Quarterly Revenue Grows to $2.0 Billion, Operating Profit Increases
to Nearly $600 million, and Strong Subscriber Growth Continues;
TORONTO, April 25 /PRNewswire-FirstCall/ -- Rogers Communications
Inc. today announced its consolidated financial and operating
results for the three months ended March 31, 2006. Financial
highlights (in thousands of dollars, except per share amounts) are
as follows:
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Three Months Ended March 31, 2006 2005 % Change
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Operating revenue $ 2,031,752 $ 1,582,415 28.4 Operating profit(1)
596,292 475,224 25.5 Net income (loss) 14,817 (46,027) n/m Earnings
(loss) per share 0.05 (0.17) 129.4
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(1) Operating profit should not be considered as a substitute or
alternative for operating income or net income, in each case
determined in accordance with generally accepted accounting
principles ("GAAP"). See the "Reconciliation of Operating Profit to
Net Income (Loss) for the Period" section for a reconciliation of
operating profit to operating income and net income (loss) under
GAAP and the "Key Performance Indicators and Non-GAAP Measures"
section. Highlights of the first quarter of 2006 include the
following: - Operating revenue increased 28.4% for the quarter with
growth coming from all three of our operating units, including
20.1% growth at Rogers Wireless ("Wireless"), 53.2% growth at
Rogers Cable and Telecom ("Cable and Telecom") and 9.5% growth at
Rogers Media ("Media"). On a pro forma basis, assuming the
acquisition of Call-Net Enterprises Inc. ("Call-Net") had occurred
on January 1, 2004, consolidated revenue growth would have been
12.9%. - Consolidated quarterly operating profit grew 25.5%
year-over-year, primarily driven by 35.8% growth at Wireless, 17.1%
growth at Cable and Telecom and 15.9% growth at Media. On a pro
forma basis, assuming the acquisition of Call-Net had occurred on
January 1, 2004, consolidated operating profit growth would have
been 16.8%. - We changed our segment reporting during the quarter
to now report financial and operating results under the following
three operating units: Wireless; Cable and Telecom; and Media. The
segment reporting for Wireless and Media has not changed. The Cable
and Telecom operating unit reports results for the following
segments: Cable and Internet, Rogers Home Phone (voice-over-cable
telephony subscribers from Cable and residential circuit-switched
telephony customers from Telecom), Rogers Business Solutions
(business telephony and data subscribers primarily from Telecom)
and Video store operations. - Postpaid voice and data subscriber
growth continued to be strong at Wireless, where quarterly net
additions of 89,600 subscribers reflected a modest increase from
the strong postpaid subscriber growth reported in the first quarter
of 2005. Postpaid subscriber levels are up 14.8% year-over-year
while total postpaid and prepaid subscribers are up 11.4%,
reflecting Wireless' continued focus on the more profitable
postpaid segment of the market. - Wireless postpaid subscriber
monthly churn continued to decrease, down 43 basis points to 1.47%
versus 1.90% in the first quarter of 2005, while postpaid monthly
ARPU (average revenue per subscriber) increased 5.1% in the quarter
to $62.20. This increase reflects a 72.0% lift in data revenues,
which represented 10.3% of total network revenue in the quarter as
well as continued growth in roaming and optional services. -
Following a successful trial, Wireless announced that it has begun
deploying a third-generation ("3G") wireless network based upon the
UMTS/HSDPA (Universal Mobile Telecommunications System/High-Speed
Downlink Packet Access) standard. This network will provide data
speeds superior to those offered by other 3G wireless technologies
and will enable Wireless to add incremental voice and data capacity
at significantly lower costs. - Cable and Telecom ended the quarter
with nearly one-half million Home Phone subscriber lines, with net
additions of 48,700 cable telephony subscriber lines and 11,400
circuit-switched telephony subscriber lines since December 31,
2005. Cable and Telecom continued to expand the availability of its
Home Phone voice-over-cable telephony service through the first
quarter of 2006, with service now available to approximately 85% of
the homes in its cable service areas. - Cable and Telecom added
50,000 net digital cable subscribers (households) representing a
35.9% increase over the growth experienced during the first quarter
of 2005 of 36,800, while residential high-speed Internet
subscribers grew by 40,300 in this quarter to a total of 1,176,500.
- At the end of the quarter, Rogers launched a broadband fixed
wireless service in 20 cities across Canada as the first offering
enabled by its Inukshuk joint venture. This service gives customers
wireless portable access to Rogers Yahoo! Hi-Speed Internet
services at speeds up to 1.5 Mbps. - On February 14, 2006, we
repaid at maturity the $75.0 million aggregate principal amount
outstanding of our 10.5% Senior Notes so that virtually all
long-term debt resides at Cable and Telecom, Wireless and Media.
"This quarter represents a strong start for 2006 as increasing
numbers of Canadians chose Rogers as their provider of choice for
communication and entertainment services," said Ted Rogers,
President and CEO of Rogers Communications Inc. "While in 2005 we
focused heavily on the integration of acquisitions and on
reorganizing our operations, 2006 is all about execution and
continuing to deliver on our core strategy of profitable growth and
driving innovation to add value to the lives of our customers."
ROGERS COMMUNICATIONS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR
THE FIRST QUARTER ENDED MARCH 31, 2006 This management's discussion
and analysis ("MD&A") should be read in conjunction with our
2005 Annual MD&A and our 2005 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 23 to our 2005 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,
2005. This MD&A is current as of April 24, 2006. In this
MD&A, the terms "we", "us", "our", and "the Company" refer to
Rogers Communications Inc. and our subsidiaries, which are reported
in the following segments: - "Wireless", which refers to our wholly
owned subsidiary Rogers Wireless Communications Inc. and its
subsidiaries, including Rogers Wireless Inc. ("RWI") and its
subsidiaries; - "Cable and Telecom", which refers to our wholly
owned subsidiary Rogers Cable Inc. and its subsidiaries. RCI
acquired Call-Net Enterprises Inc. on July 1, 2005 and subsequently
changed its name to Rogers Telecom Holdings Inc. ("RTHI"). The
results of RTHI and RTHI's operating subsidiaries ("Telecom") are
consolidated effective as of the July 1, 2005 acquisition date.
