EX-99.2 3 rci-03312017xexhibit992.htm EXHIBIT 99.2 Exhibit


Exhibit 99.2
rogerslogoa04.jpg




Rogers Communications Inc.



INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Three months ended March 31, 2017 and 2016



Rogers Communications Inc.
1
First Quarter 2017



Rogers Communications Inc.
Interim Condensed Consolidated Statements of Income
(In millions of Canadian dollars, except per share amounts, unaudited)
  
  
Three months ended March 31
 
  
Note
2017

2016

 
 
 
see note 2

 
 
 
 
Revenue
 
3,338

3,245

 
 
 
 
Operating expenses:
 
 
 
Operating costs
4
2,185

2,156

Depreciation and amortization
 
545

574

Restructuring, acquisition and other
5
28

44

Finance costs
6
190

196

Other income
7
(11
)
(34
)
 
 
 
 
Income before income tax expense
 
401

309

Income tax expense
 
107

79

 
 
 
 
Net income for the period
 
294

230

 
 
 
 
Earnings per share:
 
 
 
Basic
8
$0.57
$0.45
Diluted
8
$0.57
$0.44
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
 


Rogers Communications Inc.
2
First Quarter 2017



Rogers Communications Inc.
Interim Condensed Consolidated Statements of Comprehensive Income
(In millions of Canadian dollars, unaudited)
  
Three months ended March 31
 
  
2017

2016

 
 
see note 2

 
 
 
Net income for the period
294

230

 
 
 
Other comprehensive income (loss):
 
 
 
 
 
Items that may subsequently be reclassified to income:
 
 
 
 
 
Available-for-sale investments:
 
 
Increase in fair value
78

123

Reclassification to net income for gain on sale of investment
—

(39
)
Related income tax expense
(9
)
(11
)
 
 
 
Available-for-sale investments
69

73

 
 
 
Cash flow hedging derivative instruments:
 
 
Unrealized loss in fair value of derivative instruments
(128
)
(651
)
Reclassification to net income of loss on debt derivatives
86

530

Reclassification to net income or property, plant and equipment of loss (gain) on expenditure derivatives
7

(28
)
Reclassification to net income for accrued interest
(18
)
(21
)
Related income tax recovery
18

73

 
 
 
Cash flow hedging derivative instruments
(35
)
(97
)
 
 
 
Share of other comprehensive loss of equity-accounted investments, net of tax
(8
)
(17
)
 
 
 
Other comprehensive income (loss) for the period
26

(41
)
 
 
 
Comprehensive income for the period
320

189

The accompanying notes are an integral part of the interim condensed consolidated financial statements.
 


Rogers Communications Inc.
3
First Quarter 2017



Rogers Communications Inc.
Interim Condensed Consolidated Statements of Financial Position
(In millions of Canadian dollars, unaudited)
 
 
As at
March 31

As at
December 31

  
Note
2017

2016

 
 
 
 
Assets
 
 
 
Current assets:
 
 
 
Accounts receivable
 
1,739

1,949

Inventories
 
296

315

Other current assets
 
325

215

Current portion of derivative instruments
9
118

91

Total current assets
 
2,478

2,570

 
 
 
 
Property, plant and equipment
 
10,704

10,749

Intangible assets
 
7,111

7,130

Investments
10
2,243

2,174

Derivative instruments
9
1,605

1,708

Other long-term assets
 
94

98

Deferred tax assets
 
7

8

Goodwill
 
3,905

3,905

 
 
 
 
Total assets
 
28,147

28,342

 
 
 
 
Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Bank advances
 
49

71

Short-term borrowings
11
1,136

800

Accounts payable and accrued liabilities
 
2,345

2,783

Income tax payable
 
134

186

Current portion of provisions
 
101

134

Unearned revenue
 
446

367

Current portion of long-term debt
12
500

750

Current portion of derivative instruments
9
26

22

Total current liabilities
 
4,737

5,113

 
 
 
 
Provisions
 
33

33

Long-term debt
12
15,434

15,330

Derivative instruments
9
154

118

Other long-term liabilities
 
541

562

Deferred tax liabilities
 
1,906

1,917

Total liabilities
 
22,805

23,073

 
 
 
 
Shareholders’ equity
13
5,342

5,269

 
 
 
 
Total liabilities and shareholders’ equity
 
28,147

28,342

 
 
 
 
Subsequent events
9, 13
 
 
Contingent liabilities
16
 
 
The accompanying notes are an integral part of the interim condensed consolidated financial statements.


