Rogers 2015 Annual Report Download

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Igniting growth
Rogers Communications Inc.
2015 Annual Report

Table of contents

  • Page 1
    Rogers Communications Inc. 2015 Annual Report Igniting growth

  • Page 2
    ... is Canada's largest provider of voice and data communications services. We provide these services to approximately 9.9 million customers under the Rogers, Fido, chatr and Mobilicity brands. We provide customers with the best and latest wireless devices, applications and leading network speeds. Our...

  • Page 3
    ... Internet access speeds, a compelling selection of digital television and online viewing and telephony services to millions of residential and small business customers. Together with Business Solutions, Cable also provides scalable carrier-grade business telecom, networking, hosting and managed data...

  • Page 4
    ... operating profit margin 1 Free cash flow 1 Annualized dividend rate at year-end Adjusted net income 1 Adjusted basic earnings per share 1 Total assets Return on assets Long-term debt (includes current portion) Shareholders' equity Wireless subscribers (000s) Internet subscribers (000s) Television...

  • Page 5
    ...12 Good Corporate Citizenship 14 Corporate Governance 16 Senior Executive Officers of Rogers Communications Inc. 17 Directors of Rogers Communications Inc. 18 We Aspire 20 Management's Discussion and Analysis 89 Consolidated Financial Statements 89 Management's Responsibility for Financial Reporting...

  • Page 6
    ... retain more high value customers. We also made meaningful progress on the customer experience front and expanded our enterprise business. A message from the President and CEO of Rogers Communications Inc. Dear Fellow Shareholders, Just over a year ago, I introduced Rogers 3.0, a multi-year plan to...

  • Page 7
    ... $1.7 billion and adjusted basic earnings per share of $2.89. We met our 2015 financial guidance. Healthy cash flow allowed us to make the right investments in order to maintain our best in class networks and return substantial cash to shareholders. 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 5

  • Page 8
    ... and developed a go-to-market strategy. In the last half of the year, we opened our doors for business, announcing two "leapfrog" technologies, Managed Wi-Fi and Cyber Security as a service. In 2016, we will continue to introduce new "leapfrog" technologies that better serve the changing needs of...

  • Page 9
    2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 7

  • Page 10
    ... market and we have put in place a plan to align our cost structure as a result of the declines in revenue. In 2016, we will continue to capitalize on our sports leadership, target a growing base of millennials, whilst increasing the revenue we generate from digital platforms. ROGERS Last year...

  • Page 11
    ... Internet usage options and speeds of up to 250 Mbps across our entire footprint and introduced a gigabit Internet service. We expect to offer this service to our entire cable footprint; 9:45 AM ROGERS that's 4.2 million homes by the end of 2016. 100% 2015 ANNUAL REPORT ROGERS COMMUNICATIONS...

  • Page 12
    ... in our team and our plan. I'd like to thank the Board of Directors, the management team and our employees for their support. Thank you for your continued investment. Guy Laurence President and Chief Executive Officer Rogers Communications Inc. 10 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 13
    2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 11

  • Page 14
    ... for Young People and one of Greater Toronto's Top Employers. For more information on Corporate Social Responsibility at Rogers, please see our website www.rogers.com/csr and look out for our 2015 CSR Report, which will be released in spring 2016. 12 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 15
    $ over in cash and in-kind donations to various charitable organizations and causes in 2015 65 Million Committed 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 13

  • Page 16
    ... 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...

  • Page 17
    ... Program for New Directors Board Education Sessions Director Material Relationship Standards For a complete description of Rogers' corporate governance structure and practices and copies of our annual information circular and proxy, go to rogers.com/investors 2015 ANNUAL REPORT ROGERS...

