Inukshuk On March 31, 2006, Industry Canada transferred our
Inukshuk license to Inukshuk Wireless Partnership, a Rogers-Bell
joint venture. New licence terms were also issued. These licence
terms require Inukshuk to return spectrum that it is not using as
of December 31, 2009. At the same time as the licence was issued,
Industry Canada issued their new policy on the 2.5 GHz spectrum
used by Inukshuk. The policy confirms that the spectrum is
currently only to be used for fixed services (which in Canada
includes portable services). Companies that wish to have a mobile
licence for this spectrum will be required to apply for a mobile
licence and will be required to return one- third of the spectrum
to the government. The returned spectrum will be auctioned. There
is no assurance that Rogers or any other incumbent licensee would
be allowed to purchase the spectrum at an auction. Wireless Video
Services In a decision issued on April 12, 2006, the CRTC
determined that the mobile TV services provided by Wireless are
exempt from regulation because they are delivered over the
Internet. Furthermore, the CRTC has proposed a new order that will
exempt all mobile TV services from regulation, whether they are
delivered over the Internet, or not. We believe that this decision
is very positive because it allows us to offer innovative new
services without regulatory impediments. CRTC Local Forbearance
Decision The CRTC released its Local Forbearance Decision on April
6, 2006. The incumbent phone companies will continue to be
regulated until they lose 25% market share. The winback rules,
which were reduced from 12 to 3 months, will be lifted when the
phone companies lose 20% market share. The calculation of share
loss is made separately for the residential and business segments,
and also excludes market share lost to wireless. The market share
in urban areas is measured over a census metropolitan area. In
addition to the market share criteria, the phone companies have to
comply with all the Quality of Service ("QoS") indicators, which
govern the facilities provided to competitors, for six months.
These QoS indicators are very important to unbundled loop resellers
such as Rogers Business Solutions. In addition, the incumbent local
exchange providers must provide Ethernet access and transport
service to competitors and must interconnect their Operations
Support Systems ("OSS") with those of competitors. We believe that
this decision is consistent with the assumptions made in the
business planning for our local telephone service. UPDATES TO RISKS
AND UNCERTAINTIES Our significant risks and uncertainties are
summarized in our 2005 Annual MD&A. There were no significant
changes to those risks and uncertainties since December 31, 2005,
except as follows: A Tax Reassessment Regarding Termination Fees
Received May Result in Additional Taxes and Interest In 2000, we
received a $241.0 million payment (the "Termination Payment") from
Le Groupe Videotron Ltee ("Videotron") in respect of the
termination of a merger agreement between Rogers Communications
Inc. and Videotron. In April 2006, the Canada Revenue Agency issued
a letter advising that they disagree with our tax filing position
in respect of the Termination Payment and that they intend to
reassess us, which would result in additional tax and related
interest of approximately $61.0 million. Based upon opinions from
external legal counsel, we have the view that we should ultimately
prevail; accordingly, we have not recorded a liability for this
contingency and intend to vigorously contest any such assessment.
KEY PERFORMANCE INDICATORS AND NON-GAAP MEASURES We measure the
success of our strategies using a number of key performance
indicators that are defined and discussed in our 2005 Annual
MD&A. These key performance indicators are not measurements
under Canadian or U.S. GAAP, but we believe they allow us to
appropriately measure our performance against our operating
strategy as well as against the results of our peers and
competitors. They include: - Network revenue - Revenue and average
monthly revenue per subscriber ("ARPU") - Subscriber counts and
subscriber churn - Operating expenses and average monthly operating
expense per wireless subscriber - Sales and marketing costs (or
cost of acquisition) per subscriber - Operating profit - Operating
profit margin - Additions to PP&E RELATED PARTY ARRANGEMENTS We
have entered into certain transactions in the normal course of
business with certain broadcasters in which we have an equity
interest as detailed below:
-------------------------------------------------------------------------
Three Months Ended March 31, ---------------------------- (In
millions of dollars) 2006 2005
-------------------------------------------------------------------------
Access fees paid to broadcasters accounted for by the equity
method(1) $ 4.8 $ 4.5
-------------------------------------------------------------------------
(1) Fees paid to a number of Canadian pay, specialty and digital
specialty channels including Viewer's Choice Canada, Prime, Outdoor
Life Network, G4 Tech, Biography channel, and MSNBC Canada. We have
entered into certain transactions with companies, the partners or
senior officers of which are directors of our company and/or our
subsidiary companies. During the three months ended March 31, 2006
and 2005, total amounts paid by us to these related parties are as
follows:
-------------------------------------------------------------------------
Three Months Ended March 31, ---------------------------- (In
millions of dollars) 2006 2005
-------------------------------------------------------------------------
Legal services and commissions paid on premiums for insurance
coverage $ 0.5 $ 1.7 Telecommunications and programming services -
1.5 Interest charges and other financing fees - 11.6
-------------------------------------------------------------------------
$ 0.5 $ 14.8
-------------------------------------------------------------------------
During the three month periods ended March 31, 2006 and 2005, we
made payments to companies controlled by our controlling
shareholder as follows:
-------------------------------------------------------------------------
Three Months Ended March 31, ---------------------------- (In
millions of dollars) 2006 2005
-------------------------------------------------------------------------
Charges to Rogers for business use of aircraft, net of other
administrative services $ 0.3 $ 0.2
-------------------------------------------------------------------------
With the approval of a special committee of the Board of Directors,
we entered into an arrangement to sell to our controlling
shareholder, for $13 million in cash, the shares in two of our
wholly owned subsidiaries whose only assets consist of tax losses
aggregating approximately $100 million. The first transfer occurred
on April 7, 2006 when a company controlled by the controlling
shareholder of the Company purchased the shares in one of these
wholly-owned subsidiaries for cash of $6.8 million. The transfer is
expected to be completed by the third quarter of 2006. CRITICAL
ACCOUNTING POLICIES AND ESTIMATES In our 2005 Annual Audited
Consolidated Financial Statements and Notes thereto, as well as in
our 2005 Annual MD&A, we have identified the accounting
policies and estimates that are critical to the understanding of
our business operations and our results of operations. For the
three months ended March 31, 2006, there are no changes to the
critical accounting policies and estimates of Wireless, Cable and
Telecom and Media from those found in our 2005 Annual MD&A. NEW
ACCOUNTING STANDARDS In our 2005 Annual Audited Consolidated
Financial Statements and Notes thereto, as well as in our 2005
Annual MD&A, we disclosed recent Canadian accounting
pronouncements, namely CICA Handbook Section 3831 "Non-monetary
transactions", CICA Handbook Section 3855 "Financial Instruments -
Recognition and Measurement", CICA Handbook Section 1530
"Comprehensive Income" and CICA Handbook Section 3865 "Hedges".
