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you.. .
Rogers Communications Inc.
2005 Annual Report

Table of contents

  • Page 1
    you...Rogers Communications Inc. 2005 Annual Report

  • Page 2
    R OG ER S C OM M U N IC A TION S IN C . A T A G L A N C E 3

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    1 ROGERS 2005 ANNUAL REPORT ...keep us innovating.

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    ...High-speed Internet 3. Video stores Rogers Telecom On July 1, 2005, we acquired Call-Net Enterprises and subsequent to the acquisition, we changed the name to Rogers Telecom. Telecom is an integrated telecommunications solutions provider of facilities-based local, long distance and data services to...

  • Page 5
    ... 1. Wireless 59% 2. Cable 31% 3. Telecom 5% 4. Media 5% 2005 (in millio n s o f d o lla rs, su b scrib e rs in th o u sa n d s) 2004 (P ro Fo rma ) CHANGE Network revenue Operating profit (excluding integration expenses) PP&E expenditures Wireless voice and data subscribers: - Postpaid - Prepaid...

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    2 ROGERS 2005 ANNUAL REPORT 1 YOU ROCK to your favourite iTunes on the Motorola ROKR wireless MP3 phone, only from Rogers. knowing you're protected on-line with the all-in-one security suite included with Rogers Yahoo! Hi-Speed Internet. YOU REST EASY 2 3 YOU KEEP your kids in touch and safe ...

  • Page 7
    ... services - wireless, digital cable, high-speed Internet and home telephone - in one affordable bundle on one convenient bill. 5 7 YOUR KIDS WATCH Max & Ruby, Care Bears, Babar and more - when you want - on Treehouse-on-Demand. Available only from Rogers Personal TV. YOU WATCH your business...

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    ...ROGERS 2005 ANNUAL REPORT YOU CHEER for the Blue Jays at the Rogers Centre, the home field for Canada's only Major League Baseball team and the country's premier entertainment venue. 9 YOU SAY YOU MARVEL at your Motorola RAZR, the thinnest mobile device ever made and available first from Rogers...

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    5 ROGERS 2005 ANNUAL REPORT 13 YOU CONNECT your customers, suppliers and distributors with enhanced voice and IP services from Rogers Business Solutions. 12 YOU ARE A STYLE HOUND. Exclusively from Fido, the sleek Nokia 8801's polished stainless steel with built-in camera and MP3 player adds to ...

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    6 ROGERS 2005 ANNUAL REPORT 15 YOU HEARD IT FIRST. Fefe Dobson releases a new single and Rogers Wireless customers are the first in North America to download "Don't Let It Get To Your Head" directly to their phone. YOU SEE, HEAR AND CHEER every detail. Both Rogers Cable and Rogers Sportsnet ...

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    7 ROGERS 2005 ANNUAL REPORT 16 YOU ENJOY 18 YOU BRACE YOURSELF for the ultimate cross-platform gaming experience at the 2005 Rogers PWR Play Gaming Championships. YOU BLAST the best voice quality on Canada's largest wireless voice and high-speed data network, and the only network on the global ...

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    ... of contact for a multitude of business communications solutions 70 YOU SCORE a quadruple play of Rogers services - wireless, digital cable, high-speed Internet and home telephone - in one affordable bundle on one convenient bill. 71 YOU CHEER for the Blue Jays at Rogers Centre, the home field...

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    ... and affordable home telephone alternative with great service and all the features you rely on and more. It's your call. 68 YOUR KIDS WATCH Max & Ruby, Care Bears, Babar and more when YOU want on Treehouse-on-Demand. Available only from Rogers Personal TV. 69 YOU GROW your business crowd. 73...

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    ... certain infrastructure operations, including information technologies, call centres, and finance under a shared services model. In 2005 we took another significant step by combining our Wireless, Cable and Telecom units under a single operating management structure. This structure is designed...

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    ... customers, we now offer a broad suite of services including a full array of advanced wired and wireless voice, data, access, and hosting solutions for local, national and international communications and networking needs. Rogers Media, with its category-leading collection of broadcast, home...

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    ...ROGERS 2005 ANNUAL REPORT Table of Contents Management's Discussion and Analysis 2005 Quarterly Summary Management's Responsibility for Financial Reporting Auditors' Report... Financial Statements Directors and Senior Corporate Officers Corporate Governance Overview Corporate Information 13 92 ...

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    ...Our Business Our Strategy Recent Acquisitions Consolidated Financial and Operating Results Wireless Cable Telecom Media Changes to Future Segment Reporting Consolidated Liquidity and Capital Resources Interest Rate and Foreign Exchange Management Outstanding Share Data Dividends and Other Payments...

  • Page 18
    ... . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In this MD&A, the terms "we", "us", "our", and "the Company" refer to Rogers Communications Inc. and our subsidiaries, which were reported in the following four segments as at December 31, 2005: • "Wireless...

