News Releases

Rogers Communications Reports Third Quarter 2012 Financial and Operating Results

Oct 24, 2012

Third Quarter Revenue Grows to $3,176 Million, Adjusted Operating Profit Increases 5% to $1,288 Million, Adjusted Diluted EPS up 7% to 96 cents; Pre-Tax Free Cash Flow up 15% to $589 Million;

Postpaid Wireless Net Subscriber Additions of 76,000 and Network Margins of 48% Reflect Improved Postpaid Churn, Stabilizing Trend in Postpaid ARPU and Continued Realization of Cost Efficiencies;

Cable Operations Total Service Units Up 17,000, with Margins of 48% Reflecting Continued Revenue Growth and Successful Cost Management;

Media Revenue Reflects Strong Growth in Sports Broadcasting and Entertainment More Than Offset by Continued Softness in the Ad Market

TORONTO, Oct. 24, 2012 /CNW/ - Rogers Communications Inc., one of Canada's leading diversified communications and media companies, today announced its unaudited consolidated financial and operating results for the three months ended September 30, 2012, in accordance with International Financial Reporting Standards ("IFRS").

Financial highlights from continuing operations are as follows(1):

                         
        Three months ended September 30,
(In millions of dollars, except per share amounts)         2012       2011     % Chg
                         
Operating revenue       $ 3,176     $ 3,131                            1
As Adjusted:                        
  Operating profit         1,288                       1,227                            5
  Net income         495                          489                            1
  Earnings per share         0.96                         0.90                            7
  Diluted earnings per share                           0.96                         0.90                            7
                           
Pre-tax free cash flow                            589                          510                          15

(1) This summary of our third quarter 2012 results should be read in conjunction with our Third Quarter 2012 MD&A, our Third Quarter 2012 Unaudited Interim Condensed Consolidated Financial Statements and Notes thereto, and our 2011 Annual Report all of which are incorporated by reference in this news release. The financial information presented herein has been prepared on the basis of International Financial Reporting Standards ("IFRS") for interim financial statements and is expressed in Canadian dollars.

"Our top line and operating profit growth in the third quarter was highlighted by strong postpaid wireless smartphone sales and accelerated wireless data revenue growth, as well as strong margins in both our wireless and cable businesses where customer retention and cost containment initiatives have taken hold," said Nadir Mohamed, President and Chief Executive Officer of Rogers Communications Inc. "Despite intensely competitive markets, we continued to successfully leverage our technology leadership to deliver new and innovative products and services and to invest in our networks at a healthy pace, while at the same time continuing to generate strong earnings and free cash flow."

Highlights of the third quarter of 2012 include the following: 

  • Consolidated revenue growth for the quarter was driven by Wireless network revenue growth of 2%, Wireless equipment revenue growth of 16% and Cable Operations revenue growth of 1%, offset by declines in Media and RBS compared to the same quarter last year. Consolidated adjusted operating profit increased by 5% with a 3% increase at Wireless, a 10% increase at Cable Operations and a 16% increase at RBS, partially offset by a 9% decrease at Media compared to the same quarter last year.

  • Wireless data revenue grew by 18% and comprises 41% of Wireless network revenue compared to 36% in the same quarter last year. During the third quarter, Wireless activated 707,000 smartphones, of which approximately 36% were for subscribers new to Wireless. This resulted in subscribers with smartphones, who typically generate average monthly revenue per user ("ARPU") nearly twice that of voice only subscribers, representing 65% of the overall postpaid subscriber base as at September 30, 2012, up from 52% at September 30, 2011.

  • Driven by strong 48% margins at both Wireless and Cable Operations, consolidated margins of 41% were up 140 basis points from the same period last year. Adjusted net income improved 1% from the same quarter last year and adjusted diluted earnings per share of $0.96 was up 6 cents or 7% year-over-year.

  • Generated $589 million of consolidated pre-tax free cash flow in the quarter, defined as adjusted operating profit less PP&E expenditures and interest on long-term debt (net of capitalization), an increase of 15% compared to the third quarter of 2011 and reflecting increased adjusted operating profit combined with a decreased level of PP&E expenditures. Pre-tax free cash flow per share increased by 22% over the same period.

  • Expanded Canada's first wireless Long Term Evolution ("LTE") 4G broadband network to 24 Canadian markets, including Victoria, Edmonton, Regina and Quebec City. Rogers' expanding LTE network now reaches 54% of the Canadian population, and Rogers currently offers the largest selection of LTE devices of any carrier in Canada. LTE is a next generation wireless technology that enables unparalleled connectivity, capable of speeds that are between three and four times faster than HSPA+ with peak potential download rates of up to 150 Megabits per second ("Mbps").

  • Rogers and SAP announced plans to deploy enterprise mobile applications which leverage the SAP mobile platform. This exclusive new offering will help simplify the way organizations mobilize their workforce, by helping employees gain real-time access to enterprise mobile applications on tablets and smartphones that are traditionally used on desktop computers.

  • Announced the formation of an alliance with international mobile operators KPN, NTT Docomo, SingTel, Telefónica, Telstra and Vimpelcom to co-operate on global wireless machine-to-machine ("M2M") business initiatives supporting a single, global platform that multinational customers can leverage to enable connected devices in multiple countries to better manage operations and reduce costs.

  • Rogers and Wavefront opened the doors to a new Rogers Wireless Innovation Centre in Vancouver to foster excellence in wireless commercialization, and to provide a facility where business customers and developers can experience first-hand the latest in M2M technology and enterprise mobility applications. The Rogers Wireless Innovation Centre will support current and emerging developers to get to market faster with innovative applications for connected devices to strengthen the wireless developer ecosystem in Canada, as well as educate Canadian companies about the benefits of M2M technology.