  • Page 18
    ... Officers, go to rogers.com/investors 11 Anthony Staffieri, fcpa, fca Chief Financial Officer 12 Jamie Williams Chief Information Officer 13 Dirk Woessner President, Consumer Business Unit 7 2 3 4 9 5 10 Jim Reid Chief Human Resources Officer 16 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 19
    ... A. MacDonald Company Director Isabelle Marcoux Chair, Transcontinental Inc. 9 5 For detailed biographical information of Rogers' Directors, go to rogers.com/investors 10 The Hon. David R. Peterson, pc, qc Chairman, Cassels Brock & Blackwell LLP 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 17

  • Page 20
    ... the best is the only goal worth having We win as a team, or not at all How We Work Simplify and innovate Take ownership of the what and the how Equip people to succeed Execute with discipline and pride Talk straight, build trust, and over deliver 18 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 21
    ... Our Liquidity and Financial Resources 57 Sources and Uses of Cash 60 Financial Condition 61 Financial Risk Management 64 Dividends and Share Information 65 Commitments and Other Contractual Obligations 65 Off-Balance Sheet Arrangements 95 96 97 57 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 19

  • Page 22
    ... 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 2016 consolidated guidance on operating revenue, adjusted operating profit, additions to...

  • Page 23
    ... of this MD&A. You can also go to rogers.com/investors for information about our governance practices, corporate social responsibility reporting, a glossary of communications and media industry terms, and additional information about our business. 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 21

  • Page 24
    ...,000 employees. Our head office is in Toronto, Ontario and we have numerous offices across Canada. 2015 OPERATING REVENUE BY SEGMENT (%) WIRELESS 56% CABLE 26% $13.4 BILLION MEDIA 15% BUSINESS SOLUTIONS 3% 2015 ADJUSTED OPERATING PROFIT BY SEGMENT FOUR BUSINESS SEGMENTS We report our results of...

  • Page 25
    MANAGEMENT'S DISCUSSION AND ANALYSIS 2015 HIGHLIGHTS KEY FINANCIAL INFORMATION Years ended December 31 (In millions of dollars, except margins and per share amounts, unaudited) Consolidated Operating revenue As adjusted 1: Operating profit Operating profit margin Net income Basic earnings per share...

  • Page 26
    ... smartphone sales. Cable revenue was stable as the increase in Internet revenue from the movement of customers to higher-end speed and usage tiers was offset by lower Television and Phone revenue primarily due to Television and Phone subscriber losses over the past year. Business Solutions revenue...

  • Page 27
    ... brands, and provide consumers and businesses with the best and latest wireless devices, services, and applications including: • mobile and fixed high-speed Internet access; • wireless voice and enhanced voice features; • wireless home phone; 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 25

  • Page 28
    ... 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...

  • Page 29
    ...Vonage and Skype), and other voice applications riding over the Internet access services of ISPs; and • substitution of wireline for wireless products (commonly referred to as cord-cutting), including mobile phones and wireless home phone products. 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 27

  • Page 30
    ... companies are shifting their networks towards higher speed and capacity data over cable service interface specifications (DOCSIS) 3.0/3.1 and fibre-to-the-home (FTTH) technologies. These new technologies provide faster potential data communication speeds, allowing both television and Internet...

  • Page 31
    ... are collaborating with OTT services to offer their customers unique, value-added benefits. Mobile commerce continues to increase as more devices and platforms adopt secure technology to facilitate wireless transactions. CABLE TRENDS The Internet and social media are increasingly being used as...

  • Page 32
    ...our network speed advantage. We will continue to generate and develop technologies and services that support our core product offerings. DRIVE GROWTH IN THE BUSINESS MARKET The Canadian business market for communications services was valued in September 2015 by International Data Corporation Canada...

  • Page 33
    ... Wireless consumers use the Internet, make calls, and send texts and emails with their Rogers Share Everything plans. Customers have access to their Canadian plan features while traveling, all at a relatively low cost. • Reduced the number of customer complaints by more than 26% over the 12-month...

  • Page 34
    ... studio and announced a new specialty channel, VICELAND, to be launched in early 2016. VICELAND will feature hundreds of hours of new and exclusive programming developed and produced by the young, creative minds that are the heart and soul of VICE. 32 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 35
    ... company, dated February 2015 confirming that Rogers' broadband Internet customers continue to enjoy fast and reliable upload and download service, delivered at 100 percent or more, on average, of advertised speeds, even during peak network hours. • Rogers' wireless network was the first in Canada...

  • Page 36
    ... and network leadership Go to market as one Rogers 2016 Objectives Achieve our 2016 financial targets while investing to support future growth Save our customers time by making it easier for them to do business with us online and in-person Expand our sales reach and introduce "leapfrog" technologies...

