Rogers 2006 Annual Report Download

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INNOVATING
FOR LIFE
Rogers Communications Inc. 2006 Annual Report

Table of contents

  • Page 1
    INNOVATING FOR LIFE Rogers Communications Inc. 2006 Annual Report

  • Page 2
    ..., televised shopping, publishing and sports entertainment. Substantially all of Rogers Communications' operations and sales are within Canada. Read on or visit www.rogers.com for more information about the Rogers group of companies. (In millions of dollars, except per share data) 2006 2005...

  • Page 3
    ...media company engaged in three primary lines of business. Rogers Wireless is Canada's largest wireless voice and data communications services provider and the country's only carrier operating on the world standard GSM technology platform. Rogers Cable and Telecom is Canada's largest cable television...

  • Page 4
    ... Wireless and Media businesses into one sales and service channel dedicated to meeting the voice, data networking, Internet connectivity and wireless needs of businesses across Canada. Rogers Cable and Telecom is a wholly owned subsidiary of Rogers Communications. ROGERS MEDIA Rogers Media operates...

  • Page 5
    ...with each of Wireless, Cable and Telecom, and Media delivering double-digit growth. 2004 2005 2006 CONSOLIDATED REVENUE (billions of dollars) Delivered 31% pro forma growth in operating profit with a 428 basis point expansion in operating profit margins. 31 % Operating Profit Growth WHAT WE...

  • Page 6
    ... of wireless, cable, high-speed Internet and telephony products can add great value to our customers' lives and generate solid returns for our shareholders. Our 14% pro forma increase in revenues to $8.8 billion and 31% pro forma increase in operating profit to $2.9 billion reflected solid year-over...

  • Page 7
    ... communications services of Rogers Wireless, Rogers Cable and Telecom, and Rogers Media into one sales and service channel dedicated to meeting the voice, data networking, Internet connectivity and wireless needs of the Canadian business market. Formed on January 1, 2006, this group has worked...

  • Page 8
    ...existing phone numbers, wall jacks and telephones, customers get all the calling features they need, and bundle the service with their other Rogers products for great value. CONTENT Families turn to Rogers' radio stations, TV channels, magazines, sports entertainment and televised home shopping for...

  • Page 9
    ROG E R S COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T 5

  • Page 10
    6 ROG E R S COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T

  • Page 11
    ... communications solutions. VOICE TELEPHONY Rogers provides business with reliable local, long distance, toll-free and conferencing services, plus innovative services for better managing call flows. DATA NET WORKING Rogers connects employees, customers and business partners at locations across...

  • Page 12
    ..., nationally or globally. INTERNET CONNEC TIVIT Y Rogers offers more options to connect to the Internet. Whether by cable modem, DSL, fixed wireless or cellular - Rogers gets customers on-line fast. ELEC TRONIC MAIL The Rogers Yahoo! e-mail service is packed with tools for managing and customizing...

  • Page 13
    ROG E R S COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T 9

  • Page 14
    10 ROG E R S COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T

  • Page 15
    ... take their high-speed Internet connection with them on the go. MOBILE T V Canadians will soon be able to watch full-length broadcast TV on their mobile phones, with the same convenience and program selection they enjoy at home. VIDEO C ALLING Real-time personal video communications will soon...

  • Page 16
    ... YOUR COMMUNITY Rogers touches the lives of Canadians through more than just products and services that enrich, inform and entertain, but also by giving back to the community in ways that are as diverse as the communities we serve. At the centre of it all are our people, who don't stop helping those...

  • Page 17
    ROG E R S COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T 13

  • Page 18
    ... and Chief Information Officer 18 William W. Linton, CA President and Chief Operating Officer Communications Group 19 Robert W. Bruce Senior Vice President, Strategy and Development Senior Vice President, Finance and Chief Financial Officer President, Rogers Wireless Inc. See www.rogers.com for...