Rogers Communications Inc.
4
First Quarter 2017



Rogers Communications Inc.
Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity
(In millions of Canadian dollars, except number of shares, unaudited)
 
Class A
Voting shares
Class B
Non-voting shares
 
 
 
 
 
Three months ended March 31, 2017
Amount

Number
of shares
(000s)

Amount

Number
of shares
(000s)

Retained
earnings

Available-
for-sale
financial
assets
reserve

Hedging
reserve

Equity
investment reserve

Total
shareholders’
equity

Balances, January 1, 2017
72

112,412

405

402,396

4,247

642

(107
)
10

5,269

Net income for the period
—

—

—

—

294

—

—

—

294

 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Available-for-sale investments, net of tax
—

—

—

—

—

69

—

—

69

Derivative instruments accounted for as hedges, net of tax
—

—

—

—

—

—

(35
)
—

(35
)
Share of equity-accounted investments, net of tax
—

—

—

—

—

—

—

(8
)
(8
)
Total other comprehensive income (loss)
—

—

—

—

—

69

(35
)
(8
)
26

Comprehensive income for the period
—

—

—

—

294

69

(35
)
(8
)
320

 
 
 
 
 
 
 
 
 
 
Transactions with shareholders recorded directly in equity:
 
 
 
 
 
 
 
 
 
Dividends declared
—

—

—

—

(247
)
—

—

—

(247
)
Shares issued on exercise of stock options
—

—

—

2

—

—

—

—

—

Total transactions with shareholders
—

—

—

2

(247
)
—

—

—

(247
)
 
 
 
 
 
 
 
 
 
 
Balances, March 31, 2017
72

112,412

405

402,398

4,294

711

(142
)
2

5,342


 
Class A
Voting shares
Class B
Non-voting shares
 
 
 
 
 
Three months ended March 31, 2016
Amount

Number
of shares
(000s)

Amount

Number
of shares
(000s)

Retained
earnings

Available-
for-sale
financial
assets
reserve

Hedging
reserve

Equity
investment
reserve

Total
shareholders’
equity

Balances, January 1, 2016
72

112,439

402

402,308

4,474

598

57

33

5,636

Net income for the period (see note 2)
—

—

—

—

230

—

—

—

230

 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Available-for-sale investments, net of tax
—

—

—

—

—

73

—

—

73

Derivative instruments accounted for as hedges, net of tax
—

—

—

—

—

—

(97
)
—

(97
)
Share of equity-accounted investments, net of tax
—

—

—

—

—

—

—

(17
)
(17
)
Total other comprehensive income (loss)
—

—

—

—

—

73

(97
)
(17
)
(41
)
Comprehensive income for the period
—

—

—

—

230

73

(97
)
(17
)
189

 
 
 
 
 
 
 
 
 
 
Transactions with shareholders recorded directly in equity:
 
 
 
 
 
 
 
 
 
Dividends declared
—

—

—

—

(247
)
—

—

—

(247
)
Share class exchange
—

(24
)
—

24

—

—

—

—

—

Total transactions with shareholders
—

(24
)
—

24

(247
)
—

—

—

(247
)
 
 
 
 
 
 
 
 
 
 
Balances, March 31, 2016 (see note 2)
72

112,415

402

402,332

4,457

671

(40
)
16

5,578

The accompanying notes are an integral part of the interim condensed consolidated financial statements.


Rogers Communications Inc.
5
First Quarter 2017



Rogers Communications Inc.
Interim Condensed Consolidated Statements of Cash Flows
(In millions of Canadian dollars, unaudited)
  
  
Three months ended March 31
 
  
Note
2017

2016

 
 
 
see note 2

Operating activities:
 
 
 
Net income for the period
 
294

230

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization
 
545

574

Program rights amortization
 
20

21

Finance costs
6
190

196

Income tax expense
 
107

79

Stock-based compensation
14
13

12

Post-employment benefits contributions, net of expense
 
6

10

Gain on divestitures pertaining to investments
 
—

(39
)
Other
 
(3
)
10

Cash provided by operating activities before changes in non-cash working capital items, income taxes paid, and interest paid
 
1,172

1,093

Change in non-cash operating working capital items
17
(178
)
(120
)
Cash provided by operating activities before income taxes paid and interest paid
 
994

973

Income taxes paid
 
(160
)
(137
)
Interest paid
 
(238
)
(238
)
 
 
 
 
Cash provided by operating activities
 
596

598

 
 
 
 
Investing activities:
 
 
 
Additions to property, plant and equipment
 
(486
)
(552
)
Additions to program rights
 
(14
)
(10
)
Changes in non-cash working capital related to property, plant and equipment and intangible assets
 
(81
)
(137
)
Other
 
(26
)
(40
)
 
 
 
 
Cash used in investing activities
 
(607
)
(739
)
 
 
 
 
Financing activities:
 
 
 
Net proceeds received on short-term borrowings
11
336

205

Net (repayment) issuance of long-term debt
12
(53
)
119

Net repayment on settlement of debt derivatives and forward contracts
9
(3
)
(19
)
Dividends paid
 
(247
)
(247
)
 
 
 
 
Cash provided by financing activities
 
33

58

 
 
 
 
Change in cash and cash equivalents
 
22

(83
)
(Bank advances) cash and cash equivalents, beginning of period
 
(71
)
11

 
 
 
 
Bank advances, end of period
 
(49
)
(72
)
The accompanying notes are an integral part of the interim condensed consolidated financial statements.