  • Page 19
    ..., Canada's largest wireless provider and the operator of the country's only Global System for Mobile Communications/General Packet Radio Service network, with Enhanced Data for GSM Evolution (" EDGE") technology (" GSM/GPRS/EDGE "); in cable television, high-speed Internet access, voice-over-cable...

  • Page 20
    ... ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS the purchase price of the acquisition was $328.5 million. This transaction has been accounted for using the purchase method and we began to consolidate Telecom's results of operations...

  • Page 21
    ...1, 2005, we introduced Rogers Home Phone voice-over-cable local telephony service in the Greater Toronto Area and also successfully completed the acquisition of Call-Net, a national provider of voice and data communications services. We began to centralize the management of sales of our wireless and...

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    18 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARIZED CONSOLIDATED FINANCIAL RESULTS (In millions of dollars, except per share amounts and margin) Years ended December 31, 2005 $ 4,006.6 2,067.7 1,097.2 423.9 (113.2) 7,482...

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    19 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and Media $12.4 million of the operating profit increase. Consolidated operating profit as a percentage of operating revenue ("operating profit margin") decreased to 28.6% in 2005 ...

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    20 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECONCILIATION OF OPERATING PROFIT TO NET LOSS The items listed below represent the consolidated income and expense amounts that are required to reconcile operating profit to net ...

  • Page 25
    21 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CHANGE IN FAIR VALUE OF DERIVATIVE INSTRUMENTS The loss of $25.2 million in 2005 was a result of the strengthening of the Canadian dollar relative to that of the U.S. dollar as ...

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    ...prepaid payment options. In addition, the GSM/GPRS/EDGE network provides customers with advanced high-speed wireless data services, including mobile access to the Internet, wireless e-mail, digital picture and video transmission, video streaming, music downloading and two-way short messaging service...

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    ... optional services such as voicemail, caller line ID, text messaging and wireless Internet; • Enhancing sales distribution channels to increase focus on youth and business customers; • Maintaining a technologically advanced, high-quality and pervasive network by improving the quality of the GSM...

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    ... speeds and streaming video capability. These networks are expected to support a variety of increasingly advanced data applications, including broadband Internet access, multimedia services and seamless access to corporate information systems, such as e-mail and purchasing systems. DEVELOPMENT...

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    ... consisting primarily of network operating expenses, customer care expenses, retention costs, including residual commissions paid to distribution channels, Industry Canada licencing fees associated with spectrum utilization, inter-carrier payments to roaming partners and long distance carriers, CRTC...

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    ... 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS • Wireless announced a wholesale agreement with Vidéotron under which Vidéotron will operate as a mobile virtual network operator ("MVNO"), reselling Wireless' wireless voice and data...

  • Page 31
    ... high rates as one-way messaging subscribers increasingly migrate to two-way messaging and converged voice and data services. EQUIPMENT SALES (ACTUAL) Revenue from equipment sales during 2005, including activation fees and net of equipment subsidies, was $393.9 million, up 40.1% from 2004. The year...

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    28 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The acquisition of Fido accounted for approximately 61.6% of the increase in Wireless operating expenses for the year ended December 31, 2005. Since Fido was acquired on November 9,...

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    ...lower costs. UMTS/HSDPA is the next generation technology evolution for the global standard GSM platform which provides broadband wireless data speeds that will enable new and faster data products such as video conferencing and mobile television as well as simultaneous voice and data usage. Wireless...

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    ... 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Total severance and retention payments to Fido employees are estimated to be approximately $21.0 million, of which $12.3 million is accrued as part of the restructuring and integration costs...

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    ... 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS WIRELESS NETWORK REVENUE AND SUBSCRIBERS (PRO FORMA) (Subscriber statistics in thousands, except ARPU and churn) Years ended December 31, 2005 Actual 2004 Pro Forma % Chg Postpaid (voice...

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    ... and data subscriber churn decreased to 1.61% for the year from the pro forma rate of 1.93% in 2004 as a result of Wireless' proactive and targeted customer retention activities as well as from the increased network density and coverage quality resulting from the integration of the Fido GSM network...

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    33 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS WIRELESS OPERATING PROFIT (PRO FORMA) Wireless operating profit increased by $325.8 million in 2005, or 32.2%, over operating profit on a pro forma basis for 2004 due to network ...

  • Page 38
    ... sales and rentals through Rogers Video ("Video"), Canada's second largest chain of video stores. There were 314 Video stores at December 31, 2005. Many of these stores provide customers with the additional ability to acquire Cable and Wireless products and services, to pay their cable television...

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    ...ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS urban areas, Cable is now deploying a cable network architecture commonly referred to as fibre-to-the-curb ("FTTC"). This architecture provides improved reliability due to fewer active...

