EX-99.2 3 rci-09302020xexhibit992.htm EXHIBIT 99.2 Exhibit

Exhibit 99.2
rogerslogoa13.jpg




Rogers Communications Inc.



INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Three and nine months ended September 30, 2020 and 2019


















Rogers Communications Inc.
1
Third Quarter 2020


Rogers Communications Inc.
Interim Condensed Consolidated Statements of Income
(In millions of Canadian dollars, except per share amounts, unaudited)
  
  
Three months ended September 30
 
 
Nine months ended September 30
 
  
Note

2020

2019

 
2020

2019

 
 
 
 
 
 
 
Revenue
4

3,665

3,754

 
10,236

11,121

 
 
 
 
 


Operating expenses:
 
 
 
 


Operating costs
5

2,027

2,042

 
5,969

6,439

Depreciation and amortization
 
663

627

 
1,952

1,850

Restructuring, acquisition and other
6

49

42

 
112

101

Finance costs
7

219

215

 
653

610

Other expense (income)
8

6

16

 
(1
)
2

 
 
 
 
 
 
 
Income before income tax expense
 
701

812

 
1,551

2,119

Income tax expense
 
189

219

 
408

544

 
 
 
 
 




Net income for the period
 
512

593

 
1,143

1,575

 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
Basic
9

$1.01
$1.16
 
$2.26
$3.07
Diluted
9

$1.01
$1.14
 
$2.23
$3.05
The accompanying notes are an integral part of the interim condensed consolidated financial statements.


Rogers Communications Inc.
2
Third Quarter 2020


Rogers Communications Inc.
Interim Condensed Consolidated Statements of Comprehensive Income
(In millions of Canadian dollars, unaudited)
  
Three months ended September 30
 
 
Nine months ended September 30
 
  
2020

2019

 
2020

2019

 
 
 
 
 
 
Net income for the period
512

593

 
1,143

1,575

 
 
 
 
 
 
Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 
 
 
Items that will not be reclassified to income:
 
 
 
 
 
Equity investments measured at fair value through other comprehensive income (FVTOCI):
 
 
 
 
 
Increase (decrease) in fair value
163

202

 
(142
)
638

Related income tax (expense) recovery
(22
)
(27
)
 
18

(87
)
 
 
 
 
 
 
Equity investments measured at FVTOCI
141

175

 
(124
)
551

 
 
 
 
 
 
Items that may subsequently be reclassified to income:
 
 
 
 
 
Cash flow hedging derivative instruments:
 
 
 
 
 
Unrealized (loss) gain in fair value of derivative instruments
(681
)
653

 
806

319

Reclassification to net income of loss (gain) on debt derivatives
265

(114
)
 
(270
)
262

Reclassification to net income or property, plant and equipment of gain on expenditure derivatives
(5
)
(17
)
 
(41
)
(51
)
Reclassification to net income for accrued interest
(11
)
(11
)
 
(40
)
(35
)
Related income tax recovery (expense)
98

(102
)
 
(96
)
(62
)
 
 
 
 
 
 
Cash flow hedging derivative instruments
(334
)
409

 
359

433

 
 
 
 
 
 
Share of other comprehensive (loss) income of equity-accounted investments, net of tax
(3
)
1

 
—

(5
)
 
 
 
 
 
 
Other comprehensive (loss) income for the period
(196
)
585

 
235

979

 
 
 
 
 
 
Comprehensive income for the period
316

1,178

 
1,378

2,554

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

Rogers Communications Inc.
3
Third Quarter 2020


Rogers Communications Inc.
Interim Condensed Consolidated Statements of Financial Position
(In millions of Canadian dollars, unaudited)
 
 
As at
September 30

As at
December 31

  
Note

2020

2019

 
 
 
 
 
 
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
 
2,248

494

Accounts receivable
 
1,804

2,304

Inventories
 
460

460

Current portion of contract assets
 
736

1,234

Other current assets
 
1,144

524

Current portion of derivative instruments
10

64

101

Total current assets
 
6,456

5,117

 
 
 
 
Property, plant and equipment
 
13,940

13,934

Intangible assets
 
8,891

8,905

Investments
11

2,711

2,830

Derivative instruments
10

2,143

1,478

Contract assets
 
140

557

Other long-term assets
 
789

275

Goodwill
 
3,940

3,923

 
 
 
 
Total assets
 
39,010

37,019

 
 
 
 
Liabilities and shareholders' equity
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
12

982

2,238

Accounts payable and accrued liabilities
 
2,494

3,033

Income tax payable
 
374

48

Other current liabilities
 
115

141

Contract liabilities
 
302

224

Current portion of long-term debt
13

1,450

—

Current portion of lease liabilities
14

268

230

Current portion of derivative instruments
10

33

50

Total current liabilities
 
6,018

5,964

 
 


 
Provisions
 
37

36

Long-term debt
13

17,297

15,967

Derivative instruments
10

37

90

Lease liabilities
14

1,560

1,495

Other long-term liabilities
 
660

614

Deferred tax liabilities
 
3,365

3,437

Total liabilities
 
28,974

27,603

 
 


 
Shareholders' equity
15

10,036

9,416

 
 


 
Total liabilities and shareholders' equity
 
39,010

37,019

 
 
 
 
Subsequent event
15

 
 
Contingent liabilities
18

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


Rogers Communications Inc.
4
Third Quarter 2020


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
 
 
 
 
 
Nine months ended September 30, 2020
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, 2020
71

111,154

397

393,771

7,419

1,265

263

1

9,416

Net income for the period
—

—

—

—

1,143

—

—

—

1,143

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

—

—

—

—

(124
)
—

—

(124
)
Derivative instruments accounted for as hedges, net of tax
—

—

—

—

—

—

359

—

359

Total other comprehensive income (loss)
—

—

—

—

—

(124
)
359

—

235

Comprehensive income for the period
—

—

—

—

1,143

(124
)
359

—

1,378

 
 
 
 
 
 
 
 
 
 
Reclassification to retained earnings for disposition of FVTOCI investments
—

—

—

—

4

(4
)
—

—

—

 
 
 
 
 
 
 
 
 
 
Transactions with shareholders recorded directly in equity:
 
 
 
 
 
 
 
 
 
Dividends declared
—

—

—

—

(758
)
—

—

—

(758
)
Total transactions with shareholders
—

—

—

—

(758
)
—

—

—

(758
)
 
 
 
 
 
 
 
 
 
 
Balances, September 30, 2020
71

111,154

397

393,771

7,808

1,137

622

1

10,036

 
Class A
Voting Shares
Class B
Non-Voting Shares
 
 
 
 
 
