2014 ANNUAL REPORT
oneROGERS COMMUNICATIONS INC. WIRELESSCABLEMEDIA ROGERS COMMUNICATIONS INC.
Rogers Communications (TSX: RCI; NYSE: RCI) is a diversified Canadian
telecommunications and media company. As discussed on the following
pages, Rogers Communications is engaged in the telecom and media
businesses through its primary reporting segments Wireless, Cable,
Business Solutions and Media.
ROGERS COMMUNICATIONS
WIRELESS
CABLE
BUSINESS SOLUTIONS
MEDIA
WIRELESS SEGMENT
The Wireless segment provides wireless voice and data communications services
across Canada to approximately 9.5 million customers under the Rogers, Fido and
chatr brands. Wireless is Canada’s largest wireless provider and the only national
carrier operating on the combined global standard GSM/HSPA+/LTE technology
platforms. Wireless is also Canada’s leader in innovative wireless services, and
provides customers with the best and latest wireless devices and applications and
the fastest network speeds. Wireless provides seamless wireless roaming across
the U.S. and more than 200 other countries, and is the Canadian leader in the
deployment of mobile commerce and machine-to-machine communications.
CABLE AND BUSINESS SOLUTIONS SEGMENTS
Cable is a leading Canadian cable services provider, whose service territory covers
approximately 4.0 million homes in Ontario, New Brunswick and Newfoundland
representing approximately 30% of the total Canadian cable market. Our advanced
digital hybrid fibre-coax network provides market leading high-speed broadband
Internet access speeds, the most innovative selection of digital television and online
viewing and telephony services to millions of residential and small business
customers. Together with the Business Solutions segment, it also provides scalable
carrier-grade business telecom, networking, hosting and managed data services,
and IP connectivity and solutions to medium and large enterprise, government
and carrier customers.
MEDIA SEGMENT
Media is Canada’s premier destination for category-leading television and radio
broadcasting, sports entertainment, publishing, and digital media properties.
Television assets include the national City network which reaches approximately
80% of Canadians, five OMNI Television multilingual channels, seven regional and
national Sportsnet channels, as well as specialty channels FX, FXX, OLN and G4.
Media also owns The Shopping Channel, Canada’s only nationally televised and online
shopping service. It operates more than 50 Canadian radio stations, publishes 40+
well known consumer and business magazines, and owns a suite of digital media
properties including Next Issue. Media owns the Toronto Blue Jays Baseball Club
and Rogers Centre, holds a 37.5% investment in Maple Leaf Sports & Entertainment,
owner of Toronto Maple Leafs, Toronto Raptors and Toronto FC, and a 50% interest
in streaming subscription video on demand (SVOD) service shomi.
AT A GLANCE
REVENUE
($ IN BILLIONS)
ADJUSTED OPERATING PROFIT
($ IN BILLIONS)
2014 CONSOLIDATED REVENUE 1
$12.9 BILLION
12.9
2014
12.7
2013
5.0
5.0
$12.9
12.5
2012
4.8
WIRELESS 56%
CABLE 27%
MEDIA 14%
BUSINESS
SOLUTIONS 3%
1 Includes elimination of intersegment revenues
REVENUE
($ IN BILLIONS)
ADJUSTED OPERATING PROFIT
($ IN BILLIONS)
2014 REVENUE
$7.3 BILLION
2014
2013
2012
3.2
3.2
3.1
$7.3
DATA 48%
POSTPAID VOICE 42%
EQUIPMENT 8%
PREPAID VOICE 2%
2014
2013
2012
2014
2013
2012
REVENUE
($ IN BILLIONS)
2014
0.38
2013
0.37
ADJUSTED OPERATING PROFIT
($ IN BILLIONS)
2014 REVENUE
$3.9 BILLION
2014
0.12
2013
0.11
1.7
1.7
$3.9
2012
0.35
3.4
2012
0.09
1.6
BUSINESS SOLUTIONS / CABLE
BUSINESS SOLUTIONS / CABLE
TELEVISION 45%
INTERNET 33%
PHONE 12%
BUSINESS
SOLUTIONS 10%
REVENUE
($ IN BILLIONS)
ADJUSTED OPERATING PROFIT
($ IN BILLIONS)
2014 REVENUE
$1.8 BILLION
2014
2013
2012
1.8
2014
0.13
1.7
1.6
2013
2012
0.16
0.19
$1.8
TELEVISION 47%
THE SHOPPING
CHANNEL 16%
SPORTS
ENTERTAINMENT 13%
RADIO 13%
PUBLISHING 11%
7.3
7.3
7.3
3.5
3.5
BILLIONBILLIONBILLIONBILLION Our Business
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Rogers Communications Inc. is a diversified Canadian telecommunications and media company.
In Wireless we are Canada’s largest wireless voice and data telecommunications services provider
and the country’s only national carrier operating on the combined world standard GSM/HSPA+/
LTE technology platforms. Our Cable segment is a leading Canadian cable services provider,
offering high-speed Internet access, television, and telephony products, and together with our
Business Solutions segment, provides business telecom, networking, hosting, managed services
and IP solutions to small, medium and large enterprise, government and carrier customers.
Our Media segment is Canada’s premier group of category-leading broadcast, specialty, print
and online media assets, with businesses in radio and television broadcasting, televised shopping,
sports entertainment, magazine and trade journal publishing and digital media. Our Class B
common shares actively trade on the TSX and NYSE with a combined average daily trading
volume of approximately 1.3 million shares. In addition, our Class A shares trade on the TSX.
Dividends are the same on both classes of shares and have been increased in each of the past
12 years. In 2014, each share paid an annualized dividend of $1.83, which our Board recently
announced has been increased by 5% to $1.92 per share for 2015. We are included in the
S&P/TSX 60 Index of the largest publicly traded companies in Canada.
Financial Highlights 2014
FOR A DETAILED DISCUSSION OF OUR FINANCIAL AND OPERATING METRICS AND RESULTS,
PLEASE SEE THE ACCOMPANYING MANAGEMENT’S DISCUSSION AND ANALYSIS LATER IN THIS REPORT.
2014 CONSOLIDATED REVENUE AND ADJUSTED OPERATING PROFIT PROFILE
REVENUE
ADJUSTED OPERATING PROFIT
WIRELESS 56%
CABLE 27%
$12.9
$5.0
WIRELESS 63%
CABLE 32%
MEDIA 14%
BUSINESS SOLUTIONS 3%
MEDIA 3%
BUSINESS SOLUTIONS 2%
(IN MILLIONS OF DOLLARS, EXCEPT MARGINS, PER SHARE
AMOUNTS, SUBSCRIBER AND EMPLOYEE DATA)
Revenue
Adjusted operating profit 1
Adjusted operating profit margin 1
Adjusted net income 1
Adjusted diluted earnings per share 1
Annualized dividend rate at year-end
Total assets
Long-term debt (includes current portion)
Shareholders’ equity
Market capitalization of equity
Wireless subscribers (000s)
Internet subscribers (000s)
Television subscribers (000s)
Cable telephony subscribers (000s)
Number of employees (approximate)
2014
12,850
5,019
39%
1,532
$2.96
$1.83
26,522
14,787
5,481
23,435
9,450
2,011
2,024
1,150
27,000
2013
12,706
4,993
39%
1,769
$3.42
$1.74
23,601
13,343
4,669
24,903
9,503
1,961
2,127
1,153
28,000
2012
12,486
4,834
39%
1,781
$3.41
$1.58
19,618
10,789
3,768
23,346
9,437
1,864
2,214
1,074
27,000
2011
12,346
4,739
38%
1,736
$3.17
$1.42
18,362
10,034
3,572
20,736
9,335
1,793
2,297
1,052
29,000
2010
11,999
4,668
39%
1,704
$2.94
$1.28
17,033
8,654
3,760
19,435
8,977
1,686
2,305
1,003
28,000
1 For a definition of these measures (which are “Non-GAAP”) see “Non-GAAP Measures” in Management’s Discussion and Analysis.
BILLIONBILLION
Delivering on Our Commitments in 2014
ROGERS 3.0
GO TO MARKET AS
ONE ROGERS
FREE CASH FLOW
GENERATION
DIVIDEND
GROWTH
WHAT WE SAID: Develop and
implement a plan to overhaul the
customer experience and
accelerate growth.
WHAT WE DID: Unveiled a multi-
year plan to lay the groundwork
to reaccelerate revenue and cash
flow growth relative to peers.
WHAT WE SAID: Re-establish our
growth by better leveraging our
assets and consistently executing
as One Rogers.
WHAT WE DID: Developed a
plan to leverage all Rogers’ assets
to increase customer loyalty, with
the NHL and shomi roll-out
successes as point of proof.
WHAT WE SAID: Deliver another
year of significant consolidated
free cash flow.
WHAT WE SAID: Increase cash
returns to shareholders
consistently over time.
WHAT WE DID: Generated
$1.4 billion of free cash flow in
2014, supporting the significant
investments and cash we returned
to shareholders during the year.
WHAT WE DID: Increased the
annualized dividend per share
5% from $1.74 to $1.83 in 2014.
Further increased the dividend
by 5% to $1.92 in January 2015.
FAST AND RELIABLE
NETWORKS
DATA REVENUE
GROWTH
HIGHER VALUE
WIRELESS SUBSCRIBERS
EVOLVE AND ENHANCE
TELEVISION PLATFORM
WHAT WE SAID: Maintain Rogers
leadership in network technology
and innovation.
WHAT WE DID: Acquired 24 MHz
of contiguous 700 MHz spectrum
and was again named both the
fastest wireless network and the
fastest broadband ISP in Canada
by PCMag.com.
WHAT WE SAID: Generate strong
wireless and broadband data
growth consistent with our data
usage monetization strategy.
WHAT WE SAID: Continue the
growth in our smartphone
subscriber base to drive wireless
data revenue and ARPU.
WHAT WE SAID: Invest in the
evolution of our current TV
platform and extend our video
offerings to new platforms.
WHAT WE DID: Grew wireless
and broadband data revenues
by 10% and 7%, respectively over
2013 levels.
WHAT WE DID: Activated over
2.6 million smartphones and
shifted wireless subscriber growth
to higher ARPU ‘Share Everything’
service plans.
WHAT WE DID: Enhanced and
expanded NextBox3.0 superior
TV experience and launched
complimentary shomi subscription
video on demand OTT service.
2014 ACHIEVEMENTS AGAINST GUIDANCE 1
(IN MILLIONS OF DOLLARS)
Consolidated Guidance
Adjusted operating profit 2
Additions to property, plant and equipment
Free cash flow 2
2014
GUIDANCE
5,000
2,275
1,425
to
to
to
5,150
2,375
1,500
2014
ACTUALS
5,019
2,366
1,437
ACHIEVEMENT
✔
✔
✔
1 Should be read in conjunction with the accompanying Management’s Discussion and Analysis later in this report.
2 For a definition of these measures (which are “Non-GAAP”) see “Non-GAAP Measures” in Management’s Discussion and Analysis.
✖ Missed ✔ Achieved Exceeded
Contents
2 Message to Shareholders
20 Directors and Senior Executive Officers
90 Consolidated Statements of
4 Overhaul the Customer Experience
22 Why Invest in Rogers
6 Drive Growth in the Business Market
24 Management’s Discussion and Analysis
8 Invest In and Develop Our People
87 Management’s Responsibility for
10 Deliver Compelling Content Everywhere
12 Focus on Innovation and Network Leadership
14 Go to Market as One Rogers
16 Good Corporate Citizenship
18 Corporate Governance
Financial Reporting
87 Independent Auditors’ Report
88 Consolidated Statements of Income
89 Consolidated Statements of
Comprehensive Income
Financial Position
91 Consolidated Statements of
Changes in Shareholders’ Equity
92 Consolidated Statements of Cash Flows
93 Notes to Consolidated Financial Statements
132 Glossary of Selected Industry Terms
and Helpful Links
134 Corporate and Shareholder Information
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC.
1
Our Rogers 3.0 plan is built on seven core pillars.
We’ll explore these and our progress in more detail later
in this report. These pillars are:
Be a Strong Canadian Growth Company
This is all about re-accelerating Rogers’ growth, especially
relative to our peers. While Rogers’ growth has slowed
in recent years, I believe we can return to growth again.
It’s not going to happen in weeks, or even months; it’s going
to happen over a series of quarters. In 2014, we laid a firm
foundation and began to execute under our Rogers 3.0 plan.
Overhaul the Customer Experience
If there’s one thing I heard loud and clear from our customers,
it’s that we need to improve the customer experience.
This is a key part of our Rogers 3.0 plan but it will take time.
We’ll start by creating a much more consistent experience
for our customers whether it’s on the phone, in the store,
in the home or online. In 2014 we started by creating one
single Customer Experience team reporting directly to me.
We are starting to make strides in this area. Rogers’ customer
complaints are down more than 30% from last year in the
CCTS (Commissioner for Complaints for Telecommunications
Services) annual report.
Drive Growth in the Business Market
Enterprise will be a key part of our growth story. It holds
significant untapped opportunities and our assets uniquely
position us to succeed, yet we are currently under-indexed
in this growing portion of the market. In 2014 we brought
previously separate enterprise-serving teams together.
This single unit has a full array of business-focused solutions
from across Rogers’ various product sets, greatly enhancing
our ability to attract and serve business customers.
Invest In and Develop our People
We will make sure that our employees have the right training,
development and work environment. Taking care of our
people has always been central at Rogers, but the truth is
that we haven’t been investing sufficiently in their training and
tools; this is particularly true with front-line and customer-
facing staff. However, things are changing and we’re clearly
on the right track. In November, Rogers was recognized as
one of Canada’s Top 100 Employers under an annual survey
of 3,250 companies.
Deliver Compelling Content Everywhere
Rogers has an exceptional and enviable stable of content,
but we need to better leverage these assets to continue
creating differentiation and compelling customer value
propositions across the company. In 2014, we had some
early successes in delivering compelling content everywhere:
we launched Rogers NHL GameCentre Live, shomi, our
online video product, and announced our joint agreement
with VICE Media.
Focus on Innovation and Network Leadership
Rogers has always led the industry in innovation and our
wireless and broadband networks are some of the most
advanced in the world. We will double down on innovation,
by providing more ”oxygen” to fewer but higher impact
projects already well underway. We are known for deploying
A message from
THE PRESIDENT AND CEO
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ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
FELLOW SHAREHOLDERS, Priority one as I settled into the CEO role was to undertake extensive information gathering and begin building the foundations for our new strategy. I spent much of the first three months of 2014 crisscrossing the country meeting with and listening to employees, customers and external stakeholders, including suppliers, regulators, politicians and investors.People were eager to speak, and this “Listening Tour” gave me an opportunity to hear the thoughts of many stakeholders. There were many positives. Rogers has much strength to build upon. We have enviable assets such as considerable spectrum holdings, broadband networks, great media content, a motivated and innovative workforce, a strong balance sheet and cash flow, and a track record of growing shareholder returns.I also listened as people described our challenges. I heard that our customer service needed to be improved and that our processes and procedures were in many instances unnecessarily complicated. I heard that we lacked a clear vision and accountabilities were often missing within the organization, that our go-to-market discipline was wanting, product differentiation was not compelling, brand identities and advertising weren’t as clear and effective as they could be, and employee training and tools needed to be enhanced.The thousands of ideas and suggestions gained from this “Listening Tour” were then distilled down to form the overarching priorities which I finalized and shared with Rogers’ Board of Directors late in the spring. Rogers 3.0 is a multi-year plan that will significantly enhance customer experience, simplify and increase accountability across the business, improve our agility, and re-accelerate growth in revenue and cash flows relative to our competitors. Rogers 3.0 is now up and running, and gaining momentum.
Officer. These customer-focused leaders bring global best
practices and have proven success transforming organizations.
Just as importantly, they really understand technology and
where it’s going.
Rogers 3.0 is now up and running, the team is set and it’s all
about execution. As I said at the start, this is a multi-year plan
that will fundamentally transform how Rogers executes and
will restore our proud tradition of growth. This won’t happen
overnight. While we made a lot of changes this year, there is
a lot of execution in front of us, but we are clearly now on the
right track.
Looking ahead to 2015, we will continue to improve the
customer experience and track those improvements through
meaningful statistics such as “Net Promoter Score”. These
changes will arise out of how we serve customers and provide
them with simpler, more streamlined offerings they will love.
We will also continue to invest in and improve our best-in-class
networks and people. You should see a continuation of our LTE
expansion and roll-out of our “beach-front” 700MHz spectrum,
enhancements in our cable offerings, and more training, tools
and workplace enhancements for our employees.
” The mindset of this company is about winning.
The history of this company is about winning.
Our plan going forward is not about creating a
new DNA; it’s about taking the formidable assets
we already possess and executing like never before
as One Rogers to make winning a reality again.”
We expect that 2015 will also bring organic growth in financial
results, across all of our segments and in the roll-out of other
innovative products and services. This growth will be recognized
in revenue as well as through other value-based metrics we will
use to show our progress. Innovation can be expected across all
our businesses and in many different forms.
I look forward to reporting back as we progress and win,
and to continue to serve you, our shareholders.
Thank you for your continued business, investment and support.
GUY LAURENCE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ROGERS COMMUNICATIONS INC.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC.
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world-class networks and that will not change either, as we
continue investing to stay ahead of the game. We made
significant investments in spectrum to secure the pole position
of our networks and future-proof them against our customers’
increasing demands. Finally, we introduced Roam Like Home,
a new technology that lets our customers use the Internet,
make calls and send emails in the U.S. just like they would at
home with their Share Everything plan.
Go to Market as One Rogers
Lastly, we will increasingly go to market as One Rogers.
We have created a single unit to better nurture our brands
and manage advertising across the organization; you’ve likely
already seen some of our new 2014 advertising enhancing
the Rogers brand. You can expect much more of this in 2015.
We’ll also go to market with our products and services in
more disciplined and coordinated ways. At the same time,
we’ll work more closely internally to cross-sell, up-sell and
much better leverage our compelling content. Working
as One Rogers will allow us to deliver on our promise of a
better customer experience and further differentiation of our
offerings in the market.
Going Forward
To summarize, I spent the first three months of 2014 listening
and learning from our customers, employees and shareholders.
I used this feedback to build the Rogers 3.0 plan and then
we reorganized the entire company around the customer
and our seven priorities. In the fourth quarter we began to
introduce new commercial propositions as part of our Rogers
3.0 plan. As part of the re-organization we’ve eliminated
bureaucracy and flattened the management structure to
create a far more agile and customer responsive organization.
We’re reinvesting the savings generated from this effort to
help fund the many new initiatives we’re putting in place to
reaccelerate our growth.
As part of our reorganization, we were fortunate to attract
several best-in-class leaders; new additions to Rogers
executive leadership team include Chief Customer Officer,
Consumer Business Unit President, Enterprise Business Unit
President, Chief Strategy Officer and Chief Corporate Affairs
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AT ROGERS, WE UNDERSTAND THAT DELIVERING EXCELLENT CUSTOMER
SERVICE IS AS IMPORTANT AS PROVIDING INNOVATIVE PRODUCTS,
SERVICES, AND THE FASTEST AND MOST RELIABLE NETWORKS.
While our customers commend us for our products and innovation,
we would be the first to admit that we haven’t consistently met our
customers’ expectations for excellent service. That is why customer
service is a core pillar of our Rogers 3.0 strategy. We are committed to
improving customer experience and have started the journey to do so.
Many companies talk about improving the customer
experience in aspirational terms. Here at Rogers, we are
undertaking a complete bottoms-up review and reset
of nearly every touchpoint our customers have across
the business.
In order to give this critical initiative the focus and
resources it requires, we have brought customer service
together as a distinct team within Rogers; it has more
than 9,000 dedicated employees spanning all customer
touchpoints reporting directly to our Chief Executive
Officer. We’ve hired Deepak Khandelwal from Google
Inc. as Rogers’ first Chief Customer Officer.
This new team has already implemented specific tactics
to build momentum quickly and we are measuring our
progress with proven metrics that are already embedded
in performance targets across the organization.
Overhauling how we deliver customer service won’t
happen overnight. It is not simply a matter of hiring
more call centre staff. It’s a fundamental rethink, from a
customer-centric perspective, of all of our underlying
processes, policies, plans and systems. Our teams of
operational experts are unraveling and documenting
thousands of commercial policies, processes and
procedures accumulated over decades of rapid
growth. While these individual fixes made sense when
introduced, the complexity they’ve created as they’ve
accumulated over time often prevents us from doing the
right thing for our customers and has detracted from our
ability to be efficient, flexible and agile.
As we unravel, rationalize and simplify these
commercial policies, processes and procedures, we
will institutionalize them into our IT systems. Just as
importantly, we’re investing deeply in training and
development, so our frontline employees can deliver
consistently positive customer experiences. Finally, we’re
committed to making sure our customers find our plans
simple and easy to understand, and that our product
interfaces are intuitive and user-friendly.
Part of consistently delivering an excellent customer
experience means thoroughly understanding our
different customer groups’ unique needs. Addressing
these diverse needs requires flexibility and agility.
Increasingly, customers will prefer to do more over
the web, though some still will want to speak with a
representative by phone or face-to-face in a retail
location. Technology has enabled our industry to
present more and more web-based and app-based care
capabilities so customers can self-serve instead of calling
or visiting one of our locations. We’re working hard to
deploy more and simpler online self-service options so
customers can make the changes they want, wherever
and whenever it’s most convenient for them, all while
increasing operating efficiencies and reducing costs
for Rogers. Of course there will always be customers
who will contact our call centre because they are most
comfortable with a human interface. We understand that
different customers have varying needs, so we will cater
to all customer groups through capabilities, policies and
customer experiences unified across all channels and
touchpoints.
Customer experience is a journey and not a destination;
customer needs and preferences are always changing
and our job is to lead and anticipate these changes.
The history and mindset of our company is about
innovation and winning. Winning the hearts and minds
of our millions of customers as we go forward is at the
top of our priority list.
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ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
Overhaul the
CUSTOMER
EXPERIENCE
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC.
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THE TELECOMMUNICATIONS NETWORK, DATA CENTRE AND
ADJACENT SERVICES MARKET IN CANADA REPRESENTS OVER
$20 BILLION IN REVENUES AND IS EXPECTED TO GROW TO
APPROXIMATELY $25 BILLION BY 2017.
This growth will be predominantly driven by the increased demand for data
transmission and a migration to next generation technologies that deliver
faster and enhanced services, many of which are hosted in the cloud.
Over time, Rogers has built a portfolio of assets
designed to provide businesses with a mix of wireless,
broadband, telephony and data centre solutions. Until
recently, however, Rogers delivered those solutions
in a somewhat fragmented manner because different
business-focused products and types of customers
were served by different parts of the company. As a
result, Rogers is under-indexed against the Canadian
incumbents in this large and growing market. In the
second half of 2014, Rogers consolidated the various
product, marketing, sales and service functions serving
our business customers into a single enterprise-focused
business unit.
By bringing together these various functions and
capabilities into a single enterprise-focused business
unit, Rogers will be better equipped to drive increased
revenue and reduced cost while also improving
customer experience. On the revenue side, the
combined product suite of these units will better meet
the telecommunications needs of businesses of all sizes
which demand increased reliability, scalability, security
and a wider array of value added services including
hosting and storage. We will improve the customer
experience while also growing revenue through a unified
go-to-market and sales organization that understands
the end-to-end needs of business customers of all sizes
and can offer and service integrated solutions to meet
their needs. Finally, this new structure achieves cost-
effectiveness through the integration of all marketing,
sales, service and product development functions
into one business unit. This will allow us to leverage a
substantial combined set of expertise and capabilities to
help Canadian businesses become more productive and
successful.
In 2014, we entered into a Partner Market Agreement
with Vodafone Group, one of the world’s largest
telecommunications companies. Among this
agreement’s many benefits is access to Vodafone’s
global scale and extensive experience in serving the
enterprise market. The agreement also gives Rogers
access to a number of new products, services and
applications to help accelerate our growth in the
business market.
Specific to smaller enterprises, Rogers offers custom
solutions that use our cable and wireless networks to
provide telephony and broadband connectivity both
at the office and when on the road. We will continue to
enhance these solutions with cloud-based applications
and storage by leveraging our increasing strength in the
data centre space.
For larger enterprises, we offer a suite of carrier-class
next-generation Ethernet and IP-based commercial
services over our fibre optic footprint which connects
thousands of office buildings; we also have state-of-the-
art data centres located across Canada that provide
colocation, hosting and cloud-based services. We
integrate these solutions with our nationwide wireless
network and solutions to provide seamless voice and
data connectivity for businesses no matter where their
employees travel. Rogers also offers Canada’s leading
suite of wireless machine-to-machine solutions (M2M),
which enable businesses to create supply chain and
operational efficiencies by leveraging the rapidly
expanding “Internet of Things”. Complementing our
extensive M2M solutions portfolio is our wide array of
emerging mobile commerce technologies, which Rogers
has pioneered.
Our history of innovation, best-in-class networks
and commitment to helping our customers realize
the possibilities of wireless, broadband and IP
telecommunications technology makes Rogers the right
partner for Canadian businesses of all sizes looking to
make the most of an exciting, connected future. The
business market is a key focus for us going forward and
we are confident that Rogers is well positioned with
the right capabilities and structure to deliver on this
significant growth opportunity.
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ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
Drive Growth in the
BUSINESS
MARKET
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC.
7
ROGERS HAS AN UNMATCHED MIX OF NETWORK, CONTENT
AND BRAND ASSETS, BUT THE TALENT AND COMMITMENT OF
OUR 27,000 EMPLOYEES IS OUR GREATEST RESOURCE AND IS
FUNDAMENTAL TO OUR FUTURE SUCCESS.
Our people are the heartbeat of our business. Without an engaged
and enabled workforce, we will not be successful in achieving our goals.
Rogers’ employees have always demonstrated a great passion for our
customers, our communities and for our business. Together, we have
created a culture that attracts the best talent in Canada.
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This is reflected in the numerous employer awards that
Rogers earned in 2014, including: one of Canada’s Top
100 Employers for the second straight year, Canada’s
Top Employer for Young People for the fifth straight year,
Canada’s Best Diversity Employer, and one of Greater
Toronto’s Top Employers.
Despite this recognition, we know that there is significant
opportunity to better support and channel the passion
and energy of our employees. While our people
are key to our success, we haven’t been investing
enough in the tools that we give them and we haven’t
provided many of them with sufficient training and
development, particularly portions of our frontline staff.
We are therefore accelerating the investment in our
people, both in terms of how we train them and in the
systems and workplaces we provide them. Employee
empowerment, training and tools are essential to the
delivery of exceptional customer service, to the success
of the Rogers 3.0 plan and to the organization overall.
In addition, we are upgrading every element of our
recruiting and onboarding programs. Not only must
we ensure that we are attracting the right candidates
with the right skills and values for long-term success;
our onboarding programs must also be enhanced to
ensure new employees are better armed with the skills
and knowledge needed to succeed at Rogers before
being “released” into the business. This will ensure new
employees are set up for success with their teams and
customers right from the start.
Our soon-to-be-implemented onboarding program for
all employees comprises training on the history of the
company, our culture, how we work and the behavior we
expect. New employees will also be better trained on
who our customers are and the range of products and
services we provide. Once fully implemented, this will
provide enhanced service for our customers along with
better job satisfaction for our valued employees.
Together, these and our many related initiatives,
including those which clearly define accountabilities for
positions at every level of the company, will ensure that
our employees are optimally engaged, committed and
empowered.
To help foster employee passion, we also have
an employee volunteer program that encourages
participation in the Rogers Youth Fund which partners
with local charities like the Boys & Girls Clubs of Canada
to give at-risk youth a brighter future through education.
Each of our employees can spend one work day a
year volunteering, either for the Youth Fund or for a
registered charity that’s important to them. We also have
the “Walk a Mile” program that allows our employees
to experience work in customer-facing parts of this
business, such as at a retail store or as a ride-along with
a cable technician.
These are important investments in the development
and support of our greatest assets. We know that when
our employees succeed, Rogers succeeds.
8
ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
Invest In and Develop
OUR PEOPLE
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC.
9
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CANADIANS TODAY ARE CONSUMING ENTERTAINMENT, NEWS AND
SPORTS CONTENT IN MORE WAYS AND ON MORE DEVICES THAN EVER
BEFORE. WITH SEEMINGLY UNLIMITED OPTIONS AVAILABLE, CANADIANS
CAN NOW GET THE INFORMATION AND ENTERTAINMENT THEY WANT
WHEREVER, WHENEVER AND HOWEVER BEST SUITS THEIR LIFESTYLE.
Rogers has led the way in Canada with our world-class networks and
our stable of leading entertainment services like Rogers Anyplace TV,
Rogers NHL GameCentre LIVE with GamePlus, shomi, Next Issue Canada
and a host of others.
We will continue to deliver even more compelling content
wherever our customers want it. A prime example is our
late 2013 acquisition of the exclusive rights to national
NHL content in Canada for all televised, online and
wireless delivery. We are now bringing more games to
more Canadians in more ways than ever before; these
games are available to Canadians on almost every
platform imaginable.
This exciting new world of content delivery is enabled
by Rogers’ industry-leading wireless and broadband
networks, through which we distribute our category-
leading content assets virtually everywhere. Rogers has
some of the most popular sports, television, radio, digital
and print assets in Canada; these assets reach nearly 90%
of Canadians every week and at the same time increasingly
add value to our core Wireless and Cable businesses.
Our Sportsnet specialty network provides the best in
sports programming across Canada through its four
regional channels and its nationally distributed Sportsnet
ONE, Sportsnet World and Sportsnet 360 channels.
Rogers owns the seven-station City network which
broadcasts local, urban-oriented news programming,
and Canadian and U.S. prime-time entertainment in the
largest Canadian markets, and also owns the multilingual
OMNI news, information and entertainment channels for
the country’s ethnic communities. Rogers also provides
award-winning programming on its FX, FXX, OLN and G4
specialty TV channels. Through these broadcast assets
and wireless and broadband networks, Rogers is bringing
Canadians the most extensive line-up of NHL games and
related content ever seen.
In addition, Rogers also unveiled the largest, most
advanced hockey broadcast production studio in the
world at 11,000 square feet, delivering three live NHL
broadcasts for three different networks at one time.
We brought together a dream team of the game’s best
hockey hosts, commentators and analysts including
George Stroumboulopoulos, host of Hockey Night
in Canada; Ron MacLean, host of Rogers Hometown
Hockey; and Don Cherry on Coach’s Corner. Also, the
Rogers Hometown Hockey tour was launched to bring
the full NHL experience to 25 cities across Canada,
including its mobile broadcast studio plus fun hockey
activities, NHL alumni, local bands and great prizes.
We lifted more online blackouts and brought fans
50 per cent more live games with the launch of Rogers
NHL GameCentre Live, an online destination for
streaming the NHL on any screen including over 1,000
regular season games, the 2015 Stanley Cup Playoffs,
2015 Bridgestone NHL Winter Classic, and the 2015
NHL All-Star Game.
Additionally, Rogers premium customers get the best
seats in the country with exclusive access to GamePlus,
an incredible second screen experience on tablets and
mobiles where fans can pull up unique camera angles
from the referee’s helmet, behind the players’ bench,
along the ice and over the net, as well as multiple camera
angle replays.
In sports entertainment, Rogers owns the Toronto Blue
Jays Major League Baseball team. We also hold a 37.5%
investment in Maple Leaf Sports & Entertainment which
owns the NHL’s Toronto Maple Leafs, the NBA’s Toronto
Raptors, the MLS’s Toronto FC, together with a number
of other sports-related assets.
Our radio portfolio includes over 50 popular radio stations
across Canada that cater to all of Canada’s musical tastes.
Our stations have millions of listeners each day and we
have some of the highest rated stations in the country.
We also partnered with Shaw to launch shomi, our
exciting new online on-demand video streaming service
with thousands of hours of the most popular TV and
movie content. We’ll continue to make more great
content available to be consumed everywhere and on
an increasing number of different platforms. We will
also strategically invest in compelling new content that
our customers want, such as our joint agreement with
VICE Media.
As a result of all this great content delivered coast to coast
via TVs, tablets, smartphones, computers, radios and
magazines, advertisers increasingly view Rogers’ Media
segment as their one-stop shop for both their local and
national advertising needs.
10 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
Deliver Compelling
CONTENT
EVERYWHERE
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 11
INNOVATION IS IN OUR DNA AT ROGERS. OUR PIONEERING SPIRIT IS
EVIDENCED IN A LONG HISTORY OF FIRSTS, INCLUDING THE FIRST
CELLULAR CALL IN CANADA, THE WORLD’S FIRST HIGH-SPEED CABLE
INTERNET SERVICE, THE FIRST DIGITAL CELLULAR NETWORK IN NORTH
AMERICA, CANADA’S FIRST VIDEO-ON-DEMAND AND MOBILE TV SERVICES,
THE FIRST HSPA AND LTE NETWORKS, AND THE FIRST TO OFFER DEVICES
SUCH AS IPHONE, ANDROID, BLACKBERRY AND WINDOWS 8 IN CANADA.
We were also one of the first carriers in the world to offer the
telecommunications “quadruple play” of wireless, television, Internet
and telephony services over our own networks and one of the first to add
Smart Home Monitoring as a fifth product to the home.
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We have also been a pioneer in mobile payments
launching the suretap wallet, a new application that lets
customers use their smartphones to make payments at
tens of thousands of retailers across the country. With
the suretap wallet, customers can safely store eligible
payment cards on their smartphone and make purchases
by simply holding it up to contactless payment terminals,
just like they do today with plastic credit and debit cards.
We are also making considerable investments in our
cable broadband networks to expand our advantages in
internet and video services. Customers are demanding
ever faster internet speeds and access to their TV
content everywhere, so we continually upgrade our
infrastructure and drive fibre deeper into our network to
deliver this. We continue to lead the market with up to
350Mbps high-speed internet speeds, and will continue
to do so.
We continue to advance our digital cable TV set top box
capabilities and enhance the cable user interface. Today,
we offer whole-home PVR capability from a single box
in the house; customers can also use their smartphones
to control their channel guides, watch live TV on their
tablets, and access recorded programming online from
any location. We are also actively developing an all IP
video platform so customers can watch video content
anywhere, anytime and on any screen.
In 2015 we’ll build on the momentum we saw in 2014
with the launch of NHL GameCentre Live and the
innovative GamePlus layer, shomi, and Roam Like Home
As Ted Rogers often said, “The best is yet to come.”
Today customers are consuming more and more content
on their mobile devices and tablets. Research shows
mobile video use is expected to be 70% of wireless data
traffic by 2018.
The pace of innovation is staggering and it’s up to us
to keep up with our customers’ changing demands.
Smartphones, tablets, TVs and other hardware devices
get faster, smarter and more powerful daily. Applications
are regularly updated with new functionality and
better usability. Entrepreneurs constantly create new
businesses from new technologies. In this environment,
our customers expect us to continue to innovate around
our products and services while maintaining world-class
wireless and broadband networks.
Independent studies have shown that we have the
fastest wireless networks in Canada and we put
considerable efforts and resources towards maintaining
this advantage. We recently secured “beachfront”
spectrum consisting of two 12MHz blocks of contiguous,
paired lower 700MHz band spectrum covering the
vast majority of the Canadian population. This prime
spectrum will allow Rogers to deliver the ultimate video
experience and will carry wireless signals across greater
distances. It will also benefit our enterprise customers
with faster mobile broadband compared to existing LTE
coverage. 700MHz spectrum has the added advantage
of providing better in-building reception in densely
populated cities so customers can enjoy the speed and
consistency of LTE deep inside buildings. This spectrum
was the most sought after and Rogers went into the
auction intending to win it for our customers. We also
launched LTE-Advanced that combines the 700MHz
spectrum with AWS spectrum for an even better live
video streaming experience on mobile and tablet
devices. We have already deployed it in Vancouver,
Edmonton, Calgary, Windsor, London, Hamilton,
Toronto, Kingston, Moncton, Fredericton, Halifax and
Saint John, with more markets across the country to
follow in 2015.
12 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
Focus on
INNOVATION
AND NETWORK
LEADERSHIP
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 13
“ONE ROGERS” IS AN INTERNAL RALLYING PHRASE THAT REMINDS US
THAT THE VALUE OF ROGERS AS A WHOLE IS FAR GREATER THAN
THE SUM OF ITS PARTS.
When we harness and coordinate the talents of our employees across the
various facets and functions of the company, and combine these with our
wireless and broadband networks, powerful brands and leading media
assets, we can deliver an unbeatable combination for our customers.
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To use a musical metaphor, Rogers is like an orchestra
that has a great horn section, an excellent wind section
and really good percussionists, but to date we haven’t
consistently played together like an outstanding
orchestra should. While individually each section can
play fine music, it’s only after we better synchronize the
parts that we’ll create a great symphony. This is what we
are now focused on doing at Rogers.
Increased cross-functional coordination and an
organizational structure created around customer
type will help us make the most of our assets and
deliver better services to our customers. For example,
better integration of our Media assets with our core
Wireless and Cable communications assets can provide
better customer value and drive higher loyalty, better
customer experience and stronger growth.
Going to market as One Rogers also means rethinking
and refining how we manage our brands and
communicate with our customers. To accelerate our
progress on this front, we have consolidated all the
various branding and marketing communications
functions from across the company into a single
brand unit reporting to the CEO. We appointed Dale
Hooper to the position of Chief Brand Officer. This
new brand team manages all the brands, customer
communications and corporate social responsibility
initiatives across Rogers.
Brand management will become a core competency at
Rogers as the company moves forward because brands
are essential for clearly communicating the type of
experience consumers expect.
Hand in hand with clearly differentiated brands is
executing well in the market. We have the right assets
but we need to execute as one team delivering one
plan. Increasing collaboration across the company and
improving agility is core to our strategy so we will be
making a number of changes to our workplace to help
facilitate this collaboration. At the same time, we have
created one go to market team to ensure we effectively
deliver key commercial propositions to our customers.
This involves cross-functional project work from all
parts of the business. We have also begun refreshing
our advertising to reinforce the concept of One Rogers
through campaigns representing our company as an
entity rather than simply a collection of products.
The phrase “One Rogers” describes our plan to use all
Rogers’ employee, network, content and brand assets
to work together; as a powerful single force, we will
increase agility, velocity and customer loyalty.
14 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
Go to Market as
ONE ROGERS
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 15
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BEING A GOOD CORPORATE CITIZEN IS AT THE VERY HEART OF OUR
BUSINESS. IT WAS A VALUE ADOPTED BY OUR FOUNDER, TED ROGERS,
AND CONTINUES TO BE LIVED BY THE COMPANY TODAY. IT IS ABOUT
CONSTANTLY IMPROVING OUR OPERATIONS AND STRIVING TO BE
THE BEST FOR OUR STAKEHOLDERS WHILE MITIGATING RISK AND
ACHIEVING LONG TERM SUCCESS.
In 2014, Rogers provided over $70 million in cash and
in-kind donations to support various organizations
and causes, including our flagship Rogers Youth Fund
program. We believe that education is one of the best
ways to increase young people’s interest in school
and enhance future opportunities. Rogers Youth Fund
supports education programs for at-risk youth offered
by Boys & Girls Clubs and local non-profit organizations
across Canada. The programs offer after-school
homework clubs, academic tutoring and alternative
schooling to help youth excel both inside and outside
the classroom.
Rogers Raising the Grade is one of the principal
components of Rogers Youth Fund. Over the last year,
42,000 youth participated in the interactive after-school
program, which matches youth with mentors and tutors
who provide help with schoolwork and personal interests.
A state-of-the-art technology centre, with the latest
computers and electronic resources to support learning
and increase digital literacy, complements each Raising
the Grade program, with the goal to increase participants’
academic skills, high school graduation rates and access
to post-secondary education. We’re also aiming to
bridge the gap on digital inclusion with the Connected
for Success program. Over 4,200 families are currently
registered in this program which began in 2013 and
offers subsidized broadband Internet for families with low
incomes in partnership with Toronto Community Housing.
Rogers Employee Volunteer Program offers our
employees one day off to volunteer at a charity of their
choice, and every fall our employees get engaged in our
United Way Campaign, where for many straight years
Rogers has been proudly recognized by United Way
Canada as a Thanks a Million contributor, an honour
bestowed upon leading organizations who together with
their employees raise over $1 million annually in donations.
We’re also creating a great workplace by investing in
employee training and development, providing attractive
compensation and benefits, developing a positive health,
safety and wellness culture, and fostering an inclusive
and diverse workforce with employee programs such
as Rogers Women’s Network and RogersPride.
In 2014, Rogers was recognized as one of Canada’s Top
100 Employers, one of Canada’s Best Diversity Employers,
a Top Employer for Young People and as one of Greater
Toronto’s Top Employers. We were also celebrated for
our engaged workforce in Achievers 50 Most Engaged
Workplaces in North America, and for our employee
wellness programs with Excellence Canada’s Healthy
Workplace.
Environmental stewardship is a key part of our Corporate
Social Responsibility (CSR) strategy. With clear targets
to reduce our greenhouse gas emissions and energy
consumption, we undertake many programs to manage
our environmental footprint. We also put considerable
focus on reducing office and electronic waste through
our stewardship programs, as well as paper consumption
by promoting e-billing, and using FSC certified paper for
our magazines.
Across our supply chain, we are committed to ethical
procurement and have a strong framework in place to
achieve this. Rogers continually works with our partners
through our agreements, relationships and Supplier Code
of Conduct to ensure that we collectively adhere to sound
sourcing, production and environmental standards.
We take our customer privacy very seriously and
want them to know their information is in good hands.
In 2014 we released our first Transparency Report to
provide more details about the requests we receive
from government and law enforcement agencies. As a
company we comply with Canadian privacy law and only
respond to federal, provincial and municipal government
and law enforcement agencies when they have a legally
valid request - like a search warrant or court order.
While we’ve undertaken many programs such as the ones
listed here, we recognize that CSR is a journey and there
is even more we can do to be the best for Canadians.
For more information on our CSR performance and
programs, please visit rogers.com/csr and look out for
our 2014 Corporate Social Responsibility report in the
coming months.
At Rogers, growing means more than just bigger numbers
— it means making the world a better place.
16 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
Good
CORPORATE
CITIZENSHIP
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 17
Corporate Governance
BOARD OF DIRECTORS AND ITS COMMITTEES
AUDIT
CORPORATE
GOVERNANCE
NOMINATING
HUMAN
RESOURCES
EXECUTIVE
FINANCE
PENSION
AS OF FEBRUARY 13, 2015
CHAIR • MEMBER
Alan D. Horn, cpa, ca
Charles Sirois
C. William D. Birchall
Stephen A. Burch
John H. Clappison, fcpa, fca
Thomas I. Hull
Guy Laurence
Philip B. Lind, cm
John A. MacDonald
Isabelle Marcoux
The Hon. David R. Peterson, pc, qc
Edward S. Rogers
Loretta A. Rogers
Martha L. Rogers
Melinda M. Rogers
Rogers Communications’ Board of Directors is strongly
committed to sound corporate governance and continually
reviews its governance practices and benchmarks them against
acknowledged leaders and evolving legislation. We are a
family-founded and controlled company and take pride in our
proactive and disciplined approach towards ensuring that
Rogers governance structures and practices are deserving of
the confidence of the public capital markets.
With the December 2008 passing of Company founder and
CEO Ted Rogers, his voting control of Rogers Communications
passed to a trust of which members of the Rogers family
are beneficiaries. This trust holds voting control of Rogers
Communications for the benefit of successive generations of
the Rogers family.
As substantial stakeholders, the Rogers family is represented on
our Board and brings a long-term commitment to oversight and
value creation. At the same time, we benefit from having outside
Directors who are experienced North American business
leaders.
The Rogers Communications Board believes that the Company’s
governance and risk management systems are effective and that
the appropriate structures and procedures are in place.
The composition of our Board and structure of its various
committees are outlined in the table above and on the following
page. As well, we make available detailed information on our
governance structures and practices – including our complete
18 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
statement of Corporate Governance practices, our codes
of conduct and ethics, full committee charters and Board
member biographies – in the Corporate Governance section at
rogers.com/governance. Also at this link you will find a summary
of the differences between the NYSE corporate governance
rules applicable to U.S.-based companies and our governance
practices as a non-U.S.-based issuer that is listed on the NYSE.
The Audit Committee reviews the Company’s accounting
policies and practices, the integrity of the Company’s financial
reporting processes and procedures, and the financial
statements and other relevant public disclosures to be
provided to the public. The Committee also assists the Board
in its oversight of the Company’s compliance with legal and
regulatory requirements relating to financial reporting and
assesses the systems of internal accounting, financial controls,
risk management and the qualifications, independence and
work of both external and internal auditors.
The Corporate Governance Committee assists and makes
recommendations to the Board to ensure the Board of Directors
has developed appropriate systems and procedures to enable
it to exercise and discharge its responsibilities. To carry this
out, the Corporate Governance Committee assists the Board
in developing, recommending and establishing corporate
governance policies and practices, and leads the Board in
its periodic review of the performance of the Board and its
committees.
“ Over the years, the Canadian economy has benefited greatly from family-
founded and controlled companies that are able to take a longer-term view
of investment horizons and general business management. At Rogers, we have
successfully overlaid disciplined corporate governance processes that strike
a healthy balance of being supportive of the company’s continued success,
making business sense, and benefiting all shareholders.”
ALAN D. HORN, cpa, ca
CHAIRMAN OF THE BOARD
ROGERS COMMUNICATIONS INC.
“ Rogers has long benefited from strong, independent voices and Directors
in the boardroom and sound governance structures, which ensure that their
influence is real. The structure of our Board is very much intended to ensure that
the Directors and management act in the interests of all Rogers shareholders –
an approach that has helped ensure the continuance of strong, independent,
family-founded Canadian companies.”
CHARLES SIROIS
LEAD DIRECTOR
ROGERS COMMUNICATIONS INC.
The Nominating Committee identifies prospective Director
nominees for election by the shareholders and for appointment
by the Board and also recommends nominees for each
committee of the Board, including each committee’s Chair.
The Human Resources Committee assists the Board in
monitoring, reviewing and approving compensation and
benefit policies and practices. The Committee is responsible
for recommending senior management compensation and
for monitoring succession planning with respect to senior
executives.
The Executive Committee assists the Board in discharging
|its responsibilities in the intervals between meetings of the
Board, including to act in such areas as specifically designated
and authorized at a preceding meeting of the Board and to
consider matters concerning the Company that may arise from
time to time.
The Finance Committee reviews and reports to the Board on
matters relating to the Company’s investment strategies and
general debt and equity structure.
The Pension Committee supervises the administration of
the Company’s pension plans and reviews the provisions and
investment performance of the Company’s pension plans.
ROGERS GOOD GOVERNANCE PRACTICES
SEPARATION OF CEO
& CHAIRMAN ROLES
INDEPENDENT
LEAD DIRECTOR
FORMAL CORPORATE
GOVERNANCE
POLICY & CHARTERS
CODE OF BUSINESS
CONDUCT &
WHISTLEBLOWER
HOTLINE
DIRECTOR SHARE
OWNERSHIP
GUIDELINES
BOARD &
COMMITTEE
IN CAMERA
DISCUSSIONS
ANNUAL REVIEWS
OF BOARD &
COMMITTEE
PERFORMANCE
AUDIT COMMITTEE
MEETINGS WITH
INTERNAL & EXTERNAL
AUDITORS
ORIENTATION
PROGRAM FOR
NEW DIRECTORS
BOARD
EDUCATION
SESSIONS
COMMITTEE
AUTHORITY TO
RETAIN INDEPENDENT
ADVISORS
DIRECTOR MATERIAL
RELATIONSHIP
STANDARDS
For a complete description of Rogers corporate governance
structure and practices, copies of our annual information
circular and proxy, go to rogers.com/investors
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 19
Directors
of Rogers Communications Inc.
AS OF FEBRUARY 13, 2015
1
3
9
2
4
5
6
7
8
10
11
12
13
14
DIREC TORS
1
2
3
4
Alan D. Horn, cpa, ca
Chairman, President and
Chief Executive Officer,
Rogers Telecommunications Ltd.
Charles Sirois
Lead Director, Chief Executive Officer,
Telesystem Ltd.
Charles William David Birchall
Vice Chairman,
Barrick Gold Corporation
Stephen A. Burch
Chairman,
University of Maryland
Medical Systems
6
*
7
8
9
Thomas I. Hull
Chairman and Chief Executive Officer,
The Hull Group of Companies
Guy Laurence
President and Chief Executive Officer,
Rogers Communications
* Pictured on facing page.
Philip B. Lind, cm
Vice Chairman
John A. MacDonald
Company Director
Isabelle Marcoux
Chair,
Transcontinental Inc.
5
John H. Clappison, fcpa, fca
Company Director
10 The Hon. David R. Peterson, pc, qc
Senior Partner and Chairman,
Cassels Brock & Blackwell LLP
11 Edward S. Rogers
Deputy Chairman
12 Loretta A. Rogers
Company Director
13 Martha L. Rogers
Doctor of
Naturopathic Medicine
14 Melinda M. Rogers
Company Director
For detailed biographical
information of Rogers Directors,
go to rogers.com/investors
20 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
Senior Executive Officers
of Rogers Communications Inc.
AS OF FEBRUARY 13, 2015
For detailed biographical
information of Rogers
Executive Officers, go to
rogers.com/investors
SENIOR EXECUTIVE OFFICERS
1
2
3
4
5
6
Guy Laurence
President and
Chief Executive Officer
Robert Berner
Chief Technology Officer
Frank Boulben
Chief Strategy Officer
7
8
9
Deepak Khandelwal
Chief Customer Officer
David Miller
Chief Legal Officer and Secretary
Keith Pelley
President,
Media Business Unit
Jacob Glick
Chief Corporate Affairs Officer
10 Jim Reid
Chief Human Resources Officer
Dale Hooper
Chief Brand Officer
Nitin Kawale
President,
Enterprise Business Unit
11 Anthony Staffieri, fcpa, fca
Chief Financial Officer
12 Dirk Woessner **
President,
Consumer Business Unit
** Effective April 6, 2015
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 21
234591011876121
Why Invest in Rogers
ROGERS COMMUNICATIONS HAS EXCELLENT POSITIONS IN GROWING MARKETS, POWERFUL BRANDS THAT STAND FOR
INNOVATION, PROVEN MANAGEMENT, A LONG RECORD OF DRIVING GROWTH AND SHAREHOLDER VALUE, AND THE
FINANCIAL STRENGTH TO CONTINUE TO DELIVER LONG-TERM GROWTH.
LEADER IN CANADIAN
COMMUNICATIONS INDUSTRY
MUST-HAVE PRODUCTS
AND SERVICES
CATEGORY-LEADING
MEDIA ASSETS
Canada’s largest wireless carrier and a
leading cable television provider, offering
a “quadruple play” of wireless, Internet,
television and telephony services to
consumers and businesses.
A leading provider of communications
and entertainment products and
services that are increasingly becoming
integrated necessities in today’s world.
Unique and complementary collection
of leading broadcast radio and television,
specialty TV, sports entertainment,
publishing and digital media assets.
SUPERIOR ASSET MIX
STRONG FRANCHISES
AND POWERFUL BRANDS
LEADING NETWORKS
AND INNOVATIVE PRODUCTS
Majority of revenue and cash flow is
generated from wireless and broadband
services, the fastest growing segments
of the telecommunications industry.
Strong franchises with nationally
recognized and highly respected
brands that are synonymous in Canada
with innovation, choice and value.
Leading wireless and broadband
network platforms that deliver the
most innovative communications,
information and entertainment services.
PROVEN LEADERSHIP AND
ENGAGED EMPLOYEE BASE
FINANCIAL STRENGTH
AND FLEXIBILITY
HEALTHY TRADING VOLUME
AND GROWING DIVIDENDS
Experienced, performance-oriented
management and operating teams
with solid industry expertise, supported
by the spirit of innovation and an
entrepreneurial culture.
Financially strong with an investment
grade balance sheet, conservative
debt leverage, and significant available
financial liquidity.
RCI common stock actively trades on the
TSX and NYSE, with average daily trading
volume of approximately 1.3 million
shares. Each share pays an annualized
dividend of $1.92 per share in 2015.
ANNUALIZED DIVIDENDS PER SHARE: 2010–2015
$1.74
$1.83
$1.92
$1.42
$1.28
$1.58
2010
2011
2012
2013
2014
2015
22 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
TOTAL SHAREHOLDER RETURN
TEN-YEAR COMPAR ATIVE TOTAL RETURN: 2005–2014
277%
184%
RCI.B
ON TSX
TSX
TELECOM
INDE X
S&P/ TSX
COMPOSITE
INDE X
S&P
TELECOM
INDE X
108%
88%
2014 Financial Report
24 MANAGEMENT’S DISCUSSION AND ANALYSIS
64 Governance and Risk Management
26
Executive Summary
26 About Rogers Communications Inc.
27
2014 Highlights
29 Understanding Our Business
Products and Services
29
30 Competition
32
Industry Trends
33 Our Strategy
34 Key Performance Drivers and Highlights
34
36
36
2014 Key Highlights
2015 Objectives
Financial and Operating Guidance
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64 Governance at Rogers
65
67
67
73 Controls and Procedures
Social Responsibility
Risk Management
Risks and Uncertainties Affecting Our Business
73 Regulation in Our Industry
75 Wireless
76 Cable
77 Media
78 Other Information
Key Performance Indicators
78 Accounting Policies
81
83 Non-GAAP Measures
85
Summary of Financial Results of Long-Term Debt
Guarantor
Five-Year Summary of Consolidated Financial Results
37 Capability to Deliver Results
86
37 Widespread Product Distribution
37
39
40
40
40
40 Healthy Trading Volumes and History of Dividend Growth
Leading Networks
First Class Media Content
Engaged People
Powerful Brands
Financial Strength and Flexibility
41
2014 Financial Results
41
42
Summary of Consolidated Results
Key Changes in Financial Results This Year Compared to
2013
43 Wireless
46 Cable
48
49 Media
50 Additions to Property, Plant and Equipment
Review of Consolidated Performance
51
54 Quarterly Results
56
Balance Sheet Overview
Business Solutions
57 Managing Our Liquidity and Financial Resources
Sources and Uses of Cash
57
Financial Condition
59
60
Financial Risk Management
62 Dividends and Share Information
63 Commitments and Other Contractual Obligations
64 Off-Balance Sheet Arrangements
87 CONSOLIDATED FINANCIAL STATEMENTS
87 Management’s Responsibility for Financial Reporting
87
Independent Auditors’ Report
88 Consolidated Statements of Income
89 Consolidated Statements of Comprehensive Income
90 Consolidated Statements of Financial Position
91 Consolidated Statements of Changes in Shareholders’ Equity
92 Consolidated Statements of Cash Flows
93 Notes to Consolidated Financial Statements
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 23
MANAGEMENT’S DISCUSSION AND ANALYSIS
Management’s Discussion and Analysis
(MD&A) contains
This Management’s Discussion and Analysis
important information about our business and our performance for the
year ended December 31, 2014. This MD&A should be read in
conjunction with our 2014 Audited Consolidated Financial Statements,
which have been prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by the International Accounting
Standards Board.
operated
We report our results of operations in four segments: Wireless, Cable,
Business Solutions and Media. Wireless, Cable and Business Solutions
are
Rogers
Communications Partnership (RCP) and certain other wholly owned
subsidiaries. Media is operated by our wholly-owned subsidiary,
Rogers Media Inc. and its subsidiaries.
wholly-owned
subsidiary,
our
by
All dollar amounts are in Canadian dollars unless otherwise stated. All
percentage changes are calculated using the rounded numbers as
they appear in the tables. Charts, graphs and diagrams are included
for reference; however, they do not form part of this MD&A. This
MD&A is current as at February 13, 2015 and was approved by our
Board of Directors. This MD&A includes forward-looking statements
and assumptions. See “About Forward-Looking Information” for more
information.
We, us, our, Rogers, Rogers Communications and the Company refer
to Rogers Communications Inc. and our subsidiaries. RCI refers to the
legal entity Rogers Communications
including our
subsidiaries. RCI also holds interests in various investments and
ventures.
Inc., not
We are publicly traded on the Toronto Stock Exchange (TSX: RCI.A
and RCI.B) and on the New York Stock Exchange (NYSE: RCI).
In this MD&A, this year refers to the year ended December 31, 2014,
and last year refers to the year ended December 31, 2013. All results
commentary is compared to the equivalent period in 2013 or as at
December 31, 2013, unless otherwise indicated.
ABOUT FORWARD-LOOKING INFORMATION
This MD&A includes “forward-looking information” within the meaning
of applicable securities laws, and assumptions about, among other
things, our business, operations and financial performance and
condition approved by management on the date of this MD&A. This
forward-looking information and these assumptions include, but are
not limited to, statements about our objectives and strategies to
achieve those objectives, and about our beliefs, plans, expectations,
anticipations, estimates or intentions.
Forward-looking information and statements:
• typically include words like could, expect, may, anticipate, assume,
intend, estimate, plan, project, guidance, outlook and
believe,
similar expressions, although not all forward-looking information
and statements include them;
• include conclusions, forecasts and projections that are based on our
current objectives and strategies and on estimates, expectations,
assumptions and other factors, most of which are confidential and
proprietary and that we believe to be reasonable at the time they
were applied but may prove to be incorrect; and
• were approved by our management on the date of this MD&A.
24 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
Our forward-looking information and statements include forecasts and
projections related to the following items, among others:
• revenue
• adjusted operating profit
• property, plant and equipment expenditures
• cash income tax payments
• free cash flow
• dividend payments
• expected growth in subscribers and the services they subscribe to
• the cost of acquiring and retaining subscribers and deployment of
new services
• continued cost reductions and efficiency improvements
• the growth of new products and services
• all other statements that are not historical facts.
is not
include, but
Specific forward-looking information included or incorporated in this
document
information and
statements under “Financial and Operating Guidance” relating to our
2015 consolidated guidance on adjusted operating profit, property,
plant and equipment expenditures, and free cash flow. All other
statements that are not historical facts are forward-looking statements.
limited to, our
We base our conclusions, forecasts and projections (including the
aforementioned guidance) on the following factors, among others:
• general economic and industry growth rates
• currency exchange rates and interest rates
• product pricing levels and competitive intensity
• subscriber growth
• pricing, usage and churn rates
• changes in government regulation
• technology deployment
• availability of devices
• timing of new product launches
• content and equipment costs
• the integration of acquisitions
• industry structure and stability.