  • Page 40
    ...and game rental assets; • Sales and marketing expenses, which include sales and retention-related advertising and customer communications as well as other customer acquisition costs such as sales support and commissions as well as costs of operating, advertising and promoting the Video store chain...

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    ...Greater Toronto Area. Rogers Home Phone voice-over-cable service was made available to some of its cable areas in Southwest Ontario and Ottawa in the fourth quarter of 2005. • Cable added further to its "Rogers on Demand" offerings by signing agreements with Sony Entertainment in February 2005 and...

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    ...implemented price increases of between $2 to $5 from the published retail rates for certain of its core cable and Internet product offerings. CABLE TELEPHONY REVENUE AND SUBSCRIBERS The Rogers Home Phone voice-over-cable telephony service was launched on July 1, 2005 in the Greater Toronto Area and...

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    ... subscriber base; as well as higher copyright and production fund fees of $8.4 million. The year-over-year growth in Video store operating expenses relates primarily to increased sales and marketing expenses associated with the growth in the number of stores and the higher cost of sales expenses...

  • Page 44
    ...telephone companies, known as incumbent local exchange carriers ("ILECs"). Telecom offers local telephone, long distance and Internet access services to residential customers targeting Canada's largest metropolitan areas. Telecom also offers local and long distance telephone, enhanced voice and data...

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    ...-site connectivity, remote access to corporate information resources and Internet access. Value-added services such as managed network services ("MNS") and bundled applications such as video conferencing enable Telecom to tailor solutions specifically to customers' business needs. Telecom's data...

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    ... and home office customers for long distance, home phone and dial-up Internet services; and • Business Services, which consist of revenue from small, medium and large-sized business and wholesale customers for long distance, toll-free, teleconferencing, and enhanced voice solutions and data and...

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    43 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Telecom's operating expenses consist of: • Cost of sales, which includes the costs paid to third-party telephone companies for leased facilities; • Sales and marketing expenses,...

  • Page 48
    ...on selling product bundles to its consumer subscribers using home phone service as the foundation product, in an effort to reduce churn and increase its share of subscribers' monthly communications spending. In 2005, approximately 75% of Telecom's consumer revenue came from subscribers who purchased...

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    45 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS centralizing the management of the sales and services of Telecom and Cable's circuit-switched and voice-over-cable residential telephony offerings. Matters still to be finalized ...

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    46 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Recent Media Industry Trends INCREASED RADIO/TV OWNERSHIP FRAGMENTATION In recent years, Canadian radio and television broadcasters have had to operate in increasingly fragmented ...

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    47 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS revenue across all other Media properties. This increase also included $78.9 million contributed by the Toronto Blue Jays, whose prior year results were consolidated from July 31, ...

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    48 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net funds used during the year ended December 31, 2005 totalled approximately $2,333.6 million, the details of which include: • Additions to PP&E of $1,391.7 million, including $...

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    49 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS $1.5 million, net of the adjustment to the fair value of debt on acquisition of $16.0 million, was recorded. As a result, $25.7 million (approximately US$22.0 million) aggregate ...

  • Page 54
    ...ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS public debt ratings under review for a possible upgrade. On February 17, 2006, Moody's increased the ratings on all of the Rogers' public debt. The Corporate Family Rating was increased...

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    ...ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS in the 2004 Annual MD&A. As at March 31, 2005, 91.8% of our U.S. dollar-denominated debt was hedged on an economic basis and 80.1% was hedged on an accounting basis. There was no change...

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    52 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We use derivative financial instruments to manage our risks from fluctuations in foreign exchange and interest rates. These instruments include interest rate and cross-currency ...

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    53 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Dividends and Other Payments on RCI Equity Securities The dividend policy is reviewed periodically by the Board. The declaration and payment of dividends are at the sole discretion ...

  • Page 58
    ....2 million in 2006. v. On September 16, 2005, Wireless announced a joint venture with Bell Canada to build and manage a nationwide fixed wireless broadband network. The companies will jointly and equally fund the initial network deployment costs estimated at $200 million over a three-year period. vi...

  • Page 59
    ... of our business activities, except for Cable's Video stores and the non-broadcasting operations of Media, are regulated by one or more of: the Canadian Federal Department of Industry, on behalf of the Minister of Industry (Canada) (collectively, "Industry Canada"), the Canadian Radio-television and...

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    56 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INDUSTRY CANADA The technical aspects of the operation of radio and television stations, the frequency-related operations of the cable television networks and the awarding and ...

  • Page 61
    ... ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS in 2003, 1.1% in 2004, 1.03% in 2005 and 1.03% (interim rate) for 2006. Refer to the section below entitled "Risks and Uncertainties - Contribution Rate Increases Could Adversely Affect Wireless...

  • Page 62
    58 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cable Regulation and Regulatory Developments DISTRIBUTION OF DIGITAL TELEVISION SIGNALS In November 2003, the CRTC released its policy framework for the distribution of digital ...

