Document:

exv4w6

 

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 40-F/A

	 	 	 	 	 
	(Check one)
	 	 	 
	 
	 	 	 	 
	o	 	Registration Statement pursuant to Section 12 or the Securities Exchange Act of 1934.
	 
	 	 	 	 
	x	 	Annual Report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.
	 
	 	 	 	 
	

	 	For the fiscal year ended
	 	December 31, 2003
	

	 	 	 	
 
	

	 	Commission file number
	 	 
	

	 	 	 	
 

Rogers Communications Inc.

(Exact Name of Registrant as Specified in Its Charter)

Not Applicable

(Translation of Registrant’s Name Into English (if Applicable))

British Columbia

(Province or Other Jurisdiction of Incorporation or Organization)

4812, 4813, 4822, 4832, 4833, 4841

(Primary Standard Industrial Classification Code Number (if Applicable))

Not Applicable

(I.R.S. Employer Identification Number (if Applicable))

 

333 Bloor Street East, 10th Floor

Toronto, Ontario M4W 1G9       (416) 935-7777

(Address and Telephone Number of Registrant’s Principal Executive Offices)

 

CT Corporation System

111 Eighth Avenue, 13th Floor

New York, New York 10011      (212) 894-8400

(Name, Address and Telephone Number of Agent For Service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

	 	 	 
	Title of Each Class
	 	Name of Each Exchange on Which Registered
	
 
	 	
 
	Not Applicable
	 	Not Applicable
	
 
	 	
 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Not Applicable

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Convertible Debentures due 2005; 10.50% Senior Notes due 2006;

Class B Non-Voting Shares

For annual reports, indicate by check mark the information filed with this form:

	x Annual Information Form
	 	o Audited Annual Financial Statements

Indicate the number of outstanding shares of each of the issuer’s classes of capital

or common stock as of the close of the period covered by the annual report:

60,000 Series XXVII Preferred shares; 818,300 Series XXX Preferred shares;
300,000 Series XXXI Preferred shares; 104,488 Series E Convertible Preferred
shares; 56,235,394 Class A Voting shares; 177,241,646 Class B Non-Voting
shares.      

     Indicate by check mark whether the registrant by filing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
(the “Exchange Act”). If “Yes” is marked, indicate the file number assigned to
the registrant in connection with such rule.

     Yes o
        82-_______        No x

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceeding 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days.

     Yes x        No o

 

 

DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by this report (the “Evaluation Date”),
Rogers Communications Inc. (the “Company”) conducted an evaluation (under the
supervision and with the participation of the Company’s management, including
the chief executive officer and chief financial officer), pursuant to Rule
13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures. Based on this evaluation, the
Company’s chief executive officer and chief financial officer concluded that as
of the Evaluation Date such disclosure controls and procedures were reasonably
designed to ensure that information required to be disclosed by the Company in
reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission.

Since the last evaluation by the Company’s management of the Company’s internal
controls, there have not been any significant changes in the internal controls
or in other factors that could significantly affect the internal controls.

AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors of Rogers Communications Inc. has determined that the
Company has at least one “audit committee financial expert”, (as defined in the
general instruction 8(b) of Form 40-F), serving on its Audit Committee. The
audit committee financial expert is J. Christopher C. Wansbrough.

CODE OF ETHICS

The Company has adopted a code of ethics that applies to all directors and
officers. The code of ethics has been posted on the Rogers website under the
Corporate Governance — Rogers Communications Inc. section at www.rogers.com. A copy of the code of ethics
will be provided upon request to Investor Relations, 333 Bloor Street East,
10th Floor, Toronto, Ontario, M4W 1G9.

2

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table presents fees for professional services rendered by KPMG
LLP to the Company for the audit of the Company’s annual financial statements
for 2003 and 2002, and fees billed for other services rendered by KPMG LLP,
during the period from January 1, 2002 to December 31, 2003.

	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	($)
	 	($)

	Audit fees
	 	 	2,387,383	 	 	 	2,286,424	 
	Audit-related fees (1)
	 	 	386,006	 	 	 	360,500	 
	Tax fees (2)
	 	 	913,824	 	 	 	1,126,212	 
	All other fees (3)
	 	 	96,039	 	 	 	367,958	 
	 
	 	 	
 	 	 	 	
 	 
	Total
	 	 	3,783,252	 	 	 	4,141,094	 
	 
	 	 	
 	 	 	 	
 	 

	(1)	 	Audit-related fees consist principally of regulatory audits and other
specified procedures audits.
	 
	(2)	 	Tax fees consist of fees for tax consultation and compliance services.
	 
	(3)	 	All other fees consist principally of fees for services related to French
translation.

The Company’s policy regarding pre-approval of all audit, audit-related and
non-audit services is based upon compliance with the Sarbanes-Oxley Act of
2002, and subsequent implementing rules promulgated by the SEC.

The following is the pre-approval process:

	 	1.	 	Annually the Company will provide the Audit Committee with a list
of the audit-related and non-audit services that may be provided during
the year to the Company. The Audit Committee will review the services
with the auditor and management considering whether the provision of
the service is compatible with maintaining the auditor’s independence.
	 
	 	2.	 	Management may engage the auditor for specific engagements that are
included in the list of pre-approved services referred to above if the
estimated fees do not exceed (i) $100,000 per engagement or (ii)
$500,000 per quarter in aggregate amount on a consolidated basis for
the Company.
	 
	 	3.	 	The Audit Committee delegates authority to the Chairman of the
Audit Committee to approve requests for services not included in the
pre-approved list of services or for services not previously
pre-approved by the Audit Committee. Any services approved by the
Chairman will be reported to the full Audit Committee at the next
meeting.
	 
	 	4.	 	A review of all audit and non-audit services and fees rendered to
the Company and its subsidiaries by KPMG LLP will be reviewed each
quarter by the Audit Committee.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet arrangements other than the
cross-currency interest rate exchange agreements described under the heading
“Liquidity and Capital Resources — Interest Rate and Foreign Exchange
Management” on pages 52 and 53 of the “Management’s Discussion and Analysis”
submitted to the Securities and Exchange Commission on
November 24, 2004 as Exhibit
99.1 to the Company’s Form 6-K/A and incorporated by reference herein.

3

 

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The information provided under the heading “Commitments and Contractual
Obligations — Contractual Obligations” set forth on pages 60 and 61 of the
“Management’s Discussion and Analysis” submitted to the Securities and Exchange
Commission on November 24, 2004 as Exhibit 99.1 to the Company’s Form 6-K/A is
incorporated by reference herein.

4

 

UNDERTAKING

     Rogers Communications Inc. undertakes to make available, in person or by
telephone, representatives to respond to inquiries made by the Commission
staff, and to furnish promptly, when requested to do so by the Commission
staff, information relating to: the securities registered pursuant to Form
40-F/A; the securities in relation to which the obligation to file an annual
report on Form 40-F arises; or transactions in said securities.

SIGNATURES

     Pursuant to the requirements of the Exchange Act, the registrant certifies
that it meets all of the requirements for filing on Form 40-F and has duly
caused this annual report to be signed on its behalf by the undersigned,
thereto duly authorized.

	 	 	 	 	 
	Registrant

	 	Rogers Communications Inc.	 	 
	 	 	
 
	 
	 	 	 	 
	By

	 	/s/ Alan D. Horn
	 	/s/ M. Lorraine Daly
	

	 	
 
	 	
 
	

	 	Alan D. Horn

Vice President, Finance

and Chief Financial Officer
	 	M. Lorraine Daly

Vice President, Treasurer
	 
	 	 	 	 
	Date

	 	November 23, 2004	 	 
	 	 	
 

5

 

EXHIBIT INDEX

	 	 	 	 	 
	Exhibit

Number
	 	 	 	Description

	23.1

	 	 	 	Independent Auditors’ Consent
	31.1

	 	 	 	Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
	31.2

	 	 	 	Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
	32.1

	 	 	 	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	99.1

	 	 	 	Annual Information Form
	99.2

	 	-
	 	Management’s Discussion and Analysis for the fiscal year ended December 31, 2003,
including annual audited consolidated financial statements (submitted to the Securities
and Exchange Commissions on November 24, 2004 as Exhibit 99.1 to Form 6-K/A and
incorporated by reference herein)

6

 

Exhibit 23.1

Independent Auditors’ Consent

The Board of Directors

Rogers Communications Inc.

We consent to the use of our report dated January 28, 2004, except as to Note 23, which
is as of November 19, 2004, with respect to the consolidated balance sheets of Rogers Communications Inc. as of December 31,
2003 and 2002, and the related consolidated statements of income, deficit and
cash flows for each of the years in the two year period ended December 31,
2003, incorporated in this annual report on Form 40-F by reference.

/s/ KPMG LLP 

 

Toronto, Canada

November 19, 2004.

7

 

Exhibit 31.1

Section 302 Certification

CERTIFICATIONS

I, Edward S. Rogers, President and Chief Executive Officer, certify that:

	1.	 	I have reviewed this annual report on Form 40-F/A of Rogers Communications
Inc.;
	 
	2.	 	Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
	 
	3.	 	Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the issuer as of, and for, the periods presented in this report;
	 
	4.	 	The issuer’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the issuer and have:

	 	(a)	 	Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the issuer, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is
being prepared;
	 
	 	(b)	 	Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
	 
	 	(c)	 	Evaluated the effectiveness of the issuer’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
	 
	 	(d)	 	Disclosed in this report any change in the issuer’s internal control
over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to
materially affect, the issuer’s internal control over financial
reporting; and

	5.	 	The issuer’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the issuer’s auditors and the audit committee of the issuer’s board of
directors (or persons performing the equivalent function):

	(a)	 	All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the issuer’s ability to record,
process, summarize and report financial information; and
	 
	(b)	 	Any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer’s internal control
over financial reporting.

Date: November 23, 2004

	 	 	 	 	 
	 	 	 
	 	                                           /s/ Edward S. Rogers
 	 
	 	Edward S. Rogers 	 
	 	President and Chief Executive
Officer 	 
	 

8

 

Exhibit 31.2

Section 302 Certification

CERTIFICATIONS

     I, Alan D. Horn, Vice President and Chief Financial Officer, certify that:

	1.	 	I have reviewed this annual report on Form 40-F/A of Rogers Communications
Inc.;
	 
	2.	 	Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
	 
	3.	 	Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the issuer as of, and for, the periods presented in this report;
	 
	4.	 	The issuer’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the issuer and have:

	 	(a)	 	Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
issuer, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in
which this report is being prepared;
	 
	 	(b)	 	Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
	 
	 	(c)	 	Evaluated the effectiveness of the issuer’s disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such
evaluation; and
	 
	 	(d)	 	Disclosed in this report any change in the issuer’s internal
control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is
reasonably likely to materially affect, the issuer’s internal
control over financial reporting; and

	5.	 	The issuer’s other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the issuer’s auditors and the audit committee of the issuer’s board of
directors (or persons performing the equivalent function):

	 	(a)	 	All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the issuer’s ability
to record, process, summarize and report financial information; and
	 
	 	(b)	 	Any fraud, whether or not material, that involves management
or other employees who have a significant role in the issuer’s
internal control over financial reporting.

Date: November 23, 2004

	 	 	 	 	 
	 	 	 
	 	                                           /s/ Alan D. Horn
 	 
	 	Alan D. Horn 	 
	 	Vice President and
Chief Financial Officer 	 
	 

9

 

Exhibit 32.1

Certification Pursuant to

18 U.S.C. Section 1350

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     In connection with the Annual Report on Form 40-F/A of Rogers Communications
Inc., a corporation organized under the laws of British Columbia (the
“Company”) for the period ending December 31, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), each of the
undersigned officers of the Company certify pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

     1.) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     2.) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

	 	 	 	 	 
	 	 	 
	Dated: November 23, 2004 	/s/ Edward S. Rogers
 	 
	 	Edward S. Rogers 	 
	 	President and Chief Executive Officer 	 
	 

	 	 	 	 	 
	 	 	 
	Dated:  November 23, 2004 	/s/ Alan D. Horn
 	 
	 	Alan D. Horn 	 
	 	Vice President, Finance and Chief
Financial Officer 	 
	 

 

 

Exhibit 99.1

ROGERS COMMUNICATIONS INC.

ANNUAL INFORMATION FORM

(for the fiscal year ended December 31, 2003)

MAY 19, 2004

 

 

ROGERS COMMUNICATIONS INC.

ANNUAL INFORMATION FORM INDEX

     The following is an index of the Annual Information Form referencing the
requirements of Form 44-101F1 of the Canadian Securities Administrators.
Certain parts of this Annual Information Form are contained in Rogers
Communications Inc.’s Management’s Discussion and Analysis (the “2003 MD&A”)
for the fiscal year ended December 31, 2003 and in the Rogers Communications
Inc. Management Information Circular (the “2004 Information Circular”) dated
April 21, 2004 each of which is filed on SEDAR and incorporated herein by
reference as noted below.

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Page reference / incorporated
	 	 	by reference from

	 	 	Annual Information	 	2003	 	2004
	 	 	Form
	 	MD&A
	 	Information Circular

	Item 1 – Cover Page
	 	 	1	 	 	 	 	 	 	 	 	 
	– Index
	 	 	2	 	 	 	 	 	 	 	 	 
	Item 2 – Corporate Structure
	 	 	 	 	 	 	 	 	 	 	 	 
	2.1 – Name and Incorporation
	 	 	3	 	 	 	 	 	 	 	 	 
	2.2 – Intercorporate Relationships
	 	 	4	 	 	 	4, 54-59	 (1)	 	 	 	 
	Item 3 – General Development of the Business
	 	 	 	 	 	 	 	 	 	 	 	 
	3.1 – Three Year History
	 	 	5-8	 	 	 	 	 	 	 	 	 
	3.2 – Significant acquisitions and
significant dispositions
	 	 	n/a	 	 	 	 	 	 	 	 	 
	3.3 – Trends
	 	 	 	 	 	 	15, 27-28, 39 	(2)	 	 	 	 
	Item 4 – Narrative Description of the Business
	 	 	 	 	 	 	 	 	 	 	 	 
	4.1 – General — Business Overview
	 	 	 	 	 	 	1-3	 (3)	 	 	 	 
	– Rogers Cable
	 	 	 	 	 	 	12-17  (3) , 18-19	(4)	 	 	 	 
	– Roger Wireless
	 	 	 	 	 	 	25-29(3), 30-31	(4)	 	 	 	 
	– Rogers Media
	 	 	 	 	 	 	38-40 (3), 40-41	(4)	 	 	 	 
	– Employees
	 	 	 	 	 	 	12	(5)	 	 	 	 
	– Properties, Trademarks, Environmental
and Other Matters
	 	 	9	 	 	 	4, 54-59	(1)	 	 	 	 
	Item 5 – Selected Consolidated Financial Information
	 	 	 	 	 	 	 	 	 	 	 	 
	5.1 – Annual Information
	 	 	10-11	 	 	 	 	 	 	 	 	 
	5.2 – Dividends
	 	 	 	 	 	 	60	(6)	 	 	 	 
	Item 6 – Management’s Discussion and Analysis
	 	 	 	 	 	 	1-59	(7)	 	 	 	 
	Item 7 – Market for Securities
	 	 	12	 	 	 	 	 	 	 	 	 
	Item 8 – Directors and Officers
	 	 	12-17	 	 	 	 	 	 	 	3-4(8), 35	(9)
	Item 9 – Additional Information
	 	 	18	 	 	 	 	 	 	 	3-4	  (10) 

12

 

	(1)	 	Under the heading “Intercompany and Related Party Transactions”.
	 
	(2)	 	Under the headings “Recent Cable Industry Trends”, “Recent Wireless
Industry Trends”, “Recent Media Industry Trends”.
	 
	(3)	 	Under the headings “Overview”, “Company Strategy”, “Key Performance
Indicators” “Seasonality” “Overview of Government Regulation” and
“Competition”.
	 
	(4)	 	Under the Heading “Summarized Financial Results”.
	 
	(5)	 	Under the heading “Employees”.
	 
	(6)	 	Under the heading “Dividends and Other Payments on RCI Securities”.
	 
	(7)	 	Entire 2003 MD&A.
	 
	(8)	 	Under the heading “Shares Entitled to be Voted at the Class A Meetings
and Class B Meeting – Shares and Principal Holders Thereof – paragraphs 1
and 2.
	 
	(9)	 	Under the heading “Board Committees.
	 
	(10)	 	Under the heading “Shares Entitled to be Voted at the Class A Meting and
Class B Meeting – Restriction on Transfer Voting and Issue of Shares”.

13

 

ITEM 2 — CORPORATE STRUCTURE

Item 2.1 — Name and Incorporation Rogers Communications Inc. (“Rogers”, “RCI”
or the “Company”) is a diversified public Canadian holding company. RCI has
been continued under the Company Act (British Columbia).

In May 2002, the articles of the Company were amended to provide that each
holder of one or more Class A Voting Shares shall be entitled as such to
twenty-five (25) votes in respect of each Class A Voting Share held.

In May 2003, the constating documents of RCI were changed to: (i) alter the
Memorandum of the Company by cancelling all authorized but unissued Class A
Voting Shares of the Company; and (ii) amend the Articles of the Company to
provide that the directors may not attach any right to any series of preferred
shares of the Company created after May 30, 2003 that entitles or would entitle
the holder or holders of the shares of any such series to vote at any general
meeting of the Company, and that the preferred shares of any such series shall
have no right to vote at any such general meeting.

For the purposes of this report, Rogers’ operations have been reported in three
segments: “Cable” or “Rogers Cable”, which refers to Rogers’ wholly-owned
subsidiary Rogers Cable Inc. and its wholly-owned operating subsidiary;
“Wireless” or “Rogers Wireless” which refers to Rogers’ 55.8% owned subsidiary
Rogers Wireless Communications Inc. (“RWCI”) and RWCI’s wholly-owned operating
subsidiaries, and “Media” or “Rogers Media”, which refers to Rogers’
wholly-owned subsidiary Rogers Media Inc. and Media’s wholly-owned subsidiaries
Rogers Broadcasting Limited (“Broadcasting”) and Rogers Publishing Limited
(“Publishing”).

14

 

Item 2.2 — Intercorporate Relationships The following summary organization
chart illustrates, as of December 31, 2003, the structure of the principal
subsidiaries of RCI, and indicates the jurisdiction of incorporation of each
entity shown. Summary operating data has also been provided at December 31,
2003.

WIRELESS

	•	 	A leading Canadian wireless communications service provider, with over 4.0 million
customers at December 31, 2003, including approximately 3.8 million wireless
voice and data subscribers representing approximately 12.9% of the population residing in
Wireless’ coverage area and approximately 241,000 one-way messaging subscribers.
	 
	•	 	Operate both a Global System
for Mobile Communications/General
Packet Radio Services (GSM/GPRS)
network and an integrated Time
Division Multiple Access (TDMA) and
analog network. Wireless’ GSM/GPRS
provides coverage to approximately
93% of network Canada’s
population. Wireless’s integrated
TDMA network provides coverage to
approximately 85% of Canada’s
population in digital mode, and
approximately 93% of the Canadian
population in analog mode.
	 
	•	 	Wireless’ products and services
are marketed through a nationwide
distribution network of over 7,000
dealer and retailer locations.

CABLE

	•	 	Rogers Cable and its
wholly-owned operating
subsidiary is Canada’s largest
cable television company, which
owns and operates cable systems
in Ontario, New Brunswick and
Newfoundland serving
approximately 2.3 million basic
cable subscribers at December
31, 2003.
	 
	•	 	Advanced digital cable
service serving 535,300
households.
	 
	•	 	Internet access service
serving 790,500 customers.
	 
	•	 	Owns and operates Canada’s
second largest chain of video
stores (279 stores).
	 
	•	 	On December 31, 2003, the
Company executed a corporate
reorganization that involved the
transfer of substantially all of
the assets of the Company to
wholly-owned subsidiary, Rogers
Cable Communications Inc.
(“RCCI”). As part of the
reorganization, the Company’s
subsidiaries, Rogers
Cablesystems Ontario Limited,
Rogers Ottawa Limited/Limitée,
Rogers Cable Atlantic Inc. and
Rogers Cablesystems Georgian Bay
Limited, amalgamated with and
continued as RCCI. As a result
of the reorganization, the
Company through RCCI, continues
to conduct all of the operations
and provide all of the Company’s
services.

MEDIA

	•	 	Publishing group produces
approximately 70 consumer
magazines and trade and
professional publications and
directories.
	 
	•	 	Broadcasting group comprises
43 radio stations across Canada
(32 FM and 11 AM radio stations),
two multicultural television
stations in Ontario (OMNI.1 and
OMNI.2), an 80% interest in a
regional sports specialty service
(Rogers Sportsnet), Canada’s only
nationally televised shopping
service (The Shopping Channel).
Broadcasting holds minority
interests in several specialty
television services, including
Viewer’s Choice Canada, Outdoor
Life Network (OLN), TechTV Canada,
The Biography Channel Canada,
MSNBC Canada and certain other
minority interest investments.
	 
	•	 	In addition to more
traditional delivery methods, the
Media group also delivers content
over the Internet for many of the
individual broadcasting and
publishing properties.

	(1)	 	Undiluted. Comprises a 67.4% voting interest. On a fully diluted basis,
RCI’s equity and voting interests in RWCI were 54.5% and 67.2%,
respectively, at December 31, 2003.
	 
	(2)	 	The Company owns an 80% interest in the Toronto Blue Jays Baseball Club as
at December 31, 2003.

15

 

ITEM 3 — GENERAL DEVELOPMENT OF THE BUSINESS

Item 3.1 — Three Year History

2004 Year-to-Date Developments

Rogers Communications Inc.

	•	 	On April 15, 2004, the Company filed a final shelf
prospectus in all of the provinces in Canada and in the U.S. under
which it will be able to offer up to aggregate of US$750 million
of Class B Non-Voting shares, preferred shares, debt securities,
warrants, share purchase contracts or units, or any combination
thereof, for a period of 25 months;
	 
	•	 	On June 16, 2004, 9,541,985 Class B Non-Voting
shares were issued under the shelf prospectus for net cash proceeds
of $238.9 million;
	 
	•	 	On July 30, the Company’s wholly-owned subsidiary,
Blue Jays Holdco Inc., redeemed and cancelled all of its outstanding
Class A Preferred Voting shares that were issued in April 2001
to Rogers Telecommunications Ltd. (“RTL”), a company
controlled by RCI’s controlling shareholder. At that time, RTL
acquired the voting rights to control the Toronto Blue Jays. As a
result of the cancellation, voting control of the Toronto Blue Jays
transferred to RCI and, accordingly, RCI began to consolidate the
results of the Blue Jays effective July 31, 2004.
	 
	•	 	On October 13, 2004, the Company announced the completion of its purchase of the 48,594,172 Class B
Restricted Voting shares of Wireless owned by JVII General
Partnership (“JVII”), a partnership owned by
AWE, for a cash price of $36.37 per share for a total of approximately $1,767 million. The number of
Class B Restricted Voting shares purchased reflects the conversion of the Class A Multiple Voting shares
owned by JVII to such Class B shares upon closing.
	 
	 	 	With the completion of the
purchase, the Company beneficially owns 64,911,816 Class B Restricted Voting
shares, representing approximately 80.9% of the issued and outstanding Class B Restricted Voting shares,
and 62,820,371 Class A Multiple Voting shares, representing 100% of the issued and outstanding Class A
Multiple Voting shares, and which combined represent a total ownership position of approximately 89.3%
of the total issued and outstanding shares of both classes of such
shares of Wireless.
	 
	 	 	The Company funded the approximate
$1,767 million cash purchase price of the 48.6 million
shares of Wireless
through a $1,750 million secured bridge financing facility of up to two years with a group of Canadian
financial institutions. The facility stipulates mandatory repayments, subject to certain exceptions, from the
incurrence of debt or equity of the Company or Wireless.
	 
	 	 	On November 22, 2004,
RCI announced an exchange offer for all of the outstanding Roger
Wireless Communications Inc. (“RWCI”) Class B
Restricted Voting shares (“RWCI Class B shares”) owned
by the public with the consideration being 1.75 RCI Class B
Non-Voting shares (“RCI Class B shares”) for each RWCI
Class B share held. RCI currently owns 100% of the RWCI
Class A Multiple Voting shares and approximately 81% of the RWCI
Class B shares, representing an approximate 89% equity interest
and an approximate 98% voting interest in RWCI.

Cable

	•	 	On March 11, 2004, Cable completed an offering of U.S. $350.0 million
aggregate principal amount of Senior Secured Second Priority Notes due
2014. Cable intends to use approximately U.S. $243.3 million of the
net proceeds to refinance the drawdown under its New Bank Credit
Facility, which was used to fund the redemption on February 23, 2004
of $300.00 million 9.65% Senior Secured Debentures due 2014 at a
redemption price of 104.825%. Cable used the balance of the
net proceeds from this offering to repay other existing indebtedness
outstanding under the New Bank Credit Facility and for general
corporate purposes.
	 
	•	 	Together with RCI, Rogers Cable announced an initiative on February
12, 2004, to deploy an advanced broadband Internet Protocol (IP)
multimedia network to support primary line voice-over-cable telephony
and other new services across its cable service areas. Rogers Cable
plans to provide Canadian consumers and small businesses in its cable
service areas with access to a high quality telephone service with all
of the traditional functionality, reliability and quality of service
that they expect today. This investment plan, the completion of which
assumes a regulatory environment supportive of competition from
voice-over-cable telephony, includes the capital costs required to
deploy a scalable primary line quality digital voice-over-cable
telephony service utilizing PacketCable and DOCSIS standards,
including the costs associated with switching, transport, IP network
redundancy, multi-hour network and customer premises powering, network
status monitoring, customer premises equipment, information
technologies and systems integration. The Company expects the
property, plant and equipment (“PP&E”) expenditures required to deploy
this platform will be approximately $200 million by the end of
2005. The
Company also expects the majority of the PP&E expenditures will occur
in the first 12 to 18 months of the deployment, with 2004 expenditures
expected to be between $100 million and $120 million. Once this
initial platform is deployed, the additional variable PP&E
expenditures associated with adding each voice-over-cable telephony
service subscriber, which includes uninterruptible backup powering at
the home, is expected to be in the range of $300 to $340 per
subscriber addition.
	 
	 	 	Cable is currently refining its business strategies with respect to
voice-over-cable telephony services. As a result, the PP&E expenditures,
costs and timeline described above are initial estimates. In addition,
together with RCI, Cable is considering offering the telephony services
described above through another wholly owned RCI subsidiary, Rogers Telecom
Inc. (Rogers Telecom). Although Cable’s business strategies and
organizational structure with respect to telephony services continue to be
refined, it plans to incur most or all of the PP&E expenditures described
above to upgrade its network to an advanced broadband multimedia platform
capable of supporting voice-over-cable telephony and other new services. In
the event that Rogers Telecom offers voice-over-cable telephony services,
Cable would enter into an agreement with Rogers Telecom which could relate
to, among other things, access to and the use of the Cable’s network.
	 
	•	 	Cable announced an agreement with Yahoo! Inc. to provide
co-branded Internet services to current and future customers of its
Internet services. Cable launched its broadband Rogers Yahoo! Hi-Speed
Internet services and completed the transition of its Ontario and New
Brunswick Internet customer bases to the new platform. These
broadband services include some or all of the following features:
safety and security features with parental controls; an e-mail
system with e-mail anti-virus; SpamGuard Plus; over 2 gigabytes of
mail storage; Rogers Yahoo! Photos with unlimited storage; Rogers
Yahoo! Messenger; Internet music and radio; and Rogers Yahoo! Games.
	 
	•	 	On November 12, 2004, Cable announced its
intention to complete an offering of $175.0 million 7.25%
Senior (Secured) Second Priority Notes due 2011 and
U.S.$280.0 million 6.75% Senior (Secured) Second Priority
Notes due 2015.

16

 

Wireless

	•	 	On February 20, 2004, Rogers Wireless Inc.
(“RWI”) completed a private placement of an
aggregate principal amount of US$750.0 million 6.375% Senior Secured
Notes due 2014. Approximately US$734.7 million of the proceeds were
used on March 26, 2004 to redeem US$196.1 million 8.30% Senior
Secured Notes due 2007, US$179.1 million 8.80% Senior Subordinated
Notes due 2007, and US$333.2 million 9 3/8% Senior Secured Debentures
due 2008, together with related redemption premiums
	 
	•	 	On October 8, 2004 Wireless and its bank lenders entered into an amending agreement to
Wireless’s $700.0 million bank credit facility that provided among other things, for a two year
extension to the maturity date and the reduction schedule so that the bank credit facility now reduces by
$140.0 million on each of April 30, 2008 and April 30,
2009 with the maturity date on April 30, 2010. The
provision for early maturity in the event that Wireless’s
10 1/2% senior secured notes due 2006 are not
repaid (by refinancing or otherwise) on or prior to December 31, 2005 has been eliminated. In addition,
certain financial ratios to be maintained on a quarterly basis have been made less restrictive, the restriction
on the annual amount of PP&E expenditures has been eliminated and the restriction on the payment of
dividends and other shareholder distributions has been eliminated other than in the case of a default or
event of default under the terms of the bank credit facility.
	 
	•	 	On September 20, 2004,
Wireless announced an agreement with Microcell Telecommunications Inc. (“Microcell”) to make an all cash tender offer
of $35.00 per share to acquire Microcell. Wireless completed the acquisition on November 12, 2004. The funding for this acquisition was
comprised of the utilization of Wireless’s cash on hand, drawdowns under Wireless’s committed
$700.0 million bank credit facility, and proceeds from a bridge
loan from the Company of up to $900.0 million, of
which $850.0 million has been drawn. The bridge loan has a term of up to two years from November 9,
2004 and was made on an subordinated unsecured basis. The bridge loan bears interest at 6% per annum
and is prepayable in whole or in part without penalty. The Company funded the $850.0 million drawdown on the
bridge loan using cash on hand, cash received from Rogers Cable in the form of a return of capital and
cash received from Rogers Media in the form of a repayment of an intercompany advance made to Rogers
Media by the Company. Each of Rogers Cable and Rogers Media made drawdowns under its respective committed
bank credit facilities to fund the cash transfers to the Company.
	 
	•	 	On November 12, 2004, Wireless announced its intention to complete an offering of
$460.0 million 7.625% Senior (Secured) Notes Due 2011,
U.S. $550.0 million
Floating Rate Senior (Secured) Notes Due 2010, US
$470.0 million 7.25% Senior (Secured)
Notes Due 2012, US $550.0 million 7.5% Senior (Secured) Notes Due
2015, and U.S. $400.0 million 8.0% Senior Subordinated Notes Due 2012.

2003 Highlights

Cable

	 	•	 	Network rebuild project progressed further, increasing to 96% of
Rogers Cable’s homes passed being two-way addressable, 99% of
subscribers digital capable and more than 92% of the Cable plant
capable of transmitting 750 MHz of bandwidth or greater.
	 
	 	•	 	Continued to expand the availability of video-on-demand (VOD)
service, Rogers on Demand, with availability reaching over 1.8 million
homes by year end 2003, while continuing to expand the number of VOD
content agreements with various production studios to bring the total
number of available titles to over 1,000.
	 
	 	•	 	Increased the throughput of its Hi-Speed Internet service up to
3Mbps, introduced its personal video recorders (PVR), and launched nine
new high definition television (HDTV) channels.
	 
	 	•	 	Issued US$350 million (Cdn. Equivalent $470.4 million) 6.25% Senior
(Secured) Second Priority Notes due 2013. Proceeds of this financing
were used to repay advances outstanding under Cable’s bank credit
facility, intercompany debt owing to RCI and to redeem US$74.8 million
aggregate principal amount of Cable’s 10% Senior Secured Second
Priority Debentures due 2007 at a redemption price of 105.0% of the
aggregate principal amount, and for general corporate purposes.

Wireless

	•	 	Completed the deployment of GSM/GPRS technology operating in the
850 MHz spectrum range across the national footprint, expanding
the capacity and also enhancing the quality of the GSM/GPRS
network. Began trials of EDGE technology in the Vancouver market
at the end of 2003 which, accomplished by the installation of a
network software upgrade, more than triples the wireless data
transmission speeds available on its network.
	 
	•	 	In 2003, Wireless announced that it would transition the branding
to Rogers Wireless from Rogers AT&T Wireless. On March 8, 2004,
it began the transition, bringing greater clarity to the Rogers
brand in Canada. As a result, a non-cash charge in 2003 of
approximately $20.0 million was recorded to reflect the
accelerated amortization of the associated brand licence costs,
as the decision was made to terminate in 2003.

Media

	•	 	Broadcasting successfully completed the reformatting of several
of its radio stations during 2003 which has resulted in
significant ratings boosts in several of its key markets.
	 
	•	 	Publishing announced it is preparing to launch Canada’s first
paid circulation shopping magazine for young women beginning in
the summer of 2004.
	 
	•	 	Media announced an investment by Broadcasting in 50% of CTV’s
mobile production and distribution business, Dome Productions.
This partnership will accelerate the production and distribution
of HDTV content in Canada. The transaction was successfully
completed on January 2, 2004.

2002 Highlights

Cable

	•	 	Applied for and received basic rate deregulation in all systems
that were formerly basic cable rate regulated, leaving no systems
basic rate regulated;

17

 

	•	 	Commercially launched video-on-demand (VOD) service, at the time
covering an area of 530,000 homes passed in central Toronto,
complete with a library of over 400 titles;
	 
	•	 	Completed a $450 million debt offering in Canada and two U.S.
debt offerings totalling US$550 million (approximately Cdn$860
million), as well as the establishment of an amended and restated
$1,075 million bank credit facility, providing additional
liquidity. Proceeds of these financings, together with $141.4
million proceeds from swap terminations, were used to repurchase
US$280.2 million principal amount of U.S. dollar-denominated
debt, prepay Cable’s $300 million Floating Rate Note, repay
outstanding bank debt and for general corporate purposes.

Wireless

	•	 	Completed the installation of the 1.9 GHz GSM/GPRS network to
fully match the coast-to-coast analog footprint, covering
approximately 93% of the Canadian population, and began
deployment of GSM/GPRS service at 850 MHz late in 2002;
	 
	•	 	Commenced cross-border GSM roaming into the U.S. with AT&T
Wireless Services, Inc. (“AWE”) and Cingular Wireless LLC, and
into 54 other countries around the world;
	 
	•	 	Repurchased US$45.9 million aggregate principal amount of U.S.
dollar-denominated long term debt, resulting in a gain of $31.0
million.

Media

	•	 	Launched second over-the-air multicultural channel, OMNI.2,
within 5 months of being awarded the license through leveraging
much of the existing infrastructure of CFMT-TV, now rebranded
OMNI.1;
	 
	•	 	Integration of Rogers Sportsnet and of the 13 radio stations
acquired from Standard Radio Inc., including the relocation of
The FAN590 within Radio’s Toronto Broadcasting operations.

2001 Highlights

Cable

	•	 	The February 2001 acquisition by Rogers, and its subsequent
transfer to Cable, of all of the outstanding shares of Cable
Atlantic Inc. (since renamed Rogers Cable Atlantic Inc. and
amalgamated with and continued as RCCI), serving approximately
75,000 basic cable subscribers in Newfoundland;
	 
	•	 	The launch of up to 60 new digital only specialty channels in
September 2001, more than any other Canadian cable or satellite
provider at that time, the majority of which were offered to
customers on a free preview basis until January 2002;
	 
	•	 	In the fourth quarter of 2001, Cable launched up to eight
channels of HDTV and was also the first multiple system operator
(MSO) to launch Enhanced TV in Canada, enabling subscribers with
an enhanced enabled set-top box to see icons flashed on the
screen when additional features are available, such as
information and the ability to order products and services;
	 
	•	 	The acceleration and substantial completion of the transition of
Internet customers from the At Home network to Cable-owned
network and platforms. By the end of January 2002, Cable had
transitioned all of its Internet customers to its new IP network,
regional data centre and e-mail platform.

Wireless

	•	 	Successfully participated in Industry Canada’s spectrum licensing
auction in January 2001, which resulted in the acquisition of 23
licenses of 10 MHz each of spectrum in various regions across
Canada;
	 
	•	 	Launched 1.9GHz GSM/GPRS wireless voice and data services to 85%
of the Canadian population (reached 93% in 2002);
	 
	•	 	Completed the implementation of the new AMDOCS billing and
customer care system with the integration of data and messaging
customers;
	 
	•	 	Completed three financing transactions:

	1.	 	On April 12, 2001, Rogers Wireless Inc. amended its bank credit facility
to provide it with a revolving credit facility of $700 million with no
reduction until April 30, 2006 and a final maturity on April 30, 2008;
	 
	2.	 	On April 18, 2001, Wireless completed an equity rights offering, yielding
approximately $419.9 million, net of costs; and
	 
	3.	 	On May 2, 2001, Rogers Wireless Inc. completed a debt issue in an
aggregate amount of US$500 million (approximately Cdn$770 million) of
9.625% Senior Secured Notes due May 1, 2011, the full amount of

18

 

	 	 	which has been hedged with respect to foreign exchange.

Media

	•	 	In September 2001, Media sold Bowdens Media Monitoring Limited for
total cash proceeds of $40.3 million, which translated into a gain
before income taxes of $33.4 million;
	 
	•	 	In November 2001, Rogers acquired, and subsequently transferred to
Broadcasting, an additional 40% of CTV Sportsnet Inc. (since renamed
Rogers Sportsnet Inc.) for $132.8 million, which, together with
previously purchased interests, brings Broadcasting’s interest to 80%
of the voting shares of Sportsnet. The remaining 20% of Sportsnet is
held by Fox Sportsnet Canada Holding LLC;
	 
	•	 	Executed an agreement, subject to CRTC approval (received in March
2002), to purchase the assets of 13 radio stations, including the
all-sports Toronto AM radio station The FAN590, for total cash
consideration of $100 million;
	 
	•	 	Initiated a project to review all operations, resulting in a reduction
in Media’s overall workforce and, more importantly, rationalized the
manner in which Media operates. Through this initiative, the iMedia
group was dismantled with certain of the websites being shut down and
the remaining websites being integrated into the operations of
existing Media operating groups;
	 
	•	 	In January 2001, Media entered into a new bank loan agreement which
provides for a $500 million revolving bank credit facility, which
matures on September 30, 2006.

19

 

ITEM 4 — NARRATIVE DESCRIPTION OF THE BUSINESS

PROPERTIES, TRADEMARKS, ENVIRONMENTAL AND OTHER MATTERS

In most instances, the Company owns the assets essential to its operations.
The major fixed assets of the Company are transmitters, microwave systems,
antennae, buildings and electronic transmission, receiving and processing
accessories and other wireless network equipment (including switches, radio
channels, base station equipment, microwave facilities and cell equipment);
coaxial and fibre optic cables, set-top terminals and cable modems, electronic
transmission, receiving, processing, digitizing and distributing equipment, IP
routers, data storage servers and network management equipment, microwave
equipment and antennae; and radio and television broadcasting equipment
(including television cameras, television and radio production facilities and
studios). The operating systems and software related to these assets are either
owned by the Company or are used under license.

Wireless owns a Toronto office complex in which its executive offices are
located. Wireless is also leasing a majority of this office space to RCI and
other subsidiaries of RCI. In addition, the Company owns service vehicles,
data processing facilities and test equipment. Most of the Company’s assets
are subject to various security interests in favour of lenders.

RCI’s subsidiaries also lease various distribution facilities from third
parties, including space on utility poles and underground ducts for the
placement of some of the cable system and roof rights. The Company either owns
or leases land for the placement of hub sites and headends and space for other
portions of the distribution system. The Company also leases land and space on
buildings for the placement of antenna towers and generally leases the premises
on which its switches are located, principally under long term leases.
Rogers Wireless’ wireless network reaches approximately 93% of the Canadian
population and is located in all ten provinces. Rogers Cable’s cable network
is clustered in three key urban markets in southern Ontario (Toronto, Ottawa,
and the Guelph to London corridor), New Brunswick and Newfoundland.

The Company owns or has licensed various brands and trademarks used in its
businesses. Various of the Company’s trade names and properties are protected
by trademark and/or copyright. The Company maintains customer lists for its
businesses. The Company’s intellectual property, including its trade names,
brands, properties and customer lists, is important to its operations.

Environmental protection requirements applicable to the Company’s operations
are not expected to have a significant effect on the Company’s property, plant
and equipment expenditures, earnings or its competitive position in the current
or future fiscal years.

The Company has committed to material obligations under firm contractual
arrangements, including commitments for future payments under long-term debt
arrangements, capital lease obligations, operating lease arrangements and other
commercial commitments. The information under the heading “Commitments and
Contractual Obligations” contained on page 63 of the MD&A are incorporated
herein by reference.

20

 

ITEM 5 – SELECTED CONSOLIDATED FINANCIAL INFORMATION

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Years ended December 31	 	 	 	 	 	 
	(thousands of dollars, except per share amounts)
	 	2003
	 	2002
	 	2001

	Income and Cash Flow
	 	 	 	 	 	 	 	 	 	 	 	 
	Revenue (1)
	 	 	 	 	 	 	 	 	 	 	 	 
	Cable (1)
	 	$	1,788,122	 	 	$	1,614,554	 	 	$	1,446,599	 
	Wireless (1)
	 	 	2,207,794	 	 	 	1,891,514	 	 	 	1,640,889	 
	Media
	 	 	854,992	 	 	 	810,805	 	 	 	721,710	 
	Corporate / Telecom
	 	 	(59,052	)	 	 	(50,088	)	 	 	4,772	 
	 
	 	 	
 	 	 	 	
 	 	 	 	
 	 
	Total revenue
	 	 	4,791,856	 	 	 	4,266,785	 	 	 	3,813,970	 
	 
	 	 	
 	 	 	 	
 	 	 	 	
 	 
	Cost of sales (1)
	 	 	642,243	 	 	 	545,684	 	 	 	457,317	 
	Sales and marketing expenses (1)
	 	 	742,781	 	 	 	697,579	 	 	 	581,177	 
	Operating, general and administrative expense (1)
	 	 	1,957,936	 	 	 	1,881,908	 	 	 	1,822,955	 
	 
	 	 	
 	 	 	 	
 	 	 	 	
 	 
	Total expenses
	 	 	3,342,960	 	 	 	3,125,171	 	 	 	2,861,449	 
	 
	 	 	
 	 	 	 	
 	 	 	 	
 	 
	Operating Profit (2)
	 	 	 	 	 	 	 	 	 	 	 	 
	Cable
	 	 	663,474	 	 	 	563,480	 	 	 	516,805	 
	Wireless
	 	 	727,572	 	 	 	527,687	 	 	 	411,945	 
	Media
	 	 	106,724	 	 	 	87,635	 	 	 	68,306	 
	Corporate/ Telecom
	 	 	(48,874	)	 	 	(37,188	)	 	 	(44,535	)
	 
	 	 	
 	 	 	 	
 	 	 	 	
 	 
	 
	 	 	1,448,896	 	 	 	1,141,614	 	 	 	952,521	 
	 
	 	 	
 	 	 	 	
 	 	 	 	
 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	
 	 	 	 	
 	 	 	 	
 	 
	Net Income (loss)
	 	$	129,193	 	 	$	312,032	 	 	$	(464,361	)
	 
	 	 	
 	 	 	 	
 	 	 	 	
 	 
	Additions to property, plant and equipment, as previously
reported (3)
	 	$	963,742	 	 	$	1,261,983	 	 	$	1,420,747	 
	Change in non-cash working capital related to PP&E
	 	 	81,416	 	 	 	(52,238	)	 	 	87,273	 
	PP&E expenditures (4)
	 	$	1,045,158	 	 	$	1,209,745	 	 	$	1,508,020	 
	 
	 	 	
 	 	 	 	
 	 	 	 	
 	 
	Average Class A and Class B shares
outstanding (000’s)
	 	 	225,918	 	 	 	213,570	 	 	 	208,644	 
	Per Share
	 	 	 	 	 	 	 	 	 	 	 	 
	Earnings (loss) - basic
	 	$	0.35	 	 	$	1.05	 	 	$	(2.56	)
	          - diluted
	 	$	0.34	 	 	$	0.83	 	 	$	(2.56	)
	Cash dividends per share:
	 	 	 	 	 	 	 	 	 	 	 	 
	Class B Non-Voting shares
	 	$	0.05	 	 	$	—	 	 	$	—	 
	Class A Voting shares
	 	$	0.05	 	 	$	—	 	 	$	—	 
	Series E Preferred shares
	 	$	0.05	 	 	$	—	 	 	$	—	 
	Balance
Sheet (5)
	 	 	 	 	 	 	 	 	 	 	 	 
	Assets:
	 	 	 	 	 	 	 	 	 	 	 	 
	Current assets
	 	$	729,823	 	 	$	711,290	 	 	$	726,469	 
	 
	 	 	
 	 	 	 	
 	 	 	 	
 	 
	Total assets
	 	$	8,465,495	 	 	$	8,524,503	 	 	$	8,810,379	 
	 
	 	 	
 	 	 	 	
 	 	 	 	
 	 
	Liabilities and Shareholders’ Equity (Deficiency)
	 	 	 	 	 	 	 	 	 	 	 	 
	Current liabilities
	 	$	1,140,922	 	 	$	1,201,156	 	 	$	1,597,328	 
	Long-term debt
	 	 	5,293,518	 	 	 	5,675,491	 	 	 	4,568,718	 
	Other long-term liabilities
	 	 	70,333	 	 	 	83,569	 	 	 	16,476	 
	Non-controlling interest
	 	 	193,342	 	 	 	132,536	 	 	 	186,377	 
	Shareholders’ equity (deficiency)
	 	 	1,767,380	 	 	 	1,404,035	 	 	 	2,304,291	 
	 
	 	 	
 	 	 	 	
 	 	 	 	
 	 
	 
	 	$	8,465,495	 	 	$	8,524,503	 	 	$	8,810,379	 
	 
	 	 	
 	 	 	 	
 	 	 	 	
 	 

	(1)	 	As a result of retroactively adopting new Canadian accounting standards, including Emerging Issues Committee
Abstract 142, “Revenue Arrangements with Multiple Deliverables”, regarding the timing of revenue recognition and the classification
of certain items as revenue or expense, we made the following changes
to our classification of certain
revenue and expense items:

	 	•	 	Wireless activation fees are now classified as equipment revenue.
Previously, these amounts were classified as network revenue.
	 
	 	•	 	Recoveries from new and existing subscribers from the sale of
equipment are now classified as equipment revenue. Previously, these
amounts were recorded as a reduction to sales expense in the case of a
new Cable or Wireless subscriber, or as a reduction to operating,
general and administrative expense in the case of an existing Wireless
subscriber.
	 
	 	•	 	Equipment subsidies provided to new and existing Wireless
subscribers are now classified as a reduction to equipment revenue.
Previously, these amounts were recorded as a sales expense in the case
of a new subscriber, or as an operating, general and administrative
expense in the case of an existing subscriber.

21

 

	 	 	 	Wireless equipment
costs for equipment provided under retention programs to existing
Wireless subscribers
are now recorded as equipment cost of sales. Previously, these amounts
were recorded as operating, general and administrative expense.
	 
	 	•	 	Certain other recoveries from subscribers related to collections
activities are now recorded as network revenue rather than as a
recovery of operating, general and administrative expenses.
	 
	 	 	 	As a result of the adoption of these new accounting standards, the
following changes to the classification of revenue and expenses have been
made:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Year Ended December 31,

	 	 	2003
	 	2002
	 	2001

	 	 	(in thousands of dollars)	 	 	 	 
	Cable Revenue
	 	 	 	 	 	 	 	 	 	 	 	 
	As previously reported
	 	 	1,769,220	 	 	 	1,596,401	 	 	 	1,433,029	 
	As reclassified
	 	 	1,788,122	 	 	 	1,614,554	 	 	 	1,446,599	 
	Wireless Revenue
	 	 	 	 	 	 	 	 	 	 	 	 
	As previously reported
	 	 	2,282,203	 	 	 	1,965,927	 	 	 	1,753,145	 
	As reclassified
	 	 	2,207,794	 	 	 	1,891,514	 	 	 	1,640,889	 
	Total Revenue
	 	 	 	 	 	 	 	 	 	 	 	 
	As previously reported
	 	 	4,847,363	 	 	 	4,323,045	 	 	 	3,912,656	 
	As reclassified
	 	 	4,791,856	 	 	 	4,266,785	 	 	 	3,813,970	 
	Cost of sales
	 	 	 	 	 	 	 	 	 	 	 	 
	As previously reported
	 	 	505,951	 	 	 	458,838	 	 	 	402,021	 
	As reclassified
	 	 	642,243	 	 	 	545,684	 	 	 	457,317	 
	Sales and Marketing expenses
	 	 	 	 	 	 	 	 	 	 	 	 
	As previously reported
	 	 	905,274	 	 	 	833,038	 	 	 	721,471	 
	As reclassified
	 	 	742,781	 	 	 	697,579	 	 	 	581,177	 
	Operating, general and administrative
expenses:
	 	 	 	 	 	 	 	 	 	 	 	 
	As previously reported
	 	 	1,987,242	 	 	 	1,889,555	 	 	 	1,836,643	 
	As reclassified
	 	 	1,957,936	 	 	 	1,881,908	 	 	 	1,822,955	 
	Total expenses
	 	 	 	 	 	 	 	 	 	 	 	 
	As previously reported
	 	 	3,398,467	 	 	 	3,181,431	 	 	 	2,960,135	 
	As reclassified
	 	 	3,342,960	 	 	 	3,125,171	 	 	 	2,861,449	 

	 	(2)	 	Operating profit is defined as net income before depreciation
and amortization, interest expense, income taxes and non-operating
items, which include losses from investments accounted for by the
equity method, foreign exchange gains, loss on repayment of
long-term debt, gain (loss) on the sale of other investments,
writedown of investments, the gain on the disposition of AT&T Canada
Deposit Receipts, other income and non-controlling interest as well
as the 2002 workforce reduction costs and the Wireless net recovery
related to the change in estimates of sales tax and CRTC
contribution liabilities. Operating profit is a standard measure used
in the communications industry to assist us in understanding and
comparing operating results and is often referred to in the industry
either as earnings before interest taxes, depreciation and
amortization (EBITDA) or as operating income before depreciation and
amortization (OIBDA). 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 other non-operating
factors. It is intended to measure our ability to incur or service
debt and to invest in property, plant and equipment (PP&E), and
allows us to compare ourselves to peers and competitors that have
different capital or organizational structures. This measure is not a
defined term under GAAP.
	 
	 	(3)	 	Additions to property, plant and equipment as stated based on
the accrual basis, which is a non-GAAP measure.
	 
	 	(4)	 	In June 2003, the Canadian Institute of Chartered Accountants
(“CICA”) released Handbook Section 1100,
“Generally Accepted Accounting Principles”. Previously,
there had been no clear definition of the order of authority for
sources of GAAP. This standard establishes standards for financial
reporting in accordance with Canadian GAAP and applies to our 2004
fiscal year. This section also provides guidance on sources to
consult when selecting accounting policies and appropriate
disclosures when a matter is not dealt with explicitly in the primary
sources of GAAP.

We have reviewed this new standard and as a result have, within our
Consolidated Statement of Cash Flow, reclassified the change in
non-cash working capital items related to PP&E to PP&E expenditures
under investing activities. This change had the impact of increasing
(decreasing) PP&E expenditures on the Statement of Cash Flows, as
compared to our previous method of presentation, by
$81.4 million, ($52.2 million) and $87.3 million in
the years ended December 31, 2003, 2002 and 2001 respectively,
with a corresponding change in both periods to non-cash working
capital items.
	 
	 	(5)	 	In June 2003, the Canadian Institute of Chartered Accountants
(“CICA”) released Handbook Section 1100, “Generally Accepted
Accounting Principles”. Previously, there had been no clear
definition of the order of authority for sources of GAAP. This
standard establishes standards for financial reporting in accordance
with Canadian GAAP and applies to the Company’s 2004 fiscal year.
This section also provides guidance on sources to consult when
selecting accounting policies and appropriate disclosures when a
matter is not dealt with explicitly in the primary sources of GAAP.
The Company has reviewed this new standard and as a result have
adopted a classified balance sheet presentation as it believe the
historical industry practice of a declassified balance sheet
presentation is no longer appropriate.

22

 

DIVIDEND

This information under the heading “Dividends and Other Payments on RCI Equity
Securities” contained on page 62 to 63 of the 2003 MD&A is incorporated herein
by reference.

ITEM 6 — MANAGEMENT’S DISCUSSION AND ANALYSIS

The 2003 MD&A is incorporated herein by reference.

ITEM 7 — MARKET FOR SECURITIES

RCI Class A Voting shares (RCI.A, CUSIP # 775109101) are listed on the Toronto
Stock Exchange. RCI Class B Non-Voting shares (in Canada: RCI.B, in United
States: RG, CUSIP # 775109200) are listed in Canada on the Toronto Stock
Exchange and in the United States on the New York Stock Exchange.

ITEM 8 — DIRECTORS AND OFFICERS

As at December 31, 2003, RCI’s directors and officers as a group owned or
controlled, directly or indirectly, an aggregate 51,754,959 Class A Voting
shares of RCI, representing approximately 92.0% of the issued and outstanding
Class A Voting shares of RCI.

Each Class A Voting Share of RCI carries the right to twenty-five votes on a
poll and may be voted at the meetings of shareholders of RCI. Holders of Class
B Non-Voting Shares and any series of preferred shares of the Company are
entitled to receive notice of and to attend meetings of shareholders of RCI
but, except as required by law, are not entitled to vote at such meetings.
Under applicable Canadian securities laws, an offer to purchase Class A Voting
Shares of RCI would not require that an offer be made to purchase Class B
Non-Voting Shares of RCI.

     Following is a list of directors and officers of the Company prepared as
of December 31, 2003, indicating their municipality of residence and their
principal occupation within the five preceding years. Each director is elected
at the annual meeting of shareholders to serve until the next annual meeting or
until a successor is duly elected unless, prior thereto, he or she resigns or
his or her office becomes vacant by death or other cause under applicable law.
Officers are appointed by, and serve at the discretion of, the Board of
Directors.

23

 

	 	 	 
	Name
	 	Position

	H.
Garfield Emerson, Q.C. (1)(2)(3)(4)(6)(12)

	 	Director and Chairman
	Philip B. Lind

	 	Director and Vice Chairman
	Edward S. Rogers, O.C. (2)(3)(6)(7)

	 	Director and President and Chief Executive Officer
	Alan D. Horn

	 	Vice President, Finance and Chief Financial Officer
	Ronan D. McGrath

	 	President, Rogers Shared Services and
Chief Information Officer
	Nadir H. Mohamed

	 	Senior Vice President, Wireless Telecommunications
	Edward Rogers (2)(6)(7)(8)

	 	Director and Senior Vice President, Cable
Communications
	Anthony P. Viner

	 	Senior Vice President, Media
	Alexander R. Brock

	 	Vice President, Business Development
	Donald B. Burt

	 	Vice President, Human Resources
	Michele M. Cotton

	 	Vice President, Capital Reporting
	M. Lorraine Daly

	 	Vice President, Treasurer
	Bruce D. Day

	 	Vice President, Corporate Development
	Kenneth G. Engelhart

	 	Vice President, Regulatory
	Gregory J. Henderson

	 	Vice President, Group Controller
	Jan L. Innes

	 	Vice President, Communications
	Roger D. Keay

	 	Vice President, Technology
	Bruce M. Mann

	 	Vice President, Investor Relations
	Graeme H. McPhail

	 	Vice President & Associate General Counsel
	David P. Miller

	 	Vice President, General Counsel and Secretary
	Melinda M. Rogers (7)(8)

	 	Director and Vice President, Strategic Planning
and Venture Investments
	Thomas A. Turner, Jr.

	 	Vice President, Convergence
	E. Jennifer Warren

	 	Vice President & Assistant General Counsel
	David J. Watt

	 	Vice President, Business Economics
	Richard Wong

	 	Vice President, Business Performance
	Daphne Evans

	 	Assistant Secretary
	Ronald D. Besse (1)(4)(5)

	 	Director
	Albert Gnat, Q.C. (3)(4)(5)(10)

	 	Director
	Thomas I. Hull (2)(3)(4)(6)

	 	Director
	Robert W. Korthals (4)(5)

	 	Director
	Alexander Mikalachki (1)

	 	Director
	The
Hon. David R. Peterson, P.C., Q.C. (1)(11)
	 	Director
	Loretta A. Rogers (7)

	 	Director
	William T. Schleyer (4)

	 	Director
	Ian H. Stewart, Q.C. (1)(9)

	 	Director
	Peter C. Godsoe, O.C.

	 	Director
	John A. Tory, Q.C. (2)(3)(4)(6)(7)

	 	Director
	J. Christopher C. Wansbrough (1)(2)(5)(6)

	 	Director
	W. David Wilson (1)

	 	Director

	(1)	 	Denotes member of Audit Committee.
	 
	(2)	 	Denotes member of Executive Committee.
	 
	(3)	 	Denotes member of the Nominating and Corporate Governance Committee.
	 
	(4)	 	Denotes member of the Management Compensation Committee.
	 
	(5)	 	Denotes member of the Pension Committee.
	 
	(6)	 	Denotes member of the Finance Committee.
	 
	(7)	 	Loretta A. Rogers is married to Edward S. Rogers. Edward Rogers is the
son and Melinda Rogers is the daughter of Edward S.
Rogers and Loretta A. Rogers. John H. Tory, Q.C. is the son of John A.
Tory, Q.C.
	 
	(8)	 	On February 7, 2003 RCI announced changes to the management structure of
Cable coincident with the announcement by John H. Tory to seek public
office and the process of transitioning his responsibilities at Rogers.
Effective February 7, 2003 Edward Rogers was appointed President and
Co-Chief Executive Officer of Cable, John H. Tory was appointed Chairman
and Co-Chief Executive Officer of Cable and Dean MacDonald was appointed
Executive Vice President and Chief Operating Officer of Cable. Effective
April 11, 2003 Melinda Rogers was appointed Vice President, Strategic
Planning and Venture Investments of RCI. Mr. John H. Tory resigned as an
executive officer of Cable and RCI, effective May 2003, but continued in
the employment of the Company in an advisory capacity until December 31,
2003.
	 