  • Page 19
    ... and senior management compensation and for succession planning with respect to senior executives. The Executive Committee assists the Board in discharging its responsibilities in the intervals between meetings of the Board, including to act in such areas as specifically designated and authorized at...

  • Page 20
    ... Financial and Operating Guidance Segment Review 25 Wireless 32 Cable and Telecom 41 Media Consolidated Liquidity and Financing 43 Liquidity and Capital Resources 45 Interest Rate and Foreign Exchange Management 46 Outstanding Share Data 47 Dividends and Other Payments on RCI Equity Securities 47...

  • Page 21
    ... NG Our Business Our Strategy Acquisitions Consolidated Financial and Operating Results 2007 Financial and Operating Guidance Wireless Cable and Telecom Media Liquidity and Capital Resources Interest Rate and Foreign Exchange Management Outstanding Share Data Dividends and Other Payments on RCI...

  • Page 22
    ..., Canada's largest wireless provider and the operator of the country's only Global System for Mobile Communications (" GSM ") based network. Through Cable and Telecom we are one of Canada's largest providers of cable television, cable telephony and high-speed Internet access, and are also a national...

  • Page 23
    ... resources across the Rogers group of companies to create value for our customers and shareholders. We help to identify and facilitate opportunities for Wireless, Cable and Telecom, and Media to create bundled product and service offerings, as well as for the cross-marketing and cross-promotion...

  • Page 24
    ..., net Net income (loss) Net income (loss) per share (4): Basic Diluted Additions to PP&E (2) Wireless Cable and Telecom Cable and Internet Rogers Home Phone Rogers Business Solutions Rogers Retail Media Corporate (5) Total Operating profit margin (2) (3) $ 4,580 1,944 355 596 310 (4) 3,201 1,210...

  • Page 25
    ...) Cable and Telecom Media Operating profit (1) Wireless (2) Cable and Telecom (3) Media PP&E expenditures (4) Wireless Cable and Telecom Net subscriber additions (000s) Retail wireless postpaid and prepaid Basic cable Digital households High-speed Internet Residential cable telephony Rogers Telecom...

  • Page 26
    ...in Wireless, Cable and Telecom, and Media, partially offset by the increase in depreciation and amortization expense as discussed previously. Interest Expense on Long -Term Debt The foreign exchange gain of $2 million in 2006 arose primarily from the strengthening of the Canadian dollar during 2006...

  • Page 27
    ... above, as well as the decrease in interest on long-term debt. EMPLOYEES Employee remuneration represents a material portion of our expenses. At December 31, 2006, we had approximately 22,500 full-time equivalent employees ("FTEs") across all of our operating groups, including our shared services...

  • Page 28
    ... Revenue Cable, Internet and Home Phone Rogers Business Solutions Rogers Retail Operating profit (1) Cable, Internet and Home Phone Rogers Business Solutions Rogers Retail PP&E expenditures (1) Cable, Internet and Home Phone Rogers Business Solutions (6) Rogers Retail (B) Supplementary Media detail...

  • Page 29
    ... or prepaid payment options. In addition, the network provides customers with advanced high-speed wireless data services, including mobile access to the Internet, wireless e-mail, digital picture and video transmission, mobile video, music downloading, and two-way Short Messaging Service ("SMS...

  • Page 30
    ... year. This deeper penetration drives a need for increased focus on customer satisfaction, the promotion of new data and voice services and features and customer retention. As discussed below, the Canadian Radio-television and Telecommunications Commission ("CRTC") is implementing Wireless Number...

  • Page 31
    ... broadband Internet access, multimedia services and seamless access to corporate information systems, including desktop, client and server-based applications which can be accessed on a local, national or international basis. Development of Additional Technologies Wireless' acquisition of Fido was...

