www.rogers.com
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ROGERS
COMMUNICATIONS INC.
Rogers Communications Inc. (TSX: RCI; NYSE: RG) is
a diversified Canadian communications and 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 provider, offering
cable television, high-speed Internet access, resi-
dential telephony services and video retailing, while
its Rogers Business Solutions division is a national
provider of voice communications services, data
networking, and broadband Internet connectivity to
small, medium and large businesses. Rogers Media
is Canada’s premier collection of category-leading
media assets with businesses in radio and television
broadcasting, 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)
Revenue
Operating profit
Net income (loss)
Earnings (loss) per share
Total assets
2 0 0 6
8,838
2,875
622
0.99
14,105
2 0 0 5
7,334
2,144
(45)
(0.08)
13,834
ROGERS COMMUNICATIONS INC.
ROGERS WIRELESS
ROGERS CABLE AND TELECOM
ROGERS MEDIA
ROGERS COMMUNIC ATIONS INC . CL ASS B SHARE PRICE ON TORONTO STOCK EXCHANGE
INDEXED AGAINST THE S&P/ TSX COMPOSITE AND S&P 500 INDEXES
RCI-B.TO
TSX COMPOSITE INDEX
S&P 500 INDEX
INNOVATING
FOR LIFE
200%
150%
100%
50%
0%
Rogers Communications Inc. 2006 Annual Report
Source: TSX
2004
APR
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OCT
2005
APR
JUL
OCT
2006
APR
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OCT
2007
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www.rogers.com
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ROGERS
COMMUNICATIONS INC.
Rogers Communications Inc. (TSX: RCI; NYSE: RG) is
a diversified Canadian communications and 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 provider, offering
cable television, high-speed Internet access, resi-
dential telephony services and video retailing, while
its Rogers Business Solutions division is a national
provider of voice communications services, data
networking, and broadband Internet connectivity to
small, medium and large businesses. Rogers Media
is Canada’s premier collection of category-leading
media assets with businesses in radio and television
broadcasting, 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)
Revenue
Operating profit
Net income (loss)
Earnings (loss) per share
Total assets
2 0 0 6
8,838
2,875
622
0.99
14,105
2 0 0 5
7,334
2,144
(45)
(0.08)
13,834
ROGERS COMMUNICATIONS INC.
ROGERS WIRELESS
ROGERS CABLE AND TELECOM
ROGERS MEDIA
ROGERS COMMUNIC ATIONS INC . CL ASS B SHARE PRICE ON TORONTO STOCK EXCHANGE
INDEXED AGAINST THE S&P/ TSX COMPOSITE AND S&P 500 INDEXES
RCI-B.TO
TSX COMPOSITE INDEX
S&P 500 INDEX
INNOVATING
FOR LIFE
200%
150%
100%
50%
0%
Rogers Communications Inc. 2006 Annual Report
Source: TSX
2004
APR
JUL
OCT
2005
APR
JUL
OCT
2006
APR
JUL
OCT
2007
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ROGERS COMMUNICATIONS INC.
AT A GLANCE
TSX: RCI NYSE: RG
ROGERS COMMUNIC ATIONS (CONSOLIDATED)
ROGERS WIRELESS
ROGERS C ABLE AND TELECOM
ROGERS MEDIA
Rogers Communications Inc. (TSX: RCI; NYSE: RG) is a
diversified Canadian communications and 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 provider,
offering cable television, high-speed Internet access,
residential telephony services and video retailing, while
its Rogers Business Solutions division is a national provider
of voice communications services, data networking, and
broadband Internet connectivity to small, medium and large
businesses. Rogers Media is Canada’s premier collection of
category-leading media assets with businesses in radio and
television broadcasting, televised shopping, publishing and
sports entertainment.
Rogers Wireless is the largest Canadian wireless communi-
cations services provider, serving almost 6.8 million wireless
voice and data subscribers and covering 94% of the
Canadian population at December 31, 2006. Rogers Wireless
operates Canada’s only GSM and HSDPA networks, the
global standards in wireless technology. Rogers Wireless
is Canada’s leader in innovative wireless voice and data
services, and provides customers with the best and latest
wireless devices and applications. Rogers Wireless subscribers
have access to services across the U.S. and internationally,
in 189 countries through roaming agreements with other
wireless operators. Rogers sells and markets its wireless
products separately under both the Rogers Wireless and the
Fido brands. Rogers Wireless is a wholly owned subsidiary
of Rogers Communications.
FY2006 Revenue:
$8.8 B
Media
13%
Cable and Telecom
36%
Wireless
51%
FY2006 Network
Revenue:
$4.3B
Wireless Data
11%
Prepaid Voice
5%
Postpaid Voice
84%
Rogers Cable and Telecom is Canada’s largest cable provider,
passing 3.5 million homes, and is also a national provider
of voice communications services, data networking and
broadband Internet connectivity solutions to businesses.
Its advanced digital two-way network provides the leading
selection of on-demand and high-definition programming;
serves 1.3 million high-speed Internet customers; boasts
the highest rate of digital cable penetration in Canada;
and offers cable telephony services across 90% of its cable
territory. Its Business Solutions division brings together the
innovative services of Rogers’ Cable, 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.
FY2006 Revenue:
$3.2B
Core Cable
44%
High-speed Internet
16%
Home Phone
11%
Business Solutions
19%
Retail
10%
Rogers Media operates a portfolio of broadcasting
operations, publishing operations and sports entertainment
assets. Media’s Broadcasting group comprises 51 radio
stations across Canada; two multicultural television stations
in Ontario (OMNI.1 and OMNI.2), and television stations in
British Columbia (OMNI.10) and Manitoba (OMNI.11); Rogers
Sportsnet, a specialty sports television service licensed to
provide regional sports programming across Canada; and
The Shopping Channel, Canada’s only nationally televised
shopping service. Media’s Publishing group publishes more
than 70 consumer magazines and trade and professional
publications and directories in Canada. Media’s sports
entertainment assets include the Toronto Blue Jays baseball
team and Rogers Centre, Canada’s largest sports and
entertainment facility. Rogers Media is a wholly owned
subsidiary of Rogers Communications.
FY2006 Revenue:
$1.2B
Core Media
86%
Sports Entertainment
14%
REVENUE
($ in billions)
OPER ATING PROFIT
($ in billions)
REVENUE
($ in billions)
OPER ATING PROFIT
($ in billions)
REVENUE
($ in billions)
OPER ATING PROFIT
($ in billions)
REVENUE
($ in billions)
OPER ATING PROFIT
($ in billions)
5.5
7.3
8.8
1.7
2.1
2.9
2.5
3.6
4.3
0.9
1.3
2.0
1.9
2.5
3.2
0.7
0.8
0.9
1.0
1.1
1.2
0.1
0.1
0.2
2004
2005
2006
2004
2005
2006
2004
2005
2006
2004
2005
2006
2004
2005
2006
2004
2005
2006
2004
2005
2006
2004
2005
2006
Left to right: William Linton, Rogers’ Chief Financial Officer; Philip Lind, Rogers’ Vice Chairman; John Thain, CEO of the NYSE; Edward “Ted” Rogers, Rogers’ President
and CEO; Alan Horn, Rogers’ Chairman; Bruce M. Mann, Rogers’ Vice President of Investor Relations.
CELEBRATING 10 YEARS ON THE
NEW YORK STOCK EXCHANGE
Ted Rogers started his first communications business almost 50
years ago when he saw the potential in the then-new technology
called FM radio and bought CHFI, Canada’s first FM radio station,
now the largest and most profitable radio station in Canada.
Today, Rogers Communications services millions of Canadians
from coast to coast and employs more than 22,000 people. It owns
Canada’s 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 headquartered in Toronto and its
shares have historically traded on the Toronto Stock Exchange.
In 1996, the Company also listed its shares on the New York Stock
Exchange (NYSE), which provides additional liquidity, access
to the single largest pool of equity capital in the world and
greater visibility by the U.S. investment community. During 2006,
the Company celebrated the 10-year anniversary of its NYSE
listing with a ceremony at the exchange. The equity market
capitalization of Rogers Communications at the start of 1996
was $2.9 billion. At the end of 2006 it was $22.6 billion, and today
the shares of Rogers Communications are included in both the
FTSE and Dow Jones global telecom indexes.
ROGERS COMMUNICATIONS INC.
AT A GLANCE
TSX: RCI NYSE: RG
ROGERS COMMUNIC ATIONS (CONSOLIDATED)
ROGERS WIRELESS
ROGERS C ABLE AND TELECOM
ROGERS MEDIA
Rogers Communications Inc. (TSX: RCI; NYSE: RG) is a
diversified Canadian communications and 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 provider,
offering cable television, high-speed Internet access,
residential telephony services and video retailing, while
its Rogers Business Solutions division is a national provider
of voice communications services, data networking, and
broadband Internet connectivity to small, medium and large
businesses. Rogers Media is Canada’s premier collection of
category-leading media assets with businesses in radio and
television broadcasting, televised shopping, publishing and
sports entertainment.
Rogers Wireless is the largest Canadian wireless communi-
cations services provider, serving almost 6.8 million wireless
voice and data subscribers and covering 94% of the
Canadian population at December 31, 2006. Rogers Wireless
operates Canada’s only GSM and HSDPA networks, the
global standards in wireless technology. Rogers Wireless
is Canada’s leader in innovative wireless voice and data
services, and provides customers with the best and latest
wireless devices and applications. Rogers Wireless subscribers
have access to services across the U.S. and internationally,
in 189 countries through roaming agreements with other
wireless operators. Rogers sells and markets its wireless
products separately under both the Rogers Wireless and the
Fido brands. Rogers Wireless is a wholly owned subsidiary
of Rogers Communications.
FY2006 Revenue:
$8.8 B
Media
13%
Cable and Telecom
36%
Wireless
51%
FY2006 Network
Revenue:
$4.3B
Wireless Data
11%
Prepaid Voice
5%
Postpaid Voice
84%
Rogers Cable and Telecom is Canada’s largest cable provider,
passing 3.5 million homes, and is also a national provider
of voice communications services, data networking and
broadband Internet connectivity solutions to businesses.
Its advanced digital two-way network provides the leading
selection of on-demand and high-definition programming;
serves 1.3 million high-speed Internet customers; boasts
the highest rate of digital cable penetration in Canada;
and offers cable telephony services across 90% of its cable
territory. Its Business Solutions division brings together the
innovative services of Rogers’ Cable, 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.
FY2006 Revenue:
$3.2B
Core Cable
44%
High-speed Internet
16%
Home Phone
11%
Business Solutions
19%
Retail
10%
Rogers Media operates a portfolio of broadcasting
operations, publishing operations and sports entertainment
assets. Media’s Broadcasting group comprises 51 radio
stations across Canada; two multicultural television stations
in Ontario (OMNI.1 and OMNI.2), and television stations in
British Columbia (OMNI.10) and Manitoba (OMNI.11); Rogers
Sportsnet, a specialty sports television service licensed to
provide regional sports programming across Canada; and
The Shopping Channel, Canada’s only nationally televised
shopping service. Media’s Publishing group publishes more
than 70 consumer magazines and trade and professional
publications and directories in Canada. Media’s sports
entertainment assets include the Toronto Blue Jays baseball
team and Rogers Centre, Canada’s largest sports and
entertainment facility. Rogers Media is a wholly owned
subsidiary of Rogers Communications.
FY2006 Revenue:
$1.2B
Core Media
86%
Sports Entertainment
14%
REVENUE
($ in billions)
OPER ATING PROFIT
($ in billions)
REVENUE
($ in billions)
OPER ATING PROFIT
($ in billions)
REVENUE
($ in billions)
OPER ATING PROFIT
($ in billions)
REVENUE
($ in billions)
OPER ATING PROFIT
($ in billions)
5.5
7.3
8.8
1.7
2.1
2.9
2.5
3.6
4.3
0.9
1.3
2.0
1.9
2.5
3.2
0.7
0.8
0.9
1.0
1.1
1.2
0.1
0.1
0.2
2004
2005
2006
2004
2005
2006
2004
2005
2006
2004
2005
2006
2004
2005
2006
2004
2005
2006
2004
2005
2006
2004
2005
2006
Left to right: William Linton, Rogers’ Chief Financial Officer; Philip Lind, Rogers’ Vice Chairman; John Thain, CEO of the NYSE; Edward “Ted” Rogers, Rogers’ President
and CEO; Alan Horn, Rogers’ Chairman; Bruce M. Mann, Rogers’ Vice President of Investor Relations.
CELEBRATING 10 YEARS ON THE
NEW YORK STOCK EXCHANGE
Ted Rogers started his first communications business almost 50
years ago when he saw the potential in the then-new technology
called FM radio and bought CHFI, Canada’s first FM radio station,
now the largest and most profitable radio station in Canada.
Today, Rogers Communications services millions of Canadians
from coast to coast and employs more than 22,000 people. It owns
Canada’s 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 headquartered in Toronto and its
shares have historically traded on the Toronto Stock Exchange.
In 1996, the Company also listed its shares on the New York Stock
Exchange (NYSE), which provides additional liquidity, access
to the single largest pool of equity capital in the world and
greater visibility by the U.S. investment community. During 2006,
the Company celebrated the 10-year anniversary of its NYSE
listing with a ceremony at the exchange. The equity market
capitalization of Rogers Communications at the start of 1996
was $2.9 billion. At the end of 2006 it was $22.6 billion, and today
the shares of Rogers Communications are included in both the
FTSE and Dow Jones global telecom indexes.
DELIVERING
RESULTS
WHAT WE SAID:
Leverage networks, channels
and brand to drive 11%
pro forma revenue growth.
WHAT WE DID:
Delivered 14% consolidated
pro forma revenue growth,
with each of Wireless,
Cable and Telecom, and
Media delivering
double-digit growth.
$ 7.0
$ 7.8
$ 8.8
1%
200
200
2006
CONSOLIDATED REVENUE
(billions of dollars)
WHAT WE SAID:
Leverage top-line growth with scale efficiencies
and cost containment to deliver operating profit
growth in excess of revenue growth.
WHAT WE DID:
31% Operating
Profit Growth
Delivered 31% pro forma growth in operating profit with
a 428 basis point expansion in operating profit margins.
WHAT WE SAID:
WHAT WE SAID:
Continue to strengthen
balance sheet with reduction in
leverage to approximately 3.5 times
debt to operating profit.
WHAT WE DID:
Reduced balance sheet leverage
to approximately 2.7 times debt
to operating profit with strong
operating profit growth and
debt repayments.
Debt Leverage
Reduced
30%
Significantly accelerate the
deployment of cable telephony
during 2006.
WHAT WE DID:
Expanded coverage area from 81%
to 90% of cable territory and
grew base of cable telephony
subscribers sevenfold from
48,000 to 366,000.
8
366
7X
WHAT WE SAID:
Modestly but consistently
increase dividends over time.
WHAT WE DID:
Rogers more than
doubles
dividend
for 2007
¢
7.¢
16¢
200
2006
CABLE TELEPHONY SUBSCRIBERS
(000s)
200
2006
2007
DIVIDEND RATE
WHAT WE SAID:
Drive increased wireless
postpaid ARPU while
continuing to reduce
postpaid churn.
WHAT WE DID:
Postpaid wireless ARPU
grew by 5.8% while
postpaid churn reduced
from 1.6% to 1.3%.
ARPU
W5.8%
CHURN
U18%
WHAT WE SAID:
Deliver increased growth in cable
revenue generating units (“RGUs”).
00
707
1%
WHAT WE DID:
Cable RGU growth was up 41%
from 2005, led by increased
growth in cable telephony and
basic cable subscribers combined
with continued healthy Internet
and digital cable growth.
200
2006
RGUs
For a detailed discussion of our performance against targets, and our targets for 2007, please see the sections of our 2006 Annual MD&A later in
this report entitled 2006 Performance Against Targets and 2007 Financial and Operating Guidance.
BUILDING VALUE,
TODAY AND FOR TOMORROW
FELLOW SHAREHOLDERS AND PARTNERS,
During 2006, our consistent focus on innovation, integration and profitable
growth delivered industry-leading performance and strong financial results.
We continued to demonstrate how Rogers’ innovative array 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-year growth in our wireless, cable and telecom,
and media businesses, and surpassed the financial targets we
established at the start of the year. Consistent with our commit-
ment to further strengthen our balance sheet, we reduced our
debt leverage from 3.9 times debt to operating profit including
derivatives to 2.7. From an operational perspective we continued
to scale subscriber levels at a steady pace and attracted new
customers to our services while reducing the rate of churn of
existing customers. In addition, we continued to integrate our
businesses, streamline processes and enhance customer service.
We capped the year by announcing a two-for-one split of our
shares and by raising the annual dividend pre-split from $0.15 to
$0.32 – a 113% increase. We also increased the frequency of our
dividend payments by changing the dividend distribution schedule
from a semi-annual to a quarterly basis. Not only is the dividend
increase evidence of our progress in growing the business and
delivering value to shareholders, it also reflects our belief in the
sustainability of the results and the continued confidence of our
Board of Directors in the strategies we are executing.
As with everything we do, our success in 2006 is the result of a
company-wide team effort. I want to express my gratitude to our
management team and our more than 22,500 employees across
the country for the substantial strides Rogers has made with their
support and engagement.
INNOVATING FOR GROW TH IN WIRELESS
The exceptional operating performance across our business
segments in 2006 is rooted in Rogers’ history of innovation.
Our passion for innovation remains as strong as ever.
We continued to secure Rogers’ place at the forefront of Canada’s
wireless industry with the initial launch of High-Speed Downlink
Packet Access (HSDPA) – our revolutionary next generation voice
and data network with the fastest wireless data speeds in Canada.
It also places Rogers among the first operators in the world to
deploy this latest evolution of GSM – the dominant global standard
for mobile wireless communications with over two billion users
worldwide. We’ll continue rolling out this new network technology
across many more Canadian markets in 2007 enabling exciting
new broadband services on wireless phones and devices.
2
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
With our impressive array of wireless voice and data products,
our popular Rogers Wireless and Fido brands, and our leading
spectrum position in North America, we’re well positioned to
continue our success in wireless. And there remains tremendous
opportunity ahead in Canada’s wireless market, where penetration
remains below that of many other countries where wireless was
introduced earlier.
Through our Inukshuk fixed wireless joint venture we have built
a national wireless broadband network based on technology
expected to evolve into an exciting new standard called WiMax.
By 2008, the Inukshuk network is expected to cover some 45 cities
and 100 unserved rural and remote communities across the
country. Thanks to our Inukshuk network, we introduced Portable
Internet from Rogers Yahoo!, a fixed wireless “plug and play”
innovation which expands the availability of high-speed Internet
across Canada.
DELIVERING BET TER TELEVISION, FASTER INTERNET
AND MORE CHOICE
As the first in Canada to roll out pioneering products such as
video on demand, high-definition, personal video recorders
and digital simulcasting, innovation has long defined the spirit
of our cable television business. Throughout 2006, we worked to
provide Rogers Cable subscribers with an unprecedented amount
of freedom, choice and control over their television viewing
experience. We continued to expand our line up of high-definition,
on-demand, multicultural, sports and U.S. programming during
2006 and in the process widened our lead over other cable providers.
Our focus on personalizing the television-viewing experience is
clearly resonating with customers. Since the introduction of digital
cable, we have attracted more than one million subscribers to this
service and boast the highest penetration rate in Canada.
During the year, we also raised the bar for high-speed Internet
services, boosting the speeds of our various Rogers Yahoo! Hi-
Speed Internet products and announcing Rogers Yahoo! Hi-Speed
Internet Extreme Plus. At speeds of up to 18 megabits per second,
Rogers Yahoo! Hi-Speed Internet Extreme Plus is the fastest
residential service available to customers in our cable territory.
Our voice-over-cable telephony service launched in mid-2005,
Rogers Home Phone, is becoming another great growth story. By
the end of 2006, we expanded our cable telephony offering across
90% of our cable footprint and, by virtue of our 2005 acquisition
of Call-Net, we are able to offer a circuit-switched telephony
product in major Canadian cities outside of our cable footprint.
By year’s end, our residential telephony subscriber base had grown
to more than 715,500, and we expect that this service – which is
highly complementary to our other cable, Internet and wireless
products – will continue to grow rapidly in 2007.
In addition to strong organic growth at Rogers Media during
2006, we recently extended our portfolio of radio stations with
the acquisition of five radio stations in Alberta and increased
our ownership in two television stations, Biography Canada and
G4TechTV Canada. On the publishing side, we enhanced our
collection of leading consumer magazines with the launch of
Hello!, a celebrity/personality magazine, and Chocolat, a shopping
magazine for home decor.
WINNING WITH A QUADRUPLE PL AY
Putting innovation to work at Rogers goes beyond products and
services. We’re also bringing innovation to the way we run our
businesses and leverage our strengths. In last year’s annual report,
I talked about how we are drawing on the combined strengths of
our wireless, cable, Internet and telephony capabilities to deliver
the Rogers Quadruple Play.
“While2006wasagreatyearforRogers–and
I’mextremelypleasedwiththeresults–thereis
somuchmoretoaccomplish.As2007unfolds,our
focusremainsondeliveringprofitablegrowth
throughinnovationanddisciplinedexecution.”
Harnessing our collective resources brings simplicity and greater
value to our customers while enabling us to leverage our strong
brand and lower operating costs over time. Our bundled
communications service offerings are one example of innovative
integration. Another powerful example is how we were able to
execute around Rogers’ exclusive broadcast rights for the 2006
World Cup of soccer – the single most popular sporting event on
the planet. During the summer of 2006, our wireless, cable and
media businesses rallied around our World Cup rights and
combined their broadcast and distribution platforms to create
a decisive force in the market across Canada.
BRINGING IT ALL TO BUSINESS
One of the advantages of our Call-Net acquisition was that it gave
us a platform upon which to accelerate the growth of Rogers
Business Solutions. This group brings together the innovative com-
munications 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 wire-
less needs of the Canadian business market. Formed on January 1,
2006, this group has worked quickly to differentiate itself by pro-
viding a seamless IP-based network for Canadian businesses which
leverages the many network assets of Rogers Communications.
LOOKING AHEAD
While 2006 was a great year for Rogers – and I’m extremely
pleased with the results – there is so much more to accomplish.
As 2007 unfolds, our focus remains on delivering profitable
growth through innovation and disciplined execution. As is our
heritage, we will continue to focus on deploying unique and
innovative communications and entertainment products that add
convenience and value to our customers’ lives. However, as we
continue to gain scale, I am also increasingly focused on making
Rogers what I call “industrial strength” – by putting in place the
processes, platforms, people and controls that will support and
secure the Company into the future.
There is plenty of heavy lifting ahead as we work to strengthen
our position as the leading wireless provider in Canada, expand our
presence in the business segment and drive top and bottom-line
growth in local telephony, digital cable and our media businesses.
We will continue to explore opportunities for our operations to
work together to extend the power of our brand and maximize
efficiencies. And we will target double-digit revenue and operating
profit growth in 2007 while continuing to delever our balance sheet.
If you live in Canada, I invite you to sample and subscribe to our
many services. They will entertain you, inform you and help you
keep in touch with what matters most in your world. Wherever
life takes you, Rogers will be there, innovating to enrich your life
and the lives of generations of Canadians to come.
Thank you for your investment,
confidence and continued support.
The best is yet to come!
Edward “Ted” S. Rogers, OC
President and
Chief Executive Officer
Rogers Communications Inc.
YOUR LIFE
AT HOME
For generations, Canadian families have welcomed Rogers into their homes as the provider
of choice for entertainment, communications and information services. Rogers has a rich
legacy of fundamentally changing the way families discover, enjoy, connect and share.
We provide families with greater choice, control and convenience; and Canadians know that
with Rogers, they’ll never miss a thing when it comes to enjoying the latest technologies.
Complete flexibility in experiencing TV content means families watch what they want when
they want – with Rogers, they pause TV, not life. Advanced wireless services offer the security
of knowing that family members are close, no matter where they are. From preschool through
high school, Rogers’ Internet, specialty TV and media content bring new dimensions of learn-
ing and convenience into the home. And broadband connectivity now lets parents better
balance their time between the office and home.
And because no two families are quite the same, Rogers offers flexible, better-choice bundles
that let them combine the services they want with the convenience of a single monthly bill.
C ABLE TELEVISION
HIGH -SPEED INTERNET
WIRELESS
HOME PHONE
CONTENT
The customer is in control,
with the best in digital cable
and high-definition, a huge
selection of content on-
demand, and programming
in more than 2 different
languages.
Rogers is the leader, with
the fastest service available
in its territory. Every option
for speed is packed with
tools for managing e-mail
and customizing content,
backed by the latest security
features.
It’s how today’s families
stay in touch. With Canada’s
clearest wireless network
and leading selection
of devices and solutions,
Rogers offers plans to fit
the unique needs of every
household.
Keeping their 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.
Families turn to Rogers’
radio stations, TV channels,
magazines, sports enter-
tainment and televised
home shopping for the
best in Canadian media.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
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ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
YOUR LIFE
AT WORK
Staying competitive in business today is increasingly about staying connected – being able
to respond to opportunity whenever and wherever business happens. It’s about working
smarter – supported by integrated communications solutions that enhance productivity
and drive results.
Rogers is dedicated to helping business succeed – in the office and on the move – offering
customers a single reliable source for wired and wireless voice, networking and IP solutions.
As Canada’s only GSM-based wireless provider, we connect business to high-speed wireless
services for e-mail and Internet access, and provide superior voice and data roaming coverage
overseas and around the globe. Rogers also operates a coast-to-coast fibre-optic network
with connectivity into the U.S. and Europe for the broadband data networking services that
are the lifeblood of commerce today.
As technologies become increasingly complex, our customers count on Rogers’ business services
to make it easier for them to apply and profit from the latest communications solutions.
VOICE TELEPHONY
DATA NET WORKING
Rogers provides business
with reliable local, long
distance, toll-free and
conferencing services, plus
innovative services for
better managing call flows.
Rogers connects employees,
customers and business
partners at locations across
town or around the globe
with fast, reliable data net-
working solutions tailored
to the unique requirements
of each business.
INTERNET AND
IP SOLUTIONS
Rogers offers a wide range
of high-performance busi-
ness Internet connectivity
and IP solutions, backed by
robust network service level
agreements for speed and
reliability.
MOBILIT Y
MEDIA
Because business needs
reliable, anywhere access
to people and information
while on the move, Rogers
provides seamless wireless
roaming coverage in 189
countries around the world.
Businesses rely on Rogers’
collection of leading media
brands as their one-stop
solution for all of their local
and national print, radio
and television advertising.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
7
YOUR LIFE
CONNECTED
Today’s youth and young adults set the pace – always on the lookout for faster, cooler and
more flexible ways to stay connected with friends and the urban life. Speed and mobility
define the experience, with the convergence of technologies letting them do more with less.
Rogers lets them say more and play more with the fastest speeds, hottest devices and most
innovative applications.
Whether it’s blistering fast Internet connections to their apartment, portable connectivity
to their laptop or wireless data to their cell phone, Rogers lets them connect in more ways
in more places. And staying connected to friends and colleagues with voice, e-mail, text and
instant messaging, music, pictures and video seamlessly across all of their Rogers connected
devices whether wired, portable or mobile is the ultimate in freedom.
For people who set the rhythm of their life to the speed of innovation in communications,
Rogers will make sure they never miss a beat.
WIRELESS VOICE AND
MESSAGING
With access to the leading wireless
voice and data network in Canada,
Rogers’ customers count on a clear
connection wherever life takes
them – locally, nationally or
globally.
INTERNET CONNEC TIVIT Y
ELEC TRONIC MAIL
Rogers offers more options to
connect to the Internet. Whether
by cable modem, DSL, fixed
wireless or cellular – Rogers
gets customers on-line fast.
The Rogers Yahoo! e-mail service
is packed with tools for manag-
ing and customizing the e-mail
experience, and it’s backed by the
latest security features, massive
amounts of storage and dedicated
support.
MUSIC , GAMES AND
PIC TURES
With superior speeds and best-
of-breed services from Rogers
Yahoo!, customers safely capture,
download and share digital media
including music, games, photos,
video and more.
8
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10
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
YOUR LIFE
TOMORROW
Innovation is at the very core of what Rogers stands for. Technology’s ability to enhance life
is only accelerating. No company is better positioned to deliver the benefits of tomorrow
than Rogers.
Rogers is leading the way, introducing technologies that will fundamentally change the way
we stay in touch, informed and entertained – at home, at work and on the go. We’re turbo-
charging the broadband pipe into the home, deploying next generation wireless services
and enabling the digitization of media. Mobility and broadband will combine and drive a
shift from “the connected home” to “the connected person” – personal broadband where
customers choose the information, communication and entertainment they want, and access
them from anywhere.
Video over cellular; TV over the Internet; ultra-high-definition content; video calling; voice
messages by e-mail – the best is yet to come. And wherever life takes our customers, Rogers
will be there, innovating for the lives of generations of Canadians to come.
CONVERGED WIRELESS/
WIRELINE
When wireless merges with the
wired world, calls will travel
through the cable telephone
service at home and through the
cell network away from home
and will know which to try first.
WIRELESS BROADBAND
MOBILE T V
VIDEO C ALLING
Rogers’ fixed wireless network
will evolve onto the emerging
WiMax standard, enabling users
to easily take their high-speed
Internet connection with them
on the go.
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.
Real-time personal video
communications will soon be as
easy as placing a telephone call,
bringing our customers even closer
to the people who matter most.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
11
LIFE IN 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 in the community when they leave work at the end of the day.
Across the country, Rogers employees’ passion for improving the quality of life of Canadians
can be seen in the many communities in which they live and work.
Through both corporate-sponsored initiatives and direct community involvement, our
employee volunteers make it all possible, whether it’s covering local community news and
events, supporting local teams, ensuring the safety of children on Halloween night, bringing
entertainment to sick children in hospitals, or collecting toy and food donations.
Our employees’ enthusiasm for change has brought communities together to raise funds in
support of local initiatives including cancer research, emergency support for local families in
need, and programs that enhance the quality of life for youth and children.
Rogers employees are also leading the charge for the recycling of cell phones through Phones
for Food. Their efforts not only benefit the environment, but support a national program to
raise funds to benefit local food banks.
For further information on these and many other community initiatives we support, please
visit the “About Rogers” section of the rogers.com website.
12
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DIRECTORS AND SENIOR CORPORATE
OFFICERS OF ROGERS COMMUNICATIONS INC.
1
2
3
6
7
8
9
1 0
11
12
13
1
1
16
17
1 8
19
2 0
21
2 2
2 3
DIREC TORS
6 Alan D. Horn, CA
President and Chief Executive Officer
Rogers Telecommunications Limited
Chairman
7 Peter C. Godsoe, OC
Company Director
Lead Director
11 Ronald D. Besse
President, Besseco Holdings Inc.
12 Charles William David Birchall
13 Philip B. Lind, CM
Vice Chairman
Rogers Communications Inc.
1 Nadir H. Mohamed, CA
President and Chief Operating Officer
Communications Group
Rogers Communications Inc.
10 The Hon. David R. Peterson, PC, QC
Senior Partner and Chairman
Cassels Brock & Blackwell LLP
Vice Chairman, Barrick Gold Corporation
17 Edward “Ted” S. Rogers, OC
John H. Clappison, FCA
Company Director
8 Thomas I. Hull
Chairman and Chief Executive Officer
The Hull Group of Companies
SENIOR CORPOR ATE OFFICERS
6 Alan D. Horn, CA
Chairman
13 Philip B. Lind, CM
Vice Chairman
President and
Chief Executive Officer
Rogers Communications Inc.
1 Edward S. Rogers
President, Rogers Cable Inc.
1 Edward S. Rogers
President, Rogers Cable Inc.
21 Anthony P. Viner
President and Chief Executive Officer
Rogers Media Inc.
17 Edward “Ted” S. Rogers, OC
President and Chief Executive Officer
23 Ronan D. McGrath, CA
2 Loretta A. Rogers
Company Director
16 Melinda M. Rogers
Senior Vice President,
Strategy and Development
William T. Schleyer
Chairman and Chief Executive Officer
Adelphia Communications Corp.
9 John A. Tory, QC
Director, The Woodbridge Company
Limited
3 J. Christopher C. Wansbrough
Chairman
Rogers Telecommunications Limited
1 Colin D. Watson
Company Director
20 Kevin P. Pennington
Senior Vice President,
Chief Human Resources Officer
22 David P. Miller
Senior Vice President, General Counsel
and Secretary
1 Nadir H. Mohamed, CA
President and Chief Operating Officer
Communications Group
19 Robert W. Bruce
President, Rogers Wireless Inc.
President, Rogers Shared Operations and
Chief Information Officer
16 Melinda M. Rogers
Senior Vice President,
Strategy and Development
18 William W. Linton, CA
Senior Vice President, Finance and
Chief Financial Officer
See www.rogers.com for an expanded listing and biographical information of Rogers’ corporate and operating company management teams.
1
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
CORPORATE GOVERNANCE AND
THE COMMITTEES OF THE BOARD
Rogers Communications’ Board of Directors is strongly committed
to sound corporate governance and continuously reviews its
governance practices and benchmarks them against acknowledged
leaders and evolving legislation. We are a family-controlled
company and take pride in our proactive and disciplined approach
towards ensuring that Rogers’ governance structures and practices
are deserving of the confidence of the public equity markets.
As substantial stakeholders, the Rogers family is represented on
our Board and brings a long-term commitment to oversight and
value creation. At the same time, we benefit from having outside
directors who are some of the most experienced business leaders
in North America.
The composition of our Board and structure of its various
committees are outlined below. As well, we make detailed infor-
mation of our governance structures and practices – including
our complete statement of corporate governance practices,
our codes of conduct and ethics, full committee charters, and
board member biographies – easily available on our website at
www.rogers.com/corporategovernance.
C OMMIT TE E S OF T H E B OA RD
AUDIT
CORPORATE
GOVERNANCE
NOMINATING COMPENSATION
EXECUTIVE
FINANCE
PENSION
Chair
Member
Peter C. Godsoe, OC
Edward “Ted” S. Rogers, OC
Ronald D. Besse
C. William D. Birchall
John H. Clappison, FCA
Thomas I. Hull
Nadir H. Mohamed, CA
The Hon. David R. Peterson, PC, QC
Edward S. Rogers
Melinda M. Rogers
William T. Schleyer
John A. Tory, QC
J. Christopher C. Wansbrough
Colin D. Watson
The Audit Committee reviews the Company’s accounting policies
and practices, the integrity of the Company’s financial reporting
processes and procedures and the financial statements and other
relevant public disclosures to be provided to the public. The
Committee also assists the Board in its oversight of the Company’s
compliance with legal and regulatory requirements relating to
financial reporting and assesses the systems of internal accounting
and financial controls and the qualifications, independence and
work of external auditors and internal auditors.
shareholders and for appointment by the Board and also recom-
mends nominees for each committee of the Board including each
committee’s Chair.
The Compensation Committee assists the Board in monitoring,
reviewing and approving compensation and benefit policies
and practices. The Committee is responsible for recommending
director and senior management compensation and for succession
planning with respect to senior executives.
The Corporate Governance Committee assists and makes
recommendations to the Board to ensure the Board of Directors
has developed appropriate systems and procedures to enable the
Board to exercise and discharge its responsibilities. To carry this
out the Corporate Governance Committee assists the Board in
developing, recommending and establishing corporate governance
policies and practices and leads the Board in its periodic review of
the performance of the Board and its committees.
The Nominating Committee assists and makes recommendations
to the Board to ensure that the Board of Directors is properly
constituted to meet its fiduciary obligations to shareholders
and the Company. To carry this out, the Nominating Committee
identifies prospective Director nominees for election by the
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 a preceding meeting of the Board and to consider
matters concerning the Company that may arise from time to time.
The Finance Committee reviews and reports to the Board on
matters relating to the Company’s investment strategies, hedging
program and general debt and equity structure.
The Pension Committee supervises the administration of
the Company’s pension plans and reviews the provisions and
investment performance of the Company’s pension plans.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
1
FINANCIAL SECTION
CONTENTS
17 MANAGEMENT’S DISCUSSION AND ANALYSIS
75 MANAGEMENT’S RESPONSIBILITY FOR
Corporate Overview
18 Our Business
19 Our Strategy
19 Acquisitions
19 Consolidated Financial and Operating Results
24 2007 Financial and Operating Guidance
Segment Review
25 Wireless
32 Cable and Telecom
41 Media
Consolidated Liquidity and Financing
43 Liquidity and Capital Resources
45
46 Outstanding Share Data
47 Dividends and Other Payments on
Interest Rate and Foreign Exchange Management
RCI Equity Securities
47 Commitments and Other Contractual Obligations
48 Off-Balance Sheet Arrangements
Operating Environment
48 Government Regulation and
Regulatory Developments
52 Competition in our Businesses
53 Risks and Uncertainties Affecting our Businesses
Accounting Policies and Non-GAAP Measures
60 Key Performance Indicators and
Non-GAAP Measures
61 Critical Accounting Policies
62 Critical Accounting Estimates
64 New Accounting Standards
65 Recent Canadian Accounting Pronouncements
65 U.S. GAAP Differences
Intercompany and Related Party Transactions
Additional Financial Information
66
68 Five-Year Summary of Consolidated Financial Results
69 Summary of Seasonality and Quarterly Results
71 Controls and Procedures
72 Supplementary Information: Non-GAAP Calculations
FINANCIAL REPORTING
75 AUDITORS’ REPORT TO THE SHAREHOLDERS
76 CONSOLIDATED STATEMENTS OF INCOME
77 CONSOLIDATED BALANCE SHEETS
78 CONSOLIDATED STATEMENTS OF DEFICIT
79 CONSOLIDATED STATEMENTS OF CASH FLOWS
80 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
80 Note 1: Nature of the business
80 Note 2: Significant accounting policies
85 Note 3: Segmented information
87 Note 4: Business combinations
89 Note 5: Investment in joint ventures
89 Note 6: Store closure expenses
89 Note 7: Income taxes
91 Note 8: Net income (loss) per share
91 Note 9: Other current assets
92 Note 10: Property, plant and equipment
92 Note 11: Goodwill and intangible assets
93 Note 12: Investments
94 Note 13: Deferred charges
94 Note 14: Other long-term assets
95 Note 15: Long-term debt
98 Note 16: Derivative instruments
98 Note 17: Other long-term liabilities
99 Note 18: Financial instruments
100 Note 19: Pensions
102 Note 20: Shareholders’ equity
105 Note 21: Consolidated statements of cash flows
and supplemental information
106 Note 22: Related party transactions
107 Note 23: Commitments
107 Note 24: Guarantees
108 Note 25: Contingent liabilities
108 Note 26: Canadian and United States
accounting policy differences
113 Note 27: Subsequent events
114 CORPORATE INFORMATION
16
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 20 0 6
This Management’s Discussion and Analysis (“MD&A”) should
be read in conjunction with our 2006 Audited Consolidated
Financial Statements and Notes thereto. The financial information
presented herein has been prepared on the basis of Canadian gen-
erally accepted accounting principles (“GAAP”) and is expressed in
Canadian dollars, unless otherwise stated. Please refer to Note 26 to
the 2006 Audited Consolidated Financial Statements for a summary
of differences between Canadian and United States (“U.S.”) GAAP.
This MD&A, which is current as of March 28, 2007, is organized into
six sections.
1 CO RPOR ATE OVE RVIE W
2 SEGMENT R EVI EW
3 CO NSOLI DATED LIQU ID IT Y
AND FINANCI NG
18 Our Business
19 Our Strategy
19 Acquisitions
19 Consolidated Financial and
Operating Results
24 2007 Financial and
Operating Guidance
25 Wireless
32 Cable and Telecom
41 Media
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 Commitments and Other
Contractual Obligations
48 Off-Balance Sheet Arrangements
4 OPE RATING ENVIRON ME NT
5 ACCO UNTING PO LI CI ES AND
NON-GAAP MEASURES
6 ADDITIO NAL FINANCIAL
INFOR MATI ON
48 Government Regulation and
Regulatory Developments
60 Key Performance Indicators and
Non-GAAP Measures
66
Intercompany and Related
Party Transactions
52 Competition in our Businesses
61 Critical Accounting Policies
68 Five-Year Summary of Consolidated
53 Risks and Uncertainties Affecting
62 Critical Accounting Estimates
our Businesses
64 New Accounting Standards
65 Recent Canadian Accounting
Pronouncements
65 U.S. GAAP Differences
Financial Results
69 Summary of Seasonality and
Quarterly Results
71 Controls and Procedures
72 Supplementary Information:
Non-GAAP Calculations
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 segments at December 31, 2006:
• “Wireless”, which refers to our wholly owned subsidiary Rogers
Wireless Communications Inc. (“RWCI”) and its subsidiaries, includ-
ing Rogers Wireless Inc. (“RWI”) and its subsidiaries;
• “Cable and Telecom”, which refers to our wholly owned subsid-
iary Rogers Cable Inc. and its subsidiaries. RCI acquired Call-Net
Enterprises Inc. (“Call-Net”) on July 1, 2005 and subsequently
changed its name to Rogers Telecom Holdings Inc. (“RTHI”). The
results of RTHI and RTHI’s operating subsidiaries are consolidated
effective as of the July 1, 2005 acquisition date. On January 9,
2006, RCI’s ownership interest in RTHI’s operating subsidiaries
was transferred to Rogers Cable Inc. from RTHI. Beginning with
the first quarter of 2006, the Cable and Telecom operating unit
reports its results in the following segments: Cable and Internet;
Rogers Home Phone (voice-over-cable telephony subscribers and
residential circuit-switched telephony customers); Rogers Business
Solutions (business telephony and data subscribers); and Rogers
Retail. Comparative figures have been reclassified to conform to
this new segment reporting.
• “Media”, which refers to our wholly owned subsidiary Rogers
Media Inc. and its subsidiaries including Rogers Broadcasting,
which owns Rogers Sportsnet, Radio stations, OMNI television, The
Biography Channel Canada, G4TechTV Canada and The Shopping
Channel; Rogers Publishing; and Rogers Sports Entertainment,
which owns the Toronto Blue Jays and the Rogers Centre. In
addition, Media holds ownership interests in entities involved in
specialty TV content, TV production and broadcast sales.
“RCI” refers to the legal entity Rogers Communications Inc. exclud-
ing our subsidiaries.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
17
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Throughout this MD&A, all percentage changes are calculated using
numbers rounded to the decimal to which they appear. Please note
that the charts, graphs and diagrams that follow have been included
for ease of reference and illustrative purposes only and do not form
part of management’s discussion and analysis.
Before making any investment decisions and for a detailed discus-
sion of the risks, uncertainties and environment associated with
our business, see the section of this MD&A entitled “Risks and
Uncertainties”.
C AUTION REGARDING FORWARD -LOOkING STATEMENTS,
RISkS AND ASSUMP TIONS
This MD&A includes forward-looking statements and assumptions
concerning the future performance of our business, its operations
and its financial performance and condition. These forward-looking
statements include, but are not limited to, statements with respect
to our objectives and strategies to achieve those objectives, as well
as statements with respect to our beliefs, plans, expectations, antici-
pations, estimates or intentions. Statements containing expressions
such as “could”, “expect”, “may”, “anticipate”, “assume”, “believe”,
“intend”, “estimate”, “plan”, “guidance”, and similar expressions
generally constitute forward-looking statements. These forward-
looking statements also include, but are not limited to, guidance
relating to revenue, operating profit, property, plant and equip-
ment expenditures, free cash flow, expected growth in subscribers,
the deployment of new services, integration costs, and all other
statements that are not historical facts. Such forward-looking state-
ments are based on current expectations and various factors and
assumptions applied which we believe to be reasonable at the time,
including but not limited to general economic and industry growth
rates, currency exchange rates, product and service pricing levels and
competitive intensity, subscriber growth and usage rates, technol-
ogy deployment, content and equipment costs, the integration of
acquisitions, and industry structure and stability.
Except as otherwise indicated, this MD&A does not reflect the poten-
tial impact of any non-recurring or other special items or of any
dispositions, monetizations, mergers, acquisitions, other business
combinations or other transactions that may be announced or occur
after the date of the financial information contained herein.
We caution that all forward-looking information is inherently
uncertain and that actual results may differ materially from the
assumptions, estimates or expectations reflected in the forward-
looking information. A number of risk factors could cause actual
results to differ materially from those in the forward-looking
statements, including but not limited to economic conditions, tech-
nological change, the integration of acquisitions, the failure to
achieve anticipated results from synergy initiatives, unanticipated
changes in content or equipment costs, changing conditions in the
entertainment, information and communications industries, regu-
latory changes, changes in law, litigation, tax matters, employee
relations, pension issues and the level of competitive intensity
amongst major competitors, many of which are beyond our control.
Therefore, should one or more of these risks materialize, or should
assumptions underlying the forward-looking statements prove incor-
rect, actual results may vary significantly from what we currently
foresee. Accordingly, we warn investors to exercise caution when
considering any such forward-looking information herein and to not
place undue reliance on such statements and assumptions. We are
under no obligation (and we expressly disclaim any such obligation)
to update or alter any forward-looking statements or assumptions
whether as a result of new information, future events or otherwise,
except as required by law.
18
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
ADDITIONAL INFORMATION
Additional information relating to us, including our Annual
Information Form and discussions of our 2006 interim quarterly
results, may be found on SEDAR at www.sedar.com or on EDGAR at
www.sec.gov.
1 CORPORATE OVERVIEW
OUR BUSINESS
We are a diversified public Canadian communications and media
company. We are engaged in wireless voice and data communica-
tions services through Wireless, 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 televi-
sion, cable telephony and high-speed Internet access, and are also
a national, full-service, facilities-based telecommunications alterna-
tive to the traditional telephone companies. Through Media, we are
engaged in radio and television broadcasting, televised shopping,
magazines and trade publications, and sports entertainment.
We are publicly traded on the TSX (RCI.A and RCI.B), and on the
NYSE (RG).
We also hold a 50% interest in Inukshuk, a joint venture construct-
ing a pan-Canadian wireless broadband network. We hold other
interests including an investment in a pay-per-view movie service,
investments in certain specialty and digital television channels which
are accounted for by the equity method, and we hold interests in
other public and private companies for investment purposes.
For more detailed descriptions of our Wireless, Cable and Telecom,
and Media businesses, see the respective segment discussions below.
REVENUE
(In millions of dollars)
OPERATING
PROFIT
(In millions of dollars)
$2,689
1,946
957
$3,860
2,492
1,097
$4,580
3,201
1,210
$950
709
115
$1,337
$1,969
765
128
890
151
2004
2005
2006
2004
2005
2006
Wireless
Cable and Telecom
Media
Wireless
Cable and Telecom
Media
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OUR STR ATEGY
Our business objective is to maximize subscribers, revenue, operating
profit and return on invested capital by enhancing our position
as one of Canada’s leading national diversified communications
and media companies. Our strategy is to be the preferred provider
of communications, entertainment and information services to
Canadians. We seek to take advantage of opportunities to leverage
our networks, infrastructure, sales channels, brand and marketing
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 of
products and services to increase sales and enhance subscriber loy-
alty. We also work to identify and implement areas of opportunity
for our businesses that will enhance operating efficiencies by sharing
infrastructure, corporate services and sales distribution channels.