  • Enhanced the Rogers One Number Internet-based communications platform to allow customers to extend their existing Rogers wireless number not only to their computers, but also to their regular home phone and tablet.  In addition, the Rogers One Number experience is now offered to small businesses across Canada.  Rogers One Number is a feature of Rogers wireless plans that enables customers with an Internet connection to extend their Rogers wireless number to make or transfer calls using a computer, tablet and home phone.

  • Media announced the acquisition of theScore Television Network and related television assets.  theScore is a national specialty TV service providing sports news, information, highlights and live event programming. It is Canada's third largest specialty sports channel with 6.6 million television subscribers.  The acquisition builds on Rogers' rich history in sports broadcasting and reinforces its commitment to delivering premium sports content to its audiences on their platform of choice. Subject to final regulatory approval from the Canadian Radio-television and Telecommunications Commission ("CRTC"), which is anticipated early in fiscal 2013, the television network will be rebranded under the Sportsnet umbrella.

  • Completed a 37.5% investment in Maple Leaf Sports & Entertainment Ltd. ("MLSE"), advancing Rogers' strategy of delivering highly sought-after content anywhere, anytime, on any platform across its broadband and wireless networks and its media assets, while strengthening the value of its sports brand, Sportsnet.

  • Media's Citytv network registered double-digit audience growth and market share increases across Canada in key demographics during this year's fall premiere week. With a greatly expanded footprint, Citytv is now available in approximately 80% of Canadian homes.

  • Finalized a new five-year $2.0 billion syndicated bank credit facility maturing in July 2017. This new bank credit facility replaces Rogers' prior bank credit facility that was scheduled to expire in July 2013, extending our long-term liquidity. At September 30, 2012, there were no advances outstanding under the bank credit facility which, together with our cash and cash equivalents, provides for $2.5 billion of currently available liquidity.

This earnings release, which is current as of October 23, 2012, is a summary of our third quarter 2012 results, and should be read in conjunction with our Third Quarter 2012 MD&A and our Third Quarter 2012 Unaudited Interim Condensed Financial Statements and Notes thereto, our 2011 Annual MD&A and our 2011 Audited Annual Consolidated Financial Statements and Notes thereto, and our other recent filings with securities regulatory authorities available on SEDAR at sedar.com.

The financial information presented herein has been prepared on the basis of IFRS for interim financial statements and is expressed in Canadian dollars unless otherwise stated.

During the second quarter of this year, we completed the closure of our Video operations.  As a result, the consolidated results no longer include the results of our Video business and the results of that business are now treated as discontinued operations for accounting and reporting purposes. Current and prior period results have been restated to reflect this change.

As this earnings release includes forward-looking statements and assumptions, readers should carefully review the section of this earnings release entitled "Caution Regarding Forward-Looking Statements, Risks and Assumptions".

In this earnings release, the terms "we", "us", "our", "Rogers", "Rogers Communications" and "the Company" refer to Rogers Communications Inc. and our subsidiaries, "Wireless", "Cable", and "Media".

SUMMARIZED CONSOLIDATED FINANCIAL RESULTS

                                               
        Three months ended September 30,     Nine months ended September 30,
(In millions of dollars, except per share amounts)         2012       2011     % Chg       2012       2011     % Chg
                                               
Operating revenue                                              
  Wireless       $ 1,889     $ 1,832                  3     $ 5,360     $ 5,312                  1
  Cable Operations                  838                826                  1             2,506             2,471                  1
  RBS                    86                  96               (10)                263                312               (16)
  Media                  392                407                 (4)             1,186             1,183                   -
  Corporate items and eliminations                   (29)                 (30)                 (3)                 (90)                 (87)                  3
Total operating revenue               3,176             3,131                  1             9,225             9,191                   -
                                               
Adjusted operating profit (loss)                                              
  Wireless                  843                815                  3             2,376             2,366                   -
  Cable Operations                  403                367                10             1,184             1,146                  3
  RBS                    22                  19                16                  62                  66                 (6)
  Media                    50                  55                 (9)                115                136               (15)
  Corporate items and eliminations                   (30)                 (29)                  3                 (79)                 (76)                  4
Adjusted operating profit               1,288             1,227                  5             3,658             3,638                  1
Stock-based compensation recovery (expense)                   (26)                  19     n/m                 (20)                 (30)               (33)
Settlement of pension obligations                       -                     -     n/m                     -                 (11)     n/m
Integration, restructuring and acquisition expenses                     (7)                 (15)               (53)                 (82)                 (36)              128
Operating profit               1,255             1,231                  2             3,556             3,561                   -
Other income and expense, net                 (789)               (734)                  7            (2,353)            (2,306)                  2
Net income from continuing operations                466              497                 (6)           1,203           1,255                 (4)
Loss from discontinued operations                     -                     (6)     n/m                 (32)                 (19)                68
Net income       $ 466     $ 491                 (5)     $ 1,171     $ 1,236                 (5)
                                               
Basic earnings per share - continuing operations       $ 0.90     $ 0.92                 (2)     $ 2.31     $ 2.29                  1
Diluted earnings per share - continuing operations               0.90             0.88                  2             2.30             2.28                  1
                                               
Basic earnings per share               0.90             0.91                 (1)             2.25             2.26                   -
Diluted earnings per share               0.90             0.87                  3             2.24             2.25                   -
                                               