Except as otherwise indicated, this MD&A and our forward-looking
statements do not reflect the potential impact of any non-recurring or
other special
items or of any dispositions, monetizations, mergers,
acquisitions, other business combinations or other transactions that
may be considered or announced or may occur after the date the
statement containing the forward-looking information is made.
RISKS AND UNCERTAINTIES
Actual events and results can be substantially different from what is
expressed or implied by forward-looking information because of risks,
uncertainties and other factors, many of which are beyond our control,
including but not limited to:
• new interpretations and new accounting standards from accounting
standards bodies
• regulatory changes
• technological change
• economic conditions
• unanticipated changes in content or equipment costs
• changing conditions
in the entertainment,
information and
communications industries
• the integration of acquisitions
• litigation and tax matters
• the level of competitive intensity
• the emergence of new opportunities.
These factors can also affect our objectives, strategies, and intentions.
Many of
these factors are beyond our control or our current
expectations or knowledge. Should one or more of these risks,
uncertainties or other factors materialize, our objectives, strategies or
intentions change, or any other factors or assumptions underlying the
forward-looking information prove incorrect, our actual results and our
plans could vary significantly from what we currently foresee.
BEFORE MAKING AN INVESTMENT DECISION
Before making any investment decisions and for a detailed discussion
the risks, uncertainties and environment associated with our
of
business, fully review the sections in this MD&A entitled “Regulation in
Our Industry” and “Governance and Risk Management”, as well as our
various other filings with Canadian and US securities regulators which
can be found at sedar.com and sec.gov.
Accordingly, we warn investors to exercise caution when considering
statements containing forward-looking information and caution them
that it would be unreasonable to rely on such statements as creating
legal rights regarding our future results or plans. We are under no
obligation (and we expressly disclaim any such obligation) to update or
alter any statements containing forward-looking information or the
factors or assumptions underlying them, whether as a result of new
information, future events or otherwise, except as required by law. All
of the forward-looking information in this MD&A is qualified by the
cautionary statements herein.
FOR MORE INFORMATION
You can find more information about us,
including our Annual
Information Form, on our website (rogers.com/investors), on SEDAR
(sedar.com) and on EDGAR (sec.gov), or you can e-mail us at
investor.relations@rci.rogers.com.
Information on or connected to
these and any other websites referenced in this document does not
constitute part of this MD&A.
You can also go to rogers.com/investors for information about our
governance practices, corporate social responsibility reporting, a
glossary of communications and media industry terms, and additional
information about our business.
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2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 25
MANAGEMENT’S DISCUSSION AND ANALYSIS
Executive Summary
ABOUT ROGERS COMMUNICATIONS INC.
ROGERS COMMUNICATIONS IS ONE OF CANADA’S LEADING DIVERSIFIED COMMUNICATIONS AND MEDIA COMPANIES.
2014 OPERATING REVENUE BY SEGMENT
(%)
$12.9
BILLION
WIRELESS 56%
CABLE 27%
MEDIA 14%
BUSINESS SOLUTIONS 3%
2014 ADJUSTED OPERATING PROFIT BY SEGMENT
(%)
$5.0
BILLION
WIRELESS 63%
CABLE 32%
MEDIA 3%
BUSINESS SOLUTIONS 2%
We provide a broad range of services to individual consumers and
businesses: wireless voice and data communications, high-speed
Internet, cable television, cable telephony, wired telecom and data
networking services. We also provide services in television and radio
broadcasting, multi-platform shopping,
and
trade publications and
entertainment, digital media, consumer
professional publications.
sports media
Almost all of our operations and sales are in Canada. We have a highly
skilled and diversified workforce of approximately 27,000 employees.
Our head-office is in Toronto, Ontario and we have numerous offices
across Canada.
FOUR BUSINESS SEGMENTS
We report our results of operations in four segments. Each segment
and the nature of its business are as follows:
Segment
Principal activities
Wireless
Cable
Business
Solutions
Media
Wireless telecommunications operations for
Canadian consumers and businesses
Cable telecommunications operations, including
Internet, television and telephony (phone) for
Canadian consumers and businesses
Network connectivity through our fibre network and
data centre assets to support a range of voice, data,
networking, hosting and cloud-based services for
small, medium and large Canadian businesses,
governments, and on a wholesale basis to other
telecommunications providers
A diversified portfolio of media properties,
including television and radio broadcasting,
specialty channels, digital media, multi-platform
shopping, publishing, and sports media and
entertainment
26 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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2014 HIGHLIGHTS
KEY FINANCIAL INFORMATION
(In millions of dollars, except margins and per share amounts)
2014
2013
% Chg
Years ended December 31
Consolidated
Operating revenue
As adjusted 1:
Operating profit
Operating profit margin
Net income
Diluted earnings per share
Net income
Basic earnings per share
Diluted earnings per share
Cash provided by operating activities
Free cash flow 1
Wireless
Operating revenue
Adjusted operating profit
Adjusted operating profit margin as a % of network revenue
Cable
Operating revenue
Adjusted operating profit
Adjusted operating profit margin
Business Solutions
Operating revenue
Adjusted operating profit
Media
Operating revenue
Adjusted operating profit
KEY PERFORMANCE INDICATORS
Subscriber count results (000s) 2
Wireless subscribers
Internet subscribers
Television subscribers
Phone subscribers
Additional wireless metrics 2
Wireless postpaid churn (monthly)
Wireless postpaid ARPU (monthly)
Ratios
Capital intensity 2
Dividend payout ratio 2
Dividend payout ratio of free cash flow 1, 2
Return on assets 2
Adjusted net debt / adjusted operating profit 1
Employee-related information
Number of employees (approximate)
12,850
12,706
1
5,019
39.1%
1,532
$ 2.96
1,341
$ 2.60
$ 2.56
3,698
1,437
7,305
3,246
48.1%
3,467
1,665
48.0%
382
122
1,826
131
4,993
39.3%
1,769
$ 3.42
1,669
$ 3.24
$ 3.22
3,990
1,548
7,270
3,157
46.8%
3,475
1,718
49.4%
374
106
1,704
161
1
(0.2 pts)
(13)
(13)
(20)
(20)
(20)
(7)
(7)
–
3
1.3 pts
–
(3)
(1.4 pts)
2
15
7
(19)
As at, or years ended December 31
2014
2013
9,450
2,011
2,024
1,150
9,503
1,961
2,127
1,153
Chg
(53)
50
(103)
(3)
1.27%
$ 66.86
1.24%
$ 67.76
0.03 pts
($0.90)
18.4%
70%
66%
5.1%
2.9
17.6%
54%
58%
7.1%
2.4
0.8 pts
16 pts
8 pts
(2.0 pts)
0.5
27,000
28,000
(4%)
1 Adjusted operating profit, adjusted operating profit margin, adjusted net income, adjusted diluted earnings per share, free cash flow and adjusted net debt / adjusted
operating profit are non-GAAP measures and should not be considered as a substitute or alternative for GAAP measures. They are not defined terms under IFRS, and do not
have standard meanings, so may not be a reliable way to compare us to other companies. See “Non-GAAP Measures” for information about these measures, including how we
calculate them.
2 As defined. See “Key Performance Indicators”.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 27
MANAGEMENT’S DISCUSSION AND ANALYSIS
KEY ACHIEVEMENTS
OPERATING REVENUE AND ADJUSTED OPERATING PROFIT
• Consolidated revenue increased by 1% this year, reflecting revenue
growth of 2% in Business Solutions and 7% in Media, while Wireless
and Cable revenue was stable. Wireless revenue was stable with the
impact of continued adoption of the customer-friendly Rogers Share
Everything Plans, which generate higher ARPU, offset by lower roaming
revenue. Cable revenue was stable as the increase in Internet revenue
was offset by decreases in Television and Phone revenue. Media
revenue increased as a result of the National Hockey League (NHL)
licensing agreement, growth at Sportsnet, and higher revenues at The
Shopping Channel, the Toronto Blue Jays, and Radio, partially offset by
continued softness in conventional broadcast TV and print advertising.
• Consolidated adjusted operating profit increased 1% this year to
$5,019 million, with consolidated adjusted operating profit margins
of 39.1%, resulting from higher revenue offset by higher operating
expenses in Cable and Media. Our net income decreased 20% to
$1,341 million, mainly due to higher depreciation and amortization,
restructuring, acquisition and other and finance costs.
• We activated 2.6 million wireless smartphones, of which 30% were
new subscribers, with higher-value smartphone customers growing
to represent 84% of Wireless postpaid subscribers.
FREE CASH FLOW
• Free cash flow decreased 7% this year to $1,437 million as a
result of higher property, plant and equipment expenditures
interest on our borrowings, partially offset by
and higher
higher adjusted operating profit and lower cash income taxes.
Similarly, our cash provided by operating activities decreased
7% this year to $3,698 million.
BALANCE SHEET AND LIQUIDITY POSITION
• Issued $2.1 billion of senior notes at historically low rates for Rogers,
consisting of $250 million three year floating rate senior notes,
$400 million five year 2.80% senior notes, $600 million ten year
4.00% senior notes, and US$750 million ($832 million) thirty year
5.00% senior notes.
• Our overall weighted average cost of borrowings was 5.20% as at
December 31, 2014 compared to 5.54% as at December 31, 2013,
and a weighted average term to maturity of 10.8 years, compared to
10.3 years as at December 31, 2013.
• Ended the year with approximately $2.8 billion of available liquidity,
comprised of $0.2 billion cash on hand, $2.5 billion available under
our bank credit facility and $0.1 billion available under our $0.9
billion accounts receivable securitization program.
GROWING DIVIDENDS
• Increased our annualized dividend rate in February 2014 by 5% to
$1.83 per Class A Voting and Class B Non-Voting share and paid a
quarterly dividend of $0.4575 per share during 2014. The Rogers
Board of Directors further authorized an increase in our annualized
dividend on January 28, 2015, by 5% to $1.92.
NEW STRATEGIC PLAN
• Unveiled Rogers 3.0, a multi-year, seven-point plan in May 2014 that
reflects feedback from thousands of customers, employees,
shareholders and a number of other stakeholders. The plan builds
on Rogers unrivaled asset mix and the underlying strengths of the
Company to improve customer experience, reaccelerate growth
and better capitalize on opportunities for growth and innovation.
• Completed a structural reorganization under the Rogers 3.0 plan to
enhance service, accountability and agility by structuring teams
around our customers and removing management layers to ensure
to customers and front-line
that senior
employees. We hired executive leaders with significant experience
to fill key senior management roles and have begun executing our
new Rogers 3.0 plan.
leadership is closer
OPERATING REVENUE BY SEGMENT
(IN MILLIONS OF DOLLARS)
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
(IN MILLIONS OF DOLLARS)
2014
2013
2012
$1,826
$382
$3,467
$7,305
2014
$1,704
$374
$3,475
$7,270
$1,620
$351
$3,358
$7,280
2013
2012
Media
Business Solutions
Cable
Wireless
ADJUSTED OPERATING PROFIT BY SEGMENT
(IN MILLIONS OF DOLLARS)
2014
2013
2012
$131
$122
$1,665
$3,246
$161
$106
$1,718
$3,157
$190
$89
$1,605
$3,063
TOTAL ASSETS
(IN MILLIONS OF DOLLARS)
2014
2013
2012
Media
Business Solutions
Cable
Wireless
ADJUSTED DILUTED EARNINGS PER SHARE
($)
2014
2013
2012
$2,366
$2,240
$2,142
$26,522
$23,601
$19,618
$2.96
$3.42
$3.41
28 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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Understanding Our Business
Rogers Communications is one of Canada’s leading diversified communications and media companies.
We report our results based on the following four segments:
businesses,
consumers,
governments
Wireless provides wireless voice and data communication services to
other
individual
telecommunications service providers. Our wireless network is
currently one of the most extensive and advanced independent high-
speed wireless data networks in Canada, capable of supporting
wireless services on smartphones, tablets, computers and a broad
variety of machine-to-machine and specialized devices. See “Capability
to Deliver Results” for more information about our extensive Wireless
network and significant spectrum position.
and
Cable provides voice and data communications, television and high-
speed Internet services to both consumers and businesses, leveraging
our expansive fibre and hybrid fibre coaxial network infrastructure in
Ontario, New Brunswick and Newfoundland. See “Capability to Deliver
Results” for more information about our expansive Cable networks.
Business Solutions provides voice and data communications and
advanced services,
including data centres and cloud computing,
to a wide range of small, medium and large enterprise and
government customers, as well as on a wholesale basis to other
telecommunications service providers over our fibre network facilities.
Media provides television and radio broadcasting services, publishing
services, digital media content, television and online shopping, and
sports media and entertainment which includes our 12-year exclusive
national NHL licensing agreement (NHL Agreement) to broadcast all
national live hockey games within Canada on all platforms.
PRODUCTS AND SERVICES
is a Canadian leader
WIRELESS
Rogers
in innovative wireless network
technologies and services. We provide wireless services under the
Rogers, Fido and chatr brands, and provide consumers and businesses
with the best and latest wireless devices, services and applications
including:
• mobile and fixed high speed Internet access;
• wireless voice and enhanced voice features;
• wireless home phone;
• device protection;
• text messaging;
• e-mail;
• global voice and data roaming;
• machine-to-machine solutions;
• advanced business solutions;
• suretap mobile wallet;
• Rogers AnyPlace TV; and
• Rogers One Number.
CABLE
Our cable network provides a leading and innovative selection of high-
speed broadband Internet access, digital television and online viewing,
phone and advanced home Wi-Fi services to consumers and
businesses.
Television services include on-demand, personal video recorders
(PVRs) and Whole Home PVRs; regular and time-shifted programming;
digital specialty channels; and Rogers Anyplace TV and Anyplace TV
Home Edition for viewing televised content on smartphones, tablets
and personal computers.
Phone services include residential and small business local telephony
service, calling features such as voicemail, call waiting, and long-
distance.
BUSINESS SOLUTIONS
Our services that meet the increasing demands of today’s critical
business applications include:
• voice, data networking, Internet protocol (IP) and Ethernet services
over multiservice customer access devices that allow customers to
scale and add services, such as private networking, Internet, IP voice
and cloud solutions, which blend seamlessly to grow with their
business requirements;
• optical wave, Internet, Ethernet and multi-protocol label switching
services, providing scalable and secure metro and wide area private
networking that enable and interconnect
critical business
applications for businesses that have one or many offices, data
centres or points of presence (as well as cloud applications) across
Canada; and
• extensive wireless and cable access networks services for primary,
bridging and back-up connectivity.
MEDIA
Our portfolio of Media assets reaches Canadians coast-to-coast.
In Television, we operate several conventional and specialty television
networks:
• City network, which together with affiliated stations, has broadcast
distribution to approximately 80% of Canadian households;
• OMNI multicultural broadcast television stations;
• Specialty channels that include Outdoor Life Network, FX (Canada),
FXX (Canada), and G4 Canada;
• Sportsnet’s four regional stations, Sportsnet ONE, Sportsnet 360
and Sportsnet World;
• The Shopping Channel, Canada’s only nationally televised shopping
channel which generates a significant and growing portion of its
revenues from online sales; and
• VICE Canada, a joint agreement between Rogers and VICE Media
that will produce and deliver Canadian-made news and
entertainment programming across mobile, web and TV platforms
starting in 2015.
In Radio, we operate more than 50 AM and FM radio stations in
markets across Canada, including popular radio brands such as 98.1
CHFI, 680 News, Sportsnet 590 The FAN, KISS 92.5, JACK FM and
SONiC.
Our Publishing services and products include:
• many well-known consumer magazines
such as Maclean’s,
Chatelaine, Flare, Hello! Canada and Canadian Business;
• a leading position in marketing, medical,
financial, and trade
publications;
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 29
MANAGEMENT’S DISCUSSION AND ANALYSIS
• a broad digital presence with a number of online publications that
continue the extension of content across new platforms; and
COMPETITION
• Next
Issue Canada, our digital magazine service which offers
unlimited access to a catalogue of nearly 150 premium Canadian
and US magazine titles.
Competition in wireless from national and regional operators as well as
new entrants puts downward pressure on pricing, potentially reducing
profit margins, and can also impact our customer churn.
Our NHL Agreement, beginning with the 2014-2015 NHL season,
allows us to deliver unprecedented coverage of professional hockey
across television, smartphones,
tablets and Internet streaming,
including Rogers NHL GameCentre LIVE with more than 1,000 regular
season games streamed wirelessly and online.
the Internet, opening the door
Traditional wireline telephone and television services are now offered
to more non-traditional
over
competitors, and changing how traditional providers compete. This is
changing the mix of packages and pricing that service providers offer
and impacts the levels of customer churn.
In Sports Entertainment, we own the Toronto Blue Jays, Canada’s only
Major League Baseball (MLB) team, and the Rogers Centre event
venue, which hosts the Toronto Blue Jays’ home games and other
professional league games, concerts, trade shows and special events.
Our online and mobile digital media platforms include digital
advertising across websites and mobile platforms, digital content
subscriptions, and e-commerce solutions.
OTHER
Other services we offer to consumers and businesses include:
• local digital services:
• OutRank, an online marketing and advertising tool for small
businesses;
• Vicinity, an automated loyalty program for small businesses;
• Zoocasa, an online real estate platform with advanced online
tools and information from industry experts for buyers and sellers;
and
• Rogers Alerts, a program provided at no charge to Rogers
wireless customers that delivers location-based mobile offers
from participating retailers
• Rogers Smart Home Monitoring, an innovative home security and
automation system;
• Rogers First Rewards Loyalty Program, which allows Rogers
customers to earn loyalty points on Wireless and Cable products;
and
• Rogers First Rewards MasterCard, a no annual fee credit card that
allows customers to earn Rogers First Rewards points on credit card
spending.
OTHER INVESTMENTS
We hold interests in a number of associates and joint ventures, some of
which include:
• our 37.5% ownership interest in Maple Leaf Sports & Entertainment
Ltd. (MLSE), which owns the Toronto Maple Leafs, the Toronto
Raptors, the Toronto FC, and the Toronto Marlies, as well as various
associated real estate holdings;
• our joint venture in shomi, a new subscription video-on-demand
streaming service available both online and via cable set top boxes
with a library of over 11,000 hours of movies and past seasons of
some of the most popular TV shows; and
• our joint operation,
Inukshuk Wireless Partnership, created to
operate a national fixed wireless telecommunications network to be
used by the partners of the joint operation and their subsidiaries.
In the media industry, there continues to be a shift towards digital and
online media consumption by consumers which in turn drives
advertisers to direct more advertising spend to digital and online
versus
there are more media
In addition,
competitors as additional digital and online media companies enter
the market, including large global companies.
traditional media.
sophistication of wireless
WIRELESS
We compete on quality of service, scope of services, network
technology, breadth of
coverage,
distribution, selection of devices, branding and positioning, and price.
• Wireless technology: our extensive LTE network caters to customers
seeking the increased capacity and speed it provides. We compete
with Bell, Telus, MTS, Videotron, Sasktel, and Eastlink, all of whom
operate LTE networks and we expect competition to grow over time
as LTE becomes the prevailing technology in Canada. We also
compete with these providers and other regional providers such as
Wind Mobile and Mobilicity on HSPA and GSM networks and with
like Wi-Fi
providers that use alternative wireless technologies,
“hotspots”.
• Product, branding and pricing: we compete nationally with Bell and
Telus. We also compete with new entrants, various regional players
and resellers.
• Distribution: we compete with other service providers for both
dealers and prime locations for our own stores as well as third party
retail distribution shelf space.
• Wireless networks and handset devices: the increasing parity of
wireless devices across networks has dramatically transformed the
competitive landscape, and we expect
to continue.
Consolidation among new entrants or with incumbent carriers could
further alter the competitive landscape for Wireless regionally or
nationally.
this
• Spectrum: Industry Canada has announced two spectrum auctions
to take place in 2015. The first auction for AWS-3 spectrum
comprising 1755-1780 MHz and 2155-2180 MHz bands will take
place on March 3, 2015. 30 MHz of the 50 MHz of paired spectrum
to be auctioned will be reserved for “operating new entrants”. The
second auction, for 2500 MHz spectrum, will start on April 14, 2015.
This auction includes a spectrum aggregation limit of 40 MHz. The
outcomes of both of these auctions may increase competition.
30 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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CABLE
Internet competes with other ISPs that offer residential and commercial
high-speed Internet access services. Rogers Hi-Speed Internet services
compete directly with:
• Bell’s Internet service in Ontario;
• Bell Aliant’s Internet services in New Brunswick and Newfoundland;
and
MEDIA
Television and specialty services compete for viewers and advertisers
with:
• other Canadian television stations that broadcast in their local
markets, including those owned and operated by the CBC, Bell
Media, and Shaw Media, some of which have greater national
coverage;
• various resellers using wholesale telecommunication company DSL
and cable Third Party Internet Access (TPIA) services in local markets.
• other specialty channels;
• other distant Canadian signals and US border stations given the
Television competes:
• increasingly with alternative, Canadian multi-channel Broadcasting
including Bell, Shaw, other
Distribution Undertakings (BDUs)
alternative satellite TV services, and Internet Protocol television;
• with over-the-air local and regional broadcast television signals
received directly through antennas, and the illegal reception of US
direct broadcast satellite services; and
• with television shows and movies streaming over the Internet
through providers like Netflix, YouTube, Apple TV, and CraveTV and
channels streaming their own content.
Phone competes with:
• Bell and Bell Aliant’s wireline phone service in Ontario, New
Brunswick, and Newfoundland and Labrador;
time-shifting capacity available to subscribers;
• other media, including newspapers, magazines, radio, and outdoor
advertising; and
• content available on the Internet.
Our radio stations compete mainly with individual stations in local
markets, but they also compete:
• nationally with other large radio operators, including satellite radio
operator Sirius/XM, the CBC, Bell Media and Corus Entertainment;
• with other media, including newspapers, magazines, television and
outdoor advertising; and
• with new technologies such as online web information services,
music downloading, portable media players and online music
streaming services.
• Incumbent Local Exchange Carrier (ILEC) local loop resellers and
VoIP service providers (such as Primus and Comwave), other VoIP
only service providers (such as Vonage and Skype) and other voice
applications riding over the Internet access services of ISPs; and
The Shopping Channel competes with:
• retail stores, catalogue, Internet and direct mail retailers;
• infomercials that sell products on television; and
• other television channels, for channel placement, viewer attention
• substitution of wireline for wireless products (commonly referred to
as cord-cutting), including mobile phones and wireless home phone
products.
BUSINESS SOLUTIONS
A number of different players in the Canadian market compete for
enterprise network and communications services. There are relatively
few national providers, but each market has its own competitors that
usually focus on the geographic markets where they have the most
extensive networks.
In the wireline voice and data market, we compete with facilities- and
non-facilities-based telecommunications service providers. In markets
where we own network infrastructure, we compete with incumbent
fibre-based providers. The following are our main competitors, but
there are also regional competitors:
• Ontario: Bell, Cogeco Data Services and Allstream;
• Quebec: predominantly Bell, Telus, and Videotron;
• Atlantic Canada: Bell Aliant and Eastlink; and
• Western Canada: Shaw and Telus.
and loyalty.
Our magazines and other publications compete for readership and
advertisers with:
• other Canadian magazines;
• foreign, mostly US, titles that sell in significant quantities in Canada;
and
• online information and entertainment websites.
Competition in Sports Entertainment includes:
• other televised and online sports programming for viewership of
Rogers Sports Entertainment teams;
• other Toronto professional
teams for attendance at Blue Jays
games;
• other Major League Baseball teams for Blue Jays players and fans;
• other local sporting and special event venues; and
• other professional sports teams for merchandise sales revenue.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 31
MANAGEMENT’S DISCUSSION AND ANALYSIS
INDUSTRY TRENDS
The telecommunications industry in Canada and our business segments are affected by several overarching trends.
CHANGING TECHNOLOGIES AND CONSUMER DEMANDS
Consumer demand for mobile devices, digital media and on-demand
content across platforms is pushing providers to build networks that
can provide more data, faster, cheaper and more easily. Increased
adoption of smartphones and double digit growth in our data revenue
continued this year, reflecting expanded use of applications, mobile
video, messaging and other wireless data.
REGULATION
Most areas of our business are highly regulated, which affects who we
compete with, the programming we can offer, where and how we use
our networks, how we build our businesses and the spectrum we
purchase. The wireless and cable segments of the telecommunications
industry are both being affected by more regulation and more reviews
of the current regulations. See “Regulation in Our Industry”.
ECONOMIC CONDITIONS
Our businesses are affected by general economic conditions and
consumer confidence and spending, especially in our Media segment,
where advertising revenue is directly affected by the strength of the
economy.
WIRELESS TRENDS
CABLE TRENDS
More sophisticated wireless networks, devices and rise of
multimedia and Internet-based applications are making it easier and
faster to receive data, driving growth in wireless data services.
Wireless providers are investing in the next generation of
broadband wireless data networks, such as LTE, to support the
growing data demand.
Wireless market penetration in Canada is approximately 81.5% of
the population, and is expected to grow at an estimated 2%
annually.
The Canadian Radio-television and Telecommunications
Commission (CRTC) Wireless Code has limited wireless term
contracts to two years from three years.
Subscribers are increasingly bringing their own devices and
therefore do not need to enter into term contracts for wireless
services.
The Internet and social media are increasingly being used as a
substitute for traditional wireline telephone services, and televised
content is increasingly available online, both on wireline and on
wireless devices. Cord-shaving and cord-cutting is on the rise with
the greater adoption of over-the-top (OTT) services, such as Apple
TV, Netflix and Android based TV boxes.
North American cable companies are improving their cable
networks and expanding their service offerings to include faster
broadband Internet. Our digital cable and VoIP telephony services
compete with continuing competitor IPTV deployments and non-
facilities based service providers, which continue to create pressures
that negatively impact growth.
Regulatory rulings such as the CRTC Let’s Talk TV hearing could
result in an increase in à la carte or “pick and pay” TV channel
options that may also impact industry growth.
BUSINESS SOLUTIONS TRENDS
MEDIA TRENDS
Companies are using fibre-based access and cloud computing to
capture and share information in more volume and detail. This,
combined with the rise of multimedia and Internet-based business
applications, is driving exponential growth in data demand.
Businesses are increasing usage and penetration of the Internet of
Things (IoT) to improve productivity and save costs.
Enterprises and all levels of government are dramatically
transforming data centre infrastructure and moving toward virtual
data storage and hosting. This is driving demand for more
advanced network functionality, robust, scalable services and
supportive dynamic network infrastructure.
In response, carriers are dismantling legacy networks and investing
in next generation platforms and data centres that converge voice,
data and video solutions onto a single distribution and access
platform.
Companies are increasing security for their data and information to
address cyber threats and other information security risks.
Consumer demand for digital media, mobile devices and on-
demand content is pushing advertisers to shift some of their
spending away from conventional TV to digital platforms.
Competition has changed as traditional media assets in Canada
become increasingly controlled by a small number of competitors
with significant scale and financial resources, while technology has
allowed new entrants and even individuals to become media
players in their own right. Across both traditional and emerging
platforms, many players have become more vertically integrated, as
both providers and purchasers of content creating more business
plan uncertainty as the relationship between these entities has
become more complex.
Finally, access to premium content has become even more
important for acquiring audiences that in turn attract advertisers and
subscribers. Ownership of content or long-term agreements with
content owners, therefore, have also become increasingly important
to media companies.
32 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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Our Strategy
We announced our new set of strategic priorities in May 2014 called
Rogers 3.0. This strategy was developed following our President and
CEO Guy Laurence’s four month long information gathering initiative,
which logged feedback from thousands of customers, employees,
shareholders and a number of other stakeholders. Rogers 3.0 builds
on our many strengths, including a unique mix of network and media
assets, and focuses on how we can reaccelerate our growth relative to
our
increase the focus around the customer,
reinvigorate our brands, continue our network and innovation
leadership, and create a better experience for our employees.
industry peers,
To achieve these goals, Rogers 3.0 establishes the following strategic
priorities:
• Be a Strong Canadian Growth Company
• Overhaul the Customer Experience
• Drive Growth in the Business Market
• Invest in and Develop our People
• Deliver Compelling Content Everywhere
• Focus on Innovation and Network Leadership
• Go to Market as One Rogers
BE A STRONG CANADIAN GROWTH COMPANY
The overarching goal of our Rogers 3.0 strategy is to reaccelerate
growth relative to our Canadian peers as measured by growth in
revenue and cash flow and continuing to deliver healthy returns on
assets.
OVERHAUL THE CUSTOMER EXPERIENCE
Improving customer experience is core to our Rogers 3.0 strategy. We
believe that we can improve significantly in this area and have started
on that journey. Our goal is to make it easy for customers to deal with
Rogers when, how and where they want. This means redesigning our
approach to dramatically simplify our processes and policies and to
integrate them in our IT systems and front-line employee training.
DRIVE GROWTH IN THE BUSINESS MARKET
The Canadian business market
for communications services was
valued in March 2014 by International Data Corporation (IDC) Canada
at an estimated $20 billion in 2014, and Rogers has a relatively small
share of this market. Currently, we provide our business customers with
wireless, broadband next generation IP services, and data centres. We
have now created a unified team to capture additional share and drive
growth in this market. We believe this improves on the previous
fragmented structure and better coordinates activities across different
parts of the company. There are significant untapped opportunities for
Rogers in the enterprise market and this will be a key focus for us going
forward so that we may attract and serve more business customers.
INVEST IN AND DEVELOP OUR PEOPLE
Our employees are the heart and soul of our company and their
passion for this company and our customers is world-class. Our
strategy is to invest more in our people by updating our onboarding,
training and development programs, and establishing clear
accountabilities for all employees. We strive to provide our people with
the training, tools and support they need, particularly for front-line
employees. We believe that providing better training and tools to
empower our employees will lead to increasingly positive experiences
for our customers.
DELIVER COMPELLING CONTENT EVERYWHERE
The ways in which Canadians consume content have fundamentally
changed. The new expectation is that content will be available “on
demand”. Whether it is watching the latest episode of their favourite
TV program at home or streaming a live sporting event on their mobile
device, Canadians now expect to be able to consume any content they
want, when and where they want, on the device that they want.
Rogers has some of the most sought-after media assets in Canada with
a deep roster of leading sports assets, top radio stations,
iconic
magazines and award winning television programming. We will
continue to invest in compelling content for our customers with a focus
to continually enhancing the cooperation between the Wireless, Cable,
Business Solutions and Media teams so that our highly popular content
is fully leveraged across the company and is available anywhere and on
any device that our customers want to consume it.
FOCUS ON INNOVATION AND NETWORK LEADERSHIP
Innovation has always been a part of our identity. Whether it is bringing
new products or the latest network technologies to market, Rogers has
led with many “firsts”.
We will continue to invest in our Wireless and Cable networks and
innovative new products that run across them to ensure that we can
meet the growing demand for data with the highest quality of service
while maintaining our network
speed advantage. Emerging
technologies and services that support our core product offerings will
also continue to be generated and developed.
GO TO MARKET AS ONE ROGERS
One Rogers is our plan to use all our employees, network, content and
brand assets to work much more closely together. To operate as One
Rogers we must remove barriers to collaboration, cooperation and
agility across the organization. This allows for assets and expertise in
one part of the company to be easily shared with other parts of the
company to the benefit of our customers.
Our 12-year NHL Agreement is a perfect example of One Rogers,
wherein Media, Wireless and Cable have all worked as one to deliver
enriched experiences right across our product sets and customer base.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 33
MANAGEMENT’S DISCUSSION AND ANALYSIS
OUR PROGRESS IN 2014
To deliver on our Rogers 3.0 strategy, we have undergone significant
transformation and completed several initiatives in 2014. Specifically,
we:
• reorganized the Company around the customer – all customer
experience functions have been brought together into one team of
over 9,000 employees led by a Chief Customer Officer reporting
directly to the CEO;
• integrated and elevated the branding function, bringing together
to improve the employee
several key corporate functions
experience;
• streamlined the organization to allow us to be more agile and
ensure senior leadership is closer to customers and front-line
employees;
• added considerable management bench strength through
executive leadership appointments;
• acquired two 12 MHz contiguous blocks of 700 MHz wireless
“beachfront” spectrum across the country;
• deployed Rogers’ 2014-2015 NHL national broadcast schedule;
• launched new products and services such as shomi and Roam Like
Home; and
• partnered with VICE Media to deliver Canadian-made news and
entertainment programming through VICE Canada starting in 2015.
Delivering the Rogers 3.0 strategic plan is a journey and there is still
much work ahead of us. However, over the past year we have made
good progress in setting in place the structure and framework that will
enable us to deliver against these strategic priorities as we go forward.
Key Performance Drivers and Highlights
We set new corporate objectives each year to progress on our long-term strategic priorities and address short-term
opportunities and risks.
2014 KEY HIGHLIGHTS
OVERHAUL THE CUSTOMER EXPERIENCE
• Launched Roam Like Home, a simple and cost effective way for
Wireless customers to use the Internet, make calls, send texts and
emails in the US with their Rogers Share Everything Plan, letting
them access their Canadian wireless plans while they are in the US.
• Launched suretap wallet, an advanced new mobile commerce
application that lets customers use their smartphones to safely store
eligible payment cards and make payments at tens of thousands of
retailers across Canada.
• Reduced annual customer complaints by more than 30% from the
previous year as reported by the federal Commissioner
for
Complaints for Telecommunications Services (CCTS) in its annual
report. The report registers the number of complaints made by
customers of major telecom service providers.
• Appointed executive leaders with significant experience in our
industry and global best practices:
• Deepak Khandelwal joined Rogers as Chief Customer Officer.
Mr. Khandelwal was previously at Google where he served as
head of Global Customer Experience with customers in over 100
countries world-wide.
• Nitin Kawale joined Rogers as President, Enterprise Business Unit.
Mr. Kawale is the former President of Cisco Systems Canada
where he was responsible for all aspects of
the Canadian
operations including sales, marketing, finance, distribution and
services.
• Jacob Glick was appointed to the newly created position of Chief
Corporate Affairs Officer. Prior to Rogers, Mr. Glick held a
number of leadership positions at Google, including head of their
Global Central Public Policy and Government Relations teams.
• Frank Boulben joined Rogers as Chief Strategy Officer and brings
more than 20 years of global experience across both the wireless
and wireline industries, holding senior marketing and strategy
positions with leading wireless carriers in Europe.
• Dirk Woessner was appointed as President, Consumer Business
Unit, effective April 6, 2015. Mr. Woessner was previously at
Deutsche Telekom where he held a number of
leadership
positions with Telekom Deutschland and T-Mobile in the UK and
Germany.
34 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
• Announced an agreement under which Rogers will own 50% of
Glentel
including its several hundred Canadian
wireless retail distribution outlets, subject to regulatory approval and
completion of BCE Inc.’s (BCE) acquisition of Glentel.
(Glentel),
Inc.
DRIVE GROWTH IN THE BUSINESS MARKET
• Expanded data centre operations to 15 locations across Canada
with Business Solutions opening Alberta’s first Tier III certified data
centre giving business customers reliable, secure data services.
• Vicinity was awarded Product of the Year for the Rewards / Financial
Services Programs category by Product of the Year, the world’s
largest consumer-voted award for product
innovation. Rogers
Vicinity is an automated loyalty program offering small businesses
and their customers access to loyalty programs and awards.
• Introduced Rogers Check-In, a new service capability that allows
small business customers to quickly and easily review their account
at any time with a Small Business Specialist to ensure they have the
right services for their business needs.
• Launched Rogers Talks, a series of free events across Canada for
small businesses in conjunction with Small Business Month (October).
Experts in social media, marketing and sales were on hand to talk
about how technology can help small business owners grow.
INVEST IN AND DEVELOP OUR PEOPLE
• Recognized as one of Canada’s top employers for the second
straight year by Canada’s Top 100 Employers, a national
competition now entering its 16th year which looks at more than
3,250 Canadian employers. In addition, Rogers was for the first time
named to the elite top 10 list of the best companies to work for in
Canada and was recognized as one of Canada’s Best Diversity
Employers by Canada’s Top 100 Employers 2015.
• Named one of Canada’s ‘Top Employers for Young People’, for a
fifth consecutive year. Judges noted that Rogers provides exciting
and challenging work, a broad range of career opportunities, a
strong total rewards package and a chance to work with the best
and the brightest in the industry. The judging panel also highlighted
Rogers’ unique support of new grads through rotational programs
that develop breadth of hands on experience.
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• Reaching 22 million Canadians, Hockey Night
DELIVER COMPELLING CONTENT EVERYWHERE
• Deployed Rogers’ 2014-2015 NHL national broadcast schedule,
delivering double the number of games on free over-the-air TV and
twice as many Hockey Night in Canada Saturday night games than
ever before across 9 networks. We built and launched a $4.5 million
state-of-the-art NHL Studio, are bringing the NHL to 25 communities
across Canada with Rogers Hometown Hockey, and grew the NHL
on-air broadcast team to include the biggest TV names in the game.
in Canada
continues to be the most-watched sporting event in Canada in
a typical week with viewership between October and
December 2014 up 12% from last year since the national NHL
rights were acquired by Rogers, as reported by Numeris using
Cumulative Reach. Audiences on Scotiabank Wednesday Night
Hockey on Sportsnet are up 14% this year, while Rogers
Hometown Hockey on City has increased the network’s
audiences on Sunday nights by 50%, as reported by Numeris
for the period between October to December 2014 using
Average Minute Audience. Since the start of the NHL season,
audiences on Sportsnet ONE are up 33% and up 40% on
Sportsnet 360.
• Launched Rogers NHL GameCentre LIVE with more than 1,000
regular season games streamed wirelessly and online, available on
smartphones,
tablets and computers, and with significantly
enhanced features. Rogers NHL GameCentre LIVE is available to all
Canadians and was offered free on an introductory basis to Rogers
wireless data and Internet customers. Within Rogers NHL
GameCentre LIVE is GamePlus, which streams unique camera
angles, on-demand replays and more interviews. Exclusively
available to Rogers customers, with GamePlus fans can watch
several different camera feeds and review big plays from up to
seven different angles. Sportsnet.ca’s weekly unique visitors have
increased 76%, page views are up 53% and video starts have
increased 94% as fans are consuming more digital hockey content.
• Launched shomi, an exciting new subscription video-on-demand
streaming service available on mobile, tablet, online, and through
our cable set-top boxes. shomi provides online and televised
entertainment with the most popular shows on TV today, iconic
series from the past,
fan-favourite films and a library of kids
programming. Available to Rogers and Shaw Television or Internet
customers, shomi has an easy to use interface and more
personalized selections for customers. shomi
is a joint venture
equally owned by Rogers and Shaw Communications Inc.
• Launched Sportsnet NOW, a 24/7,
live HD-quality stream of all
seven of Sportsnet’s TV channels. Designed to keep sports fans
connected to their
favourite teams, players, and Sportsnet
programming, Sportsnet NOW is available on mobile devices and
computers for free with a Sportsnet TV subscription.
• Partnered with VICE Media in a joint agreement to deliver Canadian-
made news and entertainment programming across mobile, web
and TV platforms in 2015. VICE Canada properties will include a
state-of-the-art multimedia production facility in Toronto that will
produce content for use globally, the VICE TV Network, mobile
content and VICE’s network of Canadian digital properties.
• Introduced Canada’s first 24-hour network dedicated to baseball,
MLB Network, on Rogers digital cable. In addition, Sportsnet signed
an 8-year multi-platform broadcast rights extension with MLB
Properties and MLB Advanced Media to show live and in-progress
games and highlights within Canada.
• Expanded Next
Issue offerings by adding People Magazine,
National Geographic, Travel + Leisure, and Food & Wine to the
digital newsstand. Next Issue now delivers nearly 150 of North
America’s premium magazine titles.
• Reached a three-year regional broadcast rights agreement with the
NHL’s Montreal Canadiens. Combined with the national package,
Sportsnet will deliver all 82 English-language Canadiens games this
season, making more Canadiens games available nationally than
ever before.
FOCUS ON INNOVATION AND NETWORK LEADERSHIP
• Secured “beachfront” spectrum consisting of two 12 MHz blocks of
contiguous, paired lower 700 MHz band spectrum covering the vast
majority of the Canadian population. This prime spectrum was the
most sought after and is the spectrum Rogers went into the auction
intending to win for its customers. Our $3.3 billion investment was in
line with recent 700 MHz spectrum transactions in the US. We have
now deployed this spectrum in rural and urban communities in
Ontario, British Columbia, Alberta, Quebec, New Brunswick, Nova
Scotia and Prince Edward Island delivering the ultimate mobile
video experience to Rogers customers while carrying wireless
signals deep into basements, elevators and in buildings with thick
concrete walls.
• Continued our expansion of Canada’s first wireless LTE 4G
broadband network. Our network covered approximately 84% of
the Canadian population as at December 31, 2014. We continued
to offer a large selection of LTE devices and became the first carrier
in North America, and one of the first in the world, to offer
international LTE roaming to wireless customers.
• First Canadian carrier to launch LTE-Advanced, now available in
various communities across Canada. This next evolution of LTE
wireless technology combines Rogers’ 700 MHz and AWS spectrum,
so customers can download and live stream high quality video in
more places on mobiles and tablets. LTE-Advanced was launched in
Vancouver, Edmonton, Calgary, Windsor, London, Hamilton, Toronto,
Kingston, Moncton, Fredericton, Halifax and Saint John.
• Signed a Partner Market agreement with Vodafone to become its
partner in Canada. The agreement extends Vodafone’s international
experience, innovation and scale to Rogers in the Canadian market
to generate a number of
revenue, cost saving and product
opportunities.
• Recognized for the second straight year by PCMag.com, Rogers’ LTE
network was named in September 2014 as the fastest downstream
mobile network in Canada. PCMag.com also recognized Rogers as
Canada’s fastest broadband Internet service provider.
GO TO MARKET AS ONE ROGERS
• We streamlined the organization to allow us to be more agile and
ensure senior leadership is closer to customers and front-line
employees. We’ve aligned to go to market with our products and
services in more disciplined and coordinated ways. We are using
more cross-functional, multi-departmental teams from all parts of
the business on go-to-market projects as we’ve demonstrated this
year with our 12-year NHL Agreement.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 35
MANAGEMENT’S DISCUSSION AND ANALYSIS
2015 OBJECTIVES
OVERHAUL THE CUSTOMER EXPERIENCE
We aim to create a seamless experience across all channels and further
reduce the number of customer complaints. Our objective is to
continue to improve the customer experience and track those
improvements through meaningful statistics.
DELIVER COMPELLING CONTENT EVERYWHERE
We aim to continue to invest to deliver compelling content and
enhance the value of and further leverage our Media assets across
Rogers to deliver more value to our customers.
DRIVE GROWTH IN THE BUSINESS MARKET
We aim to grow our business market share and roll out new, next
generation products that help our business customers succeed,
resulting in growth in our market share.
FOCUS ON INNOVATION AND NETWORK LEADERSHIP
We aim to deliver a world-class mobile video experience, continue to
innovate and bring new products and services to market, and expand
the speed and coverage of our networks, including our continued LTE
expansion.
INVEST IN AND DEVELOP OUR PEOPLE
We aim to transform the employee experience by rolling out selected
onboarding and development programs, as well as evolve the physical
space in which we work to promote agility and collaboration.
GO TO MARKET AS ONE ROGERS
We aim to re-position our key brands and bring new products to
market as One Rogers.
FINANCIAL AND OPERATING GUIDANCE
We provide consolidated annual guidance ranges for selected financial metrics on a consolidated basis consistent with the annual plans
approved by our Board of Directors.
2014 ACHIEVEMENTS AGAINST GUIDANCE
The following table outlines guidance ranges that we had previously
provided and our actual results and achievements for the selected full
year 2014 financial metrics.
We provide annual guidance ranges on a consolidated full year basis
and are consistent with annual full year board-approved plans. Any
updates to our full year financial guidance over the course of the year
would be made only to the consolidated level guidance ranges that
appear below.
(In millions of dollars)
Consolidated Guidance
2014
Guidance
2014
Actual
Achievement
Adjusted operating profit 1
5,000 to 5,150
5,019
Additions to property, plant
and equipment 2
Free cash flow 1
2,275 to 2,375
1,425 to 1,500
2,366
1,437
✓
✓
✓
Missed x
Achieved ✓
Exceeded +
1 Adjusted operating profit and free cash flow are non-GAAP measure and should not
be considered as a substitute or alternative for GAAP measures. These are not
defined terms under IFRS and do not have standard meanings, so may not be a
reliable way to compare us to other companies. See “Non-GAAP Measures” for
information about these measures, including how we calculate them.
2 Includes additions to property, plant and equipment expenditures for Wireless,
Cable, Business Solutions, Media, and Corporate segments and excludes purchases
of spectrum licences.
2015 FULL YEAR CONSOLIDATED GUIDANCE
The following table outlines guidance ranges for selected full year
2015 consolidated financial metrics, which takes into consideration our
current outlook and our actual results for 2014 and are based on a
number of assumptions, including those noted after the table below.
Information about our guidance, including the various assumptions
underlying our guidance, is forward-looking and should be read in
conjunction with “About Forward-Looking Information” and “Risks and
Uncertainties Affecting Our Business” and the related disclosure and
information about various economic, competitive and regulatory
assumptions, factors and risks that may cause our actual future financial
and operating results to differ from what we currently expect.
Full Year 2015 Guidance
(In millions of dollars)
Consolidated Guidance
2014
Actual
2015
Guidance
Adjusted operating profit 1
Additions to property, plant and equipment 2
Free cash flow 1
5,019
2,366
1,437
5,020 to 5,175
2,350 to 2,450
1,350 to 1,500
1 Adjusted operating profit and free cash flow are non-GAAP measures and should
not be considered as a substitute or alternative for GAAP measures. These are not
defined terms under IFRS and do not have standard meanings, so may not be a
reliable way to compare us to other companies. See “Non-GAAP Measures” for
information about these measures, including how we calculate them.
2 Includes additions to property, plant and equipment expenditures for Wireless,
Cable, Business Solutions, Media, and Corporate segments and excludes purchases
of spectrum licences.
Key underlying assumptions
Our 2015 guidance ranges above are based on many assumptions,
including but not limited to the following material assumptions:
(1) Continued intense competition in all segments in which we
operate.
(2) A substantial portion of US dollar-denominated expenditures has
been hedged.
(3) No significant additional
regulatory developments, shifts in
economic conditions or macro changes in the competitive
environment affecting our business activities. We note that
regulatory decisions expected during 2015 could potentially
materially alter underlying assumptions around our 2015 Wireless,
Cable, Business Solutions and/or Media results in the current and
future years, the impacts of which are currently unknown and not
factored into our guidance.
36 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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Capability to Deliver Results
WIDESPREAD PRODUCT DISTRIBUTION
LEADING NETWORKS
WIRELESS
We distribute our wireless products nationally using various channels
including:
• an extensive independent dealer network;
• company-owned Rogers, Fido and Chatr retail stores;
• major retail chains and convenience stores;
• partnered distribution channels, such as WOW! mobile boutique;
• customer self-serve using rogers.com, fido.ca, chatrwireless.com,
ecommerce sites; and
WIRELESS
Rogers has one of the most extensive and advanced wireless networks
in Canada that:
• is the only wholly owned national wireless network in Canada;
• was the first LTE high-speed network in Canada, which reached more
than 84% of the Canadian population as at December 31, 2014;
• is supported by voice and data roaming agreements with
including a
international carriers in more than 200 countries,
growing number of LTE roaming operators; and
• Rogers call centres and outbound telemarketing.
• includes network sharing arrangements with three regional wireless
CABLE
We distribute our cable products using various channels including:
• company-owned Rogers retail stores;
• customer self-serve using rogers.com;
• Rogers call centres, outbound telemarketing, door-to-door agents;
• major retail chains; and
• an extensive network of third party retail locations.
BUSINESS SOLUTIONS
Our sales team sells Business Solutions services to Canadian business
and public sector telecom customers. An extensive network of third-
party channel distributors deal with IT integrators, consultants, local
service providers and other indirect sales relationships. This diverse
approach gives greater breadth of coverage and allows for strong
sales growth for next generation services.
operators which operate in more rural parts of Canada.
We are continuously enhancing our IP service infrastructure for all of
our wireless services. Advances in technology have transformed how
our customers interact and how they use the variety of tools that are
available to them in their personal and professional lives. Technology
has also changed the way businesses operate.
New technologies allow us to offer new services, such as Rogers One
Number, which makes enhanced wireless services available to
subscribers on their computer, tablet and smartphone with a single
number and can be used as an alternative to fixed line telephony.
Users enjoy the same services and features across the coverage area,
thanks to the seamless integrated nature of the Rogers network and
those of our roaming and network sharing partners.
Significant spectrum position
Our wireless services are supported by our significant wireless
spectrum holdings in both high-band and low-band frequency ranges.
As part of our network strategy, we expect to continue making
significant capital investments in spectrum to:
• support the rapidly growing usage of wireless data services; and
• introduce
new innovative
network-enabled
features
and
functionality.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 37
MANAGEMENT’S DISCUSSION AND ANALYSIS
Our spectrum holdings as at December 31, 2014 include:
Type of spectrum
Rogers licence
700 MHz
850 MHz
1900 MHz
24 MHz in Canada’s major geographic markets, covering 99.7% of
the Canadian population.
25 MHz across Canada.
60 MHz in all areas of Canada except 40 MHz Northern Quebec,
50 MHz in Southern Ontario and 40 MHz in the Yukon, Northwest
Territories and Nunavut.
AWS 1700/2100 MHz
20 MHz across Canada.
2500 MHz
60 MHz (40 MHz FDD plus 20 MHz TDD) in key population centres
across Canada in Eastern Quebec, Southern Quebec, Southern
and Eastern Ontario and British Columbia. Outside of these areas,
Rogers holds 20 MHz of FDD spectrum.
We also have access to additional spectrum through network sharing agreements:
Who it supports
4G LTE subscribers.
2G GSM and 3.5G / 4G HSPA+ subscribers
(4G LTE in the future).
2G GSM and 3.5G / 4G HSPA+ subscribers
(4G LTE in the future).
4G LTE subscribers.
4G LTE subscribers.
Type of spectrum
Kind of venture
Who it supports
2.3 GHz/3.5 GHz range
850 MHz, 1900 MHz AWS
spectrum
Inukshuk Wireless Partnership is a joint operation with BCE in which
Rogers holds a 50% interest. Inukshuk holds 30 MHz (of which
20 MHz is usable) of 2.3 GHz spectrum primarily in Eastern Canada,
including certain population centres in Southern and Eastern
Ontario, Southern Quebec, and smaller holdings in New
Brunswick, Manitoba, Alberta and British Columbia. Inukshuk also
holds 3.5 GHz licences (between 50-175 MHz) in most of the major
population centres across Canada. The arrangement initially
included 2500 MHz spectrum. This spectrum was distributed
equally to the partners late in 2012. The current fixed wireless LTE
national network utilizes the jointly held 2.3 GHz and
3.5 GHz spectrum bands.
Three network-sharing arrangements to enhance coverage and
network capabilities:
• with Manitoba Telecom Services, that covers 96 percent of the
population across Manitoba;
Mobile and fixed wireless subscribers.
3.5G / 4G HSPA+, 4G LTE subscribers
• with TBayTel, that covers the combined base of customers in
3.5G / 4G HSPA+ subscribers
North Western Ontario; and
• with Quebecor (Videotron) to provide LTE services across the
4G LTE subscribers.
province of Quebec.
We have certain arrangements to buy additional spectrum, subject to regulatory approvals:
Type of spectrum
Transaction
AWS-1 spectrum
AWS-1 spectrum
Acquired an option to buy Shaw’s AWS-1 spectrum holdings in
Western Canada. The option has not yet been exercised and is
subject to regulatory approval.
Part of a larger strategic transaction with Videotron, which could
lead to the acquisition of Videotron’s Tier 3 Toronto AWS-1
spectrum. If a transaction does occur, it will be subject to
regulatory approval.
Who it will support
4G LTE subscribers.
4G LTE subscribers.
38 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
CABLE
Our expansive fibre and hybrid fibre coaxial
infrastructure delivers
services to consumers and businesses in Ontario, New Brunswick and
Newfoundland. We also operate a North American transcontinental
fibre-optic network that extends over 44,000 route kilometres that is
used to serve enterprise customers, including government and other
telecommunications service providers. In Canada, the network extends
coast to coast and includes local and regional fibre, transmission
electronics and systems, hubs, POPs and IP Routing and switching
infrastructure. The network also extends to the US, from Vancouver
south to Seattle,
through
Minneapolis, Milwaukee and Chicago, from Toronto through Buffalo,
and from Montreal through Albany, to New York City, allowing us to
connect Canada’s largest markets, while also reaching key US markets
for the exchange of data and voice traffic.
from the Manitoba-Minnesota border
The network is structured to optimize performance and reliability and
to allow for the simultaneous delivery of video, voice and Internet over
a single platform. It is generally constructed in rings that interconnect
with distribution hubs, minimizing disruptions that can result from fibre
cuts and other events.
The network is
sub-divided into smaller clusters of homes
interconnected at a central node. The node is reached by fibre optic
cable and in turn from the node to the home, video, voice and
broadband services are delivered using 860 MHz of spectrum over
coaxial broadband cable.
We continually upgrade the network to improve capacity, enhance
performance and introduce new features and functionality. For
example, we invest in:
• further segmenting our network nodes to reduce the number of
homes in each node;
• improving video signal compression by moving to more advanced
video protocols;
• improving channel and on-demand capacity by introducing new
technology like switched digital video;
• increasing Internet speed with data over cable service interface
specifications (DOCSIS 3.0), which now offers download speeds of
up to 250 Mbps across more than 98% of our footprint and sets the
foundation for even higher speeds; and
• increasing the fibre to the home (FTTH) footprint by connecting to
more homes directly to fibre.
In 2015, we expect
to complete the transitioning of customers
receiving television signals over our analog broadcast channels to all-
digital services,
freeing up significant cable network capacity for
additional features and services. The analog to digital subscriber
migration will continue to strengthen the customer experience and, in
addition to allowing us to reclaim significant amounts of network
capacity, will enable us to reduce network operating and maintenance
costs going forward. The migration from analog to digital requires
additional spending because it involves fitting analog homes with
digital converters and removing existing analog filtering equipment.
Broadband Internet service is provided using the DOCSIS 3.0 standard
which combines multiple RF channels onto one access point into the
customer premise, delivering exceptional performance.
The
bandwidth of our internet service offerings has increased 50-fold in the
last 10 years as we bring new technology to market when it becomes
investing in our networks and
available. This track record of
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demonstrating the capability to deploy best-in-class service is one of
our key strategies to ensure we stay competitive with other service
providers that provide internet service into homes and business over
copper facilities.
Voice-over-cable telephony services are provided over a dedicated
DOCSIS network. Our offerings ensure a high quality of service by
including network redundancy as well as network and customer
premise backup powering. Our phone service includes a rich set of
features, such as TV Call Display, three-way calling and advanced
voicemail features which allow customers to be notified of, and listen
to, their home voicemail on their wireless phone or over the Internet. In
addition, we offer a wireless alternative to a fixed-line service called
Rogers Wireless Home Phone.
BUSINESS SOLUTIONS
We own and operate some of the most advanced networks and data
centres in Canada. We leverage our national fibre, cable and wireless
networks and data centre infrastructure to enable businesses to deliver
greater value to their customers through proactive network monitoring
and problem resolution with enterprise-level reliability, security and
facilities-based,
performance. We operate our own
transcontinental network with 100% digital fibre optic backbone and
strategic interconnect points to the US and overseas for cross-border
and international coverage. Our primary and secondary Network
Operation Centres proactively monitor Rogers’ networks to mitigate
the risk of service interruptions and allow for rapid responses to any
outages.
robust
Our data centres provide guaranteed uptime and expertise in
colocation, cloud and managed services solutions. We own and
operate 15 state-of-the-art, highly reliable and certified data centres
across Canada,
III Design and
Construction certified multi-tenant
facility opened in 2012 and
Alberta’s first Tier III certified data centre opened in 2014.
including Canada’s
first Tier
FIRST CLASS MEDIA CONTENT
We deliver highly sought-after sports content enhanced by the
following initiatives we undertook in 2014:
• Rogers NHL GameCentre LIVE, an upgraded online destination for
enhancing NHL action on any screen; GamePlus, an innovative and
interactive experience within Rogers NHL GameCentre LIVE that
includes revolutionary camera angles, exclusive interviews and
analysis and original video-on-demand content;
• a new multi-million dollar Sportsnet Hockey Studio, which features a
38-foot wide ultra HD monitor, a rotating main anchor desk, 52
monitors and up to 14 cameras;
• Rogers Hometown Hockey Tour, which brings hockey-themed
festivities and outdoor viewing parties to 25 communities across
Canada;
• exclusive broadcasting and distribution rights of the Toronto Blue
Jays through our ownership of the team;
• the MLB Network, a 24-hour network dedicated to baseball,
brought to Canada for the first time on Rogers digital cable;
• an 8-year multi-platform broadcast rights agreement with MLB
Properties and MLB Advanced Media to show live and in-progress
games and highlights within Canada; and
• a 10-year multi-platform agreement which makes Rogers the
exclusive distributor of World Wrestling Entertainment’s (WWE)
flagship programming in Canada.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 39
The following information is forward-looking and should be read in
conjunction with “About forward-looking information” and “Risks and
Uncertainties Affecting Our Business” and other disclosure about
various economic, competitive and regulatory assumptions, factors
and risks that could cause our actual future financial and operating
results to differ from those currently expected.
