Rogers Reports Second Quarter 2010 Financial and Operating Results

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Rogers Reports Second Quarter 2010 Financial and Operating Results Adjusted Operating Profit up 11% as Revenue Grows 5% to $3.0 Billion; Revenue Increases Combine with Cost Efficiencies to Drive Margin Expansion at each of Wireless, Cable and Media; Wireless Data Revenue Growth Continues Strong at 39%, while Cable Total Service Units grow 25,000 More Than Second Quarter 2009; Growth Across Media's Portfolio Leads to 8% Revenue Increase which Combine with Cost Efficiencies to Drive 78% Adjusted Operating Profit Growth; Consolidated Second Quarter Free Cash Flow up 20%, Adjusted Net Income up 13%, and Adjusted Earnings Per Share up 23% TORONTO, July 27 /CNW/ - Rogers Communications Inc. today announced the filing of its consolidated financial and operating results for the three and six months ended June 30, 2010. Financial highlights are as follows(1): ------------------------------------------------------------------------- Three months ended Six months ended (In millions of June 30, June 30, dollars, except per --------------------------------------------------- share amounts) 2010 2009 % Chg 2010 2009 % Chg ------------------------------------------------------------------------- Operating revenue $ 3,029 $ 2,891 5 $ 5,916 $ 5,638 5 Operating profit 1,182 1,033 14 2,304 2,115 9 Net income 451 374 21 831 683 22 Basic and diluted net income per share $ 0.78 $ 0.59 32 $ 1.42 $ 1.08 31 As adjusted: Operating profit $ 1,200 $ 1,083 11 $ 2,363 $ 2,088 13 Net income 464 412 13 872 668 31 Basic and diluted net income per share $ 0.80 $ 0.65 23 $ 1.49 $ 1.06 41 ------------------------------------------------------------------------- (1) For a detailed discussion of our financial and operating metrics and results, please review our 2009 Annual Report together with our second quarter 2010 MD&A and our second quarter 2010 Unaudited Interim Consolidated Financial Statements and Notes thereto which can be found at www.rogers.com and on SEDAR at www.sedar.com or on EDGAR at www.sec.gov. "Our results for the second quarter of 2010 demonstrate continued revenue and subscriber growth combined with healthy operating leverage resulting from efficiency gains across the business," said Nadir Mohamed, President and Chief Executive Officer of Rogers Communications. "As a result, we expanded margins in all three segments and delivered double digit growth in adjusted operating profit, free cash flow and earnings per share." Highlights of the second quarter of 2010 include the following: - Generated consolidated quarterly revenue growth of 5%, with Wireless network growth of 7%, and growth of 4% in Cable Operations and 8% in Media. Wireless, Cable Operations and Media adjusted operating profit increased by 10%, 4%, and 78% respectively. Revenue growth and cost reduction initiatives combined to drive the adjusted operating profit margin up to 39.6% from 37.5% year-over-year on a consolidated basis, with Wireless network margins increasing to 49.9% from 48.5%, Cable Operations margins increasing to 43.4% from 43.1%, and Media margins increasing to 16.7% from 10.1% year-over-year. - Wireless network revenue growth was fuelled by data revenue growth of 39% and net subscriber additions of 119,000. Wireless data revenue now comprises 27% of Wireless network revenue and was helped by the activation and upgrade of approximately 385,000 additional smartphone devices during the quarter, predominantly BlackBerry, iPhone and Android devices, of which approximately 35% were for subscribers new to Wireless. This resulted in subscribers with smartphones, who generate ARPU nearly twice that of voice only subscribers, representing 35% of the overall postpaid subscriber base as at June 30, 2010, up from 25% as at June 30, 2009. - Grew total service units (television, Internet and telephony subscribers) at Cable by more than 25,000 versus the second quarter 2009, with Internet subscriber penetration now at 72% of television subscribers and residential voice-over-cable telephony penetration at 42% of television subscribers. - Wireless announced that it would offer Apple's iPhone 4, and also began offering prepaid wireless service plans for Apple's recently introduced touchscreen tablet computer, the iPad, for customers who want to take their movies, TV shows, music, games and reading with them. - We unveiled the Rogers Handset Protection Guarantee program for wireless customers. The program, a first from a Canadian wireless service provider, provides a simple and cost effective replacement service for customers whose devices have been lost, stolen or broken. - Launched Rogers' Extreme Text Messaging service, a North American first, allowing wireless customers to personalize their texting experience with signatures, distribution lists, blocking and forwarding, making the texting experience as easy and feature rich as email. - Announced the introduction of a new wireless brand called chatr, the first in the prepaid unlimited talk and text category to offer customers the reach and reliability of a proven network. chatr will offer unlimited voice and text plans within defined urban chatr zones, and be supported by extensive retail distribution. The introduction of chatr rounds out Rogers' existing multi-brand approach to targeting distinct market segments. - Cable announced the official launch of its innovative Rogers On Demand Online distribution platform, Canada's one-stop web destination for on-demand access to a vast video library that features prime time, daytime and specialty TV, movies, news, sports, and music content. - Media strengthened its radio presence in Edmonton, Alberta with the agreement to acquire BOUNCE (CHBN-FM), one of Edmonton's top hit music stations, and in London, Ontario with the agreement to acquire BOB-FM (CHST-FM), a continual ratings leader in that market. These transactions are subject to CRTC approval, and are expected to close in the second half of 2010. - Together with Canucks Sports and Entertainment, we announced a 10-year strategic alliance giving Rogers the arena naming and telecommunications sponsorship rights. The Vancouver stadium that is home to the NHL's Canucks will now be known as Rogers Arena. - Generated consolidated free cash flow (adjusted operating profit less property, plant and equipment expenditures and interest) of $591 million, a 20% increase from second quarter 2009, while adjusted net income grew by 13%. On a per share basis, free cash flow increased by 30% and adjusted earnings per