Nine months ended September 30, 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, January 1, 2019
71

111,155

406

403,657

7,159

636

(125
)
9

8,156

Net income for the period
—

—

—

—

1,575

—

—

—

1,575

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

—

—

—

—

551

—

—

551

Derivative instruments accounted for as hedges, net of tax
—

—

—

—

—

—

433

—

433

Share of equity-accounted investments, net of tax
—

—

—

—

—

—

—

(5
)
(5
)
Total other comprehensive income (loss)
—

—

—

—

—

551

433

(5
)
979

Comprehensive income for the period
—

—

—

—

1,575

551

433

(5
)
2,554

 
 
 
 
 
 
 
 
 
 
Reclassification to retained earnings for disposition of FVTOCI investments
—

—

—

—

16

(16
)
—

—

—

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

—

(4
)
(4,273
)
(294
)
—

—

—

(298
)
Dividends declared
—

—

—

—

(769
)
—

—

—

(769
)
Share class exchange
—

(1
)
—

1

—

—

—

—

—

Total transactions with shareholders
—

(1
)
(4
)
(4,272
)
(1,063
)
—

—

—

(1,067
)
 
 
 
 
 
 
 
 
 
 
Balances, September 30, 2019
71

111,154

402

399,385

7,687

1,171

308

4

9,643

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


Rogers Communications Inc.
5
Third Quarter 2020


Rogers Communications Inc.
Interim Condensed Consolidated Statements of Cash Flows
(In millions of Canadian dollars, unaudited)
  
  
Three months ended September 30
 
 
Nine months ended September 30
 
  
Note

2020

2019

 
2020

2019

Operating activities:
 
 
 
 
 
 
Net income for the period
 
512

593

 
1,143

1,575

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
 
Depreciation and amortization
 
663

627

 
1,952

1,850

Program rights amortization
 
16

17

 
54

58

Finance costs
7

219

215

 
653

610

Income tax expense
 
189

219

 
408

544

Post-employment benefits contributions, net of expense
 
42

33

 
(26
)
(82
)
Net change in contract asset balances
 
363

(26
)
 
1,079

(55
)
Net change in financing receivable balances
4

(521
)
(24
)
 
(1,071
)
(24
)
Other
 
(8
)
17

 
68

77

Cash provided by operating activities before changes in non-cash working capital items, income taxes paid, and interest paid
 
1,475

1,671

 
4,260

4,553

Change in non-cash operating working capital items
19

(198
)
(45
)
 
(29
)
(267
)
Cash provided by operating activities before income taxes paid and interest paid
 
1,277

1,626

 
4,231

4,286

Income taxes paid
 
(75
)
(99
)
 
(243
)
(345
)
Interest paid
 
(216
)
(222
)
 
(614
)
(581
)
 
 
 
 
 
 
 
Cash provided by operating activities
 
986

1,305

 
3,374

3,360

 
 
 
 
 
 
 
Investing activities:
 
 
 
 
 
 
Capital expenditures
 
(504
)
(657
)
 
(1,656
)
(2,016
)
Additions to program rights
 
(23
)
(15
)
 
(45
)
(29
)
Changes in non-cash working capital related to capital expenditures and intangible assets
 
20

(63
)
 
(134
)
(144
)
Acquisitions and other strategic transactions, net of cash acquired
 
(8
)
—

 
(8
)
(1,731
)
Other
 
(32
)
11

 
(60
)
1

 
 
 
 
 
 
 
Cash used in investing activities
 
(547
)
(724
)
 
(1,903
)
(3,919
)
 
 
 
 
 
 
 
Financing activities:
 
 
 
 
 
 
Net proceeds received from (repayments of) short-term borrowings
12

325

(311
)
 
(1,402
)
(523
)
Net issuance of long-term debt
13

—

—

 
2,540

2,276

Net (payments) proceeds on settlement of debt derivatives and forward contracts
10

—

(22
)
 
80

(126
)
Principal payments of lease liabilities
14

(57
)
(45
)
 
(155
)
(124
)
Transaction costs incurred
13

(1
)
—

 
(22
)
(33
)
Repurchase of Class B Non-Voting Shares
15

—

(89
)
 
—

(294
)
Dividends paid
 
(253
)
(256
)
 
(758
)
(760
)
 
 
 
 
 
 
 
Cash provided by (used in) financing activities
 
14

(723
)
 
283

416

 
 
 
 
 
 
 
Change in cash and cash equivalents
 
453

(142
)
 
1,754

(143
)
Cash and cash equivalents, beginning of period
 
1,795

404

 
494

405

 
 
 
 
 
 
 
Cash and cash equivalents, end of period
 
2,248

262

 
2,248

262

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


Rogers Communications Inc.
6
Third Quarter 2020


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 nine months ended September 30, 2020, 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 typical fluctuations are described in note 1 to our annual audited consolidated financial statements for the year ended December 31, 2019 (2019 financial statements). The COVID-19 pandemic has significantly affected our operating results this year in addition to the typical seasonal fluctuations in our business. Most notably in our Media business, major professional sports leagues postponed and contracted their seasons between March and July, causing sports-related revenue and expenses, such as programming rights amortization, to be recognized during the three months ended September 30, 2020 instead of earlier, as is typical.

Statement of Compliance
We prepared our interim condensed consolidated financial statements for the three and nine months ended September 30, 2020 (third quarter 2020 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 2019 financial statements with the exception of new accounting policies that were adopted on January 1, 2020 as described in note 2. These third quarter 2020 interim financial statements were approved by RCI's Board of Directors (the Board) on October 21, 2020.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The notes presented in these third quarter 2020 interim financial statements include only significant transactions and changes occurring for the nine months since our year-end of December 31, 2019 and do not include all disclosures required by International Financial Reporting Standards (IFRS) as issued by the IASB for annual financial statements. These third quarter 2020 interim financial statements should be read in conjunction with the 2019 financial statements.

All dollar amounts are in Canadian dollars unless otherwise stated.

Estimation Uncertainty
On March 11, 2020, the World Health Organization recognized the outbreak of COVID-19 as a pandemic and we have been closely monitoring related developments and the impact on our business. Due to the uncertainty surrounding the duration and potential outcomes of the COVID-19 pandemic, and the unpredictable and continuously changing impacts and related government responses, there is more uncertainty associated with our assumptions, expectations, and estimates. We believe the most significantly affected estimates are related to our expected credit losses and

Rogers Communications Inc.
7
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

allowance for doubtful accounts and as a result, for the nine months ended September 30, 2020, we have recognized an incremental $90 million in bad debt expense on our accounts receivable, financing receivables, and contract assets based on changing economic conditions.

