ROGERS COMMUNICATIONS INC.
2011 ANNUAL REPORT
CONNECTIONS COME ALIVECONNECTIONS ROGERS COMMUNIC ATIONS INC . AT A GL ANCE
DELIVERING RESULTS IN 2011
FREE CASH FLOW
GENERATION
DIVIDEND
INCREASES
SHARE
BUYBACKS
TOP-LINE
GROWTH
WHAT WE SAID: Deliver another year
of significant consolidated pre-tax
free cash flow.
WHAT WE SAID: Increase cash
returns to shareholders consistently
over time.
WHAT WE DID: Generated $2 billion
of pre-tax free cash flow in 2011,
supporting the significant cash we
returned to shareholders during
the year.
WHAT WE DID: Increased
annualized dividend per share
11% from $1.28 to $1.42 in 2011.
WHAT WE SAID: Return
additional cash to shareholders
by repurchasing Rogers shares
on open market.
WHAT WE DID: Repurchased
31 million Rogers Class B shares
for $1.1 billion.
WHAT WE SAID: Leverage
networks, channels and brands
to deliver continued revenue
growth.
WHAT WE DID: Delivered 2%
consolidated top-line growth
with 2% growth in adjusted
operating profit.
CAPTURE OPERATING
EFFICIENCIES
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 SAID: Maintain Rogers’
leadership in network technology
and innovation.
WHAT WE SAID: Strong double-digit
wireless data growth to support
continued ARPU leadership.
WHAT WE DID: Reduced operating
expenses for the combined Wireless
and Cable segments, excluding the
cost of wireless equipment sales, by
approximately 2% from 2010 levels.
WHAT WE DID: Deployed Canada’s first,
largest and fastest 4G LTE wireless net-
work and completed the deployment of
DOCSIS 3.0 Internet capabilities across
our cable TV footprint.
WHAT WE DID: 27% wireless
data revenue growth with data
as a percent of network revenue
expanding to 35% from 28%
in 2010.
WHAT WE SAID: Continued rapid
growth in smartphone subscriber
base to drive wireless data revenue
and ARPU.
WHAT WE DID: Activated nearly
2.5 million smartphones helping
bring smartphone penetration to
56% of postpaid subscriber base.
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 the world standard GSM, HSPA+ and LTE technology platforms.
Rogers Cable is a leading Canadian cable services provider, offering cable television,
high-speed Internet access, and telephony products for residential and business customers.
Rogers Media is Canada’s premier group of category-leading broadcast, specialty, sports,
print and on-line media assets with businesses in radio and television broadcasting,
televised shopping, sports entertainment, and magazine and trade journal publication.
Table of Contents
2 Letter to Shareholders
5 Why Invest in Rogers
6 Connections Come Alive
16 Supporting our Communities
and the Environment
18 2011 Financial and Operating Highlights
18 Goals and Objectives in 2012
20 Management’s Discussion and Analysis
78 Management’s Responsibility for
Financial Reporting
82 Consolidated Statements of
Changes in Shareholders’ Equity
78 Independent Auditors’ Report of Registered
83 Consolidated Statement of Cash Flows
Public Accounting Firm
79 Consolidated Statements of Income
80 Consolidated Statements of
Comprehensive Income
81 Consolidated Statements of
Financial Position
84 Notes to Consolidated Financial Statements
126 Corporate Governance
128 Directors and Senior Corporate Officers
130 Corporate and Shareholder Information
2011 FINANCIAL HIGHLIGHTS
2011 CONSOLIDATED REVENUE AND OPERATING PROFIT PROFILE
REVENUE
ADJUSTED OPER ATING PROFIT
WIRELESS 57%
WIRELESS 62%
$12.4
CABLE OPERATIONS 27%
MEDIA 13%
BUSINESS SOLUTIONS 3%
$4.7
CABLE OPERATIONS 32%
MEDIA 4%
BUSINESS SOLUTIONS 2%
FINANCIAL HIGHLIGHTS
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE, SUBSCRIBER AND EMPLOYEE DATA)
IFRS
CDN GAAP
2011
2010
2009
2008
2007
Revenue
Adjusted operating profit
Adjusted operating profit margin
Adjusted net income
Adjusted diluted earnings per share
Annualized dividend rate at year-end
Total assets
Long-term debt (includes current portion)
Shareholders’ equity
Market capitalization of equity
Wireless subscribers (000s)
Cable subscribers (000s)
Internet subscribers (000s)
Cable telephony subscribers (000s)
Number of employees
$ 12,428
4,716
38%
1,747
3.19
1.42
18,362
10,034
3,572
20,736
9,335
2,297
1,793
1,052
28,745
$ 12,142
4,635
38%
1,678
2.89
1.28
17,033
8,654
3,760
19,435
8,977
2,305
1,686
1,003
27,971
$ 11,731
4,388
37%
1,556
2.51
1.16
17,018
8,464
4,273
19,476
8,494
2,296
1,619
937
28,985
$ 11,335
4,060
36%
1,260
1.98
1.00
17,082
8,507
4,716
23,679
7,942
2,320
1,571
840
29,200
$ 10,123
3,703
37%
1,066
1.66
0.50
15,325
6,033
4,624
29,614
7,338
2,295
1,465
656
27,900
TOTAL SHAREHOLDER RETURN
TEN -YEAR COMPAR ATIVE TOTAL RETURN: 20 02–2011
ONE-YEAR COMPAR ATIVE TOTAL RETURN: 2011
241%
97%
33%
88%
17%
18%
(9)%
2%
16%
6%
RCI.B
on TSX
S&P/TSX
COMPOSITE
INDEX
S&P 500
INDEX
TSX*
TELECOM
AND CABLE
S&P 500
TELECOM
INDEX
* Comprised of: Rogers, BCE, Bell Aliant, Cogeco, MTS, Quebecor, Shaw and Telus
S&P/TSX
COMPOSITE
INDEX
RCI.B
on TSX
S&P 500
INDEX
TSX*
TELECOM
AND CABLE
S&P 500
TELECOM
INDEX
FOR A DETAILED DISCUSSION OF OUR FINANCIAL AND OPERATING METRICS AND RESULTS, PLEASE SEE THE ACCOMPANYING MD&A LATER IN THIS REPORT.
BILLIONBILLION 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 principal operating segments: Rogers Wireless,
Rogers Cable and Rogers Media.
ROGERS COMMUNICATIONS
WIRELESS
CABLE
MEDIA
WIRELESS
Rogers Wireless provides wireless voice and data communications services
across Canada to more than 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 the global standard GSM,
3G HSPA+ and highly-advanced 4G LTE 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. Rogers provides seamless wireless voice and data roaming
across the U.S. and approximately 200 other countries internationally,
and is also Canada’s leader in providing wireless machine-to-machine
solutions to businesses across the country.
CABLE
Rogers Cable is a leading Canadian cable services provider, whose territory
covers approximately 3.7 million homes in Ontario, New Brunswick and
Newfoundland and Labrador with 61% basic penetration of its homes
passed. Its advanced digital two-way hybrid fibre-coax broadband network
provides the leading selection of on-demand and high-definition television
programming, including an extensive line-up of sports, multicultural and
local programming. Rogers Cable pioneered high-speed Internet access in
North America and now 78% of its television customers subscribe to its
high-speed Internet service, while 1.1 million customers also subscribe to its
cable telephony service. Rogers Business Solutions is the division of Rogers
which provides wired voice and data solutions to enterprise customers in
and around Rogers’ cable footprint.
MEDIA
Rogers Media is Canada’s premier combination of category-leading radio
and television broadcasting, televised shopping, sports entertainment,
publishing, and digital media 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;
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 Sports
Entertainment assets include the Toronto Blue Jays Baseball Club and
Rogers Centre, Canada’s largest sports and entertainment facility. Media’s
Publishing group produces 54 well-known Canadian consumer trade and
professional publications.
FOR A DETAILED DISCUSSION OF OUR FINANCIAL AND OPERATING METRICS AND RESULTS, PLEASE SEE THE ACCOMPANYING MD&A LATER IN THIS REPORT.
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y2011 REVENUE:
$12.4 billion
11.7
12.1
12.4
4.4
4.6
4.7
2009
2010
2011
2009
2010
2011
$12.4
BILLION
WIRELESS 57%
CABLE
OPERATIONS 27%
MEDIA 13%
BUSINESS
SOLUTIONS 3%
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y2011 REVENUE:
$7.1 billion
6.7
7.0
7.1
3.1
3.2
3.0
POSTPAID VOICE 56%
$7.1
WIRELESS DATA 33%
PREPAID VOICE 3%
EQUIPMENT 8%
2009
2010
2011
2009
2010
2011
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y2011 REVENUE:
$3.8 billion
3.7
3.8
3.8
1.3
1.4
1.6
$3.8
TELEVISION 50%
INTERNET 24%
HOME PHONE 13%
BUSINESS
SOLUTIONS 11%
VIDEO 2%
2009
2010
2011
2009
2010
2011
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y2011 REVENUE:
$1.6 billion
1.4
1.5
1.6
0.12
0.13
0.18
2009
2010
2011
2009
2010
2011
$1.6
CORE MEDIA 90%
SPORTS
ENTERTAINMENT 10%
BILLIONBILLIONBILLION > LET TER TO SHAREHOLDERS
02 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
We delivered solid results in 2011, demonstrating the underlying strength, durability and stability of our company. We have great franchises in growing businesses, the best asset mix of any communications company in North America, leading wireless and broadband networks, and a strong portfolio of diverse, category-leading media assets. And, we have a solid investment grade balance sheet with healthy cash flows, a seasoned leadership team, and a talented employee base. FELLOW SHAREHOLDERS, “ ROGERS IS BEST POSITIONED
TO LEAD IN A WORLD WHERE
DISTRIBUTION AND CONTENT
ARE INCREASINGLY CONVERGING…”
Despite a great deal of change in our
dynamic industry during 2011, three things
in particular remained constant: our strategy,
our competitive advantages, and Canadians’
insatiable demand to be connected to what
matters most wherever they are. Rogers
remains solidly positioned in markets where
consumers want and continue to consume
more and more – more wireless and
broadband connectivity, more information
and entertainment, and more desire to be
connected to what matters to them most
wherever they are.
Across Rogers, there is a clear focus, not
just on sustaining our lead as the top
integrated communications and media
company in Canada, on delivering upon
our strategy of leading the enablement
and delivery of seamless, customer-driven
communications, entertainment, information
and transactional experiences across any
device, place or time.
DELIVERING RESULTS
2011 was an intensely competitive year,
as expected. Despite this backdrop, which
moderated our growth, we continued our
top-line, bottom-line and subscriber growth,
while meeting our operating profit and free
cash flow targets and delivering against our
strategic priorities.
The combination of continued sales strength
and operating discipline allowed us to
generate and return significant amounts of
cash to shareholders through a combination
of dividends and share buybacks. To our
knowledge, Rogers once again returned
more cash as a percentage of equity market
capitalization to shareholders than any other
telecom or cable company in Canada.
At the same time, we further strengthened
our investment grade balance sheet. We
ended the year with $2.1 billion of available
liquidity, while continuing to invest heavily in
customer retention, network enhancement
and product development initiatives.
COMPETING STRONGLY
We continued to see the consumption
of communications, information and
entertainment services converge across
networks, platforms and devices. Rogers
is best positioned to lead in a world where
distribution and content are increasingly
converging. We’re positioned to win as
digital content seamlessly traverses IP-based
wireless and broadband networks, to
be consumed in real time or on demand
across multiple devices – big screen TVs,
computers, tablets, smartphones and
gaming devices.
We continued to grow our wireless
business by maintaining our relentless
focus on driving wireless data growth
and smartphone penetration, attracting
and retaining high-value customers who
generate greater average revenue and lower
churn. We ended 2011 with more than half
of our postpaid wireless subscriber base on
smartphones. And in the fourth quarter of
2011, 37 percent of our wireless network
revenue was generated by wireless data.
At the same time, the competitive
environment continues to reflect the
combination of multiple new wireless
entrants and our two primary incumbent
wireless competitors having fully transitioned
to HSPA networks, gaining access to an
expanded array of wireless devices. While
we were successful in driving continued
strong double-digit growth in wireless data
revenues, the economics of the wireless
voice business continued to be under
pressure as intense competition asserted
influence on pricing and customer churn.
We continued to deliver growth in our
cable business, adding nearly 150,000 total
cable service units in 2011. We continued
to execute on our “TV Anywhere” vision
and leverage and further enhance the
undisputed superiority of our highly
advanced broadband cable network. Rogers
is now able to provide customers the long-
envisioned four-screen video experience
with on-demand video delivery to the home
television, PCs and tablets, smartphones,
and gaming devices. In 2012, we will further
integrate these services, expand the range
of capable devices, and continue to enhance
the digital set-top box user interface.
We were also successful in our focus on
streamlining the cost structure in our cable
business, where during 2011, the Cable
Operations segment generated strong
operating leverage and increased the
operating profit margin to almost 47%.
At the same time, we continued to improve
the margins and drive greater amounts of
on-net business in our Business Solutions
division.
Our media businesses had an exciting and
profitable year as well, with continued
momentum from new property launches,
strong ratings, and initiatives to over-index
around sports and local content, including
Rogers’ 37.5% investment in Maple Leafs
Sports and Entertainment, that is expected
to be completed in mid-2012. Media also
implemented a revamped, more integrated
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 03
> LET TER TO SHAREHOLDERS
approach to selling to advertisers that has
also begun to yield results. While the media
group’s top-line growth was tempered in
the latter part of the year by a slowing in
the advertising market as world economic
concerns intensified, it finished 2011 with
strong increases in operating profit and
margins.
A WINNING GAME PLAN
Last year, I wrote about our focus on
continuing to strengthen our core business
in the areas of service, network and cost
management. We made solid strides during
2011, enhancing our customers’ experience
and making it easier for them to do business
with us. But this is a journey, and much
work remains to be done. We will seek to
continually develop newer, better, and faster
ways to deliver what customers want.
We took a giant step forward in our core
focus of assuring that our advanced wireless
and broadband networks are some of the
best in the world and consistently deliver fast,
reliable and proven network experiences.
To that end, this past summer Rogers was
proudly the first in Canada to launch a highly
advanced next generation LTE wireless
network that delivers some of the fastest
wireless data speeds in the world. By the
end of 2011, this wireless network, which
leads the industry, covered four of the largest
markets in Canada – or more than 30% of
the population – a significant achievement in
the history of the wireless industry in Canada.
The multi-year deployment of LTE will
continue in 2012 to cover many additional
markets across the country.
Another core focus has continued to be
on ensuring a competitive cost structure.
As our core businesses have matured
and competition increased, our top-line
growth has moderated, but our cash flow
generation has remained strong as we
focused increasingly on streamlining the
business.
In 2011, we built on earlier initiatives and
made solid progress in controlling costs,
essentially holding our wireless and cable
operating costs relatively flat to 2010 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 continuing
to return significant amounts of cash to
shareholders.
While we are intensely focused on delivering
results today, so too are we on making the
right investments in the growth platforms for
the future. To facilitate our future growth,
during 2011 we focused on opportunities
to build new revenue streams in areas in
and around our core businesses. In our
communications business, these growth
focuses include the areas of wireless data,
the business segment, machine-to-machine
communications, and home monitoring and
automation. While in Media, we zeroed in on
sports and local content along with growing
our presence in digital media. And these
are areas where you can expect to see us
continue to drive forward in 2012.
DELIVERING RESULTS IN 2012
Our 2012 plan strikes a healthy balance
between continued subscriber and
financial growth, and the continued
return of significant amounts of cash to
our shareholders. It reflects a prudent
management approach to a complex
and significantly intensified competitive
environment that we have seen over the past
two-plus years. Our strategy and priorities
remain intact as we invest in and evolve
our networks, systems, and service delivery
platforms to both protect our core business
and build new revenue streams.
In February 2012, our Board authorized
an 11 percent dividend increase effective
immediately and the repurchase of up to
$1.0 billion of Rogers shares over the coming
year. These decisions reflect our Board’s
continued confidence in the strength of our
balance sheet and cash flow generation, and
in the growth potential of our industry.
While delivering for our customers and
shareholders is obviously critically important,
giving back to the communities we serve is
also at the core of what we do at Rogers. To
that end, I’m extremely proud of the Rogers
Youth Fund, an important initiative that we
are launching across the company to support
Canadian youth and education. This program
represents Rogers’ national commitment to
help Canada’s youth overcome barriers to
education, empowering them to succeed in
the classroom and beyond. The program’s
goal is to help youth between the ages of 12
and 19, especially those who are at-risk due
to poverty, isolation, having to adjust to a
new language and culture, or who are facing
challenges at home.
We have made progress in our business
in 2011, and I would like to thank our
employees for their incredible hard work and
dedication. We are steadfastly focused on
continuing to drive performance and build
momentum, and look forward to the many
opportunities, as well as the challenges, in
front of us, and to another year of delivering
value for our customers and shareholders.
Thank you for your continued investment
and support,
Nadir Mohamed, fca
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ROGERS COMMUNICATIONS INC.
04 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
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 TO DELIVER LONG-TERM GROWTH.
LEADER IN CANADIAN
COMMUNICATIONS INDUSTRY
MUST-HAVE PRODUCTS
AND SERVICES
CATEGORY-LEADING
MEDIA ASSETS
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.
A leading provider of communications
and entertainment products and services
that are increasingly becoming necessities
in today’s world, and the usage of which
is increasing.
Unique and complementary collection
of leading broadcast radio and television,
specialty TV, sports entertainment and
magazine assets.
SUPERIOR ASSET MIX
POWERFUL BRANDS
EXTENSIVE PRODUCT
DISTRIBUTION NETWORK
Majority of revenue and cash flow is
generated from wireless and broadband
services, the fastest growing and
least penetrated segments of the
communications industry.
Nationally recognized and highly-respected
brands that stand strongly in Canada for
innovation, entrepreneurial spirit, choice
and value.
Powerful and well balanced national
product distribution network consisting
of more than 3,400 Rogers-owned,
dealer and retail outlets.
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 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 $1.58 per share in 2012.
ANNUALIZED DIVIDENDS PER SHARE: 2007–2012
$1.16
$1.28
$1.00
$1.58
$1.42
$0.50
2007
2008
2009
2010
2011
2012
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 05
06 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
WITHFREEDOMWITH FREEDOMCONNECTIONS COME ALIVE > ROGERS CUSTOMERS KNOW THAT THE FREEDOM
OF BEING IN TOUCH WITH FAMILY, FRIENDS
AND COLLEAGUES MAKES THEIR LIVES MORE
CONNECTED, AND THAT BEING CONNECTED
TO THE INFORMATION AND ENTERTAINMENT
THAT MATTERS MOST MAKES LIFE EASIER AND
MORE ENJOYABLE
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 07
> ACROSS MULTIPLE DEVICES AND SCREENS –
WHETHER BY SMARTPHONE, TV, PC OR
TABLET – ROGERS SEAMLESSLY CONNECTS
ITS CUSTOMERS TO INNOVATIVE
COMMUNICATIONS, INFORMATION
AND ENTERTAINMENT EXPERIENCES
08 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
WITH EASE 2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 09
WITH EASECONNECTIONS COME ALIVE > ROGERS MAKES BUSINESSES MORE
PRODUCTIVE, PROVIDING TODAY’S
WORKER WITH SEAMLESS ACCESS TO
MISSION-CRITICAL INFORMATION AND
COMMUNICATIONS AT THE OFFICE,
AT HOME AND ON THE ROAD
10 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
WITH POWERWITH POWERCONNECTIONS COME ALIVE 2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 11
WITH POWERWITH POWER 12 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
>
ROGERS’ WORLD-CLASS MEDIA CONTENT AND
CUTTING EDGE BROADBAND AND WIRELESS
TECHNOLOGY COME TOGETHER TO BRING THE
BEST IN ON-DEMAND ENTERTAINMENT AND
INFORMATION TO CUSTOMERS ON THE SCREEN
OF THEIR CHOICE
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 13
CONNECTIONS COME ALIVEWITH WONDERWITH WONDER CONNECTIONS
COME ALIVE
ON ANY SCREEN
AT ANY TIME
Rogers was one of the first carriers in the world to
offer the communications ‘quadruple play’ of wireless,
television, Internet and telephony services over its
own networks. Few have more experience or success in
enabling subscribers to seamlessly shift their experience
across screens.
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 voicemail on their laptop or tablet, screen their
phone calls on their TV and even receive talking text messages on
their home phone. The future is here today for Rogers customers
who seamlessly experience content that’s important to them on
the screen of their choice – their TV, PC, tablet or smartphone.
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 mailbox for their office and
wireless phones. They’ll collaborate with colleagues through virtual
whiteboarding 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.
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.
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. And with Rogers Remote TV Manager,
our customers have flexibility to search TV programming and
manage PVR recordings online from anywhere with their
computers, tablets and smartphones. In addition, Rogers
On-Demand Online takes the digital TV experience and brings it
to life on their PC or smartphone.
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.
14 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
WITH ANY CONTENT
IN ANY PLACE
Consumers today want access to a broad selection of
content – be it news, sports, or entertainment – and the
ability to view it on their screen of choice. They want to
easily access the same personalized experiences in the
home, at work or on the go.
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 Sportsnet,
Canada’s most multiplatform specialty sports services;
The Shopping Channel, the country’s only nationally televised
and on-line shopping service; and a collection of 54 leading
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.
Rogers knows that no matter where its 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 whiteboarding 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 voicemail. They don’t need to be in town to catch their local
news. They don’t have to be in their house to monitor their home
in real time. They don’t have to be at their PC to access their
e-mail. And they don’t have to wait by the phone to get their calls.
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 – making 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,
today’s workers are 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.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 15
> LATE IN 2011, WE PROUDLY
INTRODUCED THE ROGERS
YOUTH FUND, A CORPORATE
INITIATIVE THAT SUPPORTS AND
EMPOWERS AT-RISK CANADIAN
YOUTH THROUGH EDUCATION
16 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
WITHCOMMITMENTWITHCOMMITMENTWITHCOMMITMENTCONNECTIONS COME ALIVE SUPPORTING
OUR COMMUNITIES
AND THE ENVIRONMENT
Rogers is committed to 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
– children’s education and sports, the
recovery of lost children, local food banks
and community safety.
In 2011, we proudly introduced Rogers
Youth Fund, a corporate initiative that
supports and empowers at-risk Canadian
youth through education. This represents
Rogers‘ national commitment to help
Canada’s youth overcome barriers to
education, inspiring them to succeed in
the classroom and beyond through an
innovative range of educational programs
that provide academic support, including
after-school homework clubs, tutoring and
mentoring programs, alternative schooling,
and other essential tools.
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 art galleries, film and
television 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. And, as a service
provider who bills millions of customers
each month, we’ve been an early and
strong proponent of driving the adoption
of paperless electronic billing.
Our objective is simple yet crucial – to
ensure responsible, efficient use of natural
resources while 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.
ROGERS GIVES BACK
> Youth education
> Local shelters and food banks
> Community television
> Arts and culture
> Environmental stewardship
> Supplier code of conduct
> Responsible sourcing
> Wireless device recycling
> Paperless billing
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 17
WITHCOMMITMENTWITHCOMMITMENT GROWING FINANCIALS
RETURNING CASH TO
SHAREHOLDERS
BALANCE SHEET
STRENGTH
LEADING NETWORKS
Delivered 2% consolidated
revenue and adjusted
operating profit growth with
contributions from each of
our three operating segments
while maintaining healthy
adjusted operating profit
margins of 38%
Returned $1.9 billion of cash
to shareholders in the form
of an 11% dividend increase
to $1.42 per share and the
repurchase of 31 million
Rogers Class B shares for
$1.1 billion
Approximately $2.1 billion
of available liquidity with no
near-term debt maturities, and
a ratio of 2.2 times net debt
to adjusted operating profit
Deployed Canada’s first,
largest and fastest 4G
LTE wireless network and
completed the deployment
of DOCSIS 3.0 Internet
capabilities across our cable
TV footprint
SMARTPHONE
LEADERSHIP
INTERNET AND
TELEPHONY PENETRATION
BUSINESS SEGMENT
OPPORTUNITY
EXPANSION AT MEDIA
Led Canadian smartphone
market with approximately
40% share and with 56% of
our postpaid customer base
now on smartphones
Grew high-speed Internet and
cable telephony penetration
levels to 78% and 46%
of television subscribers,
respectively
Significant progress in
penetrating the small business
and enterprise markets,
with SME revenues up
approximately 23%, and the
acquisition of Atria Networks,
enabling deeper drive into
enterprise space
Launched 24-hour local news
channel CityNews, FX Canada,
Sportsnet World and Sportsnet
Magazine, the Sports news
barker channel, and numerous
digital media properties
GROWTH AND
CASH RETURNS
NETWORK
LEADERSHIP
EFFICIENCY AND
CUSTOMER EXPERIENCE
NEW REVENUE
STREAMS
Drive continued revenue and
adjusted operating profit
growth of up to 4%, with
pre-tax free cash flows
targeted at up to $2.1 billion
and significant cash returned
to shareholders in the form
of an 11% dividend increase
and share buybacks of up
to $1.0 billion
Maintain network leadership
by significantly expanding
Canada’s first LTE wireless 4G
network, further increasing
our superior broadband
cable Internet speeds, and
enhancing our TV platform
to more seamlessly provide
a four-screen “TV Anywhere”
experience
Drive cost efficiencies across
the business by streamlining
and reducing complexity,
while strengthening the
customer experience by
delivering consistently
seamless, reliable and easy-
to-use services and support
Drive future growth through
an increased on-net business
telecom presence, expansion
of our media properties, and
new revenue streams including
M2M, Rogers Smart Home
Monitoring, multi-screen video
and digital media
18 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
2011 FINANCIAL AND OPERATING HIGHLIGHTSGOALS AND OBJECTIVES IN 2012THE FOLLOWING REPRESENTS A SAMPLING OF ROGERS COMMUNICATIONS INC.’S 2011 PERFORMANCE HIGHLIGHTS.DURING 2012 WE WILL FOCUS ON SUSTAINING OUR LEAD AS THE TOP INTEGRATED COMMUNICATIONS AND MEDIA COMPANY IN CANADA, AND ON OUR STRATEGY OF BEING THE LEADING INTEGRATOR AND INNOVATOR THAT BRINGS PEOPLE, CONTENT AND DEVICES TOGETHER IN SEAMLESS, RELIABLE WAYS THAT PEOPLE DEPEND ON IN THEIR HOME AND WORK LIVES. WE WILL ALSO TARGET TO:FOR A DETAILED DISCUSSION OF OUR FINANCIAL AND OPERATING METRICS AND RESULTS, PLEASE SEE THE ACCOMPANYING MD&A LATER IN THIS REPORT. FINANCIAL SECTION CONTENTS
20 MANAGEMENT’S DISCUSSION AND ANALYSIS
78 MANAGEMENT’S RESPONSIBILITY FOR
Corporate Overview
21 Our Business
22 Our Strategy
22 Consolidated Financial and Operating Results
25
2012 Financial Guidance
Segment Review and Reconciliation to Net Income
25 Wireless
31 Cable
41 Media
44 Corporate
45
Reconciliation of Net Income to Operating Profit
Consolidated Liquidity and Financing
Liquidity and Capital Resources
47
50
Interest Rate and Foreign Exchange Management
52 Outstanding Common Share Data
52 Dividends on RCI Equity Securities
53 Commitments and Other Contractual Obligations
54 Off-Balance Sheet Arrangements
Operating Environment
54 Government Regulation and Regulatory Developments
55 Wireless Regulation and Regulatory Developments
56 Cable Regulation and Regulatory Developments
57 Media Regulation and Regulatory Developments
58 Competition in our Businesses
59
Risks and Uncertainties Affecting our Businesses
Key Performance Indicators and Non-GAAP Measures
Accounting Policies and Non-GAAP Measures
64
65 Critical Accounting Policies
66 Critical Accounting Estimates
68 New Accounting Standards
68
Recent Accounting Pronouncements
Additional Financial Information
Related Party Transactions
70
Five-Year Summary of Consolidated Financial Results
71
Summary of Seasonality and Quarterly Results
72
74
Summary of Financial Results of Long-Term Debt Guarantors
74 Controls and Procedures
75
Supplementary Information: Non-GAAP Calculations
FINANCIAL REPORTING
INDEPENDENT AUDITORS’ REPORT OF REGISTERED
PUBLIC ACCOUNTING FIRM
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
78
79
80
81
82
83
84
Note 1:
Note 2:
Note 3:
Note 4:
Finance Costs
Business Combinations and Divestitures
Integration, Restructuring and Acquisition Costs
Income Taxes
Nature of the Business
Significant Accounting Policies
Transition to IFRS
Segmented Information
84
84
92
99
101 Note 5: Operating Costs
101 Note 6:
101 Note 7:
103 Note 8:
104 Note 9:
105 Note 10: Earnings per Share
105 Note 11: Other Current Assets
106 Note 12: Property, Plant and Equipment
107 Note 13: Goodwill and Intangible Assets
108 Note 14:
Investments
109 Note 15: Other Long-Term Assets
109 Note 16: Provisions
110 Note 17: Long-Term Debt
112 Note 18: Financial Risk Management and Financial
Instruments
117 Note 19: Other Long-Term Liabilities
117 Note 20: Pensions
119 Note 21: Shareholders’ Equity
120 Note 22: Stock Options, Share Units and Share Purchase
Plans
122 Note 23: Capital Risk Management
123 Note 24: Related Party Transactions
124 Note 25: Commitments
125 Note 26: Contingent Liabilities
125 Note 27: Subsequent Events
CORPORATE GOVERNANCE
126
128 DIRECTORS AND SENIOR CORPORATE OFFICERS
130
CORPORATE AND SHAREHOLDER INFORMATION
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 19
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2011
This Management’s Discussion and Analysis (“MD&A”) should be read
in conjunction with our 2011 Audited Consolidated Financial
Statements and Notes thereto. The financial information presented
herein has been prepared on the basis of International Financial
Reporting Standards (“IFRS”) and is expressed in Canadian dollars,
unless otherwise stated. This MD&A, which is
current as of
February 21, 2012, is organized into six sections.
1 CORPORATE OVERVIEW
2 SEGMENT REVIEW AND
RECONCILIATION TO NET INCOME
3 CONSOLIDATED
LIQUIDITY AND FINANCING
21
22
22
Our Business
Our Strategy
Consolidated Financial and
Operating Results
25
2012 Financial Guidance
25 Wireless
31
Cable
41 Media
44
45
Corporate
Reconciliation of Net Income
to Operating Profit
47
50
52
52
53
Liquidity and Capital Resources
Interest Rate and Foreign
Exchange Management
Outstanding Common Share Data
Dividends on RCI Equity Securities
Commitments and Other
Contractual Obligations
54
Off-Balance Sheet Arrangements
4 OPERATING ENVIRONMENT
5 ACCOUNTING POLICIES
AND NON-GAAP MEASURES
6 ADDITIONAL FINANCIAL
INFORMATION
54
Government Regulation and
Regulatory Developments
55 Wireless Regulation and
Regulatory Developments
56
Cable Regulation and
Regulatory Developments
57 Media Regulation and
Regulatory Developments
58
59
Competition in our Businesses
Risks and Uncertainties
Affecting our Businesses
64
65
66
68
68
Key Performance Indicators and
Non-GAAP Measures
Critical Accounting Policies
Critical Accounting Estimates
New Accounting Standards
Recent Accounting
Pronouncements
70
71
72
74
74
75
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 reported in the following segments for the year ended
December 31, 2011:
(cid:129) “Wireless”, which refers
communications
operations, carried on by Rogers Communications Partnership
(“RCP”);
to our wireless
interests
television production and broadcast sales.
in entities
involved in specialty television content,
“RCI” refers to the legal entity Rogers Communications Inc., excluding
our subsidiaries.
Substantially all of our operations are in Canada.
(cid:129) “Cable”, which refers to our cable communications operations,
carried on by RCP; and
(cid:129) “Media”, which refers to our wholly-owned subsidiary Rogers
including Rogers Broadcasting,
Media Inc. and its subsidiaries,
which owns a group of 55 radio stations, the Citytv television
network, the Sportsnet, Sportsnet ONE, Sportsnet World television
network, The Shopping Channel, the OMNI television stations, and
Canadian specialty channels, including Outdoor Life Network, The
(Canada), FX (Canada), G4 Canada, and
Biography Channel
CityNews Channel; Digital Media, which provides digital advertising
solutions to over 1,000 websites; Rogers Publishing, which produces
54 consumer, trade and professional publications; and Rogers
Sports Entertainment, which owns the Toronto Blue Jays Baseball
Club (“Blue Jays”) and Rogers Centre. Media also holds ownership
The financial information presented herein has been prepared on the
basis of IFRS for financial statements and is expressed in Canadian
dollars unless otherwise stated. Comparative amounts for 2010
included in this MD&A have been conformed to reflect our adoption
of IFRS, with effect from January 1, 2010. Periods prior to January 1,
2010 have not been conformed and were prepared in accordance
with Canadian generally accepted accounting principles (“GAAP”).
Concurrent with the impact of the transition to IFRS, we made certain
changes to our reportable segments. Commencing January 1, 2011,
the results of the former Rogers Retail segment are reported as
follows: the results of the Video retailing portion are now presented
as a separate operating sub-segment under the Cable segment, and
the portions related to retail distribution of wireless and cable
products and services are now included in the results of operations of
20 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
M
A
N
A
G
E
M
E
N
T
’
S
D
I
S
C
U
S
S
I
O
N
A
N
D
A
N
A
L
Y
S
I
S
In addition, certain
Wireless and Cable Operations, respectively.
intercompany transactions between the Rogers Business Solutions
(“RBS”)
segment and other operating segments, which were
previously recorded as revenue in RBS and operating expenses in the
other operating segments, are now recorded as cost recoveries in RBS
beginning January 1, 2011. While there is no change to the
consolidated results or to the adjusted operating profit of RBS, as a
result of this second change, the reported revenue of RBS is lower as
intercompany sales are no longer included. Comparative figures for
2010 have been reclassified to conform to the current year’s
presentation of both changes discussed above.
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.
estimates
intentions.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS, RISKS
AND ASSUMPTIONS
This MD&A includes “forward-looking information” within the
meaning of applicable securities laws and assumptions concerning,
among other things our business,
its operations and its financial
performance and condition approved by management on the date of
this MD&A. This forward-looking information and these assumptions
include, but are not limited to, statements with respect to our
objectives and strategies to achieve those objectives, as well as
to our beliefs, plans, expectations,
statements with respect
anticipations,
forward-looking
This
or
information also includes, but is not limited to, guidance and
forecasts relating to revenue, adjusted operating profit, property,
plant and equipment expenditures, cash income tax payments, 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, and all other statements that are not
historical facts. The words “could”, “expect”, “may”, “anticipate”,
“assume”, “believe”, “intend”, “estimate”, “plan”, “project”,
“guidance”, and similar expressions are intended to identify
statements containing forward-looking information, although not all
forward-looking statements
such words. Conclusions,
include
forecasts and projections set out in forward-looking information are
based on our current objectives and strategies and on estimates and
other factors and expectations and assumptions, most of which are
confidential and proprietary, that we believe to be reasonable at the
time applied, but may prove to be incorrect,
including, but not
limited to: general economic and industry growth rates, currency
exchange rates, product pricing levels and competitive intensity,
subscriber growth, usage and churn 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.
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 the
statement containing the forward-looking information is made.
We caution that all forward-looking information,
including any
statement regarding our current objectives strategies and intentions
and any factor, assumptions, estimate or expectation underlying the
forward-looking information,
is inherently subject to change and
uncertainty and that actual results may differ materially from those
expressed or implied by the forward-looking information. A number
of risks, uncertainties and other factors could cause actual results and
events to differ materially from those expressed or implied in the
forward-looking information or could cause our current objectives,
strategies and intentions to change, including but not limited to: new
interpretations and new accounting standards
from accounting
standards bodies, economic conditions, technological change, the
integration of acquisitions, unanticipated changes in content or
in the entertainment,
equipment
information and communications
regulatory changes,
litigation and tax matters, the level of competitive intensity and the
emergence of new opportunities.
changing conditions
industries,
costs,
Many of these factors are beyond our control and current expectation
or knowledge. Should one or more of these risks, uncertainties or
other factors materialize, our objectives, strategies or intentions
change, or any other factors or assumptions underlying the forward-
looking information prove incorrect, our actual results and our plans
could vary significantly from what we currently foresee. Accordingly,
we warn investors to exercise caution when considering statements
containing forward-looking information and that
it would be
unreasonable to rely on such statements as creating 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
statements or assumptions, whether as a result of new information,
future events, or otherwise, except as required by law. All of the
forward-looking information in this MD&A is qualified by the
cautionary statements herein.
Before making any investment decisions and for a detailed discussion
of the risks, uncertainties and environment associated with our
business, fully review the sections of this MD&A entitled “Risks and
Uncertainties Affecting our Businesses” and “Government Regulation
and Regulatory Developments”. Our annual and quarterly reports can
be found online at rogers.com/investors, sedar.com and sec.gov or are
available directly from Rogers.
information relating to Rogers,
ADDITIONAL INFORMATION
Additional
including our Annual
Information Form, discussions of our 2011 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 communications services provider.
Through Cable, we are one of Canada’s largest providers of cable
television services as well as high-speed Internet access, and telephony
services to both consumers and businesses. Through Media, we are
engaged in radio and television broadcasting, digital media, televised
shopping, consumer, trade and professional publications, and sports
entertainment. We are publicly traded on the Toronto Stock
Exchange (TSX: RCI.a and RCI.b) and on the New York Stock Exchange
(NYSE: RCI).
For more detailed descriptions of our Wireless, Cable and Media
businesses, see the respective segment discussions that follow.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 21
MANAGEMENT’S DISCUSSION AND ANALYSIS
SEGMENT REVENUE
(In millions of dollars)
SEGMENT ADJUSTED
OPERATING PROFIT
(In millions of dollars)
ADDITIONS TO
CONSOLIDATED PP&E
(In millions of dollars)
CONSOLIDATED
TOTAL ASSETS
(In millions of dollars)
6,654
3,948
1,407
6,973
3,785
1,461
7,138
3,796
1,611
3,042
1,324
119
3,173
1,426
131
3,036
1,612
180
$1,855
$1,834
$2,127
$17,018
$17,033
$18,362
2009
2010
2011
2009
2010
2011
2009
2010
2011
2009
2010
2011
Wireless
Cable
Media
Wireless
Cable
Media
OUR STRATEGY
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.
We seek to exploit opportunities for Wireless, Cable and Media to
create bundled product and service offerings at attractive prices, in
addition to implementing cross-marketing and cross-promotion of
products and services to increase sales and enhance subscriber loyalty.
We also work to identify and implement areas of opportunity for our
businesses
that will enhance operating efficiencies by sharing
infrastructure, corporate services and sales distribution channels. We
continue to develop brand awareness and promote the “Rogers”
brand as a symbol of quality and innovation.
and Wireless businesses
integrated in our
are
Our Cable
Services organization. This more streamlined
Communications
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.
CONSOLIDATED FINANCIAL AND OPERATING 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 2011 Audited Consolidated Financial Statements
for a discussion of critical and new accounting policies and estimates
as they relate to the discussion of our operating and financial results
below.
We measure the success of our strategies using a number of key
performance indicators as outlined in the section entitled “Key
Performance Indicators and Non-GAAP Measures”. These key
performance indicators are not measurements in accordance with IFRS
or Canadian GAAP and should not be considered as alternative
measures to net income or any other measure of performance under
IFRS or Canadian 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 earnings per share and free cash
flow. We believe that the non-GAAP financial measures provided,
which exclude:
(i) stock-based compensation expense (recovery);
(ii) integration, restructuring and acquisition expenses; (iii) settlement
of pension obligations; (iv) other items, net; and (v) in respect of net
income and earnings per share, loss on repayment of long-term debt,
impairment of 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”
Information:
Non-GAAP Calculations” for further details.
and “Supplementary
The increased levels of competitive intensity have negatively impacted
the results of our Wireless and Cable businesses during 2011. 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 the first half of 2011, Media benefited from a rebound in the
advertising market which again slowed in the later parts of the year.
We recognized cost efficiencies during 2011 as a result of certain
restructuring of our organization and employee base in some areas to
improve our organizational efficiency and cost structure.
We believe that we are well-positioned from both a leverage and a
liquidity perspective with a debt to adjusted operating profit ratio of
2.2 times. In addition, we had borrowed only $250 million from our
$2.4 billion fully committed multi-year bank credit
facility at
December 31, 2011 and we have no scheduled debt maturities until
June 2013.
22 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
Operating Highlights and Significant Developments in 2011
(cid:129) Generated revenue growth of 2% at Wireless, 4% at Cable
Operations and 10% at Media, with consolidated annual revenue
growth of 2%. Adjusted operating profit grew 2% to $4,716
million with adjusted operating profit margins of 37.9%.
(cid:129) In February 2011, we renewed our normal course issuer bid
(“NCIB”)
to repurchase up to the lesser of $1.5 billion or
39.8 million Class B Non-Voting shares during the twelve-month
period ending February 21, 2012, under which we purchased for
cancellation 31 million Class B Non-Voting shares during 2011 for
$1.1 billion.
(cid:129) In February 2011, we increased the annualized dividend from $1.28
to $1.42 per Class A Voting and Class B Non-Voting share, paying
out $758 million in dividends to shareholders during the year.
(cid:129) We closed $1.85 billion aggregate principal amount of investment
grade debt offerings during the year, consisting of $400 million of
6.56% Senior Notes due 2041 and $1,450 million of 5.34% Senior
Notes due 2021. Among other things, proceeds of the offerings
were used to repay bank debt and redeem both of our public debt
issues maturing in 2012, including US$470 million of 7.25% Senior
Notes and US$350 million of 7.875% Senior Notes. In total, we
reduced our weighted average cost of borrowing to 6.22% at
December 31, 2011 from 6.68% at December 31, 2010.
(cid:129) We closed the acquisition of Atria Networks, one of Ontario’s
largest fibre-optic networks, which augments Rogers Business
Solutions’ enterprise offerings by further enhancing its ability to
deliver on-net data centric services within and adjacent to Cable’s
footprint.
(cid:129) Rogers announced that it, along with Bell Canada,
is jointly
acquiring a net 75 percent equity interest in Maple Leaf Sports and
Entertainment (“MLSE”) being sold by the Ontario Teachers’
Pension Plan. The investment advances Rogers’ strategy to deliver
highly sought-after content anywhere, anytime, on any platform
across our advanced broadband and wireless networks and our
media assets, while continuing to strengthen and enhance the
value of our
cash
commitment, following a planned leveraged recapitalization of
MLSE, will total approximately $533 million, representing a 37.5
percent equity interest in MLSE, and will be funded with currently
available liquidity.
Sportsnet media brands. Rogers’ net
(cid:129) Free cash flow, defined as adjusted operating profit less property,
plant, and equipment (“PP&E”) expenditures, interest on long-term
debt (net of capitalization) and cash income taxes, decreased by
7% from 2010 levels
to $1.9 billion due to higher PP&E
expenditures.
(cid:129) At December 31, 2011, we had only $250 million of advances
borrowed 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
June 2013, together providing us with substantial
liquidity and
flexibility.
(cid:129) Subsequent to the end of 2011, in February 2012, we announced
that our Board of Directors had approved an 11% increase in the
annualized dividend to $1.58 per share effective immediately, and
that it has approved the renewal of our NCIB share buyback
program authorizing the repurchase of up to $1.0 billion of Rogers
shares on the open market during the next twelve months.
Year Ended December 31, 2011 Compared to Year Ended
December 31, 2010
For the year ended December 31, 2011, Wireless, Cable and Media
represented 57%, 30% and 13% of our consolidated revenue,
respectively (2010 – 57%, 31% and 12%). On the basis of consolidated
adjusted operating profit, Wireless, Cable and Media also represented
63%, 33% and 4%, respectively (2010 – 67%, 30%, and 3%).