Rogers Communications Inc.
6
First Quarter 2017


Rogers Communications Inc.
Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


 
NOTE 1: NATURE OF THE BUSINESS

Rogers Communications Inc. is 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, 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 report our results of operations in four reporting segments. Each segment and the nature of its business is as follows:
Segment
Principal activities
Wireless
Wireless telecommunications operations for Canadian consumers and businesses.
Cable
Cable telecommunications operations, including Internet, television, and telephony (phone) services for Canadian consumers and businesses. 
Business Solutions
Network connectivity through our fibre 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.
Media
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 three months ended March 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.

Statement of Compliance
We prepared our interim condensed consolidated financial statements for the three months ended March 31, 2017 (first quarter 2017 interim financial statements) in accordance with International Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB) following the same accounting policies and methods of application as those disclosed in our annual audited consolidated financial statements for the year ended December 31, 2016 (2016 financial statements) with the exception of new accounting policies that were adopted on January 1, 2017 as described in note 2. These first quarter 2017 interim financial statements were approved by the Audit and Risk Committee of our Board of Directors (Board) on April 18, 2017.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The notes presented in these first quarter 2017 interim financial statements include only significant transactions and changes occurring for the three months since our year-end of December 31, 2016 and do not include all disclosures required by International Financial Reporting Standards (IFRS) as issued by the IASB for annual financial statements. These first quarter 2017 interim financial statements should be read in conjunction with the 2016 financial statements.

Our operating results are subject to seasonal fluctuations that materially impact quarter-to-quarter operating results and thus, one quarter’s operating results are not necessarily indicative of a subsequent quarter’s operating results. All dollar amounts are in Canadian dollars unless otherwise stated.


Rogers Communications Inc.
7
First Quarter 2017



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

Change in Accounting Policies Adopted in 2016
We disclosed in our 2016 financial statements a change in accounting policy for measurement of deferred income taxes as a result of the IFRS Interpretations Committee's agenda decision relating to IAS 12, Income Taxes. As a result of this change, certain comparative information in these first quarter 2017 interim condensed consolidated financial statements was retrospectively amended. The impact of the change in policy as at and for the three months ended March 31, 2016 was an $18 million increase in income tax expense and corresponding deferred tax liability, which resulted in a decrease to net income of the same amount. Basic and diluted earnings per share were decreased by $0.03 and $0.04, respectively, for this comparative period.

New Accounting Pronouncements Adopted in 2017
We adopted new amendments to the following accounting standards effective for our interim and annual consolidated financial statements commencing January 1, 2017. These changes did not have a material impact on our financial results.

•
IAS 7, Statement of Cash Flows
•
IAS 12, Income Taxes
•
IFRS 12, Disclosure of Interests in Other Entities

Recent Accounting Pronouncements Not Yet Adopted
The IASB has issued new standards and amendments to existing standards. These changes are not yet adopted by us and will have an impact on future periods.
 
•
IFRS 9, Financial Instruments (effective January 1, 2018)
•
IFRS 15, Revenue from Contracts with Customers (effective January 1, 2018)
•
IFRS 16, Leases (effective January 1, 2019)

These changes are described in our 2016 financial statements. We continue to assess the impact of each of these standards on our consolidated financial statements and we are progressing with the implementation of each of these standards. As at the date of these interim financial statements, there have been no significant changes to the disclosure related to the implementation of these standards that was included in our 2016 financial statements. With respect to IFRS 15, we have a team dedicated to ensuring our compliance with this standard. We are implementing a new system to enable us to comply with the requirements of the standard on a contract-by-contract basis and expect to begin a parallel run under both IAS 18 and IFRS 15 using this system in 2017. We will have detailed data validation processes that will continue throughout the course of 2017. As a result, we continue to assess the impact of this standard on our consolidated financial statements and it is not yet possible to make a reliable estimate of its impact. We will disclose the estimated financial effects of the adoption of IFRS 15 in our 2017 annual consolidated financial statements.

NOTE 3: SEGMENTED INFORMATION

Our reportable segments are Wireless, Cable, Business Solutions, and Media. All four segments operate substantially in Canada. Corporate items and eliminations include our interests in businesses that are not reportable operating segments, corporate administrative functions, and eliminations of inter-segment revenues and costs. We follow the same accounting policies for our segments as those described in note 2. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. We account for transactions between reportable segments in the same way we account for transactions with external parties and eliminate them on consolidation.

The Chief Executive Officer and Chief Financial Officer of RCI are our chief operating decision makers and regularly review our operations and performance by segment. They review adjusted operating profit as the key measure of profit for the purpose of assessing performance of 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 (income) expense, and income taxes.