  • Page 37
    ... on term contracts; • overall wireless market penetration in Canada is expected to grow in 2016 at a similar rate as in 2015; • continued subscriber growth in Wireless and Cable Internet; moderating net losses in Cable Television and Home Phone subscribers; • in Business Solutions, continued...

  • Page 38
    ... deployed newly-acquired 700 MHz and AWS-1 spectrum; and • we made significant investments in our IPTV technology and legacy set-top boxes to bridge the customer experience preIPTV, thus gaining measurable unit cost efficiencies. Capability to Deliver Results LEADING NETWORKS WIRELESS Rogers has...

  • Page 39
    ... 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. For example, we invest...

  • Page 40
    ..., fido.ca, chatrwireless.com, mobilicity.ca, or e-commerce sites; • our call centres; and • outbound telemarketing. BUSINESS SOLUTIONS We own and operate some of the most advanced networks and data centres in Canada. We leverage our national fibre, cable, and wireless networks and data centre...

  • Page 41
    ...-themed festivities and outdoor viewing parties to 24 communities across Canada over the 2015-2016 NHL season; • the MLB Network, a 24-hour network dedicated to baseball, brought to Canada for the first time on Rogers digital cable; • an 8-year, multi-platform broadcast rights agreement with MLB...

  • Page 42
    ... RESULTS Years ended December 31 (In millions of dollars, except margins and per share amounts) Operating revenue Wireless Cable Business Solutions Media Corporate items and intercompany eliminations Operating revenue Adjusted operating profit (loss) Wireless Cable Business Solutions Media Corporate...

  • Page 43
    ... adjusted operating profit decreased this year primarily as a result of higher net unit costs for equipment and a greater number of upgrades, partially offset by continued adoption of higherpostpaid-ARPA-generating service plans and higher equipment revenue. 2015 ANNUAL REPORT ROGERS COMMUNICATIONS...

  • Page 44
    ... ANALYSIS WIRELESS ROGERS IS CANADA'S LARGEST PROVIDER OF WIRELESS COMMUNICATIONS SERVICES As at December 31, 2015, we had: • approximately 9.9 million subscribers; and • approximately 34% subscriber share and 34% revenue share of the Canadian wireless market. WIRELESS FINANCIAL RESULTS Years...

  • Page 45
    ...and prepaid monthly fees; • data usage; • airtime; • long distance charges; • essential services charges; • inbound and outbound roaming charges; and • certain fees. The 2% increase in network revenue this year was a result of: • the continued adoption of customer-friendly Rogers Share...

  • Page 46
    ... offset by higher operating expenses, as discussed above. WIRELESS ADJUSTED OPERATING PROFIT (IN MILLIONS OF DOLLARS) 2015 2014 2013 $3,239 $3,246 $3,157 LTE COVERAGE AS A PERCENTAGE OF THE CANADIAN POPULATION (%) 2015 2014 2013 93% 84% 75% 44 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 47
    ...pay per view service fees and video-on-demand service fees; and • rentals of digital cable set-top boxes. CABLE SERVICE REVENUE BREAKDOWN (IN MILLIONS OF DOLLARS) 2015 2014 2013 Phone Internet Television 445 478 498 1,343 1,245 1,159 1,669 1,734 1,809 2015 ANNUAL REPORT ROGERS COMMUNICATIONS...

  • Page 48
    ... small business local telephony service from: • monthly service fees; • calling features such as voicemail, call waiting, and caller ID; and • long distance calling. The stable total operating revenue this year was a result of: • the movement of Internet customers to higher speed and usage...

  • Page 49
    ... passing close to an additional 23,000 near-net buildings. BUSINESS SOLUTIONS FINANCIAL RESULTS Years ended December 31 (In millions of dollars, except margins) Operating revenue Next generation Legacy Service revenue Equipment sales Operating revenue Operating expenses Adjusted operating profit...

  • Page 50
    ... televised and online shopping; • publishing including Texture by Next Issue; and • digital media. MEDIA FINANCIAL RESULTS Years ended December 31 (In millions of dollars, except margins) Operating revenue Operating expenses Adjusted operating profit Adjusted operating profit margin Additions...

