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: - Revenue (primarily network revenue at
Wireless) 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, and - Additions to
PP&E. See "Supplementary Information" section for calculations
of the Non-GAAP measures. 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 Nine Months Ended September 30, September 30,
---------------------------------------------- (In millions of
dollars) 2006 2005 % Chg 2006 2005 % Chg
-------------------------------------------------------------------------
Fees paid to broadcasters accounted for by the equity method(1) $
4.8 $ 4.6 4.3 $ 14.8 $ 13.8 7.2
-------------------------------------------------------------------------
(1) Fees paid to a number of Canadian pay, specialty and digital
specialty channels including Viewer's Choice Canada, TV Tropolis
(formerly Prime), Outdoor Life Network, G4TechTV, and The Biography
Channel. On June 12, 2006, we increased our ownership of Biography
Canada and G4TechTV Canada to 100% and 66 2/3%, respectively. We
have entered into certain transactions with companies, the partners
or senior officers of which are or have been directors of our
company and/or our subsidiary companies. During the three and nine
months ended September 30, 2006 and 2005, total amounts paid by us
to these related parties are as follows:
-------------------------------------------------------------------------
Three Months Ended Nine Months Ended September 30, September 30,
---------------------------------------------- (In millions of
dollars) 2006 2005 % Chg 2006 2005 % Chg
-------------------------------------------------------------------------
Legal services and commissions paid on premiums for insurance
coverage $ 0.3 $ 1.3 (76.9) $ 1.9 $ 4.5 (57.8) Telecommunications
and programming services - - - - 1.6 n/m Interest charges and other
financing fees - - - - 22.0 n/m
-------------------------------------------------------------------------
$ 0.3 $ 1.3 (76.9) $ 1.9 $ 28.1 (93.2)
-------------------------------------------------------------------------
During the three and nine month periods ended September 30, 2006
and 2005, we made payments to companies controlled by our
controlling shareholder as follows:
-------------------------------------------------------------------------
Three Months Ended Nine Months Ended September 30, September 30,
---------------------------------------------- (In millions of
dollars) 2006 2005 % Chg 2006 2005 % Chg
-------------------------------------------------------------------------
Charges to Rogers for business use of aircraft, net of other
administrative services $ 0.1 $ - n/m $ 0.5 $ 0.3 66.7
-------------------------------------------------------------------------
As disclosed in Note 18 to the Annual Audited Consolidated
Financial Statements for the year ended December 31, 2005, 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 wholly owned
subsidiaries whose only asset consists of tax losses aggregating
approximately $100 million. The special committee was advised by
independent counsel and engaged an accounting firm as part of their
review to ensure that the sale price was within a range that would
be fair from a financial point of view. Further to this
arrangement, on April 7, 2006, a company controlled by our
controlling shareholder purchased the shares in one of these wholly
owned subsidiaries for cash of $6.8 million. On July 24, 2006, the
shares of the second wholly owned subsidiary were purchased by a
company controlled by the controlling shareholder for cash of $6.2
million. 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 and nine months ended September 30, 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 and nine months ended September 30, 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. Emerging Issues Committee
("EIC") Abstract 162, "Stock-Based Compensation for Employees
Eligible to Retire Before the Vesting Date" was issued on July 6,
2006. EIC 162 requires that the compensation cost attributable to
awards granted to employees eligible to retire at the grant date
should be recognized on the grant date if the award's
exercisability does not depend on continued service. Additionally,
awards granted to employees who will become eligible to retire
during the vesting period should be recognized over the period from
the grant date to the date the employee becomes eligible to retire.
EIC 162 must be applied retroactively, with restatement of prior
periods, effective with our financial statements for the year
ending December 31, 2006. We are currently evaluating the impact of
this new standard. 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 Based on
our year-to-date results and current outlook for the fourth quarter
of 2006, we are further modifying certain elements of our full year
2006 financial and operating metric guidance as shown in the table
below. Full Year 2006 Guidance
-----------------------------------------------
------------------------ (In millions of dollars, Original 2006
Range Updated from except subscribers) (At February 9, 2006)
Original Guidance -----------------------------------------------
------------------------ Revenue Wireless (network revenue) $4,125
to $ 4,175 High end of range up 3% Cable and Telecom 3,110 to 3,185
High end of range up 1% Media 1,165 to 1,205 Operating profit(1)
Wireless(2) $1,730 to $1,780 High end of range up 7% Cable and
Telecom 825 to 860 High end of range up 2% Media 115 to 120 High
end of range up 8% PP&E expenditures(3) Wireless $ 600 to $ 650
Cable and Telecom 640 to 695 High end of range up 8% Net subscriber
additions (000's) Wireless voice and data 525 to 575 Basic cable -
to 10 Internet 125 to 175 Digital 175 to 225 Residential telephony
200 to 250 High end of range up 20% Rogers Telecom integration(4) $
50 to $ 65 -----------------------------------------------
------------------------ (1) Before RCI corporate expenses and
management fees paid to RCI and excluding costs associated with the
integration of Fido and Call-Net (see Note 4 below). (2) Excludes
operating losses related to the Inukshuk fixed wireless initiative.
(3) Does not include Corporate, Inukshuk or Media PP&E
expenditures or the PP&E expenditures component of the
Call-Net/Rogers Telecom integration (see Note 4 below). Corporate
PP&E expenditures will include costs associated with the
January 4, 2006 purchase of the Greater Toronto Area business
campus by RCI. (4) Estimated breakdown: approximately 70% to be
recorded as PP&E expenditures and approximately 30% to be
recorded as operating expense. Our full year 2006 outlook for the
net number of residential telephony subscriber additions represents
a gain in the number of voice-over-cable telephony subscribers
partially offset by an estimated reduction during the year of
approximately 50,000 circuit-switched subscribers due primarily to
migrations of these subscribers onto our cable platform as well as
modest competitive losses outside of our cable operating territory.