ADDITIONS TO
CONSOLIDATED PP&E
(In millions of dollars)
CONSOLIDATED
TOTAL ASSETS
(In millions of dollars)
$1,055
$1,355
$1,712
$13,273
$13,834
$14,105
2004
2005
2006
2004
2005
2006
ACQUISITIONS
Acquisition of Call- Net Enterprises Inc .
On July 1, 2005, we acquired 100% of Call-Net Enterprises Inc. (“Call-
Net”), a Canadian integrated telecommunications solutions provider
of local, long distance and data services to more than 600,000 homes
and businesses across Canada, in a share-for-share transaction
announced May 11, 2005. The acquisition brought us an extensive
national fibre network with approximately 160 co-locations in major
urban areas across Canada and network facilities in the U.S. and
United Kingdom.
As consideration for the acquisition, Call-Net shareholders received
two Class B Non-Voting shares for each 4.25 shares of Call-Net.
Including estimated transaction costs of $4 million, the purchase
price of the acquisition was $328 million. This transaction has been
accounted for using the purchase method and we began to consoli-
date Call-Net’s results of operations with our own effective July 1,
2005. Subsequent to the acquisition, we changed the name of
Call-Net to Rogers Telecom Holdings Inc.
Refer to “Critical Accounting Estimates – Purchase Price Allocations”
and Note 4 to the 2006 Audited Consolidated Financial Statements
for more details regarding this transaction and updates to the
purchase price allocation in 2006.
CONSOLIDATED FINANCIAL AND OPER ATING RESULTS
See the sections in this MD&A entitled “Critical Accounting Policies”,
“Critical Accounting Estimates” and “New Accounting Standards”
and also the Notes to the 2006 Audited Consolidated Financial
Statements for a discussion of critical and new accounting policies
and estimates as they relate to the discussion of our operating and
financial results below.
We measure the success of our strategies using a number of key
performance indicators as outlined in the section “Key Performance
Indicators and Non-GAAP Measures”. These key performance indi-
cators are not measurements in accordance with Canadian or
U.S. GAAP and should not be considered as alternatives to net income
or any other measure of performance under Canadian or U.S. GAAP.
Operating Highlights and Significant Developments in 20 06
• In December 2006, we announced and implemented a two-for-
one split of our Class A Voting and Class B Non-Voting shares,
with the additional shares distributed to shareholders beginning
January 5, 2007.
• We announced an increase in the annual dividend from $0.075
to $0.16 per Class A Voting and Class B Non-Voting share (on a
post-split basis), and modified our dividend distribution policy to
now make dividend distributions on a quarterly basis instead of
semi-annually.
• We entered into a multi-year agreement with Maple Leaf Sports
and Entertainment (“MLSE”) which had Rogers become a lead spon-
sor and the preferred supplier of all communications services to the
Toronto Maple Leafs, Toronto Raptors and Air Canada Centre.
• We concluded the final phase of a multi-staged transaction to
acquire certain of the competitive local exchange carrier (“CLEC”)
assets of Group Telecom/360 Networks (“GT”) from Bell Canada,
including approximately 3,400 route kilometres of multi-stranded
local and regional fibre; voice and data switching infrastructure;
and co-location, point-of-presence and hub sites in Ontario, Quebec,
Nova Scotia, New Brunswick and Newfoundland and Labrador.
• We successfully launched our High-Speed Downlink Packet Access
(“HSDPA”) network in the Golden Horseshoe markets of Ontario.
This next generation broadband wireless technology, which
Wireless continues to deploy across other major markets, is the
fastest mobile wireless data service available in Canada.
Year Ended December 31, 2006 Compared to Year Ended
December 31, 2005
For the year ended December 31, 2006, Wireless, Cable and Telecom,
and Media represented 51.8%, 36.2%, and 13.7% of our consolidated
revenue, respectively, offset by corporate items and eliminations of
1.7%. Wireless, Cable and Telecom also represented 68.5%, 31.0%,
and 5.3% of our consolidated operating profit, respectively, offset
by corporate items and eliminations of 4.8%. For more detailed dis-
cussions of Wireless, Cable and Telecom, and Media, refer to the
respective segment discussions below. Our financial results include
the operations of Call-Net from the July 1, 2005 date of acquisition.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
19
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summarized Consolidated Financial Results
Years ended December 31,
(In millions of dollars, except per share amounts)
Operating revenue
Wireless (1)
Cable and Telecom
Cable and Internet
Rogers Home Phone
Rogers Business Solutions
Rogers Retail
Corporate items and eliminations
Media
Corporate items and eliminations
Total
Operating expenses, including integration and Rogers Retail store closure expenses
Wireless (1)
Cable and Telecom
Cable and Internet
Rogers Home Phone
Rogers Business Solutions
Rogers Retail
Integration costs
Corporate items and eliminations
Media
Corporate items and eliminations
Total
Operating profit, after integration and Rogers Retail store closure expenses (2)
Wireless
Cable and Telecom
Cable and Internet
Rogers Home Phone
Rogers Business Solutions
Rogers Retail
Integration costs
Media
Corporate items and eliminations
Total
Other income and expense, net (3)
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)
2006
2005
% Chg
$
4,580 $
3,860
18.7
1,944
355
596
310
1,735
150
284
327
(4)
(4)
3,201
1,210
(153)
2,492
1,097
(115)
8,838
7,334
12.0
136.7
109.9
(5.2)
–
28.5
10.3
33.0
20.5
2,611
2,523
3.5
1,111
345
547
303
9
(4)
2,311
1,059
(18)
1,012
141
264
309
5
(4)
1,727
969
(29)
5,963
5,190
9.8
144.7
107.2
(1.9)
80.0
–
33.8
9.3
(37.9)
14.9
1,969
1,337
47.3
833
10
49
7
(9)
890
151
(135)
723
9
20
18
(5)
765
128
(86)
2,875
2,144
2,253
2,189
15.2
11.1
145.0
(61.1)
80.0
16.3
18.0
57.0
34.1
2.9
$
622 $
(45)
n/m
$
0.99 $
0.97
(0.08)
(0.08)
n/m
n/m
$
684 $
585
16.9
492
193
98
11
794
48
186
515
121
63
15
714
40
16
$
1,712 $
1,355
32.5%
29.2%
(4.5)
59.5
55.6
(26.7)
11.2
20.0
n/m
26.3
(1) Certain current and prior year amounts related to Wireless equipment sales and cost of equipment sales have been reclassified. See the “Reclassification of Wireless Equipment Sales and Cost of Sales” section
for further details.
(2) As defined. See the “key Performance Indicators and Non-GAAP Measures” section. Operating profit includes integration costs and Rogers Retail store closure expenses of $18 million and $66 million for 2006
and 2005, respectively.
(3) See the “Reconciliation of Operating Profit to Net Income (Loss)” section for details of these amounts.
(4) Prior period per share amounts have been retroactively adjusted to reflect a two-for-one split of the Company’s Class A Voting and Class B Non-Voting shares in December 2006.
(5) Corporate additions to PP&E for 2006 include $105 million for RCI’s purchase of real estate in Brampton, Ontario and $28 million in related improvements.
n/m: not meaningful
20
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our consolidated revenue was $8,838 million in 2006, an increase of
$1,504 million, or 20.5%, from $7,334 million in 2005. Of the increase,
Wireless contributed $720 million, Cable and Telecom $709 million,
and Media $113 million, offset by an increase in corporate items and
eliminations of $38 million.
the year ended December 31, 2006, as compared to a net loss of
$45 million in 2005.
Refer to the respective individual segment discussions for details of
the revenue, operating expenses, operating profit and additions to
PP&E of Wireless, Cable and Telecom, and Media.
Our consolidated operating profit was $2,875 million, an increase of
$731 million, or 34.1%, from $2,144 million in 2005. Of this increase,
Wireless contributed $632 million, Cable and Telecom contributed
$125 million, and Media contributed $23 million. Consolidated
operating profit as a percentage of operating revenue (“operating
profit margin”) increased to 32.5% in 2006 from 29.2% in 2005. On
a consolidated basis, we recorded net income of $622 million for
2006 Per formance Against Targets
The following table sets forth the guidance ranges for selected full
year financial and operating metrics that we provided for 2006, as
revised during the year, versus the actual results we achieved for the
year. As indicated in the table, we either met or exceeded our oper-
ating and financial targets in all categories.
(In millions of dollars, except subscribers)
Revenue
Wireless (network revenue)
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
Orig inal 2006 G uida nce
(At February 9, 2006)
Updates from
Original Guidance
2006
Actual
$
4,125 to $
3,110 to
1,165 to
4,175 $
3,185
1,205
4,125 to $
3,110 to
1,165 to
4,300 $
3,217
1,205
4,313
3,201
1,210
$
1,730 to $
825 to
115 to
1,780 $
860
120
1,730 to $
825 to
115 to
1,905 $
877
130
1,997
899
151
$
600 to $
640 to
650 $
695
600 to $
640 to
650 $
751
624
751
525 to
0 to
175 to
125 to
200 to
575
10
225
175
250
525 to
0 to
175 to
125 to
200 to
575
10
225
175
300
610
13
221
155
318
Rogers Telecom integration
$
50 to $
65 $
50 to $
65 $
52
(1) Before RCI corporate expenses and management fees paid to RCI.
(2) Excludes operating losses related to the Inukshuk fixed wireless initiative and costs associated with the integration of Fido Solutions Inc. (“Fido”).
(3) Excludes costs associated with the integration of Call-Net.
(4) Does not include Corporate, Inukshuk or Media PP&E expenditures or the PP&E expenditures related to the Call-Net integration.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
21
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The items listed below represent the consolidated income and
expense amounts that are required to reconcile operating profit to
net income (loss) as defined under Canadian GAAP.
Reconciliation of Operating Profit to Net Income (Loss)
Years ended December 31,
(In millions of dollars)
Operating profit (1)
Depreciation and amortization
Operating income
Interest expense on long-term debt
Loss on repayment of long-term debt
Foreign exchange gain
Change in the fair value of derivative instruments
Other income
Income tax reduction (expense)
Current
Future
Net income (loss)
(1) As defined. See the “key Performance Indicators and Non-GAAP Measures” section.
2006
2005
% Chg
$
2,875 $
(1,584)
2,144
(1,489)
1,291
(620)
(1)
2
(4)
10
655
(699)
(11)
35
(25)
2
5
(61)
(11)
9
$
622 $
(45)
34.1
6.4
97.1
(11.3)
(90.9)
(94.3)
(84.0)
n/m
n/m
n/m
Depreciation and Amor tization Expense
Depreciation and amortization expense was $95 million higher in
2006, compared to 2005. The increase primarily reflects the addi-
tional depreciation and amortization recognized on property, plant
and equipment (“PP&E”) expenditures and intangible assets arising
from acquisitions during 2005.
Operating Income
Operating income was $1,291 million in 2006, an increase of $636 mil-
lion, or 97.1%, from $655 million in 2005, reflecting growth 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 reduction in interest expense in 2006 compared to 2005 is primar-
ily due to the decrease in debt of more than $750 million, including
the impact of cross-currency interest rate exchange agreements.
This decrease in debt was largely the result of the repayment at
maturity in February 2006 of RCI’s $75 million 10.50% Senior Notes,
the repayment in June 2006 of the 10.5% Wireless Senior Secured
Notes in the aggregate principal amount outstanding of $160 mil-
lion, Wireless’ July 2006 repayment of a mortgage in the aggregate
principal amount outstanding of $22 million, and aggregate net
repayments under our various bank credit facilities of approximately
$452 million.
Loss on Repayment of Long -Term Debt
During 2006, we redeemed $26 million (U.S. $22 million) of RCI’s (via
RTHI, formerly Call-Net Enterprises Inc.) 10.625% Senior Secured
Notes due 2008, resulting in a loss on repayment of long-term debt
of $1 million. In 2005, we redeemed U.S. $114 million of Cable and
Telecom’s 11% Senior Subordinated Guaranteed Debentures due
2015 and $238 million of the 10.625% Senior Secured Notes due 2008.
These redemptions resulted in a loss on repayment of long-term
debt of $11 million in the year ended December 31, 2005, including
the write-off of the related deferred financing costs and deferred
transitional loss.
Foreign Exchange Gain
The foreign exchange gain of $2 million in 2006 arose primarily from
the strengthening of the Canadian dollar during 2006 from $1.1659
at December 31, 2005 to $1.1653 at December 31, 2006, favourably
affecting the translation of the unhedged portion of our U.S. dollar-
denominated debt. In the year ended December 31, 2005, a foreign
exchange gain of $35 million arose, given a 3.77 cent increase in the
Canadian dollar relative to the U.S. dollar.
Change in Fair Value of Derivative Instruments
The changes in fair value of the derivative instruments were primar-
ily the result of the changes in the Canadian dollar relative to that of
the U.S. dollar, as described above, and the resulting change in fair
value of our cross-currency interest rate exchange agreements not
accounted for as hedges.
Other Income
Other income of $10 million in 2006 and $2 million in 2005 was pri-
marily associated with investment income received from certain of
our investments, net of write-downs required to reflect other than
temporary declines in the values of certain investments.
Income Tax Expense
Current income tax expense has historically consisted primarily of
the Canadian Federal Large Corporations Tax (“LCT”). Due to the
elimination of this tax during 2006, no amount has been expensed
22
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
in respect of LCT in 2006. The recovery of $5 million recorded in 2006
relates primarily to the reduction of certain amounts previously
accrued for income tax.
We recorded net future income tax expense in 2006 of $61 million.
Future income tax expense resulted primarily from the utilization of
non-capital loss carryforwards, the benefit of which had previously
been recognized, net of a reduction of the valuation allowance for
future income tax assets. Based on management’s assessment of the
expected realization of future income tax assets during 2006, we
reduced the valuation allowance recorded against certain future
income tax assets by $468 million to reflect that it is more likely than
not that the future income tax assets will be realized. Approximately
$300 million of the reduction in the valuation allowance related to
future income tax assets arising from acquisitions. Accordingly, the
benefit related to these assets has been reflected as a reduction of
goodwill in the amount of $209 million and a reduction of other
intangible assets in the amount of $91 million.
Net Income (Loss) and Earnings (Loss) per Share
We recorded net income of $622 million in 2006, or basic earnings per
share of $0.99 (diluted – $0.97), compared to a net loss of $45 million
or a basic and diluted loss per share of $0.08 in 2005. This increase in
net income was primarily due to the growth in operating profit as dis-
cussed 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 organization and corporate
office, representing an increase of approximately 1,500 from the level
at December 31, 2005. The increase is primarily due to an increase
in our shared services, partially offset by reductions associated with
the integration of Call-Net during the year. Total remuneration paid
to employees (both full and part-time) in 2006 was approximately
$1,462 million, an increase of $241 million from $1,221 million in 2005.
BASIS OF PRO FORMA INFORMATION
Certain financial and operating data information and tables in this
MD&A has been prepared on a pro forma basis as if the acquisition of
Call-Net had occurred on January 1, 2004. Such information is based
on our historical financial statements, the historical financial state-
ments of Call-Net and the accounting for this business combination.
Although we believe this presentation provides certain relevant
contextual and comparative information for existing operations,
the unaudited pro forma consolidated financial and operating
data presented in this document is for illustrative purposes only
and does not purport to represent what the results of operations
actually would have been if the acquisition of Call-Net had occurred
on January 1, 2004, nor does it purport to project the results of oper-
ations for any future period.
This pro forma information reflects, among other things, adjust-
ments to Call-Net’s historically reported financial information to
conform to our accounting policies and the impacts of purchase
accounting. The pro forma adjustments are based upon certain esti-
mates and assumptions that we believe are reasonable. Accounting
policies used in the preparation of these statements are those dis-
closed in our 2006 Audited Consolidated Financial Statements and
Notes thereto.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
23
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
20 07 FINANCIAL AND OPER ATING GUIDANCE
The following table outlines our financial and operational guidance
for the full year 2007. This information is forward-looking and should
be read in conjunction with the section above entitled “Caution
Regarding Forward-Looking Statements, Risks and Assumptions.”
2007 Full Year Guidance Ranges
(In millions of dollars, except subscribers)
Consolidated
Revenue
Operating profit (1)
PP&E expenditures (1)
Free cash flow (2)
Revenue
Wireless (network revenue)
Cable and Telecom (A)
Media (B)
Operating profit (3)
Wireless (4)
Cable and Telecom (A)(1)
Media (B)
PP&E expenditures
Wireless (C)(5)
Cable and Telecom (A)(1)(6)
Media (7)
Net subscriber additions (000s)
Retail wireless postpaid and prepaid (8)
Residential cable revenue generating units (RGUs) (9)
(A) Supplementary Cable and Telecom detail:
(In millions of dollars)
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:
(In millions of dollars)
Revenue
Core Media
Sports Entertainment
Operating profit
Core Media
Sports Entertainment
(C) Supplementary Wireless PP&E expenditures detail:
(In millions of dollars)
Wireless (excluding HSDPA) (5)
HSDPA
2007
Range
9,700
3,250
1,625
800
to $ 10,000 $
to
to
to
3,400
1,750
1,000
4,900
3,615
1,275
to $
to
to
5,000 $
3,700
1,325
2,250
935
150
to $
to
to
2,350 $
975
160
675
815
85
to $
to
to
725 $
880
95
500
625
to
to
600
725
2007
Range
2006
Actual
8,838
2,887
1,669
543
4,313
3,201
1,210
1,997
899
151
624
751
48
610
666
2006
Actual
2,570
560
485
to $
to
to
2,600 $
600
500
2,299
596
310
925
5
5
665
125
25
to $
to
to
to $
to
to
950 $
15
10
700 $
150
30
2007
Range
843
49
7
657
83
11
2006
Actual
1,095
180
to $
to
1,135 $
190
1,034
176
to $
175
(25) to
190 $
(30)
167
(16)
$
$
$
$
$
$
$
$
$
2007
Range
$
425
250
to $
to
450 $
275
2006
Actual
360
264
(1) Excludes integration related expenditures.
(2) Free cash flow is defined as operating profit less PP&E expenditures and interest expense and is not a term defined under Canadian GAAP.
(3) Before management fees paid to RCI in 2006.
(4) Excludes operating losses related to the Inukshuk fixed wireless initiative estimated to be $35 million in 2007.
(5) Excludes PP&E expenditures related to Inukshuk of approximately $25 million in 2007.
(6) Rogers Business Solutions PP&E excludes integration costs estimated to be $25 million to $30 million in 2007.
(7) The increase in Media PP&E primarily reflects the relocation and construction of new studio facilities for Rogers SportsNet.
(8) Wireless subscriber net additions exclude any potential subscriber adjustments associated with the planned TDMA/analog network turndown.
(9) Residential cable RGUs are comprised of basic cable subscribers, digital cable households, residential high-speed Internet subscribers and residential cable and circuit-switched telephony subscribers. Includes
approximately 75,000 migrations from the circuit-switched telephony platform to the cable telephony platform.
24
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The 2007 guidance ranges for Wireless, Cable and Telecom, and
Media reflect the impact of the following intercompany changes
and transactions, which have no impact on consolidated results.
2006 WIRELESS NETWORK REVENUE MIX
(%)
(i) Effective January 2007, the Rogers Video segment of Cable
and Telecom acquired the approximately 170 Wireless-owned
retail locations with a carrying value of approximately $20 mil-
lion, for cash consideration of $73 million, which represented
fair value. This segment, now known as Rogers Retail, will pro-
vide customers with a single direct retail channel featuring all
of our wireless and cable products and services. The combined
operations will continue to be a segment of Cable and Telecom.
In 2007, this will have the impact of increasing revenue and
expenses of Rogers Retail by approximately $175 million, with
no impact on operating profit.
(ii)
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 trans-
ferred certain other land and buildings at fair market value to
RCI. 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.
(iii) 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 approximately $93 million in 2006.
2
SE G MEN T RE VIEW
W I R E L E SS
WIRELESS BUSINESS
Wireless is the largest Canadian wireless communications service
provider, serving approximately 6.8 million retail voice and data
subscribers at December 31, 2006 representing approximately 37%
of Canadian wireless subscribers. Wireless operates a Global System
for Mobile Communications/General Packet Radio Service (“GSM/
GPRS”) network, with Enhanced Data for GSM Evolution (“EDGE”)
technology. Wireless is Canada’s only carrier operating on the world
standard GSM technology platform. The GSM network provides cov-
erage to approximately 94% of Canada’s population. Wireless is also
in the process of deploying a next generation wireless data technol-
ogy called UMTS/HSDPA (“Universal Mobile Telephone System/High
Speed Downlink Packet Access”) across most of the major markets in
Canada and have recently launched the service in parts of Ontario.
Subscribers to its wireless services have access to these services
across the U.S. through roaming agreements with various wireless
operators. Its subscribers also have access to wireless voice service
internationally in 189 countries and wireless data service interna-
tionally in 99 countries, including throughout Europe, Asia, Latin
America, and Africa through roaming agreements with other GSM
wireless providers.
Postpaid 95%
Prepaid 5%
Wireless Products and Ser vices
Wireless offers wireless voice, data and messaging services across
Canada. Wireless voice services are available in either postpaid or
prepaid payment options. In addition, the network provides cus-
tomers 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”).
Wireless Distribution Network
Wireless markets its products and services under both the Rogers
Wireless and Fido brands through an extensive nationwide distribu-
tion network of over 11,500 dealer and retail locations across Canada
(excluding the 297 Rogers Retail locations, which is a segment of
Cable and Telecom), which includes approximately 2,500 locations
selling subscriptions to service plans, handsets and prepaid cards
and approximately 9,000 additional locations selling prepaid cards.
Wireless’ nationwide distribution network includes an independent
dealer network, Rogers Wireless and Fido stores which, effective
January 2007, are managed by Rogers Retail, major retail chains, and
convenience stores. Wireless also offers many of its products and
services through a retail agreement with Rogers Retail, and on its
Rogers Wireless and Fido e-business websites.
Wireless Networks
Wireless is a facilities-based carrier operating its wireless networks
over a broad, national coverage area, much of which is interconnected
by its own fibre-optic and microwave transmission infrastructure.
The seamless, integrated nature of its networks enables subscribers
to make and receive calls and to activate network features anywhere
in Wireless’ coverage area and in the coverage area of roaming part-
ners as easily as if they were in their home area.
Wireless operates a digital wireless GSM network in the 1900 mega-
hertz (“MHz”) and 850 MHz frequency bands across its national
footprint, which was initially deployed in 2002. The GSM network,
which operates seamlessly between the two frequencies, provides
high-speed integrated voice and packet data transmission service
capabilities and utilizes GPRS and EDGE technologies for wireless data
transmission. In December 2005, Wireless initiated testing of UMTS/
HSDPA third generation (“3G”) wireless technology and is now in the
process of deploying this technology across its major markets and
has recently launched the service in parts of Ontario. UMTS/HSDPA is
the next phase of the evolution of the GSM/EDGE platform delivering
high mobility, high bandwidth wireless access for voice and data ser-
vices, as discussed in the “Wireless Additions to PP&E” section.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
25
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fido’s wireless network was also a GSM-based network operating
on the 1900 MHz frequency band. During 2005, Wireless completed
the process of integrating the Rogers Wireless and Fido GSM/GPRS
networks. This network integration enabled Wireless to increase the
density and quality of its wireless coverage while also reducing costs
through the elimination of redundant cell sites and other network
facilities.
Including the acquired Fido spectrum, Wireless holds 25 MHz of
contiguous spectrum across Canada in the 850 frequency range
and 60 MHz in the 1900 frequency range across the country with
the exception of Southwestern Ontario, Northern Quebec, and the
Yukon, Northwest and Nunavut territories where Wireless holds
50 MHz in the 1900 frequency range.
Wireless also holds certain broadband fixed wireless spectrum in the
2300 MHz, 2500 MHz and 3500 MHz frequency ranges. In September
2005, Wireless, together with Bell Canada, announced the formation
of an equally-owned joint venture called Inukshuk to construct a
pan-Canadian wireless broadband network that will be based on the
evolving World Interoperability for Microwave Access (“WiMAX”)
standards. Both companies have contributed fixed wireless spectrum
holdings to the joint venture, along with access to their respective
cellular towers and network backhaul facilities. The fixed wireless
network acts as a wholesale provider of capacity to each of the joint
venture partners who in turn market, sell, support and bill for their
respective service offerings over the network.
WIRELESS STR ATEGY
Wireless’ goal is to drive profitable subscriber and revenue growth
within the Canadian wireless communications industry, and its strat-
egy is designed to maximize cash flow and return on invested capital.
The key elements of its strategy are as follows:
• Enhancing its scale and competitive position in the Canadian wire-
less communications market;
• Focusing on voice and data services that are attractive to youth,
families, and small and medium-sized businesses to optimize its
customer mix;
• Delivering on customer expectations by improving handset reli-
ability, network quality and customer service while reducing
subscriber deactivations, or churn;
• Increasing revenue from existing customers by utilizing analytical
tools to target customers likely to purchase optional services such
as voicemail, caller line ID, text messaging and wireless Internet;
• Enhancing sales distribution channels to increase focus on targeted
customer segments;
• Maintaining the most technologically advanced, high quality and
pervasive wireless network possible; and
• Leveraging relationships across the Rogers group of companies to
provide bundled product and service offerings at attractive prices,
in addition to implementing cross-selling, joint sales distribution
initiatives, and infrastructure sharing initiatives.
26
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
WIRELESS POSTPAID
MONTHLY ARPU
($)
$59.50
$63.56
$67.27
2004
2005
2006
WIRELESS POSTPAID
MONTHLY CHURN
(%)
1.81%
1.61%
1.32%
RECENT WIRELESS INDUSTRY
TRENDS
Focus on Customer Retention
The wireless communications
industry’s current market
pene tration in Canada is
approximately 57% of the
population, compared to
approximately 75% in the U.S.
and approximately 115% in the
United Kingdom, and Wireless
expects the Canadian wire-
less industry to continue to
grow by approximately 4 to
5 percentage points of pen-
etration each 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
a n d T e l e c o m m u n i c a t i o n s
Commission (“CRTC”) is imple-
menting Wireless Number
Portability (“WNP”) which will
result in customer satisfaction
and retention becoming even
more critical over time.
Demand for Sophisticated
Data Applications
2004
2005
2006
$2,502
$3,614
$4,313
WIRELESS NETWORK
REVENUE
(In millions of dollars)
The ongoing development
of wireless data transmission
technologies has led develop-
ers of wireless devices, such as
handsets and other hand-held
devices, to develop more sophis-
ticated wireless devices with
increasingly advanced capabili-
ties, including access to e-mail
and other corporate informa-
tion technology platforms,
news, sports, financial infor-
mation and services, shopping
services, photos, music, and
streaming video clips, mobile
television, and other functions.
Wireless believes that the
introduction of such new appli-
cations will drive the growth
for data transmission services.
As a result, wireless providers will likely continue to upgrade their
wireless networks to be able to offer the data transmission capabili-
ties required by these new applications.
2005
2004
2006
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Migration to Next Generation Wireless Technology
ACQUISITION OF FIDO AND PRIVATIz ATION OF WIRELESS
The ongoing development of wireless data transmission technolo-
gies and the increased demand for sophisticated wireless services,
especially data communications services, have led wireless providers
to migrate towards the next generation of digital voice and data
broadband wireless networks. These networks are intended to pro-
vide wireless communications with wireline quality sound, far higher
data transmission speeds and streaming video capabilities. These
networks support a variety of increasingly advanced data applica-
tions, including 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.
Wireless’ acquisition of Fido was successfully completed effective
November 9, 2004 and made it the largest wireless operator in
Canada and the only Canadian wireless provider operating on the
world standard GSM wireless technology platform. Refer to Note 4
to the 2006 Audited Consolidated Financial Statements for more
details regarding this transaction.
On December 31, 2004, we successfully completed an exchange offer
to purchase all of the publicly-owned Class B Restricted Voting shares
of RWCI, with the consideration being 3.5 RCI Class B Non-Voting
shares for each RWCI Class B share held, and RWCI became a wholly
owned subsidiary of RCI.
Development of Additional Technologies
WIRELESS OPER ATING AND FINANCIAL RESULTS
The development of wireless, Internet Protocol (“IP”)-based tech-
nologies and the development of IP-based applications used by
consumers may accelerate the widespread adoption of 3G digital
voice and data networks. Two key wireless broadband technologies
are developing in addition to 3G, namely WiFi and WiMAX.
WiFi (the IEEE 802.11 industry standard) allows suitably equipped
devices, such as laptop computers and personal digital assistants,
to connect to a wireless access point. These access points utilize
unlicenced spectrum and the wireless connection is only effective
within a local area radius of approximately 50–100 metres of the
access point, and at theoretical shared network/user speeds of up
to 200 megabits per second. As the technology is primarily designed
for in-building wireless access, large numbers of access points must
be deployed to cover the selected local geographic area, and must
also be interconnected with a broadband network to supply the
connectivity to the Internet. Future enhancements to the range of
WiFi service and the networking of WiFi access points may provide
additional opportunities for wireless operators or municipal WiFi
network operators, each providing capacity and coverage under the
appropriate circumstances.
For purposes of this discussion, revenue has been classified according
to the following categories:
• Network revenue, which includes revenue derived from:
• postpaid (voice and data), which consists of revenues gener-
ated principally from monthly fees, airtime and long-distance
charges, optional service charges, system access fees and roam-
ing charges;
• prepaid, which consists of revenues generated principally from
the advance sale of airtime, usage and long-distance charges;
and
• one-way messaging, which consists of revenues generated from
monthly fees and usage charges.
• Equipment sales which consist of revenue generated from the sale
of hardware and accessories to independent dealers, agents and
retailers, and directly to subscribers through direct fulfillment by
Wireless’ customer service groups, websites and telesales, net of
subsidies.
Operating expenses are segregated into the following categories for
assessing business performance:
WiMAX, based on the IEEE 802.16 standard, is a technology that is
being developed to enable broadband speeds over wide area wire-
less networks at a cost point to enable mass market adoption. By
contrast with WiFi, WiMAX is a cellular-like technology that operates
in defined, licenced frequency bands and is thereby not hampered
by interference from other applications and services using the same
frequencies. The technology is designed to operate everywhere from
inside an individual building to tens of kilometres in range and,
depending upon the amount of spectrum allocated and available,
can provide shared or dedicated access to hundreds of megabits of
capacity. There are two main applications of WiMAX today: fixed
WiMAX applications are point-to-multipoint enabling broadband
access to homes and businesses, whereas mobile WiMAX offers the
full mobility of cellular networks at broadband speeds. Both fixed
and mobile applications of WiMAX are engineered to help deliver
ubiquitous, high-throughput wide area broadband wireless services
at a low cost.
• Cost of equipment sales, representing costs related to equipment
revenue;
• Sales and marketing expenses, consisting of costs to acquire new
subscribers such as advertising, commissions paid to third par-
ties for new activations, remuneration and benefits to sales and
marketing employees as well as direct overheads related to these
activities;
• Operating, general and administrative expenses, consisting pri-
marily 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 contribution levy and all other expenses
incurred to operate the business on a day-to-day basis; and
• Integration expenses, relating to the integration of Fido opera-
tions, including certain severance costs, consulting, certain costs of
conversion of billing and other systems.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
27
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reclassification of Wireless Equipment Sales and Cost of Sales
During 2006, Wireless determined that certain equipment subsidies
paid to third party distributors with respect to handset upgrade
activities were historically recorded as cost of equipment sales rather
than as a reduction of equipment revenue. Wireless determined
these subsidies should be reflected as a reduction of equipment rev-
enue and have reclassified current and prior year figures to reflect
this accounting. This resulted in a $206 million reduction in both
equipment revenue and cost of equipment sales in the year ended
December 31, 2006 and reductions of $147 million, $94 million,
$56 million and $48 million for the years ended December 31, 2005,
2004, 2003 and 2002, respectively. There was no change to previously
reported net income (loss) or operating income as a result of this
reclassification. Also, there is no impact on reported cash flow, the
balance sheet, or any Wireless key performance indicators, including
network revenue, ARPU, cost of acquisition, average monthly oper-
ating expense per user or operating profit margin as a percentage of
network revenue. Included in the supplemental information section
is a schedule which presents reclassified results for each quarter of
2005 and 2006 conformed to the current presentation. Reclassified
annual results for the last five years are also included in the supple-
mental information section.
Summarized Wireless Financial Results
Years ended December 31,
(In millions of dollars, except margin)
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 expenses
Operating, general and administrative expenses
Integration expenses (2)
Total operating expenses
Operating profit (3)(4)
$
2006
2005
% Chg
4,084 $
214
15
4,313
267
3,384
210
20
3,614
246
4,580
3,860
628
604
1,376
3
625
604
1,240
54
20.7
1.9
(25.0)
19.3
8.5
18.7
0.5
–
11.0
(94.4)
2,611
2,523
3.5
$
1,969 $
1,337
47.3
Operating profit margin as % of network revenue (4)
45.7%
37.0%
Additions to property, plant and equipment (“PP&E”) (4)
$
684 $
585
16.9
(1) Certain current and prior year amounts related to equipment sales and cost of equipment sales have been reclassified. See the “Reclassification of Wireless Equipment Sales and Cost of Sales” section.
(2) Expenses incurred relate to the integration of the operations of Fido.
(3) Operating profit includes a loss of $25 million and $5 million for the years ended December 31, 2006 and December 31, 2005, respectively, related to the Inukshuk fixed wireless initiative.
(4) As defined. See the “key Performance Indicators and Non-GAAP Measures” section.
Wireless Operating Highlights for the Year Ended December 31, 2006
• Operating revenue increased by 18.7% to $4,580 million in 2006
from $3,860 million in 2005.
• Strong subscriber growth continued in 2006, with net postpaid
additions of 580,100 and net prepaid additions of 30,200.
• Postpaid subscriber monthly churn was 1.32%, the lowest in
Wireless’ history, compared to 1.61% in 2005.
• Postpaid monthly ARPU (average revenue per user) increased 5.8%
from 2005 to $67.27, aided by strong increases in wireless data
revenue.
• Revenues from wireless data services grew approximately 54.5%
year-over-year to $459 million in 2006 from $297 million in 2005,
and represented approximately 10.6% of network revenue com-
pared to 8.2% in 2005.
• Operating profit grew 47.3% year-over-year.
• The Fido integration was essentially completed entering 2006,
with the two GSM networks now fully integrated and all postpaid
and prepaid retail Fido subscribers migrated onto the Wireless
billing platforms.
• Wireless successfully launched its HSDPA network in the Golden
Horseshoe markets of Ontario. This next generation broadband
wireless technology, which Wireless continues to deploy across
other major markets, is the fastest mobile wireless data service
available in Canada.
28
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summarized Wireless Subscriber Results
Years ended December 31,
(Subscriber statistics in thousands, except ARPU, churn and usage)
Postpaid
Gross additions (1)
Net additions (1)
Total postpaid retail subscribers (1)
Average monthly revenue per user (“ARPU”) (2)
Average monthly usage (minutes)
Monthly churn
Prepaid
Gross additions
Net additions (3)
Total prepaid retail subscribers
ARPU (2)
Monthly churn (3)
2006
2005
Chg
% Chg
1,375.2
580.1
5,398.3
1,453.5
603.1
4,818.2
$
67.27 $
545
1.32%
63.56 $
503
1.61%
(78.3)
(23.0)
580.1
3.71
42
(0.29%)
615.4
30.2
1,380.0
576.5
15.7
1,349.8
$
13.49 $
3.70%
13.20 $
3.54%
38.9
14.5
30.2
0.29
0.16%
(5.4)
(3.8)
12.0
5.8
8.3
(18.0)
6.7
92.4
2.2
2.2
4.5
(1) Total postpaid retail subscribers include approximately 31,000 subscribers acquired as part of the purchase of Call-Net Enterprises Inc. on July 1, 2005. These subscribers are not included in gross or net additions
for the year ended December 31, 2005.
(2) As defined. See the “key Performance Indicators and Non-GAAP Measures” section.
(3) Effective November 9, 2004, the deactivation of prepaid subscribers acquired from Fido is recognized after 180 days of no usage to conform to the Wireless prepaid churn definition. This had the impact of
decreasing prepaid subscriber net losses by approximately 12,000 and reducing prepaid churn by 0.10% in the year ended December 31, 2005. There was no impact on the year ended December 31, 2006.
WIRELESS POSTPAID AND
PREPAID SUBSCRIBERS
(In thousands)
4,184
1,334
4,818
1,350
5,398
1,380
WIRELESS
DATA REVENUE
(In millions of dollars)
$142
$297
$459
Wireless Network Revenue
Network revenue of $4,313 mil-
lion accounted for 94.2% of
Wireless’ total revenues in
2006, and increased 19.3% from
2005. This increase was driven
by strong subscriber growth,
improved ARPU and higher
data revenues.
BlackBerry, wireless messaging,
mobile Internet access, down-
loadable ring tones, music,
games, and other wireless data
services and applications.
Prepaid ARPU was $13.49 for the
year ended 2006, an increase of
2.2% compared to 2005.
2004
2005
2006
Prepaid
Postpaid
Net additions of postpaid voice
and data subscribers were
580,100 for 2006, compared to
603,100 in 2005. Prepaid sub-
scriber net additions were
30,200 for 2006, compared to
15,700 in 2005. Postpaid voice
and data ARPU was $67.27 for
the year ended 2006, a 5.8%
increase compared to 2005. ARPU has continued to benefit from
higher data, long distance and roaming revenues and an increase
in the penetration of optional services such as voicemail and caller
ID. As Canada’s only GSM-based provider, Wireless expects to con-
tinue to experience increases in outbound roaming revenues from
Wireless’ subscribers traveling outside of Canada, as well as strong
growth in inbound roaming revenues from travellers to Canada who
utilize Wireless’ network.
Data revenue grew by 54.5% year-over-year, to $459 million for the
year ended December 31, 2006. Data revenue represented approxi-
mately 10.6% of total network revenue in the year ended 2006,
compared to 8.2% in 2005, reflecting the continued rapid growth of
Monthly postpaid voice and
data subscriber churn decreased
to 1.32% in the year ended
December 31, 2006, from 1.61%
in the corresponding period of
2005, as a result of the contin-
ued trend toward multi-year
service contracts and Wireless’
proactive and targeted cus-
tomer retention activities as well as from the increased network
density and coverage quality resulting from the integration of the
Fido GSM network.
2005
2004
2006
Monthly prepaid churn increased modestly to 3.70% for the year
ended December 31, 2006 from 3.54% in the corresponding period
of 2005.
Equipment Sales
Revenue from equipment sales for the year ended December 31,
2006, including activation fees and net of equipment subsidies,
was $267 million, up 8.5% from the corresponding period in 2005.
The year-over-year increase reflects the higher volume of handset
upgrades associated with subscriber retention programs combined
with the generally higher price points of more sophisticated hand-
sets and devices.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
29
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wireless Operating Expenses
Years ended December 31,
(In millions of dollars, except per subscriber statistics)
Operating expenses
Cost of equipment sales (1)
Sales and marketing expenses
Operating, general and administrative expenses
Integration expenses (2)
Total operating expenses
Average monthly operating expense per
subscriber before sales and marketing expenses (3)
Sales and marketing costs per gross
subscriber addition (3)
2006
2005
% Chg
$
628 $
604
1,376
3
625
604
1,240
54
0.5
–
11.0
(94.4)
$
2,611 $
2,523
3.5
$
19.69 $
20.78
(5.2)
$
399 $
388
2.8
(1) Certain current and prior year amounts related to equipment sales and cost of equipment sales have been reclassified. See the “Reclassification of Wireless Equipment Sales and Cost of Sales” section.
(2) Expenses incurred related to the integration of the operations of Fido.
(3) Includes integration expenses for respective periods. As defined. See the “key Performance Indicators and Non-GAAP Measures” section. As calculated in the “Supplementary Information” section.
Cost of equipment sales increased by $3 million for the year ended
2006 compared to 2005. The increase reflects the growing volume
of handset upgrades associated with subscriber retention programs
combined with generally higher price points of more sophisticated
handsets and devices.
Wireless incurred $3 million during the year for integration expenses
associated with the Fido acquisition. These integration expenses
have been recorded within operating expenses. See the section
below entitled “Fido Integration” for more details on integration
costs incurred.
Sales and marketing expenses of $604 million in 2006 were similar
in amount to 2005. Wireless’ marketing efforts during 2006 included
targeted programs to acquire high value customers on longer term
contracts, including several successful handset campaigns, result-
ing 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 the corresponding
period of 2005. The increase is a result of increases in retention spend-
ing and growth in network operating expenses to accommodate the
growth in Wireless’ subscriber base and usage. These increased costs
were partially offset by savings related to more favourable roam-
ing arrangements and operating and scale efficiencies across various
functions.
Total retention spending (including subsidies on handset upgrades)
was $321 million for the year ended 2006, compared to $288 million
in the corresponding period in 2005. Retention spending, on both
an absolute and a per subscriber basis, is expected to continue to
grow as wireless market penetration in Canada deepens and WNP
becomes available in March 2007 as mandated by the CRTC.
The 5.2% year-over-year decrease in average monthly operating
expense per subscriber, excluding sales and marketing expenses
and including integration expenses, primarily reflects operating and
scale efficiencies across various functions.
WIRELESS
OPERATING PROFIT
(In millions of dollars)
$950
$1,337
$1,969
Wireless Operating Profit
Operating profit grew by $632
mil lion, or 47.3%, to $1,969 mil-
lion in the year ended December
31, 2006 from $1,337 mil lion in
the corresponding period of
2005, due to the strong net-
work revenue growth of 19.3%
which exceeded the growth in
operating expenses of 3.5%.
2004
2005
2006
30
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Additions to Wireless PP&E
Years ended December 31,
(In millions of dollars)
Network – capacity
Network – other
HSDPA
Inukshuk
Information technology and other
Integration of Fido
Total Wireless additions to PP&E
The $684 million of additions to PP&E for the year ended December 31,
2006 reflect spending on Wireless’ UMTS/HSDPA deployment as well
as GSM/GPRS network capacity and quality enhancements. There
were no additions to PP&E in the year ended December 31, 2006
related to the Fido integration as the integration has been completed.
On February 9, 2006, Wireless announced that it intended to begin
deploying a 3G network based upon the UMTS/HSDPA standard which
provides data speeds that are superior to those offered by other
3G wireless technologies and which enable us to add incremental
voice and data capacity at significantly lower costs. UMTS/HSDPA is
the next generation technology evolution for the global standard
GSM platform which provides broadband wireless data speeds. Since
UMTS/HSDPA technology is fully backwards compatible with GSM,
subscribers with UMTS/HSDPA enabled devices are able to receive
voice and data services everywhere that Wireless offers wireless
service across Canada, as well as when roaming in other countries
around the world where GSM/GPRS service is available and Wireless
has roaming agreements in place.
The $585 million of additions to PP&E for the year ended December 31,
2005 reflect spending on network capacity and quality enhance-
ments. Network-related additions to PP&E in the year ended 2005
primarily reflect capacity expansion of the GSM network and trans-
mission. The remaining network-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 ended
December 31, 2005 also include $92 million of expenditures related
to the Fido integration.
2006 WIRELESS ADDITIONS TO PP&E
(%)
HSDPA 39%
Inukshuk 9%
Other 16%
Network 36%
2006
2005
% Chg
$
159 $
89
264
60
112
–
$
684 $
286
117
–
–
90
92
585
(44.4)
(23.9)
n/m
n/m
24.4
n/m
16.9
Fido Integration
The integration of Fido was substantially completed during the
year ended December 31, 2005 and was finalized during 2006. Prior
to completion of the Fido acquisition, Wireless developed a plan to
restructure and integrate the operations of Fido and $129 million
was originally accrued as a liability assumed on acquisition in the
allocation of the purchase price as at December 31, 2004. This liability
included severance and other employee-related costs, as well as
costs to consolidate facilities, systems and operations, close cell sites
and terminate leases and other contracts. During 2005, management
revised the restructuring and integration plan for finalization of the
costs for terminations of certain leases and other contracts, finaliza-
tion of severance-related items related to employees identified in
the restructuring plan and finalization of the costs to close duplicate
facilities and cell sites. As a result, a reduction of $56 million was
made in 2005 to the amount of liabilities assumed on acquisition
and the purchase price allocation was adjusted to reflect the final
valuations of tangible and intangible assets acquired as well as final
restructuring and integration plans. Payments of $52 million and
$17 million were made in 2005 and 2006, respectively, against the
adjusted liability of $73 million, and at December 31, 2006 an amount
of $4 million remains outstanding. Wireless expects this amount will
be paid out over the course of 2007.
As part of the acquisition, Wireless incurred certain integration costs
that did not qualify to be included as part of the purchase price
allocation as a liability assumed on acquisition. Rather, these costs
are recorded within operating expenses. These expenses include
various severances, consulting and other incremental restructuring
costs directly related to the acquisition. During 2006, Wireless
incurred $3 million of these expenses related to the Fido acquisition.
During the years ended December 31, 2006 and December 31, 2005,
integration expenditures were made as follows:
Integration Expenditures
(Years ended December 31, in millions of dollars)
2006
2005
Payment of liabilities assumed
on acquisition
Integration expenses included in
operating expenses
Integration related additions to property,
plant and equipment
$
17 $
3
–
52
54
92
Total integration expenditures
$
20 $
198
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
31
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
C A B L E A N D T E L E C O M
C ABLE AND TELECOM’S BUSINESS
Cable and Telecom is one of Canada’s largest providers of cable tele-
vision, cable telephony and high-speed Internet access, and is also a
national, full-service, facilities-based telecommunications alternative
to the traditional telephone companies. Its business is comprised of
the following four segments:
The Cable and Internet segment has 2.3 million basic cable sub-
scribers at December 31, 2006, representing approximately 30% of
basic cable subscribers in Canada. At December 31, 2006, it provided
digital cable services to approximately 1.1 million households and
high-speed Internet service to approximately 1.3 million residential
subscribers.
Through the Rogers Home Phone segment, Cable and Telecom offers
local telephone and long distance services to residential customers
with both voice-over-cable and circuit-switched technologies and
has almost 716,000 subscriber lines as at December 31, 2006.
The Rogers Business Solutions segment offers local and long distance
telephone, enhanced voice and data services, and IP access and
application solutions to Canadian businesses and governments of all
sizes, as well as making most of these offerings available on a whole-
sale basis to other telecommunications providers. At December 31,
2006, there were 205,000 local line equivalents and 31,000 broadband
data circuits.
The Rogers Retail (previously Rogers Video) segment offers digital
video disc (“DVD”) and video game sales and rentals through
Canada’s second largest chain of video rental stores. There were
297 stores at December 31, 2006, many of which provide customers
with the ability to purchase any of the four prime residential Rogers’
services (cable television, Internet, telephone and wireless), to pay
their Rogers’ bills, and to pick up or return Rogers digital and cable
modem equipment. During January 2007, Rogers Retail acquired
approximately 170 retail stores owned by Wireless.
Beginning in 2007, the Cable and Internet and Rogers Home Phone
segments will be combined to better align with management and
internal reporting.
