Make more
possible
.
Rogers Communications Inc
2017 Annual Report
For over 20 years,
Rosemary has relied
on Rogers to keep
her growing family
connected across
the country.
About Rogers
Rogers is a proud Canadian company dedicated to making
more possible for our customers each and every day.
Our aim is simple: to inspire meaningful connections and
spark the memorable moments that define our lives.
We do this by providing high-quality, worry-free services –
wireless, cable, Internet, information technology, and
telephony – from coast to coast to coast.
Through Rogers Media, we bring Canadians incredible
experiences across an enviable mix of assets in radio and
television broadcasting, sports, magazines, and digital media.
It is all about connecting consumers and businesses to
what matters most.
Page 2
2017 financial and
operating results
Page 4
Segment
overview
Page 6
Page 7
Delivering on our
strategic priorities
A message
from our CEO
Page 15
The year
ahead
Page 16
Corporate
governance
Page 18
Senior executive
officers
Page 19
Directors
Page 21
Page 22
Page 152
Corporate social
responsibility
2017 financial
report
Corporate and
shareholder information
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC.
1
2017 financial and operating results
Total service revenue +4%
(in billions of dollars)
Adjusted operating profit +6%
(in billions of dollars)
2017
2016
13.56
13.03
2017
2016
Adjusted operating profit margin +80bps
(%)
Free cash flow +2%
(in billions of dollars)
2017
2016
38.0
37.2
2017
2016
5.38
5.09
1.75
1.71
Total revenue
$14.1
billion
l Wireless 58%
l Cable 24%
l Media 15%
Adjusted
operating profit
$5.4
billion
l Wireless 64%
l Cable 31%
l Media 3%
l Business Solutions 3%
l Business Solutions 2%
Wireless subscribers +208
(000s)
Internet subscribers +85
(000s)
2017
2016
10,482
10,274
2017
2016
2,230
2,145
2
ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
Key Financial Information
(in millions of dollars, except margins and per-share amounts, unaudited)
Total revenue
Total service revenue 1
Adjusted operating profit 2
Adjusted operating profit margin 2
Net income
Adjusted net income 2
Basic earnings per share
Adjusted basic earnings per share 2
Capital expenditures
Cash provided by operating activities
Free cash flow 2
Annualized dividend per share at year-end
Key Performance Indicators
Subscriber count results (000s) 1
Wireless postpaid net additions
Wireless prepaid net additions
Internet net additions
Television net losses
Phone net additions
Additional Wireless metrics 1
Postpaid churn (monthly)
Postpaid ARPA (monthly)
Blended ARPU (monthly)
Ratios
Capital intensity 1
Dividend payout ratio of free cash flow 2
Return on assets 1
Debt leverage ratio 2
2017
14,143
13,560
5,379
38.0%
1,711
1,821
$3.32
$3.54
2,436
3,938
1,746
$1.92
Years ended, or as at December 31
2016
% Change
13,702
13,027
5,092
37.2%
835
1,481
$1.62
$2.88
2,352
3,957
1,705
$1.92
3
4
6
0.8 pts
105
23
105
23
4
–
2
–
Years ended, or as at December 31
2017
2016
Change
354
61
85
(80)
14
1.20%
$124.75
$62.31
17.2%
56.6%
5.9%
2.8
286
111
97
(76)
4
68
(50)
(12)
(4)
10
1.23%
$117.37
$60.42
(0.03 pts)
$7.38
$1.89
17.2%
57.9%
2.9%
3.0
– pts
(1.3 pts)
3.0 pts
(0.2)
1 As defined. See “Key Performance Indicators” in Management Discussion and Analysis.
2 Adjusted operating profit, adjusted operating profit margin, adjusted net income, adjusted basic earnings per share, free cash flow, dividend payout ratio of free cash flow, and debt leverage
ratio are non-GAAP measures and should not be considered substitutes or alternatives 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.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC.
3
Segment overview
Wireless
Postpaid and prepaid wireless services, including the latest
devices and applications, to consumers and businesses under
the Rogers, Fido, and chatr brands. We reached 96% of the
Canadian population on our LTE network at the end of 2017.
We are augmenting our existing LTE network with the latest
generation of 4.5G technology designed for a migration to
a 5G environment.
Cable & Business Solutions
High-speed Internet access, television, phone, and advanced
Wi-Fi services. In 2018, we plan to launch an all-IPTV platform,
Ignite TV. We also provide network connectivity through our fibre
network and data centres to support voice, data, networking,
hosting, and cloud-based services for enterprises. Over time,
we are migrating to the next generation of DOCSIS, which will
enable upload and download speeds of up to 10 gigabits per
second. This will provide a great Ignite TV experience and lay a
critical foundation as we continue to build our roadmap to the
connected home of the future, integrating key services like
Smart Home Monitoring and more.
Media
A portfolio of media properties, including sports entertainment,
television, publishing, and radio broadcasting. We are investing in
and owning the content our audiences want most, and bringing it to
them on their screen of choice. Our core focus is on local content and
sports. We own the City, OMNI Television, and Sportsnet TV stations
and a network of 55 radio stations across the country. We also own
the Toronto Blue Jays, Canada’s only Major League Baseball team,
and we have an exclusive national 12-year licensing agreement with
the NHL. We have a 37.5% ownership interest in Maple Leaf Sports &
Entertainment Ltd., which owns the Toronto Maple Leafs, the Toronto
Raptors, Toronto FC, the Toronto Argonauts, and the Toronto Marlies.
4
ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
Total revenue
$8.3
billion
l Service 93%
l Equipment 7%
Total revenue
$3.9
billion
l Internet 42%
l Television 39%
l Phone 9%
l Business Solutions 10%
Total revenue
$2.2
billion
Canada’s largest
wireless
service provider
provider
Canada’s largest
cable TV
4.3 million homes passed,
representing the largest Cable
footprint across ON, NB, NL 1
1 Ontario, New Brunswick, and the island of Newfoundland
Ignite Gigabit
Internet service offered
to our entire footprint
#1 sports
media brand
for the third year in a row
l Sports 57%
l Broadcasting 23%
l TSC 15%
l Digital and Publishing Content 5%
Owner of the
Toronto Blue Jays
Baseball Club
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC.
5
Delivering on our
strategic priorities
“ We have set a clear, focused path for our future, with six strategic
priorities to guide our decision-making and bring our purpose to
life. I am pleased to share our priorities and our progress to date.”
Create best-in-class customer
experiences by putting our customers
first in everything we do
Invest in our networks and
technology to deliver leading
performance and reliability
Deliver innovative solutions
and compelling content that
our customers will love
Drive profitable growth in
all the markets we serve
Develop our people and a
high-performance culture
Be a strong, socially responsible
leader in our communities
across Canada
6
ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
A message
from our CEO
Joe Natale
President and Chief Executive Officer
Rogers Communications Inc.
Dear Shareholders,
It is an exciting time for Rogers – I am inspired by the incredible energy of our team, our enviable mix
of business assets and the meaningful growth opportunities ahead of us. It is truly an honour to build
on Ted’s legacy and to work with our 25,000 team members to write the next chapter in our history.
In 2017, our team delivered the best financial and subscriber results in many years. We grew total
service revenue by 4%, adjusted operating profit by 6% and margins by 80 basis points. We grew
after-tax free cash flow to $1.75 billion. We delivered on our full-year financial guidance and
returned $988 million to shareholders through dividends. This momentum was reflected in our
total shareholder return of 28% this year.
2017 Achievements Against Guidance 1
(in millions of dollars, except percentages)
2016 Actual
2017 Guidance ranges
2017 Actual
Achievement
Consolidated Guidance
Revenue
Adjusted operating profit
Capital expenditures
Free cash flow
1 Please see 2017 Financial Report.
13,702
Increase of 3% to 5%
14,143
3.2%
5,092
2,352
1,705
Increase of 5% to 6%
5,379
5.6%
2,350 to 2,450
2,436
n/m
Increase of 2% to 4%
1,746
2.4%
Each and every day, our team members wake up with one purpose in mind: to connect our customers
with the people and the memorable moments that matter most to them. At the heart of it, we bring
people together – we connect people, businesses and communities to each other and to a world
of possibilities around them. We leverage technology and media to help make truly special, human
moments possible – this is hugely powerful! It is a responsibility that we take very seriously and that
we deliver with tremendous pride and passion to our customers every day.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC.
7
Create best-in-class customer
experiences by putting our
customers first in everything we do
Everything starts and ends with our customers,
so improving their experience is core to our strategic
plan. This means putting our customers first in
everything we do and obsessing over their end-to-
end experience.
It is about offering innovative products and services
that our customers find inspiring and make a
difference in their lives. It is about making every
customer interaction clear, simple and fair. It is also
about building digital capabilities to give our
customers a reliable, consistent experience every
time they contact us.
In 2017, we delivered the best Wireless postpaid
churn and the best postpaid net additions since 2010.
I am encouraged by this progress, but I know we can
do even better. This means investing substantially in
our frontline team so they have the tools and support
needed to best serve our customers.
I truly believe what gets measured gets done.
So we are directly tying our customer experience
improvements to our incentive plan. In 2018, 50%
of our annual bonus plan will be based on the
achievement of key customer metrics.
“ It is about offering
innovative products and
services that our customers
find inspiring and make a
difference in their lives.”
8
ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
Invest in our networks and
technology to deliver leading
performance and reliability
Our customers want reliable, worry-free networks
and their data use is doubling every 18 to 24 months
across our networks. We will meet this demand with
a disciplined capital investment plan focused on
generating an attractive return on investment.
In Wireless, we added new cell sites, expanded
our LTE coverage to reach 96% of Canadians and
deployed more 700 MHz spectrum. We also
accelerated our move to 4.5G, setting the stage
for a smooth evolution to 5G.
We have always invested to be at the forefront of
commercially ready technology – we led with 1G,
then 2G, and then 3G and 4G. Today, we are at the
advent of 5G. In 2018, we will ramp up our efforts in
conducting 5G trials to support our development.
Over the next few years, we will deliver a broad range
of 5G services across mobility, broadband and the
Internet of Things.
In Cable, we leveraged our Gigabit and DOCSIS 3.1
advantage to give our customers the fastest widely
available speeds in our market. We expanded our
fibre infrastructure and reduced the number of
homes passed per node to deliver greater speeds
and more reliable service.
We continue to be impressed with DOCSIS and we
are getting ready for the next generation, which will
support upload and download speeds of up to
10 Gbps. We are focusing on neighbourhoods with
the greatest data demands and opportunities for
cost efficiencies.
Over the past five years, Rogers has
delivered more opportunities for
Bernard to learn and laugh with
his grandkids, as they connect
through Canada’s largest
wireless network.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC.
9
Sheldon and Chris
can catch the final period
and cheer on their team
from anywhere.
10 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
“ Our strong portfolio of
assets, our strategic priorities
and our great team are a
strong foundation to achieve
the growth that lies ahead.”
Deliver innovative solutions
and compelling content that
our customers will love
Innovation is in our DNA. Our investments are focused
on bringing the best products and services by
leveraging proven technologies from across the globe.
One example is Ignite TV, where we have licensed the
capability from Comcast for the X1 IPTV platform.
With Ignite TV, we are reinventing the home
entertainment experience for our customers. It is a
brand new platform for the digital home, for video
Drive profitable growth
in all the markets we serve
Growth is the engine that fuels our future. Our focus
remains on driving renewed and renewable growth in
our core businesses – Wireless, Cable, Enterprise and
Media. At the same time, I fundamentally believe that
customer service improvement and margin expansion
entertainment, for the connected home of the future.
go hand in hand.
In 2017, we undertook extensive efforts to test, install
and integrate X1. In 2018, we will bring this world-class
IPTV service to market with the most advanced
features and a robust product roadmap. We believe it
will be a game changer for our customers and the
In 2017, we grew total revenue by 3%, adjusted
operating profit by 6% and free cash flow by 2%.
We grew Wireless margins by 50 basis points and
Cable margins by 80 basis points.
long-term success of our cable business. We see
Our growth was largely driven by Wireless with service
strong growth potential in Cable with our superior
revenue growth of 7% and adjusted operating profit
broadband product and the capabilities that will come
growth of 8%. These are the best Wireless financial
with IPTV and smart home offerings.
In Enterprise, we refocused our product portfolio on
a few critical innovations with a key focus on small
and medium enterprises. The Canadian enterprise
results we have seen since 2009. We also gained
354,000 postpaid net additions and delivered a
postpaid churn rate of 1.2%. These are the best
subscriber metrics we have seen in seven years.
market is worth an estimated $22 billion and we
In Cable, we grew adjusted operating profit by 2%.
see meaningful opportunity to grow our share of
Our financials were largely driven by the strength of
the market. Overall, we are focused on delivering
our Internet business. We grew Cable households for
sustained, profitable growth in wireless, wireline,
the second straight year in a row, representing an
data centres and the Internet of Things.
important, continuing inflection point given four prior
In Media, our success was driven by sports and local
years of decline.
content. Sportsnet continued its reign, for the third
In Media, overall revenue was flat but we saw revenue
straight year, as Canada’s #1 specialty network and
growth in our sports, television, radio and digital
#1 sports media brand in the country. Locally, we
businesses. In 2018, we expect growth in Media
expanded CityNews to Edmonton and Winnipeg.
margins driven by higher revenue and an improved
We expanded our radio footprint and now have
cost structure.
55 local stations across the country. We also secured
approval of the OMNI 9(1)(h) licence, and launched
OMNI Regional, providing Canada’s diverse
communities with vital programming.
Consumer and business demand for data continues
to grow significantly and wireless penetration rates
continue to rise. This is bolstered by forecasted growth
in GDP, record low unemployment and generally healthy
macroeconomic conditions. Our strong portfolio of
assets, our strategic priorities and our great team are a
strong foundation to achieve the growth that lies ahead.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 11
Be a strong, socially responsible
leader in our communities
across Canada
Giving back to the communities where we live and
work is an important part of who we are. Rogers
has a wonderful history of giving that started with
Ted and we will build on his legacy.
Last year, we invested $64 million through cash
and in-kind donations to various charitable
organizations across Canada. We launched
the Ted Rogers Scholarship Fund, awarding
307 scholarships to youth entering their first year
of post-secondary education. We also delivered
65 grants to community organizations that
provide innovative educational programs for youth.
Additionally, we launched a terrific new giving
campaign, Give Together Month, where Rogers
matched employee donations to the charity of their
choice, generating $2.2 million for our communities.
We expanded Connected for Success, our affordable
broadband service, to 200 community housing
partners making it available to 150,000 low-income
Canadians.
In 2018, we will formally launch our Give Together
community investment program that will include
company-wide volunteering for employees and their
families. I fundamentally believe that when you do
well in business, you have a responsibility to give
back. Our community efforts are an integral part of
the memorable moments we help deliver and they
will grow to become a hallmark of our organization.
Develop our people and
a high-performance culture
Culture is at the heart of our success and our
people are our most valuable asset. I truly believe
that building the right culture drives an unassailable
focus on the customer, and that, in turn, will deliver
sustained growth and value creation. A critical
foundation is creating an open, trusting and diverse
workplace that is grounded in accountability and
performance.
In 2017, we streamlined our management team
and organizational structure to drive end-to-end
accountability and a relentless customer focus.
We continued to invest in our employees, including
more tools and training along with a stronger focus
on inclusion and diversity. Our employee
engagement score rose to 79%.
Our efforts were also recognized externally. In 2017,
we were highlighted as one of Canada’s Top 100
Employers for the fifth straight year, one of Canada’s
Best Diversity Employers, a Top Employer for Young
People and one of Canada’s Greenest Employers.
In 2018, we will continue to improve the employee
experience with a focus on our frontline team.
We will develop our people with great pride and
passion and help them grow their careers.
Fundamentally, I want to make Rogers the
best place to work in Canada.
“ Giving back to the
communities where we live
and work is an important
part of who we are.”
12 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
Our community efforts
are an integral part of the
memorable moments we
help deliver and they will
grow to become a hallmark
of our organization.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 13
For Peggy and Tej,
Saturday nights are for
connecting with the kids
for a special family movie.
14 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
“ We remain relentlessly focused
on driving the fundamentals
that deliver shareholder value
– growth in revenue, profit,
margins and free cash flow.”
The year ahead
We enter 2018 with strong momentum and a clear plan for sustained financial growth along with
strategic capital investments in our core business. Our 2018 guidance reflects continued growth
in revenue and accelerated growth in both profit and free cash flow.
Full-Year 2018 Guidance 1
(in millions of dollars, except percentages)
Consolidated Guidance
Revenue
Adjusted EBITDA
Capital expenditures
Free cash flow
1 Please see 2017 Financial Report.
2018 Guidance
Increase of 3% to 5%
Increase of 5% to 7%
2,650 to 2,850
Increase of 3% to 5%
We remain relentlessly focused on driving the fundamentals that deliver shareholder value – growth
in revenue, profit, margins and free cash flow. Ultimately, it is about delivering a strong return on
investment. Operational excellence and well-timed network investments will be key to our success.
As a company, our purpose is clear: to connect our customers with the people and the memorable
moments that matter most to them. With the right team, a clear purpose and vision and a strategic
plan to win, we are well-positioned to capitalize on the growth opportunities ahead.
I am immensely proud of our team and what we accomplished in 2017. I would like to share a heartfelt
thank you to all 25,000 team members for their incredible commitment and dedication. I would like
to thank the Board for their support. And I would like to thank you, our shareholders, for your ongoing
investment and confidence in Rogers.
All the best,
Joe Natale
President and Chief Executive Officer
Rogers Communications Inc.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 15
Corporate governance
“ Our Board is strongly committed to sound corporate
governance practices. The Board’s structure, with diverse
and independent directors, ensures that the interests of all
shareholders are considered – an approach that has helped
ensure the continuance of strong, family-founded Canadian
companies. The Board composition and its governance policies
also reinforce our commitment that the appropriate balance
is struck between risk and reward.”
Charles Sirois
Lead Director, Rogers Communications Inc.
Rogers Communications Inc.’s Board of Directors (the Board)
statement of corporate governance practices, our codes
is strongly committed to sound corporate governance and
of conduct and ethics, full committee charters and Board
continually reviews its governance practices and benchmarks
member biographies – in the Corporate Governance section
them against acknowledged leaders and best practices.
at investors.rogers.com. At this link, you will find a summary
We are a family-founded and controlled company and take
of the differences between the NYSE corporate governance
pride in our proactive and disciplined approach towards
rules applicable to U.S.-based companies and our governance
ensuring that Rogers’ governance structures and practices are
practices as a non-U.S.-based issuer that is listed on the NYSE.
deserving of the confidence of the public capital markets.
The Audit and Risk Committee reviews the Company’s
Voting control of Rogers Communications Inc. is held by a
accounting policies and practices, the integrity of the
trust, of which members of the Rogers family are beneficiaries.
Company’s financial reporting processes and procedures
This trust holds voting control of Rogers Communications Inc.
and the financial statements and other relevant disclosures
for the benefit of successive generations of the Rogers family.
for release to shareholders and the public. The Committee
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 Board believes that the Company’s governance and risk
management systems are effective and that the appropriate
structures and procedures are in place.
also assists the Board in its oversight of the Company’s
compliance with legal and regulatory requirements relating
to financial reporting and assesses the accounting systems,
financial control systems and evaluates the qualifications,
independence and work of both external and internal
auditors. It also reviews risk management policies and
associated processes to identify major risk exposures.
The Corporate Governance Committee assists and makes
recommendations regarding corporate governance
The composition of our Board and structure of its various
practices and principles, the Board’s approach to director
committees are outlined in the table on the following page.
independence and director compensation. The Committee
As well, we make available detailed information on our
also leads the Board in its periodic review of the performance
governance structures and practices – including our complete
of the Board and its committees.
16 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
Board of Directors and its Committees
Chair Member
Audit
and Risk
Corporate
Governance
Nominating
Human
Resources
Executive
Finance
Pension
Edward S. Rogers
Charles Sirois, cm
Bonnie R. Brooks, cm
Robert K. Burgess
John H. Clappison, fcpa, fca
Robert Dépatie
Robert J. Gemmell
Alan D. Horn, cpa, ca
Philip B. Lind, cm
John A. MacDonald
Isabelle Marcoux
Joe Natale
The Hon. David R. Peterson, pc, qc
Loretta A. Rogers
Martha L. Rogers
Melinda M. Rogers
The Nominating Committee identifies prospective
Director nominees for election by the shareholders and for
appointment by the Board and assesses incumbent directors.
The Committee 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 financings and general
debt and equity structure. The Committee also reviews
commitments and arrangements above specified thresholds.
Rogers’ Good Governance Practices
Independent
Lead Director
Formal Corporate
Governance
Policy and Charters
Code of Business
Conduct and
Whistleblower
Hotline
Director Share
Ownership
Guidelines
Board and
Committee
In Camera
Discussions
Annual Reviews
of Board and
Committee
Performance
Audit and
Risk Committee
Meetings with
Internal and External
Auditors
Orientation
Program for
New Directors
Board
Education
Sessions
Committee
Authority to
Retain Independent
Advisors
Director Material
Relationship
Standards
Separation
of CEO and
Chair Roles
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.
For a complete description of Rogers’ corporate
governance structure and practices and copies
of our annual information circular and proxy,
go to investors.rogers.com
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 17
Senior executive officers
For detailed biographical
information of the Rogers’
Executive Officers, go to
investors.rogers.com
1
6
2
7
3
8
4
9
5
10
1 Joe Natale
President and
Chief Executive Officer
2 Rick Brace
President, Media
3 Lisa Durocher
Chief Digital Officer
6 John Hill
Chief Information Officer
7 David Miller
Chief Legal & Corporate Affairs
Officer and Secretary
8 Dean Prevost
President, Enterprise
4 Jorge Fernandes
Chief Technology Officer
9 Jim Reid
Chief Human Resources Officer
5 Phil Hartling
10 Anthony Staffieri, fcpa, fca
Interim President, Consumer
Chief Financial Officer
18 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
Directors
For detailed biographical
information of the Rogers’
Directors, go to
investors.rogers.com
1
6
2
7
3
8
4
9
5
10
11
12
13
14
15
1 Edward S. Rogers
Chair
2 Charles Sirois, cm
Lead Director
Rogers Communications Inc.
Chairman
Telesystem Ltd.
3 Bonnie R. Brooks, cm
Company Director
4 Robert K. Burgess
Company Director
5 John H. Clappison, fcpa, fca
Company Director
6 Robert Dépatie
Company Director
7 Robert J. Gemmell
Company Director
8 Alan D. Horn, cpa, ca
President and Chief Executive Officer
Rogers Telecommunications Limited
9 Philip B. Lind, cm
Vice Chair
10 John A. MacDonald
Company Director
11 Isabelle Marcoux
Chair
Transcontinental Inc.
* Joe Natale
President and Chief Executive Officer
* Pictured on previous page
12 The Hon. David R. Peterson, pc, qc
Chairman Emeritus
Cassels Brock & Blackwell LLP
13 Loretta A. Rogers
Company Director
14 Martha L. Rogers
Company Director
15 Melinda M. Rogers
Deputy Chair
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 19
Priyakshi Mahanta
Ted Rogers Scholarship Fund
Class of 2017
20 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
We’re always striving to do what’s right for our customers,
employees, and communities across Canada, whether it is
through helping students reach their education goals, providing
low-cost Internet to Canadians living in subsidized housing, or
instilling environmental stewardship across our organization.
Corporate social
responsibility
Over the last year, we have donated $64 million through
cash and in-kind donations to various charitable
organizations and causes. Included in this is our newly
launched Ted Rogers Scholarship Fund, named for our
founder, Ted Rogers, who believed that education could
“remake a city, a province or country”. Through the Fund,
we work with nine community partners to identify scholarship
recipients. In 2017, we awarded 307 scholarships through
our community partners and to the dependents of our
hard-working employees.
Understanding that some of the most important learning
happens outside of the classroom, we also awarded
65 grants to community organizations across the country
that provide innovative and educational programs for youth.
Our employees are passionate about giving back to their
communities. In addition to offering employees one paid
day off per year to volunteer at the charity of their choice,
we recently launched a new annual employee giving
campaign, Give Together Month, where Rogers matched
all employee donations to the charity of their choice, up
to $1,000 per employee. In 2017, we raised $2.2 million
for our communities through our annual giving campaign,
and had 1,800 employees take part in a volunteer
experience at their chosen charity.
Our Connected for Success program offers access to
affordable broadband Internet to 150,000 low-income
Canadians living in community housing. Originally launched
in 2013 in partnership with Toronto Community Housing,
we now have 200 housing partners and 16,000 Canadian
households that have registered in the program. We were
the first telecom company to launch an affordable Internet
program in Canada.
In 2017, we continued to make strides to ensure that our
suppliers are adhering to ethical and sustainable practices.
As part of our membership in the Joint Audit Cooperation
(JAC) – a group of global telecom companies that share
common suppliers, we share audit results among our
peers to ensure that our suppliers adhere to internationally
recognized supply chain and sustainability standards along
the ICT supply chain, upholding human rights and social,
labour and environmental standards.
Rogers offers a variety of inclusive and accessible products
and continues to focus on upholding sustainability
principles in the development and delivery of services to
our customers. Customer Service continues to provide a
specialized support centre for information related to our
accessibility offerings and we have made improvements
to the quality of our website to ensure screen-reader
compatibility on various browser options. Additionally,
we have invested in our digital customer experience to
ensure that all future self-serve offerings are conceptualized
and constructed for inclusivity of all consumers. We also
continue to provide a flexible data-only wireless plan option
for people who have speech or hearing impairments.
We are progressing towards our environmental targets
to reduce our greenhouse gas emissions and energy
consumption by 25% and 10%, respectively, by 2025,
based on 2011 levels. We were once again named as one
of Canada’s Greenest Employers by Mediacorp for the
5th year in a row. In 2017, we continued to invest in lighting
upgrades at nine of our offices in order to reduce energy
consumption. Our Get Up & Get Green internal waste
program has allowed us to centralize waste bins and allow
for better sorting measures, with the goal of reaching a
70% waste reduction rate.
Within our business, we have also invested in the employee
experience by delivering more training and development
programs and an increased focus on inclusion and diversity.
In 2017, our employee engagement score rose to 79%.
We were also recognized once again this year as one of
Canada’s Top 100 Employers, one of Canada’s Best Diversity
Employers, one of Canada’s Top Employers for Young
People and one of Greater Toronto’s Top Employers.
For more information on Corporate Social Responsibility at
Rogers, please see our website rogers.com/csr and look out
for our 2017 CSR Report, which will be released in spring 2018.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 21
MANAGEMENT’S DISCUSSION AND ANALYSIS
2017 Financial Report
23 MANAGEMENT’S DISCUSSION AND ANALYSIS
59 Managing Our Liquidity and Financial Resources
59
Sources and Uses of Cash
62
Financial Condition
Financial Risk Management
64
67 Dividends and Share Information
68 Commitments and Contractual Obligations
68 Off-Balance Sheet Arrangements
69 Governance and Risk Management
Social Responsibility
Income Tax and Other Government Payments
69 Governance at Rogers
70
71
72 Risk Management
72 Risks and Uncertainties Affecting Our Business
78 Controls and Procedures
80 Regulation In Our Industry
81 Wireless
83 Cable
85 Media
86 Other Information
Key Performance Indicators
86 Accounting Policies
91
93 Non-GAAP Measures
95
Summary of Financial Results of Long-Term Debt
Guarantor
Five-Year Summary of Consolidated Financial Results
96
25 Executive Summary
25 About Rogers
25
27
2017 Highlights
Financial Highlights
29 Understanding Our Business
Products and Services
29
31 Competition
33
Industry Trends
34 Our Strategy, Key Performance Drivers, and Strategic
Highlights
34 Our Strategic Priorities
2017 Objectives
35
Key Performance Drivers and 2017 Strategic Highlights
35
2018 Objectives
37
Financial and Operating Guidance
37
39 Capability to Deliver Results
Leading Networks
Powerful Brands
39
40
41 Widespread Product Distribution
41
First-Class Media Content
41 Customer Experience
Engaged People
42
42
Financial Strength and Flexibility
42 Healthy Trading Volumes and Dividends
43 2017 Financial Results
43
44
Summary of Consolidated Results
Key Changes in Financial Results This Year Compared to
2016
45 Wireless
47 Cable
49
50 Media
51 Capital Expenditures
52 Review of Consolidated Performance
55 Quarterly Results
58 Overview of Financial Position
Business Solutions
22 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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Management’s Discussion and Analysis
This Management’s Discussion and Analysis (MD&A) contains
important information about our business and our performance for
the year ended December 31, 2017. This MD&A should be read in
conjunction with our 2017 Audited Consolidated Financial
Statements, which have been prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
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 March 8, 2018 and was
approved by RCI’s Board of Directors (the Board). 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 its subsidiaries. RCI refers
to the legal entity Rogers Communications Inc., not including its
subsidiaries. Rogers also holds interests in various investments and
ventures.
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, the first quarter refers to the three months ended
March 31, 2017, the second quarter refers to the three months
ended June 30, 2017, the third quarter refers to the three months
ended September 30, 2017, the fourth quarter refers to the three
months ended December 31, 2017, this year refers to the twelve
months ended December 31, 2017, and last year refers to the
twelve months ended December 31, 2016. All results commentary
is compared to the equivalent periods in 2016 or as at
December 31, 2016, as applicable, unless otherwise indicated.
ABOUT FORWARD-LOOKING INFORMATION
This MD&A includes “forward-looking information” and “forward-
looking statements” within the meaning of applicable securities
laws (collectively, “forward-looking information”), and assumptions
about, among other things, our business, operations, and financial
performance and condition approved by our 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:
• typically includes words like could, expect, may, anticipate,
assume, believe,
intend, estimate, plan, project, guidance,
outlook, target, and similar expressions, although not all forward-
looking information includes them;
• includes 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 have been
reasonable at the time they were applied but may prove to be
incorrect; and
• was approved by our management on the date of this MD&A.
Our forward-looking information includes forecasts and projections
related to the following items, some of which are non-GAAP
measures (see “Non-GAAP Measures”), among others:
• revenue;
• total service revenue;
• adjusted EBITDA;
• capital expenditures;
• cash income tax payments;
• free cash flow;
• dividend payments;
• the growth of new products and services;
• expected growth in subscribers and the services to which they
subscribe;
• the cost of acquiring and retaining subscribers and deployment
of new services;
• continued cost reductions and efficiency improvements;
• traction against our debt leverage ratio; and
• all other statements that are not historical facts.
Specific forward-looking information included or incorporated in
this document includes, but is not limited to, our information and
statements under “Financial and Operating Guidance” relating to
our 2018 consolidated guidance on revenue, adjusted EBITDA,
capital expenditures, and free cash flow. All other statements that
are not historical facts are forward-looking statements.
forecasts, and projections
Our conclusions,
(including the
aforementioned guidance) are based 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; and
• industry structure and stability.
Except as otherwise indicated, this MD&A and our forward-looking
information 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 on which the statement containing the forward-
looking information is made.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 23
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.
BEFORE MAKING AN INVESTMENT DECISION
Before making any investment decisions and for a detailed
discussion of the risks, uncertainties, and environment associated
with our 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, respectively.
FOR MORE INFORMATION
You can find more information about us, including our Annual
Information Form, on our website (investors.rogers.com), 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 find information about our governance practices,
corporate
of
communications and media industry terms, and additional
information about our business at investors.rogers.com.
responsibility
a glossary
reporting,
social
MANAGEMENT’S DISCUSSION AND ANALYSIS
RISKS AND UNCERTAINTIES
Actual events and results can be substantially different from what is
expressed or implied by forward-looking information as a result of
risks, uncertainties, and other factors, many of which are beyond
our control, including but not limited to:
• regulatory changes;
• technological changes;
• economic conditions;
• unanticipated changes in content or equipment costs;
• changing conditions in the entertainment, information, and/or
communications industries;
• the integration of acquisitions;
• litigation and tax matters;
• the level of competitive intensity;
• the emergence of new opportunities; and
• new interpretations and new accounting standards
from
accounting standards bodies.
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
factors or
assumptions underlying the forward-looking information prove
incorrect, our actual results and our plans could vary significantly
from what we currently foresee.
intentions change, or any other
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
24 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
Executive Summary
ABOUT ROGERS
Rogers is a leading diversified Canadian communications and
media company that’s working to deliver a great experience to our
customers every day. We are Canada’s largest provider of wireless
communications services and one of Canada’s leading providers of
cable television, high-speed Internet, information technology, and
telephony services to consumers and businesses. Through Rogers
Media, we are engaged in radio and television broadcasting,
sports, televised and online shopping, magazines, and digital
media.
2017 HIGHLIGHTS
KEY FINANCIAL INFORMATION
Almost all of our operations and sales are in Canada. We have a
highly skilled and diversified workforce of approximately 24,500
employees. Our head office is in Toronto, Ontario and we have
numerous offices across Canada. We report our
results of
operations in four reporting segments. See “Understanding Our
Business”.
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(In millions of dollars, except margins and per share amounts)
Years ended December 31
2017
2016
% Chg
Consolidated
Total revenue
Total service revenue 1
Adjusted operating profit 2
Adjusted operating profit margin 2
Net income
Adjusted net income 2
Basic earnings per share
Adjusted basic earnings per share 2
Capital expenditures 3
Cash provided by operating activities
Free cash flow 2
Wireless
Service revenue
Revenue
Adjusted operating profit
Adjusted operating profit margin as a % of service revenue
Cable
Revenue
Adjusted operating profit
Adjusted operating profit margin
Business Solutions
Revenue
Adjusted operating profit
Adjusted operating profit margin
Media
Revenue
Adjusted operating profit
Adjusted operating profit margin
14,143
13,560
5,379
38.0%
1,711
1,821
13,702
13,027
5,092
37.2%
835
1,481
$ 3.32
$ 3.54
$ 1.62
$ 2.88
2,436
3,938
1,746
7,775
8,343
3,561
45.8%
3,466
1,709
49.3%
387
128
33.1%
2,153
139
6.5%
2,352
3,957
1,705
7,258
7,916
3,285
45.3%
3,449
1,674
48.5%
384
123
32.0%
2,146
169
7.9%
3
4
6
0.8 pts
105
23
105
23
4
–
2
7
5
8
0.5 pts
–
2
0.8 pts
1
4
1.1 pts
–
(18)
(1.4 pts)
1 As defined. See “Key Performance Indicators”.
2 Adjusted operating profit, adjusted operating profit margin, adjusted net income, adjusted basic earnings per share, and free cash flow are non-GAAP measures and should not
be considered substitutes or alternatives 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.
3 Includes additions to property, plant and equipment net of proceeds on disposition, but does not include expenditures for spectrum licences.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 25
MANAGEMENT’S DISCUSSION AND ANALYSIS
KEY PERFORMANCE INDICATORS
Subscriber results (000s) 1
Wireless postpaid net additions 2
Wireless prepaid net additions
Wireless subscribers 2
Internet net additions
Internet subscribers
Television net losses
Television subscribers
Phone net additions
Phone subscribers
Total service unit net additions 3
Total service units 3
Additional Wireless metrics 1
Postpaid churn (monthly) 2
Postpaid ARPA (monthly)
Blended ARPU (monthly) 2
Ratios
Capital intensity 1
Dividend payout ratio of net income 1
Dividend payout ratio of free cash flow 1,4
Return on assets 1
Debt leverage ratio 4
Employee-related information
Total active employees (approximate)
As at or years ended December 31
2017
2016
Chg
354
61
10,482
286
111
10,274
85
2,230
(80)
1,740
14
1,108
19
5,078
97
2,145
(76)
1,820
4
1,094
25
5,059
68
(50)
208
(12)
85
(4)
(80)
10
14
(6)
19
1.20%
$ 124.75
$ 62.31
1.23%
$ 117.37
$ 60.42
(0.03 pts)
7.38
1.89
$
$
17.2%
57.7%
56.6%
5.9%
2.8
17.2%
118.3%
57.9%
2.9%
3.0
– pts
(60.6 pts)
(1.3 pts)
3.0 pts
(0.2)
24,500
25,200
(700)
1 As defined. See “Key Performance Indicators”.
2 Effective October 1, 2017, and on a prospective basis, we reduced our Wireless postpaid subscriber base by 207,000 subscribers to remove a low-ARPU public services customer
that is in the process of migrating to another service provider. We believe adjusting our base for a customer of this size that migrates off our network provides a more meaningful
reflection of the underlying organic performance of our Wireless business.
3 Includes Internet, Television, and Phone subscribers.
4 Dividend payout ratio of free cash flow and debt leverage ratio are non-GAAP measures and should not be considered substitutes or alternatives 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.
26 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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FINANCIAL HIGHLIGHTS
HIGHER REVENUE
• Revenue increased by 3% this year, primarily driven by Wireless
service revenue growth of 7%.
• Wireless service revenue increased largely as a result of
subscriber growth and a greater number of subscribers on
higher-rate plans from our various brands,
including Rogers
Share Everything plans. Overall, we achieved our best Wireless
financial results this year since 2009.
• Cable revenue increased marginally as a result of
the 7%
increase in Internet revenue, due to the general movement of
customers to higher-end speed and usage tiers and a larger
subscriber base, partially offset by lower Television and Phone
revenue, primarily due to Television subscriber losses over the
past year and the impact of Phone pricing packages. We
continue to see an ongoing shift in product mix to higher-
margin Internet services, with 54% of our residential
Internet
base now on plans with download speeds of 100 megabits per
second or higher compared to 46% at the end of last year.
Excluding the impact of the Canadian Radio-television and
Telecommunications Commission’s (CRTC) decision (effective
October 2016) that reduced wholesale Internet access service
rates, Cable revenue would have increased by 1% this year and
Internet revenue would have increased by 9% this year.
• Media revenue increased marginally as a result of higher sports-
related revenue driven by the strength of Sportsnet, increased
sales at TSC, Today’s Shopping Choice (TSC), and higher
conventional broadcast TV advertising revenue, partially offset by
lower publishing-related revenue due to the strategic shift to
digital media announced last year.
REVENUE BY SEGMENT
(IN MILLIONS OF DOLLARS)
2017
2016
2015
8,343
3,466
387
2,153
7,916
3,449
384
2,146
7,651
3,465
377
2,079
• Cable adjusted operating profit increased 2% this year as a result
of strong Internet revenue growth, the ongoing product mix shift
to higher-margin Internet services, and various cost efficiencies.
Excluding the impact of
reduced
wholesale Internet access service rates, adjusted operating profit
would have increased by 4% this year.
the CRTC decision that
• Media adjusted operating profit decreased 18% this year primarily
as a result of higher Toronto Blue Jays player payroll (including the
impact of foreign exchange) and higher TSC merchandise costs,
partially offset by lower publishing costs due to the strategic shift
and the increase in revenue as described above.
ADJUSTED OPERATING PROFIT BY SEGMENT
(IN MILLIONS OF DOLLARS)
2017
2016
2015
3,561
1,709
128
139
3,285
1,674
123
169
3,239
1,658
116
172
Wireless
Cable
Business Solutions
Media
HIGHER NET INCOME AND ADJUSTED NET INCOME
• Net
the
income increased 105% primarily as a result of
impairment and related charges we recognized last year as a
result of our decision to discontinue developing our legacy
Internet Protocol
(instead, we are
television (IPTV) product
moving forward with the deployment of Comcast Corporation’s
(Comcast) X1 IP-based video platform as Ignite TV), along with
prior year equity losses associated with the wind-down of shomi,
and higher adjusted operating profit and lower depreciation and
amortization this year. The increase was partially offset by higher
income tax expense consistent with higher earnings. See
“Review of Consolidated Performance” for more information.
• Adjusted net income increased 23% this year as a result of
higher adjusted operating profit and lower depreciation and
amortization, partially offset by higher income tax expense.
Wireless
Cable
Business Solutions
Media
BASIC EARNINGS PER SHARE
($)
HIGHER ADJUSTED OPERATING PROFIT
• Adjusted operating profit
increased 6% this year, with a
consolidated adjusted operating profit margin of 38.0%, an
expansion of 80 basis points. This increase was primarily driven
by Wireless, with a 50 basis point expansion to 45.8%, and
Cable, with an 80 basis point expansion to 49.3%.
• Wireless adjusted operating profit increased 8% this year as a
result of strong flow-through of the service revenue growth
described above, partially offset by higher expenditures
associated with increased subscriber volumes and costs of
devices.
2017
2016
2015
ADJUSTED BASIC EARNINGS PER SHARE
($)
2017
2016
2015
3.32
1.62
2.61
3.54
2.88
2.87
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 27
MANAGEMENT’S DISCUSSION AND ANALYSIS
SUBSTANTIAL FREE CASH FLOW SUPPORTS FINANCIAL
FLEXIBILITY
• Our substantial cash flow generation enabled us to reduce
outstanding debt, continue to make investments in our network,
and return substantial dividends to shareholders. We paid
$988 million in dividends in 2017.
• Our cash provided by operating activities was stable this year as
the increase in net income was offset by an increase in income
taxes paid and an increased investment in non-cash working
to
capital
$1,746 million as a result of higher adjusted operating profit,
partially offset by higher cash income taxes and higher capital
expenditures.
items. Free cash flow increased 2% this year
• Our debt leverage ratio improved to 2.8 as at December 31,
2017 from 3.0 as at December 31, 2016, driven by lower
adjusted net debt and higher adjusted operating profit.
• Our overall weighted average cost of borrowings was 4.70% as
at December 31, 2017 (2016 – 4.72%) and our overall weighted
average term to maturity on our debt was 9.9 years as at
December 31, 2017 (2016 – 10.6 years).
• We ended the year with approximately $2.7 billion of available
liquidity (2016 – $2.7 billion) including $2.3 billion available
under our bank and letter of credit facilities (2016 – $2.4 billion),
and $0.4 billion (2016 – $0.25 billion) available under our
$1.05 billion accounts receivable securitization program.
28 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
Understanding Our Business
Rogers is a leading diversified Canadian communications and
media company.
FOUR REPORTING SEGMENTS
We report our results of operations in four reporting segments.
Each segment and the nature of its business are as follows:
Segment
Wireless
Cable
Principal activities
Wireless telecommunications operations
for Canadian consumers and businesses.
Cable telecommunications operations,
including Internet, television, and
telephony (phone) services for Canadian
consumers and businesses.
Business Solutions Network connectivity through our fibre
Media
network and data centre assets to support
a range of voice, data, networking,
hosting, and cloud-based services for the
enterprise, public sector, and carrier
wholesale markets.
A diversified portfolio of media properties,
including sports media and entertainment,
television and radio broadcasting,
specialty channels, multi-platform
shopping, digital media, and publishing.
We intend to redefine our reporting segments effective January 1,
2018 as a result of technological evolution and the increased
overlap between the various product offerings within our Cable
and Business Solutions reporting segments, as well as how we
allocate resources amongst, and the general management of, our
reporting segments. Effective January 1, 2018, the results of our
existing Cable segment, Business Solutions segment, and our
Smart Home Monitoring products will be presented within a
redefined Cable segment. Financial results related to our Smart
Home Monitoring products are currently
reported within
Corporate items and intercompany eliminations. We will
retrospectively amend our 2017 comparative segment results in
2018 to account for this redefinition.
2017 REVENUE BY SEGMENT
(%)
$14.1
BILLION
Wireless 58%
Cable 24%
Media 15%
Business Solutions 3%
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2017 ADJUSTED OPERATING PROFIT BY SEGMENT
(%)
$5.4
BILLION
Wireless 64%
Cable 31%
Media 3%
Business Solutions 2%
See “Capability to Deliver Results” for more information about our
extensive wireless and cable networks and significant wireless
spectrum position.
During the year, our Wireless, Cable, and Business Solutions
reporting segments were operated by our wholly-owned
subsidiary, Rogers Communications Canada Inc.
(RCCI), and
certain other wholly-owned subsidiaries. Our Media reporting
segment was operated by our wholly-owned subsidiary, Rogers
Media Inc., and its subsidiaries.
PRODUCTS AND SERVICES
WIRELESS
Rogers is a Canadian leader in delivering a range of innovative
wireless services. Our postpaid and prepaid wireless services are
offered under the Rogers, Fido, and chatr brands, and provide
consumers and businesses with the 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, including Roam Like Home and
Fido Roam;
• bridging landline phones with wireless phones through products
like Rogers Unison;
• machine-to-machine solutions; and
• advanced wireless solutions for businesses.
CABLE
Our cable network provides an innovative and leading selection of
high-speed broadband Internet access, digital television and online
viewing, phone, and advanced home Wi-Fi services to consumers
in Ontario, New Brunswick, and on the island of Newfoundland. We
also provide services to businesses and enterprises across Canada
that aim to meet the increasing needs of today’s critical business
applications.
With the forthcoming launch of Ignite TV, our new Cable Television
product, we plan to reinvent how our customers experience TV.
Ignite TV will deliver a high-value, premium service with advanced
features and video experiences, along with a robust product
roadmap of innovation leading to a truly connected home service.
First on the innovation roadmap, we intend to adopt Comcast’s
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 29
MANAGEMENT’S DISCUSSION AND ANALYSIS
new Digital Home solution. This whole-home networking solution
will provide customers with a simple, fast, and intuitive way to
control and manage their connected devices. The cloud-based
platform will link to the new DOCSIS 3.1 Wi-Fi gateway devices to
deliver
reliable connectivity in the home and will allow
customers to easily add or pause devices, pair Wi-Fi extenders that
boost signal strength, and use voice controls to see who is on the
network, all in a safe and secure manner.
fast,
Internet services include:
• Internet access (including basic and unlimited usage packages),
security solutions, and e-mail;
• access speeds of up to one gigabit per second (Gbps), covering
our entire Cable footprint;
• Rogers Ignite and Fido Internet unlimited packages, combining
fast and reliable speeds with the freedom of unlimited usage
and options for self-installation; and
• Rogers Smart Home Monitoring, offering services such as
monitoring, security, automation, energy efficiency, and smart
control through a smartphone app.
Television services include:
• local and network TV, including starter and premium channel
packages along with à la carte channels;
• on-demand television;
• personal video recorders (PVRs), including Whole Home PVRs
and a 4K PVR;
• linear and time-shifted programming;
• digital specialty channels;
• 4K television programming, including all 2017 and 2018 regular
season Toronto Blue Jays home games and select marquee
National Hockey League (NHL) and National Basketball
Association (NBA) games; and
• Rogers Anyplace
TV,
smartphones, tablets, and personal computers.
televised content delivered on
Phone services include:
• residential and small business local telephony service; and
• calling features such as voicemail, call waiting, and long distance.
Enterprise services include:
• voice, data networking,
Internet protocol
(IP), and Ethernet
services over multi-service 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 enables and interconnects
critical business applications for businesses that have one or
many offices, data centres, or points of presence (as well as
cloud applications) across Canada;
• simplified information technology (IT) and network technologies
with security-embedded, cloud-based, professionally-managed
solutions; and
• extensive wireless and cable access networks services for primary,
bridging, and back-up connectivity.
In Sports Media and 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, concerts, trade shows, and special events.
Our NHL Agreement, which runs through the 2025-2026 NHL
to deliver unprecedented coverage of
season, allows us
professional hockey, with more than 1,200 regular season games
per season streamed across television, smartphones, tablets, and
the Internet, both through traditional streaming services as well as
Rogers NHL LIVE. Our NHL Agreement also grants Rogers national
rights on those platforms to the NHL playoffs and Stanley Cup
Final, all NHL-related special events and non-game events (such as
the NHL All-Star Game and the NHL Draft), and rights to sublicense
broadcasting rights to Groupe TVA and the Canadian Broadcasting
Corporation (CBC) and to use the Hockey Night In Canada brand
through a sublicense agreement.
In Television, we operate several conventional and specialty
television networks:
• Sportsnet’s four regional stations, Sportsnet ONE, Sportsnet 360,
and Sportsnet World;
• City network, which,
together with affiliated stations, has
broadcast distribution to approximately 85% of Canadian
individuals;
• OMNI multicultural broadcast
including
OMNI Regional broadcast television stations, which provide
multilingual newscasts nationally to all digital basic television
subscribers;
television stations,
• specialty channels that include FX (Canada), FXX (Canada), and
Outdoor Life Network; and
• TSC, Canada’s only nationally televised shopping channel, which
generates a significant and growing portion of its revenue from
online sales.
In Radio, we operate 55 AM and FM radio stations in markets
across Canada, including popular radio brands such as 98.1 CHFI,
680 NEWS, Sportsnet The FAN, KiSS, JACK FM, and SONiC.
As part of our strategic change to focus on digital media, our
services and products include:
• our digital sports-related assets,
including Rogers NHL LIVE
(formerly Rogers NHL GameCentre LIVE) and Sportsnet NOW;
• many well-known consumer brands,
such as Maclean’s,
Chatelaine, Today’s Parent, and Hello! Canada; and
• a broad digital presence that continues the extension of content
across new and existing platforms.
OTHER
the Rogers Platinum MasterCard and the Fido
We offer
MasterCard, credit cards that allow customers to earn cashback
rewards points on credit card spending.
in a number of associates and joint
OTHER INVESTMENTS
We hold interests
arrangements, 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, Toronto FC, the Toronto Argonauts, and
the Toronto Marlies, as well as various associated real estate
holdings; and
MEDIA
Our portfolio of Media assets reaches Canadians from coast to
coast.
• our 50% ownership interest in Glentel
Inc. (Glentel), a large
provider of multicarrier wireless and wireline products and
services with several hundred Canadian retail distribution outlets.
30 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
COMPETITION
Competition in the telecommunications industry continues to
intensify, with national,
regional, and reseller players giving
consumers a broader choice in service providers and plan offerings.
This puts downward pressure on pricing, potentially reducing profit
margins, and could also affect our subscriber churn.
Traditional wireline telephony and television services are now
offered over the Internet. This has allowed more non-traditional
providers to enter the market and has changed how traditional
providers compete. This is changing the mix of packages and
pricing that service providers offer and could affect churn levels.
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 dollars to digital and online
versus traditional media. In addition, the number of competitors
has increased as more digital and online media companies,
including large global companies, enter the market.
WIRELESS
We compete on customer experience, quality of service, scope of
services, network coverage, sophistication of wireless technology,
breadth of distribution, selection of devices, branding and
positioning, and price.
• Wireless technology – our extensive long-term evolution (LTE)
network caters to customers seeking the increased capacity and
speed it provides. We compete with Bell, Telus, Shaw, Videotron,
SaskTel, and Eastlink, all of whom operate LTE networks. We also
compete with these providers on high-speed packet access
(HSPA) and global system for mobile communications (GSM)
networks and with providers that use alternative wireless
technologies, such as Wi-Fi “hotspots” and mobile virtual
network operators (MVNO), such as President’s Choice Mobile
and Primus.
• Product, branding, and pricing – we compete nationally with Bell,
Telus, and Shaw, including their flanker brands Virgin Mobile
(Bell), Lucky Mobile (Bell), Koodo (Telus), Public Mobile (Telus),
and Freedom Mobile (Shaw). We also compete with various
regional players and resellers.
• Distribution of services and devices – we compete with other
service providers for dealers, prime locations for our own stores,
and third-party retail distribution shelf space.
• Wireless networks – consolidation amongst regional players, or
with incumbent carriers, could alter the regional or national
competitive landscapes for Wireless.
• Inbound roaming – we compete with other major national
carriers to provide service to international operators who have
customers who roam while in Canada.
• Spectrum – Innovation, Science and Economic Development
Canada (ISED Canada) has announced a future 600 MHz
spectrum auction, expected to take place in the next one to two
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years. The outcome of this auction may increase competition.
See “Regulation In Our Industry” for more information.