	(9)	 	Mr. Stewart resigned from his position as Assistant Secretary of RCI in
April 2003.

24

 

	(10)	 	Mr. Gnat died on April 15, 2004.

	(11)	 	Mr. Peterson was a director of YBM Magnex International
Inc. when the Ontario Securities Commission issued cease trade orders
in May 1998.

	(12)	 	Mr. Emerson was a director of Livent Inc. when the
Ontario Securities Commission issued a cease trade order at the
request of Livent Inc. in August 1998. Mr. Emerson resigned as
director of Livent Inc. in November 1998.

H. Garfield Emerson, Q.C., 63, resides in Toronto, Ontario and has been a
director of RCI since November 1989 and Chairman of the Board since March 1993.
Mr. Emerson is also a director of the CAE Inc., Canada Deposit Insurance
Corporation, Wittington Investments, Limited, Rogers Wireless Communications
Inc., Rogers Cable Inc., Rogers Media Inc., Rogers Telecommunications Limited
and Sunnybrook & Women’s Health Sciences Centre. Mr. Emerson is the past Chair
of the Sunnybrook & Women’s Foundation and past Chair of the Campaign for
Victoria University in the University of Toronto. He is a former director of
the University of Toronto Asset Management Corporation and member of the
Business Board of the University of Toronto. Mr. Emerson joined Fasken
Martineau DuMoulin LLP, a national law firm, in August, 2001 as National Chair
and a senior partner and leader of the firm’s mergers and acquisitions
practice. In 1990, Mr. Emerson established NM Rothschild and Sons Canada
Limited, an investment banking firm affiliated with the Rothschild
international investment and merchant bank, and, from 1990 to 2001, served as
its President and Chief Executive Officer. Prior to this, Mr. Emerson
practiced law as a senior partner with Davies, Ward & Beck, Toronto, from 1970
to 1990. Mr. Emerson holds an Honours B.A. (History) and LL.B., University of
Toronto, was called to the Bar of Ontario in 1968 and appointed Queen’s Counsel
in 1980.

Philip B. Lind, C.M., 60, resides in Toronto, Ontario and has been a director
of the RCI since February, 1979. Mr. Lind is Vice-Chairman of the Corporation.
Mr. Lind joined RCI in 1969 as Programming Chief and has served as Secretary of
the Board and Senior Vice-President, Programming and Planning. Mr. Lind is also
a director of Brascan Corporation, Canadian General Tower Limited, Council for
Business and the Arts, Rogers Media Inc., The Outdoor Life Network and the
Power Plant (Contemporary Art Gallery at Harbourfront). Mr. Lind is a former
member of the Board of the National Cable Television Association in the U.S.;
and is a former Chairman and currently serves on the Board of the Canadian
Cable Television Association. He is also Chairman of the Board of the CCPTA
(Channel 17, WNED). Mr. Lind holds a B.A. (Political Science and Sociology)
University of British Columbia and a M.A. (Political Science), University of
Rochester. In 2002, he received a Doctor of Laws, honoris causa, from the
University of British Columbia. In 2002, Mr. Lind was appointed to the Order of
Canada.

Edward S. Rogers, O.C., 70, resides in Toronto, Ontario and has been a director
and President and Chief Executive Officer of RCI since January 1979. Mr. Rogers
is also a director and Chairman of Rogers Wireless Communications Inc.,
Chairman of Rogers Cable Inc., Vice-Chairman of Rogers Media Inc., and
President and Chief Executive Officer of Rogers Telecommunications Limited.
Mr. Rogers also serves as a director of the Cable Television Laboratories, Inc.
and the Canadian Cable Television Association. Mr. Rogers holds a B.A.,
University of Toronto, LL.B., Osgoode Hall Law School, and was called to the
Bar of Ontario in 1962. Mr. Rogers was appointed an Officer of the Order of
Canada in 1990 and inducted into the Canadian Business Hall of Fame in 1994.
In 2002, Mr. Rogers was inducted into the U.S. Cable Hall of Fame.

Alan D. Horn resides in Toronto, Ontario and has served as Vice President,
Finance and Chief Financial Officer of RCI since 1996, prior to which Mr. Horn
served as Vice President, Administration of RCI.

Ronan D. McGrath resides in Toronto, Ontario and has served as President,
Rogers Shared Services and Chief Information Officer of RCI since 1996, prior
to which Mr. McGrath served as Chief Information Officer of Canadian National
Railways.

Nadir H. Mohamed, 47, a resident of Toronto, Ontario, is President and Chief
Executive Officer of RWCI and has been a director of RWCI since June 2001. From
2000 to August 2001, Mr. Mohamed served as RWCI’s President and Chief Operating
Officer. From 1999 to 2000, he served as Senior Vice President, Marketing and
Sales of Telus Communications Inc. From 1981 to 1999, Mr. Mohamed held several
senior management positions at BC Tel (predecessor to Telus Communications
Inc.) and BC Tel Mobility, most recently serving as President and Chief
Operating Officer of BC Tel Mobility from 1997 to 1999. Mr. Mohamed is a
director of Sierra Wireless, Inc. and Cinram International Inc.

25

 

Edward Rogers, 34, resides in Toronto, Ontario and has been a director of RCI
since May 1997. Mr. Rogers is President and Chief Executive Officer, Rogers
Cable Communications Inc. Mr. Rogers also serves as a director of Rogers
Wireless Communications Inc., Rogers Media Inc., SportsNet Inc., the Toronto
Blue Jays and Futureway Communications Inc. Previously, he worked for Comcast
Corporation, Philadelphia, 1993-1996, and has served as Vice-President and
General Manager, Paging, Data and Emerging Technologies, Rogers Wireless Inc.,
1996-1998; Vice-President and General Manager, GTA, Rogers Cable Inc.,
1998-2000; and Senior Vice-President, Planning and Strategy, RCI, 2000-2002.
Mr. Rogers holds a B.A., University of Western Ontario.

Anthony P. Viner resides in Toronto, Ontario and has served as Senior Vice
President, Media of RCI since 1995. From 1992 to 1995, Mr. Viner served as
Senior Vice President, Broadcasting of RCI. Mr. Viner serves as a Director and
as President and Chief Executive Officer of Rogers Media Inc. Mr. Viner joined
Rogers Broadcasting Limited as Executive Vice President and General Manager of
CFTR/CHFI in February 1982 and, in September 1989, was appointed President of
Rogers Broadcasting Limited and CFMT-TV.

Alexander R. Brock resides in Toronto, Ontario and was appointed as Vice
President, Business Development of RCI in 2001. Mr. Brock has been associated
with Rogers in various executive capacities since 1995.

Donald B. Burt resides in Toronto, Ontario and was appointed Vice President,
Human Resources of RCI in 1998. From 1996 to 1998, Mr. Burt served as Vice
President, Human Resources of Wireless and RWCI.

Michele M. Cotton resides in Toronto, Ontario and has been Vice-President,
Capital Reporting of RCI since 2003. Ms. Cotton served as Vice President,
Rogers Wireless from 2002 to 2003.

M. Lorraine Daly resides in Toronto, Ontario and has been Vice-President,
Treasurer of RCI since 1989. Ms. Daly has served as Vice President, Treasurer
of Rogers Wireless since 1991 and has also served as Vice-President, Treasurer
of Cable since 1989. Ms Daly has been associated with RCI since 1987.

Bruce D. Day resides in Toronto, Ontario and has served as Vice President,
Corporate Development of RCI since 1991. Mr. Day has been associated with
Rogers since 1984.

Kenneth G. Engelhart resides in Toronto, Ontario and has served as Vice
President, Regulatory Law since 1992 and has been associated with RCI since
1990.

Gregory J. Henderson resides in Burlington, Ontario and has served as Vice
President, Group Controller since 1999. From 1993 to 1999, Mr. Henderson
served as an Officer of Wireless and RWCI, most recently as Vice President,
Controller.

Jan L. Innes resides in Toronto, Ontario and has served as Vice President,
Communications of RCI since 1995.

Roger D. Keay resides in Toronto, Ontario and has served as Vice President,
Technology of RCI since 1990.

Bruce M. Mann resides in Toronto, Ontario and has served as Vice President,
Investor Relations of RCI since 2001. From 1998 to 2001, Mr. Mann served as
Vice President, Investor Relations of Metronet Communications Inc. and, from
1986 to 1998, he was associated with US West, Inc., most recently as Investor
Relations Director.

Graeme H. McPhail resides in Toronto, Ontario and has served as Vice President
and Associate General Counsel of RCI since 1996, prior to which Mr. McPhail
served as Associate General Counsel. Mr. McPhail has been associated with RCI
since 1991. Mr. McPhail has also served as Vice President Associate General
Counsel of Wireless and RWCI since 1996.

David P. Miller resides in Toronto, Ontario and has served as Vice President,
General Counsel of RCI since 1987 and as Secretary of RCI since 2002. Mr.
Miller has also served as Vice President, General Counsel and Secretary of
Wireless and RWCI since 1991.

26

 

Melinda M. Rogers, 33, resides in Toronto and has been a director of RCI since
May 2002. Ms. Rogers also serves as a director of Rogers Cable Inc., The
Ontario Media Development Corporation, STSN Inc.
and the Jays Care Foundation. Ms. Rogers was appointed Vice-President, Venture
Investments of RCI in September 2000. Prior to joining RCI, Ms. Rogers was a
Product Manager for Excite@Home, Redwood City, California. Ms. Rogers holds a
B.A., University of Western Ontario, and an M.B.A., University of Toronto.

Thomas A. Turner, Jr. resides in Toronto, Ontario and has served as Vice
President, Convergence of RCI since 2001. Mr. Turner has been associated with
Rogers since 1992.

E. Jennifer Warren resides in Toronto, Ontario and has served as Vice President
and Assistant General Counsel of RCI since 2000. Ms. Warren served as Legal
Counsel of RCI from 1996 to 2000.

David J. Watt resides in Toronto, Ontario and has served as Vice President,
Business Economics of RCI since 1999. From 1995 to 1999, Mr. Watt served as
Vice President, Telecom Affairs of RCI, during which time Mr. Watt was seconded
to the Canadian Cable Television Association as Senior Vice President,
Economics and Telecommunications.

Richard Wong resides in Toronto, Ontario and has served as Vice President,
Business Performance of RCI since 2003. From 2001 to 2003 Mr. Wong was Senior
Vice President, Finance for the Toronto Blue Jays.

Daphne Evans resides in Toronto, Ontario and has served as Assistant Secretary
of RCI since 2002. Ms. Evans has been an officer of RCI since 1979, serving as
Secretary from 1993 to 2002 and as Assistant Secretary prior to 1993. Ms.
Evans also serves as Assistant Secretary of RCI’s subsidiaries.

Ronald D. Besse, 65, resides in Toronto, Ontario and has been a director of RCI
since June 1984. Mr. Besse was formerly Chairman, President and Chief
Executive Officer, Gage Learning Corporation. Mr. Besse is also a director of
CML Healthcare Inc., C.I. Fund Management Inc., Luxembourg Cambridge Holding
Group and Rogers Media Inc. Mr. Besse graduated from Ryerson Polytechnical
University, Business Administration, 1960 and was awarded the Alumni Award of
Distinction, Business Administration, 1998. Mr. Besse is a member of the Chief
Executives’ Organization, World Presidents’ Organization, and past President,
Canadian Book Publishers’ Council.

Thomas I. Hull, 72, resides in Toronto, Ontario and has been a director of RCI
since February 1979. Mr. Hull is Chairman and Chief Executive Officer of The
Hull Group of Companies. Mr. Hull is also a director of Rogers Wireless
Communications Inc., Rogers Media Inc. and Rogers Telecommunications Limited.
Mr. Hull is a graduate of Upper Canada College and the Insurance Co. of North
America College of Insurance and Risk Management. Mr. Hull is a life member of
the Canadian Association of Insurance and Financial Advisors and past president
of the Life Underwriters’ Association of Toronto.

Robert W. Korthals, 70, resides in Toronto, Ontario and has been a director of
RCI since February 1995. Mr. Korthals is currently Chairman of the Ontario
Teachers’ Pension Plan Board and a director of Cognos Inc., Rogers Cable Inc.,
Suncor Energy Inc., Mulvihull Exchange Traded Open-End Funds and Jannock
Properties Ltd. Mr. Korthals joined The Toronto Dominion Bank in 1967, was
appointed President in 1981, and served in this capacity until 1995. Mr.
Korthals holds a B.Sc., Chemical Engineering, University of Toronto, and an
M.B.A., Harvard Business School.

Alexander Mikalachki, 70, resides in London, Ontario and has been a director of
RCI since June 1999. Mr. Mikalachki is also a director of The Independent
Order of Foresters, Pacific and Western Credit Inc., and SimEx Inc. Mr.
Mikalachki served as Acting Dean, 1989-90, Associate Dean, Programs, 1981-1991
and Professor Emeritus, 2000, Richard Ivey School of Business, University of
Western Ontario. Mr. Mikalachki holds a B. Comm., Sir George Williams College
and an M.B.A., Ph.D., Ivey Business School, University of Western Ontario.

The Hon. David R. Peterson, P.C., Q.C., 60, resides in Toronto, Ontario and has
been a director of RCI since April 1991. Mr. Peterson is a senior partner and
Chairman of Cassels Brock & Blackwell LLP and Chairman of
Cassels•Pouliot•Noriega, an international affiliation of Toronto, Montreal and
Mexico City law firms. Mr. Peterson was elected as a Member of the Ontario
Legislature in 1975 and became the Leader of the Ontario Liberal party in 1982.
He served as Premier of Ontario between 1985 and 1990. Mr. Peterson is also a
director of a number of boards that includes Ivanhoe Cambridge Shopping Centres

27

 

Limited, Industrielle Alliance Assurance Company and National Life Assurance
Company, Rogers Wireless Communications Inc. and BNP Paribas. Mr. Peterson
holds a B.A. and LL.B., University of Toronto, was called to the Bar of Ontario
in 1969, appointed Queen’s Counsel in 1980, and summoned by Her Majesty to the
Privy Council in 1992.

Loretta A. Rogers, 65, resides in Toronto, Ontario and has been a director of
RCI since December 1979. Mrs.Rogers also serves as a director of Rogers Media
Inc., Rogers Telecommunications Limited and Sheena’s Place. Mrs. Rogers holds a
B.A., University of Miami and an honourary Doctorate of Laws, University of
Western Ontario.

William T. Schleyer, 52, resides in Rye Beach, New Hampshire and has been a
director of RCI since August 1998. Mr. Schleyer is Chairman and Chief
Executive Officer of Adelphia Communications Corp. He previously served as
President and Chief Executive Officer, AT&T Broadband, as a principal in Pilot
House Ventures, where he served as a liaison between investors and
entrepreneurs, as President and Chief Operating Officer of MediaOne, the
broadband services arm of U.S. West Media Group, and as President and Chief
Operating Officer of Continental Cablevision, Inc. before that company’s merger
with U.S. West in 1996. Mr. Schleyer holds a B.A., Mechanical Engineering,
Drexel University and an M.B.A., Harvard.

Ian H. Stewart, Q.C., 70, resides in Victoria, British Columbia and has been a
director of RCI since July 1990. Mr. Stewart resigned from his position as
Assistant Secretary in April 2003. Mr. Stewart is a member of the Law Society
of British Columbia and President of Appin Investments Limited. Mr. Stewart is
a former alderman of the City of Victoria, a former member and long-time Chair
of the Board of Governors of the University of Victoria, and a past President
of the B.C. Automobile Dealers Association. Mr. Stewart holds a B.A. and an
LL.B., University of British Columbia.

Peter C. Godsoe, O.C, 65, resides in Toronto, Ontario and has been a director
of the Corporation since October, 2003. Mr. Godsoe has served as Chairman
(1995), Chief Executive Officer (1993), President and Chief Operating Officer
(1992) and Vice-Chairman (1982), of The Bank of Nova Scotia since 1966. Mr.
Godsoe is also director of Empire Company Limited, Fairmont Hotels & Resorts,
Ingersoll-Rand company, Lonmin PLC and Templeton Emerging Markets Investment
Fund. Mr. Godsoe holds a B.Sc. (Mathematics and Physics) from the University
of Toronto and an M.B.A. from the Harvard Business School. He is a C.A. and a
Fellow of the Institute of Chartered Accountants of Ontario.

John A. Tory, Q.C., 74, resides in Toronto, Ontario and has been a director of
RCI since December 1979. Mr. Tory is President of Thomson Investments Limited.
Mr. Tory also serves as a director of The Thomson Corporation, The Woodbridge
Company Limited and Abitibi-Consolidated Inc. Mr. Tory was educated at
University of Toronto Schools, Toronto, Phillips Academy, Andover,
Massachusetts, and University of Toronto and holds an LL.B., University of
Toronto. Mr. Tory was called to the Bar of Ontario in 1954 and appointed
Queen’s Counsel in 1965.

J. Christopher C. Wansbrough, 71, resides in Toronto, Ontario and has been a
director of RCI since December 1982. Mr. Wansbrough is Chairman, Rogers
Telecommunications Limited. Mr. Wansbrough also served as President of
National Trust Company and Chairman of the Board of Omers Realty Corporation.
Mr. Wansbrough serves as a director of United Corporations Ltd., Rogers
Wireless Communications Inc., Rogers Cable Inc. and Rogers Media Inc. Other
affiliations include Chairman of the Board of the R.S. McLaughlin Foundation
and The Independent Order of Foresters. Mr. Wansbrough holds a B.A.,
University of Toronto, and is a Chartered Financial Analyst.

W. David Wilson, 59, resides in Toronto, Ontario and has been a director of RCI
since February 1979. Mr. Wilson is Vice-Chairman, Bank of Nova Scotia and
Chairman and Chief Executive Officer, Scotia Capital Inc. Mr. Wilson joined
McLeod Young Weir Limited in 1971 and became Managing Director, Corporate
Finance Department in 1984, President and Deputy Chief Executive Officer,
ScotiaMcLeod, in 1993 and Chairman and Chief Executive Officer of Scotia
Capital Markets in 1998 and Vice-Chairman, Bank of Nova Scotia in 2002. Mr.
Wilson is a director of University of Toronto Press and the Art Gallery of
Ontario and a member of he Dean’s Advisory Council for the Schulich School of
Business, York University and the 5-year Review Committee (reviewing the
Securities Act (Ontario). Mr. Wilson holds a B. Comm., University of Toronto
and an M.B.A., York University.

28

 

ITEM 9 — ADDITIONAL INFORMATION

General

The Company shall provide to any company or person, upon request to the
Secretary of the Company:

	(a)	 	when the securities of the Company are in the course of a distribution
pursuant to a short form prospectus or a preliminary short form prospectus
has been filed in respect of a distribution of its securities:

	 	(i)	 	one copy of the annual information form of the Company, together
with one copy of any document, or the pertinent pages of any document,
incorporated by reference in the annual information form;
	 
	 	(ii)	 	one copy of the comparative financial statements of the Company for
its most recently completed financial year together with the
accompanying report of the auditors and one copy of any interim
financial statements of the Company subsequent to the financial
statements for its most recently completed financial year;
	 
	 	(iii)	 	one copy of the information circular to the Company in respect of
its most recent annual meeting of shareholders that involve the
election of directors or one copy of any annual filing prepared in lieu
of that information circular, as appropriate; and
	 
	 	(iv)	 	one copy of any other documents that are incorporated by reference
into the preliminary short-form prospectus or the short-form prospectus
and are not required to be provided under (i) to (iii) above;

or

(b) at any other time, one copy of any other documents referred to in (a)(i),
(ii) and (iii) above, provided the Company may require the payment of a
reasonable charge if the request is made by a person or company who is not a
security holder of the Company.

The Secretary of the Company can be contacted at the Company’s principal
office, located at 333 Bloor Street East, 9th Floor, Toronto, Ontario, Canada,
M4W 1G9 (telephone: 416-935-7777).

Additional information including directors and officers remuneration and
indebtedness, principal holders of the Company’s securities, options to
purchase securities and interest of insiders and material transactions is
contained in the Company’s management information circular for its most recent
annual meeting of shareholders that involved the election of directors.
Additional financial information is provided in the Company’s comparative
financial statements for its most recently completed financial year, including
the Notes thereto. Detailed information concerning the Company’s significant
accounting policies and Canadian and United States accounting policy
differences is presented in Notes 2 and 22, respectively.

29exv4w7

 

Rogers Communications Inc.

2003 MANAGEMENT’S DISCUSSION AND ANALYSIS

     
For the purposes of this discussion, the operations of Rogers
Communications Inc. (“Rogers”, “RCI” or the
“Company”) and the financial results relating to its
operations have been reported in three segments:

	•	 	“Cable” or “Rogers Cable”, which refers to
Rogers’ wholly owned subsidiary Rogers Cable Inc.;
	 	 	 
	•	 	“Wireless”, “Rogers Wireless” or
“RWCI”, which refers to Rogers’ 55.8% owned subsidiary
Rogers Wireless Communications Inc.; and
	 	 	 
	•	 	“Media” or “Rogers Media”, which refers to
Rogers’ wholly owned subsidiary Rogers Media Inc.

     
RCI, Cable, Wireless and Media are collectively referred to as the
“Rogers Group of Companies”.

     
This discussion should be read in conjunction with the audited
Consolidated Financial Statements and Notes thereto for 2003.

     The
financial information presented herein has been prepared on the basis
of Canadian generally accepted accounting principles
 (“GAAP”). Please refer to Note 22 to the Consolidated
Financial Statements for a summary of differences between Canadian and
United States (“U.S.”) GAAP.

     
This discussion, the Consolidated Financial Statements and the notes
thereto have been reclassified to reflect the retrospective
application of Canadian Institute of Chartered Accountants Handbook
Section 1100, “Generally Accepted  Accounting Principles”
and Emerging Issues Committee Abstract 142, “Revenue
Arrangements with Multiple Deliverables”. The retrospective
adoption of these pronouncements resulted in our presentation of a
classified balance sheet and the reclassification of the change in
non-cash working capital items related to property, plant and
equipment (“PP&E”) from operating activities to
PP&E expenditures under investing activities. For a more complete
discussion, see the section entitled “— New Accounting
Standards — GAAP Hierarchy”. The retrospective adoption of
these pronouncements also resulted in the reclassification of certain
revenue and expense items, which are detailed in the section
entitled “— Revenue Recognition”.

     Throughout this discussion, percentage changes are calculated using
numbers rounded to the decimal to which they appear. All dollar amounts are in
Canadian dollars unless otherwise indicated.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     This Management’s Discussion and Analysis includes forward-looking
statements concerning the future performance of the Company’s business, its
operations and its financial performance and condition. When used in this
Management’s Discussion and Analysis, the words “believe”, “anticipate”,
“intend”, “estimate”, “expect”, “project” and similar expressions are intended
to identify forward-looking statements, although not all forward-looking
statements contain such words. These forward-looking statements are based on
current expectations. The Company cautions that all forward-looking information
is inherently uncertain and actual results may differ materially from the
assumptions, estimates or expectations reflected or contained in the
forward-looking information, and that actual future performance will be
affected by a number of factors, including economic conditions, technological
change, regulatory change and competitive factors, many of which are beyond its
control. Therefore, future events and results may vary significantly from what
the Company currently foresees. The Company is under no obligation (and
expressly disclaims any such obligation) to update or alter the forward-looking
statements whether as a result of new information, future events or otherwise.
For a more detailed discussion of factors that may affect actual results, see
discussions under “Cable Risks and Uncertainties”, “Media Risks and
Uncertainties” and “Wireless Risks and Uncertainties” below.

OVERVIEW

Company

     Rogers is a diversified national Canadian communications company, which is
engaged in cable television, broadband Internet (“Internet”) access and video
retailing through its wholly owned subsidiary Rogers Cable, in wireless voice,
data and messaging services through its 55.8% owned subsidiary

 

 

2

Rogers Wireless, and in radio and television broadcasting, televised
shopping, consumer magazines and trade and professional publications through
its wholly owned subsidiary Rogers Media. In addition, Rogers holds other
investment interests, including an interest in the Toronto Blue Jays Baseball
Club (the “Blue Jays”) and in a pay-per-view movie service as well as in
several digital specialty channels, all of which are accounted for by the
equity method.

COMPANY STRATEGY

     The Company’s business strategy is to maximize revenue, operating profit
and return on invested capital by maintaining and enhancing its position as one
of Canada’s leading national diversified communications and media companies.
Rogers’ objective is to be the preferred provider of communications,
entertainment and information services to Canadians. The Company seeks to take
advantage of opportunities to leverage its networks, infrastructure, sales
channels and marketing opportunities across the Rogers Group of Companies to
create value for its customers and shareholders.

     RCI helps to identify and facilitate opportunities for its cable, wireless
and media businesses 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 loyalty. The Company also works to
identify and implement areas of opportunity for its businesses that will
enhance operating efficiencies and capital utilization by sharing
infrastructure, corporate services and sales distribution channels. During
2003, the sharing of call centre and information technology infrastructure
enabled the Company to form an integrated Cable and Wireless customer service
group serving the needs of customers subscribing to both Cable and Wireless
services. The Company also offers a combined bill for customers who
subscribe to multiple services from across the Rogers group of companies.

     Cable,
together with RCI, announced an initiative on February 12, 2004,
to deploy an advanced broadband Internet Protocol (IP) multimedia
network to support primary line voice-over-cable telephony and other new
services across cable service areas. This investment plan, the
completion of which assumes a regulatory environment supportive of
competition from voice-over-cable telephony, includes the capital costs
required to deploy a scalable primary line quality digital
voice-over-cable telephony service utilizing PacketCable and DOCSIS
standards, including the costs associated with switching, transport,
IP network redundancy, multi-hour network and customer premises
powering, network status monitoring, customer premises equipment,
information technologies and systems integration. Cable also expects the
PP&E expenditures required to deploy this platform will be
approximately $200 million over two years. Cable also expects the
majority of the PP&E expenditures will occur in the first 12 to 18
months of the deployment, with 2004 expenditures expected to be
between $140 million and $170 million. Once this initial
platform is deployed, the additional variable PP&E
expenditures associated with adding each voice-over-cable telephony service subscriber, which
includes uninterruptible backup powering at the home, is expected to be
in the range of $300 to $340 per subscriber.

     Cable is
currently refining its business strategies with respect to
voice-over-cable telephony services. As a result, the PP&E
expenditures, costs and timeline described above are initial
estimates. In addition, Cable, together with RCI, is considering
offering the telephony services described above through another
wholly owned RCI subsidiary, Rogers Telecom Inc. (Rogers Telecom).
RCI is currently in the process of recruiting an industry executive
to lead Rogers Telecom. Although Cable’s
business strategies and organizational structure with respect to
telephony services continue to be refined, it plans to incur most or all of
the PP&E expenditures described above to upgrade its network to an
advanced broadband multimedia platform capable of supporting
voice-over-cable telephony and other new services. In the event that
Rogers Telecom offers voice-over-cable telephony services, Cable
would enter into an agreement with Rogers Telecom which could relate
to, among other things, access to and the use of Cable’s network.

     For a more detailed discussion of the business strategies of the Cable,
Wireless and Media divisions, please refer to the respective sections below.

KEY PERFORMANCE INDICATORS

     The Company measures the success of its strategies using a number of key
performance indicators, which are outlined below. With the exception of
revenue, the following key performance indicators are not measurements in
accordance with Canadian or U.S. GAAP and should not be considered as an
alternative to net income or any other measure of performance under Canadian or
U.S. GAAP.

Revenue

     Revenue is a measurement defined by Canadian and U.S. GAAP. Revenue is net of items such as trade or volume
discounts and certain excise and sales taxes. It is the base on which
operating profit cash flow, a key performance indicator defined below, is
determined. It measures the potential to deliver operating profit cash flow as well as
indicating the level of growth in a competitive market place.

     The Company derives its revenues principally from a combination of:

	 	•	 	recurring monthly subscription-based fees for services from Cable and Wireless;
	 
	 	•	 	incremental usage-based fees from subscribers of Cable and Wireless;
	 
	 	•	 	revenues from retail operations at
Cable and Wireless; and
	 
	 	•	 	revenues at its Media division, which derives its revenues from a
combination of magazine subscriptions and advertising revenues in
television, radio and publishing, subscriptions for television stations
received from cable and satellite providers and retail sales derived
from its televised home shopping network.

Subscriber Counts

     The Company determines the number of subscribers of its services and
publications based on active subscribers. A wireless subscriber is,
generally, represented
by each identifiable 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, these customers are
considered to be deactivations in the month that service is discontinued.

Subscriber Churn

     Subscriber churn is calculated on a monthly basis. For any particular
month, subscriber churn for Cable or Wireless represents the number of
subscribers 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.

Average Revenue per Subscriber

     The
average revenue per subscriber, or 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. Network revenue is used, instead of
total revenue, because network revenue excludes the impact of the
sale of equipment, which is generally sold at a price that
approximates cost to facilitate competitive pricing at the retail
level. ARPU, when used in connection with a
particular type of subscriber, represents monthly revenue generated from these
subscribers divided by the average number of these subscribers during the
month. When used or reported for a period greater than one month, ARPU
represents the average of the ARPU calculations for each period. The Company believes ARPU helps indicate whether the Company
has been successful in attracting and retaining higher value
subscribers.

Operating Expenses

     Operating expenses are segregated into three categories
for assessing business performance:

 

3

	 	•	 	cost of sales, which is comprised of wireless equipment costs, Rogers
Video (a subsidiary of Cable “Video”) store merchandise and depreciation of Video
store rental assets, as well as cost of goods sold by the Shopping Channel
a subsidiary of Media;
	 
	 	•	 	sales and marketing expenses, which
represent the costs to acquire new
subscribers in the Company’s subscription-based businesses and include
items such as 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 video chain store locations and retail operations 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, Internet and
e-mail services and printing and
production costs.

     In the wireless and cable industries in Canada, the demand for services
continues to grow and the variable costs, such as
commissions paid for subscriber activations, as well as the fixed costs of
acquiring new subscribers are significant. Fluctuations in the number of
activations of new subscribers from period-to-period and the seasonal nature of
both Cable and Wireless’ subscriber additions result in fluctuations in sales
and marketing expenses. In the Company’s 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.

Cost of Acquisition per Subscriber

     Cost of
acquisition per subscriber (“COA”), which is also often referred to in the
industry as “subscriber acquisition cost” or “cost per gross addition”, is
calculated by dividing total sales and marketing expense plus costs
related to equipment provided to existing subscribers, for the
period by the total number of gross subscriber activations. COA is a
measure followed closely by the Company and used most commonly in a Wireless
context and is generally
in direct proportion to the level of ARPU and term of a
subscriber’s contract.

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 subscribers by
the average number of subscribers during the period. Operating
expense per subscriber is tracked as a measure of the Company’s ability to
leverage its operating cost structure across a growing subscriber base, and the
Company believes that it is an important measure of its ability to attain the
benefits of scale as the Company increases its business.

Operating Profit and Operating Profit Margin

     The
Company defines operating profit as net income before
depreciation and amortization, interest expense, income taxes and non-operating items which include losses from investments accounted for by the equity method,
foreign exchange gains, loss on repayment of long-term debt, gain (loss) on the
sale of other investments, writedown of investments, the gain on the
disposition of AT&T Canada Deposit Receipts, other income and non-controlling
interest as well as the 2002 workforce reduction costs and the Wireless net recovery
related to the change in estimates of sales tax and CRTC contribution
liabilities. 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 the Company’s
competitors as earnings before interest, taxes, depreciation and
amortization (EBITDA) or operating income before depreciation and
amortization (OIBDA). The Company believes this is an important measure as it
allows the Company to assess its ongoing businesses without the impact of
depreciation or amortization expenses as well as non-operating factors. It is
intended to indicate the Company’s ability to incur or service debt, invest in
property, plant and equipment (“PP&E”) and allow the Company to compare itself to competitors who have different
capital or organizational structures. This measure is not a defined term under
GAAP.

          The Company calculates operating profit margin by dividing operating
profit by revenue for operating segments in the case of the Cable and Media
businesses. 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 excludes the impact of the sale of equipment, which is
generally sold at a price that approximates cost to facilitate competitive
pricing at the retail level. This measure is not a defined term under
GAAP.

Additions to PP&E

     PP&E expenditures include those costs associated with acquiring and
placing into service the Company’s PP&E. Because the wireless 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. The Company focuses
more on managing additions to PP&E than it does on managing depreciation and
amortization expense because additions to PP&E have a more
direct impact on the
Company’s cash flow, whereas depreciation and amortization are non-cash
accounting measures required under GAAP.

     Additions to PP&E included in the
Consolidated Statement of Cash Flows comprise additions to PP&E
on a cash basis. The addition to PP&E based on the accrual basis
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 on the accrual basis best reflect
our cost of PP&E in a period, and provides a more accurate
determination for period-to-period comparisons. Our discussions of
additions to PP&E as found in the sections titled “ Additions to PP&E” are based on the accrual basis.

SEASONALITY

     The Company’s operating results are subject to seasonal fluctuations that
materially impact quarter-to-quarter operating results. Accordingly,
one quarter’s
operating results are not necessarily indicative of what a subsequent quarter’s
operating results will be. Each of Cable, Wireless and Media has unique
seasonal aspects to their businesses. For a detailed discussion of the seasonal
trends effecting the Cable, Wireless and Media businesses, refer to the
respective sections below.

OVERVIEW OF GOVERNMENT REGULATION

     Substantially all of the business activities of the Company and its
subsidiaries, except for the non-broadcasting operations of Rogers Media, are
regulated by the Canadian Federal Department of Industry, Science and
Technology, on behalf of the Minister of Industry (Canada) (collectively
“Industry Canada”) and the Canadian Radio-television and Telecommunications
Commission (“CRTC”) under the Telecommunications Act (Canada) (the
“Telecommunications Act”) and the Broadcasting Act (Canada) (the “Broadcasting
Act”), and, accordingly, the Company’s results of operations are affected by
changes in regulations and decisions by these regulators.

Canadian Radio-television and Telecommunications Commission

     Canadian broadcasting operations, including Rogers’ cable television
systems, radio and television stations, and specialty services are licenced and
regulated by the CRTC pursuant to the Broadcasting Act. Under the Broadcasting
Act (Canada), the CRTC is responsible for regulating and supervising all aspects of the
Canadian broadcasting system with a view to implementing certain broadcasting
policy objectives enunciated in the Broadcasting Act (Canada). The CRTC is also
responsible under the Telecommunications Act for the regulation of
telecommunications carriers, including Wireless’ cellular and messaging
operations and the Internet services provided by Cable.

Copyright Board of Canada

     The 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.
Historically, the Copyright Board (Canada) has been responsible for the
review, consideration and approval of copyright tariff royalties payable to copyright
collectives by Canadian broadcasting undertakings, including cable, radio,
television and specialty services.

Industry Canada

     The technical aspects of the operation of radio and television stations,
frequency-related operations of the cable television networks and the awarding
of spectrum for cellular, messaging and other radio-telecommunications systems
in Canada are subject to the licensing requirements and oversight of
Industry. Industry Canada may set
technical standards for telecommunications under the Radiocommunication Act
(Canada) and the Telecommunications Act (Canada).

Restrictions on Non-Canadian Ownership and Control

     Non-Canadians are permitted to own and control directly or indirectly up
to 33 1/3% of the voting shares and 33 1/3% of the votes of a holding company
which has a subsidiary operating company licenced under the
Broadcasting Act (Canada).
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. 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
retains the discretion to determine as a question of fact whether a given
licencee is controlled by non-Canadians.

     On May 10, 2001, the Minister of Canadian Heritage asked a Parliamentary
Committee to conduct a review of the Broadcasting Act(Canada) and examine, among other
things, the current restrictions on foreign ownership of companies licenced
under the Broadcasting Act(Canada).

     Pursuant
to the Telecommunications Act (Canada) and associated regulations, up to
20% of the voting shares of a Canadian carrier, such as the Company’s operating
subsidiary Rogers Wireless Inc. (“RWI”) and up to 33 1/3% of the voting shares
of a parent company, such as Wireless or RCI, may be held by non-Canadians,
provided that neither the Canadian carrier nor its parent is otherwise
controlled by non-Canadians. Similar restrictions are contained in the
Radiocommunication Act (Canada).

     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 undertakings. In
June 2003, the House of Commons Heritage Committee released a report which
opposed the Industry Committee’s recommendation. The Cabinet responded to the
Industry Committee report in September 2003 and to the Heritage Committee
report in November 2003. Officials from the Industry and Heritage departments
will convene to reconcile the two positions. It is expected that
sometime during 2004, the
Government of Canada intends to be in a position to examine possible solutions.
Rogers supports the recommendation as it pertains to the removal of foreign
ownership restrictions for both telecommunications carriers and broadcasting
distribution undertakings but cannot predict what, if any, changes might
result.

     For recent regulatory developments related specifically to the Cable,
Wireless and Media divisions, please refer to the respective sections below.

COMPETITION

     The Company currently faces effective competition in each of its primary
businesses from entities providing substantially similar services, some of
which entities have significantly greater resources than the Company. Each of the Company’s businesses also faces competition from
entities utilizing alternative communications technologies and may face
competition from other technologies being developed or to be developed in the
future. For a detailed discussion of the specific competition facing each of
the Cable, Wireless and Media businesses, please refer to the respective
sections below.

 

4

INTERCOMPANY AND RELATED PARTY
TRANSACTIONS

     From time to time, the Company enters into agreements with its
subsidiaries and other related parties that the Company believes are mutually
advantageous to the Company and its affiliates. The Company’s subsidiaries
also enter into agreements with related parties. For example, Wireless has
entered into a reciprocal roaming arrangement and other agreements related to
the marketing and delivery of wireless services with AWE, one of the Wireless’
significant shareholders.

     Each of Wireless, Cable and Media has entered into a management services
agreement under which the Company provides a range of services, including
strategic planning, financial and information technology services. The Company
also maintains contractual relationships with Wireless and Cable involving
other cost sharing and services agreements. In late 2001, the Company began
providing customer service call centre services to Wireless and Cable thereby
expanding the contractual relationships between the companies. In January
2003, the Company began managing the collection of accounts receivable of
Wireless and Cable.

     The Company monitors its intercompany and related party agreements to
ensure that the agreements remain beneficial to the Company. The Company is
continually evaluating the expansion of existing arrangements and entry into
new contracts.

     See “Intercompany and Related Party Transactions” below.

CRITICAL ACCOUNTING POLICIES

General

     Management’s Discussion and Analysis of Operating Results and Financial
Position is made with reference to the Company’s 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 estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the period. These estimates are based on
management’s historical experience and various other assumptions that are
believed to be reasonable

 

5

under the circumstances, the results of which form the basis for making
judgments about the reported amounts of revenues, expenses, carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results could differ from these
estimates.

     The Company has identified the accounting policies outlined below as
critical to an understanding of its business operations and an understanding of
its results of operations. The impact and any associated risks related to these
policies on its business operations are discussed throughout this Management’s
Discussion and Analysis.

     The Audit Committee reviews the Company’s accounting policies. The Audit
Committee also reviews all quarterly and annual filings and recommends adoption
of the Company’s annual financial statements to the Company’s board of
directors. For a detailed discussion on the application of these and other
accounting policies, see
Note 2 to the Consolidated Financial Statements.

Revenue Recognition

     The Company considers revenue to be earned as services are performed,
provided 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 relationships,
contractual or otherwise, with the Company’s subscribers:

	 	•	 	monthly subscriber fees in connection with wireless services and
equipment, cable and Internet services and equipment, equipment rental
and media subscriptions are recorded as revenue on a pro rata basis over
the month;
	 
	 	•	 	revenue from wireless airtime, wireless long-distance and optional
services, pay-per-view and video-on-demand movies, installation and
activation charges, video rentals and other transactional sales of
products, including retail, are recorded as revenue as the services or
products are provided;
	 
	 	•	 	advertising revenue is recorded in the month the advertising airs on
the Company’s radio or television stations and the month in which
advertising is featured in the Company’s media publications; and
	 
	 	•	 	monthly subscription revenue received by television stations for
subscriptions from video service providers are recorded in the month in
which they are earned.

Unearned revenue includes subscriber deposits and amounts received from
subscribers related to services and subscriptions to be provided in future
periods.

     Effective
January 1, 2004, we adopted new accounting standards regarding
the timing of revenue recognition and the classification of certain
items as revenue or expense. See “— Recent Accounting
Developments — Revenue Recognition”.

Allowance for Doubtful Accounts

     A
significant portion of the Company’s revenue is earned from selling on
credit to individual consumer and business customers. The allowance for
doubtful accounts, as disclosed on the consolidated balance sheet of the Consolidated
Financial Statements, is calculated by taking into account factors such as the
Company’s historical collection and write-off experience, the number of days
the customer is past due, and the status of a customer’s account with respect
to whether or not the customer is continuing to receive service in the case of
Cable and Wireless. 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 deterioration in the aging of
subscriber accounts will in turn increase the

 

6

reported amount of bad debt expense. Conversely, as circumstances improve
and customer accounts are adjusted and brought current, the reported amount of
bad debt expense will decline.

Subscriber Acquisition Costs

     Cable and Wireless operate within highly-competitive industries and
generally incur significant costs to attract new subscribers. All sales and marketing
expenditures, such as commissions and equipment subsidies (generally relating to wireless
equipment and digital set top converters) related to subscriber
acquisitions are expensed at the time of activation of the subscriber.
A large
percentage of the subscriber acquisition costs, such as equipment
subsidies and commissions, are variable in nature and directly related to the
acquisition of a subscriber. In addition, subscriber acquisition costs on a
per subscriber acquired basis fluctuate on the success of promotional
activity and seasonality of Cable and Wireless businesses. Accordingly if the Company experiences
significant growth in subscriber activations during a period, expenses for that
period will increase.

Costs of Subscriber Retention

     In keeping with the practice of expensing costs related to the acquisition
of new cable and wireless subscribers at the time of activation, costs related
to subscriber retention and contract renewals are expensed in the period
incurred. Increased retention activities in a given period will in turn
increase expense in the same period.

Capitalization of Direct Labour and Overhead

     As outlined in the recommendations of the Canadian Institute of Chartered
Accountants (“CICA”) with respect to PP&E, capitalization of costs includes the
consideration expended to acquire, construct, develop or better an item of PP&E
and includes all costs directly attributable to those activities. The cost of an item of PP&E includes
direct construction or software development costs, such as materials
and labour, and overhead costs directly attributable to the construction or software
development activity. The cost to enhance the service potential of an item of
PP&E is considered a betterment. Service potential may be enhanced where there
is an increase in the previously assessed service capacity,
associated operation costs are lowered, the life or useful life is extended, or
the quality of service is improved. Costs incurred in the maintenance of the
service potential of an item of PP&E are expensed as incurred.

     The Company capitalizes direct labour and direct overhead incurred to
construct new assets and better existing assets.
Although interest costs are permitted to be capitalized during construction,
the Company’s policy is not to capitalize such interest costs.

     Amounts of direct labour and direct overhead that are capitalized
fluctuate from year-to-year depending on the level of customer growth, new
services and network expansion. In addition, the level of capitalization
of direct labour and overhead fluctuates depending on the proportion of internal labour versus external
contractors used in construction projects.

     The
percentage of direct labour capitalized is determined, in many cases, by
the nature of activities in a specific department. For example, all labour and
direct overhead of the construction departments are capitalized as a result of
the nature of the activity performed by those departments. In some cases, the
amount of capitalization depends on the level of maintenance versus capital
activity that a department performs. In these cases, an analysis of work
activity is applied to determine this percentage allocation.

 

7

Depreciation Policies and Useful Lives

     The Company depreciates the cost of PP&E over the estimated useful service
lives of the items. These estimates of useful lives involve considerable
judgment. In determining these estimates, the Company takes into account
industry trends and company-specific factors, including changing technologies
and expectations for the in-service period of these assets. On an annual
basis, the Company reassesses its 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 the
Company has anticipated, the Company might have to shorten the estimated life
of certain PP&E, which could result in higher depreciation expense in future
periods or an impairment charge to write down the value of PP&E.

Asset Impairment

     The
valuations of all long-lived assets, along with spectrum licences and
goodwill, are subject to annual reviews for impairment.

     A two-step process
determines impairment of long-lived assets. The first step determines when
impairment must be measured and compares the carrying value to the sum of the
undiscounted cash flows expected to result from their use and eventual
disposition. If the carrying value exceeds this sum, a second step is
performed, which measures the amount of the impairment as the difference
between the carrying value of the long-lived asset and its fair value
calculated using quoted market price or discounted cash flows. An impaired
asset is written down to its estimated fair market value based on the
information available at that time. Considerable management judgment is
necessary to estimate discounted cash flows. Assumptions used in estimating
these cash flows are consistent with those used in internal forecasting and are
compared for reasonability to forecasts prepared by external analysts.
Significant changes in assumptions with respect to the competitive environment
could result in impairment of these assets.

          In testing for impairment of goodwill, the Company conducts a two-step
process. In the first step, the fair value of the Company is compared with its
carrying value. If the fair value exceeds the carrying value, no impairment is
considered to have occurred. The second step is performed when the carrying
value of the Company exceeds its fair value, in which case the implied fair
value of the Company’s goodwill is determined in the same manner as it would be
determined in a business combination.

     Spectrum
licences are tested for impairment by comparing their fair values
with their carrying values. When fair values exceed carrying values,
no impairment is considered to have occurred.

     The Company cannot predict whether an
event that triggers an impairment will occur, when it will occur or
how it will affect the asset values reported.

     The AT&T brand licence, acquired in 1996 at an aggregate cost of $37.8
million, which provided Rogers Wireless with, among other things, the right to
use the AT&T brand name, was determined to have no remaining useful life at
December 31, 2003 as Rogers Wireless had announced its intention
to terminate this brand licence agreement in early 2004. The remaining book
value of $20.0 million was therefore fully amortized. See “Related Party and
Intercompany Transactions” for a further discussion of this item and
Note 5(b) to the Consolidated Financial Statements.

Pension Assumptions

     On an annual basis, the Company reviews assumptions related to defined
benefit pension plans. As a result, the assumptions related to the weighted
average discount rate for accrued benefit obligations remains at 6.25%, the
weighted average expected long-term rate of return on plan assets remains at
7.25% and the assumption with respect to the weighted average rate of
compensation increase has been reduced from 5.0% to 4.0%. The Company
anticipates that cash contributions to the defined benefit pension
plans will be approximately $9.4 million in 2004.

Contingencies

     The Company is subject to various claims and contingencies related to
lawsuits, taxes and commitments under contractual and other commercial
obligations. The Company recognizes liabilities for contingencies and
commitments when a loss is probable and capable of being reasonably estimated.

 

8

Significant changes in assumptions as to the likelihood and estimates of
the amount of a loss could result in recognition of an additional liability.

Related Party Transactions

     All material related party transactions are reviewed by the Audit
Committee of the RCI Board of Directors. Refer to “Intercompany and Related
Party Transactions” below and to Note 17 to the Consolidated Financial
Statements for additional information on related party transactions.

NEW ACCOUNTING STANDARDS

     In 2003, the Company adopted the following new accounting standards as a
result of changes to Canadian GAAP:

Asset Retirement Obligations

     Under new Canadian and U.S. accounting standards, the Company is now
required to record the fair value of the liability for an asset retirement
obligation in the year in which it is incurred and when a reasonable estimate
can be made. Fair value is defined as the amount at which that liability could
be settled in a current transaction between willing parties.

     The Company reviewed its existing contracts and commitments to determine
where such obligations exist and determined many of its contracts do
not have any such asset retirement obligations. The Company then assessed what the estimated
fair value of those obligations that exist would be, and the probability that these would
be incurred. The Company determined that the fair value of the
obligations was not significant. The Company will monitor contracts
on an ongoing basis and when the Company determines that an
obligation exists, the Company will record such obligations at their
fair values.

Impairment of Long-Lived Assets

     On January 1, 2003, the Company prospectively adopted the new accounting
pronouncement, “Impairment of Long-Lived Assets,” which establishes standards
for the recognition, measurement and disclosure of the impairment of long-lived
assets. This standard harmonizes Canadian requirements with U.S. GAAP
impairment provisions. Previously, the impairment of long-lived assets was
measured as the difference between the carrying value of the asset and the
future undiscounted net cash flows expected to be generated by the asset.
Under the new pronouncement, described above, this measurement is used to determine if
impairment has occurred, and the amount of impairment is measured as the
difference between the carrying value of the asset and its fair value,
calculated using quoted market price or discounted cash flows. The adoption of
the new pronouncement had no impact on the Company as no impairment of
long-lived assets had occurred at December 31, 2003.

RECENT ACCOUNTING DEVELOPMENTS

GAAP Hierarchy

     In June
2003, the CICA released Handbook Section 1100, “Generally
Accepted Accounting Principles”. Previously there had been no
clear definition of the order of authority for sources of GAAP. This
standard established standards for financial reporting in accordance
with Canadian GAAP and applies to our 2004 fiscal year. This section
also provides guidance on sources to consult when selecting
accounting policies and on appropriate disclosures when a matter is
not dealt with explicitly in the primary sources of GAAP.

     We have reviewed
this new standard, and as a result have adopted a classified balance
sheet presentation since we believe that the historical industry
practice of a declassified balance sheet presentation is no longer
appropriate.

     In
addition, within the Consolidated Statements of Cash Flows, we have
reclassified the change in non-cash working capital items related to
PP&E to investing activities. This change had the impact of
increasing cash used in investing activities on the Statements of
Cash Flows, compared to our previous method, by $81.4 million for the
year ended December 31, 2003 and decreasing cash used in investing
activities by $52.2 million for the year ended December 31, 2002. In
all periods, the corresponding change was to non-cash working capital
items within operating activities.

     With the
adoption of these two changes, we believe that our accounting
policies and financial statements comply with this  new standard.

 

9

Hedging Relationships

     The Company uses derivative instruments, including cross-currency interest
rate exchange agreements, interest rate exchange agreements, and foreign
exchange forward contracts, to manage risks from fluctuations in exchange rates
and interest rates. As more fully described in Note 2((t)(ii)) to the
Consolidated Financial Statements, effective January 1, 2004, Canadian GAAP
will require the Company to maintain detailed documentation regarding these
derivative financial instruments in order to continue accounting for these as
hedges. Further, the Company will be required to assess whether each hedging
relationship is effective, both at its inception and on an on-going basis.

     If the Company determines that these derivative instruments will not
continue to be accounted for as hedges, the Company will adjust the recorded
amount of the liabilities related to these instruments from their carrying
value of $334.8 million at December 31, 2003, to their fair value of $388.2
million. The corresponding adjustment of $53.4 million will be recorded as a deferred loss
and amortized into income over the remaining life of the underlying
debt. Going
forward, this liability will be marked to market on a quarterly basis and any
changes in value will be recorded in the statement of income. This is
consistent with the Company’s treatment of these instruments under U.S. GAAP.

Revenue Recognition

     Effective
January 1, 2004, we adopted new Canadian accounting standards,
including Emerging Issues Committee Abstract 142. “Revenue
Arrangements with Multiple Deliverables” and CICA Handbook
Section 1100, regarding the timing
of revenue recognition and the classification of certain items as
revenue or expense. As a result, we  made the following changes to our
classification of certain revenue and expense items:

	•	 	Wireless activation fees are now classified as equipment
revenue. Previously, these amounts were classified as network revenue.
	 
	•	 	Recoveries from new and existing subscribers from the sale of
equipment are now classified as equipment revenue. Previously, these
amounts were recorded as a reduction to sales expenses in the case of
a new Cable or Wireless subscriber, or as a reduction to operating,
general and administrative expense in the case of an existing
Wireless Subscriber.
	 
	•	 	Equipment subsidies provided to new and existing Wireless
subscribers are now classified as a reduction to equipment revenue.
Previously, these amounts were recorded as a sales expense in the case
of a new subscriber, or as an operating, general and administrative
expense in the case of an existing subscriber. Wireless equipment
costs for equipment provided under retention programs to existing
Wireless subscribers are now recorded as cost of equipment sales.
Previously, these amounts were recorded as operating, general and
administrative expense. 
	 
	•	 	Certain other recoveries from subscribers related to
collections activities are now recorded as network revenue rather
than as a recovery of operating, general and administrative expenses.
	 
	 	 	As a result of the adoption of these new accounting standards,
the following changes to the classification of revenue and expenses
have been made:

	 	 	 	 	 	 	 	 	 
	 
	 	Year Ended December
31,

	 
	 	2003
	 	2002

	 
	 	(in thousands of
dollars
except per subscriber statistics)
	Cable Revenue
	 	 	 	 	 	 	 	 
	Prior to adoption
	 	 	1,769,220	 	 	 	1,596,401	 
	After adoption
	 	 	1,788,122	 	 	 	1,614,554	 
	Wireless Revenue
	 	 	 	 	 	 	 	 
	Prior to adoption
	 	 	2,282,203	 	 	 	1,965,927	 
	After adoption
	 	 	2,207,794	 	 	 	1,891,514	 
	Total Revenue
	 	 	 	 	 	 	 	 
	Prior to adoption
	 	 	4,847,363	 	 	 	4,323,045	 
	After adoption
	 	 	4,791,856	 	 	 	4,266,785	 
	Cost of sales
	 	 	 	 	 	 	 	 
	Prior to adoption
	 	 	505,951	 	 	 	458,838	 
	After adoption
	 	 	642,243	 	 	 	545,684	 
	Sales and
Marketing expenses
	 	 	 	 	 	 	 	 
	Prior to adoption
	 	 	905,274	 	 	 	833,038	 
	After adoption
	 	 	742,781	 	 	 	697,579	 
	Operating,
general and administrative expenses:
	 	 	 	 	 	 	 	 
	Prior to adoption
	 	 	1,987,242	 	 	 	1,889,555	 
	After adoption
	 	 	1,957,936	 	 	 	1,881,908	 
	Total expenses
	 	 	 	 	 	 	 	 
	Prior to adoption
	 	 	3,398,467	 	 	 	3,181,431	 
	After adoption
	 	 	3,342,960	 	 	 	3,125,171	 
	Wireless
postpaid (voice and data) ARPU
	 	 	 	 	 	 	 	 
	Prior to
adoption
	 	 	57.55	 	 	 	55.95	 
	After adoption
	 	 	57.25	 	 	 	55.78	 
	Wireless
blended ARPU
	 	 	 	 	 	 	 	 
	Prior to
adoption
	 	 	47.42	 	 	 	45.20	 
	After adoption
	 	 	47.19	 	 	 	45.07	 
	Wireless
sales and marketing expenses per wireless gross subscriber addition
	 	 	 	 	 	 	 	 
	Prior to
adoption
	 	 	397	 	 	 	384	 
	After adoption
	 	 	376	 	 	 	366	 
	Wireless
average monthly operating expense per wireless subscriber
	 	 	 	 	 	 	 	 
	Prior to
adoption
	 	 	17.22	 	 	 	18.16 	 
	After
adoption
	 	 	17.62	 	 	 	18.55	 
	Core Cable ARPU
	 	 	 	 	 	 	 	 
	Prior to
adoption
	 	 	42.99	 	 	 	40.29	 
	After
adoption
	 	 	43.69	 	 	 	40.96	 

These changes in accounting
classification had no effect on the amounts of reported operating profit,
net income or earnings per share. All prior period amounts, including
key performance indicators, have been conformed to reflect these changes
in classification.

Stock-Based Compensation

     Effective January 1, 2004, Canadian GAAP will require companies to
estimate the fair value of stock- based compensation to employees and to
expense the fair value over the estimated useful life of the options. As a
result, in 2004, the Company will begin expensing the fair value of options
granted to employees since January 1, 2002 and will record an adjustment to
opening retained earnings in the amount of $7.0 million, representing the
expense for the 2002 and 2003 fiscal years. The estimated impact of adopting
this accounting standard in 2004, if the Company were to continue using the
Black-Scholes option pricing model, would be an expense of approximately $13.0
million.

Accounting Guideline 15, Consolidation of Variable Interest Entities

     As detailed in Note 2((t)(iv)) to the Consolidated Financial Statements,
effective January 1, 2005 the Company will be required to consolidate “variable
interest entities”. Under U.S. GAAP, the Company will be required to
consolidate the entities on January 1, 2004 (Note 22(r) to the Consolidated
Financial Statements).

     The Company has determined that Blue Jays Holdco Inc., the ultimate parent
of the Blue Jays, is a variable interest entity that the Company will
consolidate. The consolidation will have no impact on the Company’s
consolidated net income as 100% of the losses of Blue Jays Holdco are presently
recorded.

 

10

However, in the future, the gross revenues, expenses, assets and
liabilities of the Blue Jays will be recorded in the Company’s Consolidated
Financial Statements.

     No other variable interest entities in addition to the Blue Jays have been
identified that will require consolidation.

ALTERNATIVE ACCEPTABLE ACCOUNTING POLICIES

     GAAP permits, in certain circumstances, alternative acceptable accounting
policies. The three primary areas where the Company has a choice are: (1) the
accounting for subscriber acquisition costs at Wireless and Cable, (2) the
accounting for stock-based compensation cost and (3) capitalized interest.

Accounting for Subscriber Acquisition Costs

     Subscriber acquisition costs are fully expensed in the period incurred in
both Cable and Wireless. An alternative method is to defer and
amortize these costs over the expected life of the contract or relationship with the
customer. The Company has elected to expense these costs in the period they
are incurred because the Company believes these costs reflect period costs that
may or may not be recoverable depending on the length of the relationship with
the customer, whether it be contractual or otherwise. In addition, subscriber
acquisition costs on a per subscriber basis fluctuate based on the
success of promotional activity and seasonality of the business, and as such,
the Company believes these costs should be reflected as costs at the point in
time that they are incurred.

