Rogers Reports Strong Fourth Quarter 2007 Results

TORONTO, Feb. 22 /PRNewswire-FirstCall/ - Rogers Communications Inc. today announced its consolidated financial and operating results for the three and twelve months ended December 31, 2007.

"2007 was a year of continued solid growth in customers, revenues and cash flow while at the same time we further deleveraged our balance sheet, simplified our corporate structure and laid the groundwork for returning increasing amounts of cash to our shareholders," said Ted Rogers, President and CEO of Rogers Communications Inc. "While we have much to do in continuing to reinforce our services and systems, I am confident that we are exceptionally well positioned to carry on our growth and success in 2008 and beyond."

This earnings release should be read in conjunction with our 2006 Annual MD&A and our 2006 Annual Audited Consolidated Financial Statements and Notes thereto, as well as our 2007 quarterly interim financial and other recent securities filings available on SEDAR at www.sedar.com. As this earnings release includes forward-looking statements and assumptions, readers should carefully review the sections of this release entitled "Caution Regarding Forward-Looking Statements, Risks and Assumptions".

In this release, the terms "we", "us", "our", "Rogers" and "the Company" refer to Rogers Communications Inc. and our subsidiaries, which are reported in the following segments:

"RCI" refers to the legal entity Rogers Communications Inc. excluding our subsidiaries.

Throughout this release, percentage changes are calculated using numbers rounded to which they appear.

For discussions of the results of operations of each of these segments, refer to the respective segment sections of this release.

Reconciliation of Net Income to Operating Profit and Adjusted Operating

Profit for the Period

The items listed below represent the consolidated income and expense amounts that are required to reconcile net income as defined under Canadian GAAP to the non-GAAP measures operating profit and adjusted operating profit for the period. See the "Supplementary Information" section for a full reconciliation to adjusted operating profit, adjusted net income and adjusted net income per share. For details of these amounts on a segment-by-segment basis and for an understanding of intersegment eliminations on consolidation, the following section should be read in conjunction with tables in the Supplemental Information section entitled "Segmented Information".

As a result of the changes discussed below, we recorded net income of $254 million for the three months ended December 31, 2007, or basic and diluted earnings per share of $0.40, compared to net income of $176 million or basic earnings per share of $0.28 (diluted - $0.27) in the corresponding period in 2006.

Income Tax Expense

Due to our non-capital loss carryforwards, our income tax expense for the three months ended December 31, 2007 and 2006 substantially represents non- cash income taxes. As illustrated in the table below, our effective income tax rate for the three months ended December 31, 2007 and 2006 was 24.9% and 6.9%, respectively. The effective income tax rates for the three months ended December 31, 2007 and 2006 differed from the respective statutory income tax rates of 35.2% and 35.8%, primarily due to benefits realized from changes to prior year tax filing positions and other adjustments.

The changes in fair value of the derivative instruments in the three months ended December 31, 2007 was primarily the result of the changes in measurement of hedge ineffectiveness and the change in fair value of the embedded prepayment option on long-term debt.

Loss on Repayment of Long-Term Debt

During the twelve months ended December 31, 2007, we redeemed Wireless' US$155 million 9.75% Senior Debentures due 2016 and Wireless' US$550 million Floating Rate Senior Notes due 2010. These redemptions resulted in a loss on repayment of long-term debt of $47 million, including aggregate redemption premiums of $59 million offset by a write-off of the fair value increment arising from purchase accounting of $12 million.

Foreign Exchange Gain

During the three months ended December 31, 2007, the Canadian dollar strengthened by 0.8 cents versus the U.S. dollar. This resulted in a foreign exchange gain of $1 million during the three months ended December 31, 2007. During the corresponding period of 2006, there was a foreign exchange loss of $39 million primarily related to foreign exchange on long-term debt not hedged for accounting purposes given a 5 cent decrease in the Canadian dollar in this period.

Interest on Long-Term Debt

Interest expense decreased by $13 million for the three months ended December 31, 2007 compared to the corresponding period in 2006. The decrease in interest expense is primarily due to the repayment of long-term debt in 2007, including the settlement of certain of our cross-currency interest rate exchange agreements.