The increase in our outlook for Cable and Telecom capital
expenditures is directly related to the significant number of
voice-over-cable telephony subscriber additions as well as to
putting in place additional capacity to accommodate expected
continued growth in future quarters. There are no other updates at
this point to the summary level ranges of our 2006 financial and
operating metric guidance. (See the section entitled "Caution
Regarding Forward-Looking Statements" below.) SUPPLEMENTARY
INFORMATION Calculations of Wireless Non-GAAP Measures
-------------------------------------------------------------------------
(In millions of dollars, Three months ended Nine months ended
subscribers in thousands, September 30, September 30, except ARPU
figures and -------------------------------------------- operating
profit margin) 2006 2005 2006 2005
-------------------------------------------------------------------------
Postpaid ARPU (monthly) Postpaid (voice and data) revenue $ 1,080.1
$ 899.1 $ 2,989.4 $ 2,466.1 Divided by: Average postpaid wireless
voice and data subscribers 5,116.3 4,484.4 4,983.1 4,347.8 Divided
by: 3 months for the quarter and 9 months for year-to-date 3 3 9 9
-------------------------------------------- $ 70.37 $ 66.83 $
66.66 $ 63.02
-------------------------------------------------------------------------
Prepaid ARPU (monthly) Prepaid revenue $ 57.3 $ 55.4 $ 152.7 $
156.4 Divided by: Average prepaid subscribers 1,307.2 1,326.0
1,311.8 1,320.2 Divided by: 3 months for the quarter and 9 months
for year-to-date 3 3 9 9
-------------------------------------------- $ 14.61 $ 13.91 $
12.93 $ 13.16
-------------------------------------------------------------------------
Cost of acquisition per gross addition Total sales and marketing
expenses $ 153.1 $ 153.1 $ 418.9 $ 410.3 Equipment margin loss
(acquisition related) 43.5 48.7 138.8 134.9
-------------------------------------------- $ 196.6 $ 201.8 $
557.7 $ 545.2 --------------------------------------------
-------------------------------------------- Total gross wireless
additions (postpaid, prepaid, and one-way messaging) 541.7 554.4
1,437.4 1,465.6 -------------------------------------------- $ 363
$ 364 $ 388 $ 372
-------------------------------------------------------------------------
Operating expense per average subscriber (monthly) Operating,
general and administrative expenses $ 354.4 $ 312.4 $ 1,010.3 $
894.9 Integration expenses (1.8) 12.8 2.7 28.4 Equipment margin
loss (retention related) 31.2 51.2 129.9 124.6
-------------------------------------------- $ 383.8 $ 376.4 $
1,142.9 $ 1,047.9 --------------------------------------------
-------------------------------------------- Divided by: Average
total wireless subscribers 6,566.3 5,986.3 6,448.1 5,851.3 Divided
by: 3 months for the quarter and 9 months for year-to-date 3 3 9 9
-------------------------------------------- 19.48 20.96 19.69
19.90
-------------------------------------------------------------------------
Equipment margin loss Equipment sales $ 124.6 $ 109.2 $ 314.9 $
270.5 Cost of equipment sales (199.3) (209.1) (583.6) (530.0)
-------------------------------------------- $ (74.7) $ (99.9) $
(268.7) $ (259.5) --------------------------------------------
-------------------------------------------- Acquisition related $
(43.5) $ (48.7) $ (138.8) $ (134.9) Retention related (31.2) (51.2)
(129.9) (124.6) -------------------------------------------- $
(74.7) $ (99.9) $ (268.7) $ (259.5)
--------------------------------------------
--------------------------------------------
-------------------------------------------------------------------------
Operating Profit Margin Operating Profit $ 560.7 $ 381.5 $ 1,452.6
$ 1,044.6 Divided by Network Revenue 1,141.1 959.7 3,153.2 2,637.7
-------------------------------------------- Operating Profit
Margin 49.1% 39.8% 46.1% 39.6%
-------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION Calculations of Cable and Telecom
Non-GAAP Measures
---------------------------------------------------
--------------------- (In millions of dollars, Three months ended
Nine months ended subscribers in thousands, September 30, September
30, except ARPU figures and ----------------------
--------------------- operating profit margin) 2006 2005 2006 2005
---------------------------------------------------
--------------------- Core Cable ARPU Core Cable revenue $ 356.4 $
326.1 $ 1,054.2 $ 962.9 Divided by: Average basic cable subscribers
2,255.6 2,243.0 2,257.3 2,247.2 Divided by: 3 months for quarter
and 9 months for year-to-date 3 3 9 9 ----------------------
--------------------- $ 52.67 $ 48.46 $ 51.89 $ 47.61
---------------------------------------------------
--------------------- Internet ARPU Internet revenue(1) $ 131.0 $
107.8 $ 381.5 $ 317.3 Divided by: Average internet (residential)
subscribers 1,219.0 1,040.9 1,174.5 1,000.0 Divided by: 3 months
for quarter and 9 months for year-to-date 3 3 9 9
---------------------- --------------------- $ 35.83 $ 34.52 $
36.09 $ 35.26 ---------------------------------------------------
--------------------- Cable and Internet: Operating Profit $ 209.1
$ 177.8 $ 614.7 $ 526.6 Divided by Revenue 488.5 436.0 1,439.5
1,282.8 ---------------------- --------------------- Cable and
Internet Operating Profit Margin 42.8% 40.8% 42.7% 41.1%
---------------------------------------------------
--------------------- Rogers Home Phone: Operating Profit $ (2.9) $
3.8 $ 6.6 $ 3.8 Divided by Revenue 90.8 74.7 257.0 74.7
---------------------- --------------------- Rogers Home Phone
Operating Profit Margin (3.2%) 5.1% 2.6% 5.1%
---------------------------------------------------
--------------------- Rogers Business Solutions: Operating Profit $
6.4 $ 11.6 $ 36.6 $ 5.2 Divided by Revenue 148.5 139.0 441.0 141.2
---------------------- --------------------- Rogers Business
Solutions Operating Profit Margin 4.3% 8.3% 8.3% 3.7%
---------------------------------------------------
--------------------- Video stores: Operating Profit(2) $ 2.4 $ 4.2
$ 5.6 $ 14.1 Divided by Revenue 72.8 77.1 226.0 235.5
---------------------- --------------------- Video stores Operating
Profit Margin 3.3% 5.4% 2.5% 6.0%
---------------------------------------------------
--------------------- (1) Internet ARPU calculation does not
include amounts related to dial-up customers. (2) Video stores
operating profit in the nine months ended September 30, 2006
include $5.2 million of costs related to the closure of 21 Video
stores. SUPPLEMENTARY INFORMATION Rogers Communications Inc.