CICA Handbook section 3831 did not have a material impact on our
consolidated financial statements for the three months ended March
31, 2006. CICA Handbook Sections 3855, 1530 and 3865 are effective
for interim and annual financial statements commencing in 2007. We
are continuing to assess the impact of these new standards.
SEASONALITY Our operating results are subject to seasonal
fluctuations that materially impact quarter-to-quarter operating
results, and thus one quarter's operating results are not
necessarily indicative of a subsequent quarter's operating results.
Each of Wireless, Cable and Telecom, and Media has unique seasonal
aspects to their businesses. For specific discussions of the
seasonal trends affecting the Wireless, Cable and Telecom, and
Media operating units, please refer to our 2005 Annual MD&A.
Home Phone Service and Rogers Business Solutions do not have any
unique seasonal aspects to their businesses. 2006 GUIDANCE There
are no revisions to the 2006 annual financial and operating
guidance which we provided with our fourth quarter 2005 results on
February 9, 2006. SUPPLEMENTARY INFORMATION Calculations of
Wireless Non-GAAP Measures ---------------------------- ($ in
millions, except per subscriber Three months ended March 31,
figures) ---------------------------- (subscribers in thousands)
2006 2005
-------------------------------------------------------------------------
Postpaid ARPU (monthly) Postpaid (voice and data) revenue $ 906.8 $
750.2 Divided by: Average postpaid wireless voice and data
subscribers 4,859.2 4,224.2 Divided by: 3 months for the quarter 3
3 ---------------------------- $ 62.20 $ 59.20
-------------------------------------------------------------------------
Prepaid ARPU (monthly) Prepaid revenue $ 46.6 $ 48.1 Divided by:
Average prepaid subscribers 1,328.6 1,324.8 Divided by: 3 months
for the quarter 3 3 ---------------------------- $ 11.68 $ 12.09
-------------------------------------------------------------------------
Cost of acquisition per gross addition Total sales and marketing
expenses $ 128.2 $ 124.0 Equipment margin loss (acquisition
related) 49.7 50.0 ---------------------------- $ 177.9 $ 174.0
---------------------------- ---------------------------- Total
gross wireless additions (postpaid, prepaid, and one-way messaging)
433.9 458.3 ---------------------------- $ 410 $ 380
-------------------------------------------------------------------------
Operating expense per average subscriber (monthly) Operating,
general, administrative and integration expenses $ 323.3 $ 293.4
Equipment margin loss (retention related) 50.5 37.5
---------------------------- $ 373.8 $ 330.9
---------------------------- ---------------------------- Divided
by: Average total wireless subscribers 6,349.5 5,740.0 Divided by:
3 months for the quarter 3 3 ---------------------------- $ 19.62 $
19.22
-------------------------------------------------------------------------
Equipment margin loss Equipment sales $ 94.4 $ 72.1 Cost of
equipment sales (194.6) (159.6) ---------------------------- $
(100.2) $ (87.5) ----------------------------
---------------------------- Acquisition related $ (49.7) $ (50.0)
Retention related (50.5) (37.5) ---------------------------- $
(100.2) $ (87.5) ----------------------------
----------------------------
-------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION Calculations of Cable and Telecom
Non-GAAP Measures (Actual) ---------------------------- (In
millions of dollars, subscribers Three months ended March 31, in
thousands, ARPU figures and operating ----------------------------
profit margin) 2006 2005
-------------------------------------------------------------------------
Core Cable ARPU Core Cable revenue $ 342.5 $ 318.0 Divided by:
Average basic cable subscribers 2,261.7 2,252.6 Divided by: 3
months for quarter and year-to-date 3 3
---------------------------- $ 50.47 $ 47.06
-------------------------------------------------------------------------
Internet ARPU Internet revenue(1) $ 120.7 $ 103.3 Divided by:
Average Internet subscribers 1,157.6 958.6 Divided by: 3 months for
quarter and year-to-date 3 3 ---------------------------- $ 34.77 $
35.92
-------------------------------------------------------------------------
Cable and Internet: Operating Profit $ 195.6 $ 176.4 Divided by
Revenue 464.7 421.5 Cable and Internet Operating Profit Margin
42.1% 41.9%
-------------------------------------------------------------------------
Rogers Home Phone: Operating Profit $ 4.7 $ - Divided by Revenue
80.4 - Rogers Home Phone Operating Profit Margin 5.8% n/a
-------------------------------------------------------------------------
Rogers Business Solutions: Operating Profit $ 12.8 $ (2.9) Divided
by Revenue 148.9 1.1 Rogers Business Solutions Operating Profit
Margin 8.6% n/a
-------------------------------------------------------------------------
Video Stores: Operating Profit(2) $ 1.5 $ 7.2 Divided by Revenue
81.0 83.6 Video Stores Operating Profit Margin 1.9% 8.6%
-------------------------------------------------------------------------
(1) Internet ARPU calculation does not include amounts related to
dial-up customers. (2) Video Stores operating profit in the three
months ended March 31, 2006 includes a charge of $4.8 million
related to the closure of 21 video stores. SUPPLEMENTARY
INFORMATION Rogers Communications Inc. Historical Quarterly
Summary(1) 2006 2005 -----------------------------
------------------------------------------- (thousands of dollars,
except per share amounts) Q1 Q1 Q2 Q3 Q4
-----------------------------
------------------------------------------- Income Statement
Operating Revenue Wireless $1,051,237 $ 875,371 $ 963,888