We anticipate generating a net cash surplus in 2015 from our cash
provided by operating activities. We expect that we will have sufficient
capital resources to satisfy our cash funding requirements in 2015,
including the funding of dividends on our common shares, repayment
of maturing long-term debt and other financing activities, investing
activities, and other requirements, taking into account our opening
cash balance, cash provided by operating activities, the amount
available under our $2.5 billion bank credit facility, our accounts
receivable securitization program and funds available to us from the
issuance of other bank, publicly issued or private placement debt from
time to time. As at December 31, 2014, there were no significant
restrictions on the flow of funds between Rogers and its subsidiary
companies.
funding
We believe that we can satisfy foreseeable additional
requirements by issuing additional debt financing, which, depending
on market conditions, could include restructuring our existing bank
credit and letter of credit facilities, or entering into new bank credit
facilities, issuing public or private debt, amending the terms of our
accounts receivable securitization program or issuing equity. We may
also opportunistically refinance a portion of existing debt depending
on market conditions and other factors. There is no assurance,
however, that these financing initiatives will or can be done as they
become necessary.
HEALTHY TRADING VOLUMES AND HISTORY
OF DIVIDEND GROWTH
Our Class B Non-Voting common shares actively trade on the TSX and
NYSE with a combined average daily trading volume of approximately
1.3 million shares. In addition, our Class A Voting common shares
trade on the TSX. Dividends are the same on both classes of shares
and have been increased in each of the last 12 years. In 2014, each
share paid an annualized dividend of $1.83, which we recently
increased by 5% to $1.92 per share for 2015.
MANAGEMENT’S DISCUSSION AND ANALYSIS
ENGAGED PEOPLE
For our team of approximately 27,000 employees, we strive to create a
great workplace, focusing on all aspects of the employee experience,
which include:
• engaging employees and building high-performing teams through
leadership
engagement
surveys
and
initiatives
development programs;
including
• aiming to attract and retain top talent through effective training and
recognition
front-line
development,
employee
programs, and career progression programs
employees;
performance-driving
for
• maintaining our commitment to diversity and inclusion; and
• providing a safe workplace.
POWERFUL BRANDS
The Rogers brand has strong national recognition through our
established network, extensive distribution,
recognizable media
content and programming, advertising, event sponsorships including
the Rogers Cup, community investment including Rogers Youth Fund,
and naming rights to some of Canada’s landmark buildings including
the Rogers Centre in Toronto, Rogers Arena in Vancouver, and Rogers
Place in Edmonton.
We also own or utilize some of Canada’s most recognized brands
including:
• The wireless brands of Rogers, Fido and Chatr;
• over 20 TV stations including Sportsnet, The Shopping Channel,
FX (Canada) and FXX (Canada), OMNI, and City;
• over 40 publications including Maclean’s, Chatelaine, Flare, Hello!
Canada and Canadian Business;
• Next Issue Canada with a catalogue of nearly 150 premium
Canadian and US magazine titles;
• over 50 radio stations including Kiss 92.5, 98.1 CHFI, 680 News,
and Sportsnet 590 The Fan;
• major league sports teams including the Toronto Blue Jays and
investments in the Toronto Maple Leafs and the Toronto Raptors;
• shomi, a subscription video-on-demand service; and
• VICE, a global youth media company producing and distributing
global online video content.
FINANCIAL STRENGTH AND FLEXIBILITY
We have an investment grade balance sheet, conservative debt
leverage and significant available liquidity. Our capital resources
consist primarily of cash provided by operating activities, cash and cash
equivalents, available lines of credit,
funds available under our
accounts receivable securitization program and issuances of long-term
debt. We also own approximately $1.1 billion of marketable equity
securities in publicly traded companies as at December 31, 2014.
40 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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2014 Financial Results
See “Critical Accounting Estimates” and “New Accounting Standards”,
in “Accounting Policies” in this MD&A, and the notes to our 2014
Audited Consolidated Financial Statements for important accounting
policies and estimates as they relate to the following discussion.
to measure our
We use several key performance indicators
performance against our strategies and the results of our peers and
SUMMARY OF CONSOLIDATED RESULTS
(In millions of dollars, except margins and per share amounts)
Operating revenue
Wireless
Cable
Business Solutions
Media
Corporate items and intercompany eliminations
Operating revenue
Adjusted operating profit
Wireless
Cable
Business Solutions
Media
Corporate items and intercompany eliminations
Adjusted operating profit 1
Adjusted operating profit margin 1
Net income
Diluted earnings per share
Adjusted net income 1
Adjusted diluted earnings per share 1
Additions to property, plant and equipment
Free cash flow 1
Cash provided by operating activities
competitors. Many of these are not defined terms under IFRS and so
should not be considered as alternative measures to net income or any
IFRS. See “Key
other
financial measure of performance under
Performance Indicators” and “Non-GAAP Measures”
for more
information.
Years ended December 31
2014
2013 % Chg
7,305
3,467
382
1,826
7,270
3,475
374
1,704
(130)
(117)
12,850
12,706
3,246
1,665
122
131
3,157
1,718
106
161
(145)
(149)
5,019
4,993
–
–
2
7
11
1
3
(3)
15
(19)
(3)
1
39.1% 39.3% (0.2 pts)
1,341
(20)
1,669
2.56
(20)
3.22
1,532
(13)
1,769
2.96
3.42
(13)
2,366
1,437
3,698
2,240
1,548
3,990
6
(7)
(7)
1 Adjusted operating profit, adjusted operating profit margin, adjusted net income, adjusted diluted earnings per share and free cash flow are non-GAAP measures and should
not be considered as a substitute or alternative for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way
to compare us to other companies. See “Non-GAAP Measures” for information about these measures, including how we calculate them.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 41
MANAGEMENT’S DISCUSSION AND ANALYSIS
KEY CHANGES IN FINANCIAL RESULTS THIS
YEAR COMPARED TO 2013
(In millions of dollars)
Change See page
Operating revenue changes – higher (lower):
Network – Wireless
Equipment – Wireless
Cable
Business Solutions
Media
Corporate items and intercompany eliminations
Higher operating revenue compared to 2013
Adjusted operating profit changes – higher (lower):
Wireless
Cable
Business Solutions
Media
Corporate items and intercompany eliminations
Higher adjusted operating profit 1 compared to 2013
Lower stock-based compensation
Higher restructuring, acquisition and other
Higher depreciation and amortization
Higher finance costs
Higher other expense
Lower income taxes
Lower net income compared to 2013
Lower stock-based compensation
Higher restructuring, acquisition and other
Loss on repayment of long-term debt
Gain on sale of interest in TVtropolis
Income tax impact of the above items
Income tax adjustment, legislative tax change
(5)
40
(8)
8
122
(13)
144
89
(53)
16
(30)
4
26
47
(88)
(246)
(75)
(82)
90
(328)
(47)
88
29
47
(32)
6
44
44
47
48
49
45
47
48
49
51
51
51
51
52
52
51
51
51
52
52
Lower adjusted net income 1 compared to 2013
(237)
1 Adjusted operating profit and adjusted net income are non-GAAP measures and
should not be considered as a substitute or alternative for GAAP measure. These are
not defined terms under IFRS, and do not have standard meanings, so may not be a
reliable way to compare us to other companies. See “Non-GAAP Measures” for
information about these measures, including how we calculate them.
OPERATING REVENUE
Wireless network revenue remained fairly consistent this year primarily
because of the continued adoption of higher ARPU-generating Rogers
Share Everything Plans, offset by the introduction over the past year of
lower priced roaming plans.
Cable operating revenue remained fairly consistent this year primarily
because the impact of a higher subscriber base for our Internet
products combined with the movement of customers to higher-end
speed and usage tiers was offset by TV subscriber losses over the past
year and a more competitive Phone pricing environment.
Business Solutions operating revenue increased this year primarily
because of continued growth in on-net and next generation services,
including our data centre businesses, partially offset by a reduction in
lower margin, off-net legacy revenue.
Media operating revenue increased this year primarily because of
revenue generated by our new NHL Agreement, growth at Sportsnet,
and higher revenues at the Toronto Blue Jays, The Shopping Channel,
and Radio, partially offset by continued softness in conventional TV and
print advertising.
ADJUSTED OPERATING PROFIT
Wireless adjusted operating profit
because of lower subsidy levels.
increased this year primarily
Cable adjusted operating profit decreased this year primarily because
of higher investments in customer care and network, customer value
enhancement-related costs and a one-time cumulative CRTC fee
adjustment.
Business Solutions adjusted operating profit increased this year as a
result of continued growth in the higher margin on-net and next
generation business mostly from our recent data centre acquisitions
and productivity improvements.
Media’s adjusted operating profit decreased this year primarily
because of investments in player salaries at the Toronto Blue Jays,
increased merchandise costs at The Shopping Channel, ramp-up costs
associated with the launch of Next Issue Canada and increased
programming costs, partially offset by lower publishing costs.
NET INCOME AND ADJUSTED NET INCOME
Net income and adjusted net income decreased this year primarily
because of the revenue and expense changes described above and
higher depreciation and amortization, and higher finance costs. Net
income was also lower as a result of higher restructuring, acquisition
and other costs.
42 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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WIRELESS
ROGERS IS CANADA’S LARGEST PROVIDER OF WIRELESS
COMMUNICATIONS SERVICES
2014 WIRELESS REVENUE MIX
(%)
As at December 31, 2014, we had:
• approximately 9.5 million subscribers
• approximately 35% subscriber share and 35% revenue share
of the Canadian wireless market.
WIRELESS FINANCIAL RESULTS
(In millions of dollars, except margins)
2014
2013 % Chg
Years ended December 31
Operating revenue
Network revenue
Equipment sales
Operating revenue
Operating expenses
Cost of equipment 1
Other operating expenses
Adjusted operating profit
Adjusted operating profit margin as a % of
network revenue
Additions to property, plant and equipment
6,743
562
6,748
522
7,305
7,270
(1,488)
(2,571)
(1,535)
(2,578)
(4,059)
(4,113)
3,246
3,157
–
8
–
(3)
–
(1)
3
48.1% 46.8% 1.3 pts
13
865
978
1 Includes the cost of equipment sales and direct channel subsidies.
WIRELESS NETWORK REVENUE
(IN MILLIONS OF DOLLARS)
2014
2013
2012
WIRELESS POSTPAID AND PREPAID SUBSCRIBERS
(IN THOUSANDS)
2014
2013
2012
Prepaid
Postpaid
$6,743
$6,748
$6,719
1,377
8,073
1,429
8,074
1,591
7,846
$7.3
BILLION
DATA 48%
POSTPAID VOICE 42%
EQUIPMENT 8%
PREPAID VOICE 2%
WIRELESS SUBSCRIBER RESULTS 1, 2
(In thousands, except churn and ARPU)
2014
2013
Chg
Years ended December 31
Postpaid
Gross additions
Net (losses) additions
Total postpaid subscribers
Churn (monthly)
ARPU (monthly)
Prepaid
Gross additions
Net losses
Total prepaid subscribers
Churn (monthly)
ARPU (monthly)
Blended ARPU
1,238
(1)
8,073
1.27%
$ 66.86
507
(52)
1,377
3.42%
$ 15.16
$ 59.41
1,409
228
8,074
1.24%
$ 67.76
(171)
(229)
(1)
0.03 pts
$ (0.90)
(18)
525
110
(162)
1,429
(52)
3.85% (0.43 pts)
$ (0.48)
$ (0.17)
$ 15.64
$ 59.58
1 Wireless postpaid subscriber results do not include subscribers from our Wireless
Home Phone product, with approximately 52,000 net new subscribers this year and
approximately 92,000 cumulative subscribers as at December 31, 2014.
2 Subscriber counts, subscriber churn and average revenue per user (ARPU) are key
performance indicators. See “Key Performance Indicators”.
WIRELESS POSTPAID MONTHLY ARPU
($)
2014
2013
2012
WIRELESS POSTPAID MONTHLY CHURN
(%)
2014
2013
2012
$66.86
$67.76
$69.30
1.27%
1.24%
1.29%
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 43
MANAGEMENT’S DISCUSSION AND ANALYSIS
OPERATING REVENUE
Our operating revenue depends on the size of our subscriber base,
the revenue per user and revenue from wireless devices, and other
equipment sales.
Internet access, social media, mobile video, text messaging and other
wireless data services. Data revenue exceeded voice revenue for the
first time and represented approximately 52% of total network revenue
this year, compared to approximately 47% last year.
Network revenue
Network revenue includes revenue derived from voice and data
services from postpaid monthly fees, airtime, data usage, long distance
charges, optional service charges, inbound and outbound roaming
charges and certain fees, as well as prepaid usage for airtime, data and
other ancillary charges such as long distance.
Network revenue was consistent this year as a result of:
• continued adoption of
the customer-friendly Rogers Share
Everything Plans, which generate higher ARPU and bundle in certain
calling features and long distance, grant the ability to pool data
usage with other devices on the same account, and entice
customers with access to our other products, such as Roam Like
Home and Rogers NHL GameCentre LIVE; and
• higher usage of wireless data services; offset by
• lower roaming revenue due to the introduction over the past year of
US and international roaming pricing and plans which provide
greater value to our customers.
Blended ARPU decreased this year primarily due to the relatively
unchanged network revenue described above and a slight increase in
average number of wireless subscribers over the course of the year.
Excluding the decline in roaming revenue, network revenue would have
increased by 2% and postpaid ARPU would have increased by 1%.
The increase in churn and volatility in net additions to our postpaid
subscriber base this year were expected in the short-term as we
implement our Rogers 3.0 plan and our strategic focus towards
optimizing subscriber value versus subscriber volumes, as well as
migrating existing customers to current pricing plans. During the latter
portion of the year, we implemented a number of commercial policies
which, amongst other things, adjusted the entry price levels for
customers to be eligible for subsidized premium devices and
eliminated eligibility for device subsidies for a number of previously
the industry
discounted offerings. Furthermore, we believe that
transition from three year to two year plans as a result of the adoption
of the CRTC Wireless Code may have also slowed overall wireless
subscriber growth during the year. See “Regulation in Our Industry” for
more information on the Wireless Code.
We activated and upgraded approximately 2.6 million smartphones for
new and existing subscribers this year, compared to approximately
2.7 million in 2013. The decrease was due to a 1% decrease in
hardware upgrades and a 12% reduction in gross additions.
The percentage of subscribers with smartphones at the end of the year
was 84% of our total postpaid subscriber base, compared to 75% at
the end of 2013. In our experience, smartphone subscribers typically
generate significantly higher ARPU and are less likely to churn than
customers on less advanced devices. Effective October 1, 2014,
customers with smartphones in our Bring Your Own Device (BYOD)
program are included in our smartphone subscriber measures, which
also contributed to the increase in smartphone penetration.
Data revenue increased by 10% this year primarily because of the
continued penetration and growing use of smartphones,
tablet
devices and wireless laptops, which are increasing the use of e-mail,
44 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
SMARTPHONES AS A PERCENTAGE OF POSTPAID SUBSCRIBERS
(%)
2014
2013
2012
84%
75%
69%
The decrease in prepaid subscribers was mainly because of increasing
competition at the lower end of the wireless market where prepaid
products are mainly sold as we continue to increase our focus away
from subscriber volume towards the higher lifetime value segment of
the market.
WIRELESS DATA REVENUE
(IN MILLIONS OF DOLLARS)
2014
2013
2012
DATA REVENUE AS A PERCENTAGE OF NETWORK REVENUE
(%)
2014
2013
2012
$3,484
$3,175
$2,722
52%
47%
41%
Equipment sales
Equipment sales (net of subsidies) include revenue from sales to:
• independent dealers, agents and retailers; and
• directly to subscribers through fulfillment by Wireless’ customer
service groups, websites, telesales and corporate stores.
The 8% increase in revenue from equipment sales this year primarily
reflects decreased subsidies we provide as a result of the industry
transition from three to two year plans and a shift in the sales mix of
smartphones. During this year, we activated 12% more iPhones in
comparison to the prior year, which corresponded with the launch of
the iPhone 6 in the latter portion of 2014. This was partially offset by
fewer existing subscriber upgrades and the lower number of gross
activations. Overall, the percentage of customers choosing to upgrade
their wireless devices throughout the year represented approximately
23% of our year end postpaid subscriber base, which is consistent with
the prior year.
OPERATING EXPENSES
We assess operating expenses in two categories:
• the cost of wireless handsets and equipment; and
• all other expenses involved in day-to-day operations, to service
existing subscriber relationships and attract new subscribers.
The cost of equipment sales decreased by 3% this year as a result of
fewer subscriber upgrades and fewer gross activations as described
above, partially offset by the shift in the mix towards higher cost
smartphones.
Total customer retention spending (including subsidies on handset
upgrades) increased modestly to $946 million this year compared to
$939 million last year because of the shift in mix described above,
partially offset by fewer hardware upgrades by existing subscribers.
Other operating expenses (excluding retention spending) decreased
by 2% this year as a result of improvements in cost management and
efficiency gains.
ADJUSTED OPERATING PROFIT
Adjusted operating profit was 3% higher this year as a result of:
• continued growth of wireless data revenue and continued adoption
of higher ARPU-generating service plans; and
• higher equipment revenue; partially offset by
• higher unit costs of equipment sales and upgrades; and
• pricing changes associated with our roaming plans.
Adjusted operating profit margin as a percentage of network revenue
increased to 48.1% this year from 46.8% in 2013.
OTHER DEVELOPMENTS
In late December 2014, we announced an agreement with BCE under
which Rogers will purchase 50% of Glentel for cash consideration of
approximately $392 million. As part of the agreement, Rogers and BCE
intend to divest all Glentel operations located outside of Canada
(International Operations). The terms of the agreement provide that
BCE is entitled to the first $100 million and Rogers is entitled to the
subsequent $195 million of the divestiture proceeds from International
Operations. Divesture proceeds in excess of $295 million are to be
shared evenly between both parties. Glentel is a large multicarrier
mobile phone retailer with several hundred Canadian wireless retail
distribution outlets. The outlets operate under banner names such as
Wireless Wave and TBooth Wireless. The transaction is expected to
close in the first half of 2015 and is subject to regulatory approval and
completion of BCE’s acquisition of Glentel.
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WIRELESS ADJUSTED OPERATING PROFIT
(IN MILLIONS OF DOLLARS)
2014
2013
2012
$3,246
$3,157
$3,063
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 45
MANAGEMENT’S DISCUSSION AND ANALYSIS
CABLE
ONE OF CANADA’S LEADING PROVIDERS OF HIGH-SPEED
INTERNET, CABLE TELEVISION AND PHONE SERVICES
2014 CABLE SERVICE REVENUE MIX
(%)
As at December 31, 2014, we had:
• 2.0 million high-speed Internet subscribers
• 2.0 million Television subscribers – approximately 30% of
Canadian cable television subscribers
• 1.2 million Phone subscribers
• a network that passes approximately 4 million homes in
Ontario, New Brunswick and Newfoundland.
CABLE FINANCIAL RESULTS
Years ended December 31
$3.5
BILLION
TELEVISION 50%
INTERNET 36%
PHONE 14%
(In millions of dollars, except margins)
2014 1
2013 2
% Chg
CABLE SUBSCRIBER RESULTS 1
Operating revenue
Internet
Television
Phone
Service revenue
Equipment sales
Operating revenue
Operating expenses
Cost of equipment
Other operating expenses
Operating expenses
1,245
1,734
478
3,457
10
1,159
1,809
498
3,466
9
3,467
3,475
(6)
(1,796)
(6)
(1,751)
(1,802)
(1,757)
7
(4)
(4)
—
11
—
—
3
3
Adjusted operating profit
1,665
1,718
(3)
Adjusted operating profit margin
Additions to property, plant and equipment
48.0% 49.4% (1.4 pts)
1,055
(5)
1,105
1 The operating results of Source Cable are included in the Cable results of
operations from the date of acquisition on November 4, 2014.
2 The operating results of Mountain Cable are included in the Cable results of
operations from the date of acquisition on May 1, 2013.
(In thousands)
Cable homes passed 2,3
Internet
Net additions
Total Internet subscribers 2,3
Television
Net losses
Total Television subscribers 2,3
Phone
Net (losses) additions
Total Phone subscribers 2,3
Total service units 2,3,4
Net losses
Total service units
Years ended December 31
2014
2013
4,068
3,978
34
2,011
(119)
2,024
(14)
1,150
(99)
5,185
63
1,961
(127)
2,127
42
1,153
(22)
5,241
Chg
90
(29)
50
8
(103)
(56)
(3)
(77)
(56)
1 Subscriber count is a key performance indicator. See “Key Performance Indicators”.
2 On May 1, 2013, we acquired approximately 34,000 cable high-speed Internet
subscribers, 40,000 Television subscribers and 37,000 Phone subscribers from our
acquisition of Mountain Cable. These subscribers are not included in net additions,
but do appear in the ending total balance for December 31, 2013. The acquisition
also increased homes passed by 59,000.
3 On November 4, 2014, we acquired approximately 16,000 cable high-speed
Internet subscribers, 16,000 Television subscribers and 11,000 Phone subscribers
from our acquisition of Source Cable. These subscribers are not included in net
additions, but do appear in the ending total balance for December 31, 2014. The
acquisition also increased homes passed by 26,000.
4 Includes Internet, Television and Phone subscribers.
CABLE SUBSCRIBER BREAKDOWN
(IN THOUSANDS)
2014
2013
2012
1,150
2,011
2,024
1,153
1,961
2,127
1,074
1,864
2,214
$3,467
$3,475
$3,358
$478
$1,245
$1,734
$498
$1,159
$1,809
$477
$998
$1,868
Phone
Internet
Television
CABLE TOTAL REVENUE
(IN MILLIONS OF DOLLARS)
2014
2013
2012
CABLE SERVICE REVENUE BREAKDOWN
(IN MILLIONS OF DOLLARS)
2014
2013
2012
Phone
Internet
Television
46 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
OPERATING REVENUE
Internet revenue includes:
• monthly subscription and additional use service revenues from
access
and wholesale Internet
small business
residential,
subscribers; and
• modem rental fees.
Television revenue includes:
• digital cable services – includes digital channel service fees,
including premium and specialty service subscription fees, pay per
view service fees and video on demand service fees;
• analog cable services – includes basic cable service fees plus
extended basic (or tier) service fees and access fees for use of
channel capacity by third parties; and
• rental and sale of digital cable set-top terminals.
Phone revenue includes revenues from residential and small business
local telephony service from:
• monthly service fees;
• calling features such as voicemail and call waiting and caller ID; and
• long-distance calling.
Total operating revenue was consistent this year primarily as a result of:
• a higher subscriber base for our Internet products combined with
the movement of more customers to higher-end speed and usage
tiers; and
• the May 2013 acquisition of Mountain Cable and November 2014
acquisition of Source Cable; offset by
• Television subscriber losses over the past year; and
• lower Phone revenue from retention and promotional-related
discounting.
Internet revenue
Internet revenue increased by 7% this year as a result of:
• a larger Internet subscriber base;
• general movement by customers to higher-end speed and usage
tiers; and
• increases in Internet service pricing.
INTERNET SUBSCRIBERS AND INTERNET
PENETRATION OF HOMES PASSED %
(IN THOUSANDS)
2014
2013
2012
49%
49%
49%
2,011
1,961
1,864
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Phone revenue
Phone revenue decreased by 4% this year as a result of:
• increased retention and promotional-related discounting associated
with greater competition and multi-product bundles; partially offset
by
• a higher average Phone subscriber base throughout the year; and
• the impact of pricing increases implemented over the past year.
PHONE SUBSCRIBERS AND PHONE PENETRATION
OF HOMES PASSED %
(IN THOUSANDS)
2014
2013
2012
28%
29%
28%
1,150
1,153
1,074
Equipment sales
Equipment sales include revenues generated from the sale of digital
cable set-top terminals and Internet modems.
Revenue from equipment sales increased by 11% this year as a result
of an increase in cable box sales versus the prior year.
OPERATING EXPENSES
We assess Cable operating expenses in three categories:
• the cost of programming;
• the cost of equipment sales (cable digital set-top box and Internet
modem equipment); and
• all other expenses involved in day-to-day operations, to service and
retain existing subscriber relationships and attract new subscribers.
Operating expenses increased by 3% this year as a result of:
• incremental costs associated with the Mountain Cable and Source
Cable acquisitions;
• higher investments in customer care and network and customer
value enhancement related costs; and
• $5 million impact of a one-time cumulative Local Program
Improvement Fund adjustment relating to a CRTC ruling this year
and an $8 million positive adjustment in 2013 to licence fees
payable to match the CRTC’s billing period; partially offset by
• various cost efficiency and productivity initiatives.
ADJUSTED OPERATING PROFIT
Adjusted operating profit decreased by 3% this year as a result of
higher operating expenses, as described above. The Source Cable
acquisition did not have a significant impact on adjusted operating
profit this year.
CABLE ADJUSTED OPERATING PROFIT
AND CABLE ADJUSTED PROFIT MARGIN %
(IN MILLIONS OF DOLLARS)
Television revenue
Television revenue decreased by 4% this year as a result of the:
• decline in Television subscribers over the past year associated with
heightened pay TV competition; partially offset by
• impact of pricing increases implemented over the past year; and
• acquisitions of Mountain Cable and Source Cable.
2014
2013
2012
48.0%
49.4%
47.8%
$1,665
$1,718
$1,605
The digital cable subscriber base represented 88% of our total
Television subscriber base as at the end of 2014, compared to 84% at
the end of 2013. The larger selection of digital content, video on-
demand, and HDTV and PVR equipment combined with our ongoing
analog to digital network conversion continue to contribute to the
increasing penetration of digital as a percentage of our total Television
subscriber base.
CABLE ACQUISITION
On November 4, 2014, we acquired Source Cable Limited, a small
television, Internet, and phone service provider for $156 million. The
Source Cable footprint is situated adjacent to existing Rogers cable
systems in Southwestern Ontario and is expected to enable numerous
synergies.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 47
MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS SOLUTIONS
LEADING-EDGE WIRELINE TELECOM AND DATA
NETWORKING SERVICES TO CANADIAN BUSINESSES
2014 BUSINESS SOLUTIONS SERVICE REVENUE MIX
(%)
• sells to small, medium and large enterprises and
governments
• sells to other carriers on a wholesale basis
• 7,800 on-net fibre connected buildings
• fibre passes close to an additional 23,000 near-net
buildings.
BUSINESS SOLUTIONS FINANCIAL RESULTS
(In millions of dollars, except margins)
2014
2013 1 % Chg
Years ended December 31
Operating revenue
Next generation
Legacy
Service revenue
Equipment sales
Operating revenue
Operating expenses
Adjusted operating profit
Adjusted operating profit margin
Additions to property, plant, and equipment
271
106
377
5
382
213
149
362
12
374
(260)
(268)
122
106
27
(29)
4
(58)
2
(3)
15
31.9% 28.3% 3.6 pts
36
146
107
1 The operating results of Blackiron and Pivot Data Centres are included in the
Business Solutions results of operations from the dates of acquisition on April 17,
2013 and October 1, 2013, respectively.
Business Solutions generates revenue from the provision of wireline
communications services and the sales of related equipment.
Next generation revenue is generated by the provision of high-speed,
high-reliability data and voice communications, provided on Rogers’
advanced IP, Ethernet and cloud platforms, and mainly through
Rogers’ extensive communications network and data centre
infrastructure.
Legacy revenue is generated mainly by circuit-switched local and long-
distance voice services and legacy data services, provided over TDM
and prior generation data platforms, with client access often delivered
through the use of leased third-party network elements and tariffed
ILEC services.
BUSINESS SOLUTIONS SERVICE REVENUE MIX
(IN MILLIONS OF DOLLARS)
2014
2013
2012
Legacy
Next Generation
$106
$271
$149
$213
$183
$162
Business Solutions continues to focus primarily on next generation IP-
based services, leveraging higher margin on-net and near-net service
revenue opportunities, and using existing network facilities to expand
48 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
NEXT GENERATION 72%
LEGACY 28%
$377
MILLION
offerings to the small, medium and large sized enterprise, public
sector and carrier wholesale markets. Business Solutions is also
focused on data centre colocation, hosting, cloud, and disaster
recovery services. Next generation, which includes our data centre
operations, this year represented 72% of total service revenue.
OPERATING REVENUE
Service revenue increased by 4% this year as a result of:
• continuing execution of our plan to grow higher margin on-net and
next generation IP-based services revenue; and
• growth from the acquisitions of Pivot Data Centres and Blackiron in
October and April 2013,
respectively; partially offset by the
continued planned decline in the off-net and legacy off-net voice
and data services, a trend we expect to continue as we focus the
business on on-net opportunities and customers move to more
advanced and cost effective IP-based services.
Excluding the data centre acquisitions, next generation service
revenue would have increased by 6% and total service revenue would
have decreased by 9% compared to last year.
Equipment sales decreased this year as the first quarter of 2013
included a non-recurring equipment sale.
OPERATING EXPENSES
Operating expenses decreased by 3% this year as a result of:
• lower legacy service costs including fewer leased third-party facilities
related to the planned lower volumes and customer levels; and
• ongoing initiatives to improve costs and productivity; partially offset by
• higher on-net and next generation service costs associated with
higher volumes.
ADJUSTED OPERATING PROFIT
Adjusted operating profit increased by 15% this year as a result of
continued growth in the higher margin on-net and next generation
business mostly from our
recent data centre acquisitions and
productivity improvements.
BUSINESS SOLUTIONS ADJUSTED OPERATING PROFIT
(IN MILLIONS OF DOLLARS)
2014
2013
2012
$122
$106
$89
MEDIA
DIVERSIFIED CANADIAN MEDIA COMPANY
We have a broad portfolio of media properties, which most
significantly includes:
• category-leading television and radio broadcasting
properties
• multi-platform televised and online shopping
• publishing including Next Issue Canada
• sports media and entertainment
• exclusive 12-year NHL Agreement
• digital media.
MEDIA FINANCIAL RESULTS
(In millions of dollars, except margins)
2014
2013 1
% Chg
Years ended December 31
2014 MEDIA REVENUE MIX
(%)
$1.8
BILLION
TELEVISION 47%
THE SHOPPING CHANNEL 16%
SPORTS ENTERTAINMENT 13%
RADIO 13%
PUBLISHING 11%
OPERATING EXPENSES
We assess Media operating expenses in four general areas:
• the cost of broadcast content (including sports programming);
• the cost of retail products sold by The Shopping Channel and
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Operating expenses
Adjusted operating profit
1,826
1,704
(1,695)
(1,543)
7
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131
161
(19)
Sports Entertainment;
Adjusted operating profit margin
Additions to property, plant and equipment
7.2%
94
9.4% (2.2 pts)
19
79
• Blue Jays player payroll; and
• all other expenses involved in day-to-day operations.
Operating expenses increased by 10% this year as a result of:
• incremental costs associated with the NHL Agreement which are
expensed based on the proportion of the season’s games played
during a specified period;
• higher player salaries at the Toronto Blue Jays;
• higher programming costs;
• incremental costs of approximately $16 million associated with the
growth of Next Issue Canada; and
• higher merchandise costs at The Shopping Channel; partially offset
by
• lower publishing costs related to the lower print volume.
ADJUSTED OPERATING PROFIT
Adjusted operating profit decreased this year, reflecting the revenue
and expense changes described above.
MEDIA ADJUSTED OPERATING PROFIT
(IN MILLIONS OF DOLLARS)
2014
2013
2012
$131
$161
$190
1 The operating results of Sportsnet 360 (formerly theScore) are included in the Media
results of operations from the date of acquisition on April 30, 2013.
OPERATING REVENUE
Media generates revenue in five areas:
• advertising sales across its television, radio, publishing and digital
media properties;
• subscriptions to televised products;
• retail product sales;
• circulation of published products; and
• ticket sales, receipts of MLB revenue sharing and concession sales
associated with Rogers Sports Entertainment.
Operating revenue increased by 7% this year as a result of:
• revenues of approximately $100 million generated by the NHL
Agreement that became effective for the 2014-2015 season late in
the year;
• higher subscription revenue generated by our Sportsnet properties;
• higher revenue associated with the Toronto Blue Jays;
• higher radio revenue;
• higher sales at The Shopping Channel; and
• growth of Next Issue Canada (which launched in late 2013); partially
offset by
• continued softness and structural shifts in conventional television
and print advertising.
Excluding the impact of the NHL Agreement, total revenue this year
would have increased by 1%.
MEDIA REVENUE
(IN MILLIONS OF DOLLARS)
2014
2013
2012
$1,826
$1,704
$1,620
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 49
MANAGEMENT’S DISCUSSION AND ANALYSIS
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
including investment
Additions to property, plant and equipment include costs associated
with acquiring and placing property, plant and equipment into service.
The telecommunications business requires extensive and continual
investments,
in new technologies and the
expansion of capacity and geographical reach. The expenditure
related to the $3.3 billion acquisition of 700 MHz spectrum licences is
not included in additions to property, plant and equipment and does
not factor into the calculation of free cash flow or capital intensity.
Please see “Managing Our Liquidity and Financial Resources”, “Key
for more
Performance Indicators” and “Non-GAAP Measures”
information.
Our management focuses on the planning, funding and management
of additions to property, plant and equipment, because they are
significant, and have a material impact on our cash flow.
Additions to property, plant and equipment before related changes to
non-cash working capital represent capital assets that we actually took
title to and were ready for use in the period. We believe that this
measure best reflects our cost of property, plant and equipment in a
given period, and is a simpler measure for comparing between
periods.
(In millions of dollars, except capital intensity 1)
2014
2013 % Chg
Additions to property, plant and equipment
Years ended December 31
Wireless
Cable
Business Solutions
Media
Corporate
978
1,055
146
94
93
865
1,105
107
79
84
Total additions to property, plant and equipment
2,366
2,240
13
(5)
36
19
11
6
Capital intensity 1
18.4% 17.6% 0.8 pts
1 Capital intensity is a key performance indicator. See “Key Performance Indicators”.
WIRELESS
Wireless property, plant and equipment additions in 2014 were
primarily related to LTE deployment and capacity investments and site
build activity to further enhance network coverage and the initial
deployment of our newly acquired 700 MHz spectrum. Deployment of
the LTE network has now reached approximately 84% of Canada’s
population as at December 31, 2014.
2014 ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
(%)
$2.4
BILLION
WIRELESS 41%
CABLE 45%
BUSINESS SOLUTIONS 6%
MEDIA 4%
CORPORATE 4%
CABLE
Investments this year were made to improve the capacity of our
Internet platform, improve the reliability and quality of the network and
continued development work related to next generation IP-based
video service. We also invested in customer equipment related to the
continued roll out of our next generation NextBox digital set-top boxes
and for subscribers migrating from analog to digital. The reduction in
expenditures year-over-year primarily reflects a higher volume of new
NextBox digital set-top box deployments last year when the latest
generation of this product was launched.
Migrating subscribers from analog to digital will continue to strengthen
the customer experience and is allowing us to reclaim significant
amounts of network capacity and reduce network operating and
maintenance costs. This effort requires additional spending because it
involves fitting analog homes with digital converters and removing
existing analog filtering equipment from the network.
BUSINESS SOLUTIONS
Business Solutions property, plant and equipment additions increased
this year as a result of network expansion to reach additional customers
and sites and data centre investments.
MEDIA
Media property, plant and equipment additions increased this year as
a result of
investments made to our IT infrastructure and NHL
broadcast facilities.
50 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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REVIEW OF CONSOLIDATED PERFORMANCE
This section discusses our consolidated operating income, net income
and other expenses that do not form part of the segment discussions
above.
(In millions of dollars)
Adjusted operating profit 1
Stock-based compensation
Restructuring, acquisition and other
Depreciation and amortization
Finance costs
Other (expense) income
Income taxes
Net income
Years ended December 31
2014
2013 % Chg
5,019
(37)
(173)
(2,144)
(817)
(1)
4,993
(84)
(85)
(1,898)
(742)
81
(506)
(596)
1
(56)
104
13
10
(101)
(15)
1,341
1,669
(20)
1 Adjusted operating profit is a non-GAAP measure and should not be considered as
a substitute or alternative for GAAP measures. It is not a defined term under IFRS
and does not have a standard meaning, so may not be a reliable way to compare us
to other companies. See “Non-GAAP Measures” for information about this measure,
including how we calculate it.
ADJUSTED OPERATING PROFIT
Please see “2014 Financial Results” for a discussion of the increase in
adjusted operating profit this year.
STOCK-BASED COMPENSATION
Our stock-based compensation, which includes stock options (with
stock appreciation rights), restricted share units, and deferred share
units is generally determined by:
• vesting of stock options and share units; and
• changes in the market price of RCI Class B shares; offset by
• the impact of certain derivative instruments to hedge a portion of
the stock price appreciation risk for our stock-based compensation
program. See “Financial Risk Management” for information about
equity derivatives.
(In millions of dollars)
Impact of vesting
Impact of change in price
Equity derivatives, net of interest receipt
Total stock-based compensation
Years ended December 31
2014
2013
44
(17)
10
37
42
34
8
84
Stock-based compensation decreased to $37 million from $84 million
in 2013 primarily as a result of the 2013 impact from increased market
price of the RCI Class B common shares in early 2013 prior to the
implementation of the equity derivatives program.
We had a liability of $144 million as at December 31, 2014 (2013 –
$164 million) related to stock-based compensation recorded at its fair
value,
including stock options, restricted share units and deferred
share units.
We paid $48 million in 2014 (2013 – $101 million) to holders of stock
options, restricted share units and deferred share units upon exercise.
We use derivative instruments from time to time to manage our
exposure
stock-based
compensation expense.
to market-based fluctuations
in our
RESTRUCTURING, ACQUISITION AND OTHER
Restructuring, acquisition and other mainly included:
• $131 million (2013 – $53 million) of restructuring expenses mainly
for costs relating to the reorganization associated with the
implementation of the Rogers 3.0 plan to structure teams around
our customers and remove management layers to increase agility
and ensure senior leadership is closer to front-line employees and
customers; and
• $42 million (2013 – $32 million) of acquisition-related transaction
costs, provisions for certain legal claims and other costs.
DEPRECIATION AND AMORTIZATION
Years ended December 31
2014
2013
% Chg
1,979
1,748
165
150
13
10
13
(In millions of dollars)
Depreciation
Amortization
Total depreciation and amortization
2,144
1,898
Depreciation and amortization increased this year mainly because of:
• significant
investment and roll out of new customer
equipment at Cable, mostly next generation NextBox digital TV set-
top boxes which are depreciated over three years;
recent
• the availability for use of certain network and system investments,
including the launch and expansion of our LTE network in various
municipalities; and
• new property, plant and equipment and intangible assets resulting
from several acquisitions completed in Cable, Business Solutions
and Media during 2013 and 2014.
FINANCE COSTS
(In millions of dollars)
Interest on borrowings 1
Interest on pension liability
Loss on repayment of long-term debt
Foreign exchange loss
Change in fair value of derivatives
Capitalized interest
Other
Total finance costs
Years ended December 31
2014
2013
% Chg
782
7
29
11
2
(26)
12
734
14
—
23
(16)
(25)
12
817
742
7
(50)
n/m
(52)
n/m
4
—
10
n/m: not meaningful.
1 Borrowings include long-term debt and short-term borrowings associated with our
accounts receivable securitization program.
The increase in interest on borrowings this year is a result of a higher
amount of outstanding debt, partially offset by a decrease in the
weighted average interest rate on our outstanding debt. As at
December 31, 2014, our borrowings had a weighted average cost of
5.20% (December 31, 2013 – 5.54%) and a weighted average term to
maturity of 10.8 years (December 31, 2013 – 10.3 years).
Early this year, we repaid or repurchased US$750 million ($834 million)
of our 6.375% senior notes and US$350 million ($387 million) of our
5.50% senior notes. In conjunction with the repayment or repurchase
of this debt, a $29 million loss was recognized pertaining to previously
terminated debt derivatives which were deferred in the hedging
reserve until maturity of the notes. This loss relates to transactions in
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 51
MANAGEMENT’S DISCUSSION AND ANALYSIS
2008 and 2013 where foreign exchange rates on the related debt
derivatives were updated to then current rates.
Foreign exchange losses recognized in 2013 are primarily from the
revaluation of US$350 million of senior notes due in 2038, for which
the associated debt derivatives had not been designated as hedges
for accounting purposes prior to March 6, 2013. Much of this foreign
exchange loss was offset by the corresponding change in the fair value
of the associated debt derivatives. During 2014, all of our US dollar-
denominated debt was hedged for accounting purposes.
See “Managing our Liquidity and Financial Resources” for more
information about our debt and related finance costs.
OTHER (EXPENSE) INCOME
Other (expense) income decreased this year due to lower investment
income from certain investments in associates and joint ventures and a
$47 million gain realized on the sale of our investment in TVtropolis in
2013.
INCOME TAXES
The table below shows the difference between income taxes
computed by applying the statutory income tax rate to income before
income taxes and the actual income tax expense for the year:
NET INCOME
Net income was 20% lower than last year. See “Key Changes in
Financial Results this Year Compared to 2013”, for further details.
Years ended December 31
(In millions of dollars, except per share amounts)
2014
2013
% Chg
Net income
Basic earnings per share
Diluted earnings per share
1,341
2.60
2.56
1,669
3.24
3.22
(20)
(20)
(20)
Excluding certain items, adjusted net
income was 13% lower
compared to 2013, mainly from higher depreciation and amortization,
and higher finance costs, partially offset by lower income taxes.
(In millions of dollars, except per share amounts)
2014
2013 % Chg
Years ended December 31
Adjusted operating profit 1
Depreciation and amortization
Finance costs 2
Other income 3
Income taxes 4
Adjusted net income 1
5,019
(2,144)
(788)
(1)
4,993
(1,898)
(742)
34
(554)
(618)
1,532
1,769
2.97
2.96
3.43
3.42
1
13
6
(103)
(10)
(13)
(13)
(13)
Years ended December 31
Adjusted basic earnings per share 1
Adjusted diluted earnings per share 1
(In millions of dollars, except tax rates)
2014
2013
Statutory income tax rate
Income before income taxes
Computed income tax expense
Increase (decrease) in income taxes resulting from:
Non-taxable portion of capital gains
Recognition of previously unrecognized
deferred tax assets
(Non-taxable) non-deductible stock-based
compensation
Income tax adjustment, legislative tax change
Other items
Total income taxes
Effective income tax rate
Cash income taxes paid
26.5%
26.5%
1,847
489
2,265
600
(1)
—
(2)
14
6
(9)
(14)
8
8
3
506
27.4%
460
596
26.3%
496
Our effective income tax rate this year was 27.4% compared to 26.3%
for 2013. The effective income tax rate for 2014 differed from the
statutory tax rate primarily due to an adjustment to prior period
Ontario harmonization transitional tax credits of $14 million. Excluding
this adjustment, our effective income tax rate this year would have
been 26.6%.
Cash income taxes paid this year decreased as a result of the timing of
installment payments.
legislative changes eliminated the deferral of partnership
In 2011,
income, accelerating the payment of approximately $700 million of
previously deferred cash taxes over a five year amortization period,
beginning in 2012 at 15%, 20% in each of 2013 through 2015, and
25% in 2016. Our cash income tax payments for the 2015 to 2016
taxation years will continue to include these additional amounts. While
the elimination of the deferral of partnership income affects the timing
of cash tax payments,
it does not affect our income taxes for
accounting purposes. See “About Forward-Looking Information”.
52 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
1 Adjusted operating profit, adjusted net income, adjusted basic and diluted earnings
per share are non-GAAP measures and should not be considered as a substitute or
alternative for GAAP measures. These are not defined terms under IFRS, and do not
have standard meanings, so may not be a reliable way to compare us to other
companies. See “Non-GAAP Measures” for information about these measures,
including how we calculate them.
2 Finance costs exclude the $29 million loss on repayment of long-term debt for the
year ended December 31, 2014.
3 Other income excludes the $47 million gain on sale of the TVtropolis investment for
the year ended December 31, 2013.
4 Income taxes exclude the $62 million recovery (2013 — $30 million recovery) for the
year ended December 31, 2014 related to income tax impact for adjusted items. For
2014, income taxes also exclude the $14 million expense (2013 — nil) adjusting
previously recognized Ontario harmonization transitional tax credits. For 2013,
income taxes also exclude the $8 million expense for the revaluation of deferred tax
balances due to legislative income tax rate changes.
ADJUSTED NET INCOME
(IN MILLIONS OF DOLLARS)
2014
2013
2012
$1,532
$1,769
$1,781
EMPLOYEES
Employee salaries and benefits represent a material portion of
our expenses. As at December 31, 2014, we had approximately
27,000 (2013 – 28,000) employees across all of our operating
groups, including shared services and the corporate office. Total
salaries and benefits for
time employees and part-time
employees in 2014 were approximately $1,940 million, which is
unchanged from the amount in 2013. There was a decrease in
the number of employees, a decrease in pension expense due to
lower net
cost and a decrease in stock-based
compensation, which was offset by higher baseball player costs
and employee benefit costs.
interest
full
2013 FULL YEAR RESULTS COMPARED TO 2012
Operating revenue
Consolidated revenue increased in 2013 by $220 million from 2012,
reflecting increases in Cable of $117 million, Business Solutions of $23
million, Media of $84 million, and corporate items and intercompany
eliminations of $6 million, partially offset by a decrease in revenue of
$10 million in Wireless. The increase was due to higher Internet
revenue in Cable and higher subscription and advertising revenue in
Media, partially offset by lower equipment sales in Wireless due to
fewer existing subscribers upgrading their devices and fewer gross
activations.
Adjusted operating profit
Consolidated adjusted operating profit increased in 2013 by $159
million from 2012 reflecting increases in Wireless of $94 million, Cable
of $113 million, and Business Solutions of $17 million, partially offset by
a decrease in Media of $29 million. The increase in Wireless was due to
continued growth in data revenue and improvements in cost
management and efficiency. The increase in Cable was due to the
revenue growth partially offset by higher operating expenses.
Net income and adjusted net income
Consolidated net income decreased from $1,725 in 2012 to $1,669 in
2013 mainly because in 2012 we realized a $233 million gain on
spectrum licenses that Inukshuk sold to our non-related venture
partner, as well as the related income tax benefits we recorded that
year. Consolidated adjusted net income decreased to $1,769 million in
2013, from $1,781 million in 2012, primarily due to increases in finance
costs and depreciation and amortization, partially offset by the increase
in adjusted operating profit.
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2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 53
MANAGEMENT’S DISCUSSION AND ANALYSIS
QUARTERLY RESULTS
The table below shows our quarterly consolidated financial results and key performance indicators for 2014 and 2013.
QUARTERLY CONSOLIDATED FINANCIAL SUMMARY
(In millions of dollars, except per share amounts)
Full
Year
Q4
Q3
Q2
Q1
Full
Year
Q4
Q3
Q2
Q1
2014
2013
Operating revenue
Wireless
Cable
Business Solutions
Media
7,305
3,467
382
1,826
1,898
871
97
544
1,880
864
96
440
1,800
872
95
475
1,727
860
94
367
7,270
3,475
374
1,704
1,851
871
98
453
1,846
873
93
440
1,813
870
90
470
1,760
861
93
341
Corporate items and intercompany eliminations
(130)
(44)
(28)
(30)
(28)
(117)
(30)
(28)
(31)
(28)
Total operating revenue
Adjusted operating profit (loss)
Wireless
Cable
Business Solutions
Media
12,850
3,366
3,252
3,212
3,020
12,706
3,243
3,224
3,212
3,027
3,246
1,665
122
131
725
424
34
78
888
409
32
23
843
423
28
54
790
409
28
(24)
(42)
3,157
1,718
106
161
696
433
29
49
875
425
29
55
821
431
25
64
(149)
(40)
(43)
(35)
765
429
23
(7)
(31)
Corporate items and intercompany eliminations
(145)
(28)
(40)
(35)
Adjusted operating profit 1
5,019
1,233
1,312
1,313
1,161
4,993
1,167
1,341
1,306
1,179
Stock-based compensation
Restructuring, acquisition and other
Depreciation and amortization
Finance costs
Other (expense) income
(37)
(173)
(2,144)
(817)
(1)
(12)
(43)
(560)
(202)
10
(9)
(91)
(533)
(202)
(12)
(11)
(30)
(532)
(188)
(9)
(5)
(9)
(519)
(225)
10
(84)
(85)
(1,898)
(742)
81
(18)
(24)
(508)
(196)
14
(7)
(38)
(477)
(180)
(3)
(1)
(14)
(463)
(185)
60
(58)
(9)
(450)
(181)
10
Net income before income taxes
1,847
426
465
543
413
2,265
435
636
703
491
Income taxes
Net income
Earnings per share:
Basic
Diluted
Net income
Add (deduct):
Stock-based compensation
Restructuring, acquisition and other
Loss on repayment of long-term debt
Gain on sale of TVtropolis
Income tax impact of above items
Income tax adjustment, legislative tax change
Adjusted net income 1
Adjusted earnings per share 1:
Basic
Diluted
Additions to property, plant, and equipment
Free cash flow 1
Cash provided by operating activities
(506)
(129)
(133)
(138)
(106)
(596)
(115)
(172)
(171)
(138)
1,341
297
332
405
307
1,669
320
464
532
353
2.60
2.56
1,341
0.58
0.57
297
0.64
0.64
332
0.79
0.76
405
0.60
0.57
307
3.24
3.22
1,669
0.62
0.62
320
0.90
0.90
464
1.03
0.93
532
0.69
0.68
353
37
173
29
–
(62)
14
12
43
–
–
(11)
14
9
91
–
–
(27)
–
11
30
–
–
(14)
–
5
9
29
–
(10)
–
84
85
–
(47)
(30)
8
18
24
–
–
(5)
–
7
38
–
–
(8)
–
1
14
–
(47)
(11)
8
58
9
–
–
(6)
–
1,532
355
405
432
340
1,769
357
501
497
414
2.97
2.96
2,366
1,437
3,698
0.69
0.69
664
275
0.79
0.78
638
370
0.84
0.84
576
436
1,031
1,057
1,202
0.66
0.66
488
356
408
3.43
3.42
2,240
1,548
3,990
0.69
0.69
703
109
0.97
0.97
548
506
0.97
0.96
525
505
1,072
1,052
1,061
0.80
0.80
464
428
805
1 Adjusted operating profit, adjusted net income, adjusted basic and diluted earnings per share and free cash flow are non-GAAP measures and should not be considered as a
substitute or alternative for GAAP measures. They are not defined terms under IFRS, and do not have standard meanings, so may not be a reliable way to compare us to other
companies. See “Non-GAAP Measures” for information about these measures, including how we calculate them.
54 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
FOURTH QUARTER 2014 RESULTS
OPERATING REVENUE
Wireless network revenue increased in the fourth quarter primarily
because of the continued adoption of higher ARPU-generating Rogers
Share Everything Plans and greater smartphone sales.
Cable operating revenue was stable in the fourth quarter because the
impact of a higher subscriber base for our
Internet products,
combined with the movement of customers to higher-end speed and
usage tiers. This was offset by Television subscriber losses over the
past year and lower Phone revenue from promotional discounting.
Business Solutions operating revenue decreased in the fourth quarter
because of the continued decline in the legacy off-net voice and data
business, partially offset by continued growth of on-net and next
generation IP-based services revenue and higher revenue from data
centre operations.
Media operating revenue increased in the fourth quarter primarily
because of
the NHL Agreement, higher subscription revenue
generated by our Sportsnet properties, higher radio revenue, and
revenue growth in Next Issue Canada, partially offset by continued
softness in conventional television and print advertising.
ADJUSTED OPERATING PROFIT
Wireless adjusted operating profit increased in the fourth quarter
primarily because of the increased network revenue described above,
partially offset by higher costs for smartphones sold.
Wireless
The trends in Wireless revenue and adjusted operating profit reflect:
• the growing number of wireless voice and data subscribers;
• higher usage of wireless data;
• higher handset subsidies as more consumers shift to smartphones;
and
• a slight increase in churn reflecting our heightened focus towards
higher valued customers away from customers that generate lower
margins.
We continue to target higher value postpaid subscribers, which has
contributed to the significantly heavier mix of postpaid versus prepaid
subscribers. Growth in our customer base over time has resulted in
higher costs for customer service, retention, credit and collection;
however, most of the cost increases have been offset by gains in
operating efficiencies.
Wireless operating results are influenced by the timing of our
marketing and promotional expenditures and higher
levels of
subscriber additions and related subsidies,
resulting in higher
subscriber acquisition and activation-related expenses in certain
periods. This increased activity generally occurs in the third and fourth
quarters, and can also occur or be accentuated by the launch of
popular new wireless handset models.
Cable
The trends in Cable services revenue and operating profit are primarily
due to:
• higher penetration and usage of Internet, digital and telephony
Cable adjusted operating profit decreased in the fourth quarter
primarily because of investments in programming and customer value
enhancement related costs.
products and services; and
• pricing increases over the past year; offset by
• competitive losses of Television subscribers.
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Media’s adjusted operating profit increased in the fourth quarter
because of the revenue changes described above and cost efficiencies
in Television and Publishing.
NET INCOME AND ADJUSTED NET INCOME
Net income decreased in the fourth quarter primarily from the changes
reflected in the increase in adjusted operating profit discussed above,
restructuring,
and higher depreciation and amortization, higher
acquisition and other, and higher income taxes.
Adjusted net income was $355 million in the fourth quarter of 2014,
with adjusted diluted earnings per share of $0.69. This was in-line with
adjusted net income of $357 million and adjusted diluted earnings per
share of $0.69 in the fourth quarter of 2013.
QUARTERLY TRENDS AND SEASONALITY
Our operating results generally vary from quarter to quarter because of
changes in general economic conditions and seasonal fluctuations,
among other things, in each of our business segments. This means our
results in one quarter are not a good indication of how we will perform
in a future quarter. Wireless, Cable and Media each have unique
seasonal aspects to, and certain other historical
their
businesses.
trends in,
Fluctuations in net income from quarter to quarter can also be
attributed to losses on the repayment of debt, foreign exchange gains
or losses, changes in the fair value of derivative instruments, other
income and expenses, impairment of assets and changes in income
taxes.
Cable’s operating results are affected by modest seasonal fluctuations
in subscriber additions and disconnections, typically caused by:
• university and college students moving;
• individuals temporarily suspending service for extended vacations
or seasonal relocations; and
• the concentrated marketing we generally conduct in our fourth
quarter.
Business Solutions
The trends in Business Solutions operating profit margin primarily
reflect
legacy long
distance and data services to higher-margin, next generation services
and data centre businesses.
from lower-margin, off-net
the ongoing shift
Business Solutions does not generally have any unique seasonal
aspects to its business.
Media
The trends in Media’s results are generally the result of continual
investment in prime-time and specialty programming, higher sports
rights costs, subscriber rate increases, and fluctuations in advertising
and consumer market conditions.
Seasonal fluctuations relate to periods of increased consumer activity
and their impact on advertising and related retail cycles, the MLB
season, where revenues and expenses are concentrated in the spring,
summer and fall months, and the NHL season, where advertising
revenues and programming expenses are concentrated in the fall and
winter months.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 55
MANAGEMENT’S DISCUSSION AND ANALYSIS
BALANCE SHEET OVERVIEW
CONSOLIDATED BALANCE SHEETS
As at December 31
(In millions of dollars)
Assets
Current assets:
Cash and cash equivalents
2014
2013
$ Chg % Chg
Explanation of significant changes
176
2,301
(2,125)
(92) Mainly from the $3.3 billion payment for 700 MHz spectrum and
Accounts receivable
1,591
1,509
Inventories
Other current assets
Current portion of derivative instruments
251
191
136
276
162
$1.2 billion of senior note repayments offset by $2.1 billion from senior
note issuances in March 2014. See “Managing Our Liquidity and
Financial Resources”.
5 Mainly relates to customer receivables as a result of increased NHL
advertising revenue and timing of collections.
(9) Mainly from a decrease in Wireless handset inventory.
18 Mainly from an increase in prepaid expenses partially offset by a
82
(25)
29
73
63
86
decrease in income taxes receivable.
Reflects changes in market values of debt derivatives and expenditure
derivatives primarily due to the depreciation of the Cdn dollar relative to
the US dollar.
Total current assets
2,345
4,321
(1,976)
(46)
Property, plant and equipment
10,655
10,255
400
Intangible assets
Investments
6,588
1,898
3,211
1,487
3,377
411
4
Results from property, plant and equipment additions, net of
depreciation. See “Additions to Property, Plant and Equipment”.
105 Mainly from the acquisition of 700 MHz spectrum licences of $3.3 billion.
28 Mainly relates to the appreciation of our shares in publicly traded
marketable equity securities and our initial investment in the shomi
venture.
Derivative instruments
788
148
640
n/m Reflects changes in market values of debt derivatives, bond forwards and
Other long-term assets
356
397
(41)
(10) Reflects the use of the $46 million deposit to complete the acquisition of
expenditure derivatives primarily due to the depreciation of Cdn dollar
relative to US dollar.
Deferred tax assets
Goodwill
Total assets
Liabilities and shareholders’ equity
Current liabilities:
Short-term borrowings
Accounts payable and accrued liabilities
Income tax payable
Current portion of provisions
Unearned revenue
9
3,883
31
3,751
(22)
132
certain dealer stores following its closing in early 2014.
(71) n/m
4 Mainly relates to our Source Cable acquisition in 2014.
26,522
23,601
2,921
12
842
2,578
47
7
443
650
2,344
22
7
350
192
234
25
–
93
30
10
114
–
Reflects increased funding from our A/R securitization program.
Includes an increase in trade payables due to the timing of payments.
Reflects a decrease in cash tax installment payments, offset by a small
decrease in income tax expense.
n/m.
27 Mainly relates to deposits received for NHL-related initiatives and
revenue deferrals pertaining to our Rogers First Rewards program which
was launched in late 2013.
Current portion of long-term debt
963
1,170
(207)
(18) Reflects the repayment timing of our senior notes. See “Managing our
Current portion of derivative instruments
40
63
(23)
Liquidity and Financial Resources”.
(37) Mainly reflects changes in market values of debt derivatives primarily
due to depreciation of the Cdn dollar relative to the US dollar.
Total current liabilities
4,920
4,606
314
Provisions
Long-term debt
55
13,824
40
12,173
15
1,651
7
38
14
n/m
Increased due to issuances of long-term debt in March 2014. See
“Managing our Liquidity and Financial Resources”.
Derivative instruments
11
83
(72)
(87) Mainly reflects changes in market values of debt derivatives primarily
Other long-term liabilities
462
328
134
due to the depreciation of the Cdn dollar relative to the US dollar.
41 Mainly reflects the increase in our pension liability due to a decrease in
discount rates and higher employee participation.