share increased by 23% reflecting share buybacks over the past year which decreased the base of outstanding shares. - We repurchased 9.0 million RCI Class B Non-Voting shares for $328 million during the quarter under our $1.5 billion share buyback authorization, and paid dividends on our common shares totalling $188 million. This summary of our second quarter 2010 earnings ("earnings release"), which is current as of July 26, 2010, should be read in conjunction with our second quarter 2010 MD&A, our second quarter 2010 Interim Unaudited Consolidated Financial Statements and Notes thereto, our 2009 Annual MD&A and our 2009 Annual Audited Consolidated Financial Statements and Notes thereto. The financial information presented herein has been prepared on the basis of Canadian generally accepted accounting principles ("GAAP") for interim financial statements and is expressed in Canadian dollars. Please refer to Note 25 of our 2009 Annual Audited Consolidated Financial Statements for a summary of the differences between Canadian GAAP and United States ("U.S.") GAAP for the year ended December 31, 2009. In this earnings release, the terms "we", "us", "our", "Rogers" and "the Company" refer to Rogers Communications Inc. and our subsidiaries, "Wireless", "Cable" and "Media". SUMMARIZED CONSOLIDATED FINANCIAL RESULTS ------------------------------------------------------------------------- Three months ended Six months ended (In millions of June 30, June 30, dollars, except per --------------------------------------------------- share amounts) 2010 2009 % Chg 2010 2009 % Chg ------------------------------------------------------------------------- Operating revenue Wireless $ 1,700 $ 1,616 5 $ 3,362 $ 3,160 6 Cable Cable Operations 790 763 4 1,579 1,506 5 RBS 140 125 12 273 253 8 Rogers Retail 86 90 (4) 175 192 (9) Corporate items and eliminations (12) (6) 100 (26) (11) 136 --------------------------------------------------- 1,004 972 3 2,001 1,940 3 Media 396 366 8 697 650 7 Corporate items and eliminations (71) (63) 13 (144) (112) 29 --------------------------------------------------- Total 3,029 2,891 5 5,916 5,638 5 --------------------------------------------------- --------------------------------------------------- Adjusted operating profit (loss) Wireless 815 742 10 1,647 1,452 13 Cable Cable Operations 343 329 4 683 637 7 RBS 9 7 29 17 22 (23) Rogers Retail (8) (4) 100 (12) (3) n/m --------------------------------------------------- 344 332 4 688 656 5 Media 66 37 78 74 27 174 Corporate items and eliminations (25) (28) (11) (46) (47) (2) --------------------------------------------------- Adjusted operating profit 1,200 1,083 11 2,363 2,088 13 Stock-based compensation recovery (expense) (10) (13) (23) (34) 68 n/m Integration and restructuring expenses (8) (37) (78) (10) (41) (76) Other items, net - - n/m (15) - n/m --------------------------------------------------- Operating profit 1,182 1,033 14 2,304 2,115 9 Other income and expense, net 731 659 11 1,473 1,432 3 --------------------------------------------------- Net income $ 451 $ 374 21 $ 831 $ 683 22 --------------------------------------------------- --------------------------------------------------- Basic and diluted net income per share $ 0.78 $ 0.59 32 $ 1.42 $ 1.08 31 As adjusted: Net income $ 464 $ 412 13 $ 872 $ 668 31 Basic and diluted net income per share $ 0.80 $ 0.65 23 $ 1.49 $ 1.06 41 Additions to property, plant and equipment ("PP&E") Wireless $ 206 $ 204 1 $ 405 $ 378 7 Cable Cable Operations 159 156 2 277 260 7 RBS 8 9 (11) 14 17 (18) Rogers Retail 3 3 - 4 6 (33) --------------------------------------------------- 170 168 1 295 283 4 Media 9 16 (44) 14 30 (53) Corporate 54 46 17 91 102 (11) --------------------------------------------------- Total $ 439 $ 434 1 $ 805 $ 793 2 ------------------------------------------------------------------------- SEGMENT REVIEW WIRELESS -------- Summarized Wireless Financial Results ------------------------------------------------------------------------- Three months ended Six months ended (In millions of June 30, June 30, dollars, except --------------------------------------------------- margin) 2010 2009 % Chg 2010 2009 % Chg ------------------------------------------------------------------------- Operating revenue Postpaid $ 1,559 $ 1,456 7 $ 3,074 $ 2,862 7 Prepaid 74 73 1 140 140 - --------------------------------------------------- Network revenue 1,633 1,529 7 3,214 3,002 7 Equipment sales 67 87 (23) 148 158 (6) --------------------------------------------------- Total operating revenue 1,700 1,616 5 3,362 3,160 6 --------------------------------------------------- Operating expenses before the undernoted Cost of equipment sales 243 254 (4) 480 479 - Sales and marketing expenses 152 149 2 263 289 (9) Operating, general and administrative expenses 490 471 4 972 940 3 --------------------------------------------------- 885 874 1 1,715 1,708 - --------------------------------------------------- Adjusted operating profit 815 742 10 1,647 1,452 13 Stock-based compensation recovery (expense) (2) (2) - (7) 8 n/m Integration and restructuring expenses - (9) n/m (1) (9) (89) Other items, net - - n/m (10) - n/m --------------------------------------------------- Operating profit $ 813 $ 731 11 $ 1,629 $ 1,451 12 --------------------------------------------------- --------------------------------------------------- Adjusted operating profit margin as % of network revenue 49.9% 48.5% 51.2% 48.4% Additions to PP&E $ 206 $ 204 1 $ 405 $ 378 7 ------------------------------------------------------------------------- Summarized Wireless Subscriber Results ------------------------------------------------------------------------- (Subscriber statistics in Three months ended Six months ended thousands, except June 30, June 30, ARPU, churn and ------------------------------------------------------ usage) 2010 2009 Chg 2010 2009 Chg ------------------------------------------------------------------------- Postpaid Gross additions 321 347 (26) 599 662 (63) Net additions 98 148 (50) 145 252 (107) Total postpaid retail subscribers 7,124 6,702 422 7,124 6,702 422 Average monthly revenue per user ("ARPU") $ 73.54 $ 73.24 $ 0.30 $ 72.83 $ 72.69 $ 0.14 Average monthly minutes of usage 577 604 (27) 567 587 (20) Monthly churn 1.06% 1.00% 0.06% 1.08% 1.05% 0.03% Prepaid Gross additions 165 135 30 293 265 28 Net additions (losses) 21 (6) 27 (13) (38) 25 Total prepaid retail subscribers 1,502 1,454 48 1,502 1,454 48 ARPU $ 16.61 $ 16.77 $(0.16) $ 15.64 $ 15.92 $(0.28) Average monthly minutes of usage 112 124 (12) 109 120 (11) Monthly