Accounting for Stock-Based Compensation

     The Company does not record any expense for employee stock options;
however, it provides note disclosure of the pro forma expense using the fair
value-based method of accounting calculated using the Black-Scholes
Option Pricing model.
While the Company acknowledges that stock options represent a form of
compensation, it has elected to disclose the pro forma expense in
Note 11((d)(i))
to the Consolidated Financial Statements, rather than expense such
compensation, to maintain comparability to other peer companies. In response to activities and decisions by accounting standard
setters in Canada in respect to the adoption of mandatory expensing of stock
options, as described above, effective January 1, 2004, the Company will adopt
the policy of expensing the fair value of stock options granted to employees.

Capitalized Interest

     Canadian GAAP permits, but does not require, the capitalization of
interest expense as part of the historical cost of acquiring certain assets
that require a period of time to prepare for their intended use. The Company
does not capitalize interest as part of its PP&E expenditures.

U.S. GAAP DIFFERENCES

     The Company prepares its 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 the Company’s Consolidated Financial
Statements are described in Note 22 to the Consolidated Financial Statements.

     The significant differences include:

	 	•	 	accounting for the gain on sale and exchange on certain cable television systems;

 

11

	 	•	 	accounting for development and pre-operating costs;
	 
	 	•	 	accounting for interest
capitalization and the related depreciation impact;
	 
	 	•	 	classification of certain equity instruments and the related interest and accretion;
	 
	 	•	 	shares used in connection with the purchase of a business;
	 
	 	•	 	accounting for changes in the fair value of financial instruments, and.
	 
	 	•	 	accounting for the grant of certain options to non-employees.
	 
	 	•	 	accounting for minimum pension
liability;

Accounting for the Gain on Sale and Exchange on Certain Cable Television
Systems

     Under Canadian GAAP, the cash proceeds of a non-monetary exchange of cable
assets in 2000 were recorded as a reduction in the carrying value of PP&E.
Under U.S. GAAP, a portion of the cash proceeds received must be recognized as a
gain in the Consolidated Statement of Income. Under U.S. GAAP, the gain
amounted to $40.3 million before income taxes.

     In addition, 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 in the carrying value of goodwill acquired in a contemporaneous
acquisition of certain cable television systems. Under U.S. GAAP, the gain was
included in net income, net of related deferred income taxes.

     As a result of accounting for gains on sale and exchanges of certain cable
television systems under U.S. GAAP, the Company’s income for U.S. GAAP was
decreased by $4.0 million for the years ended December 31, 2003 and 2002.

Accounting for Development and Pre-Operating Costs

     Under Canadian GAAP, the Company defers the incremental costs relating to
the development and pre-operating phases of new businesses and amortize these
costs on a straight-line basis over periods up to five years. Under U.S. GAAP,
these costs are expensed as incurred. As a result, under U.S. GAAP the
consolidated net income for the years ended December 31, 2003 and 2002 was
increased by $11.2 million and $12.6 million, respectively.

Accounting for Interest
Capitalization and the Related Depreciation Impact

     U.S.
GAAP requires capitalization of interest costs as part of the
historical cost of acquiring certain qualifying assets that require a
period of time to prepare for their intended use. This is not
required under Canadian GAAP. The impact of capitalizing interest
under U.S. GAAP is to increase net income by $5.4 million in 2003 and
$7.8 million in 2002.

Classification of Certain Equity Instruments and the Related Interest and
Accretion

     Under Canadian GAAP, the Convertible Preferred Securities are classified
as shareholders’ equity, and the related interest expense is recorded as a
distribution from retained earnings. For U.S. GAAP purposes, these securities
are classified as long-term debt and the related interest expense is recorded
in the Consolidated Statement of Income. This adjustment results in the
Company’s net income for U.S. GAAP being decreased by $35.4 million and $92.4
million in each of the years ended December 31, 2003 and 2002, respectively.

Shares Issued in Connection with a Purchase of a Business

     U.S. 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. Canadian GAAP required that shares issued in
connection with a purchase business combination be valued based on the market
price at the consummation date of the acquisition. Accordingly, the cost of
acquisition of Cable Atlantic Inc. under U.S. GAAP was increased by
$35.4
million, resulting in an increase of goodwill by this amount and a
corresponding increase in contributed surplus.

Accounting for Changes in the Fair Value of Financial Instruments

     Under U.S. GAAP, the changes in fair value of cross-currency interest rate
exchange agreements and interest rate exchange agreements must be recorded as
an adjustment to net income. Accordingly,

 

12

the Company’s net income under U.S. GAAP for the years ended December 31,
2003 and 2002 has been increased (decreased) by ($217.5 million) and $126.0
million, respectively.

Accounting for the Grant of Certain Options to Non-Employees

     For U.S. GAAP purposes, options granted to non-employees must be measured
at the fair value at grant dates and recorded as deferred compensation expense
and shareholders’ equity. The fair value must be re-measured at each reporting
date until vesting is complete, with corresponding adjustments to the deferred
compensation expense. The deferred compensation is recognized as compensation
expense over the vesting period of the options. As a result of the Blue Jays
not being consolidated with the results of the Company, options granted to
employees of the Blue Jays in 2001 are treated as if they were granted to
non-employees. As a result, net income for U.S. GAAP purposes was decreased by
$1.2 million and $1.9 million in the years ended December 31, 2003 and 2002,
respectively.

Accounting for Minimum Pension
Liability

     Under
United States GAAP, the Company is required to record an additional
minimum pension liability for one of its plans to reflect the excess
of the accumulated benefit obligation over the fair value of the plan
assets. Other comprehensive income has been charged with $5.0
million, net of income taxes of $2.9 million. No such adjustment is
required under Canadian GAAP.

Summarized Consolidated Financial
Results—Year Ended December 31, 2003
Compared to Year Ended December 31, 2002

     For the year ended December 31,
 2003, Cable, Wireless and Media
represented 37.3%, 46.1% and 17.8% of Rogers’ consolidated revenue,
respectively, offset by negative 1.2%, representing corporate items and
eliminations. Cable, Wireless and Media represent 45.8%, 50.2%, and 7.4%,
respectively, of Rogers consolidated operating profit, offset by negative 3.4%,
representing corporate expenses. See “Key Performance
Indicators—Operating Profit and Operating Profit Margin” section. For more detailed discussions of the Cable, Wireless
and Media divisions, please refer to the respective segment discussions below.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	Years Ended December 31,	 	 	 	 
	 	 	 	
	 	 	 	 
	(In
millions of dollars, per share amounts)	 	2003	 	2002	 	%Chg
	 	 	
	 	
	 	

	Operating revenue
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cable(1)
	 	$	1,788.1	 	 	$	1,614.6	 	 	 	10.8	 
	 	Wireless(1)
	 	 	2,207.8	 	 	 	1,891.5	 	 	 	16.7	 
	 	Media
	 	 	855.0	 	 	 	810.8	 	 	 	5.5	 
	 	Corporate items and
eliminations
	 	 	(59.0	)	 	 	(50.1	)	 	 	17.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	 	4,791.9	 	 	 	4,266.8	 	 	 	12.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Operating expenses
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cable(1)
	 	 	1,124.6	 	 	 	1,051.1	 	 	 	7.0	 
	 	Wireless(1)
	 	 	1,480.2	 	 	 	1,363.8	 	 	 	8.5	 
	 	Media
	 	 	748.3	 	 	 	723.2	 	 	 	3.5	 
	 	Corporate items and
eliminations
	 	 	(10.1	)	 	 	(12.9	)	 	 	(21.7	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	 	3,343.0	 	 	 	3,125.2	 	 	 	7.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Operating
 profit(2)
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cable
	 	 	663.5	 	 	 	563.5	 	 	 	17.7	 
	 	Wireless
	 	 	727.6	 	 	 	527.7	 	 	 	37.9	 
	 	Media
	 	 	106.7	 	 	 	87.6	 	 	 	21.8	 
	 	Corporate items and
eliminations
	 	 	(48.9	)	 	 	(37.2	)	 	 	31.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	 	1,448.9	 	 	 	1,141.6	 	 	 	26.9	 
	Other income
 and expense, net(3)
	 	 	1,319.7	 	 	 	829.6	 	 	 	59.1	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Net income
	 	$	129.2	 	 	$	312.0	 	 	 	(58.6	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Operating
 profit (2) as a percent of
revenue
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cable
	 	 	37.1	%	 	 	34.9	%	 	 	 	 
	 	Wireless
	 	 	33.0	 	 	 	27.9	 	 	 	 	 
	 	Media
	 	 	12.5	 	 	 	10.8	 	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	 	 
	Total
	 	 	30.2	%	 	 	26.8	%	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	 	 
	Earnings per share
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Basic
	 	$	0.35	 	 	$	1.05	 	 	$	(66.6	)
	 	Diluted
	 	$	0.34	 	 	$	0.83	 	 	$	(59.0	)
	 
	 	Total
assets
	 	$	8,465.5	 	 	$	8,524.5	 	 	 	(0.7	)
	 	Total
liabilities
	 	$	6,504.8	 	 	$	6,987.9	 	 	 	(6.9	)
	 
	Additions
to Property, plant and equipment:
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cable
	 	$	509.6	 	 	 	650.9	 	 	 	(21.7	)
	 	Wireless
	 	 	411.9	 	 	 	564.5	 	 	 	(27.0	)
	 	Media
	 	 	41.3	 	 	 	42.7	 	 	 	(3.3	)
	 	Corporate items and
eliminations
	 	 	0.9	 	 	 	3.9	 	 	 	(76.9	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	$	963.7	 	 	$	1,262.0	 	 	 	(23.6	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 

	(1)	 	As reclassified. See the
“Recent Accounting Developments - Revenue
Recognition” section.
	 
	(2)	 	As defined in “Key
Performance Indicators—Operating Profit and Operating
Profit Margin”.
	 
	(3)	 	See “Reconciliation of
Operating Profit to Net Income for specific details of these
amounts.
	 

     Consolidated
revenue was $4,791.9 million in 2003, an increase of
$525.1 million, or 12.3%, from $4,266.8 million in 2002. Of the increase, Wireless
contributed $316.3 million, Cable $173.5 million and Media $44.2 million.

     Consolidated operating profit was $1,448.9 million, an increase of $307.3
million, or 26.9%, from $1,141.6 million in 2002. Wireless contributed $199.9
million, Cable $100.0 million and Media $19.1 million of the operating profit
increase. Consolidated operating profit as a percentage of revenue (“operating
margin”) increased to 30.2% in 2003 from 26.8% in 2002. The operating margin
increase was supported by increased operating margins in all three divisions.
Refer to the respective individual segment discussions for details of the
revenue, operating expenses, operating profit and property, plant and equipment
(“PP&E”) capital expenditures of Cable, Wireless and Media.

     On a consolidated basis, the Company recorded net income of $129.2 million
for the year ended December 31, 2003, as compared to net income of $312.0
million in 2002. Refer to “Reconciliation of Operating Profit to Net Income”
and “Liquidity and Capital Resources” below for additional discussion of the
year-over-year changes in net income.

Reconciliation of Operating Profit to Net Income

     The items listed below represent the consolidated income and expense
amounts that are required to reconcile operating profit with operating income
and net income as defined under Canadian GAAP. The following section should be
read in conjunction with Note 16 to the Consolidated Financial Statements for
details of these amounts on a segment-by-segment basis and an understanding of
intersegment eliminations on consolidation.

	 	 	 	 	 	 	 	 	 	 
	 	 	 	Years Ended December 31,
	 	 	 	

	(In millions of dollars)	 	2003	 	2002
	 	 	
	 	

	Operating profit(1)
	 	$	1,448.9	 	 	$	1,141.6	 
	Other (1)
	 	 	—	 	 	 	6.5	 
	Depreciation and amortization
	 	 	(1,040.3	)	 	 	(981.5	)
	 
	 	 	
	 	 	 	
	 
	Operating income
	 	 	408.6	 	 	 	166.6	 
	Interest on long-term debt
	 	 	(488.9	)	 	 	(491.3	)
	Losses from investments accounted for by
the equity method
	 	 	(54.0	)	 	 	(100.6	)
	Foreign exchange gain
	 	 	303.7	 	 	 	6.2	 
	Gain (loss) on repayment of long-term debt
	 	 	(24.8	)	 	 	10.1	 
	Gain (loss) on sale of other investments
	 	 	17.9	 	 	 	(0.6	)
	Write-down of investments
	 	 	—	 	 	 	(301.0	)
	Gain on disposition of AT&T Canada
	 	 	 	 	 	 	 	 
	 	Deposit Receipts
	 	 	—	 	 	 	904.3	 
	Other income
	 	 	2.2	 	 	 	2.4	 
	Income taxes
	 	 	22.9	 	 	 	74.7	 
	Non-controlling interest
	 	 	(58.4	)	 	 	41.2	 
	 
	 	 	
	 	 	 	
	 
	Net income
	 	$	129.2	 	 	$	312.0	 
	 
	 	 	
	 	 	 	
	 

	(1)	 	As previously defined see
“Key Performance Indicators—Operating
Profit and Operating Profit Margin”.
	 
	 	 	Other
	 
	 	 	In 2002, a net recovery of $6.5 million was recorded consisting of the
following items:

	 	 	 	 	 
	(In millions of dollars)	 	 	 
	 	    Workforce reduction costs – Cable
	$	(5.9	)
	 	    Change in estimate of sales tax – Wireless
	 	19.2	 
	 	    CRTC contribution liabilities – Wireless
	 	(6.8	)
	 
	 	 	
	 
	 
	 	$	6.5	 
	 
	 	 	
	 

Cable Workforce Reduction Costs

     During the fourth quarter of 2002, Cable reduced its workforce by 187
employees in the technical service, network operations and engineering
departments and incurred $5.9 million in costs, primarily related to severance
and other termination benefits, associated with this reduction. In addition to
these employee separations, Cable eliminated approximately 62 contract
positions. Of this amount, $1.9 million was paid in fiscal 2002, with
the balance of $4.0 million being paid in fiscal 2003.

Wireless Change in the Estimate of Sales Tax

     In 2002, Wireless received clarification with respect to a potential sales
tax liability that the Company had recorded as an expense in previous periods.
As a result, Wireless released a $19.2 million provision related to previous
years’ operations.

Wireless CRTC Contribution Liabilities

     In 2002, Wireless received additional information with respect to the
calculation of the CRTC contributions and more specifically, the applicability
of the contribution levy on certain revenues. As a result of this information,
the Company determined and recorded an additional expense related to 2001 in
the amount of $6.8 million. The CRTC contribution regime is discussed in the
“Overview of Government Regulation and Regulatory Developments” section below.

Depreciation and Amortization Expense

     Depreciation and amortization expense in 2003 was $1,040.3 million, an
increase of $58.8 million, or 6.0%, from $981.5 million in the prior year. The increase
was directly attributable to increased PP&E expenditures and
the resultant higher asset levels at Cable and Wireless associated with PP&E
spending over the past several years. With the reduction of PP&E expenditures
in 2002 and 2003 from 2001 levels, however, the increases in depreciation are
less significant than in previous years.

     Amortization increased as a result of the increased amortization related
to the AT&T brand licence, which provided Wireless with, among other things,
the right to use the AT&T brand name. During 2003, Wireless announced that it
would terminate its brand licence agreement in early 2004 and change its brand
name to exclude the AT&T brand. Consequently, the Company accelerated the
amortization of the brand licence to reduce the carrying value to nil.

Operating Income Reconciliation Under GAAP

     Operating income as defined under Canadian GAAP increased to $408.6
million in 2003, an increase of $242.0 million or 145.3% from the $166.6
million earned in 2002. The items to reconcile operating income to net income
are as follows:

Interest Expense

     Interest expense in 2003 was $488.9 million, a decrease of $2.4 million,
or 0.5%, from $491.3 million in 2002. Reduced debt at RCI was the primary reason for the decrease in interest expense
year-over-year. The reduction in debt levels is directly related to the impact
of the change in foreign exchange related to the improvement in the Canadian
dollar versus the U.S. dollar.

Losses from Investments Accounted for by the Equity Method

     The Company records losses and income from investments that it does not
control, but over which it is able to exercise significant influence, by the
equity method. The equity loss for 2003 and 2002 was $54.0 million and $100.6
million, respectively.

     The equity loss consists of the Blue Jays’ loss of $56.5 million in 2003
and $101.7 million in 2002, offset by investments with equity income of $2.5
million in 2003 and $1.1 million in 2002 related to other equity investments.

     In 2003 and 2002, the Company advanced $29.4 million and $40.6 million of
cash, respectively, to the Blue Jays to fund the Blue Jays’ cash deficit. In
2000, Rogers purchased an 80% interest in the Blue Jays for cash of
$163.9 million from Labatt Brewing
Company Limited, a subsidiary of Interbrew Breweries S.A. (“Interbrew”).
Rogers had the option to acquire the 20% minority interest in the
Blue Jays at any time after December 15, 2003. In January 2004, the Company concluded the
purchase from Interbrew of Interbrew’s remaining 20% minority ownership of the
Blue Jays for approximately $39.1 million pursuant to the agreement.

     As the result of an April 2001 agreement with Rogers Telecommunications
Ltd. (“RTL”), a company controlled by the controlling shareholder of Rogers,
RTL acquired voting control of the Blue Jays. The Company currently
accounts for this investment using the equity method and records 100% of the
operating losses of the Blue Jays. The agreement with RTL did not change as a
result of the Company’s purchase of Interbrew’s 20% minority interest, and,
accordingly, Rogers expects to continue to account for this investment using
the equity method.

     The Blue Jays are expected to generate lower operating losses in 2004 than
in 2003, reflecting efficiencies in its operations and the benefit of the
strengthened Canadian dollar. In 2004, cash funding by the Company to the Blue
Jays is expected to be approximately $20 million to
$25 million.

     At the time of purchase RCI
agreed with Major League Baseball that it will: (i) perform or cause the Toronto Blue Jays Baseball Club
(the “Club”) to perform all of the terms imposed by Major
League Baseball acting under the scope of its authority;
(ii) perform or cause the Club to perform all duties and
obligations of the Club under the governing documents of Major League
Baseball and under those agreements to which Major League Baseball
entities are parties; and (iii) assume and perform or cause the
Club to perform all liabilities and obligations of the Club asserted
by any party against any Major League Baseball entity.

     If E.S.
Rogers is
unable to exercise control over the Blue Jays and Major League
Baseball (“MLB”) determines that a sale or transfer of a
control interest in the Blue Jays has occurred, then MLB is entitled
to take such action as it consider necessary in accordance with its
guidelines, rules and regulations.

Foreign Exchange Gain

     The Canadian dollar continued to strengthen in relation to the U.S. dollar
in 2003, continuing the trend experienced in 2002. Accordingly, the Company
recorded a foreign exchange gain of $303.7 million in 2003, compared to $6.2
million in 2002, related to both realized and unrealized foreign exchange
gains, the largest portion of which arose from the translation of the unhedged
portion of U.S. dollar-denominated long-term debt.

Gain (loss) on Repayment of Long-Term Debt

     During 2003, the Company redeemed an aggregate U.S.$334.8 million and
$165.0 million principal amount of its Senior Notes and Debentures. The
Company paid a prepayment premium of $19.3 million, and wrote off related
deferred financing costs of $5.5 million, resulting in a loss on the repayment
of debt of $24.8 million.

     During 2002, the Company repurchased or redeemed in aggregate U.S.$326.1
million principal amount of debt and terminated U.S.$796.1 million notional
amount of swaps for cash proceeds of $225.2 million. As a result of these
transactions, the Company recorded a net gain of $10.1 million and a
deferred gain of $22.5 million on the termination of certain of the swaps.

Gains (loss) on the Sale of Investments

     During 2003, the Company recorded a gain on the sale of investments of
$17.9 million compared to a loss on the sale of investments of $0.6 million in
2002. The gain on the sale of investments in 2003 related primarily to the
sale of shares of various publicly traded companies that had been held by the
Company for investment purposes.

Write-down of Investments

     The Company reviewed the carrying value of all investments and determined
no write-downs were required in 2003.

     In 2002, as part of its annual review of the carrying value of
investments, the Company determined a write-down in the amount of $301.0
million was required. The largest component of this write-down in 2002 related to the Company’s
investment in Cogeco Cable Inc. and Cogeco Inc., which accounted for $238.9
million of the total. Cogeco shares were written down to the December 31, 2002
publicly traded value on the basis that the market price at that time reflected
management’s best estimate of the fair value of the investment.

     During 2002, the Company’s other investments were reviewed, and it was determined that write-down of
approximately $62.1 million was required based on publicly traded values and
estimated values of privately held companies.

Gain on Disposition of AT&T Canada Deposit Receipts

     In 2002,
AT&T Corp. (“AT&T”) purchased for cash the
deposit receipts of AT&T
Canada Inc. (“AT&T Canada”). The Company received cash proceeds of $1.28
billion, which, after taking into account the carrying costs of the investment
and related costs, resulted in a pre-tax gain of $904.3 million. The proceeds
were used by the Company, together with other funds, to redeem the Company’s
outstanding Preferred Securities and to settle the Collateralized Equity
Securities associated with the previous monetizations by the Company of its
AT&T Canada investment.

Other Income

     This includes interest earned on cash deposits. In 2002, the amount was
offset by the accretion on the Preferred Securities and Collateralized Equity
Securities as described in Note 11(c) to the Consolidated Financial Statements.

Income Taxes

     Income
tax expense consists of large corporations tax is calculated under Canadian GAAP as outlined in Note
13 to the Consolidated Financial Statements.

Non-Controlling Interest

     Non-controlling interest, representing a 44.2% interest in Wireless’ net
income, was an expense of $58.4 million in 2003 as compared to
a gain of $41.2 million in
2002. The year-over-year change represents the significant year-over-year
improvement in Wireless’ net income which was in a loss position in 2002.

Net Income and Earnings per Share

     The Company recorded net income of $129.2 million in 2003, or $0.35 per
share, compared to net income of $312.0 million in 2002, or $1.05 per
share. In 2003, the weighted average number
of Class A Voting Shares and Class B Non-Voting Shares outstanding increased to
225.9 million from 213.6 million in 2002. The number of shares and the earnings
per share (“EPS”) amount stated above reflect basic earnings per share.

EMPLOYEES

     At December 31, 2003, the Company had approximately 15,000 full-time
equivalent employees (“FTE”) across all of its operating groups, including the
Company’s shared services organization and corporate office, representing an
increase of approximately 100 FTEs from the levels of December 31, 2002. The
employment level increase primarily reflects increased sales staff customer
service staff, partially offset by staff reductions in other groups resulting
from operating efficiencies.

     For details of Cable, Wireless and Media employee levels, please refer to
the respective discussions below.

     Total remuneration paid to employees (both full and part time) in 2003 was
approximately $801.0 million, an increase of $30.0 million, or 3.9%, from
$771.0 million in the prior year.

Rogers Cable

CABLE OVERVIEW

     Rogers Cable is Canada’s largest cable television company, serving close
to 2.3 million basic subscribers, representing approximately 29% of basic cable
subscribers in Canada. Cable also provides digital cable services to
approximately 535,300 subscribers and Internet service to approximately 790,500
subscribers at December 31, 2003.

     Cable has highly-clustered and technologically advanced broadband networks
in Ontario, New Brunswick and Newfoundland.
Cable’s Ontario cable systems, which comprise approximately 90% of its 2.3
million basic cable subscribers, are concentrated in three principal clusters
in and around: (i) the greater Toronto area, Canada’s largest metropolitan
centre; (ii) Ottawa, the national capital city of Canada, and (iii) the Guelph
to London corridor in southern Ontario. Cable’s New Brunswick and Newfoundland
cable systems in Atlantic Canada comprise the balance of its subscribers.

Cable Products and Services

     With 99%
of its network having digital cable available and more than 92% upgraded to 750
Megahertz (“MHz”) or 860 MHz, Rogers Cable has a highly-competitive offer which
includes high definition television (“HDTV”), a suite of ‘Rogers on Demand’
services (including video on demand (“VOD”), personal video recorders (“PVR”)
and time shifted programming), impulse pay-per-view (“PPV”), movies and events
as well as a significant line-up of digital, multicultural and sports programming.

     Rogers
Cable’s Internet service is available to over 96% of it’s homes
passed.
Cable’s Internet service is available to residential
customers in either a High Speed or Rogers Hi-Speed Internet
Lite (Internet Lite) service offering. Cable also offers a full range
of data and Internet products to business customers.

     Rogers Cable also offers videocassette, digital video disc (“DVD”) and
video game sales and rentals through Rogers Video, Canada’s second largest
chain of video stores. There were 279 Rogers Video stores at December 31, 2003,
of which many are integrated stores that provide Rogers customers with the
additional ability to purchase cable and wireless products and services, pay
their cable television, Internet or Rogers Wireless bills and to pick up and
return cable TV and Internet equipment.

Cable Distribution Network

     In addition to the Rogers Video stores as described above, Cable markets
its services through an extensive network of retail locations across its
network footprint, including the Rogers Wireless independent dealer network,
Rogers AT&T Wireless stores and kiosks and major retail chains such as
RadioShack Canada Inc., Future Shop Ltd. and Best Buy Canada. Cable also
offers products and services and customer service on its e-business Web site,
www.rogers.com.

 

13

Cable Networks

     Cable’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 interconnections allow Cable’s multiple Ontario and New Brunswick
cable systems to function as a single cable network. Cable’s remaining
subscribers in Newfoundland and New Brunswick are served by local
head-ends. Cable’s two regional head-ends in Toronto, Ontario and Moncton, New
Brunswick provide the source for most television signals used in the cable
systems.

     Cable’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 Cable serves, are connected together 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
through two paths, providing protection from a fibre cut or other disruption.
These high-capacity optical fibre networks deliver high performance and
reliability, and have substantial reserves for future growth in the form of
dark fibre and unused optical wavelengths. Cable’s primary hubs serve a
from 4,000 to 248,000 subscribers, with two of the primary hubs each
serving over 200,000 subscribers.

     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 believes
co-axial cable is the
most cost-effective and widely deployed means of carrying two-way television
and high-speed Internet services to residential subscribers.

     Groups
of an average of 640 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 750 MHz or 860 MHz, which includes 37 MHz
of bandwidth used for “upstream” transmission from the subscribers’ premises to
the primary hub. Cable believes the upstream bandwidth is sufficient to
support multiple cable modem systems 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. Fibre cable has been placed to permit a reduction
of the average node size from 640 to 300 homes by installing additional optical
transceiver modules and optical transmitters and return receivers in the
head-ends and primary hubs.

     More than 92% of Cable’s cable plant has been upgraded to 750/860 MHz
FTTF architecture, with approximately 96% of its plant capable of transmitting
550 MHz of bandwidth or greater. Through the completion of Cable’s scheduled
network upgrade program, 96% will be rebuilt to 750/860 MHz FTTF by early 2004 and, by year
end 2004, approximately 85% of its network will be upgraded to 860 MHz. Some
smaller communities and rural areas continue to use more traditional two-way
cable architectures with 2,000 subscribers per node and 600 MHz bandwidth.
Overall, 96% of Cable’s total cable plant was two-way addressable at December
31, 2003 and 99% of the homes passed in Cable’s service areas had digital cable
available.

     Cable believes that the 750/860 MHz FTTF architecture provides it with
sufficient bandwidth for foreseeable growth in television, data and future
services, a high quality picture, advanced two-way capability and increased
reliability. In addition, Cable’s clustered network of cable systems served by
regional head-ends facilitates the Company’s ability to rapidly introduce new
services to subscribers with a lower capital cost.

 

14

Telephony Initiative

     Cable, together
with RCI, announced an initiative on February 12,
2004, to deploy an advanced broadband Internet Protocol (IP) multimedia
network to support primary line voice-over-cable telephony and other
new services across cable service areas. This investment plan,
the completion of which assumes a regulatory environment supportive
of competition from voice-over-cable telephony, includes the capital
costs required to deploy a scalable primary line quality digital
voice-over-cable telephony service utilizing PacketCable and DOCSIS
standards, including the costs associated with switching, transport,
IP network redundancy, multi-hour network and customer premises powering,
network status monitoring, customer premises equipment, information
technologies and systems integration. Cable expects the PP&E expenditures
required to deploy this platform will be approximately
$200 million over two years. Cable also expects the majority of
the PP&E expenditures will occur in the first 12 to 18 months of the deployment, with 2004
expenditures expected to be between $140 million and
$170 million. Once this initial platform is deployed, the
additional variable PP&E expenditures associated with adding each voice-over-cable telephony service subscriber, which includes
uninterruptible backup powering at the home, is expected to be in the
range of $300 to $340 per subscriber addition.

     Cable is
currently refining its business strategies with respect to
voice-over-cable telephony services. As a result, the PP&E expenditures,
costs and timeline described above are initial estimates. In addition, Cable,
together with RCI, is
considering offering the telephony services described above through
another wholly owned RCI subsidiary, Rogers Telecom Inc. (Rogers
Telecom). RCI is currently in the process of recruiting an
industry executive to lead Rogers Telecom. Although
Cable’s business strategies and organizational structure with respect
to telephony services continue to be refined, it plans to incur most
or all of the PP&E expenditures described above to upgrade its
network to an advanced broadband multimedia platform capable of
supporting voice-over-cable telephony and other new services. In the
event that Rogers Telecom offers voice-over-cable telephony services,
Cable would enter into an agreement with Rogers Telecom which could
relate to, among other things, access to and the use of Cable’s
network.

Cable Restructuring

     On December 31, 2003, Cable executed a corporate reorganization that
involved the transfer of substantially all of the assets of Cable to a
wholly-owned subsidiary, Rogers Cable Communications Inc. (“RCCI”). As part of the
reorganization, the Cable’s subsidiaries, Rogers Cablesystems Ontario Limited,
Rogers Ottawa Limited/Limitée, Rogers Cable Atlantic Inc. and Rogers
Cablesystems Georgian Bay Limited, amalgamated with and continued as “RCCI”. As a result of the reorganization, Cable,
through RCCI, continues to conduct all of the operations and provide all of
Cable’s services.

CABLE STRATEGY OVERVIEW

     Cable
seeks to maximize its revenue, operating profit, as previously
defined, and return on
investment 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, PPV, VOD, PVR and HDTV. The key elements of Cable’s
strategies 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 its relationships within the Rogers group of companies to
identify opportunities for bundled product and service offerings as well
as for cost and 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; and

 

15

	 	•	 	deploying advanced IP capabilities
to provide high quality digital
primary line voice telephony service.

CABLE SEASONALITY

     Cable’s subscriber additions and disconnections are subject to modest
seasonal fluctuations which are largely attributable to movements of university
and college students and individuals temporarily suspending service due to
extended vacations. These fluctuations generally have a minimal impact on
Cable’s financial results.

RECENT CABLE INDUSTRY TRENDS

Investment in Improved Cable Television Networks and Expanded Service
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 broadband
Internet and digital cable services. These investments have enabled cable
television companies to offer expanded packages of analog and digital cable
television services, including VOD, PPV services, expanded
analog and digital services pay television packages, interactive television
services, HDTV programming and Internet services.

Increased Competition from Alternative Broadcasting Distribution
Undertakings

     As discussed in “Competition” below, Canadian cable television systems
generally face legal and illegal competition from several alternative
multi-channel broadcasting distribution systems. See “Competition” below for a
discussion of these various competitive forces.

Development of Cable Telephony Offerings

     Many of the larger
cable system operators or Multiple System Operators (“MSO”) in North America have
deployed or announced the pending deployment of local telephony service
offerings over all or portions of their cable systems. The MSOs utilize either
older circuit switched technologies or newer soft switch-based voice over
IP technologies (“VoIP”) to deploy local telephony. VoIP, when
offered over a DOCSIS cable modem connection to an MSO’s network that is
utilizing industry standard Packet Cable certified components, enables an MSO
to emulate, with the exception of network powering, the features, functionality
and quality of service of traditional local telephone service. VoIP is
increasingly being proven a reliable and scalable technology for enabling MSOs
(and other next generation telecommunication carriers) to enter the
local telephony services market.

CABLE REGULATORY DEVELOPMENTS

Community-Based Media

     The CRTC’s new community-based media policy framework came into effect in
January 2003. Under the framework, Cable can retain a higher proportion of
the payments that would otherwise go to support Canadian programming funds.
Cable is permitted to use these retained payments to support its own community
television channels.

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 is
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 Cable’s
subscribers have digital set-top boxes or digital receivers.

Basic Rate Increase

     On January 21, 2004, the CRTC renewed the licences of 22 specialty
services. Three services were granted basic rate increases that come into
effect on April 20, 2004. Depending on the system, the new

 

16

rates could represent a basic fee increase of as much as $0.13 per
subscriber per month or approximately $2.5 million in incremental wholesale
fees, prorated at $1.7 million in 2004.

CABLE COMPETITION

     Canadian cable television systems generally face legal and illegal
competition from several alternative multi-channel broadcasting distribution
systems, including two Canadian Direct-to-Home (“DTH”) satellite providers,
U.S. Direct Broadcast Satellite (“DBS”) service, Satellite Master Antenna
Television (“SMATV”), and Multi-channel, Multi-point Distribution System
(“MMDS”), as well as from the direct reception by antenna of over-the-air local
and regional broadcast television signals.

     In recent years, telephone companies have acquired licences to operate
terrestrial broadcast distribution undertakings (“BDUs”). These companies
include TELUS Corporation (“TELUS”), Saskatchewan Telecommunications
(“Sasktel”), MTS Communications Inc. (“MTS”), and Aliant Inc. (“Aliant”). Cable
competes directly with Aliant in New Brunswick and Newfoundland and TELUS in
Onatrio. During 2003, BCE Inc. (“Bell”) announced that it will apply for a BDU licence
allowing it to deliver television service to residential homes and apartment
buildings using digital subscriber line (“DSL”) technology. If proven
viable, DSL technologies such as very high speed digital subscriber lines
(“VDSL”) will potentially offer a complete array of
broadcast television services including VOD and HDTV. In particular, Bell has
stated an objective to target MDU’s with the VDSL product. Cable’s premium
services, such as movie networks, U.S. superstations, pay-per-view and VOD
services, also compete to varying degrees with other communications and
entertainment media, including home video, movie theatres and live theatre.

     Since their launch in 1997, the two DTH providers licenced by the CRTC to
operate in Canada (Bell ExpressVu LLP and Star Choice Communications Inc.) have
become aggressive competitors to cable television systems in Canada. In
addition, illegal access to U.S. DBS signals by individuals residing in Canada
has become an increasing source of black and grey market competition for
Canadian cable television systems. The “black market” refers to pirate DBS
equipment Canadian residents illegally obtain and operate. This equipment
enables them to take, without paying a fee, programming services from U.S. DBS
providers by defeating the operation of the systems that prevent unauthorized
access. The “grey market” refers to U.S. DBS equipment that Canadian residents
obtain and illegally bring into and operate in Canada. Such residents
illegally give a false U.S. service address to the U.S. DBS providers, paying a
fee to receive programming services not offered for sale in Canada.
Unauthorized access by Canadian residents with pirate DTH equipment and theft
of Canadian DTH services is another source of competition to Canadian cable
companies. In April 2002, the Supreme Court of Canada issued a decision
clarifying that the decoding of programming signals, except in accordance with
the authorization of a licenced Canadian distributor, is prohibited in Canada.
The decision has led to increased criminal and civil enforcement activity
against black and grey market satellite television dealers in Canada.

     Cable’s objective is to offer the fullest possible, range of programming
and services to its customers. In September 2001, Cable launched approximately
70 of the new Category 1 and Category 2 digital services licenced by the CRTC
in 2000. Since that time, Cable has launched additional Category 2 and foreign
digital services. Cable offers more third language digital services than any
other Canadian distributor. In late 2001, Cable also launched a digital
offering consisting of HDTV versions of the U.S. networks sourced from Detroit.
In early 2002, Cable launched a digital timeshifting package that included
distant Canadian conventional broadcast signals a version of the U.S. networks
sourced from Seattle. In March 2002, Cable began offering HDTV versions of
selected pay and PPV programming. In 2003, Cable added HDTV versions of City
TV Toronto, TSN, Rogers Sportsnet and U.S. networks

 

17

sourced from Seattle and Spokane. Cable has a large and diverse,
highly-competitive offering relative to Canadian DTH and other Canadian cable
providers.

     Cable’s Internet access service competes generally with a number of other
Internet Service Providers (“ISPs”), offering competing residential and
commercial Internet access services. Many ISPs offer telephone dial-up Internet
access services that provide significantly reduced bandwidth and download speed
capabilities compared to broadband technologies such as cable modem or DSL.
Cable’s Internet service competes directly with Bell’s DSL Internet
service in the high-speed Internet market in Ontario, and with the DSL Internet
services of Aliant in some of Cable’s service areas in New Brunswick and
Newfoundland. Cable also offers a less expensive Internet Lite service which
has fewer features than the standard high-speed package. Cable’s
Internet Lite service competes against similar slower speed DSL services
and, because of its reduced speed, competes more directly with dial-up
services.

     Cable has increasingly offered its services to customers at either a
discounted price for subscribing to multiple services or, more recently, in
product bundles which are priced at a discount to the sum of the prices of the
individual products if they were to be purchased separately. Cable believes
that such customer loyalty programs and multi-product bundling enables it to
reduce individual product churn, increase the average revenue received from its
customers by selling multiple products to them and to better service its
customers by offering a single bill and single points of customer service
contact. Late in 2003, Cable and Rogers Wireless launched a combined bundle
which offered combinations of their video, high-speed Internet, and wireless
services. Cable’s primary competitor, Bell, also markets similar product
bundles at similar price points in competition with Cable. However, Bell’s
practice of bundling telephone services with Internet and DTH service is
currently under review with the CRTC.

     Cable faces emerging competition from other utilities such as
hydroelectric companies as these companies look to utilize their infrastructure
to provide internet and other services that may directly compete with its
current and future service offerings.

     Rogers Video competes with other videocassette, 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. Competition is principally
based on location, price and availability of titles.

CABLE OPERATING AND FINANCIAL RESULTS

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

     For purposes of this discussion, revenue has been classified according to
the following categories:

	 	•	 	core cable, which includes revenue derived from (a) analog cable
service revenue consisting of basic cable service fees plus extended
basic (or tier) service fees, installation fees and access fees for use
of channel capacity by third and related parties and (b) digital cable
television service revenue consisting of digital channel service fees,
including premium and specialty service subscription fees, PPV service
fees, interactive television service fees, VOD and digital set-top
terminal rental fees;
	 
	 	•	 	Internet, which includes service revenues from residential and
commercial Internet access service and modem rental fees plus
installation fees; and
	 
	 	•	 	Rogers Video stores, which includes the sale and rental of videocassettes,
DVDs, video games and confectionery, as well, Rogers Video earns commissions
acting as an agent to sell other Rogers’ services such as wireless,
Internet, and digital cable.

 

18

     Internet service has essentially become another service that leverages the
cable infrastructure and which, for the most part, shares the same physical
infrastructure and sales, marketing and support resources as other core cable
offerings. This, combined with Cable’s expanded bundling of cable television
and Internet services, increasingly led to allocations of bundled revenues and
network and operating costs between the core cable and Internet operations of
Cable. As such, commencing January 1, 2003, reporting of the core cable and
Internet segments of the Cable segment were combined. Cable continues to
provide separate statistical information on its Internet subscribers as it does
for the digital cable subscriber subset of its core cable operations. In
addition, Cable is continuing to report Internet revenues separate from those
of core cable.

     Cable operating expenses consist of:

	 	•	 	cost of sales, which are comprised of Rogers Video store merchandise and
depreciation related to the acquisition of rental assets;
	 
	 	•	 	sales and marketing expenses, which include sales and
retention-related advertising and customer communications as well as
other acquisition costs such as sales support and commissions and costs
of operating, advertising and promoting the Rogers Video store chain, and
	 
	 	•	 	operating, general and administrative expenses which include: (a)
the monthly contracted payments for the acquisition of programming paid
directly to the programming supplier as well as to copyright collectives and the
Canadian Television Fund; (b) Internet interconnectivity and usage
charges and the cost of operating the e-mail service; (c) technical
service expenses, which includes the costs of operating and maintaining
the cable network as well as certain customer service activities ranging
from installations to repair; (d) customer care expenses, which include
the costs associated with the order-taking and billing inquiries of
subscribers; (e) community television expenses, which are a regulatory
requirement and consist of the costs to operate a series of local
community-based television stations, which traditionally have filled a
unique and localized customer-oriented niche, (f) general and
administrative expenses, and (g) expenses related to the national
management of the Rogers Video stores.

Summarized Cable Financial Results

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	Years Ended December 31,	 	 	 	 
	 	 	 	
	 	 	 	 
	(In
millions of dollars)	 	2003	 	2002	 	% Chg
	 	 	
	 	
	 	

	Operating
 revenue:(1)
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Core cable
	 	$	1,186.4	 	 	$	1,113.9	 	 	 	6.5	 
	 	Internet
	 	 	322.3	 	 	 	242.6	 	 	 	32.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total cable
 revenue(1)
	 	 	1,508.7	 	 	 	1,356.5	 	 	 	11.2	 
	 	Video stores
	 	 	282.6	 	 	 	263.0	 	 	 	7.5	 
	 	Intercompany eliminations
	 	 	(3.2	)	 	 	(4.9	)	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total
 operating revenue(1)
	 	 	1,788.1	 	 	 	1,614.6	 	 	 	10.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Operating expenses:
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cost
of video stores sales
	 	 	129.9	 	 	 	121.3	 	 	 	7.1	 
	 	Sales
and marketing expenses(1)
	 	 	205.1	 	 	 	192.1	 	 	 	6.8	 
	 	Operating,
general and administrative expenses(1)
	 	 	792.8	 	 	 	742.7	 	 	 	6.8	 
	 	Intercompany eliminations
	 	 	(3.2	)	 	 	(4.9	)	 	 	(34.7	) 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total operating expense
	 	 	1,124.6	 	 	 	1,051.2	 	 	 	7.0	 
	Operating
 profit (2)
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cable
	 	 	639.8	 	 	 	541.9	 	 	 	18.1	 
	 	Video stores
	 	 	23.7	 	 	 	21.5	 	 	 	10.2	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

 

19

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	Years Ended December 31,	 	 	 	 
	 	 	 	
	 	 	 	 
	(In millions of dollars)	 	2003	 	2002	 	% Chg
	 	 	
	 	
	 	

	Total operating profit
	 	 	663.5	 	 	 	563.4	 	 	 	17.8	 
	Cable
 operating profit margin (3)
	 	 	42.4	%	 	 	40.0	%	 	 	 	 
	Video stores
 operating profit margin (2)
	 	 	8.4	%	 	 	8.2	%	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	 	37.1	%	 	 	34.9	%	 	 	 	 
	Additions
to Property, plant and equipment
	 	$	509.6	 	 	$	650.9	 	 	 	(21.7	)

	(1)	 	As reclassified. See the “Recent
Accounting Developments - Revenue Recognition” section.

	 
	(2)	 	As defined in “Key
Performance Indicators – Operating Profit and
Operating Profit Margin” section.
	 
	(3)	 	As defined in “Key Performance
Indicators – Operating Profit and Operating Profit Margin” section and is
calculated as follows:

	 	 	 	 	 	 	 	 	 	 
			
			Year Ended December 31,
			

			(in millions of dollars)
	(in millions of dollars)	2003		2002
			
		

			
	
    
    Operating revenue
    

    	 	 	 	 	 	 	 	 
	
	
	
	

	 	
    
    Cable
    

    	 	$	1,508.7	 	 	$	1,356.5	 
	
	
	
	

	 	
    
    Video stores
    

    	 	 	282.6	 	 	 	263.0	 
	
	
	
	

	 	
    
    Intercompany eliminations
    

    	 	 	(3.2	)	 	 	(4.9	)
	 	 	 	
	 	 	 	
	 
	
    
    Total operating revenue
    

    	 	$	1,788.1	 	 	$	1,614.6	 
	 	 	 	
	 	 	 	
	 
	
    
    Operating profit
    

    	 	 	 	 	 	 	 	 
	
	
	
	

	 	
    
    Cable
    

    	 	$	639.8	 	 	$	541.9	 
	
	
	
	

	 	
    
    Video stores
    

    	 	 	23.7	 	 	 	21.5	 
	
	
	
	

	 	 	 	
	 	 	 	
	 
	 	 	$	663.5	 	 	$	563.4	 
	 	 	 	
	 	 	 	
	 

	 	 	 	 
	 	
    
    Cable operating profit margin — 2003
    

    	 	
    $639.8 ÷ $1,508.7 = 42.4%
    
	 	
    
    Cable operating profit margin — 2002
    

    	 	
    $541.9 ÷ $1,356.5 = 40.0%
    
	 	
    
    Video store operating profit margin — 2003
    

    	 	
    $23.7 ÷ $282.6 = 8.4%
    
	 	
    
    Video store operating profit margin — 2002
    

    	 	
    $21.5 ÷ $263.0 = 8.2%
    
	 	
    
    Total operating profit margin — 2003
    

    	 	
    $663.5 ÷ $1,788.1 = 37.1%
    
	 	
    
    Total operating profit margin — 2002
    

    	 	
    $563.4 ÷ $1,614.6 = 34.9%
    

Cable Operating Highlights and Significant Developments of 2003

	 	•	 	Total Cable revenues increased 10.8% and total operating profit
increased 17.8% compared to 2002. Cable Operating profit margin,
excluding Video stores, grew by 240 basis points year-over-year to
42.4%.
	 
	 	•	 	Basic subscriber levels remained relatively flat, as compared to year
end 2002.
	 
	 	•	 	Internet subscriber base increased by 23.6%, or 151,100 net new
subscribers, and digital cable subscriber base increased by 33.3%, or
133,800 net new subscribers during the year.
	 
	 	•	 	The network rebuild project progressed further increasing to 96% of
Cable’s homes passed being two-way addressable, 99% of subscribers
digital capable and more than 92% of the Cable plant capable of
transmitting 750 MHz of bandwidth or greater.
	 
	 	•	 	Cable continued to expand the availability of its VOD service, Rogers
on Demand, with availability reaching over 1.8 million homes by year end
2003, while continuing to expand the number of VOD contract agreements
with various production studios to bring the total number of available
titles to over 1,000.
	 
	 	•	 	Cable increased the throughput of its hi-speed Internet service up
to 3Mbps, introduced it’s first PVR, and launched 9 new HDTV channels.
	 
	 	•	 	Seven new Rogers Video stores were added, raising the total number of
Rogers Video stores to 279;
	 
	 	•	 	In January 2004, Cable announced an agreement with Yahoo! Inc.
(“Yahoo”) to provide co-branded Internet services to current and future
customers of Cable’s Internet access services. Some ancillary
agreements have not yet been finalized. Under the multi-year agreement,
in return for payment by Cable of a monthly fee, Yahoo will assume
operation of Cable’s e-mail platform and provide a suite of customized
Yahoo! content, products and services to Cable’s Internet access
customers. These content, products and services include the following:
a customizable browsing environment; personalized homepage; enhanced
e-mail services such as spam control, parental controls, premium pop-up
blocking and storage; enhanced instant messaging capabilities; and
multi-media services. Depending on the level of Internet access service
subscribed to, subscribers will receive some or all of these features as
part of their

 

20

	 	 	 	subscription. The agreement also contemplates Cable and Yahoo
collaborating to offer premium packages of products and services to
Cable’s subscribers for an additional fee. A number of ancillary
agreements have yet to be finalized.
	 
	 	•	 	Cable issued US $350 million (Cdn. equivalent $470.4 million) 6.25%
Senior (Secured) Second Priority Notes due 2013. These funds were used
by Cable to repay advances outstanding under its bank credit facility,
intercompany debt owing to RCI and to redeem US $74.8 million aggregate
principal amount of its 10% Senior Secured Second Priority Debentures
due 2007 at a redemption price of 105.0% of the aggregate principal
amount, and for general corporate purposes.

Cable Revenue and Subscribers

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Years Ended December 31,	 	 	 	 	 	 	 	 
	 	 	
	 	 	 	 	 	 	 	 
	(Subscriber statistics in thousands)	 	2003	 	2002	 	Chg	 	% Chg
	 	 	
	 	
	 	
	 	

	Homes passed
	 	 	3,215.4	 	 	 	3,103.2	 	 	 	112.2	(1)	 	 	3.6	 
	Basic cable subscribers
	 	 	2,269.4	 	 	 	2,270.4	 	 	 	(1.0	)	 	 	(0.0	)
	Basic cable, net additions (losses)
	 	 	(1.0	)	 	 	(16.0	)	 	 	15.0	 	 	 	93.8	 
	Internet subscribers
	 	 	790.5	 	 	 	639.4	 	 	 	151.1	 	 	 	23.6	 
	Internet, net additions
	 	 	151.1	 	 	 	160.6	 	 	 	(9.5	)	 	 	(5.9	)
	Digital terminals in service
	 	 	613.6	 	 	 	456.2	 	 	 	157.4	 	 	 	34.5	 
	Digital terminals, net additions
	 	 	157.4	 	 	 	142.1	 	 	 	15.3	 	 	 	10.8	 
	Digital households
	 	 	535.3	 	 	 	401.5	 	 	 	133.8	 	 	 	33.3	 
	Digital households, net additions
	 	 	133.8	 	 	 	129.4	 	 	 	4.4	 	 	 	3.4	 
	VIP customers
	 	 	661.6	 	 	 	593.0	 	 	 	68.6	 	 	 	11.6	 
	VIP customers, net additions
	 	 	68.6	 	 	 	95.5	 	 	 	(26.9	)	 	 	(28.2	)

	(1) Homes passed for 2003 include adjustments based on a periodic audit process
to reflect, among other things, new homes constructed. An additional 32,002
homes were identified , which represents 28.7% of the increase.

Core Cable Revenue

     Core cable revenue, which
 accounted for 66.3% of total Cable revenues in
2003, totaled $1,186.4 million, a $72.5 million, or 6.5%, increase over 2002.
Analog Cable service increased year-over-year by $32.2 million due to price increases
in August 2003, offset partially by lower installation revenues. The remaining
$40.3 million increase is primarily attributable to increased revenues related
to the growing number of subscriptions to digital services and the rental of
digital set-top terminal equipment.

     Core cable average monthly revenue
 per subscriber was $43.69 in 2003, an
increase from $40.96 in 2002. Cable ended the year with 613,600 digital
terminals in 535,300 households, increases of 34.5% and 33.3% over the prior
year, respectively. At December 31, 2003, the penetration of digital
households as a percentage of basic households was 23.6%, up from the December
31, 2002 penetration of 17.7%. The growth of digital cable subscribers, as
well as of Internet subscribers as discussed below, was supported by continued
healthy sales of a suite of bundled offers combining analog cable, digital
cable and Internet that were launched during 2002. As of December 31, 2003,
approximately 162,400 bundles had been sold, up significantly from the over
84,000 bundles that had been sold at the end of 2002. Late in 2003, Cable and
Rogers Wireless jointly introduced Rogers’ first combined bundles which
included both cable and wireless products.

 

21

     In its analog cable service, Cable offers three expanded analog channel
groupings called tiers in addition to its basic cable offering. At December
31, 2003, 81.2% of basic cable service customers also subscribed to one or more
tier services, compared to 81.9% at December 31, 2002. Cable ended the year
with approximately 661,600 customers who subscribe to multiple plans and
participate in the Cable’s high-value customer loyalty program, which cable
refers to as its “VIP” program.

Internet Revenue

     Internet revenue for 2003 was $322.3 million, representing growth of $79.7
million, or 32.9%, from 2002, and reflecting the significant
increase in the number of subscribers. Average revenue per Internet subscriber
per month for 2003 was $37.58, an increase from $37.13 for 2002, reflecting
continued strong sales of the Internet product offering and sales of the higher
priced business Internet offering, partially offset by customer additions to
Cable’s lower priced Internet Lite product.
Year-over-year, the Internet subscriber base has grown by 151,100, or 23.6%,
resulting in 34.8% Internet penetration of basic cable households, or 24.6%
Internet penetration as a percentage of cable homes passed.

Video Stores Revenue

     Video stores revenue grew by $19.6 million, or 7.5%, to $282.6 million for
2003 driven by a combination of the opening of 7 stores and a 4.4% increase in
same store revenues. “Same stores” are stores that were open for a full year
in both 2003 and 2002. At the end of 2003, many of the 279 Rogers Video stores were
integrated Rogers Video stores that offered access to a wide variety of cable
and wireless products and services in addition to the core video rental and
sales offerings.

Cable and Video Operating Expenses

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	Years Ended December 31,	 	 	 	 
	 	 	 	
	 	 	 	 
	(In millions of dollars)	 	2003	 	2002	 	% Chg
	 	 	
	 	
	 	

	Cable
 operating expenses:(1)
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Sales
and marketing expenses
	 	$	89.2	 	 	$	83.0	 	 	 	7.5	 
	 	Operating,
general and administrative expenses
	 	 	779.7	 	 	 	731.6	 	 	 	6.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total Cable operating expenses
	 	 	868.9	 	 	 	814.6	 	 	 	6.7	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Video stores operating expenses
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cost of sales
	 	 	129.9	 	 	 	121.3	 	 	 	7.1	 
	 	Sales
and marketing expenses
	 	 	115.8	 	 	 	109.1	 	 	 	6.1	 
	 	Operating,
general and administrative expenses
	 	 	13.2	 	 	 	11.1	 	 	 	18.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total Video stores operating expenses
	 	 	258.9	 	 	 	241.5	 	 	 	7.2	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Intercompany eliminations
	 	 	(3.2	)	 	 	(4.9	)	 	 	—	 
	 	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Operating
 expenses(1)
	 	$	1,124.6	 	 	$	1,051.2	 	 	 	7.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

	(1) 	  	As reclassified. See the “New Accounting Developments -
Revenue Recognition” section.

     Total Cable operating expenses of
 $868.9 million increased $54.3 million
or 6.7% from $814.6 million in 2002.

     The year-over-year increase in costs of Cable is directly attributable to
the growth in Internet subscribers combined with increasing penetration of
digital subscribers.

 

22

     Cable sales and marketing expense
 increased by $6.2 million or 7.5% in
2003 over 2002, primarily related to increases in commissions and advertising
costs related to Internet and digital sales.

     Cable operating, general and
 administrative expenses increased by $48.1
million or 6.6% in 2003 over 2002. The increase related to increased costs of
programming and Internet transit and e-mail costs, associated with the
growth in digital and Internet subscribers.

     Total
Rogers Video stores cost of sales increased by 7.1% in 2003 over 2002,
primarily as a result of the chains’ growth from 272 stores at December 31,
2002 to 279 stores at December 31, 2003. Video sales and marketing
expenses,
which include the cost of the stores, also increased by 6.1% in 2003 as
compared to 2002 as a result of the increased number of stores. Video operating,
general and administrative expenses increased by 18.9% as Video incurred higher
costs related to functions such as information technology and human resources.

Cable Operating Profit

     For
2003, consolidated Cable operating profit grew by $100.1 million, or
17.8%, over the same period in 2002, from $563.4 million to $663.5 million.
Consolidated cable operating profit increased by $97.9 million,
or 18.1%, as
the impact of higher revenues from price increases and the increase in digital
and Internet penetration exceeded the increasing costs of supporting
subscribers. Video stores operating profit increased by $2.2 million, or
10.2%, as revenue growth modestly outpaced cost growth relating to operating
efficiencies and improved margins on the sale of products.

     The revenue and expense changes described above led to an increase in the
Cable operating margin from 40.0% in 2002 to 42.4% in 2003, reflecting the
growth of Internet and the impact of cable rate increases, while video store
operating margins grew to 8.4% from 8.2% in the prior year.

Cable Employees

     Remuneration represents a material portion of the expenses of Cable.
Cable ended the year with approximately 5,470 FTEs, an increase of 170
employees from the 5,300 at December 31, 2002. The increase in employees is
entirely attributable to growth at the Video stores as they opened new stores
and continued to focus on sales of both cable and wireless services and
products in addition to its traditional video rental and sales business.

     Total remuneration paid to Cable employees (both full and part-time) in
2003 was approximately $236.6 million, an increase of
$6.0 million or 2.6%
from $230.6 million in the prior year.

Cable Additions to PP&E

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Years Ended December 31,	 	 	 	 
	 	 	
	 	 	 	 
	(In millions of dollars)	 	2003	 	2002	 	% Chg
	 	 	
	 	
	 	

	Customer premise equipment
	 	$	181.6	 	 	$	226.8	 	 	 	(19.9	)
	Scaleable infrastructure
	 	 	80.1	 	 	 	90.0	 	 	 	(11.0	)
	Line extensions
	 	 	49.4	 	 	 	54.6	 	 	 	(9.5	)
	Upgrade and rebuild
	 	 	114.4	 	 	 	185.2	 	 	 	(38.2	)
	Support capital
	 	 	71.0	 	 	 	86.3	 	 	 	(17.7	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Cable
additions to PP&E 
	 	 	496.5	 	 	 	642.9	 	 	 	(22.8	)

 

23

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Years Ended December 31,	 	 	 	 
	 	 	
	 	 	 	 
	(In millions of dollars)	 	2003	 	2002	 	% Chg
	 	 	
	 	
	 	

	Video stores additions to PP&E
	 	 	13.1	 	 	 	8.0	 	 	 	63.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total additions to PP&E
	 	$	509.6	 	 	$	650.9	 	 	 	(21.7	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 

     The nature of the cable television business is such that the construction,
rebuild and expansion of a cable system is highly capital intensive. Cable
categorizes its additions to PP&E according to a standardized set of reporting
categories that were developed and agreed to by U.S. cable television industry
and which enable easier comparisons between the additions to PP&E of the
companies. Under these industry definitions, additions to PP&E fall into the
following five categories:

	 	•	 	customer premises equipment (“CPE”), which includes the equipment and
the associated installation costs;
	 
	 	•	 	scaleable infrastructure, which includes non-CPE costs to meet
business growth and to provide service enhancements;
	 
	 	•	 	line extensions, which includes network costs to enter new service
areas;
	 
	 	•	 	upgrade and rebuild, which includes the costs to modify or replace
existing coax and fibre networks; and
	 
	 	•	 	support capital which includes the costs associated with the
replacement or enhancement of non-network assets.