Telecom is a Canadian integrated communications solutions provider
of home phone, long distance and Internet Protocol ("IP") services
to households, and local, long distance, toll free, enhanced voice,
data and IP services to businesses across Canada. On January 9,
2006, RCI's ownership interest in Telecom was transferred to Rogers
Cable Inc. from RTHI. Beginning with the first quarter of 2006, the
Cable and Telecom operating unit reports its results according to
the following segments: Cable and Internet; Rogers Home Phone
(voice-over-cable telephony subscribers from Cable and residential
circuit-switched telephony customers from Telecom); Rogers Business
Solutions (business telephony and data subscribers primarily from
Telecom); and Video store operations. Comparative figures have been
reclassified to conform to this new segment reporting. - "Media",
which refers to our wholly owned subsidiary Rogers Media Inc. and
its subsidiaries including Rogers Broadcasting, which owns 46 radio
stations across Canada; OMNI television with stations in Ontario,
British Columbia and Manitoba; Rogers Sportsnet; The Shopping
Channel; Rogers Publishing and Rogers Sports Entertainment which
owns the Toronto Blue Jays and the Rogers Centre. In addition,
Media holds ownership interests in Dome Productions (50%), and
Canadian Broadcast Sales (50%) as well as interests in several
specialty television services such as Viewers Choice Canada,
Outdoor Life Network, The Biography Channel and G4TechTV. "RCI"
refers to the legal entity Rogers Communications Inc. excluding our
subsidiaries. Throughout this MD&A, percentage changes are
calculated using numbers rounded to the decimal to which they
appear. SUMMARY CONSOLIDATED FINANCIAL RESULTS
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(In millions of dollars, except per share amounts and margin) Three
Months Ended March 31, 2006 2005(4) % Chg
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Operating revenue Wireless $ 1,051.2 $ 875.4 20.1 Cable and Telecom
Cable and Internet 464.7 421.5 10.2 Rogers Home Phone 80.4 - n/m
Rogers Business Solutions 148.9 1.1 n/m Video Stores 81.0 83.6
(3.1) Corporate items and eliminations (1.0) (0.9) n/m
---------------------------------- 774.0 505.3 53.2 Media 240.1
219.3 9.5 Corporate items and eliminations (33.6) (17.6) 90.9
---------------------------------- Total $ 2,031.7 $ 1,582.4 28.4
Operating expenses, including integration and Video store closure
expenses Wireless $ 646.1 $ 577.0 12.0 Cable and Telecom Cable and
Internet 269.1 245.1 9.8 Rogers Home Phone 75.7 - n/m Rogers
Business Solutions 136.1 4.0 n/m Video Stores 79.5 76.4 4.1
Integration costs 2.9 - n/m Corporate items and eliminations (1.0)
(0.9) n/m ---------------------------------- 562.3 324.6 73.2 Media
227.0 208.0 9.1 Corporate items and eliminations - (2.4) (100.0)
---------------------------------- Total $ 1,435.4 $ 1,107.2 29.6
Operating profit, after integration and Video store closure
expenses(1) Wireless $ 405.1 $ 298.4 35.8 Cable and Telecom Cable
and Internet 195.6 176.4 10.9 Rogers Home Phone 4.7 - n/m Rogers
Business Solutions 12.8 (2.9) n/m Video Stores 1.5 7.2 (79.2)
Integration costs (2.9) - n/m ----------------------------------
211.7 180.7 17.2 Media 13.1 11.3 15.9 Corporate items and
eliminations (33.6) (15.2) 121.1 ----------------------------------
Total $ 596.3 475.2 25.5 ---------------------------------- Other
income and expense, net(2) 581.5 521.2 11.6
---------------------------------- Net income (loss) $ 14.8 $
(46.0) n/m ---------------------------------- Earnings (loss) per
share - basic and diluted $ 0.05 $ (0.17) (129.4) Additions to
PP&E(1) Wireless $ 114.9 $ 119.2 (3.6) Cable and Telecom Cable
and Internet 81.9 86.8 (5.6) Rogers Home Phone 21.6 23.9 (9.6)
Rogers Business Solutions 7.5 1.6 n/m Video Stores 1.1 3.6 (69.4)
---------------------------------- 112.1 115.9 (3.3) Media 9.2 13.5
(31.9) Corporate(3) 103.8 11.8 n/m
---------------------------------- Total $ 340.0 $ 260.4 30.6
----------------------------------
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(1) As defined. See the "Key Performance Indicators and Non-GAAP
Measures" section. Operating profit includes integration and Video
store closure expenses of $6.2 million (2005 - $3.9 million) and
$4.8 million, respectively. (2) See the "Reconciliation of
Operating Profit to Net Income (Loss) for the Period" section for
details of these amounts. (3) Includes RCI's purchase of real
estate in Brampton for a total purchase price of $99.8 million,
including acquisition costs. (4) Certain prior year numbers have
been reclassified to conform with the current year presentation.
For discussions of the results of operations of each of these
segments, refer to the respective segment sections of this
MD&A. Reconciliation of Operating Profit to Net Income (Loss)
for the Period The items listed below represent the consolidated
income and expense amounts that are required to reconcile operating
profit to the net income (loss) for the period as defined under
Canadian GAAP. For details of these amounts on a segment-by-segment
basis and for an understanding of intersegment eliminations on
consolidation, the following section should be read in conjunction
with Note 9 to the Interim Consolidated Financial Statements titled
"Segmented Information".
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(In millions of dollars) Three Months Ended March 31, 2006 2005 %
Chg
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Operating profit(1) $ 596.3 $ 475.2 25.5 Depreciation and
amortization (386.1) (341.6) 13.0 --------------------------------
Operating income 210.2 133.6 57.3 Interest on long-term debt and
other (161.6) (184.8) (12.6) Foreign exchange loss (4.3) (6.0)
(28.3) Change in the fair value of derivative instruments 3.1 4.8
(35.4) Other income 2.3 9.9 (76.8) Income tax expense (34.9) (3.5)
n/m
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Net income (loss) for the period $ 14.8 $ (46.0) n/m
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(1) As defined. See the "Key Performance Indicators and Non-GAAP
Measures" section. Depreciation and Amortization Expense
Depreciation and amortization expense for the three months ended
March 31, 2006 increased 13.0% primarily due to the additional
depreciation and amortization recognized for the fixed assets and
intangible assets that arose from the acquisition of Telecom.
Operating Income Our consolidated operating income of $210.2
million for the three months ended March 31, 2006 increased 57.3%,
as compared to the corresponding period in 2005, primarily as a
result of higher operating profit across all of our operating
units. Interest on Long-Term Debt Interest expense of $161.6
million in the three months ended March 31, 2006 decreased by $23.2
million compared to the corresponding period in 2005. This decrease
was primarily due to the decrease in debt of approximately $840.0
million at March 31, 2006 compared to March 31, 2005. The decrease
in debt was largely the result of the conversions of our 5.75%
Convertible Debentures due 2005 and our 5.5% Convertible Preferred
Securities due 2009 into Class B Non-Voting shares during 2005.
Foreign Exchange Loss The $4.3 million foreign exchange loss in the
three months ended March 31, 2006 decreased slightly from a $6.0
million foreign exchange loss in the corresponding period in 2005.
The Canadian dollar weakened by 0.60 cents during the three months
ended March 31, 2005 compared to a 0.29 cent decrease in the
Canadian dollar versus the U.S. dollar in the three months ended
March 31, 2006, from $1.1659 at December 31, 2005 to $1.1630 at
March 31, 2006. Change in Fair Value of Derivative Instruments The
gain of $3.1 million in the three months ended March 31, 2006 was a
result of the weakening of the Canadian dollar relative to that of
the U.S. dollar as described above and the resulting change in fair
value of our cross- currency interest rate exchange agreements not
accounted for as hedges. Other Income Other income of $2.3 million
for the three months ended March 31, 2006 was primarily associated
with distributions received from certain of our investments. Income
Tax Expense Current income taxes for the three months ended March
31, 2006 and for the corresponding period in 2005 consisted
primarily of the Federal Large Corporations Tax. During the three
months ended March 31, 2006, we recorded future income tax expense
of $32.2 million, compared to no future income tax expense for the
corresponding period in 2005. The future income tax expense in the
current period resulted primarily from the utilization of
non-capital loss carryforwards, the benefit of which had been
recognized at December 31, 2005. The 70.2% effective rate of income
tax differs significantly from the statutory rate of 36.1%. This
difference arises primarily from an increase in the valuation
allowance related to current period losses realized in unprofitable
subsidiaries. Net Income (Loss) and Earnings (Loss) Per Share We
recorded net income of $14.8 million for the three months ended
March 31, 2006, or basic earnings per share of $0.05 (diluted -
$0.05), compared to a loss of $46.0 million or loss per share of
$0.17 (diluted - $0.17) in the corresponding period in 2005. BASIS
OF PRO FORMA INFORMATION Certain financial and operating data
information in the MD&A has been prepared on a pro forma basis
as if the acquisition of Telecom, as described in our 2005 Annual
MD&A, had occurred on January 1, 2004. Such information is
based on our historical financial statements, the historical
financial statements of Telecom and the accounting for this
business combination. Although we believe this presentation
provides certain relevant contextual and comparative information
for existing operations, the unaudited pro forma consolidated
financial and operating data presented in this document is for
illustrative purposes only and does not purport to represent what
the results of operations actually would have been if the
acquisition of Telecom had occurred on January 1, 2004, nor does it
purport to project the results of operations for any future period.