New Accounting Pronouncements Adopted in 2020
We adopted the following accounting standards and amendments that were effective for our interim and annual consolidated financial statements commencing January 1, 2020. These changes did not have a material impact on our financial results and are not expected to have a material impact in the future.
•
Changes to the Conceptual Framework, seeking to provide improvements to concepts surrounding various financial reporting considerations and existing IFRS standards.
•
Amendments to IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, clarifying the definition of "material".
•
Amendments to IFRS 9, Financial Instruments (IFRS 9), IAS 39, Financial Instruments: Recognition and Measurement (IAS 39), and IFRS 7, Financial Instruments: Disclosures (IFRS 7), Interest Rate Benchmark Reform, detailing the fundamental reform of major interest rate benchmarks being undertaken globally to replace or redefine Inter-Bank Offered Rates (IBORs) with alternative nearly risk-free benchmark rates (referred to as "IBOR reform"). There is significant uncertainty over the timing of when the replacements for IBORs will be effective and what those replacements will be. We will actively monitor the IBOR reform and consider circumstances as we renew or enter into new financial instrument contracts.

Recent Accounting Pronouncements Not Yet Adopted
The IASB has issued the following new standard that will become effective in a future year and is not expected to have an impact on our consolidated financial statements in future periods.
•
IFRS 17, Insurance Contracts, a replacement of IFRS 4, Insurance Contracts, that aims to provide consistency in the application of accounting for insurance contracts.

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 2019 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.

Information by Segment
Three months ended September 30, 2020
Note

Wireless

Cable

Media

Corporate
items and
eliminations

Consolidated
totals

(In millions of dollars)
 
 
 
 
 
 
 
Revenue
4

2,228

988

489

(40
)
3,665

 
 
 
 
 
 
 
Operating costs
5

1,139

480

400

8

2,027

 
 
 
 
 
 
 
Adjusted EBITDA
 
1,089

508

89

(48
)
1,638

 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
663

Restructuring, acquisition and other
6

 
 
 
 
49

Finance costs
7

 
 
 
 
219

Other expense
8

 
 
 
 
6

 
 
 
 
 
 
 
Income before income taxes
 
 
 
 
 
701


Rogers Communications Inc.
8
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

Three months ended September 30, 2019
Note

Wireless

Cable

Media

Corporate
items and
eliminations

Consolidated
totals

(In millions of dollars)
 
 
 
 
 
 
 
Revenue
4

2,324

994

483

(47
)
3,754

 
 
 
 
 
 
 
Operating costs
5

1,186

495

353

8

2,042

 
 
 
 
 
 
 
Adjusted EBITDA
 
1,138

499

130

(55
)
1,712

 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
627

Restructuring, acquisition and other
6

 
 
 
 
42

Finance costs
7

 
 
 
 
215

Other expense
8

 
 
 
 
16

 
 
 
 
 
 
 
Income before income taxes
 
 
 
 
 
812

Nine months ended September 30, 2020
Note

Wireless

Cable

Media

Corporate
items and
eliminations

Consolidated
totals

(In millions of dollars)
 
 
 
 
 
 
 
Revenue
4

6,239

2,927

1,197

(127
)
10,236

 
 
 
 
 
 
 
Operating costs
5

3,206

1,512

1,228

23

5,969

 
 
 
 
 
 
 
Adjusted EBITDA
 
3,033

1,415

(31
)
(150
)
4,267

 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
1,952

Restructuring, acquisition and other
6

 
 
 
 
112

Finance costs
7

 
 
 
 
653

Other income
8

 
 
 
 
(1
)
 
 
 
 
 
 
 
Income before income taxes
 
 
 
 
 
1,551

Nine months ended September 30, 2019
Note

Wireless

Cable

Media

Corporate
items and
eliminations

Consolidated
totals

(In millions of dollars)
 
 
 
 
 
 
 
Revenue
4

6,757

2,967

1,542

(145
)
11,121

 
 
 
 
 
 
 
Operating costs
5

3,476

1,545

1,424

(6
)
6,439

 
 
 
 
 
 
 
Adjusted EBITDA
 
3,281

1,422

118

(139
)
4,682

 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
1,850

Restructuring, acquisition and other
6

 
 
 
 
101

Finance costs
7

 
 
 
 
610

Other expense
8

 
 
 
 
2

 
 
 
 
 
 
 
Income before income taxes
 
 
 
 
 
2,119



Rogers Communications Inc.
9
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

NOTE 4: REVENUE

Disaggregation of Revenue
 
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2020

2019

 
2020

2019

 
 
 
 
 
 
Wireless
 
 
 
 
 
Service revenue
1,652

1,808

 
4,942

5,368

Equipment revenue
576

516

 
1,297

1,389

 
 
 
 
 
 
Total Wireless
2,228

2,324

 
6,239

6,757

 
 
 
 
 
 
Cable
 
 
 
 
 
Service revenue
985

989

 
2,920

2,956

Equipment revenue
3

5

 
7

11

 
 
 
 
 
 
Total Cable
988

994

 
2,927

2,967

 
 
 
 
 
 
Total Media
489

483

 
1,197

1,542

 
 
 
 
 
 
Corporate items and intercompany eliminations
(40
)
(47
)
 
(127
)
(145
)
 
 
 
 
 
 
Total revenue
3,665

3,754

 
10,236

11,121


Financing Receivables
Financing receivables represent amounts owed to us under device or accessory financing agreements that have not yet been billed. Our financing receivable balances are included in "other current assets" (when they are to be billed and collected within twelve months) and "other long-term assets" on our interim condensed consolidated statements of financial position. Below is a breakdown of the financing receivable balances.
 
As at
September 30

As at
December 31

(In millions of dollars)
2020

2019

 
 
 
Current financing receivables
676

72

Long-term financing receivables
507

40

 
 
 
Total financing receivables
1,183

112


NOTE 5: OPERATING COSTS
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2020

2019

 
2020

2019

 
 
 
 
 
 
Cost of equipment sales
571

537

 
1,288

1,516

Merchandise for resale
61

58

 
177

167

Other external purchases
946

949

 
3,095

3,192

Employee salaries, benefits, and stock-based compensation
449

498

 
1,409

1,564

 
 
 
 
 
 
Total operating costs
2,027

2,042

 
5,969

6,439



Rogers Communications Inc.
10
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

NOTE 6: RESTRUCTURING, ACQUISITION AND OTHER

During the three and nine months ended September 30, 2020, we incurred $49 million and $112 million (2019 - $42 million and $101 million), respectively, in restructuring, acquisition and other expenses. In 2020, these costs were incremental, temporary employee compensation and other costs incurred in response to COVID-19 as well as severance costs associated with the targeted restructuring of our employee base. In 2019, these costs were primarily severance costs associated with the targeted restructuring of our employee base and contract termination and other costs.

