million) is a current
liability related to stock-based compensation recorded at its intrinsic
value, including stock options, RSUs and DSUs. During the year ended
December 31, 2010, $58 million (2009 – $63 million) was paid to holders
upon exercise of RSUs and stock options using the cash settlement
feature.
(A) STOCk OP TIONS:
(i)
Stock option plans:
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 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.
At December 31, 2010, 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
20 10
20 09
$
323 $
(122)
43
$
244 $
219
(256)
80
43
20 10
20 09
$
24 $
19
4
$
47 $
(38)
7
(2)
(33)
For in-the-money stock options measured at the Company’s
December 31 share price of Class B Non-Voting shares,
unrecognized stock-based compensation expense related to stock
option plans was $3 million (2009 – $5 million), and will be recorded
in the consolidated statements of income over the next four years.
(ii) Performance options:
During the year ended December 31, 2010, the Company granted
759,200 (2009 – 1,156,200) 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. At December 31, 2010, 4,894,980
performance options were outstanding.
All outstanding options, including the performance options, are
classified as liabilities and are carried at their intrinsic value as
adjusted for vesting.
2010
Weighted
average
exercise
price
Number of
options
20 09
Weighted
average
exercise
price
Number of
options
13,467,096 $
23.73 13,841,620 $
1,350,225
34.69
2,636,600
(2,528,585)
14.78
(2,604,787)
(447,056)
34.89
(406,337)
11,841,680 $
26.42 13,467,096 $
6,415,933 $
19.24
8,149,361 $
20.80
29.50
12.88
32.20
23.73
17.56
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2010, the range of exercise prices, the weighted average
exercise price and the weighted average remaining contractual life are as
follows:
Range of
exercise prices
$ 4.83 – $ 9.99
$ 10.00 – $ 11.99
$ 12.00 – $ 18.99
$ 19.00 – $ 24.99
$ 25.00 – $ 29.99
$ 30.00 – $ 37.99
$ 38.00 – $ 46.94
Options outstanding
Options exercisable
Weighted
average
remaining
contractual
life (years)
2.23 $
2.61
1.75
2.15
5.19
6.02
3.72
Weighted
average
exercise
price
7.53
10.44
13.78
22.62
29.42
34.12
Number
exercisable
837,383 $
1,765,688
984,765
1,248,748
437,181
77,605
39.03
1,064,563
Number
outstanding
837,383
1,765,688
984,765
1,248,748
2,011,666
1,574,527
3,418,903
11,841,680
3.68 $
26.42
6,415,933 $
Weighted
average
exercise
price
7.53
10.44
13.78
22.62
29.42
32.11
38.99
19.24
(B) RESTRIC TED ShARE UNITS:
(i) RSU plan:
The RSU 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, RSUs are issued to the
participant and the units issued vest over a period not to exceed
three years from the grant date.
On the vesting date, the Company shall redeem all of the
participants’ RSUs in cash or by issuing one Class B Non-Voting
share for each RSU. The Company has reserved 4,000,000 Class B
Non-Voting shares for issuance under this plan. During the year
ended December 31, 2010, the Company granted 631,655 RSUs
(2009 – 431,185).
(ii) Performance RSUs:
During the year ended December 31, 2010, the Company granted
187,508 (2009 – nil) performance-based RSUs to certain key
executives. The number of units that vest and will be paid will be
within a range of 50% to 150% of the initial number granted
based upon the achievement of certain annual and three year
non-market targets.
At December 31, 2010, 1,616,370 (2009 – 1,060,223) RSUs and
performance RSUs were outstanding. These RSUs vest at the end
of three years from the grant date. Stock-based compensation
expense for the year ended December 31, 2010, related to these
RSUs, was $19 million (2009 – $7 million).
For RSUs measured at the Company’s December 31 share price of
Cla s s B N on -Voting share s , unre co gnize d s to ck- ba se d
compensation expense as at December 31, 2010 related to these
RSUs was $26 million (2009 – $17 million), and will be recorded in
the consolidated statements of income over the next three years.
(C) DEFERRED ShARE UNITS:
The DSU plan enables directors and certain key executives of the
Company to elect to receive certain types of remuneration in DSUs,
which are classified as a liability on the consolidated balance
sheets amounting to $23 million (2009 – $20 million). During the
year ended December 31, 2010, the Company granted 89,136
deferred share units (2009 – 110,516). At December 31, 2010,
664,169 (2009 – 613,777) DSUs were outstanding. Stock-based
compensation expense for the year ended December 31, 2010
related to these DSUs was $4 million (2009 – $2 million recovery).
There is no unrecognized compensation expense related to DSUs,
since these awards vest immediately when granted.