This pro forma information reflects, among other things,
adjustments to Telecom's historically reported financial
information to conform to our accounting policies and the impacts
of purchase accounting. The pro forma adjustments are based upon
certain estimates and assumptions that we believe are reasonable.
Accounting policies used in the preparation of these statements are
those disclosed in our 2005 Annual Audited Consolidated Financial
Statements and Notes thereto. Certain tables in the "Cable and
Telecom" section present selected unaudited pro forma information.
OPERATING UNIT REVIEW WIRELESS -------- Wireless Financial Results
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Three Months Ended March 31, (In millions of dollars,
--------------------------------- except margin) 2006 2005 % Chg
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Operating revenue Postpaid (voice and data) $ 906.8 $ 750.2 20.9
Prepaid 46.6 48.1 (3.1) One-way messaging 3.4 5.0 (32.0)
--------------------------------- Network revenue 956.8 803.3 19.1
Equipment sales 94.4 72.1 30.9 ---------------------------------
Total operating revenue 1,051.2 875.4 20.1 Operating expenses Cost
of equipment sales $ 194.6 $ 159.6 21.9 Sales and marketing
expenses 128.2 124.0 3.4 Operating, general and administrative
expenses 320.0 289.5 10.5 Integration expenses(1) 3.3 3.9 (15.4)
--------------------------------- Total operating expenses 646.1
577.0 12.0 --------------------------------- Operating profit(2)(3)
$ 405.1 $ 298.4 35.8 --------------------------------- Operating
profit margin as % of network revenue(3) 42.3% 37.1% Additions to
property, plant and equipment ("PP&E")(3) $ 114.9 $ 119.2 (3.6)
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(1) Expenses incurred relate to the integration of the operations
of Fido Solutions Inc ("Fido"), a wholly owned subsidiary of Rogers
Wireless Inc. (2) Operating profit includes a loss of $2.6 million
related to the Inukshuk wireless broadband initiative for the three
months ended March 31, 2006, and $1.5 million for the three months
ended March 31, 2005. (3) As defined. See the "Key Performance
Indicators and Non-GAAP Measures" section. Wireless Subscribers
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(Subscriber statistics in Three Months Ended March 31, thousands,
except ARPU, --------------------------------------------- churn
and usage) 2006 2005 Chg % Chg
-------------------------------------------------------------------------
Postpaid (Voice and Data) Gross additions 303.6 329.6 (26.0) (7.9)
Net additions 89.6 89.2 0.4 0.4 Total postpaid retail subscribers
4,907.8 4,273.3 634.5 14.8 Average monthly revenue per user
("ARPU")(1) $ 62.20 $ 59.20 $ 3.00 5.1 Average monthly usage
(minutes) 521 454 67 14.8 Monthly churn 1.47% 1.90% (0.43%) (22.6)
Prepaid Gross additions 126.5 123.3 3.2 2.6 Net losses(2) (40.9)
(24.2) (16.7) 69.0 Total prepaid retail subscribers 1,308.9 1,309.9
(1.0) (0.1) ARPU(1) $ 11.68 $ 12.09 $ (0.41) (3.4) Monthly churn(2)
4.18% 3.70% 0.48% 13.0 Wholesale Total wholesale subscribers 115.4
98.6 16.8 17.0
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(1) As defined. See the "Key Performance Indicators and Non-GAAP
Measures" section; As calculated in the "Supplementary Information"
section. (2) Effective November 9, 2004, the deactivation of
prepaid subscribers acquired from Fido is recognized after 180 days
of no usage to conform to the Wireless prepaid churn definition.
This had the impact of decreasing prepaid subscriber net losses by
approximately 12,000 in the three months ended March 31, 2005 and
reducing prepaid churn by 0.25% for the three months ended March
31, 2005. Wireless Network Revenue Network revenue of $956.8
million accounted for 91.0% of Wireless' total revenue in the three
months ended March 31, 2006 and increased 19.1% from the
corresponding period in 2005. This increase was driven by the
continued growth of Wireless postpaid subscriber base and the
increase in postpaid average monthly revenue per user ("ARPU"). Net
additions of postpaid voice and data subscribers were 89,600 for
the three months ended March 31, 2006 compared to 89,200 in the
corresponding period of 2005. Prepaid subscriber net losses for the
three months ended March 31, 2006 were 40,900 compared to 24,200 in
the corresponding period of 2005. Wireless ended the quarter with a
total of 6,216,700 retail wireless voice and data subscribers.
Postpaid voice and data ARPU was $62.20 for the three months ended
March 31, 2006, a 5.1% increase compared to the first three months
of 2005. Wireless has continued to benefit from higher data and
roaming revenues and an increase in the penetration of optional
services. Comparing the three months ended March 31, 2006 to the
three months ended March 31, 2005, data revenues increased 72.0%
and roaming revenues increased 33.1%. As Canada's only
GSM/GPRS/EDGE provider, Wireless expects to continue to experience
increases in outbound roaming revenues from its subscribers
travelling outside of Canada as well as strong growth in inbound
roaming revenues from travellers to Canada who utilize its network.
Data revenue totalled $98.5 million for the three months ended
March 31, 2006. Data revenue represented approximately 10.3% of
Wireless total network revenue in the first three months of 2006
compared to 7.1% in 2005, reflecting the continued rapid growth of
BlackBerry, text and multimedia messaging services, wireless
Internet access, downloadable ring tones, music and games, and
other wireless data services and applications. Monthly postpaid
voice and data subscriber churn decreased to 1.47% in the three
months ended March 31, 2006, from 1.90% in 2005 as a result of our
proactive and targeted customer retention activities as well as
from the increased network density and coverage quality resulting
from the completion of the integration of the Fido GSM network in
2005. Prepaid ARPU decreased $0.41 to $11.68 for the three months
ended March 31, 2006, compared to the first quarter of 2005. In
addition, monthly prepaid churn increased to 4.18% in the three
months ended March 31, 2006 from 3.70% in 2005. These impacts were
due to the competitive prepaid offerings in the market. Wireless
Equipment Sales Revenue from equipment sales for the three months
ended March 31, 2006, including activation fees and net of
equipment subsidies, was $94.4 million, up 30.9% from the
corresponding period in 2005. The year-over-year increase reflects
the increased volume of handset upgrades associated with subscriber
retention programs combined with the generally higher prices of
handsets and devices as discussed above. Wireless Operating
Expenses
-------------------------------------------------------------------------
Three Months Ended March 31, (In millions of dollars,
-------------------------------- except per subscriber statistics)
2006 2005 % Chg
-------------------------------------------------------------------------
Operating expenses Cost of equipment sales $ 194.6 $ 159.6 21.9
Sales and marketing expenses 128.2 124.0 3.4 Operating, general and
administrative expenses 320.0 289.5 10.5 Integration expenses(1)
3.3 3.9 (15.4) -------------------------------- Total operating
expenses $ 646.1 $ 577.0 12.0 --------------------------------
Average monthly operating expense per subscriber before sales and
marketing expenses(2) $ 19.62 $ 19.22 2.1 Sales and marketing costs
per gross subscriber addition(2) $ 410 $ 380 7.9
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(1) Expenses incurred related to the integration of the operations
of Fido. (2) As calculated in the "Supplementary Information"
section. Cost of equipment sales increased by $35.0 million for the
three months ended March 31, 2006 compared to the corresponding
period in 2005 as a result of the increased volume of handset
upgrades. Sales and marketing expenses increased by $4.2 million
for the three months ended March 31, 2006 compared to the
corresponding period in 2005. Wireless marketing efforts during the
first three months of 2006 included targeted programs to acquire
high value customers on longer term contracts, resulting in
increases in our sales and marketing costs per gross addition.