Rogers Communications Inc.
8
First Quarter 2017



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

Information by Segment
Three months ended March 31, 2017
Note
Wireless

Cable

Business
Solutions

Media

Corporate
items and
eliminations

Consolidated
totals

(In millions of dollars)
 
 
 
 
 
 
 
 
Revenue
 
1,968

855

95

474

(54
)
3,338

 
 
 
 
 
 
 
 
Operating costs 1
 
1,155

463

64

502

(12
)
2,172

 
 
 
 
 
 
 
 
Adjusted operating profit
 
813

392

31

(28
)
(42
)
1,166

 
 
 
 
 
 
 
 
Stock-based compensation 1
14
 
 
 
 
 
13

Depreciation and amortization
 
 
 
 
 
 
545

Restructuring, acquisition and other
5
 
 
 
 
 
28

Finance costs
6
 
 
 
 
 
190

Other income
7
 
 
 
 
 
(11
)
 
 
 
 
 
 
 
 
Income before income taxes
 
 
 
 
 
 
401

1 Included in Operating costs on the interim condensed consolidated financial statements.
Three months ended March 31, 2016
Note
Wireless

Cable

Business
Solutions

Media

Corporate
items and
eliminations

Consolidated
totals

(In millions of dollars)
 
 
 
 
 
 
 
 
Revenue
 
1,890

856

96

448

(45
)
3,245

 
 
 
 
 
 
 
 
Operating costs 1
 
1,127

463

65

497

(8
)
2,144

 
 
 
 
 
 
 
 
Adjusted operating profit
 
763

393

31

(49
)
(37
)
1,101

 
 
 
 
 
 
 
 
Stock-based compensation 1
14
 
 
 
 
 
12

Depreciation and amortization
 
 
 
 
 
 
574

Restructuring, acquisition and other
5
 
 
 
 
 
44

Finance costs
6
 
 
 
 
 
196

Other income
7
 
 
 
 
 
(34
)
 
 
 
 
 
 
 
 
Income before income taxes
 
 
 
 
 
 
309

1 Included in Operating costs on the interim condensed consolidated financial statements.

NOTE 4: OPERATING COSTS
  
Three months ended March 31
 
(In millions of dollars)
2017

2016

 
 
 
Cost of equipment sales and direct channel subsidies
458

461

Merchandise for resale
59

49

Other external purchases
1,180

1,170

Employee salaries and benefits and stock-based compensation
488

476

 
 
 
Total operating costs
2,185

2,156


NOTE 5: RESTRUCTURING, ACQUISITION AND OTHER

During the three months ended March 31, 2017, we incurred $28 million (2016 - $44 million) in restructuring, acquisition and other expenses. In both 2017 and 2016, these expenses primarily consisted of severance costs associated with the targeted restructuring of our employee base.

Rogers Communications Inc.
9
First Quarter 2017



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

NOTE 6: FINANCE COSTS
  
Three months ended March 31
 
(In millions of dollars)
2017

2016

 
 
 
Interest on borrowings
186

196

Interest on post-employment benefits liability
3

2

Gain on foreign exchange
(8
)
(25
)
Change in fair value of derivative instruments
8

24

Capitalized interest
(4
)
(4
)
Other
5

3

 
 
 
Total finance costs
190

196


NOTE 7: OTHER INCOME
  
Three months ended March 31
 
(In millions of dollars)
2017

2016

 
 
 
(Income) losses from associates and joint ventures
(18
)
14

Gain on divestitures pertaining to investments
—

(39
)
Other investment losses (income)
7

(9
)
 
 
 
Total other income
(11
)
(34
)

NOTE 8: EARNINGS PER SHARE
  
Three months ended March 31
 
 
2017

2016

(In millions of dollars, except per share amounts)
 
see note 2

 
 
 
Numerator (basic) - Net income for the period
294

230

 
 
 
Denominator - Number of shares (in millions):
 
 
Weighted average number of shares outstanding - basic
515

515

Effect of dilutive securities (in millions):
 
 
Employee stock options and restricted share units
2

2

 
 
 
Weighted average number of shares outstanding - diluted
517

517

 
 
 
Earnings per share
 
 
Basic
$0.57
$0.45
Diluted
$0.57
$0.44

For the three months ended March 31, 2017 and 2016, the diluted earnings per share calculation reflects accounting for outstanding share-based payments using the cash-settled method for stock-based compensation as it was determined to be more dilutive than using the equity-settled method.

A total of 503,905 options were out of the money for the three months ended March 31, 2017 (2016 - 1,054,530). These options were excluded from the calculation of the effect of dilutive securities because they were anti-dilutive.


Rogers Communications Inc.
10
First Quarter 2017



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

NOTE 9: FINANCIAL INSTRUMENTS

Derivative Instruments
We use derivative instruments to manage financial risks related to our business activities. These include debt derivatives, bond forwards, expenditure derivatives, and equity derivatives. We only use derivatives to manage risk and not for speculative purposes.