(D) EMPLOYEE ShARE ACCUMUL ATION PL AN:
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 $20 million (2009 – $17 million) for
the year ended December 31, 2010.
112 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. CONSOLIDATED STATEMENTS OF CASh FLOWS AND SUPPLEMENTAL INFORMATION:
(A) ChANGE IN NON-CASh OPERATING WORkING CAPITAL ITEMS:
Decrease (increase) in accounts receivable
Decrease (increase) in other assets
Decrease in accounts payable and accrued liabilities
Increase in income taxes payable
Increase (decrease) in unearned revenue
(B) SUPPLEMENTAL CASh FLOW INFORMATION:
Income taxes paid
Interest paid
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 comprises issued capital, contributed
s u r p l u s , a c c u m u l a t e d o t h e r c o m p r e h e n s i v e
i n c o m e a n d
retained earnings.
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, 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 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 February 2010, the TSx accepted a notice filed by the 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 12-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 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 2010, the Company repurchased an aggregate 37,080,906 Class B
Non-Voting shares, of which 22,600,906 were repurchased directly
under the NCIB and the remaining 14,480,000 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 expired on February 21, 2011 (note 26(a)).
201 0
20 09
$
(163) $
(90)
(83)
168
(12)
$
(180) $
93
76
(155)
205
45
264
201 0
20 09
$
152 $
651
8
632
In 2010, the Company issued $800 million of 6.11% Senior Notes due
2040 and $900 million of 4.70% Senior Notes due 2020 (note 14(c)).
In 2010, the Company redeemed the entire outstanding principal
amount of its U.S.$490 million ($516 million) 9.625% Senior Notes, $460
million 7.625% Senior Notes, and $175 million 7.25% Senior Notes
(note 14(d)).
In 2010, the Company settled derivatives hedging the U.S.$490 million
9.625% Senior Notes. Simultaneously, the Company also settled
additional Derivatives with a notional amount of $10 million which
were not accounted for as hedges. The settlement of these Derivatives
resulted in a net payment by the Company of $269 million (note 14(d)).
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 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. There was no change to this target leverage range
in 2010.
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, 2009.
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
2010
20 09
$
16 $
16
(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
2010
20 09
$
39 $
39
(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
2010
20 09
$
– $
(1)
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, the Company closed an
agreement to sell the Company’s aircraft to a private Rogers’ family
holding company for cash proceeds of $19 million (U.S.$18 million). The
terms of the sale were negotiated by a Special Committee of the Board,
entirely comprised 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.
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.
(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.
(C)
In the ordinary course of business and in addition to the 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 ten years at a
total cost of approximately $839 million. In addition, the Company has
commitments to pay access fees over the next year totalling
approximately $15 million.
(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 2011 will amount to
approximately $74 million.
The CRTC collects two different types of fees from broadcast licencees
which are known as Part I and Part II fees. Each broadcasting licencee
pays a proportionate share of the fees based on its percentage of
revenue share across all broadcasting licencees. The Company estimates
that licence fees for 2011 will amount to approximately $28 million.
114 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 2011 will amount to
approximately $31 million.
(F) Pursuant to Industry Canada regulation, the Company is required
to pay certain fees for the use of its spectrum licences. These fees are
primarily based on the bandwidth and population covered by the
spectrum licence. The Company estimates that these fees for 2011 will
amount to $85 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
24. CONTINGENT LIABILITIES:
for player contracts, purchase obligations and other contracts, including
outsourcing arrangements, at December 31, 2010 are as follows:
Year ending December 31:
2011
2012
2013
2014
2015
2016 and thereafter
$
755
409
315
246
184
292
$
2,201
Rent expense for 2010 amounted to $180 million (2009 – $181 million).
(A)
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.
(B)
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 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
(C)
(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. The “opt-in”
nature of the class was later confirmed by the Saskatchewan Court of
Appeal. As a national, “opt-in” class action, affected customers outside
Saskatchewan have to take specific steps to participate in the
proceeding. In February 2008, the Company’s motion to stay the
proceeding based on the arbitration clause in the wireless service
agreements was granted 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 August 2009, counsel for the plaintiffs commenced a second
proceeding under the Class Actions Act (Saskatchewan) asserting the
same claims as the original proceeding. This second proceeding was
ordered conditionally stayed in December 2009 on the basis that it was
an abuse of the process.
The Company’s appeal of the 2007 certification decision was heard in
December 2010 and the Company awaits the decision. 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 the financial position and
results of operations could result.
(D) 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.
(E)
In October 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.
(F) 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.
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25. CANADIAN AND UNITED 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.