churn 3.26% 3.24% 0.02% 3.43% 3.44% (0.01%) Total Postpaid and Prepaid Gross additions 486 482 4 892 927 (35) Net additions 119 142 (23) 132 214 (82) Total postpaid and prepaid retail subscribers 8,626 8,156 470 8,626 8,156 470 Monthly churn 1.44% 1.41% 0.03% 1.49% 1.48% 0.01% Blended ARPU $ 63.66 $ 63.09 $ 0.57 $ 62.82 $ 62.32 $ 0.50 Blended average monthly minutes of usage 495 516 (21) 485 500 (15) ------------------------------------------------------------------------- Wireless Subscribers and Network Revenue The year-over-year decrease in net subscriber additions for the quarter primarily reflects a combination of an increased level of competitive intensity, a significantly higher than usual market share of subscriber additions by Wireless in the prior year period, and a slowing of consumer iPhone purchases in advance of the availability of the new iPhone 4 during the third quarter of 2010. Wireless began offering prepaid wireless service plans for Apple's recently introduced touchscreen tablet computer, the iPad, during the quarter and this contributed to the increase in prepaid subscribers versus the prior year period. The increase in network revenue for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, was driven predominantly by the continued growth of Wireless' postpaid subscriber base and the continued adoption of wireless data services. Year-over-year, blended ARPU increased by 0.9%, which reflects higher wireless data, feature and long-distance revenues, partially offset by declines in roaming and out-of-plan usage revenues reflecting a combination of economic softness, the creation over the past year of voice and data roaming value plans for frequent travelers, and general competitive intensity. For both the three and six months ended June 30, 2010, wireless data revenue increased by approximately 39% over the corresponding periods of 2009, to $436 million and $851 million, respectively. 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. For both the three and six months ended June 30, 2010, data revenue represented approximately 27% of total network revenue, compared to approximately 20% in the corresponding periods of 2009. Wireless activated and upgraded approximately 385,000 smartphone devices, predominately iPhone, BlackBerry and Android devices, of which approximately 35% were for subscribers new to Wireless, during the three months ended June 30, 2010. This resulted in subscribers with smartphones representing 35% of the overall postpaid subscriber base as at June 30, 2010, compared to 25% as at June 30, 2009. These subscribers have committed to new multi-year-term contracts, and generate ARPU nearly twice that of voice only subscribers. Wireless' success in maintaining the low level of postpaid churn reflects targeted customer retention programs and continued enhancements in network coverage and quality. Wireless Equipment Sales The year-over-year decrease in the equipment sales component of revenue, including activation fees and net of equipment subsidies, for the three and six months ended June 30, 2010, versus the corresponding periods of 2009, reflects fluctuations in the mix, volumes, and subsidy levels associated with device sales to new and upgrading subscribers. Wireless Operating Expenses ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, (In millions of --------------------------------------------------- dollars) 2010 2009 % Chg 2010 2009 % Chg ------------------------------------------------------------------------- Operating expenses Cost of equipment sales $ 243 $ 254 (4) $ 480 $ 479 - Sales and marketing expenses 152 149 2 263 289 (9) Operating, general and administrative expenses 490 471 4 972 940 3 --------------------------------------------------- Operating expenses before the undernoted 885 874 1 1,715 1,708 - Stock-based compensation expense (recovery) 2 2 - 7 (8) n/m Integration and restructuring expenses - 9 n/m 1 9 (89) Other items, net - - n/m 10 - n/m --------------------------------------------------- Total operating expenses $ 887 $ 885 - $ 1,733 $ 1,709 1 ------------------------------------------------------------------------- The decrease in cost of equipment sales for the three months ended June 30, 2010, compared to the corresponding period of 2009, was primarily the result of the timing of hardware shipments versus the prior period, offset by a higher average cost of more sophisticated devices. These factors also contributed to the relatively steady level of cost of equipment sales for the six months ended June 30, 2010, compared to the corresponding period of 2009. Sales and marketing expenses increased slightly for the three months ended June 30, 2010, compared to the corresponding period of 2009, due to modest increased spending on advertising and promotion costs for new marketing campaigns, offset by savings resulting from cost reduction initiatives. Sales and marketing expenses decreased 9% for the six months ended June 30, 2010, compared to the corresponding period of 2009, due to lower sales volumes as well as savings resulting from cost reduction initiatives. The year-over-year increase in operating, general and administrative expenses for the second quarter, excluding retention spending discussed below, was driven by a combination of growth in the Wireless postpaid subscriber base offset by savings related to operating and scale efficiencies across various functions. Total retention spending, including subsidies on handset upgrades, was $170 million and $325 million in the three and six months ended June 30, 2010, respectively, compared to $144 million and $287 million in the corresponding periods of 2009. The retention spending for the three and six months ended June 30, 2010 increased compared to the corresponding periods of 2009 as a result of a higher volume of upgrade activity by existing subscribers and an increased mix of more sophisticated devices, versus the prior periods. Wireless Adjusted Operating Profit The 10% year-over-year increase in adjusted operating profit and the adjusted operating profit margin of 49.9% on network revenue (which excludes equipment sales revenue) for the three months ended June 30, 2010 primarily reflects the increase in network revenue offset by the increase in the total operating expenses discussed above. Wireless Additions to Property, Plant and Equipment ("PP&E") Wireless additions to PP&E are classified into the following categories: ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, (In millions of --------------------------------------------------- dollars) 2010 2009 % Chg 2010 2009 % Chg ------------------------------------------------------------------------- Additions to PP&E Capacity $ 96 $ 119 (19) $ 224 $ 209 7 Quality 73 49 49 116 99 17 Network - other 7 5 40 13 19 (32) Information technology and other 30 31 (3) 52 51 2 --------------------------------------------------- Total additions to PP&E $ 206 $ 204 1 $ 405 $ 378 7 ------------------------------------------------------------------------- Wireless PP&E additions reflect spending on network capacity, such as radio channel additions, network core improvements and network enhancing features, including the deployment of our HSPA+ network. Quality related PP&E is 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. In addition, 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 included billing and back-office system upgrades, and other facilities and equipment spending. Spending for the three months ended June 30, 2010 related to the Quality PP&E increased by 49% over the second quarter of 2009 due to increased new cell-site build activity. Quarter-over-quarter Capacity PP&E was lower by 19%, as a result of decreased spending on switching/radio network controller equipment and transmission augmentation projects. Network - other spending increased 40% over the second quarter of 2009 due to new product initiatives, such as the development of a pre-paid rocket stick and subscriber day passes for U.S. and international roaming. Other Wireless Developments Wireless announced the introduction of a new wireless brand called chatr. This new wireless brand will focus on the growing urban zone based unlimited talk and text category. On July 9, 2010, Wireless reached an agreement to acquire the assets of Cityfone Telecommunications Inc. ("Cityfone") for cash consideration of $24 million. Cityfone is a leading independent Canadian Mobile Virtual Network Operator that resells Wireless' post paid wireless voice and data services to subscribers through private label programs with major Canadian brands. CABLE ----- Summarized Cable Financial Results ------------------------------------------------------------------------- Three months ended Six months ended (In millions of June 30, June 30, dollars, except --------------------------------------------------- margin) 2010 2009 % Chg 2010 2009 % Chg ------------------------------------------------------------------------- Operating revenue Cable Operations $ 790 $ 763 4 $ 1,579 $ 1,506 5 RBS 140 125 12 273 253 8 Rogers Retail 86 90 (4) 175 192 (9) Intercompany eliminations (12) (6) 100 (26) (11) 136 --------------------------------------------------- Total operating revenue 1,004 972 3 2,001 1,940 3 --------------------------------------------------- Adjusted operating profit (loss) before the undernoted Cable Operations 343 329 4 683 637 7 RBS 9 7 29 17 22 (23) Rogers Retail (8) (4) 100 (12) (3) n/m --------------------------------------------------- Adjusted operating profit 344 332 4 688 656 5 Stock-based compensation recovery (expense) (2) (4) (50) (5) 21 n/m Integration and restructuring expenses (7) (7) - (8) (11) (27) Other items, net - - n/m (5) - n/m --------------------------------------------------- Operating profit $ 335 $ 321 4 $ 670 $ 666 1 --------------------------------------------------- --------------------------------------------------- Adjusted operating profit (loss) margin Cable Operations 43.4% 43.1% 43.3% 42.3% RBS 6.4% 5.6% 6.2% 8.7% Rogers Retail (9.3%) (4.4%) (6.9%) (1.6%) Additions to PP&E Cable Operations $ 159 $ 156 2 $ 277 $ 260 7 RBS 8 9 (11) 14 17 (18) Rogers Retail 3 3 - 4 6 (33) --------------------------------------------------- Total additions to PP&E $ 170 $ 168 1 $ 295 $ 283 4 ------------------------------------------------------------------------- The following segment discussions provide a detailed discussion of the Cable operating results. CABLE OPERATIONS Summarized Financial Results ------------------------------------------------------------------------- Three months ended Six months ended (In millions of June 30, June 30, dollars, except --------------------------------------------------- margin) 2010 2009 % Chg 2010 2009 % Chg ------------------------------------------------------------------------- Operating revenue Core Cable $ 448 $ 440 2 $ 905 $ 868 4 Internet 214 195 10 418 381 10 Rogers Home Phone 128 128 - 256 257 - --------------------------------------------------- Total Cable Operations operating revenue 790 763 4 1,579 1,506 5 --------------------------------------------------- Operating expenses before the undernoted Sales and marketing expenses 58 64 (9) 110 119 (8) Operating, general and administrative expenses 389 370 5 786 750 5 --------------------------------------------------- 447 434 3 896 869 3 --------------------------------------------------- Adjusted operating profit 343 329 4 683 637 7 Stock-based compensation recovery (expense) (2) (4) (50) (5) 19 n/m Integration and restructuring expenses (1) (6) (83) (1) (7) (86) Other items, net - - n/m (7) - n/m --------------------------------------------------- Operating profit $ 340 $ 319 7 $ 670 $ 649 3 --------------------------------------------------- --------------------------------------------------- Adjusted operating profit margin 43.4% 43.1% 43.3% 42.3% ------------------------------------------------------------------------- Summarized Subscriber Results ------------------------------------------------------------------------- Three months ended Six months ended (Subscriber June 30, June 30, statistics in --------------------------------------------------- thousands) 2010 2009 Chg 2010 2009 Chg ------------------------------------------------------------------------- Cable homes passed 3,661 3,577 84 3,661 3,577 84 Television Net additions (losses) - (19) 19 1 (27) 28 Total television subscribers 2,296 2,292 4 2,296 2,292 4 Digital cable Households, net additions 11 8 3 37 43 (6) Total households 1,701 1,593 108 1,701 1,593 108 Cable high-speed Internet Net additions (losses) 7 (4) 11 24 7 17 Total cable high- speed Internet subscribers 1,643 1,578 65 1,643 1,578 65 Cable telephony lines Net additions and migrations 16 21 (5) 38 38 - Total cable telephony lines 975 878 97 975 878 97 Total cable service units Net additions (losses) 23 (2) 25 63 18 45 Total cable service units 4,914 4,748 166 4,914 4,748 166 ------------------------------------------------------------------------- Circuit-switched lines Net losses and migrations (11) (27) 16 (27) (50) 23 Total circuit- switched lines 97 165 (68) 97 165 (68) ------------------------------------------------------------------------- Core