The decrease in debt was largely the result of the February 2007 repayment at maturity of Cable's $450 million 7.60% Senior Notes due 2007, the May 2007 redemption of Wireless' US$550 million Floating Rate Senior Notes due 2010 and the June 2007 redemption of Wireless' US$155 million 9.75% Senior Debentures due 2016. These repayments were partially offset by the $1,080 million net increase in bank debt as at December 31, 2007, compared to December 31, 2006.

Operating Income

The 33% increase in our operating income to $476 million from $357 million for the three months ended December 31, 2007 compared to the corresponding period of the prior year is primarily due to the growth in revenue of $317 million exceeding the growth in operating expenses and depreciation and amortization of $198 million. See the section entitled "Operating Unit Review" for a detailed discussion of operating unit results.

Depreciation and Amortization Expense

Depreciation and amortization expense for the three months ended December 31, 2007 increased nominally over the corresponding period of the prior year. An increase in depreciation and amortization related to PP&E was partially offset by a decrease in amortization of intangible assets resulting from the reduction in the carrying value of certain intangible assets due to the reduction in the valuation allowance recorded in 2006 related to future income tax assets acquired as part of business acquisitions in prior periods.

Wireless, Cable and Media all contributed to the increase in adjusted operating profit. Refer to the individual segment discussions for details of the respective increases in adjusted operating profit.

For the three months ended December 31, 2007, adjusted operating profit increased to $957 million, from $768 million in the corresponding period of the prior year. Adjusted operating profit for the three months ended December 31, 2007 and 2006, respectively excludes: (i) stock-based compensation expense of $4 million and $12 million; (ii) integration and restructuring expenses of $17 million and $4 million; and (iii) the impact of a one-time charge of $52 million resulting from the renegotiation of an Internet-related services agreement in the three months ended December 31, 2007.

For the twelve months ended December 31, 2007, adjusted operating profit increased to $3,703 million, from $2,942 million in 2006. Adjusted operating profit excludes: (i) the impact of a $452 million one-time non-cash charge related to the introduction of a cash settlement feature for stock options for the twelve months ended December 31, 2007; (ii) stock-based compensation expense of $62 million and $49 million for the twelve months ended December 31, 2007 and 2006, respectively; (iii) integration and restructuring expenses of $38 million and $18 million for the twelve months ended December 31, 2007 and 2006, respectively; and (iv) the impact of a one-time charge of $52 million resulting from the renegotiation of an Internet-related services agreement in the twelve months ended December 31, 2007.

For details on the determination of adjusted operating profit, which is a non-GAAP measure, see the "Supplementary Information" and the "Key Performance Indicators and Non-GAAP Measures" sections.

The increase in network revenue for the three months ended December 31, 2007 compared to the corresponding period of the prior year was driven by the continued growth of Wireless' postpaid subscriber base and improvements in postpaid average monthly revenue per user ("ARPU"). The year-over-year increase in postpaid ARPU reflects the impact of higher data revenue, as well as increased long-distance, add-on features and roaming revenue. Wireless has experienced growth in roaming revenues from subscribers using services outside of Canada as well as strong growth in inbound roaming revenues from visitors to Canada who utilize Wireless' network.

Prepaid revenue increased as a result of improved ARPU and a larger subscriber base. The year-over-year improvement in ARPU is a result of increased data usage and more attractive prepaid offerings, including unlimited evening and weekend plans.

Wireless' success in the continued reduction in postpaid churn reflects proactive and targeted customer retention activities, the commitment to customer care and improvements in network coverage and quality. Prepaid churn has improved compared to the corresponding period in 2006 due to changes in offerings and investments in retention programs.

During the three months ended December 31, 2007, wireless data revenue increased by 48% over the corresponding period in 2006 and totalled $192 million. This increase in data revenue reflects the continued growth of text and multimedia messaging services, wireless Internet access, BlackBerry devices, downloadable ring tones, music and games, and other wireless data services and applications. For the three months ended December 31, 2007, data revenue represented approximately 14.1% of total network revenue, compared to 11.2% in the corresponding period last year.

Wireless Equipment Sales

The year-over-year increase in revenue from equipment sales, including activation fees and net of equipment subsidies, reflects an increased volume of handset upgrades associated with the growing subscriber base.

Cost of equipment sales increased for the three months ended December 31, 2007 compared to the corresponding period of the prior year primarily as a result of retention activity, hardware upgrades, and the increased average cost of handsets.