CABLE
Internet
We compete with other Internet Service Providers (ISPs) that offer
residential high-speed Internet access services. Rogers and Fido
high-speed Internet services compete directly with:
• Bell and Bell Aliant’s Internet services in Ontario, New Brunswick,
and on the island of Newfoundland; and
• various resellers using wholesale telecommunication company
digital subscriber line (DSL) and cable Third-Party Internet Access
(TPIA) services in local markets.
A number of different players in the Canadian market also
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 areas where
they have the most extensive networks.
In the enterprise
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. Our main competitors are as follows:
• Ontario – Bell, Cogeco Data Services, and Zayo;
• Quebec – Bell, Telus, and Videotron;
• Atlantic Canada – Bell Aliant and Eastlink; and
• Western Canada – Shaw and Telus.
Television
We compete with:
• other
Canadian multi-channel
distribution
broadcast
including Bell, Shaw, other alternative
undertakings (BDUs),
satellite TV services, and IPTV;
• over-the-top (OTT) video offerings through providers like Netflix,
YouTube, Hulu, Apple, Amazon Prime Video, Google, and other
channels streaming their own content; and
• over-the-air
local and regional broadcast
television signals
received directly through antennas, and the illegal reception of
US direct broadcast satellite services.
Phone
We compete with:
• Bell and Bell Aliant’s wireline phone service in Ontario, New
Brunswick, and on the island of Newfoundland;
• incumbent local exchange carrier (ILEC) local loop resellers and
voice over IP (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
• substitution of wireline for wireless products, including mobile
phones and wireless home phone products.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 31
TSC 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, and loyalty.
Our digital media and publishing products compete for readership
and advertisers with:
• other Canadian magazines, both digital and printed;
• foreign, mostly US, titles that sell directly into Canada, both
digital and printed;
• online information and entertainment websites, such as news
services and streaming services; and
• other traditional media, such as TV and radio.
Competition in Sports Media and Entertainment includes other:
• televised and online sports programming;
• Toronto professional teams, for attendance at Toronto Blue Jays
games;
• MLB teams, for Toronto Blue Jays players and fans;
• local sporting and special event venues; and
• professional sports teams, for merchandise sales revenue.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MEDIA
Television and specialty services compete for
advertisers with:
• other Canadian television stations that broadcast in their local
markets, including those owned and operated by the CBC, Bell
Media, and Corus Entertainment;
viewers and
• other specialty channels;
• distant Canadian signals and US border stations, given the time-
shifting capability available to subscribers;
• other media,
including newspapers, magazines,
radio, and
outdoor advertising; and
• content available on the Internet, such as web-based streaming
services.
Our radio stations compete mainly with individual stations in local
markets, but they also compete with:
• other large, national radio operators, including the CBC, Bell
Media, Corus Entertainment, and satellite radio operator
SiriusXM;
• broadcast and Internet radio platforms, such as iHeartRadio,
which combine free, on-demand music services with the
availability of live radio broadcasts and podcasts;
• iTunes Music, Spotify, Radioplayer Canada, and comparable
apps, which allow free or paid music and radio streaming directly
from users’ smartphones;
• other media, including newspapers, magazines, television, and
outdoor advertising; and
• new technologies, such as online web information services,
music downloading, and portable media players.
32 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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INDUSTRY TRENDS
The telecommunications industry in Canada and our reporting segments
are affected by various overarching trends relating to changing
technologies, consumer demands, economic conditions, and regulatory
developments. See “Risks and Uncertainties Affecting Our Business” and
“Regulation In Our Industry” for more information. Below is a summary of
the industry trends affecting our specific reporting segments.
WIRELESS TRENDS
More sophisticated wireless networks and devices and the rise of
multimedia and Internet-based applications are making it easier and
faster to receive data, driving growth in wireless data services. Consumer
demand for mobile devices, digital media, and on-demand content is
pushing providers to build networks that can support the expanded use
of applications, mobile video, messaging, and other wireless data.
Wireless providers are investing in the next generation of broadband
wireless data networks, such as LTE, Licensed Assisted Access, 4.5G,
and future 5G technologies, to support the growing data demand.
Wireless market penetration in Canada is approximately 87% of the
population and is expected to grow at an estimated 0.8% annually over
the next four years, per International Data Corporation.
The CRTC Wireless Code has limited consumer wireless term contracts
to two years from three years, which has resulted in a greater number of
customers completing and renewing contracts at any given time.
Shorter-term contracts allow less time for carriers to recover subsidies.
Subscribers are increasingly bringing their own devices or keeping their
existing devices longer and therefore may not enter into term contracts
for wireless services. This may negatively impact our subscriber churn,
but may create gross addition subscriber opportunities as a result of
increased churn from other carriers. This also may negatively impact the
monthly service fees charged to subscribers.
Wireless providers are collaborating with OTT services to offer their
customers unique, value-added benefits and service options.
Mobile commerce continues to increase as more devices and platforms
adopt secure technology to facilitate wireless transactions.
CABLE TRENDS
Technology advancement, non-traditional competitors, consumer
behaviours, and regulatory advancement are key areas influencing
Cable. The Internet and social media are increasingly being used as a
substitute for wireline telephone services, and televised content is
increasingly available online. Downward Television tier migration (cord
shaving) and Television cancellation with the intent of substitution (cord
cutting) appear to be on the rise with increased adoption of OTT
services, such as Apple TV, Netflix, and Android-based TV boxes. The
CRTC’s decision to lower wholesale Internet access rates may also
adversely affect companies that wholesale Internet services.
television technology continues to improve with 4K TV
Broadcast
broadcasts, and high dynamic range (HDR) for higher resolution and
improved video image colour and saturation.
The CRTC Basic Telecommunications Services decision established
several criteria to improve Internet access for Canadian residents and
businesses. As a result, the CRTC believes fixed broadband subscribers
should have access to speeds of at least 50 Mbps download and
10 Mbps upload, and access to a service with an unlimited data
allowance.
Our digital cable and VoIP telephony services compete with competitor
IPTV deployments
and non-facilities-based service providers,
respectively, which continue to increase competitive intensity that have
and may continue to negatively impact the industry.
Cable and wireline companies are expanding their service offerings to
including
include faster broadband Internet. Canadian companies,
Rogers, are increasingly offering download speeds of 1 Gbps and
Internet offerings with unlimited bandwidth. Consumers
are
demanding ever-faster speeds for streaming online media, playing
online video games, and for their ever-growing number of connected
devices. In order to help facilitate these speeds, cable and wireline
companies are shifting their networks towards higher speed and
capacity Data Over Cable Service Interface Specifications (DOCSIS) 3.1
and fibre-to-the-home (FTTH) technologies. These technologies provide
faster potential data communication speeds, allowing both television
and Internet signals to reach consumers more quickly in order to sustain
reliable speeds to address the increasing number of Internet-capable
devices.
Our enterprise customers use fibre-based access and cloud computing
to capture and share information in more secure and accessible
environments. This, combined with the rise of multimedia and Internet-
based business applications,
is driving exponential growth in data
demand.
Enterprises and all levels of government are transforming data centre
infrastructure by moving toward virtual data storage and hosting. This is
driving demand for more advanced network functionality, robust,
scalable services, and supportive dynamic network infrastructure.
Canadian wireline companies are dismantling legacy networks and
investing in next generation platforms and data centres that combine
voice, data, and video solutions onto a single distribution and access
platform. As next generation platforms become more popular, our
competition will begin to include systems
and
manufacturers.
integrators
Our enterprise customers are using third parties to increase security for
their data and information to address cyber
threats and other
information security risks.
Devices and machines are becoming more interconnected and there is
more reliance on the Internet and other networks to facilitate updates
and track usage.
MEDIA TRENDS
Consumer demand for digital media, mobile devices, and on-demand
content is increasing and media products, such as magazines, have
experienced significant digital uptake, requiring industry players to
increase their efforts in digital content and capabilities in order to
compete. This trend is also causing advertisers to shift their spending
from conventional TV and print publishing to digital platforms.
Competition has changed and traditional media assets in Canada are
increasingly being controlled by a small number of competitors with
significant scale and financial resources. Technology has allowed new
entrants and even individuals to become media players in their own
right.
Some players have become more vertically integrated across both
traditional and emerging platforms. Relationships between providers
and purchasers of content have become more complex. Global
aggregators have also emerged and are competing for both content
and viewers.
Access to live sports and other premium content has become even
more important for acquiring and retaining audiences that in turn
attract advertisers and subscribers. Therefore, ownership of content
and/or long-term agreements with content owners has also become
teams, and
increasingly important
networks are also experimenting with the delivery of live sports content
through online, social, and virtual platforms, while non-traditional sports
are also growing in mindshare.
to media companies. Leagues,
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 33
MANAGEMENT’S DISCUSSION AND ANALYSIS
Our Strategy, Key Performance Drivers, and Strategic Highlights
As part of our overall strategy and related priorities, we set corporate objectives each year to measure progress on our long-term strategic
priorities and address short-term opportunities and risks.
OUR STRATEGIC PRIORITIES
Our refocused strategy builds on our many strengths, including our
unique mix of network and media assets. Our focus is clear: deliver
a best-in-class customer experience, grow the core business, and
deliver industry-leading shareholder value.
To achieve these goals, our strategic priorities are as follows:
• Create best-in-class customer experiences by putting our
customers first in everything we do;
• Invest
in our networks and technology to deliver
leading
performance and reliability;
• Deliver innovative solutions and compelling content that our
customers will love;
• Drive profitable growth in all the markets we serve;
• Develop our people and a high performance culture; and
• Be a strong, socially responsible leader in our communities
across Canada.
CREATE BEST-IN-CLASS CUSTOMER EXPERIENCES BY
PUTTING OUR CUSTOMERS FIRST IN EVERYTHING WE DO
Everything starts and ends with our customer, so improving their
experience is core to our strategy. We obsess over our customers’
end-to-end service experiences by listening carefully to the voice of
our customers and the voice of our front-line. We will continue to
focus on making things clear, simple, and fair for our customers
while we continue building our digital capabilities so our customers
have reliable and consistent experiences across our channels.
INVEST IN OUR NETWORKS AND TECHNOLOGY TO
DELIVER LEADING PERFORMANCE AND RELIABILITY
We believe that networks are the lifeblood of our business and
world-class performance is critical to our future. Our plan is to
deliver high-performing, worry-free network services with a focus on
core performance and reliability. Our investments in our cable
network will allow us to continue to improve Cable Internet
performance and reliability. Accelerated investments in our wireless
network will ensure we keep up with our customers’ growing data
demands while accelerating our move to 4.5G and setting the
stage for a smooth evolution to 5G.
DELIVER INNOVATIVE SOLUTIONS AND COMPELLING
CONTENT THAT OUR CUSTOMERS WILL LOVE
Innovation has always been a part of our DNA. We strive to deliver
compelling products and innovative solutions to our customers that
make their lives easier. We will do this by leveraging proven
technologies and remarkable innovations from across the globe,
making them more cost-effective for us.
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. Canadians
expect to be able to consume the content they want, when and
where they want. We will continue to invest in delivering the
content our audiences value and want most, delivered on their
screens of choice.
DRIVE PROFITABLE GROWTH IN ALL THE MARKETS WE
SERVE
The overarching goal of our strategy is to accelerate revenue
growth in a sustainable way and translate it into strong margins,
profit, free cash flow, an increasing return on assets, and returns to
shareholders. Therefore, we will focus on our core growth drivers
while developing a strong capability in cost management
to
support investments that will fuel our future.
DEVELOP OUR PEOPLE AND A HIGH PERFORMANCE
CULTURE
Our people and our culture are the heart and soul of our success,
and their passion for our customers and our company is truly
incredible. Our strategy is to invest more in our people through
training and development programs and to establish clear
accountabilities for all employees. We are working to strengthen
our employment brand and to make Rogers a top employer known
for attracting and retaining the best talent. This means fostering an
open, trusting, and diverse workplace grounded in accountability
and performance.
BE A STRONG, SOCIALLY RESPONSIBLE LEADER IN OUR
COMMUNITIES ACROSS CANADA
Giving back where we live and work is an important part of who we
are. Our goal is to be a relevant and respected community leader
in each region of our country. This means leveraging our strong
local teams to become active and engaged volunteers in our
regionally empowered
communities and to deliver a strong,
program.
34 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
2017 OBJECTIVES
For 2017, we set forth the following objectives related to our refocused strategic priorities.
Strategic Priority
2017 Objectives
Create best-in-class customer experiences by putting our
customers first in everything we do
Foster good relationships and obtain positive feedback from our
customers through continual
improvements to our customer
service with a focus on self-serve
Invest in our networks and technology to deliver leading
performance and reliability
Continue to grow our leadership in Wireless and Internet, and
set forth developments to reclaim a sound position in video
Deliver innovative solutions and compelling content that our
customers will love
Maintain our status as the number-one sports media brand in
Canada and leverage that status across our different platforms
Drive profitable growth in all the markets we serve
Develop our people and a high performance culture
Achieve our 2017 financial targets while at the same time
investing to support future growth
Utilize our enterprise-grade networks and introduce new
products to gain market share in the business market
Invest in our employees’ futures, in part so they say they are
proud to work for us, and to enhance employee engagement
KEY PERFORMANCE DRIVERS AND 2017 STRATEGIC HIGHLIGHTS
The following achievements display the progress we made towards meeting our refocused strategic priorities and the objectives we set
along with them, as discussed above.
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CREATE BEST-IN-CLASS CUSTOMER EXPERIENCES BY
PUTTING OUR CUSTOMERS FIRST IN EVERYTHING WE DO
• Attracted our highest number of postpaid net additions and
realized our lowest annual postpaid churn rate since 2010.
• Introduced Data Bytes for Fido mobile, giving new and existing
Fido Pulse plan customers an additional hour of data, five times
per billing cycle, at no extra charge. With this feature, customers
can activate their data session and start streaming, searching,
and sharing, worry-free.
• Launched Stream Saver, part of our worry-free data
management objective that allows users to get more out of their
data plan by switching video streaming settings between high
definition and standard definition.
• Launched Social Media Security by Rogers, a cloud-based
solution that allows Canadian businesses to better safeguard
their social media accounts.
• Announced we are tying 50% of our 2018 company-wide bonus
plan to the achievement of certain customer metrics.
INVEST IN OUR NETWORKS AND TECHNOLOGY TO
DELIVER LEADING PERFORMANCE AND RELIABILITY
• Augmented sections of our existing LTE network with 4.5G
technology investments that are designed to migrate to a 5G
environment.
• Initiated a program to upgrade our hybrid fibre-coaxial
infrastructure with additional
fibre deployments and further
DOCSIS technology enhancements. This program will lower the
number of homes passed per node, will incorporate the latest
technologies to help deliver more bandwidth and an even more
lay the foundation to
reliable customer experience, and will
evolve to FTTH.
• Launched LTE-Advanced (LTE-A) service in many communities in
Manitoba,
including Winnipeg, Brandon, Portage La Prairie,
Churchill, and more. We also expanded other cellular services in
Manitoba.
• Expanded LTE wireless service in Alberta; expanded LTE wireless
service and implemented network improvements in several
communities across British Columbia.
• Extended our 700 MHz LTE network reach to 92% of Canada’s
population and extended our overall LTE coverage to 96% of the
population.
• Recognized as the fastest ISP in both Ontario and Canada
between July 2016 and May 2017, according to PCMag’s Speed
Index.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 35
DEVELOP OUR PEOPLE AND A HIGH PERFORMANCE
CULTURE
• Achieved an employee engagement score of 79%.
• Recognized in November 2017, for the fifth year in a row, as one
of Canada’s Top 100 Employers for 2018, and in January 2017,
for the eighth year in a row, as a Top Employer for Young People,
by the editors of Canada’s Top 100 Employers.
• Selected as one of Canada’s Best Diversity Employers for 2017,
for the fifth year in a row, in a report released by Mediacorp Inc.
in March 2017, in recognition of our efforts to promote diversity
and inclusion in the workplace.
• Named one of Canada’s Greenest Employers for 2017, for the
fifth year in a row, by the editors of Canada’s Top 100 Employers
in April 2017.
• Named one of the 50 Best Corporate Citizens in Canada by
Corporate Knights in June 2017, an award that recognizes
employers that incorporate social, economic, and ecological
benefits and costs in their normal course of business.
BE A STRONG, SOCIALLY RESPONSIBLE LEADER IN OUR
COMMUNITIES ACROSS CANADA
• Invested $64 million in our communities through cash and
in-kind donations to various charitable organizations and causes.
• Launched the Ted Rogers Scholarship Fund and awarded
307 scholarships through our community partners and to
dependents of our hard-working employees. This program also
included 65 grants to community organizations across the
country that provide innovative and educational programs for
youth.
• Released Rogers’ 2017 Transparency Report, which outlines how
we share customer information in response to requests from
legal authorities. We are committed to protecting our customers’
privacy and fulfilling our obligation as a good corporate citizen to
follow the law and contribute to public safety.
• Launched a new annual employee giving campaign, Give
Together Month, where Rogers matched employee donations to
In total,
the charity of
$2.2 million was raised.
their choice, up to $1,000 each.
• Expanded Connected for Success, a program offering access to
affordable, high-speed Internet
to 150,000 low-income
Canadian households through 200 subsidized housing partners
across our cable footprint.
MANAGEMENT’S DISCUSSION AND ANALYSIS
DELIVER INNOVATIVE SOLUTIONS AND COMPELLING
CONTENT THAT OUR CUSTOMERS WILL LOVE
• For the third consecutive year, Sportsnet was ranked Canada’s
number-one sports media brand and Canada’s number-one
specialty network.
• Successfully completed the third year of our exclusive 12-year
national NHL Agreement while bringing the NHL to more
Canadians than ever before, with our 2016-2017 NHL season
being our most successful NHL season to date.
• Extended,
for
years, our
seven additional
sublicensing
arrangement with CBC for English broadcasts of Hockey Night in
Canada and the Stanley Cup playoffs, beginning with the 2019-
2020 season. CBC will continue to broadcast nationally-televised
regular season games on Saturday night, plus all four rounds of
the Stanley Cup playoffs.
• Achieved excellent radio ratings across Canada, including 98.1
CHFI and 680 NEWS in Toronto, where they were the city’s
number-one radio and news stations, respectively, for the key
demographic between ages 25 and 54.
• Added four new 4K services to our existing lineup, allowing our
customers to watch some of the world’s biggest artists, concerts,
movies, and events in 4K, in addition to more than 100 Toronto
Blue Jays, NHL, and NBA games.
• Launched OMNI Regional across the country, a new television
service providing Canada’s diverse language communities with
access to vital news and information programming.
• Launched CityNews
in Edmonton and Winnipeg, and
announced upcoming CityNews launches in Vancouver, Calgary,
and Montreal, offering a fresh approach to local news that
provides viewer-based content with original stories that reflect
these communities.
DRIVE PROFITABLE GROWTH IN ALL THE MARKETS WE
SERVE
• 100% achievement of our 2017 guidance on selected full-year
metrics. See “Financial and Operating Guidance” for more
information.
• Adjusted operating profit margin expansion of 80 basis points.
This increase was primarily driven by Wireless, with a 50 basis
point expansion, and Cable, with an 80 basis point expansion.
• Achieved our best annual Wireless service revenue growth and
adjusted operating profit growth since 2009.
36 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
2018 OBJECTIVES
Strategic Priority
Create best-in-class customer experiences by putting our
customers first in everything we do
Invest in our networks and technology to deliver leading
performance and reliability
Deliver innovative solutions and compelling content that our
customers will love
Drive profitable growth in all the markets we serve
Develop our people and a high performance culture
Be a strong, socially responsible leader in our communities across
Canada
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2018 Objectives
Improve our end-to-end customer experience by improving
critical end-to-end processes;
investing in multi-channel
capabilities; simplifying frontline tools; and delivering online
tools and apps to improve our customers’ experiences
Deliver improved network performance and system stability by
improving the performance and reliability of both our wireless
and cable networks
Deliver solutions that will grow our core business through a
smooth launch of Ignite TV and the delivery of other innovative
content solutions and compelling content
Achieve our 2018 financial targets while at the same time
investing to support future growth and driving a focus on cost
management and margin improvement
Make Rogers one of the best places to work in Canada by
strengthening our employment brand; getting behind the
personal and career development of our leaders and teams;
improving the employee experience, especially for our frontline
team; and evolving our incentive plans to drive a “customer first”
culture
Develop a better local presence in our key regional markets
through the launch of our Give Together Community Investment
program;
regionally empowered
program and plan; and the expansion of Internet service for all
Canadians
the delivery of a strong,
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 the Board.
2017 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 2017 financial metrics.
✓
✓
✓
✓
(In millions of dollars,
except percentages)
Consolidated Guidance 1
Revenue
Adjusted operating profit 2
2017
Guidance
Ranges
2016
Actual
2017
Actual
Achievement
13,702 Increase of
3% to 5%
5,092 Increase of
5% to 6%
14,143 3.2%
5,379 5.6%
Capital expenditures 3
2,352
2,350 to
2,450
2,436 n/m
Free cash flow 2
1,705 Increase of
2% to 4%
1,746 2.4%
n/m – not meaningful
1 The table outlines guidance ranges for selected full-year 2017 consolidated financial
metrics provided in our January 26, 2017 earnings release and subsequently updated
on October 19, 2017. Guidance ranges presented as percentages reflect percentage
increases over 2016 actual results.
2 Adjusted operating profit and free cash flow are non-GAAP measures and should not
be considered substitutes or alternatives 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.
3 Includes additions to property, plant and equipment net of proceeds on disposition,
but does not include expenditures for spectrum licences.
2018 FULL-YEAR CONSOLIDATED GUIDANCE
For the full-year 2018, we expect steady growth in revenue and
adjusted EBITDA to drive higher free cash flow, despite higher
In 2018, we expect to have the financial
capital expenditures.
flexibility to maintain our network advantages, to further reduce
debt, and to continue to return cash to shareholders.
Effective January 1, 2018, the Company will commence using
tax, depreciation, and
adjusted earnings before interest,
amortization (adjusted EBITDA) as the key measure of profit for the
purpose of assessing performance for each segment and to make
decisions about the allocation of resources. As such, we plan to
introduce adjusted EBITDA as a new non-GAAP measure in our
financial reports commencing January 1, 2018. This measure will
replace our existing adjusted operating profit non-GAAP measure.
We believe adjusted EBITDA better
segment and
consolidated profitability. The difference between adjusted
operating profit and adjusted EBITDA is that adjusted EBITDA will
include stock-based compensation expense. We also believe that
our decision-making processes will not be significantly affected
through the use of adjusted EBITDA. Additionally, use of this
measure will change our current definition of free cash flow. For
detailed reconciliations, please see “Non-GAAP Measures”.
reflects
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 37
MANAGEMENT’S DISCUSSION AND ANALYSIS
(In millions of dollars, except
percentages)
2017
Actual
2018 Guidance Ranges
based on a comparable basis
prior to the adoption of
IFRS 15 1
Consolidated Guidance
Revenue
Adjusted EBITDA 2
Capital expenditures 3
Free cash flow 2
14,143
5,318
2,436
1,685
Increase of 3% to 5%
Increase of 5% to 7%
2,650 to 2,850
Increase of 3% to 5%
1 Guidance ranges presented as percentages reflect percentage increases over full-
year 2017 results. 2018 amounts for purposes of assessing our performance against
guidance will be calculated consistently with revenue recognition accounting policies
prior to adopting IFRS 15, Revenue from contracts with customers. See “Accounting
Policies” for more information.
2 Effective January 1, 2018, free cash flow will be calculated using adjusted EBITDA as a
result of our adoption of this profit measure instead of adjusted operating profit. Free
cash flow presented above reflects this change. The difference between adjusted
EBITDA and adjusted operating profit is that adjusted EBITDA will include stock-
based compensation expense. Adjusted EBITDA and free cash flow are non-GAAP
measures and should not be considered substitutes or alternatives 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.
3 Includes additions to property, plant and equipment net of proceeds on disposition,
but does not include expenditures for spectrum licences.
The above table outlines guidance ranges for selected full-year
2018 consolidated financial metrics. These ranges take into
consideration our current outlook and our 2017 results and are not
expected to be impacted by the adoption of IFRS 15 on January 1,
2018. The purpose of the financial outlook is to assist investors,
shareholders, and others in understanding certain financial metrics
relating to expected 2018 financial results for evaluating the
performance of our business. This information may not be
appropriate for other purposes. Information about our guidance,
including the various assumptions underlying it, is forward-looking
and should be read in conjunction with “About Forward-Looking
Information”, “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.
We provide annual guidance ranges on a consolidated full-year
full-year Board-approved
basis that are consistent with annual
plans. Any updates to our full-year financial guidance over the
course of the year would only be made to the consolidated
guidance ranges that appear above.
Key underlying assumptions
Our 2018 guidance ranges above are based on many assumptions
including, but not limited to, the following material assumptions for
the full-year 2018:
• continued intense competition in all segments in which we
operate, consistent with our experience during the full-year
2017;
• a substantial portion of our US dollar-denominated expenditures
for 2018 is hedged at an average exchange rate of $1.30/US$;
• key interest rates remain relatively stable throughout 2018;
• no significant additional legal or regulatory developments, shifts
in economic conditions, or macro changes in the competitive
environment affecting our business activities. We note that
regulatory decisions expected during 2018 could materially alter
underlying assumptions around our 2018 Wireless, Cable, and/
or Media results in the current and future years, the impacts of
which are currently unknown and not factored into our guidance;
• Wireless customers continue to adopt, and upgrade to, higher-
value smartphones at similar rates in 2018 compared to 2017
and a similar proportion of customers remain on term contracts;
• overall wireless market penetration in Canada grows in 2018 at a
similar rate as in 2017;
• our relative market share in Wireless and Cable is not negatively
impacted by changing competitive dynamics;
• continued subscriber growth in Wireless and Cable Internet; a
decline in Cable Television subscribers; and a relatively stable
Phone subscriber base;
• Ignite TV launches in 2018;
• in Media, continued growth in sports and declines in certain
traditional media businesses; and
• with respect to the increase in capital expenditures:
• we continue to invest appropriately to ensure we have
competitive wireless and cable networks through (i) building a
4.5G to 5G wireless network and (ii) upgrading our hybrid
fibre-coaxial network to lower the number of homes passed
per node, utilize the latest technologies, and deliver an even
more reliable customer experience; and
• we continue to make expenditures related to the launch of
Ignite TV in 2018.
38 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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Capability to Deliver Results
LEADING NETWORKS
WIRELESS
Rogers has one of the most extensive and advanced wireless
networks in Canada, which:
• was the first LTE high-speed network in Canada;
• reached 96% of the Canadian population as at December 31,
will
increase our 5G-related trials across key applications and
multiple frequencies in 2018. A number of investments will be
required to successfully launch a 5G network, including:
• refarming spectrum currently used for 2G and 3G to LTE;
• densifying our wireless network with macro and small cells in key
2017 on our LTE network alone;
markets; and
• is supported by voice and data roaming agreements with
international carriers in more than 200 destinations, including a
growing number of LTE roaming operators; and
• includes network sharing arrangements with three regional
wireless operators that operate in urban and rural parts of Canada.
We are continuously enhancing our IP service infrastructure for all
our wireless services. Advances in technology have transformed the
ways in which our customers interact and use the variety of tools
lives.
available to them in their personal and professional
Technology has also changed the way businesses operate.
We are augmenting our existing LTE network with 4.5G technology
investments that are designed to migrate to a 5G environment. We
Our spectrum holdings as at December 31, 2017 include:
Type of spectrum
Rogers licence
• purchasing 5G-ready radio network equipment with lower unit
and operational costs, the ability to aggregate more radio
carriers, and greater spectral efficiency.
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;
• support the launch of a 5G-capable network; and
• introduce new innovative network-enabled features and
functionality.
700 MHz
24 MHz in Canada’s major geographic markets, covering 92% of
the Canadian population.
850 MHz
25 MHz across Canada.
1900 MHz
AWS 1700/2100 MHz
60 MHz in all areas of Canada except 40 MHz in northern
Quebec, 50 MHz in southern Ontario, and 40 MHz in the Yukon,
Northwest Territories, and Nunavut.
40 MHz in British Columbia and Alberta, 30 MHz in southern
Ontario, an additional 10 MHz in the Greater Toronto Area, and
20 MHz in the rest of Canada.
Who it supports
4G / 4.5G LTE subscribers.
2G GSM, 3.5G HSPA+, and 4G / 4.5G
LTE subscribers.
2G GSM, 3.5G HSPA+, and 4G / 4.5G
LTE subscribers.
4G / 4.5G LTE subscribers.
2500 MHz
40 MHz FDD across Canada and an additional 20 MHz TDD in
key population areas in Quebec, Ontario, and British Columbia.
4G / 4.5G LTE subscribers.
We also have access to additional spectrum through the following network sharing agreements:
Type of spectrum
Kind of venture
2.3 GHz/3.5 GHz range
Inukshuk Wireless Partnership is a joint operation with BCE Inc. in
which Rogers holds a 50% interest. Inukshuk holds 30 MHz (of
which 20 MHz is usable) of FDD 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 TDD licences (between 50-175
MHz) in most of the major population centres across Canada.
The current fixed wireless LTE national network utilizes the jointly
held 2.3 GHz and 3.5 GHz spectrum bands.
Who it supports
Mobile and fixed wireless subscribers.
850 MHz, 1900 MHz
AWS spectrum,
700 MHz
Three network-sharing arrangements to enhance coverage and
network capabilities:
• with Bell MTS, which covers 98% of the population across
Manitoba;
• with TBayTel, that covers the combined base of customers in
northwestern Ontario; and
• with Quebecor (Videotron) to provide LTE services across the
province of Quebec and Ottawa.
3.5G / 4G HSPA+, 4G LTE
subscribers.
3.5G / 4G HSPA+, 4G LTE
subscribers.
3.5G / 4G LTE subscribers.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 39
MANAGEMENT’S DISCUSSION AND ANALYSIS
CABLE
Our expansive fibre and hybrid fibre-coaxial infrastructure delivers
services to consumers and businesses in Ontario, New Brunswick,
and on the island of Newfoundland. We also operate a
transcontinental, facilities-based fibre-optic network that extends
over 48,000 route kilometres and is used to service enterprise
customers, including government and other telecommunications
service providers. We also use our extensive fibre network for
backhaul for wireless cell site traffic. In Canada, the network extends
coast-to-coast and includes local and regional fibre, transmission
electronics and systems, hubs, points of presence, and IP routing
and switching infrastructure. The network also extends to the US
from Vancouver south to Seattle; from the Manitoba-Minnesota
border
from
through Minneapolis, Milwaukee, and Chicago;
Toronto through Buffalo; and from Montreal through Albany to
New York City and Ashburn, allowing us to connect Canada’s
largest markets, while also reaching key US markets for the
exchange of data and voice traffic.
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, providing redundancy to
minimize disruptions that can result from fibre cuts and other
events.
Homes and commercial buildings are connected to our network
through hybrid fibre-coaxial (HFC) nodes or FTTH. We connect the
HFC node to the network using fibre optic cable and the home to
the node using coaxial cable or fibre. Using 860 MHz and 750 MHz
of shared cable spectrum in Ontario and Atlantic Canada,
respectively, we deliver video, voice, and broadband services to our
customers. Hybrid fibre-coaxial node segmentation increases
bandwidth per home passed by reducing the number of
customers that share the cable spectrum.
We continually upgrade the network to improve capacity, enhance
performance and reliability, reduce operating costs, and introduce
new features and functionality. Our investments are focused on:
• further segmenting our network nodes to reduce the number of
homes sharing spectrum in each node;
• improving video signal compression by moving to more
advanced video protocols;
• improving channel and on-demand capacity through switched
digital video; and
• increasing the FTTH footprint by connecting more homes
directly to fibre.
In early 2016, we completed the transition 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. This migration strengthened the customer
experience and, in addition to allowing us to reclaim significant
amounts of network capacity, enabled us to reduce future network
operating and maintenance costs.
Broadband Internet service is provided using a DOCSIS CCAP
3.0/3.1 platform, which combines multiple radio frequency
channels onto one access point at
the customer premise,
delivering exceptional performance. The bandwidth of our Internet
service offerings has increased 55-fold in the last 10 years as we
bring new technologies to market when they become available.
40 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
This track record of investing in our networks and demonstrating
the capability to deploy best-in-class service is one of our key
strategies for ensuring that we stay competitive with other service
providers that provide Internet service into homes and businesses
over copper facilities. By the end of 2016, 100% of our cable
network had been upgraded to DOCSIS CCAP technology
supporting DOCSIS 3.1 and Ignite Gigabit Internet.
In 2018, we will begin evolving our cable network to a passive HFC
architecture with nodes serving small groups of customers. This
subsequent
architecture will provide the foundation for
generations of DOCSIS, including Remote PHY and Full Duplex
DOCSIS, both of which will continue to expand the capabilities and
capacity of our cable HFC network. Over time, this next generation
architecture is expected to support synchronous upload and
download speeds of up to 10 gigabits per second.
We continue to invest in and improve our cable network; for
example, with technology to support gigabit Internet speeds,
Ignite TV, Rogers 4K TV, our 4K PVR set-top box, and a significant
commitment to live broadcasting in 4K, including all regular season
Toronto Blue Jays home games for 2018 and numerous NHL and
NBA games.
Voice-over-cable telephony services are currently provided over a
dedicated DOCSIS network. Our offerings ensure a high quality of
service by including geographic 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 that allow customers to be notified of,
and listen to, their home voicemail on their wireless phone or over
the Internet.
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 performance. 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.
Our data centres provide guaranteed uptime and expertise in
collocation, cloud, and managed services solutions. We own and
operate 16 state-of-the-art, highly reliable, certified data centres
across Canada, including:
• Canada’s first Tier III Design and Construction certified multi-
tenant facility, opened in 2012 in Toronto;
• Alberta’s first Tier III certified data centre, opened in 2014; and
• a third Tier III certified data centre in Ottawa, opened in 2015.
POWERFUL BRANDS
The Rogers brand has strong national recognition through our:
• established networks;
• extensive distribution;
• recognizable media content and programming;
• advertising;
• event sponsorships, including the Rogers Cup;
• community investment, including the Ted Rogers Scholarship
Fund; and
• naming rights to some of Canada’s landmark buildings.
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We also own or utilize some of Canada’s most recognized brands,
including:
• the wireless brands of Rogers, Fido, and chatr;
• 25 TV stations and specialty channels, including Sportsnet, FX
• GamePlus, an innovative and interactive experience within
includes enhanced camera angles,
Rogers NHL LIVE that
exclusive interviews and analysis, and original video-on-demand
content;
(Canada) and FXX (Canada), OMNI, and City;
• publications,
including Maclean’s, Chatelaine, Today’s Parent,
Flare, and Hello! Canada;
• Rogers Hometown Hockey Tour, which brings hockey-themed
festivities and outdoor viewing parties to 24 communities across
Canada over the 2017-2018 NHL season;
• 55 radio stations, including 98.1 CHFI, 680 NEWS, Sportsnet The
• the MLB Network, a 24-hour network dedicated to baseball,
FAN, KiSS, JACK FM, and SONiC;
• major league sports teams, including the Toronto Blue Jays, and
teams owned by MLSE, such as the Toronto Maple Leafs, the
Toronto Raptors, Toronto FC and the Toronto Argonauts;
• an exclusive 12-year agreement with the NHL, which runs
through the 2025-2026 season,
that allows us to deliver
unprecedented coverage of professional hockey in Canada; and
• TSC, a premium online and TV shopping retailer.
WIDESPREAD PRODUCT DISTRIBUTION
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;
• other distribution channels, such as WOW! mobile boutique, as
well as Wireless Wave and TBooth Wireless through our
ownership interest in Glentel;
• customer self-serve using rogers.com, fido.ca, chatrwireless.com,
and e-commerce sites;
• our call centres; and
• outbound telemarketing.
CABLE
We distribute our residential cable products using various channels,
including:
• company-owned Rogers and Fido retail stores;
• customer self-serve using rogers.com and fido.ca;
• our call centres, outbound telemarketing, and door-to-door
agents; and
• major retail chains.
Our sales team and third-party retailers sell services to the
enterprise, public sector, and carrier wholesale markets. An
extensive network of third-party channel distributors deals 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.
FIRST-CLASS MEDIA CONTENT
We deliver highly sought-after sports content enhanced by the
following initiatives:
• an exclusive 12-year agreement with the NHL, which runs
that allows us to deliver
through the 2025-2026 season,
unprecedented coverage of professional hockey in Canada
across television, smartphones, tablets, and the Internet;
• Rogers NHL LIVE, an online OTT destination for enhancing NHL
action on any screen;
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 through 2021;
• a 10-year, multi-platform agreement that commenced in August
2014, which makes Rogers the exclusive wholesaler and a
distributor of World Wrestling Entertainment’s (WWE) flagship
programming in Canada; and
• exclusive broadcasting and distribution rights of the Toronto
Blue Jays through our ownership of the team.
CUSTOMER EXPERIENCE
We are committed to providing our customers with the best
experience possible. To do this, we have invested in several areas to
make it easier and more convenient for customers to interact with
us, such as:
• contact centres located throughout Canada;
• an innovative Integrated Voice Response (IVR) system that can
take calls in four languages, including English, French, Mandarin,
and Cantonese;
• voice authentication technology across all of our call centres that
automatically identifies our customers by their voice, increasing
security and protecting customers from potential fraud;
• self-serve options, including:
• the ability for Fido and Rogers consumer customers to
complete price plan changes and hardware upgrades online;
• simplified login, allowing Fido customers to log in to their
accounts online or through the Fido MyAccount app using
their Facebook login credentials, eliminating the need to
remember multiple login credentials and making self-service
easier to access;
• the ability for customers to install
products at
technician visiting their residence; and
their convenience, without
their Internet and TV
the need for a
• Rogers EnRoute, a tool that gives customers the ability to track
on their phone when a technician will arrive for an installation
or service call;
• customer care available over Facebook Messenger, Twitter, and
online chat through our websites;
• Family Data Manager, a data manager tool, and Data Top Ups,
both of which allow Wireless customers to manage and
customize their data usage in real-time through MyRogers;
• Fido Data Bytes, which grant Fido Pulse customers an additional
hour of data, five times per billing cycle, at no extra charge;
• a simple mobile bill, making it easier for customers to read and
understand their monthly charges; and
• Roam Like Home and Fido Roam, worry-free wireless roaming
allowing Canadians to use their wireless plan like they do at
home when traveling to included destinations.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 41
MANAGEMENT’S DISCUSSION AND ANALYSIS
ENGAGED PEOPLE
For our team of approximately 24,500 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 initiatives including engagement surveys and leadership
development programs;
• aiming to attract and retain top talent through effective training
and development, performance-driven employee recognition
front-line
programs, and career progression programs for
employees;
• maintaining our commitment to diversity and inclusion; and
• providing a safe, collaborative, and agile workplace that provides
employees the tools and training to be successful.
FINANCIAL STRENGTH AND FLEXIBILITY
We have an investment-grade balance sheet, conservative debt
leverage, and substantial available liquidity of $2,650 million as at
December 31, 2017. Our capital resources consist primarily of cash
provided by operating activities, available lines of credit, funds
available under our accounts receivable securitization and US
dollar-denominated commercial paper (US CP) programs, and
issuances of
long-term debt. We also own approximately
$1,465 million of marketable equity securities in publicly-traded
companies as at December 31, 2017.
The following information is forward-looking and should be read in
conjunction with “About Forward-Looking Information”, “Financial
and Operating Guidance”, “Risks and Uncertainties Affecting Our
Business”, and our other disclosures 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.
Similar to 2017, we anticipate generating positive free cash flow in
2018. We expect that we will have sufficient capital resources to
satisfy our cash funding requirements in 2018,
including the
funding of dividends on our common shares, repayment of
maturing long-term debt, and other financing activities, investing
activities, and other requirements. This takes into account our
opening bank advance balance, cash provided by operating
activities, the amount available under our $3.2 billion bank credit
facility, our accounts receivable securitization program, our US CP
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, 2017, there were no significant restrictions on the
flow of funds between RCI and its subsidiary companies.
We believe we can satisfy foreseeable additional
funding
financing, which,
issuing additional debt
requirements by
depending on market conditions, could include restructuring our
existing bank credit and letter of credit facilities, entering into new
bank credit facilities, issuing public or private long-term or short-
term debt, amending the terms of our accounts receivable
securitization or US CP programs, 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
DIVIDENDS
Our RCI Class B Non-Voting common shares (Class B Non-Voting
Shares) actively trade on the TSX and NYSE with a combined
average daily trading volume of approximately 1.2 million shares in
2017. In addition, our RCI Class A Voting common shares (Class A
Shares) trade on the TSX. Dividends are the same, at the discretion
of the Board, on both classes of shares. In 2017, each share paid an
annualized dividend of $1.92.
42 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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2017 Financial Results
See “Accounting Policies” in this MD&A and the notes to our 2017
Audited Consolidated Financial Statements
important
accounting policies and estimates as they relate to the following
discussion.
for
We use several key performance indicators to measure our
performance against our strategy and the results of our peers and
SUMMARY OF CONSOLIDATED RESULTS
(In millions of dollars, except margins and per share amounts)
Revenue
Wireless
Cable
Business Solutions
Media
Corporate items and intercompany eliminations
Revenue
Total service revenue 1
Adjusted operating profit 2
Wireless
Cable
Business Solutions
Media
Corporate items and intercompany eliminations
Adjusted operating profit 2
Adjusted operating profit margin 2
Net income
Basic earnings per share
Diluted earnings per share
Adjusted net income 2
Adjusted basic earnings per share 2
Adjusted diluted earnings per share 2
Capital expenditures
Cash provided by operating activities
Free cash flow 2
competitors. Many of these are not defined terms under IFRS and
should not be considered alternative measures to net income or
any other financial measure of performance under IFRS. See “Key
Performance Indicators” and “Non-GAAP Measures” for more
information.
Years ended December 31
2017
2016 % Chg
8,343
3,466
387
2,153
(206)
7,916
3,449
384
2,146
(193)
14,143
13,560
13,702
13,027
3,561
1,709
128
139
(158)
3,285
1,674
123
169
(159)
5
–
1
–
7
3
4
8
2
4
(18)
(1)
5,379
38.0%
6
5,092
37.2% 0.8 pts
1,711
835
$ 3.32 $ 1.62
$ 3.31 $ 1.62
1,821
1,481
$ 3.54 $ 2.88
$ 3.52 $ 2.86
2,436
3,938
1,746
2,352
3,957
1,705
105
105
104
23
23
23
4
–
2
1 As defined. See “Key Performance Indicators”.
2 Adjusted operating profit, adjusted operating profit margin, adjusted net income, adjusted basic and diluted earnings per share, and free cash flow are non-GAAP measures and
should not be considered substitutes or alternatives 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.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 43
MANAGEMENT’S DISCUSSION AND ANALYSIS
KEY CHANGES IN FINANCIAL RESULTS THIS
YEAR COMPARED TO 2016
REVENUE
Wireless service revenue increased this year primarily as a result of a
larger subscriber base and a greater number of subscribers on
higher-rate plans from our various brands, which includes the
continued adoption of higher-blended-ARPU-generating Rogers
Share Everything plans.
Cable revenue increased marginally this year as the increase in
Internet revenue, due to the general movement of our Internet
customers to higher-end speed and usage tiers and a larger
subscriber base for our Internet products was partially offset by
Television subscriber losses over the past year.
Business Solutions revenue increased this year primarily as a result
of the growth in on-net next generation services, including our data
centre businesses, which more than offset the continued reduction
in lower margin, off-net legacy revenue.
Media revenue increased marginally as a result of higher sports-
related revenue driven by the strength of Sportsnet, increased sales
at TSC, and higher conventional broadcast TV advertising revenue,
partially offset by lower publishing-related revenue due to the
strategic shift to digital media announced last year.
ADJUSTED OPERATING PROFIT
Wireless adjusted operating profit increased this year primarily as a
result of the strong flow-through of service revenue growth as
described above, partially offset by higher costs associated with
increased subscriber volumes and costs of devices.
Cable adjusted operating profit increased this year as a result of
higher revenue as described above and lower operating expenses.
Business Solutions adjusted operating profit increased this year as a
result of revenue growth as described above and lower operating
expenses.
Media adjusted operating profit decreased this year primarily as a
result of higher Toronto Blue Jays player payroll (including the
impact of foreign exchange) and higher TSC merchandise costs,
partially offset by lower publishing costs due to the strategic shift
and the increase in revenue as described above.
NET INCOME AND ADJUSTED NET INCOME
Net income increased this year primarily as a result of losses
incurred last year related to the discontinuation of the development
of our legacy IPTV product and the wind-down of shomi, higher
adjusted operating profit, and lower depreciation and amortization
expense, partially offset by higher income tax expense.
Adjusted net income increased this year as a result of higher
adjusted operating profit and lower depreciation and amortization
expense, partially offset by higher income tax expense.
44 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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WIRELESS
ROGERS IS CANADA’S LARGEST PROVIDER OF
WIRELESS COMMUNICATIONS SERVICES
As at December 31, 2017, we had:
• approximately 10.5 million subscribers; and
• approximately 33% subscriber and revenue share of the
Canadian wireless market.
WIRELESS FINANCIAL RESULTS
(In millions of dollars, except margins)
2017
2016 % Chg
Years ended December 31
Revenue
Service revenue
Equipment revenue
Revenue
Operating expenses
Cost of equipment 1
Other operating expenses
Operating expenses
Adjusted operating profit
7,775
568
7,258
658
7
(14)
8,343
7,916
2,033
2,749
1,947
2,684
4,782
4,631
3,561
3,285
5
4
2
3
8
Adjusted operating profit margin as a % of service
revenue
Capital expenditures
45.8% 45.3% 0.5 pts
15
702
806
1 Includes the cost of equipment revenue and direct channel subsidies.
WIRELESS SERVICE REVENUE
(IN MILLIONS OF DOLLARS)
2017
2016
2015
WIRELESS POSTPAID SUBSCRIBER NET ADDITIONS
(IN THOUSANDS)
2017
2016
2015
WIRELESS SUBSCRIBER BREAKDOWN
(IN THOUSANDS)
2017
2016
2015
Postpaid
Prepaid
7,775
7,258
6,902
354
286
106
8,704
1,778
8,557
1,717
8,271
1,606
WIRELESS SUBSCRIBER RESULTS 1
(In thousands, except churn, postpaid
ARPA, and blended ARPU)
Years ended December 31
2017
2016
Chg
Postpaid 2
Gross additions
Net additions
Total postpaid subscribers 2, 3
Churn (monthly)
ARPA (monthly)
Prepaid
Gross additions
Net additions
Total prepaid subscribers 3
Churn (monthly)
Blended ARPU (monthly) 2
1,599
354
8,704
1.20%
$124.75
782
61
1,778
3.48%
$ 62.31
1,521
286
8,557
1.23%
$117.37
761
111
1,717
3.32%
$ 60.42
78
68
147
(0.03 pts)
7.38
$
21
(50)
61
0.16 pts
1.89
$
1 Subscriber counts, subscriber churn, postpaid ARPA, and blended ARPU are key
performance indicators. See “Key Performance Indicators”.
2 Effective October 1, 2017, and on a prospective basis, we reduced our Wireless
postpaid subscriber base by 207,000 subscribers to remove a low-ARPU public
services customer that is in the process of migrating to another service provider. We
believe adjusting our base for a customer of this size that migrates off our network
provides a more meaningful reflection of the underlying organic performance of our
Wireless business.
3 As at end of period.
WIRELESS POSTPAID CHURN (MONTHLY)
(%)
2017
2016
2015
1.20
1.23
1.27
REVENUE
Our revenue depends on the size of our subscriber base, the
revenue per user, the revenue from the sale of wireless devices, and
other equipment revenue.
Service revenue
Service revenue includes revenue derived from voice and data
services from:
• postpaid and prepaid monthly fees;
• data usage;
• airtime;
• long distance charges;
• essential services charges;
• inbound and outbound roaming charges; and
• certain fees.
The 7% increase in service revenue this year was a result of:
• larger postpaid and prepaid subscriber bases; and
• higher blended ARPU, primarily as a result of the increased mix
of subscribers on higher-rate plans from our various brands,
which includes the customer-friendly Rogers Share Everything
plans, and increased data usage. Our higher-rate plans typically
generate higher ARPU, may allow users to pool and manage
their data usage across multiple devices, and provide access to
some of our other offerings, such as Roam Like Home, Fido
Roam, Rogers NHL LIVE, Fido Data Bytes, and Spotify.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 45
MANAGEMENT’S DISCUSSION AND ANALYSIS
The 6% increase in postpaid ARPA was primarily a result of the
continued adoption of Rogers Share Everything plans and the
increasing number of lines per customer account. Customers on
Share Everything plans have increasingly utilized the advantages of
premium offerings and access their shareable plans with multiple
devices on the same account.
The 14% decrease in revenue from equipment revenue this year
was a result of:
• larger average investments in higher-blended-ARPU-generating
customers who purchased devices under term contracts; and
• a 3% decrease in device upgrades by existing subscribers;
partially offset by
• higher gross additions.
WIRELESS BLENDED ARPU (MONTHLY)
($)
2017
2016
2015
SHARE EVERYTHING SUBSCRIBERS AS A PERCENTAGE OF
OUR ROGERS-BRANDED POSTPAID SUBSCRIBER BASE
(%)
2017
2016
2015
62.31
60.42
59.71
63
58
51
The 3% increase in blended ARPU this year was primarily a result of
increased service revenue as discussed above.
We believe the increases in gross and net additions to our postpaid
subscriber base and the lower postpaid churn this year were results
of our strategic focus on enhancing the customer experience by
providing higher-value offerings, such as our Share Everything
plans, improving our customer service, and continually increasing
the quality of our network.
OPERATING EXPENSES
We assess operating expenses in two categories:
• the cost of wireless devices and equipment; and
• all other expenses involved in day-to-day operations, to service
existing subscriber relationships, and to attract new subscribers.
The 4% increase in the cost of equipment this year was a result of:
• a continued shift in the product mix of device sales towards
higher-cost smartphones as we continue to invest in higher-
blended-ARPU-generating customers; and
• higher gross additions; partially offset by
• the decrease in device upgrades by existing subscribers, as
discussed above.
The 2% increase in other operating expenses this year was a result
of:
• higher service costs, as a result of our growing subscriber bases;
and
• higher commissions, as a result of our higher postpaid gross
additions; partially offset by
• various cost efficiencies and productivity initiatives.
ADJUSTED OPERATING PROFIT
The 8% increase in adjusted operating profit this year was a result
of the strong flow-through of service revenue growth, partially offset
by higher operating expenses, as discussed above.
ROAM LIKE HOME AND FIDO ROAM SUBSCRIBERS
(IN THOUSANDS)
WIRELESS ADJUSTED OPERATING PROFIT
(IN MILLIONS OF DOLLARS)
2017
2016
2015
5,854
5,459
2,252
2017
2016
2015
3,561
3,285
3,239
Equipment revenue
Equipment revenue (net of subsidies) includes revenue from sales
to:
• independent dealers, agents, and retailers; and
• subscribers through fulfillment by Wireless’ customer service
groups, websites, telesales, and corporate stores.