NOTE 7: FINANCE COSTS
  
 
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
Note
2020

2019

 
2020

2019

 
 
 
 
 
 
 
Interest on borrowings 1
 
196

194

 
585

554

Interest on lease liabilities
14
17

15

 
52

44

Interest on post-employment benefits liability
 
3

2

 
10

8

Loss (gain) on foreign exchange
 
6

20

 
115

(52
)
Change in fair value of derivative instruments
 
(4
)
(19
)
 
(113
)
54

Capitalized interest
 
(5
)
(5
)
 
(15
)
(14
)
Other
 
6

8

 
19

16

 
 
 
 
 
 
 
Total finance costs
 
219

215

 
653

610

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

NOTE 8: OTHER EXPENSE (INCOME)
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2020

2019

 
2020

2019

 
 
 
 
 
 
Losses from associates and joint ventures
15

25

 
27

28

Other investment income
(9
)
(9
)
 
(28
)
(26
)
 
 
 
 
 
 
Total other expense (income)
6

16

 
(1
)
2


NOTE 9: EARNINGS PER SHARE
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars, except per share amounts)
2020

2019

 
2020

2019

 
 
 
 
 
 
Numerator (basic) - Net income for the period
512

593

 
1,143

1,575

 
 
 
 
 
 
Denominator - Number of shares (in millions):
 
 
 
 
 
Weighted average number of shares outstanding - basic
505

511

 
505

513

Effect of dilutive securities (in millions):
 
 
 
 
 
Employee stock options and restricted share units
1

2

 
1

1

 
 
 
 
 
 
Weighted average number of shares outstanding - diluted
506

513

 
506

514

 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
Basic

$1.01

$1.16
 
$2.26
$3.07
Diluted

$1.01

$1.14
 
$2.23
$3.05

For the three and nine months ended September 30, 2020 and 2019, 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. As a result, net income for the three and nine months ended September 30, 2020 was reduced by $3 million and $17 million (2019 - $9 million and $6 million), respectively, in the diluted earnings per share calculation.


Rogers Communications Inc.
11
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

A total of 4,072,853 and 3,895,948 options were out of the money for the three and nine months ended September 30, 2020 (2019 - 1,077,885 and 1,040,170), respectively. These options were excluded from the calculation of the effect of dilutive securities because they were anti-dilutive.

NOTE 10: FINANCIAL INSTRUMENTS

Derivative Instruments
We use derivative instruments to manage financial risks related to our business activities. These include debt derivatives, 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, senior debentures, and lease liabilities and expenditure derivatives have been designated as hedges for accounting purposes.

Debt derivatives
We use cross-currency interest rate agreements (debt derivatives) to manage risks from fluctuations in foreign exchange rates and interest rates associated with our US dollar-denominated senior notes and debentures, lease liabilities, credit facility borrowings, and US dollar-denominated commercial paper (US CP) borrowings (see note 12). We designate the debt derivatives related to our senior notes and debentures and lease liabilities 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.

The tables below summarize the debt derivatives we entered into and settled related to our credit facility borrowings and US CP program during the three and nine months ended September 30, 2020 and 2019.


Three months ended September 30, 2020
 


Nine months ended September 30, 2020
 
(In millions of dollars, except exchange rates)
Notional
 (US$)

Exchange rate

Notional (Cdn$)

 
Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
 
 
 
 
 
 
 
Credit facilities
 
 
 
 
 
 
 
Debt derivatives entered
—

—

—

 
970

1.428

1,385

Debt derivatives settled
—

—

—

 
970

1.406

1,364

Net cash paid
 
 
—

 
 
 
(21
)
 
 
 
 
 
 
 
 
US commercial paper program
 
 
 
 
 
 
 
Debt derivatives entered
248

1.319

327

 
3,116

1.332

4,150

Debt derivatives settled
2

1.326

3

 
4,091

1.330

5,441

Net cash received
 
 
—

 
 
 
101



Three months ended September 30, 2019
 


Nine months ended September 30, 2019
 
(In millions of dollars, except exchange rates)
Notional
 (US$)

Exchange rate

Notional
(Cdn$)

 
Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
 
 
 
 
 
 
 
Credit facilities
 
 
 
 
 
 
 
Debt derivatives entered
—

—

—

 
420

1.336

561

Debt derivatives settled
—

—

—

 
420

1.343

564

Net cash received
 
 
—

 
 
 
3

 
 
 
 
 
 
 
 
US commercial paper program
 
 
 
 
 
 
 
Debt derivatives entered
3,228

1.319

4,257

 
10,046

1.330

13,361

Debt derivatives settled
3,452

1.326

4,578

 
10,421

1.330

13,865

Net cash paid
 
 
(22
)
 
 
 
(18
)

As at September 30, 2020, we had nil and US$248 million notional amount of debt derivatives outstanding relating to our credit facility borrowings and US CP program (December 31, 2019 - nil and US$1,226 million), respectively.


Rogers Communications Inc.
12
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

Senior notes
Below is a summary of the debt derivatives into which we entered related to senior notes during the nine months ended September 30, 2020 and 2019.
(In millions of dollars, except interest rates)
 
 
 
 
 
US$
 
Hedging effect
Effective date
Principal/Notional amount (US$)

Maturity date
Coupon rate

 
Fixed hedged (Cdn$) interest rate 1

Equivalent (Cdn$)

 
 
 
 
 
 
 
2020 issuances
 
 
 
 
 
 
June 22, 2020
750

2022
USD LIBOR + 0.60%

 
0.955
%
1,019

 
 
 
 
 
 
 
2019 issuances
 
 
 
 
 
 
April 30, 2019
1,250

2049
4.350
%
 
4.173
%
1,676

1 
Converting from a fixed or floating US$ coupon rate to a weighted average Cdn$ fixed rate.

As at September 30, 2020, we had US$9,050 million (December 31, 2019 - US$8,300 million) in US dollar-denominated senior notes and debentures, of which all of the associated foreign exchange risk had been hedged using debt derivatives.

Lease liabilities
Below is a summary of the debt derivatives into which we entered related to our outstanding lease liabilities for the three and nine months ended September 30, 2020. We did not enter or settle any debt derivatives related to our outstanding lease liabilities during the three or nine months ended September 30, 2019.
 