Operating, general and administrative expenses increased by $30.5
million for the three months ended March 31, 2006 compared to the
corresponding period in 2005. This increase was primarily due to
increases in retention spending and growth in costs to support data
and roaming. These increased costs were partially offset by savings
related to operating and scale efficiencies across various
functions. Total retention spending including subsidies on handset
upgrades was $78.4 million for the three months ended March 31,
2006 compared to $60.4 million in the corresponding period of 2005.
Retention spending, on both an absolute and a per-subscriber basis,
is expected to continue to grow as Wireless market penetration in
Canada deepens and wireless number portability ("WNP") becomes
available in March 2007. Wireless incurred $3.3 million of costs
during the three months ended March 31, 2006, compared to $3.9
million in the corresponding period of 2005, for integration
expenses associated with the Fido acquisition. These integration
expenses, which are predominately for severance and consulting,
have been recorded within operating expenses. For the three months
ended March 31, 2006, the average monthly operating expense per
subscriber, excluding sales and marketing expenses and including
integration expenses was $19.62. The $0.40 year-over-year increase
primarily reflects Wireless' increased spending on handset upgrades
associated with targeted retention programs. Wireless Operating
Profit Operating profit grew by $106.7 million, or 35.8%, to $405.1
million in the three months ended March 31, 2006 from $298.4
million in the corresponding period of 2005, due to network revenue
growth of 19.1%, partially offset by the growth in operating
expenses, as discussed above. Operating profit margin increased to
42.3% during the three months ended March 31, 2006 compared to
37.1% in the first quarter of 2005. During the three months ended
March 31, 2006, the Inukshuk wireless broadband initiative recorded
an operating loss of $2.6 million, compared to an operating loss of
$1.5 million for the three months ended March 31, 2005. The
operating loss for the Inukshuk wireless broadband initiative is
included in the Wireless operating profit. Wireless Additions to
Property, Plant and Equipment ("PP&E") Wireless additions to
PP&E are classified into the following categories:
-------------------------------------------------------------------------
Three Months Ended March 31, -------------------------------- (In
millions of dollars) 2006 2005 % Chg
-------------------------------------------------------------------------
Additions to PP&E Network - capacity $ 37.8 $ 75.3 (49.8)
Network - other 6.8 27.0 (74.8) Information technology and other
16.6 12.9 28.7 Integration of Fido - 4.0 - HSDPA 16.5 - - Inukshuk
37.2 - - -------------------------------- Total additions to
PP&E $ 114.9 $ 119.2 (3.6) --------------------------------
-------------------------------------------------------------------------
The $114.9 million of additions to PP&E for the three months
ended March 31, 2006 reflect spending on network capacity and
technology enhancements. Additions to PP&E in the three months
ended March 31, 2006 includes $37.2 million of expenditures related
to Inukshuk. Network-related additions to PP&E in the three
months ended March 31, 2006 primarily reflect capacity expansion of
the GSM/GPRS network. The remaining network-related additions to
PP&E relate mainly to technical upgrade projects, consisting
primarily of new cell site build and operational support systems.
Other additions to PP&E reflect information technology
initiatives such as office system upgrades and other facilities and
equipment. On February 9, 2006, we announced our intention to begin
deploying a 3G network based upon the UMTS/HSDPA (Universal Mobile
Telecommunications System/High-Speed Downlink Packet Access)
standard which we expect will provide us with data speeds that are
superior to those offered by other 3G wireless technologies and
enable us to add incremental voice and data capacity at
significantly lower costs. UMTS/HSDPA is the next-generation
technology evolution for the global standard GSM platform which
provides broadband wireless data speeds that will enable new and
faster data products such as video conferencing and mobile
television as well as simultaneous voice and data usage. We
estimate that the deployment of this network across most of the
major Canadian cities will require a total spending of
approximately $390 million over the course of 2006 and 2007,
including approximately $70 million of capacity spending that would
have otherwise been invested in GSM. To date, $16.5 million has
been incurred on the deployment of HSDPA. CABLE AND TELECOM
----------------- Reorganization of Cable and Telecom Group On
January 9, 2006, we completed an internal reorganization whereby
the ownership interest in Telecom was transferred from RTHI to our
subsidiary Rogers Cable Inc. on a tax-deferred basis. As a result
of this transaction, beginning with the results for the three
months ended March 31, 2006, we will report on the "Cable and
Telecom" operating unit which is composed of the following
segments: Cable and Internet, Rogers Home Phone, Rogers Business
Solutions and Video Stores. Comparative figures have been
reclassified to reflect this new reporting. Update on Integration
of Telecom A plan has been developed to integrate the operations of
Telecom. Management is currently finalizing certain matters while
initial stages of the integration are progressing as planned.
Matters still to be finalized include the integration of various
networks, customer billing and administrative functions.
Integration is expected to continue through 2006. During the three
months ended March 31, 2006, Cable and Telecom incurred integration
expenses of $2.9 million. These integration expenses consisted
primarily of costs associated with integration consulting, customer
communications, rebranding and systems integrations. Cable and
Telecom Financial Results
-------------------------------------------- Three Months Ended
March 31,
-------------------------------------------------------------------------
2006 2005 2005 % Chg (In millions of dollars, Actual Pro Pro except
margin) Actual Reclassified(4) Forma(5) Forma(5)
-------------------------------------------------------------------------
Operating revenue Cable $ 342.5 $ 318.2 $ 318.0 7.7 Internet 122.2
103.3 105.9 15.4 Rogers Home Phone 80.4 - 73.5 9.4 Rogers Business
Solutions 148.9 1.1 141.0 5.6 Video Stores 81.0 83.6 83.6 (3.1)
Intercompany eliminations (1.0) (0.9) (0.9) 11.1
-------------------------------------------- Total operating
revenue 774.0 505.3 721.1 7.3
-------------------------------------------- Operating expenses
Cable and Internet 269.1 245.1 246.4 9.2 Rogers Home Phone 75.7 -
59.5 27.2 Rogers Business Solutions 136.1 4.0 123.9 9.8 Video
Stores(1) 79.5 76.4 76.4 4.1 Integration costs(2) 2.9 - - n/a
Intercompany eliminations (1.0) (0.9) (0.9) 11.1
-------------------------------------------- Total operating
expense 562.3 324.6 505.3 11.3 Operating profit (loss)(2) Cable and
Internet 195.6 176.4 177.5 10.2 Rogers Home Phone 4.7 - 14.0 (66.4)
Rogers Business Solutions 12.8 (2.9) 17.1 (25.1) Video Stores(1)
1.5 7.2 7.2 (79.2) Integration costs(2) (2.9) - - n/a
-------------------------------------------- Total operating profit
211.7 180.7 215.8 (1.9)
-------------------------------------------- Operating profit
margin:(3) Cable and Internet 42.1% 41.9% 41.9% Rogers Home Phone
5.8% n/a 19.0% Rogers Business Solutions 8.6% n/a 12.1% Video
stores 1.9% 8.6% 8.6% Additions to property, plant and equipment
("PP&E")(3) Cable and Internet $ 81.9 $ 86.8 $ 86.8 (5.6)
Rogers Home Phone 21.6 23.9 25.5 (15.3) Rogers Business Solutions
7.5 1.6 8.1 (7.4) Video Stores 1.1 3.6 3.6 (69.4)
-------------------------------------------- Total Additions to
PP&E $ 112.1 $ 115.9 $ 124.0 (9.6)
--------------------------------------------
-------------------------------------------------------------------------
(1) Video store operating expenses for 2006 include a charge of
$4.8 million related to the closure of 21 Video stores. (2)
Integration costs incurred relate to the integration of the
operations of Telecom. (3) As defined. See the "Key Performance
Indicators and Non-GAAP Measures" and "Supplementary Information"
sections. (4) Certain prior year numbers have been reclassified to
conform with the current year presentation. (5) See the "Basis of
Pro Forma Information" section for a discussion of considerations
in the preparation of this pro forma information. Total Cable and
Telecom operating revenue for the three months ended March 31, 2006
increased $268.7 million or 53.2% from the corresponding period in
2005 due to the following factors: the acquisition of Telecom
operations on July 1, 2005 which contributed $218.3 million; the