LTE COVERAGE AS A PERCENTAGE OF THE CANADIAN POPULATION
(%)
2017
2016
2015
96
95
93
46 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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CABLE
2017 CABLE SERVICE REVENUE MIX
(%)
ONE OF CANADA’S LEADING PROVIDERS OF HIGH-
SPEED INTERNET, CABLE TELEVISION, AND PHONE
SERVICES
As at December 31, 2017, we had:
• approximately 2.2 million high-speed Internet subscribers;
• approximately 1.7 million Television subscribers –
approximately 30% of Canadian cable television subscribers;
• approximately 1.1 million Phone subscribers; and
• a network passing approximately 4.3 million homes in
Ontario, New Brunswick, and on the island of Newfoundland.
$3.5
BILLION
Internet 47%
Television 43%
Phone 10%
CABLE SUBSCRIBER RESULTS 1
Years ended December 31
2017
2016
Chg
85
2,230
97
2,145
(80)
1,740
(76)
1,820
14
1,108
4
1,094
4,307
4,241
19
5,078
25
5,059
(12)
85
(4)
(80)
10
14
66
(6)
19
CABLE FINANCIAL RESULTS
Years ended December 31
Internet
(In thousands)
(In millions of dollars, except margins)
2017
2016 % Chg
Revenue
Internet
Television
Phone
Service revenue
Equipment revenue
Revenue
Operating expenses
Cost of equipment
Other operating expenses
Operating expenses
Adjusted operating profit
1,606
1,501
353
3,460
6
1,495
1,562
386
3,443
6
3,466
3,449
2
1,755
3
1,772
1,757
1,775
1,709
1,674
7
(4)
(9)
–
–
–
(33)
(1)
(1)
2
Net additions
Total Internet subscribers 2
Television
Net losses
Total Television subscribers 2
Phone
Net additions
Total Phone subscribers 2
Cable homes passed 2
Total service units 3
Net additions
Total service units 2
1 Subscriber count is a key performance indicator. See “Key Performance Indicators”.
2 As at end of period.
3 Includes Internet, Television, and Phone subscribers.
Adjusted operating profit margin
Capital expenditures
49.3% 48.5% 0.8 pts
8
1,085
1,172
CABLE SUBSCRIBER BREAKDOWN
(IN THOUSANDS)
CABLE REVENUE
(IN MILLIONS OF DOLLARS)
2017
2016
2015
CABLE SERVICE REVENUE BREAKDOWN
(IN MILLIONS OF DOLLARS)
2017
2016
2015
Internet
Television
Phone
3,466
3,449
3,465
1,606
1,501
353
1,495
1,562
386
1,343
1,669
445
2017
2016
2015
Internet
Television
Phone
2,230
1,740
1,108
2,145
1,820
1,094
2,048
1,896
1,090
REVENUE
Internet revenue includes:
• monthly subscription and additional use service revenue from
residential, small business, and wholesale Internet access
subscribers; and
• modem rental fees.
Television revenue includes:
• digital and analog cable services – comprised of:
• basic cable service fees;
• tier service fees;
• access fees for use of channel capacity by third parties; and
• premium and specialty service subscription fees,
including
pay-per-view service fees and video-on-demand service fees;
and
• rentals of digital cable set-top boxes.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 47
MANAGEMENT’S DISCUSSION AND ANALYSIS
Phone revenue includes revenue from residential and small
business local telephony service from:
• monthly service fees;
• calling features, such as voicemail, call waiting, and caller ID; and
• long distance calling.
The marginal increase in revenue this year was a result of:
• general movement of customers to higher speed and usage
tiers of our Ignite broadband Internet offerings; and
• a larger Internet subscriber base; partially offset by
• Television subscriber losses over the past year; and
• lower wholesale revenue as a result of a CRTC decision that
reduced wholesale Internet access service rates. Excluding the
impact of
the CRTC decision, Cable revenue would have
increased by 1% this year.
Television revenue
The 4% decrease in Television revenue this year was a result of:
• the decline in Television subscribers over the past year; partially
offset by
• the impact of Television service pricing changes, net of
promotional pricing.
Phone revenue
The 9% decrease in Phone revenue this year was a result of the
impact of pricing.
Equipment revenue
Equipment revenue includes revenue generated from the sale of
digital cable set-top boxes and Internet modems. Equipment
revenue this year was in line with 2016.
Internet revenue
The 7% increase in Internet revenue this year was a result of:
• general movement of customers to higher speed and usage
tiers of our Ignite broadband Internet offerings;
• a larger Internet subscriber base, with 54% of our residential
Internet base on plans of 100 megabits per second or higher
(2016 – 46%); and
• the impact of changes in Internet service pricing; partially offset
OPERATING EXPENSES
We assess Cable operating expenses in three categories:
• the cost of programming;
• the cost of equipment revenue (cable digital set-top boxes and
Internet modem equipment); and
• all other expenses involved in day-to-day operations, to service
and retain existing subscriber relationships, and to attract new
subscribers.
by
• more promotional pricing provided to subscribers; and
• lower wholesale revenue as a result of a CRTC decision that
reduced wholesale Internet access service rates. Excluding this
impact, Internet revenue would have increased by 9% this year.
INTERNET SUBSCRIBERS
(IN THOUSANDS)
2017
2016
2015
>100 Mbps SUBSCRIBERS AS A PERCENTAGE OF
OUR RESIDENTIAL INTERNET BASE
(%)
2017
2016
2015
2,230
2,145
2,048
54
46
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The 1% decrease in operating expenses this year was a result of:
• various cost efficiency and productivity initiatives; and
• relative shifts in product mix to higher-margin Internet from
conventional Television broadcasting; partially offset by
• higher costs related to increased revenue, as discussed above.
ADJUSTED OPERATING PROFIT
The 2% increase in adjusted operating profit this year was a result
of the revenue and expense changes described above. Excluding
the impact of the CRTC decision that reduced wholesale Internet
access service rates, adjusted operating profit would have
increased by 4% this year.
CABLE ADJUSTED OPERATING PROFIT
(IN MILLIONS OF DOLLARS)
2017
2016
2015
1,709
1,674
1,658
48 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
BUSINESS SOLUTIONS
LEADING-EDGE WIRELINE TELECOM AND DATA
COMMUNICATIONS SERVICES TO CANADIAN
BUSINESSES
As at December 31, 2017, Business Solutions:
• sold to enterprises and public sector;
• sold to other carriers on a wholesale basis;
• had 10,000 on-net fibre connected buildings; and
• had fibre passing close to an additional 25,500 near-net
buildings.
BUSINESS SOLUTIONS FINANCIAL RESULTS
(In millions of dollars, except margins)
2017
2016 % Chg
Years ended December 31
Revenue
Next generation
Legacy
Service revenue
Equipment revenue
Revenue
Operating expenses
Adjusted operating profit
322
58
380
7
387
259
128
307
71
378
6
384
261
123
5
(18)
1
17
1
(1)
4
Adjusted operating profit margin
Capital expenditures
33.1% 32.0% 1.1 pts
(10)
146
131
Business Solutions generates revenue from the provision of wireline
communications services and the sale of related equipment to
enterprises and public sector at
rates and to other
telecommunications carriers on a wholesale basis. Business
Solutions also provides voice and data communications and
advanced services, including data centres, cloud computing, fibre
networking, and professional services.
retail
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
time-division multiplexing (TDM) and prior generation data
platforms, with client access often delivered using leased third-
party network elements and tariffed ILEC services.
BUSINESS SOLUTIONS SERVICE REVENUE BREAKDOWN
(IN MILLIONS OF DOLLARS)
2017
2016
2015
Next Generation
Legacy
322
58
307
71
288
85
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(%)
$0.4
BILLION
Next Generation 85%
Legacy 15%
REVENUE
The 1% increase in service revenue this year was a result of:
• the continued growth of higher margin, next generation on-net
and near-net IP-based services revenue; partially offset by
• the continued decline in the legacy and off-net voice business, a
trend we expect to continue as we focus the business on next
generation on-net and near-net opportunities and customers
move to more advanced and cost-effective IP-based services and
solutions.
Next generation services, which include our data centre operations,
represented 85% (2016 – 81%) of total service revenue during the
year.
OPERATING EXPENSES
The 1% decrease in operating expenses this year was a result of
lower service costs as we continue to grow our higher-margin
on-net and near IP-based offerings.
ADJUSTED OPERATING PROFIT
The 4% increase in adjusted operating profit this year was a result
of the revenue and expense changes discussed above.
BUSINESS SOLUTIONS ADJUSTED OPERATING PROFIT
(IN MILLIONS OF DOLLARS)
2017
2016
2015
128
123
116
We intend to redefine our reporting segments effective January 1,
2018 such that, the results of our existing Cable segment, Business
Solutions segment, and our Smart Home Monitoring products will
be presented within a redefined Cable segment. We will
retrospectively amend our 2017 comparative segment results in
2018 to account for this redefinition. See “Understanding Our
Business”.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 49
MANAGEMENT’S DISCUSSION AND ANALYSIS
MEDIA
DIVERSIFIED CANADIAN MEDIA COMPANY
We have a broad portfolio of media properties, which most
significantly includes:
• sports media and entertainment, such as Sportsnet and the
Toronto Blue Jays;
• our exclusive national 12-year NHL Agreement;
• category-leading television and radio broadcasting
properties;
• multi-platform televised and online shopping;
• digital media; and
• publishing.
The marginal increase in revenue this year was a result of:
• higher net sports-related revenue, driven by the continued
success of Sportsnet and a distribution in the first quarter to the
Toronto Blue Jays from Major League Baseball, partially offset by
the 2016 impacts of the Toronto Blue Jays postseason and the
World Cup of Hockey;
• higher TSC merchandise sales; and
• higher conventional broadcast TV advertising revenue; partially
offset by
• lower publishing-related revenue due to the strategic shift to
digital media announced last year.
SPORTS REVENUE AS A PERCENTAGE OF MEDIA REVENUE
(%)
MEDIA FINANCIAL RESULTS
(In millions of dollars, except margins)
2017
2016
% Chg
Years ended December 31
2017
2016
2015
57
56
52
Revenue
Operating expenses
Adjusted operating profit
Adjusted operating profit margin
Capital expenditures
2,153
2,014
2,146
1,977
–
2
139
169
(18)
6.5% 7.9% (1.4 pts)
34
62
83
REVENUE
Media revenue is earned from:
• advertising sales across its television,
properties, and publishing;
• subscriptions to televised and OTT products;
• ticket sales, fund redistribution and other distributions from MLB,
and concession sales;
• retail product sales; and
• circulation of published products.
OPERATING EXPENSES
We assess Media operating expenses by:
• the cost of broadcast content, including sports programming
and production;
• Toronto Blue Jays player payroll;
• the cost of retail products sold; and
• all other expenses involved in day-to-day operations.
foreign exchange); and
• higher TSC merchandise costs; partially offset by
• lower publishing costs due to the strategic shift described above.
ADJUSTED OPERATING PROFIT
The 18% decrease in adjusted operating profit this year was a result
of the revenue and expense changes described above.
radio, digital media
The 2% increase in operating expenses this year was a result of:
• higher Toronto Blue Jays player payroll (including the impact of
MEDIA REVENUE
(IN MILLIONS OF DOLLARS)
2017
2016
2015
2017 MEDIA REVENUE MIX
(%)
$2.2
BILLION
2,153
2,146
2,079
MEDIA ADJUSTED OPERATING PROFIT
(IN MILLIONS OF DOLLARS)
2017
2016
2015
139
169
172
Sports 57%
Broadcasting 23%
The Shopping Channel 15%
Publishing 5%
50 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
CAPITAL EXPENDITURES
Capital expenditures include costs associated with acquiring
property, plant and equipment and placing it into service. The
telecommunications business requires extensive and continual
including investment in new technologies and the
investments,
expansion of capacity and geographical reach. The expenditures
related to the acquisition of spectrum licences are not included in
capital expenditures and do not factor into the calculation of free
cash flow or capital intensity. See “Managing Our Liquidity and
Financial
and
“Non-GAAP Measures” for more information.
Performance
Resources”,
Indicators”,
“Key
Capital expenditures are significant and have a material impact on
teams focus on
therefore our management
our cash flows,
planning, funding, and managing them.
Capital expenditures before related changes to non-cash working
capital represent capital assets to which we took title. We believe
reflects our cost of property, plant and
this measure best
equipment
in a given period and is a simpler measure for
comparing between periods.
(In millions of dollars, except capital intensity)
2017
2016
% Chg
Years ended December 31
Capital expenditures
Wireless
Cable
Business Solutions
Media
Corporate
Capital expenditures before proceeds on
disposition
Proceeds on disposition
Capital expenditures 1
Capital intensity 2
806
1,172
131
83
318
702
1,085
146
62
357
2,510
(74)
2,352
–
2,436
2,352
15
8
(10)
34
(11)
7
n/m
4
17.2%
17.2%
– pts
1 Includes additions to property, plant and equipment net of proceeds on disposition,
but does not include expenditures for spectrum licences.
2 As defined. See “Key Performance Indicators”.
WIRELESS
The increase in capital expenditures in Wireless this year was a
result of investments made to upgrade our wireless network to
continue delivering worry-free,
reliable performance for our
customers. We are augmenting our existing LTE network with 4.5G
technology investments that are also designed to migrate to a 5G
radio
environment. This
infrastructure and made investments to activate the AWS-1
spectrum licence acquired this year.
year, we began upgrading our
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CAPITAL EXPENDITURES
(IN MILLIONS OF DOLLARS)
2017
2016
2015
2,436
2,352
2,440
2017 CAPITAL EXDENDITURES BREAKDOWN
(%)
$2.4
BILLION
Cable 48%
Wireless 33%
Corporate 10%
Business Solutions 6%
Media 3%
CABLE
The increase in capital expenditures in Cable this year was a result of
higher investments in network infrastructure, partially related to our
forthcoming Ignite TV, which uses Comcast’s X1 IP-based video
platform, and higher customer premise equipment additions in 2017,
partially offset by costs related to development of our legacy IPTV
product in 2016. This year, we began upgrading our hybrid fibre-
coaxial infrastructure with additional fibre deployments and further
DOCSIS technology enhancements. These deployments and
enhancements will lower the number of homes passed per node and
incorporate the latest technologies to help deliver more bandwidth
and an even more reliable customer experience.
BUSINESS SOLUTIONS
The decrease in capital expenditures in Business Solutions this year
was a result of higher investments in network infrastructure in 2016.
MEDIA
The increase in capital expenditures this year was a result of higher
investments in our broadcast infrastructure and the Rogers Centre
this year, partially offset by greater investments in digital platforms
in 2016.
CORPORATE
The decrease in capital expenditures in Corporate this year was a
result of higher investments in information technology and premise
improvements at our various offices in 2016.
In 2017, we acquired a spectrum licence for $184 million, which is
not included in the table above. See “Managing Our Liquidity and
Financial Resources”.
PROCEEDS ON DISPOSITION
We sold certain real estate assets for total proceeds of $74 million
in 2017.
CAPITAL INTENSITY
Capital intensity was stable this year as a result of the higher capital
expenditures as discussed above, offset by the increase in revenue.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 51
MANAGEMENT’S DISCUSSION AND ANALYSIS
REVIEW OF CONSOLIDATED PERFORMANCE
This section discusses our net income and other expenses that do
not form part of the segment discussions above.
We paid $107 million in 2017 (2016 – $69 million) to holders of
stock options, RSUs, and DSUs upon exercise.
DEPRECIATION AND AMORTIZATION
(In millions of dollars)
Adjusted operating profit 1
Deduct (add):
Stock-based compensation
Depreciation and amortization
Gain on disposition of property,
Years ended December 31
2017
2016 % Chg
(In millions of dollars)
Years ended December 31
2017
2016 % Chg
5,379
5,092
61
2,142
61
2,276
6
–
(6)
Depreciation
Amortization
2,087
55
2,183
93
Total depreciation and amortization
2,142
2,276
(4)
(41)
(6)
plant and equipment
(49)
–
n/m
Restructuring, acquisition and
other
Finance costs
Other (income) expense
Income tax expense
Net income
152
746
(19)
635
1,711
644
761
191
324
835
(76)
(2)
(110)
96
105
1 Adjusted operating profit is a non-GAAP measure and should not be considered 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
See “Key Changes in Financial Results This Year Compared to
2016” 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 (RSUs), and
deferred share units (DSUs), is generally determined by:
• the vesting of stock options and share units; and
• changes in the market price of Class B Non-Voting Shares;
offset by
• the impact of certain derivative instruments to hedge a portion of
the stock price appreciation risk
stock-based
compensation program. See “Financial Risk Management” for
information about equity derivatives.
for our
(In millions of dollars)
2017
2016
Years ended December 31
Impact of vesting
Impact of change in price
Equity derivatives, net of interest
receipt
Total stock-based compensation
61
74
(74)
61
Depreciation and amortization decreased this year primarily as a
result of certain assets becoming fully amortized.
RESTRUCTURING, ACQUISITION AND OTHER
This year, we incurred $152 million (2016 – $644 million)
in
restructuring, acquisition and other expenses. These expenses in
2017 primarily consisted of severance costs associated with the
targeted restructuring of our employee base and legal
fees
pertaining to class action lawsuits.
In 2016, these costs were primarily associated with the $484 million
impairment and onerous contract charges related to a
asset
change in strategic direction such that we discontinued the internal
development of our legacy IPTV product in lieu of a forthcoming
IPTV product being developed in tandem with Comcast, which was
classified as impairment of assets and related onerous contract
charges in our 2016 financial statements and reclassified in 2017 to
be included in restructuring, acquisition and other expenses. The
other restructuring costs primarily consisted of severance costs
associated with the targeted restructuring of our employee base
and costs related to the wind-down of and changes to certain
businesses.
FINANCE COSTS
(In millions of dollars)
2017
2016
% Chg
Years ended December 31
Interest on borrowings 1
Interest on post-employment
benefits liability
(Gain) loss on foreign exchange
Change in fair value of derivative
instruments
70
24
Capitalized interest
Other
740
758
(2)
12
(107)
99
(18)
20
9
13
(16)
(18)
15
33
n/m
n/m
–
33
(33)
61
Total finance costs
746
761
(2)
1 Interest on borrowings includes interest on short-term borrowings and on long-term
debt.
Stock-based compensation was stable in 2017 (2016 – $61 million)
as the change in market price of our Class B Non-Voting Shares
was offset by the change in value of our equity derivatives.
We had a liability of $223 million as at December 31, 2017 (2016 –
$189 million) related to stock-based compensation recorded at its
fair value, including stock options, RSUs, and DSUs.
Interest on borrowings
Interest on borrowings decreased this year as a result of a lower
amount of debt outstanding compared to 2016. See “Managing
Our Liquidity and Financial Resources” for more information about
our debt and related finance costs.
52 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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Gain on foreign exchange
During 2017, all of our US dollar-denominated senior notes and
debentures were hedged for accounting purposes. Foreign
exchange gains recognized in 2017 were primarily related to our
US CP program borrowings and US dollar-denominated credit
facility borrowings, for which the associated debt derivatives were
not designated as hedges for accounting purposes due to the
short-term nature of the borrowings. Foreign exchange losses
recognized in 2016 were also related to our US dollar-
denominated credit facility borrowings.
See “Managing Our Liquidity and Financial Resources” for more
information about our debt and related finance costs.
OTHER (INCOME) EXPENSE
The increase in other income this year was primarily a result of the
$140 million loss on the wind-down of shomi recognized in 2016.
Additionally, in 2017 we recognized a recovery on the reversal of a
provision pertaining to shomi of $20 million.
INCOME TAX EXPENSE
Below is a summary of the difference between income tax expense
computed by applying the statutory income tax rate to income
before income tax expense and the actual income tax expense for
the year.
(In millions of dollars, except tax rates)
Statutory income tax rate
Income before income tax expense
Computed income tax expense
Increase (decrease) in income tax
expense resulting from:
Non-deductible stock-based
compensation
Non-deductible portion of equity
losses
Non-deductible loss on
available-for-sale investments
Income tax adjustment, legislative
tax change
Non-taxable portion of capital gain
Other items
Total income tax expense
Effective income tax rate
Cash income taxes paid
Years ended December 31
2017
26.7%
2,346
626
2016
26.6%
1,159
308
9
–
7
2
(10)
1
635
27.1%
475
5
18
–
3
(7)
(3)
324
28.0%
295
Our effective income tax rate this year was 27.1% compared to
28.0% for 2016. The effective income tax rate for 2017 was higher
than the statutory tax rate primarily as a result of non-deductible
stock-based compensation and non-deductible losses recognized
on certain of our investments, partially offset by the non-taxable
portion of capital gains on the sale of certain real estate assets.
Cash income taxes paid increased this year primarily as a result of
the impact that the 2015 acquisition of Mobilicity had on reducing
our 2016 installment payments.
NET INCOME
Net income was 105% higher than last year primarily as a result of
losses incurred last year related to the discontinuation of the
development of our legacy IPTV product and the wind-down of
shomi, higher adjusted operating profit, and lower depreciation
and amortization expense, partially offset by higher income tax
expense. See “Key Changes in Financial Results This Year
Compared to 2016” for more information.
(In millions of dollars, except per share
amounts)
Net income
Basic earnings per share
Diluted earnings per share
Years ended December 31
2017
2016 % Chg
1,711
835
$ 3.32 $1.62
$ 3.31 $1.62
105
105
104
ADJUSTED NET INCOME
Adjusted net income was 23% higher compared to 2016, primarily
as a result of higher adjusted operating profit, lower depreciation
and amortization, and lower other expense, partially offset by
higher income tax expense.
(In millions of dollars, except per
share amounts)
Adjusted operating profit 1
Deduct (add):
Years ended December 31
2017
2016 % Chg
5,379
5,092
6
Depreciation and amortization
Finance costs
Other expense 2
Income tax expense 3
2,142
746
1
669
2,276
761
40
534
Adjusted net income 1
1,821
1,481
Adjusted basic earnings per share 1
Adjusted diluted earnings per share 1
$ 3.54 $ 2.88
$ 3.52 $ 2.86
(6)
(2)
(98)
25
23
23
23
1 Adjusted operating profit, adjusted net income, and adjusted basic and diluted
earnings per share are non-GAAP measures and should not be considered as
substitutes or alternatives 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 Other expense for 2017 excludes a $20 million recovery on the reversal of a provision
pertaining to the wind-down of shomi. Other expense for 2016 excludes an
$11 million net loss on divestitures pertaining to investments and a $140 million loss
on the wind-down of our shomi joint venture.
3 Income tax expense excludes the $36 million recovery (2016 – $213 million recovery)
for the year ended December 31, 2017 related to the income tax impact for adjusted
items. Income tax expense also excludes the $2 million expense (2016 – $3 million
expense) for the revaluation of deferred tax balances as a result of legislative income
tax rate changes.
NET INCOME
(IN MILLIONS OF DOLLARS)
2017
2016
2015
1,711
835
1,342
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 53
MANAGEMENT’S DISCUSSION AND ANALYSIS
ADJUSTED NET INCOME
(IN MILLIONS OF DOLLARS)
2017
2016
2015
1,821
1,481
1,479
EMPLOYEES
Employee salaries and benefits represent a material portion of our
expenses. As at December 31, 2017, we had approximately 24,500
employees (2016 – 25,200) across all of our operating groups,
including shared services and the corporate office. Total salaries
and benefits for full-time and part-time employees in 2017 were
$2,120 million (2016 – $2,073 million). The increase was primarily a
result of higher Toronto Blue Jays player salaries and higher
pension expenses.
2016 FULL YEAR RESULTS COMPARED TO 2015
Revenue
Consolidated revenue increased by 2% in 2016, reflecting revenue
growth of 3% in Wireless, 3% in Media and 2% in Business
Solutions, while Cable revenue decreased marginally. Wireless
revenue increased as a result of the continued adoption of Rogers
Share Everything plans. Cable revenue decreased marginally as the
increase in Internet revenue from a larger subscriber base and
subscriber movement to higher-end speed and usage tiers was
more than offset by the decrease in Television subscribers and the
impact of Phone pricing packages. Business Solutions revenue
increased primarily as a result of
the growth in on-net next
generation services, including our data centre businesses, which
more than offset the continued reduction in lower-margin, off-net
legacy revenue. Media revenue increased as a result of higher
sports-related revenue, driven by the success of Sportsnet and the
Toronto Blue Jays, partially offset by continued softness in
publishing and radio advertising.
Adjusted operating profit
increased in 2016 to
Consolidated adjusted operating profit
$5,092 million, reflecting increases in Wireless, Cable and Business
Solutions, partially offset by a decrease in Media. Wireless adjusted
operating profit increased 1% as a result of the continued adoption
of higher-rate service plans, partially offset by higher service costs
associated with increased volumes and costs of devices. Cable
adjusted operating profit increased by 1% in 2016 as a result of
lower service and programming costs, and various cost efficiency
and productivity initiatives, partially offset by increased advertising
related to our Ignite Internet and 4K TV offerings. The increase in
Business Solutions was a result of continued growth in the higher-
margin on-net, next generation business improvements, partially
offset by continued declines in the legacy, off-net business. Media
adjusted operating profit decreased primarily as a result of the
increase in sports-related and digital media costs, partially offset by
higher sports-related revenue driven by the strength of Sportsnet
and the success of the Toronto Blue Jays.
Net income and adjusted net income
Net income decreased to $835 million in 2016 from $1,342 million
in 2015 primarily as a result of the impairment and related charges
we recognized on our legacy IPTV product as a result of our
decision to discontinue developing this product and develop a
long-term relationship with Comcast and deploy their X1 IP-based
video platform, along with higher restructuring, acquisition and
other costs and higher equity losses associated with the wind-down
of shomi.
Adjusted net income increased marginally to $1,481 million in
2016 from $1,479 million in 2015 as a result of a higher adjusted
operating profit partially offset by higher other expense and higher
income tax expense.
54 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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QUARTERLY RESULTS
Below is a summary of our quarterly consolidated financial results and key performance indicators for 2017 and 2016.
QUARTERLY CONSOLIDATED FINANCIAL SUMMARY
2017
2016
(In millions of dollars, except per share amounts)
Full Year
Q4
Q3
Q2
Q1
Full Year
Q4
Q3
Q2
Q1
Revenue
Wireless
Cable
Business Solutions
Media
Corporate items and intercompany eliminations
8,343
3,466
387
2,153
(206)
2,189
871
99
526
(53)
2,138
870
97
516
(40)
2,048
870
96
637
(59)
1,968
855
95
474
(54)
7,916
3,449
384
2,146
(193)
2,058
858
96
550
(52)
2,037
865
95
533
(38)
1,931
870
97
615
(58)
1,890
856
96
448
(45)
Total revenue
Total service revenue 1
Adjusted operating profit (loss)
14,143
13,560
3,632
3,430
3,581
3,450
3,592
3,466
3,338
3,214
13,702
13,027
3,510
3,306
3,492
3,328
3,455
3,308
3,245
3,085
Wireless
Cable
Business Solutions
Media
Corporate items and intercompany eliminations
3,561
1,709
128
139
(158)
860
449
32
39
(40)
964
440
33
65
(39)
924
428
32
63
(37)
813
392
31
(28)
(42)
3,285
1,674
123
169
(159)
792
435
30
49
(47)
884
431
31
79
(40)
846
415
31
90
(35)
763
393
31
(49)
(37)
Adjusted operating profit 2
5,379
1,340
1,463
1,410
1,166
5,092
1,259
1,385
1,347
1,101
Deduct (add):
Stock-based compensation
Depreciation and amortization
Gain on disposition of property, plant and
equipment
Restructuring, acquisition and other
Finance costs
Other (income) loss
Net income (loss) before income tax expense
(recovery)
Income tax expense (recovery)
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Net income (loss)
Add (deduct):
Stock-based compensation
Restructuring, acquisition and other
(Recovery) loss on wind-down of shomi
Net loss (gain) on divestitures pertaining to
investments
Gain on disposition of property, plant and
equipment
Income tax impact of above items
Income tax adjustment, legislative tax change
Adjusted net income 2
Adjusted earnings per share 2:
Basic
Diluted
Capital expenditures
Cash provided by operating activities
Free cash flow 2
61
2,142
(49)
152
746
(19)
2,346
635
1,711
14
531
–
31
184
3
577
158
419
15
531
–
59
183
20
655
188
467
19
535
(49)
34
189
(31)
713
182
531
13
545
–
28
190
(11)
401
107
294
61
2,276
–
644
761
191
1,159
324
835
16
555
–
518
188
(4)
(14)
(5)
(9)
18
575
–
55
188
220
329
109
220
15
572
–
27
189
9
535
141
394
12
574
–
44
196
(34)
309
79
230
$ 3.32 $ 0.81 $ 0.91 $ 1.03 $ 0.57
$ 3.31 $ 0.81 $ 0.91 $ 1.03 $ 0.57
$ 1.62 ($ 0.02) $ 0.43 $ 0.77 $ 0.45
$ 1.62 ($ 0.04) $ 0.43 $ 0.76 $ 0.44
1,711
419
467
531
294
61
152
(20)
–
(49)
(36)
2
14
31
–
–
–
(11)
2
15
59
–
–
–
(18)
–
19
34
(20)
–
(49)
(1)
–
13
28
–
–
–
(6)
–
835
61
644
140
11
(9)
220
394
230
16
518
–
18
55
140
15
27
–
12
44
–
–
50
–
(39)
–
(213)
3
–
(143)
–
–
(56)
–
–
(9)
–
–
(5)
3
1,821
455
523
514
329
1,481
382
427
427
245
$ 3.54 $ 0.88 $ 1.02 $ 1.00 $ 0.64
$ 3.52 $ 0.88 $ 1.01 $ 1.00 $ 0.64
$ 2.88 $ 0.74 $ 0.83 $ 0.83 $ 0.48
$ 2.86 $ 0.74 $ 0.83 $ 0.83 $ 0.47
2,436
3,938
1,746
841
1,142
244
658
1,377
538
451
823
626
486
596
338
2,352
3,957
1,705
604
1,053
392
549
1,185
598
647
1,121
495
552
598
220
1 As defined. See “Key Performance Indicators”.
2 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
substitutes or alternatives 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.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 55
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOURTH QUARTER 2017 RESULTS
Results commentary in “Fourth Quarter 2017 Results” compares
the fourth quarter of 2017 with the fourth quarter of 2016.
Higher revenue
Consolidated revenue increased 3% in the fourth quarter, largely
driven by Wireless service revenue growth of 7%.
Wireless service revenue increased 7% in the fourth quarter
primarily as a result of subscriber growth and a greater number of
subscribers on higher-rate plans from our various brands, including
Rogers Share Everything plans.
Cable revenue increased 2% in the fourth quarter as strong Internet
revenue growth of 9% was partially offset by the decline in
Television and Phone revenue. We continue to see an ongoing
shift in product mix to higher-margin Internet services.
Media revenue decreased 4% in the fourth quarter primarily as a result
of lower revenue from the Toronto Blue Jays, primarily due to the
postseason success in 2016, and lower publishing-related revenue
due to the strategic shift to digital media announced last year, partially
offset by higher Sportsnet revenue and increased sales at TSC.
Higher adjusted operating profit
Higher consolidated adjusted operating profit in the fourth quarter
reflects an increase in Wireless adjusted operating profit as a result
of the strong flow-through of top-line growth described above and
improved Cable performance due to the shift in product mix to
higher-margin Internet services.
Net income and higher adjusted net income
Net income increased in the fourth quarter as a result of losses
incurred last year related to the discontinuation of the development
of our legacy IPTV product and higher adjusted operating profit.
Adjusted net income increased 19% in the fourth quarter primarily
due to higher adjusted operating profit and lower depreciation
and amortization.
QUARTERLY TRENDS AND SEASONALITY
Our operating results generally vary from quarter to quarter as a
result of changes in general economic conditions and seasonal
fluctuations, among other
reporting
things,
segments. This means our results in one quarter are not necessarily
indicative of how we will perform in a future quarter. Wireless,
Cable, and Media each have unique seasonal aspects to, and
certain other historical trends in, their businesses.
in each of our
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 tax expense.
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 wireless device sales as more consumers shift
to
smartphones;
• decreasing postpaid churn, which we believe is beginning to
reflect the realization of our enhanced customer service efforts;
and
56 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
• higher roaming revenue as a result of customers increasingly
utilizing our Roam Like Home and Fido Roam services; partially
offset by
• decreasing voice revenue as rate plans increasingly incorporate
more monthly minutes and calling features, such as long
distance.
The trends in Wireless adjusted operating profit reflect:
• higher wireless device subsidies that offset the higher wireless
to higher-cost
as more consumers
shift
device sales
smartphones; and
• higher voice and data costs related to the increasing number of
subscribers.
We continue to target organic growth in higher-value postpaid
subscribers. We have maintained a stable mix of postpaid and
prepaid subscribers. Prepaid plans are evolving to have properties
similar to those of traditional postpaid plans. We believe this
evolution provides Canadians with greater choice of subscribing to
a postpaid or prepaid service plan. Growth in our customer base
time has resulted in higher costs for customer service,
over
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, typically in
the third and fourth quarters. Conversely, periods with higher
activity may adversely impact subscriber churn metrics as a result of
heightened competitive activity. The third and fourth quarters
typically experience higher volumes of activity as a result of “back to
school”
season-related consumer behaviour.
Aggressive promotional offers are often advertised during these
periods and also contribute to the impact on subscriber metrics. In
contrast, we typically see lower subscriber additions in the first
quarter of the year.
and holiday
The launch of popular new wireless device models can also affect
the level of subscriber activity. Highly-anticipated device launches
typically occur in the fall season of each year. Wireless roaming
revenue is dependent on customer travel volumes and timing,
which is impacted by the foreign exchange rate of the Canadian
dollar and general economic conditions.
Cable
The trends in Cable service revenue primarily reflect:
• higher
Internet subscription fees as customers increasingly
including those with
upgrade to higher-tier speed plans,
unlimited usage;
• general pricing increases; and
• shift of enterprise customers from lower-margin, off-net legacy
long distance and data services
to higher-margin, next
generation services and data centre businesses; partially offset
by
• competitive losses of Television subscribers;
• Television subscribers downgrading their service plans; and
• lower additional usage of
Internet, Television, and Phone
products and services as service plans are increasingly bundling
more features, such as unlimited bandwidth or a greater number
of TV channels.
The trends in Cable adjusted operating profit primarily reflect:
• higher Internet operating margins, as a result of the shift from
conventional Television to Internet services; partially offset by
• higher premium supplier
fees in Television as a result of
bundling more value-added offerings into our Cable products.
Cable’s operating results are affected by modest seasonal
fluctuations in subscriber additions and disconnections, typically
caused by:
• university and college students who live in residences moving
out early in the second quarter and canceling their service as well
as students moving in late in the third quarter and signing up for
cable service;
• individuals
temporarily
vacations or seasonal relocations; and
suspending service for extended
• the concentrated marketing we generally conduct in our fourth
quarter.
Cable operating results are also influenced by trends in cord
shaving and cord cutting, which has resulted in fewer subscribers
watching traditional cable television, as well as a lower number of
Television subscribers. In addition, trends in the use of wireless
products and Internet or social media as substitutes for traditional
home phone products have resulted in fewer Phone subscribers.
Cable results from our enterprise customers do not generally have
any unique seasonal aspects.
Media
The trends in Media’s results are generally the result of:
• fluctuations in advertising and consumer market conditions;
• subscriber rate increases;
• higher sports and rights costs, including increases as we move
further along in our NHL Agreement; and
• continual investment in primetime and specialty programming
relating to both our broadcast networks (such as City) and our
specialty channels (such as FX (Canada)).
Seasonal fluctuations relate to:
• periods of increased consumer activity and their impact on
advertising and related retail cycles, which tend to be most active
in the fourth quarter due to holiday spending and slower in the
first quarter;
• the MLB season, where:
• games played are concentrated in the spring, summer, and
fall months (generally the second and third quarters of the
year);
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• revenue related to game day ticket sales, merchandise sales,
and advertising are concentrated in the spring, summer, and
fall months (generally the second and third quarters of the
year), with postseason games commanding a premium in
advertising revenue and additional revenue from game day
ticket sales and merchandise sales, if and when the Toronto
Blue Jays play in the postseason; and
• programming and production costs and player payroll are
expensed based on the number of games aired or played, as
applicable; and
• the NHL season, where:
• regular season games are concentrated in the fall and winter
months (generally the first and fourth quarters of the year) and
playoff games are concentrated in the spring months
(generally the second quarter of the year). We expect a
correlation between the quality of revenue and earnings and
the extent of Canadian teams’ presence during the playoffs;
• programming and production costs are expensed based on
the timing of when the rights are aired or are expected to be
consumed; and
• advertising revenue and programming expenses
are
concentrated in the fall, winter, and spring months, with
playoff games commanding a premium in advertising
revenue.
Other expenses
Depreciation and amortization has been trending upward over the
past several years as a result of an increase in our general
depreciable asset base, related significantly to our recent rollout
and expansion of our wireless network. This is a direct result of
increasing capital expenditures in previous and current years as we
worked to upgrade our wireless network, purchase NextBox set-top
boxes, and roll out Ignite Gigabit Internet and 4K TV to our Cable
footprint. Depreciation and amortization has decreased in 2017 as
a result of certain assets becoming fully amortized and our decision
to discontinue development of our legacy IPTV product, which
resulted in a reduction of assets subject to depreciation. We expect
future depreciation and amortization to align with ongoing capital
expenditures.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 57
MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW OF FINANCIAL POSITION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31
(In millions of dollars)
Assets
Current assets:
2017
2016 $ Chg % Chg
Explanation of significant changes
Reflects an increase in trade receivables driven by increased revenue.
n/m
n/m
Primarily reflects the reclassification to current of the debt derivatives associated
with the upcoming maturity of our US$1.4 billion senior notes. See “Financial
Risk Management”.
Primarily reflects capital expenditures, partially offset by depreciation expense.
See “Capital Expenditures”.
Reflects the acquisition of a spectrum licence, partially offset by amortization of
intangible assets.
Primarily reflects fair value increases for certain publicly-traded investments.
Primarily reflects the reclassification to current of the debt derivatives associated
with the upcoming maturity of our US$1.4 billion senior notes and the changes
in market value of our debt derivatives as a result of the appreciation of the Cdn$
relative to the US$. See “Financial Risk Management”.
n/m
n/m
n/m
See “Sources and Uses of Cash”.
Reflects borrowings under our new US CP program, partially offset by a
decrease in borrowings under our securitization program.
Primarily reflects an overall increase in trade payables as a result of the timing of
payments made.
Reflects the timing of tax installments.
Primarily reflects payments made for our share of the remaining obligations in
our shomi joint venture and a related provision reversal.
Reflects customer deposits at the Toronto Blue Jays.
Reflects the reclassification of our US$1.4 billion senior notes to current, partially
offset by the cumulative repayment of $750 million of senior notes in 2017. See
“Managing our Liquidity and Financial Resources”.
Primarily reflects changes in market values of our expenditure derivatives, as a
result of the appreciation of the Cdn$ relative to the US$, and bond forwards, as
a result of a change in the Government of Canada interest rates. See “Financial
Risk Management”.
n/m
Primarily reflects the reclassification to current of our US$1.4 billion of senior
notes, a decrease in our credit facility borrowings, and revaluation due to the
appreciation of the Cdn$ relative to the US$. See “Sources and Uses of Cash”.
Reflects changes in market values of debt derivatives, primarily as a result of the
appreciation of the Cdn$ relative to the US$, partially offset by the upcoming
maturity of certain bond forwards that are now classified as current. See
“Financial Risk Management”.
Reflects an increase in long-term pension obligations.
Primarily reflects an increase in temporary differences between the accounting
and tax bases for certain assets and liabilities.
Reflects changes in retained earnings and equity reserves.
Accounts receivable
Inventories
Other current assets
Current portion of derivative instruments
2,041 1,949
315
215
91
313
197
421
5
92
(1)
(2)
(8)
(18)
330 n/m
Total current assets
Property, plant and equipment
2,972 2,570
11,143 10,749
402
394
16
4
Intangible assets
7,244 7,130
114
2
Investments
Derivative instruments
2,561 2,174
953 1,708
387
(755)
18
(44)
Other long-term assets
Deferred tax assets
Goodwill
82
3
98
8
3,905 3,905
(16)
(5)
–
(16)
(63)
–
Total assets
28,863 28,342
521
2
Liabilities and shareholders’ equity
Current liabilities:
Bank advances
Short-term borrowings
6
1,585
71
800
(65) n/m
98
785
Accounts payable and accrued liabilities
2,931 2,783
148
5
Income tax payable
Current portion of provisions
62
4
186
134
(124)
(130)
(67)
(97)
Unearned revenue
Current portion of long-term debt
346
1,756
367
(21)
750 1,006
(6)
134
Current portion of derivative instruments
133
22
111 n/m
Total current liabilities
Provisions
Long-term debt
6,823 5,113 1,710
2
12,692 15,330 (2,638)
35
33
33
6
(17)
Derivative instruments
147
118
29
25
Other long-term liabilities
Deferred tax liabilities
613
562
2,206 1,917
51
289
9
15
Total liabilities
Shareholders’ equity
22,516 23,073
(557)
6,347 5,269 1,078
(2)
20
Total liabilities and shareholders’ equity
28,863 28,342
521
2
58 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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Managing Our Liquidity and Financial Resources
SOURCES AND USES OF CASH
OPERATING, INVESTING, AND FINANCING ACTIVITIES
(In millions of dollars)
Cash provided by operating activities before changes in non-cash working capital items, 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:
Capital expenditures
Additions to program rights
Changes in non-cash working capital related to capital expenditures and intangible assets
Acquisitions and other strategic transactions, net of cash acquired
Other
Cash used in investing activities
Financing activities:
Net proceeds received on short-term borrowings
Net repayment of long-term debt
Net payments on settlement of debt derivatives and forward contracts
Transaction costs incurred
Dividends paid
Other
Cash used in financing activities
Change in cash and cash equivalents
(Bank advances) cash and cash equivalents, beginning of period
Bank advances, end of period
Years ended December 31
2017
2016
5,302
(154)
5,148
(475)
(735)
3,938
(2,436)
(59)
109
(184)
(60)
(2,630)
858
(1,034)
(79)
–
(988)
–
4,994
14
5,008
(295)
(756)
3,957
(2,352)
(46)
(103)
–
45
(2,456)
–
(538)
(45)
(17)
(988)
5
(1,243)
(1,583)
65
(71)
(6)
(82)
11
(71)
OPERATING ACTIVITIES
The marginal decrease in cash provided by operating activities this
year was a result of higher net investment in non-cash working
capital and higher cash income taxes paid, partially offset by lower
interest paid.
INVESTING ACTIVITIES
Capital expenditures
We spent a net amount of $2,436 million this year on property,
plant and equipment before related changes in non-cash working
capital
items, which was 4% higher than 2016. See “Capital
Expenditures” for more information.
Acquisitions and other strategic transactions
In June 2017, upon receipt of all necessary regulatory approvals, we
acquired an AWS-1 spectrum licence from Quebecor Inc., pursuant
to an existing agreement, by paying $184 million. Upon
acquisition, we recognized the spectrum licence as an intangible
asset of $184 million, which included directly attributable costs. The
spectrum licence provides us with more wireless capacity in the
Greater Toronto Area. We did not make any material acquisitions
or other strategic transactions in 2016.
FINANCING ACTIVITIES
We repaid net amounts of $255 million for the year ended
December 31, 2017 (2016 – $583 million) on our short-term
borrowings, long-term debt, and related derivatives. See “Financial
Risk Management” for more information on the cash flows relating
to our derivative instruments.
Short-term borrowings
Our short-term borrowings consist of amounts outstanding under
our accounts receivable securitization program and under our US
CP program. Below is a summary of our short-term borrowings as
at December 31, 2017 and 2016.
Years ended December 31
(In millions of dollars)
2017
2016
Accounts receivable securitization
program
US commercial paper program
Total short-term borrowings
650
935
1,585
800
–
800
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 59
MANAGEMENT’S DISCUSSION AND ANALYSIS
The table below summarizes the activity relating to our short-term borrowings for the years ended December 31, 2017 and 2016.
(In millions of dollars, except exchange rates)
Proceeds received from accounts receivable securitization
Repayment of accounts receivable securitization
Net repayment of accounts receivable securitization
Proceeds received from US commercial paper
Repayment of US commercial paper
Net proceeds received from US commercial paper
Net proceeds received on short-term borrowings
Year ended December 31, 2017
Year ended December 31, 2016
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
8,267
(7,530)
737
1.30
1.30
1.37
530
(680)
(150)
10,712
(9,704)
1,008
858
–
–
–
–
295
(295)
–
–
–
–
–
In March 2017, we entered into a US CP program that allowed us
to issue up to a maximum aggregate principal amount of
US$1 billion.
In December 2017, we increased the maximum
aggregate principal amount allowed under our US CP program to
US$1.5 billion. Funds can be borrowed under this program with
terms to maturity ranging from 1 to 397 days, subject to ongoing
market conditions. Any issuances made under the US CP program
will be issued at a discount. The obligations of RCI under the US CP
program are unsecured and guaranteed by RCCI, and rank equally
in right of payment with all our senior notes and debentures. See
“Financial Condition” for more information.
Concurrent with our commercial paper issuances, we entered into
debt derivatives to hedge the foreign currency risk associated with
the principal and interest components of the borrowings under the
US CP program. See “Financial Risk Management” for more
information.
Long-term debt
Our long-term debt consists of amounts outstanding under our bank and letter of credit facilities and the senior notes and debentures we
have issued. The tables below summarize the activity relating to our long-term debt for the years ended December 31, 2017 and 2016.
(In millions of dollars, except exchange rates)
Year ended December 31, 2017
Year ended December 31, 2016
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
Credit facility borrowings (Cdn$)
Credit facility borrowings (US$)
Total credit facility borrowings
Credit facility repayments (Cdn$)
Credit facility repayments (US$)
Total credit facility repayments
Net repayments under credit facilities
Senior notes issuances (US$)
Senior notes repayments (Cdn$)
Net repayment of senior notes
Net repayment of long-term debt
960
1.32
(1,110)
1.31
–
–
2,188
1.31
(2,038)
1.32
500
1.34
1,730
1,269
2,999
(1,830)
(1,453)
(3,283)
(284)
–
(750)
(750)
(1,034)
1,140
2,877
4,017
(1,540)
(2,686)
(4,226)
(209)
671
(1,000)
(329)
(538)
(In millions of dollars)
2017
2016
Years ended December 31
The revolving credit facility is unsecured, guaranteed by RCCI, and
ranks equally with all of our senior notes and debentures.
Long-term debt net of transaction
costs, beginning of period
Net repayment of long-term debt
Gain on foreign exchange
Deferred transaction costs incurred
Amortization of deferred transaction
costs
Long-term debt net of transaction
costs, end of period
16,080
(1,034)
(608)
(3)
16,870
(538)
(245)
(12)
13
5
14,448
16,080
Effective April 1, 2016, we amended our $2.5 billion revolving credit
facility to, among other things, extend the maturity date from July
2019 to September 2020. At the same time, we also amended the
$1.0 billion non-revolving credit facility to, among other things,
extend the maturity date from April 2017 to April 2018. As a result
of the repayments made during 2016, we reduced the amount of
borrowings available under our non-revolving credit facility from
$1.0 billion to $301 million.
60 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
As at December 31, 2017, we had nil drawn under our bank credit
facilities (2016 – $301 million ($100 million and US$150 million)).
We had entered into debt derivatives related to these borrowings
to convert all the interest and principal payment obligations to
Canadian dollars as at December 31, 2016. See “Financial Risk
Management” for more information.
Issuance of senior notes and related debt derivatives
Below is a summary of the senior notes that we issued in 2016, with the proceeds used to repay outstanding advances under our credit
facilities and for general corporate purposes. We did not issue any senior notes in 2017.
(In millions of dollars, except interest rates and discounts)
Date Issued
2016 issuances
November 4, 2016
Principal
amount
Due
date
Interest
rate
Discount/premium
at issuance
Total gross
proceeds 1
(Cdn$)
Transaction costs
and discounts 2
(Cdn$)
US
500
2026
2.900%
98.354%
671
17
1 Gross proceeds before transaction costs, discounts, and premiums.
2 Transaction costs, discounts, and premiums 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.
The senior notes issued in 2016 were issued pursuant to public
offerings in the US.
There were no debt derivatives associated with the 2017 and 2016
repayments.
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Concurrent with the 2016 issuance, we entered into debt
derivatives to convert all interest and principal payment obligations
on the senior notes to Canadian dollars. See “Financial Risk
Management” for more information.
On February 8, 2018, we issued US$750 million senior notes due
2048 at a rate of 4.300%. At the same time, we entered into debt
derivatives to convert all interest and principal payment obligations
to Canadian dollars. As a result, we received net proceeds of
$938 million from the issuance. We intend to use these funds for
general corporate purposes, which may include the repayment at
maturity of our outstanding commercial paper under our US CP
program.
All the notes issued are unsecured and guaranteed by RCCI,
ranking equally with all of our other unsecured senior notes and
debentures, bank credit facilities, and letter of credit facilities.
Repayment of senior notes and related derivative settlements
Below is a summary of the repayment of our senior notes during
2017 and 2016.
(In millions of dollars)
Maturity date
2017 repayments
March 2017
June 2017
Total for 2017
2016 repayments
May 2016
Notional amount
(Cdn$)
250
500
750
1,000
WEIGHTED AVERAGE COST OF BORROWINGS
(%)
2017
2016
2015
DEBT LEVERAGE RATIO
2017
2016
2015
4.70
4.72
4.82
2.8
3.0
3.1
Dividends
In 2017, we declared and paid dividends on each of our
outstanding Class A Shares and Class B Non-Voting Shares. We
paid $988 million in cash dividends. See “Dividends and Share
Information” for more 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 will expire in April 2018. In November 2016, we
issued US$500 million ($671 million) of debt securities under the
US Shelf. We did not issue any additional debt securities in 2017.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 61
MANAGEMENT’S DISCUSSION AND ANALYSIS
FREE CASH FLOW
(In millions of dollars)
2017
2016 % Chg
Years ended December 31
The 2% increase in free cash flow this year was primarily a result of:
• higher adjusted operating profit; partially offset by
• higher capital expenditures; and
• higher cash income taxes.
Adjusted operating profit 1
Deduct (add):
Capital expenditures 2
Interest on borrowings, net of
capitalized interest
Cash income taxes 3
Free cash flow 1
5,379
5,092
2,436
2,352
722
475
740
295
1,746
1,705
6
4
(2)
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FREE CASH FLOW
(IN MILLIONS OF DOLLARS)
2017
2016
2015
1 Adjusted operating profit and free cash flow are non-GAAP measures and should not
be considered as substitutes or alternatives 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 net of proceeds on disposition,
but does not include expenditures for spectrum licences.
3 Cash income taxes are net of refunds received.
FINANCIAL CONDITION
LIQUIDITY
1,746
1,705
1,676
Below is a summary of our total available liquidity under our bank credit facilities, letters of credit facilities, and short-term borrowings.
As at December 31, 2017
(In millions of dollars)
Bank credit facilities:
Revolving
Outstanding letters of credit
Bank advances
Total bank credit facilities
Accounts receivable securitization
Total
As at December 31, 2016
(In millions of dollars)
Bank credit facilities:
Revolving
Non-revolving
Outstanding letters of credit
Bank advances
Total bank credit facilities
Accounts receivable securitization
Total
Total available
Drawn
Letters of credit US CP program Net available
3,200
87
–
3,287
1,050
4,337
–
–
6
6
650
656
9
87
–
96
–
96
935
–
–
935
–
935
2,256
–
(6)
2,250
400
2,650
Total available
Drawn
Letters of credit Net available
2,500
301
59
–
2,860
1,050
3,910
–
301
–
71
372
800
1,172
9
–
59
–
68
–
68
2,491
–
–
(71)
2,420
250
2,670
In addition to the noted sources of available liquidity, we held
in publicly-traded
$1,465 million of marketable securities
companies as at December 31, 2017 (2016 – $1,047 million).