  • Page 51
    .... BUSINESS SOLUTIONS The increase in additions to property, plant and equipment in Business Solutions this year was a result of data centre investments and network expansion to reach additional customers and sites. ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT (IN MILLIONS OF DOLLARS) MEDIA...

  • Page 52
    ... of stock options, restricted share units, and deferred share units upon exercise. Borrowings include long-term debt and short-term borrowings associated with our accounts receivable securitization program. Interest on borrowings The decrease in interest on borrowings this year was a result of...

  • Page 53
    ... of our US dollardenominated accounts payable. During 2015, all of our US dollardenominated debt was hedged for accounting purposes. See "Managing our Liquidity and Financial Resources" for more information about our debt and related finance costs. Our effective income tax rate this year was 25...

  • Page 54
    ... sales. The increase in Business Solutions was a result of growth in service revenue and improvements in cost management and efficiency. The decrease in Cable was a result of higher investments in customer care and network, customer value enhancement-related costs and a one-time cumulative CRTC fee...

  • Page 55
    .... QUARTERLY CONSOLIDATED FINANCIAL SUMMARY 2015 (In millions of dollars, except per share amounts) Operating revenue Wireless Cable Business Solutions Media Corporate items and intercompany eliminations Total operating revenue Adjusted operating profit (loss) Wireless Cable Business Solutions Media...

  • Page 56
    ...device volumes and equipment sales prices. Cable operating revenue decreased 2% in the fourth quarter as a result of Television and Phone subscriber losses over the past year, partially offset by the movement of customers to higher-end Internet speed and usage tiers and the impact of pricing changes...

  • Page 57
    ... lower number of Television subscribers. In addition, trends in the use of wireless products and Internet or social media to substitute for traditional home Phone products have resulted in fewer Phone subscribers. Business Solutions The trends in Business Solutions operating profit margin primarily...

  • Page 58
    ... programs, partially offset by higher customer deposits relating to 2016 Toronto Blue Jays ticket sales. n/m Reflects changes in market values of equity derivatives due to the increase in the market price of RCI Class B shares. See "Financial Risk Management" for more information. n/m Reflects...

  • Page 59
    ... service and retain substantially all of the risks and rewards relating to the accounts receivables we sell, and therefore, the receivables remain recognized on our consolidated statements of financial position and the funding received is recorded as short- 2015 ANNUAL REPORT ROGERS COMMUNICATIONS...

  • Page 60
    ... that were due in March 2015. At the same time, the associated debt derivatives were settled at maturity for net proceeds received of $154 million, resulting in a net repayment of $905 million including settlement of the associated debt derivatives. 58 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 61
    ... mainly a result of: • lower cash income tax payments resulting from the acquisition of Mobilicity; partially offset by • higher additions to property, plant and equipment. FREE CASH FLOW (IN MILLIONS OF DOLLARS) 2015 2014 2013 $1,676 $1,437 $1,548 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC...

  • Page 62
    ... the future. See "Critical Accounting Estimates and Judgments" for more information. In order to manage the rising cost of our pension plans, effective June 30, 2016, the Rogers Defined Benefit pension plan will be closed to new enrolment. Beginning July 1, 2016, employees that do not participate in...

  • Page 63
    .... Borrowings include long-term debt, including the impact of debt derivatives, and short-term borrowings associated with our accounts receivable securitization program. Converting from a fixed US$ coupon rate to a weighted average Cdn$ fixed rate. 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 61

  • Page 64
    ... agreements for each of our equity derivative contracts under substantially the same terms and conditions with revised expiry dates to April 2016 (from April 2015). 200 232 288 240 960 1.1100 1.0948 1.0903 1.0833 1.0940 222 254 314 260 1,050 62 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 65
    ... increased to 3.1. This increase is primarily attributable to our acquisitions and investments made in 2015. Our long-term target for adjusted net debt / adjusted operating profit remains a range of 2.0 to 2.5. 960 1.0940 1,050 70 - - 286 (30) 873 2015 ANNUAL REPORT ROGERS COMMUNICATIONS...

  • Page 66
    MANAGEMENT'S DISCUSSION AND ANALYSIS DIVIDENDS AND SHARE INFORMATION DIVIDENDS In January 2015, the Board authorized an increase to the annualized dividend rate from $1.83 to $1.92 per Class A Voting and Class B Non-Voting share. In January 2016, the Board declared a quarterly dividend of $0.48 per...

