EX-99.2 3 rci-03312019xexhibit992.htm EXHIBIT 99.2 Exhibit

Exhibit 99.2
rogerslogoa11.jpg




Rogers Communications Inc.



INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Three months ended March 31, 2019 and 2018


















Rogers Communications Inc.
1
First Quarter 2019



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

2019

2018

 
 
 
 
Revenue
4

3,587

3,633

 
 


Operating expenses:
 


Operating costs
5

2,252

2,295

Depreciation and amortization
 
609

544

Gain on disposition of property, plant and equipment
 

(11
)
Restructuring, acquisition and other
6

20

43

Finance costs
7

189

219

Other income
8

(13
)
(23
)
 
 
 
 
Income before income tax expense
 
530

566

Income tax expense
 
139

141

 
 




Net income for the period
 
391

425

 
 
 
 
Earnings per share:
 
 
 
Basic
9

$0.76
$0.83
Diluted
9

$0.76
$0.80
The accompanying notes are an integral part of the interim condensed consolidated financial statements.



Rogers Communications Inc.
2
First Quarter 2019



Rogers Communications Inc.
Interim Condensed Consolidated Statements of Comprehensive Income
(In millions of Canadian dollars, unaudited)
  
Three months ended March 31
 
  
2019

2018

 
 
 
Net income for the period
391

425

 
 
 
Other comprehensive income (loss):
 
 
 
 
 
Items that will not be reclassified to income
 
 
Equity investments measured at fair value through other comprehensive income (FVTOCI):
 
 
Increase (decrease) in fair value
312

(301
)
Related income tax (expense) recovery
(44
)
40

 
 
 
Equity investments measured at FVTOCI
268

(261
)
 
 
 
Items that may subsequently be reclassified to income:
 
 
Cash flow hedging derivative instruments:
 
 
Unrealized (loss) gain in fair value of derivative instruments
(338
)
121

Reclassification to net income of loss (gain) on debt derivatives
169

(263
)
Reclassification to net income or property, plant and equipment of (gain) loss on expenditure derivatives
(16
)
4

Reclassification to net income for accrued interest
(12
)
(13
)
Related income tax recovery
64

9

 
 
 
Cash flow hedging derivative instruments
(133
)
(142
)
 
 
 
Share of other comprehensive (loss) income of equity-accounted investments, net of tax
(3
)
1

 
 
 
Other comprehensive income (loss) for the period
132

(402
)
 
 
 
Comprehensive income for the period
523

23

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

Rogers Communications Inc.
3
First Quarter 2019



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

As at
January 1

As at
December 31

  
Note

2019

2019

2018

 
 
 
(see note 2)

 
 
 
 
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
264

405

405

Accounts receivable
 
2,088

2,259

2,259

Inventories
 
462

466

466

Current portion of contract assets
 
1,081

1,052

1,052

Other current assets
 
411

413

436

Current portion of derivative instruments
10

201

270

270

Total current assets
 
4,507

4,865

4,888

 
 
 
 
 
Property, plant and equipment
 
13,327

13,261

11,780

Intangible assets


7,188

7,205

7,205

Investments
12

2,458

2,134

2,134

Derivative instruments
10

1,119

1,339

1,339

Contract assets
 
515

535

535

Other long-term assets
 
134

132

132

Goodwill
 
3,905

3,905

3,905

 
 
 
 
 
Total assets
 
33,153

33,376

31,918

 
 
 
 
 
Liabilities and shareholders' equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term borrowings
13

2,648

2,255

2,255

Accounts payable and accrued liabilities
 
2,693

2,997

3,052

Income tax payable
 
193

177

177

Other current liabilities
 
139

132

132

Contract liabilities
 
282

233

233

Current portion of long-term debt
14

500

900

900

Current portion of derivative instruments
10

134

87

87

Current portion of lease liabilities
11

187

190


Total current liabilities
 
6,776

6,971

6,836

 
 


 
 
Provisions
 
36

35

35

Long-term debt
14

13,224

13,390

13,390

Derivative instruments
10

87

22

22

Lease liabilities
11

1,371

1,355


Other long-term liabilities
 
529

546

546

Deferred tax liabilities
 
2,863

2,901

2,910

Total liabilities
 
24,886

25,220

23,739

 
 


 
 
Shareholders' equity
15

8,267

8,156

8,179

 
 


 
 
Total liabilities and shareholders' equity
 
33,153

33,376

31,918

 
 
 
 
 
Subsequent events
13, 15, 20

 
 
 
Contingent liabilities
18

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


Rogers Communications Inc.
4
First Quarter 2019



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, 2019
Amount

Number
of shares
(000s)

Amount

Number
of shares
(000s)

Retained
earnings

FVTOCI investment reserve

Hedging
reserve

Equity
investment reserve

Total
shareholders'
equity

Balances, December 31, 2018
71

111,155

406

403,657

7,182

636

(125
)
9

8,179

Adjustments pertaining to IFRS 16 adoption (see note 2)




(23
)



(23
)
Balances, January 1, 2019 (see note 2)
71

111,155

406

403,657

7,159

636

(125
)
9

8,156

Net income for the period




391




391

 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
FVTOCI investments, net of tax





268



268

Derivative instruments accounted for as hedges, net of tax






(133
)

(133
)
Share of equity-accounted investments, net of tax







(3
)
(3
)
Total other comprehensive income (loss)





268

(133
)
(3
)
132

Comprehensive income for the period




391

268

(133
)
(3
)
523

 
 
 
 
 
 
 
 
 
 
Reclassification to retained earnings for disposition of FVTOCI investments




14

(14
)



 
 
 
 
 
 
 
 
 
 
Transactions with shareholders recorded directly in equity:
 
 
 
 
 
 
 
 
 
Repurchase of Class B Non-Voting Shares


(2
)
(2,164
)
(153
)



(155
)
Dividends declared




(257
)



(257
)
Share class exchange

(1
)

1






Total transactions with shareholders

(1
)
(2
)
(2,163
)
(410
)



(412
)
 
 
 
 
 
 
 
 
 
 
Balances, March 31, 2019
71

111,154

404

401,494

7,154

890

(258
)
6

8,267

 
Class A
Voting Shares
Class B
Non-Voting Shares
 
 
 
 
 