Weighted average cost of borrowings
Our borrowings had a weighted average cost of 4.70% as at
December 31, 2017 (2016 – 4.72%) and a weighted average term
to maturity of 9.9 years (2016 – 10.6 years).
COVENANTS
The provisions of our $3.2 billion revolving bank credit facility
described in “Sources and Uses of Cash”
impose certain
restrictions on our operations and activities, the most significant of
which are leverage-related maintenance tests. As at December 31,
2017 and 2016, we were in compliance with all financial covenants,
financial ratios, and all of the terms and conditions of our debt
agreements. Throughout 2017, these covenants did not impose
restrictions of any material consequence on our operations.
62 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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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 S&P Global Ratings Services (S&P),
Moody’s Investors Service (Moody’s), and Fitch Ratings (Fitch) to
rate certain of our public debt issues. Below is a summary of the
credit ratings on RCI’s outstanding senior notes and debentures
(long-term) and US CP (short-term) as at December 31, 2017.
Issuance
S&P
Moody’s
Fitch
Corporate credit issuer default rating 1
Senior unsecured debt 1
US commercial paper 2
BBB+ with a stable outlook
BBB+ with a stable outlook
A-2
Baa1 with a stable outlook
Baa1 with a stable outlook
P-2
BBB+ with a stable outlook
BBB+ with a stable outlook
N/A 3
1 Unchanged for the year.
2 Unchanged since the inception of our US CP program in the first quarter of 2017.
3 We did not seek a rating from Fitch for our short-term obligations in 2017.
Ratings for long-term debt instruments across the universe of
composite rates range from AAA (S&P and Fitch) or Aaa (Moody’s),
representing the highest quality of securities rated, to D (S&P),
Substantial Risk (Fitch), and C (Moody’s) for the lowest quality of
securities rated.
ratings are generally
considered to range from BBB- (S&P and Fitch) or Baa3 (Moody’s)
to AAA (S&P and Fitch) or Aaa (Moody’s).
Investment-grade credit
Ratings for short-term debt instruments across the universe of
composite rates ranges from A-1+ (S&P), F1+ (Fitch), or P-1
(Moody’s), representing the highest quality of securities rated, to C
(S&P and Fitch), and not prime (Moody’s) for the lowest quality of
ratings are generally
securities rated.
considered to be ratings of at least A-3 (S&P), F3 (Fitch), or P-3
(Moody’s) quality or higher.
Investment-grade credit
Credit ratings are not recommendations to purchase, hold, or sell
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, 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 S&P, Fitch, and
Moody’s are investment-grade ratings.
RATIO OF ADJUSTED OPERATING PROFIT / INTEREST ON BORROWINGS
2017
2016
2015
7.3
6.7
6.6
PENSION OBLIGATIONS
Our defined benefit pension plans had a net funding deficit of
approximately $452 million as at December 31, 2017 (2016 – $387
increased by
million). During 2017, our net
$65 million primarily as a result of a decrease in the discount rate
we used to measure these obligations.
funding deficit
We made a total of $145 million (2016 – $125 million) of
contributions to our defined benefit pension plans this year. We
to be
expect our
$141 million in 2018 and to be adjusted annually thereafter based
on various market factors, such as interest rates, expected returns,
and staffing assumptions.
total estimated funding requirements
Changes in factors such as the discount rate, participation rates,
increases 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 “Accounting Policies” for more information.
In order to manage the rising cost of our pension plans, effective
June 30, 2016, the Rogers Defined Benefit Pension Plan was closed
to new enrollment. Beginning July 1, 2016, employees not
participating in the Rogers Defined Benefit Pension Plan became
eligible for enrollment into a new Defined Contribution Pension
Plan.
Purchase of annuities
lump-sum
From time to time, we have made additional
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 2017 or 2016, and the pension plans did not
purchase additional annuities.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 63
MANAGEMENT’S DISCUSSION AND ANALYSIS
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
Bond forwards
• Impact of fluctuations in foreign exchange rates on
principal and interest payments for US dollar-
denominated senior notes and debentures, credit
facility borrowings,
and commercial paper
borrowings.
• 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
forecasted US dollar-denominated expenditures
• Forward foreign exchange agreements
Equity derivatives
• Impact of fluctuations in share price on stock-
• Total return swap agreements
based compensation expense
We also manage our exposure to fluctuating interest rates and we
have fixed the interest rate on 89.5% (2016 – 91.2%) of our debt,
including short-term borrowings, as at December 31, 2017.
Below is a summary of the debt derivatives we entered into and
settled related to our credit facility borrowings and commercial
paper program during 2017 and 2016.
We designate the debt derivatives related to our senior notes and
debentures as hedges for accounting purposes against the foreign
exchange risk associated with specific debt instruments. We do not
designate the debt derivatives related to our credit facility and US
CP borrowings as hedges for accounting purposes. Our bond
forwards and expenditure derivatives are also designated as
hedges for accounting purposes.
Year ended December 31, 2017
(In millions of dollars, except exchange
rates)
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
Credit facilities
Debt derivatives entered
Debt derivatives settled
Net cash paid
1,610
1,760
1.32
1.32
2,126
2,327
(17)
DEBT DERIVATIVES
We use cross-currency interest rate exchange agreements (debt
derivatives) to hedge the foreign exchange risk on all of the interest
and principal payment obligations of our US dollar-denominated
senior notes and debentures.
Commercial paper program
Debt derivatives entered
Debt derivatives settled
Net cash paid
New debt derivatives to hedge new senior notes issued
8,266
7,521
1.30 10,711
9,692
1.29
(62)
Year ended December 31, 2016
US$
Hedging effect
(In millions of dollars, except exchange
rates)
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
(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$)
Credit facilities
Debt derivatives entered
Debt derivatives settled
Net cash received
8,683
8,533
1.31
1.31
11,360
11,159
8
November 4, 2016
500
2026 2.900% 2.834%
671
1 Converting from a fixed US$ coupon rate to a weighted average Cdn$ fixed rate.
During 2017, we did not enter into or settle any debt derivatives
related to senior notes.
During the year, we entered into debt derivatives related to our
credit facility and US CP borrowings as a result of a favourable
interest rate spread obtained from borrowing funds in US dollars.
We used these derivatives to offset the foreign exchange and
interest rate risk on our US dollar-denominated credit facility and
commercial paper borrowings. As a result of the short-term nature
of these debt derivatives, we have not designated them as hedges
for accounting purposes.
64 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
As at December 31, 2017, we had US$6.7 billion of US dollar-
denominated senior notes and debentures, all of which were
hedged using debt derivatives.
(In millions of dollars, except exchange rates,
percentages, and years)
US dollar-denominated long-term debt 1
Hedged with debt derivatives
Hedged exchange rate
Percent hedged 2
Amount of borrowings at fixed rates 3
Total borrowings
Total borrowings at fixed rates
Percent of borrowings at fixed rates
Weighted average interest rate on
borrowings
Weighted average term to maturity
As at December 31
2017
US$
US$
6,700 US$
6,700 US$
1.1070
100.0%
$
$
15,152
13,567
89.5%
$
$
2016
6,700
6,700
1.1070
100.0%
15,418
14,067
91.2%
4.70%
9.9 years
4.72%
10.6 years
1 US dollar-denominated long-term debt reflects the hedged exchange rate and the
hedged interest rate.
2 Pursuant
to the requirements for hedge accounting under
IAS 39, Financial
Instruments: Recognition and Measurement, on December 31, 2017, and
December 31, 2016, RCI accounted for 100% of its debt derivatives related to senior
notes as hedges against designated US dollar-denominated debt. As a result, on
December 31, 2017 and 2016, 100% of our 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 US CP and accounts receivable
securitization programs.
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BOND FORWARDS
From time to time, we 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, 2017,
approximately $5.6 billion of our outstanding public debt matures
over the next five years (2016 – $5.9 billion) 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 hedged the underlying GoC 10-year
rate on
$1.5 billion notional amount for anticipated future debt issuances
from 2015 to 2018 and the underlying GoC 30-year rate on
$0.4 billion notional amount for December 31, 2018. The bond
forwards are effective from December 2014.
On November 4, 2016, we exercised a $500 million notional bond
forward due January 4, 2017 in relation to the issuance of the
US$500 million senior notes due 2026 and paid $53 million to
settle the derivative. The amount paid represents the fair value of
the bond forward at the time of settlement and will be reclassified
into finance costs from the hedging reserve using the effective
interest rate method over the life of the US$500 million senior
notes due 2026.
As at December 31, 2017 we had $900 million notional amount of bond forwards outstanding (2016 – $900 million), all of which were
designated as hedges for accounting purposes.
(In millions of dollars, except interest rates)
GoC term (years)
Effective date
Maturity date 1
Notional
amount
Hedged GoC
interest rate as at
December 31, 2017
Hedged GoC
interest rate as at
December 31, 2016 1
10
30
Total
December 2014
December 2014
April 30, 2018
December 31, 2018
500
400
900
2.85%
2.65%
2.52%
2.62%
2017
2016
500
400
900
500
400
900
1 Bond forwards with maturity dates beyond December 31, 2017 are subject to GoC rate re-setting from time to time. The $400 million due in December 2018 was extended in
December 2017 such that its rate will reset in April 2018.
EXPENDITURE DERIVATIVES
We use foreign currency forward contracts (expenditure derivatives)
to hedge the foreign exchange risk on the notional amount of
certain forecasted US dollar-denominated expenditures. Below is a
summary of the expenditure derivatives into which we entered to
manage foreign exchange risk related to certain forecasted
expenditures.
(In millions of dollars, except exchange rates)
Expenditure derivatives entered
Expenditure derivatives settled
Year ended December 31, 2017
Year ended December 31, 2016
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
840
930
1.27
1.33
1,070
1,240
990
840
1.33
1.22
1,318
1,025
The expenditure derivatives noted above have been designated as
hedges for accounting purposes.
As at December 31, 2017, we had US$1,200 million of expenditure
derivatives outstanding (2016 – US$1,290 million), at an average
rate of $1.28/US$ (2016 – $1.32/US$), with terms to maturity
ranging from January 2018 to December 2019 (2016 –January
2017 to December 2018). Our outstanding expenditure derivatives
maturing in 2018 are hedged at an average exchange rate of
$1.30/US$.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 65
MANAGEMENT’S DISCUSSION AND ANALYSIS
EQUITY DERIVATIVES
We use stock-based compensation derivatives (equity derivatives)
to hedge the market price appreciation risk of
the Class B
Non-Voting Shares granted under our stock-based compensation
programs. As at December 31, 2017, we had equity derivatives for
5.4 million Class B Non-Voting Shares with a weighted average
price of $51.44. These derivatives have not been designated as
hedges for accounting purposes. 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 Class B Non-Voting Shares on the
accrued value of the stock-based compensation liability for our
stock-based compensation programs.
During 2017, we settled existing equity derivatives for net proceeds
of $6 million and entered into new derivatives on 1.0 million Class B
Non-Voting Shares with an expiry date of March 2018.
We have executed extension agreements for the remaining equity
derivative contracts under substantially the same terms and
conditions with revised expiry dates to April 2018 (from April 2017).
In August 2016, we settled 0.3 million equity derivatives at a
weighted average price of $58.16 as a result of a reduction in the
number of share-based compensation units outstanding.
MARK-TO-MARKET VALUE
We record our derivatives using an estimated credit-adjusted,
mark-to-market valuation, calculated in accordance with IFRS.
As at December 31, 2016
Notional
amount
(US$)
Exchange
rate
Notional
amount
(Cdn$)
Fair
value
(Cdn$)
(In millions of dollars, except
exchange rates)
Debt derivatives accounted for
as cash flow hedges:
As assets
As liabilities
5,200
1,500
1.0401
1.3388
5,409
2,008
1,751
(68)
Short-term debt derivatives not
accounted for as hedges:
As liabilities
150
1.3407
201
–
Net mark-to-market debt
derivative asset
Bond forwards accounted for
as cash flow hedges:
As liabilities
Expenditure derivatives
accounted for as cash flow
hedges:
As assets
As liabilities
Net mark-to-market
expenditure derivative asset
Equity derivatives not
accounted for as hedges:
As assets
Net mark-to-market asset
1,683
–
–
900
(51)
990
300
1.2967
1.4129
1,284
424
40
(21)
19
–
–
270
8
1,659
(In millions of dollars, except
exchange rates)
Debt derivatives accounted for
as cash flow hedges:
As at December 31, 2017
Notional
amount
(US$)
Exchange
rate
Notional
amount
(Cdn$)
Fair
value
(Cdn$)
ADJUSTED NET DEBT AND DEBT LEVERAGE RATIO
We use adjusted net debt and debt leverage ratio to conduct
valuation-related analysis and make capital
structure-related
decisions. Adjusted net debt includes long-term debt, net debt
derivative assets or liabilities, short-term borrowings, and cash and
cash equivalents.
As assets
As liabilities
5,200
1,500
1.0401
1.3388
5,409
2,008
1,301
(149)
Short-term debt derivatives not
accounted for as hedges:
As liabilities
746
1.2869
960
(23)
(In millions of dollars, except ratios)
Net mark-to-market debt
derivative asset
Bond forwards accounted for as
cash flow hedges:
As liabilities
Expenditure derivatives
accounted for as cash flow
hedges:
Long-term debt 1
Net debt derivative assets valued without any
1,129
–
–
900
(64)
adjustment for credit risk 2
Short-term borrowings
Bank advances
Adjusted net debt 3
Debt leverage ratio 3,4
As at
December 31
2017
2016
14,555 16,197
(1,146)
1,585
6
(1,740)
800
71
15,000 15,328
2.8
3.0
As assets
As liabilities
240
960
1.2239
1.2953
294
1,243
Net mark-to-market
expenditure derivative liability
Equity derivatives not
accounted for as hedges:
As assets
Net mark-to-market asset
–
–
276
68
1,094
5
(44)
(39)
1 Includes current and long-term portion of
long-term debt before deferred
transaction costs and discounts. See “Reconciliation of adjusted net debt” in the
section “Non-GAAP Measures” for the calculation of this amount.
2 For purposes of calculating adjusted net debt and debt leverage ratio, we believe
including debt derivatives valued without adjustment for credit risk is commonly used
to evaluate debt leverage and for market valuation and transactional purposes.
3 Adjusted net debt and debt leverage ratio are non-GAAP measures and should not
be considered substitutes or alternatives 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.
4 Debt leverage ratio is measured using adjusted operating profit for the last twelve
consecutive months.
66 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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In addition, as at December 31, 2017, we held $1,465 million of
marketable securities in publicly-traded companies (2016 – $1,047
million).
Our adjusted net debt decreased by $328 million from
December 31, 2016 primarily as a result of a decrease in our
outstanding long-term debt, partially offset by a reduction in the
fair value of our net debt derivative asset. See “Overview of Financial
Position” for more information.
DIVIDENDS AND SHARE INFORMATION
DIVIDENDS
Below is a summary of the dividends that have been declared and paid on our outstanding Class A Shares and Class B Non-Voting Shares.
Declaration date
Record date
January 26, 2017
April 18, 2017
August 17, 2017
October 19, 2017
January 27, 2016
April 18, 2016
August 11, 2016
October 20, 2016
March 13, 2017
June 12, 2017
September 15, 2017
December 11, 2017
March 13, 2016
June 12, 2016
September 11, 2016
December 12, 2016
Payment date
April 3, 2017
July 4, 2017
October 3, 2017
January 2, 2018
April 1, 2016
July 4, 2016
October 3, 2016
January 3, 2017
Dividend per
share (dollars)
Dividends paid
(in millions of dollars)
0.48
0.48
0.48
0.48
0.48
0.48
0.48
0.48
247
247
247
247
247
247
247
247
In January 2018, the Board declared a quarterly dividend of $0.48
per Class A Share and Class B Non-Voting Share, to be paid on
April 3, 2018, to shareholders of record on March 12, 2018.
As at February 28, 2018, 112,407,192 Class A Shares, 402,405,483
Class B Non-Voting Shares, and 2,563,019 options to purchase
Class B Non-Voting Shares were outstanding.
We currently expect that the remaining record and payment dates
for the 2018 declaration of dividends will be as follows, subject to
the declaration by the Board each quarter at its sole discretion:
Declaration date
Record date
Payment date
April 19, 2018
August 16, 2018
October 18, 2018
June 11, 2018
September 14, 2018 October 3, 2018
January 3, 2019
December 11, 2018
July 3, 2018
We use the weighted average number of shares outstanding to
calculate earnings per share and adjusted earnings per share.
Years ended December 31
(Number of shares in millions)
2017
2016
Basic weighted average number of
shares outstanding
Diluted weighted average number of
shares outstanding
515
517
515
517
OUTSTANDING COMMON SHARES
As at December 31
2017
2016
Common shares outstanding 1
Class A Voting
Class B Non-Voting
112,407,192 112,411,992
402,403,433 402,396,133
Total common shares
514,810,625 514,808,125
Options to purchase Class B
Non-Voting Shares
Outstanding options
Outstanding options
exercisable
2,637,890
3,732,524
924,562
1,770,784
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 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 Shares may be made on different terms
than the offer to the holders of Class B Non-Voting Shares.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 67
MANAGEMENT’S DISCUSSION AND ANALYSIS
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
CONTRACTUAL OBLIGATIONS
Below is a summary of our obligations under firm contractual arrangements as at December 31, 2017. See notes 3, 21, and 27 to our 2017
Audited Consolidated Financial Statements for more information.
(In millions of dollars)
Short-term borrowings
Long-term debt 1
Net interest payments
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
1,585
1,756
712
(299)
39
64
202
111
368
94
97
546
2
5,277
–
1,800
1,160
–
(7)
–
308
88
346
77
44
1,121
3
4,940
–
2,050
908
–
–
–
167
10
167
61
–
1,079
2
4,444
After
5 Years
–
8,949
5,409
(667)
–
–
294
7
121
66
–
1,886
2
16,067
Total
1,585
14,555
8,189
(966)
32
64
971
216
1,002
298
141
4,632
9
30,728
1 Principal obligations of long-term debt (including current portion) due at maturity.
2 Net (receipts) 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 Toronto Blue Jays players’ salary contracts into which we have entered and are contractually obligated to pay.
4 Purchase obligations are the contractual obligations under service, product, and wireless device contracts to which we have committed.
5 Program rights are the agreements into which we have entered to acquire broadcasting rights for sports broadcasting programs and films for periods in excess of one year at
contract inception.
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 26 to our 2017 Audited Consolidated
Financial Statements.
OPERATING LEASES
We have entered into operating leases for the rental of premises,
distribution facilities, equipment and wireless towers, and other
contracts. Terminating any single one of these lease agreements
would not have a material adverse effect on us as a whole. See
“Commitments and Contractual Obligations” and note 27 to our
2017 Audited Consolidated Financial Statements for quantification.
68 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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 instill the confidence of our
shareholders.
Voting control of Rogers Communications Inc. is held by a trust, the
beneficiaries of which are members of the Rogers family. The trust
holds voting control of RCI for the benefit of successive generations
of the Rogers family via the trust’s ownership of 91% of the
outstanding Class A Shares of RCI (2016 – 91%). The Rogers family
are substantial stakeholders and owned approximately 27% of our
equity as at December 31, 2017 (2016 –27%) through its ownership
of a combined total of 141 million Class A Shares and Class B
Non-Voting Shares (2016 – 141 million).
The Board is made up of four members of the Rogers family and
another twelve 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
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.
benchmarks
practices
and
GOVERNANCE BEST PRACTICES
The majority of our directors are independent and we have
adopted many best practices for effective governance, including:
• an independent lead director;
• formal corporate governance policy and charters;
• a 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 and Risk Committee meetings with internal and external
auditors;
• an orientation programs for new directors;
• regular Board education sessions;
• committee authority to retain independent advisors;
• director material relationship standards; and
• separation of the CEO and Chair roles.
We comply with all 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.
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BOARD OVERSIGHT
The Board delegates certain responsibilities to its seven standing
committees to ensure proper oversight and accountability:
• Audit and Risk 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, assesses our
accounting and financial control systems, and evaluates the
qualifications,
independence, and work of our internal and
external auditors. It also reviews risk management policies and
associated processes used to manage major risk exposures.
• Corporate Governance Committee – assists the Board to ensure
it has appropriate systems and procedures for carrying out its
responsibilities. This committee develops governance policies
and practices, recommends them to the Board for approval, and
leads the Board in its periodic review of Board and committee
performance.
• Nominating Committee – identifies prospective candidates to
serve on the 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
It is also responsible for recommending the
and practices.
compensation of senior management and monitoring senior
executive succession planning.
• Executive Committee – assists the Board in discharging its
responsibilities between meetings, including acting in such areas
as are 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, 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 on our
Investor Relations website (investors.rogers.com), 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.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 69
MANAGEMENT’S DISCUSSION AND ANALYSIS
Board of Directors and its Committees
Chair Member
Audit
and Risk
Corporate
Governance
Nominating
Human
Resources
Executive
Finance
Pension
As at March 8, 2018
Edward S. Rogers
Charles Sirois, CM
Bonnie R. Brooks, CM
Robert K. Burgess
John H. Clappison, FCPA, FCA
Robert Dépatie
Robert J. Gemmell
Alan D. Horn, CPA, CA
Philip B. Lind, CM
John A. MacDonald
Isabelle Marcoux
Joe Natale
The Hon. David R. Peterson, PC, QC
Loretta A. Rogers
Martha L. Rogers
Melinda M. Rogers
SOCIAL RESPONSIBILITY
CORPORATE SOCIAL RESPONSIBILITY
Rogers prides itself on being a good corporate citizen. We aim to
foster a culture of sound ethics and transparency; that means
putting programs in place that have societal, economic, and
environmental benefits.
The material aspects of our Corporate Social Responsibility
platform are grouped into six focus areas that are listed below,
along with our approaches in addressing them:
Good governance
• Governance and Ethics: We strive to uphold the highest
standards of integrity, ethical behaviour, and good corporate
citizenship, underpinned by guidelines and policies that govern
the actions of our directors and employees and promote
responsible conduct.
Customer experience
• Customer Service and Transparency: Customer service is a core
pillar of our strategy. We are committed to an improved
customer experience and have implemented programs to
address customer issues, such as a Roam Like Home, Rogers
EnRoute, and customer service through social media channels
like Facebook Messenger and Twitter.
• Network Leadership and Innovation: Innovation has always been
a part of our identity, whether it is bringing new products or the
latest network technologies to market.
• Product Responsibility: We have programs and policies in place
to manage a range of product responsibility issues. For instance,
we have policies in place to comply with all relevant safety
regulations and codes, have programs and teams to manage
and advise on our accessibility offerings, and operate
stewardship programs to manage the proper disposal and
recycling of our used products, including Rogers Trade-Up and
FidoTrade.
• Customer Privacy: Rogers highly values the security, integrity, and
sensitivity of our customers’ private information. Rogers’ Privacy
Policy outlines our responsibilities and practices regarding the
protection of the personal information of our employees and
customers. Our Chief Privacy Officer oversees our compliance
with this policy and all applicable laws, and responds to requests
from law enforcement for customer data.
Employee experience
• Talent Management: We want to attract, develop, and engage
the best talent in Canada. We continue to invest in employee
programs including an onboarding program, new training
programs, a new development planning program, and a revised
employee engagement survey. Our Chief Human Resources
Officer oversees
talent management, while the Human
Resources Committee assists the Board in monitoring, reviewing,
and approving compensation and benefit policies and practices.
• Inclusion and Diversity: At Rogers, we believe that an inclusive
workplace reflective of the diverse communities we serve drives
better performance – for our employees, our customers, and our
company. Our Inclusion and Diversity Council, comprised of
leaders from across the business, oversees the development and
execution of our inclusion and diversity strategy.
• Health, Safety, and Wellness: We have a comprehensive
integrated healthy workplace program. Our goal is always to
protect people by preventing injuries and we invest millions of
dollars as well as thousands of hours in safety training every year.
We have robust programs and practices in place to identify and
minimize potential hazards. We continually monitor
those
practices, our sites, and our work to ensure employees remain
70 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
safe. We also have a national employee wellness program,
bWell, that promotes health and wellness at work and at home.
Environmental responsibility
• Energy Use and Climate Change: Rogers operates thousands of
facilities, which include owned and leased buildings, cell
transmission sites, power supply stations, and retail stores, as well
as an extensive vehicle fleet. We strive to meet our goal of
reducing the associated greenhouse gas emissions and energy
consumption by 2025, reflected in our company-wide reduction
targets of 25% and 10%, respectively, based on 2011 levels.
• Waste and Recycling: Reducing the amount of waste we
produce is another important way in which we are managing our
environmental footprint. To reduce and responsibly manage the
waste we produce, we look for opportunities to avoid waste
generation, run programs to recycle and reuse materials, and
work to increase employees’ recycling behaviours through our
award-winning “Get Up and Get Green” program.
Community investment
• Community Giving: In 2017, Rogers provided $64 million in cash
and in-kind donations to support various organizations and
causes. In 2017, we launched the Ted Rogers Scholarship Fund,
dedicated to ensuring the success of future generations of
Canadians by helping some of the brightest young leaders
across the country succeed in their educational aspirations. We
also support our employees and their community activities
through the Rogers Employee Volunteer Program, which gives
employees the opportunity to volunteer in their communities for
one paid day per year. 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.
• Digital Inclusion: Digital inclusion is a priority for Rogers and one
of the best ways we can contribute to society. Our Connected for
Success program provides low-cost broadband Internet to rent-
subsidized tenants within partnered non-profit organizations and
housing providers. 150,000 Canadian households are eligible for
Internet access through the Connected for Success program,
giving them the tools and resources needed to experience the
benefits of connectivity.
Economy and society
• Economic Performance: We strive to offer innovative solutions for
customers, create diverse and well-paying jobs, support small
businesses, pay our fair share of taxes, and deliver dividends to
shareholders. Beyond these direct economic impacts, our
performance produces indirect economic benefits as well,
including significant charitable donations and locally procured
goods and services.
• Supply Chain Management: Suppliers play a huge role in our
success, which is why we ensure that we have strong supplier
selection processes and management, and that we conduct
business with
responsible
companies who share our values. Our Supplier Code of Conduct
and environmentally
socially
labour
sets out high standards for supplier performance in the areas of
rights, health and safety, environment, and
ethics,
management systems. We are members of the Joint Audit
Cooperation (JAC), a group of global telecom companies that
share common suppliers. Through our participation in JAC, we
share audit results among our peers to ensure that our suppliers
adhere to internationally
chain and
sustainability standards.
recognized supply
See our annual Corporate Social Responsibility report on our
for more information
website (about.rogers.com/responsibility)
about our social and environmental performance.
INCOME TAX AND OTHER GOVERNMENT
PAYMENTS
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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
comprehensive policies and procedures to ensure we are
compliant with all tax laws and reporting requirements, including
filing and making all income and sales tax returns and payments on
a timely basis. As a part of this process, we pursue open and
cooperative relationships with revenue authorities to minimize audit
effort and reduce tax uncertainty. We also engage with
government policy makers on taxation matters that affect Rogers
and its
and other
employees,
stakeholders.
shareholders,
customers,
INCOME TAX PAYMENTS
Rogers’ total income tax expense of $635 million in 2017 is close to
the expense computed on its accounting income at the statutory
rate of 26.7%. Cash income tax payments totaled $475 million in
2017. Cash income tax payments differ from the tax expense
shown on the financial statements for various reasons, including the
required timing of payments. The primary reason our cash income
tax is lower than our tax expense is a result of the significant capital
investment we continue to make in our wireless and broadband
telecommunications networks throughout Canada. Similar to tax
systems
the world, Canadian tax laws permit
investments in such productivity-enhancing assets to be deducted
for tax purposes more quickly than they are depreciated for
financial statement purposes.
throughout
OTHER GOVERNMENT PAYMENTS
In addition to paying income tax on the profits we earn, we
contribute significantly to Canadians by paying taxes and fees to
federal, provincial, and municipal governments, including:
• various taxes on the salaries and wages we pay (payroll taxes) to
approximately 24,500 employees;
• property and business taxes;
• unrecoverable sales taxes and custom duties; and
• broadcast, spectrum, and other regulatory fees.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 71
MANAGEMENT’S DISCUSSION AND ANALYSIS
As outlined in the table below, the total cost to Rogers of these payments in 2017 was $1,185 million.
(In millions of dollars)
Income
taxes
Non-recoverable
sales taxes
Payroll
taxes
Regulatory and
spectrum fees 1
Property and
business taxes
Total taxes and
other payments
Total payments
475
9
127
521
53
1,185
1 Includes an allocation of $266 million relating to the $1.0 billion, $3.3 billion, and $24 million we paid for the acquisition of spectrum licences in 2008, 2014, and 2015,
respectively.
We also collected on behalf of the government $1,876 million in sales taxes on our products and services and $635 million in employee
payroll taxes.
RISK MANAGEMENT
risk management
We strive to continually strengthen our
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
risk governance and
responsibility for
oversees management in identifying the key 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 and Risk Committee.
The Audit and Risk Committee discusses risk policies with
management and the Board and assists the Board in overseeing
our compliance with legal and regulatory requirements.
The Audit and Risk 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, including cybersecurity;
• the implementation of new major systems and changes to
existing major systems;
• 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 and Risk Committee or directed by the Board.
ENTERPRISE RISK MANAGEMENT
Our Enterprise Risk Management (ERM) program uses the “3 Lines
of Defence” framework to identify, assess, manage, monitor, and
communicate risks. Our business units and departments, led by the
Executive Leadership Team, are the first line of defence and are
accountable for managing or accepting the risks. Together, they
identify and assess key risks, define controls and action plans to
minimize these risks, and enhance our ability to meet our business
objectives.
level, ERM works with management to provide governance and
advice in managing the key risks and associated controls to
mitigate these risks. ERM works with Internal Audit to monitor the
adequacy and effectiveness of controls to reduce risks to an
acceptable level.
ERM carries out an annual strategic risk assessment to identify our
key risks in achieving our corporate objectives by identifying
corporate-, business unit- and department-level risks and aligning
business unit and department objectives to the corporate
objectives. Using an aggregate approach, ERM identifies the key
impact on our ability to achieve our
risks and the potential
corporate objectives. This assessment
includes reviewing risk
reports, audit reports, and industry benchmarks and interviewing
senior management with business unit
and department
accountability. ERM reports the results of the annual strategic risk
assessment to the Executive Leadership Team, the Audit and Risk
Committee, and the Board.
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 statement fraud risk assessment to identify areas of
potential fraud or misstatement in our financial statements and
disclosures and to assess whether controls are adequately
designed and operating effectively.
The Executive Leadership Team and the Audit and Risk Committee
are responsible for approving our enterprise risk policies. Our ERM
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
ERM is the second line of defence. ERM helps management
identify the key risks in meeting our business objectives, our risk
appetite, and emerging risks. At the business unit and department
ECONOMIC CONDITIONS
Our businesses are affected by general economic conditions and
consumer confidence and spending. Recessions, declines in
72 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
economic activity, and economic uncertainty can erode consumer
and business confidence and reduce discretionary spending. Any
these factors can negatively affect us through reduced
of
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 revenue comes from the sale of advertising
and is affected by the strength of the economy.
Poor economic conditions can also have an impact on our pension
plans, as 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 in which we operate, or introduce
competing services. Any of these factors could increase churn or
reduce our business market share or revenue.
We may have some ongoing re-pricing of products and services, as
we may need to extend lower wireless pricing offers to attract new
customers and retain existing subscribers. As wireless penetration
of the population deepens, new wireless customers may generate
lower average monthly revenue, which could slow revenue growth.
Global technology giants continue to ramp up content spending
into new markets such as sports media, resulting in increased
competition for our Media and Cable business segments. This may
result in an increase in subscriber churn as customers now have
additional supplementary sources of media content to choose
from.
Wireless could face increased competition due to changes to
foreign ownership rules and control of wireless licences:
• foreign telecommunication companies
the
Canadian market by acquiring wireless licences or a holder of
wireless licences. If companies with significantly greater capital
it could reduce our
resources enter the Canadian market,
wireless market share. See “Foreign Ownership and Control” for
more information.
could enter
• ISED 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 for incumbent wireless carriers to acquire
additional
regarding foreign
ownership of wireless providers could make it less expensive for
foreign wireless carriers to enter the Canadian wireless market.
This could increase the intensity of competition in the Canadian
wireless sector.
legislation
spectrum.
The
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.
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TECHNOLOGY RISKS
INFORMATION SECURITY RISK
Our industry is vulnerable to cyber risks that are growing in both
frequency and complexity. Rogers, along with our suppliers,
employs systems and network infrastructure that are subject to
cyberattacks, which may include theft of assets, unauthorized
access to proprietary or sensitive information, destruction or
corruption of data, or operational disruption. A significant
cyberattack against our, or our
suppliers’, critical network
infrastructure and supporting information systems could result in
service disruptions,
significant
remediation costs, and reputational damage.
loss of customers,
litigation,
Management has committed to an information and cybersecurity
program designed to reinforce the importance of remaining a
secure, vigilant, and resilient organization. Our ongoing success
depends on protecting our sensitive data,
including personal
information about our customers and employees. We rely on
security awareness training, policies, procedures, and information
technology systems to protect this information. Rogers continues
to monitor this risk, leveraging external threat intelligence, internal
monitoring, reviewing best practices, and implementing controls as
required to mitigate cybersecurity risks. We have insurance
related to cybersecurity
coverage against certain damages
breaches, intrusions, and attacks, amongst other things. The Audit
and Risk Committee is responsible for overseeing management’s
policies and associated procedures related to cybersecurity risks.
External threats to the network are constantly changing and there is
no assurance we will be able to protect the network from all future
threats. The impact of such attacks may affect our revenue.
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 our
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.
We work to protect our service from the impact of natural disasters
and major weather events such as ice storms,
flooding, or
landslides where it is necessary and feasible to do so. There are no
assurances that a future event will not cause service outages and
that such outages would not affect our revenue.
DEPENDENCE ON INFORMATION TECHNOLOGY SYSTEMS
Our businesses depend on IT systems for day-to-day operations. If
we are unable to operate our systems, make enhancements to
accommodate customer growth and new products and services, or
if our systems experience disruptions or failures, it could have an
adverse effect on our ability to acquire new subscribers, service
customers, manage subscriber churn, produce accurate and timely
invoices, generate revenue growth, and manage
subscriber
operating expenses. This could have an adverse impact on our
results and financial position.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 73
MANAGEMENT’S DISCUSSION AND ANALYSIS
Most of our employees and critical elements of our network
infrastructure and IT systems are concentrated in various physical
facilities. If we cannot access one or more of these facilities as a
result of a natural or human-made 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.
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, and subscriptions to digital programming,
including
premium video-on-demand and subscription video-on-demand, this
could result in a decline in our Cable revenue.
NEW TECHNOLOGY
Our network plans assume the availability of new technology for
both wireless and wireline networks. While we work with industry
standards bodies and our vendors to ensure timely delivery of new
technology, there are no assurances these technologies will be
available as and when required.
technologies have affected the way our services are
COMPETING TECHNOLOGIES
Several
delivered, including:
• broadband;
• IP-based voice, data, and video delivery services;
• increased use of optical fibre technologies to businesses and
residences;
• broadband wireless access and wireless services using a radio
frequency spectrum to which we may have limited or no access;
and
• applications and services using cloud-based technology,
independent of carrier or physical connectivity.
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
have allowed competitors to enter our markets with similar
products or services at lower costs. These competitors may also be
larger, have greater access to financial resources, and have fewer
regulatory restrictions than Rogers.
Accelerated deployments of fibre networks by competitors may
lead to an increase in the reach and stability of their wireline-related
services. This could result in an increase in churn pertaining to our
wireline business
services. See “Key Performance
Indicators” for more information.
segment
are made to any alternative Canadian multi-channel broadcasting
distribution system, our cable services may face increased
competition. In addition, as the technology for wireless Internet
continues to develop, it is, in some instances, replacing traditional
wireline Internet.
The use of PVRs has affected our ability to generate television
advertising revenue as viewers can skip advertising aired on television
networks. The continued emergence and growth of subscriber-
based satellite and digital radio products could affect AM and FM
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.
REGULATORY RISKS
CHANGES IN GOVERNMENT REGULATIONS
Substantially all of our business activities are regulated by ISED
Canada and/or the CRTC. Any regulatory changes or decisions
could adversely affect our consolidated results of operations. See
“Regulation In Our Industry” for more information.
Regulatory changes or decisions made by these regulators could
results on a consolidated basis. This
adversely impact our
regulation relates to, among other things, licensing and related
fees, competition, the cable television programming services 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
licensing 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 generally may not 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 compliance with all of these Canadian ownership
and control requirements. If these requirements were violated, we
would be subject to various penalties, possibly including, in the
extreme case, the loss of a licence.
Improvements in the quality of streaming video over the Internet,
coupled with increasing availability of television shows and movies
online through OTT content providers, has resulted in competition
for viewership and increased competition for Canadian cable
television service providers. As a result, we have noticed an increase
in cord cutting and cord shaving as consumers continue to
withdraw from traditional cable services. If advances in technology
SPECTRUM
Radio spectrum is one of the fundamental assets required to carry
on our 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 the ability to both renew current
spectrum licences and acquire new spectrum licences.
74 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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 our customers want. As a result, our ability
to attract and retain customers could be adversely affected.
In
addition, an inability to acquire and retain needed spectrum could
affect network quality and result in higher capital expenditures.
Changes to government spectrum fees could significantly increase
our payments and therefore materially reduce our net income.
HIGHER DEVICE SUBSIDIES
Our wireless business model is based substantially on subsidizing
the cost of subscriber devices, similar to other Canadian 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. This affects 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 applied to contracts (excluding enterprise
plans) as of June 3, 2015, no matter when they were originally
entered. See “Regulation In Our Industry” for more information.
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 revenue 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 personal communications service (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 are excluded from
the consultation requirements with local authorities and the public.
The policy could prevent us from installing certain new antenna
systems and/or expanding our network, which would ultimately
affect our ability to serve our customers.
RADIO FREQUENCY EMISSIONS
From time to time, media and other reports have highlighted
alleged links between radio frequency emissions from wireless
including cancer, and
devices and various health concerns,
interference with various medical devices, including hearing aids
and pacemakers. This may discourage the use of wireless devices
or expose us to potential
litigation even though there are no
definitive reports or studies stating that these health issues are
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directly attributable to radio frequency emissions. Future regulatory
actions may result in more restrictive standards on radio frequency
emissions from low-powered devices like wireless devices. We
cannot predict the nature or extent of any restrictions.
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
(Canada)
right of access under
(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 Telecommunications Act
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 outside of our cable territory
depend significantly on the availability of facilities and services
acquired from incumbent telecommunication 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.
CRTC LICENCE RENEWALS
In May 2017, the CRTC renewed our broadcasting licences that
permit us to operate our Media television properties for a five-year
period. At the same time, the CRTC renewed the licences of other
large broadcasting companies, such as Bell Media and Corus
Entertainment. A number of parties from the creative community
have appealed the decisions in regard to the percentage of
revenue that broadcasters must devote to the creation of Programs
of National
If the
decision significantly alters our renewals on terms that are adverse
to our business plans, it could have a negative impact on our results
for more
of operations. See “Regulation In Our
information.
Interest (PNI). A CRTC decision is pending.
Industry”
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 material adverse effect on our
business, results of operations, and financial condition.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 75
MANAGEMENT’S DISCUSSION AND ANALYSIS
COMPLEXITY OF OUR BUSINESS
Our businesses,
technologies, processes, and systems are
operationally complex and increasingly interconnected. If we do
not execute properly, or if errors or disasters affect them, customers
may have a negative experience, resulting in increased churn and
lower revenue.
STRATEGY AND BUSINESS PLANS
Our strategy is vital to our long-term success. Changing strategic
priorities or adding new strategic priorities could compromise
existing initiatives and could have a material adverse effect on our
business, results of operations, and financial condition.
We develop business plans, execute projects, and launch new
ventures to grow our business. If the expected benefits from these
do not materialize, this could have a material adverse effect on our
business, results of operations, and financial condition.
We are working towards the development and deployment of our
new IPTV product, Ignite TV. These activities rely, in part, on certain
vendors. Should the deployment not proceed as planned, or should
the product not operate as intended, our business and financial
results could be adversely affected. This may result in subscriber
losses, lower Cable revenue, and unfavourable customer satisfaction.
RELIANCE ON THIRD-PARTY SERVICE PROVIDERS
We have outsourcing and managed service arrangements with third
parties to provide certain essential components of our business
including payroll,
operations to our employees and customers,
certain facilities or property management
functions, call centre
support, certain installation and service technicians, certain network
and IT functions, and invoice printing. Interruptions in these services
could adversely affect our ability to service our customers.
and
businesses
complementary
ACQUISITIONS, DIVESTITURES, OR INVESTMENTS
Acquiring
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 or
missed opportunities.
Services, technologies, key personnel, or businesses of companies
we acquire may not be effectively integrated 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.
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.
DEPENDENCE ON CERTAIN KEY INFRASTRUCTURE AND
WIRELESS DEVICE VENDORS
Our wireless business has relationships with a relatively small
number of essential network infrastructure and device vendors. We
76 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
do not have operational or financial control over them and only
have limited influence on how they conduct their business with us.
Wireless device vendor market share has recently shifted towards
fewer top suppliers, which will augment this dependency.
If one of our network infrastructure suppliers fails, it could delay
adding network capacity or new capabilities and services. Device
and network infrastructure suppliers can extend delivery times, raise
prices, and limit supply due to their own shortages and business
requirements, among other things.
these suppliers do not
develop devices that satisfy customer demands, nor 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.
If
Apple has introduced embedded Subscriber Identification Module
(e-SIM) technology to its latest iPads. This technology, when widely
adopted, will allow customers to switch between carriers without
the use of a carrier-provided SIM card.
If Apple continues to
introduce, or other major device vendors do introduce, e-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.
INCREASE IN BRING YOUR OWN DEVICE (BYOD)
CUSTOMERS
With the CRTC’s Wireless Code limiting wireless term contracts to
two years from three years, the number of BYOD customers with
no-term contracts has increased. These customers are under no
contractual obligation to remain with Rogers, which could have a
material adverse effect on our churn and our Wireless revenue.
UNLOCKING OF WIRELESS DEVICES
Effective December 1, 2017, the Wireless Code required us to sell
only unlocked devices and to unlock devices owned by our
subscribers for free, should they request it. As a result of this,
subscribers will not be as restricted to a single wireless service
provider as previously. If customers increasingly switch providers,
this could have an effect on our churn and our Wireless revenue.
INVENTORY OBSOLESCENCE
Our inventories balance mainly consists of wireless devices and
mobile data devices, which generally have relatively short product
lifecycles due to frequent new device introductions. If we cannot
effectively manage inventory levels based on product demand, this
may increase the risk of inventory obsolescence.
linear
ACCESS TO PROGRAMMING RIGHTS
Competition is increasing for content programming rights from
both traditional
television broadcasters and online
competitors. Online providers are moving towards self-made, self-
hosted exclusive content, such that traditional broadcasters may
if
not gain access to desirable programming. Additionally,
broadcasters and distributors sign longer-term agreements to
secure programming rights, this could affect the availability of
desirable programming rights and result in lower revenue due to a
lack of access to these rights.
INCREASING PROGRAMMING COSTS
Acquiring programming is the single most significant purchasing
commitment in our Cable television business and is a material cost
for Media television properties.
Increased competition for
programming rights to content and popular properties from both
linear television broadcasters and online competitors
traditional
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 recover programming investments
through advertising revenue and subscription fee increases that
reflect the market.
CHANNEL UNBUNDLING
Recent CRTC regulatory decisions have been unfavourable to
certain of our Media television properties and have resulted
challenging operating environment. CRTC-mandated
in a
programming
required
implementation of flexible channel packaging took place earlier
this year but only impacted a few of our services. As a result, we
ceased to operate G4 on August 31, 2017.
unbundling
package
and
the
DECLINE OF PAY TELEVISION SUBSCRIBERS IN CANADA
The number of pay television households in Canada continues to
decline. Other video offerings available to consumers (for example,
direct-to-consumer subscription and free services), as well as piracy,
have contributed to this trend. If this decline continues, it could
have a material adverse effect on our results of operations.
focus
towards
the digital market.
MIGRATING FROM CONVENTIONAL 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
Increasing
competition for advertising revenue from digital platforms, such as
search engines, social networks, and digital content alternatives,
has resulted in advertising dollars migrating from conventional
television broadcasters to digital platforms. The impact is greater
on conventional over-the-air broadcast networks, such as City and
OMNI, which do not have a second revenue stream from
subscription revenue. Our Media results could be adversely
affected if we are unsuccessful in shifting advertising dollars from
conventional to digital platforms.
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. Our radio, television, and magazine
properties may not continue performing how they currently
perform. 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.
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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 amounts, and
dividends, which reduces 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 reacting to, changes in
our business and 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 not generate sufficient cash flow in the future 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
a securities issuer and can affect our ability to obtain short- 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 the relevant time. A legislative change in these rates could have a
material effect on the amounts recorded and payable in the future.
We provide for income and indirect taxes based on all currently
available information and believe that we have adequately
provided for these items. The calculation of applicable taxes in
many cases, however, requires significant judgment 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, 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 judgment is
required in interpreting how tax legislation and regulations apply to
us.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 77
MANAGEMENT’S DISCUSSION AND ANALYSIS
LITIGATION RISKS
SYSTEM ACCESS FEE – SASKATCHEWAN
In 2004, a class action was commenced against providers of
wireless communications in Canada under the Class Actions Act
(Saskatchewan). The class action relates to the system access fee
wireless carriers charge 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 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.
In 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.
At the time the Saskatchewan class action was commenced in
2004, corresponding claims were filed in multiple jurisdictions
across Canada, although the plaintiffs took no active steps. The
appeal courts in several provinces dismissed the corresponding
claims as an abuse of process. The claims in all provinces other than
Saskatchewan have now been dismissed or discontinued. We have
not recognized 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
class action in
certifying the proceeding as a national
Saskatchewan. We have not
this
contingency.
recognized a liability for
of wireless
communications
CELLULAR DEVICES
In July 2013, a class action was launched in British Columbia against
providers
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 revenue the defendants have received that can
reasonably be attributed to the sale of cellular phones in Canada.
We have not recognized a liability for this contingency.
in Canada
78 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
OTHER CLAIMS
There are certain other claims and potential claims against us. We
do not expect any of these, individually or in the aggregate, to have
a material adverse effect on our financial results.
is subject
OUTCOME OF PROCEEDINGS
the proceedings and claims against us,
The outcome of all
to future
including the matters described above,
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 it
is not probable that
these
proceedings and claims, individually or in total, will have a material
financial
adverse effect on our business,
condition. If it becomes probable that we will be held liable for
claims against us, we will recognize a provision during the period in
which the change in probability occurs, which could be material to
Income or Consolidated
our Consolidated Statements of
Statements of Financial Position.
the ultimate resolution of any of
results, or
financial
OWNERSHIP RISK
CONTROLLING SHAREHOLDER
family-controlled company. Voting
Rogers is a family-founded,
control of Rogers Communications Inc.
is held by the Rogers
Control Trust (the Trust) for the benefit of successive generations of
the Rogers family. The beneficiaries of the Trust are a small group
of individuals that are members of the Rogers family, several of
whom are also directors of the Board. The trustee is the trust
company subsidiary of a Canadian chartered bank.
As at December 31, 2017, private, Rogers family holding
companies controlled by the Trust owned approximately 91% of
our outstanding Class A Shares (2016 – 91%) and approximately
10% of our Class B Non-Voting Shares (2016 – 10%), or in total
approximately 27% of the total shares outstanding (2016 – 27%).
Only Class A Shares carry the right to vote in most circumstances.
As a result, the Trust is able to elect all members of the 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 at
December 31, 2017, 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
adequate internal controls over financial reporting.
is responsible for establishing and maintaining
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 IFRS as issued by
the IASB. 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 at December 31, 2017, based on the criteria
set out in the Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and concluded that it was effective at that
date. Our independent auditors, KPMG LLP, have issued an
unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2017. This
report is included in our 2017 Audited Consolidated Financial
Statements filed on SEDAR (sedar.com).
All internal control systems, however, no matter how well designed,
have inherent
limitations, and even systems that have been
determined to be effective can only provide reasonable assurance
about the preparation and presentation of financial statements.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL
REPORTING AND DISCLOSURE CONTROLS AND
PROCEDURES
There were no changes in 2017 that materially affected, or are
reasonably likely to materially affect, our internal controls over
financial reporting.
We continue to implement a plan that will require modifications
and additions to our existing internal control over
financial
reporting as a result of the upcoming transition to IFRS 15, Revenue
from contracts with customers, effective for financial reports for
periods beginning on or after January 1, 2018. Changes will also be
required as a result of the implementation of a new revenue
recognition accounting system enabling us to comply with IFRS 15.
We believe these changes will represent a material change in our
internal controls over financial reporting. The controls are being
designed to address risks associated with the new revenue
recognition requirements. We are performing pre-implementation
and post- implementation reviews to ensure the system captures all
data necessary and that it is designed appropriately to prevent
material errors. As a result, we will modify and add to our internal
control over financial reporting in 2018 as follows:
• we will augment our risk assessment process to take into account
the risks related to recognizing revenue under IFRS 15;
• we will develop and implement controls designed to address
risks associated with the five-step revenue recognition model;
and
• we will
implement controls surrounding our new revenue
recognition system to ensure the inputs, processes, and outputs
are complete and accurate.
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2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 79
MANAGEMENT’S DISCUSSION AND ANALYSIS
Regulation In Our Industry
Our business, except
Media, is regulated by two groups:
• Innovation, Science and Economic Development Canada (ISED
Canada) on behalf of the Minister of Innovation, Science and
Economic Development; and
for the non-broadcasting operations of
• the CRTC, under
the Telecommunications Act and the
Broadcasting Act (Canada) (Broadcasting Act).
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
legislative initiatives to address
we comply with industry or
consumer protection concerns or
Internet-related issues like
copyright infringement, unsolicited commercial e-mail, cybercrime,
and lawful access.
Generally, our spectrum and broadcast licences are granted for a
specified term and are subject to conditions for maintaining these
licences. 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. We are currently in compliance with these conditions. If
we violate the requirements, we would be subject to various
penalties, including the loss of a licence in extreme cases.
Cable, wireless, and broadcasting licences generally cannot be
transferred without regulatory approval.
CANADIAN BROADCASTING AND
TELECOMMUNICATIONS OPERATIONS
The CRTC is responsible for regulating and supervising all aspects
of the Canadian broadcasting and telecommunications system.
Our Canadian broadcasting operations – including our cable
television systems, radio and television stations, and specialty
services – are licensed (or operated under an exemption order) and
regulated by the CRTC under the Broadcasting Act.
The CRTC 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, other than our affordable entry-level basic cable
80 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
television service ordered by the CRTC and introduced in 2016, as
the CRTC believes there is enough competition for these services
provided by other carriers to protect the interests of users and has
forborne from regulating them. Regulations can and do, however,
affect
the terms and conditions under which we offer these
services.
SPECTRUM LICENCES
ISED Canada sets technical standards for telecommunications
(Canada)
under
Radiocommunication
(Radiocommunication Act) and the Telecommunications Act.