2011 CONSOLIDATED REVENUE BY SEGMENT
(%)
WIRELESS 57%
CABLE 30%
MEDIA 13%
2011 CONSOLIDATED ADJUSTED OPERATING PROFIT BY SEGMENT
(%)
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MEDIA 4%
WIRELESS 63%
ADJUSTED EPS
($)
$2.51
$2.91
$3.22
2009
2010
2011
For detailed discussions of Wireless, Cable and Media, refer to the
respective segment discussions below.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 23
MANAGEMENT’S DISCUSSION AND ANALYSIS
Summarized Consolidated Financial Results
Years ended December 31,
(In millions of dollars, except per share amounts)
Operating revenue
Wireless
Cable
Cable Operations
RBS
Video
Media
Corporate items and eliminations
Total operating revenue
Adjusted operating profit (loss)(1)
Wireless
Cable
Cable Operations
RBS
Video
Media
Corporate items and eliminations
Adjusted operating profit(1)
Stock-based compensation expense(3)
Settlement of pension obligations(4)
Integration, restructuring and acquisition expenses(5)
Other items, net(6)
Operating profit(1)
Other income and expense, net(7)
Net income
Basic earnings per share
Diluted earnings per share
As adjusted:(2)
Net income
Basic earnings per share
Diluted earnings per share
Additions to property, plant and equipment (“PP&E”)(1)
Wireless
Cable
Cable Operations
RBS
Video
Media
Corporate(8)
Total additions to PP&E
2011
2010
% Chg
$
7,138
$
6,973
3,309
405
82
3,796
1,611
(117)
3,190
452
143
3,785
1,461
(77)
12,428
12,142
3,036
3,173
1,549
1,419
86
(23)
1,612
180
(112)
4,716
(64)
(11)
(70)
–
4,571
3,008
1,563
2.88
2.86
1,747
3.22
3.19
$
$
$
$
$
$
$
1,192
748
55
–
803
61
71
40
(33)
1,426
131
(95)
4,635
(50)
–
(40)
(14)
4,531
3,029
1,502
2.61
2.59
1,678
2.91
2.89
937
611
38
13
662
38
197
$
$
$
$
$
$
$
$
2,127
$
1,834
2
4
(10)
(43)
–
10
52
2
(4)
9
115
(30)
13
37
18
2
28
n/m
75
n/m
1
(1)
4
10
10
4
11
10
27
22
45
n/m
21
61
(64)
16
(1)
(2)
(3)
(4)
(5)
As defined. See the sections entitled “Key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”. Operating profit should
not be considered as a substitute or alternative for operating income or net income, in each case determined in accordance with IFRS. 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 IFRS and the section entitled “Key Performance Indicators and Non-GAAP Measures”.
For details on the determination of the ‘as adjusted’ amounts, which are non-GAAP measures, see the sections entitled “Key Performance Indicators and Non-GAAP Measures” and
“Supplementary Information: Non-GAAP Calculations”. 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; (ii) integration, restructuring and acquisition expenses; (iii) settlement of pension obligations; (iv) other items, net; and (v) in respect of net income
and earnings per share, loss on repayment of long-term debt, impairment of assets and the related income tax impact of the above amounts.
See the section entitled “Stock-based Compensation”.
Relates to the settlement of pension obligations for employees in the pension plans who had retired between January 1, 2009 and January 1, 2011, as a result of annuity purchases
by the Company’s pension plans.
Costs incurred relate to (i) severance costs resulting from the targeted restructuring of our employee base and outsourcing of certain functions; (ii) acquisition transaction costs
incurred and the integration of acquired businesses; and (iii) the closure of certain Video stores and other exit costs.
Relates to the resolution of obligations and accruals relating to prior periods.
See the section entitled “Reconciliation of Net Income to Operating Profit and Adjusted Operating Profit for the Period”.
See the section entitled “Additions to PP&E”
(6)
(7)
(8)
n/m: not meaningful.
24 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
Of the $286 million year-over-year increase in our consolidated
revenue, Wireless
contributed $165 million, Cable Operations
contributed $119 million and Media contributed $150 million,
partially offset by decreases in revenue of $47 million in RBS and
$61 million in Video, and an increase in corporate items and
eliminations of $40 million.
Of
the $81 million year-over-year increase in our consolidated
adjusted operating profit, Cable Operations contributed $130 million,
RBS contributed $46 million, Video contributed $10 million and Media
contributed $49 million, partially offset by a decrease in Wireless of
$137 million and an increase in corporate items and eliminations of
$17 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.
2011 Performance Against Targets
The following table sets forth the guidance ranges for selected
full-year financial and operating metrics that we provided for 2011
versus the actual results we achieved for the year. We achieved
performance consistent with our adjusted operating profit and
after-tax free cash flow financial objectives that were set forth for
2011, and additions to PP&E exceeded the high end of our guidance
range by $77 million, which was primarily related to the accelerated
deployment of our LTE 4G wireless network.
(In millions of dollars)
Consolidated Guidance
Adjusted operating profit(1)
Additions to PP&E(2)
After-tax free cash flow(3)
IFRS
2010
Actual
2011 Guidance
Range $ (As at
February 16, 2011)
2011
Actual
$ 4,635 $ 4,600 to $ 4,765 $ 4,716
2,127
1,851
1,950 to
1,850 to
2,050
1,975
1,834
1,983
(1)
(2)
(3)
Excludes (i) stock-based compensation expense; (ii) integration, restructuring and
acquisition expenses; (iii) settlement of pension obligations; and (iv) other items,
net.
Includes additions to Wireless, Cable Operations, Media, RBS, Video and
Corporate PP&E expenditures.
After-tax free cash flow is defined as adjusted operating profit less PP&E
expenditures, interest on long-term debt (net of capitalization) and cash income
taxes, and is not a defined term under IFRS.
2012 FINANCIAL GUIDANCE
The following table outlines guidance ranges and assumptions for
selected 2012 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
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the related disclosures, for the various economic, competitive, and
regulatory assumptions and factors that could cause actual future
financial and operating results
from those currently
expected.
to differ
Full Year 2012 Guidance
(In millions of dollars)
Consolidated Guidance
2011
Actual
2012
Guidance
Adjusted operating profit(1)
Additions to PP&E(2)
Pre-tax free cash flow(3)
Cash income taxes
$ 4,716
2,127
1,950
99
$ 4,730
2,075
1,950
425
to
to
to
to
$ 4,915
2,175
2,050
475
(1)
(2)
(3)
(i)
stock-based compensation expense (recovery);
Excludes
integration,
restructuring and acquisition expenses; (iii) settlement of pension obligations;
and (iv) other items, net.
Includes additions to Wireless, Cable Operations, Media, RBS, Video and
Corporate PP&E expenditures.
Pre-tax free cash flow is defined as adjusted operating profit less PP&E
expenditures and interest on long-term debt (net of capitalization), and is not a
defined term under IFRS.
(ii)
2. SEGMENT REVIEW
WIRELESS
WIRELESS BUSINESS
Wireless is the largest Canadian wireless communications service
provider, serving approximately 9.3 million retail voice and data
subscribers at December 31, 2011, representing approximately 35% of
Canadian wireless
subscribers. Wireless operates on the global
standard Global System for Mobile communications/High-Speed
Packet Access/Long Term Evolution (“GSM/HSPA/LTE”) wireless
network technology platforms.
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.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 25
MANAGEMENT’S DISCUSSION AND ANALYSIS
2011 WIRELESS REVENUE MIX
(%)
POSTPAID VOICE 56%
DATA 33%
EQUIPMENT 8%
PREPAID VOICE 3%
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’ networks provide customers with
advanced high-speed wireless data services, including mobile access to
the Internet, e-mail, digital picture and video transmission, mobile
video, music and application downloading, video calling, two-way
short messaging service (“SMS” or “text messaging”), and an
increasing number of machine-to-machine wireless applications.
Wireless Distribution
Wireless’ nationwide distribution network includes: an independent
dealer network; Rogers Wireless, Fido and chatr stores; 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 3,400 dealer and retail third party locations and
approximately 360 Rogers owned retail
locations. The distribution
network sells its service plans and 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’ 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 infrastructure used for the GSM network is a next generation
wireless data technology called Universal Mobile Telephone System/
Evolved HSPA (“UMTS/HSPA+”) which covers approximately 91% of
the population with wireless data services at speeds capable of up to
42 Mbps. Further overlaying the infrastructure is the latest generation
wireless data technology called LTE which covers approximately 32%
of the population with wireless data service speeds capable of up to
150 Mbps. Wireless was first in Canada in deploying LTE across the
country, starting with Ottawa in July 2011 and followed by Toronto,
Montreal and Vancouver. By the end of 2011, the LTE network
expanded to several cities around the Greater Toronto Area such as
Mississauga, Brampton, Vaughan, Richmond Hill and Markham, and
the Greater Vancouver Area, such as West and North Vancouver, Port
Coquitlam, Delta, Langley, Surrey and Maple Ridge.
26 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
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
southwestern
the country, with the exception of
Ontario, northern Québec, and the Yukon, Northwest and Nunavut
territories, where Wireless holds 50 MHz in the 1900 MHz frequency
(“AWS”)
range. Wireless also has Advanced Wireless Services
spectrum, which operates in the 1700/2100 MHz frequency range,
across all 10 provinces and 3 territories.
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.
Late in 2011, Rogers and Bell Canada jointly agreed to dissolve the
Inukshuk joint venture during 2012 and split the jointly owned
spectrum between the two parties.
Rogers has 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 was 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 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.
WIRELESS STRATEGY
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:
(cid:129) Continually enhancing its scale and competitive position in the
Canadian wireless communications market;
(cid:129) 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;
(cid:129) Enhancing the customer experience through ongoing focus
principally in the areas of wireless devices, network quality and
customer
to maximize service revenue and
minimize customer deactivations, or churn;
service in order
(cid:129) Increasing revenue from existing customers by cross-selling and
up-selling innovative new wireless data and other enhanced and
converged services to wireless voice customers;
(cid:129) Enhancing and expanding owned and third party sales distribution
channels to deliver products, services and support to customers;
(cid:129) Maintaining the most technologically advanced, high-quality and
national wireless network possible with global coverage enabled
by widely adopted global standard network technologies; and
(cid:129) 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.
RECENT WIRELESS INDUSTRY TRENDS
Focus on Customer Retention
The wireless communications industry’s current market penetration in
Canada is estimated to be 78% of the population, compared to
approximately 103% in the U.S. and approximately 122% in the
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United Kingdom, and Wireless expects the Canadian wireless industry
to continue to grow by approximately 4 percentage points of
penetration over 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.
Demand for Sophisticated Data Applications
The ongoing development of wireless data transmission technologies,
such as handsets and portable computing devices, has led wireless
device developers 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 continue to drive growth of wireless
data services.
Convergence of Technologies
Technologies across different platforms have been converging over
the past few years, and examples of such applications have been
proliferating across the industry. Wireless launched several such
applications in the market place, including a remote digital cable
terminal control application, where the user can manage their
recordings on the terminal from a smartphone or a tablet, and a live
TV content streaming application to smartphones and tablets.
faces
Increased Competition from Other Wireless Operators
Wireless
increased competition from incumbent wireless
operators as well as new entrants in the wireless market, which is fully
described in the section of this MD&A entitled “Competition in our
Businesses”. The new entrants have introduced new unlimited pricing
plans and extremely aggressive pricing and promotions which have
resulted in downward price adjustments and lower ARPU as well as
increases in customer churn for Wireless.
sophisticated wireless
Migration to Next Generation Wireless Technology
The ongoing development of wireless data transmission technologies
and the increased demand for
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 video streaming 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,
in
national or
deploying next generation technology with LTE. As at December 31,
2011, more than eight million Canadians already had access to Rogers’
LTE network, which will continue to expand during 2012.
international basis. Wireless has been a leader
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”), the next
significant broadband wireless technology in deployment is LTE.
Wireless
(“WiMAX”)
deployments have slowed down and several WiMAX operators have
announced plans to move over to LTE.
for Microwave Access
Interoperability
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.
service and the
Future enhancements
additional
networking of WiFi
opportunities for wireless operators or municipal WiFi network
operators, each providing capacity and coverage under
the
appropriate circumstances.
to the range of WiFi
access points may provide
is
that
is an all
frequency-division multiplexing)
LTE, the worldwide GSM community’s new fourth generation (“4G”)
IP-based
broadband wireless technology evolution path,
wireless data technology based on a new modulation scheme
(orthogonal
specifically
designed to improve efficiency, lower costs, improve and expand the
range of voice and data services available via mobile broadband
wireless networks, make use of new spectrum allocations, and better
integrate with other open technology standards. As a 4G technology,
LTE is designed to build on and evolve the capabilities inherent in
UMTS/HSPA, which is the world standard for mobile broadband
wireless 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
capable of up to 150 Mbps. Wireless deployed and launched its LTE
network and services in 2011 as discussed above.
WIRELESS OPERATING AND FINANCIAL RESULTS
For purposes of this discussion, our Wireless segment revenue has
been classified according to the following categories:
(cid:129) Network revenue, which includes revenue derived from:
(cid:129) postpaid (voice and data services), which consist of revenues
generated principally from monthly fees, airtime, data usage,
long-distance charges, optional service charges, system access
and government cost recovery fees, and roaming charges; and
(cid:129) prepaid (voice and data services), which consist of revenues
generated principally from airtime, data usage and other
ancillary charges such as long-distance and roaming.
(cid:129) Equipment
sales net of
subsidies, 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.
Wireless’ operating expenses are segregated into the following
categories for assessing business performance:
(cid:129) Cost of equipment sales, which is comprised of wireless equipment
costs; and
(cid:129) Other operating expenses, which includes all other expenses
incurred to operate the business on a day-to-day basis, service
existing subscriber relationships, as well as attract new subscribers.
These include:
(cid:129) employee salaries and benefits, such as remuneration, bonuses,
pension, employee benefits and stock-based compensation; and
(cid:129) other external purchases, such as:
(cid:129) service costs,
including inter-carrier payments to roaming
partners and long-distance carriers, network service delivery
costs, and the Canadian Radio-television Telecommunications
Commission (“CRTC”) contribution levy;
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 27
MANAGEMENT’S DISCUSSION AND ANALYSIS
(cid:129) sales and marketing related expenses, which represent the
costs to acquire new subscribers (other than those related to
equipment),
including advertising and promotion and
commissions paid to third parties for new activations; and
(cid:129) operating, general and administrative related expenses, such
as retention costs, network maintenance costs, facility costs,
customer care expenses and Industry Canada license fees
associated with spectrum utilization.
Summarized Wireless Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Network revenue
Equipment sales
Total operating revenue
Operating expenses before the undernoted
Cost of equipment sales
Other operating expenses
Adjusted operating profit(2)
Stock-based compensation expense(3)
Settlement of pension obligations(4)
Integration, restructuring and acquisition expenses(5)
Other items, net(6)
Operating profit(2)
Adjusted operating profit margin as % of network revenue(2)
Additions to PP&E(2)
Data revenue included in network revenue
2011(1)
2010(1)
% Chg
$ 6,601
537
$ 6,526
447
7,138
6,973
1,425
2,677
4,102
3,036
(10)
(2)
(16)
–
1,225
2,575
3,800
3,173
(12)
–
(5)
(5)
$ 3,008
$ 3,151
46.0%
48.6%
$ 1,192
$
937
$ 2,325
$ 1,832
1
20
2
16
4
8
(4)
(17)
n/m
n/m
n/m
(5)
27
27
(1)
(2)
(3)
(4)
(5)
(6)
The operating results of Cityfone Telecommunications Inc. (“Cityfone”) are included in Wireless’ results of operations from the date of acquisition on July 9, 2010.
As defined. See the sections entitled “Key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
See the section entitled “Stock-based Compensation”.
Relates to the settlement of pension obligations for employees in the pension plans who had retired between January 1, 2009 and January 1, 2011, as a result of annuity
purchases by the Company’s pension plans.
Costs incurred relate to (i) severance costs resulting from the targeted restructuring of our employee base and outsourcing of certain functions and (ii) acquisition transaction
costs incurred and the integration of acquired businesses.
Relates to the resolution of obligations and accruals relating to prior periods.
WIRELESS NETWORK
REVENUE
(In millions of dollars)
WIRELESS ADJUSTED
OPERATING PROFIT
(In millions of dollars)
(cid:129) Subscriber growth continued in 2011, with net additions of
378,000, of which approximately 71% were postpaid subscribers.
(cid:129) Postpaid subscriber monthly churn was 1.32% in 2011, compared to
$6,245
$6,526
$6,601
$3,042
$3,173
$3,036
1.18% in 2010.
(cid:129) Revenues from wireless data services grew approximately 27% to
$2,325 million in 2011 from $1,832 million in 2010, and represented
approximately 35% of network revenue compared to 28% in 2010.
(cid:129) Postpaid monthly ARPU decreased to $70.26 in 2011 compared to
$72.62 in 2010, 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.
(cid:129) Wireless activated approximately 2.5 million smartphone devices
during the year, predominantly iPhone, BlackBerry and Android
devices. Approximately 38% of
these activations were for
subscribers new to Wireless and 62% were for existing Wireless
subscribers who upgraded to smartphones. These subscribers
generally commit to new multi-year term contracts, and typically
generate ARPU nearly twice that of voice only subscribers.
Subscribers with smartphones now represent approximately 56% of
the overall postpaid subscriber base, up from 41% from last year.
(cid:129) Rogers began an $80 million investment to further enhance our
wireless voice and data network in the Maritimes, extending the
Rogers 4G HSPA+ coverage to almost one million more people
2009
2010
2011
2009
2010
2011
Wireless Operating Highlights for the Year Ended
December 31, 2011
(cid:129) Wireless revenue increased by 2% from 2010 while adjusted
operating profit decreased by 4% during the same period
reflecting the upfront costs associated with a record number of
smartphone activations and iPhone sales and a decline in voice
ARPU, with margins on network services for the year at 46.0%.
28 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
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across Nova Scotia, New Brunswick and Prince Edward Island,
representing a 130% increase over the current population coverage
of our network in those provinces.
(cid:129) Rogers won an important contract
to provision machine to
machine (“M2M”) wireless connectivity for Hydro-Quebec over the
next six years. Rogers will connect Hydro Quebec’s central system
with Smart Meter collectors, which aggregate electrical service
utilization data relayed from Quebec’s approximately 3.8 million
Smart Meters.
(cid:129) Rogers turned on Canada’s LTE wireless network services across
four of the country’s largest metropolitan areas — Toronto,
Ottawa, Montreal and Vancouver — giving more than eleven
million Canadians access to the world’s fastest mobile network
technology. LTE is a next generation wireless technology that
enables unparalleled connectivity, capable of speeds that are
between three and four times faster than HSPA+.
(cid:129) Wireless launched a set of innovative new wireless roaming
solutions to help Canadians easily manage their data use while
travelling outside of Canada. Another first in Canada, Rogers
launched Roaming Data Passes that provide real-time data usage
alerts while roaming abroad, giving cost certainty and peace of
mind.
Summarized Wireless Subscriber Results
Years ended December 31,
(Subscriber statistics in thousands, except ARPU, churn and usage)
Postpaid
Gross additions
Net additions
Total postpaid retail subscribers(1)
Monthly churn
Average monthly revenue per user (“ARPU”)(2)
Prepaid
Gross additions
Net additions
Total prepaid retail subscribers
Monthly churn
ARPU(2)
Blended ARPU(2)
Blended average monthly minutes of usage
2011
2010
Chg
1,449
269
7,574
1.32%
70.26
845
109
1,761
3.64%
16.02
60.20
466
$
$
$
1,330
319
7,325
1.18%
72.62
731
147
1,652
3.18%
16.10
62.62
478
$
$
$
119
(50)
249
0.14%
(2.36)
114
(38)
109
0.46%
(0.08)
(2.42)
(12)
$
$
$
(1)
(2)
In the second quarter of 2011, a change in operating policy resulted in a one-time decrease to the wireless postpaid subscriber base of approximately 20,000. These
subscribers are not included in postpaid net additions or churn for the year ended December 31, 2011.
As defined. See the section entitled “Key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations” section.
WIRELESS POSTPAID
AND PREPAID SUBSCRIBERS
(In thousands)
6,979
1,515
7,325
1,652
7,574
1,761
2009
2010
2011
Postpaid
Prepaid
Wireless Subscribers and Network Revenue
The year-over-year decrease in overall subscriber net additions for the
year primarily reflects an increase in the level of churn associated with
heightened competitive intensity.
The increase in network revenue in 2011 compared to 2010 reflects
the continued growth of Wireless’ subscriber base and the increased
adoption and usage of wireless data services, offset by a decrease in
voice ARPU in large part driven by the heightened competitive
intensity as discussed below.
During 2011, wireless data revenue increased by approximately 27%
from 2010, to $2,325 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 2011, data revenue represented approximately 35%
of total network revenue, compared to 28% in 2010.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 29
MANAGEMENT’S DISCUSSION AND ANALYSIS
WIRELESS DATA
REVENUE
(In millions of dollars)
DATA REVENUE PERCENT
OF BLENDED ARPU
(%)
SMARTPHONES AS A PERCENT
OF POSTPAID SUBSCRIBERS
(%)
$1,366
$1,832
$2,325
21.9%
28.1%
35.2%
31.0%
41.0%
56.0%
2009
2010
2011
2009
2010
2011
2009
2010
2011
During 2011, Wireless activated and upgraded approximately
2.5 million smartphones, compared to approximately 1.9 million
smartphones during 2010. These smartphones were predominately
iPhone, BlackBerry and Android devices, of which approximately 38%
were for subscribers new to Wireless. This resulted in subscribers with
smartphones representing 56% of the overall postpaid subscriber
base as at December 31, 2011, compared to 41% as at December 31,
2010. 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
in a fiscal year.
Wireless Operating Expenses
Years ended December 31,
(In millions of dollars)
Operating expenses
Cost of equipment sales
Other operating expenses
Operating expenses before the undernoted
Stock-based compensation expense(1)
Settlement of pension obligations(2)
Integration, restructuring and acquisition expenses(3)
Other items, net(4)
Total operating expenses
Year-over-year ARPU decreased by 4%, which reflects declines in
wireless voice revenues, partially offset by higher wireless data
revenues. Driving this decrease was a 13% decline in the wireless
voice component of ARPU, which was primarily due to the general
level of competitive intensity in the wireless voice services market,
and was partially offset by a 21% increase in wireless data ARPU.
Wireless Equipment Sales
The increase in revenue from equipment sales for 2011, including
activation fees and net of equipment
the
corresponding period of 2010, reflects the increase in the number of
reported by
to the highest
smartphone activations
Wireless, as discussed above.
levels ever
subsidies,
versus
2011
2010
% Chg
$ 1,425
2,677
$ 1,225
2,575
4,102
10
2
16
–
3,800
12
–
5
5
$ 4,130
$ 3,822
16
4
8
(17)
n/m
n/m
n/m
8
(1)
(2)
(3)
(4)
See the section entitled “Stock-based Compensation”.
Relates to the settlement of pension obligations for employees in the pension plans who had retired between January 1, 2009 and January 1, 2011, as a result of annuity
purchases by the Company’s pension plans.
Costs incurred relate to (i) severance costs resulting from the targeted restructuring of our employee base and outsourcing of certain functions and (ii) acquisition transaction
costs incurred and the integration of acquired businesses.
Relates to the resolution of obligations and accruals relating to prior periods.
The $200 million increase in cost of equipment sales for 2011,
compared to 2010, was primarily the result of an increase in hardware
upgrade units versus the prior period and a continued increase in the
mix of smartphones for both new and upgrading subscribers. An
unusually large number of existing iPhone and BlackBerry subscribers
became eligible for hardware upgrades during the second half of
2011. This, and the launch of Apple’s iPhone 4S, were the largest
factors driving the year-over-year increase in expenses. Wireless views
these costs as net present value positive investments in the acquisition
and retention of higher ARPU subscribers, as these customers tend to
be lower churning customers who subscribe to multi-year term
contracts.
The modest year-over-year increase in operating expenses for 2011,
compared to 2010, excluding retention spending discussed below,
was driven by the growth in the Wireless subscriber base, which
resulted in increased customer care costs due to the complexity of
supporting more sophisticated devices and services, and increased
30 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
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spending on advertising and promotion and data activations. These
increases were predominately offset by savings related to operating
and scale efficiencies across various functions.
WIRELESS POSTPAID
MONTHLY ARPU
($)
WIRELESS POSTPAID
MONTHLY CHURN
(%)
Total retention spending, including subsidies on handset upgrades,
was
flat year-over-year at $785 million in 2011, compared to
$788 million in 2010, as a result of lower volumes of smartphones
offset by a higher mix of smartphones, compared to 2010.
Wireless Adjusted Operating Profit
The 4% year-over-year decrease in adjusted operating profit and the
46.0% adjusted operating profit margin on network revenue (which
excludes equipment sales revenue) for 2011 primarily reflects the
increase in the total operating expenses, driven by the record high
volume of smartphone sales and activations as discussed above,
partially offset by the increase in network revenue.
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
the
network
including
enhancing
Wireless PP&E additions
for 2011 reflect spending on network
capacity, such as radio channel additions, network core improvements
continued
features,
and
deployment of our LTE and HSPA+ networks. 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 2011 is largely due to
investments to build out our LTE network across four of Canada’s top
markets with services now available in Ottawa, Toronto, Montreal
Information
and Vancouver with expansion continuing into 2012.
technology investments on our
customer billing systems and
platforms for new services contributed to the year-over-year increase
as well.
$73.93
$72.62
$70.26
1.06%
1.18%
1.32%
2009
2010
2011
2009
2010
2011
2011
2010
% Chg
$
628
250
61
253
$ 446
284
61
146
$ 1,192
$ 937
41
(12)
–
73
27
QUALITY 21%
IT & OTHER 21%
NETWORK - OTHER 5%
2011 WIRELESS ADDITIONS TO PP&E
(%)
CAPACITY 53%
CABLE
CABLE’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 had 2.3 million television subscribers
at December 31, 2011, representing approximately 32% of cable
television subscribers in Canada. At December 31, 2011, it provided
digital cable services to approximately 1.8 million of its television
subscribers and high-speed Internet
service to approximately
1.8 million residential subscribers. Under the Rogers Home Phone
it provides local telephone and long-distance services to
brand,
residential and small business customers and had over one million
subscriber lines at December 31, 2011.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 31
MANAGEMENT’S DISCUSSION AND ANALYSIS
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
Rogers. RBS is increasingly focusing its business segment sales efforts
within the Company’s traditional cable television footprint, where it
is able to provide and serve customers with voice and data telephony
services over its own infrastructure.
The Video segment offers digital video disc (“DVD”) and video game
sales and rentals, a business which we have been phasing out over the
course of the past two years. In addition, management of Video, on
behalf of Wireless and Cable, operates a retail distribution chain with
approximately 360 stores at December 31, 2011, many of which
provide customers with the ability to purchase all of Rogers’ products
and services (wireless, cable television, Internet, and cable telephony),
pay their Rogers bills, and pick up or return Rogers digital and
Internet equipment.
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 products and
services, subject to,
in most cases, minimum purchase and term
commitments.
During 2011, Rogers introduced and began offering an advanced
real-time home monitoring and security service, which allows for
remote access, monitoring and control from Internet connected
computers and smartphones, as well as real time alerts and remote
viewing. This service is marketed under the Rogers Smart Home
Monitoring brand.
Cable’s Distribution
In addition to our 360 retail stores, Cable markets its services through
an extensive network of third party retail locations across its network
footprint. Rogers stores provide customers with a single direct retail
channel featuring Rogers’ wireless and cable products and services. In
2011 CABLE REVENUE MIX
(%)
TELEVISION 50%
INTERNET 24%
HOME PHONE 13%
BUSINESS SOLUTIONS 11%
VIDEO 2%
Cable’s Products and Services
As at December 31, 2011, approximately 90% of Cable’s overall
network and 100% of its network in Ontario had been upgraded to
transmit 860 MHz of bandwidth. With essentially all 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 2010, Cable introduced Rogers On Demand Online, Canada’s
most comprehensive online destination for primetime and specialty
TV programming, movies, sports and web-only extras. This value-
added service is offered to all Rogers customers across Canada, with
Cable customers getting additional access to specialty content based
on their cable subscription. In 2011, a transactional section was added
to the service, allowing users to rent and stream new releases and
library titles online on an a la carte basis. The service can be accessed
via most Internet connected computers, tablets and smartphones.
Cable offers multiple tiers of
services, which are
differentiated principally by bandwidth capabilities and monthly
usage allowances.
Internet
Cable’s voice-over-cable telephony service, which is marketed under
the Rogers Home Phone brand, has grown to over one million
subscribers. Cable offers a variety of home phone packages coupled
with competitive feature sets and long-distance plans.
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
technologies. Co-axial cable is a cost-effective, high-
amplifier
bandwidth and widely deployed means of carrying two-way digital
television, broadband Internet and telephony services to residential
subscribers.
On average, groups of 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.
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.
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TOTAL REVENUE
(In millions of dollars)
$3,948
$3,785
$3,796
2009
2010
2011
CABLE’S STRATEGY
Cable seeks to maximize subscriber share, revenue, operating profit
and return on invested capital by leveraging its technologically
advanced cable networks and innovative products and services to
meet the information, entertainment and communications needs of
its residential and business customers. The key elements of the
strategy are as follows:
(cid:129) Maintaining technologically advanced cable networks and systems
clustered and interconnected in and around metropolitan areas;
(cid:129) 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;
(cid:129) Ongoing focus on enhanced customer experience through the
quality and reliability of its innovative products, services and
customer support programs;
(cid:129) 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;
(cid:129) 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, and through the evolution and enhancement of
its set top box capabilities and user interface;
(cid:129) Continuing to deepen its presence and core connections in an
increasing number of customer homes with anchor products such
as broadband Internet, video and telephony; and
(cid:129) 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 CABLE 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,
These
digital
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,
and voice-over-cable
telephony
services.
cable
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 33
MANAGEMENT’S DISCUSSION AND ANALYSIS
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
competition from several alternative multi-channel
and illegal
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 Skype and Vonage, who market VoIP local
services to the subscribers of local exchange carriers (“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 has
been increasingly augmented by these and other emerging 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 legacy data networking technologies) to IP
delivered through virtual private networking (“VPN”) services. This
transition results in lower costs for both users and carriers.
Increasing Availability of Online Access to Cable 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.
Facilities-Based Telephony Services Competitors
Competition has been ongoing 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 between Cable, ILECs and various
VoIP providers.
CABLE OPERATING AND FINANCIAL RESULTS
For purposes of this discussion, revenue has been classified according
to the following categories:
(cid:129) Cable, which includes revenue derived from:
(cid:129) 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
(cid:129) 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;
(cid:129) Internet, which includes monthly and additional use service
revenues from residential and small business Internet access service
and modem sale and rental fees;
34 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
(cid:129) 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;
(cid:129) RBS, which includes telephony and data services revenue from
enterprise and government customers, as well as the sale of these
telecommunications
offerings on a wholesale basis
carriers; and
to other
(cid:129) Video, which includes the sale and rental of DVDs and video
games.
Cable’s operating expenses are segregated into the following
categories for assessing business performance:
(cid:129) Cost of equipment sales, which is comprised of cable equipment
costs; and
(cid:129) Other operating expenses, which include all other expenses
incurred to operate the business on a day-to-day basis, service
existing subscriber relationships, as well as attract new subscribers.
These include:
(cid:129) merchandise for resale, such as Video store merchandise and
depreciation of Video DVD and game rental assets;
(cid:129) employee salaries and benefits, such as remuneration, bonuses,
pension, employee benefits and stock-based compensation; and
(cid:129) other external purchases, such as:
(cid:129) service costs, which includes the following:
(cid:129) the monthly contracted payments for the acquisition of
programming paid directly to the programming suppliers,
copyright
collectives and the Canadian Programming
Production Funds;
(cid:129) Internet interconnectivity and usage charges and the cost
of operating Cable’s Internet service; and
(cid:129) Inter-carrier payments for interconnection to the local
access and long-distance carriers related to cable and
circuit-switched telephony service;
(cid:129) sales and marketing related expenses, which represent the
costs to acquire new subscribers, including advertising and
promotion, and commissions paid to third parties; and
(cid:129) operating, general and administrative related expenses,
which includes the following:
(cid:129) 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;
(cid:129) customer care expenses, which include the costs
associated with customer order-taking and billing
inquiries;
(cid:129) community television expenses, which consist of
the costs to operate a series of local community-
based
regulatory
stations
requirements in Cable’s licenced systems;
television
per
(cid:129) expenses related to the corporate management of
Video; and
(cid:129) facility costs and other general and administrative
expenses.
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.
Summarized Cable Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Cable Operations(2)
RBS
Video
Total operating revenue
Adjusted operating profit (loss) before the undernoted
Cable Operations(2)
RBS
Video
Adjusted operating profit(3)
Stock-based compensation expense(4)
Settlement of pension obligations(5)
Integration, restructuring and acquisition expenses(6)
Other items, net(7)
Operating profit(3)
Adjusted operating profit (loss) margin(3)
Cable Operations(2)
RBS
Video
Additions to PP&E(3)
Cable Operations(2)
RBS
Video
Total additions to PP&E
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2011(1)
2010(1) % Chg
4
(10)
(43)
–
9
115
(30)
13
29
n/m
70
n/m
12
$ 3,309
405
82
$ 3,190
452
143
3,796
3,785
1,549
86
(23)
1,612
(9)
(5)
(39)
–
1,419
40
(33)
1,426
(7)
–
(23)
(5)
$ 1,559
$ 1,391
46.8%
21.2%
(28.0%)
44.5%
8.8%
(23.1%)
$
$
748
55
–
$
803
$
611
38
13
662
22
45
n/m
21
(1)
(2)
(3)
(4)
(5)
(6)
(7)
The operating results of Kincardine Cable T.V. Ltd. (“Kincardine”) and Compton Cable T.V. Ltd. (“Compton”) are included in the Cable Operations results of operations from
the dates of acquisition on July 30, 2010 and February 28, 2011, respectively. The operating results of Blink Communications Inc. (“Blink”) and Atria Networks LP (“Atria”) are
included in the RBS results of operations from the dates of acquisition on January 29, 2010 and January 4, 2011, respectively.
Cable Operations segment includes Cable Television services, Internet services and Home Phone services.
As defined. See the sections entitled “Key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
See the section entitled “Stock-based Compensation”.
Relates to the settlement of pension obligations for employees in the pension plans who had retired between January 1, 2009 and January 1, 2011, as a result of annuity
purchases by the Company’s pension plans.
Costs incurred relate to (i) severance costs resulting from the targeted restructuring of our employee base and outsourcing of certain functions; (ii) acquisition transaction
costs incurred and the integration of acquired businesses; and (iii) the closure of certain Video stores and lease exit costs.
Relates to the resolution of obligations and accruals relating to prior periods.
Cable Operating Highlights for the Year Ended
December 31, 2011
(cid:129) Cable grew high-speed Internet
subscribers by 83,000, cable
telephony lines by 45,000 and digital cable households by 39,000.
(cid:129) Cable’s Internet subscriber base continued to grow during the year
and penetration is approximately 48% of the homes passed by our
cable networks and 78% of our television subscriber base.
In
addition, digital penetration now represents approximately 77% of
television households.
(cid:129) Digital cable subscribers increased 3% from December 31, 2010 to
December 31, 2011, to approximately 1.8 million.
(cid:129) 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 46% of television subscribers at December 31,
2011.
(cid:129) Cable deployed its popular SpeedBoost technology for high-speed
Internet subscribers which detects available bandwidth on the
network and automatically delivers a temporary burst of speed for
the first 10 MB of a download or stream which loads content faster
and delivers a superior online experience.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 35
MANAGEMENT’S DISCUSSION AND ANALYSIS
(cid:129) Cable closed the acquisition of Atria Networks, one of Ontario’s
largest fibre-optic networks, which augments Rogers Business
Solutions’ enterprise offerings by further enhancing its ability to
deliver on-net data centric services within and adjacent to Cable’s
footprint.
(cid:129) Cable launched the Small Business Specialist program which is an
innovative Canada-wide initiative that gives small business owners
direct access to in-store trained specialists at 157 retail locations
across Canada who can expertly and efficiently advise them on all
of their business communications solutions needs.
CABLE OPERATIONS
Summarized Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Cable Television
Internet
Home Phone
Total Cable Operations operating revenue
Operating expenses before the undernoted
Cost of equipment sales
Other operating expenses
Adjusted operating profit(2)
Stock-based compensation expense(3)
Settlement of pension obligations(4)
Integration, restructuring and acquisition expenses(5)
Other items, net(6)
Operating profit(2)
Adjusted operating profit margin(2)
(cid:129) Cable introduced Remote TV Manager, which enables Cable’s
digital TV subscribers in Ontario to have the freedom and flexibility
to search TV programming and manage PVR recordings online
from anywhere with their computers, tablets and smartphones.
(cid:129) Rogers launched a set of advanced real-time home monitoring,
from computers and
control,
smartphones through its Smart Home Monitoring offering.
viewing and alerts
security,
See the following segment discussions for a detailed discussion of
operating results.
2011(1)
2010(1) % Chg
$ 1,904
927
478
$ 1,835
848
507
3,309
3,190
29
1,731
1,760
1,549
(9)
(4)
(8)
–
41
1,730
1,771
1,419
(7)
–
(3)
(7)
$ 1,528
$ 1,402
46.8%
44.5%
4
9
(6)
4
(29)
–
(1)
9
29
n/m
167
n/m
9
(1)
(2)
(3)
(4)
(5)
(6)
The operating results of Kincardine and Compton are included in the Cable Operations results of operations from the dates of acquisition on July 30, 2010 and February 28,
2011, respectively.
As defined. See the sections entitled “Key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
See the section entitled “Stock-based Compensation”.
Relates to the settlement of pension obligations for employees in the pension plans who had retired between January 1, 2009 and January 1, 2011, as a result of annuity
purchases by the Company’s pension plans.
Costs incurred relate to severance costs resulting from the targeted restructuring of our employee base and outsourcing of certain functions.
Relates to the resolution of obligations and accruals relating to prior periods.
36 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
Summarized Subscriber Results
Years ended December 31,
(Subscriber statistics in thousands)
Cable homes passed(1)
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
Total cable telephony lines(1)
Total cable service units(3)
Net additions
Total cable service units
Circuit-switched lines
Net losses and migrations to cable telephony platform
Total circuit-switched lines(4)
M
A
N
A
G
E
M
E
N
T
’
S
D
I
S
C
U
S
S
I
O
N
A
N
D
A
N
A
L
Y
S
I
S
2011
2010
3,754
3,708
Chg
46
(14)
2,297
4
2,305
39
1,777
67
1,733
83
1,793
64
1,686
45
1,052
66
1,003
114
5,142
134
4,994
(12)
–
(48)
46
(18)
(8)
(28)
44
19
107
(21)
49
(20)
148
36
(46)
(1)
(2)
(3)
(4)
On February 28, 2011, we acquired 6,000 television subscribers, 5,000 digital cable households, 4,000 cable high-speed Internet subscribers and 4,000 cable telephony lines
from our acquisition of Compton. These subscribers are not included in net additions, but are included in the ending total balance for 2011. In addition, the acquisition
resulted in an increase in cable homes passed of 9,000.
Effective April 1, 2011, approximately 20,000 wholesale cable Internet subscribers which were previously included in RBS are now included in Cable. The transfer of these
20,000 subscribers was recorded as an adjustment to the total subscriber base for 2011. Incremental subscriber activity for this base is included in net additions for 2011.
Total cable service units are comprised of television subscribers, cable high-speed Internet subscribers and cable telephony lines.
During 2011, approximately 34,000 circuit-switched lines were migrated to third-party resellers, with the exception of approximately 3,000 which were migrated to RBS in the
first quarter of 2011. These migrations are not included in net losses and migrations, but are included in the ending total balance for 2011.
CABLE OPERATIONS
REVENUE BREAKDOWN
(In millions of dollars)
CABLE OPERATIONS ADJUSTED
OPERATING PROFIT
AND MARGIN
(In millions of dollars)
CABLE SUBSCRIBER
BREAKDOWN
(In thousands)
1,780
1,835
1,904
781
513
848
507
927
478
$1,298
$1,419
$1,549
2,296
1,664
1,619
937
2,305
1,733
1,686
1,003
2,297
1,777
1,793
1,052
42.2%
44.5%
46.8%
2009
2010
2011
2009
2010
2011
2009
2010
2011
Television
Internet
Home Phone
Television
Digital
Internet
Home Phone
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 37
MANAGEMENT’S DISCUSSION AND ANALYSIS
Cable Television Revenue
The increase in Cable Television revenue for 2011, compared to 2010,
reflects the continuing increase in penetration of our digital cable
product offerings and pricing changes. The increase in the year-over-
year growth rate of Cable Television revenue from 2010 to 2011
partially reflects the timing of annual pricing changes, which took
place in July 2010 and March 2011, 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.
The digital cable subscriber base grew by 3% and represented 77% of
television households passed by our
cable networks as at
December 31, 2011, compared to 75% as at December 31, 2010.
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 expects to begin a substantial conversion of the remaining
analog cable customers onto its digital cable platform during 2012
and 2013. This migration will enable the reclamation of significant
amounts of network capacity as well as reduce network operating
and maintenance costs going forward. The migration will entail
incremental PP&E and operating costs as each of the remaining
analog homes are fitted with digital converters and various analog
filtering equipment is removed.
DIGITAL HOUSEHOLDS AND
PENETRATION OF TELEVISION
CUSTOMERS
(In thousands)
HIGH-DEFINITION
HOUSEHOLDS
(In thousands)
1,664
1,733
1,777
715
850
942
72%
75%
77%
2009
2010
2011
2009
2010
2011
Cable Internet Revenue
The year-over-year increase in Internet revenue for 2011 primarily
reflects the increase in the Internet subscriber base, combined with
Internet services price changes made over the previous twelve
months. Also impacting the increase is the timing and mix of
promotional programs and a general movement by subscribers
towards higher end tiers and a modest increase in revenue from
additional usage.
38 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
customer-base at approximately
With the high-speed Internet
1.8 million subscribers, Internet penetration is approximately 48% of
the homes passed by our cable networks and 78% of our television
subscriber base, as at December 31, 2011.
INTERNET SUBSCRIBERS
AND PENETRATION
OF HOMES PASSED
(In thousands)
1,619
1,686
1,793
45%
45%
48%
2009
2010
2011
Home Phone Revenue
The year-over-year decrease in Home Phone revenue for 2011 reflects
the declines in revenue associated with the legacy circuit-switched
telephony base that Cable has divested over the past five quarters.
The decline was partially offset by the increase in the cable telephony
customer base combined with price changes in March 2011.
Home Phone revenue decreased year-over-year as a result of the
the legacy circuit-switched telephony base,
ongoing decline of
partially offset by
the growth in cable telephony lines of
approximately 5% for 2011. The decline of the legacy circuit-switched
telephony base included approximately 34,000 subscribers which were
migrated to a third party reseller during 2011, per the sale agreement
entered into during the third quarter of 2010, as discussed below. The
lower net additions of cable telephony lines in 2011 versus 2010 were
the result of lower sales activity as campaigns were less aggressive
compared to the prior year.
Cable telephony lines in service grew 5% from December 31, 2010 to
December 31, 2011. At December 31, 2011, cable telephony lines
represented 28% of the homes passed by our cable networks and
46% of television subscribers.
it
its
continues
line base. Therefore,
Cable continues to focus principally on growing its on-net cable
telephony
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 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. During 2011, approximately 34,000 of these
subscribers were migrated to third-party resellers. For the year ended
December 31, 2011 the revenue reported by Cable Operations
associated with the residential circuit-switched telephony business
being divested totalled approximately $15 million.
Excluding the impact of the declining circuit-switched telephony
business that Cable has divested this year, the year-over-year revenue
growth for Home Phone and Cable Operations for 2011 would have
been 4% and 5%, respectively.
CABLE TELEPHONY SUBSCRIBERS
AND PENETRATION
OF HOMES PASSED
(In thousands)
937
1,003
1,052
Cable Operations Operating Expenses
Cable Operations’ operating expenses for 2011 were flat compared to
2010, 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 46.8% for 2011, compared to 44.5% for 2010.
M
A
N
A
G
E
M
E
N
T
’
S
D
I
S
C
U
S
S
I
O
N
A
N
D
A
N
A
L
Y
S
I
S
26%
27%
28%
2009
2010
2011
ROGERS BUSINESS SOLUTIONS
Summarized Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Operating expenses before the undernoted
Adjusted operating profit(2)
Settlement of pension obligations(3)
Integration, restructuring and acquisition expenses(4)
Operating profit(2)
Adjusted operating profit margin(2)
2011(1)
2010(1) % Chg
$
405
$
452
319
86
(1)
(17)
412
40
–
(13)
$
68
$
27
21.2%
8.8%
(10)
(23)
115
n/m
31
152
(1)
(2)
(3)
(4)
The operating results of Blink and Atria are included in the RBS results of operations from the dates of acquisition on January 29, 2010 and January 4, 2011, respectively.
As defined. See the sections entitled “Key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
Relates to the settlement of pension obligations for employees in the pension plans who had retired between January 1, 2009 and January 1, 2011, as a result of annuity
purchases by the Company’s pension plans.
Costs relate to (i) severance costs resulting from the targeted restructuring of our employee base and outsourcing of certain functions; (ii) acquisition transaction costs
incurred and the integration of acquired businesses; and (iii) lease exit costs.
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
2011
2010
Chg
109
146
(37)
32
42
(10)
(1)
(2)
(3)
Local line equivalents include individual voice lines plus Primary Rate Interfaces (“PRIs”) at a factor of 23 voice lines each. The amount includes approximately 3,000 circuit-
switched lines which were migrated from Cable Operations to RBS during 2011.