Cable Revenue The increase in Core Cable revenue for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, reflects the continued increasing penetration of our digital cable product offerings. The temporary slowdown in the year-over-year growth rate of Core Cable revenue from the first quarter to the second quarter of 2010 reflects the timing of annual pricing changes, which took place in March 2009 and July 2010. Cable continues to lead the Canadian cable industry in digital cable penetration. The digital cable subscriber base grew by 7% from June 30, 2009 to June 30, 2010, to 74% of television households passed by our cable networks, compared to 70% as at June 30, 2009. Increased demand from subscribers for the larger selection of digital content, video on demand, HDTV and personal video recorder ("PVR") equipment continues to drive the growth in the digital subscriber base. Cable Internet Revenue The year-over-year increase in Internet revenues for the three and six months ended June 30, 2010, primarily reflects the increase in the Internet subscriber base, combined with Internet services price changes made in March 2010 and increased promotional programs. With the high-speed Internet base at approximately 1.6 million subscribers, Internet penetration is approximately 45% of the homes passed by our cable networks and 72% of our television subscriber base, at June 30, 2010. Rogers Home Phone Revenue Rogers Home Phone revenue for the three and six months ended June 30, 2010, reflects the year-over-year growth in the cable telephony customer base with a corresponding cable telephony revenue growth of approximately 9% for the quarter, offset by the ongoing decline of the legacy circuit-switched telephony and long-distance only customer bases. The lower net additions of cable telephony lines in the second quarter of 2010 versus the corresponding period of 2009 are primarily the result of fewer customer migrations from circuit-switch to cable telephony. Cable telephony lines in service grew 11% from June 30, 2009 to June 30, 2010. At June 30, 2010, cable telephony lines represented 27% of the homes passed by our cable networks and 42% of television subscribers. Cable continues to focus principally on growing its on-net cable telephony line base. As part of this on-net focus, Cable continues to significantly de-emphasize sales of the circuit-switched product. Of the 16,000 net line additions to cable telephony during the second quarter of 2010, approximately 1,000 were migrations of lines from our legacy circuit-switched platform to our cable telephony platform. Because of the strategic decision in early 2008 to de-emphasize sales of the circuit-switched telephony product outside of the cable footprint, Cable expects that circuit-switched net line losses will continue as that base of subscribers continues to contract over time. Excluding the impact of the shrinking circuit-switched telephony business, the year-over-year revenue growth for Rogers Home Phone and Cable Operations for the second quarter ended June 30, 2010 would have been 9% and 5%, respectively. Cable Operations Operating Expenses The increase in Cable Operations' operating expenses for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, was primarily driven by higher costs associated with programming and other content, network operations, and increases in information technology costs, offset by 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 43.4% and 43.3%, respectively, for the three and six months ended June 30, 2010, compared to 43.1% and 42.3%, respectively, in the corresponding periods of 2009. ROGERS BUSINESS SOLUTIONS Summarized Financial Results ------------------------------------------------------------------------- Three months ended Six months ended (In millions of June 30, June 30, dollars, except --------------------------------------------------- margin) 2010 2009 % Chg 2010 2009 % Chg ------------------------------------------------------------------------- RBS operating revenue $ 140 $ 125 12 $ 273 $ 253 8 --------------------------------------------------- Operating expenses before the undernoted Sales and marketing expenses 10 6 67 22 12 83 Operating, general and administrative expenses 121 112 8 234 219 7 --------------------------------------------------- 131 118 11 256 231 11 --------------------------------------------------- Adjusted operating profit 9 7 29 17 22 (23) Stock-based compensation recovery - - n/m - 1 n/m Integration and restructuring expenses (2) (1) 100 (3) (1) 200 --------------------------------------------------- Operating profit $ 7 $ 6 17 $ 14 $ 22 (36) --------------------------------------------------- --------------------------------------------------- Adjusted operating profit margin 6.4% 5.6% 6.2% 8.7% ------------------------------------------------------------------------- Summarized Subscriber Results ------------------------------------------------------------------------- Three months ended Six months ended (Subscriber June 30, June 30, statistics in --------------------------------------------------- thousands) 2010 2009 Chg 2010 2009 Chg ------------------------------------------------------------------------- Local line equivalents Total local line equivalents 156 187 (31) 156 187 (31) Broadband data circuits Total broadband data circuits 35 37 (2) 35 37 (2) ------------------------------------------------------------------------- RBS Revenue The increase in RBS revenues reflects the increase in long-distance revenue, which includes higher volumes by both carrier and internal customers, and the acquisition of Blink, partially offset by the ongoing decline in the legacy portions of the business. RBS is focused on leveraging on-net revenue opportunities utilizing Cable's existing network facilities as well as maintaining its existing medium enterprise customer base while growing the carrier business. Excluding the acquisition of Blink, revenue growth for the three months ended June 30, 2010 would have been 8%. For the three and six months ended June 30, 2010, long-distance revenue increased, which was partially offset by a decline in RBS legacy data and local revenues, compared to the corresponding periods of 2009. RBS Operating Expenses Operating, general and administrative expenses increased for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009. An increase in long-distance costs due to higher call volumes and country mix resulted in higher operating costs which were partially offset by lower data and local carrier charges. Sales and marketing expenses increased