Rogers Communications Inc.
Notes to Unaudited Interim Consolidated Financial Statements
Three and Nine Months Ended September 30, 2005 and 2004
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, 2004.
1. Basis of Presentation and Accounting Policies:
The interim Consolidated Financial Statements include the accounts of
Rogers Communications Inc. and its subsidiaries (collectively "Rogers" or
"the Company"). The Notes presented in these interim 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 what a subsequent quarter's operating results will be.
Certain comparative figures have been reclassified to conform with the
current period's presentation.
These interim Consolidated Financial Statements follow the same
accounting policies and methods of application as the most recent annual
financial statements, except they reflect the adoption of the following
new accounting policies:
Convertible Preferred Securities
Effective for fiscal years beginning after November 1, 2004, CICA
Handbook Section 3860, "Financial Instruments - Disclosure and
Presentation", has been amended to provide guidance for classifying as
liabilities certain financial obligations of a fixed amount that may be
settled, at the issuer's option, by a variable number of the issuer's own
equity instruments. Any financial instruments issued by an enterprise
that give the issuer unrestricted rights to settle the principal amount
for cash or the equivalent value of its own equity instruments will no
longer be presented as equity.
The Company retroactively adopted this standard effective January 1, 2005
and has therefore reclassified the liability portion of its Convertible
Preferred Securities to long-term debt. The liability's accretion and
quarterly distributions have been included in interest expense in the
consolidated statement of income. Retained earnings has been adjusted to
reflect the retroactive application of this standard. The portion of the
Convertible Preferred Securities representing the value of the conversion
feature of these securities will remain in shareholders' equity. Prior
periods presented have been restated to reflect the retroactive adoption
of this revised standard. Effective January 1, 2005, the liability and
equity components were carried at $490.7 million and $188.0 million,
respectively, with an adjustment to opening retained earnings of
$102.7 million. As at September 30, 2005, the liability and equity
components were carried at $507.0 million and $188.0 million,
respectively. Interest expense for the three months and nine months ended
September 30.
2005 was increased by $13.8 million and $41.1 million, respectively
(2004 - $13.5 million and $40.4 million, respectively). This change does
not affect earnings (loss) per share since the accretion and
distributions on these securities have, in prior years, been deducted
from net income (loss) in determining earnings (loss) per share.
Revenue Recognition
The results of Call-Net Enterprises Inc. (subsequently, renamed Rogers
Telecom Holdings Inc., "Telecom") are consolidated with those of the
Company effective as of the July 1, 2005 acquisition date. Substantially
all of Telecom's revenues are derived from long distance, data, local and
wireless telecommunications services. Products and services are sold
either stand-alone or together as a multiple service arrangement or
a bundled solution.
Revenues from Telecom's telecommunication services are recognized based
on either customer usage as measured by Telecom's switches or by
contractual agreement when provided. Revenues from the sale of goods are
recognized when goods are delivered and accepted by customers. Where
services to certain customers are provisioned through the use of
subcontractor agents, revenue is recognized based on the fees charged to
the customer, provided that the Telecom is acting as the principal in the
arrangement.
2. Investments:
September 30, December 31,
(In thousands of dollars) 2005 2004
----------------------------------------------------------------------
Quoted
Market Book Book
Description Value Value Value
----------------------------------------------------------------------
Investments accounted for by
the equity method $ 7,342 $ 9,348
----------------------------------------------------------------------
Investments accounted for by
the cost method, net
of writedowns
Publicly traded companies:
Cogeco Cable Inc.
6,595,675 Subordinate Voting $ 201,960 68,884 68,884
Common shares
Cogeco Inc.
3,399,800 Subordinate Voting 91,795 44,438 44,438
Common shares
Other publicly traded companies 12,269 6,124 3,551
----------------------------------------------------------------------
$ 306,024 119,446 116,873
Private companies 7,347 12,949
----------------------------------------------------------------------
$ 134,135 $ 139,170
----------------------------------------------------------------------
----------------------------------------------------------------------
3. Business Combinations:
(a) 2005 Acquisitions:
(i) 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 (the "Call-Net
Acquisition"). Call-Net, primarily through its wholly owned subsidiary
Sprint Canada Inc., is a Canadian integrated communications solutions
provider of home phone, wireless, long distance and IP services to
households, and local, long distance, toll free, enhanced voice, data and
IP services to businesses across Canada.