organic growth of Cable and Internet revenues of $43.2 million;
incremental revenues related to the launch of Rogers Home Phone
voice-over-cable in July 2005 of $7.7 million; and growth in
Enterprise business revenues of $2.2 million. These increases in
revenue were offset by a decline in video stores revenues of $2.6
million. Total Cable and Telecom operating profit for the three
months ended March 31, 2006 increased $31.0 million, or 17.2%, to
$211.7 million from the corresponding period last year. The
increase was driven by a $19.2 million increase in the Cable and
Internet segment and a $15.7 million increase in the Rogers
Business Solutions segment, partially offset by increased expenses
of $2.9 million incurred for integration-related activities. See
the following segment discussions for a detailed discussion of the
operating results. CABLE AND INTERNET Cable and Internet Financial
and Operating Results -------------------------------- Three Months
Ended March 31,
-------------------------------------------------------------------------
2006 2005 % Chg Actual Actual (In millions of dollars, Reclassi-
Reclassi- except margin) Actual fied(2) fied(2)
-------------------------------------------------------------------------
Cable operating revenue $ 342.5 $ 318.2 7.6 Internet operating
revenue 122.2 103.3 18.3 -------------------------------- Total
Cable and Internet operating revenue 464.7 421.5 10.2 Cable and
Internet operating expenses Sales and marketing expenses $ 30.5 $
30.2 1.0 Operating, general and administrative expenses 238.6 214.9
11.0 -------------------------------- Total Cable and Internet
operating expenses 269.1 245.1 9.8 --------------------------------
Cable and Internet operating profit(1) $ 195.6 $ 176.4 10.9
-------------------------------- Cable and Internet operating
profit margin(1) 42.1% 41.9% --------------------------------
-------------------------------------------------------------------------
(1) As defined. See the "Key Performance Indicators and Non-GAAP
Measures" and "Supplementary Information" sections. (2) Certain
prior year numbers have been reclassified to conform with the
current year presentation. --------------------------------- Three
Months Ended March 31,
-------------------------------------------------------------------------
2006 2005 (Subscriber statistics in thousands, except ARPU) Actual
Actual Change
-------------------------------------------------------------------------
Cable homes passed 3,403.8 3,315.0 88.8 Basic cable subscribers
2,260.2 2,249.4 10.8 Basic cable, net loss (3.6) (5.2) 1.6 Core
cable ARPU(1) $ 50.47 $ 47.06 $ 3.41 Internet subscribers
(residential)(2) 1,176.5 982.3 194.2 Internet, net additions 40.3
51.1 (10.8) Internet ARPU(1)(2) $ 34.77 $ 35.92 $ (1.15) Digital
terminals in service 1,222.7 848.6 374.1 Digital terminals, net
additions 83.1 53.0 30.1 Digital households 963.3 712.2 251.1
Digital households, net additions 50.0 36.8 13.2
-------------------------------------------------------------------------
(1) As defined. See the "Key Performance Indicators and Non-GAAP
Measures" and "Supplementary Information" sections. (2) Prior year
internet subscribers and ARPU have been reclassified to include
only residential subscribers. Core Cable Revenue The increase in
core cable revenue for the three months ended March 31, 2006 of
7.6% and the increase in average monthly revenue per subscriber
("ARPU") for the three months ended March 31, 2006 to $50.47 from
$47.06 in the corresponding period in 2005 reflect the growing
penetration of the digital products and the continued up-selling of
customers into enhanced digital programming packages. The increases
in revenues were partially offset by a decline in equipment
revenues resulting primarily from our reduction of equipment rental
prices and discounts associated with increasing adoption of bundled
packages. The total net impact of the growth in digital
penetration, the equipment revenue decline and discounts was $10.3
million. The price increases on digital offerings effective July
2005 and March 2005 also contributed to the growth in core cable
revenues of $14.0 million. As at March 31, 2006, the digital
subscriber base has grown by 35.3% from the corresponding period in
2005. A strong demand for high-definition and personal video
recorder digital equipment combined with Personal TV marketing
campaign were the contributors to the growth in the digital
subscriber base of 50,000 households in the three months ended
March 31, 2006. Internet (Residential) Revenue Internet revenues
for the three months ended March 31, 2006, increased $18.9 million
or 18.3% from the corresponding period in 2005 primarily due to the
19.8% increase in the number of Internet subscribers from March 31,
2005 and price increases for our Internet offerings. The growth in
Internet revenues was partially offset by increased numbers of
subscribers signing up for discounted bundle packages. The
marketing efforts continue to attract customers with varying needs,
which has resulted in higher penetration of our Internet
subscribers taking the lower-priced Internet offerings. As a
result, average monthly revenue per Internet subscriber for the
three months ended March 31, 2006, decreased to $34.77 from $35.92
in the corresponding period of 2005. During the three months ended
March 31, 2006, net residential Internet additions of 40,300
represented a decrease of 10,800 net additions compared to the
corresponding period in 2005. With the Internet subscriber base now
at approximately 1.2 million, Cable and Internet now has 52.1%
Internet penetration of basic cable households, and 34.6% Internet
penetration as a percentage of all homes passed by our cable
networks. Cable and Internet Operating Profit Our Cable and
Internet operating profit during the three months ended March 31,
2006 increased 10.9% from the corresponding period in 2005. Cable
and Internet sales and marketing expenses were essentially flat
comparing the three months ended March 31, 2006 to the
corresponding period in 2005, resulting in an operating profit
growth rate in excess of revenue growth. The year-over-year
increase in operating, general and administrative costs of $23.7
million was driven by the substantial increase in our digital and
Internet penetration resulting in higher programming and content
costs of $13.9 million and also higher activity and support costs
of $8.5 million from the growing subscriber bases. As a result, the
Cable and Internet margin increased to 42.1% during the three
months ended March 31, 2006, compared to 41.9% in the corresponding
period of 2005. ROGERS HOME PHONE Rogers Home Phone Financial and
Operating Results ------------------------------- Three Months
Ended March 31,
-------------------------------------------------------------------------
2006 2005 % Chg (In millions of dollars, Pro Pro except margin)
Actual Forma(2) Forma(2)
-------------------------------------------------------------------------
Rogers Home Phone operating revenue $ 80.4 $ 73.5 9.4 Rogers Home
Phone operating expenses Sales and marketing expenses 17.2 8.4
104.9 Operating, general and administrative expenses 58.5 51.1 14.5
------------------------------- Rogers Home Phone operating
expenses 75.7 59.5 27.2 ------------------------------- Rogers Home
Phone operating profit(1) $ 4.7 $ 14.0 (66.4)
------------------------------- Rogers Home Phone operating profit
margin(1) 5.8% 19.0% -------------------------------
-------------------------------------------------------------------------
(1) As defined. See the "Key Performance Indicators and Non-GAAP
Measures" and "Supplementary Information" sections. (2) See the
"Basis of Pro Forma Information" section for a discussion of
considerations in the preparation of this pro forma information.
-------------------------------- Three Months Ended March 31,
-------------------------------------------------------------------------
2006 2005 Change Pro Pro (Subscriber statistics in thousands)
Actual Forma(1) Forma(1)
-------------------------------------------------------------------------
Cable telephony subscriber lines Net additions 48.7 - n/a Total
cable telephony subscriber lines 96.7 - 96.7 Circuit-switched
subscriber lines Net additions 11.4 25.4 (14.0) Total
circuit-switched subscriber lines 402.0 330.2 71.8 Total Rogers
Home Phone subscriber lines Net additions 60.1 25.4 34.7 Total
Rogers Home Phone subscriber lines 498.7 330.2 168.5
-------------------------------------------------------------------------
(1) See the "Basis of Pro Forma Information" section for a
discussion of considerations in the preparation of this pro forma
information. Rogers Home Phone Revenue We believe that the pro
forma information presented in this section presents a meaningful
comparative analysis since the 2005 actual comparative figures for
the Rogers Home Phone segment are nil given that Telecom's results
are consolidated effective as of the July 1, 2005 acquisition date.