  • Page 32
    ... supplemental information section. Years ended December 31, (In millions of dollars, except margin) 2006 2005 % Chg Operating revenue Postpaid Prepaid One-way messaging Network revenue Equipment sales (1) Total operating revenue Operating expenses Cost of equipment sales (1) Sales and marketing...

  • Page 33
    ... higher data revenues. WIRELESS DATA REVENUE (In millions of dollars) $142 $297 $459 BlackBerry, wireless messaging, mobile Internet access, downloadable ring tones, music, games, and other wireless data services and applications. Prepaid ARPU was $13.49 for the year ended 2006, an increase of...

  • Page 34
    ...programs to acquire high value customers on longer term contracts, including several successful handset campaigns, resulting in increases in the sales and marketing costs per gross addition. Operating, general and administrative expenses increased by $136 million for the year ended 2006, compared to...

  • Page 35
    ...-related additions to PP&E relate primarily to technical upgrade projects, including new cell sites, operational support systems and the addition of new services. Other additions to PP&E reflect information technology initiatives and other facilities and equipment. Additions to PP&E in the year...

  • Page 36
    ..., Internet, home phone voiceover-cable telephony and Wireless products and services, subject to, in some cases, minimum purchase and term commitments. Cable and Telecom's solutions in the business market offer local and long distance services, enhanced voice and data services, and IP application...

  • Page 37
    ... hubs, points of presence ("POPs") and ILEC co-locations, and Cable and Telecom's cable networks in Ontario and New Brunswick, with few exceptions, are interconnected to regional head-ends, where analog and digital channel line-ups are assembled for distribution to customers and Internet traffic is...

  • Page 38
    ...to develop brand awareness and to promote the "Rogers" brand as a symbol of quality, innovation and value and of a diversified Canadian media and communications company; • Expanding the availability of high-quality digital primary line voice-over-cable telephony service into most of the markets in...

  • Page 39
    ... associated with combining Cable and Call-Net; and • Cost of Rogers Retail sales, which is composed of store merchandise and depreciation related to the acquisition of DVDs and game rental assets. In the cable industry in Canada, the demand for services, particularly Internet, digital television...

  • Page 40
    ... fibre; voice and data switching infrastructure, and co-location, point-of-presence and hub sites in Ontario, Quebec, Nova Scotia, New Brunswick and Newfoundland. • Cable and Telecom expanded its availability of high-speed Internet services across Canada. Portable Internet from Rogers Yahoo!, a 36...

  • Page 41
    ...Cable and Telecom's high-definition and personal video recorder digital equipment. 675 913 1,134 The increase in Internet revenues from the corresponding period in 2005 primarily reflects the 13.6% year-overyear increase in the number of Internet subscribers combined with certain price increases...

  • Page 42
    ... and Internet sales and marketing expenses were at a level consistent with the prior year. The increases in operating, general and administrative 2004 2005 Pro forma Pro forma 2006 ROGERS HOME PHONE Summarized Financial Results 2005 Years ended December 31, (In millions of dollars, except margin...

  • Page 43
    ...2006. The year-over-year decreases in the Rogers Home Phone operating profit and operating profit margins primarily reflect the additional costs associated with the scaling and rapid growth of Cable and Telecom's cable telephony service including investment in the awareness of the product, increased...

  • Page 44
    ...over-year decline in Rogers Retail operating profit relates primarily to the decline in revenues and charges of approximately $6 million in 2006 associated with the closing of 21 stores in the first quarter of 2006. ADDITIONS TO C ABLE AND TELECOM PP&E The nature of the cable television business is...

  • Page 45
    ... in Canada. Retail 1% Business Solutions 12% Cable and Internet 62% Home Phone 25% MEDIA MEDIA'S BUSINESS Media operates our radio and television broadcasting operations, our consumer and trade publishing operations, our televised home shopping service and the Toronto Blue Jays and Rogers Centre...