Under the terms of the arrangement, holders of common shares and Class B
non-voting shares of Call-Net received a fixed exchange ratio of one
Class B Non-voting share of the Company for each 4.25 common shares
and/or Class B non-voting shares held by them. All outstanding options to
purchase Call-Net shares vested immediately prior to the Call-Net
acquisition. In addition, each holder of outstanding Call-Net options
received fully-vested options of the Company using this same
4.25 exchange ratio. As a result, 8.4 million Class B Non-voting shares
and 0.4 million options were issued as consideration. The Class B
Non-voting shares issued were valued at the average market price over the
period two days before and two days after the May 11, 2005 announcement
date of the transaction. This translated into share consideration valued
at $316.0 million. The options issued as consideration were valued at
$8.5 million using the Black-Scholes model.
Also under the terms of the arrangement, the only outstanding preferred
share of Call-Net was deemed to be redeemed by Call-Net for $1.00, being
the redemption price thereof. Subsequently, Call-Net was renamed Rogers
Telecom Holdings Inc. and Sprint Canada Inc. was renamed Rogers
Telecom Inc.
Prior to completion of the acquisition, the Company developed a plan to
restructure and integrate the operations of Call-Net. As a result,
a liability of $2.6 million is recorded in the acquisition balance sheet
of Call-Net for severance and other employee related costs. Management is
currently finalizing the restructuring and integration plan. Any
adjustments will be reflected as part of the revised purchase price
allocation, which is expected to be finalized by December 31, 2005.
Restructuring and integration of the operations of Call-Net will continue
through the first half of 2006. Matters to be finalized include the
integration of various network, customer billing and administrative
functions and certain severance related items. During the three months
ended September 30, 2005, the Company incurred integration expenses of
$5.2 million.
Including direct incremental acquisition costs of approximately
$4.0 million, the aggregate purchase price for the acquisition of
Call-Net shares and options totaled $328.5 million. The transaction is
being accounted for using the purchase method.
The estimated fair values of the assets acquired and liabilities assumed
for this acquisition were as follows:
Consideration:
Class B Non-voting shares $ 315,986
Options issued as consideration 8,495
Acquisition costs 4,000
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Purchase price $ 328,481
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Cash and cash equivalents $ 43,801
Short term investments 21,666
Accounts receivable 29,040
Other current assets 27,565
Property, plant and equipment 418,757
Investments 584
Other long term assets 4,604
Subscriber base 110,000
Goodwill 121,176
Accounts payable and accrued liabilities (144,136)
Long term debt (292,532)
Other long term liabilities (9,396)
Liabilities assumed on acquisition (2,648)
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Fair value of net assets acquired $ 328,481
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The allocation of the purchase price is preliminary and subject to
refinement given that the valuations of the net assets acquired and
liabilities assumed are not completed. The allocation of the purchase
price reflects management's best estimate at the date of preparing these
financial statements. The purchase price allocation is expected to be
finalized by early 2006. The subscriber base acquired is being amortized
over its weighted average estimated useful life of 29 months. A change in
the fair value of the subscriber base of $10 million acquired as part of
the Call-Net Acquisition would impact depreciation and amortization
expense and net income by $1.0 million for the three months ended
September 30, 2005.
Goodwill related to the Call-Net Acquisition has been assigned to the
Telecom reporting segment.
(ii) Other acquisitions
On January 31, 2005, the Company completed the acquisition of Rogers
Centre (previously SkyDome) for a purchase price of approximately
$24.5 million, net of working capital adjustments, plus $4.5 million of
assumed liabilities. The purchase price has been allocated on a
preliminary basis to working capital and property, plant and equipment
pending finalizing the valuation of its tangible and intangible assets.
Other acquisitions during the nine months ended September 30, 2005,
totaled approximately $11.6 million, excluding acquisition costs.
(b) 2004 Acquisitions:
(i) RWCI and Microcell Telecommunications Inc.
During the year ended December 31, 2004, the Company acquired the shares
of Rogers Wireless Communications Inc. ("RWCI") held by minority
interests resulting in 100% ownership as at December 31, 2004. On
November 9, 2004, the Company acquired all of the issued and outstanding
shares of Microcell Telecommunications Inc. ("Fido"). Adjustments to the
purchase price allocations from those recorded at December 31, 2004 were
reflected in the June 30, 2005 interim consolidated financial statements.
