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109
RO GER S CO MMU NIC AT ION S IN C . 20 0 6 ANN UA L RE POR T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The cumulative effect of these adjustments on the consolidated shareholders’ equity of the Company is as follows:
2006 2005
Shareholders’ equity based on Canadian GAAP $ 4,200 $ 3,528
Gain on sale and issuance of subsidiary shares to non-controlling interest (a) 46 46
Gain on sale of cable systems (b) 113 117
Pre-operating costs capitalized (c) (7) (12)
Capitalized interest (e) 58 44
Unrealized holding gains on investments (f) 210 139
Acquisition of Cable Atlantic (g) 35 35
Financial instruments (h) (515) (563)
Pension liability (j) (73) (20)
Income taxes (k) (126) (254)
Installation revenues, net (l) 6 5
Acquisition of Wireless (m) 1 3
Non-controlling interest effect of adjustments (95) (95)
Other (16) (15)
Shareholders’ equity based on United States GAAP $ 3,837 $ 2,958
(D) EQUITY INSTRUMENTS:
Under Canadian GAAP, the fair value of the liability component
of the Convertible Preferred Securities of $388 million at the date
of issuance was recorded as long-term debt. This liability compo-
nent was being accreted up to the $600 million face value of the
Convertible Preferred Securities over the term to maturity. This
accretion was charged to interest expense. Under Canadian GAAP,
the value of the conversion feature of $188 million was recorded in
shareholders’ equity.
Under United States GAAP, the fair value of the conversion feature
was not permitted to be separately recorded. The fair value of the
liability component of $576 million at issuance was recorded outside
of shareholders’ equity and was being accreted up to the $600 mil-
lion face value of the Convertible Preferred Securities over the term
to maturity. This accretion was charged to interest expense.
During 2005, the Convertible Preferred Securities were converted to
Class B Non-Voting shares.
(E) CAPITALIZED INTEREST:
Under United States GAAP, interest costs are capitalized as part of the
historical cost of acquiring certain qualifying assets, which require a
period of time to prepare for their intended use. Capitalization is
not required under Canadian GAAP.
(F) UNREALIZED HOLDING GAINS AND LOSSES
ON INVESTMENTS:
United States GAAP requires that certain investments in equity
securities that have readily determinable fair values be stated in the
consolidated balance sheets at their fair values. The unrealized hold-
ing gains and losses from these investments, which are considered
to be “available-for-sale securities” under United States GAAP, are
included as a separate component of shareholders’ equity and com-
prehensive income, net of related future income taxes.
The areas of material difference between Canadian and United
States GAAP and their impact on the consolidated financial state-
ments of the Company are described below:
(A) GAIN ON SALE AND ISSUANCE OF SUBSIDIARY SHARES
TO NON- CONTROLLING INTEREST:
Under United States GAAP, the carrying value of the Company’s
investment in Wireless would be lower than the carrying value under
Canadian GAAP as a result of certain differences between Canadian
and United States GAAP, as described herein. This results in an
increase to the gain on sale and dilution under United States GAAP.
(B) GAIN ON SALE OF CABLE SYSTEMS:
Under Canadian GAAP, the cash proceeds on the non-monetary
exchange of cable assets in 2000 were recorded as a reduction in the
carrying value of PP&E. Under United States GAAP, a portion of the
cash proceeds received was recognized as a gain in the consolidated
statements of income on an after-tax basis. The gain amounted to
$40 million before income taxes.
Under Canadian GAAP, the after-tax gain arising on the sale of
certain of the Company’s cable television systems in prior years was
recorded as a reduction of the carrying value of goodwill acquired
in a contemporaneous acquisition of certain cable television
systems. Under United States GAAP, the Company included the gain
on sale of the cable television systems in income, net of related
future income taxes.
As a result of these transactions, the carrying amount of the above
assets are higher and additional depreciation expense is recorded
under United States GAAP.
(C ) PRE-OPERATING COSTS C APITALIZED:
Under Canadian GAAP, the Company defers the incremental costs
relating to the development and pre-operating phases of new busi-
nesses and amortizes these costs on a straight-line basis over periods
up to five years. Under United States GAAP, these costs are expensed
as incurred.