If United States GAAP were employed, net income for the years ended
December 31, 2010 and 2009 would be adjusted as follows:
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)
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, 2010 and 2009 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 $27 (2009– $26) (d)
Change in funded status of pension plans for unrecognized amounts, net of income taxes of $19 (2009 – $16) (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
2010
20 09
$
1,528 $
1,478
–
11
124
(29)
(5)
(24)
(3)
(4)
6
145
13
3
(28)
4
$
1,602 $
1,617
$
2.78 $
2.78
2.60
2.60
2010
20 09
$
1,729 $
1,616
74
139
(97)
(55)
(113)
(45)
$
1,651 $
1,597
2010
20 09
$
3,959 $
4,273
(8)
101
96
49
(14)
(244)
9
13
(7)
(8)
101
85
49
13
(165)
(14)
16
(7)
Shareholders’ equity based on United States GAAP
$
3,954 $
4,343
116 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
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.
(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
was being amortized over a 10-year period ending in 2009.
As a result of this transaction, the carrying amount of the above assets
was higher and additional depreciation expense was 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.
The impact of these changes on net income on a pre-tax basis is
summarized as follows for the year ended December 31:
(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,
2010, a gain of $97 million ($124 million less income taxes of $27 million)
(2009 – gain of $113 million ($139 million less income taxes of $26
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 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. As the debt instrument was repaid in 2009, no adjustment to
Canadian GAAP was required for 2010.
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 2010, the
Company capitalized $10 million (2009 – $11 million) in debt issuance
costs for United States GAAP purposes. Offsetting this was amortization
of previously deferred transaction costs in 2010 of $10 million
(2009 – $9 million).
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
United States GAAP difference in ending shareholders’ equity (pre-tax)
20 10
20 09
$
124 $
139
–
10
(10)
4
11
(9)
$
124 $
145
20 10
20 09
$
$
49 $
49 $
49
49
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 117
NOTES TO 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 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 (i) the
grant-date fair value of the original equity award and (ii) 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
increased by $29 million under United States GAAP for the year ended
December 31, 2010 (2009 – decreased by $13 million).
At December 31, 2010, the recorded liability for these awards is $14
million higher under United States GAAP than recorded under Canadian
GAAP (2009 – $13 million lower).
(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, 2010, the net periodic pension cost under U.S. GAAP
increased by $5 million (2009 – decreased by $3 million) due to the
difference in measurement dates. The cumulative periodic pension cost
difference at December 31, 2010 is an increase in the liability recorded
under U.S. GAAP of $2 million.
Under United States GAAP, the Company is required to recognize the
funded status of defined benefit post-retirement plans on the balance
sheet with changes recorded in other comprehensive income (loss). For
the year ended December 31, 2010, under United States GAAP, the
Company recorded a decrease of $55 million (2009 – decrease of $45
million) to other comprehensive income, net of income taxes of $19
million (2009 – $16 million) to reflect the current period increase in the
funded status differences.
INCOME TA xES:
(G)
Included in 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
$2 million and a decrease in non-current future tax liabilities of the
same amount.
INSTALL ATION REVENUES AND COSTS, NET:
(h)
For Canadian GAAP purposes, cable installation revenues for both new
connects and reconnects 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 FLOWS:
(i)
(ii)
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.
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
decrease in cash and cash equivalents in 2010 in the amount
of $423 million reflected in the consolidated statements of
cash flows would be $383 million and cash used by financing
activities would decrease by $40 million. 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.
(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, 2010,
were $2,178 million (2009 – $1,843 million). At December 31, 2010,
accrued liabilities in respect of PP&E totalled $196 million (2009 – $108
million), accrued interest payable totalled $155 million (2009 – $144
million), accrued liabilities related to payroll totalled $294 million
(2009 – $337 million), and CRTC commitments totalled $14 million
(2009 – $10 million).
118 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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:
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
Cumulative periodic pension cost difference
Accumulated other comprehensive loss under United States GAAP, on a pre-tax basis
Net amount recognized in the consolidated balance sheets under United States GAAP
20 10
20 09
$
28 $
37
(40)
–
–
2
9
36 $
163 $
(6)
(2)
$
$
16
41
(39)
30
(6)
2
4
48
134
(6)
3
(231)
(159)
$
(76) $
(28)
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 $36 million (2009 – $32 million). The total accumulated other
comprehensive loss associated with the supplemental plan amounts to $5
million (2009 – $3 million), on a pre-tax basis.
(L) RECENT UNITED STATES ACCOUNTING PRONOUNCEMENTS:
In September 2009, the Financial Accounting Standards Board (“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 update 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.