Historical Quarterly Summary(1) 2006
-------------------------------------------------------------------------
(In thousands of dollars, except per share amounts) Q1 Q2 Q3
-------------------------------------------------------------------------
Income Statement Operating Revenue Wireless $ 1,051,237 $ 1,151,130
$ 1,265,711 Cable and Telecom 774,032 786,916 799,455 Media 240,122
333,829 319,315 Corporate and eliminations (33,639) (35,601)
(37,218)
-------------------------------------------------------------------------
2,031,752 2,236,274 2,347,263
-------------------------------------------------------------------------
Operating profit(2) Wireless 405,133 486,803 560,674 Cable and
Telecom 211,628 232,413 213,656 Media 13,137 51,969 38,970
Corporate (33,606) (29,056) (29,007)
-------------------------------------------------------------------------
596,292 742,129 784,293 Depreciation and amortization 386,113
394,763 408,173
-------------------------------------------------------------------------
Operating income 210,179 347,366 376,120 Interest on long-term debt
(161,575) (154,694) (152,785) Other income (expense) 1,127 16,868
6,806 Income tax recovery (expense) (34,914) 68,001 (76,180)
Non-controlling interest - - -
-------------------------------------------------------------------------
Net income (loss) for the period 14,817 277,541 153,961
-------------------------------------------------------------------------
Earnings (loss) per share - basic $ 0.05 $ 0.88 $ 0.49 - diluted $
0.05 $ 0.87 $ 0.48 Additions to property, plant and equipment(2) $
340,056 $ 402,734 $ 423,927
-------------------------------------------------------------------------
2005
-------------------------------------------------------------------------
(In thousands of dollars, except per share amounts) Q1 Q2 Q3 Q4
-------------------------------------------------------------------------
Income Statement Operating Revenue Wireless $ 875,371 $ 963,886 $
1,068,888 $ 1,098,511 Cable and Telecom 505,256 500,080 725,676
760,612 Media 219,280 293,402 284,520 299,974 Corporate and
eliminations (17,492) (24,857) (32,017) (38,936)
-------------------------------------------------------------------------
1,582,415 1,732,511 2,047,067 2,120,161
-------------------------------------------------------------------------
Operating profit(2) Wireless 298,376 364,760 381,488 292,425 Cable
and Telecom 180,669 171,562 195,101 217,211 Media 11,320 44,195
33,293 39,038 Corporate (15,141) (15,063) (20,510) (35,155)
-------------------------------------------------------------------------
475,224 565,454 589,372 513,519 Depreciation and amortization
341,633 358,746 376,984 400,648
-------------------------------------------------------------------------
Operating income 133,591 206,708 212,388 112,871 Interest on
long-term debt (184,767) (180,325) (178,792) (166,195) Other income
(expense) 8,663 (3,441) 17,894 (21,098) Income tax recovery
(expense) (3,514) (3,748) (2,603) 7,710 Non-controlling interest -
- - -
-------------------------------------------------------------------------
Net income (loss) for the period (46,027) 19,194 48,887 (66,712)
-------------------------------------------------------------------------
Earnings (loss) per share - basic $ (0.17) $ 0.07 $ 0.17 $ (0.22) -
diluted $ (0.17) $ 0.07 $ 0.16 $ (0.22) Additions to property,
plant and equipment(2) $ 260,419 $ 344,738 $ 318,656 $ 429,983
-------------------------------------------------------------------------
2004
-------------------------------------------------------------------------
(In 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 to
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
Statements of Income (In thousands of Three Months Ended Nine
Months Ended dollars, except per September 30, September 30, share
amounts) 2006 2005 2006 2005 ----------------------------------
------------ ------------ ------------ Operating revenue $
2,347,263 $ 2,047,067 $ 6,615,289 $ 5,361,992 Cost of sales 276,746
283,803 820,340 754,909 Sales and marketing expenses 311,221
295,070 873,097 777,085 Operating, general and administrative
expenses 975,415 860,871 2,785,459 2,166,416 Integration expenses
(recovery) (note 2) (412) 17,951 8,524 33,531 Video store closure
expenses (note 6) - - 5,155 - Depreciation and amortization 408,173
376,984 1,189,049 1,077,361 ----------------------------------
------------ ------------ ------------ Operating income 376,120
212,388 933,665 552,690 Interest on long-term debt (152,785)
(178,792) (469,054) (543,883) ----------------------------------
------------ ------------ ------------ 223,335 33,596 464,611 8,807
Foreign exchange gain (loss) (138) 63,301 40,878 39,072 Change in
the fair value of derivative instruments 1,202 (42,269) (28,389)
(26,957) Other income (expense) 5,742 (3,138) 12,312 10,997
---------------------------------- ------------ ------------
------------ Income before income taxes 230,141 51,490 489,412
31,919 Income tax expense (note 7): Current 1,314 2,603 1,805 9,865
Future 74,866 - 41,289 - ----------------------------------
------------ ------------ ------------ Net income for the period $
153,961 $ 48,887 $ 446,318 $ 22,054
---------------------------------- ------------ ------------
------------ ---------------------------------- ------------
------------ ------------ Earning per share (note 8): Basic $ 0.49
$ 0.17 $ 1.41 $ 0.08 Diluted 0.48 0.16 1.39 0.08
---------------------------------- ------------ ------------
------------ ---------------------------------- ------------
------------ ------------ See accompanying Notes to Unaudited
Interim Consolidated Financial Statements. Rogers Communications
Inc. Unaudited Consolidated Statements of Cash Flows Three Months
Ended Nine Months Ended (In thousands September 30, September 30,
of dollars) 2006 2005 2006 2005 ----------------------------------
------------ ------------ ------------ Cash provided by (used in):
Operating activities: Net income for the period $ 153,961 $ 48,887
$ 446,318 $ 22,054 Adjustments to reconcile net income to net cash
flows from operating activities: Depreciation and amortization
408,173 376,984 1,189,049 1,077,361 Program rights and video rental
inventory depreciation 18,150 21,479 55,057 65,309 Unrealized
foreign exchange (gain) loss 233 (63,486) (35,646) (40,701) Change
in the fair value of derivative instruments (1,202) 42,269 28,389
26,957 Accreted interest on convertible preferred securities -
5,493 - 16,302 Future income taxes 74,866 - 41,289 - Stock-based
compensation expense 12,264 6,640 32,227 19,556 Amortization on
fair value increment of long- term debt and derivatives (2,013)
(4,718) (7,694) (11,420) Other (4,208) 3,499 (6,974) (3,772) Sale
of income tax losses to related party (note 11) 6,154 - 12,992 -
---------------------------------- ------------ ------------
------------ 666,378 437,047 1,755,007 1,171,646 Change in non-cash
working capital items 63,722 7,662 (8,150) (218,102)
---------------------------------- ------------ ------------
------------ 730,100 444,709 1,746,857 953,544 Financing
activities: Issuance of long- term debt 94,000 203,750 824,000
1,001,750 Repayment of long- term debt (402,946) (384,010)
(1,281,709) (1,082,120) Proceeds on termination of cross-currency
interest rate exchange agreements - - - 402,191 Payment on
termination of cross- currency interest rate exchange agreements -
- (10,286) (470,825) Financing costs incurred - (2,540) - (4,940)
Issue of capital stock 23,327 20,026 63,109 83,266 Dividends on
Class A Voting and Class B Non-Voting shares (23,668) (13,896)
(47,211) (26,209) ---------------------------------- ------------
------------ ------------ (309,287) (176,670) (452,097) (96,887)
Investing activities: Additions to property, plant and equipment
("PP&E") (415,265) (318,656) (1,158,055) (923,813) Change in
non-cash working capital items related to PP&E 20,498 18,978
(17,115) (30,988) Cash acquired on acquisition of Rogers Telecom -
65,467 - 65,467 Exercise of Fido call rights on warrants - - -
(38,778) Acquisition of Rogers Centre - - - (24,512) Proceeds on
sale of investments - - 1,107 12,203 Additions to program rights
(6,347) (34,782) (27,704) (34,782) Other investments 6,430 (4,057)
(18,198) (23,100) ---------------------------------- ------------
------------ ------------ (394,684) (273,050) (1,219,965) (998,303)
---------------------------------- ------------ ------------
------------ Increase (decrease) in cash and cash equivalents
26,129 (5,011) 74,795 (141,646) Cash and cash equivalents
(deficiency), beginning of period (55,215) 107,358 (103,881)
243,993 ---------------------------------- ------------
------------ ------------ Cash and cash equivalents (deficiency),
end of period $ (29,086) $ 102,347 $ (29,086) $ 102,347
---------------------------------- ------------ ------------
------------ ---------------------------------- ------------
------------ ------------ Supplemental cash flow information:
Interest paid $ 131,403 $ 142,774 $ 463,118 $ 506,094 Income taxes
paid 450 3,660 4,551 11,929 ----------------------------------
------------ ------------ ------------
---------------------------------- ------------ ------------
------------ Cash and cash equivalents (deficiency) are defined as
cash and short-term deposits which have an original maturity of
less than 90 days, less bank advances. Change in Non-Cash Working
Capital Items Three Months Ended Nine Months Ended (In thousands
September 30, September 30, of dollars) 2006 2005 2006 2005