All of our currently outstanding debt derivatives related to our senior notes and debentures, bond forwards, and expenditure derivatives have been designated as hedges for accounting purposes.

Debt derivatives
We use cross-currency interest exchange agreements (debt derivatives) to manage risks from fluctuations in foreign exchange rates associated with our US dollar-denominated debt instruments, credit facility borrowings, and commercial paper issuances (see note 11). 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 commercial paper borrowings as hedges for accounting purposes.

During the three months ended March 31, 2017 and 2016, we entered into and settled debt derivatives related to our credit facility borrowings and US dollar-denominated commercial paper (US CP) program as follows:
 
Three months ended March 31, 2017
 
(In millions of dollars, except exchange rates)
Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
 
 
 
Credit facilities
 
 
 
Debt derivatives entered
875

1.33

1,165

Debt derivatives settled
825

1.32

1,092

 
 
 
 
Net cash paid
 
 
(3
)
 
 
 
 
Commercial paper program
 
 
 
Debt derivatives entered
200

1.33

266

 
Three months ended March 31, 2016
 
(In millions of dollars, except exchange rates)
Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
 
 
 
Credit facilities
 
 
 
Debt derivatives entered
724

1.35

976

Debt derivatives settled
342

1.39

474

 
 
 
 
Net cash paid
 
 
(19
)

As at March 31, 2017, we had US$200 million and US$200 million of debt derivatives outstanding relating to our credit facility borrowings and commercial paper program (December 31, 2016 - US$150 million and nil), respectively.

As at March 31, 2017, we had US$6.7 billion (December 31, 2016 - US$6.7 billion) in US dollar-denominated senior notes and debentures, of which all of the associated foreign exchange risk had been hedged using debt derivatives. We did not enter into or settle any debt derivatives related to senior notes or debentures during the three months ended March 31, 2017 or 2016.

Bond forwards
We use bond forward derivatives (bond forwards) to hedge interest rate risk on the senior notes we expect to issue in the future. We did not enter into any new bond forwards or settle any existing bond forwards during the three months ended March 31, 2017 or 2016. As at March 31, 2017, we had US$900 million (December 31, 2016 - US$900 million) notional amount of bond forwards outstanding, all of which were designated as hedges for accounting purposes.


Rogers Communications Inc.
11
First Quarter 2017



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

Expenditure derivatives
We use foreign currency forward contracts (expenditure derivatives) to manage the foreign exchange risk in our operations, designating them as hedges for accounting purposes for certain of our forecasted operational and capital expenditures.

During the three months ended March 31, 2017 and 2016, we entered into and settled the following expenditure derivatives:
 
Three months ended March 31, 2017
 
(In millions of dollars, except exchange rates)
Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
 
 
 
Expenditure derivatives entered
120

1.29

155

Expenditure derivatives settled
225

1.33

300

 
Three months ended March 31, 2016
 
(In millions of dollars, except exchange rates)
Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
 
 
 
Expenditure derivatives entered
420

1.39

584

Expenditure derivatives settled
210

1.22

256


As at March 31, 2017, we had US$1,185 million of expenditure derivatives outstanding (December 31, 2016 - US$1,290 million) with terms to maturity ranging from April 2017 to December 2018 (December 31, 2016 - January 2017 to December 2018), at an average rate of $1.32/US$ (December 31, 2016 - $1.32/US$).

Equity derivatives
We use total return swaps (equity derivatives) to hedge the market price appreciation risk of the RCI Class B shares granted under our stock-based compensation programs. The equity derivatives have not been designated as hedges for accounting purposes.

As at March 31, 2017, we had equity derivatives outstanding for 5.4 million (December 31, 2016 - 5.4 million) RCI Class B shares with a weighted average price of $51.44 (December 31, 2016 - $50.30).

In March 2017, we settled existing equity derivatives for net proceeds of $6 million and entered into new derivatives on one million RCI Class B shares with an expiry date of March 2018. We have also 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).

Fair Values of Financial Instruments
The carrying value 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 using 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. 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 those debt derivatives and expenditure derivatives in a liability position, our credit spread is added to the risk-free discount rate for each derivative.

The fair value of each of our bond forwards is determined by discounting to the measurement date the cash flows that result from multiplying the bond forward’s notional amount by the difference between the period-end market forward yields and the forward yield in each bond forward.


Rogers Communications Inc.
12
First Quarter 2017



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

The fair values of our equity derivatives are based on the quoted market value of RCI’s Class B Non-Voting shares.

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; and
•
Level 3 valuations are based on inputs that are not based on observable market data.