  • Page 67
    ... adopted many best practices for effective governance, including: • separation of CEO and chairman roles; • independent lead director; • formal corporate governance policy and charters; • code of business conduct and whistleblower hotline; 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 65

  • Page 68
    ...of the plans. You can find more details about governance at Rogers in the Investor Relations section of our website (rogers.com/governance), including: • a complete statement of our corporate governance practices; • our codes of conduct and ethics; • full Board committee charters; • director...

  • Page 69
    ...: Digital inclusion is a priority for Rogers and one of the best ways we can contribute to society. Our Connected for Success program offers subsidized broadband Internet for families with low incomes currently living in Toronto Community Housing. 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC...

  • Page 70
    MANAGEMENT'S DISCUSSION AND ANALYSIS 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 robust dividends to shareholders. Beyond these direct ...

  • Page 71
    ... industry benchmarks and interviewing senior management with business unit and department accountability. Enterprise Risk Management 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...

  • Page 72
    ... 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 service revenue. UNAUTHORIZED ACCESS TO DIGITAL BOXES OR INTERNET MODEMS We use encryption technology developed and supported by our vendors to protect our cable...

  • Page 73
    ... our results on a consolidated basis. This regulation relates to, among other things, licencing and related fees, competition, the cable television programming services that we must distribute, wireless and wireline interconnection agreements, the rates we may charge to provide access to our network...

  • Page 74
    ... 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 materially adverse effect on our business, results of operations, and financial condition. We develop business plans...

  • Page 75
    ... towards the digital market to limit this risk. Increasing competition for advertising revenue from digital content providers such as search engines, social networks, and Internet video content alternatives have resulted in advertising dollars migrating from conventional television broadcasters to...

  • Page 76
    ... providers of wireless communications in Canada and manufacturers of wireless devices. The class action relates to the alleged adverse health effects incurred by long-term users of cellular devices. The plaintiffs are seeking unspecified damages 74 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 77
    ... 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. 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 75

  • Page 78
    ... of the consumers, the sale of prepaid cards, and the disclosure of related costs. Rogers is also currently subject to the CRTC Wireless Code and will come under the forthcoming CRTC Television Service Provider Code of Conduct to become effective in 2016. The provincial laws are generally consistent...

  • Page 79
    ... 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 2015 ANNUAL REPORT ROGERS COMMUNICATIONS...

  • Page 80
    ... 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...

  • Page 81
    ... 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 cancellation provision for cable, Internet, and phone services, effective January 23, 2015. 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 79

  • Page 82
    ... POLICIES CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS Management makes judgments, estimates, and assumptions that affect how accounting policies are applied, the amounts we report in assets, liabilities, revenue, and expenses, and our related disclosure 80 ROGERS COMMUNICATIONS INC. 2015 ANNUAL...

  • Page 83
    ...Our employee stock option plans attach cash-settled share appreciation rights (SARs) to all new and previously granted IMPAIRMENT OF ASSETS We make judgments in determining CGUs and the allocation of goodwill to CGUs or groups of CGUs for the purpose of 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC...

  • Page 84
    ... company that provides printing services to the Company; and • the chairman and chief executive officer of a firm to which the Company pays commissions for insurance coverage (ceased as a related party effective April 2015). Years ended December 31 (In millions of dollars) Printing, legal services...

  • Page 85
    ... 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 network revenue recognized over the course of the contracts. The treatment of costs incurred in acquiring customer contracts will be...

  • Page 86
    ... with service plans integrating both voice and data. • 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...

  • Page 87
    ... operating profit • To conduct valuation-related analysis and make decisions about capital structure. • We believe this helps investors and analysts analyze our enterprise and equity value and assess our leverage. Long-term debt divided by net income 2015 ANNUAL REPORT ROGERS COMMUNICATIONS...