Three months ended March 31, 2018
Amount

Number
of shares
(000s)

Amount

Number
of shares
(000s)

Retained
earnings

FVTOCI investment reserve

Hedging
reserve

Equity
investment
reserve

Total
shareholders'
equity

Balances, January 1, 2018
72

112,407

405

402,403

6,070

1,013

(63
)
(5
)
7,492

Net income for the period




425




425

 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
FVTOCI investments, net of tax





(261
)


(261
)
Derivative instruments accounted for as hedges, net of tax






(142
)

(142
)
Share of equity-accounted investments, net of tax







1

1

Total other comprehensive income (loss)





(261
)
(142
)
1

(402
)
Comprehensive income for the period




425

(261
)
(142
)
1

23

 
 
 
 
 
 
 
 
 
 
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, 2018
72

112,407

405

402,405

6,248

752

(205
)
(4
)
7,268

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


Rogers Communications Inc.
5
First Quarter 2019



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

2019

2018

Operating activities:
 
 
 
Net income for the period
 
391

425

Adjustments to reconcile net income to cash provided by operating activities:
 


Depreciation and amortization
 
609

544

Program rights amortization
 
19

14

Finance costs
7

189

219

Income tax expense
 
139

141

Post-employment benefits contributions, net of expense
 
8

17

Gain on disposition of property, plant and equipment
 

(11
)
Net change in contract asset balances
 
(9
)
(69
)
Other
 
30

(26
)
Cash provided by operating activities before changes in non-cash working capital items, income taxes paid, and interest paid
 
1,376

1,254

Change in non-cash operating working capital items
19

(13
)
(21
)
Cash provided by operating activities before income taxes paid and interest paid
 
1,363

1,233

Income taxes paid
 
(145
)
(110
)
Interest paid
 
(220
)
(238
)
 
 
 
 
Cash provided by operating activities
 
998

885

 
 
 
 
Investing activities:
 
 
 
Capital expenditures
19

(617
)
(605
)
Additions to program rights
 
(7
)
(6
)
Changes in non-cash working capital related to capital expenditures and intangible assets
 
(107
)
(138
)
Other
 
(3
)
10

 
 
 
 
Cash used in investing activities
 
(734
)
(739
)
 
 
 
 
Financing activities:
 
 
 
Net proceeds received (repayments) on short-term borrowings
13

430

(848
)
Net (repayment) issuance of long-term debt
14

(400
)
938

Net payments on settlement of debt derivatives and forward contracts
10

(11
)
(16
)
Principal payments of lease liabilities
11

(41
)

Transaction costs incurred
14


(16
)
Repurchase of Class B Non-Voting Shares
 
(136
)

Dividends paid
 
(247
)
(247
)
 
 
 
 
Cash used in financing activities
 
(405
)
(189
)
 
 
 
 
Change in cash and cash equivalents
 
(141
)
(43
)
Cash and cash equivalents (bank advances), beginning of period
 
405

(6
)
 
 
 
 
Cash and cash equivalents (bank advances), end of period
 
264

(49
)
The accompanying notes are an integral part of the interim condensed consolidated financial statements.


Rogers Communications Inc.
6
First Quarter 2019



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 three reportable 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, telephony (phone), and smart home monitoring services for Canadian consumers and businesses, and 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 business, 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, and digital media.

During the three months ended March 31, 2019, Wireless and Cable 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.

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. These fluctuations are described in note 1 to our annual audited consolidated financial statements for the year ended December 31, 2018 (2018 financial statements).

Statement of Compliance
We prepared our interim condensed consolidated financial statements for the three months ended March 31, 2019 (first quarter 2019 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 2018 financial statements with the exception of new accounting policies that were adopted on January 1, 2019 as described in note 2. These first quarter 2019 interim financial statements were approved by RCI's Board of Directors on April 17, 2019.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The notes presented in these first quarter 2019 interim financial statements include only significant transactions and changes occurring for the three months since our year-end of December 31, 2018 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 2019 interim financial statements should be read in conjunction with the 2018 financial statements.

All dollar amounts are in Canadian dollars unless otherwise stated.

New Accounting Standards
IFRS 16 - Leases (IFRS 16)
Effective January 1, 2019, we adopted IFRS 16, which supersedes previous accounting standards for leases, including IAS 17, Leases (IAS 17) and IFRIC 4, Determining whether an arrangement contains a lease (IFRIC 4).

IFRS 16 introduced a single accounting model for lessees unless the underlying asset is of low value. A lessee is required to recognize, on its statement of financial position, a right-of-use asset, representing its right to use the underlying leased asset, and a lease liability, representing its obligation to make lease payments. As a result of adopting IFRS 16, we have recognized a significant increase to both assets and liabilities on our Consolidated Statements of Financial Position, as well as a decrease to operating costs (for the removal of rent expense for leases), an increase to depreciation

Rogers Communications Inc.
7
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


and amortization (due to depreciation of the right-of-use asset), and an increase to finance costs (due to accretion of the lease liability). The accounting treatment for lessors remains largely the same as under IAS 17.

We adopted IFRS 16 with the cumulative effect of initial application recognized as an adjustment to retained earnings within shareholders' equity on January 1, 2019. We have not restated comparatives for 2018. At transition, we applied the practical expedient available to us as lessee that allows us to maintain our lease assessments made under IAS 17 and IFRIC 4 for existing contracts. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed after January 1, 2019.

For leases that were classified as operating leases under IAS 17, lease liabilities at transition have been measured at the present value of remaining lease payments, discounted at the related incremental borrowing rate as at January 1, 2019. Generally, right-of-use assets at transition have been measured at an amount equal to the corresponding lease liabilities, adjusted for any prepaid or accrued rent relating to that lease. For certain leases where we have readily available information, we have elected to measure the right-of-use assets at their carrying amounts as if IFRS 16 had been applied since the lease commencement date using the related incremental borrowing rate for the remaining lease period as at January 1, 2019.

When applying IFRS 16 to leases previously classified as operating leases, the following practical expedients were available to us. We have:
applied a single discount rate to a portfolio of leases with similar characteristics;
excluded initial direct costs from measuring the right-of-use asset as at January 1, 2019;
used hindsight in determining the lease term where the contract contains purchase, extension, or termination options; and
relied upon our assessment of whether leases are onerous under the requirements of IAS 37, Provisions, contingent liabilities and contingent assets as at December 31, 2018 as an alternative to reviewing our right-of-use assets for impairment.