It
licences and oversees:
• the technical aspects of the operation of radio and television
Act
the
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
that Canadian broadcasting
the copyright
undertakings,
television, and specialty
services, pay to copyright collectives.
royalties
including cable,
radio,
tariff
BILLING AND CONTRACTS
Manitoba, Newfoundland and Labrador, Ontario, and Quebec
have enacted consumer protection legislation for wireless, wireline,
and Internet service contracts. This legislation addresses the
the early
content of such contracts,
cancellation fees that can be charged to customers, the use of
security deposits, the cancellation and renewal rights of customers,
the sale of prepaid cards, and the disclosure of related costs.
Rogers is also currently subject to the CRTC Wireless Code and the
CRTC Television Service Provider Code of Conduct that became
effective on September 1, 2017. See “CRTC Wireless Code” for
more information.
the determination of
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
the 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.
the
same
Pursuant
to the Telecommunications Act and associated
to Canadian
regulations,
also
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.
apply
rules
less
On June 29, 2012, Bill C-38 amending the Telecommunications Act
passed into law. The amendments exempt telecommunications
companies with
total Canadian
telecommunications market measured by revenue from foreign
investment restrictions. Companies that are successful in growing
their market
total Canadian
telecommunications market revenue other than by way of merger
or acquisitions will continue to be exempt from the restrictions.
in excess of 10% of
10% of
shares
than
CRTC REVIEW OF BASIC TELECOMMUNICATIONS SERVICES
On April 9, 2015, the CRTC issued Telecom Notice of Consultation
2015-134. Through an extensive proceeding culminating with a
three-week public hearing in April 2016, the CRTC examined which
telecommunications services Canadians require to participate
meaningfully in the digital economy and the CRTC’s role in
ensuring the availability of affordable basic telecommunications
services to all Canadians. The CRTC released its decisions in the
proceeding on December 21, 2016 in Telecom Regulatory Policy
CRTC 2016-496. The CRTC set as its universal service objective that
Canadians, in urban areas as well as in rural and remote areas, have
access to voice services and broadband Internet access services, on
both fixed and mobile wireless networks. To measure the
successful achievement of this objective, the CRTC has established
several criteria, including:
• 90% of Canadian residential and business fixed broadband
Internet access service subscribers should be able to access
speeds of at least 50 Mbps download and 10 Mbps upload, and
to subscribe to a service offering with an unlimited data
allowance by 2021, with the remaining 10% of the population
receiving such service by 2031; and
• the latest generally deployed mobile wireless technology should
be available not only in Canadian homes and businesses, but on
as many major transportation roads as possible in Canada.
To help attain the universal service objective, the CRTC will begin to
shift the focus of its regulatory frameworks from wireline voice
the
services to broadband Internet access services. As such,
following services which form part of the universal service objective
are hereby basic telecommunications services within the meaning
of subsection 46.5(1) of the Telecommunications Act:
• fixed and mobile wireless broadband Internet access services;
and
• fixed and mobile wireless voice services.
local
voice serving areas
Designated high cost
received
approximately $100 million in subsidies in 2017 collected by a
0.60% levy on wireline and wireless voice services revenue. In its
decision, the CRTC determined that the current local voice subsidy
will be phased out, except where reliable broadband Internet
access service is unavailable, and a follow-up proceeding would
occur in 2017 to establish the specifics of the phase-out of the
subsidy.
To assist in extending broadband into under-served rural and remote
locations,
the CRTC will establish a new broadband funding
mechanism. The specifics of the fund, including guiding principles,
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fund design, and assessment criteria, were addressed in a follow-up
proceeding during 2017. The decision on these items is anticipated
in 2018.
Implementation will occur thereafter with a maximum
funding level of $100 million in the first year of implementation,
increasing by $25 million annually over the following four years to
reach an annual cap of $200 million, with the incremental increases in
years four and five contingent on a review of the fund in the third year
to ensure it is being managed efficiently and is achieving its intended
purpose. Funds will be generated by extending a percent of revenue
levy on wireline and wireless Internet and texting revenue. The CRTC
noted that the revenue percent charge at the $200 million annual
cap in year five would be approximately the same as the current
revenue percent charge.
The CRTC also established regulatory measures to address issues
related to wireless services accessibility for persons with disabilities
and online tools for consumers to easily manage their data usage
that were implemented in 2017.
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. A private right of action that was to
come into place under the legislation effective July 1, 2017, was
deferred pending further study. We believe we are in compliance
with this legislation.
WIRELESS
600 MHZ SPECTRUM LICENCE BAND
On August 14, 2015, ISED Canada released a decision regarding
the reallocation of spectrum licences in the 600 MHz band for
mobile services. Canada will
reallocate the same amount of
spectrum licences as the US, following the US 600 MHz incentive
auction that concluded in 2017. TV channels currently using the
600 MHz band spectrum that will be auctioned for mobile services
will be given a new channel in the new allotment plan and will be
provided with a minimum of 18 months to complete the transition.
Certain Rogers over-the-air TV channels will need to be
transitioned. Rogers participated in the written industry
consultation during the fall of 2017 addressing the proposed
structure of the auction outlined by ISED in its call for comments
released on August 19, 2017. A decision on the structure of the
auction is anticipated in 2018 with the auction likely to occur in
2019.
3.5 GHZ BAND POLICY CHANGES
In December 2014, ISED Canada released its policy changes to the
3.5 GHz spectrum band. Rogers has a 50% interest in the Inukshuk
Wireless Partnership which holds (on average) between 100-175
MHz of 3.5 GHz spectrum in most major urban markets in Canada.
The 3.5 GHz 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.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 81
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 have satisfied all of their conditions of licence and
renewed licences will have a one-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 ISED
Canada will be made available on a first-come, first-served basis
using an application process.
WHOLESALE DOMESTIC WIRELESS ROAMING RATES
TERMS & CONDITIONS AND 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 legislation also provided the
CRTC with the power to set domestic roaming rates between
carriers, regardless of the formula. The CRTC conducted a review
into wireless roaming rates and the state of wireless wholesale
competition with a public hearing, which concluded in early
October 2014.
On May 5, 2015, the CRTC released its decision on the regulatory
framework for wholesale mobile wireless services (Telecom
Regulatory Policy 2015-177). The CRTC determined it is necessary
to regulate the rates that Rogers Communications and two of its
competitors (Bell Mobility and Telus Communications) charge
other Canadian wireless carriers
for domestic GSM-based
wholesale roaming. The CRTC directed Rogers, Bell, and Telus to
each file proposed cost-based tariffs for wholesale roaming on
November 4, 2015. Pending its final determination on the
the CRTC approved, on an interim basis, a
proposed tariffs,
maximum rate for each of GSM-based voice,
text, and data
wholesale roaming provided by Bell, Rogers, and Telus across their
respective networks to other Canadian wireless carriers. This rate is
equal to the highest rate charged by each of Rogers, Bell, and Telus
to any other Canadian wireless carrier for each of GSM-based
voice, text, and data wholesale roaming as of the date of the
decision. These rates were replaced when the CRTC gave interim
approval to the proposed cost-based tariffs filed by the carriers on
December 3, 2015 and made these interim rates effective
November 23, 2015. The CRTC process to establish final rates
remains underway.
The CRTC further determined that it is not appropriate to mandate
wholesale MVNO access.
the CRTC determined that
Finally,
the regulatory measures
established in the decision would remain in place for a minimum of
five years, during which time the CRTC will monitor competitive
conditions in the mobile wireless market.
result
in more meaningful choices for Canadian consumers,
especially those with low incomes. The specific issue is to
reconsider
the exclusion of public Wi-Fi networks from the
definition of ‘home network’ that disqualifies such networks from
roaming rights. The proceeding is to consider whether the impact
on investment could be mitigated by imposing conditions, such as
ensuring that roaming by customers of providers who offer service
primarily over Wi-Fi would be incidental rather than permanent by,
limiting roaming in amount, subjecting roaming
for example,
services to a different
tariffed wholesale rate, or both. The
reconsideration is to be completed no later than March 31, 2018.
Rogers submitted its comments and reply comments in the
proceeding on September 8, 2017 and December 1, 2017,
respectively.
reviews
spectrum licence transfers,
TRANSFERS, DIVISIONS, AND SUBORDINATE LICENSING
OF SPECTRUM LICENCES
In June 2013,
ISED Canada released Framework Relating to
Transfers, Divisions and Subordinate Licensing of Spectrum
Licences for Commercial Mobile Spectrum. The Framework lays
out the criteria ISED Canada will consider and the processes it will
use when it
including
prospective transfers that could arise from purchase or sale options
and other agreements. Key items to note are that:
• ISED 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; and
• licensees must ask for a review within 15 days of entering into
any agreement that could lead to a prospective transfer. ISED
Canada will review the agreement as though the licence transfer
that could arise from it has been made.
CRTC WIRELESS CODE
In June 2013, the CRTC issued its Wireless Code. The Wireless
Code imposes several 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
decreases by an equal amount every month over no more than 24
months. This effectively makes the maximum contract length two
years.
The CRTC committed to a review of
the Wireless Code’s
effectiveness within three years of its implementation. In Telecom
Notice of Consultation CRTC 2016-293, released on July 28, 2016,
the CRTC called for comments on the effectiveness of the Wireless
Code and how the Wireless Code should be updated to reflect the
evolution of
the wireless market since the Wireless Code’s
implementation. An oral hearing began on February 6, 2017.
On July 20, 2017, prompted by Order in Council P.C. 2017-0557,
the CRTC initiated a proceeding (Telecom Notice of Consultation
CRTC 2017-259, Reconsideration of Telecom Decision 2017-56
regarding final terms and conditions for wholesale mobile wireless
roaming service) to reconsider its earlier decision maintaining the
integrity of domestic roaming agreements and instead consider
expanding the scope of the wholesale roaming regime to explore
innovative business models and technological solutions that could
On June 15, 2017, the CRTC released its decision on the three-year
review of the CRTC Wireless Code of Conduct that came into effect
in December 2013 (Telecom Regulatory Policy CRTC 2017-200).
The CRTC determined that as of December 1, 2017, all individual
and small business wireless service customers will have the right to
have their cellular phones and other mobile devices unlocked, free
of charge, upon request. In addition, all newly purchased devices
must be provided unlocked from that day forward. The CRTC also
82 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
determined that for family or shared plans (multi-line plans), the
account holder must, by default, be the one who consents to data
overage and data roaming charges beyond the established caps
($50 and $100 per month, respectively). Wireless service providers
may, however, allow account holders to authorize other users on a
family or shared plan to consent to additional charges. The CRTC
also made clear that in all
instances, the caps apply on a per
account basis, regardless of the number of devices, for multi-line
plans and individual lines on the account.
TOWER SHARING POLICY
In March 2013,
ISED 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 tower and site sharing, among other things. The key terms
of the tower and site sharing rules are:
• all holders of
and
broadcasting certificates must share towers and antenna sites,
where technically feasible, at commercial rates; and
spectrum licences,
radio licences,
• the timeframe for negotiating agreements is 60 days, after which
arbitration according to ISED Canada arbitration rules will begin.
In Telecom Regulatory Policy 2015-177, released in May 2015, the
CRTC determined that it would not mandate or require general
wholesale tariffs for tower and site sharing. At the same time, it
determined that its existing powers and processes are sufficient to
address tower and site sharing disputes related to rates, terms, and
conditions. As a result, carriers may use the arbitration process
established by ISED Canada, or they may request the CRTC to
intervene in the event that tower and site sharing negotiations fail.
CABLE
DIFFERENTIAL PRICING RELATED TO INTERNET DATA
PLANS
On May 18, 2016, the CRTC initiated a proceeding (Telecom
Notice of Consultation CRTC 2016-192) to examine the policy
issues surrounding the use of differential pricing practices by
Canadian ISPs (i.e., zero-rating or discounting of retail Internet data
traffic by Canadian Internet service providers)
related to the
provision of Internet data plans. This proceeding stems from an
application made by several parties concerning the pricing
practices used by Videotron when offering its Unlimited Music
service to its mobile wireless customers. The oral hearing
commenced the week of October 31, 2016 and concluded on
November 4, 2016.
the CRTC released its decision in the
On April 20, 2017,
consultation.
In its decision (Telecom Regulatory Policy CRTC
2017-104), the CRTC set out the evaluation criteria it will apply to
determine whether a specific differential pricing practice complies
the Telecommunications Act on a
with subsection 27(2) of
case-by-case basis, as follows:
• the degree to which the treatment of data is agnostic (i.e., data is
treated equally regardless of its source or nature);
• whether the offering is exclusive to certain customers or certain
content providers;
• the impact on Internet openness and innovation; and
• whether there is financial compensation involved.
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Of these criteria, the degree to which data is treated agnostically
will generally carry the most weight. The overriding expectation is
that all content and applications will be treated in a neutral manner.
Zero-rating of account management functions (e.g., monitoring of
Internet data usage or the payment of bills online) will generally be
permitted.
(Telecom Decision CRTC 2016-117).
WHOLESALE INTERNET COSTING AND PRICING
On March 31, 2016, the CRTC released its decision on the review
of costing inputs and the application process for existing wholesale
high-speed access services that provide for a single provincial point
of interconnection, but which are not available over FTTH access
facilities
The CRTC
determined that wholesale telecom rates paid by competitive
telecom providers were no longer appropriate, and required all
wholesale high-speed access service providers to file new cost
studies with proposed rates for final approval. The CRTC further
determined that all wholesale Internet rates that were currently
approved were to be made interim as of the date of the decision.
The CRTC will assess the extent to which, if at all, retroactivity will
apply when new cost studies are submitted in support of revised
wholesale high-speed access service rates. On June 30, 2016, we
filed our new cost studies with the CRTC, which detail our
proposed rates.
On October 6, 2016, the CRTC issued Telecom Order 2016-396,
significantly reducing existing interim rates for the capacity charge
tariff component of wholesale high-speed access service pending
approval of final rates. The interim rate reductions took effect
immediately. The CRTC will assess the extent to which, if at all,
retroactivity will apply when wholesale high-speed access service
rates are set on a final basis. Information was filed on October 30,
2017 with additional process to follow. A decision is anticipated in
2018.
CRTC REVIEW OF WHOLESALE WIRELINE
TELECOMMUNICATIONS SERVICES
In October 2013, the CRTC initiated its planned review of the
telecommunications essential services rulings it released in March
2008. The review determined which wireline services, and under
what terms and conditions, 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.
On July 22, 2015, the CRTC released its decision on the regulatory
framework for wholesale wireline services (Telecom Regulatory
Policy 2015-326). The CRTC determined that wholesale high-speed
access services, which are used to support retail competition for
services, such as local phone, television, and Internet access, would
continue to be mandated. The provision of provincially aggregated
services, however, would no longer be mandated and would be
phased out
in conjunction with the implementation of a
disaggregated service with connections at telephone company
central offices and cable company head-ends. The requirement to
implement disaggregated wholesale high-speed access services
will
include making them available over FTTH access facilities.
Regulated rates will continue to be based on long-run increment
cost studies.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 83
MANAGEMENT’S DISCUSSION AND ANALYSIS
On September 20, 2016, the CRTC released a follow-up decision
(Telecom Decision CRTC 2016-379) to Telecom Regulatory Policy
2015-326, addressing the technical
implementation of new,
disaggregated, high-speed access TPIA, a service that will provide
access to FTTH facilities as ordered in the CRTC’s July 22, 2015
ruling. The decision is consistent with the positions submitted by
Rogers in our filings. Proposed tariffs and supporting cost studies
for
the new service were filed on January 9, 2017. Further
information was filed on October 30, 2017 with additional process
to follow. A decision is anticipated in 2018.
CRTC REVIEW OF LOCAL AND COMMUNITY
PROGRAMMING
On September 14, 2015, the CRTC announced a proceeding to
review the policy framework for local and community programming
(Broadcasting Notice of Consultation 2015-421). Comments were
due October 29, 2015 and an oral hearing concluded on
February 3, 2016. On June 15, 2016, the CRTC released its decision
regarding local and community television policy (Broadcasting
Regulatory Policy CRTC 2016-224). The CRTC created a new model
for BDU contributions to Canadian programming that took effect
on September 1, 2017. Annual contributions will remain at 5% of
annual gross broadcasting revenues; however, of that amount, in all
licensed cable systems, up to 1.5% (rather than the previous 2%)
can be used to fund community channel programming. Of this
revenue, 0.3% must now go to a newly-created Independent Local
News Fund for independently-owned local TV stations, and the
remaining funding will continue to go to the Canada Media Fund
and independent production funds. This decision provides the
flexibility for BDUs that operate community channels in large
markets (Montreal, Toronto, Edmonton, Calgary, and Vancouver) to
now direct their community channel revenues from those markets
to fund either community channel programming in smaller
markets, or to fund local news on TV stations (such as City, in the
case of Rogers). Rogers has closed its Toronto community channels
and redirected these revenues.
TELEVISION SERVICES DISTRIBUTION
On October 24, 2013, the CRTC launched a broad-based public
consultation (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.
In November 2014, the CRTC released its first decision arising from
the Let’s Talk TV hearing ordering the elimination of the 30-day
Internet, and phone services,
cancellation provision for cable,
effective January 23, 2015.
On January 29, 2015, the CRTC released decisions requiring local
stations to continue over-the-air transmission under the same
regulatory regime currently in place and maintaining simultaneous
substitution requirements, except
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
for
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.
On March 19, 2015, the CRTC released the third of its decisions
related to its Let’s Talk TV proceeding. The CRTC ordered
distributors to offer customers an option for a small basic service
consisting only of Canadian local channels (local radio is optional),
national mandatory services, community and provincial legislature
channels, and, should they wish, US 4+1 networks beginning
March 1, 2016. The retail rate for this entry-level service will be
capped at $25 per month (excluding equipment). The CRTC
adopted phased-in requirements for selling channels to customers
“à la carte” and as part of “pick-packs”. All channels above the basic
tier must be offered on an à la carte basis or in smaller, reasonably
priced packages by March 1, 2016. By December 1, 2016, they
must be offered in both forms. As a BDU, we will be permitted to
continue to offer our existing basic service and programming
packages. The CRTC will also revise its existing “preponderance”
rule so that consumers will have to be offered, but will not have to
receive, a majority of Canadian services.
The CRTC also proposed several changes to the Wholesale Code
(formerly the Vertical Integration (VI) Code) addressing, amongst
other matters, penetration-based rate cards and minimum
guarantees. All licensed programmers and BDUs will be required
to comply with the Wholesale Code, which came into effect on
January 22, 2016.
The March 19 decision also addressed rules for distribution of
foreign services authorized for distribution in Canada, including
requirements that foreign services make their channels available “à
la carte” and in “pick-packs” or in smaller pre-assembled packages
and abide by the Wholesale Code. Access rules for VI-owned
services and independent services, channel packaging, and
buy-through rules for multicultural services were also addressed.
to govern certain aspects of
On March 26, 2015, in the final decision related to Let’s Talk TV, the
CRTC announced plans to establish a Television Service Provider
(TVSP) Code of Conduct
the
relationship between TVSPs and their customers as well as to allow
consumers to complain to the Commissioner for Complaints for
Telecommunications Services about their providers. On January 8,
2016, the CRTC issued the final version of the TVSP Code, which
came into effect on September 1, 2017. Upon launch of the TVSP
Code, the Commissioner for Complaints for Telecommunications
Services changed its name to Commission for Complaints for
Telecom-television Services (CCTS). This decision also introduced
new requirements related to the provision of service to persons
with disabilities for both BDUs and broadcasters.
On March 1, 2016, the first phase of the CRTC’s small basic $25 per
month (excluding equipment) television service mandate came
into effect. Effective March 1, 2016, we offer a small basic service
consisting of Canadian local channels, national mandatory services,
community and provincial legislature channels, and the US 4+1
networks. We also offer smaller, reasonably priced packages of
specialty and premium channels. On December 1, 2016, we began
offering all specialty and premium channels on an “à la carte” basis
as well.
84 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
On May 24, 2016, the CRTC released a notice of consultation
(Broadcasting Notice of Consultation CRTC 2016-197) stating that
a hearing will be held in consideration of the license renewal
applications of BDUs,
including Rogers. The hearing, which
commenced on September 7, 2016, reviewed the practices of all
BDU licensees in regard to the small basic service and flexible
packaging requirements described above that came into effect on
March 1, 2016.
BDU licences
renewing Rogers’
On November 21, 2016, the CRTC released Broadcasting Decision
from
CRTC 2016-458,
December 1, 2016 to November 30, 2017. In the decision, the
CRTC established what it called a set of best practices for BDUs that
serve to promote choice for Canadians and stated that it would
monitor all of these practices, including how BDUs promote and
offer the small basic service and pick-and-pay and small package
options, and will take any necessary remedial action when it
examines the renewal of the licenses for BDUs again in 2017 for a
full renewal term. Prior to the 2017 license renewal hearing that
cable license received an
occurred in October, Rogers’
administrative extension to May 31, 2018. A decision on the full
7-year term renewal is anticipated in early 2018.
MEDIA
the distribution of
COPYRIGHT RETRANSMISSION OF DISTANT SIGNALS
Pursuant to section 31(2) of the Copyright Act, television service
providers are permitted to retransmit programming within distant
over-the-air television signals as part of a compulsory licensing
regime. Rates for
the programming are
established through negotiation or set by the Copyright Board.
Distributors and content providers were unable to agree on a new
rate for the distribution of distant signals after the expiration of the
current agreement in 2013. A proceeding was initiated by the
Copyright Board, which began on November 23, 2015. The
proceeding continued into 2016 and 2017 with a decision
expected in 2018.
The Collectives (content providers) have proposed a royalty rate
that is approximately double the current rate, which, if certified,
would have a significant financial impact on Rogers with additional
costs of approximately $30 million per year.
LICENCE RENEWALS
In a proceeding initiated by Broadcasting Notice of Consultation
CRTC 2016-225 released June 15, 2016, Rogers sought renewal of
our group-based licences (six City over-the-air English stations,
Sportsnet 360, VICELAND, G4Tech, Outdoor Life, FX, and FXX), our
five over-the-air ethnic OMNI
television licences, and our
mainstream sports licences (Sportsnet and Sportsnet One). We
also sought approval of an application seeking a new licence to
operate a discretionary service called OMNI Regional, which would
operate pursuant to a section 9(1)(h) order granting it mandatory
carriage on the basic service with a regulated affiliation fee. An oral
hearing was held during the week of November 28, 2016, a final
written reply was filed on January 9, 2017.
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On May 18, 2017, the CRTC released Broadcasting Decision CRTC
renewals of our group-based
2017-151, approving five-year
licences (six City over-the-air English stations, Sportsnet 360,
VICELAND, G4Tech, Outdoor Life, FX, and FXX). Five-year licence
renewals were also approved for our mainstream sports services
licences (Sportsnet and Sportsnet One) and our on-demand
service (Rogers on Demand). To coincide with the expiry date of
the broadcasting licence for our new discretionary service, OMNI
Regional, discussed below, the broadcasting licences for our five
over-the-air ethnic OMNI television licences were renewed for a
three-year period in this Broadcasting Decision.
In Broadcasting Decision CRTC 2017-152, released the same day,
the CRTC also approved our application seeking a new licence to
operate a discretionary service called OMNI Regional, which would
operate pursuant to a section 9(1)(h) order, granting it mandatory
carriage on the basic service with a regulated affiliation fee of
$0.12/subscriber/month for a three-year term. The CRTC further
issued a call (Broadcasting Notice of Consultation 2017-154) for
competing applications to determine whether OMNI should retain
its 9(1)(h) designation after three years or whether the designation
should be granted to another applicant.
On August 14, 2017, the Governor in Council, on the advice of the
Minister of Canadian Heritage through Order in Council P.C. 2017-
1060, directed the CRTC to reconsider its group licence renewal
decisions issued May 15, 2017 for large television broadcasters
that, among other changes, lowered the amount that some major
broadcasters must spend on Programs of National Interest. The
CRTC is to “consider how it can be ensured that significant
contributions are made to the creation and presentation of
programs of national interest, music programming, short films, and
short-form documentaries.” Rogers and other broadcasters filed
in the reconsideration proceeding on
their
October 31, 2017. Reply comments were filed on February 2, 2018,
after which the CRTC will render a decision.
submissions
CRTC PROCEEDING ON FUTURE PROGRAMMING
DISTRIBUTION MODELS
On October 12, 2017, prompted by Order in Council P.C. 2017-
1195, the CRTC initiated a proceeding (Broadcasting Notice of
Consultation CRTC 2017-359, Call for comments on the Governor
for a report on future programming
in Council’s request
distribution models) to report on the distribution model or models
of programming that are likely to exist in the future; how and
through whom Canadians will access that programming; and the
extent to which these models will ensure a vibrant domestic market
that is capable of supporting the continued creation, production,
and distribution of Canadian programming,
in both official
languages,
including original entertainment and information
programming. The report is due no later than June 1, 2018. Rogers
filed its Phase I and Phase II submissions on December 1, 2017 and
February 13, 2018, respectively.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 85
MANAGEMENT’S DISCUSSION AND ANALYSIS
Other Information
ACCOUNTING POLICIES
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
liabilities,
revenue, and expenses, and our
Management makes judgments, estimates, and assumptions that
affect how accounting policies are applied, the amounts we report
in assets,
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.
to our business operations and
These estimates are critical
understanding our results of operations. We may need to use
additional judgment because of the sensitivity of the methods and
assumptions used in determining the asset, liability, revenue, and
expense amounts.
ESTIMATES
FAIR VALUE
We use estimates to determine the fair value of assets acquired and
liabilities assumed in an acquisition, using the best available
information, including information from financial markets. These
estimates include key assumptions such as discount rates, attrition
rates, and terminal growth rates for performing discounted cash
flow analyses.
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.
If technological change
happens 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 monitor and review our 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.
CAPITALIZING DIRECT LABOUR, OVERHEAD, AND
INTEREST
Certain direct labour, overhead, and interest costs associated with
the acquisition, construction, development, or improvement of our
networks are capitalized to property, plant and equipment. The
86 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
capitalized amounts are calculated based on estimated costs of
projects that are capital in nature, and are generally based on a
per-hour rate.
interest costs are capitalized during
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.
In addition,
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
finite-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 (CGU) involves significant estimates such as future
cash flows,
If key
estimates differ unfavourably in the future, we could experience
impairment charges that could decrease net income.
terminal growth rates, and discount rates.
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 requires assessment of the credit risk
of the parties to the instruments and the instruments’ discount
rates.
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 judgments
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
future compensation increase, 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, as 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 could require
us to make contributions in the future that differ significantly from
the current contributions and assumptions incorporated into the
actuarial valuation process.
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Below is a summary of the effect an increase or decrease in the
primary assumptions and estimates would have had on our
accrued benefit obligation and pension expense for 2017.
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.
(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
Increase (decrease)
in pension
expense
(207)
237
21
(21)
49
(52)
(25)
27
4
(4)
6
(6)
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 SAR feature allows the option holder to elect to
receive a cash payment equal to the intrinsic value of the option,
instead of exercising the option and acquiring Class B Non-Voting
Shares.
We measure stock-based compensation to employees at fair value.
We determine the 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 each period and is amortized to expense using a graded
vesting approach over the period during which 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 and deferred share unit plans
We recognize outstanding RSUs and DSUs as liabilities, measuring
the liabilities and compensation costs based on the awards’ fair
values, which are based on the market price of the Class B
Non-Voting Shares, and recognizing 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 exercise date, we
recognize the resulting changes in the liability within operating
costs in the year the change occurs. For RSUs, the payment amount
is established as of the vesting date. For DSUs, the payment
amount is established as of the exercise date.
JUDGMENTS
USEFUL LIVES AND DEPRECIATION AND AMORTIZATION
METHODS
We make significant
for
depreciating our property, plant and equipment 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.
in choosing methods
judgments
We do not amortize intangible assets with indefinite lives
(spectrum, broadcast licences, and certain brand names) as there is
no foreseeable limit to the period over which these assets are
expected to generate net cash inflows for us. We make judgments
to determine that these assets have indefinite lives, 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 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.
Judgment is also applied in choosing methods for amortizing our
intangible assets and program rights that we believe most
accurately represent the consumption of those assets and are most
representative of the economic substance of the intended use of
the underlying assets.
The
testing.
allocation of goodwill
to CGUs or groups of CGUs for
IMPAIRMENT OF ASSETS
We make judgments in determining CGUs and the allocation of
goodwill
the purpose of
involves
impairment
considerable management judgment in determining the CGUs (or
groups of CGUs) that are expected to benefit from the synergies of
a business combination. A CGU 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 CGUs (or
groups of CGUs) based on the level at which management
monitors goodwill, which is not higher than an operating segment.
SEGMENTS
We make significant judgments in determining our operating
segments. These are components that engage in business activities
from which they may earn revenue 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 to assess component performance, and for which discrete
financial
information is available. We intend to redefine our
reporting segments effective January 1, 2018. See “Understanding
Our Business”.
HEDGE ACCOUNTING
We make significant
financial
assumptions for effectiveness valuation models.
instruments qualify for hedge accounting,
judgments in determining whether our
including
INCOME TAXES 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 tax, our business is complex and significant judgment 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,
taxes payable or
income tax payable or
receivable, other
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 87
MANAGEMENT’S DISCUSSION AND ANALYSIS
receivable, and deferred income tax assets and liabilities and could,
in certain circumstances, result in the assessment of interest and
penalties.
liabilities. Our
CONTINGENCIES
is involved in the determination of
Considerable judgment
contingent
is based on information
judgment
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 judgment 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.
These transactions are measured at the amount agreed to by the
related parties, which are also reviewed by the Audit and Risk
Committee. The amounts owing are unsecured, interest-free, and
due for payment in cash within one month from the date of the
transaction.
NEW ACCOUNTING PRONOUNCEMENTS ADOPTED IN
2017
We adopted the following IFRS amendments in 2017. They did not
have a material effect on our financial statements.
• Amendments to IAS 7, Statement of Cash Flows, requiring
entities to provide additional disclosures that enable financial
statement users to evaluate cash flow and non-cash changes in
liabilities arising from financing activities.
ONEROUS CONTRACTS
Significant judgment is required to determine when we are subject
to unavoidable costs arising from onerous contracts. These
judgments may include, for example, whether a certain promise is
legally binding or whether we may be successful in negotiations
with the counterparty.
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 received from or paid to these parties were as follows:
(In millions of dollars)
Revenue
Purchases
Years ended December 31
2017
2016
% Chg
74
198
50
189
48%
5%
We have entered into business transactions with companies whose
partners or senior officers are Directors of RCI. These Directors are:
• the non-executive chairman of a law firm that provides a portion
of the Company’s legal services; and
• the chairman of a company that provides printing services to the
Company.
(In millions of dollars)
Printing and legal services
Years ended December 31
2017
17
2016
27
In addition, during the year ended December 31, 2016, we
announced a strategic change across our publishing business such
that we will focus on digital content through the Internet and
mobile applications. As a result, we sold select publishing titles to
the aforementioned printing services company for $5 million.
We have also entered into certain transactions with our controlling
shareholder and companies it controls. These transactions are
subject to formal agreements approved by the Audit and Risk
Committee. Total amounts paid to these related parties generally
reflect the charges to Rogers for occasional business use of aircraft,
net of other administrative services, and were less than $1 million
for each of 2017 and 2016.
88 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
• Amendments
to IAS 12,
clarifying the
requirements for deferred tax assets for unrealized losses on
debt instruments.
Income Taxes,
• Amendments to IFRS 12, Disclosure of Interests in Other Entities,
clarifying the required disclosures regarding an entity’s interest in
subsidiaries, joint arrangements, and associates that are held for
sale, held for distribution, or classified as discontinued
operations.
RECENT ACCOUNTING PRONOUNCEMENTS NOT YET
ADOPTED
The IASB has issued the following new standards that will become
effective in a future year and will have an impact on our
consolidated financial statements in future periods.
IFRS 15, REVENUE FROM CONTRACTS WITH CUSTOMERS
(IFRS 15)
Effective January 1, 2018, we will adopt IFRS 15. Our first quarter
2018 interim financial statements will be our
financial
statements issued in accordance with IFRS 15. IFRS 15 supersedes
including IAS 18,
current accounting standards for
Revenue and IFRIC 13, Customer Loyalty Programmes.
revenue,
first
IFRS 15 introduces a single model for recognizing revenue from
contracts with customers. This standard applies to all contracts with
customers, with only some exceptions, including certain contracts
accounted for under other IFRSs. 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
consideration expected to be received 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
recognize revenue when (or as)
performance obligation.
the entity satisfies a
5.
IFRS 15 also provides guidance relating to the treatment of contract
acquisition and contract fulfillment costs.
inception,
IFRS 15 requires the estimation of
The application of this new standard will have significant impacts on
our reported Wireless results, specifically with regards to the timing
of recognition and classification of revenue, and the treatment of
costs incurred in acquiring customer contracts. The timing of
recognition and classification of revenue is affected because, at
total
contract
consideration over the contract term and the allocation of that
consideration to all performance obligations in the contract based
relative stand-alone selling prices. This will most
on their
significantly affect our Wireless arrangements
that bundle
equipment and service together into monthly service fees, which
will result in an increase to equipment revenue recognized at
contract inception and a decrease to service revenue recognized
over the course of the contracts. We do not expect the application
of IFRS 15 to affect our cash flows from operations or the methods
and underlying economics through which we transact with our
customers.
The treatment of costs incurred in acquiring customer contracts is
affected as IFRS 15 requires certain contract acquisition costs (such
as sales commissions) to be recognized as an asset and amortized
into operating expenses over time. Currently, such costs are
expensed as incurred.
In addition, new assets and liabilities will be recognized on our
Consolidated Statements of Financial Position. Specifically, a
contract asset and contract liability will be recognized to account
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for any timing differences between the revenue recognized and
the amounts billed to the customer.
Significant judgment is needed to define the enforceable rights
and obligations of a contract and to determine when the customer
obtains control of the distinct good or service.
We plan to retrospectively apply IFRS 15 to all contracts that are not
complete on the date of initial application. We have made a policy
choice to restate each prior period presented and will recognize
the cumulative effect of initially applying IFRS 15 as an adjustment
to the opening balance of equity as at January 1, 2017, subject to
certain practical expedients we adopted.
We have implemented a new revenue recognition system to
enable us to comply with the requirements of IFRS 15, including
appropriately allocating revenue between different performance
obligations within individual contracts for certain revenue streams.
We have had detailed data validation processes in place
throughout the transition work period to implement IFRS 15.
We have a team dedicated to ensuring our compliance with
IFRS 15. This team was responsible for determining system
requirements, ensuring our data collection was appropriate, and
communicating the upcoming changes with various stakeholders.
In addition, this team assisted in the development of new internal
controls that will help ensure our new revenue recognition system
operates as intended and the related results are complete and
accurate.
EFFECT OF TRANSITION TO IFRS 15
Below is a summary of the estimated effect of transition to IFRS 15 on our key financial information for the year ended December 31, 2017,
all of which pertains to our Wireless segment. Only metrics that are impacted by the IFRS 15 conversion are presented.
(In billions of dollars)
Consolidated
Total revenue
Total service revenue 3
Adjusted operating profit 4
Net income
Adjusted net income 4
Wireless
Service revenue
Equipment revenue
Operating expenses
Adjusted operating profit
Year ended December 31
Estimated effect of
transition 1
2017 subsequent to
transition 2
2017
14.1
13.6
5.4
1.7
1.8
7.8
0.6
4.8
3.6
0.2
(1.0)
0.2
0.2
0.2
(1.0)
1.2
***
0.2
14.3
12.6
5.6
1.9
2.0
6.8
1.8
4.8
3.8
*** Amounts less than $0.1 billion; these amounts have been excluded from subtotals.
1 Excludes estimated effects of transition of less than $0.1 billion.
2 As a result of IFRS 15 being adopted effective January 1, 2018, we will retrospectively amend our 2017 results in our fiscal 2018 financial filings.
3 As defined. See “Key Performance Indicators”.
4 Adjusted operating profit and adjusted net income are non-GAAP measures and should not be considered substitutes or alternatives 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.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 89
MANAGEMENT’S DISCUSSION AND ANALYSIS
As a result of the estimated effect of transition to IFRS 15, the following key financial metrics from our Consolidated Statements of Financial
Position as at December 31, 2017 will be affected:
(In billions of dollars)
Consolidated
Total assets
Total liabilities
Shareholders’ equity
As at December 31
2017
Estimated effect of
transition 1
2017 subsequent to
transition 2
28.9
22.5
6.4
1.5
0.5
1.0
30.4
23.0
7.4
1 Excludes estimated effects of transition of less than $0.1 billion.
2 As a result of IFRS 15 being adopted effective January 1, 2018, we will retrospectively amend our 2017 results in our fiscal 2018 financial filings.
The estimated effect discussed above should be read in conjunction with note 2(g) of our 2017 Annual Audited Consolidated Financial
Statements.
IFRS 9 contains three primary
their contractual cash flows.
measurement categories
financial assets: measured at
for
amortized cost, fair value through other comprehensive income
(FVTOCI), and fair value through profit and loss (FVTPL). Under IFRS
9, we will irrevocably elect to present subsequent changes in the
fair value of our equity investments that are neither held-for-trading
nor contingent consideration arising from a business combination
in other comprehensive income (FVTOCI with no reclassification to
net income). For these equity investments, any impairment on the
instrument will be recorded in other comprehensive income, and
cumulative gains or losses in other comprehensive income will not
be reclassified into net income on disposal.
Under IFRS 9, the loss allowance for trade receivables must be
calculated using the expected lifetime credit loss and recorded at
the time of initial recognition. A portion of our trade receivables
require an incremental loss allowance in order to comply with the
requirements of IFRS 9; as a result, we will recognize a $4 million
decrease to accounts receivable and a corresponding decrease to
retained earnings within shareholders’ equity, effective January 1,
2018. In addition, the expected loss allowance using the lifetime
credit loss approach will be applied to contract assets under IFRS
15. There is no significant effect on the carrying value of our other
financial instruments under IFRS 9 related to this new requirement.
The new hedge accounting guidance aligns hedge accounting
more closely with an entity’s risk management strategies. IFRS 9
does not fundamentally change the types of hedging relationships
or the requirement to measure and recognize ineffectiveness;
however,
risk
management to qualify for hedge accounting and introduces more
judgment to assess the effectiveness of a hedging relationship,
primarily from a qualitative standpoint. This is not expected to have
an effect on our reported results and will simplify our application of
effectiveness tests going forward.
it allows more hedging strategies used for
Free cash flow subsequent to transition
We do not expect the application of IFRS 15 to affect our free cash
flow; however, we will amend our definition of free cash flow to
include the net change in contract asset and deferred commission
cost asset balances.
Key performance indicators subsequent to transition
We plan to begin disclosing blended average billings per user
(ABPU) as one of our key performance indicators in the first quarter
of 2018. We will use blended ABPU as a measure that
approximates the average amount we invoice an individual
subscriber on a monthly basis. This measure will be similar to
blended ARPU under current results. Blended ABPU will help us
identify trends and measure our success in attracting and retaining
higher value subscribers. We will calculate blended ABPU by
dividing the sum of service revenue and the transfers from contract
assets to receivables by the average total number of Wireless
subscribers for the same period.
first
IFRS 9, FINANCIAL INSTRUMENTS (IFRS 9)
Effective January 1, 2018, we will adopt IFRS 9. Our first quarter
2018 interim financial statements will be our
financial
statements issued in accordance with IFRS 9. In July 2014, the IASB
the IFRS 9 standard, which
issued the final publication of
supersedes
recognition and
Instruments:
IAS 39, Financial
measurement (IAS 39). IFRS 9 includes revised guidance on the
classification and measurement of
instruments, new
guidance for measuring impairment on financial assets, and new
hedge accounting guidance. We have made a policy choice to
IFRS 9 on a retrospective basis; however, our 2017
adopt
comparatives will not be restated because it is not possible to do so
without the use of hindsight.
financial
Under IFRS 9, financial assets are classified and measured based on
the business model in which they are held and the characteristics of
90 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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Below is a summary showing the classification and measurement bases of our financial instruments as at January 1, 2018 as a result of
adopting IFRS 9 (along with a comparison to IAS 39).
Financial instrument
Financial assets
Cash and cash equivalents
Accounts receivable
Investments
Financial liabilities
Bank advances
Short-term borrowings
Accounts payable
Accrued liabilities
Long-term debt
Derivatives 3
Debt derivatives 4
Bond forwards
Expenditure derivatives
Equity derivatives
IAS 39
IFRS 9
Loans and receivables
Loans and receivables
Available-for-sale 1
Other financial liabilities
Other financial liabilities 2
Other financial liabilities
Other financial liabilities
Other financial liabilities 2
Held-for-trading
Held-for-trading
Held-for-trading
Held-for-trading 5
Amortized cost
Amortized cost
FVTOCI with no reclassification to
net income
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTOCI and FVTPL
FVTOCI
FVTOCI
FVTPL
1 Subsequently measured at fair value with changes recognized in other comprehensive income. The net change subsequent to initial recognition, in the case of investments, is
reclassified into net income upon disposal of the investment or when the investment becomes impaired.
2 Subsequently measured at amortized cost 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. For derivatives designated as cash flow hedges for accounting purposes, the
effective portion of the hedge is recognized in accumulated other comprehensive income and the ineffective portion of the hedge is recognized immediately into net income.
4 Debt derivatives related to our senior notes and debentures have been designated as hedges for accounting purposes and will be classified as fair value through other
comprehensive income (FVTOCI). Debt derivatives related to our credit facility and commercial paper borrowings have not been designated as hedges for accounting purposes
and will be classified as fair value through profit and loss (FVTPL).
5 Subsequent changes are offset against stock-based compensation expense or recovery in operating costs.
IFRS 16, LEASES (IFRS 16)
In January 2016, the IASB issued the final publication of the IFRS 16
standard, which will supersede the current IAS 17, Leases (IAS 17)
standard. IFRS 16 introduces a single accounting model for lessees
and for all leases with a term of more than 12 months, unless the
underlying asset is of low value. A lessee will be required to
recognize a right-of-use asset, representing its right to use the
underlying asset, and a lease liability, representing its obligation to
make lease payments. The accounting treatment for lessors will
remain largely the same as under IAS 17.
We are implementing a process that will enable us to comply with
the requirements of IFRS 16 on a lease-by-lease basis. We expect
to begin a parallel run under both IAS 17 and IFRS 16 using this
system in 2018. We will have detailed data validation processes that
will continue throughout the course of 2018. As a result, we are
continuing to assess the effect of this standard on our consolidated
financial statements and it is not yet possible to make a reliable
estimate of its effect. We expect to disclose the estimated financial
effects of the adoption of
IFRS 16 in our 2018 consolidated
financial statements.
The standard is effective for annual periods beginning on or after
January 1, 2019. We have the option to either:
• apply IFRS 16 with full retrospective effect; or
• recognize the cumulative effect of initially applying IFRS 16 as an
adjustment to opening equity at the date of initial application.
We believe that, as a result of adopting IFRS 16, we will recognize a
significant increase to both assets and liabilities, as we will be
required to record a right-of-use asset and a corresponding lease
liability on our Consolidated Statements of Financial Position, as
well as a decrease to operating costs, an increase to finance costs
(due to accretion of
the lease liability), and an increase to
depreciation and amortization (due to depreciation of the right-of-
use asset).
We have a team engaged to ensuring our compliance with IFRS 16.
This
team has been responsible for determining process
requirements, ensuring our data collection is appropriate, and
communicating the upcoming changes with various stakeholders.
In addition, this team is assisting in the development of new
internal controls that will help ensure the system runs as intended
and the related results are accurate.
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 alternatives to net income or
any other measure of performance under IFRS.
TOTAL SERVICE REVENUE
We use total service revenue to measure our core business
performance from the provision of services to our customers
separate from revenue from the sale of equipment we have
acquired from device manufacturers and resold. Included in this
metric is our retail revenue from TSC and the Toronto Blue Jays,
which are also core to our business. We calculate total service
revenue by subtracting equipment revenue from total revenue.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 91
MANAGEMENT’S DISCUSSION AND ANALYSIS
SUBSCRIBER COUNT
We determine the number of subscribers to our services based on
active subscribers. When subscribers are deactivated, either
voluntarily or involuntarily for non-payment, they are considered
deactivations in the period the services are discontinued.
Wireless
• A wireless subscriber
telephone number.
is represented by each identifiable
• 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.
• Usage and overage charges for postpaid subscribers are billed a
month in arrears. Prepaid subscribers cannot incur usage and/or
overage charges in excess of their plan limits or account balance.
• Wireless prepaid subscribers are considered active for a period
of 180 days from the date of their last revenue-generating usage.
Cable
• Cable Television and Internet subscribers are represented by a
dwelling unit; Cable Phone subscribers are represented by line
counts.
• When there is more than one unit in one dwelling, such as 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 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 (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.
POSTPAID AVERAGE REVENUE PER ACCOUNT
Postpaid average revenue per account (ARPA) helps us identify
trends and measure our success in attracting and retaining
multiple-device accounts. A single Wireless postpaid account
typically provides subscribers with the advantage of allowing for the
pooling of plan attributes across multiple devices and on a single
bill. Each Wireless postpaid account is typically represented by an
identifiable billing account number. A single Wireless postpaid
account may include more than one identifiable telephone
number and receive monthly Wireless services for a variety of
connected devices including smartphones, basic phones, tablets,
and other devices. Wireless postpaid accounts under our various
brand names are considered separate accounts. We calculate
Wireless postpaid ARPA by dividing total Wireless postpaid service
revenue (monthly) by the average number of Wireless postpaid
accounts for the same time period.
BLENDED AVERAGE REVENUE PER USER
Blended average revenue per user (ARPU) helps us identify trends
and measure our success in attracting and retaining higher value
subscribers. We calculate blended ARPU by dividing service
revenue (monthly) by the average total number of Wireless
subscribers for the same time period.
CAPITAL INTENSITY
Capital
intensity allows us to compare the level of our capital
expenditures to that of other companies within the same industry.
Our capital expenditures do not include expenditures on spectrum
licences. We calculate capital
intensity by dividing capital
expenditures by revenue. For Wireless, capital intensity is calculated
using total service revenue. We use it to evaluate the performance
of our assets and when making decisions about 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 or free cash flow for the year.
We use dividends as a percentage of net income and free cash
flow to conduct analysis and assist with determining the dividends
we should pay.
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.
92 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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NON-GAAP MEASURES
We use the following non-GAAP measures. These are reviewed regularly by management and the 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 indicators of our operating performance, of our
ability to incur and service debt, and as measurements to value companies in the telecommunications sector. These are not recognized
measures under GAAP and do not have standard meanings under IFRS, so may not be reliable ways to compare us to other companies.
Non-GAAP measure Why we use it
Adjusted operating
profit
Adjusted operating
profit 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 the
noted 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 that they are
non-recurring.
How we calculate it
Adjusted operating profit:
Net income
add (deduct)
income tax expense (recovery);
other expense (income); finance
costs; restructuring, acquisition and
other; loss (gain) on disposition of
property, plant and equipment;
depreciation and amortization; and
stock-based compensation.
Adjusted operating profit margin:
Adjusted operating profit
divided by revenue (service revenue
for Wireless).
Adjusted net income:
Net income
add (deduct)
stock-based compensation;
restructuring, acquisition and other;
loss (recovery) on sale or wind down
of investments; loss (gain) on
disposition of property, plant and
equipment; (gain) on acquisitions;
loss on non-controlling interest
purchase obligations; loss on
repayment of long-term debt; and
income tax adjustments on these
items, including adjustments as a
result of legislative changes.
Adjusted basic and diluted earnings
per share:
Adjusted net income
divided by
basic and diluted weighted average
shares outstanding.
Free cash flow
• To show how much cash we have available to repay debt and reinvest
in our company, which is an important indicator of our financial
strength and performance.
• We believe that some investors and analysts use free cash flow to
value a business and its underlying assets.
Adjusted operating profit
deduct
capital expenditures; interest on
borrowings net of capitalized
interest; and cash income taxes.
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 (debt leverage
ratio)
• 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.
Total long-term debt
add (deduct)
current portion of long-term debt;
deferred transaction costs and
discounts; net debt derivative
(assets) liabilities; credit risk
adjustment related to net debt
derivatives; bank advances (cash
and cash equivalents); and short-
term borrowings.
Adjusted net debt (defined above)
divided by
12-month trailing adjusted
operating profit (defined above).
Most
comparable
IFRS financial
measure
Net income
Net income
Basic and diluted
earnings per share
Cash provided by
operating activities
Long-term debt
Long-term debt
divided by net income
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 93
MANAGEMENT’S DISCUSSION AND ANALYSIS
Effective January 1, 2018, we will commence using adjusted
EBITDA as the key measure of profit for the purpose of assessing
performance for each segment and to make decisions about the
allocation of resources. As such, we plan to introduce adjusted
EBITDA as a new non-GAAP measures in our financial reports
commencing January 1, 2018. This measure will replace our
existing adjusted operating profit non-GAAP measure. We believe
adjusted EBITDA more fully reflects segment and consolidated
profitability. The difference between adjusted operating profit and
adjusted EBITDA is that adjusted EBITDA will include stock-based
compensation expense. We also believe that our decision-making
processes will not be significantly affected through the use of
adjusted EBITDA. Additionally, use of this measure will change our
current definition of free cash flow.