Cable and Telecom’s Products and Ser vices
Cable and Telecom has highly-clustered and technologically
advanced broadband networks in Ontario, New Brunswick and
Newfoundland and Labrador. Its Ontario cable systems, which com-
prise approximately 90% of its 2.3 million basic cable subscribers,
are concentrated in and around three principal clusters: (i) the
Greater Toronto Area, Canada’s largest metropolitan centre; (ii)
Ottawa, the capital city of Canada, and (iii) the Guelph to London
corridor in southern Ontario. Its New Brunswick and Newfoundland
and Labrador cable systems in Atlantic Canada comprise the balance
of its subscribers.
Through its technologically advanced broadband networks, Cable
and Telecom offers a diverse range of services, including analog and
digital cable, residential Internet services, and voice-over-cable tele-
phony services.
32
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
As at December 31, 2006, more than 85% of Cable and Telecom’s
overall network and 97% of its network in Ontario has been
upgraded to transmit 860 MegaHertz (“MHz”) of bandwidth. With
approximately 99% of Cable and Telecom’s network offering digital
cable services, it has a richly featured and highly-competitive video
offer which includes high-definition television (“HDTV”), video-on-
demand (“VOD”), subscription video-on-demand (“SVOD”), personal
video recorders (“PVR”), time-shifted programming, pay-per-view
(“PPV”) movies and events, as well as a significant line-up of digital
specialty, multicultural and sports programming.
Cable and Telecom’s Internet services are available to over 97% of
homes passed by its network. Cable and Telecom offers multiple
tiers of Internet services under the Rogers Yahoo! brand, differenti-
ated largely by modem bandwidth settings.
Cable and Telecom’s voice-over-cable telephony services were intro-
duced in July 2005 and have grown both in the number of subscribers
and in the size of the geographic area where the service is avail-
able. At December 31, 2006, Cable and Telecom’s voice-over-cable
telephony services were available to approximately 90% of homes
passed by its network.
Cable and Telecom offers multi-product bundles at discounted rates
to existing and new customers. These bundles allow customers to
choose from among a range of cable, Internet, home phone voice-
over-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 solutions, and present several advantages to its busi-
ness customers: a single flexible network that encompasses a range
of access types from various digital subscriber technologies (“xDSL”)
to Ethernet allowing a customer to tailor a solution to precisely
match the requirements of each site; a migration path from legacy
frame relay services, which delivers more bandwidth, more flexibil-
ity and a platform for emerging converged IP applications; and an
opportunity to simplify customers’ data solutions, moving from dis-
parate services to a single IP platform.
Cable and Telecom also offers DVD and video game sales and rentals
through Rogers Retail, Canada’s second largest chain of video rental
stores. There were 297 stores at December 31, 2006. These stores also
provide customers with the additional ability to acquire Cable and
Telecom and Wireless products and services, to pay their cable televi-
sion, Internet or Wireless bills and to pick up or return Rogers digital
cable and Internet equipment.
2006 CABLE AND TELECOM REVENUE MIX
(%)
Core Cable 44%
Retail 10%
Home Phone 11%
High-speed Internet 16%
Business Solutions 19%
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cable and Telecom’s Distribution
In addition to the Rogers Retail stores, as described above, Cable and
Telecom markets its services through an extensive network of third
party retail locations across its network footprint. Effective January 1,
2007, Cable and Telecom acquired approximately 170 Wireless-owned
retail locations. This segment, which is now known as Rogers Retail,
will provide customers with a single direct retail channel featuring
all of the wireless and cable products and services. In addition, Cable
and Telecom markets its services and products through a variety of
channels including outbound telemarketing, field agents, direct mail,
television advertising and affinities. Cable and Telecom also offers
products and services and customer service via its e-business website,
www.rogers.com. The information contained in or connected to our
website is not a part of and not incorporated into this MD&A.
Groups of an average of 495 homes are served from each optical
node in a cable architecture commonly referred to as fibre-to-the-
feeder (“FTTF”). The FTTF plant provides bandwidth up to 860 MHz,
which includes 37 MHz of bandwidth used for “upstream” transmis-
sion from the subscribers’ premises to the primary hub. Cable and
Telecom believes the upstream bandwidth is ample to support mul-
tiple cable modem systems, cable telephony, and data traffic from
interactive digital set-top terminals for at least the near term future.
When necessary, additional upstream capacity can be provided by
reducing the number of homes served by each optical node by what
is called node-splitting. Fibre cable has been placed to permit a
reduction of the average node size from 495 to 350 homes by install-
ing additional optical transceiver modules and optical transmitters
and return receivers in the head-ends and primary hubs.
Cable and Telecom markets and sells its business products through
a variety of channels including its own direct sales force, exclusive
and non-exclusive agents as well as through business affinities and
associations.
Cable and Telecom’s Networks
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 aggregated and routed to and from
customers, by inter-city fibre-optic rings. The fibre-optic interconnec-
tions allow its multiple Ontario and New Brunswick cable systems
to function as a single cable network. Cable and Telecom’s remain-
ing subscribers in Newfoundland and Labrador, and New Brunswick
are served by local head-ends. Cable and Telecom’s two regional
head-ends in Toronto, Ontario and Moncton, New Brunswick pro-
vide the source for most television signals used in the cable systems.
Cable and Telecom’s technology architecture is based on a three-
tiered structure of primary hubs, optical nodes and co-axial
distribution. The primary hubs, located in each region that it serves,
are connected by inter-city fibre-optic systems carrying television,
Internet, network control and monitoring and administrative traffic.
The fibre-optic systems are generally constructed as rings that allow
signals to flow in and out of each primary hub, or head-end, through
two paths, providing protection from a fibre cut or other disruption.
These high-capacity fibre-optic networks deliver high performance
and reliability and have capacity for future growth in the form of dark
fibre and unused optical wavelengths. Approximately 99% of the
homes passed by Cable and Telecom’s network are fed from primary
hubs, or head-ends, which each serve on average 93,000 homes. The
remaining 1% of the homes passed by the network are in smaller and
more rural systems mostly in New Brunswick and Newfoundland and
Labrador which are, on average, served by smaller primary hubs.
Optical fibre joins the primary hub to the optical nodes in the cable
distribution plant. Final distribution to subscriber homes from optical
nodes uses co-axial cable with two-way amplifiers to support on-
demand television and Internet service. Co-axial cable capacity has
been increased repeatedly by introducing more advanced amplifier
technologies. Cable and Telecom believes co-axial cable is a cost-
effective and widely deployed means of carrying two-way television
and broadband Internet services to residential subscribers.
Cable and Telecom believes that the 860 MHz FTTF architecture
provides sufficient bandwidth for foreseeable growth in television,
data, voice and other future services, extremely high picture quality,
advanced two-way capability and network reliability. This architec-
ture also allows for other emerging technologies such as switched
video and MPEG4, and offers the ability to continue to expand ser-
vice offerings on the existing infrastructure. In addition, Cable and
Telecom’s clustered network of cable systems served by regional
head-ends facilitates its ability to rapidly introduce new services
to large areas of subscribers. In new construction projects in major
urban areas, Cable and Telecom 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 net-
work devices being deployed. FTTC also provides greater capacity for
future narrowcast services.
Cable and Telecom’s voice-over-cable telephony services are offered
over an advanced broadband IP multimedia network layer deployed
across the cable service areas. This network platform provides for
a scalable primary line quality digital voice-over-cable telephony
service utilizing Packet Cable and Data Over Cable Service Interface
Specification (“DOCSIS”) standards, including network redundancy
as well as multi-hour network and customer premises backup
powering.
To serve telephony customers on circuit-switched platforms, Cable
and Telecom co-locates its equipment in the switch centres of the
incumbent local phone companies (“ILECs”). At December 31, 2006,
Cable and Telecom was active in 175 co-locations in 60 munici-
palities in five of Canada’s most populous metropolitan areas in
and around Vancouver, Calgary, Toronto, Ottawa, and Montreal.
Many of these co-locations are connected to its local switches by metro
area fibre networks (“MANs”). Cable and Telecom also operates a
North American transcontinental fibre-optic network extending over
16,000 route kilometres (10,000 route miles) providing a significant
North American geographic footprint connecting Canada’s larg-
est markets while also reaching key U.S. markets for the exchange
of data and voice traffic. In Canada, the network extends from
Vancouver in the West to Quebec City in the East. Cable and Telecom
also acquired various CLEC assets of GT from Bell Canada in Ontario,
Quebec and Newfoundland and Labrador. The assets include local,
regional and long-haul fibre, transmission electronics and systems,
GT’s hubs, points of presence (“POPs”) and ILEC co-locations, and
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
33
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CABLE AND TELECOM
TOTAL REVENUE
(In millions of dollars)
$2,764
$2,925
$3,201
2004
Pro forma
2005
Pro forma
2006
switching infrastructure. Cable
and Telecom’s network extends
into the U.S. from Vancouver
south to Seattle in the west,
from the Manitoba-Minnesota
border, through Minneapolis,
Milwaukee and Chicago in the
mid-west and from Toronto
through Buffalo and Montreal
through Albany to New York
City in the east. Cable and
Telecom has connected its North
American network with Europe
through international gate-
way switches in New York City,
London, England, and a leased
trans-Atlantic fibre facility.
Where Cable and Telecom
doesn’t have its own local facilities directly to a business customer’s
premises, Cable and Telecom provides its local services through a
hybrid carrier strategy. Cable and Telecom has deployed its own
scalable switching and intelligent services infrastructure while using
connections between its co-located equipment and customer prem-
ises, provided largely by other carriers.
C ABLE AND TELECOM’S STR ATEGY
Cable and Telecom seeks to maximize subscribers, revenue, oper-
ating profit, and return on invested capital by leveraging its
technologically advanced cable network to meet the information,
entertainment and communications needs of its subscribers, from
basic cable television to advanced two-way cable services, including
digital cable, Internet access, voice-over-cable telephony service, PPV,
VOD, SVOD, PVR and HDTV, as well as the expansion of its services
into the business telecom and data networking market. The key ele-
ments of the strategy are as follows:
• Clustering of cable systems in and around metropolitan areas;
• Offering a wide selection of products and services;
• Maintaining technologically advanced cable networks;
• Continuing to focus on increased quality and reliability of service;
• Leveraging relationships within the Rogers group of companies
to provide bundled product and service offerings at attractive
prices, in addition to implementing cross-selling and joint sales
distribution initiatives as well as cost-reduction initiatives through
infrastructure sharing;
• Continuing 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 its
cable service areas; and
• Further expanding into the business market by offering enhanced
voice and data services and IP access and application solutions to
Canadian businesses and governments of all sizes.
34
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
RECENT C ABLE AND TELECOM INDUSTRY TRENDS
Investment in Improved Cable Television Networks and Expanded
Ser vice Offerings
In recent years, North American cable television companies have
made substantial investments in the installation of fibre-optic cable
and electronics in their respective networks and in the development
of Internet, digital cable and voice-over-cable telephony services.
These investments have enabled cable television companies to offer
expanded packages of analog and digital cable television services,
including VOD and SVOD; expanded analog and digital services, pay
television packages, PVR, HDTV programming, multiple increasingly
fast tiers of Internet services and telephony services.
Increased Competition from Alternative Broadcasting
Distribution Under takings
As fully described in the Competition section of this MD&A, Canadian
cable television systems generally face legal and illegal competition
from several alternative multi-channel broadcasting distribution
systems.
Industr y Consolidation and Grow th of Facilities- Based
Competitors
The Canadian telecommunications industry has seen a consolidation
of players in the wireline industry with the acquisitions in 2004 and
2005 of GT by Bell Canada, Allstream by MTS and Call-Net by Rogers.
Competition remains intense in the long distance markets with
average price per minute continuing to decline year-over-year.
Facilities-based competitors in the local telephone market have
emerged in the residential and small and medium-sized business
markets with the launch of competitive local telephone service by
Canadian cable companies using their own last mile facilities in
2005. Until 2005, competitors to the ILECs made use of resold ILEC
facilities and services to provide retail service in these markets. There
has been very limited local facilities-based competition in the large
enterprise market.
Grow th of Internet Protocol Based Ser vices
Another development has been the launch of Voice-over-Internet
Protocol (“VoIP”) local services by non facilities-based providers in
2005 and 2006. These companies’ VoIP services are marketed to the
subscribers of ILEC, cable and other companies’ high-speed Internet
services and the providers include Vonage, Primus, Babytel, and others.
In the enterprise market, there is a continuing shift to IP-based services,
in particular from asynchronous transfer mode (“ATM”) and frame
relay (two common data networking technologies) to IP delivered
through virtual private networking (“VPN”) services. This transition
results in lower costs for both users and carriers.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
C ABLE AND TELECOM OPER ATING AND FINANCIAL RESULTS
Reorganization of Cable and Telecom Group
Operating expenses are segregated into the following categories for
assessing business performance:
On January 9, 2006, we completed an internal reorganization
whereby the ownership interest in the operating subsidiaries of RTHI
was transferred to Rogers Cable Inc. As a result of this transaction,
beginning with the results for the three months ended March 31,
2006, we report on the “Cable and Telecom” operating unit which
is comprised of the following segments: Cable and Internet,
Rogers Home Phone, Rogers Business Solutions and Rogers Retail.
Comparative figures for 2005 have been reclassified to reflect this
new reporting.
For purposes of this discussion, revenue has been classified according
to the following categories:
• Cable, which includes revenue derived from:
• analog cable service, consisting of basic cable service fees plus
extended basic (or tier) service fees, and access fees for use of
channel capacity by third and related parties; and
• digital cable service revenue, consisting of digital channel ser-
vice fees, including premium and specialty service subscription
fees, PPV service fees, VOD service fees, and revenue earned on
the sale and rental of set-top terminals;
• Internet, which includes service revenues from residential Internet
access service and modem sale and rental fees;
• Rogers Home Phone, which includes revenues from residen-
tial local telephony service, long-distance and additional calling
features;
• Rogers Business Solutions, which includes local and long distance
revenues, enhanced voice and data services revenue from business
customers, as well as the sale of these offerings on a wholesale
basis to other telecommunications providers; and
• Rogers Retail, which includes the sale and rental of DVDs and video
games and the sale of confectionary, as well as commissions Rogers
Retail earns while acting as an agent to sell other Rogers’ services,
such as wireless, Internet, digital cable and cable telephony.
• 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
Rogers Retail chain;
• Operating, general and administrative expenses, which include all
other expenses incurred to operate the business on a day-to-day
basis and to service subscriber relationships, including:
• the monthly contracted payments for the acquisition of pro-
gramming paid directly to the programming suppliers as well
as to copyright collectives and the Canadian Programming
Production Funds;
• Internet interconnectivity and usage charges and the cost of
operating Cable and Telecom’s Internet service;
• Intercarrier payments for interconnect to the local access and
long distance carriers related to cable and circuit-switched tele-
phony service;
• technical service expenses, which includes the costs of operat-
ing and maintaining cable networks as well as certain customer
service activities such as installations and repair;
• customer care expenses, which include the costs associated with
customer order-taking and billing inquiries;
• community television expenses, which consist of the costs to
operate a series of local community-based television stations in
Cable and Telecom’s cable licenced systems;
• other general and administrative expenses;
• expenses related to the corporate management of the Rogers
Retail stores;
• Integration costs associated with combining Cable and Call-Net;
and
• Cost of Rogers Retail sales, which is composed of store merchan-
dise 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 and cable telephony services, continues
to grow and the variable costs associated with this growth, such as
commissions for subscriber activations, as well as the fixed costs of
acquiring new subscribers are significant. As such, fluctuations in
the number of activations of new subscribers from period to period
result in fluctuations in sales and marketing expenses.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
35
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summarized Cable and Telecom Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Cable
Internet
Rogers Home Phone
Rogers Business Solutions
Rogers Retail
Intercompany eliminations
Total operating revenue
Operating expenses
Cable and Internet
Rogers Home Phone
Rogers Business Solutions
Rogers Retail (1)
Integration costs (2)
Intercompany eliminations
Total operating expense
Operating profit (loss) (3)
Cable and Internet
Rogers Home Phone
Rogers Business Solutions
Rogers Retail (1)
Integration costs (2)
Total operating profit
Operating profit margin: (3)
Cable and Internet
Rogers Home Phone
Rogers Business Solutions
Rogers Retail
Additions to property, plant and equipment (“PP&E”) (3)
Cable and Internet
Rogers Home Phone
Rogers Business Solutions
Rogers Retail
Total additions to PP&E
(1) Rogers Retail operating expenses for 2006 include $6 million related to the closure of 21 stores in the first quarter of 2006.
(2) Integration costs incurred relate to the integration of the operations of Call-Net.
(3) As defined. See the “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information” sections.
(4) Certain prior year amounts have been reclassified to conform to the current year presentation.
(5) See the “Basis of Pro Forma Information” section for a discussion of considerations in the preparation of this pro forma information.
2005
2006
Actual
Actual Reclassified (4)
% Chg
Actual
Pro Forma (5) Reclassified (4)
2005
9.4
20.0
136.7
109.9
(5.2)
–
28.5
9.8
144.7
107.2
(1.9)
80.0
–
33.8
15.2
11.1
145.0
(61.1)
80.0
16.3
$
1,421 $
523
355
596
310
(4)
1,299 $
436
150
284
327
(4)
1,299
441
300
562
327
(4)
3,201
2,492
2,925
1,111
345
547
303
9
(4)
1,012
141
264
309
5
(4)
1,015
263
508
309
19
(4)
2,311
1,727
2,110
833
10
49
7
(9)
723
9
20
18
(5)
725
37
54
18
(19)
$
890 $
765 $
815
42.8%
2.8%
8.2%
2.3%
41.7%
6.0%
7.0%
5.5%
41.7%
12.3%
9.6%
5.5%
$
492 $
193
98
11
515 $
121
63
15
515
127
85
15
$
794 $
714 $
742
(4.5)
59.5
55.6
(26.7)
11.2
OPER ATING HIGHLIGHTS FOR THE YEAR ENDED
DECEMBER 31, 20 06
• Cable and Telecom increased its subscriber bases by 318,000 cable
telephony subscribers, 155,000 high-speed residential Internet sub-
scribers, 221,000 digital cable households, and 13,000 basic cable
subscribers.
• Cable and Telecom concluded the final phase of a multi-staged
transaction to acquire certain of the CLEC assets of Group Telecom/
360Networks from Bell Canada, including approximately 3,400 route
kilometres of multi-stranded local and regional 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
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
fixed wireless offering, was made available in major cities across
Canada, while ADSL2 high-speed Internet service was launched
in Vancouver and other Ontario centres outside of its traditional
cable footprint.
• Cable and Telecom announced Rogers Yahoo! High-Speed
Extreme Plus Internet service, which offers customers speeds of up
to 18 megabits per second.
• Cable and Telecom expanded the availability of its residential tele-
phony service to approximately 90% of homes passed by its cable
networks.
Total operating revenue increased $276 million or 9.4%, on a pro forma
basis, from 2005, and total operating profit increased to $826 million
or by $52 million, on a pro forma basis, a 6.7% increase from 2005.
See the following segment discussions for a detailed discussion of
operating results.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
C ABLE AND INTERNET
Summarized Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Cable
Internet
Total
Operating expenses
Sales and marketing expenses
Operating, general and administrative expenses
Total
Operating profit (1)
Operating profit margin (1)
(1) As defined. See the “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information” sections.
(2) Certain prior year amounts have been reclassified to conform with the current year presentation.
Summarized Subscriber Results
Years ended December 31,
(Subscriber statistics in thousands, except ARPU)
Cable homes passed
Basic cable, net gain (1)
Basic cable subscribers
Core cable ARPU (2)
Residential high-speed Internet, net additions (1)
Residential high-speed Internet subscribers (3)
Internet ARPU (2)(3)
Digital terminals, net additions
Digital terminals in service
Digital households, net additions (1)
Digital households
2005
% Chg
2006
Actual
Actual
Actual Reclassified (2) Reclassified (2)
$
1,421 $
523
1,299
436
1,944
1,735
123
988
123
889
1,111
1,012
$
833 $
723
42.8%
41.7%
9.4
20.0
12.0
–
11.1
9.8
15.2
2006
Actual
2005
Actual
3,480.8
13.3
2,277.1
3,387.5
9.2
2,263.8
$
52.37 $
48.09 $
154.8
1,291.0
205.0
1,136.2
$
36.02 $
35.04 $
357.7
1,497.4
220.7
1,134.0
344.0
1,139.7
237.8
913.3
Chg
93.3
4.1
13.3
4.28
(50.2)
154.8
0.98
13.7
357.7
(17.1)
220.7
(1) Effective August 2005, voluntarily deactivating Cable and Internet subscribers are required to continue service for 30 days from the date termination is requested. This continued service period, which is consis-
tent with the subscriber agreement terms and conditions, resulted in approximately 9,500 greater net basic cable additions, 5,200 greater high-speed Internet additions and 3,800 greater digital household net
additions in 2005.
(2) As defined. See the “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information” sections.
(3) Residential high-speed Internet subscribers do not include residential ADSL and fixed wireless subscribers. The prior year high-speed Internet subscriber base was reduced by approximately 8,900 to reclassify
non-residential customers into the Rogers Business Solutions segment.
DIGITAL CABLE
HOUSEHOLDS
(In thousands)
675
913
1,134
Cable Revenue
The increase in Cable revenue in 2006 reflects a combination of price
increases, growth in basic subscribers and growing penetration of
Cable and Telecom’s digital products. The price increases on service
offerings effective March 2006 contributed to the year-over-year
cable revenue growth by approximately $53 million. The remaining
increase in revenue of $69 million is related mainly to the impact of
the growth in basic and digital subscribers.
The basic subscriber base of nearly 2.3 million has increased by
approximately 13,000 in 2006 and represents approximately 65.4% of
homes passed. The digital subscriber base growth of 24.2% during
2006 to over 1.1 million households represents a 49.8% penetration
of basic cable customers and was driven by increases in program-
ming and the demand for Cable and Telecom’s high-definition and
personal video recorder digital equipment.
Internet (Residential) Revenue
The increase in Internet rev-
enues from the corresponding
period
in 2005 primarily
reflects the 13.6% year-over-
year increase in the number of
Internet subscribers combined
with certain price increases for
Cable and Telecom’s Internet
offerings. The price increases on
Cable and Telecom’s Internet
offerings, effective March 2006,
contributed to the year-over-
year Internet revenue growth
by approximately $29 million.
2004
2005
2006
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
37
The remaining increase in rev-
enue is related mainly to the
impact from the growth in
subscribers. With the Internet
subscriber base now at approxi-
mately 1.3 million, Cable and
Telecom has 37.1% penetration
of high-speed Internet ser-
vice as a percentage of homes
passed by its cable networks.
C a ble a n d I nte rn et O p e rat in g
Expenses and Operating Profit
Cable and Internet sales and
marketing expenses were at a
level consistent with the prior
year. The increases in operat-
ing, general and administrative
CABLE AND TELECOM
OPERATING PROFIT
(In millions of dollars)
$808
$815
$890
2004
Pro forma
2005
Pro forma
2006
costs compared to the prior
year were driven by the sub-
stantial increase in Cable and
Telecom’s digital cable and
Internet penetration result-
ing in higher costs associated
with programming content,
Internet costs, customer care,
technical service, network, and
engineering costs associated
with the support of the larger
subscriber bases.
The increase in Cable and
Internet operating profit and
operating profit margins from
2005 reflects the growth in
revenue which outpaced the
growth in operating expenses.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CABLE INTERNET
SUBSCRIBERS
(In thousands)
931
1,136
1,291
2004
2005
2006
ROGERS HOME PHONE
Summarized Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Operating expenses
Sales and marketing expenses
Operating, general and administrative expenses
Total operating expenses
Operating profit (1)
Operating profit margin (1)
(1) As defined. See the “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information” sections.
(2) Certain prior year amounts have been reclassified to conform with the current year presentation.
(3) See the “Basis of Pro Forma Information” section for a discussion of considerations in the preparation of this pro forma information.
Summarized Subscriber Results
Years ended December 31,
(Subscriber statistics in thousands)
Cable telephony subscriber lines
Net additions (1)
Total cable telephony subscriber lines
Circuit-switched subscriber lines
Net additions (losses and migrations) (1)
Total circuit-switched subscriber lines
Total residential telephony subscriber lines
2005
2006
Actual
Actual Reclassified (2)
2005
% Chg
Pro Forma (3) Pro Forma (3)
$
355 $
150 $
300
18.3
96
249
345
27
114
141
$
10 $
9 $
45
218
263
37
113.3
14.2
31.2
(73.0)
2.8%
6.0%
12.3%
2006
Actual
2005
Pro Forma (2)
Chg
Actual
318.0
365.9
47.9
47.9
270.1
318.0
(41.2)
349.6
715.5
79.8
390.8
438.7
(121.0)
(41.2)
276.8
(1) Includes approximately 36,700 migrations from circuit-switched to cable telephony subscriber lines during 2006.
(2) See the “Basis of Pro Forma Information” section for a discussion of considerations in the preparation of this pro forma information.
We believe that the pro forma information for 2005 presented in
this section presents a meaningful comparative analysis given that
Call-Net’s results are consolidated effective as of the July 1, 2005
acquisition date. The following discussion on the Rogers Home
Phone results includes pro forma comparisons for 2005.
Rogers Home Phone Revenue
The growth in Rogers Home Phone revenues in 2006 is mainly a
result of the year-over-year growth in the cable telephony subscriber
base partially offset by a decline in the number of circuit-switched
local lines and a decline of approximately $18 million, on a pro forma
basis, in long distance revenues. Approximately 36,700 of the decrease
in circuit-switched subscriber lines is due to the migration of those
38
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
lines from circuit-switched lines
to cable telephony lines within
Cable and Telecom’s cable ter-
ritory. Despite the decline in
circuit-switched lines in the
year, revenue increased by
$11 million on a pro forma basis,
over 2005 due to a higher aver-
age number of circuit-switched
lines during the year compared
to 2005. The net growth in the
Rogers Home Phone subscriber
base contributed to incremen-
tal local service revenues of
approximately $73 million, on a
pro forma basis, during 2006.
Rogers Home Phone Operating Expenses and Operating Profit
The significant growth and expansion of both sales and marketing
and operations associated with the launch of the cable telephony
service and overall increase in subscribers drove the increases in oper-
ating expenses of $82 million, on a pro forma basis, during 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 aware-
ness of the product, increased capacity to install and significantly
higher customer acquisition costs.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ROGERS HOME PHONE
SUBSCRIBERS
(In thousands)
48
391
366
350
2005
2006
Cable Telephony Residential Subscribers
Switched Residential Telephony Subscribers
ROGERS BUSINESS SOLUTIONS
Summarized Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Operating expenses
Sales and marketing expenses
Operating, general and administrative expenses
Total operating expenses
Operating profit (1)
Operating profit margin (1)
(1) As defined. See the “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information” sections.
(2) Certain prior year amounts have been reclassified to conform with the current year presentation.
(3) See “Basis of Pro Forma Information” section for discussion of considerations in the preparation of this pro forma information.
Summarized Subscriber Results
Years ended December 31,
(Subscriber statistics in thousands)
Local line equivalents (1)
Net additions
Total local line equivalents
Broadband data circuits (2)
Net additions
Total broadband data circuits
2005
2006
Actual
Actual Reclassified (2)
2005
% Chg
Pro Forma (3) Pro Forma (3)
$
596 $
284 $
562
6.0
70
477
547
38
226
264
$
49 $
20 $
71
437
508
54
(1.4)
9.2
7.7
(9.3)
8.2%
7.0%
9.6%
2006
Actual
2005
Chg
Pro Forma (3) Pro Forma (3)
33.4
205.0
17.5
171.6
9.5
31.0
6.2
21.5
15.9
33.4
3.3
9.5
(1) Local line equivalents include individual voice lines plus Primary Rate Interfaces (“PRIs”) at a factor of 23 voice lines each and includes both wholesale and retail customers.
(2) Broadband data circuits are those customer locations accessed by data networking technologies including DOCSIS, DSL, E10/100/1000, OC 3/12 and DS 1/3.
(3) See “Basis of Pro Forma Information” section for discussion of considerations in the preparation of this pro forma information.
We believe that the pro forma information for 2005 presented in
this section presents a meaningful comparative analysis given that
Call-Net’s results are consolidated effective as of the July 1, 2005
acquisition date. The following discussion on the Rogers Business
Solutions results includes pro forma comparisons for 2005.
Rogers Business Solutions Revenue
The increase in Rogers Business Solutions (“RBS”) revenue reflects
growth in each of data, local and long distance components of
revenue. During 2006, data revenues grew by $12 million, local ser-
vices grew by $10 million, and long distance grew by $12 million, on
a pro forma basis, compared to 2005.
RBS ended the year with 205,000 local line equivalents and 31,000
broadband data circuits in service at December 31, 2006, represent-
ing year-over-year growth rates of 19.5% and 44.2%, on a pro forma
basis, respectively.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
39
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The increase in long distance revenue resulted from an increase in
volume of 11% over 2005. Approximately 82% of the increase in long
distance volume relates to increases in the intercompany sale of
long distance to Wireless. The volume increases were partially off-
set by the ongoing decline in average revenue per minute, which
decreased 6% in 2006.
RBS continues to focus on selling local and data products, especially
IP-enabled solutions, thereby decreasing its reliance on long distance
revenues. The combination of local and data revenue represented
56% of total revenue for 2006, with the growth in local and data rev-
enue being offset by the declines in long distance revenue, excluding
transactions with Wireless.
BUSINESS SOLUTIONS
LOCAL LINE EQUIVALENTS
(In thousands)
BUSINESS SOLUTIONS
BROADBAND DATA CIRCUITS
(In thousands)
172
205
22
31
2005
2006
2005
2006
ROGERS RETAIL
Summarized Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Operating expenses (1)
Operating profit (2)
Operating profit margin (2)
Rogers Business Solutions Operating Profit
Carrier charges, which are included in operating, general and admin-
istrative expenses, increased by $43 million to $342 million for 2006,
on a pro forma basis. Carrier charges represented approximately
57.5% of revenue in 2006, compared to 53.3% of revenue in 2005.
The net increase in carrier charges is the result of higher volume,
product mix changes, and regulatory changes.
Decreases of other operating, general and administrative expenses
of $3 million in 2006, on a pro forma basis, are related to scale effi-
ciencies achieved across various functions.
Mainly due to the pricing pressures on long distance and the higher
carrier costs and other general and administrative expenses, RBS
operating profit margin decreased to 8.2% in 2006, compared to
9.6%, on a pro forma basis, in 2005.
2006
Actual
2005
Actual
$
310 $
303
$
7 $
327
309
18
2.3%
5.5%
% Chg
(5.2)
(1.9)
(61.1)
(1) Operating expenses for 2006 include $6 million related to the closure of 21 stores in the first quarter of 2006.
(2) As defined. See the “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information” sections.
Rogers Retail Revenue
The decline in revenues at the Rogers Retail stores was primarily due
to lower video rental and sales revenues. Initiatives were introduced
to increase customers’ spending, which resulted in dollars per trans-
action increasing 13.0% in 2006 compared to 2005; however, same
store customer transactions decreased 12.6%, compared to 2005 due
to a decrease in total visits. Also, same store revenue declined 1.2%
in 2006, compared to the prior year. Rogers Retail has recently taken
additional steps with respect to its pricing and late-fee structures aimed
at reversing the trend of lower same store customer transactions.
Rogers Retail Operating Expenses and Operating Profit
The year-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 such that the con-
struction, rebuild and expansion of a cable system are highly
40
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
capital-intensive. The Cable and Internet segment categorizes its
additions to PP&E according to a standardized set of reporting cate-
gories that were developed and agreed to by the U.S. cable television
industry and which facilitate comparisons of additions to PP&E
between different cable companies. Under these industry definitions,
Cable and Internet additions to PP&E are classified into the following
five categories:
• Customer premises equipment (“CPE”), which includes the equip-
ment for digital set-top terminals, Internet modems and the
associated installation costs;
• Scalable infrastructure, which includes non-CPE costs to meet busi-
ness growth and to provide service enhancements, including many
of the costs to-date of the cable telephony initiative;
• Line extensions, which includes network costs to enter new service
areas;
• Upgrade and rebuild, which includes the costs to modify or replace
existing coaxial cable, fibre-optic network electronics; and
• Support capital, which includes the costs associated with the pur-
chase, replacement or enhancement of non-network assets.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summarized Cable and Telecom PP&E Additions
Years ended December 31,
(In millions of dollars)
Cable and Internet (3)
Customer premise equipment
Scalable infrastructure
Line extensions
Upgrade and rebuild
Support capital
Rogers Home Phone
Rogers Business Solutions (4)
Rogers Retail stores
2005
2006
Actual
Actual Reclassified (1)
2005
% Chg
Pro Forma (2) Pro Forma (2)
$
230 $
106
64
10
82
492
193
98
11
249 $
119
56
3
88
515
121
63
15
249
119
56
3
88
515
127
85
15
(7.6)
(10.9)
14.3
n/m
(6.8)
(4.5)
52.0
15.3
(26.7)
7.0
Total Cable and Telecom Additions to PP&E
$
794 $
714 $
742
(1) Certain prior year amounts have been reclassified to conform with the current year presentation.
(2) See “Basis of Pro Forma Information” section for a discussion of considerations in the preparation of this pro forma information.
(3) Included in Cable and Internet PP&E additions is integration expenses related to the integration of Call-Net of $28 million and $2 million, for the years ended December 31, 2006 and December 31, 2005, respectively.
(4) Included in Rogers Business Solutions PP&E additions is integration expenses related to the integration of Call-Net of $15 million and $2 million, for the years ended December 31, 2006 and December 31, 2005,
respectively.
The year-over-year increase in additions to PP&E is attributable
to an increase in spending at Rogers Home Phone and Rogers
Business Solutions, offset by lower spending at Cable and Internet
and Rogers Retail.
The increase in additions to Rogers Home Phone PP&E compared to
2005 are primarily due to capacity on the cable network associated
with the year-over-year increase in subscriber additions including
related spending on customer premises equipment.
The increase in additions to Rogers Business Solutions PP&E com-
pared to the prior year is primarily due to the completion of the final
phase of the purchase of the GT assets from Bell Canada and other
network enhancements.
2006 CABLE AND TELECOM ADDITIONS TO PP&E
(%)
Cable and Internet 62%
Retail 1%
Business Solutions 12%
Home Phone 25%
M E D I A
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. In
addition to Media’s more traditional broadcast and print media plat-
forms, it also delivers content and conducts e-commerce over the
Internet relating to many of its individual broadcasting and publish-
ing properties.
Media’s Broadcasting group (“Broadcasting”) comprises 51 radio
stations across Canada (42 FM and 9 AM radio stations); two multi-
cultural television stations in Ontario (OMNI.1 and OMNI.2); a
multicultural television station in Manitoba (OMNI.11); a spiritually-
themed television station in Vancouver (OMNI.10); a specialty sports
television service licenced to provide regional sports programming
across Canada (“Rogers Sportsnet”), and Canada’s only nation-
ally televised shopping service (“The Shopping Channel”). Through
Rogers Sportsnet, Media also holds 50% ownership in Dome
Productions, a mobile production and distribution joint venture
that is a leader in HDTV production in Canada. Broadcasting also
owns The Biography Channel Canada, holds minority interests in
several Canadian specialty television services, including Viewers
Choice Canada and Outdoor Life Network, and holds a majority
interest in G4TechTV Canada. In the case of G4TechTV Canada,
Broadcasting is also the managing partner.
Media’s Publishing group (“Publishing”) publishes more than
70 consumer magazines and trade and professional publications and
directories in Canada.
In addition to its organic growth, Media expanded its business in
2006 through the following initiatives: the launch of the Canadian
edition of Hello! and Chocolat magazines; the launch of OMNI.11
Television in Winnipeg, Manitoba, the acquisition of Canadian
Parents Online, and the increased ownership of The Biography
Channel and G4TechTV Canada, to 100% and 66.67%, respectively.
On January 1, 2007, Media closed the $40 million acquisition of five
Alberta radio stations announced earlier in 2006 which brought the
total number of radio stations owned by Media to 51. The stations
are located in Edmonton and Fort McMurray, Alberta and include
licences in several small Alberta markets.
2006 MEDIA REVENUE MIX
(%)
Publishing 24%
The Shopping
Channel 23%
OMNI TV 6%
Sportsnet TV 14%
Sports Entertainment 14%
Radio 19%
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
41
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MEDIA’S STR ATEGY
Media seeks to maximize revenues, operating profit and return on
invested capital across each of its businesses. Media’s strategies to
achieve this objective include:
• Focusing on specialized content and audiences through radio,
publication and sports properties, as well as continued develop-
ment of its portfolio of specialty channel investments;
• Continuing to leverage its strong media brand names to increase
advertising and subscription revenues, assisted by the cross-
promotion of its properties across its media formats and in asso-
ciation with the “Rogers” brand;
• Focusing on growth and continuing to cross-sell advertising and
share content across its properties and over its multiple media
platforms; and
• Enhancing the Sports Entertainment fan experience by adding
talented players to improve the Blue Jays win-loss record and by
making physical upgrades to the Rogers Centre.
RECENT MEDIA INDUSTRY TRENDS
Increased Fragmentation of Radio and T V
In recent years, Canadian radio and television broadcasters have had
to operate in increasingly fragmented markets. Canadian consumers
have a growing number of radio and television services available to
them, providing them with an increasing number of different pro-
gramming formats. In the radio industry, since the introduction of
its Commercial Radio Policy in 1998, the CRTC has licenced numerous
new radio stations through competitive processes in most markets
across Canada. In that time, the CRTC has also licenced a large
number of additional new FM stations through AM to FM station
conversions. In 2005, the CRTC licenced two satellite radio providers,
both of which are affiliated with U.S. satellite operators and both of
which began offering service in Canada. In the television industry,
the CRTC has licenced a number of new, over-the-air stations and
a significant number of new digital television services. The new
services and the new formats combine to fragment the market for
existing radio and television operators.
Summarized Media Financial Results
Years ended December 31,
(In millions of dollars)
Operating revenue
Operating expenses
Operating profit (1)
Operating profit margin (1)
Additions to property, plant and equipment (1)
(1) As defined. See the “key Performance Indicators and Non-GAAP Measures”.
Ownership of Canadian radio and TV stations appears to be
consolidating if proposals by CTVglobemedia, Canwest Global
Communications Corp., and Astral Media Inc. to buy CHUM Limited,
Alliance Atlantis Communications Inc. and Standard Radio Inc.,
respectively, receive government and regulatory approval. If
approved the Canadian industry would be left with fewer owners
but larger competitors in the media marketplace.
MEDIA OPER ATING AND FINANCIAL RESULTS
Media’s revenues primarily consist of:
• Advertising revenues;
• Circulation and subscription revenues;
• Retail product sales; and
• Sales of tickets, receipts of league revenue sharing and concession
sales associated with our sports businesses.
Media’s operating expenses consist of:
• Cost of sales, which is primarily comprised of the cost of retail
product at The Shopping Channel;
• Sales and marketing expenses; and
• Operating, general and administrative expenses, which include
programming costs, production expenses, circulation expenses,
player salaries and other back-office support functions.
SUMMARIzED MEDIA FINANCIAL RESULTS
Effective June, 2006, due to increased ownership, the results of
operations of The Biography Channel Canada and G4TechTV Canada
are consolidated with the results of Media. Effective January 2005,
ownership and management of Rogers’ sports operations were
transferred to Media. As such, beginning in the first quarter of 2005,
the results of operations of the Toronto Blue Jays and Rogers Centre
are reported as part of the Media segment.
2006
2005
% Chg
$
1,210 $
1,059
1,097
969
$
151 $
128
12.5%
$
48 $
11.7%
40
10.3
9.3
18.0
20.0
Media Operating Revenue
Revenue growth for 2006 was $113 million, an increase of 10.3%
over 2005, and reflects growth across all of Media’s divisions. This
increase includes higher advertising revenue in Publishing, Radio,
and OMNI, and at Sportsnet where Toronto Blue Jays games and
World Cup Soccer attracted large audiences. The Shopping Channel
continued to generate strong consumer demand for products.
Sports Entertainment revenue grew through higher baseball ticket
sales. The addition of OMNI BC, the launch of OMNI Manitoba, the
launch of Hello! and Chocolat magazines, and consolidation of The
Biography Channel Canada and G4TechTV Canada as a result of
increased ownership in the second quarter of 2006 also contributed
to the increase in revenue.
42
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Media Operating Expenses
MEDIA
REVENUE
(In millions of dollars)
$957
$1,210
$1,097
Operating expenses for 2006
increased by $90 million from
2005. The increase in Media
o p e r a t i n g e x p e n s e s a r e
primarily due to higher base-
ball player payroll at Sports
Entertainment, increased pro-
gramming costs at Sportsnet
associated with World Cup
Soccer and the return of NHL
hockey after a lock-out during
the 2005 season, as well as costs
associated with Publishing’s
launch of the Canadian edition
of Hello! and Chocolat maga-
zines. Also, OMNI’s acquisition
of OMNI BC and launch of OMNI
Manitoba, the consolidation
of The Biography Channel Canada and G4TechTV 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 par-
tially offset by lower general and administrative costs.
2005
2004
2006
MEDIA
OPERATING PROFIT
(In millions of dollars)
$115
$128
$151
Media Operating Profit
Operating profit for 2006
increased $23 million over
2005, and the operating profit
margin was 12.5% compared
to 11.7% in 2005. The changes
discussed above drove the year-
over-year increases in Media’s
operating profit, as well as the
corresponding increase in oper-
ating profit margins.
Additions to Media PP&E
2004
Total additions to Media’s PP&E
in 2006 were $48 million, com-
pared to $40 million in 2005.
The increase in 2006 was pri-
marily due to enhancements
and renovations at the Rogers Centre sports and entertainment
venue in Toronto.
2005
2006
CONSOLIDATED CASH FLOW
FROM OPERATIONS
(In millions of dollars)
$1,305
$1,551
$2,386
2004
2005
2006
Taking
into account the
changes in non-cash working
capital items for the year
ended December 31, 2006, cash
generated from operations
was $2,461 million, compared
to $1,253 million in 2005.
The cash flow generated from
operations of $2,461 million,
together with the following
items, resulted in total net funds
of approximately $2,537 mil-
lion raised in the year ended
December 31, 2006:
• Receipt of $74 million from
the issuance of Class B Non-
Voting shares under the exercise of employee stock options; and
• Addition of $2 million of cash on hand as a result of acquisitions.
Net funds used during 2006 totalled approximately $2,452 million,
the details of which include:
• Additions to PP&E of $1,578 million, net of $134 million related
changes in non-cash working capital;
• $160 million for the repayment at maturity of Wireless’ $160 mil-
lion 10.5% Senior Secured Notes;
• An aggregate net repayment of $452 million of outstanding
advances under our bank credit facilities;
• $75 million for the repayment at maturity of RCI’s 10.50% Senior
Notes;
• $26 million to fund the redemption of our U.S. $22 million remain-
ing outstanding amount of RCI’s (via RTHI, formerly Call-Net
Enterprises Inc.) 10.625% Senior Secured Notes due 2008;
• An aggregate $25 million net repayment of mortgage and capital
leases;
• The payment of an aggregate $20 million on termination of cross-
currency interest rate exchange agreements;
• The payment of dividends of $47 million on our Class A Voting and
Class B Non-Voting shares;
• Additions to program rights of $32 million; and
• Other acquisitions and net investments of $37 million, including
the final phase of an acquisition of certain CLEC assets.
Taking into account the $104 million cash deficiency at the beginning
of the year, the cash deficiency at December 31, 2006 was $19 million.
3
CO NS OLID AT ED LIQ UIDI TY AND F INANCING
Financing
LIQUIDIT Y AND C APITAL RESOURCES
Operations
For 2006, cash generated from operations before changes in non-
cash operating items, which is calculated by adjusting to remove the
effect of all non-cash items from net income, increased to $2,386 mil-
lion from $1,551 million in 2005. The $835 million increase is primarily
the result of the increase in operating profit of $731 million and the
decrease in interest expense of $79 million.
Our long-term debt is described in Note 15 to the 2006 Audited
Consolidated Financial Statements.
During 2006, the following financing activities took place. An aggre-
gate $738 million of debt was repaid consisting of: $452 million of
outstanding advances under our bank credit facilities; $160 million
aggregate principal amount at maturity on June 1, 2006 of Wireless’
10.50% Senior Secured Notes due 2006; $75 million aggregate princi-
pal amount at maturity on February 14, 2006 of RCI’s 10.50% Senior
Notes due 2006; $26 million (U.S. $22 million) aggregate principal
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
43
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
amount that remained outstanding of RCI’s (via RTHI, formerly Call-
Net Enterprises Inc.) 10.625% Senior Secured Notes due 2008 which
was redeemed on January 3, 2006; and $25 million of mortgages and
leases. In addition, Wireless paid aggregate net cash settlements of
$20 million upon the maturities in June 2006 and December 2006 of
cross-currency interest rate exchange agreements in the aggregate
notional amount of U.S. $327 million and RCI received $74 million
from the issuance of Class B Non-Voting shares under the exercise of
employee stock options.
5.3x
3.9x
2.7x
RATIO OF DEBT TO
OPERATING PROFIT*
($)
In July 2006, Cable and Telecom
entered into an amendment to
its bank credit facility to insert
provisions for the springing
release of security in a similar
fashion as provided in all of
Cable and Telecom’s public debt
indentures. This provision pro-
vides that if Cable and Telecom
has two investment grade rat-
ings on its debt and there is no
other debt or cross-currency
interest rate exchange agree-
ment secured by a bond issued
under the Cable and Telecom
deed of trust, then the security
provided for a particular debt
instrument will be discharged
upon 45 days prior notice by
Cable and Telecom. A similar amendment has been made in each
of Cable and Telecom’s cross-currency interest rate exchange
agreements.
* Includes debt and derivatives at carrying value
2006
2005
2004
Covenant Compliance
All of the Rogers companies are currently in compliance with all
of the covenants under their respective debt instruments, and we
expect to remain in compliance with all of these covenants. Based on
our most restrictive debt covenants at December 31, 2006, we could
have borrowed approximately $2.14 billion of additional secured
long-term debt under existing credit facilities, in addition to the
$160 million outstanding at December 31, 2006.
2007 Cash Requirements
We anticipate that Wireless will generate a net cash surplus in 2007
from cash generated from operations. We also expect Wireless to
make distributions to RCI in the form of intercompany advances or
distributions of capital. We expect that Wireless has sufficient capital
resources to satisfy its cash funding requirements in 2007, including
the funding of distributions to RCI, taking into account cash from
operations and the amount available under its $700 million bank
credit facility.
We expect that Cable and Telecom will generate a net cash shortfall
in 2007. In addition, Cable and Telecom’s $450 million 7.60% Senior
Secured Second Priority Notes matured in February 2007. We expect
that Cable and Telecom will have sufficient capital resources to sat-
isfy its cash funding requirements in 2007, taking into account cash
from operations, the amount available under its $1.0 billion bank
credit facility and intercompany advances from RCI.
44
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
We expect that Media will generate a net cash surplus in 2007 and
that Media has sufficient capital resources to satisfy its cash funding
requirements in 2007, taking into account cash from operations and
the amount available under its $600 million bank credit facility.