We have elected to not separate fixed non-lease components from lease components and instead account for each lease component and associated fixed non-lease components as a single lease component. On transition, we have not elected the recognition exemptions on short-term leases or low-value leases; however, we may choose to elect the recognition exemptions on a class-by-class basis for new classes, and lease-by-lease basis, respectively, in the future.

There was no significant impact for contracts in which we are the lessor.


Rogers Communications Inc.
8
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


Reconciliation of condensed consolidated statement of financial position as at January 1, 2019
Below is the effect of transition to IFRS 16 on our condensed consolidated statement of financial position as at January 1, 2019.
(In millions of dollars)
Reference
As reported as at
December 31, 2018

Effect of IFRS 16 transition

Subsequent to transition as at
January 1, 2019

 
 
 
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
405


405

Accounts receivable
 
2,259


2,259

Inventories
 
466


466

Current portion of contract assets
 
1,052


1,052

Other current assets
 
436

(23
)
413

Current portion of derivative instruments
 
270


270

Total current assets
 
4,888

(23
)
4,865

 
 
 
 
 
Property, plant and equipment
i
11,780

1,481

13,261

Intangible assets
 
7,205


7,205

Investments
 
2,134


2,134

Derivative instruments
 
1,339


1,339

Contract assets
 
535


535

Other long-term assets
 
132


132

Goodwill
 
3,905


3,905

 
 
 
 
 
Total assets
 
31,918

1,458

33,376

 
 
 
 
 
Liabilities and shareholders' equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term borrowings
 
2,255


2,255

Accounts payable and accrued liabilities
 
3,052

(55
)
2,997

Income tax payable
 
177


177

Other current liabilities
 
132


132

Contract liabilities
 
233


233

Current portion of long-term debt
 
900


900

Current portion of derivative instruments
 
87


87

Current portion of lease liabilities
i

190

190

Total current liabilities
 
6,836

135

6,971

 
 
 
 
 
Provisions
 
35


35

Long-term debt
 
13,390


13,390

Derivative instruments
 
22


22

Lease liabilities
i

1,355

1,355

Other long-term liabilities
 
546


546

Deferred tax liabilities
 
2,910

(9
)
2,901

Total liabilities
 
23,739

1,481

25,220

 
 
 
 
 
Shareholders' equity
 
8,179

(23
)
8,156

 
 
 
 
 
Total liabilities and shareholders' equity
 
31,918

1,458

33,376


Prior to adopting IFRS 16, our total minimum operating lease commitments as at December 31, 2018 were $979 million. The weighted average discount rate applied to the total lease liabilities recognized on transition was 3.82%. The difference between the total of the minimum lease payments set out in Note 27 to our 2018 Annual Financial Statements and the total lease liabilities recognized on transition was a result of:
the inclusion of lease payments beyond minimum commitments relating to reasonably certain renewal periods or extension options that had not yet been exercised as at December 31, 2018; partially offset by
the effect of discounting on the minimum lease payments; and

Rogers Communications Inc.
9
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


certain costs to which we are contractually committed under lease contracts but which do not qualify to be accounted for as a lease liability, such as variable lease payments not tied to an index or rate.

i) Right-of-use assets and lease liabilities
We have recorded a right-of-use asset and a lease liability for all existing leases at the lease commencement date, which is January 1, 2019 for the purposes of our adoption. The lease liability has been initially measured at the present value of lease payments that remain to be paid at the commencement date. Lease payments included in the measurement of the lease liability include:
fixed payments, including in-substance fixed payments;
variable lease payments that depend on an index or rate;
amounts expected to be payable under a residual value guarantee; and
the exercise price under a purchase option that we are reasonably certain to exercise, lease payments in an optional renewal period if we are reasonably certain to exercise an extension option, and penalties for early termination of a lease unless we are reasonably certain not to terminate early.

After transition, the right-of-use asset will initially be measured at cost, consisting of:
the initial amount of the lease liability, adjusted for any lease payments made at or before the commencement date; plus
any initial direct costs incurred; and
an estimate of costs to dismantle and remove the underlying asset or restore the site on which it is located; less
any lease incentives received.

The right-of-use asset will typically be depreciated on a straight-line basis over the lease term, unless we expect to obtain ownership of the leased asset at the end of the lease. The lease term will consist of:
the non-cancellable period of the lease;
periods covered by options to extend the lease, where we are reasonably certain to exercise the option; and
periods covered by options to terminate the lease, where we are reasonably certain not to exercise the option.

See note 11 for our accounting policies, including estimates and judgments, to be used for accounting for leases under IFRS 16.

NOTE 3: SEGMENTED INFORMATION

Our reportable segments are Wireless, Cable, and Media. All three 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 of our 2018 Annual Audited Consolidated Financial Statements. 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, however eliminate them on consolidation.

The Chief Executive Officer and Chief Financial Officer of RCI are, collectively, our chief operating decision maker and regularly review our operations and performance by segment. They review adjusted EBITDA 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 EBITDA is defined as income before depreciation and amortization; (gain) loss on disposition of property, plant and equipment; restructuring, acquisition and other; finance costs; other (income) expense; and income tax expense.


Rogers Communications Inc.
10
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


Information by Segment
Three months ended March 31, 2019
Note
Wireless

Cable

Media

Corporate items and eliminations

Consolidated
totals

(In millions of dollars)
 
 
 
 
 
 
 
Revenue
 
2,189

976

468

(46
)
3,587

 
 
 
 
 
 
 
Operating costs
 
1,174

531

552

(5
)
2,252

 
 
 
 
 
 
 
Adjusted EBITDA
 
1,015

445

(84
)
(41
)
1,335

 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
609

Restructuring, acquisition and other
6
 
 
 
 
20

Finance costs
7
 
 
 
 
189

Other income
8
 
 
 
 
(13
)
 
 
 
 
 
 
 
Income before income taxes
 
 
 
 
 
530

Three months ended March 31, 2018
Note
Wireless

Cable

Media

Corporate items and eliminations

Consolidated
totals

(In millions of dollars)
 
 
 
 
 
 
 
Revenue
 
2,191

969

532

(59
)
3,633

 
 
