Rogers 2006 Annual Report Download - page 73

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RO GER S CO MMU NIC AT ION S IN C . 20 0 6 ANN UA L RE POR T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY OF SE ASONALIT Y AND QUARTERLY RESULTS
Quarterly results and statistics for the previous eight quarters are
outlined following this section.
Our operating results are subject to seasonal fluctuations that mate-
rially impact quarter-to-quarter operating results. As a result, one
quarter’s operating results are not necessarily indicative of what
a subsequent quarter’s operating results will be. Each of Wireless,
Cable and Telecom, and Media has unique seasonal aspects to their
businesses.
Wireless’ operating results are subject to seasonal fluctuations that
materially impact quarter-to-quarter operating results. In particular,
operating results may be influenced by the timing of our marketing
and promotional expenditures and higher levels of subscriber
additions, resulting in higher subscriber acquisition and activation-
related expenses in certain periods.
The operating results from Cable and Internet services are subject to
modest seasonal fluctuations in subscriber additions and disconnec-
tions which are largely attributable to movements of university and
college students and individuals temporarily suspending service due
to extended vacations, or seasonal relocations, as well as our con-
centrated marketing efforts generally conducted during the fourth
quarter. Rogers Retail operations may also experience modest fluc-
tuations from quarter-to-quarter due to the availability and timing
of release of popular titles throughout the year. However, the fourth
quarter has historically been the strongest quarter due to increased
consumer activity in the retail cycle. Rogers Home Phone and Rogers
Business Solutions do not have any unique seasonal aspects to their
business.
The seasonality at Media is a result of fluctuations in advertising
and related retail cycles since they relate to periods of increased
consumer activity as well as fluctuations associated with the Major
League Baseball season where revenues are generally concentrated
in the spring, summer and fall months.
In addition to the seasonal trends, the most notable trend has been
the quarter-by-quarter improvements in revenue and operating
profit across the Wireless, Cable and Telecom, and Media businesses.
Wireless revenue and operating profit growth reflects the increasing
number of wireless voice and data subscribers and increase in
blended postpaid and prepaid ARPU. Wireless has continued its
strategy of targeting higher value postpaid subscribers and selling
prepaid handsets at higher price points, which has also contributed
over time to the significantly heavier mix of postpaid versus prepaid
subscribers. Meanwhile, the successful growth in customer base and
increased market penetration have been met by increasing customer
service and retention expenses and increasing credit and collection
costs. However, these costs have been offset by operating efficiencies
and increasing GSM network roaming revenues from our subscribers
travelling outside of Canada, as well as strong growth in roaming
revenues from visitors to Canada utilizing our GSM network.
Cable and Internet services revenue and operating profit increased
primarily due to price increases, and increased penetration of its
digital products and incremental programming packages. Similarly,
the steady growth of Internet revenues has been the result of a
greater penetration of Internet subscribers as a percentage of homes
passed. The decrease in the Rogers Home Phone operating profit
margin primarily reflects the additional costs associated with the
scaling and rapid growth of our cable telephony service including
increased sales and marketing expenses. The decrease in the Rogers
Business Solutions operating profit margin reflects the pricing pres-
sures on long distance and higher carrier costs. Rogers Retail revenue
and operating profit have decreased due to a decreased number of
stores.
Media’s results are primarily attributable to a general upturn in
demand for local advertising despite the softness with respect to
national advertising.
Other fluctuations in net income from quarter-to-quarter can also be
attributed to losses on repayment of debt, foreign exchange gains,
changes in the fair value of derivative instruments, other income,
and change in income tax expense (reduction).
SUMMARY OF FOURTH QUARTER 2006 RESULTS
During the three months ended December 31, 2006, consolidated
operating revenue increased 14.4% to $2,370 million in 2006 com-
pared to $2,071 million in the corresponding period in 2005, with all
of our operating segments contributing to the year-over-year
growth, including 19.7% growth at Wireless, 10.6% growth at Cable
and Telecom, and 5.7% growth at Media. Consolidated fourth quar-
ter operating profit grew 46.3% year-over-year to $752 million,
with 77.1% growth at Wireless, 6.5% growth at Cable and Telecom,
and 20.5% growth at Media. The fourth quarter results in 2006 also
reflected integration expenses of $3 million at Cable and Telecom.
Consolidated operating income for the three months ended
December 31, 2006, totalled $357 million, compared to $110 million
in the corresponding period of 2005, reflecting growth across all
operating units.
We recorded net income of $176 million for the three months ended
December 31, 2006, or basic earnings per share of $0.28 (diluted –
$0.27), compared to a net loss of $67 million or basic and diluted loss
per share of $0.11 in the corresponding period of 2005.