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. Effective April 1,
2011, approximately 20,000 circuits which were previously included in RBS are now included in Cable. These subscribers were removed from the ending balance for 2011.
On January 4, 2011, RBS acquired approximately 4,000 broadband data circuits from its acquisition of Atria, and these are reflected in the total amounts shown.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 39
MANAGEMENT’S DISCUSSION AND ANALYSIS
RBS Revenue
The decrease in RBS revenue for the year ended December 31, 2011,
primarily reflects the planned decline in certain categories of the
lower margin off-net legacy business, partially offset by growth in the
next generation IP and other on-net services. RBS’ focus is primarily
on IP-based services and increasingly on leveraging higher margin
on-net and near-net
revenue opportunities utilizing both the
acquired Atria and Blink networks and Cable’s existing network
facilities to expand offerings to the medium-sized enterprise, public
sector and carrier markets. The lower margin off-net legacy business,
which includes long-distance, local and certain legacy data services,
continues to decline and is down 32% year-to-date. In comparison,
the higher margin next generation business is up 11%. For the year
ended December 31, 2011, the acquisition of Atria contributed
revenue of $72 million.
VIDEO
Summarized Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Operating expenses before the undernoted
Adjusted operating loss(1)
Integration, restructuring and acquisition expenses(2)
Other items, net(3)
Operating loss(1)
Adjusted operating loss margin(1)
RBS Operating Expenses
Operating expenses decreased for the year ended December 31, 2011
compared to the corresponding period in 2010. This reflects a
planned decrease in the legacy service related costs due to lower
volumes and subscriber levels, permanent cost reductions resulting
from a 2010 restructuring of the employee base, lower sales within
certain customer segments, and operating efficiencies stemming from
the integration of Blink and Atria.
RBS Adjusted Operating Profit
The year-over-year growth in adjusted operating profit reflects the
acquisition of
the higher margin Atria and Blink on-net data
businesses and RBS’ focus on growing its on-net next generation data
revenue. This strategic shift has more than offset the planned declines
in the lower margin legacy voice and data services. Cost reductions
functions have also
and efficiency
contributed to higher operating profit margins in the quarter. For the
year ended December 31, 2011, the acquisition of Atria contributed
adjusted operating profit of $43 million, contributing to the growth
of the next generation services market, including data and Internet.
initiatives across
various
2011
2010 % Chg
$
82
$
143
105
(23)
(14)
–
176
(33)
(7)
2
(43)
(40)
(30)
100
n/m
$
(37) $
(38)
(3)
(28.0%)
(23.1%)
(1)
(2)
(3)
As defined. See the sections entitled “Key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
Costs relate to (i) severance costs resulting from the targeted restructuring of our employee base and (ii) the closure of certain Video stores.
Relates to the resolution of accruals relating to prior periods.
Video Revenue
The results of the Video segment include our video and game sale
and rental business which has been, and continues to be, restructured
and downsized coinciding with the declining market opportunity. The
decrease in Video revenue for 2011, compared to 2010, was the result
of a continued decline in video rental and sales activity and the
reduction of nearly 20% in the number of store locations since the
start of 2010.
Our initiative is to more deeply integrate our wireless, cable and
video rental distribution channels to better respond to changing
customer needs and preferences. As a result of the declining market
opportunity and the integration of our wireless and cable businesses,
certain facilities and stores associated principally with the Video
rental business have been, and will continue to be, closed.
Video Adjusted Operating Loss
The adjusted operating loss at Video decreased for 2011, compared to
2010, reflecting the changes and trends noted above.
CABLE ACQUISITIONS
Acquisition of Atria Networks LP
On January 4, 2011, Cable closed an agreement to purchase a 100%
interest in Atria for cash consideration of $426 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’
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 was accounted for using the acquisition method in
accordance with IFRS 3 with the results of operations consolidated
with those of ours effective January 4, 2011.
Acquisition of Compton Cable T.V. Ltd.
On February 28, 2011, Cable closed an agreement to acquire the assets
of Compton for cash consideration of $40 million. Compton provides
cable television, Internet and telephony services in Port Perry, Ontario
and the surrounding area. The acquisition was made to enter into the
Port Perry, Ontario market and is adjacent to the existing Cable
footprint. The acquisition was accounted for using the acquisition
method in accordance with IFRS 3 with the results of operations
consolidated with those of ours effective February 28, 2011.
40 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
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
Video
Total additions to PP&E
2011
2010 % Chg
$ 225
267
47
13
196
$ 234
201
43
20
113
748
55
–
611
38
13
$ 803
$ 662
(4)
33
9
(35)
73
22
45
n/m
21
M
A
N
A
G
E
M
E
N
T
’
S
D
I
S
C
U
S
S
I
O
N
A
N
D
A
N
A
L
Y
S
I
S
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:
The increase in RBS PP&E additions for 2011 reflects increased activity
and timing of expenditures on customer networks and support
capital.
2011 CABLE OPERATIONS ADDITIONS TO PP&E
(%)
(cid:129) Customer premise equipment
equipment for digital set-top terminals,
associated installation costs;
(“CPE”), which includes
the
Internet modems and
(cid:129) Scalable infrastructure, which includes non-CPE costs to meet
business growth and to provide service enhancements;
(cid:129) Line extensions, which includes network costs to enter new service
areas;
(cid:129) Upgrades and rebuild, which includes the costs to modify or
replace existing co-axial cable, fibre-optic equipment and network
electronics; and
(cid:129) 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 increase in Cable Operations PP&E for 2011, resulted from higher
scalable infrastructure and support capital expenditures due to
projects associated with quality
related investments on IPv6
compliance initiatives, timing of spend on infrastructure projects and
development work on new video platform capabilities. Support
that contributed to the increase relate to
capital
customer billing systems and platforms for new services. Lower
investments in set top boxes due to lower subscriber activity and
lower unit pricing contributed to the decrease in Customer premise
equipment for 2011.
investments
SUPPORT CAPITAL 26%
UPGRADES AND
REBUILD 2%
LINE EXTENSIONS 6%
CUSTOMER PREMISE
EQUIPMENT 30%
SCALABLE
INFRESTRUCTURE 36%
MEDIA
MEDIA’S BUSINESS
Media operates our
television and radio broadcasting assets,
consumer and trade publications, nationally-televised home shopping
service and Sports Entertainment. Media is also focused on the
explosive growth in digital properties and has invested significantly in
infrastructure and people to grow our digital operations by
producing and acquiring content
for our on-line and mobile
platforms, selling advertising on behalf of other digital content
providers and operating e-commerce businesses.
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 Sportsnet, Sportsnet ONE and
Sportsnet World; other specialty services including Outdoor Life
Network, The Biography Channel (Canada), FX (Canada), G4 Canada,
and CityNews Channel; and The Shopping Channel, Canada’s only
nationally televised shopping service. Broadcasting also owns 50% of
Dome Productions, Canada’s leader in HD mobile sports and events
production and distribution services.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 41
MANAGEMENT’S DISCUSSION AND ANALYSIS
Media’s publishing group produces 54 consumer, trade and
professional publications.
Media’s digital group provides digital advertising solutions to over
1,000 websites.
Media’s sports entertainment group (“Sports Entertainment”) owns
the Toronto Blue Jays, a Major League Baseball (“MLB”) club, and the
Rogers Centre sports and entertainment venue.
2011 MEDIA REVENUE MIX
(%)
The impact of the foregoing is that audiences are shifting a portion
of their time and attention from traditional broadcast and print to
digital properties. 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
which is driving up content costs.
TELEVISION 41%
PUBLISHING 17%
MEDIA OPERATING AND FINANCIAL RESULTS
Media’s revenues primarily consist of:
RADIO 16%
(cid:129) Advertising revenues;
THE SHOPPING
CHANNEL 16%
(cid:129) Circulation revenues;
(cid:129) Subscription revenues;
SPORTS ENTERTAINMENT 10%
(cid:129) Retail product sales; and
(cid:129) Ticket sales, receipts of MLB revenue sharing and concession sales
associated with Rogers Sports Entertainment.
Media’s operating expenses consist of:
(cid:129) Merchandise for resale, which is primarily comprised of the cost of
retail products sold by The Shopping Channel;
(cid:129) Other operating expenses, which include all other expenses
incurred to operate the business on a day-to-day basis. These
include:
(cid:129) employee salaries and benefits, such as remuneration, bonuses,
pension, employee benefits, stock-based compensation and Blue
Jays player salaries; and
(cid:129) other external purchases, such as sales and marketing related
expenses, and operating, general and administrative related
expenses, which include programming costs, printing and
production costs, circulation expenses, and other back-office
support functions.
MEDIA’S STRATEGY
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:
(cid:129) Continuing to leverage our strong media brands and content across
multiple platforms to offer advertising clients more comprehensive
audience solutions and reach;
(cid:129) Driving revenue share increases by continually improving audience
ratings in key demographics on conventional, sports and specialty
channels and on digital platforms by securing the rights to, and
promoting, premium and exclusive content;
(cid:129) Working with Wireless and Cable to provide exclusive and premium
content to our customers over advanced network and distribution
platforms and in association with the Rogers brand;
(cid:129) Growing and building audiences by focusing on producing unique
and quality content on our radio, TV, publishing and digital
properties;
(cid:129) Continuing to invest in technology and new digital experiences to
capture the migration of audiences to digital platforms; and
(cid:129) Enhancing the Sports Entertainment fan experience by continuing
to invest in 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:
(cid:129) Digitization and delivery of content;
(cid:129) Increased availability of high-speed broadband networks;
(cid:129) The proliferation of international and Canadian content available
to Canadian consumers has significantly fragmented audiences;
(cid:129) The explosion of easily available free and pirated content has
challenged the monetization of content;
(cid:129) Marketers searching for higher-ROI media vehicles; and
(cid:129) The availability and lower costs of social media marketing tools.
42 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
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(3)
Settlement of pension obligations(4)
Integration, restructuring and acquisition expenses(5)
Other items, net(6)
Operating profit(2)
Adjusted operating profit margin(2)
Additions to PP&E(2)
2011(1)
2010(1) % Chg
$ 1,611
$ 1,461
1,431
1,330
180
(9)
(3)
(14)
–
131
(10)
–
(12)
(4)
10
8
37
(10)
n/m
17
n/m
$
$
154
$
105
47
11.2%
61
9.0%
38
$
61
M
A
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(1)
(2)
(3)
(4)
(5)
(6)
The operating results of BV! Media Inc. (“BV Media”), BOUNCE, and BOB-FM are included in Media’s results of operations from the dates of acquisition on October 1,
2010, January 31, 2011 and January 31, 2011, respectively.
As defined. See the sections entitled “Key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
See the section entitled “Stock-based Compensation”.
Relates to the settlement of pension obligations for employees in the pension plans who had retired between January 1, 2009 and January 1, 2011, as a result of annuity
purchases by the Company’s pension plans.
Costs incurred relate to (i) severance costs resulting from the targeted restructuring of our employee base and (ii) acquisition transaction costs incurred and the integration of
acquired businesses.
Relates to the resolution of obligations and accruals relating to prior periods.
Media Operating Highlights for the Year Ended December 31, 2011
(cid:129) Media revenue increased by 10% from 2010 while adjusted
operating profit increased by 37% during the same period, with
margins for the year at 11.2%.
(cid:129) Rogers Sportsnet and Tennis Canada announced a multi-year
agreement to broadcast the Rogers Cup that will also allow
Sportsnet
to broadcast over 20 top tier ATP World Tour
Tournaments. Sportsnet also announced a multi-year agreement to
broadcast highly popular Ultimate Fighting Championship (“UFC”)
events in Canada.
Media Revenue
The increase in Media’s revenue in 2011, compared to 2010, reflects
the result of our
in prime time TV
continued investments
programming,
increased baseball attendance, new subscriber fees
generated from Sportsnet ONE and increased advertising sales, which
resulted in revenue increases at Radio, Sportsnet, Television, Sports
Entertainment, and Digital Media. This was partially offset by a
decline in Publishing, primarily due to the disposition of a portion of
the trade publication portfolio, and relatively flat year-over-year sales
at The Shopping Channel.
(cid:129) Media launched its CityNews Channel, a new 24-hour, interactive,
in Toronto leveraging trusted news brands
local news channel
Citytv, 680News and Maclean’s.
MEDIA REVENUE
(In millions of dollars)
(cid:129) Media launched its reality TV competition series “Canada’s Got
Talent” and its new Sportsnet Magazine, Canada’s first national
biweekly sports magazine,
leveraging the Rogers Sportsnet
franchise and brand to connect readers with the premier source for
sports features and opinion.
(cid:129) FX (Canada) digital cable channel was launched, which delivers
acclaimed programming including FX original series and movies
together with original Canadian programming.
(cid:129) Media acquired the remaining shares in Setanta Sports which it did
not already own and relaunched the Setanta Sports service as
Sportsnet World, providing Canadians with the world’s
top
international sports events including professional soccer, rugby and
cricket.
(cid:129) Media launched RDeals, a new e-mail and Internet based daily deal
offering that delivers local and national deals to Canadians with
significant discounts off original prices.
$1,407
$1,461
$1,611
2009
2010
2011
Media Operating Expenses
Media’s operating costs increased 8% in 2011, compared to 2010. The
increased costs are primarily due to planned increases
in
programming costs at Sportsnet and Television, the acquisition of BV
Media and 2 radio stations, partially offset by the disposition of a
portion of the trade publication portfolio and a focus on cost
management.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 43
CORPORATE
CORPORATE DEVELOPMENTS
Investment in Maple Leaf Sports & Entertainment
On December 9, 2011, we announced that, along with Bell Canada,
we are jointly acquiring a net 75 percent stake in MLSE being sold by
the Ontario Teachers’ Pension Plan. MLSE is Canada’s preeminent
leader in delivering top quality sports and entertainment experiences
to fans. MLSE operates the Air Canada Centre, the NHL’s Toronto
Maple Leafs, the NBA’s Toronto Raptors, MLS’s Toronto FC, and the
AHL’s Toronto Marlies, along with three television networks: Leafs TV,
NBA TV Canada, and GOL TV Canada. Rogers’ net cash commitment,
following a planned leverage recapitalization of MLSE, will total
approximately $533 million,
representing a 37.5 percent equity
interest in MLSE and will be funded with currently available liquidity.
The transaction is expected to close in mid-2012 and is subject to
regulatory and league approvals.
Rogers Bank
In 2011, we applied for a license to operate a bank under the federal
Bank Act. The bank, to be called Rogers Bank, will primarily focus on
credit, payment and charge card services. The licence is being
reviewed by the Office of the Superintendent of Financial Institutions
Canada (“OSFI”) and is pending approval.
Corporate Additions to PP&E
The corporate additions to PP&E included $71 million for 2011 and
$197 million for 2010, both of which related to spending on an
enterprise-wide billing and business support system initiative.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Media Adjusted Operating Profit
The increase in Media’s adjusted operating profit for 2011, compared
to 2010, primarily reflects the revenue and expense changes discussed
above.
MEDIA ADJUSTED
OPERATING PROFIT
(In millions of dollars)
$119
$131
$180
2009
2010
2011
MEDIA ACQUISITIONS
Acquisition of Residual Interest in Setanta Sports
On June 8, 2011, we acquired the remaining 47% of Setanta Sports
that we did not already own for cash consideration of $11 million.
Setanta, now known as Sportsnet World, offers subscribers access to
the world’s top international sports events including professional
soccer, rugby and cricket.
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 increased during 2011 primarily due to
television broadcast equipment additions
related to the CRTC
mandated digital transition and planned infrastructure upgrades.
44 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
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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 IFRS 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 earnings
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 4 to the 2011 Audited Consolidated Financial Statements
entitled “Segmented Information”.
Years ended December 31,
(In millions of dollars)
Net income
Income tax expense
Other income(1)
Finance costs:
Interest on long-term debt
Loss on repayment of long-term debt
Foreign exchange loss (gain)
Change in fair value of derivative instruments
Capitalized interest
Amortization of deferred transaction costs
Operating income
Impairment of assets
Depreciation and amortization
Operating profit
Stock-based compensation expense
Settlement of pension obligations
Integration, restructuring and acquisition expenses
Other items, net
Adjusted operating profit
2011
2010 % Chg
$ 1,563
535
(8)
$ 1,502
612
(1)
668
99
6
(14)
(29)
8
2,828
–
1,743
4,571
64
11
70
–
669
87
(20)
22
(3)
13
2,881
11
1,639
4,531
50
–
40
14
$ 4,716
$ 4,635
4
(13)
n/m
–
14
n/m
n/m
n/m
(38)
(2)
n/m
6
1
28
n/m
75
n/m
2
(1)
Other income includes share of the income in associates and joint ventures accounted for using the equity method, net of tax.
Net Income
The $61 million increase in net income compared to the prior year is
primarily due to the growth in adjusted operating profit of $81
million and a $77 million decline in income tax expenses, partially
offset by an increase in foreign exchange loss of $26 million and an
increase in loss on repayment of long-term debt of $12 million.
CONSOLIDATED ADJUSTED
NET INCOME
(In millions of dollars)
$1,556
$1,678
$1,747
Income Tax Expense
Our effective income tax rate for 2011 and 2010 was 25.5% and 28.9%,
respectively. The 2011 effective income tax rate was less than the 2011
statutory income tax rate of 28.0% primarily due to an income tax
recovery of $59 million resulting from the effect of tax rate changes.
The 2010 effective income tax rate was less than the 2010 statutory
income tax rate of 30.5% primarily due to an income tax recovery of
$69 million resulting from the effect of tax rate changes. In March
2010, the federal budget introduced proposed changes that impact the
tax deductibility of cash-settled stock options. The proposed legislative
changes were substantively enacted in December 2010. As a result, in
the year ended December 31, 2010, we recorded a one-time income
tax charge of $40 million to reduce deferred tax assets previously
recognized with respect to our stock option related liabilities.
2009
2010
2011
remaining non-capital
compared to $152 million for
For the year ended December 31, 2011, our income taxes paid were
$99 million,
the year ended
December 31, 2010. With respect to cash income tax payments as
opposed to accounting income tax expense, we expect to utilize
substantially all of our
income tax loss
carryforwards in 2012. As a result of the utilization of our non-capital
income tax loss carryforwards as well as of legislation eliminating the
deferral of partnership income that was substantially enacted on
October 4, 2011, we estimate our cash income tax payments will
increase significantly in 2012 from the $99 million we paid in 2011 as
detailed in the section of this MD&A entitled “2012 Financial
Guidance”. While both of these items impact the timing of cash taxes,
neither are expected to have a material impact to our income tax
expense for accounting purposes.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 45
MANAGEMENT’S DISCUSSION AND ANALYSIS
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:
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:
Effect of tax rate changes
Recognition of previously unrecognized deferred tax assets
Stock-based compensation
Other items
Income tax expense
Effective income tax rate
Other Income
Other income of $8 million in 2011 was primarily associated with
investment income and expenses from certain of our investments,
compared to income of $1 million in 2010.
Interest on Long-Term Debt
The $1 million decrease in interest expense during 2011, compared to
2010, reflects the decrease in the weighted-average interest rate on
long-term debt at December 31, 2011 compared to December 31,
2010, substantially offset by an increase in the principal amount of
compared to
long-term debt
December 31, 2010, including the impact of cross-currency interest
exchange agreements (“Debt Derivatives”). The change in principal
and weighted-average interest rate primarily reflects the re-financing
activities completed in the first quarter of 2011. See the section
entitled “Liquidity and Capital Resources”.
through December
2011,
31,
Loss on Repayment of Long-Term Debt
During 2011, we recorded a loss of repayment of long-term debt of
$99 million, comprised of aggregate redemption premiums of $76
million related to the redemption of two public debt issues, a net loss
on the termination of the related Debt Derivatives of $22 million, and
a write-off of deferred transaction costs of $2 million, partially offset
by a gain of $1 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 Loss (Gain)
During 2011, the Canadian dollar weakened by 2.2 cents versus the
U.S. dollar resulting in a foreign exchange loss of $6 million, primarily
related to our US$350 million of Senior Notes due 2038 for which the
associated Debt Derivatives have not been designated as hedges for
accounting purposes. Much of this foreign exchange loss is offset by
the coincident change in the fair value of our Derivative instruments
as discussed below. 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 Debt Derivatives have not been
designated as hedges for accounting purposes.
Change in Fair Value of Derivative Instruments
In 2011, the change in fair value of the derivative instruments was the
result of the $14 million (2010 – $22 million) non-cash change in the
fair value of the Debt 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 Debt Derivatives
46 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
2011
2010
28.0%
30.5%
$ 2,098
$ 2,114
$
587
$
645
(59)
(12)
4
15
(69)
(5)
40
1
$
535
$
612
25.5%
28.9%
was primarily caused by the Canadian dollar’s weakening by 2.2 cents
in 2011 (2010 – strengthening by 5.6 cents) versus the U.S. dollar. We
have measured the fair value of our Debt Derivatives using an
estimated credit-adjusted mark-to-market valuation. Much of this
change in the fair value of our derivative instruments is offset by the
foreign exchange loss discussed above. For the impact, refer to the
section entitled “Mark-to-Market Value of Derivatives”.
Operating Income
The decrease in our operating income compared to the prior year is
due to the increase in operating expenses of $205 million, an increase
in depreciation and amortization of $104 million, as well as an
increase in stock-based compensation expense, settlement of pension
obligations, integration, restructuring and acquisition expenses and
other items of $41 million, partially offset by an increase in revenue
of $286 million and a decrease in impairment of assets of $11 million.
See the detailed discussion on respective segment results included in
this section entitled “Segment Review” above.
Impairment of Assets
There was no impairment of assets charge for 2011. During 2010, we
determined that the fair values of certain of Media’s radio stations
were lower than their carrying value and we recorded a non-cash
impairment charge of $11 million, primarily resulting from the
weakening of advertising revenues in local markets.
Depreciation and Amortization Expense
The year-over-year increase in depreciation and amortization expense
was due to certain IT and network assets brought to use in 2011,
compared to 2010, and an increase in amortization of intangible
assets resulting from acquisitions over the past year.
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, 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 fair
value, as adjusted for vesting, measured as using option pricing
models. The liability is marked-to-market each period and is
amortized to expense using a graded vesting approach over the
period in which the related services are rendered or, as applicable,
over the period to the date an employee is eligible to retire,
whichever is shorter.
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The liability for stock-based compensation expense is recorded based
on the fair value of the options, as described above. The expense each
period 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,
2011, we had a liability of $194 million (2010 – $180 million) related
including
to stock-based compensation recorded at its fair value,
stock options, restricted share units and deferred share units. In the
year ended December 31, 2011, $45 million (2010 – $58 million) was
paid to holders of stock options, restricted share units and deferred
share units upon exercise using the SAR feature.
A summary of stock-based compensation expense is as follows:
Years ended December 31,
(In millions of dollars)
Wireless
Cable
Media
Corporate
Settlement of Pension Obligations
During 2011, we incurred a non-cash loss from the settlement of
pension obligations of approximately $11 million resulting from a
lump-sum contribution of approximately $18 million to our pension
plans, following which the pension plans purchased approximately
$68 million of annuities from insurance companies for all employees
who had retired between January 1, 2009 and January 1, 2011. See
the section entitled “Pension Plans Purchase of Annuities”.
Integration, Restructuring and Acquisition Expenses
During 2011, we incurred $70 million of integration, restructuring
and acquisition expenses to improve our cost structure related to
(i) severance costs associated with the targeted restructuring of our
employee base ($44 million); (ii) acquisition transaction costs incurred
and the integration of acquired businesses ($4 million); and (iii) the
closure of certain Video stores and other exit costs ($22 million).
During 2010, we incurred $40 million of integration, restructuring
and acquisition expenses to improve our cost structure related to
(i) severance costs associated with 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 ($5 million); and (iv) the closure of certain Video
stores and lease exit costs ($5 million).
Other Items
There were no other items recorded during 2011. During 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 adjusted operating profit for the year ended December 31,
2011 compared to 2010.
Consolidated adjusted operating profit increased to $4,716 million
in 2011, compared to $4,635 million in 2010. Adjusted operating
profit for 2011 and 2010, respectively, excludes:
(i) stock-based
compensation expense of $64 million and $50 million; (ii) settlement
of pension obligations of $11 million and $nil;
integration,
restructuring and acquisition expenses of $70 million and $40 million;
and (iv) other items, net of $nil and $14 million.
(iii)
For details on the determination of adjusted operating profit, which
is a non-GAAP measure, see the sections entitled “Key Performance
Indicators
“Supplementary
Information: Non-GAAP Calculations”.
and Non-GAAP Measures”
and
2011
$ 10
9
9
36
2010
$ 12
7
10
21
$ 64
$ 50
Employees
Employee salaries and benefits represent a material portion of our
expenses. At December 31, 2011, we had approximately 26,200
(2010 – 25,100) full-time equivalent employees (“FTEs”) across all of
our operating groups, including our shared services organization and
corporate office, which increased from the level at December 31, 2010
due to higher levels at shared services and customer facing functions.
Total salaries and benefits incurred for employees (both full and part-
time)
in 2011 was approximately $1,778 million, compared to
$1,729 million in 2010. Employee salaries and benefits expense
increased due to the number of FTEs compared to 2010, as well as the
increase in stock-based compensation expense to $64 million
compared to a $50 million expense in 2010, due to fluctuations in the
Company’s stock price.
3. CONSOLIDATED LIQUIDITY AND FINANCING
LIQUIDITY AND CAPITAL RESOURCES
Operations
For 2011, 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 $4,698 million from
$4,683 million in 2010. Taking into account the changes in non-cash
working capital items, income taxes paid and interest paid, for 2011,
cash generated from operations was $3,791 million, compared to
$3,494 million in 2010. The $297 million increase is primarily the result
of a $217 million increase in non-cash working capital
items, a
$53 million decrease in taxes paid, and a $12 million decrease in
interest paid. The cash generated from operations, together with the
following items,
funds of approximately
$5,894 million in 2011:
resulted in total net
(cid:129) the receipt of an aggregate $1,850 million gross proceeds from the
March 21, 2011 issuance of $1,450 million of 5.34% Senior Notes
due 2021 and $400 million of 6.56% Senior Notes due 2041;
(cid:129) $250 million net advances borrowed under the bank credit facility;
and
(cid:129) $3 million from the issuance of Class B Non-Voting shares under the
exercise of employee stock options.
Net funds used during 2011 totalled approximately $5,906 million, the
details of which include the following:
(cid:129) additions to PP&E of $2,216 million,
including $89 million of
related changes in non-cash working capital;
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 47
MANAGEMENT’S DISCUSSION AND ANALYSIS
(cid:129) the payment of an aggregate $1,208 million for the March 21, 2011
redemption of U.S. $350 million ($342 million) 7.875% Senior Notes
and U.S. $470 million ($460 million) 7.25% Senior Notes maturing
in 2012 (comprising $802 million principal and $76 million
premiums) and settlement of the associated Debt Derivatives and
forward contracts (comprising $330 million net settlement paid on
termination);
(cid:129) the payment of quarterly dividends in the aggregate amount of
$758 million on our Class A Voting and Class B Non-Voting shares;
(cid:129) the purchase for
cancellation of approximately 31 million
Class B Non-Voting shares for an aggregate purchase price of
$1,099 million;
(cid:129) acquisitions and other net investments aggregating $559 million,
including $426 million to acquire Atria, $40 million to acquire
Compton, $38 million to acquire two radio stations in Edmonton,
Alberta and London, Ontario, $16 million to acquire certain dealer
stores, $15 million for a long-term deposit, $11 million to acquire
the remaining ownership in Setanta Sports, and other net
investments of $13 million;
(cid:129) payments for program rights of $56 million; and
(cid:129) payments for transaction costs of $10 million.
Taking into account
the opening cash deficiency balance of
$45 million at the beginning of the year and the cash sources and
uses described above, the cash deficiency at December 31, 2011,
represented by bank advances, was $57 million.
2011 USES OF CASH
(In millions of dollars)
Cash PP&E expenditures: $2,216
$5,906
Redemption of long-term debt: $1,208
Repurchase of shares: $1,099
Dividends: $758
2011
Acquisitions and other net investments: $559
Additions to program rights: $56
Transaction costs: $10
48 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
CONSOLIDATED CASH FLOW
FROM OPERATIONS
(In millions of dollars)
$3,526
$3,880
$3,956
2009
2010
2011
Financing
Our long-term debt instruments and related derivatives are described
in Note 17 and Note 18 to the 2011 Audited Consolidated Financial
Statements. During 2011, the following financing activities took place.
Debt Issuances
On March 21, 2011, RCI issued in Canada $1,850 million aggregate
principal amount of Senior Notes, comprised of $1,450 million of
5.34% Senior Notes due 2021 (the “2021 Notes”) and $400 million of
6.56% Senior Notes due 2041 (the “2041 Notes”). The 2021 Notes
were issued at a discount of 99.954% for an effective yield of
5.346% per annum if held to maturity while the 2041 Notes were
issued at par to yield 6.56% if held to maturity. RCI received
aggregate net proceeds of approximately $1,840 million from the
issuance of the 2021 Notes and the 2041 Notes after deducting the
original issue discount, agents’ fees and other related expenses. The
aggregate net proceeds from the 2021 Notes and the 2041 Notes
were used to fund the March 2011 redemption of two public debt
issues maturing in 2012 together with the termination of the
associated Debt Derivatives, each as described below under “Debt
Redemptions and Termination of Debt Derivatives”, and to partially
repay outstanding advances under our bank credit facility.
Each of the 2021 Notes and the 2041 Notes are guaranteed by RCP
and rank pari passu with all of RCI’s other senior unsecured notes and
debentures and bank credit facility.
Debt Redemptions and Termination of Debt Derivatives
On March 21, 2011, RCI redeemed the entire U.S. $350 million
principal amount of its 7.875% Senior Notes due 2012 (the “7.875%
Notes”) and the entire U.S. $470 million principal amount of its 7.25%
Senior Notes due 2012 (the “7.25% Notes” and, together with the
“7.875% Notes”, the “2012 Notes”). RCI paid an aggregate amount of
approximately $878 million for the redemption of the 2012 Notes (the
“Redemptions”),
including approximately $802 million aggregate
principal amount for the 2012 Notes and $76 million for the
premiums payable in connection with the Redemptions. Concurrently
with RCI’s redemption of the 2012 Notes, RCI made a net payment of
approximately $330 million to terminate the associated Debt
Derivatives (the “Derivatives Termination”). As a result, the total cash
expenditure associated with the Redemptions and the Derivatives
Termination was approximately $1,208 million and RCI recorded a loss
on repayment of long-term debt of $99 million, comprised of the
aggregate redemption premiums of $76 million, a net loss on the
termination of the related Debt Derivatives of $22 million, and
write-off of deferred financing costs of $2 million, offset by a write
down of a previously recorded fair value increment of $1 million.
RATIO OF DEBT TO
ADJUSTED OPERATING PROFIT
2.1x
2.1x
2.2x
2009
2010
2011
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 U.S. $4 billion in the United States and Ontario. Each of these
shelf prospectuses expired in December 2011. To replace these
expiring shelf prospectuses, in December 2011 we filed two new shelf
prospectuses with securities regulators to qualify debt securities of
RCI, one for the sale of up to Cdn $4 billion of debt securities in
Canada and the other for the sale of up to U.S. $4 billion in the
United States and Ontario. Each of the new shelf prospectuses expire
in January 2014.
Normal Course Issuer Bid
In February 2011, we announced that the Toronto Stock Exchange
had 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, with the actual
number of Class B Non-Voting shares purchased under the NCIB and
the timing of such purchases to be determined by management
considering market conditions, stock prices, our cash position and
other factors.
In 2011, we purchased an aggregate 30,942,824 Class B Non-Voting
shares for an aggregate purchase price of $1,099 million. Of these
shares, 9,000,000 were purchased pursuant to private agreements
between RCI and 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 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
issued by the Ontario Securities
issuer bid exemption order
Commission and are included in calculating the number of Class B
Non-Voting shares that RCI may purchase pursuant to the NCIB.
In February 2012, we announced that the Toronto Stock Exchange has
accepted a notice filed by RCI of our intention to renew our NCIB for
for a further one year period
our Class B Non-Voting shares
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commencing February 24, 2012 and ending February 23, 2013, and
during such one year period we may purchase on the TSX, the NYSE
and/or alternative trading systems up to the lesser of 36.8 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 $1.0 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.
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 2012. At December 31, 2011, there were no
financial leverage covenants in effect other than those pursuant to
to the 2011 Audited
our bank credit
Consolidated Financial Statements). Based on our most restrictive
leverage covenants, we would have had the capacity to issue up to
approximately $16.3 billion of additional
long-term debt at
December 31, 2011.
facility (see Note 17(j)
2012 Cash Requirements
On a consolidated basis, we anticipate that we will generate a net
cash surplus in 2012 from cash generated from operations. We expect
that we will have sufficient capital resources to satisfy our cash
funding requirements in 2012, 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, 2011, 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, 2011, the required repayments on all long-term debt
in the next five years totalled $3,569 million, comprised of $nil
principal repayments due in 2012, $606 million due in 2013, $1,119
million due in 2014, $844 million due in 2015, and $1,000 million due
in 2016. The required principal repayment due in 2013 is the $356
million (U.S. $350 million) for the 6.25% Senior Notes, as well as the
maturity of the bank credit facility, against which we had borrowed
advances of $250 million at December 31, 2011. The required principal
repayments due in 2014 are the $356 million (U.S. $350 million) for
the 5.50% Senior Notes and the $763 million (U.S. $750 million) for
the 6.375% Senior Notes. The required principal repayments due in
2015 consist of $285 million (U.S. $280 million) for the 6.75% Senior
Notes and $559 million (U.S. $550 million) for the 7.50% Senior Notes.
The required principal repayments due in 2016 consist of $1,000
million for the 5.80% Senior Notes.
Coincident with the maturity of our U.S. dollar-denominated long-
term debt, certain of our Debt 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
The following information relating to our credit ratings is provided as
it relates to our financing costs and liquidity. Specifically, credit
ratings may affect our ability to obtain short-term and long-term
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 49
MANAGEMENT’S DISCUSSION AND ANALYSIS
financing and the terms of such financing. A reduction in the credit
ratings on our debt by the rating agencies, particularly a downgrade
below investment grade ratings, could adversely affect our cost of
financing and our access to sources of liquidity and capital.
In March 2011, Standard & Poor’s Ratings Services affirmed the
corporate credit 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 2021 Notes and the 2041 Notes.
In March 2011, Fitch Ratings affirmed 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
2021 Notes and the 2041 Notes.
In March 2011, Moody’s Investor 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 2021 Notes and the 2041 Notes. In
October 2011, Moody’s Investors Service upgraded the rating for RCI’s
senior unsecured debt to Baa1 (from Baa2) with a stable outlook.
Credit ratings are intended to provide investors with an independent
measure of credit quality of an issue of securities. Ratings for debt
instruments range along a scale from AAA, in the case of Standard &
Poor’s and Fitch, or Aaa in the case of Moody’s, which represent the
highest quality of securities rated, to D, in the case of Standard &
Poor’s, C, in the case of Moody’s and Substantial Risk in the case of
Fitch, which represent the lowest quality of securities rated. The credit
ratings accorded by the rating agencies are not recommendations to
purchase, hold or sell the rated securities nor do such ratings provide
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 Baa1 from Moody’s
represent investment grade ratings.
RATIO OF ADJUSTED OPERATING
PROFIT TO INTEREST
6.8x
6.9x
7.1x
2009
2010
2011
Deficiency of Pension Plan Assets Over Accrued Obligations
As disclosed in Note 20 to our 2011 Audited Consolidated Financial
Statements, our pension plans had a deficiency of plan assets over
accrued obligations of $133 million and $76 million as at
December 31, 2011 and December 31, 2010, respectively, related to
funded plans, and a deficiency of $39 million and $36 million as at
December 31, 2011 and December 31, 2010, respectively, related to
unfunded plans. Our pension plans had a deficiency on a solvency
basis at December 31, 2011, and are expected to have a deficiency on
50 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
a solvency basis at December 31, 2012. Consequently, in addition to
our regular contributions, we are making certain minimum monthly
special payments to eliminate the solvency deficiency. In 2011, the
special payments,
including contributions associated with benefits
paid from the plans, totalled approximately $30 million. Our total
estimated annual funding requirements, which include both our
regular contributions and these special payments, are expected to
increase from $62 million (excluding a lump-sum contribution of $18
million related to the purchase of annuities described in the following
paragraph) in 2011 to approximately $73 million in 2012, 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.
Pension Plans Purchase of Annuities
In 2011, we made a lump-sum contribution of $18 million to our
pension plans,
following which the pension plans purchased
$68 million of annuities from insurance companies for employees in
the pension plans who had retired between January 1, 2009 and
January 1, 2011. The purchase of the annuities relieves us of primary
responsibility for, and eliminates significant risk associated with, the
accrued benefit obligation for the retired employees. The non-cash
settlement loss arising from this settlement of pension obligations
was $11 million and was recorded in 2011. The Company did not
make any additional lump-sum contributions to its pension plans in
the year ended December 31, 2011.
INTEREST RATE AND FOREIGN EXCHANGE MANAGEMENT
Foreign Currency Forward Contracts
In July 2011, we entered into an aggregate U.S. $720 million of
foreign currency forward contracts to hedge the foreign exchange
risk on certain forecast expenditures (“Expenditure Derivatives”). The
Expenditure Derivatives fix the exchange rate on an aggregate U.S.
$20 million per month of our forecast expenditures at an average
exchange rate of Cdn $0.9643/U.S. $1 from August 2011 through July
2014. As at December 31, 2011, U.S. $620 million of these Expenditure
Derivatives remain outstanding, all of which qualify for and have
been designated as hedges for accounting purposes.
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 Debt
Derivatives hedging our U.S. dollar-denominated debt, whether or not
they qualify as hedges for accounting purposes, since all such Debt
Derivatives are used for risk-management purposes only and are
designated as hedges of specific debt instruments for economic
purposes. As a result, the Canadian dollar equivalent of our U.S. dollar-
denominated long-term debt illustrated in the table below reflects the
contracted foreign exchange rate for all of our Debt Derivatives
regardless of qualifications for accounting purposes as a hedge.
As discussed above in Financing (see “Debt Redemption and
Termination of Derivatives”), in March 2011, RCI redeemed all of its
U.S. $350 million 7.875% Senior Notes due 2012 and all of its U.S. $470
million 7.25% Senior Notes due 2012 and terminated the related U.S.
$820 million aggregate notional principal amount of Debt Derivatives.
As a result, at December 31, 2011, 100% of our U.S. dollar-
denominated debt was hedged on an economic basis while 91.7% of
our U.S. dollar-denominated debt was hedged on an accounting basis.
The Debt Derivatives hedging our U.S. $350 million Senior Notes due
2038 do not qualify as hedges for accounting purposes.
Hedged Debt Position
(In millions of dollars, except percentages)
U.S. dollar-denominated long-term debt
Hedged with Debt Derivatives
Hedged exchange rate
Percent hedged(1)
Amount of long-term debt at fixed rates:(2)
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
December 31, 2011
December 31, 2010
U.S.
U.S.
$
$
4,230
4,230
1.1340
100.0%
Cdn
Cdn
$ 10,597
$ 10,347
97.6%
6.22%
U.S.
U.S.
$
$
Cdn
Cdn
$
$
5,050
5,050
1.1697
100.0%
9,607
9,607
100.0%
6.68%
(1)
(2)
Pursuant to the requirements for hedge accounting under IAS 39, Financial Instruments: Recognition and Measurement, on December 31, 2011 and December 31, 2010, RCI
accounted for 91.7% and 93.1%, respectively, of our Debt Derivatives as hedges against designated U.S. dollar-denominated debt. As a result, on December 31, 2011 91.7%
of our U.S. dollar-denominated debt is hedged for accounting purposes versus 100% on an economic basis.
Long-term debt includes the effect of the Debt Derivatives.
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Mark-to-Market Value of Derivatives
In accordance with IFRS, we have recorded our Debt Derivatives and
our Expenditure Derivatives (together 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 which the
for as assets by Rogers
counterparties owe Rogers),
the bank
counterparty was added to the risk-free discount rate to determine
the estimated credit-adjusted value whereas,
in the case of
Derivatives accounted for as liabilities (i.e. those Derivatives for which
the Bond Spread for
those Derivatives
(i.e.
(In millions of dollars)
Debt Derivatives
Mark-to-market value – risk-free analysis
Mark-to-market value – credit-adjusted estimate (carrying value)
Difference, Debt Derivatives
Expenditure Derivatives
Mark-to-market value – risk-free analysis
Mark-to-market value – credit-adjusted estimate (carrying value)
Difference, Expenditure Derivatives
Total Difference
Rogers owes the counterparties), Rogers’ Bond Spread was added to
the risk-free discount rate. The estimated credit-adjusted values of the
Derivatives are subject to changes in credit spreads of Rogers and its
counterparties.
is
The effect of estimating the credit-adjusted fair value of Derivatives
at December 31, 2011, versus the unadjusted risk-free mark-to-market
value of Derivatives
illustrated in the table below. As at
December 31, 2011, the credit-adjusted estimated net liability value of
our Debt Derivatives was $499 million, which is $2 million more than
the unadjusted risk-free mark-to-market net liability value. The credit-
adjusted estimated net asset value of our Expenditure Derivatives was
$39 million, which is the same value as the unadjusted risk-free
mark-to-market net asset value.
Derivatives in an
asset position (A)
Derivatives in a
liability position (B)
Net asset
position (A + B)
$
51
41
(10)
39
39
–
$
(10)
$
$ (548)
(540)
$ (497)
(499)
8
–
–
–
8
(2)
39
39
–
$
(2)
Long-term Debt Plus Net Debt Derivative Liabilities
The aggregate of our long-term debt plus net Debt Derivatives
liabilities related to our Debt Derivatives at the mark-to-market values
using risk-free analysis (“the risk-free analytical value”) is used by us
and many analysts to most closely represent the Company’s net debt-
related obligations for valuation purposes, calculated as follows:
(In millions of dollars)
Long-term debt(1)
Net derivative liabilities for Debt Derivatives at the risk-free analytical value(2)
Total
December 31, 2011 December 31, 2010
$ 10,102
497
$
$ 10,599
$ 8,723
917
$
$ 9,640
(1)
(2)
Before deducting fair value decrement arising from purchase accounting and deferred transaction costs.
Includes current and long-term portions.
We believe that the non-GAAP financial measure of long-term debt
plus net Debt Derivative liabilities related to our Debt Derivatives 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
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 51
MANAGEMENT’S DISCUSSION AND ANALYSIS
regularly by management. This is also useful to investors and analysts
in enabling them to analyze our enterprise and equity value 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 IFRS.
OUTSTANDING COMMON SHARE DATA
Set out below is our outstanding common share data as at
December 31, 2011 and at December 31, 2010. In the year ended
December 31, 2011 we purchased an aggregate 30,942,824 Class B
Non-Voting shares for cancellation pursuant to our NCIB for a total
purchase price of approximately $1,099 million. For additional
information, refer to Note 21 to our 2011 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
December 31, 2011 December 31, 2010
112,462,014
412,395,406
112,462,014
443,072,044
524,857,420
555,534,058
10,689,099
5,716,945
11,841,680
6,415,933
(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.
TOTAL COMMON SHARES
OUTSTANDING
(In millions)
479.9
112.5
443.1
112.5
412.4
112.5
DIVIDENDS ON RCI EQUITY SECURITIES
Our dividend policy is reviewed periodically by Rogers’ Board of
Directors (“the Board”). The declaration and payment of dividends
are at the sole discretion of the Board and depend on, among other
legal
things, our financial condition, general business conditions,
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.
2009
2010
2011
Class B Non-Voting
Class A Voting
We declared and paid dividends on each of our outstanding Class A Voting and Class B Non-Voting shares, as follows:
Declaration date
Record date
February 17, 2009
April 29, 2009
August 20, 2009
October 27, 2009
February 16, 2010
April 29, 2010
August 18, 2010
October 26, 2010
February 15, 2011
April 27, 2011
August 17, 2011
October 26, 2011
March 6, 2009
May 15, 2009
September 9, 2009
November 20, 2009
March 5, 2010
May 14, 2010
September 9, 2010
November 18, 2010
March 18, 2011
June 15, 2011
September 15, 2011
December 15, 2011
52 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
Payment date
April 1, 2009
July 2, 2009
October 1, 2009
January 2, 2010
April 1, 2010
July 2, 2010
October 1, 2010
January 4, 2011
April 1, 2011
July 4, 2011
October 3, 2011
January 4, 2012
Dividend
per share
Dividends paid
(in millions)
$
$
$
$
$
$
$
$
0.29
0.29
0.29
0.29
0.32
0.32
0.32
0.32
$ 0.355
$ 0.355
$ 0.355
$ 0.355
$ 184
$ 184
$ 177
$ 175
$ 188
$ 187
$ 184
$ 179
$ 195
$ 194
$ 190
$ 187
In February 2012, Rogers’ Board of Directors approved an increase in
the annualized dividend rate from $1.42 to $1.58 per Class A Voting
and Class B Non-Voting Share effective immediately to be paid in
quarterly amounts of $0.395 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.