We believe that, on an unconsolidated basis, RCI will have, taking
into account interest income and repayments of intercompany
advances, together with the receipt of rental payments paid by the
operating subsidiaries and advances or distributions from Wireless
and investments from cash on hand, sufficient capital resources to
satisfy its cash funding requirements in 2007. Effective December 31,
2006, the payment of management fees by subsidiary companies
ceased. In addition, Cable and Telecom will no longer distribute
$6 million per month on a regular basis to RCI.
In the event that we or any of our operating subsidiaries do require
additional funding, we believe that any such funding requirements
would be satisfied by issuing additional debt financing, which may
include the restructuring of existing bank credit facilities or issuing
public or private debt at any of the operating subsidiaries or at
RCI or issuing equity of RCI, all depending on market conditions. In
addition, we or one of our subsidiaries may refinance a portion of
existing debt subject to market conditions and other factors. There is
no assurance that this will or can be done.
Required Principal Repayments
At December 31, 2006, the required repayments on all long-term debt
in the next five years totalled $2,459 million. The required repay-
ments in 2007 consist mainly of Cable and Telecom’s $450 million
7.60% Senior Secured Second Priority Notes which have since been
repaid at maturity in February 2007. The remaining required repay-
ments are in 2010 and 2011. The required repayments in 2010 consist
of Wireless’ $641 million (U.S. $550 million) Floating Rate Senior
Secured Notes together with $160 million outstanding under bank
credit facilities, all of which mature in 2010. The required principal
repayments in 2011 consist of Wireless’ $571 million (U.S. $490 million)
9.625% Senior Secured Notes and $460 million 7.625% Senior Secured
Notes and Cable and Telecom’s $175 million 7.25% Senior Secured
Second Priority Notes.
Credit Ratings
On March 6, 2007, Moody’s Investors Service upgraded the senior
secured debt ratings of Cable and Telecom and of Wireless to Baa3
(from Ba1), upgraded the senior subordinated debt rating of Wireless
to Ba1 (from Ba2) and changed the ratings outlook to stable (from
under review for possible upgrade). In addition, the corporate fam-
ily rating for RCI was withdrawn (previously Ba1), as this benchmark
rating for speculative grade companies is no longer applicable. On
January 9, 2007, Moody’s upgraded the corporate family rating of
RCI as well as the senior secured debt ratings of Cable and Telecom
and of Wireless to Ba1 (from Ba2) and upgraded the senior subor-
dinated debt rating of Wireless to Ba2 (from B1). In addition, the
ratings 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 Wireless were also increased
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
to Ba2 (from Ba3), while the senior subordinated debt rating of
Wireless was increased to Ba3 (from B2). All of these ratings had a
positive outlook.
On February 27, 2007, Fitch Ratings increased the issuer default rat-
ings for RCI, Wireless and Cable and Telecom to BBB- (from BB) and
increased the senior secured debt ratings for Wireless and Cable
and Telecom to BBB- (from BB+), while the senior subordinated debt
rating for Wireless was affirmed at BB and the ratings outlook for
each of RCI, Wireless and Cable and Telecom was revised to stable
(from positive). On July 26, 2006, Fitch upgraded the ratings for RCI,
Wireless and Cable and Telecom. The issuer default ratings for each
of RCI, Wireless and Cable and Telecom were increased to BB (from
BB-), the senior secured debt ratings for each of Wireless and Cable
and Telecom were affirmed at BB+, the senior subordinated debt
rating for Wireless was increased to BB (from BB-) and the ratings
outlook for each of RCI, Wireless and Cable and Telecom was
increased to positive (from stable).
Deficiency of Pension Plan Assets Over Accrued Obligations
As disclosed in Note 19 to our 2006 Audited Consolidated Financial
Statements, our pension plans had a deficiency of plan assets over
accrued obligations for each of these years. In addition to our regu-
lar contributions, we are making certain minimum monthly special
payments to eliminate this deficiency. In 2006, the special payment
totalled approximately $5 million. Our total estimated annual fund-
ing requirements, which include both our regular contributions and
these special payments, are expected to decrease from $28 million in
2006 to $25 million in 2007, subject to annual adjustments thereaf-
ter, 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 on this basis. As further discussed
in the section of this MD&A entitled “Critical Accounting Estimates”,
changes in factors such as the discount rate, the rate of compensa-
tion increase and the expected return on plan assets can impact the
accrued benefit obligation, pension expense and the deficiency of
plan assets over accrued obligations in the future.
On October 4, 2006, Standard & Poor’s Ratings Services raised the cor-
porate credit rating of RCI, Wireless and Cable and Telecom to BB+
with a stable outlook (from BB with a positive outlook). At the same
time, the rating for Wireless’ senior secured debt was increased to
BB+ with a stable outlook (from BB with a positive outlook), the rat-
ing for Cable and Telecom’s senior secured debt was affirmed at BB+
and the outlook was revised to stable (from positive) and the rat-
ing for Wireless’ senior subordinated debt was increased to BB- with
a stable outlook (from B+ with a positive outlook). On October 27,
2005, Standard & Poor’s revised its outlook on all of the Rogers pub-
lic debt to positive from stable.
Credit ratings are intended to provide investors with an indepen-
dent measure of credit quality of an issue of securities. Ratings for
debt instruments range from AAA, in the case of Standard & Poor’s
and Fitch, or Aaa in the case of Moody’s, which represent the high-
est quality of securities rated, to D, in the case of Standard & Poor’s,
C, in the case of Moody’s and Substantial Risk in the case of Fitch,
which represent the lowest quality of securities rated. The ratings on
Wireless’ and Cable and Telecom’s senior secured debt of BBB- from
Fitch and Baa3 from Moody’s represent the minimum investment
grade ratings.
The credit ratings accorded by the rating agencies are not recom-
mendations to purchase, hold or sell the rated securities inasmuch as
such ratings do not comment as to market price or suitability for a
particular investor. There is no assurance that any rating will remain
in effect for any given period of time or that any rating will not be
revised or withdrawn entirely by a rating agency in the future if in
its judgment circumstances so warrant.
INTEREST R ATE AND FOREIGN ExCHANGE MANAGEMENT
Economic Hedge Analysis
For the purposes of our discussion on the hedged portion of long-
term debt, we have used non-GAAP measures in that we include
all cross-currency interest rate exchange agreements (whether or
not they qualify as hedges for accounting purposes) since all such
agreements are used for risk management purposes only and
are designated hedges of specific debt instruments for economic
purposes. As a result, the Canadian dollar equivalent of U.S. dollar-
denominated long-term debt reflects the contracted foreign
exchange rate for all of our cross-currency interest rate exchange
agreements regardless of qualifications for accounting purposes as
a hedge.
During 2006, the consolidated aggregate amount of our U.S. dollar-
denominated debt decreased by U.S. $22 million due to the January
2006 redemption of our $26 million (U.S. $22 million) remaining out-
standing amount of the Company’s 10.625% Senior Secured Notes
due 2008. The only other change in our hedging status during 2006
was on an economic basis and was due to the maturities in June 2006
and December 2006 of cross-currency interest rate exchange agree-
ments in the aggregate notional amount of U.S. $327 million. As
a result, as at December 31, 2006, 91.4% (2005 – 97.7%) of our U.S.
dollar-denominated debt was hedged on an economic basis and
85.6% (2005 – 85.2%) remained hedged on an accounting basis.
As a result of financing activities during the year, including changes
in cross-currency interest rate exchange agreements, RCI’s consoli-
dated hedged position, on an economic basis, changed during the
year as noted below.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
45
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consolidated Hedged Position
(In millions of dollars, except percentages)
December 31, 2006
December 31, 2005
U.S. dollar-denominated long-term debt
Hedged with cross-currency interest rate exchange agreements
Hedged exchange rate
Percent hedged
Amount of long-term debt (2) at fixed rates:
Total long-term debt
Total long-term debt at fixed rates
Percent of long-term debt fixed
Weighted average interest rate on long-term debt
US $
US $
4,895
4,475
1.3229
91.4% (1)
Cdn $
Cdn $
7,658
6,851
89.5%
7.98%
US $
US $
Cdn $
Cdn $
4,917
4,802
1.3148
97.7%
8,410
7,077
84.1%
7.76%
(1) Pursuant to the requirements for hedge accounting under AcG-13, “Hedging Relationships”, at December 31, 2006, RCI accounted for 93.6% (2005 – 87.3%) of its cross-currency interest rate exchange agreements
as hedges against designated U.S. dollar-denominated debt. At December 31, 2006, 85.6% (2005 – 85.2%) of consolidated U.S. dollar-denominated debt was hedged for accounting purposes versus 91.4%
(2005 – 97.7%) on an economic basis.
(2) Long-term debt includes the effect of the cross-currency interest rate exchange agreements.
FIXED VERSUS FLOATING DEBT COMPOSITION
(%)
were financial institutions with a Standard & Poor’s rating (or other
equivalent) ranging from A+ to AA+.
Fixed 89.5%
Floating 10.5%
We use derivative financial instruments to manage our risks from
fluctuations in foreign exchange and interest rates. These instru-
ments include interest rate and cross-currency interest rate exchange
agreements, foreign exchange forward contracts and, from time-to-
time, foreign exchange option agreements. All such agreements are
used for risk management purposes only and are designated as a
hedge of specific debt instruments for economic purposes. In order
to minimize the risk of counterparty default under these agree-
ments, we assess the creditworthiness of these counterparties. At
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$
$ 0.01
0.03
0.05
0.10
Because our operating income is almost exclusively denominated in
Canadian dollars, the incurrence of U.S. dollar-denominated debt
has caused significant foreign exchange exposure. We will continue
to monitor our hedged position on an economic basis with respect
to interest rate and foreign exchange fluctuations and, depending
upon market conditions and other factors, may adjust our hedged
position with respect to foreign exchange fluctuations or interest
rates in the future by unwinding certain existing positions and/or by
entering into new cross-currency interest rate exchange agreements
or by using other instruments.
Certain of our U.S. dollar-denominated long-term debt instruments
are not hedged for accounting purposes. Changes in the foreign
exchange rate would impact the Canadian dollar carrying value, in
accordance with GAAP, of this unhedged long-term debt, as well
as our interest expense and earnings per share on a full-year basis,
as follows:
Cdn$ Change in
Carrying Value of
Long-Term Debt (1)
Cdn$ Change
in Annual
Interest Expense
$
7
21
35
70
$
0.4
1.1
1.9
3.7
Change in
Earnings
Per Share (2)
$ 0.009
0.028
0.047
0.094
(1) Canadian equivalent of unhedged U.S. dollar-denominated debt, on a GAAP basis, if U.S. dollar costs an additional Canadian cent.
(2) Based upon the number of shares outstanding, on a post-split basis, at December 31, 2006.
At December 31, 2006 interest expense would have changed by
$8 million if there was a 1% change in the interest rates on the por-
tion of our long-term debt that is not at fixed interest rates.
Outstanding Common Shares
Class A Voting
Class B Non-Voting
December 31, 2006
112,467,648
523,231,804
OUTSTANDING SHARE DATA
Set out below is our outstanding share data as at December 31,
2006. For additional detail, refer to Note 20 to the 2006 Audited
Consolidated Financial Statements.
Outstanding Options to Purchase Class B Non-Voting Shares
December 31, 2006
Outstanding Options
Number of Outstanding Options Exercisable
19,694,860
14,160,866
46
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DIVIDENDS AND OTHER PAYMENTS ON RCI EQUIT Y SECURITIES
The dividend policy is reviewed periodically by the Board. The dec-
laration and payment of dividends are at the sole discretion of the
Board and depend on, among other things, our financial condition,
general business conditions, legal restrictions regarding the pay-
ment of dividends by us, some of which are referred to below, and
other factors which the Board may, from time to time, consider to be
relevant. As a holding company with no direct operations, we rely
on cash dividends and other payments from our subsidiaries and our
own cash balances to pay dividends to our shareholders. The ability
of our subsidiaries to pay such amounts to us is limited and is subject
to the various risks as outlined in this discussion, including, without
limitation, legal and contractual restrictions contained in instruments
governing subsidiary debt. All dividend amounts have been restated
to reflect a two-for-one split of our Class B Non-voting and Class A
Voting shares in December 2006.
On February 15, 2007, we declared a quarterly dividend of $0.04 per
share on each of our outstanding Class B Non-voting and Class A
Voting shares. This quarterly dividend will be paid on April 2, 2007 to
shareholders of record on March 15, 2007.
During 2006, the Board declared dividends in aggregate of $0.0775
per share on each of its outstanding Class B Non-Voting shares, and
Class A Voting shares, $0.0375 of which were paid on July 4, 2006 to
shareholders of record on June 14, 2006, and $0.04 of which were paid
on January 2, 2007 to shareholders of record on December 20, 2006.
In October 2006, our Board of Directors (“the Board”) declared
a 113% increase to the dividend paid for each of our outstanding
Class B Non-Voting shares and Class A Voting shares. Accordingly,
the annual dividend per share increased from $0.075 per share to
$0.16 per share, on a post-split basis. In addition, the Board modi-
fied our dividend distribution policy to make dividend distributions
on a quarterly basis instead of semi-annually. The first such distri-
bution was made on January 2, 2007, to shareholders of record on
December 20, 2006.
In December 2005, the Board declared a 50% increase to the divi-
dend paid for each of our outstanding Class B Non-Voting shares
and Class A Voting shares. Accordingly, the annual dividend per
share increased from $0.05 per share to $0.075 per share, and were
Material Obligations Under Firm Contractual Arrangements
(In millions of dollars)
Long-term debt
Derivative instruments (1)
Mortgages and capital leases
Operating leases
Player contracts
Purchase obligations (2)
Other long-term liabilities
Total
paid twice yearly in the amount of $0.0375 per share to holders of
record of such shares on the record date established by the Board
for each dividend at the time such dividend was declared. These divi-
dends 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 share-
holders of record on December 28, 2005.
During 2005, the Board declared dividends in aggregate of $0.0625 per
share on each of its outstanding Class B Non-Voting shares, and Class A
Voting shares, $0.025 of which were paid on July 2, 2005 to share-
holders of record on June 14, 2005 and $0.0375 of which were paid
on January 6, 2006 to shareholders of record on December 28, 2005.
ANNUALIZED DIVIDENDS
PER SHARE AT YEAR END
($)
$0.05
$0.075
$0.16
In May 2004, the Board adopted
a dividend policy that provided
for dividends aggregating,
annually, $0.05 per share to
be paid on each outstanding
Class A Voting share and Class B
Non-Voting share. Pursuant to
this policy, the dividends were
paid twice yearly in the amount
of $0.025 per share to holders
of record of such shares on the
record date.
2005
2004
During 2004, the Board declared
dividends in aggregate of $0.05
per share on each of its out-
standing Class B Non-Voting
shares, Class A Voting shares
and Series E Preferred shares, $0.025 of which were paid on July 2,
2004 to shareholders of record on June 16, 2004 and $0.025 of
which were paid on January 2, 2005 to shareholders of record on
December 12, 2004.
2006
COMMITMENTS AND OTHER CONTR AC TUAL OBLIGATIONS
Contractual Obligations
Our material obligations under firm contractual arrangements are
summarized below at December 31, 2006. See also Notes 15, 23, and
24 to the 2006 Audited Consolidated Financial Statements.
Less Than
1 Year
1–3 Years
4–5 Years
$
450 $
7
1
163
82
781
2
– $
9
1
248
143
957
63
2,008 $
198
–
151
95
29
18
After
5 Years
4,492 $
493
–
79
73
30
20
Total
6,950
707
2
641
393
1,797
103
$ 1,486 $
1,421 $
2,499 $
5,187 $ 10,593
(1) Amounts reflect net disbursements only.
(2) Purchase obligations consist of agreements to purchase goods and services that are enforceable and legally binding and that specify all significant terms including fixed or minimum quantities to be purchased,
price provisions and timing of the transaction. In addition, we incur expenditures for other items that are volume-dependent.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
47
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OFF-BAL ANCE SHEET ARR ANGEMENTS
Guarantees
As a regular part of our business, we enter into agreements that
provide for indemnification and guarantees to counterparties in
transactions involving business sale and business combination agree-
ments, sales of services and purchases and development of assets.
Due to the nature of these indemnifications, we are unable to make
a reasonable estimate of the maximum potential amount we could
be required to pay counterparties. Historically, we have not made
any significant payment under these indemnifications or guaran-
tees. Refer to Note 24 to the 2006 Audited Consolidated Financial
Statements.
Derivative Instruments
As previously discussed, we use derivative instruments to manage
our exposure to interest rate and foreign currency risks. We do not
use derivative instruments for speculative purposes.
Operating Leases
We have entered into operating leases for the rental of premises,
distribution facilities, equipment and microwave towers and other
contracts. The effect of terminating any one lease agreement would
not have an adverse effect on us as a whole. Refer to “Contractual
Obligations” above and Note 23 to the 2006 Audited Consolidated
Financial Statements.
4
O P ERA T ING E NVI RONM ENT
G OV E R N M E N T R E G U L AT I O N A N D R E G U L AT O RY
D E V E L O P M E N T S
Substantially all of our business activities, except for Cable and
Telecom’s Rogers Retail segment and the non-broadcasting opera-
tions 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 CRTC under the
Telecommunications Act (Canada) (the “Telecommunications Act”)
and the CRTC under the Broadcasting Act (Canada) (the “Broadcasting
Act”), and, accordingly, our results of operations are affected by
changes in regulations and by the decisions of these regulators.
C ANADIAN R ADIO -TELEVISION AND TELECOMMUNIC ATIONS
COMMISSION
Canadian broadcasting operations, including our cable television
systems, radio and television stations, and specialty services are
licenced (or operated pursuant to an exemption order issued) and
regulated by the CRTC pursuant to the Broadcasting Act. Under the
Broadcasting Act, the CRTC is responsible for regulating and super-
vising all aspects of the Canadian broadcasting system with a view to
implementing certain broadcasting policy objectives enunciated in
that Act. The CRTC is also responsible under the Telecommunications
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.
48
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
Under the Telecommunications Act, the CRTC has the power to
exempt any class of Canadian carrier from the application of the
legislation if the CRTC is satisfied that such an exemption is consis-
tent with Canadian telecommunications policy objectives. The CRTC
also has the power to forbear from regulating certain services or
classes of services provided by individual carriers. If the CRTC finds
that a service or class of services provided by a carrier is subject to
a degree of competition that is sufficient to protect the interests of
users, the CRTC is required to forbear from regulating those services
unless such an order would be likely to unduly impair the establish-
ment or continuance of a competitive market for those services.
Cable and Telecom’s retail services have been deregulated by the
CRTC. Nevertheless, the CRTC continues to retain broad regulatory
powers over Cable and Telecom under the Telecommunications Act,
in particular with respect to interconnection to Cable and Telecom’s
networks. However, Cable and Telecom’s major competitors, ILECs,
remain subject to CRTC regulation with respect to many of their
services. How the ILECs comply with regulation as well as how the
CRTC enforces its regulation against the ILECs could impact Cable
and Telecom’s operations and financial condition. Because neither
the CRTC nor the courts have interpreted certain aspects of the
Telecommunications Act and its regulations, it is impossible to predict
what impact, if any, these provisions will have on Cable and Telecom.
Moreover, any change in policy, regulations or interpretations could
have a material adverse effect on Cable and Telecom’s operations
and financial condition and operating results. In addition, the CRTC’s
decisions are subject to review under the Telecommunications Act
at any time and may be appealed to the Federal Court of Appeal
(Canada) within 30 days of a decision or challenged by a petition to
the Federal Cabinet of Canada within 90 days of a decision.
COPYRIGHT BOARD OF C ANADA
The Copyright Board of Canada (“Copyright Board”) is a regulatory
body established pursuant to the Copyright Act (Canada) (the
“Copyright Act”) to oversee the collective administration of copyright
royalties in Canada and to establish the royalties payable for the use
of certain copyrighted works. The Copyright Board is responsible for
the review, consideration and approval of copyright tariff royalties
payable to copyright collectives by Canadian broadcasting undertak-
ings, including cable, radio, television and specialty services.
INDUSTRY C ANADA
The technical aspects of the operation of radio and television sta-
tions, the frequency-related operations of the cable television
networks and the awarding and regulatory supervision of spectrum
for cellular, messaging and other radio-telecommunications systems
in Canada are subject to the licencing requirements and oversight
of Industry Canada. Industry Canada may set technical standards for
telecommunications under the Radiocommunication Act (Canada)
(the “Radiocommunication Act”) and the Telecommunications Act.
RESTRIC TIONS ON NON - C ANADIAN OWNERSHIP AND CONTROL
Non-Canadians are permitted to own and control directly or indi-
rectly up to 331/3% of the voting shares and 331/3% of the votes of a
holding company which has a subsidiary operating company licenced
under the Broadcasting Act. In addition, up to 20% of the voting
shares and 20% of the votes of the operating licencee company may
be owned and controlled directly or indirectly by non-Canadians.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The chief executive officer and 80% of the members of the Board
of Directors of the operating licencee must be resident Canadians.
There are no restrictions on the number of non-voting shares that
may be held by non-Canadians at either the holding-company or
licencee-company level. The CRTC has the jurisdiction to determine
as a question of fact whether a given licencee is controlled by non-
Canadians.
Pursuant to the Telecommunications Act and associated regula-
tions, up to 20% of the voting shares of a Canadian carrier, such as
Wireless, and up to 331/3% of the voting shares of a parent company,
such as ourselves, may be held by non-Canadians, provided that
neither the Canadian carrier nor its parent is otherwise controlled
in fact by non-Canadians. Similar restrictions are contained in the
Radiocommunication Act and associated regulations.
In April 2003, the House of Commons Industry Committee released a
report calling for the removal of foreign ownership restrictions for
telecommunications carriers and broadcasting distribution under-
takings. In June 2003, the House of Commons Heritage Committee
released a report which opposed the Industry Committee’s recom-
mendation. The Cabinet responded to the Industry Committee
report in September 2003 and to the Heritage Committee report in
November 2003. The government announced that officials from the
Industry and Heritage departments will convene to reconcile the
two positions. We are not aware of any further legislative initiatives
related to a reduction or change in foreign ownership restrictions,
although the matter continues to be discussed in the media.
TELECOMMUNIC ATIONS POLIC Y REPORT
On March 22, 2006, the report of the Telecommunications Policy
Review Panel was released. The Panel was asked by the previous
government to 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
and a reduction in government regulation. The report recommends
continued regulation of the incumbent wireline telephone compa-
nies in circumstances where they possess significant market power.
We believe that such continued regulation is important to protect
new entrants such as Cable and Telecom from anticompetitive
conduct by incumbent providers until such time as competition is
established. The report also recommends limiting the incumbent
phone companies’ unbundled wholesale facilities that would be
available to competitive providers on a wholesale basis. The report
recommends that “essential” facilities should continue to be made
available and that non-essential facilities should be available for a
transition period of three to five years. The report also recommends
transitioning radio spectrum regulation from Industry Canada to the
CRTC, after Industry Canada completes a spectrum policy review that
will consider various issues such as spectrum licence fees and stream-
lining the spectrum licencing process. Upon receiving the panel’s
report, the Minister of Industry stated that he would review the
report and that any steps towards implementation of the report’s
recommendations would follow such review.
Additional discussion of regulatory matters and recent developments
specific to the Wireless, Cable and Telecom, and Media segments
follows.
WIRELESS REGUL ATION AND REGUL ATORY DEVELOPMENTS
Spectrum Licence Issues
Late in 2003, Industry Canada released a policy document regarding
a number of spectrum issues, including a discussion on the existing
spectrum cap, spectrum allocations for 3G networks and possible
timing of a 3G spectrum auction. Industry Canada proposed a pos-
sible 3G spectrum auction date of 2005 to 2006 for this spectrum. The
Federal Communications Commission (“FCC”) in the United States
concluded their auction of Advanced Wireless Services (“AWS”) spec-
trum, in September 2006, raising $1.4 billion. 90 MHz of spectrum was
auctioned. In February 2007, Industry Canada released a consultation
document regarding an auction for the same 90 MHz of spectrum.
Comments can be submitted by May 25, 2007 with reply comments
submitted by June 27, 2007. An auction is expected in early 2008.
On August 27, 2004, Industry Canada rescinded the cap on owner-
ship of mobile spectrum. Up to that time, Canadian carriers were
limited to a maximum of 55 megahertz of mobile spectrum. After a
public consultation earlier in 2004 as to whether the cap should be
maintained, removed or increased, Industry Canada advised that the
cap would be removed, effective immediately. In the February 2007
Consultation document Industry Canada questioned whether an
auction cap or a “set-aside” of spectrum or some other mechanism
would be appropriate to attract new entrants to Canada’s wireless
industry.
Fixed Wireless Spectrum Auction
On February 9, 2004, Industry Canada commenced an auction for
one block of 30 megahertz of spectrum in the 2300 MHz band as
well as three blocks of 50 megahertz of spectrum and one block of
25 megahertz of spectrum in the 3500 MHz band. The auction was
completed on February 16, 2004. There were over 172 geographic
licence areas in Canada for each available block. Licencees have flex-
ibility in determining the services to be offered and the technologies
to be deployed in the spectrum. Industry Canada expected that the
spectrum will be used for point-to-point or point-to-multi-point
broadband services. Wireless participated in this spectrum auction
and, as a result, acquired 33 blocks of spectrum in various licence
areas for an aggregate bid price of $5.9 million.
Industry Canada initiated another auction process to make avail-
able the blocks of spectrum that did not sell in the February 2004
process. Parties were able to identify those blocks that they were
interested in, and if there were no other parties expressing interest
in those blocks, they were the successful party. In this process,
Wireless obtained an additional nine licences for a cost of $0.2 mil-
lion. The remaining licences were auctioned commencing January 10,
2005, and Wireless was successful in supplementing its spectrum
holdings from 2004 with a further 40 licences at a cost of $4.8 million.
See also below under “Wireless’ Expansion and Investment in the
Inukshuk Business May Have Considerable Risks”.
Inukshuk
On March 31, 2006, Industry Canada approved the transfer of
Wireless’ Inukshuk licence to Inukshuk Wireless Partnership, a
Rogers-Bell joint venture. New licence terms were also issued. These
licence terms require Inukshuk to return spectrum that it is not using
as of December 31, 2009. At the same time as the licence was issued,
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
49
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Industry Canada issued their new policy on the 2.5 GHz spectrum
used by Inukshuk. The policy confirms that the spectrum is currently
only to be used for fixed services (which, in Canada, includes portable
services). Companies that wish to have a mobile licence for this spec-
trum will be required to apply for a mobile licence and will be required
to return one-third of the spectrum to the government. The returned
spectrum will be auctioned. There is no assurance that Wireless
or any other incumbent licencee would be allowed to purchase
the spectrum at an auction. See discussion below entitled “We Are
and Will Continue to Be Involved in Litigation”.
On January 7, 2005, the CRTC released a public notice calling for com-
ments on the transition of analog pay and specialty services from
analog distribution to digital distribution. A decision was released
on February 28, 2006. The decision provides cable operators, such as
Cable and Telecom, with increased flexibility to package analog ser-
vices in digital theme packages and in a la carte “pick packs”. The
analog services must be sold in digital tiers which “mirror” the ana-
log tiers until at least 2010 and in some circumstances, until 2013. The
decision also allows entire analog tiers to be moved to digital once
85% of the customers who have that tier, have a digital box.
In SAB-002-06 Consultation on Implementation Matters Related to
the Band Plan and the Mobile Service for the Band 2500 – 2690 MHz,
Industry Canada announced a consultation process on 2.5 GHz spec-
trum which will be initiated in the winter of 2007. This process is to
include a discussion of the implementation matters associated with
harmonizing with the U.S. band plan. The process will also examine
issues related to setting a firm transition date to allow for nation-
wide implementation of the band plan and the mobile service.
Wireless Video Ser vices
In a decision issued on April 12, 2006, the CRTC determined that the
mobile TV services provided by Wireless are exempt from regulation
because they are delivered over the Internet. Furthermore, the CRTC
has promulgated a new order that will exempt all mobile TV services
from regulation, whether they are delivered over the Internet, or
not. However, point-to-multipoint services are not exempt from
regulation. We believe that this decision will allow Wireless to offer
innovative new services with a minimum of regulatory impediments.
C ABLE AND TELECOM REGUL ATION AND REGUL ATORY
DEVELOPMENTS
Distribution of Digital Television Signals
In November 2003, the CRTC released its policy framework for the
distribution of digital television signals. Under the framework,
cable operators are required to distribute the digital signal of a
Canadian broadcaster once the signal is available over the air. Both
the analog and digital versions of a Canadian television signal are
to be distributed until 85% of the subscribers have digital set-top
boxes or digital receivers. On June 15, 2006, the CRTC released its pol-
icy framework for the licencing and distribution of high-definition
(“HD”) pay and specialty services. This framework is market-driven,
with no mandated deadlines for services to convert to HD. Services
that provide minimum thresholds of HD programming will be eligible
to apply for a transitional HD licence, which will provide them with
mandatory carriage by terrestrial digital broadcast distribution
undertakings (“BDUs”) and genre protection. For English-language
services, the thresholds are 50% during prime time and 30% over the
broadcast day. For French and third-language services, the thresholds
are 30% and 20%, respectively. The CRTC will not regulate wholesale
rates nor channel placement for HD services. A separate proceed-
ing will be launched to set the distribution rules for direct-to-home
(“DTH”) satellite operators. Currently, programming services can
amend their existing licences if they wish to carry some HD program-
ming. However, access rights and genre protection are only granted
to those services with HD transitional licences.
Review of Cer tain Aspects of the Regulator y Framework for Over-
The -Air Television
The CRTC held a Public Hearing commencing on November 27, 2006
to review the regulatory framework for over-the-air television. The
review considered the contributions which over-the-air television
licencees should make to the production, acquisition and broad-
cast of high-quality Canadian programming. The review examined,
among other things, the possibility of levying a fee for carriage
against BDUs for the carriage of local over-the-air television signals.
This proposal, if implemented, could significantly increase costs for
broadcasting distribution undertakings including those of Cable and
Telecom.
Essential Facilities
In Telecom Decision 2002-34, the CRTC established a separate basket
consisting of carrier services purchased by competitors from the ILECs,
and ordered that they be priced at incremental cost plus a 15% mark-
up. Telecom Decision 2002-34 and associated follow-up proceedings
had significant immediate and potential impact on competitors,
especially in reducing competitors’ carrier costs. In Telecom Decision
CRTC 2004-5 the Commission directed the major ILECs to file Ethernet
access and transport tariffs for use by competitors.
On February 3, 2005, the CRTC released Telecom Decision CRTC
2005-6 with respect to the ILECs’ Competitive Digital Network (“CDN”)
services. The decision concluded the process that was initiated
by the 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 ILECs for digital network services they rely on to provide
services to their customers. In arriving at the decision, the
Commission took into account: a) the competitors’ reliance on the
telephone companies’ network facilities and services; b) the com-
petitive supply that exists in the market place; c) the constraints
competitors face in building their own networks; and d) the state of
competition in the local market. Rates for access to low-speed ser-
vices 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 and that by reducing the prices for underlying facilities,
competitors will be able to offer services to more customers and in
more regions, and that growth in their customer base and revenues
will facilitate the expansion of their own networks.
On November 9, 2006 the CRTC issued Telecom Public Notice CRTC
2006-14; Review of regulatory framework for wholesale services and
definition of essential service. This proceeding will consider a revised
50
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
definition of essential service, and the classifications and pricing
principles for essential and non-essential services made available by
incumbent telephone companies, cable carriers and competitive local
exchange carriers to other competitors at regulated rates (wholesale
services). The proceeding will include an oral hearing in October of
2007 and a decision in 2008. Any reduction in the wholesale services
available to Cable and Telecom or any increase in the prices of those
services as a result of this proceeding could have a serious and nega-
tive effect on Cable and Telecom’s business plan.
Competitive Safeguards
Starting in late 2002, the CRTC issued a series of decisions that were
intended to enforce competitive safeguards in the market in rela-
tion to the ILECs. These decisions limited the manner in which the
ILECs can target competitors’ local customers for winback (Telecom
Decision 2002-73), strengthened the rules regulating the manner
in which they can bundle tariffed services with untariffed services
(Telecom Decision 2002-58), suspended the ILECs’ rights to offer price
promotions in respect of local services (PN 2003-1.1) and constrained
the ability of the ILECs to use unregulated affiliates to avoid the
competitive safeguards (Telecom Decision 2002-76). Subsequently,
in Telecom Decision CRTC 2005-25, the CRTC determined that incum-
bent local exchange carrier promotions in the local wireline market
are permitted, subject to a number of competitive safeguards.
In Telecom Decision CRTC 2004-4, the Commission granted Cable
and Telecom’s request to extend the ILECs’ winback restrictions
from three months to twelve months and approved an education
program to inform consumers of the existence of local competi-
tion. In Telecom Decisions 2004-21 and 2004-22, the CRTC directed
Aliant and Bell Canada respectively to cease and desist violating
the service bundling rules. In Telecom Decision CRTC 2006-15;
Forbearance from the regulation of retail local exchange services,
the Commission reduced the winback period to three months and
set out conditions under which the winback rules will be lifted.
In Telecom Decision 2005-28-1, the CRTC determined that VoIP offer-
ings by the incumbent telephone companies would continue to be
regulated. On November 16, 2006, the Governor in Council issued
Order in Council P.C. 2006-1314, which deregulated the provision of
“access-independent VOIP services” offered by the incumbent tele-
phone companies. These services are in areas in which access and
service may be provided by distinct providers.
Proposed Policy Direction to the CRTC on Telecommunications
On June 13, 2006, the Minister of Industry tabled a proposed Policy
Direction on Telecommunications in Parliament. The Direction signals
the Government’s intention to direct the CRTC to rely on market
forces to the maximum extent feasible under the Telecommunications
Act and regulate, if needed, in a manner that interferes with market
forces to the minimum extent necessary.
CRTC Local Forbearance Decision
The CRTC released its Local Forbearance Decision on April 6, 2006.
The incumbent phone companies will continue to be regulated until
they lose 25% market share. The customer winback prohibition rules,
which were reduced from twelve to three months, will be lifted
when the incumbent phone companies lose 20% market share. The
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 measured over a census metro-
politan area. In addition to the market share criteria, the phone
companies have to comply with all the Quality of Service (“QoS”)
indicators which govern the wholesale facilities provided to com-
petitors, for six months. These QoS indicators are very important to
unbundled loop resellers such as Rogers Business Solutions. In addi-
tion, the incumbent local exchange providers must provide Ethernet
access and transport service to competitors and must interconnect
their Operations Support Systems (“OSS”) with those of competi-
tors. We believe that this decision is consistent with the assumptions
made in the business planning for our local telephone service.
Canada’s incumbent telephone companies have appealed the CRTC’s
Local Forbearance Decision to the Federal Cabinet. On September 1,
2006, the CRTC released Telecom Public Notice 2006-12, Proceeding to
reassess certain aspects of the local forbearance framework estab-
lished in Decision 2006-15. The proceeding will consider whether the
25% market share loss deregulation threshold and the 20% winback
prohibition threshold should be adjusted and whether wireless-only
households should be included in the calculation of market share loss
levels. On December 11, 2006, the Minister of Industry announced
a proposed decision in the appeal of the CRTC’s forbearance deci-
sion. The proposed decision would deregulate the incumbent phone
companies once a facilities-based competitor begins offering service.
There would no longer be any requirement for any market share loss
before the incumbents are deregulated in a market. Furthermore,
the CRTC’s winback and promotions safeguards would be removed
upon promulgation of the order. Comments on the proposed order
were to be received by January 15, 2007. Issuance of this order would
make it more difficult for our local telephone services to become
established in the marketplace.
MEDIA REGUL ATION AND REGUL ATORY DEVELOPMENTS
Commercial Radio Policy 2006
The CRTC has released its revised policy for commercial radio. Of
particular note, the CRTC has decided not to raise Canadian content
levels for stations with mainstream music formats. Cancon levels
remain unchanged at 35%. Instead, the CRTC has decided to place
additional emphasis on the development and promotion of Canadian
talent. Taking effect on September 1, 2007, the CRTC will raise annual
contributions for Canadian Content Development (“CCD”) from their
current levels. A percentage of revenue formula (0.5% for station
annual revenue over $1.25 million) will increase the annual payments
made by most of the Rogers Radio stations. The tangible benefits
test for radio station acquisitions remains unchanged at 6% of the
value of the transaction. The CRTC denied requests to increase the
benefits test to 10%. The CRTC has approved the creation of a new
Digital Radio licence category. Existing transitional licences can be
converted to these new Digital radio licences, and licencees have
the ability to provide completely separate programming. There will
no longer be a requirement to simulcast the programming from the
analog radio signal. Rogers Radio is the licencee of transitional digi-
tal radio licences in Toronto, Vancouver and Ottawa.
Commercial Radio Copyright Tariffs
In October 2005, the Copyright Board released its decision relating
to the SOCAN (Society of Composers, Authors and Music Publishers
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
51
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
of Canada) and NRCC (Neighbouring Rights Collective Society) tariffs
affecting commercial radio broadcasters. Retroactive to January 2003,
the royalty rates for both tariffs would have increased significantly.
The new rates imposed by the Board affected the results of Media’s
radio operations. However, following a successful appeal decision
from the Federal Court of Appeal in October 2006, the Copyright
Board will now have to re-examine the basis upon which the tariff
increases had been approved. Such a process is already under way
and will be reviewed over the course of 2007.
WIRELESS COMPETITION
At December 31, 2006, the highly-competitive Canadian wireless
industry had approximately 18.5 million wireless subscribers.
Competition for wireless subscribers is based on price, scope of ser-
vices, service coverage, quality of service, sophistication of wireless
technology, breadth of distribution, selection of equipment, brand
and marketing. Wireless also competes with its rivals for dealers and
retail distribution outlets.
Satellite Radio Ser vices
On June 16, 2005, the CRTC issued decisions approving three new
subscription radio services. These decisions were appealed to the
Federal Cabinet and these appeals were not successful. Two of the
services are satellite-delivered, partnering with established and well-
financed satellite radio operators in the U.S. These two services have
now launched. These new subscription services offer a wide variety
of music and spoken word programming channels, and will com-
pete for audiences with the Media radio stations in markets across
Canada. However, given that these new services are also prohibited
from carrying local programming content and selling local adver-
tising, the Media radio stations expect to sustain their competitive
advantage as local broadcasters in their local markets.
Digital Television Policy
The CRTC has released its digital television policy, covering issues
such as priority carriage and simultaneous substitution. Media
believes that the CRTC policy provides an effective framework for
continued growth and development of digital television broad-
casting in Canada. CRTC decisions have also been issued to provide
policy frameworks for the licencing and distribution of HD pay and
specialty services as well as the transition or migration of specialty
services from analog to digital. See above under Cable.
2007 CRTC Policy of Specialty and Pay T V Sector
On July 28, 2006, the CRTC administratively renewed the licences
for a number of programming services that were first licenced in
2000/2001, extending their expiry dates to August 31, 2009. The CRTC
has decided to extend these licences by two years so that it can take
into account the determinations that will result from its review,
commencing in 2007, of the policy framework for discretionary pro-
gramming services. This applies to the video-on-demand service
operated by Cable and Telecom, as well as all specialty and digital
services operated by Media (Rogers Sportsnet, G4TechTV Canada
and The Biography Channel).
See above under Cable and Telecom regarding the Regulatory
Framework for Over-the-Air Television.
C O M P E T I T I O N I N O U R B U S I N E SS E S
We currently face effective competition in each of our primary busi-
nesses from entities providing substantially similar services, some of
which have significantly greater resources than we do. Each of our
segments also faces competition from entities utilizing alternative
communications and transmission technologies and may face compe-
tition from other technologies being developed or to be developed
in the future. Below is a discussion of the specific competition facing
each of our Wireless, Cable and Telecom, and Media businesses.
52
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
In the wireless voice and data market, Wireless competes primarily
with two other national wireless service providers, Bell Mobility and
Telus Mobility, as well as resellers such as Virgin Mobile Canada,
Primus, Vidéotron, Eastlink, and other emerging providers using
alternative wireless technologies such as WiFi or “hotspots”. Wireless
messaging (or one-way paging) also competes with a number of local
and national paging providers.
C ABLE AND TELECOM COMPETITION
Canadian cable television systems generally face legal and illegal
competition from several alternative multi-channel broadcasting
distribution systems, including two Canadian direct broadcast satel-
lite service providers, U.S. direct broadcast satellite service providers,
terrestrially-based video service providers, satellite master antenna
television, and multi-channel, multi-point wireless distribution sys-
tems, as well as from the direct reception by antenna of over-the-air
local and regional broadcast television signals. Cable and Telecom’s
objective is to offer the fullest possible range of programming and
services to our customers, with a large, diverse and highly-competitive
offering relative to Canadian service providers and other Canadian
cable providers.
Cable and Telecom’s Internet access services compete generally with
a number of other Internet Service Providers (“ISPs”) offering com-
peting residential and commercial Internet access services. Many
ISPs offer dial-up Internet access services that provide significantly
reduced bandwidth capabilities compared to broadband technolo-
gies, such as cable modem or DSL. The Rogers Yahoo! Hi-Speed
Internet Express and Internet Extreme services, where available,
compete directly with Bell’s DSL Internet service in the Internet mar-
ket in Ontario, and with the DSL Internet services of Aliant in New
Brunswick and Newfoundland and Labrador.
Cable and Telecom faces emerging competition from utilities, such
as hydroelectric companies, as these companies look to utilize their
infrastructure to provide Internet and other services, such as VoIP,
that may directly compete with Cable and Telecom’s current and future
service offerings. In addition, there are wireless technologies, such as
WiFi and WiMax, that potentially could be deployed on a regional
basis to provide 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. Competition is
principally based on location, price and availability of titles.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cable and Telecom competes with the incumbent telephone compa-
nies in Canada, including Bell, Telus, and MTS Allstream. Cable and
Telecom also competes with competitive suppliers of local, long dis-
tance, private line and data services using traditional circuit-switched
and newer VoIP technologies.
One of the biggest forces for potential change in the telecommu-
nications industry is the threat of substitution of the traditional
wireline telephone by new technologies. Wireless is often cited as an
eventual replacement for the standard home telephone, although
experience shows that mobile phones are used primarily as second
lines. The popularity of mobile phones among younger generations
has resulted in some abandonment of wireline service, but these
preferences are not likely to significantly challenge the prominence
of the traditional wireline phone for many years.
In the business market, there is a continuing shift from ATM and
frame relay (two common legacy data networking technologies) to
IP delivered services through VPN services. This transition results in
lower costs for both users and carriers. Cable and Telecom is well
positioned to benefit from this trend with one of the most advanced
IP networking solutions available.
MEDIA COMPETITION
Broadcasting’s radio stations compete with the other stations in
their respective market areas as well as with other media, such as
newspapers, magazines, television, outdoor advertising, direct mail
marketing and the Internet.
Competition within the radio broadcasting industry occurs primar-
ily in individual market areas, amongst individual market stations.
On a national level, Media’s Broadcasting division competes gener-
ally with other larger radio operators such as Corus Entertainment
Inc., Standard Broadcasting Inc. and CHUM Limited, each of which
owns and operates radio station clusters in markets across Canada.
Additionally, over the past several years the CRTC has granted
additional licences in various markets for the development of new
radio stations which in turn provide additional competition to the
established stations in the respective markets. Two new licenced sat-
ellite subscription-based radio services now provide competition to
Broadcasting’s radio stations.
Rogers Sportsnet competes for viewers and advertisers principally
with The Sports Network (“TSN”), Headline Sports and sports pro-
grams carried by other Canadian and U.S. television stations and
networks.
On a product level, The Shopping Channel competes with various
retail stores, catalogue retailers, Internet retailers and direct mail
retailers. On a broadcasting level, The Shopping Channel competes
with other television channels for viewer attention and loyalty, and
particularly with infomercials selling products on television.
The Canadian magazine industry is highly-competitive, competing
for both readers and advertisers. This competition comes from other
Canadian magazines and from foreign, mostly U.S., titles that sell in
significant quantities in Canada. In the past, the competition from
foreign titles has been restricted to competition for readers as there
have been restrictions on foreigners operating in the Canadian
magazine advertising market. These restrictions were significantly
reduced as a result of the enactment in 1999 of the Foreign Publishers
Advertising Services Act (Canada) and amendments to the Canadian
Tax Act. Increasing competition from U.S. magazines for advertising
revenues is expected in the coming years.
OMNI.1, OMNI.2, OMNI.10 and OMNI.11 compete principally for viewers
and advertisers with television stations that broadcast in their local
markets. These include Canadian television stations as well as U.S.
border stations, specialty channels and increasingly with other distant
Canadian signals and U.S. border stations given the time-shifting
capacity available to digital subscribers.
R I S k S A N D U N C E R TA I N T I E S A F F E C T I N G
O U R B U S I N E SS E S
Our business is subject to risks and uncertainties that could result
in a material adverse effect on our business and financial results. A
discussion of the risks and uncertainties to us and our subsidiaries, as
well as a discussion of the specific risks and uncertainties associated
with each of our businesses, are outlined below.
CORPOR ATE RISkS AND UNCERTAINTIES APPLIC ABLE TO RCI
AND ITS SUBSIDIARIES
Our Holding Company Structure May Limit Our Ability to Meet
Our Financial Obligations.
As a holding company, our ability to meet our financial obligations is
dependent primarily upon the receipt of interest and principal pay-
ments on intercompany advances, rental payments, cash dividends
and other payments from our subsidiaries together with proceeds
raised by us through the issuance of equity and debt and from the
sale of assets.
Substantially all of our business activities are operated by our sub-
sidiaries, other than certain centralized functions such as payables,
remittance processing, call centres and certain shared information
technology functions. All of our subsidiaries are distinct legal entities
and have no obligation, contingent or otherwise, to make funds avail-
able to us whether by dividends, interest payments, loans, advances
or other payments, subject to payment arrangements on intercom-
pany advances and management fees. In addition, the payment of
dividends and the making of loans, advances and other payments to
us by these subsidiaries are subject to statutory or contractual restric-
tions, are contingent upon the earnings of those subsidiaries and are
subject to various business and other considerations. The subsidiaries
are parties to various agreements, including certain loan agree-
ments, that restrict the ability of the respective subsidiaries to pay
cash dividends or make advances or other payments to us.
We Are Controlled by One Shareholder.
At December 31, 2006, we had outstanding 112,467,648 RCI Class A
Voting shares. To the knowledge of our directors and officers, the
only person or corporation beneficially owning, directly or indi-
rectly, or exercising control or direction over more than 10% of our
outstanding voting shares is Edward S. Rogers, our President and
CEO, and a director. As of December 31, 2006, Edward S. Rogers ben-
eficially owned or controlled 102,232,198 RCI Class A Voting shares,
representing approximately 90.9% of the issued and outstand-
ing RCI Class A Voting shares, which class is the only class of issued
shares carrying the right to vote in all circumstances. Accordingly,
Edward S. Rogers is able to elect all of our Board of Directors and to
control the vote on matters submitted to a vote of our shareholders.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
53
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Regulator y Changes Could Adversely Affect Our Results
of Operations.