     For 2003, additions to PP&E decreased $141.3 million or 21.7% from 2002 to
total $509.6 million. The significant factors driving the decline were the
reduction in rebuild capital as the 750 MHz portion of the rebuild program was
substantially completed in 2003 and the reductions in customer premise
equipment spending driven by the declining cost of digital terminals and
modems.

CABLE RISKS AND UNCERTAINTIES

     The cable business is subject to several operating risks and uncertainties
that may result in a material adverse effect on the business and financial
results as outlined below.

Failure to Achieve Expected Growth from New Products

     It is
expected that a substantial portion of future growth will be
achieved from new and advanced cable products, Internet and IP
products and services. Accordingly, Cable
has invested 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 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 services may result in increased churn of subscribers and a
reduction in the total number of subscribers. Alternatively, Cable may fail to anticipate demand for
certain products and services, or may not be able to offer or market these new
retain existing subscribers while increasing pricing or products and services successfully to subscribers. Cable’s failure to attract
subscribers to retain existing subscribers while increasing pricing
or new products and services, or failure to keep pace with changing
consumer preferences for cable and Internet services, could slow revenue growth
and have a material adverse effect on Cable’s business and financial condition.

Cable plans to invest substantial
resources in connection with voice-over-cable telephony services, and
it may not recover all or any of its investment.

     In
connection with Cable’s offering of telephony services, it
anticipates that it will invest approximately $200 million of
upfront PP&E expenditures over
the next two years, with approximately $140 million to
$170 million of the investment occurring in 2004. Once this
initial platform is deployed, the additional PP&E expenditures
associated with adding each voice-over-cable telephony service
subscriber, which includes uninterruptible backup powering at the
home, is expected to be in the range of $300 to $340 per subscriber
addition. Cable does not
expect to generate significant revenue, if any, from this investment
during the next few years. Cable also cannot predict whether its
voice-over-cable telephony services will be accepted by its customers
or whether its voice-over-cable telephony services will be
competitive, from a quality and price perspective, with other
telephony services that will be available to its customers. In
addition, in deciding to invest in voice-over-cable telephony
services at this time, Cable has assumed that certain changes to
applicable telephony regulation will occur prior to the commercial
launch of our telephony services. If these regulatory changes do not
occur, Cable may not offer voice-over-cable telephony services as
currently contemplated. As a result of these uncertainties, Cable may
not recover any or all of its investment in telephony services, which
could have a material adverse effect on its business and financial
condition.

Another subsidiary of the Company
may offer telephony services to Cable’s customers, which could reduce
or limit Cable’s return on investment.

     Cable is
currently refining its business strategies with respect to
voice-over-cable telephony services. Together with the Company, Cable
is considering offering voice-over-cable telephony services through
Rogers Telecom, which is another wholly-owned RCI subsidiary. In the
event that voice-over-cable telephony services are offered through
Rogers Telecom, Cable would likely incur most or all of the PP&E
expenditures associated with developing a voice-over-cable telephony
network. If Rogers Telecom offers telephony services over Cable’s
network, Cable might receive a lower return on our investment than if
it were to offer the service directly, without a commensurate
reduction in its investment risk. As a result, if Rogers Telecom
offers voice-over-cable telephony services utilizing Cable’s network, Cable’s
future return on investment, with respect to telephony services, may be
materially adversely affected.

Current and Future Competition

     Technological, regulatory and public policy trends have resulted in a more
competitive environment for cable television service providers,
Internet Service Providers (ISP’s) and video
sales and rental services in Canada. Cable faces competition from entities
utilizing other communications technologies and may face competition from other
technologies being developed or to be developed in the future as discussed in
“Cable Competition” above. Increased competition could adversely affect
Cable’s subscriber levels and future results of operations.

Dependency upon Digital Programming

     As discussed in “Cable Competition” above, there have been a significant
number of new digital specialty channels and services that have become
available in Canada since the latter portion of 2001. Cable believes that
subscriber selection of these digital specialty service channels, whether
individually,

 

24

in pre-set theme packs or in customer-designed channel packages, will
provide a consistent and growing stream of new revenue. In addition, the
ability to attract subscribers to digital cable service is enhanced by the
expanded variety of programming choices that are currently available, including
a growing amount of HDTV and on-demand programming. If a number of programmers
that supply digital specialty channels face financial or operational difficulty
sufficient to cease their operations, and the number of digital specialty
channels decreases significantly, it may have a significant negative impact on
Cable’s financial results and financial position.

Ability to Forecast Future PP&E Expenditures

     An increasing component of Cable’s PP&E expenditures will be to support a
series of more advanced services. These services include Cable’s Internet,
digital television, HDTV,VOD, telephony and other enhanced services that require advanced subscriber equipment. A substantial component of the PP&E required to support these
services will be demand driven. As a result, forecasting PP&E expenditure
levels for Cable will likely be less precise, which may increase the volatility
of Cable’s operating results from period to period.

Dependency on Information Technology Systems

     The day-to-day operation of Cable’s business is highly dependent on
information technology systems. An inability to enhance Cable’s information
technology systems to accommodate additional customer growth and support new
products and services could have an adverse impact on its ability to acquire
new subscribers, manage subscriber churn, produce accurate and timely
subscriber bills, generate revenue growth and manage operating expenses, all of
which could adversely impact its financial results and financial
position. In addition, Cable uses industry standard network and
information technology security, survivability and disaster recovery
practices. Approximately 1,300 of its employees and critical elements
of its network infrastructure and information technology systems are
located at either of two sites: the corporate offices in Toronto and
Cable’s Toronto operations facility. In the event that Cable
cannot access these facilities, as a result of a natural or manmade
disaster or otherwise, Cable’s operations may be significantly
affected and may result in a condition that is beyond the scope of
its ability to recover without significant service interruption and
commensurate revenue and customer loss.

Potential Impacts from Future Regulatory Decisions

     As discussed in “Overview of Government Regulation” above, the Company’s
operations are subject to governmental regulations relating to, among other
things, licensing, competition, programming and foreign ownership. Changes in
industry regulations could affect the Cable’s results of operations and have an
adverse effect on its business.

Competition in Multiple Dwelling Units

     The Broadcasting Distribution Regulations (Canada) do not allow Cable or
its competitors to obtain exclusive contracts in buildings where it is
technically feasible to install two or more systems. Approximately
one-third of Cable’s basic cable subscribers are located in
Multiple Dwelling Units (“MDU’s”). These regulations could
lead to competitive subscriber losses or pricing pressures in MDUs serviced by Cable which could result in a reduction of revenue.

Requirement to Provide Access to Cable Systems to Third Party ISPs

     Cable has been required by the CRTC to provide access to its cable systems
by third party ISPs at mandated wholesale rates. The CRTC has approved
cost-based rates for third party Internet access service and is currently
considering proposed rates for third party interconnection and other
outstanding terms and conditions of the service. As a result of the requirement
that Cable provide access to third party ISPs, it may experience increased
competition at retail for high-speed Internet subscribers. In addition, these
third party providers utilize network capacity that Cable could otherwise use
for its own retail subscribers. One third party ISP has connected to Cable’s
network on a wholesale basis and is

 

25

providing competing high-speed Internet services at retail. The increased
competition and reduced network capacity could result in a reduction of
revenue.

Required Access to Support Structures and to Municipal Rights of Way

     Cable requires access to support structures and to municipal rights of way
in order to deploy facilities. Where access cannot be secured, Cable may apply
to the CRTC to obtain a right of access under the Telecommunications Act.
However, in 2003, the courts have determined that the CRTC does not have the
jurisdiction to establish the terms and conditions of access to the poles of
hydroelectric companies. As a result, the costs of obtaining access to support
structures and municipal rights of way could be substantially increased on a
prospective basis and for certain arrangements on a retroactive basis. Cable,
together with other Ontario cable companies, has applied to the Ontario Energy
Board to request that it assert jurisdiction over the fees paid by such
companies to hydroelectric distributors. If the efforts to control the fees
are not successful, increased costs associated with obtaining access to support
structures and municipal rights of way could adversely affect Cable’s operating
results.

Risk of Retransmission Royalty Rate Changes

     The
Copyright Board of Canada (Copyright Board) is expected to issue a decision in the near future on
the royalty rates for the distribution of Canadian pay and specialty services,
and U.S. specialty services, which will apply to the 2001-2004 period. It is
also expected to issue a decision on the royalty rates for the retransmission
of television and radio services for the 2004-2008 period. As a result of
these decisions, the royalties payable by Cable to copyright collectives could
increase. If they do, Cable will also be required to make retroactive payments
to the collectives in connection with 2001-2003 royalties
for the distribution
of Canadian pay and specialty services, and U.S. specialty services. A requirement to make retroactive payments would
materially adversely impact Cable’s financial position and a rate increase
for 2004-2008, if Cable is unable to pass the increased rates
to its customers, could materially, adversely affect Cable’s operating results.

Risk of Expanded Copyright Royalty Obligations for ISPs

     A 1999 Copyright Board decision that considered whether ISPs should be
liable for the communication of music on the Internet was appealed to the
Federal Court of Appeal and, ultimately, to the Supreme of Court of Canada.
The Supreme of Court of Canada heard this appeal in December 2003 and is
expected to issue its decision in the summer of 2004. Should ISP’s be found liable
for the communication of music on the Internet, and subsequent
royalty determined by the Copyright Board (Canada) could have
a material, negative impact on Cable.

Rogers Wireless

WIRELESS OVERVIEW

     Rogers Wireless is a leading Canadian wireless communications service
provider serving over 4.0 million customers at December 31, 2003, including
approximately 3.8 million wireless voice and data subscribers and approximately
241,000 one-way messaging subscribers. Wireless operates both a Global System
for Mobile Communications/General Packet Radio Service (“GSM/GPRS”) network and
a seamless integrated Time Division Multiple Access (“TDMA”) and analog
network. The GSM/GPRS network provides coverage to approximately 93% of
Canada’s population. The seamless TDMA and analog network provides coverage to
approximately 85% of Canada’s population in digital mode, and approximately 93%
of Canada’s population in analog mode. Rogers Wireless estimates that its 3.8

 

26

million wireless voice and data
subscribers represent approximately 12.9% of the Canadian population
residing in its coverage area. Subscribers to Rogers Wireless services have access to these services
throughout the United States through its agreements with AT&T Wireless
Services, Inc. (AT&T Wireless or AWE) and other U.S. operators. The Company’s
subscribers also have access to international service in over 110 countries,
including throughout Europe and Asia, through roaming agreements with other
wireless communication providers.

     At December 31, 2003, RCI, directly and indirectly, beneficially owned or
controlled 62,820,371 Class A Multiple Voting Shares of Rogers Wireless,
representing 69.4% of the issued and outstanding Class A Multiple Voting
Shares, and 16,317,644 Class B Restricted Voting Shares of Rogers Wireless,
representing 31.7% of the issued and outstanding Class B Restricted Voting
Shares, which together represented 67.4% of the total votes attached to all
voting shares of Rogers Wireless currently issued and outstanding. At December
31, 2003, AWE indirectly beneficially owned or controlled 27,647,888 Class A
Multiple Voting Shares, representing 30.6% of the issued and outstanding Class
A Multiple Voting Shares, and 20,946,284 Class B Restricted Voting Shares,
representing 40.7% of the issued and outstanding Class B Restricted Voting
Shares, which together represented 31.1% of the total votes attached to all
voting shares of Rogers Wireless currently issued and outstanding. The
remaining 14,166,250 Class B Restricted Voting Shares, representing 27.5% of
the issued and outstanding Class B Restricted Voting Shares and 1.5% of the
total votes on selected matters, are publicly held. The Class B Restricted
Voting Shares are entitled to vote on all matters other than the appointment of
the auditors and generally on the election of directors. The Class B
Restricted Shares are entitled to elect three directors, voting separately as a
class. As a percentage of the total number of shares of Rogers Wireless
currently issued and outstanding, at December 31, 2003, Rogers Wireless was
55.8% owned by RCI and 34.2% owned by AWE, with the balance publicly held

Wireless Products and Services

     Wireless offers wireless voice, data and messaging services across Canada.
Wireless voice services are available in either postpaid or prepaid payment
options. In addition, Wireless’ GSM/GPRS network provides customers with
advanced high-speed wireless data services, including mobile access to the
Internet, e-mail, digital picture transmission and two-way short messaging
service (“SMS”).

Wireless Distribution Network

     Wireless markets its services through an extensive national network of
over 7,000 dealer and retail locations across Canada, which include
approximately 2,500
locations selling handsets and prepaid cards and an additional
approximate 4,500
locations selling the prepaid cards. Wireless’ nationwide distribution network
includes an independent dealer network, Rogers AT&T Wireless stores and kiosks,
major retail chains such as RadioShack Canada Inc., Future Shop Ltd. and Best
Buy Canada, and convenience stores. Wireless also offers many of its products
and services through a retail agreement with Rogers Video that had
279 locations across Canada at December 31, 2003. Wireless also
offers products and services and customer service on its e-business Web site,
www.rogers.com.

Wireless Networks

     Wireless is a facilities-based carrier operating its wireless networks
over a broad, national coverage area with an owned and leased fibre-optic and
microwave transmission infrastructure. The seamless, integrated nature of
Rogers Wireless’ networks enables subscribers to make and receive calls and to
activate network features anywhere in the Wireless’ coverage area and in the
coverage area of its roaming partners as easily as if they were in their home
area.

     In June 2002, Wireless completed the deployment of its digital wireless
GSM/GPRS network overlay in the 1900 megahertz (“MHz”) frequency bands. This coverage
reaches 93% of the Canadian population. During
2003, Wireless also completed the deployment of GSM/GPRS technology operating
in the 850 MHz spectrum across its national footprint, which expanded the
network capacity, enhanced the

 

27

quality of the GSM/GPRS network and enabled Wireless to operate seamlessly
between the two frequencies. Wireless’ GSM/GPRS network provides high-speed
integrated voice and “always on” packet data transmission service capabilities.

     In late 2003, Wireless began trials of Enhanced Data Rates for GSM
Evolution (“EDGE”) technology in the Vancouver, British Columbia market.
Accomplished by the installation of a network software upgrade, EDGE more than
triples the wireless data transmission speeds available on the Rogers Wireless
network. Wireless intends to begin deploying EDGE across its national GSM/GPRS
network during 2004.

     Wireless’ integrated TDMA and analog network is operationally
seamless in GSM/GPRS and TDMA digital functionality between the 850 MHz and 1900 MHz frequency
bands, and between TDMA digital and analog modes at 850 MHz.

WIRELESS STRATEGY OVERVIEW

     Wireless seeks to achieve profitable growth within the Canadian
wireless communications industry. Wireless’ strategy is designed to
maximize its operating profit, as previously defined, and return
on investment. The key elements of Rogers Wireless’ strategy are as follows:

	 	•	 	focusing on data services that are attractive to youth and small and
medium size businesses to optimize its customer mix;
	 
	 	•	 	delivering on customer expectations by improving handset reliability,
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, calling line ID, text messaging and wireless internet;
	 
	 	•	 	enhancing its sales distribution
channels to increase its focus on youth and
business customers;
	 
	 	•	 	maintaining a technologically advanced, high quality and pervasive
network by improving the quality of its GSM/GPRS network and increasing
capacity; and
	 
	 	•	 	leveraging its relationships with the Rogers group of companies to
provide bundled product and service offerings at attractive prices,
in addition to cross-selling, joint sales distribution and cost reduction initiatives through infrastructure sharing.

WIRELESS SEASONALITY

     Wireless’ operating results are subject to seasonal fluctuations that
materially impact quarter-to-quarter operating results. Accordingly, one
quarter’s operating results are not necessarily indicative of what a subsequent
quarter’s operating results will be. In particular, this seasonality generally
results in relatively lower fourth quarter operating profits due primarily to
increased marketing and promotional expenditures and relatively higher levels
of subscriber additions, resulting in higher subscriber acquisition and
activation-related expenses. Seasonal fluctuation also typically occurs in the
third quarter of each year because higher usage and roaming result in higher
network revenue and operating profit.

RECENT WIRELESS INDUSTRY TRENDS

 

28

Focus on Customer Retention

     The wireless communications industry’s current market penetration in
Canada is approximately 42% of the population, compared to
approximately 54% in the U.S.
and approximately 87% in the United Kingdom, and Wireless expects the
Canadian wireless industry to grow
by 3 to 4 percentage points each year.
While this will produce growth, the growth is slowing compared to
historical levels. Such slowing growth has been, and will continue, driving
the increased focus on customer satisfaction, the sale to customers of new
data and voice service features and, primarily, customer retention. Due to
legislation in the U.S. and other countries regarding local number portability
and the speculation that this approach will be adopted by Canadian regulators,
customer satisfaction and retention will become even more critical in the
future.

Demand for Sophisticated Data Applications and Migration to Next
Generation Wireless Technology

     The ongoing development of wireless data transmission technologies has led
manufacturers to create wireless devices with increasingly advanced
capabilities, including access to e-mail and other corporate information
technology platforms, news, sports, financial information and services,
shopping services, and other functions. Increased demand for sophisticated
wireless services, especially data communications services, has led wireless
providers to migrate towards the next generation of digital voice and data
networks. These networks are intended to provide wireless communications with
wireline quality sound, far higher data transmission speeds and streaming video
capability. These networks are expected to support a variety of data
applications, including high-speed Internet access, multimedia services and
seamless access to corporate information systems, such as e-mail and purchasing
systems. As discussed above, Wireless began trials of EDGE technology in the Vancouver market late in 2003 and intends to begin
deploying EDGE across the remainder of its national GSM/GPRS network during
2004.

Development of Additional Technologies

     The development of additional technologies and their use by consumers may
accelerate the widespread adoption of 3G digital voice and data networks. One
such example is WiFi, which allows suitably equipped devices, such as laptop
computers and personal digital assistants, to connect to a wireless access
point. The wireless connection is only effective within a range of
approximately 100 meters and at theoretical speeds of up to 54 megabits per
second. To address these limitations, WiFi access points must be placed
selectively in high-traffic locations where potential customers frequent and
have sufficient time to use the service. Technology companies are currently
developing additional technologies designed to improve WiFi and otherwise
utilize the higher data transmission speeds found in a third
generation (“3G”) network. Future
enhancements to the range of WiFi service, and the networking of WiFi access
points may provide additional opportunities for mobile wireless operators to
deploy hybrid high-mobility 3G and limited-mobility WiFi networks, each
providing capacity and coverage under the appropriate circumstances.

WIRELESS REGULATORY DEVELOPMENTS

Contribution Funding Mechanism

     In November 2000, the CRTC released a decision that fundamentally altered
the mechanism used by the CRTC to collect “contributions” to subsidize the
provision of basic local wireline telephone service. Previously, the
contribution was levied on a per minute basis on long-distance services. Under
the new contribution regime, which became effective January 1, 2001, all
telecommunications service providers, including wireless service providers such
as Wireless, are required to contribute a percentage of their adjusted Canadian
telecommunications service revenues to a fund established to subsidize the
provision of basic local service. The percentage contribution levy was 4.5% in
2001 and 1.3% for 2002. In 2003, an interim rate of 1.3% was set and in
December 2003 the final rate was reduced to 1.1%, retroactive to

 

29

January 1, 2003. The interim rate for 2004 has been set at 1.1% and the
final rate for 2004 will not likely be set until December 2004. The final rate
for 2004 would likely be retroactive to January 1, 2004. (Refer to the
“Wireless Risks and Uncertainties — CRTC Revenue-based Contribution Scheme”
section for further information on the CRTC contribution levy.)

Spectrum Fee Assessment Revision

     Late in 2002, Industry Canada released a consultation paper proposing a
new methodology for calculating spectrum fee assessments (excluding auction
spectrum). Spectrum fees are currently assessed on a per radio channel basis in
the case of 850 MHz spectrum and a per site basis for 1900 MHz spectrum. The new
regime proposes an annual cost per MHz per population for both frequency
ranges, and, as a result, fees will be based on the amount of spectrum held by
the carrier, regardless of the degree of deployment or the number of sites. The
final rate established by Industry Canada in December 2003 is considerably
lower than the rate initially proposed. The new rates come into effect on April
1, 2004. As a result of the new methodology, there is a nominal increase in
annual spectrum fees for Rogers Wireless that will be phased in over a
seven-year period to 2011.

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 has proposed a possible spectrum auction date of 2005
to 2006 for this spectrum. The FCC is expected to auction similar spectrum in
the 2004 to 2005 period. Wireless expects that Industry Canada will follow the
spectrum allocation of the FCC and will likely proceed with the auction in the
2005 to 2006 timeframe. A final determination on all these matters is not
expected until late 2004.

Fixed Wireless Spectrum Auction

     Industry Canada announced its intention to auction one block of 30 MHz
of spectrum in the 2300 MHz band, as well as three blocks of 50 MHz of spectrum
and one block of 25 MHz 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. Successful bidders for the spectrum
had
flexibility in determining the services to be offered and the technologies to
be deployed in the spectrum. Industry Canada expects that the spectrum will
be used for point-to-point or point-to-multi-point broadband services. Rogers
Wireless participated in this spectrum auction and as a result, have
committed to acquire 33 blocks of spectrum in various licence areas
for an aggregate bid price of $5.9 million.

WIRELESS COMPETITION

     At the end of 2003, the highly competitive Canadian wireless industry had
approximately 13.4 million wireless subscribers. Competition for wireless
subscribers is based on price, scope of services, service coverage, quality of
service, sophistication of wireless technology, breadth of distribution,
selection of equipment, brand and marketing.

     In the wireless voice and data market, Wireless competes primarily with
three other wireless service providers, and Wireless may in the future compete
with other companies, including resellers, using existing or emerging wireless technologies such as
WiFi or “hotspots”. Wireless messaging (or one-way paging) also competes with
a number of local and national paging providers.

     In 2003, one of Wireless’ competitors, Microcell Telecommunications Inc.
(“Microcell”), which operates under the “Fido” brand, restructured its business
and financing pursuant to the Companies’ Creditors Arrangement Act (Canada) and
has emerged from court protection with a significantly reduced debt load. This
recapitalization may permit Microcell to compete in the market more vigorously
than it had prior to its restructuring.

 

30

WIRELESS OPERATING AND FINANCIAL RESULTS

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

     For purposes of this discussion, revenue has been classified according to
the following categories:

	 	•	 	postpaid voice and data, revenues generated principally from 
	 

	 	•
	 	monthly fees,
	 

	 	•
	 	airtime and long-distance charges,
	 

	 	•
	 	optional
service charges,
	 

	 	•
	 	system access fees, and
	 

	 	•
	 	roaming charges;
	 

	 	•	 	prepaid revenues generated
principally from the charges of
airtime, long-distance charges and text messaging;
	 
	 	•	 	one-way messaging revenues generated from monthly fees and usage
charges; and
	 
	 	•	 	equipment sales revenue generated from the sale of hardware and
accessories to independent dealers, agents and retailers, and directly
to subscribers through direct fulfillment by its customer service
groups, Wireless’ website and telesales.

     Wireless’
operating expenses are segregated into three categories for assessing
business performance:

	 	•	 	cost of equipment sales;
	 
	 	•	 	sales and marketing expenses which
represent all 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;
	 
	 	•	 	operating, general and administrative expenses, which include all other
expenses incurred to operate the business on a day-to-day basis, including inter-carrier
payments to roaming partners and long-distance carriers and the CRTC
contribution levy. As well, it includes costs to service existing
subscriber relationships including retention costs (other than those
related to equipment).

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	Years Ended December 31,	 	 	 	 
	 	 	 	
	 	 	 	 
	(In millions of dollars, except margins)	 	2003	 	2002	 	% Chg
	 	 	
	 	
	 	

	Operating revenue
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Postpaid
 (voice and data)(1)(2)
	 	$	1,911.1	 	 	$	1,628.1	 	 	 	17.4	 
	 	Prepaid
	 	 	91.2	 	 	 	91.2	 	 	 	—	 
	 	One-way messaging
	 	 	27.6	 	 	 	35.2	 	 	 	(21.6	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	 	Network revenue
(1)
	 	 	2,029.9	 	 	 	1,754.5	 	 	 	15.7	 
	 	Equipment revenue
(1)
	 	 	177.9	 	 	 	137.0	 	 	 	29.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total operating revenue
	 	 	2,207.8	 	 	 	1,891.5	 	 	 	16.7	 
	Operating
 expenses(1)
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cost of equipment sales
	 	 	380.8	 	 	 	296.8	 	 	 	28.3	 
	 	Sales
and marketing expenses
	 	 	362.0	 	 	 	328.9	 	 	 	10.1	 
	 	Operating, general and administrative
expenses
	 	 	737.4	 	 	 	738.1	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

 

31

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	Years Ended December 31,	 	 	 	 
	 	 	 	
	 	 	 	 
	(In millions of dollars, except margins)	 	2003	 	2002	 	% Chg
	 	 	
	 	
	 	

	Total operating expenses
	 	 	1,480.2	 	 	 	1,363.8	 	 	 	8.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Operating
profit(3)
	 	 $	727.6	 	 	 $	527.7	 	 	 	37.9	%
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Additions to property,
 plant and equipment
expenditures
	 	$	411.9	 	 	$	564.6	 	 	$	(27.0	)
	Operating profit margin as % of network
revenue(3)(4)
	 	 	35.8	%	 	 	30.1	%	 	 	 	 

	(1)	 	As reclassified. See the
“Recent Accounting Developments - Revenue Recognition”
section.

	 
	(2)	 	The prior period presentation of revenue categories has been reclassified
to conform to the current presentation. See the discussion under the
“Subscriber Counts” section in Key Performance Indicators.
	 
	(3)	 	As defined in “Key
Performance Indicators – Operating Profit and
Operating Profit Margin”.
	 
	(4)	 	Operating profit margin as a percentage of network revenue is a key
performance indicator for the reasons indicated in the “Key Performance
Indicators – Operating Profit and Operating Profit Margin” section and is
calculated as follows:

	 	 	 	 	 	 	 	 	 
	($ millions)	 	2003	 	2002
	
	 	
	 	

	Network revenue
	 	$	2,029.9	 	 	$	1,754.5	 
	 
	 	 	
	 	 	 	
	 
	Operating profit
	 	$	727.6	 	 	$	527.7	 
	 
	 	 	
	 	 	 	
	 

	 	 	 	 	 
	Operating profit margin – 2003	 	$727.6 divided by
$2,029.9 = 35.8%
	Operating profit margin – 2002	 	$527.7 divided by
$1,754.5 = 30.1%

Wireless Operating Highlights and Significant Developments of 2003

	 	•	 	Network revenue increased 15.7% and operating profit increased 37.9%
compared to 2002. Operating profit margin based on network revenue rose
by 570 basis points year-over-year to 35.8%.
	 
	 	•	 	2003 PP&E expenditures decreased by $152.7 million, or 27.0%, over
2002 due to the substantial completion of the initial roll-out of the
nationwide GSM/GPRS network in 2002.
	 
	 	•	 	Postpaid voice and data ARPU
increased year-over-year by $1.47, or
2.6%, to $55.78, reflecting the continued activation and retention of
higher valued customers, increased penetration of enhanced services and
the continued growth of wireless data and roaming revenues.
	 
	 	•	 	Postpaid voice and data subscriber net additions of 400,200 were
higher by 19.3% versus the 335,400 net additions in 2002, reflecting
both higher levels of gross activations and reduced churn levels.
Average monthly postpaid churn for the year declined to 1.88% from 1.98%
in the previous year.
	 
	 	•	 	Revenues from wireless data
services, which grew 124.8%
year-over-year to $67.9 million from $30.2 million in the prior year,
represented approximately 3.3% of network revenue compared to 1.7% in
2002.
	 
	 	•	 	Wireless completed its deployment of GSM/GPRS technology operating in
the 850 MHz spectrum range across its national footprint, expanding the
capacity and also enhancing the quality of the GSM/GPRS network. Rogers
Wireless also began trials of EDGE technology in the Vancouver market at
the end of 2003 which, accomplished by the installation of a network
software upgrade, more than triples the wireless data transmission
speeds available on its network.

 

32

	 	•	 	On March 8, 2004, Wireless will begin transitioning its branding to
Rogers Wireless from Rogers AT&T Wireless, bringing greater clarity to
the Rogers brand in Canada. As a result, Wireless recorded a one-time,
non-cash charge in 2003 of approximately $20.0 million to reflect the
accelerated amortization of the associated brand licence costs.

Wireless Network Revenue and Subscribers

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	Years Ended December 31,	 	 	 	 	 	 	 	 
	 	 	 	
	 	 	 	 	 	 	 	 
	(Subscriber statistics in thousands, except ARPU, churn and usage)	 	2003	 	2002	 	Chg	 	% Chg
	 	 	
	 	
	 	
	 	

	Postpaid (Voice and Data)(1)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Gross additions
	 	 	1,021.5	 	 	 	910.7	 	 	 	110.8	 	 	 	12.2	 
	 	Net additions
	 	 	400.2	 	 	 	335.4	 	 	 	64.8	 	 	 	19.3	 
	 	Total subscribers
	 	 	3,029.6	 	 	 	2,629.3	 	 	 	400.3	 	 	 	15.2	 
	 	ARPU
($)(3)(4)
	 	 	57.25	 	 	 	55.78	 	 	 	1.47	 	 	 	2.6	 
	 	Average monthly usage (minutes)
	 	 	361	 	 	 	324	 	 	 	37	 	 	 	11.4	 
	 	Churn (%)
	 	 	1.88	 	 	 	1.98	 	 	 	(0.10	)	 	 	(5.1	)
	Prepaid
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Gross additions
	 	 	257.4	 	 	 	243.3	 	 	 	14.1	 	 	 	5.8	 
	 	Net additions (losses)
	 	 	2.0	 	 	 	44.2	 	 	 	(42.2	)	 	 	(95.5	)
	 	Adjustment to subscriber base(2)
	 	 	(20.9	)	 	 	—	 	 	 	(20.9	)	 	 	—	 
	 	Total subscribers(2)
	 	 	759.8	 	 	 	778.7	 	 	 	(18.9	)	 	 	(2.4	)
	 	ARPU ($)(3)
	 	 	10.08	 	 	 	10.17	 	 	 	(0.09	)	 	 	(0.9	)
	 	Churn (%)
	 	 	2.82	 	 	 	2.23	 	 	 	0.59	 	 	 	26.5	 
	
Total - Postpaid and Prepaid
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Gross additions
	 	 	1,278.9	 	 	 	1,154.0	 	 	 	124.9	 	 	 	10.8	 
	 	Net additions
	 	 	402.2	 	 	 	379.6	 	 	 	22.6	 	 	 	6.0	 
	 	Adjustment to subscriber base(2)
	 	 	(20.9	)	 	 	—	 	 	 	(20.9	)	 	 	—	 
	 	Total subscribers(2)
	 	 	3,789.4	 	 	 	3,408.0	 	 	 	381.4	 	 	 	11.2	 
	 	ARPU
(blended)($)(3)(4)
	 	 	47.19	 	 	 	45.07	 	 	 	2.12	 	 	 	4.7	 
	One-Way Messaging
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Gross additions
	 	 	42.5	 	 	 	61.0	 	 	 	(18.5	)	 	 	(30.3	)
	 	Net additions
	 	 	(61.1	)	 	 	(68.3	)	 	 	7.2	 	 	 	(10.5	)
	 	Total subscribers
	 	 	241.3	 	 	 	302.3	 	 	 	(61.0	)	 	 	(20.2	)
	 	ARPU
($)(3)
	 	 	8.40	 	 	 	8.79	 	 	 	(0.39	)	 	 	(4.4	)
	 	Churn (%)
	 	 	3.13	 	 	 	3.20	 	 	 	(0.07	)	 	 	(2.2	)

	(1)	 	The 2002 presentation of subscribers and revenue has been reclassified to
conform to the current presentation as discussed in “Key Performance
Indicators—Subscriber Counts” above.
	 
	(2)	 	Wireless’ policy is to treat prepaid subscribers with no usage for a six
month period as a reduction of the prepaid subscriber base. As part of a
review of prepaid subscriber usage in the second quarter of 2003, Wireless
determined that a number of subscribers, totaling 20,900, which only had
non-revenue usage (i.e. calls to customer service) over the past several
quarters, were being included in the prepaid subscriber base. Wireless
determined that these subscribers should not have been included in the
prepaid subscriber base and, as such, made an adjustment to the opening
prepaid subscriber base. Wireless has amended its policy to reflect all
prepaid subscribers with no revenue-generating usage in a six month period
as deactivations.
	 
	(3)	 	See “Key Performance
Indicators — Average Revenue Per Subscriber” section.
	 
	(4)	 	As reclassified - See the
“Recent Accounting Developments Revenue Recognition
” section.

Wireless Network Revenue

     Wireless
network revenue in 2003, which accounted for 91.9% of Wireless’
total revenue, was $2,029.9 million, an increase of 15.7% from 2002. This
revenue growth reflects the 11.2% increase in the

 

33

number of wireless voice and data
subscribers over fiscal 2002 and a 4.7%
year-over-year increase in blended postpaid and prepaid ARPU.

     Postpaid voice and data subscriber additions in 2003 represented 79.9% of
total gross activations and close to 100% of total net additions. Wireless
continued its strategy of targeting higher value postpaid subscribers and
selling its prepaid handsets at higher price points which contributed
significantly to the mix of postpaid versus prepaid subscribers.

     The 2.6% increase in average monthly revenue per postpaid voice and data
subscriber compared to the previous year reflected the continued activation and
retention of higher valued customers, increased penetration of enhanced
services, and the continued growth of wireless data and roaming revenues. The
growth in data revenues from $30.2 million to $67.9 million represented
approximately 68.5% of the 2.6% ARPU increase. Prepaid ARPU remained
relatively flat on a year-over-year basis.

     The continuing trend to lower postpaid voice and data subscriber churn, as
reflected in the 1.88% rate in 2003 versus 1.98% in 2002, is directly related
to both Wireless’ strategy of acquiring higher value, more stable customers on
longer term contracts and an enhanced focus on customer retention. Wireless’
focus on customer retention aims to ensure that customers receive responsive,
quality service at every point of contact with Wireless. Wireless attributes
the increase in prepaid churn to 2.82% in the current year to the impact of
competitive prepaid offers.

     One-way messaging (or “paging”) subscriber churn has remained relatively
stable on a year over year basis declining to 3.13% in 2003 from 3.20% in the
previous year. With 241,300 paging subscribers, Wireless continues to view
paging as a profitable but mature business segment and recognizes that churn
will likely continue at relatively high rates as one-way messaging subscribers
increasingly migrate to two-way messaging and converged voice and data
services.

Wireless Equipment Sales Revenue

     In 2003, revenue from wireless voice, data and messaging equipment sales
was $177.9 million, up $40.9 million, or 29.9% from the prior year. The
increase in equipment revenues reflects both the higher cost of more
sophisticated handsets and devices and the significantly higher volume of
postpaid voice and data customer gross additions. However, this increase in
sales does not materially affect Wireless’ operating profit as Wireless
generally sells equipment to distribution at a price approximating cost to
facilitate competitive pricing at the retail level.

Wireless Operating Expenses

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	Years Ended December 31,	 	 	 	 
	 	 	 	
	 	 	 	 
	(In millions of dollars, except per subscriber statistics)	 	2003	 	2002	 	% Chg
	 	 	
	 	
	 	

	Operating
expenses (1)(2)(3)
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cost of equipment sales
	 	$	380.8	 	 	$	296.8	 	 	 	28.3	 
	 	Sales and marketing (4)
	 	 	362.0	 	 	 	328.9	 	 	 	10.1	 
	 	Operating, general and administrative expenses
	 	 	737.4	 	 	 	738.1	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total operating expenses
	 	$	1,480.2	 	 	$	1,363.8	 	 	 	8.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Average monthly operating expense per
subscriber before sales, marketing and equipment margin (1)(3)(4)
	 	$	17.62	 	 	$	18.55	 	 	 	(5.0	)
	Sales and marketing expenses per gross
subscriber addition (including equipment margin) (1)(2)
	 	$	376	 	 	$	366	 	 	 	2.7	 

 

34

	(1)	 	As reclassified. See the
“Recent Accounting Developments - Revenue Recognition
” section.
	 
	(2)	 	The 2002 presentation has been reclassified to conform to the current
presentation. Customer retention costs are included in operating,
general and administrative costs.
	 
	(3)	 	Operating expenses for the year ended December 2002 exclude the benefit
of the change in the estimate of sales tax and CRTC contribution
liabilities items of $12.3 million.
	 
	(4)	 	Sales and marketing expenses exclude margin on equipment sales.

     Total
operating expenses were $1,480.2 million, up 8.5% from $1,363.8
million in 2002. Cost of equipment sales increased by approximately
$84.0
million as a result of increased equipment revenues. These costs do not
materially affect Wireless’ operating profit as Wireless generally sells
equipment to distributors at a price approximating cost to facilitate
competitive pricing at the retail level.

     Operating,
general and administrative expenses decreased by $0.7 million
 in 2003 over 2002. The slight decrease increase is attributable to  savings related to more favourable roaming arrangements and
operating efficiencies across various functions offset by increase
customer care  and retention spending. Retention spending includes
spending on retention programs, excluding equipment upgrades, costs
associated with Wireless’ customer loyalty and renewal programs and payments to
Wireless’ distributors for ongoing service of Wireless’ existing customers.
Wireless is continually focused on operating efficiencies and cost reduction
programs which in turn have served to offset the impact of the growth in the
subscriber base, allowing operating profit margins to expand.

     Average monthly operating expense per subscriber, excluding sales and
marketing expenses and equipment cost of sales, decreased $0.93, or
5.0%, to
$17.62 in 2003, compared to $18.55 in 2002. This year-over-year reduction
reflects scale economies from the larger subscriber base, roaming cost
reductions, and improved efficiencies in call centre and network maintenance
operations offset by increased costs related to customer retention.

     At December 31, 2003, Wireless, as a result of its sales and retention
strategies, had approximately 67% of its postpaid wireless voice and data
subscriber base under contracts with an initial term of greater than 12 months,
up from 61% at December 31, 2002.

Wireless Sales and Marketing Expenses

     The 10.1% year-over-year increase in total sales and marketing expenses
was due to higher variable acquisition costs associated with the 12.2%
year-over-year increase in the number of postpaid voice and data gross
additions. In addition, variable sales and marketing expenses increased in line
with Wireless’ strategy to attract higher value business customers and
customers on longer term contracts. Wireless also invested more in advertising
and promotion on a year-over-year basis as it emphasized the value proposition
related to data and other product offerings. Sales and marketing costs per
wireless subscriber gross addition were $376, an increase of $10 or
2.7%, from
$366 in 2002 attributable to increases in equipment subsidies
required to match competitive offers.

Wireless Operating Profit

     Revenue increased at a faster rate than expenses, resulting in operating
profit growth of $199.9 million, or 37.9%, to $727.6 million in 2003 from
$527.7 million in 2002. Operating profit as a percentage of network revenue, or
operating profit margin, improved in 2003 to 35.8% from 30.1% in 2002.

 

35

Wireless Additions to PP&E 

     Additions to PP&E totaled $411.9 million in 2003, a decrease of $152.7
million, or 27.0%, from $564.6 million in 2002. Network related additions to PP&E
of $338.2 million included $251.3 million for capacity expansion of the
GSM/GPRS network and transmission infrastructure and $66.1 million for expanded
coverage as well as construction of new sites for improved coverage in existing
service areas. Wireless has continued to construct the infrastructure
necessary for enhanced digital coverage and lower cost incremental capacity by
adding channels on existing sites. The cost to complete the deployment of
GSM/GPRS equipment in the 850 MHz frequency band that was initiated during the
fourth quarter of 2002 and completed in late 2003 is included in the network
capacity expansion costs above. The remaining balance of $20.8 million in
network additions to PP&E related primarily to technical upgrade projects, the
operational support systems, and the addition of new services. Other additions to PP&E
consisted of $51.1 million for information technology initiatives,
$8.7 million for the completion of the expansion of Wireless’ headquarter’s
facilities, and $13.9 million for call centres and other facilities and
equipment.

Wireless Employees

     Remuneration
represents a material portion of Wireless’ expenses. Wireless ended 2003 with approximately 2,360 full-time equivalent
employees, an increase of 40 from 2,320 at December 31, 2002. The increase in
staff was primarily concentrated in the areas of sales and marketing as
Wireless focused its subscriber acquisition programs and service and retention
efforts on customer segments that would yield greater value to Wireless.

     Total remuneration paid to Wireless employees (both full and part-time) in
2003 was approximately $164.2 million, an increase of
$5.3 million or 3.3%
from $158.9 million in the prior year.

WIRELESS RISKS AND UNCERTAINTIES

     Wireless’ business is subject to several operating risks and uncertainties
that could result in a material adverse effect on its business and financial
results as outlined below.

Risk of Insufficient Future Demand for Advanced Services

     It is expected that a substantial portion of future revenue growth will be
achieved from new and advanced wireless voice and data transmission services.
Accordingly and as discussed above, Wireless has invested and continues to
invest significant capital resources in the development of its GSM/GPRS network
in order to offer these services, and also intends to invest in capital
resources in the deployment of EDGE technology across its GSM/GPRS network.
However, consumers may not provide sufficient demand for these advanced
wireless services. Alternatively, Rogers Wireless 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. Rogers Wireless’
failure to attract subscribers to new products and services, or failure to keep
pace with changing consumer preferences for wireless services, would slow
revenue growth and have a material adverse effect on Wireless’ business and
financial condition.

Potential Competitiveness or Compatibility of EDGE technology

     The deployment by Rogers Wireless of EDGE technology may not be
competitive or compatible with other technologies. While Rogers Wireless and
AWE have selected this technology as an evolutionary step from their current to
future networks, there are other competing technologies that are being
developed and implemented by the wireless industry. None of the competing
technologies are directly compatible with each other. If the next generation
technology that gains the most widespread acceptance is not compatible with
Rogers Wireless’ networks, competing services based on such alternative
technology may be preferable to subscribers.

Potential Impact of Change in Foreign Ownership Legislation

     Wireless could face increased competition if, as discussed in “Overview of
Government Regulation and Regulatory Developments” above, there is a removal or
relaxation of the limits on foreign ownership and control of wireless 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. Such companies could have significantly greater capital
resources than Wireless. Wireless supports removal of the limits on foreign

 

36

ownership and control and believes that removal would give Wireless
greater access to lower cost capital.

Potential Effect of Wireless Industry Pricing

     Aggressive pricing by industry participants in previous years caused
significant reductions in Canadian wireless communications pricing. Rogers
Wireless believes that competitive pricing is a factor in causing churn. It
cannot predict the extent of further price competition and customer churn into
the future, but it anticipates some ongoing re-pricing of its 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 Rogers Wireless’ existing customers, which could slow
revenue growth.

     Wireless cannot anticipate what, if any, impact new wireless
communications services or lower prices could have on overall market growth. It
intends to compete vigorously for all customer segments, focusing on the
business, consumer and youth segments, and in all Canadian geographic markets
based on the strengths of its extensive networks and broad digital services
coverage, strong brands and wide distribution presence.

CRTC Revenue-Based Contribution Scheme

     Commencing January 1, 2001, Rogers Wireless was required to make payments
equal to an annual percentage of adjusted revenues in accordance with the new
revenue-based contribution scheme. The percentage of adjusted revenues payable
is revised annually by the CRTC. The CRTC has announced a contribution levy of
1.1% as both the final rate for 2003 and the interim rate for 2004. While the
rate has been reduced modestly over each of the last two years, Wireless cannot
anticipate the final rate for 2004 or the rates for future years. An increase
in the rate would have a negative impact on operating profits.

3G Spectrum Allocation

     As discussed in “Overview of Government Regulation and Regulatory
Developments” above, Industry Canada has released a proposed policy regarding
3G spectrum allocation and a proposed timeframe for a 3G spectrum auction in
the 2005 to 2006 timeframe. The spectrum frequency range for 3G has not been
fully resolved but will likely bear a close resemblance to the U.S. allocation.
Should the cost of acquiring such spectrum in the proposed auction be greater
than currently anticipated by Wireless, this could create a significant capital
funding requirement for Wireless.

Capital Resource Requirement

     The operation of Wireless’ wireless communications network, the marketing
and distribution of its products and services, and the continued evolution of
network technology will continue to require significant capital resources.
Wireless may not generate or have access to sufficient capital to fund these
expected future requirements.

Alleged Links Between Radio Frequency Emissions and Health Concerns

     Occasional media and other reports have highlighted alleged links between
radio frequency emissions from wireless handsets and various 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 radio frequency emissions are directly attributable to such health
issues, concerns over radio frequency emissions may discourage the use of
wireless handsets or expose Wireless 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.

 

37

Legislation on Wireless Handset Usage While Driving

     Certain provincial government bodies are considering legislation to
restrict or prohibit wireless handset usage while driving. Legislation banning
the use of hand-held phones, but permitting the use of hands-free devices, was
passed in Newfoundland in late 2002, with implementation in April 2003.
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. If laws are passed prohibiting or restricting the use of wireless
handsets while driving, it could have the effect of reducing subscriber usage.
Additionally, concerns over the use of wireless handsets while driving could
potentially lead to litigation relating to accidents, deaths or bodily
injuries.

Dependence on Infrastructure and Handset Vendors

     Wireless has relationships with a small number of key network
infrastructure and handset vendors. Wireless does not have operational or
financial control over its key suppliers and has limited influence over how
they conduct their businesses. Failure of one of Wireless’ network
infrastructure suppliers could delay programs to provide additional network
capacity or new capabilities and services across the business. Although
Wireless has not been materially affected by supply problems in the past,
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, it may have a negative impact on
Wireless’ business, financial condition and results of operations. Similarly,
interruptions in the supply of equipment for Wireless’ networks could impact
the quality of its service or impede network development and expansion.

Disaster Recovery

     Rogers Wireless uses industry standard network and information technology
security, survivability and disaster recovery practices. Security breaches and
disasters may occur that are beyond the scope of Rogers Wireless’ ability to
recover without significant service interruption and commensurate revenue and
customer loss.

Wireless Local Number Portability

     Over the past several years, certain countries in Europe and Asia have
implemented wireless local number portability (“LNP”). In November 2003, as
mandated by the Federal government, the U.S. wireless industry began the
implementation of wireless LNP. Wireless LNP involves porting wireless phone
numbers to other wireless companies, but can also involve porting phone numbers
between wireline and wireless companies. The implementation of wireless LNP
systems and capabilities represents significant costs for the carriers in a
country to deploy. There has been no regulatory mandate for the implementation
of wireless LNP in Canada. However, if wireless LNP were to be required, this
would require carriers, including Wireless, to incur implementation costs which
could be significant and once implemented could cause an increase in churn
among Canadian wireless carriers, including Rogers Wireless.

AWE Investment in Wireless

     At December 31, 2003, Wireless was 34.2% owned by AWE. AWE has recently
reported that it is exploring its strategic alternatives, including a possible
sale of its interest in Wireless. Any decision by AWE or a successor company to sell all or a
portion of its shares in Wireless is subject to the terms of a shareholders
agreement, as described above in the “Intercompany and Related Party
Transactions – AT&T Arrangements - Shareholders Agreement” section. Wireless
does not know AWE’s intentions with respect to its investment in Rogers
Wireless. Any change in the AWE relationship could result in changes to,
including termination of, the mobile wireless marketing, technology and
services agreement

 

38

or roaming agreement, as described in “Intercompany and Related Party
Transactions – AT&T Arrangements”.

Regulatory Risks

     As discussed in “Overview of Government Regulation and Regulating
Developments” above, Wireless’ operations are subject to government regulation
that could have adverse effects on its business.

Information Technology Systems

     The day-to-day operation of Wireless’ business is highly dependent on
information technology systems. An inability to enhance its information
technology systems to accommodate additional customer growth and support new
products and services could have an adverse impact on its ability to acquire
new subscribers, manage subscriber churn, produce accurate and timely
subscriber bills, generate revenue growth and manage operating expenses, all of
which could adversely impact Wireless’ financial results and financial
position.

     In addition, Wireless uses standard network and information technology
security, survivability and disaster recovery practices. Approximately 1,400
of Wireless’ employees and critical elements of Wireless’ network
infrastructure and information technology systems are located at the Rogers
corporate office in Toronto. In the event that the Company cannot access these
facilities, as a result of a natural or manmade disaster or otherwise, its
operations and financial results could be adversely impacted.

Rogers Media

MEDIA OVERVIEW

     Rogers Media holds Rogers’ radio and television broadcasting operations,
its consumer and trade publishing operations and its televised home shopping
service. The Broadcasting group (“Broadcasting”) comprises 43 radio stations
across Canada (32 FM and 11 AM radio stations), two multicultural television
stations in Ontario (OMNI.1 and OMNI.2), an 80% interest in a sports specialty
service licenced to provide regional sports programming across Canada (“Rogers
Sportsnet”), and Canada’s only nationally televised shopping service (“The
Shopping Channel”). Broadcasting holds minority interests in several Canadian
specialty television services, including Viewers Choice Canada, Outdoor Life
Network (“OLN”), TechTV Canada, The Biography Channel Canada, MSNBC Canada and
certain other minority interest investments. The Publishing group
(“Publishing”) produces approximately 70 consumer magazines and trade and
professional publications and directories. In addition to its more traditional
broadcast and print media platforms, the Media group also delivers content over
the Internet relating to many of its individual broadcasting and publishing
properties.

MEDIA STRATEGY OVERVIEW

     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 continued
development of its portfolio of specialty channel investments, radio
properties and publications;
	 
	 	•	 	continuing to leverage its strong brand names to increase advertising
and subscription revenues, assisted by the cross-promotion of its
properties both across its media formats and in association with of the
“Rogers” brand; and
	 
	 	•	 	focusing on growth and continuing to cross-sell advertising and share
content across its properties and over its multiple media platforms.

 

39

MEDIA SEASONALITY

     Media’s operating results are subject to seasonal fluctuations that
materially 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. The fourth quarter is generally the
strongest quarter due to increased consumer activity and subscriber
activations, as well as greater seasonal advertising activity. Media
seasonality is a result of fluctuations in advertising and related retail
cycles as they relate to periods of increased consumer activity.

RECENT MEDIA INDUSTRY TRENDS

Increased Radio/TV Ownership Fragmentation

     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 programming formats. In the radio industry,
since the introduction of its Commercial Radio Policy in 1998, the CRTC has
licenced 48 new radio stations through competitive processes in markets across
Canada. In that time, the CRTC also has licenced a large number of additional
new FM stations through AM to FM station conversions or other non-competitive
processes for stations in smaller or unserved markets. In the television
industry, the CRTC has licenced a number of new, over-the-air television
stations and a significant number of new digital Category 1 and Category 2
services. The new services and the new formats combine to fragment the market
for existing radio and television operators.

MEDIA REGULATORY DEVELOPMENTS

     The CRTC has announced that a further review of the Commercial Radio
Policy will not occur until 2005. In the interim, the CRTC will review
satellite radio issues, including the establishment of a satellite radio policy
and licensing framework in response to a filing for satellite radio
applications in Canada.

     The CRTC has reviewed its exemption order regarding Teleshopping
Programming Undertakings such as The Shopping Channel, and has left the order
substantially unchanged, including Canadian ownership requirements applicable
to all other licenced services.

     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 broadcasting in Canada.

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,
television, outdoor advertising, direct mail marketing and the Internet.

     Competition within the radio broadcasting industry occurs primarily in
individual market areas, amongst individual market stations. On a national
level, Broadcasting competes generally with other larger radio operators such
as Corus Entertainment Inc., Standard Radio 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.

 

40

     OMNI.1 and OMNI.2 compete principally for viewers and advertisers with
television stations that broadcast in Ontario, primarily in the Toronto and
southern Ontario markets. These include Canadian television stations in the
Greater Toronto area as well as U.S. border stations.

     Rogers Sportsnet competes for viewers principally with The Sports Network
(“TSN”), Headline Sports and sports programs carried by other Canadian and U.S.
television stations and networks.

     On a product level, The Shopping Channel competes with various retail
stores, catalog retailers, Internet retailers and direct mail retailers. On a
broadcasting level, The Shopping Channel competes with other television
channels for viewer attention and loyalty, particularly 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 American, 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 Act (Canada) and amendments to the Canadian
Tax Act. Increasing competition from American magazines for advertising
revenues is expected in the coming years.

MEDIA OPERATING AND FINANCIAL RESULTS

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

     For discussion purposes, Media’s financial results have been divided into
“Publishing”, “Radio”, “Television”, “The Shopping Channel”, and “Other”, which
includes corporate expenses. Publishing includes Media’s consumer and business
publications, as well as its database and medical trade show businesses. Radio
includes 43 AM and FM radio stations, TV listings and its 50% share in Canadian
Broadcast Sales (“CBS”). Television includes the results of its two OMNI TV
channels and the Company’s 80% interest in Rogers Sportsnet. The Shopping
Channel is Media’s televised home-shopping service.

     Media’s revenues consist of:

	 	•	 	advertising revenues,
	 
	 	•	 	circulation and subscription revenues and
	 
	 	•	 	retail product sales.

     Media’s operating expenses consist of:

	 	•	 	cost of sales which is composed 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 and other
back-office type support functions.

Summarized Media Financial Results

 

41

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	Years Ended December 31,	 	 	 	 
	 	 	 	
	 	 	 	 
	(In millions of dollars, except margins)	 	2003	 	2002	 	% Chg.
	 	 	
	 	
	 	

	Operating revenue
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Publishing
	 	$	289.9	 	 	$	291.6	 	 	 	(0.6	)
	 	Radio
	 	 	177.2	 	 	 	166.2	 	 	 	6.6	 
	 	Television
	 	 	178.0	 	 	 	151.3	 	 	 	17.6	 
	 	The Shopping Channel
	 	 	210.5	 	 	 	202.2	 	 	 	4.1	 
	 	Corporate items, eliminations and other
	 	 	(0.6	)	 	 	(0.5	)	 	 	20.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total operating revenue
	 	 	855.0	 	 	 	810.8	 	 	 	5.5	 
	Operating expenses
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cost of sales
	 	 	131.5	 	 	 	127.6	 	 	 	3.1	 
	 	Sales and marketing
	 	 	175.7	 	 	 	176.6	 	 	 	(0.5	)
	 	Operating, general and administrative
	 	 	441.1	 	 	 	419.0	 	 	 	5.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total operating expenses
	 	 	748.3	 	 	 	723.2	 	 	 	3.5	 
	Operating profit(1)
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Publishing
	 	 	29.4	 	 	 	27.7	 	 	 	6.1	 
	 	Radio
	 	 	38.7	 	 	 	42.0	 	 	 	(7.9	)
	 	Television
	 	 	27.7	 	 	 	7.7	 	 	 	—	 
	 	The Shopping Channel
	 	 	19.2	 	 	 	18.4	 	 	 	4.4	 
	 	Corporate items, eliminations and other
	 	 	(8.3	)	 	 	(8.2	)	 	 	(0.1	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total operating profit
	 	$	106.7	 	 	$	87.6	 	 	 	21.8	 
	Operating profit as a percentage of revenue(1)
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Publishing
	 	 	10.1	 	 	 	9.5	 	 	 	6.3	 
	 	Radio
	 	 	21.8	 	 	 	25.3	 	 	 	(13.8	)
	 	Television
	 	 	15.6	 	 	 	5.1	 	 	 	—	 
	 	The Shopping Channel
	 	 	9.1	 	 	 	9.1	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total operating profit as a percentage of revenue (1)
	 	 	12.5	 	 	 	10.8	 	 	 	15.7	 
	Additions
to Property, plant and equipment
	 	$	41.3	 	 	$	42.7	 	 	 	(3.3	)

	(1)	 	Operating profit margin as a percentage of network revenue is a key
performance indicator for the reasons indicated in the “Key Performance
Indicators – Operating Profit and Operating Profit Margin” section and is
calculated as follows:

Publishing operating profit margin:

	 	 	 	 	 	 	 	 	 
	($ millions)	 	2003	 	2002
	
	 	
	 	

	Revenue
	 	$	289.9	 	 	$	291.6	 
	 
	 	 	
	 	 	 	
	 
	Operating profit
	 	$	29.4	 	 	$	27.7	 
	 
	 	 	
	 	 	 	
	 

					
	Operating profit margin – 2003	 	$29.4 divided by $289.9 = 10.1%
	Operating profit margin – 2002	 	$27.7 divided by $291.6 = 9.5%

Radio operating profit margin:

	 	 	 	 	 	 	 	 	 
	($ millions)	 	2003	 	2002
	
	 	
	 	

	Revenue
	 	$	177.2	 	 	$	166.2	 
	 
	 	 	
	 	 	 	
	 
	Operating profit
	 	$	38.7	 	 	$	42.0	 
	 
	 	 	
	 	 	 	
	 

					
	Operating profit margin – 2003	 	$38.7 divided by $177.2 = 21.8%
	Operating profit margin – 2002	 	$42.0 divided by $166.2 = 25.3%

Television operating profit margin:

	 	 	 	 	 	 	 	 	 
	($ millions)	 	2003	 	2002
	
	 	
	 	

	Revenue
	 	$	178.0	 	 	$	151.3	 
	 
	 	 	
	 	 	 	
	 
	Operating profit
	 	$	27.7	 	 	$	7.7	 
	 
	 	 	
	 	 	 	
	 

					
	Operating profit margin – 2003	 	$27.7 divided by $178.0 = 15.6%
	Operating profit margin – 2002	 	$7.7 divided by $151.3 = 5.1%

The Shopping Channel operating profit margin:

	 	 	 	 	 	 	 	 	 
	($ millions)	 	2003	 	2002
	
	 	
	 	

	Revenue
	 	$	210.5	 	 	$	202.2	 
	 
	 	 	
	 	 	 	
	 
	Operating profit
	 	$	19.2	 	 	$	18.4	 
	 
	 	 	
	 	 	 	
	 

					
	Operating profit margin – 2003	 	$19.2 divided by $210.5 = 9.1%
	Operating profit margin – 2002	 	$18.4 divided by $202.2 = 9.1%

Total operating profit margin:

	 	 	 	 	 	 	 	 	 
	($ millions)	 	2003	 	2002
	
	 	
	 	

	Revenue
	 	$	855.0	 	 	$	810.8	 
	 
	 	 	
	 	 	 	
	 
	Operating profit
	 	$	106.7	 	 	$	87.6	 
	 
	 	 	
	 	 	 	
	 

					
	Operating profit margin – 2003	 	$106.7 divided by $855.0 = 12.5%
	Operating profit margin – 2002	 	$87.6 divided by $810.8 = 10.8%

Media Operating Highlights and Significant Developments in 2003

	 	•	 	Revenue increased 5.5% and operating profit increased 21.8% compared
to 2002. Media’s operating profit margin rose by 170 basis points
year-over-year to 12.5% as a result of these increases.
	 
