Rogers 2008 Annual Report Download - page 79

ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 75
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 mate-
rially impact quarter-to-quarter operating results. As a result, one
quarter’s operating results are not necessarily indicative of what
a subsequent quarter’s operating results will be. Each of Wireless,
Cable and Media has unique seasonal aspects to its business.
Wireless’ operating results are subject to seasonal fluctuations
that materially impact quarter-to-quarter operating results. In
particular, operating results may be influenced by the timing of
our marketing and promotional expenditures and higher levels of
subscriber additions and subsidies, resulting in higher subscriber
acquisition and activation-related expenses in certain periods.
The operating results of Cable Operations services are subject to
modest seasonal fluctuations in subscriber additions and discon-
nections, which are largely attributable to movements of university
and college students and individuals temporarily suspending ser-
vice due to extended vacations, or seasonal relocations, as well as
our concentrated marketing efforts generally conducted during
the fourth quarter. Rogers Retail operations may also experience
modest fluctuations from quarter-to-quarter due to the availability
and timing of release of popular titles throughout the year. RBS
does not have any unique seasonal aspects to its business.
The seasonality at Media is a result of fluctuations in advertising
and related retail cycles, since they relate to periods of increased
consumer activity as well as fluctuations associated with the Major
League Baseball season, where revenues are generally concen-
trated in the spring, summer and fall months.
In addition to the seasonal trends, revenue and operating profit
can fluctuate from general economic conditions. The Canadian
economy, and Ontario in particular, experienced an economic slow-
down in the latter half of 2008.
Wireless revenue and operating profit growth reflects the increas-
ing number of wireless voice and data subscribers, increase in
blended postpaid and prepaid ARPU, and increased handset subsi-
dies as a result of a consumer shift towards smartphones. Wireless
has continued its strategy of targeting higher value postpaid sub-
scribers and selling prepaid handsets at higher price points, which
has also contributed over time to the significantly heavier mix of
postpaid versus prepaid subscribers. Meanwhile, the successful
growth in customer base and increased market penetration have
been met by increasing customer service and retention expenses
and increasing credit and collection costs. However, these costs
have been offset by operating efficiencies and increasing GSM net-
work 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 scal-
ing and rapid growth of our cable telephony service. Similarly, the
steady growth of Internet revenues has been the result of a greater
penetration of Internet subscribers as a percentage of homes
passed. RBS’ operating profit margin reflects the pricing pressures
on long-distance and higher carrier costs as it focuses on managing
the profitability of its existing customer base and evaluates prof-
itable opportunities within the medium and large enterprise and
carrier segments. Rogers Retail revenue has increased as a result of
increasing Wireless products and services.
Media’s results are primarily attributable to a general down-
turn in demand for local advertising due to the softness in the
Ontario economy.
Other fluctuations in net income from quarter-to-quarter can also
be attributed to losses on repayment of debt, foreign exchange
gains or losses, changes in the fair value of derivative instruments,
other income and expenses, writedowns of goodwill, intan-
gible assets and other long-term assets and changes in income
tax expense.
SUMMARY OF FOURTH QUARTER 2008 RESULTS
During the three months ended December 31, 2008, consolidated
operating revenue increased 9% to $2,941 million in 2008 compared
to $2,687 million in the corresponding period in 2007, with all of
our operating segments contributing to the year-over-year growth,
including 13% growth at Wireless, 7% growth at Cable, and 8%
growth at Media. Consolidated fourth quarter adjusted operating
profit grew 1% year-over-year to $968 million, with 18% growth at
Cable, offset by 3% decline at Wireless, and 27% decline at Media.
The decline at Wireless was related to higher acquisition and reten-
tion costs related to a successful smartphone campaign, while
Media experienced declines in advertising revenues resulting from
the economic slowdown in Canada.
Consolidated operating income for the three months ended
December 31, 2008, totalled $137 million, compared to $476 million
in the corresponding period of 2007. Decline in operating income is
a result of the impairment loss recognized in the conventional tele-
vision business of the Media operating segment during the fourth
quarter of 2008 as discussed below.
We recorded net loss of $138 million for the three months ended
December 31, 2008, or basic and diluted loss per share of $0.22,
compared to a net income of $254 million or basic and diluted earn-
ings per share of $0.40 in the corresponding period of 2007. The net
loss was primarily attributable to the writedown of certain Media
assets. In the fourth quarter of 2008, we determined that the fair
value of the conventional television business of Media was lower
than its carrying value. This primarily resulted from weakening of
industry expectations and declines in advertising revenues amidst
the slowing economy. As a result, we recorded an aggregate
non-cash impairment charge of $294 million with the following
components: $154 million related to goodwill, $75 million related to
broadcast licences and $65 million related to intangible assets and
other long-term assets.