 
Three months ended September 30, 2020
 
 
 
Nine months ended September 30, 2020
 
(In millions of dollars, except exchange rates)
Notional
(US$)

Exchange rate

Notional
(Cdn$)

 
Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
 
 
 
 
 
 
 
Debt derivatives entered
—

—

—

 
90

1.400

126

Debt derivatives settled
14

1.357

19

 
30

1.333

40


As at September 30, 2020, we had US$130 million notional amount of debt derivatives outstanding relating to our outstanding lease liabilities (December 31, 2019 - US$70 million) with terms to maturity ranging from October 2020 to June 2023 (December 31, 2019 - January 2020 to December 2022), at an average rate of $1.366/US$ (December 31, 2019 - $1.318/US$).

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 forecast operational and capital expenditures.

The tables below summarize the expenditure derivatives we entered into and settled during the three and nine months ended September 30, 2020 and 2019.


Three months ended September 30, 2020
 


Nine months ended September 30, 2020
 
(In millions of dollars, except exchange rates)
Notional (US$)

Exchange rate

Notional (Cdn$)

 
Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
 
 
 
 
 
 
 
Expenditure derivatives entered
180

1.306

235

 
1,266

1.356

1,717

Expenditure derivatives settled
255

1.298

331

 
735

1.299

955



Three months ended September 30, 2019
 


Nine months ended September 30, 2019
 
(In millions of dollars, except exchange rates)
Notional (US$)

Exchange rate

Notional (Cdn$)

 
Notional
(US$)

Exchange
rate

Notional
(Cdn$)

 
 
 
 
 
 
 
 
Expenditure derivatives entered
—

—

—

 
780

1.322

1,031

Expenditure derivatives settled
240

1.254

301

 
690

1.251

863



Rogers Communications Inc.
13
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

As at September 30, 2020, we had US$1,521 million notional amount of expenditure derivatives outstanding (December 31, 2019 - US$990 million) with terms to maturity ranging from October 2020 to December 2022 (December 31, 2019 - January 2020 to December 2021), at an average rate of $1.347/US$ (December 31, 2019 - $1.300/US$).

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 September 30, 2020, we had equity derivatives outstanding for 4.6 million (December 31, 2019 - 4.3 million) Class B Non-Voting Shares with a weighted average price of $51.82 (December 31, 2019 - $51.76).

We did not enter into or settle any equity derivatives during the three months ended September 30, 2020 or 2019.

During the nine months ended September 30, 2020, we made net payments of $1 million to reset the weighted average price to $54.16 and reset the expiry dates to April 2021 (from April 2020) on 0.5 million equity derivatives.

During the nine months ended September 30, 2020, we entered into 0.3 million equity derivatives (2019 - nil) with a weighted average price of $56.08 (2019 - nil). During the nine months ended September 30, 2019, we settled 0.7 million equity derivatives at a weighted average price of $71.66 for net proceeds of $16 million.

Additionally, we executed extension agreements for the remainder of our equity derivative contracts under substantially the same commitment terms and conditions with revised expiry dates to March 2021 and April 2021.

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 current borrowing rate. The carrying values of our financing receivables also approximate their fair values based on our recognition of an expected credit loss allowance.

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 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 September 30, 2020 or December 31, 2019 and there were no transfers between Level 1, Level 2, or Level 3 during the three or nine months ended September 30, 2020 or 2019.

Rogers Communications Inc.
14
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

Below is a summary of our financial instruments carried at fair value as at September 30, 2020 and December 31, 2019.
  
Carrying value
 
Fair value (Level 1)
 
Fair value (Level 2)
 
 
As at
Sept. 30

As at
Dec. 31

As at
Sept. 30

As at
Dec. 31

As at
Sept. 30

As at
Dec. 31

(In millions of dollars)
2020

2019

2020

2019

2020

2019

 
 
 
 
 
 
 
Financial assets
 
 
 
 
 
 
Investments, measured at fair value:
 
 
 
 
 
 
Investments in publicly traded companies
1,693

1,831

1,693

1,831

—

—

Derivatives:
 
 
 
 
 
 
Debt derivatives accounted for as cash flow hedges
2,177

1,508

—

—

2,177

1,508

Debt derivatives not accounted for as hedges
5

—

—

—

5

—

Expenditure derivatives accounted for as cash flow hedges
17

16

—

—

17

16

Equity derivatives not accounted for as hedges
8

55

—

—

8

55

 
 
 
 
 
 
 
Total financial assets
3,900

3,410

1,693

1,831

2,207

1,579

 
 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
Debt derivatives accounted for as cash flow hedges
27

96

—

—

27

96

Debt derivatives not accounted for as hedges
—

29

—

—

—

29

Expenditure derivatives accounted for as cash flow hedges
40

15

—

—

40

15

Equity derivatives not accounted as cash flow hedges
3

—

—

—

3

—

 
 
 
 
 
 
 
Total financial liabilities
70

140

—

—

70

140


Below is a summary of the fair value of our long-term debt as at September 30, 2020 and December 31, 2019.
  
As at September 30, 2020
 
As at December 31, 2019
 
(In millions of dollars)
Carrying amount

Fair value 1

Carrying amount

Fair value 1

 
 
 
 
 
Long-term debt (including current portion)
18,747

22,310

15,967

18,354

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

NOTE 11: INVESTMENTS
 
As at
September 30

As at
December 31

(In millions of dollars)
2020

2019

 
 
 
Investments in:
 
 
Publicly traded companies
1,693

1,831

Private companies
97

107

Investments, measured at FVTOCI
1,790

1,938

Investments, associates and joint ventures
921

892

 
 
 
Total investments
2,711

2,830



Rogers Communications Inc.
15
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

NOTE 12: SHORT-TERM BORROWINGS

Below is a summary of our short-term borrowings as at September 30, 2020 and December 31, 2019.
 
As at
September 30

As at
December 31

(In millions of dollars)
2020

2019

 
 
 
Accounts receivable securitization program
650

650

US commercial paper program
332

1,588

 
 
 
Total short-term borrowings
982

2,238


The tables below summarize the activity relating to our short-term borrowings for the three and nine months ended September 30, 2020 and 2019.


