FIRST AND FINAL ADD - TO058 - Rogers Communications Inc.

Share Name	Share Symbol	Market	Type
Rogers Commun CL B	NYSE:RG	NYSE	Ordinary Share

Rogers Commun (NYSE:RG)
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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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