$1,068,888 $1,098,511 Cable and Telecom 774,031 505,256 500,079
725,676 760,612 Media 240,122 219,280 293,402 284,520 299,974
Corporate and eliminations (33,639) (17,492) (24,858) (32,017)
(38,936) -----------------------------
------------------------------------------- 2,031,751 1,582,415
1,732,511 2,047,067 2,120,161 -----------------------------
------------------------------------------- Operating profit(2)
Wireless 405,133 298,376 364,760 381,488 292,425 Cable and Telecom
211,628 180,669 171,562 195,101 217,211 Media 13,137 11,320 44,195
33,293 39,038 Corporate (33,606) (15,141) (15,063) (20,510)
(35,155) -----------------------------
------------------------------------------- 596,292 475,224 565,454
589,372 513,519 Depreciation and amortization 386,113 341,633
358,746 376,984 400,648 -----------------------------
------------------------------------------- Operating income
210,179 133,591 206,708 212,388 112,871 Interest on long-term debt
(161,575) (184,767) (180,325) (178,792) (166,195) Other income
(expense) 1,127 8,663 (3,441) 17,894 (21,098) Income tax recovery
(expense) (34,914) (3,514) (3,748) (2,603) 7,710 Non-controlling
interest - - - - - -----------------------------
------------------------------------------- Net income (loss) for
the period 14,817 (46,027) 19,194 48,887 (66,712)
-----------------------------
-------------------------------------------
-----------------------------
------------------------------------------- Earnings (loss) per
share - basic $ 0.05 $ (0.17) $ 0.07 $ 0.17 $ (0.22) - diluted $
0.05 $ (0.17) $ 0.07 $ 0.16 $ (0.22) Additions to property, plant
and equipment(2) $ 340,056 $ 260,419 $ 344,738 $ 318,656 $ 429,983
-------------------------------------------------------------------------
2004
-------------------------------------------------------------------------
(thousands of dollars, except per share amounts) Q1 Q2 Q3 Q4
-------------------------------------------------------------------------
Income Statement Operating Revenue Wireless $ 592,841 $ 655,920 $
721,136 $ 813,628 Cable and Telecom 473,074 474,846 489,371 508,364
Media 215,741 230,881 244,319 266,171 Corporate and eliminations
(16,907) (18,152) (21,138) (21,846)
-------------------------------------------------------------------------
1,264,749 1,343,495 1,433,688 1,566,317
-------------------------------------------------------------------------
Operating profit(2) Wireless 219,644 247,083 269,565 214,099 Cable
and Telecom 171,186 173,294 173,143 191,036 Media 6,470 38,819
14,981 55,102 Corporate (15,443) (13,409) (1,714) (9,717)
-------------------------------------------------------------------------
381,857 445,787 455,975 450,520 Depreciation and amortization
246,090 250,528 255,857 340,076
-------------------------------------------------------------------------
Operating income 135,767 195,259 200,118 110,444 Interest on
long-term debt (137,539) (132,292) (129,868) (176,298) Other income
(expense) (75,384) (41,775) 29,676 37,776 Income tax recovery
(expense) (1,453) (3,555) (3,371) 4,932 Non-controlling interest
423 (25,596) (48,480) (5,928)
-------------------------------------------------------------------------
Net income (loss) for the period (78,186) (7,959) 48,075 (29,074)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per share - basic $ (0.33) $ (0.03) $ 0.20 $ (0.12)
- diluted $ (0.33) $ (0.03) $ 0.19 $ (0.12) Additions to property,
plant and equipment(2) $ 228,666 $ 218,267 $ 221,147 $ 386,858
-------------------------------------------------------------------------
(1) Certain prior year numbers have been reclassified to conform
with the current year presentation as described in Notes 1 and 9 to
the Unaudited Interim Consolidated Financial Statements. (2) As
defined. See the "Key Performance Indicators and Non-GAAP Measures"
section. Rogers Communications Inc. Unaudited Consolidated
Financial Statements Three Months Ended March 31, 2006 Rogers
Communications Inc. Unaudited Consolidated Statements of Income (In
thousands of dollars, Three Months Ended March 31, except per share
amounts) 2006 2005
-----------------------------------------------------------
------------- Operating revenue $ 2,031,752 $ 1,582,415 Cost of
sales 278,507 239,769 Sales and marketing costs 272,356 233,294
Operating, general and administrative expenses 873,578 634,128
Integration expenses (note 2) 6,219 - Video store closure expenses
(note 6) 4,800 - Depreciation and amortization 386,113 341,633
-----------------------------------------------------------
------------- Operating income 210,179 133,591 Interest on
long-term debt (161,575) (184,767)
-----------------------------------------------------------
------------- 48,604 (51,176) Foreign exchange loss (4,284) (5,960)
Change in the fair value of derivative instruments 3,116 4,798
Other income, net 2,295 9,825
-----------------------------------------------------------
------------- Income (loss) before income taxes 49,731 (42,513)
Income tax expense: Current 2,743 3,514 Future 32,171 -
-----------------------------------------------------------
------------- 34,914 3,514
-----------------------------------------------------------
------------- Net income (loss) for the period $ 14,817 $ (46,027)
-----------------------------------------------------------
-------------
-----------------------------------------------------------
------------- Earnings (loss) per share (note 7) Basic and diluted
$ 0.05 $ (0.17)
-----------------------------------------------------------
-------------
-----------------------------------------------------------
------------- See accompanying Notes to Unaudited Interim
Consolidated Financial Statements. Rogers Communications Inc.