for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, and reflect increased marketing within the medium and large enterprise and carrier segments associated with RBS' launch of a new suite of Ethernet services. The increase also reflects the organizational changes to support an increase in the sales and marketing effort. RBS Adjusted Operating Profit The changes in revenues and operating expenses described above resulted in an adjusted operating profit margin of 6.4% and 6.2%, respectively, for the three and six months ended June 30, 2010, compared to 5.6% and 8.7%, respectively, in the corresponding periods of the prior year. Excluding the acquisition of Blink, adjusted operating profit for the three months ended June 30, 2010 would have been approximately $7 million. ROGERS RETAIL Summarized Financial Results ------------------------------------------------------------------------- Three months ended Six months ended (In millions of June 30, June 30, dollars, except --------------------------------------------------- margin) 2010 2009 % Chg 2010 2009 % Chg ------------------------------------------------------------------------- Operating revenue Wireless and Cable sales 49 46 7 97 95 2 Video rental and sales 37 44 (16) 78 97 (20) --------------------------------------------------- Total Rogers Retail operating revenue 86 90 (4) 175 192 (9) --------------------------------------------------- Operating expenses before the undernoted 94 94 - 187 195 (4) --------------------------------------------------- Adjusted operating (loss) (8) (4) 100 (12) (3) n/m Stock-based compensation recovery - - n/m - 1 n/m Integration and restructuring expenses (4) - n/m (4) (3) 33 Other items, net - - n/m 2 - n/m --------------------------------------------------- Operating loss $ (12) $ (4) 200 $ (14) $ (5) 180 --------------------------------------------------- --------------------------------------------------- Adjusted operating (loss) margin (9.3%) (4.4%) (6.9%) (1.6%) ------------------------------------------------------------------------- Rogers Retail Revenue The decrease in Rogers Retail revenue for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, was the result of a continued decline in video rental and sales activities partially offset by higher sales of wireless and other communications products versus the prior year period. Early in 2010, Rogers began an initiative to more deeply integrate its wireless, cable and video rental distribution channels to better respond to changing customer needs and preferences. As a result of this integration, certain facilities and stores associated principally with the video rental portion of Rogers Retail will be closed. Rogers Retail Adjusted Operating Loss The adjusted operating loss at Rogers Retail increased for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, reflecting the trends noted above. CABLE ADDITIONS TO PP&E 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 which facilitate comparisons of additions to PP&E between different cable companies. Under these industry definitions, Cable Operations additions to PP&E are classified into the following five categories: - Customer premise equipment ("CPE"), which includes the equipment for digital set-top terminals, Internet modems and associated installation costs; - Scalable infrastructure, which includes non-CPE costs to meet business growth and to provide service enhancements, including many of the costs to-date of the cable telephony initiative; - Line extensions, which includes network costs to enter new service areas; - Upgrades and rebuild, which includes the costs to modify or replace existing 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. Summarized Cable PP&E Additions ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, (In millions of --------------------------------------------------- dollars) 2010 2009 % Chg 2010 2009 % Chg ------------------------------------------------------------------------- Additions to PP&E Customer premise equipment $ 66 $ 45 47 $ 112 $ 78 44 Scalable infrastructure 47 69 (32) 87 104 (16) Line extensions 12 10 20 20 18 11 Upgrades and rebuild 5 5 - 8 10 (20) Support capital 29 27 7 50 50 - --------------------------------------------------- Total Cable Operations 159 156 2 277 260 7 RBS 8 9 (11) 14 17 (18) Rogers Retail 3 3 - 4 6 (33) --------------------------------------------------- $ 170 $ 168 1 $ 295 $ 283 4 ------------------------------------------------------------------------- Additions to Cable PP&E include continued investments in the cable network to enhance 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 the three and six months ended June 30, 2010 compared to the corresponding periods of 2009 resulted primarily from higher CPE spending offset by lower scaleable infrastructure expenditures due to the completion of certain projects associated with our Internet and digital cable platforms. The higher CPE spending corresponds with higher levels of cable service unit net additions versus the corresponding prior year periods. The RBS PP&E additions for the three and six months ended June 30, 2010 decreased slightly compared to the corresponding periods of 2009 and reflects the timing of expenditures on customer networks and support capital. Rogers Retail PP&E additions are attributable to improvements made to certain retail locations. MEDIA ----- Summarized Media Financial Results ------------------------------------------------------------------------- Three months ended Six months ended (In millions of June 30, June 30, dollars, except --------------------------------------------------- margin) 2010 2009 % Chg 2010 2009 % Chg ------------------------------------------------------------------------- Operating revenue $ 396 $ 366 8 $ 697 $ 650 7 --------------------------------------------------- Operating expenses before the undernoted 330 329 - 623 623 - --------------------------------------------------- Adjusted operating profit 66 37 78 74 27 174 Stock-based compensation recovery (expense) (2) (2) - (6) 14 n/m Integration and restructuring expenses (1) (21) (95) (1) (21) (95) --------------------------------------------------- Operating profit $ 63 $ 14 n/m $ 67 $ 20 n/m --------------------------------------------------- --------------------------------------------------- Adjusted operating profit margin 16.7% 10.1% 10.6% 4.2% Additions to property, plant and equipment $ 9 $ 16 (44) $ 14 $ 30 (53) ------------------------------------------------------------------------- Media Revenue The increase in Media's revenue for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, reflects