RECONCILIATION OF ADJUSTED EARNINGS PER SHARE
(In millions of dollars, except per share amounts;
number of shares outstanding in millions)
Years ended December 31
2017
2016
Adjusted basic earnings per share:
Adjusted net income
Divided by: weighted average number of
1,821
1,481
shares outstanding
515
515
Adjusted basic earnings per share
$ 3.54
$ 2.88
Adjusted diluted earnings per share:
Adjusted net income
Divided by: diluted weighted average number
1,821
1,481
of shares outstanding
517
517
Adjusted diluted earnings per share
$ 3.52
$ 2.86
RECONCILIATION OF ADJUSTED OPERATING PROFIT AND
ADJUSTED OPERATING PROFIT MARGIN
RECONCILIATION OF FREE CASH FLOW
(In millions of dollars)
Net income
Add (deduct):
Income tax expense
Other (income) expense
Finance costs
Restructuring, acquisition and other
Gain on disposition of property, plant and
equipment
Depreciation and amortization
Stock-based compensation
Adjusted operating profit
Years ended December 31
2017
1,711
635
(19)
746
152
(49)
2,142
61
5,379
2016
835
324
191
761
644
–
2,276
61
5,092
(In millions of dollars)
Cash provided by operating activities
Add (deduct):
Capital expenditures
Interest on borrowings, net of capitalized
interest
Restructuring, acquisition and other
Impairment of assets and related onerous
contract charges
Interest paid
Change in non-cash operating working
capital items
Other adjustments
Years ended December 31
2017
3,938
2016
3,957
(2,436)
(2,352)
(722)
152
–
735
154
(75)
(740)
644
(484)
756
(14)
(62)
Years ended December 31
Free cash flow
1,746
1,705
(In millions of dollars, except percentages)
2017
2016
Adjusted operating profit margin:
Adjusted operating profit
Divided by: total revenue
Adjusted operating profit margin
5,379
14,143
5,092
13,702
38.0%
37.2%
RECONCILIATION OF DIVIDEND PAYOUT RATIO OF FREE
CASH FLOW
(In millions of dollars, except percentages)
2017
2016
Years ended December 31
Dividend payout ratio of free cash flow:
Dividends declared during the year
Divided by: free cash flow
Dividend payout ratio of free cash flow
988
1,746
57%
988
1,705
58%
RECONCILIATION OF ADJUSTED NET INCOME
(In millions of dollars)
Net income
Add (deduct):
Stock-based compensation
Restructuring, acquisition and other
Net loss on divestitures pertaining to
investments
(Recovery) loss on wind-down of shomi
Gain on disposition of property, plant and
equipment
Income tax impact of above items
Income tax adjustment, legislative tax change
Years ended December 31
2017
1,711
61
152
–
(20)
(49)
(36)
2
2016
835
61
644
11
140
–
(213)
3
Adjusted net income
1,821
1,481
94 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
RECONCILIATION OF ADJUSTED NET DEBT AND DEBT
LEVERAGE RATIO
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA (with
respect to 2018 FULL-YEAR CONSOLIDATED GUIDANCE)
As at December 31
(In millions of dollars)
2017
2016
(In millions of dollars)
Current portion of long-term debt
Long-term debt
Deferred transaction costs and discounts
Add (deduct):
1,756
12,692
107
14,555
750
15,330
117
16,197
Net income
Add:
Income tax expense
Finance costs
Depreciation and amortization
Net debt derivative assets
Credit risk adjustment related to net debt
(1,129)
(1,683)
EBITDA
Add (deduct):
derivative assets
Short-term borrowings
Bank advances
(17)
1,585
6
(57)
800
71
Other (income) expense
Restructuring, acquisition and other
Gain on disposition of property, plant and
Adjusted net debt
15,000
15,328
As at December 31
(In millions of dollars, except ratios)
2017
2016
Debt leverage ratio
Adjusted net debt
Divided by: trailing 12-month adjusted
operating profit
Debt leverage ratio
15,000
15,328
5,379
2.8
5,092
3.0
equipment
Adjusted EBITDA
Add:
Stock-based compensation
Adjusted operating profit
RECONCILIATION OF FREE CASH FLOW (with respect to
2018 FULL-YEAR CONSOLIDATED GUIDANCE)
(In millions of dollars)
Free cash flow as reported:
Less: Stock-based compensation
Free cash flow calculated with adjusted EBITDA
1,685
1,644
M
A
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G
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M
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’
S
D
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S
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N
A
N
D
A
N
A
L
Y
S
I
S
Years ended December 31
2017
2016
% Chg
1,711
835
105
635
746
2,142
324
761
2,276
5,234
4,196
96
(2)
(6)
25
(19)
152
191
644
n/m
(76)
(49)
–
n/m
5,318
5,031
61
61
5,379
5,092
6
–
6
Years ended December 31
2017
2016
% Chg
1,746
61
1,705
61
2
–
2
SUMMARY OF FINANCIAL RESULTS OF LONG-TERM DEBT GUARANTOR
Our outstanding public debt, $3.2 billion bank credit and letter of credit facilities, and derivatives are unsecured obligations of RCI, as
obligor, and RCCI, as either co-obligor or guarantor, as applicable.
The following table sets forth the selected unaudited consolidated summary financial information for RCI for the periods identified below,
presented with a separate column for: (i) RCI, (ii) RCCI, (iii) our non-guarantor subsidiaries on a combined basis, (iv) consolidating
adjustments, and (v) the total consolidated amounts.
Years ended December 31
(In millions of dollars, unaudited)
Selected Statements of Income data measure:
Revenue
Net income (loss)
RCI 1,2
RCCI 1,2
Non-guarantor
subsidiaries 1,2
Consolidating
adjustments 1,2
Total
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
3
1,711
10
835
12,195
1,525
11,746
674
2,190
974
2,173
990
(245)
(2,499)
(227) 14,143
1,711
(1,664)
13,702
835
As at December 31
(In millions of dollars, unaudited)
Selected Statements of Financial Position data measure:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
RCI 1,2
RCCI 1,2
Non-guarantor
subsidiaries 1,2
Consolidating
adjustments 1,2
Total
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
24,501
30,544
30,732
14,468
22,831
28,812
25,712
17,159
20,266
41,993
27,012
2,390
19,665
38,448
25,190
2,084
9,016
3,521
1,505
572
9,780
5,805
5,558
75
(50,811)
(50,167)
(52,426)
(1,737)
(49,706)
2,972
(47,293) 25,891
6,823
(51,347)
(1,358) 15,693
2,570
25,772
5,113
17,960
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 RCCI 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.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 95
MANAGEMENT’S DISCUSSION AND ANALYSIS
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL RESULTS
(In millions of dollars, except per share amounts, subscriber count
results, churn, ARPA, ARPU, percentages, and ratios)
Revenue
Wireless
Cable
Business Solutions
Media
Corporate items and intercompany eliminations
Total revenue
Total service revenue 1,2
Adjusted operating profit 3
Wireless
Cable
Business Solutions
Media
Corporate items and intercompany eliminations
Total adjusted operating profit
Net income
Adjusted net income 3
Cash provided by operating activities
Free cash flow 3
Capital expenditures
Earnings per share
Basic
Diluted
Adjusted earnings per share 3
Basic
Diluted
Statements of Financial Position:
Assets
Property, plant and equipment
Goodwill
Intangible assets
Investments
Other assets
Total assets
Liabilities and Shareholders’ Equity
Long-term liabilities
Current liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Subscriber count results (000s) 1
Wireless subscribers
Internet subscribers
Television subscribers
Phone subscribers
Additional Wireless metrics 1
Postpaid churn (monthly)
Postpaid ARPA (monthly) 4
Blended ARPU (monthly)
Additional consolidated metrics
Revenue growth
Adjusted operating profit growth
Dividends declared per share
Dividend payout ratio of net income 1
Dividend payout ratio of free cash flow 1,3
Return on assets 1
Debt leverage ratio 3
1 As defined. See “Key Performance Indicators”.
2017
8,343
3,466
387
2,153
(206)
14,143
13,560
3,561
1,709
128
139
(158)
5,379
1,711
1,821
3,938
1,746
2,436
$ 3.32
$ 3.31
$ 3.54
$ 3.52
11,143
3,905
7,244
2,561
4,010
28,863
15,693
6,823
22,516
6,347
28,863
10,482
2,230
1,740
1,108
1.20%
$124.75
$ 62.31
3%
6%
$ 1.92
57.7%
56.6%
5.9%
2.8
2016
7,916
3,449
384
2,146
(193)
13,702
13,027
3,285
1,674
123
169
(159)
5,092
835
1,481
3,957
1,705
2,352
$
$
$
$
1.62
1.62
2.88
2.86
10,749
3,905
7,130
2,174
4,384
28,342
17,960
5,113
23,073
5,269
28,342
10,274
2,145
1,820
1,094
1.23%
$ 117.37
$ 60.42
$
2%
1%
1.92
118.3%
57.9%
2.9%
3.0
As at or years ended December 31
2014
7,305
3,467
382
1,826
(130)
2013
7,270
3,475
374
1,704
(117)
12,850
12,706
3,246
1,665
122
131
(145)
5,019
1,341
1,532
3,698
1,437
2,366
$ 2.60
$ 2.56
$ 2.97
$ 2.96
10,655
3,897
6,588
1,898
3,498
26,536
16,205
4,920
21,125
5,411
26,536
9,450
2,011
2,024
1,150
1.27%
$106.41
$ 59.41
1%
1%
$ 1.83
70.2%
65.6%
5.1%
2.9
3,157
1,718
106
161
(149)
4,993
1,669
1,769
3,990
1,548
2,240
$ 3.24
$ 3.22
$ 3.43
$ 3.42
10,255
3,765
3,211
1,487
4,897
23,615
14,410
4,606
19,016
4,599
23,615
9,503
1,961
2,127
1,153
1.24%
$ 59.58
2%
3%
$ 1.74
53.7%
57.9%
7.1%
2.3
2015
7,651
3,465
377
2,079
(158)
13,414
12,649
3,239
1,658
116
172
(153)
5,032
1,342
1,479
3,747
1,676
2,440
$ 2.61
$ 2.60
$ 2.87
$ 2.86
10,997
3,905
7,243
2,271
4,773
29,189
18,536
5,017
23,553
5,636
29,189
9,877
2,048
1,896
1,090
1.27%
$110.74
$ 59.71
4%
0%
$ 1.92
73.6%
58.9%
4.6%
3.1
2 Total service revenue has not been presented for periods prior to 2015. We commenced reporting total service revenue as a key performance indicator in the fourth quarter of 2016. See “Key
Performance Indicators”.
3 Adjusted operating profit, adjusted net income, adjusted basic and diluted earnings per share, free cash flow, debt leverage ratio, and dividend payout ratio of free cash flow are non-GAAP
measures and should not be considered substitutes or alternatives 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.
4 Postpaid ARPA has not been presented for periods prior to 2014. We commenced reporting postpaid ARPA as a key performance indicator in the first quarter of 2015. See “Key Performance
Indicators”.
96 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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Management’s Responsibility for Financial Reporting
December 31, 2017
The accompanying consolidated financial statements of Rogers
Communications Inc. and its subsidiaries and all the information in
are the
Management’s Discussion and Analysis
responsibility of management and have been approved by the
Board of Directors.
(MD&A)
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 judgments and, in
respects, Rogers
their opinion, present
Communications Inc.‘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.
in all material
fairly,
Management has developed and maintains a system of internal
controls that further enhances the integrity of the consolidated
financial statements. The system of internal controls is supported by
the
and includes management
communication to employees about its policies on ethical business
conduct.
function
internal
audit
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
• the assets of Rogers Communications Inc. and its subsidiaries are
properly accounted for and safeguarded.
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
and Risk Committee.
responsibilities; and to review MD&A,
The Audit and Risk 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
the
discharging its
consolidated financial statements, and the external auditors’ report.
The Audit and Risk 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 and
Risk Committee also considers the engagement or re-appointment
of the external auditors before submitting its recommendation 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. Our internal control over financial reporting as at
in
December 31, 2017 has been audited by KPMG LLP,
accordance with the standards of
the Public Company
Accountability Oversight Board (United States). KPMG LLP has full
and free access to the Audit and Risk Committee.
March 8, 2018
Joe Natale
President and Chief Executive Officer
Anthony Staffieri, FCPA, FCA
Chief Financial Officer
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 97
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Rogers Communications Inc.
in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting
Oversight Board (United States)
(“PCAOB”). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are
free from material misstatement, whether due to error or fraud.
Those standards also require that we comply with ethical
including independence. We are required to be
requirements,
independent with respect
in
accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada, the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB. We are
a public accounting firm registered with the PCAOB.
to Rogers Communications Inc.
An audit includes performing procedures to assess the risks of
material misstatements of the consolidated financial statements,
whether due to error or fraud, and performing procedures to
respond to those risks. Such procedures included obtaining and
examining, on a test basis, audit evidence regarding the amounts
and disclosures in the consolidated financial statements. The
including the
procedures selected depend on our judgment,
assessment of
the
consolidated financial statements, whether due to fraud or error. In
internal control
making those risk assessments, we consider
relevant to Rogers Communications Inc.’s preparation and fair
presentation of the consolidated financial statements in order to
design audit procedures that are appropriate in the circumstances.
the risks of material misstatement of
An audit also includes evaluating the appropriateness of
accounting policies and principles 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 reasonable basis for our
audit opinion.
Chartered Professional Accountants, Licensed Public Accountants
We have served as Rogers Communications Inc.‘s auditor since 1969.
Toronto, Canada
March 8, 2018
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated financial
statements of Rogers Communications Inc., which comprise the
consolidated statements of financial position as at December 31,
2017 and December 31, 2016, the consolidated statements of
income, comprehensive income, changes in shareholders’ equity
and cash flows for the years then ended, and the related notes,
comprising a summary of significant accounting policies and other
explanatory
the
(collectively
“consolidated financial statements”).
referred to as
information
In our opinion, the consolidated financial statements present fairly,
in all material respects, the consolidated financial position of
Rogers Communication Inc. as at December 31, 2017 and
December 31, 2016, and its consolidated financial performance
and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
Report on Internal Control Over Financial Reporting
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Rogers Communications Inc.’s internal control over
financial
reporting as of December 31, 2017, based on the criteria
Integrated Framework
established in
(2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO), and our report dated March 8,
2018 expressed an unqualified (unmodified) opinion on the
effectiveness of Rogers Communications Inc.’s internal control over
financial reporting.
Internal Control
–
Basis for Opinion
A – Management’s Responsibility for the Consolidated Financial
Statements
the preparation and fair
responsible for
Management
is
presentation of
in
these consolidated financial
accordance with 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 statements that
are free from material misstatement, whether due to fraud or error.
statements
B – Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits
98 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Rogers Communications Inc.
Opinion on Internal Control over Financial Reporting
We have audited Rogers Communications Inc.’s internal control
over financial reporting as of December 31, 2017, based on the
criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
In our opinion, Rogers Communications Inc. maintained,
in all
material respects, effective internal control over financial reporting
as of December 31, 2017, based on the criteria established in
Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of
the Treadway
Commission (COSO).
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all
material respects. Our audit of
internal control over financial
reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Report on the Consolidated Financial Statements
in accordance with Canadian generally
We also have audited,
accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States) (“PCAOB”),
the consolidated financial statements of Rogers Communications
financial
Inc., which comprise the consolidated statements of
position as at December 31, 2017 and December 31, 2016, the
consolidated statements of
income, comprehensive income,
changes in shareholders’ equity and cash flows for the years then
ended, and the related notes, comprising a summary of significant
accounting policies and other explanatory information (collectively
referred to as the “consolidated financial statements”) and our
report dated March 8, 2018 expressed an unmodified (unqualified)
opinion on those consolidated financial statements.
Basis for Opinion
Rogers Communications Inc.’s management is responsible for
maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over
included under the heading Management’s
financial reporting,
Report on Internal Control over Financial Reporting contained
within Management’s Discussion and Analysis for the year ended
December 31, 2017. Our responsibility is to express an opinion on
Rogers Communications Inc.’s internal control over
financial
reporting based on our audit.
We are a public accounting firm registered with the PCAOB and
are required to be independent with respect
to Rogers
Communications Inc. in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB and in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in Canada.
Definition and Limitations of Internal Control over Financial
Reporting
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes
in accordance with generally accepted
accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions
financial
are recorded as necessary to permit preparation of
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are
being made only
in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
March 8, 2018
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 99
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income
(In millions of Canadian dollars, except per share amounts)
Years ended December 31
Revenue
Operating expenses:
Operating costs
Depreciation and amortization
Gain on disposition of property, plant and equipment
Restructuring, acquisition and other
Finance costs
Other (income) expense
Income before income tax expense
Income tax expense
Net income for the year
Earnings per share:
Basic
Diluted
The accompanying notes are an integral part of the consolidated financial statements.
Note
5
2017
14,143
2016
13,702
6
7, 8
7
7, 9
10
11
12
8,825
2,142
(49)
152
746
(19)
2,346
635
1,711
8,671
2,276
–
644
761
191
1,159
324
835
13
13
$ 3.32
$ 3.31
$ 1.62
$ 1.62
100 ROGERS COMMUNICATIONS INC. 2017 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
Items that will not be reclassified to net income
Items that may subsequently be reclassified to income:
Available-for-sale investments:
Increase in fair value
Reclassification to net income for gain on sale of investment
Related income tax expense
Available-for-sale investments
Cash flow hedging derivative instruments:
Unrealized loss in fair value of derivative instruments
Reclassification to net income of loss on debt derivatives
Reclassification to net income or property, plant and equipment of loss (gain) on
expenditure derivatives
Reclassification to net income for accrued interest
Related income tax recovery
Cash flow hedging derivative instruments
Equity-accounted investments:
Share of other comprehensive loss of equity-accounted investments, net of tax
Reclassification to net income of realized other comprehensive income for equity-
accounted investments
Equity-accounted investments
Items that may subsequently be reclassified to net income
Other comprehensive income (loss) for the year
Comprehensive income for the year
The accompanying notes are an integral part of the consolidated financial statements.
Note
2017
1,711
2016
835
22
(62)
17
(45)
433
–
(62)
371
(566)
591
39
(60)
40
44
(15)
–
(15)
400
355
2,066
(101)
27
(74)
90
(39)
(7)
44
(336)
255
(80)
(69)
66
(164)
(8)
(15)
(23)
(143)
(217)
618
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 101
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Position
(In millions of Canadian dollars)
As at December 31
Assets
Current assets:
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:
Bank advances
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
The accompanying notes are an integral part of the consolidated financial statements.
On behalf of the Board of Directors:
Edward S. Rogers
Director
John H. Clappison, FCPA, FCA
Director
102 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
Note
2017
2016
2,041
313
197
421
2,972
11,143
7,244
2,561
953
82
3
3,905
28,863
6
1,585
2,931
62
4
346
1,756
133
6,823
35
12,692
147
613
2,206
22,516
6,347
28,863
1,949
315
215
91
2,570
10,749
7,130
2,174
1,708
98
8
3,905
28,342
71
800
2,783
186
134
367
750
22
5,113
33
15,330
118
562
1,917
23,073
5,269
28,342
14
15
16
7
8
17
16
12
8
18
19
20
16
19
20
16
21
12
23
26
27
20, 23
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
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, 2017
Amount
(000s) Amount
Number
of shares
Number
of shares
(000s)
Retained
earnings
Available-for-
sale financial
assets reserve
Hedging
reserve
Equity
investment
hedging
reserve
Total
shareholders’
equity
Balances, January 1, 2017
Net income for the year
Other comprehensive income (loss):
Defined benefit pension plans, net of tax
Available-for-sale investments, net of tax
Derivative instruments accounted for as
hedges, net of tax
Share of equity-accounted investments,
net of tax
Total other comprehensive income (loss)
Comprehensive income (loss) for the year
Transactions with shareholders recorded
directly in equity:
Dividends declared
Shares issued on exercise of stock options
Share class exchange
Total transactions with shareholders
72 112,412
405 402,396
4,247
642
(107)
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5)
(5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
5
7
1,711
(45)
–
–
–
(45)
1,666
(988)
–
–
(988)
–
–
371
–
–
371
371
–
–
–
–
–
–
–
44
–
44
44
–
–
–
–
–
–
–
–
(15)
(15)
(15)
–
–
–
–
5,269
1,711
(45)
371
44
(15)
355
2,066
(988)
–
–
(988)
Balances, December 31, 2017
72 112,407
405 402,403
4,925
1,013
(63)
(5)
6,347
Class A
Voting Shares
Class B
Non-Voting Shares
Year ended December 31, 2016
Amount
(000s) Amount
Number
of shares
Number
of shares
(000s)
Retained
earnings
Available-for-
sale financial
assets reserve
Hedging
reserve
Equity
investment
hedging
reserve
Total
shareholders’
equity
Balances, January 1, 2016
Net income for the year
Other comprehensive income (loss):
Defined benefit pension plans, net of tax
Available-for-sale investments, net of tax
Derivative instruments accounted for as
hedges, net of tax
Share of equity-accounted investments,
net of tax
Total other comprehensive income (loss)
Comprehensive income (loss) for the year
Transactions with shareholders recorded
directly in equity:
Dividends declared
Shares issued on exercise of stock options
Share class exchange
Total transactions with shareholders
72 112,439
402 402,308
4,474
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(27)
(27)
–
–
–
–
–
–
–
–
3
–
3
–
–
–
–
–
–
–
–
61
27
88
835
(74)
–
–
–
(74)
761
(988)
–
–
(988)
598
–
–
44
–
–
44
44
–
–
–
–
57
33
–
–
–
(164)
–
(164)
(164)
–
–
–
–
–
–
–
–
(23)
(23)
(23)
–
–
–
–
5,636
835
(74)
44
(164)
(23)
(217)
618
(988)
3
–
(985)
Balances, December 31, 2016
72 112,412
405 402,396
4,247
642
(107)
10
5,269
The accompanying notes are an integral part of the consolidated financial statements.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 103
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 cash provided by operating activities:
Depreciation and amortization
Program rights amortization
Finance costs
Income tax expense
Stock-based compensation
Post-employment benefits contributions, net of expense
Net loss on divestitures pertaining to investments
(Recovery) loss on wind-down of shomi
Gain on disposition of property, plant and equipment
Impairment of assets and related onerous contract charges
Other
Cash provided by operating activities before changes in non-cash working capital
items, 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:
Capital expenditures
Additions to program rights
Changes in non-cash working capital related to capital expenditures and intangible
assets
Acquisitions and other strategic transactions, net of cash acquired
Other
Cash used in investing activities
Financing activities:
Net proceeds received on short-term borrowings
Net repayment of long-term debt
Net payments on settlement of debt derivatives and forward contracts
Transaction costs incurred
Dividends paid
Other
Cash used in financing activities
Change in cash and cash equivalents
(Bank advances) cash and cash equivalents, beginning of year
Bank advances, end of year
Note
2017
2016
7, 8
8
10
12
24
22
11
7
7
28
7, 28
8
8
18
20
16
23
1,711
2,142
64
746
635
61
4
–
(20)
(49)
–
8
5,302
(154)
5,148
(475)
(735)
3,938
(2,436)
(59)
109
(184)
(60)
835
2,276
71
761
324
61
(3)
11
140
–
484
34
4,994
14
5,008
(295)
(756)
3,957
(2,352)
(46)
(103)
–
45
(2,630)
(2,456)
858
(1,034)
(79)
–
(988)
–
(1,243)
65
(71)
(6)
–
(538)
(45)
(17)
(988)
5
(1,583)
(82)
11
(71)
Cash and cash equivalents are defined as cash and short-term deposits that have an original maturity of less than 90 days, less bank
advances.
The accompanying notes are an integral part of the consolidated financial statements.
104 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
Notes to Consolidated Financial Statements
We, us, our, Rogers, Rogers Communications, and the Company refer to Rogers Communications Inc. and its subsidiaries. RCI refers to the
legal entity Rogers Communications Inc., not including its subsidiaries. RCI also holds interests in various investments and ventures.
Page
Note
105
106
111
111
113
114
115
117
120
121
121
121
123
123
124
Nature of the Business
Note 1
Significant Accounting Policies
Note 2
Capital Risk Management
Note 3
Segmented Information
Note 4
Revenue
Note 5
Operating Costs
Note 6
Property, Plant and Equipment
Note 7
Intangible Assets and Goodwill
Note 8
Restructuring, Acquisition and Other
Note 9
Note 10
Finance Costs
Note 11 Other (Income) Expense
Income Taxes
Note 12
Note 13
Earnings Per Share
Note 14 Accounts Receivable
Inventories
Note 15
NOTE 1: NATURE OF THE BUSINESS
Page
124
132
134
135
136
138
139
142
143
145
146
147
148
Note
Note 16
Financial Risk Management and Financial
Instruments
Investments
Note 17
Short-Term Borrowings
Note 18
Provisions
Note 19
Note 20
Long-Term Debt
Note 21 Other Long-Term Liabilities
Post-Employment Benefits
Note 22
Shareholders’ Equity
Note 23
Note 24
Stock-Based Compensation
Note 25 Related Party Transactions
Note 26 Guarantees
Note 27 Commitments and Contingent Liabilities
Note 28
Supplemental Cash Flow Information
N
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is
Inc.
Rogers Communications
a diversified Canadian
communications and media company. 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 reportable segments.
Each segment and the nature of its business is as follows:
Segment
Wireless
Cable
Principal activities
Wireless telecommunications operations
for Canadian consumers and businesses.
Cable telecommunications operations,
including Internet, television, and
telephony (phone) services for Canadian
consumers and businesses.
Business Solutions Network connectivity through our fibre
Media
network and data centre assets to support
a range of voice, data, networking,
hosting, and cloud-based services for the
enterprise, public sector, and carrier
wholesale markets.
A diversified portfolio of media properties,
including sports media and entertainment,
television and radio broadcasting,
specialty channels, multi-platform
shopping, digital media, and publishing.
During the year ended December 31, 2017, Wireless, Cable, and
Business Solutions were operated by our wholly-owned subsidiary,
Rogers Communications Canada Inc. (RCCI), and certain other
wholly-owned subsidiaries. Media was 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 in accordance
with International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board (IASB). The Board of
Directors (the Board) authorized these consolidated financial
statements for issue on March 8, 2018.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 105
combinations. We possess control over an entity when we
conclude we are exposed to variable returns from our involvement
with the acquired entity and we have the ability to affect those
returns through our power over the acquired entity.
We calculate the fair value of the consideration paid as the sum of
the fair value at the date of acquisition of the assets we transferred
and the equity interests we issued, less the liabilities we assumed to
acquire the subsidiary.
We measure goodwill as the fair value of
the consideration
transferred less the net recognized amount of the identifiable
assets acquired and liabilities assumed, which are generally
measured at fair value as of the acquisition date. When the excess
is negative, a gain on acquisition is recognized immediately in net
income.
We expense the transaction costs associated with acquisitions as
we incur them.
(e) NEW ACCOUNTING PRONOUNCEMENTS ADOPTED IN
2017
We adopted the following IFRS amendments prospectively
beginning on January 1, 2017.
• Amendments to IAS 7, Statement of Cash Flows, requiring
entities to provide additional disclosures that enable financial
statement users to evaluate cash flow and non-cash changes in
liabilities arising from financing activities.
• Amendments
to IAS 12,
clarifying the
requirements for deferred tax assets for unrealized losses on
debt instruments.
Income Taxes,
• Amendments to IFRS 12, Disclosure of Interests in Other Entities,
clarifying the required disclosures regarding an entity’s interest in
subsidiaries, joint arrangements, and associates that are held for
sale, held for distribution, or classified as discontinued
operations.
The adoption of these amendments did not have a material effect
on our consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
All amounts are in Canadian dollars unless otherwise noted. Our
functional currency is the Canadian dollar. We prepare the
consolidated financial statements on a historical cost basis, except
for:
• certain financial instruments as disclosed in note 16, which are
measured at fair value;
• the net deferred pension liability, which is measured as
described in note 22; and
• liabilities for stock-based compensation, which are measured at
fair value as disclosed in note 24.
(b) BASIS OF CONSOLIDATION
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 eliminate all intercompany transactions and balances
between our subsidiaries on consolidation.
(c) 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 assets, non-monetary liabilities, and related
the historical
depreciation and amortization expenses – at
exchange rates; and
• revenue
and expenses other
and
amortization – at the average rate for the month in which the
transaction was recognized.
than depreciation
(d) BUSINESS COMBINATIONS
We account
for business combinations using the acquisition
method of accounting. Only acquisitions that result in our gaining
control over the acquired businesses are accounted for as business
106 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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our
preparing
(f) ADDITIONAL SIGNIFICANT ACCOUNTING POLICIES,
ESTIMATES, AND JUDGMENTS
When
statements,
management makes judgments, estimates, and assumptions that
affect how accounting policies are applied and the amounts we
report as assets, liabilities, revenue, and expenses. Our significant
accounting policies, estimates, and judgments are identified in this
the following information is disclosed
note. Furthermore,
consolidated
financial
throughout the notes as identified in the table below:
• information about assumptions and estimation uncertainties that
have a significant risk of resulting in a material adjustment to the
amounts recognized in the consolidated financial statements;
• information about judgments made in applying accounting
policies that have the most significant effect on the amounts
recognized in the consolidated financial statements; and
• information on our significant accounting policies.
Note
Topic
Page Accounting Policy Use of Estimates Use of Judgments
4
5
7
8
12
13
14
15
16
17
19
22
24
27
Reportable Segments
Revenue Recognition
Property, Plant and Equipment
Intangible Assets and Goodwill
Income Taxes
Earnings Per Share
Accounts Receivable
Inventories
Financial Instruments
Investments
Provisions
Post-Employment Benefits
Stock-Based Compensation
Commitments and Contingent Liabilities
111
113
115
117
121
123
123
124
124
132
135
139
143
147
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
(g) RECENT ACCOUNTING PRONOUNCEMENTS NOT YET
ADOPTED
The IASB has issued the following new standards that will become
effective in a future year and will have an impact on our
consolidated financial statements in future periods.
IFRS 15, REVENUE FROM CONTRACTS WITH CUSTOMERS
(IFRS 15)
Effective January 1, 2018, we will adopt IFRS 15. Our first quarter
2018 interim financial statements will be our
financial
statements issued in accordance with IFRS 15. IFRS 15 supersedes
including IAS 18,
current accounting standards for
Revenue and IFRIC 13, Customer Loyalty Programmes.
revenue,
first
IFRS 15 introduces a single model for recognizing revenue from
contracts with customers. This standard applies to all contracts with
customers, with only some exceptions, including certain contracts
accounted for under other IFRSs. 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
consideration expected to be received 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.
identify the contract with a customer;
identify the performance obligations in the contract;
allocate the transaction price to the performance
obligations in the contract; and
recognize revenue when (or as) the entity satisfies a
performance obligation.
5.
IFRS 15 also provides guidance relating to the treatment of contract
acquisition and contract fulfillment costs.
inception,
IFRS 15 requires the estimation of
The application of this new standard will have significant impacts on
our reported Wireless results, specifically with regards to the timing
of recognition and classification of revenue, and the treatment of
costs incurred in acquiring customer contracts. The timing of
recognition and classification of revenue is affected because, at
contract
total
consideration over the contract term and the allocation of that
consideration to all performance obligations in the contract based
relative stand-alone selling prices. This will most
on their
significantly affect our Wireless arrangements
that bundle
equipment and service together into monthly service fees, which
will result in an increase to equipment revenue recognized at
contract inception and a decrease to service revenue recognized
over the course of the contracts. We do not expect the application
of IFRS 15 to affect our cash flows from operations or the methods
and underlying economics through which we transact with our
customers.
The treatment of costs incurred in acquiring customer contracts is
affected as IFRS 15 requires certain contract acquisition costs (such
as sales commissions) to be recognized as an asset and amortized
into operating expenses over time. Currently, such costs are
expensed as incurred.
In addition, new assets and liabilities will be recognized on our
Consolidated Statements of Financial Position. Specifically, a
contract asset and contract liability will be recognized to account
for any timing differences between the revenue recognized and
the amounts billed to the customer.
Significant judgment is needed to define the enforceable rights
and obligations of a contract and to determine when the customer
obtains control of the distinct good or service.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We plan to retrospectively apply IFRS 15 to all contracts that are not
complete on the date of initial application. We have made a policy
choice to restate each prior period presented and will recognize
the cumulative effect of initially applying IFRS 15 as an adjustment
to the opening balance of equity as at January 1, 2017, subject to
certain practical expedients we adopted.
We have implemented a new revenue recognition system to
enable us to comply with the requirements of IFRS 15, including
appropriately allocating revenue between different performance
obligations within individual contracts for certain revenue streams.
We have had detailed data validation processes in place
throughout the transition work period to implement IFRS 15.
We have a team dedicated to ensuring our compliance with
IFRS 15. This team was responsible for determining system
requirements, ensuring our data collection was appropriate, and
communicating the upcoming changes with various stakeholders.
In addition, this team assisted in the development of new internal
controls that will help ensure our new revenue recognition system
operates as intended and the related results are complete and
accurate.
EFFECT OF TRANSITION TO IFRS 15
Consolidated Statements of Income
Below is the estimated effect of transition to IFRS 15 on our Consolidated Statements of Income for the year ended December 31, 2017,
all of which pertain to our Wireless segment. Only metrics that are impacted by the IFRS 15 conversion are presented.
(In billions of dollars)
Revenue
Operating expenses:
Operating costs
Other non-operating costs
Income before income tax expense
Income tax expense
Net income for the year
Note 2(g)
As reported
Year ended December 31, 2017
Estimated effect of
transition
Subsequent to
transition 1
i
ii, iii
14.1
8.8
3.0
2.3
0.6
1.7
0.2
***
–
0.2
***
0.2
14.3
8.8
3.0
2.5
0.6
1.9
*** Amounts less than $0.1 billion; these amounts have been excluded from subtotals.
1 As a result of IFRS 15 being adopted effective January 1, 2018, we will retrospectively amend our 2017 results in our fiscal 2018 financial filings.
108 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
Consolidated Statements of Financial Position
Below is the estimated effect of transition to IFRS 15 on our Consolidated Statements of Financial Position as at January 1, 2017 and as at
December 31, 2017.
(in billions of dollars)
Assets
Current assets:
Accounts receivable
Inventories
Current portion of contract assets
Other current assets
Remainder of current assets
Total current assets
Contract assets
Other long-term assets
Remainder of long-term assets
Total assets
Liabilities and shareholders’ equity
Current liabilities:
Other current liabilities 2
Current portion of contract liabilities 3
Remainder of current liabilities
Total current liabilities
Deferred tax liabilities
Remainder of long-term liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Note 2(g)
As
reported
Estimated effect of
transition
Subsequent to
transition 1
As
reported
Estimated effect of
transition
Subsequent to
transition 1
As at January 1, 2017
As at December 31, 2017
iii
i
ii
i
ii
iii
i
1.9
0.3
–
0.2
0.2
2.6
–
0.1
25.6
28.3
0.1
0.4
4.6
5.1
1.9
16.0
23.0
5.3
28.3
***
0.1
0.7
0.2
–
1.0
0.4
***
–
1.4
0.1
***
–
0.1
0.4
–
0.5
0.9
1.4
1.9
0.4
0.7
0.4
0.2
3.6
0.4
0.1
25.6
29.7
0.2
0.4
4.6
5.2
2.3
16.0
23.5
6.2
29.7
2.0
0.3
–
0.2
0.5
3.0
–
0.1
25.8
28.9
–
0.3
6.5
6.8
2.2
13.5
22.5
6.4
28.9
***
0.1
0.8
0.2
–
1.1
0.4
***
–
1.5
0.1
***
–
0.1
0.4
–
0.5
1.0
1.5
2.0
0.4
0.8
0.4
0.5
4.1
0.4
0.1
25.8
30.4
0.1
0.3
6.5
6.9
2.6
13.5
23.0
7.4
30.4
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*** Amounts less than $0.1 billion; these amounts have been excluded from subtotals.
1
As a result of IFRS 15 being adopted effective January 1, 2018, we will retrospectively amend our 2017 results in our fiscal 2018 financial filings.
Previously reported as “current portion of provisions”.
Previously reported as “unearned revenue”.
2
3
The application of IFRS 15 will not affect our cash flows from
operating, investing, or financing activities.
i) Contract assets and liabilities
Contract assets arise primarily as a result of the difference between
revenue recognized on the sale of a wireless device at the onset of
a term contract and the cash collected at the point of sale. Revenue
recognized at point of sale requires the estimation of
total
consideration over the contract term and the allocation of that
consideration to all performance obligations in the contract based
on their relative stand-alone selling prices. For Wireless term
contracts,
than previously
reported, with a larger allocation to equipment revenue. Prior to
the adoption of IFRS 15, the amount allocated to equipment
revenue was limited to the non-contingent consideration received
at the point of sale when recovery of the remaining consideration in
the contract was contingent upon the delivery of future services.
revenue will be recognized earlier
We will record a contract liability when we receive payment from a
customer in advance of providing goods and services. We will
account for contract assets and liabilities on a contract-by-contract
basis, with each contract being presented as a single net contract
asset or net contract liability accordingly.
All contract assets will be recorded net of an allowance for
expected credit losses, measured in accordance with IFRS 9.
ii) Deferred commission cost asset
Under IFRS 15, we will defer commission costs paid to internal and
external representatives as a result of obtaining contracts with
customers as deferred commission cost assets and amortize them
over the pattern of the transfer of goods and services to the
customer, which is typically evenly over either 12 or 24 consecutive
months.
iii) Inventories and other current liabilities
Under IFRS 15, significant judgment is required to determine when
the customer obtains control of the distinct good or service. For
affected transactions, we have defined our customer as the end
subscriber and determined that they obtain control when they
receive possession of a wireless device, which typically occurs upon
activation. For certain transactions through third-party franchise
operators and other retailers, the timing of when the customer
obtains control of a wireless device will be deferred in comparison
to our current policy where revenue is recognized when the
wireless device is delivered and accepted by the independent
in a greater inventory balance and a
dealer. This will result
corresponding increase in other current liabilities.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
first
IFRS 9, FINANCIAL INSTRUMENTS (IFRS 9)
Effective January 1, 2018, we will adopt IFRS 9. Our first quarter
2018 interim financial statements will be our
financial
statements issued in accordance with IFRS 9. In July 2014, the IASB
the IFRS 9 standard, which
issued the final publication of
recognition and
Instruments:
IAS 39, Financial
supersedes
measurement (IAS 39). IFRS 9 includes revised guidance on the
classification and measurement of
instruments, new
guidance for measuring impairment on financial assets, and new
hedge accounting guidance. We have made a policy choice to
IFRS 9 on a retrospective basis; however, our 2017
adopt
comparatives will not be restated because it is not possible to do so
without the use of hindsight.
financial
Under IFRS 9, financial assets are classified and measured based on
the business model in which they are held and the characteristics of
IFRS 9 contains three primary
their contractual cash flows.
measurement categories
financial assets: measured at
for
amortized cost, fair value through other comprehensive income
(FVTOCI), and fair value through profit and loss (FVTPL). Under
IFRS 9, we will irrevocably elect to present subsequent changes in
the fair value of our equity investments that are neither held-for-
trading nor contingent consideration arising from a business
combination in other comprehensive income (FVTOCI with no
reclassification to net income). For these equity investments, any
impairment on the instrument will be recorded in other
comprehensive income, and cumulative gains or losses in other
comprehensive income will not be reclassified into net income on
disposal.
Under IFRS 9, the loss allowance for trade receivables must be
calculated using the expected lifetime credit loss and recorded at
the time of initial recognition. A portion of our trade receivables
require an incremental loss allowance in order to comply with the
requirements of IFRS 9; as a result, we will recognize a $4 million
decrease to accounts receivable and a corresponding decrease to
retained earnings within shareholders’ equity, effective January 1,
2018. In addition, the expected loss allowance using the lifetime
credit loss approach will be applied to contract assets under
IFRS 15. There is no significant effect on the carrying value of our
other financial
instruments under IFRS 9 related to this new
requirement.
The new hedge accounting guidance aligns hedge accounting
more closely with an entity’s risk management strategies. IFRS 9
does not fundamentally change the types of hedging relationships
or the requirement to measure and recognize ineffectiveness;
however,
risk
management to qualify for hedge accounting and introduces more
judgment to assess the effectiveness of a hedging relationship,
primarily from a qualitative standpoint. This is not expected to have
an effect on our reported results and will simplify our application of
effectiveness tests going forward.
it allows more hedging strategies used for
Below is a summary showing the classification and measurement bases of our financial instruments as at January 1, 2018 as a result of
adopting IFRS 9 (along with a comparison to IAS 39).
Financial instrument
Financial assets
Cash and cash equivalents
Accounts receivable
Investments
Financial liabilities
Bank advances
Short-term borrowings
Accounts payable
Accrued liabilities
Long-term debt
Derivatives 3
Debt derivatives 4
Bond forwards
Expenditure derivatives
Equity derivatives
IAS 39
IFRS 9
Loans and receivables
Loans and receivables
Available-for-sale 1
Other financial liabilities
Other financial liabilities 2
Other financial liabilities
Other financial liabilities
Other financial liabilities 2
Held-for-trading
Held-for-trading
Held-for-trading
Held-for-trading 5
Amortized cost
Amortized cost
FVTOCI with no reclassification to net
income
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTOCI and FVTPL
FVTOCI
FVTOCI
FVTPL
1 Subsequently measured at fair value with changes recognized in other comprehensive income. The net change subsequent to initial recognition, in the case of investments, is
reclassified into net income upon disposal of the investment or when the investment becomes impaired.
2 Subsequently measured at amortized cost 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. For derivatives designated as cash flow hedges for accounting purposes, the
effective portion of the hedge is recognized in accumulated other comprehensive income and the ineffective portion of the hedge is recognized immediately into net income.
4 Debt derivatives related to our senior notes and debentures have been designated as hedges for accounting purposes and will be classified as fair value through other
comprehensive income (FVTOCI). Debt derivatives related to our credit facility and commercial paper borrowings have not been designated as hedges for accounting purposes
and will be classified as fair value through profit and loss (FVTPL).
5 Subsequent changes are offset against stock-based compensation expense or recovery in operating costs.
IFRS 16, LEASES (IFRS 16)
In January 2016, the IASB issued the final publication of the IFRS 16
standard, which will supersede the current IAS 17, Leases (IAS 17)
standard. IFRS 16 introduces a single accounting model for lessees
and for all leases with a term of more than 12 months, unless the
underlying asset is of low value. A lessee will be required to
recognize a right-of-use asset, representing its right to use the
underlying asset, and a lease liability, representing its obligation to
make lease payments. The accounting treatment for lessors will
remain largely the same as under IAS 17.
The standard is effective for annual periods beginning on or after
January 1, 2019. We have the option to either:
• apply IFRS 16 with full retrospective effect; or
• recognize the cumulative effect of initially applying IFRS 16 as an
adjustment to opening equity at the date of initial application.
110 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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We believe that, as a result of adopting IFRS 16, we will recognize a
significant increase to both assets and liabilities, as we will be
required to record a right-of-use asset and a corresponding lease
liability on our Consolidated Statements of Financial Position, as
well as a decrease to operating costs, an increase to finance costs
the lease liability), and an increase to
(due to accretion of
depreciation and amortization (due to depreciation of the right-of-
use asset).
We have a team engaged to ensuring our compliance with IFRS 16.
team has been responsible for determining process
This
requirements, ensuring our data collection is appropriate, and
communicating the upcoming changes with various stakeholders.
In addition, this team is assisting in the development of new
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 and indebtedness (including current portion of our long-
term debt, long-term debt, and short-term borrowings).
We manage our capital structure, commitments, and maturities
and make adjustments based on general economic conditions,
financial markets, operating risks, our investment priorities, and
working capital requirements. To maintain or adjust our capital
structure, we may, with approval from the Board, issue or repay
debt and/or short-term borrowings, issue or repurchase shares, pay
dividends, or undertake other activities as deemed appropriate
under the circumstances. The Board reviews and approves the
annual capital and operating budgets, as well as any material
transactions that are not part of the ordinary course of business,
financing
including proposals for acquisitions or other major
transactions, investments, or divestitures.
NOTE 4: SEGMENTED INFORMATION
ACCOUNTING POLICY
Reportable segments
We determine our reportable segments based on, among other
things, how our chief operating decision maker, the Chief Executive
Officer and Chief Financial Officer of RCI, regularly review our
operations and performance. They review adjusted operating profit
as the key measure of profit
the purpose of assessing
performance for each segment and to make decisions about the
allocation of resources. Adjusted operating profit is defined as
income before stock-based compensation, depreciation and
amortization, restructuring, acquisition and other, finance costs,
other expense (income), and income tax expense.
for
We will redefine our reportable segments effective January 1, 2018
as a result of technological evolution and the increased overlap
between the various product offerings within our Cable and
Business Solutions reportable segments, as well as how we allocate
resources amongst, and the general management of, our
reportable segments. Effective January 1, 2018, the results of our
existing Cable segment, Business Solutions segment, and our
internal controls that will help ensure the system runs as intended
and the related results are accurate.
We are implementing a process that will enable us to comply with
the requirements of IFRS 16 on a lease-by-lease basis. We expect
to begin a parallel run under both IAS 17 and IFRS 16 using this
system in 2018. We will have detailed data validation processes that
will continue throughout the course of 2018. As a result, we are
continuing to assess the effect of this standard on our consolidated
financial statements and it is not yet possible to make a reliable
estimate of its effect. We expect to disclose the estimated financial
effects of the adoption of
IFRS 16 in our 2018 consolidated
financial statements.
We monitor debt leverage ratios as part of the management of
liquidity and shareholders’ return to sustain future development of
the business, conduct valuation-related analyses, and make
decisions about capital.
The wholly-owned subsidiary through which our Rogers Platinum
MasterCard and Fido MasterCard programs are operated is
the Superintendent of Financial
regulated by the Office of
Institutions, which requires that a minimum level of regulatory
capital be maintained. Rogers’ subsidiary was in compliance with
that requirement as at December 31, 2017 and 2016. The capital
requirements are not material to the Company as at December 31,
2017 or December 31, 2016.
With the exception of the Rogers Platinum MasterCard and the
Fido MasterCard programs and the subsidiary through which they
are operated, we are not subject to externally-imposed capital
requirements. Our overall strategy for capital risk management has
not changed since December 31, 2016.
Smart Home Monitoring products will be presented within a
redefined Cable segment. Financial results related to our Smart
Home Monitoring product are currently reported within Corporate
retrospectively
items and intercompany eliminations. We will
amend our 2017 comparative segment results in 2018 to account
for this redefinition.
Effective January 1, 2018, our chief operating decision maker will
commence using adjusted EBITDA 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 EBITDA
will be defined as income before depreciation and amortization,
restructuring, acquisition and other, finance costs, other expense
(income), and income tax expense.
We follow the same accounting policies for our segments as those
described in the notes to our consolidated financial statements.
We account for transactions between reportable segments in the
same way we account for transactions with external parties, but
eliminate them on consolidation.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
USE OF ESTIMATES AND JUDGMENT
JUDGMENTS
We make significant judgments in determining our operating
segments. These are components that engage in business activities
from which they may earn revenue 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.
EXPLANATORY INFORMATION
Our reportable segments are Wireless, Cable, Business Solutions,
and Media (see note 1). 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. Segment results include items directly attributable to a
segment as well as those that can be allocated on a reasonable
basis.
INFORMATION BY SEGMENT
Year ended December 31, 2017
(In millions of dollars)
Revenue
Operating costs 1
Adjusted operating profit
Stock-based compensation 1
Depreciation and amortization
Gain on disposition of property, plant and equipment
Restructuring, acquisition and other
Finance costs
Other income
Income before income tax expense
Note Wireless Cable
Business
Solutions Media
Corporate
items and
eliminations
Consolidated
totals
8,343
4,782
3,466
1,757
3,561
1,709
387
259
128
2,153
2,014
139
(206)
(48)
(158)
5
24
7, 8
7
9
10
11
Capital expenditures before proceeds on disposition 2
Goodwill
Total assets
806
1,160
14,261
1,172
1,379
6,033
131
429
1,196
83
937
2,405
318
–
4,968
1 Included in operating costs on the Consolidated Statements of Income.
2 Excludes proceeds on disposition of $74 million (see note 28).
Year ended December 31, 2016
(In millions of dollars)
Revenue
Operating costs 1
Adjusted operating profit
Stock-based compensation 1
Depreciation and amortization
Restructuring, acquisition and other
Finance costs
Other expense
Income before income tax expense
Note Wireless Cable
Business
Solutions Media
Corporate
items and
eliminations
Consolidated
totals
7,916
4,631
3,449
1,775
3,285
1,674
384
261
123
2,146
1,977
169
(193)
(34)
(159)
5
24
7, 8
7, 9
10
11
14,143
8,764
5,379
61
2,142
(49)
152
746
(19)
2,346
2,510
3,905
28,863
13,702
8,610
5,092
61
2,276
644
761
191
1,159
2,352
3,905
28,342
Capital expenditures before proceeds on disposition
Goodwill
Total assets
702
1,160
14,074
1,085
1,379
5,288
146
429
1,219
62
937
2,474
357
–
5,287
1 Included in operating costs on the Consolidated Statements of Income.
112 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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NOTE 5: REVENUE
ACCOUNTING POLICY
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 recognized net of discounts.
Source of revenue
Monthly subscriber fees for:
• wireless airtime and data services;
• cable, telephony, and Internet services;
• network services;
• media subscriptions; and
• rental of equipment
How we recognize revenue
• As the service is provided
Revenue from roaming, long distance, pay per use, and other
optional or non-subscription services and other sales of products
Revenue from the sale of wireless and cable equipment
• As the service is provided or product is delivered
• When the equipment is delivered and accepted by the
independent dealer or subscriber in a direct sales channel
Equipment subsidies related to providing equipment to new
and existing subscribers
• Equipment subsidies are recognized as a reduction of
equipment revenue when the equipment is activated
Activation fees charged to subscribers in Wireless
Advertising revenue
Monthly subscription revenue received by television stations for
subscriptions from cable and satellite providers
Toronto Blue Jays revenue from home game admission and
concessions
Toronto Blue Jays revenue from Major League Baseball,
including fund redistribution and other distributions
Revenue from Toronto Blue Jays, radio, and television broadcast
agreements
• As part of service revenue upon activation
• These fees do not meet the criteria as a separate unit of
accounting
• When the advertising airs on our radio or television stations, is
featured in our publications, or displayed on our digital
properties
• When the services are delivered to cable and satellite
providers’ subscribers
• When the related games are played during the baseball
season and when goods are sold
• When the amount can be determined
• At the time the related games are aired
Revenue from sublicensing of program rights
• Over the course of the applicable season
loyalty
Rewards granted to customers through customer
programs, which are considered a separately identifiable
component of the sales transactions
• Estimate the portion of
the original sales transaction to
allocate to the reward credit based on the fair value of the
reward credit
is
redeemed
that can be obtained when the credit
Interest income on credit card receivables
• As it is earned (i.e. upon the passage of time) using the
effective interest method
• Defer the allocated amount as a liability until the rewards are
redeemed by the customer and we provide the goods or
services
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 113
EXPLANATORY INFORMATION
(In millions of dollars)
2017
2016
Years ended December 31
Wireless:
Service revenue
Equipment revenue
Total Wireless
Cable:
Internet
Television
Phone
Service revenue
Equipment revenue
Total Cable
Business Solutions:
Next generation
Legacy
Service revenue
Equipment revenue
Total Business Solutions
Media:
Advertising
Subscription
Retail
Other
7,775
568
8,343
1,606
1,501
353
3,460
6
3,466
322
58
380
7
387
838
511
352
452
7,258
658
7,916
1,495
1,562
386
3,443
6
3,449
307
71
378
6
384
870
474
325
477
Total Media
2,153
2,146
Corporate items and intercompany
eliminations
Total revenue
(206)
(193)
14,143
13,702
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Multiple deliverable arrangements
We offer some products and services as part of multiple deliverable
arrangements. We recognize 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 related to each unit when the relevant criteria are met
for each unit individually; however
• 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, as applicable.
Unearned revenue
We recognize payments we receive in advance of providing goods
and services as unearned revenue. Advance payments include
subscriber deposits, cable installation fees, ticket deposits related
to Toronto Blue Jays ticket sales, and amounts subscribers pay for
services and subscriptions that will be provided in future periods.
NOTE 6: OPERATING COSTS
(In millions of dollars)
2017
2016
Years ended December 31
Cost of equipment sales and direct
sales channel subsidies
Merchandise for resale
Other external purchases
Employee salaries and benefits and
stock-based compensation
Total operating costs
2,039
237
4,429
2,120
8,825
1,954
209
4,435
2,073
8,671
114 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
NOTE 7: PROPERTY, PLANT AND EQUIPMENT
ACCOUNTING POLICY
Recognition and measurement, including depreciation
We measure property, plant and equipment upon initial
recognition at cost and begin recognizing depreciation when the
asset is ready for its intended use. Subsequently, property, plant
and equipment is carried at cost less accumulated depreciation
and accumulated impairment losses.
Cost includes expenditures (capital expenditures) that are directly
attributable to the acquisition of
the asset. The cost of self-
constructed assets includes:
• the cost of materials and direct labour;
• costs directly associated with bringing the assets to a working
condition for their intended use;
• expected costs of decommissioning the items and restoring the
sites on which they are located (see note 19); and
• borrowing costs on qualifying assets.
We depreciate property, plant and equipment over its estimated
useful
life by charging depreciation expense to net income as
follows:
Asset
Basis
Estimated
useful life
Buildings
Cable and wireless network
Computer equipment and
software
Customer premise equipment Straight-line
Straight-line
Leasehold improvements
Diminishing balance 5 to 40 years
3 to 40 years
Straight-line
4 to 10 years
Straight-line
3 to 5 years
Over shorter of
estimated useful
life or lease term
Equipment and vehicles
Diminishing balance 3 to 20 years
We recognize all costs related to subscriber acquisition and
income as incurred, except connection and
retention in net
installation costs that relate to the cable network, which are
capitalized and depreciated over the expected life of the Cable
customer.