 
 
 
 
 
Operating costs
 
1,257

536

509

(7
)
2,295

 
 
 
 
 
 
 
Adjusted EBITDA
 
934

433

23

(52
)
1,338

 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
544

Gain on disposition of property, plant and equipment
 
 
 
 
 
(11
)
Restructuring, acquisition and other
6
 
 
 
 
43

Finance costs
7
 
 
 
 
219

Other income
8
 
 
 
 
(23
)
 
 
 
 
 
 
 
Income before income taxes
 
 
 
 
 
566



Rogers Communications Inc.
11
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


NOTE 4: REVENUE
 
Three months ended March 31
 
(In millions of dollars)
2019

2018

 
 
 
Wireless
 
 
Service revenue
1,747

1,687

Equipment revenue
442

504

 
 
 
Total Wireless
2,189

2,191

 
 
 
Cable
 
 
Internet
541

506

Television
357

365

Phone
76

96

Service revenue
974

967

Equipment revenue
2

2

 
 
 
Total Cable
976

969

 
 
 
Total Media
468

532

 
 
 
Corporate items and intercompany eliminations
(46
)
(59
)
 
 
 
Total revenue
3,587

3,633


NOTE 5: OPERATING COSTS
  
Three months ended March 31
 
(In millions of dollars)
2019

2018

 
 
 
Cost of equipment sales
506

566

Merchandise for resale
56

57

Other external purchases
1,147

1,179

Employee salaries, benefits, and stock-based compensation
543

493

 
 
 
Total operating costs
2,252

2,295


NOTE 6: RESTRUCTURING, ACQUISITION AND OTHER

During the three months ended March 31, 2019, we incurred $20 million (2018 - $43 million) in restructuring, acquisition and other expenses. These expenses in 2019 and 2018 primarily consisted of severance costs associated with the targeted restructuring of our employee base.


Rogers Communications Inc.
12
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


NOTE 7: FINANCE COSTS
  
 
Three months ended March 31
 
(In millions of dollars)
Note
2019

2018

 
 
 
 
Interest on borrowings 1
 
173

187

Interest on post-employment benefits liability
 
3

2

Loss on repayment of long-term debt
14

28

(Gain) loss on foreign exchange
 
(45
)
8

Change in fair value of derivative instruments
 
44

(5
)
Capitalized interest
 
(5
)
(5
)
Other
 
5

4

 
 
 
 
Finance costs before interest on lease liabilities
 
175

219

Interest on lease liabilities
11
14


 
 
 
 
Total finance costs
 
189

219

1 
Interest on borrowings includes interest on short-term borrowings and on long-term debt.

NOTE 8: OTHER INCOME
  
Three months ended March 31
 
(In millions of dollars)
2019

2018

 
 
 
Income from associates and joint ventures
(6
)
(14
)
Other investment income
(7
)
(9
)
 
 
 
Total other income
(13
)
(23
)

NOTE 9: EARNINGS PER SHARE
  
Three months ended March 31
 
(In millions of dollars, except per share amounts)
2019

2018

 
 
 
Numerator (basic) - Net income for the period
391

425

 
 
 
Denominator - Number of shares (in millions):
 
 
Weighted average number of shares outstanding - basic
514

515

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

1

 
 
 
Weighted average number of shares outstanding - diluted
516

516

 
 
 
Earnings per share
 
 
Basic
$0.76
$0.83
Diluted
$0.76
$0.80

For the three months ended March 31, 2018, accounting for outstanding share-based payments using the equity-settled method for stock-based compensation was determined to be more dilutive than using the cash-settled method. There was no such effect for the three months ended March 31, 2019. As a result, net income for the three months ended March 31, 2019 was reduced by nil (2018 - $13 million) in the diluted earnings per share calculation.

A total of 1,040,170 options were out of the money for the three months ended March 31, 2019 (2018 - 489,835). These options were excluded from the calculation of the effect of dilutive securities because they were anti-dilutive.


Rogers Communications Inc.
13
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


NOTE 10: 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 senior notes and debentures, credit facility borrowings, and US dollar-denominated commercial paper (US CP) borrowings (see note 13). 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. Debt derivatives related to our credit facility and US CP borrowings have not been designated as hedges for accounting purposes.

Below is a summary of the debt derivatives we entered into and settled related to our US CP program during the three months ended March 31, 2019 and 2018.
 
Three months ended March 31, 2019
 
 
Three months ended March 31, 2018
 
(In millions of dollars, except exchange rates)
Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
 
 
 
 
 
 
 
Debt derivatives entered
3,858

1.33

5,132

 
2,220

1.26

2,794

Debt derivatives settled
3,536

1.33

4,701

 
2,890

1.26

3,653

Net cash paid
 
 
(11
)
 
 
 
(16
)

As at March 31, 2019, we had US$1,495 million notional amount of debt derivatives outstanding relating to our US CP program (December 31, 2018 - US$1,178 million).

As at March 31, 2019, we had US$6,050 million (December 31, 2018 - US$6,050 million) 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 any debt derivatives related to senior notes during the three months ended March 31, 2019. During the three months ended March 31, 2018, concurrent with the issuance of our US$750 million senior notes due 2048, we entered into debt derivatives to convert all interest and principal payment obligations to Canadian dollars. As a result, we received net proceeds of $938 million from the issuance.

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 or settle any bond forwards during the three months ended March 31, 2019 or 2018. As at March 31, 2019, we had $900 million (December 31, 2018 - $900 million) notional amount of bond forwards outstanding, all of which were designated as hedges for accounting purposes.

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.

Below is a summary of the expenditure derivatives we entered into and settled during the three months ended March 31, 2019 and 2018.
 
Three months ended March 31, 2019
 
 
Three months ended March 31, 2018
 
(In millions of dollars, except exchange rates)
Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
 
 
 
 
 
 
 
Expenditure derivatives entered
240

1.30

313

 
600

1.23

740

Expenditure derivatives settled
210

1.24

261

 
210

1.30

273



Rogers Communications Inc.
14
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


As at March 31, 2019, we had US$1,110 million of expenditure derivatives outstanding (December 31, 2018 - US$1,080 million) with terms to maturity ranging from April 2019 to December 2020 (December 31, 2018 - January 2019 to December 2020), at an average rate of $1.25/US$ (December 31, 2018 - $1.24/US$).