On a pro forma basis, Rogers Home Phone revenues increased $6.9
million for the three months ended March 31, 2006 compared to the
corresponding period in 2005 as a result of incremental revenues
from Rogers Home Phone voice-over- cable, launched in July 2005 of
$7.7 million, combined with growth in circuit- switch local
subscribers which contributed incremental local service revenues of
approximately $6.7 million which was partially offset by decline of
approximately $4.5 million in circuit switched residential long
distance revenues. The pro forma Rogers Home Phone revenues in 2005
also included $2.9 million associated with the resale of Wireless
products and services. These subscribers and related revenues were
transferred to Wireless in September 2005. Rogers Home Phone ended
the quarter with 498,700 Rogers Home Phone subscribers, a pro forma
increase of 51.0% over the corresponding period of 2005. Rogers
Home Phone Operating Profit Rogers Home Phone operating profit
decreased $9.3 million on a pro forma basis to $4.7 million for the
three months ended March 31, 2006 compared to the corresponding
period in 2005 and primarily reflects the costs associated with the
scaling and rapid growth associated with cable telephony services.
While pro forma revenues increased to $80.4 million in the three
months ended March 31, 2006 compared to the corresponding period in
2005 due to the launch of the cable telephony service and the
growth of circuit-switched subscribers, operating expenses from
telephony totalled $75.7 million in the three months ended March
31, 2006. Sales and marketing expenses have increased during the
three months ended March 31, 2006 compared to the corresponding
period in 2005 due to the launch of the Cable telephony service in
the second half of 2005. Similarly, operating, general and
administrative expenses have increased from the same period in 2005
due to the incremental service and support costs. As a result,
Rogers Home Phone operating profit margins decreased to 5.8% in the
first quarter of 2006 compared to 19.0% on a pro forma basis in the
corresponding period last year. ROGERS BUSINESS SOLUTIONS Rogers
Business Solutions Financial Results
-------------------------------------------- Three Months Ended
March 31,
-------------------------------------------------------------------------
2006 2005 2005 % Chg (In millions of dollars, Actual Pro Pro except
margin) Actual Reclassified(3) Forma(2) Forma(2)
-------------------------------------------------------------------------
Rogers Business Solutions operating revenue $ 148.9 $ 1.1 $ 141.0
5.6 Rogers Business Solutions operating expenses Sales and
marketing expenses 16.5 0.9 17.6 (6.3) Operating, general and
administrative expenses 119.6 3.1 106.3 12.5
-------------------------------------------- Total Rogers Business
Solutions operating expenses 136.1 4.0 123.9 9.8
-------------------------------------------- Rogers Business
Solutions operating profit(1) $ 12.8 $ (2.9) $ 17.1 (25.1)
-------------------------------------------- Rogers Business
Solutions operating profit margin(1) 8.6% n/a 12.1%
--------------------------------------------
-------------------------------------------------------------------------
(1) As defined. See the "Key Performance Indicators and Non-GAAP
Measures" and "Supplementary Information" sections. (2) See "Basis
of Pro Forma Information" section for discussion of considerations
in the preparation of this pro forma information. (3) Certain prior
year numbers have been reclassified to conform with the current
year presentation. Rogers Business Solutions Revenue We believe
that the pro forma information presented in this section presents a
meaningful comparative analysis because the 2005 actual comparative
figures for the Rogers Business Solutions segment are minimal given
that Telecom's results are consolidated effective as of the July 1,
2005 acquisition date. For the three months ended March 31, 2006,
Rogers Business Solutions revenue grew to $148.9 million,
increasing by $7.9 million on a pro forma basis, or 5.6% compared
to the corresponding period in 2005. This pro forma increase in
revenues during the three months ended March 31, 2006 was due to a
$4.5 million increase in data revenues, a $2.2 million increase
from local services and a $1.2 million increase in long distance
revenues. The $4.5 million pro forma increase in data revenue
resulted from a non-recurring hardware sale of $5.6 million offset
by decline in installation revenues and market pressures in the
wholesale business resulting in price declines and churn. The $2.2
million pro forma increase in local services revenue during the
three months ended March 31, 2006 was driven by the increase in
local line equivalents to 179,500 lines from 159,000 in the same
period in 2005, a net pro forma increase of 20,500 lines. The $1.2
million pro forma increase in long distance revenue resulted from
the increase in minutes of 8.5% offset somewhat by the decline in
average revenue per minute of 6.0% from the corresponding period in
2005. A portion of the volume increase was related to the
intercompany sale of long distance to Wireless which generated $5.5
million of revenue for the three months ended March 31, 2006
compared to the corresponding period in 2005. Rogers Business
Solutions continues to focus on selling local and data products,
especially IP-enabled solutions, thereby decreasing its reliance on
long distance. Local and data revenue represented 57% of the total
revenue for the three months ended March 31, 2006. Rogers Business
Solutions Operating Profit Total operating expenses for the three
months ended March 31, 2006 have increased $12.2 million or 9.8% to
$136.1 million compared to $123.9 million in the corresponding
period in 2005 on a pro forma basis. Sales and marketing expenses
of $16.5 million in the three months ended March 31, 2006 have
decreased by $1.1 million from the corresponding period in 2005 on
a pro forma basis due to cost efficiencies integrating the
functions of Cable and Telecom. In addition, operating, general and
administrative expenses were $119.6 million in the three months
ended March 31, 2006 compared to $106.3 million in the
corresponding period of 2005 on a pro forma basis. The increase in
operating, general and administrative expenses is primarily due to
the increase in carrier charges associated with the revenue growth
discussed above. Carrier charges represented approximately 56.5% of
revenue in the three months ended March 31, 2006 compared to 50.2%
of revenue in the corresponding period of 2005. In addition,
operating, general and administrative expenses during the three
months ended March 31, 2005 were offset by $3.4 million of credits
related to the Canadian Radio-television and Telecommunications
Commission's ("CRTC") Competitive Digital Network Services pricing
decision in February 2005. As a result, Rogers Business Solutions
operating profit declined 25.1% on a pro forma basis and its
operating profit margin decreased to 8.6% in the three months ended
March 31, 2006 compared to 12.1% in the corresponding period in
2005 mainly due to the higher operating expenses discussed above.
VIDEO STORES Video Stores Financial Results
------------------------------- Three Months Ended March 31,
-------------------------------------------------------------------------
2006 2005 % Chg (In millions of dollars, except margin) Actual
Actual
-------------------------------------------------------------------------
Video operating revenue $ 81.0 $ 83.6 (3.1) Video operating
expenses Costs of Sales $ 38.2 $ 38.4 (0.5) Sales and marketing
expenses 31.1 32.8 (5.2) Operating, general and administrative
expenses(1) 10.2 5.2 96.2 ------------------------------- Total
Video operating expenses 79.5 76.4 4.1
------------------------------- Video operating profit(2) $ 1.5 $
7.2 (79.2) ------------------------------- Video operating profit
margin(2) 1.9% 8.6% -------------------------------
-------------------------------------------------------------------------
(1) Operating, general and administrative expenses include $4.8
million of video store closure costs. (2) As defined. See the "Key
Performance Indicators and Non-GAAP Measures" and "Supplementary
Information" sections. Video Stores Revenue During the three months
ended March 31, 2006, revenues at our Rogers Video ("Video") stores
showed a modest decline of 3.1% compared to the corresponding
period in 2005 due to lower rental and sales revenues, partially
offset by higher revenues from the sale of Wireless products.