Substantially all of our business activities are regulated by Industry
Canada and/or the CRTC, and accordingly our results of operations
on a consolidated basis are affected by changes in regulations and
by the decisions of these regulators. This regulation relates to,
among other things, licencing, 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
interest in other communications systems. In addition, our cable,
wireless and broadcasting licences may not generally be transferred
without regulatory approval. Changes in the regulation of our busi-
ness activities, including decisions by regulators (such as the granting
or renewal of licences or decisions regarding services we must offer
to our customers), or changes in the interpretations of existing
regulations by courts or regulators, could adversely affect our con-
solidated results of operations. Our regulated subsidiaries must
be Canadian-owned and controlled under requirements enacted
or adopted under the Broadcasting Act, the Telecommunications
Act and the Radiocommunication Act. These restrictions on non-
Canadian ownership and control may have an adverse effect on us,
including on our cost of capital.
Our ability to satisfy our obligations and to reduce our total debt
depends on our future operating performance and on economic,
financial, competitive and other factors, many of which are beyond
our control. Our business may not generate sufficient cash flow and
future financings may not be available to provide sufficient net
proceeds to meet these obligations or to successfully execute our
business strategy.
We Are Subject to Various Risks from Competing Technologies.
There are several technologies that may impact the way in which
our services are delivered. These technologies include broadband,
IP-based voice, data and video delivery services; the mass market
deployment of optical fibre technologies to the residential and busi-
ness markets; the deployment of broadband wireless access, and
wireless services using radio frequency spectrum to which we may
have limited access. These technologies may result in significantly
different cost structures for the users of the technologies, and may
consequently affect the long-term viability of certain of our currently
deployed technologies. Some of these new technologies may allow
competitors to enter our markets with similar products or services
that may have lower cost structures. Some of these competitors may
be larger with more access to financial resources than we have.
We Are Highly Dependent Upon Our Information Technology
Systems and the Inability to Enhance Our Systems or a Security
We May Engage in Unsuccessful Acquisitions and Divestitures.
Breach or Disaster Could Have an Adverse Impact on Our Financial
Acquisitions of complementary businesses and technologies, devel-
opment of strategic alliances and divestitures of portions of our
business are an active part of our overall business strategy. Services,
technologies, key personnel or businesses of acquired companies
may not be effectively assimilated into our business or service offer-
ings and our alliances may not be successful. We may not be able
to successfully complete any divestitures on satisfactory terms, if at
all. Divestitures may result in a reduction in our total revenues and
net income.
Results and Operations.
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 cus-
tomer growth and support new products and services could have an
adverse impact on our ability to acquire new subscribers, manage
subscriber churn, produce accurate and timely subscriber bills, gen-
erate revenue growth and manage operating expenses, all of which
could adversely impact our financial results and position.
We Have Substantial Debt and Interest Payment Requirements
that May Restrict Our Future Operations and Impair Our Ability to
Meet Our Financial Obligations.
Our substantial debt may have important consequences. For instance,
it could:
• Make it more difficult for us to satisfy our financial obligations;
• Require us to dedicate a substantial portion of any cash flow from
operations to the payment of interest and principal due under
our debt, which would reduce funds available for other business
purposes;
• Increase our vulnerability to general adverse economic and indus-
try conditions;
In addition, we use industry standard network and information
technology security, survivability and disaster recovery practices.
A portion of our employees and critical elements of the network
infrastructure and information technology systems are located at
the corporate offices in Toronto, Ontario and Brampton, Ontario, as
well as an operations facility in Toronto, Ontario. In the event that
we cannot access these facilities, as a result of a natural or manmade
disaster or otherwise, operations may be significantly affected and
may result in a condition that is beyond the scope of our ability to
recover without significant service interruption and commensurate
revenue and customer loss.
Network Failures Can Reduce Revenue and Impact
• Limit our flexibility in planning for, or reacting to, changes in our
Customer Ser vice.
business and the industry in which we operate;
• Place us at a competitive disadvantage compared to some of our
competitors that have less financial leverage; and
• Limit our ability to obtain additional financing required to fund
working capital and capital expenditures and for other general
corporate purposes.
The failure of the network or a component of the network would, in
some circumstances, result in an indefinite loss of service for our cus-
tomers. In addition, we rely on business partners to complete certain
calls. The failure of one of these carriers might also cause an inter-
ruption in service for our customers that would last until we could
reroute the traffic to an alternative carrier.
54
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We Are and Will Continue to Be Involved in Litigation.
In August 2004, a proceeding under the Class Actions Act
(Saskatchewan) was brought against providers of wireless com-
munications 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 plaintiffs seek unquantified
damages from the defendant wireless communications service pro-
viders. Wireless believes it has good defence to the allegations. In
July 2006, the Saskatchewan court denied the plaintiffs’ application
to have the proceeding certified as a class action. However, the court
granted leave to the plaintiffs to renew their applications in order
to address the requirements of the Saskatchewan class proceedings
legislation. The plaintiff’s application to address these requirements
is set to be heard by the Court on April 4 and 5, 2007. Similar pro-
ceedings have also been brought against us and other providers of
wireless communications in most of Canada. We have not recorded
a liability for this contingency since the likelihood and amount of
any potential loss cannot be reasonably estimated. In addition, on
December 9, 2004, we were served with a court order compelling
us to produce certain records and other information relevant to an
investigation initiated by the Commissioner of Competition under
the misleading advertising provisions of the Competition Act with
respect to our system access fee.
In April 2004, a proceeding was brought against Fido and others
claiming damages totalling $160 million, specific performance, breach
of contract, breach of confidence and breach of fiduciary duty. The
proceeding is seeking to add Inukshuk Wireless Partnership, our 50%
owned joint venture, as a party to the action. The proceeding is at
an early stage. We believe we have good defences to the claim and
no amounts have been provided in the accounts.
We believe that we have adequately provided for income taxes
based on all of the information that is currently available. The cal-
culation of income taxes in many cases, however, requires significant
judgment in interpreting tax rules and regulations. Our tax filings
are subject to audits which would materially change the amount of
current and future income tax assets and liabilities and could, in cer-
tain circumstances, result in assessment of interest and penalties.
We are and may from time to time be named as a defendant in other
legal actions arising in the ordinary course of our business, including
claims arising out of our dealer arrangements.
WIRELESS RISkS AND UNCERTAINTIES
Wireless’ Business Is Subject to Various Government Regulations
that Could Adversely Affect Its Business or Increase Costs or
Competition.
The licencing, construction and operation of wireless communica-
tions systems in Canada are subject to the licencing requirements and
oversight of Industry Canada. In addition, various aspects of wireless
communications operations, including Wireless’ ability to enter into
interconnection agreements with traditional wireline telephone
companies, are subject to regulation by the CRTC. Any of the gov-
ernment agencies having jurisdiction over Wireless’ business could
adopt regulations or take other actions that could adversely affect
its business and operations, including actions that could increase
competition or that could increase our costs.
Industry Canada grants radio licences for a specified term. All of
Wireless’ cellular and PCS radio licences expire in 2011. Industry
Canada has placed conditions on the maintenance of these licences
and has the authority at any time to modify these licencing condi-
tions to the extent necessary to ensure the efficient and orderly
development of radio communication facilities and services in
Canada. Industry Canada may decide not to renew Wireless’ licences
when they expire and any failure by Wireless to comply with the
conditions on the maintenance of its licences could result in a revo-
cation or forfeiture of any of Wireless’ licences or the imposition of
fines by Industry Canada.
The wireless licences include a condition requiring Wireless to
comply with the ownership restrictions of the Telecommunications
Act and identical requirements under the Radiocommunication
Act. Wireless is currently in compliance with all of these Canadian
ownership and control requirements. However, to the extent that
these requirements are violated, Wireless would be subject to vari-
ous penalties, possibly including, in the extreme case, the loss of its
wireless licences.
The Implementation of WNP in Canada Could Create Significant
Costs for Wireless and Increase Churn.
On December 20, 2005, the CRTC mandated that WNP becomes avail-
able beginning in March 2007. The implementation of WNP will
require Wireless as well as other carriers to incur implementation
costs that could be significant and could cause an increase in churn
among Canadian wireless carriers, and could increase operating
expenses or reduce revenue.
The Recommendation of the National Wireless Tower Policy
Review Could Increase Wireless’ Costs or Delay the Expansion of
Wireless’ Networks.
On February 7, 2005, the executive summary of the final report of the
Tower Policy Review was published and subsequently the full report
was released. The report recommends various steps that could be
taken to increase 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 is expected to release a
new tower policy shortly.
Wireless Faces Substantial Competition.
The Canadian wireless communications industry is highly-competitive.
In the wireless voice and data market, Wireless competes primarily
with two other wireless service providers and may in the future com-
pete with other companies, including resellers, such as Virgin Mobile
Canada and Primus and potential users of wireless voice and data
systems may find their communications needs satisfied by other cur-
rent or developing technologies, such as WiFi, “hotspots” or trunk
radio systems, which have the technical capability to handle mobile
telephone calls. Wireless also competes with rivals for dealers and
retail distribution outlets. There can be no assurance that Wireless’
current or future competitors will not provide services comparable or
superior to those we provide, or at lower prices, adapt more quickly
to evolving industry trends or changing market requirements, enter
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
55
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the market in which Wireless operates, or introduce competing ser-
vices. Any of these factors could reduce Wireless’ market share or
decrease Wireless’ revenue or increase churn. Wireless anticipates
some ongoing re-pricing of the existing subscriber base as lower
pricing offered to attract new customers is extended to or requested
by existing customers. In addition, as wireless penetration of the
population deepens, new wireless customers may generate lower
average monthly revenues than those from its existing customers,
which could slow revenue growth.
The Spectrum Auction Could Increase Competition.
Industry Canada has released a proposed policy regarding third
generation spectrum allocation and Wireless believes that a third
generation spectrum auction may occur in late 2007 or early 2008.
Industry Canada could set aside spectrum for a new entrant which
could increase the competition Wireless faces, and the policy could
contain terms that are favourable to new entrants.
Foreign Ownership Changes Could Increase Competition.
Wireless could face increased competition if there is a removal or
relaxation of the limits on foreign ownership and control of wire-
less licences. Legislative action to remove or relax these limits
could result in foreign telecommunication companies entering the
Canadian wireless communications market, through the acquisition
of either wireless licences or of a holder of wireless licences. The
entry into the market of such companies with significantly greater
capital resources than Wireless could reduce Wireless’ market share
and cause Wireless’ revenues to decrease.
There Is No Guarantee that Wireless’ Third Generation Technology
Will Be Competitive or Compatible with Other Technologies or
Will Be Deployed as Planned.
Wireless began deploying a 3G wireless network in 2006 based upon
the UMTS/HSDPA standard, which Wireless expects will provide it
with data speeds that are superior to those offered by other 3G wire-
less technologies and which will enable Wireless to add incremental
voice and data capacity at significantly lower costs. While Wireless
and other U.S. and international operators have selected these
technologies as an evolutionary step from its current and future
networks, there are other competing technologies that are being
developed and implemented in both Canada and other parts of the
world. None of the competing technologies is directly compatible
with each other. If the third generation technology that gains the
most widespread acceptance is not compatible with Wireless’ net-
works, competing services based on such alternative technology may
be preferable to subscribers and Wireless’ business may be materially
adversely affected.
In addition, in order to implement this transition to third generation
technology successfully:
• Network technology developers must complete the refinement of
third generation network technologies, specifically HSDPA; and
• Wireless must complete the implementation of the fixed network
infrastructure to support Wireless third generation technologies,
which will include design and installation of upgrades to its exist-
ing network equipment.
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ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
Wireless cannot be certain that these steps will be completed in
the time frame or at the cost anticipated. Wireless’ third genera-
tion technology network will rely, in many instances, on new and
unproven technology. As with any new technology, there is a risk
that the new technology Wireless has chosen for its network will not
perform as expected, that Wireless may be unable to integrate the
new technology with current technology and that Wireless may be
unable to deliver next generation services in a cost-effective manner.
The occurrence of any of these difficulties could delay the develop-
ment of Wireless’ network, which could materially adversely affect
Wireless’ business.
Wireless May Fail to Achieve Expected Revenue Grow th from New
and Advanced Wireless Ser vices.
Wireless expects that a substantial portion of its future revenue
growth will be achieved from new and advanced wireless voice and
data transmission services. Accordingly, Wireless has invested and
continues to invest significant capital resources in the development
of its GSM/GPRS/EDGE and HSDPA network in order to offer these ser-
vices. However, there may not be sufficient consumer demand for
these advanced wireless services. Alternatively, Wireless may fail to
anticipate or satisfy demand for certain products and services, or
may not be able to offer or market these new products and services
successfully to subscribers. The failure to attract subscribers to new
products and services, or failure to keep pace with changing con-
sumer preferences for wireless products and services, would slow
revenue growth and have a material adverse effect on Wireless’
business and financial condition.
Wireless’ Expansion and Investment in the Inukshuk Business May
Have Considerable Risks.
In 2000, Fido obtained licences in the 2.5 MHz or MCS spectrum. This
spectrum was acquired in a competitive licencing process and accord-
ingly is subject to rollout commitments and commitments to fund a
“Learning Plan”. If Wireless is unable to roll out the service in accor-
dance with Industry Canada requirements, the MCS licences could be
revoked by Industry Canada.
On September 16, 2005, Wireless announced a joint venture with Bell
Canada to build a nationwide fixed wireless network by pooling our
respective fixed wireless spectrum holdings and access to combined
cellular tower and backhaul assets. This joint venture, known as
Inukshuk, will require significant funding, will generate losses in the
start-up phases, and entails risks and uncertainties. Amongst other
things, the nationwide fixed wireless network that the joint venture
plans to fund and deploy is based upon an early generation 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 adop-
tion at price points that would enable the joint venture to recover
its costs.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wireless is Dependent on Cer tain Key Infrastructure and Handset
C ABLE AND TELECOM RISkS AND UNCERTAINTIES
Vendors, Which Could Impact the Quality of Wireless’ Ser vices or
Impede Network Development and Expansion.
Wireless has relationships with a small number of essential network
infrastructure and handset vendors, over which it has no operational
or financial control and only limited influence in how the vendors
conduct their businesses. The failure of one of our network infra-
structure suppliers could delay programs to provide additional
network capacity or new capabilities and services across the business.
Handsets and network infrastructure suppliers may, among other
things, extend delivery times, raise prices and limit supply due to
their own shortages and business requirements. If these suppliers fail
to deliver products and services on a timely basis or fail to develop
and deliver handsets that satisfy Wireless’ customers’ demands, this
could have a negative impact on Wireless’ business, financial condi-
tion and results of operations. Similarly, interruptions in the supply
of equipment for our networks could impact the quality of Wireless’
service or impede network development and expansion.
Restrictions on the Use of Wireless Handsets While Driving May
Reduce Subscriber Usage.
Certain provincial government bodies are considering legislation to
restrict or prohibit wireless handset usage while driving. Legislation
banning the use of hand-held phones while driving, while per-
mitting the use of hands-free devices, has been implemented in
Newfoundland. Legislation has been proposed in other jurisdictions
to restrict or prohibit the use of wireless handsets while driving
motor vehicles. Some studies have indicated that certain aspects of
using wireless handsets while driving may impair the attention of
drivers in various circumstances, making accidents more likely. Laws
prohibiting or restricting the use of wireless handsets while driving
could have the effect of reducing subscriber usage, which could
cause an adverse effect on Wireless’ business. Additionally, concerns
over the use of wireless handsets while driving could lead to litiga-
tion relating to accidents, deaths or bodily injuries, which could also
have an adverse effect on Wireless’ business.
Concerns about Radio Frequency Emissions May Adversely Affect
Our Business.
Occasional media and other reports have highlighted alleged links
between radio frequency emissions from wireless handsets and vari-
ous health concerns, including cancer, and interference with various
medical devices, including hearing aids and pacemakers. While there
are no definitive reports or studies stating that such health issues
are directly attributable to radio frequency emissions, concerns over
radio frequency emissions may discourage the use of wireless hand-
sets or expose us to potential litigation. It is also possible that future
regulatory actions may result in the imposition of more restrictive
standards on radio frequency emissions from low powered devices
such as wireless handsets. Wireless is unable to predict the nature or
extent of any such potential restrictions.
Cable and Telecom’s Business Is Subject to Various Governmental
Regulations Which Could Adversely Affect the Results of
Operations.
Cable and Telecom’s operations are subject to governmental regu-
lations relating to, among other things, licencing, competition,
programming and foreign ownership. A significant percentage of
Cable and Telecom’s business activities is regulated by the CRTC under
the Telecommunications Act, the Radiocommunication Act and the
Broadcasting Act, and accordingly the results of operations are
affected by changes in regulations and decisions of the CRTC. Such
regulation relates to, among other things, licencing, competition,
the specific cable television programming services that Cable and
Telecom must distribute, as well as percentages of foreign owner-
ship and control of cable television licences. In addition, Cable and
Telecom’s CRTC licences must be renewed from time to time and
cannot be transferred without regulatory approval. The cable televi-
sion systems are also required to obtain certain authorizations and
to meet certain technical standards established by Industry Canada,
pursuant to its authority under the Telecommunications Act and
the Radiocommunication Act. Changes in regulation by the CRTC,
Industry Canada or any other regulatory body could adversely affect
Cable and Telecom’s business and results of operations. In addition,
the costs of providing any of Cable and Telecom’s services may be
increased from time to time as a result of compliance with industry
or legislative initiatives to address consumer protection concerns 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.
The CRTC released its Local Forbearance Decision on April 6, 2006.
The decision was consistent with the assumptions made in the
business planning for Cable and Telecom’s local telephone service.
Canada’s incumbent telephone companies appealed the CRTC’s
Local Forbearance Decision to the Federal Cabinet. On December 11,
2006, the Minister of Industry announced a proposed decision in the
appeal of the CRTC’s forbearance decision. The proposed decision
would deregulate the incumbent phone companies once a facilities-
based competitor begins offering service. There would no longer be
any requirement for any market share loss before the incumbents
are deregulated in a market. Furthermore, the CRTC’s winback and
promotions safeguards would be removed upon promulgation of the
order, and the quality of service standards will be loosened. Comments
on the proposed order were received on January 15, 2007. Issuance of
this order will make it more difficult for Cable and Telecom’s local
telephone services to be established in the marketplace.
Cable and Telecom is Highly Dependent on Facilities and Ser vices
of the ILECs.
The telephony business is highly dependent on the availability of
unbundled facilities acquired from incumbent telecom operators,
pursuant to CRTC rules. On November 9, 2006 the CRTC commenced a
proceeding entitled Review of regulatory framework for wholesale
services and definition of essential service, in order to review these
rules. Changes to these rules could severely affect the cost of operat-
ing these businesses.
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57
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Failure to Obtain Access to Suppor t Structures and Municipal
Rights of Way Could Increase Cable and Telecom’s Costs and
Adversely Affect Our Business.
Cable and Telecom requires access to support structures and municipal
rights of way in order to deploy facilities. Where access to municipal
rights of way cannot be secured, Cable and Telecom may apply to
the CRTC to obtain a right of access under the Telecommunications
Act. However, the Supreme Court of Canada ruled in 2003 that the
CRTC does not have the jurisdiction to establish the terms and condi-
tions of access to the poles of hydroelectric companies. As a result of
this decision, the Canadian Cable Telecommunications Association
filed an application with the Ontario Energy Board (“OEB”) asking
it to set a pole rate for all hydroelectric distributors in Ontario. The
OEB accepted jurisdiction over this matter and set a rate of $22.35
per pole. In New Brunswick, the New Brunswick Public Utilities Board
has accepted jurisdiction and set a rate of $18.00 per pole.
Cable and Telecom Face Substantial Competition.
Technological, regulatory 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 ser-
vices in Canada. Cable and Telecom faces competition from entities
utilizing other communications technologies and may face competi-
tion from other technologies being developed or to be developed in
the future. The ability to attract and retain customers is also highly
dependent on the quality and reliability of service provided, as well
as execution of business processes in relation to services provided by
competitors.
The CRTC Broadcasting Distribution Regulations do not allow Cable
and Telecom or its competitors to obtain exclusive contracts in build-
ings where it is technically feasible to install two or more systems.
CRTC winback rules also limit communications with customers in mul-
tiple dwelling unit buildings (“MDUs”) for ninety days after they have
switched to a competitive supplier. In addition, there are restrictions
on Cable and Telecom’s ability to communicate with the residents of
an MDU for ninety days after a competitive supplier signs an access
agreement to provide service in the building. Approximately one-
third of Cable and Telecom’s basic cable subscribers are located in
MDUs. These regulations and related policies could lead to com-
petitive subscriber losses or pricing pressure in MDUs serviced by
Cable and Telecom, which could result in a reduction in Cable and
Telecom’s revenue.
Cable and Telecom May Fail to Achieve Expected Revenue Grow th
from New and Advanced Products and Ser vices.
Cable and Telecom expects that a substantial portion of its future
growth will be achieved from new and advanced cable, Internet,
voice-over-cable telephony and other IP products and services.
Accordingly, Cable and Telecom has invested and continues to invest
significant capital resources in the development of a technologically
advanced cable network in order to support a wide variety of
advanced cable products and services and has invested and continues
to invest significant resources in the development of new services to
be provided over the network. However, consumers may not provide
sufficient demand for the enhanced cable products and services that
are offered. In addition, any initiatives to increase prices for Cable and
Telecom’s services may result in increased churn of our subscribers and
a reduction in the total number of subscribers. Alternatively, Cable
and Telecom may fail to anticipate demand for certain products and
services, or may not be able to offer or market these new products
and services successfully to subscribers. Cable and Telecom’s failure
to retain existing subscribers while increasing pricing or to attract
subscribers to new products and services, or Cable and Telecom’s
failure to keep pace with changing consumer preferences for cable
products and services, could slow revenue growth and have a mate-
rial adverse effect on Cable and Telecom’s business and financial
condition. In addition, Cable and Telecom’s discounted bundled
product and service offerings may fail to reduce churn and may have
an adverse impact on Cable and Telecom’s financial results.
If Cable and Telecom Is Unable to Develop or Acquire Advanced
Encr yption Technology to Prevent Unauthorized Access to Its
Programming, Cable and Telecom Could Experience a Decline in
Revenues.
Cable and Telecom utilizes encryption technology to protect its cable
signals from unauthorized access and to control programming access
based on subscription packages. There can be no assurance that Cable
and Telecom will be able to effectively prevent unauthorized decod-
ing of signals in the future. If Cable and Telecom is unable to control
cable access with our encryption technology, Cable and Telecom’s
subscription levels for digital programming including VOD and SVOD,
as well as Rogers Retail rentals, may decline, which could result in a
decline in Cable and Telecom’s revenues.
Increasing Programming Costs Could Adversely Affect Cable and
Telecom’s Results of Operations.
Cable and Telecom’s single most significant purchasing commitment is
the total annual cost of acquiring programming. Programming costs
have increased significantly in recent years, particularly in connection
with the recent growth in subscriptions to digital specialty channels.
Increasing programming costs within the industry could adversely
affect Cable and Telecom’s operating results if Cable and Telecom is
unable to pass such programming costs on to its subscribers.
MEDIA RISkS AND UNCERTAINTIES
Changes in Regulator y Policies May Adversely Affect
Media’s Business.
In December 2006, the CRTC released its Commercial Radio Policy
2006. While Canadian talent development contributions made by
all radio stations will be increasing significantly, minimum Canadian
content levels will remain at 35%. This will provide radio operators
with the flexibility they need to program their stations in compe-
tition with an increasing array of unregulated content alternatives
and distribution platforms.
In November 2006, the CRTC also conducted a review of its Television
Policy. Principal amongst the issues examined was the argument put
forward by television broadcasters that they should be provided
with the opportunity to collect fees from cable and satellite distribu-
tors for the carriage of their over-the-air signals. The ability to collect
fees will impact all broadcasters, including OMNI Television.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In 2007, the CRTC is also planning to conduct a review of the Specialty
and Pay TV sector, as well as the regulations affecting all distributors
(the Broadcasting Distribution Regulations). This review will focus on
a number of different issues, including wholesale fees, dispute reso-
lution and packaging and linkage requirements. This broad-based
review will impact all specialty services, including Rogers Sportsnet,
The Biography Channel Canada and G4TechTV Canada.
in their respective markets, such leadership may not continue in
the future. Advertisers base a substantial part of their purchasing
decisions on statistics such as ratings and readership generated by
industry associations and agencies. If Media’s radio and television
ratings or magazine readership levels were to decrease substantially,
Media’s advertising sales volumes and the rates which it charges
advertisers could be adversely affected.
Tariff Increases Could Adversely Affect Media’s Results of
Media Faces Increased Competition.
New programming or content services, as well as alternative media
technologies, such as digital radio services, satellite radio, DTH sat-
ellite, wireless and wired pay television, Internet radio and video
programming, and on-line publications have either begun com-
peting, or may in the future compete with Media’s properties for
programming and publishing content, audiences and advertising
revenues. These competing technologies may increase audience
fragmentation, reduce Media’s ratings or have an adverse effect on
its local or national advertising revenue. These or other technologies
and business models may have a material adverse effect on Media’s
results of operations.
Introduction of New Technology.
The deployment of PVRs could influence Media’s capability to gener-
ate television advertising revenues as viewers are provided with the
opportunity to ignore advertising aired on the television networks.
Although it is still too early to determine its impact, the emergence
of subscriber-based satellite and digital radio products could change
radio audience listening habits and negatively impact the results of
Media’s radio stations.
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
paper, printing and postage expenses. Paper is Publishing’s single
largest raw material expense, representing approximately 8.5% of
Publishing’s operating expenses in 2006. Publishing depends upon
outside suppliers for all of its paper supplies, holds relatively small
quantities of paper in stock itself, and is unable to control paper
prices, which can fluctuate considerably. Moreover, Publishing
is generally unable to pass paper cost increases on to customers.
Printing costs represented approximately 9.3% of Publishing’s oper-
ating expenses in 2006. Publishing relies on third parties for all of
its printing services. In addition, Publishing relies on the Canadian
Postal Service to distribute a large percentage of its publications. A
material increase in paper prices, printing costs or postage expenses
to Publishing could have a material adverse effect on Media’s busi-
ness, results of operations or financial condition.
Operations.
Copyright liability pressures continue to affect radio services. If
fees were to increase, such increases could adversely affect Media’s
results of operations.
Pressures Regarding Channel Placement Could Negatively Impact
the Tier Status of Cer tain of Media’s Channels.
Pressures regarding the favourable channel placement of The
Shopping Channel and Sportsnet below the first cable tier will likely
continue to exist. Unfavourable channel placement could negatively
affect the results of The Shopping Channel and Sportsnet.
A Decline in Demand for Adver tising or Economic Downturns
Would Adversely Affect Media’s Results of Operations.
Media depends on advertising as a material source of its revenue
and its businesses would be adversely affected by a material decline
in the demand for local or national advertising. Media derived
approximately 44.6% of its revenues in 2006 from the sale of adver-
tising. Media expects advertising will continue to be a material
source of its revenue in the future. Advertising revenue, which is
largely a function of consumer confidence and general economic
conditions, remains unpredictable, although the diversity of the
businesses Media operates, both geographically and in terms of the
breadth of media, helps to provide some stability to the advertising
revenue base. Most of Media’s advertising contracts are short-term
contracts that can be terminated by the advertiser with little notice.
A reduction in advertising spending or loss of material advertising
relationships would adversely affect Media’s results of operations
and financial position.
Expenditures by advertisers tend to be cyclical, reflecting overall eco-
nomic conditions as well as budgeting and buying patterns outside of
Media’s control. Moreover, because a substantial portion of Media’s
advertising revenue is derived from local advertisers, Media’s ability
to generate advertising revenue in specific markets is adversely
affected by local or regional economic downturns. This is particularly
true in the concentrated Toronto market, where the combined revenue
from Media’s four radio stations and two over-the-air television sta-
tions represented approximately 12.5% of Media’s revenue in 2006.
A Loss in Media’s Leadership Position in Radio, Television or
Magazine Readership Could Adversely Impact Media’s Sales
Volumes and Adver tising Rates.
It is well established that advertising dollars migrate to media prop-
erties that are leaders in their respective markets and categories
when advertising budgets are tightened. Although most of Media’s
radio, television and magazine properties are currently leaders
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
59
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
5
AC CO UNTING PO LICI ES A ND N ON -G A A P
ME AS URES
kEY PERFORMANCE INDIC ATORS AND NON - GA AP MEASURES
We measure the success of our strategies using a number of key per-
formance indicators, which are outlined below. The following key
performance indicators are not measurements in accordance with
Canadian or U.S. GAAP and should not be considered as an alter-
native to net income or any other measure of performance under
Canadian or U.S. GAAP.
Subscriber Counts
We determine the number of subscribers to our services based on
active subscribers. A wireless subscriber is represented by each iden-
tifiable telephone number. A cable subscriber is represented by
a dwelling unit. In the case of multiple units in one dwelling, such
as an apartment building, each tenant with cable service, whether
invoiced individually or having services included in his or her rent, is
counted as one subscriber. Commercial or institutional units, such as
hospitals or hotels, are each considered to be one subscriber. When
subscribers are deactivated, either voluntarily or involuntarily for
non-payment, they are considered to be deactivations in the period
the services are discontinued. Wireless prepaid subscribers are con-
sidered active for a period of 180 days from the date of their last
revenue-generating usage.
We report wireless subscribers in two categories: postpaid and pre-
paid. Postpaid includes voice-only and data-only subscribers, as well
as subscribers with service plans integrating both voice and data.
Internet, Rogers Home Phone and Rogers Business Solutions subscrib-
ers include only those subscribers with service installed, operating
and on billing and excludes those subscribers who have subscribed to
the service but for whom installation of the service was still pending.
Effective August 2005, voluntarily deactivating cable subscribers are
required to continue service for 30 days from the date termination
is requested. This continued service period, which is consistent with
the billing and subscriber agreement terms and conditions, had the
impact of increasing net basic cable, Internet and digital household
subscriber net additions by approximately 9,500, 5,200 and 3,800,
respectively, in the twelve months ended December 31, 2005.
Subscriber Churn
Subscriber churn is calculated on a monthly basis. For any particular
month, subscriber churn for Wireless represents the number of sub-
scribers deactivating in the month divided by the aggregate number
of subscribers at the beginning of the month. When used or reported
for a period greater than one month, subscriber churn represents
the monthly average of the subscriber churn for the period.
Network Revenue
Network revenue, used in the Wireless segment, represents total
Wireless revenue less revenue received from the sale of hand-
set equipment. The sale of such equipment does not materially
affect our operating income as we generally sell equipment to our
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ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
distributors at a price approximating our cost to facilitate competi-
tive pricing at the retail level. Accordingly, we believe that network
revenue is a more relevant measure for Wireless’ ability to increase
its operating profit, as defined below.
Average Revenue per User
The average revenue per user (“ARPU”) is calculated on a monthly
basis. For any particular month, ARPU represents monthly revenue
divided by the average number of subscribers during the month.
In the case of Wireless, ARPU represents monthly network revenue
divided by the average number of subscribers during the month.
ARPU, when used in connection with a particular type of subscriber,
represents monthly revenue generated from those subscribers
divided by the average number of those subscribers during the
month. When used or reported for a period greater than one month,
ARPU represents the monthly average of the ARPU calculations for
the period. We believe ARPU helps indicate whether we have been
successful in attracting and retaining higher value subscribers. Refer
to the “Supplementary Information – Non-GAAP Calculations” sec-
tion for further details on this Wireless and Cable and Telecom
calculation.
Operating Expenses
Operating expenses are segregated into three categories for assess-
ing business performance:
• Cost of sales, which is comprised of wireless equipment costs,
Rogers Retail merchandise and depreciation of Rogers Retail rental
assets, as well as cost of goods sold by The Shopping Channel;
• Sales and marketing expenses, which represent the costs to acquire
new subscribers (other than those related to equipment), such as
advertising, commissions paid to third parties for new activations,
remuneration and benefits to sales and marketing employees, as
well as direct overheads related to these activities and the costs of
operating the Rogers Retail store locations and the retail opera-
tions of Wireless stores; and
• Operating, general and administrative expenses, which include
all other expenses incurred to operate the business on a day-to-
day basis and service existing subscriber relationships, 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 ser-
vices continues to grow and the variable costs, such as commissions
paid for subscriber activations, as well as the fixed costs of acquir-
ing new subscribers are significant. Fluctuations in the number of
activations of new subscribers from period to period and the sea-
sonal nature of both wireless and cable subscriber additions result in
fluctuations in sales and marketing expenses and accordingly, in the
overall level of operating expenses. In our Media business, sales and
marketing expenses may be significant to promote publishing, radio
and television properties, which in turn attract advertisers, viewers,
listeners and readers.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales and Marketing Costs (or Cost of Acquisition) per Subscriber
Sales and marketing costs per subscriber, which is also often referred
to in the industry as cost of acquisition per subscriber (“COA”), “sub-
scriber acquisition cost”, or “cost per gross addition”, is calculated by
dividing total sales and marketing expenditures, plus costs related to
equipment provided to new subscribers for the period, by the total
number of gross subscriber activations during the period. Subscriber
activations include postpaid and prepaid voice and data activations
and one-way messaging activations. COA, as it relates to a particular
activation, can vary depending on the level of ARPU and term of a
subscriber’s contract. Refer to “Supplementary Information – Non-
GAAP Calculations” for further details on the calculation.
The wireless communications industry in Canada continues to grow
and the costs of acquiring new subscribers are significant. Because
a substantial portion of subscriber activation costs are variable in
nature, such as commissions paid for each new activation, and due
to fluctuations in the number of activations of new subscribers from
period to period and the seasonal nature of these subscriber addi-
tions, we experience material fluctuations in sales and marketing
expenses and, accordingly, in the overall level of operating expenses.
Operating Expense per Subscriber
Operating expense per subscriber, expressed as a monthly average,
is calculated by dividing total operating, general and administrative
expenses, plus costs related to equipment provided to existing sub-
scribers, by the average number of subscribers during the period.
Operating expense per subscriber is tracked by Wireless as a measure
of our ability to leverage our operating cost structure across a grow-
ing subscriber base, and we believe that it is an important measure
of our ability to achieve the benefits of scale as we increase the size
of our business. Refer to “Supplementary Information – Operating
Expense per Average Subscriber” for further details on this Wireless
calculation.
Operating Profit and Operating Profit Margin
We define operating profit as net income before depreciation and
amortization, interest expense, income taxes and non-operating
items, which include foreign exchange gains (losses), loss on
repayment of long-term debt, change in fair value of derivative instru-
ments, and other income. Operating profit is a standard measure
used in the communications industry to assist in understanding and
comparing operating results and is often referred to by our peers and
competitors as EBITDA (earnings before interest, taxes, depreciation
and amortization) or OIBDA (operating income before deprecia-
tion and amortization). We believe this is an important measure as
it allows us to assess our ongoing businesses without the impact of
depreciation or amortization expenses as well as non-operating fac-
tors. It is intended to indicate our ability to incur or service debt,
invest in PP&E and allows us to compare our Company to our peers
and competitors who may have different capital or organizational
structures. This measure is not a defined term under Canadian GAAP
or U.S. GAAP.
We calculate operating profit margin by dividing operating profit by
total revenue, except in the case of Wireless. For Wireless, operating
profit margin is calculated by dividing operating profit by network
revenue. Network revenue is used in the calculation, instead of total
revenue, because network revenue better reflects Wireless’ core busi-
ness activity of providing wireless services. Refer to “Supplementary
Information – Operating Profit Margin Calculation” for further
details on this Wireless, Cable and Telecom, and Media calculation.
Additions to PP&E
Additions to PP&E include those costs associated with acquiring and
placing our PP&E into service. Because the communications business
requires extensive and continual investment in equipment, including
investment in new technologies and expansion of geographical reach
and capacity, additions to PP&E are significant and management
focuses continually on the planning, funding and management of
these expenditures. We focus more on managing additions to PP&E
than we do on managing depreciation and amortization expense
because additions to PP&E have a direct impact on our cash flow,
whereas depreciation and amortization are non-cash accounting
measures required under Canadian and U.S. GAAP.
The additions to PP&E before related changes to non-cash working
capital represent PP&E that we actually took title to in the period.
Accordingly, for purposes of comparing our PP&E outlays, we believe
that additions to PP&E before related changes to non-cash working
capital best reflect our cost of PP&E in a period, and provide a more
accurate determination for period-to-period comparisons.
CRITIC AL ACCOUNTING POLICIES
This MD&A has been prepared with reference to our 2006 Audited
Consolidated Financial Statements and Notes thereto, which have
been prepared in accordance with Canadian GAAP. The Audit
Committee of our Board reviews our accounting policies, reviews
all quarterly and annual filings, and recommends approval of our
annual financial statements to our Board. For a detailed discussion of
our accounting policies, see Note 2 to the 2006 Audited Consolidated
Financial Statements. In addition, a discussion of new accounting
standards adopted by us and critical accounting estimates are dis-
cussed in the sections “New Accounting Standards” and “Critical
Accounting Estimates”, respectively.
Revenue Recognition
We consider revenues to be earned as services are performed, pro-
vided that ultimate collection is reasonably assured at the time of
performance.
Revenue is categorized into the following types, the majority of
which are recurring in nature on a monthly basis from ongoing rela-
tionships, contractual or otherwise, with our subscribers:
• Monthly subscriber fees in connection with wireless and wireline
services, cable, telephony, Internet services, rental of equipment,
network services, and media subscriptions are recorded as revenue
on a pro rata basis as the service is provided;
• 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 delivered and accepted by the indepen-
dent dealer or subscriber in the case of direct sales. Equipment
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
61
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
subsidies related to new and existing subscribers are recorded as a
reduction of equipment revenues;
• Installation fees and activation fees charged to subscribers do not
meet the criteria as a separate unit of accounting. As a result, in
Wireless, these fees are recorded as part of equipment revenue
or, in the case of Cable and Telecom, are deferred and amortized
over the related service period. The related service period for
Cable and Telecom ranges from 26 to 48 months, based on sub-
scriber disconnects, transfers of service and moves. Incremental
direct installation costs related to re-connects are deferred to the
extent of deferred installation fees and amortized over the same
period as these related installation fees. New connect installation
costs are capitalized to PP&E and amortized over the useful life of
the related assets;
• Advertising revenue is recorded in the period the advertising airs
on the Company’s radio or television stations and the period in
which advertising is featured in the Company’s media publications;
• 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’ revenue from home game admission and concessions is
recognized as the related games are played during 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. This revenue is recognized
in the season in which it is earned, when the amount is estimable
and collectibility is reasonably assured; and
• Multi-product discounts incurred as Wireless, Cable and Telecom
and Media products and services provided are charged directly to
the revenue for the products and services to which they relate.
We offer certain products and services as part of multiple deliverable
arrangements. We divide multiple deliverable arrangements into
separate units of accounting. Components of multiple deliverable
arrangements are separately accounted for provided the delivered
elements have stand-alone value to the customers and the fair value
of any undelivered elements can be objectively and reliably deter-
mined. Consideration for these units is measured and allocated
amongst the accounting units based upon their fair values and our
relevant revenue recognition policies are applied to them. We rec-
ognize revenue once persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, fees are fixed
and determinable and collectibility is reasonably assured.
Unearned revenue includes subscriber deposits, installation fees and
amounts received from subscribers related to services and subscrip-
tions to be provided in future periods.
Subscriber Acquisition and Retention Costs
We operate within a highly-competitive industry and generally incur
significant costs to attract new subscribers and retain existing sub-
scribers. 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 equip-
ment, are expensed as incurred.
62
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
A large percentage of the subscriber acquisition and retention costs,
such as equipment subsidies and commissions, are variable in nature
and directly related to the acquisition or renewal of a subscriber.
In addition, subscriber acquisition and retention costs on a per sub-
scriber acquired basis fluctuate based on the success of promotional
activity and the seasonality of the business. Accordingly, if we expe-
rience significant growth in subscriber activations or renewals during
a period, expenses for that period will increase.
Capitalization of Direct Labour and Overhead
During construction of new assets, direct costs plus a portion of
applicable overhead costs are capitalized. Repairs and maintenance
expenditures are charged to operating expenses as incurred.
CRITIC AL ACCOUNTING ESTIMATES
This MD&A has been prepared with reference to our 2006 Audited
Consolidated Financial Statements and Notes thereto, which have
been prepared in accordance with Canadian GAAP. The preparation
of these financial statements requires management to make esti-
mates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and the related disclosure of
contingent assets and liabilities. These estimates are based on man-
agement’s historical experience and various other assumptions that
are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the reported
amounts of assets, liabilities, revenue and expenses that are not
readily apparent from other sources. Actual results could differ from
those estimates. We believe that the accounting estimates discussed
below are critical to our business operations and an understanding
of our results of operations or may involve additional management
judgment due to the sensitivity of the methods and assumptions
necessary in determining the related asset, liability, revenue and
expense amounts.
Purchase Price Allocations
During 2005, we acquired Call-Net Enterprises Inc. and the Rogers
Centre. The allocations of the purchase prices for these transac-
tions involved considerable judgment in determining the fair values
assigned to the tangible and intangible assets acquired and the
liabilities assumed on acquisition. Among other things, the deter-
mination of these fair values involved the use of discounted cash
flow analyses, estimated future margins, estimated future subscrib-
ers, estimated future royalty rates, the use of information available
in the financial markets and estimates as to costs to close duplicate
facilities and buy out certain contracts. Refer to Note 4 of the 2006
Audited Consolidated Financial Statements for certain updates made
during 2006 to the purchase price allocations. Should actual rates,
cash flows, costs and other items differ from our estimates, this may
necessitate revisions to the carrying value of the related assets and
liabilities acquired, including revisions that may impact net income
in future periods.
Useful Lives of PP&E
We depreciate the cost of PP&E over their respective estimated
useful lives. These estimates of useful lives involve considerable
judgment. In determining the estimates of these useful lives, we
take into account industry trends and company-specific factors,
including changing technologies and expectations for the in-service
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
period of certain assets. On an annual basis, we reassess our existing
estimates of useful lives to ensure they match the anticipated life of
the technology from a revenue-producing perspective. If technological
change happens more quickly or in a different way than anticipated,
we might have to reduce the estimated life of PP&E, which could result
in a higher depreciation expense in future periods or an impairment
charge to write down the value of PP&E.
Capitalization of Direct Labour and Overhead
Certain direct labour and indirect costs associated with the acquisi-
tion, construction, development or betterment of our networks are
capitalized to PP&E. The capitalized amounts are calculated based on
estimated costs of projects that are capital in nature, and are gener-
ally based on the rate per hour. Although interest costs are permitted
to be capitalized during construction under Canadian GAAP, it is our
policy not to capitalize interest.
Accrued Liabilities
The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts
of accrued liabilities at the date of the financial statements and the
reported amounts expensed during the year. Actual results could
differ from those estimates.
Amor tization of Intangible Assets
We amortize the cost of finite-lived intangible assets over their
estimated useful lives. These estimates of useful lives involve con-
siderable 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 balances. Judgement
is also involved in determining that spectrum and broadcast licences
have indefinite lives, and are therefore not amortized.
The determination of the estimated useful lives of brand names
involves historical experience, marketing considerations and the
nature of the industries in which we operate. The useful lives of
subscriber bases are based on the historical churn rates of the under-
lying subscribers and judgments as to the applicability of these rates
going forward. The useful lives of roaming agreements are based on
estimates of the useful lives of the related network equipment. The
useful lives of wholesale agreements and dealer networks are based
on the underlying contractual lives. The determination of the esti-
mated useful lives of intangible assets impacts amortization expense
in the current period as well as future periods. The impact on net
income on a full-year basis of changing the useful lives of the finite-
lived assets by one year is shown in the chart below.
Impact of Changes in Estimated Useful Lives
(In millions of dollars)
Brand names
Rogers
Fido
Subscriber base
Rogers
Fido
Roaming agreements
Dealer network
Rogers
Fido
Wholesale agreements
Amortization
Period
Increase in Net Income
if Life Increased by 1 Year
Decrease in Net Income
if Life Decreased by 1 Year
20.0 years
5.0 years
4.6 years
2.3 years
12.0 years
4.0 years
4.0 years
3.2 years
$
$
$
$
$
$
$
$
1
3
30
23
3
1
1
1
$
$
$
$
$
$
$
$
(1)
(5)
(54)
(61)
(4)
(2)
(1)
(2)
Impairment of Goodwill, Indefinite - Lived Intangible Assets and
Income Tax Estimates
Long - Lived Assets
Indefinite-lived intangible assets, including goodwill and spectrum/
broadcast licences, as well as long-lived assets including PP&E and
other intangible assets, are assessed for impairment on at least
an annual basis or more often if events or circumstances warrant.
These impairment tests involve the use of both undiscounted and
discounted net cash flow analyses to assess the recoverability of the
carrying value of these assets and the fair value of both indefinite-
lived and long-lived assets if applicable. These analyses involve
estimates of future cash flows, estimated periods of use and appli-
cable discount rates. If the undiscounted net cash flows associated
with long-lived assets or the fair value of indefinite-lived intangible
assets exceeds related carrying values, impairment losses measured
as the excess of carrying value over fair value for long-lived assets
and the excess of carrying value over the implied fair value of good-
will would have to be recognized.
We use judgment in the estimation of income taxes and future income
tax assets and liabilities. In the preparation of our Consolidated
Financial Statements, we are required to estimate income taxes in
each of the jurisdictions in which we operate. This involves estimating
actual current tax exposure, together with assessing temporary dif-
ferences that result from differing treatments in items for accounting
purposes versus tax purposes, and in estimating the recoverability of
the benefits arising from tax loss carryforwards. We are required to
assess whether it is more likely than not that future income tax assets
will be realized prior to the expiration of the related tax loss carry-
forwards. Judgment is required to determine if a valuation allowance
is needed against either all or a portion of our future income tax
assets. Various considerations are reflected in this judgment including
future profitability of related companies, tax planning strategies
that are being implemented or could be implemented to recognize
the benefits of these tax assets, as well as the expiration of the tax
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
63
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
loss carryforwards. Judgments and estimates made to assess the tax
treatment of items and the need for a valuation allowance impact
the future tax balances as well as net income through the current
and future tax provisions. As at December 31, 2006 and as detailed
in Note 7 to the 2006 Audited Consolidated Financial Statements we
have tax loss carryforwards of approximately $2,715 million expiring
at various times through 2027. Our net future income tax asset,
prior to valuation allowances, totals approximately $836 million at
December 31, 2006 (2005 – $1,078 million). The recorded valuation
allowance results in a future income tax asset of $686 million, reflect-
ing that it is more likely than not that certain income tax assets will
be realized. Approximately $300 million of the income tax assets rec-
ognized in 2006 relate to assets arising on acquisitions. Accordingly,
the benefit related to these assets was recorded as a reduction
of goodwill.
Pension Plans
When accounting for defined benefit pension plans, assumptions
are made in determining the valuation of benefit obligations and
the future performance of plan assets. Delayed recognition of dif-
ferences between actual results and expected or estimated results
is a guiding principle of pension accounting. This principle results in
recognition of changes in benefit obligations and plan performance
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 the deferred pension asset.