At the same time, in February 2012, the Board declared a quarterly
dividend totaling $0.395 per share on each of its outstanding Class A
Voting and Class B Non-Voting shares, such dividend to be paid on
April 2, 2012, to shareholders of record on March 19, 2012, and is the
first quarterly dividend to reflect the newly increased $1.58 per share
annualized dividend rate.
In February 2011, Rogers’ Board of Directors 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.
Dividend Reinvestment Plan (“DRIP”)
On October 26, 2010,
the Board 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 are 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.
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
investment dealer or other
are advised to contact their broker,
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, continue to be
acquired on the Canadian open market by the Plan Agent.
Quarterly dividends are only payable as and when declared by the
Board and there is no entitlement to any dividend prior thereto.
Before enrolling in the DRIP, 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.
Material Obligations Under Firm Contractual Arrangements
(In millions of dollars)
Long-term debt(1)
Debt derivative instruments(2)
Operating leases
Player contracts
Purchase obligations(3)
Pension obligation(4)
Other long-term liabilities
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ANNUALIZED DIVIDENDS
PER SHARE AT YEAR END
$1.16
$1.28
$1.42
2009
2010
2011
2011 CASH RETURNED TO SHAREHOLDERS
(In millions of dollars)
$1,902
Share buybacks: $1,099
Dividends: $758
2011
Stock option buybacks: $45
COMMITMENTS AND OTHER CONTRACTUAL OBLIGATIONS
Contractual Obligations
Our material obligations under firm contractual arrangements are
summarized below at December 31, 2011. See also Notes 17, 18 and
25 to the 2011 Audited Consolidated Financial Statements.
Less Than 1 Year
1-3 Years
4-5 Years
After 5 Years
Total
$
–
–
132
47
563
73
–
$ 1,725
331
175
62
834
–
20
$ 1,844
148
74
25
297
–
9
$ 6,533
16
42
7
110
–
8
$ 10,102
495
423
141
1,804
73
37
$ 815
$ 3,147
$ 2,397
$ 6,716
$ 13,075
Total
(1)
(2)
(3)
(4)
Amounts reflect principal obligations due at maturity.
Amounts reflect net disbursements due at maturity. U.S. dollar amounts have been translated into Canadian dollars at the Bank of Canada year-end rate.
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.
Represents expected contributions to our pension plans in 2012. Contributions for the year ended December 31, 2013 and beyond cannot be reasonably estimated as they
will depend on future economic conditions and may be impacted by future government legislation.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 53
MANAGEMENT’S DISCUSSION AND ANALYSIS
OFF-BALANCE SHEET ARRANGEMENTS
involving business
Guarantees
As a regular part of our business, we enter into agreements that
provide for indemnification and guarantees to counterparties in
transactions
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 18(e)(ii) to the 2011 Audited Consolidated
Financial Statements.
sale and business
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 25 to the 2011
Audited Consolidated Financial Statements.
4. OPERATING ENVIRONMENT
Additional discussion of regulatory matters and recent developments
specific to the Wireless, Cable and Media segments follows.
GOVERNMENT REGULATION AND REGULATORY DEVELOPMENTS
Substantially all of our business activities, except for Cable’s Video
segment and the non-broadcasting operations of Media, are subject
to regulation by one or more of: the Canadian Federal Department of
Industry, on behalf of the Minister of Industry (Canada) (collectively,
“Industry Canada”), the CRTC under the Telecommunications Act
(Canada) (the “Telecommunications Act”) and the CRTC under the
Broadcasting Act (Canada) (the “Broadcasting Act”), and, accordingly,
our results of operations are affected by changes in regulations and
by the decisions of these regulators.
Canadian Radio-television and Telecommunications Commission
Canadian broadcasting operations,
including our cable television
systems, radio and television stations, and specialty services are
licenced (or operated pursuant to an exemption order) and regulated
by the CRTC pursuant
the
regulating and
Broadcasting Act,
supervising all aspects of the Canadian broadcasting system with a
view to implementing certain broadcasting policy objectives
enunciated in that Act.
to the Broadcasting Act. Under
responsible for
the CRTC is
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
the
establishment or continuance of a competitive market for those
services. All of our Cable and telecommunications retail services have
such an order would be likely to unduly impair
54 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
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.
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.
for
telecommunications under the Radiocommunication Act (Canada)
(the “Radiocommunication Act”) and the Telecommunications Act.
Industry Canada may
standards
technical
set
to the Copyright Act
Copyright Board of Canada
The Copyright Board of Canada (“Copyright Board”) is a regulatory
body established pursuant
(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
broadcasting
undertakings, including cable, radio, television and specialty services.
collectives
copyright
Canadian
(Canada)
by
to
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
the
Canadian.
Radiocommunication Act and associated regulations.
restrictions
contained
same
The
are
in
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.
2.
Increasing the limit for direct foreign investment in broadcasting
and telecommunications common carriers to 49 percent;
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 Company believes that 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.
The government has yet to make a determination on potential
foreign ownership changes. It is expected that an announcement will
be coordinated with the release of Industry Canada’s determinations
on the appropriate structure of the 700 MHz spectrum auction
anticipated in early 2012.
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.
2011 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
(“ISPs”) and other persons providing Internet
service providers
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 was passed by the House of Commons in
2010 and came into effect as law on December 8, 2011.
2010 Legislation and Associated Developments
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.
In addition,
transmission data and prohibits
The Bill addresses unsolicited commercial electronic mail (spam) by
prohibiting the sending of commercial electronic messages without
It prohibits detrimental practices to electronic commerce,
consent.
protects
the
the integrity of
installation of computer programs without consent in the course of
commercial activity.
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
information and evidence to pursue
spammers outside of Canada with our global partners. The Bill is
anticipated to come into effect in mid-2012.
sharing of
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
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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.
Amendments to the Manitoba Consumer Protection Act were passed
on June 15, 2011 that largely paralleled the changes to the Quebec
Consumer Protection Act described above. The Manitoba government
the
is currently in the process of drafting regulations under
amendments.
to amend the Copyright Act
Proposed Legislation
(Copyright
Bill C-11, An Act
Modernization Act), was introduced in the House of Commons in
September 2011 and has gone to the Legislative Committee for
review. This Bill is substantially unchanged from Bill C-32 that was
introduced in June 2010 and died on the order paper with the calling
of the May 2011 election. Bill C-11 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
the purpose of
to pay for copies made for
broadcasting.
WIRELESS REGULATION AND REGULATORY 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.
In March 2011, Industry Canada released its decisions regarding the
renewal process for cellular and PCS licences that began expiring in
March 2011, thereby concluding the consultation process initiated in
March 2009. The fundamental determinations were:
(cid:129) At the end of the current licence term and where licencees are in
compliance with all conditions of licence, new cellular and PCS
licenses will be issued with a term of 20 years; and,
(cid:129) The previously existing annual fee of $0.0351 per MHz per
population of the licenced area will continue to apply to all cellular
and PCS licences, including those initially assigned by auction. The
Minister of Industry Canada may review and amend the fees during
the licence term after further consultation with licencees.
A determination regarding existing research and development
conditions of licence was not released at this time and will be
released separately. A decision has not been made to date and until
such a time, the current conditions of licence remain in effect.
Consultation on a Policy and Technical Framework for the 700 MHz
Band and Aspects Related to Commercial Mobile Spectrum
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. During 2011,
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 55
MANAGEMENT’S DISCUSSION AND ANALYSIS
on
parties
general
submitted
comments
policy
interested
considerations related to commercial mobile broadband spectrum
use, competition issues, the use of the 700 MHz band for commercial
mobile services and whether 700 MHz spectrum and available 2500-
spectrum should be auctioned simultaneously or
2690 MHz
Industry Canada is seeking comments on
separately.
spectrum use for public safety broadband applications.
Industry
Canada is expected to render its decisions regarding these issues and
to initiate a consultation regarding the details of the 700 MHz
auction framework early in 2012.
In addition,
Decisions on a Band Plan for Broadband Radio Service (“BRS”)
and Consultation on a Policy and Technical Framework to License
Spectrum in the Band 2500-2690 MHz
In February 2011, Industry Canada released its Decisions on issues such
as the band plan to be adopted for BRS in the band 2500-2690 MHz,
the mapping of incumbent licencees into the new band plan and the
timing of the migration of incumbents to the new band plan. Among
other things,
Industry Canada determined that the International
Telecommunications Union (“ITU”) band plan would be adopted for
the band and that incumbent licensees must return approximately
one-third of their licensed BRS spectrum. At the same time, Industry
Canada initiated a consultation on a policy and technical framework
for new BRS licences. The consultation examined issues such as the
block and tier sizes that will be used for the future auction of this
spectrum as well as competition issues and the extent to which the
use of spectrum caps, spectrum set-asides and rollout conditions are
warranted.
Industry Canada is expected to render its decisions
regarding these issues and to initiate a consultation regarding the
details of the 2500 MHz auction framework early in 2012, either as
part of its 700 MHz consultation or separately.
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.
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 arbitration. It is expected that site-sharing
arrangements would be offered at commercial
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.
rates
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
licencees. This was
tower
sharing and roaming obligations of
56 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
regardless of
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
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. As
noted above, this type of roaming was not mandated in the Industry
Canada conditions of licence. In June 2011, in Telecom Decision CRTC
2011-360, the CRTC dismissed Globalive’s complaint. In August 2011,
Globalive Wireless Management Corp. and The Public Interest
Advocacy Centre (“PIAC”) filed, separately, applications requesting
that the Commission review and vary its June 2011 Decision. Rogers
filed its response opposing the applications in September 2011 and
the applicants filed reply comments in October 2011. A decision is
expected in the spring of 2012.
Court of Appeal Overturns Federal Court Decision and Restores
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-Canadian and therefore ineligible to operate as 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. On
February 17, 2011, Globalive filed a Notice of Appeal with the Federal
Court of Appeal. On June 8, 2011, the Court of Appeal ruled in favour
of the Government of Canada and Globalive by allowing their
appeals and restoring the Order in Council that permitted Globalive
to launch in December 2009.
CABLE REGULATION AND REGULATORY DEVELOPMENTS
CRTC Vertical Integration Policy Decision
In September 2011, the CRTC released Broadcasting Regulatory Policy
CRTC 2011-601 (Policy) setting out the Commission’s decisions on its
regulatory framework for vertical
integration in the broadcasting
sector. Vertical integration refers to the ownership or control by one
entity of both programming services, such as conventional television
stations, or pay and specialty services, as well as distribution services,
such as cable systems or direct-to-home (“DTH”) satellite services. The
Policy:
(cid:129) Prohibits companies from offering television programs on an
exclusive basis to their mobile or Internet subscribers. Any program
broadcast on television,
including hockey games and other live
events, must be made available to competitors under fair and
reasonable terms.
(cid:129) Allows companies to offer exclusive programming to their Internet
or mobile customers provided that it is produced specifically for an
Internet portal or a mobile device.
(cid:129) Adopts a code of conduct to prevent anti-competitive behavior and
ensure all distributors, broadcasters and online programming
services negotiate in good faith. To protect Canadians from losing
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a television service during negotiations, broadcasters must
continue to provide the service in question and distributors must
continue to offer it to their subscribers.
(cid:129) Directs the vertically integrated entities to report by April 2012 on
how they have provided consumers with more flexibility in the
services that they can subscribe to through, for example, pick and
pay models. If the Commission finds that insufficient progress has
been made in this area a further proceeding will be held to impose
obligations to achieve the desired results.
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. The Alliance of
Canadian Cinema, Television & Radio Artists (“ACTRA”) filed for leave
to appeal to the Supreme Court of Canada. Leave to appeal was
granted in the fall of 2011.
In the February 2012 Decision, the
Supreme Court upheld the previous decision concluding that ISPs
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 asked the Federal Court of Appeal for
a ruling on an expedited basis. The Federal Court heard parties’
arguments in mid-September 2010. In February 2011, in a 2-1 split
decision, the Federal Court of Appeal ruled that the CRTC has the
authority to implement its proposed “value for signal” regime
described in Broadcasting Decision 2010-167. Rogers filed for leave to
appeal to the Supreme Court of Canada in May 2011 as did Telus and
Cogeco. In September 2011, the Supreme Court gave leave to appeal.
The appeal is expected to be heard in 2012. Implementation of the
regime is on hold pending the appeal.
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:
(ii) priority channel placement; and
(i) mandatory distribution;
(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.
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. In November 2011,
the CRTC released Telecom Regulatory Policy 2011-703 rejecting
additional wholesale charges based on specific end-user
traffic
volumes of the reselling ISP. In place of these charges, the Decision
authorized monthly usage-based wholesale charges based on the
capacity of the interconnecting facility between the facilities-based
wholesaler and the reselling ISP. A fixed monthly access fee per
end-user of the reselling ISP as well as one-time installation and
maintenance fees will apply in addition to the usage charge. The new
rate structure came into effect on February 1, 2012. Applications to
the CRTC to review and vary the Decision were filed by Shaw and
Rogers in February 2012. Decisions on the applications are expected in
mid-2012.
Basic Telecommunications Services and Other Matters Proceeding
In May 2011, the CRTC released Telecom Regulatory Policy 2011-291
in Telecom
concluding the proceeding initiated in January 2010,
Notice of Consultation CRTC 2010-43, reviewing issues associated with
access to basic telecommunications services, including the obligation
to serve, the basic service objective, and local service subsidy. The
CRTC retained an obligation to serve in regard to voice services only
for regulated (non-forborne) exchanges and only for incumbent
ILECs. The CRTC determined that high-speed Internet will not be
added to the basic service obligation. The Policy also took further
steps to reduce local subsidies through a reduction in the number of
areas eligible for
regulated rate
increases.
subsidy and authorization of
CRTC Network Interconnection Decision
In March 2011, the CRTC initiated a proceeding to review i) the three
separate local, wireless and toll network interconnection regulatory
regimes in place and ii) the need for IP interconnection regulatory
rules. The CRTC released its Decision, TRP 2012-24, in January 2012.
The Commission altered the wireless interconnection rules so that
in order to become a wireless competitive local exchange carrier
(“CLEC”) a wireless carrier is no longer required to meet the CLEC
obligations related to equal access and supply of directory listings to
other LECs. A wireless CLEC is entitled to shared-cost, bill and keep,
local
interconnection arrangements. Regarding IP interconnection,
the CRTC determined that in areas where a carrier uses IP to transfer
telephone calls to either an affiliated or unaffiliated provider, it must
provide a similar arrangement to any other provider that asks for it.
Companies must negotiate a commercial agreement within six
months of a formal request. If agreement cannot be reached within
six months, either party may request CRTC intervention. The
Commission anticipates implementation or significant progress within
a year after an agreement has been negotiated.
MEDIA REGULATION AND REGULATORY DEVELOPMENTS
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 represented the first time the CRTC would impose licence
commitments
relating to Canadian program expenditures and
exhibition on a group basis. The Rogers group includes the OMNI and
television stations and specialty services G4
Citytv conventional
Canada, Outdoor Life Network and The Biography Channel (Canada).
The CRTC held the licence renewal hearing in April 2011 releasing its
decisions in July 2011. In Broadcasting Decisions 2011-441 and 2011-
447, the Rogers Media stations were given new three-year licence
renewals expiring August 31, 2014 with terms that recognized the
different situation of the group in comparison to the three other
large English-language Canadian broadcast groups. The Commission
expects that Rogers will develop its broadcast holdings during the
next three years such that it can be treated in the same manner as the
other large groups in 2014.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 57
MANAGEMENT’S DISCUSSION AND ANALYSIS
Distant Signals
The new distant signal consent regime commenced on September 1,
2011 whereby conventional television stations must consent to the
carriage of their local signals into distant markets. Under this regime
BDUs that want to carry time-shifted U.S. signals, must get prior
consent from each of the three large English-language networks
(CTV, Global and Citytv) to carry their signals in those time zones.
Rogers Media is currently in negotiations with various distributors for
carriage of distant signals.
Regulatory Approval of Recent Acquisitions
In December 2011, Rogers and Bell Canada announced an agreement
to purchase a 75% interest in MLSE. This transaction is subject to
approval by the Competition Bureau which will
review the
transaction to determine whether it results in a substantial lessening
or prevention of competition. As part of this purchase of MLSE, we
will also acquire effective control, jointly with Bell Canada, of three
Category 2 television licences, Leafs TV, Raptors TV and Goltv and two
unlaunched Category 2 services, Mainstream Sports and Live Music
Channel. Acquisition of these services is subject to approval by the
CRTC.
In the first quarter of 2012, Rogers Media announced an agreement
to purchase the Saskatchewan Communications Network, an
over-the-air broadcast station. The acquisition is subject to CRTC
approval.
COMPETITION IN OUR BUSINESSES
We currently face significant competition in each of our primary
from entities providing
Wireless, Cable and Media businesses
segments also faces
services. Each of our
substantially similar
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, 2011, the highly competitive Canadian wireless
industry had approximately 26.6 million subscribers. Competition for
wireless subscribers is based on price, quality of service, scope of
services,
technology,
breadth of distribution, selection of devices, brand and marketing.
Wireless also competes with its
for dealers and retail
distribution outlets.
sophistication of wireless
service coverage,
rivals
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”. 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
58 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
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. However, during 2011, Shaw
Communications announced that instead of launching a wireless
network based on licensed spectrum, the company would launch a
cable territory. Bragg
WiFi network in select parts of
Communications Inc. has also announced that deployment of an
HSPA+ network and activity has started in the several locations in
Atlantic Canada. 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, although this has not been
observed to date.
their
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.
Rogers was the first carrier to launch LTE in Canada and has
maintained the lead throughout 2011. By August 2011, Bell Canada
had also launched LTE in and around Toronto in small areas. TELUS
has announced that they will launch LTE in the first quarter of 2012.
MTS has announced that they will
launch LTE in late 2012. As
LTE becomes more widely deployed around the world this will
increase competition at Wireless.
(previously Star Choice)
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 Shaw
Direct
satellite services and telephone
company IPTV 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.
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 resellers using wholesale telco DSL and cable Third Party
Internet Access services 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, 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.
One of the biggest changes in the telecommunications industry is
substitution of the traditional wireline video, voice and data services
Internet delivery is increasingly becoming a
by new technologies.
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
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the large majority of homes today continue to use standard home
telephone service. In addition, wireless Internet service is increasing in
popularity.
Video competes with DVD and video game sales and rental store
chains, as well as individually owned and operated outlets and, more
services, on demand
recently, on-line-based subscription rental
services over cable and satellite, and illegally downloaded content as
well as distributors of copied DVDs. Competition is principally based
on location, price and availability of titles.
Media Competition
Rogers’ radio stations compete with the other stations in their
respective markets as well as with other media, such as newspapers,
magazines, television, outdoor advertising and digital properties.
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
channel placement, viewer
attention and loyalty, and particularly with infomercials selling
products on television.
television channels
for
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
in
significant
and
entertainment websites
compete with the Canadian magazine
publications for readership and revenue.
Canada. On-line
information
quantities
conventional
television and specialty services
Rogers’
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.
information and entertainment and video
downloading also represent competition for share of viewership.
Internet
Sports Entertainment competes with other Toronto professional
teams for audience. The Blue Jays also compete with other Major
League Baseball teams for players and fan base. The Rogers Centre
competes with other local sporting and special event venues.
RISKS AND UNCERTAINTIES AFFECTING 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 a
formal Strategic Risk Assessment process. 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
Risk
documented
Management methodology and policies enable a consistent and
measurable approach to risk management, which relies on the
expertise of our management and employees to identify risks and
opportunities as well as implementing risk mitigation strategies as
required.
Enterprise
controls.
verified
Rogers
and
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 APPLICABLE 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
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.
increase churn. Wireless anticipates
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.
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.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 59
MANAGEMENT’S DISCUSSION AND ANALYSIS
Generally, our licences are granted for a specified term and are
subject to conditions on the maintenance of these licences. These
licencing conditions may be modified at any time by the regulators.
The regulators may decide not to renew a licence when it expires and
any failure by us to comply with the conditions on the maintenance
of a licence could result in a revocation or forfeiture of any of our
licences or the imposition of fines.
The licences include conditions requiring us to comply with Canadian
ownership restrictions of the applicable legislation. We are currently
in compliance with all of these Canadian ownership and control
requirements. However, if these requirements are violated, we would
be subject to various penalties, possibly including,
in the extreme
case, the loss of a licence.
We 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
information technology systems. An inability to enhance
their
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.
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 Subject to General Economic Conditions.
conditions,
Our businesses are affected by general economic
consumer
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
confidence and spending. Recessions or declines
60 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
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.
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, 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.
of
and
complementary businesses
We May Engage in Unsuccessful Acquisitions or Divestitures.
technologies,
Acquisitions
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:
(cid:129) Make it more difficult for us to satisfy our financial obligations;
(cid:129) 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;
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(cid:129) Increase our vulnerability to general adverse economic and industry
conditions;
(cid:129) Limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
(cid:129) Place us at a competitive disadvantage compared to some of our
competitors that have less financial leverage; and
(cid:129) 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 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.
Copyright 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.
We Are and Will Continue to Be Involved in Litigation.
the Class Actions Act
In August 2004, a proceeding under
(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. The plaintiffs are
seeking unspecified damages and punitive damages, effectively the
reimbursement of system access fee collected. 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.
The Company’s appeal of the 2007 certification decision was dismissed
by the Saskatchewan Court of Appeal. The Company is applying for
leave to appeal to the Supreme Court of Canada. We have not
recorded a liability for
contingency since management’s
assessment is that 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.
this
services
among
In June 2008, a proceeding was commenced in Saskatchewan under
that province’s Class Actions Act against providers of wireless
in Canada. The proceeding involves
communications
allegations
contract,
other
of,
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.
things,
breach
of
In December 2011, a proceeding under the Class Proceedings Act
(British Columbia) was commenced against providers of wireless
communications in Canada relating to the system access fee charged
by wireless carriers to some of their customers. The proceeding
involves, among other
things, allegations of misrepresentations
contrary to the Business Practices and Consumer Protection Act (BC).
The Plaintiffs are seeking unquantified damages and restitution. Any
potential liability is not yet determinable.
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
involved allegations of, among other things, false, misleading and
deceptive advertising relating to charges for long-distance telephone
usage. The plaintiffs were seeking $20 million in general damages
and punitive damages of $5 million. This proceeding was settled in
December 2011 and the settlement amount was insignificant.
We believe that we have adequately provided for income and indirect
taxes based on all of the information that is currently available. The
calculation of applicable 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 deferred income tax assets and liabilities and
provisions, and could,
in the
assessment of interest and penalties.
in certain circumstances,
result
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.
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
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 61
MANAGEMENT’S DISCUSSION AND ANALYSIS
subject
whether by dividends, interest payments, loans, advances or other
payments,
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
to various
the earnings of
businesses and other considerations.
those subsidiaries and are subject
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. 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. As of December 31, 2011, 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 9.6% 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.
RISKS AND UNCERTAINTIES SPECIFIC TO WIRELESS
Spectrum Fees May Increase With the Renewal of Cellular and PCS
Spectrum Licences
While the Minister of Industry announced in March 2011 that the
previously-existing annual fee of $0.0351 per MHz per population of
the licenced area would continue to apply to all cellular and PCS
licences (850 MHz and 1.9 GHz) upon renewal,
including those
initially assigned by auction, the Minister may review and amend the
fees during the licence term after further consultation with licencees.
Changes
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.
to spectrum fees
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.
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”.
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.
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
impede network
development and expansion.
the quality of Wireless’
service or
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. The only Canadian jurisdiction
currently not having this type of legislation is Nunavut.
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.
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
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
62 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
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including cancer, and interference with
various health concerns,
various medical devices,
including hearing aids and pacemakers.
While there are no definitive reports or studies stating that such
health issues are directly attributable to radio frequency emissions,
concerns over radio frequency emissions may discourage the use of
It is also
wireless handsets or expose us to potential
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.
litigation.
RISKS AND UNCERTAINTIES SPECIFIC TO CABLE
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”.
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
If changes in technology are made to any alternative
systems.
Canadian multi-channel
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.
broadcasting
distribution
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 Maintain Sustainable Security Measures to
Prevent Unauthorized Access to Digital Boxes or Internet
Modems, 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. Cable also uses encryption and security
technologies to prevent unauthorized access to its internet service.
There can be no assurance that Cable will be able to effectively
prevent unauthorized decoding of television signals or internet access
If Cable is unable to control cable access with our
in the future.
encryption technology, Cable’s
for digital
programming including, premium VOD and SVOD, as well as internet
service revenues, may decline, which could result in a decline in
Cable’s revenues.
subscription levels
programming.
Increasing Programming Costs Could Adversely Affect Cable’s
Results of Operations.
Cable’s single most significant purchasing commitment is the cost of
increased
acquiring
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.
Programming
have
costs
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
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, and our specialty channels,
including
Sportsnet, Sportsnet ONE, Sportsnet World, G4 Canada, The
Biography Channel (Canada), Outdoor Life Network, and FX (Canada).
A Loss in Media’s Market 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 currently perform well in
their respective markets, such performance may not continue in the
their purchasing
future. Advertisers base a substantial part of
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.
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 9% of
Publishing’s operating expenses in 2011. 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. 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
impact on Media’s results of operations or financial
a material
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.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 63
MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
Operating Expenses
Operating expenses are segregated into two categories for assessing
business performance:
(cid:129) Cost of equipment sales, which is comprised of wireless and cable
equipment costs; and
5. ACCOUNTING POLICIES AND NON-GAAP
MEASURES
KEY PERFORMANCE INDICATORS AND NON-GAAP 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 IFRS
or Canadian GAAP and should not be considered as an alternative to
net income or any other measure of performance under IFRS or
Canadian 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. Cable television and Internet
subscribers are represented by a dwelling unit, and cable telephony
subscribers are represented by line counts. 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 an individual subscriber.
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 and prepaid include voice-only subscribers, data-
only subscribers, as well as subscribers with service plans integrating
both voice and data.
Internet, 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 and Cable 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 sum of the number of subscribers
deactivating for each period incurred divided by the sum of the
aggregate number of subscribers at the beginning of each period
incurred.
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.
64 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
(cid:129) Other operating expenses, which include all other expenses
incurred to operate the business on a day-to-day basis and service
existing subscriber relationships. These include:
(cid:129) merchandise for
such as Video merchandise and
depreciation of Video rental assets, and purchases by The
Shopping Channel;
resale,
(cid:129) employee salaries and benefits, such as remuneration, bonuses,
pension, employee benefits and stock-based compensation; and
(cid:129) other external purchases, such as service costs, including inter-
carrier payments to roaming partners and long-distance carriers,
network service delivery costs, and the CRTC contribution levy;
sales and marketing related expenses, which represent the costs
than those related to
(other
to acquire new subscribers
equipment),
and
promotion
and
advertising
commissions paid to third parties for new activations; and
related expenses,
operating, general
and administrative
including
costs,
retention
programming costs, facility costs, Internet and e-mail services,
printing and production costs, and Industry Canada license fees
associated with spectrum utilization.
network maintenance
including
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 related expenses and accordingly,
in the overall level of operating expenses. In our Media business, sales
and marketing related 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, income taxes and non-operating items, which include
finance costs (such as interest on long-term debt, loss on repayment
of long-term debt, foreign exchange gains (losses), change in fair
value of derivative instruments, capitalized interest and amortization
of deferred transaction costs), impairment of assets, share of income
in associates and joint ventures accounted for using the equity
method 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 IFRS or Canadian
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 Earnings
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 operating profit, adjusted operating profit, adjusted
operating profit margin, adjusted net income, adjusted basic and
diluted earnings per share, and free cash flow 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) stock-
based compensation expense (recovery); (ii) integration, restructuring
and acquisition expenses; (iii) settlement of pension obligations; and
(iv) other items, net. In addition, adjusted net income and adjusted
earnings per share excludes loss on repayment of long-term debt,
impairment of 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 volatile and can vary widely from
company-to-company and can impair comparability. The exclusion of
infrequent or
these items does not mean that they are unusual,
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
in
managing the business, and to investors and analysts in enabling
them to assess the underlying changes in our business over time.
these measures present
that are useful
trends
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 IFRS or
Canadian GAAP. A reconciliation of
these non-GAAP financial
measures to operating profit, net income and earnings per share is
included in the section entitled “Supplementary Information:
Non-GAAP 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 IFRS or Canadian 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.
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CRITICAL ACCOUNTING POLICIES
This MD&A has been prepared with reference to our 2011 Audited
Consolidated Financial Statements and Notes thereto, which have
been prepared in accordance with IFRS. 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 2011 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:
(cid:129) 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;
(cid:129) 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;
(cid:129) 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;
(cid:129) 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
reconnects are deferred to the extent of deferred installation fees
and amortized over the same period as these related installation
fees. New connect installation costs are capitalized to PP&E and
amortized over the useful life of the related assets;
(cid:129) 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;
(cid:129) Monthly subscription revenues received by television stations for
subscriptions from cable and satellite providers are recorded in the
month in which they are earned;
(cid:129) Blue Jays’ revenue from home game admission and concessions is
recognized as the related games are played during the baseball
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;
(cid:129) 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; and
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 65
MANAGEMENT’S DISCUSSION AND ANALYSIS
(cid:129) Awards granted to customers through customer loyalty programs
are considered a separately identifiable component of the sale
transactions and, as a result, are deferred until recognized as
operating revenue when the awards are redeemed by the
customer.
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
can be objectively and reliably
of any undelivered elements
determined. Consideration for these units is measured and allocated
amongst the accounting units based upon their fair values and our
relevant revenue recognition policies are applied to them. We
recognize revenue once persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, fees are fixed
and determinable and collectibility is reasonably assured.
Unearned revenue includes subscriber deposits, installation fees and
amounts
and
subscriptions to be provided in future periods.
received from subscribers
related to services
Subscriber Acquisition and Retention Costs
We operate within a highly competitive industry and generally incur
to attract new subscribers and retain existing
significant costs
subscribers. All sales and marketing expenditures related to subscriber
acquisitions, retention and contract renewals, such as commissions
and the cost associated with the sale of
customer premises
equipment, are expensed as incurred.
A large percentage of the subscriber acquisition and retention costs,
such as equipment subsidies and commissions, are variable in nature
and directly related to the acquisition or renewal of a subscriber. In
addition,
a
fluctuate based on the success of
per-subscriber-acquired basis
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.
acquisition
subscriber
retention
costs
and
on
Capitalization of Direct Labour, Overhead, and Interest
During construction of new assets, direct costs plus a portion of
applicable overhead and interest costs are capitalized. Repairs and
maintenance expenditures are charged to operating expenses as
incurred.
CRITICAL ACCOUNTING ESTIMATES
This MD&A has been prepared with reference to our 2011 Audited
Consolidated Financial Statements and Notes thereto, which have
been prepared in accordance with IFRS. 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 methods and assumptions necessary in
the sensitivity of
determining the related asset,
revenue and expense
amounts.
liability,
66 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
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 7 of the 2011 Audited Consolidated
Financial Statements for acquisitions made during 2011. Should actual
rates, cash flows, costs and other items differ from our estimates, this
may necessitate revisions to the carrying value of the related assets
and liabilities acquired,
including revisions that may impact net
income in future periods.
Useful Lives of PP&E
We depreciate the cost of PP&E over their respective estimated useful
lives. These estimates of useful lives involve considerable judgment. In
determining the estimates of these useful lives, we take into account
industry trends and company-specific factors,
including changing
technologies and expectations for the in-service period of certain
assets. On an annual basis, we re-assess our existing estimates of
useful
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.
to ensure they match the anticipated life of
lives
labour and indirect
Capitalization of Direct Labour, Overhead, and Interest
costs associated with the
Certain direct
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. In addition, interest costs are
capitalized during construction and development of certain PP&E.
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.
Onerous Contracts
A provision for onerous contracts is recognized when the unavoidable
costs of meeting the obligation under the contract exceed the
expected benefits to be derived by the Company. The provision is
measured at the present value of the lower of the expected cost of
terminating the contract and the expected net cost of continuing
with the contract. Before a provision is established, we recognize any
impairment loss on the assets associated with the contract.
lives
lives. These estimates of useful
Amortization of Intangible Assets
We amortize the cost of finite-lived intangible assets over their
involve
estimated useful
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, Blink,
Cityfone, Kincardine and BV! Media in 2010, and Atria, Compton,
BOUNCE-FM and BOB-FM in 2011 resulted in significant increases to
our
is also involved in
determining that spectrum and broadcast licences have indefinite
lives, and are therefore not amortized.
intangible asset balances.
Judgment
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lives of brand names
The determination of the estimated useful
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
lives of roaming agreements are
rates going forward. The useful
based on estimates of the useful
lives of the related network
lives of wholesale agreements and dealer
equipment. The useful
networks are based on the underlying contractual lives. The useful life
of the marketing agreement is based on historical customer lives. The
determination of the estimated useful
lives of intangible assets
impacts amortization expense in the current period as well as future
periods. The impact on net income on a full-year basis of changing
the useful lives of the finite-lived intangible assets by one year is
shown in the chart below.
Impact of Changes in Estimated Useful Lives
(In millions of dollars)
Brand Names
Customer Relationships
Roaming Agreements
Marketing Agreements
Impairment of Assets
Indefinite-lived intangible assets, including goodwill and spectrum/
broadcast licences, as well as definite life assets, including PP&E and
other intangible assets, are assessed for impairment on an annual
basis or more often if events or circumstances warrant. A cash
generating unit (“CGU”) is the smallest identifiable group of assets
that generates cash inflows that are largely independent of the cash
inflows from other assets or groups of assets. Goodwill and indefinite
life intangible assets are allocated to CGUs for the impairment testing
based on the level at which management monitors it, which is not
higher than an operating segment. These analyses involve estimates
of future cash flows, estimated periods of use and applicable discount
rates. During 2011, no impairment was recorded. During 2010, we
recorded an impairment charge of $11 million related to certain of
our broadcast assets, due to the challenging economic conditions and
weakening industry expectations in the radio business and a decline
in advertising revenues.
income taxes
Income Tax Estimates
The Company provides for income taxes based on currently available
information in each of the jurisdictions in which we operate. The
calculation of
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 deferred income tax assets and
liabilities, and could, in certain circumstances, result in the assessment
of interest and penalties.
in many cases, however,
Additionally, estimation of the income provisions includes evaluating
the recoverability of deferred tax assets based on our assessment of
the ability to use the underlying future tax deductions before they
expire against future taxable income. Our assessment is based upon
existing tax laws, estimates of future profitability and tax planning
strategies. Deferred tax assets are recognized to the extent that it is
more likely than not that taxable profit will be available against
which the deferred tax assets can be utilized.
Amortization Period
Increase in Net Income if
Life Increased by 1 year
Decrease in Net Income if
Life Decreased by 1 year
5 – 20 years
2 – 5 years
12 years
2 – 5 years
$
1
$ 13
3
$
3
$
$
(1)
$ (23)
(4)
$
(5)
$
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
the bank
counterparties owe Rogers),
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.,
the
counterparties), Rogers’ Bond Spread is added to the risk-free
discount rate. The estimated credit-adjusted values of the Derivatives
are subject
spreads of Rogers and its
counterparties.
for which Rogers owes
the Bond Spread for
those Derivatives
to changes
in credit
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. 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,
pension asset and liability, and other comprehensive income. 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.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 67
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table illustrates the increase (decrease) in the accrued benefit obligation and pension expense for changes in these primary
assumptions and estimates:
Impact of Changes in Pension-Related Assumptions
(In millions of dollars)
Discount rate
Impact of:
1% increase
1% decrease
Rate of compensation increase
0.25% increase
0.25% decrease
Impact of:
Expected rate of return on assets
Impact of:
1% increase
1% decrease
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
in turn increase the reported
aging of subscriber accounts will
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
International Financial Reporting Standards
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 are for the
year ending December 31, 2011 and include the comparative period
of 2010. Starting with the March 31, 2011 quarterly report, we have
provided unaudited consolidated quarterly financial information in
accordance with IFRS including comparative figures for 2010. Please
refer to Note 3 of our Audited Consolidated Financial Statements for
a summary of the differences between our financial statements
previously prepared under Canadian GAAP and to those under IFRS as
at January 1, 2010 and, for the year ended December 31, 2010.
First-Time Adoption of International Financial Reporting
Standards
Our adoption of IFRS required 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
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 have applied in preparing our first
financial statements under IFRS.
certain mandatory
exceptions
68 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
Accrued Benefit
Obligation at End
of Fiscal 2011
Pension Expense
Fiscal 2011
$
$
5.50%
(150)
182
3.00%
8
(8)
N/A
N/A
N/A
$
$
$
6.00%
(10)
9
3.00%
2
(2)
6.80%
6
(6)
Business
Combinations
We have elected not to restate any Business
Combinations that have occurred prior to
January 1, 2010.
Borrowing
Costs
We have elected 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.
RECENT ACCOUNTING PRONOUNCEMENTS
7”).
This
(“IFRS
amendment
IFRS 7, Financial Instruments: Disclosures
In October 2010, the IASB amended IFRS 7, Financial Instruments:
Disclosures
enhances disclosure
requirements to aid financial statement users in evaluating the nature
of, and risks associated with an entity’s continuing involvement in
derecognized financial assets. This amendment is effective for the
Company’s interim and annual consolidated financial statements
commencing January 1, 2012. The Company is assessing the impact of
this amended standard on its consolidated financial statements.
that
IAS 12, Deferred Tax: Recovery of Underlying Assets
In December 2010, the IASB amended IAS 12, Deferred Tax: Recovery
of Underlying Assets (“IAS 12”). IAS 12 will now include a rebuttal
the deferred tax on the
presumption which determines
depreciable component of an investment property measured using
the fair value model from IAS 40 should be based on its carrying
amount being recovered through a sale. The standard has also been
amended to include the requirement
that deferred tax on
non-depreciable assets measured using the revaluation model in IAS
16 should be measured on the sale basis. This amendment is effective
for
consolidated financial
statements commencing January 1, 2012. The Company is assessing
the impact of this amended standard on its consolidated financial
statements.
interim and annual
the Company’s
IFRS 10, Consolidated Financial Statements
the IASB issued IFRS 10, Consolidated Financial
In May 2011,
Statements (“IFRS 10”).
IFRS 10, which replaces the consolidation
requirements of SIC-12 Consolidation-Special Purpose Entities and IAS
27 Consolidated and Separate Financial Statements, establishes
principles for the presentation and preparation of consolidated
financial statements when an entity controls one or more other
entities. This new standard is effective for the Company’s interim and
annual consolidated financial statements commencing January 1,
2013. The Company is assessing the impact of this new standard on its
consolidated financial statements.
reflection of
IFRS 11, Joint Arrangement
In May 2011, the IASB issued IFRS 11, Joint Arrangements (“IFRS 11”).
Interests in Joint
IFRS 11, which replaces the guidance in IAS 31,
joint
for a more realistic
Ventures, provides
arrangements by focusing on the rights and obligations of the
arrangement, rather than its legal form (as is currently the case). The
standard addresses
joint
arrangements by requiring interests in jointly controlled entities to be
accounted for under the equity method. This new standard is
effective for the Company’s interim and annual consolidated financial
statements commencing January 1, 2013. The Company is assessing
the impact of
this new standard on its consolidated financial
statements.
in the reporting of
inconsistencies
IFRS 12, Disclosure of Interests in Other Entities
In May 2011, the IASB issued IFRS 12, Disclosure of Interests in Other
Entities (“IFRS 12”).
IFRS 12 establishes new and comprehensive
disclosure requirements for all forms of interests in other entities,
and
including
unconsolidated structured entities. This new standard is effective for
the Company’s interim and annual consolidated financial statements
commencing January 1, 2013. The Company is assessing the impact of
this new standard on its consolidated financial statements.
arrangements,
subsidiaries,
associates
joint
IFRS 13, Fair Value Measurement
In May 2011, the IASB issued IFRS 13, Fair Value Measurement
(“IFRS 13”). IFRS 13 replaces the fair value guidance contained in
IFRS with a single source of fair value measurement
individual
guidance. The standard also requires disclosures which enable users to
assess
the methods and inputs used to develop fair value
measurements. This new standard is effective for the Company’s
interim and annual consolidated financial statements commencing
January 1, 2013. The Company is assessing the impact of this new
standard on its consolidated financial statements.
IAS 1, Presentation of Financial Statements
In June 2011, the IASB amended IAS 1, Presentation of Financial
Statements (“IAS 1”). This amendment requires an entity to separately
present the items of OCI as items that may or may not be reclassified
to profit and loss. This amended standard is effective for the
Company’s interim and annual consolidated financial statements
commencing January 1, 2013. The Company is assessing the impact of
this amended standard on its consolidated financial statements.
IAS 19, Employee Benefits
In June 2011, the IASB amended IAS 19, Employee Benefits (“IAS 19”).
This amendment eliminated the use of the ‘corridor’ approach and
mandates that all remeasurement impacts be recognized in OCI. It
also enhances
the disclosure requirements, providing better
information about the characteristics of defined benefit plans and the
risk that entities are exposed to through participation in those plans.
This amendment clarifies when a company should recognize a liability
and an expense for termination benefits. This amended standard is
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effective for the Company’s interim and annual consolidated financial
statements commencing January 1, 2013. The Company is assessing
the impact of this amended standard on its consolidated financial
statements.
removes
the requirements
IAS 27, Separate Financial Statements
In May 2011, the IASB amended IAS 27, Separate Financial Statements
(“IAS 27”). This amendment
for
consolidated statements from IAS 27 and moves it over to IFRS 10,
Consolidated Financial Statements. The amendment mandates that
when a company prepares separate financial statements, investment
in subsidiaries, associates, and jointly controlled entities are to be
accounted for using either the cost method or in accordance with
IFRS 9, Financial Instruments. In addition, this amendment determines
the treatment for recognizing dividends, the treatment of certain
group reorganizations, and some disclosure requirements. This
amendment is effective for the Company’s interim and annual
consolidated financial statements commencing January 1, 2013. The
Company is assessing the impact of this amended standard on its
consolidated financial statements.
IAS 28, Investments in Associates and Joint Ventures
In May 2011, the IASB amended IAS 28, Investments in Associates and
Joint Ventures (“IAS 28”). This amendment requires any retained
portion of an investment in an associate or joint venture that has not
been classified as held for sale to be measured using the equity
method, until disposal. After disposal,
the retained interest
continues to be an associate or joint venture, the amendment
requires for it to be continued to be accounted for under the equity
method. The amendment also disallows the remeasurement of any
retained interest in an investment upon the cessation of significant
influence or joint control. This amended standard is effective for the
Company’s interim and annual consolidated financial statements
commencing January 1, 2013. The Company is assessing the impact of
this amended standard on its consolidated financial statements.
if
IFRS 9, Financial Instruments
Instruments
In October 2010, the IASB issued IFRS 9, Financial
(“IFRS 9”).
Instruments:
IFRS 9, which replaces IAS 39, Financial
Recognition and Measurement, establishes principles for the financial
reporting of financial assets and financial liabilities that will present
relevant and useful information to users of financial statements for
their assessment of the amounts, timing and uncertainty of an entity’s
future cash flows. This new standard is effective for the Company’s
interim and annual consolidated financial statements commencing
January 1, 2015. The Company is assessing the impact of this new
standard on its consolidated financial statements.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 69
MANAGEMENT’S DISCUSSION AND ANALYSIS
6. ADDITIONAL FINANCIAL INFORMATION
RELATED PARTY TRANSACTIONS
We have entered into certain transactions in the normal course of
business with certain broadcasters in which we have an equity
Years ended December 31,
(In millions of dollars)
Fees paid to broadcasters accounted for by the equity method
interest. The amounts paid to these broadcasters are as follows:
2011
2010 % Chg
$ 17
$ 16
6
We have entered into certain transactions with companies, the
partners or senior officers of which are Directors of our Company and/
or its subsidiary companies. Total amounts paid to these related
parties, directly or indirectly, are as follows:
Years ended December 31,
(In millions of dollars)
Printing, legal services and commission paid on premiums for insurance coverage
2011
2010 % Chg
$ 41
$ 39
5
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 to these related parties for
for business use of aircraft, net of other
charges
to Rogers
administrative services, were less than $1 million for the years ended
December 31, 2011 and 2010.
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.