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

As at March 31, 2019, we had equity derivatives outstanding for 4.7 million (December 31, 2018 - 5.0 million) Class B Non-Voting Shares with a weighted average price of $51.62 (December 31, 2018 - $51.54).

During the three months ended March 31, 2019, we settled 0.3 million equity derivatives for net proceeds of $7 million.
We have executed extension agreements for our equity derivative contracts under substantially the same commitment terms and conditions with revised expiry dates to April 2020 (from April 2019).

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. The carrying value of our lease liabilities approximates their fair value because the discount rate used to calculate them approximates our then-current borrowing rate.

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, or period-end trading values, where available. We determine the fair values of our debt derivatives and expenditure derivatives using an estimated credit-adjusted mark-to-market valuation by discounting cash flows to the measurement date. In the case of debt derivatives and expenditure derivatives in an asset position, the credit spread for the financial institution counterparty is added to the risk-free discount rate to determine the estimated credit-adjusted value for each derivative. For 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.

The fair values of our equity derivatives are based on the quoted market value of 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, 2019 or December 31, 2018 and there were no transfers between Level 1, Level 2, or Level 3 during the three months ended March 31, 2019 or 2018.

Rogers Communications Inc.
15
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


Below is a summary of our financial instruments carried at fair value as at March 31, 2019 and December 31, 2018.
  
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)
2019

2018

2019

2018

2019

2018

Financial assets
 
 
 
 
 
 
Investments, measured FVTOCI:
 
 
 
 
 
 
Investments in publicly traded companies
1,382

1,051

1,382

1,051



Derivatives:
 
 
 
 
 
 
Debt derivatives accounted for as cash flow hedges
1,139

1,354



1,139

1,354

Debt derivatives not accounted for as cash flow hedges
7

41



7

41

Expenditure derivatives accounted for as cash flow hedges
79

122



79

122

Equity derivatives not accounted for as cash flow hedges
95

92



95

92

 
 
 
 
 
 
 
Total financial assets
2,702

2,660

1,382

1,051

1,320

1,609

 
 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
Debt derivatives accounted for as cash flow hedges
87

22



87

22

Bond forwards accounted for as cash flow hedges
134

87



134

87

 
 
 
 
 
 
 
Total financial liabilities
221

109



221

109


Below is a summary of the fair value of our long-term debt as at March 31, 2019 and December 31, 2018.
  
As at March 31, 2019
 
As at December 31, 2018
 
(In millions of dollars)
Carrying amount

Fair value 1

Carrying amount

Fair value 1

 
 
 
 
 
Long-term debt (including current portion)
13,724

16,791

14,290

15,110

1 Long-term debt (including current portion) is measured at Level 2 in the three-level fair value hierarchy.

NOTE 11: LEASES

Accounting Policy
At inception of a contract, we assess whether that contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, we assess whether:
the contract involves the use of an identified asset;
we have the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use; and
we have the right to direct the use of the asset.

Lessee accounting
We record a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, consisting of:
the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date; plus
any initial direct costs incurred; and
an estimate of costs to dismantle and remove the underlying asset or restore the site on which it is located; less
any lease incentives received.

The right-of-use asset is typically depreciated on a straight-line basis over the lease term, unless we expect to obtain ownership of the leased asset at the end of the lease. The lease term consists of:
the non-cancellable period of the lease;
periods covered by options to extend the lease, where we are reasonably certain to exercise the option; and
periods covered by options to terminate the lease, where we are reasonably certain not to exercise the option.

If we expect to obtain ownership of the leased asset at the end of the lease, we depreciate the right-of-use asset over the underlying asset's estimated useful life. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

Rogers Communications Inc.
16
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


The lease liability is initially measured at the present value of lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our incremental borrowing rate. We use the relevant incremental borrowing rate as the interest rate implicit in our leases cannot be readily determined. The lease liability is subsequently measured at amortized cost using the effective interest rate method.

Lease payments included in the measurement of the lease liability include:
fixed payments, including in-substance fixed payments;
variable lease payments that depend on an index or rate;
amounts expected to be payable under a residual value guarantee; and
the exercise price under a purchase option that we are reasonably certain to exercise, lease payments in an optional renewal period if we are reasonably certain to exercise an extension option, and penalties for early termination of a lease unless we are reasonably certain not to terminate early.

The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in our estimate of the amount expected to be payable under a residual value guarantee, or if we change our assessment of whether or not we will exercise a purchase, extension, or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset.

The lease liability is also remeasured when the underlying lease contract is amended. When there is a decrease in contract scope, the lease liability and right-of-use asset will decrease relative to this change with the difference recorded in net income prior to the remeasurement of lease liability.

We have elected not to separate fixed non-lease components and account for the lease and any fixed non-lease components as a single lease component.

Variable lease payments
Certain leases contain provisions that result in differing lease payments over the term as a result of market rate reviews or changes in the Consumer Price Index (CPI) or other similar indices. We reassess the lease liabilities related to these leases when the index or other data is available to calculate the change in lease payments.

Certain leases require us to make payments that relate to property taxes, insurance, and other non-rental costs. These non-rental costs are typically variable and are not included in the calculation of the right-of-use asset or lease liability.

Lessor accounting
When we act as a lessor, we determine at lease inception whether each lease is a finance lease or an operating lease.

In order to classify each lease as either finance or operating, we make an overall assessment of whether the lease transfers to the lessee substantially all of the risks and rewards incidental to ownership of the underlying asset. If it does, the lease is a finance lease; if not, it is an operating lease.

We act as the lessor on certain collocation leases, whereby, due to certain regulatory requirements, we must allow other telecommunication companies to lease space on our wireless network towers. We do not believe we transfer substantially all of the risks and rewards incidental to ownership of the underlying leased asset to the lessee and therefore classify these leases as operating leases.

If an arrangement contains both lease and non-lease components, we apply IFRS 15, Revenue from contracts with customers to allocate the consideration in the contract between the lease and the non-lease components.

We recognize lease payments received under operating leases into income on a straight-line basis. All of the leases for which we act as lessor are classified as operating leases.

Use of Estimates and Judgments
Estimates
We estimate the lease term by considering the facts and circumstances that can create an economic incentive to exercise an extension option, or not exercise a termination option. We make certain qualitative and quantitative assumptions when deriving the value of the economic incentive.