  • Page 63
    ... second Price Cap decision. In Decision 2005-6, the CRTC set the terms and conditions, as well as the rates that competitors will pay the incumbent telephone companies for digital network services they rely on to provide services to their customers. In arriving at the decision, the Commission took...

  • Page 64
    ... more directly with dial-up services. Cable has increasingly offered its services to customers at a discounted price in exchange for taking multiple services. Cable believes that offering customer loyalty programs, multi-product bundling, a single bill and single points of customer service contact...

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    61 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cable faces emerging competition from utilities, such as hydroelectric companies, as these companies look to utilize their infrastructure to provide Internet and other services, ...

  • Page 66
    ... equity and debt and from the sale of assets. Substantially all of our business activities are operated by our subsidiaries, other than certain centralized functions such as payables, remittance processing, call centres and certain shared information technology functions. All of our subsidiaries are...

  • Page 67
    ..., competition, the cable television programming services that we must distribute, the rates we may charge to provide access to our network by third parties, resale of our networks and roaming on to our networks, our operation and ownership of communications systems and our ability to acquire an...

  • Page 68
    64 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS WE MAY ENGAGE IN UNSUCCESSFUL ACQUISITIONS AND DIVESTITURES Acquisitions of complementary businesses and technologies, development of strategic alliances and divestitures of ...

  • Page 69
    65 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Wireless Risks and Uncertainties WIRELESS FACES SUBSTANTIAL COMPETITION The Canadian wireless communications industry is highly-competitive. In the wireless voice and data market, ...

  • Page 70
    66 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS WIRELESS EXPECTS TO EXPERIENCE SIGNIFICANT CHANGE IN THE WIRELESS COMMUNICATIONS INDUSTRY The wireless communications industry is experiencing significant technological change. ...

  • Page 71
    ...of Wireless' business is highly-dependent on its information technology systems. An inability to enhance information technology systems to accommodate additional customer growth and support new products and services could have an adverse impact on Wireless' ability to acquire new subscribers, manage...

  • Page 72
    ... Review recommendations could increase Wireless' costs and lead to delays in acquiring new sites for cellular towers. Industry Canada is currently considering various proposals. CONTRIBUTION RATE INCREASES COULD ADVERSELY AFFECT WIRELESS' RESULTS OF OPERATIONS Wireless is required to make payments...

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    69 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONCERNS ABOUT RADIO FREQUENCY EMISSIONS MAY ADVERSELY AFFECT WIRELESS' BUSINESS Occasional media and other reports have highlighted alleged links between radio frequency emissions...

  • Page 74
    ... 2005, the CRTC issued Telecom Decision CRTC 2005-28; Regulatory framework for voice communication services using Internet Protocol. This decision regulates the local telephone services of Canada's incumbent phone companies which use Internet Protocol technology. The decision was in line with Rogers...

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    71 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPETITION IN MULTIPLE DWELLING UNIT BUILDINGS COULD LEAD TO MATERIAL REVENUE LOSSES The CRTC Broadcasting Distribution Regulations do not allow Cable or its competitors to obtain...

  • Page 76
    ... Board ("P.U.B.") has accepted jurisdiction and is currently conducting a proceeding to set a rate. The costs of obtaining access to support structures of NB Power could substantially increase and could adversely affect Cable's operating results. CABLE IS HIGHLY-DEPENDENT UPON INFORMATION TECHNOLOGY...

  • Page 77
    ...'s business, financial condition or results of operations. MEDIA FACES INCREASED COMPETITION New programming or content services, as well as alternative media technologies, such as digital radio services, satellite radio, DTH satellite, wireless and wired pay television, Internet radio and video...

  • Page 78
    74 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AN INCREASE IN PAPER PRICES, PRINTING COSTS OR POSTAGE COULD ADVERSELY AFFECT MEDIA'S RESULTS OF OPERATIONS A significant portion of Publishing's operating expenses consists of ...

  • Page 79
    75 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We report wireless subscribers in four categories: postpaid, prepaid, one-way messaging and wholesale. Postpaid includes voice-only and data-only subscribers, as well as subscribers...

  • Page 80
    76 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In the wireless and cable industries in Canada, the demand for services continues to grow and the variable costs, such as commissions paid for subscriber activations, as well as the...

  • Page 81
    ... of equipment, network services, and media subscriptions are recorded as revenue on a pro rata basis over the month as the service is provided; • Revenue from wireless airtime, roaming, and optional services, pay-per-view and video-on-demand services, video rentals, and other sales of products are...

  • Page 82
    ...ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS • Monthly subscription revenues received by television stations for subscriptions from cable and satellite providers are recorded in the month in which they are earned; • Blue Jays...