26. SUBSEqUENT EVENTS:
In February 2010, the FASB issued Update No. 2010-09, Subsequent Events
(Topic 855). This update removes the requirement for Securities Exchange
Commission filers to disclose the date financial statements are available to
be issued. It required the disclosure of the date through which an entity
has evaluated subsequent events to be the date the financial statements
were issued. The Company recognized the effects of events or transactions
that occur after the balance sheet date but before financial statements are
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.
(A)
In February 2011, the TSx accepted a notice filed by the 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 12-month
period commencing February 22, 2011 and ending February 21, 2012,
purchase on the TSx the lesser of 39.8 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.
On February 22, 2011, the Company repurchased for cancellation,
pursuant to a private placement agreement between the Company and
an arm’s-length third party, 1.4 million Class B Non-Voting shares for an
aggregate price of $45 million. The transaction 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.
In February 2011, the Company’s Board adopted a dividend policy
(B)
which increases the annualized dividend rate from $1.28 to $1.42 per
Class A Voting and Class B Non-Voting share effective immediately to be
paid in quarterly amounts of $0.355 per share. Such quarterly dividends
are only payable as and when declared by the Board and there is no
entitlement to any dividends prior thereto.
In addition, on February 15, 2011, the Board declared a quarterly
dividend totalling $0.355 per share on each of its outstanding Class A
Voting and Class B Non-Voting shares, such dividend to be paid on
April 1, 2011, to shareholders of record on March 18, 2011, and is the
first quarterly dividend to reflect the newly increased $1.42 per share
annual dividend level.
(C) On January 4, 2011, the Company closed its agreement to purchase
100% interest in Atria for cash consideration of $425 million (note 4(b)
(i)) and on January 31, 2011, the Company closed its agreements to
purchase the assets of BOB-FM and BOUNCE (note 4(b)(ii)).
(D) On February 18, 2011, the Company announced that it had issued
notices to redeem on March 21, 2011 all of the US$350 million principal
amount of 7.875% Senior Notes due 2012 and all of the US$470 million
principal amount of 7.25% Senior Notes due 2012, in each case at the
applicable redemption price plus accrued interest to the date of
redemption. In each case, the respective redemption price will include a
make whole premium based on the present values of the remaining
scheduled payments as prescribed in the applicable indenture.
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 119
Corporate Governance
BOARd OF dIRECTORS ANd ITS COMMITTEES
As of february 16, 2011
AUDIT
CORPORATE
GOVERNANCE
NOmINATING
COmPENSATION
EXECUTIVE
fINANCE
PENSION
Alan D. horn, CA
Peter C. Godsoe, OC
Ronald D. Besse
C. William D. Birchall
Stephen A. Burch
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 h. Tory
Colin D. Watson
• ChAIR • mEmBER
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 founded and 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 Rogers Communications passed to a trust
of which members of the Rogers family are beneficiaries. This trust holds
voting control of Rogers Communications 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.
The Rogers Communications 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 above and on the following page. As well, we make detailed
information on our governance structures and practices – including our
complete statement of Corporate Governance practices, our codes of
conduct and ethics, full committee charters, and board member
biographies – easily available in the Corporate Governance section within
the Investor Relations section of rogers.com. Also in the Corporate
Governance portion of our website you will find a summary of the
differences between the NYSE corporate 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.
“ 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.
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 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 recommends 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 Pension Committee supervises the administration of the
Company’s pension plans and reviews the provisions and investment
performance of the Company’s pension plans.
See rogers.com for a complete description of Rogers’ corporate governance
structure and practices and biographical information of our Directors.
“ 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 business sense, and benefiting all shareholders.”
ALAN d. HORN
ChAIRmAN Of ThE BOARD
ROGERS COmmUNICATIONS INC.
120 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 121
Directors and Senior Corporate Officers
of Rogers Communications Inc.
As of february 16, 2011
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
Stephen A. Burch
Chairman, University of
Maryland Medical Systems
John H. Clappison, FCA
Company Director
Thomas I. Hull
Chairman and
Chief Executive Officer
The Hull Group of Companies
Philip B. Lind, CM*
Executive Vice President,
Regulatory and Vice Chairman
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
Edward S. Rogers*
Deputy Chairman and
Executive Vice President
Emerging Business,
Corporate Development
Rogers Communications
Loretta A. Rogers
Company Director
Martha L. Rogers
Doctor of
Naturopathic Medicine
Melinda M. Rogers*
Senior Vice President,
Strategy and Development
Rogers Communications
William T. Schleyer
Company Director
John H. Tory
Company Director
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, Stephen A. Burch, Charles William David Birchall, Alan D. Horn, Peter C. Godsoe, David R.