Rogers Communications Inc.
17
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


Judgments
We make judgments in determining whether a contract contains an identified asset. The identified asset should be physically distinct or represent substantially all of the capacity of the asset, and should provide us with the right to substantially all of the economic benefits from the use of the asset.

We also make judgments in determining whether or not we have the right to control the use of the identified asset. We have that right when we have the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decisions about how and for what purpose the asset is used are predetermined, we have the right to direct the use of the asset if we have the right to operate the asset or if we designed the asset in a way that predetermines how and for what purpose the asset will be used.

We make judgments in determining the incremental borrowing rate used to measure our lease liability for each lease contract, including an estimate of the asset-specific security impact. The incremental borrowing rate should reflect the interest that we would have to pay to borrow at a similar term and with a similar security.

Certain of our leases contain extension or renewal options that are exercisable only by us and not by the lessor. At lease commencement, we assess whether we are reasonably certain to exercise any of the extension options based on our expected economic return from the lease. We typically exercise extension options on our leases, especially related to our networks, primarily due to the significant cost that would be required to relocate our network towers and related equipment. We periodically reassess whether we are reasonably certain to exercise the options and account for any changes at the date of the reassessment.

Explanatory Information
We typically lease land and buildings relating to our wireless and cable networks, our retail store presence, and certain of our offices and other corporate buildings. The non-cancellable contract periods for our leases typically range from five to fifteen years.

Lease liabilities
Below is a summary of the activity related to our lease liabilities for the three months ended March 31, 2019.
 
Three months ended March 31

(In millions of dollars)
2019

 
 
Lease liabilities, beginning of period
1,545

Net additions
52

Interest on lease liabilities
14

Interest payments on lease liabilities
(10
)
Principal payments of lease liabilities
(41
)
Other
(2
)
 
 
Lease liabilities, end of period
1,558


NOTE 12: INVESTMENTS
 
As at
March 31

As at
December 31

(In millions of dollars)
2019

2018

 
 
 
Investments in:
 
 
Publicly traded companies
1,382

1,051

Private companies
135

145

Investments, measured at FVTOCI
1,517

1,196

Investments, associates and joint ventures
941

938

 
 
 
Total investments
2,458

2,134


Rogers Communications Inc.
18
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


NOTE 13: SHORT-TERM BORROWINGS

Below is a summary of our short-term borrowings as at March 31, 2019 and December 31, 2018.
 
As at
March 31

As at
December 31

(In millions of dollars)
2019

2018

 
 
 
Accounts receivable securitization program
650

650

US commercial paper program
1,998

1,605

 
 
 
Total short-term borrowings
2,648

2,255


Below is a summary of the activity relating to our short-term borrowings for the three months ended March 31, 2019 and 2018.
 
 
Three months ended March 31, 2019
 
 
 
Three months ended March 31, 2018
 
 
Notional

Exchange

Notional

 
Notional

Exchange

Notional

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

rate

(Cdn$)

 
(US$)

rate

(Cdn$)

 
 
 
 
 
 
 
 
Proceeds received from US commercial paper
3,858

1.33

5,132

 
2,220

1.26

2,794

Repayment of US commercial paper
(3,545
)
1.33

(4,702
)
 
(2,894
)
1.26

(3,642
)
Net proceeds received from (repayment of) US commercial paper




430

 
(674
)
1.26

(848
)
 
 
 
 
 
 
 
 
Net proceeds received (repayments) on short-term borrowings
 
 
430

 
 
 
(848
)

Accounts Receivable Securitization Program
Below is a summary of our accounts receivable securitization program as at March 31, 2019 and December 31, 2018.
 
As at
March 31

As at
December 31

(In millions of dollars)
2019

2018

 
 
 
Trade accounts receivable sold to buyer as security
1,246

1,391

Short-term borrowings from buyer
(650
)
(650
)
 
 
 
Overcollateralization
596

741


Below is a summary of the activity related to our accounts receivable securitization program for the three months ended March 31, 2019 and 2018.
 
Three months ended March 31
 
(In millions of dollars)
2019

2018

 
 
 
Accounts receivable securitization program, beginning of period
650

650

Net proceeds received from accounts receivable securitization


 
 
 
Accounts receivable securitization program, end of period
650

650



Rogers Communications Inc.
19
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


US Commercial Paper Program
Below is a summary of the activity relating to our US CP program for the three months ended March 31, 2019 and 2018.
 
 
Three months ended March 31, 2019
 
 
 
Three months ended March 31, 2018
 
 
Notional

Exchange

Notional

 
Notional

Exchange

Notional

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

rate

(Cdn$)

 
(US$)

rate

(Cdn$)

 
 
 
 
 
 
 
 
US commercial paper program, beginning of period
1,178

1.36

1,605

 
746

1.25

935

Net proceeds received from (repayment of) US commercial paper
313

1.37

430

 
(674
)
1.26

(848
)
Discounts on issuance 1
4

1.50

6

 
3

1.33

4

(Gain) loss on foreign exchange 1
 
 
(43
)
 
 
 
6

 
 
 
 
 
 
 
 
US commercial paper program, end of period
1,495

1.34

1,998

 
75

1.29

97

1 Included in finance costs.

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 10). We have not designated these debt derivatives as hedges for accounting purposes.

New Credit Facility
On April 1, 2019, we entered into a new US$2.2 billion ($2.9 billion) non-revolving credit facility. We are able to borrow against this facility until May 31, 2019, after which point all borrowings become due on or before March 31, 2020. Since any borrowings will be due within the next 12 months, they will be recorded as short-term borrowings. Borrowings under this facility are unsecured, guaranteed by RCCI, and rank equally in right of payment with all our senior notes and debentures.