As Adjusted:                                              
  Net income                495              489                  1           1,333           1,386                 (4)
  Basic earnings per share               0.96             0.90                  7             2.56             2.53                  1
  Diluted earnings per share               0.96             0.90                  7             2.55             2.52                  1
                                               
                                               
Additions to property, plant and equipment ("PP&E")                                              
  Wireless       $ 299     $ 329                 (9)     $ 737     $ 845               (13)
  Cable Operations                  186                190                 (2)                573                517                11
  RBS                    15                  13                15                  45                  42                  7
  Media                    11                  10                10                  32                  30                  7
  Corporate                    17                  17                   -                  48                  40                20
Total additions to PP&E       $ 528     $ 559                 (6)     $ 1,435     $ 1,474                 (3)
                                                 
Pre-tax free cash flow       $ 589     $ 510                15     $ 1,733     $ 1,684                  3
                                               

SEGMENT REVIEW

WIRELESS

Summarized Wireless Financial Results

                                               
        Three months ended September 30,     Nine months ended September 30,
(In millions of dollars, except margin)         2012       2011     % Chg       2012       2011     % Chg
                                               
Operating revenue                                              
  Network revenue       $ 1,744     $ 1,707                  2     $ 5,008     $ 4,960                  1
  Equipment sales                  145                125                16                352                352                   -
Total operating revenue               1,889             1,832                  3             5,360             5,312                  1
                                               
Operating expenses                                              
  Cost of equipment                 (379)               (319)                19            (1,027)               (960)                  7
  Other operating expenses                 (667)               (698)                 (4)            (1,957)            (1,986)                 (1)
               (1,046)            (1,017)                  3            (2,984)            (2,946)                  1
Adjusted operating profit       $ 843     $ 815                  3     $ 2,376     $ 2,366                   -
                                               
Adjusted operating profit margin as                                              
  % of network revenue         48.3%       47.7%             47.4%       47.7%      
                                               
Additions to PP&E       $ 299     $ 329                 (9)     $ 737     $ 845               (13)
                                               
Data revenue included in network revenue       $ 719     $ 611                18     $ 1,995     $ 1,725                16
                                               

Summarized Wireless Subscriber Results

                                                   
(Subscriber statistics in thousands,         Three months ended September 30,     Nine months ended September 30,
except ARPU, churn and usage)          2012       2011       Chg       2012       2011       Chg
                                                   
Postpaid                                                  
  Gross additions                  386                380                    6             1,070             1,072                   (2)
  Net additions                    76                  74                    2                210                227                 (17)
  Total postpaid subscribers               7,788             7,532                256             7,788             7,532                256
  Monthly churn         1.34%       1.36%       (0.02%)       1.25%       1.27%       (0.02%)
  Average monthly revenue per user ("ARPU")       $ 71.50     $ 72.08     $ (0.58)     $ 69.13     $ 70.78     $ (1.65)
                                                   
Prepaid                                                   
  Gross additions                  186                258                 (72)                496                654               (158)
  Net additions (losses)                      1                  87                 (86)               (117)                104               (221)
  Total prepaid subscribers               1,644             1,756               (112)             1,644             1,756               (112)
  Monthly churn         3.77%       3.37%       0.40%       4.05%       3.68%       0.37%
  ARPU       $ 16.73     $ 16.72     $ 0.01     $ 15.83     $ 15.71     $ 0.12
                                                   
Blended ARPU       $ 61.92     $ 61.79     $ 0.13     $ 59.55     $ 60.64     $ (1.09)

Wireless Subscribers and Network Revenue

For the three months ended September 30, 2012, the increase in the number of gross and net postpaid subscriber additions primarily relates to increases in the number of smartphone sales versus the same prior year period. Wireless activated and upgraded approximately 707,000 smartphones, compared to approximately 609,000 in the third quarter of 2011. This is the second highest number of smartphone activations in any quarter in Rogers' history. The smartphones activated during the quarter were predominantly iPhone, Android and Blackberry devices, of which approximately 36% were for subscribers new to Wireless. The overall addition of smartphones increased the percentage of subscribers with smartphones to 65% of Wireless' total postpaid subscriber base at September 30, 2012, compared to 52% as at September 30, 2011. These subscribers generally commit to new voice and data multi-year term contracts, typically generate ARPU nearly twice that of voice only subscribers and churn at lower rates than voice only subscribers.

The year-over-year decrease in prepaid subscriber net additions for the quarter ended September 30, 2012, primarily reflects an increase in the level of churn associated with heightened competitive intensity, particularly at the lower end of the wireless market where the prepaid product is most penetrated.

The increase in wireless network revenue for the three and nine months ended September 30, 2012 reflects the continued growth of Wireless' postpaid subscriber base and the increased adoption and usage of wireless data services.

For the three months and nine months ended September 30, 2012, wireless data revenue increased by approximately 18% and 16%, respectively, from the corresponding period of 2011 to $719 million and $1,995 million, respectively. This growth in wireless data revenue reflects the continued penetration and growing usage of smartphones, tablet devices and wireless laptops, which drive increased usage of e-mail, wireless Internet access, text messaging and other wireless data services. The increase in the wireless data revenue growth rate from the previous quarter primarily reflects increased data roaming. For the three and nine months ended September 30, 2012, wireless data revenue represented approximately 41% and 40%, respectively, of total network revenue, compared to approximately 36% and 35%, respectively, in the corresponding periods of 2011.

The modest year-over-year increase in blended ARPU for the quarter ended September 30, 2012 reflects growth in postpaid subscribers and wireless data revenue, partially offset by a decline in wireless voice revenues. The wireless data component of blended ARPU increased by 15.4%, which was partially offset by an 8.3% decline in the wireless voice component as a result of the heightened level of competitive intensity in the wireless voice service market.