During the three months ended September 30, 2005, an additional
adjustment of $10.9 million was made to reduce the accrual for network
decommissioning and restoration costs related to those liabilities
assumed on the acquisition of Fido. The offset to this adjustment was a
reduction in goodwill.
During the nine months ended September 30, 2005, the Company made
payments against the liabilities assumed on acquisition of Fido of
$9.2 million in certain network decommissioning costs, $22.5 million in
lease and other contract termination costs and $4.6 million in
involuntary severance costs.
During the three and nine months ended September 30, 2005, the Company
incurred integration expenses of $12.8 million and $28.4 million,
respectively.
(ii) Sportsnet
On December 23, 2004, the Company purchased the remaining 20% interest of
Rogers Sportsnet for $45 million. The purchase price was allocated to
goodwill on a preliminary basis pending completion of the valuations of
the net identifiable assets acquired. During the three months ended
September 30, 2005, based on a preliminary valuation, an adjustment was
made to allocate $23.6 million to broadcast licence with an offsetting
reduction to goodwill. The broadcast licence has an indefinite life. The
purchase price allocation is preliminary pending finalization of the
valuation of the net identifiable assets acquired.
4. Long-Term Debt:
Interest September 30, December 31,
(In thousands of dollars) Rate 2005 2004
-------------------------------------------------------------------------
(As Restated
(A) Corporate: - See Note 1)
(i) Convertible Debentures,
due 2005 5.75% $ - $ 261,810
(ii) Senior Notes, due 2006 10.50% 75,000 75,000
(iii) Convertible Preferred
Securities, due 2009 5.50% 507,013 490,710
--------------------------
582,013 827,520
(B) Wireless:
(i) Senior Secured Notes,
due 2006 10.50% 160,000 160,000
(ii) Floating Rate Senior
Secured Notes, due 2010 Floating 638,605 661,980
(iii) Senior Secured Notes,
due 2011 9.625% 568,939 589,764
(iv) Senior Secured Notes,
due 2011 7.625% 460,000 460,000
(v) Senior Secured Notes,
due 2012 7.25% 545,717 565,692
(vi) Senior Secured Notes,
due 2014 6.375% 870,825 902,700
(vii) Senior Secured Notes,
due 2015 7.50% 638,605 661,980
(viii) Senior Secured Debentures,
due 2016 9.75% 179,855 186,438
(ix) Senior Subordinated Notes,
due 2012 8.00% 464,440 481,440
(x) Fair value increment arising
from purchase accounting 47,050 55,232
--------------------------
4,574,036 4,725,226
(C) Cable:
(i) Bank credit facility Floating 203,000 -
(ii) Senior Secured Second
Priority Notes, due 2005 10.00% - 350,889
(iii) Senior Secured Second
Priority Notes, due 2007 7.60% 450,000 450,000
(iv) Senior Secured Second
Priority Notes, due 2011 7.250% 175,000 175,000
(v) Senior Secured Second
Priority Notes, due 2012 7.875% 406,385 421,260
(vi) Senior Secured Second
Priority Notes, due 2013 6.25% 406,385 421,260
(vii) Senior Secured Second
Priority Notes, due 2014 5.50% 406,385 421,260
(viii) Senior Secured Second
Priority Notes, due 2015 6.75% 325,108 337,008
(ix) Senior Secured Second
Priority Notes, due 2032 8.75% 232,220 240,720
(x) Senior Subordinated Guaranteed
Debentures, due 2015 11.00% 131,988 136,819
--------------------------
2,736,471 2,954,216
(D) Media:
Bank credit facility Floating 327,000 -
(E) Telecom:
(i) Senior Secured Notes,
due 2008 10.625% 25,597 -
(ii) Fair value increment arising
from purchase accounting 1,755 393
--------------------------
27,352 393
Mortgages and other Various 44,734 34,135
--------------------------
8,291,606 8,541,097
Less current portion (260,820) (618,236)
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$ 8,030,786 $ 7,922,861
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Repayment of debt:
On March 15, 2005, Cable repaid US$291.5 million aggregate principal
amount of its 10.0% Senior Secured Second Priority Notes due March 15,
2005. Cable had a net cash outlay of $58.1 million on the settlement of
the cross-currency interest rate swap of US$283.4 million notional amount
that qualified as a hedge for accounting purposes of a portion of these
10.0% Notes. On March 15, 2005, a cross-currency interest rate swap of
US$50.0 million notional amount matured. Cable incurred a net cash outlay
of $10.5 million upon settlement of this swap.