  • Page 46
    ... 2005, the results of operations of the Toronto Blue Jays and Rogers Centre are reported as part of the Media segment. Years ended December 31, (In millions of dollars) 2006 2005 % Chg Operating revenue Operating expenses Operating profit (1) Operating profit margin Additions to property, plant...

  • Page 47
    ... Canada, as well as Radio's launch of three maritime stations in the fourth quarter of 2005 led to increased costs. Higher sales volumes resulted in higher cost of sales at The Shopping Channel. These cost increases were partially offset by lower general and administrative costs. Media Operating...

  • Page 48
    ... outlook was changed to under review for possible upgrade (from positive outlook). On February 17, 2006, Moody's increased the ratings on all of the Rogers public debt. The corporate family rating for RCI was increased to Ba2 (from Ba3) and the senior secured debt ratings of Cable and Telecom and of...

  • Page 49
    ... special payments, are expected to decrease from $28 million in 2006 to $25 million in 2007, subject to annual adjustments thereafter, due to various market factors and the assumption that staffing levels at the Company will remain relatively stable year-over-year. We are contributing to the plans...

  • Page 50
    ... December 31, 2006, all of our counterparties to these agreements Impact of Foreign Exchange Rate Changes on EPS (In millions of dollars, except share data) Change in Cdn$ versus US$ Cdn$ Change in Carrying Value of Long-Term Debt (1) Cdn$ Change in Annual Interest Expense Change in Earnings Per...

  • Page 51
    ... each dividend at the time such dividend was declared. These dividends were scheduled to be paid on or about the first trading day following January 1 and July 1 each year. The first such semi-annual dividend pursuant to the policy was paid on January 6, 2006 to shareholders of record on December 28...

  • Page 52
    ... Act for the regulation of telecommunications carriers which includes the regulation of Wireless' cellular and messaging operations and Cable and Telecom's Internet and telephone services. The technical aspects of the operation of radio and television stations, the frequency-related operations...

  • Page 53
    ... study Canadian telecommunications policy to make recommendations to improve the regulatory environment, expand broadband services to remote locations and further the deployment of information and communications technology in Canada. The report generally recommended greater reliance on market forces...

  • Page 54
    ... access to low-speed services were set at cost plus 15%, while rates for high-speed services, (which are generally fibre-based), were reduced from their prior market level to cost plus a margin above 15%. The CRTC found that competitors still rely heavily on the facilities of the telephone companies...

  • Page 55
    ... in which access and service may be provided by distinct providers. Proposed Policy Direction to the CRTC on Telecommunications calculation of share loss is made separately for the residential and business segments, and also excludes market share lost to wireless. The market share in urban areas is...

  • Page 56
    ... wireless broadband Internet access to customers. Rogers Retail competes with other DVD and video game sales and rental store chains, such as Blockbuster Inc. and Wal-Mart Stores Inc., as well as individually owned and operated outlets and, more recently, online-based subscription rental services...

  • Page 57
    ... telephone companies in Canada, including Bell, Telus, and MTS Allstream. Cable and Telecom also competes with competitive suppliers of local, long distance, private line and data services using traditional circuit-switched and newer VoIP technologies. One of the biggest forces for potential change...

  • Page 58
    ...The day-to-day operations of our businesses are highly dependent on their 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 our ability to acquire new...

  • Page 59
    ... the amount of public consultation before wireless carriers are permitted to build cellular network towers. Some of the Review recommendations could increase Wireless' costs and lead to delays in acquiring new sites for cellular towers. Industry Canada is currently considering various proposals and...

  • Page 60
    ... of a relatively new technology, the standards for which may not become widely adopted. In addition, there is no certainty that the services that will be enabled by the fixed wireless network will function as planned or that such services would attract wide customer adoption at price points that...

  • Page 61
    ... or such Internet-related issues as copyright infringement, unsolicited commercial e-mail, cyber-crime and lawful access. Changes to the CRTC's Regime for Local Telephone Competition Could Affect Cable and Telecom's Deliver y of Local Telephone Ser vice. Occasional media and other reports have...