Sales and marketing expenses for the three months ended December 31, 2007 remained flat compared to the corresponding period of the prior year. Marketing efforts were largely focused on acquiring high value postpaid voice and data customers, as well as the continuation of Wireless' "Most Reliable Network" campaign and the introduction of new services and devices. Because of the seasonally heavy mass market advertising component associated with the fourth quarter, sales and marketing costs per gross addition are less variable than in other quarters.

Growth in the Wireless subscriber base drove increases in operating, general and administrative expenses in the three months ended December 31, 2007, compared to the corresponding period of the prior year. These increases were reflected in higher customer retention spending, costs to support increased usage of data and roaming services, and increases in network operating expenses to accommodate the larger subscriber base. Customer care costs also increased as a result of the launch of Wireless Number Portability ("WNP") in March 2007, the decommissioning of the TDMA network in May 2007, and the complexity of supporting more sophisticated services and devices. These costs were partially offset by savings related to operating and scale efficiencies across various functions.

Total retention spending, including subsidies on handset upgrades, has increased to $110 million in the three months ended December 31, 2007, compared to $85 million in the corresponding period of the prior year due to a larger subscriber base which drove higher volumes of handset upgrades.

Wireless Adjusted Operating Profit

The strong year-over-year growth in adjusted operating profit was due to the significant growth in network revenue. As a result, Wireless' adjusted operating profit margins increased to 48.5% for the three months ended December 31, 2007, compared to 44.9% in the corresponding period in 2006.

Additions to Wireless PP&E for the three months ended December 31, 2007 reflects network capacity spending on the GSM network, continued rollout of the HSPA network to the top 25 markets across Canada and the introduction of faster network throughput speeds. Other network-related additions included national site build activities and additional spending on test and monitoring equipment. Other additions to PP&E reflect information technology initiatives such as billing and back office system upgrades, facilities upgrades and other facilities and equipment spending.

The following segment discussions provide a detailed discussion of the Cable operating results.

The increase in Core Cable revenue for the three months ended December 31, 2007 reflects the impact of price increases, growth in basic subscribers and the growing penetration of our digital cable products. The price increases on service offerings, that became effective in March 2007, contributed approximately $14 million to Core Cable revenue growth for the three months ended December 31, 2007. The remaining increase in revenue of approximately $16 million for the three months ended December 31, 2007 is primarily related to the growth in digital subscribers.

The digital cable subscriber base grew by 19% from December 31, 2006 to December 31, 2007. Digital penetration now represents 59% of basic cable households. Strong demand for High Definition ("HD") and Personal Video Recorder ("PVR") digital set top box equipment combined with the success of Cable's "Personal TV" and awareness of the "triple play" marketing campaign, which offers cable television, high-speed Internet and Rogers Home Phone services in discrete packages, contributed to the growth in the digital subscriber base of 61,000 households in the three months ended December 31, 2007. In addition, basic cable subscribers increased by 20,000 in the fourth quarter.

Internet (Residential) Revenue

The increase in Internet revenues for the three months ended December 31, 2007 from the corresponding period in 2006 reflects the 13% year-over-year increase in the number of Internet subscribers in addition to price increases to our Internet offerings. These price increases, effective in March 2007, contributed to the Internet revenue growth by approximately $4 million for the three months ended December 31, 2007. The remaining increase in revenue of approximately $18 million for the three months ended December 31, 2007 was largely the result of the impact of the growth in subscribers. The average monthly revenue per Internet subscriber increased in the quarter compared to the corresponding period in 2006. This was the result of price increases partially offset by a shift in subscriber mix to a higher number of subscribers on lower priced service tiers.

With the high-speed Internet subscriber base now at approximately 1.5 million, Internet penetration is 64% of basic cable households, and 41% of homes passed by our network.

Rogers Home Phone Revenue

The growth in Rogers Home Phone revenue for the three months ended December 31, 2007 compared to the corresponding period in 2006 is the result of the addition of 65,000 Rogers Home Phone voice-over-cable telephony service lines in the three months ended December 31, 2007. Partially offsetting the increase in voice-over-cable telephony lines is a decline in the number of circuit-switched local lines of 3,000 for the three months ended December 31, 2007. Of this amount, 2,000 represented migrations from the circuit-switched to cable telephony platform.