Amendment of Credit Facilities:
In June 2005, Cable amended its bank credit facility. The maximum amount
of the facility has been reduced by $75.0 million to $1.0 billion
comprised of $600.0 million Tranche A and $400.0 million Tranche B. The
amendment served to extend the maturity date of both Tranche A and
Tranche B to "bullet" repayments on July 2, 2010 and eliminate the
amortization schedule for Tranche B; reduce interest rates and standby
fees; and relax certain financial covenants. In September 2005, Media
amended its bank credit facility. The maximum amount of the facility has
been increased by $100 million to $600 million. The amendment also served
to extend the maturity date by four years to September 30, 2010; reduce
interest rates and standby fees; and relax certain financial covenants.
Redemption of Debt:
On June 30, 2005, the Company issued a notice of redemption for all of
its US$224.8 million face value amount of 5.75% convertible debentures
due November 26, 2005 for an aggregate redemption amount of approximately
US$223.0 million. Prior to expiration of the redemption period on
August 2, 2005, debenture holders converted an aggregate
US$224.5 million face amount of debentures into 7,715,417 Class B
Non-voting shares of the Company. The remaining US$0.3 million face
amount was redeemed in cash.
During the quarter, Telecom redeemed $237.9 million (US$201.0 million)
aggregate principal amount of its Senior Secured Notes due 2008 for
$255.0 million. A loss of $1.1 million was recorded on this redemption.
Refer also to subsequent events note 11.
5. Shareholders' Equity:
September 30, December 31,
(In thousands of dollars) 2005 2004
----------------------------------------------------------------------
(As Restated
- See Note 1)
Capital stock issued, at stated value:
Common shares:
56,233,894 Class A Voting shares
(2004 - 56,235,394) $ 72,311 $ 72,313
239,260,888 Class B Non-Voting shares
(2004 - 218,979,074) 388,746 355,793
----------------------------------------------------------------------
Total capital stock 461,057 428,106
Convertible Preferred Securities 188,000 188,000
Contributed surplus 2,954,283 2,288,679
Deficit (511,293) (519,451)
----------------------------------------------------------------------
Shareholders' Equity $ 3,092,047 $ 2,385,334
----------------------------------------------------------------------
----------------------------------------------------------------------
(i) During the three months ended September 30, 2005, the Company
completed the following capital stock transactions:
(a) Issued 1,093,994 Class B Non-voting shares to employees upon
the exercise of stock options for cash of $20.2 million;
(b) Issued 8,443,351 Class B Non-voting shares with a value of
$316.0 million in exchange for all of the issued and
outstanding common and/or Class B non-voting shares of
Call-Net;
(c) Issued 7,715,417 Class B Non-voting shares with a value of
$271.1 million upon the conversion of convertible debt;
(d) 1,500 Class A Voting shares were converted to 1,500 Class B
Non-Voting shares.
As a result, $590.4 million of the issued amounts related to the
Class B Non-voting shares was recorded in contributed surplus.
During the nine months ended September 30, 2005, the Company
completed the following capital stock transactions:
(e) Issued 4,120,515 Class B Non-voting shares to employees upon
the exercise of stock options for cash of $83.3 million;
(f) Issued 8,443,351 Class B Non-voting shares with a value of
$316.0 million in exchange for all of the issued and
outstanding common and/or Class B non-voting shares of
Call-Net;
(g) Issued 7,716,448 Class B Non-voting shares with a value of
$271.1 million upon the conversion of convertible debt;
(h) 1,500 Class A Voting shares were converted to 1,500 Class B
Non-Voting shares.
As a result, $648.7 million of the issued amounts related to the Class B
Non-voting shares was recorded in contributed surplus.
(ii) Stock-based compensation:
During the three and nine months ended September 30, 2005, the
Company recorded compensation expense of approximately $5.6 million
and $16.9 million, respectively (2004 - $3.3 million and
$11.5 million, respectively) related to stock options granted to
employees, with a corresponding adjustment to contributed surplus.