  • Page 62
    ... and public policy trends have resulted in a more competitive environment for cable television service providers, home phone service providers, ISPs and video sales and rental services in Canada. Cable and Telecom faces competition from entities utilizing other communications technologies and may...

  • Page 63
    ... Adversely Affect Media's Results of Operations. 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 programming, and on-line publications have...

  • Page 64
    ..., including retention costs, inter-carrier payments to roaming partners and long-distance carriers, programming related costs, the CRTC contribution levy, Internet and e-mail services and printing and production costs. In the wireless and cable industries in Canada, the demand for services continues...

  • Page 65
    ...; • Revenue from airtime, roaming, long-distance and optional services, pay-per-use services, video rentals, and other sales of products are recorded as revenue as the services or products are delivered; • Revenue from the sale of wireless and cable equipment is recorded when the equipment is...

  • Page 66
    .... All sales and marketing expenditures related to subscriber acquisitions, retention and contract renewals, such as commissions, and the cost associated with the sale of customer premises equipment, are expensed as incurred. During 2005, we acquired Call-Net Enterprises Inc. and the Rogers Centre...

  • Page 67
    ... These estimates of useful lives involve considerable judgment. During 2004 and 2005, the acquisitions of Fido, Call-Net, the Rogers Centre and the minority interests in Wireless and Sportsnet together with the consolidation of the Blue Jays, resulted in significant increases to our intangible asset...

  • Page 68
    ... over the working lives of the employees receiving benefits under the plan. The primary assumptions and estimates include the discount rate, the expected return on plan assets and the rate of compensation increase. Changes to these primary assumptions and estimates would impact pension expense and...

  • Page 69
    ... lacks commercial substance; the transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange; neither the fair value of...

  • Page 70
    ...RCI provides customer service and sales functions through our call centres. Wireless and Cable and Telecom pay RCI RCI has entered into a number of agreements with its subsidiaries, including Wireless, Cable and Telecom, and Media. These agreements govern the management, commercial and cost-sharing...

  • Page 71
    ... price of these services is based on usage or ownership, as applicable. Long Distance Wireless and Cable and Telecom have entered into an agreement for the sale of their products and services through Rogers Retail, a segment of Cable and Telecom. Wireless pays Cable and Telecom commissions for new...

  • Page 72
    ...part of FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL RESULTS their review to ensure that the sale price was within a range that would be fair from a financial point of view. Further to this arrangement, on April 7, 2006, a company controlled by our controlling shareholder purchased the shares in one...

  • Page 73
    ... including increased sales and marketing expenses. The decrease in the Rogers Business Solutions operating profit margin reflects the pricing pressures on long distance and higher carrier costs. Rogers Retail revenue and operating profit have decreased due to a decreased number of stores. Media...

  • Page 74
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2006 Quar terly Consolidated Financial Summar y 2006 (In millions of dollars, except per share amounts) Q1 Q2 Q3 Q4 Operating revenue Wireless (1) Cable and Telecom Media Corporate and eliminations Operating ...

  • Page 75
    ...period covered by this report (the "Evaluation Date"), we conducted an evaluation (under the supervision and with the participation of our management, including the chief executive officer and chief financial officer), pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as...

  • Page 76
    ... Wireless operating profit margin CABLE AND TELECOM: Cable and Internet: Operating profit (1) Divided by revenue Cable and Internet operating profit margin Rogers Home Phone: Operating profit (1) Divided by revenue Rogers Home Phone operating profit margin Rogers Business Solutions: Operating profit...

  • Page 77
    ... by: 12 months $ $ $ $ Cost of acquisition per gross addition Total sales and marketing expenses Equipment margin loss (acquisition related) Divided by: total gross wireless additions (postpaid, prepaid, and one-way messaging) $ Operating expense per average subscriber (monthly) Operating, general...