Three months ended September 30, 2020
 


Nine months ended September 30, 2020
 
 
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
249

1.313

327

 
3,116

1.332

4,150

Repayment of US commercial paper
(1
)
n/m

(2
)
 
(4,098
)
1.355

(5,552
)
Net proceeds received from (repayment of) US commercial paper
 


325

 
 


(1,402
)
 
 
 
 
 
 
 
 
Net proceeds received on (repayment of) short-term borrowings
 
 
325

 
 
 
(1,402
)


Three months ended September 30, 2019
 


Nine months ended September 30, 2019
 
 
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
3,228

1.319

4,257

 
10,046

1.330

13,361

Repayment of US commercial paper
(3,461
)
1.320

(4,568
)
 
(10,446
)
1.329

(13,881
)
Net repayment of US commercial paper




(311
)
 




(520
)
 
 
 
 
 
 
 
 
Proceeds received from credit facilities
—

—

—

 
420

1.336

561

Repayment of credit facilities
—

—

—

 
(420
)
1.343

(564
)
Net repayment of credit facilities
 
 
—

 
 
 
(3
)
 
 
 
 
 
 
 
 
Net repayment of short-term borrowings
 
 
(311
)
 
 
 
(523
)

Accounts Receivable Securitization Program
Below is a summary of our accounts receivable securitization program as at September 30, 2020 and December 31, 2019.
 
As at
September 30

As at
December 31

(In millions of dollars)
2020

2019

 
 
 
Trade accounts receivable sold to buyer as security
1,121

1,359

Short-term borrowings from buyer
(650
)
(650
)
 
 
 
Overcollateralization
471

709



Rogers Communications Inc.
16
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

US Commercial Paper Program
The tables below summarize the activity relating to our US CP program for the three and nine months ended September 30, 2020 and 2019.


Three months ended September 30, 2020
 


Nine months ended September 30, 2020
 
 
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
—

—

—

 
1,223

1.298

1,588

Net proceeds received from (repayment of) US commercial paper
248

1.310

325

 
(982
)
1.428

(1,402
)
Discounts on issuance 1
—

—

—

 
7

1.429

10

Loss on foreign exchange 1
 
 
7

 
 
 
136

 
 
 
 
 
 
 
 
US commercial paper program, end of period
248

1.339

332

 
248

1.339

332

1 Included in finance costs.


Three months ended September 30, 2019
 


Nine months ended September 30, 2019
 
 
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
1,023

1.309

1,339

 
1,178

1.362

1,605

Net repayment of US commercial paper
(233
)
1.335

(311
)
 
(400
)
1.300

(520
)
Discounts on issuance 1
9

1.111

10

 
21

1.333

28

Loss (gain) on foreign exchange 1
 
 
20

 
 
 
(55
)
 
 
 
 
 
 
 
 
US commercial paper program, end of period
799

1.324

1,058

 
799

1.324

1,058

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.


Rogers Communications Inc.
17
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

NOTE 13: LONG-TERM DEBT
 
 
 
Principal
amount

Interest
rate

As at
September 30

As at
December 31

(In millions of dollars, except interest rates)
Due date
  
2020

2019

 
 
 
 
 
 
 
Senior notes
2021
 
1,450

5.340
%
1,450

1,450

Senior notes
2022
 
600

4.000
%
600

600

Senior notes
2022
US
750

Floating

1,000

—

Senior notes
2023
US
500

3.000
%
667

649

Senior notes
2023
US
850

4.100
%
1,134

1,104

Senior notes
2024
 
600

4.000
%
600

600

Senior notes
2025
US
700

3.625
%
934

909

Senior notes
2026
US
500

2.900
%
667

649

Senior notes
2027
 
1,500

3.650
%
1,500

—

Senior notes
2029
 
1,000

3.250
%
1,000

1,000

Senior debentures 1
2032
US
200

8.750
%
267

260

Senior notes
2038
US
350

7.500
%
467

455

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
%
667

649

Senior notes
2043
US
650

5.450
%
867

844

Senior notes
2044
US
1,050

5.000
%
1,401

1,365

Senior notes
2048
US
750

4.300
%
1,000

973

Senior notes
2049
US
1,250

4.350
%
1,667

1,624

Senior notes
2049
US
1,000

3.700
%
1,334

1,299

 
 
 
 
 
18,922

16,130

Deferred transaction costs and discounts
 
 
 
 
(175
)
(163
)
Less current portion
 
 
 
 
(1,450
)
—

 
 
 
 
 
 
 
Total long-term debt
 
 
 
 
17,297

15,967

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 September 30, 2020 and December 31, 2019.

The tables below summarize the activity relating to our long-term debt for the three and nine months ended September 30, 2020 and 2019.
 
 
Three months ended September 30, 2020
 
 
 
Nine months ended September 30, 2020
 
(In millions of dollars, except exchange rates)
Notional

Exchange

Notional

 
Notional

Exchange

Notional

(US$)

rate

(Cdn$)

 
(US$)

rate

(Cdn$)

 
 
 
 
 
 
 
 
Credit facility borrowings (US$)
—

—

—

 
970

1.428

1,385

Credit facility repayments (US$)
—

—

—

 
(970
)
1.406

(1,364
)
 
 
 
 
 
 
 
 
Net borrowings under credit facilities
 
 
—

 
 
 
21

 
 
 
 
 
 
 
 
Senior note issuances (Cdn$)
 
 
—

 
 
 
1,500

Senior note issuances (US$)
—

—

—

 
750

1.359

1,019

Total issuance of senior notes
 
 
—

 
 
 
2,519

 
 
 
 
 
 
 
 
Net issuance of long-term debt
 
 
—

 
 
 
2,540


Rogers Communications Inc.
18
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

 
 
Three months ended September 30, 2019
 
 
 
Nine months ended September 30, 2019
 
(In millions of dollars, except exchange rates)
Notional

Exchange

Notional

 
Notional

Exchange

Notional

(US$)

rate

(Cdn$)

 
(US$)

rate

(Cdn$)

 
 
 
 
 
 
 
 
Senior notes issuances (Cdn$)
 
 
—

 
 
 
1,000

Senior note issuances (US$)
—

—

—

 
1,250

1.341

1,676

Total issuances of senior notes
 
 
—

 
 
 
2,676

 
 
 
 
 
 
 
 
Senior note repayments (Cdn$)
 
 
—

 
 
 
(400
)
 
 
 
 
 
 
 
 
Net issuance of senior notes
 
 
—

 
 
 
2,276

 
 
 
 
 
 
 
 
Net issuance of long-term debt
 
 
—

 
 
 
2,276

 
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2020

2019

 
2020

2019

 
 
 
 
 
 
Long-term debt net of transaction costs, beginning of period
19,008

16,163

 
15,967

14,290

Net issuance of long-term debt
—

—

 
2,540

2,276

(Gain) loss on foreign exchange
(264
)
113

 
252

(263
)
Deferred transaction costs incurred
(1
)
—

 
(22
)
(33
)
Amortization of deferred transaction costs
4

3

 
10

9

 
 
 
 
 
 
Long-term debt net of transaction costs, end of period
18,747

16,279

 
18,747

16,279


Senior Notes
Issuance of senior notes and related derivatives
In June 2020, we issued US$750 million floating rate senior notes due 2022 at a rate of three-month LIBOR plus 0.60% per annum. Concurrent with the issuance, we entered into debt derivatives to convert all interest and principal payment obligations to Canadian dollars and convert our floating rate to a fixed rate of 0.955% until maturity. As a result, we received net proceeds of $1.0 billion from the issuances.