---------------------------------- ------------ ------------
------------ Cash provided by (used in): Increase in accounts
receivable $ (88,539) $ (127,221) $ (125,255) $ (133,072) Increase
(decrease) in accounts payable and accrued liabilities 151,419
38,086 140,224 (117,614) Increase (decrease) in unearned revenue
(4,306) 20,285 38,716 24,331 Decrease (increase) in other assets
5,148 76,512 (61,835) 8,253 ----------------------------------
------------ ------------ ------------ $ 63,722 $ 7,662 $ (8,150) $
(218,102) ---------------------------------- ------------
------------ ------------ ----------------------------------
------------ ------------ ------------ See accompanying Notes to
Unaudited Interim Consolidated Financial Statements. Rogers
Communications Inc. Unaudited Consolidated Balance Sheets September
30, December 31, (In thousands of dollars) 2006 2005
------------------------------------------------------------
------------ Assets Current assets Accounts receivable $ 1,021,533
$ 890,701 Other current assets 306,426 297,846 Future income tax
asset (note 7) 312,258 113,150
------------------------------------------------------------
------------ 1,640,217 1,301,697 Property, plant and equipment
6,470,809 6,151,526 Goodwill (note 7) 2,778,982 3,035,787
Intangible assets (note 7) 2,242,087 2,627,466 Investments 141,485
138,212 Deferred charges 111,547 129,119 Future income tax asset
(note 7) 395,341 347,252 Other long-term assets 134,943 103,230
------------------------------------------------------------
------------ $ 13,915,411 $ 13,834,289
------------------------------------------------------------
------------
------------------------------------------------------------
------------ Liabilities and Shareholders' Equity Liabilities
Current liabilities Bank advances, arising from outstanding cheques
$ 29,086 $ 103,881 Accounts payable and accrued liabilities
1,510,355 1,411,045 Current portion of long-term debt (note 4)
451,688 286,139 Current portion of derivative instruments 19,564
14,180 Unearned revenue 214,318 176,266
------------------------------------------------------------
------------ 2,225,011 1,991,511 Long-term debt (note 4) 6,574,018
7,453,412 Derivative instruments 1,002,891 787,369 Other long-term
liabilities 77,338 74,382
------------------------------------------------------------
------------ 9,879,258 10,306,674 Shareholders' equity (note 5)
4,036,153 3,527,615
------------------------------------------------------------
------------ $ 13,915,411 $ 13,834,289
------------------------------------------------------------
------------
------------------------------------------------------------
------------ Contingency (note 12) Subsequent events (note 13) See
accompanying Notes to Unaudited Interim Consolidated Financial
Statements. Rogers Communications Inc. Unaudited Consolidated
Statements of Deficit Nine Months Nine Months Ended Ended September
30, September 30, (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 for the
period 446,318 22,054 Dividends on Class A Voting shares and Class
B Non-Voting shares (23,668) (13,896)
----------------------------------------------------------
-------------- Deficit, end of period $ (178,898) $ (511,293)
----------------------------------------------------------
--------------
----------------------------------------------------------
-------------- See accompanying Notes to Unaudited Interim
Consolidated Financial Statements Rogers Communications Inc. Notes
to Unaudited Consolidated Financial Statements Three and Nine
Months Ended September 30, 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 10. Certain of the prior year's comparative figures have
been reclassified to conform to the current year's presentation.
Emerging Issues Committee ("EIC") Abstract 162, "Stock-Based
Compensation for Employees Eligible to Retire Before the Vesting
Date" was issued on July 6, 2006. EIC 162 requires that the
compensation cost attributable to awards granted to employees
eligible to retire at the grant date should be recognized on the
grant date if the award's exercisability does not depend on
continued service. Additionally, awards granted to employees who
will become eligible to retire during the vesting period should be
recognized over the period from the grant date to the date the
employee becomes eligible to retire. EIC 162 must be applied
retroactively, with restatement of prior periods, effective with
the financial statements of the Company for the year ending
December 31, 2006. The Company is currently evaluating the impact
of this new standard. 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 six months ended June 30, 2006, the Company
finalized 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 $22.3 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. Accompanied with a $1.2 million
adjustment to accrued transaction costs, these adjustments resulted
in a decrease in goodwill acquired of $47.5 million. During the
three and nine months ended September 30, 2006, the Company
incurred integration expenses of $1.4 million and $5.8 million,
respectively, (2005 - $5.2 million and $5.2 million, respectively),
related to the Call-Net acquisition. Fido Solutions Inc. (Fido):
During the three months ended September 30, 2006, the Company
reviewed the accrued expenses related to the Fido integration.
Since the integration is now complete, the Company determined that
it was necessary to reduce previous integration expense estimates
resulting in a net reduction to the expense accruals of $1.8
million. During the nine months ended September 30, 2006, the
Company incurred net integration expenses of $2.7 million. During
the three and nine months ended September 30, 2005, the Company
incurred integration expenses of $12.8 million and $28.4 million,
respectively. At September 30, 2006, the remaining accrual related
to the liabilities assumed on acquisition and included in the
purchase price allocation was $4.9 million (December 31, 2005 -
$21.7 million). 3. Investment in Joint Ventures: The company has
contributed certain assets to joint ventures involved in the
provision of wireless broadband Internet capacity and in certain
mobile commerce initiatives. As at September 30, 2006 and for the
three and nine months ended September 30, 2006, proportionately
consolidating these joint ventures resulted in the following
increases (decreases) in the accounts of the Company:
-------------------------------------------------------------------------
As at For the and for three the nine months months ended ended
September September (In thousands of dollars) 30, 2006 30, 2006
-------------------------------------------------------------------------
Current assets $ 18,830 Long-term assets 40,142 Current liabilities
7,116 Revenue $ - 38 Expenses 5,854 13,249 Net loss 5,854 13,211
-------------------------------------------------------------------------
4. Long-Term Debt: Interest September 30, December 31, (In
thousands of dollars) Rate 2006 2005
-----------------------------------------------------------
------------ (A) Corporate: Senior Secured Notes, due 2006 10.50% $
- $ 75,000
-----------------------------------------------------------
------------ (B) Wireless: (i) Bank credit facility Floating -
71,000 (ii) Senior Secured Notes, due 2006 10.50% - 160,000 (iii)
Floating Rate Senior Secured Notes, due 2010 Floating 613,415
641,245 (iv) Senior Secured Notes, due 2011 9.625% 546,497 571,291
(v) Senior Secured Notes, due 2011 7.625% 460,000 460,000 (vi)
Senior Secured Notes, due 2012 7.25% 524,191 547,973 (vii) Senior
Secured Notes, due 2014 6.375% 836,475 874,425 (viii) Senior
Secured Notes, due 2015 7.50% 613,415 641,245 (ix) Senior Secured
Debentures, due 2016 9.75% 172,760 180,598 (x) Senior Subordinated
Notes, due 2012 8.00% 446,120 466,360 (xi) Fair value increment
arising from purchase accounting 37,469 44,326
-----------------------------------------------------------
------------ 4,250,342 4,658,463 (C) Cable: (i) Bank credit
facility Floating 155,000 267,000 (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% 390,355 408,065 (v)
Senior Secured Second Priority Notes, due 2013 6.25% 390,355
408,065 (vi) Senior Secured Second Priority Notes, due 2014 5.50%
390,355 408,065 (vii) Senior Secured Second Priority Notes, due
2015 6.75% 312,284 326,452 (viii) Senior Secured Second Priority
Debenture, due 2032 8.75% 223,060 233,180
-----------------------------------------------------------
------------ 2,486,409 2,675,827 (D) Media: Bank credit facility
Floating 285,000 274,000
-----------------------------------------------------------
------------ (E) Telecom: (i) Senior Secured Notes, due 2008
10.625% - 25,703 (ii) Fair value increment arising from purchase
accounting - 1,619
-----------------------------------------------------------
------------ - 27,322 Capital leases, mortgage payable and other
Various 3,955 28,939
-----------------------------------------------------------
------------ 7,025,706 7,739,551 Less current portion (451,688)
(286,139)
-----------------------------------------------------------
------------ $ 6,574,018 $ 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. On June 1, 2006, the Company repaid, at
maturity, the $160.0 million aggregate principal amount outstanding
of its 10.50% Senior Secured Notes due 2006. On July 4, 2006, the
Company repaid, at maturity, the $22.0 million aggregate principal
amount outstanding of its mortgage on the Rogers Campus in Toronto.