Deferred tax liabilities
1,769
1,702
67
4 Mainly reflects additional temporary differences arising from property,
plant and equipment and partnership reserves.
Total liabilities
Shareholders’ equity
21,041
5,481
18,932
4,669
2,109
812
Total liabilities and shareholders’ equity
26,522
23,601
2,921
11
17
12
n/m: not meaningful.
Includes changes in retained earnings and equity reserves.
56 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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Managing Our Liquidity and Financial Resources
SOURCES AND USES OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of dollars)
Operating activities:
Years ended December 31
2014
2013 % Chg
Cash provided by operating activities before changes in non-cash working capital, income taxes paid and
4,925
4,948
interest paid
Change in non-cash operating working capital items
Cash provided by operating activities before income taxes paid and interest paid
Income taxes paid
Interest paid
Cash provided by operating activities
Investing activities:
Additions to property, plant and equipment
Additions to program rights
Changes in non-cash working capital related to property, plant and equipment and intangible assets
Acquisitions and strategic transactions, net of cash acquired
Proceeds on sale of TVtropolis
Other
Cash used in investing activities
Financing activities:
Proceeds on settlement of cross-currency interest rate exchange agreements and forward contracts
Payments on settlement of cross-currency interest rate exchange agreements
Proceeds received on short-term borrowings
Repayment of short-term borrowings
Issuance of long-term debt
Repayment of long-term debt
Transaction costs incurred
Repurchase of Class B Non-Voting shares
Dividends paid
Cash provided by financing activities
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
n/m: not meaningful.
11
238
4,936
(460)
(778)
5,186
(496)
(700)
3,698
3,990
(7)
(2,366)
(231)
153
(3,456)
–
(51)
(2,240)
(69)
(114)
(1,080)
59
(29)
(5,951)
(3,473)
71
2,150
(2,115)
276
(84)
3,412
(2,551)
(30)
–
(930)
662
(1,029)
650
–
2,578
(356)
(37)
(21)
(876)
128
1,571
(92)
(2,125)
2,301
2,088
213
n/m
n/m
176
2,301
(92)
OPERATING ACTIVITIES
Cash provided by operating activities decreased by 7% this year as a
result of:
• a modest decrease in cash provided by operating activities before
income taxes paid and
changes in non-cash operating items,
interest paid;
• lower net funding provided by non-cash working capital; and
• higher interest payments due to higher long-term debt; partially
offset by
• lower income tax cash payments due to timing.
Acquisitions and strategic initiatives
We made total payments of $3,301 million this year related to the
acquisition of 700 MHz spectrum licences and $156 million related to
the acquisition of Source Cable. Expenditures in 2013 were for our
spectrum licence deposit with Shaw and our acquisitions of Blackiron,
Pivot, Mountain Cable and Sportsnet 360 (formerly theScore).
Additions to program rights
We spent $231 million this year on additions to program rights
primarily as a result of the NHL Agreement.
INVESTING ACTIVITIES
Additions to property, plant and equipment
We spent $2,366 million this year on property, plant and equipment
additions before changes in non-cash working capital items, which was
6% higher than 2013. See “Additions to Property, Plant and Equipment”.
FINANCING ACTIVITIES
Accounts receivable securitization
This year we received funding of $192 million, net of repayments,
under our accounts receivable securitization program, compared to
borrowings of $650 million last year. As at December 31, 2014, a total
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 57
MANAGEMENT’S DISCUSSION AND ANALYSIS
of $842 million was outstanding under the program, which was
committed to fund up to a maximum of $900 million as at
December 31, 2014. Effective January 1, 2015, the amended terms of
the accounts
receivable securitization program increased the
maximum potential proceeds under the program to $1.05 billion and
extended the term of the program to January 1, 2018.
We continue to service and retain substantially all of the risks and
rewards relating to the accounts receivables we sold, and therefore,
the receivables remain recognized on our consolidated statements of
financial position and the funding received is recorded as short-term
borrowings. The buyer’s interest in these trade receivables ranks ahead
of our interest. The program restricts us from using the receivables as
collateral for any other purpose. The buyer of our trade receivables has
no claim on any of our other assets.
Senior note issuances
On March 10, 2014, we issued $1.25 billion and US$750 million ($832
million) of senior notes for total net proceeds of approximately $2.1
billion after deducting the original issue discount, agents’ fees and
other related expenses. See “Financial Risk Management” for related
hedging information. The notes issued consisted of the following:
• $250 million floating rate senior notes due 2017;
• $400 million 2.8% senior notes due 2019;
• $600 million 4.0% senior notes due 2024; and
• US$750 million 5.0% notes due 2044.
The $1.25 billion of senior notes issued was pursuant to a public
offering in Canada and US$750 million of senior notes issued was
pursuant to a separate public offering in the US.
On March 7, 2013 we issued US$1 billion of senior notes for total net
proceeds of approximately US$985 million ($1,015 million). The notes
issued consisted of the following:
• US$500 million of 3.0% senior notes due in 2023; and
• US$500 million of 4.5% senior notes due in 2043.
On October 2, 2013, we issued US$1.5 billion of senior notes for total
net proceeds of approximately US$1,481 million ($1,528 million). The
notes issued consisted of the following:
• US$850 million of 4.1% senior notes due in 2023; and
• US$650 million of 5.45% senior notes due in 2043.
Weighted average cost of borrowings
Our borrowings had a weighted average cost of 5.20% as at
December 31, 2014 (December 31, 2013 – 5.54%) and a weighted
average term to maturity of 10.8 years (December 31, 2013 – 10.3
years). This comparative favourable decline in our 2014 weighted
average interest rate and increased weighted average term to maturity
reflects the combined effects of:
• utilization of our securitization program;
• the public debt issuances completed in March and October 2013
and March 2014, at historically low interest rates for Rogers and
long-term maturities ranging up to 30 years; and
• the scheduled repayments and repurchases of relatively more
expensive debt made in June 2013 and March 2014.
WEIGHTED AVERAGE COST OF BORROWINGS
(%)
2014
2013
2012
5.2%
5.5%
6.1%
RATIO OF ADJUSTED NET DEBT TO ADJUSTED OPERATING PROFIT
2014
2013
2012
2.9
2.4
2.3
Normal course issuer bid share purchases
In February 2014, we renewed our normal course issuer bid (NCIB) for
our Class B Non-Voting shares for another year. The 2014 NCIB gave
us the right to buy up to an aggregate $500 million or 35,780,234
Class B Non-Voting shares of RCI, whichever is less, at any time
between February 25, 2014 and February 24, 2015. We did not
purchase any shares for cancellation in 2014 and we do not currently
intend to renew our NCIB beyond the February 24, 2015 expiry.
All the notes issued are unsecured and guaranteed by RCP, ranking
equally with all of our other senior unsecured notes and debentures,
bank credit and letter of credit facilities.
In 2013, 546,674 Class B Non-Voting shares were purchased through
the facilities of the TSX for cancellation under the NCIB for a purchase
price of $22 million.
Debt payments and related derivative settlements
During 2014, we:
• repaid or repurchased US$750 million ($834 million) 6.375% senior
notes due 2014 and US$350 million ($387 million) 5.50% senior
notes due 2014; and
• terminated the related US$1.1 billion of debt derivatives at maturity.
During 2013, we:
• repaid or repurchased all of the US$350 million ($356 million) 6.25%
senior notes due in June 2013 and terminated the related US$350
million debt derivatives at maturity; and
• paid $263 million to terminate US$1,075 million of debt derivatives.
At the same time, we entered into new debt derivatives with a
notional principal of US$1,075 million, with the same terms as those
terminated simultaneously, with the exception of the fixed Canadian
notional principal.
Dividends
In 2014, we declared and paid dividends on each of our outstanding
Class A Voting and Class B Non-Voting shares. We paid $930 million in
cash dividends, an increase of $54 million from 2013. See “Dividend
and Share Information”.
Shelf prospectuses
We have two shelf prospectuses that qualify the offering of debt
securities from time to time. One shelf prospectus qualifies the public
offering of up to $4 billion of our debt securities in each of the
provinces of Canada (Canadian Shelf) and the other shelf prospectus
(together with a corresponding registration statement filed with the US
Securities and Exchange Commission) qualifies the public offering of
up to US$4 billion of our debt securities in the United States and
Ontario (US Shelf). Both the Canadian Shelf and the US Shelf expire in
58 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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March 2016. In March 2014, we issued $1.25 billion of debt securities
under the Canadian Shelf and US$750 million ($832 million) of debt
securities under the US Shelf. See “Senior note issuances” above for
more information.
FREE CASH FLOW
(In millions of dollars)
Adjusted operating profit 1
Property, plant and equipment expenditures 2
Interest on borrowings, net of capitalization
Cash income taxes
Free cash flow 1
Years ended December 31
2014
2013 % Chg
5,019
(2,366)
(756)
4,993
(2,240)
(709)
(460)
(496)
1,437
1,548
1
6
7
(7)
(7)
1 Adjusted operating profit and free cash flow are non-GAAP measures and should
not be considered as a substitute or alternative for GAAP measures. They are not
defined terms under IFRS, and do not have standard meanings, so may not be a
reliable way to compare us to other companies. See “Non-GAAP Measures” for
information about these measures, including how we calculate them.
2 Includes additions to property, plant and equipment expenditures and excludes
purchases of spectrum licences.
Free cash flow decreased by 7% this year as a result of higher property,
plant and equipment expenditures, and higher
interest on our
borrowings (net of capitalization) as a result of increased outstanding
long-term debt, partially offset by higher adjusted operating profit and
lower cash income taxes.
FREE CASH FLOW
(IN MILLIONS OF DOLLARS)
2014
2013
2012
$1,437
$1,548
$1,649
FINANCIAL CONDITION
BANK CREDIT AND LETTER OF CREDIT FACILITIES
Effective April 16, 2014, we re-negotiated the terms of our existing
bank credit facility to increase the amount available from $2.0 billion to
$2.5 billion while extending the maturity date from July 20, 2017 to
July 19, 2019. Also in April 2014, we arranged for the return and
cancellation of approximately $0.4 billion of letters of credit that were
issued in relation to the 700 MHz spectrum auction completed in early
2014 and the corresponding letter of credit facility was permanently
cancelled.
We borrowed, and subsequently repaid, $1.3 billion under our bank
credit facility this year. As at December 31, 2014, we had a maximum
of $2.6 billion of borrowings available under our bank credit facilities,
of which there was approximately $0.1 billion utilized under these
facilities related to outstanding letters of credit. Each of these facilities
is unsecured and guaranteed by RCP and ranks equally with all of our
senior unsecured notes and debentures.
LIQUIDITY
We had approximately $2.8 billion of available liquidity as at
December 31, 2014 (December 31, 2013 – $4.5 billion), which
includes:
• $0.2 billion in cash and cash equivalents (2013 – $2.3 billion);
• $2.5 billion available under our bank credit facility (2013 – $2.0
billion); and
• $0.1 billion available under our accounts receivable securitization
program (2013 – $0.2 billion).
In addition to the sources of available liquidity noted above, we held
approximately $1.1 billion (December 31, 2013 – $0.8 billion) of
marketable equity securities in publicly traded companies.
COVENANTS
The provisions of our $2.5 billion bank credit facility described above
impose certain restrictions on our operations and activities, the most
significant of which are leverage related maintenance tests. As at
December 31, 2014 and 2013, we were in compliance with all financial
covenants, financial ratios and all of the terms and conditions of our
long-term debt agreements and, throughout 2014, these covenants
did not impose restrictions of any material consequence on our
operations.
CREDIT RATINGS
Credit ratings provide an independent measure of credit quality of an
issue of securities, and can affect our ability to obtain short-term and
long-term financing and the terms of the financing. If rating agencies
lower the credit ratings on our debt, particularly a downgrade below
investment grade, it could adversely affect our cost of financing and
access to liquidity and capital.
We have engaged each of Standard & Poor’s Ratings Services
(Standard & Poor’s), Fitch Ratings (Fitch) and Moody’s Investors Service
(Moody’s) to rate our public debt issues. In February 2014, Standard &
Poor’s affirmed RCI’s senior unsecured debt at BBB+ with a stable
outlook, Fitch affirmed its BBB+ rating with a negative outlook, revised
from stable, and Moody’s affirmed its comparably equivalent rating of
Baa1 with a stable outlook.
The table below shows the credit ratings on our borrowings received from the rating agencies as at December 31, 2014:
Issuance
Standard & Poor’s
Fitch
Corporate credit issuer default rating
Senior unsecured debt
BBB+ with a stable outlook
BBB+ with a stable outlook
BBB+ with a negative outlook
BBB+ with a negative outlook
Moody’s
Baa1, stable outlook
Baa1, stable outlook
Ratings for debt instruments across the universe of composite rates
range from AAA (Standard & Poor’s and Fitch) or Aaa (Moody’s)
representing the highest quality of securities rated, to D (Standard &
Poor’s), Substantial Risk (Fitch), and C (Moody’s) for the lowest quality
of securities rated.
Investment grade credit ratings are generally
considered to range from BBB- (Standard & Poor’s and Fitch) or Baa3
(Moody’s) to AAA (Standard & Poor’s and Fitch) or Aaa (Moody’s).
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 59
Purchase of annuities
From time to time we have made additional lump-sum contributions to
our pension plans, and the pension plans have purchased annuities
from insurance companies to fund the pension benefit obligations for
certain groups of retired employees in the plans. Purchasing the
annuities relieves us of our primary responsibility for that portion of the
accrued benefit obligations for the retired employees and eliminates
the significant risk associated with the obligations.
We did not make any additional
lump-sum contributions to our
pension plans in 2014 or 2013, and the pension plans did not
purchase additional annuities.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Credit ratings are not recommendations for investors to purchase, hold
or sell the rated securities, nor are they a comment on market price or
investor suitability. There is no assurance that a rating will remain in
effect for a given period of time, or that a rating will not be revised or
withdrawn entirely by a rating agency if it believes circumstances
warrant it. The ratings on our senior debt provided by Standard &
Poor’s, Fitch and Moody’s are investment grade ratings.
PENSION OBLIGATIONS
Our retiree pension plans had a funding deficit of approximately $307
million (2013 – $172 million). During 2014, our funding deficit
increased by $135 million primarily as a result of a decrease in the
discount rate we used to measure these obligations.
We made a total of $106 million (2013 – $101 million) of contributions
to our pension plans. We expect our
total estimated funding
requirements to be $117 million in 2015 and to be adjusted annually
thereafter, based on various market factors such as interest rates and
expected returns and staffing assumptions.
Changes in factors such as the discount rate, participation rates,
increase in compensation and the expected return on plan assets can
affect
the accrued benefit obligation, pension expense and the
deficiency of plan assets over accrued obligations in the future. See
Critical accounting estimates for more information.
FINANCIAL RISK MANAGEMENT
We use derivative instruments from time to time to manage risks related to our business activities, summarized as follows:
Derivative
The risk they manage
Types of derivative instruments
Debt derivatives
• Impact of fluctuations in foreign exchange rates on principal
and interest payments for US dollar-denominated long-term
debt
• Cross-currency interest rate exchange agreements
• Forward foreign exchange agreements (from time to time
as necessary)
Bond forwards
• Impact of fluctuations in market interest rates on forecasted
• Forward interest rate agreements
interest payments for expected long-term debt
Expenditure
derivatives
• Impact of fluctuations in foreign exchange rates on forecasted
• Forward foreign exchange agreements
US dollar-denominated expenditures
Equity derivatives
• Impact of fluctuations in share price on stock-based
• Total return swap agreements
compensation expense
We also manage our exposure to fluctuating interest rates and we have
fixed the interest rate on 92.7% of our debt including short-term
borrowings as at December 31, 2014 (2013 – 95.3%).
All of our currently outstanding debt derivatives have been designated
as effective hedges against foreign exchange risk for accounting
purposes as described below and in note 16 to the consolidated
financial statements.
DEBT DERIVATIVES
We use cross-currency interest rate exchange agreements (debt
derivatives), to hedge the foreign exchange risk on all of the principal
and interest obligations of our US dollar-denominated senior notes
and debentures.
We completed the following transactions related to our debt
derivatives in 2014:
• entered into new debt derivatives to hedge senior notes issued; and
• settled maturing debt derivatives in conjunction with the repayment
or repurchase of the related senior notes.
New debt derivatives to hedge new senior notes issued in 2014
US$
Hedging effect
(In millions of dollars,
except interest rates)
Effective date
Principal/
Notional
amount
(US$)
Maturity
date
Coupon
rate
Fixed
hedged
Cdn$
interest
rate 1
Equivalent
(Cdn$)
March 10, 2014
750
2044
5.00%
4.99%
832
1 Converting from a fixed US$ coupon rate to a weighted average Cdn$ fixed rate.
60 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
Notional amount
(US$)
Net cash
(proceeds) settlement
(Cdn$)
(In millions of dollars,
except interest rates)
GoC term (years)
Maturity date 1
Interest rate 1 Notional amount
Initial GoC
Matured debt derivatives in 2014
(In millions of dollars)
Maturity date
March 1, 2014
March 15, 2014
750
350
1,100
(61)
26
(35)
As at December 31, 2014, we had US$6.0 billion of US dollar-
denominated senior notes and debentures, all of which have been
hedged using debt derivatives.
(In millions of dollars, except exchange rates,
percentages and years)
December 31,
2014
December 31,
2013
US dollar-denominated long-term debt 1
Hedged with debt derivatives
Hedged exchange rate
Percent hedged 2
Amount of borrowings at fixed rates 3
Total borrowings
Total borrowings at fixed rates
Percent of borrowings at fixed rates
Weighted average interest rate on
borrowings
Weighted average term to maturity
US$
US$
6,030 US$
6,030 US$
1.0470
100.0%
6,380
6,380
1.0447
100.0%
Cdn$ 15,055 Cdn$ 13,965
Cdn$ 13,963 Cdn$ 13,315
95.3%
92.7%
5.20%
10.8 years
5.54%
10.3 years
1 US$ denominated long-term debt reflects the hedged exchange rate.
2 Pursuant
to the requirements for hedge accounting under IAS 39, Financial
Instruments: Recognition and Measurement, on December 31, 2014, and
December 31, 2013, RCI accounted for 100% of its debt derivatives as hedges
against designated US dollar-denominated debt. As a result, on December 31,
2014, 100% of US dollar-denominated debt
is hedged for accounting and
economic purposes.
3 Borrowings include long-term debt, including the impact of debt derivatives, and
short-term borrowings associated with our accounts receivable securitization
program.
Bond forwards
From time to time, we may use extendible bond forward derivatives
(bond forwards) to hedge interest rate risk on the debt instruments we
expect to issue in the future. As at December 31, 2014, approximately
$5.2 billion of our outstanding public debt matures over the next
5 years and we anticipate that we will issue public debt over that time
to fund at least a portion of those maturities together with other
general corporate funding requirements. We use bond forwards for
risk-management purposes only. The bond forwards noted below
have been designated as hedges for accounting purposes.
During 2014, we entered into bond forwards to hedge the underlying
Government of Canada (GoC) interest rate risk that will comprise a
portion of the interest rate risk associated with our anticipated future
debt issuances. As a result of these bond forwards, we have hedged
the underlying GoC 10-year rate on $1.5 billion notional amount for
issuances from 2015 to 2018 and the
anticipated future debt
underlying GoC 30-year rate on $0.4 billion notional amount for
December 31, 2018. The bond forwards are effective from December
2014. There was no bond forward activity or balances in 2013.
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Dec 31, 2015
Dec 31, 2016
Apr 30, 2018
Dec 31, 2018
2.05%
2.04%
2.07%
2.41%
500
500
500
400
1,900
1 Bond forwards with maturity dates beyond December 31, 2015 are subject to GoC
rate re-setting from time to time.
EXPENDITURE DERIVATIVES
We use foreign currency forward contracts (expenditure derivatives) to
hedge the foreign exchange risk on the notional amount of certain
forecasted US dollar-denominated expenditures.
Expenditure derivatives entered into in 2014
(In millions of
dollars, except
exchange rates)
Notional
Trade date
Maturity dates
Notional
amount
(US$)
Exchange
Rate
Converted
amount
(Cdn$)
February 2014 January 2015 to April 2015
May 2014
June 2014
July 2014
May 2015 to December 2015
January 2015 to December 2015
January 2016 to December 2016
200
232
288
240
1.1100
1.0948
1.0903
1.0833
222
254
314
260
Total as at December 31, 2014
960
1.0940
1,050
The expenditure derivatives noted above have been designated as
hedges for accounting purposes. In the year ended December 31,
2014, we settled US$900 million (2013 – US$435 million) of
expenditure derivatives for $923 million (2013 – $430 million).
EQUITY DERIVATIVES
We use stock-based compensation derivatives (equity derivatives) to
hedge the market price appreciation risk of the RCI Class B shares
granted under our stock-based compensation programs. As at
December 31, 2014, we had equity derivatives for 5.7 million RCI
Class B shares with a weighted average price of $50.37. These
derivatives have not been designated as hedges for accounting
purposes and so we record changes in their fair value as a stock-based
compensation expense or offset thereto which serves to offset a
substantial portion of the impact of changes in the market price of RCI
Class B shares have on the accrued value of
the stock-based
compensation liability for our stock-based compensation programs. In
April 2014, we executed extension agreements for each of our equity
derivative contracts under substantially the same terms and conditions
with revised expiry dates to April 2015 (from April 2014).
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 61
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARK-TO-MARKET VALUE
We record our derivatives using an estimated credit-adjusted, mark-to-
market valuation, calculated in accordance with IFRS.
December 31, 2014
Notional
amount
(US$)
Exchange
rate
Notional
amount
(Cdn$)
Fair value
(Cdn$)
5,725
305
1.04
1.19
5,952
362
853
(7)
(In millions of dollars, except
exchange rates)
Debt derivatives accounted for as
cash flow hedges:
As assets
As liabilities
Net mark-to-market asset debt
derivatives
6,030
1.05
6,314
846
Bond forwards accounted for as
cash flow hedges:
As assets
As liabilities
Net mark-to-market liability bond
forwards
Equity derivative not accounted for
as hedges:
As liabilities
Expenditure derivatives accounted
for as cash flow hedges:
As assets
Net mark-to-market asset
250
1,650
1
(14)
1,900
(13)
960
1.09
1,050
(30)
70
873
ADJUSTED NET DEBT AND ADJUSTED NET DEBT /
ADJUSTED OPERATING PROFIT
We use adjusted net debt and adjusted net debt / adjusted operating
profit to conduct valuation-related analysis and make capital structure-
related decisions. Adjusted net debt includes long-term debt, net debt
derivatives assets or liabilities, short-term borrowings and cash and
cash equivalents.
(In millions of dollars, except ratios)
Long-term debt 1
Net debt derivatives assets 2
Short-term borrowings
Cash and cash equivalents
Adjusted net debt 3
As at December 31
2014
2013
14,895
(846)
842
(176)
13,436
(51)
650
(2,301)
14,715
11,734
Adjusted net debt / adjusted operating profit 3
2.9
2.4
1 Includes current and long-term debt portions plus deferred transaction costs and
discounts. See “Reconciliation of Adjusted Net Debt” in the section “Non-GAAP
Measures” for the calculation of this amount.
2 Includes current and long-term debt derivative portions.
3 Adjusted net debt and adjusted net debt / adjusted operating profit are non-GAAP
measures and should not be considered as a substitute or alternative for GAAP
measures. These are not defined terms under IFRS, and do not have standard
meanings, so may not be a reliable way to compare us to other companies. See
“Non-GAAP Measures” for information about these measures, including how we
calculate them.
In addition to the cash and cash equivalents as at December 31, 2014
noted above, we held approximately $1.1 billion of marketable equity
securities in publicly traded companies as at December 31, 2014.
Adjusted net debt increased by $3.0 billion this year and the adjusted
net debt / adjusted operating profit increased to 2.9. This was a
planned increase primarily as a result of the financings completed in
October 2013 and March 2014 to pay for our 700 MHz spectrum
investment made in April 2014. Our long-term target range of
adjusted net debt / adjusted operating profit is a ratio of 2.0 to 2.5.
DIVIDENDS AND SHARE INFORMATION
DIVIDENDS
In February 2014, the Board authorized an increase to the annualized dividend rate from $1.74 to $1.83 per Class A Voting and Class B Non-
Voting share. On January 28, 2015, the Board authorized a further increase in the annualized dividend rate to $1.92 per Class A Voting and
Class B Non-Voting share, with the dividend to be paid in quarterly amounts of $0.48 per share.
The table below shows when dividends have been declared and paid on both classes of our shares:
Declaration date
February 14, 2013
April 23, 2013
August 15, 2013
October 23, 2013
February 12, 2014
April 22, 2014
August 14, 2014
October 23, 2014
Record date
March 15, 2013
June 14, 2013
September 13, 2013
December 13, 2013
March 14, 2014
June 13, 2014
September 12, 2014
December 11, 2014
Payment date
April 2, 2013
July 3, 2013
October 2, 2013
January 2, 2014
April 4, 2014
July 2, 2014
October 1, 2014
January 2, 2015
Dividend
per share
(dollars)
Dividends paid
(in millions of
dollars)
0.435
0.435
0.435
0.435
0.4575
0.4575
0.4575
0.4575
224
224
224
224
235
235
235
235
62 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
We currently expect that the record and payment dates for the 2015
declaration of dividends will be as follows, subject to the declaration by
our Board each quarter at its sole discretion:
Record date
March 13, 2015
June 12, 2015
September 11, 2015
December 11, 2015
Payment date
April 1, 2015
July 2, 2015
October 1, 2015
January 4, 2016
OUTSTANDING COMMON SHARES
The table below shows our outstanding common shares as at
December 31, 2014 and 2013.
Common shares outstanding 1
Class A Voting
Class B Non-Voting
As at December 31
2014
2013
112,448,000
402,297,667
112,462,000
402,281,178
Total common shares
514,745,667
514,743,178
We use the weighted average number of shares outstanding to
calculate earnings per share and adjusted earnings per share. See
“Non-GAAP Measures” for more information on adjusted earnings per
share.
Years ended December 31
(Number of shares in millions)
2014
2013
Basic weighted average number of shares
outstanding
Diluted weighted average number of shares
outstanding
515
517
515
518
TOTAL COMMON SHARES OUTSTANDING
(IN MILLIONS)
2014
2013
2012
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Class A Voting
Class B Non-Voting
Outstanding options
Outstanding options exercisable
5,759,786
3,363,046
6,368,403
4,066,698
1 Holders of our Class B Non-Voting shares are entitled to receive notice of and to
attend shareholder meetings; however, they are not entitled to vote at these
meetings except as required by law or stipulated by stock exchanges. If an offer is
made to purchase outstanding Class A Voting shares, there is no requirement under
applicable law or our constating documents that an offer be made for the
outstanding Class B Non-Voting shares, and there is no other protection available to
shareholders under our constating documents. If an offer is made to purchase both
classes of shares, the offer for the Class A Voting shares may be made on different
terms than the offer to the holders of Class B Non-Voting shares.
ANNUALIZED DIVIDENDS PER SHARE AT YEAR END
($)
2014
2013
2012
112.5
402.3
112.5
402.3
112.5
402.8
$1.83
$1.74
$1.58
COMMITMENTS AND OTHER CONTRACTUAL OBLIGATIONS
CONTRACTUAL OBLIGATIONS
The table below shows a summary of our obligations under firm contractual arrangements as at December 31, 2014. See notes 3, 22 and 29 to
our 2014 audited consolidated financial statements for more information.
(In millions of dollars)
Short-term borrowings
Long-term debt 1
Debt derivative instruments 2
Expenditure derivative instruments 2
Bond forwards 2
Operating leases
Player contracts 3
Purchase obligations 4
Property, plant and equipment
Intangible assets
Program rights 5
Other long-term liabilities
Total
Less Than 1 Year
1-3 Years
4-5 Years
After 5 Years
Total
842
963
(58)
(45)
3
150
132
1,610
63
112
735
–
4,507
–
1,750
–
(19)
3
221
100
308
52
78
1,178
12
3,683
–
2,524
(189)
–
7
120
52
140
22
26
1,117
9
3,828
–
9,658
(435)
–
–
67
5
102
45
24
3,487
5
842
14,895
(682)
(64)
13
558
289
2,160
182
240
6,517
26
12,958
24,976
1 Principal obligations of long-term debt (including current portion) due at maturity.
2 Net (asset) disbursements due at maturity. US dollar amounts have been translated into Canadian dollars at the Bank of Canada year-end rate.
3 Player contracts are Blue Jays players’ salary contract we have entered into and are contractually obligated to pay.
4 Purchase obligations are the contractual obligations under service, product and handset contracts that we have committed to for at least the next five years. Purchase
obligations include a commitment to purchase a 50% interest in Glentel, expected to occur in 2015, subject to regulatory approval and completion of BCE’s acquisition of
Glentel.
5 Program rights are the agreements we have entered into to acquire broadcasting rights for sports broadcasting programs and films for periods ranging from one to twelve
years.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 63
MANAGEMENT’S DISCUSSION AND ANALYSIS
OFF-BALANCE SHEET ARRANGEMENTS
GUARANTEES
As a regular part of our business, we enter into agreements that
provide for indemnification and guarantees to counterparties in
transactions involving business sale and business combination
agreements, sales of services and purchases and development of
assets. Due to the nature of these indemnifications, we are unable to
make a reasonable estimate of the maximum potential amount we
could be required to pay counterparties. Historically, we have not
made any significant payment under
these indemnifications or
guarantees. See note 28 to our 2014 audited consolidated financial
statements for more information.
OPERATING LEASES
We have entered into operating leases for the rental of premises,
distribution facilities, equipment and wireless towers and other
contracts. Terminating any of these lease agreements would not have a
material adverse effect on us as a whole. See “Commitments and
Other Contractual obligations” and note 29 to our 2014 audited
for quantification and more
consolidated financial
information.
statements
Governance and Risk Management
GOVERNANCE AT ROGERS
Rogers is a family-founded, family-controlled company, and we take
pride in our proactive and disciplined approach to ensuring that our
governance structure and practices instil
the confidence of our
shareholders.
With the passing in December 2008 of our founder and previous
President and CEO, Ted Rogers, his voting control of Rogers
Communications passed to a trust, the beneficiaries of which are
members of the Rogers family. The trust holds voting control of Rogers
Communications for the benefit of successive generations of the
Rogers family via the trusts ownership of 90.9% of the outstanding
the Company. The Rogers family are
Class A Voting shares of
substantial stakeholders, and owned approximately 28% of our equity
as of December 31, 2014 through its ownership of a combined total of
142 million Class A Voting and Class B shares.
Our Board of Directors is made up of four members of the Rogers
family, and another 11 directors who bring a rich mix of experience as
business leaders in North America. All of our directors are firmly
committed to firm governance, strong oversight and the ongoing
creation of shareholder value. The Board as a whole is committed to
sound corporate governance, and continually reviews its governance
practices and benchmarks them against acknowledged leaders and
evolving legislation. The Board believes that Rogers’ governance
system is effective and that there are appropriate structures and
procedures in place.
GOVERNANCE BEST PRACTICES
The majority of our directors are independent and we have adopted
many best practices for effective governance:
• Separation of CEO and chairman roles
• Independent lead director
• Formal corporate governance policy and charters
64 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
• Code of business conduct and whistleblower hotline
• Director share ownership guidelines
• Board and committee in camera discussions
• Annual reviews of Board and director performance
• Audit Committee meetings with internal and external auditors
• Orientation programs for new directors
• Regular Board education sessions
• Committee authority to retain independent advisors
• Director material relationship standards.
We comply with all of the relevant corporate governance guidelines
and standards as a Canadian public company listed on the TSX and as
a foreign private issuer listed on the NYSE in the US.
BOARD OVERSIGHT
The Board delegates certain responsibilities to its seven standing
committees to ensure proper oversight and accountability:
• Audit Committee – reviews our accounting policies and practices, the
integrity of our financial reporting processes and procedures and the
financial statements and other relevant disclosure for release to
shareholders and the public. It assists the Board in its oversight of our
compliance with legal and regulatory requirements for financial
reporting, and assesses our internal accounting and financial control
systems and the qualifications,
independence and work of our
internal and external auditors. It also reviews processes to identify
major risk exposures and associated risk management policies.
• Corporate Governance Committee – assists the Board so it has
appropriate systems and procedures
its
responsibilities. This committee develops governance policies and
practices and recommends them to the board for approval, and
leads the Board in its periodic review of board and committee
performance.
carrying out
for
• Nominating Committee – identifies prospective candidates to serve
on our Board. Nominated directors are either elected by
shareholders at a meeting, or appointed by the Board. The
committee also recommends nominees for each Board committee,
including each committee chair.
• Human Resources Committee – assists the Board in monitoring,
reviewing and approving compensation and benefit policies and
practices. It is also responsible for recommending the compensation
of senior management and monitoring senior executive succession
planning.
• Executive Committee – assists the Board in discharging its
responsibilities between meetings, including to act in such areas as
specifically designated and authorized at a preceding Board
meeting to consider matters that may arise from time to time.
• Finance Committee — reviews our investment strategies and general
debt and equity structure and reports on them to the Board.
• Pension Committee — oversees the administration of our retiree
pension plans and reviews the investment performance and
provisions of the plans.
You can find more details about governance at Rogers in the Investor
Relations section of our website (rogers.com/governance), including:
• a complete statement of our corporate governance practices;
• our codes of conduct and ethics;
• full Board committee charters;
• director biographies; and
• a summary of
the differences between the NYSE corporate
governance rules that apply to US-based companies and our
governance practices as a non-US-based issuer listed on the NYSE.
BOARD OF DIRECTORS AND ITS COMMITTEES
AUDIT
CORPORATE
GOVERNANCE
NOMINATING
HUMAN
RESOURCES
EXECUTIVE
FINANCE
PENSION
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CHAIR
MEMBER
AS OF FEBRUARY 13, 2015
Alan D. Horn, CPA, CA
Charles Sirois
C. William D. Birchall
Stephen A. Burch
John H. Clappison, FCPA, FCA
Thomas I. Hull
Guy Laurence
Philip B. Lind, CM
John A. MacDonald
Isabelle Marcoux
The Hon. David R. Peterson, PC, QC
Edward S. Rogers
Loretta A. Rogers
Martha L. Rogers
Melinda M. Rogers
SOCIAL RESPONSIBLITY
CORPORATE SOCIAL RESPONSIBILITY
At Rogers, being socially responsible and sustainable is important to
our business and competitive advantage, and is an important part of
good governance.
It helps us build customer loyalty, enhances
employee recruitment and retention, and provides value to all of our
stakeholders. Our material issues, grouped into six Corporate Social
Responsibility focus areas, are listed below along with our approaches
in addressing them:
Good governance
• Governance and Risk Management: Our commitment to governing
responsibly is reflected in our governance structure and practices.
Our Enterprise Risk Management program seeks to identify, assess,
manage, monitor and communicate risk consistently.
• Business Ethics and Integrity: We have guidelines and policies that
govern our employees’ actions, promote responsible conduct and
ensure compliance with regulatory requirements.
Customer experience
• Customer Service: We are focused on raising the bar on service
tackling top customer irritants and improving problem
levels,
resolution.
• Customer Transparency: We aim to provide our customers with the
knowledge needed to make informed decisions through customer
service training, advertising materials, and providing informational
resources to help customers.
• Network Coverage and Reliability: Each year, we invest in network
upgrades and maintenance to ensure reliable coverage in both
urban and rural areas, and to better serve the growing use of
wireless and broadband data.
• Responsible Products: We look at the life cycle of our products and
services, from sourcing and transport to product take-back and
recycling, with device trade-in programs such as Rogers Trade-Up
and FidoTrade, and go beyond legal compliance as we work to
meet customer and community expectations for product quality,
safety and environmental impacts.
Employee experience
• Employee Engagement: We work to build high-performing teams
through a number of programs and policies, including a bi-annual
leadership development programs, and
engagement survey,
communication and idea sharing between employees and
management.
• Talent Management: We aim to attract and retain top talent and
minimize voluntary turnover where possible by offering effective
training and development, career opportunities and management
resources, and a strong employee benefits program.
• Diversity and Inclusion: Our multi-year diversity plan is championed
and developed by our most senior leaders. Our commitment is
embedded in our practices and policies, management systems,
recruitment and training programs, and employee resource groups,
such as Rogers Women’s Network and RogersPride.
• Health, Safety and Wellness: We have robust programs and
practices to identify and minimize potential hazards, and we
continually monitor our practices, sites and work to ensure
employees remain safe.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 65
MANAGEMENT’S DISCUSSION AND ANALYSIS
Environmental responsibility
• Energy Use and Climate Change Mitigation: To monitor and reduce
our energy consumption, we regularly assess our climate change
risks, annually measure our carbon footprint and implement climate
change solutions. We recently established corporate environmental
targets to reduce our greenhouse gas emissions by 25% and energy
consumption by 10% from 2011 levels by 2025.
• Paper Reduction: We encourage employees to reduce their paper
consumption through different initiatives, work with suppliers to
ensure responsible paper sourcing, production and recycling, and
provide our customers with paperless options.
• Recycling and Waste Management: We look for opportunities to
avoid waste generation, and run programs to recycle and reuse
materials to ensure we handle the waste we produce responsibly. In
2014, we expanded our Get-up and Get Green program by
providing centralized garbage receptacles and eliminating garbage
bins at employees’ work stations at some of our larger office
buildings to reduce our office waste.
Community investment
• Strong and Vibrant Communities: We stand by the principles of
good corporate citizenship, committing at least 1% of our net
earnings before taxes each year
to charities and non-profit
organizations. In 2014, Rogers provided over $70 million in cash
and in-kind donations to support various organizations and causes.
Through Rogers Youth Fund, we support education programs for at-
risk youth offered by Boys & Girls Clubs and local non-profit
organizations across Canada. In addition for over 30 years, we’ve
funded $400 million in Canadian productions to promote and
advance our Canadian culture in broadcasting, literature and the
arts. The Jays Care Foundation also works to ensure children in
need make positive life choices through programs that support
physical activity, education and life-skill development.
• Employee Community Involvement: We support our employees
and their community activities through the Rogers Employee
Volunteer Program, which gives them the opportunity to volunteer
for one paid day each year.
Economy and society
• Economic Development and Impact: We support the communities
where we operate by providing employment opportunities, paying
taxes, engaging in public policy dialogue and maintaining a strong
business that provides dividends to our shareholders.
• Supply Chain Management: We work with close to 30,000 suppliers
across Canada and internationally. Through the policies and
framework that support our supply chain standards and ethical
procurement, including our Supplier Code of Conduct, we set out
high standards for any vendor that does business with us.
See our annual Corporate Social Responsibility report on our website
(rogers.com/csr)
for more about our social, environmental and
community contributions and performance.
66 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
INCOME TAX AND OTHER GOVERNMENT PAYMENTS
We proactively manage our tax affairs to enhance Rogers’ business
decisions and optimize after-tax free cash flow available for investment
in our business and shareholder
returns. We have established
comprehensive policies and procedures to ensure we are compliant
with all tax laws and reporting requirements,
including filing and
making all requisite income and sales tax returns and payments on a
timely basis. As a part of
this process, we maintain open and
cooperative relationships with revenue authorities to minimize audit
effort and reduce tax uncertainty while engaging with government
policy makers on taxation matters that
impact Rogers and its
shareholders, employees, customers and other stakeholders.
Income tax payments
Rogers total income tax expense of $506 million in 2014 is close to the
expense computed on its accounting income at the statutory rate of
26.5%. Cash income tax payments totaled $460 million in 2014. Cash
income tax payments can differ from the tax expense shown on the
financial statements for various reasons, including timing of payments.
Our cash income tax is lower than our tax expense principally because
of the significant capital investment Rogers continues to make in our
wireless and broadband telecommunications network throughout
Canada. Similar to tax systems throughout the world, Canadian tax
laws generally permit these capital expenditures to be deducted for
tax more quickly than they are depreciated for financial statement
recognition purposes.
Other government payments
In addition to paying income tax on the profits we earn, we contribute
significantly to Canadians by paying the following taxes and fees to
federal, provincial and municipal governments:
• various taxes on the salaries and wages we pay (payroll taxes) to
approximately 27,000 employees;
• property and business taxes;
• unrecoverable sales taxes and custom duties; and
• broadcast, spectrum and other regulatory fees.
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As outlined in the table below, the total cost to Rogers of these payments in 2014 was approximately $1,140 million.
(In millions of dollars)
Total payments
460
8
132
496
44
1,140
1 Includes an allocation of $264.5 million relating to the $1.0 billion and $3.3 billion we paid for the acquisition of spectrum licences in 2008 and 2014, respectively.
Income
taxes
Non-recoverable
sales taxes
Payroll taxes
Regulatory and
spectrum fees 1
Property and
business taxes
Total taxes and
other payments
We also collected on behalf of the government approximately $1,667
million in sales taxes on our products and services and $545 million in
employee payroll taxes.
RISK MANAGEMENT
We are committed to continually strengthening our risk management
capabilities to protect and enhance shareholder value. The purpose of
risk management is not to eliminate risk but to optimize trade-offs
between risk and return to maximize value to the organization.
RISK GOVERNANCE
The Board has overall responsibility for risk governance and oversees
management in identifying the principal risks we face in our business
and implementing appropriate risk assessment processes to manage
these risks. It delegates certain risk oversight and management duties
to the Audit Committee.
The Audit Committee discusses risk policies with management and the
Board, and assists the Board in overseeing our compliance with legal
and regulatory requirements.
The Audit Committee also reviews:
• the adequacy of the internal controls that have been adopted to
safeguard assets from loss and unauthorized use, to prevent, deter
and detect fraud and to ensure the accuracy of the financial records;
• the processes for identifying, assessing and managing risks;
• our exposure to major
risks and trends and management’s
implementation of risk policies and actions to monitor and control
these exposures;
• our business continuity and disaster recovery plans;
• any special audit steps adopted due to material weaknesses or
significant deficiencies that may be identified; and
• other risk management matters from time to time as determined by
the Audit Committee or directed by the Board.
ENTERPRISE RISK MANAGEMENT
Our Enterprise Risk Management program uses the “3 Lines of
Defence”
framework to identify, assess, manage, monitor and
communicate risks. The Executive Leadership Team with its associated
business units and departments is the first line of defence. The
Executive Leadership Team with the business units and departments
identify and assess key risks and define controls and action plans to
minimize these risks to enhance our ability to meet our business
objectives. This group owns the risks. Management within the business
units and departments is responsible for maintaining effective controls
on a day-to-day basis to reduce risks to an acceptable level.
Enterprise Risk Management is the second line of defence. As part of
their
role, Enterprise Risk Management supports the Executive
Leadership Team to identify the organization’s risk appetite, identify
emerging risks, and monitor the adequacy and effectiveness of the
controls to reduce risks to an acceptable level. At the business unit
level, Enterprise Risk Management works with the business to provide
governance and oversight in managing the key risks and associated
controls to mitigate these risks.
Enterprise Risk Management carries out an annual strategic risk
assessment to identify our principal risks and their potential impact on
our ability to achieve our business objectives. This assessment includes
reviewing risk reports, audit reports and industry benchmarks, and
interviewing key risk owners. Enterprise Risk Management reports the
results of
to the Executive
Leadership Team and the Audit Committee. Enterprise Risk
Management also conducts a formal management survey every two
years to get management feedback on the key risks facing the
organization and identify emerging risks. These risks are prioritized
using standard risk assessment criteria.
the annual strategic risk assessment
Internal Audit is the third line of defence. Internal Audit evaluates the
design and operational effectiveness of the governance program,
internal controls and Risk management. Risks, controls and mitigation
plans identified through this process are incorporated into the annual
Internal Audit plan. Annually, Internal Audit also facilitates and monitors
management’s completion of the financial fraud risk assessment to
identify areas of potential fraud in our financial statements and to
ensure these controls are designed and operating effectively.
The Executive Leadership Team and the Audit Committee are
responsible for approving our enterprise risk policies. Our Enterprise
Risk Management methodology and policies rely on the expertise of
our management and employees to identify risks and opportunities,
and implement risk mitigation strategies as required.
RISKS AND UNCERTAINTIES AFFECTING OUR
BUSINESS
This section describes the principal risks and uncertainties that could
have a material adverse effect on our business and financial results.
Any discussion about risks should be read in conjunction with “About
Forward-Looking Information”.
GENERAL RISKS
ECONOMIC CONDITIONS
Our businesses are affected by general economic conditions and
consumer confidence and spending. Recessions, declines in economic
activity and economic uncertainty can erode consumer and business
confidence and reduce discretionary spending. Any of these factors
can negatively affect us through reduced advertising, lower demand
for our products and services, decreased revenue and profitability, and
higher churn and bad debt expense. A significant portion of our
broadcasting, publishing and digital revenues come from the sale of
advertising.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 67
MANAGEMENT’S DISCUSSION AND ANALYSIS
Poor economic conditions can also have an impact on our pension
plans because there is no assurance that the plans will be able to earn
the assumed rate of return. Capital market volatility may result in
changes in the discount rates and other variables used to calculate our
pension obligations, requiring us to make contributions in the future
that differ significantly from current contributions and assumptions
being used in the actuarial valuation process.
SUBSTANTIAL COMPETITION
There is no assurance that our current or future competitors will not
provide services that are superior to ours or at lower prices, adapt
more quickly to evolving industry trends or changing market
requirements, enter markets we operate in, or introduce competing
services. Any of these factors could reduce our business market share
or revenues, or increase churn.
We may have some ongoing re-pricing of products and services with
our existing subscribers as we may need to extend lower wireless
pricing offers to attract and retain customers. As wireless penetration of
the population deepens, new wireless customers may generate lower
average monthly revenue and this could slow revenue growth.
Wireless could face increased competition due to recent changes to
foreign ownership and control of wireless licences:
• Foreign telecommunication companies could enter the Canadian
market by acquiring wireless licences or a holder of wireless
licences. If companies with significantly greater capital resources
enter the Canadian market, it could reduce our wireless market
share. See “Foreign ownership and control” in “Regulation in Our
Industry” for details.
for
• Industry Canada’s policy regarding the transfer of spectrum licences,
combined with 2012 legislation that allows foreign ownership of
wireless providers with less than 10% market share, could make it
harder
incumbent wireless carriers to acquire additional
spectrum, including the completion of our previously announced
less
arrangements with Shaw and Videotron, while making it
expensive for foreign wireless carriers to enter the Canadian wireless
market. This could increase the intensity of competition in the
Canadian wireless sector.
In addition, the CRTC Broadcasting Distribution Regulations do not
allow cable operators to obtain exclusive contracts in buildings where it
is technically feasible to install two or more transmission systems.
TECHNOLOGY RISKS
COMPETING TECHNOLOGIES
Several technologies may affect the way our services are delivered,
including:
• Broadband;
• IP-based voice, data and video delivery services;
• increased use of optical fibre technologies to businesses and/or
residences; and
• broadband wireless access and wireless services using a radio
frequency spectrum to which we may have limited access.
These technologies may also lead to significantly different cost
structures for users and therefore affect the long-term viability of some
of our current technologies. Some of the new technologies may allow
competitors to enter our markets with similar products or services at
lower costs. These competitors may also be larger and have greater
access to financial resources than Rogers.
68 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
Improvements in the quality of streaming video over the Internet,
coupled with the increasing availability of television shows and movies
online through OTT content providers, which compete for viewership,
are anticipated to increase competition for Canadian cable television
systems.
If advances in technology are made to any alternative
Canadian multi-channel broadcasting distribution system, our cable
services may face increased competition. In addition, wireless Internet
in some instances, replacing traditional wireline Internet as the
is,
technology for wireless Internet continues to develop.
The use of PVRs could affect our ability to generate television
advertising revenues because viewers can skip advertising aired on the
television networks. The continued emergence and growth of
subscriber-based satellite and digital radio products could change
radio audience listening habits and have a negative effect on the
results of our radio stations. Certain audiences are also migrating away
from traditional broadcast platforms to the Internet as more video and
audio content streaming becomes available.
DEPENDENCE ON INFORMATION TECHNOLOGY
SYSTEMS
Our businesses depend on information technology systems for day-to-
day operations. If we are unable to operate our systems or make
enhancements to accommodate customer growth and new products
and services or our systems go down, it could have an adverse effect
on our ability to acquire new subscribers, service customers, manage
subscriber churn, produce accurate and timely subscriber invoices,
generate revenue growth and manage operating expenses. This could
have an adverse impact on our results and financial position.
Most of our employees and critical elements of our network
infrastructure and information technology systems are concentrated in
various physical facilities. If we cannot access one or more of these
facilities because of a natural or manmade disaster or otherwise, our
operations may be significantly affected to the extent that it may be
difficult for us to recover without a significant interruption in service or
negative impact to our revenue or customer base.
to
enabling
sustained
INFORMATION SECURITY RISK
Security is essential to maintaining efficient, reliable business processes
and
Technology
advancements and the people using these technologies introduce
new information security risks. Cyber threats are maturing with time
and their sophistication and effectiveness are increasing. A security
breach could result in loss of revenue, reputation, and resources, or
handing advantage to a competitor.
business
growth.
including personal
We use standard industry practices for network and information
technology security, survivability and disaster recovery. Our ongoing
success partly depends on protecting our corporate business-sensitive
data,
information about our customers and
employees. We treat this information as intellectual property and
protect it from unauthorized access and compromise. We rely on our
policies and procedures and information technology systems to
protect this information. If we do not secure our data and the privacy of
our customer
information, we may not be in compliance with
regulatory standards and it could result in negative publicity, litigation
and damage to our reputation. Any of these outcomes can cause us to
lose customers or public confidence, or experience financial losses.
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IMPACT OF NETWORK FAILURES ON REVENUE AND
CUSTOMER SERVICE
If our networks or key network components fail, it could, in some
circumstances, result in a loss of service for our customers for certain
periods and have an adverse effect on our results and financial
position. We rely on business partners to carry some traffic for certain
customers. If one of these carriers has a service failure, it might also
cause a service interruption for those customers that would last until we
could reroute the traffic to another carrier.
UNAUTHORIZED ACCESS TO DIGITAL BOXES OR
INTERNET MODEMS
We use encryption technology developed and supported by our
vendors to protect our cable signals from unauthorized access and to
control access to programming based on subscription packages. We
also use encryption and security technologies to prevent unauthorized
access to our Internet service.
There is no assurance that we will be able to effectively prevent
unauthorized decoding of television signals or Internet access in the
future. If we are unable to control cable access with our encryption
technology, subscriptions to digital programming, including premium
VOD and SVOD, and Internet service revenues may decrease, which
could result in a decline in our cable revenues.
REGULATORY RISKS
CHANGES IN GOVERNMENT REGULATIONS
Substantially all of our business activities are regulated by Industry
Canada and/or the CRTC, and any regulatory changes or decisions
could adversely affect our consolidated results of operations. See
“Regulation in Our Industry”.
Regulatory changes or decisions made by these regulators could
adversely impact our results on a consolidated basis. This regulation
relates to, among other things, licencing and related fees, competition,
the cable television programming services that we must distribute,
wireless and wireline interconnection agreements, the rates we may
charge to provide access to our network by third parties, the resale of
our networks and roaming on our networks, our operation and
ownership of communications systems and our ability to acquire an
interest in other communications systems. In addition, the costs of
providing services may be increased from time-to-time as a result of
compliance with industry or legislative initiatives to address consumer
protection concerns or such Internet-related issues as copyright
infringement, unsolicited commercial e-mail, cybercrime and lawful
access.
Generally, our licences are granted for a specified term and are subject
to conditions on the maintenance of these licences. These licencing
conditions and related fees may be modified at any time by the
regulators. The regulators may decide not to renew a licence when it
expires, and any failure by us to comply with the conditions on the
maintenance of a licence could result in a revocation or forfeiture of
any of our licences or the imposition of fines. Our cable, wireless and
broadcasting licences may not generally be transferred without
regulatory approval.
The licences include conditions requiring us to comply with Canadian
ownership restrictions of the applicable legislation. We are currently in
these Canadian ownership and control
compliance with all of
requirements. However, if these requirements are violated, we would
be subject to various penalties, possibly including, in the extreme case,
the loss of a licence.
SPECTRUM
Radio spectrum is one of the fundamental assets required to carry on
the wireless business. Our ability to continue to offer and improve
current services and to offer new services depends on, among other
factors, continued access to and deployment of adequate spectrum,
including both the ability to renew current spectrum licences and
acquire new spectrum licences.
If we cannot acquire and retain needed spectrum, we may not be able
to continue to offer and improve our current services and deploy new
services on a timely basis including providing competitive data speeds
that customers want. As a result, our ability to attract and retain
In addition, an
customers could be materially adversely affected.
inability to acquire and retain needed spectrum could affect network
quality and result in higher capital expenditures, as a consequence of
network densification and other related network upgrades.
Changes to government spectrum fees could significantly increase our
payments and therefore materially reduce our operating profit.
HIGHER HANDSET SUBSIDIES
Our wireless business model is based substantially on subsidizing the
cost of subscriber handsets, similar to other North American wireless
carriers. This model attracts customers and in exchange they commit to
a term contract with us. We also commit to a minimum subsidy per unit
with the supplier of certain smartphone devices. If we are unable to
recover the costs of the subsidies over the term of the customer
contract this could have an adverse effect on our business, results of
operations and financial condition.
THE WIRELESS CODE
The CRTC’s decision to implement its Wireless Code, among other
things, effectively required Canadian wireless carriers to move away
from offering three-year service contracts and instead offer two-year
contracts, and this could change our customer acquisition and
retention costs and subscriber churn. The code was applied to all
contracts (excluding enterprise plans) entered into or renewed after
December 2, 2013 and applies to contracts (excluding enterprise
plans), as of June 3, 2015, no matter when they were originally entered
into. See “Regulation in Our Industry”.
Our wireless business could be adversely affected if laws, regulation or
customer behaviour make it difficult
for us to impose term
commitments or early cancellation fees on customers or receive the
service revenues we anticipate from the term commitments.
NATIONAL WIRELESS TOWER POLICY
The policy affects all parties that plan to install or modify an antenna
system, including PCS, cellular and broadcasting service providers. The
policy requires, among other things, that antenna proponents consider
using existing antenna structures before proposing new structures and
those owners of existing systems respond to requests to share antenna
systems. Antenna proponents must follow a defined process for
notifying the public and addressing local requirements and concerns.
Certain types of antenna installations, however, are excluded from the
consultation requirements with local authorities and the public. The
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 69
MANAGEMENT’S DISCUSSION AND ANALYSIS
policy could prevent us from installing certain new antenna systems
and/or expanding our network which would ultimately impact our
ability to serve our customers.
RADIO FREQUENCY EMISSIONS
From time to time the 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. This may discourage the use of wireless handsets or
expose us to potential litigation even though there are no definitive
these health issues are directly
reports or studies stating that
attributable to radio frequency emissions. It is also possible that future
regulatory actions may result in more restrictive standards on radio
frequency emissions from low-powered devices like wireless handsets.
We cannot predict the nature or extent of any restrictions.
ACQUISITIONS, DIVESTITURES OR INVESTMENTS
Acquiring complementary businesses and technologies, developing
strategic alliances and divesting portions of our business are often
required to optimally execute our business strategy. Some areas of our
operations (and adjacent businesses) are subject to rapidly evolving
technologies and consumer usage and demand trends. It is possible
that we may not effectively forecast the value of consumer demand or
risk of competing technologies resulting in higher valuations for
acquisitions.
Services, technologies, key personnel or businesses of companies we
acquire may not be effectively assimilated into our business or service
offerings, or our alliances may not be successful. We also may not be
able to successfully complete certain divestitures on satisfactory terms,
if at all. Divestitures may reduce our total revenues and net income by
more than the sales price.
OBTAINING ACCESS TO SUPPORT STRUCTURES AND
MUNICIPAL RIGHTS OF WAY
We must have access to support structures and municipal rights of way
for our cable facilities. We can apply to the CRTC to obtain a right of
access under the Telecommunications Act in areas where we cannot
secure access to municipal rights of way. Failure to obtain access could
increase Cable costs and adversely affect our business.
The Supreme Court of Canada ruled in 2003, however, that the CRTC
does not have the jurisdiction to establish the terms and conditions of
accessing the poles of hydroelectric companies. As a result, we
normally obtain access under terms established by the provincial utility
boards.
DEPENDENCE ON FACILITIES AND SERVICES OF ILECS
Certain business telephony operations that are outside our cable
territory highly depend on the availability of facilities and services
acquired from incumbent telecom operators, according to CRTC rules.
Changes to these rules could significantly affect the cost of operating
these businesses.
COPYRIGHT TARIFFS
Pressures on copyright tariffs continue to affect our services. Any
increase in fees could negatively affect our results of operations.
BUSINESS RISKS
REVENUE EXPECTATIONS FROM NEW AND ADVANCED
SERVICES
We expect that a substantial portion of our future revenue growth may
come from new and advanced services, and we continue to invest
significant capital resources to develop our networks so we can offer
these services. It is possible, however, that there may not be sufficient
consumer demand, or that we may not anticipate or satisfy demand for
certain products and services, or be able to offer or market these new
products and services successfully to subscribers. If we do not attract
subscribers to new products and services profitably or keep pace with
changing consumer preferences, we could experience slower revenue
growth and increased churn. This could have a materially adverse
effect on our business, results of operations and financial condition.
COMPLEXITY OF OUR BUSINESS
Our businesses, technologies, processes and systems are operationally
complex and increasingly interconnected.
If we do not execute
properly, or if manmade or natural disasters impact them, customers
may have a negative experience, resulting in increased churn and
lower revenue.
RELIANCE ON THIRD PARTY SERVICE PROVIDERS
We have outsourcing and managed service arrangements with third
parties to provide certain essential components of our business
operations to our employees and customers, including payroll, certain
facilities or property management
functions, call centre support,
certain installation and service technicians, certain information
technology functions, and invoice printing.
Interruptions in these
services could adversely affect our ability to service our customers.
DEPENDENCE ON CERTAIN KEY INFRASTRUCTURE AND
HANDSET VENDORS
Our wireless business has relationships with a relatively small number
of essential network infrastructure and handset vendors. We do not
have operational or financial control over them, and only have limited
influence on how they conduct their business with us.