  • Page 78
    ...by: 12 months $ Cable and Internet: Operating profit Divided by revenue Cable and Internet operating profit margin Rogers Home Phone: Operating profit Divided by revenue Rogers Home Phone operating profit margin Rogers Business Solutions: Operating profit Divided by revenue Rogers Business Solutions...

  • Page 79
    ...AUDITORS' REPORT TO THE SHAREHOLDERS We have audited the consolidated balance sheets of Rogers Communications Inc. as at December 31, 2006 and 2005 and the consolidated statements of income, deficit and cash flows for years then ended. These financial statements are the responsibility of the Company...

  • Page 80
    ...OF C ANADIAN DOLL ARS, EXCEP T PER SHARE AMOUNTS) Years ended December 31, 2006 and 2005 2006 2005 (Restated - note 2(b)) Operating revenue (note 3(b)) Cost of sales Sales and marketing expenses Operating, general and administrative expenses Integration and store closure expenses (notes 4(d) and...

  • Page 81
    ... (notes 15 and 27) Derivative instruments (note 16) Other long-term liabilities (note 17) Shareholders' equity (note 20) $ Commitments (note 23) Guarantees (note 24) Contingent liabilities (note 25) Canadian and United States accounting policy differences (note 26) Subsequent events (note 27) See...

  • Page 82
    ...Years ended December 31, 2006 and 2005 2006 2005 Deficit, beginning of year: As previously reported Change in accounting policy related to stock-based compensation (note 2(b)) As restated Net income (loss) for the year Dividends on Class A Voting and Class B Non-Voting shares Deficit, end of year...

  • Page 83
    ... Repayment of long-term debt Financing costs incurred Issue of capital stock Dividends paid on Class A Voting and Class B Non-Voting shares Proceeds on termination of cross-currency interest rate exchange agreements Payment on termination of cross-currency interest rate exchange agreements 1,098...

  • Page 84
    ... of its operations and sales in Canada, engaged in wireless voice, messaging and data services through its wholly owned subsidiary, Rogers Wireless Communications Inc. ("Wireless"); cable television, high-speed Internet access, cable and circuit-switch telephony, data networking and video retailing...

  • Page 85
    ... the baseball regular season. Revenue from radio and television agreements is recorded at the time the related games are aired. The Blue Jays also receive revenue from the Major League Baseball Revenue Sharing Agreement which distributes funds to and from member clubs, based on each club's revenues...

  • Page 86
    ... development and pre-operating phases of new products and businesses, related incremental costs are deferred and amortized on a straight-line basis over periods of up to five years. (M) PENSION BENEFITS: The Company uses derivative financial instruments to manage risks from fluctuations in exchange...

  • Page 87
    ...: Brand names - Rogers Brand names - Fido Subscriber bases Baseball player contracts Roaming agreements Dealer networks Wholesale agreements 20 years 5 years 21/4 to 4 2/3 years 5 years 12 years 4 years 38 months Acquired broadcast program rights are carried at the lower of cost less accumulated...

  • Page 88
    ... lacks commercial substance; the transaction is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange; neither the fair value of...

  • Page 89
    ... 2(b)) Media Operating revenue $ Cost of sales Sales and marketing expenses Operating, general and administrative expenses Integration and store closure expenses Management fees (recovery) Depreciation and amortization Operating income (loss) Interest: Long-term debt Intercompany Foreign exchange...

  • Page 90
    ... Total Cable and Telecom Cable and Internet Rogers Home Phone Rogers Business Solutions Corporate Rogers items and Retail eliminations 2005 Total Cable and Telecom Operating revenue Cost of sales Sales and marketing expenses Operating, general and administrative expenses Integration and store...

  • Page 91
    ... Wireless: Post paid (voice and data) Prepaid One-way messaging Network revenue Equipment sales Cable and Telecom: Cable and Internet Rogers Home Phone Rogers Business Solutions Rogers Retail Intercompany eliminations Media: Advertising Circulation and subscription Retail Blue Jays Other Corporate...

