Rogers 2006 Annual Report Download - page 70

66 ROG ERS COM MUN IC AT I ONS INC . 2006 ANNUAL RE P ORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
6 ADDI TION AL FINANCIA L IN FORMATION
INTERCOMPANY AND REL ATED PART Y TR ANSACTIONS
RC I Arrangements with Its Subsidiaries
RCI has entered into a number of agreements with its subsidiaries,
including Wireless, Cable and Telecom, and Media. These agree-
ments govern the management, commercial and cost-sharing
arrangements that RCI has with its subsidiaries.
RCI monitors intercompany and related party agreements to ensure
they remain beneficial to the Company. RCI continually evaluates
the expansion of existing arrangements and the entry into new
agreements.
RCI’s agreements with its subsidiaries have historically focused on
areas of operation in which joint or combined services provide effi-
ciencies of scale or other synergies. For example, RCI manages the
call centre operations of Wireless and Cable and Telecom.
More recently, RCI’s arrangements are increasingly focused on sales
and marketing activities. In addition, RCI continues to look for other
operations and activities that can be shared or jointly operated with
other companies within the Rogers group. Any new arrangements
will be entered into only if the companies believe such arrangements
are in each company’s best interest. The definitive terms and condi-
tions of the agreements relating to these arrangements are subject
to the approval of the Audit Committee of the Board of Directors of
each company.
Management Ser vices Agreement
Effective December 31, 2006, we terminated the management fee
arrangements which had previously been in place between RCI and
each of Wireless, Cable and Telecom, and Media. Management fees
will no longer be paid by Wireless, Cable and Telecom, or Media to
RCI. Such fees paid by the three segments to RCI totalled approxi-
mately $93 million in 2006. Previously each of Wireless, Cable and
Telecom, and Media entered into a management services agreement
with RCI under which RCI agreed to provide supplemental executive,
administrative, financial, strategic planning, information technology
and various other services to each subsidiary. Those services relate
to, among other things, assistance with tax advice, Canadian regula-
tory matters, financial advice (including the preparation of business
plans and financial projections and the evaluation of PP&E expendi-
ture proposals), treasury services, service on the subsidiary’s Boards
of Directors and on committees of the Boards of Directors, advice
and assistance in relationships with employee groups, internal
audits, investor relations, purchasing and legal services. In return for
these services, each of the subsidiaries agreed to pay RCI certain fees,
which, in the case of Cable and Telecom and Media, was an amount
equal to 2% of their respective consolidated revenue for each fiscal
quarter, subject to certain exceptions, and, in the case of Wireless,
was an amount equal to the greater of $8 million per year (adjusted
for changes in the Canadian Consumer Price Index from January 1,
1991) and an amount determined by both RCI and the directors serv-
ing on the Audit Committee of Wireless.
Customer Care Call Centres
RCI is party to agreements with Wireless and Cable and Telecom
pursuant to which RCI provides customer service and sales functions
through our call centres. Wireless and 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 providing customer service based on the actual costs
incurred and is held accountable for meeting performance targets as
detailed in the agreement. The assets used in the provision of these
services are owned by Wireless and Cable and Telecom. The current
agreements are terminable upon 90 days notice.
Account s Receivable
RCI manages the subscriber account collection activities of Wireless
and Cable and Telecom. Wireless and Cable and Telecom are respon-
sible, however, for the costs incurred in the collection and handling
of their accounts.
Information Technology
RCI manages the information technology function for Wireless and
Cable and Telecom, including the operation of the billing and cus-
tomer care systems. Wireless and Cable and Telecom reimburse RCI
based on the actual costs incurred.
Real Estate
In late December 2006, Wireless transferred the Rogers Campus (land
and buildings) at fair market value to RCI. The Rogers Campus is
comprised of the properties at 333 Bloor Street East and One Mount
Pleasant Road in Toronto, Ontario. In early January 2007, Wireless,
Cable and Telecom, and Media transferred certain land and build-
ings at fair market value to RCI, and RCI will lease office space to its
subsidiaries effective 2007. As a result of these transfers, it is expected
that net rent expense for each of Wireless, Cable and Telecom, and
Media will increase in 2007 by approximately $16 million, $6 million,
and $3 million, respectively. Previously, Wireless had leased, at mar-
ket rates, office space to us and our subsidiaries. RCI managed the
real estate that Wireless owned. Wireless reimbursed RCI for the
costs it incurred based on various factors, including the number of
sites managed and employees utilized.
Wireless Ser vices
Wireless provides wireless services to RCI and its subsidiaries. The fees
RCI pays are based on actual usage at market rates.
Cost Sharing and Ser vices Agreements
RCI entered into other cost sharing and services agreements with its
subsidiaries in the areas of accounting, purchasing, human resources,
accounts payable processing, remittance processing, payroll process-
ing, e-commerce and the RCI data centre and other common services
and activities. Generally, RCI provides these services to its subsidiaries
and the agreements are on renewable terms of one year and may be
terminated by either party on 30 to 90 days notice. To the extent that
RCI incurs operating expenses and makes PP&E expenditures, these
costs are reimbursed to RCI, on a cost recovery basis, in accordance
with the services RCI provides on behalf of the subsidiaries.