Unaudited Consolidated Statements of Cash Flows Three Months Ended
March 31, (In thousands of dollars) 2006 2005
-----------------------------------------------------------
------------- Cash provided by (used in): Operating activities: Net
income (loss) for the period $ 14,817 $ (46,027) Adjustments to
reconcile net income (loss) to cash flows from operating
activities: Depreciation and amortization 386,113 341,633 Program
rights and video rental inventory depreciation 18,327 22,488
Unrealized foreign exchange loss 846 6,207 Change in fair value of
derivative instruments (3,116) (4,798) Accreted interest on
convertible preferred securities - 5,376 Future income taxes 32,171
- Stock-based compensation expense 10,811 5,998 Amortization on
fair value increment of long-term debt and derivatives (3,351)
(3,351) Other 3,522 (7,114)
-----------------------------------------------------------
------------- 460,140 320,412 Change in non-cash working capital
items 78,679 (147,286)
-----------------------------------------------------------
------------- 538,819 173,126
-----------------------------------------------------------
------------- Financing activities: Issue of long-term debt
1,759,000 382,000 Repayment of long-term debt (1,830,995) (354,263)
Proceeds on termination of cross-currency interest rate exchange
agreements - 402,191 Payment on maturity of cross-currency interest
rate exchange agreements - (470,825) Issue of capital stock 13,699
26,113 Dividends on Class A Voting and Class B Non-Voting shares
(23,543) (12,313)
-----------------------------------------------------------
------------- (81,839) (27,097)
-----------------------------------------------------------
------------- Investing activities: Additions to property, plant
and equipment ("PP&E") (340,056) (260,419) Change in non-cash
working capital items related to PP&E (49,236) (35,516) Changes
in other long-term assets and liabilities (557) 18,108 Other
(5,690) (21,294)
-----------------------------------------------------------
------------- (395,539) (299,121)
-----------------------------------------------------------
------------- Increase (decrease) in cash 61,441 (153,092) Cash and
cash equivalents (deficiency), beginning of period (103,881)
243,993 -----------------------------------------------------------
------------- Cash and cash equivalents (deficiency), end of period
$ (42,440) $ 90,901
-----------------------------------------------------------
-------------
-----------------------------------------------------------
------------- Cash and cash equivalents are defined as cash and
short-term deposits which have an original maturity of less than 90
days, less bank advances Supplemental cash flow information: Three
Months Ended March 31, (In thousands of dollars) 2006 2005
-----------------------------------------------------------
------------- Change in Non-Cash Working Capital: Decrease in
accounts receivable $ 70,374 $ 84,367 Increase (decrease) in
accounts payable and accrued liabilities 18,771 (199,469) Increase
in unearned revenue 46,556 15,073 Increase in other assets (57,022)
(47,257)
-----------------------------------------------------------
------------- $ 78,679 $ (147,286)
-----------------------------------------------------------
-------------
-----------------------------------------------------------
------------- Interest paid $ 133,304 $ 95,079 Income taxes paid
5,173 4,833
-----------------------------------------------------------
-------------
-----------------------------------------------------------
------------- Refer to Note 3 for details on non-cash transactions
during the quarter. See accompanying Notes to Unaudited Interim
Consolidated Financial Statements. Rogers Communications Inc.
Unaudited Consolidated Balance Sheets March 31, December 31, (In
thousands of dollars) 2006 2005
-----------------------------------------------------------
------------- Assets Current assets Accounts receivable $ 821,827 $
890,701 Other current assets 346,085 297,846 Future income tax
asset 113,150 113,150
-----------------------------------------------------------
------------- 1,281,062 1,301,697 Property, plant and equipment
6,245,323 6,151,526 Goodwill 2,988,486 3,035,787 Other intangible
assets 2,520,742 2,627,466 Investments 143,334 138,212 Deferred
charges 119,670 129,119 Future income tax asset 315,081 347,252
Other long term assets 131,374 103,230
-----------------------------------------------------------
------------- $ 13,745,072 $ 13,834,289
-----------------------------------------------------------
-------------
-----------------------------------------------------------
------------- Liabilities and Shareholders' Equity Liabilities
Current liabilities Bank advances, arising from outstanding cheques
$ 42,440 $ 103,881 Accounts payable and accrued liabilities
1,371,357 1,411,045 Current portion of long-term debt (note 4)
634,969 286,139 Current portion of derivative instruments 13,924
14,180 Unearned revenue 222,822 176,266
-----------------------------------------------------------
------------- 2,285,512 1,991,511 Long-term debt (note 4) 7,034,134
7,453,412 Derivative instruments 776,344 787,369 Other long-term
liabilities 83,187 74,382
-----------------------------------------------------------
------------- 10,179,177 10,306,674 Shareholders' equity (note 5)
3,565,895 3,527,615
-----------------------------------------------------------
------------- $ 13,745,072 $ 13,834,289
-----------------------------------------------------------
-------------
-----------------------------------------------------------
------------- Contingencies (note 11) See accompanying Notes to
Unaudited Interim Consolidated Financial Statements. Rogers
Communications Inc. Unaudited Consolidated Statements of Deficit
Three Months Ended March 31, (In thousands of dollars) 2006 2005
-----------------------------------------------------------
------------- Deficit, beginning of period $ (601,548) $ (416,731)
Adjustment for convertible preferred securities - (102,720)
-----------------------------------------------------------
------------- As restated (601,548) (519,451) Net income (loss) for
the period 14,817 (46,027)
-----------------------------------------------------------
------------- Deficit, end of period $ (586,731) $ (565,478)
-----------------------------------------------------------
-------------
-----------------------------------------------------------
------------- See accompanying Notes to Unaudited Interim
Consolidated Financial Statements. Rogers Communications Inc. Notes
to Unaudited Interim Consolidated Financial Statements Three Months
Ended March 31, 2006 and 2005 These interim Unaudited Consolidated
Financial Statements do not include all of the disclosures required
by Canadian generally accepted accounting principles (GAAP) for
annual financial statements. They should be read in conjunction
with the Audited Consolidated Financial Statements, including the
Notes thereto, for the year ended December 31, 2005 (the "2005
Financial Statements"). 1. Basis of Presentation and Accounting
Policies: The interim Unaudited Consolidated Financial Statements
include the accounts of Rogers Communications Inc. and its
subsidiaries (collectively "Rogers" or "the Company"). The Notes
presented in these interim Unaudited Consolidated Financial
Statements include only significant changes and transactions
occurring since the Company's last year end, and are not fully
inclusive of all matters normally disclosed in the Company's annual
audited consolidated financial statements. The Company's operating
results are subject to seasonal fluctuations that impact
quarter-to-quarter operating results, and thus one quarter's
operating results are not necessarily indicative of a subsequent
quarter's operating results. These interim Unaudited Consolidated
Financial Statements follow the same accounting policies and
methods of application as the 2005 Financial Statements except for
the changes in segment reporting as described in note 9. 2.