  • Page 92
    ...31, 2005, the Company completed the acquisition of Rogers Centre, a multi-purpose stadium located in Toronto, Canada for a purchase price of approximately $27 million, including acquisition costs, plus $5 million of assumed liabilities. The purchase price has been allocated to working capital and PP...

  • Page 93
    ...During 2006, the Company closed 21 of its Rogers Retail stores in Ontario and Quebec. The costs to exit these stores include lease termination and involuntary severance costs totalling $3 million, as well as a write-down of the related PP&E totalling $3 million for the year ended December 31, 2006...

  • Page 94
    ...assets relating to capital losses and similar items. In 2000, the Company received a $241 million payment (the "Termination Payment") from Le Group Vidéotron Ltée ("Vidéotron") in respect of the termination of a merger agreement between the Company and Vidéotron. The Canada Revenue Agency ("CRA...

  • Page 95
    ...) per share: 2006 2005 (Restated - note 2(b)) Numerator: Net income (loss) for the year, basic and diluted Denominator (in millions): Weighted average number of shares outstanding - basic Effect of dilutive securities: Employee stock options Weighted average number of shares outstanding - diluted...

  • Page 96
    ... 2006 Cost Accumulated depreciation Net book value Cost Accumulated depreciation 2005 Net book value Land and buildings Towers, headends and transmitters Distribution cable and subscriber drops Network equipment Wireless network radio base station equipment Computer equipment and software Customer...

  • Page 97
    ... price adjustments in Media. During 2005, the Company acquired spectrum in various licence areas for an aggregate cost of $5 million. During 2005, subscriber bases of $123 million were acquired as a result of the acquisition of Call-Net (note 4(c)). 12 IN V E S T ME N T S 2006 Quoted market value...

  • Page 98
    ... in operating funds to provide certain benefits to the Canadian broadcasting system. In prior years, the Company agreed to pay $50 million in public benefits over seven years relating to the CRTC grant of a new television licence in Toronto, $6 million relating to the purchase of 13 radio stations...

  • Page 99
    ... TO CONSOLIDATED FINANCIAL STATEMENTS 15 LON G-T E RM D E BT Due date Principal amount Interest rate 2006 2005 Corporate: Senior Notes Senior Secured Notes Fair value increment arising from purchase accounting 2006 2008 $ 75 U.S. 22 10.50% 10.625% $ - - - - $ 75 26 1 102 71 160 641...

  • Page 100
    ... prior liens. (ii) Senior Notes and Debentures: The Company pays interest on the Floating Rate Notes at LIBOR plus 3.125%, reset quarterly. Wireless' U.S. $400 million Senior Subordinated Notes are redeemable in whole or in part, at Wireless' option, at any time up to December 15, 2008, subject to...

  • Page 101
    ...Class B Non-Voting shares in return. The Company paid aggregate prepayment premiums and other expenses of U.S. $21 million, wrote off deferred financing costs of $3 million and wrote off $16 million of the fair value increment related to the Senior Secured Notes that arose on the acquisition of Call...

  • Page 102
    ...as follows: U.S. $ notional Exchange rate Cdn. $ notional Carrying amount Estimated fair value 2006 Cross-currency interest rate exchange agreements accounted for as hedges Cross-currency interest rate exchange agreements not accounted for as hedges Transitional gain Less current portion $ 4,190...

  • Page 103
    ... trading values. The fair values of the Company's interest exchange agreements, cross-currency interest rate exchange agreements and other derivative instruments are based on values quoted by the counterparties to the agreements. The estimated fair values of the Company's long-term debt and related...

  • Page 104
    ... value. The following information is provided on pension fund assets measured at September 30 for the year ended December 31: $ 545 612 (67) 4 (28) 3 122 $ 484 575 (91) 6 (38) 4 151 $ 34 $ 32 2006 2005 Plan assets, beginning of year Actual return on plan assets Contributions by employees...