	 	•	 	Broadcasting successfully completed the reformatting of several of
its radio stations during 2003 which has resulted in significant ratings
boosts in several of its key markets.
	 
	 	•	 	Publishing announced it is preparing to launch Canada’s first paid
circulation shopping magazine for young women beginning in the summer of
2004.
	 
	 	•	 	Media announced an investment by Broadcasting in 50% of CTV’s mobile
production and distribution business, Dome Productions. The partnership
which will accelerate the production and distribution of HDTV content in
Canada. The transaction was successfully completed on January 2, 2004.

 

42

Media Revenue Overview

     Total revenue for Media was $855.0 million in 2003, an increase of $44.2
million, or 5.5%, from $810.8 million in 2002. Of the $44.2 million revenue
growth, $26.7 million was generated by Television, Radio
contributed $11.0 million of the growth, and The Shopping Channel contributed $8.3 million,
offset by a $1.7 million reduction in revenue at Publishing. The growth in
Television revenue was directly attributable to improved results at Rogers
Sportsnet, combined with the impact of the launch of Media’s second
multicultural television operation, OMNI.2, late in 2002. Across all of
Media’s divisions combined, approximately 53.4% of the total 2003 revenue was
advertising based, as opposed to subscription or transaction based.

Media Operating Expense and Operating Profit Overview

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	Years Ended December 31,	 	 	 	 
	 	 	 	
	 	 	 	 
	(In millions of dollars)	 	2003	 	2002	 	% Chg
	 	 	
	 	
	 	

	Publishing
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Sales and marketing expenses
	 	$	75.4	 	 	$	84.9	 	 	 	(11.2	)
	 	Operating, general and administrative expenses
	 	 	185.1	 	 	 	179.0	 	 	 	3.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total Publishing
	 	 	260.5	 	 	 	263.9	 	 	 	(1.3	)
	Radio
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Sales and marketing expenses
	 	 	53.4	 	 	 	47.2	 	 	 	13.1	 
	 	Operating, general and administrative expenses
	 	 	85.1	 	 	 	77.0	 	 	 	10.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total Radio
	 	 	138.5	 	 	 	124.2	 	 	 	11.5	 
	Television
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Sales and marketing expenses
	 	 	14.2	 	 	 	13.8	 	 	 	2.9	 
	 	Operating, general and administrative expenses
	 	 	136.1	 	 	 	129.8	 	 	 	4.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total Television
	 	 	150.3	 	 	 	143.6	 	 	 	4.7	 
	The Shopping Channel
	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cost of Sales
	 	 	131.5	 	 	 	127.6	 	 	 	3.1	 
	 	Sales and marketing expenses
	 	 	32.6	 	 	 	30.6	 	 	 	6.5	 
	 	Operating, general and administrative expenses
	 	 	27.2	 	 	 	25.6	 	 	 	6.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total Shopping Channel
	 	 	191.3	 	 	 	183.8	 	 	 	4.1	 
	Corporate items, eliminations and other
	 	 	7.7	 	 	 	7.7	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total operating expenses
	 	$	748.3	 	 	$	723.2	 	 	 	3.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

     Total Media operating expenses were $748.3 million, up 3.5% or $25.1
million over 2002. This increase was driven in its entirety by increased sales
and marketing expenses across all the Media companies as efforts continued to
focus on building brand recognition and promoting the properties in the target
demographics of each company’s respective marketplace.

     Total operating profit was $106.7 million in 2003, resulting in a
year-over-year increase of 21.8%, or $19.1 million, which was primarily
attributable to the results at Television. Details of operating expenses of
each of the Media divisions are discussed below.

51

 

43

Publishing

     Revenue at Publishing was $289.9 million, a reduction of $1.7 million, or
0.6%, from $291.6 million in 2002. Publishing experienced strong growth in its
Women’s group of magazines, which was offset by modest declines in its other
groups, resulting in the overall 0.6% decline year-over-year. The modest
decline in revenues was offset by year-over-year reductions in operating,
general and administrative expenses, as Publishing focused on tightening its
cost structure. The efforts, offset somewhat, by increased spending on
advertising and promotion initiatives, resulting in a 6.1% improvement in
operating profit.

Radio

     Radio
revenue was $177.2 million, an $11.0 million or 6.6% increase from
$166.2 million in 2002. Fiscal 2003 included the full year results of the 13
radio stations acquired from Standard Radio Inc., effective May 1, 2002 and
contributed to the majority of the year-over-year increase in revenues.
Excluding the newly acquired radio stations, Radio’s revenues were up only
modestly from 2002 reflecting a slow turn- around in the demand for local
advertising and the reformatting initiatives at several of its stations, the
expenses for which were included in general and administrative expenses. In
addition to the reformatting initiatives, Radio increased spending on sales and
marketing by 13.1% in 2003 as compared to 2002 in an effort to promote the
reformatted stations as well as reinforce the positioning in the market of
certain stations in key markets in Canada.

     Radio’s
operating profit decreased by $3.3 million, or 7.9%, from 2002 to
$38.7 million. The decline was attributable to format changes which generated
additional sales and marketing costs during the transition, and which also
generally create a significant temporary decline in revenues during the initial
reformatting period.

Television

     Television includes the results of OMNI.1 (formerly CFMT-TV), OMNI.2 and
Rogers Sportsnet. Canada’s only regional all-sports network, Rogers Sportsnet
derives revenues from both advertising and subscriber fees from cable and
satellite customers across Canada. Revenue from Rogers Sportsnet increased
year-over-year by $16.5 million in 2003. OMNI.2 television began broadcasting
during the third quarter of 2002 in the Toronto, Hamilton, Ottawa and London,
Ontario markets only five months after receiving licence approval. The licence
allows Media to combine the infrastructure of the new station with its existing
Toronto multicultural television operation, OMNI.1, creating an efficient
combined operation with a dual broadcasting stream. Revenue at the OMNI
Channels increased by $10.2 million to $63.3 million compared to 2002. Expense
increases at both OMNI and Sportsnet were 4.7% in 2003 as compared to 2002 with
much of the increases related to programming. The year-over-year increases in
revenues at both the OMNI channels and Rogers Sportsnet translated into a $20.0
million, year-over-year increase in operating profit.

The Shopping Channel

     The Shopping Channel’s revenue increased $8.3 million, or 4.1%, to $210.5
million from $202.2 million in 2002. In 2003, off-air sales represented 26.8%
of revenue, up from 25.1% in 2002, and included catalogue, Web site and
physical store sales. Operating profit at The Shopping Channel was $19.2
million, a $0.8 million or 4.4% increase from $18.4 million in 2002. Results
at The Shopping Channel were impacted by regional issues such as the SARS
epidemic, the blackout in Ontario and other world affairs such as the war in
Iraq, all of which served to detract viewership and in turn required The
Shopping Channel to spend more on sales and marketing activities.

 

 

44

Media Employees

     Media ended 2003 with 3,025 FTEs, a decrease of 175 from 3,200 at December
31, 2002. The reduction in staff at Media was directly related to the focus on
obtaining operational synergies across its properties and the implementation of
cost reduction initiatives.

     Total
remuneration paid to Media employees (both full and part-time) was
approximately $204.9 million, an increase of $7.6 million
or 3.9% from $197.3 million in the prior year.

Media Additions to PP&E

     Total
additions to Media PP&E in 2003 were $41.3 million compared to $42.7
million in 2002. The decrease in 2003 was primarily due to one-time spending
in 2002 on the construction of a national distribution centre for The Shopping
Channel and the startup costs related to OMNI.2.

MEDIA RISKS AND UNCERTAINTIES

     Media’s business is subject to several operating risks and uncertainties
that may result in a material adverse effect on its business and financial
results as outlined below.

Dependency upon Advertising

     Media depends on advertising as a material source of its revenue and its
businesses would be adversely affected by a further material decline in the
demand for local or national advertising. Media derived approximately 53.4% of
its revenues in 2003 from the sale of advertising. Media expects advertising
will continue to be a material source of Media’s revenue in the future.
Advertising revenues, which are largely a function of consumer confidence and
general economic conditions, remain 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. If a reduction in advertising
spending or loss of advertising relationships would adversely affect Media’s
results of operations and financial position.

Sensitivity to Global Economic Cycles

     Expenditures by advertisers tend to be cyclical, reflecting overall
economic 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 stations represented approximately 14% of Media’s revenue in 2003.

Sensitivity to External Events

     External events and consumer behavior substantially influence advertising
patterns and media usage. A terrorist attack, such as occurred in the United
States on September 11, 2001, or a war may result in a shift in consumer focus
and a change in the price or quantity of advertising purchased. If advertising
and media spending decline following an unforeseen event, Media’s advertising
revenues could be adversely affected.

Importance of Industry Leadership and Ratings

     It is well established that advertising dollars migrate to media
properties that are leaders in their respective markets and categories when
advertising budgets are tightened. Although most of Media’s radio and magazine
properties are currently leaders 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.

 

 

45

Portion of Growth from Acquisitions

     Historically, Media’s growth has been generated, in part by strategic
acquisitions. Media intends to continue to selectively pursue acquisitions of
radio and television stations and publishing properties. Media is not able to
predict whether it will be successful in acquiring properties that enhance its
businesses. If Media is unable to identify and complete acquisitions, its
growth could slow from historical levels. In addition, Media could face
difficulties associated with integrating the operations of businesses that it
does acquire, which could have a material adverse effect on Media’s business,
financial condition or results of operations.

Emergence of Competing Technologies

     New programming or content services, as well as alternative media
technologies, such as digital radio services, satellite radio, DTH satellite,
wireless and wired pay television, Internet radio and video programming, and
on-line publications have either begun competing, or may in the future compete,
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 business, financial conditions or results of
operations.

Dependency upon Canadian Magazine Fund

     The Government of Canada created the Canadian Magazine Fund (“CMF”) to
help encourage Canadian publishers to continue to produce high-quality and
innovative Canadian editorial content, subject to certain eligibility
requirements. Beginning with the fiscal year ended March 31, 2001, the CMF
intended to provide $150.0 million in funding to Canadian magazine publishers
through 2003, $75.0 million of which is intended to support Canadian editorial
content. In the fiscal year ended March 31, 2002, the CMF distributed $25.0
million to over 400 publishers in support of Canadian editorial content, with
funding pro-rated across based on their respective share of total eligible
Canadian editorial expenses. Rogers qualified for approximately $5.0 million
in support from the CMF in 2002. For fiscal years beginning with the fiscal
year ended March 31, 2004, the Government of Canada has announced a number of
changes to the Canadian editorial content envelope of the CMF. Total funding
will be reduced in the fiscal year ended March 31, 2004 to $18.0 million and
will be reduced to $16.0 million in each of the next two fiscal years. In
addition, editorial content funding will be re-oriented to enable the
Government to address the industry’s current needs and current market
conditions, with more funding provided to ethno- cultural, aboriginal, and
minority official-language publications, small community newspapers, arts and
literary magazines, and small-circulation magazines.

Exposure to Paper, Printing and Postage Costs

     A significant portion of Publishing’s operating expenses consist of paper,
printing and postage expenses. Paper is Publishing’s single largest raw
material expense, representing approximately 5.7% of Publishing’s operating
expenses in 2003. 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 10% of Publishing’s operating expenses
in 2003. 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 could have a material adverse effect on Publishing’s
business, results of operations or financial condition.

 

 

46

Potential Impacts from Regulatory Decisions

     Media expects the CRTC to review the Commercial Radio Policy 1998 in 2005
to address issues such as multiple licence ownership and Canadian content. In
the interim, the CRTC will review satellite radio issues, including the
establishment of a satellite radio policy and licensing framework.

     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 the growth and development of
digital television broadcasting in Canada. A forthcoming CRTC consultation
also will seek to establish a framework for the transition or migration of
analog to digital for specialty services.

     The cable and telecommunications industries in Canada generally promote
the easing or elimination of foreign ownership restrictions. If successful, the
easing or elimination of such ownership restrictions may cause or require
integrated communications companies, such as the Company, to establish a
separate ownership structure for their broadcasting content entities.

     Copyright liability pressures continue to affect radio and television
services. The Copyright Board is considering proposed changes to both Tariff 2
(Broadcast TV) and Tariff 17 (Non-broadcast TV). While the Society of
Composers, Authors and Music Publishers of Canada (“SOCAN”) has sought tariff
increases for each of these tariffs, certain specialty services, including
Rogers Sportsnet, also have sought tariff payment adjustments that explicitly
recognize the differing value of music for different genres of services. SOCAN
and the Neighbouring Rights Collective Society (“NRCC”) also have proposed
increases to each of their respective radio tariffs, with the NRCC also seeking
to eliminate important revenue threshold and all-talk station tariff payment
exemptions.

     In a January 2004 decision, the CRTC renewed the broadcasting licence for
Rogers Sportsnet. Although no other expenditure or programming requirements
were imposed and a certain degree of additional programming flexibility was
afforded, the renewal denied a proposed increase to Rogers Sportsnet’s basic
wholesale fee. Rogers Sportsnet’s basic rate will remain at $0.78. Although a
strong majority of Rogers Sportsnet subscribers are not on basic, the basic
rate can also influence rate negotiations for carriage of Rogers Sportsnet on
discretionary tiers. With TSN’s rate at $1.07, Rogers Sportsnet will continue
to operate with a comparative disadvantage to TSN.

     Pressures regarding the favourable channel placement of The Shopping
Channel below the first cable tier will likely increase. The CRTC is currently
considering a policy change which could require cable BDUs to carry mandatory
services (i.e. APTN, CPAC and TVA) below the first cable tier. This decision,
along with the licensing of new local TV stations, has the potential to affect
The Shopping Channel’s placement in some cable systems.

CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES

     This discussion is based upon the Company’s annual Audited Consolidated
Statements of Income and the Consolidated Statements of Cash Flows.

     Rogers has consistently invested in upgrading and expanding its networks
and communications businesses over time, as well as in developing and deploying
new communications service initiatives, all of which are highly capital
intensive. Mainly as a result of these PP&E expenditures and the significant
amount of debt used to help fund these initiatives and expenditures, interest
expense has remained high and resulted in cash shortfalls.

 

 

47

     Rogers’ net income for the year ended December 31, 2003, was $129.2
million compared to net income of $312.0 million in the prior fiscal year ended
December 31, 2002. The reduction in net income of $182.8 million in 2003 is
reconciled as follows with non-bracketed numbers denoting changes increasing
net income and bracketed items reducing net income:

Change in Net Income (Loss)

	 	 	 	 	 	 
	(In millions of dollars)	 	 	 	 
	Operating profit
	 	$	307.3	 
	Other
	 	 	(6.5	)
	Depreciation and amortization
	 	 	(58.8	)
	 
	 	 	
	 
	Operating income
	 	 	242.0	 
	Interest on long-term debt
	 	 	2.4	 
	Losses from investments accounted for by the equity method
	 	 	46.6	 
	Foreign exchange gain
	 	 	297.5	 
	Gain (loss) on repayment of long-term debt
	 	 	(34.9	)
	Gain (loss) on sale of other investments
	 	 	18.5	 
	Writedown of investments
	 	 	301.0	 
	Gains on disposition of AT&T Canada
	 	 	 	 
	 	Deposit Receipts
	 	 	(904.3	)
	Other income
	 	 	(0.2	)
	Income taxes
	 	 	(51.8	)
	Non-controlling interest
	 	 	(99.6	)
	 
	 	 	
	 
	Net income
	 	$	(182.8	)
	 
	 	 	
	 

	 	•	 	In 2002, the Company had a net recovery of $6.5 million, made up
primarily of a reduction in the liability related to estimates of sales
tax at Wireless of $19.2 million, partially offset by workforce
reduction costs at Cable of $5.9 million and a change in the estimate of
CRTC contribution liability at Wireless of $6.8 million.
	 
	 	•	 	The $58.8 million increase in depreciation and amortization is mainly
due to an increase in the fixed asset base during the year, of which a
significant component is related to PP&E expenditures for the Cable
network upgrades and capacity expansion to the new GSM/GPRS network at
Wireless, and the acceleration of the amortization of the $20.0 million in brand licence
cost.
	 
	 	•	 	The $2.4 million decrease in interest expense is due to the decrease
in debt during the year.
	 
	 	•	 	The $46.6 million decrease in losses from investments accounted for
by the equity method is primarily related to the reduction in the equity
losses of the Blue Jays.
	 
	 	•	 	The $297.5 million increase in foreign exchange gains was due to the
continuing strengthening of the Canadian dollar throughout 2003 which
favourably impacted the translation of the unhedged portion of the
Company’s U.S. dollar-denominated long-term debt.

 

 

48

	 	•	 	The $34.9 million change in the gain (loss) on early repayment of
long-term debt reflects the impact of transactions in 2003 versus 2002
as further detailed in the discussion below.
	 
	 	•	 	The $18.5 million gain from sale on investments is a result of the
sale of certain marketable securities by the Company during the year.
	 
	 	•	 	The $301.0 million decrease in writedowns on investments is a result
of the Company’s review of the value of its investments in publicly
traded and private companies and provision recorded in 2002.
	 
	 	•	 	The $904.3 million decrease in the gain on disposition of AT&T Canada
Deposit Receipts was a result of the sale on October 8, 2002 of 25
million AT&T Canada Deposit Receipts owned by the Company.
	 
	 	•	 	The $51.8 million change in income taxes was due to lower net tax
reductions in 2003 compared to 2002 and is calculated under Canadian
GAAP as outlined in Note 13 to the Consolidated Financial Statements.
	 
	 	•	 	The $99.6 million change in non-controlling interest represents the
Wireless minority shareholders’ share of the net income of Wireless in
2003 compared to their share of the 2002 loss.

     Rogers’
cash generated from operations before changes in non-cash operating
items,
which is calculated by adding back all non-cash items such as depreciation and
amortization to net income, increased to $984.7 million in 2003 from $642.4
million in 2002. This $342.3 million increase in 2003 is mainly due to the
$307.3 million increase in operating income before certain items. Taking into
account the changes in non-cash operating
items for the 2003 year, cash generated from
operations increased by $219.0 million to $935.4 million
from $716.3 million in
2002.

     In addition, Rogers raised net funds totaling $796.7 million during 2003
consisting of:

	 	•	 	$524.0 million received from the increase of long-term debt, which is
essentially comprised of Cable’s U.S. Note offering totaling U.S.$350
million (C$470.4 million) issued in June 2003 and the net drawdowns
under bank credit facilities during the year of $51.5 million
and a $2.1 million net increase in capital leases, mortgages and other;
	 
	 	•	 	proceeds on the sale of investments of $20.7 million; and
	 
	 	•	 	$252.0 million cash proceeds received from the issuance of equity, of
which $13.0 million was received for the issuance of Class B Non-Voting
Shares under employee share purchase plans and the exercise of employee
stock options and $239.0 million was received upon the issuance of
12,722,647 Class B Non-Voting Shares in May 2003.

     Including the $853.9 million of cash generated from operations after
changes in working capital, the aggregate net funds raised in 2003 totaled
$1,650.6 million.

     The net
funds used during 2003 totalled approximately $1,769.1 million consisting of:

	 	•	 	to property plant and
equipment expenditures (net of change in non-cash working capital) of $1,045.2 million;

 

 

49

	 	•	 	aggregate redemptions of long-term debt of $626.0 million repurchases
and redemptions by RCI and Cable of certain Canadian and U.S.
dollar-denominated public debt;
	 
	 	•	 	payment of dividends of $11.6 million on Class B Non-Voting Shares,
Class A Voting Shares and Series E Preferred Shares;
	 
	 	•	 	net other investments of $27.9 million of which $29.4 million relates
to cash contributions to the Blue Jays net of $3.6 million cash
distributions received from other investments;
	 
	 	•	 	distributions on Convertible Preferred Securities of $33.0 million;
	 
	 	•	 	premiums on the early repayment of long-term debt aggregating $19.3 million; and
	 
	 	•	 	financing costs incurred of $6.2 million.

     As a result of the above, cash of $37.2 million was used during 2003.
Taking into account the $26.9 million cash balance at the beginning of the
year, the ending 2003 cash deficiency was $10.3 million.

Financing

     Rogers’ long-term financial instruments are described in the Notes to the
Consolidated Financial Statements.

     During 2003, the following financings were completed: in May, 2003, RCI
completed a $250 million equity issue with the issuance of 12,722,647 Class B
Non-Voting Shares for proceeds, net of fees and expenses, of $239.0 million;
and in June, 2003, Cable issued U.S.$350.0 million (Canadian equivalent $470.4
million) 6.25% Senior Secured Second Priority Notes due 2013.

     During 2003, the following debt redemptions were made, which aggregated
$626.0 million with repurchase premiums of $19.3 million in total: in April,
2003, RCI redeemed US $54.6 million aggregate principal amount of its 9 1/8%
Senior Notes due 2006 at a redemption price of 101.521% of the aggregate
principal amount; in June, 2003, Cable redeemed U.S.$74.8 million aggregate
principal amount of its 10% Senior Secured Second Priority Debentures due 2007
at a redemption price of 105.0% of the aggregate principal amount; in July,
2003, RCI redeemed US $205.4 million aggregate principal amount of its 8 7/8%
Senior Notes due 2007 at a redemption price of 102.958% of the aggregate
principal amount; and in August, 2003, RCI redeemed $165.0 million aggregate
principal amount of its 8 3/4% Senior Notes due 2007 at a redemption price of
102.917% of the aggregate principal amount.

     In
February, 2004, Cable redeemed $300.0
million aggregate principal amount of its 9.65% senior secured second priority
debentures due 2014 at a redemption price of 104.825% of the aggregate
principal amount on February 23, 2004.

     In January, 2004, Cable established a dividend/distribution policy to
distribute $6.0 million per month to RCI on a regular basis, starting in
January, 2004.

     Rogers structures its borrowings generally on a stand-alone basis.
Therefore, borrowings by each of its three principal operating groups are
generally secured only by the assets of the respective entities within each
operating group, and such instruments generally do not provide for guarantees
or cross-collateralization or cross-defaults between groups. Currently, no such
guarantees or cross-collaterilizations or cross-defaults between the groups
exist.

 

 

50

     At December 31, 2003, Rogers’ long-term committed bank credit facilities
provided for aggregate credit of $2.28 billion, of which $237.5 million was
drawn down. Generally, access to these credit facilities is subject to
compliance within certain debt to operating profit ratios, and at December 31,
2003, based upon the most restrictive covenants under the bank credit
facilities and public debt instruments, Rogers could have borrowed additional
long-term debt under existing credit facilities of approximately $1.90 billion
including $400.0 million available for the repayment of debt maturing in Cable
in 2005.

     Of all the Rogers debt instruments, the provisions of the bank loan
agreements generally impose the most restrictive limitations on the operations
and activities of the companies governed by these agreements. The most
significant of these restrictions are debt incurrence and maintenance tests
(based upon certain ratios of debt to operating profit), restrictions upon
additional investments, sales of assets and distributions to shareholders.
Rogers and its subsidiaries are currently in compliance with all of the
covenants under their respective debt instruments and Rogers expects all
covenants to remain in compliance. (See Note 10 to the Consolidated Financial
Statements for details of the specific debt instruments.) On December 31,
2003, a total of $270.1 million could have been distributed to Rogers Corporate
from Media via the repayment of unsecured subordinated intercompany notes.

     Rogers’ required repayments on all long-term debt in the next five years
totals $2.5 billion, excluding an aggregate $36.2 million effect of
cross-currency interest rate exchange agreements. In 2004, required repayments
total $11.5 million. In 2005, required repayments total $651.1 million
including $376.8 million for the repayment of Cable’s 10% Senior Secured Second
Priority Notes due 2005 and $271.2 million for the repayment of Rogers’ 5
3/4% Convertible Debentures due 2005. In 2006, required repayments total
$323.1 million, mainly comprised of $75.0 million for the repayment of Rogers’
10 1/2% Senior Notes due 2006, $160.0 million for the repayment of Wireless’
10 1/2% Senior Secured Notes due 2006, $22.2 million for the repayment of a
mortgage due 2006, and the $63.5 million outstanding under the Media bank
credit facility at December 31, 2003. In 2007, required repayments total
$936.2 million mainly comprised of $450.0 million for the repayment of Cable’s
7.60% Senior Secured Second Priority Notes due 2007, $253.5 million for the
repayment of Wireless’ 8.30% Senior Secured Notes due 2007 and $231.4 million
for the repayment of Wireless’ 8.80% Senior Subordinated Notes due 2007. In
2008, required repayments total $568.6 million comprised of $430.6 million for
the repayment of Wireless’ 9 3/8% Senior Secured Debentures due 2008, and the
$138.0 million outstanding under the Wireless bank credit facility at December
31, 2003.

     Cable
expects to continue to incur significant PP&E expenditures. In 2004,
Cable expects to incur PP&E expenditures excluding the telephony
initiative, of between
$440.0 million and $465.0 million primarily relating to the
purchase and placement of CPE associated with new digital and
Internet subscribers, the upgrading of certain portions of our
network and scalable infrastructure, the extension of its network
into newly constructed areas and buildings, as well as for
information technology and other general capital initiatives,
including the forced movement of the plant associated with municipal
and other improvement projects. In 2004, including the telephony issue, Cable anticipates an additional
investment of between $140 million and $170 million during
2004 associated with the deployment of an advanced Internet Protocol
multimedia network to support primary line voice-over-cable telephony
and other new services across its cable service areas as discussed in
“Overview — Telephony Initiative” above. Cable expects
operating profit to increase in 2004 and anticipate incurring a net
cash shortfall in 2004. Cable believes it will have sufficient
capital resources to satisfy its cash funding requirements in 2004,
taking into account cash from operations and the amount that will be
available under the $1.075 billion amended and restated bank
credit facility.

 

 

51

     Cable’s amended and restated $1.075 billion bank credit facility, which
was established in January 2002, is comprised of two tranches (1) the $600
million Tranche A that matures on January 2, 2009 and (2) the $475 million
Tranche B that reduces by 25% annually on each of January 2, 2006, 2007, 2008
and 2009. In September, 2003, Cable amended its bank credit facility to
eliminate the possibility of earlier than scheduled maturity of
Tranche B and availability on a $400.0 million portion of Tranche B has been reserved to
repay Cable’s Senior Secured Notes due 2005. The $400 million reserved amount
will be reduced by an amount equal to any repayment of the Notes due 2005 made
from time to time from any source including Tranche B and, as a result, an
amount equal to such repayments becomes available to Cable under Tranche B.

     Wireless’ $700 million bank credit facility reduces by 20% on
April 30, 2006 and again on April 30, 2007 with the final 60% reduction on
April 30, 2008. However, the bank credit facility will mature on May 31, 2006
if the Company’s Senior Secured Notes due 2006 are not repaid (by refinancing
or otherwise) on or prior to December 31, 2005. If these notes are repaid, then
the bank credit facility will mature on September 30, 2007 if the Company’s
Senior Secured Notes due 2007 are not repaid (by refinancing or otherwise) on
or prior to April 30, 2007.

     Rogers believes that Wireless will have a net cash surplus in 2004 so that
Wireless will have sufficient capital resources to satisfy its cash funding
requirements in 2004, taking into account cash from operations.

     Rogers believes that Cable will have a net cash shortfall in 2004 but that
Cable will have sufficient capital resources to satisfy its cash funding
requirements in 2004, taking into account cash from operations and the amount
that will be available under its $1.075 billion amended and restated bank
credit facility.

     Rogers believes that Media will be in a cash surplus position in 2004.
Rogers believes that if Media were to incur a cash shortfall, it would have
sufficient capital resources to satisfy its cash funding requirements in 2004,
taking into account cash from operations and the amount that will be available
to be borrowed under its $500.0 million bank credit facility.

     Rogers believes that, on an unconsolidated basis, it will have, taking
into account interest income and repayments of intercompany advances together
with the receipt of management fees paid by the operating subsidiaries and
regular $6 million monthly distributions from Cable and investments and cash on
hand, sufficient capital resources to satisfy its cash funding requirements in
2004.

     In the event that Rogers or any of its operating subsidiaries do require
additional funding, Rogers believes 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 Rogers or issuing equity of
Rogers or of Wireless, all depending on market conditions. In addition, Rogers
or its subsidiaries may refinance a portion of existing debt subject to market
conditions and other factors.

     On February 7, 2003, Moody’s revised its ratings on Cable’s senior secured
and senior subordinated public debt downward from Baa3 and Ba1 to Ba2 and Ba3,
respectively. In addition, Moody’s revised its ratings on RCI’s senior
unsecured debt rating downward from Ba1 to B2. Moody’s provided a stable
outlook for these newly revised Cable and RCI debt ratings. On October 24,
2003, Moody’s changed the

 

 

52

ratings outlook on the Wireless senior secured and senior subordinated
public debt, which are rated Ba3 and B2 respectively, to positive from stable.

     On March 5, 2003, Standard & Poor’s revised its ratings outlook downward
on both Cable’s senior secured and senior subordinated public debt, which are
rated BBB- and BB- respectively, as well as on RCI’s BB- senior unsecured debt
rating to negative from stable. On October 30, 2003, Standard & Poor’s revised
its ratings outlook upwards on Wireless’ senior secured and senior subordinated
public debt, which are rated BB+ and BB- respectively, to positive from stable.

     The Company does not have any off-balance sheet arrangements other than
the cross-currency interest rate exchange agreements described below.

Interest Rate and Foreign Exchange Management

     Rogers uses derivative financial instruments to manage risks from
fluctuations in foreign exchange rates and interest rates. These instruments
include cross-currency interest rate exchange agreements, “swaps”, 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 to hedge specific debt instruments. In order to minimize the
risk of counterparty default under these agreements, Rogers assesses the
creditworthiness of its counterparties. At December 31, 2003, all of Rogers’
counterparties in these agreements are financial institutions with a Standard &
Poor’s rating (or other equivalent) ranging from A+ to AA.

     The incurrence of U.S. dollar-denominated debt has caused substantial
foreign exchange exposure as Rogers’ operating cash flow is almost exclusively
denominated in Canadian dollars. Rogers has established a target of hedging at
least 50% of its foreign exchange exposure through the use of hedging
instruments outlined above. At December 31, 2003 and 2002, Rogers had U.S.
dollar-denominated long-term debt of US$2,868.3 million and US$2,845.9
million, respectively. At December 31, 2003 and 2002, US$1,943.4 million and
US$1,768.4 million, respectively, or 67.8% and 62.1%, respectively, was hedged
with cross-currency interest rate exchange agreements at an average exchange
rate of C$1.4647 and C$1.4766, respectively to US$1.00. The increase in
Rogers’ hedged position in 2003 was due to the repayment of U.S.
dollar-denominated debt during 2003, as discussed above. The decrease in the
average exchange rate to $1.4647 in 2003 was due to entering into a new swap in
Cable in the notional amount of US$175.0 million at an exchange rate of
$1.3445 concurrent with the incurrence of U.S. dollar-denominated debt and
US$350 million debt issue at Cable.

     Management will continue to monitor its hedged position with respect to
foreign exchange fluctuations and, depending upon market conditions and other
factors, may adjust its hedged position with respect to foreign exchange
fluctuations in the future by unwinding certain existing hedges or by entering
into cross-currency interest rate exchange agreements or by using other hedging
instruments.

     The cross-currency interest rate exchange agreements had the effect at
December 31, 2003 of converting the interest rate on U.S.$1,558.4 million of
long-term debt from an average U.S. dollar fixed interest rate of 8.82% per
annum to an average Canadian dollar fixed interest rate of 9.70% per annum on
$2,346.0 million, compared with the 2002 effect of converting
U.S.$1,383.4 million
of long-term debt from an average U.S. dollar fixed interest rate of 9.15% per
annum to an average Canadian dollar fixed interest rate of 9.94% per annum on
$2,110.7 million; and converting the interest rate on U.S.$385.0 million of
long-term debt from an average U.S. dollar fixed interest rate of 9.38% per
annum to $500.5 million at a weighted average floating interest rate equal to
the bankers’ acceptances rate plus 2.35% per annum, which totalled 5.11% at
December 31, 2003, as compared with 5.22% in 2002. The Company also assumed an
interest rate exchange agreement upon an acquisition during 2001. This interest
rate

 

 

53

exchange agreement has the effect of converting $30.0 million of floating
rate obligations of the Company to a fixed interest rate of 7.72% per annum.

     The total long-term debt at fixed interest rates at December 31, 2003 and
2002, was $4,560.6 million and $5,024.2 million, respectively, or 86.0% and
88.3%, respectively, of total long-term debt. Historically, Rogers has
targeted to maintain fixed interest rates on at least 80% of its outstanding
long-term debt.

     Rogers’ effective weighted average interest rate on all long-term debt as
at December 31, 2003 and 2002, including the effect of the interest exchange
agreements and cross-currency interest rate exchange agreements, was 8.48% and
8.74%, respectively.

     The following table presents a summary of the effect of changes in the
foreign exchange rate on the unhedged portion of Rogers’ U.S.
dollar-denominated debt and the resulting change in the principal carrying
amount of debt, interest expense and earnings per share, based on a full year
impact.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	Change in	 	Change in	 	 	 	 
	 	 	 	debt principal	 	interest	 	Earnings
	 	 	 	amounts	 	expense	 	per
	Change in Cdn$ vs. US$(1)	 	($ millions)	 	($ millions)	 	share(2)
	
	 	
	 	
	 	

	 	$0.01
	 	$	9.2	 	 	$	0.6	 	 	$	0.042	 
	 	  0.03
	 	 	27.7	 	 	 	1.8	 	 	 	0.127	 
	 	  0.05
	 	 	46.2	 	 	 	3.0	 	 	 	0.211	 
	 	  0.10
	 	 	92.5	 	 	 	6.1	 	 	 	0.422	 

     (1)  Canadian equivalent of unhedged U.S. dollar-denominated debt if U.S.
dollar costs an additional Canadian cent.

     (2) Assumes no income tax effect. Based on the number of shares outstanding
as at December 31, 2003.

     At December 31, 2003, interest expense would have increased by $7.4
million per year if there was a 1% increase in the interest rate on the portion
of long-term debt that is not at fixed interest rates.

     Rogers’
US $2,868.3 million of U.S. dollar-denominated long-term debt is
spread among its different operating entities and the parent company. The
following table provides a breakdown by company of the U.S. dollar exposure and
the percentage of its exposure by business unit that has been hedged as at
December 31, 2003.

	 	 	 	 	 	 	 	 	 
	 	 	U.S. dollar Debt	 	 	 	 
	Business Unit	 	($ millions)	 	% hedged
	
	 	
	 	

	Cable
	 	$	1,305.2	 	 	 	81.1	%
	Wireless
	 	 	1,353.3	 	 	 	65.4	 
	Rogers Corporate
	 	 	209.8	 	 	 	—	 
	 
	 	 	
	 	 	 	 	 
	Total
	 	$	2,868.3	 	 	 	67.8	%

 

 

54

INTERCOMPANY AND RELATED PARTY TRANSACTIONS

RCI Arrangements with its Subsidiaries

     The Company has entered into a number of agreements with its subsidiaries,
including Wireless, Cable and Media. These agreements govern the
management, commercial and cost-sharing arrangements that the Company
has with its subsidiaries. The Company monitors
intercompany and related party agreements to ensure they remain beneficial to
the Company. The Company continually evaluates the expansion of existing
arrangements and the entry into new agreements.

     The
Company’s agreements with its subsidiaries have historically focused
on areas of operation in which joint or combined services provide
efficiencies of scale or other synergies. For example, in late 2001,
the Company began managing the call center operations of Wireless and
Cable, with a goal of improving productivity, increasing service
levels and reducing costs.

     More
recently, the Company’s arrangements are increasingly
focusing on sales and marketing activities. In February 2004, the
board of directors of Rogers Cable and Rogers Wireless approved two additional arrangements.

	 	•	Distribution.      Rogers Wireless will provide management
services to Rogers Cable in connection with the distribution of Rogers Cable products and services
through retail outlets and dealer channels and will also manage Rogers Cable’s e-commerce relationships.
Rogers Wireless may manage other distribution relationships for Rogers Cable if mutually agreed by both partners.
	 
	 	•	Rogers Business Services.      Rogers Wireless will establish a division, Rogers
Business Solutions, that will provide a single point to contact to
offer the full range of Rogers Wireless products and
services and Rogers Cable’s products and services to small and medium businesses and, in the case of
telecommunication virtual private network services, to corporate business accounts and employees.

     The definitive terms
and conditions of the agreements between Rogers Cable and Rogers
Wireless relating to these arrangements
will be subject to the approval of the audit committee of both Rogers
Wireless’ and Rogers Cable’s board of directors.

     In
addition, the Company continues
to look for other operations and activities that can be shared or
jointly operated with other
companies within the Rogers group. Specifically, the expansion of inter-company
arrangements relating to sales and marketing activities as well as other arrangements
that may result in greater integration with other companies within
the Rogers group are being considered. In the future,
market conditions may require RCI to further strengthen its arrangements to better coordinate
and integrate its sales and marketing and operational activities with
its affiliated companies.
Any new arrangements will be entered into
only if the Company believe such arrangements are in each company’s best
interests.

 

 

55

Management Services Agreement

     Each of Wireless, Cable and Media has entered into a management services
agreement with Rogers under which Rogers agrees to provide 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 regulatory
matters, financial advice (including the preparation of business plans and
financial projections and the evaluation of PP&E expenditure 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 has agreed to pay Rogers
fees, which, in the case of Cable and Media, is an amount equal to 2% of their
respective consolidated revenue for each fiscal quarter, subject to certain
exceptions, and, in the case of Wireless, is 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 Rogers and the
independent directors serving on the Audit Committee of Wireless.

Call Centres

     The Company is a party to agreements with Wireless and Cable pursuant to
which the Company provides customer service functions through its call centres.
Wireless and Cable pay the Company commissions for new subscriptions, products
and service options purchased by subscribers through the call centres. The
Company is reimbursed for the cost of providing these services based on the
actual costs incurred. The Company, under the agreement, cannot
charge additional amounts that exceed an agreed upon cost per call
rate multiplied by actual call volume. The assets used in the
provision of these services are owned by Wireless and Cable. This
agreement is for an indefinite term and is terminable upon 90 days
notice.

Accounts Receivable

     The Company manages the subscriber account collection of activities of
Wireless and Cable. Wireless and Cable are responsible, however, for the costs
incurred in the collection and handling of their accounts.

Cost Sharing and Services Agreements

     The Company has entered into other cost sharing and services agreements
with its subsidiaries in the areas of accounting, purchasing, human resources,
real estate administration, accounts payable processing, remittance processing,
payroll processing, e-commerce, the RCI data centre and other common services
and activities. Generally, these services are provided to the RCI subsidiaries
by the Company and 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 expenses
and makes PP&E expenditures, these costs are typically reimbursed by the
Company, on a cost recovery basis, in accordance with the services provided on
behalf of the Company by RCI.

Corporate Opportunity

     Rogers and Wireless have agreed under a business areas and transfer
agreement that Rogers will, subject to any required regulatory, lender or other
approvals, continue to conduct all of its cellular telephone operations and
related mobile communications businesses through Wireless. Rogers believes
that by conducting its cellular telephone operations and related mobile
communications business through Wireless, the potential for conflicts of
interest between Wireless and Rogers and directors or officers of Rogers who
are also directors or officers of Wireless will be reduced.

 

 

56

Minority Shareholders Protection Agreement

     The Company has entered into a shareholder protection agreement with
Wireless that extends certain protections to holders of Wireless’ Class B
Restricted Voting Shares (“RWCI’s Restricted Voting Shares”). The Company has
agreed with Wireless that:

	 	•	 	in respect to a “going-private” transaction involving Wireless
proposed by Rogers or insiders, associates or affiliates thereof:

	 	 	–	a formal valuation of RWCI’s Restricted Voting Shares will be
prepared by an independent valuer,
	 
	 	 	–	the consideration offered per share will not be less than the
value or will be within or exceed the range of values per share
arrived at in the formal valuation and
	 
	 	 	–	such transaction will be subject to approval by the majority of
the minority of RWCI’s Restricted Voting Shares (minority
shareholders will exclude the Company’s affiliates); and

	 	•	 	in respect to an issuer bid or insider bid made by Rogers or any of
its subsidiaries relating to Wireless:

	 	 	–	a formal valuation will be prepared by an independent valuer,
and
	 
	 	 	–	the consideration offered per share to holders of RWCI’s
Restricted Voting Shares will not be less than 66 2/3% of the value
(or of the midpoint of the range of values) arrived at in the formal
valuation.

     The Company and Wireless have also agreed under the terms of the
shareholder protection agreement that a committee of independent directors of
Wireless will be responsible for the selection of the independent valuer and
will review and report to the Board of Directors on any transaction. The Board
of Directors will be required to disclose its reasonable belief as to the
desirability or fairness of the transaction to holders of RWCI’s Restricted
Voting Shares.

     The shareholder protection agreement provides certain instances in which a
transaction is not subject to the valuation and minority approval requirements,
including if the price to be offered to all shareholders is arrived at through
arm’s length negotiations with a selling holder of a sizeable block of RWCI’s
Restricted Voting Shares, provided such holder had full knowledge and access to
information concerning Wireless. Further, a going-private transaction will not
be subject to minority shareholder approval where 90% or more of the
outstanding RWCI’s Restricted Voting Shares are held by Rogers or its
affiliates. Rogers has agreed that, so long as Rogers owns or controls shares
representing 50% or more of the voting interest of the shares of the Company,
Rogers will not vote any of RWCI’s Restricted Voting Shares which it may own or
control with respect to the election of the three directors to be elected by
the holders of RWCI’s Restricted Voting Shares as a class.

     The provisions of the shareholder protection agreement may not be waived
or amended by Rogers or Wireless without the approval of the majority of
holders of RWCI’s Restricted Voting Shares, excluding any holder who was an
affiliate of the Wireless. The rights and obligations under the shareholder
protection agreement are in addition to any applicable requirements of law and
regulatory authorities.

 

 

57

Arrangements between RCI Subsidiaries

Invoicing of Common Customers

     Pursuant
to an agreement with Cable, Wireless purchases the accounts receivables of
Cable for common subscribers who elect to receive a consolidated invoice.
Wireless is compensated for costs of bad debts, billing costs and
services and other determinable costs by purchasing these receivables at a discount. The
discount is based on actual costs incurred for the services provided and is
reviewed periodically. This agreement is for a term of one year.

Distribution of Wireless’ Products and Services

     Cable and Wireless have entered into an agreement for the sale of the
Company’s products and services through the Rogers Video retail outlets owned
by Cable. Wireless pays Cable commissions for new subscriptions equivalent to
amounts paid to third-party distributors.

Distribution of Cable’s Products and Services

     Wireless has agreed to provide retail field support to Cable and to
represent Cable in the promotion and sales of its business products and
services. Under the retail field support agreement, Wireless’ retail sales
representatives receive sales commissions for achieving sales targets with
respect to Cable products and services, the cost of which to Wireless is
reimbursed by Cable.

Transmission Facilities

     Wireless
has entered into agreements with Cable 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 transmission links, Wireless and
Cable have achieved economies of scale by sharing these facilities resulting in
reduced capital costs. In addition, Wireless receives payments from Cable for
the use of its data, circuits, data transmission and links. The price of these
services is based on usage or ownership, as applicable.

     In addition, the Company continues to look for other operations and activities that can be shared or jointly operated with other companies within the Rogers group. Specifically, is the consideration of the expansion of inter-company arrangements relating to sales and marketing activities as well as other arrangements that may result in greater integration with other companies within the Rogers group. Cable also may receive billing and
other services from Rogers Wireless in connection with its launch of
voice-over-cable telephony services. If Rogers Telecom assumes
responsibility for providing voice-over cable telephony services,
Cable would enter into an agreement with Rogers Telecom relating to,
among other things, the use of Cable’s network. In the future, market conditions may require RCI to further strengthen its arrangements to better coordinate and integrate its sales and marketing and operational activities within the company.

AT&T Arrangements

     In November 1996, Wireless entered into a long-term strategic alliance
with AT&T Corp., its affiliate AT&T Canada Enterprises Inc. (“AT&T Canada
Enterprises”) and its then affiliates, AWE and AT&T Canada. AT&T Canada, now
renamed Allstream Inc., offers local and long-distance telephone and data
transmission services to business customers in Canada. This strategic alliance
included, among other things, a brand licence agreement under which Wireless
was granted a licence to use, on a co-branded basis, the AT&T brand in
connection with the marketing of its wireless communications services.

     In 1999, Wireless entered into a renewed long-term strategic alliance with
AWE, AT&T Canada Enterprises and AT&T Canada involving a number of agreements.
In January 2003, the Company’s supply and marketing agreement and
non-competition agreement with AT&T Canada were terminated. The relevant
agreements between Wireless and AWE, AT&T Canada Enterprises or AT&T Canada, as
applicable, are described below.

Brand Licence Agreement

     Wireless entered into an amended brand licence agreement with AT&T Canada
Enterprises under which it was granted a licence to use the AT&T brand on a
co-branded basis in connection with the marketing of Wireless’ services. In
December 2003, Wireless and AT&T Canada Enterprises amended the brand licence
agreement to permit Wireless to terminate the agreement at any time, but not
later than March 31, 2004. Wireless has given notice of
termination that will become effective March 8, 2004.
Following a windup period of nine months, Wireless will cease to use the AT&T brand
and will thereafter carry on business as Rogers Wireless. Wireless is
required to pay a royalty of approximate $2.5 million per month to AT&T Canada
Enterprises during the windup period until Rogers Wireless ceases to advertise
using the AT&T brand.

 

 

58

AWE Investment in Rogers Wireless

     In 1999,
as part of the renewed strategic alliance, AT&T and British
Telecommunications plc (“BT”) created JVII, a partnership that was 50%
indirectly owned by each of AT&T and BT, and, through JVII, they acquired an
equity interest of approximately 33 ?% in Rogers for a purchase price of
approximately $1.4 billion in 1999. In preparation for its spin-off of AWE,
AT&T transferred its interest in JVII to AWE. In June 2001, AWE acquired BT’s
interest in JVII. Also in 2001, through JVII, AWE participated in an equity
rights offering to finance Wireless’ acquisition of additional spectrum
licences. AWE’s equity interest is currently approximately 34.2%. As described
below, there are certain rights and restrictions associated with any future
sale of this interest in Wireless that JVII might contemplate.

Mobile Wireless Marketing, Technology and Services Agreement

     Wireless entered into an amended and restated mobile wireless marketing,
technology and services agreement with AWE that enables them to share marketing
and technology information and requires the parties to work together to develop
networks with common features for their respective subscribers. This
agreement may be terminated at any time by either party. No amounts are
payable under the agreement.

Roaming Agreement

     Wireless maintains a reciprocal roaming agreement with AWE whereby AWE
provides wireless communications services to Wireless’ subscribers when they
travel to the U.S. and the Company provides the same services to AWE
subscribers when they travel to Canada. This agreement may be terminated upon
short notice by either party.

Over-the-Air Activation Agreement

     Wireless currently utilizes the services of AWE for automated
“over-the-air” (“OTA”) programming of subscriber handsets. The current
agreement with AWE expires March 31, 2004, at which time the Company will
assume responsibility for OTA programming.

Shareholders Agreement

     In connection with the JVII investment described above, the Company,
Wireless, and JVII entered into a shareholders agreement. Pursuant to the
shareholders agreement, Rogers has agreed as a shareholder of Wireless to cause
JVII to have the following rights:

	 	•	 	various governance rights with respect to Wireless and its
wholly-owned subsidiary, RWI, including the ability to nominate four
directors to each Board of Directors and representation on each
committee of such Boards of Directors;
	 
	 	•	 	the ability to nominate any Chief Technology Officer for Wireless or RWI;

	 
	 	•	 	the requirement for JVII’s
consent to certain transactions involving Wireless or RWI including;

	 	 	–	a sale of all or substantially all of its assets, including a sale of control of RWI;
	 			
	 	 	–	a decision by Wireless or RWI to carry on a business other than specified wireless businesses;
	 			
	 	 	–	certain issuances of equity securities by Wireless;
	 			
	 	 	–	the entering into by Wireless
with certain competitors of AWE of any material contract which is
outside the ordinary course of wireless business.
	 			
	 	 	–	certain amalgamations, mergers or
business combinations; and
	 			
	 	 	–	the entering into of certain
related party transactions;
	 			
	 	 	–	the issuance of indebtedness by
Wireless that would result in total indebtedness for borrowed money
outstanding in excess of five times earnings before interest, taxes,
depreciation and amortization (“EBITDA”) based on 12-month
trailing EBITDA calculated on a consolidated basis;
	 			
	 	 	–	the grant by the Company to JVII of a
right to make a first offer and a right of first negotiation in
respect of that offer if the Company wishes to transfer its shares of
Wireless (other than to members of the Rogers group of companies or
pursuant to other exceptions)
	 			

 

 

59

     The shareholders agreement also provides for, among other things:

	 	•	 	JVII’s agreement to support any going-private transaction relating to
Wireless which is initiated by RCI and which does not dilute JVII’s
equity and voting interest in Wireless, subject to certain liquidity
rights in favour of AWE;
	 
	 	•	 	a requirement that JVII convert all of the Class A Multiple Voting
Shares owned by it into Class B Restricted Voting Shares if any person
other than AWE and permitted transferees become the beneficial owners
of, directly or indirectly, more than a majority of the equity shares of
JVII, or have the power, in law or in fact, to direct the management and
policies of JVII;
	 
	 	•	 	the grant by RCI to JVII of the right to make a first offer, and a
right of first negotiation in respect to that offer, if RCI wishes to
sell any shares of Wireless (other than to members of the Rogers group
of companies, the Rogers Family or pursuant to other exceptions);
	 
	 	•	 	the grant by JVII to RCI of the right to make a first offer, and a
right of first negotiation in respect to that offer, if JVII decides to
sell any of its shares of Wireless;
	 
	 	•	 	certain shotgun rights of first refusal in the event that a material
competitor of AWE acquires control of the Company at a time when, among
other requirements, the Brand Licence Agreement is in effect (on March
8, 2004, Wireless will begin transitioning its branding to Rogers
Wireless from Rogers AT&T Wireless); and
	 
	 	•	 	Wireless has agreed that if Wireless proposes to issue treasury
shares, each of the Company and JVII has a pre-emptive right to purchase
additional shares of Wireless in order to maintain their respective
voting and equity interests in Wireless (subject to exceptions).

     If JVII notifies RCI that it wishes to sell all or any portion of its
shares of Wireless and if RCI does not purchase those shares under its right of
first offer and right of first negotiation, JVII may sell the shares to third
parties provided, amongst other things, that (i) any Class A Multiple Voting
Shares of the Company to be sold are first converted into Class B Restricted
Voting Shares, (ii) such shares are sold to any third party at a price greater
than the highest price offered to RCI under its right of first offer and first
negotiation and (iii) JVII may not sell to any one third party, shares
representing more than 5% of the equity of Wireless (or 10% in the case of
certain service providers to Wireless) to any one party.

     The shareholders agreement terminates in certain circumstances, including
(subject to exceptions) in the event that JVII ceases to own at least 20% of
the equity shares of Wireless.

     Concurrently with entering into of the shareholders agreement, Wireless
entered into a registration rights agreement with JVII. Under that agreement,
in connection with a sale by JVII of shares of Wireless to a third party or
parties, JVII is entitled, subject to certain limitations, to require Wireless
to qualify the sale of such shares pursuant to a prospectus or registration
statement filed with Canadian or U.S. securities regulators.

     Other
Related Party Transactions

     The
Company has entered into certain transactions with companies, the
partners or senior officers of which are directors of the Company
and/or its subsidiary companies. During 2003, total amounts paid by
the Company to these related parties for legal services, commissions
paid on premiums for insurance coverage and other services aggregated
$6.1 million (2002 - $7.0 million), for interest charges of
$15.1 million (2002 - $8.5 million) and for underwriting fees related to financing transactions and
telecommunications and programming services amounting to
$59.2 million (2002 - $60.4 million).

     The
Company also received $0.2 million (2002 - $0.1 million) from RTL for
rent and office services.

 

 

60

OUTSTANDING SHARE DATA

     Set out below is the
outstanding share date for the Company as at December 31, 2003.
For additional detail, please see Note 11 to the Consolidated
Financial Statements.

	 	 	 	 	 
	Common Shares
	Class A Voting	56,235,394
	Class B Non-Voting	177,241,646

	 	 	 	 	 
	Options to Purchase Class B Non-Voting Shares
	Outstanding Options	18,981,033
	Exercisable Options	12,171,834

Securities Convertible into Class B Non-Voting
Shares

	 	 	 	 	 	 	 	 	 
	Class

	 	Number or
Amount
Outstanding

	 	Number of
Shares
Issuable on Conversion

	Series E Convertible Preferred Shares	 	 	104,488	 	 	 	104,488	 
	Convertible Preferred Securities	 	$	600,000,000	 	 	 	17,142,840	 
	Convertible Senior Debentures	 	$	290,589,000	 	 	 	7,726,270	 

DIVIDENDS AND OTHER PAYMENTS ON RCI EQUITY SECURITIES

     In May 2003, the RCI Board of Directors (the “Board”) adopted a dividend
policy that provides for dividends aggregating, annually, $0.10 per share to be
paid on each outstanding Class A Voting Share and Class B Non-Voting Share.
Pursuant to this policy, the dividends are to be paid twice yearly in the amount of $0.05 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 is declared. These dividends are currently scheduled to be made on
the first trading day following January 1 and July 1 in each year. As noted
below, the first such semi-annual dividend pursuant to the policy was
paid July 2, 2003. Payment of these dividends on the Class A Voting and Class B
Non-Voting Shares requires that a semi-annual dividend in the amount of $0.05
per share be paid at the same time on the Series E Preferred Shares.

     The dividend policy will be reviewed periodically by the Board. The
declaration and payment of dividends are at the sole discretion of the Board
and depend on, among other things, RCI’s financial condition, general business
conditions, legal restrictions regarding the payment of dividends by it, 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, the Company relies on cash dividends and other payments from its
subsidiaries and its own cash balances to pay dividends to the Company’s
shareholders. The ability of the Company’s subsidiaries to pay such amounts to
the Company 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.

     During 2003, the Board declared dividends in aggregate of $0.10 per share
on each of its outstanding Class B Non-Voting Shares, Class A Voting Shares and
Series E Preferred Shares, $0.05 of which were paid on July 2, 2003 to
shareholders of record on June 16, 2003 and $0.05 of which was
paid on January 2, 2004 to shareholders of record on December 12, 2003.

     During the year ended December 31, 2002, no dividends were declared on
Class A Voting Shares, Class B Non-Voting Shares, Series B Preferred Shares and
Series E Preferred Shares held by members of its Management Share Purchase
Plan. Prior to 2000, no dividends had been declared on the Class A Voting
Shares or Class B Non-Voting Shares since the fiscal year ended August 31,
1982. In fiscal 2000, dividends aggregating $10.2 million were paid on the
Class A Voting Shares, the Class B Non-Voting Shares, the Series B Preferred
Shares and the Series E Preferred Shares. During the year ended December 31,
2001, $14,000 of dividends declared in 2001 were paid on Series B Preferred
Shares and Series E Preferred Shares held by members of its Management Share
Purchase Plan. Dividends may not be paid in respect of the Class A Voting
Shares or Class B Non-Voting Shares unless all accrued and unpaid dividends in
respect of its Preferred Shares have been paid or provided for. As at
December 31, 2002, the Company had declared and paid all dividends scheduled to be paid
in respect of its Preferred Shares pursuant to the terms of such Preferred
Shares. The Company paid dividends in respect of its Preferred Shares and
distributions in respect of its Convertible Preferred securities in aggregate
amounts of approximately $20.3 million, $18.6 million,
$18.6 million,
$20.3 million and $29.8 million for the years ends December 31, 1999, 2000, 2001, 2002 and 2003
respectively, in each case net of income taxes and exclusive of dividends paid
to subsidiary companies. In 2002, the Company accreted interest, excluding
acquisition costs as described in Note 11 (c) to the Consolidated Financial
Statements of approximately $15.4 million on the Company Preferred Securities,
net of income tax recovery of $9.7 million and $16.5 million on the Company’s
Collateralized Equity Securities.