70 ROGERS COMMUNICATIONS INC. 2011 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)
IFRS
Canadian GAAP
2011
2010
2009
2008
2007
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
Weighted average number of shares outstanding
Earnings per share:
Basic
Diluted
Adjusted earnings 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
$
$
7,138
3,796
1,611
(117)
6,973
3,785
1,461
(77)
$
$
6,654
3,948
1,407
(278)
$
6,335
3,809
1,496
(305)
5,503
3,558
1,317
(255)
$
12,428
$ 12,142
$ 11,731
$ 11,335
$ 10,123
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,008
1,559
154
(150)
4,571
3,036
1,612
180
(112)
4,716
1,563
1,747
3,960
2,127
543
2.88
2.86
3.22
3.19
9,114
3,280
2,721
1,107
2,140
3,151
1,391
105
(116)
4,531
3,173
1,426
131
(95)
4,635
1,502
1,678
3,880
1,834
576
2.61
2.59
2.91
2.89
8,437
3,108
2,591
933
1,964
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,006
1,325
73
(88)
4,316
3,042
1,324
119
(97)
4,388
1,478
1,556
3,526
1,855
621
2.38
2.38
2.51
2.51
8,197
3,018
2,643
563
2,597
$
$
$
$
$
$
$
$
$
$
$
2,797
1,220
142
(81)
4,078
2,806
1,233
142
(121)
4,060
1,002
1,260
3,500
2,021
638
1.57
1.57
1.98
1.98
7,898
3,024
2,761
343
3,056
2,532
802
82
(317)
3,099
2,589
1,016
176
(78)
3,703
637
1,066
3,135
1,796
642
1.00
0.99
1.67
1.66
7,289
3,027
2,086
485
2,438
$
18,362
$ 17,033
$ 17,018
$ 17,082
$ 15,325
$
10,034
4,756
14,790
3,572
$
8,654
4,619
13,273
3,760
$
8,463
4,282
12,745
4,273
$
8,506
3,860
12,366
4,716
$
6,033
4,668
10,701
4,624
$
18,362
$ 17,033
$ 17,018
$ 17,082
$ 15,325
2%
2%
2.2
1.42
$
4%
6%
2.1
1.28
3%
8%
2.1
1.16
$
12%
10%
2.1
1.00
$
15%
26%
2.1
0.42
$
$
(1)
(2)
(3)
As defined. See the section entitled “Key Performance Indicators and Non-GAAP Measures”.
Cash flow from operations excluding changes in working capital amounts.
Debt includes net derivative liabilities at the risk free mark-to-market value and is net of cash as applicable.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 71
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 of assets and changes in income tax
expense.
Summary of Fourth Quarter 2011 Results
During the three months ended December 31, 2011, consolidated
operating revenue increased 1% to $3,177 million compared to
$3,138 million in the corresponding period in 2010, arising from Cable
Operations revenue growth of 3%, and Media revenue growth of 3%
while Wireless network revenue remained flat. Consolidated fourth
quarter adjusted operating profit increased 3% year-over-year to
$1,094 million, with 14% growth at Cable and 83% growth at Media,
offset by a 5% decline at Wireless.
the three months ended
Consolidated operating income for
December 31, 2011 totalled $583 million, compared to $633 million in
the corresponding period of 2010.
We recorded net income of $327 million for the three months ended
December 31, 2011, with basic and diluted earnings per share of $0.62
and $0.61, respectively, compared to a net income of $302 million
with basic and diluted earnings per share of $0.54 and $0.50,
respectively, in the corresponding period of 2010.
MANAGEMENT’S DISCUSSION AND ANALYSIS
SUMMARY OF SEASONALITY 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
subscriber
additions and subsidies, resulting in higher subscriber acquisition and
activation-related expenses in certain periods.
levels of
in
seasonal
additions
subscriber
fluctuations
and college
The operating results of Cable Operations services are subject to
modest
and
disconnections, which are largely attributable to movements of
university
temporarily
suspending service due to extended vacations, or seasonal relocations,
as well as our concentrated marketing efforts generally conducted
during the fourth quarter. Video 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.
and individuals
students
The seasonality at Media is a result of fluctuations in advertising and
related retail cycles,
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.
since they relate to periods of
In addition to the seasonal trends, revenue and operating profit can
fluctuate from general economic conditions.
Wireless revenue and operating profit trends reflect the increasing
number of wireless voice and data subscribers and increased handset
subsidies as a result of a consumer shift towards smartphones, and 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 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. Video revenue has decreased as a result of a
continued decline in video rental and sales activity.
time
programming,
Media’s results are generally attributable to continuous investment in
prime
and
improvements in the advertising and consumer market. The launch of
Sportsnet World, Sportsnet Magazine, CityNews and FX (Canada)
during 2011 also resulted in incremental costs and revenue.
subscriber
increased
fees
72 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
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Quarterly Consolidated Financial Summary (1 )
(In millions of dollars, except per share amounts)
Operating revenue
Wireless
Cable
Media
Corporate items and eliminations
Q4
2011
Q3
Q2
Q1
Q4
2010
Q3
Q2
Q1
IFRS
$ 1,826 $ 1,832 $ 1,759 $ 1,721 $ 1,788 $ 1,816 $ 1,707 $ 1,662
942
290
(18)
946
369
(20)
940
407
(30)
953
339
(26)
950
437
(31)
954
416
(20)
953
428
(30)
943
386
(19)
Total operating revenue
3,177
3,149
3,115
2,987
3,138
3,111
3,017
2,876
Adjusted operating profit (loss)(2)
Wireless
Cable
Media
Corporate items and eliminations
670
416
44
(36)
815
379
55
(29)
761
416
91
(26)
790
401
(10)
(21)
704
364
24
(28)
821
373
40
(16)
819
343
62
(30)
829
346
5
(21)
Adjusted operating profit(2)
1,094
1,220
1,242
1,160
1,064
1,218
1,194
1,159
Stock-based compensation (expense) recovery
Settlement of pension obligations
Integration, restructuring and acquisition expenses
Other items, net
Operating profit(2)
Depreciation and amortization
Impairment of assets
Operating income
Interest on long-term debt
Loss on repayment of long-term debt
Other income (expense), net
Income tax expense
Net income
Add (deduct):
Stock-based compensation expense (recovery)
Settlement of pension obligations
Integration, restructuring and acquisition expenses
Other items, net
Loss on repayment of long-term debt
Impairment of assets
Income tax impact of above items
Income tax charge, cash-settled stock options
Adjusted net income(2)
Earnings per share:
Basic
Diluted
As adjusted(2):
Earnings per share:
Basic
Diluted
Additions to PP&E(2)
(34)
–
(23)
–
1,037
(454)
–
583
(169)
–
8
(95)
19
–
(17)
–
1,222
(427)
–
795
(167)
–
22
(159)
(41)
(11)
(19)
–
1,171
(444)
–
727
(167)
–
6
(156)
(8)
–
(11)
–
1,141
(418)
–
723
(165)
(99)
1
(125)
26
–
(22)
5
1,073
(429)
(11)
633
(164)
–
(24)
(143)
(41)
–
(8)
(4)
1,165
(399)
–
766
(167)
(87)
3
(135)
(9)
–
(8)
–
1,177
(405)
–
772
(170)
–
23
(173)
(26)
–
(2)
(15)
1,116
(406)
–
710
(168)
–
(13)
(161)
$
327 $
491 $
410 $
335 $
302 $
380 $
452 $
368
34
–
23
–
–
–
(12)
–
(19)
–
17
–
–
–
(4)
–
41
11
19
–
–
–
(14)
–
8
–
11
–
99
–
(30)
–
(26)
–
22
(5)
–
11
(6)
40
41
–
8
4
87
–
(41)
–
9
–
8
–
–
–
(5)
–
26
–
2
15
–
–
(14)
–
372 $
485 $
467 $
423 $
338 $
479 $
464 $
397
0.62 $
0.61 $
0.91 $
0.87 $
0.75 $
0.75 $
0.60 $
0.60 $
0.54 $
0.50 $
0.66 $
0.66 $
0.78 $
0.77 $
0.62
0.62
0.70 $
0.70 $
0.89 $
0.89 $
0.85 $
0.85 $
0.76 $
0.76 $
0.60 $
0.60 $
0.83 $
0.83 $
0.80 $
0.79 $
0.67
0.67
653 $
559 $
520 $
395 $
591 $
439 $
439 $
365
$
$
$
$
$
$
(1)
(2)
This quarterly summary provides the quarterly results under the current period’s presentation. Commencing January 1, 2011, the results of the former Rogers Retail segment
are segregated as follows: the results of operations of the Video business are presented as a separate operating segment and the former Rogers Retail segment results of
operations related to wireless and cable products and services are included in the results of operations of Wireless and Cable Operations, respectively. In addition,
commencing January 1, 2011, certain intercompany transactions between the Company’s RBS segment and other operating segments, which were previously recorded as
revenue in RBS and operating expenses in the other operating segments, are recorded as cost recoveries in RBS. For these two changes, comparative figures for 2010 have
been reclassified to conform to the current period’s presentation.
As defined. See the section entitled “Key Performance Indicators and Non-GAAP Measures”.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 73
MANAGEMENT’S DISCUSSION AND ANALYSIS
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
information for RCI for the periods identified
summary financial
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, 2010.
(In millions of dollars)
Statement of Income Data:
Revenue
Operating income (loss)
Net income (loss)
(In millions of dollars)
Balance Sheet Data (at period end):
Years ended December 31 (unaudited)(3)(4)
RCI (1)(2)
RCP (1)(2)
Other
Subsidiaries(2)
Consolidating
Adjustments (2)
Total Consolidated
Amounts
Dec. 31
2011
Dec. 31
2010
Dec. 31
2011
Dec. 31
2010
Dec. 31
2011
Dec. 31
2010
Dec. 31
2011
Dec. 31
2010
Dec. 31
2011
Dec. 31
2010
$
105 $
(169)
1,563
97 $ 10,901 $ 10,604 $ 1,674 $ 1,521 $
(141)
1,502
2,958
2,920
3,072
3,147
107
861
12
363
(252) $
(68)
(3,781)
(80) $ 12,428 $ 12,142
2,881
(62)
1,502
(3,510)
2,828
1,563
As at period end December 31 (unaudited)(3)(4)
RCI (1)(2)
RCP (1)(2)
Other
Subsidiaries(2)
Consolidating
Adjustments (2)
Total Consolidated
Amounts
Dec. 31
2011
Dec. 31
2010
Dec. 31
2011
Dec. 31
2010
Dec. 31
2011
Dec. 31
2010
Dec. 31
2011
Dec. 31
2010
Dec. 31
2011
Dec. 31
2010
Current assets
Non-current assets
Current liabilities
Non-current liabilities
$
710 $
23,383
5,538
11,640
650 $ 5,288 $ 2,773 $ 1,608 $ 1,622 $ (5,694) $ (3,286) $ 1,912 $ 1,759
15,274
2,833
10,440
(23,964)
(5,691)
154
(18,548)
(3,182)
176
16,450
2,549
12,241
11,350
1,834
259
9,075
2,045
218
5,681
868
188
5,373
952
207
19,374
3,018
9,839
(1)
(2)
(3)
(4)
For the purposes of this table, investments in subsidiary companies are accounted for by the equity method.
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.
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, 2010.
Information prior to January 1, 2011 has been conformed to reflect the adoption of IFRS and has been reclassified for a change in business strategy as described in this
MD&A.
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, 2011, 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, 2011, 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, 2011, 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 2011 that have materially affected, or are
reasonably likely to materially affect, our internal controls over
financial reporting.
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 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.
the effectiveness of
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
statement
preparation and presentation.
to financial
Management maintains a comprehensive system of controls intended
transactions are executed in accordance with
to ensure that
management’s authorization, assets are safeguarded, and financial
records are reliable. Management also takes steps to see that
74 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
SUPPLEMENTARY INFORMATION: NON-GAAP CALCULATIONS
Operating Profit Margin Calculations
Years ended December 31,
(In millions of dollars, except for margins)
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
Video:
Adjusted operating loss
Divided by revenue
Video adjusted operating loss margin
MEDIA:
Adjusted operating profit
Divided by revenue
Media adjusted operating profit margin
M
A
N
A
G
E
M
E
N
T
’
S
D
I
S
C
U
S
S
I
O
N
A
N
D
A
N
A
L
Y
S
I
S
2011
2010
$
4,716
12,428
$
4,635
12,142
37.9%
38.2%
$
$
$
$
$
$
3,036
6,601
3,173
6,526
46.0%
48.6%
$
1,549
3,309
1,419
3,190
46.8%
44.5%
$
86
405
40
452
21.2%
8.8%
(23) $
82
(33)
143
(28.0%)
(23.1%)
$
180
1,611
11.2%
131
1,461
9.0%
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 75
MANAGEMENT’S DISCUSSION AND ANALYSIS
Calculations of Adjusted Operating Profit, Net Income, Earnings Per Share and Free Cash Flow
Years ended December 31,
(In millions of dollars, except per share amounts; number of shares outstanding in millions)
Operating profit
Add (deduct):
Stock-based compensation expense
Settlement of pension obligations
Integration, restructuring and acquisition expenses
Other items, net
Adjusted operating profit
Net income
Add (deduct):
Stock-based compensation expense
Settlement of pension obligations
Integration, restructuring and acquisition expenses
Other items, net
Loss on repayment of long-term debt
Impairment of assets
Income tax impact of above items
Income tax charge, cash-settled stock options due to legislative change
Adjusted net income
Adjusted basic earnings per share:
Adjusted net income
Divided by: weighted average number of shares outstanding
Adjusted basic earnings per share
Adjusted diluted earnings per share:
Adjusted net income
Divided by: diluted weighted average number of shares outstanding
Adjusted diluted earnings per share
Basic earnings per share:
Net income
Divided by: weighted average number of shares outstanding
Basic earnings per share
Diluted earnings per share:
Net income
Divided by: diluted weighted average number of shares outstanding
Diluted earnings per share
Calculation of Free Cash Flow
Adjusted operating profit
Add (deduct):
PP&E expenditures
Interest on long-term debt, net of capitalization
Cash income taxes
Free cash flow
76 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
2011
2010
$ 4,571
$ 4,531
64
11
70
–
50
–
40
14
$ 4,716
$ 4,635
$ 1,563
$ 1,502
64
11
70
–
99
–
(60)
–
50
–
40
14
87
11
(66)
40
$ 1,747
$ 1,678
$ 1,747
543
$ 1,678
576
$
3.22
$
2.91
$ 1,747
547
$ 1,678
580
$
3.19
$
2.89
$ 1,563
543
$ 1,502
576
$
2.88
$
2.61
$ 1,563
547
$ 1,502
580
$
2.86
$
2.59
$ 4,716
$ 4,635
(2,127)
(639)
(99)
(1,834)
(666)
(152)
$ 1,851
$ 1,983
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
M
A
N
A
G
E
M
E
N
T
’
S
D
I
S
C
U
S
S
I
O
N
A
N
D
A
N
A
L
Y
S
I
S
2011
2010
$ 6,275
7,443
12
$ 6,229
7,148
12
$ 70.26
$ 72.62
$
326
1,695
12
$
297
1,537
12
$ 16.02
$ 16.10
$ 6,601
9,138
12
$ 6,526
8,685
12
$ 60.20
$ 62.62
(1)
For definitions of key performance indicators and non-GAAP measures, see the section entitled “Key Performance Indicators and Non-GAAP Measures”.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 77
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
December 31, 2011
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 International Financial Reporting
Standards. 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.
reasonable assurance that
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
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
include
management’s communication to employees of policies that govern
ethical business conduct.
control processes
to satisfy itself
The Audit Committee meets periodically with management, as well as
the internal and external auditors, to discuss internal controls over
reporting process, auditing matters and financial
the financial
reporting issues;
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 21, 2012
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.
Nadir H. Mohamed, FCA
President and
Chief Executive Officer
William W. Linton, FCA
Executive Vice President,
Finance and Chief Financial Officer
INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS OF ROGERS COMMUNICATIONS INC.:
We have audited the accompanying consolidated financial statements
of Rogers Communications Inc., which comprise the consolidated
statements of
financial position as at December 31, 2011,
December 31, 2010 and January 1, 2010, the consolidated statements
of income, comprehensive income, changes in shareholders’ equity
the years ended December 31, 2011 and
and cash flows
December 31, 2010, and notes, comprising a summary of significant
accounting policies and other explanatory information.
for
these consolidated financial
Management’s Responsibility for the Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation
in accordance with
of
International Financial Reporting Standards as
issued by the
International Accounting Standards Board, and for such internal
is necessary to enable the
control as management determines
preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
statements
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.
including the assessment of the risks of material misstatement of the
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
accounting
the
reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the consolidated
financial statements.
appropriateness
policies
used
and
of
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 consolidated financial position of Rogers
Communications Inc. as at December 31, 2011, December 31, 2010 and
January 1, 2010, and its consolidated financial performance and its
consolidated cash flows for the years ended December 31, 2011 and
December 31, 2010 in accordance with International Financial
Reporting Standards as
issued by the International Accounting
Standards Board.
Chartered Accountants, Licensed Public Accountants
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
judgment,
statements. The procedures
selected depend on our
Toronto, Canada
February 21, 2012
78 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
Years ended December 31,
Operating revenue
Operating expenses:
Operating costs (note 5)
Integration, restructuring and acquisition costs (note 8)
Depreciation and amortization (notes 12 and 13)
Impairment of assets (note 13)
Operating income
Finance costs (note 6)
Other income (expense), net
Share of the income of associates and joint ventures accounted for using the equity method, net of tax
Income before income taxes
Income tax expense (note 9)
Net income for the year
Earnings per share (note 10):
Basic
Diluted
See accompanying notes to consolidated financial statements.
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2011
2010
$ 12,428
$ 12,142
7,787
70
1,743
–
2,828
(738)
1
7
2,098
535
7,571
40
1,639
11
2,881
(768)
(1)
2
2,114
612
$
1,563
$
1,502
$
2.88
2.86
$
2.61
2.59
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 79
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN MILLIONS OF CANADIAN DOLLARS)
Years ended December 31,
Net income for the year
Other comprehensive income (loss):
Defined benefit pension plans:
Actuarial loss
Related income tax recovery
Change in fair value of available-for-sale investments:
Increase in fair value
Related income tax expense
Cash flow hedging derivative instruments:
Change in fair value of derivative instruments
Reclassification to net income due to settlement of cross-currency interest rate exchange agreements
Reclassification to net income for foreign exchange (loss)/gain on long-term debt
Reclassification to net income of accrued interest
Related income tax expense
Other comprehensive income for the year
Comprehensive income for the year
See accompanying notes to consolidated financial statements.
2011
2010
$ 1,563
$ 1,502
(89)
22
(67)
174
(22)
152
33
22
(73)
69
(21)
30
115
(80)
21
(59)
102
(13)
89
(221)
–
264
97
(25)
115
145
$ 1,678
$ 1,647
80 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN MILLIONS OF CANADIAN DOLLARS)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable
Other current assets (note 11)
Current portion of derivative instruments (note 18)
Property, plant and equipment (note 12)
Goodwill (note 13)
Intangible assets (note 13)
Investments (note 14)
Derivative instruments (note 18)
Other long-term assets (note 15)
Deferred tax assets (note 9)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Bank advances
Accounts payable and accrued liabilities
Income tax payable
Current portion of provisions (note 16)
Current portion of long-term debt (note 17)
Current portion of derivative instruments (note 18)
Unearned revenue
Provisions (note 16)
Long-term debt (note 17)
Derivative instruments (note 18)
Other long-term liabilities (note 19)
Deferred tax liabilities (note 9)
Shareholders’ equity (note 21)
Guarantees (note 18(e)(ii))
Commitments (note 25)
Contingent liabilities (note 26)
Subsequent events (note 27)
See accompanying notes to consolidated financial statements.
On behalf of the Board:
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
December 31,
2011
December 31,
2010
January 1,
2010
$
–
1,574
322
16
1,912
9,114
3,280
2,721
1,107
64
134
30
$
$
–
1,443
315
1
1,759
8,437
3,108
2,591
933
6
147
52
378
1,289
277
4
1,948
8,136
3,011
2,640
715
78
113
84
$ 18,362
$ 17,033
$ 16,725
$
57
2,085
–
35
–
37
335
2,549
38
10,034
503
276
1,390
14,790
3,572
$
$
45
2,133
238
21
–
67
329
2,833
62
8,654
840
229
655
–
2,066
147
14
1
80
335
2,643
58
8,396
1,004
177
291
13,273
12,569
3,760
4,156
$ 18,362
$ 17,033
$ 16,725
Alan D. Horn, C.A.
Director
Ronald D. Besse
Director
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 81
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(IN MILLIONS OF CANADIAN DOLLARS)
Year ended December 31, 2011
Amount
Number of
shares
(000s)
Number of
shares
(000s)
Amount
Share
premium
Retained
earnings
Available-for-sale
financial
assets reserve
Hedging
reserve
Total
shareholders’
equity
Balances, January 1, 2011
$ 72
112,462
$
426
443,072 $ 1,113 $ 1,923
$ 281
$ (55)
$ 3,760
Class A
Voting shares
Class B
Non-Voting shares
Net income for the year
Other comprehensive income (loss):
Defined benefit pension plans, net of tax
Available-for-sale investments, net of tax
Derivative instruments, net of tax
Total other comprehensive income
Comprehensive income for the year
Transactions with shareholders, recorded
directly in equity:
Repurchase of Class B Non-Voting
shares
Dividends declared
Shares issued on exercise of stock
options
Acquisition of non-controlling interests
Total transactions with shareholders
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(30)
–
(30,943)
–
(870)
–
10
–
266
–
–
–
1,563
(67)
–
–
(67)
1,496
(199)
(766)
–
(11)
(20)
(30,677)
(870)
(976)
–
–
152
–
152
152
–
–
–
–
–
–
–
–
30
30
30
–
–
–
–
–
1,563
(67)
152
30
115
1,678
(1,099)
(766)
10
(11)
(1,866)
Balances, December 31, 2011
$ 72
112,462
$
406
412,395 $
243 $ 2,443
$ 433
$ (25)
$ 3,572
Year ended December 31, 2010
Amount
Number of
shares
(000s)
Number of
shares
(000s)
Amount
Share
premium
Retained
earnings
Available-for-sale
financial
assets reserve
Hedging
reserve
Total
shareholders’
equity
Balances, January 1, 2010
$ 72
112,462 $
456
479,948 $ 2,304 $ 1,302
$ 192 $ (170)
$ 4,156
Class A
Voting shares
Class B
Non-Voting shares
Net income for the year
Other comprehensive income (loss):
Defined benefit pension plans, net of tax
Available-for-sale investments, net of tax
Derivative instruments, net of tax
Total other comprehensive income
Comprehensive income for the year
Transactions with shareholders, recorded
directly in equity:
Repurchase of Class B Non-Voting
shares
Dividends declared
Shares issued on exercise of stock
options
Total transactions with shareholders
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,502
(59)
–
–
(59)
1,443
(37)
(37,081)
(1,191)
–
(84)
(738)
7
205
–
–
(30)
(36,876)
(1,191)
(822)
–
–
89
–
89
89
–
–
–
–
–
1,502
–
–
115
115
115
–
–
–
–
(59)
89
115
145
1,647
(1,312)
(738)
7
(2,043)
Balances, December 31, 2010
$ 72
112,462 $
426
443,072 $ 1,113 $ 1,923
$ 281 $
(55)
$ 3,760
See accompanying notes to consolidated financial statements.
82 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS OF CANADIAN DOLLARS)
Years ended December 31,
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 of assets
Program rights amortization
Video rental amortization
Finance costs
Income tax expense
Pension contributions, net of expense
Settlement of pension obligations
Stock-based compensation expense
Amortization of fair value decrement (increment) on long-term debt
Share of the income of associates and joint ventures accounted for using the equity method, net of tax
Other
Change in non-cash operating working capital items
Income taxes paid
Interest paid
Investing activities:
Additions to property, plant and equipment (“PP&E”)
Change in non-cash working capital items related to PP&E
Investment in Cogeco Inc. and Cogeco Cable Inc.
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 agreement and forward contracts
Proceeds on settlement of cross-currency interest rate exchange agreement and forward contracts
Transaction costs incurred
Repurchase of Class B Non-Voting shares
Proceeds received on exercise of stock options
Dividends paid
Change in cash and cash equivalents (bank advances)
Cash and cash equivalents (bank advances), beginning of year
Cash and cash equivalents (bank advances), end of year
The change in non-cash operating working capital items is as follows:
Increase in accounts receivable
Increase in other assets
Decrease in accounts payable and accrued liabilities
Increase/(decrease) in income tax payable
Decrease in unearned revenue
2011
2010
$ 1,563
$ 1,502
1,743
–
57
26
738
535
(41)
11
64
1
(7)
8
4,698
(169)
4,529
(99)
(639)
3,791
(2,127)
(89)
–
(532)
(56)
(27)
(2,831)
4,100
(2,802)
(76)
(1,208)
878
(10)
(1,099)
3
(758)
(972)
(12)
(45)
(57)
(86)
(33)
(51)
5
(4)
$
$
1,639
11
74
54
768
612
(35)
–
50
(2)
(2)
12
4,683
(386)
4,297
(152)
(651)
3,494
(1,834)
126
(75)
(201)
(51)
(29)
(2,064)
2,935
(2,387)
(79)
(816)
547
(10)
(1,312)
3
(734)
(1,853)
(423)
378
(45)
(147)
(89)
(140)
(2)
(8)
$
$
$
(169)
$
(386)
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.
See accompanying notes to consolidated financial statements.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
1. NATURE OF THE BUSINESS:
Inc.
(“RCI”)
Rogers Communications
is a diversified Canadian
communications and media company, incorporated in Canada, 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. RCI’s Cable segment (“Cable”) consists
of Cable Operations, Rogers Business Solutions (“RBS”) and Rogers
Video (“Video”). Through Cable Operations, RCI 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 Video offers digital video
disc (“DVD”) and video game sales and rentals. RCI is engaged in radio
and television broadcasting, televised shopping, consumer, trade and
professional publications, sports entertainment, and digital media
properties through its Media segment (“Media”). RCI and its subsidiary
companies are collectively referred to herein as the “Company”.
The Company’s registered office is located at 333 Bloor Street East,
10th Floor, Toronto, Ontario, M4W 1G9.
RCI Class A Voting and Class B Non-Voting shares are traded in Canada
on the Toronto Stock Exchange (“TSX”) and its Class B Non-Voting
shares are also traded on the New York Stock Exchange (“NYSE“).
2. SIGNIFICANT ACCOUNTING POLICIES:
Statement of compliance:
(a)
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board (“IASB”).
These are the Company’s
consolidated financial
statements prepared in accordance with IFRS, and the Company has
transition to IFRS
elected January 1, 2010 as
(the “Transition Date”). IFRS 1, First-time Adoption of IFRS (“IFRS 1”),
has been applied. An explanation of how the transition to IFRS has
affected the consolidated financial statements is included in note 3.
the date of
first annual
The consolidated financial statements of the Company for the years
ended December 31, 2011 and 2010 and as at January 1, 2010 were
approved by the Board of Directors on February 21, 2012.
(b) Basis of presentation:
The consolidated financial statements include the accounts of the
Company. Intercompany transactions and balances are eliminated on
consolidation.
The consolidated financial statements have been prepared mainly
under the historical cost convention. Other measurement bases used
are described in the applicable notes. The Company’s financial year
corresponds
to the calendar year. The consolidated financial
statements are prepared in millions of Canadian dollars.
Presentation of the consolidated statements of financial position
differentiates between current and non-current assets and liabilities.
The consolidated statements of income are presented using the
nature classification for expenses.
Concurrent with the impact of the transition to IFRS described in
note 3, the Company underwent a change in strategy which impacted
the Company’s management reporting resulting in changes to the
84 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
In
addition,
respectively.
Company’s reportable segments. Commencing January 1, 2011, the
results of the former Rogers Retail segment are segregated as follows:
the results of operations of the Video business are presented as a
separate operating segment and the former Rogers Retail segment
results of operations related to wireless and cable products and
services are included in the results of operations of Wireless and Cable
intercompany
Operations,
transactions between the Company’s RBS segment and other
operating segments, which were previously recorded as revenue in
RBS and operating expenses in the other operating segments, are
recorded as cost recoveries in RBS beginning January 1, 2011. The
reporting on the
effect of
comparatives for 2010 was a decrease in RBS revenue of $108 million
and a decrease in RBS operating costs of $108 million, and a decrease
in Video revenue of $212 million and a decrease in Video operating
costs of $206 million. These transactions were offset by elimination
entries resulting in no effect to the consolidated revenue or operating
costs.
in management
these changes
certain
(c)
Basis of consolidation:
(i)
Subsidiaries:
Subsidiaries are entities controlled by the Company. The
subsidiaries are included in the
financial
consolidated financial statements from the date that control
commences until the date that control ceases.
statements of
The acquisition method of accounting is used to account for the
acquisition of subsidiaries as follows:
(cid:129) consideration transferred is measured as the fair value of the
assets given, equity instruments issued and liabilities incurred
or assumed at
the date of exchange, and acquisition
transaction costs are expensed as incurred;
(cid:129) identifiable assets acquired and liabilities assumed are
measured at their fair values at the acquisition date;
(cid:129) the excess of the fair value of consideration transferred
including the recognized amount of any non-controlling
interest of the acquiree over the fair value of the identifiable
net assets acquired is recorded as goodwill; and
(cid:129) if the fair value of the consideration transferred is less than
the fair value of the net assets acquired, the difference is
recognized directly in the consolidated statements of income.
Investments in associates and joint ventures:
(ii)
The Company’s interests in investments in associates and joint
ventures are accounted for using the equity method of
accounting. Associates are those entities in which the Company
has significant influence, but not control, over the financial and
operating policies. Significant influence is presumed to exist
when the Company holds between 20 and 50 percent of the
voting power of another entity. Joint ventures are those entities
over whose activities the Company has joint control, established
by contractual agreement and requiring unanimous consent for
strategic financial and operating decisions.
The investments in associates and joint ventures are initially
increased or
recognized at cost. The carrying amount
decreased to recognize, in net income, the Company’s share of
the income or loss of the investee after the date of acquisition.
Distributions received from an investee reduce the carrying
amount of the investment.
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Investments in publicly traded and private companies:
(iii)
Publicly traded investments where no control or significant
influence exists are classified as available-for-sale investments
and are recorded at fair value. Fair value of other investments in
private companies where no control or significant influence
exists and no active market exists is determined by using well
established market or asset based, or projected income valuation
techniques, which are applied appropriately to each investment
depending on its future operating and profitability prospects.
Changes in fair value of these investments are recorded in other
the
comprehensive income (“OCI”) until
investments are disposed of or become impaired. Investments
are considered impaired when there is a significant or prolonged
decline in fair value below cost.
such time as
(d) Revenue recognition:
The Company’s principal sources of revenues 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)
(iii)
(iv)
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 upon activation of the equipment;
revenue and,
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
in Cable, are deferred and
amortized over the related service period. The related
service period for Cable ranges from 26 to 48 months,
based on subscriber disconnects, transfers of service and
moves.
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;
Incremental direct
installation costs
(v)
recorded in the period the
advertising revenue is
advertising airs on the Company’s
television
radio or
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 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;
(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; and
a
are
separately
considered
(ix) awards granted to customers through customer loyalty
identifiable
programs
component of the sales transactions and, as a result, are
deferred until recognized as operating revenue when the
awards are redeemed by the customer and the goods or
services are provided by the Company. The portion
allocated to the award credit is estimated based on the fair
value of the right to the future goods and services. The
amount of revenue recognized is based on the number of
award credits redeemed relative to the total number of
award credits that are expected to be redeemed.
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 to the
extent that it is probable that the economic benefits will flow to the
Company and the revenue can be reliably measured.
Unearned revenue includes subscriber deposits, cable installation fees
and amounts received from subscribers related to services and
subscriptions to be provided in future periods.
Subscriber acquisition and retention costs:
(e)
Except as described in note 2(d)(iv) as it relates to cable installation
costs, the Company expenses the costs related to the acquisition or
retention of subscribers as incurred.
Stock-based compensation and other stock-based payments:
(f)
The Company’s employee stock option plans, which are described in
note 22(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 fair value, measured
using option valuation techniques that are compliant with IFRS 2,
Share-based Payment (“IFRS 2”). The fair value of the liability is
remeasured each period and is amortized to income using a graded
vesting approach over the period in which the related services are
rendered, or 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 22(b). RSUs that will be settled in cash are recorded
as liabilities. The measurement of the liability and compensation costs
for these awards is based on the fair 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 fair value
of the award, are recorded as a charge to income in the year incurred.
The payment amount is established as of the vesting date of the
award.
The Company has a deferred share unit (“DSU”) plan, which is
described in note 22(c). DSUs that will be settled in cash are recorded
as liabilities. The measurement of the liability for these awards is
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
based on the fair value of the award at the date of grant. Changes in
the Company’s liability subsequent to the grant of the award and
prior to the settlement date, due to changes in the fair value of the
award, are recorded as a charge to income in the year incurred. The
payment amount is established as of the exercise date of the award.
to
The employee share accumulation plan allows employees
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 year made.
Income taxes:
(g)
Income tax expense is comprised of current and deferred taxes.
Current tax and deferred tax are recognized in the consolidated
statements of income except to the extent that they relate to a
business combination, or items recognized directly in equity or in OCI.
Current tax is the expected tax payable or receivable based on the
taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to
tax payable in respect of previous years.
Deferred tax assets and liabilities are recognized for the future
income tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred 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. Deferred tax
assets and liabilities are offset if there is a legally enforceable right to
offset current tax liabilities and assets and they relate to income taxes
levied by the same authority on the same taxable entity, or on
different tax entities where these entities intend to settle current tax
liabilities and assets on a net basis or their tax assets and liabilities will
be realized simultaneously.
Foreign currency translation:
(h)
Monetary assets and liabilities denominated in a foreign currency are
translated into Canadian dollars at the exchange rate in effect at the
consolidated statements of financial position dates and non-monetary
assets and liabilities and related depreciation and amortization
expenses are translated at the historical exchange rates. Revenue and
expenses, other than depreciation and amortization, are translated
into Canadian dollars at the average rate for the month in which the
transaction was recorded. Exchange gains or losses on translating
long-term debt are recognized in the consolidated statements of
income and consolidated statements of comprehensive income, as
applicable. Foreign exchange gains or losses are primarily related to
the translation of long-term debt.
(i)
Recognition:
Financial and derivative instruments:
(i)
The Company initially recognizes loans and receivables, debt
securities and subordinated liabilities on the date they originate.
All other financial assets and financial
liabilities are initially
recognized on the trade date at which the Company becomes a
party to the contractual provision of the instrument. Financial
assets and financial
liabilities are offset and the net amount
presented in the consolidated statements of financial position
when the Company has a legal right to offset the amounts and
intends either to settle on a net basis or to realize the asset and
liability simultaneously.
or
and
loans
purpose and is determined at initial recognition. All of the
Company’s non-derivative financial assets are classified as
available-for-sale
receivables.
Available-for-sale financial assets are comprised of the
Company’s publicly traded and private investments. These
investments are carried at fair value plus transaction costs
directly attributable to the acquisition of the financial
asset, on the consolidated statements of financial position,
with subsequent
than
in fair value, other
impairment
recorded in the available-for-sale
financial assets reserve, a component of equity, through
OCI, until such time as the investments are disposed of, at
which time the cumulative fair value change in OCI related
to the disposed investments is transferred to income.
changes
losses,
receivable are measured at
Upon initial recognition, all of the Company’s loans and
receivables, comprised of cash and cash equivalents and
accounts
fair value plus
transaction costs directly attributable to the acquisition of
the financial asset and subsequently carried at amortized
cost using the effective interest method, with changes
recorded through net income.
All of the Company’s non-derivative financial liabilities are
classified as other financial
liabilities and are initially
measured at fair value plus transaction costs that are
directly attributable to the issue of the financial liability.
Subsequent to the initial recognition and measurement,
these non-derivative financial
liabilities are measured at
amortized cost using the effective interest method. Such
liabilities include bank advances arising from outstanding
liabilities,
payable
accounts
cheques,
provisions, and long-term debt.
accrued
and
instruments
(b) Derivative financial instruments:
The Company uses derivative financial
to
manage risks from fluctuations in exchange rates and
interest rates, with respect to debt (“Debt Derivatives”) and
to manage risks from fluctuations in exchange rates on
certain forecast expenditures (“Expenditure Derivatives”
and, together with Debt Derivatives, “Derivatives”). From
time to time, these instruments include cross-currency
interest rate exchange agreements, interest rate exchange
agreements,
foreign exchange forward contracts and
foreign exchange option agreements. All such instruments
are only used for risk management purposes. The Company
speculative
does not use derivative instruments
purposes.
for
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 and designated as such for accounting
purposes. The Company assesses whether an embedded
derivative is required to be separated from the host
contract and accounted for as a derivative when the
Company first becomes a party to the contract. The changes
in fair value of cash flow hedging derivatives are recorded
in the hedging reserve, a component of equity, to the
extent effective, until the variability of cash flows relating
to the hedged asset or liability is recognized in income. Any
hedge ineffectiveness is recognized in income immediately.
(ii) Classification and measurement:
(a) Non-derivative financial instruments:
Financial
for measurement purposes,
grouped into classes. The classification depends on the
instruments are,
On initial designation of a derivative instrument as a
hedging instrument, the Company formally documents the
relationship between the hedging instrument and hedged
including the risk management objectives and
item,
86 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
strategy in undertaking the hedge transaction and the
hedged risk, together with the methods that will be used
to assess the effectiveness of the hedging relationship. The
Company makes an assessment, both at the inception of
the hedge relationship as well as on an ongoing basis, of
whether the hedging instruments are expected to be highly
effective in offsetting the changes in the fair value or cash
flows of the respective hedged items attributable to the
hedged risk, and whether the actual results of each hedge
are within a range of 80 to 125 percent.
Impairment:
(iii)
A financial asset carried at amortized cost is considered impaired
if objective evidence indicates that one or more events have had
a negative effect on the estimated future cash flow of that asset
that can be estimated reliably. Individually significant financial
assets are tested for impairment on an individual basis. The
remaining financial assets carried at amortized cost, are assessed
collectively, based on the nature of the asset.
An impairment loss in respect of a financial asset measured at
amortized cost is calculated as the difference between the asset’s
carrying amount and the present value of the estimated future
cash flows discounted at the asset’s original effective interest
rate. Losses are recognized in the consolidated statements of
income and reflected in an allowance account against accounts
receivable.
In assessing collective impairment, the Company uses historical
trends of the probability of default, timing of recoveries and the
amount of loss incurred, adjusted for management’s judgement
as to whether current economic and credit conditions are such
that the actual
losses are likely to be greater or less than
suggested by historical trends.
An impairment loss on available-for-sale financial assets is
recognized by reclassifying the losses accumulated in the fair
value reserve in equity to the consolidated statements of
income. The cumulative loss that is reclassified from equity to
the consolidated statements of income is the difference between
the acquisition cost and the current
less any
impairment loss previously recognized.
fair value,
(iv) Fair values:
The Company determines
instruments as follows:
the fair values of
its
financial
(a)
(b)
(c)
the carrying amounts in the consolidated statements of
receivable, bank
financial position of
advances arising from outstanding cheques, accounts
payable
provisions
approximate fair values because of the short-term
nature of these financial instruments.
liabilities
accounts
accrued
and
and
the fair values of investments that are publicly traded
are determined by the quoted market values for each
of the investments.
the fair values of private investments where no active
market exists are determined by using well established
market, asset based or projected income valuation
techniques which are applied appropriately to each
investment depending on its future operating and
makes
profitability
assumptions that are based on market conditions
existing at the consolidated statements of financial
position dates.
Management
prospects.
(d)
for disclosure purposes only, the fair values of each of
the Company’s public debt instruments are based on
(e)
the year-end trading values. The fair value of the bank
credit facility approximates its carrying amount since
the interest rates approximate current market rates.
the
risk-free
estimated
estimated
the Company’s derivatives are
the fair values of
determined
credit-adjusted
an
using
mark-to-market valuation which involves increasing
the treasury-related (“risk-free”) discount rates used to
calculate
mark-
to-market valuation by an estimated 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
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 the Company owes the
counterparties on a net basis), the Company’s credit
spread is added to the risk-free discount rate. The
change in fair value of the derivatives not designated
for accounting purposes are recorded
as hedges
immediately in the consolidated statements of income.
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The changes in fair value of the derivatives designated
as cash flow hedges for accounting purposes are
recorded in the hedging reserve within equity, 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.
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 judgement.
Changes in assumptions could significantly affect the estimates.
liabilities
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
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.
Current/non-current distinction:
(v)
Financial assets and liabilities due in part or in whole more than
one year from the consolidated statements of financial position
dates are considered to be non-current. Other financial assets
and liabilities are recognized as current. Financial assets and
liabilities are recognized and derecognized applying settlement
date accounting.
Earnings per share:
(j)
The Company presents basic and diluted earnings per share data.
Basic earnings per share is calculated by dividing the income or loss
attributable to common shareholders of
the Company by the
weighted average number of common shares outstanding during
the year. The diluted earnings per share is determined by adjusting
the income or loss attributable to common shareholders and the
weighted average number of common shares outstanding for
the effects of all dilutive potential common shares. The Company uses
the treasury stock method for calculating diluted earnings per share.
The diluted earnings per share calculation considers the impact of
employee stock options and other potentially dilutive instruments, as
disclosed in note 10.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
including handsets, digital
Inventories and Video rental inventory:
inventory, which includes DVDs and video games,
(k)
Inventories,
cable equipment and
merchandise for resale, are primarily measured at the lower of cost,
determined on a first-in, first-out basis, and net realizable value.
Video rental
is
amortized to its estimated residual value. The residual value of Video
rental inventory is recorded as a charge to merchandise for resale in
operating costs upon the sale of Video rental inventory. Amortization
of Video rental inventory is charged to merchandise for resale in
operating costs on a diminishing-balance basis over a six-month
period.
Deferred transaction costs:
(l)
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
debt to which they relate.
Financing costs incurred in connection with the issuance of long-term
debt are capitalized and amortized using the effective interest
method.
(n)
(m) Provisions:
Provisions are recognized when a present obligation as a result of a
past event will lead to a probable outflow of economic resources
from the Company and the amount of that outflow can be estimated
reliably. The timing or amount of the outflow may still be uncertain.
from the presence of a legal or
A present obligation arises
constructive obligation that has resulted from past events, for
example, legal disputes or onerous contracts.
Provisions are measured at the estimated expenditure required to
settle the present obligation, based on the most reliable evidence
available at the reporting date, including the risks and uncertainties
associated with the present obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that
reflects current market assessments of the time value of money and
the risks specific to the liability.
Decommissioning and restoration costs:
(i)
In the course of the Company’s activities, network and other
assets are utilized on leased premises which are expected to have
costs associated with decommissioning these assets and restoring
the location where these assets are situated upon ceasing their
use on those premises. The associated cash outflows, which are
long-term in nature, are generally expected to occur at the dates
of exit of the assets to which they relate.
These decommissioning and restoration costs are calculated on
the basis of the identified costs for the current financial year,
extrapolated into the future based on management’s best
estimates of future trends in prices, inflation, and other factors,
and are discounted to present value at a risk-adjusted rate
specifically applicable to the liability. Forecasts of estimated
future provisions are revised in light of future changes in
business conditions or technological requirements.
The Company records these decommissioning and restoration
costs as PP&E and subsequently allocates them 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 finance costs.
Product guarantees:
(ii)
A provision for product guarantees is recognized for instances
where replacement products will be provided to subscribers. The
provision is based on historical data and an estimate of the
future replacements required for products sold on or before the
reporting date.
88 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
(iii) Restructuring:
A provision for restructuring is recognized when the Company
has approved a detailed and formal restructuring plan, and the
restructuring either has
commenced or management has
announced the plan’s main features to those affected by it.
Future operating losses are not provided for.
(iv) Onerous contracts:
A provision for onerous contracts is recognized when the
unavoidable costs of meeting the obligation under the contract
exceed the expected benefits to be derived by the Company. The
provision is measured at the present value of the lower of the
expected cost of terminating the contract and the expected net
cost of continuing with the contract. Before a provision is
established, the Company recognizes any impairment loss on the
assets associated with the contract.
Pension benefits:
Employee benefits:
(i)
The Company provides both contributory and non-contributory
defined benefit pension plans, which provide employees with a
lifetime monthly pension upon retirement. The Company’s net
obligation in respect of defined benefit pension plans
is
calculated separately for each plan by estimating the amount of
future benefits that employees have earned in return for their
service in the current and prior years; that benefit is discounted
to determine its present value. 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 date on high
quality corporate bonds to measure the accrued pension benefit
obligation. Actuarial gains and losses are determined at the end
of the year in connection with the valuation of the plans and are
recognized in OCI and retained earnings.
The Company uses the following methods and assumptions for
pension accounting associated with its defined benefit plans:
(a)
the cost of pensions is actuarially determined using the
projected unit credit method. The projected unit credit
method takes into account the expected rates of salary
increases, for instance, as the basis for future benefit
increases.
(b)
for the purpose of calculating the expected return on
plan assets, those assets are valued at fair value.