Business Combinations: Call-Net Enterprises Inc.: On July 1, 2005,
the Company acquired 100% of Call-Net Enterprises Inc. ("Call-Net")
in a share for share transaction. During the three months ended
March 31, 2006, the Company adjusted the purchase price allocation
upon receipt of the final valuations of certain tangible and
intangible assets acquired. These adjustments included an increase
in the fair value assigned to property, plant and equipment of
$23.3 million from that recorded and disclosed in the 2005
Financial Statements. Additionally, the fair value of the
subscriber base acquired increased by $24.0 million from that
recorded and disclosed in the 2005 Financial Statements. These
adjustments resulted in a decrease in goodwill acquired of $47.3
million. During the three months ended March 31, 2006, the Company
incurred integration expenses of $2.9 million related to the
Call-Net acquisition. The allocation of the purchase price is
preliminary and subject to finalizing the valuation of certain real
estate assets acquired. The allocation of the purchase price
reflects management's best estimate at the date of preparing these
financial statements. The purchase price allocation will be
finalized in the second quarter of 2006. Fido: During the three
months ended March 31, 2006, the Company incurred $3.3 million in
integration expenses related to its November 2004 acquisition of
Fido (2005 - $3.9 million). Additionally, during the three months
ended March 31, 2006, the Company paid $7.4 million related to the
liabilities assumed on acquisition and included in the purchase
price allocation (2005 - $6.1 million). 3. Contributions to
Inukshuk Wireless Partnership: On March 31, 2006, the Company
contributed certain assets to Inukshuk Wireless Partnership
("Inukshuk"), a joint venture with Bell Canada, whereby each
venturer has a 50% ownership interest. Inukshuk provides wireless
broadband internet service in 20 centres across the country. The
Company's contribution on March 31, 2006 consisted of 2.5GHz
spectrum with a fair value of $55.0 million and a $6.6 million note
receivable. As at and for the three months ended March 31, 2006,
proportionately consolidating 50% of Inukshuk resulted in the
following increases (decreases) in the accounts of the Company: (In
thousands of dollars)
-------------------------------------------------------------------------
Current assets $ 7,528 Long term assets 117,857 Current liabilities
26,298 Revenue 64 Expenses 1,966 Net loss 1,902
-------------------------------------------------------------------------
-------------------------------------------------------------------------
4. Long-Term Debt: Interest March 31, December 31, (In thousands of
dollars) Rate 2006 2005
-------------------------------------------------------------------------
(A) Corporate: Senior Notes, due 2006 10.50% $ - $ 75,000
--------------------------- - 75,000 (B) Wireless: (i) Bank credit
facility Floating 20,000 71,000 (ii) Senior Secured Notes, due 2006
10.50% 160,000 160,000 (iii) Floating Rate Senior Secured Notes,
due 2010 Floating 641,905 641,245 (iv) Senior Secured Notes, due
2011 9.625% 571,879 571,291 (v) Senior Secured Notes, due 2011
7.625% 460,000 460,000 (vi) Senior Secured Notes, due 2012 7.25%
548,537 547,973 (vii) Senior Secured Notes, due 2014 6.375% 875,325
874,425 (viii) Senior Secured Notes, due 2015 7.50% 641,905 641,245
(ix) Senior Secured Debentures, due 2016 9.75% 180,784 180,598 (x)
Senior Subordinated Notes, due 2012 8.00% 466,840 466,360 (xi) Fair
value increment arising from purchase accounting 41,599 44,326
--------------------------- 4,608,774 4,658,463 (C) Cable: (i) Bank
credit facility Floating 329,000 267,000 (ii) Senior Secured Second
Priority Notes, due 2007 7.60% 450,000 450,000 (iii) Senior Secured
Second Priority Notes, due 2011 7.25% 175,000 175,000 (iv) Senior
Secured Second Priority Notes, due 2012 7.875% 408,485 408,065 (v)
Senior Secured Second Priority Notes, due 2013 6.25% 408,485
408,065 (vi) Senior Secured Second Priority Notes, due 2014 5.50%
408,485 408,065 (vii) Senior Secured Second Priority Notes, due
2015 6.75% 326,788 326,452 (viii) Senior Secured Second Priority
Debentures, due 2032 8.75% 233,420 233,180
--------------------------- 2,739,663 2,675,827 (D) Media: Bank
credit facility Floating 293,000 274,000 (E) Telecom: (i) Senior
Secured Notes, due 2008 10.625% - 25,703 (ii) Fair value increment
arising from purchase accounting - 1,619
--------------------------- - 27,322 Mortgages and other Various
27,666 28,939 --------------------------- 7,669,103 7,739,551 Less
current portion (634,969) (286,139)
-------------------------------------------------------------------------
$ 7,034,134 $ 7,453,412
-------------------------------------------------------------------------
-------------------------------------------------------------------------
On January 3, 2006, the Company redeemed the remaining outstanding
amount of Rogers Telecom Holdings Inc.'s 10.625% Senior Secured
Notes due 2008. The total redemption amount was US$23.2 million
including a redemption premium of US$1.2 million. On February 14,
2006, the Company repaid, at maturity, the $75.0 million aggregate
principal amount outstanding of its 10.50% Senior Secured Notes due
2006. 5. Shareholders' Equity: March 31, December 31, (In thousands
of dollars) 2006 2005
-------------------------------------------------------------------------
Capital stock issued, at stated value: Common shares: 56,233,894
Class A Voting shares (2005 - 56,233,894) $ 72,311 $ 72,311
258,503,499 Class B Non-Voting shares (2005 - 257,702,341) 420,011
418,695
-------------------------------------------------------------------------
Total capital stock 492,322 491,006 Contributed surplus 3,660,304
3,638,157 Deficit (586,731) (601,548)
-------------------------------------------------------------------------
Shareholders' Equity $ 3,565,895 $ 3,527,615
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) During the three months ended March 31, 2006, the Company