Long-distance revenues for the three months ended December 31, 2007 were relatively flat versus the corresponding period in 2006.

Cable Operations Operating Expenses

Cable Operations sales and marketing expenses increased by $12 million for the three months ended December 31, 2007, compared to the corresponding period of 2006, reflecting the significant growth in cable telephony service in addition to certain targeted promotional activities.

The increases in operating, general and administrative costs for the three months ended December 31, 2007 compared to the corresponding period of 2006 were primarily driven by increases in digital cable, Internet and Rogers Home Phone subscriber bases, resulting in higher costs associated with programming content, customer care, technical service and network operations. This increase was partially offset by the elimination of Canadian Radio- television and Telecommunication Commission ("CRTC") Part II fees.

In January 2004, Cable entered into a multi-year agreement with Yahoo! Inc. ("Yahoo!") to offer Cable's high-speed Internet access subscribers a co- branded broadband experience, which included: Yahoo!'s email functionality; hosting and storage; security, pop-up blocking and parental control tools; digital photo tools; online music and game services; and an array of content in a personalized user environment. Under this agreement, Cable paid portal fees to Yahoo! for these services on a per subscriber basis. On October 31, 2007, Cable and Yahoo! entered into a renegotiated agreement effective January 1, 2008, under which Cable and Yahoo! will share advertising revenue opportunities leveraging the high-speed Internet access subscribers, and Cable will no longer pay portal fees to Yahoo!. This renegotiated agreement will now expire on December 31, 2011. In connection with the renegotiation of this agreement, Cable made a one-time payment to Yahoo! in the fourth quarter of 2007 of $52 million and Cable's cost of providing its high-speed Internet service will be reduced by approximately $25 million per year over the term of the renegotiated agreement. Rogers' branding of its Internet service is being transitioned to "Rogers Hi-Speed Internet", while the online portal will continue to be branded as "Rogers Yahoo!".

Cable Operations Adjusted Operating Profit

The year-over-year growth in adjusted operating profit was primarily the result of growth in revenue and subscribers in addition to the impact of the elimination of CRTC Part II fees. As a result, Cable Operations adjusted operating profit margins increased to 38.2% for the three months ended December 31, 2007 compared to 37.1% in the corresponding period in 2006.

Cable Operations' base of circuit-switched local telephony customers, which was acquired in July 2005 through the acquisition of Call-Net, is generally less capital intensive than its on-net cable telephony business but also generates lower margins. As a result, the inclusion of the circuit- switched local telephony business with Cable Operations' on-net in-region telephony business has a dilutive impact on operating profit margins.

The decrease in RBS revenues is a result of a decline in long-distance revenues partially offset by an increase in local service and data revenues. During the three months ended December 31, 2007, long-distance revenues declined by $20 million compared to the corresponding period of 2006 due to a decrease in both usage and average revenue per minute. Local service revenue grew by $4 million compared to the corresponding period in 2006. In addition, data revenues (including hardware sales) increased by $1 million compared to the corresponding period of 2006.

RBS Operating Expenses

Carrier charges are included in operating, general and administrative expenses and decreased by $20 million for the three months ended December 31, 2007, due to the decrease in revenue and product mix changes. Carrier charges represented approximately 52% of revenue in the three months ended December 31, 2007, compared to 60% of revenue in the corresponding period of 2006.

The increases in other operating, general and administrative expenses of $10 million for the three months ended December 31, 2007 compared to the corresponding period of the prior year are primarily the result of an increase in overall information technology and network maintenance costs.

Sales and marketing expenses remained consistent with the corresponding period of the prior year, as marketing efforts have primarily targeted the small and medium business markets since early 2007.

RBS Adjusted Operating Profit

The changes described above resulted in RBS adjusted operating profit of $8 million for the three months ended December 31, 2007, compared to adjusted operating profit of $12 million in the corresponding period of 2006.