(c) past service costs from plan amendments are expensed
immediately in the consolidated statements of income
to the extent that they are already vested. Unvested
past service costs are deferred and amortized on a
straight-line basis over the average remaining vesting
period.
Contributions to defined contribution plans are recognized as an
employee benefit expense in the consolidated statements of
income in the periods during which related services are rendered
by employees.
Termination benefits:
(ii)
Termination benefits are recognized as an expense when the
Company
of
withdrawal, to a formal detailed plan to terminate employment
before the normal retirement date.
committed without
possibility
realistic
is
(o)
Recognition and measurement:
Property, plant and equipment:
(i)
Items of PP&E are measured at cost less accumulated depreciation
and accumulated impairment losses. Cost includes expenditures
that are directly attributable to the acquisition of the asset. The
cost of self-constructed assets includes the cost of materials and
direct labour, any other costs directly attributable to bringing the
assets to a working condition for their intended use, the costs of
dismantling and removing the items and restoring the site on
which they are located, and borrowing costs on qualifying assets
for which the commencement date of acquisition, construction or
development is on or after January 1, 2010.
The cost of the initial cable subscriber installation is capitalized.
Costs of 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.
When parts of an item of PP&E have different useful lives, they
are accounted for as separate components of PP&E.
Gains and losses on disposal of an item of PP&E are determined
by comparing the proceeds from disposal with the carrying
amount of PP&E, and are recognized within other income in the
consolidated statements of income.
Subsequent costs:
(ii)
Subsequent costs are included in the asset’s carrying amount or
recognized as a separate asset only when it is probable that
additional
future economic benefits associated with the
subsequent expenditures will flow to the Company and the costs
of the item can be reliably measured. All other expenditures are
charged to operating expenses as incurred.
(iii) Depreciation:
PP&E are stated at cost less accumulated depreciation and any
impairment losses.
N
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Depreciation is charged to the consolidated statements of income over their estimated useful lives as follows:
Asset
Buildings
Towers, head-ends and transmitters
Distribution cable and subscriber drops
Network equipment
Wireless network radio base station equipment
Computer equipment and software
Customer equipment
Leasehold improvements
Basis
Mainly diminishing balance
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
Equipment and vehicles
Mainly diminishing balance
Rate
4% to 18%
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%
Depreciation methods, rates and residual values are reviewed
annually and revised if the current method, estimated useful life
or residual value is different from that estimated previously. The
effect of
recognized in the consolidated
such changes
statements of income prospectively.
is
(p) Acquired program rights:
Program rights represent contractual rights acquired from third parties to
broadcast television programs. Acquired program rights for broadcasting
are carried at cost less accumulated amortization, and accumulated
impairment losses,
if any. Acquired program rights and the related
liabilities are recorded on the consolidated statements of financial position
when the licence period begins and the program is available for use. The
cost of acquired program rights is amortized to other external purchases
in the consolidated statements of income over the expected exhibition
period of 1 to 5 years. If program rights are not scheduled, they are
considered impaired and written off. Otherwise, they are subject to
non-financial asset impairment testing as intangible assets with finite
useful
sports programming
arrangements are expensed as incurred, when the games are aired.
lives. Program rights
for multi-year
(q) Goodwill and intangible assets:
Goodwill:
(i)
Goodwill
is the amount that results when the fair value of
consideration transferred for an acquired business exceeds the net
fair value of the identifiable assets,
liabilities and contingent
liabilities recognized. When the Company enters into a business
the acquisition method of accounting is used.
combination,
Goodwill is assigned, as of the date of the business combination, to
cash generating units that are expected to benefit from the business
combination. Each cash generating unit represents the lowest level
at which goodwill is monitored for internal management purposes
and it is never larger than an operating segment.
Intangible assets:
(ii)
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(r). Useful lives,
residual values and amortization methods for intangible assets
with finite useful lives are reviewed at least annually.
Intangible assets having an indefinite life, being spectrum and
broadcast
licences, are not amortized but are tested for
impairment on an annual basis, as described in note 2(r).
Spectrum licences and broadcast licences are indefinite life
intangible assets, because there is no foreseeable limit to the
period over which these assets are expected to generate net cash
inflows for the Company. The determination of these assets’
indefinite life is based on an analysis of all relevant factors,
including the expected usage of the asset, the typical life cycle of
the asset and anticipated changes in the market demand for the
products and services that the asset helps generate.
Intangible assets with finite useful
straight-line basis over their estimated useful lives as follows:
lives are amortized on a
Brand names
Customer relationships
Roaming agreements
Marketing agreements
5 to 20 years
2 to 5 years
12 years
2 to 5 years
During the year ended December 31, 2011, no significant
changes were made in estimated useful lives compared to 2010.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Development expenditures are capitalized if they meet the
criteria for recognition as an asset. The assets are amortized over
their expected useful
lives once they are available for use.
Research expenditures, as well as maintenance and training
costs, are expensed as incurred.
(r)
that generates
Goodwill and indefinite-life intangible assets:
Impairment:
(i)
The carrying values of
identifiable intangible assets with
indefinite lives and goodwill are tested annually for impairment.
A cash generating unit (“CGU”) is the smallest identifiable group
that are largely
of assets
independent of the cash inflows from other assets or groups of
assets. Goodwill and indefinite life intangible assets are
allocated to CGUs for the purpose of impairment testing based
on the level at which management monitors them, which is not
higher than an operating segment. The allocation is made to
those CGUs that are expected to benefit from the business
combination in which the goodwill arose.
cash inflows
(ii) Non-financial assets with finite useful lives:
The carrying values of non-financial assets with finite useful
lives, such as PP&E and intangible assets with finite useful lives,
are assessed for impairment whenever events or changes in
circumstances indicate that their carrying amounts may not be
recoverable.
the recoverable
amount of the asset must be determined. Such assets are
impaired if their recoverable amount is lower than their carrying
amount. If it is not possible to estimate the recoverable amount
of an individual asset, the recoverable amount of the CGU to
which the asset belongs is tested for impairment.
If any such indication exists,
(iii) Recognition of impairment charge:
The recoverable amount is the higher of an asset’s or CGU’s fair
value less costs to sell or its value in use. If the recoverable
amount of an asset or CGU is estimated to be less than its
carrying amount, the carrying amount of the asset or CGU is
reduced to its recoverable amount. The resulting impairment loss
is recognized in the consolidated statements of income. An
impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. When an
impairment loss is subsequently reversed, the carrying amount of
the asset or CGU is increased to the revised estimate of its
recoverable amount so that the increased carrying amount does
not exceed the carrying amount that would have been recorded
had no impairment losses been recognized for the asset or CGU
in prior years. Impairment losses recognized for goodwill are not
reversed.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax rate that
reflects current market assessments of the time value of money
and the risks specific to that asset. The cash flows used reflect
management assumptions and are supported by external sources
of information.
(s) Use of estimates:
The preparation of financial statements requires management to
the
make judgements, estimates and assumptions
application of accounting policies and the reported amounts of
assets, liabilities, revenue and expenses. Actual results could differ
from these estimates.
that affect
Key areas of estimation, where management has made difficult,
complex or subjective judgements, often as a result of matters that
are inherently uncertain are as follows:
the identifiable assets acquired and the liabilities assumed is
based, to a considerable extent, on management’s judgement.
Income taxes:
(ii)
Income tax liabilities must be estimated for the Company,
including an assessment of
temporary differences. Any
temporary differences will generally result in the recognition of
deferred tax assets and liabilities in the financial statements.
Management’s judgement is required for the calculation of
current and deferred taxes.
(iii) Property, plant and equipment:
the use of estimates
for
Measurement of PP&E involves
lives of depreciable assets.
determining the expected useful
Management’s
is also required to determine
depreciation methods and an asset’s residual value, the rate of
capitalization of internal labour costs and whether an asset is a
qualifying asset for the purposes of capitalizing borrowing costs.
judgement
Impairment of non-financial assets:
(iv)
The impairment test on CGUs is carried out by comparing the
carrying amount of CGUs and their recoverable amount. The
recoverable amount of a CGU is the higher of its fair value, less
costs to sell and its value in use. This complex valuation process
used to determine fair value less costs to sell and/or value in use
entails the use of methods such as the discounted cash flow
method which uses assumptions to estimate cash flows. The
recoverable amount depends significantly on the discount rate
used in the discounted cash flow model as well as the expected
future cash flows.
Provisions:
(v)
Considerable judgement is used in measuring and recognizing
provisions and the exposure to contingent liabilities. Judgement
is necessary to determine the likelihood that a pending litigation
or other claim will succeed, or a liability will arise and to
quantify the possible range of the final settlement.
(vi) Financial risk management and financial instruments:
The fair value of derivative instruments, investments in publicly
traded and private companies, and equity instruments
is
determined on the basis of either prices in regulated markets or
quoted prices provided by financial counterparties, or using
valuation models which also take into account
subjective
measurements such as, cash flow estimates or expected volatility
of prices.
(vii) Pensions:
Pension benefit costs are determined in accordance with
actuarial valuations, which rely on assumptions
including
discount rates, life expectancies and expected return on plan
assets. In the event that changes in assumptions are required
with respect to discount rates and expected returns on invested
assets, the future amounts of the pension benefit cost may be
affected materially.
(viii) Stock options, share units and share purchase plans:
Assumptions, such as volatility, expected life of an award, risk-
free interest rate, forfeiture rate, and dividend yield, are used in
the underlying calculation of fair values of the Company’s stock
options. Fair value is determined using the Company’s Class B
Non-Voting share price, and the Black-Scholes or trinomial
option pricing models, depending on the nature of the share
based award. Details of the assumptions used are included in
note 22.
Business combinations:
(i)
The amount of goodwill
initially recognized as a result of a
business combination and the determination of the fair value of
Significant changes in the assumptions, including those with respect
to future business plans and cash flows, could materially change the
recorded carrying amounts.
90 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
7”).
(“IFRS
Recent accounting pronouncements:
(t)
IFRS 7, Financial Instrument: Disclosures
In October 2010, the IASB amended IFRS 7, Financial Instruments:
Disclosures
enhances disclosure
requirements to aid financial statement users in evaluating the nature
of, and risks associated with an entity’s continuing involvement in
derecognized financial assets. The amendment is effective for the
Company’s interim and annual consolidated financial statements
commencing January 1, 2012. The Company is assessing the impact of
this amended standard on its consolidated financial statements.
amendment
This
that
IAS 12, Deferred Tax: Recovery of Underlying Assets
In December 2010, the IASB amended IAS 12, Deferred Tax: Recovery
of Underlying Assets (“IAS 12”). IAS 12 will now include a rebuttal
presumption which determines
the deferred tax on the
depreciable component of an investment property measured using
the fair value model from IAS 40 should be based on its carrying
amount being recovered through a sale. The standard has also been
that deferred tax on
amended to include the requirement
non-depreciable assets measured using the revaluation model
in
IAS 16 should be measured on the sale basis. This amendment is
effective for the Company’s interim and annual consolidated financial
statements commencing January 1, 2012. The Company is assessing
the impact of this amended standard on its consolidated financial
statements.
IFRS 10, Consolidated Financial Statements
the IASB issued IFRS 10, Consolidated Financial
In May 2011,
Statements (“IFRS 10”).
IFRS 10, which replaces the consolidation
requirements of SIC-12 Consolidation-Special Purpose Entities and
IAS 27 Consolidated and Separate Financial Statements, establishes
principles for the presentation and preparation of consolidated
financial statements when an entity controls one or more other
entities. This new standard is effective for the Company’s interim and
annual consolidated financial statements commencing January 1,
2013. The Company is assessing the impact of this new standard on its
consolidated financial statements.
reflection of
IFRS 11, Joint Arrangements
In May 2011, the IASB issued IFRS 11, Joint Arrangements (“IFRS 11”).
Interests in Joint
IFRS 11, which replaces the guidance in IAS 31,
Ventures, provides
joint
for a more realistic
arrangements by focusing on the rights and obligations of the
arrangement, rather than its legal form (as is currently the case). The
standard addresses
joint
arrangements by requiring interests in jointly controlled entities to be
accounted for using the equity method. This new standard is effective
consolidated financial
for
statements commencing January 1, 2013. The Company is assessing
the impact of
this new standard on its consolidated financial
statements.
in the reporting of
interim and annual
the Company’s
inconsistencies
IFRS 12, Disclosure of Interests in Other Entities
In May 2011, the IASB issued IFRS 12, Disclosure of Interests in Other
Entities (“IFRS 12”).
IFRS 12 establishes new and comprehensive
disclosure requirements for all forms of interests in other entities,
including
and
unconsolidated structured entities. This new standard is effective for
the Company’s interim and annual consolidated financial statements
commencing January 1, 2013. The Company is assessing the impact of
this new standard on its consolidated financial statements.
arrangements,
subsidiaries,
associates
joint
IFRS 13, Fair Value Measurement
In May 2011, the IASB issued IFRS 13, Fair Value Measurement
(“IFRS 13”). IFRS 13 replaces the fair value guidance contained in
individual
IFRS with a single source of fair value measurement
guidance. The standard also requires disclosures which enable users to
assess
the methods and inputs used to develop fair value
measurements. This new standard is effective for the Company’s
interim and annual consolidated financial statements commencing
January 1, 2013. The Company is assessing the impact of this new
standard on its consolidated financial statements.
IAS 1, Presentation of Financial Statements
In June 2011, the IASB amended IAS 1, Presentation of Financial
Statements (“IAS 1”). This amendment requires an entity to separately
present the items of OCI as items that may or may not be reclassified
to profit and loss. This amended standard is effective for the
Company’s interim and annual consolidated financial statements
commencing January 1, 2013. The Company is assessing the impact of
this amended standard on its consolidated financial statements.
IAS 19, Employee Benefits
In June 2011, the IASB amended IAS 19, Employee Benefits (“IAS 19”).
This amendment eliminated the use of the “corridor” approach and
mandates all remeasurement impacts be recognized in OCI. It also
enhances the disclosure requirements, providing better information
about the characteristics of defined benefit plans and the risk that
entities are exposed to through participation in those plans. This
amendment clarifies when a company should recognize a liability and
an expense for termination benefits. This amended standard is
effective for the Company’s interim and annual consolidated financial
statements commencing January 1, 2013. The Company is assessing
the impact of this amended standard on its consolidated financial
statements.
N
O
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S
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O
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S
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D
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D
F
I
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A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
removes
the requirements
IAS 27, Separate Financial Statements
In May 2011, the IASB amended IAS 27, Separate Financial Statements
(“IAS 27”). This amendment
for
consolidated statements from IAS 27, and moves it over to IFRS 10
“Consolidated Financial Statements”. The amendment mandates that
when a company prepares separate financial statements, investment
in subsidiaries, associates, and jointly controlled entities are to be
accounted for using either the cost method or in accordance with
IFRS 9 “Financial
this amendment
determines the treatment for recognizing dividends, the treatment of
certain group reorganizations, and some disclosure requirements. This
amendment is effective for the Company’s interim and annual
consolidated financial statements commencing January 1, 2013. The
Company is assessing the impact of this amended standard on its
consolidated financial statements.
Instruments”.
In addition,
IAS 28, Investments in Associates and Joint Ventures
In May 2011, the IASB amended IAS 28, Investments in Associates and
Joint Ventures (“IAS 28”). This amendment requires any retained
portion of an investment in an associate or joint venture that has not
been classified as held for sale to be measured using the equity
method until disposal. After disposal,
the retained interest
continues to be an associate or joint venture, the amendment
requires for it to be continued to be accounted for under the equity
method. The amendment also disallows the remeasurement of any
retained interest in an investment upon the cessation of significant
influence or joint control. This amended standard is effective for the
Company’s interim and annual consolidated financial statements
commencing January 1, 2013. The Company is assessing the impact of
this amended standard on its consolidated financial statements.
if
IFRS 9, Financial Instruments
Instruments
In October 2010, the IASB issued IFRS 9, Financial
(“IFRS 9”).
Instruments:
IFRS 9, which replaces IAS 39, Financial
Recognition and Measurement, establishes principles for the financial
reporting of financial assets and financial liabilities that will present
relevant and useful information to users of financial statements for
their assessment of the amounts, timing and uncertainty of an entity’s
future cash flows. This new standard is effective for the Company’s
interim and annual consolidated financial statements commencing
January 1, 2015. The Company is assessing the impact of this new
standard on its consolidated financial statements.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. TRANSITION TO IFRS:
stated in note 2(a),
As
consolidated financial statements prepared in accordance with IFRS.
these are the Company’s
first annual
The accounting policies set out in note 2 have been applied in
preparing the consolidated financial statements as at and for the year
ended December 31, 2011, the comparative information presented in
these consolidated financial statements as at and for the year ended
December 31, 2010, and for the opening IFRS statement of financial
position at January 1, 2010 (the Company’s Transition Date to IFRS). In
preparing its opening and comparative IFRS statements of financial
positions, the Company has adjusted amounts reported previously in
financial statements prepared in accordance with previous Canadian
GAAP.
Reconciliation of financial position and shareholders’ equity at January 1, 2010:
Canadian
GAAP
Reclassification
for IFRS
presentation
Adjustments to
shareholders’
equity
Note
Note
IFRS balance
$
383
1,310
338
4
220
2,255
8,197
3,018
2,643
547
78
280
–
$
(5)
(21)
(61)
–
(220)
(307)
(50)
(7)
(3)
167
–
(46)
84
(f)
(f)
(f),(l)
(m)
(f)
(f)
(f),(l)
(f)
(f),(g),(l)
(f),(m)
$
–
–
–
–
–
–
(11)
–
–
1
–
(121)
–
$
378
1,289
277
4
–
1,948
8,136
3,011
2,640
715
78
113
84
(e)
(i)
(b)
$ 17,018
$ (162)
$ (131)
$ 16,725
$
2,175
147
–
1
80
284
2,687
–
8,463
1,004
133
458
12,745
4,273
$ (118)
–
4
–
–
55
(59)
39
(9)
–
–
(133)
(162)
–
(d),(f),(h)
$
(h)
(d)
(h)
(g)
(m)
9
–
10
–
–
(4)
15
19
(58)
–
44
(34)
(14)
(c)
$
(h)
(d)
(h)
(g)
(b),(c),(f)
(m)
2,066
147
14
1
80
335
2,643
58
8,396
1,004
177
291
12,569
(117)
(n)
4,156
$ 17,018
$ (162)
$ (131)
$ 16,725
Assets
Current assets:
Cash and cash equivalents
Accounts receivable
Other current assets
Current portion of derivative instruments
Current portion of deferred tax assets
Property, plant and equipment
Goodwill
Intangible assets
Investments
Derivative instruments
Other long-term assets
Deferred tax assets
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities
Income tax payable
Current portion of provisions
Current portion of long-term debt
Current portion of derivative instruments
Unearned revenue
Provisions
Long-term debt
Derivative instruments
Other long-term liabilities
Deferred tax liabilities
Shareholders’ equity
92 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
N
O
T
E
S
T
O
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Reconciliation of financial position and shareholders’ equity at December 31, 2010:
Assets
Current assets:
Accounts receivable
Other current assets
Current portion of derivative instruments
Current portion of deferred tax assets
Property, plant and equipment
Goodwill
Intangible assets
Investments
Derivative instruments
Other long-term assets
Deferred tax assets
Liabilities and Shareholders’ Equity
Current liabilities:
Bank advances
Accounts payable and accrued liabilities
Income tax payable
Current portion of provisions
Current portion of derivative instruments
Unearned revenue
Provisions
Long-term debt
Derivative instruments
Other long-term liabilities
Deferred tax liabilities
Shareholders’ equity
Canadian
GAAP
Reclassification
for IFRS
presentation
Adjustments to
shareholders’
equity
Note
Note
IFRS balance
$
1,480
365
1
159
2,005
8,493
3,115
2,669
721
6
321
–
$ (37)
(50)
–
(159)
(246)
(46)
(7)
(73)
213
–
(37)
52
(f)
(f),(l)
(m)
(f)
(f)
(f),(l)
(f)
(g),(l)
(m)
$
–
–
–
–
–
(10)
–
(5)
(1)
–
(137)
–
$
1,443
315
1
–
1,759
8,437
3,108
2,591
933
6
147
52
(e)
(l)
(i)
(b)
$ 17,330
$(144)
$ (153)
$ 17,033
$
40
2,256
238
–
67
274
2,875
–
8,718
840
124
814
13,371
3,959
$
5
(137)
–
12
–
56
(64)
36
(9)
–
–
(107)
(144)
–
(f)
(d),(f),(h)
$
(h)
(d)
(h)
(g)
(m)
–
14
–
9
–
(1)
22
26
(55)
–
105
(52)
46
$
(c)
(h)
(d)
(h)
(g)
(b),(c),(f)
(m)
45
2,133
238
21
67
329
2,833
62
8,654
840
229
655
13,273
(199)
(n)
3,760
$ 17,330
$(144)
$ (153)
$ 17,033
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation of comprehensive income for the year ended December 31, 2010:
Operating revenue
$ 12,186
$ (41)
(f)
$
(3)
(d)
$ 12,142
Canadian
GAAP
Reclassification
for IFRS
presentation
Note
Adjustment
Note
IFRS
Operating expenses:
Operating costs
Integration, restructuring and acquisition costs
Depreciation and amortization
Impairment of assets
Operating income
Finance costs
Other income (expense), net
Share of the income (loss) of associates and joint ventures accounted
7,594
40
1,645
6
2,901
(762)
(1)
(f)
(f)
(19)
–
(12)
–
(10)
–
–
for using the equity method, net of tax
–
10
(f)
Income before income taxes
Income tax expense
Net income for the year
Other comprehensive income (loss):
Defined benefit pension plans:
Actuarial gain (loss)
Related income tax recovery
Change in fair value of available-for-sale investments:
Increase (decrease) in fair value
Related income tax expense
Cash flow hedging derivative instruments:
Change in fair value of derivative instruments
Reclassification to net income for foreign exchange gain on long-
term debt
Reclassification to net income of accrued interest
Related income tax expense
Other comprehensive income for the year
2,138
610
1,528
–
–
–
104
(13)
91
(227)
264
97
(24)
110
201
Comprehensive income for the year
$
1,729
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4)
–
6
5
(10)
(6)
–
(8)
(24)
2
(26)
(80)
21
(59)
(2)
–
(2)
6
–
–
(1)
5
(56)
$ (82)
(b),(c),(h)
(e),(f)
(l)
(e),(g),(j)
7,571
40
1,639
11
2,881
(768)
(1)
(h)
2
(m)
(b)
(m)
(i)
2,114
612
1,502
(80)
21
(59)
102
(13)
89
(j)
(221)
(m)
264
97
(25)
115
145
$
1,647
94 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
In addition to the changes required to adjust for the accounting
policy differences described in the following notes, interest paid and
income taxes paid have been moved into the body of
the
consolidated statements of cash flows as part of operating activities,
whereas
supplementary
information. There are no other material differences related to
presentation of the consolidated statements of cash flows.
they were
previously
disclosed
as
Principal exemptions elected on transition to IFRS:
(a)
IFRS 1 sets out the requirements that the Company must follow when
it adopts IFRS for the first time as the basis for preparing its
consolidated financial statements. The Company established its IFRS
accounting policies for the year ended December 31, 2011, and has
applied retrospectively these policies to the opening consolidated
statement of financial position at the date of transition of January 1,
2010, except for specific exemptions available to the Company
outlined as follows:
Business combinations:
(i)
The Company has elected to apply IFRS 3, Business Combinations
(“IFRS 3”), retrospectively to all business combinations that took
place on or after the date of transition, January 1, 2010. Under
previous Canadian GAAP, the Company had elected to early
adopt The Canadian Institute of Chartered Accountants’
Handbook Section 1582, Business Combinations, effective
January 1, 2010, the requirements of which are converged with
IFRS. As a condition under IFRS 1 of applying this exemption,
goodwill relating to business combinations that occurred prior
to January 1, 2010 was tested for impairment even though no
impairment indicators were identified. No impairment existed at
the date of transition.
Leases:
(ii)
The Company has elected to apply the transitional provisions in
International Financial Reporting Interpretations Committee
(“IFRIC”) 4, Determining Whether an Arrangement Contains a
Lease (“IFRIC 4”), thereby determining whether the Company
has any arrangements that exist at the date of transition to IFRS
that contain a lease on the basis of facts and circumstances
existing at
January 1, 2010. No such arrangements were
identified.
(iii) Changes
in existing decommissioning,
restoration and
the date of
the employees. At
actuarial gains or losses over the average remaining service
life of
transition, all
previously unrecognized cumulative actuarial gains and
losses, including the unamortized transitional obligation,
were recognized in retained earnings,
resulting in a
reduction of retained earnings of $149 million. Actuarial
losses of $76 million were recognized in OCI for the year
ended December 31, 2010.
(ii)
In compliance with IAS 19, past service costs are recognized
immediately if vested, or on a straight-line basis over the
average remaining vesting period if unvested. Under
Canadian GAAP, past service costs were recognized over the
expected average remaining service period of active
employees expected to receive benefits under the plan. At
the date of transition, all previously unrecognized past
service costs amounting to $9 million were fully vested and
as such were recognized in retained earnings.
(iii) Furthermore,
financial position date. Accordingly,
IAS 19 requires that the defined benefit
obligation and plan assets be measured at the consolidated
the
statement of
defined benefit obligation and plan assets have been
measured at January 1, 2010 and December 31, 2010,
resulting in an $8 million reduction to retained earnings at
the Transition Date.
N
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D
F
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M
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T
S
(iv)
plus
In addition, IAS 19 and IFRIC 14, The Limit on a Defined
Benefit Asset, Minimum Funding Requirement and their
Interaction, limit the amount that can be recognized as an
asset on the consolidated statement of financial position to
the present value of available contribution reductions or
refunds
and
unrecognized past service costs. This restriction has resulted
in a limit on the asset that can be recorded for one of the
Company’s defined benefit plans, which resulted in a
further reduction of $8 million that has been recognized in
retained earnings at the Transition Date. For the year
ended December 31, 2010, $4 million was recognized in
OCI.
unrecognized
actuarial
losses
The impact arising from the changes is summarized as follows:
similar liabilities included in the cost of PP&E:
Year ended December 31,
IFRIC 1, Changes
The Company has elected to apply the exemption to full
retrospective application of
in Existing
Decommissioning, Restoration and Similar Liabilities (“IFRIC 1”).
This election allows the Company to measure the impact of any
changes to its decommissioning and restoration liabilities using
estimates applicable at the date of transition to IFRS, and no
adjustment was required to the opening consolidated statement
of financial position as a result of applying this election and
IFRIC 1.
(iv) Borrowing costs:
The Company has elected to apply the transitional provisions of
IAS 23, Borrowing Costs (“IAS 23”), prospectively from the date
of transition.
Transfers of assets from customers:
(v)
The Company has elected to apply the transitional provisions of
IFRIC 18, Transfers of Assets from Customers (“IFRIC 18”),
prospectively from the date of transition.
Consolidated statement of comprehensive income:
Operating costs
Other comprehensive income
Adjustment before income taxes
2010
$
(5)
80
$ 75
Consolidated statements of financial
position:
Other long-term assets
Other long-term liabilities
January 1,
2010
December 31,
2010
$ (121)
(53)
$ (137)
(112)
Adjustment to retained earnings before
income taxes
Related income tax effect
(174)
44
(249)
64
Adjustment to retained earnings
$ (130)
$ (185)
(b)
Employee benefits:
(i)
Upon adoption of IFRS, actuarial gains and losses, as
described in the significant accounting policies note are
recognized immediately in OCI, as permitted by IAS 19,
Employee Benefits (“IAS 19”). Under previous Canadian
GAAP, the Company used the corridor method to amortize
Stock-based compensation:
(c)
As described in note 22, the Company has granted stock-based
compensation to employees. The Company applied IFRS 2 to its
unsettled stock-based compensation arrangements at January 1, 2010,
which requires that stock-based compensation be measured based on
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the fair values of the awards. Under previous Canadian GAAP, the
Company accounted for these arrangements at intrinsic value.
The impact arising from these changes is summarized as follows:
Year ended December 31,
The impact arising from the change is summarized as follows:
Consolidated statement of comprehensive income:
Year ended December 31,
Consolidated statement of comprehensive income:
Operating costs
Adjustment before income taxes
Depreciation and amortization
Finance costs–capitalized interest
Adjustment before income taxes
2010
$ 3
$ 3
2010
$ 2
(3)
$ (1)
Consolidated statements of financial
position:
Accounts payable and accrued liabilities
Other long-term liabilities
Adjustment to retained earnings before
income taxes
Related income tax effect
January 1,
2010
December 31,
2010
$
(9)
(6)
$ (14)
(4)
(15)
4
(18)
–
Adjustment to retained earnings
$ (11)
$ (18)
Consolidated statements of financial
position:
Property, plant and equipment
Related income tax effect
January 1,
2010
December 31,
2010
$ (11)
3
$ (10)
3
Adjustment to retained earnings
$
(8)
$
(7)
As noted previously, the Company has elected to apply IAS 23
prospectively
January 1, 2010;
consequently, there was no impact to the consolidated statements of
financial position at that date.
from the date of
transition,
(d) Customer loyalty programs:
The Company applied IFRIC 13, Customer Loyalty Programmes
(“IFRIC 13”), retrospectively. IFRIC 13 requires that the fair value of
the awards given to a customer be identified as a separate
component of the initial sales transaction and the revenue be
deferred until the awards are redeemed. Under previous Canadian
GAAP, the Company took a liability-based approach in accounting for
customer loyalty programs.
(f)
Joint ventures:
(i)
The Company applied IAS 31, Interests in Joint Ventures
(“IAS 31”), at January 1, 2010. The Company has elected to
use the equity method to recognize interests in joint
ventures as described in note 2(c). Previous Canadian GAAP
required that the Company proportionately consolidate its
interests in joint ventures. This change had no impact on
the Company’s net assets and consequently is presented as
a reclassification difference.
Consistent with the requirements of IFRS, the liability balance has
been reclassified from accounts payable and accrued liabilities to
unearned revenue upon transition.
(ii)
IFRS requires that the Company immediately recognize any
gains that arise on non-monetary contributions to a joint
venture to the extent of the other venturers’ interest in the
joint venture when certain conditions are met. Under
previous Canadian GAAP, these gains were deferred and
amortized into income over
the assets
contributed. The impact of this difference was to recognize
$15 million of unamortized gains in opening retained
earnings. Depreciation and amortization increased by
$4 million for the year ended December 31, 2010 as a result
of eliminating the amortization of the gain under previous
Canadian GAAP.
the life of
The impacts of applying IAS 31 are summarized as follows:
Year ended December 31,
Consolidated statement of comprehensive income:
Operating revenue
Operating costs
Depreciation and amortization–change from
proportionate consolidation
Depreciation and amortization–remove amortization of
deferred gain
Share of the loss of associates and joint ventures accounted
for using the equity method
Adjustment before income taxes
2010
$ 41
(19)
(12)
4
(10)
$
4
The impact arising from the change is summarized as follows:
Year ended December 31,
Consolidated statement of comprehensive income:
Operating revenue
Adjustment before income taxes
2010
$ (3)
$ (3)
Consolidated statements of financial
position:
Accounts payable and accrued liabilities
Unearned revenue
January 1,
2010
December 31,
2010
$ 55
(51)
$ 56
(55)
Adjustment to retained earnings before
income taxes
Related income tax effect
4
(1)
Adjustment to retained earnings
$
3
$
1
–
1
Property, plant and equipment:
(e)
The Company has applied IAS 16, Property, Plant and Equipment,
which requires that the Company identify the significant components
of its PP&E and depreciate these parts separately over their respective
useful lives which results in a more detailed approach than was used
under previous Canadian GAAP. The Company has also applied IAS 23
which requires the capitalization of interest and other borrowing
costs as part of the cost of certain qualifying assets which take a
substantial period of time to get ready for its intended use. Under
previous Canadian GAAP, the Company elected not to capitalize
borrowing costs.
96 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
Consolidated statements of financial
position:
Cash and cash equivalents
Accounts receivable
Other current assets
Property, plant and equipment
Goodwill
Intangible assets
Investments
Other long-term assets
Deferred tax assets
Bank advances
Accounts payable and accrued liabilities
Other long-term liabilities – remove
deferred gain
Adjustment to retained earnings before
income taxes
Related income tax effect
January 1,
2010
December 31,
2010
$
(5)
(21)
–
(50)
(7)
(103)
167
2
(3)
–
20
15
15
(10)
$
–
(37)
(1)
(46)
(7)
(150)
213
–
–
(5)
33
11
11
(9)
Adjustment to retained earnings
$
5
$
2
Financial instruments – transaction costs:
(g)
The Company has applied IAS 39, Financial Instruments: Recognition
and Measurement (“IAS 39”), at January 1, 2010, which requires
directly attributable costs to be added to certain acquired financial
assets and liabilities and amortized to the consolidated statements of
income over the life of the asset or liability. Under previous Canadian
incurred. Unamortized
GAAP,
transaction costs of $58 million related to the Company’s long-term
debt were adjusted upon transition. Additionally, unamortized
discounts recognized on long-term debt have been reclassified from
other
to conform with IFRS presentation
requirements.
these costs were expensed as
long-term assets
The impact of the change is summarized as follows:
Year ended December 31,
Consolidated statement of comprehensive income:
Finance costs – amortization
Finance costs – debt issuances
Adjustment before income taxes
2010
$ 13
(10)
$
3
January 1,
2010
December 31,
2010
Consolidated statements of financial
position:
Other long-term assets – reclassify
unamortized discounts
$
(9)
$
(9)
Long-term debt – reclassify unamortized
discounts
Long-term debt – unamortized transaction
costs
Adjustment to retained earnings before
income taxes
Related income tax effect
9
58
58
(16)
55
55
(15)
Adjustment to retained earnings
$ 42
$ 40
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Provisions:
(h)
IAS 37, Provisions, Contingent Liabilities and Contingent Assets
(“IAS 37”), requires separate disclosure of provisions on the face of
the consolidated statements of financial position and also requires
recognition of a provision for onerous contracts; that is any contract
where the costs to fulfill the contract exceed the benefits to be
received under the contract, neither of which were required under
previous Canadian GAAP. Therefore, upon transition, all provisions
were reclassified from accounts payable and accrued liabilities and
the Company
contract provision of
$29 million.
recognized an onerous
The impact of the changes is summarized as follows:
Year ended December 31,
Consolidated statement of comprehensive income:
Operating costs
Share of the income of associates and joint ventures
accounted for using the equity method
Adjustment before income taxes
2010
$ (2)
8
$ 6
Consolidated statements of financial
position:
Accounts payable and accrued liabilities
Current portion of
provisions – reclassification
Current portion of provisions – onerous
contract
Provisions – reclassification
Provisions – onerous contract
Adjustment to retained earnings before
income taxes
Related income tax effect
January 1,
2010
December 31,
2010
$ 43
$ 48
(4)
(10)
(39)
(19)
(29)
10
(12)
(9)
(36)
(26)
(35)
8
Adjustment to retained earnings
$ (19)
$ (27)
that
the Company measure at
Financial instruments – investments:
(i)
IAS 39 requires
fair value its
investments in equity instruments that do not have a quoted market
price in an active market classified as available-for-sale. Under
previous Canadian GAAP,
these investments were classified as
available-for-sale and measured at cost, as cost closely approximated
fair value.
The impact of this change is summarized as follows:
Year ended December 31,
Consolidated statement of comprehensive income:
Increase in fair value of available-for-sale investments
9
Adjustment before income taxes
2010
$ 2
$ 2
Consolidated statements of financial
position:
Investments
Available-for-sale equity reserve
Adjustment to retained earnings
January 1,
2010
December 31,
2010
$ 1
(1)
$ –
$ (1)
1
$ –
There is no impact on retained earnings at January 1, 2010 or
December 31, 2010 as a result of this change.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial instruments – hedge accounting:
(j)
IAS 39 requires that the Company include credit risk when measuring
the ineffective portion of its cross-currency interest rate exchange
agreements. Under previous Canadian GAAP, the Company elected
not to include credit risk in the determination of the ineffective
portion of its cross-currency interest rate exchange agreements.
The impact of this change is summarized as follows:
Year ended December 31,
Consolidated statement of comprehensive income:
Finance costs – change in fair value of derivative instruments
Change in fair value of derivative instruments
Adjustment before income taxes
2010
$ 6
(6)
$
–
Consolidated statements of financial
position:
Equity reserves – hedging
Adjustment to retained earnings before
income taxes
Related income tax effect
January 1,
2010
December 31,
2010
$ 7
$ 1
7
(1)
1
–
Adjustment to retained earnings
$ 6
$ 1
Share of the income or loss of associates:
(k)
IAS 1, Presentation of Financial Statements (“IAS 1”), requires that the
share of the income or loss of associates accounted for using the
equity method are presented as a separate line item on the face of
the consolidated statements of income. Under previous Canadian
GAAP, the share of the income or loss of associates was included with
other income.
For the year ended December 31, 2010, the impacts of applying IAS 1
was less than $1 million.
Intangible assets and impairment of assets:
(l)
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) and assets
are tested for impairment at the level of cash generating units, which
is the lowest level of assets that generate largely independent cash
flows. Canadian GAAP, however, uses a two-step approach to
impairment
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, and 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.
testing:
The impact of this change is summarized as follows:
Year ended December 31,
Consolidated statement of comprehensive income:
Impairment of assets
Adjustment before income taxes
2010
$ 5
$ 5
98 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
Consolidated statements of financial
position:
Intangible assets
Adjustment to retained earnings before
income taxes
Related income tax effect
January 1,
2010
December 31,
2010
$ –
$ (5)
–
–
(5)
1
Adjustment to retained earnings
$ –
$ (4)
IAS 38, Intangible Assets (“IAS 38”), requires acquired program rights
to be classified as intangible assets. Under previous Canadian GAAP,
these amounts were classified as other current assets and other long-
term assets. Therefore, upon transition, the Company reclassified an
amount of $100 million at January 1, 2010 and $77 million at
December 31, 2010 to intangible assets.
The impact of the changes is summarized as follows:
Consolidated statements of financial
position:
Other current assets
Intangible assets
Other long-term assets
Adjustment to retained earnings
January 1,
2010
December 31,
2010
$
$
(61)
100
(39)
$ (49)
77
(28)
–
$
–
Income taxes:
(m)
The above changes decreased (increased) the net deferred tax liability
as follows:
Employee benefits
Stock-based compensation
Customer loyalty programs
Property, plant and equipment
Joint ventures
Financial instruments – transaction
costs
Provisions
Impairment of assets
Note
January 1,
2010
December 31,
2010
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(l)
$ 44
4
(1)
3
(10)
(16)
10
–
$ 64
–
–
3
(9)
(15)
8
1
Decrease in net deferred tax liability
$ 34
$ 52
The effect on the consolidated statement of comprehensive income
for the year ended December 31, 2010 was to decrease the previously
reported tax charge for the period by $18 million.
Under IFRS, all deferred tax balances are classified as non-current,
regardless of the classification of the underlying assets or liabilities, or
the expected reversal date of the temporary difference. The effect of
this change, including the impact of netting deferred tax assets and
N
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F
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liabilities, is to reclassify the current deferred tax asset of $220 million
at January 1, 2010 and $159 million at December 31, 2010 to
non-current and reclassify $87 million at January 1, 2010 and
$52 million at December 31, 2010 from deferred tax liability to
deferred tax asset.
IFRS requires that subsequent changes to the tax effect of items
recorded in OCI in previous years be also recorded in OCI, where
previously this was recorded in the consolidated statements of
income. The impact of this difference on transition is to reduce equity
reserves by $16 million and increase opening retained earnings by
$16 million.
In addition, the Company reclassified an amount of $61 million at
January 1, 2010 and $138 million at December 31, 2010 from income
tax payable to deferred tax liability as compared to amounts
previously reported under Canadian GAAP relating to its investment
in its wholly-owned operating partnership.
(n)
The above changes decreased (increased) shareholders’ equity (each net of related tax) as follows:
Employee benefits
Stock-based compensation
Customer loyalty programs
Property, plant and equipment
Joint ventures
Financial instruments–transaction costs
Provisions
Financial instruments–hedge accounting
Impairment of assets
Income tax impact transferred from equity reserves
Adjustment to retained earnings
Equity reserves–available-for-sale investments
Equity reserves–hedging
Income tax impact transferred to retained earnings
Adjustment to shareholders’ equity
4. SEGMENTED INFORMATION:
OPERATING SEGMENTS:
Management reviews the operations of the Company by business
segments. Effective January 1, 2011, the results of the business
segments were reclassified to reflect the change in strategy as
described in note 2(b). These business segments are the primary
operating segments and are described as follows:
(a) Wireless–This segment provides retail and business voice and
data wireless communications services.
(b) Cable–This segment provides cable television, cable telephony
and high speed Internet access and telephony products primarily
to residential customers. The Cable business consists of the
following three sub segments:
(i)
Cable Operations segment which provides cable services,
high speed Internet service and Rogers Home Phone;
(ii) RBS segment offers local and long-distance telephone,
enhanced voice and data services, and IP access to medium
and large Canadian businesses and governments; and
Note
January 1,
2010
December 31,
2010
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(j)
(l)
(i)
(j)
$ 130
11
(3)
8
(5)
(42)
19
(6)
–
(16)
96
(1)
6
16
$ 185
18
(1)
7
(2)
(40)
27
(1)
4
(16)
181
1
1
16
$ 117
$ 199
(iii) Video segment operates a DVD and video game sale and
rental business.
(c) Media–This
segment operates
broadcasting
and
trade
television
consumer,
entertainment, and digital media properties.
operations,
professional
the Company’s
televised
publications,
radio and
shopping,
sports
The accounting policies of the segments are the same as those
described in the significant accounting policies note 2 to the
Company’s consolidated financial statements. The Company discloses
segment operating results based on income before integration,
restructuring and acquisition costs,
stock-based compensation
expense,
loss on settlement of pension obligations, other items,
depreciation and amortization, impairment of assets, finance costs,
other income (loss), share of income of associates and joint ventures
accounted for using the equity method, 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.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a)
Information by reportable segments is as follows:
Year ended December 31, 2011
Year ended December 31, 2010
Operating revenue
Operating costs*
Integration, restructuring and
acquisition costs
Stock-based compensation
expense*
Settlement of pension
obligations*
Other items, net*
Wireless
Cable
Media
$ 7,138 $ 3,796 $ 1,611
1,431
4,102
2,184
Corporate
items and
eliminations
Consolidated
totals
$ (117)
(5)
$ 12,428
7,712
Wireless
Cable
Media
$ 6,973 $ 3,785 $ 1,461
1,330
3,800
2,359
3,036
1,612
180
(112)
4,716
3,173
1,426
131
Corporate
items and
eliminations
Consolidated
totals
$
(77)
18
(95)
$ 12,142
7,507
4,635
16
10
2
–
39
14
9
5
–
9
3
–
1
36
1
–
70
64
11
–
5
12
–
5
23
7
–
5
12
10
–
4
–
21
–
–
$ 3,008 $ 1,559 $
154
$ (150)
4,571
$ 3,151 $ 1,391 $
105
$ (116)
Depreciation and amortization
Impairment of assets
674
–
843
–
2,334
716
Operating income (loss)
Finance costs
Other income (expense), net
Share of income of associates
and joint ventures accounted
for using equity method, net
of tax
Income before income taxes
63
–
91
163
–
(313)
1,743
–
2,828
(738)
1
7
$ 2,098
648
–
807
–
2,503
584
60
11
34
124
–
(240)
40
50
–
14
4,531
1,639
11
2,881
(768)
(1)
2
$ 2,114
Additions to PP&E
$ 1,192 $
803 $
61
$ 1,146 $ 1,215 $
919
$
$
71
$ 2,127
$
937 $
662 $
38
–
$ 3,280
$ 1,146 $ 1,058 $
904
$
$
197
$ 1,834
–
$ 3,108
$ 9,184 $ 5,543 $ 1,947
$ 1,688
$ 18,362
$ 8,485 $ 5,322 $ 1,907
$ 1,319
$ 17,033
Goodwill
Total assets
*Included with operating costs in consolidated statements of income.
The Company applies the same basis of accounting for transactions
between reportable segments as transactions with external parties.
(b)
In addition, Cable consists of the following reportable segments:
Year ended December 31, 2011
Year ended December 31, 2010
Cable
Operations
Rogers
Business
Solutions
Video
Total
Cable
Cable
Operations
Rogers
Business
Solutions
Video
Total
Cable
Operating revenue
Operating costs*
$ 3,309
1,760
$ 405
319
$
82
105
$ 3,796
2,184
$ 3,190
1,771
$
452
412
$ 143
176
$ 3,785
2,359
Integration, restructuring and acquisition costs
Stock-based compensation expense*
Settlement of pension obligations*
Other items, net*
Depreciation and amortization
Operating income
Additions to PP&E
Goodwill
Total assets
1,549
8
9
4
–
$ 1,528
$
86
17
–
1
–
68
(23)
14
–
–
–
1,612
39
9
5
–
1,419
3
7
–
7
$
(37)
1,559
$ 1,402
$
40
13
–
–
–
27
(33)
7
–
–
(2)
1,426
23
7
–
5
$
(38)
1,391
$
748
$
55
$ 1,000
$ 215
$
$
–
–
843
716
803
$
$
$ 1,215
$
$
611
992
$
$
38
66
$
$
807
584
662
$
$
13
–
$ 1,058
$ 4,410
$ 924
$ 209
$ 5,543
$ 4,097
$ 1,056
$ 169
$ 5,322
*Included with operating costs in consolidated statements of income.