Wireless Equipment Sales

The increase in revenue from equipment sales for the three months ended September 30, 2012, compared to the corresponding period of 2011, primarily reflects the increase in the number of postpaid gross additions and hardware upgrades by existing subscribers, combined with a shift in the mix of smartphones towards higher value devices versus the prior year and the launch of the new iPhone 5. Equipment sales were flat for the nine months ended September 30, 2012, compared to the corresponding period of 2011.

Wireless Operating Expenses

The increase in cost of equipment for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, was primarily the result of the increased number of smartphone sales to new customers, upgrades for existing customers and the launch of the new iPhone 5. During the three months ended September 30, 2012, we activated and upgraded 71% more iPhones and 16% more smartphones overall than in the same period last year. During the nine months ended September 30, 2012, we activated and upgraded 43% more iPhones and 14% more smartphones overall than in the same period last year.

Total retention spending, including subsidies on handset upgrades, was $214 million and $622 million, respectively, in the three and nine months ended September 30, 2012, compared to $181 million and $563 million, respectively, in the corresponding periods of 2011. These increases primarily reflect a higher number of hardware upgrades by existing subscribers than during the prior year combined with a shift in the mix towards higher value smartphones.

The year-over-year decrease in other operating expenses for the three and nine months ended September 30, 2012, excluding retention spending discussed above, was driven by efficiency gains resulting from cost management initiatives across various functions. Rogers continues to focus on implementing a program of cost reduction and efficiency improvement initiatives to manage the overall level of operating expenses.

Wireless Adjusted Operating Profit

The 3% year-over-year increase in adjusted operating profit and the 48.3% adjusted operating profit margin on network revenue (which excludes equipment sales revenue) for the three months ended September 30, 2012 primarily reflects the growth of network revenue in the period coupled with cost management and efficiency improvements as discussed above.

Wireless Additions to PP&E

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

                                               
        Three months ended September 30,     Nine months ended September 30,
(In millions of dollars)         2012       2011     % Chg       2012       2011     % Chg
                                               
Additions to PP&E                                              
  Capacity       $ 196     $ 194                  1     $ 455     $ 477                 (5)
  Quality                    47                  64               (27)                113                157               (28)
  Network - other                      4                  10               (60)                  19                  37               (49)
  Information technology and other                    52                  61               (15)                150                174               (14)
Total additions to PP&E       $ 299     $ 329                 (9)     $ 737     $ 845               (13)

Wireless PP&E additions can be categorized as spending on network capacity, such as radio channel additions, network core improvements and network enhancing features, including the continued 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. Quality also 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.

For the three and nine months ended September 30, 2012, the decreases in Quality and Network - other were primarily due to lower cell site construction and lower expenditures on Rogers One Number than in comparative periods. Information technology and other were lower for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, as a result of lower expenditures on customer billing systems and platforms for new services offset by investments to upgrade our retail stores.

Capacity spend changes year-over-year relate to timing of expenditure relating to LTE expansion and HSPA capacity initiatives.

CABLE OPERATIONS

Summarized Financial Results

                                               
        Three months ended September 30,     Nine months ended September 30,
(In millions of dollars, except margin)         2012       2011     % Chg       2012       2011     % Chg
                                               
Operating revenue                                              
  Cable Television       $ 470     $ 475                 (1)     $ 1,416     $ 1,423                   -
  Internet                  249                232                  7                735                688                  7
  Home Phone                  119                119                   -                355                360                 (1)
Total Cable Operations operating revenue                  838                826                  1             2,506             2,471                  1
                                               
Operating expenses                                              
  Cost of equipment                     (5)                   (7)               (29)                 (14)                 (19)               (26)
  Other operating expenses                 (430)               (452)                 (5)            (1,308)            (1,306)                   -
                  (435)               (459)                 (5)            (1,322)            (1,325)                   -
Adjusted operating profit       $ 403     $ 367                10     $ 1,184     $ 1,146                  3
                                               
Adjusted operating profit margin         48.1%       44.4%             47.2%       46.4%      
                                               
Additions to PP&E       $ 186     $ 190                 (2)     $ 573     $ 517                11
                                               

Summarized Subscriber Results

                                                   
          Three months ended September 30,       Nine months ended September 30,
(Subscriber statistics in thousands)         2012       2011       Chg       2012       2011       Chg
                                                   
Cable homes passed               3,799             3,740                  59             3,799             3,740                  59
                                                   
Television                                                  
  Net additions (losses)                   (16)                    9                 (25)                 (58)                   (8)                 (50)
  Total television subscribers               2,239             2,303                 (64)             2,239             2,303                 (64)
                                                   
  Digital cable                                                  
    Households, net additions (losses)                     (1)                  22                 (23)                   (1)                  29                 (30)
    Total digital cable households               1,776             1,767                    9             1,776             1,767                    9
                                                   
Cable high-speed Internet                                                  
  Net additions                    29                  39                 (10)                  51                  58                   (7)
  Total cable high-speed Internet subscribers               1,844             1,768                  76             1,844             1,768                  76
                                                   
Cable telephony lines                                                  
  Net additions and migrations                      4                  16                 (12)                  13                  37                 (24)
  Total cable telephony lines               1,065             1,044                  21             1,065             1,044                  21
                                                   
Total cable service units                                                  
  Net additions (losses)                    17                  64                 (47)                    6                  87                 (81)
  Total cable service units               5,148             5,115                  33             5,148             5,115                  33
                                                   
Circuit-switched lines                                                  
  Net losses and migrations to cable telephony                                                  
    platform                       -                   (1)                    1                     -                 (12)                  12
  Total circuit-switched lines                       -                    1                   (1)                     -                    1                   (1)

Cable Television Revenue

Cable Television revenue was relatively flat for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, reflecting pricing changes made in March 2012, together with a continued increase in penetration of our digital cable product offerings year-to-date offset by the impact of promotional and retention pricing activity associated with heightened IPTV competitive activity.