COMMITMENTS AND CONTRACTUAL
OBLIGATIONS1

Contractual Obligations

     The Company’s material obligations under firm contractual arrangements,
including commitments for future payments under long-term debt arrangements,
mortgage and capital lease obligations and operating lease arrangements are
summarized below as at December 31, 2003 and are fully disclosed in Notes 10
and 19 of the Audited Consolidated Financial Statements.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Less	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Than 1	 	 	 	 	 	 	 	 	 	After 5
	 	 	Year	 	1-3 Years	 	4-5 Years	 	Years	 	Total
	 	 	
	 	
	 	
	 	
	 	

	Long-term Debt
	 	$	6,400	 	 	$	946,473	 	 	$	1,503,485	 	 	$	2,479,543	 	 	$	4,935,901
	Mortgages and Capital Leases
	 	 	5,098	 	 	 	27,791	 	 	 	1,313	 	 	 	129	 	 	 	34,331	 
	Operating Leases
	 	 	114,824	 	 	 	191,874	 	 	 	127,499	 	 	 	85,633	 	 	 	519,830
	Purchase Obligation
	 	 	101,243	 	 	 	44,504	 	 	 	47,056	 	 	 	125,811	 	 	 	318,614
	Other Long-Term Liabilities
reflected on the Balance
Sheet Under GAAP
	 	 	38,607	 	 	 	28,585	 	 	 	7,765	 	 	 	347	 	 	 	75,304
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	$	266,172	 	 	$	1,239,227	 	 	$	1,687,118	 	 	$	2,691,463	 	 	$	5,883,980
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	

(1)  The amended wireless bank
credit facility will mature on May 31, 2006 if our Senior
Secured Notes due 2006 are not repaid (by refinancing or otherwise)
on or prior to December 31, 2005. If these notes are repaid,
then the amended bank credit facility will mature on
September 30, 2007 if our Senior Secured Notes due 2007 are not
repaid (by refinancing or otherwise) on or prior to April 30, 2007.

(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-dependant. An estimate of what we will spend in 2004 on these items is as follows:

	 	 	 	 
	 	i.	 	Wireless is required to pay annual spectrum
licensing and CRTC contribution fees to Industry Canada. We estimate
our total payment obligations to Industry Canada will be
approximately $60.0 million in  2004.
	 
	 	ii.	 	Payments to acquire customers in the form of
commissions and payments to retain customers in the form of residuals
are made pursuant to contracts with distributors at Wireless. We
estimate that payments to these distributors and other retailers will
be approximately $340.0 million in 2004.
	 
	 	iii.	 	We are required to make payments to other
communications providers for interconnection, roaming and other
services at Wireless. We estimate the total payment obligation to be
approximately $145.0 million in 2004.
	 
	 	iv.	 	We estimate our total payments to a major
network infrastructure supplier at Wireless to be approximately
$165.0 million in 2004.
	 
	 	v.	 	Based on Cable’s approximately
2.3 million basic cable subscribers as of December 31,
2003, the Company estimates that its total payment obligation to
programming suppliers in 2004 will be approximately
$399.9 million, including amounts payable to the copyright
collectives and the Canadian programming production funds. The
Company estimates that Rogers Video will spend approximately
$62.7 million in 2004 on the acquisition of videocassettes, DVDs
and video games (as well as non-rental merchandise) for rental or
sale in Rogers Video stores. In addition, the Company expects to pay
an additional amount of approximately $24.9 million in 2004 to movie studios as part of its revenue-sharing arrangements with those studios.

 

 

61

 

62

FIVE YEAR FINANCIAL SUMMARY

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Years ended December 31	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(thousands of dollars, except per share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	amounts)	 	2003	 	2002	 	2001	 	2000	 	1999
	 	 	
	 	
	 	
	 	
	 	

	Income and Cash Flow
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Operating
Revenue (1)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Cable
	 	$	1,788,122	 	 	$	1,614,554	 	 	$	1,446,599	 	 	$	1,301,672	 	 	$	1,157,024	 
	 	 	Wireless
	 	 	2,207,794	 	 	 	1,891,514	 	 	 	1,640,889	 	 	 	1,544,883	 	 	 	1,354,365	 
	 	 	Media
	 	 	854,992	 	 	 	810,805	 	 	 	721,710	 	 	 	681,023	 	 	 	607,604	 
	 	 	Corporate and eliminations
	 	 	(59,052	)	 	 	(50,088	)	 	 	4,772	 	 	 	—	 	 	 	—	 
	 	 	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	4,791,856	 	 	 	4,266,785	 	 	 	3,813,970	 	 	 	3,527,578	 	 	 	3,118,993	 
	 	 	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Operating Profit (2)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Cable
	 	 	663,474	 	 	 	563,480	 	 	 	516,805	 	 	 	457,777	 	 	 	411,205	 
	 	 	Wireless
	 	 	727,572	 	 	 	527,687	 	 	 	411,945	 	 	 	410,924	 	 	 	422,328	 
	 	 	Media
	 	 	106,724	 	 	 	87,635	 	 	 	68,306	 	 	 	77,390	 	 	 	77,252	 
	 	 	Corporate and eliminations
	 	 	(48,874	)	 	 	(37,188	)	 	 	(44,535	)	 	 	(28,366	)	 	 	(16,957	)
	 	 	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	1,448,896	 	 	 	1,141,614	 	 	 	952,521	 	 	 	917,725	 	 	 	893,828	 
	 	 	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 	 	Net Income (loss)
(4)
	 	$	129,193	 	 	$	312,032	 	 	$	(464,361	)	 	$	127,520	 	 	$	977,916	 
	 	 	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Cash flow from operations (3)
	 	$	984,749	 	 	$	642,433	 	 	$	470,471	 	 	$	770,781	 	 	$	495,200	 
	Additions
to PP&E
	 	$	963,742	 	 	$	1,261,983	 	 	$	1,420,747	 	 	$	1,212,734	 	 	$	832,423	 
	 	 	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Average Class A and Class B shares
outstanding (000’s)
	 	 	225,918	 	 	 	213,570	 	 	 	208,644	 	 	 	203,761	 	 	 	189,805	 
	Per Share
Earnings (loss)
	 	$	0.35	 	 	$	1.05	 	 	$	(2.56	)	 	$	0.37	 	 	$	5.01	 
	Balance Sheet
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Assets
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Property
Plant and Equipment
	 	$	5,039,304	 	 	$	5,051,998	 	 	$	4,717,731	 	 	$	4,047,329	 	 	$	3,539,160	 
	 	Goodwill and other intangible assets
	 	 	2,291,855	 	 	 	2,315,734	 	 	 	2,134,925	 	 	 	1,601,433	 	 	 	1,379,582	 

 

 

63

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Years ended December 31	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(thousands of dollars, except per share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	amounts)	 	2003	 	2002	 	2001	 	2000	 	1999
	 	 	
	 	
	 	
	 	
	 	

	 	Investments
	 	 	229,221	 	 	 	223,937	 	 	 	1,047,888	 	 	 	972,648	 	 	 	554,241	 
	 	Other assets
	 	 	905,115	 	 	 	932,834	 	 	 	909,835	 	 	 	1,127,190	 	 	 	683,627	 
	 	 	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	$	8,465,495	 	 	$	8,524,503	 	 	$	8,810,379	 	 	$	7,748,600	 	 	$	6,156,610	 
	 	 	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Liabilities and Shareholders’ Equity
(Deficiency)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Long-term debt
	 	$	5,305,016	 	 	$	5,687,471	 	 	$	4,990,357	 	 	$	3,957,662	 	 	$	3,594,966	 
	 	Accounts payable and other liabilities
	 	 	1,199,757	 	 	 	1,272,745	 	 	 	1,192,165	 	 	 	1,232,463	 	 	 	1,016,754	 
	 	Future income taxes
	 	 	—	 	 	 	27,716	 	 	 	137,189	 	 	 	145,560	 	 	 	138,803	 
	 	Non-controlling interest
	 	 	193,342	 	 	 	132,536	 	 	 	186,377	 	 	 	88,683	 	 	 	132,459	 
	 	Shareholders’ equity (deficiency)
	 	 	1,767,380	 	 	 	1,404,035	 	 	 	2,304,291	 	 	 	2,324,232	 	 	 	1,273,628	 
	 	 	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	$	8,465,495	 	 	$	8,524,503	 	 	$	8,810,379	 	 	$	7,748,600	 	 	$	6,156,610	 
	 	 	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

(1)  As reclassified. See the
“ - Recent Accounting Standards- Revenue Recognition
” section.

(2)  Operating profit is defined as income before depreciation, amortization,
interest, income taxes, non-operating items.

(3) Cash flow from operations before changes in working capital amounts.

(4) Restated for the change in accounting of foreign exchange translation.

 

 

64

QUARTERLY SUMMARY – 2003

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(thousands of dollars,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	except per share amounts)	 	Dec 31	 	Sept 30	 	June 30	 	Mar 31
	 	 	
	 	
	 	
	 	

	Income Statement
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Operating
Revenue (1)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cable
	 	$	475,092	 	 	$	445,646	 	 	$	434,386	 	 	$	432,998	 
	 	Wireless (2)
	 	 	589,599	 	 	 	588,615	 	 	 	532,462	 	 	 	497,118	 
	 	Media
	 	 	243,869	 	 	 	194,691	 	 	 	219,706	 	 	 	196,726	 
	 	Corporate and eliminations
	 	 	(16,920	)	 	 	(17,329	)	 	 	(13,341	)	 	 	(11,462	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	1,291,640	 	 	 	1,211,623	 	 	 	1,173,213	 	 	 	1,115,380	 
	Operating
profit (3)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cable
	 	 	176,721	 	 	 	167,585	 	 	 	161,878	 	 	 	157,290	 
	 	Wireless
	 	 	166,921	 	 	 	222,295	 	 	 	182,546	 	 	 	155,810	 
	 	Media
	 	 	42,610	 	 	 	20,988	 	 	 	37,106	 	 	 	6,020	 
	 	Corporate
	 	 	(16,942	)	 	 	(10,762	)	 	 	(11,324	)	 	 	(9,846	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	369,310	 	 	 	400,106	 	 	 	370,206	 	 	 	309,274	 
	Other expense (recovery)
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Depreciation & Amortization
	 	 	273,851	 	 	 	261,666	 	 	 	256,427	 	 	 	248,319	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Operating income
	 	 	95,459	 	 	 	138,440	 	 	 	113,779	 	 	 	60,955	 
	Interest on long-term debt
	 	 	(115,364	)	 	 	(121,944	)	 	 	(128,010	)	 	 	(123,547	)
	Other income (expense)
	 	 	50,558	 	 	 	(12,045	)	 	 	96,860	 	 	 	109,620	 
	Income tax recovery (expense)
	 	 	36,400	 	 	 	(3,039	)	 	 	(3,372	)	 	 	(7,132	)
	Non-controlling interest
	 	 	1,784	 	 	 	(18,854	)	 	 	(25,197	)	 	 	(16,158	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net income (loss) for the period
	 	$	68,837	 	 	$	(17,442	)	 	$	54,060	 	 	$	23,738	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net income (loss) per share -Basic
	 	$	0.24	 	 	$	(0.13	)	 	$	0.18	 	 	$	0.06	 
	Operating profit margin % (3)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cable
	 	 	37.2	 	 	 	37.6	 	 	 	37.3	 	 	 	36.3	 
	 	Wireless
	 	 	28.3	 	 	 	37.8	 	 	 	34.3	 	 	 	31.3	 
	 	Media
	 	 	17.5	 	 	 	10.8	 	 	 	16.9	 	 	 	3.1	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 	Consolidated
	 	 	28.6	 	 	 	33.0	 	 	 	31.6	 	 	 	27.7	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Other Statistics
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash flow
from operations(4)
	 	$	274,496	 	 	$	277,602	 	 	$	244,108	 	 	$	188,543	 
	Additions
to PP&E
	 	$	307,758	 	 	$	244,722	 	 	$	222,312	 	 	$	188,950	 

(1)  Effective January 1, 2004, we
adopted new accounting standards regarding the timing of revenue
recognition and classification of certain items as revenue  or
expense. See the “ Recent Accounting Developments - Revenue  Recognition
” section for details with respect to the impact of this
reclassification. All periods presented above are reclassified.

(2)  Wireless revenue restated to
record gross roaming revenue.

(3) Operating profit is defined as income before depreciation, amortization,
interest, income taxes, non-operating items.

(4) Cash flow from operations before changes in working capital amounts.

 

 

65

QUARTERLY SUMMARY – 2002

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(thousands of dollars,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	except per share amounts)	 	Dec 31	 	Sept 30	 	June 30	 	Mar 31
	 	 	
	 	
	 	
	 	

	Income Statement
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Operating
Revenue (1)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cable
	 	$	426,515	 	 	$	409,235	 	 	$	394,218	 	 	$	384,586	 
	 	Wireless (2)
	 	 	503,001	 	 	 	512,871	 	 	 	461,018	 	 	 	414,624	 
	 	Media
	 	 	233,023	 	 	 	187,395	 	 	 	213,570	 	 	 	176,817	 
	 	Corporate and eliminations
	 	 	(14,124	)	 	 	(12,945	)	 	 	(12,035	)	 	 	(10,984	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	1,148,415	 	 	 	1,096,556	 	 	 	1,056,771	 	 	 	965,043	 
	Operating
profit (3)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cable
	 	 	156,328	 	 	 	139,771	 	 	 	136,067	 	 	 	131,314	 
	 	Wireless
	 	 	123,148	 	 	 	160,906	 	 	 	132,782	 	 	 	110,851	 
	 	Media
	 	 	34,468	 	 	 	18,804	 	 	 	30,129	 	 	 	4,234	 
	 	Corporate
	 	 	(10,483	)	 	 	(8,717	)	 	 	(10,630	)	 	 	(7,358	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	303,461	 	 	 	310,764	 	 	 	288,348	 	 	 	239,041	 
	Other expense (recovery)
	 	 	5,850	 	 	 	—	 	 	 	—	 	 	 	(12,331	)
	Depreciation & Amortization
	 	 	251,836	 	 	 	246,534	 	 	 	247,227	 	 	 	235,861	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Operating income
	 	 	45,775	 	 	 	64,230	 	 	 	41,121	 	 	 	15,511	 
	Interest on long-term debt
	 	 	(131,502	)	 	 	(133,107	)	 	 	(118,035	)	 	 	(108,635	)
	Other income (expense)
	 	 	798,569	 	 	 	(48,692	)	 	 	(216,923	)	 	 	(12,241	)
	Income tax recovery (expense)
	 	 	(31,832	)	 	 	11,564	 	 	 	105,365	 	 	 	(10,367	)
	Non-controlling interest
	 	 	17,145	 	 	 	6,241	 	 	 	(324	)	 	 	18,169	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net income (loss) for the period
	 	$	698,155	 	 	$	(99,764	)	 	$	(188,796	)	 	$	(97,563	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net income (loss) per share -Basic
	 	$	3.22	 	 	$	(0.68	)	 	$	(0.96	)	 	$	(0.53	)
	Operating profit margin % (3)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Cable
	 	 	36.7	 	 	 	34.2	 	 	 	34.5	 	 	 	34.1	 
	 	Wireless
	 	 	24.5	 	 	 	31.4	 	 	 	28.8	 	 	 	26.7	 
	 	Media
	 	 	14.8	 	 	 	10.0	 	 	 	14.1	 	 	 	2.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 	Consolidated
	 	 	26.4	 	 	 	28.3	 	 	 	27.3	 	 	 	24.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Other Statistics
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash flow from operations(4)
	 	$	168,679	 	 	$	173,344	 	 	$	174,415	 	 	$	125,995	 
	Additions
to PP&E
	 	$	389,925	 	 	$	305,359	 	 	$	324,656	 	 	$	242,043	 

(1)  Effective January 1, 2004, we
adopted new accounting standards regarding the timing of revenue
recognition and classification of certain items as revenue  or
expense. See the “ Recent Accounting Developments - Revenue  Recognition
” section for details with respect to the impact of this
reclassification. All periods presented above are reclassified.

(2)  Wireless revenue restated to record gross roaming revenue.

(3) Operating profit is defined as income before depreciation, amortization,
interest, income taxes, non-operating items.

(4) Cash flow from operations before changes in working capital amounts.

 

 

66

ADDITIONAL INFORMATION

     Additional information relating to the Company may be found on SEDAR at
www.sedar.com.

 

 

	 	 	 	Consolidated Financial Statements of
	 
	 	 	 	ROGERS COMMUNICATIONS INC.
	 
	 	 	 	Years ended December 31, 2003 and 2002

 

 

ROGERS COMMUNICATIONS INC.

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

December 31, 2003

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 management 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 judgements of
management, and in their opinion present fairly, in all material respects,
Rogers Communications Inc.’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.

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 Inc.’s assets are properly accounted for and safeguarded. The
internal control processes include management’s communication to employees of
policies that govern ethical business conduct.

The Board of Directors is responsible
for overseeing management’s responsibility for
financial reporting and is ultimately responsible for
reviewing and approving 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 discharging 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 consideration 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.

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.

 

	/s/ Edward S. Rogers	 	/s/ Alan D. Horn
	 	 	 
	Edward S. Rogers, O.C	 	
Alan D. Horn, C.A.
	President and Chief Executive Officer	 	
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, 2003 and 2002 and the consolidated statements of income,
deficit and cash flows for the 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.

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.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
2003 and 2002 and the results of its operations and its cash flows for the
years then ended in accordance with Canadian generally accepted accounting
principles. As required by the Company Act (British Columbia), we report that,
in our opinion, these principles have been applied, after giving retroactive
effect to the change in the accounting policy relating to asset retirement
obligations (note 2(d)) and except for the change in the method of accounting
for long-lived assets (note 2(e)), on a basis consistent with that of the
preceding year.

/s/ KPMG LLP

Chartered Accountants

Toronto, Canada

January 28, 2004, except as to
Note 23, which  is as of November 19, 2004.

 

 

ROGERS COMMUNICATIONS INC.

Consolidated Balance Sheets

(In thousands of dollars)

December 31, 2003 and 2002

	 	 	 	 	 	 	 	 	 	 
	 	 	 	2003	 	2002
	 	 	 	
	 	

	
Assets
	 	 	 	 	 	 	 	 
	
Current assets
	 	 	 	 	 	 	 	 
	
Accounts receivable
	 	$	550,830	 	 	$	512,127	 
	
Cash and cash equivalents
	 	 	—	 	 	 	26,884	 
	
Other current assets(note 8)
	 	 	178,993	 	 	 	172,279	 
	 
	 	 	
	 	 	 	
	 
	

	 	 	729,823	 	 	 	711,290	 
	
Property, plant and equipment (note 4)
	 	 	5,039,304	 	 	 	5,051,998	 
	
Goodwill (note 5(a))
	 	 	1,891,636	 	 	 	1,892,060	 
	
Other intangible assets (note 5(b))
	 	 	400,219	 	 	 	423,674	 
	Investments (note 6)
	 	 	229,221	 	 	 	223,937	 
	
Deferred charges (note 7)
	 	 	142,480	 	 	 	184,840	 
	
Other long term assets (note 8)
	 	 	32,812	 	 	 	36,704	 
	 
	 	 	
	 	 	 	
	 
	 
	 	$	8,465,495	 	 	$	8,524,503	 
	 
	 	 	
	 	 	 	
	 
	
Liabilities and Shareholders’ Equity
	 	 	 	 	 	 	 	 
	
Liabilities
	 	 	 	 	 	 	 	 
	
Current liabilities
	 	 	 	 	 	 	 	 
	Bank advances, arising from outstanding cheques
	 	$	10,288	 	 	$	—	 
	Accounts
 payable and accrued liabilities
	 	 	1,021,559	 	 	 	1,078,856	 
	Current
portion of long-term debt (note 10)
	 	 	11,498	 	 	 	11,980	 
	Unearned revenue
	 	 	97,577	 	 	 	110,320	 
	 
	 	 	
	 	 	 	
	 
	 	 
	 	 	1,140,922	 	 	 	1,201,156	 
	Long-term debt (note 10)
	 	 	5,293,518	 	 	 	5,675,491	 
	Deferred gain (note 10(e)(ii))
	 	 	19,225	 	 	 	21,847	 
	
Other long term liabilities
	 	 	51,108	 	 	 	61,722	 
	
Future income taxes (note 13)
	 	 	—	 	 	 	27,716	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	6,504,773	 	 	 	6,987,932	 
	Non-controlling interest
	 	 	193,342	 	 	 	132,536	 
	Shareholders’ equity (note 11)
	 	 	1,767,380	 	 	 	1,404,035	 
	 
	 	 	
	 	 	 	
	 
	 
	 	$	8,465,495	 	 	$	8,524,503	 
	 
	 	 	
	 	 	 	
	 

Commitments (note 19)

Guarantees (note 20)

Contingent liabilities (note 21)

Canadian and United States accounting policy differences (note 22)

Subsequent events (notes 6(a) and 23))

See accompanying notes to consolidated financial statements.

On behalf of the Board:

___________________________ Director

___________________________ Director

1

 

ROGERS COMMUNICATIONS INC.

Consolidated Statements of Income

(In thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	 	 	 	 	 	 	 	 	 	 
	 	 	 	2003	 	2002
	 	 	 	
	 	

	Operating
revenue (note 23 (c))
	 	$	4,791,856	 	 	$	4,266,785	 
	Cost of sales (Note 23 (c))
	 	 	642,243	 	 	 	545,684	 
	Sales and marketing expenses (Note 23 (c))
	 	 	742,781	 	 	 	697,579	 
	Operating, general and administrative expenses (Note 23 (c))
	 	 	1,957,936	 	 	 	1,881,908	 
	Other (note 12)
	 	 	—	 	 	 	(6,481	)
	Depreciation and amortization
	 	 	1,040,263	 	 	 	981,458	 
	 
	 	 	
	 	 	 	
	 
	Operating income
	 	 	408,633	 	 	 	166,637	 
	Interest on long-term debt
	 	 	488,865	 	 	 	491,279	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	(80,232	)	 	 	(324,642	)
	Gain on disposition of AT&T Canada Deposit
Receipts (note 6(c))
	 	 	—	 	 	 	904,262	 
	Gain (loss) on sales of other investments (note 6(d))
	 	 	17,902	 	 	 	(565	)
	Write-down of investments (note 6(e))
	 	 	—	 	 	 	(300,984	)
	Losses from investments accounted for by
the equity method
	 	 	(54,033	)	 	 	(100,617	)
	Gain (loss) on repayment of long-term
debt (note 10(e))
	 	 	(24,839	)	 	 	10,117	 
	Foreign exchange gain (note 2(g))
	 	 	303,707	 	 	 	6,211	 
	Investment and other income, net
	 	 	2,256	 	 	 	2,289	 
	 
	 	 	
	 	 	 	
	 
	Income before income taxes and
non-controlling interest
	 	 	164,761	 	 	 	196,071	 
	 
	 	 	
	 	 	 	
	 
	Income tax expense (reduction) (note 13):
	 	 	 	 	 	 	 	 
	 	Current
	 	 	1,675	 	 	 	12,396	 
	 	Future
	 	 	(24,532	)	 	 	(87,126	)
	 
	 	 	
	 	 	 	
	 
	 
	 	 	(22,857	)	 	 	(74,730	)
	 
	 	 	
	 	 	 	
	 
	Income before non-controlling interest
	 	 	187,618	 	 	 	270,801	 
	Non-controlling interest
	 	 	(58,425	)	 	 	41,231	 
	 
	 	 	
	 	 	 	
	 
	Net income for the year
	 	$	129,193	 	 	$	312,032	 
	 
	 	 	
	 	 	 	
	 
	Earnings per share (note 14):
	 	 	 	 	 	 	 	 
	 	Basic
	 	$	0.35	 	 	$	1.05	 
	 	Diluted
	 	 	0.34	 	 	 	0.83	 
	 
	 	 	
	 	 	 	
	 

     See accompanying notes to consolidated financial statements.

2

 

ROGERS COMMUNICATIONS INC.

Consolidated Statements of Deficit

(In thousands of dollars)

Years ended December 31, 2003 and 2002

	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	Deficit, beginning of year
	 	$	(415,589	)	 	$	(660,022	)
	Net income for the year
	 	 	129,193	 	 	 	312,032	 
	Dividends on Class A Voting and Class B
Non-Voting Shares
	 	 	(23,238	)	 	 	—	 
	Dividends on Series E Preferred Shares
	 	 	(11	)	 	 	—	 
	Distribution on Convertible Preferred
Securities (note 11(c))
	 	 	(29,791	)	 	 	(20,262	)
	Accretion on Collateralized Equity Securities (note 11(c))
	 	 	—	 	 	 	(19,745	)
	Accretion on Preferred Securities (note 11(c))
	 	 	—	 	 	 	(27,592	)
	 
	 	 	
	 	 	 	
	 
	Deficit, end of year
	 	$	(339,436	)	 	$	(415,589	)
	 
	 	 	
	 	 	 	
	 

See accompanying notes to consolidated financial statements.

3

 

ROGERS COMMUNICATIONS INC.

Consolidated Statements of Cash Flows

(In thousands of dollars)

Years ended December 31, 2003 and 2002

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	2003	 	2002
	 	 	 	 	
	 	

	Cash provided by (used in):
	 	 	 	 	 	 	 	 
	Operating activities:
	 	 	 	 	 	 	 	 
	 	Net income for the year
	 	$	129,193	 	 	$	312,032	 
	 	Adjustments to reconcile net income to
net cash flows from operating activities:
	 	 	 	 	 	 	 	 
	 	 	Depreciation and amortization
	 	 	1,040,263	 	 	 	981,458	 
	 	 	Future income taxes
	 	 	(24,532	)	 	 	(87,126	)
	 	 	Non-controlling interest
	 	 	58,425	 	 	 	(41,231	)
	 	 	Change in estimate of sales tax liability
	 	 	—	 	 	 	(19,157	)
	 	 	Unrealized foreign exchange gain
	 	 	(290,661	)	 	 	(3,546	)
	 	 	Write-down of investments
	 	 	—	 	 	 	300,984	 
	 	 	Loss (gain) on sales of other investments
	 	 	(17,902	)	 	 	565	 
	 	 	Gain on disposition of AT&T Canada Deposit Receipts
	 	 	—	 	 	 	(904,262	)
	 	 	Loss (gain) on repayment of long-term debt
	 	 	24,839	 	 	 	(10,117	)
	 	 	Losses from investments accounted for by
the equity method
	 	 	54,033	 	 	 	100,617	 
	 	 	Accrued interest due on repayment of certain notes
	 	 	10,167	 	 	 	10,767	 
	 	 	Dividends from associated companies
	 	 	924	 	 	 	1,449	 
	 	 
	 	 	
	 	 	 	
	 
	 
	 	 	984,749	 	 	 	642,433	 
	 	Change
in non-cash operating items (notes 9(a) and 23(c))
	 	 	(49,405	)	 	 	73,878	 
	 	 
	 	 	
	 	 	 	
	 
	 
	 	 	935,344	 	 	 	716,311	 
	 	 
	 	 	
	 	 	 	
	 
	Financing activities:
	 	 	 	 	 	 	 	 
	 	Issue of long-term debt
	 	 	1,589,518	 	 	 	2,977,330	 
	 	Repayment of long-term debt
	 	 	(1,691,480	)	 	 	(2,445,131	)
	 	Proceeds on termination of cross-currency interest rate
exchange agreements
	 	 	—	 	 	 	225,210	 
	 	Premium on early repayment of long-term debt
	 	 	(19,348	)	 	 	(21,773	)
	 	Financing costs incurred
	 	 	(6,220	)	 	 	(27,399	)
	 	Redemption of Preferred and Collateralized equity instruments
	 	 	—	 	 	 	(1,317,040	)
	 	Issue of capital stock
	 	 	252,011	 	 	 	5,729	 
	 	Distribution on Convertible Preferred Securities
	 	 	(33,000	)	 	 	(33,000	)
	 	Dividends on Class B Non-Voting, Class A Voting
and Series E Preferred shares
	 	 	(11,607	)	 	 	—	 
	 	 
	 	 	
	 	 	 	
	 
	 
	 	 	79,874	 	 	 	(636,074	)
	 	 
	 	 	
	 	 	 	
	 
	Investing activities:
	 	 	 	 	 	 	 	 
	 	Additions to property, plant and equipment
	 	 	(963,742	)	 	 	(1,261,983	)
	 	Change
in non-cash working capital items related to property, plant and
equipment (note 23(c))
	 	 	(81,416	)	 	 	52,238	 
	 	Proceeds on disposition of AT&T Canada Deposit Receipts
	 	 	—	 	 	 	1,280,357	 
	 	Proceeds on sales of other investments
	 	 	20,705	 	 	 	12,088	 
	 	Acquisitions, net of cash acquired
	 	 	—	 	 	 	(103,425	)
	 	Other investments
	 	 	(27,937	)	 	 	(49,829	)
	 	 
	 	 	
	 	 	 	
	 
	 
	 	 	(1,052,390	)	 	 	(70,554	)
	 	 
	 	 	
	 	 	 	
	 
	Increase (decrease) in cash and cash equivalents
	 	 	(37,172	)	 	 	9,683	 
	Cash and cash equivalents, beginning of year
	 	 	26,884	 	 	 	17,201	 
	 	 
	 	 	
	 	 	 	
	 
	Cash and cash equivalents (deficiency), end of year
	 	$	(10,288	)	 	$	26,884	 
	 	 
	 	 	
	 	 	 	
	 

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 9(b).

See accompanying notes to consolidated financial statements.

4

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	1.	 	Nature of the business:
	 
	 	 	Rogers Communications Inc. (“RCI”) is a Canadian communications company,
carrying on business on a national basis, engaged in cable television,
Internet access and video retailing through its wholly owned subsidiary,
Rogers Cable Inc. (“Cable”), wireless voice, messaging and data services
through its 55.8% ownership of Rogers Wireless Communications Inc.
(“Wireless”), and in radio and television broadcasting, televised home
shopping and publishing through its wholly owned subsidiary, Rogers Media
Inc. (“Media”). RCI and its subsidiary companies are collectively referred
to herein as the Company.
	 
	2.	 	Significant accounting policies:

	 	(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 U.S. GAAP as described in note 22.
The consolidated financial statements include the accounts of RCI and
its subsidiary companies. Intercompany transactions and balances are
eliminated on consolidation. When RCI’s subsidiaries issue additional
common shares to unrelated parties, RCI accounts for these issuances as
if the Company had sold a portion of its interest in that subsidiary
and, accordingly, records a gain or loss on dilution of RCI’s interest.
	 
	 	 	 	Investments over which the Company is able to exercise significant
influence are accounted for by the equity 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)	 	Property, plant and equipment:
	 
	 	 	 	Property, plant and equipment (“PP&E”) are recorded at purchase 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 expense as incurred.

5

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	2.	 	Significant accounting policies (continued):

	 	(c)	 	Depreciation:
	 
	 	 	 	PP&E are depreciated annually over their estimated useful lives as
follows:

	 	 	 	 	 	 	 	 	 
	Asset	 	Basis	 	Rate
	
	 	
	 	

	Buildings
	 	 	Diminishing balance	 	 	 	5%
	Towers, head-ends and transmitters
	 	 	Straight line	 	6-2/3% to 10%
	Distribution cable, subscriber drops
and wireless network equipment
	 	 	Straight line	 	6-2/3% to 25%
	Wireless network radio base
station equipment
	 	 	Straight line	 	12-1/2% to 14-1/3%
	Computer equipment and software
	 	 	Straight line	 	14-1/3% to 33-1/3%
	Customer equipment
	 	 	Straight line	 	20% to 33-1/3%
	Leasehold improvements
	 	 	Straight line	 	Over term of lease
	Other equipment
	 	 	Mainly diminishing balance	 	20% to 33-1/3%

 

	 	(d)	 	Asset retirement obligations:
	 
	 	 	 	Effective January 1, 2003, the Company retroactively adopted The
Canadian Institute of Chartered Accountants’ (“CICA”) Handbook Section
3110, “Asset Retirement Obligations”, which harmonizes Canadian GAAP
with U.S. Financial Accounting Standards Board’s (“FASB”) Statement No.
143, “Accounting for Asset Retirement Obligations”. The standard
provides guidance for the recognition, measurement and disclosure of
liabilities for asset retirement obligations and the associated asset
retirement costs. The standard applies to legal obligations associated
with the retirement of a tangible long-lived asset that result from
acquisition, construction, development or normal operations.
	 
	 	 	 	The standard requires the Company to record the 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
standard describes the fair value of a liability for an asset
retirement obligation as 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. The Company is
subsequently required to allocate that asset retirement cost to expense
using a systematic and rational method over the asset’s useful life.
	 
	 	 	 	The adoption of this standard had no material impact on the Company’s
financial position, results of operations or cash flows.

6

 

ROGERS COMMUNICATIONS INC.

 Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	2.	 	Significant accounting policies (continued):

	 	(e)	 	Long-lived assets:
	 
	 	 	 	Effective January 1, 2003, the Company adopted CICA Handbook Section
3063, “Impairment of Long-Lived Assets”. Long-lived assets, including
PP&E and intangible assets with finite useful lives, are 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 carrying 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. At December 31, 2003, no such
impairment had occurred.
	 
	 	 	 	For the year ended December 31, 2002, the Company’s policy was to
review the recoverability of PP&E annually or more frequently if events
or circumstances indicated that the carrying amount may not be
recoverable. Recoverability was measured by comparing the carrying
amounts of a group of assets to future undiscounted net cash flows
expected to be generated by that group of assets. As at December 31,
2002, no such impairment had occurred. Intangible assets with definite
lives were tested for impairment by comparing their book values with
the undiscounted cash flows expected to be received from their use. At
December 31, 2002, no impairment had occurred.
	 
	 	(f)	 	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.

7

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	2.	 	Significant accounting policies (continued):

	 	 	 	Goodwill is not amortized but instead is tested for impairment
annually 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, goodwill 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 and all intangible assets are tested for
impairment annually or more frequently when events or changes in
circumstances indicate that their carrying amounts may not be
recoverable. Intangible assets with determinable lives are
amortized over their estimated useful lives and are tested for
impairment as described in note 2(e). Intangible assets having an
indefinite life, such as spectrum licences, are not being amortized
but instead are tested for impairment on an annual or more frequent
basis by comparing their fair values with book value. An impairment
loss on indefinite life intangible assets is recognized when the
carrying amount of the asset exceeds its fair value.

	 	 	 	The Company has tested goodwill and intangible assets with indefinite
lives for impairment at December 31, 2003 and 2002 and determined no
impairment in the carrying value of these assets existed.
	 
	 	(g)	 	Foreign currency translation:
	 
	 	 	 	Long-term debt denominated in U.S. dollars is translated into Canadian
dollars at the period-end rate of exchange. The effect of cross-currency
interest rate exchange agreements is shown separately in note 10.
Exchange gains or losses on translating long-term debt are recognized
in the consolidated statements of income. In 2003, foreign exchange
gains related to the translation of long-term debt totalled $290.7
million (2002 - $3.5 million).

8

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	2.	 	Significant accounting policies (continued):

	 	(h)	 	Deferred charges:
	 
	 	 	 	The costs of obtaining bank and other debt financing are deferred and
amortized on a straight-line basis over the effective 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.
	 
	 	(i)	 	Inventories:
	 
	 	 	 	Inventories are valued at the lower of cost, on a first-in, first-out
basis, and net realizable value. Video rental inventory, which
includes videocassettes, DVDs and video games, is depreciated to a
pre-determined residual value. The residual value of the video rental
inventory is recorded as a charge to operating expense upon the sale of
the video rental inventory. Depreciation of video rental inventory is
charged to operating expense on a diminishing-balance basis over a
six-month period.
	 
	 	(j)	 	Pension benefits:
	 
	 	 	 	The Company accrues its pension plan obligations as employees render
the services necessary to earn the pension. The Company uses the
current settlement discount rate to measure the accrued pension benefit
obligation and uses the corridor method to amortize actuarial 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 value of the plan assets.
	 
	 	 	 	The Company uses the following methods:
	 

	 	(i)	 	The cost of pensions is actuarially determined using the
projected benefit method prorated on service and management’s best
estimate of expected plan investment performance, salary
escalation and retirement ages of employees.
	 
	 	(ii)	 	For the purpose of calculating the expected return on
plan assets, those assets are valued at fair value.

9

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	2.	 	Significant accounting policies (continued):

	 	(iii)	 	Past service costs from plan amendments are amortized on
a straight-line basis over the average remaining service period of
employees.

	 	(k)	 	Acquired program rights:
	 
	 	 	 	Acquired program rights are carried at the lower of cost, less
accumulated amortization, or net realizable value. Acquired program
rights and the related liabilities are recorded 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 realizable value of acquired program rights is
reviewed using a daypart methodology.
	 
	 	(l)	 	Income taxes:
	 
	 	 	 	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 more likely than not that the asset will not be realized. Income
tax expense is the sum of the Company’s provision for current income
taxes and the difference between opening and ending balances of future
income tax assets and liabilities.

10

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	2.	 	Significant accounting policies (continued):

	 	(m)	 	Financial instruments:
	 
	 	 	 	The Company uses derivative financial instruments to manage risks from
fluctuations in exchange rates and interest rates. These instruments
include cross-currency interest rate exchange agreements, interest rate
exchange agreements, foreign exchange forward contracts and, from time
to time, foreign exchange option agreements. All such instruments are
only used for risk management purposes and are designated as hedges of
specific debt instruments. The Company accounts for these financial
instruments as hedges and, as a result, the carrying values of the
financial instruments are not adjusted to reflect their current fair
value. The net receipts or payments arising from financial instruments
relating to interest are recognized in interest expense on an accrual
basis. Upon redesignation or amendment of a derivative financial
instrument, the carrying value of the instrument is adjusted to fair
value. If the related debt instrument that was hedged has been repaid,
then the gain or loss is recorded as a component of the gain or loss on
repayment of the debt. Otherwise, the gain or loss is deferred and
amortized over the remaining life of the original debt instrument.
	 
	 	 	 	These instruments, which have been entered into by the Company to hedge
exposure to interest rate and foreign exchange risk, are periodically
examined by the Company to ensure that the instruments are highly
effective at reducing or modifying interest rate or foreign exchange
risk associated with the hedged item. For those instruments that do
not meet the above criteria, variations in their fair value are
marked-to-market on a current basis in the Company’s consolidated
statements of income.
	 
	 	(n)	 	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
services and equipment, cable and internet services and equipment,
equipment rental and media subscriptions, are recorded as revenue
on a pro rata basis over the month;
	 
	 	(ii)	 	Revenue from wireless airtime, wireless long-distance and
optional services, pay-per-view and video-on-demand services,
video rentals and other transactional sales of products are
recorded as revenue as the services or products are provided;

11

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	2.	 	Significant accounting policies (continued):

	 	(iii)	 	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; and
	 
	 	(iv)	 	Monthly subscription revenues received by television
stations for subscriptions from cable and satellite providers are
recorded in the month in which they are earned.

	 	 	 	Unearned revenue includes subscriber deposits and amounts received from
subscribers related to services and subscriptions to be provided in
future periods.
	 
	 	(o)	 	Subscriber acquisition costs:
	 
	 	 	 	The Company expenses commissions and equipment subsidies related to the
acquisition of new wireless and cable subscribers upon activation.
Sales and marketing and other
associated costs related to the acquisition of new wireless, cable and
media subscribers are expensed as incurred.
	 
	 	(p)	 	Stock-based compensation and other stock-based payments:
	 
	 	 	 	The Company has a stock option plan for employees and directors. All
stock options issued under this plan have an exercise price equal to
the fair market value of the underlying Class B Non-Voting shares on
the date of grant. As a result, the Company records no compensation
expense on the grant of options to the Company’s employees under the
plan. The Company discloses the pro forma effect of accounting for
these awards under the fair value-based method (note 11(d)).
	 
	 	 	 	The Company accounts for all stock-based payments to non-employees and
employee awards that are direct awards of stock, call for settlement in
cash or other assets, or are stock appreciation rights that call for
settlement by the issuance of equity instruments using the fair
value-based method.

12

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	2.	 	Significant accounting policies (continued):

	 	 	 	Stock-based awards that are settled in cash or may be settled in cash
at the option of employees or directors 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 operating income over the vesting period of
the award. Changes in the Company’s payment obligation prior to the
settlement date is recorded in operating income over the vesting
period. The payment amount is established for these awards on the date
of exercise of the award by the employee.
	 
	 	 	 	The Company also has an employee share purchase plan. Under the terms
of the plan, participating employees with the Company at the end of the
term of the plan, which is usually one year, receive a bonus based on a
percentage of their purchase. Compensation expense is recognized in
connection with the employee share purchase plan to the extent of the
bonus provided to employees from the market price of the Class B
Non-Voting shares on the date of issue. Consideration paid by
employees on the exercise of stock options or the purchase of shares is
recorded as share capital and contributed surplus. The stock option
plan and share purchase plan are more fully described in note 11(d).
	 
	 	 	 	The Company has a directors’ deferred share unit plan, under which
directors of the Company are entitled to elect to receive their
remuneration in deferred share units. Upon departure as a director,
these deferred share units are redeemed by the Company at the then
current Class B Non-Voting shares’ market price. Compensation expense
is recognized in the amount of the directors’ remuneration as their
services are rendered. The related accrued liability is adjusted to
the market price of the Class B Non-Voting shares at each balance sheet
date and the related adjustment is recorded in operating income. At
December 31, 2003, a total of 109,604 (2002 - 83,350) deferred share
units were outstanding.
	 
	 	(q)	 	Earnings per share:
	 
	 	 	 	The Company uses the treasury stock method for calculating diluted
earnings per share. The diluted earnings per share calculation
considers the impact of employee stock options and other potentially
dilutive instruments, as described in note 14.

13

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	2.	 	Significant accounting policies (continued):

	 	(r)	 	Guarantees:
	 
	 	 	 	Effective January 1, 2003, the Company adopted CICA Accounting
Guideline 14, “Disclosure of Guarantees” (“AcG-14”) (note 20), which
requires a guarantor to disclose significant information about certain
types of guarantees that it has provided, including certain types of
indemnities and indirect guarantees of indebtedness to others, without
regard to the likelihood of whether it will have to make any payments
under the guarantees. The disclosure required by AcG-14 is in addition
to the existing disclosure required for contingencies.
	 
	 	(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 liabilities 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 judgements, often as a result of matters that are
inherently uncertain are the provision for bad debts, the ability to
use income tax loss carryforwards and other future tax assets,
capitalization of labour and overhead, useful lives of all depreciable
assets, asset retirement obligations and the recoverability of PP&E,
goodwill and intangible assets using estimates of future cash flows.
In addition, the Company has made significant investments in companies
or businesses, some of which have experienced significant operating
losses and/or experienced recent declines in market valuation.
Significant changes in the assumptions, including those with respect to
future business plans and cash flows, could change the recorded amounts
by a material amount. In addition, continuing declines in market
valuations and further operating losses of certain investees could
result in impairment of these investments.

14

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	2.	 	Significant accounting policies (continued):

	 	(t)	 	Recent Canadian accounting pronouncements:

	 	(i)	 	Revenue arrangements with multiple deliverables:
	 
	 	 	 	In December 2003, the Emerging Issues Committee issued Abstract 142,
“Revenue Arrangements with Multiple Deliverables”, which the Company
will apply prospectively beginning January 1, 2004. This Abstract
is consistent with the U.S. standard with the same title, and
addresses both when and how an arrangement involving multiple
deliverables should be divided into separate units of accounting and
how the arrangement’s consideration should be allocated among
separate units. See note 23(c) for the impact of adoption of this
standard.
	 
	 	(ii)	 	Hedging relationships:
	 
	 	 	 	In November 2001, the CICA issued Accounting Guideline 13, “Hedging
Relationships” (“AcG-13”), and in November 2002, the CICA amended
the effective date of the guideline. AcG-13 establishes new
criteria for hedge accounting and will apply to all hedging
relationships in effect on or after January 1, 2004. Effective
January 1, 2004, the Company will re-assess all hedging
relationships to determine whether the criteria are met or not and
will apply the new guidance on a prospective basis. To qualify for
hedge accounting, the hedging relationship must be appropriately
documented at the inception of the hedge and there must be
reasonable assurance, both at the inception and throughout the term
of the hedge, that the hedging relationship will be effective.
Effectiveness requires a high correlation of changes in fair values
or cash flows between the hedged item and the hedging item. The
Company is currently determining the impact of the guideline.
	 
	 	(iii)	 	Stock-based compensation:
	 
	 	 	 	In 2003, the CICA amended Handbook Section 3870, “Stock-based
Compensation and other Stock-based Payments”, to require the
recording of compensation expense on the granting of all stock-based
compensation awards, including stock options to employees,
calculated using the fair-value method. The Company will adopt this
standard on January 1, 2004, retroactively without restatement.
If the Company were to use the Black-Scholes Option Pricing model for
calculating the fair value of stock-based compensation, the Company
would record a charge to opening retained earnings on
January 1, 2004 of $7.0 million related to stock options granted on
or after January 1, 2002 (note 11(d)).

15

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	2.	 	Significant accounting policies (continued):

	 	(iv)	 	Consolidation of variable interest entities:
	 
	 	 	 	In June 2003, the CICA issued Accounting Guideline AcG-15,
“Consolidation of Variable Interest Entities” (“AcG-15”). AcG-15
addresses the consolidation of variable interest entities (“VIEs”),
which are entities which have insufficient equity at risk to finance
their operations without additional subordinated financial support
and/or entities whose equity investors lack one or more of the
specified essential characteristics of a controlling financial
interest. AcG-15 provides specific guidance for determining when an
entity is a VIE and who, if anyone, should consolidate the VIE.
AcG-15 will be applied in the Company’s year beginning January 1,
2005. The Company expects this to
result in its consolidating Blue Jays Holdco (note 6 (a)), which will
affect the reported amount of assets, liabilities, and revenues and
expenses. However, as the Company is presently recording 100% of
the losses of Blue Jays Holdco, the adoption of this standard will
have no impact on net income or earnings per share.
	 
	 	(v)	 	Generally accepted accounting principles:
	 
	 	 	 	In June 2003, the CICA released Handbook Section 1100, “Generally
Accepted Accounting Principles”. This section establishes standards
for financial reporting in accordance with Canadian GAAP, and
describes what constitutes Canadian GAAP and its sources. This
section also provides guidance on sources to consult when selecting
accounting policies and determining appropriate disclosures when a
matter is not dealt with explicitly in the primary sources of GAAP.
The new standard is effective on a prospective basis beginning
January 1, 2004. See note 23(c) for the impact of this section
on the consolidated financial statements.

16

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	3.	 	Acquisitions and divestitures:

	 	 	The Company has completed certain acquisitions which were accounted for by
the purchase method.
	 
	 	(a)	 	Standard Radio Inc.:
	 
	 	 	 	In April 2002, the Company acquired the assets of 13 radio stations
from Standard Radio Inc. for total cash consideration of $103.4
million. The stations operate as an AM station in Toronto (the FAN),
an FM station in Orillia, two FM stations in Timmins and two FM
stations and an AM station in each of Sudbury, Sault Ste. Marie and
North Bay.
	 
	 	 	 	Details of the net assets acquired, at fair value, and the
consideration given, are as follows:

	 	 	 	 	 
	Fixed assets
	 	$	5,000	 
	Goodwill
	 	 	94,914	 
	Other intangible assets
	 	 	3,840	 
	Other assets
	 	 	4,659	 
	 
	 	 	
	 
	 
	 	 	108,413	 
	Accounts payable and accrued liabilities
	 	 	(4,988	)
	 
	 	 	
	 
	Total cash consideration
	 	$	103,425	 
	 
	 	 	
	 

	 	(b)	 	Rogers Wireless Communications Inc.:
	 
	 	 	 	On March 20, 2002, the Company exchanged, with five institutional
investors, 4,305,830 Class B Non-Voting shares of the Company for
4,925,000 Wireless Class B Restricted Voting shares. This transaction
increased the Company’s ownership in Wireless from 52.4% to 55.8%.
This transaction had the impact of increasing goodwill by $92.2
million, reducing the carrying value of non-controlling interest by
$12.6 million and increasing the carrying value of share capital and
contributed surplus by $104.8 million.

17

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	4.	 	Property, plant and equipment:

	 	 	Details of PP&E are as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	 	 	 	 	 	 	Net book	 	 	 	 	 	Net book
	 	 	Cost	 	value	 	Cost	 	value
	 	 	
	 	
	 	
	 	

	Land and buildings
	 	$	313,695	 	 	$	263,262	 	 	$	298,273	 	 	$	257,673	 
	Towers, head-ends
and transmitters
	 	 	593,757	 	 	 	282,612	 	 	 	536,060	 	 	 	278,632	 
	Distribution cable and
subscriber drops
	 	 	3,438,248	 	 	 	1,855,201	 	 	 	3,136,545	 	 	 	1,785,510	 
	Wireless network
equipment
	 	 	2,629,608	 	 	 	1,369,704	 	 	 	2,419,035	 	 	 	1,363,028	 
	Wireless network radio
base station equipment
	 	 	1,375,739	 	 	 	465,172	 	 	 	1,347,891	 	 	 	489,992	 
	Computer equipment
and software
	 	 	1,193,064	 	 	 	397,867	 	 	 	1,108,670	 	 	 	460,549	 
	Customer equipment
	 	 	613,741	 	 	 	212,026	 	 	 	613,997	 	 	 	256,144	 
	Leasehold improvements
	 	 	168,296	 	 	 	67,224	 	 	 	161,159	 	 	 	66,571	 
	Other equipment
	 	 	416,722	 	 	 	126,236	 	 	 	317,245	 	 	 	93,899	 
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	$	10,742,870	 	 	$	5,039,304	 	 	$	9,938,875	 	 	$	5,051,998	 
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	 	 	 	Depreciation expense for 2003 amounted to $973.6 million (2002 - $928.8
million).
	 
	 	 	 	PP&E not yet in service and, therefore, not depreciated at December 31,
2003 amounted to $223.1 million (2002 - $361.8 million).
	 

18

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	5.	 	Goodwill and intangible assets:

	 	(a)	 	Goodwill:

	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	Goodwill
	 	$	2,264,840	 	 	$	2,265,264	 
	Less accumulated amortization
	 	 	373,204	 	 	 	373,204	 
	 
	 	 	
	 	 	 	
	 
	 
	 	$	1,891,636	 	 	$	1,892,060	 
	 
	 	 	
	 	 	 	
	 

	 	 	 	2003:
	 
	 	 	 	During 2003, Wireless issued 158,495 Class B Restricted Voting shares
upon the exercise of stock options and under the Wireless employee
share purchase plan. These transactions decreased the Company’s
ownership in Wireless, thereby resulting in a dilution gain of $2.0
million and decreasing goodwill by $0.4 million.
	 
	 	 	 	2002:
	 
	 	 	 	On March 20, 2002, the Company issued 4,305,830 Class B Non-Voting
shares of the Company in exchange for 4,925,000 Wireless Class B
Restricted Voting shares. This transaction increased the Company’s
ownership in Wireless at that time from 52.4% to 55.8%, thereby
increasing goodwill by $92.2 million (note 3(b)).
	 
	 	 	 	On April 29, 2002, the Company acquired 13 radio stations from Standard
Radio Inc. This transaction had the impact of increasing goodwill by
$94.9 million (note 3(a)).
	 
	 	 	 	During 2002, the Toronto Phantoms Football Team ceased operations and,
accordingly, the Company wrote off the unamortized carrying value of
the goodwill, being $6.5 million.

19

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	5.	 	Goodwill and intangible assets (continued):

	 	(b)	 	Intangible assets:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	2003	 	2002
	 	 	 	
	 	

	 	 	 	 	 	 	 	Net book	 	 	 	 	 	Net book
	 	 	 	Cost	 	value	 	Cost	 	value
	 	 	 	
	 	
	 	
	 	

	 	Spectrum licences
	 	$	396,824	 	 	$	396,824	 	 	$	396,824	 	 	$	396,824	 
	 	Brand licence
	 	 	37,800	 	 	 	—	 	 	 	37,800	 	 	 	22,470	 
	 	Subscribers
	 	 	5,200	 	 	 	520	 	 	 	5,200	 	 	 	1,040	 
	 	Other
	 	 	3,840	 	 	 	2,875	 	 	 	3,840	 	 	 	3,340	 
	 	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 	 
	 	$	443,664	 	 	$	400,219	 	 	$	443,664	 	 	$	423,674	 
	 	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	 	 	 	Amortization of subscribers, brand licence and other in 2003 amounted
to $23.5 million (2002 - $3.5 million).
	 
	 	 	 	In a spectrum auction conducted by Industry Canada in February 2001,
the Company purchased 23 personal communications services licences of
10 megahertz (“MHz”) or 20 MHz each, in the 1.9 gigahertz (“GHz”) band
in various regions across Canada at a cost of $396.8 million, including
costs of acquisition. This amount has been recorded as spectrum
licences. The Company has determined that these licences have
indefinite lives for accounting purposes.
	 
	 	 	 	The AT&T brand licence was acquired in 1996 at an aggregate cost of
$37.8 million, which provided Wireless with, among other things, the
right to use the AT&T brand name. The cost of the brand licence was
deferred and amortized on a straight-line basis to expense over the
15-year term of the brand licence agreement. In December 2003,
Wireless announced that it would terminate its brand licence agreement
in early 2004 and change its brand name to exclude the AT&T brand.
Consequently, the Company determined the useful life of the brand
licence ended on December 31, 2003 and accordingly, fully amortized the
remaining net book value of $20.0 million.
	 
	 	 	 	Subscribers are being amortized on a straight-line basis over 10 years.
	 
	 	 	 	Other includes the brand name and employment contracts acquired as part
of the acquisition of the 13 radio stations from Standard Radio Inc.
(note 3(a)). These intangible assets are being amortized on a
straight-line basis over periods ranging between five and seven years.

20

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	6.	 	Investments:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	2003	 	2002
	 	 	 	 	 	 	 	 	 	 	 	 	
	 	

	 	 	 	 	 	 	 	 	 	 	 	 	Quoted	 	 	 	 	 	Quoted	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	market	 	Book	 	market	 	Book
	 	 	 	 	Number	 	Description	 	value	 	value	 	value	 	value
	 	 	 	 	
	 	
	 	
	 	
	 	
	 	

	 	Investments accounted for
by the equity method:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Blue Jays Holdco
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	95,720	 	 	 	 	 	 	$	122,844	 
	 	 	Other
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5,055	 	 	 	 	 	 	 	7,079	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	
	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	100,775	 	 	 	 	 	 	 	129,923	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	
	 
	 	Investments accounted for by the
cost method, net of write-downs
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Publicly traded companies:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Cogeco Cable Inc.
	 	 	7,253,800	 	 	Subordinate	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	(2002 -	 	 	Voting	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	4,253,800	)	 	Common	 	 	121,501	 	 	 	75,758	 	 	 	40,454	 	 	 	40,454	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Cogeco Inc.
	 	 	2,724,800	 	 	Subordinate	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	Voting	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	Common	 	 	43,488	 	 	 	28,610	 	 	 	28,610	 	 	 	28,610	 
	 	 	Other publicly traded
companies
	 	 	 	 	 	 	 	 	 	 	25,482	 	 	 	7,508	 	 	 	27,934	 	 	 	10,323	 
	 	 
	 	 	 	 	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 	 
	 	 	 	 	 	 	 	 	 	 	190,471	 	 	 	111,876	 	 	 	96,998	 	 	 	79,387	 
	 	Private companies
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	16,570	 	 	 	 	 	 	 	14,627	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	
	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	229,221	 	 	 	 	 	 	$	223,937	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	
	 

	 	(a)	 	Investments accounted for by the equity method:

	 	 	 	Toronto Blue Jays Baseball Club:
	 
	 	 	 	Effective December 31, 2000, the Company purchased an 80% interest in
the Toronto Blue Jays Baseball Club (“Blue Jays”) for cash of $163.9
million. The Company has the option to acquire the 20% minority
interest in the Blue Jays at any time, and the minority interest
owner has the right to require the Company to purchase its interest at
any time after December 15, 2003. On January 5, 2004, the Company
acquired the 20% minority interest for approximately $39.1 million.
This obligation has been recorded as a liability by the Company. The
20% minority interest owner of the Blue Jays is not required to fund
operating losses of the Blue Jays and, as a result, as required under
GAAP, the Company has recorded 100% of the operating losses of the Blue
Jays since acquisition.

21

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	6.	 	Investments (continued):

		
	 	Effective April 1, 2001, Rogers Telecommunications Ltd. (“RTL”), a
company controlled by the controlling shareholder of the Company,
acquired the Class A Preferred Shares of the subsidiary of RCI that
owns the Blue Jays (“Blue Jays Holdco”) for $30.0 million. These Class
A Preferred Shares are voting, redeemable for cash of $30.0 million
plus any accrued unpaid dividends at the option of Blue Jays Holdco at
any time after September 14, 2004. Any such redemption requires the
consent of a committee of the board of Blue Jays Holdco, comprising
directors that are not related to RTL, RTL’s affiliates or its
controlling shareholder and requires the prior written consent of the
Board of Directors of the Company. These Class A Preferred Shares may
be acquired by the Company at its option at any time. The Class A
Preferred Shares pay cumulative dividends at a rate of 9.167% per
annum. For periods up to July 31, 2004, Blue Jays Holdco may satisfy
the cumulative dividends on its Class A Preferred Shares in kind by
transferring to RTL income tax loss carryforwards, having an agreed
value equal to the amount of the dividends. Until July 2004, such
agreed value is equal to 10% of the amount of the tax losses. During
2003, Blue Jays Holdco satisfied the dividend by transferring income
tax loss carryforwards to RTL of approximately $24.0 million (2002 -
$27.0 million) with an agreed upon value of $2.4 million
(2002 - $2.7
million).
	 
	 	As a result of the issuance of the Class A Preferred Shares of Blue
Jays Holdco to RTL, the Company does not control the Blue Jays.
Accordingly, effective April 1, 2001, the Company accounts for its
investment in Blue Jays Holdco by the equity method.
	 
	 	RCI agreed at the time of purchase with Major League Baseball that
it will: (i) perform or cause the Toronto Blue Jays
Baseball Club (the “Club”) to perform all of the terms
imposed by Major League Baseball acting under the scope of its
authority; (ii) perform or cause the Club to perform all
duties and obligations of the Club under the governing documents of
Major League Baseball and under those agreements to which Major
League Baseball entities are parties; and (iii) assume and
perform or cause the Club to perform all liabilities and obligations
of the Club asserted by any party against any Major League Baseball
entity.
	 