The following table illustrates the increase (decrease) in the accrued
benefit obligation and pension expense for changes in these primary
assumptions and estimates:
Impact of Changes in Pension Related Assumptions
(In millions of dollars)
Discount rate
Impact of: 1% increase
1% decrease
Rate of compensation increase
Impact of: 0.25% increase
0.25% decrease
Expected rate of return on assets
Impact of: 1% increase
1% decrease
Accrued Benefit Obligation at
End of Fiscal 2006
Pension Expense
Fiscal 2006
$
$
5.25%
(82)
115
3.50%
7
(7)
N/A
N/A
N/A
$
$
5.25%
(11)
16
3.50%
2
(2)
6.75%
(5)
5
Allowance for Doubtful Accounts
A significant portion of our revenue is earned from selling on credit
to individual consumers and business customers. The allowance for
doubtful accounts is calculated by taking into account factors such
as our historical collection and write-off experience, the number
of days the customer is past due and the status of the customer’s
account with respect to whether or not the customer is continuing
to receive service. As a result, fluctuations in the aging of subscriber
accounts will directly impact the reported amount of bad debt
expense. For example, events or circumstances that result in a dete-
rioration in the aging of subscriber accounts will in turn increase the
reported amount of bad debt expense. Conversely, as circumstances
improve and customer accounts are adjusted and brought current,
the reported bad debt expense will decline.
NEW ACCOUNTING STANDARDS
Stock- Based Compensation
In 2006, the Company adopted the provisions of Emerging Issues
Committee (“EIC”) Abstract 162, Stock-Based Compensation for
Employees Eligible to Retire Before the Vesting Date. Where a stock-
based compensation plan contains provisions that allow an employee
to continue vesting in a stock-based award after the employee has
retired, EIC 162 requires that the compensation cost attributable to
such an award be expensed immediately for employees who are
eligible to retire at the date of grant. For an employee who will
become eligible to retire during the vesting period of an award,
EIC 162 requires that compensation cost be recognized as an expense
over the period from the date of grant to the date the employee
becomes eligible to retire. EIC 162 must be applied retroactively to all
stock-based compensation awards, with restatement of prior peri-
ods. The adoption of EIC 162 resulted in an increase in the opening
2005 deficit and contributed surplus of $4 million and an increase in
2005 stock-based compensation of less than $1 million. For 2006, the
adoption of EIC 162 resulted in incremental stock-based compensa-
tion of less than $1 million from that which would otherwise have
been recorded.
Accounting Changes
In 2006, the CICA issued Handbook Section 1506, Accounting Changes
(“CICA 1506”). CICA 1506 prescribes the criteria for changing account-
ing policies, together with the accounting treatment and disclosure
of changes in accounting policies, changes in accounting estimates
and correction of errors. This new standard, to be adopted on
January 1, 2007, is not expected to have a material impact on the
Company’s consolidated financial statements.
Non - monetar y Transactions
In 2005, the CICA issued Handbook Section 3831, Non-monetary
Transactions, (“CICA 3831”) replacing Section 3830, Non-monetary
64
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Transactions. CICA 3831 requires that an asset exchanged or trans-
ferred in a non-monetary transaction must be measured at its fair
value except when: the transaction 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 the asset
received nor the fair value of the asset given up is reliably measur-
able; or the transaction is a non-monetary, non-reciprocal transfer
to owners that represents a spin-off or other form of restructuring
or liquidation. In these cases, the transaction must be measured at
the carrying value. The new requirements were effective for transac-
tions occurring on or after January 1, 2006. This new standard has
not had a material impact on the Company’s consolidated financial
statements.
RECENT C ANADIAN ACCOUNTING PRONOUNCEMENTS
Financial Instruments
In 2005, the CICA issued Handbook Section 3855, Financial Instru -
ments – Recognition and Measurement, Handbook Section 1530,
Compre hensive Income, Handbook Section 3251, Equity, and Hand-
book Section 3865, Hedges. The new standards are effective for our
interim and annual financial statements commencing January 1, 2007.
of $10 million and a decrease in opening accumulated other compre-
hensive income of $393 million, net of income taxes of $168 million.
In addition, the unamortized deferred transitional gain of $54 million
will be eliminated upon adoption, the impact of which is estimated
to be an increase in opening deficit of $38 million, net of income
taxes of approximately $16 million.
We are currently assessing the impact of the requirement to recognize
non-financial derivatives and embedded derivatives at fair value.
Effective January 1, 2007, we will record all financing costs for financial
assets and financial liabilities in income as incurred. We had previ-
ously deferred these costs and amortized them over the term of the
related debt. The carrying value of deferred costs at December 31,
2006 of $59 million, net of related income taxes, will be charged to
opening deficit on transition on January 1, 2007.
In 2006, the CICA issued Handbook Section 3862, Financial Instruments –
Disclosures, and Handbook Section 3863, Financial Instruments –
Presentation. These new standards will become effective for the
Company beginning January 1, 2008. We are currently assessing the
impact of these two new standards.
A new statement entitled “Consolidated Statement of Comprehensive
Income (Loss)” will be added to our consolidated financial statements
and will include net income (loss) as well as other comprehensive
income (loss). Accumulated other comprehensive income (loss) will
form part of shareholders’ equity.
Under these standards, all of our financial assets will be classified
as available-for-sale or as loans and receivables. Available-for-sale
investments will be carried at fair value on the consolidated balance
sheets, with changes in fair value recorded in other comprehensive
income (loss). Loans and receivables and all financial liabilities will be
carried at amortized cost using the effective interest method. Upon
adoption, we have determined that none of our financial assets
will be classified as held-for-trading or held to maturity and none
of our financial liabilities will be classified as held-for-trading. The
impact of the classification provisions of the new standards will be
an adjustment of the carrying value of available-for-sale investments
to fair value and is estimated to be an increase of $212 million, with
a corresponding increase in opening accumulated other comprehen-
sive income.
All derivatives, including embedded derivatives that must be sepa-
rately accounted for, will be measured at fair value, with changes in
fair value recorded in the consolidated statement of income unless
they are effective cash flow hedging instruments. The changes in fair
value of cash flow hedging derivatives will be recorded in other com-
prehensive income (loss), to the extent effective, until the variability
of cash flows relating to the hedged asset or liability is recognized
in the consolidated statement of income. Any hedge ineffectiveness
will be recognized in net income (loss) immediately. The impact of
remeasuring hedging derivatives at fair value on January 1, 2007 will
be recognized in opening deficit and opening accumulated other
comprehensive income (loss), as appropriate. The impact of remea-
suring hedging derivatives on the consolidated financial statements
on January 1, 2007 is estimated to be an increase in derivative instru-
ments of approximately $571 million, an increase in opening deficit
Capital Disclosures
In 2006, the CICA issued Handbook Section 1535, Capital Disclosures
(“CICA 1535”). CICA 1535 requires that an entity disclose information
that enables users of its financial statements to evaluate an entity’s
objectives, policies and processes for managing capital including
disclosures of any externally imposed capital requirements and the
consequences for non-compliance. The new standard will be effec-
tive for us January 1, 2008.
U.S. GA AP DIFFERENCES
We prepare our financial statements in accordance with Canadian
GAAP. U.S. GAAP differs from Canadian GAAP in certain respects. The
areas of principal differences and their impact on our 2006 Audited
Consolidated Financial Statements are described in Note 26 to the
2006 Audited Consolidated Financial Statements. The significant dif-
ferences in accounting relate to:
• Gain On Sale and Issuance of Subsidiary Shares to Non-Controlling
Interest;
• Gain on Sale of Cable Systems;
• Pre-Operating Costs Capitalized;
• Equity Instruments;
• Capitalized Interest;
• Unrealized Holding Gains and Losses on Investments;
• Acquisition of Cable Atlantic;
• Financial Instruments;
• Stock-Based Compensation;
• Pension Liability;
• Income Taxes;
• Installation Revenues and Costs;
• Loss on Repayment of Long-Term Debt;
• Acquisition of Wireless; and
• Pensions.
Recent U.S. accounting pronouncements are also discussed in Note 26
to the 2006 Audited Consolidated Financial Statements.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
65
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
6 AD DI TI ONAL FINANC IAL INFOR M A TI ON
INTERCOMPANY AND REL ATED PART Y TR ANSAC TIONS
RCI 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.
Accounts 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.
66
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ARR ANGEMENTS BET WEEN OUR SUBSIDIARIES
Transmission Facilities
Invoicing of Common Customers
Pursuant to an agreement with Cable and Telecom, Wireless pur-
chases the accounts receivable and provides invoicing and subscriber
account collection services for common subscribers who receive a
consolidated invoice and for all cable telephony subscribers. Wireless
is compensated for costs of bad debts, billing costs and services and
other determinable costs by purchasing these receivables at a dis-
count. The discount is based on actual costs incurred for the services
provided and is reviewed periodically.
Wireless has entered into agreements with Cable and Telecom to
share the construction and operating costs of certain co-located
fibre-optic transmission and microwave facilities. The costs of these
facilities are allocated based on usage or ownership, as applicable.
Since there are significant fixed costs associated with these transmis-
sion links, Wireless and Cable and Telecom have achieved economies
of scale by sharing these facilities resulting in reduced capital costs.
In addition, Wireless receives payments from Cable and Telecom for
the use of its data, circuits, data transmission and links. The price of
these services is based on usage or ownership, as applicable.
Distribution of Wireless’ Products and Ser vices
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 subscriptions equivalent to amounts paid to
third-party distributors. Effective January 2007, the Rogers Video
segment of Cable and Telecom acquired the approximately 170
Wireless-owned retail locations. This segment, now known as Rogers
Retail, will provide our customers with a single direct retail channel
featuring all of our wireless and cable products and services. The com-
bined entity will continue to be a segment of Cable and Telecom.
Distribution of Cable and Telecom’s Products and Ser vices
Wireless has agreed to provide retail field support to Cable and
Telecom and to represent Cable and Telecom in the promotion and
sales of its business products and services. Under the retail field sup-
port agreement, Wireless’ retail sales representatives receive sales
commissions for achieving sales targets with respect to Cable and
Telecom products and services, the cost of which is reimbursed by
Cable and Telecom to Wireless.
Long Distance
Cable and Telecom terminates long distance minutes in both North
American and international markets for Wireless. These transactions
are priced at fair value wholesale rates.
Adver tising
Wireless and Cable and Telecom advertise their products and services
through radio stations and other media outlets owned by Media.
They receive a discount from the customary rates of Media. Media
has also agreed to compensate Cable and Telecom for the placement
of Media advertising on one or more of Cable and Telecom’s televi-
sion channels.
Transfer of Subscribers to Wireless
RTHI and Fido were subject to an agreement whereby RTHI resold
the wireless services of Fido. During 2005, the resale agreement
was terminated and Wireless purchased the wireless subscriber base
and related working capital items of RTHI for cash consideration of
$6 million.
Summar y of Charges from (to) Related Par ties
We have entered into the following transactions in the normal course of business with certain broadcasters in which we have an equity interest:
Years ended December 31,
(In millions of dollars)
Access fees paid to broadcasters accounted for by the equity method
2006
2005
$
19 $
18
In addition, we entered into certain transactions with companies, the partners or senior officers of which are or have been directors of RCI
or our subsidiary companies as follows:
Years ended December 31,
(In millions of dollars)
Legal services and commissions paid on premiums for insurance coverage
Telecommunications and programming services
Interest charges and other financing fees
We made payments to companies controlled by our controlling shareholder as follows:
Years ended December 31,
(In millions of dollars)
2006
2005
$
2 $
–
–
$
2 $
5
2
22
29
2006
2005
Charges to the Company for business use of aircraft and other administrative services
$
1 $
1
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
67
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During 2005, with the approval of the Board of Directors, we entered
into an arrangement to sell to our controlling shareholder, for
$13 million in cash, the shares in two wholly owned subsidiaries
whose only asset will consist of tax losses aggregating approximately
$100 million. The terms of the transaction were reviewed and
approved by a Special Committee of the Board of Directors com-
prised of independent directors. The Special Committee was advised
by independent counsel and engaged an accounting firm as part of
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 arrange-
ment, on April 7, 2006, a company controlled by our controlling
shareholder purchased the shares in one of these wholly owned
subsidiaries for cash of $7 million. On July 24, 2006, the shares of
the second wholly owned subsidiary were purchased by a company
controlled by the controlling shareholder for cash of $6 million.
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL RESULTS
Years ended December 31,
(In millions of dollars, except per share amounts)
Income and Cash Flow:
Revenue
Wireless (1)
Cable and Telecom
Media
Corporate and eliminations
Operating Profit (2)
Wireless
Cable and Telecom
Media
Corporate and eliminations
Net Income (loss) (3)(5)
Cash flow from operations (4)
Property, plant and equipment expenditures
Average Class A and Class B shares outstanding (Ms) (6)
Net income (loss) per share (3)(6) – basic
– diluted
Balance Sheet:
Assets
Property, plant and equipment, net
Goodwill
Intangible assets
Investments
Other assets
Liabilities and Shareholders’ Equity
Long-term debt (5)
Accounts payable and other liabilities
Future income taxes
Non-controlling interest
Total liabilities
Shareholders’ equity
Ratios:
Revenue growth
Operating profit growth
Debt (5)/operating profit
Dividends declared per share (6)
2006
2005
2004
2003
2002
$
4,580 $
3,201
1,210
(153)
3,860 $
2,492
1,097
(115)
2,689 $
1,946
957
(78)
2,152 $
1,788
855
(59)
1,843
1,615
811
(50)
$
8,838 $
7,334 $
5,514 $
4,736 $
4,219
$
$
$
$
$
$
$
$
1,969 $
890
151
(135)
1,337 $
765
128
(86)
950 $
709
115
(41)
727 $
663
107
(51)
528
563
88
(37)
2,875 $
2,144 $
1,733 $
1,446 $
1,142
622 $
(45) $
(68) $
76 $
260
2,386 $
1,712 $
641.9
0.99 $
0.97 $
1,551 $
1,355 $
577.3
(0.08) $
(0.08) $
1,305 $
1,055 $
480.8
(0.14) $
(0.14) $
1,031 $
964 $
451.8
0.17 $
0.16 $
683
1,262
427.1
0.53
0.42
6,732 $
2,779
2,152
139
2,303
6,152 $
3,036
2,627
138
1,881
5,487 $
3,389
2,856
139
1,402
5,039 $
1,892
400
229
905
5,052
1,892
424
224
1,115
$ 14,105 $ 13,834 $ 13,273 $
8,465 $
8,707
$
6,988 $
2,917
–
–
9,905
4,200
7,739 $
2,567
–
–
10,306
3,528
8,542 $
2,346
–
–
10,888
2,385
5,440 $
1,535
–
193
7,168
1,297
6,319
1,273
28
133
7,753
954
$ 14,105 $ 13,834 $ 13,273 $
8,465 $
8,707
21%
34%
2.4
0.08 $
33%
24%
3.6
0.06 $
16%
20%
4.9
0.05 $
12%
27%
3.8
0.05 $
11%
20%
5.5
–
$
(1) Certain current and prior year amounts related to equipment sales have been reclassified. See “Reclassification of Wireless Equipment Sales and Cost of Sales” section for further details.
(2) Operating profit is defined as income before depreciation, amortization, interest, income taxes, and non-operating items. See “key Performance Indicators Non-GAAP Measures” section.
(3) Certain prior year amounts related to the adoption of EIC 162 have been restated.
(4) Cash flow from operations before changes in working capital amounts.
(5) Years ended December 31, 2004 and prior have been restated for a change in accounting of foreign exchange translation.
(6) Prior period shares and per share amounts have been retroactively adjusted to reflect a two-for-one-split of the Company’s Class A Voting and Class B Non-Voting shares on December 29, 2006.
68
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY OF SEASONALIT Y AND QUARTERLY RESULTS
Quarterly results and statistics for the previous eight quarters are
outlined following this section.
Our operating results are subject to seasonal fluctuations that mate-
rially impact quarter-to-quarter operating results. As a result, one
quarter’s operating results are not necessarily indicative of what
a subsequent quarter’s operating results will be. Each of Wireless,
Cable and Telecom, and Media has unique seasonal aspects to their
businesses.
Wireless’ operating results are subject to seasonal fluctuations that
materially impact quarter-to-quarter operating results. In particular,
operating results may be influenced by the timing of our marketing
and promotional expenditures and higher levels of subscriber
additions, resulting in higher subscriber acquisition and activation-
related expenses in certain periods.
The operating results from Cable and Internet services are subject to
modest seasonal fluctuations in subscriber additions and disconnec-
tions which are largely attributable to movements of university and
college students and individuals temporarily suspending service due
to extended vacations, or seasonal relocations, as well as our con-
centrated marketing efforts generally conducted during the fourth
quarter. Rogers Retail operations may also experience modest fluc-
tuations from quarter-to-quarter due to the availability and timing
of release of popular titles throughout the year. However, the fourth
quarter has historically been the strongest quarter due to increased
consumer activity in the retail cycle. Rogers Home Phone and Rogers
Business Solutions do not have any unique seasonal aspects to their
business.
The seasonality at Media is a result of fluctuations in advertising
and related retail cycles since they relate to periods of increased
consumer activity as well as fluctuations associated with the Major
League Baseball season where revenues are generally concentrated
in the spring, summer and fall months.
In addition to the seasonal trends, the most notable trend has been
the quarter-by-quarter improvements in revenue and operating
profit across the Wireless, Cable and Telecom, and Media businesses.
service and retention expenses and increasing credit and collection
costs. However, these costs have been offset by operating efficiencies
and increasing GSM network roaming revenues from our subscribers
travelling outside of Canada, as well as strong growth in roaming
revenues from visitors to Canada utilizing our GSM network.
Cable and Internet services revenue and operating profit increased
primarily due to price increases, and increased penetration of its
digital products and incremental programming packages. Similarly,
the steady growth of Internet revenues has been the result of a
greater penetration of Internet subscribers as a percentage of homes
passed. The decrease in the Rogers Home Phone operating profit
margin primarily reflects the additional costs associated with the
scaling and rapid growth of our cable telephony service including
increased sales and marketing expenses. The decrease in the Rogers
Business Solutions operating profit margin reflects the pricing pres-
sures on long distance and higher carrier costs. Rogers Retail revenue
and operating profit have decreased due to a decreased number of
stores.
Media’s results are primarily attributable to a general upturn in
demand for local advertising despite the softness with respect to
national advertising.
Other fluctuations in net income from quarter-to-quarter can also be
attributed to losses on repayment of debt, foreign exchange gains,
changes in the fair value of derivative instruments, other income,
and change in income tax expense (reduction).
SUMMARY OF FOURTH QUARTER 20 06 RESULTS
During the three months ended December 31, 2006, consolidated
operating revenue increased 14.4% to $2,370 million in 2006 com-
pared to $2,071 million in the corresponding period in 2005, with all
of our operating segments contributing to the year-over-year
growth, including 19.7% growth at Wireless, 10.6% growth at Cable
and Telecom, and 5.7% growth at Media. Consolidated fourth quar-
ter operating profit grew 46.3% year-over-year to $752 million,
with 77.1% growth at Wireless, 6.5% growth at Cable and Telecom,
and 20.5% growth at Media. The fourth quarter results in 2006 also
reflected integration expenses of $3 million at Cable and Telecom.
Wireless revenue and operating profit growth reflects the increasing
number of wireless voice and data subscribers and increase in
blended postpaid and prepaid ARPU. Wireless has continued its
strategy of targeting higher value postpaid subscribers and selling
prepaid handsets at higher price points, which has also contributed
over time to the significantly heavier mix of postpaid versus prepaid
subscribers. Meanwhile, the successful growth in customer base and
increased market penetration have been met by increasing customer
Consolidated operating income for the three months ended
December 31, 2006, totalled $357 million, compared to $110 million
in the corresponding period of 2005, reflecting growth across all
operating units.
We recorded net income of $176 million for the three months ended
December 31, 2006, or basic earnings per share of $0.28 (diluted –
$0.27), compared to a net loss of $67 million or basic and diluted loss
per share of $0.11 in the corresponding period of 2005.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
69
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2006 Quar terly Consolidated Financial Summar y
(In millions of dollars, except per share amounts)
Q1
Q2
Q3
Q4
2006
Operating revenue
Wireless (1)
Cable and Telecom
Media
Corporate and eliminations
Operating profit (2)
Wireless
Cable and Telecom
Media
Corporate and eliminations
Depreciation and amortization
Operating income
Interest on long-term debt
Other income (expense)
Income tax reduction (expense)
Net income for the period
Net income per share (3) – basic
Operating profit margin % (2)
Additions to PP&E (2)
– diluted
$
1,005 $
772
240
(33)
1,094 $
787
334
(36)
1,224 $
800
319
(38)
1,257
842
317
(46)
1,984
2,179
2,305
2,370
405
212
13
(36)
594
386
208
(161)
1
(35)
486
233
52
(27)
744
395
349
(155)
17
68
561
214
39
(29)
785
408
377
(153)
6
(76)
517
231
47
(43)
752
395
357
(151)
(17)
(13)
$
$
$
$
13 $
279 $
154 $
176
0.02 $
0.02 $
30%
340 $
0.44 $
0.44 $
34%
403 $
0.25 $
0.24 $
34%
415 $
0.28
0.27
32%
554
(1) Certain current and prior year amounts related to equipment sales have been reclassified. See “Reclassification of Wireless Equipment Sales and Cost of Sales” section for further details.
(2) As defined in “key Performance Indicators Non-GAAP Measures” section.
(3) Prior period per share amounts have been retroactively adjusted to reflect a two-for-one split of the Company’s Class A Voting and Class B Non-Voting shares on December 29, 2006.
70
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2005 Quar terly Consolidated Financial Summar y
(In millions of dollars, except per share amounts)
Q1
Q2
Q3
Q4
2005
Operating revenue
Wireless (1)
Cable and Telecom
Media
Corporate and eliminations
Operating profit (2)
Wireless
Cable and Telecom
Media
Corporate and eliminations
Depreciation and amortization (3)
Operating income
Interest on long-term debt (3)
Other income (expense)
Income tax reduction (expense)
Net income (loss) for the period
Net income (loss) per share (4) – basic
– diluted
Operating profit margin % (2)
Additions to PP&E (2)
$
851 $
505
219
(17)
933 $
500
293
(25)
1,026 $
726
285
(33)
1,050
761
300
(40)
1,558
1,701
2,004
2,071
298
181
12
(15)
476
344
132
(183)
8
(3)
364
172
44
(15)
565
362
203
(177)
(3)
(4)
383
195
33
(22)
589
379
210
(176)
18
(3)
292
217
39
(34)
514
404
110
(163)
(22)
8
$
$
$
$
(46) $
19 $
49 $
(67)
(0.09) $
(0.09) $
31%
260 $
0.04 $
0.04 $
33%
345 $
0.08 $
0.08 $
29%
319 $
(0.11)
(0.11)
25%
431
(1) Certain current and prior year amounts related to equipment sales have been reclassified. See “Reclassification of Wireless Equipment Sales and Cost of Sales” section for further details.
(2) As defined in “key Performance Indicators Non-GAAP Measures” section.
(3) Certain prior year amounts have been reclassified to conform to the current year presentation.
(4) Prior period per share amounts have been retroactively adjusted to reflect a two-for-one split of the Company’s Class A Voting and Class B Non-Voting shares on December 29, 2006.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the 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 promul-
gated under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), of the effectiveness of the design and operation of
our disclosure controls and procedures. Based on this evaluation, our
chief executive officer and chief financial officer concluded that as
of the Evaluation Date such disclosure controls and procedures were
effective.
Management’s Report on Internal Control Over Financial Reporting
The management of our company is responsible for establishing
and maintaining adequate internal control over financial reporting.
Our internal control system was designed to provide reasonable
assurance to our management and Board of Directors regarding
the preparation and fair presentation of published financial state-
ments in accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Management maintains a comprehensive system of controls intended
to ensure that transactions are executed in accordance with manage-
ment’s authorization, assets are safeguarded, and financial records
are reliable. Management also takes steps to see that information
and communication flows are effective and to monitor performance,
including performance of internal control procedures.
Management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2006 based on the criteria
set forth in the Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment, management has
concluded that, as of December 31, 2006, our internal control over
financial reporting is effective. Our independent auditor, KPMG LLP,
has issued an attestation report on Management’s assessment of the
internal control over financial reporting.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
71
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in Internal Control Over Financial Repor ting and
Disclosure Controls and Procedures
The implementation of a new integrated Oracle based financial
system during the year allowed us to take steps to strengthen our
internal controls over financial reporting. We believe that additional
SUPPLEMENTARY INFORMATION: NON - GA AP C ALCUL ATIONS
Operating Profit Margin Calculations
changes to the control processes and procedures over accounts
payable and certain accrued liabilities, which were finalized in the
fourth quarter, have enhanced our system of internal controls.
2006
2005
$
2,875 $
8,838
2,144
7,334
32.5%
29.2%
$
1,969 $
4,313
1,337
3,614
45.7%
37.0%
$
833 $
1,944
723
1,735
42.8%
41.7%
$
10 $
355
9
150
2.8%
6.0%
$
49 $
596
20
284
8.2%
7.0%
$
7 $
310
18
327
2.3%
5.5%
$
151 $
1,210
128
1,097
12.5%
11.7%
(In millions of dollars)
RCI:
Operating profit (1)
Divided by total revenue
RCI operating profit margin
WIRELESS:
Operating profit (1)
Divided by network revenue
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 (1)
Divided by revenue
Rogers Business Solutions operating profit margin
Rogers Retail:
Operating profit (1)
Divided by revenue
Rogers Retail operating profit margin
MEDIA:
Operating profit (1)
Divided by revenue
Media operating profit margin
(1) As defined in “key Performance Indicators Non-GAAP Measures” section.
72
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wireless Non - GA AP Calculations (1)
(In millions of dollars, subscribers in thousands,
except per subscriber figures and operating profit margin)
Postpaid ARPU (monthly)
Postpaid (voice and data) revenue
Divided by: average postpaid wireless voice and data subscribers
Divided by: 12 months
Prepaid ARPU (monthly)
Prepaid revenue
Divided by: average prepaid subscribers
Divided by: 12 months
Cost of acquisition per gross addition
Total sales and marketing expenses
Equipment margin loss (acquisition related)
2006
2005
$
4,084 $
5,059.6
12
3,384
4,435.8
12
$
67.27 $
63.56
$
214 $
1,322.0
12
210
1,323.2
12
$
13.49 $
13.20
$
$
604 $
196
604
192
800 $
796
2,053.0
Divided by: total gross wireless additions (postpaid, prepaid, and one-way messaging)
2,006.6
Operating expense per average subscriber (monthly)
Operating, general and administrative expenses
Integration expenses
Equipment margin loss (retention related)
Divided by: average total wireless subscribers
Divided by: 12 months
Equipment margin loss
Equipment sales
Cost of equipment sales
Acquisition related
Retention related
Operating profit margin
Operating profit
Divided by network revenue
Operating profit margin
(1) For definitions of key performance indicators and non-GAAP measures, see “key Performance Indicators and Non-GAAP Measures” section.
$
399 $
388
$
1,376 $
3
165
1,240
54
187
$
1,544 $
1,481
6,528.0
12
5,938.9
12
$
19.69 $
20.78
$
267 $
(628)
246
(625)
$
(361) $
(379)
$
(196) $
(165)
(192)
(187)
$
(361) $
(379)
$
1,969 $
4,313
1,337
3,614
45.7%
37.0%
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
73
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cable and Telecom Non - GA AP Calculations (2)
Years ended December 31,
(In millions of dollars, subscribers in thousands, except ARPU figures and operating profit margin)
2006
2005
Core cable ARPU
Core cable revenue
Divided by: average basic cable subscribers
Divided by: 12 months
Internet ARPU (1)
Internet revenue
Less: dial-up Internet revenue
$
1,421 $
2,261.3
12
1,299
2,251.0
12
$
52.37 $
48.09
$
$
523 $
(5)
436
(4)
518 $
432
1,027.4
12
Divided by: average Internet (residential) subscribers
Divided by: 12 months
1,198.4
12
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 operating profit margin
Rogers Retail:
Operating profit
Divided by revenue
Rogers Retail Stores operating profit margin
Customer relationships (unique):
Basic cable customers
Internet subscribers
Less: subscribers to both basic cable and Internet
(1) Internet ARPU calculation does not include revenue or subscriber amounts related to dial-up customers.
(2) For definitions of key performance indicators and non-GAAP measures, see “key Performance Indicators and Non-GAAP Measures” section.
$
36.02 $
35.04
$
833 $
1,944
723
1,735
42.8%
41.7%
$
10 $
355
9
150
2.8%
6.0%
$
49 $
596
20
284
8.2%
7.0%
$
7 $
310
18
327
2.3%
5.5%
2,277.1
1,291.0
(1,107.1)
2,263.8
1,136.2
(988.5)
2,461.0
2,411.5
74
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
MANAGEMENT’S RESPONSIBILITY
FOR FINANCIAL REPORTING
DECEMBER 31, 20 0 6
The accompanying consolidated financial statements of Rogers
Communications Inc. and its subsidiaries and all the information in
Management’s Discussion and Analysis are the responsibility of man-
agement and have been approved by the Board of Directors.
The financial statements have been prepared by management in
accordance with Canadian generally accepted accounting principles.
The financial statements include certain amounts that are based on
the best estimates and judgments of management and in their opinion
present fairly, in all material respects, Rogers Communications lnc.’s
financial position, results of operations and cash flows. Management
has prepared the financial information presented elsewhere in
Management’s Discussion and Analysis and has ensured that it is
consistent with the financial statements.
reviewing and approving the financial statements. The Board carries
out this responsibility through its Audit Committee.
The Audit Committee meets periodically with management, as well
as the internal and external auditors, to discuss internal controls
over the financial reporting process, auditing matters and financial
reporting issues; to satisfy itself that each party is properly discharg-
ing its responsibilities; and, to review Management’s Discussion and
Analysis, the financial statements and the external auditors’ report.
The Audit Committee reports its findings to the Board for consid-
eration when approving the financial statements for issuance to
the shareholders. The Committee also considers, for review by the
Board and approval by the shareholders, the engagement or re-
appointment of the external auditors.
Management of Rogers Communications Inc., in furtherance of the
integrity of the financial statements, has developed and maintains
a system of internal controls, which is supported by the internal
audit function. Management believes the internal controls provide
reasonable assurance that transactions are properly authorized and
recorded, financial records are reliable and form a proper basis for the
preparation of financial statements and that Rogers Communications
lnc.’s assets are properly accounted for and safeguarded. The internal
control processes include management’s communication to employ-
ees of policies that govern ethical business conduct.
The financial statements have been audited by KPMG LLP, the
external auditors, in accordance with Canadian generally accepted
auditing standards on behalf of the shareholders. KPMG LLP has full
and free access to the Audit Committee.
March 9, 2007
The Board of Directors is responsible for overseeing management’s
responsibility for financial reporting and is ultimately responsible for
Edward S. Rogers, O.C.
President and
Chief Executive Officer
William W. Linton, C.A.
Senior Vice President, Finance
and Chief Financial Officer
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’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the Company
as at December 31, 2006 and 2005 and the results of its operations
and its cash flows for years then ended in accordance with Canadian
generally accepted accounting principles.
We conducted our audits in accordance with Canadian generally
accepted auditing standards. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation.
Chartered Accountants
Toronto, Canada
March 9, 2007
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
75
$
2006
2005
(Restated –
note 2(b))
8,838 $
956
1,226
3,763
18
1,584
1,291
620
671
(1)
2
(4)
10
678
(5)
61
56
7,334
940
1,122
3,062
66
1,489
655
699
(44)
(11)
35
(25)
2
(43)
11
(9)
2
$
$
622 $
(45)
0.99 $
0.97
(0.08)
(0.08)
CONSOLIDATED STATEMENTS
OF INCOME
(IN MILLIONS OF C ANADIAN DOLL ARS, ExCEP T PER SHARE AMOUNTS)
Years ended December 31, 2006 and 2005
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 6)
Depreciation and amortization
Operating income
Interest on long-term debt
Loss on repayment of long-term debt (note 15(d))
Foreign exchange gain (note 2(h))
Change in fair value of derivative instruments
Other income, net
Income (loss) before income taxes
Income tax expense (reduction) (note 7):
Current
Future
Net income (loss) for the year
Net income (loss) per share (note 8):
Basic
Diluted
See accompanying notes to consolidated financial statements.
76
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
CONSOLIDATED
BALANCE SHEETS
(IN MILLIONS OF C ANADIAN DOLL ARS)
December 31, 2006 and 2005
Assets
Current assets:
Accounts receivable, net of allowance for doubtful accounts of $114 (2005 – $98)
Other current assets (note 9)
Future income tax asset (note 7)
Property, plant and equipment (note 10)
Goodwill (note 11(a))
Intangible assets (note 11(b))
Investments (note 12)
Deferred charges (note 13)
Future income tax asset (note 7)
Other long-term assets (note 14)
Liabilities and Shareholders’ Equity
Current liabilities:
Bank advances, arising from outstanding cheques
Accounts payable and accrued liabilities
Current portion of long-term debt (notes 15 and 27)
Current portion of derivative instruments (note 16)
Unearned revenue
Long-term debt (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 accompanying notes to consolidated financial statements.
On behalf of the Board:
Edward “Ted” S. Rogers
Director
Ronald D. Besse
Director
2006
2005
$
1,077 $
270
387
1,734
6,732
2,779
2,152
139
118
299
152
891
285
113
1,289
6,152
3,036
2,627
138
132
347
113
$ 14,105 $ 13,834
$
19 $
1,792
451
7
227
2,496
6,537
769
103
9,905
4,200
104
1,411
286
14
177
1,992
7,453
787
74
10,306
3,528
$ 14,105 $ 13,834
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
77
CONSOLIDATED STATEMENTS
OF DEFICIT
(IN MILLIONS OF C ANADIAN DOLL ARS)
Years ended December 31, 2006 and 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
See accompanying notes to consolidated financial statements.
2006
2005
$
(602) $
(4)
(606)
622
(520)
(4)
(524)
(45)
(49)
(37)
$
(33) $
(606)
78
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
CONSOLIDATED STATEMENTS
OF CASH FLOwS
(IN MILLIONS OF C ANADIAN DOLL ARS)
Years ended December 31, 2006 and 2005
Cash provided by (used in):
Operating activities:
Net income (loss) for the year
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization
Program rights and Rogers Retail rental inventory depreciation
Future income taxes
Unrealized foreign exchange gain
Change in fair value of derivative instruments
Loss on repayment of long-term debt
Stock-based compensation expense
Accreted interest on Convertible Preferred Securities
Amortization on fair value increment of long-term debt and derivatives
Sale of income tax losses to related party
Other
Change in non-cash working capital items (note 21(a))
Investing activities:
Additions to property, plant and equipment
Change in non-cash working capital items related to property, plant and equipment
Cash and cash equivalents acquired on acquisition
Acquisition of Microcell Telecommunications Inc.
Other acquisitions
Additions to program rights
Other
Financing activities:
Issue of long-term debt
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
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents (deficiency), beginning of year
Cash deficiency, end of year
Cash and cash equivalents (deficiency) are defined as cash and short-term deposits, which have an original maturity of less than 90 days, less bank advances.
For supplemental cash flow information and disclosure of non-cash transactions see note 21(b) and (c).
See accompanying notes to consolidated financial statements.
2006
2005
$
622 $
(45)
1,584
75
61
2
4
1
49
–
(11)
13
(14)
2,386
75
2,461
1,489
90
(9)
(35)
25
11
42
18
(15)
–
(20)
1,551
(298)
1,253
(1,712)
134
2
–
(6)
(32)
(31)
(1,355)
(38)
44
(52)
(38)
(25)
3
(1,645)
(1,461)
1,098
(1,836)
–
74
(47)
–
(20)
1,369
(1,509)
(5)
100
(26)
402
(471)
(731)
(140)
85
(104)
(348)
244
$
(19) $
(104)
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
79
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
( TABUL AR AMOUNTS IN MILLIONS OF C ANADIAN DOLL ARS, ExCEP T PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, 20 0 6 AND 20 05
1
NAT UR E OF THE BUS INESS
Rogers Communications Inc. (“RCI”) is a Canadian communications
company, with substantially all 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
(“Rogers Retail”) through its wholly owned subsidiary, Rogers Cable
Inc. (“Cable”); and radio and television broadcasting, televised home
shopping, publishing, and sports entertainment through its wholly
owned subsidiary, Rogers Media Inc. (“Media”). RCI and its subsid-
iary companies are collectively referred to herein as the “Company”.
2
SIGNIFICANT ACC OUNTING POL ICIE S
(A) BASIS OF PRESENTATION:
The consolidated financial statements are prepared in accordance
with Canadian generally accepted accounting principles (“GAAP”)
and differ in certain significant respects from United States GAAP as
described in note 26.
The consolidated financial statements include the accounts of RCI
and its subsidiary companies. Intercompany transactions and bal-
ances are eliminated on consolidation.
Investments over which the Company is able to exercise significant
influence are accounted for by the equity method. Investments over
which the Company has joint control are accounted for by the pro-
portionate consolidation method. Other investments are recorded
at cost. Investments are written down when there is evidence that a
decline in value that is other than temporary has occurred.
(B) RESTATEMENT AND RECL ASSIFIC ATION OF COMPAR ATIvE
FIGURES:
(i) Applicable share and per share amounts have been retroactively
adjusted to reflect a two-for-one split of the Company’s Class A
Voting and Class B Non-Voting shares in December 2006. This
stock split is described in note 20(a)(ii).
(ii) During 2006, the Company completed a reorganization whereby
ownership of the operating subsidiaries of Rogers Telecom
Holdings Inc., a wholly owned subsidiary of the Company, was
transferred to Cable. The reorganization impacted the Company’s
management reporting resulting in changes to the Company’s
reportable segments. Effective January 2006, the following are
the reportable segments of the Company: Wireless, Media, Cable
and Internet, Rogers Business Solutions, Rogers Home Phone and
Rogers Retail (formerly known as Rogers Video). Comparative
figures are presented on this basis in note 3.
Effective 2007, Rogers Retail will be responsible for the opera-
tion of all retail stores owned by the Company.
(iii) During 2006, the Company determined that certain transactions
related to the sale of wireless equipment were historically
recorded as cost of equipment sales rather than as a reduction
of equipment revenue. The Company determined these transac-
tions should be reflected as a reduction of equipment revenue
80
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
and has reclassified prior year figures to reflect this accounting,
resulting in a $148 million reduction of both revenue and cost
of sales in 2005. As a result of this reclassification, there was
no change to previously reported net income (loss), operating
income, reported cash flows or the amounts recorded in the
consolidated balance sheets.
(iv) In 2006, the Company adopted the provisions of Emerging Issues
Committee (“EIC”) Abstract 162, Stock-Based Compensation for
Employees Eligible to Retire Before the Vesting Date. Where a
stock-based compensation plan contains provisions that allow an
employee to continue vesting in a stock-based award after the
employee has retired, EIC 162 requires that the compensation
cost attributable to such an award be expensed immediately
for employees who are eligible to retire at the date of grant.
For an employee who will become eligible to retire during the
vesting period of an award, EIC 162 requires that compensation
cost be recognized as an expense over the period from the date
of grant to the date the employee becomes eligible to retire.
EIC 162 was applied retroactively to all stock-based compensa-
tion awards, with restatement of prior periods. The adoption of
EIC 162 resulted in an increase in the opening 2005 deficit and
contributed surplus of $4 million and an increase in 2005 stock-
based compensation expense of less than $1 million. For 2006,
the adoption of EIC 162 resulted in incremental stock-based
compensation of less than $1 million from that which would
otherwise have been recorded.
Certain other comparative figures have been reclassified to conform
with the current year’s presentation.
(C ) REvENUE RECOGNITION:
The Company’s principal sources of revenue and recognition of these
revenues for financial statement purposes are as follows:
(i) Monthly subscriber fees in connection with wireless and wireline
services, cable, telephony, Internet services, rental of equip-
ment, network services and media subscriptions are recorded as
revenue on a pro rata basis as the service is provided;
(ii) Revenue from airtime, roaming, long-distance and optional ser-
vices, pay-per-use services, video rentals, and other sales of products
are recorded as revenue as the services or products are delivered;
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(iii) Revenue from the sale of wireless and cable equipment is
recorded when the equipment is delivered and accepted by
the independent dealer or subscriber in the case of direct sales.
Equipment subsidies related to new and existing subscribers are
recorded as a reduction of equipment revenues;
(iv) Installation fees and activation fees charged to subscribers
do not meet the criteria as a separate unit of accounting. As
a result, in Wireless these fees are recorded as part of equip-
ment revenue or, in Cable, are deferred and amortized over
the related service period. The related service period for Cable
ranges from 26 to 48 months, based on subscriber disconnects,
transfers of service and moves. Incremental direct installation
costs related to reconnects are deferred to the extent of
deferred installation fees and amortized over the same period
as these related installation fees. New connect installation costs
are capitalized to property, plant and equipment (“PP&E”) and
amortized over the useful life of the related assets;
(v) Advertising revenue is recorded in the period the advertis-
ing airs on the Company’s radio or television stations and the
period in which advertising is featured in the Company’s media
publications;
(vi) Monthly subscription revenues received by television stations
for subscriptions from cable and satellite providers are recorded
in the month in which they are earned;
(vii) The Toronto Blue Jays Baseball Club’s (“Blue Jays”) revenue
from home game admission and concessions is recognized as the
related games are played during 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. This revenue is recognized in the
season in which it is earned, when the amount is estimable and
collectibility is reasonably assured; and
(viii) Multi-product discounts incurred as Wireless, Cable and Media
products and services are provided are charged directly to the
revenue for the products and services to which they relate.
The Company offers certain products and services as part of multiple
deliverable arrangements. The Company divides multiple deliver-
able arrangements into separate units of accounting. Components
of multiple deliverable arrangements are separately accounted
for provided the delivered elements have stand-alone value to the
customers and the fair value of any undelivered elements can be
objectively and reliably determined. Consideration for these units is
measured and allocated amongst the accounting units based upon
their fair values and the Company’s relevant revenue recognition
policies are applied to them. The Company recognizes revenue once
persuasive evidence of an arrangement exists, delivery has occurred
or services have been rendered, fees are fixed and determinable and
collectibility is reasonably assured.
Unearned revenue includes subscriber deposits, installation fees and
amounts received from subscribers related to services and subscrip-
tions to be provided in future periods.
(D) SUBSCRIBER ACqUISITION AND RETENTION COSTS:
Except as described in note 2(c)(iv), as it relates to cable installation
costs, the Company expenses the costs related to the acquisition or
retention of subscribers.
(E) STOCk-BASED COMPENSATION AND OTHER STOCk-BASED
PAYMENTS:
The Company accounts for all stock option plans using the fair value
method. The estimated fair value is amortized to expense over the
period in which the related services are rendered, which is usually
the vesting period or, as applicable, over the period to the date an
employee is eligible to retire, whichever is shorter.
Stock-based awards that are settled in cash, may be settled in cash at
the option of employees or directors, or that the Company intends
to settle in cash, including restricted stock units and directors’
deferred share units, are recorded as liabilities. The measurement of
the liability and compensation cost for these awards is based on the
intrinsic value of the awards. Compensation cost for the awards is
recorded in income over the vesting period of the award. Changes
in the Company’s payment obligation during the vesting period
are recorded in income over the vesting period. Changes in the
Company’s payment obligation after the vesting period but prior to
the settlement date are recognized immediately in income. The pay-
ment amount is established for these awards on the date of exercise
of the award by the employee or director.
Under the terms of the Company’s employee share accumulation
plan, participating employees can contribute a specified percentage
of their regular earnings through regular payroll deductions which
are then used to purchase Class B Non-Voting shares of the Company.
On a quarterly basis, the Company makes certain defined contribu-
tion matches, which are recorded as compensation expense.
(F ) DEPRECIATION:
PP&E and Rogers Retail rental inventory are depreciated over their
estimated useful lives as follows:
Asset
Basis
Rate
Buildings
Towers, headends and transmitters
Distribution cable and subscriber drops
Network equipment
Wireless network radio base station equipment
Computer equipment and software
Customer equipment
Leasehold improvements
Rogers Retail rental inventory
Other
Mainly diminishing balance
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line
Mainly diminishing balance
Mainly diminishing balance
5% to 62/3%
62/3% to 25%
5% to 20%
62/3% to 331/3%
121/2% to 141/3%
141/3% to 331/3%
20% to 331/3%
Over shorter of estimated
useful life and lease term
6 months
20% to 331/3%
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation expense for Rogers Retail rental inventory is charged
to operating, general and administrative expenses. Depreciation for
PP&E is charged to depreciation and amortization expense.
(G)
INCOME TA xES:
Future income tax assets and liabilities are recognized for the future
income tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Future income tax assets and liabilities
are measured using enacted or substantively enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. A
valuation allowance is recorded against any future income tax asset
if it is not more likely than not that the asset will be realized. Income
tax expense is generally the sum of the Company’s provision for cur-
rent income taxes and the difference between opening and ending
balances of future income tax assets and liabilities.
(j) NET INCOME (LOSS) PER SHARE:
The Company uses the treasury stock method for calculating diluted
net income (loss) per share. The diluted net income (loss) per share
calculation considers the impact of employee stock options and
other potentially dilutive instruments, as described in note 8.
(k )
INvENTORIES:
Inventories are primarily valued at the lower of cost, on a first-in,
first-out basis, and net realizable value. Rogers Retail rental inven-
tory, which includes videocassettes, DVDs and video games, is
depreciated to its estimated residual value. The residual value of
Rogers Retail rental inventory is recorded as a charge to operating
expense upon the sale of Rogers Retail rental inventory. Depreciation
of Rogers Retail rental inventory is charged to operating, general
and administrative expenses on a diminishing-balance basis over a
six-month period.
(H) FOREIGN CURRENC Y TR ANSL ATION:
Monetary assets and liabilities denominated in a foreign currency
are translated into Canadian dollars at the exchange rate in effect
at the balance sheet dates and non-monetary assets and liabilities
and related depreciation and amortization expenses are translated
at the historical exchange rate. Revenue and expenses, other than
depreciation and amortization, are translated at the average rate
for the month in which the transaction was recorded. Exchange
gains or losses on translating long-term debt are recognized in the
consolidated statements of income. Foreign exchange gains are
primarily related to the translation of long-term debt.
(I) DERIvATIvE INSTRUMENTS:
The Company uses derivative financial instruments to manage risks
from fluctuations in exchange rates and interest rates. These instru-
ments include cross-currency interest rate exchange agreements,
interest rate exchange agreements, foreign exchange forward con-
tracts and, from time to time, foreign exchange option agreements.
All such instruments are only used for risk management purposes.
The Company formally documents the relationship between deriva-
tive instruments and the hedged items, as well as its risk management
objective and strategy for undertaking various hedge transactions.
At the instrument’s inception, the Company also formally assesses
whether the derivatives are highly effective at reducing or modifying
currency risk related to the future anticipated interest and principal
cash outflows associated with the hedged item. Effectiveness requires
a high correlation of changes in fair values or cash flows between the
hedged item and the hedging item. On a quarterly basis, the Company
confirms that the derivative instruments continue to be highly effec-
tive at reducing or modifying interest rate or foreign exchange risk
associated with the hedged items. Derivative instruments that meet
these criteria are carried at their intrinsic value.