Initiatives were introduced to increase customers' spending, which
resulted in dollars per transaction increasing 12.9%. However,
same-store revenues decreased 6.5% during the three months ended
March 31, 2006 compared to the corresponding period in 2005 due to
a decrease in total store visits. Video Stores Operating Profit
During the three months ended March 31, 2006, costs of sales as a
percentage of revenues increased to 47.2% from 46.0% for the
corresponding period in 2005 as a result of the change in the mix
of products sold. Sales, marketing and store operating expenses
declined to 38.4% of revenues in the three months ended March 31,
2006 from 39.2% for the corresponding period in 2005 with Video's
continued focus on reducing costs and driving productivity gains.
Video recorded a charge of $4.8 million during the quarter related
to the closure of the 14 Video stores in the province of Quebec and
an additional seven non-performing stores in Ontario. Operating
profit from Video stores of $1.5 million for the three months ended
March 31, 2006 decreased by $5.7 million from the corresponding
period in 2005. The year-over-year decline in Video store operating
profit relates primarily to the decline in revenues and the charge
associated with the closing of the 21 Video stores. Cable and
Telecom Additions to Property, Plant and Equipment ("PP&E") The
nature of the cable television business is such that the
construction, rebuild and expansion of a cable system are highly
capital- intensive. Cable and Telecom categorizes its additions to
property, plant and equipment 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, our Cable and Internet additions to
PP&E are classified into the following five categories: -
Customer premises equipment ("CPE"), which includes the equipment
for digital set-top terminals, Internet and cable telephony modems
and the associated installation costs; - Scaleable infrastructure,
which includes non-CPE costs to meet business growth and to provide
service enhancements, including many of the costs to-date of our
cable telephony initiative; - Line extensions, which includes
network costs to enter new service areas; - Upgrade and rebuild,
which includes the costs to modify or replace existing coaxial
cable, fibre-optic network electronics; and - Support capital,
which includes the costs associated with the purchase, replacement
or enhancement of non-network assets.
-------------------------------------------- Three Months Ended
March 31,
-------------------------------------------------------------------------
2006 2005 2005 % Chg Actual Pro Pro (In millions of dollars) Actual
Reclassified(1) Forma(2) Forma(2)
-------------------------------------------------------------------------
Cable and Internet PP&E Additions Customer premise equipment $
42.4 $ 43.6 $ 43.6 (2.8) Scaleable infrastructure 11.9 19.7 19.7
(39.6) Line extensions 14.8 14.7 14.7 0.7 Upgrade and rebuild 0.4 -
- n/a Support capital 12.4 8.8 8.8 40.9
-------------------------------------------- 81.9 86.8 86.8 (5.6)
Rogers Home Phone PP&E Additions 21.6 23.9 25.5 (15.3) Rogers
Business Solutions PP&E Additions 7.5 1.6 8.1 (7.4) Video
Stores PP&E Additions 1.1 3.6 3.6 (69.4)
-------------------------------------------- $ 112.1 $ 115.9 $
124.0 (9.6) --------------------------------------------
-------------------------------------------------------------------------
(1) Certain prior year numbers have been reclassified to conform
with the current year presentation. (2) See "Basis of Pro Forma
Information" section for a discussion of considerations in the
preparation of this pro forma information. The decline in Cable and
Internet PP&E additions of $4.9 million or 5.6% during the
three months ended March 31, 2006 compared to the corresponding
period in 2005 is attributable to lower spending on Cable and
Telecom's scaleable infrastructure related to head-end and
video-on-demand capacity as well as timing of investments in the IP
network. This decrease was partially offset by increases in support
capital primarily related to spending on the information technology
infrastructure. During the three months ended March 31, 2006,
additions to Rogers Home Phone PP&E have declined on a pro
forma basis by $3.9 million or 15.3% compared to the corresponding
period in 2005. This decline is comprised of a $12.0 million
decrease in scaleable infrastructure, partially offset by an
increase in variable growth related to subscriber capital.
Additions to Rogers Business Solutions PP&E of $7.5 million in
the three months ended March 31, 2006 were 7.4% lower on a pro
forma basis compared to the corresponding period in 2005. During
the three months ended March 31, 2006, capital expenditures were
made to enhance the local and data networks to accommodate growth.
MEDIA ----- Media Operating and Financial Results
-------------------------------------------------------------------------
Three Months Ended March 31, --------------------------------- (In
millions of dollars) 2006 2005 % Chg
-------------------------------------------------------------------------
Operating revenue $ 240.1 $ 219.3 9.5 Operating expenses 227.0
208.0 9.1 --------------------------------- Operating profit(1) $
13.1 $ 11.3 15.9 --------------------------------- Operating profit
margin(1) 5.5% 5.2% Additions to property, plant and equipment(1)
9.2 13.5 (31.9)
-------------------------------------------------------------------------
(1) As defined. See the "Key Performance Indicators and Non-GAAP
Measures" section. Media Revenue Revenue for the three months ended
March 31, 2006 was $240.1 million, an increase of $20.8 million, or
9.5% over the corresponding period in 2005. Approximately $11.8
million of the increase was due to Sportsnet revenue which
increased significantly over the prior year due to the return of
NHL hockey. In addition, revenue from Radio and The Shopping
Channel increased over the prior year by 7.9% and 10.8%
respectively. However, this was partially offset by softer
advertising sales in Consumer Publishing relative to a strong
quarter in the prior year. Media Operating Expenses Operating
expenses for the three months ended March 31, 2006 increased by
9.1% to $227.0 million compared to $208.0 million in the
corresponding period in 2005. Programming costs at Sportsnet
increased $14.0 million, mainly due to the costs associated with
the return of NHL hockey. The launch of OMNI BC and OMNI Manitoba
as well as three new FM radio stations in the Maritimes resulted in
higher programming costs associated with these stations that did
not exist in the corresponding period of the prior year. In
addition, higher sales volume at The Shopping Channel resulted in
increased cost of goods sold. These cost increases were partially
offset by lower general and administrative costs across all
divisions. Media Operating Profit Media operating profit increased
15.9% from $11.3 million in the first quarter of 2005 to $13.1
million in the corresponding period of 2006. Despite the impact of
NHL rights fees and the costs associated with the launch of new
stations, operating profit and margin increased due to strong
performance across all divisions. Media Additions to Property,
Plant and Equipment Media had additions to PP&E of $9.2 million
during the three months ended March 31, 2006 compared to $13.5
million in the corresponding period of 2005. The majority of the
additions in the period reflect additional renovations and
enhancements to the Rogers Centre. CONSOLIDATED LIQUIDITY AND
CAPITAL RESOURCES Operations For the three months ended March 31,
2006, cash generated from operations before changes in non-cash
operating items, which is calculated by removing the effect of all
non-cash items from net income, increased to $460.1 million from
$320.4 million in the corresponding period of 2005. The $139.7
million increase is primarily the result of the increase in
operating profit of $121.1 million. Taking into account the changes
in non-cash working capital items for the three months ended March
31, 2006, cash generated from operations was $538.8 million,
compared to $173.1 million in the corresponding period of 2005. The
cash flow generated from operations of $538.8 million, together
with the following items, resulted in total net funds of
approximately $582.5 million raised in the three months ended March
31, 2006: - Aggregate net drawdowns of $30.0 million under our bank
credit facilities; and - Receipt of $13.7 million from the issuance
of Class B Non-Voting shares under the exercise of employee stock
options. Net funds used during the three months ended March 31,
2006 totalled approximately $521.0 million, the details of which
include: - Additions to PP&E of $389.3 million, including RCI's
purchase of real estate in Brampton for a total purchase price of
$99.8 million including acquisition costs, and the $49.2 million of
related changes in non-cash working capital; - Funding the
repayment at maturity of our $75.0 million 10.50% Senior Notes due
2006; - Payment of dividends of $23.5 million on our Class B
Non-Voting shares and Class A Voting shares; - Funding the
redemption of the US$22.0 million remaining outstanding amount of
RTHI's 10.625% Senior Secured Notes due 2008 for $25.8 million; -
Funding other net investments of $6.1 million; and - Funding $1.3
million aggregate net repayment of mortgages and capital leases.