NOTE 14: LONG-TERM DEBT
 
 
 
Principal
amount

Interest
rate

As at
March 31

As at
December 31

(In millions of dollars, except interest rates)
Due date
  
2019

2018

 
 
 
 
 
 
 
Senior notes
2019
 
400

2.800
%

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
%
668

682

Senior notes
2023
US
850

4.100
%
1,136

1,160

Senior notes
2024
 
600

4.000
%
600

600

Senior notes
2025
US
700

3.625
%
935

955

Senior notes
2026
US
500

2.900
%
668

682

Senior debentures 1
2032
US
200

8.750
%
267

273

Senior notes
2038
US
350

7.500
%
468

478

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
%
668

682

Senior notes
2043
US
650

5.450
%
869

887

Senior notes
2044
US
1,050

5.000
%
1,403

1,433

Senior notes
2048
US
750

4.300
%
1,003

1,022

 
 
 
 
 
13,835

14,404

Deferred transaction costs and discounts
 
 
 
 
(111
)
(114
)
Less current portion
 
 
 
 
(500
)
(900
)
 
 
 
 
 
 
 
Total long-term debt
 
 
 
 
13,224

13,390

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, 2019 and December 31, 2018.


Rogers Communications Inc.
20
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


The tables below summarize the activity relating to our long-term debt for the three months ended March 31, 2019 and 2018.
 
Three months ended March 31, 2019
 
 
Three months ended March 31, 2018
 
(In millions of dollars, except exchange rates)
Notional

Exchange

Notional

 
Notional

Exchange

Notional

(US$)

rate

(Cdn$)

 
(US$)

rate

(Cdn$)

 
 
 
 
 
 
 
 
Senior note issuances (US$)



 
750

1.25

938

Senior note repayments (Cdn$)
 
 
(400
)
 
 
 

 
 
 
 
 
 
 
 
Net (repayment) issuance of senior notes
 
 
(400
)
 
 
 
938

 
 
 
 
 
 
 
 
Net (repayment) issuance of long-term debt
 
 
(400
)
 
 
 
938

 
Three months ended March 31
 
(In millions of dollars)
2019

2018

 
 
 
Long-term debt net of transaction costs, beginning of period
14,290

14,448

Net (repayment) issuance of long-term debt
(400
)
938

(Gain) loss on foreign exchange
(169
)
263

Deferred transaction costs incurred

(16
)
Amortization of deferred transaction costs
3

4

 
 
 
Long-term debt net of transaction costs, end of period
13,724

15,637


As at March 31, 2019, we had nil outstanding under our revolving credit facility (December 31, 2018 - nil).

Senior Notes
Issuance of senior notes
During the three months ended March 31, 2019, we did not issue any senior notes or enter into any related debt derivatives. In February 2018, we issued US$750 million senior notes due 2048 at a rate of 4.3%. At the same time, we entered into debt derivatives to convert all interest and principal payment obligations to Canadian dollars. As a result, we received net proceeds of $938 million from the issuance.

Repayment of senior notes and related derivative settlements
In March 2019, we repaid the entire outstanding principal amount of our $400 million 2.8% senior notes which came due on March 13, 2019. We did not repay any other senior notes or settle any related debt derivatives during the three months ended March 31, 2019 or 2018.

NOTE 15: SHAREHOLDERS' EQUITY

Dividends
Below is a summary of the dividends we declared and paid on our outstanding RCI Class A Voting common shares (Class A Shares) and Class B Non-Voting Shares in 2019 and 2018.
Date declared
Date paid
Dividend per share (dollars)  

 
 
 
January 24, 2019
April 1, 2019
0.50

 
 
 
January 25, 2018
April 3, 2018
0.48

April 19, 2018
July 3, 2018
0.48

August 15, 2018
October 3, 2018
0.48

October 19, 2018
January 3, 2019
0.48

 
 
1.92


On April 17, 2019, the Board of Directors declared a dividend of $0.50 per Class A Share and Class B Non-Voting Share to be paid on July 2, 2019 to shareholders of record on June 10, 2019.


Rogers Communications Inc.
21
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


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

Normal Course Issuer Bid
In April 2018, the TSX accepted a notice of our intention to commence the normal course issuer bid (NCIB) that allows us to purchase, during the twelve-month period beginning April 24, 2018 and ending April 23, 2019, the lesser of 35.8 million Class B Non-Voting Shares and that number of Class B Non-Voting Shares that can be purchased under the NCIB for an aggregate purchase price of $500 million. Rogers security holders may obtain a copy of this notice, without charge, by contacting us.

During the three months ended March 31, 2019, pursuant to this NCIB, we repurchased for cancellation 2,164,113 Class B Non-Voting Shares under the NCIB for $155 million, $19 million of which was paid in early April.

In April 2019, the TSX accepted a notice of our intention to commence a NCIB program that allows us to purchase, during the twelve-month period beginning April 24, 2019 and ending April 23, 2020, the lesser of 35.7 million Class B Non-Voting Shares and that number of Class B Non-Voting Shares that can be purchased under the NCIB for an aggregate purchase price of $500 million. Rogers security holders may obtain a copy of this notice, without charge, by contacting us.

NOTE 16: STOCK-BASED COMPENSATION
Below is a summary of our stock-based compensation expense, which is included in employee salaries, benefits, and stock-based compensation, for the three months ended March 31, 2019 and 2018.
  
Three months ended March 31
 
(In millions of dollars)
2019

2018

 
 
 
Stock options
5

(8
)
Restricted share units
16

2

Deferred share units
9

(6
)
Equity derivative effect, net of interest receipt
(13
)
33

 
 
 
Total stock-based compensation expense
17

21


As at March 31, 2019, we had a total liability recognized at its fair value of $216 million (December 31, 2018 - $252 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, 2019, we paid $64 million (2018 - $39 million) to holders of stock options, RSUs, and DSUs upon exercise using the cash settlement feature.

Stock Options
Summary of stock options
The tables below summarize the activity related to stock option plans, including performance options, for the three months ended March 31, 2019 and 2018.
  
Three months ended March 31, 2019
 
Three months ended March 31, 2018
(in number of units, except prices)
Number of options

Weighted average
exercise price
 
Number of options

Weighted average
exercise price
 
 
 
 
 
 
Outstanding, beginning of period
2,719,612

$53.22
 
2,637,890

$49.42
Granted
1,040,170

$73.00
 
812,985

$58.45
Exercised
(672,350
)
$46.29
 
(78,740
)
$34.65
 
 
 
 
 
 
Outstanding, end of period
3,087,432

$61.39
 
3,372,135

$51.94
 
 
 
 
 
 
Exercisable, end of period
902,782

$50.63
 
1,514,210

$45.11


Rogers Communications Inc.
22
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


Included in the above table are grants of nil performance options to certain key executives during the three months ended March 31, 2019 (2018 - 439,435).