  • Page 88
    ...Years ended December 31 (In millions of dollars, except percentages) Dividend payout ratio of free cash flow: Dividends declared during the year Divided by: free cash flow Dividend payout ratio of free cash flow 2015 988 1,676 59% 2014 942 1,437 66% 86 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 89
    ...reorganization, RCDCI changed its name to Rogers Communications Canada Inc. (RCCI). The financial information for RCCI and our non-guarantors subsidiaries is presented on a pro-forma basis as if the dissolution of RCP had occurred on January 1, 2014. 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 87

  • Page 90
    MANAGEMENT'S DISCUSSION AND ANALYSIS FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL RESULTS (In millions of dollars, except per share amounts, subscriber count results, ARPA, ARPU, churn, percentages, and ratios) Income and cash flow: Operating revenue Wireless Cable Business Solutions Media Corporate...

  • Page 91
    ... Company Accounting Oversight Board (United States) on behalf of the shareholders. KPMG LLP has full and free access to the Audit and Risk Committee. February 11, 2016 Guy Laurence President and Chief Executive Officer Anthony Staffieri, FCPA, FCA Chief Financial Officer 2015 ANNUAL REPORT ROGERS...

  • Page 92
    ... 31, 2015 and December 31, 2014, the consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for...

  • Page 93
    ...'s Discussion and Analysis for the year ended December 31, 2015. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United...

  • Page 94
    ... notes are an integral part of the consolidated financial statements. Note 5 2015 13,414 8,437 2,277 111 774 (32) 1,847 466 1,381 2014 12,850 7,868 2,144 173 817 1 1,847 506 1,341 6 7, 8 9 10 11 12 13 13 $ $ 2.68 2.67 $ $ 2.60 2.56 92 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 95
    ...tax Items that may subsequently be reclassified to net income Other comprehensive (loss) income for the year Comprehensive income for the year The accompanying notes are an integral part of the consolidated financial statements. 23 (147) (129) 1,252 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 93

  • Page 96
    ... assets Investments Derivative instruments Other long-term assets Deferred tax assets Goodwill Total assets Liabilities and shareholders' equity Current liabilities: Short-term borrowings Accounts payable and accrued liabilities Income tax payable Current portion of provisions Unearned revenue...

  • Page 97
    ... as hedges, net of tax Share of equity-accounted investments, net of tax Other comprehensive income Comprehensive income for the year Transactions with shareholders recorded directly in equity: Dividends declared Share class exchange Shares issued on exercise of stock options Total transactions with...

  • Page 98
    ... of less than 90 days, less bank advances. As at December 31, 2015 and 2014, the balance of cash and cash equivalents was comprised of cash and demand deposits. The accompanying notes are an integral part of the consolidated financial statements. 96 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 99
    ...with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Our Board of Directors authorized these consolidated financial statements for issue on February 11, 2016. Business Solutions Media 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC...

  • Page 100
    ... Taxes Earnings Per Share Accounts Receivable Inventories Financial Instruments Investments Provisions Post-Employment Benefits Stock-Based Compensation Business Combinations Commitments and Contingent Liabilities Page 100 102 104 106 110 112 112 113 113 121 122 126 130 133 136 Accounting Policy...

  • Page 101
    ... 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 network revenue recognized over the course of the contracts. The treatment of costs incurred in acquiring customer contracts will be...

  • Page 102
    ..., financial markets, operating risks, our investment priorities, and working capital requirements. To maintain or adjust our capital structure, we may, with approval from our Board of Directors, issue or repay debt and/or short-term borrowings, issue shares, repurchase shares, pay dividends...

  • Page 103
    ... assets Note 5 Wireless 7,651 4,412 3,239 Cable 3,465 1,807 1,658 Business Solutions 377 261 116 Media 2,079 1,907 172 25 7, 8 9 10 11 Year ended December 31, 2014 (In millions of dollars) Operating revenue Operating costs 1 Adjusted operating profit Stock-based compensation 1 Depreciation...

  • Page 104
    ... 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 Revenue from roaming, long distance, pay per use, and other...

  • Page 105
    ... ended December 31 (In millions of dollars) Wireless: Network revenue Equipment sales Total Wireless Cable: Internet Television Phone Service revenue Equipment sales Total Cable Business Solutions: Next generation Legacy Service revenue Equipment sales Total Business Solutions Media: Advertising...

  • Page 106
    ... primarily include certain internal and external direct labour, overhead, and interest costs associated with the acquisition, construction, development, or betterment of our networks. Asset Buildings Cable and wireless network Computer equipment and software Customer premise equipment Leasehold...