  • Page 83
    79 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and the liabilities assumed on acquisition. Among other things, the determination of these fair values involved the use of discounted cash flow analyses, estimated future margins, ...

  • Page 84
    80 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS IMPAIRMENT OF INDEFINITE-LIVED INTANGIBLE ASSETS AND LONG-LIVED ASSETS Indefinite-lived intangible assets, including goodwill and spectrum/broadcast licences, as well as long-lived...

  • Page 85
    81 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table illustrates the increase (decrease) on the accrual benefit obligation and pension expense for changes in these primary assumptions and estimates: Accrued Benefit...

  • Page 86
    82 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ACCOUNTING FOR DERIVATIVE INSTRUMENTS Our cross-currency interest rate exchange agreements ("swaps") are used to manage the cash flow risks associated with the fluctuations in ...

  • Page 87
    ..., RCI manages the call centre operations of Wireless, Cable and effective September 1, 2005, Telecom, with the goal of improving productivity, increasing service levels and reducing costs. More recently, RCI's arrangements are increasingly focused on sales and marketing activities. In addition...

  • Page 88
    ... 1, 2005, Telecom pursuant to which RCI provides customer service and sales functions through our call centres. Wireless, Cable and Telecom pay RCI commissions for new subscriptions, products and service options purchased by subscribers through the call centres. RCI is reimbursed for the cost of...

  • Page 89
    85 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DISTRIBUTION OF WIRELESS' PRODUCTS AND SERVICES Cable and Wireless have entered into an agreement for the sale of their products and services through the Rogers Video stores owned ...

  • Page 90
    ... payments to or received payments from companies controlled by our controlling shareholder as follows: (In millions of dollars) Years ended December 31, 2005 $ - 0.6 (0.1) 0.5 $ 2004 2.7 0.5 (0.1) 3.1 Dividends paid on Class A Preferred shares of Blue Jays Holdco Charges to Rogers for business...

  • Page 91
    ... costs associated with the integration of Call-Net. 2005 (In millions of dollars) Reclassified and Pro Forma 2006 Range Revenue (excluding intercompany eliminations) Core Cable and Internet Home Phone Service Rogers Business Solutions Video stores Operating profit Core Cable and Internet Home...

  • Page 92
    ...ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (2) Supplemental Media detail: (In millions of dollars) 2005 $ 937 160 139 (11) $ 2006 Range Revenue Core Media Sports Entertainment Operating Profit Core Media Sports Entertainment...

  • Page 93
    ... increased sales and marketing of the Rogers Home Phone service and relatively stable residential telephony pricing in our cable serving areas; • Cable and Internet prices are expected to rise at rates modestly above GDP; • Integration costs during 2006 related to the 2005 Call-Net acquisition...

  • Page 94
    ... 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Five-Year Financial Summary Years ended December 31, (In thousands of dollars, except per share amounts) 2005 2004 2003 2002 2001 Income and Cash Flow Revenue Wireless(1) Cable(1) Media...

  • Page 95
    ..., Cable, Telecom, and Media businesses. Much of the 2005 versus 2004 growth in Wireless operating results and statistics from fourth quarter of 2004 reflects Rogers Wireless' acquisition of Fido. Wireless revenue and operating profit growth reflects the increasing number of wireless voice and data...

  • Page 96
    92 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS $513.5 million, with 36.6% growth at Wireless, 1.7% growth at Cable, a 29.2% decline at Media and the inclusion of $22.9 million at Telecom. The fourth quarter results in 2005 also ...

  • Page 97
    93 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2004 Quarterly Summary 2004 (In thousands of dollars, except per share amounts) Q1 Q2 Q3 Q4 Income Statement Operating revenue Wireless Cable Media Telecom Corporate and ...

  • Page 98
    94 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating Profit Margin Calculations (In millions of dollars) 2005 $ 2,143.6 7,482.2 28.6% 1,337.1 3,612.7 37.0% $ 2004 1,734.2 5,608.3 30.9% 950.4 2,502.3 38.0% RCI Operating ...

  • Page 99
    95 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Wireless Non-GAAP Calculations (1) (In millions of dollars, except per subscriber figures; subscribers in thousands) 2005 $ 3,383.5 4,435.8 12 63.56 209.6 1,323.2 12 13.20 3,593.1 ...

  • Page 100
    96 ROGERS 2005 ANNUAL REPORT . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cable Non-GAAP Calculations (1) (In millions of dollars, subscribers in thousands, except ARPU figures and operating profit margin) 2005 $ $ 1,303.9 (4.9) 1,299.0 2,250.9 12 48.09 ...

  • Page 101
    .... The internal control processes include management's communication to employees of policies that govern ethical business conduct. The Board of Directors is responsible for overseeing management's responsibility for financial reporting and is ultimately responsible for reviewing and approving...