Our digital cable subscriber base has grown by 1% since September 30, 2011, and represents 79% of our total television subscriber base as at September 30, 2012, compared to 77% as at September 30, 2011. Increased demand from subscribers for the larger selection of digital content, video on-demand, HDTV and personal video recorder ("PVR") equipment continues to contribute to the growth in the digital subscriber base and Cable Television revenue.

In the first quarter of 2012, Cable Operations began an initiative to convert many of the remaining analog cable customer outlets onto its digital cable platform. This migration, which will occur during 2012 and 2013, will enable the reclamation of significant amounts of network capacity and 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.

Internet Revenue

The year-over-year increase in Internet revenue for the three and nine months ended September 30, 2012 reflects the increase in our Internet subscriber base, combined with Internet service pricing changes made during the previous twelve months. Also impacting the increase is a general movement by subscribers towards higher end tiers, partially offset by the impact of promotional and retention pricing activity associated with heightened competition.

With our high-speed Internet customer base at 1.8 million subscribers, Internet penetration is approximately 49% of the homes passed by our cable network and 82% of our television subscriber base as at September 30, 2012, compared to Internet penetration of approximately 47% of the homes passed by our cable network and 77% of our television subscriber base as at September 30, 2011.

Home Phone Revenue

The relatively flat Home Phone revenues for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, reflect declines in revenue associated with exiting the legacy circuit-switched telephony base that Cable Operations divested last year, offset by the increase in the cable telephony Home Phone customer base.

Excluding the impact of exiting the circuit-switched telephony business, the year-over-year revenue growth for Home Phone for the three and nine months ended September 30, 2012 would have been 3% and 2%, respectively. For the three and nine months ended September 30, 2011, the revenue associated with the divested residential circuit-switched telephony business totalled approximately $3 million and $13 million, respectively.

Cable telephony Home Phone lines in service grew 2% from September 30, 2011 to September 30, 2012 and now represent 28% of the homes passed by our cable network and 48% of television subscribers, compared to 28% of the homes passed by our cable network and 45% of television subscribers at September 30, 2011.

Cable Operations Operating Expenses

Cable Operations' operating expenses decreased for the three months ended September 30, 2012, compared to the corresponding period of 2011, due to cost reductions and efficiency initiatives across various functions and lower new subscriber addition activity, partially offset by incremental retention costs and costs associated with the analog to digital conversion. Rogers continues to focus on implementing a program of cost reduction and efficiency improvement initiatives to manage the overall level of operating expenses.

Cable Operations Adjusted Operating Profit

The year-over-year increase in adjusted operating profit for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, was primarily the result of the revenue and cost changes described above, with the associated adjusted operating profit margin of 48.1% and 47.2% for the three and nine months ended September 30, 2012, respectively, compared to 44.4% and 46.4% in the corresponding periods of 2011.

Cable Operations Additions to PP&E

                                               
        Three months ended September 30,     Nine months ended September 30,
(In millions of dollars)         2012       2011     % Chg       2012       2011     % Chg
                                                 
Additions to PP&E                                              
  Customer premise equipment       $ 66     $ 74               (11)     $ 212     $ 155                37
  Scalable infrastructure                    73                  56                30                192                181                  6
  Line extensions                    14                  12                17                  38                  32                19
  Upgrades and rebuild                       -                    4     n/m                    1                    8               (88)
  Support capital                    33                  44               (25)                130                141                 (8)
Total additions to PP&E       $ 186     $ 190                 (2)     $ 573     $ 517                11

The Cable Operations segment categorizes its PP&E expenditures according to a standardized set of reporting categories that were developed and agreed to by the U.S. cable television industry and that facilitate comparisons of additions to PP&E between different cable companies. Under these industry definitions, Cable Operations additions to PP&E are classified into the following five categories:

  • Customer premise equipment ("CPE"), which includes the equipment for digital set-top terminals, Internet modems and associated installation costs;
  • Scalable infrastructure, which includes non-CPE costs to meet business growth and to provide service enhancements;
  • Line extensions, which includes network costs to enter new service areas;
  • Upgrades and rebuild, which includes the costs to modify or replace existing coaxial cable, fibre-optic equipment and network electronics; and
  • Support capital, which includes the costs associated with the purchase, replacement or enhancement of non-network assets. Replacement of network assets unrelated to line extensions, rebuilds and upgrades or customer growth.

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

The decrease in Cable Operations PP&E additions for the three months ended September 30, 2012, compared to the corresponding period of 2011, was largely driven by lower analog to digital subscriber migration activity and lower installation activity. CPE investments decreased versus prior year for the quarter with lower voice modems offset by slightly higher DOCSIS 3 gateways and set-top boxes. Network investments in scalable infrastructure and line extensions increased for the three months ended September 30, 2012 due to adding capacity and improving our data and video service platforms. Support capital investments decreased during the quarter, compared to the corresponding period in 2011, due to timing of spend on projects related to platforms for new services and customer billing systems.