If one of our network infrastructure suppliers fails, it could delay adding
network capacity or new capabilities and services. Handsets and
network infrastructure suppliers can extend delivery times, raise prices
supply due to their own shortages and business
and limit
requirements, among other things. If these suppliers do not develop
handsets that satisfy customer demands, or deliver products and
services on a timely basis, it could have a material adverse effect on our
business, financial condition and results of operations. Any interruption
in the supply of equipment for our networks could also affect the
quality of our service or impede network development and expansion.
Apple has introduced soft SIM to its latest iPads launched in the US,
allowing customers of certain carriers to switch between carriers
without the use of a carrier-provided SIM card. If Apple or other major
handset vendors introduce soft SIM to their mobile products in
Canada, this could have an adverse effect on our business, churn and
results of operations as many customers without subsidized devices
are under no contractual obligation to remain with Rogers.
70 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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INCREASE IN BRING YOUR OWN DEVICE CUSTOMERS
With the CRTC’s Wireless Code introduced in 2013 limiting wireless
term contracts to two years from three years, the number of BYOD
customers with no-term contracts could increase. As such, these
customers are under no contractual obligation to remain with Rogers,
this could have a material adverse effect on our churn.
INVENTORY OBSOLESCENCE
Our inventory balance mainly consists of wireless handset devices,
which generally have relatively short product life cycles due to frequent
wireless handset
If we cannot effectively manage
inventory levels based on product demand, this may increase the risk
of inventory obsolescence.
introductions.
ORGANIZATIONAL STRUCTURE AND TALENT
The industry is competitive in attracting and retaining a skilled
workforce. Losing certain employees or changes in morale due to a
restructuring or other event could affect our revenue and profitability in
certain circumstances.
INCREASING PROGRAMMING COSTS
Acquiring programming is the single most significant purchasing
commitment in our Cable television business and is also a material cost
for Media television properties. Programming costs have increased
significantly over the past few years, particularly with the recent growth
in subscriptions to digital specialty channels. Increased competition for
programming rights to popular properties from both traditional linear
television broadcasters and digital competitors continue to increase
the cost of programming rights. Higher programming costs could
adversely affect the operating results of our business if we are unable
to pass on these costs to subscribers.
CHANNEL PLACEMENT AND CHANNEL BUNDLING
Unfavourable channel placement could negatively affect the tier status
and results of certain of Media’s channels, including The Shopping
Channel, Sportsnet, Sportsnet 360, Sportsnet ONE, Sportsnet World,
and our specialty channels,
including Outdoor Life Network, FX
(Canada), FXX (Canada), and G4 Canada. Certain channels are
included in favorable channel packaging with BDUs. Digital
distribution technologies and potential regulatory rulings may allow
BDUs to implement flexible channel packaging. This could have a
negative impact on our results and some industry specialty networks
may not survive in such an environment. See also “Television Services
Distribution” section under Cable Regulation.
MIGRATING FROM CONVENTIONAL MEDIA TO DIGITAL
MEDIA
Our Media business operates in many industries that can be affected
by customers migrating from conventional to digital media, which is
driving shifts in the quality and accessibility of data and mobile
alternatives to conventional media. We have been shifting our focus
towards the digital market to limit this risk. Increasing competition for
advertising revenue from digital content providers such as search
engines, social networks and Internet video content alternatives have
resulted in advertising dollars migrating from conventional television
is greater on
broadcasters
conventional over-the-air broadcast networks such as CityTV and
OMNI that do not have a second revenue stream from subscription
revenue. Our Media results could be negatively affected if we are
to digital platforms. The impact
unsuccessful
conventional to digital platforms.
in anticipating the shift
in advertising dollars from
OUR MARKET POSITION IN RADIO, TELEVISION OR
MAGAZINE READERSHIP
Advertising dollars typically migrate to media properties that are
leaders in their respective markets and categories, particularly when
advertising budgets are tight. Although most of our radio, television
and magazine properties currently perform well in their respective
markets, this may not continue in the future. Advertisers base a
substantial part of their purchasing decisions on ratings and readership
data generated by industry associations and agencies. If our radio and
television ratings or magazine readership levels decrease substantially,
our advertising sales volumes and the rates that we charge advertisers
could be adversely affected.
FINANCIAL RISKS
CAPITAL COMMITMENTS, LIQUIDITY, DEBT AND INTEREST
PAYMENTS
Our capital commitments and financing obligations could have
important consequences including:
• requiring us to dedicate a substantial portion of cash provided by
operating activities to pay interest, principal and dividends, which
reduce funds available for other business purposes including other
financial operations;
• making us more vulnerable to adverse economic and industry
conditions;
• limiting our flexibility in planning for, and/or reacting to, changes in
our business and/or industry;
• putting us at a competitive disadvantage compared to competitors
who may have more financial resources and/or less financial
leverage; or
• restricting our ability to obtain additional financing to fund working
capital and capital expenditures and for other general corporate
purposes.
Our ability to satisfy our financial obligations depends on our future
operating performance and economic, financial, competitive and other
factors, many of which are beyond our control. Our business may in the
future not generate sufficient cash flow and financings may not be
available to provide sufficient net proceeds to meet these obligations
or to successfully execute our business strategy.
CREDIT RATINGS
Credit ratings provide an independent measure of credit quality of an
issuer of securities, and can affect our ability to obtain short-term and
long-term financing and the terms of the financing. If rating agencies
lower the credit ratings on our debt, particularly a downgrade below
investment grade, it could adversely affect our cost of financing and
access to liquidity and capital.
INCOME TAXES AND OTHER TAXES
We collect, pay and accrue significant amounts of income and other
taxes such as federal and provincial sales, employment and property
taxes.
We have recorded significant amounts of deferred income tax
liabilities and current
income tax expense, and calculated these
amounts based on substantively enacted income tax rates in effect at
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 71
MANAGEMENT’S DISCUSSION AND ANALYSIS
the relevant time. A legislative change in these rates could have a
material impact on the amounts recorded and payable in the future.
taxes based on all of
the
We provide for income and indirect
information that
is currently available and believe that we have
adequately provided these items. The calculation of applicable taxes in
many cases, however, requires significant judgement in interpreting
tax rules and regulations. Our tax filings are subject to audits, which
could materially change the amount of current and deferred income
tax assets and liabilities and provisions, and could,
in certain
circumstances, result in the assessment of interest and penalties.
While we believe we have paid and provided for adequate amounts of
tax, our business is complex and significant judgement is required in
interpreting how tax legislation and regulations apply to us.
LITIGATION RISKS
SYSTEM ACCESS FEE — SASKATCHEWAN
In 2004, a class action commenced against providers of wireless
communications
the Class Actions Act
(Saskatchewan). The class action related to the system access fee
wireless carriers charged to some of their customers. The plaintiffs are
seeking unspecified damages and punitive damages, which would
effectively be a reimbursement of all system access fees collected.
in Canada
under
In 2007, the Saskatchewan Court granted the plaintiffs’ application to
have the proceeding certified as a national, “opt-in” class action where
affected customers outside Saskatchewan must take specific steps to
participate in the proceeding.
In 2008, our motion to stay the
proceeding based on the arbitration clause in our wireless service
agreements was granted. The Saskatchewan Court directed that its
order,
in respect of the certification of the action, would exclude
customers who are bound by an arbitration clause from the class of
plaintiffs.
it was
We appealed the 2007 certification decision, however,
dismissed by the Saskatchewan Court of Appeal and leave to appeal to
the Supreme Court of Canada was denied.
In 2012, the plaintiffs applied for an order seeking to extend the time
they can appeal the “opt-in” decision of the Saskatchewan Court. In
March 2013, the Saskatchewan Court of Appeal denied the plaintiffs’
application.
In August 2009, counsel for the plaintiffs began a second proceeding
under the Class Actions Act (Saskatchewan) asserting the same claims
as the original proceeding. If successful, this second class action would
be an “opt-out” class proceeding. This second proceeding was
ordered conditionally stayed in 2009 on the basis that it was an abuse
of process.
In April 2013, the plaintiffs applied for an order to be allowed to
proceed with the second system access fee class action. In August
2013, the court denied this application and the second action remains
conditionally stayed. In December 2013 the plaintiff applied for an
order permitting them to amend the Statement of Claim to
reintroduce the claims they were not permitted to proceed with in the
2007 certification decision.
In March 2014, the court denied this
application. There are proceedings underway in Alberta, Manitoba and
Nova Scotia to determine whether matching claims should be allowed
to proceed in those provinces.
72 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
At the same time the Saskatchewan class action was commenced,
corresponding claims were filed in multiple jurisdictions across
Canada, although no active steps were taken by the plaintiffs. In July
2014, the Nova Scotia Supreme Court declined to stay or dismiss the
corresponding claim brought by the plaintiffs in Nova Scotia as an
abuse of process. Rogers has filed its Notice of Appeal in respect of
that decision.
In August, the Manitoba Court of Queen’s Bench
unconditionally stayed the corresponding claim brought in Manitoba
as an abuse of process. An appeal in respect of that decision has been
filed by the plaintiffs. We have not recorded a liability for this
contingency.
SYSTEM ACCESS FEE – BRITISH COLUMBIA
In December 2011, a class action was launched in British Columbia
against providers of wireless communications in Canada about the
system access fee wireless carriers charge to some of their customers.
The class action relates to allegations of misrepresentations contrary to
the Business Practices and Consumer Protection Act (British Columbia),
among other things. The plaintiffs are seeking unspecified damages
and restitution. A certification hearing was held in April 2014 and in
June 2014 the court denied the certification application. An appeal in
respect of that decision has been filed by the plaintiffs. We have not
recorded a liability for this contingency.
911 FEE
In June 2008, a class action was launched in Saskatchewan against
providers of wireless communications services in Canada. It involves
allegations of breach of contract, misrepresentation and false
advertising, among other things, in relation to the 911 fee that had
been charged by us and the other wireless telecommunication
providers in Canada. The plaintiffs are seeking unspecified damages
and restitution. The plaintiffs intend to seek an order certifying the
proceeding as a national class action in Saskatchewan. We have not
recorded a liability for this contingency.
CELLULAR DEVICES
In July 2013, a class action was launched in British Columbia against
providers of wireless communications in Canada and manufacturers of
wireless devices. The class action relates to the alleged adverse health
effects incurred by long-term users of cellular devices. The plaintiffs are
seeking unspecified damages and punitive damages, effectively equal
to the reimbursement of the portion of revenues the defendants have
received that can reasonably be attributed to the sale of cellular
phones in Canada. We have not
this
contingency.
recorded a liability for
OTHER CLAIMS
There are certain other claims and potential claims against us. We do
not expect any of these to have a materially adverse effect on our
financial results.
OUTCOME OF PROCEEDINGS
The outcome of all the proceedings and claims against us, including
the matters described above,
is subject to future resolution that
includes the uncertainties of litigation. It is not possible for us to predict
the result or magnitude of the claims due to the various factors and
uncertainties involved in the legal process. Based on information
currently known to us, we believe that it is not probable that the
ultimate resolution of any such proceedings and claims, individually or
in total, will have a material adverse effect on our Consolidated
Income or Consolidated Statements of Financial
Statements of
Position.
If it becomes probable that we are liable, we record a
provision in the period the change in probability occurs, and it could
be material
Income or
to our Consolidated Statements of
Consolidated Statements of Financial Position.
OWNERSHIP RISK
CONTROLLING SHAREHOLDER
Rogers is a family-founded, family-controlled company. Voting control
of Rogers Communications is held by Rogers Control Trust, whose
beneficiaries are a small group of individuals that are members of the
Rogers family, several of whom are also directors of our Board. The
trust holds voting control of Rogers Communications Inc. and its
subsidiaries for the benefit of successive generations of the Rogers
family. The trustee is the trust company subsidiary of a Canadian
chartered bank.
As of December 31, 2014, private Rogers family holding companies
controlled by the trust owned approximately 90.9% of our outstanding
Class A Voting shares and approximately 9.9% of our Class B Non-
Voting shares, or in total approximately 28% of the total shares
outstanding. Only Class A Voting shares carry the right to vote in most
circumstances. As a result, the trust is able to elect all members of our
Board and to control the vote on most matters submitted to a
shareholder vote.
CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
We conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures as of
December 31, 2014, under the supervision and with the participation
of our management, including the Chief Executive Officer and Chief
Financial Officer, pursuant to Rule 13a-15 promulgated under the US
Securities Exchange Act of 1934, as amended. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective
at that date.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate
internal controls over financial reporting.
Our internal control system is designed to give management and the
Board reasonable assurance that our financial statements are prepared
and fairly presented in accordance with International Financial
Reporting Standards as issued by the International Accounting
Standards Board. The system is intended to provide reasonable
assurance that transactions are authorized, assets are safeguarded and
financial records are reliable. Management also takes steps to assure
the flow of information and communication is effective, and monitors
performance and our internal control procedures.
Management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2014, based on the criteria set
out in the Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission
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it was effective at
(COSO), and concluded that
that date. Our
independent auditors, KPMG LLP, have issued an audit report on
management’s assessment of internal control over financial reporting
as of December 31, 2014, and provided an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting
as of that date. This report is included in Exhibit 99.2 to RCI’s Annual
Report on Form 40-F for the fiscal year ended December 31, 2014,
which can be found on EDGAR (sec.gov).
All internal control systems, however, no matter how well designed,
have inherent
that have been
determined to be effective can only provide reasonable assurance
about the preparation and presentation of financial statements.
limitations, and even systems
CHANGES IN INTERNAL CONTROL OVER FINANCIAL
REPORTING AND DISCLOSURE CONTROLS AND
PROCEDURES
There were no changes in 2014 that materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
Regulation in Our Industry
Our business, except for the non-broadcasting operations of Media, is
regulated by two groups:
• the Canadian Federal Department of Industry on behalf of the
Minister of Industry (Canada) (together, Industry Canada); and
• the CRTC, under
Telecommunications Act
(Telecommunications Act) and the Broadcasting Act
(Broadcasting Act).
the
(Canada)
(Canada)
Regulation relates to the following, among other things:
• wireless spectrum and broadcasting licensing;
• competition;
• the cable television programming services we must, and can,
distribute;
• wireless and wireline interconnection agreements;
• rates we can charge third parties for access to our network;
• the resale of our networks;
• roaming on our networks and the networks of others;
• ownership and operation of our communications systems; and
• our ability to acquire an interest in other communications systems.
Regulatory changes or decisions can adversely affect our consolidated
results of operations.
Our costs of providing services may increase from time to time as we
comply with industry or legislative initiatives to address consumer
protection concerns or
like copyright
infringement, unsolicited commercial e-mail, cybercrime and lawful
access.
Internet-related issues
Generally, our spectrum and broadcast licences are granted for a
specified term and are subject to conditions for maintaining these
licences. The regulators can modify these licensing conditions at any
time, and they can decide not to renew a licence when it expires. If we
do not comply with the conditions, a licence may be forfeited or
revoked, or we may be fined.
The licences have conditions that require us, amongst other things, to
comply with Canadian ownership restrictions of
the applicable
legislation, and we are currently in compliance with them. If we violate
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 73
MANAGEMENT’S DISCUSSION AND ANALYSIS
the requirements, we would be subject to various penalties and it
could include losing a licence in extreme cases.
Cable, wireless and broadcasting licences generally cannot be
transferred without regulatory approval.
CANADIAN BROADCASTING OPERATIONS
Our Canadian broadcasting operations – including our cable television
systems, radio and television stations, and specialty services – are
licenced (or operated under an exemption order) and regulated by the
CRTC under the Broadcasting Act.
The CRTC is responsible for regulating and supervising all aspects of
the Canadian broadcasting system. It is also responsible under the
Telecommunications Act for the regulation of telecommunications
carriers, including:
• Wireless’ mobile voice and data operations; and
• Cable’s Internet and telephone services.
Our cable and telecommunications retail services are not subject to
price regulation, because the CRTC believes there is enough
competition for these services provided by other carriers to protect the
interests of users, so has forborne from regulating them. Regulations
can and do, however, affect the terms and conditions under which we
offer these services.
SPECTRUM LICENCES
Industry Canada sets technical standards for telecommunications
under the Radiocommunication Act (Canada) (Radiocommunication
Act) and the Telecommunications Act. It licences and oversees:
• the technical aspects of the operation of radio and television
stations;
• the frequency-related operations of cable television networks; and
• awarding and supervising spectrum for wireless communications
systems in Canada.
ROYALTIES
The Copyright Board of Canada (Copyright Board) oversees the
administration of copyright royalties in Canada and establishes the
royalties to be paid for the use of certain copyrighted works. It sets the
copyright tariff royalties that Canadian broadcasting undertakings,
including cable,
television and specialty services, pay to
copyright collectives.
radio,
BILLING AND CONTRACTS
The Quebec Consumer Protection Act amendments, effective June
2010, introduced new provisions applicable to wireless, wireline and
Internet service contracts. These amendments include new rules on the
content of such contracts, the determination of the early cancellation
fees that can be charged to customers, the use of security deposits and
the cancellation and renewal
the consumers. The
amendments also established new provisions on the sale of prepaid
cards and the disclosure of related costs. Similar legislation has come
into effect in Manitoba, Newfoundland and Labrador, Nova Scotia and
Ontario.
rights of
These provincial laws are generally consistent with the CRTC Wireless
Code.
See also “CRTC Wireless Code” section under Wireless Regulation.
74 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
FOREIGN OWNERSHIP AND CONTROL
Non-Canadians can own and control directly or indirectly:
• up to 33.3% of the voting shares and the related votes of a holding
company that has a subsidiary operating company licenced under
the Broadcasting Act, and
• up to 20% of the voting shares and the related votes of the
operating licensee company may be owned and controlled directly
or indirectly by non-Canadians.
Combined, these limits can enable effective foreign control of up to
46.7%.
The chief executive officer and 80% of the members of the Board of
Directors of the operating licensee 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 licensee-
company level. Neither the Canadian carrier nor its parent may be
otherwise controlled in fact by non-Canadians. Subject to appeal to the
federal Cabinet, the CRTC has the jurisdiction to determine as a
question of
fact whether a given licensee is controlled by non-
Canadians.
Pursuant to the Telecommunications Act and associated regulations,
the same rules also apply to Canadian telecommunications carriers
such as Wireless, except that there is no requirement that the chief
executive officer be a resident Canadian. We believe we are in
compliance with the foregoing foreign ownership and control
requirements.
On June 29, 2012, Bill C-38 amending the Telecommunications Act
passed into law. The amendments exempt
telecommunications
companies with less than 10% of total Canadian telecommunications
market measured by revenue from foreign investment restrictions.
Companies that are successful in growing their market shares in excess
of 10% of total Canadian telecommunications market revenues other
than by way of merger or acquisitions will continue to be exempt from
the restrictions.
CANADIAN ANTI-SPAM LEGISLATION
Canada’s anti-spam legislation was passed into law on December 15,
2010 and came into force on July 1, 2014 with the exception of those
sections of the Act related to the unsolicited installation of computer
programs or software which came into force on January 15, 2015. We
believe we are in compliance with this new legislation.
BILL C-43
On October 23, 2014, Bill C-43 was introduced by the federal
government. Amongst other items it makes amendments to the
Broadcasting Act and the Telecommunications Act
to prohibit
charging subscribers for paper bills. The Bill also provides the CRTC
with the authority to assess Administrative Monetary Penalties for any
contraventions of the Telecommunications Act, regulations, or CRTC
decisions. The Bill was passed into law on December 16, 2014 and
these amendments became effective immediately.
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WIRELESS
CONSULTATION ON A POLICY AND TECHNICAL
FRAMEWORK FOR THE 2500-2690 MHZ BAND AND
ASPECTS RELATED TO COMMERCIAL MOBILE SPECTRUM
In October 2013, Industry Canada released its consultation paper,
seeking comments on licencing considerations related to auction
format, rules and processes, as well as on conditions of licence for
spectrum in the 2500 – 2690 MHz band. The final policy was released
on January 10, 2014.
Key things to note about 2500 – 2690 MHz spectrum policy:
• Industry Canada adopted a spectrum cap (not an auction cap like in
the 700 MHz auction). No carrier participating in the auction may
possess more than 40 MHz of 2500 – 2690 MHz spectrum. Rogers is
grandfathered with respect to our holdings in those situations where
we already hold more than 40 MHz of this spectrum. We will not be
required to return spectrum.
• The 2500 MHz auction will use Tier 3 licence areas.
• Minimum rollout requirements set by Industry Canada varying from
5% to 50% of the population depending on the specific geographic
licence area must be met within 10 years of the initial issuance of the
licence.
• The auction is set to commence on April 14, 2015.
AWS-3 SPECTRUM AUCTION
In July 2014,
Industry Canada announced that Advanced Wireless
Services (AWS-3) wireless spectrum will be auctioned in 2015 and
before the 2500 MHz auction. AWS-3 spectrum comprises the 1755-
1780 MHz and 2155-2180 MHz bands. 30 MHz of the 50 MHz of
paired spectrum to be auctioned will be reserved for “operating new
entrants”. Wireless carriers with less than 10 percent national and 20
percent provincial/territorial wireless subscriber market share will be
eligible to bid on the set-aside spectrum in licence areas where they
are then providing service. The final rules for the auction were released
on December 18, 2014. The 20 MHz of spectrum not subject to the
new entrant set-aside will be auctioned in two 5+5 MHz sub-blocks
rather than the originally proposed single 10+10 MHz block. The
auction will use a sealed-bid format. The highest bid for a block will win
the block and the winner will then pay the second highest bid price for
the block. The auction will start on March 3, 2015 with the submission
of bids and the announcement of winners will occur on March 6, 2015.
Payment is required on March 20, 2015.
have satisfied all of their conditions of licence and renewed licences
will have a 1-year term. On completion of the consultation process and
release of related decisions, renewed licensees will have a high
expectation of receiving new licences for 10 or 20 years (depending on
consultation outcome). Spectrum associated with existing licences that
are not renewed by Industry Canada will be made available on a first-
come, first-served basis using an application process.
TRANSFERS, DIVISIONS AND SUBORDINATE LICENSING
OF SPECTRUM LICENCES
In June 2013,
Industry Canada released Framework Relating to
Transfers, Divisions and Subordinate Licensing of Spectrum Licences
for Commercial Mobile Spectrum. The Framework lays out the criteria
Industry Canada will consider and the processes it will use when it
reviews spectrum licence transfers, including prospective transfers that
could arise from purchase or sale options and other agreements. Key
things to note:
• Industry Canada will review all spectrum transfer requests, and will
not allow any that result in “undue spectrum concentration” and
reduced competition. Decisions will be made on a case-by-case
basis and will be issued publicly to increase transparency.
that could lead to a prospective transfer.
• Licensees must ask for a review within 15 days of entering into any
agreement
Industry
Canada will review the agreement as though the licence transfer
that could arise from it has been made. This timing does not apply
to agreements such as Rogers’ AWS agreements with Shaw and
Quebecor made before the Framework was released.
• Rogers has filed an application with Industry Canada requesting
approval of the Shaw agreement whereby Rogers would purchase
Shaw’s AWS spectrum and the filing remains before Industry
Canada.
700 MHZ SPECTRUM AUCTION
Industry Canada’s 700 MHz commercial wireless spectrum auction
began on January 14, 2014, and ended on February 13, 2014. Results
were announced publicly on February 19, 2014. Ten companies
participated in the auction, and 97 of 98 licences were awarded to 8 of
those participants, with total proceeds of the auction of $5.27 billion.
Rogers acquired 22 licences across Canada at a cost of $3.3 billion.
After making payment for the licences and passing the required
Canadian Ownership and Control review, Rogers took possession of
these 20-year licences on April 3, 2014 and began to deploy the
spectrum during the second quarter of 2014.
3.5 GHZ BAND POLICY CHANGES
In December 2014, Industry Canada released its policy changes to the
3.5 GHz spectrum band. Rogers has a 50% interest in the Inukshuk
Wireless Partnership (IWP) which holds (on average) between 100-175
MHz of 3.5GHz spectrum in most major urban markets in Canada. The
3.5GHz band will be reallocated for mobile services (it is currently only
licensed for fixed wireless access in Canada). The establishment of a
new band plan and licensing framework for mobile services will be the
subject of a future consultation. The band will eventually be relicensed
on a flexible-use basis whereby licensees will be permitted to
determine the extent to which they will implement fixed and/or mobile
services in the band in a given geographic area.
Until the future consultation is completed and the related decisions are
released, all existing licences that will be renewed will be limited to the
provision of fixed services. Licences will be renewed where licensees
ROAMING AND TOWER SHARING POLICY
In March 2013,
Industry Canada released Revised Frameworks for
Mandatory Roaming and Antenna Tower and Site Sharing, concluding
a consultation initiated in 2012. It sets out the current rules for roaming,
tower and site sharing. Its key terms are:
• All holders of spectrum licences, radio licences and broadcasting
certificates must share towers and antenna sites, where technically
feasible, at commercial rates.
• All
licensees were permitted to request
roaming from other
licensees at commercial rates.
• The timeframe for negotiating agreements is 60 days, after which
arbitration according to Industry Canada arbitration rules will begin.
• The roaming capabilities must provide connectivity for digital voice
and data services regardless of the spectrum band or underlying
technology used.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 75
MANAGEMENT’S DISCUSSION AND ANALYSIS
• In addition, a host network carrier is neither required to provide a
roamer with a service that the carrier does not provide to its own
subscribers, or to provide a roamer with a service, or level of service,
that the roamer’s network carrier does not provide. The policy does
not require seamless communications handover between networks.
CRTC WIRELESS CODE
In June 2013, the CRTC issued its Wireless Code. Key things to note:
• The code establishes several new obligations on wireless carriers,
including maximum contract term length, roaming bill caps, device
unlocking requirements and contract summaries. It also lays out the
rules for device subsidies and early cancellation fees.
• Under the code, if a customer cancels a contract early, carriers can
only charge the outstanding balance of the device subsidy they
received, which goes down by an equal amount every month over
no more than 24 months. This effectively makes the maximum
contract length two years.
• The code was applied to contracts (excluding enterprise plans)
entered into or renewed after December 2, 2013.
• As of June 3, 2015, the code will apply to all contracts (excluding
enterprise plans), no matter when they were entered into, which
means it will retroactively capture three-year contracts entered into
between June 3, 2012 and December 2, 2013. Anyone entering into
a three-year contract between June 3, 2012 and December 2, 2013
may therefore be entitled to cancel their agreement without paying
back the full subsidy they received. We do not believe that the CRTC
has the authority to do this, and on July 2, 2013, Rogers, Bell, Telus,
MTS and Sasktel filed a Federal Court appeal of this retroactivity
provision of the code. The Court granted leave to appeal and the
appeal was heard on November 12, 2014. A decision is pending.
LEGISLATION REGARDING WHOLESALE DOMESTIC
WIRELESS ROAMING RATES
On June 19, 2014, the federal government enacted legislation to cap
wholesale domestic wireless roaming rates carriers can charge to one
another at amounts no higher than the average rates carriers charge
their own retail customers. The formula the government will use to
determine the maximum roaming rates carriers can charge is their
revenue from the service divided by the usage of the service in the
preceding year. For voice calls, this means the incumbent carrier’s total
revenue for incoming and outgoing voice calls, divided by the number
of minutes used, in the previous year. For data, the maximum roaming
rate carriers can charge is calculated as data revenue divided by
megabytes. For text messaging, the maximum roaming rate is revenue
divided by the total number of ingoing and outgoing domestic-only
text messages. The legislation also provides the CRTC with the power
to set domestic roaming rates between carriers, regardless of the
formula. The CRTC is conducting a review into wireless roaming rates
and the state of wireless wholesale competition with a public hearing
which concluded in early October 2014 that may alter the rates further.
The proceeding is also reviewing the competitiveness of the Canadian
wireless market more generally. A decision is expected early in 2015.
CRTC PROCEEDING REGARDING DOMESTIC AND US
WIRELESS ROAMING
On December 12, 2013, the CRTC issued a call for comments entitled
Wholesale mobile wireless roaming in Canada – Unjust discrimination/
undue preference (Telecom Notice of Consultation CRTC 2013-685).
76 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
roaming arrangements
Following its earlier fact-finding exercise to assess the impact of
wholesale mobile wireless
the
competitiveness of the Canadian wireless industry, the Commission
initiated this proceeding to consider whether or not, as a question of
fact, there is a situation of unjust discrimination or undue preference
with respect to wholesale roaming arrangements in Canada. The
Commission noted in particular that the wholesale roaming rates paid
by Canadian carriers were higher than the rates paid by American
carriers.
on
On July 31, 2014, the CRTC released its decision regarding unjust
discrimination and/or undue preference in wholesale wireless roaming
(Telecom Notice of Consultation CRTC 2013-685). The decision
concluded that Rogers (as the provider of roaming to almost every
new entrant) did in fact engage in unjust discrimination and/or undue
preference. The Commission did not determine a remedy regarding
unjust discrimination for wholesale roaming rates in the proceeding.
The Commission resolved that the implementation of the roaming rate
legislation described in the section above is a sufficient remedy until a
final decision is made in the wholesale service proceeding.
CABLE
VERTICAL INTEGRATION
The CRTC considers our Cable business to be vertically integrated
because we own or control both programming and distribution
services. It sets out the rules for vertically integrated companies in the
broadcast sector in its Broadcasting Regulatory Policy CRTC 2011-601.
The policy:
• Does not allow companies to make their television programs
exclusive to their mobile or Internet subscribers. Any program
broadcast on television,
including hockey games and other live
events, must be made available to competitors under fair and
reasonable terms.
• Allows companies to offer exclusive programming to their Internet
or mobile customers provided it is produced specifically for an
Internet portal or a mobile device.
• Adopts a code of conduct to prevent anti-competitive behaviour
and ensure all distributors, broadcasters and online programming
services negotiate in good faith. To protect Canadians from losing
availability of a television service during negotiations, broadcasters
must continue to provide the service in question and distributors
must continue to offer it to their subscribers.
• Required vertically integrated entities to report by April 2012 on
how they have provided consumers with more flexibility in the
services that they can subscribe to through, for example, pick-and-
pay models. In our April 2012 report, we presented the results of a
market
trial we conducted in London, Ontario that provided
additional programming flexibility to consumers.
In the 2014 Let’s Talk TV hearing described in the section below, the
Commission is again examining measures to ensure vertically
integrated companies do not act in an anti-competitive manner to
deny access to independent programming services.
On November 20, 2014, we responded to a CRTC complaint by
certain companies claiming that the Rogers NHL GameCentre LIVE
Plus, the exclusive content tier of Rogers NHL GameCentre LIVE,
violates CRTC regulations on the basis that it was not content designed
primarily for Internet use by individual customers. We are awaiting a
decision from the CRTC.
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TELEVISION SERVICES DISTRIBUTION
On October 24, 2013, the CRTC launched a broad-based public
consultation (called “Let’s Talk TV”) on the subject of television. The
consultation covered three broad themes, asking what consumers
think about:
• the television programming available to them;
• the reception of television programming from service providers and
other sources; and
• whether they have enough information to make informed choices
and seek solutions if they are not satisfied.
Comments were filed on November 22, 2013, however, on
November 14, 2013, the government ordered the CRTC to report by
April 30, 2014 on the steps it will take to maximize Canadians’ ability to
subscribe to pay and specialty services on a pick-and-pay basis. The
government asked that the report:
• consider the effect on consumers and their ability to access
affordable discretionary TV services;
• consider the effect on industry participants (i.e. programmers,
distributors and producers); and
• ensure that the majority of services received by Canadians remain
Canadian and that distributors continue to give priority to the
carriage of Canadian services.
On April 24, 2014, the CRTC provided the requested report to the
government and issued a public notice initiating a proceeding,
to
including a public hearing commencing September 8, 2014,
consider the positions the Commission reached in its report to the
government. The Commission wrote that its preliminary view was that
the distribution and packaging of
television services should be
reviewed to maximize consumer choice and flexibility and that as part
of the Let’s Talk TV hearing, the Commission would explore requiring
distributors to:
• offer subscribers a small, all-Canadian basic service that includes
only local Canadian conventional television stations, 9(1)(h) services
and provincial educational services, as well as, in some cases, the
community channel and the provincial
legislature programming
service;
• promote this small basic service to Canadians so that they are aware
of its availability;
• allow subscribers to select all discretionary programming services
on a stand-alone basis (pick-and-pay); and
• allow subscribers
to build their own custom packages of
discretionary programming services (build-your-own-package).
The Commission noted that distributors would also be allowed to
continue to offer discretionary programming services in the pre-
assembled packages for those Canadians who are satisfied with their
current offering.
Rogers and a wide variety of parties participated fully in the
proceeding and at the public hearing discussed the Commission’s
preliminary view described above and a number of other issues,
including simultaneous substitution, the financing and promotion of
Canadian content, and access issues for independent programming
services.
In November 2014, the Commission released its first decision arising
from the Let’s Talk TV hearing ordering the elimination of the 30-day
cancellation provision for cable, Internet, and phone services, effective
January 23, 2015. On January 29, 2015, the Commission released
decisions requiring local stations to continue over-the-air transmission
under the same regulatory regime currently in place and maintaining
simultaneous substitution requirements. This was decided with the
intent that Canadian broadcasters can protect the rights of the popular
foreign programs they have purchased and sell their own advertising
during these programs, except for the NFL Super Bowl beginning in
2017. In a related decision released the same day, the CRTC found that
it would be an undue preference under the Telecommunications Act
for a vertically integrated company that offers a Mobile TV service to
exempt this service from standard monthly wireless data caps and
usage charges generally applicable to its wireless service. Remaining
decisions are expected in March of 2015.
the CRTC initiated its planned review of
CRTC REVIEW OF WHOLESALE WIRELINE
TELECOMMUNICATIONS SERVICES
In October 2013,
the
telecommunications essential services rulings it released in March
2008. The review will determine which wireline services, and under
what
facilities-based telecommunications
carriers must make available to other telecommunications service
providers, such as resellers. Extensive submissions were filed during
2014 leading to a two-week public hearing that concluded on
December 4, 2014. A decision is expected in the second quarter of
2015.
terms and conditions,
MEDIA
LICENCE RENEWALS
The CRTC considers group-based (conventional and discretionary
specialty) licence renewal applications for major media companies.
The Rogers group includes the City and OMNI conventional television
stations and specialty channels Sportsnet 360, G4 Canada, Outdoor
Life Network, FX (Canada) and FXX (Canada).
On July 31, 2014, the CRTC renewed our licences for a two-year
period as we had requested.
In addition, the decision placed no
restrictions on the amount of sports programming expenditures that
can be used to meet Canadian program expenditures (CPE)
obligations and deleted the previous condition of licence requiring
specific expenditures of
local programming outside of Toronto.
Consistent with the requirement for other large broadcast groups,
pursuant to the decision the Rogers group is now required to achieve a
CPE of 30% rather than the previous 25%, 5% of which must be
directed to programs of national interest (PNI). In addition, the CRTC
determined that the imposition of the Vertical Integration Code (VI
Code) as conditions of licence would be an appropriate measure to
ensure a level playing field with other entities that may have business
relationships with Rogers.
DISTANT SIGNALS
Conventional television stations have to agree to the carriage of their
local signals into distant markets. BDUs that want to carry time-shifted
US signals must therefore get the consent of each of the three large
English-language networks besides CBC (CTV, Global and City) to
carry their signals in those time zones. We are currently negotiating
with various distributors regarding carriage of distant signals.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 77
MANAGEMENT’S DISCUSSION AND ANALYSIS
Other Information
ACCOUNTING POLICIES
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Management makes judgements, estimates and assumptions that
affect how accounting policies are applied and the amounts we report
in assets, liabilities, revenue and expenses and our related disclosure
about contingent assets and liabilities. Significant changes in our
assumptions, including those related to our future business plans and
cash flows, could materially change the amounts we record. Actual
results could be different from these estimates.
These estimates are critical
to our business operations and
understanding our results of operations. We may need to use
additional judgement because of the sensitivity of the methods and
liability, revenue and
assumptions used in determining the asset,
expense amounts.
ESTIMATES
FAIR VALUE
We use considerable judgement in estimating the fair value of tangible
and intangible assets acquired and liabilities assumed in an acquisition,
using the best available information including information from
financial markets. This may include discounted cash flow analyses
which utilize key assumptions such as discount rates, attrition rates, and
terminal growth rates to estimate future earnings. Actual results may
differ from these estimates.
USEFUL LIVES
We depreciate the cost of property, plant and equipment over their
estimated useful lives by considering industry trends and company-
specific factors, including changing technologies and expectations for
the in-service period of certain assets at the time. We reassess our
estimates of useful lives annually or when circumstances change to
ensure they match the anticipated life of the technology from a
revenue-producing perspective.
technological change happens
If
more quickly, or in a different way than anticipated, we might have to
reduce the estimated life of property, plant and equipment, which
could result in a higher depreciation expense in future periods or an
impairment charge to write down the value. We will change our
depreciation methods, depreciation rates or asset useful lives if they
are different from our previous estimates. We recognize the effect of
these changes in net income prospectively.
CAPITALIZING DIRECT LABOUR, OVERHEAD AND
INTEREST
Certain direct labour and overhead and interest costs associated with
the acquisition, construction, development or improvement of our
networks are capitalized to property, plant and equipment. The
capitalized amounts are calculated based on estimated costs of
in nature, and are generally based on a
projects that are capital
interest costs are capitalized during
rate.
per-hour
In addition,
development and construction of certain property, plant and
equipment. Capitalized amounts increase the cost of the asset and
result in a higher depreciation expense in future periods.
IMPAIRMENT OF ASSETS
Indefinite-life intangible assets (including goodwill and spectrum and/
or broadcast licences) are assessed for impairment on an annual basis
or more often if events or circumstances warrant and definite-life assets
(including property, plant and equipment and other intangible assets)
are assessed for impairment if events or circumstances warrant. The
recoverable amount of a cash generating unit involves significant
estimates of future cash flows, periods of use and applicable discount
rates. The allocation of goodwill to cash generating units (or groups of
cash generating units)
involves judgement and is made to cash
generating units (or groups of cash generating units) that are expected
to benefit from the synergies of the business combination from which
the goodwill arose. If key estimates differ unfavourably in the future, we
could experience impairment charges that could decrease net income.
We did not record an impairment charge in 2014 or 2013 since the
recoverable amounts of the cash generating units exceeded their
carrying values.
FINANCIAL INSTRUMENTS
The fair values of our derivatives are recorded using an estimated
credit-adjusted mark-to-market valuation. If the derivatives are in an
asset position (i.e. the counterparty owes Rogers), the credit spread for
the bank counterparty is added to the risk-free discount rate to
determine the estimated credit-adjusted value. If the derivatives are in
a liability position (i.e. Rogers owes the counterparty), our credit spread
is added to the risk-free discount rate. The estimated credit-adjusted
value of derivatives is affected by changes in credit spreads between
us and our counterparties.
For all derivative instruments where hedge accounting is applied, we
are required to ensure that the hedging relationships meet hedge
effectiveness criteria both retrospectively and prospectively. Hedge
effectiveness testing requires the use of both judgements and
estimates.
PENSION BENEFITS
When we account for defined benefit pension plans, assumptions are
made in determining the valuation of benefit obligations. Assumptions
and estimates include the discount rate, the rate of
increase in
compensation and the mortality rate. Changes to these primary
assumptions and estimates would affect the pension expense, pension
asset and liability and other comprehensive income. Changes in
economic conditions including financial markets and interest rates may
also have an impact on our pension plan because there is no assurance
that the plan will be able to earn the assumed rate of return. Market-
driven changes may also result in changes in the discount rates and
other variables that would require us to make contributions in the
future that differ significantly from the current contributions and
assumptions incorporated into the actuarial valuation process.
78 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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The table below shows what the impact of an increase or decrease in
the primary assumptions and estimates on our accrued benefit
obligation and pension expense for 2014 would be:
represent the consumption of benefits derived from those assets and
are most representative of the economic substance of the use of the
underlying assets.
(In millions of dollars)
Discount rate
Impact of 0.5% increase
Impact of 0.5% decrease
Rate of future compensation increase
Impact of 0.25% increase
Impact of 0.25% decrease
Mortality rate
Impact of 1 year increase
Impact of 1 year decrease
Increase (decrease)
in accrued
benefit obligation
2014
Increase (decrease)
in pension
expense 2014
(141)
162
18
(18)
35
(36)
(15)
16
3
(3)
3
(3)
STOCK-BASED COMPENSATION
Stock Option Plans
Our employee stock option plans attach cash-settled share
appreciation rights (SARs) to all new and previously granted options.
The SARs feature allows the option holder to elect to receive in cash an
amount equal to the intrinsic value, instead of exercising the option
and acquiring Class B Non-Voting shares.
We measure stock-based compensation to employees at fair value. We
determine fair value of options using our Class B Non-Voting share
price and option pricing models, and record all outstanding stock
options as liabilities. The liability is marked-to-market in each period
and is amortized to expense using a graded vesting approach over the
period when employee services are rendered, or over the period to
the date an employee is eligible to retire, whichever is shorter. The
expense in each period is affected by the change in the price of our
Class B Non-Voting shares during the period.
Restricted Share Unit (RSU) Plan
We record outstanding RSUs as liabilities, measuring our liabilities and
compensation costs based on the award’s fair value, and recording it
as a charge to operating costs over the vesting period of the award. If
the award’s fair value changes after it has been granted and before the
settlement date, we record the resulting changes in the liability as a
charge to operating costs in the year that the change occurs. The
payment amount is established as of the vesting date.
Deferred Share Unit (DSU) Plan
We record outstanding DSUs as liabilities, measuring our liabilities and
compensation costs based on the awards’ fair values at the grant date.
If an award’s fair value changes after it has been granted and before
the settlement date, we record the resulting changes in our liability as a
charge to operating costs in the year that the change occurs. The
payment amount is established as of the exercise date.
JUDGEMENTS
We amortize the cost of intangible assets with finite lives over their
estimated useful lives. We review their useful lives, residual values and
the amortization methods at least once a year.
We do not amortize intangible assets with indefinite lives (spectrum
and broadcast licences) because there is no foreseeable limit to the
period that these assets are expected to generate net cash inflows for
us. We use judgement to determine the indefinite life of these assets,
analyzing all relevant factors, including the expected usage of the
asset, the typical life cycle of the asset and anticipated changes in the
market demand for the products and services that the asset helps
generate. After review of the competitive, legal, regulatory and other
factors, it is our view that these factors do not limit the useful lives of
our spectrum and broadcast licences.
We also use judgement to determine the method over which to
amortize prepayments made for multi-year sports programming rights
agreements (i.e. over the contract term, as aired). We did not make any
significant changes to the amortization method this year.
We will change our depreciation or amortization methods, rates or
asset useful
lives if they are determined to be different from our
previous estimates. We recognize the effect of these changes in net
income prospectively.
IMPAIRMENT OF ASSETS
We exercise judgement in determining cash generating units and the
allocation of goodwill for the purpose of impairment testing. The
allocation of goodwill involves considerable management judgement
in determining the cash generating units (or groups of cash generating
units) that are expected to benefit from the synergies of a business
combination. A cash generating unit is the smallest identifiable group
of assets that generates cash inflows that are largely independent of
the cash inflows from other assets or groups of assets. Goodwill and
indefinite life intangible assets are allocated to cash generating units
(or groups of cash generating units) based on the level at which
management monitors goodwill, which is not higher than an operating
segment.
SEGMENTS
We use judgement in determining our operating segments, which are
components that engage in business activities from which they may
earn revenues and incur expenses, for which operating results are
regularly reviewed by our chief operating decision makers to make
decisions about resources to be allocated and assess component
performance, and for which discrete financial information is available.
HEDGE ACCOUNTING
We use judgement
in determining whether certain financial
instruments qualify for hedge accounting, including assumptions for
effectiveness valuation models.
USEFUL LIVES AND DEPRECIATION AND AMORTIZATION
METHODS
We use judgement in choosing methods for depreciating the cost of
that we believe most accurately
property, plant and equipment
INCOME AND OTHER TAXES
We accrue income and other tax provisions based on information
currently available in each of the jurisdictions in which we operate.
While we believe we have paid and provided for adequate amounts of
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 79
MANAGEMENT’S DISCUSSION AND ANALYSIS
tax, our business is complex and significant judgement is required in
interpreting how tax legislation and regulations apply to us. Our tax
filings are subject to audit by the relevant government revenue
authorities and the results of the government audit could materially
change the amount of our actual income tax expense, income taxes
payable or receivable, other taxes payable or receivable and deferred
income tax assets and liabilities and could, in certain circumstances,
result in the assessment of interest and penalties.
is
CONTINGENCIES
Considerable judgement
involved in the determination of
contingent liabilities. Our judgement is based on information currently
known to us, and the probability of the ultimate resolution of the
contingencies. If it becomes probable that a contingent liability will
result in an outflow of economic resources, we will record a provision in
the period the change in probability occurs. The amount of the loss
involves judgement based on information available at that time. Any
provision recognized for a contingent liability could be material to our
consolidated financial position and results of operations.
TRANSACTIONS WITH RELATED PARTIES
We have entered into certain transactions in the normal course of
business with related parties in which we have an equity interest. The
amounts paid to these parties were as follows:
(In millions of dollars)
Revenues
Purchases
n/m: not meaningful.
Years ended December 31
2014
2013
% Chg
15
88
3
83
n/m
6
We have entered into certain transactions with companies, the partners
or senior officers of which are Directors of Rogers and/or our subsidiary
companies. Total amounts paid to these related parties, directly or
indirectly, were as follows:
(In millions of dollars)
Years ended December 31
2014
2013
% Chg
Printing, legal services and commission paid on
premiums for insurance coverage
38
43
(12)
We have entered into certain transactions with our controlling
shareholder and companies it controls. These transactions are subject
to formal agreements approved by the Audit Committee. Total
amounts paid to these related parties generally reflect the charges to
for occasional business use of aircraft, net of other
Rogers
administrative services, and were less than $1 million for 2014 and
2013 combined.
These transactions are measured at the amount agreed to by the
related parties, which are also reviewed by the Audit Committee. The
amounts owing are unsecured, interest-free and due for payment in
cash within one month from the date of the transaction.
80 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
NEW ACCOUNTING STANDARDS
We adopted the following new accounting standards effective
January 1, 2014.
• Amendments
Instruments: Presentation
(IAS 32) – In December 2011, the IASB amended IAS 32 to clarify the
meaning of when an entity has a current legally enforceable right of
set-off.
to IAS 32, Financial
• Amendments to IAS 39, Financial
Instruments: Recognition and
Measurement (IAS 39) – In June 2013, the IASB amended IAS 39 to
provide relief from discontinuing an existing hedging relationship
when a novation that was not contemplated in the original hedging
documentation meets specific criteria.
• IFRIC 21, Levies (IFRIC 21) – In May 2013, the IASB issued IFRIC 21,
which provides guidance on when to recognize a liability for a levy
imposed by a government, both for levies that are accounted for in
accordance with IAS 37, Provisions, Contingent Liabilities and
Contingent Assets and those where the timing and amount of the
levy is certain. The Interpretation identifies the obligating event for
the recognition of a liability as the activity that triggers the payment
of the levy in accordance with the relevant legislation. It provides the
following guidance on recognition of a liability to pay levies (i) the
liability is recognized progressively if the obligating event occurs
over a period of time, and (ii) if an obligation is triggered on
reaching a minimum threshold, the liability is recognized when that
minimum threshold is reached.
The accounting pronouncements we adopted in 2014 were made in
accordance with their transitional provisions, which were required to
be applied retrospectively and had no impact on our financial results.
RECENT ACCOUNTING PRONOUNCEMENTS
We are required to adopt the following revised accounting standards
on or after January 1, 2015. We are assessing the impact of adopting
these revised standards on our 2015 interim and consolidated financial
statements.
• IFRS 15, Revenue from Contracts with Customers (IFRS 15) - In May
2014, the IASB issued IFRS 15 which supersedes existing standards
and interpretations including IAS 18, Revenue and IFRIC 13,
Customer Loyalty Programmes. The standard is effective for annual
periods beginning on or after January 1, 2017.
IFRS 15 introduces a single model for recognizing revenue from
contracts with customers with the exception of certain contracts under
other IFRSs such as IAS 17, Leases. The standard requires revenue to
be recognized in a manner that depicts the transfer of promised goods
or services to a customer and at an amount that reflects the expected
consideration receivable in exchange for transferring those goods or
services. This is achieved by applying the following five steps:
1.
2.
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligations in
Identify the contract with a customer;
Identify the performance obligations in the contract;
the contract; and
5. Recognize revenue when (or as) the entity satisfies a performance
obligation.
IFRS 15 also provides guidance relating to the treatment of contract
acquisition and contract fulfillment costs.
We expect the application of this new standard will have significant
impacts on our reported results, specifically with regards to the timing
of recognition and classification of revenue, and the treatment of costs
incurred in obtaining customer contracts. We are assessing the impact
of this standard on our consolidated financial statements.
• IFRS 9, Financial Instruments (IFRS 9) – In July 2014, the IASB issued
the final publication of the IFRS 9 standard, superseding the current
IAS 39, Financial Instruments: recognition and measurement (IAS
39) standard. IFRS 9 includes revised guidance on the classification
and measurement of
including a new
expected credit loss model for calculating impairment on financial
assets, and the new general hedge accounting requirements. It also
carries forward the guidance on recognition and derecognition of
financial
instruments from IAS 39. The standard is effective for
annual periods beginning on or after January 1, 2018 with early
adoption permitted. We are assessing the impact of this standard
on our consolidated financial statements.
instruments,
financial
• Amendments to IAS 16, Property, Plant and Equipment and IAS 38,
Intangible Assets – In May 2014, the IASB issued amendments to
these standards to introduce a rebuttable presumption that the use
of revenue-based amortization methods for intangible assets is
inappropriate. The amendment
is effective for annual periods
beginning on or after January 1, 2016 with early adoption
permitted. We are assessing the impact of this amendment on our
consolidated financial statements.
• Amendments to IFRS 11, Joint Arrangements – In May 2014, the
IASB issued an amendment to this standard requiring business
combination accounting to be applied to acquisitions of interests in
a joint operation that constitute a business. We are assessing the
impact of this amendment on our consolidated financial statements.
KEY PERFORMANCE INDICATORS
We measure the success of our strategy using a number of key
performance indicators, which are outlined below. We believe these
key performance indicators allow us to appropriately measure our
performance against our operating strategy as well as against the
results of our peers and competitors. The following key performance
indicators are not measurements in accordance with IFRS and should
not be considered as an alternative to net income or any other
measure of performance under IFRS.
SUBSCRIBER COUNT
We determine the number of subscribers to our services based on
active subscribers. When subscribers are deactivated, either voluntarily
or
they are considered to be
deactivations in the period the services are discontinued.
involuntarily for non-payment,
Wireless
• A wireless subscriber is represented by each identifiable telephone
number.
• We report wireless subscribers in two categories: postpaid and
prepaid. Postpaid and prepaid include voice-only subscribers, data-
only subscribers, and subscribers with service plans integrating both
voice and data.
• Wireless prepaid subscribers are considered active for a period of
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Cable
• Cable Television and Internet subscribers are represented by a
dwelling unit, and cable Phone subscribers are represented by line
counts.
• When there is more than one unit in one dwelling, like an apartment
building, each tenant with cable service is counted as an individual
subscriber, whether the service is invoiced separately or included in
the tenant’s rent. Institutional units, like hospitals or hotels, are each
considered to be one subscriber.
• Cable Television, Internet, and Phone subscribers include only those
subscribers who have service installed and operating, and who are
being billed accordingly.
SUBSCRIBER CHURN
Subscriber churn is a measure of the number of subscribers that
deactivated during a period as a percentage of the total subscriber
base, usually calculated on a monthly basis. Subscriber churn measures
our success in retaining our subscribers. We calculate it by dividing the
number of Wireless subscribers that deactivated (usually in a month) by
the aggregate numbers of subscribers at the beginning of the period.
When used or reported for a period greater than one month,
subscriber churn represents the sum of the number of subscribers
deactivating for each period incurred divided by the sum of the
aggregate number of subscribers at the beginning of each period
incurred.
AVERAGE REVENUE PER USER
Average revenue per user (ARPU) helps us identify trends and measure
our success in attracting and retaining higher value subscribers. We
calculate it by dividing revenue (usually monthly) by the average
number of subscribers in the period. For Wireless, ARPU is calculated
using network revenue. When used in connection with a particular type
of subscriber, ARPU is monthly revenue generated from those
subscribers, divided by the average number of those subscribers
during the month.
AVERAGE REVENUE PER USER CALCULATIONS – WIRELESS
(In millions of dollars, except ARPU and months;
subscribers in thousands)
As at December 31
2014
2013
Postpaid ARPU (monthly)
Postpaid (voice and data) revenue
Divided by: average postpaid wireless voice and data
subscribers
Divided by: twelve months for the year
Prepaid ARPU (monthly)
Prepaid (voice and data) revenue
Divided by: average prepaid subscribers
Divided by: twelve months for the year
Blended ARPU (monthly)
Voice and data revenue
Divided by: average wireless voice and data
6,495
6,470
8,095
7,957
12
12
$66.86
$67.76
248
1,363
12
278
1,481
12
$15.16
$15.64
6,743
6,748
9,458
9,438
12
12
$59.41
$59.58
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 81
180 days from the date of their last revenue-generating usage.
subscribers
Divided by: twelve months for the year
RETURN ON ASSETS
We use return on assets to measure our efficiency in using our assets to
generate net income. We calculate return on assets by dividing net
income for the year by total assets as at year end.
(In millions of dollars, except ratios)
2014
2013
Years ended December 31
Return on assets
Net income
Divided by: total assets
Return on assets
1,341
26,522
1,669
23,601
5.1%
7.1%
MANAGEMENT’S DISCUSSION AND ANALYSIS
CAPITAL INTENSITY
Capital intensity allows us to compare the level of our additions to
property, plant and equipment to that of other companies within the
same industry. Our additions to property, plant and equipment
expenditures exclude purchases of spectrum licences. We calculate
capital intensity by dividing additions to property, plant and equipment
by operating revenue. For Wireless, capital intensity is calculated using
total network revenue. We use it to evaluate the performance of our
assets and when making decisions about the capital expenditures. We
believe that certain investors and analysts use capital
intensity to
measure the performance of asset purchases and construction in
relation to revenue.
DIVIDEND PAYOUT RATIOS
We calculate the dividend payout ratio by dividing dividends declared
for the year by net income for the year. We use dividends as a
percentage of free cash flow to conduct analysis and assist with
determining the dividends we should pay. We calculate dividends as a
percentage of cash flow as dividends declared for the year divided by
free cash flow for the year.
(In millions of dollars, except ratios)
2014
2013
Years ended December 31
Dividend payout ratio
Dividends for the year
Divided by: net income
Dividend payout ratio
Dividend payout ratio of free cash flow
Dividends for the year
Divided by: free cash flow 1
Dividend payout ratio of free cash flow
942
1,341
70%
942
1,437
66%
896
1,669
54%
896
1,548
58%
1 Free cash flow is a non-GAAP measure and should not be considered as a substitute
or alternative for GAAP measures. It is not a defined term under IFRS, and does not
have a standard meaning, so may not be a reliable way to compare us to other
companies. See “Non-GAAP Measures” for
this measure,
including how we calculate it.
information about
82 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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NON-GAAP MEASURES
We use the following non-GAAP measures. These are reviewed regularly by management and our Board in assessing our performance and
making decisions regarding the ongoing operations of our business and its ability to generate cash flows. Some or all of these measures may also
be used by investors, lending institutions, and credit rating agencies as an indicator of our operating performance, our ability to incur and service
debt, and as a measurement to value companies in the telecommunications sector. These are not recognized measures under GAAP and do not
have standardized meaning under IFRS, so they may not be a reliable way to compare us to other companies.
Non-GAAP
measure
Why we use it
Adjusted operating
profit and related
margin
• To evaluate the performance of our businesses, and when making
decisions about the ongoing operations of the business and our
ability to generate cash flows.
• We believe that certain investors and analysts use adjusted
operating profit to measure our ability to service debt and to meet
other payment obligations.
• We also use it as one component
in determining short-term
incentive compensation for all management employees.
Adjusted net income
Adjusted basic and
diluted earnings per
share
• To assess the performance of our businesses before the effects of
these items, because they affect the comparability of our financial
results and could potentially distort the analysis of trends in business
performance.
• Excluding these items does not imply they are non-recurring.
Free cash flow
• An important indicator of our financial strength and performance
because it shows how much cash we have available to repay debt
and reinvest in our company.
• We believe that some investors and analysts use free cash flow to
value a business and its underlying assets.
Adjusted net debt
• To conduct valuation-related analysis and make decisions about
capital structure.
• We believe this helps investors and analysts analyze our enterprise
and equity value and assess our leverage.
Adjusted net debt /
adjusted operating
profit
• To conduct valuation-related analysis and make decisions about
capital structure.
• We believe this helps investors and analysts analyze our enterprise
and equity value and assess our leverage.
Most
comparable
IFRS financial
measure
Net income
Net income
Earnings per share
Cash provided by
operating activities
Long-term debt
Long-term debt
divided by net income
How we calculate it
Adjusted operating profit:
Net income
add back
income taxes, other expense
(income), finance costs,
depreciation and amortization,
impairment of assets, stock-based
compensation, and restructuring,
acquisition and other expenses.
Adjusted operating profit margin:
Adjusted operating profit
divided by
Operating revenue (network
revenue for Wireless)
Net income
add back
stock-based compensation,
restructuring, acquisition and other
expenses, impairment of assets,
gain on sale of investment, loss on
repayment of long-term debt, and
income tax adjustments on these
items including adjustments due to
legislative change.
Adjusted operating profit
minus
additions on property, plant and
equipment, interest on borrowings
net of interest capitalized, and cash
income taxes.
Total long-term debt
plus
current portion of long-term debt,
deferred transaction costs and
discounts, net debt derivative
assets or liabilities, and short-term
borrowings
minus
cash and cash equivalents.