issued 801,158 Class B Non-Voting shares to employees upon exercise
of options for consideration of $13.7 million. (ii) Stock-based
compensation: During the three months ended March 31, 2006, the
Company recorded compensation expense of approximately $10.8
million (2005 - $6.0 million) related to stock option grants to
employees; an amendment to the option plans; performance option
grants to certain key employees; and restricted share unit grants
to employees. The corresponding adjustment was recorded in
contributed surplus. The details of these stock-based compensation
transactions are as follows: (a) The weighted average estimated
fair value at the date of the grant for RCI options granted during
the three months ended March 31, 2006 was $21.09 per share (2005 -
$15.34 per share). The fair value of each option granted was
estimated on the date of the grant using the Black-Scholes option
pricing model with the following assumptions: Three Months Ended
March 31, 2006 2005
-----------------------------------------------------------
------------- Risk-free interest rate 4.05% 4.01% Dividend yield
0.33% 0.29% Volatility factor of the future expected market price
of Class B Non-Voting shares 38.07% 43.93% Weighted average
expected life of options 7.0 years 5.58 years
-------------------------------------------------------------------------
(b) Effective March 1, 2006, the Company amended certain provisions
of its stock option plans which resulted in a new measurement date
for purposes of determining compensation cost. The amendment
provides that on the death or retirement of an option holder, or
the resignation of a director, options would continue to be
exercisable until the original expiry date in accordance with their
original terms and the vesting would not be accelerated but instead
would continue in accordance with the original vesting period. The
amendment resulted in additional compensation cost of $6.6 million,
of which $2.4 million was immediately recorded as compensation
expense related to vested options. The remaining $4.2 million
related to unvested options will be charged to income over the
remaining vesting period. The fair value of each modified option
was estimated on the March 1, 2006 measurement date using the
Black-Scholes option pricing model with the following assumptions:
-------------------------------------------------------------------------
Risk-free interest rate 4.05% Dividend yield 0.33% Volatility
factor of the future expected market price of Class B Non-Voting
shares 42.30% Weighted average expected life of options 5.6 years
-------------------------------------------------------------------------
(c) On March 1, 2006, the Company granted 699,400 performance
options to certain employees of the Company. These options vest at
the annual rate of 25% provided that certain targeted stock prices
are met. A binomial valuation model was used to determine the $12.1
million fair value of these options at the date of grant. Of this
$12.1 million, $0.3 million was recorded as compensation cost in
the three months ended March 31, 2006, with the remainder to be
recognized over the remaining service period. The fair value of
each option was calculated on the March 1, 2006 measurement date
based on the following assumptions:
-------------------------------------------------------------------------
Risk-free interest rate 4.05% Dividend yield 0.33% Volatility
factor of the future expected market price of Class B Non-Voting
shares 39.60% Weighted average expected life of options 5.4 years
-------------------------------------------------------------------------
(d) During the three months ended March 31, 2006, 196,582
restricted share units were issued to employees of the Company
(2005 - 236,801). As at March 31, 2006, 494,349 restricted share
units were outstanding. These restricted share units vest at the
end of three years from the grant date. The Company records
compensation expense over the vesting period taking into account
fluctuations in the market price of the Class B Non-Voting shares.
6. Video Store Closure Expenses: During the three months ended
March 31, 2006, the Company made the decision to close 21 of its
Video stores in Ontario and Quebec. The costs to exit these stores
include lease termination and involuntary severance costs totaling
$2.3 million as well as a writedown of the related fixed assets
totaling $2.5 million. 7. Earnings (Loss) Per Share: Three Months
Ended March 31, (In thousands, except per share amounts) 2006 2005
-----------------------------------------------------------
------------- Numerator: Net income (loss) - basic and diluted
$14,817 $(46,027)
-------------------------------------------------------------------------
Denominator: Weighted average number of Class A and Class B shares
outstanding: Basic 314,278 275,743 Effect of dilutive securities:
Employee stock options 6,206 -
-------------------------------------------------------------------------
Diluted 320,484 275,743 Earnings (loss) per share Basic and diluted
$0.05 ($0.17)
-------------------------------------------------------------------------
8. Pensions: For the three months ended March 31, 2006, the Company
recorded pension expense in the amount of $9.3 million (2005 - $3.1
million). In addition, the expense for the three months ended March
31, 2006 related to unfunded supplemental executive retirement
plans was $1.1 million (2005 - $0.8 million). 9. Segmented
Information: During the three months ended March 31, 2006, the
Company completed a re-organization whereby ownership of the
operating subsidiaries of Rogers Telecom Holdings Inc., a wholly
owned subsidiary of the Company, was transferred to Rogers Cable
Inc. The re-organization impacted the Company's management
reporting resulting in changes to the Company's reportable
segments. Effective January 2006, the following are the reportable
segments of the Company: Wireless, Media, Cable and Internet,
Rogers Business Solutions, Rogers Home Phone and Video Stores.