For those instruments that do not meet the above criteria, variations
in their fair value are marked-to-market on a current basis, with the
resulting gains or losses recorded in or charged against income.
82
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
(L) DEFERRED CHARGES:
The costs of obtaining bank and other debt financing are deferred
and amortized on a straight-line basis over the life of the debt to
which they relate.
During the 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 accrues its pension plan obligations as employees render
the services necessary to earn the pension. The Company uses the
current settlement discount rate to measure the accrued pension
benefit obligation and uses the corridor method to amortize actu-
arial gains or losses (such as changes in actuarial assumptions and
experience gains or losses) over the average remaining service life of
the employees. Under the corridor method, amortization is recorded
only if the accumulated net actuarial gains or losses exceed 10% of
the greater of accrued pension benefit obligation and the fair value
of the plan assets at the beginning of the year.
The Company uses the following methods and assumptions for pen-
sion accounting:
(i) The cost of pensions is actuarially determined using the pro-
jected benefit method prorated on service and management’s
best estimate of expected plan investment performance, salary
escalation, compensation levels at the time of retirement and
retirement ages of employees. Changes in these assumptions
would impact future pension expense.
(ii) For the purpose of calculating the expected return on plan
assets, those assets are valued at fair value.
(iii) Past service costs from plan amendments are amortized on a
straight-line basis over the average remaining service period of
employees.
(N) PROPERT Y, PL ANT AND EqUIPMENT:
PP&E are recorded at cost. During construction of new assets, direct
costs plus a portion of applicable overhead costs are capitalized.
Repairs and maintenance expenditures are charged to operating
expenses as incurred.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The cost of the initial cable subscriber installation is capitalized. Costs
of all other cable connections and disconnections are expensed,
except for direct incremental installation costs related to reconnect
Cable customers, which are deferred to the extent of reconnect
installation revenues. Deferred reconnect revenues and expenses
are amortized over the related estimated service period of approxi-
mately four years.
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
(O) ACqUIRED PROGR AM RIGHTS:
Acquired broadcast program rights are carried at the lower of cost
less accumulated amortization, and net realizable value. Acquired
program rights and the related liabilities are recorded on the balance
sheets when the licence period begins and the program is available
for use. The cost of acquired program rights is amortized over the
expected performance period of the related programs. Net realiz-
able value of acquired program rights is assessed using an industry
standard methodology.
(P) GOODwILL AND INTANGIBLE ASSETS:
(i) Goodwill:
Goodwill is the residual amount that results when the purchase price
of an acquired business exceeds the sum of the amounts allocated to
the tangible and intangible assets acquired, less liabilities assumed,
based on their fair values. When the Company enters into a business
combination, the purchase method of accounting is used. Goodwill
is assigned as of the date of the business combination to reporting
units that are expected to benefit from the business combination.
Goodwill is not amortized but instead is tested for impairment annu-
ally or more frequently if events or changes in circumstances indicate
that the asset might be impaired. The impairment test is carried out
in two steps. In the first step, the carrying amount of the reporting
unit, including goodwill, is compared with its fair value. When the
fair value of the reporting unit exceeds its carrying amount, good-
will of the reporting unit is not considered to be impaired and the
second step of the impairment test is unnecessary. The second step is
carried out when the carrying amount of a reporting unit exceeds its
fair value, in which case, the implied fair value of the reporting unit’s
goodwill, determined in the same manner as the value of goodwill is
determined in a business combination, is compared with its carrying
amount to measure the amount of the impairment loss, if any.
(ii)
Intangible assets:
Intangible assets acquired in a business combination are recorded
at their fair values. Intangible assets with finite lives are amortized
over their estimated useful lives and are tested for impairment, as
described in note 2(q). Intangible assets having an indefinite life,
being spectrum and broadcast licences, are not amortized but
instead are tested for impairment on an annual or more frequent
basis by comparing their fair value to their carrying amount. An
impairment loss on an indefinite life intangible asset is recognized
when the carrying amount of the asset exceeds its fair value.
Intangible assets with determinable lives are amortized on a straight-
line basis over their estimated useful lives as follows:
The Company has tested goodwill and intangible assets with indefi-
nite lives for impairment during 2006 and 2005 and determined that
no impairment in the carrying value of these assets existed.
(q) LONG -LIvED ASSETS:
Long-lived assets, including PP&E and intangible assets with finite
useful lives, are depreciated and amortized over their useful lives.
The Company reviews long-lived assets for impairment annually
or more frequently if events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the sum of
the undiscounted future cash flows expected to result from the use
and eventual disposition of a group of assets is less than its carry-
ing amount, it is considered to be impaired. An impairment loss is
measured as the amount by which the carrying amount of the group
of assets exceeds its fair value. During 2006 and 2005, the Company
has determined that no impairment in the carrying value of these
assets existed.
(R) ASSET RETIREMENT OBLIGATIONS:
Asset retirement obligations are legal obligations associated with the
retirement of long-lived tangible assets that result from their acqui-
sition, lease, construction, development or normal operations. The
Company records the estimated fair value of a liability for an asset
retirement obligation in the year in which it is incurred and when a
reasonable estimate of fair value can be made. The fair value of a
liability for an asset retirement obligation is the amount at which
that liability could be settled in a current transaction between willing
parties, that is, other than in a forced or liquidation transaction and,
in the absence of observable market transactions, is determined as
the present value of expected cash flows. The Company subsequently
allocates the asset retirement cost to expense using a systematic and
rational method over the asset’s useful life, and records the accre-
tion of the liability as a charge to operating expenses.
(S) USE OF ESTIMATES:
The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabili-
ties at the date of the financial statements and the reported amounts
of revenue and expenses during the year. Actual results could differ
from those estimates.
Key areas of estimation, where management has made difficult,
complex or subjective judgments, often as a result of matters
that are inherently uncertain, include the allowance for doubtful
accounts and certain accrued liabilities, the ability to use income tax
loss carryforwards and other future income tax assets, capitalization
of internal labour and overhead, useful lives of depreciable assets
and intangible assets with finite lives, discount rates and expected
returns on plan assets affecting pension expense and the deferred
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
pension asset and the recoverability of long-lived assets, goodwill
and intangible assets, which require estimates of future cash flows.
For business combinations, key areas of estimation and judgment
include the allocation of the purchase price and related integration
and severance costs.
Significant changes in the assumptions, including those with respect
to future business plans and cash flows, could materially change the
recorded carrying amounts.
( T ) RECENT C ANADIAN ACCOUNTING PRONOUNCEMENTS:
(i) Non - monetar y transactions:
In 2005, The Canadian Institute of Chartered Accountants (“CICA”)
issued Handbook Section 3831, Non-monetary Transactions (“CICA
3831”), replacing Section 3830, Non-monetary Transactions. CICA 3831
requires that an asset exchanged or transferred in a non-monetary
transaction must be measured at its fair value except when:
the transaction lacks commercial substance;
(a)
(b) 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 cus-
tomers other than the parties to the exchange;
(c) neither the fair value of the asset received nor the fair value of
the asset given up is reliably measurable; or
(d) the transaction is a non-monetary, non-reciprocal transfer to
owners that represents a spin-off or other form of restructuring
or liquidation.
In these cases, the transaction must be measured at the carrying
value. The new requirements were effective for transactions occur-
ring on or after January 1, 2006. This new standard has not had a
material impact on the Company’s consolidated financial statements.
(ii) Accounting changes:
In 2006, the CICA issued Handbook Section 1506, Accounting Changes
(“CICA 1506”). CICA 1506 prescribes the criteria for changing account-
ing policies, together with the accounting treatment and disclosure
of changes in accounting policies, changes in accounting estimates
and correction of errors. This new standard, to be adopted on
January 1, 2007, is not expected to have a material impact on the
Company’s consolidated financial statements.
(iii) Financial instruments:
In 2005, the CICA issued Handbook Section 3855, Financial Instru-
ments – Recognition and Measurement, Handbook Section 1530,
Compre hensive Income, Handbook Section 3251, Equity, and
Handbook Section 3865, Hedges. The new standards are effective for
the Company’s interim and annual financial statements commencing
January 1, 2007.
A new statement entitled “Consolidated Statements of Compre-
hensive Income (Loss)” will be added to the Company’s consolidated
financial statements and will include net income (loss) as well as
other comprehensive income (loss). Accumulated other comprehen-
sive income (loss) will form part of shareholders’ equity.
Under these standards, all of the Company’s financial assets will be
classified as available-for-sale or as loans and receivables. Available-
for-sale investments will be carried at fair value on the consolidated
84
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
balance sheets, with changes in fair value recorded in other com-
prehensive income (loss). Loans and receivables and all financial
liabilities will be carried at amortized cost using the effective inter-
est method. Upon adoption, the Company has determined that
none of its financial assets will be classified as held-for-trading or
held-to-maturity and none of its financial liabilities will be classi-
fied as held-for-trading. The impact of the classification provisions
of the new standards will be an adjustment of the carrying value of
available-for-sale investments to fair value and is estimated to be an
increase of $212 million, with a corresponding increase in opening
accumulated other comprehensive income.
All derivatives, including embedded derivatives that must be sepa-
rately accounted for, will be measured at fair value, with changes in
fair value recorded in the consolidated statements of income unless
they are effective cash flow hedging instruments. The changes in
fair value of cash flow hedging derivatives will be recorded in other
comprehensive income (loss), to the extent effective, until the
variability of cash flows relating to the hedged asset or liability is
recognized in the consolidated statements of income. Any hedge
ineffectiveness will be recognized in net income (loss) immediately.
The impact of remeasuring hedging derivatives at fair value on
January 1, 2007 will be recognized in opening deficit and opening
accumulated other comprehensive income (loss), as appropriate.
The impact of remeasuring hedging derivatives on the consolidated
financial statements on January 1, 2007 is estimated to be an increase
in derivative instruments of approximately $571 million, an increase
in opening deficit of $10 million and a decrease in opening accu-
mulated other comprehensive income of $393 million, net of income
taxes of approximately $168 million.
In addition, the unamortized deferred transitional gain of $54 million
will be eliminated upon adoption, the impact of which is estimated
to be an increase to opening deficit of $38 million, net of income
taxes of approximately $16 million.
The Company is currently assessing the impact of the requirement
to recognize non-financial derivatives and embedded derivatives at
fair value.
Effective January 1, 2007, the Company will record all financing costs
for financial assets and financial liabilities in income as incurred. The
Company had previously deferred these costs and amortized them
over the term of the related debt. The carrying value of deferred
costs at December 31, 2006 of $59 million, net of related income taxes,
will be charged to opening deficit on transition on January 1, 2007.
In 2006, the CICA issued Handbook Section 3862, Financial Instruments –
Disclosures, and Handbook Section 3863, Financial Instruments –
Presentation. These new standards will be effective for the Company
beginning January 1, 2008. The Company is currently assessing the
impact of these two new standards.
(iv) Capital disclosures:
In 2006, the CICA issued Handbook Section 1535, Capital Disclosures
(“CICA 1535”). CICA 1535 requires that an entity disclose information
that enables users of its financial statements to evaluate an entity’s
objectives, policies and processes for managing capital including
disclosures of any externally imposed capital requirements and the
consequences for non-compliance. The new standard will be effec-
tive for the Company effective January 1, 2008.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
SEG ME NTED INF ORM AT ION
(A) OPER ATING SEGMENTS:
All of the Company’s reportable segments are substantially in Canada. Information by reportable segment for the years ended December 31,
2006 and 2005 is as follows:
2006
2005
wireless
Cable
and
Telecom
Corporate
items and Consolidated
totals
eliminations
Media
Wireless
(Restated –
note 2(b))
Cable
and
Telecom
Corporate
items and Consolidated
totals
eliminations
Media
(Restated –
note 2(b))
4,580 $
628
3,201 $
153
1,210 $
175
(153) $
–
8,838 $
956
3,860 $
625
2,492 $
158
1,097 $
157
(115) $
–
7,334
940
604
412
206
4
1,226
604
320
198
–
1,122
1,376
1,731
3
1,969
12
1,957
630
15
890
64
826
662
1,327
164
678
–
151
17
134
52
82
(22)
3,763
1,240
1,244
–
18
54
(135)
2,875
1,337
(93)
–
12
(42)
2,875
1,325
240
1,584
624
5
765
41
724
558
(282)
1,291
701
166
614
–
128
15
113
52
61
(36)
3,062
7
66
(86)
2,144
(68)
–
(18)
2,144
255
1,489
(273)
655
$
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
(398)
89
(223)
(35)
(14)
(2)
15
(52)
(620)
–
(397)
37
(249)
(24)
(9)
(4)
(44)
(9)
(699)
–
Foreign exchange
gain (loss)
Gain (loss) on
repayment of
long-term debt
Change in fair value
of derivative
instruments
Other income
(expense)
Income tax reduction
1
–
(5)
(2)
1
–
1
–
–
–
–
6
–
2
26
12
(1)
(1)
–
(27)
–
6
(4)
(27)
10
(6)
2
3
1
–
–
1
(4)
35
16
(11)
–
4
(25)
2
(2)
(expense)
(274)
269
68
(119)
(56)
84
(5)
14
(95)
Net income (loss)
for the year
Additions to PP&E
Goodwill
Total assets
$
$
$
$
738 $
177 $
140 $
(433) $
622 $
418 $
(122) $
64 $
(405) $
(45)
684 $
794 $
48 $
186 $
1,712 $
585 $
714 $
40 $
16 $
1,355
1,150 $
926 $
703 $
– $
2,779 $
1,212 $
1,118 $
706 $
– $
3,036
7,471 $
5,216 $
1,459 $
(41) $ 14,105 $
8,793 $
4,627 $
1,321 $
(907) $ 13,834
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, Cable and Telecom consists of the following reportable segments. Information by reportable segment for the years ended
December 31, 2006 and 2005 is as follows:
Cable
and
Internet
Rogers
Home
Phone
Rogers
Business
Solutions
Rogers
Corporate
items and
Retail eliminations
2006
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 closure
expenses
Additions to
PP&E
$ 1,944 $
–
355 $
–
596 $
–
310 $
153
(4) $ 3,201 $ 1,735 $
–
153
–
150 $
–
284 $
–
327 $
158
(4) $ 2,492
158
–
123
96
70
123
–
412
123
27
38
132
–
320
988
249
477
21
(4) 1,731
889
114
226
19
(4) 1,244
–
–
–
6
9
15
–
–
–
–
5
5
$
833 $
10 $
49 $
7 $
(9) $
890 $
723 $
9 $
20 $
18 $
(5) $
765
$
492 $
193 $
98 $
11 $
– $
794 $
515 $
121 $
63 $
15 $
– $
714
In late December 2006 and January 2007, the Company’s real estate
properties and related leases were transferred to RCI from its subsid-
iaries. This transfer of real estate is not anticipated to have a material
impact on the future results of these operating segments.
Beginning in 2007, the Cable and Internet and Rogers Home Phone
segments will be combined to align with changes in management
and internal reporting implemented in 2007.
Effective January 2007, the Rogers Retail segment of the Company
acquired the assets of approximately 170 Wireless retail locations
with a carrying value of approximately $20 million, for cash consid-
eration of $73 million, which represented fair value. The combined
operations continue to be in the Rogers Retail segment of the
Company.
86
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(B) PRODUC T REvENUE:
Revenue from external customers is comprised of the following:
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 items and intercompany eliminations
4
BUS I NES S COM BINAT IO NS
2006
2005
(Restated –
note 2(b))
$
4,084 $
214
15
4,313
267
4,580
1,944
355
596
310
(4)
3,384
210
20
3,614
246
3,860
1,735
150
284
327
(4)
3,201
2,492
555
149
279
163
64
503
137
252
149
56
1,210
(153)
1,097
(115)
$
8,838 $
7,334
(A) 20 06 ACqUISITIONS:
During 2006, the Company made various acquisitions, accounted
for by the purchase method, for cash consideration totalling
$6 million.
(B) 20 05 ACqUISITIONS:
The Company completed the following acquisitions during 2005
which were accounted for by the purchase method:
(i) Call- Net Enterprises Inc .:
On July 1, 2005, the Company acquired 100% of Call-Net Enterprises
Inc. (“Call-Net”) in a share for share transaction (the “Call-Net
Acquisition”) for total consideration of approximately $328 million.
Call-Net, primarily through its wholly owned subsidiary, Sprint Canada
Inc., was 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
and Internet access services to businesses across Canada. The opera-
tions of Call-Net were consolidated with those of the Company as of
July 1, 2005.
Holders of common shares and Class B Non Voting shares of Call-
Net received a fixed exchange ratio of two Class B Non-Voting
shares of the Company for each 4.25 common shares and/or
Class B Non-Voting shares of Call-Net held by them. In addition, each
holder of outstanding Call-Net options received fully-vested options
of the Company using the same 4.25 exchange ratio.
During 2006, the Company finalized the purchase price allocation
upon receipt of the final valuations of certain tangible and intan-
gible assets acquired. These adjustments included an increase in the
fair value assigned to PP&E of $22 million from that recorded and
disclosed in the 2005 consolidated financial statements. Additionally,
the fair value of the subscriber bases acquired increased by
$24 million from that recorded and disclosed in the 2005 consolidated
financial statements. Accompanied with a $1 million adjustment to
accrued transaction costs, these adjustments resulted in a decrease
in goodwill acquired of $47 million.
Goodwill related to the Call-Net Acquisition has been assigned
to the Rogers Home Phone and Rogers Business Solutions
business units.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ii) Other:
On January 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 acquisi-
tion costs, plus $5 million of assumed liabilities. The purchase price
has been allocated to working capital and PP&E. The operations of
Rogers Centre were consolidated with those of the Company as of
January 31, 2005.
Two other acquisitions occurred during 2005 for cash consideration
of approximately $11 million.
(C ) PURCHASE PRICE ALLOC ATIONS:
The table below summarizes the estimated fair values of the assets acquired and liabilities assumed for the acquisitions in 2005.
Consideration:
Cash
Class B Non-Voting shares
Options issued as consideration
Acquisition costs
Purchase price
Cash and cash equivalents
Short-term investments
Accounts receivable
Other current assets
Inventory
Other long-term assets
Subscriber bases
PP&E
Investments
Accounts payable and accrued liabilities
Unearned revenue
Liabilities assumed on acquisition
Long-term debt
Other long-term liabilities
Fair value of net assets acquired
Goodwill
Call-Net
Other
Total
$
– $
316
8
4
36 $
–
–
2
$
$
328 $
38 $
44 $
22
29
27
–
5
123
340
1
(147)
–
(4)
(293)
(10)
– $
–
5
5
1
–
–
32
–
(11)
(3)
(6)
–
–
$
$
137 $
23 $
191 $
15 $
36
316
8
6
366
44
22
34
32
1
5
123
372
1
(158)
(3)
(10)
(293)
(10)
160
206
(D)
INTEGR ATION ExPENSES:
As part of the acquisition of Call-Net and the 2004 acquisition of
Microcell Telecommunications Inc. (“Fido”), in 2005 and 2006, the
Company incurred certain integration costs that did not qualify to
be included as part of the purchase price allocation as a liability
assumed on acquisition. Rather, these costs are recorded within
operating expenses. These expenses include various severance, con-
sulting and other incremental restructuring costs directly related to
the acquisitions.
During 2006, the Company incurred $9 million in integration expenses
related to the Call-Net Acquisition (2005 – $12 million) and $3 million
in integration expenses related to the Fido acquisition (2005 –
$54 million).
(E) PRO FORMA RESULTS OF OPER ATIONS:
The pro forma results of operations had the Company acquired
Call-Net on January 1, 2004 would have been as follows:
(Unaudited)
Operating revenue
Loss for the year
Loss per share:
Basic and diluted
88
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
2005
(Restated –
note 2(b))
$
7,762
$
(176)
$
(0.30)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
INvES T MENT IN jOIN T vEN TURE S
The Company has contributed certain assets to joint ventures
involved in the provision of wireless broadband Internet service
and in certain mobile commerce initiatives (notes 11(b) and 23). As
at December 31, 2006 and for the year then ended, proportionately
consolidating these joint ventures resulted in the following increases
(decreases) in the accounts of the Company:
Current assets
Long-term assets
Current liabilities
Revenue
Expenses
Net income
6
STO R E CLO SURE ExPE NSES
$
11
42
3
–
20
(20)
During 2006, the Company closed 21 of its Rogers Retail stores in
Ontario and Quebec. The costs to exit these stores include lease ter-
mination 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.
7
INC OM E TAxES
The income tax effects of temporary differences that give rise to significant portions of future income tax assets and liabilities are as follows:
Future income tax assets:
Non-capital income tax loss carryforwards
Capital loss carryforwards
Deductions relating to long-term debt and other transactions denominated in foreign currencies
Investments
PP&E and inventory
Other deductible differences
Total future income tax assets
Less valuation allowance
Future income tax liabilities:
Goodwill and intangible assets
Other taxable differences
Total future income tax liabilities
Net future income tax asset
Less current portion
2006
2005
$
981 $
21
41
52
46
125
1,266
150
1,116
1,389
5
87
59
87
149
1,776
618
1,158
(407)
(23)
(680)
(18)
(430)
(698)
686
387
$
299 $
460
113
347
In assessing the realizability of future income tax assets, manage-
ment considers whether it is more likely than not that some portion
or all of the future income tax assets will be realized. The ultimate
realization of future income tax assets is dependent upon the gen-
eration of future taxable income during the years in which the
temporary differences are deductible. Management considers the
scheduled reversals of future income tax liabilities, the character of
the future income tax assets and available tax planning strategies
in making this assessment. To the extent that management believes
that the realization of future income tax assets does not meet the
more likely than not realization criterion, a valuation allowance is
recorded against the future income tax assets.
In making an assessment of whether future income tax assets are
more likely than not to be realized, management regularly prepares
information regarding the expected use of such assets by reference
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to its internal income forecasts. Based on management’s estimates of
the expected realization of future income tax assets, during 2006 the
Company reduced the valuation allowance to reflect that it is more
likely than not that certain future income tax assets will be realized.
Approximately $300 million of the reduction in the valuation allow-
ance related to future income tax assets arising from acquisitions.
Accordingly, the benefit related to these assets has been reflected
as a reduction of goodwill in the amount of $209 million and other
intangible assets in the amount of $91 million.
The valuation allowance at December 31, 2006 includes $70 million
of future income tax assets relating to foreign non-capital loss carry-
forwards and $80 million of future income tax 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”)
disagreed with the Company’s tax filing position in respect of
the Termination Payment and in May 2006, issued a Notice of
Reassessment. The Company has negotiated a settlement with the
CRA which resulted in a $67 million reduction to the non-capital
income tax losses carried forward by the Company. As a result, a
corresponding future income tax charge of $25 million was recorded
for 2006.
Income tax expense varies from the amounts that would be com-
puted by applying the statutory income tax rate to income (loss)
before income taxes for the following reasons:
Statutory income tax rate
Income tax expense (reduction) on income (loss) before income taxes
Increase (decrease) in income taxes resulting from:
Difference between rates applicable to subsidiaries in other jurisdictions
Change in the valuation allowance for future income tax assets
Adjustments to future income tax assets and liabilities for changes in substantively enacted rates
Stock-based compensation
Large Corporations Tax
Other items
Income tax expense
2006
2005
35.8%
36.1%
$
243 $
(16)
(12)
(168)
(14)
15
–
(8)
$
56 $
1
11
(23)
14
10
5
2
As at December 31, 2006, the Company has the following non-capital income tax losses available to reduce future years‘ income for income
tax purposes:
Income tax losses expiring in the year ending December 31:
2007
2008
2009
2010
2011
Thereafter
$
156
668
229
183
–
1,479
$
2,715
As at December 31, 2006, the Company had approximately $127 mil-
lion in non-capital income tax losses available in foreign subsidiaries
expiring between 2021 and 2026.
As at December 31, 2006, the Company had approximately $131 mil-
lion in capital losses available.
90
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
NET IN COME (LO SS) PE R SHA RE
The following table sets forth the calculation of basic and diluted net income (loss) per share:
Numerator:
Net income (loss) for the year, basic and diluted
$
622 $
(45)
2006
2005
(Restated –
note 2(b))
Denominator (in millions):
Weighted average number of shares outstanding – basic
Effect of dilutive securities:
Employee stock options
Weighted average number of shares outstanding – diluted
Net income (loss) per share:
Basic
Diluted
631.8
577.3
10.1
–
641.9
577.3
$
0.99 $
0.97
(0.08)
(0.08)
For 2005, the effect of potentially dilutive securities, including the
Convertible Debentures and the Convertible Preferred Securities,
were excluded from the computation of diluted net loss per share as
their effect was anti-dilutive. In addition, there are no options that
are anti-dilutive and therefore excluded from the calculation for the
year ended December 31, 2006 (2005 – approximately 26 million).
9 OTH E R CUR RENT ASS ETS
Inventories
Rogers Retail rental inventory
Prepaid expenses
Acquired program rights
Other
2006
2005
$
113 $
35
93
23
6
$
270 $
117
35
99
21
13
285
Depreciation expense for Rogers Retail rental inventory is charged
to operating, general and administrative expenses and amounted to
$48 million in 2006 (2005 – $64 million). The costs of acquired program
rights are amortized to operating, general and administrative
expenses over the expected performances of the related programs
and amounted to $27 million in 2006 (2005 – $26 million).
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10 PRO PE RT Y, PLA NT AND EqUIP MENT
Details of PP&E are as follows:
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 equipment
Leasehold improvements
Other
Accumulated
depreciation
Cost
2006
Net book
value
2005
Accumulated
depreciation
Cost
Net book
value
$
561 $
898
4,288
4,420
1,619
1,789
922
293
614
102 $
451
2,303
2,233
1,210
1,319
513
169
372
459 $
447
1,985
2,187
409
470
409
124
242
405 $
743
4,081
3,870
1,502
1,568
714
260
534
77 $
362
2,070
1,889
1,105
1,129
405
152
336
328
381
2,011
1,981
397
439
309
108
198
$ 15,404 $
8,672 $
6,732 $ 13,677 $
7,525 $
6,152
Other primarily includes miscellaneous equipment and vehicles.
PP&E not yet in service and therefore not depreciated at December 31,
2006 amounted to $403 million (2005 – $365 million).
Depreciation expense for 2006 amounted to $1,172 million (2005 –
$1,075 million).
11 GOO Dw IL L A ND INT ANGIBLE ASS ETS
(A) GOODwILL:
A summary of the changes to goodwill is as follows:
Opening balance
Adjustments to Call-Net purchase allocation (note 4(b))
Adjustments to Wireless purchase allocation
Adjustments to Fido purchase allocation
Adjustments to other purchase allocations
Other acquisitions (note 4(a))
Reduction in valuation allowance for acquired future income tax assets (note 7)
Closure of divisions
$
2006
2005
3,036 $
(47)
–
–
(6)
5
(209)
–
3,389
191
(54)
(26)
(9)
–
(452)
(3)
$
2,779 $
3,036
During 2005, the purchase price allocations related to the 2004 acqui-
sitions of Fido and the remaining minority interests in Wireless were
adjusted to reflect final valuations of tangible and intangible assets
acquired and to reflect adjustments to various liabilities assumed
on acquisition. The offset of these adjustments was recorded as a
charge to goodwill.
The Company wrote off goodwill of $3 million during 2005 related to
the closure of two of its divisions.
92
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(B)
INTANGIBLE ASSETS:
Spectrum licences
Brand names
Subscriber bases
Baseball player contracts
Roaming agreements
Dealer networks
Wholesale agreements
Broadcast licence and other
Accumulated
amortization
Cost
2006
Net book
value
2005
Accumulated
amortization
Cost
Net book
value
$
901 $
411
1,045
120
523
41
13
30
– $
80
609
118
94
22
9
–
901 $
331
436
2
429
19
4
30
929 $
411
1,112
120
523
41
13
23
– $
43
322
112
51
12
5
–
929
368
790
8
472
29
8
23
$
3,084 $
932 $
2,152 $
3,172 $
545 $
2,627
Amortization of subscriber bases, brand names, player contracts,
roaming agreements, dealer networks and wholesale agreements in
2006 amounted to $387 million (2005 – $382 million).
During 2006, the Company reduced the value ascribed to subscriber
bases by $91 million as it reduced the valuation allowance related to
future income taxes arising on acquisition (note 7).
During 2006, the Company contributed its 2.5 GHz spectrum licences
with a carrying value of $55 million to its 50% owned joint venture.
Accordingly, the carrying value of spectrum licences has been
reduced by approximately $28 million.
During 2006, Broadcast licence and other increased by $7 million as a
result of acquisition and purchase price adjustments in Media.
During 2005, the Company acquired spectrum in various licence areas
for an aggregate cost of $5 million.
During 2006, the valuation of intangible assets acquired as part of
the Call-Net Acquisition was finalized, resulting in a $24 million
increase in subscriber bases acquired. The offset to this adjustment
was recorded as a reduction to goodwill.
During 2005, subscriber bases of $123 million were acquired as a
result of the acquisition of Call-Net (note 4(c)).
12
INvES T MENTS
Investments accounted for by the equity method
Investments accounted for by the cost method,
net of write-downs:
Publicly traded companies:
Cogeco Cable Inc.
Cogeco Inc.
Other publicly traded companies
Private companies
Number
Description
quoted
market
value
2006
Book
value
Quoted
market
value
2005
Book
value
$
7
$
9
6,595,675
3,399,800
Subordinate $
Voting
Common
Subordinate
Voting
Common
214
69 $
162
100
15
44
4
82
12
$
329
117 $
256
15
69
44
3
116
13
$
139
$
138
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13 DEF E RR ED C HARG ES
Financing costs
Pre-operating costs
CRTC commitments
Deferred installation costs (note 2(c)(iv))
Other
2006
2005
$
59 $
8
23
17
11
67
12
34
8
11
$
118 $
132
Amortization of deferred charges for 2006 amounted to $25 million
(2005 – $35 million). Accumulated amortization as at December 31,
2006 amounted to $121 million (2005 – $116 million).
Financing costs of $5 million were deferred in connection with the
amendments to certain credit facilities in 2005.
In connection with the repayment of certain long-term debt during
2005, and amendments made to certain credit facilities, the Company
wrote off deferred financing costs of $3 million (note 15(d)).
The Company has committed to the Canadian Radio-television and
Telecommunications Commission (“CRTC”) to spend an aggregate
of $75 million 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 and the remainder relating
to a CRTC decision permitting the purchase of Rogers Sportsnet
Inc. (“Sportsnet”), Rogers (Toronto) Ltd. and Rogers (Alberta) Ltd.
The amount of these liabilities, included in accounts payable and
accrued liabilities and other long-term liabilities, is $32 million at
December 31, 2006 (2005 – $40 million). Deferred charges related to
these commitments are being amortized over periods ranging from
six to seven years.
$
2006
2005
34 $
26
32
10
16
14
20
32
23
–
2
26
14
16
$
152 $
113
14 OTH E R LO NG -TE RM ASS ETS
\
Deferred pension asset (note 19)
Program rights
Long-term deposits
Long-term receivables
Indefeasible right of use agreement
Cash surrender value of life insurance
Other
94
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15 LON G-T ERM DEB T
Corporate:
Senior Notes
Senior Secured Notes
Fair value increment arising from purchase accounting
Wireless (a):
Bank credit facility
Senior Secured Notes
Floating Rate Senior Secured Notes
Senior Secured Notes
Senior Secured Notes
Senior Secured Notes
Senior Secured Notes
Senior Secured Notes
Senior Secured Debentures
Senior Subordinated Notes
Fair value increment arising from purchase accounting
Cable (b):
Bank credit facility
Senior Secured Second Priority Notes
Senior Secured Second Priority Notes
Senior Secured Second Priority Notes
Senior Secured Second Priority Notes
Senior Secured Second Priority Notes
Senior Secured Second Priority Notes
Senior Secured Second Priority Debentures
Media (c):
Bank credit facility
Mortgages and other
Less current portion
Due
date
Principal
amount
Interest
rate
2006
2005
2006 $
2008
75
U.S. 22
10.50%
10.625%
$
2006
2010
2011
2011
2012
2014
2015
2016
2012
160
U.S. 550
U.S. 490
460
U.S. 470
U.S. 750
U.S. 550
U.S. 155
U.S. 400
Floating
10.50%
Floating
9.625%
7.625%
7.25%
6.375%
7.50%
9.75%
8.00%
2007
2011
2012
2013
2014
2015
2032
450
175
U.S. 350
U.S. 350
U.S. 350
U.S. 280
U.S. 200
Floating
7.60%
7.25%
7.875%
6.25%
5.50%
6.75%
8.75%
Floating
Various
– $
–
–
–
–
–
641
571
460
548
874
641
181
466
36
75
26
1
102
71
160
641
571
460
548
875
641
181
467
44
4,418
4,659
–
450
175
408
408
408
326
233
267
450
175
408
408
408
327
233
2,408
2,676
160
2
274
28
6,988
7,739
451
286
$
6,537 $
7,453
Further details of long-term debt are as follows:
things, that Wireless satisfy certain financial covenants, including
the maintenance of certain financial ratios.
(A) wIRELESS:
(i) Bank credit facility:
Wireless’ bank credit facility provides Wireless with up to $700 mil-
lion from a consortium of Canadian financial institutions. Under the
credit facility, Wireless may borrow at various rates, including the
bank prime rate or base rate to the bank prime rate or base rate plus
13/4% per annum, the bankers’ acceptance rate plus 1% to 23/4% per
annum and the London Inter-Bank Offered Rate (“LIBOR”) plus 1% to
23/4% per annum. Wireless’ bank credit facility requires, among other
This credit facility is available on a fully revolving basis until the first
date specified below, at which time, the facility becomes a revolving/
reducing facility and the aggregate amount of credit available under
the facility will be reduced by the following amounts:
On April 30:
2008
2009
2010
$
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
140
140
420
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Borrowings under the credit facility are secured by the pledge of a
senior bond issued under a deed of trust, which is secured by sub-
stantially all the assets of Wireless and certain of its subsidiaries,
subject to certain exceptions and prior liens.
(ii) Senior Notes and Debentures:
Each of Wireless’ Senior Secured Notes and Debentures is secured by
the pledge of a senior bond that is secured by the same security as
the security for the bank credit facility described in note 15(a)(i) and
ranks equally with the bank credit facility.
Interest is paid semi-annually on all of Wireless’ notes and debentures,
with the exception of Wireless’ Floating Rate Senior Secured Notes
for which Wireless pays interest on a quarterly basis.
Each of Wireless’ Senior Secured Notes and Debentures and Senior
Subordinated Notes is redeemable, in whole or in part, at Wireless’
option, at any time, subject to a certain prepayment premium. The
following two note issues have specific prepayment premiums.
Wireless’ U.S. $550 million of Floating Rate Senior Secured Notes are
redeemable in whole or in part, at Wireless’ option, at any time on or
after December 15, 2006 at 102.0% of the principal amount, declining
ratably to 100.0% of the principal amount on or after December 15,
2008, plus, in each case, interest accrued to the redemption date.
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 redeem-
able in whole or in part, at Wireless’ option, at any time up to
December 15, 2008, subject to a certain prepayment premium and
at any time on or after December 15, 2008 at 104.0% of the principal
amount, declining ratably to 100.0% of the principal amount on or
after December 15, 2010.
(iii) Fair value increment arising from purchase accounting:
The fair value increment on long-term debt is a purchase accounting
adjustment required by GAAP as a result of the acquisition of the
minority interest of Wireless during 2004. Under GAAP, the purchase
method of accounting requires that the assets and liabilities of
an acquired enterprise be revalued to fair value when allocating
the purchase price of the acquisition. This fair value increment is
recorded only on consolidation at the RCI level and is not recorded
in the accounts of Wireless. The fair value increment is amortized
over the remaining term of the related debt and recorded as part
of interest expense. The fair value increment, applied against the
specific debt instruments of Wireless to which it relates, results in
the following carrying values at December 31, 2006 and 2005 of the
Wireless debt in the Company’s consolidated accounts:
Senior Secured Notes, due 2006
Senior Secured Notes, due 2010
Senior Secured Notes, due 2011
Senior Secured Notes, due 2011
Senior Secured Notes, due 2012
Senior Secured Notes, due 2014
Senior Secured Notes, due 2015
Senior Secured Debentures, due 2016
Senior Subordinated Notes, due 2012
Total
(B) C ABLE:
(i) Bank credit facility:
Cable’s bank credit facility provides Cable with up to $1 billion of
available credit, comprised of a $600 million Tranche A credit facility
and a $400 million Tranche B credit facility, both of which are avail-
able on a fully revolving basis until maturity on July 2, 2010 and there
are no scheduled reductions prior to maturity.
In July 2006, Cable entered into an amendment to its bank credit
facility to insert provisions for the springing release of security in a
similar fashion as provided in all of Cable’s public debt indentures.
This provision provides that if Cable has two investment grade ratings
on its debt and there is no other debt or cross-currency interest rate
exchange agreement secured by a bond issued under the Cable deed
of trust, then the security provided for a particular debt instrument
will be discharged upon 45 days’ prior notice by Cable. A similar
amendment has also been made in each of Cable’s cross-currency
interest rate exchange agreements.
96
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
10.50% $
Floating
9.625%
7.625%
7.25%
6.375%
7.50%
9.75%
8.00%
2006
2005
– $
643
600
461
551
859
644
192
468
162
644
606
462
551
857
644
193
468
$
4,418 $
4,587
Cable’s bank credit facility is secured by the pledge of a senior bond
issued under a deed of trust which is secured by substantially all of
the assets of Cable and certain of its subsidiaries, subject to certain
exceptions and prior liens. In addition, under the terms of an inter-
creditor agreement, the proceeds of any enforcement of the security
under the deed of trust would be applied first to repay any obli-
gations outstanding under the Tranche A credit facility. Additional
proceeds would be applied pro rata to repay all other obligations of
Cable secured by senior bonds, including the Tranche B credit facility
and all of Cable’s Senior Secured Notes and Debentures.
Cable’s 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 nil to 2.0% per annum over the bank prime rate
or base rate or 0.625% to 3.25% per annum over the bankers’ accep-
tance rate or LIBOR.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ii) Senior Secured Second Priority Notes and Debentures:
Each of Cable’s Senior Secured Second Priority Notes and Debentures
is secured by the pledge of a senior bond which is secured by the
same security as the security for Cable’s bank credit facility described
in note 15(b)(i) and rank equally in regard to the proceeds of any
enforcement of security with the Tranche B credit facility.
Each of Cable’s Senior Secured Second Priority Notes and Debentures
is redeemable at Cable’s option, in whole or in part, at any time, sub-
ject to a certain prepayment premium.
Interest is paid semi-annually on all of Cable’s notes and debentures.
(C ) MEDIA:
Media’s bank credit facility provides Media with up to $600 million
from a consortium of Canadian financial institutions. Borrowings
under this facility are available to Media for general corporate pur-
poses on a fully revolving basis until maturity on September 30, 2010
and there are no scheduled reductions prior to maturity.
The interest rates charged on this credit facility range from the bank
prime rate or U.S. base rate plus nil to 2.0% per annum and the
bankers’ acceptance rate or LIBOR plus 1.0% to 3.0% per annum. The
bank credit facility requires, among other things, that Media satisfy
certain financial covenants, including the maintenance of certain
financial ratios.
The bank credit facility is secured by floating charge debentures
over most of the assets of Media and three of its subsidiaries, Rogers
Broadcasting Limited (“RBL”), Rogers Publishing Limited (“RPL”)
and Sportsnet, subject to certain exceptions. Each of RBL, RPL and
Sportsnet has guaranteed Media’s present and future liabilities and
obligations under the credit facility.
amount of Convertible Debentures by issuing 15,432,896 Class B
Non-Voting shares and paying U.S. $0.3 million in cash. The
Company also converted the $600 million face value of its
Convertible Preferred Securities and issued 34,285,714 of 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-Net. As a
result, the Company recorded a loss on the repayment of debt
of $11 million.
(E) wEIGHTED AvER AGE INTEREST R ATE:
The Company’s effective weighted average interest rate on all long-
term debt, as at December 31, 2006, including the effect of all of the
derivative instruments, was 7.98% (2005 – 7.76%).
(F ) PRINCIPAL REPAYMENTS:
As at December 31, 2006, principal repayments due within each of
the next five years and in total thereafter on all long-term debt are
as follows:
2007
2008
2009
2010
2011
Thereafter
$
451
1
–
801
1,206
4,493
(G) FOREIGN ExCHANGE:
Foreign exchange gains related to the translation of long-term debt
totalled less than $1 million (2005 – $33 million).
(D) DEBT REPAYMENTS:
(i) During 2006, the Company redeemed or repaid an aggregate
$261 million principal amount of Senior Notes and Senior Secured
Notes as well as a mortgage and capital leases in the aggregate
principal amount of $25 million. A prepayment premium of
$1 million was also incurred as part of these repayments.
(ii) During 2005, the Company redeemed an aggregate U.S. $606 mil-
lion principal amount of Senior Secured Second Priority Notes,
Senior Secured Notes and Senior Subordinated Guaranteed
Debentures for cash and converted U.S. $225 million face value
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 these restrictions are debt incurrence and maintenance
tests, restrictions upon additional investments, sales of assets and
payment of dividends. In addition, the repayment dates of certain
debt agreements may be accelerated if there is a change in control
of the respective companies. At December 31, 2006 and 2005, the
Company was in compliance with all terms of the long-term debt
agreements.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16 DERIvAT IvE INS TRUMENTS
Details of the derivative instruments liability is as follows:
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
2005
U.S. $
notional
Exchange
rate
Cdn. $
notional
Carrying
amount
Estimated
fair value
4,190
285
4,475
–
4,475
275
1.3313 $
1.1993
5,578 $
342
5,920
–
5,920
326
1.1870
710 $
12
722
54
776
7
1,282
12
1,294
–
1,294
7
$
4,200
$
5,594 $
769 $
1,287
U.S. $
notional
Exchange
rate
Cdn. $
notional
Carrying
amount
Estimated
fair value
4,190
612
–
4,802
–
4,802
327
1.3313 $
1.2021
–
5,578 $
736
30
6,344
–
6,344
394
1.2045
710 $
27
1
738
63
801
14
1,308
27
1
1,336
–
1,336
14
Cross-currency interest rate exchange agreements accounted for as hedges
Cross-currency interest rate exchange agreements not accounted for as hedges
Interest exchange agreements not accounted for as hedges
$
Transitional gain
Less current portion
$
4,475
$
5,950 $
787 $
1,322
A transition adjustment arising on the change from marked-to-
market accounting to hedge accounting was calculated as at July 1,
2004, resulting in a deferred transitional gain of $80 million. This
transitional gain is being amortized to income over the shorter of
the remaining life of the debt and the term of the exchange agree-
ments. Amortization of the net transitional gain for the year ended
December 31, 2006 was $9 million (2005 – $11 million).
During 2006, cross-currency interest rate exchange agreements of
U.S. $327 million aggregate notional amount matured. Wireless
incurred a net cash outlay of $20 million upon settlement of these
cross-currency interest rate exchange agreements. An interest rate
exchange agreement of $30 million notional amount held by Cable
also matured.
During 2005, cross-currency interest exchange agreements of
U.S. $333 million aggregate notional amount matured. Cable
incurred a net cash outlay of $69 million upon settlement of these
cross-currency interest rate exchange agreements.
17 OTH E R LO NG -TE RM LIA BILI TI ES
Deferred compensation
CRTC commitments
Program rights
Other
98
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
2006
2005
$
54 $
21
19
9
$
103 $
25
26
18
5
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18 FIN AN CIAL INS TRUMENTS
(A) FAIR vALUES:
(iii) Long -term receivables:
The Company has determined the fair values of its financial instru-
ments as follows:
The fair values of long-term receivables approximate their carrying
amounts since the interest rates approximate current market rates.
(i) The carrying amounts in the consolidated balance sheets of
accounts receivable, bank advances arising from outstanding
cheques and accounts payable and accrued liabilities approxi-
mate fair values because of the short term nature of these
financial instruments.
(ii)
Investments:
The fair values of investments that are publicly traded are deter-
mined by the quoted market values for each of the investments
(note 12). Management believes that the fair values of other invest-
ments are not significantly different from their carrying amounts.
(iv) Long -term debt and derivative instruments:
The fair values of each of the Company’s long-term debt instruments
are based on the year-end trading values.
The fair values of the Company’s interest exchange agreements,
cross-currency interest rate exchange agreements and other deriva-
tive 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 derivative instruments as at December 31, 2006 and 2005 are
as follows:
Liability:
Long-term debt
Derivative instruments (1)
(1) Excludes deferred transitional gain of $54 million (2005 – $63 million).
2006
2005
Carrying
amount
Estimated
fair value
Carrying
amount
Estimated
fair value
$
6,988 $
722
7,397 $
1,294
7,739 $
738
8,095
1,336
$
7,710 $
8,691 $
8,477 $
9,431
At December 31, 2006, 85.6% of U.S. dollar-denominated debt (2005 –
85.2%) was protected from fluctuations in the foreign exchange
between the U.S. and Canadian dollars by derivative instruments.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instruments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Credit risk of the interest exchange agreements and cross-currency
interest rate exchange agreements arises from the possibility that
the counterparties to the agreements may default on their respec-
tive obligations under the agreements in instances where these
agreements have positive fair value for the Company. The Company
assesses the creditworthiness of the counterparties in order to mini-
mize the risk of counter party default under the agreements. All of
the portfolio is held by financial institutions with a Standard & Poors
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 creditworthiness of the counterparties. The obligations under
U.S. $4,475 million (2005 – U.S. $4,802 million) aggregate notional
amount of the cross-currency interest rate exchange agreements are
secured by substantially all of the assets of the respective subsidiary
companies to which they relate and generally rank equally with the
other secured indebtedness of such subsidiary companies.
(v) Other long -term liabilities:
The carrying amounts of other long-term liabilities approximate fair
values as the interest rates approximate current rates.
(B) OTHER DISCLOSURES:
The Company does not have any significant concentrations of credit
risk related to any financial asset.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19 PEN S IONS
The Company maintains both contributory and non-contributory
defined benefit pension plans that cover most of its employees. The
plans provide pensions based on years of service, years of contribu-
tions and earnings. The Company does not provide any non-pension
post-retirement benefits.
adjustments. The most recent actuarial valuations were completed
as at January 1, 2004 for certain of the plans and January 1, 2006 for
one of the plans. The next actuarial valuation for funding purposes
must be of a date no later than January 1, 2007 for all of the plans.