There were no material financial instruments categorized in Level 3 as at March 31, 2017 and December 31, 2016 and there were no transfers between Level 1, Level 2, or Level 3 during the three months ended March 31, 2017.
The financial instruments carried at fair value by valuation method as at March 31, 2017 and December 31, 2016 are as follows:
  
Carrying value
 
Fair value (Level 1)
 
Fair value (Level 2)
 
 
As at
Mar. 31

As at
Dec. 31

As at
Mar. 31

As at
Dec. 31

As at
Mar. 31

As at
Dec. 31

(In millions of dollars)
2017

2016

2017

2016

2017

2016

Financial assets
 
 
 
 
 
 
Available-for-sale, measured at fair value:
 
 
 
 
 
 
Investments in publicly-traded companies
1,115

1,047

1,115

1,047

—

—

Held-for-trading:
 
 
 
 
 
 
Debt derivatives accounted for as cash flow hedges
1,654

1,751

—

—

1,654

1,751

Expenditure derivatives accounted for as cash flow hedges
29

40

—

—

29

40

Equity derivatives not accounted for as cash flow hedges
40

8

—

—

40

8

 
 
 
 
 
 
 
Total financial assets
2,838

2,846

1,115

1,047

1,723

1,799

 
 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
 
Held-for-trading:
 
 
 
 
 
 
Debt derivatives accounted for as cash flow hedges
93

68

—

—

93

68

Debt derivatives not accounted for as hedges
6

—

—

—

6

—

Bond forwards accounted for as cash flow hedges
61

51

—

—

61

51

Expenditure derivatives accounted for as cash flow hedges
20

21

—

—

20

21

 
 
 
 
 
 
 
Total financial liabilities
180

140

—

—

180

140


The fair value of our long-term debt as at March 31, 2017 and December 31, 2016 is as follows:
  
As at March 31, 2017
 
As at December 31, 2016
 
(In millions of dollars)
Carrying amount

Fair value 1

Carrying amount

Fair value 1

 
 
 
 
 
Long-term debt (including current portion)
15,934

17,600

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 period-end trading values.

We did not have any non-derivative held-to-maturity financial assets during the three months ended March 31, 2017 and 2016.


Rogers Communications Inc.
13
First Quarter 2017



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

NOTE 10: INVESTMENTS
 
As at
March 31

As at
December 31

(In millions of dollars)
2017

2016

 
 
 
Investments in:
 
 
Publicly-traded companies
1,115

1,047

Private companies
164

169

Investments, available-for-sale
1,279

1,216

Investments, associates and joint ventures
964

958

 
 
 
Total investments
2,243

2,174


NOTE 11: SHORT-TERM BORROWINGS

Accounts receivable securitization program
 
As at
March 31

As at
December 31

(In millions of dollars)
2017

2016

 
 
 
Trade accounts receivable sold to buyer as security
1,065

1,460

Short-term borrowings from buyer
(870
)
(800
)
 
 
 
Overcollateralization
195

660


Below is a summary of the activity relating to our accounts receivable securitization program for the three months ended March 31, 2017 and 2016:
 
Three months ended March 31
 
(In millions of dollars)
2017

2016

 
 
 
Proceeds received from accounts receivable securitization
250

250

Repayment of accounts receivable securitization
(180
)
(45
)
 
 
 
Net proceeds received from accounts receivable securitization
70

205


As at March 31, 2017, our total funding under the securitization program was $870 million (December 31, 2016 - $800 million).

Commercial paper program
This quarter, we entered into a US CP program that allows us to issue, subject to receipt of purchase commitments from investors, up to a maximum aggregate principal amount of US$1 billion, as currently approved by our Board. Funds can be borrowed under this program with terms to maturity ranging from 1 to 397 days. 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.

During the three months ended March 31, 2017, we issued US$200 million ($266 million) (2016 - nil) of commercial paper under the US CP program, all of which was outstanding as at March 31, 2017. 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 9). We have not designated these debt derivatives as hedges for accounting purposes.


Rogers Communications Inc.
14
First Quarter 2017



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

NOTE 12: LONG-TERM DEBT
 
 
 
Principal
amount

Interest
rate

As at
March 31

As at
December 31

(In millions of dollars, except interest rates)
Due date
  
2017

2016

 
 
 
 
 
 
 
Bank credit facilities
 
 
 
Floating

225

100

Bank credit facilities
 
US
revolving

Floating

266

201

Senior notes
2017
 
250

Floating

—

250

Senior notes
2017
 
500

3.000
%
500

500

Senior notes
2018
US
1,400

6.800
%
1,863

1,880

Senior notes
2019
 
400

2.800
%
400

400

Senior notes
2019
 
500

5.380
%
500

500

Senior notes
2020
 
900

4.700
%
900

900

Senior notes
2021
 
1,450

5.340
%
1,450

1,450

Senior notes
2022
 
600

4.000
%
600

600

Senior notes
2023
US
500

3.000
%
665

671

Senior notes
2023
US
850

4.100
%
1,130

1,141

Senior notes
2024
 
600

4.000
%
600

600

Senior notes
2025
US
700

3.625
%
931

940

Senior notes
2026
US
500

2.900
%
665

671

Senior debentures 1
2032
US
200

8.750
%
266

269

Senior notes
2038
US
350

7.500
%
465

470

Senior notes
2039
 
500

6.680
%
500

500

Senior notes
2040
 
800

6.110
%
800

800

Senior notes
2041
 
400

6.560
%
400

400

Senior notes
2043
US
500

4.500
%
665

671

Senior notes
2043
US
650

5.450
%
864

873

Senior notes
2044
US
1,050

5.000
%
1,396

1,410

 
 