Integration and Restructuring Expenses

During the fourth quarter of 2007, most RBS new customer acquisition efforts in the enterprise and larger business segments and outside of Cable's footprint were suspended, resulting in certain staff reductions and the incurrence of approximately $11 million in severance costs. In addition, consulting and contract termination costs of $3 million related to the restructuring and $3 million of integration expenses related to the acquisition of Call-Net were incurred. Capital spending requirements on information technology and network builds were also reduced. RBS will continue to maximize operating profit through its existing customer base while at the same time Cable will increase its sales efforts on the smaller business portion of the market within its traditional cable television footprint where it is able to serve customers with voice and data telephony services provisioned over its own infrastructure.

In January 2007, Rogers Retail acquired approximately 170 retail locations from Wireless. The results of the activities of these stores have been included in the Rogers Retail results of operations since January 1, 2007.

The increase in Rogers Retail revenue of $21 million for the three months ended December 31, 2007, compared to the corresponding period of 2006 was the result of the acquisition of 170 retail stores from Wireless in January 2007, partially offset by a decline in video rental and sales revenues of $2 million, resulting from fewer transactions and customer visits, and a reduction in late fee revenue.

Rogers Retail Adjusted Operating Profit (Loss)

Rogers Retail recorded an adjusted operating loss of $3 million for the three months ended December 31, 2007, compared to an adjusted operating profit of $2 million in the corresponding period of the prior year, which is the result of fewer customer visits and increased sales and marketing expenses.

CABLE ADDITIONS TO PP&E

The Cable Operations segment categorizes its PP&E expenditures according to a standardized set of reporting categories that were developed and agreed to by the U.S. cable television industry and which facilitate comparisons of additions to PP&E between different cable companies. Under these industry definitions, Cable Operations additions to PP&E are classified into the following five categories:

Cable Operations PP&E additions are primarily attributable to higher spending on support capital relating to a larger subscriber base. Spending on upgrades and rebuilds was driven by upgrades and improvements to its cable systems in the Atlantic provinces and rural areas in Ontario.

RBS PP&E additions for the three months ended December 31, 2007 decreased compared to the corresponding period of the prior year primarily due to the purchase of Group Telecom/360Networks assets from Bell Canada in the fourth quarter of 2006.

The increase in Rogers Retail PP&E additions is attributable to improvements made to certain retail stores acquired from Wireless in January 2007 and to improvements related to new retail stores.

The increase in Media revenue for the three months ended December 31, 2007 over the corresponding period in 2006 reflects growth across most of Media's divisions. Rogers Publishing revenue in 2007 was positively impacted by increased advertising revenue and sales of certain magazines, which was partially offset by a decrease in revenue related to the closure of certain publications. Rogers Radio revenue increased due to a combination of organic growth and the acquisition of five radio stations in Alberta in January 2007. Rogers Sportsnet revenue increased over the corresponding periods of the prior year due to higher advertising revenue and subscriber fees. Rogers television operations generated strong increases in national advertising for the quarter, and the acquisition of Citytv, which closed on October 31, 2007, contributed $28 million to revenue in the quarter. The Shopping Channel revenue remained consistent with the prior year as increased sales of fashion and electronic goods were offset by lower sales of home furnishing products. A decrease in Rogers Sports Entertainment revenue compared to the corresponding period of the prior year was due to lower admissions revenue from Blue Jays games resulting from fewer games in the fourth quarter of 2007 compared to the corresponding period of the prior year. This decrease was partially offset by an increase in Rogers Centre revenue resulting from higher event rentals.

Media Operating Expenses

The increase in Media operating expenses for the three months ended December 31, 2007 compared to the corresponding period in 2006, is primarily due to operating costs of Citytv, the five Alberta radio stations, higher Blue Jays payroll costs at Rogers Sports Entertainment, and higher production costs at Rogers Sportsnet resulting from additional NFL and NHL broadcasts. These increases were partially offset by lower general and administrative costs and by the elimination of CRTC Part II fees.

Media Adjusted Operating Profit

The growth in Media's adjusted operating profit for the three months ended December 31, 2007 from the corresponding period in 2006 reflects growth across most of Media's divisions, in addition to the impact of the elimination of CRTC Part II fees, offset by an adjusted operating loss at Rogers Sports Entertainment. Excluding Rogers Sports Entertainment, Media's adjusted operating profit margins would have been 18.7% and 16.1% for the three months ended December 31, 2007 and 2006, respectively.

Media Additions to PP&E

The majority of Media's PP&E additions in the three months ended December 31, 2007 reflect building improvements related to the relocation of Rogers Sportsnet and building improvements to the Rogers Centre.