The increase in Cable Operations PP&E additions for the nine months ended September 30, 2012, compared to the corresponding period of 2011, was largely driven by increased CPE with higher Network spend offset by lower IT investments. The increase in CPE was attributable to higher volumes of DOCSIS 3 gateways, higher volumes of set-top boxes related to Nextbox 2.0 and our analog to digital subscriber migration activities earlier in the year. Network investments in scalable infrastructure and line extensions increased for the nine months ended September 30, 2012 and were focused on adding capacity and improving our data and video service platforms. Support capital investments decreased during the nine months ended September 30, 2012, compared to the corresponding period in 2011, due to timing of spend on projects related to platforms for new services and customer billing systems.

ROGERS BUSINESS SOLUTIONS

Summarized Financial Results

                                               
        Three months ended September 30,     Nine months ended September 30,
(In millions of dollars, except margin)         2012       2011     % Chg       2012       2011     % Chg
                                                 
Operating revenue       $ 86     $ 96               (10)     $ 263     $ 312               (16)
                                                 
Operating expenses                   (64)                 (77)               (17)               (201)               (246)               (18)
Adjusted operating profit       $ 22     $ 19                16     $ 62     $ 66                 (6)
                                                 
Adjusted operating profit margin         25.6%       19.8%             23.6%       21.2%      
                                                 
Additions to PP&E       $ 15     $ 13                15     $ 45     $ 42                  7

RBS Revenue

The decrease in RBS revenue for the three and nine months ended September 30, 2012 primarily reflects the planned decline in certain categories of lower margin legacy business, partially offset by the growth in next generation IP and other on-net services. RBS' focus is primarily on IP-based services and increasingly on leveraging higher margin on-net and near-net revenue opportunities, utilizing existing network facilities to expand offerings to the medium-sized enterprise, public sector and carrier markets. Revenue from the lower margin off-net legacy business, which includes long-distance, local and certain legacy data services, continues to decline and was down 27% for the quarter compared to the third quarter of 2011. In contrast, revenue from the higher margin next generation business was up 12% for the quarter and 10% year-to-date due to service to new customers and incremental services to existing customers and now represents approximately 40% of total RBS revenues.

RBS Operating Expenses

The decrease in operating expenses for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, reflects cost reductions and efficiency initiatives across various functions. Rogers continues to focus on implementing a program of cost reduction and efficiency improvement initiatives to manage the overall level of operating expenses.

RBS Adjusted Operating Profit

The year-over-year increase in adjusted operating profit for the three months ended September 30, 2012 reflects steady declines in operating expenses, partially offset by declines in revenue as we exit the lower margin legacy business to focus on growing its on-net and next generation data revenue. The year-over-year decrease in adjusted operating profit for the nine months ended September 30, 2012, compared to the corresponding period in 2011, reflects declines in revenue due to RBS' planned exit of the lower margin legacy business, offset by cost efficiencies which resulted in the increase in RBS' adjusted operating profit margin to 23.6% from 21.2%.

RBS Additions to PP&E

The increase in RBS PP&E additions for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, resulted from the timing of expenditures on customer specific network expansions and support capital.

VIDEO

As of June 2012, Rogers' retail stores no longer rent or sell DVDs and games at any of its locations which now focus exclusively on sales and service relating to Rogers' wireless and cable products. The second quarter of 2012 was the last period for operations of the Video segment, with the remnants of that business now treated as discontinued operations for accounting and reporting purposes.

MEDIA

Summarized Media Financial Results

                                               
        Three months ended September 30,     Nine months ended September 30,
(In millions of dollars, except margin)         2012       2011     % Chg       2012       2011     % Chg
                                               
Operating revenue       $ 392     $ 407                 (4)     $ 1,186     $ 1,183                   -
                                               
Operating expenses                 (342)               (352)                 (3)            (1,071)            (1,047)                  2
Adjusted operating profit       $ 50     $ 55                 (9)     $ 115     $ 136               (15)
                                               
Adjusted operating profit margin         12.8%       13.5%             9.7%       11.5%      
                                               
Additions to PP&E       $ 11     $ 10                10     $ 32     $ 30                  7

Media Revenue

The decrease in Media's revenue for the three months ended September 30, 2012, compared to the corresponding period of 2011, was the result of softer results at Television, Publishing, Digital Media, and The Shopping Channel, partially offset by growth at Sportsnet and Sports Entertainment. The third quarter experienced a continued weakening of the advertising market from the levels seen earlier in the year, which suppressed growth in most Media divisions. Revenues for the nine months ended September 30, 2012 increased slightly due to strong growth at Sportsnet and Sports Entertainment.

Media Operating Expenses

The decrease in Media's operating expenses for the three months ended September 30, 2012, compared to the corresponding period of 2011, is primarily due to cost containment efforts, which offset increased baseball player related costs during the quarter. The increase in Media's operating expenses for the nine months ended September 30, 2012, is primarily due to an increase in programming related spending in the Television division and increased player related costs in Sports Entertainment. The Television spending is related to new channels, including CityNews and FX Canada, as well as investments in new programming at Citytv coinciding with the recent expansion of its footprint which enables the monetization of such programming costs over a much larger audience base.

Media Adjusted Operating Profit

The decrease in Media's adjusted operating profit for the three and nine months ended September 30, 2012, compared to the corresponding periods of 2011, primarily reflects the revenue and expense changes discussed above.

Media Additions to PP&E

Media's PP&E additions during the three and nine months ended September 30, 2012 increased from the corresponding periods in 2011 primarily due to capital expenditures relating to infrastructure upgrades for Sportsnet and Sports Entertainment.