Adjusted net debt (defined above)
divided by
Adjusted operating profit (defined
above)
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 83
MANAGEMENT’S DISCUSSION AND ANALYSIS
RECONCILIATION OF ADJUSTED OPERATING PROFIT
RECONCILIATION OF ADJUSTED NET DEBT AND
ADJUSTED NET DEBT / ADJUSTED OPERATING PROFIT
(In millions of dollars)
Net income
Add (deduct):
Income taxes
Other expense (income)
Finance costs
Depreciation and amortization
Stock-based compensation
Restructuring, acquisition and other
Adjusted operating profit
Years ended December 31
2014
1,341
506
1
817
2,144
37
173
5,019
2013
1,669
596
(81)
742
1,898
84
85
4,993
Years ended December 31
(In millions of dollars)
Current portion of long-term debt
Long-term debt
Deferred transaction costs and discounts
Add (deduct):
Net debt derivatives assets
Short-term borrowings
Cash and cash equivalents
Adjusted net debt
(In millions of dollars, except percentages)
2014
2013
Adjusted operating profit margin:
Adjusted operating profit
Divided by: total operating revenue
5,019
12,850
4,993
12,706
Adjusted operating profit margin
39.1%
39.3%
(In millions of dollars, except ratios)
Adjusted net debt / adjusted operating profit:
Adjusted net debt
Divided by: adjusted operating profit
As at December 31
2014
2013
963
13,824
108
1,170
12,173
93
14,895
13,436
(846)
842
(176)
(51)
650
(2,301)
14,715
11,734
As at December 31
2014
2013
14,715
5,019
11,734
4,993
RECONCILIATION OF ADJUSTED NET INCOME
Adjusted net debt / adjusted operating profit
2.9
2.4
(In millions of dollars)
Net income
Add (deduct):
Stock-based compensation
Restructuring, acquisition and other
Loss on repayment of long-term debt
Gain on sale of TVtropolis
Income tax impact of above items
Income tax adjustment, legislative tax change
Years ended December 31
2014
1,341
2013
1,669
37
173
29
—
(62)
14
84
85
—
(47)
(30)
8
RECONCILIATION OF ADJUSTED EARNINGS PER SHARE
(In millions of dollars, except per share amounts;
number of shares outstanding in millions)
Adjusted basic earnings per share:
Adjusted net income
Divided by: weighted average number of
shares outstanding
Adjusted basic earnings per share
Years ended December 31
2014
2013
1,532
1,769
515
2.97
515
3.43
Adjusted net income
1,532
1,769
Adjusted diluted earnings per share:
Adjusted net income
1,532
1,769
RECONCILIATION OF FREE CASH FLOW
Divided by: diluted weighted average
number of shares outstanding
Years ended December 31
Adjusted diluted earnings per share
(In millions of dollars)
Cash provided by operating activities
Add (deduct):
Property, plant and equipment expenditures
Interest on borrowings, net of capitalization
Restructuring, acquisition and other
Interest paid
Change in non-cash working capital
Other adjustments
Free cash flow
2014
3,698
(2,366)
(756)
173
778
(11)
(79)
2013
3,990
(2,240)
(709)
85
700
(238)
(40)
1,437
1,548
Basic earnings per share:
Net income
Divided by: weighted average number of
shares outstanding
Basic earnings per share
Diluted earnings per share:
Net income
Effect on net income of dilutive securities
Diluted net income
Divided by: diluted weighted average
number of shares outstanding
Diluted earnings per share
517
2.96
518
3.42
1,341
1,669
515
2.60
1,341
(15)
1,326
517
2.56
515
3.24
1,669
—
1,669
518
3.22
84 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
SUMMARY OF FINANCIAL RESULTS OF LONG-TERM DEBT GUARANTOR
Our outstanding public debt, $2.6 billion bank credit and letter of credit facilities and derivatives are unsecured obligations of RCI, as obligor, and
RCP, as either co-obligor or guarantor, as applicable.
The following table sets forth the selected unaudited consolidating summary financial information for RCI for the periods identified below,
presented with a separate column for: (i) RCI, (ii) RCP, (iii) our non-guarantor subsidiaries (Other Subsidiaries) on a combined basis,
(iv) consolidating adjustments, and (v) the total consolidated amounts.
Years ended December 31
(In millions of dollars)
Selected Income Statement data measure:
Revenue
Net Income (loss)
As at December 31
(In millions of dollars)
Selected Balance Sheet data measure:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
RCI
RCP
Non-guarantor
subsidiaries 1,2
Consolidated
adjustments 1,2
Total
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
19
14
10,983
11,028
1,994
1,822
(146)
(158) 12,850
12,706
1,341
1,669
2,674
3,093
(257)
772
(2,417)
(3,865)
1,341
1,669
RCI
RCP
Non-guarantor
subsidiaries 1,2
Consolidated
adjustments 1,2
Total
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
18,530
23,760
17,701
16,592
19,464
14,853
13,764
16,347
6,716
11,035
12,731
3,014
1,775
24,612
13,870
3,594
21,678
15,269
(31,724)
(40,542)
(33,367)
2,345
(26,900)
(34,593) 24,177
4,920
(28,530)
4,321
19,280
4,606
15,619
13,018
443
293
1,220
1,186
(1,161)
(171) 16,121
14,326
1 For the purposes of this table, investments in subsidiary companies are accounted for by the equity method.
2 Amounts recorded in current liabilities and non-current liabilities for RCP do not include any obligations arising as a result of being a guarantor or co-obligor, as the case may
be, under any of RCI’s long-term debt.
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2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 85
MANAGEMENT’S DISCUSSION AND ANALYSIS
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL RESULTS
(In millions of dollars, except per share amounts, subscriber count results, ARPU, churn,
percentages and ratios)
2014
2013
2012
2011
2010
Years ended December 31
Income and Cash Flow:
Revenue
Wireless
Cable
Business Solutions
Media
Corporate items and intercompany eliminations
Adjusted operating profit 1
Wireless
Cable
Business Solutions
Media
Corporate items and intercompany eliminations
Net income from continuing operations
Net income
Adjusted net income from continuing operations 1
Free cash flow 1
Property, plant and equipment expenditures
Earnings per share from continuing operations:
Basic
Diluted
Earnings per share
Basic
Diluted
Adjusted earnings per share 1
Basic
Diluted
Balance Sheet:
Assets
Property, plant and equipment, net
Goodwill
Intangible assets
Investments
Other assets
Liabilities and Shareholders’ Equity
Long-term liabilities
Current liabilities
Total liabilities
Shareholders’ equity
Subscriber count results (000s) 2
Wireless subscribers
Internet subscribers
Television subscribers
Phone subscribers
Additional wireless metrics 2
Wireless postpaid ARPU (monthly)
Wireless postpaid churn (monthly)
Ratios:
Revenue growth 3
Adjusted operating profit growth 1,3
Dividends declared per share
Dividend payout ratio 2
Dividend payout ratio of free cash flow 1
Return on assets 2
Adjusted net debt/adjusted operating profit 1,2
7,305
3,467
382
1,826
(130)
7,270
3,475
374
1,704
(117)
7,280
3,358
351
1,620
(123)
7,138
3,309
405
1,611
(117)
6,973
3,190
452
1,461
(77)
12,850
12,706
12,486
12,346
11,999
3,246
1,665
122
131
(145)
5,019
1,341
1,341
1,532
1,437
2,366
2.60
2.56
2.60
2.56
2.97
2.96
3,157
1,718
106
161
(149)
4,993
1,669
1,669
1,769
1,548
2,240
3.24
3.22
3.24
3.22
3.43
3.42
10,655
3,883
6,588
1,898
3,498
10,255
3,751
3,211
1,487
4,897
3,063
1,605
89
190
(113)
4,834
1,725
1,693
1,781
1,649
2,142
3.32
3.30
3.26
3.24
3.43
3.41
9,576
3,215
2,951
1,484
2,392
3,036
1,549
86
180
(112)
4,739
1,590
1,563
1,736
1,874
2,127
2.93
2.91
2.88
2.86
3.20
3.17
9,114
3,280
2,721
1,107
2,140
3,173
1,419
40
131
(95)
4,668
1,532
1,502
1,704
1,983
1,821
2.66
2.64
2.61
2.59
2.96
2.94
8,437
3,108
2,591
933
1,964
26,522
23,601
19,618
18,362
17,033
16,121
4,920
21,041
5,481
14,326
4,606
18,932
4,669
12,848
3,002
15,850
3,768
12,241
2,549
14,790
3,572
10,440
2,833
13,273
3,760
26,522
23,601
19,618
18,362
17,033
9,450
2,011
2,024
1,150
66.86
1.27%
1%
1%
1.83
70%
66%
5.1%
2.9
9,503
1,961
2,127
1,153
67.76
1.24%
2%
3%
1.74
54%
58%
7.1%
2.4
9,437
1,864
2,214
1,074
69.30
1.29%
1%
2%
1.58
48%
50%
8.6%
2.3
9,335
1,793
2,297
1,052
70.26
1.32%
3%
2%
1.42
49%
41%
8.5%
2.2
8,977
1,686
2,305
1,003
72.62
1.18%
4%
6%
1.28
49%
37%
8.8%
2.1
1 Adjusted operating profit, adjusted net income, adjusted basic and diluted earnings per share, free cash flow and adjusted net debt are non-GAAP measures and should not
be considered as a substitute or alternative for GAAP measures. These are not defined terms under IFRS, and do not have standard meanings, so may not be a reliable way to
compare us to other companies. See “Non-GAAP Measures” for information about these measures, including how we calculate them.
2 As defined. See “Key Performance Indicators”.
3 Growth rates for 2010 are determined by comparing IFRS figures to figures prepared under Canadian GAAP in 2009.
86 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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Management’s Responsibility for Financial Reporting
December 31, 2014
The accompanying consolidated financial statements of Rogers
Communications Inc. and its subsidiaries and all the information in
Management’s Discussion and Analysis (MD&A) are the responsibility
of management and have been approved by the Board of Directors.
Management has prepared the consolidated financial statements in
accordance with International Financial Reporting Standards as issued
by the International Accounting Standards Board. The consolidated
financial statements include certain amounts that are based on
management’s best estimates and judgements and, in their opinion,
present fairly, in all material respects, Rogers Communications lnc.’s
financial position, results of operations and cash flows. Management
has prepared the financial information presented elsewhere in MD&A
and has ensured that it is consistent with the consolidated financial
statements.
internal
Management has developed and maintains a system of
controls that further enhances the integrity of the consolidated financial
statements. The system of internal controls is supported by the internal
audit
communication to
function and includes management
employees about its policies on ethical business conduct.
Management believes these 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 consolidated financial statements; and
• properly account
for and safeguard the assets of Rogers
Communications Inc. and its subsidiaries.
The Board of Directors is responsible for overseeing management’s
responsibility for financial reporting and is ultimately responsible for
reviewing and approving the consolidated financial statements. The
Board of Directors carries out this responsibility through its Audit
Committee.
Independent Auditors’ Report
To the Shareholders of Rogers Communications Inc.:
We have audited the accompanying consolidated financial statements
of Rogers Communications Inc., which comprise the consolidated
statements of financial position as at December 31, 2014 and 2013,
the consolidated statements of
income, comprehensive income,
changes in shareholders’ equity and cash flows for the years ended
December 31, 2014 and 2013, and notes, comprising a summary of
significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation
these consolidated financial statements in accordance with
of
International Financial Reporting Standards as
issued by the
International Accounting Standards Board, and for such internal control
as management determines is necessary to enable the preparation of
consolidated financial
that are free from material
misstatement, whether due to fraud or error.
statements
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards and
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are
free from material misstatement.
The Audit Committee meets regularly 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
the consolidated financial
responsibilities; and to review MD&A,
statements and the external auditors’ report. The Audit Committee
reports its findings to the Board of Directors for its consideration when
approving the consolidated financial statements for issuance to the
shareholders. The Audit Committee also considers the engagement or
re-appointment of the external auditors before submitting it to the
Board of Directors for review and for shareholder approval.
The consolidated financial statements have been audited by KPMG
LLP, the external auditors,
in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company
Accounting Oversight Board (United States) on behalf of
the
shareholders. KPMG LLP has full and free access to the Audit
Committee.
February 13, 2015
Guy Laurence
President and Chief Executive
Officer
Anthony Staffieri, FCPA, FCA
Chief Financial Officer
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgement,
including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to
the entity’s preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that are
appropriate in the circumstances. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is
sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Rogers
Communications Inc. as at December 31, 2014 and 2013, and its
consolidated financial performance and its consolidated cash flows for
the years ended December 31, 2014 and 2013 in accordance with
International Financial Reporting Standards as
issued by the
International Accounting Standards Board.
Chartered Professional Accountants, Licensed Public Accountants
February 13, 2015
Toronto, Canada
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 87
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income
(In millions of Canadian dollars, except per share amounts)
Years ended December 31
Operating revenue
Operating expenses:
Operating costs
Depreciation and amortization
Restructuring, acquisition and other
Finance costs
Other expense (income)
Income before income taxes
Income taxes
Net income for the year
Earnings per share
Basic
Diluted
The accompanying notes are an integral part of the consolidated financial statements.
Note
5
6
7,8
9
10
11
12
13
13
2014
12,850
2013
12,706
7,868
2,144
173
817
1
1,847
506
1,341
7,797
1,898
85
742
(81)
2,265
596
1,669
$ 2.60
$ 2.56
$ 3.24
$ 3.22
88 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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Consolidated Statements of Comprehensive Income
(In millions of Canadian dollars)
Years ended December 31
Net income for the year
Other comprehensive income (loss):
Items that will not be reclassified to income:
Defined benefit pension plans:
Remeasurements
Related income tax recovery (expense)
Items that will not be reclassified to net income
Items that may subsequently be reclassified to income:
Change in fair value of available-for-sale investments:
Increase in fair value
Related income tax expense
Cash flow hedging derivative instruments:
Unrealized gain in fair value of derivative instruments
Reclassification to net income of gain on debt derivatives
Reclassification to net income for loss on repayment of long-term debt
Reclassification to net income or property, plant and equipment of gain on
expenditure derivatives
Reclassification to net income for accrued interest
Related income tax (expense) recovery
Share of other comprehensive income of equity-accounted investments
Items that may subsequently be reclassified to net income
Other comprehensive income for the year
Comprehensive income for the year
The accompanying notes are an integral part of the consolidated financial statements.
Note
2014
1,341
2013
1,669
23
16
(168)
45
(123)
369
(49)
320
925
(599)
29
(69)
(1)
(80)
205
10
535
412
1,753
134
(36)
98
181
(23)
158
197
(343)
–
(19)
44
10
(111)
–
47
145
1,814
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 89
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Position
(In millions of Canadian dollars)
As at December 31
Assets
Current assets:
Cash and cash equivalents
Accounts receivable
Inventories
Other current assets
Current portion of derivative instruments
Total current assets
Property, plant and equipment
Intangible assets
Investments
Derivative instruments
Other long-term assets
Deferred tax assets
Goodwill
Total assets
Liabilities and shareholders’ equity
Current liabilities:
Short-term borrowings
Accounts payable and accrued liabilities
Income tax payable
Current portion of provisions
Unearned revenue
Current portion of long-term debt
Current portion of derivative instruments
Total current liabilities
Provisions
Long-term debt
Derivative instruments
Other long-term liabilities
Deferred tax liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Guarantees
Commitments and contingent liabilities
Subsequent events
Note
2014
2013
176
1,591
251
191
136
2,345
10,655
6,588
1,898
788
356
9
3,883
26,522
842
2,578
47
7
443
963
40
4,920
55
13,824
11
462
1,769
21,041
5,481
26,522
2,301
1,509
276
162
73
4,321
10,255
3,211
1,487
148
397
31
3,751
23,601
650
2,344
22
7
350
1,170
63
4,606
40
12,173
83
328
1,702
18,932
4,669
23,601
14
15
16
7
8
17
16
18
12
8
19
20
21
16
20
21
16
22
12
24
28
29
31
The accompanying notes are an integral part of the consolidated financial statements.
On behalf of the Board of Directors:
Alan D. Horn, CPA, CA
Director
John H. Clappison, FCPA, FCA
Director
90 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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Consolidated Statements of Changes in Shareholders’ Equity
(In millions of Canadian dollars, except number of shares)
Class A
Voting shares
Class B
Non-voting shares
Year ended December 31, 2014
Amount
(000s) Amount
Number
of shares
Number
of shares
(000s)
Retained
earnings
Available-
for-sale
financial
assets
reserve
Equity
investment
hedging
reserve
Total
shareholders’
equity
Hedging
reserve
Balances, January 1, 2014
72 112,462
401 402,281
Net income for the year
Other comprehensive income:
Defined benefit pension plans, net of tax
Available-for-sale investments, net of tax
Derivative instruments, net of tax
Share of equity-accounted investments,
net of tax
Total other comprehensive income
Comprehensive income for the year
Transactions with shareholders recorded
directly in equity:
Dividends declared
Share class exchange
Shares issued on exercise of stock options
Total transactions with shareholders
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(14)
–
(14)
–
–
–
–
–
–
–
–
–
1
1
–
–
–
–
–
–
–
–
14
3
17
3,896
1,341
(123)
–
–
–
(123)
1,218
(942)
–
–
(942)
401
(101)
–
–
–
320
–
–
320
320
–
–
–
–
–
–
205
–
205
205
–
–
–
–
–
–
–
–
–
10
10
10
–
–
–
–
4,669
1,341
(123)
320
205
10
412
1,753
(942)
–
1
(941)
Balances, December 31, 2014
72 112,448
402 402,298
4,172
721
104
10
5,481
Class A
Voting shares
Class B
Non-voting shares
Year ended December 31, 2013
Amount
(000s) Amount
Number
of shares
Number
of shares
(000s)
Balances, January 1, 2013
72 112,462
397 402,788
Available-
for-sale
financial
assets
reserve
Equity
investment
hedging
reserve
Total
shareholders’
equity
Hedging
reserve
Net income for the year
Other comprehensive income:
Defined benefit pension plans, net of tax
Available-for-sale investments, net of tax
Derivative instruments, net of tax
Total other comprehensive income
Comprehensive income for the year
Transactions with shareholders recorded
directly in equity:
Repurchase of Class B non-voting shares
(note 24)
Dividends declared
Shares issued on exercise of stock options
Total transactions with shareholders
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Retained
earnings
3,046
1,669
98
–
–
98
1,767
–
–
–
–
–
–
–
–
–
–
–
–
(1)
–
5
4
(591)
–
84
(507)
(21)
(896)
–
(917)
243
–
–
158
–
158
158
–
–
–
–
10
–
–
–
(111)
(111)
(111)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,768
1,669
98
158
(111)
145
1,814
(22)
(896)
5
(913)
4,669
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 91
Balances, December 31, 2013
72 112,462
401 402,281
3,896
401
(101)
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Cash Flows
(In millions of Canadian dollars)
Years ended December 31
Operating activities:
Net income for the year
Adjustments to reconcile net income to net cash flows from operating activities:
Note
2014
2013
1,341
1,669
Depreciation and amortization
Program rights amortization
Finance costs
Income taxes
Stock-based compensation
Gain on sale of TVtropolis
Post-employment benefits contributions, net of expense
Other
Cash provided by operating activities before changes in non-cash working capital,
income taxes paid and interest paid
Change in non-cash operating working capital items
Cash provided by operating activities before income taxes paid and interest paid
Income taxes paid
Interest paid
Cash provided by operating activities
Investing activities:
Additions to property, plant and equipment
Additions to program rights
Changes in non-cash working capital related to property, plant and equipment and
intangible assets
Acquisitions and strategic transactions, net of cash acquired
Proceeds on sale of TVtropolis
Other
Cash used in investing activities
Financing activities:
Proceeds on settlement of cross-currency interest rate exchange agreements and
forward contracts
Payments on settlement of cross-currency interest rate exchange agreements and
forward contracts
Proceeds received on short-term borrowings
Repayment of short-term borrowings
Issuance of long-term debt
Repayment of long-term debt
Transaction costs incurred
Repurchase of Class B Non-Voting shares
Dividends paid
Cash provided by financing activities
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
7, 8
8
10
12
25
11
23
30
7
8
8, 26
11
30
30
19
19
30
30
24
2,144
66
817
506
37
–
(34)
48
4,925
11
4,936
(460)
(778)
3,698
(2,366)
(231)
153
(3,456)
–
(51)
(5,951)
1,898
52
742
596
84
(47)
(32)
(14)
4,948
238
5,186
(496)
(700)
3,990
(2,240)
(69)
(114)
(1,080)
59
(29)
(3,473)
2,150
662
(2,115)
276
(84)
3,412
(2,551)
(30)
–
(930)
128
(2,125)
2,301
176
(1,029)
650
–
2,578
(356)
(37)
(21)
(876)
1,571
2,088
213
2,301
Cash and cash equivalents is defined as cash and short-term deposits which have an original maturity of less than 90 days, less bank advances. As
at December 31, 2014 and 2013, the balance of cash and cash equivalents was comprised of cash and demand deposits.
The accompanying notes are an integral part of the consolidated financial statements.
92 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
Notes to Consolidated Financial Statements
We, us, our, Rogers, Rogers Communications and the Company refer to Rogers Communications Inc. and our subsidiaries. RCI refers to the legal
entity Rogers Communications Inc., not including our subsidiaries. RCI also holds interests in various investments and ventures.
Page
Note
Page
Note
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103
104
104
104
105
107
107
107
108
109
109
109
110
Note 1:
Nature of the Business
Note 2:
Significant Accounting Policies
Note 3:
Capital Risk Management
Note 4:
Segmented Information
Note 5:
Operating Revenue
Note 6:
Operating Costs
Note 7:
Property, Plant and Equipment
Note 8:
Intangible Assets and Goodwill
Note 9:
Restructuring, Acquisition and Other
Finance Costs
Note 10:
Note 11: Other Expense (Income)
Income Taxes
Note 12:
Note 13:
Earnings Per Share
Note 14: Accounts Receivable
Inventories
Note 15:
Financial Risk Management and Financial
Note 16:
Instruments
116
116
117
117
118
120
120
123
124
125
127
128
128
130
130
Investments
Note 17:
Note 18: Other Long-Term Assets
Short-Term Borrowings
Note 19:
Provisions
Note 20:
Long-Term Debt
Note 21:
Note 22: Other Long-Term Liabilities
Post-Employment Benefits
Note 23:
Shareholders’ Equity
Note 24:
Note 25:
Stock-Based Compensation
Note 26: Business Combinations
Note 27:
Note 28: Guarantees
Note 29: Commitments and Contingent Liabilities
Note 30:
Note 31:
Supplemental Cash Flow Information
Subsequent Events
Related Party Transactions
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Wireless, Cable and Business Solutions are operated by our wholly
owned subsidiary Rogers Communications Partnership (RCP) and
certain other wholly owned subsidiaries. Media is operated by our
wholly owned subsidiary Rogers Media Inc. and its subsidiaries.
See note 4 for more information about our reportable operating
segments.
STATEMENT OF COMPLIANCE
We prepared our consolidated financial statements according to
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB). Our Board of
Directors authorized for issue the consolidated financial statements for
the years ended December 31, 2014 and 2013 on February 13, 2015.
NOTE 1: NATURE OF THE BUSINESS
Rogers Communications Inc. is a diversified Canadian communications
and media group. Substantially all of our operations and sales are in
Canada. RCI is incorporated in Canada and its registered office is
located at 333 Bloor Street East, Toronto, Ontario, M4W 1G9. RCI’s
shares are publicly traded on the Toronto Stock Exchange (TSX: RCI.A
and RCI.B) and on the New York Stock Exchange (NYSE: RCI).
We report our results of operations in four segments. Each segment
and the nature of its business is as follows:
Segment
Wireless
Cable
Business Solutions
Media
Principal activities
Wireless telecommunications operations
for Canadian consumers and businesses
Cable telecommunications operations,
including Internet, television and telephony
(phone) for Canadian consumers and
businesses
Network connectivity through our fibre
network and data centre assets to support a
range of voice, data, networking, hosting
and cloud-based services for small,
medium and large Canadian businesses,
governments, and on a wholesale basis to
other telecommunications providers
A diversified portfolio of media properties,
including television and radio
broadcasting, specialty channels, digital
media, multi-platform shopping, publishing
and sports media and entertainment
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
All amounts are in Canadian dollars, which is our functional currency,
unless otherwise noted. We prepare the consolidated financial
statements on a historical cost basis, except for certain financial
instruments, liabilities for cash-settled share-based payments and the
net deferred pension liability, which we measure at fair value as
described in the notes.
could materially change the amounts we record. Actual results could
be different from these estimates.
We use estimates that are inherently uncertain in the following key
areas:
• considering inputs to determine the fair value of assets acquired and
(see Basis of
liabilities assumed in business combinations
Consolidation, above);
• considering intended use,
determine the estimated useful
equipment (see Property, Plant and Equipment, below);
industry trends and other factors to
lives of property, plant and
• capitalizing direct labour, overhead and interest costs to property,
plant and equipment (see Property, Plant and Equipment, below);
• determining the recoverable amount of non-financial assets when
testing for impairment (see Impairment, below); and
• determining the fair value of post-employment benefits obligations
(see note 23), stock-based compensation liabilities (see note 25) and
derivative instruments for their measurement and applying hedge
accounting (see note 16).
We also use significant judgement in the following areas:
• determining cash generating units and the allocation of goodwill for
the purpose of impairment testing (see note 8);
• choosing methods for depreciating and amortizing our property,
plant and equipment, intangible assets, and program rights that we
believe most accurately represent the consumption of benefits
derived from those assets and are most representative of the
economic substance of the intended use of the underlying assets
(see Property, Plant and Equipment and Intangible Assets, below);
• determining our operating segments, which are components that
engage in business activities from which they may earn revenues
and incur expenses,
for which operating results are regularly
reviewed by our chief operating decision makers to make decisions
about
component
performance, and for which discrete financial
information is
available (see note 4);
to be allocated and assess
resources
• deciding to designate our spectrum licences as assets with indefinite
useful lives since we believe they are likely to be renewed for the
foreseeable future such that there is no limit to the period that these
assets are expected to generate net cash inflows (see note 8);
• determining whether certain financial instruments qualify for hedge
accounting (see note 16);
• interpreting tax rules and regulations when we calculate income
taxes (see note 12); and
• determining the probability of loss when we assess contingent
liabilities (see note 29).
BASIS OF CONSOLIDATION
Subsidiaries
Subsidiaries are entities we control. We include the financial
statements of our subsidiaries in our consolidated financial statements
from the date we gain control of them until our control ceases. We
intercompany transactions and balances between our
eliminate all
subsidiaries on consolidation.
Business combinations
We account for acquisitions of subsidiaries using the acquisition
method of accounting. We calculate the fair value of the consideration
paid as the sum of the fair value at the date of acquisition of:
• assets given; plus
• equity instruments issued; less
• liabilities incurred or assumed at the date of exchange.
We measure goodwill as the fair value of the consideration transferred
less the net recognized amount of the identifiable assets acquired and
liabilities assumed, all of which are measured at fair value as of the
acquisition date. When the excess is negative, a bargain purchase gain
is recognized immediately in profit or loss.
We use estimates and judgements to determine the fair values of
assets acquired and liabilities assumed, using the best available
including information from financial markets. The
information,
estimates and judgements include key assumptions such as discount
rates, attrition rates, and terminal growth rates for performing
discounted cash flow analyses. We expense the transaction costs
associated with the acquisitions as we incur them.
See note 26 for information related to business combinations in 2014
and 2013.
USE OF ESTIMATES AND JUDGEMENTS
financial statements, management makes
When preparing our
judgements, estimates and assumptions that affect how accounting
policies are applied and the amounts we report as assets, liabilities,
revenue and expenses. Significant changes in these assumptions,
including those related to our future business plans and cash flows,
94 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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REVENUE RECOGNITION
We recognize revenue when we can estimate its amount, have delivered on our obligations within the revenue generating arrangements, and are
reasonably assured that we can collect it. Revenue is recorded net of discounts.
Source of revenue
How we recognize it
Monthly subscriber fees for wireless airtime and data services, cable,
services, media
and Internet
telephony
subscriptions and rental of equipment
services, network
Revenue from roaming, long-distance and other optional or non-
subscription services, pay-per-use services and other sales of
products
Revenue from the sale of wireless and cable equipment
Equipment subsidies related to providing equipment to new and
existing subscribers
Installation fees charged to subscribers in Cable and Business
Solutions
• Record revenue as the service is provided
• Record revenue as the service is provided or product
is
delivered
• Record revenue when the equipment is delivered and accepted
by the independent dealer or subscriber in a direct sales channel
• Record a reduction of equipment revenues when the equipment
is activated
• These fees do not meet the criteria as a separate unit of
accounting
• In Cable, we defer and amortize these fees over the related
service period, which is approximately three years
• In Business Solutions we defer and amortize fees over the length
of the customer contract
Activation fees charged to subscribers in Wireless
• These fees do not meet the criteria as a separate unit of
Advertising revenue
accounting
• We record these fees as part of equipment revenue
• Record revenue when the advertising airs on our radio or
television stations, is featured in our publications or displayed on
our digital properties
Monthly subscription revenues received by television stations for
subscriptions from cable and satellite providers
• Record revenue when the services are delivered to cable and
satellite providers’ subscribers
Toronto Blue Jays’ revenue from home game admission and
concessions
• Recognize revenue when the related games are played during
the baseball season and when goods are sold
Toronto Blue Jays’ revenue from the Major League Baseball
Revenue Sharing Agreement which redistributes funds between
member clubs based on each club’s relative revenues
Revenue from Toronto Blue Jays, radio and television broadcast
agreements
• Recognize revenue when the amount can be determined
• Record revenue at the time the related games are aired
Revenue from sublicensing of program rights
• Record revenue over the course of the applicable season
Awards granted to customers through customer loyalty programs,
which are considered a separately identifiable component of the
sales transactions
• Estimate the portion of the original sale to allocate to the award
credit based on the fair value of the future goods and services
that can be obtained when the credit is redeemed
• Defer the allocated amount until the awards are redeemed by
the customer and we provide the goods or services
• Recognize revenue based on the redemption of award credits
relative to the award credits that we expect to be redeemed
Interest income on credit card receivables
• Record revenue as earned (i.e.- upon the passage of time) using
the effective interest method
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Multiple deliverable arrangements
We offer some products and services as part of multiple deliverable
arrangements. We record these as follows:
• Divide the products and services into separate units of accounting,
as long as the delivered elements have stand-alone value to
customers and we can determine the fair value of any undelivered
elements objectively and reliably; then
• Measure and allocate the arrangement consideration among the
accounting units based on their relative fair values and recognize
revenue when the relevant criteria are met for each unit.
• When an amount allocated to a delivered item is contingent upon
the delivery of additional items or meeting specified performance
conditions, the amount allocated to the delivered item is limited to
the non-contingent amount.
Unearned revenue
We record payments we receive in advance of providing goods and
services as unearned revenue. Advance payments include subscriber
deposits, cable installation fees and amounts subscribers pay for
services and subscriptions that will be provided in future periods.
PROPERTY, PLANT AND EQUIPMENT
Depreciation
We depreciate property, plant and equipment over its estimated
useful
life by charging depreciation expense to the Consolidated
Statements of Income as follows:
Asset
Basis
Estimated
useful life
Buildings
Cable and wireless network
Computer equipment and
software
Customer premise
equipment
Leasehold improvements
Diminishing balance
Straight-line
5 to 40 years
3 to 30 years
Straight-line
4 to 10 years
Straight-line
Straight-line
3 to 5 years
Over shorter of
estimated useful
life or lease term
3 to 20 years
Equipment and vehicles
Diminishing balance
Components of an item of property, plant and equipment may have
different useful lives. We make significant estimates when determining
depreciation methods, depreciation rates and asset useful lives, which
requires taking into account company-specific factors and industry
trends. We monitor and review our depreciation methods,
depreciation rates and asset useful
lives at least once a year and
change them if they are different from our previous estimates. We
recognize the effect of changes in estimates in net
income
prospectively.
Recognition and measurement
We measure property, plant and equipment upon initial recognition at
cost, and record amortization when the asset is ready for its intended
use. Upon commencement of depreciation, the asset is carried at cost
less accumulated depreciation and accumulated impairment losses.
includes expenditures that are directly attributable to the
the asset. The cost of self-constructed assets also
Cost
acquisition of
includes:
• the cost of materials and direct labour;
96 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
• costs directly associated with bringing the assets to a working
condition for their intended use;
• costs of dismantling and removing the items and restoring the site
where they are located (see Provisions, below); and
• borrowing costs on qualifying assets.
We use estimates to determine certain costs that are directly
attributable to self-constructed assets. These estimates primarily
include certain internal and external direct labour associated with the
acquisition, construction, development or betterment of our network.
They also include interest costs, which we capitalize to certain property,
plant and equipment during construction and development.
We use significant estimates to determine the estimated useful lives of
property, plant and equipment, considering industry trends such as
technological advancements, our past experience, our expected use
and our review of asset lives.
We incur costs related to subscriber acquisition and retention.
• We capitalize cable installation costs that relate to the cable network
and depreciate them over the expected life of the cable customer.
• We defer direct incremental installation costs related to reconnect
cable customers and amortize them as the related reconnect
installation revenues are recorded.
• We expense all other costs as incurred.
We calculate gains and losses on the disposal of property, plant and
equipment by comparing the proceeds from the disposal with the
item’s carrying amount, and recognize the gain or loss in other income
in the Consolidated Statements of Income.
We capitalize development expenditures if they meet the criteria for
recognition as an asset, and amortize them over their expected useful
lives once they are available for use. We expense research
expenditures and maintenance and training costs as incurred.
See note 7 for more information about our property, plant and
equipment.
INTANGIBLE ASSETS
Amortization
that we acquire in business
We measure intangible assets
combinations at
recognition and record
amortization when the asset is ready for its intended use. Upon the
commencement of amortization, the asset is carried at cost less
accumulated amortization and impairment losses. Intangible assets are
tested for impairment as required (see Impairment, below).
fair value upon initial
Indefinite useful lives
We do not amortize intangible assets with indefinite lives (spectrum
and broadcast licences) because there is no foreseeable limit to the
period that these assets are expected to generate net cash inflows for
us. We use judgement to determine the indefinite life of these assets,
analyzing all relevant factors, including the expected usage of the
asset, the typical life cycle of the asset and anticipated changes in the
market demand for the products and services that the asset helps
generate. After review of the competitive, legal, regulatory and other
factors, it is our view that these factors do not limit the useful lives of
our spectrum and broadcast licences.
Finite useful lives
We amortize intangible assets with finite useful lives into depreciation
and amortization in the Consolidated Statements of Income on a
straight-line basis over their estimated useful lives as noted in the table
below. We review their useful
residual values and the
lives,
amortization methods at least once a year.
Intangible asset
Brand names
Customer relationships
Roaming agreements
Marketing agreements
Estimated useful life
7 to 20 years
3 to 10 years
12 years
3 years
See note 8 for more information about our intangible assets.
Acquired program rights
Program rights are contractual rights we acquire from third parties to
broadcast television and sports programs. We record them at cost less
accumulated amortization and accumulated impairment losses. We
capitalize program rights on the Consolidated Statements of Financial
Position when the licence period begins and the program is available
for use, and amortize them to other external purchases in operating
costs in the Consolidated Statements of Income over the expected
exhibition period. If programs are not scheduled, we consider the
related program rights to be impaired and write them off. Otherwise,
we test them for impairment as intangible assets with finite useful lives.
Program rights for multi-year sports programming arrangements are
expensed when the games are aired. The cost for multi-year sports
broadcast rights agreements are amortized to operating expenses
during the applicable seasons based on the pattern in which the rights’
economic benefits are expected to be consumed with reference to our
projections of advertising and subscriber revenues.
If the annual
contractual payments related to each season approximate the pattern
of expected future economic benefits consumption, we expense these
contractual payments during the applicable season.
towards
contract
future years’
To the extent that prepayments are made at the commencement of a
multi-year
these
prepayments are recorded as intangible assets and amortized to
operating expenses over the contract
that
prepayments are made for annual contractual fees within a season,
they are included in other current assets – prepaid expenses in our
Consolidated Statement of Financial Position as the rights will be
consumed within the next twelve months.
term. To the extent
rights
fees,
GOODWILL
We record goodwill arising from business combinations when the fair
value of the separately identifiable assets we acquired and liabilities we
assumed is lower than the consideration we paid (including the
recognized amount of the non-controlling interest, if any). If the fair
value of
the
separately identified assets and liabilities, we immediately record the
difference as a gain in net income.
the consideration transferred is lower than that of
See note 8 for more information about our goodwill.
IMPAIRMENT
Financial assets
We consider a financial asset to be impaired if there is objective
evidence that one or more events has had a negative effect on its
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estimated future cash flows and the effect can be reliably estimated.
Financial assets that are significant in value are tested for impairment
individually. All other financial assets are assessed collectively based on
the nature of each asset.
We measure impairment for financial assets as follows:
• loans and receivables – we measure the excess of the carrying
amount of the asset over the present value of future cash flows we
expect to derive from it, if any. The difference is allocated to an
allowance for doubtful accounts, and recognized as a loss in net
income.
• available-for-sale financial assets – we measure the excess of the cost
to acquire the asset (less any impairment loss we have previously
recognized), over its current fair value,
if any. The difference is
reclassified from the available-for-sale reserve in equity to net
income.
Investments in associates and joint arrangements
At the end of each reporting period, we assess whether there is
objective evidence that
impairment exists in our investments in
associates and joint arrangements. If objective evidence exists, we
compare the carrying amount of the investment to its recoverable
amount and recognize the excess over the recoverable amount, if any,
as a loss in net income (see Recognition of Impairment Charge, below).
Indefinite-life intangible assets and goodwill
We test indefinite-life intangible assets and goodwill for impairment
once a year, or more frequently if we identify indicators of impairment.
Goodwill
is allocated to cash generating units (or groups of cash
generating units) based on the level at which management monitors
goodwill, which cannot be higher than an operating segment. The
allocation involves considerable management judgement, and is made
to cash generating units (or groups of cash generating units) that are
expected to benefit from the synergies of the business combination
from which the goodwill arose.
A cash generating unit is the smallest identifiable group of assets that
generates cash inflows largely independent of the cash inflows from
other assets or groups of assets.
Non-financial assets with finite useful lives
Our non-financial assets with finite useful lives include property, plant
and equipment, and intangible assets. We test
these assets for
impairment whenever an event or change in circumstances indicates
that their carrying amounts may not be recoverable. The asset is
impaired if the recoverable amount is less than the carrying amount. If
we cannot estimate the recoverable amount of an individual asset
because it does not generate independent cash inflows, we test the
entire cash generating unit for impairment.
Recognition of impairment charge
The recoverable amount of a cash generating unit or asset is the higher
of its:
• fair value less costs to sell; and
• value in use.
We estimate an asset’s or cash generating unit’s fair value less costs to
sell using the best information available to estimate the amount we
could obtain from disposing the asset in an arm’s length transaction,
less the estimated cost of disposal.
We estimate value in use by discounting estimated future cash flows
from a cash generating unit or asset to their present value using a
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
pre-tax rate that reflects current market assessments of the time value
of money and the risks specific to the asset. Estimated cash flows are
based on management’s assumptions and are supported by external
information.
The above concepts used to determine the recoverable amount
require significant estimates, such as:
• future cash flows;
• terminal growth rate; and
• discount rates applied.
If our estimate of the asset’s or cash generating unit’s recoverable
amount is less than its carrying amount, we reduce its carrying amount
to the recoverable amount and recognize the loss in net income
immediately.
We reverse a previously recorded impairment loss if our estimate of a
previously impaired asset’s or cash generating unit’s recoverable
amount has increased such that the impairment recorded in a previous
year has reversed. The reversal is recognized by increasing the asset’s
or cash generating unit’s carrying amount to our new estimate of its
recoverable amount. The new carrying amount cannot be higher than
the carrying amount we would have recorded if we had not recognized
an impairment loss in previous years. We do not reverse impairment
losses recognized for goodwill.
We rely on estimates and assumptions when determining the amount
of current and deferred tax, and take into account the impact of
uncertain tax positions and whether additional taxes and interest may
be due.
If new information becomes available and changes our
judgement on the adequacy of existing tax liabilities, these changes
would affect the income tax expense in the period that we make this
determination.
See note 12 for more information about our income taxes.
EARNINGS PER SHARE
We calculate basic earnings per share by dividing the net income or
loss attributable to our Class A and B shareholders by the weighted
average number of Class A and B shares outstanding during the year.
We calculate diluted earnings per share by adjusting the net income or
loss attributable to Class A and B shareholders and the weighted
average number of Class A and B shares outstanding for the effect of
all dilutive potential common shares. We use the treasury stock
method for calculating diluted earnings per share, which considers the
impact of employee stock options and other potentially dilutive
instruments.
See note 13 for our calculations of basic and diluted earnings per
share.
INCOME TAXES
Income tax expense includes both current and deferred taxes. We use
judgement to interpret tax rules and regulations to calculate the
expense recorded each period. We recognize income tax expense in
net income unless it relates to an item recognized directly in equity or
other comprehensive income.
FOREIGN CURRENCY TRANSLATION
We translate amounts denominated in foreign currencies into
Canadian dollars as follows:
• monetary assets and monetary liabilities – at the exchange rate in
effect as at the date of the Consolidated Statements of Financial
Position
• non-monetary
and related
non-monetary
depreciation and amortization expenses – at the historical exchange
rates
liabilities
assets,
• revenue and expenses other than depreciation and amortization – at
the average rate for the month in which the transaction was
recorded.
FINANCIAL INSTRUMENTS
Recognition
We initially recognize cash and cash equivalents, accounts receivable,
debt securities and accounts payable and accrued liabilities on the
date they originate. All other financial assets and financial liabilities are
initially recognized on the trade date when we become a party to the
contractual provision of the instrument.
Current tax expense is tax we expect to pay or receive based on our
taxable income or loss during the year. We calculate the current tax
expense using tax rates enacted or substantively enacted as at the
reporting date, and including any adjustment to taxes payable or
receivable related to previous years.
Deferred tax assets and liabilities arise from temporary differences
between the carrying amounts of the assets and liabilities we record in
our Consolidated Statements of Financial Position and their respective
tax bases. We calculate deferred tax assets and liabilities using enacted
or substantively enacted tax rates that will apply in the years the
temporary differences are expected to reverse.
Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset current tax liabilities and assets and they
relate to income taxes levied by the same authority on:
• the same taxable entity; or
• different taxable entities where these entities intend to settle current
tax liabilities and assets on a net basis or the tax assets and liabilities
will be realized and settled simultaneously.
We recognize a deferred tax asset for unused losses, tax credits and
deductible temporary differences to the extent that it is probable that
future taxable income will be available to use the asset. We use
judgement to evaluate whether we can recover a deferred tax asset
based on our assessment of existing tax laws, estimates of future
profitability and tax planning strategies.
98 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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Classification and measurement
We measure financial instruments by grouping them into classes on initial recognition, based on the purpose of the individual instruments. We
classify all financial assets and liabilities as follows:
Financial instrument
Financial assets
Categorization
Measurement method
Cash and cash equivalents
Accounts receivable
Investments, available-for-sale
Loans and receivable
Loans and receivable
Available-for-sale 1
Financial liabilities
Short-term borrowings
Accounts payable
Accrued liabilities
Long-term debt
Derivatives 3
Debt derivatives
Bond forwards
Expenditure derivatives
Equity derivatives
Other financial liabilities 2
Other financial liabilities
Other financial liabilities
Other financial liabilities 2
Held-for-trading 1, 4
Held-for-trading 1, 4
Held-for-trading 1, 4
Held-for-trading 5
Amortized cost
Amortized cost
Fair value
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value
Fair value
Fair value
Fair value
1 Initially measured at fair value with subsequent changes recorded in other comprehensive income. The net change is reclassified into net income upon disposal of the asset or
when the asset becomes impaired, or in the case of derivatives designated as hedges, when the hedged item affects net income.
2 Initially measured at fair value plus transaction costs and amortized using the effective interest method
3 The derivatives can be in an asset or liability position at a point in time historically or in the future.
4 The derivatives are designated as cash flow hedges with the ineffective portion of the hedge recognized immediately into net income
5 Initially measured at fair value with subsequent changes offset against stock-based compensation expense or recovery in operating costs.
Fair value
We estimate fair values at a specific point in time, based on relevant
market information and information about the financial instruments.
Our estimates are subjective and involve uncertainties and significant
judgement. Changes in assumptions could significantly affect the
estimates, and effectiveness of our hedging relationships.
Current and non-current classification
We classify financial assets and financial liabilities as non-current when
they are due, in part or in whole, more than one year from the date of
the Consolidated Statements of Financial Position. All other financial
assets and liabilities, including the portion of long-term debt and debt
derivatives due within one year from the date of the Consolidated
Statements of Financial Position, are classified as current.
Offsetting financial assets and liabilities
We offset financial assets and financial liabilities and present the net
amount in the Consolidated Statements of Financial Position when we
have a legal right to offset them and intend to settle on a net basis or
realize the asset and liability simultaneously.
Derivative instruments
We use derivative instruments to manage risks related to certain activities we are involved with. They include:
Derivative
The risk they manage
Types of derivative instruments
Debt derivatives
Bond forwards
• Impact of fluctuations in foreign exchange rates on
for US dollar-
principal and interest payments
denominated long-term debt
• Impact of
fluctuations in market
interest rates on
forecasted interest payments for expected long-term
debt
• Cross-currency interest rate exchange agreements
• Forward foreign exchange agreements (from time to
time as necessary)
• Forward interest rate agreements
Expenditure derivatives
• Impact of fluctuations in foreign exchange rates on
• Forward foreign exchange agreements
forecasted US dollar-denominated expenditures
Equity derivatives
• Impact of fluctuations in share price on stock-based
• Total return swap agreements
compensation expense
We use derivatives only to manage risk, and not for speculative
purposes.
methods we will use to assess the ongoing effectiveness of the
hedging relationship.
When we designate a derivative instrument as a hedging instrument
for accounting purposes, we first determine that
the hedging
instrument will be highly effective in offsetting the changes in fair value
or cash flows of the item it is hedging. We then formally document the
relationship between the hedging instrument and hedged item,
including the risk management objectives and strategy, and the
We assess quarterly whether each hedging instrument continues to be
highly effective in offsetting the changes in the fair value or cash flows
of the item it is hedging.
We assess whether an embedded derivative is required to be
separated from its host contract and accounted for as a derivative
when we first become a party to a contract.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 99
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Deferred transaction costs
We defer transaction costs associated with issuing long-term debt and
direct costs we pay to lenders to obtain revolving credit facilities, and
amortize them using the effective interest method over the life of the
related instrument.
We recognize our investments in associates and joint ventures initially
at cost, and then increase or decrease the carrying amounts based on
our share of each entity’s income or loss after initial recognition.
Distributions we receive from these entities reduce the carrying
amount of our investments.
Available-for-sale financial assets reserve
fair value on the
We carry available-for-sale investments at
Consolidated Statements of Financial Position and record changes in
fair value in the available-for-sale financial assets reserve as a
component of equity, through other comprehensive income, until the
investments are disposed of or impaired, at which time we record the
change in fair value in net income.
Hedging reserve
We measure all derivatives at
fair value on the Consolidated
Statements of Financial Position. If the derivatives are effective we
record changes in fair value of cash flow hedging derivatives in the
hedging reserve as a component of equity
through other
comprehensive income until we recognize the hedged asset or liability
in net income.
See the following notes for more information about our financial
instruments: note 14 (Accounts Receivable), note 16 (Financial Risk
Management and Financial
Instruments), note 17 (Investments),
note 19 (Short-Term Borrowings) and note 21 (Long-Term Debt).
INVENTORIES
We measure inventories, including handsets, digital cable equipment
and merchandise for resale, at the lower of cost (determined on a first-
in, first-out basis) and net realizable value. We will reverse a previous
write down to net realizable value if the inventories later increase in
value.
See note 15 for more information on our inventories.
INVESTMENTS
Investments in publicly traded and private companies
We classify our investments in publicly traded and private companies
where we have no control or significant influence as available-for-sale
investments, and account for them as follows:
• publicly traded companies – we record them at fair value based on
publicly quoted prices; and
• private companies – we record them at fair value using implied
third party sale
valuations from follow-on financing rounds,
negotiations, or market-based approaches.
Investments in associates and joint arrangements
An entity is an associate when we have a significant influence on the
entity’s financial and operating policies but do not control it. We are
generally presumed to have significant influence over an entity when
we hold more than 20% of the voting power.
A joint arrangement exists when there is a contractual agreement that
establishes joint control over activities and requires unanimous consent
for strategic financial and operating decisions. We classify our interests
in joint arrangements into one of two categories:
• joint ventures – when we have the rights to the net assets of the
arrangement; and
• joint operations – when we have the rights to the assets and
obligations for the liabilities related to the arrangement.
We use the equity method to account for our investments in associates
and joint ventures, and we recognize our proportionate interest in the
assets, liabilities, revenues and expenses of our joint operations.
We eliminate unrealized gains and losses from our investments in
associates or joint ventures against our investment, up to the amount
of our interest in the entity.
See note 17 for more information about our investments.
PROVISIONS
We record a provision when a past event creates a legal or constructive
obligation that can be reasonably estimated and is likely to result in an
outflow of economic resources. We recognize a provision even when
the timing or amount of the obligation may be uncertain.
We make significant estimates when measuring a provision for a
present obligation, basing the provision on the amount that we
estimate will be required to settle it, using the most reliable evidence
available as at
the reporting date and including the risks and
uncertainties associated with the obligations. We then discount our
expected future cash flows to the date of the Consolidated Statement
of Financial Position at a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the
liability.
Decommissioning and restoration costs
We use network and other assets on leased premises in some of our
business activities. We expect to exit these premises in the future, so
we make provisions for the costs associated with decommissioning the
assets and restoring the locations to their original standards when we
have a legal or constructive obligation to do so. We calculate these
costs based on a current estimate of the costs that will be incurred,
project those costs into the future based on management’s best
estimates of future trends in prices, inflation and other factors, and
discount them to their present value. We revise our forecasts when
business conditions or technological requirements change.
When we record a decommissioning liability, we record a
corresponding asset in property, plant and equipment and depreciate
the asset based on its useful life following our depreciation policies for
property, plant and equipment. We record the accretion of the liability
as a charge to finance costs in the Consolidated Statements of Income.
Restructuring
We make provisions for restructuring when we have approved a
detailed and formal restructuring plan and either the restructuring has
started or management has announced the plan’s main features to the
employees affected by it. Restructuring obligations that have uncertain
timing or amounts are recorded as provisions; otherwise they are
recorded as accrued liabilities. All charges are recorded in
restructuring, acquisition and other in the Consolidated Statements of
Income. See note 9 for more information about these expenses.
Onerous contracts
We make provisions for onerous contracts when the unavoidable costs
of meeting our obligation under the contract exceed the benefits we
expect to realize from it. We measure these provisions at the present
value of the lower of the expected cost of terminating the contract or
the expected cost of continuing with the contract. We recognize any
impairment loss on the assets associated with the contract before we
make the provision.
See note 20 for a breakdown of our provisions.
100 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
EMPLOYEE BENEFITS
Post-employment benefits
We offer contributory and non-contributory defined benefit pension
plans that provide employees with a lifetime monthly pension on
retirement.
We separately calculate our net obligation for each defined benefit
future benefits that
pension plan by estimating the amount of
employees have earned in return for their service in the current and prior
years, and discounting those benefits to determine their present value.
We accrue our pension plan obligations as employees provide the
services necessary to earn the pension. We use a discount rate based
on market yields on high quality corporate bonds at the measurement
date to calculate the accrued pension benefit obligation.
Remeasurements of
the accrued pension benefit obligation are
determined at the end of the year, and include actuarial gains and
losses, return on plan assets and any change in the effect of the asset
ceiling. These are recognized in other comprehensive income and
retained earnings.
The cost of pensions is actuarially determined and takes into account
the following assumptions and methods for pension accounting
related to our defined benefit pension plans:
• expected rates of salary increases for calculating increases in future
benefits;
• mortality rates for calculating the life expectancy of plan members;
and
• past service costs from plan amendments are immediately
expensed in net income.
We recognize our net pension expense for our defined benefit
pension plans and contributions to defined contribution plans as an
employee benefit expense in operating costs in the Consolidated
Statements of Income in the periods the employees provide the
related services.
See note 23 for more information about our pension plans.
Termination benefits
We recognize termination benefits as an expense when we are
committed to a formal detailed plan to terminate employment before
the normal retirement date and it is not realistic that we will withdraw it.
STOCK-BASED COMPENSATION
Stock option plans
Cash-settled share appreciation rights (SARs) are attached to all stock
options granted under our employee stock option plan. This feature
allows the option holder to choose to receive a cash payment equal to
the intrinsic value of the option (the amount by which the market price
of the Class B Non-Voting share exceeds the exercise price of the
option on the exercise date) instead of exercising the option to acquire
Class B Non-Voting shares. We classify all outstanding stock options
with cash settlement features as liabilities and carry them at their fair
value, determined using the Black-Scholes option pricing model or
trinomial option pricing models, depending on the nature of the share-
based award. We re-measure the fair value of the liability each period
and amortize it to operating costs using graded vesting, either over the
vesting period or to the date an employee is eligible to retire
(whichever is shorter).
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on the market price of the Class B Non-Voting shares, and recording
them as charges to operating costs over the vesting period of the
awards. If an award’s fair value changes after it has been granted and
before the settlement date, we record the resulting changes in the
liability as a charge to operating costs in the year that the change
occurs. The payment amount is established as of the vesting date.
Deferred share unit (DSU) plan
We record outstanding DSUs as liabilities, measuring the liabilities and
compensation costs based on the awards’ fair values at the grant date,
which are based on the market price of the Class B Non-Voting shares,
and recording them as charges to operating costs over the vesting
period of the awards. If an award’s fair value changes after it has been
granted and before the settlement date, we record the resulting
changes in our liability as a charge to operating costs in the year that
the change occurs. The payment amount is established as of the
exercise date.
Employee share accumulation plan
Employees voluntarily participate in the share accumulation plan by
contributing a specified percentage of their regular earnings. We
match employee contributions up to a certain amount, and record our
contributions as a compensation expense in the year we make them.
Expense relating to the employee share accumulation plan is included
in operating costs.
See note 25 for more information about our
compensation and other stock-based payments.
stock-based
DISCONTINUED OPERATIONS
A discontinued operation is a component of our business that has
operations and cash flows that are clearly distinguished from the rest of
Rogers, has been disposed of or is classified as held-for-sale and:
• represents a separate major line of business;
• is part of a single coordinated plan to dispose of a separate major
line of business; or
• is a subsidiary we have acquired with the intention to re-sell.
When we classify a component as a discontinued operation, we restate
our comparative income and comprehensive income as though the
operation had been discontinued from the start of the comparative
year.
NEW ACCOUNTING PRONOUNCEMENTS ADOPTED IN
2014
We adopted the following accounting changes for our 2014 annual
consolidated financial statements.
• Amendments
Instruments: Presentation
(IAS 32) – In December 2011, the IASB amended IAS 32 to clarify the
meaning of when an entity has a current legally enforceable right of
set-off.
to IAS 32, Financial
• Amendments to IAS 39, Financial
Instruments: Recognition and
Measurement (IAS 39) – In June 2013, the IASB amended IAS 39 to
provide relief from discontinuing an existing hedging relationship
when a novation that was not contemplated in the original hedging
documentation meets specific criteria.
Restricted share unit (RSU) plan
We record outstanding RSUs as liabilities, measuring the liabilities and
compensation costs based on the awards’ fair values, which are based
• IFRIC 21, Levies (IFRIC 21) – In May 2013, the IASB issued IFRIC 21,
which provides guidance on when to recognize a liability for a levy
imposed by a government, both for levies that are accounted for in
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accordance with IAS 37, Provisions, Contingent Liabilities and
Contingent Assets and those where the timing and amount of the
levy is certain. The Interpretation identifies the obligating event for
the recognition of a liability as the activity that triggers the payment
of the levy in accordance with the relevant legislation. It provides the
following guidance on recognition of a liability to pay levies (i) the
liability is recognized progressively if the obligating event occurs
over a period of time, and (ii) if an obligation is triggered on
reaching a minimum threshold, the liability is recognized when that
minimum threshold is reached.
The accounting pronouncements we adopted in 2014 were made in
accordance with their transitional provisions, which were required to
be applied retrospectively and had no impact on our financial results.
RECENT ACCOUNTING PRONOUNCEMENTS NOT YET
ADOPTED
The IASB has issued new standards and amendments to existing
standards. These changes are not yet adopted as at December 31,
2014, and could have an impact on future periods.
• IFRS 15, Revenue from Contracts with Customers (IFRS 15) – In May
2014, the IASB issued IFRS 15 which supersedes existing standards
and interpretations including IAS 18, Revenue and IFRIC 13,
Customer Loyalty Programmes.
IFRS 15 introduces a single model for recognizing revenue from
contracts with customers with the exception of certain contracts
under other IFRSs such as IAS 17, Leases. The standard requires
revenue to be recognized in a manner that depicts the transfer of
promised goods or services to a customer and at an amount that
reflects the expected consideration receivable in exchange for
transferring those goods or services. This is achieved by applying the
following five steps:
Identify the contract with a customer;
Identify the performance obligations in the contract;
1.
2.
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligations in
the contract; and
5. Recognize revenue when (or as)
the entity satisfies a
performance obligation.
NOTE 3: CAPITAL RISK MANAGEMENT
Our objectives in managing capital are to ensure we have sufficient
liquidity to meet all of our commitments and to execute our business
plan. We define capital that we manage as shareholders’ equity
(including issued capital, share premium, retained earnings, hedging
reserve
and
indebtedness (including current portion of our long-term debt, long-
term debt and short-term borrowings).
and available-for-sale
financial
reserve)
assets
We manage our capital structure, commitments and maturities and
make adjustments based on general economic conditions, financial
markets and operating risks and our investment and working capital
requirements. To maintain or adjust our capital structure, we may, with
approval from our Board of Directors, issue or repay debt and/or short-
term borrowings, issue shares, repurchase shares, pay dividends or
the
undertake other activities as deemed appropriate under
circumstances. The Board of Directors reviews and approves the
annual capital and operating budgets, and any material transactions
including
that are not part of
the ordinary course of business,
102 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
IFRS 15 also provides guidance relating to the treatment of contract
acquisition and contract fulfillment costs.
recognition and classification of
We expect the application of this new standard will have significant
impacts on our reported results, specifically with regards to the
timing of
and
the treatment of costs incurred in obtaining customer contracts. The
standard is effective for annual periods beginning on or after
January 1, 2017. We are assessing the impact of this standard on our
consolidated financial statements.
revenue,
financial
• IFRS 9, Financial Instruments (IFRS 9) – In July 2014, the IASB issued
the final publication of the IFRS 9 standard, superseding the current
recognition and measurement
Instruments:
IAS 39, Financial
(IAS 39) standard.