The weighted average estimated fair value at the date of the grant
for RCI options granted, excluding those issued as consideration in
the Call-Net acquisition (note 3), for the three and nine months
ended September 30, 2005 was $17.52 and $15.46 per share,
respectively (2004 - nil and $11.90 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,
2005 2004 2005 2004
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Risk-free interest rate 3.69% - 3.99% 4.38%
Dividend yield 0.23% - 0.29% 0.40%
Volatility factor of the future
expected market price of
Class B Non-Voting shares 39.14% - 43.66% 45.24%
Weighted average expected
life of options 5.2 years - 5.6 years 6.1 years
-------------------------------------------------------------------------
6. Calculation of Earnings (Loss) Per Share:
Three Months Ended Nine Months Ended
(In thousands, except September 30, September 30,
per share amounts) 2005 2004 2005 2004
-------------------------------------------------------------------------
Numerator:
Earnings (loss) -
basic and diluted $ 48,887 $ 48,075 $ 22,054 $ (38,068)
-------------------------------------------------------------------------
Denominator:
Weighted average number of
Class A and Class B
shares outstanding:
Basic 291,527 244,951 281,566 238,502
Diluted 299,054 248,984 287,940 238,502
Earnings (loss) per share
Basic $0.17 $0.20 $0.08 ($0.16)
Diluted $0.16 $0.19 $0.08 ($0.16)
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7. Pensions:
For the three and nine months ended September 30, 2005, the Company
recorded pension expense in the amount of $3.5 million and $13.4 million,
respectively (2004 - $1.5 million and $4.9 million, respectively).
Pension expense for the year ended December 31, 2005 is expected to be
$19.9 million based on actuarial estimates and the Company's assumptions.
In addition, the expense for the three and nine months ended
September 30, 2005 related to unfunded supplemental executive retirement
plans was $1.0 million and $2.5 million, respectively (2004 -
$0.9 million and $3.0 million, respectively).
8. Restricted Share Units:
During 2004, RCI established a restricted share unit plan which enables
employees, officers and directors of RCI and subsidiary companies,
including the Company, to participate in the growth and development of
RCI by providing such persons with the opportunity, through restricted
share units, to acquire a proprietary interest in RCI. Under the terms of
the plan, restricted share units ("RSU's") are issued to the participant
and the units issued vest over a period not to exceed three years from
the grant date.
On the vesting date, RCI at its option shall redeem all of the
participant's RSU's in cash or by issuing one RCI Class B Non-voting
share for each restricted share unit.
During the nine months ended September 30, 2005, 236,801 (2004 - 50,916)
RSU's were issued to employees of the Company. During the three months
ended September 30, 2005, no RSU's were issued (2004 - nil) and no RSU's
were cancelled. As at September 30, 2005, 286,117 restricted share units
were outstanding. These RSU's vest at the end of three years from the
grant date. The Company records compensation expense equally over the
vesting period taking into account fluctuations in the market price of
the Class B Non-voting shares. Compensation expense for the three and
nine months ended September 30, 2005 related to these restricted share
units was $1.4 million and $2.9 million, respectively (2004 -
$0.1 million and $0.2 million, respectively).
9. Segmented Information:
Effective January 1, 2005, Blue Jays Holdco became a reporting unit of
Media and as a result, is reported as part of the Media operating segment
commencing in 2005. For comparative purposes, the results of Blue Jays
Holdco for the three and nine months ended September 30, 2004 have been
reclassified to the Media segment. Blue Jays Holdco was accounted for by
the equity method to July 30, 2004, at which point the Company began to
consolidate Blue Jays Holdco.