  • Page 102
    98 ROGERS 2005 ANNUAL REPORT . CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets (IN T H OU S A N D S OF D OLLA R S) December 31, 2005 and 2004 2005 2004 Assets Current assets: Cash and cash equivalents Accounts receivable, net of allowance for doubtful accounts of $98,464 (2004 - ...

  • Page 103
    ...year: As previously reported Change in accounting policy related to stock-based compensation (note 2(p)) Change in accounting policy related to Convertible Preferred Securities (note 2(s)(i)) As restated Loss for the year Dividends on Class A Voting and Class B Non-Voting shares Deficit, end of year...

  • Page 104
    ... and cash equivalents acquired on acquisition of Rogers Telecom Holdings Inc. (note 3(a)) Acquisition of Rogers Wireless Communications Inc. (note 3(b)) Acquisition of Microcell Telecommunications Inc., net of cash acquired (note 3(b)) Investment in Toronto Blue Jays Baseball Club (note 7(a)) Other...

  • Page 105
    ..., Rogers Wireless Communications Inc. ("Wireless"); radio and television broadcasting, televised home shopping, publishing, and sports entertainment through its wholly owned subsidiary, Rogers Media Inc. ("Media"); and circuit-switch telephony, data networking, and high-speed Internet access through...

  • Page 106
    ... ROGERS 2005 ANNUAL REPORT . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (c) DEPRECIATION: PP&E are depreciated annually over their estimated useful lives as follows: Asset Basis Rate Buildings Towers, head-ends and transmitters Distribution cable, subscriber drops and network equipment Wireless...

  • Page 107
    ... of video rental inventory is charged to cost of sales on a diminishing-balance basis over a six month period. (j) PENSION BENEFITS: The Company accrues its pension plan obligations as employees render the services necessary to earn the pension. The Company uses the current settlement discount rate...

  • Page 108
    ... services, cable, telephony, Internet services, rental of equipment, network services, and media subscriptions are recorded as revenue on a pro rata basis over the month as the service is provided; Revenue from wireless airtime, roaming, long distance and optional services, pay-per-view and video...

  • Page 109
    ...product discounts are incurred as Cable, Wireless, Media and Telecom products and services are provided, and are charged directly to the revenue for the products and services to which they relate. Unearned revenue includes subscriber deposits, installation fees and amounts received from subscribers...

  • Page 110
    ... of the purchase price, related integration and severance costs, as well as the determination of useful lives for amortizable intangible assets acquired, including subscriber bases, brand names, roaming agreements, dealer network and wholesale agreements. Significant changes in the assumptions...

  • Page 111
    107 ROGERS 2005 ANNUAL REPORT . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS These changes resulted in the following adjustments to the 2004 comparative amounts: 2004 Increase (decrease): Consolidated balance sheet: Liabilities: Long-term debt Shareholders' equity: Convertible Preferred Securities ...

  • Page 112
    ..."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 Internet access services to households, and local, long distance, toll free, enhanced voice, data...

  • Page 113
    ... a provider of wireless telecommunications services in Canada. With this acquisition, the Company now operates the only Global System for Mobile communications ("GSM") network in Canada. Including direct incremental acquisition costs of approximately $14.9 million, the purchase price totalled $1,318...

  • Page 114
    ... to the purchase price allocations from those disclosed at December 31, 2004: Wireless Fido Other Total Increase (decrease) in estimated fair value of net assets acquired: Subscriber bases $ Brand names Roaming agreements Dealer networks Wholesale agreements Spectrum licences Broadcast licence PP...

  • Page 115
    ...for Call-Net and Rogers Centre are expected to be completed in early 2006. 2005 Call-Net Other Total Wireless 2004 Fido Other Total Consideration: Cash Class B Non-Voting shares Amounts due in 2005 Options issued as consideration Less fair value of unvested options Acquisition costs Purchase price...

  • Page 116
    112 ROGERS 2005 ANNUAL REPORT . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (e) INTEGRATION EXPENSES: As part of the acquisition of Call-Net and Fido, the Company incurred certain integration costs that did not qualify to be included as part of the purchase price allocation as a liability assumed...

  • Page 117
    ... of subscriber bases, brand names, player contracts, roaming agreements, dealer networks and wholesale agreements in 2005 amounted to $382.3 million (2004 - $64.3 million). (i) As a result of the acquisitions of Fido and Wireless, the Company determined the value of the spectrum licences acquired to...

  • Page 118
    ... Jays Baseball Club ("Blue Jays") and are being amortized straight-line over five years. Roaming agreements are related to the value of roaming contracts associated with Fido and Wireless (note 3(b)). These agreements are being amortized straight-line over 12 years. The dealer networks were acquired...

  • Page 119
    ... years, the Company agreed to pay $50.0 million in public benefits over seven years relating to the CRTC grant of a new television licence in Toronto, $6.0 million relating to the purchase of 13 radio stations and the remainder relating to a CRTC decision permitting the purchase of Sportsnet, Rogers...