In July 2006, Rogers Cable Inc. entered into an amendment to its
bank credit facility to insert provisions for the springing release
of security in a similar fashion as provided in all of Rogers Cable
Inc.'s public debt indentures. This provision provides that if
Rogers Cable Inc. has two investment grade ratings on its debt and
there is no other debt or cross-currency interest rate exchange
agreement secured by a bond issued under the Rogers Cable Inc. deed
of trust, then the security provided for a particular debt
instrument will be discharged upon 45 days prior notice by Rogers
Cable Inc. A similar amendment has also been made in each of Rogers
Cable Inc.'s cross-currency interest rate exchange agreements. 5.
Shareholders' Equity: September 30, December 31, (In thousands of
dollars) 2006 2005
-----------------------------------------------------------
------------- Capital stock issued, at stated value: 56,233,894
Class A shares $ 72,311 $ 72,311 261,130,061 Class B shares (2005 -
257,702,341) 424,278 418,695
-----------------------------------------------------------
------------ Total capital stock 496,589 491,006 Contributed
surplus 3,718,462 3,638,157 Deficit (178,898) (601,548)
-----------------------------------------------------------
------------ Shareholders' equity $4,036,153 $3,527,615
-----------------------------------------------------------
------------ (i) During the three and nine months ended September
30, 2006, the Company issued 1,398,798 and 3,427,720 Class B
Non-Voting shares to employees upon exercise of options for
consideration of $26.0 million and $61.1 million, respectively.
(ii) On April 25, 2006, the Company declared a dividend of $0.075
per share on each of its outstanding Class B Non-Voting shares and
Class A Voting shares. This semi-annual dividend totalling $23.7
million was paid on July 4, 2006 to the shareholders of record on
June 14, 2006. (iii) Subsequent to the end of the quarter, on
October 30, 2006, the Board of Directors approved the two-for-one
stock split of the Company's Class A Voting and Class B Non-Voting
shares, an amendment to the par value of the Class B Non-Voting
shares, an increase in the annual dividend as well as changes to
the Company's dividend distribution policy. These changes are
discussed in Note 13. (iv) Stock-based compensation: During the
three and nine months ended September 30, 2006, the Company granted
2,000 and 316,050 options, respectively, to employees (2005 -
25,000 and 479,562 options, respectively). During the three and
nine months ended September 30, 2006, the Company recorded
compensation expense of approximately $12.3 million and $32.2
million, respectively, (2005 - $6.6 million and $19.6 million,
respectively) 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
details of these stock-based compensation transactions are as
follows: (a) The weighted average estimated fair value at the date
of the grant for options granted during the three and nine months
ended September 30, 2006 was $21.54 and $17.65 per share,
respectively (2005 - $17.52 and $15.46 per share, respectively).
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 Nine Months Ended
September 30, September 30, 2006 2005 2006 2005
------------------------------------- ----------- -----------
----------- Risk-free interest rate 3.96% 3.69% 4.07% 3.99%
Dividend yield 0.27% 0.23% 0.33% 0.29% Volatility factor of the
future expected market price of Class B Non-Voting shares 35.71%
39.14% 37.41% 43.66% Weighted average expected life of the options
4.8 years 5.2 years 4.9 years (5.6 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 on
a straight line basis over four years 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, $0.5 million and $1.3 million
was recorded as compensation cost in the three and nine months
ended September 30, 2006, respectively, 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 and nine months ended September 30, 2006, the
Company issued 4,500 and 203,082 restricted share units,
respectively (2005 - nil and 236,801 respectively). As at September
30, 2006, 471,734 restricted share units were outstanding (2005 -
286,117). 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 first quarter of 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 totalling nil and $2.3 million for
the three and nine months ended September 30, 2006, respectively,
as well as a write down of the related property, plant and
equipment totalling $nil and $2.9 million for the three and nine
months ended September 30, 2006, respectively. 7. Income Taxes:
Current income tax expense has historically consisted primarily of
the Canadian Federal Large Corporations Tax ("LCT"). Due to the
elimination of the LCT in 2006, the amount expensed for the three
and nine month periods ended September 30, 2006 of $1.3 million and
$1.8 million, respectively, is attributable only to income tax. The
Company recorded net future income tax expense for the three and
nine month periods ended September 30, 2006, of $74.9 million and
$41.3 million, respectively. Future income tax expense resulted
primarily from the utilization of non-capital loss carryforwards,
the benefit of which had previously been recognized, net of a
reduction of the valuation allowance. Based on management's
assessment of the expected realization of future income tax assets,
during the three month period ended June 30, 2006, the Company
reduced the valuation allowance recorded against certain future
income tax assets to reflect that it is more likely than not that
the future income tax assets will be realized. For the nine months
ended September 30, 2006, the cumulative reduction in the valuation
allowance is $460.4 million. Approximately $300.2 million of the
reduction in the valuation allowance related to future income tax
assets arising on acquisitions. Accordingly, the benefit related to
these assets has been reflected as a reduction of goodwill in the
amount of $208.6 million and other intangible assets in the amount
of $91.6 million. In 2000, the Company received a $241 million
payment (the "Termination Payment") from Le Group Videotron Ltee
("Videotron") in respect of the termination of a merger agreement
between the Company and Videotron. The Canada Revenue Agency
("CRA") disagreed with the Company's tax filing position in respect
of the Termination Payment and in May 2006, issued a Notice of
Reassessment. The Company is negotiating a proposed settlement with
the CRA which is expected to result in a $67 million reduction to
the non-capital income tax losses carried forward by the Company.