  • Page 107
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS EXPLANATORY INFORMATION (In millions of dollars) December 31, 2015 Net Accumulated carrying Cost depreciation amount Land and buildings Cable and wireless networks Computer equipment and software Customer premise equipment Leasehold improvements Equipment ...

  • Page 108
    ... to be 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 106 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 109
    ... 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...

  • Page 110
    .... 2014 SPECTRUM LICENCE ACQUISITIONS 700 MHz spectrum licence auction We participated in the 700 MHz spectrum licence auction in Canada, and were awarded spectrum licences consisting of two 12 MHz blocks of contiguous, paired lower 700 MHz band 108 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 111
    ... 1 A $72 million loss related to our share of the change in the fair value of an obligation relating to one of our joint ventures has been recognized in losses from associates and joint ventures for the year ended December 31, 2015 (2014 - nil). 26 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 109

  • Page 112
    ... 6 - (27) (7) 466 25.2% (2) - 14 - 5 506 27.4% DEFERRED TAX ASSETS AND LIABILITIES As at December 31 (In millions of dollars) 2015 2014 Deferred tax assets Deferred tax liabilities Net deferred tax liability 9 (1,943) (1,934) 9 (1,769) (1,760) 110 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 113
    ... dollars) Capital losses in Canada that can be applied against future capital gains...timing of the reversal and the reversal is not probable in the foreseeable future. Reversing these temporary differences would not result in any significant tax implications. 2015 ANNUAL REPORT ROGERS COMMUNICATIONS...

  • Page 114
    ... dilutive securities (in millions): Employee stock options and restricted share units Weighted average number of shares outstanding - diluted Earnings per share: Basic Diluted 2015 1,381 2014 1,341 515 515 2 517 2 517 $ 2.68 $ 2.67 $ 2.60 $ 2.56 NOTE 14: ACCOUNTS RECEIVABLE ACCOUNTING POLICY...

  • Page 115
    ... as follows: Financial instrument Financial assets Cash and cash equivalents 1 Accounts receivable 1 Investments, available-for-sale Financial liabilities Short-term borrowings Accounts payable 1 Accrued liabilities Long-term debt Derivatives 4 Debt derivatives Bond forwards Expenditure derivatives...

  • Page 116
    ...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...

  • Page 117
    ... by financial instrument. Financial instrument Financial assets Cash and cash equivalents Accounts receivable Investments, available-for-sale Financial liabilities Short-term borrowings Accounts payable Accrued liabilities Long-term debt Derivatives 1 Debt derivatives Bond forwards Expenditure...

  • Page 118
    ... STATEMENTS The tables below set out the undiscounted contractual maturities of our financial liabilities and the receivable components of our derivatives as at December 31, 2015 and 2014. December 31, 2015 (In millions of dollars) Short-term borrowings Accounts payable and accrued liabilities Long...

  • Page 119
    ..., our share price, foreign exchange rates, and interest rates, will affect our income, cash flows, or the value of our financial instruments. The derivative instruments we use to manage this risk are described in this note. Market price risk - publicly traded investments We manage risk related to...

  • Page 120
    ... fixed rate. The table below shows derivative instruments assets and derivative instruments liabilities reflected on our Consolidated Statements of Financial Position. As at December 31 (In millions of dollars) Current asset Long-term asset 2015 198 1,992 2,190 Current liability Long-term liability...

  • Page 121
    ... our stock-based compensation programs for stock options, restricted share units (RSUs) and deferred share units (DSUs) (see note 25). The equity derivatives were entered into at a weighted average price of $50.37 with original terms to maturity of one year, extendible for further one year periods...

  • Page 122
    ... equivalents, accounts receivable, short-term borrowings, and accounts payable and accrued liabilities approximate their fair values because of the short-term nature of these financial instruments. We determine the fair value of each of our publicly traded investments using quoted market values. We...

  • Page 123
    ... Publicly traded companies Private companies Investments, available-for-sale Investments, associates and joint ventures Total investments 2015 966 212 1,178 1,093 2,271 2014 1,130 161 1,291 607 1,898 Revenue Expenses Total net loss Our share of net loss 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC...

  • Page 124
    ... the program in 2015. We continue to service and retain substantially all of the risks and rewards relating to the accounts receivables we sold, and therefore, the receivables remain recognized on our Consolidated Statements of Financial Position and the funding received is recognized as short-term...