For the Three Months Ended September 30, 2005
(in thousands of dollars) Wireless Cable Media
-------------------------------------------------------------------------
Operating revenue $ 1,068,890 $ 513,072 $ 284,520
Cost of sales 209,074 36,305 38,424
Sales and marketing costs 153,110 66,070 47,684
Operating, general and
administrative expenses 312,446 238,650 165,119
Management fees 3,007 10,288 3,505
Integration expenses 12,772 - -
Depreciation and amortization 141,186 119,645 12,830
-------------------------------------------------------------------------
Operating income (loss) 237,295 42,114 16,958
Interest:
Long-term debt and other (101,531) (59,126) (3,469)
Intercompany - (5,618) (388)
Income from investments accounted
for by the equity method - - 273
Loss on repayment of long-term debt - - -
Change in fair value of
derivative instruments (42,767) 497 -
Foreign exchange gain (loss) 44,163 9,211 1,218
Investment and other income (loss) (974) 639 88
Income tax expense (1,296) (884) (202)
-------------------------------------------------------------------------
Net income (loss) for the period $ 134,890 $ (13,167) $ 14,478
-------------------------------------------------------------------------
Property, plant and
equipment additions $ 106,844 $ 173,761 $ 5,610
-------------------------------------------------------------------------
Corporate
items and Consolidated
(in thousands of dollars) Telecom eliminations Totals
-------------------------------------------------------------------------
Operating revenue $ 212,604 $ (32,019) $ 2,047,067
Cost of sales 101,832 - 385,635
Sales and marketing costs 28,206 - 295,070
Operating, general and
administrative expenses 57,254 (14,430) 759,039
Management fees - (16,800) -
Integration expenses 2,257 2,922 17,951
Depreciation and amortization 35,279 68,044 376,984
-------------------------------------------------------------------------
Operating income (loss) (12,224) (71,755) 212,388
Interest:
Long-term debt and other (4,113) (10,553) (178,792)
Intercompany (835) 6,841 -
Income from investments accounted
for by the equity method - 541 814
Loss on repayment of long-term debt (17,087) 16,017 (1,070)
Change in fair value of
derivative instruments - 1 (42,269)
Foreign exchange gain (loss) 8,791 (82) 63,301
Investment and other income (loss) (3,332) 697 (2,882)
Income tax expense (144) (77) (2,603)
-------------------------------------------------------------------------
Net income (loss) for the period $ (28,944) $ (58,370) $ 48,887
-------------------------------------------------------------------------
Property, plant and
equipment additions $ 32,059 $ 382 $ 318,656
-------------------------------------------------------------------------
For the Three Months Ended September 30, 2004
(in thousands of dollars) Wireless Cable Media
-------------------------------------------------------------------------
Operating revenue $ 721,136 $ 489,371 $ 244,319
Cost of sales 144,410 36,048 33,007
Sales and marketing costs 96,870 68,300 45,735
Operating, general and
administrative expenses 210,291 211,880 150,596
Management fees 2,919 9,787 3,223
Depreciation and amortization 118,944 112,199 24,037
-------------------------------------------------------------------------
Operating income 147,702 51,157 (12,279)
Interest:
Long-term debt and other (47,630) (60,916) (1,932)
Intercompany - - (11,508)
Intercompany dividends - - 10,788
Gain on sale of investments 1,445 - -
Loss from investments accounted
for by the equity method - - (3,433)
Change in fair value of
derivative instruments (5,206) (2,713) -
Foreign exchange gain (loss) 10,783 9,512 356
Investment and other income (loss) 2,591 73 (156)
Income tax expense (1,301) (1,472) (640)
Non-controlling interest - - -
-------------------------------------------------------------------------
Net income (loss) for the period $ 108,384 $ (4,359) $ (18,804)
-------------------------------------------------------------------------
Property, plant and
equipment additions $ 89,911 $ 126,523 $ 4,130
-------------------------------------------------------------------------
Corporate
items and Consolidated
(in thousands of dollars) eliminations Totals
------------------------------------------------------------
Operating revenue $ (21,138) $ 1,433,688
Cost of sales - 213,465
Sales and marketing costs - 210,905
Operating, general and
administrative expenses (19,424) 553,343
Management fees (15,929) -
Depreciation and amortization 677 255,857
------------------------------------------------------------
Operating income 13,538 200,118
Interest:
Long-term debt and other (19,390) (129,868)
Intercompany 11,508 -
Intercompany dividends (10,788) -
Gain on sale of investments 68 1,513
Loss from investments accounted
for by the equity method - (3,433)
Change in fair value of
derivative instruments - (7,919)
Foreign exchange gain (loss) 15,153 35,804
Investment and other income (loss) 1,203 3,711
Income tax expense 42 (3,371)
Non-controlling interest (48,480) (48,480)
------------------------------------------------------------
Net income (loss) for the period $ (37,146) $ 48,075