improvements in Media's prime time TV ratings, increased subscriber fees, improvements in the advertising market and in consumer discretionary spending, which together are favorably impacting Television, Sportsnet, Radio and The Shopping Channel revenues. Publishing is also beginning to experience positive growth in advertising revenues for the first time in several quarters, while Sports Entertainment reported modest revenue declines associated with fluctuations in attendance levels. Media Operating Expenses Media's operating expenses for the three and six months ended June 30, 2010 were flat compared to the corresponding periods of 2009. While focused cost reduction programs across all of Media's divisions over the past year have resulted in reduced operating expenses, these savings were offset by cost of goods sold increases at The Shopping Channel associated with higher sales volumes and certain planned increases in programming costs at Television and Sportsnet. Media Adjusted Operating Profit The increase in Media's adjusted operating profit for the three and six months ended June 30, 2010, compared to the corresponding periods of 2009, primarily reflects the revenue and expense changes discussed above and resultant operating leverage which caused operating profit and margins to both increase significantly. Media Additions to PP&E Media's PP&E additions in the three and six months ended June 30, 2010 declined from the corresponding periods of 2009 due to the completion of Television's new Ontario broadcasting facility in 2009 combined with numerous cost containment initiatives across Media's divisions. Other Media Developments In June 2010, Media reached an agreement to acquire London, Ontario FM radio station BOB-FM (CHST-FM) and Edmonton, Alberta FM radio station BOUNCE (CHBN-FM). These transactions are subject to CRTC approval and expected to close in the second half of 2010. 2010 FINANCIAL AND OPERATING GUIDANCE At this point in the year we have no specific revisions to the 2010 annual financial and operating guidance ranges which we provided on February 17, 2010. Rogers Communications Inc. Unaudited Interim Consolidated Statements of Income (In millions of dollars, except per share amounts) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, 2010 2009 2010 2009 ------------------------------------------------------------------------- Operating revenue $ 3,029 $ 2,891 $ 5,916 $ 5,638 Operating expenses: Cost of sales 319 328 622 638 Sales and marketing 303 296 555 577 Operating, general and administrative 1,217 1,197 2,425 2,267 Integration and restructuring 8 37 10 41 Depreciation and amortization 406 446 814 890 ------------------------------------------------------------------------- Operating income 776 587 1,490 1,225 Interest on long-term debt (170) (156) (338) (308) Debt issuance costs - (5) - (5) Foreign exchange gain (loss) (19) 80 (7) 51 Change in fair value of derivative instruments 32 (11) 19 (1) Other income, net 5 4 4 6 ------------------------------------------------------------------------- Income before income taxes 624 499 1,168 968 ------------------------------------------------------------------------- Income tax expense: Current 105 (1) 219 (1) Future 68 126 118 286 ----------------------------------------------------------------------- 173 125 337 285 ------------------------------------------------------------------------- Net income for the period $ 451 $ 374 $ 831 $ 683 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted net income per share $ 0.78 $ 0.59 $ 1.42 $ 1.08 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Rogers Communications Inc. Unaudited Interim Consolidated Balance Sheets (In millions of dollars) ------------------------------------------------------------------------- June 30, December 31, 2010 2009 ------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 122 $ 383 Accounts receivable 1,252 1,310 Other current assets 428 338 Current portion of derivative instruments 5 4 Future income tax assets 141 220 ----------------------------------------------------------------------- 1,948 2,255 Property, plant and equipment 8,239 8,197 Goodwill 3,085 3,018 Intangible assets 2,673 2,643 Investments 555 547 Derivative instruments 225 78 Other long-term assets 286 280 ------------------------------------------------------------------------- $ 17,011 $ 17,018 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 1,947 $ 2,175 Income taxes payable 415 208 Current portion of long-term debt 522 1 Current portion of derivative instruments 321 80 Unearned revenue 290 284 ----------------------------------------------------------------------- 3,495 2,748 Long-term debt 8,014 8,463 Derivative instruments 646 1,004 Other long-term liabilities 123 133 Future income tax liabilities 487 397 ------------------------------------------------------------------------- 12,765 12,745 Shareholders' equity 4,246 4,273 ------------------------------------------------------------------------- $ 17,011 $ 17,018 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Rogers Communications Inc. Unaudited Interim Consolidated Statements of Cash Flows (In millions of dollars) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, 2010 2009 2010 2009 ------------------------------------------------------------------------- Cash provided by (used in): Operating activities: Net income for the period $ 451 $ 374 $ 831 $ 683 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 406 446 814 890 Program rights and Rogers Retail rental amortization 56 37 105 77 Future income taxes 68 126 118 286 Unrealized foreign exchange loss (gain) 17 (74) 5 (47) Change in fair value of derivative instruments (32) 11 (19) 1 Pension contributions, net of expense (7) (14) (17) (19) Stock-based compensation expense (recovery) 10 13 34 (68) Amortization on fair value increment of long-term debt (1) (2) (3) (3) Other (2) 1 1 - ----------------------------------------------------------------------- 966 918 1,869 1,800 Change in non-cash operating working capital items 13 (42) (37) (236) ----------------------------------------------------------------------- 979 876 1,832 1,564 ------------------------------------------------------------------------- Investing activities: Additions to property, plant and equipment ("PP&E") (439) (434) (805) (793) Change in non-cash working capital items related to PP&E 19 8 (70) (123) Acquisitions, net of cash and cash equivalents acquired (2) (11) (132) (11) Acquisition of spectrum licences (20) (15) (30) (15) Additions to program rights (39) (48) (85) (92) Other 