  • Page 120
    ...,816 2005 Class B Non-Voting shares issued on conversion of Series E Convertible Preferred shares CCI shares exchanged for CI shares (note 7(b)) CCI shares acquired in exchange for CI shares (note 7(b)) Class B Non-Voting shares issued in exchange for Wireless shares (note 3(b)) Options to acquire...

  • Page 121
    ... Corporate: (i) Convertible Debentures, due 2005 (ii) Senior Notes, due 2006 (iii) Convertible Preferred Securities, due 2009 (note 2(s)(i)) 5.75% 10.50% 5.50% (b) Wireless: (i) Bank credit facility (ii) Senior Secured Notes, due 2006 (iii) Floating Rate Senior Secured Notes, due 2010 (iv) Senior...

  • Page 122
    ...28, 2006, the Company had the option to extend the maturity of these securities for up to three years from the original August 11, 2009 maturity date. The Company had the option of repaying the Convertible Preferred Securities in cash or Class B Non-Voting shares. As part of the transaction to issue...

  • Page 123
    ..., due 2006: Wireless' $160.0 million Senior Secured Notes mature on June 1, 2006. These notes are redeemable, in whole or in part, at Wireless' option, at any time, subject to a certain prepayment premium. (iii) Floating Rate Senior Secured Notes, due 2010: On November 30, 2004, Wireless issued US...

  • Page 124
    120 ROGERS 2005 ANNUAL REPORT . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (ix) Senior Secured Debentures, due 2016: Wireless' US$154.9 million Senior Secured Debentures mature on June 1, 2016. These debentures are redeemable, in whole or in part, at Wireless' option, at any time, subject to a ...

  • Page 125
    121 ROGERS 2005 ANNUAL REPORT . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Bank Credit Facility requires, among other things, that Cable satisfy certain financial covenants, including the maintenance of certain financial ratios. The interest rate charged on the Bank Credit Facility ranges from...

  • Page 126
    ... Preferred Securities and issued 17,142,857 of Class B Non-Voting shares in return. The Company paid aggregate prepayment premiums and other expenses of US$20.8 million, wrote off deferred financing costs of $3.0 million and wrote off $16.0 million of the fair value increment related to Telecom...

  • Page 127
    123 ROGERS 2005 ANNUAL REPORT . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The provisions of the long-term debt agreements described above impose, in most instances, restrictions on the operations and activities of the companies governed by these agreements. Generally, the most significant of ...

  • Page 128
    ... the annual dividend per share increased from $0.10 per share to $0.15 per share. During 2005, the Company declared dividends in aggregate of $0.125 per share on each of its Class A Voting shares and Class B Non-Voting shares. The Class A Voting shares may receive a dividend at a semi-annual rate of...

  • Page 129
    ... of its business undertakings in Canada. The Company is authorized to refuse to register transfers of any shares of the Company to any person who is not a Canadian in order to ensure that the Company remains qualified to hold the licences referred to above. (b) CONVERTIBLE PREFERRED SECURITIES AND...

  • Page 130
    ... long-term interest of the Company and its shareholders. Under the plan, options to purchase Class B Non-Voting shares of the Company on a one-for-one basis may be granted to employees, directors and officers of the Company and its affiliates by the Board of Directors or by the Company's Management...

  • Page 131
    127 ROGERS 2005 ANNUAL REPORT . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2005, the Company recorded compensation expense of approximately $34.7 million (2004 - $15.1 million), including the Wireless options, related to stock options granted to employees. The ...

  • Page 132
    128 ROGERS 2005 ANNUAL REPORT . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In addition, employees of Wireless were able to participate in Wireless' employee share accumulation plan until December 31, 2004. The terms were the same as the RCI plan, except the designated administrator of the plan ...

  • Page 133
    ...reduction in the valuation allowance related to the remaining unbenefited Fido future income tax assets, aggregating $61.4 million at December 31, 2005, will be recorded as a reduction to purchased goodwill. As a result of the acquisition of Call-Net, the Company acquired tax assets of approximately...

  • Page 134
    ... ROGERS 2005 ANNUAL REPORT . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 15. Loss per share: The following table sets forth the calculation of basic and diluted loss per share: 2005 Numerator: Loss for the year, basic and diluted Denominator (in thousands): Weighted average number of shares...

  • Page 135
    ...ROGERS 2005 ANNUAL REPORT . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Pension fund assets consist primarily of fixed income and equity securities, valued at market value. The following information is provided on pension fund assets measured at September 30 for the year ended December 31: 2005 Plan...

  • Page 136
    ... ROGERS 2005 ANNUAL REPORT . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Expected return on assets represents management's best estimate of the long-term rate of return on plan assets applied to the fair value of the plan assets. The Company establishes its estimate of the expected rate of return...