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 net
income.
We capitalize development expenditures if they meet the criteria
for recognition as an asset and amortize them over their expected
useful lives once the assets to which they relate are available for use.
We expense research expenditures, maintenance costs, and
training costs as incurred.
Impairment testing
We test non-financial assets with finite useful lives 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 (CGU) for impairment.
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A CGU is the smallest identifiable group of assets that generates
cash inflows largely independent of the cash inflows from other
assets or groups of assets.
Recognition and measurement of an impairment charge
An item of property, plant and equipment, an intangible asset, or
goodwill is impaired if the recoverable amount is less than the
carrying amount. The recoverable amount of a CGU or asset is the
higher of its:
• fair value less costs to sell; and
• value in use.
If our estimate of the asset’s or CGU’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 recognized impairment loss if our estimate
of the recoverable amount of a previously impaired asset or CGU
has increased such that the impairment recognized in a previous
year has reversed. The reversal
is recognized by increasing the
its
asset’s or CGU’s carrying amount to our new estimate of
recoverable amount. The carrying amount of the asset or CGU
subsequent to the reversal cannot be greater than its carrying
amount if we had not recognized an impairment loss in previous
years.
USE OF ESTIMATES AND JUDGMENTS
ESTIMATES
Components of an item of property, plant and equipment may
have different useful
lives. We make significant estimates when
determining depreciation rates and asset useful lives, which require
taking into account company-specific factors, such as our past
experience and expected use, and industry trends, such as
technological advancements. We monitor and review residual
values, 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.
In 2017, we reviewed the depreciation rates for all of our property,
plant and equipment. The review resulted in an increase in the
lives of certain of our wireless network
estimated useful
These changes have been applied
infrastructure assets.
prospectively. They did not have a material effect on our financial
statements in 2017 and they will not have a material effect on
depreciation in future periods.
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, overhead, and
interest costs associated with the acquisition, construction,
development, or betterment of our networks.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Furthermore, we use estimates in determining the recoverable
amount of property, plant and equipment. The determination of
the recoverable amount for the purpose of impairment testing
requires the use of significant estimates, such as:
• future cash flows;
• terminal growth rates; and
• discount rates.
We estimate value in use for impairment tests 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 CGU, and a terminal value. The future cash flows
are based on our estimates and expected future operating results
of the CGU after considering economic conditions and a general
outlook for the CGU’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 CGU’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 CGU, and a terminal value, similar to the value in use
EXPLANATORY INFORMATION
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 CGU. Our estimates of future cash flows,
terminal values, and discount rates consider similar factors to
those described above for value in use estimates; or
• Using a market approach – we estimate the recoverable amount
the CGU using multiples of operating performance of
of
comparable entities and precedent transactions in that industry.
We make certain assumptions when deriving expected future cash
flows, which may include assumptions pertaining to discount and
terminal growth rates. 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 CGUs and goodwill, which
could result in impairment losses.
judgments
JUDGMENTS
for
We make significant
depreciating our property, plant and equipment 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.
in choosing methods
(In millions of dollars)
December 31, 2017
December 31, 2016
December 31, 2015
Land and buildings
Cable and wireless networks
Computer equipment and software
Customer premise equipment
Leasehold improvements
Equipment and vehicles
Total property, plant and equipment
Accumulated
depreciation
Net
carrying
amount
Accumulated
depreciation
Cost
(397)
(13,206)
(2,807)
(1,090)
(220)
(782)
693
1,062
7,046 20,108
4,296
2,189
1,560
475
457
276
1,169
464
(375)
(13,035)
(2,424)
(1,156)
(193)
(720)
Net
carrying
amount
687
7,073
1,872
404
264
449
Cost
998
20,900
5,294
1,658
423
1,311
Accumulated
depreciation
(347)
(13,579)
(3,421)
(1,197)
(175)
(868)
Net
carrying
amount
651
7,321
1,873
461
248
443
(18,502) 11,143 28,652
(17,903) 10,749
30,584
(19,587) 10,997
Cost
1,090
20,252
4,996
1,565
496
1,246
29,645
The tables below summarize the changes in the net carrying amounts of property, plant and equipment during 2017 and 2016.
(In millions of dollars)
December 31, 2016
December 31, 2017
Net carrying
amount Additions 1 Depreciation
Other 2
Net carrying
amount
687
7,073
1,872
404
264
449
10,749
61
1,125
867
315
40
102
2,510
(30)
(1,150)
(549)
(244)
(28)
(86)
(2,087)
(25)
(2)
(1)
–
–
(1)
(29)
693
7,046
2,189
475
276
464
11,143
Land and buildings
Cable and wireless networks
Computer equipment and software
Customer premise equipment
Leasehold improvements
Equipment and vehicles
Total property, plant and equipment
1 Excludes proceeds on disposition of $74 million (see note 28).
2 Includes disposals, reclassifications, and other adjustments.
116 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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(In millions of dollars)
December 31, 2015
December 31, 2016
Land and buildings
Cable and wireless networks
Computer equipment and software
Customer premise equipment
Leasehold improvements
Equipment and vehicles
Total property, plant and equipment
Net carrying
amount
651
7,321
1,873
461
248
443
10,997
Additions Depreciation
Impairment
Other 1
64
1,173
732
240
46
97
2,352
(28)
(1,216)
(522)
(296)
(30)
(91)
(2,183)
–
(205)
(207)
–
–
–
(412)
–
–
(4)
(1)
–
–
(5)
Net carrying
amount
687
7,073
1,872
404
264
449
10,749
1 Includes disposals, reclassifications, and other adjustments.
Property, plant and equipment not yet in service and therefore not
to depreciation as at December 31, 2017 was
subject
$1,076 million (2016 – $949 million). During 2017, capitalized
interest pertaining to property, plant and equipment was
recognized at a weighted average rate of approximately 4.0%
(2016 – 3.9%).
In 2017, we disposed of certain land and building assets with a net
carrying amount of $25 million. We received total proceeds of
$74 million for these assets, thereby recognizing a $49 million gain
on disposition.
Annually, we perform an analysis to identify fully depreciated assets
that have been disposed of. In 2017, this resulted in an adjustment
to cost and accumulated depreciation of $1,136 million (2016 –
$3,557 million). The disposals had nil impact on the Consolidated
Statements of Income.
IMPAIRMENT OF ASSETS AND RELATED ONEROUS
CONTRACT CHARGES
During the year ended December 31, 2016, we recorded a total
charge of $484 million for asset impairment and onerous contracts
related to our legacy Internet Protocol television (IPTV) product.
NOTE 8: INTANGIBLE ASSETS AND GOODWILL
ACCOUNTING POLICY
RECOGNITION AND MEASUREMENT, INCLUDING
AMORTIZATION
Upon initial recognition, we measure intangible assets at cost
unless they are acquired through a business combination, in which
case they are measured at
fair value. We begin recognizing
amortization on intangible assets with finite useful lives when the
asset is ready for its intended use. Subsequently, the asset is carried
at
accumulated amortization and accumulated
impairment losses.
cost
less
Cost includes expenditures that are directly attributable to the
acquisition of
the asset. The cost of a separately-acquired
intangible asset comprises:
• its purchase price, including import duties and non-refundable
purchase taxes, after deducting trade discounts and rebates;
and
• any directly attributable cost of preparing the asset
for its
intended use.
This charge is included within “restructuring, acquisition and other”
on our Consolidated Statements of Income (see note 9).
(In millions of dollars)
Impairment of property, plant and
equipment
Onerous contracts and other
Total impairment of assets and related
onerous contract charges
Year ended
December 31, 2016
412
72
484
The $484 million charge related to a change in strategic direction
such that we discontinued the internal development of our legacy
IPTV product
in lieu of a forthcoming IPTV product being
developed in tandem with Comcast Corporation. We have
determined there is no significant salvage value for any of the
assets that were impaired as determined based upon fair value less
costs of disposal. The onerous contracts charges primarily
represent the remaining contractual liabilities for the development
of our IPTV product and were recognized in accounts payable and
accrued liabilities. All
related charges impacted our Cable
segment.
Indefinite useful lives
We do not amortize intangible assets with indefinite lives, including
spectrum licences, broadcast licences, and certain brand names.
Finite useful lives
lives into
We amortize intangible assets with finite useful
depreciation and amortization on the Consolidated Statements of
Income, except programming rights, which are amortized into
operating costs on the Consolidated Statements of Income, on a
straight-line basis over their estimated useful lives as noted in the
lives, residual
table below. We monitor and review the useful
values, and amortization methods at least once per year and
change them if they are different from our previous estimates. We
recognize the effects of changes in estimates in net income
prospectively.
Intangible asset
Estimated useful life
Customer relationships
Roaming agreements
3 to 10 years
12 years
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquired program rights
Program rights are contractual rights we acquire from third parties
to broadcast programs, including rights to broadcast live sporting
events. We recognize 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 on
the Consolidated Statements of
the expected
Income over
exhibition period.
If we have no intention to air programs, we
consider the related program rights impaired and write them off.
Otherwise, we test them for impairment as intangible assets with
finite useful lives.
The costs for multi-year sports and television broadcast rights
agreements are recognized in operating expenses during the
applicable seasons based on the pattern in which the rights are
aired or are expected to be consumed. To the extent
that
prepayments are made at the commencement of a multi-year
contract towards future years’ rights fees, these prepayments are
recognized as intangible assets and amortized to operating
expenses over the contract term. To the extent that prepayments
are made for annual contractual fees within a season, they are
included in Other current assets on our Consolidated Statements
of Financial Position, as the rights will be consumed within the next
twelve months.
Goodwill
We recognize 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 consideration transferred is lower than
the separately identified assets and liabilities, we
that of
immediately recognize the difference as a gain in net income.
IMPAIRMENT TESTING
lives for impairment
We test intangible assets with finite useful
whenever an event or change in circumstances indicates that their
carrying amounts may not be recoverable. We test indefinite-life
intangible assets and goodwill for impairment once per year as at
October 1, or more frequently if we identify indicators of
impairment.
If we cannot estimate the recoverable amount of an individual
intangible asset because it does not generate independent cash
inflows, we test the entire CGU to which it belongs for impairment.
Goodwill is allocated to CGUs (or groups of CGUs) based on the
level at which management monitors goodwill, which cannot be
higher than an operating segment. The allocation of goodwill is
made to CGUs (or groups of CGUs) that are expected to benefit
from the synergies of the business combination from which the
goodwill arose.
Recognition and measurement of an impairment charge
is impaired if the recoverable
An intangible asset or goodwill
amount is less than the carrying amount. The recoverable amount
of a CGU or asset is the higher of its:
• fair value less costs to sell; and
• value in use.
118 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
We reverse a previously recognized impairment loss, except in
respect of goodwill, if our estimate of the recoverable amount of a
previously impaired asset or CGU has increased such that the
impairment recognized in a previous year has reversed. The
reversal is recognized by increasing the asset’s or CGU’s carrying
its recoverable amount. The
amount to our new estimate of
carrying amount of the asset or CGU subsequent to the reversal
cannot be greater than its carrying amount had we not recognized
an impairment loss in previous years.
USE OF ESTIMATES AND JUDGMENTS
ESTIMATES
We use estimates in determining the recoverable amount of
intangible assets and goodwill. The determination of
the
recoverable amount for the purpose of impairment testing requires
the use of significant estimates, such as:
• future cash flows;
• terminal growth rates; and
• discount rates.
We estimate value in use for impairment tests 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 CGU, and a terminal value. The future cash flows
are based on our estimates and expected future operating results
of the CGU after considering economic conditions and a general
outlook for the CGU’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 CGU’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 CGU, 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 CGU. Our estimates of future cash flows,
terminal values, and discount rates consider similar factors to
those described above for value in use estimates; or
• Using a market approach – we estimate the recoverable amount
the CGU using multiples of operating performance of
of
comparable entities and precedent transactions in that industry.
We make certain assumptions when deriving expected future cash
flows, which may include assumptions pertaining to discount and
terminal growth rates. These assumptions may differ or change
quickly depending on economic conditions or other events. It is
future changes in assumptions may
therefore possible that
negatively affect future valuations of CGUs and goodwill, which
could result in impairment losses.
If our estimate of the asset’s or CGU’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.
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JUDGMENTS
We make significant judgments that affect the measurement of our
intangible assets and goodwill.
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.
Judgment is applied when deciding to designate our spectrum
and broadcast licences as assets with indefinite useful lives since we
believe the licences are likely to be renewed for the foreseeable
future such that there is no limit to the period over which these
assets are expected to generate net cash inflows. We make
judgments to determine that these assets have indefinite lives,
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 the asset helps
Judgment is also applied in choosing methods of amortizing our
intangible assets and program rights that we believe most
accurately represent the consumption of those assets and are most
representative of the economic substance of the intended use of
the underlying assets.
Finally, we make judgments in determining CGUs and the
allocation of goodwill to CGUs or groups of CGUs for the purpose
of impairment testing.
EXPLANATORY INFORMATION
(In millions of dollars)
December 31, 2017
December 31, 2016
December 31, 2015
Cost prior to
impairment
losses
Accumulated
amortization
Accumulated
impairment
losses
Net
carrying
amount
Cost prior to
impairment
losses
Accumulated
amortization
Accumulated
impairment
losses
Net
carrying
amount
Cost prior to
impairment
losses
Accumulated
amortization
Accumulated
impairment
losses
Net
carrying
amount
Indefinite-life intangible assets:
Spectrum licences
Broadcast licences
Brand names
Finite-life intangible assets:
Customer relationships
Roaming agreements
Marketing agreements
Acquired program rights
Total intangible assets
Goodwill
Total intangible assets and
6,600
329
420
1,609
524
10
263
9,755
4,126
–
–
(270)
(1,525)
(524)
(10)
(64)
(2,393)
–
–
(99)
(14)
6,600
230
136
–
–
–
(5)
84
–
–
194
(118) 7,244
(221) 3,905
6,416
329
420
1,609
524
10
289
9,597
4,126
–
–
(270)
(1,470)
(524)
(10)
(75)
(2,349)
–
–
(99)
(14)
6,416
230
136
–
–
–
(5)
139
–
–
209
(118) 7,130
(221) 3,905
6,416
324
420
1,609
523
10
332
9,634
4,126
–
–
(270)
(1,414)
(488)
(10)
(91)
(2,273)
–
–
(99)
(14)
6,416
225
136
–
–
–
(5)
195
35
–
236
(118) 7,243
(221) 3,905
goodwill
13,881
(2,393)
(339) 11,149
13,723
(2,349)
(339) 11,035
13,760
(2,273)
(339) 11,148
The tables below summarize the changes in the net carrying amounts of intangible assets and goodwill in 2017 and 2016.
(In millions of dollars)
December 31, 2016
December 31, 2017
Spectrum licences
Broadcast licences
Brand names
Customer relationships
Acquired program rights
Total intangible assets
Goodwill
Total intangible assets and goodwill
Net carrying
amount
Net
additions
Amortization 1
Other 2
Net carrying
amount
6,416
230
136
139
6,921
209
7,130
3,905
11,035
184
11
–
–
195
59
254
–
254
–
–
–
(55)
(55)
(64)
(119)
–
(119)
–
(11)
–
–
(11)
(10)
(21)
–
(21)
6,600
230
136
84
7,050
194
7,244
3,905
11,149
1 Of the $119 million of total amortization, $64 million related to acquired program rights is included in other external purchases in operating costs (see note 6), and $55 million in
depreciation and amortization on the Consolidated Statements of Income.
2 Includes disposals, writedowns, reclassifications, and other adjustments.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars)
December 31, 2015
December 31, 2016
Spectrum licences
Broadcast licences
Brand names
Customer relationships
Roaming agreements
Acquired program rights
Total intangible assets
Goodwill
Total intangible assets and goodwill
Net carrying
amount
Net
additions
Amortization 1
Other 2
Net carrying
amount
6,416
225
136
195
35
7,007
236
7,243
3,905
11,148
–
–
–
–
–
–
46
46
–
46
–
–
–
(58)
(35)
(93)
(71)
(164)
–
(164)
–
5
–
2
–
7
(2)
5
–
5
6,416
230
136
139
–
6,921
209
7,130
3,905
11,035
1 Of the $164 million of total amortization, $71 million related to acquired program rights is included in other external purchases in operating costs (see note 6), and $93 million in
depreciation and amortization on the Consolidated Statements of Income.
2 Includes disposals, writedowns, reclassifications, and other adjustments.
There were no acquisitions from business combinations for the years ended December 31, 2017 or 2016.
ANNUAL IMPAIRMENT TESTING
For purposes of testing goodwill for impairment, our CGUs, or groups of CGUs, correspond to our operating segments as disclosed in
note 4.
Below is an overview of the methods and key assumptions we used in 2017 to determine recoverable amounts for CGUs, or groups of
CGUs, with indefinite-life intangible assets or goodwill that we consider significant.
(In millions of dollars, except periods used and rates)
Carrying value
of goodwill
Carrying value
of indefinite-life
intangible assets
Recoverable
amount method
Period of
projected cash
flows (years)
Terminal growth
rates (%)
Pre-tax discount
rates (%)
Wireless
Cable
Media
1,160
1,379
937
6,733 Value in use
– Value in use
241
Fair value less cost to sell
5
5
5
0.5
1.0
2.0
7.9
7.6
12.0
Our fair value measurement for Media is classified as Level 3 in the
fair value hierarchy.
We did not recognize an impairment charge related to our
goodwill or
intangible assets in 2017 or 2016 because the
recoverable amounts of the CGUs exceeded their carrying values.
NOTE 9: RESTRUCTURING, ACQUISITION AND OTHER
During the year ended December 31, 2017, we incurred
$152 million (2016 – $644 million) in restructuring, acquisition and
other expenses. These expenses in 2017 primarily consisted of
severance costs associated with the targeted restructuring of our
employee base and certain contract termination costs. In 2016, in
addition to the $484 million impairment of assets and related
onerous contract charges (see note 7), these expenses primarily
consisted of
severance costs associated with the targeted
restructuring of our employee base and costs related to the wind-
the
down of and changes to certain businesses.
impairment of assets and related onerous contract charges (see
note 7) has been reported within restructuring, acquisition and
other compared to a separate classification in the Consolidated
Statements of Income in 2016.
In 2017,
120 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
primarily attributed to our US dollar-denominated commercial
paper
(US CP) program borrowings and the US dollar-
denominated borrowings under our bank credit facilities that were
not hedged for accounting purposes (see note 16). These foreign
exchange gains were partially offset by the $99 million loss related
to the change in fair value of derivatives (2016 –$16 million gain),
which was primarily attributed to the debt derivatives we used to
partially offset the foreign exchange risk related to these US dollar-
denominated borrowings. In 2016, these foreign exchange losses
were primarily attributed to the US dollar-denominated borrowings
under our bank credit
facilities that were not hedged for
accounting purposes. These losses in 2016 were offset by the
change in fair value of the derivatives, which was primarily a result of
our debt derivatives that were used to offset the foreign exchange
risk related to these US dollar-denominated borrowings.
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NOTE 10: FINANCE COSTS
(In millions of dollars)
Note
2017
2016
Years ended December 31
Interest on borrowings 1
Interest on post-employment benefits
liability
(Gain) loss on foreign exchange
Change in fair value of derivative
22
instruments
Capitalized interest
Other
Total finance costs
740
758
12
(107)
99
(18)
20
9
13
(16)
(18)
15
746
761
1 Interest on borrowings includes interest on short-term borrowings and on long-term
debt.
FOREIGN EXCHANGE
We recognized $107 million in net foreign exchange gains in 2017
(2016 – $13 million in net losses). These gains in 2017 were
NOTE 11: OTHER (INCOME) EXPENSE
Years ended December 31
(In millions of dollars)
Note
2017
2016
(Income) losses from associates and
joint ventures
17
(14)
216
Net loss on divestitures pertaining to
investments
Other investment income
Total other (income) expense
–
(5)
11
(36)
(19)
191
In 2016, we announced the decision to wind down our shomi joint
venture. As a result of that decision, we recognized a net loss of
$140 million, which was recorded in losses from associates and
joint ventures, associated with the writedown of the investment and
the estimated cost of our share of the remaining contractual
obligations of shomi (most significantly video content costs). In
2017, we recognized a $20 million provision reversal related to the
wind-down of shomi, which accompanied the windup of the
partnership (see note 17). This reversal was recorded in income
from associates and joint ventures (see note 19).
NOTE 12: INCOME TAXES
ACCOUNTING POLICY
Income tax expense includes both current and deferred taxes. We
recognize income tax expense in net income unless it relates to an
item recognized directly in equity or other comprehensive income.
We provide for income taxes based on all of the information that is
currently available.
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, 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
recognize on 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 in which 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 assets and liabilities 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 assets and liabilities 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 it is probable
that future taxable income will be available to use the asset.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
USE OF ESTIMATES AND JUDGMENTS
JUDGMENTS
We make significant
judgments in interpreting tax rules and
regulations when we calculate income tax expense. We make
judgments 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.
EXPLANATORY INFORMATION
(In millions of dollars)
2017
2016
Years ended December 31
Current tax expense:
Total current tax expense
Deferred tax expense (recovery):
Origination (reversal) of temporary
differences
Revaluation of deferred tax balances
due to legislative changes
Total deferred tax expense (recovery)
Total income tax expense
Below is a summary of the difference between income tax expense
computed by applying the statutory income tax rate to income
before income tax expense and the income tax expense for the
year.
(In millions of dollars, except rates)
Statutory income tax rate
Income before income tax expense
Computed income tax expense
Increase (decrease) in income tax expense
resulting from:
Non-deductible stock-based
Years ended December 31
2017
26.7%
2,346
626
2016
26.6%
1,159
308
351
386
compensation
282
2
284
635
(65)
3
(62)
324
Non-deductible portion of equity
losses
Non-deductible loss on
available-for-sale investments
Income tax adjustment, legislative tax
change
Non-taxable portion of capital gain
Other
9
–
7
2
(10)
1
5
18
–
3
(7)
(3)
Total income tax expense
Effective income tax rate
635
27.1%
324
28.0%
DEFERRED TAX ASSETS AND LIABILITIES
(In millions of dollars)
Deferred tax assets
Deferred tax liabilities
Net deferred tax liability
As at December 31
2017
3
(2,206)
(2,203)
2016
8
(1,917)
(1,909)
Below is a summary of the movement of net deferred tax assets and liabilities during 2017 and 2016.
Deferred tax assets (liabilities)
(In millions of dollars)
January 1, 2017
Expense in net income
(Expense) recovery in other comprehensive income
Other
December 31, 2017
Property,
plant and
equipment
and inventory
Goodwill
and other
intangibles
Non-capital
loss
carryforwards
Investments
(947)
(113)
–
–
(953)
(117)
–
(5)
(61)
(3)
(62)
–
(1,060)
(1,075)
(126)
24
(6)
–
–
18
Deferred tax assets (liabilities)
(In millions of dollars)
Property,
plant and
equipment
and inventory
Goodwill
and other
intangibles
Stub period
income and
partnership
reserve Investments
Non-capital
loss
carryforwards
January 1, 2016
(Expense) recovery in net income
(Expense) recovery in other comprehensive income
December 31, 2016
(921)
(26)
–
(947)
(844)
(109)
–
(953)
(178)
178
–
–
(61)
7
(7)
(61)
32
(8)
–
24
Other
Total
28
(45)
57
–
40
(1,909)
(284)
(5)
(5)
(2,203)
Other
Total
(85)
20
93
28
(2,057)
62
86
(1,909)
122 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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We have not recognized deferred tax assets for the following items:
(In millions of dollars)
Capital losses in Canada that can be applied
against future capital gains
Tax losses in foreign jurisdictions that expire
between 2023 and 2036
Deductible temporary differences in foreign
jurisdictions
Total unrecognized temporary differences
As at December 31
2017
2016
–
41
23
64
1
36
14
51
NOTE 13: EARNINGS PER SHARE
ACCOUNTING POLICY
We calculate basic earnings per share by dividing the net income
or loss attributable to our RCI Class A Voting and RCI Class B
Non-Voting shareholders by the weighted average number of RCI
Class A Voting and RCI Class B Non-Voting shares (Class A Shares
and Class B Non-Voting Shares, respectively) outstanding during
the year.
We calculate diluted earnings per share by adjusting the net
income or loss attributable to Class A and Class B Non-Voting
shareholders and the weighted average number of Class A Shares
and Class B Non-Voting 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.
Options with tandem stock appreciation rights or cash payment
alternatives are accounted for as cash-settled awards. As these
awards can be exchanged for common shares of the Company,
they are considered potentially dilutive and are included in the
calculation of the Company’s diluted net earnings per share if they
have a dilutive impact in the period.
There are taxable temporary differences associated with our
investments in Canadian domestic subsidiaries. We do not
recognize deferred tax liabilities for these temporary differences
because we are able to control the timing of the reversal and the
reversal is not probable in the foreseeable future. Reversing these
taxable temporary differences are not expected to result in any
significant tax implications.
EXPLANATORY INFORMATION
(In millions of dollars, except per share
amounts)
Numerator (basic) – Net income for the
Years ended December 31
2017
2016
year
1,711
835
Denominator – Number of shares (in
millions):
Weighted average number of
shares outstanding – basic
Effect of dilutive securities (in millions):
Employee stock options and
515
515
restricted share units
2
2
Weighted average number of shares
outstanding – diluted
517
517
Earnings per share:
Basic
Diluted
$ 3.32
$ 3.31
$ 1.62
$ 1.62
For the twelve months ended December 31, 2017, there were
489,835 options out of the money (2016 – nil) for purposes of the
calculation of earnings per share. These options were excluded
from the calculation of the effect of dilutive securities because they
were anti-dilutive.
NOTE 14: ACCOUNTS RECEIVABLE
ACCOUNTING POLICY
We initially recognize accounts receivable on the date they
originate. We measure accounts receivable initially at fair value, and
subsequently at amortized cost, with changes recognized in net
income. We measure an impairment loss for accounts receivable as
the excess of the carrying amount over the present value of future
cash flows we expect to derive from it, if any. The excess is allocated
to an allowance for doubtful accounts and recognized as a loss in
net income.
EXPLANATORY INFORMATION
(In millions of dollars)
Customer accounts receivable
Other accounts receivable
Allowance for doubtful accounts
Total accounts receivable
As at December 31
2017
2016
1,515
587
(61)
1,455
553
(59)
2,041
1,949
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15: INVENTORIES
ACCOUNTING POLICY
We measure inventories,
and
merchandise for resale, at the lower of cost (determined on a
first-out basis) and net realizable value. We reverse a
first-in,
previous writedown to net realizable value, not to exceed the
original recognized cost, if the inventories later increase in value.
including wireless devices
EXPLANATORY INFORMATION
(In millions of dollars)
Wireless devices and accessories
Other finished goods and merchandise
Total inventories
As at December 31
2017
2016
251
62
313
236
79
315
Cost of equipment sales and merchandise for resale includes
$2,231 million (2016 – $2,088 million) of inventory costs for 2017.
NOTE 16: FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
ACCOUNTING POLICY
Recognition
We initially recognize cash and cash equivalents, bank advances, 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 provisions of the instrument.
Classification and measurement
We measure financial instruments by grouping them into classes upon initial recognition, based on the purpose of the individual
instruments. We initially measure all financial instruments at fair value plus, in the case of our financial instruments not classified as fair value
through profit or loss, transaction costs that are directly attributable to the acquisition or issuance of the financial instruments. The
classifications and methods of measurement subsequent to initial recognition of our financial assets and financial liabilities are as follows:
Financial instrument
Financial assets
Cash and cash equivalents
Accounts receivable
Investments, available-for-sale
Financial liabilities
Bank advances
Short-term borrowings
Accounts payable
Accrued liabilities
Long-term debt
Derivatives 3
Debt derivatives 4
Bond forwards
Expenditure derivatives
Equity derivatives
Classification
Measurement method
Loans and receivables
Loans and receivables
Available-for-sale 1
Other financial liabilities
Other financial liabilities 2
Other financial liabilities
Other financial liabilities
Other financial liabilities 2
Held-for-trading
Held-for-trading
Held-for-trading
Held-for-trading 5
Amortized cost
Amortized cost
Fair value
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value
Fair value
Fair value
Fair value
1 Subsequently measured at fair value with changes recognized in other comprehensive income. The net change subsequent to initial recognition, in the case of investments, is
reclassified into net income upon disposal of the investment or when the investment becomes impaired.
2 Subsequently measured at amortized cost 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. For derivatives designated as cash flow hedges for accounting purposes, the
effective portion of the hedge is recognized in accumulated other comprehensive income and the ineffective portion of the hedge is recognized immediately into net income.
4 Debt derivatives related to our credit facility and commercial paper borrowings have not been designated as hedges for accounting purposes.
5 Subsequent changes are offset against stock-based compensation expense or recovery in operating costs.
Offsetting financial assets and financial liabilities
We offset financial assets and financial liabilities and present the net amount on 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.
124 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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Derivative instruments
We use derivative instruments to manage risks related to certain activities in which we are involved. They include:
Derivative
The risk they manage
Types of derivative instruments
Debt derivatives
Bond forwards
Expenditure derivatives
• Impact of fluctuations in foreign exchange rates on
principal and interest payments for US dollar-
denominated long-term debt
• Impact of fluctuations in market interest rates on
forecasted interest payments for expected long-
term debt
• Impact of fluctuations in foreign exchange rates on
forecasted US dollar-denominated expenditures
• Cross-currency interest rate exchange agreements
• Forward foreign exchange agreements (from time
to time as necessary)
• Forward interest rate agreements
• Forward foreign exchange agreements
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.
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
including the risk management
instrument and hedged item,
objectives and strategy and the methods we will use to assess the
ongoing effectiveness of the hedging relationship.
We assess, on a quarterly basis, 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 host contracts in order to identify embedded derivatives
requiring separation from the host contracts and account for these
embedded derivatives as separate derivatives when we first
become party to a contract.
Hedging reserve
The hedging reserve represents the accumulated change in fair
value of the derivative instruments to the extent they were effective
hedges for accounting purposes,
less accumulated amounts
reclassified into net income.
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.
Available-for-sale financial assets reserve
The available-for-sale financial assets reserve represents the
accumulated change in fair
value of our available-for-sale
investments, less accumulated impairment losses related to the
investments and accumulated amounts reclassified into net income
upon disposal of investments.
Impairment testing
We consider a financial asset impaired if there is objective evidence
that one or more events have had a negative effect on its 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 an impairment loss for loans
and receivables as 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 an impairment
loss on available-for-sale financial assets as 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 shareholders’
equity to net income.
USE OF ESTIMATES AND JUDGMENTS
ESTIMATES
Fair value estimates related to our derivatives are made at a specific
point in time based on relevant market information and information
about the underlying financial instruments. These estimates require
assessment of the credit risk of the parties to the instruments and
the instruments’ discount rates. These fair values and underlying
estimates are also used in the tests of effectiveness of our hedging
relationships.
instruments qualify
JUDGMENTS
judgments in determining whether our
We make significant
financial
for hedge accounting. These
judgments include assessing whether the forecasted transactions
designated as hedged items in hedging relationships will
materialize as forecasted, whether
the hedging relationships
designated as effective hedges for accounting purposes continue
to qualitatively be effective, and determining the methodology to
determine the fair values used in testing the effectiveness of
hedging relationships.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPLANATORY INFORMATION
We are exposed to credit, liquidity, market price, foreign exchange,
and interest rate risks. Our primary risk management objective is to
protect our income, 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. Below is
a summary of our risk exposure by financial instrument.
Financial instrument
Financial risks
Financial assets
Cash and cash equivalents Credit and foreign exchange
Credit and foreign exchange
Accounts receivable
Liquidity, market price, and
Investments, available-for-sale
foreign exchange
Financial liabilities
Bank advances
Short-term borrowings
Accounts payable
Accrued liabilities
Long-term debt
Derivatives 1
Debt derivatives
Bond forwards
Expenditure derivatives
Equity derivatives
Liquidity
Liquidity, foreign exchange,
and interest rate
Liquidity
Liquidity
Liquidity, foreign exchange,
and interest rate
Credit, liquidity, and foreign
exchange
Credit, liquidity, and interest
rate
Credit, liquidity, and foreign
exchange
Credit, liquidity, and market
price
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, from whom we have an
amount owing, failed to meet its obligations under the terms and
conditions of its contracts with us.
Our credit risk exposure is primarily attributable to our accounts
receivable and to our debt and expenditure derivatives. Our broad
customer base limits the concentration of this risk. Our accounts
receivable on 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. We believe that our allowance for
doubtful accounts sufficiently reflects the credit risk associated with
our accounts receivable. As at December 31, 2017, $489 million
(2016 – $541 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.
Below is summary of
receivable.
the aging of our customer accounts
(In millions of dollars)
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
Total
As at December 31
2017
2016
896
303
113
73
849
298
134
115
1,385
1,396
Below is a summary of the activity related to our allowance for
doubtful accounts.
(In millions of dollars)
Balance, beginning of year
Allowance for doubtful accounts
expense
Net use
Balance, end of year
Years ended December 31
2017
59
88
(86)
61
2016
86
54
(81)
59
We use various controls and processes, 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 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 S&P
Global Ratings (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 (see note 3). We also manage liquidity risk by continually
monitoring actual and projected cash flows to ensure 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.
126 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
Below is a summary of the undiscounted contractual maturities of our financial liabilities and the receivable components of our derivatives
as at December 31, 2017 and 2016.
December 31, 2017
(In millions of dollars)
Carrying
amount
Contractual
cash flows
Less than
1 year
Bank advances
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 accounted for as hedges:
Cash outflow (Canadian dollar)
Cash inflow (Canadian dollar equivalent of US dollar) 1
Debt derivative instruments not accounted for as hedges:
Cash outflow (Canadian dollar)
Cash inflow (Canadian dollar equivalent of US dollar) 1
Bond forwards
Net carrying amount of derivatives (asset)
6
1,585
2,931
14,448
9
–
–
–
–
–
–
–
–
(1,094)
6
1,585
2,931
14,555
9
1,538
(1,506)
(68)
7,417
(8,405)
956
(934)
64
6
1,585
2,931
1,756
2
1,093
(1,054)
(68)
1,435
(1,756)
956
(934)
64
1 to 3
years
–
–
–
1,800
3
445
(452)
–
–
–
–
–
–
4 to 5
years
More than
5 years
–
–
–
2,050
2
–
–
–
–
–
–
–
–
–
–
–
8,949
2
–
–
–
5,982
(6,649)
–
–
–
17,885
18,148
6,016
1,796
2,052
8,284
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.
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December 31, 2016
(In millions of dollars)
Carrying
amount
Contractual
cash flows
Less than
1 year
Bank advances
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 accounted for as hedges:
Cash outflow (Canadian dollar)
Cash inflow (Canadian dollar equivalent of US dollar) 1
Debt derivative instruments not accounted for as hedges:
Cash outflow (Canadian dollar)
Cash inflow (Canadian dollar equivalent of US dollar) 1
Bond forwards
Net carrying amount of derivatives (asset)
71
800
2,783
16,080
18
–
–
–
–
–
–
–
–
(1,659)
71
800
2,783
16,197
18
1,708
(1,732)
(8)
7,417
(8,996)
201
(201)
51
1 to 3
years
–
–
–
3,081
12
468
(483)
–
71
800
2,783
750
–
1,240
(1,249)
(8)
–
–
1,435
(1,880)
201
(201)
–
–
–
51
4 to 5
years
More than
5 years
–
–
–
2,350
3
–
–
–
–
–
–
–
–
–
–
–
10,016
3
–
–
–
5,982
(7,116)
–
–
–
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.
18,093
18,309
4,387
2,684
2,353
8,885
Below is a summary of the net interest payments over the life of the
long-term debt,
including the impact of the associated debt
derivatives, as at December 31, 2017 and 2016.
December 31, 2017
(in millions of dollars)
Less than
1 year
1 to 3 years
4 to 5 years
More than
5 years
Net interest payments
712
1,160
908
5,409
December 31, 2016
(in millions of dollars)
Less than
1 year
1 to 3 years
4 to 5 years
More than
5 years
Net interest payments
727
1,294
1,033
5,832
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARKET PRICE RISK
Market price risk is the risk that changes in market prices, such as
fluctuations
in the market prices of our available-for-sale
investments or our share price 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 this note.
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 – Class B Non-Voting Shares
Our liability related to stock-based compensation is remeasured at
fair value 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 stock options,
restricted share units (RSUs), and deferred share units (DSUs). We
use equity derivatives from time to time to manage the exposure in
our stock-based compensation liability. As a result of our equity
derivatives, a one-dollar change in the price of a Class B
Non-Voting Shares would not have a material effect on net income.
FOREIGN EXCHANGE RISK
We use debt derivatives to manage risks from fluctuations in
foreign exchange rates associated with our US dollar-denominated
long-term debt and short-term borrowings. We designate the debt
derivatives related to our senior notes and senior debentures as
hedges for accounting purposes against the foreign exchange risk
associated with specific debt instruments. We have not designated
the debt derivatives related to our US CP program as hedges 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, 2017, all of our US dollar-
denominated long-term debt and short-term borrowings were
hedged against fluctuations in foreign exchange rates using debt
long-term debt and US CP
derivatives. With respect
program, 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.
to our
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
December 31, 2017.
INTEREST RATE RISK
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 bank credit facilities. We were previously exposed
to risk of changes in market interest rates due to our $250 million
floating rate senior unsecured notes that were repaid this year. As
at December 31, 2017, 89.5% of our outstanding long-term debt
and short-term borrowings was at fixed interest rates (2016 –
91.2%).
128 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
Below is a sensitivity analysis for significant exposures with respect
to our publicly-traded investments, expenditure derivatives, short-
term borrowings, senior notes, and bank credit facilities as at
December 31, 2017 and 2016 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.
Other
comprehensive
income
Net income
(Change in millions of dollars)
2017
2016
2017
2016
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
Bank credit facilities (floating)
1% change in interest rates
–
–
12
–
–
–
–
6
2
2
14
14
9
–
–
–
9
–
–
–
DERIVATIVE INSTRUMENTS
As at December 31, 2017 and 2016, all of our US dollar-
denominated long-term debt instruments were hedged against
fluctuations in foreign exchange rates for accounting purposes.
Below is a summary of our net asset (liability) position for our
various derivatives.
As at December 31, 2017
Notional
amount
(US$)
Exchange
rate
Notional
amount
(Cdn$)
Fair
value
(Cdn$)
(In millions of dollars, except
exchange rates)
Debt derivatives accounted for
as cash flow hedges:
As assets
As liabilities
5,200
1,500
1.0401
1.3388
5,409
2,008
1,301
(149)
Short-term debt derivatives not
accounted for as hedges:
As liabilities
746
1.2869
960
(23)
Net mark-to-market debt
derivative asset
Bond forwards accounted for as
cash flow hedges:
As liabilities
Expenditure derivatives
accounted for as cash flow
hedges:
1,129
900
(64)
As assets
As liabilities
240
960
1.2239
1.2953
294
1,243
Net mark-to-market expenditure
derivative liability
Equity derivatives not accounted
for as hedges:
As assets
Net mark-to-market asset
5
(44)
(39)
276
68
1,094
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As at December 31, 2016
Notional
amount
(US$)
Exchange
rate
Notional
amount
(Cdn$)
Fair
value
(Cdn$)
(In millions of dollars, except
exchange rates)
Debt derivatives accounted for
as cash flow hedges:
As assets
As liabilities
5,200
1,500
1.0401
1.3388
5,409
2,008
1,751
(68)
Short-term debt derivatives not
accounted for as hedges:
As liabilities
150
1.3407
201
–
Below is a summary of the net cash payments on debt derivatives
and forward contracts.
Years ended December 31
(In millions of dollars)
2017
2016
Proceeds on debt derivatives related to
US commercial paper
9,692
–
Proceeds on debt derivatives related to
credit facility borrowings
Total proceeds on debt derivatives
Payments on debt derivatives related to
2,310
12,002
11,167
11,167
1,683
US commercial paper
(9,754)
–
Payments on debt derivatives related to
credit facility borrowings
(2,327)
(11,159)
–
–
900
(51)
Payments on termination of forward
As assets
As liabilities
990
300
1.2967
1.4129
1,284
424
contracts
–
(53)
Total payments on debt derivatives and
forward contracts
(12,081)
(11,212)
Net payments on settlement of debt
derivatives and forward contracts
(79)
(45)
40
(21)
19
Net mark-to-market debt
derivative asset
Bond forwards accounted for as
cash flow hedges:
As liabilities
Expenditure derivatives
accounted for as cash flow
hedges:
Net mark-to-market expenditure
derivative asset
Equity derivatives not accounted
for as hedges:
As assets
–
–
270
8
Net mark-to-market asset
1,659
Below is a summary of the changes in fair value of our derivative instruments for 2017 and 2016.
Year ended December 31, 2017
(In millions of dollars)
Derivative instruments, beginning of period
Proceeds received from settlement of derivatives
Payment on derivatives entered
(Decrease) increase in fair value of derivatives
Derivative instruments, end of period
Mark-to-market asset
Mark-to-market liability
Mark-to-market asset (liability)
Year ended December 31, 2016
(In millions of dollars)
Derivative instruments, beginning of period
Proceeds received from settlement of derivatives
Payment on derivatives entered
(Decrease) increase in fair value of derivatives
Derivative instruments, end of period
Mark-to-market asset
Mark-to-market liability
Mark-to-market asset (liability)
Debt
derivatives
(hedged)
Debt
derivatives
(unhedged)
Bond
forwards
Expenditure
derivatives
Equity
derivatives
Total
instruments
1,683
–
–
(531)
1,152
1,301
(149)
1,152
–
(12,002)
12,081
(102)
(23)
–
(23)
(23)
(51)
–
–
(13)
(64)
–
(64)
(64)
19
(1,207)
1,240
(91)
(39)
5
(44)
(39)
8
(6)
–
66
68
68
–
68
1,659
(13,215)
13,321
(671)
1,094
1,374
(280)
1,094
Debt
derivatives
(hedged)
Debt
derivatives
(unhedged)
Bond
forwards
Expenditure
derivatives
Equity
derivatives
Total
instruments
2,028
–
–
(345)
1,683
1,751
(68)
1,683
–
(11,167)
11,159
8
–
–
–
–
(91)
–
53
(13)
(51)
–
(51)
(51)
158
(1,116)
1,025
(48)
19
40
(21)
19
(15)
(2)
–
25
8
8
–
8
2,080
(12,285)
12,237
(373)
1,659
1,799
(140)
1,659
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 129
(In millions of dollars,
except exchange rates)
Credit facilities
Year ended December 31, 2016
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
Debt derivatives entered
Debt derivatives settled
Net cash received
8,683
8,533
1.31
1.31
11,360
11,159
8
We did not enter into any debt derivatives related to senior notes in
In 2016, we entered into debt derivatives to hedge the
2017.
foreign currency risk associated with the principal and interest
components of the US dollar-denominated senior notes issued on
November 4, 2016 (see note 20). Below is a summary of the debt
derivatives we entered into to hedge senior notes issued during
2016.
(In millions of
dollars, except for
coupon and
interest rates)
Effective date
Principal/
Notional
amount
(US$)
US$
Hedging effect
Fixed
hedged
(Cdn$)
interest
rate 1
Equivalent
(Cdn$)
Maturity
date
Coupon
rate
November 4, 2016
500
2026
2.900%
2.834%
671
1 Converting from a fixed US$ coupon rate to a weighted average Cdn$ fixed rate.
We did not settle any debt derivatives related to senior notes
during 2017 and 2016.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Below is a summary of the derivative instruments assets and
derivative instruments liabilities reflected on our Consolidated
Statements of Financial Position.
(In millions of dollars)
Current asset
Long-term asset
Current liability
Long-term liability
Net mark-to-market asset
As at December 31
2017
421
953
1,374
(133)
(147)
(280)
1,094
2016
91
1,708
1,799
(22)
(118)
(140)
1,659
As at December 31, 2017, US$6.7 billion notional amount of our
outstanding debt derivatives have been designated as hedges for
accounting purposes (2016 – US$6.7 billion). As at December 31,
2017, 100% of our currently outstanding bond forwards and
expenditure derivatives have been designated as hedges for
accounting purposes (2016 – 100%). In 2017, we recognized a
$3 million increase to net income related to hedge ineffectiveness
(2016 – $5 million increase).
Debt derivatives
We use cross-currency interest exchange agreements to manage
risks from fluctuations in foreign exchange rates associated with our
US dollar-denominated debt instruments, credit facility borrowings,
and commercial paper borrowings (see note 18). We designate the
debt derivatives related to our senior notes and debentures as
hedges for accounting purposes against the foreign exchange risk
associated with specific debt instruments. We do not designate the
debt derivatives related to our credit
facility borrowings or
commercial paper borrowings as hedges for accounting purposes.
During 2017 and 2016, we entered into and settled debt
derivatives related to our credit facility borrowings and US CP
program as follows:
(In millions of dollars, except
exchange rates)
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
Year ended December 31, 2017
Credit facilities
Debt derivatives entered
Debt derivatives settled
Net cash paid
Commercial paper program
Debt derivatives entered
Debt derivatives settled
Net cash paid
1,610
1,760
1.32
1.32
8,266
7,521
1.30
1.29
2,126
2,327
(17)
10,711
9,692
(62)
130 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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Bond forwards
During 2017 or 2016, we did not enter into any new bond forwards.
Below is a summary of the bond forwards into which we have entered to hedge the underlying Government of Canada (GoC) 10-year rate
for anticipated future debt that were outstanding as at December 31, 2017 and 2016.
(In millions of dollars, except interest rates)
GoC term (years)
Effective date
Maturity date 1
Notional
amount
Hedged GoC
interest rate as at
December 31, 2017
Hedged GoC
interest rate as at
December 31, 2016 1
10
30
Total
December 2014
December 2014
April 30, 2018
December 31, 2018
500
400
900
2.85%
2.65%
2.52%
2.62%
2017
2016
500
400
900
500
400
900
1 Bond forwards with maturity dates beyond December 31, 2017 are subject to GoC rate re-setting from time to time. The $400 million due in December 2018 was extended in
December 2017 such that its rate will reset in April 2018.
On November 4, 2016, we exercised a $500 million notional bond
forward due January 4, 2017 in relation to the issuance of the
US$500 million senior notes due 2026 and paid $53 million to
settle the derivative. The amount paid represents the fair value of
the bond forward at the time of settlement and will be reclassified
into finance costs from the hedging reserve using the effective
interest rate method over the life of the US$500 million senior
notes due 2026.
Expenditure derivatives
Below is a summary of the expenditure derivatives into which we entered during 2017 and 2016 to manage foreign exchange risk related
to certain forecasted expenditures.
(In millions of dollars, except exchange rates)
Expenditure derivatives entered
Expenditure derivatives settled
Years ended December 31
2017
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
Notional
(US$)
Exchange
rate
840
930
1.27
1.33
1,070
1,240
990
840
1.33
1.22
2016
Notional
(Cdn$)
1,318
1,025
As at December 31, 2017, we had US$1,200 million of expenditure
derivatives outstanding (2016 – US$1,290 million), at an average
rate of $1.28/US$ (2016 – $1.32/US$), with terms to maturity
ranging from January 2018 to December 2019 (2016 –January
2017 to December 2018). Our outstanding expenditure derivatives
maturing in 2018 are hedged at an average exchange rate of
$1.30/US$.
During 2017, we recognized a recovery, net of interest receipts, of
$74 million (2016 – $33 million recovery),
in stock-based
compensation expense related to the change in fair value of our
equity derivative contracts net of
received payments. As at
December 31, 2017, the fair value of the equity derivatives was an
asset of $68 million (2016 – $8 million asset), which is included in
current portion of derivative instruments.
Equity derivatives
We have equity derivatives to hedge market price appreciation risk
associated with Class B Non-Voting Shares that have been granted
under our stock-based compensation programs for stock options,
RSUs, and DSUs (see note 24). The equity derivatives were
originally entered into at a weighted average price of $50.37 with
terms to maturity of one year, extendible for further one-year
periods with the consent of the hedge counterparties. In 2017, we
executed extension agreements for each of our equity derivative
contracts under substantially the same committed terms and
conditions with revised expiry dates of April 2018 (from April 2017).
The equity derivatives have not been designated as hedges for
accounting purposes.
During 2017, we settled existing equity derivatives for net proceeds
of $6 million and entered into new derivatives on 1.0 million Class B
Non-Voting Shares with an expiry date of March 2018. In August
2016, we settled 0.3 million equity derivatives at a weighted
average price of $58.16 as a result of a reduction in the number of
share-based compensation units outstanding.
As at December 31, 2017, we had equity derivatives outstanding
for 5.4 million (2016 – 5.4 million) Class B Non-Voting Shares with a
weighted average price of $51.44 (2016 – $50.30).
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts
receivable, bank advances, 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 period-end estimated market yields, or period-end trading
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
values, where available. 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.
Our disclosure of the three-level fair value hierarchy reflects the
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.
The fair values of our equity derivatives are based on the
period-end quoted market value of Class B Non-Voting Shares.
There were no material financial instruments categorized in Level 3
as at December 31, 2017 and 2016 and there were no transfers
between Level 1, Level 2, or Level 3 during the respective periods.
Below is a summary of the financial instruments carried at fair value.
(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
Expenditure derivatives accounted for as cash flow hedges
Equity derivatives not accounted for as cash flow hedges
Total financial assets
Financial liabilities
Held-for-trading:
Debt derivatives accounted for as cash flow hedges
Debt derivatives not accounted for as hedges
Bond forwards accounted for as cash flow hedges
Expenditure derivatives accounted for as cash flow hedges
Total financial liabilities
Below is a summary of the fair value of our long-term debt.
(In millions of dollars)
As at December 31
Carrying value Fair value (Level 1) Fair value (Level 2)
2017
2016
2017
2016
2017
2016
1,465 1,047
1,465
1,047
–
–
1,301 1,751
40
8
5
68
–
–
–
–
–
–
1,301
5
68
1,751
40
8
2,839 2,846
1,465
1,047
1,374
1,799
149
23
64
44
280
68
–
51
21
140
–
–
–
–
–
–
–
–
–
–
149
23
64
44
280
68
–
51
21
140
As at December 31
2017
2016
Carrying amount
Fair value 1 Carrying amount
Fair value 1
Long-term debt (including current portion)
14,448
16,134
16,080
17,628
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, 2017 and 2016.
NOTE 17: INVESTMENTS
ACCOUNTING POLICY
Investments in publicly-traded and private companies
We classify our investments in companies where we have no
control or significant influence as available-for-sale investments and
account for them as follows:
• publicly-traded companies – at fair value based on publicly
quoted prices; and
132 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
• private companies – at fair value using implied valuations from
third-party sale negotiations, or
follow-on financing rounds,
market-based approaches.
Investments in associates and joint arrangements
An entity is an associate when we have significant influence over the
entity’s financial and operating policies but do not control the
entity. We are generally presumed to have significant influence
over an entity when we hold more than 20% of the voting power.
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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; we recognize our proportionate
interest in the assets, liabilities, revenue, and expenses of our joint
operations.
We initially recognize our investments in associates and joint
ventures at cost and subsequently increase or decrease the
carrying amounts based on our share of each entity’s income or
loss. Distributions we receive from these entities reduce the
carrying amounts of our investments.
We eliminate unrealized gains and losses from our investments in
associates or joint ventures against our investments, up to the
amount of our interest in the entities.