For the three months ended December 31, 2007, cash generated from operations before changes in non-cash operating working capital items, which is calculated by eliminating the effect of all non-cash items from net income, increased to $791 million from $629 million in the corresponding period of 2006. The $162 million increase is primarily the result of a $189 million increase in adjusted operating profit.

Taking into account the changes in non-cash operating working capital items for the three months ended December 31, 2007, cash generated from operations was $839 million, compared to $702 million in the corresponding period of 2006.

The cash flow generated from operations of $839 million, together with $205 million aggregate net advances borrowed under our bank credit facility and $1 million received from the issuance of Class B Non-Voting shares under the exercise of employee stock options, resulted in total net funds of approximately $1,045 million raised in the three months ended December 31, 2007.

Net funds used during the three months ended December 31, 2007 totalled approximately $1,028 million, the details of which include funding:

Taking into account the cash deficiency of $78 million at the beginning of the period and the cash sources and uses described above, the cash deficiency at December 31, 2007 was $61 million.

Financing

Our long-term debt instruments are described in Note 15 to the 2006 Annual Audited Consolidated Financial Statements.

As mentioned above, during the three months ended December 31, 2007, $205 million aggregate net advances were borrowed under our bank credit facility.

Shelf Prospectuses

In order to maintain financial flexibility, in November 2007 RCI filed shelf prospectuses with securities regulators to qualify debt securities of RCI for sale in Canada and/or in the U.S. A previously filed shelf prospectus expired during 2006. The notice set forth in this paragraph does not constitute an offer of any securities for sale.

Normal Course Issuer Bid

In January 2008 RCI applied to the Toronto Stock Exchange ("TSX") to make a NCIB, which was accepted by the TSX on January 10, 2008, for purchases of its Class B Non-Voting shares through the facilities of the TSX. The maximum number of Class B Non-Voting shares which may be purchased pursuant to the NCIB is the lesser of 15 million, representing approximately 3% of the number of Class B Non-Voting shares outstanding at December 31, 2007, and that number of Class B Non-Voting shares that can be purchased under the NCIB for an aggregate purchase price of $300 million. The actual number of Class B Non- Voting shares purchased, if any, and the timing of such purchases, will be determined by RCI considering market conditions, stock prices, its cash position, and other factors.

For the purposes of our discussion on the hedged portion of long-term debt, we have used non-GAAP measures in that we include all cross-currency interest rate exchange agreements (whether or not they qualify as hedges for accounting purposes) since all such agreements are used for risk management purposes only and are designated as a hedge of specific debt instruments for economic purposes. As a result, the Canadian dollar equivalent of U.S. dollar- denominated long-term debt reflects the contracted foreign exchange rate for all of our cross-currency interest rate exchange agreements regardless of qualifications for accounting purposes as a hedge. At December 31, 2007, all of our U.S. dollar-denominated debt was hedged with respect to foreign exchange fluctuations using cross-currency interest rate exchange agreements that qualify as hedges for accounting purposes.

During the three months ended December 31, 2007, there was no change in our U.S. dollar-denominated debt or in our cross-currency interest rate exchange agreements. As a result, on December 31, 2007 100% of our U.S. dollar- denominated debt was hedged on an economic basis and on an accounting basis.

On November 1, 2007, we declared a quarterly dividend of $0.125 per share on each of the outstanding Class A Voting and Class B Non-Voting shares. This quarterly dividend totalling $80 million was paid on January 2, 2008 to shareholders of record on December 12, 2007.

On January 7, 2008, our Board of Directors approved an increase in the annual dividend from $0.50 to $1.00 per Class A Voting and Class B Non-Voting share effective with the next quarterly dividend. The new annual dividend of $1.00 per share will be paid in quarterly amounts of $0.25 per each outstanding Class A Voting and Class B Non-Voting share. Such quarterly dividends are only payable as and when declared by our Board of Directors and there is no entitlement to any dividend prior thereto.

2008 GUIDANCE

We currently have no changes to our full year 2008 financial and operating metric guidance ranges which we provided on January 7, 2008. (See the section entitled "Caution Regarding Forward-Looking Statements, Risks and Assumptions" below.)

SOURCE Rogers Communications Inc.