 
 
 
16,051

16,197

Deferred transaction costs and discounts
 
 
 
 
(117
)
(117
)
Less current portion
 
 
 
 
(500
)
(750
)
 
 
 
 
 
 
 
Total long-term debt
 
 
 
 
15,434

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 March 31, 2017 and December 31, 2016.

Bank Credit and Letter of Credit Facilities
During the three months ended March 31, 2017 and 2016, we had the following activity relating to our revolving and non-revolving bank credit facilities:
 
Three months ended March 31, 2017
 
 
Notional

Exchange

Notional

(In millions of dollars, except exchange rates)
(US$)

rate

(Cdn$)

 
 
 
 
Issuance of US dollar long-term debt
425

1.34

571

Issuance of Canadian dollar long-term debt
 
 
700

 
 
 
 
Total long-term debt issued
 
 
1,271

 
 
 
 
Repayment of US dollar long-term debt
(375
)
1.33

(499
)
Repayment of Canadian dollar long-term debt
 
 
(575
)
 
 
 
 
Total long-term debt repaid
 
 
(1,074
)

Rogers Communications Inc.
15
First Quarter 2017



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

 
Three months ended March 31, 2016
 
 
Notional

Exchange

Notional

(In millions of dollars, except exchange rates)
(US$)

rate

(Cdn$)

 
 
 
 
Issuance of US dollar long-term debt
507

1.36

688

Issuance of Canadian dollar long-term debt
 
 
—

 
 
 
 
Total long-term debt issued
 
 
688

 
 
 
 
Repayment of US dollar long-term debt
(50
)
1.38

(69
)
Repayment of Canadian dollar long-term debt
 
 
(500
)
 
 
 
 
Total long-term debt repaid
 
 
(569
)

As at March 31, 2017, we had $491 million outstanding under our revolving and non-revolving credit facilities (December 31, 2016 - $301 million). We have 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 9).

This quarter, 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.

During the quarter, 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.

Senior Notes
Issuance of senior notes and related derivative settlements
We did not issue any senior notes during the three months ended March 31, 2017 or 2016.

Repayment of senior notes and related derivative settlements
The table below provides a summary of the repayment of our senior notes for the three months ended March 31, 2017.
  
Three months ended March 31, 2017
 
(In millions of dollars)
Maturity date
Notional
amount (US$)
Notional
amount (Cdn$)
 
 
 
March 13, 2017
—

250


We did not repay any senior notes or settle any related debt derivatives during the three months ended March 31, 2016.


Rogers Communications Inc.
16
First Quarter 2017



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

NOTE 13: SHAREHOLDERS' EQUITY

Dividends
In 2017 and 2016, we declared and paid the following dividends on our outstanding Class A Voting and Class B Non-Voting shares:
Date declared
Date paid
Dividend per share (dollars)  

 
 
 
January 26, 2017
April 3, 2017
0.48

 
 
0.48

 
 
 
January 27, 2016
April 1, 2016
0.48

April 18, 2016
July 4, 2016
0.48

August 11, 2016
October 3, 2016
0.48

October 20, 2016
January 3, 2017
0.48

 
 
1.92


The holders of Class A shares are entitled to receive dividends at the rate of up to five cents per share but only after dividends at the rate of five cents per share have been paid or set aside on the Class B shares. Class A Voting and Class B Non-Voting shares therefore participate equally in dividends above five cents per share.

NOTE 14: STOCK-BASED COMPENSATION
A summary of our stock-based compensation expense, which is included in employee salaries and benefits expense, is as follows:
  
Three months ended March 31
 
(In millions of dollars)
2017

2016

 
 
 
Stock options
17

13

Restricted share units
16

15

Deferred share units
20

10

Equity derivative effect, net of interest receipt
(40
)
(26
)
 
 
 
Total stock-based compensation expense
13

12


As at March 31, 2017, we had a total liability, recorded at its fair value, of $186 million (December 31, 2016 - $189 million) related to stock-based compensation, including stock options, restricted share units (RSUs), and deferred share units (DSUs).

During the three months ended March 31, 2017, we paid $63 million (2016 - $45 million) to holders of stock options, RSUs, and DSUs upon exercise using the cash settlement feature.