  • Page 125
    ... The timing and extent of restoration work that will be ultimately required for these sites is uncertain. Other provisions include various legal claims, which are expected to be settled within five years. NOTE 21: LONG-TERM DEBT As at December 31 (In millions of dollars, except interest rates) Bank...

  • Page 126
    ... debentures; and • quarterly on our floating rate senior notes. We have the option to redeem each of our fixed rate senior notes and debentures, in whole or in part, at any time, if we pay the premiums specified in the corresponding agreements. 124 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 127
    ...shows the principal repayments on our long-term debt due in each of the next five years and thereafter as at December 31, 2015. (In millions of dollars) 2016 2017 2018 2019 2020 Thereafter Total long-term debt 1,000 1,250 1,938 900 900 10,993 16,981 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 125

  • Page 128
    ... 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...

  • Page 129
    ... the Statement of Investment Policies and Procedures with the objective of having adequate funds to pay the benefits promised by the plan, and reflect the characteristics and asset mix of each defined benefit pension plan. Investment and market return risk is managed by: • contracting professional...

  • Page 130
    ... funds that invest in common stocks and bonds that are traded in an active market. The table below shows the fair value of the total pension plan assets by major category. As at December 31 (In millions of dollars) Equity securities Debt securities Other - cash Total fair value of plan assets 2015...

  • Page 131
    ... 31, 2015 (2014 - $324 million). NOTE 24: SHAREHOLDERS' EQUITY CAPITAL STOCK Number of shares authorized for issue 400 million Share class Preferred shares Features • Without par value • Issuable in series, with rights and terms of each series to be fixed by our Board of Directors prior to...

  • Page 132
    ... 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. USE OF ESTIMATES AND JUDGMENTS ESTIMATES Significant management estimates are used to determine the fair value of stock options, RSUs...

  • Page 133
    ... FINANCIAL STATEMENTS EXPLANATORY INFORMATION The table below is a summary of our stock-based compensation expense, which is included in employee salaries and benefits expense. Years ended December 31 (In millions of dollars) Stock options Restricted share units Deferred share units Equity...

  • Page 134
    ...TO CONSOLIDATED FINANCIAL STATEMENTS RESTRICTED SHARE UNITS The RSU plan allows employees, officers and directors to participate in the growth and development of Rogers. Under the terms of the plan, RSUs are issued to the participant and the units issued vest over a period of up to three years from...

  • Page 135
    ... completed an asset acquisition of certain dealer stores located in British Columbia, Alberta, and Ontario for cash consideration of $46 million, which was paid as a deposit in the fourth quarter of 2013. The dealer stores are a retail distribution 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 133

  • Page 136
    ... and Risk Committee. TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL Key management personnel include the directors and our most senior corporate officers, who are primarily responsible for planning, directing and controlling our business activities. 134 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 137
    ... of dollars) Accounts receivable Accounts payable and accrued liabilities 2015 56 30 2014 - 15 (In millions of dollars) Years ended December 31 2015 2014 Printing, legal services, and commission paid on premiums for insurance coverage 31 38 3 2 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC...

  • Page 138
    ... we have committed for at least the next five years. 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. 136 ROGERS COMMUNICATIONS INC. 2015 ANNUAL REPORT

  • Page 139
    ...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...

  • Page 140
    ... INFORMATION CHANGE IN NON-CASH OPERATING WORKING CAPITAL ITEMS (In millions of dollars) 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 working capital items 2015...

  • Page 141
    NOTES Notes 2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 139

  • Page 142
    ...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. Broadband: Communications services which allows for the high-speed transmission of voice, data, and video simultaneously at rates of...

  • Page 143
    ... 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...

  • Page 144
    Corporate and Shareholder Information CORPORATE OFFICES Rogers Communications Inc. 333 Bloor Street East, 10th Floor Toronto, ON M4W 1G9 416-935-7777 CUSTOMER SERVICE AND PRODUCT INFORMATION 888-764-3771 or rogers.com SHAREHOLDER SERVICES If you are a registered shareholder and have inquiries ...

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    The Best Is Yet To Come.

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    Wireless Cable Media rogers.com