Taking into account the cash deficiency of $103.9 million at the
beginning of the quarter and the fund uses described above, the
cash deficiency at March 31, 2006 was $42.4 million. Financing Our
long-term debt instruments are described in Note 11 to the 2005
Annual Audited Consolidated Financial Statements. As mentioned
above, during the three months ended March 31, 2006, the Company
redeemed the remaining US$22.0 million outstanding of RTHI's
10.625% Senior Secured Notes due 2008. The total redemption was
US$23.2 million including a redemption premium of US$1.2 million.
In addition, the Company repaid at maturity its $75.0 million
10.50% Senior Notes due 2006. With this repayment there is
essentially no remaining debt at the holding company. As described
above, cash generated from operations, together with cash-on-hand
and drawdowns under our bank credit facilities funded the debt
repayments as well as our additions to PP&E and other
expenditures described above. Interest Rate and Foreign Exchange
Management Economic Hedge Analysis For the purposes of our
discussion on the hedged portion of long-term debt, we have used
non-GAAP measures in that we include all cross-currency interest
rate exchange agreements (whether or not they qualify as hedges for
accounting purposes) since all such agreements are used for
risk-management purposes only and are designated as a hedge of
specific debt instruments for economic purposes. As a result, the
Canadian dollar equivalent of U.S. dollar-denominated long-term
debt reflects the contracted foreign exchange rate for all of our
cross-currency interest rate exchange agreements regardless of
qualifications for accounting purposes as a hedge. There was no
change in our cross-currency interest rate exchange agreements
during the three months ended March 31, 2006, however, the
consolidated aggregate amount of our US dollar-denominated debt
decreased by US$22.0 million during this three month period due to
the redemption of RTHI's US$22.0 million remaining outstanding
amount of 10.625% Senior Secured Notes due 2008 on January 3, 2006.
As a result of this event, the amount of our U.S.
dollar-denominated debt hedged on an economic basis increased from
97.7% to 98.1% and on an accounting basis increased from 85.2% to
85.6%, as outlined below.
-------------------------------------------------------------------------
(In millions of dollars, March 31, December 31, except percentages)
2006 2005
-------------------------------------------------------------------------
U.S. dollar-denominated long-term debt US $4,894.9 US $4,916.9
Hedged with cross-currency interest rate exchange agreements US
$4,801.8 US $4,801.8 Hedged Exchange Rate 1.3148 1.3148 Percent
Hedged 98.1%(1) 97.7%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Effect of cross-currency interest rate exchange agreements:
Converted US $ principal of US $ 550.0 US $ 550.0 at US $ floating
rate of LIBOR plus 3.13% 3.13% for all-in rate of 8.04% 7.62% to
Cdn $ floating at bankers acceptance plus 3.42% 3.42% for all-in
rate of 7.34% 6.90% on Cdn $ principal of Cdn $ 652.7 Cdn $ 652.7
Converted US $ principal of US $4,200.0 US $4,200.0 at US $ fixed
rate of 7.34% 7.34% to Cdn $ fixed rate of 8.07% 8.07% on Cdn $
principal of Cdn $5,593.4 Cdn $5,593.4 Converted US $ principal of
US $ 51.8 US $ 51.8 at US $ fixed rate of 9.38% 9.38% to Cdn $
floating at bankers acceptance plus 2.67% 2.67% for all-in rate of
6.59% 6.07% on Cdn $ principal of Cdn $ 67.4 Cdn $ 67.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amount of long-term debt(2) at fixed rates: Total long-term debt
Cdn $8,337.0 Cdn $8,409.6 Total long-term debt at fixed rates Cdn
$6,974.9 Cdn $7,076.5 Percent of long-term debt fixed 83.7% 84.1%
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Weighted average interest rate on long-term debt 7.77% 7.76%
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(1) Pursuant to the requirements for hedge accounting under AcG-13,
on March 31, 2006, we accounted for 87.3% of our cross-currency
interest rate exchange agreements as hedges against designated U.S.
dollar-denominated debt. As a result, 85.6% of consolidated U.S.
dollar-denominated debt is hedged for accounting purposes versus
98.1% on an economic basis. (2) Long-term debt includes the effect
of the cross-currency interest rate exchange agreements.
Outstanding Share Data Set out below is our outstanding share data
as at March 31, 2006. For additional information, refer to Note 13
to our 2005 Annual Audited Consolidated Financial Statements and
Note 5 to the Unaudited Interim Consolidated Financial Statements
for the three months ended March 31, 2006.
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Common Shares
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Class A Voting 56,233,894 Class B Non-Voting 258,503,499 Options to
Purchase Class B Non-Voting Shares Outstanding Options 13,429,576
Outstanding Options Exercisable 8,928,819
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Dividends and Other Payments on Equity Securities In December 2005,
our Board of Directors (the "Board") declared a 50% increase to the
dividend paid for each of our outstanding Class B Non-Voting shares
and Class A Voting shares. Accordingly, the annual dividend per
share increased from $0.10 per share to $0.15 per share, and is
paid twice yearly in the amount of $0.075 per share to holders of
record of such shares on the record date established by the Board
for each dividend at the time such dividend is declared. These
dividends are scheduled to be made on or about the first trading
day following January 1 and July 1 each year. A semi-annual
dividend payment of $23.5 million was paid on January 6, 2006 to
shareholders of record on December 28, 2005. COMMITMENTS AND
CONTRACTUAL OBLIGATIONS Our material obligations under firm
contractual arrangements, including commitments for future payments
under long-term debt arrangements, capital lease obligations and
operating lease arrangements, are summarized in our 2005 Annual
MD&A, and are further discussed in Note 11 and Note 20 of the
2005 Annual Audited Consolidated Financial Statements. There have
been no significant changes to our material contractual obligations
since December 31, 2005. GOVERNMENT REGULATION AND REGULATORY
DEVELOPMENTS The significant government regulations which impact
our operations are summarized in our 2005 Annual MD&A. The only
significant changes to those regulations since December 31, 2005,
are as follows: Telecommunications Policy Report On March 22, 2006,
the report of the Telecommunications Policy Review Panel was
released. The Panel was asked by the previous Liberal government to
study Canadian telecommunications policy to make recommendations to
improve the regulatory environment, expand broadband services to
remote locations and further the deployment of information and
communications technology in Canada. The report generally
recommended greater reliance on market forces and a reduction in
government regulation. The report recommends continued regulation
of the incumbent wireline telephone companies in circumstances
where they possess significant market power. We believe that such
continued regulation is important to protect new entrants such as
Cable and Telecom from anticompetitive conduct by incumbent
providers until such time as competition is established. The report
also recommends limiting the incumbent phone companies' unbundled
wholesale facilities that would be available to competitive
providers on a wholesale basis. The report recommends that
"essential" facilities should continue to be made available and
that non- essential facilities should be available for a transition
period of three to five years. The report also recommends
transitioning radio spectrum regulation from Industry Canada to the
CRTC, after Industry Canada completes a spectrum policy review that
will consider various issues such as spectrum licence fees and
streamlining the spectrum licensing process. Upon receiving the
panel's report, the Minister of Industry stated that he will review
the report in the coming weeks and months and that any steps
towards implementation of the report's recommendations would follow
such review. DATASOURCE: Rogers Communications Inc. CONTACT:
Investment Community Contacts: Bruce M. Mann, (416) 935-3532, ;
Eric A. Wright, (416) 935-3550, ; Media Contacts: Corporate and
Media - Jan Innes, (416) 935-3525, ; Wireless, Cable and Telecom -
Taanta Gupta, (416) 935-4727, ; Archived images on this
organization are searchable through CNW Photo Archive website at
http://photos.newswire.ca/. Images are free to accredited members
of the media. /FIRST AND FINAL ADD TO FOLLOW
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