Unrecognized stock-based compensation expense related to stock option plans was $14 million as at March 31, 2019 (December 31, 2018 - $8 million) and will be recognized in net income over the next four years as the options vest.

Restricted Share Units
Summary of RSUs
Below is a summary of the activity related to RSUs outstanding, including performance RSUs, for the three months ended March 31, 2019 and 2018.
  
Three months ended March 31
 
(in number of units)
2019

2018

 
 
 
Outstanding, beginning of period
2,218,925

1,811,845

Granted and reinvested dividends
728,978

947,084

Exercised
(497,409
)
(438,401
)
Forfeited
(25,513
)
(38,713
)
 
 
 
Outstanding, end of period
2,424,981

2,281,815


Included in the above table are grants of 151,541 performance RSUs to certain key executives during the three months ended March 31, 2019 (2018 - 234,064).

Unrecognized stock-based compensation expense related to these RSUs was $85 million as at March 31, 2019 (December 31, 2018 - $59 million) and will be recognized in net income over the next three years as the RSUs vest.

Deferred Share Unit Plan
Summary of DSUs
Below is a summary of the activity related to DSUs outstanding, including performance DSUs, for the three months ended March 31, 2019 and 2018.
  
Three months ended March 31
 
(in number of units)
2019

2018

 
 
 
Outstanding, beginning of period
2,004,440

2,327,647

Granted and reinvested dividends
36,868

65,429

Exercised
(142,629
)
(192,464
)
Forfeited
(8,294
)
(28,821
)
 
 
 
Outstanding, end of period
1,890,385

2,171,791


Included in the above table are grants of 23,056 performance DSUs to certain key executives during the three months ended March 31, 2019 (2018 - 28,524).

Unrecognized stock-based compensation expense related to these DSUs as at March 31, 2019 was $5 million (December 31, 2018 - $7 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.
23
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


NOTE 17: 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, 2019 and 2018 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 chair of the board 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. Below is a summary of the related party activity for the business transactions described above.
  
Three months ended March 31
 
(In millions of dollars)
2019

2018

 
 
 
Printing and legal services
1

4


NOTE 18: CONTINGENT LIABILITIES

System Access Fee - Saskatchewan
In 2004, a class action was commenced against providers of wireless communications in Canada under the Class Actions Act (Saskatchewan). The class action relates to the system access fee wireless carriers charge to some of their customers. The plaintiffs are seeking unspecified damages and punitive damages, which would effectively be a reimbursement of all system access fees collected.

In 2007, the Saskatchewan Court granted the plaintiffs' application to have the proceeding certified as a national, "opt-in" class action where affected customers outside Saskatchewan must take specific steps to participate in the proceeding. In 2008, our motion to stay the proceeding based on the arbitration clause in our wireless service agreements was granted. The Saskatchewan Court directed that its order, in respect of the certification of the action, would exclude customers who are bound by an arbitration clause from the class of plaintiffs.

In 2009, counsel for the plaintiffs began a second proceeding under the Class Actions Act (Saskatchewan) asserting the same claims as the original proceeding. If successful, this second class action would be an "opt-out" class proceeding. This second proceeding was ordered conditionally stayed in 2009 on the basis that it was an abuse of process.

At the time the Saskatchewan class action was commenced in 2004, corresponding claims were filed in multiple jurisdictions across Canada, although the plaintiffs took no active steps. The appeal courts in several provinces dismissed the corresponding claims as an abuse of process. The claims in all provinces other than Saskatchewan have now been dismissed or discontinued. We have not recognized a liability for this contingency.

911 Fee
In June 2008, a class action was launched in Saskatchewan against providers of wireless communications services in Canada. It involves allegations of breach of contract, misrepresentation, and false advertising, among other things, in relation to the 911 fee that had been charged by us and the other wireless telecommunication providers in Canada. The plaintiffs are seeking unspecified damages and restitution. The plaintiffs intend to seek an order certifying the proceeding as a national class action in Saskatchewan. We have not recognized a liability for this contingency.

Cellular Devices
In July 2013, a class action was launched in British Columbia against providers of wireless communications in Canada and manufacturers of wireless devices. The class action relates to the alleged adverse health effects incurred by long-term users of cellular devices. The plaintiffs were 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. In March 2019, the plaintiffs discontinued the class action without any payment by Rogers.

Rogers Communications Inc.
24
First Quarter 2019



Notes to the Interim Condensed Consolidated Financial Statements (unaudited)


Income Taxes
We provide for income taxes based on all of the information that is currently available and believe that we have adequately provided these items. The calculation of applicable taxes in many cases, however, requires significant judgment in interpreting tax rules and regulations. Our tax filings are subject to audits, which could materially change the amount of current and deferred income tax assets and liabilities and provisions, and could, in certain circumstances, result in the assessment of interest and penalties.

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 19: SUPPLEMENTAL CASH FLOW INFORMATION

Change in Non-Cash Operating Working Capital Items
  
Three months ended March 31
 
(In millions of dollars)
2019

2018

 
 
 
Accounts receivable
75

155

Inventories
5

79

Other current assets
(45
)
(22
)
Accounts payable and accrued liabilities
(105
)
(261
)
Contract and other liabilities
57

28

 
 
 
Total change in non-cash operating working capital items
(13
)
(21
)

Capital Expenditures
  
Three months ended March 31
 
(In millions of dollars)
2019

2018

 
 
 
Capital expenditures before proceeds on disposition
617

620

Proceeds on disposition

(15
)
 
 
 
Capital expenditures
617

605


NOTE 20: SUBSEQUENT EVENT

In April 2019, Innovation, Science and Economic Development Canada announced the results of the 600 MHz spectrum licence auction that was held in March and April 2019. We were awarded fifty-two 10 MHz spectrum licences consisting of contiguous, paired blocks in all provinces and territories across Canada at a total cost of $1.7 billion. We will acquire the awarded spectrum licences in the second quarter of 2019. A deposit of $0.3 billion is payable on April 26, 2019, with the remaining $1.4 billion due on May 27, 2019. We will recognize the spectrum licences as indefinite-life intangible assets.


Rogers Communications Inc.
25
First Quarter 2019