As a result, a corresponding future income tax charge of $24.6
million was recorded during the three months ended September 30,
2006. 8. Earnings Per Share: Three Months Ended Nine Months Ended
September 30, September 30, (In thousands, except per share
amounts) 2006 2005 2006 2005 -------------------------------------
----------- ----------- ----------- Numerator: Net income - basic
and diluted $ 153,961 $ 48,887 $ 446,318 $ 22,054
------------------------------------- ----------- -----------
----------- Denominator: Weighted average number of Class A and
Class B shares outstanding: Basic 316,657 291,527 315,421 281,566
Effect of dilutive securities: Employee stock options 5,301 7,527
4,804 6,374 ------------------------------------- -----------
----------- ----------- Diluted 321,958 299,054 320,225 287,940
Earnings per share for the period: Basic $ 0.49 $ 0.17 $ 1.41 $
0.08 Diluted 0.48 0.16 1.39 0.08
------------------------------------- ----------- -----------
----------- 9. Pensions: For the three and nine months ended
September 30, 2006, the Company recorded pension expense in the
amount of $2.7 million and $19.6 million, respectively (2005 - $3.5
million and $13.4 million, respectively). In addition, the expense
related to unfunded supplemental executive retirement plans was
$0.9 million and $2.9 million for the three and nine months ended
September 30, 2006, respectively (2005 - $1.0 million and $2.5
million, respectively). 10. Segmented Information: In January 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 the first quarter of 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. ROGERS
COMMUNICATIONS INC. Segmented Information For the Three Months
Ended September 30, 2006 Cable & Telecom
----------------------------------------------- Rogers (In
thousands Cable & Rogers Business Video of dollars) Wireless
Internet Home Phone Solutions stores
-------------------------------------------------------------------------
Operating revenue $1,265,711 $ 488,492 $ 90,844 $ 148,478 $ 72,776
Cost of sales 199,253 - - - 35,965 Sales and marketing expenses
153,134 34,121 26,598 17,206 30,000 Operating, general and
administra- tive expenses 354,461 245,271 67,085 124,879 4,410
-------------------------------------------------------------------------
558,863 $ 209,100 $ (2,839) $ 6,393 $ 2,401
-----------------------------------------------
----------------------------------------------- Management fees
3,096 Integration expenses (1,811) -------------------------
557,578 Depreciation and amortization 167,386 Operating income
(loss) 390,192 Interest Long-term debt and other (98,300)
Intercompany 10,083 Foreign exchange gain (loss) (186) Change in
fair value of derivative instruments 995 Other income (expense) 129
Income tax recovery (expense) (84,396) -------------------------
Net income (loss) for the period $ 218,517
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to property, plant and equipment $ 170,209 $ 114,770 $
62,611 $ 26,264 $ 3,008
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cable & Telecom ----------------------- Cable corporate
Corporate items and Total items and Consol- (In thousands elimina-
Cable elimina- idated of dollars) tions & Telecom Media tions
Totals
-------------------------------------------------------------------------
Operating revenue $ (1,135) $ 799,455 $ 319,315 $ (37,218)
$2,347,263 Cost of sales - 35,965 41,528 - 276,746 Sales and
marketing expenses - 107,925 49,574 588 311,221 Operating, general
and administra- tive expenses (1,135) 440,510 189,243 (8,799)
975,415
-------------------------------------------------------------------------
$ - 215,055 38,970 (29,007) 783,881 -------------------------
------------------------- Management fees 16,000 4,062 (23,158) -
Integration expenses 1,399 - - (412)
----------------------------------------------- 197,656 34,908
(5,849) 784,293 Depreciation and amortization 167,755 14,101 58,931
408,173 ----------------------------------------------- Operating
income (loss) 29,901 20,807 (64,780) 376,120 Interest Long-term
debt and other (56,831) (4,258) 6,604 (152,785) Intercompany
(8,660) (399) (1,024) - Foreign exchange gain (loss) 3,405 68
(3,425) (138) Change in fair value of derivative instruments 207 -
- 1,202 Other income (expense) (839) 5,083 1,369 5,742 Income tax
recovery (expense) 19,614 (8,999) (2,399) (76,180)
----------------------------------------------- Net income (loss)
for the period $ (13,203) $ 12,302 $ (63,655) $ 153,961
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to property, plant and equipment $ - $ 206,653 $ 7,123 $
39,942 $ 423,927
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the Three Months Ended September 30, 2005 Cable & Telecom
----------------------------------------------- Rogers (In
thousands Cable & Rogers Business Video of dollars) Wireless
Internet Home Phone Solutions stores
-------------------------------------------------------------------------
Operating revenue $1,068,890 $ 435,990 $ 74,702 $ 139,036 $ 77,077
Cost of sales 209,074 - - - 36,305 Sales and marketing expenses
153,110 31,056 13,945 17,783 31,492 Operating, general and
administra- tive expenses 312,446 227,094 56,998 109,628 5,145
-------------------------------------------------------------------------
394,260 $ 177,840 $ 3,759 $ 11,625 $ 4,135
-----------------------------------------------------------
-----------------------------------------------------------
Management fees 3,007 Integration expenses 12,772
------------------------- 378,481 Depreciation and amortization
141,186 ------------------------- Operating income (loss) 237,295
Interest Long-term debt and other (101,531) Intercompany - Foreign
exchange gain (loss) 44,163 Change in fair value of derivative
instruments (42,767) Other income (expense) (974) Income tax
recovery (expense) (1,296) ------------------------- Net income
(loss) for the period $ 134,890
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to property, plant and equipment $ 106,844 $ 134,794 $
29,720 $ 38,401 $ 2,905
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cable & Telecom ----------------------- Cable corporate
Corporate items and Total items and Consol- (In thousands elimina-
Cable elimina- idated of dollars) tions & Telecom Media tions
Totals
-------------------------------------------------------------------------
Operating revenue $ (1,129) $ 725,676 $ 284,520 $ (32,019)
$2,047,067 Cost of sales - 36,305 38,424 - 283,803 Sales and
marketing expenses - 94,276 47,684 - 295,070 Operating, general and
administra- tive expenses (1,129) 397,736 165,119 (14,430) 860,871
-------------------------------------------------------------------------
$ - 197,359 33,293 (17,589) 607,323 -------------------------
------------------------- Management fees 10,288 3,505 (16,800) -
Integration expenses 2,257 - 2,922 17,951
----------------------------------------------- 184,814 29,788
(3,711) 589,372 Depreciation and amortization 154,924 12,830 68,044
376,984 ----------------------------------------------- Operating
income (loss) 29,890 16,958 (71,755) 212,388 Interest Long-term
debt and other (63,239) (3,469) (10,553) (178,792) Intercompany
(6,453) (388) 6,841 - Foreign exchange gain (loss) 18,002 1,218
(82) 63,301 Change in fair value of derivative instruments 497 - 1
(42,269) Other income (expense) (19,780) 361 17,255 (3,138) Income
tax recovery (expense) (1,028) (202) (77) (2,603)
----------------------------------------------- Net income (loss)
for the period $ (42,111) $ 14,478 $ (58,370) $ 48,887