Other Media Developments

On August 25, 2012, Rogers announced that it had entered into an agreement to purchase 100% of the outstanding shares of Score Media Inc. for $167 million. As part of this transaction, Rogers also received a 10% interest in Score Media's digital media assets, which will be spun out as a separate entity called Score Digital. theScore Television Network is a national specialty TV service providing sports news, information, highlights and live event programming across Canada. This transaction is subject to regulatory approval which is anticipated in the first quarter of 2013, following which Rogers will wholly own and control theScore Television Network and its related television assets.

Subsequent to the quarter ended September 30, 2012, on October 19, 2012, the $167 million purchase price was paid and the shares of Score Media were transferred to an interim CRTC-approved trust which is responsible for the independent management of the business in the normal course of operations until CRTC approval is obtained. The ultimate control over the Score Media business will not transfer to Rogers until such approval is obtained. In addition, Rogers will hold approximately 11.8% of the outstanding shares of Score Digital, which includes 10% that will be issued in connection with this transaction and approximately 1.8% of the shares of Score Digital received by Rogers as partial payment for our shareholdings in Score Media prior to the implementation of the transaction.

CORPORATE

Other Corporate Developments

On August 22, 2012, Rogers, along with BCE Inc., closed the joint acquisition of a net 75% equity interest in Maple Leafs Sports & Entertainment Ltd. from the Ontario Teachers' Pension Plan. MLSE is one of Canada's largest sports and entertainment companies and owns and operates the Air Canada Centre, the NHL's Toronto Maple Leafs, the NBA's Toronto Raptors, the MLS' Toronto FC, the AHL's Toronto Marlies and other assets. Rogers' net cash investment, following a leveraged recapitalization of MLSE, was $533 million, representing a 37.5% equity interest in MLSE. An additional $7 million of costs were incurred in relation to this investment.

2012 FINANCIAL AND OPERATING GUIDANCE

We have no specific revisions to the 2012 annual consolidated guidance ranges that we provided on February 22, 2012. See the section entitled "Caution Regarding Forward-Looking Statements, Risks and Assumptions" below.

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

                                                         
              Three months ended             Nine months ended
              September 30,             September 30,
              2012             2011             2012             2011
                                                           
Operating revenue        $     3,176       $     3,131       $     9,225       $     9,191
                                                           
Operating expenses:                                                        
  Operating costs              1,914             1,885             5,587             5,594
  Integration, restructuring and acquisition costs              7              15              82              36
  Depreciation and amortization              437              427             1,366             1,289
                                                           
Operating income              818              804             2,190             2,272
                                                           
Finance costs              (169)              (146)              (488)             (580)
Other income, net              2              -              11              7
Share of the income (loss) of associates and joint ventures,                                                        
  net of tax              (8)              1              (2)             4
                                                           
Income before income taxes from continuing operations              643              659             1,711             1,703
                                                           
Income tax expense:                                                        
  Current              62              99              310              383
  Deferred              115              63              198              65
              177              162              508              448
                                                           
Net income for the period from continuing operations               466              497             1,203             1,255
Loss from discontinued operations, net of tax              -              (6)              (32)              (19)
Net income        $      466       $      491       $     1,171       $     1,236
                                                           
Earnings per share - basic:                                                        
  Earnings per share from continuing operations         $      0.90       $      0.92       $     2.31       $      2.29
  Loss per share from discontinued operations               -             (0.01)             (0.06)             (0.03)
Earnings per share         $      0.90       $     0.91       $     2.25       $     2.26
                                                         
Earnings per share - diluted:                                                        
  Earnings per share from continuing operations         $     0.90       $     0.88       $     2.30       $     2.28
  Loss per share from discontinued operations               -             (0.01)             (0.06)             (0.03)
Earnings per share         $     0.90       $      0.87       $      2.24       $      2.25
                                                         
           

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

                                 
                        September 30,       December 31,
                        2012       2011
                                 
Assets                                
                                 
Current assets:                                
  Cash and cash equivalents                      $ 459     $ -
  Accounts receivable                         1,429       1,574
  Other current assets                         399       322
  Current portion of derivative instruments                         6       16
                        2,293       1,912
                                 
Property, plant and equipment                         9,289       9,114
Goodwill                         3,282       3,280
Intangible assets                         2,630       2,721
Investments                         1,445       1,107
Derivative instruments                         20       64
Other long-term assets                         133       134
Deferred tax assets                         40       30
                      $ 19,132     $ 18,362
                                 
Liabilities and Shareholders' Equity                                
                                 
Current liabilities:                                
  Bank advances                        $ -     $ 57
  Accounts payable and accrued liabilities                         1,852       2,085
  Income tax payable                         150       -
  Current portion of provisions                         25       35
  Current portion of long-term debt                         344       -
  Current portion of derivative instruments                        161       37
  Unearned revenue                          311       335
                        2,843       2,549
                                 
Provisions                         34       38
Long-term debt                         10,392       10,034
Derivative instruments                         431       503
Other long-term liabilities                         240       276
Deferred tax liabilities                         1,569       1,390
                        15,509       14,790
                                 
Shareholders' equity                         3,623       3,572
                      $ 19,132     $ 18,362
                                 
                                 

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

                                                         
                Three months ended           Nine months ended
                September 30,           September 30,
                2012               2011           2012           2011
                                                         
Cash provided by (used in):                                                        
                                                         