14 (4) 21 (5) ----------------------------------------------------------------------- (467) (504) (1,101) (1,039) ------------------------------------------------------------------------- Financing activities: Issuance of long-term debt 50 1,460 50 1,825 Repayment of long-term debt (50) (975) (50) (1,410) Repayment of capital lease (1) - (1) - Repurchase of Class B Non-Voting shares (328) (509) (630) (509) Proceeds received on exercise of stock options 1 - 2 - Dividends paid (188) (184) (363) (343) ----------------------------------------------------------------------- (516) (208) (992) (437) ------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (4) 164 (261) 88 Cash and cash equivalents (deficiency), beginning of period 126 (95) 383 (19) ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 122 $ 69 $ 122 $ 69 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental cash flow information: Income taxes paid $ 5 $ - $ 12 $ - Interest paid 193 154 339 307 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The change in non-cash operating working capital items is as follows: Decrease (increase) in accounts receivable $ (87) $ (24) $ 58 $ 222 Decrease (increase) in other assets (13) 63 (131) (11) Increase (decrease) in accounts payable and accrued liabilities 23 (55) (177) (487) Increase in income taxes payable 100 - 207 - Increase (decrease) in unearned revenue (10) (26) 6 40 ------------------------------------------------------------------------- $ 13 $ (42) $ (37) $ (236) ------------------------------------------------------------------------- ------------------------------------------------------------------------- This earnings release should be read in conjunction with our 2009 Annual Report, our second quarter 2010 MD&A and our second quarter 2010 Unaudited Interim Consolidated Financial Statements and Notes thereto that can be found at www.rogers.com and on SEDAR at www.sedar.com or on EDGAR at www.sec.gov. Caution Regarding Forward-Looking Statements, Risks and Assumptions This earnings release includes forward-looking statements and assumptions concerning our business, its operations and its financial performance and condition approved by management on the date of this earnings release. These forward-looking statements and assumptions include, but are not limited to, statements with respect to our objectives and strategies to achieve those objectives, statements with respect to our beliefs, plans, expectations, anticipations, estimates or intentions, including guidance and forecasts relating to revenue, adjusted operating profit, PP&E expenditures, free cash flow, 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. Such forward-looking statements are based on current objectives, strategies, expectations and assumptions, most of which are confidential and proprietary, that we believe to be reason! able at the time including, but not limited to, general economic and industry growth rates, currency exchange rates, product pricing levels and competitive intensity, subscriber growth and usage rates, changes in government regulation, technology deployment, device availability, the timing of new product launches, content and equipment costs, the integration of acquisitions, and 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 of the financial information contained herein. We caution that all forward-looking information, including any statement regarding our current intentions, is inherently subject to change and uncertainty and that actual results may differ materially from the assumptions, estimates or expectations reflected in the forward-looking information. A number of factors could cause actual results to differ materially from those in the forward-looking statements or could cause our current objectives and strategies to change, including but not limited to economic conditions, technological change, the integration of acquisitions, unanticipated changes in content or equipment costs, changing conditions in the entertainment, information and communications industries, regulatory changes, litigation and tax matters, the level of competitive intensity and the emergence of new opportunities, many of which are beyond our control and current expectation or knowledge. Therefore, should one or more of these risks materialize, should our objecti! ves or strategies change, or should any other factors underlying the forward-looking statements prove incorrect, actual results and our plans may vary significantly from what we currently foresee. Accordingly, we warn investors to exercise caution when considering any such forward-looking information herein and that it would be unreasonable to rely on such statements as creating any legal rights regarding our future results or plans. We are under no obligation (and we expressly disclaim any such obligation) to update or alter any forward-looking statements or assumptions whether as a result of new information, future events or otherwise, except as required by law. Before making any investment decisions and for a detailed discussion of the risks, uncertainties and environment associated with our business, fully review the sections of our second quarter 2010 MD&A entitled "Updates to Risks and Uncertainties" and "Government Regulation and Regulatory Developments", and also the sections entitled "Risks and Uncertainties Affecting our Businesses" and "Government Regulation and Regulatory Developments" in our 2009 Annual MD&A. About Rogers Communications Inc. Rogers Communications is a diversified Canadian communications and media company. We are Canada's largest provider of wireless voice and data 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, 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 further information about the Rogers group of companies, please visit www.rogers.com. Quarterly Investment Community Conference Call As previously announced by press release, a live webcast of our quarterly results conference call with the investment community will be broadcast via the Internet at rogers.com/webcast beginning at 8:30 a.m. ET today, July 27, 2010. A rebroadcast of this teleconference will be available on the Webcast Archive page of the Investor Relations section of rogers.com for a period of at least two weeks following the conference call. 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 Contacts: Wireless, Cable and Corporate: Terrie Tweddle, 416.935.4727, terrie.tweddle@rci.rogers.com; Media and Regulatory: Jan Innes, 416.935.3525, jan.innes@rci.rogers.com Index of Releases

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