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to property, plant and equipment $ - $ 205,820 $ 5,610 $
382 $ 318,656
-------------------------------------------------------------------------
-------------------------------------------------------------------------
ROGERS COMMUNICATIONS INC. Segmented Information For the Nine
Months Ended September 30, 2006 Cable & Telecom
----------------------------------------------- Rogers (In
thousands Cable & Rogers Business Video of dollars) Wireless
Internet Home Phone Solutions stores
-------------------------------------------------------------------------
Operating revenue $3,468,078 $1,439,515 $ 257,031 $ 440,960 $
225,986 Cost of sales 583,575 - - - 109,917 Sales and marketing
expenses 418,948 95,537 66,324 51,423 90,810 Operating, general and
administra- tive expenses 1,010,268 729,227 184,028 352,987 14,540
Video store closure expenses - - - - 5,155
-------------------------------------------------------------------------
1,455,287 $ 614,751 $ 6,679 $ 36,550 $ 5,564
-----------------------------------------------
----------------------------------------------- Management fees
9,288 Integration expenses 2,677 -------------------------
1,443,322 Depreciation and amortization 464,885
------------------------- Operating income (loss) 978,437 Interest
Long-term debt and other (299,551) Intercompany 89,425 Foreign
exchange gain (loss) 35,032 Change in fair value of derivative
instruments (29,180) Other income (expense) 175 Income tax recovery
(expense) (222,441) ------------------------- Net income (loss) for
the period $ 551,897
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to property, plant and equipment $ 492,117 $ 303,493 $
121,744 $ 50,078 $ 5,384
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cable & Telecom ----------------------- Cable corporate
Corporate items and Total items and Consol- (In thousands elimina-
Cable elimina- idated of dollars) tions & Telecom Media tions
Totals
-------------------------------------------------------------------------
Operating revenue $ (3,089) $2,360,403 $ 893,266 $ (106,458)
$6,615,289 Cost of sales - 109,917 126,848 - 820,340 Sales and
marketing expenses - 304,094 147,303 2,752 873,097 Operating,
general and administra- tive expenses (3,089) 1,277,693 515,039
(17,541) 2,785,459 Video store closure expenses - 5,155 - - 5,155
-------------------------------------------------------------------------
$ - 663,544 104,076 (91,669) 2,131,238 -------------------------
------------------------- Management fees 47,238 11,931 (68,457) -
Integration expenses 5,847 - - 8,524
----------------------------------------------- 610,459 92,145
(23,212) 2,122,714 Depreciation and amortization 487,670 38,848
197,646 1,189,049 -----------------------------------------------
Operating income (loss) 122,789 53,297 (220,858) 933,665 Interest
Long-term debt and other (169,434) (11,354) 11,285 (469,054)
Intercompany (23,849) (1,204) (64,372) - Foreign exchange gain
(loss) 4,710 2,084 (948) 40,878 Change in fair value of derivative
instruments 791 - - (28,389) Other income (expense) (1,547) 5,799
7,885 12,312 Income tax recovery (expense) 253,179 72,550 (146,382)
(43,094) ----------------------------------------------- Net income
(loss) for the period $ 186,639 $ 121,172 $ (413,390) $ 446,318
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to property, plant and equipment $ - $ 480,699 $ 32,526 $
161,375 $1,166,717
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the Nine Months Ended September 30, 2005 Cable & Telecom
----------------------------------------------- Rogers (In
thousands Cable & Rogers Business Video of dollars) Wireless
Internet Home Phone Solutions stores
-------------------------------------------------------------------------
Operating revenue $2,908,147 $1,282,753 $ 74,702 $ 141,209 $
235,453 Cost of sales 529,985 - - - 108,872 Sales and marketing
expenses 410,267 95,596 13,945 19,494 97,631 Operating, general and
administra- tive expenses 894,919 660,534 56,998 116,549 14,909
-------------------------------------------------------------------------
1,072,976 $ 526,623 $ 3,759 $ 5,166 $ 14,041
-----------------------------------------------
----------------------------------------------- Management fees
9,019 Integration expenses 28,352 -------------------------
1,035,605 Depreciation and amortization 450,546
------------------------- Operating income (loss) 585,059 Interest
Long-term debt and other (302,818) Intercompany 26,564 Foreign
exchange gain (loss) 28,422 Change in fair value of derivative
instruments (28,668) Other income (expense) (1,105) Income tax
recovery (expense) (4,749) ------------------------- Net income
(loss) for the period $ 302,705
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to property, plant and equipment $ 379,808 $ 355,087 $
94,323 $ 43,236 $ 10,712
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cable & Telecom ----------------------- Cable corporate
Corporate items and Total items and Consol- (In thousands elimina-
Cable elimina- idated of dollars) tions & Telecom Media tions
Totals
-------------------------------------------------------------------------
Operating revenue $ (3,106) $1,731,011 $ 797,202 $ (74,368)
$5,361,992 Cost of sales - 108,872 116,052 - 754,909 Sales and
marketing expenses - 226,666 140,152 - 777,085 Operating, general
and administra- tive expenses (3,106) 845,884 452,189 (26,576)
2,166,416
-------------------------------------------------------------------------
$ - 549,589 88,809 (47,792) 1,663,582 -------------------------
------------------------- Management fees 30,364 10,833 (50,216) -
Integration expenses 2,257 - 2,922 33,531
----------------------------------------------- 516,968 77,976
(498) 1,630,051 Depreciation and amortization 394,526 38,747
193,542 1,077,361 -----------------------------------------------
Operating income (loss) 122,442 39,229 (194,040) 552,690 Interest
Long-term debt and other (190,449) (7,675) (42,941) (543,883)
Intercompany (13,341) (3,933) (9,290) - Foreign exchange gain
(loss) 14,589 667 (4,606) 39,072 Change in fair value of derivative
instruments 1,707 - 4 (26,957) Other income (expense) (16,943)
1,463 27,582 10,997 Income tax recovery (expense) (3,799) (935)
(382) (9,865) ----------------------------------------------- Net
income (loss) for the period $ (85,794) $ 28,816 $ (223,673) $
22,054
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additions to property, plant and equipment $ - $ 503,358 $ 27,970 $
12,677 $ 923,813
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11. Related Party Transactions: During the three and nine months
ended September 30, 2006 and 2005, the Company 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 Nine Months Ended September 30,
September 30, (In thousands of dollars) 2006 2005 2006 2005
------------------------------------- ----------- -----------
----------- Fees paid to broadcasters accounted for by the equity
method $ 4,803 $ 4,586 $ 14,828 $ 13,800
------------------------------------- ----------- -----------
----------- The fees above were paid to a number of Canadian pay,
specialty and digital specialty channels including Viewer's Choice
Canada, Prime, Outdoor Life Network, G4TechTV, and Biography
Channel. On June 12, 2006, the Company increased its ownership in
Biography Canada and G4TechTV Canada to 100% and 66 2/3%,
respectively. The Company has entered into certain transactions
with companies, the partners or senior officers of which are or
have been directors of the Company and/or its subsidiary companies.