  • Page 105
    ...million). 2006 2005 Weighted average discount rate for accrued benefit obligations Weighted average discount rate for pension expense Weighted average rate of compensation increase for pension expense and accrued benefit obligation Weighted average expected long-term rate of return on plan assets...

  • Page 106
    ...levels in the Company will remain the same on a year-over-year basis. (D) EXPEC TED C ASH FLOWS: Expected benefit payments for funded and unfunded plans for fiscal year ending: 2007 2008 2009 2010 2011 Next five years $ 26 25 26 26 26 129 133 $ Blue Jays and Fido each have defined contribution...

  • Page 107
    ...fair market value of the Class B Non-Voting shares determined as the five-day average before the grant date as quoted on The Toronto Stock Exchange. Effective July 1, 2006, non-executive directors will no longer receive stock options. On July 1, 2005, all stock options of Call-Net were exchanged for...

  • Page 108
    ...During the year ended December 31, 2006, the Company recorded stock-based compensation expense of $28 million (2005 - $35 million) related to stock option grants to employees. The expense for 2006 includes the impact of the amendment to the option plans. The weighted average estimated fair value at...

  • Page 109
    .... The designated administrator of the plan then purchases, on a monthly basis, Class B Non-Voting shares of the Company on the open market on behalf of the employee. At the end of each quarter, the Company makes a contribution of 25% of the employee's contribution in the quarter. The administrator...

  • Page 110
    ... OF NON - C ASH TR ANSAC TIONS: 2006 2005 Options to acquire Class B Non-Voting shares issued in exchange for Call-Net options (note 4(b)) Class B Non-Voting shares issued in consideration for acquisition of shares of Call-Net (note 4(b)) Class B Non-Voting shares issued in consideration upon the...

  • Page 111
    ... 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. During 2006, the Company contributed its broadband wireless spectrum licence...

  • Page 112
    ... the Class Actions Act (Saskatchewan) was 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...

  • Page 113
    ... under Canadian GAAP. (F ) UNREALIZED HOLDING GAINS AND LOSSES ON INVESTMENTS: 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 five years. Under...

  • Page 114
    ... of compensation expense was recorded under United States GAAP, relative to that recorded under Canadian GAAP, related to retirement-eligible employees. (J) PENSION LIABILIT Y: Under Canadian GAAP, the Company accounts for certain of its crosscurrency interest rate exchange agreements as hedges of...

  • Page 115
    ... an increase in goodwill in the consolidated accounts of the Company of $6 million, with a corresponding adjustment to contributed surplus. Under Canadian GAAP, as part of the purchase price equation, the derivative instruments of Wireless were recorded at their fair value at the date of acquisition...

  • Page 116
    ...expands disclosures about fair value measurements. This new standard is effective for the Company beginning January 1, 2008. The Company is currently assessing the impact of this standard. In December 2006, the Company adopted Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year...

  • Page 117
    ...$0.04 per share on each of its outstanding Class B Non-Voting shares and Class A Voting shares. This quarterly dividend will be paid on April 2, 2007 to shareholders of record on March 15, 2007. (C ) (D) On March 6, 2007, Moody's Investors Service upgraded Cable's senior secured debt rating to "Baa3...

  • Page 118
    ...KPMG LLP Toronto, ON FORM 40 - F Rogers files its annual report annually with the Securities and Exchange Commission of the U.S. on Form 40-F. A copy is available at www.sec.gov and at the Investor Relations section of the rogers.com website. ON - LINE INFORMATION Institutional investors, security...

  • Page 119
    ... largest wireless telecom company; the country's largest cable company; 51 radio stations; regional sports, home shopping and multicultural television stations; Canada's largest collection of magazines and trade journals; and the Toronto Blue Jays major league baseball team. Rogers Communications is...

  • Page 120
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