Impairment in associates and joint ventures
At the end of each reporting period, we assess whether there is
objective evidence that impairment exists in our investments in
associates and joint ventures.
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.
EXPLANATORY INFORMATION
(In millions of dollars)
Investments in:
Publicly-traded companies
Private companies
Investments, available-for-sale
Investments, associates and joint ventures
Total investments
As at December 31
2017
2016
1,465
167
1,632
929
1,047
169
1,216
958
2,561
2,174
INVESTMENTS, AVAILABLE-FOR-SALE
Publicly-traded companies
We hold a number of interests in publicly-traded companies. This
year we recognized realized losses of nil and unrealized gains of
$418 million (2016 – nil of realized losses and $81 million of
unrealized gains) with corresponding amounts 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, MLS’ Toronto FC, the CFL’s Toronto Argonauts,
the AHL’s Toronto Marlies, and other assets. We, along with BCE
Inc. (BCE), 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 accounted for as a joint venture using the
equity method.
Glentel
Glentel is a large, multicarrier mobile phone retailer with several
hundred Canadian wireless retail distribution outlets. We own a
50% equity interest in Glentel, with the remaining 50% interest
owned by BCE. Our investment in Glentel is accounted for as a joint
venture using the equity method.
shomi
shomi was a joint venture equally owned by Rogers and Shaw and
previously operated a premium subscription video-on-demand
service offering movies and television series for viewing online and
through cable set-top boxes. Our
in shomi was
accounted for as a joint venture using the equity method. In 2016,
we announced the decision to wind down our shomi joint venture
(see note 11). In 2017, the remaining assets associated with shomi
were transferred to their respective partners and the partnership
was officially wound up.
investment
Below is a summary of financial
significant associates and joint ventures and our portions thereof.
information pertaining to our
As at or years ended December 31
(In millions of dollars)
Current assets
Long-term assets
Current liabilities
Long-term liabilities
Total net assets
Our share of net assets
Revenue
Expenses
Net income (loss)
Our share of net income (loss)
2017
515
3,269
(1,184)
(825)
1,775
927
1,706
(1,686)
20
14
2016
518
3,391
(1,186)
(1,082)
1,641
834
1,596
(2,027)
(431)
(216)
One of our joint ventures has a non-controlling interest that has a
right to require our joint venture to purchase that non-controlling
interest at a future date at fair value.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18: SHORT-TERM BORROWINGS
Below is a summary of our
December 31, 2017 and 2016.
short-term borrowings as at
(In millions of dollars)
Accounts receivable securitization program
US commercial paper program
Total short-term borrowings
As at December 31
2017
2016
650
935
1,585
800
–
800
Below is a summary of the activity relating to our short-term borrowings for the years ended December 31, 2017 and 2016.
(In millions of dollars, except exchange rates)
Proceeds received from accounts receivable securitization
Repayment of accounts receivable securitization
Net repayment of accounts receivable securitization
Proceeds received from US commercial paper
Repayment of US commercial paper
Net proceeds received from US commercial paper
Net proceeds received on short-term borrowings
Year ended December 31, 2017
Year ended December 31, 2016
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
8,267
(7,530)
737
1.30
1.29
1.37
530
(680)
(150)
10,712
(9,704)
1,008
858
–
–
–
–
295
(295)
–
–
–
–
–
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM
We participate in an accounts receivable securitization program
with a Canadian financial institution that allows us to sell certain
trade receivables into the program. As at December 31, 2017, the
proceeds of the sales were committed up to a maximum of
$1,050 million (2016 – $1,050 million). Effective July 8, 2016, we
extended the term of the program from January 1, 2018 to
January 1, 2019. Effective October 27, 2017, we further extended
the term of the program to November 1, 2020.
(In millions of dollars)
Trade accounts receivable sold to
buyer as security
Short-term borrowings from buyer
Overcollateralization
As at December 31
2017
2016
1,355
(650)
705
1,460
(800)
660
of Financial Position and the funding received is recognized 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.
US COMMERCIAL PAPER PROGRAM
In 2017, we entered into a US CP program that allowed us to issue
up to a maximum aggregate principal amount of US$1 billion. In
December 2017, we increased the maximum aggregate principal
amount allowed under our US CP program to US$1.5 billion.
Funds can be borrowed under this program with terms to maturity
ranging from 1 to 397 days, subject to ongoing market conditions.
Any issuances made under the US CP program will be issued at a
discount. Borrowings under our US CP program are classified as
short-term borrowings on our Consolidated Statements of Financial
Position when they are due within one year from the date of the
financial statements.
(In millions of dollars)
2017
2016
Years ended December 31
Accounts receivable securitization
program, beginning of period
Net repayment of accounts
receivable securitization
Accounts receivable securitization
program, end of period
800
(150)
650
800
–
800
We continue to service and retain substantially all of the risks and
rewards relating to the accounts receivable we sell, and therefore,
the receivables remain recognized on our Consolidated Statements
(In millions of dollars,
except exchange rates)
US commercial paper,
beginning of period
Net proceeds received from US
commercial paper
Discounts on issuance 1
Gain on foreign exchange 1
US commercial paper, end of
Year ended December 31, 2017
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
–
737
9
–
–
1.37
1.33
1,008
12
(85)
period
746
1.25
935
1 Included in finance costs.
134 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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Concurrent with the commercial paper issuances, we entered into
debt derivatives to hedge the foreign currency risk associated with
the principal and interest components of the borrowings under the
US CP program (see note 16). We have not designated these debt
derivatives as hedges for accounting purposes.
NOTE 19: PROVISIONS
ACCOUNTING POLICY
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 and we therefore make provisions for the costs associated
with decommissioning the assets and restoring the locations to
their original conditions 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 recognize a decommissioning liability, we recognize a
corresponding asset
in property, plant and equipment and
depreciate the asset based on the corresponding asset’s useful life
following our depreciation policies for property, plant and
equipment. We recognize the accretion of the liability as a charge
to finance costs on 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 recognized as
provisions; otherwise they are recognized as accrued liabilities. All
charges are recognized in restructuring, acquisition and other on
the Consolidated Statements of Income (see note 9).
Onerous contracts
We make provisions for onerous contracts when the unavoidable
costs of meeting our obligation under a contract exceed the
benefits we expect to realize from it. We measure these provisions
the expected cost of
at
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.
the present value of
the lower of
USE OF ESTIMATES AND JUDGMENTS
ESTIMATES
We recognize 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, which can require us to use significant estimates.
JUDGMENTS
Significant judgment is required to determine when we are subject
to unavoidable costs arising from onerous contracts. These
judgments may include, for example, whether a certain promise is
legally binding or whether we may be successful in negotiations
with the counterparty.
EXPLANATORY INFORMATION
(In millions of dollars)
Liabilities shomi Other Total
Decommissioning
December 31, 2016
Additions
Adjustments to existing
provisions
Reversals
Amounts used
December 31, 2017
Current
Long-term
35
–
4
–
(4)
35
2
33
112
–
20 167
1
1
–
(20)
(92)
–
–
4
(20)
(17) (113)
–
–
–
4
2
2
39
4
35
Decommissioning and restoration 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 ultimately be
required for these sites is uncertain.
shomi
In 2016, we announced the decision to wind down our shomi joint
venture. shomi was equally owned by Rogers and Shaw. We were
therefore responsible for our portion of any remaining contractual
liabilities (most significantly video content costs) incurred by the
venture. In 2016, we recognized a provision related to our share of
the remaining obligations based on our best estimate of the
expected future costs.
In 2017, we recognized a $20 million
provision reversal related to the wind-down of shomi (see note 11).
Other
Other provisions include various legal claims, which are expected
to be settled within five years.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20: LONG-TERM DEBT
(In millions of dollars, except interest rates)
Bank credit facilities (Cdn$ portion)
Bank credit facilities (US$ portion)
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior notes
Senior 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
Principal
amount
US
2017
2017
2018
2019
2019
2020
2021
2022
2023
2023
2024
2025
2026
2032
2038
2039
2040
2041
2043
2043
2044
US
US
250
500
US 1,400
400
500
900
1,450
600
500
850
600
700
500
200
350
500
800
400
500
US
US
650
US 1,050
US
US
US
US
Interest
rate
Floating
Floating
Floating
3.000%
6.800%
2.800%
5.380%
4.700%
5.340%
4.000%
3.000%
4.100%
4.000%
3.625%
2.900%
8.750%
7.500%
6.680%
6.110%
6.560%
4.500%
5.450%
5.000%
As at December 31
2017
–
–
–
–
1,756
400
500
900
1,450
600
627
1,066
600
878
627
251
439
500
800
400
627
816
1,318
2016
100
201
250
500
1,880
400
500
900
1,450
600
671
1,141
600
940
671
269
470
500
800
400
671
873
1,410
14,555
(107)
(1,756)
16,197
(117)
(750)
12,692
15,330
1 Senior debentures originally issued by Rogers Cable Inc. which are unsecured obligations of RCI and for which RCCI was an unsecured guarantor as at December 31, 2017 and
2016.
Each of the above senior notes and debentures are unsecured and,
as at December 31, 2017, were guaranteed by RCCI, ranking
equally with all of RCI’s other senior notes, debentures, bank credit
facilities, 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).
136 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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The tables below summarize the activity relating to our long-term debt for the years ended December 31, 2017 and 2016.
(In millions of dollars, except exchange rates)
Credit facility borrowings (Cdn$)
Credit facility borrowings (US$)
Total credit facility borrowings
Credit facility repayments (Cdn$)
Credit facility repayments (US$)
Total credit facility repayments
Net repayments under credit facilities
Senior note issuances (US$)
Senior note repayments (Cdn$)
Net repayment of senior notes
Net repayment of long-term debt
(In millions of dollars)
2017
2016
Years ended December 31
Year ended December 31, 2017
Year ended December 31, 2016
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
Notional
(US$)
Exchange
rate
Notional
(Cdn$)
960
1.32
(1,110)
1.31
–
–
1,730
1,269
2,999
(1,830)
(1,453)
(3,283)
(284)
–
(750)
(750)
(1,034)
2,188
1.31
(2,038)
1.32
500
1.34
1,140
2,877
4,017
(1,540)
(2,686)
(4,226)
(209)
671
(1,000)
(329)
(538)
In 2017, we repaid the entire balance that was outstanding under
our non-revolving bank credit facility. As a result of this repayment,
this facility was terminated.
Long-term debt net of transaction
costs, beginning of period
Net repayment of long-term debt
Gain on foreign exchange
Deferred transaction costs incurred
Amortization of deferred transaction
costs
Long-term debt net of transaction
costs, end of period
16,080
(1,034)
(608)
(3)
16,870
(538)
(245)
(12)
13
5
14,448
16,080
Effective April 1, 2016, we amended our $2.5 billion revolving credit
facility to, among other things, extend the maturity date from July
2019 to September 2020. At the same time, we also amended the
$1.0 billion non-revolving credit facility to, among other things,
extend the maturity date from April 2017 to April 2018. As a result
of the repayments made during 2016, we reduced the amount of
borrowings available under our non-revolving credit facility from
$1.0 billion to $301 million.
WEIGHTED AVERAGE INTEREST RATE
As at December 31, 2017, our effective weighted average interest
rate on all debt and short-term borrowings, including the effect of
all of the associated debt derivative and bond forward instruments,
was 4.70% (2016 – 4.72%).
BANK CREDIT AND LETTER OF CREDIT FACILITIES
Our $3.2 billion revolving 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 revolving
credit facility ranges from nil to 1.25% per annum over the bank
prime rate or base rate, or 0.85% to 2.25% over the bankers’
acceptance rate or London Inter-Bank Offered Rate.
In 2017, we amended our revolving credit facility to, among other
things, extend the maturity date of the original $2.5 billion facility
from September 2020 to March 2022. In addition, we added a
$700 million tranche to the facility that matures in March 2020. As a
result, the total credit limit for the facility is now $3.2 billion.
As at December 31, 2017, we had nil drawn under our bank credit
facilities (2016 – $301 million ($100 million and US$150 million)).
We had entered into debt derivatives related to the US dollar-
denominated portion of these borrowings to convert all the interest
and principal payment obligations to Canadian dollars (see note
16) as at December 31, 2016.
As at December 31, 2017, we had available liquidity of $2.3 billion
(2016 – $2.4 billion) under our $3.3 billion bank and letter of credit
facilities (2016 – $2.9 billion), of which we had utilized $0.1 billion
(2016 – $0.4 billion) and reserved $0.9 billion to backstop amounts
outstanding under our US CP program borrowings (2016 – nil).
SENIOR NOTES AND DEBENTURES
We pay interest on all of our
fixed-rate senior notes and
debentures on a semi-annual basis. We paid interest on our
floating rate senior notes on a quarterly basis.
We have the option to redeem each of our fixed-rate senior notes
and debentures, in whole or in part, at any time, if we pay the
premiums specified in the corresponding agreements.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Issuance of senior notes
Below is a summary of the senior notes that we issued in 2016. We did not issue any senior notes in 2017.
(In millions of dollars, except interest rates and discounts)
Date Issued
2016 issuances
Principal
amount
Due date
Interest rate
Discount/
premium at
issuance
Total gross
proceeds 1
(Cdn$)
Transaction costs
and discounts 2
(Cdn$)
November 4, 2016
US
500
2026
2.900%
98.354%
671
17
1 Gross proceeds before transaction costs and discounts.
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
(In millions of dollars)
2018
2019
2020
2021
2022
Thereafter
Total long-term debt
1,756
900
900
1,450
600
8,949
14,555
TERMS AND CONDITIONS
As at December 31, 2017 and 2016, we were in compliance with all
financial covenants,
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.
financial ratios, and all of
two of
three specified credit
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
rating agencies. As at
December 31, 2017, 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.
effective interest method.
Concurrent with the 2016 issuance, we entered into debt
derivatives to convert all interest and principal payment obligations
to Canadian dollars (see note 16).
On February 8, 2018, we issued US$750 million senior notes due 2048
at a rate of 4.300%. At the same time, we entered into debt derivatives
to convert all interest and principal payment obligations to Canadian
dollars. As a result, we received net proceeds of $938 million from the
issuance. We intend to use these funds for general corporate
purposes, which may include the repayment at maturity of our
outstanding commercial paper under our US CP program.
Repayment of senior notes and related derivative settlements
Below is a summary of the repayment of our senior notes during
2017 and 2016. There were no debt derivatives associated with
these repayments.
(In millions of dollars)
Maturity date
2017 repayments
March 2017
June 2017
Total for 2017
2016 repayments
May 2016
Notional amount
(Cdn$)
250
500
750
1,000
PRINCIPAL REPAYMENTS
Below is a summary of the principal repayments on our long-term
debt due in each of the next five years and thereafter as at
December 31, 2017.
NOTE 21: OTHER LONG-TERM LIABILITIES
As at December 31
(In millions of dollars)
Note
2017
Deferred pension liability
Supplemental executive retirement
plan
Stock-based compensation
Other
22
22
24
460
66
66
21
2016
404
62
64
32
Total other long-term liabilities
613
562
138 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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NOTE 22: POST-EMPLOYMENT BENEFITS
ACCOUNTING POLICY
Post-employment benefits – defined benefit pension plans
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
pension plan by estimating the amount of
future benefits
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, returns 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 on the
Consolidated Statements of Income in the periods the employees
provide the related services.
Post-employment benefits – Defined Contribution Pension Plan
On July 1, 2016, we closed the defined benefit pension plans to
new members and introduced a Defined Contribution Pension
Plan. This change did not impact current members; any employee
enrolled in any of the defined benefit pension plans continues to
earn pension benefits and credited service in their respective plan.
We recognize a pension expense in relation to our contributions to
the Defined Contribution Pension Plan when the employee
provides service to the Company.
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.
USE OF ESTIMATES AND JUDGMENTS
ESTIMATES
Detailed below are the significant assumptions used in the actuarial
calculations used to determine the amount of the defined benefit
pension obligation and related expense.
Significant estimates are involved in determining pension-related
balances. Actuarial estimates are based on projections of
employees’ compensation levels at
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, 2017.
the time of
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
2017
2016
3.7%
4.1%
3.0%
CIA Private with
CPM B Scale
3.0%
CIA Private with
CPM B Scale
4.1%
4.3%
3.0%
CIA Private with
CPM B Scale
3.0%
CIA Private with
CPM B Scale
Sensitivity of key assumptions
In the sensitivity analysis shown below, we determine the defined
benefit obligation for our funded plans using the same method
used to calculate the defined benefit obligation we recognize on
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)
2017
2016
2017
2016
Discount rate
Impact of 0.5% increase
Impact of 0.5% decrease
(207)
237
(174)
199
(25)
27
(21)
23
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
21
(21)
49
(52)
18
(18)
48
(49)
4
(4)
6
(6)
4
(4)
5
(5)
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXPLANATORY INFORMATION
We sponsor a number of contributory and non-contributory
pension arrangements for employees, including defined benefit
and defined contributions plans. We do not provide any
non-pension post-retirement benefits. We also provide unfunded
supplemental pension benefits to certain executives.
The Rogers Defined Benefit Pension Plan provides a defined
pension based on years of service and earnings, with no increases
in retirement for inflation. The plan was closed to new members on
July 1, 2016. Participation in the plan was 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 benefit pension plan under the Income Tax Act
(Canada)’s maximum pension limits.
We also sponsor smaller defined benefit pension plans in addition
to the Rogers Defined Benefit Pension Plan. The Pension Plan for
Employees of Rogers Communications Inc. and the Rogers
Pension Plan for Selkirk Employees are closed legacy defined
benefit pension plans. The Pension Plan for Certain Federally
Regulated Employees of Rogers Cable Communications Inc.
is
similar to the main pension plan but only federally regulated
employees from the Cable business were eligible to participate;
this plan was closed to new members on July 1, 2016.
In addition to the defined benefit pension plans, we also provide
various defined contribution plans to certain groups of employees
of the Company and to employees hired after March 31, 2016 who
choose to join. Additionally, we provide other tax-deferred savings
including a Group RRSP and a Group TFSA
arrangements,
program, which are accounted for as deferred contribution
arrangements.
The Pension Committee of the Board oversees the administration
of our registered pension plans, which includes the following
principal areas:
• overseeing the funding, administration, communication, and
investment management of the plans;
• selecting and monitoring the performance of all third parties
including audit,
the plans,
performing duties in respect of
actuarial, and investment management services;
• proposing, considering, and approving amendments;
• proposing, considering, and approving amendments to the
Statement of Investment Policies and Procedures;
• reviewing management and actuarial
reports prepared in
respect of the administration of the pension plans; and
• reviewing and approving the audited financial statements of the
pension plan funds.
The assets of the defined benefit pension plans are held in
segregated accounts that are isolated from our assets. They 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.
Investment and market return risk is managed by:
• contracting professional
investment managers to execute the
Investment
investment strategy following the Statement of
Policies and Procedures and regulatory requirements;
140 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
• 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
Institutions and are subject to the
Superintendent of Financial
Federal Pension Benefits Standards Act. Two of
the defined
contribution plans are registered with the Financial Services
Commission of Ontario, subject to the Ontario Pension Benefits
Act. The plans are also registered with the Canada Revenue
Agency and are subject to the Income Tax Act (Canada). The
benefits provided under the plans and the contributions to the
plans are funded and administered in accordance with all
applicable legislation and regulations.
The defined benefit pension plans are subject to certain risks
inadequate plan surplus,
related to contribution increases,
unfunded obligations, and market
return, which we
rates of
mitigate through the governance described above. Any significant
changes to these items may affect our future cash flows.
Below is a summary of 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.
(In millions of dollars)
Plan assets, at fair value
Accrued benefit obligations
Net deferred pension liability
Consists of:
Deferred pension asset
Deferred pension liability
Net deferred pension liability
As at December 31
2017
1,890
(2,342)
(452)
8
(460)
(452)
2016
1,619
(2,006)
(387)
17
(404)
(387)
Below is a summary of our pension fund assets.
(In millions of dollars)
Plan assets, beginning of year
Interest income
Remeasurements, return on plan assets
recognized in other comprehensive
income (loss) and equity
Contributions by employees
Contributions by employer
Benefits paid
Administrative expenses paid from plan
assets
Years ended December 31
2017
1,619
72
2016
1,432
68
92
42
145
(76)
(4)
32
35
125
(70)
(3)
Plan assets, end of year
1,890
1,619
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Below is a summary of the accrued benefit obligations arising from
funded obligations.
Net interest cost, a component of the plan cost above, is included
in finance costs and is outlined as follows:
(In millions of dollars)
2017
2016
(In millions of dollars)
2017
2016
Years ended December 31
Years ended December 31
Accrued benefit obligations, beginning
of year
Service cost
Interest cost
Benefits paid
Contributions by employees
Remeasurements, recognized in other
comprehensive income and equity
Accrued benefit obligations, end of
2,006
137
81
(76)
42
1,713
119
75
(70)
35
152
134
Interest income on plan assets
Interest cost on plan obligation
Net interest cost recognized in
finance costs
(72)
81
9
(68)
75
7
The remeasurement recognized in the Consolidated Statements of
Comprehensive Income is determined as follows:
year
2,342
2,006
(In millions of dollars)
2017
2016
Years ended December 31
Below is a summary of the effect of the asset ceiling.
(In millions of dollars)
2017
2016
Years ended December 31
Asset ceiling, beginning of year
Interest
Remeasurements, change in asset
ceiling (excluding interest income)
Asset ceiling, end of year
–
–
–
–
(3)
–
3
–
Return on plan assets (excluding
interest income)
Change in financial assumptions
Effect of experience adjustments
Change in asset ceiling
Remeasurement loss recognized in
other comprehensive loss and
equity
92
(168)
16
–
32
(69)
(65)
3
(60)
(99)
Plan assets are comprised mainly of pooled funds that invest in
common stocks and bonds that are traded in an active market.
Below is a summary of the fair value of the total pension plan assets
by major category.
We also provide supplemental unfunded pension benefits to
certain executives. Below is a summary of our accrued benefit
obligations, pension expense included in employee salaries and
benefits, net interest cost, and other comprehensive income.
As at December 31
(In millions of dollars)
Years ended December 31
2017
2016
(In millions of dollars)
Equity securities
Debt securities
Other – cash
Total fair value of plan assets
2017
1,134
742
14
1,890
2016
990
625
4
1,619
Below is a summary of our net pension expense. Net interest cost is
included in finance costs; other pension expenses are included in
salaries and benefits expense in operating costs on the
Consolidated Statements of Income.
Accrued benefit obligation, beginning
of year
Pension expense included in employee
salaries and benefits expense
Net interest cost recognized in finance
costs
Remeasurement loss recognized in
other comprehensive income
Benefits paid
Accrued benefit obligation, end of year
62
2
3
2
(3)
66
56
5
2
2
(3)
62
(In millions of dollars)
2017
2016
Years ended December 31
We also have defined contribution plans with total pension
expense of $6 million in 2017 (2016 – $3 million), which is included
in employee salaries and benefits expense.
Plan cost:
Service cost
Net interest cost
Net pension expense
Administrative expense
Total pension cost recognized in net
income
137
9
146
4
150
119
7
126
3
129
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLOCATION OF PLAN ASSETS
Below is a summary of the actual contributions to the plans.
Equity securities:
Domestic
International
Debt securities
Other – cash
Allocation of plan assets
2017
2016
Target asset
allocation
percentage
11.8%
48.1%
39.3%
0.8%
12.4%
7% to 17%
48.8% 33% to 63%
38.5% 30% to 50%
0% to 2%
0.3%
Total
100.0%
100.0%
Plan assets consist primarily of pooled funds that invest in common
stocks and bonds. The pooled funds have investments in our equity
securities and corporate bonds. As a result, approximately
$7 million (2016 – $2 million) of plan assets are indirectly invested in
our own securities under our defined benefit plans.
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.
NOTE 23: SHAREHOLDERS’ EQUITY
(In millions of dollars)
Employer contribution
Employee contribution
Total contribution
Years ended December 31
2017
2016
145
42
187
125
35
160
We estimate our 2018 employer contributions to our funded plans
to be $141 million. The actual value will depend on the results of
the 2018 actuarial funding valuations. The average duration of the
defined benefit obligation as at December 31, 2017 is 19 years
(2016 –19 years).
Actual net return on plan assets was $160 million in 2017 (2016 –
$97 million).
We have recognized a cumulative loss in other comprehensive
income and retained earnings of $425 million as at December 31,
2017 (2016 – $380 million).
CAPITAL STOCK
Share class
Preferred shares
Number of shares authorized
for issue
Features
400,000,000
• Without par value
• Issuable in series, with
rights and terms of each
series to be fixed by the
Board prior to the issue of
any series
Voting rights
• None
RCI Class A Voting Shares
112,474,388
• Without par value
• Each
share
can
• Each share entitled to 50
votes
converted
Class B Non-Voting share
into
be
one
RCI Class B Non-Voting Shares
1,400,000,000
• Without par value
• None
RCI’s Articles of Continuance under the Business Corporations Act
(British Columbia) impose restrictions on the transfer, voting, and
issue of Class A Shares and Class B Non-Voting Shares to ensure
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, as defined in RCI’s Articles of Continuance,
in order to ensure that Rogers remains qualified to hold the
licences referred to above.
DIVIDENDS
We declared and paid the following dividends on our outstanding
Class A Shares and Class B Non-Voting Shares:
Date declared
Date paid
January 26, 2017
April 18, 2017
August 17, 2017
October 19, 2017
April 3, 2017
July 4, 2017
October 3, 2017
January 2, 2018
January 27, 2016
April 18, 2016
August 11, 2016
October 20, 2016
April 1, 2016
July 4, 2016
October 3, 2016
January 3, 2017
Dividend per share
(dollars)
0.48
0.48
0.48
0.48
1.92
0.48
0.48
0.48
0.48
1.92
142 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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 Non-Voting Shares. Class A Shares and Class B Non-Voting
Shares therefore participate equally in dividends above $0.05 per
share.
NOTE 24: STOCK-BASED COMPENSATION
ACCOUNTING POLICY
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 a trinomial option pricing
model, depending on the nature of the share-based award. We
remeasure 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).
Restricted share unit (RSU) and deferred share unit (DSU) plans
We recognize outstanding RSUs and DSUs as liabilities, measuring
the liabilities and compensation costs based on the awards’ fair
values, which are based on the market price of the Class B
Non-Voting Shares, and recognizing 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 exercise date, we
recognize the resulting changes in the liability within operating
costs in the year the change occurs. For RSUs, the payment amount
is established as of the vesting date. For DSUs, 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
recognize our contributions as a compensation expense in the year
we make them. Expenses relating to the employee share
accumulation plan are included in operating costs.
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On January 24, 2018, the Board declared a quarterly dividend of
$0.48 per Class A Voting Share and Class B Non-Voting Share, to
be paid on April 3, 2018, to shareholders of record on March 12,
2018.
USE OF ESTIMATES AND JUDGMENTS
ESTIMATES
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 2017
and 2016 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 the grant date.
Years ended December 31
2017
2016
Weighted average fair value
$
8.52
$
6.20
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
0.8%
3.2%
21.2%
5.5 years
2.3 years
9.9 years
3.9%
1.4
50
0.5%
3.7%
21.3%
4.8 years
2.4 years
9.9 years
3.9%
1.5
50
Volatility has been estimated based on the actual trading statistics
of our Class B Non-Voting Shares.
EXPLANATORY INFORMATION
Below is a summary of our stock-based compensation expense,
which is included in employee salaries and benefits expense.
(In millions of dollars)
2017
2016
Years ended December 31
Stock options
Restricted share units
Deferred share units
Equity derivative effect, net of interest
receipt
Total stock-based compensation
expense
33
51
51
(74)
61
17
45
32
(33)
61
As at December 31, 2017, we had a total liability recognized at its
fair value of $223 million (2016 – $189 million) related to stock-
based compensation, including stock options, RSUs, and DSUs.
The current portion of this is $157 million (2016 – $125 million) and
is included in accounts payable and accrued liabilities. The long-
term portion of this is $66 million (2016 – $64 million) and is
included in other long-term liabilities (see note 21).
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The total intrinsic value of vested liabilities, which is the difference
between the exercise price of the share-based awards and the
trading price of the Class B Non-Voting Shares for all vested share-
based awards, as at December 31, 2017 was $69 million (2016 –
$61 million).
We paid $107 million in 2017 (2016 – $69 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 $59.68 (2016 – $51.70).
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 or our Management Compensation
Committee. There are 65 million options authorized under various
plans; each option has a term of seven to ten years. The vesting
period is generally graded vesting over four years; however, 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.
Performance options
We granted 489,835 performance-based options to certain key
executives in 2017 (2016 – 420,035). 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, 2017, we had 1,540,158 performance options
(2016 – 2,268,102) outstanding.
Summary of stock options
Below is a summary of the stock option plans, including performance options.
Year ended December 31, 2017
Year ended December 31, 2016
(In number of units, except prices)
Number of options
exercise price Number of options
Weighted average
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Exercisable, end of year
3,732,524
993,740
(1,603,557)
(484,817)
2,637,890
924,562
$43.70
$59.71
$42.10
$50.74
$49.42
$42.32
4,873,940
1,054,530
(1,811,727)
(384,219)
3,732,524
1,770,784
Weighted average
exercise price
$41.47
$49.95
$40.45
$47.80
$43.70
$40.39
Below is a summary of the range of exercise prices, the weighted average exercise price and the weighted average remaining contractual
life as at December 31, 2017.
Range of exercise prices
$34.32–$34.99
$35.00–$39.99
$40.00–$44.99
$45.00–$49.99
$50.00–$59.99
$60.00–$62.82
Number
outstanding
71,615
400,247
582,173
774,136
319,884
489,835
2,637,890
Unrecognized stock-based compensation
at
December 31, 2017 related to stock-option plans was $6 million
(2016 – $3 million) and will be recognized in net income over the
next four years as the options vest.
expense
as
RESTRICTED SHARE UNITS
The RSU plan allows employees, directors, and officers 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 vest over a period of up to three years from the grant date.
144 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
Options outstanding
Weighted average
remaining contractual
life (years)
Options exercisable
Weighted average
exercise price
Number
exercisable
Weighted average
exercise price
0.16
1.16
3.96
5.58
7.93
9.44
5.40
$34.32
$37.96
$44.21
$49.17
$56.70
$62.82
$49.42
71,615
400,247
107,756
344,944
–
–
924,562
$34.32
$37.96
$43.97
$48.53
–
–
$42.32
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.
Performance RSUs
We granted 133,559 performance-based RSUs to certain key
executives in 2017 (2016 – 98,889). The number of units that vest
and will be paid three years from the grant date will be within 50%
the initial number granted based upon the
to 150% of
achievement of
certain annual and cumulative three-year
non-market targets.
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Summary of RSUs
Below is a summary of
performance RSUs.
the RSUs outstanding,
including
Summary of DSUs
Below is a summary of
performance DSUs.
the DSUs outstanding,
including
Years ended December 31
Years ended December 31
(In number of units)
2017
2016
(In number of units)
2017
2016
Outstanding, beginning of year
Granted and reinvested dividends
Exercised
Forfeited
2,237,085
826,081
(984,342)
(266,979)
2,484,405
763,364
(826,918)
(183,766)
Outstanding, beginning of year
Granted and reinvested dividends
Exercised
Forfeited
2,396,458
735,117
(333,111)
(470,817)
1,770,871
972,894
(132,620)
(214,687)
Outstanding, end of year
1,811,845
2,237,085
Outstanding, end of year
2,327,647
2,396,458
Unrecognized stock-based compensation
at
December 31, 2017 related to these RSUs was $41 million (2016 –
$35 million) and will be recognized in net income over the next
three years as the RSUs vest.
expense
as
Unrecognized stock-based compensation
at
December 31, 2017 related to these DSUs was $22 million (2016 –
$30 million) and will be recognized in net income over the next
three years as the executive DSUs vest. All other DSUs are fully
vested.
expense
as
DEFERRED SHARE UNITS
The DSU plan allows directors, certain key executives, and other
senior management
to receive certain types of
compensation in DSUs. Under the terms of the plan, DSUs are
issued to the participant and the units issued cliff vest over a period
of up to three years from the grant date.
to elect
Performance DSUs
We granted 191,875 performance-based DSUs to certain key
executives in 2017 (2016 – 328,206). The number of units that vest
and may be redeemed by the holder 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.
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 contribution of $25,000). The plan
administrator purchases 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
a
employee. We recognize our
compensation expense.
contributions made as
Compensation expense related to the employee share
accumulation plan was $43 million in 2017 (2016 – $41 million).
NOTE 25: 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
were recognized at the amount agreed to by the related parties
and are subject to the terms and conditions of formal agreements
approved by the Audit and Risk Committee. The totals received or
paid were less than $1 million for each of 2017 and 2016.
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.
EQUITY DERIVATIVES
We have entered into equity derivatives to hedge a portion of our
stock-based compensation expense (see note 16) and recognized
a $74 million recovery (2016 – $33 million recovery) in stock-based
compensation expense for these derivatives.
Compensation
The compensation expense for key management for employee
services was included in employee salaries and benefits as follows:
Years ended December 31
(In millions of dollars)
2017
2016
Salaries and other short-term employee
benefits
Post-employment benefits
Stock-based compensation 1
Total compensation
10
3
19
32
12
5
30
47
1 Stock-based compensation does not include the effect of changes in fair value of
Class B Non-Voting Shares or equity derivatives.
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transactions
We have entered into business transactions with companies whose
partners or senior officers are Directors of RCI. These directors are:
• the non-executive chairman of a law firm that provides a portion
of our legal services; and
• the chair of the board of a company that provides printing
services to the Company.
We recognize these transactions at the amount agreed to by the
related parties, which are also reviewed by the Audit and Risk
Committee. The amounts owing are unsecured, interest-free, and
due for payment in cash within one month of the date of the
transaction. Below is a summary of related party activity for the
business transactions described above.
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.
When necessary, adjustments are made to conform the accounting
policies of the subsidiaries to those of RCI. 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, subject to the approval of other shareholders
where applicable.
the following business transactions with our
We carried out
associates and joint arrangements. Transactions between us and
our subsidiaries have been eliminated on consolidation and are not
disclosed in this note.
(In millions of dollars)
Years ended
December 31
Outstanding
balance as at
December 31
2017
2016
2017
2016
Printing and legal services
17
27
–
3
In addition, during the year ended December 31, 2016, we
announced a strategic change across our publishing business such
that we will focus on digital content through the Internet and
mobile applications. As a result, we sold select publishing titles to
the aforementioned printing services company for $5 million.
SUBSIDIARIES, ASSOCIATES, AND JOINT ARRANGEMENTS
We have the following material operating subsidiaries as at
December 31, 2017 and 2016:
• Rogers Communications Canada Inc.; and
• Rogers Media Inc.
NOTE 26: GUARANTEES
We had the following guarantees as at December 31, 2017 and
2016 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
intellectual property 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.
representations and warranties,
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.
(In millions of dollars)
Revenue
Purchases
Years ended December 31
2017
74
198
2016
50
189
Outstanding balances at year-end are unsecured, interest-free, and
settled in cash.
(In millions of dollars)
Accounts receivable
Accounts payable and accrued
liabilities
As at December 31
2017
2016
80
26
70
32
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
loss or damages to property, changes in laws and
warranties,
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.
No amount has been accrued in the Consolidated Statements of
Financial Position relating to these types of indemnifications or
guarantees as at December 31, 2017 or 2016. Historically, we have
not made any significant payments under these indemnifications or
guarantees.
146 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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NOTE 27: COMMITMENTS AND CONTINGENT LIABILITIES
ACCOUNTING POLICY
Contingent liabilities are liabilities of uncertain timing or amount
and are not recognized until we have a present obligation as a
result of a past event, it is probable that we will experience an
outflow of resources embodying economic benefits to settle the
obligation, and a reliable estimate can be made of the amount of
the obligation.
We disclose our contingent liabilities unless the possibility of an
outflow of resources in settlement is remote.
USE OF ESTIMATES AND JUDGMENTS
JUDGMENTS
We are exposed to possible losses related to various claims and
lawsuits against us for which the outcome is not yet known. We
therefore make significant
in determining the
probability of loss when we assess contingent liabilities.
judgments
EXPLANATORY INFORMATION
COMMITMENTS
Below is a summary of the future minimum payments for our contractual commitments that are not recognized as liabilities as at
December 31, 2017:
(In millions of dollars)
Operating leases
Player contracts 1
Purchase obligations 2
Program rights 3
Total commitments
Less than
1 Year
202
111
368
546
1,227
1-3 Years
4-5 Years
308
88
346
1,121
1,863
167
10
167
1,079
1,423
After
5 Years
294
7
121
1,886
2,308
Total
971
216
1,002
4,632
6,821
1 Player contracts are Toronto Blue Jays players’ salary contracts into which we have entered and are contractually obligated to pay.
2 Purchase obligations are the contractual obligations under service, product, and wireless device contracts to which we have committed.
3 Program rights are the agreements into which we have entered to acquire broadcasting rights for sports broadcasting programs and films for periods in excess of one year at
contract inception.
Operating leases are for network sites, office premises, and retail
outlets across the country. The majority of the lease terms range
from five to fifteen years. Rent expense for 2017 was $228 million
(2016 – $223 million).
In addition, as at December 31, 2017, our
contractual
commitments were $298 million for the acquisition of property,
plant and equipment and $141 million for the acquisition of
intangible assets.
In addition, as at December 31, 2017, our
contractual
commitments related to all of our associates and joint ventures
were $494 million, which are not included in the above table.
CONTINGENT LIABILITIES
We have the following contingent liabilities as at December 31,
2017:
System Access Fee – Saskatchewan
In 2004, a class action was commenced against providers of
wireless communications in Canada under the Class Actions Act
(Saskatchewan). The class action relates to the system access fee
wireless carriers charge 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 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.
In 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.
At the time the Saskatchewan class action was commenced in
2004, corresponding claims were filed in multiple jurisdictions
across Canada, although the plaintiffs took no active steps. The
appeal courts in several provinces dismissed the corresponding
claims as an abuse of process. The claims in all provinces other than
Saskatchewan have now been dismissed or discontinued. We have
not recognized 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
class action in
certifying the proceeding as a national
Saskatchewan. We have not
this
contingency.
recognized a liability for
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 147
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of wireless
communications
Cellular Devices
In July 2013, a class action was launched in British Columbia against
providers
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 revenue the defendants have received that can
reasonably be attributed to the sale of cellular phones in Canada.
We have not recognized a liability for this contingency.
in Canada
Income Taxes
We provide for income taxes based on all of the 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 judgment (see note 12) 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, individually or in the aggregate, to have
a material adverse effect on our financial results.
is subject
Outcome of Proceedings
the proceedings and claims against us,
The outcome of all
to future
including the matters described above,
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 it
is not probable that
these
proceedings and claims, individually or in total, will have a material
financial
adverse effect on our business,
condition. If it becomes probable that we will be held liable for
claims against us, we will recognize a provision during the period in
which the change in probability occurs, which could be material to
our Consolidated Statements of
Income or Consolidated
Statements of Financial Position.
the ultimate resolution of any of
results, or
financial
NOTE 28: SUPPLEMENTAL CASH FLOW INFORMATION
CHANGE IN NON-CASH OPERATING WORKING CAPITAL
ITEMS
CAPITAL EXPENDITURES
(In millions of dollars)
2017
2016
Capital expenditures before proceeds on
Years ended December 31
(In millions of dollars)
Accounts receivable
Inventories
Other current assets
Accounts payable and accrued liabilities
Unearned revenue
Total change in non-cash operating
working capital items
(161)
2
17
9
(21)
(141)
3
(12)
182
(18)
(154)
14
disposition
Proceeds on disposition
Capital expenditures
Years ended December 31
2017
2016
2,510
(74)
2,436
2,352
–
2,352
148 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
Notes
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2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 149
Glossary of selected industry terms
and helpful links
3G (Third Generation Wireless): The third
generation of mobile phone standards and
technology. A key goal of 3G standards was to
enable mobile broadband data speeds above 384
Kbps. 3G networks enable network operators to
offer users a wider range of more advanced services
while achieving greater network capacity through
improved spectral efficiency. Advanced services
include video and multimedia messaging and
broadband wireless data, all in a mobile environment.
3.5G (Enhanced Third Generation Wireless):
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
HSPA and CDMA EV-DO.
4G (Fourth Generation Wireless): 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. Also referred to as LTE.
4.5G (Enhanced Fourth Generation Wireless):
Evolutionary upgrades to 4G services that enables
two to three times the download speeds of 4G
technology. 4.5G technology has been designed to
support virtual and augmented reality, 4K streaming,
and other emerging services.
5G (Fifth Generation Wireless): The proposed
next generation of wireless telecommunications
standards. We expect 5G technology to result in
significantly reduced latency compared to LTE,
improvements in signalling efficiency and coverage,
and the ability to connect to more devices at once
than ever before.
4K - Ultra-High Definition Video: Denotes a
specific television display resolution of 4096x2160
pixels. 1920x1080 resolution full-HD televisions
present an image of around 2 megapixels, while the
4K generation of screens displays an 8 megapixel
image.
ARPA (Average Revenue per Account): This
business performance measure, expressed as a
dollar rate per month, includes all the revenue
generated by an account (as opposed to a user or
device) so that a customer who has many devices will
typically have a higher ARPA than a customer with
only one device.
ARPU (Average Revenue per User): This business
performance measure, expressed as a dollar rate per
month, is 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; or (2) an
amount or unit of capacity in a telecommunications
transmission network. In general, bandwidth is the
available space to carry a signal. The greater the
bandwidth, the greater the information-carrying
capacity.
BDU (Broadcast Distribution Undertaking): An
undertaking for the reception of broadcasting and
the retransmission thereof by radio waves or other
means of telecommunication to more than one
permanent or temporary residence or dwelling unit
or to another such undertaking.
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.
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.
Broadband: Communications service that allows for
the high-speed transmission of voice, data, and video
simultaneously at rates of 1.544 Mbps and above.
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.
Bundling: Refers to the coupling of independent
products or services offered into one retail package.
BYOD (Bring Your Own Device): Refers to the
action that customers are able to sign up for wireless
services on a personally purchased device, as
opposed to the traditional means of acquiring one
through a term contract.
Cable Telephony (Phone): The transmission of real-
time voice communications over a cable network.
Churn: This business performance measure is
used to describe the disconnect rate of customers
to a telecommunications service. It is a measure
of customer turnover and is often at least partially
reflective of service quality and competitive intensity.
It is usually expressed as a percentage and calculated
as the number of subscriber units disconnecting in
a period divided by the average number of units on
the network in the same period.
CLEC (Competitive Local Exchange Carrier):
A telecommunications provider company that
competes with other, already established carriers,
generally the ILEC.
Cloud Computing: The ability to run a program
or application on many connected computers
simultaneously as the software, data and services
reside in data centres.
CPE (Customer Premise Equipment):
Telecommunications hardware, such as a modem or
set-top box, that is located at the home or business
of a customer.
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 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 controls.
DOCSIS (Data Over Cable Service Interface
Specification): A non-proprietary industry standard
developed by CableLabs that allows for equipment
interoperability from the headend to the CPE. The
latest version (DOCSIS 3.1) enables bonding of
multiple channels to allow for download speeds
up to 10 Gbps and upload speeds up to 2 Gbps,
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 uses a
different part of the phone line’s bandwidth.
GSM (Global System for Mobile Communications):
A TDMA-based technology and a member of the
“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.
HDR (High Dynamic Range): An imaging technique
used to reproduce a greater dynamic range of
luminosity than is possible with standard digital
imaging or photographic techniques.
Hertz: A unit of frequency defined as one cycle per
second. It is commonly used to describe the speeds
at which electronics are driven in the radio industry.
MHz (megahertz) is millions of hertz; GHz (gigahertz)
is billions of hertz; and THz is trillions of hertz.
Homes Passed: Total number of homes that have the
potential for being connected to a cable system in a
defined geographic area.
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: A Wi-Fi 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): The act of an existing
wireless customer upgrading to a new wireless device.
Hybrid Fibre-Coaxial Network Architecture:
A technology in which fibre optic cable and coaxial
cable are used in different portions of a network
to carry broadband content (such as video, voice,
and data) from a distribution facility to a subscriber
premise.
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 the original local
exchange carrier in a given market.
IoT (Internet of Things): The concept of connecting
everyday objects and devices (e.g., appliances and
cellular phones) to the Internet and each other.
This allows them to sense their environment and
communicate between themselves, allowing for the
seamless flow of data.
IP (Internet Protocol): The packet-based computer
network protocol that all machines on the Internet
must know so they can communicate with one
another. IP is 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.
150 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
IPTV (Internet Protocol Television): A system
where a digital television signal is delivered using
IP. Unlike broadcasting, viewers receive only the
stream of content they have requested (by surfing
channels or ordering video on demand).
ISED Canada (Innovation, Science and
Economic Development 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.
ISP (Internet Service Provider): A provider
of Internet access service to consumers and/or
businesses.
LAN (Local Area Network): A network created
via linked computers within a small area, such
as a single site or building.
LTE (Long-Term Evolution): A fourth generation
cellular wireless technology (also known as 4G)
that has evolved and enhanced the UMTS/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 speeds up
to 300 Mbps.
LTE Advanced: A mobile communication
standard that represents a major enhancement
of the 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.
M2M (Machine-to-Machine): The wireless inter-
connection of physical devices or objects 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,
change their state, and capture any information
associated with them.
MVNO (Mobile Virtual Network Operator):
A wireless communications service provider that
does not own the wireless network infrastructure
through which it provides services to its customers.
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 third-
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: 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. This value is typically
expressed as a percentage.
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.
Usage (e.g. long distance) and overages are
billed 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 or data usage 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 capabilities, which enables video
capture and playback to and from a hard disk.
Set-Top Box: A standalone 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 use in
cellular service, television, FM radio, and satellite
transmissions.
SVOD (Subscription Video-on-Demand): Refers
to a service that offers, for a monthly charge,
access to specific programming with unlimited
viewing on an on-demand basis.
TPIA (Third-Party Internet Access): Wholesale
high-speed access services of large cable carriers
that enable independent service providers to offer
retail Internet services to their own end-users.
TSU (Total Service Unit): In the cable TV industry,
this typically refers to television, Internet, and
cable telephony subscribers. A subscriber that
has purchased television and Internet services
is counted as two TSUs. A subscriber that
has purchased television, Internet, and cable
telephony services is counted as three TSUs, etc.
VOD (Video-on-Demand): A cable service that
allows a customer to select and view movies
and shows at any time from a library of thousands
of titles.
VoIP (Voice over IP): The technology used to
transmit real-time voice conversations in data
packets over a data network using IP. 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-based technology.
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.
Wi-Fi: The commercial name for a networking
technology standard for wireless LANs 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.
Helpful links
Canadian Radio-Television and Telecommunications
Commission (CRTC)
The CRTC is an independent public organization that
regulates and supervises the Canadian broadcasting
and telecommunications systems. It reports to
Parliament through the Minister of Canadian Heritage.
www.crtc.gc.ca
Innovation, Science and Economic Development
Canada (ISED Canada)
ISED Canada is a ministry of the federal government
whose mission is to foster a growing, competitive,
knowledge-based Canadian economy. It also
works 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 an efficient and competitive marketplace.
www.ic.gc.ca
Federal Communications Commission (FCC)
The 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. territories.
www.fcc.gov
Canadian Wireless Telecommunications Association
(CWTA)
The CWTA is the industry trade organization and
authority on wireless issues, developments, and
trends in Canada. It represents wireless service
providers as well as companies that develop and
produce products and services for the industry,
including handset and equipment manufacturers,
content and application creators, and business-to-
business service providers. www.cwta.ca
The Wireless Association (CTIA)
The CTIA is an international non-profit membership
organization, founded in 1984, representing wireless
carriers and their suppliers, as well as providers and
manufacturers of wireless data services and products.
The CTIA advocates on their behalf before all levels of
government. www.ctia.org
GSM Association (GSMA)
The GSMA is a global trade association representing
nearly 800 operators with more than 300 companies
in the broader mobile ecosystem, including handset
and device makers, software companies, equipment
providers, and Internet companies, as well as
organizations in adjacent industry sectors. In addition,
more than 180 manufacturers and suppliers support
the Association’s initiatives as associate members. The
GSMA works on projects and initiatives that address
the collective interests of the mobile industry, and of
mobile operators in particular. www.gsma.com
Commission for Complaints for Telecom-television
Services (CCTS)
An independent organization dedicated to working
with consumers and service providers to resolve
complaints about telephone, television, and Internet
services. Its structure and mandate were approved by
the CRTC. www.ccts-cprst.ca
For a more comprehensive glossary
of industry and technology terms,
go to rogers.com/glossary
2017 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 151
Corporate and shareholder information
CORPORATE OFFICES
Rogers Communications Inc.
333 Bloor Street East,
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:
AST Trust Company (Canada)
P.O. Box 700, Postal Station B
Montreal, QC H3B 3K3, Canada
416-682-3860 or 800-387-0825
inquiries@astfinancial.com
Duplicate Mailings
If you receive duplicate shareholder mailings
from Rogers Communications, please
contact AST Trust Company as detailed
above to consolidate your accounts.
INVESTOR RELATIONS
Institutional investors, securities analysts
and others requiring additional financial
information can visit investors.rogers.com
or contact us at:
844-801-4792 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.A – Class A Voting shares
(CUSIP # 775109101)
RCI.B – Class B Non-Voting shares
(CUSIP # 775109200)
New York Stock Exchange (NYSE):
RCI – Class B Non-Voting shares
(CUSIP # 775109200)
DEBT SECURITIES
For details of the public debt securities
of the Rogers companies, please refer to
the “Debt Securities” section under
investors.rogers.com
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 investors.
rogers.com 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.
DIRECT DEPOSIT SERVICE
Shareholders may have dividends
deposited directly into accounts held at
financial institutions. To arrange direct
deposit service, please contact AST Trust
Company as detailed earlier on this page.
CAUTION 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 Affecting our Businesses” and “About Forward-
Looking Information” 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.
2,373 litres
of water saved
19 kg
solid waste
not created
52 kg CO2 of
net greenhouse
gases prevented
1,000,000 BTUs
energy not
consumed
COMMON STOCK TRADING AND
DIVIDEND INFORMATION
2017
Price RCI.b on TSX
High
Low
Close
Dividends
Declared
per Share
$59.09 $50.44 $58.80 $0.48
First Quarter
Second Quarter $63.78 $58.34 $61.25 $0.48
$66.32 $60.40 $64.34 $0.48
Third Quarter
$70.08 $63.35 $64.05 $0.48
Fourth Quarter
Shares Outstanding at December 31, 2017
Class A Voting
Class B Non-Voting
112,407,192
402,403,433
2018 Expected Dividend Dates
Record Date*:
Payment Date*:
March 12, 2018
June 11, 2018
September 14, 2018
December 11, 2018
* Subject to Board approval
April 3, 2018
July 3, 2018
October 3, 2018
January 3, 2019
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.
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 https://ca.astfinancial.
com/InvestorServices/Search-DRIP or contact
AST 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
by registering at https://ca.astfinancial.com/
edelivery. This approach gets information to
shareholders faster than conventional mail and
helps Rogers protect the environment and
reduce printing and postage costs.
Facebook
facebook.com/rogers
Twitter
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© 2018 Rogers Communications Inc.
™ TORONTO BLUE JAYS, ACE, uniform, all related marks and designs and the Blue Jays photographs are trademarks and/or copyright of Rogers Blue Jays Baseball Partnership. Used under licence.
Other registered trademarks that appear are the property of the respective owners.
152 ROGERS COMMUNICATIONS INC. 2017 ANNUAL REPORT
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