------------------------------------------------------------
Property, plant and
equipment additions $ 583 $ 221,147
------------------------------------------------------------
For the Nine Months Ended September 30, 2005
(In thousands of dollars) Wireless Cable Media
-------------------------------------------------------------------------
Operating revenue $ 2,908,147 $ 1,518,407 $ 797,202
Cost of sales 529,985 108,872 116,052
Sales and marketing costs 410,267 198,460 140,152
Operating, general and
administrative expenses 894,919 686,798 452,189
Management fees 9,019 30,364 10,833
Integration expenses 28,352 - -
Depreciation and amortization 450,546 359,247 38,747
-------------------------------------------------------------------------
Operating income (loss) 585,059 134,666 39,229
Interest:
Long-term debt and other (302,818) (186,336) (7,675)
Intercompany 26,564 (12,506) (3,933)
Gain on sale of investments 11 2,787 -
Loss on repayment of long-term debt - - -
Writedown of investments - - -
Income (loss) from investments
accounted for by the equity method (866) - 1,035
Change in fair value of
derivative instruments (28,668) 1,707 -
Foreign exchange gain (loss) 28,422 5,798 667
Investment and other income (250) 689 428
Income tax expense (4,749) (3,655) (935)
-------------------------------------------------------------------------
Net income (loss) for the period $ 302,705 $ (56,850) $ 28,816
-------------------------------------------------------------------------
Property, plant and
equipment additions $ 379,808 $ 471,299 $ 27,970
-------------------------------------------------------------------------
Total assets $ 6,658,631 $ 3,973,797 $ 1,271,961
-------------------------------------------------------------------------
Corporate
items and Consolidated
(In thousands of dollars) Telecom eliminations total
-------------------------------------------------------------------------
Operating revenue $ 212,604 $ (74,368) $ 5,361,992
Cost of sales 101,832 - 856,741
Sales and marketing costs 28,206 - 777,085
Operating, general and
administrative expenses 57,254 (26,576) 2,064,584
Management fees - (50,216) -
Integration expenses 2,257 2,922 33,531
Depreciation and amortization 35,279 193,542 1,077,361
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Operating income (loss) (12,224) (194,040) 552,690
Interest:
Long-term debt and other (4,113) (42,941) (543,883)
Intercompany (835) (9,290) -
Gain on sale of investments - 9,076 11,874
Loss on repayment of long-term debt (17,087) 16,017 (1,070)
Writedown of investments - (6,122) (6,122)
Income (loss) from investments
accounted for by the equity method - 4,683 4,852
Change in fair value of
derivative instruments - 4 (26,957)
Foreign exchange gain (loss) 8,791 (4,606) 39,072
Investment and other income (3,332) 3,928 1,463
Income tax expense (144) (382) (9,865)
-------------------------------------------------------------------------
Net income (loss) for the period $ (28,944) $ (223,673) $ 22,054
-------------------------------------------------------------------------
Property, plant and
equipment additions $ 32,059 $ 12,677 $ 923,813
-------------------------------------------------------------------------
Total assets $ 575,194 $ 1,339,357 $13,818,940
-------------------------------------------------------------------------
For the Nine Months Ended September 30, 2004
(In thousands of dollars) Wireless Cable Media
-------------------------------------------------------------------------
Operating revenue $ 1,969,896 $ 1,437,291 $ 690,941
Cost of sales 338,842 105,926 102,740
Sales and marketing costs 285,132 185,920 139,350
Operating, general and
administrative expenses 609,630 627,822 388,580
Management fees 8,756 28,746 9,739
Depreciation and amortization 357,327 348,366 44,933
-------------------------------------------------------------------------
Operating income 370,209 140,511 5,599
Interest:
Long-term debt (152,422) (181,863) (7,394)
Intercompany - - (32,253)
Intercompany dividends - - 32,188
Gain on sale of investments 1,445 - -
Writedown of investments - (494) -
Loss on repayment of long-term debt (2,314) (18,013) -
Income (loss) from investments
accounted for by the equity method - - (21,739)
Change in fair value of
derivative instruments (9,046) 37,119 -
Foreign exchange gain (loss) (46,369) (49,719) 116
Investment and other income (loss) 3,646 (309) (700)
Income tax expense (3,947) (4,288) (1,258)
Non-controlling interest - - -
-------------------------------------------------------------------------
Net Income (loss) for the period $ 161,202 $ (77,056) $ (25,441)
-------------------------------------------------------------------------
Plant, property and
equipment additions $ 305,790 $ 344,609 $ 16,120
-------------------------------------------------------------------------
Total assets $ 3,201,230 $ 3,725,198 $ 1,724,188
-------------------------------------------------------------------------
Corporate
items and Consolidated
(In thousands of dollars) eliminations total
------------------------------------------------------------
Operating revenue $ (56,196) $ 4,041,932