100 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
Product revenue:
(c)
Revenue is comprised of the following:
7. BUSINESS COMBINATIONS AND
DIVESTITURES:
Wireless:
Postpaid
Prepaid
Network revenue
Equipment sales
Cable:
Cable Operations:
Television
Internet
Telephony
RBS
Video
Media:
Advertising
Circulation and subscription
Retail
Blue Jays
Other
Corporate items and intercompany
eliminations
N
O
T
E
S
T
O
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
December 31,
2011
December 31,
2010
(a)
$
6,275
326
6,601
537
7,138
1,904
927
478
3,309
405
82
3,796
838
303
263
164
43
$
6,229
297
6,526
447
6,973
1,835
848
507
3,190
452
143
3,785
763
234
265
156
43
Atria Networks LP:
2011 Acquisitions:
(i)
On January 4, 2011, the Company closed an agreement to
purchase a 100% interest in Atria Networks LP (“Atria”) for cash
consideration of $426 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 was accounted for using the acquisition method
in accordance with IFRS 3 with the results of operations
consolidated with those of the Company effective January 4,
2011 and has contributed incremental revenue of $72 million
and an operating income of $42 million (excluding depreciation
and amortization of $60 million)
the year ended
December 31, 2011. The acquisition transaction costs were
approximately $3 million and have been charged to integration,
restructuring and acquisition costs. Of these costs, $2 million was
recognized in fiscal 2010 and $1 million was recognized in the
year ended December 31, 2011.
for
The final fair values of the assets acquired and liabilities assumed
in the acquisition are as follows:
Fair value of consideration transferred
$ 426
1,611
1,461
(117)
(77)
$ 12,428
$ 12,142
Current assets
PP&E
Customer relationships
Spectrum licence
Current liabilities
Deferred tax liabilities
$
10
132
200
4
(17)
(52)
277
$ 149
5. OPERATING COSTS:
Fair value of net identifiable assets acquired and
liabilities assumed
December 31,
2011
December 31,
2010
Goodwill
Cost of equipment sales
Merchandise for resale
Other external purchases
Employee salaries and benefits
Settlement of pension obligations
(note 20)
6.
FINANCE COSTS:
Interest on long-term debt
Loss on repayment of long-term debt
(note 17)
Foreign exchange loss (gain)
Change in fair value of derivative
instruments
Capitalized interest
Amortization of deferred transaction costs
$ 1,454
209
4,335
1,778
$ 1,266
260
4,316
1,729
11
–
$ 7,787
$ 7,571
December 31,
2011
December 31,
2010
$ 668
$ 669
99
6
(14)
(29)
8
87
(20)
22
(3)
13
$ 738
$ 768
Goodwill represents the expected operational synergies with the
acquiree and/or intangible assets that do not qualify for separate
recognition. The goodwill was allocated to the RBS reporting
segment and is not tax deductible.
The customer relationships are being amortized over a period of
5 years.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ii) BOUNCE FM:
On January 31, 2011, the Company closed an agreement to
acquire all of the assets of Edmonton, Alberta radio station
BOUNCE (CHBN-FM) for cash consideration of $22 million. The
acquisition of this radio station was made to increase the
Company’s presence in the Edmonton market. The acquisition
was accounted for using the acquisition method in accordance
with IFRS 3 with the results of operations consolidated with
those of the Company effective January 31, 2011 and has
contributed incremental revenue of $3 million and an operating
loss of $1 million for the year ended December 31, 2011. The
acquisition transaction costs were approximately $1 million and
have been charged to integration, restructuring and acquisition
costs in the current year.
(iv) Compton Cable T.V. Ltd.:
On February 28, 2011, the Company closed an agreement to
acquire all of the assets of Compton Cable T.V. Ltd. (“Compton”)
for cash consideration of $40 million. Compton provides cable
television, Internet and telephony services in Port Perry, Ontario
and the surrounding area. The acquisition was made to enter
into the Port Perry, Ontario market and is adjacent to the
existing Cable footprint. The acquisition was accounted for using
the acquisition method in accordance with IFRS 3 with the
results of operations consolidated with those of the Company
effective February 28, 2011 and has contributed incremental
revenue of $7 million and operating income of $3 million
(excluding depreciation and amortization of $6 million) for the
year ended December 31, 2011.
The final fair values of the assets acquired and liabilities assumed
in the acquisition are as follows:
The final fair values of the assets acquired and liabilities assumed
in the acquisition are as follows:
Fair value of consideration transferred
$ 22
Fair value of consideration transferred
$ 40
Current assets
Broadcast licence
Brand name
Fair value of net identifiable assets acquired and
liabilities assumed
Goodwill
$
1
11
1
13
$
9
Goodwill represents the expected operational synergies with the
acquiree and/or intangible assets that do not qualify for separate
recognition. The goodwill was allocated to the Media reporting
segment and is tax deductible.
(iii) BOB-FM:
On January 31, 2011, the Company closed an agreement to
acquire all of the assets of London, Ontario radio station,
BOB-FM (CHST-FM), for cash consideration of $16 million. The
acquisition of this radio station was made to enter into the
London, Ontario market. The acquisition was accounted for
using the acquisition method in accordance with IFRS 3 with the
results of operations consolidated with those of the Company
effective January 31, 2011 and has contributed incremental
revenue of $5 million and an operating income of $1 million for
the year ended December 31, 2011. The acquisition transaction
costs were approximately $1 million and have been charged to
integration, restructuring and acquisition costs in the current
year.
The final fair values of the assets acquired and liabilities assumed
in the acquisition are as follows:
Fair value of consideration transferred
$ 16
Current assets
Broadcast licence
Brand name
Fair value of net identifiable assets acquired and
liabilities assumed
Goodwill
$
$
1
6
1
8
8
Goodwill represents the expected operational synergies with the
acquiree and/or intangible assets that do not qualify for separate
recognition. The goodwill was allocated to the Media reporting
segment and is tax deductible.
(b)
102 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
Current assets
PP&E
Customer relationships
Current liabilities
Fair value of net identifiable assets acquired and
liabilities assumed
Goodwill
$
1
10
23
(1)
33
$
7
Goodwill represents the expected operational synergies with the
acquiree and/or intangible assets that do not qualify for separate
recognition. The goodwill was allocated to the Cable Operations
reporting segment and is tax deductible.
The customer relationships are being amortized over a period of
3 years.
(v) Other:
During the year ended December 31, 2011, the Company
increased its ownership interest in a subsidiary from 53% to
100% for cash consideration of $11 million. The Company
recognized this increase in the ownership interest of a previously
controlled entity as a decrease in retained earnings of
$11 million as the carrying amount of non-controlling interest
was insignificant.
During the year ended December 31, 2011, the Company made
another acquisition for cash consideration of approximately
$16 million, which has been recorded as customer relationships.
The customer relationships are being amortized over a period of
5 years.
(vi) Pro forma disclosures:
Since the acquisition dates, the Company has recorded revenue
relating to these above acquisitions of $96 million, and
operating income relating to these acquisitions of $47 million
(excluding depreciation and amortization of $66 million). If the
acquisitions had occurred on January 1, 2011, the Company’s
revenue would have been $12,437 million, and operating
income would have been $2,830 million for the year ended
December 31, 2011.
Blink Communications Inc.:
2010 Acquisitions:
(i)
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,
cash consideration of
$131 million. Blink is a facilities-based, data network service
for
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 IFRS 3 with the
results of operations consolidated with those of the Company
effective January 29, 2010. The transaction costs related to the
acquisition amounted to approximately $1 million and were
charged to integration and restructuring expenses.
The fair values of the assets acquired and liabilities assumed,
which were finalized during 2010, are as follows:
Fair value of consideration transferred
$ 131
Current assets
PP&E
Customer relationships
Current liabilities
Deferred tax liabilities
Fair value of net identifiable assets acquired and
liabilities assumed
Goodwill
$
$
3
35
40
(2)
(11)
65
66
The goodwill was allocated to the RBS reporting segment and is
not tax deductible.
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 all
of 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
IFRS 3 with the results of operations consolidated with those of
the Company effective July 9, 2010.
The fair values of the assets acquired and liabilities assumed,
which were finalized during 2010, are as follows:
Fair value of consideration transferred
$ 26
Current assets
PP&E
Customer relationships
Current liabilities
Fair value of net identifiable assets acquired and
liabilities assumed
Goodwill
$
3
1
17
(1)
20
N
O
T
E
S
T
O
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
operations consolidated with those of the Company effective
July 30, 2010.
The fair values of the assets acquired and liabilities assumed,
which were finalized during 2010, are as follows:
Fair value of consideration transferred
$ 20
PP&E
Customer relationships
Current liabilities
Fair value of net identifiable assets acquired and
liabilities assumed
Goodwill
$
2
9
(1)
10
$ 10
The goodwill was allocated to the Cable Operations reporting
segment and is tax deductible.
The customer relationships are being amortized over a period of
3 years.
(iv) BV! Media Inc:
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 IFRS 3 with
the results of operations consolidated with those of
the
Company effective October 1, 2010.
During the year ended December 31, 2011, the Company
updated its valuation of certain net identifiable assets acquired
for the BV! Media acquisition. This resulted in an increase in
customer
relationships of $2 million and a corresponding
decrease in goodwill of $2 million from the amounts recorded
and disclosed at December 31, 2010.
The final fair values of the assets acquired and liabilities assumed
in the acquisition are as follows:
Fair value of consideration transferred
$ 24
Current assets
PP&E
Customer relationships
Current liabilities
Deferred tax liabilities
Fair value of net identifiable assets acquired and
liabilities assumed
Goodwill
$
5
4
8
(3)
(3)
11
$ 13
$
6
The goodwill was allocated to the Media reporting segment and
is not tax deductible.
The goodwill was allocated to the Wireless reporting segment
and is tax deductible.
The customer relationships are being amortized over a period of
2 years.
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
all of 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 IFRS 3 with the results of
8.
INTEGRATION, RESTRUCTURING AND
ACQUISITION COSTS:
During 2011, the Company incurred $44 million (2010–$21 million) of
restructuring expenses related to severances resulting from the
targeted restructuring of its employee base and to improve the
Company’s cost structure.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2011, the Company incurred $22 million (2010 – $5 million) of
restructuring expenses and other exit costs related to the closure of
underperforming retail store locations, primarily located in the
province of Ontario, and other exit costs.
During 2011, the Company incurred $4 million (2010 – $5 million) of
acquisition related transaction costs for business combinations and
integration expenses related to previously acquired businesses and
related restructuring.
the Company incurred $nil
(2010 – $9 million) of
During 2011,
restructuring expenses resulting from the outsourcing of certain
information technology functions.
The additions to the liabilities related to the integration, restructuring
and acquisition activities and payments made against such liabilities
during 2011 are as follows:
Severances resulting from the targeted restructuring of the Company’s employee base
Video store closures and other exit costs
Acquisition transaction costs and integration of acquired businesses
The remaining liability of $63 million as at December 31, 2011, which
is included in accounts payable and accrued liabilities, is expected to
be paid over the next two years.
9.
INCOME TAXES:
As at
December 31,
2010
Additions
Payments
As at
December 31,
2011
$ 47
4
3
$ 44
22
4
$ (45)
(11)
(5)
$ 54
$ 70
$
(61)
$ 46
15
2
$ 63
Income tax expense (benefit):
(a)
The components of income tax expense (benefit) for the years ended
December 31, 2011 and 2010 were as follows:
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:
Current income tax expense (benefit)
$ (146)
$ 245
Statutory income tax rate
28.0%
30.5%
December 31,
2011
December 31,
2010
December 31,
2011
December 31,
2010
Deferred tax expense (benefit)
Origination and reversal of temporary
differences
Effect of tax rate changes
Recognition of previously unrecognized
deferred tax assets
Total deferred tax expense
Income tax expense
752
(59)
(12)
681
535
$
$
426
(54)
(5)
$ 367
$ 612
Computed income tax expense
Increase (decrease) in income taxes
resulting from:
Effect of tax rate changes
Recognition of previously unrecognized
deferred tax assets
Stock-based compensation
Other items
$
587
$
645
(59)
(12)
4
15
(69)
(5)
40
1
Income tax expense
$
535
$
612
Due to Canadian federal and provincial enacted corporate income tax
rate changes,
the statutory income tax rate for the Company
decreased from 30.5% in 2010 to 28.0% in 2011.
(b) Deferred tax assets and liabilities:
The net deferred tax liability consists of the following:
December 31,
2011
December 31,
2010
January 1,
2010
Deferred tax assets
Deferred tax liabilities
$
30
(1,390)
$
52
(655)
$
84
(291)
Net deferred tax liability
$ (1,360)
$ (603)
$ (207)
104 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
The movement of deferred tax assets and liabilities are summarized as follows:
Deferred tax assets (liabilities)
January 1, 2010
Benefit (expense) in Profit or Loss
Benefit (expense) in OCI
Acquisitions/dispositions
December 31, 2010
Benefit (expense) in Profit or Loss
Benefit (expense) in OCI
Acquisitions/dispositions
December 31, 2011
As at December 31, 2011, the Company had Canadian non-capital loss
carryforwards of $583 million, and foreign non-capital
loss
carryforwards of $61 million.
If not utilized, the majority of the
Canadian and foreign tax losses will expire between 2026 and
beyond. As at December 31, 2011, the Company had approximately
$228 million of available capital losses to offset future capital gains.
As at December 31, 2011, deferred tax assets have not been
recognized in respect of the following items:
PP&E and
Inventory
$ (263)
(199)
–
(2)
Goodwill
and other
intangibles
Investment in
Partnership
Non-capital
income tax loss
carryforwards
$ (323)
(27)
–
(10)
$
(61)
(77)
–
–
$ 124
(70)
–
–
$
Other
$ 316
6
(17)
–
(464)
(360)
(138)
54
305
(18)
–
(2)
(8)
–
(53)
(727)
–
–
105
–
3
(33)
(21)
(3)
Total
(207)
(367)
(17)
(12)
(603)
(681)
(21)
(55)
$ (484)
$ (421)
$ (865)
$ 162
$ 248
$ (1,360)
10. EARNINGS PER SHARE:
The following table sets forth the calculation of basic and diluted
earnings per share for the years ended December 31, 2011 and 2010:
Years ended December 31,
Numerator:
Net income for the year
2011
2010
$ 1,563
$ 1,502
N
O
T
E
S
T
O
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Capital losses in Canada
Tax losses in foreign jurisdictions
Deductible temporary differences in
foreign jurisdictions
December 31,
2011
December 31,
2010
$
41
45
45
$
41
62
44
$ 131
$ 147
Denominator (in millions):
Weighted average number of shares
outstanding – basic
Effect of dilutive securities:
Employee stock options
Weighted average number of shares
outstanding – diluted
The Company has taxable temporary differences associated with its
in Canadian domestic subsidiaries. No deferred tax
investment
liabilities have been provided with respect
to such temporary
differences where the Company is able to control the timing of the
reversal and such reversal is not probable in the foreseeable future.
Furthermore, reversal of such temporary differences, if it occurs, could
be implemented without any significant tax implications.
Earnings per share:
Basic
Diluted
543
576
4
4
547
580
$
$
2.88
2.86
2.61
2.59
The total number of anti-dilutive options that were out of the money
and therefore excluded from the calculation for the year ended
December 31, 2011 was 1,570,760 (2010 – 1,406,013).
11. OTHER CURRENT ASSETS:
Inventories
Prepaid expenses
Video rental inventory
Other
December 31,
2011
December 31,
2010
January 1,
2010
$ 206
108
6
2
$ 185
113
14
3
$ 129
110
27
11
$ 322
$ 315
$ 277
inventory is charged to
Amortization expense for Video rental
merchandise for resale in the consolidated statements of income and
amounted to $26 million in 2011 (2010 – $54 million).
Cost of equipment
$1,637 million (2010 – $1,472 million) of inventory costs.
sales and merchandise for
resale includes
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. PROPERTY, PLANT AND EQUIPMENT
Details of PP&E and accumulated depreciation 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
December 31, 2011
Accumulated
depreciation
Net book
value
$
230 $
1,202
3,585
3,699
889
2,358
1,228
239
661
635
903
1,697
3,133
668
1,216
364
153
345
Cost
865
2,105
5,282
6,832
1,557
3,574
1,592
392
1,006
$
Cost
820
1,585
5,206
6,027
1,410
3,289
1,470
384
928
December 31, 2010
Accumulated
depreciation
Net book
value
$
202 $
995
3,316
3,250
618
590
1,890
2,777
$
776
2,230
1,087
224
602
634
1,059
383
160
326
January 1, 2010
Accumulated
depreciation
Net book
value
$
187 $
832
3,056
2,826
577
516
2,010
2,649
656
1,972
950
212
545
564
883
409
158
370
Cost
764
1,348
5,066
5,475
1,220
2,855
1,359
370
915
$ 23,205
$ 14,091 $ 9,114
$ 21,119
$ 12,682 $ 8,437
$ 19,372
$ 11,236 $ 8,136
Depreciation expense for 2011 amounted to $1,595 million (2010 –
$1,539 million). PP&E not yet
therefore, not
depreciated at December 31, 2011 amounted to $1,371 million
in service and,
(December 31, 2010 – $1,613 million; January 1, 2010 – $1,014 million).
Capitalized interest on PP&E was at an interest rate of approximately
5.1% (2010 – 5.9%).
Changes in the net carrying amounts of property, plant and equipment can be summarized as follows:
December 31,
2010
Net book
value
$
618
590
1,890
2,777
634
1,059
383
160
326
Additions
Acquisitions
Depreciation
December 31,
2011
Net book
value
Disposals/
Other
$
51
347
64
796
147
467
171
12
72
$
$
1
112
12
12
–
3
1
1
–
(29)
(147)
(264)
(455)
(113)
(309)
(187)
(22)
(69)
$ (6)
1
(5)
3
–
(4)
(4)
2
16
$
635
903
1,697
3,133
668
1,216
364
153
345
$ 8,437
$ 2,127
$ 142
$ (1,595)
$
3
$ 9,114
January 1,
2010
Net book
value
$
577
516
2,010
2,649
564
883
409
158
370
Additions
Acquisitions
Depreciation
Disposals
$
55
215
112
573
190
424
180
28
57
$
$
1
3
29
–
–
11
–
–
–
(15)
(144)
(261)
(435)
(120)
(259)
(202)
(24)
(79)
$
–
–
–
(10)
–
–
(4)
(2)
(22)
December 31,
2010
Net book
value
$
618
590
1,890
2,777
634
1,059
383
160
326
$ 8,136
$ 1,834
$ 44
$ (1,539)
$ (38)
$ 8,437
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
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
106 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
13. GOODWILL AND INTANGIBLE ASSETS
(a) Goodwill and intangible assets:
Details of goodwill and intangible assets are as follows:
December 31, 2011
December 31, 2010
Cost
prior to
impairment
losses
Accumulated
impairment
losses
((b)(ii))
Net
book
value
Cost
prior to
impairment
losses
Accumulated
impairment
losses
((b)(ii))
Net
book
value
Cost
prior to
impairment
losses
Accumulated
amortization
Accumulated
amortization
Accumulated
amortization
January 1 2010
Accumulated
impairment
losses
((b)(ii))
Net
book
value
Goodwill
$ 3,434
$
–
$ 154 $ 3,280
$ 3,262
$
–
$ 154 $ 3,108
$ 3,165
$
–
$ 154 $ 3,011
Indefinite life intangible
assets:
Spectrum licences
Broadcast licences
Finite life intangible assets:
Brand names
Customer relationships
Roaming agreements
Marketing agreements
Acquired program rights
1,875
207
436
1,309
523
62
132
–
–
222
1,077
313
50
56
–
91
14
–
–
–
–
1,875
116
200
232
210
12
76
1,871
190
434
1,068
523
52
144
–
–
–
1,871
91
99
1,871
190
205
1,007
269
38
67
14
–
–
–
–
215
61
254
14
77
434
996
523
52
152
–
–
188
992
225
27
52
–
80
14
–
–
–
–
1,871
110
232
4
298
25
100
Total intangible assets
4,544
1,718
105
2,721
4,282
1,586
105
2,591
4,218
1,484
94
2,640
Total goodwill and
intangible assets
$ 7,978
$ 1,718
$ 259 $ 6,001
$ 7,544
$ 1,586
$ 259 $ 5,699
$ 7,383
$ 1,484
$ 248 $ 5,651
Changes in the net carrying amounts of goodwill and intangible assets are as follows:
N
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E
S
T
O
C
O
N
S
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I
D
A
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F
I
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A
N
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I
A
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S
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A
T
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M
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N
T
S
Goodwill
Spectrum licences
Broadcast licences
Brand names
Customer relationships
Roaming agreements
Marketing agreements
Acquired program rights
Goodwill
Spectrum licences
Broadcast licences
Brand names
Customer relationships
Roaming agreements
Marketing agreements
Acquired program rights
As at
December 31,
2010
$ 3,108
1,871
99
215
61
254
14
77
Acquisitions
Additions/
Disposals
Amortization
Current period
impairment loss
$
$ 172
4
17
2
241
–
–
–
$
–
–
–
–
–
–
10
56
–
–
–
(17)
(70)
(44)
(12)
(57)
$ –
–
–
–
–
–
–
–
As at
December 31,
2011
$ 3,280
1,875
116
200
232
210
12
76
$ 5,699
$ 436
$ 66
$ (200)
$ –
$ 6,001
As at
January 1,
2010
$ 3,011
1,871
110
232
4
298
25
100
Acquisitions
Additions/
Disposals
Amortization
Current period
impairment loss
$
97
–
–
–
72
–
–
–
$
–
–
–
–
–
–
–
51
$
–
–
–
(17)
(15)
(44)
(11)
(74)
$
–
–
(11)
–
–
–
–
–
As at
December 31,
2010
$ 3,108
1,871
99
215
61
254
14
77
$ 5,651
$ 169
$ 51
$ (161)
$ (11)
$ 5,699
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
roaming
Amortization of brand names, customer
agreements, and marketing agreements amounted to $143 million in
2011 (2010 – $87 million). Amortization of these intangible assets with
finite lives is included in depreciation and amortization in the
consolidated statements of income.
relationships,
The costs of acquired program rights are amortized to other external
purchases in the consolidated statements of income over the expected
performances of the related programs and amounted to $57 million
in 2011 (2010 – $74 million).
(b)
Goodwill and indefinite life intangible assets:
Impairment:
(i)
The Company tested CGU’s with allocated goodwill and
indefinite life intangible assets for impairment during 2011 and
2010 as at October 1 of each calendar year. In assessing whether
or not there is impairment, the Company uses a combination of
approaches to determine the recoverable amount of a CGU,
including both the discounted cash flows and market
approaches. Under the discounted cash flows approach, the
Company estimates the discounted future cash flows for three to
eight years, depending on the CGU and valuation technique
used, 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 CGU 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 CGU’s operations beyond the projected time
period of the cash flows using a perpetuity rate based on
expected economic conditions and a general outlook for the
industry. Under the market approach, the Company estimates
the recoverable amount of the CGU using multiples of operating
performance standardized by the respective industry. The
14. INVESTMENTS:
Company has made certain assumptions for the discount and
terminal growth rates to reflect variations in expected future
cash flows. These assumptions may differ or change quickly
depending on economic conditions or other events. Therefore, it
is possible that future changes in assumptions may negatively
impact future valuations of CGUs and goodwill which would
result in further goodwill impairment losses.
The following tables gives an overview of the periods for which
the Company has provided cash flow projections, the method
used to determine recoverable amounts, the growth rates used
as the basis for the cash flow projections, and the pre-tax
discount rates applied to the cash flow projections for CGUs with
allocated goodwill or indefinite life intangible assets that are
significant to the Company’s total amount of goodwill and
indefinite life intangible assets, respectively:
Goodwill
Spectrum
licences
Recoverable
Method
$ 1,146 $ 1,875 Value in use
Wireless
Cable
operations
1,000
– Value in use
Periods
used
(years)
Growth
rates
%
Pre-tax
Discount
rates %
4
4
0.5
1.0
9.7
9.7
Impairment losses:
(ii)
During the year ended December 31, 2011, the Company
recorded no impairment charge.
During the year ended December 31, 2010, the Company
recorded an impairment charge in the Media segment of
$11 million relating to certain radio stations CGUs. Using the
value in use approach, the Company determined the recoverable
amount of the CGUs to be lower than its carrying value. The
recoverable amounts of the CGUs declined in 2010 primarily due
to the weakening of industry expectations in certain specific
radio markets.
Publicly traded companies, at quoted market value:
Cogeco Cable Inc.
Cogeco Inc.
Number
Description
December 31,
2011
December 31,
2010
January 1,
2010
Carrying
value
Carrying
value
Carrying
value
Subordinate Voting
Common shares
$ 549
$ 438
$ 343
Subordinate Voting
Common shares
289
224
144
December 31, 2011 -
10,687,925,
(December 31, 2010 -
10,687,925,
January 1, 2010 -
9,795,675)
December 31, 2011 -
5,969,390,
(December 31, 2010 -
5,969,390,
January 1, 2010 -
5,023,300)
Other publicly traded companies
Private companies, at fair market value
Investments in joint ventures and associates accounted for by the equity method
12
850
36
221
13
675
26
232
9
496
19
200
$ 1,107
$ 933
$ 715
108 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
N
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T
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O
N
S
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D
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D
F
I
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A
N
C
I
A
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S
T
A
T
E
M
E
N
T
S
The Company has contributed certain assets to joint ventures (note
24(c)). Certain investments in private companies are carried at a
nominal amount, as the fair market value is not determinable.
of
certain
year
Amortization
ended December 31, 2011 amounted to $5 million (2010 – $1 million).
Accumulated amortization as at December 31, 2011, amounted to
$11 million (December 31, 2010 – $6 million; January 1, 2010 – $5 million).
long-term assets
the
for
The following presents the summarized financial information of the
Company’s portion of joint ventures that are recorded by the
Company as investments accounted for using the equity method:
16. PROVISIONS:
December 31,
2011
December 31,
2010
January 1,
2010
Details of provisions are as follows:
Statements of financial
position:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
$
12
219
7
52
172
$
12
223
6
54
175
$
13
183
8
16
172
Statements of comprehensive income:
Revenues
Expenses
December 31,
2011
December 31,
2010
$ 68
62
$ 68
61
There are no contingent liabilities or capital commitments relating to
the Company’s joint venture interests or relating to the joint ventures
themselves. The financial statements of the joint ventures and
associates are prepared for
the
Company. When necessary, adjustments are made to conform the
accounting policies in line with those of the Company.
the same reporting period as
largest
On December 9, 2011, the Company announced that it, along with
BCE Inc., is jointly acquiring a net 75 percent equity interest in Maple
Leaf Sports & Entertainment Ltd. (“MLSE”) from the Ontario Teachers’
Pension Plan. MLSE is one of Canada’s
sports and
entertainment companies and owns and operates, among other
things, the Air Canada Centre, the NHL’s Toronto Maple Leafs, the
NBA’s Toronto Raptors, the MLS’s Toronto FC and the AHL’s Toronto
Marlies. The Company’s net cash commitment, following a planned
leveraged recapitalization of MLSE, will
total approximately
$533 million, representing a 37.5% equity interest in MLSE. The
transaction is expected to close in mid 2012. The timing and
completion of the transaction is subject to regulatory and league
approvals, customary closing conditions and termination rights.
15. OTHER LONG-TERM ASSETS:
December 31,
2011
December 31,
2010
January 1,
2010
Deferred pension asset (note
20)
$
33
$
26
$
13
Indefeasible right of use
agreements
Long-term receivables
Cash surrender value of life
insurance
Deferred installation costs
Deferred compensation
Other
25
16
15
12
10
23
27
47
13
14
10
10
29
23
11
16
12
9
$ 134
$ 147
$ 113
January 1, 2010
Additions
Adjustment to existing
provisions
Amounts used
Unused amounts
reversed
December 31, 2010
Additions
Adjustment to existing
provisions
Amounts used
Decommissioning
and restoration
obligations
$ 18
–
Onerous
contracts
$
29
8
Other
Total
$
25
24
$
72
32
–
(2)
–
16
4
6
–
9
(11)
–
35
2
–
(13)
(1)
(12)
(4)
32
8
–
(17)
8
(25)
(4)
83
14
6
(30)
December 31, 2011
$ 26
$
24
$
23
$
73
Current
Long-term
January 1, 2010
Current
Long-term
December 31, 2010
Current
Long-term
Decommissioning
and restoration
obligations
$
$
1
17
18
2
14
16
6
20
Onerous
contracts
$ 11
18
$
29
9
26
35
23
1
Other
Total
$
2
23
25
$ 10
22
32
6
17
$ 14
58
72
$ 21
62
83
35
38
December 31, 2011
$ 26
$ 24
$ 23
$ 73
In the course of the Company’s activities, a number of sites and other
PP&E assets are utilized which are expected to have costs associated
with exiting and ceasing their use. The associated decommissioning
and restoration obligation cash outflows are generally expected to
occur at the dates of exit of the assets to which they relate, which are
long-term in nature. The extent of restoration work that will be
ultimately be required for these sites is uncertain.
The provisions for onerous contracts relate to contracts that have
costs to fulfill in excess of the economic benefits to be obtained.
These include non-cancellable contracts, which are expected to be
completed within two years.
The other provisions include product guarantee provisions and legal
provisions.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. 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 Notes
Senior Debentures**
Senior Notes
Senior Notes
Senior Notes
Senior Notes
Fair value increment (decrement) arising from purchase accounting
Deferred transaction costs and discounts
Capital leases
Less current portion
Due
date
2011
2011
2011
2012
2012
2013
2014
2014
2015
2015
2016
2018
2019
2020
2021
2032
2038
2039
2040
2041
Principal
amount
Interest
rate
December 31,
2011
December 31,
2010
January 1,
2010
$ U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
490
460
175
350
470
350
750
350
550
280
1,000
U.S. 1,400
500
900
1,450
200
350
500
800
400
U.S.
U.S.
Floating
9.625%
7.625%
7.25%
7.875%
7.25%
6.25%
6.375%
5.50%
7.50%
6.75%
5.80%
6.80%
5.38%
4.70%
5.34%
8.75%
7.50%
6.68%
6.11%
6.56%
$
250
–
–
–
–
–
356
763
356
559
285
1,000
1,424
500
900
1,450
203
356
500
800
400
10,102
(4)
(64)
–
–
$
$
–
–
–
–
348
468
348
746
348
547
279
1,000
1,392
500
900
–
199
348
500
800
–
8,723
(5)
(64)
–
–
–
515
460
175
368
494
368
788
368
578
294
1,000
1,471
500
–
–
210
368
500
–
–
8,457
6
(67)
1
(1)
$ 10,034
$ 8,654
$ 8,396
(*) 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.
(**) 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.
(a) Bank credit facility:
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. The Company’s bank credit facility is unsecured and
ranks pari passu with the Company’s
senior public debt and
Derivatives (see Note 18(d)). The bank credit facility requires that the
the
financial
Company
maintenance of certain financial ratios.
covenants,
including
certain
satisfy
As at December 31, 2011, $250 million (December 31, 2010 – $nil;
January 1, 2010 – $nil) of long-term debt was borrowed under our
$2.4 billion bank credit facility.
Senior Notes:
(b)
Interest is paid semi-annually on all of the Company’s Senior Notes
and Senior 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.
110 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
Issuance of Senior Notes:
(c)
2011 Issuances:
On March 21, 2011, the Company issued $1,450 million of 5.34%
Senior Notes which mature on March 22, 2021. 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 $1,442 million after deduction
of the original issue discount and debt issuance costs.
On March 21, 2011, the Company issued $400 million of 6.56% Senior
Notes which mature on March 22, 2041. 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 $398 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 capitalized in the year ended December 31, 2011.
These have been deferred and are included as deferred transaction
costs in the carrying value of the long-term debt.
2010 Issuances:
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.
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.
Debt issuance costs of $10 million related to these debt issuances
were incurred and capitalized in the year ended December 31, 2010.
These have been deferred and are included as deferred transaction
costs in the carrying value of the long-term debt.
(d) Redemption of Senior Notes:
2011 Redemptions:
On March 21, 2011, the Company redeemed the entire outstanding
principal amount of its U.S. $350 million ($342 million) 7.875% Senior
Notes due 2012 at the prescribed redemption price of 107.882% of
the principal amount effective on that date. The Company incurred a
loss on the repayment of the Senior Notes aggregating $42 million,
including aggregate redemption premiums of $27 million, a net
loss on the termination of
the associated Debt Derivatives of
$14 million due to amounts previously recognized in the hedging
reserve in equity and a write-off of deferred transaction costs of
$1 million. Concurrent with this redemption, on March 21, 2011, the
Company terminated the associated Debt Derivatives aggregating
U.S. $350 million notional principal amount. The Company made a
net payment of approximately $219 million to terminate these Debt
Derivatives.
On March 21, 2011, the Company redeemed the entire outstanding
principal amount of its U.S. $470 million ($460 million) 7.25% Senior
Notes due 2012 at the prescribed redemption price of 110.735% of
the principal amount effective on that date. The Company incurred a
loss on the repayment of the Senior Notes aggregating $57 million,
including aggregate redemption premiums of $49 million, a net loss
on the termination of the associated Debt Derivatives of $8 million
due to amounts previously recognized in the hedging reserve in
equity, and a write-off of deferred transaction costs of $1 million, and
offset by a write-down of a previously recorded fair value increment
of $1 million. Concurrent with this redemption, on March 21, 2011,
the Company terminated the associated Debt Derivatives aggregating
U.S. $470 million notional principal amount. The Company made a
net payment of approximately $111 million to terminate these Debt
Derivatives.
As a result of these redemptions, the Company paid an aggregate of
approximately $878 million,
including approximately $802 million
aggregate principal amount and $76 million for the premiums
payable in connection with the redemptions. In addition, concurrent
with the redemptions, the Company terminated the associated Debt
Derivatives aggregating U.S. $820 million notional principal amount
and made an aggregate net payment of approximately $330 million
to terminate these Debt Derivatives.
The total loss on repayment of the Senior Notes was $99 million for
the year ended December 31, 2011.
2010 Redemptions:
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
the Senior Notes aggregating
net
$39 million,
redemption premiums of
$31 million, a net loss on the termination of the associated Debt
loss on the repayment of
including
aggregate
N
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S
Derivatives of $16 million, offset by a write-down of a previously
recorded fair value increment of $8 million. Concurrent with this
redemption, on August 27, 2010, the Company terminated the
associated Debt 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 Debt
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 net loss on repayment
of the Senior Notes aggregating $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 net loss on repayment
of the Senior Notes aggregating $13 million.
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.
The total loss on repayment of the Senior Notes was $87 million for
the year ended December 31, 2010.
(e) Unsecured Obligations:
Prior to the Company’s reorganization completed on July 1, 2010,
RCI’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 RCI’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.
of
RCI’s wholly-owned
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
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
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
and
intercompany notes.
its employees were transferred to RCP,
instruments;
subsidiaries
forming
subject
assets;
estate
real
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 continues to reflect the Cable and
Wireless services as separate operating segments.
facility, public debt
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
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
facility and
for
public debt and a guarantor
and Derivatives.
the bank credit
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
accounting:
(decrement) arising from purchase
The fair value increment (decrement) on long-term debt is a purchase
accounting adjustment as a result of the acquisition of the minority
interest of Wireless during 2004. 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 is
applied to the specific debt instruments to which it relates.
(g) Weighted average interest rate:
The Company’s effective weighted average interest rate on all long-
term debt, as at December 31, 2011, including the effect of all of the
associated Debt Derivative instruments, was 6.22% (December 31,
2010 – 6.68%; January 1, 2010 – 7.27%).
Principal repayments:
(h)
As at December 31, 2011, principal repayments due within each of the
next five years and thereafter on all long-term debt are as follows:
2012
2013
2014
2015
2016
Thereafter
$
–
606
1,119
844
1,000
6,533
$ 10,102
Foreign exchange:
(i)
Foreign exchange losses related to the translation of long-term debt
recorded in the consolidated statements of income totalled $8 million
(2010 – gain of $20 million).
Terms and conditions:
(j)
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 Senior
Debentures described above (including the 6.25% Senior Notes due
2013 and 8.75% Senior Debentures due 2032) contain debt incurrence
tests as well as restrictions upon additional investments, sales of assets
and payment of dividends, all of which are suspended in the event
the public debt securities are assigned investment grade ratings by at
least two of three specified credit rating agencies. As at December 31,
2011, 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 December 31, 2011 and 2010 and January 1, 2010, the Company
was in compliance with all of the terms and conditions of its long-
term debt agreements.
112 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
18. 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 statements of
financial position 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
loss component established based on historical trends. At
overall
December 31, 2011,
receivable of
the Company had accounts
$1,574 million (December 31, 2010 – $1,443 million; January 1, 2010 –
$1,289 million), net of an allowance for doubtful accounts of
$129 million (December 31, 2010 – $138 million; January 1, 2010 –
$157 million). At December 31, 2011, $719 million (December 31,
2010 – $712 million; January 1, 2010 – $561 million) of accounts
receivable are 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
associated with the Company’s accounts receivable.
The Company believes that the concentration of credit risk of
accounts receivable is limited due to its broad customer base,
dispersed across
locations
throughout Canada.
varying industries and geographic
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 managing 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 the Company’s Debt Derivatives and Expenditure
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 its Derivatives
due to the Company’s assessment of the creditworthiness of the
counterparties. The obligations under U.S. $4.9 billion aggregate
N
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notional amount of the Derivatives are unsecured and generally rank
equally with the Company’s senior indebtedness. The credit risk of the
counterparties is taken into consideration in determining fair value
for accounting purposes (note 18(d)).
Liquidity risk:
(c)
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 23 to the consolidated financial
statements. 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, 2011, the
undrawn portion of
facility was
approximately $2.1 billion (December 31, 2010 – $2.4 billion;
January 1, 2010 – $2.4 billion), excluding letters of credit of $66
million (December 31, 2010 – $94 million; January 1, 2010 – $47
million).
the Company’s bank credit
The following are the contractual maturities, excluding interest
payments, reflecting undiscounted disbursements of the Company’s
financial liabilities at December 31, 2011 and 2010:
December 31, 2011
Bank advances
Accounts payable and accrued liabilities
Long-term debt
Other long-term liabilities
Expenditure Derivative instruments:
Cash outflow (Canadian dollar)
Cash inflow (Canadian dollar equivalent of U.S. dollar)
Debt Derivative instruments:
Cash outflow (Canadian dollar)
Cash inflow (Canadian dollar equivalent of U.S. dollar)
Net carrying amount of derivatives
December 31, 2010
Bank advances
Accounts payable and accrued liabilities
Income tax payable
Long-term debt
Other long-term liabilities
Debt Derivative instruments:
Cash outflow (Canadian dollar)
Cash inflow (Canadian dollar equivalent of U.S. dollar)
Net carrying amount of derivatives
$
Carrying
amount
57
2,085
10,034
37
Contractual
cash flows
Less than
1 year
$
$
57
2,085
10,102
37
$
57
2,085
–
–
1 to 3
years
–
–
1,725
20
4 to 5
years
More than
5 years
$
–
–
1,844
9
$
–
–
6,533
8
–
–
–
–
460
598
(630)
232
(244)
366
(386)
–
–
–
–
4,797
(4,302)*
–
–
1,806
(1,475)*
992
(844)*
1,999
(1,983)*
$ 12,673
$ 12,744
$ 2,130
$ 2,056
$ 2,001
$ 6,557
Carrying
amount
Contractual
cash flows
Less than
1 year
$
$
45
2,133
238
8,723
64
$
45
2,133
238
–
–
1 to 3
years
–
–
–
1,164
33
4 to 5
years
More than
5 years
$
–
–
–
1,920
19
$
–
–
–
5,639
12
5,907
(5,023)*
–
–
1,570
(1,164)*
2,338
(1,920)*
1,999
(1,939)*
$
45
2,133
238
8,654
64
–
–
900
* Represents Canadian dollar equivalent amount of U.S. dollar inflows matched to an equal amount of U.S. dollar maturities in long-term debt
for Debt Derivatives.
$ 12,034
$ 12,087
$ 2,416
$ 1,603
$ 2,357
$ 5,711
In addition to the amounts noted above, at December 31, 2011 and
2010, net interest payments over the life of the long-term debt,
including the impact of the associated Debt Derivatives are:
December 31, 2011
Less than
1 year
1 to 3
years
4 to 5
years
More than
5 years
Interest payments
$ 663
$ 1,219
$ 920
$ 4,229
December 31, 2010
Less than
1 year
1 to 3
years
4 to 5
years
More than
5 years
Interest payments
$ 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.
Publicly traded investments:
(i)
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, 2011, 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.
risk arises
Stock-based compensation:
(ii)
In addition, market
the
Company’s stock-based compensation. All of the Company’s
outstanding stock options are classified as liabilities and are
carried at their fair value, as adjusted for vesting, determined
using the Company’s Class B Non-Voting share price, Black-
from accounting for
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Scholes and trinomial option pricing models. Both option pricing
models use the Company’s Class B Non-Voting share price during
the life of the option. All of the Company’s outstanding 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
RSU and DSU exercise price. The intrinsic value of the liability is
marked-to-market each period, and stock based compensation
expense is impacted by the change in the price of the Company’s
Class B Non-Voting shares during the life of the RSU and DSU.
At December 31, 2011, 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 its
risks from fluctuations in foreign exchange and interest rates
associated with its U.S. dollar denominated debt instruments.
The Company also uses derivative financial
instruments to
manage the foreign exchange risk in its operations. The
Company does not use derivative instruments for speculative
these derivative financial
purposes.
instruments
rate exchange
agreements, foreign exchange forward contracts and foreign
exchange option agreements. All such agreements are used for
risk management purposes only and are designated as a hedge
of specific debt instruments for economic purposes.
include cross-currency
From time to time,
interest
In July 2011, the Company entered into foreign exchange forward
contracts to manage foreign exchange risk on certain forecasted
expenditures. All of these Expenditure Derivatives were accounted for
as hedges during the year ended December 31, 2011, with changes in
fair value being recorded in the hedging reserve, a component of
equity. The Expenditure Derivatives fix the exchange rate on an
aggregate U.S. $20 million per month of the Company’s forecast
expenditures at an average exchange rate of Cdn$0.9643/U.S.$1
from August 2011 through July 2014. At December 31, 2011,
U.S.
remain
outstanding.
Expenditure Derivatives
$620 million of
these
The effect of estimating the credit-adjusted fair value of the Debt
Derivatives and the Expenditure Derivatives at December 31, 2011 is
illustrated in the table below. As at December 31, 2011, the credit-
adjusted net liability position of the Company’s Derivatives portfolio
was $460 million, which is $2 million more than the unadjusted risk-
free mark-to-market net liability position.
December 31, 2011
Debt Derivatives:
Derivatives
in an asset
position
(A)
Derivatives
in a liability
position
(B)
Net asset
(liability)
position
(A) + (B)
Mark-to-market value – risk-free
analysis
$
51
$ (548) $ (497)
All of the $2 million impact was related to Debt Derivatives not
accounted for as hedges and recorded in the consolidated statements
of income.
On March 21, 2011, the Company redeemed all of the U.S. $350 million
principal amount of
its 7.875% Senior Notes due 2012 and
U.S. $470 million principal amount of its 7.25% Senior Notes due 2012,
and concurrent with these redemptions, on March 21, 2011, the
Company terminated the associated Debt Derivatives hedging the
U.S. $350 million 7.875% Senior Notes and the U.S. $470 million 7.25%
Senior Notes. The settlement of these Debt Derivatives resulted in a
net payment by the Company of $219 million and $111 million,
respectively.
The effect of estimating the credit-adjusted fair value of
the
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 derivatives portfolio was $900 million, which is $17 million
less
liability
position.
than the unadjusted risk-free mark-to-market net
December 31, 2010
Debt Derivatives:
Derivatives
in an asset
position
(A)
Derivatives
in a liability
position
(B)
Net asset
(liability)
position
(A) + (B)
Mark-to-market value – risk-free
analysis
$ 7
$ (924) $ (917)
Mark-to-market value – credit-
adjusted estimate (carrying
value)
Total Difference
7
–
$
(907)
(900)
$
17
$
17
All of the $17 million impact related to Debt Derivatives accounted
for as hedges and 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, concurrent
with this redemption, on August 27, 2010, the Company terminated the
associated Debt 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 Debt
Derivatives.