IFRS 9 includes revised guidance on the
classification and measurement of financial instruments, including a
new expected credit loss model for calculating impairment on
financial assets, and the new general hedge accounting
requirements. It also carries forward the guidance on recognition
and derecognition of
instruments from IAS 39. The
standard is effective for annual periods beginning on or after
January 1, 2018 with early adoption permitted. We are assessing the
impact of this standard on our consolidated financial statements.
• Amendments to IAS 16, Property, Plant and Equipment and IAS 38,
Intangible Assets – In May 2014, the IASB issued amendments to
these standards to introduce a rebuttable presumption that the use
of revenue-based amortization methods for intangible assets is
inappropriate. The amendment
is effective for annual periods
beginning on or after January 1, 2016 with early adoption
permitted. We are assessing the impact of this amendment on our
consolidated financial statements.
• Amendments to IFRS 11, Joint Arrangements – In May 2014, the
IASB issued an amendment to this standard requiring business
combination accounting to be applied to acquisitions of interests in
a joint operation that constitute a business. The amendment is
effective for annual periods beginning on or after January 1, 2016.
We are assessing the impact of these standards on our consolidated
financial statements.
proposals for acquisitions or other major
investments or divestitures.
financing transactions,
We monitor debt leverage ratios such as adjusted net debt to adjusted
operating profit as part of
liquidity and
shareholders’ return to sustain future development of the business,
conduct valuation-related analyses and make decisions about capital.
the management of
The Rogers First Rewards Credit Card program (operated through a
100% owned subsidiary of RCI) is regulated by the Office of the
Superintendent of Financial Institutions, which requires that a minimum
level of regulatory capital be maintained. Rogers was in compliance
with that requirement as at December 31, 2014 and 2013. This
program was launched in the fourth quarter of 2013 and the capital
requirements are not material as at December 31, 2014.
With the exception of Rogers First Rewards Credit Card program, we
are not subject to externally imposed capital requirements. Our overall
strategy for capital
risk management has not changed since
December 31, 2013.
N
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A
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M
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N
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NOTE 4: SEGMENTED INFORMATION
Our reportable segments are Wireless, Cable, Business Solutions and
Media. All four segments operate substantially in Canada. Corporate
items and eliminations include our interests in businesses that are not
reportable operating segments, corporate administrative functions and
eliminations of inter-segment revenue and costs. We follow the same
accounting policies for our segments as those described in note 2.
Segment results include items directly attributable to a segment as well
as those that can be allocated on a reasonable basis. We account for
transactions between reportable segments in the same way we
account for transactions with external parties and eliminate them on
consolidation.
The Chief Executive Officer and Chief Financial Officer of RCI are the
chief operating decision makers and regularly review our operations
and performance by segment. They review adjusted operating profit
as the key measure of profit for the purpose of assessing performance
for each segment and to make decisions about the allocation of
resources. Adjusted operating profit is income before restructuring,
acquisition and other, stock-based compensation, depreciation and
amortization, finance costs, other expense (income) and income taxes.
INFORMATION BY SEGMENT
Year ended December 31, 2014
(In millions of dollars)
Operating revenue
Operating costs 1
Adjusted operating profit
Restructuring, acquisition and other
Stock-based compensation 1
Depreciation and amortization
Finance costs
Other expense
Income before income taxes
Additions to property, plant and equipment
Goodwill
Total assets
Year ended December 31, 2013
(In millions of dollars)
Operating revenue
Operating costs 1
Adjusted operating profit
Restructuring, acquisition and other
Stock-based compensation 1
Depreciation and amortization
Finance costs
Other income
Income before income taxes
Additions to property, plant and equipment
Goodwill
Total assets
1 Included in Operating costs on the Consolidated Statements of Income.
Note Wireless Cable
Business
Solutions Media
Corporate
items and
eliminations
Consolidated
totals
7,305
4,059
3,467
1,802
3,246
1,665
382
260
122
1,826
1,695
131
(130)
15
(145)
5
9
25
7, 8
10
978
1,055
1,155
1,379
146
426
94
923
93
–
12,850
7,831
5,019
173
37
2,144
817
1
1,847
2,366
3,883
12,935
6,019
1,219
2,466
3,883
26,522
Note Wireless Cable
Business
Solutions Media
Corporate
items and
eliminations
Consolidated
totals
7,270
4,113
3,475
1,757
3,157
1,718
374
268
106
1,704
1,543
161
(117)
32
(149)
5
9
25
7, 8
10
865
1,105
1,146
1,256
107
426
79
923
84
–
12,706
7,713
4,993
85
84
1,898
742
(81)
2,265
2,240
3,751
9,775
5,527
1,195
2,247
4,857
23,601
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: OPERATING REVENUE
(In millions of dollars)
2014
2013
(In millions of dollars)
2014
2013
Wireless:
Postpaid
Prepaid
Network revenue
Equipment sales
Total Wireless
Cable:
Internet
Television
Phone
Service revenue
Equipment sales
Total Cable
6,495
248
6,743
562
6,470
278
6,748
522
Business Solutions:
Next generation
Legacy
Service revenue
Equipment sales
7,305
7,270
Total Business Solutions
1,245
1,734
478
3,457
10
1,159
1,809
498
3,466
9
Media:
Advertising
Subscription
Retail
Other
Total Media
271
106
377
5
382
775
382
314
355
213
149
362
12
374
762
316
305
321
1,826
1,704
3,467
3,475
Corporate items and intercompany eliminations
(130)
(117)
Total operating revenue
12,850
12,706
NOTE 6: OPERATING COSTS
(In millions of dollars)
Cost of equipment sales and direct channel subsidies
Merchandise for resale
Other external purchases
Employee salaries and benefits and stock-based
compensation
Total operating costs
2014
2013
1,493
206
4,229
1,541
190
4,126
1,940
1,940
7,868
7,797
NOTE 7: PROPERTY, PLANT AND EQUIPMENT
The table below shows property, plant and equipment and accumulated depreciation as at December 31, 2014, 2013 and 2012.
(In millions of dollars)
December 31, 2014
December 31, 2013
December 31, 2012
Land and buildings
Cable and wireless network
Computer equipment and
software
Customer premise equipment
Leasehold improvements
Equipment and vehicles
Total property, plant and
Cost
942
19,588
4,960
1,543
383
1,236
Accumulated
depreciation
Net book
value
Accumulated
depreciation
Net book
value
Cost
Accumulated
depreciation
Net book
value
Cost
(319)
(12,387)
623
7,201
923
18,197
(291)
(11,287)
632
6,910
894
16,805
(260)
(10,138)
(3,353)
(988)
(151)
(799)
1,607
555
232
437
4,553
2,009
492
1,124
(3,031)
(1,415)
(271)
(748)
1,522
594
221
376
3,972
1,764
407
1,055
(2,644)
(1,319)
(248)
(712)
634
6,667
1,328
445
159
343
equipment
28,652
(17,997)
10,655
27,298
(17,043)
10,255
24,897
(15,321)
9,576
104 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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The tables below summarize the changes in the net carrying amounts of property, plant and equipment during 2014 and 2013.
(In millions of dollars)
December 31, 2013
December 31, 2014
Land and buildings
Cable and wireless network
Computer equipment and software
Customer premise equipment
Leasehold improvements
Equipment and vehicles
Total property, plant and equipment
Net book value Additions
Acquisitions
from business
combinations Depreciation Other 1 Net book value
632
6,910
1,522
594
221
376
10,255
19
1,453
465
269
43
117
2,366
–
6
–
–
3
–
9
(28)
(1,179)
(371)
(303)
(27)
(71)
(1,979)
–
11
(9)
(5)
(8)
15
4
623
7,201
1,607
555
232
437
10,655
1 Includes disposals, write-downs, reclassifications and other adjustments.
(In millions of dollars)
December 31, 2012
December 31, 2013
Land and buildings
Cable and wireless network
Computer equipment and software
Customer premise equipment
Leasehold improvements
Equipment and vehicles
Total property, plant and equipment
Net book value Additions
Acquisitions
from business
combinations Depreciation Other 1 Net book value
634
6,667
1,328
445
159
343
9,576
25
1,235
495
372
27
86
2,240
3
91
6
6
44
8
158
(30)
(1,087)
(310)
(230)
(20)
(71)
(1,748)
–
4
3
1
11
10
29
632
6,910
1,522
594
221
376
10,255
1 Includes disposals, write-downs, reclassifications and other adjustments.
Property, plant and equipment not yet in service and therefore not depreciated as at December 31, 2014 was $1,048 million (December 31,
2013 – $882 million). Capitalized interest pertaining to property, plant and equipment was recorded at a weighted average rate of approximately
4.6% (2013 – 5.1%).
NOTE 8: INTANGIBLE ASSETS AND GOODWILL
(In millions of dollars)
December 31, 2014
December 31, 2013
December 31, 2012
Cost prior to
impairment
losses
Accumulated
amortization
Accumulated
impairment
losses
Net
book
value
Cost prior to
impairment
losses
Accumulated
amortization
Accumulated
impairment
losses
Net
book
value
Cost prior to
impairment
losses
Accumulated
amortization
Accumulated
impairment
losses
Net
book
value
Indefinite life intangible assets:
Spectrum licences
Broadcast licences
Finite life intangible assets:
Brand names
Customer relationships
Roaming agreements
Marketing agreements
Acquired program rights
Total intangible assets
Goodwill
Total intangible assets and
goodwill
5,576
324
420
1,620
523
10
343
8,816
4,104
–
–
–
(99)
5,576
225
(255)
(1,339)
(444)
(10)
(62)
(2,110)
–
(14)
–
–
–
(5)
151
281
79
–
276
(118) 6,588
(221) 3,883
2,275
324
438
1,543
523
9
168
5,280
3,972
–
–
– 2,275
225
(99)
(257)
(1,234)
(400)
(8)
(52)
(1,951)
–
(14)
–
–
–
(5)
167
309
123
1
111
(118) 3,211
(221) 3,751
2,231
209
437
1,310
523
63
162
4,935
3,436
–
–
– 2,231
110
(99)
(240)
(1,147)
(357)
(59)
(63)
(1,866)
–
(14)
–
–
–
(5)
183
163
166
4
94
(118) 2,951
(221) 3,215
12,920
(2,110)
(339) 10,471
9,252
(1,951)
(339) 6,962
8,371
(1,866)
(339) 6,166
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tables below summarize the changes in the net carrying amounts of intangible assets and goodwill in 2014 and 2013.
(In millions of dollars)
December 31, 2013
December 31, 2014
Spectrum licences
Broadcast licences
Brand names
Customer relationships
Roaming agreements
Marketing agreements
Acquired program rights
Total intangible assets
Goodwill
Total intangible assets and goodwill
Acquisitions
from business
combinations Additions Amortization 1 Other Net book value
Net book value
2,275
225
167
309
123
1
3,100
111
3,211
3,751
6,962
–
–
–
73
–
–
73
–
73
132
205
3,301
–
–
–
–
–
3,301
231
3,532
–
3,532
–
–
(16)
(104)
(44)
(1)
(165)
(66)
(231)
–
(231)
–
–
–
3
–
–
3
–
3
–
3
5,576
225
151
281
79
–
6,312
276
6,588
3,883
10,471
1 Of the $231 million of total amortization, $66 million related to acquired program rights is included in Other external purchases in Operating costs (see note 6), and $165
million in Depreciation and amortization in the Consolidated Statements of Income.
(In millions of dollars)
December 31, 2012
December 31, 2013
Spectrum licences
Broadcast licences
Brand names
Customer relationships
Roaming agreements
Marketing agreements
Acquired program rights
Total intangible assets
Goodwill
Total intangible assets and goodwill
Acquisitions
from business
combinations Additions Amortization 1 Other Net book value
Net book value
2,231
110
183
163
166
4
2,857
94
2,951
3,215
6,166
–
104
–
233
–
–
337
–
337
536
873
44
11
–
–
–
1
56
69
125
–
125
–
–
(16)
(87)
(43)
(4)
(150)
(52)
(202)
–
(202)
–
–
–
–
–
–
–
–
–
–
–
2,275
225
167
309
123
1
3,100
111
3,211
3,751
6,962
1 Of the $202 million of total amortization, $52 million related to acquired program rights is included in Other external purchases in Operating costs (see note 6), and $150
million in Depreciation and amortization in the Consolidated Statements of Income.
In 2014, we participated in the 700 MHz spectrum auction in Canada, and were awarded spectrum licences consisting of two 12 MHz blocks of
contiguous, paired lower 700 MHz band spectrum covering most of the Canadian population. We paid a total of $3,301 million to Industry
Canada for the licence which included $9 million of costs directly attributable to the acquisition of the spectrum licences which were capitalized.
IMPAIRMENT
Indefinite life intangible assets and goodwill
We test cash generating units or groups of cash generating units with
indefinite life intangible assets and/or allocated goodwill
for
impairment as at October 1 of each calendar year. When assessing
whether or not there is impairment, we determine the recoverable
amount of a cash generating unit based on the greater of its value in
use or its fair value less costs to sell.
We estimate value in use by discounting estimated future cash flows to
their present value. We estimate the discounted future cash flows for
periods of up to five years, depending on the cash generating unit,
and a terminal value. The future cash flows are based on our estimates
and expected future operating results of the cash generating unit after
considering economic conditions and a general outlook for the cash
generating unit’s industry. Our discount rates consider market rates of
return, debt to equity ratios and certain risk premiums, among other
things. The terminal value is the value attributed to the cash generating
unit’s operations beyond the projected time period of the cash flows
using a perpetuity rate based on expected economic conditions and a
general outlook for the industry.
We determine fair value less costs to sell in one of the following two
ways:
• Analyzing discounted cash flows – we estimate the discounted future
cash flows for periods of five to ten years, depending on the cash
generating unit, and a terminal value, similar to the value in use
methodology described above, while applying assumptions
consistent with those a market participant would make. Future cash
flows are based on our estimates of expected future operating
results of the cash generating unit. Our estimates of future cash
flows, terminal values and discount rates consider similar factors to
those described above for value in use estimates.
• Using a market approach – we estimate the recoverable amount of
the cash generating unit using multiples of operating performance
of comparable entities and precedent transactions in that industry.
106 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
We have made certain assumptions for the discount and terminal
growth rates to reflect variations in expected future cash flows. These
assumptions may differ or change quickly depending on economic
conditions or other events. It is therefore possible that future changes
in assumptions may negatively affect
future valuations of cash
generating units and goodwill, which could result in impairment losses.
For purposes of impairment testing of goodwill, our cash generating
units or groups of cash generating units correspond to our reporting
segments as disclosed in note 4.
The table below is an overview of the methods and assumptions we used to determine recoverable amounts for cash generating units or groups
of cash generating units with indefinite life intangible assets or goodwill that we consider significant.
(In millions of dollars, except years and percentages)
Carrying value
of goodwill
Carrying value
of indefinite-life
intangible assets
Recoverable
amount method
Periods used
(years)
Terminal growth
rates %
Pre-tax discount
rates %
Wireless
Cable
Media
1,155
1,379
923
5,576
–
225
Value in use
Value in use
Fair value less cost to sell
5
5
5
0.5
2.0
2.5
8.1
8.5
10.3
Our fair value measurement for Media is classified as level 3 in the fair
value hierarchy (see note 16).
Impairment losses
We did not record an impairment charge in 2014 or 2013 since the
recoverable amounts of the cash generating units exceeded their
carrying values.
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NOTE 9: RESTRUCTURING, ACQUISITION AND OTHER
in restructuring,
We incurred $173 million (2013 – $85 million)
acquisition and other expenses, comprised of:
• $131 million (2013 – $53 million) of restructuring expenses mainly
for costs relating to the reorganization associated with the
implementation of the Rogers 3.0 plan to structure teams around
our customers and remove management layers to ensure senior
leadership is closer to frontline employees and customers; and
NOTE 10: FINANCE COSTS
(In millions of dollars)
Note
2014
2013
Interest on borrowings
Interest on post-employment benefits liability
Loss on repayment of long-term debt
Loss on foreign exchange
Change in fair value of derivative instruments
Capitalized interest
Other
Total finance costs
23
16
21
782
7
29
11
2
(26)
12
734
14
–
23
(16)
(25)
12
817
742
NOTE 11: OTHER EXPENSE (INCOME)
(In millions of dollars)
Losses (income) from associates and joint ventures
Gain on sale of TVtropolis
Other investment income
Total other expense (income)
2014
2013
23
–
(22)
1
(7)
(47)
(27)
(81)
• $42 million (2013 – $32 million) of acquisition-related transaction
costs, legal claims and other costs.
The corresponding liability was recorded in accounts payable and
accrued liabilities, other long-term liabilities and provisions.
In 2013, we sold our one-third interest in TVtropolis after obtaining
regulatory approval
from the CRTC. We received proceeds of
$59 million and recorded a gain of $47 million in other income.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: INCOME TAXES
(In millions of dollars)
Current income taxes:
For current year
Adjustments from reassessment
Total current income taxes
Deferred tax expense (recovery):
Origination and reversal of temporary
2014
2013
497
14
511
513
–
513
differences
(5)
89
Revaluation of deferred tax balances
due to legislative and tax rate
changes
Recognition of previously unrecognized
deferred tax assets
Total deferred taxes
Total income taxes
DEFERRED TAX ASSETS AND LIABILITIES
(In millions of dollars)
Deferred tax assets
Deferred tax liabilities
Net deferred tax liability
–
–
(5)
506
8
(14)
83
596
2014
2013
9
(1,769)
31
(1,702)
(1,760)
(1,671)
The table below shows the difference between income tax expense
computed by applying the statutory income tax rate to income before
income taxes and the income tax expense for the year.
(In millions of dollars, except percentages)
2014
2013
Statutory income tax rate
Income before income taxes
Computed income tax expense
Increase (decrease) in income taxes resulting from:
Non-taxable portion of capital gains
Recognition of previously unrecognized deferred
tax assets
Non-(taxable) deductible stock-based compensation
Revaluation of deferred tax balances due to
legislative and tax rate changes
Adjustments from reassessment
Other items
Total income taxes
Effective income tax rate
26.5% 26.5%
1,847
2,265
489
600
(1)
–
(2)
–
14
6
(9)
(14)
8
8
–
3
506
596
27.4% 26.3%
The table below summarizes the movement of net deferred tax assets and liabilities during 2014 and 2013.
Deferred tax assets (liabilities)
(In millions of dollars)
January 1, 2014
(Expense) recovery in net income
Expense in other comprehensive income
Acquisitions
December 31, 2014
Deferred tax assets (liabilities)
(In millions of dollars)
January 1, 2013
(Expense) recovery in net income
Expense in other comprehensive income
Acquisitions
December 31, 2013
Property,
plant and
equipment
and
inventory
Goodwill
and other
intangibles
Stub period
income and
partnership
reserve
Non-capital
Investments
losses Other
Total
(752)
(137)
–
–
(889)
(429)
(110)
–
(9)
(548)
(594)
281
–
–
(313)
(27)
(4)
(49)
–
(80)
46
8
–
–
54
85
(33)
(35)
(1)
(1,671)
5
(84)
(10)
16
(1,760)
Property,
plant and
equipment
and
inventory
Goodwill
and other
intangibles
Stub period
income and
partnership
reserve
Non-capital
Investments
loss Other
Total
(601)
(135)
–
(16)
(752)
(360)
(9)
–
(60)
(429)
(735)
141
–
–
(594)
(4)
–
(23)
–
(27)
25
19
–
2
46
205
(99)
(26)
5
(1,470)
(83)
(49)
(69)
85
(1,671)
108 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
As at December 31, 2014 and 2013, we had not recognized deferred
tax assets for the following items.
(In millions of dollars)
2014
2013
Capital losses in Canada that can be applied
against future capital gains
Tax losses in foreign jurisdictions that expire from
2023 to 2033
Deductible temporary differences in foreign
jurisdictions
56
20
37
113
43
17
32
92
NOTE 13: EARNINGS PER SHARE
The table below shows the calculation of basic and diluted earnings
per share for 2014 and 2013.
(In millions of dollars, except per share amounts)
Numerator (basic) – Net income for the year
2014
1,341
2013
1,669
Denominator – Number of shares (in millions):
Weighted average number of shares
outstanding – basic
Effect of dilutive securities (in millions):
Employee stock options
Weighted average number of shares outstanding –
diluted
Earnings per share
Basic
Diluted
515
2
517
515
3
518
$ 2.60
$ 2.56
$ 3.24
$ 3.22
NOTE 14: ACCOUNTS RECEIVABLE
(In millions of dollars)
Trade accounts receivable
Other accounts receivable
Allowance for doubtful accounts
Total accounts receivable
NOTE 15: INVENTORIES
2014
1,307
382
(98)
1,591
2013
1,252
361
(104)
1,509
(In millions of dollars)
2014
2013
Wireless handsets and accessories
Other finished goods and merchandise
Total inventories
189
62
251
213
63
276
There are taxable temporary differences associated with our
investment in Canadian domestic subsidiaries. We do not record
deferred tax liabilities for temporary differences when we are able to
control the timing of the reversal, and the reversal is not probable in
the foreseeable future. Reversing these temporary differences would
not result in any significant tax implications.
Accounting for outstanding share-based payments using the equity-
settled method for stock-based compensation was determined to be
more dilutive in 2014 than using the cash-settled method. As a result,
net income for 2014 was reduced by $15 million (2013 – nil) in the
diluted earnings per share calculation to account for these awards as if
they were equity-settled.
A total of 1,257,117 options were out of the money for 2014 (2013 –
577,584). These options were excluded from the calculation since they
were anti-dilutive.
N
O
T
E
S
T
O
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Cost of equipment sales and merchandise for
$1,615 million (2013 – $1,667 million) of inventory costs.
resale includes
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16: FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
liquidity risk and market risk. Our
We are exposed to credit risk,
primary risk management objective is to protect our income and cash
flows and, ultimately, shareholder value. We design and implement the
risk management strategies discussed below to ensure our risks and
the related exposures are consistent with our business objectives and
risk tolerance. The table below shows our risk exposure by financial
instrument.
Financial instrument
Financial Risks
Financial assets
Cash and cash equivalents
Credit and foreign exchange
The table below provides an aging of our customer accounts
receivable as at December 31 and additional information related to the
allowance for doubtful accounts.
(In millions of dollars)
2014
2013
Customer accounts receivables (net of allowance
for doubtful accounts)
Less than 30 days past billing date
30-60 days past billing date
61-90 days past billing date
Greater than 90 days past billing date
713
326
108
62
695
291
94
68
Accounts receivable
Credit and foreign exchange
Total
1,209
1,148
Investments, available-for-sale
Market
Financial liabilities
Short-term borrowings
Accounts payable
Accrued liabilities
Long-term debt
Derivatives 1
Debt derivatives
Bond forwards
Expenditure derivatives
Equity derivatives
Liquidity
Liquidity
Liquidity
Liquidity, foreign exchange and
interest
Credit, liquidity and foreign
exchange
Credit, liquidity and interest
Credit, liquidity and foreign
exchange
Credit, liquidity and market
1 Derivatives can be in an asset or liability position at a point in time historically or in
the future.
CREDIT RISK
Credit risk represents the financial
loss we could experience if a
counterparty to a financial instrument, in which we have an amount
owing from the counterparty, failed to meet its obligations under the
terms and conditions of its contracts with us.
Our credit risk is primarily attributable to our accounts receivable. Our
broad customer base limits the concentration of this risk. Our accounts
receivable in the Consolidated Statements of Financial Position are net
of allowances for doubtful accounts, which management estimates
based on prior experience and an assessment of the current economic
environment. Management uses estimates to determine the allowance
factors such as our
taking into account
for doubtful accounts,
experience in collections and write-offs, the number of days the
counterparty is past due and the status of the account. We believe that
our allowance for doubtful accounts sufficiently reflects the related
credit risk associated with our accounts receivable. As at December 31,
2014, $461 million (December 31, 2013 – $452 million) of gross
accounts receivable are considered past due, which is defined as
amounts outstanding beyond normal credit terms and conditions for
the respective customers.
The activity related to our allowance for doubtful accounts is as follows:
(In millions of dollars)
2014
2013
Balance, beginning of the year
Allowance for doubtful accounts expense
Net use
Balance, end of the year
104
77
(83)
98
119
111
(126)
104
We use various internal controls, such as credit checks, deposits on
account and billing in advance, to mitigate credit risk. We monitor and
take appropriate action to suspend services when customers have fully
used their approved credit limits or violated established payment
terms. While our credit controls and processes have been effective in
managing credit risk, they cannot eliminate credit risk and there can be
no assurance that these controls will continue to be effective or that our
current credit loss experience will continue.
Credit risk related to our debt derivatives, bond forwards, expenditure
derivatives and equity derivatives (derivatives) arises from the
possibility that the counterparties to the agreements may default on
their obligations. We assess the creditworthiness of the counterparties
to minimize the risk of counterparty default, and do not require
collateral or other security to support the credit risk associated with
these derivatives. Counterparties to the entire portfolio of our
derivatives are financial institutions with a Standard & Poor’s rating (or
the equivalent) ranging from A- to AA-.
LIQUIDITY RISK
Liquidity risk is the risk that we will not be able to meet our financial
obligations as they fall due. We manage liquidity risk by managing our
commitments and maturities, capital structure and financial leverage,
as outlined in note 3. We also manage liquidity risk by continually
monitoring actual and projected cash flows to ensure that we will have
sufficient liquidity to meet our liabilities when due, under both normal
and stressed conditions, without incurring unacceptable losses or
risking damage to our reputation.
110 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
The tables below set out the undiscounted contractual maturities of our financial liabilities and the receivable components of our derivatives as at
December 31, 2014 and 2013.
December 31, 2014
(In millions of dollars)
Carrying
amount
Contractual
cash flows
Less than
1 year
Short-term borrowings
Accounts payable and accrued liabilities
Long-term debt
Other long-term financial liabilities
Expenditure derivative instruments:
Cash outflow (Canadian dollar)
Cash inflow (Canadian dollar equivalent of US dollar)
Equity derivative instruments
Debt derivative instruments:
Cash outflow (Canadian dollar)
Cash inflow (Canadian dollar equivalent of US dollar) 1
Bond forwards:
Cash outflow
Cash inflow
Net carrying amount of derivatives (asset)
842
2,578
14,787
26
–
–
–
–
–
–
–
(873)
842
2,578
14,895
26
1,050
(1,114)
30
6,313
(6,995)
14
(1)
842
2,578
963
–
790
(835)
30
905
(963)
3
–
1 to 3
years
–
–
1,750
12
260
(279)
–
–
–
3
–
4 to 5
years
–
–
2,524
9
–
–
–
More than
5 years
–
–
9,658
5
–
–
–
1,435
(1,624)
3,973
(4,408)
8
(1)
–
–
1 Represents Canadian dollar equivalent amount of US dollar inflows matched to an equal amount of US dollar maturities in long-term debt for debt derivatives.
17,360
17,638
4,313
1,746
2,351
9,228
N
O
T
E
S
T
O
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
December 31, 2013
(In millions of dollars)
Carrying
amount
Contractual
cash flows
Less than
1 year
Short-term borrowings
Accounts payable and accrued liabilities
Long-term debt
Other long-term financial liabilities
Expenditure derivative instruments:
Cash outflow (Canadian dollar)
Cash inflow (Canadian dollar equivalent of US dollar)
Equity derivative instruments
Debt derivative instruments:
Cash outflow (Canadian dollar)
Cash inflow (Canadian dollar equivalent of US dollar) 1
Net carrying amount of derivatives (asset)
650
2,344
13,343
38
–
–
–
–
–
(75)
1 to 3
years
–
–
1,883
14
–
–
–
4 to 5
years
–
–
1,989
18
–
–
–
More than
5 years
–
–
8,394
6
–
–
–
650
2,344
13,436
38
923
(957)
13
650
2,344
1,170
–
923
(957)
13
6,665
(6,786)
1,183
(1,170)
905
(883)
1,435
(1,489)
3,142
(3,244)
1 Represents Canadian dollar equivalent amount of US dollar inflows matched to an equal amount of US dollar maturities in long-term debt for debt derivatives.
16,300
16,326
4,156
1,919
1,953
8,298
The tables below show net interest payments over the life of the long-
term debt, including the impact of the associated debt derivatives as at
December 31, 2014 and 2013:
December 31, 2014
(In millions of dollars)
Net interest payments
December 31, 2013
(In millions of dollars)
Net interest payments
Less than
1 year
757
Less than
1 year
743
1 to 3
years
1,343
1 to 3
years
1,258
4 to 5
years
More than
5 years
1,143
6,022
4 to 5
years
More than
5 years
1,093
5,341
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARKET RISK
Market risk is the risk that changes in market prices, such as fluctuations
in the market prices of our available-for-sale investments, our share
price, foreign exchange rates and interest rates, will affect our income,
cash flows or the value of our financial instruments. The derivative
instruments we use to manage this risk are described in note 2.
The table below summarizes a sensitivity analysis for significant
exposures with respect to our publicly traded investments, equity
derivatives, expenditure derivatives and senior notes as at
December 31, 2014 and 2013 with all other variables held constant. It
shows how net income and other comprehensive income would have
been affected by changes in the relevant risk variables.
Market price risk – publicly traded investments
We manage risk related to fluctuations in the market prices of our
investments in publicly traded companies by regularly reviewing
publicly available information related to these investments to ensure
that any risks are within our established levels of risk tolerance. We do
not engage in risk management practices such as hedging, derivatives
or short selling with respect to our publicly traded investments.
Market price risk – Rogers Class B shares
Our liability related to stock-based compensation is marked-to-market
each period. Stock-based compensation expense is affected by the
change in the price of our Class B Non-Voting shares during the life of
an award, including SARs, RSUs and DSUs. We use equity derivatives
from time to time to manage our exposure in our stock-based
compensation liability. With respect to our stock-based compensation,
as a result of our equity derivatives, a one dollar change in the price of
a Rogers Non-Voting Class B share would have no effect on net
income.
Foreign exchange and interest rates
We use debt derivatives to manage risks from fluctuations in foreign
exchange rates associated with our US dollar-denominated debt
instruments, designating the debt derivatives as hedges of specific
debt
instruments for accounting purposes. We use expenditure
derivatives to manage the foreign exchange risk in our operations,
designating them as hedges for certain of our forecasted operational
and capital expenditures. As at December 31, 2014, all of our US
dollar-denominated long-term debt was hedged against fluctuations in
foreign exchange rates using debt derivatives. With respect to our
long-term debt, as a result of our debt derivatives, a one cent change
in the Canadian dollar relative to the US dollar would have no effect on
net income.
We are exposed to risk of changes in market interest rates due to the
impact this has on interest expense for our short-term borrowings and
our $250 million floating rate senior unsecured notes. As at
December 31, 2014, 92.7% of our outstanding long-term debt and
short-term borrowings was at fixed interest rates.
A portion of our accounts receivable and accounts payable and
accrued liabilities is denominated in US dollars. Due to the short-term
nature of these receivables and payables, they carry no significant
risk from fluctuations in foreign exchange rates as at
market
December 31, 2014.
112 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
(Change in millions of dollars)
Share price of publicly traded investments
$1 change
Expenditure derivatives – change in foreign
exchange rate $0.01 change in Cdn$
relative to US$
Short-term borrowings 1% change in
interest rates
Senior notes (floating) 1% change in interest
rates
Other
comprehensive
income
2013
2014
14
14
7
–
–
7
–
–
Net income
2014
2013
–
–
6
2
–
–
4
–
DERIVATIVE INSTRUMENTS
As at December 31, 2014, all of our US dollar-denominated long-term
debt
fluctuations in foreign
exchange rates for accounting purposes.
instruments were hedged against
The tables below show our derivatives net asset (liability) position as at
December 31, 2014 and 2013.
December 31, 2014 (In millions of dollars,
except exchange rate)
Notional
amount
(US$)
Exchange
rate
Notional
amount
(Cdn$)
Fair
value
Debt derivatives:
As assets
As liabilities
Net mark-to-market asset debt derivatives
5,725
305
1.0396
1.1857
5,952
362
853
(7)
846
1
(14)
(30)
250
1,650
960
1.0940
1,050
70
873
Bond forwards:
As assets
As liabilities
Equity derivatives:
As liabilities
Expenditure derivatives:
As assets
Net mark-to-market asset
December 31, 2013
(In millions of dollars, except exchange
rate)
Notional
amount
(US$)
Exchange
rate
Notional
amount
(Cdn$)
Fair
value
Debt derivatives:
As assets
As liabilities
Net mark-to-market asset debt derivatives
Equity derivatives:
As liabilities
Expenditure derivatives:
As assets
Net mark-to-market asset
4,250
2,130
1.0285
1.0769
4,371
2,294
184
(133)
51
(13)
37
75
900
1.0262
923
N
O
T
E
S
T
O
C
O
N
S
O
L
I
D
A
T
E
D
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
The table below shows derivative instruments asset and derivative
instruments liability reflected in our Consolidated Statements of
Financial Position.
New debt derivatives to hedge new senior notes
During 2014 and 2013, we entered into the following debt derivatives
to hedge senior notes issued during the year.
(In millions of dollars)
Current asset
Long-term asset
Current liability
Long-term liability
Net mark-to-market asset
2014
2013
136
788
924
(40)
(11)
(51)
873
73
148
221
(63)
(83)
(146)
75
In 2014, we recorded a $2 million decrease to net income related to
hedge ineffectiveness (2013 – $4 million increase).
Debt derivatives
We completed the following transactions related to our debt
derivatives in 2014 and 2013:
• entered into new debt derivatives to hedge senior notes issued;
• settled maturing debt derivatives in conjunction with the repayment
or repurchase of related senior notes; and
• terminated existing debt derivatives and entered into new debt
derivatives with different terms to hedge existing senior notes.
All of our currently outstanding debt derivatives have been designated
as effective hedges against specific foreign exchange risk for
accounting purposes as described above.
(In millions of
dollars, except
for coupon and
interest rates)
Effective date
March 10, 2014
March 7, 2013
March 7, 2013
Subtotal
October 2, 2013
October 2, 2013
Subtotal
Total for 2013
Principal/
notional
amount
(US$)
750
500
500
1,000
850
650
1,500
2,500
US$
Hedging effect
Fixed
hedged
Cdn$
interest
rate 1
Equivalent
(Cdn$)
Maturity
date
Coupon
rate
2044
5.00%
4.99%
2023
2043
3.00%
4.50%
3.62%
4.60%
2023
2043
4.10%
5.45%
4.59%
5.61%
832
515
515
1,030
877
671
1,548
2,578
1 Converting from a fixed US$ coupon rate to a weighted average Cdn$ fixed rate.
Matured debt derivatives
During 2014 and 2013, the following debt derivatives matured in
conjunction with the repayment or repurchase of the related senior
notes (see note 30).
(In millions of dollars)
Maturity date
March 1, 2014
March 15, 2014
Total for 2014
June 17, 2013
Notional Amount
(US$)
Net cash
settlement (proceeds)
(Cdn$)
750
350
1,100
350
(61)
26
(35)
104
Terminated and replaced debt derivatives
During 2013, we terminated existing debt derivatives and entered into new debt derivatives with different terms to hedge existing senior notes.
(In millions of dollars)
Terminated debt derivatives
New debt derivatives
Hedging effect
Termination date
March 6, 2013
Sept. 27, 2013
Notional
amount
(US$)
Original
maturity
date
Cash
settlement
(Cdn$) 1
Date
entered
350
1,075
2018
2014-2015
–
263
March 6, 2013
Sept. 27, 2013
Derivative
amount
(US$)
Net
maturity
date
350
1,075
2038
2014-2015
Fixed
weighted
average 2
7.62%
7.42%
Fixed
Canadian
equivalent 3
359
1,110
1 See note 30
2 Converting from a fixed US$ coupon rate to a weighted average Cdn$ fixed rate
3 Converting from a fixed US$ principal amount to a fixed Cdn$ principal amount.
The March 6, 2013 termination is related to debt derivatives hedging
the US$350 million senior notes due 2038 (2038 Notes). The debt
derivatives that were terminated on March 6, 2013 were not
designated as effective hedges for accounting purposes and had an
original term of 10 years to August 15, 2018. The new debt derivatives
hedge the foreign exchange risk associated with the principal and
interest obligations on the 2038 Notes to their maturity at market rates
on the respective dates of the transactions and are designated as
effective hedges for accounting purposes.
The September 27, 2013 termination is related to debt derivatives
hedging senior notes that were scheduled to mature in 2014 and
2015. Only the fixed foreign exchange rate differed between the new
debt derivatives and the terminated debt derivatives. All other terms
are the same as the terminated debt derivatives they replaced. Before
the debt derivatives were terminated on September 27, 2013, changes
in their fair value were recorded in other comprehensive income and
were periodically reclassified to net income to offset foreign exchange
gains or losses on the related debt or to modify interest expense to its
hedged amount. On the termination date, the balance in the hedging
reserve related to these debt derivatives was a $10 million loss.
$1 million of this related to future periodic exchanges of interest and
will be recorded in net income over the remaining life of the related
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
debt securities. The remaining $8 million, net of income taxes of
$1 million, will remain in the hedging reserve until such time as the
related debt is settled.
Repayment of senior notes and related derivative settlements
During 2014, we repaid or
repurchased our US$750 million
($834 million) and US$350 million ($387 million) senior notes due
In addition, the debt
2014, totalling $1,221 million (see note 30).
derivatives related to these senior notes matured in March 2014.
Upon the repayment or repurchase of these senior notes, a $29 million
loss, which was deferred in the hedging reserve in the prior years, was
recognized in net income (see note 10). This loss relates to transactions
in 2008 and 2013 where contractual foreign exchange rates on the
related debt derivatives were renegotiated to then current rates.
As at December 31, 2014 we have US$6.0 billion (2013 –
US$6.4 billion) of US dollar-denominated senior notes and
debentures, all of which have been hedged using debt derivatives
(2013 – 100 %).
In June 2013, when we repaid or repurchased our US$350 million
($356 million) senior notes due 2013, the associated debt derivatives
were settled at maturity, resulting in total payments of approximately
$104 million. The settlements of these debt derivatives did not impact
net income for the year ended December 31, 2014.
Bond forwards
We use bond forward derivatives (bond forwards) to hedge interest
rate risk on the senior notes we expect to issue in the future. We use
bond forwards for risk-management purposes only.
During 2014, we entered into bond forwards to hedge the underlying
Government of Canada (GoC) interest rate risk that will comprise a
portion of the interest rate risk associated with our anticipated future
debt issuances. As a result of these bond forwards, we have hedged
the underlying GoC 10-year rate on $1.5 billion notional amount for
issuances from 2015 to 2018 and the
anticipated future debt
underlying GoC 30-year rate on $0.4 billion notional amount for
December 31, 2018. The bond forwards are effective from December
2014. There was no bond forward activity or balances in 2013.
(In millions of dollars, except interest rates)
GoC term (years) Maturity date 1
Interest rate 1 Notional amount
Initial GoC
10
10
10
30
Total
Dec 31, 2015
Dec 31, 2016
Apr 30, 2018
Dec 31, 2018
2.05%
2.04%
2.07%
2.41%
500
500
500
400
1,900
1 Bond forwards with maturity dates beyond December 31, 2015 are subject to GoC
rate re-setting from time to time.
Expenditure derivatives
We use foreign currency forward contracts (expenditure derivatives) to
hedge the foreign exchange risk on the notional amount of certain
forecasted expenditures. We use expenditure derivatives for risk-
management purposes only.
114 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
We entered into expenditure derivatives to manage foreign exchange
risk on certain forecasted expenditures as follows:
(In millions of dollars, except exchange rates)
Notional
Trade date
February 2014
May 2014
June 2014
July 2014
Maturity dates
January 2015 to
April 2015
May 2015 to
December 2015
January 2015 to
December 2015
January 2016 to
December 2016
Total as at December 31, 2014
July 2011
September 2013
January 2014 to
July 2014
January 2014 to
December 2014
Total as at December 31, 2013
Notional
amount
(US$)
Exchange
Rate
Converted
amount
(Cdn$)
200
1.1100
232
1.0948
288
1.0903
222
254
314
260
1.0833
240
960
1.0940
1,050
140
0.9643
760
900
1.0368
1.0256
135
788
923
The expenditure derivatives noted above have been designated as
hedges for accounting purposes. In the year ended December 31,
2014, we settled US$900 million (2013 — US$435 million) of
expenditure derivatives for $923 million (2013 — $430 million). All of
our
currently outstanding expenditure derivatives have been
designated as effective hedges against foreign exchange risk for
accounting purposes.
Equity derivatives
We use stock-based compensation derivatives (equity derivatives) to
hedge the market price appreciation risk of the RCI Class B shares
granted under our stock-based compensation programs. We use
equity derivatives for risk-management purposes only.
In 2013, we entered into equity derivatives to hedge market price
appreciation risk associated of 5.7 million RCI Class B Non-Voting
shares that have been granted under our stock-based compensation
programs for stock options, restricted share units (RSUs) and deferred
share units (DSUs) (see note 25). The equity derivatives were entered
into at a weighted average price of $50.37 with original terms to
maturity of one year, extendible for further one year periods with the
consent of the hedge counterparties. In 2014, we executed extension
agreements for each of our equity derivative contracts under
substantially the same committed terms and conditions with revised
expiry dates to April 2015 (from April 2014). The equity derivatives
have not been designated as hedges for accounting purposes.
During 2014, we recognized an expense, net of interest receipts of
$10 million (2013 — $8 million), in stock-based compensation expense
related to the change in fair value of our equity derivative contracts net
of received payments. As of December 31, 2014, the fair value of the
equity derivatives was a liability of $30 million (December 31, 2013 —
$13 million), which is included in the current portion of derivative
instruments liabilities.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable,
short-term borrowings, and accounts payable and accrued liabilities
approximate their fair values because of the short-term nature of these
financial instruments.
We determine the fair value of each of our publicly traded investments
using quoted market values. We determine the fair value of our private
investments by using implied valuations from follow-on financing
rounds, third party sale negotiations, or market-based approaches.
These are applied appropriately to each investment depending on its
future operating and profitability prospects.
The fair values of each of our public debt instruments are based on the
year-end estimated market yields. We determine the fair values of our
debt derivatives and expenditure derivatives using an estimated credit-
adjusted mark-to-market valuation by discounting cash flows to the
measurement date. In the case of debt derivatives and expenditure
derivatives in an asset position, the credit spread for the financial
institution counterparty is added to the risk-free discount rate to
determine the estimated credit-adjusted value for each derivative. For
these debt derivatives and expenditure derivatives in a liability
position, our credit spread is added to the risk-free discount rate for
each derivative.
The fair values of our equity derivatives are based on the quoted
market value of RCI’s Class B Non-Voting shares.
Fair value estimates are made at a specific point in time based on
relevant market
the financial
instruments. The estimates are subjective in nature and involve
uncertainties and matters of judgement.
information and information about
fair value hierarchy reflects the
Our disclosure of the three-level
significance of the inputs used in measuring fair value:
• Financial assets and financial
liabilities in Level 1 are valued by
referring to quoted prices in active markets for identical assets and
liabilities.
• Financial assets and financial liabilities in Level 2 are valued using
inputs based on observable market data, either directly or indirectly,
other than the quoted prices.
• Level 3 valuations are based on inputs that are not based on
observable market data.
There were no material financial instruments categorized in Level 3 as
at December 31, 2014 and 2013 and there were no transfers between
Level 1 and Level 2 during the respective periods.
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The table below shows the financial instruments carried at fair value by valuation method as at December 31, 2014 and 2013.
(In millions of dollars)
Financial assets
Available-for-sale, measured at fair value:
Investments in publicly traded companies
Held-for-trading:
Debt derivatives accounted for as cash flow hedges
Bond forwards accounted for as cash flow hedges
Expenditure derivatives accounted for as cash flow hedges
Total financial assets
Financial liabilities
Held-for-trading:
Carrying value
Level 1
Level 2
2014
2013
2014
2013
2014
2013
1,130
809
1,130
809
–
–
853
1
70
184
–
37
–
–
–
–
–
–
2,054
1,030
1,130
809
853
1
70
924
7
14
30
51
184
–
37
221
133
–
13
146
Debt derivatives accounted for as cash flow hedges
Bond forwards accounted for as cash flow hedges
Equity derivatives not accounted for as cash flow hedges
Total financial liabilities
7
14
30
51
133
–
13
146
–
–
–
–
–
–
–
–
The fair value of our long-term debt as at December 31 is estimated as follows:
(In millions of dollars)
Long-term debt (including current portion)
Carrying
amount
2014
Fair
value 1
Carrying
amount
2013
Fair
value 1
14,787
16,584
13,343
14,463
1 Long-term debt (including current portion) is measured at level 2 in the three-level fair value hierarchy, based on year-end trading values.
We did not have any non-derivative held-to-maturity financial assets during the years ended December 31, 2014 and 2013.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17: INVESTMENTS
(In millions of dollars)
Investments in:
Publicly traded companies
Private companies
Investments, available-for-sale
Investments, associates and joint ventures
Total investments
2014
2013
1,130
161
1,291
607
809
103
912
575
1,898
1,487
INVESTMENTS, AVAILABLE-FOR-SALE
Publicly Traded Companies
We hold interests in a number of publicly traded companies. This year
we recorded realized gains of $3 million and unrealized gains of $325
million (2013 – $13 million of realized gains and $186 million of
unrealized gains) with a corresponding increase in net income and
other comprehensive income, respectively.
INVESTMENTS, ASSOCIATES AND JOINT VENTURES
We have interests in a number of associates and joint ventures, some
of which include:
Maple Leaf Sports and Entertainment Limited (MLSE)
MLSE, a sports and entertainment company, owns and operates the
Air Canada Centre, the NHL’s Toronto Maple Leafs, the NBA’s Toronto
Raptors, the MLS’ Toronto FC, the AHL’s Toronto Marlies and other
assets. We, along with BCE Inc., jointly own an indirect net 75% equity
interest in MLSE with our portion representing a 37.5% equity interest
in MLSE. Our investment in MLSE is a joint venture and is accounted for
using the equity method.
shomi
In 2014, we entered into a joint venture equally owned by Rogers and
Shaw Communications Inc. to develop, launch and operate a premium
subscription video-on-demand service offering movies and television
NOTE 18: OTHER LONG-TERM ASSETS
series for viewing on-line and through cable set-top boxes. Our
investment in shomi is a joint venture and is accounted for using the
equity method.
Inukshuk
Inukshuk is a joint operation owned 50% by each Rogers and BCE Inc.
that was
fixed wireless
telecommunications network to be used by the partners and their
subsidiaries.
created to
national
operate
a
The following tables provide summary financial information on all our
material associates and joint ventures and our portions thereof. We
record our investments in joint ventures and associates using the
equity method.
(In millions of dollars)
Current assets
Long-term assets
Current liabilities
Long-term liabilities
Total net assets
Our share of net assets
Revenues
Expenses
Total net (loss) income
Our share of net (loss) income
2014
2013
261
2,577
432
1,247
153
2,434
334
1,146
1,159
1,108
580
554
714
736
(22)
(11)
648
644
4
2
Some of our joint ventures have non-controlling shareholders that have
a right to require our joint venture to purchase the non-controlling
interest at a future date.
(In millions of dollars)
Spectrum licence deposits
Other
Total other long-term assets
2014
2013
250
106
356
250
147
397
In 2013, we paid total deposits of $250 million for the option to
purchase Shaw’s Advanced Wireless Services (AWS) spectrum
the agreement,
holdings pending regulatory approval. Under
$200 million of this balance is refundable if the transaction does not
close.
116 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
NOTE 19: SHORT-TERM BORROWINGS
We entered into an accounts receivable securitization program with a
Canadian financial
institution effective December 31, 2012, which
allows us to sell certain trade receivables into the program. As at
December 31, 2014, the proceeds of the sales were committed up to a
maximum of $900 million (2013 – $900 million). Effective January 1,
2015, we amended the terms of the accounts receivable securitization
program,
increasing the maximum potential proceeds under the
program to $1.05 billion and extending the term of the program to
January 1, 2018.
We received funding of $192 million, net of repayments under the
program in 2014. We continue to service and retain substantially all of
the risks and rewards relating to the accounts receivables we sold, and
therefore, the receivables remain recognized on our Consolidated
NOTE 20: PROVISIONS
The table below shows our provisions and their classification between
current and long-term as at December 31, 2014 and 2013.
(In millions of dollars)
liabilities Other Total
Decommissioning
December 31, 2013
Additions
Adjustments to existing provisions
Amounts used
December 31, 2014
Current
Long-term
31
1
1
–
33
2
31
16
21
(6)
(2)
29
5
24
47
22
(5)
(2)
62
7
55
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Statements of Financial Position and the funding received is recorded
as short-term borrowings. The buyer’s interest
in these trade
receivables ranks ahead of our interest. The program restricts us from
using the receivables as collateral for any other purpose. The buyer of
our trade receivables has no claim on any of our other assets.
(In millions of dollars)
2014
2013
Trade accounts receivable sold to buyer as security
Short-term borrowings from buyer
1,135
(842)
1,091
(650)
Overcollateralization
293
441
We incurred interest costs of $14 million in 2014 (2013 — $7 million)
which we recorded in finance costs.
Cash outflows associated with our decommissioning liabilities are
generally expected to occur at the decommissioning dates of the
assets to which they relate, which are long-term in nature. The timing
and extent of restoration work that will be ultimately required for these
sites is uncertain.
Other provisions include onerous contracts and legal claims, which are
expected to be settled in one to five years.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21: LONG-TERM DEBT
(In millions of dollars, except interest rates)
Bank credit facility
Senior notes 1
Senior notes 2
Senior notes 1
Senior notes 2
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Debentures 1
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Deferred transaction costs and discounts
Less current portion
Total long-term debt
Due
date
2014
2014
2015
2015
2016
2017
2017
2018
2019
2019
2020
2021
2022
2023
2023
2024
2032
2038
2039
2040
2041
2043
2043
2044
US
US
US
US
US
US
US
US
US
US
US
US
Principal
amount
750
350
550
280
1,000
500
250
1,400
400
500
900
1,450
600
500
850
600
200
350
500
800
400
500
650
750
Interest
rate
Floating
6.375%
5.50%
7.50%
6.75%
5.80%
3.00%
Floating
6.80%
2.80%
5.38%
4.70%
5.34%
4.00%
3.00%
4.10%
4.00%
8.75%
7.50%
6.68%
6.11%
6.56%
4.50%
5.45%
5.00%
2014
–
–
–
638
325
1,000
500
250
1,624
400
500
900
1,450
600
580
986
600
232
406
500
800
400
580
754
870
2013
–
798
372
585
298
1,000
500
–
1,489
–
500
900
1,450
600
532
904
–
213
372
500
800
400
532
691
–
14,895
(108)
(963)
13,436
(93)
(1,170)
13,824
12,173
1 Senior notes originally issued by Rogers Wireless Inc. which are now unsecured obligations of RCI and for which RCP is an unsecured co-obligor.
2 Senior notes and debentures originally issued by Rogers Cable Inc. which are now unsecured obligations of RCI and for which RCP is an unsecured guarantor.
Each of the above senior notes are unsecured and guaranteed by RCP,
ranking equally with all of RCI’s other senior notes and debentures,
bank credit facility and letter of credit facilities. We use derivatives to
hedge the foreign exchange risk associated with the principal and
interest components of all of our US dollar-denominated senior notes
and debentures (see note 16).
WEIGHTED AVERAGE INTEREST RATE
Our effective weighted average rate on all debt and short-term
borrowings, as at December 31, 2014, including the effect of all of the
associated debt derivative instruments, was 5.2% (2013 – 5.5%).
BANK CREDIT AND LETTER OF CREDIT FACILITIES
Effective April 16, 2014, we re-negotiated the terms of our bank credit
facility to increase the amount available from $2.0 billion to $2.5 billion
while extending the maturity date from July 20, 2017 to July 19, 2019.
The $2.5 billion bank credit facility is available on a fully revolving basis
until maturity and there are no scheduled reductions prior to maturity.
The interest rate charged on borrowings from the bank credit facility
ranges from nil to 1.25% per annum over the bank prime rate or base
rate, or 0.85% to 2.25% (1.00% to 2.25% prior to April 1, 2014) over the
bankers’ acceptance rate or London Inter-Bank Offered Rate.
the return and cancellation of
In April 2014, we arranged for
approximately $0.4 billion of letters of credit that were issued in
relation to the 700 MHz spectrum auction completed in early 2014 and
the corresponding letter of credit facility was permanently cancelled.
As at December 31, 2014, we had a maximum of $2.6 billion of
borrowings available under our bank credit facilities (December 31,
2013 – $2.5 billion), of which there was approximately $0.1 billion
utilized under these facilities related to outstanding letters of credit
(December 31, 2013 – $0.5 billion of letters of credit).
Each of these facilities is unsecured and guaranteed by RCP and ranks
equally with all of our senior notes and debentures.
SENIOR NOTES
Interest is paid on our senior notes as follows:
• semi-annually on all of our fixed rate senior notes and debentures;
and
• quarterly on our floating rate senior notes.
We have the option to redeem each of our fixed rate senior notes and
debentures, in whole or in part, at any time, if we pay the premiums
specified in the corresponding agreements.
118 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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Issuance of senior notes
The table below provides a summary of the senior notes that we issued in 2014 and 2013 (see note 30).
(In millions of dollars, except interest and discount rates)
Date
Issued
2014 issuances
March 10, 2014
March 10, 2014
March 10, 2014
March 10, 2014
Total for 2014
2013 issuances
March 7, 2013
March 7, 2013
October 2, 2013
October 2, 2013
Total for 2013
Principal amount
Due
date
Interest
rate
Discount at
issuance
Total
gross proceeds 1
(Cdn$)
Transaction costs
and discounts 2
(Cdn$)
250
400
600
US 750
2017
2019
2024
2044
Floating
2.80%
4.00%
5.00%
100.000%
99.972%
99.706%
99.231%
US 500
US 500
US 850
US 650
2023
2043
2023
2043
3.00%
4.50%
4.10%
5.45%
99.845%
99.055%
99.813%
99.401%
250
400
600
832
2,082
515
515
877
671
2,578
24
35
1 Gross proceeds before transaction costs and discounts (see note 30)
2 Transaction costs and discounts are included as deferred transaction costs and discounts in the carrying value of the long-term debt, and recognized in net income using the
effective interest method.
Repayment of senior notes and related derivative settlements
During 2014, we repaid or
repurchased our US$750 million
($834 million) and US$350 million ($387 million) senior notes due
In addition, the debt
2014, totalling $1,221 million (see note 30).
derivatives related to these senior notes matured in March 2014.
During 2013, we repaid or
repurchased our US$350 million
($356 million) senior notes due June 2013 (see note 30). At the same
time, the associated debt derivatives were also settled at maturity.
FOREIGN EXCHANGE
We recorded $11 million and $23 million in foreign exchange losses in
2014 and 2013 in finance costs in the Consolidated Statements of
Income. The majority of these losses in 2013 related to the translation
of long-term debt that was not hedged on an accounting basis. 100%
of the foreign exchange risk related to the principal and interest
components of our US dollar-denominated debt was hedged for
accounting purposes throughout 2014.
PRINCIPAL REPAYMENTS
The table below shows the principal repayments on our long-term
debt due in each of
five years and thereafter as at
December 31, 2014.
the next
(In millions of dollars)
2015
2016
2017
2018
2019
Thereafter
963
1,000
750
1,624
900
9,658
14,895
TERMS AND CONDITIONS
As at December 31, 2014 and 2013, we were in compliance with all
financial covenants, financial ratios and all of the terms and conditions
of our long-term debt agreements. There were no financial leverage
covenants in effect other than those under our bank credit and letter of
credit facilities.
The 8.75% debentures due in 2032 contain debt incurrence tests and
restrictions on additional investments, sales of assets and payment of
dividends, all of which are suspended in the event the public debt
securities are assigned investment grade ratings by at least two of
three specified credit rating agencies. As at December 31, 2014, these
public debt securities were assigned an investment grade rating by
each of the three specified credit rating agencies and, accordingly,
these restrictions have been suspended as long as the investment
grade ratings are maintained. Our other senior notes do not have any
of these restrictions, regardless of the related credit ratings. The
repayment dates of certain debt agreements can also be accelerated if
there is a change in control of RCI.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22: OTHER LONG-TERM LIABILITIES
(In millions of dollars)
Note
2014
2013
Deferred pension liability
Supplemental executive retirement plan
Stock-based compensation
Other
Total other long-term liabilities
23
23
25
321
56
37
48
462
189
49
36
54
328
NOTE 23: POST-EMPLOYMENT BENEFITS
We have contributory and non-contributory defined benefit pension
plans that are made available to most of our employees. The plans
provide pensions based on years of service, years of contributions and
earnings. We do not provide any non-pension post-retirement
benefits. We also provide unfunded supplemental pension benefits to
certain executives.
We sponsor a number of pension arrangements for employees,
including defined benefit and defined contributions plans. The Rogers
Defined Benefit Plan provides a defined pension based on years of
service and earnings, and with no increases in retirement
for
inflation. Participation in the plan is voluntary and enrolled employees
are required to make regular contributions into the plan. In 2009 and
2011, we purchased group annuities for our then retirees. Accordingly,
the current plan members are primarily active Rogers employees as
opposed to retirees. An unfunded supplemental pension plan is
provided to certain senior executives to provide benefits in excess of
amounts that can be provided from the defined pension plan under
the Canada Income Tax Act’s maximum pension limits.
We also sponsor smaller defined benefit pension plans in addition to the
Rogers Defined Benefit Plan. The Pension Plan for Employees of Rogers
Communications Inc. and the Rogers Pension Plan for Selkirk Employees
are legacy closed defined benefit pension plans. The Pension Plan for
Certain
Rogers Cable
Communications Inc. is similar to the main pension plan but only federally
regulated Cable business employees are eligible to participate.