Peterson, Martha L. Rogers, John H. Tory, Loretta A. Rogers
*Management Directors are pictured on the following page.
122 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
Senior Corporate Officers
Nadir H. Mohamed, FCA
President and Chief
Executive Officer
Robert W. Bruce
President,
Communications
Division
Keith Pelley
President, Rogers Media
William W. Linton, CA
Executive Vice President,
Finance and Chief
Financial Officer
Edward S. Rogers
Deputy Chairman and
Executive Vice President
Emerging Business,
Corporate Development
Robert F. Berner
Executive Vice President
Network and Chief Technology
Officer
Jerry D. Brace
Executive Vice President
Information Technology and
Chief Information Officer
Philip B. Lind, CM
Executive Vice President
Regulatory and Vice Chairman
Melinda M. Rogers
Senior Vice President,
Strategy and Development
David P. Miller
Senior Vice President, Legal
and General Counsel
Terrie L. Tweddle
Vice President, Corporate
Communications
Kevin P. Pennington
Senior Vice President Human
Resources and Chief Human
Resources Officer
See rogers.com for an expanded
listing and biographical
information of Rogers’ corporate
management team.
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, Keith Pelley, Edward S. Rogers, Robert W. Bruce, Nadir H. Mohamed,
William W. Linton, Jerry D. Brace
ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT 123
Corporate and Shareholder Information
CORPORATE OFFICES
Rogers Communications Inc.
333 Bloor Street East, 10th Floor
Toronto, Ontario M4W 1G9
416-935-7777 or rogers.com
CUSTOMER SERVICE AND
PRODUCT INFORMATION
888-764-3771 or 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
877-982-5008 or
service@computershare.com
Multiple Mailings
If you receive duplicate shareholder mailings
from Rogers Communications, please
contact Computershare as detailed above
to consolidate your holdings.
INVESTOR RELATIONS
Institutional investors, security analysts
and others requiring additional financial
information can visit the Investor Relations
section of the rogers.com website or
contact:
Bruce M. Mann, CPA
Vice President, Investor Relations
416-935-3532 or
investor.relations@rci.rogers.com
Dan R. Coombes
Director, Investor Relations
416-935-3550 or
investor.relations@rci.rogers.com
Media inquiries: 416-935-7777
CORPORATE PHILANTHROPy
For information relating to Rogers’
various philanthropic endeavours, refer to
the “About Rogers” section of rogers.com
STOCk ExChANGE 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
COMMON STOCK PRICE AND
DIVIDEND INFORMATION
2010
First Quarter
Second Quarter
Third Quarter
Fourth Q uarter
2009
First Quarter
Second Quarter
Third Quarter
Fourth Q uarter
Dividends
Closing Price RCI.b on TSX Declared
Per Share
$0.32
$0.32
$0.32
$0.32
Low
$30.95
$33.81
$34.20
$34.25
High
$35.70
$37.65
$39.12
$41.31
Dividends
Closing Price RCI.b on TSX Declared
Per Share
$0.29
$0.29
$0.29
$0.29
Low
$25.84
$26.74
$28.49
$27.57
High
$37.45
$32.71
$31.37
$33.80
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
FORM 40-F
Rogers files its annual report with the U.S.
Securities and Exchange Commission on
Form 40-F. A copy is available on EDGAR
at sec.gov and on the Investor Relations
section of rogers.com.
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
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. You
may also subscribe to our news by e-mail
or RSS feeds to automatically receive
Rogers’ news releases electronically.
2011 Expected Dividend Dates
Record Date*:
March 18, 2011
June 15, 2011
September 15, 2011
December 15, 2011
* Subject to Board approval
Payment Date*:
April 1, 2011
July 4, 2011
October 3, 2011
January 4, 2012
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.
DIVIDEND REINVESTMENT PLAN (“DRIP”)
Computershare Investor Services Inc.
administers a dividend reinvestment
program for eligible Rogers Shareholders.
To request plan materials or learn
more about Rogers’ DRIP, please visit
computershare.com/rogers or contact
Computershare as detailed earlier on
this page.
ELECTRONIC 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.
C AUTION REGARDING FORWARD - LOOKING INFORMATION AND OTHER RISKS
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 conjunction with all sections 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 fibre. This annual report is recyclable.
8 trees
preserved
for the
future
3,300 gal. of
wastewater
flow saved
365 lbs.
solid waste
not generated
719 lbs. net
greenhouse
gases prevented
5,501,880 BTUs
energy not
consumed
124 ROGERS COMMUNICATIONS INC. 2010 ANNUAL REPORT
© 2011 Rogers Communications Inc.
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respective owners.
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