Stock Options
Summary of stock options
  
Three months ended March 31, 2017
(in number of units, except prices)
Number of options

Weighted average
exercise price
 
 
 
Outstanding, beginning of period
3,732,524

$43.70
Granted
503,905

$56.70
Exercised
(660,148
)
$42.48
Forfeited
(97,642
)
$49.95
 
 
 
Outstanding, end of period
3,478,639

$45.75
 
 
 
Exercisable, end of period
1,771,215

$41.87

Rogers Communications Inc.
17
First Quarter 2017



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

  
Three months ended March 31, 2016
(in number of units, except prices)
Number of options

Weighted average
exercise price
 
 
 
Outstanding, beginning of period
4,873,940

$41.47
Granted
1,054,530

$49.95
Exercised
(572,646
)
$34.23
Forfeited
(12,252
)
$44.44
 
 
 
Outstanding, end of period
5,343,572

$43.91
 
 
 
Exercisable, end of period
2,486,203

$40.53

Included in the above table are grants of nil performance options to certain key executives during the three months ended March 31, 2017 (2016 - 420,035).

Unrecognized stock-based compensation expense related to stock option plans was $6 million as at March 31, 2017 (December 31, 2016 - $3 million) and will be recognized in net income over the next four years as the options vest.

Restricted Share Units
Summary of RSUs
  
Three months ended March 31
 
(in number of units)
2017

2016

 
 
 
Outstanding, beginning of period
2,237,085

2,484,405

Granted and reinvested dividends
547,562

621,798

Exercised
(870,532
)
(614,484
)
Forfeited
(99,580
)
(60,438
)
 
 
 
Outstanding, end of period
1,814,535

2,431,281


Included in the above table are grants of 63,542 performance RSUs to certain key executives during the three months ended March 31, 2017 (2016 - 85,793).

Unrecognized stock-based compensation expense related to these RSUs was $55 million as at March 31, 2017 (December 31, 2016 - $35 million) and will be recognized in net income over the next three years as the RSUs vest.

Deferred Share Unit Plan
Summary of DSUs
  
Three months ended March 31
 
(in number of units)
2017

2016

 
 
 
Outstanding, beginning of period
2,396,458

1,770,871

Granted and reinvested dividends
647,257

873,036

Exercised
(87,505
)
(99,137
)
Forfeited
(94,337
)
(41,691
)
 
 
 
Outstanding, end of period
2,861,873

2,503,079


Included in the above table are grants of 176,275 performance DSUs to certain key executives during the three months ended March 31, 2017 (2016 - 309,504).

Unrecognized stock-based compensation expense related to these DSUs as at March 31, 2017 was $49 million (December 31, 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.


Rogers Communications Inc.
18
First Quarter 2017



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

NOTE 15: RELATED PARTY TRANSACTIONS

Controlling Shareholder
We enter into certain transactions with private companies controlled by the controlling shareholder of RCI, the Rogers Control 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 during the three months ended March 31, 2017 and 2016 were less than $1 million, respectively.

Transactions with Key Management Personnel
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 chairman of a company that provides printing services to the Company.

We recognize these transactions at the amounts agreed to by the related parties, which are also reviewed by the Audit and Risk Committee. The amounts owing for these services are unsecured, interest-free, and due for payment in cash within one month of the date of the transaction. The related party activity for the business transactions described above is summarized as follows:
  
Three months ended March 31
 
(In millions of dollars)
2017

2016

 
 
 
Printing and legal services
7

5


NOTE 16: CONTINGENT LIABILITIES

We have the following contingent liabilities as at March 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.

In 2013, the plaintiffs applied for an order to be allowed to proceed with the second system access fee class action. However, the court denied this application and the second action remains conditionally stayed.

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 certifying the proceeding as a national class action in Saskatchewan. We have not recognized a liability for this contingency.


Rogers Communications Inc.
19
First Quarter 2017



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

Cellular Devices
In July 2013, a class action was launched in British Columbia against providers of wireless communications in Canada and manufacturers of wireless devices. The class action relates to the alleged adverse health effects incurred by long-term users of cellular devices. The plaintiffs are seeking unspecified damages and punitive damages, effectively equal to the reimbursement of the portion of 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.

Outcome of Proceedings
The outcome of all the proceedings and claims against us, including the matters described above, is subject to future resolution that includes the uncertainties of litigation. It is not possible for us to predict the result or magnitude of the claims due to the various factors and uncertainties involved in the legal process. Based on information currently known to us, we believe it is not probable that the ultimate resolution of any of these proceedings and claims, individually or in total, will have a material adverse effect on our business, financial results, or financial 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.

NOTE 17: SUPPLEMENTAL CASH FLOW INFORMATION
  
Three months ended March 31
 
(In millions of dollars)
2017

2016

 
 
 
Accounts receivable
199

32

Inventories
19

(2
)
Other current assets
(110
)
(125
)
Accounts payable and accrued liabilities
(365
)
(78
)
Unearned revenue
79

53

 
 
 
Total change in non-cash operating working capital items
(178
)
(120
)


Rogers Communications Inc.
20
First Quarter 2017