  • Page 137
    ... wireless services, cable services and, through Media, radio and television broadcasting and the publication of magazines and periodicals. All of these operating segments are substantially in Canada. With the acquisition of Call-Net in 2005, the Company also provides wireline long distance, data...

  • Page 138
    ... customers is comprised of the following: 2005 Wireless: Post-paid (voice and data) Prepaid One-way messaging Equipment sales Cable: Cable Internet Rogers Home Phone Video store operations Intercompany eliminations Media: Advertising Circulation and subscription Retail Other Blue Jays Telecom...

  • Page 139
    135 ROGERS 2005 ANNUAL REPORT . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As a result of changes to the Company's internal management reporting in January 2006, the Company's reporting segments will change. Note 18. Related party transactions: The Company entered into the following related ...

  • Page 140
    ...with a Standard & Poor's rating (or the equivalent) ranging from A+ to AA. The Company does not require collateral or other security to support the credit risk associated with the interest exchange agreements and cross-currency interest rate exchange agreements due to the Company's assessment of the...

  • Page 141
    ...network deployment costs estimated at $200 million over a three-year period. The Company will also contribute its broadband wireless spectrum in the 2.3 GHz, 2.5 GHz and 3.5 GHz frequency ranges, subject to approvals from Industry Canada. RCI enters into agreements with suppliers to provide services...

  • Page 142
    ...brought against Wireless and other providers of wireless communications services in Canada. The proceeding involves allegations by Wireless customers of breach of contract, misrepresentation and false advertising with respect to the system access fee charged by Wireless to some of its customers. The...

  • Page 143
    ... States, differs from that applied in Canada. If United States GAAP were employed, loss for the year in each year would be adjusted as follows: 2005 Loss for the year based on Canadian GAAP Gain on sale of cable systems (b) Pre-operating costs (c) Equity instruments (d) Capitalized interest, net...

  • Page 144
    ... expense under United States GAAP was increased in subsequent years. (c) PRE-OPERATING COSTS: Under Canadian GAAP, the Company defers the incremental costs relating to the development and pre-operating phases of new businesses and amortizes these costs on a straight-line basis over periods up to...

  • Page 145
    ... comprehensive income, net of related future income taxes. (g) ACQUISITION OF CABLE ATLANTIC: United States GAAP requires that shares issued in connection with a purchase business combination be valued based on the market price at the announcement date of the acquisition, whereas Canadian GAAP had...

  • Page 146
    142 ROGERS 2005 ANNUAL REPORT . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Under United States GAAP , unvested options that were issued as consideration for the acquisition of the remaining shares of RWCI on December 31, 2004 were revalued at this date with the resulting intrinsic value of $38.3 ...

  • Page 147
    143 ROGERS 2005 ANNUAL REPORT . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (o) BLUE JAYS: Under United States GAAP, FASB Interpretation No. 46, Consolidation of Variable Interest Entities, requires the Company to consolidate the results of the Blue Jays effective January 1, 2004. Under Canadian ...

  • Page 148
    ... summarizes the additional disclosures required and different pension-related amounts recognized or disclosed in the Company's accounts under United States GAAP: 2005 Current service cost (employer portion) Interest cost Expected return on plan assets Amortization: Transitional asset Realized gains...

  • Page 149
    ... assets in Brampton, Ontario, Canada for $96.3 million in cash, net of adjustments, and including taxes and title insurance. The total purchase price for the acquisition was $99.3 million including a $3.0 million deposit made in 2005. On January 6, 2006 the Company paid a semi-annual dividend of $23...

  • Page 150
    ... Officer Rogers Communications Inc. Edward S. Rogers President Rogers Cable Inc. Loretta A. Rogers Company Director Corporate Governance Overview For information on our corporate governance structures, policies and practices, please visit the Corporate Governance section of the rogers.com website...

  • Page 151
    ... and Chief Operating Officer, Communications Group Robert W. Bruce President, Rogers Wireless Edward S. Rogers President, Rogers Cable Anthony P. Viner President and Chief Executive Officer, Rogers Media Ronan D. McGrath, CA President, Rogers Shared Operations and Chief Information Officer William...

  • Page 152
    ... the Corporation's executive compensation policies; • Reviews the design and competitiveness of the Corporation's compensation and benefit programs; and • Reviews the Corporation's management development and succession planning for its senior executives. • Reviews and reports to the Board or...

  • Page 153
    .... Corporate Information Corporate Office Rogers Communications Inc. 333 Bloor Street East, 10th Floor Toronto, ON M4W 1G9 (416) 935-7777 Contact Information Transfer Agent and Registrar: Computershare Trust Company of Canada 1-800-564-6253 [email protected] Institutional investors, security...

  • Page 154
    Rogers Communications Inc. 2005 Annual Report TSX: RCI NYSE: RG www.rogers.com