Operating activities:                                                        
  Net income            $   466       $       491       $   1,171       $   1,236
  Adjustments to reconcile net income to                                                        
   net cash flows from operating activities:                                                        
    Depreciation and amortization                437               427           1,366           1,289
    Program rights amortization                11               18           60           60
    Finance costs                169               146           488           580
    Current income tax expense                62               96           300           375
    Deferred taxes                115               63           198           65
    Pension contributions, net of expense                (11)               (6)           (29)           (38)
    Settlement of pension obligations                -               -           -           11
    Stock-based compensation expense                                                        
     (recovery)                26               (19)           20           30
    Amortization of fair value decrement                                                        
     on long-term debt                -               -           1           1
    Share of the loss (income) of associates                                                        
     and joint ventures, net of tax                8               (1)           2           (4)
    Other                1               (10)           (6)           (1)
                1,284               1,205           3,571           3,604
  Change in non-cash operating working                                                        
   capital items                113               178           (140)           (268)
                1,397               1,383           3,431           3,336
  Interest paid                (223)               (244)           (555)           (553)
  Income taxes paid                (28)               (11)           (123)           (17)
                1,146               1,128           2,753           2,766
                                                         
Investing activities:                                                        
  Additions to property, plant and                                                        
   equipment ("PP&E")                (528)               (559)           (1,435)           (1,474)
  Change in non-cash working capital                                                        
   items related to PP&E                53               38           (49)           (121)
  Acquisitions, net of cash and cash                                                        
   equivalents acquired                -               -           -           (532)
  Investments                (540)               -           (540)           -
  Additions to program rights                (46)               (40)           (67)           (50)
  Other                (19)               (9)           (33)           (28)
                (1,080)               (570)           (2,124)           (2,205)
                                                         
Financing activities:                                                        
  Issuance of long-term debt                -               240           2,090           3,650
  Repayment of long-term debt                -               (120)           (1,240)           (2,482)
  Premium on repayment of long-term debt                -               -           -           (76)
  Payment on settlement of cross-currency                                                        
   interest rate exchange agreement and                                                        
   forward contracts                -               -           -           (1,208)
  Proceeds on settlement of cross-currency                                                        
   interest rate exchange agreement and                                                        
   forward contracts                -               -           -           878
  Transaction costs incurred                (5)               -           (14)           (10)
  Repurchase of Class B Non-Voting shares                -               (440)           (350)           (725)
  Proceeds received on exercise of stock                                                        
   options                -               1           -           1
  Dividends paid                (205)               (194)           (599)           (568)
                (210)               (513)           (113)           (540)
                                                         
Change in cash and cash equivalents                                                        
 (bank advances)                (144)               45           516           21
                                                         
Cash and cash equivalents (bank                                                        
 advances), beginning of period                603               (69)           (57)           (45)
Cash and cash equivalents (bank                                                        
 advances), end of period            $   459       $       (24)       $   459       $   (24)
                                                         
The change in non-cash operating                                                        
 working capital items is as follows:                                                        
  (Increase)/decrease in accounts                                                        
   receivable            $   (84)       $       53       $   116       $   31
  (Increase)/decrease in other assets                131               45           (80)           (90)
  Increase/(decrease) in accounts payable                                                        
   and accrued liabilities                99               86           (150)           (199)
  Increase/(decrease) in unearned revenue               (33)               (6)           (26)           (10)
            $   113       $       178       $   (140)       $   (268)

Caution Regarding Forward-Looking Statements, Risks and Assumptions

This earnings release 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 earnings release. 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 statements with respect to our beliefs, plans, expectations, anticipations, estimates or intentions. This forward-looking 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 include such words. Conclusions, 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 earnings release and our forward-looking statements do not reflect the potential impact of any non-recurring or other special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be considered or announced or may occur after the date 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 equipment costs, changing conditions in the entertainment, information and communications industries, regulatory changes, litigation and tax matters, the level of competitive intensity and the emergence of new opportunities.

Many of 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 containing forward-looking information or the factors or assumptions underlying them, whether as a result of new information, future events or otherwise, except as required by law. All of the forward-looking information in this earnings release 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 our second quarter MD&A entitled:  "Updates to Risks and Uncertainties" and "Government Regulation and Regulatory Developments", and also sections entitled "Risks and Uncertainties Affecting our Businesses" and "Government Regulation and Regulatory Developments" in our 2011 Annual MD&A. Our annual and quarterly reports can be found online at rogers.com/investors, sedar.com and sec.gov or are available directly from Rogers.

About Rogers Communications Inc.

Rogers Communications is a diversified public Canadian communications and media company. We are Canada's largest provider of wireless communications services and one of Canada's leading providers of cable television, high-speed Internet and telephony services. Through Rogers Media, we are engaged in radio and television broadcasting, televised shopping, magazines and trade publications, sports entertainment, and digital media. We are publicly traded on the Toronto Stock Exchange (TSX: RCI.A and RCI.B) and on the New York Stock Exchange (NYSE: RCI). For further information about the Rogers group of companies, please visit rogers.com.

Quarterly Investment Community Conference Call

As previously announced by press release, a live webcast of our quarterly results teleconference with the investment community will be broadcast via the Internet at rogers.com/webcast beginning at 8:00 a.m. ET today, October 24, 2012. A rebroadcast of this teleconference will be available on the Events and Presentations page of Rogers' Investor Relations website, rogers.com/investors, for a period of at least two weeks following the teleconference. 

 

 

 

 

SOURCE: Rogers Communications Inc.

For further information:

Investment Community Contacts

Bruce M. Mann, 416.935.3532, bruce.mann@rci.rogers.com
Dan Coombes, 416.935.3550, dan.coombes@rci.rogers.com

Media Contact

Terrie Tweddle, 416.935.4727, terrie.tweddle@rci.rogers.com


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