In March 2020, we issued $1.5 billion senior notes due 2027 at a rate of 3.65%.

In April 2019, we issued $1 billion senior notes due 2029 at a rate of 3.25% and US$1.25 billion senior notes due 2049 at a rate of 4.35%. Concurrent with the issuances, we exercised our outstanding bond forwards and entered into debt derivatives to convert all interest and principal payment obligations on the US$-denominated senior notes to Canadian dollars. We received net proceeds of $2.7 billion from the issuances.

Repayment of senior notes and related derivative settlements
We did not repay any senior notes or settle any related debt derivatives during the three or nine months ended September 30, 2020. In March 2019, we repaid the entire outstanding principal amount of our $400 million 2.8% senior notes at maturity.


Rogers Communications Inc.
19
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

NOTE 14: LEASES

Below is a summary of the activity related to our lease liabilities for the three and nine months ended September 30, 2020 and 2019.
 
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2020

2019

 
2020

2019

 
 
 
 
 
 
Lease liabilities, beginning of period
1,845

1,608

 
1,725

1,545

Net additions
40

89

 
256

223

Interest on lease liabilities
17

15

 
52

44

Interest payments on lease liabilities
(17
)
(13
)
 
(50
)
(34
)
Principal payments of lease liabilities
(57
)
(45
)
 
(155
)
(124
)
 
 
 
 
 
 
Lease liabilities, end of period
1,828

1,654

 
1,828

1,654


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 2020 and 2019.
Date declared
Date paid
Dividend per share (dollars)  

 
 
 
January 22, 2020
April 1, 2020
0.50

April 21, 2020
July 2, 2020
0.50

July 21, 2020
October 1, 2020
0.50

 
 
1.50

 
 
 
January 24, 2019
April 1, 2019
0.50

April 18, 2019
July 2, 2019
0.50

June 5, 2019
October 1, 2019
0.50

October 23, 2019
January 2, 2020
0.50

 
 
2.00


On October 21, 2020, the Board of Directors declared a dividend of $0.50 per Class A Share and Class B Non-Voting Share to be paid on January 4, 2021 to shareholders of record on December 10, 2020.

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 2020, the TSX accepted a notice of our intention to commence a normal course issuer bid (NCIB) program that allows us to purchase, between April 24, 2020 and April 23, 2021, the lesser of 34.9 million Class B Non-Voting Shares and that number of Class B Non-Voting Shares that can be purchased for an aggregate purchase price of $500 million (2020 NCIB). Rogers security holders may obtain a copy of this notice, without charge, by contacting us.

In April 2019, we commenced a NCIB program that allowed us to purchase, between April 24, 2019 and 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 for an aggregate purchase price of $500 million (2019 NCIB).

During the three and nine months ended September 30, 2020, we did not repurchase any Class B Non-Voting Shares. During the three months ended September 30, 2019, pursuant to the 2019 NCIB, we repurchased for cancellation 1,374,848 Class B Non-Voting Shares for $93 million, $4 million of which was paid in October 2019. During the three months ended June 30, 2019, pursuant to the 2019 NCIB, we repurchased for cancellation 734,257 Class B Non-Voting Shares for $50 million. During the three months ended March 31, 2019, pursuant to the 2018 NCIB, we repurchased for cancellation 2,164,113 Class B Non-Voting Shares for $155 million, $19 million of which was paid in early April 2019.


Rogers Communications Inc.
20
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

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 and nine months ended September 30, 2020 and 2019.
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2020

2019

 
2020

2019

 
 
 
 
 
 
Stock options
(1
)
(6
)
 
(11
)
(1
)
Restricted share units
12

8

 
28

35

Deferred share units
(2
)
(7
)
 
(15
)
2

Equity derivative effect, net of interest receipt
4

23

 
48

15

 
 
 
 
 
 
Total stock-based compensation expense
13

18

 
50

51


As at September 30, 2020, we had a total liability recognized at its fair value of $168 million (December 31, 2019 - $220 million) related to stock-based compensation, including stock options, restricted share units (RSUs), and deferred share units (DSUs).

During the three and nine months ended September 30, 2020, we paid $18 million and $54 million (2019 - $8 million and $77 million), respectively, 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 and nine months ended September 30, 2020 and 2019.
  
Three months ended September 30, 2020
 
 
Nine months ended September 30, 2020
(In number of units, except prices)
Number of options

Weighted average
exercise price

 
Number of options

Weighted average
exercise price
 
 
 
 
 
 
Outstanding, beginning of period
4,726,634

$62.10
 
3,154,795

$61.82
Granted
—

—

 
1,598,590

$62.56
Exercised
—

—

 
(17,230
)
$54.80
Forfeited
—

—

 
(9,521
)
$58.45
 
 
 
 
 
 
Outstanding, end of period
4,726,634

$62.10
 
4,726,634

$62.10
 
 
 
 
 
 
Exercisable, end of period
1,458,463

$56.70
 
1,458,463

$56.70
  
Three months ended September 30, 2019
 
Nine months ended September 30, 2019
(In number of units, except prices)
Number of options

Weighted average
exercise price
 
Number of options

Weighted average
exercise price
 
 
 
 
 
 
Outstanding, beginning of period
3,072,767

$61.43
 
2,719,612

$53.22
Granted
91,310

$65.43
 
1,131,480

$72.39
Exercised
(32,295
)
$45.63
 
(719,310
)
$46.37
 
 
 
 



Outstanding, end of period
3,131,782

$61.71
 
3,131,782

$61.71
 
 
 
 



Exercisable, end of period
1,018,312

$52.37
 
1,018,312

$52.37

We did not grant any performance stock options during the three and nine months ended September 30, 2020 or 2019.

Unrecognized stock-based compensation expense related to stock option plans was $4 million as at September 30, 2020 (December 31, 2019 - $6 million) and will be recognized in net income over the next four years as the options vest.