During the three and nine months ended September 30, 2006 and 2005,
total amounts paid by the Company to these related parties are as
follows: Three Months Ended Nine Months Ended September 30,
September 30, (In thousands of dollars) 2006 2005 2006 2005
------------------------------------- ----------- -----------
----------- Legal services and commissions paid on premiums for
insurance coverage $ 354 $ 1,300 $ 1,947 $ 4,500 Telecommunications
and programming services - - - 1,600 Interest charges and other
financing fees - - - 22,000 -------------------------------------
----------- ----------- ----------- $ 354 $ 1,300 $ 1,947 $ 28,100
------------------------------------- ----------- -----------
----------- During the three and nine months ended September 30,
2006 and 2005, the Company made payments to companies controlled by
the controlling shareholder of the Company as follows: Three Months
Ended Nine Months Ended September 30, September 30, (In thousands
of dollars) 2006 2005 2006 2005
------------------------------------- ----------- -----------
----------- Net charges for business use of aircraft and other
administrative services $ 106 $ (6) $ 548 $ 295
------------------------------------- ----------- -----------
----------- As disclosed in Note 18 to the Annual Audited
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 $13.0 million in cash,
the shares in two wholly owned subsidiaries whose only asset
consists of tax losses aggregating approximately $100 million. The
special committee was advised by independent counsel and engaged an
accounting firm as part of their review to ensure that the sale
price was within a range that would be fair from a financial point
of view. 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. On July 24, 2006, the shares of the second wholly
owned subsidiary were purchased by a company controlled by the
controlling shareholder for cash of $6.2 million. 12. Contingency:
On August 9, 2004, a proceeding under the Class Actions Act
(Saskatchewan) was brought against providers of wireless
communications in Canada, including the Company. The proceeding
involves allegations by wireless customers of breach of contract,
misrepresentation, false advertising and unjust enrichment arising
out of the charging of system access fees. The plaintiffs are
seeking un-quantified damages from the defendant wireless
communications service providers. In July 2006, the Saskatchewan
court denied the plaintiffs' application to have the proceeding
certified as a class action. However, the court granted leave to
the plaintiffs to renew their applications in order to address the
requirements of the Saskatchewan class proceedings legislation.
Similar proceedings have also been brought against the Company and
other providers of wireless communications in most of Canada. The
Company has not recorded a liability for this contingency since the
likelihood and amount of any potential loss cannot be reasonably
estimated. 13. Subsequent Events: On October 30, 2006, the Board of
Directors approved a two for one split of the Company's Class A
Voting and Class B Non-Voting shares subject to a special
shareholder meeting which has been called for December 15, 2006. It
is expected that shareholders of record as of the close of business
on December 29, 2006 will receive one additional share of the
relevant class for each share held upon distribution of the
additional shares on or about January 5, 2007. The Board also
approved that the maximum number of Class A Voting shares
authorized to be issued should be increased by 56,233,894 to
accommodate this split. Information pertaining to shares and
earnings per share has not been restated in the accompanying
unaudited consolidated financial statements and notes to the
unaudited interim consolidated financial statements to reflect this
split. This information will be presented in the Company's
financial statements once the stock split becomes effective.
Earnings per share, on a pro forma basis, reflecting the impact of
this split for the three and nine months ended September 30, 2006
and 2005 is as follows: Three Months Ended Nine Months Ended (In
thousands, except September 30, September 30, per share amounts)
2006 2005 2006 2005 -------------------------------------
----------- ----------- ----------- Numerator: Net income - basic
and diluted $ 153,961 $ 48,887 $ 446,318 $ 22,054
------------------------------------- ----------- -----------
----------- Denominator: Weighted average number of Class A and
Class B shares outstanding: Basic 633,314 583,054 630,842 563,132
Effect of dilutive securities: Employee stock options 10,602 15,054
9,608 12,748 ------------------------------------- -----------
----------- ----------- Diluted 643,916 598,108 640,450 575,880
Earnings per share for the period: Basic $ 0.24 $ 0.08 $ 0.71 $
0.04 Diluted 0.24 0.08 0.70 0.04
------------------------------------- ----------- -----------
----------- On October 30, 2006, the Board approved an increase in
the annual dividend from C$0.15 to C$0.32 per Class A Voting and
Class B Non-Voting share (on a pre split basis) effective
immediately. Additionally, the Company's dividend distribution
policy was modified to make dividend distributions on a quarterly
basis instead of semi-annually. At the same time, the Board
declared the first quarterly dividend of C$0.08 cents per share (on
a pre split basis) to be paid on January 2, 2007 to shareholders of
record on December 20, 2006 reflecting the increased C$0.32 per
share annual dividend level and the new quarterly distribution
schedule. On October 30, 2006, the Board proposed an amendment to
the Class B Non- Voting shares of the Company such that each be
changed into shares without par value from the current par value of
$1.62478 subject to shareholder approval at the December 15, 2006
special shareholder meeting. 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, but are not limited to,
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. Statements containing expressions such as "could",
"expect", "may", "anticipate", "assume", "believe", "intend",
"estimate", "plan", "guidance", and similar expressions generally
constitute forward-looking statements. These forward-looking
statements also include, but are not limited to, guidance relating
to revenue, operating profit and PP&E expenditures, expected
growth in subscribers, the deployment of new services, integration
costs, and all other statements that are not historical facts. Such
forward-looking statements are based on current expectations and
various factors and assumptions applied which we believe to be
reasonable at the time, including but not limited to general
economic and industry growth rates, currency exchange rates,
product pricing levels and competitive intensity, subscriber growth
and usage rates, technology deployment, content and equipment
costs, the integration of acquisitions, and industry structure and
stability. We caution that all forward-looking information is
inherently uncertain and that actual results may differ materially
from the assumptions, estimates or expectations reflected in the
forward-looking information. A number of factors could cause actual
results to differ materially from those in the forward-looking
statements, including but not limited to economic conditions,
technological change, the integration of acquisitions,
unanticipated changes in content or equipment costs, changing
conditions in the entertainment, information and communications
industries, regulatory changes, litigation and tax matters, and the
level of competitive intensity, many of which are beyond our
control. Therefore, should one or more of these risks materialize,
or should assumptions underlying the forward-looking statements
prove incorrect, actual results may vary significantly from what we
currently foresee. Accordingly, we warn investors to exercise
caution when considering any such forward-looking information
herein and to not place undue reliance on such statements and
assumptions. We are under no obligation (and we expressly disclaim
any such obligation) to update or alter any forward- looking
statements or assumptions whether as a result of new information,
future events or otherwise, except as required by law. Before
making any investment decisions and for a more detailed discussion
of the risks, uncertainties, material factors and assumptions
associated with our business that were applied in drawing
conclusions or making a forecast set out in such forward-looking
information, see the MD&A sections of our 2005 Annual Report
entitled "Risks and Uncertainties" (found on pages 62 to 74) and
"Material Assumptions" (found on pages 88 to 89), as well as the
"Updates to Risks and Uncertainties" and "Government Regulation and
Regulatory Developments" sections herein. Our annual and quarterly
reports can be found at http://www.rogers.com/,
http://www.sedar.com/, and http://www.sec.gov/. Additional
Information Additional information relating to us, including our
Annual Information Form, 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. 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 10:00 a.m. ET on October
31, 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:
PRNewswire -- October 31
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