Cost of sales - 547,508
Sales and marketing costs - 610,402
Operating, general and
administrative expenses (25,631) 1,600,401
Management fees (47,241) -
Depreciation and amortization 1,849 752,475
------------------------------------------------------------
Operating income 14,827 531,146
Interest:
Long-term debt (58,020) (399,699)
Intercompany 32,253 -
Intercompany dividends (32,188) -
Gain on sale of investments 4,034 5,479
Writedown of investments (3,586) (4,080)
Loss on repayment of long-term debt - (20,327)
Income (loss) from investments
accounted for by the equity method 2,106 (19,633)
Change in fair value of
derivative instruments - 28,073
Foreign exchange gain (loss) 7,406 (88,566)
Investment and other income (loss) 8,934 11,571
Income tax expense 1,114 (8,379)
Non-controlling interest (73,653) (73,653)
------------------------------------------------------------
Net Income (loss) for the period $ (96,773) $ (38,068)
------------------------------------------------------------
Plant, property and
equipment additions $ 1,561 $ 668,080
------------------------------------------------------------
Total assets $ 128,481 $ 8,779,097
------------------------------------------------------------
10. Related Party Transactions:
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 detailed below. The Company has also entered into certain
transactions with AT&T Wireless Services, Inc. ("AWE"), which was
previously a minority shareholder of RWCI. AWE ceased to be a related
party effective October 13, 2004.
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands of dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Amounts paid to (received
from) AWE, net $ - $ (3,325) $ - $ (3,138)
Access fees paid to
broadcasters accounted for
by the equity method 4,586 5,287 13,800 14,420
-------------------------------------------------------------------------
$ 4,586 $ 1,962 $ 13,800 $ 11,282
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 and nine months ended
September 30, 2005 and 2004, 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) 2005 2004 2005 2004
-------------------------------------------------------------------------
Legal services and
commissions paid on premiums
for insurance coverage $ 1,300 $ 1,400 $ 4,500 $ 3,300
Programming services - 1,500 1,600 4,700
Interest charges and
other financing fees - 8,400 22,000 20,800
-------------------------------------------------------------------------
$ 1,300 $ 11,300 $ 28,100 $ 28,800
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the three months and nine months ended September 30, 2005 and
2004, the Company made payments to (received from) 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) 2005 2004 2005 2004
-------------------------------------------------------------------------
Dividends paid on Class A
Voting and Class B Non-Voting
shares of the Company $ 3,478 $ 3,603 $ 7,081 $ 7,206
Charges to the Company for
business use of aircraft - - 331 195
Charges by the Company for
rent and reimbursement of
office and personnel costs (6) (18) (36) (54)
-------------------------------------------------------------------------
$ 3,472 3,585 $ 7,376 $ 7,347
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the three months ended September 30, 2005, approval was given by a
special committee of independent members of the Board of Directors to
sell $100.0 million of income tax losses to certain companies controlled
by the Company's controlling shareholder at a price of $13 million. This
transfer is expected to occur over the next 12 months.
11. Subsequent Events:
Convertible Preferred Securities
On October 11, 2005, the Company announced that it had given a notice of
redemption to Microsoft R-Holdings, Inc. ("Microsoft"), a subsidiary of
Microsoft Corporation, stating its intention to redeem its $600 million
5 1/2% Convertible Preferred Securities due August 2009
(the "Preferred Securities") in accordance with the original terms of
such securities.
Under the terms of the Preferred Securities, following receipt of the
notice of redemption, Microsoft has 27 days in which to give notice of
its intention to convert the Preferred Securities into an aggregate
17,142,857 Class B Non-Voting shares of the Company representing a
conversion price of $35 per share. On October 17, 2005, the Company
received Microsoft's notice to convert the Preferred Securities. On
October 24, 2005, the Company issued 17,142,857 Class B Non-Voting shares
and recorded contributed surplus for the difference between the carrying
values of the debt plus conversion feature and the total par value. This
will have the affect of reducing long term debt by approximately
$509 million and increasing shareholders' equity by approximately
$509 million.
Real Estate Acquisition
Subsequent to the three months ended September 30, 2005, with the
approval of the Board of Directors, the Company entered into a binding
agreement, subject to due diligence and certain terms and conditions,
under which the Company would purchase certain real estate assets in
early 2006 for approximately $100 million.
END SECOND AND FINAL ADD