Rogers Communications Inc.
21
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

Restricted Share Units
Summary of RSUs
Below is a summary of the activity related to RSUs outstanding, including performance RSUs, for the three and nine months ended September 30, 2020 and 2019.
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In number of units)
2020

2019

 
2020

2019

 
 
 
 
 
 
Outstanding, beginning of period
2,799,189

2,400,049

 
2,472,774

2,218,925

Granted and reinvested dividends
43,380

163,850

 
969,874

942,049

Exercised
(237,620
)
(21,069
)
 
(764,031
)
(541,551
)
Forfeited
(21,897
)
(44,481
)
 
(95,565
)
(121,074
)
 
 
 
 
 
 
Outstanding, end of period
2,583,052

2,498,349

 
2,583,052

2,498,349


Included in the above table are grants of 5,299 and 213,903 performance RSUs to certain key executives during the three and nine months ended September 30, 2020 (2019 - 15,844 and 170,674), respectively.

Unrecognized stock-based compensation expense related to these RSUs was $52 million as at September 30, 2020 (December 31, 2019 - $56 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 and nine months ended September 30, 2020 and 2019.
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In number of units)
2020

2019

 
2020

2019

 
 
 
 
 
 
Outstanding, beginning of period
1,670,749

1,867,775

 
1,741,884

2,004,440

Granted and reinvested dividends
18,338

34,193

 
61,744

93,637

Exercised
(33,530
)
(103,711
)
 
(138,594
)
(288,058
)
Forfeited
—

(1,557
)
 
(9,477
)
(13,319
)
 
 
 
 
 
 
Outstanding, end of period
1,655,557

1,796,700

 
1,655,557

1,796,700


Included in the above table are grants of 2,022 and 8,380 performance DSUs to certain key executives during the three and nine months ended September 30, 2020 (2019 - 2,113 and 27,210), respectively.

Unrecognized stock-based compensation expense related to these DSUs as at September 30, 2020 was nil (December 31, 2019 - $1 million) and will be recognized in net income over the next three years as the executive DSUs vest. All other DSUs are fully vested.

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 and nine months ended September 30, 2020 and 2019 were less than $1 million, respectively.

Transactions with Related Parties
We have entered into business transactions with Transcontinental Inc., a company that provides us with printing services. Isabelle Marcoux, C.M., is chair of the board of Transcontinental Inc. and a Director of RCI.


Rogers Communications Inc.
22
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

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 September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2020

2019

 
2020

2019

 
 
 
 
 
 
Printing services
1

1

 
2

5


NOTE 18: CONTINGENT LIABILITIES

Wholesale Internet Costing and Pricing
In August 2019, in Telecom Order CRTC 2019-288, Follow-up to Telecom Orders 2016-396 and 2016-448 - Final rates for aggregated wholesale high-speed access services (Order), the Canadian Radio-television and Telecommunications Commission (CRTC) set final rates for facilities-based carriers' wholesale high-speed access services, including Rogers' third-party Internet access (TPIA) service. The Order set final rates for Rogers that are significantly lower than the interim rates that were previously billed and it further determined that these final rates will apply retroactively to March 31, 2016.

We do not believe the final rates set by the CRTC are just and reasonable as required by the Telecommunications Act as we believe they are below cost. On September 13, 2019, Rogers, in conjunction with the other large Canadian cable companies (Cable Carriers), filed a motion for Leave to Appeal pursuant to Section 64(1) of the Telecommunications Act with the Federal Court of Appeal (Court) and an associated motion for an interlocutory Stay of the CRTC Order. The Cable Carriers also filed an appeal to Cabinet and a review and vary application back to the CRTC. On September 27, 2019, the Court granted an Interim Stay suspending the Order until the Court rules on the Cable Carriers’ motion for an interlocutory Stay of the CRTC’s Order pending the Court’s determination of the Cable Carriers’ motion for Leave to Appeal. On November 22, 2019, the Court granted Leave to Appeal and an interlocutory Stay of the CRTC Order. The appeal was heard in June 2020. On September 10, 2020, the Court dismissed the Cable Carriers' appeal and simultaneously vacated the interlocutory Stay previously granted. On September 28, 2020, the CRTC issued a Stay of Order 2019-288 pending review of the appropriateness of the rates established in the Order.

Due to the CRTC's issuance of the Stay, and the significant uncertainty surrounding both the outcome and the amount, if any, we could ultimately have to repay to the resellers, we have not recorded a liability for this contingency at this time. The CRTC’s order as drafted would have resulted in a refund of amounts previously billed to the resellers of approximately $195 million, representing the impact on a retroactive basis from March 31, 2016 to September 30, 2020. We estimate the ongoing impact would be between $10 and $15 million per quarter.

Outcome of Proceedings
The outcome of all the proceedings and claims against us, including the matter 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 circumstances change and 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.


Rogers Communications Inc.
23
Third Quarter 2020


Notes to the Interim Condensed Consolidated Financial Statements (unaudited)

NOTE 19: SUPPLEMENTAL CASH FLOW INFORMATION

Change in Non-Cash Operating Working Capital Items
  
Three months ended September 30
 
 
Nine months ended September 30
 
(In millions of dollars)
2020

2019

 
2020

2019

 
 
 
 
 
 
Accounts receivable
(201
)
83

 
425

54

Inventories
(143
)
66

 
(2
)
73

Other current assets
(3
)
(25
)
 
(72
)
(68
)
Accounts payable and accrued liabilities
175

(119
)
 
(341
)
(252
)
Contract and other liabilities
(26
)
(50
)
 
(39
)
(74
)
 
 
 
 
 
 
Total change in non-cash operating working capital items
(198
)
(45
)
 
(29
)
(267
)

NOTE 20: PROPOSED COGECO TRANSACTION

On September 2, Rogers announced we had entered into an agreement with Altice USA, Inc. (Altice USA) whereby we would purchase the Canadian assets of Cogeco Inc. and Cogeco Communications Inc. (collectively Cogeco) if Altice USA is successful in acquiring Cogeco, as outlined in its bid proposal publicly released on September 2. The Boards of Directors of Cogeco rejected the September 2 offer and Cogeco’s controlling shareholder has indicated it does not support the proposed transaction.

On October 18, Altice USA presented a revised offer to Cogeco. If the offer is accepted by Cogeco, Rogers would acquire Cogeco’s Canadian assets for a gross purchase price of $6 billion, less the value of Rogers’ investment in Cogeco of $2.3 billion (which is inclusive of the bid premium), for net cash consideration of $3.7 billion. If a mutually satisfactory agreement or, at the very least, a clear path forward to completion of a transaction, is not reached by November 18, 2020, Altice USA has stated it will withdraw the revised offer. Cogeco's controlling shareholder and Boards of Directors rejected the revised offer. Subsequently, Altice USA and Rogers jointly reaffirmed that should Cogeco’s controlling shareholder and Boards of Directors wish to engage with subordinate shareholders about the offer, the revised offer remains in effect until November 18, 2020.


Rogers Communications Inc.
24
Third Quarter 2020