Actuarial estimates are based on projections of employees’ compen-
sation levels at the time of retirement. Maximum retirement benefits
are primarily based upon career average earnings, subject to certain
The estimated present value of accrued plan benefits and the esti-
mated market value of the net assets available to provide for these
benefits measured at September 30 for the year ended December 31
are as follows:
Plan assets, at fair value
Accrued benefit obligations
Deficiency of plan assets over accrued benefit obligations
Employer contributions after measurement date
Unrecognized transitional asset
Unamortized past service costs
Unamortized net actuarial loss
Deferred pension asset
Pension fund assets consist primarily of fixed income and equity
securities, valued at fair value. The following information is provided
on pension fund assets measured at September 30 for the year ended
December 31:
Plan assets, beginning of year
Actual return on plan assets
Contributions by employees
Contributions by employer
Benefits paid
Plan assets, end of year
Accrued benefit obligations are outlined below measured at
September 30 for the year ended December 31:
Accrued benefit obligations, beginning of year
Service cost
Interest cost
Benefits paid
Contributions by employees
Actuarial loss (gain)
Accrued benefit obligations, end of year
100
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
2006
2005
$
545 $
612
(67)
4
(28)
3
122
484
575
(91)
6
(38)
4
151
$
34 $
32
2006
2005
$
484 $
40
15
28
(22)
402
67
14
20
(19)
$
545 $
484
2006
2005
$
575 $
24
32
(22)
15
(12)
453
15
30
(19)
14
82
$
612 $
575
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net plan expense is outlined below:
Plan cost:
Service cost
Interest cost
Actual return on plan assets
Actuarial loss (gain) on benefit obligation
Costs
Differences between costs arising during the year and costs recognized during the year in respect of:
Return on plan assets
Actuarial loss (gain)
Plan amendments/prior service cost
Transitional asset
Net pension expense
2006
2005
$
24 $
32
(40)
(12)
4
7
22
1
(10)
$
24 $
15
30
(67)
82
60
37
(74)
1
(10)
14
The Company also provides supplemental unfunded pension ben-
efits to certain executives. The accrued benefit obligation relating to
these supplemental plans amounted to approximately $19 million at
December 31, 2006 (2005 – $18 million) and related expense for 2006
was $4 million (2005 – $3 million).
(A) AC TUARIAL ASSUMP TIONS:
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
2006
2005
5.25%
5.25%
3.50%
6.75%
5.25%
6.25%
4.00%
7.25%
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 on plan assets based on the fund’s target
asset allocation and estimated rate of return for each asset class.
Estimated rates of return are based on expected returns from fixed
income securities which take into account bond yields. An equity
risk premium is then applied to estimate equity returns. Differences
between expected and actual return are included in actuarial gains
and losses.
The estimated average remaining service periods for the plans range
from 9 to 13 years. The Company did not have any curtailment gains
or losses in 2006 or 2005.
(B) ALLOC ATION OF PL AN ASSETS:
Asset category
Equity securities
Debt securities
Other (cash)
plan assets,
Percentage of Percentage of
plan assets,
December 31, December 31,
2005
2006
Target asset
allocation
percentage
59.7%
40.0%
0.3%
59.5%
39.9%
0.6%
50% to 65%
35% to 50%
0% to 1%
100.0%
100.0%
Plan assets are comprised primarily of pooled funds that invest in
common stocks and bonds. The pooled Canadian equity fund has
investments in the Company’s equity securities comprising approxi-
mately 1% of the pooled fund. This results in approximately $1 million
(2005 – $1 million) of the plans’ assets being indirectly invested in the
Company’s equity securities.
The Company makes contributions to the plans to secure the benefits
of plan members and invests in permitted investments using the target
ranges established by the Pension Committee of the Company. The
Pension Committee reviews actuarial assumptions on an annual basis.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(C ) AC TUAL CONTRIBUTIONS TO THE PL ANS ARE AS FOLLOwS:
2006
2005
Employer
Employee
Total
$
28 $
21
15 $
14
43
35
Expected contributions by the Company in 2007 are estimated to be
$25 million.
Employee contributions for 2007 are assumed to be at levels similar
to 2006 on the assumption staffing 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
262
Blue Jays and Fido each have defined contribution plans with total pension expense of $2 million in 2006 (2005 – $5 million).
20 SHA RE HOL DERS ’ EqUIT Y
During 2005 and 2006, the Company completed the following capital stock transactions:
Balances, December 31, 2004
Change in accounting policy related to
stock-based compensation (note 2(b))
Net loss for the year
Stock options exercised
Stock-based compensation
Shares issued in exchange for
Call-Net shares (note 4(b))
Conversion of convertible preferred
securities (note 15(d))
Dividends
Conversion of convertible debt (note 15(d))
Conversion of Class A shares to Class B shares
Purchase price adjustment to unvested options
Balances, December 31, 2005
Net income for the year
Stock options exercised
Stock-based compensation
Dividends
Class A Voting shares
Class B Non-Voting shares
Number
Amount of shares (000s)
Number
Amount of shares (000s)
Convertible
Preferred
Securities
Contributed
surplus
Total
shareholders’
equity
Deficit
$
72
112,471 $
356
437,958 $
188 $
2,289 $
(520) $
2,385
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3)
–
–
–
8
–
14
28
–
13
–
–
–
–
10,796
–
16,929
34,286
–
15,433
3
–
72
–
–
–
–
112,468
–
–
–
–
419
–
6
–
–
515,405
–
7,827
–
–
–
–
–
–
–
(188)
–
–
–
–
–
–
–
–
–
4
–
98
35
(4)
(45)
–
–
310
–
669
–
258
–
(20)
3,643
–
61
32
–
–
(37)
–
–
–
(606)
622
–
–
(49)
–
(45)
106
35
324
509
(37)
271
–
(20)
3,528
622
67
32
(49)
Balances, December 31, 2006
$
72
112,468 $
425
523,232 $
– $
3,736 $
(33) $
4,200
102
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) C APITAL STOCk:
(i) Preferred shares:
Rights and conditions:
There are 400 million authorized Preferred shares without par
value, issuable in series, with rights and terms of each series to be
fixed by the Board of Directors prior to the issue of such series. The
Preferred shares have no rights to vote at any general meeting of
the Company. No Preferred shares have been issued.
(ii) Common shares:
Rights and conditions:
On October 30, 2006, subject to shareholder approval, the Board
of Directors approved a resolution effecting a two-for-one split of
the Company’s Class A Voting and Class B Non-Voting shares where
shareholders of record as of the close of business on December 29,
2006 would receive one additional share of the relevant class for
each share held upon distribution. The Board also approved reso-
lutions, again subject to shareholder approval, increasing the
maximum number of Class A Voting shares authorized to be issued
by 56,233,894 and requiring that all of the authorized and issued and
fully paid Class B Non-Voting shares with a par value, prior to the
split, of $1.62478 each be changed into shares without par value.
These resolutions were approved at a shareholder meeting held on
December 15, 2006.
All prior period common stock and applicable share and per share
amounts have been retroactively adjusted to reflect the split.
Reflecting the approval of these resolutions, there are 112,474,388
authorized Class A Voting shares without par value. Each Class A
Voting share is entitled to 50 votes per share. The Class A Voting
shares are convertible on a one-for-one basis into Class B Non-Voting
shares.
There are 1.4 billion authorized Class B Non-Voting shares.
During 2006, 140 Class A Voting shares were converted into Class B
Non-Voting shares.
The Articles of Continuance of the Company under the Company
Act (British Columbia) impose restrictions on the transfer, voting and
issue of the Class A Voting and Class B Non-Voting shares in order to
ensure that the Company remains qualified to hold or obtain licences
required to carry on certain 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) DIvIDENDS:
On April 25, 2006, the Company declared a semi-annual dividend
of $0.0375 per share on each of its outstanding Class B Non-Voting
shares and Class A Voting shares. This semi-annual dividend totalling
$24 million was paid on July 4, 2006 to the shareholders of record on
June 14, 2006.
On October 30, 2006, the Board approved an increase in the annual
dividend from $0.075 to $0.16 per Class A Voting and Class B Non-
Voting share. Additionally, the Company’s dividend distribution
policy was modified to make dividend distributions on a quarterly
basis instead of semi-annually. At the same time, the Board declared
the first quarterly dividend of $0.04 per share to be paid on January 2,
2007 to shareholders of record on December 20, 2006 reflecting the
increased $0.16 per share annual dividend level and the new quar-
terly distribution schedule. The dividend payment on January 2, 2007
totalled $25 million.
The Class A Voting shares may receive a dividend at a quarterly rate
of up to $0.04 per share only after the Class B Non-Voting shares
have been paid a dividend at a quarterly rate of $0.04 per share. The
Class A Voting and Class B Non-Voting shares share equally in divi-
dends after payment of a dividend of $0.04 per share for each class.
(C ) STOCk OP TIONS, SHARE UNITS AND SHARE
PURCHASE PL ANS:
As a result of the Company’s two-for-one stock split (note 20(a)(ii)),
the numbers of options, restricted share units and directors’ deferred
share units outstanding were adjusted, in accordance with existing
provisions of the plans for these awards, such that the holders of
these awards would be in the same economic position before and
after effecting the stock split. Consequently, these adjustments did
not result in a new measurement date for these awards.
All prior period numbers of options, restricted share units and direc-
tors’ deferred share units as well as exercise prices and fair values
per individual award have been retroactively adjusted to reflect the
two-for-one stock split.
(i)
Stock options:
(a) Stock option plans:
Options to purchase Class B Non-Voting shares of the Company on a
one-for-one basis may be granted to employees, directors and offi-
cers of the Company and its affiliates by the Board of Directors or by
the Company’s Management Compensation Committee. There are
30 million options authorized under the 2000 plan, 25 million options
authorized under the 1996 plan, and 9.5 million options authorized
under the 1994 plan. The term of each option is 7 to 10 years and
the vesting period is generally four years but may be adjusted by
the Management Compensation Committee on the date of grant.
The exercise price for options is equal to the 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
fully-vested options of RCI (note 4(b)).
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2006, a summary of the stock option plans is as follows:
Outstanding, beginning of year
Granted
Exercised
Forfeited
Exchanged from Call-Net options
Outstanding, end of year
Exercisable, end of year
2006
weighted
average
exercise
price
Number of
options
Number of
options
26,478,848 $
9.62 36,151,698 $
2,043,900
(7,826,982)
(1,000,906)
–
22.71
1,205,068
8.80 (10,796,072)
(940,394)
858,548
12.22
–
19,694,860
11.17 26,478,848
2005
Weighted
average
exercise
price
9.19
18.64
9.28
10.68
12.19
9.62
14,160,866 $
9.65 19,140,406 $
9.38
At December 31, 2006, the range of exercise prices, the weighted average exercise price and the weighted average remaining contractual life
are as follows:
Range of
exercise prices
$ 1.36 – $ 4.46
$ 4.47 – $ 6.59
$ 6.60 – $10.30
$10.31 – $13.00
$13.01 – $19.09
$19.10 – $29.00
$29.01 – $36.00
Options outstanding
Options exercisable
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise
price
Number
exercisable
Weighted
average
exercise
price
1.0 $
3.7
6.4
5.5
3.7
6.1
6.9
3.16
5.77
8.45
11.42
17.25
22.63
33.95
2,844,986 $
2,167,852
1,445,886
5,503,270
2,123,453
75,419
–
3.16
5.99
8.58
11.60
17.31
22.59
–
Number
outstanding
2,844,986
2,663,852
2,400,332
6,893,436
2,650,796
2,228,458
13,000
19,694,860
4.5
11.17
14,160,866
9.65
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.
resulted in additional compensation cost of $7 million, of which
$2 million was immediately recorded as stock-based compensation
expense related to vested options. The remaining $5 million related
to unvested options will be charged to income over the remaining
vesting period, of which $2 million was recorded in 2006.
The weighted average estimated fair value at the date of grant for
options granted during the year ended December 31, 2006 is $8.89
(2005 – $8.05).
(b) Amendment to stock option plans:
Effective March 1, 2006, the Company amended certain provisions of
its stock option plans which resulted in a new measurement date for
purposes of determining compensation cost. The amendment pro-
vides that on the death or retirement of an option holder, or the
resignation of a director, options would continue to be exercisable
until the original expiry date in accordance with their original terms
and the vesting would not be accelerated but instead would con-
tinue in accordance with the original vesting period. The amendment
(c) Performance options:
On March 1, 2006, the Company granted 1,398,800 performance-
based options to certain key executives. These options are governed
by the terms of the 2000 plan. These options vest on a straight-line
basis over four years provided that certain targeted stock prices are
met on or after the anniversary date. A binomial valuation model
was used to determine the $12 million fair value of these options
at the date of grant. Of this $12 million, $2 million was recorded as
stock-based compensation expense in the year ended December 31,
2006 with the remainder to be recognized over the remaining service
period.
104
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(d) Assumptions:
The fair values of options granted or amended during 2006 and 2005 were based on the following assumptions:
Risk-free interest rate
Dividend yield
Volatility factor of the future expected market prices of Class B Non-Voting shares
Weighted average expected life of the options
2006
2005
3.94% – 4.47%
0.27% – 0.48%
35.46% – 42.30%
4.8 – 5.6 years
4.00%
0.27%
42.30%
5.4 years
(ii) Restricted share unit plan:
The restricted share unit plan enables employees, officers and direc-
tors of the Company to participate in the growth and development
of the Company. Under the terms of the plan, restricted share units
are issued to the participant and the units issued vest over a period
not to exceed three years from the grant date.
On the vesting date, the Company, at its option, shall redeem all
of the participants’ restricted share units in cash or by issuing one
Class B Non-Voting share for each restricted share unit. The Company
has reserved 4,000,000 Class B Non-Voting shares for issuance under
this plan.
During the year ended December 31, 2006, the Company granted
506,964 restricted share units (2005 – 506,402). At December 31,
2006, 1,037,668 (2005 – 595,534) restricted share units were outstand-
ing. These restricted share units vest at the end of three years from
the grant date. Stock-based compensation expense for the year
ended December 31, 2006 related to these restricted share units was
$12 million (2005 – $4 million). Unrecognized stock-based compen-
sation expense as at December 31, 2006 related to these restricted
share units was $20 million (2005 – $9 million).
(iii) Directors’ deferred share unit plan:
The directors’ deferred share unit plan enables directors of the
Company to elect to receive their remuneration in deferred share
21 CONSOLIDATED STATEMENTS OF CASH FLOwS
AND SUPPLEMENTAL INFORMATION
(A) CHANGE IN NON - C ASH wORkING C APITAL ITEMS:
Increase in accounts receivable
Increase (decrease) in accounts payable and accrued liabilities
Increase in unearned revenue
Increase in deferred charges and other assets
(B) SUPPLEMENTAL C ASH FLOw INFORMATION:
Income taxes paid
Interest paid
units. During the year ended December 31, 2006, the Company
granted 73,353 directors’ deferred share units (2005 – 42,271). At
December 31, 2006, 263,291 (2005 – 265,396) directors’ deferred share
units were outstanding. Stock-based compensation expense for the
year ended December 31, 2006 related to these directors’ deferred
share units was $5 million (2005 – $3 million). There is no unrecog-
nized compensation related to directors’ deferred share units since
these awards vest immediately when granted.
(iv) Employee share accumulation plan:
The employee share accumulation plan allows employees to volun-
tarily participate in a share purchase plan. Under the terms of the
plan, employees of the Company can contribute a specified percent-
age of their regular earnings through regular payroll deductions.
The designated administrator of the plan then purchases, on a
monthly basis, Class B Non-Voting shares of the Company on the
open mar ket on behalf of the employee. At the end of each quarter,
the Company makes a contribution of 25% of the employee’s con-
tribution in the quarter. The administrator then uses this amount
to purchase additional shares of the Company on behalf of the
employee, as outlined above.
Compensation expense amounted to $4 million for the year ended
December 31, 2006 (2005 – $3 million).
$
2006
2005
(198) $
243
51
(21)
(183)
(61)
16
(70)
$
75 $
(298)
2006
2005
$
5 $
650
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
16
706
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(C ) SUPPLEMENTAL DISCLOSURE OF NON - C ASH TR ANSAC TIONS:
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 conversion of convertible debt (note 15(d))
Class B Non-Voting shares issued in consideration upon the conversion of Preferred Securities (note 15(d))
$
2006
2005
– $
–
–
–
8
316
271
697
22 REL A TED PA RTY TRA NSACTION S
The Company entered into the following related party transactions:
(A) The Company has entered into certain transactions in the
normal course of business with certain broadcasters in which the
Company has an equity interest. The amounts paid to these broad-
casters are as follows:
Access fees paid to broadcasters accounted for by the equity method
(B) The Company has entered into certain transactions with compa-
nies, the partners or senior officers of which are or were directors of
the Company. Total amounts paid by the Company to these related
parties are as follows:
Legal services and commissions paid on premiums for insurance coverage
Telecommunication and programming services
Interest charges and other financing fees
(C ) The Company made payments to companies controlled by the
controlling shareholder of the Company as follows:
Charges to the Company for business use of aircraft and other administrative services
2006
2005
$
19 $
18
2006
2005
2 $
–
–
2 $
5
2
22
29
$
$
2006
2005
$
1 $
1
In 2005, with the approval of a Special Committee of the Board of
Directors, the Company entered into an arrangement to sell to the
controlling shareholder of the Company, for $13 million in cash, the
shares in two wholly owned subsidiaries whose only asset consists
of tax losses aggregating approximately $100 million. The Special
Committee was advised by independent counsel and engaged an
accounting firm as part of 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 the controlling shareholder of the Company purchased the shares
in one of these wholly owned subsidiaries for cash of $7 million. On
July 24, 2006, the shares of the second wholly owned subsidiary were
purchased by a company controlled by the controlling shareholder
for cash of $6 million.
These transactions are recorded at the exchange amount, being the
amount agreed to by the related parties.
106
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23 COM MI TME NT S
(A) The Company is committed, under the terms of its licences
issued by Industry Canada, to spend 2% of certain revenues earned
in each year on research and development activities.
(B) During 2005, the Company 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 net-
work deployment costs estimated at $200 million over a three-year
period. During 2006, the Company contributed its broadband wire-
less spectrum licence in the 2.5 GHz frequency range. The Company
is committed to contribute additional spectrum licences in 2007.
(C ) The Company enters into agreements with suppliers to provide
services and products that include minimum spend commitments.
The Company has agreements with certain telephone companies
that guarantee the long-term supply of network facilities and agree-
ments relating to the operations and maintenance of the network.
(D) In the ordinary course of business and in addition to the amounts
recorded on the consolidated balance sheets and disclosed elsewhere
in the notes, the Company has entered into agreements to acquire
broadcasting rights to programs and films over the next three years
at a total cost of approximately $53 million. In addition, the Company
has commitments to pay access fees over the next year totalling
approximately $19 million.
(E)
In 2005, the Company was awarded a share of the broadcast
rights to the 2010 Olympic Winter Games and the 2012 Olympic
Summer Games at a cost of U.S. $31 million.
24 GUA RA NTEES
In the normal course of business, the Company has entered into
agreements that contain features which meet the definition of a
guarantee under GAAP. A description of the major types of such
agreements is provided below:
(A) BUSINESS SALE AND BUSINESS COMBINATION AGREEMENTS:
As part of transactions involving business dispositions, sales of assets
or other business combinations, the Company may be required to pay
counterparties for costs and losses incurred as a result of breaches of
representations and warranties, intellectual property right infringe-
ment, loss or damages to property, environmental liabilities, changes
in laws and regulations (including tax legislation), litigation against
the counterparties, contingent liabilities of a disposed business or
reassessments of previous tax filings of the corporation that carries
on the business.
(F ) Pursuant to CRTC regulation, the Company is required to make
contributions to the Canadian Television Fund (“CTF”), which is a
cable industry fund designed to foster the production of Canadian
television programming. Contributions to the CTF are based on a
formula, including gross broadcast revenues and the number of sub-
scribers. The Company may elect to spend a portion of the above
amount for local television programming and may also elect to
contribute a portion to another CRTC-approved independent pro-
duction fund. The Company estimates that its total contribution for
2007 will amount to approximately $39 million.
In addition, the Company is required to pay a broadcasting license
fee which is based on the fee revenue of each undertaking. The
Company estimates that license fees for 2007 will amount to approxi-
mately $24 million.
(G) In addition to the items listed above, the future minimum lease
payments under operating leases for the rental of premises, distri-
bution facilities, equipment and microwave towers, commitments
for player contracts, purchase obligations and other contracts at
December 31, 2006 are as follows:
Year ending December 31:
2007
2008
2009
2010
2011
2012 and thereafter
$
1,026
754
594
172
104
182
$
2,832
Rent expense for 2006 amounted to $169 million (2005 – $194 million).
(B) SALES OF SERvICES:
As part of transactions involving sales of services, the Company may
be required to pay counterparties for costs and losses incurred as
a result of breaches of representations and warranties, changes in
laws and regulations (including tax legislation) or litigation against
the counterparties.
(C ) PURCHASES AND DEvELOPMENT OF ASSETS:
As part of transactions involving purchases and development of
assets, the Company may be required to pay counterparties for costs
and losses incurred as a result of breaches of representations and war-
ranties, loss or damages to property, changes in laws and regulations
(including tax legislation) or litigation against the counterparties.
(D)
INDEMNIFIC ATIONS:
The Company indemnifies its directors, officers and employees against
claims reasonably incurred and resulting from the performance of
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
their services to the Company, and maintains liability insurance for
its directors and officers as well as those of its subsidiaries.
The Company is unable to make a reasonable estimate of the
maximum potential amount it would be required to pay counterpar-
ties. The amount also depends on the outcome of future events and
conditions, which cannot be predicted. No amount has been accrued
in the consolidated balance sheets relating to these types of indem-
nifications or guarantees at December 31, 2006 or 2005. Historically,
the Company has not made any significant payments under these
indemnifications or guarantees.
25 CON T INGE NT LIA BILIT IES
(A) In August 2004, a proceeding under 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 sys-
tem access fee charged by Wireless to some of its customers. The
plaintiffs seek unquantified damages from the defendant wireless
communications service providers. Wireless believes it has a good
defence to the allegations. In July 2006, the Saskatchewan court
denied the plaintiffs’ application to have the proceeding certified as
a class action. However, the court granted leave to the plaintiffs to
renew their applications in order to address the requirements of the
Saskatchewan class proceedings legislation. The plaintiff’s application
to address these requirements is set to be heard by the Court on
April 4 and 5, 2007. Similar proceedings have also been brought
against Wireless and other providers of wireless communications in
most of Canada. The Company has not recorded a liability for this
contingency since the likelihood and amount of any potential loss
cannot be reasonably estimated.
Competition under the misleading advertising provisions of the
Competition Act with respect to its system access fee.
(B)
In April 2004, a proceeding was brought against Fido and others
claiming damages totalling $160 million, specific performance,
breach of contract, breach of confidence and breach of fiduciary duty.
The proceeding is seeking to add Inukshuk Wireless Partnership, the
Company’s 50% owned joint venture, as a party to the action. The pro-
ceeding is at an early stage. The Company believes it has good defences
to the claim and no amounts have been provided in the accounts.
(C ) The Company believes that it has adequately provided for
income taxes based on all of the information that is currently avail-
able. The calculation of income taxes in many cases, however,
requires significant judgment in interpreting tax rules and regula-
tions. The Company’s tax filings are subject to audits which could
materially change the amount of current and future income tax
assets and liabilities, and could, in certain circumstances, result in the
assessment of interest and penalties.
In addition, on December 9, 2004, Wireless was served with a court
order compelling it to produce certain records and other informa-
tion relevant to an investigation initiated by the Commissioner of
(D) There exist certain other claims and potential claims against
the Company, none of which is expected to have a material adverse
effect on the consolidated financial position of the Company.
26 CANADIAN AND UNITED STATES
ACCOUNTING POLICY DIFFERENCES
The consolidated financial statements of the Company have been
prepared in accordance with GAAP as applied in Canada. In the
following respects, GAAP, as applied in the United States, differs
from that applied in Canada.
If United States GAAP were employed, net income (loss) for the year
in each year would be adjusted as follows:
Net income (loss) for the year based on Canadian GAAP
Gain on sale of cable systems (b)
Pre-operating costs capitalized (c)
Equity instruments (d)
Capitalized interest, net (e)
Financial instruments (h)
Stock-based compensation (i)
Income taxes (k)
Installation revenues, net (l)
Interest expense (m)
Other
Net income (loss) for the year based on United States GAAP
Net income (loss) per share based on United States GAAP:
Basic
Diluted
108
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
$
$
$
2006
2005
622 $
(4)
5
–
14
19
(2)
128
1
(2)
(1)
(45)
(4)
(9)
16
3
(286)
14
(2)
2
(3)
1
780 $
(313)
1.23 $
1.22
(0.54)
(0.54)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The cumulative effect of these adjustments on the consolidated shareholders’ equity of the Company is as follows:
Shareholders’ equity based on Canadian GAAP
Gain on sale and issuance of subsidiary shares to non-controlling interest (a)
Gain on sale of cable systems (b)
Pre-operating costs capitalized (c)
Capitalized interest (e)
Unrealized holding gains on investments (f)
Acquisition of Cable Atlantic (g)
Financial instruments (h)
Pension liability (j)
Income taxes (k)
Installation revenues, net (l)
Acquisition of Wireless (m)
Non-controlling interest effect of adjustments
Other
2006
2005
$
4,200 $
46
113
(7)
58
210
35
(515)
(73)
(126)
6
1
(95)
(16)
3,528
46
117
(12)
44
139
35
(563)
(20)
(254)
5
3
(95)
(15)
Shareholders’ equity based on United States GAAP
$
3,837 $
2,958
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 C ABLE 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- OPER ATING 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.
(D) EqUIT Y 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) C APITALIzED 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.
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(G) ACqUISITION OF C ABLE ATL ANTIC:
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 required such shares be valued based on the market price
at the consummation date of the acquisition. Accordingly, the Class B
Non Voting shares issued in respect of the acquisition of Cable
Atlantic in 2001 were recorded at $35 million more under United
States GAAP than under Canadian GAAP. This resulted in an increase
to goodwill in this amount, with a corresponding increase to con-
tributed surplus in the amount of $35 million.
(H) FINANCIAL INSTRUMENTS:
Under Canadian GAAP, the Company accounts for certain of its cross-
currency interest rate exchange agreements as hedges of specific
debt instruments. Under United States GAAP, these instruments are
not accounted for as hedges, but instead changes in the fair value
of the derivative instruments, reflecting primarily market changes in
foreign exchange rates, interest rates, as well as the level of short-
term variable versus long-term fixed interest rates, are recognized in
income immediately.
(I) STOCk-BASED COMPENSATION:
Effective January 1, 2006, the Company adopted the fair value
method of recognizing stock-based compensation as prescribed by
SFAS No. 123(R), Share-Based Payments. Prior to the adoption of
SFAS 123(R), the Company used the intrinsic value method to account
for stock-based compensation under United States GAAP. The Company
elected to apply the modified prospective transition method as per-
mitted by SFAS 123(R). In accordance with the transition method, the
Company has included in its United States GAAP income the cost of
the outstanding and unvested options commencing January 1, 2006,
net of estimated forfeiture rates. For Canadian GAAP, the Company
adopted the fair value method of recognizing stock-based compensa-
tion expense beginning January 1, 2004.
Upon adoption of SFAS 123(R), all outstanding options were remea-
sured at their fair value on the original date of grant with the
unvested portion of these awards to be recognized over the remain-
ing service period. For 2006, there is no adjustment required to arrive
at United States GAAP net income (loss) since the expense recorded
under United States GAAP for these awards is consistent with that
recorded under Canadian GAAP.
In 2006, the Company adopted the provisions of EIC 162 for Canadian
GAAP (note 2(b)). Under EIC 162, the Company was required to
restate prior periods for the impact of stock-based compensation
issued to employees eligible for retirement before the vesting date.
For United States GAAP, upon adoption of SFAS 123(R), the Company
is only required to apply the provisions relating to employees
eligible to retire prior to the vesting date to awards issued after
January 1, 2006. As a result, for the year ended December 31, 2006, an
additional $2 million 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 United States GAAP, the Company is required to adopt
the recognition and disclosure provisions of SFAS 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement
Plans, as at December 31, 2006. For the year ended December 31,
2006, under United States GAAP, the Company recorded a decrease
of $3 million to other comprehensive income, net of income taxes
of $1 million to reflect the current period decrease in the addi-
tional minimum pension liability under United States GAAP. Under
SFAS 158, the Company is required to recognize the funded status
of defined benefit post retirement plans on the balance sheet with
changes recorded in other comprehensive income (loss). The adop-
tion of this standard resulted in an increase to accumulated other
comprehensive income at December 31, 2006 of $50 million, net of
income taxes of $27 million.
For the year ended December 31, 2005, the Company recorded
$35 million of stock-based compensation expense under Canadian
GAAP that would not be recorded under United States GAAP. There
was no stock-based compensation expense for United States GAAP
since the exercise price of the stock options granted was equal to the
market value of the underlying shares at the date of grant.
(k )
INCOME TA xES:
Included in the caption “Income taxes” is the tax effect of various
adjustments where appropriate. In addition, in 2006, the Company
released certain valuation allowances that were previously recorded
under United States GAAP based on management’s assessment that it
is more likely than not that these income tax assets will be realized.
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 result-
ing intrinsic value of $38 million recorded as unearned compensation
cost. Unearned compensation cost is recognized as compensation
expense over the remaining vesting period. During 2005, under
United States GAAP, $21 million of compensation expense was
recorded related to these options.
(L)
INSTALL ATION REvENUES AND COSTS:
For Canadian GAAP purposes, cable installation revenues for both
new connects and re-connects are deferred and amortized over the
customer relationship period. For United States GAAP purposes,
installation revenues are immediately recognized in income to the
extent of direct selling costs, with any excess deferred and amortized
over the customer relationship period.
110
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(M) ACqUISITION OF wIRELESS:
(N) CONSOLIDATED STATEMENTS OF C ASH FLOwS:
At December 31, 2004, the Company acquired the outstanding shares
of Wireless not owned by the Company and exchanged the out-
standing stock options of Wireless for stock options in the Company.
United States GAAP requires that the intrinsic value of the unvested
options issued be determined as of the consummation date of the
transaction and be recorded as deferred compensation. Canadian
GAAP requires that the fair value of unvested options be recorded as
deferred compensation. Under United States GAAP, this results in 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. The fair value increment is amortized to
interest expense over the remaining terms of the derivative instru-
ments. Under United States GAAP, the derivative instruments are
recorded at fair value. Therefore, under United States GAAP, the
fair value increment related to derivative instruments is reduced by
$20 million with an offsetting decrease to goodwill. As a conse-
quence, the amortization of the fair value increment is not required
under United States GAAP.
(i) Canadian GAAP permits the disclosure of a subtotal of the
amount of funds provided by operations before change in non-
cash operating items in the consolidated statements of cash
flows. United States GAAP does not permit this subtotal to
be included.
(ii) Canadian GAAP permits bank advances to be included in the
determination of cash and cash equivalents in the consolidated
statements of cash flows. United States GAAP requires that bank
advances be reported as financing cash flows. As a result, under
United States GAAP, the total increase in cash and cash equivalents
in 2006 in the amount of $85 million reflected in the consolidated
statements of cash flows would be decreased by $85 million and
financing activities cash flows would decrease by $85 million.
The total decrease in cash and cash equivalents in 2005 in the
amount of $348 million reflected in the consolidated statements
of cash flows would be decreased by $104 million and financing
activities cash flows would be increased by $104 million.
(O) CONSOLIDATED STATEMENTS OF COMPREHENSIvE
INCOME (LOSS):
United States GAAP requires the disclosure of a statement of com-
prehensive income (loss). Comprehensive income (loss) generally
encompasses all changes in shareholders’ equity, except those arising
from transactions with shareholders.
Net income (loss) based on United States GAAP
Other comprehensive income, net of income taxes:
Unrealized holding gains (losses) arising during the year
Realized gains included in income, net of income taxes
Minimum pension liability, net of income taxes
Comprehensive income (loss) based on United States GAAP
2006
2005
$
780 $
(313)
71
–
(3)
(1)
(10)
–
$
848 $
(324)
(P) OTHER DISCLOSURES:
(q) PENSIONS:
United States GAAP requires the Company to disclose accrued liabili-
ties, which is not required under Canadian GAAP. Accrued liabilities
included in accounts payable and accrued liabilities as at December 31,
2006 were $1,287 million (2005 – $1,069 million). At December 31,
2006, accrued liabilities in respect of PP&E totalled $153 million
(2005 – $104 million), accrued interest payable totalled $109 million
(2005 – $113 million), accrued liabilities related to payroll totalled
$234 million (2005 – $177 million), and CRTC commitments totalled
$9 million (2005 – $40 million).
The Company implemented SFAS No. 132, Employers Disclosures
about Pensions and Other Post-retirement Benefits – an amend-
ment of FASB Statements No. 87, 88 and 106, in 2004. The following
summarizes the additional disclosures required and different pension-
related amounts recognized or disclosed in the Company’s accounts
under United States GAAP:
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Current service cost (employer portion)
Interest cost
Expected return on plan assets
Amortization:
Transitional asset
Realized gains included in income
Net actuarial loss
Net periodic pension cost
Accrued benefit asset
Accumulated other comprehensive income (loss)
Net amount recognized in balance sheet
2006
2005
24 $
32
(33)
(10)
1
10
24 $
34 $
(97)
(63) $
15
29
(30)
(10)
1
8
13
13
19
32
$
$
$
$
In addition to the amounts disclosed above, under United States
GAAP, the accrued benefit liability related to the Company’s sup-
plemental unfunded pension benefits for certain executives was
$19 million (2005 – $16 million).
not have commercial substance. The standard was effective for the
Company for non-monetary asset exchanges occurring in fiscal 2006
and was applied prospectively. The revised standard did not have a
material impact on the results of the Company under United States
GAAP.
(R) RECENT UNITED STATES ACCOUNTING PRONOUNCEMENTS:
In December 2006, the Company adopted Staff Accounting Bulletin
No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements
(“SAB 108”). SAB 108 clarifies the way that a company should eval-
uate identified unadjusted errors for materiality. The Company
elected, as allowed under SAB 108, to reflect the effect of initially
applying the guidance by adjusting the carrying amount of respec-
tive accounts at the beginning of 2006 and recording an offsetting
adjustment to the opening balance of deficit in 2006. Accordingly,
the Company recorded a cumulative adjustment to decrease deficit
by $28 million related to the accounting for financial instruments
under United States GAAP.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an
amendment of ARB No. 43, Chapter 4 (“SFAS 151”). This statement
amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to
clarify the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage). SFAS 151
requires that those items be recognized as current-period charges. In
addition, this statement requires that allocation of fixed production
overheads to costs of conversion be based upon the normal capacity
of the production facilities. The provisions of SFAS 151 were effective
for the Company on January 1, 2006. This revised standard did not
have a material impact on the results of the Company under United
States GAAP.
SFAS No. 153, Exchanges Of Non-Monetary Assets – an Amendment of
APB Opinion 29 (“SFAS 153”), was issued in December 2004. APB Opin ion
29 is based on the principle that exchanges of non-monetary assets
should be measured based on the fair value of assets exchanged.
SFAS 153 amends APB Opinion 29 to eliminate the exception for non-
monetary exchanges of similar productive assets and replaces it with
a general exception for exchanges of non-monetary assets that do
In June 2005, the FASB issued SFAS No. 154, Accounting Changes and
Error Corrections, a replacement of APB Opinion No. 20, Accounting
Changes (“Opinion 20”), and FASB Statement No. 3, Reporting
Accounting Changes in Interim Financial Statements (“SFAS 154”).
The Statement applies to all voluntary changes in accounting princi-
ple, and changes the requirements for accounting for and reporting
of a change in accounting principle. SFAS 154 requires retrospective
application to prior periods’ financial statements of a voluntary
change in accounting principle unless it is impracticable. SFAS 154
requires that a change in method of depreciation, amortization,
or depletion for long-lived, non-financial assets be accounted for
as a change in accounting estimate that is affected by a change in
accounting principle. Opinion 20 previously required that such a
change be reported as a change in accounting principle. SFAS 154
was effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005. This standard did
not have a material impact on the results of the Company under
United States GAAP.
In June 2006, the FASB issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an Interpretation of SFAS 109. This
interpretation prescribes the measurement and recognition criteria
of a tax position taken or expected to be taken in a tax return. This
interpretation is effective for the Company beginning January 1,
2007. The Company is currently assessing the impact of this standard.
In September 2006, the FASB issued SFAS 157, Fair Value Measurements.
This new standard defines fair value, establishes a framework for
measuring fair value under generally accepted accounting principles
and 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.
112
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27 SUB SE qUEN T EvENT S
(A) On November 29, 2006, the CRTC approved the Company’s appli-
cation for the $40 million acquisition of five Alberta radio stations
announced earlier in 2006. The stations are located in Edmonton,
Fort McMurray and Grande Prairie, Alberta. The acquisition closed
on January 1, 2007.
(B) On February 6, 2007, Cable repaid, at maturity, the aggre-
gate principal amount outstanding of the $450 million 7.60% Senior
Secured Second Priority Notes, plus accrued interest, for a total of
$467 million.
(C ) On February 15, 2007, the Company declared a quarterly divi-
dend of $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.
(D) On March 6, 2007, Moody’s Investors Service upgraded Cable’s
senior secured debt rating to “Baa3” and on February 27, 2007, Fitch
Ratings upgraded Cable’s senior secured debt rating to “BBB-”. As
a result, since March 6, 2007, Cable has two required investment
grade ratings on its senior secured debt, which allows Cable, at its
discretion, to release the security on all of its senior secured debt as
described in note 15(b)(ii).
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
113
ROGERS COMMUNICATIONS INC.
CORPORATE INFORMATION
CORPOR ATE HEAD OFFICE
Rogers Communications Inc.
333 Bloor Street East, 10th Floor
Toronto, Ontario M4W 1G9
416-935-7777
www.rogers.com
SHAREHOLDER SERvICES
If you are a shareholder and have inquiries regarding your
account, wish to change your name or address, have questions
about lost stock certificates, share transfers or dividends,
please contact our Transfer Agent and Registrar:
Computershare Investor Services Inc.
100 University Ave., 9th Floor, North Tower
Toronto, Ontario M5J 2Y1
800-564-6253 or service@computershare.com
Multiple Mailings
If you receive duplicate shareholder mailings from Rogers
Communications, please contact Computershare at
800-564-6253 to consolidate your holdings.
INvESTOR REL ATIONS
Institutional investors, security analysts and others requiring
additional financial information can visit the Investor Relations
section of the www.rogers.com website or contact:
Bruce M. Mann, CPA
Vice President, Investor Relations
416-935-3532 or bruce.mann@rci.rogers.com
Dan Coombes
Director, Investor Relations
416-935-3550 or dan.coombes@rci.rogers.com
Media inquiries: 416-935-7777 or corpcomm@rci.rogers.com
STOCk ExCHANGE LISTINGS
Listed in Canada on the Toronto Stock Exchange (TSx)
RCI.a – Class A Voting shares (CUSIP # 775109101)
RCI.b – Class B Non-Voting shares (CUSIP # 775109200)
Listed in the U.S. on the New York Stock Exchange (NYSE)
RG – Class B Non-Voting shares (CUSIP # 775109200)
Index Inclusions
Dow Jones Telecom Titans 30 Index
FTSE Global Telecoms Index
S&P/TSX Composite Index
S&P/TSX 60 Index
S&P/TSX Capped Telecom Services Index
DIvIDENDS (ADjUSTED FOR STOCk SPLIT)
Unless indicated otherwise, all dividends paid by Rogers are
Eligible Dividends as defined by the Canada Revenue Agency.
2005 – $0.050 per share
2006 – $0.075 per share
2007 – $0.160 per share
Record Date*:
March 15, 2007
June 14, 2007
September 13, 2007
December 12, 2007
* subject to Board approval
Payment Date*:
April 2, 2007
July 3, 2007
October 1, 2007
January 2, 2008
INDEPENDENT AUDITORS
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
Rogers is committed to open and full financial disclosure and
best practices in corporate governance. We invite you to visit
www.rogers.com to find out more about our organization, our
governance practices, and our continuous disclosure materials
including quarterly financial releases, Annual Information Form
and Management Information Circular.
ELEC TRONIC DELIvERY OF SHAREHOLDER MATERIALS
Registered shareholders can receive electronic notice of financial
statements and proxy materials and utilize the Internet to
submit proxies on-line by registering at www.rogers.com/
electronicdelivery. This approach gets information to shareholders
more quickly than conventional mail and helps Rogers protect the
environment and reduce printing and postage costs.
FORwARD -LOOkING INFORMATION
This annual report includes forward-looking statements about
the financial condition and prospects of Rogers Communications
which involve significant risks and uncertainties that are detailed
in the “Risks and Uncertainties Affecting our Businesses” and
“Caution Regarding Forward-Looking Statements, Risks and
Assumptions” sections of the 2006 MD&A contained herein which
should be read in full in conjunction with any other parts of this
annual report.
DEBT SECURITIES
For details of the public debt securities of the Rogers
companies, please refer to the Bond Information section
under Investor Relations at www.rogers.com.
© 2007 Rogers Communications Inc.
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114
ROG E RS COMMU N I C AT I O NS I NC . 2 0 0 6 A N N UAL RE P O R T
ROGERS COMMUNICATIONS INC.
AT A GLANCE
TSX: RCI NYSE: RG
ROGERS COMMUNIC ATIONS (CONSOLIDATED)
ROGERS WIRELESS
ROGERS C ABLE AND TELECOM
ROGERS MEDIA
Rogers Communications Inc. (TSX: RCI; NYSE: RG) is a
diversified Canadian communications and 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 provider,
offering cable television, high-speed Internet access,
residential telephony services and video retailing, while
its Rogers Business Solutions division is a national provider
of voice communications services, data networking, and
broadband Internet connectivity to small, medium and large
businesses. Rogers Media is Canada’s premier collection of
category-leading media assets with businesses in radio and
television broadcasting, televised shopping, publishing and
sports entertainment.
Rogers Wireless is the largest Canadian wireless communi-
cations services provider, serving almost 6.8 million wireless
voice and data subscribers and covering 94% of the
Canadian population at December 31, 2006. Rogers Wireless
operates Canada’s only GSM and HSDPA networks, the
global standards in wireless technology. Rogers Wireless
is Canada’s leader in innovative wireless voice and data
services, and provides customers with the best and latest
wireless devices and applications. Rogers Wireless subscribers
have access to services across the U.S. and internationally,
in 189 countries through roaming agreements with other
wireless operators. Rogers sells and markets its wireless
products separately under both the Rogers Wireless and the
Fido brands. Rogers Wireless is a wholly owned subsidiary
of Rogers Communications.
FY2006 Revenue:
$8.8 B
Media
13%
Cable and Telecom
36%
Wireless
51%
FY2006 Network
Revenue:
$4.3B
Wireless Data
11%
Prepaid Voice
5%
Postpaid Voice
84%
Rogers Cable and Telecom is Canada’s largest cable provider,
passing 3.5 million homes, and is also a national provider
of voice communications services, data networking and
broadband Internet connectivity solutions to businesses.
Its advanced digital two-way network provides the leading
selection of on-demand and high-definition programming;
serves 1.3 million high-speed Internet customers; boasts
the highest rate of digital cable penetration in Canada;
and offers cable telephony services across 90% of its cable
territory. Its Business Solutions division brings together the
innovative services of Rogers’ Cable, 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.
FY2006 Revenue:
$3.2B
Core Cable
44%
High-speed Internet
16%
Home Phone
11%
Business Solutions
19%
Retail
10%
Rogers Media operates a portfolio of broadcasting
operations, publishing operations and sports entertainment
assets. Media’s Broadcasting group comprises 51 radio
stations across Canada; two multicultural television stations
in Ontario (OMNI.1 and OMNI.2), and television stations in
British Columbia (OMNI.10) and Manitoba (OMNI.11); Rogers
Sportsnet, a specialty sports television service licensed to
provide regional sports programming across Canada; and
The Shopping Channel, Canada’s only nationally televised
shopping service. Media’s Publishing group publishes more
than 70 consumer magazines and trade and professional
publications and directories in Canada. Media’s sports
entertainment assets include the Toronto Blue Jays baseball
team and Rogers Centre, Canada’s largest sports and
entertainment facility. Rogers Media is a wholly owned
subsidiary of Rogers Communications.
FY2006 Revenue:
$1.2B
Core Media
86%
Sports Entertainment
14%
REVENUE
($ in billions)
OPER ATING PROFIT
($ in billions)
REVENUE
($ in billions)
OPER ATING PROFIT
($ in billions)
REVENUE
($ in billions)
OPER ATING PROFIT
($ in billions)
REVENUE
($ in billions)
OPER ATING PROFIT
($ in billions)
5.5
7.3
8.8
1.7
2.1
2.9
2.5
3.6
4.3
0.9
1.3
2.0
1.9
2.5
3.2
0.7
0.8
0.9
1.0
1.1
1.2
0.1
0.1
0.2
2004
2005
2006
2004
2005
2006
2004
2005
2006
2004
2005
2006
2004
2005
2006
2004
2005
2006
2004
2005
2006
2004
2005
2006
Left to right: William Linton, Rogers’ Chief Financial Officer; Philip Lind, Rogers’ Vice Chairman; John Thain, CEO of the NYSE; Edward “Ted” Rogers, Rogers’ President
and CEO; Alan Horn, Rogers’ Chairman; Bruce M. Mann, Rogers’ Vice President of Investor Relations.
CELEBRATING 10 YEARS ON THE
NEW YORK STOCK EXCHANGE
Ted Rogers started his first communications business almost 50
years ago when he saw the potential in the then-new technology
called FM radio and bought CHFI, Canada’s first FM radio station,
now the largest and most profitable radio station in Canada.
Today, Rogers Communications services millions of Canadians
from coast to coast and employs more than 22,000 people. It owns
Canada’s 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 headquartered in Toronto and its
shares have historically traded on the Toronto Stock Exchange.
In 1996, the Company also listed its shares on the New York Stock
Exchange (NYSE), which provides additional liquidity, access
to the single largest pool of equity capital in the world and
greater visibility by the U.S. investment community. During 2006,
the Company celebrated the 10-year anniversary of its NYSE
listing with a ceremony at the exchange. The equity market
capitalization of Rogers Communications at the start of 1996
was $2.9 billion. At the end of 2006 it was $22.6 billion, and today
the shares of Rogers Communications are included in both the
FTSE and Dow Jones global telecom indexes.
www.rogers.com
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ROGERS
COMMUNICATIONS INC.
Rogers Communications Inc. (TSX: RCI; NYSE: RG) is
a diversified Canadian communications and 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 provider, offering
cable television, high-speed Internet access, resi-
dential telephony services and video retailing, while
its Rogers Business Solutions division is a national
provider of voice communications services, data
networking, and broadband Internet connectivity to
small, medium and large businesses. Rogers Media
is Canada’s premier collection of category-leading
media assets with businesses in radio and television
broadcasting, 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)
Revenue
Operating profit
Net income (loss)
Earnings (loss) per share
Total assets
2 0 0 6
8,838
2,875
622
0.99
14,105
2 0 0 5
7,334
2,144
(45)
(0.08)
13,834
ROGERS COMMUNICATIONS INC.
ROGERS WIRELESS
ROGERS CABLE AND TELECOM
ROGERS MEDIA
ROGERS COMMUNIC ATIONS INC . CL ASS B SHARE PRICE ON TORONTO STOCK EXCHANGE
INDEXED AGAINST THE S&P/ TSX COMPOSITE AND S&P 500 INDEXES
RCI-B.TO
TSX COMPOSITE INDEX
S&P 500 INDEX
INNOVATING
FOR LIFE
200%
150%
100%
50%
0%
Rogers Communications Inc. 2006 Annual Report
Source: TSX
2004
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