Comparative figures are presented on this basis. For the Three
Months Ended March 31, 2006 Cable and Telecom corporate Rogers
Rogers items (in thousands Cable and Home Business Video and eli-
of dollars) Wireless Internet Phone Solutions Stores minations
-------------------------------------------------------------------------
Operating revenue $ 1,051,237 $ 464,655 $ 80,365 $ 148,936 $ 81,053
$ (977) Cost of sales 194,601 - - - 38,228 - Sales and marketing
costs 128,136 30,519 17,211 16,506 31,109 - Operating, general and
adminis- trative expenses 320,043 238,593 58,509 119,646 5,364
(977) Management fees 3,096 9,274 1,607 2,979 1,621 - Integration
expenses 3,324 - - - - 2,896 Video store closure expenses - - - -
4,800 - Depreciation and amorti- zation 145,711 - - - - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating income (loss) 256,326 Interest: Long-term debt and other
(101,583) Intercompany 39,452 Change in fair value of derivative
instruments 2,827 Foreign exchange gain (loss) (1,229) Other income
(expense) (527) Income tax reduction (expense) (50,200)
-------------------------------------------------------------------------
Net income (loss) for the period $ 145,066
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to property, plant and equipment $ 114,923 $ 81,846 $
21,611 $ 7,548 $ 1,098
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Corporate (in thousands Total Cable items and Consolidated of
dollars) and Telecom Media eliminations Totals
--------------------------------------------------------------
Operating revenue $ 774,032 $ 240,122 $ (33,639) $ 2,031,752 Cost
of sales 38,228 45,678 - 278,507 Sales and marketing costs 95,345
47,885 990 272,356 Operating, general and adminis- trative expenses
421,135 133,422 (1,023) 873,577 Management fees 15,481 3,627
(22,204) - Integration expenses 2,896 - - 6,220 Video store closure
expenses 4,800 - - 4,800 Depreciation and amorti- zation 160,337
12,309 67,756 386,113
-------------------------------------------------------------
-------------------------------------------------------------
Operating income (loss) 35,810 (2,799) (79,158) 210,179 Interest:
Long-term debt and other (59,108) (2,793) 1,909 (161,575)
Intercompany (7,406) (413) (31,633) - Change in fair value of
derivative instruments 289 - - 3,116 Foreign exchange gain (loss)
(3,160) 628 (523) (4,284) Other income (expense) (269) 276 2,815
2,295 Income tax reduction (expense) (1,155) (1,538) 17,979
(34,914)
------------------------------------------------------------- Net
income (loss) for the period $ (34,999) $ (6,639) $ (88,611) $
14,817
-------------------------------------------------------------
-------------------------------------------------------------
Additions to property, plant and equipment $ 112,103 $ 9,183 $
103,847 $ 340,056
-------------------------------------------------------------
------------------------------------------------------------- For
the Three Months Ended March 31, 2005 Cable and Telecom corporate
Rogers Rogers items (in thousands Cable and Home Business Video and
eli- of dollars) Wireless Internet Phone Solutions Stores minations
-------------------------------------------------------------------------
Operating revenue $ 875,371 $ 421,494 $ - $ 1,066 $ 83,641 $ (945)
Cost of sales 159,586 - - - 38,420 - Sales and marketing costs
123,978 30,815 - 882 32,793 - Operating, general and administrative
expenses 293,431 214,208 - 3,165 5,249 (945) Management fees 3,006
8,411 - 21 1,673 - Integration expenses - - - - - - Depreciation
and amortization 145,428 - - - - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating income (loss) 149,942 Interest: Long-term debt and other
(99,966) Intercompany 20,810 Change in fair value of derivative
instruments 3,759 Foreign exchange gain (loss) (3,987) Other income
(expense) (739) Income tax expense (1,792)
-------------------------------------------------------------------------
Net income (loss) for the period 68,027
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to property, plant and equipment $ 119,228 $ 86,788 $
23,895 $ 1,575 $ 3,592
-------------------------------------------------------------------------
Corporate (in thousands Total Cable items and Consolidated of
dollars) and Telecom Media eliminations Total
--------------------------------------------------------------
Operating revenue $ 505,256 $ 219,280 $ (17,492) $ 1,582,415 Cost
of sales 38,420 41,763 - 239,769 Sales and marketing costs 64,490
44,826 - 233,294 Operating, general and administrative expenses
221,677 121,371 (2,351) 634,128 Management fees 10,105 3,142
(16,253) - Integration expenses - - - - Depreciation and
amortization 124,140 12,468 59,597 341,633
-------------------------------------------------------------
-------------------------------------------------------------
Operating income (loss) 46,424 (4,290) (58,485) 133,591 Interest:
Long-term debt and other (67,579) (1,173) (16,049) (184,767)
Intercompany (2,122) (2,491) (16,197) - Change in fair value of
derivative instruments 1,037 - 2 4,798 Foreign exchange gain (loss)
(868) (452) (653) (5,960) Other income (expense) 493 159 9,912
9,825 Income tax expense (1,385) (303) (34) (3,514)
------------------------------------------------------------- Net
income (loss) for the period $ (24,000) $ (8,550) $ (81,504) $
(46,027)
-------------------------------------------------------------
-------------------------------------------------------------
Additions to property, plant and equipment $ 115,850 $ 13,535 $
11,806 $ 260,419
------------------------------------------------------------- 10.