Employees
Regulated
Federally
of
In addition to the defined benefit pension plans, we also provide defined
contributions plans to certain unionized New Brunswick employees,
employees of the Toronto Blue Jays and Rogers Centre, and some US
subsidiaries. Additionally, we also provide other tax-deferred savings
arrangements including a Group RRSP and a Group TFSA program which
are accounted for as deferred contribution arrangements.
The assets of the defined benefit pension plans are held in segregated
accounts isolated from our assets. We administer the defined benefit
pension plans pursuant to applicable regulations, the Statement of
Investment Policies and Procedures and to the mandate of the Pension
Committee of the Board of Directors. The Pension Committee of the
Board of Directors oversees our administration of the defined benefit
pension plans, which includes the following principal areas:
• overseeing the funding, administration, communication and
investment management of the plans;
120 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
• selecting and monitoring the performance of all
third parties
performing duties in respect of the plans, including audit, actuarial
and investment management services;
• proposing, considering and approving amendments to the defined
benefit pension plans;
• proposing, considering and approving amendments of
the
Statement of Investment Policies and Procedures;
• reviewing management and actuarial reports prepared in respect of
the administration of the defined benefit pension plans; and
• reviewing and approving the audited financial statements of the
defined benefit pension plan funds.
The assets of the defined benefit pension plans are invested and
managed following all applicable regulations and the Statement of
Investment Policies and Procedures with the objective of having
adequate funds to pay the benefits promised by the plan, and reflect
the characteristics and asset mix of each defined benefit pension plan.
Investment and market return risk is managed by:
• contracting professional
investment managers to execute the
investment strategy following the Statement of Investment Policies
and Procedures and regulatory requirements;
• specifying the kinds of investments that can be held in the plans and
monitoring compliance;
• using asset allocation and diversification strategies; and
• purchasing annuities from time to time.
The funded pension plans are registered with the Office of the
Superintendent of Financial Institutions and are subject to the Federal
Pension Benefits Standards Act. The plans are also registered with the
Canada Revenue Agency and are subject to the Canada Income Tax
Act. The benefits provided under the plans and the contributions to
the plans are funded and administered in accordance with all
applicable legislation and regulations.
Significant estimates are involved in determining pension-related
balances. Actuarial estimates are based on projections of employees’
compensation levels at the time of retirement. Maximum retirement
benefits are primarily based on career average earnings, subject to
certain adjustments. The most
recent actuarial valuations were
completed as at January 1, 2014.
There are risks related to contribution increases,
inadequate plan
surplus, unfunded obligations and return risk for the defined benefit
pension plans, which we mitigate through the governance described
above.
The table below sets out the estimated present value of accrued plan
benefits and the estimated market value of the net assets available to
provide these benefits for our funded plans as at December 31, 2014
and December 31, 2013.
(In millions of dollars)
Equity securities
Debt securities
Other – cash
(In millions of dollars)
Plan assets, at fair value
Accrued benefit obligations
Deficiency of plan assets over accrued benefit
obligations
Effect of asset ceiling limit
Net deferred pension liability
Consists of:
Deferred pension asset
Deferred pension liability
Net deferred pension liability
2014
2013
1,285
1,592
1,037
1,209
(307)
(7)
(172)
(9)
(314)
(181)
7
(321)
8
(189)
(314)
(181)
(In millions of dollars)
Plan cost:
Service cost
Net interest cost
Net pension expense
Administrative expense
Total fair value of plan assets
The table below shows our net pension expense for 2014 and 2013.
Net interest cost is included in finance costs and other pension
expenses are included in the salaries and benefits expense in the
Consolidated Statements of Income.
2014
2013
774
506
5
631
403
3
1,285
1,037
2014
2013
70
4
74
2
76
71
12
83
2
85
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The table below shows our pension fund assets for 2014 and 2013.
Total pension cost recognized in net income
(In millions of dollars)
2014
2013
Plan assets, January 1
Interest income
Remeasurements, return on plan assets recognized
in other comprehensive income and equity
Contributions by employees
Contributions by employer
Benefits paid
Administrative expenses paid from plan assets
1,037
57
94
30
106
(37)
(2)
833
40
65
26
101
(26)
(2)
Net interest cost, a component of the plan cost above is included in
finance costs and is outlined as follows.
(In millions of dollars)
Net interest cost:
Interest income on plan assets
Interest cost on plan obligation
Net interest cost recognized in finance costs
2014
2013
(57)
61
4
(40)
52
12
Plan assets, December 31
1,285
1,037
The remeasurement recognized in other comprehensive income, is
determined as follows.
The table below shows the accrued benefit obligations arising from
funded obligations for the years ended December 31, 2014 and 2013.
(In millions of dollars)
Accrued benefit obligations, January 1
Service cost
Interest cost
Benefits paid
Contributions by employees
Remeasurements, recognized in other
comprehensive income and equity
2014
2013
1,209
70
61
(37)
30
1,167
71
52
(26)
26
259
(81)
Accrued benefit obligations, December 31
1,592
1,209
The table below shows the effect of the asset ceiling for the years
ended December 31, 2014 and 2013.
(In millions of dollars)
2014
2013
Asset ceiling, January 1
Interest expense
Remeasurements, change in asset ceiling (excluding
interest expense)
Asset ceiling, December 31
(9)
(1)
3
(7)
–
–
(9)
(9)
Plan assets are comprised mainly of pooled funds that invest in
common stocks and bonds that are traded in an active market. The
table below shows the fair value of the total pension plan assets by
major category for the years ended December 31, 2014 and 2013.
(In millions of dollars)
Return on plan assets (excluding interest income)
Change in financial assumptions
Change in demographic assumptions
Effect of experience adjustments
Change in asset ceiling
2014
2013
94
(265)
15
(9)
2
65
140
(43)
(16)
(9)
Remeasurement (loss) income recognized in other
comprehensive income and equity
(163)
137
We also provide supplemental unfunded pension benefits to certain
executives. The table below includes our accrued benefit obligations,
pension expense included in employee salaries and benefits, net
interest cost and other comprehensive income.
(In millions of dollars)
Accrued benefit obligation, beginning of the year
Pension expense included in employee salaries and
benefits expense
Net interest cost recognized in finance costs
Remeasurement recognized in other comprehensive
income
Benefits paid
Accrued benefit obligation, end of the year
2014
2013
49
45
2
2
5
(2)
56
2
2
3
(3)
49
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain subsidiaries have defined contribution plans with total pension
expense of $2 million in 2014 (2013 — $2 million), which is included in
employee salaries and benefits expense.
ALLOCATION OF PLAN ASSETS
ASSUMPTIONS
There are significant assumptions that are used in the calculations
provided by our actuaries, and it is the responsibility of management
to determine which assumptions could result in a significant impact
when determining the accrued benefit obligations and pension
expense.
Equity securities:
Domestic
International
Debt securities
Other — cash
Allocation of plan assets
2014
2013
Target asset
allocation
percentage
20.3%
40.0%
39.4%
0.3%
20.1% 10% to 29%
40.7% 29% to 48%
38.9% 38% to 47%
0% to 2%
0.3%
100.0%
100.0%
Principal actuarial assumptions
Weighted average of
significant assumptions:
Defined benefit obligation
Discount rate
Rate of compensation
increase
Mortality rate
Pension expense
Discount rate
Rate of compensation
increase
Mortality rate
2014
2013
4.1%
5.1%
3.0%
CIA Private
with CPM B Scale
3.0%
CIA Private
with CPM A Scale
Plan assets consist primarily of pooled funds that invest in common
stocks and bonds. The pooled Canadian equity funds have
investments in our equity securities. As a result, approximately
$3 million (2013 — $3 million) of the plans’ assets are indirectly invested
in our own equity securities.
We make contributions to the plans to secure the benefits of plan
members and invest in permitted investments using the target ranges
established by our Pension Committee, which reviews actuarial
assumptions on an annual basis.
4.5%
The table below shows the actual contributions to the plans for the
years ended December 31:
3.0%
UP94
Generational
(In millions of dollars)
Employer contribution
Employee contribution
Total contribution
2014
2013
106
30
136
101
26
127
5.1%
3.0%
CIA Private
with CPM A Scale
We estimate our 2015 employer contributions to be $117 million. The
average duration of the defined benefit obligation as at December 31,
2014 is 20 years (December 31, 2013 — 19 years).
Actual return on plan assets was $149 million in 2014 (2013 –
$102 million).
We have recognized a cumulative loss in other comprehensive income
and retained earnings of $324 million as at December 31, 2014
(December 31, 2013 – $201 million).
Sensitivity of key assumptions
In the sensitivity analysis shown below, we determine the defined
benefit obligation using the same method used to calculate the
defined benefit obligation we recognize in the Consolidated
Statements of Financial Position. We calculate sensitivity by changing
one assumption while holding the others constant. This leads to
limitations in the analysis as the actual change in defined benefit
obligation will likely be different from that shown in the table, since it is
likely that more than one assumption will change at a time, and that
some assumptions are correlated.
Increase (decrease)
in accrued benefit
obligation
Increase (decrease)
in pension
expense
(In millions of dollars)
2014
2013
2014
2013
Discount rate
Impact of 0.5% increase
Impact of 0.5% decrease
(141)
162
(105)
120
(15)
16
(11)
13
Rate of future compensation
increase
Impact of 0.25% increase
Impact of 0.25% decrease
Mortality rate
Impact of 1 year increase
Impact of 1 year decrease
18
(18)
35
(36)
14
(14)
26
(27)
3
(3)
3
(3)
3
(2)
4
(3)
122 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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NOTE 24: SHAREHOLDERS’ EQUITY
CAPITAL STOCK
Share class
Preferred shares
Number of shares authorized
for issue
Features
400 million
• Without par value
• Issuable in series, with
rights and terms of each
series to be fixed by our
Board of Directors prior to
the issue of any series
Voting rights
• None
Class A Voting shares
112,474,388
• Without par value
• Each
can
share
be
converted into one Class B
Non-Voting share
• Each share entitled to
50 votes
Class B Non-Voting shares
1.4 billion
• Without par value
• None
The holders of Class A shares are entitled to receive dividends at the
rate of up to five cents per share but only after dividends at the rate of
five cents per share have been paid or set aside on the Class B shares.
Class A Voting and Class B Non-Voting shares therefore participate
equally in dividends.
NORMAL COURSE ISSUER BID
In February 2014, we renewed our normal course issuer bid (NCIB) for
our Class B Non-Voting shares for another year. This gives us the right
to buy up to an aggregate $500 million or 35,780,234 Class B Non-
Voting shares of RCI, whichever is less, on the TSX, the NYSE and/or
alternate trading systems any time between February 25, 2014 and
February 24, 2015. We did not buy any shares for cancellation under
the NCIB during 2014. In 2013, we repurchased for cancellation a total
of 546,674 Class B Non-Voting shares for total proceeds of $22 million,
resulting in a reduction to Class B Non-voting share capital, share
premium and retained earnings of $1 million, nil and $21 million,
respectively. In 2013, we cancelled 43,993 Class B Non-Voting shares
that related to old employee share plans for proceeds of nil.
the Company Act
RCI’s Articles of Continuance under
(British
Columbia) impose restrictions on the transfer, voting and issue of the
Class A Voting and Class B Non-Voting shares to ensure that we
remain qualified to hold or obtain licences required to carry on certain
of our business undertakings in Canada. We are authorized to refuse to
register transfers of any of our shares to any person who is not a
Canadian in order to ensure that Rogers remains qualified to hold the
licences referred to above.
DIVIDENDS
In 2014 and 2013, we declared and paid the following dividends on
our outstanding Class A Voting and Class B Non-Voting shares:
Date declared
February 14, 2013
April 23, 2013
August 15, 2013
October 24, 2013
February 12, 2014
April 22, 2014
August 14, 2014
October 23, 2014
Date paid
April 2, 2013
July 3, 2013
October 2, 2013
January 2, 2014
April 4, 2014
July 2, 2014
October 1, 2014
January 2, 2015
Dividend
per share
0.435
0.435
0.435
0.435
1.74
0.4575
0.4575
0.4575
0.4575
1.83
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25: STOCK-BASED COMPENSATION
The table below is a summary of our stock-based compensation
expense, which is included in employee salaries and benefits expense:
(In millions of dollars)
Stock-based compensation:
Stock options
Restricted share units
Deferred share units
Equity Derivative effect, net of interest receipt
2014
2013
(9)
34
2
10
37
30
42
4
8
84
As at December 31, 2014, we had a total liability recorded at its fair
value of $144 million (December 31, 2013 – $164 million), related to
stock-based compensation, including stock options, RSUs and DSUs.
The current portion of this is $106 million (December 31, 2013 –
$128 million) and is included in accounts payable and accrued
liabilities. The long-term portion of this is $37 million (December 31,
2013 – $36 million) and is included in other long-term liabilities (see
note 22).
The total intrinsic value of vested liabilities, which is the difference
between the strike price of the share-based awards and the trading
price of the RCI Class B Non-Voting shares for all vested share-based
awards as at December 31, 2014 was $67 million (December 31,
2013 – $85 million).
We paid $48 million in 2014 (2013 – $101 million) to holders of stock
options, RSUs and DSUs upon exercise using the cash settlement
feature, representing a weighted average share price on the date of
exercise of $43.42 (2013 – $48.18).
STOCK OPTIONS
Options to purchase our Class B Non-Voting shares on a one-for-one
basis may be granted to our employees, directors and officers by the
Board of Directors or our Management Compensation Committee.
There are 65 million options authorized under various plans, and each
option has a term of seven to ten years. The vesting period is generally
graded vesting over
the Management
Compensation Committee may adjust the vesting terms on the grant
date. The exercise price is equal to the fair market value of the Class B
Non-Voting shares, determined as the five-day average before the
grant date as quoted on the TSX.
years, however,
four
Performance options
2014
We granted 845,989 performance-based options
(2013 – 1,415,482) to certain key executives. These options vest on a
graded basis over four years provided that certain targeted stock
prices are met on or after each anniversary date. As at December 31,
2014, we had 4,740,308 performance options (December 31,
2013 – 4,728,959) outstanding.
in
Summary of stock options
The table below is a summary of the stock option plans, including performance options:
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
2014
Weighted
average
exercise price
$37.39
$42.94
$34.14
$43.37
Number of
options
6,368,403
845,989
(1,259,533)
(195,073)
Number of
options
8,734,028
1,415,482
(3,323,239)
(457,868)
5,759,786
$38.71
6,368,403
Exercisable, end of year
3,363,046
$35.47
4,066,698
2013
Weighted
average
exercise price
$32.34
$47.56
$27.78
$42.15
$37.39
$35.08
The table below shows the range of exercise prices, the weighted average exercise price and the weighted average remaining contractual life as
at December 31, 2014:
Options outstanding
Options exercisable
Number
outstanding
Weighted average
remaining contractual
life (years)
Weighted
average
exercise price
623,075
1,503,278
1,638,787
838,064
1,156,582
5,759,786
1.16
2.47
2.47
8.95
8.48
4.48
Number
exercisable
623,075
1,348,319
1,210,212
–
181,440
$29.40
$33.90
$38.27
$43.06
$47.47
$38.71
3,363,046
Weighted
average
exercise price
$29.40
$33.85
$38.43
–
$48.56
$35.47
Range of exercise prices
$29.39 – $29.99
$30.00 – $34.99
$35.00 – $39.99
$40.00 – $44.99
$45.00 – $48.57
124 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
Unrecognized stock-based compensation expense as at December 31,
2014 related to stock-option plans was $7 million (2013 – $11 million),
and will be recorded in net income over the next four years as the
options vest.
RESTRICTED SHARE UNITS
The RSU plan allows employees, officers and directors to participate in
the growth and development of Rogers. Under the terms of the plan,
RSUs are issued to the participant and the units issued cliff vest over a
period of up to three years from the grant date.
On the vesting date, we will redeem all of the participants’ RSUs in cash
or by issuing one Class B Non-Voting share for each RSU. We have
reserved 4,000,000 Class B Non-Voting shares for issue under this
plan. We granted 1,088,951 RSUs in 2014 (2013 – 871,988).
granted
313,291
Performance RSUs
We
2014
(2013 – 232,220) to certain key executives. The number of units that
vest and will be paid three years from the grant date will be within 50%
to 150% of the initial number granted based upon the achievement of
certain annual and cumulative three-year non-market targets.
performance-based
RSUs
in
Summary of RSUs
The table below is a summary of the RSUs outstanding, including
performance RSUs.
(in number of units)
Outstanding, beginning of year
Granted and reinvested dividends
Exercised
Forfeited
2014
2013
2,472,390
1,402,242
(828,645)
(280,732)
2,255,158
1,104,208
(681,652)
(205,324)
Outstanding, end of year
2,765,255
2,472,390
Unrecognized stock-based compensation expense as at December 31,
2014 related to these RSUs was $48 million (2013 – $42 million) and
will be recorded in net income over the next three years as the RSUs
vest.
DEFERRED SHARE UNIT PLAN
The DSU plan allows directors, certain key executives and other senior
management to elect to receive certain types of compensation in
DSUs.
We granted 125,979 DSUs in 2014 (2013 – 103,990). As at
December 31, 2014, 826,891 DSUs
(2013 – 700,912) were
outstanding. Unrecognized stock-based compensation expense as at
December 31, 2014, related to these DSUs was $2 million (2013 –
NOTE 26: BUSINESS COMBINATIONS
We made several acquisitions in 2014 and 2013, which we describe
below. Goodwill recognized in the 2014 dealer store acquisition is
deductible for tax purposes and all other goodwill recognized on
these acquisitions is not tax deductible. Goodwill represents the
expected operational synergies with the business acquired and/or
intangible assets that do not qualify to be recognized separately.
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$2 million) and will be recorded in net income over the next three
years as the executive DSUs vest. All other DSUs are fully vested.
EMPLOYEE SHARE ACCUMULATION PLAN
Participation in the plan is voluntary. Employees can contribute up to
10% of their regular earnings through payroll deductions (up to an
annual maximum of $25,000). The plan administrator purchases our
Class B Non-Voting shares on a monthly basis on the open market on
behalf of the employee. At the end of each month, we make a
contribution of 25% to 50% of the employee’s contribution that month,
and the plan administrator uses this amount to purchase additional
shares on behalf of the employee. We record our contributions made
as a compensation expense.
Compensation expense related to the employee share accumulation
plan was $38 million in 2014 (2013 – $30 million).
EQUITY DERIVATIVES
We have entered into equity derivatives to hedge a portion of our
stock-based compensation expense (see note 16) and recognized a
$10 million loss (2013 – $8 million loss) in stock-based compensation
expense for these derivatives.
ASSUMPTIONS
Significant management estimates are used to determine the fair value
of stock options, RSUs and DSUs. The table below shows the
weighted-average fair value of stock options granted during 2014 and
2013, and the principal assumptions used in applying the Black-
Scholes model
for non-performance-based options and trinomial
option pricing models for performance-based options to determine
their fair value at grant date:
Weighted average fair value
$
7.35
$
9.68
2014
2013
Risk-free interest rate
Dividend yield
Volatility of Class B Non-Voting shares
Weighted average expected life
Weighted average time to vest
Weighted average time to expiry
Employee exit rate
Suboptimal exercise factor
Lattice steps
1.2%
4.0%
25.7%
n/a
2.4 years
9.9 years
3.9%
1.6
50
1.2%
3.4%
26.2%
n/a
2.4 years
9.9 years
3.3%
1.5
50
Volatility has been estimated based on the actual trading statistics of
our Class B Non-Voting shares.
2014 ACQUISITIONS
Dealer stores
In January 2014, we completed an asset acquisition of certain dealer
stores located in British Columbia, Alberta and Ontario for cash
consideration of $46 million, which was paid as a deposit in the fourth
quarter of 2013. The dealer stores are a retail distribution outlet
telecommunication products and services. The
business and sell
acquisition of the dealer stores provide increased product penetration.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Source Cable Limited (Source)
In November 2014, we acquired 100% of the common shares of Source for cash consideration of $156 million. Source is a television, Internet, and
phone service provider situated in Hamilton, Ontario, and its subscriber footprint is situated adjacent to existing Rogers cable systems.
Final fair values of assets acquired and liabilities assumed
The table below summarizes the final fair values of the assets acquired and liabilities assumed for all the acquisitions described above.
(In millions of dollars)
Fair value of consideration transferred
Net identifiable asset or liability:
Cash
Current assets
Property, plant and equipment
Customer relationships 1
Current liabilities
Other liabilities
Deferred tax liabilities
Fair value of net identifiable assets acquired and liabilities assumed
Goodwill
Acquisition transaction costs
Source Cable
Dealer stores
156
1
2
9
38
(6)
(2)
(9)
33
123
1
46
–
2
–
35
–
–
–
37
9
–
Total
202
1
4
9
73
(6)
(2)
(9)
70
132
1
Goodwill allocated to the following segments
Cable
Wireless
1 Customer relationships are amortized over a period of 5 years.
The table below shows the incremental revenue, net income (loss) before taxes, depreciation and amortization and restructuring, acquisition and
other expenses for each acquisition since the respective dates of acquisition to December 31, 2014.
(In millions of dollars)
Incremental revenue
Net income before taxes 1
1 Excludes acquisition transaction costs.
Source Cable
Dealer stores
Total
4
1
–
4
4
5
PRO FORMA DISCLOSURES
If the Source Cable acquisition had occurred on January 1, 2014, we
estimate our incremental revenue from the acquisition would have
been $26 million and incremental net income before taxes would have
been $8 million for 2014.
The pro forma disclosures are based on estimates and assumptions we
believe are reasonable. The information provided is not necessarily an
indication of what our consolidated financial results will be in the
future.
2013 ACQUISITIONS
Mountain Cable
On May 1, 2013, we closed the agreement with Shaw to purchase
100% of the common shares of Mountain Cable for cash consideration
of $398 million. Mountain Cable delivers a full bundle of advanced
cable television,
its recently
upgraded hybrid fibre and coaxial cable network. The acquisition
expands our cable business in the Southern Ontario area and will allow
us to drive synergies through a larger service area and cost efficiencies.
Internet and phone services over
Blackiron Data (Blackiron)
On April 17, 2013, we closed an agreement to acquire 100% of the
common shares of Blackiron for cash consideration of $198 million.
Blackiron provides Business Solutions the ability to enhance its suite of
enterprise-level data centre and cloud computing services along with
fibre-based network connectivity services.
Score Media Inc. (theScore)
On April 30, 2013, we received final regulatory approval to acquire
theScore. We had already paid $167 million on October 19, 2012 to
obtain 100% of the common shares of theScore. These shares were
held in trust until we received regulatory approval and obtained
the business. The acquisition builds on our sports
control of
broadcasting capabilities and reinforces our delivery of premium
sports content to its audiences on their platform of choice.
Pivot Data Centres (Pivot)
On October 1, 2013, we purchased 100% of the common shares of
Pivot for cash consideration of $158 million. Pivot further positions
Business Solutions as a leader in Canadian data centre and hosting
services and will enhance Business Solutions’ ability to serve key
markets with enhanced managed and cloud service offering.
Other
In 2013, we completed other individually immaterial acquisitions for
total cash consideration of $40 million.
126 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
Final fair values of assets acquired and liabilities assumed
The table below summarizes the final fair values of the assets acquired and liabilities assumed for all the acquisitions described above.
(In millions of dollars)
Mountain Cable Blackiron
theScore 1
Fair value of consideration transferred
Cash
Current assets
Property, plant and equipment
Customer relationships 2
Broadcast licence 3
Current liabilities
Other liabilities
Deferred tax liabilities
Fair value of net identifiable assets acquired and liabilities assumed
Goodwill
Acquisition transaction costs
Goodwill allocated to the following segments
398
–
3
53
135
–
(5)
–
(44)
142
256
2
198
–
4
35
45
–
(8)
–
(7)
69
129
1
167
5
12
11
–
104
(6)
–
(7)
119
48
19 4
Pivot
158
Other
Total
40
961
2
6
58
36
–
(7)
(4)
(11)
80
78
1
2
–
1
17
–
(2)
(3)
–
15
25
9
25
158
233
104
(28)
(7)
(69)
425
536
–
23
Cable
Business
Solutions
Media
Business
Solutions
Multiple
segments 5
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1 We paid the $167 million related to theScore on October 19, 2012.
2 Customer relationships are amortized over a period ranging from 5 to 10 years.
3 Broadcast licence is an indefinite life intangible asset.
4 Acquisition transaction costs for theScore include $17 million related to the CRTC tangible benefits commitments that were required as a condition of the CRTC’s approval of
the transaction.
5 Goodwill related to other acquisitions was allocated to Media and Business Solutions.
NOTE 27: RELATED PARTY TRANSACTIONS
CONTROLLING SHAREHOLDER
Our ultimate controlling shareholder is the Rogers Control Trust (the
Trust), which holds voting control of RCI. The beneficiaries of the Trust
are members of the Rogers family. Certain directors of RCI represent
the Rogers family.
We entered into certain transactions with private Rogers family holding
companies controlled by the Trust. These transactions, as summarized
below, were recorded at the amount agreed to by the related parties
and are subject to the terms and conditions of formal agreements
approved by the Audit Committee.
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
Key management personnel include the directors and our most senior
corporate officers, who are primarily responsible for planning,
directing and controlling our business activities.
Compensation
The compensation expense for key management
services was included in employee salaries and benefits as follows:
for employee
(In millions of dollars)
Salaries and other short-term employee benefits
Post-employment benefits
Stock-based compensation expense
Total compensation
2014
2013
10
2
7
19
9
2
27
38
Transactions
We have entered into business transactions with companies whose
partners or senior officers are Directors of RCI which include:
• the chairman and chief executive officer of a firm that is paid
commissions for insurance coverage,
• the non-executive chairman of a law firm that provides a portion of
our legal services, and
• the chairman of a company that provides printing services.
We record these transactions at the amount agreed to by the related
parties, which are also reviewed by the Audit Committee. The amounts
owing are unsecured, interest-free and due for payment in cash within
one month from the date of the transaction. The following table
the business transactions
summarizes related party activity for
described above:
Transaction value
for year ended
Balance
outstanding
(In millions of dollars)
2014
2013
2014
2013
Printing, legal services and
commission paid on
premiums for insurance
coverage
38
43
2
2
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUBSIDIARIES, ASSOCIATES AND JOINT ARRANGEMENTS
We have the following significant subsidiaries:
• Rogers Communications Partnership
• Rogers Media Inc.
We carried out the following business transactions with our associates
and joint arrangements. Transactions between us and our subsidiaries
have been eliminated on consolidation and are not disclosed in this
note.
We have 100% ownership interest
in these subsidiaries. Our
subsidiaries are incorporated in Canada and have the same reporting
period for annual financial statements reporting.
(In millions of dollars)
Revenues
Purchases
2014
2013
15
88
3
83
When necessary, adjustments are made to conform the accounting
policies of the subsidiaries to those of Rogers. There are no significant
restrictions on the ability of subsidiaries, joint arrangements and associates
to transfer funds to Rogers as cash dividends or to repay loans or
advances.
NOTE 28: GUARANTEES
We had the following guarantees as at December 31, 2014 and 2013
as part of our normal course of business:
BUSINESS SALE AND BUSINESS COMBINATION
AGREEMENTS
As part of transactions involving business dispositions, sales of assets
or other business combinations, we may be required to pay
counterparties for costs and losses incurred as a result of breaches of
representations
right
infringement, loss or damages to property, environmental liabilities,
changes in laws and regulations (including tax legislation), litigation
against the counterparties, contingent liabilities of a disposed business
or reassessments of previous tax filings of the corporation that carries
on the business.
and warranties,
intellectual
property
SALES OF SERVICES
As part of transactions involving sales of services, we may be required
to make payments to counterparties as a result of breaches of
representations and warranties, changes in laws and regulations
(including tax legislation) or litigation against the counterparties.
terms equivalent
to those that prevail
Sales to and purchases from our associates and joint arrangements are
made at
in arm’s length
transactions. Outstanding balances at year-end are unsecured and
interest-free, and settled in cash. The outstanding balances with these
related parties
transactions as at
December 31, 2014 was $15 million and included in accounts payable
and accrued liabilities (December 31, 2013 – $14 million payable).
relating to similar business
PURCHASES AND DEVELOPMENT OF ASSETS
As part of transactions involving purchases and development of assets,
we may be required to pay counterparties for costs and losses incurred
as a result of breaches of representations and warranties,
loss or
damages to property, changes in laws and regulations (including tax
legislation) or litigation against the counterparties.
INDEMNIFICATIONS
We indemnify our directors, officers and employees against claims
reasonably incurred and resulting from the performance of their
services to Rogers. We have liability insurance for our directors and
officers and those of our subsidiaries.
We are unable to make a reasonable estimate of the maximum
potential amount we would be required to pay to counterparties. The
amount also depends on the outcome of future events and conditions
which cannot be predicted. No amount has been accrued in the
Consolidated Statements of Financial Position relating to these types of
indemnifications or guarantees as at December 31, 2014 or 2013.
Historically, we have not made any significant payments under these
indemnifications or guarantees.
NOTE 29: COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS
The table below shows the future minimum payments under operating leases as at December 31, 2014:
(In millions of dollars)
Operating leases
Player contracts 1
Purchase obligations 2
Program rights 3
Total commitments
Less Than
1 Year
150
132
1,610
735
2,627
1-3 Years
4-5 Years
221
100
308
1,178
1,807
120
52
140
1,117
1,429
After
5 Years
67
5
102
3,487
3,661
Total
558
289
2,160
6,517
9,524
1 Player contracts are Blue Jays players’ salary contracts we have entered into and are contractually obligated to pay.
2 Purchase obligations are the contractual obligations under service, product and handset contracts that we have committed to for at least the next five years. Purchase
obligations include commitment to purchase 50% joint ownership of Glentel Inc., expected to occur in 2015, subject to regulatory approval and completion of BCE lnc.’s
acquisition of Glentel lnc. (see note 31).
3 Program rights are the agreements we have entered into to acquire broadcasting rights for sports broadcasting programs and films for periods ranging from one to twelve
years.
128 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
Operating leases are for office premises and retail outlets across the
country. The majority of the lease terms range from five to ten years.
Rent expense for 2014 was $210 million (2013 – $198 million).
As at December 31, 2014, our contractual commitments were
$182 million for the acquisition of property, plant and equipment and
$240 million for the acquisition of intangible assets.
As at December 31, 2014, our contractual commitments related to all
of our associates and joint ventures were $549 million.
CONTINGENT LIABILITIES
We have the following contingent liabilities as at December 31, 2014:
System Access Fee – Saskatchewan
In 2004, a class action commenced against providers of wireless
communications
the Class Actions Act
(Saskatchewan). The class action related to the system access fee
wireless carriers charged to some of their customers. The plaintiffs are
seeking unspecified damages and punitive damages, which would
effectively be a reimbursement of all system access fees collected.
in Canada
under
In 2007, the Saskatchewan Court granted the plaintiffs’ application to
have the proceeding certified as a national, “opt-in” class action where
affected customers outside Saskatchewan must take specific steps to
participate in the proceeding.
In 2008, our motion to stay the
proceeding based on the arbitration clause in our wireless service
agreements was granted. The Saskatchewan Court directed that its
order,
in respect of the certification of the action, would exclude
customers who are bound by an arbitration clause from the class of
plaintiffs.
We appealed the 2007 certification decision, however,
it was
dismissed by the Saskatchewan Court of Appeal and leave to appeal to
the Supreme Court of Canada was denied.
In 2012, the plaintiffs applied for an order seeking to extend the time
they can appeal the “opt-in” decision of the Saskatchewan Court. In
March 2013, the Saskatchewan Court of Appeal denied the plaintiffs’
application.
In August 2009, counsel for the plaintiffs began a second proceeding
under the Class Actions Act (Saskatchewan) asserting the same claims
as the original proceeding. If successful, this second class action would
be an “opt-out” class proceeding. This second proceeding was
ordered conditionally stayed in 2009 on the basis that it was an abuse
of process.
In April 2013, the plaintiffs applied for an order to be allowed to
proceed with the second system access fee class action. In August
2013, the court denied this application and the second action remains
conditionally stayed. In December 2013 the plaintiff applied for an
order permitting them to amend the Statement of Claim to
reintroduce the claims they were not permitted to proceed with in the
2007 certification decision.
In March 2014, the court denied this
application. There are proceedings underway in Alberta, Manitoba and
Nova Scotia to determine whether matching claims should be allowed
to proceed in those provinces.
System Access Fee – British Columbia
In December 2011, a class action was launched in British Columbia
against providers of wireless communications in Canada about the
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system access fee wireless carriers charge to some of their customers.
The class action relates to allegations of misrepresentations contrary to
the Business Practices and Consumer Protection Act (British Columbia),
among other things. The plaintiffs are seeking unspecified damages
and restitution. A certification hearing was held in April 2014 and in
June 2014 the court denied the certification application. An appeal has
been filed by the plaintiffs. We have not recorded a liability for this
contingency.
911 Fee
In June 2008, a class action was launched in Saskatchewan against
providers of wireless communications services in Canada. It involves
allegations of breach of contract, misrepresentation and false
advertising, among other things, in relation to the 911 fee that had
been charged by us and the other wireless communication providers
in Canada. The plaintiffs are seeking unspecified damages and
restitution. The plaintiffs intend to seek an order certifying the
proceeding as a national class action in Saskatchewan. We have not
recorded a liability for this contingency.
Cellular Devices
In July 2013, a class action was launched in British Columbia against
providers of wireless communications in Canada and manufacturers of
wireless devices. The class action relates to the alleged adverse health
effects incurred by long-term users of cellular devices. The plaintiffs are
seeking unspecified damages and punitive damages, effectively equal
to the reimbursement of the portion of revenues the defendants have
received that can reasonably be attributed to the sale of cellular
phones in Canada. We have not
this
contingency.
recorded a liability for
taxes based on all of
Income and Indirect Taxes
the
We provide for income and indirect
information that
is currently available and believe that we have
adequately provided these items. The calculation of applicable taxes in
many cases, however, requires significant judgement in interpreting
tax rules and regulations. Our tax filings are subject to audits, which
could materially change the amount of current and deferred income
tax assets and liabilities and provisions, and could,
in certain
circumstances, result in the assessment of interest and penalties.
Other claims
There are certain other claims and potential claims against us. We do
not expect any of these to have a materially adverse effect on our
financial results.
Outcome of proceedings
The outcome of all the proceedings and claims against us, including
the matters described above,
is subject to future resolution that
includes the uncertainties of litigation. It is not possible for us to predict
the result or magnitude of the claims due to the various factors and
uncertainties involved in the legal process. Based on information
currently known to us, we believe that it is not probable that the
ultimate resolution of any of these proceedings and claims, individually
or in total, will have a material adverse effect on our Consolidated
Statements of
Income or Consolidated Statements of Financial
Position.
If it becomes probable that we are liable, we record a
provision in the period the change in probability occurs, and it could
be material
Income or
to our Consolidated Statements of
Consolidated Statements of Financial Position.
2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 30: SUPPLEMENTAL CASH FLOW INFORMATION
CHANGE IN NON-CASH OPERATING WORKING CAPITAL
ITEMS
(In millions of dollars)
2014
2013
(In millions of dollars)
Note
2014
2013
Payments on termination of US$750 million
debt derivatives
The changes in non-cash operating working capital
Payments on termination of US$350 million
items are as follows:
Accounts receivable
Inventory
Other current assets
Accounts payable and accrued liabilities
Unearned revenue
Total change in non-cash operating working capital
items
(81)
26
(18)
(2)
86
58
17
(8)
180
(9)
11
238
debt derivatives
Payments on termination of US$350 million
debt derivatives
Payments on foreign exchange forward
contracts
Subtotal
Payments on early termination of US$1,075
(773)
(413)
–
–
–
(460)
(929)
(306)
(2,115)
(766)
CASH PROVIDED BY FINANCING ACTIVITIES
(In millions of dollars)
Note
2014
2013
Debt derivatives:
Proceeds on debt derivatives
Payments on debt derivatives
2,150
(2,115)
662
(766)
Net cash proceeds (settlement) on debt
derivatives
16
35
(104)
The following two tables provide details on the net cash proceeds
(settlement) on debt derivatives:
million debt derivatives
16
–
(263)
Gross payments on debt derivatives and
foreign exchange forward contracts
(2,115)
(1,029)
The following two tables provide details on the net cash issuance
(repayment) of long-term debt:
(In millions of dollars)
Note
2014
2013
Issuance of long-term debt:
Net issuance of senior notes
Borrowings under bank credit facility
Total proceeds on issuance of long-term
21
2,082
1,330
2,578
–
3,412
2,578
(In millions of dollars)
Note
2014
2013
debt
Proceeds on termination of US$750 million
debt derivatives
Proceeds on termination of US$350 million
debt derivatives
Proceeds on termination of US$350 million
debt derivatives
Proceeds on foreign exchange forward
contracts
Gross proceeds on debt derivatives and
foreign exchange forward contracts
834
387
–
–
–
356
929
306
2,150
662
NOTE 31: SUBSEQUENT EVENTS
The following events occurred or will occur after the year ended
December 31, 2014:
INVESTMENT IN GLENTEL INC.
In late December 2014, we announced an agreement with BCE Inc.
(BCE) under which Rogers will purchase 50% of Glentel Inc. (Glentel)
for cash consideration of approximately $392 million. As part of the
agreement, Rogers and BCE intend to divest all Glentel operations
located outside of Canada (International Operations). The terms of the
agreement provide that BCE is entitled to the first $100 million and
Rogers is entitled to the subsequent $195 million of the divestiture
proceeds from International Operations. Divesture proceeds in excess
of $295 million are to be shared evenly between both parties. Glentel
is a large multicarrier mobile phone retailer with several hundred
Canadian wireless retail distribution outlets. The outlets operate under
banner names such as Wireless Wave and TBooth Wireless. The
transaction is expected to close in the first half of 2015 and is subject to
regulatory approval and completion of BCE’s acquisition of Glentel.
130 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
(In millions of dollars)
Note
2014
2013
Repayment of long-term debt:
Net repayment of senior notes
Repayment of bank credit facility
21
(1,221)
(1,330)
(356)
–
Total repayment on long-term debt
(2,551)
(356)
INCREASE IN ANNUAL DIVIDEND RATE AND
DECLARATION OF DIVIDENDS
In January 2015, the Board of Directors approved an increase of 5% in
the annualized dividend rate, to $1.92 per Class A Voting share and
Class B Non-Voting share, effective immediately to be paid in quarterly
amounts of $0.48. The Board of Directors last increased the annualized
dividend rate in February 2014, from $1.74 to $1.83 per Class A Voting
and Class B Non-Voting share. Dividends are payable when declared
by the Board of Directors.
On January 28, 2015, the Board of Directors declared a quarterly
dividend of $0.48 per Class A Voting share and Class B Non-Voting
share, to be paid on April 1, 2015, to shareholders of record on
March 13, 2015. This is the first quarterly dividend declared in 2015
and reflects the new dividend rate.
Notes
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2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 131
Glossary of Selected Industry Terms
and Helpful Links
3.5G (Enhanced Third Generation Cellular
Wireless): Refers to evolutionary upgrades to
3G services that provide significantly enhanced
broadband wireless data performance to enable
multi-megabit data speeds. The key 3.5G
technologies in North America are High-Speed
Packet Access (HSPA) and CDMA EV-DO.
4G (Fourth Generation): A technology that
offers increased voice, video and multimedia
capabilities; a higher network capacity; improved
spectral efficiency; and high-speed data rates
over current 3G benchmarks.
4K – Ultra-High Definition Video: Denotes a
very specific television display resolution of
4096 x 2160. Today’s 1920 x 1080 resolution
full HD televisions present an image of around
2 megapixels, while the 4K generation of
screens delivers an 8 megapixel image.
ARPU (Average Revenue per User): Average
revenue per user, or subscriber, expressed as a
dollar rate per month for a given measurement
period. Predominantly used in the wireless
and cable industries to describe the revenue
generated per customer per month. ARPU is
an indicator of a wireless or cable business’
operating performance.
AWS (Advanced Wireless Services): The wireless
telecommunications spectrum band that is used
for wireless voice, data, messaging services and
multimedia.
Bandwidth: Bandwidth can have two different
meanings: (1) a band or block of radio
frequencies measured in cycles per second,
or Hertz; (2) an amount or unit of capacity in
a telecommunications transmission network.
In general terms, bandwidth is the available
space to carry a signal: the greater the bandwidth,
the greater the information-carrying capacity.
Bps (Bits per Second): A measurement of data
transmission speed used for measuring the
amount of data that is transferred in a second
between two telecommunications points or within
network devices. Kbps (kilobits per second) is
thousands of bps; Mbps (megabits per second)
is millions of bps; Gbps (gigabits per second)
is billions of bps; and Tbps (terabits per second)
is trillions of bps.
Broadband: High-speed transmission. The term
is commonly used to refer to communications
services which allow transmission of voice, data,
and video simultaneously at rates of 1.544Mbps
and above.
Cable Telephony (Phone): The transmission
of real time voice communications over a cable
network.
Churn: The term used to describe the disconnect
rate of customers to a telecommunications
service. Usually expressed as a percentage and
calculated as the number of subscriber units
disconnecting in a one month period divided
by the average number of units on the network.
It is a measure of customer turnover and is often
at least partially reflective of service quality and
competitive intensity.
CLEC (Competitive Local Exchange Carrier):
A telecommunications provider company that
competes with other, already established carriers,
generally the incumbent local exchange carrier
(ILEC).
Cloud Computing: Cloud computing is a
synonym for distributed computing, and enables
the ability to run a program or application on
many connected computers at the same time.
CRTC (Canadian Radio-television and
Telecommunications Commission): The federal
regulator for radio and television broadcasters,
and cable-TV and telecommunications companies
in Canada.
Data Centre: A data centre is a facility used
to house computer systems and associated
components, such as telecommunications and
storage systems. It generally includes redundant
or backup power supplies, redundant data
communications connections, environmental
controls (e.g., air conditioning, fire suppression)
and security devices.
DOCSIS (Data Over Cable Service Interface
Specification): A non-proprietary industry
standard developed by Cable Labs that allows
for equipment interoperability from the headend
to the CPE (located at the home). The latest
version (DOCSIS 3.0) enables bonding of multiple
channels to allow for +100Mbps transmission
speeds depending upon how many channels are
bonded together.
DSL (Digital Subscriber Line): A family of
broadband technologies that offers always-
on, high-bandwidth (usually asymmetrical)
transmission over an existing twisted-pair copper
telephone line. DSL shares the same phone line
as the telephone service, but it uses a different
part of the phone line’s bandwidth.
Fibre-Optics: A method for the transmission
of information (voice, video or data) in which
light is modulated and transmitted over hair-thin
filaments of glass called fibre-optic cables.
The bandwidth capacity of fibre-optic cable is
much greater than that of copper wire and light
can travel relatively long distances through glass
without the need for amplification.
Hosting (Web Hosting): The business of housing,
serving and maintaining files for one or more
websites or email accounts. Using a hosting
service allows many companies to share the cost
of a high-speed Internet connection for serving
files, as well as other Internet infrastructure and
management costs.
Hotspot: The Wi-Fi wireless access point in a
public place such as a café, train station, airport,
commercial office property or conference centre.
HSPA (High Speed Packet Access): HSPA is an
IP-based packet-data enhancement technology
that provides high-speed broadband packet data
services over 3G networks. HSPA+ provides high-
speed broadband packet data services at even
faster speeds than HSPA over 4G networks.
HUP (Hardware Upgrade): When an existing
wireless customer upgrades to a new wireless
device this is referred to as a HUP or Hardware
UPgrade.
ILEC (Incumbent Local Exchange Carrier): The
dominant telecommunications company providing
local telephone service in a given geographic area
when competition began. Typically an ILEC
is the traditional phone company and original
local exchange carrier in a given market.
Industry Canada: The Canadian federal
government department responsible for, amongst
other things, the regulation, management and
allocation of radio spectrum and establishing
technical requirements for various wireless
systems.
IP (Internet Protocol): The packet-based computer
network protocol that all machines on the Internet
must know so that they can communicate with one
another. IP is basically a set of data switching and
routing rules that specify how information is cut
up into packets and how they are addressed for
delivery between computers.
IPTV (Internet Protocol Television): A system
where a digital television signal is delivered using
Internet Protocol. Unlike broadcasting, viewers
receive only the stream of content they have
requested (by surfing channels or ordering video
on demand).
FTTH (Fibre-To-The-Home): Represents fibre
optic cable that reaches the boundary of the living
space, such as a box on the outside wall of a home.
ISP (Internet Service Provider): A provider of
Internet access service to consumers and/or
businesses.
GSM (Global System for Mobile): GSM is a
TDMA-based technology and a member of
the so-called “second generation” (2G) family
of mobile protocols that is deployed widely
around the world, especially at the 850, 900,
1800, and 1900 MHz frequency bands.
Homes Passed: Total number of homes which
have the potential for being connected to a
cable system in a defined geographic area.
LTE (Long-Term Evolution): A fourth generation
cellular wireless technology (also known as 4G)
which has evolved and enhanced the HSPA+
mobile phone standards. LTE improves spectral
efficiency, lowers costs, improves services and,
most importantly, allows for higher data rates.
LTE technology is designed to deliver at speeds
up to 150Mbps with further increases over time.
LTE Advanced: A mobile communication standard
which represents a major enhancement of the
Long Term Evolution (LTE) standard. With a peak
data rate of 1 Gbps, LTE Advanced also offers
faster switching between power states and
improved performance at the cell edge.
132 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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Machine to Machine (M2M): Refers to the
inter-connection of physical devices or objects
wirelessly that are seamlessly integrated into
an information network to become active
participants in business processes. Services
are available to interact with these ‘smart
objects’ over the Internet, query and change
their state and to capture any information
associated with them.
Near-net: Customer location(s) adjacent
to network infrastructure allowing
connectivity to the premises to be
extended with relative ease.
Off-net: Customer location(s) where network
infrastructure is not readily available,
necessitating the use of a third-party leased
access for connectivity to the premises.
On-net: Customer location(s) where
network infrastructure is in place to provide
connectivity to the premises without further
builds or 3rd party leases. An on-net
customer can be readily provisioned.
OTT (Over-The-Top): Audio, visual or
alternative media distributed via the
Internet or other non-traditional media.
Penetration: Refers to the degree to which
a product or service has been sold into or
adopted by the base of potential customers
or subscribers in a given geographic area.
POPs (Persons of Population): A wireless
industry term for population or number of
potential subscribers in a market, a measure
of the market size. A POP refers to one
person living in a population area, which,
in whole or in substantial part, is included
in the coverage areas.
Postpaid: A conventional method of payment
for wireless service where a subscriber pays a
fixed monthly fee for a significant portion of
services and usage in arrears, subsequent to
consuming the services. The fees are usually
arranged on a term contract basis.
Prepaid: A method of payment for wireless
service that allows a subscriber to prepay for
a set amount of airtime in advance of actual
usage. Generally, a subscriber’s prepaid
account is debited at the time of usage so
that actual usage cannot exceed the prepaid
amount until an additional prepayment is
made.
PVR (Personal Video Recorder): A consumer
electronics device or application software
that records video in a digital format.
The term includes set-top boxes with
direct to disk recording facility, which
enables video capture and playback to
and from a hard disk.
Set-Top Box: A stand-alone analog or
digital device that receives and decodes
programming so that it may be displayed
on a television. Set-top boxes may be used
to receive broadcast, cable, and satellite
programming.
Spectrum: A term generally applied to
electromagnetic radio frequencies used in
the transmission of sound, data, and video.
Various portions of spectrum are designated
for cellular service, television, FM radio, and
satellite transmissions or other.
SVOD (Subscription Video on Demand):
Offers, for a monthly charge, access to specific
programming with unlimited viewing on an
on-demand basis.
TSU (Total Service Unit or Cable TSU):
In the cable TV industry includes television
subscribers, Internet subscribers and cable
telephony subscribers. A subscriber who takes
television and Internet is counted as two TSUs.
A subscriber who takes television, Internet and
cable telephony is counted as three TSUs, etc.
VOD (Video on Demand): A cable service
that allows a customer to select and order
movies and shows at any time from a library of
thousands of titles. Viewers can then pause,
fast forward or rewind the content.
VoIP (Voice over IP): The technology used
to transmit real time voice conversations
in data packets over a data network using
Internet Protocol. Such data networks include
telephone company networks, cable TV
networks, wireless networks, corporate
intranets and the Internet.
VoLTE (Voice over LTE): A platform to provide
voice services to wireless customers over
LTE wireless networks. The LTE standard
only supports packet switching as it is all-IP
technology based. Voice calls in GSM are
circuit switched, so with the adoption of
LTE, carriers are required to re-engineer their
voice call network, while providing continuity
for traditional circuit-switched networks on
2G and 3G networks. VoLTE provides greatly
enhanced quality of experience for voice calls.
Wi-Fi: The commercial name for a networking
technology standard for wireless local area
networks that essentially provide the same
connectivity as wired networks, but at lower
speeds. Wi-Fi allows any user with a Wi-Fi
enabled device to connect to a wireless
access point.
For a more comprehensive
glossary of industry and
technology terms, go to
rogers.com/glossary
Helpful Links
Canadian Radio-Television and
Telecommunications Commission (CRTC)
The Canadian Radio-television and Telecommunications
Commission (CRTC) is an independent agency of the
federal government responsible for regulating Canada’s
broadcasting and telecommunications systems. They
report to Parliament through the Minister of Canadian
Heritage. www.crtc.gc.ca
Industry Canada
Industry Canada is a ministry of the federal government
whose mission is to foster a growing, competitive,
knowledge-based Canadian economy. They also work
with Canadians throughout the economy and in all parts
of the country to improve conditions for investment,
improve Canada’s innovation performance, increase
Canada’s share of global trade and build a fair, efficient
and competitive marketplace. Program areas include
developing industry and technology capability, fostering
scientific research, setting telecommunications policy,
promoting investment and trade, promoting tourism
and small business development, and setting rules
and services that support the effective operation of the
marketplace. www.ic.gc.ca
Federal Communications Commission (FCC)
The Federal Communications Commission (FCC)
is an independent United States government agency.
The FCC was established by the Communications
Act of 1934 and is charged with regulating interstate and
international communications by radio, television, wire,
satellite and cable. The FCC’s jurisdiction covers the 50
states, the District of Columbia, and U.S. possessions.
www.fcc.gov
Canadian Wireless Telecommunications Association
(CWTA)
The Canadian Wireless Telecommunications Association
(CWTA) is the industry trade organization and authority
on wireless issues, developments and trends in Canada.
It represents cellular, PCS, messaging, mobile radio,
fixed wireless and mobile satellite carriers as well as
companies that develop and produce products and
services for the industry. www.cwta.ca
CTIA The Wireless Association
CTIA The Wireless Association is an international
nonprofit membership organization founded in 1984,
representing all sectors of wireless communications
– cellular, personal communication services and
enhanced specialized mobile radio. As an organization,
it represents service providers, manufacturers,
wireless data and Internet companies, as well as other
contributors to the wireless universe. CTIA advocates
on their behalf before the Executive Branch, the Federal
Communications Commission, Congress, and state
regulatory and legislative bodies. www.ctia.org
GSM Association (GSMA)
Founded in 1987, The GSM Association (GSMA)
is a global trade association representing more
than 750 GSM mobile phone operators across
218 territories and countries of the world. In addition,
more than 180 manufacturers and suppliers support
the Association’s initiatives as associate members.
The primary goals of the GSMA are to ensure mobile
phones and wireless services interoperate globally.
www.gsmworld.com
3_AW_Rogers_AR_2013_E_Back_Section_02a.indd 3
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2014 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 133
Corporate and Shareholder Information
CORPORATE OFFICES
Rogers Communications Inc.
333 Bloor Street East, 10th Floor
Toronto, ON M4W 1G9
416-935-7777
CUSTOMER SERVICE AND
PRODUCT INFORMATION
888-764-3771 or rogers.com
SHAREHOLDER SERVICES
If you are a registered shareholder and have
inquiries regarding your account, wish to
change your name or address, or have
questions about lost stock certificates, share
transfers, estate settlements or dividends,
please contact our transfer agent and registrar:
CST Trust Company
P.O. Box 700, Postal Station B
Montreal, QC H3B 3K3, Canada
416-682-3860 or 800-387-0825
inquiries@canstockta.com
Duplicate Mailings
If you receive duplicate shareholder mailings
from Rogers Communications, please
contact CST Trust Company as detailed
above to consolidate your accounts.
INVESTOR RELATIONS
Institutional investors, securities analysts
and others requiring additional financial
information can visit rogers.com/investors
or contact us at:
888-935-7777 or
416-935-7777 (outside North America)
or investor.relations@rci.rogers.com
CORPORATE PHILANTHROPY
For information relating to Rogers various
philanthropic endeavours, refer to the
“About Rogers” section of rogers.com
SUSTAINABILITY
Rogers is committed to continuing to
grow responsibly and we focus our social
and environmental sustainability efforts
where we can make the most meaningful
impacts on both. To learn more, please visit
rogers.com/csr
STOCK EXCHANGE LISTINGS
Toronto Stock Exchange (TSX):
RCI.b – Class B Non-Voting shares
(CUSIP # 775109200)
RCI.a – Class A Voting shares
(CUSIP # 775109101)
New York Stock Exchange (NYSE):
RCI – Class B Non-Voting shares
(CUSIP # 775109200)
Equity Index Inclusions:
Dow Jones Canada Titans 60 Index
Dow Jones Telecom Titans 30 Index
FTSE Global Telecoms Index
FTSE All-World Index Series
FTSE4Good Global Index
Jantzi Social Index
S&P/TSX 60 Index
S&P/TSX Composite Dividend Index
S&P/TSX Composite Index
S&P/TSX Telecom Services Index
DEBT SECURITIES
For details of the public debt securities of
the Rogers companies, please refer to the
“Debt Securities” section under
rogers.com/investors
INDEPENDENT AUDITORS
KPMG LLP
ON-LINE INFORMATION
Rogers is committed to open and full financial
disclosure and best practices in corporate
governance. We invite you to visit the Investor
Relations section of rogers.com/investors where
you will find additional information about our
business, including events and presentations,
news releases, regulatory filings, governance
practices, corporate social responsibility and
our continuous disclosure materials, including
quarterly financial releases, annual information
forms and management information circulars.
You may also subscribe to our news by email or
RSS feeds to automatically receive Rogers news
releases electronically.
SCAN THIS TO
LEARN MORE
rogers.com/investors
Stay up-to-date
with the latest Rogers
investor information
Facebook
facebook.com/rogers
Twitter
twitter.com/rogersbuzz
Google +
google.com/+Rogers
Redboard
redboard.rogers.com
LinkedIn
linkedin.com/company/
rogers-communications
COMMON STOCK TRADING AND
DIVIDEND INFORMATION
Closing Price RCI.b on TSX
2014
High
Low
Close
Dividends
Declared
per Share
First Quarter
$47.86 $42.64 $45.81 $0.4575
Second Quarter $46.25 $42.28 $42.94 $0.4575
Third Quarter
$44.87 $41.17 $41.92 $0.4575
Fourth Quarter $45.87 $41.67 $45.17 $0.4575
Shares Outstanding at December 31, 2014
112,448,000
Class A
402,297,667
Class B
2015 Expected Dividend Dates
Record Date*:
Payment Date*:
March 13, 2015
June 12, 2015
September 11, 2015
December 11, 2015
* Subject to Board approval
April 1, 2015
July 2, 2015
October 1, 2015
January 4, 2016
Unless indicated otherwise, all dividends paid
by Rogers Communications are designated
as “eligible” dividends for the purposes of
the Income Tax Act (Canada) and any similar
provincial legislation.
DIRECT DEPOSIT SERVICE
Shareholders may have dividends deposited
directly into accounts held at financial
institutions. To arrange direct deposit service,
please contact CST Trust Company as detailed
earlier on this page.
DIVIDEND REINVESTMENT PLAN (DRIP)
Rogers offers a convenient dividend
reinvestment program for eligible shareholders
to purchase additional Rogers Communications
shares by reinvesting their cash dividends
without incurring brokerage fees or
administration fees. For plan information and
enrolment materials or to learn more about
Rogers DRIP, please visit canstockta.com/en/
investorservices/dividend_reinvestment_plans
or contact CST Trust Company as detailed earlier
on this page.
ELECTRONIC DELIVERY OF
SHAREHOLDER MATERIALS
Registered shareholders can receive electronic
notice of financial reports and proxy materials
and utilize the Internet to submit proxies
on-line by registering at canstockta.com/
en/investorservices/delivery_of_investor_
materials/electronic_consent. This approach
gets information to shareholders more quickly
than conventional mail and helps Rogers protect
the environment and reduce printing and
postage costs.
GLOSSARY OF TERMS
For a comprehensive glossary of industry and
technology terms, go to rogers.com/glossary
C AUTION REGARDING FORWARD - LOOKING INFORMATION AND OTHER RISKS
This annual report includes forward-looking statements about the financial condition and prospects of Rogers Communications that involve significant risks and uncertainties
that are detailed in the “Risks and Uncertainties That Could Affect our Businesses” and “Caution Regarding Forward-Looking Statements, Risks and Assumptions” sections of the
MD&A contained herein, which should be read in conjunction with all sections of this annual report.
The fibre used in the manufacture of the stock comes from well-managed forests,
controlled sources and recycled wood or fibre.
This annual report
is recyclable.
3 trees
preserved for
the future
4,179 litres
of wastewater
flow saved
55 kg
solid waste
not generated
109 kg net
greenhouse
gases prevented
1,840,701 BTUs
energy not
consumed
2014
2013
2012
2011
© 2015
Rogers Communications Inc.
Other registered trademarks
that appear are the property
of the respective owners.
Design: Interbrand
Printed in Canada
134 ROGERS COMMUNICATIONS INC. 2014 ANNUAL REPORT
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2015-02-24 8:37 PM
The Best Is Yet To Come.
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NHLPA and the NHLPA logo are trademarks of the NHLPA and are used under license. © NHLPA. All rights reserved.
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