	 	If E.S. Rogers is unable to exercise control over the Blue Jays and Major League
Baseball (“MLB”) determines that a sale or transfer of a
control interest in the Blue Jays has occurred, then MLB is entitled
to take such action as it consider necessary in accordance with its
guidelines, rules and regulations.
	 
	 	The change in the investment in Blue Jays Holdco is the result of cash
contributions of $29.4 million (2002 - $40.6 million) offset by the
equity losses of $56.5 million (2002 - $101.7 million).

22

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	6.	 	Investments (continued):

	 	 	Condensed consolidated financial information of Blue Jays Holdco is
presented below:

	 	 	 	 	 	 	 	 	 	 
	 	 	 	2003	 	2002
	 	 	 	
	 	

	Assets
	 	 	 	 	 	 	 	 
	Cash and accounts receivable
	 	$	11,942	 	 	$	18,897	 
	Deferred compensation
	 	 	22,061	 	 	 	26,961	 
	Goodwill
	 	 	95,509	 	 	 	95,509	 
	Player contracts
	 	 	32,530	 	 	 	67,458	 
	Other assets
	 	 	26,504	 	 	 	25,944	 
	 
	 	 	
	 	 	 	
	 
	 
	 	$	188,546	 	 	$	234,769	 
	 
	 	 	
	 	 	 	
	 
	Liabilities and Shareholders’ Equity
	 	 	 	 	 	 	 	 
	Accounts payable and accrued liabilities
	 	$	31,234	 	 	$	43,471	 
	Deferred obligations
	 	 	37,609	 	 	 	44,892	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	68,843	 	 	 	88,363	 
	Shareholders’ equity
	 	 	119,703	 	 	 	146,406	 
	 
	 	 	
	 	 	 	
	 
	 
	 	$	188,546	 	 	$	234,769	 
	 
	 	 	
	 	 	 	
	 
	Revenue
	 	$	133,510	 	 	$	131,682	 
	Operating expenses
	 	 	(152,599	)	 	 	(186,088	)
	 
	 	 	
	 	 	 	
	 
	 
	 	 	(19,089	)	 	 	(54,406	)
	Depreciation and amortization
	 	 	(36,270	)	 	 	(41,615	)
	 	Interest expense
	 	(1,143	)	 	 	(1,272	)
	Write-down of investments
	 	 	—	 	 	 	(4,449	)
	 
	 	 	
	 	 	 	
	 
	Loss for the year
	 	$	(56,502	)	 	$	(101,742	)
	 
	 	 	
	 	 	 	
	 

23

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	6.	 	Investments (continued):

	 	(b)	 	Cogeco Cable Inc.:

	 	 	 	In March 2003, the Company entered into agreements to purchase 3.0
million Subordinate Voting shares of Cogeco Cable Inc. (“Cogeco”) in
exchange for 2.7 million Class B Non-Voting shares of the Company from
a group of investors unaffiliated with Cogeco. This transaction and
number of shares exchanged was based on the closing market value of
Cogeco shares on the date of the transaction of $11.727 per share (note
11(a)(iii)(a)) and had the effect of increasing the Company’s
investment in Cogeco by $35.3 million, including costs of the
transaction. The Company’s total investment in Cogeco represents an
approximate 18.19% equity ownership.

	 	(c)	 	Gain on disposition of AT&T Canada Deposit Receipts:

	 	 	 	The deposit receipt holders of AT&T Canada Inc. (“AT&T Canada”),
including the Company, had a contractual right to realize a minimum
deposit receipt price of $37.50 per deposit receipt, increasing at 16%
per annum from June 30, 2000 (the “accreted floor price”) until June
30, 2003, or such earlier time as a minority shareholder of AT&T Canada
exercised its obligation to acquire all of the shares and Deposit
Receipts of AT&T Canada. On June 25, 2002, AT&T Corp. announced its
intention to purchase, for cash, the Deposit Receipts of AT&T Canada.
This transaction was completed on October 8, 2002 and the Company
recognized a pre-tax gain of approximately $904.3 million. The Company
received cash proceeds of approximately $1,280.4 million and these
proceeds were used to redeem the Preferred Securities and settle the
Collateralized Equity Securities, as described below.
	 
	 	 	 	The issuance of the Preferred Securities and Collateralized Equity
Securities in previous years resulted in the monetization of a
substantial portion of the Company’s investment in AT&T Canada, with
the Company receiving cash of approximately $1,186.0 million. The
redemption amount with respect to these securities, being $1,317.0
million, was paid on October 8, 2002, being the same day that the
Company received the proceeds from the Deposit Receipts.

24

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	6.	 	Investments (continued):

	 	 	 	The Company, in accordance with the terms of the agreements of these
securities, had the right to provide notification by specified dates if
its intent was to satisfy the redemption of these securities by way of
shares. As the Company determined that it would repay these securities
in cash, no notification was provided and the accretion on the value of
these securities after the notice date, being $5.2 million,
expensed in the
consolidated statement of income. Amounts related to the accretion
prior to the notice date and the costs incurred by the Company of
originally issuing these securities are recorded in the consolidated
statements of deficit (note 11(c)).

	 	(d)	 	Gains (losses) on sales of other investments:

	 	 	 	In 2003 and 2002, the Company sold certain investments resulting in the
following gains (losses) being recorded:

	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	Publicly traded companies
	 	$	17,902	 	 	$	2,062	 
	Investment accounted for by the equity method
	 	 	—	 	 	 	(2,627	)
	 
	 	 	
	 	 	 	
	 
	 
	 	$	17,902	 	 	$	(565	)
	 
	 	 	
	 	 	 	
	 

	 	(e)	 	Write-down of investments:

	 	 	 	During 2002, the Company recorded the following write-down of
investments:

	 	 	 	 	 
	 	 	2002
	 	 	

	Cogeco Cable Inc. and Cogeco Inc.
	 	$	238,921	 
	Other investments in public and private companies
	 	 	62,063	 
	 
	 	 	
	 
	 
	 	$	300,984	 
	 
	 	 	
	 

25

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	6.	 	Investments (continued):

	 	 	 	In 2000, the Company acquired 4,253,800 Subordinate Voting Common
shares of Cogeco for $187.2 million and 2,724,800 Subordinate Voting
Common shares of Cogeco Inc. for $120.8 million.
	 
	 	 	 	During 2002, the Company determined that the decline in the market
value of shares held in Cogeco and Cogeco Inc. represented an
impairment that was other than temporary and the shares were written
down to their closing quoted market value at December 31, 2002.

	7.	 	Deferred charges:

	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	Financing costs
	 	$	64,741	 	 	$	77,915	 
	Pre-operating costs
	 	 	8,854	 	 	 	20,004	 
	CRTC commitments
	 	 	56,992	 	 	 	69,238	 
	Other
	 	 	11,893	 	 	 	17,683	 
	 
	 	 	
	 	 	 	
	 
	 
	 	$	142,480	 	 	$	184,840	 
	 
	 	 	
	 	 	 	
	 

	 	 	Amortization of deferred charges for 2003 amounted to $42.4 million (2002 -
$47.2 million). Accumulated amortization as at December 31, 2003 amounted
to $138.3 million (2002 - $105.7 million).
	 
	 	 	The Company has committed to the Canadian Radio-television and
Telecommunications Commission (“CRTC”) to spend an aggregate of $77.4
million (2002 - $77.4 million) in operating funds to provide certain
benefits to the Canadian broadcasting system. The Company has agreed to
pay $50.0 million in public benefits over the next seven years relating to
the CRTC granting of a new television licence in Toronto, $6.0 million
relating to the purchase of 13 radio stations (note 3(a)) and the remainder
relating to a CRTC decision permitting the purchase of Sportsnet, Rogers
(Toronto) Ltd. and Rogers (Alberta) Ltd. The amount of these liabilities,
included in accounts payable and accrued liabilities, is $63.5 million at
December 31, 2003 (2002 - $74.0 million) and will be paid over the next six
years. Commitments are being amortized over seven years, beginning in
2002.
	 
	 	 	In connection with the repayment of certain long-term debt during the year,
the Company wrote off deferred financing costs of $5.5 million
(2002 - $3.0
million) (note 10(e)). In 2002, the Company wrote off the carrying value
of certain cross-currency interest rate exchange agreements relating to the
repayment of long-term debt of $2.3 million.

26

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	8.	 	Other assets:

	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	Mortgages and loans receivable, including
$894 from officers (2002 - $1,848)
	 	$	6,077	 	 	$	11,133	 
	Inventories
	 	 	69,318	 	 	 	66,433	 
	Video rental inventory
	 	 	31,685	 	 	 	33,557	 
	Prepaid expenses
	 	 	57,812	 	 	 	52,372	 
	Deferred pension asset
	 	 	17,456	 	 	 	17,098	 
	Acquired program rights
	 	 	17,729	 	 	 	16,883	 
	Other
	 	 	11,728	 	 	 	11,507	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	211,805	 	 	 	208,983	 
	Current
portion of other assets
	 	 	178,993	 	 	 	172,279	 
	 
	 	 	
	 	 	 	
	 
	 
	 	$	32,812	 	 	$	36,704	 
	 
	 	 	
	 	 	 	
	 

	 	 	Depreciation expense for video rental inventory is charged to operating
expenses and amounted to $60.4 million in 2003 (2002 - $56.5 million). The
costs of acquired program rights are amortized to operating expense over
the expected performances of the related programs and amounted to $20.9
million in 2003 (2002 - $16.9 million).

	9.	 	Consolidated statements of cash flows:

	 	(a)	 	Change in non-cash operating items:

	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	Increase in accounts receivable
	 	$	(42,337	)	 	$	14,296	 
	Increase (decrease) in accounts payable
and accrued liabilities
	 	 	(6,171	)	 	 	47,355	 
	Increase (decrease) in unearned revenue
	 	 	(12,743	)	 	 	16,872	 
	Decrease (increase) in deferred charges and other assets
	 	 	11,846	 	 	 	(4,645	)
	 
	 	 	
	 	 	 	
	 
	 
	 	$	(49,405	)	 	$	73,878	 
	 
	 	 	
	 	 	 	
	 

	 	(b)	 	Supplemental cash flow information:

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	2003	 	2002
	 	 	 	
	 	

	 	 Income taxes paid
	 	$	11,606	 	 	$	15,397	 
	 	 Interest paid
	 	 	474,044	 	 	 	450,126	 

27

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	9.	 	Consolidated statements of cash flows (continued):

	 	(c)	 	Supplemental disclosure of non-cash transactions:

	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	Class B Non-Voting shares issued in consideration
for acquisition of shares of Cogeco
	 	$	35,181	 	 	$	—	 
	Accretion on Preferred Securities
	 	 	—	 	 	 	(37,246	)
	Accretion on Collateralized Equity Securities
	 	 	—	 	 	 	(19,745	)
	Class B Non-Voting shares issued on conversion
of Series B and Series E Convertible Preferred shares
	 	 	203	 	 	 	1,800	 
	Class B Non-Voting shares issued in consideration for
Class B Restricted Voting shares of Wireless
	 	 	—	 	 	 	104,766	 

	 	 	 	In 2003, the Company issued a total of 2,065,402 Class B Non-Voting
shares in connection with the acquisition of Cable Atlantic Inc.
(“Cable Atlantic”) (note 11(a)(iii)(b)).

28

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	10.	 	Long-term debt:

	        	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	Interest rate	 	2003	 	2002
	 	 	 	 	 	 	 	 	 	 	 	
	 	
	 	

	 	 	(a)	 	Corporate:

	 	 	 	 	 	(i)	Convertible Debentures, due 2005
	 	 	5-3/4	%	 	$	271,197	 	 	$	320,007	 
	 	 	 	 	 	(ii)	Senior Notes, due 2006
	 	 	9-1/8	%	 	 	—	 	 	 	86,314	 
	 	 	 	 	 	(iii)	Senior Notes, due 2006
	 	 	10-1/2	%	 	 	75,000	 	 	 	75,000	 
	 	 	 	 	 	(iv)	Senior Notes, due 2007
	 	 	8-7/8	%	 	 	—	 	 	 	324,382	 
	 	 	 	 	 	(v)	Senior Notes, due 2007
	 	 	8-3/4	%	 	 	—	 	 	 	165,000	 
	 	 	(b)	 	Wireless:

	 	 	 	 	 	(i)	Bank credit facility
	 	Floating	 	 	138,000	 	 	 	149,000	 
	 	 	 	 	 	(ii)	Senior Secured Notes, due 2006
	 	 	10-1/2	%	 	 	160,000	 	 	 	160,000	 
	 	 	 	 	 	(iii)	Senior Secured Notes, due 2007
	 	 	8.30	%	 	 	253,453	 	 	 	309,775	 
	 	 	 	 	 	(iv)	Senior Secured Debentures, due 2008
	 	 	9-3/8	%	 	 	430,589	 	 	 	526,275	 
	 	 	 	 	 	(v)	Senior Secured Notes, due 2011
	 	 	9-5/8	%	 	 	633,276	 	 	 	774,004	 
	 	 	 	 	 	(vi)	Senior Secured Debentures, due 2016
	 	 	9-3/4	%	 	 	200,193	 	 	 	244,680	 
	 	 	 	 	 	(vii)	Senior Subordinated Notes, due 2007
	 	 	8.80	%	 	 	231,443	 	 	 	282,875	 
	 	 	(c)	 	Cable:

	 	 	 	 	 	(i)	Bank credit facilities
	 	Floating	 	 	36,000	 	 	 	37,000	 
	 	 	 	 	 	(ii)	Senior Secured Second Priority Notes, due 2005
	 	 	10.00	%	 	 	376,777	 	 	 	460,506	 
	 	 	 	 	 	(iii)	Senior Secured Second Priority Notes,
due 2007
	 	 	7.60	%	 	 	450,000	 	 	 	450,000	 
	 	 	 	 	 	(iv)	Senior Secured Second Priority
Debentures, due 2007
	 	 	10.00	%	 	 	—	 	 	 	118,167	 
	 	 	 	 	 	(v)	Senior Secured Second Priority Notes,
due 2012
	 	 	7.875	%	 	 	452,340	 	 	 	552,860	 
	 	 	 	 	 	(vi)	Senior Secured Second Priority Notes,
due 2013
	 	 	6.25	%	 	 	452,340	 	 	 	—	 
	 	 	 	 	 	(vii)	Senior Secured Second Priority
Debentures, due 2014
	 	 	9.65	%	 	 	300,000	 	 	 	300,000	 
	 	 	 	 	 	(viii)	Senior Secured Second Priority
Debentures, due 2032
	 	 	8 3/4	%	 	 	258,480	 	 	 	315,920	 
	 	 	 	 	 	(ix)	Senior Subordinated Guaranteed
Debentures, due 2015
	 	 	11.00	%	 	 	146,914	 	 	 	179,561	 
	 	 	(d)	 	Media:

	 	 	 	 	 	Bank credit facility
	 	Floating	 	 	63,500	 	 	 	—	 
	 	 	 	 	Mortgages and other
	 	Various	 	 	40,730	 	 	 	38,375	 
	 	 	 	 	 
	 	 	 	 	
	 	 	 	
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	4,970,232	 	 	 	5,869,701	 
	 	 	Current
portion of long-term debt 
	 	 	 	 	 	 	(11,498	)	 	 	(11,980	)
	 	 	 	 	 
	 	 	 	 	
	 	 	 	
	 
	 	 	 
	 	 	 	 	 	 	4,958,734	 	 	 	5,857,721	 
	 	 	Effect of cross-currency interest
rate exchange agreements
	 	 	 	 	 	 	334,784	 	 	 	(182,230	)
	 	 	 	 	 
	 	 	 	 	
	 	 	 	
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	$	5,293,518	 	 	$	5,675,491	 
	 	 	 	 	 
	 	 	 	 	
	 	 	 	
	 

29

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	10.	 	Long-term debt (continued):

	 	 	Further details of long-term debt are as follows:
	 
	 	 	(a)    Corporate:

	 	(i)	 	Convertible Debentures, due 2005:

	 	 	 	The Company’s - U.S. $224.8 million Convertible Debentures (accreted
amount - U.S. $209.8 million) mature on November 26, 2005. A portion
of the interest equal to approximately 2.95% per annum on the issue
price (or 2% per annum on the stated amount at maturity) is paid in
cash semi-annually while the balance of the interest will accrue so
long as these Convertible Debentures remain outstanding. Each
Convertible Debenture has a face value of U.S. $1,000 and is
convertible, at the option of the holder at any time, on or prior to
maturity, into 34.368 Class B Non-Voting shares. The conversion
rate, as at December 31, 2003, equates to a conversion price of U.S.
$27.16 per share (2002 - U.S. $26.22 per share). These Convertible
Debentures are redeemable in cash, at the option of the Company, at
any time. In 2003 and 2002, none of these Convertible Debentures
was converted into Class B Non-Voting shares. To date, an aggregate
U.S. $0.2 million at maturity has been converted into 6,528 Class B
Non-Voting shares.

	 	(ii)	 	Senior Notes, due 2006:

	 	 	 	The Company’s U.S. $54.6 million Senior Notes were redeemed on April
14, 2003 at a redemption price of 101.521% of the aggregate
principal amount (note 10(e)).

	 	(iii)	 	Senior Notes, due 2006:

	 	 	 	The Company’s $75.0 million Senior Notes mature on February 14, 2006.

	 	(iv)	 	Senior Notes, due 2007:

	 	 	 	The Company’s U.S. $205.4 million Senior Notes were redeemed on July
17, 2003 at a redemption price of 102.958% of the aggregate
principal amount (note 10(e)).

30

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	10.	 	Long-term debt (continued):

	 	(v)	 	Senior Notes, due 2007:

	 	 	 	The Company’s $165.0 million Senior Notes were redeemed on August 6,
2003 at a redemption price of 102.917% of the aggregate principal
amount (note 10(e)).
	 
	 	The Company’s senior notes and debentures described above are senior
unsecured general obligations of the Company ranking equally with each
other. Interest is paid semi-annually on all notes and debentures,
except for the Convertible Debentures, due 2005, as described above.

	 	(b)	Wireless:

	 
	 	(i)	 	Bank credit facility:

	 	 	 	At December 31, 2003,
$138.0 million (2002 - $149.0 million) of debt
was outstanding under the bank credit facility, which provides
Wireless with, among other things, up to $700.0 million from a
consortium of Canadian financial institutions.
	 
	 	 	 	Under the credit facility, Wireless may borrow at various rates,
including the bank prime rate to the bank prime rate
plus 1 3/4% per
annum, the bankers’ acceptance rate plus 1% to 2-3/4% per annum and
the London Inter-Bank Offered Rate (“LIBOR”) plus 1% to 2-3/4% per
annum. Wireless' bank credit facility requires, among other things,
that Wireless satisfy certain financial covenants, including the
maintenance of certain financial ratios.

31

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	10.	 	Long-term debt (continued):

	 	 	 	Subject to the paragraph below, 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 as follows:

	 	 	 	 	 
	Date of reduction*	Reduction at each date
	
	

	On April 30:
	 	 	 	 
	2006
	 	$	140,000	 
	2007
	 	 	140,000	 
	2008
	 	 	420,000	 

	 
	* The bank credit facility will mature on May 31,
2006 if Wireless’ Senior Secured Notes, due 2006 are not repaid
(by refinancing or otherwise) on or prior to December 31, 2005.
If these notes are repaid, then the bank credit facility will
mature on September 30, 2007 if Wireless’ Senior Secured Notes,
due 2007 are not repaid (by refinancing or otherwise) on or
prior to April 30, 2007.

	 
	 	 	 	The credit facility requires that any additional senior debt (other
than the bank credit facility described above) that is denominated
in a foreign currency be hedged against foreign exchange
fluctuations on a minimum of 50% of such additional senior
borrowings in excess of the Canadian equivalent of U.S. $25.0
million.
	 
	 	 	 	Borrowings under the credit facility are secured by the pledge of a
senior bond issued under a deed of trust, which is secured by
substantially all the assets of Wireless and certain of its
subsidiaries, subject to certain exceptions and prior liens.

	 	(ii)	 	Senior Secured Notes, due 2006:

	 	 	 	Wireless’ $160.0 million Senior Secured Notes mature on June 1,
2006. These notes are redeemable, in whole or in part, at
Wireless’
option, at any time subject to a certain prepayment premium.

32

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	10.	 	Long-term debt (continued):

	 	(iii)	 	Senior Secured Notes, due 2007:

	 	 	 	Wireless’ U.S. $196.1 million Senior Secured Notes mature on October
1, 2007. These notes are redeemable, in whole or in part, at
Wireless’ option, on or after October 1, 2002, at 104.15% of the
principal amount, declining ratably to 100% of the principal amount
on or after October 1, 2005, plus, in each case, interest accrued to
the redemption date.

	 	(iv)	 	Senior Secured Debentures, due 2008:

	 	 	 	Wireless’ U.S. $333.2 million Senior Secured Debentures mature on
June 1, 2008. These debentures are redeemable, in whole or in part,
at Wireless’ option, at any time on or after June 1, 2003, at
104.688% of the principal amount, declining ratably to 100% of the
principal amount on or after June 1, 2006, plus, in each case,
interest accrued to the redemption date.

	 	(v)	 	Senior Secured Notes, due 2011:

	 	 	 	Wireless’ U.S. $490.0 million Senior Secured Notes mature on May 1,
2011. During 2002, Wireless repurchased U.S. $10.0 million
principal amount of these notes (note 10(e)). These notes were
redeemable, in whole or in part, at Wireless option, at any time
subject to a certain prepayment premium.

	 	(vi)	 	Senior Secured Debentures, due 2016:

	 	 	 	Wireless’ U.S. $154.9 million Senior Secured Debentures mature on
June 1, 2016. These debentures are redeemable, in whole or in part,
at Wireless’ option, at any time, subject to a certain prepayment
premium.
	 

	 	 	Each of Wireless’ Senior Secured Notes and Debentures described above
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
10(b)(i) and ranks equally with the bank credit facility.

33

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	10.	 	Long-term debt (continued):

	 	(vii)	 	Senior Subordinated Notes, due 2007:

	 	 	 	Wireless’ U.S. $179.1 million Senior Subordinated Notes mature on
October 1, 2007. During 2002, Wireless repurchased an aggregate
U.S. $35.9 million principal amount of these notes (note 10(e)).
These notes are redeemable, in whole or in part, at Wireless’ option
on or after October 1, 2002, at 104.40% of the principal amount,
declining ratably to 100% of the principal amount on or after
October 1, 2005 plus, in each case, interest accrued to the
redemption date. The subordinated notes are subordinated to all
existing and future senior obligations of Wireless (including the
bank credit facility and the Senior Secured Notes and Debentures).
The subordinated notes are not secured by the pledge of a senior
bond.
	 
	 	 	Interest is paid semi-annually on all of Wireless’ notes and
debentures.

	 	(c)	 	Cable:
	 

	 	(i)	 	Bank credit facilities:

	 	 	 	Effective January 31, 2002, Cable entered into a new amended and
restated bank credit facility (the “New Bank Credit Facility”)
providing a bank credit facility of up to $1,075.0 million. At
December 31, 2003, $36.0 million (2002 - $37.0 million) was
outstanding under the New Bank Credit Facility. The New Bank Credit
Facility provides for two separate facilities: (i) a $600.0 million
senior secured revolving credit facility (the “Tranche A Credit
Facility”) which will mature on January 2, 2009 and
(ii) a $475.0
million senior secured reducing/revolving credit facility (the
“Tranche B Credit Facility”) which is subject to reduction on an
annual basis and which will be scheduled to reduce to nil on January
2, 2009, as outlined below. In September 2003, Cable amended
its New Bank Credit Facility to eliminate the possibility of earlier
than scheduled maturity of the Tranche B Credit Facility and
established a carve-out, as described in the reduction schedule
shown below.

34

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	10.	 	Long-term debt (continued):

	 	 	 	The New 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 its wholly owned subsidiary, Rogers Cable
Communications Inc. (“RCCI”), 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 obligations 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 Cable’s senior secured
notes and debentures.
	 
	 	 	 	The Tranche B Credit Facility is available, subject to the restriction
discussed below*, on a reducing/revolving basis, with the original
amount of credit available under the Tranche B Credit Facility
scheduled to reduce as follows:

	 	 	 	 	 
	 	 	Reduction
	Date of reduction	 	at each date
	
	 	

	On January 2:
	 	 	 	 
	2006
	 	$	118,750	 
	2007
	 	 	118,750	 
	2008
	 	 	118,750	 
	2009
	 	 	118,750	 
	 
	* Of the $475.0 million availability under the Tranche B Credit
Facility, $400.0 million is reserved to repay the aggregate amount of
Cable’s Senior Secured Second Priority Notes, due 2005 (the “Notes”)
(note 10(c)(ii)) that is outstanding from time to time. When all or
any portion of the aggregate amount of the Notes is repaid from time to
time from any source, including the Tranche B Credit Facility, then the
$400.0 million reserved amount is reduced by an amount equal to the
repayment and such amount of the Tranche B Credit Facility becomes
fully available to Cable.

	 

	 	 	 	 	 	 
	 	  The New 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 New Bank
Credit Facility ranges from nil to 2.25% per annum over the bank prime
rate or base rate or 0.875% to 3.25% per annum over the bankers’
acceptance rate or LIBOR.

35

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	10.	 	Long-term debt (continued):

	 	(ii)	 	Senior Secured Second Priority Notes, due 2005:

	 	 	 	Cable’s U.S. $291.5 million Senior Secured Second Priority Notes
mature on March 15, 2005.

	 	(iii)	 	Senior Secured Second Priority Notes, due 2007:

	 	 	 	On February 5, 2002, Cable issued $450.0 million 7.60% Senior
Secured Second Priority Notes due on February 6, 2007. The notes
are redeemable at Cable’s option, in whole or in part, at any time,
with at least 30 days and not more than 60 days prior notice subject
to a certain prepayment premium.

	 	(iv)	 	Senior Secured Second Priority Debentures, due 2007:

	 	 	 	Cable’s U.S. $74.8 million Senior Secured Second Priority Debentures
were redeemed on June 26, 2003 at a redemption price of 105.00% of
the aggregate principal amount. During 2002, Cable repurchased U.S.
$36.0 million of these debentures (note 10(e)).

	 	(v)	 	Senior Secured Second Priority Notes, due 2012:

	 	 	 	On April 30, 2002, Cable issued U.S. $350.0 million 7.875% Senior
Secured Second Priority Notes due on May 1, 2012. The notes are
redeemable at Cable’s option, in whole or in part, at any time, with
at least 30 days and not more than 60 days prior notice subject to a
certain prepayment premium.

	 	(vi)	 	Senior Secured Second Priority Notes, due 2013:

	 	 	 	On June 19, 2003, Cable issued U.S. $350.0 million 6.25% Senior
Secured Second Priority Notes due June 15, 2013. The notes are
redeemable at Cable’s option, in whole or in part, at any time with
at least 30 days and not more than 60 days prior notice subject to a
certain prepayment premium.

36

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	10.	 	Long-term debt (continued):

	 	(vii)	 	Senior Secured Second Priority Debentures, due 2014:

	 	 	 	Cable’s $300.0 million Senior Secured Second Priority Debentures
mature on January 15, 2014. The debentures are redeemable at
Cable’s option, in whole or in part, at any time on or after January
15, 2004, at 104.825% of the principal amount, declining ratably to
100% of the principal amount on or after January 15, 2008, plus, in
each case, interest accrued to the redemption date.

	 	(viii)	 	Senior Secured Second Priority Debentures, due 2032:

	 	 	 	On April 30, 2002, Cable issued U.S. $200.0 million 8.75% Senior
Secured Second Priority Debentures due on May 1, 2032. The
debentures are redeemable at Cable’s option, in whole or in part, at
any time, with at least 30 days and not more than 60 days prior
notice subject to a certain prepayment premium.

	 
	 	 	Each of Cable’s senior secured notes and debentures described above is
secured by the pledge of a senior bond which is secured by the same
security as the security for the bank credit facility described in note
10(c)(i) and rank equally in regard to the proceeds of any enforcement
of security with the Tranche B Credit Facility.

	 	(ix)	 	Senior Subordinated Guaranteed Debentures, due 2015:

	 	 	 	Cable’s U.S. $113.7 million Senior Subordinated Guaranteed
Debentures mature on December 1, 2015. During 2002, Cable
repurchased U.S. $11.3 million principal amount of these debentures
(note 10(e)). The subordinated debentures are redeemable at Cable’s
option, in whole or in part, at any time on or after December 1,
2005, at 105.5% of the principal amount, declining ratably to 100%
of the principal amount on or after December 1, 2009, plus, in each
case, interest accrued to the redemption date. The subordinated
debentures are subordinated in right of payment to all existing and
future senior indebtedness of Cable (including the New Bank Credit
Facility and the senior secured notes and debentures) and are not
secured by the pledge of a senior bond.

	 	 	Interest is paid semi-annually on all of Cable’s notes and debentures.

37

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	10. 	 	Long-term debt (continued):

	 	(d)	 	Media:

	 	 	 	Bank credit facility:
	 
	 	 	 	At December 31, 2003, Media
had $63.5 million (2002 - nil) outstanding
under its $500.0 million revolving bank credit facility with a
consortium of Canadian financial institutions. Borrowings under this
facility are available to Media and two wholly owned subsidiaries,
Rogers Broadcasting Limited and Rogers Publishing Limited
(collectively, the “Borrowers”) for general corporate purposes.
Media’s bank credit facility is available on a fully revolving basis
until maturity on September 30, 2006 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 0.25% to 2.50% per annum and the
bankers’ acceptance rate or LIBOR plus 1.25% to 3.50% 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 the Borrowers, subject to certain exceptions.
The Borrowers have cross-guaranteed their present and future
liabilities and obligations under the credit facility.

	 	(e)	 	Debt repayment:
	 

	 	(i)	 	During 2003, the Company redeemed an aggregate U.S.
$334.8 million and Cdn. $165.0 million principal amount of Senior
Notes and Debentures. The Company paid a prepayment premium of
$19.3 million, and wrote off deferred financing costs of $5.5
million, resulting in a loss on the repayment of debt of $24.8
million.

38

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	10.	 	Long-term debt (continued):

	 	(ii)	 	During 2002, an aggregate U.S. $796.1 million notional
amount of cross-currency and interest rate exchange agreements
were terminated either by unwinding or maturity, resulting in
aggregate net cash proceeds of $225.2 million. A portion of these
proceeds was used to repay or redeem a total of U.S. $326.1
million principal amount of Senior Notes and Debentures. The
Company paid a prepayment premium of $21.8 million, recorded a
gain on the unwinding of cross-currency and interest rate exchange
agreements of $4.2 million, recorded a gain on the repurchase of
debt of $30.7 million and wrote off deferred financing costs of
$3.0 million, resulting in a net gain on the repayment of debt of
$10.1 million. In addition, the Company has deferred a gain of
$22.5 million related to the unwinding of cross-currency exchange
agreements, which is being amortized to interest expense over the
remaining life of the related debt. Amortization in 2003 was $2.6
million (2002 - $0.7 million).
	 

	 	(f)	 	Interest exchange agreements:

	 
	 	(i)	 	At December 31, 2003, total U.S. dollar-denominated
long-term debt amounted to U.S. $2,868.3 million (2002 - U.S.
$2,845.9 million). The Company has entered into several
cross-currency interest rate exchange agreements and forward
foreign exchange contracts in order to reduce the Company’s
exposure to changes in the exchange rate of the U.S. dollar as
compared to the Canadian dollar. At December 31, 2003, U.S.
$1,943.4 million (2002 - U.S. $1,768.4 million) or 67.8%

(2002 -
62.1%) is hedged through cross-currency interest rate exchange
agreements at an average exchange rate of Cdn. $1.4647 (2002 -
$1.4766) to U.S. $1.00.
	 
	 	(ii)	 	The cross-currency interest rate exchange agreements have
the effect of: converting the interest rate on U.S. $1,558.4
million (2002 - U.S. $1,383.4 million) of long-term debt from an
average U.S. dollar fixed interest rate of 8.82% (2002 - 9.15%)
per annum to an average Canadian dollar fixed interest rate of
9.70% (2002 - 9.94%) per annum on $2,346.0 million (2002 -
$2,110.7 million); and converting the interest rate on U.S. $385.0
million of long-term debt from an average U.S. dollar fixed
interest rate of 9.38% per annum to an average Canadian dollar
floating interest rate equal to the bankers’ acceptance rate plus
2.35% per annum, which totalled 5.11% (2002 - 5.22%) on $500.5
million at December 31,
2003. The Company assumed an interest rate exchange agreement upon
completion of an acquisition during 2001. This interest rate
exchange agreement has the effect of converting $30.0 million of
floating rate obligations of the Company to a fixed interest rate of
7.72% per annum. The total long-term debt at fixed interest rates
at December 31, 2003 was $4,560.6 million (2002 - $5,024.2 million)
or 86.0% (2002 - 88.3%) of total long-term debt.

39

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	10.	 	Long-term debt (continued):

	 	 	 	The Company’s effective weighted average interest rate on all
long-term debt as at December 31, 2003, including the effect of the
interest exchange agreements and cross-currency interest rate
exchange agreements, was 8.48% (2002 - 8.74%).
	 
	 	 	 	The obligations under U.S.
$1,943.4 million (2002 - $1,768.4
million) 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.

	 	(g)	 	Principal repayments:

	 	 	 	As at December 31, 2003, principal repayments due within each of the
next five years and in total thereafter on all long-term debt are as
follows:

	 	 	 	 	 
	2004
	 	$	11,498	 
	2005
	 	 	651,140	 
	2006
	 	 	323,125	 
	2007
	 	 	936,190	 
	2008
	 	 	568,608	 
	 
	 	 	
	 
	 
	 	 	2,490,561	 
	Thereafter
	 	 	2,479,671	 
	 
	 	 	
	 
	 
	 	 	4,970,232	 
	Effect of cross-currency interest rate
exchange agreements
	 	 	334,784	 
	 
	 	 	
	 
	 
	 	$	5,305,016	 
	 
	 	 	
	 

	 	 	 	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, 2003, the Company is in
compliance with all terms of the long-term debt agreements.

40

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	11.	 	Shareholders’ equity:

	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	2003	 	2002
	 	 	 	 	 	
	 	

	Capital stock:
	 	 	 	 	 	 	 	 
	Preferred shares:
	 	 	 	 	 	 	 	 
	 	 	Held by subsidiary companies:
	 	 	 	 	 	 	 	 
	 	 	 	60,000 Series XXVII (2002 - 60,000)
	 	$	60,000	 	 	$	60,000	 
	 	 	 	818,300 Series XXX (2002 - 818,300)
	 	 	10,000	 	 	 	10,000	 
	 	 	 	300,000 Series XXXI (2002 - 300,000)
	 	 	300,000	 	 	 	300,000	 
	 	 	 	 
	 	 	
	 	 	 	
	 
	 
	 	 	370,000	 	 	 	370,000	 
	 	 	Held by members of the Company’s
share purchase plans:
	 	 	 	 	 	 	 	 
	 	 	 	104,488 Series E convertible
preferred shares (2002 - 135,836)
	 	 	1,787	 	 	 	2,327	 
	 	 	 	 
	 	 	
	 	 	 	
	 
	 
	 	 	371,787	 	 	 	372,327	 
	 	 	 	 
	 	 	
	 	 	 	
	 
	Common shares:
	 	 	 	 	 	 	 	 
	 	 	56,235,394 Class A Voting shares
(2002 - 56,240,494)
	 	 	72,313	 	 	 	72,320	 
	 	 	177,241,646 Class B Non-Voting shares
(2002 - 158,784,358)
	 	 	287,978	 	 	 	257,989	 
	 	 	 	 
	 	 	
	 	 	 	
	 
	 
	 	 	360,291	 	 	 	330,309	 
	 	 	 	 
	 	 	
	 	 	 	
	 
	 
	 	 	732,078	 	 	 	702,636	 
	 	 	 	 
	 	 	
	 	 	 	
	 
	Deduct:
	 	 	 	 	 	 	 	 
	 	Amounts receivable from employees under
certain share purchase plans
	 	 	1,186	 	 	 	6,274	 
	 	Preferred shares of the Company held
by subsidiary companies
	 	 	370,000	 	 	 	370,000	 
	 	 	 	 
	 	 	
	 	 	 	
	 
	 
	 	 	371,186	 	 	 	376,274	 
	 	 	 	 
	 	 	
	 	 	 	
	 
	Total capital stock
	 	 	360,892	 	 	 	326,362	 
	 	 	 	 
	 	 	
	 	 	 	
	 
	Convertible Preferred Securities (note 11(b)(i))
	 	 	576,000	 	 	 	576,000	 
	Contributed surplus
	 	 	1,169,924	 	 	 	917,262	 
	Deficit
	 	 	(339,436	)	 	 	(415,589	)
	 	 	 	 
	 	 	
	 	 	 	
	 
	 
	 	 	1,406,488	 	 	 	1,077,673	 
	 	 	 	 
	 	 	
	 	 	 	
	 
	 
	 	$	1,767,380	 	 	$	1,404,035	 
	 	 	 	 
	 	 	
	 	 	 	
	 

41

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	11.	 	Shareholders’ equity (continued):

	 	(a)	 	Capital 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 Series XXVII Preferred Shares are non-voting, are redeemable at
$1,000 per share at the option of the Company and carry the right to
cumulative dividends at a rate equal to the bank prime rate plus
1-3/4% per annum.
	 
	 	 	 	The Series XXX Preferred Shares are non-voting, are redeemable at
$1,000 per share at the option of the Company and carry the right to
non-cumulative dividends at a rate of 9-1/2% per annum.
	 
	 	 	 	The Series XXXI Preferred Shares are non-voting, are redeemable at
$1,000 per share at the option of the Company and carry the right to
cumulative dividends at a rate of 9-5/8% per annum.
	 
	 	 	 	The Series E Convertible Preferred Shares are non-voting and are
redeemable and retractable under certain conditions. All of these
shares are convertible at the option of the holder up to the
mandatory date of redemption into Class B Non-Voting shares of the
Company at a conversion rate equal to one Class B Non-Voting share
for each convertible preferred share to be converted. These shares
are entitled to receive, ratably with holders of the Class B
Non-Voting shares, cash dividends per share in an amount equal to
the cash dividends declared and paid per share on Class B Non-Voting
shares.

42

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	11.	 	Shareholders’ equity (continued):

	 	(ii)	 	Common shares:
	 
	 	 	 	Rights and conditions:
	 
	 	 	 	There are 56,240,494 authorized Class A Voting shares without par
value. Each Class A Voting share is entitled to 25 votes per share.
The Class A Voting shares may receive a dividend at an semi-annual
rate of up to $0.05 per share only after the Class B Non-Voting
shares have been paid a dividend at an annual rate of $0.05 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 with a
par value of $1.62478 per share. The Class A Voting and Class B
Non-Voting shares share equally in dividends after payment of a
dividend of $0.05 per share for each class.
	 
	 	(iii)	 	During 2003, the Company completed the following capital
stock transactions:

	 	(a)	 	2,700,000 Class B Non-Voting shares with a value of
$35.2 million were issued as consideration for the acquisition
of 3,000,000 Subordinated Voting shares of Cogeco (note 6(b));
	 
	 	(b)	 	On February 7, 2003, as per the expected conditions
of the 2001 acquisition of Cable Atlantic, the Company issued
1,329,007 Class B Non-Voting shares to the vendors. The
vendors disputed the Company’s calculation of the requisite
number of shares to be issued. In December 2003, the Company
and the vendors agreed upon the requisite number of shares to
be issued, with the Company issuing an additional 736,395 Class
B Non-Voting shares to the vendors;
	 
	 	(c)	 	11,889 Series E Convertible Preferred Shares with a
value of $0.2 million were converted to 11,889 Class B
Non-Voting shares and 19,459 Series E Convertible Preferred
shares were cancelled;
	 
	 	(d)	 	952,250 Class B Non-Voting shares were issued to
employees upon the exercise of options for cash of $8.6
million;

43

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	11.	 	Shareholders’ equity (continued):

	 	(e)	 	On June 12, 2003, 12,722,647 Class B Non-Voting
shares were issued to a syndicate of Canadian underwriters for
net cash proceeds of approximately $239.0 million; and
	 
	 	(f)	 	5,100 Class A Voting shares were converted to 5,100
Class B Non-Voting shares.

	 	 	 	As a result of the above transactions, $252.7 million of the issued
amounts related to Class B Non-Voting shares was recorded in
contributed surplus.

	 	(iv)	 	During 2002, the Company completed the following capital
stock transactions:

	 	(a)	 	4,500 Series XXIII Preferred Shares were redeemed
from a subsidiary company for $4.5 million and cancelled;
	 
	 	(b)	 	300,000 Series XXXII Preferred Shares were redeemed
from a subsidiary company for $300.0 million and cancelled;
	 
	 	(c)	 	1,042,049 Series XXXIII Preferred Shares were
issued to a subsidiary company as consideration of the
repayment of debt owing by RCI to the subsidiary. These shares
were subsequently redeemed for $1,042.0 million and cancelled;
	 
	 	(d)	 	120,984 Series B and 17,525 Series E Convertible
Preferred Shares with a value of $1.8 million were converted to
138,509 Class B Non-Voting shares. 4,631 Series B Convertible
Preferred Shares with a value of $0.1 million reached the date
of mandatory redemption and were redeemed for cash;
	 
	 	(e)	 	449,045 Class B Non-Voting shares were issued to
employees upon the exercise of options for cash of $4.1
million;
	 
	 	(f)	 	4,305,830 Class B Non-Voting shares with a value of
$104.8 million were issued as consideration for the acquisition
of 4,925,300 Class B Restricted Voting shares of Wireless;

44

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	11.	 	Shareholders’ equity (continued):

	 	(g)	 	The 5,333,333 warrants issued in 1999 expired in
2002. The carrying value of these warrants, being $24.0
million, was transferred to contributed surplus; and
	 
	 	(h)	 	339,100 Class B Non-Voting shares were issued to
employees pursuant to the employee share purchase plan for cash
of $4.8 million.

	 	 	 	As a result of the above transactions, $130.6 million of the issued
amounts related to Class B Non-Voting shares was recorded in
contributed surplus.

	 	(v)	 	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)	 	Equity instruments:

	 	(i)	 	Convertible Preferred Securities and Warrants:
	 
	 	 	 	Convertible Preferred Securities were issued in 1999 with a face
value of $600.0 million to a subsidiary of Microsoft Corporation
(“Microsoft”). These Convertible Preferred Securities bear interest
at 5 1/2% per annum, payable quarterly in cash, Class B Non-Voting
shares or additional Convertible Preferred Securities, at the
Company’s option. The Convertible Preferred Securities are
convertible, in whole or in part, at any time, at Microsoft’s
option, into 28.5714 Class B Non-Voting shares per $1,000 aggregate
principal amount of Convertible Preferred Securities, representing a
conversion price of $35 per Class B Non-Voting share. The
Convertible Preferred Securities mature on August 11, 2009, and are
callable by the Company on or after August 11, 2004, subject to
certain conditions. The Company has the option of repaying the
Convertible Preferred Securities in cash or Class B Non-Voting
shares.

45

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	11.	 	Shareholders’ equity (continued):

	 	 	 	As part of the transaction to issue the Convertible Preferred
Securities, the Company issued 5,333,333 warrants to Microsoft, each
exercisable into one Class B Non-Voting share. These warrants
expired on August 11, 2002.
	 
	 	 	 	The Company received cash proceeds of $600.0 million for the issue
of the Convertible Preferred Securities and warrants, which were
allocated to Convertible Preferred Securities, including the
conversion feature, in the amount of $576.0 million and the warrants
in the amount of $24.0 million. Upon expiration of the warrants in
2002, $24.0 million was transferred to contributed surplus.
Interest on the Convertible Preferred Securities is recorded for
accounting purposes as a charge to the consolidated statements of
deficit, similar to a dividend.
	 
	 	(ii)	 	Preferred Securities:
	 
	 	 	 	On August 10, 2000, the Company issued $1,154.4 million principal
amount of Preferred Securities due June 30, 2003, with an interest
rate of 7.27% per annum, compounded quarterly. The Preferred
Securities could have been settled, in whole or in part, at the
Company’s option, with Class B Non-Voting shares, the number of
which was based on the daily average trading prices of the Class B
Non-Voting shares. Interest of approximately $216.9 million to June
30, 2003 was prepaid, with the Company receiving net proceeds of
$937.5 million, which, less fees and expenses of $12.2 million,
resulted in $925.3 million of net proceeds. Contemporaneously, the
Company entered into an interest exchange agreement, effectively
converting the fixed interest rate to a floating interest rate at
bankers’ acceptance rate plus 1.25%. The Company could have settled
its obligation under this interest exchange agreement, at its
option, in cash or Class B Non-Voting shares of the Company.
	 
	 	 	 	On October 8, 2002, the Company settled its obligation under the
Preferred Securities using cash (note 6(c)).

46

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	11.	 	Shareholders’ equity (continued):

	 	(iii)	 	Collateralized Equity Securities:
	 
	 	 	 	On October 23, 2001, the Company entered into certain equity
derivative contracts that served to monetize an additional portion
of the accreted floor price of its AT&T Canada Deposit Receipts,
after taking into account the monetization through the Preferred
Securities issued in August 2000. The Company received proceeds of
$248.9 million, which, less fees and expenses, resulted in net
proceeds of $245.6 million. The settlement terms of these contracts
enabled the Company to settle or net-settle in Class B Non-Voting
shares, the number of which was based on the trading value of the
Class B Non-Voting shares, or physically settle or net cash settle
these contracts, in whole or in part, or in any combination thereof,
at the Company’s option.
	 
	 	 	 	On October 8, 2002, the Company paid its obligation under the
Collateralized Equity Securities in cash (note 6(c)).

	 	(c)	 	Distributions and accretions on Preferred Securities and
Collateralized Equity Securities:
	 
	 	 	 	The distribution on Convertible Preferred Securities are recorded net of future income taxes of
$3.2 million (2002 - $12.7 million). In 2002, the accretion
on Preferred Securities were recorded net of future income taxes of
$9.7 million. In
addition, in 2002, the accretion on the Collateralized Equity
Securities and Preferred Securities included issue costs of $3.2
million and $12.2 million, respectively, which previously were recorded
as a reduction of the carrying value of these securities (notes 6(c))
and 11(b)(ii) and (iii)).

47

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	11.	 	Shareholders’ equity (continued):

	 	(d)	 	Stock option and share purchase plans:

	 	(i)	 	Stock option plans:
	 
	 	 	 	Details of the RCI stock option plan are as follows:
	 
	 	 	 	The Company’s stock option plan provides senior employee
participants an incentive to acquire an equity ownership interest in
the Company over a period of time and, as a result, reinforces
executives’ attention on the long-term interest of the Company and
its shareholders. Under the plan, options to purchase Class B
Non-Voting shares of the Company on a one-for-one basis may be
granted to employees, directors and officers of the Company and its
affiliates by the Board of Directors or by the Company’s Management
Compensation Committee. There are 11.0 million options authorized
under the 2000 plan, 12.5 million options authorized under the
1996 plan, and 4.75 million options authorized under the 1994
plan. The term of each option is 10 years; 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, as quoted on The Toronto Stock Exchange
on the grant date.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	 	 	 	 	 	 	Weighted	 	 	 	 	 	Weighted
	 	 	 	 	 	 	average	 	 	 	 	 	average
	 	 	Number of	 	exercise	 	Number of	 	exercise
	 	 	options	 	price	 	options	 	price
	 	 	
	 	
	 	
	 	

	Outstanding, beginning of year
	 	 	16,226,896	 	 	$	18.82	 	 	 	17,463,270	 	 	$	18.86	 
	Granted
	 	 	4,197,800	 	 	 	18.70	 	 	 	228,216	 	 	 	21.50	 
	Exercised
	 	 	(952,250	)	 	 	8.99	 	 	 	(449,045	)	 	 	9.10	 
	Forfeited
	 	 	(491,413	)	 	 	27.89	 	 	 	(1,015,545	)	 	 	24.44	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Outstanding, end of year
	 	 	18,981,033	 	 	 	19.06	 	 	 	16,226,896	 	 	 	18.82	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Exercisable, end of year
	 	 	12,171,834	 	 	$	17.85	 	 	 	11,349,805	 	 	$	15.76	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

48

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	11.	 	Shareholders’ equity (continued):

	 	 	 	At December 31, 2003, the range of exercise prices, the weighted
average exercise price and the weighted average remaining
contractual life are as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Options outstanding	 	Options exercisable
	 	 	
	 	

	 	 	 	 	 	 	Weighted	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	average	 	Weighted	 	 	 	 	 	Weighted
	 	 	 	 	 	 	remaining	 	average	 	 	 	 	 	average
	Range of	 	Number	 	contractual	 	exercise	 	Number	 	exercise
	exercise prices	 	outstanding	 	life (years)	 	price	 	exercisable	 	price
	
	 	
	 	
	 	
	 	
	 	

	$5.78  - $8.52
	 	 	4,266,400	 	 	 	3.5	 	 	$	6.72	 	 	 	4,266,400	 	 	$	6.72	 
	$9.46 - $13.17
	 	 	2,283,550	 	 	 	5.2	 	 	 	12.22	 	 	 	1,826,050	 	 	 	11.98	 
	$16.75 - $23.77
	 	 	8,089,632	 	 	 	8.1	 	 	 	21.31	 	 	 	2,902,767	 	 	 	23.02	 
	$25.44 - $38.16
	 	 	4,341,451	 	 	 	6.9	 	 	 	30.58	 	 	 	3,176,617	 	 	 	31.44	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	18,981,033	 	 	 	6.4	 	 	 	19.06	 	 	 	12,171,834	 	 	 	17.85	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	 	 	 	Details of Wireless’ stock option plan are as follows:
	 
	 	 	 	Wireless’ stock option plan provides senior employee participants an
incentive to acquire an equity ownership interest in Wireless over a
period of time and, as a result, reinforce executives’ attention on
the long-term interest of Wireless and its shareholders. Under the
plan, options to purchase Class B Restricted Voting shares of
Wireless may be granted to employees, directors and officers of
Wireless by the Board of Directors or by Wireless’ Management
Compensation Committee. There are 4,750,000 options authorized
under the 2000 plan. The term of each option is 10 years; 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 Restricted Voting shares of Wireless, as quoted on The
Toronto Stock Exchange on the grant date.

49

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	11.	 	Shareholders’ equity (continued):

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	 	 	 	 	 	 	Weighted	 	 	 	 	 	Weighted
	 	 	 	 	 	 	average	 	 	 	 	 	average
	 	 	Number of	 	exercise	 	Number of	 	exercise
	 	 	options	 	price	 	options	 	price
	 	 	
	 	
	 	
	 	

	Options outstanding, beginning
of year
	 	 	3,471,017	 	 	$	25.04	 	 	 	3,641,613	 	 	$	25.57	 
	Granted
	 	 	1,111,200	 	 	 	20.47	 	 	 	269,800	 	 	 	16.56	 
	Exercised
	 	 	(158,495	)	 	 	18.18	 	 	 	(19,759	)	 	 	17.62	 
	Forfeited
	 	 	(196,625	)	 	 	22.39	 	 	 	(420,637	)	 	 	24.50	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Options outstanding, end of year
	 	 	4,227,097	 	 	 	24.22	 	 	 	3,471,017	 	 	 	25.04	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Exercisable, end of year
	 	 	2,291,372	 	 	$	27.36	 	 	 	1,869,442	 	 	$	26.72	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	 	 	 	At December 31, 2003, the range of exercise prices, the weighted
average exercise price and the weighted average remaining
contractual life are as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Options outstanding	 	Options exercisable
	 	 	
	 	

	 	 	 	 	 	 	Weighted	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	average	 	Weighted	 	 	 	 	 	Weighted
	 	 	 	 	 	 	remaining	 	average	 	 	 	 	 	average
	Range of	 	Number	 	contractual	 	exercise	 	Number	 	exercise
	exercise prices	 	outstanding	 	life (years)	 	price	 	exercisable	 	price
	
	 	
	 	
	 	
	 	
	 	

	$11.82 - $16.88
	 	 	1,158,272	 	 	 	7.6	 	 	$	16.33	 	 	 	436,022	 	 	$	16.02	 
	$18.15 - $22.06
	 	 	1,891,825	 	 	 	7.5	 	 	 	21.12	 	 	 	1,117,450	 	 	 	21.14	 
	$25.96 - $32.75
	 	 	588,200	 	 	 	7.8	 	 	 	27.00	 	 	 	149,100	 	 	 	30.07	 
	$37.74 - $51.53
	 	 	588,800	 	 	 	6.3	 	 	 	46.87	 	 	 	588,800	 	 	 	46.87	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	4,227,097	 	 	 	7.4	 	 	 	24.22	 	 	 	2,291,372	 	 	 	27.36	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

                              There was no compensation expense related to stock
options for 2003 or 2002.

50

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	11.	 	Shareholders’ equity (continued):

	 	 	 	Stock-based compensation:
	 
	 	 	 	For stock options granted to employees on or after January 1, 2002,
had the Company determined compensation expense based on the “fair
value” method at the grant date of such stock option awards,
consistent with the method prescribed under CICA Handbook Section
3870, the Company’s net income for the year and earnings per share
would have been reported as the pro forma amounts indicated below.
The fair value of the options is amortized on a straight-line basis
over the vesting period.

	 	 	 	 	 	 	 	 	 	 
	 	 	 	2003	 	2002
	 	 	 	
	 	

	Net income for the year, as reported
	 	$	129,193	 	 	$	312,032	 
	Stock-based compensation expense - RCI
	 	 	(5,323	)	 	 	(441	)
	Stock-based compensation expense - Wireless
	 	 	(1,073	)	 	 	(185	)
	 
	 	 	
	 	 	 	
	 
	Pro forma net income for the year
	 	$	122,797	 	 	$	311,406	 
	 
	 	 	
	 	 	 	
	 
	Earnings (loss) per share:
	 	 	 	 	 	 	 	 
	 	Reported earnings for the year
	 	$	0.35	 	 	$	1.05	 
	 	Effect of stock-based compensation expense
	 	 	(0.03	)	 	 	—	 
	 
	 	 	
	 	 	 	
	 
	Pro forma basic earnings per share
	 	$	0.32	 	 	$	1.05	 
	 
	 	 	
	 	 	 	
	 
	Diluted earnings per share, as reported
	 	$	0.34	 	 	$	0.83	 
	Pro forma diluted earnings per share
	 	 	0.31	 	 	 	0.83	 

51

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	11.	 	Shareholders’ equity (continued):

	 	 	 	The weighted average estimated fair value at the date of the grant
for RCI options granted during 2003 was $10.78 (2002 - $10.39) per
share. The weighted average fair value at the date of grant for
Wireless options granted for 2003 was $12.20 (2002 - $8.35) per
share. The fair value of each option granted was estimated on the
date of the grant using the Black-Scholes option-pricing model with
the following assumptions:

	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	RCI’s risk-free interest rate
	 	 	4.42	%	 	 	4.86	%
	Wireless’ risk-free interest rate
	 	 	4.50	%	 	 	4.81	%
	RCI’s dividend yield
	 	 	0.21	%	 	 	—	 
	Wireless’ dividend yield
	 	 	—	 	 	 	—	 
	Volatility factor of the future expected market
price of RCI’s Class B Non-Voting shares
	 	 	50.20	%	 	 	48.82	%
	Volatility factor of the future expected market price of
Wireless’ Class B Restricted Voting shares
	 	 	55.17	%	 	 	51.95	%
	Weighted average expected life of the RCI options
	 	6.6 years	 	5 years
	Weighted average expected life of the Wireless options
	 	5.3 years	 	5 years

	 	(ii)	 	Employee share purchase plan:
	 
	 	 	 	The employee share purchase plan
was provided to enable employees of
the Company an opportunity to obtain an equity interest in the
Company by permitting them to acquire Class B Non-Voting shares. A
total of 1,180,000 Class B Non-Voting shares were set aside and
reserved for allotment and issuance pursuant to the employee share
purchase plan.

52

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	11.	 	Shareholders’ equity (continued):

	 	 	Under the terms of the employee share purchase plan, participating
employees of the Company may have received a bonus at the end of the term of
the plan. The bonus is calculated as the difference between the
share price at the date the employee received the loan and the
lesser of 85% of the closing price at which the shares traded on The
Toronto Stock Exchange on the trading day immediately prior to the
purchase date or the closing price on a date that is approximately
one year subsequent to the original issue date.
	 
	 	 	During 2003, no Class B
Non-Voting shares (2002 - 339,100) were
issued under the Company’s employee share purchase plan (cash in
2002 of $4.8 million). Compensation expense recorded for the
Company’s employee share purchase plan for 2003 was $0.6 million
(2002 - $2.2 million).
	 
	 	 	In addition, employees
of Wireless may participate in Wireless’
employees share purchase plan. During 2003, no Wireless Class B
Restricted Voting shares (2002 - 135,325) were issued under the
Wireless employee share purchase plan (cash in 2002 of $1.9
million). Compensation expense recorded in Wireless for 2003 was
$0.3 million (2002 - $1.0 million).

	12.	 	Other expense (recovery):

	 	 	 	 	 	 	 	 	 
	 	 	 	 	2002
	 	 	 	 	

	Workforce reduction costs (a)
	 	 	 	 	 	$	5,850	 
	Wireless - change in estimate of sales tax liability (b)
	 	 	 	 	 	 	(19,157	)
	Wireless - CRTC contribution liabilities (c)
	 	 	 	 	 	 	6,826	 
	 
	 	 	 	 	 	 	
	 
	 
	 	 	 	 	 	$	(6,481	)
	 
	 	 	 	 	 	 	
	 

	 	(a)	 	Workforce reduction costs:
	 
	 	 	 	During 2002, the Company reduced its workforce in Cable by 187
employees in the technical service, network operations and engineering
departments. The Company incurred $5.9 million in costs, primarily
related to severance and other employee termination benefits of this
amount, $1.9 million was paid in fiscal 2002, with the balance
of $4.0 million being paid in fiscal 2003.