Related Party Transactions: During the three months ended March 31,
2006, the Company has entered into certain transactions in the
normal course of business with certain broadcasters in which the
Company has an equity interest as follows: Three Months Ended March
31, (In thousands of dollars) 2006 2005
-----------------------------------------------------------
------------- Access fees paid to broadcasters accounted for by the
equity method $4,835 $4,491
-------------------------------------------------------------------------
The access fees above were paid to a number of Canadian pay,
specialty and digital specialty channels including Viewer's Choice
Canada, Prime, Outdoor Life Network, G4 Tech, Biography channel,
and MSNBC Canada. The Company has entered into certain transactions
with companies, the partners or senior officers of which are
directors of the Company and/or its subsidiary companies. During
the three months ended March 31, 2006, total amounts paid by the
Company to these related parties are as follows: Three Months Ended
March 31, (In thousands of dollars) 2006 2005
-----------------------------------------------------------
------------- Legal services and commissions paid on premiums for
insurance coverage $514 $1,700 Telecommunications and programming
services - 1,500 Interest charges and other financing fees - 11,600
-----------------------------------------------------------
------------- $514 $14,800
-------------------------------------------------------------------------
During the three months ended March 31, 2006, the Company made
payments to (received from) companies controlled by the controlling
shareholder of the Company as follows: Three Months Ended March 31,
(In thousands of dollars) 2006 2005
-----------------------------------------------------------
------------- Net charges for business use of aircraft and other
administrative services $313 $171
-------------------------------------------------------------------------
As disclosed in Note 18 to the Consolidated Financial Statements
for the year ended December 31, 2005, with the approval of a
special committee of the Board of Directors, the Company entered
into an arrangement to sell to the controlling shareholder of the
Company, for $13 million in cash, the shares in two wholly owned
subsidiaries whose only asset consists of tax losses aggregating
approximately $100 million. Further to this arrangement, on April
7, 2006, a company controlled by the controlling shareholder of the
Company purchased the shares in one of these wholly owned
subsidiaries for cash of $6.8 million. 11. Contingencies: In 2000,
the Company received a $241 million payment (the "Termination
Payment") from Le Groupe Videotron Ltee ("Videotron") in respect of
the termination of a merger agreement between the Company and
Videotron. In April 2006, the Canada Revenue Agency issued a letter
advising that they disagree with the Company's tax filing position
in respect of the Termination Payment and that they intend to
reassess the Company, which would result in additional tax and
related interest of approximately $61 million. Management is of the
view that the Company should ultimately prevail; accordingly, the
Company has not recorded a liability for this contingency and
intends to vigorously contest any such assessment. Caution
Regarding Forward-Looking Statements This MD&A includes
forward-looking statements and assumptions concerning the future
performance of our business, its operations and its financial
performance and condition. These forward-looking statements
include, among others, statements with respect to our objectives
and strategies to achieve those objectives, as well as statements
with respect to our beliefs, plans, expectations, anticipations,
estimates or intentions. These forward-looking statements also
include, but are not limited to, financial guidance relating to
revenue, operating profit and PP&E expenditures, expected
growth in subscribers, the deployment of new services, integration
costs, and other statements that are not historical facts. These
forward-looking statements are based on our current expectations.
We caution that all forward-looking information is inherently
uncertain and that actual results may differ materially from the
conclusions, forecasts or projections reflected or contained in the
forward-looking information, and that actual future performance
will be affected by a number of material factors, including
economic conditions, technological change, the integration of
acquisitions, regulatory change and competitive factors, many of
which are beyond our control. Therefore, future events and results
may vary significantly from what we currently foresee.
Forward-looking statements and assumptions for time periods
subsequent to 2006 by their nature involve longer-term assumptions
and estimates than those for 2006 and are consequently subject to
greater uncertainty; therefore, the reader is especially cautioned
not to place undue reliance on such longer-term forward-looking
statements. 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. For a more detailed discussion of the
material factors or assumptions that were applied in drawing
conclusions or making a forecast or projection set out in such
forward looking information, see the sections of our release and
filing of February 9, 2006 entitled "Material Assumptions and Risks
That Could Affect Our Business" and also the "Risks and
Uncertainties" and "Material Assumptions" sections of our 2005
Annual MD&A. Additional Information Additional information
relating to us, including our Annual Information Form, Form 40-F/A
and discussions of our most recent quarterly results, may be found
on SEDAR at http://www.sedar.com/ or on EDGAR at
http://www.sec.gov/. Separate annual and quarterly financial
results for RWI and Cable are also filed and are available on SEDAR
and EDGAR. About the Company: Rogers Communications Inc. (TSX: RCI;
NYSE: RG) is a diversified Canadian communications and media
company engaged in three primary lines of business. Rogers Wireless
is Canada's largest wireless voice and data communications services
provider and the country's only carrier operating on the world
standard GSM technology platform. Rogers Cable and Telecom is
Canada's largest cable television provider offering cable
television, high-speed Internet access, residential telephony
services, and video retailing, while its Rogers Business Solutions
division is a national provider of voice communications services,
data networking, and broadband Internet connectivity to small,
medium and large businesses across the country. Rogers Media is
Canada's premier collection of category leading media assets with
businesses in radio and television broadcasting, televised
shopping, publishing and sports entertainment. For further
information about the Rogers group of companies, please visit
http://www.rogers.com/. Separate annual and quarterly financial
results for Rogers Wireless Inc. and Rogers Cable Inc. are also
filed and are available on SEDAR and EDGAR. 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
http://www.rogers.com/webcast beginning at 12:00 noon ET on April
25, 2006. A rebroadcast of this call will be available on the
Webcast Archive page of the Investor Relations section of
http://www.rogers.com/ for a period of at least two weeks following
the call. DATASOURCE: Rogers Communications Inc. CONTACT: PR
Newswire - - April 25 /END FIRST AND FINAL ADD/
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