Rogers 2011 Annual Report Download - page 44

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.
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
and efficiency initiatives across various functions have also
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.
VIDEO
Summarized Financial Results
Years ended December 31,
(In millions of dollars, except margin) 2011 2010 % Chg
Operating revenue $82$ 143 (43)
Operating expenses before the undernoted 105 176 (40)
Adjusted operating loss(1) (23) (33) (30)
Integration, restructuring and acquisition expenses(2) (14) (7) 100
Other items, net(3) –2 n/m
Operating loss(1) $ (37) $ (38) (3)
Adjusted operating loss margin(1) (28.0%)(23.1%)
(1) As defined. See the sections entitled “Key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
(2) Costs relate to (i) severance costs resulting from the targeted restructuring of our employee base and (ii) the closure of certain Video stores.
(3) 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