53

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	12.	 	Other expense (recovery) (continued):

	 	(b)	 	Wireless - change in estimate of sales tax liability:
	 
	 	 	 	During 2002, Wireless received clarification of a provincial sales tax
liability for a matter common to the wireless industry. As a result,
Wireless revised its estimate with respect to this liability and
released a provision of $19.2 million associated with this matter,
which had been established in previous years.
	 
	 	(c)	 	Wireless - CRTC contribution liabilities:
	 
	 	 	 	During 2002, Wireless received clarification of the calculation of the
total amount of contribution payable under the CRTC contribution
subsidy decision. As a result, an additional expense of $6.8 million
was recorded.

	13.	 	Income taxes:
	 
	 	 	The income tax effects of temporary differences that give rise to
significant portions of future income tax assets and liabilities are as
follows:

	 	 	 	 	 	 	 	 	 	 
	 	 	 	2003	 	2002
	 	 	 	
	 	

	Future income tax assets:
	 	 	 	 	 	 	 	 
	 	Non-capital income tax loss carryforwards
	 	$	608,691	 	 	$	628,565	 
	 	Deductions relating to long-term debt and other
transactions denominated in foreign currencies
	 	 	50,391	 	 	 	92,599	 
	 	Investments
	 	 	103,769	 	 	 	79,544	 
	 	Other deductible differences
	 	 	38,655	 	 	 	35,687	 
	 	 
	 	 	
	 	 	 	
	 
	 	Total future income tax assets
	 	 	801,506	 	 	 	836,395	 
	 	Less valuation allowance
	 	 	606,015	 	 	 	544,500	 
	 	 
	 	 	
	 	 	 	
	 
	 
	 	 	195,491	 	 	 	291,895	 
	 	 
	 	 	
	 	 	 	
	 
	Future income tax liabilities:
	 	 	 	 	 	 	 	 
	 	Property, plant and equipment and inventory
	 	 	(121,351	)	 	 	(237,422	)
	 	Goodwill
	 	 	(48,276	)	 	 	(34,343	)
	 	Other taxable differences
	 	 	(25,864	)	 	 	(47,846	)
	 	 
	 	 	
	 	 	 	
	 
	 	Total future income tax liabilities
	 	 	(195,491	)	 	 	(319,611	)
	 	 
	 	 	
	 	 	 	
	 
	Net future income tax liability
	 	$	—	 	 	$	(27,716	)
	 	 
	 	 	
	 	 	 	
	 

54

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	13.	 	Income taxes (continued):
	 
	 	 	In assessing the realizability of future income tax assets, management
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 generation 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 income tax assets and the tax planning
strategies in place 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 tax assets.
	 
	 	 	Total income tax expense (reduction) varies from the amounts that would be
computed by applying the statutory income tax rate to income before
income taxes for the following reasons:

	 	 	 	 	 	 	 	 	 	 
	 	 	 	2003	 	2002
	 	 	 	
	 	

	Statutory income tax rate
	 	 	36.6	%	 	 	38.6	%
	 
	 	 	
	 	 	 	
	 
	Income tax expense on income before income
taxes and non-controlling interest
	 	$	60,302	 	 	$	75,683	 
	Increase (decrease) in income taxes resulting from:
	 	 	 	 	 	 	 	 
	 	Change in the valuation allowance for future income
tax assets
	 	 	46,267	 	 	 	(13,630	)
	 	Adjustments to future income tax assets and liabilities
for changes in substantively enacted tax rates
	 	 	(70,502	)	 	 	(13,243	)
	 	Non-taxable portion of capital gains
	 	 	(9,610	)	 	 	(398	)
	 	Non-taxable exchange gains on debts and other items
	 	 	(46,954	)	 	 	(21,626	)
	 	Recovery of prior years’ income taxes
	 	 	(9,206	)	 	 	—	 
	 	Non-deductible portion of losses from investments
accounted for by the equity method
	 	 	10,514	 	 	 	19,419	 
	 	Other non-taxable amounts
	 	 	(14,549	)	 	 	(17,230	)
	 	Non-taxable portion of gain on disposition of AT&T
Canada Deposit Receipts
	 	 	—	 	 	 	(174,542	)
	 	Non-deductible portion of write-down of investments
	 	 	—	 	 	 	58,089	 
	 	Large Corporations Tax
	 	 	10,881	 	 	 	12,748	 
	 
	 	 	
	 	 	 	
	 
	Income tax reduction
	 	$	(22,857	)	 	$	(74,730	)
	 
	 	 	
	 	 	 	
	 

55

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	13.	 	Income taxes (continued):
	 
	 	 	As at December 31, 2003, 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:

	 	 	 	 
	2004
	 	$	298,225
	2005
	 	 	166,962
	2006
	 	 	54,311
	2007
	 	 	335,128
	2008
	 	 	585,299
	2009
	 	 	146,871
	2010
	 	 	64,957
	 
	 	 	

	 
	 	$	1,651,753
	 
	 	 	

56

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	14.	 	Earnings per share:
	 
	 	 	The following table sets forth the calculation of basic and diluted
earnings per share:

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	2003	 	2002
	 	 	 	 	
	 	

	Numerator:
	 	 	 	 	 	 	 	 
	 	Net income for the year
	 	$	129,193	 	 	$	312,032	 
	 	Distribution on Convertible Preferred
Securities, net of income taxes (note 11(c))
	 	 	(29,791	)	 	 	(20,262	)
	 	Accretion of Preferred Securities, net of income
taxes (note 11(c))
	 	 	—	 	 	 	(27,592	)
	 	Accretion of Collateralized Equity Securities
(note 11(c))
	 	 	—	 	 	 	(19,745	)
	 	Dividends accreted on Convertible Preferred
Securities, net of income taxes
	 	 	(20,033	)	 	 	(19,177	)
	 	Dividends on Series E Preferred shares (note 11(c))
	 	 	(11	)	 	 	—	 
	 	 
	 	 	
	 	 	 	
	 
	Basic income for the year
	 	 	79,358	 	 	 	225,256	 
	Effect of dilutive securities:
	 	 	 	 	 	 	 	 
	 	Preferred Securities, net of income taxes
	 	 	—	 	 	 	29,822	 
	 	Dividends on Series E Preferred shares (note 11(c))
	 	 	11	 	 	 	—	 
	 	 
	 	 	
	 	 	 	
	 
	Diluted income for the year
	 	$	79,369	 	 	$	255,078	 
	 	 
	 	 	
	 	 	 	
	 
	Denominator (in thousands):
	 	 	 	 	 	 	 	 
	 	Weighted average number of shares
outstanding - basic
	 	 	225,918	 	 	 	213,570	 
	 	Effect of dilutive securities:
	 	 	 	 	 	 	 	 
	 	 	Employee stock options
	 	 	3,565	 	 	 	3,614	 
	 	 	Series E Preferred shares (note 11(c))
	 	 	126	 	 	 	136	 
	 	 	Cable Atlantic (note 11(a)(iii)(b))
	 	 	825	 	 	 	1,329	 
	 	 	Preferred Securities
	 	 	—	 	 	 	88,870	 
	 	 
	 	 	
	 	 	 	
	 
	Weighted average number of shares outstanding - diluted
	 	 	230,434	 	 	 	307,519	 
	 	 
	 	 	
	 	 	 	
	 
	Earnings per share:
	 	 	 	 	 	 	 	 
	 	Basic
	 	$	0.35	 	 	$	1.05	 
	 	Diluted
	 	 	0.34	 	 	 	0.83	 

	 	 	For 2003 and 2002, the effect of potentially dilutive securities, including
the Convertible Debentures and the Convertible Preferred Securities, were
excluded from the computation of diluted earnings per share as their effect
is anti-dilutive. In addition, options totalling approximately 12.4
million (2002 - 9.3 million) that are anti-dilutive were excluded from the
calculation.

57

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	15.	 	Pensions:
	 
	 	 	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 contributions and earnings.
The Company does not provide any non-pension post-retirement benefits.
	 
	 	 	Actuarial estimates are based on projections of employees’ compensation
levels at the time of retirement. Maximum retirement benefits are
primarily based upon career average earnings, subject to certain
adjustments. The most recent actuarial valuations were completed as at
January 1, 2001.
	 
	 	 	The Company also provides supplemental unfunded pension benefits to certain
executives. As at December 31, 2003, the accrued benefit obligation
relating to these supplemental plans amounted to approximately $11.8
million and related expense for 2003 was $3.1 million.
	 
	 	 	The estimated present value of accrued plan benefits and the estimated
market value of the net assets available to provide for these benefits
calculated at September 30 for the year ended December 31 are as follows:

	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	Plan assets, at fair value
	 	$	336,138	 	 	$	307,231	 
	Accrued benefit obligations
	 	 	368,184	 	 	 	336,267	 
	 
	 	 	
	 	 	 	
	 
	Deficiency of plan assets over accrued
benefit obligations
	 	 	(32,046	)	 	 	(29,036	)
	Employer contributions after measurement date
	 	 	11,000	 	 	 	—	 
	Unrecognized
transitional obligation
	 	 	(57,983	)	 	 	(67,880	)
	Unamortized
past service
	 	 	5,803	 	 	 	6,632	 
	Unamortized
net actuarial loss
	 	 	90,682	 	 	 	107,382	 
	 
	 	 	
	 	 	 	
	 
	Deferred pension asset
	 	$	17,456	 	 	$	17,098	 
	 
	 	 	
	 	 	 	
	 

58

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	15.	 	Pensions (continued):
	 
	 	 	Pension fund assets consist primarily of fixed income and equity
securities, valued at market value. The following information is provided
on pension fund assets:

	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	Plan assets, beginning of year
	 	$	307,231	 	 	$	331,834	 
	Actual return (loss) on plan assets
	 	 	36,332	 	 	 	(21,326	)
	Contributions by employees
	 	 	13,248	 	 	 	13,426	 
	Benefits paid
	 	 	(20,673	)	 	 	(16,703	)
	 
	 	 	
	 	 	 	
	 
	Plan assets, end of year
	 	$	336,138	 	 	$	307,231	 
	 
	 	 	
	 	 	 	
	 

	 	 	Accrued benefit obligations are outlined below:

	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	Accrued benefit obligations, beginning of year
	 	$	336,267	 	 	$	308,492	 
	Service cost
	 	 	11,314	 	 	 	12,649	 
	Interest cost
	 	 	23,826	 	 	 	22,835	 
	Benefits paid
	 	 	(20,673	)	 	 	(16,703	)
	Employee contributions
	 	 	13,248	 	 	 	13,426	 
	Actuarial loss (gains)
	 	 	4,202	 	 	 	(4,432	)
	 
	 	 	
	 	 	 	
	 
	Accrued benefit obligations, end of year
	 	$	368,184	 	 	$	336,267	 
	 
	 	 	
	 	 	 	
	 

	 	 	Net plan expense is outlined below:

	 	 	 	 	 	 	 	 	 	 
	 	 	 	2003	 	2002
	 	 	 	
	 	

	Plan cost:
	 	 	 	 	 	 	 	 
	 	Service cost
	 	$	11,314	 	 	$	12,649	 
	 	Interest cost on accrued benefit obligations
	 	 	23,826	 	 	 	22,835	 
	 	Expected return on plan assets
	 	 	(22,107	)	 	 	(27,241	)
	 	Amortization
of transitional asset
	 	 	(9,046	)	 	 	(8,950	)
	 	Amortization
of net actuarial loss
	 	 	7,452	 	 	 	2,808	 
	 	 
	 	 	
	 	 	 	
	 
	Net plan expense
	 	$	11,439	 	 	$	2,101	 
	 	 
	 	 	
	 	 	 	
	 

59

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	15.	 	Pensions (continued):
	 
	 	 	Actuarial assumptions:

	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	Weighted average discount rate for accrued
benefit obligations
	 	 	6.25	%	 	 	7.00	%
	Weighted average rate of compensation increase
	 	 	4.00	%	 	 	5.00	%
	Weighted average expected long-term rate of return
on plan assets
	 	 	7.25	%	 	 	8.25	%

	 	 	Allocation of plan assets:

	 	 	 	 	 	 	 	 	 
	 	 	Percentage of	 	 	 	 
	 	 	plan assets,	 	Target asset
	 	 	December 31,	 	allocation
	Asset category	 	2003	 	percentage
	
	 	
	 	

	Equity securities
	 	 	59.8	%	 	 	50% - 65	%
	Debt securities
	 	 	38.8	%	 	 	35% - 50	%
	Other (cash)
	 	 	1.4	%	 	 	0% - 1.0	%
	 
	 	 	
	 	 	 	 	 
	 
	 	 	100.0	%	 	 	 	 
	 
	 	 	
	 	 	 	 	 

	 	 	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. The assumptions
established including the expected long-term rate of return are based on
existing performance and trends and expected results.
	 
	 	 	Contributions:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Employer	 	Employee	 	Total
	 	 	
	 	
	 	

	Actual contributions during 2002
	 	$	—	 	 	$	13,426	 	 	$	13,426	 
	Actual contributions during 2003
	 	 	11,000	 	 	 	13,248	 	 	 	24,248	 
	Expected contributions during 2004
	 	 	9,680	 	 	 	13,500	 	 	 	23,180	 

	 	 	Employee contributions for 2004 are assumed to be at levels similar to 2002
and 2003 on the assumption staffing levels in the Company will remain the
same on a year-over-year basis.

60

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	16.	 	Segmented information:

	 	(a)	 	Operating segments:
	 
	 	 	 	The Company provides wireless services, cable services and, through
Media, radio and television broadcasting and the publication of
magazines and periodicals. All of these operating segments are
substantially in Canada. Information by operating segment for the
years ended December 31, 2003 and 2002 are as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Corporate	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	items and	 	Consolidated
	2003	 	Wireless	 	Cable	 	Media	 	eliminations	 	total
	
	 	
	 	
	 	
	 	
	 	

	Operating revenue
	 	$	2,207,794	 	 	$	1,788,122	 	 	$	854,992	 	 	$	(59,052	)	 	$	4,791,856	 
	Cost of sales
	 	 	380,771	 	 	 	129,938	 	 	 	131,534	 	 	 	—	 	 	 	642,243	 
	Sales and marketing expenses
	 	 	361,998	 	 	 	205,068	 	 	 	175,715	 	 	 	—	 	 	 	742,781	 
	Operating, general and
administrative expenses
	 	 	737,453	 	 	 	789,642	 	 	 	441,019	 	 	 	(10,178	)	 	 	1,957,936	 
	Management fees
	 	 	11,336	 	 	 	35,385	 	 	 	12,551	 	 	 	(59,272	)	 	 	—	 
	Depreciation and amortization
	 	 	518,599	 	 	 	482,050	 	 	 	36,311	 	 	 	3,303	 	 	 	1,040,263	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Operating income
	 	 	197,637	 	 	 	146,039	 	 	 	57,862	 	 	 	7,095	 	 	 	408,633	 
	Interest on long-term debt
	 	 	(193,506	)	 	 	(237,803	)	 	 	(8,296	)	 	 	(49,260	)	 	 	(488,865	)
	Intercompany:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Interest expense
	 	 	—	 	 	 	(2,867	)	 	 	(46,380	)	 	 	49,247	 	 	 	—	 
	Dividends
	 	 	—	 	 	 	4,488	 	 	 	43,325	 	 	 	(47,813	)	 	 	—	 
	Gain on sale of other
investments
	 	 	305	 	 	 	—	 	 	 	1,107	 	 	 	16,490	 	 	 	17,902	 
	Loss on repayment
of long-term debt
	 	 	—	 	 	 	(5,945	)	 	 	—	 	 	 	(18,894	)	 	 	(24,839	)
	Gain (loss) from investments
accounted for by the
equity method
	 	 	—	 	 	 	—	 	 	 	964	 	 	 	(54,997	)	 	 	(54,033	)
	Foreign exchange gain (loss)
	 	 	135,242	 	 	 	49,302	 	 	 	(852	)	 	 	120,015	 	 	 	303,707	 
	Investment and other
income (expense)
	 	 	556	 	 	 	(516	)	 	 	(464	)	 	 	2,680	 	 	 	2,256	 
	Income tax
reduction (expense)
	 	 	(2,393	)	 	 	(7,541	)	 	 	703	 	 	 	32,088	 	 	 	22,857	 
	Non-controlling interest
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(58,425	)	 	 	(58,425	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net income (loss) for
the year
	 	$	137,841	 	 	$	(54,843	)	 	$	47,969	 	 	$	(1,774	)	 	$	129,193	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	PP&E expenditures
	 	$	411,933	 	 	$	509,562	 	 	$	41,266	 	 	$	981	 	 	$	963,742	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Goodwill acquired
	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Goodwill
	 	$	378,719	 	 	$	926,445	 	 	$	586,472	 	 	$	—	 	 	$	1,891,636	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Identifiable assets
	 	$	3,107,343	 	 	$	3,720,087	 	 	$	1,467,149	 	 	$	170,916	 	 	$	8,465,495	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

61

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	16.	 	Segmented information (continued):

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Corporate	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	items and	 	Consolidated
	2002	 	Wireless	 	Cable	 	Media	 	eliminations	 	total
	
	 	
	 	
	 	
	 	
	 	

	Operating revenue
	 	$	1,891,514	 	 	$	1,614,554	 	 	$	810,805	 	 	$	(50,088	)	 	$	4,266,785	 
	Cost of sales
	 	 	296,794	 	 	 	121,335	 	 	 	127,555	 	 	 	—	 	 	 	545,684	 
	Sales and marketing expenses
	 	 	328,884	 	 	 	192,085	 	 	 	176,610	 	 	 	—	 	 	 	697,579	 
	Operating, general and
administrative expenses
	 	 	738,149	 	 	 	737,654	 	 	 	419,005	 	 	 	(12,900	)	 	 	1,881,908	 
	Management fees
	 	 	11,006	 	 	 	31,745	 	 	 	10,773	 	 	 	(53,524	)	 	 	—	 
	Other expense (recovery)
	 	 	(12,331	)	 	 	5,850	 	 	 	—	 	 	 	—	 	 	 	(6,481	)
	Depreciation and amortization
	 	 	457,133	 	 	 	484,225	 	 	 	33,291	 	 	 	6,809	 	 	 	981,458	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Operating income
	 	 	71,879	 	 	 	41,660	 	 	 	43,571	 	 	 	9,527	 	 	 	166,637	 
	Interest on long-term debt
	 	 	(195,150	)	 	 	(208,645	)	 	 	(13,477	)	 	 	(74,007	)	 	 	(491,279	)
	Intercompany:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Interest expense
	 	 	—	 	 	 	(4,687	)	 	 	(54,854	)	 	 	59,541	 	 	 	—	 
	 	Dividends
	 	 	—	 	 	 	5,447	 	 	 	63,534	 	 	 	(68,981	)	 	 	—	 
	Gain on disposition of AT&T
Canada Deposit Receipts
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	904,262	 	 	 	904,262	 
	Loss on sale of other
investments
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(565	)	 	 	(565	)
	Write-down of investments
	 	 	 	 	 	 	(11,136	)	 	 	—	 	 	 	(289,848	)	 	 	(300,984	)
	Loss from investments
accounted for by the
equity method
	 	 	—	 	 	 	—	 	 	 	(2,481	)	 	 	(98,136	)	 	 	(100,617	)
	Gain (loss) on repayment
of long-term debt
	 	 	30,997	 	 	 	(20,880	)	 	 	—	 	 	 	—	 	 	 	10,117	 
	Foreign exchange gain (loss)
	 	 	6,410	 	 	 	(3,090	)	 	 	107	 	 	 	2,784	 	 	 	6,211	 
	Investment and other
income (expense)
	 	 	417	 	 	 	(3,886	)	 	 	208	 	 	 	5,550	 	 	 	2,289	 
	Income tax reduction
(expense)
	 	 	(5,258	)	 	 	146,387	 	 	 	(840	)	 	 	(65,559	)	 	 	74,730	 
	Non-controlling interest
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	41,231	 	 	 	41,231	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net income (loss) for
the year
	 	$	(90,705	)	 	$	(58,830	)	 	$	35,768	 	 	$	425,799	 	 	$	312,032	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	PP&E expenditures
	 	$	564,552	 	 	$	650,871	 	 	$	42,692	 	 	$	3,868	 	 	$	1,261,983	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Goodwill acquired
	 	$	92,157	 	 	$	—	 	 	$	94,914	 	 	$	—	 	 	$	187,071	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Goodwill
	 	$	379,143	 	 	$	926,445	 	 	$	586,472	 	 	$	—	 	 	$	1,892,060	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Identifiable assets
	 	$	3,185,004	 	 	$	3,806,778	 	 	$	1,453,579	 	 	$	79,142	 	 	$	8,524,503	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

62

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	16.	 	Segmented information (continued):

	 	(b)	 	Product revenue:
	 
	 	 	 	Revenue from external customers is comprised of the following:

	 	 	 	 	 	 	 	 	 	 
	 	 	 	2003	 	2002
	 	 	 	
	 	

	Wireless:
	 	 	 	 	 	 	 	 
	 	Postpaid (voice and data)
	 	$	1,911,073	 	 	$	1,628,095	 
	 	Prepaid
	 	 	91,255	 	 	 	91,151	 
	 	One-way messaging
	 	 	27,565	 	 	 	35,238	 
	 	Equipment sales
	 	 	177,901	 	 	 	137,030	 
	 	 
	 	 	
	 	 	 	
	 
	 
	 	 	2,207,794	 	 	 	1,891,514	 
	 	 
	 	 	
	 	 	 	
	 
	Cable:
	 	 	 	 	 	 	 	 
	 	Cable
	 	 	1,186,398	 	 	 	1,113,889	 
	 	Internet
	 	 	322,290	 	 	 	242,635	 
	 	Video store operations
	 	 	282,635	 	 	 	262,995	 
	 	Corporate
elimination
	 	 	(3,201	)	 	 	(4,965	)
	 	 
	 	 	
	 	 	 	
	 
	 
	 	 	1,788,122	 	 	 	1,614,554	 
	 	 
	 	 	
	 	 	 	
	 
	Media:
	 	 	 	 	 	 	 	 
	 	Advertising
	 	 	456,357	 	 	 	422,627	 
	 	Circulation and subscriber
	 	 	127,258	 	 	 	121,094	 
	 	Retail
	 	 	210,547	 	 	 	202,219	 
	 	Other
	 	 	60,830	 	 	 	64,865	 
	 	 
	 	 	
	 	 	 	
	 
	 
	 	 	854,992	 	 	 	810,805	 
	Corporate eliminations
	 	 	(59,052	)	 	 	(50,088	)
	 	 
	 	 	
	 	 	 	
	 
	 
	 	$	4,791,856	 	 	$	4,266,785	 
	 	 
	 	 	
	 	 	 	
	 

63

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	17.	 	Related party transactions:
	 	 	 
	 	 	The Company entered into the following related party transactions:

	 	(a)	 	The Company has entered into certain transactions in the normal
course of business with AT&T Wireless Services Inc. (“AWE”), a
shareholder of a subsidiary company, and with certain broadcasters in
which the Company has an equity interest as follows:

	              	 	 	 	 	 	 	 	 	 
	 	 	 	2003	 	2002
	 	 	 	
	 	

	 	Roaming revenue billed to AWE
	 	$	13,030	 	 	$	13,910	 
	 	Roaming expenses paid to AWE
	 	 	(13,628	)	 	 	(18,028	)
	 	Fees paid to AWE for over air activation
	 	 	(292	)	 	 	(680	)
	 	Programming rights acquired from the Blue Jays
	 	 	(12,028	)	 	 	(12,377	)
	 	Access fees paid to broadcasters accounted
for by the equity method
	 	 	(18,967	)	 	 	(16,949	)
	 	 
	 	 	
	 	 	 	
	 
	 	 
	 	$	(31,885	)	 	$	(34,124	)
	 	 
	 	 	
	 	 	 	
	 

	 	 	 	These transactions are recorded at the exchange amount, being the
amount agreed to by the related parties.
	 
	 	(b)	 	The Company has entered into certain transactions with companies,
the partners or senior officers of which are directors of the Company
and/or its subsidiary companies. During 2003, total amounts paid by
the Company to these related parties for legal services,
commissions paid on premiums for insurance coverage and other services
aggregated $6.1 million (2002 - $7.0 million) and for
interest charges, of $15.1 million (2002 - $8.5 million)
and for underwriting fees related to financing
transactions and telecommunications and programming services amounted
to $59.2 million (2002 - $60.4 million).
	 
	 	(c)	 	As part of the arrangement with Blue Jays Holdco and RTL, Blue
Jays Holdco is to pay dividends at a rate of 9.167% per annum on the
Class A Preferred Shares that RTL holds of Blue Jays Holdco. During
2003 and 2002, the Company satisfied the dividend by transferring
income tax loss carryforwards to RTL (note 6(a)).
	 
	 	(d)	 	The Company also received $0.2 million (2002 - $0.1 million) from
RTL for rent and office services.

64

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	18.	 	Financial instruments:

	 	(a)	 	Fair values:
	 
	 	 	 	The Company has determined the fair values of its financial instruments
as follows:

	 	(i)	 	The carrying amounts in the consolidated balance sheets
of cash and cash equivalents, accounts receivable, amounts
receivable from employees under share purchase plans, mortgages
and loans receivable, bank advances arising from outstanding
cheques, and accounts payable and accrued liabilities approximate
fair values because of the short-term nature of these instruments.
	 
	 	(ii)	 	Investments:
	 
	 	 	 	The fair values of investments, which are publicly traded, are
determined by the quoted market values for each of the investments
(note 6). Management believes that the fair values of other
investments are not significantly different from their carrying
amounts.
	 
	 	(iii)	 	Long-term debt:
	 
	 	 	 	The fair values of each of the Company’s long-term debt instruments
are based on the period-end trading values.
	 
	 	(iv)	 	Interest exchange agreements:
	 
	 	 	 	The fair values of the Company’s interest exchange agreements and
cross-currency interest rate exchange agreements are based on values
quoted by the counterparties to the agreements.

65

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	18.	 	Financial instruments (continued):

	 	 	 	The estimated fair values of the Company’s long-term debt and related
interest exchange agreements as at December 31, 2003 and 2002 are as
follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	 	 	Carrying	 	Estimated	 	Carrying	 	Estimated
	 	 	amount	 	fair value	 	amount	 	fair value
	 	 	
	 	
	 	
	 	

	Liability (asset):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Long-term debt
	 	$	4,970,232	 	 	$	5,382,622	 	 	$	5,869,701	 	 	$	5,617,465	 
	Cross-currency interest
rate exchange agreements
	 	 	334,784	 	 	 	388,192	 	 	 	(182,230	)	 	 	(350,502	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	$	5,305,016	 	 	$	5,770,814	 	 	$	5,687,471	 	 	$	5,266,963	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	 	 	 	Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
	 
	 	(b)	 	Other disclosures:

	 	(i)	 	The 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 obligations under the agreements in instances where these
agreements have positive fair value to the Company. The Company
assesses the creditworthiness of the counterparties in order to
minimize the risk of counterparty 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.
	 
	 	(ii)	 	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.
	 
	 	(iii)	 	The Company does not have any significant concentrations
of credit risk related to any financial asset.

66

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	19.	 	Commitments:

	 	(a)	 	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 two years at a
total cost of approximately $75.3 million.
	 
	 	(b)	 	The Company has a 33.33% interest in each of Tech TV Canada,
Biography Channel Canada and MSNBC Canada, all of which are
equity-accounted investments. The Company has committed to fund its
share of the losses and PP&E expenditures, in these new channels, to a
maximum of $8.8 million, through equity financing and shareholder
loans. As at December 31, 2003, the Company has funded a total of
$5.6 million.
	 
	 	(c)	 	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
subscribers. 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 production
fund. The Company estimates that its total contribution for 2004 will
amount to approximately $30.0 million.
	 
	 	(d)	 	The future minimum lease payments under operating leases for the
rental of premises, distribution facilities, equipment and microwave
towers and commitments for other contracts at December 31, 2003 are as
follows:
	 

	Year ending December 31:	 	 	 	 
	2004
	 	$	114,824	 
	2005
	 	 	102,984	 
	2006
	 	 	88,890	 
	2007
	 	 	70,972	 
	2008
	 	 	56,527	 
	2009 and thereafter
	 	 	85,633	 
	 
	 	 	
	 
	 
	 	$	519,830	 
	 
	 	 	
	 

	 	 	 	Rent expense for 2003 amounted to $113.7 million (2002 - $118.0
million).

67

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	20.	 	Guarantees:

	 	 	 	The Company has made certain warranties and indemnities to the purchasers
with respect to the sale of shares of Bowdens Media Monitoring Limited and
Rogers American Cablesystems Inc. These warranties and indemnifications
expire in 2005 and are limited in both cases to the total purchase price
paid being $40.3 million and $29.4 million, respectively. To date, there
have been no claims under the warranties and indemnities and the Company
does not anticipate that any will occur.

	21.	 	Contingent liabilities:

	 	(a)	 	There exist certain 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.
	 
	 	(b)	 	The Company requires access to support structures and municipal
rights of way in order to deploy facilities. In a 2003 decision, the
Supreme Court of Canada determined that the CRTC does not have the
jurisdiction to establish the terms and conditions of access to the
poles of hydroelectric companies. As a result of this decision, the
costs of obtaining access to the poles of hydroelectric companies
could be substantially increased on a prospective basis and, for
certain arrangements, on a retroactive basis. The Company, together
with other Ontario cable companies, has applied to the Ontario Energy
Board to request that it assert jurisdiction over the fees paid by
such companies to hydroelectric distributors. The amount of this
contingency is presently not determinable.

68

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	22.	 	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, the net income in each year would be
adjusted as follows:

	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	Net income for the year based on Canadian GAAP
	 	$	129,193	 	 	$	312,032	 
	Gain on sale of cable systems (b)
	 	 	(4,028	)	 	 	(4,028	)
	Pre-operating costs (c)
	 	 	11,150	 	 	 	12,580	 
	Interest on equity instruments (d)
	 	 	(35,388	)	 	 	(92,372	)
	Capitalized interest (e)
	 	 	5,405	 	 	 	7,837	 
	Financial instruments (h)
	 	 	(217,514	)	 	 	125,963	 
	Stock-based compensation (i)
	 	 	(1,150	)	 	 	(1,892	)
	Other
	 	 	516	 	 	 	9,872	 
	Non-controlling interest
	 	 	43,173	 	 	 	(42,508	)
	Income taxes (k)
	 	 	11,493	 	 	 	22,394	 
	 
	 	 	
	 	 	 	
	 
	Net income (loss) based on United States GAAP
	 	$	(57,150	)	 	$	349,878	 
	 
	 	 	
	 	 	 	
	 
	Basic earnings (loss) per share based on
United States GAAP
	 	$	(0.25	)	 	$	1.64	 
	Diluted earnings (loss) per share based on
United States GAAP
	 	 	(0.25	)	 	 	1.23	 
	 
	 	 	
	 	 	 	
	 

69

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	22.	 	Canadian and United States accounting policy differences (continued):
	 	 	 
	 	 	The cumulative effect of these adjustments on the consolidated
shareholders’ equity of the Company is as follows:

	         	 	 	 	 	 	 	 	 	 
	 	 	 	2003	 	2002
	 	 	 	
	 	

	 	Shareholders’ equity based on Canadian GAAP
	 	$	1,767,380	 	 	$	1,404,035	 
	 	Gain on sale and issuance of subsidiary shares
to non-controlling interest (a)
	 	 	46,245	 	 	 	46,245	 
	 	Gain on sale of cable systems (b)
	 	 	124,965	 	 	 	128,993	 
	 	Pre-operating costs (c)
	 	 	(8,854	)	 	 	(20,004	)
	 	Equity instruments (d)
	 	 	(586,410	)	 	 	(584,022	)
	 	Capitalized interest (e)
	 	 	37,986	 	 	 	32,581	 
	 	Unrealized holding gain on investments (f)
	 	 	78,596	 	 	 	17,611	 
	 	Acquisition of Cable Atlantic (g)
	 	 	34,673	 	 	 	34,673	 
	 	Financial instruments (h)
	 	 	(59,593	)	 	 	157,921	 
	 	Stock-based compensation (i)
	 	 	661	 	 	 	1,173	 
	 	Minimum pension liability (j)
	 	 	(7,858	)	 	 	—	 
	 	Other
	 	 	(17,701	)	 	 	(18,217	)
	 	Income taxes (k)
	 	 	(253,567	)	 	 	(253,567	)
	 	Non-controlling interest effect of adjustments
	 	 	(58,401	)	 	 	(101,574	)
	 	 
	 	 	
	 	 	 	
	 
	 	Shareholders’ equity based on United States GAAP
	 	$	1,098,122	 	 	$	845,848	 
	 	 
	 	 	
	 	 	 	
	 

	 	 	The areas of material difference between Canadian and United States GAAP
and their impact on the consolidated financial statements of the Company
are described below:

	 	(a)	 	Gain on sale and issuance of subsidiary shares to non-controlling
interest:
	 
	 	 	 	Under United States GAAP, the carrying value of the Company’s
investment in Wireless would be lower than the carrying value under
Canadian GAAP as a result of certain differences between Canadian and
United States GAAP, as described herein. This results in an increase
to the gain on sale and dilution under United States GAAP.
	 
	 	(b)	 	Gain on sale of cable systems:
	 
	 	 	 	Under Canadian GAAP, the cash proceeds on the non-monetary exchange of
the 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 must be recognized as a gain in the consolidated
statements of income on an after-tax basis. The gain amounted to $40.3
million before income taxes.

70

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	22.	 	Canadian and United States accounting policy differences (continued):

	 	 	 	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, amortization expense under United
States GAAP was increased in subsequent years.
	 
	 	(c)	 	Pre-operating costs:
	 
	 	 	 	Under Canadian GAAP, the Company defers the incremental costs relating
to the development and pre-operating phases of new businesses and
amortizes these costs on a straight-line basis over periods up to five
years. Under United States GAAP, these costs are expensed as incurred.
	 
	 	(d)	 	Equity instruments:
	 
	 	 	 	Under Canadian GAAP, the Convertible Preferred Securities are
classified as shareholders’ equity and the related interest expense is
recorded as a distribution from retained earnings. Under United States
GAAP, these securities are classified as long-term debt and the related
interest expense is recorded in the consolidated statements of income.
	 
	 	 	 	Under Canadian GAAP, the Preferred Securities were classified as
shareholders’ equity and until September 2002, the related interest
expense was recorded as a distribution from retained earnings. Under
U.S. GAAP, the Preferred Securities were classified as long-term debt
and the related interest expense was recorded in the consolidated
statements of income.
	 
	 	 	 	Under Canadian GAAP, the proceeds from the Collateralized Equity
Securities were classified as shareholders’ equity. Under United States
GAAP, these securities were recorded as long-term debt and recorded at
their fair value at December 31, 2001. Adjustments to the fair value
at each reporting date are recorded in the consolidated statements of
income.

71

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	22.	 	Canadian and United States accounting policy differences (continued):

	 	(e)	 	Interest capitalization:
	 
	 	 	 	United States GAAP requires capitalization of interest costs as part of
the historical cost of acquiring certain qualifying assets that require
a period of time to prepare for their intended use. This 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
holding 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
comprehensive income, net of related future income taxes.
	 
	 	 	 	As at December 31, 2003 and 2002, this amount represents the Company’s
accumulated other comprehensive income.
	 
	 	(g)	 	Acquisition of Cable Atlantic:
	 
	 	 	 	United States GAAP requires that shares issued in connection with a
purchase business combination be valued based on the market price at
the announcement date of the acquisition, whereas Canadian GAAP had
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 $35.4 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 contributed
surplus in the amount of $35.4 million.

72

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	22.	 	Canadian and United States accounting policy differences (continued):

	 	(h)	 	Financial instruments:
	 
	 	 	 	Under Canadian GAAP, the Company accounts for its cross-currency
interest rate exchange agreements and interest exchange agreements as
hedges of specific debt instruments. Under United States GAAP, these
instruments are not accounted for as hedges as a result of adopting the
new pronouncement entitled “Accounting for Derivative Instruments and
Hedging Activities (“SFAS 133”), effective January 1, 2001. As a
result, the Company has recorded the net excess of the fair values of
the cross-currency interest rate exchange agreements and interest rate
exchange agreements over the carrying values of these instruments as at
December 31, 2000, being $18.4 million, as a cumulative transition
adjustment to net income under United States GAAP. The Company has
also recorded a cumulative transition adjustment to write off the net
balance of the deferred foreign exchange as at December 31, 2000, being
$20.7 million, that arose upon redesignation of certain of the
Company’s cross-currency interest rate exchange agreements. Further,
the Company has recorded $29.7 million as a cumulative transition
adjustment to net income, which represents the excess of the fair value
of the long-term debt to which the derivative instruments relate (the
“hedged debt”) over its carrying value. Therefore, the net cumulative
transition adjustment under SFAS 133 to the loss for the year ended
December 31, 2001 under United States GAAP was a charge to the net loss
of $32.1 million. The adjustment to long-term debt is being amortized
to net income under United States GAAP over the remaining effective
life of the related long-term debt.
	 
	 	 	 	Therefore, for the years ended December 31, 2003 and 2002, under United
States GAAP, the Company has recorded the change in the fair values of
the cross-currency interest rate exchange agreements since January 1,
2001 and the amortization of the adjustment to its long-term debt, as
discussed above.
	 
	 	(i)	 	Stock-based compensation:
	 
	 	 	 	Under United States GAAP, options issued to non-employees must be
measured at the fair value at grant dates and recorded as deferred
compensation expense and shareholders’ equity. The fair value must be
remeasured at each reporting date until vesting is complete, with
corresponding adjustments to the deferred compensation expense. The
deferred compensation is recognized as compensation expense over the
vesting period of the options. As a result of the Blue Jays not being
consolidated with the results of the Company, options which were
granted to employees of the Blue Jays in 2001 are treated as if they
were granted to non-employees.

73

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	22.	 	Canadian and United States accounting policy differences (continued):

	 	 	 	The Company measures compensation expense relating to employee stock
option plans for United States GAAP purposes using the intrinsic value
method specified by APB Opinion No. 25, which in the Company’s
circumstances would not be materially different from compensation
expense as determined under Canadian GAAP.
	 
	 	(j)	 	Minimum pension liability:
	 
	 	 	 	Under United States GAAP, the Company is required to record an
additional minimum pension liability for one of its plans to reflect
the excess of the accumulated benefit obligation over the fair value of
the plan assets. Other comprehensive income has been charged with $5.0
million, net of income taxes of $2.9 million. No such adjustments are required
under Canadian GAAP.
	 
	 	(k)	 	Income taxes:
	 
	 	 	 	Included in the caption “Income taxes” is the tax effect of various
adjustments where appropriate and the impact of substantively enacted
rate changes that would not have been recorded under United States GAAP
until enacted. Under Canadian GAAP, future income tax assets and
liabilities are remeasured for substantively enacted rate changes,
whereas under United States GAAP, future income tax assets and
liabilities are only remeasured for enacted tax rates.
	 
	 	(l)	 	Capital stock:
	 
	 	 	 	United States GAAP requires the disclosure of the liquidation
preference of capital stock. All series of Preferred shares of the
Company share equally in the distribution of assets upon liquidation,
in priority to the Class A Voting and Class B Non-Voting shares.
	 
	 	(m)	 	Operating income before depreciation and amortization:
	 
	 	 	 	United States GAAP requires that depreciation and amortization and
other expense (recovery) be included in the determination of operating
income and does not permit the disclosure of a subtotal of the amount
of operating income before these items. Canadian GAAP permits the
disclosure of a subtotal of the amount of operating income before these
items.

74

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	22.	 	Canadian and United States accounting policy differences (continued):

	 	(n)	 	Statements of cash flows:

	 	(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 decrease in cash and cash
equivalents in 2003 in the amount of $37.2 million reflected in
the consolidated statements of cash flows would be decreased by
$10.3 million and financing activities cash flows would be
increased by $10.3 million.

	 	(o)	 	Statement of comprehensive income:
	 
	 	 	 	United States GAAP requires the disclosure of a statement of
comprehensive income. Comprehensive income generally encompasses all
changes in shareholders’ equity, except those arising from transactions
with shareholders.

	 	 	 	 	 	 	 	 	 	 
	 	 	 	2003	 	2002
	 	 	 	
	 	

	Net income (loss) based on United States GAAP
	 	$	(57,150	)	 	$	349,878	 
	Other comprehensive income, net of income taxes:
	 	 	 	 	 	 	 	 
	 	Unrealized holding gains arising during the
year, net of income taxes
	 	 	67,727	 	 	 	17,611	 
	 	Realized gains included in income
	 	 	(17,902	)	 	 	(747,231	)
	 	Realized losses included in income
	 	 	—	 	 	 	238,921	 
	 	Minimum pension liability, net of income taxes
	 	 	(4,982	)	 	 	—	 
	 
	 	 	
	 	 	 	
	 
	Comprehensive loss based on United States GAAP
	 	$	(12,307	)	 	$	(140,821	)
	 
	 	 	
	 	 	 	
	 

75

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	22.	 	Canadian and United States accounting policy differences (continued):

	 	(p)	 	Other disclosures:
	 
	 	 	 	United States GAAP requires the Company to disclose accrued
liabilities, which is not required under Canadian GAAP. Accrued
liabilities included in accounts payable and accrued liabilities as at
December 31, 2003 were $1,072.7 million (2002 – $850.2 million). At
December 31, 2003 and 2002, accrued liabilities in respect of
PP&E totalled $90.3 million (2002 –
$189.9 million), accrued interest payable totalled
$83.2 million (2002 – $115.2 million), accrued
liabilities related to payroll totalled $123.8 million (2002
– $53.8 million), and CRTC commitments totalled
$71.9 million (2002 – $74.0 million).
	 
	 	(q)	 	Stock-based compensation disclosures:
	 
	 	 	 	For options granted to employees, had the Company determined
compensation costs based on the fair values at grant dates of the stock
options granted by RCI and Wireless consistent with the method
prescribed under SFAS 123, the Company’s net income (loss) and
earnings (loss) per share would have been reported as the pro forma
amounts indicated below:

	 	 	 	 	 	 	 	 	 
	 	 	2003	 	2002
	 	 	
	 	

	Net income (loss) in accordance with
United States GAAP, as reported
	 	$	(57,150	)	 	$	349,878	 
	Stock-based compensation expense - RCI
	 	 	(28,123	)	 	 	(31,125	)
	Stock-based compensation expense - Wireless
	 	 	(6,790	)	 	 	(8,289	)
	 
	 	 	
	 	 	 	
	 
	Pro forma net income (loss)
	 	$	(92,063	)	 	$	310,464	 
	 
	 	 	
	 	 	 	
	 
	Basic earnings (loss) per share
	 	$	(0.25	)	 	$	1.64	 
	Effect of stock-based compensation
	 	 	(0.16	)	 	 	(0.19	)
	 
	 	 	
	 	 	 	
	 
	Pro forma basic earnings (loss) per share
	 	$	(0.41	)	 	 	1.45	 
	 
	 	 	
	 	 	 	
	 
	Diluted earnings (loss) per share
	 	$	(0.25	)	 	$	1.23	 
	Pro forma diluted earnings (loss) per share
	 	 	(0.41	)	 	 	1.10	 
	 
	 	 	
	 	 	 	
	 

	 	 	 	 See note 11 for further details of stock-based compensation.

76

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	22.	 	Canadian and United States accounting policy differences (continued):

	(r)	 	Recent United States accounting pronouncements:

	 	 	In 2003, the FASB issued and amended Interpretation No. 46, “Consolidation of
Variable Interest Entities” (“FIN 46”). Its consolidation provisions are
applicable for all newly created variable interest entities created after
January 31, 2003, and is applicable to existing VIEs as of the beginning of the
Company’s year beginning January 1, 2004. With respect to entities that do not
qualify to be assessed for consolidation based on voting interests, FIN 46
generally requires a company that has a variable interest that will absorb a
majority of VIEs expected losses if they occur, receive a majority of the
entity’s expected residual returns if they occur, or both to consolidate that
VIE. The Company expects this to result in its consolidating Blue Jays Holdco
(note 6(a)), which will affect the reported amount of assets, liabilities, and
revenues and expenses. However, as the Company is presently recording 100% of
the losses of Blue Jays Holdco, the adoption of this standard will have no
impact on net income or earnings per share.
	 
	 	 	In 2002, the Emerging Issues Task Force (“EITF”) reached a consensus
regarding EITF Issue 00-21, “Accounting for Revenue Arrangements with
Multiple Deliverables”. The consensus addresses not only when and how
an arrangement involving multiple deliverables should be divided into
separate units of accounting but also how the arrangement’s
consideration should be allocated among separate units. The
pronouncement is effective for the Company commencing with its 2004
fiscal year. The Company is currently determining the impact of
prospectively adopting EITF 00-21.
	 
	 	 	In 2003, the FASB issued SFAS 150, “Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity”. This
statement requires that under specified circumstances, these
instruments be reclassified from equity to liabilities on the balance
sheet. This statement is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective for the
Company’s year beginning January 1, 2004. The Company did not enter
into any financial instruments within the scope of this statement after
May 31, 2003, and is presently assessing the impact of this statement
on the Company’s consolidated financial statements.

77

 

ROGERS COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (continued)

(Tabular amounts in thousands of dollars, except per share amounts)

Years ended December 31, 2003 and 2002

	23.	 	Subsequent events:

	 	(a)	 	In February 2004, Cable redeemed
$300.0 million aggregate principal amount of its 9.65% Senior Secured
Second Priority Debentures, due 2014 at a redemption price of 104.825%
of the aggregate principal amount. On March 11, 2004, the Cable
completed an offering of U.S. $350.0 million aggregate principal
amount of Senior Secured Second Priority Notes due 2014. Cable used
approximately U.S. $243.3 million of the net proceeds to
refinance the drawdown under its New Bank Credit Facility, which was
used to fund the redemption on February 23, 2004 of
$300.0 million 9.65% Senior Secured Debentures due 2014 at a
redemption price of 104.825%. Cable used the balance of the net
proceeds from this offering to repay other existing indebtedness
outstanding under the New Bank Credit Facility and for general
corporate purposes.
	 
	 	(b)	 	In January 2004, Cable announced a multi-year agreement with
Yahoo! Inc. (“Yahoo”) to provide co-branded internet services to
current and future customers of Cable’s high speed residential
internet access services. In return for payment by the Company of a
monthly fee, Yahoo will assume operation of Cable’s e-mail
service
and provide a suite of customized Yahoo content, products and services
to Cable’s broadband internet access customers. These content,
products and services include the following: a customizable browsing
environment; personalized homepage; enhanced e-mail services such as
spam control, parental controls, premium pop-up blocking and storage;
enhanced instant messaging capabilities; and multi-media services.
Depending on the level of internet access service, subscribers will
receive some or all of these features as part of a monthly
subscription payment. The agreement also contemplates that Cable and
Yahoo may collaborate to offer premium products and
services to Cable’s subscribers for an additional fee.
	 
	 	(c)	 	On January 1, 2004, the Company adopted the following new accounting
policies with retrospective application, and as a result have
reflected these new accounting policies in the consolidated balance
sheet as at December 31, 2002 and 2003 and in the
consolidated statements of income and cash flows for each of the years
in the two year period ended December 31, 2003.

     (i) GAAP
Hierarchy

       
As a result of the retroactive application of CICA Handbook Section
1100, “Generally Accepted Accounting Principles,” the
Company adopted a classified balance sheet presentation. In addition,
changes in non-cash working capital items related to PP&E have
been reclassified to Investing Activities, PP&E
Expenditures on the consolidated statements of cash flows. As a
result, changes in non-cash working capital and cash flows from
operating  activities have been increased (decreased) by $81.4
million, and ($52.2) million for the years ended December 31, 2003
and 2002,
respectively, and PP&E expenditures and cash flow used in
investing activities have increased (decreased) by $81.4 million, and
$(52.2) million for the years ended December 31, 2003 and 2002,
respectively.

     (ii) Revenue Recognition

       As
a result of retroactively  adopting new Canadian accounting
standards, including Emerging Issues Committee Abstract 142.
“Revenue Arrangements with Multiple Deliverables” and CICA Handbook Section
1100, regarding
the timing of revenue recognition and the classification of certain
items as revenue or expense, the Company made the following changes
to its classification of certain revenue and expense
items:

	 	•	 	Wireless activation fees are now
classified as equipment revenue. Previously, these amounts were
classified as network revenue.

	 
	 	•	 	Recoveries from new existing
subscribers from the sale of equipment are  now classified as
equipment revenue. Previously, these amounts were recorded as a
reduction to sales expense in the case of new Cable or Wireless
subscriber, or as a reduction to operating , general and
administrative expense in the case of an existing Wireless subscriber. 
	 
	 	•	 	Equipment subsidies provided to
new and existing Wireless subscribers are now classified as a
reduction to equipment revenue. Previously , these amounts were
recorded as a sales expense in the case of a new subscriber, or as an
operating , general and administrative expense in the case of an
existing subscriber. Wireless equipment costs for equipment provided
under retention programs to existing Wireless subscribers are now
recorded as cost of equipment sales. Previously, these amounts were
recorded as operating, general  and administrative expense. 
	 
	 	•	 	Certain other recoveries from
Wireless and Cable subscribers related to collections activities are
now recorded in revenue rather than as a recovery of operating,
general and administrative expenses.

	 	 	 	 	 	 	 	 	 
	 	 	Year Ended December 31,

	 	 	2003
	 	2002

	Cable Revenue
	 	 	 	 	 	 	 	 
	Prior to adoption
	 	$	1,769,220	 	 	$	1,596,401	 
	After adoption
	 	 	1,788,122	 	 	 	1,614,554	 
	Wireless Revenue
	 	 	 	 	 	 	 	 
	Prior to adoption
	 	 	2,282,203	 	 	 	1,965,927	 
	After adoption
	 	 	2,207,794	 	 	 	1,891,514	 
	Total Revenue
	 	 	 	 	 	 	 	 
	Prior to adoption
	 	 	4,847,363	 	 	 	4,323,045	 
	After adoption
	 	 	4,791,856	 	 	 	4,266,785	 
	Cost of sales
	 	 	 	 	 	 	 	 
	Prior to adoption
	 	 	505,951	 	 	 	458,838	 
	After adoption
	 	 	642,243	 	 	 	545,684	 
	Sales and
Marking expenses
	 	 	 	 	 	 	 	 
	Prior to adoption
	 	 	905,274	 	 	 	833,038	 
	After adoption
	 	 	742,781	 	 	 	697,579	 
	Operating, general and administrative expenses:
	 	 	 	 	 	 	 	 
	Prior to adoption
	 	 	1,987,242	 	 	 	1,889,555	 
	After adoption
	 	 	1,957,936	 	 	 	1,881,908	 
	Total
expenses
	 	 	 	 	 	 	 	 
	Prior to adoption
	 	 	3,398,467	 	 	 	3,181,431	 
	After adoption
	 	 	3,342,960	 	 	 	3,125,171	 

	 	(d)	 	On
February 20, 2004, Wireless completed an offering of
U.S.$750.0 million aggregate
principal amount of Senior (Secured) Notes, due 2014. The Company used approximately
U.S.$734.7 million of the net proceeds to retire certain of its existing Senior Secured Notes and
Debentures and its Senior Subordinated Notes.
	 
	 	(e)	 	On October 8, 2004 Wireless and its bank lenders entered into an amending agreement to
Wireless’s $700.0 million bank credit facility that provided among other things, for a two year
extension to the maturity date and the reduction schedule so that the bank credit facility now reduces by
$140.0 million on each of April 30, 2008 and April 30,
2009 with the maturity date on April 30, 2010. The
provision for early maturity in the event that Wireless’s
10 1/2% senior secured notes due 2006 are not
repaid (by refinancing or otherwise) on or prior to December 31, 2005 has been eliminated. In addition,
certain financial ratios to be maintained on a quarterly basis have been made less restrictive, the restriction
on the annual amount of PP&E expenditures has been eliminated and the restriction on the payment of
dividends and other shareholder distributions has been eliminated other than in the case of a default or
event of default under the terms of the bank credit facility.
	 
	 	(f)	 	On October 13, 2004, the Company announced the completion of its purchase of the 48,594,172 Class B
Restricted Voting shares of Wireless owned by JVII General
Partnership (“JVII”), a partnership owned by
AWE, for a cash price of $36.37 per share for a total of approximately $1,767 million. The number of
Class B Restricted Voting shares purchased reflects the conversion of the Class A Multiple Voting shares
owned by JVII to such Class B shares upon closing.
	 
	 	 	 	With the completion of the
purchase, the Company beneficially owns 64,911,816 Class B Restricted Voting
shares, representing approximately 80.9% of the issued and outstanding Class B Restricted Voting shares,
and 62,820,371 Class A Multiple Voting shares, representing 100% of the issued and outstanding Class A
Multiple Voting shares, and which combined represent a total ownership position of approximately 89.3%
of the total issued and outstanding shares of both classes of such
shares of Wireless.
	 
	 	 	 	The Company funded the approximate
$1,767 million cash purchase price of the 48.6 million
shares of Wireless
through a $1,750 million secured bridge financing facility of up to two years with a group of Canadian
financial institutions. The facility stipulates mandatory repayments, subject to certain exceptions, from the
incurrence of debt or equity of the Company or Wireless.
	 
	 	(g)	 	On August 9, 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.
The plaintiffs seek unquantified damages from the defendant wireless communications service providers.
Wireless believes it has good defences to the allegations. The proceeding has not been certified as a
class action and it is too early to determine whether the proceeding will qualify for certification as a class
action.
	 
	 	(h)	 	On September 20, 2004,
Wireless announced an agreement with Microcell Telecommunications Inc. (“Microcell”) to make an all cash tender offer
of $35.00 per share to acquire Microcell. Wireless completed the acquisition on November 12, 2004. The funding for this acquisition was
comprised of the utilization of Wireless’s cash on hand, drawdowns under Wireless’s committed
$700.0 million bank credit facility, and proceeds from a bridge
loan from the Company of up to $900.0 million, of
which $850.0 million has been drawn. The bridge loan has a term of up to two years from November 9,
2004 and was made on an subordinated unsecured basis. The bridge loan bears interest at 6% per annum
and is prepayable in whole or in part without penalty. The Company funded the $850.0 million drawdown on the
bridge loan using cash on hand, cash received from Cable in the form of a return of capital and
cash received from Media in the form of a repayment of an intercompany advance made to Media by the Company. Each of Rogers Cable and Media made drawdowns under its respective committed
bank credit facilities to fund the cash transfers to the Company.
	 
	 	 	 	On April 21, 2004 a proceeding was brought against Microcell and its subsidiary, Microcell Solutions
Inc. and others alleging breach of contract, breach of confidence, misuse of confidential information,
breach of a duty of loyalty, good faith and to avoid a conflict of duty and self interest, and conspiracy. The
plaintiff is seeking damages in the amount of $160 million. The
proceeding is at an early stage. Wireless believes it has good defences to the claim.
	 
	 	(i)	 	On November 12, 2004, Wireless announced its intention to complete an offering of
$460.0 million 7.625% Senior (Secured) Notes Due 2011,
U.S. $550.0 million
Floating Rate Senior (Secured) Notes Due 2010, US
$470.0 million 7.25% Senior (Secured)
Notes Due 2012, US $550.0 million 7.5% Senior (Secured) Notes Due
2015, and U.S. $400.0 million 8.0% Senior Subordinated Notes Due 2012.
	 
	 	(j)	 	On November 12, 2004, Cable announced its
intention to complete an offering of $175.0 million 7.25%
Senior (Secured) Second Priority Notes due 2011 and
U.S.$280.0 million 6.75% Senior (Secured) Second Priority
Notes due 2015.
	 
	 	(k)	 	On April 15, 2004, the
Company filed a final shelf prospectus in all of the provinces in
Canada and in the U.S. under which it will be able to offer up to
aggregate of US$750 million of Class B Non-Voting shares,
preferred shares, debt securities, warrants, share purchase contracts
or units, or any combination thereof, for a period of 25 months;
	 
	 	 	 	On June 16, 2004, 9,541,985
Class B Non-Voting shares were issued under the shelf prospectus
for net cash proceeds of $238.9 million;
	 
	 	(l)	 	In August 2004, the Company and
Microsoft Corporation, the holder of the Convertible Preferred
Securities, agreed to amend the terms of such securities whereby
certain transfer restrictions will terminate on March 28, 2006
unless a qualifying offer to purchase these securities is made by the
Company. In the event such transfer restrictions terminate, during a
three month period subsequent to March 28, 2006 the Company has
the option to extend the maturity of these securities for up to three
years from the original August 11, 2009 maturity date.
	 
	 	(m)	 	On January 5, 2004, the
Company paid the remaining amount due related to the purchase
of the 20% minority interest in the Blue Jays for approximately
$39.1 million. This payment had no impact on the carrying value
of the investment, as this liability was recorded at the date of
acquisition.
	 
	 	 	 	Effective April 1, 2001,
Rogers Telecommunications Ltd. (“RTL”), a company
controlled by the controlling shareholder of the Company, acquired
the Class A Preferred Shares of a subsidiary of RCI that owns
the Blue Jays (“Blue Jays Holdco”) for $30.0 million.
On July 31, 2004, Blue Jays Holdco redeemed and cancelled the
30,000 Class A Preferred shares for $30.0 million,
resulting in Blue Jays Holdco becoming a wholly-owned subsidiary of
the Company. This redemption had no impact on net income, as the
Company had previously recorded 100% of the losses of Blue Jays
Holdco.

78

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