The effect of estimating the credit-adjusted fair value of
the
Derivatives at January 1, 2010 is illustrated in the table below. As at
January 1, 2010, the credit-adjusted net liability position of the
Company’s Derivatives 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 asset
(liability)
position
(A) + (B)
Mark-to-market value – credit-
adjusted estimate (carrying
value)
Difference, Debt Derivatives
Expenditure Derivatives:
Mark-to-market value – risk-free
analysis
Mark-to-market value – credit-
adjusted estimate (carrying
value)
Difference, Expenditure Derivatives
41
(10)
39
39
–
Total Difference
$ (10)
$
114 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
(540)
(499)
January 1, 2010
Debt Derivatives:
Mark-to-market value – risk-
8
–
–
–
8
(2)
free analysis
$
94
$ (1,121) $ (1,027)
Mark-to-market value – credit-
adjusted estimate (carrying
value)
82
(1,084)
(1,002)
39
39
–
$
(2)
Total Difference
$ (12) $
37
$
25
Of the $25 million impact, ($1) million related to Derivatives not
accounted for as hedges was recorded in the consolidated statements
of income prior to January 1, 2010 and $26 million related to
Derivatives accounted for as hedges was
recorded in other
comprehensive income.
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the Company’s U.S. dollar-
At December 31, 2011, 91.7% of
denominated long-term debt
instruments were hedged against
fluctuations in foreign exchange rates for accounting purposes. At
December 31, 2011, details of the derivative instruments net liability
position are as follows:
December 31, 2011
Debt Derivatives accounted for as cash flow hedges:
As assets
As liabilities
Debt Derivatives not accounted for as hedges:
As assets
Net mark-to-market liability Debt Derivatives
Expenditure Derivatives accounted for as cash flow hedges:
As assets
Net mark-to-market liability
Less net current liability portion
Net long-term liability portion
U.S. $
notional
Exchange
rate
Cdn. $
notional
Unadjusted
mark-to-
market
value on a
risk-free basis
Estimated fair
value, being
carrying
amount on a
credit risk
adjusted basis
$ 1,975
1,905
1.0252
1.2668
$ 2,025
2,413
$
47
(548)
$
39
(540)
350
1.0258
359
4
2
(497)
(499)
620
0.9643
598
39
$ (458)
39
(460)
(21)
$ (439)
In 2011, a $6 million increase in estimated fair value (2010 – $6 million
decrease) related to hedge ineffectiveness was recognized in net
income.
The long-term portion above comprises a derivative instruments
liability of $503 million and a derivative instruments asset of
$64 million, as at December 31, 2011.
At December 31, 2011, with the exception of an aggregate
$250 million of floating rate advances outstanding under the bank
credit facility, all of the Company’s long-term debt was at fixed
interest rates. Net income would have changed by $1 million in the
year ended December 31, 2011, net of income taxes of $1 million, if
there was a 1% change in the interest rates charged on advances
under the bank credit facility.
U.S. $350 million of the Company’s U.S. dollar-denominated long-
term debt instruments are not hedged for accounting purposes and,
therefore, a one cent change in the Canadian dollar relative to the
U.S. dollar would have resulted in a $4 million change in the carrying
value of long-term debt at December 31, 2011. In addition, this would
have resulted in a $3 million change in net income, net of income
taxes of $1 million. There would have been a similar, offsetting
change in the carrying value of the associated U.S. $350 million of
Debt Derivatives with a similar offsetting impact on net income.
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 and the Expenditure Derivatives, there is no
significant market risk arising from fluctuations in foreign exchange
rates.
All of the Company’s derivatives are unsecured obligations of RCI.
the Company’s U.S. dollar-
At December 31, 2010, 93.1% of
denominated long-term debt
instruments were hedged against
fluctuations in foreign exchange rates for accounting purposes. At
December 31, 2010, details of the derivative instruments net liability
position are as follows:
December 31, 2010
Debt Derivatives accounted for as cash flow hedges:
As assets
As liabilities
Debt Derivatives not accounted for as hedges:
As liabilities
Net mark-to-market liability
Less net current liability portion
Net long-term liability portion
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.
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
1.2021
$
589
4,959
$
7
(918)
$
7
(901)
350
1.0258
359
(6)
$ (917)
(6)
(900)
(66)
$ (834)
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At January 1, 2010, 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 January 1, 2010,
details of the derivative instruments net liability position are as
follows:
U.S. $
notional
Exchange
rate
Cdn. $
notional
Unadjusted
mark-to-
market
value on a
risk-free basis
Estimated fair
value, being
carrying
amount on a
credit risk
adjusted basis
$ 1,975
3,215
1.0252
1.3337
$ 2,025
4,288
$
84
(1,117)
$
73
(1,080)
350
10
1.0258
1.5370
359
15
10
(4)
9
(4)
$ (1,027)
(1,002)
(76)
$
(926)
January 1, 2010
Debt Derivatives accounted for as cash flow hedges:
As assets
As liabilities
Debt Derivatives not accounted for as hedges:
As assets
As liabilities
Net mark-to-market liability
Less net current liability portion
Net long-term liability portion
The long-term portion above comprises a derivative instruments
liability of $1,004 million and a derivative instruments asset of $78
million, as at January 1, 2010.
(e)
Financial instruments:
(i)
Classification and fair values of financial instruments:
The Company has classified its financial instruments as follows:
Loans and receivables, measured at amortized cost:
Cash and cash equivalents*
Accounts receivable
Financial assets, available-for-sale, measured at
fair value:
Investments*
December 31, 2011
December 31, 2010
January 1, 2010
Carrying
amount
Fair
value
Carrying
amount
Fair
value
Carrying
amount
Fair
value
$
–
1,574
$
–
1,574
$
–
1,443
$
–
1,443
$
378
1,289
$
378
1,289
850
850
675
675
496
496
$ 2,424
$ 2,424
$ 2,118
$ 2,118
$ 2,163
$ 2,163
December 31, 2011
December 31, 2010
January 1, 2010
Carrying
amount
Fair
value
Carrying
amount
Fair
value
Carrying
amount
Fair
value
Financial liabilities, measured at amortized cost:
Bank advances, arising from outstanding cheques*
Accounts payable and accrued liabilities
Income taxes payable
Provisions
Long-term debt
Other long-term liabilities
$
57
2,085
–
73
10,034
276
$
57
2,085
–
73
11,471
276
$
Financial liabilities (assets), held-for-trading:
Debt Derivatives accounted for as cash flow
hedges**
Debt Derivatives not accounted for as hedges**
Expenditure Derivatives accounted for as cash flow
hedges**
501
(2)
(39)
501
(2)
(39)
45
2,133
238
83
8,654
229
894
6
–
$
45
2,133
238
83
9,688
229
894
6
–
$
–
2,066
147
72
8,396
177
$
–
2,066
147
72
9,315
177
1,007
(5)
1,007
(5)
–
–
$ 12,985
$ 14,422
$ 12,282
$ 13,316
$ 11,860
$ 12,779
(*) Denotes financial assets and liabilities that are carried at fair value in Level 1; fair value determined by quoted market prices
(**) Denotes financial assets and liabilities that are carried at fair value in Level 2; fair value determined by valuation technique using
observable market inputs
116 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
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A
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M
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N
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The Company did not have any non-derivative held-to-maturity
financial assets during years ended December 31, 2011 and 2010.
19. OTHER LONG-TERM LIABILITIES:
(ii) Guarantees:
The Company has the following guarantees at December 31,
2011 and 2010 in the normal course of business:
(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
loss or damages to property,
property right
environmental
in laws and regulations
changes
(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.
infringement,
liabilities,
Sales of services:
(b)
As part of transactions involving sales of services, the Company
may be required to pay counterparties for costs and losses
representations and
incurred as a result of breaches of
warranties, changes in laws and regulations (including tax
legislation) or litigation against the counterparties.
Purchases and development of assets:
(c)
As part of transactions 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.
Indemnifications:
(d)
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 statements of
financial position relating to these types of indemnifications or
guarantees at December 31, 2011 or 2010 or January 1, 2010.
Historically, the Company has not made any significant payments
under these indemnifications or guarantees.
(iii) Fair values:
The tables above present the level in the fair value hierarchy into
which the fair values of financial instruments that are carried at
fair value on the consolidated statements of financial position
instruments
are
categorized
using
non-observable market inputs) as at December 31, 2011 and
2010 and January 1, 2010.
There were
Level
no
(valuation
categorized.
technique
financial
in
3
Deferred pension liability (note 20)
Supplemental executive retirement
plan (note 20)
Restricted share units
Deferred compensation
CRTC commitments (note 25)
Liabilities related to stock options
Program rights liability
Other
December 31,
2011
December 31,
2010
January 1,
2010
$ 167
$ 106
$
49
39
24
15
12
9
5
5
36
16
16
31
8
10
6
33
11
18
45
9
11
1
$ 276
$ 229
$ 177
20. 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. The Company also provides
supplemental unfunded pension benefits to certain executives.
Actuarial estimates are based on projections of employees’
compensation levels at the time of retirement. Maximum retirement
benefits are primarily based upon career average earnings, subject to
certain adjustments. The most
recent actuarial valuations were
completed as at January 1, 2011 for three 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, 2012 for
these plans.
The estimated present value of accrued plan benefits and the
estimated market value of the net assets available to provide for
these benefits at December 31, 2011 and 2010 and January 1, 2010 are
as follows:
December 31,
2011
December 31,
2010
January 1,
2010
Plan assets, at fair value
Accrued benefit obligations
$ 684
817
$ 652
728
$ 541
569
Deficiency of plan assets over
accrued benefit obligations
Effect of asset ceiling limit
(133)
(1)
(76)
(4)
(28)
(8)
Net deferred pension liability
$ (134)
$
(80) $
(36)
Consists of:
Deferred pension asset
Deferred pension liability
$
33
(167)
$
26
(106)
$
13
(49)
Net deferred pension liability
$ (134)
$
(80) $
(36)
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following information is provided on pension fund assets
measured at December 31, 2011 and 2010 for the years then ended:
Years ended December 31,
Plan assets, January 1
Expected return on plan assets
Actuarial gain (loss) recognized in equity
Contributions by employees
Contributions by employer
Benefits paid
Plan settlements
Plan assets, December 31
2011
2010
$ 652
44
(17)
20
80
(27)
(68)
$ 541
40
21
21
60
(31)
–
$ 684
$ 652
The following information is provided on pension fund assets
measured at January 1, 2010, including the adjustments from the
previously disclosed September 30, 2009 measurement date under
Canadian GAAP:
Plan assets, measured at September 30, 2009
Actuarial gain recognized in equity
Contributions by employees
Contributions by employer
Benefits paid
Plan assets, January 1, 2010
January 1,
2010
$ 518
10
6
15
(8)
$ 541
Accrued benefit obligations arising from funded obligations are
outlined below for the years ended December 31, 2011 and 2010:
Years ended December 31,
Accrued benefit obligations, January 1
Service cost
Interest cost
Benefits paid
Contributions by employees
Actuarial loss recognized in equity
Plan settlements
2011
2010
$ 728
36
44
(27)
20
73
(57)
$ 569
25
40
(31)
22
103
–
Accrued benefit obligations, December 31
$ 817
$ 728
(a) Actuarial assumptions:
The following information is provided on accrued benefit obligations
measured at January 1, 2010 related to funded obligations including
the adjustments from the previously disclosed September 30, 2009
measurement date under Canadian GAAP:
Accrued benefit obligations, September 30, 2009
Service cost
Interest cost
Benefits paid
Contributions by employees
Actuarial loss recognized in equity
Accrued benefit obligations, January 1, 2010
January 1,
2010
$ 526
4
10
(9)
6
32
$ 569
Net pension expense, which is included in employee salaries and
benefits expense, is outlined below:
Years ended December 31,
Plan cost:
Service cost
Interest cost
Expected return on plan assets
Net pension expense
Plan settlements
2011
2010
$ 36
44
(44)
$ 25
40
(40)
36
11
25
–
Total pension cost recognized in the consolidated
statements of income
$ 47
$ 25
The Company also provides supplemental unfunded pension benefits
to certain executives. The accrued benefit obligations relating to
these supplemental plans amounted to approximately $39 million at
December 31, 2011 (December 31, 2010 – $36 million; January 1,
2010 – $32 million), and the related expense for 2011 was $4 million
(2010 – $4 million). In connection with these plans, $1 million (2010 –
$2 million) of actuarial
losses were recorded directly to OCI and
retained earnings.
Certain subsidiaries have defined contribution plans with total
pension expense of $2 million in 2011 (2010 – $2 million).
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
December 31,
2011
December 31,
2010
January 1,
2010
5.5%
6.0%
3.0%
3.0%
6.8%
5.9%
6.9%
3.0%
3.0%
7.0%
6.9%
N/A
3.0%
N/A
7.0%
The estimated average remaining service periods for the plans range
from 8 to 11 years.
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.
118 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
(b) Allocation of plan assets:
Asset category
Equity securities:
Domestic
International
Debt securities
Other – cash
in
Plan assets are comprised primarily of pooled funds that invest in
common stocks and bonds. The pooled Canadian equity fund has
comprising
investments
approximately 1% of the pooled fund. This results in approximately
$1 million (December 31, 2010 – $1 million; January 1, 2010 –
$1 million) of the plans’ assets being indirectly invested in the
Company’s equity securities.
Company’s
securities
equity
the
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.
Percentage of plan assets
December 31,
2011
December 31,
2010
January 1,
2010
Target asset
allocation
percentage
19.0%
37.7%
42.4%
0.9%
18.6%
40.3%
40.5%
0.6%
18.6% 10% to 29%
39.9% 29% to 48%
40.1% 38% to 47%
0% to 2%
1.4%
100.0%
100.0% 100.0%
The Company’s experience loss (gain) on funded plan liabilities was
$16 million in 2011 (2010 – $(24) million), and the Company’s
experience loss (gain) on unfunded plan liabilities was $1 million in
2011 (2010 – $(1) million).
History of obligation and assets:
Funded plan:
Benefit obligation
Fair value of plan assets
December 31,
2011
December 31,
2010
January 1,
2010
$ 817
684
$ 728
652
$ 569
541
Deficit
$ (133)
$
(76) $
(28)
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(c) Actual
contributions
December 31 are as follows:
to the plans
for
the years ended
Unfunded plan:
2011
2010
Employer
Employee
Total
Benefit obligation
Fair value of plan assets
$ 80
60
$ 20
21
$ 100
81
Deficit
$
39
–
$
$
36
–
32
–
$
(39)
$
(36) $
(32)
Expected contributions by the Company in 2012 are estimated to be
$73 million.
Employee contributions for 2012 are assumed to be at levels similar to
2011 on the assumption staffing levels in the Company will remain
the same on a year-over-year basis.
Settlement of pension obligations:
(d)
the Company made a lump-sum contribution of
During 2011,
$18 million to its pension plans, following which the pension plans
purchased annuities from insurance companies for all employees who
had retired during the period from January 1, 2009 to January 1,
2011. The purchase of the annuities relieves the Company of primary
responsibility for, and eliminates significant risk associated with, the
accrued benefit obligations
the retired employees. This
for
transaction resulted in a non-cash loss from the settlement of pension
obligations of approximately $11 million recorded in operating costs
on the consolidated statement of income.
(e) Historical information:
History of annual experience (gains) and losses:
Funded plan:
Actuarial loss on plan liabilities
Effect of asset ceiling limit
Total loss recognized in OCI
Unfunded plan:
Total loss recognized in OCI
December 31,
2011
December 31,
2010
$ 90
(2)
$ 82
(4)
88
1
78
2
Cumulative loss recognized in OCI
$ 89
$ 80
Actual return on plan assets was $27 million in 2011 (2010 – $61 million).
As the Company is a first-time adopter of IFRS, the Company is
disclosing the history of obligation and assets prospectively from the
Transition Date.
21. SHAREHOLDERS’ EQUITY:
(a) Capital 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 prior to the issue of such
series. The preferred shares have no rights to vote at any general
meeting of the Company.
(ii) Common shares:
Rights and conditions:
There are 112,474,388 authorized Class A Voting shares without
par value. Each Class A Voting share is entitled to 50 votes. The
Class A Voting shares are convertible on a one-for-one basis into
Class B Non-Voting shares.
There are 1.4 billion authorized Class B Non-Voting shares
without par value.
The Articles of Continuance of the Company under the Company
Act (British Columbia) impose restrictions on the transfer, voting
and issue of the Class A Voting and Class B Non-Voting shares in
order to ensure that the Company remains qualified to hold or
obtain licences required to carry on certain of its business
undertakings in Canada.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2011 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
Date paid
February 16, 2010
April 29, 2010
August 18, 2010
October 26, 2010
February 15, 2011
April 27, 2011
August 17, 2011
October 26, 2011
April 1, 2010
July 2, 2010
October 1, 2010
January 4, 2011
April 1, 2011
July 4, 2011
October 3, 2011
January 4, 2012
Dividend
per share
$
0.32
0.32
0.32
0.32
$
1.28
$ 0.355
0.355
0.355
0.355
$
1.42
In February 2011, the Board increased the annualized dividend rate
from $1.28 to $1.42 per Class A Voting and Class B Non-Voting share
to be paid quarterly in amounts of $0.355 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 $0.355 per share only after the Class B
Non-Voting shares have been paid a dividend at a quarterly rate of
$0.355 per share. The Class A Voting and Class B Non-Voting shares
share equally in dividends after payment of a dividend of $0.355 per
share for each class. Such quarterly dividends are only payable as and
when declared by the Board and there is no entitlement to any
dividends prior thereto.
(c) Normal course issuer bid:
In February 2011, the TSX accepted a notice filed by the Company of
its intention to renew its prior normal course issuer bid (“NCIB”) for
its class B Non-Voting shares for a further one-year period. The TSX
notice provides that the Company may, during the twelve-month
period commencing February 22, 2011 and ending February 21, 2012,
purchase on the TSX up to the lesser of 39.8 million Class B
Non-Voting shares, representing approximately 9% of the then 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 $1.5 billion, with the actual number of
Class B Non-Voting shares purchased, if any, and the timing of such
purchases to be determined by the Company considering market
conditions, share prices, its cash position, and other factors.
In 2011, the Company purchased for cancellation an aggregate
30,942,824 Class B Non-Voting shares for an aggregate purchase price
of $1,099 million, resulting in a reduction to stated capital, share
premium and retained earnings of $30 million, $870 million and $199
million, respectively. An aggregate 21,942,824 of these shares were
purchased for cancellation directly under the NCIB for an aggregate
purchase price of $814 million. The remaining 9,000,000 shares were
purchased for cancellation pursuant to private agreements between
the Company and arm’s-length third-party sellers for an aggregate
purchase price of $285 million. These purchases were made under
issuer bid exemption orders
issued by the Ontario Securities
Commission and were included in calculating the number of Class B
Non-Voting shares that the Company purchased pursuant to the NCIB.
120 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
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 twelve-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, representing approximately 9% of the then 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 $1.5 billion, with the actual number of
Class B Non-Voting shares purchased, if any, and the timing of such
purchases will be determined by the Company considering market
conditions, share prices, its cash position, and other factors.
In 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, share
premium 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 a
private agreement between the Company and an arm’s-length third
party seller for an aggregate purchase price of $482 million. These
purchases were made under issuer bid exemption orders issued by the
Ontario Securities Commission and were included in calculating the
number of Class B Non-Voting shares that the Company purchased
pursuant to the NCIB.
(d) Available-for-sale financial assets reserve:
Available-for-sale investments are carried at
fair value on the
consolidated statements of financial position, with changes in fair
value recorded in the fair value reserve as a component of equity,
through OCI, until such time as the investments are disposed of and
the change in fair value is recorded in profit and loss.
including embedded derivatives
(e) Hedging reserve:
All derivatives,
that must be
fair value on the
separately accounted for, are measured at
consolidated statements of financial position, with changes in fair
value of cash-flow hedging derivatives recorded in the fair value
reserve as a component of equity, to the extent effective, until the
variability of cash flows relating to the hedged asset or liability is
recognized in profit and loss.
(f) Other:
The Company’s defined benefit pension plan obligation is actuarially
determined at
recognized
immediately as a component of equity through OCI. The actuarial
losses as a component of equity for the year ended December 31,
2011 is $67 million (2010 – $59 million).
the year with changes
the end of
22. STOCK OPTIONS, SHARE UNITS AND SHARE
PURCHASE PLANS:
Stock-based compensation to employees is measured at fair value.
Fair value is determined using the Company’s Class B Non-Voting
share price, and the Black-Scholes option pricing model (“Black-
Scholes model”) or trinomial option pricing models, depending on
the nature of the share-based award.
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A summary of stock-based compensation expense, which is included
in employee salaries and benefits expense, is as follows:
using the cash settlement feature at an average share price of RCI
Class B Non-Voting share of $36.42.
Years ended December 31,
Stock-based compensation:
Stock options (a)
Restricted share units (b)
Deferred share units (c)
2011
2010
(a)
$ 29
26
9
$ 28
19
3
$ 64
$ 50
Total fair value amount of stock-based compensation liabilities is as
follows:
Stock-based compensation:
Stock options (a)
Restricted share units (b)
Deferred share units (c)
December 31,
2011
December 31,
2010
January 1,
2010
$ 124
40
30
$ 133
28
19
$ 160
17
17
$ 194
$ 180
$ 194
At December 31, 2011, the Company had a liability of $194 million
(December 31, 2010 – $180 million; January 1, 2010 – $194 million), of
which $161 million (December 31, 2010 – $157 million; January 1,
2010 – $174 million)
is a current liability related to stock-based
compensation recorded at its fair value, including stock options, RSUs
and DSUs. The total intrinsic value of vested liabilities, which is the
difference between the strike price of the share-based awards and
the trading price of the RCI Class B Non-Voting shares for all vested
share-based awards at December 31, 2011 was $124 million
(December 31, 2010 – $122 million; January 1, 2010 – $149 million).
During the year ended December 31, 2011, $45 million (2010 - $58
million) was paid to holders upon exercise of RSUs and stock options
Stock option plans:
Stock options:
(i)
Options to purchase Class B Non-Voting shares of the Company
on a one-for-one basis may be granted to employees, directors
and officers of the Company and its affiliates by the Board of
Directors or by the Company’s Management Compensation
Committee. There are 30 million options authorized under the
2000 Plan, 25 million options authorized under the 1996 Plan,
and 9.5 million options authorized under the 1994 Plan. The
term of each option is 7 to 10 years and the vesting period is
generally graded vesting over 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.
Stock options are measured at fair value at each period end,
determined using the Company’s Class B Non-Voting share price
and the Black-Scholes model.
Performance options:
(ii)
During the year ended December 31, 2011, the Company
granted 581,300 performance-based options (2010 – 759,200) 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, 2011, 5,056,430
performance options (December 31, 2010 – 4,894,980; January 1,
2010 – 4,479,930) were outstanding.
Performance options are measured at fair value at each period
end, determined using the Company’s Class B Non-Voting share
price and the trinomial model.
(iii) Summary of stock options:
A summary of the stock option plans, which includes performance options, is as follows:
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Exercisable, end of year
December 31, 2011
December 31, 2010
Number of
options
Weighted
average
exercise price
Number of
options
Weighted
average
exercise price
11,841,680
1,133,600
(1,778,783)
(507,398)
$ 26.42
34.35
15.96
35.20
13,467,096
1,350,225
(2,528,585)
(447,056)
$ 23.73
34.69
14.78
34.89
10,689,099
$ 28.59
11,841,680
$ 26.42
5,716,945
$ 22.81
6,415,933
$ 19.24
At December 31, 2011, 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
Number
outstanding
417,557
1,502,107
510,908
905,708
1,648,175
2,458,332
3,246,312
10,689,099
Options outstanding
Options exercisable
Weighted average
remaining contractual
life (years)
Weighted average
exercise price
Number
exercisable
Weighted average
exercise price
1.46
1.60
1.48
1.15
4.08
5.45
2.63
3.13
$
7.61
10.44
14.10
22.64
29.41
34.10
39.03
417,557
1,502,107
510,908
905,708
703,750
408,863
1,268,052
$
7.61
10.44
14.10
22.64
29.41
33.49
39.00
$ 28.59
5,716,945
$ 22.81
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unrecognized stock-based compensation expense at December 31,
2011 related to stock-option plans was $9 million (2010 – $11 million),
and will be recorded in the consolidated statements of income over
the next four years as the options vest.
All outstanding options,
including the performance options, are
classified as liabilities and are carried at their fair value as determined
through the use of a valuation model.
(b) Restricted share units:
RSU plan:
(i)
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 will cliff 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, 2011, the Company granted 738,973 RSUs
(2010 – 631,655).
Performance RSUs:
(ii)
During the year ended December 31, 2011, the Company
granted 189,571 performance-based RSUs (2010 – 187,508) to
certain key executives. The number of units that vest and will be
paid three years from the grant date will be within a range of
50% to 150% of the initial number granted based upon the
achievement of certain annual and cumulative three-year
non-market targets.
(iii) Summary of RSUs:
A summary of the RSU plans is as follows:
Outstanding, beginning of year
Granted
Exercised
Forfeited
December 31,
2011
December 31,
2010
Number of units
1,616,370
928,544
(416,146)
(139,813)
1,060,223
819,163
(217,877)
(45,139)
Outstanding, end of year
1,988,955
1,616,370
At December 31, 2011, 1,988,955 RSUs (December 31, 2010 –
1,616,370; January 1, 2010 – 1,060,223), including performance
RSUs, were outstanding. These RSUs vest at the end of three
years from the grant date.
stock-based
compensation
Unrecognized
at
December 31, 2011, related to these RSUs was $32 million
(December 31, 2010 –$22 million) and will be recorded in the
consolidated statements of income over the next three years as
the RSUs vest.
expense
RSUs, including performance RSUs, are measured at fair value,
determined using the Company’s Class B Non-Voting share price.
(c) Deferred share unit plan:
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 statements of
financial position.
DSUs are measured at fair value, determined using the Company’s
Class B Non-Voting share price.
During the year ended December 31, 2011, the Company granted
154,937 DSUs (2010 – 89,136). At December 31, 2011, 751,903 DSUs
122 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
January 1, 2010 – 613,777) were
(December 31, 2010 – 664,169;
outstanding. There is no unrecognized compensation related to DSUs,
since these awards vest immediately when granted.
Employee share accumulation plan:
(d)
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 $23 million for the year ended December 31, 2011
(2010 – $20 million) and is included in employee salaries and benefits.
(e) Assumptions:
The weighted-average fair value of stock options granted during the
years ended December 31, 2011 and 2010 and the principal
assumptions used in applying the Black-Scholes model and trinomial
option pricing models to determine their fair value at grant date
were as follows:
Weighted average fair value
Risk-free interest rate
Dividend yield
Volatility of Class B Non-Voting shares
Forfeiture rate
Weighted average expected life
For Trinomial option pricing model only:
Weighted average time to vest
Weighted average time to expiry
Employee exit rate
Suboptimal exercise factor
Lattice steps
December 31,
2011
December 31,
2010
$
7.25
2.8%
4.0%
29.0%
3.6%
5.4 years
$
7.66
2.9%
3.7%
29.8%
4.0%
5.4 years
2.4 years
7.0 years
3.6%
2.6
50
2.4 years
7.0 years
4.0%
2.6
50
Volatility has been estimated based on the actual trading statistics of
the Company’s Class B Non-Voting shares.
23. CAPITAL RISK MANAGEMENT:
The Company’s objectives in managing capital are to ensure sufficient
liquidity to pursue its strategy of organic growth combined with
strategic acquisitions and to provide returns to its shareholders. The
Company defines capital that it manages as the aggregate of its
shareholders’ equity (which is comprised of issued capital, share
premium, retained earnings, hedging reserve and available-for-sale
financial assets reserve) and long-term debt.
The Company manages its capital structure and makes adjustments to
it in light of general economic conditions, the risk characteristics of
the underlying assets
and the Company’s working capital
requirements. In order to maintain or adjust its capital structure, the
Company, upon approval from its Board of Directors, may issue or
repay long-term debt, issue shares, repurchase shares, pay dividends
or undertake other activities as deemed appropriate under the
specific circumstances. The Board of Directors reviews and approves
any material transactions out of the ordinary course of business,
including proposals on acquisitions or other major investments or
divestitures, as well as annual capital and operating budgets.
In 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 twelve-month
period commencing February 22, 2011 and ending February 21, 2012,
purchase on the TSX up to the lesser of 39.8 million Class B
Non-Voting shares, representing approximately 9% of the then 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 $1.5 billion, with the actual number of
Class B Non-Voting shares purchased, if any, and the timing of such
purchases to be determined by the Company considering market
conditions, share prices, its cash position, and other factors.
During 2011, the Company purchased for cancellation an aggregate
30,942,824 Class B Non-Voting shares for an aggregate purchase price
of $1,099 million, resulting in a reduction to stated capital, share
premium and retained earnings of $30 million, $870 million and
$199 million, respectively. An aggregate 21,942,824 of these shares
were purchased for cancellation directly under the NCIB for an
aggregate purchase price of $814 million. The remaining 9,000,000
shares were purchased for
to private
agreements between the Company and arm’s-length third-party
sellers for an aggregate purchase price of $285 million. These
purchases were made under issuer bid exemption orders issued by the
Ontario Securities Commission and were included in calculating the
number of Class B Non-Voting shares that the Company purchased
pursuant to the NCIB. The NCIB expired on February 21, 2012.
cancellation pursuant
During 2011, the Company issued $1,450 million of 5.34% Senior
Notes due 2021 and $400 million of 6.56% Senior Notes due 2041
(note 17(c)).
During 2011, the Company redeemed the entire outstanding principal
amount of its U.S. $350 million ($342 million) 7.875% Senior Notes
due 2012 and U.S. $470 million ($460 million) 7.25% Senior Notes due
2012 (note 17(d)).
the Company
During 2011,
terminated the associated Debt
Derivatives hedging the U.S. $350 million 7.875% Senior Subordinated
Notes and the U.S. $470 million 7.25% Senior Subordinated Notes.
The settlement of these Debt Derivatives resulted in a net payment by
the Company of $219 million and $111 million,
respectively
(note 17(d)).
the
The Company monitors debt
management of liquidity and shareholders’ return and to sustain
future development of the business.
leverage ratios as part of
is not
The Company
imposed capital
requirements and its overall strategy with respect to capital risk
management remains unchanged from the year ended December 31,
2010.
to externally
subject
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Company. These transactions, as summarized below, were recorded at
the amount agreed to by the related parties and are subject to the
terms and conditions of formal agreements approved by the Audit
Committee.
The Company sold an aircraft to a private Rogers’ family holding
company for cash proceeds of $19 million in 2010. There were no
other significant transactions during 2011 or 2010.
Transactions with key management personnel:
(b)
Key management personnel include the Directors and the most Senior
Corporate Officers of the Company that are primarily responsible for
planning, directing and controlling the Company’s business activities.
Compensation:
(i)
The compensation expense associated with key management for
employee services was
included in employee salaries and
benefits as follows:
Salaries, pension and other short-
term employee benefits
Stock-based compensation
expense
December 31,
2011
December 31,
2010
$ 11
$ 10
27
19
$ 38
$ 29
Transactions:
(ii)
The Company has entered into business
transactions with
companies, the partners or senior officers of which are Directors
of the Company, as summarized below:
Transaction value
Balance outstanding,
December 31,
2011
2010
2011
2010
Printing, legal services
and commission paid
on premiums for
insurance coverage
$ 41
$ 39
$ 3
$ 8
A Director of the Company is Chairman and Chief Executive
Officer of a firm which is paid commissions for insurance
coverage. A Director of the Company is Senior Partner and
Chairman of a law firm which provides legal services. A Director
of the Company is Vice Chair and Vice President of a company
which provides printing services.
These transactions are recorded at the amount agreed to by the
related parties and are reviewed by the Audit Committee. The
outstanding balances owed to these related parties are
unsecured,
interest free and due for payment in cash within
1 month from the date of the transaction. There are no
outstanding balances with these related parties relating to
similar transactions that occurred before January 1, 2010.
24. RELATED PARTY TRANSACTIONS:
(a) Controlling shareholder:
The ultimate controlling shareholder of the Company is the Rogers
Control Trust which holds voting control of the Company. The
beneficiaries of the Trust are members of the Rogers family. The
Rogers family is represented as Directors, Senior Executive and
Corporate Officers of the Company.
The Company entered into certain transactions with the ultimate
controlling shareholder of the Company and private Rogers’ family
holding companies controlled by the controlling shareholder of the
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsidiaries and joint ventures:
(c)
The following are the significant subsidiaries and joint ventures of the Company:
Subsidiaries:
Rogers Holdings Inc.
Rogers Media Inc.
FIDO Solutions Inc.
Rogers Wireless Alberta Inc.
Rogers Communications Partnership
Rogers Broadcasting Limited
Rogers Publishing Limited
Blue Jays Holdco Inc.
Joint ventures:
Inukshuk Wireless Inc.
Dome Productions Inc.
The annual financial statement reporting period of the Company is
the same as the annual financial statement reporting periods of all its
subsidiaries and joint ventures. There are no significant restrictions on
the ability of subsidiaries, joint ventures and associates to transfer
funds to the Company in the form of cash dividends or to repay loans
or advances.
(c)
The following business
transactions were carried out with the
Company’s joint ventures and associates. Transactions between the
Company and its subsidiaries have been eliminated on consolidation
and are not disclosed in this note.
(d)
Transaction value
2011
2010
Revenue:
Joint ventures and associates – Rent, parking,
interconnect fees
$
1
$
–
Purchases:
Joint ventures and associates – Network access
fees
Access fees paid to broadcasters
Production fees
License fees and service obligation
12
17
20
2
13
16
14
1
The sales to and purchases from the Company’s joint ventures and
associates are made at terms equivalent to those that prevail in arm’s
the year-end are
length transactions. Outstanding balances at
unsecured,
in cash. The
outstanding balances with these related parties relating to similar
transactions as at December 31, 2011 was $5 million
business
(December 31, 2010 – $4 million; January 1, 2010 – $4 million).
free and settlement occurs
interest
25. COMMITMENTS:
(e)
(f)
(g)
(a)
(b)
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.
and
products
The Company enters into agreements with suppliers to provide
services
include minimum spend
commitments. The Company has agreements with certain
telephone companies that guarantee the long-term supply of
network facilities and agreements relating to the operations and
maintenance of the network.
that
124 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
Jurisdiction of
incorporation
December 31,
2011
December 31,
2010
January 1,
2010
Ownership interest
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
100%
100%
100%
–
100%
100%
100%
100%
50%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
100%
100%
100%
50%
50%
50%
50%
In the ordinary course of business and in addition to the
amounts recorded on the consolidated statements of financial
position and disclosed elsewhere in the notes, the Company has
entered into agreements to acquire broadcasting rights to
programs and films over the next five years at a total cost of
In addition, the Company has
approximately $950 million.
commitments to pay access fees over the next year totalling
approximately $15 million.
Pursuant to CRTC regulation, the Company is required to make
contributions to the Canadian Media Fund (“CMF”) and the
Local Programming Improvement Fund (“LPIF”), which are cable
industry funds designed to foster the production of Canadian
television programming. These contributions are based on a
formula, including gross broadcast revenue and the number of
subscribers. With respect to CMF, the Company may elect to
spend a portion of the above amount determined by the
aforementioned formula for local television programming and
may also elect to contribute a portion to another CRTC-approved
independent production fund. The Company estimates that its
to approximately
total contribution for 2012 will amount
$74 million.
Pursuant to CRTC regulations, the Company is required to pay
certain telecom contribution fees. These fees are based on a
formula including certain types of
including the
majority of wireless revenue. The Company estimates that these
fees for 2012 will amount to approximately $27 million.
revenue,
to Industry Canada regulations,
Pursuant
the Company is
required to pay certain fees for the use of its licenced radio
spectrum. These fees are primarily based on the bandwidth and
population covered by the spectrum licence. The Company
estimates that these fees for 2012 will amount to $107 million.
In addition to the items listed above, the future minimum lease
payments under operating leases for the rental of premises,
distribution facilities, equipment and microwave towers,
commitments for player contracts, purchase obligations and
other contracts at December 31, 2011 are as follows:
Within one year
After one but not more than five years
More than five years
$
742
1,467
159
$ 2,368
Rent expense for 2011 amounted to $172 million (2010 – $180 million).
26. CONTINGENT LIABILITIES:
(a)
(b)
(c)
(d)
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. The
plaintiffs are seeking specified damages and punitive damages,
effectively, the reimbursement of system access fees collected. 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
service
based on the arbitration clause in the wireless
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
(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 Class Actions Act
The Company’s appeal of the 2007 certification decision was
dismissed by the Saskatchewan Court of Appeal. The Company is
applying for leave to appeal to the Supreme Court of Canada.
The Company has not recorded a liability for this contingency
since Management’s assessment is that the likelihood and
amount of any potential loss cannot be reasonably estimated. If
the ultimate resolution of
from the
Company’s assessment and assumptions, a material adjustment
to the financial position and results of operations could result.
this action differs
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 December 2011, a proceeding under the Class Proceedings Act
(British Columbia) was commenced against providers of wireless
communications in Canada relating to the system access fee
charged by wireless carriers to some of their customers. The
things, allegations of
proceeding involves among other
contrary to the Business Practices and
misrepresentations
Consumer Protection Act
(BC). The Plaintiffs are seeking
unquantified damages and restitution. Any potential liability is
not yet determinable.
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 involved allegations of, among other things,
false, misleading and deceptive advertising relating to charges
for long-distance telephone usage. The plaintiffs were seeking
$20 million in general damages and punitive damages of
$5 million. This proceeding was settled in December 2011 and
the settlement amount was insignificant.
(e)
The Company believes that it has adequately provided for
income and indirect taxes based on all of the information that is
currently available. The calculation of applicable 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 deferred income tax assets and liabilities and provisions, and
could,
in certain circumstances, result in the assessment of
interest and penalties.
(f)
There exists 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.
27. SUBSEQUENT EVENTS:
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(a)
Class
In February 2012, 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 twelve-month period commencing February 24, 2012
and ending February 23, 2013, purchase on the TSX the lesser of
36.8 million
representing
B Non-Voting
approximately 10% 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 $1.0 billion. 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.
shares,
(b)
In February 2012, the Company’s Board increased the annualized
dividend rate from $1.42 to $1.58 per Class A Voting and Class B
Non-Voting share effective immediately to be paid in quarterly
amounts of $0.395 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 February 2012, the Board declared a
At the same time,
quarterly dividend totalling $0.395 per share on each of its
outstanding Class A Voting and Class B Non-Voting shares, such
dividend to be paid on April 2, 2012, to shareholders of record
on March 19, 2012, and is the first quarterly dividend to reflect
the newly increased $1.58 per share annualized dividend rate.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 125
CORPORATE GOVERNANCE
BOARD OF DIRECTORS AND ITS COMMITTEES
AUDIT
CORPORATE
GOVERNANCE
NOMINATING
COMPENSATION
EXECUTIVE
FINANCE
PENSION
AS OF FEBRUARY 21, 2012
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 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.
“ 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’s continued success, making business sense, and benefiting all shareholders.”
ALAN D. HORN
CHAIRMAN OF THE BOARD
ROGERS COMMUNICATIONS INC.
126 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
Rogers Communications’ Board of Directors is strongly committed to
sound corporate governance and continuously reviews its governance
practices and benchmarks them against acknowledged leaders and
evolving legislation. We are a family-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.
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 GOOD GOVERNANCE PRACTICES
> Separation of CEO and Chairman Roles
> Independent Lead Director
> Formal Corporate Governance Policy and Charters
> Code of Business Conduct and Whistleblower Hotline
> Director Share Ownership Guidelines
> Board and Committee In Camera Discussions
> Annual Reviews of Board and Director Performance
> Audit Committee Meetings with Internal and External Auditors
> Orientation Program for New Directors
> Regular Board Education Sessions
> Committee Retention of Independent Advisors
> Director Material Relationship Standards
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 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 monitoring 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.
For more information, go to rogers.com/governance
for a complete description of Rogers’ corporate governance
structure and practices, biographical information of our
Directors and copies our annual information circular and proxy.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 127
AS OF FEBRUARY 21, 2012
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
Isabelle Marcoux
Chairman,
Transcontinental Inc.
Martha L. Rogers
Doctor of
Naturopathic Medicine
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
The Hon. David R. Peterson,
PC, QC
Senior Partner and Chairman,
Cassels Brock & Blackwell LLP
Melinda M. Rogers*
Senior Vice President,
Strategy and Development,
Rogers Communications
Edward S. Rogers*
Deputy Chairman and Executive
Vice President, Emerging Business,
Corporate Development,
Rogers Communications
Loretta A. Rogers
Company Director
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.
128 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
DIRECTORS AND SENIOR CORPORATE OFFICERS OF ROGERS COMMUNICATIONS INC. SENIOR CORPORATE OFFICERS
Nadir H. Mohamed, FCA
President and Chief
Executive Officer
Robert W. Bruce
President,
Communications Division
Keith W. Pelley
President, Rogers Media
William W. Linton, FCA†
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
Linda P. Jojo
Executive Vice President,
Information Technology and
Chief Information Officer
Philip B. Lind, CM
Executive Vice President,
Regulatory and Vice Chairman
David P. Miller
Senior Vice President,
Legal and General Counsel
Jim M. Reid
Senior Vice President, Human
Resources and Chief Human
Resources Officer
Melinda M. Rogers
Senior Vice President,
Strategy and Development
Terrie L. Tweddle
Vice President, Corporate
Communications
SEE ROGERS.COM FOR AN
EXPANDED LISTING AND
BIOGRAPHICAL INFORMATION
OF ROGERS’ CORPORATE
MANAGEMENT TEAM.
Left to right, seated: Jim M. Reid, Robert F. Berner, Terrie L. Tweddle
Left to right, standing: David P. Miller, Melinda M. Rogers, Philip B. Lind, Keith W. Pelley,
Edward S. Rogers, Robert W. Bruce, Nadir H. Mohamed, William W. Linton, Linda P. Jojo
† As announced in October, 2011, William Linton will retire as Chief Financial Officer
during the second quarter of 2012 and will be succeeded by Anthony Staffieri.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 129
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 rogers.com/investors
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
SCAN THIS TO
LEARN MORE
rogers.com/investors
Stay up-to-date
with the latest Rogers
investor information
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 Canada Titans 60 Index
Dow Jones Telecom Titans 30 Index
FTSE Global Telecoms Index
S&P/TSX 60 Index
S&P/TSX Composite Dividend Index
S&P/TSX Composite Index
S&P/TSX Telecom Services Index
DEBT SECURITIES
For details of the public debt securities of the
Rogers companies, please refer to the Debt
Securities section under rogers.com/investors
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 at rogers.com/investors.
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/investors
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.
FOLLOW ROGERS THROUGH THESE
SOCIAL MEDIA LINKS
COMMON STOCK TRADING AND
DIVIDEND INFORMATION
2011
First Quarter
Second Quarter
Third Quarter
Fourth Q uarter
2010
First Quarter
Second Quarter
Third Quarter
Fourth Q uarter
Closing Price RCI.b on TSX
High
Dividends
Declared
Low
Per Share
$36.04 $33.53 $0.355
$38.19 $34.32 $0.355
$38.90 $34.80 $0.355
$39.25 $34.75 $0.355
Closing Price RCI.b on TSX
High
Dividends
Declared
Low
Per Share
$35.70 $30.95 $0.320
$37.65 $33.81 $0.320
$39.12 $34.20 $0.320
$41.31 $34.25 $0.320
2012 Expected Dividend Dates
Record Date*:
March 19, 2012
June 15, 2012
September 14, 2012
December 14, 2012
* Subject to Board approval
Payment Date*:
April 2, 2012
July 3, 2012
October 3, 2012
January 2, 2013
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 convenient dividend
reinvestment program for eligible Rogers
shareholders. For plan information and
enrolment materials or to 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 reports 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.
FACEBOOK
facebook.com/rogers
REDBOARD
redboard.rogers.com
TWITTER
twitter.com/rogersbuzz
SOCIAL
http://social.rogers.com
GOOGLE +
http://bit.ly/sp4I8I
C AUTION REGARDING FORWARD - LOOKING INFORMATION AND OTHER RISK S
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
3,474 gal. of
wastewater
flow saved
385 lbs.
solid waste
not generated
757 lbs. net
greenhouse gases
prevented
5,791,815 BTUs
energy not
consumed
130 ROGERS COMMUNICATIONS INC. 2011 ANNUAL REPORT
© 2012 Rogers
Communications Inc.
Other registered
trademarks that appear
are the property of the
respective owners.
Design: Interbrand
Printed in Canada
TED ROGERS / 1933 –2008
“THE BEST IS YET TO COME.” ROGERS.COM